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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________ .
Commission file number 0-19700
Amylin Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 33-0266089
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9373 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (619) 552-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of February 27, 1998 was $111,712,792.*
The number of shares outstanding of the Registrant's Common Stock was
32,452,268 as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed with the Commission
pursuant to Regulation 14A in connection with the 1998 Annual Meeting is
incorporated herein by reference into Part III of this Report.
Certain Exhibits filed with (i) the Registrant's Registration Statement on
Form S-1 (Registration No. 33-44195), as amended, (ii) certain Exhibits filed
with the Registrant's Annual Report on Form 10-K for the fiscal years ended
December 31, 1992, 1993, 1994, 1995 and 1996 and (iii) the Registrant's
Quarterly Report on Form 10-Q for the quarters ended June 30, 1996, September
30, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 are incorporated
herein by reference into Part IV of this Report.
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* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
February 27, 1998. Exclusion of such shares should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant
or that such person is controlled by or under common control with the
Registrant.
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion in
this report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
discussed herein due to, among other things, the results of the Company's
ongoing and planned clinical studies of pramlintide, the Company's ability to
raise additional capital to finance its business operations through and
following the first quarter of 1999, and the timing of filing for regulatory
approval of pramlintide. Additional factors that could cause or contribute to
such differences include, without limitation, those discussed in the description
of the Company's business below and the section entitled "Risk Factors" and
"Management's Discussion of Financial Condition and Results of Operations," as
well as those discussed in any documents incorporated herein by reference.
GENERAL
Amylin Pharmaceuticals, Inc. ("AMYLIN" or the "Company") is focused on
identifying and developing novel therapeutics for treating people with diabetes
and other metabolic disorders. The Company is conducting Phase III clinical
trials of its lead drug candidate, pramlintide, to establish its safety and
efficacy for improving metabolic control in people with type 1 (juvenile-onset)
and with type 2 (maturity-onset) diabetes requiring insulin therapy. This
combined patient population comprises about seven million people in the major
pharmaceutical markets. Pramlintide, a molecule that was invented and patented
by the Company, is a synthetic analog of the human hormone amylin. The amylin
hormone was discovered by the Company's co-founder Dr. Garth Cooper and Tony
Willis while working together at Oxford University, and is the subject of a
number of patents owned by the Company.
Since June 1995, AMYLIN has been collaborating with LifeScan, Inc., a
wholly owned subsidiary of Johnson & Johnson (hereinafter "Johnson & Johnson")
in developing pramlintide; however, in February 1998, AMYLIN was notified by
Johnson & Johnson of its intention to withdraw from the collaboration at the end
of August 1998. The Company was surprised by Johnson & Johnson's decision to
withdraw since there had been no new clinical results since August 1997, and the
Company's four ongoing Phase III clinical studies were continuing as planned.
AMYLIN believes that Johnson & Johnson made a portfolio decision to invest its
resources elsewhere.
As structured, the Johnson & Johnson collaboration provided for, among
other things, a fifty-fifty sharing arrangement whereby each party would be
responsible for one-half of all development and commercialization costs and
would share one- half of all profits derived from pramlintide. As a result of
Johnson & Johnson's withdrawal, Johnson & Johnson has relinquished all rights to
share in any pramlintide profits. Both companies are obligated to continue to
perform their obligations under the current agreement through the termination of
the collaboration in late August 1998.
AMYLIN is continuing to develop pramlintide and conduct its four ongoing
pivotal Phase III clinical trials. Enrollment in the Company's two European
Phase III clinical trials for type 1 and type 2 diabetes was completed in the
first quarter of 1998, and AMYLIN plans to announce the results of these two
six-month studies in the fourth quarter of this year. Enrollment in the
Company's two one-year United States Phase III clinical trials for type 1 and
type 2 diabetes is continuing and the Company expects complete enrollment in
those studies in mid-1998. Results from the two U.S. trials are expected in the
third quarter of 1999.
The Company believes that Europe offers the earliest market opportunity for
pramlintide. Thus, Amylin plans to file its first marketing application in
Europe for type 1 diabetes during the first half of 1999. The Company then plans
to file a marketing application in Europe for type 2 diabetes in the first half
of 2000, subject to European approval for type 1 diabetes. The Company also
plans on filing a New Drug Application in the United States for type 1 and type
2 diabetes during the first half of 2000.
