<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Incyte Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
I N C Y T E
P H A R M A C E U T I C A L S, I N C.
3174 PORTER DRIVE
PALO ALTO, CALIFORNIA 94304
(650) 855-0555
May 1, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Incyte Pharmaceuticals, Inc. that will be held on June 15, 1998, at 9:00
A.M., at the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California.
The formal notice of the Annual Meeting and the Proxy Statement have
been made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return,
at an early date, the enclosed proxy in the enclosed prepaid envelope, to ensure
that your shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN, DATE AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1997 Annual Report to Stockholders is also
enclosed.
The Board of Directors and management look forward to seeing you at
the meeting.
Sincerely yours,
/s/ ROY A. WHITFIELD
Roy A. Whitfield
Chief Executive Officer
<PAGE> 3
INCYTE PHARMACEUTICALS, INC.
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
--------------
To the Stockholders of Incyte Pharmaceuticals, Inc.:
The Annual Meeting of Stockholders of Incyte Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), will be held at the Stanford Park Hotel,
100 El Camino Real, Menlo Park, California, on Monday, June 15, 1998, at 9:00
A.M., Pacific Daylight Time, for the following purposes:
1. To elect directors to serve until the 1999 Annual Meeting of
Stockholders and thereafter until their successors are
elected and qualified;
2. To consider and vote upon a proposal to amend the Company's
1991 Stock Plan to increase the number of shares available
for grant thereunder from 4,800,000 to 6,300,000 shares;
3. To ratify appointment of Ernst & Young LLP as the Company's
independent auditors; and
4. To transact such other business as may properly come before
the Annual Meeting and any adjournment of the Annual
Meeting.
Stockholders of record as of the close of business on April 20, 1998
are entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A complete list of stockholders entitled to vote at the Annual Meeting
will be available at the Secretary's office, 3174 Porter Drive, Palo Alto,
California for ten days before the meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING. EVEN
IF YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHT TO ATTEND OR
VOTE AT THE MEETING.
By Order of the Board of Directors
/s/ RANDAL W. SCOTT
Randal W. Scott
President, Chief Scientific Officer
and Secretary
May 1, 1998
<PAGE> 4
INCYTE PHARMACEUTICALS, INC.
3174 PORTER DRIVE
PALO ALTO, CALIFORNIA 94304
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Incyte Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), of proxies in the accompanying form to be used at
the Annual Meeting of Stockholders of the Company to be held at the Stanford
Park Hotel, 100 El Camino Real, Menlo Park, California, on Monday, June 15,
1998, at 9:00 A.M., Pacific Daylight Time, and any adjournment thereof (the
"Annual Meeting"). The shares represented by the proxies received in response to
this solicitation and not revoked will be voted at the Annual Meeting. A
stockholder who has given a proxy may revoke it at any time before it is
exercised by filing with the Secretary of the Company a written revocation or a
duly executed proxy bearing a later date or by voting in person at the Annual
Meeting. On the matters coming before the Annual Meeting for which a choice has
been specified by a stockholder by means of the ballot on the proxy, the shares
will be voted accordingly. If no choice is specified, the shares will be voted
"FOR" the election of the six nominees for director listed in this Proxy
Statement and "FOR" approval of the proposals referred to in Items 2 and 3 in
the Notice of Annual Meeting and described in this Proxy Statement.
Stockholders of record at the close of business on April 20, 1998 (the
"Record Date"), are entitled to vote at the Annual Meeting. As of the close of
business on such date, the Company had 26,553,895 shares of common stock, $.001
par value (the "Common Stock"), outstanding. The presence in person or by proxy
of the holders of a majority of the Company's outstanding shares constitutes a
quorum for the transaction of business at the Annual Meeting. Each holder of
Common Stock is entitled to one vote for each share held as of the Record Date.
Directors are elected by a plurality vote. The approval of the
amendment to the Company's Certificate of Incorporation will require the
affirmative vote of a majority of the outstanding shares of Common Stock. The
other matters submitted for stockholder approval at the Annual Meeting will be
decided by the affirmative vote of the majority of the shares represented in
person or by proxy and entitled to vote on each such matter. Abstentions with
respect to any matter are treated as shares present or represented and entitled
to vote on that matter and thus have the same effect as negative votes. If a
broker which is the record holder of certain shares indicates on a proxy that it
does not have discretionary authority to vote on a particular matter as to such
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to a particular matter,
these non-voted shares will be counted for quorum purposes but are not deemed to
be present or represented for purposes of determining whether stockholder
approval of that matter has been obtained.
The expense of printing and mailing proxy materials will be borne by
the Company. In addition to the solicitation of proxies by mail, solicitation
may be made by certain directors, officers and other employees of the Company by
personal interview, telephone or facsimile. No additional compensation will be
paid to such persons for such solicitation. The Company will reimburse brokerage
firms and others for their reasonable expenses in forwarding solicitation
materials to beneficial owners of the Common Stock.
This Proxy Statement and the accompanying form of proxy are being
mailed to stockholders on or about May 1, 1998.
