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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19171
ICOS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 91-1463450
(State of incorporation) (I.R.S. Employer
Identification No.)
22021- 20th Avenue S.E.
Bothell, Washington 98021
(425) 485-1900
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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
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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. [ X ]
State the aggregate market value of voting and non-voting stock held by non-
affiliates of the registrant as of February 29, 2000.
$1,987,781,409
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock as of February 29, 2000.
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Title of Class Number of Shares
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Common Stock, $.01 par value 45,277,767
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the annual meeting
of stockholders to be held on May 4, 2000, relating to "Election of
Directors," "Continuing Class 2 Directors (until 2001)," "Continuing Class 3
Directors (until 2002)," "Other Executive Officers," "Section 16(a) Beneficial
Ownership Reporting Compliance," "Compensation of Directors," "Executive
Compensation," "1999 Option Grants," "1999 Option Exercises and Year-end
Option Values," "Compensation Committee Interlocks and Insider Participation,"
"Employment Contracts, Termination of Employment and Change of Control
Arrangements," "Security Ownership of Certain Beneficial Owners and
Management," and "Certain Relationships and Related Transactions" are
incorporated by reference in Part III of this Form 10-K.
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ICOS CORPORATION
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TABLE OF CONTENTS
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Part I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
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Part II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
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Part III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
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Part IV
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Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports
on Form 8-K
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2
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PART I
Item 1. Business
Overview
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ICOS Corporation ("ICOS" or the "Company"), formed in 1989, is developing
proprietary biopharmaceuticals and small molecule pharmaceuticals for the
treatment of inflammatory diseases and other serious medical conditions.
The Company's fundamental strategy is to identify and develop a significant
number of potential product candidates into breakthrough products with high
commercial potential. By understanding the underlying biochemical and
physiological mechanisms and identifying the cellular and molecular entities
involved in the disease process, ICOS is positioned to develop
biopharmaceutical products that address important opportunities in the
treatment of chronic and acute diseases that have inflammatory components as
well as certain cardiovascular diseases and cancer. Through this strategy, the
Company believes it will be able to develop novel therapeutics that are more
selective and efficacious than current therapeutics.
When used in this discussion, the words "believes," "intends," "anticipates,"
"plans to," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. See "Important Factors Regarding Forward-Looking Statements."
Readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revisions to such forward-
looking statements that may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Long-Range Strategy
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The Company continues to develop a broad portfolio of potential product
candidates encompassing a wide variety of approaches to inflammatory
conditions and other serious diseases. Human disease is a complex and
complicated process involving many physiological and biological components. As
such, the task of developing therapeutics to treat these diseases is difficult
and time-consuming. A large number of product candidates are not successfully
developed because of the inability to prove that they are either safe or
efficacious. In order to compensate for this risk, the Company utilizes a
strategy of developing a number of approaches to the treatment of inflammatory
conditions which encompass a variety of mechanisms and approaches to the
inhibition of inflammation and other disease processes.
Presently, the Company and its affiliates have four product candidates in
clinical trials: IC351, a small molecule product candidate; LeukArrest(TM) and
IC14, each monoclonal antibodies; and Pafase(TM), a recombinant form of a
naturally occurring human serum enzyme. In addition, the Company has several
product candidates in the research and preclinical phases of development. Over
the past few years, the Company has established corporate collaborations to
enhance and optimize the Company's development while maintaining substantial
downstream product rights to potential products, thereby offsetting a
substantial portion of the financial risk of developing these product
candidates. The Company established Lilly ICOS LLC ("Lilly ICOS") in 1998, a
joint venture with Eli Lilly and Company ("Lilly"), to develop the small
molecule product candidate known as IC351 for the treatment of male erectile
dysfunction and female sexual dysfunction. In 1997, the Company established
Suncos Corporation ("Suncos"), a joint venture entity with Suntory Limited of
Japan ("Suntory"), for the development of Pafase(TM). The Company also has a
collaboration with Abbott Laboratories ("Abbott") which was initiated in 1995
in the field of integrins and ICAMs. Each of these collaborations is described
in more depth in the section entitled "Collaborations."
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Description of Programs
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Development Pipeline - Overview
The clinical targets that are the subject of ICOS' discoveries include
diseases whose pathology is a result of the dysfunction of the normal cellular
mechanisms. The Company has discovered important molecules and mechanisms
underlying directed cell adhesion, the inhibition of proinflammatory mediators
and intracellular signal transduction. The chart below summarizes the programs
with compounds currently in clinical development.
ICOS Clinical Development Projects
(Table 1)
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Product Candidate Indication Status (1)
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IC351 Male erectile dysfunction Global phase 3 clinical trials
Female sexual dysfunction Phase 1 clinical trial
LeukArrest(TM) Ischemic stroke Phase 3 clinical trial
Pafase(TM) Acute respiratory distress syndrome Phase 2 clinical trial
Severe acute pancreatitis Phase 2 clinical trial
IC14 Severe sepsis Phase 1 clinical trial
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(1) Status as of March 1, 2000 Phase 1 clinical trial: safety and
pharmacology, dose-determining drug regimen Phase 2 clinical
trial: determination of dose levels and potential efficacy of
drug Phase 3 clinical trial: efficacy and safety determination
IC351
Background
Research over the past two decades has led to a better understanding of how
cells interact to coordinate the growth, maintenance, and function of tissues
in the human body. The key to this interaction is intracellular signal
transduction -- the transmission of a signal from the exterior to the interior
of a cell -- which can result in the activation or suppression of specific
genes, metabolic pathways or specific cellular functions.
Physiologically, the concentrations of two second messenger molecules, cAMP
and cGMP, influence a wide range of cellular functions. The intracellular
concentration of cAMP and cGMP in the cell is generally controlled by the
relative activity of two types of enzymes: cyclases, which produce these
second messengers, and phosphodiesterases, or PDEs, which inactivate these
second messengers.
There are at least 19 human genes that encode more than 40 different PDEs that
can be categorized into at least ten distinct PDE types. The Company has
cloned and expressed a majority of these PDEs, each of which has been shown to
target particular signal transduction pathways. These diverse proteins are
not, however, uniformly expressed and distributed throughout the body, but
rather are found in differing concentrations in different tissues and cells.
This tissue-selective expression may provide opportunities for specific
intervention and development of selective therapeutics that inhibit a single
type of PDE enzyme.
Clinical Application - Male Erectile Dysfunction
IC351, a small molecule compound, which is a phosphodiesterase type 5 (PDE5)
inhibitor, is being evaluated for the treatment of male erectile dysfunction
("MED"), also called impotence, which is estimated to affect 70 million men
worldwide. This condition can be the consequence of several underlying factors
that coexist in patients with MED. PDE5 is part of the signal transduction
system in vascular smooth muscle that acts to control the level of cGMP. IC351
is a potent and selective blocker of PDE5 function. When a guanylyl cyclase in
the vascular smooth muscle cell has been triggered to produce cGMP by an
external signal, IC351 blocks PDE5 preventing it from destroying the cGMP.
Thus, IC351 can be thought of as a contingent agonist, a compound whose action
is contingent upon the presence of a signal triggering a cGMP increase and
reinforces the normal signal. Administration of IC351 is expected to increase
cGMP in the vascular smooth muscle leading to vascular relaxation and corpus
cavenosal blood flow in response to stimuli.
During 1999, a global Phase 3 clinical program was initiated and male patients
were enrolled into pivotal trials that have continued into 2000. An earlier
Phase 2 study evaluated the safety and efficacy of IC351 on-demand in 212 mild
to severe
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MED patients over an eight-week treatment period. The results were consistent
with three other Phase 2 efficacy studies that demonstrated statistically
significant changes relative to placebo for the primary endpoints. The IC351
clinical program has expanded to include the enrollment of females into Phase
1 pharmacokinetic studies to evaluate gender comparisons and drug
interactions. To date, over twenty Phase 1, 2 and 3 clinical trials have been
initiated for the study of male erectile dysfunction.
The compound is being developed by the Company's 50% owned joint venture,
Lilly ICOS, formed in the fourth quarter of 1998. See "Collaborations." Lilly
ICOS will develop and globally commercialize IC351 for the treatment of both
male erectile dysfunction and female sexual dysfunction.
LeukArrest(TM)
Background
The migration of circulating leukocytes into extravascular tissues in the
course of inflammation involves a complex series of events. A critical step
involves the firm attachment of circulating leukocytes to the endothelial
wall. The CD11/CD18 family of cell adhesion molecules found on leukocytes
mediates this adhesive interaction. It is believed that by intervening in the
adhesion process, much of the inflammation-associated damage can be prevented.
Monoclonal antibodies directed to CD11/CD18 adhesion molecules have been shown
to protect against leukocyte-mediated tissue injury by blocking adherence in a
variety of disease models.
LeukArrest(TM) is a recombinant humanized monoclonal antibody developed by
ICOS to block CD11/CD18-mediated cell adhesion in humans. LeukArrest(TM) has
been shown to bind to CD11/CD18 cell adhesion molecules on the surface of
leukocytes and to block subsequent movement into the surrounding tissue. As of
December 31, 1999, approximately 1275 subjects have been enrolled in clinical
trials of LeukArrest(TM) investigating its use as a therapeutic for the
treatment of hemorrhagic shock, ischemic stroke, myocardial infarction and
multiple sclerosis. During 1999, the Company completed Phase 2 studies
evaluating the safety and efficacy of LeukArrest(TM) in hemorrhagic shock and
myocardial infarction and announced the results of a Phase 2 multi-dose
multiple sclerosis study. Each trial was a double-blind, placebo controlled
study that demonstrated that LeukArrest(TM) was safe and well tolerated. The
analyses of the clinical trials with LeukArrest(TM) in myocardial infarction
and multiple sclerosis demonstrated no clinical benefit as compared to
placebo. The results of these two trials do not support further development of
LeukArrest(TM) in these indications. LeukArrest(TM) appeared to inhibit
pulmonary and cardiac dysfunction in hemorrhagic shock patients; however, it
did not result in a demonstrably improved clinical benefit in this study. At
this time, no further study has been planned in hemorrhagic shock.
Clinical Application - Ischemic Stroke
During an ischemic stroke a blood vessel in the brain becomes blocked and
blood flow to a region of the brain is reduced. This ischemia results in
injury and death of the affected tissue. Although the stroke event arises from
the blockage of one or more cerebral blood vessels by a blood clot, a
significant portion of the tissue injury and death is thought to be caused by
neutrophil-mediated inflammatory mechanisms. Upon restoration of blood flow,
leukocytes, in particular neutrophils, become activated and adhere to the
endothelium. Once attached to the endothelial lining these activated
neutrophils release toxins, such as free radicals and proteases, that damage
the endothelium and the surrounding tissue. Data from preclinical studies has
indicated that LeukArrest(TM) inhibits neutrophil functions shown to be
important for neutrophil-induced damage. The Company believes that treating
patients who have suffered a stroke with LeukArrest(TM) may limit the degree
of inflammatory tissue damage and protect significant amounts of brain and
central nervous system (CNS) tissue and, thus, may decrease the extent of
brain damage for these patients.
In January 1999, the Company initiated a Phase 3 clinical trial to evaluate
the efficacy of LeukArrest(TM) in patients suffering from acute ischemic
stroke. Two safety analyses were completed by the end of 1999 and no safety
issues were identified from these analyses. An interim efficacy analysis will
take place after approximately 360 patients have been enrolled. This trial is
designed to treat approximately 800 subjects using a randomized double-blind,
placebo controlled parallel group design. Enrollment of the 800 patients is
scheduled to conclude in the fourth quarter of 2000. LeukArrest(TM) was shown
to be well tolerated in a Phase 2 randomized double-blind, placebo controlled
parallel study in ischemic stroke patients. Data from the Phase 2 study
suggest that LeukArrest(TM) improved neurological outcomes, exhibiting a
higher treatment response rate than did placebo.
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Pafase(TM)
Background
Platelet-activating factor ("PAF") is a potent proinflammatory mediator with
diverse biological effects and is implicated in a number of debilitating
inflammatory conditions, including acute respiratory distress syndrome and
acute pancreatitis. It is produced naturally by a variety of human cells,
including endothelial cells, leukocytes, platelets and mast cells. PAF affects
a variety of cells that are involved in the inflammatory process, including
leukocytes, platelets and vascular endothelial cells, and acts by binding to
specific receptors, thereby increasing the inflammatory response.
Platelet-activating factor acetylhydrolase ("PAF-AH") is a naturally occurring
human serum enzyme that destroys PAF and eliminates its proinflammatory
effects. ICOS is developing Pafase(TM), the recombinant form of PAF-AH, as an
agent for the treatment of diseases characterized by increased PAF activity.
In 1997, the Company formed Suncos to facilitate development and
commercialization of Pafase(TM) for use worldwide. See "Collaborations."
Clinical Application - Acute Respiratory Distress Syndrome ("ARDS")
ARDS is a complication of acute lung inflammation associated with several
clinical conditions including acute pancreatitis, massive blood transfusion,
septic shock, and trauma. There are approximately 650,000 persons at risk for
developing ARDS each year in the United States and of these, approximately
150,000 develop ARDS, for which the mortality rate is approximately 40-50%.
Current therapy for ARDS is supportive.
Pafase(TM) may be effective in patients at risk for ARDS, or in improving the
outcome in patients who have already been diagnosed with ARDS, by inhibiting
the ability of PAF to contribute to lung inflammation. In 1997 and early 1998,
the Company evaluated Pafase(TM) in subjects with trauma and severe sepsis who
were at risk to develop ARDS. An initial Phase 2 trial was designed to
determine the safety, pharmacology and efficacy of Pafase(TM). Pafase(TM)
proved to be well tolerated at all dose levels and patients who received
Pafase(TM) showed improvement in several efficacy parameters compared to
patients who received a placebo. In 1999, patient enrollment was completed in
a Phase 2 clinical trial to further evaluate the safety and efficacy in 240
subjects with trauma and severe sepsis who were at risk to develop ARDS.
