UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 22, 1998
(Date of earliest event reported)
INCYTE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27488 94-3136539
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3174 Porter Drive
Palo Alto, California, 94304
(Address of principal executive offices)
(650) 855-0555
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On January 22, 1998, Bond Acquisition Corporation ("Merger
Subsidiary"), a Delaware corporation and a wholly owned subsidiary of the
Registrant, Incyte Pharmaceuticals, Inc. ("Incyte"), was merged with and into
Synteni, Inc. ("Synteni"), a Delaware corporation, pursuant to the Agreement and
Plan of Merger, dated as of December 23, 1997, among Incyte, Merger Subsidiary,
and Synteni (the "Agreement"). The merger of Merger Subsidiary with and into
Synteni (the "Merger") became effective at the time of filing of a certificate
of merger with the Delaware Secretary of State on January 22, 1998 (the
"Effective Time"). At the Effective Time, (i) Merger Subsidiary ceased to exist,
(ii) Synteni, as the surviving corporation in the Merger, became a wholly owned
subsidiary of Incyte, and (iii) each share of Synteni capital stock (a "Synteni
Share") outstanding immediately prior to the Effective Time was converted into
the right to receive 0.1246 of a share of Common Stock, $.001 par value, of
Incyte ("Incyte Common Stock").
In addition, pursuant to the Agreement, each option to purchase Synteni
Shares granted under Synteni's 1996 Equity Incentive Plan (the "Synteni Plan")
outstanding immediately prior to the Effective Time was converted into an option
to purchase Incyte Common Stock and Incyte assumed each such outstanding Synteni
stock option in accordance with the terms of the Synteni Plan and the stock
option agreement by which it is evidenced. By virtue of the assumption by Incyte
of such Synteni stock options, from and after the Effective Time: (i) each
Synteni stock option assumed by Incyte may be exercised solely for Incyte Common
Stock; (ii) the number of shares of Incyte Common Stock subject to each such
Synteni stock option is equal to the number of Synteni Shares subject to such
Synteni stock option immediately prior to the Effective Time multiplied by
0.1246 (the exchange ratio in the Merger), rounded down to the nearest whole
number of shares of Incyte Common Stock; and (iii) the per share exercise price
for each such Synteni stock option is equal to the quotient obtained by dividing
the exercise price per share of such stock option immediately prior to the
Effective Time by 0.1246, rounded up to the nearest whole cent. Pursuant to the
Merger Agreement, 10% of the shares of Incyte Common Stock to be issued to
former Synteni stockholders in the Merger has been placed in escrow as security
for any losses Incyte incurs or reasonably anticipates incurring by reason of
breaches by Synteni of covenants, representations or warranties contained in the
Merger Agreement.
The former stockholders of Synteni are receiving approximately 2.3
million shares of Incyte Common Stock in the Merger (which amount includes
shares that continue to be subject to repurchase in the event of certain events,
such as termination of the holder's employment with Synteni). In addition,
approximately 0.3 million shares of Incyte Common Stock may be issued in
connection with the exercise of Synteni stock options assumed by Incyte pursuant
to the Merger.
The Merger is intended to qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and to be accounted for as a pooling of interests.
Incyte has entered into a registration rights agreement, dated as of
December 23, 1997, with the former stockholders of Synteni (the "Registration
Rights Agreement") pursuant to which Incyte has agreed to use its reasonable
efforts to file, and cause to become effective on or before July 21, 1998, a
registration statement with the Securities and Exchange Commission covering the
resale of up to 45% of the shares of Incyte Common Stock issued to former
stockholders of Synteni pursuant to the Merger.
Synteni has developed and commercialized technology for generating
microarrays and related software. Synteni provides gene expression-based
microarray services non-exclusively to the pharmaceutical biotechnology
industry.
The foregoing descriptions of the Merger Agreement and Registration
Rights Agreement are qualified in their entirety to the full text of such
Agreements, copies of which are Incorporated by reference from the information
under the caption "Exhibit 2.1" and "Exhibit 4.1" of the Form 8-K filed on
February 6, 1998, respectively.