IMPORTANT
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE
SO THAT, WHETHER YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR
NOT, YOUR SHARES CAN BE VOTED. THIS WILL NOT LIMIT YOUR RIGHTS TO
ATTEND OR VOTE AT THE ANNUAL MEETING.
<PAGE> 5
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors proposes the election of six directors of the
Company to serve until the next annual meeting of stockholders and thereafter
until their successors are elected and qualified. If any nominee is unable or
declines to serve as director at the time of the Annual Meeting, an event not
now anticipated, proxies will be voted for any nominee designated by the Board
of Directors to fill the vacancy.
Names of the nominees and certain biographical information about them
are set forth below:
ROY A. WHITFIELD, 44, has been Chief Executive Officer of the Company
since June 1993 and a director since June 1991. Mr. Whitfield served as
President of the Company from June 1991 until January 1997 and as Treasurer of
the Company from April 1991 until October 1995. Previously, Mr. Whitfield served
as the President of Ideon Corporation, which was a majority owned subsidiary of
Invitron Corporation ("Invitron"), a biotechnology company, from October 1989
until April 1991. From 1984 to 1989, Mr. Whitfield held senior operating and
business development positions with Technicon Instruments Corporation, a medical
instrumentation company, and its predecessor company, CooperBiomedical, Inc., a
biotechnology and medical diagnostics company. Prior to his work at Technicon,
Mr. Whitfield spent seven years with the Boston Consulting Group's international
consulting practice. Mr. Whitfield received a B.S. with First Class Honors in
mathematics from Oxford University, and an M.B.A. with Distinction from Stanford
University.
RANDAL W. SCOTT, PH.D., 40, has been President of the Company since
January 1997. He has served as Chief Scientific Officer of the Company since
March 1995, a director since June 1991 and Secretary of the Company since April
1991. Dr. Scott served as Executive Vice President of the Company from March
1995 until January 1997 and as Vice President, Research and Development of the
Company from April 1991 through February 1995. Dr. Scott was one of Invitron's
founding scientists and was employed by Invitron from March 1985 to June 1991.
In 1987, Dr. Scott started the Protein Biochemistry Department at Invitron's
California Research Division and became Senior Director of Research in November
1988. Dr. Scott was responsible for developing Invitron's proprietary products
and discovery programs and is an inventor of several of the Company's patents.
Prior to joining Invitron, he was a Senior Scientist at Unigene Laboratories, a
biotechnology company. Dr. Scott received his Ph.D. in Biochemistry from the
University of Kansas.
BARRY M. BLOOM, PH.D., 69, has been a director of the Company since
October 1994. Dr. Bloom retired in 1993 from Pfizer Inc. where he was most
recently Executive Vice President, Research and Development, and a member of the
Board of Directors. Dr. Bloom began his career with Pfizer in 1952 as a research
chemist. He was named president of Pfizer Central Research, and elected a
corporate vice president in 1971, a member of the Board of Directors in 1973,
and a member of the Corporate Management Committee in 1984. He was named senior
vice president in 1990 and executive vice president in 1991. Dr. Bloom serves on
the Boards of Directors of Cubist Pharmaceuticals, Inc., Neurogen Corporation,
Southern New England Telecommunications Corporation and Vertex Pharmaceuticals,
Inc. and is a scientific adviser to Axiom Venture Partners and Virus Research
Institute.
JEFFREY J. COLLINSON, 56, has been a director of the Company since
inception and has served as Chairman of the Board of Directors since April 1991.
Mr. Collinson has served as President of Collinson Howe Venture Partners, Inc.,
a venture capital management firm, since 1990 and was President of Schroder
Venture Managers, Inc., a venture capital firm, from 1983 to 1990. Mr. Collinson
is also President of Collinson Howe & Lennox LLC and a director of Intensiva
Healthcare Corporation, Neurogen Corporation and Spare, Kaplan, Bischel &
Associates.
FREDERICK B. CRAVES, PH.D., 52, has been a director of the Company
since July 1993. Since January 1, 1997, Dr. Craves has been Managing Director
and Chairman of The Craves Group, a private merchant bank focused on life
science. He is also a general partner of Burrill & Craves, a private merchant
bank specializing in life science, which he cofounded in 1994. Dr. Craves has
been an independent management consultant since May
2
<PAGE> 6
1993 and in July 1993, he was appointed Chairman of the Board of NeoRx
Corporation and of Epoch Pharmaceuticals, Inc., each of which is a biotechnology
company. From January 1991 to May 1993 he was President and Chief Executive
Officer of Berlex Biosciences, a biotechnology company that is a wholly owned
subsidiary of Schering AG. Dr. Craves was Chairman, Chief Executive Officer and
President of Codon, a biotechnology company, from 1982 until its acquisition by
Schering AG in 1990.
JON S. SAXE, 61, has been a director of the Company since July 1993.