Completion of the data analysis is expected by mid-year 2000.
Clinical Application - Pancreatitis
Each year, approximately 40,000 people in the United States suffer from severe
acute pancreatitis. Currently, there is no specific therapy approved to treat
this disease. PAF has been implicated as a mediator of severe acute
pancreatitis. In preclinical models, Pafase(TM) has been demonstrated to
reduce the severity of pancreatitis. In 1999, a Phase 2/3 study was initiated
with patients suffering from severe acute pancreatitis. The study is now
designed to enroll 240 patients instead of 860 patients as was originally
planned and is now a Phase 2 study. The study is evaluating two dose levels of
Pafase(TM) in comparison to placebo and is designed to measure safety and
efficacy, as measured by the reduction of the effects of pancreatitis.
A Phase 2 safety and efficacy study was completed in patients at risk to
develop acute pancreatitis after ERCP (endoscopic retrograde
cholangiopancreatography). This randomized double-blind, placebo controlled
parallel study evaluated two dose levels of Pafase(TM) versus placebo in a
single-dose setting. The results indicated that the drug was safe and well
tolerated, but a treatment effect on the incidence of acute pancreatitis and
the need for hospitalization was not statistically significant. The Company
does not have plans to pursue Pafase(TM) for post-ERCP pancreatitis at this
time.
IC14
Background
Immediately after exposure to bacteria, monocytes, granulocytes, and
endothelial cells in human and animal tissues recognize and respond to the
invading microorganisms in a non-adaptive or "innate" manner. This innate
recognition of bacteria is mediated by CD14, a protein expressed on the
surface of myeloid cells and present in plasma. IC14 is a monoclonal antibody
that binds to CD14 and blocks its interaction with bacterial endotoxins.
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Clinical Application - Severe Sepsis
Bacterial recognition by CD14 and subsequent signal transduction triggers a
vigorous response by myeloid and endothelial cells that promote bacterial
killing at the site of infection. Once activated, these cells upregulate the
expression of adhesion molecules on their surfaces and release a number of
proinflammatory cytokines, lipid mediators, and coagulation factors. In cases
of localized infection, CD14 triggers a localized inflammatory cascade that
promotes bacterial killing at the site of infection. However, in cases of
systemic exposure to bacteria, CD14 triggers a systemic inflammatory cascade
that may lead to potentially life-threatening conditions including the
systemic inflammatory response syndrome, septic shock, and multiple organ
dysfunction syndrome.
Recent strategies to interfere with the innate systemic response to infection
have targeted various proinflammatory mediators, as well as the Gram-negative
bacterial envelope component LPS. To date, these strategies have met with
limited success. For example, monoclonal antibodies and soluble receptors that
target TNF-alpha (tumor necrosis factor alpha) have failed to reduce 28-day
all cause mortality in pivotal clinical trials. Monoclonal antibodies
targeting LPS have also failed. In retrospect, the failure of these strategies
may not be entirely unexpected. Although the strategies mentioned target
important components of the innate response, the components they target are
redundant. For example, TNF-alpha is one of many proinflammatory mediators
released by immune effector cells. Similarly, LPS is one of many bacterial
envelope components capable of triggering the innate response.
In contrast to other potential therapeutic targets, CD14 does not appear to be
a redundant component of the innate response. CD14 not only recognizes a
diverse array of bacterial envelope components, it is directly involved in
activation of multiple cell types including monocytes, macrophages,
granulocytes, endothelial cells, epithelial cells, vascular smooth muscle
cells, and astrocytes. CD14's diverse specificity for bacterial components,
and its unique ability to trigger activation of multiple cell types,
potentially make it an attractive target for blocking the innate systemic
response to infection. IC14 has been shown to block these responses in both in
vitro and in vivo models.
In 1999, the Company conducted an early-stage endotoxin-challenge study in 16
healthy volunteers. IC14 prevented a clinical response to a safe dose of
bacterial endotoxin. The product candidate blocked the release of
proinflammatory cytokines by greater than 95% and substantially reduced the
development of flu-like symptoms including fever, nausea and myalgia. The
Company also completed a Phase 1 safety study in 30 healthy volunteers in 1999
that indicated that IC14 was well tolerated at all doses tested.
ICM3
ICOS' clinical trials during 1999 with ICM3, a monoclonal antibody that
targets the adhesion molecule ICAM-3, confirmed the role of ICAM-3 in T-cell
activation and its importance in the course of psoriasis. The Company is
electing to pursue this disease pathway with small molecule inhibitors of
adhesion instead of ICM3. Preclinical studies will be conducted to evaluate
ICM3 in other disease models.
Research and Discovery Program
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The Company's scientists are also working to identify and develop biological
and synthetic small molecule-based therapeutics designed to exploit the
Company's knowledge of disease mechanisms. The Company has developed a
proprietary in-house, high-throughput small molecule screening program. ICOS
has assembled an extensive library of chemicals consisting of synthetic
organic molecules, through its collaborations and independent compound
acquisitions. This library has been used successfully to identify potential
drug candidates for a number of molecular targets within the Company's
research and development programs.
In addition, the Company has identified a number of molecular and biological
pathways of inflammation and physiological mechanisms important in disease
conditions. The Company is pursuing several biological therapeutic agents and
small molecule drug candidates that show promise as potential products.
Clinical Production Facility
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The Company has manufactured recombinant protein-based clinical materials to
support its previous and current clinical trials in its own production
facility. This facility is capable of utilizing both microbial and
mammalian-based production processes and was designed to meet the U.S. Food
and Drug Administration ("FDA") requirements for the production of marketable
products. The facility is suited for the production of purified recombinant
protein bulk product. As such, the Company anticipates that vialing and other
finishing steps will be completed under contract with other companies. The
Company does not have the facilities necessary for production of small
molecule drugs, including IC351.
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Collaborations
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The Company has entered into arrangements with other parties to access
technology, and to facilitate and fund the development and marketing of
certain of its products.
In April 1995, the Company formed a collaboration with Abbott that seeks to
discover small molecule drugs that modulate the intracellular signaling
connections of certain ICAMs and integrins. In September 1997, ICOS and Abbott
expanded and extended their relationship to include small molecule antagonists
of the extracellular domains of certain integrins and ICAMs. The research
program under which ICOS received research funding from Abbott ended April 1,
1999. Under the terms of the agreement, each company will have exclusive
rights to drugs against specific molecular targets with royalties and
milestone obligations to the other party. Each party will be responsible for
the development, registration and commercialization of its own products. In
addition, the collaboration provided the Company with a library of chemical
compounds for use in its own discovery programs.
In February 1997, the Company and Suntory, as joint venture partners, formed
Suncos to develop and commercialize Pafase(TM) worldwide. Under the terms of
the arrangement, the joint venture was established with a $30.0 million cash
investment by Suntory to Suncos. ICOS licensed, on a worldwide basis, all
rights for Pafase(TM) to Suncos. In exchange, both ICOS and Suntory received
50% ownership in Suncos. Suntory has rights and has agreed to participate in
the development and commercialization of Pafase(TM) in Japan, and ICOS has
similar rights and an agreement with respect to the United States. Suncos is
managed jointly by Suntory and ICOS. Suntory and ICOS will each pay royalties
to Suncos on sales of Pafase(TM) products in their respective territory. In
1999, ICOS and Suntory each made capital contributions of $15.0 million to the
joint venture.
In October 1998, the Company and Lilly formed Lilly ICOS, a 50/50 owned
limited liability company, to develop and globally commercialize PDE5
inhibitors as oral therapeutic agents for the treatment of both male erectile
dysfunction and female sexual dysfunction. Under the terms of the joint
venture agreement, the Company received a license fee of $75.0 million upon
formation of the joint venture, an additional $15.0 million license fee in
1999 upon initiation of a global Phase 3 program and could receive additional
license fee payments based on the progression of IC351 through development.
The joint venture was initially capitalized by Lilly through cash
contributions and the contribution by the Company of intellectual property
associated with IC351 and its research platform. The joint venture will market
products resulting from this collaborative effort in North America and Europe.
For countries outside North America and Europe, products will be licensed
exclusively to Lilly for commercialization with a royalty paid to the joint
venture.
From time to time, the Company enters into research collaborations with
various institutions and scientists to expand ICOS' access to new scientific
developments, technologies and discoveries in certain areas. ICOS has
contracted with several academic, corporate and institutional collaborators to
conduct certain research and development activities relating to the products
discussed herein. The Company has also entered into certain license agreements
with respect to different technologies in addition to the agreements noted
above. ICOS' agreements with these organizations generally provide that the
Company will fund either the research or development of the technology, or
both, and will obtain an exclusive license or option to the technology
developed, subject to certain royalty and other obligations. See "Important
Factors Regarding Forward-Looking Statements."
Research, Product Development and Commercialization Strategies
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ICOS' research and product development efforts comprise three basic stages
prior to commercialization. The initial stage, research, includes early-stage
discoveries through the identification of preclinical targets. During
research, the Company tests candidate molecules in relevant preclinical models
of disease. During the preclinical stage a specific preclinical target is
selected and the research and development project personnel work to establish
a production process. After review of the Investigational New Drug ("IND")
application by the FDA, Phase 1 clinical trials are commenced to determine a
product candidate's safety and pharmacological profile. The Company's Phase 1
clinical trials are frequently designed to support the initiation of multiple
Phase 2 clinical trials for distinct indications. Phase 1 safety and
pharmacology clinical trials may lead to Phase 2 clinical trials designed to
establish the likely therapeutic dose and potential efficacy. ICOS' product
development strategy emphasizes the acquisition of Phase 2 clinical data to
determine a particular product candidate's utility in a specific disease
indication. A drug candidate may then enter Phase 3 clinical trials, where its
efficacy will be verified through additional human clinical trials. Once Phase
3 clinical trials are successfully completed, a Biological License Application
("BLA"), or New Drug Application ("NDA") for small molecule products, is
submitted to the FDA. Product launch and commercialization depend on approval
of the BLA or NDA by the FDA. See "Governmental Regulation."
The Company intends to select specific indications for potential products that
merit study in Phase 3 clinical trials with a view to full commercialization
based on data generated from relevant preceding clinical work and ICOS'
analysis of the best utilization of its resources. The Company does not expect
to conduct Phase 3 clinical trials on all the potential indications for its
products.
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The Company plans to develop the capabilities necessary to bring the promising
products of its research and development activities into the marketplace. If
the Company determines that it is strategically advantageous to enter into a
collaboration with another firm, the Company's preference is to enter into
collaborations with companies where ICOS has the opportunity to share equally
in research and product development and co-promote and share profits from any
products arising from the collaboration. The Company may, however, choose to
license its technology when it is in the Company's best interest. There can be
no assurance that additional joint venture or collaborative arrangements will
be available on terms acceptable to the Company. See "Collaborations."
To support the clinical development of LeukArrest(TM), Pafase(TM) and ICM3
("the Partnership Products"), ICOS formed, and transferred certain of its
rights to the Partnership Products to ICOS Clinical Partners, L.P. ("the
Partnership"). The Partnership completed the sale to private investors of
interests in the Partnership in August 1997. This sale results in net proceeds
to the Partnership of approximately $79.8 million over the three-year period
beginning in August 1997 to fund continued development by the Company of the
Partnership Products. ICOS has the option to purchase all of the limited
partnership interests in the Partnership.
The Company's research and development expenses during 1999, 1998, and 1997
were $100.5 million, $77.0 million, and $42.8 million, respectively.
Competition
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Competition in the pharmaceutical industry is intense and characterized by
rapid technological development. The Company, Suncos and Lilly ICOS will
compete with pharmaceutical companies and biotechnology firms in the United
States, Japan, Europe and elsewhere. Many biotechnology companies have focused
their development efforts in the human therapeutics area, including
inflammatory and other diseases targeted by the Company, and many major
pharmaceutical companies have developed or acquired internal biotechnology
capabilities or have made commercial arrangements with other biotechnology
companies or research institutions.
The Company expects to encounter significant competition for the products it
plans to develop on its own and through its joint ventures. Companies that
complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their products before their competitors may achieve a
significant competitive advantage. A number of biotechnology and
pharmaceutical companies are developing products aimed at the same indications
as those ICOS has targeted. Some of these have entered clinical trials or are
commercially available. Several have been in business longer than ICOS, have
greater financial resources, and have more experience in obtaining and
negotiating with corporate partners. There can be no assurance that research
and discoveries by others will not render the Company's programs or products
uneconomical or result in therapies superior to any therapy developed by the
Company, or that any of the Company's products will be preferred to any
existing or newly developed technologies.
Significant levels of biotechnology research occur in universities and other
nonprofit research institutions. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with ICOS in recruiting skilled scientific talent.
The Company believes that its competitive success will be based on the ability
to create and maintain scientifically advanced technology, develop cost-
effective proprietary products, attract and retain talented and skilled
personnel, obtain patent or other protection for its products, obtain required
regulatory approvals and manufacture and successfully market its products,
either alone or through outside parties. Many of the Company's competitors
have substantially more experience and greater financial, marketing and human
resources than ICOS. See "Important Factors Regarding Forward-Looking
Statements."
Governmental Regulation
- -----------------------
Regulation by governmental authorities in the United States, Europe, Japan and
other foreign countries is a significant factor in the manufacture and
marketing of the Company's potential products and in its ongoing research and
product development activities. Virtually all the Company's products, those of
Suncos, those of Lilly ICOS and those licensed to the Partnership, will
require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval requirements by
the FDA and comparable agencies in foreign countries. The time required for
completing such testing and obtaining such approvals is uncertain. Any delay
in clinical testing may delay product development. In addition, delays or
rejections may be encountered based on changes in FDA or foreign regulatory
policy during the period of product development and testing. Various federal
statutes and regulations also regulate the manufacturing, safety, labeling,
storage, record keeping and marketing of such products. The lengthy process of
obtaining regulatory approvals and ensuring compliance with appropriate
federal statutes and regulations requires the expenditure of substantial
resources. Any delay or failure by ICOS or its collaborators or corporate
9
<PAGE>
partners to obtain regulatory approval could adversely affect the
commercialization of products being developed by the Company or its joint
ventures, the Company's ability to receive product, collaborative research or
royalty revenue and, thus, its liquidity and capital resources.