<PAGE>
Item 7. Financial Statements.
--------------------
(a) Financial Statements of Business Acquired.
The following audited financial statements of Synteni,
together with the report thereon manually signed by Ernst &
Young LLP, appear as Exhibit 99.1 to this report and are
incorporated by reference:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of September 30, 1997 and 1996
Statements of Operations for the Years Ended September 30,
1997 and 1996
Statements of Stockholders' Equity for the Years Ended
September 30, 1997 and 1996
Statements of Cash Flows for the Years Ended September 30,
1997 and 1996
Notes to the Financial Statements
(b) Unaudited Pro Forma Financial Information.
The following unaudited pro forma combined condensed financial
statements appear as Exhibit 99.2 to this report and are
incorporated herein by reference:
Unaudited Pro Forma Combined Condensed Balance Sheet as of
December 31, 1997
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
as of December 31, 1997
Unaudited Pro Forma Combined Condensed Statement of
Operations for the Year Ended December 31, 1997
Notes to the Unaudited Pro Forma Combined Condensed Statement
of Operations for the Year Ended December 31, 1997
<PAGE>
Synteni, Inc.
Financial Statements
Years ended September 30, 1997 and 1996
Contents
Report of Ernst & Young LLP, Independent Auditors.......................1
Audited Financial Statements
Balance Sheets..........................................................2
Statements of Operations................................................3
Statement of Stockholders' Equity (Net Capital Deficiency)..............4
Statements of Cash Flows................................................5
Notes to Financial Statements...........................................6
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Synteni, Inc.
We have audited the accompanying balance sheets of Synteni, Inc. at September
30, 1997 and 1996 and the related statements of operations, stockholders' equity
(net capital deficiency), and cash flows for the years ended September 30, 1997
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Synteni, Inc. at September 30,
1997 and 1996 and the results of its operations and its cash flows for the years
ended September 30, 1997 and 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
October 24, 1997
1
<PAGE>
Synteni, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30,
1997 1996
------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,429,442 $ 1,988,250
Other current assets 316,480 25,583
-------------------------------
Total current assets 4,745,922 2,013,833
Property and equipment, net 1,127,314 259,322
Other assets 126,378 23,958
-------------------------------
$ 5,999,614 $ 2,297,113
===============================
Liabilities and stockholders' equity (net capital deficiency)
Current liabilities:
Accounts payable $ 287,849 $ 109,982
Deferred revenue 4,725,088 2,532,937
Other current liabilities 338,984 67,130
Current portion of long-term debt 217,423 --
-------------------------------
Total current liabilities 5,569,344 2,710,049
Long-term debt, less current portion 747,678 --
Commitments
Stockholders' equity (net capital deficiency)
Preferred stock, $0.001 par value; 14,000,000 shares authorized,
3,711,347 shares issued and outstanding at September 30, 1997,
at amount paid in, liquidation preference of $3,600,007 3,559,250 --
Common stock, $0.001 par value; 34,500,000 shares authorized,
12,363,819 and 12,000,000 shares issued and outstanding at
September 30, 1997 and 1996, respectively, at amounts paid in 138,882 102,500
Accumulated deficit (4,015,540) (515,436)
-------------------------------
Total stockholders' equity (net capital deficiency) (317,408) (412,936)
-------------------------------
$ 5,999,614 $ 2,297,113
===============================
See accompanying notes.
</TABLE>
2
<PAGE>
Synteni, Inc.
Statements of Operations
Years ended September 30,
1997 1996
-------------------------------
Revenues $ 1,644,838 $ 109,803
Operating expenses:
Research and development 3,525,190 472,983
General and administrative 1,794,211 165,118
-------------------------------
Total operating expenses 5,319,401 638,101
-------------------------------
Loss from operations (3,674,563) (528,298)
Interest income, net 174,459 13,065
-------------------------------
Net loss $ (3,500,104) $ (515,233)
================================
See accompanying notes.
