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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INCYTE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3136539
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3174 Porter Drive
Palo Alto, California 94304
(650) 855-0555
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROY A. WHITFIELD
Chief Executive Officer
INCYTE PHARMACEUTICALS, INC.
3174 Porter Drive
Palo Alto, California 94304
(650) 855-0555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
STANTON D. WONG
SALLY BRAMMELL
Pillsbury Madison & Sutro LLP
P.O. Box 7880
San Francisco, California 94120
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,053,115 shares 32.844 $34,588,509 $10,203.61
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low prices of
the Company's Common Stock on the Nasdaq National Market on June 12, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1998
PROSPECTUS
1,053,115 SHARES
I N C Y T E
P H A R M A C E U T I C A L S, I N C.
COMMON STOCK
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This Prospectus covers 1,053,115 shares (the "Shares") of Common Stock,
$.001 par value (the "Common Stock"), of Incyte Pharmaceuticals, Inc. ("Incyte"
or the "Company") offered for the account of certain stockholders of the Company
(the "Selling Stockholders"). The Selling Stockholders acquired the Shares in
connection with the acquisition by the Company of Synteni, Inc. ("Synteni") in
January 1998. The Shares may be offered by the Selling Stockholders from time to
time in transactions (which may include block transactions) on the Nasdaq
National Market, in negotiated transactions, through a combination of such
methods of sale, or otherwise, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices, or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. The Company has agreed to
bear all expenses of registration of the Shares, but all selling and other
expenses incurred by a Selling Stockholder will be borne by that Selling
Stockholder.
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions paid or any
discounts or concessions allowed to any such persons, and any profits received
on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Stockholders"
and "Plan of Distribution."
The Common Stock is traded on the
Nasdaq National Market under the symbol "INCY."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or solicitation of any offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
The date of this Prospectus is _________, 1998
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements, and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C., as well as the regional
offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, and 7 World Trade Center, Suite 1300, New York,
New York. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements, and other information that are filed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
System. This Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement, including
all exhibits thereto, may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission described above.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, (ii) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, (iii) the Company's
Current Report on Form 8-K, as amended on Form 8-K/A, dated January 22, 1998,
(iv) the Company's Current Report on Form 8-K dated June 12, 1998, and (v) the
description of the Common Stock contained in the Company's Registration
Statement on Form 8-A filed under the Exchange Act on October 7, 1993. All
documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act prior to the termination of the offering to which
this Prospectus relates shall be deemed to be incorporated by reference into
this Prospectus and to be part of this Prospectus from the date of filing
thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The Company
will provide without charge to each person to whom a copy of the Prospectus has
been delivered, and who makes a written or oral request, a copy of any and all
of the foregoing documents incorporated by reference in the Registration
Statement (other than exhibits unless such exhibits are specifically
incorporated by reference into such documents). Requests should be submitted in
writing or by telephone to Investor Relations, Incyte Pharmaceuticals, Inc.,
3174 Porter Drive, Palo Alto, California 94304, telephone (650) 845-4589.
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THE COMPANY
Incyte Pharmaceuticals, Inc. designs, develops and markets genomic
database products, genomic data management software tools, gene expression
microarray services and genomic reagents. The Company has created a portfolio of
database products, including the LifeSeq(R) gene expression and sequence
database, LifeSeq FL(R) database of full-length genes, LifeSeq Atlas(TM) mapping
database and PathoSeq(TM) microbial database. These databases integrate
bioinformatics software with proprietary and, when appropriate, publicly
available genetic information to create information-based tools used by
pharmaceutical and biotechnology companies in drug discovery and development. In
building the databases, the Company utilizes high-throughput, computer-aided
gene sequencing and analysis technologies to identify and characterize the
expressed genes of the human genome, as well as certain animal, plant and
microbial genomes. Revenues recognized by the Company consist primarily of
non-exclusive database access fees related to database collaboration agreements.
Revenues also include software license and maintenance fees, the sales of
genomic screening products and services, gene expression microarray services and
fees for custom or "satellite" database services. The Company's database
collaboration agreements provide for future milestone payments and royalties
from the sale of products derived from proprietary information obtained through
the databases. There can be no assurance that any database collaborators will
ever generate products from information contained within the databases and thus
that the Company will ever receive milestone payments or royalties.
The Company is pursuing the development of proteomics databases to assist
pharmaceutical and biotechnology companies in determining protein expression
patterns through a multiyear collaboration with Oxford GlycoSciences plc
initiated in January 1998. In addition, the Company is focusing on the discovery
and commercialization of molecular diagnostics through a joint venture,
diaDexus, LLC ("diaDexus"), established in September 1997 in conjunction with
SmithKline Beecham Corporation.
The Company was incorporated in Delaware in 1991. The Company's executive
offices are located at 3174 Porter Drive, Palo Alto, California 94304 and its
telephone number is (650) 855-0555.
RISK FACTORS
When used in this Prospectus, the words "expects", "anticipates",
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements under the captions "Risk
Factors" and "The Company" as to the adequacy of capital resources, the ability
to commercialize products developed under collaborations and alliances and the
performance and utility of the Company's products and services, are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not
limited to, the extent of utilization of genomic information by the
pharmaceutical and biotechnology industries in both research and development,
risks relating to the development of new database products and their use by
potential collaborators of the Company, and the risks set forth below.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED HEREBY.
UNCERTAIN EFFECTS OF THE SYNTENI MERGER. The combination of Synteni and
the Company involves several potential operating and business risks, including
the integration of Synteni's and the Company's businesses and management in a
timely, efficient and effective manner, the timely integration of Synteni's
microarray technology and services with the Company's database products and
services, integration of the respective sales and marketing and research and
development efforts, and any resulting loss of efficiency or loss of employees.