Preclinical studies are generally conducted in the laboratory to evaluate the
potential efficacy and the safety of a therapeutic product. The results of
these studies are submitted to the FDA as part of an IND application, which
must be reviewed by FDA personnel before clinical testing can begin in the
United States. Once the FDA is satisfied with the submission, the clinical
trials in human subjects can commence. Typically, clinical evaluation involves
three sequential phases, which may overlap. During Phase 1, clinical trials
are conducted with a relatively small number of subjects to determine the
early safety profile of a drug, as well as the pattern of drug distribution
and drug metabolism by the subject. In Phase 2, trials are conducted with
groups of patients afflicted by a specific target disease to determine
preliminary efficacy, optimal dosages, and dosage tolerance and to gather
additional safety data. In Phase 3, large-scale, multicenter comparative
trials are conducted with patients afflicted with a specific target disease to
provide data for the statistical proof of efficacy and safety as required by
the FDA and others. The FDA, the clinical trial sponsor or the investigator
may suspend clinical trials at any time if it believes that clinical subjects
are being exposed to an unacceptable health risk.
The results of preclinical and clinical testing are required to be submitted
to the FDA in the form of an NDA for small molecule products or a BLA for
biological products. In responding to an NDA or BLA, the FDA may grant
marketing approval, request additional information, or deny the application if
the FDA determines that the application does not satisfy its regulatory
approval criteria. There can be no assurance that approvals will be granted on
a timely basis, if at all. The failure to obtain timely permission for
clinical testing or timely approval for product marketing would materially
affect the Company. Product approvals may subsequently be withdrawn if
compliance with regulatory standards is not maintained or if problems are
identified after the product reaches the market. The FDA may require testing
and surveillance programs to monitor the effect of a new product and may
prevent or limit future marketing of the product based on the results of these
postmarketing programs.
Some of the Company's potential products may qualify as orphan drugs under the
Orphan Drug Act of 1983. This act generally provides incentives to
manufacturers to undertake development and marketing of products to treat
relatively rare diseases or diseases where fewer than 200,000 persons annually
in the United States would be likely to receive the treatment. A drug that
receives orphan drug designation by the FDA and is the first product to
receive FDA marketing approval for its product claim is entitled to a seven-
year exclusive marketing period in the United States for that product claim. A
drug that is considered by the FDA to be different from a particular orphan
drug is not barred from sale in the United States during such seven-year
exclusive marketing period.
The Company's policy is to conduct its research activities in compliance with
the National Institute of Health Guidelines for Research Involving Recombinant
DNA Molecules. The Company is also subject to various federal, state and local
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and
the use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with the Company's work. The extent and character of governmental
regulation that might result from future legislation or administrative action
cannot be accurately predicted. See "Important Factors Regarding Forward-
Looking Statements."
Patents and Trade Secrets
- -------------------------
Because of the length of time and expense associated with bringing new
products through development and the governmental approval process to the
marketplace, the pharmaceutical industry has traditionally placed considerable
importance on obtaining and maintaining patent protection for significant new
technologies, products and processes. This is equally true for emerging
biotechnology companies and, as such, the Company has applied, and is
applying, for patents for its products and certain aspects of its
technologies. As of December 31, 1999, the Company had filed over 200 U.S.
patent applications on its own behalf or on behalf of its exclusive licensors.
The United States Patent and Trademark Office has issued patents to ICOS for
91 of these applications.
The enforceability of patents issued to biotechnology and pharmaceutical firms
is highly uncertain. Federal court decisions indicating legal considerations
surrounding the validity of patents in the field are in transition, and there
can be no assurance that the historical legal standards surrounding questions
of validity will continue to be applied or that current defenses as to issued
patents in the field will, in fact, be considered substantial in the future.
In addition, there can be no assurance as to the degree and range of
protection any patents will afford, whether patents will issue or the extent
to which the Company will be successful in not infringing upon patents granted
to others. If certain patents issued to others are upheld or if certain patent
applications filed by others are issued as patents and are upheld, the Company
may be unable to market a product or
10
<PAGE>
may be required to obtain a license to do so. ICOS has entered into
nonexclusive license agreements, and anticipates entering into additional
license agreements in the future, with third parties for technologies that may
be useful or necessary for the manufacture or commercialization of the
Company's products. The Company believes that such additional licenses will be
available on commercially reasonable terms. The Company has initiated
discussions with commercial entities which hold United States patents which
may be needed for some of the Company's activities. There can be no assurance
that such licenses, if required, will be available on acceptable terms, if at
all.
While ICOS pursues patent protection for products and processes where
appropriate, it also relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
The Company's policy is to have each employee enter into an agreement that
contains provisions prohibiting the disclosure of confidential information to
anyone outside the Company. Research and development contracts and
relationships between the Company and its scientific consultants provide
access to aspects of the Company's know-how that is protected generally under
confidentiality agreements with the parties involved. There can be no
assurance, however, that these confidentiality agreements will be honored or
that the Company can effectively protect its rights to its unpatented trade
secrets. Moreover, there can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets. See
"Important Factors Regarding Forward-Looking Statements."
Human Resources
- ---------------
As of December 31, 1999, ICOS employed 392 individuals. Approximately 341 ICOS
employees are engaged in research or development activities and 51 in general
and administrative positions. ICOS considers its employee relations to be
good.
Important Factors Regarding Forward-Looking Statements
- ------------------------------------------------------
The following important 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. Beside
ICOS Corporation, references to the Company in this section also include ICOS
Development Corporation, Suncos, Lilly ICOS and the Partnership.
We have not generated revenues from the sale of products, and we may not be
able to generate enough product revenues in the future to achieve
profitability.
We have not yet completed the development of any products and we do not expect
to have any products commercially available for a couple of years.
Consequently, we have not generated revenues from the sale of products since
we started operations. Our operating expenses increased in 1999 and may
increase in subsequent years as we attempt to complete development of our
potential products and introduce our potential products into the market.
Therefore, even if we do successfully develop products that can be marketed,
we will need to generate significant revenues from those products to achieve
and maintain profitability. If we do become profitable, we cannot be certain
that we can sustain or increase profitability on a quarterly or annual basis.
Our clinical trials may fail to demonstrate the safety and efficacy of our
products, which could prevent or significantly delay the regulatory approval
of our products.
Before obtaining regulatory approvals for the sale of any of our potential
products, we must subject those products to extensive preclinical and clinical
testing to demonstrate their safety and effectiveness for humans. We may not
complete our clinical trials of potential products under development and the
results of the trials may fail to demonstrate the safety or effectiveness of
such products to the extent necessary to obtain regulatory approvals. This
could delay or prevent regulatory approval of our potential products.
At any time during the course of our clinical trials or commercial use of our
products, factors such as delays in patient enrollment in our clinical trials,
the discovery of unacceptable toxicities or side effects, or the development
of disease resistance or other physiological factors could cause us to
interrupt, limit, delay or abort the development or sale of our potential
products.
If we are unable to obtain the additional funding we need to develop and
market our potential products, we may be required to delay, scale back or
eliminate expenditures for some of our programs or contract with third parties
to develop and market our potential products or technologies.
The development of our potential products will require the commitment of
substantial financial resources to conduct the time-consuming research,
preclinical development and clinical trials necessary to bring our products to
market. The Company
11
<PAGE>
anticipates that its existing cash, along with interest income from cash
investments, anticipated payments from Suncos, Lilly ICOS and the Partnership,
and cash flow from other operating activities, will be adequate to satisfy its
cash requirements through 2000. We may seek additional funding through public
or private financings, including equity financings, and through other
arrangements, including collaborative arrangements. However, financing may be
unavailable when we need it or may be unavailable on acceptable terms. If
adequate funds are unavailable, we may be required to delay, scale back or
eliminate expenditures for some of our programs or contract with third parties
to develop and market our potential products or technologies.
If we fail to negotiate and maintain collaborative arrangements with third
parties, our development and marketing activities may be delayed or reduced.
We have entered into, and we expect to enter into in the future, collaborative
arrangements with experienced third parties who perform, or may in the future
perform, development, regulatory compliance, manufacturing and marketing
activities relating to some of our potential products. If we fail to secure
and maintain successful collaborative arrangements, our development and
marketing activities may be delayed or reduced. Currently, we have
collaborative arrangements with Suntory Limited, Eli Lilly and Company, and
other companies and research laboratories. We may enter into similar
arrangements with other collaborators in the future, but we may be unable to
negotiate additional collaborative arrangements or extensions of our existing
arrangements on acceptable terms. If we do, any extended or additional
arrangements may not be successful.
Our ability to obtain and maintain successful collaborative participation will
depend on a number of factors, including the achievement of research
objectives by us and our collaborators and any existing or potential
collaborators' financial, competitive, marketing and strategic considerations,
such as the relative advantages of alternative products being marketed or
developed by others.
We could experience price pressure or reduced demand for our products as a
result of inadequate third party reimbursement of the patient costs of our
products and the trend toward managed healthcare and government insurance
programs.
Our ability to sell products successfully in the future depends in part on the
extent to which various third parties are willing to reimburse the patient
costs of our products and related treatments. These third parties include
government authorities, private health insurers and other organizations, such
as health maintenance organizations. Third party payors are increasingly
challenging the prices charged for medical products and services. Accordingly,
if less costly drugs are available, third party payors may not authorize or
may limit reimbursement for our products, even if our products are safer or
more effective than the alternatives. In addition, the trend toward managed
healthcare and government insurance programs could result in lower prices and
reduced demand for our products. Cost containment measures instituted by
healthcare providers, including, for example, practice protocols and
guidelines for use of products, and general healthcare reform may also affect
our ability to sell products in sufficient quantities, or at adequate prices,
to become profitable. We cannot predict the effect of future legislation or
regulation concerning the healthcare industry and third party coverage and
reimbursement on our business.
We may be unable to establish the manufacturing and sales and marketing
capabilities necessary to become profitable.
Currently, we do not have facilities for the manufacture of small molecule
products, such as IC351, and we may not have sufficient manufacturing capacity
to manufacture all of our biological products in quantities necessary for
commercial sale. In addition, our manufacturing capacity may be inadequate to
complete all clinical trials contemplated by us over time. We expect to
develop our manufacturing capacity by expanding our current facilities,
building new facilities or contracting with other parties for manufacturing
services. We may not, however, be able to acquire all the manufacturing
resources necessary to become profitable.
We also do not have direct sales or marketing capabilities. If we decide to
market our potential products through a direct sales force, we would need to
either hire a sales force with expertise in pharmaceutical sales or contract
with a third party to provide a sales force to meet our needs. We may be
unable to develop a direct sales force or establish other distribution
channels necessary for us to generate enough sales to become profitable.
We may be unable to protect our intellectual property rights adequately.
Our success and ability to compete depend on our licensed and internally
developed technology. Despite our efforts to protect our proprietary rights,
unauthorized parties may copy, develop independently or otherwise obtain and
use our products or technology. We protect our proprietary technology through
a combination of patent, copyright, trade secret and trademark law. We also
enter into confidentiality or license agreements with our employees,
consultants and corporate partners.
12
<PAGE>
We cannot be sure that our pending patent applications will result in issued
patents. In addition, our issued patents or pending applications may be
challenged or circumvented by our competitors. Policing unauthorized use of
our intellectual property will be difficult, and we cannot be certain that we
will be able to prevent misappropriation of our technology, particularly in
countries where the laws may not protect our proprietary rights as fully as in
the United States.
Intellectual property claims and litigation could subject us to significant
liability for damages and invalidation of our proprietary rights.
We may have to resort to litigation to protect our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Any litigation, regardless of its success,
would probably be costly and require significant time and attention of our key
management and technical personnel. Litigation could also force us to stop or
delay selling, manufacturing or using products that incorporate the challenged
intellectual property, pay damages or enter into licensing or royalty
agreements which may be unavailable on acceptable terms.
We may be unable to compete successfully in the highly competitive market for
pharmaceutical and biotechnological products.
The market in which we compete is well established and intensely competitive.
We may be unable to compete successfully against our current and future
competitors. Our failure to compete successfully may result in pricing
reductions, reduced gross margins and failure to achieve market acceptance.
Many entities are engaged in developing pharmaceutical and biotechnological
products for human therapeutic applications, including the applications
targeted by us. Our competitors include pharmaceutical companies, chemical
companies, specialized biotechnology companies, and research and academic
institutions. Many of these organizations have substantially more capital,
research and development, regulatory, manufacturing, marketing, human and
other resources, and experience than we do. As a result, they may be able to
adapt more quickly to new technologies, devote greater resources to the
promotion or sale of their products, initiate or withstand substantial price
competition, or take advantage of acquisition or other opportunities more
readily.
Rapid changes in technology and industry standards could render our potential
products unmarketable or obsolete.
We are engaged in a field characterized by extensive research efforts and
rapid technological development. New drug discoveries and developments in our
field and other drug discovery technologies are accelerating. Our competitors
may develop technologies and products that are more effective than any we
develop or that render our technology and potential products obsolete or
noncompetitive. In addition, our potential products could become obsolete or
unmarketable if new industry standards emerge. To be successful, we will need
to continually enhance our products and to design, develop and market new
products that keep pace with new technological and industry developments.
Government regulatory authorities may not approve our potential products.
The U.S. Food and Drug Administration and comparable agencies in foreign
countries impose substantial requirements on biotechnology and pharmaceutical
companies during development of potential products. These requirements include
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures surrounding the
development and testing of proposed products. Governmental regulation also
affects the manufacture and marketing of pharmaceutical products. If we do not
receive the necessary governmental approvals to market our products, we will
be unable to sell our products and our business may fail.