Based on 36 completed and ongoing clinical studies involving about 5,000
patients, the Company believes that pramlintide should aid insulin-using
patients in achieving better control of their metabolic functions. The
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Company expects treatment outcomes to include improved glucose control without
increased hypoglycemia, improved weight control, and healthier cholesterol
profiles. In the Company's view, pramlintide's excellent safety and tolerability
profile appears to be consistent with its mechanism of action, which replaces
the effects of a disease-induced hormone deficiency.
Since its inception, the Company has spent over $300 million building its
integrated drug discovery and development expertise. With its lead drug
candidate now well advanced in clinical development, AMYLIN has broadened its
research pipeline and is developing other potential drug candidates for treating
metabolic disorders, including diabetes, obesity and dyslipidemia, and for
treating cardiovascular risk-factors associated with the development of
atherosclerosis. Although certain of these research programs have been slowed
down in order to conserve the Company's financial resources, the Company these
programs have the potential to provide the Company with additional product
candidates.
BACKGROUND
Diabetes is a major global health problem which is inadequately treated by
available drugs. The International Diabetes Federation estimates that over 100
million people worldwide are afflicted with this disease. Diabetes costs the
American economy over $100 billion annually, according to a study reported in
the Journal of Clinical Endocrinology and Metabolism, which went on to say that
". . . health care expenditures for people with diabetes constituted about one
in seven health care dollars spent in 1992." Moreover, the American Medical
Association reports that the incidence of diagnosed diabetes as a percentage of
the American population has tripled since 1958, and that the total number of
diagnosed and undiagnosed cases has grown to about 16 million.
Diabetes occurs when the pancreas no longer produces enough insulin, a
hormone that regulates the metabolism of blood-glucose. In type 1
(juvenile-onset) diabetes, which afflicts about 10% of all people with diagnosed
diabetes in developed countries, the pancreatic beta-cells that make insulin
have been destroyed. In the more prevalent form of diabetes, type 2
(maturity-onset), the beta-cells are unable to produce enough insulin to
compensate for patients' poor sensitivity to insulin in glucose-using tissues (a
condition called insulin resistance). In both type 1 and type 2 diabetes, the
insulin deficiency results in abnormally high blood-glucose concentrations, a
condition called hyperglycemia which is an important cause of the degenerative
complications associated with diabetes, including blindness, kidney failure and
nerve damage. In addition, many authorities believe hyperglycemia plays a role
in the development of heart disease.
Since its discovery in 1921, insulin replacement therapy has played a
central role in treating diabetes. For people with type 1 diabetes, insulin
injections are essential, since these patients would otherwise die. For people
with type 2 diabetes, oral medications that either stimulate greater insulin
production or enhance insulin sensitivity may improve metabolic control.
However, as many as 20% of people with newly diagnosed type 2 diabetes do not
respond to oral therapy. Moreover, type 2 patients who do respond to oral
therapy become progressively resistant over time, with as many as 10% each year
ceasing to derive a therapeutic benefit. Thus, an estimated 40% of people
diagnosed with type 2 diabetes are using insulin injections to manage their
disease. The Company estimates that in the major pharmaceutical markets as many
as two million people with type 1 diabetes and five million people with type 2
diabetes use insulin to help control their blood-glucose concentrations.
Despite over 75 years of efforts to improve insulin therapy, most people
with diabetes have great difficulty achieving optimal glucose control with
insulin alone. For superior glucose control, each insulin injection must be
adjusted to reflect the person's pre-meal blood-glucose concentration and the
carbohydrate content of the meal. These adjustments require multiple
finger-pricks each day for glucose monitoring. Aggressive efforts to bring
blood-glucose concentration down into the normal range using intensive insulin
therapy increase the risk of blood-glucose concentration falling too low, a
condition called hypoglycemia which can cause unpleasant and dangerous effects
that include sweating, disorientation, personality changes, coma, convulsions,
and even death. To avoid hypoglycemia, many people with diabetes maintain above
normal blood-glucose concentrations, but thereby increase their risk of
degenerative complications from the disease.