The combined companies may not realize any revenue enhancements or cost savings
or maintain Synteni's business relationships with its customers after the
merger. Also, any cost savings that are realized due to the merger may be offset
by increases in other expenses or operating losses, including losses due to
problems in integrating the two companies. See "--Risks Associated With
Acquisitions." Although the Company believes that beneficial synergies will
result from the Synteni merger, the combination of the two companies'
businesses, even if achieved in an efficient,
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effective and timely manner, may not result in combined results of operations
and financial condition superior to what would have been achieved by each
company independently, and may take longer than expected. See "--History of
Operating Losses; Uncertainty of Continued Profitability or Revenues."
RISKS ASSOCIATED WITH ACQUISITIONS. As part of its business strategy, the
Company may from time to time acquire assets and businesses principally relating
to, or complementary to, its operations. These acquisitions may include
acquisitions for the purpose of acquiring specific technology. The Company
acquired two companies, Genome Systems, Inc. and Combion, Inc., in 1996 and
acquired Synteni in January 1998. If the Company acquires additional businesses
that are not located near the Company's Palo Alto, California headquarters, the
Company may experience more difficulty integrating and managing the acquired
businesses' operations. These and any other acquisitions by the Company involve
risks commonly encountered in acquisitions of companies. These risks include,
among other things, the following: the Company may be exposed to unknown
liabilities of acquired companies; the Company may incur acquisition costs and
expenses higher than it anticipated; fluctuations in the Company's quarterly and
annual operating results may occur due to the costs and expenses of acquiring
and integrating new businesses or technologies; the Company may experience
difficulty and expense of assimilating the operations and personnel of the
acquired businesses; the Company's ongoing business may be disrupted and its
management's time and attention may be diverted; the Company may be unable to
integrate successfully or to complete the development and application of
acquired technology and may fail to achieve the anticipated financial, operating
and strategic benefits from these acquisitions; the Company may experience
difficulties in establishing and maintaining uniform standards, controls,
procedures and policies; the Company's relationships with key employees and
customers of acquired businesses may be impaired, or these key employees and
customers may be lost, as a result of changes in management and ownership of the
acquired businesses; the Company may incur amortization expenses if an
acquisition is accounted for as a purchase; and the Company's stockholders may
be diluted if the consideration for the acquisition consists of equity
securities. The Company may not overcome these risks or any other problems
encountered in connection with acquisitions. If the Company is unsuccessful in
doing so, its business, financial condition and results of operations could be
materially and adversely affected.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF CONTINUED PROFITABILITY OR
REVENUES. The Company has experienced substantial revenue growth since 1995 and
has reported quarterly profits only since the first quarter of 1997. For the
years ended December 31, 1996 and 1995, the Company had net losses of $7.3
million and $9.9 million, respectively, and as of March 31, 1998, the Company
had an accumulated deficit of $28.3 million. The Company may not be able to
maintain revenue growth or profitability. The Company's continued investment in
new product and technology development, obligations under existing and future
research and development alliances, and increased investment in marketing, sales
and customer service will require a continued increase in expenditures in 1998
and beyond. Synteni's ability to contribute to the profitability of the Company
will be dependent on the ability of the Company and Synteni to obtain high
volume customers for Synteni's microarray services and the costs associated with
increasing microarray production capacity. Prior to this merger, Synteni's
microarray service agreements consisted of small volume pilot or feasibility
agreements. The Company's ability to achieve and maintain significant revenues
will be dependent upon its ability to obtain additional database collaborators
and retain existing collaborators. The Company's ability to maintain
profitability will be dependent upon its ability to obtain such database
collaborators, the level of expenditures necessary for the Company to maintain
and support its services to its collaborators, and the extent to which it incurs
research and development, investment, acquisition-related or other expenses
related to the development and provision of its products and services to
database collaborators. While, as of April 1998, the Company had twenty-one
database collaborations, the Company may be unable to enter into any additional
collaborations. Further, the Company's database collaboration agreements
typically have a term of three years. Some of these agreements require the
Company to meet certain performance obligations. These agreements may not be
renewed upon expiration, and a database collaboration agreement may be
terminated earlier by a collaborator if the Company breaches the agreement and
fails to cure such breach within a specified period. In addition, one database
collaborator has the right on 30 days' written notice to terminate its database
collaboration agreement. The loss of revenues from any database collaborator
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Part of the Company's commercialization strategy is to license to database
collaborators the Company's patent rights to individual partial genes or
full-length cDNA sequences from the Company's proprietary sequence database,
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for development as potential pharmaceutical, diagnostic or other products. Any
potential product that is the subject of such a license will require several
years of further development, clinical testing and regulatory approval prior to
commercialization. Accordingly, the Company does not expect to receive any
milestone or royalty payments from any such licenses for a substantial period of
time, if at all.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results may
fluctuate significantly from quarter to quarter as a result of a variety of
factors, including changes in the demand for the Company's products and
services; the pricing of database access to database collaborators; the nature,
pricing and timing of other products and services provided to the Company's
collaborators; changes in the research and development budgets of the Company's
collaborators and potential collaborators; capital expenditures; acquisition and
licensing costs and other costs related to the expansion of the Company's
operations, including operating losses of acquired businesses such as Synteni;
the introduction of competitive databases or services; and expenses related to,
and results of, litigation (including the lawsuit filed by Affymetrix, Inc.
("Affymetrix") described below under "--Litigation") and other proceedings
relating to intellectual property rights. In particular, the Company has a
limited ability to control the timing of database installations, there is a
lengthy sales cycle required for the Company's database products, the Company's
revenue levels are difficult to forecast, the time required to complete custom
orders can vary significantly and the Company's increasing investments in
external alliances could result in significant quarterly fluctuations in
expenses due to the payment of milestones, license fees or research payments.