Any future FDA or other governmental approval of our potential products may
entail limitations on the indicated uses for which these products may be
marketed. The effect of governmental regulation may be to delay marketing new
products for a considerable period of time, to impose costly requirements on
our activities or to provide a competitive advantage to our competitors. In
addition, compliance with the regulations of these agencies may delay or
prevent us from introducing new or improved products or require us to stop
marketing our products. If we fail to comply with the laws and regulations
pertaining to our business, we may be subject to sanctions, including the
temporary or permanent suspension of operations, product recalls and marketing
restrictions.
We may be required to defend lawsuits or pay damages in connection with the
alleged or actual harm caused by our products.
Product liability is a risk in the testing and marketing of biotechnology and
pharmaceutical products. We face an inherent business risk of exposure to
product liability claims in the event that the use of our technology or
products is alleged to have
13
<PAGE>
resulted in harm to others. This risk exists in human clinical trials as well
as in commercial distribution. The biotechnology and pharmaceutical industry
in general has been subject to significant medical malpractice litigation. We
may incur significant liability in the event of such litigation. Although we
maintain product liability insurance, we cannot be sure that this coverage is
adequate or that it will continue to be available on acceptable terms.
We may be exposed to substantial environmental liability arising from our
activities involving the use of hazardous materials.
Our research and development activities involve the controlled use of
hazardous materials, chemicals, viruses and radioactive compounds. In the
event of an accident involving these materials, we could be held liable for
any damages that result, and that liability could exceed our resources. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of hazardous materials and certain
waste products. Although we believe that our operations comply with the
standards prescribed by these laws, the risk of accidental contamination or
injury from these materials cannot be completely eliminated.
We depend on highly qualified management and technical personnel who may not
remain with us.
We are highly dependent on the efforts and abilities of our current key
technical and managerial personnel. Our success will depend in part on
retaining the services of our existing management and key personnel and
attracting and retaining new highly qualified personnel. Failure to retain our
existing key management and technical personnel or to attract additional
highly qualified personnel could, among other things, inhibit our ability to
negotiate additional collaborative arrangements, delay preclinical or clinical
testing of our products, obstruct our ongoing discovery research, or delay the
regulatory approval process.
In our field, competition for qualified management and technical personnel is
intense. This competition is particularly acute at this time due to the low
unemployment rate experienced nationally. In addition, many of the companies
with which we compete for experienced personnel have greater financial and
other resources than we do. As a result of these factors, we may be
unsuccessful in recruiting and retaining sufficient qualified personnel.
Our stock price has been and is likely to continue to be volatile, which could
cause the market price of our common stock to decline.
The market prices for our common stock and for securities of biotechnology and
pharmaceutical companies generally have been volatile in the past and are
likely to continue to be volatile in the future. If you decide to purchase our
shares, you may not be able to resell them at or above the price you paid due
to a number of factors, including actual or anticipated variations in
quarterly operating results, results and progress of preclinical studies and
clinical trials, changes in earnings estimates by analysts, announcements of
technological innovations or new products by our competitors, changes in the
structure of the healthcare financing and payment systems, general conditions
in the biotechnology and pharmaceutical industry, and significant sales of our
common stock by one or more of our principal stockholders.
Item 2. Properties
ICOS leases and/or owns approximately 220,000 square feet of space in five
buildings located in Bothell, Washington, a suburb of Seattle. The Company's
leases expire from 2002 to February 2004, with options to renew for additional
four or five-year periods. The Company's principal administrative offices,
research laboratories, and clinical production facility occupy approximately
190,000 square feet. The Company subleases the remaining 30,000 square feet of
space. In December 1992, the Company purchased approximately seven acres of
undeveloped land adjacent to its leased facilities. This purchase gives the
Company the flexibility to expand in its current geographic location. Over the
next several years, the Company plans to lease or acquire additional
facilities to accommodate the activities and personnel necessary to further
develop its products.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of ICOS' stockholders during the fourth
quarter of its fiscal year ended December 31, 1999.
14
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
ICOS Corporation common stock trades on the Nasdaq Stock Market under the
symbol ICOS. As of February 29, 2000, there were 2,703 holders of record of
common stock, as recorded on the books of the Company's Registrar and Transfer
Agent. The Company has never paid any cash dividends and does not anticipate
paying any cash dividends in the foreseeable future. The Company intends to
retain future earnings and capital for use in its business. The following
table sets forth, for the periods indicated, the high and low sale prices for
the common stock as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
1998 High Low
---- -------- ---------
<S> <C> <C>
First Quarter $19 $12 1/8
Second Quarter 24 1/2 13
Third Quarter 24 2/3 14 5/8
Fourth Quarter 29 7/8 14 3/4
<CAPTION>
1999
----
<S> <C> <C>
First Quarter 38 1/8 24 1/4
Second Quarter 48 1/2 30 1/4
Third Quarter 42 3/4 24
Fourth Quarter 34 25 3/16
</TABLE>
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the consolidated financial statements and notes thereto
included in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $ 79,600 $ 110,768 $ 31,576 $ 2,000 $ 1,500
Operating expenses 105,800 81,009 45,520 32,566 26,521
Other income (expense) (6,995) 2,199 1,929 2,071 1,652
Net income (loss) (33,195) 31,310 (12,015) (28,495) (23,369)
Net income (loss) per
common share - basic (0.76) 0.78 (0.30) (0.77) (0.73)
Net income (loss) per
common share - diluted (0.76) 0.67 (0.30) (0.77) (0.73)
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents, investment
securities and interest
receivable $ 69,254 $ 78,065 $ 25,773 $ 41,820 $ 21,376
Working capital 75,035 71,743 24,536 39,575 17,665
Total assets 112,788 113,347 54,065 58,205 37,735
Stockholders' equity 99,399 98,733 49,872 55,267 33,292
</TABLE>
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Risks and Uncertainties
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes included elsewhere in
this report. This discussion contains forward-looking statements that are
subject to certain
risks and uncertainties including, without limitation, statements of the
Company's plans, objectives, expectations and intentions. The words
"believes," "intends," "anticipates," "plans to," "expects" and similar
expressions are intended to identify forward-looking statements. The Company's
actual results could differ materially from those anticipated or implied by
the forward-looking statements discussed here. Factors that could cause or
contribute to such differences include those discussed under "Important
Factors Regarding Forward-Looking Statements" in Item 1 "Business" above.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Overview
- --------
The Company is discovering and developing proprietary pharmaceuticals for the
treatment of inflammatory diseases and other serious medical conditions.
The Company's fundamental strategy is to identify and develop a significant
number of potential product candidates into breakthrough products with high
commercial potential. By understanding the underlying biochemical and
physiological mechanisms and identifying the cellular and molecular entities
involved in the disease process, the Company is developing biopharmaceutical
products that address important opportunities in the treatment of chronic and
acute diseases that have inflammatory components as well as certain
cardiovascular diseases and cancer. Through this strategy, the Company
believes it will be able to develop novel therapeutics that are more selective
and efficacious than those presently available.
IC351
During 1999, a global Phase 3 clinical program was initiated and male patients
were enrolled into pivotal trials that have continued into 2000. An earlier
Phase 2 study evaluated the safety and efficacy of IC351 on-demand in 212 mild
to severe male erectile dysfunction patients over an eight-week treatment
period. The results were consistent with three other Phase 2 efficacy studies
that demonstrated statistically significant changes relative to placebo for
the primary endpoints. The IC351 clinical program has expanded to include the
enrollment of females into Phase 1 pharmacokinetic studies to evaluate gender
comparisons and drug interactions. To date, over twenty Phase 1, 2 and 3
clinical trials have been initiated in male erectile dysfunction.
LeukArrest(TM)
In January 1999, the Company initiated a Phase 3 clinical trial to evaluate
the efficacy of LeukArrest(TM) in patients suffering from acute ischemic
stroke. Two safety analyses were completed by the end of 1999 and no safety
issues were identified from these analyses. An interim efficacy analysis will
take place after approximately 360 patients have been enrolled. This trial is
designed to treat approximately 800 subjects, using a randomized double-blind,
placebo controlled parallel group design. Enrollment in this trial is
scheduled to conclude in the fourth quarter of 2000. LeukArrest(TM) was shown
to be well tolerated in a Phase 2 randomized double-blind, placebo controlled
parallel study in ischemic stroke patients. Data from the Phase 2 study
suggest that LeukArrest(TM) improved neurological outcomes, exhibiting a
higher treatment response rate than did placebo.
During 1999, the Company completed Phase 2 studies evaluating the safety and
efficacy of LeukArrest(TM) in hemorrhagic shock and myocardial infarction and
announced the results from a Phase 2 multi-dose multiple sclerosis study. Each
trial was a double-blind, placebo controlled study that demonstrated that
LeukArrest(TM) was safe and well tolerated. The analyses of the clinical
trials with LeukArrest(TM) in myocardial infarction and multiple sclerosis
demonstrated no clinical benefit as compared to placebo. The results of these
two trials do not support further development of LeukArrest(TM) in these
indications. LeukArrest(TM) appeared to inhibit pulmonary and cardiac
dysfunction in hemorrhagic shock patients; however, it did not result in a
demonstrably improved clinical benefit in this study. At this time, no further
study has been planned in hemorrhagic shock.
Pafase(TM)
In 1999, patient enrollment was completed in a Phase 2 clinical trial to
evaluate the safety and efficacy of Pafase(TM) in 240 subjects with trauma and
severe sepsis who were at risk to develop acute respiratory distress syndrome.
Completion of the data analysis is expected in the first half of 2000. Also in
1999, a Phase 2 study, initially begun as a Phase 2/3 study, was initiated
with patients suffering from severe acute pancreatitis. The study is
evaluating two dose levels of Pafase(TM) in comparison to placebo and is
designed to measure safety and efficacy and measure the compound's use to
reduce the effects of pancreatitis. A Phase 2 safety and efficacy study was
completed in patients at risk to develop acute pancreatitis after ERCP
16
<PAGE>
(endoscopic retrograde cholangiopancreatography). This randomized double-
blind, placebo controlled parallel study evaluated two dose levels of
Pafase(TM) versus placebo in a single dose setting. The results indicated that
the drug was safe and well tolerated, but a treatment effect on the incidence
of acute pancreatitis and the need for hospitalization was not statistically
significant. The Company does not have plans to pursue Pafase(TM) for post-
ERCP pancreatitis at this time.
IC14
In 1999, the Company conducted an early-stage endotoxin-challenge study in 16
healthy volunteers. IC14 prevented a clinical response to a safe dose of
bacterial endotoxin. The product candidate blocked the release of pro-
inflammatory cytokines by greater than 95% and substantially reduced the
development of flu-like symptoms including fever, nausea and myalgia. The
Company also completed a Phase 1 safety study in 30 healthy volunteers in 1999
that indicated IC14 was well tolerated at all doses.
Results of Operations
- ---------------------
Year Ended December 31, 1999, Compared With Year Ended December 31, 1998
Revenue for the year ended December 31, 1999, totaled $79.6 million compared
to $110.8 million for the year ended December 31, 1998. Current year revenue
included $15.0 million in license fees from Lilly ICOS LLC ("Lilly ICOS") as a
result of the initiation of a global Phase 3 clinical trial for IC351. The
Company may receive future license fee payments from Lilly ICOS based on the
progression of IC351 through development. Revenue for 1999 also included cost
reimbursement of $25.1 million from Suncos Corporation ("Suncos"), $19.1
million from ICOS Clinical Partners L.P. ("the Partnership"), $19.9 million
from Lilly ICOS and $0.5 million received under the Company's research and
development agreement with Abbott Laboratories ("Abbott"). Revenue for the
year ended December 31, 1998, was comprised of a $75.0 million license fee
payment upon the formation of the Company's joint venture with Eli Lilly and
Company ("Lilly") as well as cost reimbursement of $14.9 million from Suncos,
$15.1 million from the Partnership, $3.8 million from Lilly ICOS, and $2.0
million received under the Company's research and development agreement with
Abbott. The increase in cost reimbursement revenue in 1999 compared to 1998
was primarily the result of the progression of the Company's clinical trial
and development activities during the current year.
Total operating expenses for 1999 increased 31% to $105.8 million from $81.0
million in 1998. Research and development expense increased 31% to $100.5
million in 1999 from $77.0 million in 1998. The increase in research and
development expense was primarily related to the progression of clinical
trials for IC351, LeukArrest(TM), Pafase(TM), and IC14 as well as the
expansion of other product development efforts. General and administrative
expenses increased 30% to $5.3 million in 1999 from $4.0 million in 1998
reflecting the addition of management and administrative personnel to support
the Company's product development activities and costs incurred to register
the Series B warrants issued pursuant to the Company's agreement with the
Partnership.
During 1999, the Company recognized $12.0 million in losses related to its
equity interests in Suncos and the Partnership compared to $0.2 million in
1998. In 1999, the Company made an equity investment in Suncos of $15.0
million and recorded approximately $11.8 million as its share of Suncos'
current year net loss. Prior to 1999, the Company's equity investment in
Suncos had a zero basis for financial reporting purposes, and, accordingly, no
loss was recognized. The Company's investment in Lilly ICOS had a zero basis
for financial reporting purposes at December 31, 1999. The Company will not
report its share of Lilly ICOS' results of operations until such time, if
ever, that the Company makes capital contributions to Lilly ICOS and
recognizes a cost basis related to the joint venture. Equity interests in
affiliate net losses are primarily related to the continued progression of the
Company's clinical trial activity.
Investment income for 1999 increased $1.9 million to $4.3 million compared
with $2.4 million in 1998. The increase was attributable to higher average
cash available for investment in 1999 compared to the prior year.
As a result of the above, the Company reported a net loss of $33.2 million, or
$0.76 per share, for the year ended December 31, 1999, compared to net income
of $31.3 million, or $0.67 per share, for the year ended December 31, 1998.