Since January 1995, he has been the President of Protein Design Labs, Inc., a
biotechnology company. From April 1993 through December 1994, he was President
of Saxe Associates, a consultancy. Mr. Saxe served as President and Chief
Executive Officer of Synergen, Inc., a biotechnology company, from October 1989
to April 1993. Mr. Saxe served as Vice President, Licensing and Corporate
Development, for Hoffmann-La Roche Inc., a pharmaceutical company, from August
1984 to September 1989, and as Head, Patent Law from September 1978 to September
1989. Mr. Saxe is also a director of ID Biomedical, Inc. and Protein Design
Labs, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION AS DIRECTOR OF
THE NOMINEES SET FORTH ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held eight meetings during 1997. All directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and of the committees on which such directors serve.
The Board of Directors has appointed a Compensation Committee, an
Audit Committee and a Management Stock Option Plan Committee (the "Option
Committee").
The members of the Compensation Committee are Barry M. Bloom, Jeffrey
J. Collinson, Frederick B. Craves and Jon S. Saxe. The Compensation Committee
held four meetings during 1997. The Compensation Committee's functions are to
assist in the implementation of, and provide recommendations with respect to,
general and specific compensation policies and practices of the Company and to
administer the Company's 1991 Stock Plan (the "Stock Plan") and the 1997
Employee Stock Purchase Plan. The members of the Option Committee are Barry M.
Bloom, Jeffrey J. Collinson and Jon S. Saxe. The Option Committee's function is
to determine stock-based compensation awards for the Company's management. The
Option Committee held three meetings during 1997.
The members of the Audit Committee are Barry M. Bloom, Jeffrey J.
Collinson, Frederick B. Craves and Jon S. Saxe. The Audit Committee held four
meetings during 1997. The Audit Committee's functions are to review the scope of
the annual audit, monitor the independent auditor's relationship with the
Company, advise and assist the Board of Directors in evaluating the independent
auditor's examination, supervise the Company's financial and accounting
organization and financial reporting, and nominate, for approval of the Board of
Directors, a firm of certified public accountants whose duty it is to audit the
financial records of the Company for the fiscal year for which it is appointed.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
service on the Board of Directors. Drs. Bloom and Craves and Messrs. Collinson
and Saxe are reimbursed for their expenses for each meeting attended, and
Messrs. Collinson and Saxe and Drs. Craves and Bloom are each compensated
$2,500 per diem in connection with their attendance at Board meetings. Pursuant
to the Company's 1993 Directors' Stock Option Plan (the "Directors' Plan"), in
May 1997 each of Drs. Bloom and Craves and Messrs. Saxe and Collinson received
an annual automatic grant of an option to purchase 10,000 shares of Common Stock
at an exercise price of $27.6875 per share; such options vest in full on the
first business day following the Annual Meeting. The Board of Directors amended
the Directors' Plan in March 1998 to reduce the annual option grants receivable
by eligible directors from 10,000 shares to 5,000 shares. Pursuant to the
Directors' Plan as amended, each of Drs. Bloom and Craves and Messrs. Collinson
and Saxe will
3
<PAGE> 7
receive, if re-elected as a director at the Annual Meeting, an additional option
to purchase 5,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. Such options will vest in
full on the first business day following the Company's 1999 annual meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 1998
as to shares of the Common Stock beneficially owned by: (i) each person who is
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Company's executive officers
named under "Executive Compensation--Summary Compensation Table," and (iv) all
directors and executive officers of the Company as a group. Ownership
information is based upon information furnished by the respective individuals or
entities, as the case may be.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED(1)
-------- --------
<S> <C> <C>
Pharmacia & Upjohn, Inc.................................................... 1,527,666 5.8%
The Pharmacia & Upjohn Centre
67 Alma Road
Windsor, Berkshire
SL4 3HD, United Kingdom
Pfizer Inc. ............................................................... 1,420,000 5.4%
235 East 42nd Street
New York, NY 10017
Jeffrey J. Collinson(2).................................................... 409,712 1.5%
Roy A. Whitfield(3)........................................................ 670,560 2.5%
Randal W. Scott(4)......................................................... 401,400 1.5%
Denise M. Gilbert(5)....................................................... 245,000 *
Frederick B. Craves(6)..................................................... 89,600 *
Jon S. Saxe(7)............................................................. 74,000 *
Barry M. Bloom(8).......................................................... 43,500 *
All directors and executive officers as a group (7 persons) (9)............ 1,933,772 7.1%
</TABLE>
- ---------------
* Less than 1%.
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property
laws where applicable and the information contained in the notes to
this table.
(2) Includes 360,000 shares held by Schroders Incorporated, and 400 shares
held by Collinson Howe Venture Partners, Inc. Mr. Collinson, a
director of the Company, shares voting and investment power with
respect to such shares. Mr. Collinson disclaims beneficial ownership
of shares held by Schroders Incorporated, except to the extent of his
proportionate interest therein. Mr. Collinson is the majority
shareholder of Collinson Howe Venture Partners, Inc. and may be deemed
to be the beneficial owner of the shares held
4
<PAGE> 8
by that entity. Also includes 49,312 shares held by Indian Chase,
Inc., over which Mr. Collinson has voting and investment power. Mr.
Collinson disclaims beneficial ownership of shares held by Indian
Chase, Inc. except to the extent of his proportionate interest
therein.