The Company's investments in joint ventures and businesses, particularly
diaDexus, may require the Company to record losses or expenses related to its
proportionate ownership interest in such entities, to record charges for the
acquisition of in-process technologies, or to record charges for recognition of
the impairment in the value of the securities underlying such investments. To
date, exclusive of losses from joint ventures, the Company has not incurred
significant losses on its long-term equity investments. One entity in which the
Company has made an equity investment, OncorMed, Inc. ("OncorMed"), received a
report from its independent auditors for the year ended December 31, 1997 which
expressed substantial doubt as to OncorMed's ability to continue as a going
concern. OncorMed has indicated to the Company that it is pursuing various
financing options and the Company will continue to evaluate its investment in
OncorMed and all of its long-term equity investments for impairment on a
quarterly basis. In an effort to broaden its business, the Company is investing
in a number of new areas, including microarray services, molecular diagnostics,
pharmacogenomics and proteomics. Given that many of these address new markets or
involve untested technologies, it is not known if any of them will generate
revenues or if the revenues will be sufficient to provide an adequate return on
the investment. Depending on the investment required and timing of such
investments, expenses or losses related to these investments could adversely
affect operating results.
The need for continued investment in development of the Company's
databases and related products and services and for extensive ongoing
collaborator support capabilities results in significant fixed expenses. If
revenue in a particular period does not meet expectations, the Company may not
be able to adjust significantly its level of expenditures in such period, which
would have an adverse effect on the Company's operating results. The Company may
also experience difficulty in forecasting levels of operating expenditures for,
and integration-related expenses with respect to, subsidiaries acquired through
acquisitions, at least until a substantial period of time has passed since the
acquisition date. This is particularly true when attempting to forecast
expenditure levels for acquired businesses that focus on technologies for which
there is not yet an established market. The Company believes that quarterly
comparisons of its financial results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. Due to the
foregoing and other unforeseen factors, it is likely that in some future quarter
or quarters the Company's operating results may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially and adversely affected.
COMPETITION AND TECHNOLOGICAL CHANGES. There are a finite number of genes
in the human genome, and competitors may seek to identify, sequence and
determine in the shortest time possible the biological function of a large
number of genes in order to obtain a proprietary position with respect to the
largest number of new genes discovered. There are a number of companies, other
institutions, and government-financed entities engaged in gene sequencing, gene
discovery, gene expression analysis, positional cloning and other genomic
service businesses. Many of these companies, institutions and entities have
greater financial and human resources than the Company. In addition, the Company
is aware that other companies have developed genomic databases and are
marketing, or have
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announced their intention to market, their data to pharmaceutical companies. The
Company expects that additional competitors may attempt to establish gene
sequence, gene expression or other genomic databases in the future.
In addition, competitors may discover and establish patent positions with
respect to gene sequences in the Company's databases. Further, certain entities
engaged in gene sequencing, including Merck & Co., Inc. ("Merck") and The
Institute for Genomic Research ("TIGR"), have made the results of their
sequencing efforts publicly available. The Perkin-Elmer Corporation, Dr. J.
Craig Venter, and TIGR announced in May 1998 the signing of a letter of intent
to form a new company that has the goal of sequencing the entire human genome
within three years and to make the sequence information publicly available. The
patent positions of competitors or the public availability of gene sequences
comprising substantial portions of the human genome or microbial or plant
genomes could decrease the potential value of the Company's databases to the
Company's collaborators and adversely affect the Company's ability to realize
royalties or other revenue from commercialization of products based upon this
genetic information.
The gene sequencing machines that are utilized in the Company's
high-throughput, computer-aided gene sequencing operations are commercially
available and are currently being utilized by several competitors. Some of the
Company's competitors or potential competitors are in the process of developing,
and may successfully develop, proprietary sequencing technologies that may be
more advanced than the technology used by the Company. In addition, the Company
is aware that there are a number of companies, pursuing alternative methods for
generating gene expression information, including those that have developed, and
are developing, microarray technologies. At least one other company currently
offers microarray-based services that might be competitive with those offered by
the Company. These advanced sequencing or gene expression technologies, if
developed, may not be commercially available for purchase or license by the
Company on reasonable terms, if at all.
A number of companies have announced their intent to develop and market
software to assist pharmaceutical companies and academic researchers in the
management and analysis of their own genomic data, as well as the analysis of
sequence data available in the public domain. Some of these entities have access
to significantly greater resources than the Company and these products may
achieve greater market acceptance than the Company's products.
The Company's databases also require extensive software support and
incorporate features determined by database collaborators' needs. If the Company
experiences delays or difficulties in implementing its database software or
collaborator-requested features, its ability to service its collaborators may be
adversely affected, which might have an adverse effect on the Company's business
and operating results.
The genomics industry is characterized by extensive research efforts and
rapid technological progress. To remain competitive, the Company will be
required to continue to expand its databases and to enhance the functionality of
its bioinformatics and database software. New developments are expected to
continue and discoveries by others may render the Company's services and
potential products noncompetitive.
NEW AND UNCERTAIN BUSINESS. The Company's genomic database business and
the use of its databases, software tools and related services to assist its
collaborators and potentially improve the efficiency of the traditional drug
discovery process represent a business for which there is no precedent. In
addition, the Company's microarray services business represents a business for
which there is no precedent. The Company's collaborators or potential
collaborators may determine that the databases, software tools and microarray
and related services provided by the Company are not useful or cost-effective.