3
<PAGE>
Synteni, Inc.
Statement of Stockholders' Equity (Net Capital Deficiency)
Years ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
Stockholders'
Common Stock Equity (Net
Preferred Stock Common Stock to be Accumulated Capital
-----------------------------------------------
Shares Amount Shares Amount Issued Deficit Deficiency)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1995 -- $ -- 10,000,000 $ 2,500 $ 100,000 $ (203) $ 102,297
Issuance of common
shares previously
subscribed -- -- 2,000,000 100,000 (100,000 -- --
Net loss -- -- -- -- -- (515,233) (515,233)
-----------------------------------------------------------------------------------------
Balances at
September 30, 1996 -- -- 12,000,000 102,500 -- (515,436) (412,936)
Issuance of Series A
preferred stock at $0.97
per share to investors in
January and May 1997
for cash, net of offering
costs of $40,757 3,711,347 3,559,250 -- -- -- -- 3,559,250
Issuance of common
stock at $0.10 per share
in May 1997 for cash
under the 1996 Equity
Incentive Plan -- -- 363,819 36,382 -- -- 36,382
Net loss -- -- -- -- -- (3,500,104) (3,500,104)
------------------------------------------------------------------------------------------
Balances at
September 30, 1997 3,711,347 $3,559,250 12,363,819 $138,882 $ -- $4,015,540) $(317,408)
===========================================================================================
See accompanying notes.
</TABLE>
4
<PAGE>
Synteni, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended September 30,
1997 1996
-------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (3,500,104) $ (515,233)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 221,093 68,345
Changes in operating assets and liabilities:
Other current assets (290,897) (23,583)
Other assets (102,420) (15,858)
Accounts payable 177,867 103,576
Deferred revenue 2,192,151 2,532,937
Other current liabilities 271,854 66,130
-------------------------------
Net cash (used in) provided by operating activities (1,030,456) 2,216,314
-------------------------------
Cash flows from investing activities
Additions to property and equipment (1,089,085) (265,428)
-------------------------------
Net cash used in investing activities (1,089,085) (265,428)
-------------------------------
Cash flows from financing activities
Proceeds from issuance of common stock 36,382 --
Proceeds from issuance of preferred stock 3,559,250 --
Proceeds from long-term debt 1,000,000 --
Payments on long-term debt (34,899) --
-------------------------------
Net cash provided by financing activities 4,560,733 --
------------------------------
Net increase in cash 2,441,192 1,950,886
Cash and cash equivalents at the beginning of the year 1,988,250 37,364
-------------------------------
Cash and cash equivalents at the end of the year $ 4,429,442 $ 1,988,250
===============================
See accompanying notes.
</TABLE>
5
<PAGE>
Synteni, Inc.
Notes to Financial Statements
September 30, 1997
1. Summary of Significant Accounting Policies
Organization and Business
Synteni, Inc., ("Synteni") or (the "Company") was incorporated in the State of
California in October 1994 and reincorporated in the State of Delaware in
January 1997. Since formation, the Company has focused on developing its Gene
Expression Microarray ("GEM"(TM)) technology and establishing a customer base.
The Company provides gene expression services to customers in the pharmaceutical
and biotechnology industries.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company invests
its excess cash primarily in deposits with banks and in highly liquid
money-market funds.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets,
generally three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of their useful life or the remaining life
of the lease.
Revenue Recognition
Revenue generated from products is recognized when inventory is shipped to the
customer and title passes. Revenue generated from services is recognized on
completion of key stages in the performance of the service, in proportion to
costs incurred. Payments received from customers in advance are deferred and
recognized as income when earned. Costs relating to the services are expensed as
incurred.
Stock-Based Compensation
The Company generally grants stock options and stock purchase rights to
employees for a fixed number of shares with an exercise price equal to the fair
value of the shares at the date of grant. In accordance with the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations in accounting for option grants to
employees under its employee stock option plan and to adopt the pro forma
disclosure alternative as described in SFAS 123 (see Note 4). Option grants to
nonemployees are accounted for using the fair value method prescribed by SFAS
123.
