<PAGE>
- -------------------------------------------------------------------------------
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: September 21, 1998
(Date of earliest event reported)
INCYTE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-27488 94-3136539
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
3174 Porter Drive, Palo Alto, California, 94304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 855-0555
- -------------------------------------------------------------------------------
<PAGE>
Item 7. Financial Statements and Exhibits.
---------------------------------
This Item 7 and the accompanying Exhibit Index amend and
restate in their entirety the corresponding Item in the
Registrant's Current Report on Form 8-K dated September 21,
1998.
(a) Financial Statements of Business Acquired.
Report of Coopers & Lybrand, independent accountants
Consolidated Profit and Loss Account
Statement of Total Recognised Gains and Losses
Balance Sheets at 31 December 1997
Consolidated Cash Flow Statement
Notes to the Financial Statements
Unaudited Financial Statements of Business Acquired.
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
(b) Unaudited Pro Forma Financial Information.
Unaudited Pro Forma Condensed Statement of Operations
Notes to the Unaudited Pro Forma Condensed Statement of Operations
(c) Exhibits
See Index to Exhibits
<PAGE>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Registered no: 3170808
Hexagen plc
Financial statements
for the year ended 31 December 1997
<PAGE>
Hexagen plc
Financial statements
for the year ended 31 December 1997
Pages
Report of independent accountants 1
Consolidated profit and loss account 2
Statement of total recognised gains and losses 3
Balance sheets 4
Consolidated cash flow statement 5
Notes to the financial statements 6 - 18
<PAGE>
Hexagen plc
Report of independent accountants
To the Board of Directors and Shareholders of
Hexagen plc
We have audited the accompanying consolidated financial statements of Hexagen
plc, a development stage company, as at December 31, 1997 and 1996, and the
consolidated profit and loss accounts, statements of total recognised gains and
losses and cash flows of Hexagen plc for the year ended December 31 1997 and
period ended December 31, 1996. These consolidated 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
in the United Kingdom which are substantially the same as those followed in the
United States. These 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 forming our opinion, we have considered the adequacy of the disclosures made
in the financial statements concerning the basis of preparation. The financial
statements have been prepared on a going concern basis and the validity of this
depends on the company successfully obtaining additional finance. The financial
statements do not include any adjustments that would result from a failure to
obtain this funding. Details of the circumstances relating to this fundamental
uncertainty are discussed in note 1. Our opinion is not qualified in this
respect.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hexagen
plc at December 31, 1997 and 1996, and the consolidated results of its
operations, total recognised gains and losses and its cash flows for the year
ended December 31, 1997 and period ended December 31, 1996 in conformity with
accounting principles generally accepted in the United Kingdom which differ in
certain respects from those generally accepted in the United States (see note 30
to the financial statements).
Coopers & Lybrand
Chartered Accountants
Cambridge, England
August 14, 1998 except for the information presented in note 30 for which the
date is October 1, 1998.
1
<PAGE>
Hexagen plc
Consolidated profit and loss account
for the year ended 31 December 1997
<TABLE>
<CAPTION>
10 months
ended
31 December
Notes 1997 1996
as restated
(pound) (pound)
<S> <C> <C> <C>
Net operating expenses - continuing operations 2 (2,751,444) (767,132)
Exceptional net operating expenses 2 (77,550) (101,250)
----------- ---------
Operating loss - continuing operations (2,828,994) (868,382)
Investment income 5 318,341 125,649
Interest payable and similar charges 6 (123,161) (13,019)
----------- ---------
Retained loss for the financial year 7,20 (2,633,814) (755,752)
----------- ---------
----------- ---------
</TABLE>
There is no difference between the loss on ordinary activities before taxation
and the retained loss for the year stated above, and their historical cost
equivalents.
2
<PAGE>
Hexagen plc
Statement of total recognised gains and losses
1997 1996
(pound) (pound)
(Loss) for the financial year and
total recognised losses relating
to the year (2,633,814) (755,752)
--------- -------
The introduction of UITF Abstract 17 ("Employee share schemes") has necessitated
a prior year adjustment relating to the granting of options in 1996 (see note
10).
The cumulative effect on opening reserves is nil, comprising charges to the
prior year profit and loss account of (pound)101,250, offset by a corresponding
credit to reserves representing the proceeds of the equity investment.
3
<PAGE>
Hexagen plc
Balance sheets
at 31 December 1997
<TABLE>
<CAPTION>
Group Company Group Company
Notes 1997 1997 1996 1996
as restated
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets 11 1,328,131 - 1,009,692 -
Investments 12 - 250,000 - 250,000
--------- ------- --------- ---------
1,328,131 250,000 1,009,692 250,000
--------- ------- --------- ---------
Current assets
Debtors: amounts falling
due within one year 13 339,045 - 325,547 31,710
Debtors: amounts falling
due after one year 13 - 6,668,656 - 6,667,527
Short-term investments 3,400,000 - 6,520,000 -
Cash at bank and in hand 233,460 25,321 166,892 269
--------- --------- --------- ---------
3,972,505 6,693,977 7,012,439 6,699,506
Creditors: amounts falling
due within one year 14 (997,529) - (1,201,300) (5,531)
--------- --------- --------- ---------
Net current assets 2,974,976 6,693,977 5,811,139 6,693,975
--------- --------- --------- ---------
Total assets less current
liabilities 4,303,107 6,943,977 6,820,831 6,943,975
Creditors: amounts falling
due after more than one year 15 (811,249) - (772,709) -
--------- --------- --------- ---------
Net assets 3,491,858 6,943,977 6,048,122 6,943,975
--------- --------- --------- ---------
Capital and reserves
Called up share capital 18 1,376,117 1,376,117 1,376,117 1,376,117
Share premium 20 5,566,507 5,566,507 5,566,507 5,566,507
Merger reserve 20 (240,000) - (240,000) -
Profit and loss account 20 (3,210,766) 1,353 (654,502) 1,351
--------- --------- --------- ---------
Shareholders' funds 21 3,491,858 6,943,977 6,048,122 6,943,975
--------- --------- --------- ---------
Equity shareholders' deficit/
(funds) (3,214,742) 237,377 (708,578) 187,275
Non-equity shareholders' funds 6,706,600 6,706,600 6,756,700 6,756,700
--------- --------- --------- ---------
Total shareholders' funds 3,491,858 6,943,977 6,048,122 6,943,975
--------- --------- --------- ---------
</TABLE>
4
<PAGE>
Hexagen plc
Consolidated cash flow statement
for the year ended 31 December 1997
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
Notes 1997 1996
as restated
(pound) (pound)
<S> <C> <C> <C>
Net cash outflow from continuing operating
activities 22 (2,898,115) (164,754)
----------- -----------
Returns on investments and servicing of finance
Interest received 305,786 108,923
Interest paid on finance leases (123,161) (13,019)
----------- -----------
182,625 95,904
----------- -----------
Taxation
UK corporation tax paid - -
----------- -----------
Capital expenditure
Purchase of tangible fixed assets - (85,874)
Sale of tangible fixed assets 2,396 32,900
----------- -----------
2,396 (52,974)
----------- -----------
Net cash outflow before management of liquid resources
and financing (2,713,094) (121,824)
----------- -----------
Management of liquid resources
Purchase of treasury deposits - (6,520,000)
Sale of treasury deposits 3,120,000 -
---------- -----------
3,120,000 (6,520,000)
---------- -----------
Financing
Issue of shares - 6,677,574
Repayment of principal under finance leases (445,675) (48,271)
Finance lease funds not yet utilised 105,337 179,413
---------- -----------
Net cash inflow from financing (340,338) 6,808,716
---------- -----------
Increase in cash 23 66,568 166,892
---------- -----------
</TABLE>
5
<PAGE>
Hexagen plc
Notes to the financial statements
for the year ended 31 December 1997
1 Principal accounting policies
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies, which have been applied consistently, is set out below.