The Company's strategy of using high-throughput sequencing to identify genes
rapidly and obtain proprietary rights in as many genes as possible and strategy
of using microarrays to identify differentially expressed genes is unproven. In
addition, the Company has limited experience in providing bioinformatics
software and database products and services. The Company's ability to sustain
profitability depends on attracting additional collaborators and retaining
existing collaborators for its database, sequencing and software products and
services and microarray services. The nature and price of these database,
sequencing and software products and services and microarray services are such
that there is a limited number of pharmaceutical and biotechnology companies
that are potential collaborators for such products and services. Additional
factors that may affect demand for the Company's products and services include
the extent to which potential collaborators choose to conduct in-house gene
sequencing and bioinformatics analysis, the emergence of competitors offering
similar
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services at competitive prices, the ability of the Company to service
satisfactorily its existing collaborators, the extent to which the gene and
related information in the Company's database is made public by, or is the
subject of, patents issued to others, the Company's ability to establish and
enforce proprietary rights to its products, and the emergence of technological
innovations in gene sequencing, gene expression profiling or bioinformatics and
relational database software that are more advanced than the technology used by
and available to the Company. The Company may be unable to attract additional
collaborators on acceptable terms for its products and services or develop a
sustainable profitable business.
RISKS ASSOCIATED WITH STRATEGIC INVESTMENTS. The Company has funded, and
intends in the future to fund, strategic equity investments in joint ventures or
businesses that complement the business of the Company. These investments, such
as the Company's investment in diaDexus, may require the Company to record
losses and expenses related to its proportionate ownership interest in such
entities, the acquisition of in-process technologies, or the impairment in the
value of the securities underlying such investments. These losses may exceed
amounts anticipated, which could result in the Company's operating results being
below the expectations of public market analysts and investors. These
investments may often be made in securities for which there is no public trading
market or in securities not registered under the Securities Act and therefore
subject to trading restrictions, either of which increases the Company's risk of
investment and reduces the liquidity of the Company's investment. In addition,
the Company could be required to invest greater amounts than initially
anticipated or to devote substantial management time to the management of
research and development relationships and joint ventures. The occurrence of any
of the foregoing could result in a material adverse effect on the Company's
business, financial condition and results of operations.
LENGTHY SALES CYCLE. The ability of the Company to obtain new
collaborators for its databases, software tools and microarray and other
services depends in significant part upon prospective collaborators' perceptions
that the Company's databases, software tools, and services can help accelerate
drug discovery efforts. The sales cycle is typically lengthy due to the
education effort that is required, as well as the need to effectively sell the
benefits of the Company's databases, software tools, and microarray services to
a variety of constituencies within potential collaborator companies. In
addition, each database collaboration and microarray services agreement involves
the negotiation of agreements containing terms that may be unique to each
partner, such as the scope of any licenses granted and whether satellite
database services or access to multiple database modules is desired. The Company
may expend substantial funds and management effort with no assurance that a
database collaboration will result.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS. The Company's
database business and competitive position are dependent in part upon its
ability to protect its proprietary database information and software technology.
Despite the Company's efforts to protect its proprietary database information
and software technology, unauthorized parties may attempt to obtain and use
information that the Company regards as proprietary. Although the Company's
database collaboration agreements require its collaborators to provide adequate
security for, and to control access to the Company's databases, policing
unauthorized use of the Company's databases and software by the Company or its
collaborators is difficult. The Company relies on patent, trade secret and
copyright law, and nondisclosure and other contractual arrangements to protect
its proprietary information.
To date, the Company has been issued a number of patents with respect to
the gene sequences in the Company's databases and has not been issued patents or
registered copyrights for its related software. Patents cannot prevent others
from developing, selling or licensing databases that include sequences which
might be covered by the Company's patents and copyrights. The Company cannot
prevent others from independently developing software that might be covered by
any copyrights issued to the Company and trade secret laws do not prevent
independent development. Thus, 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 proprietary information,
that this information will not be disclosed or that the Company can effectively
protect its rights to unpatented trade secrets.
The Company pursues a policy of having its employees, consultants and
advisors execute proprietary information and invention agreements upon
commencement of employment or consulting relationships with the Company. These
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship shall be kept confidential
except in specified circumstances. These agreements
7
<PAGE> 9
may not, however, provide meaningful protection for the Company's trade secrets
or other proprietary information in the event of unauthorized use or disclosure
of this information.
The Company's current policy is to file patent applications on what it
believes to be novel, full-length cDNA sequences and partial sequences obtained
through the Company's high-throughput, computer-aided gene sequencing efforts.
The Company has filed U.S. patent applications in which the Company has claimed
certain partial gene sequences and has filed patent applications in the U.S. and
applications under the Patent Cooperation Treaty ("PCT") designating countries
in Europe as well as Asia, Canada, Japan, Mexico and New Zealand claiming
full-length gene sequences associated with cells and tissues that are the
subject of the Company's high-throughput gene sequencing program. To date, the
Company holds a number of issued U.S. patents on full-length genes, but no
patent has issued from any of the Company's patent applications that claim
partial gene sequences. The Company is aware that Merck (in conjunction with
Washington University) and TIGR have made certain gene sequences publicly
available, which may adversely affect the ability of the Company and others to
obtain patents on such genes. The Company's ability to obtain patent protection
for certain sequences that have been made publicly available may be adversely
affected.
The Company believes that certain of its patent applications claim genes
which may also be claimed in patent applications filed by other parties. In some
or all of these applications, a determination of priority of inventorship may
need to be decided in an interference before the United States Patent and
Trademark Office ("USPTO"). The USPTO has declared an interference involving a
Company patent application covering one full-length gene and has informed the
Company that interferences may be declared with respect to applications
covering an additional ten genes.