6
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Royalty Payments
Portions of the Company's technology have been licensed from a university. The
Company is obligated to pay royalties based on net sales for a period ending on
expiration of the related patents. The Company incurred $65,884 and $9,492 in
royalty expenses during the years ended September 30, 1997 and 1996,
respectively.
Research and Development
Research and development expenses consist of costs incurred for internally and
externally sponsored research and development and for initial services provided
to customers. These costs include direct and research-related overhead expenses.
2. Property and Equipment
Property and equipment consist of the following:
September 30,
1997 1996
-------------------------------
Leasehold improvements $ 276,156 $ 23,550
Machinery and production equipment 337,736 199,441
Computers, furniture and office equipment 820,785 122,601
-------------------------------
1,434,677 345,592
Less accumulated depreciation (307,363) (86,270)
-------------------------------
$ 1,127,314 $ 259,322
===============================
3. Long-Term Debt
On July 2, 1997, Synteni obtained $1,000,000 in debt financing secured by the
Company's property and equipment. The loan is repayable in 48 equal monthly
installments commencing on September 1, 1997 and carries an annual interest rate
of 9%. In connection with the financing, the Company issued a warrant to
purchase 20,618 shares of common stock, exercisable for a period of seven years
from the date of issue. Using the Black-Scholes model to determine the fair
value of the warrant, management has determined that such fair value is nominal.
4. Stockholders' Equity
On December 12, 1996, the directors and stockholders approved and executed a
10-for-1 split of the common stock. The effect of the stock split has been
reflected in the accompanying financial statements on a retroactive basis.
Preferred Stock
Series A preferred stock is convertible, at the option of the holder, into one
share of common stock, subject to adjustment in certain situations. Conversion
is automatic upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, which results
in a price per share of not less than $4.00 and gross offering proceeds of not
less than $10,000,000, or upon approval of a majority of the holders of each
series of preferred stock.
Each share of Series A preferred stock is entitled to voting rights equivalent
to the number of shares of common stock into which it is convertible. In
addition, for so long as at least 200,000 shares of Series A preferred stock is
issued and outstanding (subject to adjustment for antidilution) a majority vote
of the holders or such Series A preferred stock is required to effect certain
transactions.
7
<PAGE>
4. Stockholders' Equity (continued)
Preferred Stock (continued)
The Series A preferred shares are entitled to a liquidation preference of $0.97
per share, plus declared but unpaid dividends. After liquidation preference
distributions to Series A preferred stockholders have been paid, the remaining
assets of the Company available for distribution shall be distributed among the
holders of Series A preferred stock and common stock pro rata, based on the
number of shares of common stock held (or deemed to be held, on an as-converted
basis for preferred shares) until the Series A preferred stockholders have
received an amount per share of Series A preferred stock equal to three times
the original issue price of such shares. Thereafter, remaining assets will be
distributed ratably to the holders of common stock. Series A preferred
stockholders are entitled to noncumulative dividends at rates of 8% of the
original issue price per share per annum, if declared by the board of directors
and in preference to common stock dividends. No dividends have been declared or
paid by the Company.
Certain Series A preferred stockholders (the "Investors") have committed to
purchase 2,061,856 shares of Series A preferred stock at $0.97 per share (the
"Second Closing") following the employment by the Company of a Chief Executive
Officer acceptable to the Investors. If a Chief Executive Officer is not
retained in a timely manner, then the Second Closing shall take place at such
earlier time as the Investors may determine.
The holders of Series A preferred stock have certain registration rights.