Basis of preparing the financial statements - going concern assumption
The company supports its subsidiary, Hexagen Technology Limited, through
intercompany funding. The directors estimate that cash and short term
investments held at the balance sheet date within the group are not sufficient
to continue funding activities for a full twelve months from 1 January 1998.
Accordingly, the directors currently plan to obtain further finance which would
enable the group to continue its activities for the foreseeable future. The
directors intend to obtain these additional funds during 1998. However, there is
uncertainty over the amount of finance which would be obtained.
The financial statements have been prepared on a going concern basis which
assumes that the company and its subsidiaries will continue in operational
existence for the foreseeable future.
The validity of this assumption depends on Hexagen plc being able to obtain
adequate additional finance to continue its activities.
If the company or its subsidiary were unable to continue in operational
existence for the foreseeable future, adjustments would have to be made to
reduce the balance sheet values of assets to their recoverable amounts, to
provide for further liabilities that might arise, and to reclassify fixed assets
as current assets.
Whilst the directors are presently uncertain as to the outcome of the matters
mentioned above, they believe that it is appropriate for the financial
statements to be prepared on the going concern basis.
Basis of consolidation
The consolidated profit and loss account includes the financial statements of
the holding company and its subsidiary undertaking. The consolidated financial
statements have been prepared using the principles of merger accounting. The
cost of investment in the company's balance sheet is recorded as the nominal
value of the shares issued.
6
<PAGE>
Hexagen plc
Change in presentation of financial information
FRS1 ("Cash flow statements") was revised in 1996 to change the format for
reporting cash flows. The revised standard came into effect for accounting
periods ending on or after 23 March 1997. Accordingly the group's cash flow
statement has been presented under the new format.
Change in accounting policy
UITF Abstract 17 ("Employee share schemes") was introduced in 1997 and applies
to accounting periods ending on or after 22 June 1997. In accordance with its
provisions, Hexagen plc has made a charge to the profit and loss account when
options are granted being the market value of the shares at the date of grant
less the exercise price of the options. The charge is then credited back to
reserves in accordance with the Abstract. The effects of the change in
accounting policy are disclosed in note 10.
Tangible fixed assets
The cost of tangible fixed assets is their purchase cost, together with any
incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of tangible fixed assets,
less their estimated residual values, on a straight line basis over the expected
useful economic lives of the assets concerned. The principal annual rates used
for this purpose are:
%
Laboratory equipment 20
Fixtures and fittings 11
Office equipment 20
Computer equipment 33 1/3
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term. Leasing agreements which transfer to the company substantially
all the benefits and risks of ownership of an asset are treated as if the asset
had been purchased outright. The assets are included in fixed assets and the
capital element of the leasing commitments is shown as obligations under finance
leases. The lease rentals are treated as consisting of capital and interest
elements. The capital element is applied to reduce the outstanding obligations
and the interest element is charged against profit in proportion to the reducing
capital element outstanding. Assets held under finance leases are depreciated
over the shorter of the lease terms and the useful lives of equivalent owned
assets.
Deferred taxation
7
<PAGE>
Hexagen plc
Provision is made for deferred taxation, using the liability method, on all
material timing differences to the extent that it is probable that a liability
or asset will crystallise.
Research and development
Costs associated with research and development are charged to the profit and
loss account in the year in which they occur.
Foreign currencies
Trading transactions denominated in foreign currencies are translated into
sterling at the exchange rate ruling when the transaction was entered into.
Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at the exchange rates ruling at the balance sheet date. Exchange
gains or losses are taken to the profit and loss account in the year in which
they arise.
Turnover
There is no turnover shown in the accounts.
Pension scheme arrangements
The company operates a defined contribution pension scheme. The pension cost is
the amount of contributions payable in the year.
2 Net operating expenses
Year 10 months
ended ended
31 December 31 December
1997 1996
as restated
(pound) (pound)
Continuing operations
Research and development 2,046,451 482,519
Administrative expenses 704,993 284,613
--------- ---------
2,751,444 767,132
Exceptional administrative expenses 77,550 101,250
--------- ---------
2,828,994 868,382
--------- ---------
The exceptional administrative expenses arise from the charge made on the
granting of share options. The charge is the difference between the market value
of the shares at the date of grant and the exercise price of the options (see
note 10).