Year Ended December 31, 1998, Compared With Year Ended December 31, 1997
Revenue for the year ended December 31, 1998, totaled $110.8 million compared
to $31.6 million for the year ended December 31, 1997. Revenue for 1998
included a license fee payment of $75.0 million upon formation of the Lilly
ICOS joint venture in addition to cost reimbursement of $14.9 million from
Suncos, $15.1 million from the Partnership, $3.8 million from Lilly ICOS, and
$2.0 million received under the Company's research and development agreement
with Abbott. Revenue for the year ended December 31, 1997, totaled $31.6
million and consisted of $18.4 million from the
17
<PAGE>
Partnership, $11.2 million in cost reimbursement revenue from Suncos, and $2.0
million received under the Company's agreement with Abbott. The revenue from
the Partnership in 1997 included both a one-time license fee and reimbursement
for development costs incurred by the Company on behalf of the Partnership.
The increase in cost reimbursement revenue in 1998 compared to 1997 was
primarily due to the progression of the Company's clinical trial and
development activities.
Total operating expenses for 1998 increased 78% to $81.0 million from $45.5
million in 1997. Research and development expense increased 80% to $77.0
million in 1998 from $42.8 million in 1997. The increase in research and
development expense was due primarily to costs related to the progression of
clinical trials for IC351, LeukArrest(TM), Pafase(TM), ICM3, the commencement
of clinical trials for IC14, and the expansion of other product development
efforts. General and administrative expenses increased 47% to $4.0 million in
1998 from $2.7 million in 1997 due primarily to the addition of personnel to
support research and development activities and costs related to the
establishment of the joint venture with Lilly.
Investment income for 1998 was $2.4 million compared with $2.2 million in
1997.
A provision for Federal income taxes of $0.6 million was recorded in 1998 for
alternative minimum tax on the Company's earnings.
As a result of the above, the Company reported net income of $31.3 million, or
$0.67 per share, for the year ended December 31, 1998, compared to a net loss
of $12.0 million, or $0.30 per share, for the year ended December 31, 1997.
The Company's results of operations may vary significantly from period to
period and will depend, among other factors, on the timing of certain
expenses, payments received on certain research collaborations, and the
progress of the Company's research and development efforts. The Company may
experience significant fluctuations in both cost reimbursement revenue and
license fee revenue from one period to the next. Due to the nature of the
Company's collaborative agreements, cost reimbursement revenue is largely
dependent upon the continued progression of clinical trial and development
activities. Cost reimbursement revenue includes revenue recognized pursuant to
the Company's Product Development Agreement ("the Agreement") with the
Partnership. Proceeds received under the Agreement are apportioned between
collaborative research and development revenue from related parties and
additional paid-in-capital. The amount recognized as revenue under the
Agreement is based upon a relationship between costs incurred and available
funding. As of December 31, 1999, there remained approximately $11 million
available to be recognized as revenue under the Agreement through March 31,
2001. License fee revenue may be tied to the achievement of certain research
and development objectives or milestones and may also depend upon the success
of the Company's clinical trial and development efforts.
The Company's operating expenses may continue to increase during 2000 and
subsequent years as it adds the personnel and facilities associated with
advancing potential product candidates through development and clinical trials
and prepares for the commercial launch of its potential products. Foreseeable
incremental expenses may include, but are not limited to, those associated
with the Company's own pre-marketing activities, product development,
preclinical studies and clinical trials, patent filings and administrative
activities. The Company may also incur costs and make capital contributions
under its joint venture agreements with Suntory and Lilly related to the
development of Pafase(TM) and IC351, respectively. Some of these expenses are
to be reimbursed by Suncos, the Partnership or Lilly ICOS and are recognized
as revenue from collaborative research and development from related parties in
the Company's Consolidated Statements of Operations. In addition, the clinical
and development activities of the Company's equity affiliates are not entirely
within the Company's control. Significant changes in affiliate activities
could be cause for fluctuations in the Company's share of affiliate losses
from period to period.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had $69.3 million in cash and cash
equivalents, investment securities and interest receivable compared to $78.1
million at December 31, 1998.
The Company used $22.2 million in cash for operating activities in 1999
compared to generating $39.8 million in cash from operating activities in
1998. In 1998, the Company received a license fee payment of $75.0 million in
connection with the formation of the Lilly ICOS joint venture, which had a
favorable effect on that period's operating cash flow. During 1999, the
Company received $15.0 million in additional license fees from the Lilly ICOS
joint venture. Excluding the license fees noted above, the Company's operating
cash outflow increased by approximately $2.0 million to $37.2 million used in
operating activities during 1999 as compared to $35.2 million during 1998. The
primary operating uses of cash in both periods relate to the Company's
clinical trial activity and the expansion of certain research and development
programs.
During 1999, the Company used $68.2 million in cash for investing activities
compared to generating $10.6 million from investing activities in 1998.
Significant investing activities during 1999 included a $47.3 million net
increase in the Company's short-term investment portfolio and $15.2 million in
equity contributions to Suncos and the Partnership. In
18
<PAGE>
addition, the Company invested $6.0 million in property, plant and equipment
in support of its research and development efforts in 1999 as compared to $5.3
million in 1998. At December 31, 1999, the Company held a $7.3 million
interest-bearing note with full recourse to the Partnership. Management
anticipates that the loan will be paid in full when it matures on June 1,
2000.
The Company generated $33.7 million in cash from financing activities in 1999
compared to $17.8 million in 1998. During 1999, the Company received $22.9
million from the exercise of warrants associated with the formation of the
Partnership compared to $12.3 million in 1998. Other significant sources of
cash in 1999 included the receipt of approximately $6.9 million related to
stock option exercises and $3.8 million in equity payments received from the
Partnership. At December 31, 1999, warrants to purchase approximately 11.4
million shares were outstanding at a weighted-average exercise price of $38.00
per share. Proceeds upon receipt of warrant exercises are largely uncertain,
and there can be no assurance that such funds will be available to the Company
in future periods.
The Company's future cash requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
results of clinical trials and preclinical studies, acquisitions of products
or technology, if any, relationships with corporate collaborators, competing
technological and market developments, the time and costs involved in filing
and prosecuting patents and enforcing patent claims, the regulatory process,
the time and costs of manufacturing scale-up and commercialization activities
and other factors. The amounts and timing of expenditures will depend on the
progress of ongoing research and development, the rate at which operating
losses are incurred, the execution of development and licensing agreements
with potential corporate partners, the Company's development of products, the
Food and Drug Administration regulatory process, and other factors, many of
which are beyond the Company's control.
The Company has been successful in negotiating collaborations and joint
development agreements with other parties where the work and strategies of the
other parties complement those of the Company. In some instances, these
relationships may involve commitments by the Company to fund some or all of
certain development programs. Although corporate collaborations, partnerships
and joint ventures have provided cost reimbursement revenue to the Company in
the past, there can be no assurance that such funds will be available to the
Company in the future.
The Company anticipates that its existing cash, along with interest income
from cash investments, anticipated payments from Suncos, Lilly ICOS and the
Partnership, and cash flow from other operating activities, will be adequate
to satisfy its cash requirements through 2000. However, going forward the
Company intends to expand its operations and hire the additional personnel
necessary to continue development of its current portfolio of product
candidates in clinical trials, as well as continue discovery and preclinical
research to identify additional potential drug candidates. The Company
anticipates that expansion of these activities will increase operating
expenses in future periods beyond 2000. Further, incremental expenditures will
be required for additional laboratory, production, and office facilities to
accommodate activities and the personnel associated with this increased
development effort. The Company will need to raise additional funds in order
to continue to conduct the research and development activities, preclinical
studies, clinical trials and pre-marketing activities necessary to bring its
product candidates to market and to establish marketing capabilities if and
when a product candidate is ready for commercialization.
Year 2000
- ---------
The Company completed its Year 2000 remediation plan by the end of 1999, and
has not experienced any significant disruptions to its financial or operating
activities caused by failure of its computerized systems resulting from Year
2000 issues. Furthermore, the Company has no information that indicates a
significant vendor or service provider has experienced any significant
disruptions to their financial or operating activities such that they would be
unable to provide goods or services to the Company.
New Accounting Bulletin
- -----------------------
The United States Securities and Exchange Commission recently issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which the Company intends to adopt in its first fiscal quarter in
2000. The interpretation of SAB No. 101 is currently uncertain as it relates
to biotechnology companies and, consequently, the impact on the Company's
financial statements is unknown. The Company is in the process of determining
the potential impact on its financial statements.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts payable and a note receivable from a related
party. The Company does not use derivative financial instruments in its
investment portfolio. The Company's exposure to market risk for changes in
interest rates relates primarily to its short-term investments, thus,
fluctuations in interest rates would not have a material impact on the fair
value of these securities.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Financial Statements Page in Form 10-K
--------------------------------- -----------------
<S> <C>
Independent Auditors' Report 21
Consolidated Balance Sheets at December 31, 1999 and 1998 22
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998, and 1997 23
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998, and 1997 24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997 25
Notes to Consolidated Financial Statements 26-36
</TABLE>
All consolidated financial statement schedules have been omitted since the
information is not required or because the information required is included in
the consolidated financial statements or the notes thereto.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ICOS Corporation:
We have audited the accompanying consolidated balance sheets of ICOS
Corporation and subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ICOS
Corporation and subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Seattle, Washington
January 21, 2000
21
<PAGE>
ICOS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(in thousands)
-------------------
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,885 $ 69,584
Investment securities, at market value 55,349 8,090
Interest receivable 1,020 391
Receivables from related parties under collaborative
arrangements 9,780 7,524
Loan receivable from related party 7,341 -
Other receivables 454 267
Prepaid expenses 1,595 501
--------- --------
Total current assets 88,424 86,357
Net property and equipment, at cost 21,042 19,576
Loan receivable from related party - 7,341
Investments in affiliates, at equity 3,241 64
Other assets 81 9
--------- --------
$ 112,788 $113,347
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,854 $ 6,080
Accrued payroll and benefits 3,565 1,005
Accrued clinical expenses 3,409 5,686
Other accrued expenses 1,561 1,195
Federal income taxes payable - 648
--------- --------
Total current liabilities 13,389 14,614
Stockholders' equity:
Preferred Stock, $.01 par value. Authorized 2,000,000
shares; none issued - -
Common Stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 44,759,052 at
December 31, 1999 and 41,482,043 at December 31,
1998 448 415
Additional paid-in capital 223,477 189,436
Accumulated other comprehensive loss (216) (3)
Accumulated deficit (124,310) (91,115)
--------- --------
Total stockholders' equity 99,399 98,733
--------- --------
$ 112,788 $113,347
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
ICOS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per
share data)
---------------------------
Year Ended December 31,
---------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Revenue:
Collaborative research and development from
related parties $ 64,100 $33,758 $ 21,076
License of technology to related parties 15,000 75,000 8,500
Other 500 2,010 2,000
-------- ------- --------
Total revenue 79,600 110,768 31,576
Operating expenses:
Research and development 100,541 76,978 42,783
General and administrative 5,259 4,031 2,737
-------- ------- --------
Total operating expenses 105,800 81,009 45,520
-------- ------- --------
Operating income (loss) (26,200) 29,759 (13,944)
-------- ------- --------
Other income (expense):
Equity in losses of affiliates (12,042) (191) (226)
Investment income 4,292 2,369 2,164
Other, net 755 21 (9)
-------- ------- --------
Net other income (expense) (6,995) 2,199 1,929
-------- ------- --------
Net income (loss) before income taxes (33,195) 31,958 (12,015)
Income taxes - current - 648 -
-------- ------- --------
Net income (loss) $(33,195) $31,310 $(12,015)
======== ======= ========
Net income (loss) per common share - basic $ (0.76) $ 0.78 $ (0.30)
======== ======= ========
Net income (loss) per common share - diluted $ (0.76) $ 0.67 $ (0.30)
======== ======= ========
Weighted average common shares outstanding -
basic 43,449 40,139 39,595
======== ======= ========
Weighted average common shares outstanding -
diluted 43,449 46,849 39,595
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
ICOS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------------
Accumulated
Additional other Total
Common paid-in comprehensive Accumulated stockholders'
Stock capital income (loss) deficit equity
------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December
31, 1996 $394 $165,273 $ 10 $(110,410) $55,267
Comprehensive income
(loss):
Net loss - - - (12,015) (12,015)
Unrealized gains on
investment
securities:
Unrealized holding
gains arising during
the year 13 - 13
Less: reclassification
adjustment for gains
included in net loss (4) - (4)
----- --------- -------
Total comprehensive
income (loss) 9 (12,015) (12,006)
Issuance of 467,661
shares of Common Stock
from exercise of
options 5 2,525 - - 2,530
Value of warrants
issued to ICOS
Clinical Partners,
L.P. - 4,081 - - 4,081
- -----------------------------------------------------------------------------------
Balances at December
31, 1997 399 171,879 19 (122,425) 49,872
Comprehensive income
(loss):
Net income - - - 31,310 31,310
Unrealized gains on
investment
securities:
Unrealized holding
gains arising during
the year 6 - 6
Less: reclassification
adjustment for gains
included in net
income (28) - (28)
----- --------- -------
Total comprehensive
income (loss) (22) 31,310 31,288
Issuance of 292,429
shares of Common Stock
from exercise of
options 3 1,950 - - 1,953
Issuance of 1,304,200
shares of Common Stock
from exercise of
warrants 13 12,260 - - 12,273
Value of warrants
issued to ICOS
Clinical Partners,
L.P. - 3,347 - - 3,347
- -----------------------------------------------------------------------------------
Balances at December
31, 1998 415 189,436 (3) (91,115) 98,733
Comprehensive loss:
Net loss - - - (33,195) (33,195)
Unrealized losses on
investment
securities:
Unrealized holding
losses arising during
the year (216) - (216)
Less: reclassification
adjustment for losses
included in net loss 3 - 3
----- --------- -------
Total comprehensive
loss (213) (33,195) (33,408)
Issuance of 860,909
shares of Common Stock
from exercise of
options 9 6,953 - - 6,962
Issuance of 2,416,100
shares of Common Stock
from exercise of
warrants 24 22,839 - - 22,863
Value of warrants
issued to ICOS
Clinical Partners,
L.P. - 4,249 - - 4,249
- -----------------------------------------------------------------------------------
Balances at December
31, 1999 $448 $223,477 $(216) $(124,310) $99,399
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
ICOS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
----------------------------
Year Ended December 31,
----------------------------
<S> <C> <C> <C>
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $(33,195) $ 31,310 $(12,015)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,539 3,459 3,678
Amortization of investment
premiums/discounts (516) (320) (570)
(Gain) loss on sale of investment
securities 14 (28) (4)
Equity in losses of affiliates 12,042 191 226
Change in operating assets and liabilities:
Interest receivable (629) 133 (375)
Receivables from related parties under
collaborative arrangements (1,855) (5,435) (2,089)
Other receivables (187) (90) (84)
Prepaid expenses (1,094) 8 91
Accounts payable (1,226) 3,888 1,008
Accrued payroll, benefits and other
accrued expenses (647) 7,352 76
Federal income taxes payable 648 (648) -
Other (66) - -
-------- -------- --------
Net cash provided by (used in) operating
activities (22,172) 39,820 (10,058)
-------- -------- --------
Cash flows from investing activities:
Purchases of investment securities (80,844) (17,421) (41,644)
Maturities of investment securities 24,908 7,000 31,978
Sales of investment securities 8,966 26,502 25,916
Acquisitions of property and equipment (6,011) (5,256) (5,830)
Loan receivable from related party - - (7,341)
Equity investments in affiliates (15,219) (218) (197)
Other - (1) (9)
-------- -------- --------
Net cash provided by (used in) investing
activities (68,200) 10,606 2,873
-------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and
warrants 29,825 14,226 2,530
Proceeds from issuance of warrants 3,848 3,528 3,900
-------- -------- --------
Net cash provided by financing activities 33,673 17,754 6,430
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (56,699) 68,180 (755)
Cash and cash equivalents at beginning of
year 69,584 1,404 2,159
-------- -------- --------
Cash and cash equivalents at end of year $ 12,885 $ 69,584 $ 1,404
======== ======== ========
Supplemental disclosure concerning cash flow
information:
Acquisition of property and equipment
financed through accounts payable $ - $ - $ 171
Receivable for issuance of warrants 401 - 181
Cash paid during the year for income taxes 648 - -
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
ICOS CORPORATION
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(dollars in thousands, except per share data or as otherwise noted)
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
ICOS Corporation and subsidiary (the "Company") is discovering and
developing new pharmaceutical candidates by seeking points of
intervention in the inflammatory process that may lead to more
specific and efficacious drugs. The Company's research and drug
development programs involve both chronic and acute conditions.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, ICOS Development Corporation.