1996 Equity Incentive Plan
On December 18, 1996, the board of directors approved and adopted the 1996
Equity Incentive Plan (the "Plan"). Under the Plan, the Company may grant an
aggregate of 3,500,000 incentive stock options, nonstatutory stock options,
stock bonuses or rights to purchase restricted stock. Incentive stock options
may be granted to employees and nonstatutory options and rights to purchase
restricted stock may be granted to employees, directors or consultants at
exercise prices of no less than 100% and 85%, respectively, of the fair value of
the common stock on the grant date, as determined by the board of directors. If,
at the time the Company grants an option, the optionee directly or by
attribution owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the option price shall be at least
110% of the fair value of the common stock on the date of grant and shall be
exercisable no more than five years after the date of grant, or in the case of a
restricted stock purchase award, the purchase price shall be at least 100% of
the fair value of such stock at the date of grant. Options may be granted with
different vesting terms from time to time. Except as noted above, options expire
no more than 10 years after the date of grant or earlier if employment is
terminated.
Common stock options may include a provision whereby the holder may elect at any
time while an employee, director or consultant to exercise the option as to any
part or all of the shares subject to the option prior to the full vesting of the
option. Any unvested shares so purchased are subject to repurchase by the
Company at a price generally equal to the original purchase price of the stock.
This right of repurchase will lapse at a minimum rate of 20% per year over five
years from the date the option was granted, and is exercisable only within the
90-day period following the termination of employment or the relationship as a
director or consultant, or such longer period as may be agreed to by the Company
and the holder.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
prices of the Company's stock options are equal to the fair value of the
Company's common stock as determined by the board of directors, no compensation
expense is recognized.
8
<PAGE>
4. Stockholders' Equity (continued)
1996 Equity Incentive Plan (continued)
The fair value option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Pro forma information regarding net earnings is required by SFAS 123 which also
requires that the information be determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value of the options was estimated at the date of grant using a minimum
value option pricing model, with the following assumptions: risk-free interest
rate of 6.15%; a weighted-average expected life of the option from grant date of
four years; and a dividend yield of zero. The effect of applying the minimum
value model to the stock option activity did not result in pro forma net loss
that is materially different from historical amounts reported. Therefore, such
pro forma information is not separately presented herein. Future pro forma net
income or loss may be materially different from actual amounts reported.
Option activity under the 1996 Plan is as follows:
Shares Available Options
For Grant Outstanding Price
---------------- ----------- ---------
Shares Authorized 3,500,000 -- $ --
Options granted (2,270,500) 2,270,500 $ 0.10
Restricted stock awarded (200,000) -- $ 0.10
Options exercised -- (163,819) $ 0.10
Options expired or canceled 31,000 (31,000) $ 0.10
--------------------------------------------
Balance at September 30, 1997 1,060,500 2,075,681 $ 0.10
At September 30, 1997, options to purchase 292,221 shares were vested and
exercisable with a weighted-average remaining contractual life of nine years and
a weighted-average exercise price of $0.10. The weighted-average fair value of
options granted under the 1996 Plan in fiscal 1997 was $0.02 per share. At
September 30, 1997, 330,000 shares issued under the Plan were subject to
repurchase.
At September 30, 1997, a total of 7,211,347 shares of common stock have been
reserved for issuance upon the conversion of the Series A preferred stock and
the exercise of stock options and restricted stock purchase rights.
5. Income Taxes
As of September 30, 1997, the Company had federal net operating loss
carryforwards of approximately $3,800,000. The net operating loss carryforwards
will expire beginning on 2111 through 2112, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
As of September 30, 1997, the Company had deferred tax assets of approximately
$1,600,000. The net deferred tax asset has been fully offset by a valuation
allowance. Deferred tax assets relate primarily to net operating loss
carryforwards.
9
<PAGE>
6. Retirement Plan
The Company has a defined contribution 401(k) plan which was established in
fiscal 1997. The plan is for the benefit of generally all employees and permits
voluntary employee contributions. The Company matches 25% of the first 4% of
each participant's annual compensation contributed to the Plan.
7. Leases
The Company leases office space and equipment under noncancelable operating
leases through 2004. The future minimum payments for all leases, by year are as
follows:
Year ending September 30,
1998 $ 592,779
1999 609,827
2000 626,874
2001 643,922
2002 659,674
Thereafter 1,066,904
----------------------
Total minimum lease payments $4,199,980
======================
Rent expense for the years ended September 30, 1997 and 1996 was approximately
$279,360 and $30,121, respectively.