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In June 1993, the National Institutes of Health announced the results of
the Diabetes Control and Complications Trial ("DCCT"). This decade-long,
prospective study of over 1,400 people with type 1 diabetes established the
importance of glucose control as a determinant of long-term risk of degenerative
complications. The quality of glucose control for each DCCT participant was
determined by measuring the proportion of blood-hemoglobin which had chemically
combined with blood-glucose to form glycated hemoglobin (%HbA1c). This
measurement is a recognized indicator of average blood-glucose concentration
over the three- to four-month period prior to testing, and lower %HbA1c values
are indicative of better glucose control. In healthy, non-diabetic individuals,
%HbA1c is usually below about 6.0, which therefore is an outcome goal for
diabetes therapy. However, very few patients with diabetes are able to maintain
normal %HbA1c values, and the American Diabetes Association ("ADA") has
recommended that steps be taken to improve glucose control when patients' %HbA1c
values exceed 8.0.
This ADA intervention guideline is based on data from the DCCT which showed
definitively that the risk of degenerative complications is greatly reduced if
blood-glucose concentrations in people with type 1 diabetes can be brought
closer to normal. However, the intensive insulin therapy used to achieve this
benefit had several side effects and disadvantages, including (1) a three-fold
increase in severe hypoglycemia compared with the control group, (2) an average
weight gain of 10 to 15 pounds per patient, (3) a highly burdensome treatment
regimen requiring strict patient compliance, and (4) intensive and costly
support from diabetes care-givers. As a result of these side effects and
disadvantages, most people using insulin currently are unable to achieve normal
blood-glucose concentrations. In view of the health problems and economic costs
associated with this failure to achieve optimal glucose control, the Company
believes that significant value would result from a new medicine that could
safely improve glucose control without imposing unacceptable treatment and cost
burdens.
Although the DCCT study involved people with type 1 diabetes only, many
experts believe that the conclusions of that study concerning the benefits of
glucose control are also applicable to people with type 2 diabetes.
AMYLIN: THE PARTNER HORMONE IN GLUCOSE CONTROL
In 1987, researchers at the University of Oxford announced their discovery
that the pancreatic beta-cells which make insulin also produce a second peptide,
amylin. In the years since amylin's discovery, extensive research in animals and
humans has generated data consistent with the idea that amylin is a partner
hormone to insulin:
- Rising blood-glucose concentrations stimulate increases in blood
concentrations of amylin, so that both amylin and insulin concentrations
normally increase after meals.
- Amylin exerts biological effects relevant to maintaining normal glucose
metabolism, including initiation of satiety, regulation of nutrient
transit through the gastrointestinal tract, pancreatic secretion of
digestive enzymes, and suppression of post-meal glucagon (a pancreatic
hormone which stimulates liver production of glucose).
- In people with diabetes who need insulin therapy, both the endogenous
insulin and amylin responses are deficient.
The Company was founded to undertake research and development aimed at the
potential therapeutic implications of the amylin discovery. To this end, the
Company began preclinical research with the hormone amylin and its analogs in
late 1987. Since 1992, the Company has been conducting clinical studies to
determine whether replacing the desired actions of amylin -- using pramlintide,
a synthetic chemical analog of human amylin -- can safely improve metabolic
control in people with diabetes.
INITIAL PHASE III CLINICAL RESULTS
The Company is performing extensive clinical trials aimed at understanding
the effects of amylin replacement therapy in patients with diabetes. Almost
1,700 patients have been enrolled in 28 completed and ongoing Phase I and II
studies designed to measure safety parameters, mechanisms of action,
interactions with
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insulin and oral drugs, and effects on post-meal glucose metabolism. The
completed and ongoing Phase III studies are scheduled to enroll over 3,400
patients in order to establish safety and efficacy in chronic dosing of
pramlintide for 6- to 12-month periods. This Phase III program comprises six
double-blind, placebo-controlled studies (two for each type of diabetes in the
U.S., and one for each type in Europe) and two open-label, long-term safety
studies. In addition, the Company is sponsoring certain open label extensions of
the Phase III placebo-controlled trials to study other longer-term effects.
Approximately 75% of subjects who have completed the Phase III studies have
elected to participate in these extension studies.
In August 1997, AMYLIN announced results from the two initial Phase III
studies: the Company interpreted the outcomes as positive in type 1 diabetes and
encouraging in type 2 diabetes. Pramlintide improved glucose control without
increased hypoglycemia, and it improved weight control and cholesterol profiles
for many patients. These studies also extended pramlintide's excellent safety
and tolerability profile to dosing of up to 12 months. The most common
drug-related side effect in the studies was initial transient nausea, which in
most patients was relatively mild and usually dissipated during the initial 14
days of treatment; only at the highest drug dose in the type 2 study was the
patient dropout rate different from the dropout rate in the placebo group.