The patentability of partial gene sequences in general is uncertain,
involves complex legal and factual questions, and has recently been the subject
of much controversy. As a result, patent applications filed by the Company on
such partial gene sequences may not result in issued patents. Even if patents
are issued for partial gene sequences, there may be uncertainty as to the scope
of the coverage, enforceability or commercial protection provided by any such
patents. Certain court decisions suggest that disclosure of a partial sequence
may not be sufficient to support the patentability of a full-length sequence and
that patent claims to a partial sequence may not cover a full-length sequence
inclusive of that partial sequence.
The USPTO has had a substantial backlog of biotechnology patent
applications and, in particular, applications that claim gene sequences. In
1996, the USPTO issued guidelines limiting the number of gene sequences that can
be examined within a single patent application. Many of the Company's patent
applications containing multiple partial sequences contain more sequences than
the maximum number allowed under the new guidelines. The Company is reviewing
its options and, due to the resources needed to comply with the guidelines, may
decide to abandon patent applications for some of its partial gene sequences.
In view of the possible delay in obtaining allowance of some of the
Company's patent applications, and the secrecy of patent applications, the
Company does not know if other applications that would have priority over the
Company's applications have been filed. Furthermore, changes in U.S. patent laws
resulting from the General Agreement on Tariffs and Trade ("GATT") became
effective in June 1995. Most notably, GATT resulted in U.S. law being amended to
change the term of patent protection from seventeen years from patent issuance
to twenty years from the earliest effective filing date of the application.
Because the average time from filing to issuance of biotechnology applications
is at least one year and may be more than three years depending on the subject
matter, a twenty-year patent term from the date of filing may result in a
substantially shortened term of patent protection, which may adversely affect
the Company's period of exclusivity under any patents that may issue to the
Company. Pending applications claiming large numbers of gene sequences may, in
some situations, need to be refiled while claiming priority to the earliest
filing date and, in such situations, the patent term will be measured from the
date of the earliest priority application. This would reduce the patent term and
have a potentially adverse effect on the Company's period of exclusivity.
Biotechnology patent law outside the United States is even more uncertain
and is currently undergoing review and revision in many countries. Further, the
laws of certain foreign countries may not protect the Company's intellectual
property rights to the same extent as do the laws of the United States. The
Company may participate in opposition proceedings to determine the validity of
its or its competitors' non-U.S. patents, which could result in substantial
costs to, and diversion of effort by, the Company.
8
<PAGE> 10
As the biotechnology industry expands, more patents are issued and other
companies engage in the business of discovering genes through the use of high
speed sequencers and in other genomic-related businesses such as microarrays and
gene expression profiling, the risk increases that the Company's potential
products or the processes used by the Company to develop these products, may be
subject to claims that they infringe the patents of others. Certain of these
patents are the subject of litigation. Therefore, the Company's operations may
require it to obtain licenses under any of these patents or proprietary rights,
and these licenses may not be made available on terms acceptable to the Company.
Litigation may be necessary to defend against or assert claims of infringement,
to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, or to determine the scope and validity of the proprietary
rights of others. The Company could also be involved in interferences with
respect to patent applications. Given the large number of applications filed by
the Company, a large number of interferences could be expensive and time
consuming. In addition, it is impossible to predict how many, if any, of the
interferences would be resolved in the Company's favor. The Company is currently
involved in litigation and interference proceedings with respect to patents and
intellectual property rights. Litigation or interference proceedings, regardless
of the outcome, could result in substantial costs to, and diversion of effort
by, the Company, and may have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, these efforts by the Company may not be successful.
As is typical in the genomics and software industries, the Company has
from time to time received, and believes that it likely will receive in the
future, notices from third parties alleging infringement claims. The Company
believes that it is not infringing the patent rights of any such third party,
and in circumstances in which the Company has determined a response to an
alleged infringement claim to be appropriate, the Company has notified the
claimant to that effect. To date, except as set forth below under
"--Litigation," no third party has taken any action with respect to an alleged
claim against the Company. There can be no assurance that action will not be
taken against the Company in the future, either with respect to previously
asserted or new claims, or that if any action is taken, what the outcome of such
action will be.
LITIGATION. On January 6, 1998, Affymetrix filed a lawsuit in the United
States District Court for the District of Delaware alleging infringement of U.S.
patent number 5,445,934 (the "'934 Patent") by both Incyte and Synteni. The
complaint alleges that the '934 Patent has been infringed by the making, using,
selling, importing, distributing or offering to sell in the U.S. high density
arrays by Incyte and Synteni and that such infringement was willful. Affymetrix
seeks a permanent injunction enjoining Synteni and Incyte from further
infringement of the '934 Patent and, in addition, seeks damages, costs and
attorney's fees and interest. Affymetrix further requests that any such damages
be trebled based on its allegation of willful infringement by Incyte and
Synteni. Incyte and Synteni believe they have meritorious defenses and intend to
defend the suit vigorously. However, there can be no assurance that Incyte and
Synteni will be successful in the defense of this suit, and litigation,
regardless of the outcome, could result in substantial expenses and diversion of
the efforts of management and technical personnel. Further, there can be no
assurance that any license that may be required as a result of this suit or the
outcome thereof would be made available on commercially acceptable terms, if at
all.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
believes that its existing cash, cash equivalents and marketable securities
should be adequate to satisfy the Company's projected working capital, capital
expenditure and other cash requirements at least through June 1999. However, the
Company may be unable to obtain additional database collaborators or retain
existing collaborators for the Company's databases, and its database products
and services may not produce revenues, which together with the Company's cash,
cash equivalents, and marketable securities, will be adequate to fund the
Company's cash requirements. The Company's cash requirements depend on numerous
factors, including the ability of the Company to attract and retain
collaborators for its databases and genomic products and services; expenditures
in connection with alliances, license agreements and acquisitions of, and
investments in, complementary technologies and businesses; competing
technological and market developments; the cost of filing, prosecuting,
defending, and enforcing patent claims and other intellectual property rights;
the purchase of additional capital equipment or other capital expenditures,
including capital equipment necessary to ensure that the Company's sequencing
and microarray operations remain competitive; capital expenditures required to
expand the Company's and Synteni's facilities; and costs associated with the
integration of new operations assumed through mergers and acquisitions. In
particular, the Company expects its cash requirements to increase in 1998 as it
increases its investment in data processing-related computer hardware in order
to support
9
<PAGE> 11
its existing and new database products; continues to seek access to technologies
through investments, alliances, license agreements, and/or acquisitions; makes
investments associated with integration of acquired companies; and addresses its
needs for larger facilities and/or improvements in existing facilities. Changes
in the Company's research and development plans, or other changes affecting the
Company's operating expenses, may result in changes in the timing and amount of
expenditures of the Company's capital resources. If additional capital is raised
through the sale of equity or convertible debt securities, the issuance of these
securities could result in dilution to the Company's existing stockholders.