8. Related Party Transactions
During the years ended September 30, 1997 and 1996, the Company purchased
consulting services totaling $179,000 and $28,161, respectively, from a company
owned by a director and stockholder of the Company. In addition, the Company
purchased consulting services in the same years totaling $102,000 and $18,865,
respectively, from two companies in which the same director and stockholder held
an ownership interest of 50% or less.
10
<PAGE>
Unaudited Pro Forma Financial Information
The following Unaudited Pro Forma Combined Condensed Balance Sheet as
of December 31, 1997, and the Unaudited Pro Forma Combined Condensed Statement
of Operations for the year ended December 31, 1997, give effect to Incyte
Pharmaceutical Inc.'s, (Incyte) merger with Synteni, Inc. (Synteni) accounted
for under the pooling-of-interests method of accounting.
The Unaudited Pro Forma Combined Condensed Financial Statements are
based on the historical financial statements of Incyte and Synteni and give
effect to the assumptions and adjustments set forth in the accompanying Notes to
the Unaudited Pro Forma Combined Condensed Balance Sheet and Statement of
Operations.
The Unaudited Pro Forma Combined Condensed Balance Sheet assumes that
the merger was consummated on December 31, 1997, and the Unaudited Pro Forma
Combined Condensed Statement of Operations assumes the merger was consummated on
January 1, 1997. Incyte reports its financial information on the basis of a
December 31 fiscal year. Synteni reports its financial information on the basis
of a September 30 fiscal year. The Unaudited Pro Forma Combined Condensed
Statement of Operations does not reflect the results of operations of Synteni
from October 1, 1997 to December 31, 1997.
The pro forma adjustments are based on the agreements between Incyte
and Synteni, which provide for Synteni Stockholders to receive 2,340,237 shares
of newly issued Incyte Common Stock.
The Unaudited Pro Forma Combined Condensed Statement of Operations
excludes any potential benefits that might result from the merger due to
synergies that may be derived and from the elimination of any duplicate efforts
or any non-recurring costs of the integration of the two operations. The
Unaudited Pro Forma Combined Condensed Financial Statements do not purport to be
indicative of the results that actually would have occurred if the merger
occurred on the dates indicated or indicative of results which may be obtained
in the future. The Unaudited Pro Forma Combined Condensed Financial Statements
should be read in conjunction with the historical financial statements and
accompanying Notes for Incyte and Synteni.
<PAGE>
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Merger Eliminating Pro Forma
Incyte Entries Synteni Total Entries Combined
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $51,169 -- $ 4,429 $55,598 $ -- 55,598
Restricted cash 6,000 -- -- 6,000 -- 6,000
Marketable securities -
available- for-sale 57,497 -- -- 57,497 -- 57,497
Accounts receivable 19,851 -- 132 19,983 -- 19,983
Prepaid expenses and other
current assets 3,651 -- 185 3,836 -- 3,836
---------- -------- -------- -------- -------- --------
Total current assets 138,168 -- 4,746 142,914 -- 142,914
Property and equipment, net 36,943 -- 1,127 38,070 -- 38,070
Long-term investments 14,800 3,698(1) -- 18,498 (3,698)(2) 14,800
Deposits and other assets 3,179 -- 126 3,305 -- 3,305
---------- -------- --------- -------- --------- ---------
Total assets $ 193,090 $ 3,698 $ 5,999 $202,787 $ (3,698) $ 199,089
========== ======== ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,503 $ -- $ 288 $ 5,791 $ -- $ 5,791
Accrued and other liabilities 14,052 -- 556 14,608 -- 14,608
Deferred revenue 27,090 -- 4,725 31,815 -- 31,815
---------- -------- --------- -------- --------- ---------
Total current liabilities 46,645 -- 5,569 52,214 -- 52,214
Non-current portion of accrued
rent and other non-current
liabilities 426 -- 747 1,173 -- 1,173
--------- -------- --------- -------- -------- ---------
Total liabilities 47,071 -- 6,316 53,387 -- 53,387
--------- -------- --------- -------- --------- ---------
Stockholders' equity:
Preferred stock -- -- 3,559 3,559 (3,559)(2) --
Common stock 24 2 (1) 139 165 (139)(2) 26
Additional paid-in capital 172,053 3,696 (1) -- 175,749 -- 175,749
Unrealized gains on
marketable securities
and other 56 -- -- 56 -- 56
Accumulated deficit (26,114) -- (4,015) (30,129) -- (30,129)
-------- ------- --------- -------- -------- --------
Total stockholders' equity $ 146,019 $ 3,698 $ (317) $149,400 $ (3,698) $145,702
-------- ------- --------- -------- -------- --------
Total liabilities and
stockholders' equity $ 193,090 $ 3,698 $ 5,999 $202,787 $ (3,698) $199,089
========= ======= ======== ======== ======== ========
See accompanying notes.