The Company believes that the results from these initial Phase III studies
of pramlintide effects on %HbA1c were confounded by patients who increased their
insulin doses during the course of the studies. Because insulin exerts a strong
glucose lowering effect, changes in insulin dosing can be expected to obfuscate
the pramlintide drug effect and affect the difference in glucose endpoints
between the placebo (insulin only) and drug (insulin plus pramlintide) treatment
groups. To isolate better the pramlintide drug effect, protocol modifications
were incorporated in the Company's four ongoing Phase III clinical studies. The
Company believes these design changes will likely produce more robust glucose
outcomes for purposes of marketing registrations. See "-- Remaining Phase III
Clinical Program."
RESULTS IN TYPE 1 DIABETES
In August 1997, the Company released the results from its first Phase III
clinical study involving type 1 diabetics. The study was a double-blind, placebo
controlled study and involved 477 patients for a 12-month treatment period. The
pramlintide dosing regimen was 30 micrograms four-times daily, with certain
patients escalating to 60 micrograms at 20 weeks.
Type 1 patients who self-administered pramlintide together with insulin for
12 months experienced a statistically significant, average reduction in %HbA1c
of about 0.3 compared to patients in the placebo group who received only
insulin. Pramlintide patients achieved this improvement without any increase in
the frequency or severity of hypoglycemia. In fact, the incidence of severe
hypoglycemia (requiring assistance and/or medical intervention) was lower in the
drug group, an important potential benefit if this finding is replicated in the
ongoing Phase III studies. In contrast, intensification of insulin therapy to
lower average blood glucose increases the risk of hypoglycemia.
The 0.3 reduction in %HbA1c represents a useful improvement for many
patients with type 1 diabetes. However, AMYLIN believes that this result did not
properly isolate pramlintide's effect on %HbA1c from the glucose-lowering
effects of insulin, and that pramlintide's effect on %HbA1c should be higher in
patients with relatively poor glucose control. Consequently, the Company has
revised several design parameters of the ongoing type 1 studies. See
"-- Remaining Phase III Clinical Program." The Company believes that the outcome
of these design changes may be better in light of the glucose-lowering results
for relevant patient subgroups in the initial type 1 study.
In addition to improved glucose control, type 1 patients who received
pramlintide also experienced other metabolic benefits that were statistically
significant. Patients receiving pramlintide lost weight, while the insulin-only
group gained weight. In contrast, weight gain is a usual side effect of
intensifying insulin therapy to improve glucose control. Also, patients in the
treatment group improved their cholesterol profiles over the course of the
52-week study as compared to the patients in the control group receiving only
insulin. Both obesity and inappropriate cholesterol levels are risk factors for
cardiovascular disease, the leading cause of mortality among patients with
diabetes.
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RESULTS IN TYPE 2 DIABETES
In August 1997, the Company also released the results from its first Phase
III clinical study involving type 2 diabetics. The study was a double-blind,
placebo controlled study and involved 539 patients for a 12-month treatment
period. The pramlintide dosing regimen was 30 micrograms, 75 micrograms, and 150
micrograms three-times daily.
Insulin-using patients with type 2 diabetes who added pramlintide to their
therapeutic regimen appeared to improve their glucose control. %HbA1c reductions
at 12 months were about 0.2 at 75 (micro)g and about 0.3 at 150 mg doses of drug
compared to placebo; however, these results did not achieve statistical
significance. The Company believes these results would have been statistically
significant if the number of patients enrolled in the study had been larger. For
the same reasons as in the type 1 diabetes studies, the Company believes that
revisions incorporated in the ongoing type 2 studies may result in more robust
effects on %HbA1c. See "-- Remaining Phase III Clinical Program."
Type 2 patients who received pramlintide for 12 months benefited from a
statistically significant reduction in body weight ranging from 3.7 pounds to
7.0 pounds, depending on dose, compared to patients receiving insulin alone.
Weight loss is particularly important in type 2 diabetes, because most patients
with this disorder are obese, and obesity exacerbates insulin resistance.