(3) Includes 167,400 shares subject to options exercisable within 60 days
of March 1, 1998.
(4) Includes 174,568 shares subject to options exercisable within 60 days
of March 1, 1998.
(5) Includes 245,000 shares subject to options exercisable within 60 days
of March 1, 1998.
(6) Includes 4,000 shares held by Burrill & Craves, a general partnership.
Dr. Craves is a general partner of such partnership and may be deemed
to be the beneficial owner of the shares held by the partnership. Also
includes 4,200 shares held by a trust for which Dr. Craves is a
trustee, 7,400 shares held by Dr. Craves' spouse, and 74,000 shares
subject to options exercisable within 60 days of March 1, 1998.
(7) Includes 74,000 shares subject to options exercisable within 60 days
of March 1, 1998.
(8) Includes 43,500 shares subject to options exercisable within 60 days
of March 1, 1998.
(9) Includes shares included pursuant to notes (2), (3), (4), (5), (6),
(7) and (8) above.
5
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid to the
Company's Chief Executive Officer and to the Company's other two executive
officers for services rendered in all capacities to the Company for the fiscal
years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
------------------------- SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
------------------ ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Roy A. Whitfield 1997 $260,000 $100,000 9,000 --
Chief Executive Officer 1996 230,000 75,000 30,000 --
1995 210,000 50,000 70,000 --
Randal W. Scott 1997 240,000 100,000 9,000 --
President, 1996 215,000 75,000 30,000 --
Chief Scientific Officer 1995 195,000 40,000 60,000 --
and Secretary
Denise M. Gilbert 1997 220,000 100,000 15,000 --
Executive Vice President, 1996 180,000 75,000 30,000 --
Chief Financial Officer 1995(1) 45,962 5,000 255,000 $ 2,800(2)
and Treasurer
</TABLE>
- --------------------
(1) Dr. Gilbert joined the Company in October 1995.
(2) Represents amounts paid to Dr. Gilbert for consulting services in 1995
prior to her employment.
6
<PAGE> 10
The following tables set forth certain information as of December 31,
1997 and for the fiscal year then ended with respect to stock options granted to
and exercised by the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
------------------------------------------------------ -----------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE(3) 5%($) 10%($)
- ---- ------------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roy A. Whitfield 9,000 1.03% $ 36.625 12/08/07 $207,299 $525,337
Randal W. Scott 9,000 1.03 36.625 12/08/07 207,299 525,337
Denise M. Gilbert 15,000 1.71 36.625 12/08/07 345,499 875,562
</TABLE>
- ------------
(1) Options granted in 1997 vest 25% on the first anniversary of the date
of grant, with the remaining shares vesting monthly over three years.
Under the terms of the 1991 Stock Plan, the committee designated by
the Board of Directors to administer the 1991 Stock Plan retains the
discretion, subject to certain limitations within the 1991 Stock Plan,
to modify, extend or renew outstanding options and to reprice
outstanding options. Options may be repriced by canceling outstanding
options and reissuing new options with an exercise price equal to the
fair market value on the date of reissue, which may be lower than the
original exercise price of such canceled options.
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(3) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the
rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future Common Stock price.
There can be no assurance that any of the values reflected in the
table will be achieved.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1997 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(5)
-------------------- -----------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Roy A. Whitfield(2) 32,668 $ 913,403 164,900/31,500 $6,041,569/$616,781
Randal W. Scott(3) 57,500 1,397,969 172,068/31,500 6,389,211/616,781
Denise M. Gilbert(4) 20,000 477,875 242,500/37,500 8,766,094/667,031
</TABLE>
- ------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Options to purchase 67,392 shares were exercisable immediately as of
the date of grant, but the shares underlying such options are subject
to rights of repurchase by the Company, which rights lapse as to 25%
of the shares covered by the respective options on the first
anniversary of the date of grant and lapse ratably on a monthly basis
thereafter, with the repurchase right terminating in full on the
fourth anniversary of the date of grant.
(3) Options to purchase 51,350 shares were exercisable immediately as of
the date of grant, but the shares underlying such options are subject
to rights of repurchase by the Company, which rights lapse as to 25%
of the shares covered by the respective options on the first
anniversary of the date of grant and lapse ratably on a monthly basis
thereafter, with the repurchase right terminating in full on the
fourth anniversary of the date of grant.
(4) Options to purchase 107,188 shares were exercisable immediately as of
the date of grant, but the shares underlying such options are subject
to rights of repurchase by the Company, which rights lapse as to 25%
of the shares covered by the respective options on the first
anniversary of the date of grant and lapse ratably on a monthly basis
thereafter, with the repurchase right terminating in full on the
fourth anniversary of the date of grant.
(5) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1997 ($45.00 per share) minus the exercise
price.
8
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
This report on executive compensation is provided by the Compensation
Committee (the "Compensation Committee") and the Management Stock Option
Committee (the "Option Committee") of the Board of Directors to assist
stockholders in understanding their objectives and procedures in establishing
the compensation of the Company's executive officers and describes the bases on
which 1997 compensation determinations were made by the Compensation Committee.