</TABLE>
2
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
The Unaudited Pro Forma Combined Condensed Balance Sheet was prepared
to reflect the merger of Incyte and Synteni accounted for under the
pooling-of-interests method of accounting on December 31, 1997.
The following is a summary of adjustments and eliminations reflected in
the Unaudited Pro Forma Combined Condensed Balance Sheet:
1) Entry represents the issuance of 2,340,237 shares of Incyte Common
stock in exchange for all of the shares of Synteni, and related investment in
Synteni.
(2) Entry represents the consolidating entry to eliminate Incyte's
investment in Synteni and the outstanding shares of Synteni.
3
<PAGE>
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Incyte Synteni Combined
----------- ----------- ------------
<S> <C> <C> <C>
Revenues $ 88,351 $ 1,645 $ 89,996
Costs and expenses:
Research and development 68,927 3,525 72,452
Selling, general and administrative 12,134 1,794 13,928
----------- ---------- ----------
Total costs and expenses 81,061 5,319 86,380
Income (loss) from operations 7,290 (3,674) 3,616
Interest and other income, net 3,666 174 3,840
----------- ---------- ---------
Income (loss) before income taxes 10,956 (3,500) 7,456
Provision for income taxes 548 -- 548
----------- ---------- -----------
Net income (loss) $ 10,408 $ (3,500) $ 6,908
=========== ========== ===========
Basic net income per share $ 0.47 $ 0.28
=========== ==========
Shares used in computing basic net income per share 22,215 24,300
=========== ==========
Diluted net income per share $ 0.43 $ 0.26
=========== ===========
Shares used in computing diluted net income per share 24,158 26,498
=========== ===========
See accompanying notes
</TABLE>
4
<PAGE>
NOTES TO THE PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Combined Condensed Statement of Operations was
prepared to reflect the merger accounted for under the pooling-of-interests
method of accounting as if it occurred on January 1, 1997. Incyte reports its
financial information on the basis of a December 31 fiscal year. Synteni reports
its financial information on the basis of a September 30 fiscal year. The
Unaudited Pro Forma Combined Condensed Statement of Operations reflects the
results of operations of Synteni from October 1, 1996 to September 30, 1997,
Synteni's latest fiscal year, and does not reflect the results of operations of
Synteni from October 1, 1997 to December 31, 1997.
No adjustments have been made to reflect restructuring charges, which are
not expected to be material, or merger costs, which are expected to range
between $1,000,000 and $2,000,000. No tax benefit has been recognized for the
Synteni net operating loss, as the related deferred tax asset
has been fully offset by a valuation allowance.
The Unaudited Pro Forma Combined basic and diluted net income per share
was computed assuming the 2,340,237 shares of Incyte Common Stock issued in
exchange for all of the outstanding shares of Synteni were outstanding as of
January 1, 1997.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 30, 1998.
INCYTE PHARMACEUTICALS, INC.
By /s/ Denise M. Gilbert
------------------------------
Name Denise M. Gilbert
------------------------------
Title Executive Vice President and
----------------------------
Chief Financial Officer
----------------------------