All significant intercompany transactions and balances have been
eliminated in consolidation.
(c) Use of Estimates in the Preparation of Financial Statements
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 and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, short-term investments, accounts payable and a note
receivable from a related party. The Company's cash and cash
equivalents and short-term investments are diversified among security
types and issuers, and approximate fair value. The Company's other
financial instruments are short-term and/or have little or no risk and
therefore are considered to have fair value equal to book value. The
Company does not have derivative financial instruments in its
investment portfolio.
(e) Cash and Cash Equivalents
All highly liquid short-term investments purchased with a maturity of
three months or less are considered to be cash equivalents.
Investments in cash and cash equivalents consist primarily of
investments in money market accounts and corporate debt securities.
(f) Investment Securities
The Company's investment securities are classified as available-for-
sale and carried at market value, based on quoted market prices, with
unrealized gains and losses excluded from results of operations and
reported as a component of total comprehensive income (loss) in the
Consolidated Statements of Stockholders' Equity. Gross realized gains
and losses on sales of investment securities are determined on the
specific identification method and included in investment income.
(g) Property and Equipment
Property and equipment are stated at cost. Significant additions and
improvements to property and equipment are capitalized. Maintenance
and repair costs are expensed as incurred. Depreciation of furniture
and equipment is provided on the straight-line method over the
assets' estimated useful lives of three to five years. The Company
owns one building which is being depreciated over its estimated
remaining economic life of ten years. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the
lease. Building improvements are amortized over the shorter of their
useful lives or the remaining economic life of the building.
(h) Investments in Affiliates
Investments in ICOS Clinical Partners, L.P. ("the Partnership"),
Suncos Corporation ("Suncos") and Lilly ICOS LLC ("Lilly ICOS") are
accounted for using the equity method. Accordingly, the investments
are recorded at cost, adjusted for the Company's share of income or
losses of the entities.
26
<PAGE>
(i) Revenue Recognition
For contracts under which the Company is reimbursed for research and
development efforts, revenue is recognized as the related expenses are
incurred. Payments received that are related to future performance are
deferred and recognized as revenue over the specified future
performance periods.
(j) Research and Development Costs
Research and development costs are charged to expense as incurred.
(k) Income Taxes
Income taxes are accounted for using the asset and liability method
whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributed to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and loss carryforwards and
tax credits. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
(l) Net Income (Loss) Per Common Share
Basic net income (loss) per common share is based on the weighted-
average number of common shares outstanding during the period. Diluted
net income (loss) per common share is based on the potential dilution
that would occur on exercise or conversion of securities into common
stock using the treasury stock method. Common shares that are
considered to be antidilutive are excluded from the computation of
diluted net income (loss) per common share. Securities included in the
Company's calculation of diluted net income (loss) per common share
include outstanding stock options, stock warrants and contingently
issuable stock warrants.
(m) Stock Based Compensation
The Company applies the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its employee stock option
grants. Accordingly, the Company does not recognize compensation
expense for fixed options granted to employees with an exercise price
equal to or in excess of the fair value of common shares at the date
of grant. The Company has provided pro forma net income (loss) and pro
forma net income (loss) per share disclosures as if compensation cost
had been determined based on the method defined in Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock
Based Compensation.
(n) Operating Segments
The Company's operations are confined to one operating segment, the
discovery and development of proprietary pharmaceuticals for the
treatment of inflammatory diseases and other serious medical
conditions.
(o) New Accounting Bulletin
The United States Securities and Exchange Commission recently issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements, which the Company intends to adopt in its first
fiscal quarter in 2000. The interpretation of SAB No. 101 is currently
uncertain as it relates to biotechnology companies and consequently,
the impact on the Company's financial statements is unknown. The
Company is in the process of determining the potential impact on its
financial statements.
(p) Reclassifications
Certain amounts reported in previous years have been reclassified to
conform to the 1999 presentation.
(2) Financing
The Company anticipates that its existing cash, along with interest income
from cash investments, anticipated payments from Suncos, Lilly ICOS and the
Partnership, and cash flow from other operating activities, will be
sufficient to fund its cash requirements through 2000. However, the amounts
and timing of expenditures will depend on the progress of ongoing research
and development, the rate at which operating losses are incurred, the
execution of development and
27
<PAGE>
licensing agreements with potential corporate partners, the Company's
development of products, the Food and Drug Administration regulatory
process, and other factors, many of which are beyond the Company's control.
The Company's existing capital resources and collaborative arrangements
will not be sufficient to fund the Company's operations through
commercialization of its first product. Accordingly, the Company will need
to raise substantial additional funds for its programs. The Company is
currently evaluating several financing alternatives, some of which may
involve the sale of additional equity, commencement of additional corporate
partnerships and other methods of raising capital from public, private, and
corporate sources. The Company anticipates completion of one or more of
these financing events during 2000.
(3) Investment Securities
The following table summarizes the Company's investment securities at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Market value gains losses Amortized cost
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
December 31, 1999:
Corporate debt securities $47,929 $11 $145 $48,063
U.S. government agency
mortgage-backed
securities 7,420 - 82 7,502
------- --- ---- -------
Total $55,349 $11 $227 $55,565
======= === ==== =======
December 31, 1998:
Corporate debt securities $ 8,090 $ - $ 3 $ 8,093
======= === ==== =======
</TABLE>
Amortized cost and estimated market value of debt securities at December
31, 1999, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Market value Amortized cost
------------ --------------
<S> <C> <C>
Maturing within:
---------------
1 year $44,786 $44,874
2 years $10,563 $10,691
</TABLE>
Actual maturities may be different from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Investment income includes interest of $4.3 million, $2.3 million and $2.2
million earned on investments for 1999, 1998 and 1997, respectively, and
capital gains (losses) of $(14), $28 and $4 for 1999, 1998 and 1997,
respectively.
(4) Receivables from Related Parties Under Collaborative Arrangements
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
<S> <C> <C>
-------------
Due from Suncos $1,894 $3,522
Due from the Partnership 2,215 -
Due from Lilly ICOS 5,649 3,795
Other 22 207
------ ------
$9,780 $7,524
====== ======
</TABLE>
28
<PAGE>
(5) Net Property and Equipment, at Cost
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
<S> <C> <C>
----------------
Land $ 2,310 $ 2,310
Buildings and improvements 10,057 9,461
Leasehold improvements 9,820 9,805
Furniture and equipment 23,641 18,865
------- -------
45,828 40,441
Less accumulated depreciation and amortization (24,889) (21,135)
------- -------
20,939 19,306
Construction in progress 103 270
------- -------
$21,042 $19,576
======= =======
</TABLE>
(6) Accrued Payroll and Benefits
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
<S> <C> <C>
-------------
Accrued vacation and other compensation $1,214 $ 901
Accrued payroll taxes 2,014 16
Other 337 88
------ ------
$3,565 $1,005
====== ======
</TABLE>
(7) Leases
The Company leases certain property and equipment under noncancellable
operating leases that expire through 2004. Many of the Company's leases
contain renewal options and clauses for escalations of rent and payment of
real estate taxes, maintenance, insurance and certain other operating
expenses of the properties.
Total rent expense was $3.4 million, $1.6 million and $1.6 million for
1999, 1998 and 1997, respectively.
Future minimum lease payments under noncancellable operating leases,
excluding provision for annual increases tied to the consumer price index,
are as follows:
<TABLE>
<S> <C>
2000 $ 3,095
2001 3,154
2002 2,822
2003 2,265
2004 189
-------
Total minimum lease payments $11,525
=======
</TABLE>
During 1999, the Company began subleasing certain property to others under
short-term operating leases expiring in 2001 and 2002, with options to
extend the leases through 2003 and 2004. Total rent expense presented above
has not been reduced by sublease income totaling $682 in 1999. Similarly,
minimum lease payments indicated above do not reflect minimum rentals of
$1,348 due in the future under noncancellable subleases.
29
<PAGE>
(8) Federal Income Taxes
Income tax expense (benefit) on income (loss) before income taxes differs
from the amount of income tax expense (benefit) as computed by applying the
U.S. federal income tax rate to pre-tax income (loss) as a result of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Estimated federal income tax expense
(benefit) $(11,286) $10,866 $(4,085)
Value of warrants issued to the Partnership 1,445 1,139 1,345
Research and experimentation tax credit
carryforwards (843) (1,271) (710)
Change in valuation allowance excluding
intraperiod items 10,646 (10,182) 3,297
Other 38 96 153
-------- ------- -------
$ - $ 648 $ -
======== ======= =======
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
<S> <C> <C>
------------------
Depreciation $ 4,272 $ 3,488
Net operating loss carryforwards 42,262 26,888
Research and experimentation tax credit carryforwards 6,364 5,194
Alternative minimum tax credit carryforward 612 648
Other 185 1,142
-------- --------
Gross deferred tax assets 53,695 37,360
Valuation allowance (52,589) (37,360)
-------- --------
Net deferred tax assets 1,106 -
Deferred tax liability - Investment in Lilly ICOS (1,106) -
-------- --------
$ - $ -
======== ========
</TABLE>
The (decrease) and increases in the valuation allowance for deferred tax
assets of $15.2 million, $(9.2) million and $4.2 million, in 1999, 1998 and
1997, respectively, are attributable primarily to the ability or inability
to utilize net operating loss carryforwards.
At December 31, 1999, the Company has net operating loss carryforwards
available to offset future taxable income as follows:
<TABLE>
<CAPTION>
Year of
Expiration
----------
<S> <C>
2009 $ 5,060
2010 21,507
2011 21,039
2012 26,774
2013 7,688
2018 359
2019 41,873
--------
$124,300
========
</TABLE>
Approximately $21.7 million of the net operating loss carryforwards as of
December 31, 1999, results from stock option deductions, the realization of
which would result in a credit to stockholders' equity. At December 31,
1999, the Company also had available approximately $6.4 million of research
and experimentation tax credit carryforwards to offset future tax
liabilities. These credits expire from 2009 to 2019.
Under provisions of the Internal Revenue Code of 1986, as amended,
utilization of the Company's net operating loss carryforwards may be
subject to limitation if it should be determined that a greater than 50%
ownership change were to occur in the future.
30
<PAGE>
(9) Preferred Stock
The Company has the authority to issue up to 2.0 million shares of
preferred stock in one or more series. The Company's Board of Directors has
the authority to fix the powers, designations, preferences, and relative
participating, optional, or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences, and the number of shares constituting any series, without any
further vote or action by the Company's stockholders. The issuance of
preferred stock in certain circumstances may have the effect of delaying or
preventing a change in control of the Company. Such issuance with voting
and conversion rights may adversely affect the voting power of the common
stock holders. The Company has no shares of preferred stock outstanding. In
the future, the Company may issue preferred stock as part of its overall
financing strategy.
(10) Common Stock Transactions
(a) Stock Option Plan
Effective May 6, 1999 (the "Effective Date"), the Company adopted the 1999
Stock Option Plan (the "Plan"), under which 5.0 million shares of common
stock have been reserved for grant to various executive, scientific, and
administrative personnel of the Company as well as nonemployee directors.