Additional funding, if necessary, may not be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to curtail
operations significantly or to obtain funds through entering into collaborative
arrangements that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets.
MANAGEMENT OF GROWTH. The Company has recently experienced, and expects to
continue to experience, significant growth in the number of its employees and
the scope of its operations. This growth has placed, and may continue to place,
a significant strain on the Company's management and operations. The Company's
ability to manage effectively this growth will depend upon its ability to
broaden its management team and its ability to attract, hire and retain skilled
employees. The Company's success will also depend on the ability of its officers
and key employees to continue to implement and improve its operational,
management information and financial control systems and to expand, train and
manage its employee base. In addition, the Company must continue to take steps
to provide customer support resources as the number of overall database
collaborators and the number of requests from collaborators increases. Further,
the Company's database collaborators typically have worldwide operations and may
require support at multiple U.S. and foreign sites. Providing this support may
require the Company to open offices in addition to its Palo Alto, California
headquarters and its offices in St. Louis, Missouri and the United Kingdom,
which could result in additional burdens on the Company's systems and resources.
The Company's inability to manage growth effectively, including its growth
through acquisitions, could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON KEY EMPLOYEES. The Company is highly dependent on the
principal members of its scientific and management staff, including Roy A.
Whitfield, its Chief Executive Officer, and Randal W. Scott, its President and
Chief Scientific Officer, the loss of whose services would have a material
adverse effect on the Company's business. The Company has not entered into any
employment agreements with any of these persons and does not maintain any key
person life insurance policy on the life of any employee. The Company's future
success also will depend in part on the continued service of its key scientific,
software, bioinformatics and management personnel and its ability to identify,
hire and retain additional personnel, including personnel in the customer
service, marketing and sales areas. The Company experiences intense competition
for qualified personnel in the areas of the Company's activities, especially
with respect to experienced bioinformatics and software personnel, and there can
be no assurance that the Company will be able to continue to attract and retain
personnel necessary for the development of the Company's business. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON OTHERS. The Company relies on a limited number of suppliers
of gene sequencing machines and certain reagents required in connection with the
gene sequencing process. Although the Company is evaluating alternative gene
sequencing machines, these machines may not be available in sufficient
quantities, available at acceptable costs, or prove to be more cost-effective
than current machines. Patent right issues concerning certain current and future
generation sequencing machines may also arise which could prevent the Company
from using them or make their use more expensive. If the Company is unable to
obtain additional machines or an adequate supply of reagents or other materials
at commercially reasonable rates, its ability to continue to identify genes
through gene sequencing would be adversely affected. In addition, although the
Company obtains, from a number of sources, tissue samples from which mRNA may be
isolated, the loss of access to some of these sources, increased fees for access
to these sources or increased restrictions on use of the information generated
could adversely affect the Company's business.
The Company's strategy for the development of its database and sequencing
business and the commercialization of its portfolio of partial and full-length
gene sequences may require the Company to enter into various research and
development relationships with corporate and academic collaborators and others.
The success
10
<PAGE> 12
of these relationships is dependent upon the performance of outside parties of
their responsibilities. The Company may not be able to establish collaborative
arrangements or license agreements that the Company deems necessary or
acceptable to develop its database and sequencing business or, in the future, to
commercialize its portfolio of partial and full-length gene sequences. In
addition, these collaborative arrangements or license agreements may not be
successful. The Company's collaborators may also be pursuing alternative
technologies or developing alternative products either on their own or in
collaboration with others, including the Company's competitors.
The Company has relied on scientific, technical, pathology, commercial and
other data supplied and disclosed by others, including its academic
collaborators and sources of tissue samples, and may rely on these data in the
construction of its database. There can be no assurance that these data contain
no errors or omissions, or that the sources of these data have acquired the data
in compliance with applicable legal requirements, the knowledge of which would
adversely change the prospects for the Company's business.
YEAR 2000 ISSUE. As a result of computer programs being written using two
digits, rather than four, the performance of the Company's computer systems and
those of its suppliers and customers in the Year 2000 is uncertain. Any computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company plans to initiate a Year 2000
project, using internal and external resources, to evaluate the impact of the
Year 2000 on its products and operating systems. This will include the
initiation of formal communications with its significant suppliers and customers
to determine the extent to which the Company's interface systems are vulnerable
to third party failures to remediate their own Year 2000 issues. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems. The Company will perform a comprehensive review of all
internally used financial and administrative systems as well as internally
developed products sold to customers. At this time, given that the Company's
internal financial and administrative systems have been installed within the
last few years, and all internally developed software-based products sold to
customers have been developed over the last few years, the Company does not
expect the cost of addressing the Year 2000 issue to have a material impact on
the Company's business, results of operations or financial condition. However,
there can be no guarantee that if modifications or replacement of portions of
the software are necessary, it will be completed in a timely manner.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development involves the controlled use of hazardous and radioactive materials
and biological waste. The Company is subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of these materials and certain waste products. Although the Company believes
that its safety procedures for handling and disposing of these materials comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations and
currently does not expect to make material additional capital expenditures for
environmental control facilities in the near-term, the Company may in the future
be required to incur significant costs to comply with environmental laws and
regulations, and there can be no assurance that the operations, business or
assets of the Company will not be materially or adversely affected by current or
future environmental laws or regulations.