Intensification of insulin therapy to overcome this resistance and the use of
certain popular oral hypoglycemic agents typically lead to weight gain.
Therefore, breaking this obesity cycle would be particularly important in
managing type 2 diabetes. Due to the limited amount of fasting cholesterol data
available at baseline, conclusions regarding cholesterol profiles could not be
drawn for type 2 patients.
REMAINING PHASE III CLINICAL PROGRAM
In order to create study designs that will better isolate the pramlintide
drug effect in patients with poor glucose control, and thus enhance regulatory
filings, the Company has incorporated important design changes in the four
ongoing blinded trials (two six-month studies in Europe and Canada, and two
one-year studies in the United States):
- The Company raised the %HbA1c patient entry threshold to (greater than
or equal to)8.0. This criterion conforms the studies with the ADA
guideline for therapeutic intervention. Analysis of the initial
Phase III results indicated that excluding patients who have achieved
good control with insulin alone may result in more robust %HbA1c
responses to pramlintide administration.
- The Company instituted a number of protocol changes aimed at stabilizing
insulin dosing so that the relevant effects of pramlintide on %HbA1c can
be better measured. These changes include:
- three-month lead-in periods during which patients who vary their
insulin dosing by more than (plus or minus)10% can be identified and
excluded;
- blinding of %HbA1c data, with values to be reported to caregivers only
when %HbA1c trends require treatment intervention for safety reasons;
and
- persistent attention by caregivers and patients to stabilizing insulin
dosing over the course of the studies.
- The Company decided to define in a prospective manner relevant patient
subgroups which isolate the beneficial therapeutic effects of pramlintide
from those of insulin. For example, one important subgroup excludes
patients who increased their insulin dosing during the studies. These
patient subgroup analyses can be relevant to the global assessment of
pramlintide by both regulatory authorities and medical experts, if they
are defined before the clinical studies are unblinded.
Data from the initial Phase III studies and previous studies suggest that
different pramlintide dosing regimens may further enhance patient convenience.
Therefore, two- and three-times-per-day dosing regimens are being studied in the
ongoing Phase III studies. To support the regulatory filing package, in the
future the Company may conduct clinical-practice trials in type 1 and type 2
diabetes to evaluate the interrelationship of
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insulin and pramlintide dosing for optimizing patients' metabolic control when
the two drugs are used in concert.
Until Johnson & Johnson's decision to withdraw from the collaboration, the
regulatory strategy for pramlintide was based on plans for global filings in
both type 1 and type 2 diabetes during the first half 2000. However, as the
Phase III trials have proceeded, Amylin scientists and its advisors have grown
more confident that available data may support an earlier European filing for
use by type 1 patients. Also, the European Phase III studies are scheduled for
completion ahead of the ongoing U.S. Phase III studies. Thus, Amylin plans to
file its first marketing application in Europe for type 1 diabetes during the
first half of 1999.
The Company plans to file a marketing application in Europe for type 2
diabetes in the first half of 2000, subject to European approval for type 1
diabetes. The Company also plans to file a New Drug Application ("NDA") in the
United States for type 1 and type 2 diabetes during the first half of 2000.
AMYLIN believes that, when used in conjunction with insulin, pramlintide
should help many patients with diabetes to achieve better control of metabolic
functions, including lower %HbA1c concentrations without increased hypoglycemia,
improved weight control, and more favorable lipid profiles. Pramlintide's
excellent safety and tolerability profile appears to be consistent with the
concept of replacing the desired actions of a naturally occurring human hormone.
If the ongoing Phase III studies meet expectations, the Company believes
they will provide the basis of marketing approval of pramlintide as the first
new drug for improving metabolic control in type 1 diabetes since the discovery
of insulin over 75 years ago.
The Company also believes that pramlintide may become an important part of
the armamentarium of drugs available for type 2 diabetes, as pramlintide's novel
mechanism of action is complementary to existing oral hypoglycemic agents. In
addition, physicians increasingly are using polytherapy -- multiple drug
regimens -- to treat type 2 diabetes. AMYLIN believes that, in addition to
improved glucose control, pramlintide may offer a unique profile of metabolic
benefits that would be useful in this population of patients who suffer
disproportionately from obesity and coronary artery disease.