8
<PAGE>
Hexagen plc
3 Directors' emoluments
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Aggregate emoluments 223,189 106,257
Company pension contributions to defined contribution scheme 18,478 9,750
------- -------
241,667 116,007
------- -------
</TABLE>
Included above are amounts paid to the highest paid director of:
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Aggregate emoluments 112,046 57,374
Company pension contributions to defined contribution scheme 9,291 5,250
------- ------
121,337 62,624
------- ------
</TABLE>
Benefits accrued to two directors during the year under a defined contribution
scheme.
4 Employee information
The average monthly number of persons (including executive directors) employed
by the group during the year was:
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
Number Number
<S> <C> <C>
By activity
Research 24 5
Administration 5 4
-- --
29 9
-- --
</TABLE>
9
<PAGE>
Hexagen plc
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Staff costs (for the above persons)
Wages and salaries 898,468 198,526
Social security costs 92,226 19,859
Other pension costs (see note 16) 80,383 17,883
--------- -------
1,071,077 236,268
--------- -------
</TABLE>
5 Investment income
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Other interest receivable 318,341 125,649
------- -------
</TABLE>
6 Interest payable and similar charges
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
On finance leases 123,161 13,019
------- ------
</TABLE>
7 Loss on ordinary activities before taxation
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Loss on ordinary activities before taxation is stated after charging:
Depreciation charge for the year:
Tangible owned fixed assets - 949
Tangible fixed assets held under finance leases 251,352 8,700
Research and development expenditure - current year 2,046,451 482,519
Auditors' remuneration:
Audit (company(pound)500 (1996:(pound)500)) 6,000 4,500
Other services to the group 4,900 17,450
Hire of other assets - operating leases 91,093 15,117
--------- -------
</TABLE>
10
<PAGE>
Hexagen plc
8 Tax on profit on ordinary activities
No corporation tax liability arises on the results for the year due to the loss
incurred. At 31 December 1997 there were estimated tax losses to carry forward
in excess of (pound)3,150,000 (1996: (pound)500,000).
9 Profit for the financial year
As permitted by section 230 of the Companies Act 1985, the parent company's
profit and loss account has not been included in these financial statements. The
parent company's profit for the financial year was (pound)2.
10 Change in accounting policies
The prior year adjustment of (pound)101,250 is made as a result of the change in
accounting policy for share options discussed in note 1. The adjustment is
reported in the statement of total recognised gains and losses and reserves (see
note 20).
The effect of the change in accounting policy is to increase the current year's
loss before taxation by (pound)77,550. The effect on the comparative profit and
loss account is to increase the loss before taxation from (pound)654,502 to
(pound)755,752.
11
<PAGE>
Hexagen plc
11 Tangible fixed assets
<TABLE>
<CAPTION>
Office
equipment
and
fixtures
Laboratory Computer and
equipment equipment fittings Total
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Cost
At 1 January 1997 628,020 131,541 259,780 1,019,341
Additions 319,456 172,641 80,465 572,562
Disposals (2,071) (700) - (2,771)
------- ------- ------- ---------
At 31 December 1997 945,405 303,482 340,245 1,589,132
------- ------- ------- ---------
Depreciation
At 31 December 1996 - 5,364 4,285 9,649
Charge for year 140,203 71,121 40,028 251,352
------- ------- ------- -------
At 31 December 1997 140,203 76,485 44,313 261,001
------- ------- ------- -------
Net book value
At 31 December 1997 805,202 226,997 295,932 1,328,131
------- ------- ------- ---------
Net book value
At 31 December 1996 628,020 126,177 255,495 1,009,692
------- ------- ------- ---------
</TABLE>
The net book value of tangible fixed assets includes an amount
of(pound)1,328,131 (1996:(pound)965,567) in respect of assets held under
finance leases.
The company has no tangible fixed assets.
<TABLE>
<CAPTION>
12 Fixed asset investments
Company
Interest in
group undertakings
(pound)
<S> <C>
Cost and net book value:
At 31 December 1997 and at 1 January 1997 250,000
-------
Interests in group undertakings
</TABLE>
<TABLE>
<CAPTION>
Name of Country of Description of Percentage of
undertaking incorporation shares held shares held
<S> <C> <C> <C>
Hexagen Technology Limited Great Britain Ordinary 0.2p shares 100%
</TABLE>
12
<PAGE>
Hexagen plc
Hexagen Technology Limited's principal activity is research into potential new
drug targets. Its results are included in the consolidated financial statements.
13
<PAGE>
Hexagen plc
13 Debtors
<TABLE>
<CAPTION>
Group Company Group Company
1997 1997 1996 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Amounts falling due within one year
Other debtors 118,345 - 233,490 31,710
Prepayments and accrued income 220,700 - 92,057 -
------- ------- ------- -------
339,045 - 325,547 31,710
------- ------- ------- -------
Amounts falling due after one year
Amounts owed by group undertaking - 6,668,656 - 6,667,527
------- --------- ------- -------
- 6,668,656 - 6,667,527
------- --------- ------- ---------
</TABLE>
14 Creditors: amounts falling due within one year
<TABLE>
<CAPTION>
Group Company Group Company
1997 1997 1996 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Trade creditors 376,977 - 644,296 5,531
Obligations under finance leases 526,384 - 332,700 -
Other taxation and social security 31,384 - 86,710 -
Accruals and deferred income 62,784 - 137,594 -
------- ------- --------- -----
997,529 - 1,201,300 5,531
------- ------- --------- -----
</TABLE>
15 Creditors: amounts falling due after more than one year
<TABLE>
<CAPTION>
Group Company Group Company
1997 1997 1996 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Obligations under finance leases 811,249 - 772,709 -
------- --- ------- ---
</TABLE>
The net finance lease obligations to which the group is committed are:
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
In one year or less 526,384 332,700
Between one and two years 526,384 332,700
Between two and five years 284,865 440,009
--------- ---------
1,337,633 1,105,409
--------- ---------
</TABLE>
14
<PAGE>
Hexagen plc
Hexagen plc has guaranteed the liabilities of Hexagen Technology Limited with
regard to that company's finance lease commitments.
16 Deferred taxation
At 31 December 1997 the company has no potential liability for deferred
taxation.