The Compensation Committee is comprised of four non-employee directors and the
Option Committee is comprised of three non-employee directors. In making their
determinations, the Compensation Committee and the Option Committee relied, in
part, on independent surveys and public disclosures of compensation of
management of companies in the biotechnology and biopharmaceutical industries.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Compensation Committee believes that compensation of the Company's
executive officers should:
- Encourage creation of stockholder value and achievement of
strategic corporate objectives.
- Integrate compensation with the Company's annual and
long-term corporate objectives and strategy, and focus
executive behavior on the fulfillment of those objectives.
- Provide a competitive total compensation package that
enables the Company to attract and retain, on a long-term
basis, high caliber personnel.
- Provide total compensation opportunity that is competitive
with companies in the biopharmaceutical and biotechnology
industries, taking into account relative company size,
performance and geographic location as well as individual
responsibilities and performance.
- Align the interests of management and stockholders and
enhance stockholder value by providing management with
longer term incentives through equity ownership by
management.
- Provide fair compensation consistent with internal
compensation programs.
KEY ELEMENTS OF EXECUTIVE COMPENSATION
The compensation of executive officers is based upon the Company's
financial performance as well as an evaluation of the Company's progress in the
creation and refinement of a unique bioinformatics business model, the
establishment of additional database collaborations, the Company's achievement
of certain business objectives, including the closing of acquisitions of
businesses and technologies that may expand or enhance the Company's existing
business, the execution of corporate and collaborative agreements, the expansion
of the Company's database and genomic data management software business and the
attainment of certain operational and research and development milestones in the
Company's technology development programs, as well as the achievement of
individual business objectives by each executive officer. The Company's existing
compensation structure for executive officers generally includes a combination
of salary and stock options and may include cash bonuses for performance
determined to be deserving of such bonuses by the Compensation Committee.
Salary. Salary levels are largely determined through comparisons with
companies of similar headcount and market capitalizations or complexity in the
biopharmaceutical and biotechnology industries. Actual salaries are based on
individual performance contributions within a competitive salary range for each
position that is established through job evaluation of responsibilities and
market comparisons. The Compensation Committee, on the basis of its knowledge of
executive compensation in the industry, believes that the Company's salary
levels for the
9
<PAGE> 13
executive officers are at a level that the Compensation Committee, at the time
such salary determinations were made, considered to be reasonable and necessary
given the Company's financial resources and the stage of its development. In
December 1997, the Compensation Committee set annual salaries for 1998. The
Compensation Committee reviews salaries on an annual basis, with the next annual
review scheduled to occur in December 1998. At such time, the Compensation
Committee may increase each executive officer's salary based on the individual's
contributions and responsibilities over the prior 12 months and any increase in
median comparable company pay levels.
Stock Options. The Company intends that certain compensation paid to
management in 1997, including stock options, be exempt from the limitations on
deductibility under Section 162(m) of the Internal Revenue Code. Accordingly,
the Board established the Option Committee to administer grants under the
Company's 1991 Stock Plan to members of management. The Compensation Committee
and the Option Committee believe that by providing those persons who have
substantial responsibility for the management and growth of the Company with an
opportunity to increase their ownership of Company stock, the best interest of
stockholders and executive officers will be closely aligned. Therefore,
executive officers are eligible to receive stock options when the Compensation
Committee performs its annual salary review; although the Option Committee, at
its discretion, may grant options at other times in recognition of exceptional
achievements. The number of shares underlying stock options granted to executive
officers is based on competitive practices in the industry as determined by
independent surveys and the Option Committee's knowledge of industry practice.
Cash Bonuses. In 1997, the Compensation Committee awarded cash bonuses
in recognition of performance deemed to be deserving by the Compensation
Committee and to provide incentives to employees for future performance. Such
bonuses may generally be determined by the Compensation Committee to be in
amounts that the Compensation Committee, at the time such determinations were
made, considered to be reasonable given the Company's financial resources, stage
of development, and achievements toward its and the individuals' business plan
and goals.
CHIEF EXECUTIVE OFFICER COMPENSATION
Roy A. Whitfield is the Company's Chief Executive Officer, was its
President through December 1996, and, through October 1995, was its Treasurer.
In December 1996, the Compensation Committee set Mr. Whitfield's annual base
salary for 1997 at $260,000. The Compensation Committee increased Mr.
Whitfield's salary for 1997 in recognition of his performance in advancing the
development and growth of the Company and the Company's achievement of specific
corporate objectives, which included the following: the achievement of
additional collaborations, the financial performance of the Company, the
performance of the Company's Common Stock and the further establishment and
development of the Company's database business and the expansion thereof. In
December 1997, the Compensation Committee awarded Mr. Whitfield a bonus for 1997
of $100,000 based upon its consideration of the financial performance of the
Company, including the expected achievement of profitability in each quarter of
1997, the establishment of additional database collaborations, the performance
of the Company's Common Stock, the further establishment and development of the
Company's database business and the expansion thereof, and the compensation of
the Company's management relative to biotechnology industry norms and to other
employees in the Company. The Committee determined that these achievements were
important to the Company's future growth and could assist the Company in
enhancing stockholder value and, accordingly, determined to reward Mr. Whitfield
for his efforts on behalf of the Company.