OTHER RESEARCH AND DEVELOPMENT ACTIVITIES
AMYLIN has developed a business strategy of in-licensing potential drug
candidates for metabolic disease as well as developing product candidates from
internal research programs. The metabolic components of diabetes, obesity and
dyslipidemia are linked in many ways that may allow the Company to leverage its
decade of expertise to move new metabolic drugs into the clinic. The Company is
working on the following research and development programs not related to
pramlintide. Although certain of these research programs have been slowed down
in order to conserve the Company's financial resources, the Company these
programs have the potential to provide the Company with additional product
candidates.
DIABETES/EXENDIN
The Company's second drug candidate is a natural peptide, exendin, which
mimics the effects of glucose-lowering hormone, glucagon-like peptide-1, and
which may have important pharmaceutical advantages over natural GLP-1. Exendin
stimulates insulin secretion only in the presence of high blood glucose levels.
Clinical trials for exendin are scheduled to begin in 1998.
ATHEROSCLEROSIS/LLAS
AMYLIN is in preclinical development with a new class of small molecules
that are lipid-lowering anti-oxidants (LLAs). These compounds have demonstrated
in animal models prevention of atherosclerosis (arterial plaque) and may also be
useful for prevention of restenosis.
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OBESITY/UCP3
The Company's scientist have discovered a molecule expressed only in
skeletal muscle, uncoupling protein 3, which diverts nutrient calories into heat
formation. The screening program has yielded a number of small-molecule hits
that are potential candidates for causing weight loss without effecting
appetite.
OBESITY/NAS
Using animal models developed for amylin research, the Company has been
searching for new adipocyte signals that are selectively activated in fat cells
when metabolic stress occurs. This work has yielded a number of potential
molecular targets that may lead to new drugs for treating obesity.
STRATEGIC ALLIANCES
AMYLIN'S commercial strategy is to develop products both independently and
in collaboration with established pharmaceutical and biotechnology companies.
Where appropriate, the Company seeks to complement its internal efforts with
collaborative arrangements. These commercial partners may provide financial
resources, research and manufacturing capabilities, and marketing infrastructure
to aid in the development and commercialization of AMYLIN'S potential drug
discoveries. The Company evaluates, on an ongoing basis, potential collaborative
relationships with established pharmaceutical and biotechnology companies.
JOHNSON & JOHNSON
In June 1995, AMYLIN and Johnson & Johnson entered into a worldwide
collaboration Agreement (the "Collaboration Agreement") to develop and
commercialize pramlintide. As of December 31, 1997, Johnson & Johnson has made
payments to AMYLIN totaling approximately $163 million. These payments included
funding of one half of the pramlintide development costs, draw downs from the
Development Loan Facility (the "Development Loan Facility") under a loan and
security agreement (the "Loan Agreement"), the purchase of $30 million of the
Company's common stock, milestone and option fee payments, funding of
pramlintide pre-marketing costs, and license fees.
In February 1998, the Company was given six-months notice by Johnson &
Johnson of its intention to withdraw from the collaboration. AMYLIN was
surprised by Johnson & Johnson's decision to withdraw, as there had been no new
clinical results since August 1997, and the four ongoing Phase III studies were
continuing as planned. AMYLIN believes that Johnson & Johnson made a portfolio
decision to invest resources elsewhere.
As structured, the Johnson & Johnson collaboration provided for, among
other things, a fifty-fifty sharing arrangement whereby each party would be
responsible for one-half of all development and commercialization costs and
would share one-half of all profits derived from pramlintide. As a result of
Johnson & Johnson's withdrawal, Johnson & Johnson has relinquished all rights to
share in any pramlintide profits. During the remaining six months of the
collaboration, both companies are obligated to continue to perform their
obligations under the Collaboration Agreement. When the collaboration terminates
in late August 1998, all product and other rights associated with pramlintide
and related compounds will be returned to AMYLIN.
In conjunction with the collaboration, the Company received proceeds of
approximately $30.6 million from a draw down under the Development Loan Facility
with Johnson & Johnson. The loan carries an interest rate of 9.0%. In
conjunction with the borrowing, the Company issued warrants to Johnson & Johnson
to purchase 1,530,950 shares of the Company's common stock with a fixed exercise
price of $12 per share and a 10-year exercise period. The loan is repayable 12
months after approval of a new drug application for pramlintide out of 50% of
the Company's pramlintide profits, if any, subject to certain exceptions set
forth in the Loan Agreement. The loan is secured by the Company's issued patents
and patent applications relating to amylin.