The group had potential deferred tax assets as follows:
<TABLE>
<CAPTION>
Amount provided Amount unprovided
1997 1996 1997 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Tax effect of timing differences because of:
Excess of capital allowances over
depreciation - - - (2,784)
Other - - (992,546) (203,630)
--- --- ------- -------
- - (992,546) (206,414)
--- --- ------- -------
</TABLE>
17 Pensions
The group operates a defined contribution scheme. The pension charge for the
year is (pound)80,383 (1996: (pound)17,883). (pound)45 remained outstanding
at the year-end and is included within accruals.
18 Called up share capital
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Authorised
23,355,672 preferred ordinary shares of 5p each 1,167,784 1,167,784
5,000,000 `A' ordinary shares of 5p each 250,000 250,000
3,339,668 ordinary shares of 5p each 166,983 166,983
--------- ---------
1,584,767 1,584,767
--------- ---------
Allotted, called up and fully paid
22,355,331 preferred ordinary shares of 5p each 1,117,767 1,117,767
5,000,000 `A' ordinary shares of 5p each 250,000 250,000
167,000 (1996: Nil) ordinary shares of 5p each 8,350 -
--------- ---------
1,376,117 1,367,767
Allotted shares - not fully paid up
Nil (1996: 167,000) preferred ordinary shares of 5p each - 8,350
--------- ---------
1,376,117 1,376,117
--------- ---------
</TABLE>
15
<PAGE>
Hexagen plc
On 26 November 1997 the holders of 167,000 of the preferred ordinary shares
exercised the right to convert their shares into ordinary shares.
The preferred ordinary shares rank in priority to the other shares in a return
of capital and in the payment of a dividend.
The priority in respect of the dividend is limited to 8% (non-cumulative) of the
nominal value of the shares. Thereafter they rank equally with the `A' ordinary
and ordinary shares.
The priority in respect of a return of capital is limited to the subscription
price plus any arrears of dividends. Thereafter they rank equally with the `A'
ordinary and ordinary shares. The preferred ordinary shares are classed as non
equity because one of the rights in respect of dividends is for a limited
amount.
The classes of shares are equal in all other respects.
19 Options in shares of Hexagen plc
Options have been granted for 5p ordinary shares as follows:
<TABLE>
<CAPTION>
Number Subscription Period
of shares price per share within which options exercisable
<S> <C> <C>
50,000 5p 15 July 1997 - 15 July 2003
10,000 5p 12 August 1997 - 12 August 2003
225,000 5p 3 September 1997 - 3 September 2003
30,000 5p 23 September 1997 - 23 September 2003
30,000 5p 30 September 1997 - 30 September 2003
100,000 5p 7 October 1997 - 7 October 2003
40,000 5p 14 October 1997 - 14 October 2003
15,000 5p 21 October 1997 - 21 October 2003
150,000 5p 1 November 1997 - 1 November 2003
25,000 5p 16 December 1997 - 16 December 2003
75,000 5p 28 February 1998 - 28 February 2004
15,000 5p 1 March 1998 - 28 February 2004
95,000 5p 1 March 1998 - 29 February 2004
50,000 5p 1 April 1998 - 1 April 2004
72,000 5p 1 May 1998 - 1 May 2004
35,000 5p 1 June 1998 - 1 June 2004
75,000 5p 1 July 1998 - 1 July 2004
20,000 5p 1 August 1998 - 1 August 2004
15,000 5p 1 September 1998 - 1 September 2004
15,000 5p 1 October 1998 - 1 October 2004
50,000 5p 1 December 1998 - 1 December 2004
---------
1,192,000
---------
</TABLE>
16
<PAGE>
Hexagen plc
20 Reserves
<TABLE>
<CAPTION>
Group Share Merger Profit and
premium reserve loss account
(pound) (pound) (pound)
<S> <C> <C> <C>
At 1 January 1997 5,566,507 (240,000) (654,502)
Prior year adjustment (see note 10) - - (101,250)
Reversal of prior year adjustment (see note 1) - - 101,250
Reversal of share option charge (see note 1) - - 77,550
Loss for the year - - (2,633,814)
--------- ------- --------
5,566,507 (240,000) (3,210,766)
--------- ------- --------
Company
</TABLE>
<TABLE>
<CAPTION>
Share Profit and
premium loss account
(pound) (pound)
<S> <C> <C>
At 1 January 1997 5,566,507 1,351
Profit for the year - 2
--------- -------
5,566,507 1,353
--------- -------
21 Reconciliation of movements in shareholders' funds
</TABLE>
<TABLE>
<CAPTION>
Group Group
1997 1996
(pound) (pound)
<S> <C> <C>
Opening shareholders' funds 6,048,122 -
Share issue during the year - 7,006,700
Expenses of share issues - (64,076)
Reversal of share option charge 77,550 101,250
(Loss) for the financial year (2,633,814) (755,752)
Difference arising on consolidation - (240,000)
--------- ---------
Closing shareholders' funds 3,491,858 6,048,122
--------- ---------
</TABLE>
17
<PAGE>
Hexagen plc
22 Reconciliation of operating loss to net cash outflow from operating
activities
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C>
Continuing operating activities
Operating loss (2,828,994) (868,382)
Share option charge 77,550 101,250
----------- ---------
(2,751,444) (767,132)
Depreciation on tangible fixed assets 251,352 9,649
Loss on sale of tangible fixed assets 375 7,900
Decrease/(increase) in other debtors 115,145 (191,714)
(Increase) in prepayments and accrued income (116,088) (92,057)
(Decrease)/increase in trade creditors (267,319) 644,296
(Decrease)/increase in other taxation and social security (55,326) 86,710
(Decrease)/increase in accruals and deferred income (74,810) 137,594
----------- ---------
Net cash outflow from continuing operating activities (2,898,115) (164,754)
----------- ---------
</TABLE>
23 Reconciliation of net cash flow to movement in net funds
<TABLE>
<CAPTION>
Year 10 months
ended ended
31 December 31 December
1997 1996
(pound) (pound)
<S> <C> <C> <C> <C>
Increase in cash in the period 66,568 166,892
Cash (inflow)/outflow from decrease in debt
and lease financing 445,675 48,271
Cash (inflow)/outflow from (decrease)/increase
in liquid resources (3,120,000) 6,520,000
--------- ---------
Change in net funds resulting from cash flows (2,607,757) 6,735,163
Other non-cash items
New finance leases (677,899) (1,153,680)
--------- ---------
Movement in net funds in the period (3,285,656) 5,581,483
Net funds at 1 January/incorporation 5,581,483 -
--------- ---------
Net funds at 31 December 2,295,827 5,581,483
--------- ---------
24 Analysis of net funds
At At
1 January Cash 31 December
1997 flow 1997
(pound) (pound) (pound)
Cash in hand, at bank 166,892 66,568 233,460
Finance leases (1,105,409) (232,224) (1,337,633)
Current asset investments 6,520,000 (3,120,000) 3,400,000
--------- --------- ---------
Total 5,581,483 (3,285,656) 2,295,827
--------- --------- ---------
</TABLE>
18
<PAGE>
Hexagen plc
25 Capital commitments
<TABLE>
<CAPTION>
Group
1997 1996
(pound) (pound)
<S> <C> <C>
Capital expenditure that has been contracted for but has not been
provided for in the financial statements 386,100 39,000
------- ------
</TABLE>
26 Contingent liabilities
The Inland Revenue has recently challenged the group's view that it has been
trading since incorporation. The company has sought professional advice on this
matter but if the challenge is upheld, taxation may become payable on interest
receivable since incorporation. This would amount to (pound)30,500 (plus
interest) for the year ended 31 December 1996 and (pound)70,500 for the year
ended 31 December 1997. No provision has been made in the financial statements
for these amounts.