RELIANCE ON PHARMACEUTICAL INDUSTRY; UNCERTAINTY OF HEALTH CARE REFORM AND
RELATED MATTERS. The Company expects that all of its revenues in the foreseeable
future will be derived from products and services provided to the pharmaceutical
and biotechnology industries. Accordingly, the Company's success in the
foreseeable future is directly dependent upon the success of the companies
within those industries and their continued demand for the Company's products
and services. The Company's operations may in the future be subject to
substantial period-to-period fluctuations as a consequence of reductions and
delays in research and development expenditures by companies in these industries
resulting from factors such as changes in economic conditions, changes in the
regulatory environment affecting health care and health care providers, pricing
pressures, market-driven pressures on companies to consolidate and reduce costs,
and other factors affecting research and development spending. The
11
<PAGE> 13
occurrence of any of the foregoing factors could have a material adverse effect
on the Company's business, financial condition and results of operations.
RISK OF BUSINESS INTERRUPTION. The Company conducts all of its
sequencing and other activities at its facilities in Palo Alto, California, and
Synteni conducts all of its operations at its facilities in Fremont, California.
Both locations are in a seismically active area. Although the Company maintains
business interruption insurance, the Company does not currently have, nor does
it plan to obtain, earthquake insurance. A major catastrophe (such as an
earthquake or other natural disaster) could result in a prolonged interruption
of the Company's business.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders. All proceeds from the sale of the Shares will be for
the account of the Selling Stockholders, as described below. See "Selling
Stockholders" and "Plan of Distribution" below.
12
<PAGE> 14
SELLING STOCKHOLDERS
The following table sets forth certain information as of April 30, 1998
regarding the beneficial ownership of Common Stock by each of the Selling
Stockholders and the Shares offered hereby by such Selling Stockholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY NUMBER BENEFICIALLY
OWNED PRIOR OF SHARES OWNED AFTER
TO OFFERING(1) BEING OFFERED OFFERING(1)(2)
---------------- ------------- --------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Alexander E. Barkas ....................... 12,845 * 5,781 7,064 *
Howard C. Birndorf ........................ 6,422 * 2,890 3,532 *
Erik Bjeldanes ............................ 2,492 * 1,122 1,370 *
Fred Cohen ................................ 12,460 * 5,607 6,853 *
Comdisco, Inc. ............................ 2,506 * 1,128 1,378 *
Catherine M. Dobrynski .................... 623 * 281 342 *
GC&H Investments .......................... 6,422 * 2,890 3,532 *
James M. Gilmore (3) ...................... 3,631 * 842 1,623 *
Cynthia T. Healy .......................... 3,853 * 1,734 2,119 *
Timothy G. Henn ........................... 6,230 * 2,804 3,426 *
Alan G. Johnson ........................... 6,422 * 2,890 3,532 *
Thomas D. Kiley(4) ........................ 21,451 * 9,653 11,798 *
Kleiner Perkins Caufield & Byers VIII, L.P. 610,154 2.3% 274,570 335,584 1.3%
KPCB Life Sciences Zaibatsu Fund II ....... 32,113 * 14,451 17,662 *
Randall S. Livingston (5) ................. 11,201 * 4,068 9,363 *
Joseph A. Mollica ......................... 9,441 * 4,249 5,192 *
George G. Montgomery, Jr., Trustee
Under Declaration of Trust U/T/D 8/21/95 3,211 * 1,445 1,766 *
Richard A. Osman .......................... 24,920 * 11,214 13,706 *
Julius Rebek, Jr .......................... 6,230 * 2,804 3,426 *
Sam Sawan(6) .............................. 12,460 * 3,925 4,797 *
Tadmor Shalon and Michal Shalon, JTWROS ... 461,020 1.7 207,459 253,561 *
Tidhar Dari Shalon ........................ 971,880 3.7 437,346 534,534 2.0
Yehuda Shalon and Hana Shalon, JTWROS ..... 62,300 * 28,035 34,265 *
Sosei Co., Ltd. ........................... 2,209 * 995 1,214 *
Stanford University ....................... 19,268 * 8,671 10,597 *
Kenneth J. Stineman ....................... 4,984 * 2,243 2,741 *
Stan Stukov ............................... 12,460 * 5,607 6,853 *
Michael Wigler, Ph.D ...................... 12,460 * 5,607 6,853 *
Paolo Zanella ............................. 6,230 * 2,804 3,426 *
</TABLE>
- -------------
* Less than 1%.
(1) Information with respect to beneficial ownership is based upon information
obtained from the Selling Stockholders.
(2) Assumes the sale of all Shares offered hereby and no other purchases or
sales of Common Stock. See "Plan of Distribution."
(3) Includes 1,762 shares subject to options exercisable within 60 days of
April 30, 1998.
(4) Includes 8,991 shares held by The Thomas D. and Nancy L. Kiley Revocable
Trust.
(5) Includes 2,161 shares subject to options exercisable within 60 days of
April 30, 1998.
(6) Includes 3,738 shares subject to options exercisable within 60 days of
April 30, 1998.