In recognition of Mr. Whitfield's accomplishments, and as an incentive
for future performance, the Option Committee in December 1997 granted Mr.
Whitfield options, exercisable at the fair market value on the date of grant, to
purchase 9,000 shares of the Company's Common Stock. The size of Mr. Whitfield's
grant was determined by the specific accomplishments in 1997 described above.
The Company's policy is generally to qualify compensation paid to
executive officers for deductibility under Section 162(m) of the Internal
Revenue Code. However, the Company reserves the discretion to pay compensation
to its executive officers that may not be deductible.
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<PAGE> 14
Mr. Whitfield is a member of the Board of Directors, but did not
participate in matters involving the evaluation of his own performance or the
setting of his own compensation.
COMPENSATION COMMITTEE OPTION COMMITTEE
Barry M. Bloom Barry M. Bloom
Jeffrey J. Collinson Jeffrey J. Collinson
Frederick B. Craves Jon S. Saxe
Jon S. Saxe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Collinson and Saxe and
Drs. Bloom and Craves, who are outside directors of the Company. See "Certain
Transactions" below for a description of the consultancy arrangement between the
Company and an entity in which Dr. Craves is a general partner.
CERTAIN TRANSACTIONS
The Company entered into a consultancy arrangement effective January
1, 1997 with The Craves Group, a consulting group in which Frederick B. Craves,
a director of the Company, is a general partner. Pursuant to the arrangement,
the Company paid The Craves Group $10,000 per month through July 1997, at which
time the arrangement was terminated.
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<PAGE> 15
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of the
Company's Common Stock with the CRSP Total Return Index for the Nasdaq
Pharmaceutical Stocks (the "Nasdaq Pharmaceutical Index") and the CRSP Total
Return Index for the Nasdaq U.S. and Foreign Stocks (the "Nasdaq Composite
Index"), assuming an investment of $100 in each on November 4, 1993, the date of
the Company's initial public offering. The Company's Common Stock was traded on
the American Stock Exchange from November 4, 1993 until January 16, 1996, at
which time it commenced trading on the Nasdaq National Market. The comparisons
in the table are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
<TABLE>
<CAPTION>
11/4/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
---------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Incyte Pharmaceuticals, Inc. $ 100.00 $ 120.00 $ 185.00 $ 312.50 $ 643.75 $ 1,125.00
Nasdaq Pharmaceutical Index $ 100.00 101.79 76.61 140.15 140.56 145.25
Nasdaq Composite Index ..... $ 100.00 102.62 99.53 139.78 171.16 209.39
</TABLE>
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<PAGE> 16
PROPOSAL 2
PROPOSAL TO AMEND THE INCYTE PHARMACEUTICALS, INC. 1991 STOCK PLAN
In February 1998, the Board of Directors approved an amendment to the
Company's 1991 Stock Plan (as amended, the "Stock Plan"), subject to the
approval of the Company's stockholders at the Annual Meeting. The following
summary of the principal features of the Stock Plan is qualified by reference to
the terms of the Stock Plan, a copy of which is available without charge upon
stockholder request to Richard Morales, Incyte Pharmaceuticals, Inc., 3174
Porter Drive, Palo Alto, California 94304.
SUMMARY OF AMENDMENTS
The amendment to the Stock Plan approved by the Board of Directors and
submitted for stockholder approval consists of an increase in the number of
shares of Common Stock reserved for issuance under the Stock Plan from 4,800,000
to 6,300,000.
STOCK PLAN
The Stock Plan was adopted by the Board of Directors in November 1991
and approved by the Company's stockholders in December 1991. The purpose of the
Stock Plan is to assist the Company in the recruitment, retention and motivation
of employees and of independent contractors who are in a position to make
material contributions to the Company's progress. The Stock Plan offers a
significant incentive to the employees and independent contractors of the
Company by enabling such individuals to acquire the Common Stock, thereby
increasing their proprietary interest in the growth and success of the Company.
The Stock Plan provides for the direct award or sale of shares of
Common Stock and for the grant of both incentive stock options ("ISO") to
purchase Common Stock intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options ("NSO") to purchase Common Stock that do not qualify
for such treatment under the Code. All employees (including officers) of the
Company or any subsidiary and any independent contractor who performs services
for the Company or a subsidiary are eligible to purchase shares of Common Stock
and to receive awards of shares or grants of NSOs. Only employees are eligible
to receive grants of ISOs. As of December 31, 1997, 455 employees were eligible
to be considered for the grant of options under the Stock Plan. Options to
purchase more than 400,000 shares may not be granted in a single calendar year
to any participant in the Stock Plan.