The Plan replaces the Company's 1989 Stock Option Plan and its 1991 Stock
Option Plan for Nonemployee Directors (the "Prior Plans"). Any options
that are authorized but not issued or outstanding on the Effective Date
under the Prior Plans, and any options that are outstanding on the
Effective Date under the Prior Plans that are later cancelled or
forfeited, will no longer be available for issuance under the Prior Plans.
However, such options will become available for issuance under the Plan up
to an aggregate of 7,412,048 additional shares.
All incentive stock options are granted with an exercise price not less
than 100% of the fair market value of the common stock on the grant date.
Nonqualified stock options are generally granted with an exercise price
equal to 100% of the fair market value of the common stock on the grant
date; however, in no case are they granted with an exercise price of less
than 85% of the fair market value of the common stock on the grant date.
The options generally vest over a four-year period commencing on the grant
date and have a term of ten years from the grant date.
For nonemployee directors, the Plan provides for an initial grant and
automatic annual grants thereafter to each nonemployee director of a
number of nonqualified stock options determined by dividing $170,000 by
the market price of the common stock on the grant date. The exercise
price of the options will be the closing market price of the common stock
on the grant date. Initial options granted to nonemployee directors under
the Plan become exercisable 50% after the director has served for one
year from the date of initial election to the Board and 100% after two
years. Automatic annual grants are fully vested on the grant date. The
options have a term of ten years but cannot be exercised later than two
years after termination of service as a director.
A summary of stock options under the Plan is presented below (shares stated in
thousands). Plan activities prior to the Effective Date include the activities
of Prior Plans.
<TABLE>
<CAPTION>
Stock options
outstanding
------------------------
Weighted-
average
Number of exercise price
shares per share
--------- --------------
<S> <C> <C>
Balance at December 31, 1996 4,689 $ 6.63
Options granted 1,331 9.06
Cancellations (156) 8.23
Options exercised (418) 5.78
----- ------
Balance at December 31, 1997 5,446 7.25
Options granted 1,377 17.19
Cancellations (81) 12.77
Options exercised (292) 6.58
----- ------
Balance at December 31, 1998 6,450 9.33
Options granted 2,514 37.60
Cancellations (90) 19.50
Options exercised (861) 8.07
----- ------
Balance at December 31, 1999 8,013 $18.22
===== ======
</TABLE>
31
<PAGE>
At December 31, 1999, 3.5 million shares remained reserved and available for
grant under the Plan.
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1999 (shares stated in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- --------------------------
Weighted-average Weighted- Weighted-
Range of remaining average average
exercise Number contractual life exercise price Number exercise price
prices outstanding (in years) per share exercisable per share
-------- ----------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.00 - $ 5.00 843 4.68 $ 4.27 843 $ 4.27
5.13 - 6.00 821 3.92 5.82 821 5.82
6.13 - 8.25 1,542 5.60 7.56 1,410 7.54
8.38 - 13.94 1,075 6.22 10.14 800 10.09
14.25 - 19.00 1,123 7.81 16.83 594 16.61
19.25 - 40.75 1,116 9.15 28.78 316 28.77
42.88 - 44.50 1,493 9.46 42.88 149 42.88
-------------------------------------------------------------------------------------------
$ 3.00 - $44.50 8,013 6.94 $18.22 4,933 $10.62
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans
resulting in no compensation cost being recognized related to its stock
options. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Net income (loss)
As reported $(33,195) $31,310 $(12,015)
Pro forma (47,705) 24,735 (15,305)
Net income (loss) per share - basic
As reported $ (0.76) $ 0.78 $ (0.30)
Pro forma (1.10) 0.62 (0.39)
Net income (loss) per share - diluted
As reported $ (0.76) $ 0.67 $ (0.30)
Pro forma (1.10) 0.53 (0.39)
</TABLE>
The per share weighted-average fair value of stock options granted
during 1999, 1998 and 1997, was $22.29, $10.23 and $4.52, respectively,
on the grant date using the Black-Scholes option pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.8% 5.4% 6.3%
Expected volatility 66.0% 70.5% 42.0%
Expected life in years 6.5 4.4 6.0
</TABLE>
(b) Other Stock Options
Outside of the Plan, the Company granted stock options to one investor
in June 1990 to purchase 50,000 shares of common stock at $3.00 per
share. During 1997, all of these options were exercised.
(c) Warrants Outstanding
In connection with the Partnership's sale of limited partnership units,
the Company issued, on June 5, 1997, and August 15, 1997, Series A
warrants to purchase an aggregate of 5.6 million and 2.0 million shares,
respectively, of the Company's common stock at exercise prices of $9.13
and $10.35 per share, respectively. The Series A warrants are exercisable
from October 1, 1998 through May 31, 2002. The Company also issued, on
June 30, 1999, Series B warrants to purchase an aggregate of 7.6 million
shares of the Company's common stock at an exercise price of $52.49 per
share. The Series B warrants are exercisable from July 31, 1999 through
June 30, 2004.
During 1999, warrants to purchase 2.4 million shares were exercised at a
weighted-average exercise price of $9.51 per share. At December 31, 1999,
warrants to purchase 11.4 million shares were outstanding at a weighted-
average
32
<PAGE>
exercise price of $38.00 per share. During 1998, warrants to purchase
1.3 million shares were exercised at a weighted-average exercise price
of $9.41 per share. At December 31, 1998, warrants to purchase 6.2
million shares were outstanding at a weighted-average exercise price of
$9.46 per share.
The warrants issued in connection with the Partnership have been valued
using the Black-Scholes option pricing model. Accordingly, payments
received by the Company from the Partnership are apportioned between
collaborative research and development revenues from related parties and
additional paid-in capital.
(11) Net Income (Loss) per Common Share
<TABLE>
<CAPTION>
For the year ended
December 31,
--------------------------
1999 1998 1997
<S> <C> <C> <C>
--------------------------
Basic net income (loss) per share
computations:
Numerator:
Net income (loss) $(33,195) $31,310 $(12,015)
Denominator:
Weighted-average common shares 43,449 40,139 39,595
-------- ------- --------
Basic net income (loss) per share $ (0.76) $ 0.78 $ (0.30)
======== ======= ========
Diluted net income (loss) per share
computations:
Numerator:
Net income (loss) $(33,195) $31,310 $(12,015)
Denominator:
Weighted-average common shares 43,449 40,139 39,595
Effect of dilutive securities:
Stock options - 3,285 -
Stock warrants - 3,425 -
-------- ------- --------
Denominator for dilutive net income (loss)
per share 43,449 46,849 39,595
-------- ------- --------
Diluted net income (loss) per share $ (0.76) $ 0.67 $ (0.30)
======== ======= ========
</TABLE>
For the year ended December 31, 1999, options to purchase 8.0 million
shares of common stock and stock warrants to acquire 11.4 million shares of
common stock have been excluded from the computation of diluted net loss
per common share as their impact would be antidilutive.
For the year ended December 31, 1998, options to acquire 40,000 shares of
common stock with a weighted-average exercise price of $21.72 per share and
contingently issuable stock warrants to acquire 7.6 million shares of
common stock have been excluded from the computation of diluted net income
per common share as their exercise prices were greater than the average
market price of common shares and their impact would be antidilutive.
For the year ended December 31, 1997, options to purchase 5.4 million
shares of common stock, warrants to acquire 7.6 million shares of common
stock and contingently issuable stock warrants to acquire 7.6 million
shares of common stock have been excluded from the computation of diluted
net loss per common share as their impact would be antidilutive.
(12) Related Party Transactions
In June 1996, the Company entered into an agreement with Charybdis
Corporation, a start-up biotechnology company now known as Ceptyr, Inc.
("Ceptyr"). Under the agreement, the Company licensed and released to
Ceptyr certain technology that the Company had independently determined
would not be part of the Company's development programs, agreed to provide
incubation services to Ceptyr, including laboratory space and certain
small-molecule screening services and know-how, and received stock of
Ceptyr. This agreement was extended and expanded in March 1997 to provide
the Company with an option to acquire rights to certain technologies
developed by Ceptyr or to convert the value of the Company's services
provided to Ceptyr into additional stock of Ceptyr. In December 1998, the
Company exercised the option to become a co-owner of the two compounds
being developed by Ceptyr.
In 1999, the Company and Ceptyr entered into a new services agreement (in
addition to the agreement outlined above) in which the Company agreed to
provide certain administrative, research and support services to Ceptyr
associated with Ceptyr conducting its business and a sublease for certain
portions of ICOS properties. The Company recognized income
33
<PAGE>
of approximately $278 under the agreements in 1999. At December 31, 1999
and 1998, the Company had a receivable from Ceptyr for expenses incurred
but not yet paid of $22 and $207, respectively.
For a cash investment in June 1996, Ceptyr issued stock to Falcon
Technology Partners II, L.P., a venture capital limited partnership, all of
whose interests (general partner and limited partner interests) are
directly or indirectly held by the five adult children of the Company's
former Chairman, Dr. George B. Rathmann. The Company does not have a
controlling interest in Ceptyr. However, in accordance with the rights of
the Company to designate a director to the Ceptyr board of directors, Dr.
Wilcox, the Company's Executive Vice President, Operations, became a
director of Ceptyr.
During 1999, the Company chartered an airplane from AMI Jet Charter, Inc.
d.b.a. TAG Aviation ("TAG") and recognized approximately $282 in expenses
for services rendered. The aircraft subject to the charter arrangement was
under the control of Peregrine Aviation, LLC ("Peregrine"), a company
wholly owned by George B. Rathmann, who concurrently served as the
Company's Chairman of the Board of Directors. Peregrine subleased the plane
to TAG, who used it as part of its charter fleet. Management believes that
the rates charged by TAG were below the standard rates for commercial
charter services.
(13) Scientific Collaboration Agreements
Abbott Laboratories
In April 1995, the Company entered into a collaborative agreement with
Abbott Laboratories ("Abbott"), a worldwide manufacturer of health care
products. The collaboration focused on the development of small molecules
that modulate, by an intracellular interaction, the activity of certain
cell adhesion molecules. The research program under which ICOS received
research funding from Abbott ended April 1, 1999. Under the terms of the
agreement, each company will have exclusive rights to drugs against
specific molecular targets with royalties and milestone obligations to the
other party. Each party will be responsible for the development,
registration and commercialization of its own products. In addition, the
collaboration provided the Company with a library of chemical compounds for
use in its own discovery programs.
Suncos
In February 1997, the Company and Suntory Limited of Japan ("Suntory")
formed Suncos, a corporate joint venture company, for the purpose of
developing and commercializing Pafase(TM). In forming Suncos, the Company
granted a license for the Pafase(TM) technology to Suncos, and Suntory made
an initial capital contribution of $30.0 million. Both parties committed to
jointly fund all development activities and expenses of Suncos once the
initial capital contribution of $30.0 million from Suntory was used. Suncos
is managed jointly by Suntory and the Company. The Company has rights to
market Pafase(TM) in the United States and Suntory has market rights in
Japan. Each company will pay royalties to Suncos for its territorial
marketing rights. Suncos will retain all rights to market the potential
product in territories outside the United States and Japan.
The Company recognized research and development revenue of $25.1 million,
$14.9 million and $11.2 million from Suncos in 1999, 1998 and 1997,
respectively, of which $1.9 million, $3.5 million, and $1.2 million was
receivable at December 31, 1999, 1998 and 1997, respectively.
The technology contributed to Suncos by the Company had a zero basis for
financial reporting purposes and, accordingly, the Company recorded its
initial investment in Suncos as zero. The Company did not begin to report
its share of Suncos' losses until such time that Suncos' accumulated losses
were equal to Suntory's investment and the Company made capital
contributions to Suncos. During 1999, the Company and Suntory each made
equity investments in Suncos of $15.0 million. Accordingly, the Company
recognized $11.8 million of expense in 1999, equal to its share of Suncos'
net loss subsequent to the Company's initial 1999 equity investment.
34
<PAGE>
Summarized unaudited financial information for Suncos is as follows:
<TABLE>
<CAPTION>
Financial position -- December 31, 1999 1998
---------------------------------- ---- ----
<S> <C> <C> <C>
Total assets - all current $ 8,364 $ 5,828
======== ========
Total liabilities - all current, payable to
related parties $ 1,930 $ 3,781
Stockholders' equity 6,434 2,047
-------- --------
$ 8,364 $ 5,828
======== ========
<CAPTION>
Operating results -- For the year ended
December 31, 1999 1998 1997
--------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating expenses, related parties $(26,044) $(16,594) $(13,290)
Interest income 430 699 1,233
-------- -------- --------
Net loss $(25,614) $(15,895) $(12,057)
======== ======== ========
</TABLE>
ICOS Clinical Partners, L.P.
On August 15, 1997, the Partnership completed the sale to private investors
of limited partnership interests in the Partnership. Net proceeds from the
sale are being used by the Partnership to fund continued development of
product candidates by the Company pursuant to the terms of the Product
Development Agreement based on three compounds: LeukArrest(TM), Pafase(TM)
and ICM3.
The sale will result in net proceeds to the Partnership of approximately
$79.8 million. Approximately $25.9 million, before payment of offering
costs, was paid to the Partnership at closing of the sale of the
Partnership units. The Partnership received $21.9 million in both 1998 and
1999 with the balance of approximately $10.1 million to be received on May
31, 2000.
The Company recognized revenue of $19.1 million and $15.1 million from the
Partnership in 1999 and 1998, respectively. In 1997, the Company recognized
revenue of $18.4 million from the Partnership, including a one-time payment
for an exclusive license to certain technology. At December 31, 1999, the
Company had a receivable from the Partnership for development expenses
incurred but not paid of $2.2 million.
The Company loaned the Partnership an aggregate of $7.3 million to fund
certain initial expenditures of the Partnership that consisted primarily of
organizational expenses, selling commissions, financial advisory fees and
other fees. The loan is full recourse to the Partnership, bears interest at
the prime rate plus 0.25% which is paid annually on June 1 and matures on
June 1, 2000. At December 31, 1999, 1998 and 1997, interest income on the
loan was $0.6 million, $0.6 million and $0.3 million, respectively.