27 Financial commitments
<TABLE>
At 31 December 1997 the group had annual commitments under non-cancellable operating leases as follows:
<CAPTION>
Land and Land and
buildings Other buildings Other
1997 1997 1996 1996
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Expiring within one year - 9,036 - -
In the second to fifth years
inclusive 70,000 9,000 70,000 21,068
------ ------ ------ ------
70,000 18,036 70,000 21,068
------ ------ ------ ------
</TABLE>
28 Post balance sheet event
In February 1998 the group entered into a lease agreement for further premises
at 214 Cambridge Science Park, Milton Road, Cambridge.
The new agreement replaced the existing lease on the premises which at 31
December 1997 committed the group to (pound)70,000 per annum for less than five
years (see note 27). Under the terms of the new agreement, the group is
committed to annual leasing costs on the premises of (pound)180,000 for more
than five years.
19
<PAGE>
Hexagen plc
29 Related party transactions
The company has taken advantage of the exemption available to companies not to
disclose transactions with wholly owned subsidiaries which are eliminated on
consolidation. There are no other related party transactions requiring
disclosure.
30 Summary of significant differences between UK and US Generally
Accepted Accounting Principles ("GAAP")
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP"). Such principles differ in certain respects from generally accepted
accounting principles in the United States ("US GAAP"). A summary of principal
differences and additional disclosures applicable to the Group are set out
below.
Reconciliation of consolidated profit and loss account:
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Retained loss under UK GAAP (2,633,814) (755,752)
US GAAP adjustments:
Stock options 40,174 91,931
----------- --------
Net loss under US GAAP (2,593,640) (663,821)
========= =======
Reconciliation of shareholders' equity:
1997 1996
(pound) (pound)
Shareholders' funds under UK GAAP 3,491,858 6,048,122
US GAAP adjustments:
Stock options 132,105 91,931
---------- ---------
Shareholders' equity under US GAAP 3,623,963 6,140,053
========= =========
</TABLE>
(i) Stock options
Under both UK and US GAAP, options issued with an exercise price below the fair
market value are considered compensatory. Under UK GAAP, the compensation charge
on options issued to reward past performance is reflected in the profit and loss
on the date of grant.
Under US GAAP, compensation cost also represents the difference between the
current market price and the exercise price on the grant date, but is recognised
in the profit and loss over the vesting period of the options granted.
20
<PAGE>
Hexagen plc
(ii) Disclosures related to development stage enterprises
The company was formed on 12 March 1996 to research potential new drug targets
that may enable the treatment of human and veterinary diseases. The company is
considered a development stage enterprise as defined by Financial Accounting
Standards Board Opinion No. 7, Accounting and Reporting by Development Stage
Enterprises. As required under the standard, the deficit accumulated in the
development stage on a UK GAAP basis from 12 March 1996 to 31 December 1997 is
(pound)3,210,766. The cumulative statements of profit and loss and cash flows
for the period since inception are shown below.
<TABLE>
Consolidated profit and loss account from 12 March 1996, date of inception, to 31 December 1997
<CAPTION>
(pound)
<S> <C>
Net operating expenses - continuing operations (3,518,576)
Exceptional net operating expenses (178,800)
-----------
Operating loss - continuing operations (3,697,376)
Investment income 443,990
Interest payable and similar charges (136,180)
-----------
Retained loss since inception (3,389,566)
Consolidated cash flow statement from 12 March 1996, date of inception, to 31
December 1997
(pound)
Net cash outflow from continuing operating
activities (3,062,869)
-----------
Returns on investments and servicing of finance
Interest received 414,709
Interest paid on finance leases (136,180)
---------
278,529
--------
Capital expenditure
Purchase of tangible fixed assets (85,874)
Sale of tangible fixed assets 35,296
--------
(50,578)
--------
Net cash outflow before management of liquid resources
and financing (2,834,918)
----------
21
<PAGE>
Hexagen plc
Management of liquid resources
Purchase of treasury deposits (6,520,000)
Sale of treasury deposits 3,120,000
---------
(3,400,000)
----------
Financing
Issue of shares 6,677,574
Repayment of principal under finance leases (493,946)
Finance lease funds not yet utilised 284,750
--------
Net cash inflow from financing 6,468,378
--------
Increase in cash 233,460
--------
</TABLE>
22
<PAGE>
Hexagen plc
(iii) Statement of cash flows
Under UK GAAP, the consolidated cash flow statements have been prepared in
accordance with the revised version of UK Financial Reporting Standard No.1
("FRS 1 revised") and presents substantially the same information as required
under SFAS No. 95. Under US GAAP however, there are certain differences from UK
GAAP with regard to classification of items within the cash flow statement.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, equity dividends paid,
management of liquid resources and financing. Under US GAAP cash flows are
classified under operating activities, investing activities and financing
activities. Under UK GAAP, cash is defined as cash in hand and deposits
repayable on demand, less overdrafts repayable on demand. Under US GAAP, cash
and cash equivalents are defined as cash and investments with original
maturities of three months or less.