A total of 6,300,000 shares of Common Stock (including 1,500,000
shares subject to stockholder approval at the Annual Meeting) have been reserved
for issuance under the Stock Plan. If any option granted under the Stock Plan
expires or terminates for any reason without having been exercised in full, then
the unpurchased shares subject to that option will once again be available for
additional option grants. As of December 31, 1997, the Company had outstanding
options under the Stock Plan to purchase an aggregate of 3,321,396 shares of
Common Stock at exercise prices ranging from $0.15 to $43.875 per share, or a
weighted average per share exercise price of $17.68. A total of 2,007,739 shares
of Common Stock (including 1,500,000 shares subject to stockholder approval at
the Annual Meeting) are available for future issuance under the Stock Plan.
The Compensation Committee and the Option Committee (collectively, the
"Committee") have not made any determination with respect to future awards under
the Stock Plan, and any allocation of such awards will be made only in
accordance with the provisions of the Stock Plan, including the additional
shares of stock that the stockholders are being asked to approve. The Company
believes that the granting of options is necessary to attract the highest
quality personnel as well as to reward and thereby retain existing key
personnel. Moreover, the attraction and retention of such personnel is essential
to the continued progress of the Company which ultimately is in the interests of
the Company's stockholders.
As of December 31, 1997, the following persons or groups had in total,
received options to purchase shares of Common Stock under the Stock Plan as
follows: (i) the Chief Executive Officer and the other executive officers
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<PAGE> 17
named in the Summary Compensation Table: Mr. Whitfield, 329,400 shares, and Dr.
Scott, 319,400 shares and Dr. Gilbert 300,000 (ii) all current executive
officers of the Company as a group: 948,800 shares; (iii) all current directors
who are not executive officers as a group: 20,000 shares; (iv) each nominee for
director (other than the two directors listed in (i) above): Dr. Bloom, no
shares, Mr. Collinson, no shares, Dr. Craves, 10,000 shares, and Mr. Saxe,
10,000 shares; and (v) all employees of the Company, including all current
officers who are not executive officers, as a group: 3,805,860 shares.
ADMINISTRATION
The Stock Plan is administered by the Compensation Committee, which
consists of two or more disinterested members of the Board of Directors. Subject
to the limitations set forth in the Stock Plan, the Compensation Committee has
the authority to determine, among other things, to whom options will be granted
and shares will be sold, the number of shares, the term during which an option
may be exercised and the rate at which the options may be exercised and the
shares may vest.
TERMS OF OPTIONS AND OF SHARES OFFERED FOR SALE
The maximum term of each option that may be granted under the Stock
Plan is 10 years. Stock options granted under the Stock Plan must be exercised
by the optionee before the earlier of the expiration of such option or the date
90 days after termination of the optionee's employment, except that the period
may be extended on certain events including death and termination of employment
due to disability.
The exercise price under each option will be established by the
Committee; however, the exercise price of an ISO cannot be lower than the fair
market value of the Common Stock on the date of grant and the exercise price of
a NSO may not be less than the par value per share of the Common Stock. On April
17, 1998, the closing sale price per share for the Common Stock on the Nasdaq
National Market was $43.38. The exercise price must be paid in full at the time
of exercise. Under the Stock Plan, the exercise price is payable in cash or, in
certain circumstances, Common Stock or by promissory note. The Stock Plan also
allows an optionee to pay the exercise price by giving "exercise/sale" or
"exercise/pledge" directions. If exercise/sale directions are given, a number of
option shares sufficient to pay the exercise price and any withholding taxes is
issued to a securities broker selected by the Company, who, in turn, sells the
shares in the open market. The broker remits the exercise price and any
withholding taxes to the Company from the proceeds of the sale, and the optionee
receives any remaining shares or cash. If exercise/pledge directions are given,
the option shares are issued directly to a securities broker or other lender
selected by the Company. The broker or other lender will hold the shares as
security and will extend credit for up to 50% of their market value. The loan
proceeds will be paid to the Company to the extent necessary to pay the exercise
price and any withholding taxes. Any excess loan proceeds may be paid to the
optionee. If the loan proceeds are insufficient to cover the exercise price and
withholding taxes, the optionee will be required to pay the deficiency to the
Company at the time of exercise.
The terms of any sale of shares of Common Stock under the Stock Plan
will be set forth in a common stock purchase agreement to be entered into
between the Company and each purchaser. The Committee will determine the terms
and conditions of such stock purchase agreements, which need not be identical.
The purchase price for shares of Common Stock sold under the Stock Plan may not
be less than the par value of such shares. The purchase price may be paid, at
the Committee's discretion, with a full-recourse promissory note secured by the
shares, except that the par value of the shares must be paid in cash. Shares may
also be awarded under the Stock Plan in consideration of services rendered prior
to the award, without a cash payment by the recipient.
Options may have such terms and be exercisable in such manner and at
such times as the Committee may determine. Common Stock transferred pursuant to
the Stock Plan (including shares acquired upon the exercise of certain options)
may be subject to repurchase by the Company in the event that any applicable
vesting conditions are not satisfied. A holder of shares transferred under the
Stock Plan has the same voting, dividend and other rights as the Company's other
stockholders.