Interest accrued on the loan at December 31, 1999 and 1998 was $0.4
million.
The Company has a 1% interest in the Partnership and is the only general
partner of the Partnership.
The Company's share of losses of the Partnership was $0.2 million for each
of the years ended December 31, 1999, 1998 and 1997 and is included in
equity in losses of affiliates. The investment balance of $43 and $64 at
December 31, 1999 and 1998, respectively, is included in investment in
affiliates, at equity.
Summarized unaudited financial information for the Partnership is as
follows:
<TABLE>
<CAPTION>
Financial position -- December 31, 1999 1998
---------------------------------- ---- ----
<S> <C> <C> <C>
Total assets - all current $ 6,574 $ 6,350
======== ========
Current liabilities payable to ICOS
Corporation $ 9,915 $ 364
Note payable to ICOS Corporation - 7,341
Partners' deficit (3,341) (1,355)
-------- --------
$ 6,574 $ 6,350
======== ========
<CAPTION>
Operating results -- For the year ended
December 31, 1999 1998 1997
--------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Investment income $ 324 $ 328 $ 291
Research and development expenses, related
party (23,292) (18,520) (22,448)
Interest expense, related party (604) (624) (345)
General and administrative expenses (283) (309) (71)
-------- -------- --------
Net loss $(23,855) $(19,125) $(22,573)
======== ======== ========
</TABLE>
35
<PAGE>
Lilly ICOS LLC
In October 1998, the Company and Eli Lilly and Company ("Lilly") formed
Lilly ICOS, a 50/50 owned limited liability company, to jointly develop and
globally commercialize phosphodiesterase type 5 inhibitors (PDE5) as oral
therapeutic agents for the treatment of both male and female sexual
dysfunction. Under the terms of the joint venture agreement, the Company
received a license fee payment of $75.0 million upon formation of the joint
venture and could receive future license fees based on the progression of
IC351 through development. The joint venture is being capitalized by Lilly
through cash infusions and the contribution by the Company of intellectual
property associated with IC351 and its research platform. The joint venture
will market products resulting from this collaborative effort in North
America and Europe. For countries outside North America and Europe,
products will be licensed exclusively to Lilly for commercialization with a
royalty paid to the joint venture.
In 1999, the Company recognized revenue of $34.9 million from Lilly ICOS
including $15.0 million in licensing fees as a result of the initiation of
a global Phase 3 clinical trial. In 1998, the Company recognized revenue of
$78.8 million from Lilly ICOS including a license fee of $75.0 million. At
December 31, 1999 and 1998, the Company had a receivable from Lilly ICOS of
$5.6 million and $3.8 million, respectively, for reimbursement of certain
development expenses.
The technology contributed to Lilly ICOS by the Company had a zero basis
for financial reporting purposes and, accordingly, the Company has recorded
its investment in Lilly ICOS as zero at the date of contribution through
December 31, 1999. The Company will not report its share of Lilly ICOS'
results of operations until such time that the Company makes capital
contributions to Lilly ICOS, if ever.
Summarized unaudited financial information for Lilly ICOS is as follows:
<TABLE>
<CAPTION>
Financial position -- December 31, 1999 1998
---------------------------------- ---- ----
<S> <C> <C>
Total assets - all current $ 18,226 $ 25,317
========= =========
Total liabilities - all current, payable to related
parties $ 17,992 $ 6,822
Members' equity 234 18,495
--------- ---------
$ 18,226 $ 25,317
========= =========
<CAPTION>
Operating results -- For the year ended December
31, 1999 1998
------------------------------------------------ ---- ----
<S> <C> <C>
Research and development expenses, related parties $ (59,073) $ (6,538)
Contribution of technology, related party (70,000) (175,000)
Administrative expense (104) (284)
Interest income 926 318
--------- ---------
Net loss $(128,251) $(181,504)
========= =========
</TABLE>
Other Collaborative Arrangements
The Company has also entered into other collaborative arrangements under
which the Company may be obligated to pay royalties or milestone payments
if product development is successful. It is not anticipated that the
aggregate of any royalty or milestone obligations under these arrangements
will be material to the Company's operations.
36
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information requested by this item is incorporated by reference from the
sections labeled "Election of Directors," "Continuing Class 2 Directors (until
2001)," "Continuing Class 3 Directors (until 2002)," "Other Executive
Officers," "Section 16(a) Beneficial Ownership Reporting Compliance,"
"Compensation of Directors," "Executive Compensation," "1999 Option Grants,"
"1999 Option Exercises and Year-end Option Values," "Compensation Committee
Interlocks and Insider Participation," "Employment Contracts, Termination of
Employment and Change of Control Arrangements," "Security Ownership of Certain
Beneficial Owners and Management," and "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 2000.
Item 11. Executive Compensation
The information requested by this item is incorporated by reference from the
sections labeled "Compensation of Directors," "Executive Compensation," "1999
Option Grants," "1999 Option Exercises and Year-end Option Values,"
"Compensation Committee Interlocks and Insider Participation," and "Employment
Contracts, Termination of Employment and Change of Control Arrangements" in
the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 4, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information requested by this item is incorporated by reference from the
section labeled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 2000.
Item 13. Certain Relationships and Related Transactions
The information requested by this item is incorporated by reference from the
section labeled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 4, 2000.
37
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
Form 8-K
a) 1. Consolidated Financial Statements
---------------------------------
See Index to Consolidated Financial Statements under Item 8 of this
Form 10-K.
2. Consolidated Financial Statement Schedules
------------------------------------------
See Index to Consolidated Financial Statements accompanying those
statements under Item 8 of this Form 10-K.
3. Exhibits
--------
See Index to Exhibits filed herewith.
b) Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the fourth quarter of the fiscal
year ended December 31, 1999.
38
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.1 Restated Certificate of Incorporation of ICOS Corporation a
3.2 Restated Bylaws of ICOS Corporation a
4.1 Restated Certificate of Incorporation of ICOS Corporation
(included in Exhibit 3.1)
10.1 ICOS Corporation 1989 Stock Option Plan (Amended and Restated as
of January 8, 1997) g
10.2 ICOS Corporation 1991 Stock Option Plan for Non-employee
Directors (Amended and Restated as of January 8, 1997) g
10.3 Industrial Real Estate Lease dated December 20, 1996 between WRC
Properties, Inc. and ICOS Corporation j
10.4 Industrial Real Estate Lease dated August 1, 1992 between Trinity
at Canyon Park and ICOS Corporation c
10.5 Real Estate Purchase and Sale Agreement dated October 30, 1992
between Canyon Park Business Center Limited Partnership and ICOS
Corporation c
10.6 Industrial Real Estate Lease dated August 6, 1993 between John H.
Harland Company and ICOS Corporation d
10.7 Industrial Real Estate Lease Renewal and Amendment Agreement
dated May 20, 1997 between Benaroya Capital Company, L.L.C. and
ICOS Corporation j
10.8 Industrial Real Estate Lease Renewal and Amendment Agreement
dated August 5, 1997 between WRC Properties, Inc. and ICOS
Corporation j
10.9 Second Amendment dated October 30, 1998 to Industrial Real Estate
Lease Agreement between Teachers Insurance & Annuity Association
of America, Inc., as successors to WRC Properties, Inc., and ICOS
Corporation l
10.10 Industrial Real Estate Lease Agreement dated January 7, 1999
between CarrAmerica Realty Corporation and ICOS Corporation l
10.11 R&D Collaboration/License Agreement dated April 1, 1995 between
Abbott Laboratories and ICOS Corporation e
10.12 Shareholders Agreement, entered into December 18, 1996, among
ICOS Corporation, Suntory Limited and Suncos Corporation. g
10.13 rPAF-AH License Agreement, dated February 6, 1997, between ICOS
Corporation and Suncos Corporation g
10.14 Development and Supply Agreement, dated February 6, 1997, among
ICOS Corporation, Suntory Limited and Suncos Corporation g
10.15 ICOS Services Agreement, dated February 6, 1997, between ICOS
Corporation and Suncos Corporation g
10.16 ICOS License Agreement, dated February 6, 1997, between Suncos
Corporation and ICOS Corporation g
10.17 First Amendment to R & D Collaboration/License Agreement dated
April 1, 1995 between Abbott Laboratories and ICOS Corporation h
10.18 Agreement of Limited Partnership dated as of June 5, 1997, by and
among ICOS Development Corporation, as general partner, and each
of the limited partners of ICOS Clinical Partners, L.P. i
10.19 Purchase Agreement dated as of June 5, 1997 between the
Registrant and each of the Limited Partners from time to time of
ICOS Clinical Partners, L.P. i
10.20 Product Development Agreement, dated as of June 5, 1997, by and
between the Registrant and ICOS Clinical Partners, L.P. i
10.21 Limited Liability Company Agreement of Lilly ICOS LLC (the "LLC
Agreement") dated September 30, 1998 between ICOS Corporation and
Eli Lilly and Company, including Exhibit E thereto. k
10.22 Lilly License Agreement, dated September 30, 1998, between Lilly
ICOS LLC and Eli Lilly and Company (Exhibit A to the LLC
Agreement). k
10.23 The PDE5 License Agreement, dated September 30, 1998, between
ICOS Corporation and Lilly ICOS LLC (Exhibit B to the LLC
Agreement). k
10.24 Research and Development Agreement, dated September 30, 1998,
among ICOS Corporation, Lilly ICOS LLC and Eli Lilly and Company
(Exhibit C to the LLC Agreement). k
10.25 Marketing and Sales Service Agreement, dated September 30, 1998,
between ICOS Corporation, Lilly ICOS LLC, and Eli Lilly and
Company (Exhibit F to the LLC Agreement). k
10.26 Employment Agreement dated as of September 16, 1993 between Gary
Wilcox and ICOS Corporation d
10.27 ICOS Corporation 1999 Stock Option Plan m
10.28 Employment agreement between ICOS Corporation and Paul N. Clark
dated June 11, 1999 n
23.1 Consent of KPMG LLP o
27.1 Financial Data Schedule o
</TABLE>
see below for explanatory notes
39
<PAGE>
- ---------------
a Filed as an exhibit to the Company's Registration Statement (Registration
No. 333-3312) effective May 7, 1996 and incorporated herein by reference.
b Filed as an exhibit to the Company's Registration Statement (Registration
No. 333-08485) effective July 19, 1996 and incorporated herein by
reference.
c Filed as an exhibit to the Company's Form 10-K Annual Report on March 29,
1993 and incorporated herein by reference.
d Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
November 2, 1993 and incorporated herein by reference.
e Filed as an exhibit to the Company's Form 10-Q Quarterly Report on May 12,
1995 and incorporated herein by reference.
f Filed as an exhibit to the Company's Form 10-K Annual Report on March 29,
1996 and incorporated herein by reference.
g Filed as an exhibit to the Company's Form 10-K Annual Report on March 31,
1997 and incorporated herein by reference.
h Filed as an exhibit to the Company's Form 10-Q Quarterly Report on August
14, 1997 and incorporated herein by reference.
i Filed as an exhibit to the Company's Form 8-K Current Report on August 26,
1997 and incorporated herein by reference.
j Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
November 17, 1997 and incorporated herein by reference.
k Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
November 13, 1998 and incorporated herein by reference.
l Filed as an exhibit to the Company's Form 10-K Annual Report on March 31,
1999 and incorporated herein by reference.
m Filed as an exhibit to the Company's definitive Proxy Statement dated
March 30, 1999 and incorporated herein by reference.
n Filed as an exhibit to the Company's Form 10-Q Quarterly Report on August
13, 1999 and incorporated herein by reference.
o Filed with this document.
40
<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, in the City of Bothell,
State of Washington, on the 23rd day of March, 2000.
ICOS CORPORATION
(Registrant)
/s/ Paul N. Clark
By: _____________________________________
Paul N. Clark
Chairman of the Board of Directors,
Chief Executive Officer and President
41
<PAGE>
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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul N. Clark Chairman of the Board of March 23, 2000
______________________________________ Directors, Chief Executive
Paul N. Clark Officer and President
(Principal Executive
Officer)
/s/ Gary L. Wilcox Director and Executive March 23, 2000
______________________________________ Vice President, Operations
Gary L. Wilcox
/s/ Thomas N. Swallow Corporate Controller March 23, 2000
______________________________________ (Principal Accounting
Thomas N. Swallow Officer)
/s/ Frank T. Cary Director March 23, 2000
______________________________________
Frank T. Cary
/s/ James L. Ferguson Director March 23, 2000
______________________________________
James L. Ferguson
/s/ William H. Gates, III Director March 23, 2000
______________________________________
William H. Gates, III
/s/ David V. Milligan Director March 23, 2000
______________________________________
David V. Milligan
/s/ Robert W. Pangia Director March 23, 2000
______________________________________
Robert W. Pangia
/s/ Alexander B. Trowbridge Director March 23, 2000
______________________________________
Alexander B. Trowbridge
/s/ Walter B. Wriston Director March 23, 2000
______________________________________
Walter B. Wriston
</TABLE>
42
<PAGE>
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
ICOS Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-48401, 33-80680, 33-64762, 333-08485 and 333-78315) on Form S-8 of ICOS
Corporation of our report dated January 21, 2000, relating to the consolidated
balance sheets of ICOS Corporation and subsidiary as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999, which report appears in the December 31, 1999 annual report
on Form 10-K of ICOS Corporation.
/s/ KPMG LLP
seattle, Washington
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,885
<SECURITIES> 55,349
<RECEIVABLES> 18,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 88,424
<PP&E> 45,931
<DEPRECIATION> 24,889
<TOTAL-ASSETS> 112,788
<CURRENT-LIABILITIES> 13,389
<BONDS> 0
0
0
<COMMON> 448
<OTHER-SE> 98,951
<TOTAL-LIABILITY-AND-EQUITY> 112,788
<SALES> 0
<TOTAL-REVENUES> 79,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 105,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (33,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,195)
<EPS-BASIC> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