13
<PAGE> 15
All of the Selling Stockholders received their respective shares of
Common Stock in connection with the merger of a wholly owned subsidiary of the
Company with Synteni (the "Merger"), pursuant to which all of the outstanding
shares of capital stock of Synteni were converted into shares of Common Stock
and all outstanding options to purchase common stock of Synteni were converted
into options to purchase Common Stock. The registration statement to which this
Prospectus relates is being filed pursuant to a Registration Rights Agreement
among the Company and the Selling Stockholders. Subject to the terms and
conditions of the Registration Rights Agreement dated as of December 23, 1997,
the Company has agreed to file such registration statement, covering up to 45%
of the shares of Common Stock received by each Selling Stockholder in the Merger
and to keep such registration statement effective for a period of 90 days.
14
<PAGE> 16
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of the Selling
Stockholders from time to time in transactions (which may include block
transactions) on the Nasdaq National Market, in negotiated transactions, through
a combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices, or at negotiated prices. The Selling Stockholders may
effect such transactions by selling the Shares directly to purchasers, through
broker-dealers acting as agents for the Selling Stockholders, or to
broker-dealers who may purchase Shares as principals and thereafter sell the
Shares from time to time in transactions (which may include block transactions)
on the Nasdaq National Market, in negotiated transactions, through a combination
of such methods of sale, or otherwise. In effecting sales, broker-dealers
engaged by a Selling Stockholder may arrange for other broker-dealers to
participate. Such broker-dealers, if any, may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they may sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Stockholders and any broker-dealers, agents or underwriters
that participate with the Selling Stockholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Company has agreed to bear all expenses of registration of the
Shares (other than fees and expenses, if any, of counsel or other advisors to
the Selling Stockholders). Any commissions, discounts, concessions or other
fees, if any, payable to broker-dealers in connection with any sale of the
Shares will be borne by the Selling Stockholders selling such Shares.
LEGAL MATTERS
Certain legal matters with respect to the validity of Common Stock
offered hereby are being passed upon for the Company by Pillsbury Madison &
Sutro LLP, San Francisco, California.
EXPERTS
The financial statements of Incyte Pharmaceuticals, Inc. at December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, included in the Company's Current Report on Form 8-K dated June 12, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
15
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Commission registration fee.
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
SEC registration fee ................................... $ 10,204.00
Accounting fees and expenses ........................... 10,000.00
Legal fees and expenses ................................ 10,000.00
Miscellaneous fees and expenses ........................ 2,796.00
-------------
Total ........................................... $ 33,000.00
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Article VII of the Registrant's Restated Certificate of
Incorporation (Exhibit 4.1 to the Registrant's Registration Statement on Form
S-3 (File No. 333-31307) and Article V of the Registrant's Bylaws (Exhibit 4.2
to the Registrant's Registration Statement on Form S-3 (File No. 333-31307)
provide for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service as directors or officers to the fullest
extent not prohibited by law.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP
(included in its opinion filed as Exhibit
5.1 to this Registration Statement).
24.1 Power of Attorney (see page II-3).
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities
II-1
<PAGE> 18
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on June 17, 1998.
INCYTE PHARMACEUTICALS, INC.
By /s/ Roy A. Whitfield
---------------------------------
Roy A. Whitfield
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roy A. Whitfield, Randal W. Scott, and Denise M.
Gilbert, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to the Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that each of said attorneys-in-fact and agents or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Roy A. Whitfield Chief Executive Officer (Principal
- ------------------------- Executive Officer) and Director June 17, 1998
Roy A. Whitfield
Executive Vice President and Chief
/s/ Denise M. Gilbert Financial Officer (Principal Financial June 17, 1998
- ------------------------- Officer)
Denise M. Gilbert
/s/ William Delaney Controller (Principal Accounting
- ------------------------- Officer) June 17, 1998
William Delaney
/s/ Jeffrey J. Collinson Chairman of the Board June 17, 1998
- ------------------------
Jeffrey J. Collinson
/s/ Barry M. Bloom Director June 17, 1998
- ------------------------
Barry M. Bloom
/s/ Frederick B. Craves Director June 17, 1998
- -----------------------
Frederick B. Craves
</TABLE>
II-3
<PAGE> 20
<TABLE>
<S> <C> <C>
/s/ Jon S. Saxe Director June 17, 1998
- -----------------------
Jon S. Saxe
/s/ Randal W. Scott Director June 17, 1998
- -----------------------
Randal W. Scott
</TABLE>
II-4
\
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
<S> <C>
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to the Registration Statement).
24.1 Power of Attorney (see page II-3).
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[PILLSBURY MADISON & SUTRO LETTERHEAD]
June 17, 1998
Incyte Pharmaceuticals, Inc.
3174 Porter Drive
Palo Alto, CA 94304
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel for Incyte Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of 1,053,115 shares of Common Stock, $.001
par value (the "Common Stock"), of the Company, to be offered and sold by
certain stockholders of the Company (the "Selling Stockholders"). In this regard
we have participated in the preparation of a Registration Statement on Form S-3
relating to such 1,053,115 shares of Common Stock. (Such Registration Statement,
as amended, is herein referred to as the "Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Selling Stockholders have been duly authorized and legally issued
and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
PILLSBURY MADISON & SUTRO LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Incyte
Pharmaceuticals, Inc. for the registration of 1,053,115 shares of its common
stock and to the incorporation by reference therein of our report dated January
12, 1998, except for "Principles of Consolidation" in Note 1 and paragraph 3 of
Note 7 as to which the date is January 22, 1998 with respect to the consolidated
financial statements of Incyte Pharmaceuticals, Inc. included in its Current
Report on Form 8-K dated June 12, 1998, for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Palo Alto, California
June 12, 1998