A summary of the Group's operating, investing and financing activities
classified in accordance with US GAAP is presented below. For the purposes of
this summary, the Group considers all highly liquid investments with a maturity
of three months or less at the time of purchase to be cash equivalents.
23
<PAGE>
Hexagen plc
<TABLE>
<CAPTION>
1997 1996
(pound) (pound)
<S> <C> <C>
Net cash used in operating activities (2,715,490) (68,850)
Net cash provided by investing activities (997,604) (52,974)
Net cash (used in)/provided by financing activities (340,338) 6,808,716
--------- ---------
Net increase in cash and cash equivalents (4,053,432) 6,686,892
Cash and cash equivalents at beginning of period 6,686,892 -
--------- ---------
Cash and equivalents at end of period 2,633,460 6,686,892
========= =========
Cash and cash equivalents are:
Cash at bank and in hand 233,460 166,892
Current asset investments 2,400,000 6,520,000
</TABLE>
24
<PAGE>
HEXAGEN plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine months ended
September 30,
--------------------------
1997 1998
(pound) (pound)
----------- ------------
Cost and expenses:
Research and development (1,465,645) (2,060,252)
General and administrative (617,408) (1,562,494)
----------- -----------
Net loss from operations (2,083,053) (3,622,746)
Interest income 252,228 120,150
Interest payable and similar charges (95,985) (110,454)
----------- -----------
Net loss (1,926,810) (3,613,050)
=========== ===========
See accompanying notes
1
<PAGE>
HEXAGEN plc
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, September 30,
1997* 1998
----------- -------------
(pound) (pound)
Fixed assets 1,328,131 1,578,430
--------- ---------
Current assets:
Debtors: amounts falling due within one year 339,045 201,664
Cash at hand and in bank 233,460 201,900
Short term investments 3,400,000 400,000
----------- -----------
Total current assets 3,972,505 803,564
Creditors: amounts falling due within one year (997,529) (1,223,670)
---------- -----------
Net current assets / (liabilities) 2,974,976 (420,106)
--------- -----------
Total assets less current liabilities 4,303,107 1,158,324
Creditors: amounts falling due
after more than one year (811,249) (330,304)
---------- -----------
Net assets 3,491,858 828,020
============= =============
Capital and reserves
Called up share capital 1,376,117 1,386,078
Merger reserve (240,000) (240,000)
Share premium 5,566,507 5,566,507
Accumulated deficit (3,210,766) (5,884,565)
----------- -----------
Equity shareholders' fund 3,491,858 828,020
============= =============
* The balances at December 31, 1997 are derived
from the audited financial statements
See accompanying notes
2
<PAGE>
HEXAGEN plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
---------------------------
1997 1998
---------- ---------
(pound) (pound)
Net cash flows from continuing operations (2,338,985) (2,045,128)
----------- -----------
Returns on investments and servicing of finance
Interest received 252,228 120,150
Interest paid on finance leases (95,985) (110,454)
-------- ---------
156,243 9,696
-------- --------
Net cash outflow before management
of liquid resources (2,182,742) (2,035,432)
and financing ----------- -----------
Management of liquid resources
Sale of treasury deposits 2,120,000 3,000,000
--------- ----------
2,120,000 3,000,000
--------- ----------
Financing
Issue of shares -- 9,961
Repayment of principal under finance leases (346,367) (480,945)
Change in finance lease funds not yet utilized 396,550 (525,144)
---------- -----------
Net cash inflow (outflow) from financing 50,183 (996,128)
---------- -----------
Decrease in cash (12,559) (31,560)
========== ==========
See accompanying notes
3
<PAGE>
HEXAGEN plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with applicable Accounting Standards in the United
Kingdom (U.K. GAAP) applied on a basis consistent with the audited financial
statements for the year ended December 31, 1997. Those accounting practices
differ in certain respects from United States generally accepted accounting
practices (U.S. GAAP) as discussed in Note 2. In preparing the financial
statements and notes thereto, certain reclassifications and changes in
presentation have been made in order to comply with accounting presentation and
disclosure requirements in the United States.
The condensed consolidated balance sheets as of September 30, 1998 and December
31, 1997 and the consolidated statements of operations and cash flows for the
nine months ended September 30, 1998 and 1997 are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position, operating
results and cash flows for the periods presented. Although the Company believes
that the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
information normally included have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Note 2 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
Employee share options
Under both U.K. and U.S. GAAP, if stock options are issued at below fair market
value there is a compensation cost charged to the profit and loss account. Under
U.K. GAAP any compensation cost arising on options issued to reward past
performance is charged to the profit and loss account when the options are
granted. Under U.S. GAAP the equivalent compensation cost is charged to the
profit and loss account over the vesting period of the related share options.
The effect of this difference on the group is as follows:
Nine months ended September 30,
----------------------------------
1997 1998
------------ -------------
(pound) (pound)
Net loss under U.K. GAAP (1,926,810) (3,613,050)
U.S. GAAP adjustments:
Deferral of stock compensation
expense on stock options 34,274 808,653
granted ----------- -----------
Net loss under U.S. GAAP (1,892,536) (2,804,397)
============ ============
4
<PAGE>
HEXAGEN plc
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
The difference between the treatment of stock compensation for option grants
between U.K. GAAP and U.S. GAAP has no impact on cash flows, and has no effect
on the total consolidated net shareholders' equity of the Company.
Statement of cash flows
Under U.K. GAAP, cash does not include short term deposits and investments which
cannot be withdrawn without notice and without incurring a financial penalty.
Such items are shown as current asset investments. Under U.S. GAAP, deposits
with a maturity period at inception of less than three months and which are
convertible into known amounts of cash are included as cash and cash
equivalents.