At December 31, 1997, Johnson & Johnson's Common Stock ownership
represented approximately 10.7% of the Company's Common Shares outstanding. See
"Risk Factors -- Future Capital Needs."
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HOECHST MARION ROUSSEL
In March 1997, the Company entered into a Technology License Agreement (the
"License Agreement") with Hoechst Marion Roussel, pursuant to which the Company
was granted exclusive worldwide rights to a series of orally active
lipid-lowering antioxidant compounds which are being evaluated for their ability
to improve cardiovascular risk factors associated with the development of
atherosclerosis and restenosis.
Under the terms of the License Agreement, the Company is responsible for
conducting the preclinical evaluation and clinical development of candidate
compounds. Upon completion of Phase II clinical trials, Hoechst Marion Roussel
will have a one-time right to elect to collaborate with the Company in the
continuing development and commercialization of these compounds in a 50:50
cost-and-profit sharing arrangement. If Hoechst Marion Roussel exercises this
option, the Company will continue to be responsible for developing and
registering the product candidates, and Hoechst Marion Roussel will be
responsible for manufacturing and marketing. The Company and Hoechst Marion
Roussel will assume equal responsibility for all past and future research and
development, manufacturing, and commercialization expenses and will share
equally in any operating profits from commercialization. If Hoechst Marion
Roussel does not exercise its option, the Company will retain all development
and commercialization rights, and Hoechst Marion Roussel will be entitled to a
royalty based on any future net sales. In such case, the Company will be free to
collaborate with other companies on the development, manufacture, and
commercialization of these compounds.
PATENTS, PROPRIETARY RIGHTS, AND LICENSES
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements that may be important to the
development of its business. AMYLIN also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. The Company plans to enforce its issued
patents and its rights to proprietary information and technology. The Company
reviews third-party patents and patent applications in its fields of endeavor,
both to shape its own patent strategy and to identify useful licensing
opportunities.
Much of the research into the role of the hormone amylin in healthy and
diseased states has been undertaken by the Company and its collaborators.
Consequently, the Company has been able to create a comprehensive intellectual
property estate which the Company believes covers relevant commercial aspects of
amylin physiology, including methods of treatment, compositions of matter,
discovery methodologies, and manufacturing techniques. In recognition of
inventions made by the Company, the United States Patent and Trademark Office
recently issued a patent which covers the Company's lead clinical compound,
pramlintide, as well as other synthetic amylin agonist molecules. U.S. Patent
No. 5,686,411, entitled "Amylin Agonist Peptides and Uses Therefor," was issued
to the Company on November 11, 1997, and has a seventeen year term until
November 11, 2014. Counterpart applications to this patent are pending in
various other territories in the world, including Europe, Canada and Japan.
The Company is currently in litigation with the University of Minnesota and
Dr. Per Westermark who claim that the Company's patented pramlintide invention
falls within a United States patent allegedly owned by them that is directed to
a different, tumor-derived molecule called "Insulinoma Amyloid Polypeptide." The
Company believes that the claims since made by the University and Westermark in
this litigation are without merit. The Company intends to defend vigorously
against the claims made by the University and Westermark in this litigation. See
"Legal Proceedings."
At December 31, 1997, the Company owned or held exclusive rights to 24
issued U.S. patents. In addition, AMYLIN owns or has exclusive rights to 26
patent applications pending with the U.S. PTO. The Company has 10 pending and
nine issued U.S. patents relevant to the development and commercialization of
pramlintide. AMYLIN also has filed foreign counterparts of certain of these
issued patents and applications in many countries. Generally, it is the
Company's policy to file foreign counterparts in countries with significant
pharmaceutical markets. All commercial rights to these patents and patent
applications are held by the Company or, in some cases, jointly with Johnson &
Johnson. There can be no assurance that patents will issue from any of the
still-pending applications.
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<PAGE> 10
MANUFACTURING
The Company has internally developed and also has contracted for the
development of processes for manufacturing pramlintide bulk drug and dosage
form. Progress has been made in improving the purity of active drug substance,
in scaling up drug synthesis and dosage form manufacturing processes, and in
developing new approaches for drug synthesis. The Company plans to launch
pramlintide based upon solid phase synthesis of the bulk substance.