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<PAGE> 18
AMENDMENT AND TERMINATION
The Stock Plan may be amended at any time by the Board of Directors,
subject to applicable laws. Unless sooner terminated by the Board of Directors,
the Stock Plan will terminate on February 27, 2007, and, following such date, no
further options may be granted or stock sold pursuant to such plan except upon
the exercise of options granted prior to the termination date.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a subdivision of the outstanding Common Stock or a
combination or consolidation of the outstanding Common Stock (by
reclassification or otherwise) into a lesser number of shares, a spinoff or a
similar occurrence, or declaration of a dividend payable in Common Stock or, if
in an amount that has a material effect on the price of the shares, in cash, the
Committee will make adjustments in the number and/or exercise price of options
and/or the number of shares available under the Stock Plan, as appropriate. Such
an adjustment was made in connection with the Company's two-for-one stock split
effected in the form of a 100% stock dividend paid in November 1997.
In the event of a merger or other reorganization, outstanding options
will be subject to the agreement of merger or reorganization. Such agreement
will provide for the assumption of outstanding options by the surviving
corporation or its parent, for their continuation by the Company (if the Company
is the surviving corporation), for payment of a cash settlement equal to the
difference between the amount to be paid for one share under the agreement of
merger or reorganization and the exercise price for each option, or for the
acceleration of the exercisability of each option followed by the cancellation
of options not exercised, in all cases without the optionees' consent.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS UNDER THE STOCK PLAN
Neither the optionee nor the Company will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising a NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
Common Stock on the date of exercise; the Company will be entitled to a
deduction for the same amount. In the case of an employee, the option spread at
the time a NSO is exercised is subject to income tax withholding, but the
optionee generally may elect to satisfy the withholding tax obligation by having
shares of Common Stock withheld from those purchased under the NSO. The tax
treatment of a disposition of option shares acquired under the Stock Plan
depends on how long the shares have been held and on whether such shares were
acquired by exercising an ISO or by exercising a NSO. The Company will not be
entitled to a deduction in connection with a disposition of option shares,
except in the case of a disposition of shares acquired under an ISO before the
applicable ISO holding periods have been satisfied.
The above description of tax consequences is based upon federal tax
laws and regulations and does not purport to be a complete description of the
federal income tax aspects of the Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AMENDMENT OF THE
COMPANY'S 1991 STOCK PLAN.
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<PAGE> 19
PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors
has appointed the firm of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998, subject to ratification
by the stockholders. Ernst & Young LLP has audited the Company's financial
statements since the Company's inception in 1991. Representatives of Ernst &
Young LLP are expected to be present at the Company's Annual Meeting. They will
have an opportunity to make a statement, if they desire to do so, and will be
available to respond to appropriate questions.
Ratification will require the affirmative vote of a majority of the
shares present and voting at the meeting in person or by proxy. In the event
ratification is not provided, the Board of Directors will review its future
selection of the Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting must be
received by the Secretary of the Company no later than January 1, 1999 in order
that they may be included in the Company's proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Company knows of no other business that will be presented at the
Annual Meeting. If any other business is properly brought before the Annual
Meeting, it is intended that proxies in the enclosed form will be voted in
accordance with the judgment of the persons voting the proxies.
Whether you intend to be present at the Annual Meeting or not, we
urge you to return your signed proxy promptly.
By order of the Board of Directors.
/s/ Roy A. Whitfield
Roy A. Whitfield
Chief Executive Officer
May 1, 1998
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<PAGE> 20
PROXY PROXY
INCYTE PHARMACEUTICALS INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING -- JUNE 15, 1998
ROY A. WHITFIELD, RANDAL W. SCOTT and DENISE M. GILBERT, or any of them, each
with the power of substitution, are hereby authorized to represent as proxies
and vote all shares of stock of Incyte Pharmaceuticals, Inc. (the "Company") the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at the Stanford Park Hotel, 100 El Camino Real, Menlo Park,
California on Monday, June 15, 1998 at 9:00 a.m. or at any postponement or
adjournment thereof, and instructs said proxies to vote as follows:
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR
THE ELECTION OF DIRECTORS AND FOR ITEMS 2 AND 3.
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
= FOLD AND DETACH HERE =
<PAGE> 21
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR ITEMS 2 AND 3. Please
mark [X]
FOR WITHHOLD your
all nominees listed AUTHORITY votes as
below (except as to vote for all indicated in
marked to the contrary) nominees listed below this example
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS 2. To approve the amendment of the Company's
1991 Stock Plan:
Nominees: Roy A. Whitfield Randal W. Scott FOR AGAINST ABSTAIN
Barry M. Bloom Jeffrey J. Collinson 3. To ratify the appointment of Ernst
Frederick B. Craves Jon S. Saxe & Young LLP as the Company's
independent auditors:
(INSTRUCTION: To withhold authority to vote for 4. In their discretion, upon such other
any individual nominee, write that nominee's name business as may properly come before
in the space provided below.) the meeting.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------------------------------------------------------
= FOLD AND DETACH HERE =
Signature(s) ________________________________________________________ Dated:___________ , 1998
Please sign exactly as your name or name(s) appear on this proxy. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If shares are held jointly, each holder should sign.
</TABLE>