The effect of this difference on the group is as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1997 1998
-------------- -------------
(pound) (pound)
<S> <C> <C>
Cash as reported under U.K. GAAP 154,333 201,900
Adjustments for cash equivalents 1,600,000 400,000
---------- ----------
Cash and equivalents under U.S. GAAP 1,754,333 601,900
========== ==========
Increase (decrease) in cash under U.K. GAAP (12,559) (31,560)
Adjustment for cash equivalents (4,920,000) (2,000,000)
---------- -----------
Decrease in cash and cash equivalents under (4,932,559) (2,031,560)
U.S. GAAP =========== ===========
</TABLE>
Additionally, under U.K. GAAP cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditures and financial investment, and management of liquid resources and
financing. Under U.S. GAAP, cash flows are classified under operating,
investing, and financing activities.
Note 3 SUBSEQUENT EVENTS
In September 1998, Incyte Pharmaceuticals, Inc. ("Incyte") completed the
acquisition of the Company. Incyte issued 976,130 shares of its Common Stock and
$5.0 million in cash in exchange for all of the outstanding capital stock of the
Company. In addition, Incyte assumed all of the Company's outstanding stock
options. Immediately prior to the consummation of this transaction, the Company
was re-registered as a private limited company under the law of England and
Wales under the name Hexagen Limited.
5
<PAGE>
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1997, and the nine months ended September 30,
1998 give effect to the acquisition by Incyte Pharmaceuticals, Inc.(the
"Company") of all of the outstanding capital stock of Hexagen Limited, formerly
Hexagen plc ("Hexagen"), accounted for using the purchase method of accounting.
The Unaudited Pro Forma Condensed Statements of operations are based on
the historical financial statements of the Company and Hexagen, and give effect
to the assumptions and adjustments set forth in the accompanying Notes to the
Unaudited Pro Forma Statements of Operations.
The Unaudited Pro Forma Condensed Statement of Operations for the
year ended December 31, 1997 assumes the acquisition was consummated on January
1, 1997 and the Unaudited Pro Forma Condensed Statement of Operations for the
Nine months ended September 30, 1998 assumes the acquisition was consummated on
January 1, 1998.
The pro forma adjustments are based on the agreements between the
Company and Hexagen, which provide for Hexagen shareholders to receive 976,130
shares of newly issued Incyte Pharmaceuticals, Inc. common stock, options to
purchase 125,909 shares of the Company's Common Stock and $5 million in cash.
The intrinsic value of the options issued has been included in the purchase
price.
The Unaudited Pro Forma Condensed Statements of Operations excludes any
potential benefits that might result from the acquisition due to synergie 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 Condensed Financial Statements do not purport to be indicative of the
results that actually would have been achieved if the acquisition had occurred
on the dates indicated or indicative of results which may be obtained in the
future. The Unaudited Pro Forma Condensed Financial Statements should be read in
conjunction with the historical financial statements and accompanying Notes for
the Company, and Hexagen.
The historical financial statements of Hexagen included herein are
expressed in British pounds sterling (BPS) and are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("U.K. GAAP").
For purposes of preparing pro forma information in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP"), the historical
statements have been adjusted as appropriate utilizing the reconciliations of
the approximate effect on net income (loss) and shareholders' equity of
differences between U.K. GAAP and U.S. GAAP provided in Hexagen's historical
financial statements. For purposes of preparing the pro forma information,
certain reclassifications have also been made to the U.K. GAAP historical
statements to conform to the U.S. GAAP presentation. The statements have been
translated into U.S. dollars using the following exchange rates which equals the
average daily exchange rate for the related periods:
$ to BPS
-----------
Pro Forma Condensed Statement of Operations for the year ended 1.64
December 31, 1997
Pro Forma Condensed Statement of Operations for the nine months
Ended September 30, 1998 1.65
As the Hexagen acquisition was completed on September 21, 1998, Hexagen's
balance sheet accounts have been incorporated in the Company's September 30,
1998 Consolidated Balance Sheet included in the Company's Form 10-Q for the
quarter ended September 30, 1998, no Pro Forma Balance Sheet is required.
1
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Incyte
Consolidated
Incyte Pro Forma Pro Forma
Consolidated Hexagen Adjustments Total
------------ ------- ----------- -----
<S> <C> <C> <C> <C>
Revenues $ 89,996 $ -- $ -- $ 89,996
Costs and expenses
Research and development 72,452 3,351 -- 75,803
Selling, general, and administrative 13,928 1,214 2,392 17,534
---------- ---------- --------- ----------
Total costs and expenses 86,380 4,565 2,392 93,337
Income (loss) from operations 3,616 (4,565) (2,392) (3,341)
Interest and other income (expenses), net 3,840 320 ---- 4,160
--------- ---------- --------- ---------
Income (loss) before income taxes 7,456 (4,245) (2,392) 819
Provision for income taxes 548 ----- ---- 548
---------- ---------- --------- ----------
Net income (loss) $ 6,908 $ (4,245) $ (2,392) $ 271
=========== ============ ========== ============
Basic net income per share $ 0.28 $ 0.01
---------- ----------
Shares used in computing basic 24,300 25,276
net income per share ---------- ----------
Diluted net income per share $ 0.26 $ 0.01
---------- ----------
Shares used in computing diluted 26,498 27,588
net income per share ---------- ----------
See accompanying notes
</TABLE>
2
<PAGE>
NOTES TO THE PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Condensed Statement of Operations for the year
ended December 31, 1997 was prepared to reflect the acquisition by Incyte
Pharmaceuticals, Inc. of all of the outstanding capital stock of Hexagen
accounted for under the purchase method of accounting, as if it occurred on
January 1, 1997.
The adjustments reflected in the Unaudited Pro Forma Condensed
Statement of Operations represent the amortization of the intangible assets
acquired in the acquisition of Hexagen over an estimated useful life of 8 years.
The Unaudited Pro Forma basic and diluted net income per share were
computed assuming that the 976,130 shares of Common Stock issued in connection
with the acquisition were outstanding as of January 1, 1997. The Unaudited Pro
Forma diluted net income per share also gives effect to dilutive potential
shares of Common Stock subject to options assumed in connection with the
acquisition under the treasury stock method.
No adjustments have been made to reflect the charge for the purchase of
in-process research and development recorded by the Company at the time of
acquisition, as it represents a non-recurring charge directly attributable to
the transaction. No tax benefit has been recognized for the Hexagen net
operating loss, as the related deferred tax asset has been fully offset by a
valuation allowance.
3
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PROFORMA CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1998
(in thousands, except per share amounts)
Incyte
Consolidated
Incyte Pro Forma Pro Forma
Consolidated Hexagen Adjustments Total
------------ ------- ----------- -----
<S> <C> <C> <C> <C>
Revenues $ 98,164 $ -- $ -- $ 98,164
Costs and expenses
Research and development 69,581 3,181 -- 72,762
Selling, general, and administrative 17,196 1,571 1,793 20,560
Charge for purchase of in-process
research and development 10,978 --- (10,978) ----
Acquisition-related charges 1,171 --- ---- 1,171
---------- ---------- -------- ----------
Total costs and expenses $ 98,926 4,752 (9,185) 94,493
Income (loss) from operations (762) (4,752) 9,185 3,671
Interest and other income (expenses), net 4,860 17 ---- 4,877
--------- ---------- --------- ---------
Income (loss) before income taxes 4,098 (4,735) 9,185 8,548
Provision for income taxes 2,111 ----- ---- 2,111
---------- ---------- --------- ----------
Net income (loss) $ 1,987 (4,735) 9,185 6,437
============ ============ ========== ============
Basic net income per share $ 0.07 $ 0.23
---------- ----------
Shares used in computing basic 26,634 27,523
net income per share ---------- ----------
Diluted net income per share $ 0.07 $ 0.22
---------- ----------
Shares used in computing diluted 28,753 29,756
net income per share ---------- ----------
See accompanying notes
</TABLE>
4
<PAGE>
NOTES TO THE PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Condensed Statement of Operations for the nine
months ended September 30, 1998 was prepared to reflect the acquisition by
Incyte Pharmaceuticals, Inc. of all of the outstanding capital stock of Hexagen
accounted for under the purchase method of accounting, as if it occurred on
January 1, 1998.
The adjustments reflected in the Unaudited Pro Forma Condensed
Statement of Operations represent the amortization of the intangible assets
acquired in the acquisition of Hexagen over an estimated useful life of eight
years.
The Unaudited Pro Forma basic and diluted net income per share were
computed assuming that the 976,130 shares of Common Stock issued in connection
with the acquisition were outstanding as of January 1, 1998. The Unaudited Pro
Forma net income per share also gives effect to dilutive potential shares of
Common Stock subject to options assumed in connection with the acquisition,
under the treasury stock method.
An adjustment has been made to exclude the charge for the purchase of
in-process research and development recorded by the Company at the time of the
acquisition, as it represents a non-recurring charge directly attributable to
the transaction. No tax benefit has been recognized for the Hexagen net
operating loss, as the related deferred tax asset has been fully offset by a
valuation allowance.
5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1* Share Purchase Agreement, dated as of September 21, 1998, by
and among Incyte Pharmaceuticals, Inc., Hexagen Limited and the
shareholders of Hexagen Limited.
The following schedules and exhibits to the Share Purchase
Agreement have been omitted. Incyte will furnish copies of the
omitted schedules and exhibits to the Commission upon request.
Exhibit A - Form of Irrevocable Undertaking
Exhibit D-1 - Form of Amendments to Hexagen plc Unapproved Share
Option Plan 1996 (effective prior to Closing)
Exhibit D-2 - Form of Amendments to Hexagen plc Unapproved
Share Option Plan 1996 (effective upon Closing)
Exhibit D-3 - Form of Option Exchange Agreement**
Exhibit D-4 - Form of Replacement Option Certificate
Exhibit D-5 - Form of Option Release Deed Exhibit E - Form of
Restrictive Covenants Agreement
Exhibit E - Form of Restrictive Covenants Agreement
Schedule I - Schedule of Consideration
Schedule II - Schedule of Options to be Converted
Schedule 2.2 - Post-Closing Directors and Officers of the
Company; Resignations
Schedule 7.3 - Schedule of Shareholders and Employees to be
Parties to Restrictive Covenants Agreement and Employment
Agreements
- -----------------------
* Previously filed as Exhibit 2.1 to the Registrant's Current Report on
Form 8-K dated September 21, 1998.
** Previously filed as Exhibit 10.2 to the Registrant's Registration
Statement on Form S-8 (File No. 0-27488) filed on November 20, 1998.
<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: December 4, 1998.
INCYTE PHARMACEUTICALS, INC.
By /s/ DENISE M. GILBERT
------------------------------
Name Denise M. Gilbert
----------------------------
Title Executive Vice President
and Chief Financial Officer
---------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1* Share Purchase Agreement, dated as of September 21, 1998, by
and among Incyte Pharmaceuticals, Inc., Hexagen Limited and the
shareholders of Hexagen Limited.
The following schedules and exhibits to the Share Purchase
Agreement have been omitted. Incyte will furnish copies of the
omitted schedules and exhibits to the Commission upon request.
Exhibit A - Form of Irrevocable Undertaking
Exhibit D-1 - Form of Amendments to Hexagen plc Unapproved Share
Option Plan 1996 (effective prior to Closing)
Exhibit D-2 - Form of Amendments to Hexagen plc Unapproved
Share Option Plan 1996 (effective upon Closing)
Exhibit D-3 - Form of Option Exchange Agreement**
Exhibit D-4 - Form of Replacement Option Certificate
Exhibit D-5 - Form of Option Release Deed Exhibit E - Form of
Restrictive Covenants Agreement
Exhibit E - Form of Restrictive Covenants Agreement
Schedule I - Schedule of Consideration
Schedule II - Schedule of Options to be Converted
Schedule 2.2 - Post-Closing Directors and Officers of the
Company; Resignations
Schedule 7.3 - Schedule of Shareholders and Employees to be
Parties to Restrictive Covenants Agreement and Employment
Agreements
- -----------------------
* Previously filed as Exhibit 2.1 to the Registrant's Current Report on
Form 8-K dated September 21, 1998.
** Previously filed as Exhibit 10.2 to the Registrant's Registration
Statement on Form S-8 (File No. 0-27488) filed on November 20, 1998.