The Company currently has no facilities to manufacture clinical trial or
commercial supplies of pramlintide and currently relies on third parties to do
so. The Company has selected manufacturers which it believes comply with Good
Manufacturing Practice ("GMP") and other regulatory standards. Under the terms
of the collaboration with Johnson & Johnson, AMYLIN has been responsible for
arranging for the manufacture of pramlintide during the development phase, while
Johnson & Johnson was to be responsible for manufacturing during the commercial
phase. The Company currently uses three external suppliers for synthetic
chemical manufacture of pramlintide bulk drug, and one supplier and Johnson &
Johnson for fill-finish activities. All manufacturing activities undertaken by
Johnson & Johnson as part of the collaboration will be transitioned to AMYLIN in
connection with the termination of the agreement. In light of Johnson &
Johnson's decision to terminate the collaboration, the Company will seek another
corporate partner or work with third party contract suppliers with capabilities
for the commercial manufacture of pramlintide. The Company has established a
quality control and quality assurance program, including a set of standard
operating procedures and specifications, designed to ensure that the Company's
products are manufactured in accordance with GMP and other applicable domestic
and foreign regulations. However, the Company is dependent upon third party
manufacturers to comply reliably with such procedures and regulations. There can
be no assurance that these manufacturers will meet the Company's requirements
for quality, quantity or timeliness.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of
pramlintide and in the Company's ongoing research and development activities.
All of the Company's potential products, including pramlintide, will require
regulatory approval by governmental agencies prior to commercialization. In
particular, human therapeutic products are subject to rigorous preclinical
testing and clinical trials and other pre-market approval requirements by the
FDA and regulatory authorities in foreign countries. Various federal, and in
some cases state, statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The lengthy process of seeking these approvals and the subsequent
compliance with applicable federal and state statutes and regulations require
the expenditure of substantial resources. Any failure by the Company or its
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of any products developed by the
Company and its ability to receive product revenue, royalty revenue or profit
sharing payments.
The activities required before a pharmaceutical agent may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an IND application,
which must be reviewed by the FDA before proposed clinical trials can begin.
Typically, clinical trials involve a three-phase process. In Phase I, clinical
trials are conducted with a small number of subjects to determine the early
safety and tolerability profile and the pattern of drug distribution and
metabolism. In Phase II, clinical trials are conducted with groups of patients
afflicted with a specified disease in order to determine preliminary efficacy,
dosing regimens and expanded evidence of safety. In Phase III, large-scale,
multicenter, adequate and well-controlled, comparative clinical trials are
conducted with patients afflicted with a target disease in order to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. In the case of pramlintide, the results of the preclinical testing
and clinical trials are then submitted to the FDA for a pharmaceutical product
in the form of a New Drug Application ("NDA") for approval to commence
commercial sales. In responding to an NDA, the FDA may grant marketing approval,
request additional information, or deny the application if it determines that
the
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<PAGE> 11
application does not satisfy its regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, or at all.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
with GMP guidelines. In complying with GMP, manufacturers must continue to
expend time, money and effort in the area of production and quality control and
quality assurance to ensure full technical compliance. Manufacturing facilities
are subject to periodic inspections by the FDA to ensure compliance. See
"-- Manufacturing."
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research. The extent of government regulation which might result from any
legislation or administrative action cannot be accurately predicted.
Clinical testing, manufacture and sale of the Company's products outside of
the United States will be subject to regulatory approval by other jurisdictions
which may be more or less rigorous than in the United States.
MARKETING AND SALES
As a result of Johnson & Johnson's decision to withdraw from the
collaboration, the Company is now in the process of redefining its strategy for
bringing pramlintide to market on a global basis.
One outcome of this redefinition has been the decision to file first a
European registration dossier for the type 1 indication. See "-- Initial Phase
III Clinical Results -- Remaining Phase III Clinical Program." Because European
patients with diabetes are usually under the care of specialized diabetes
clinics, the Company believes that this market may be accessible to a relatively
small marketing and sales group.
The Company believes that a marketing collaboration with one or more
commercial partners may be necessary to promote the patient acceptance of amylin
replacement therapy using pramlintide in the leading pharmaceutical markets. The
Company is continuing to explore marketing arrangements with third parties.
COMPETITION
Although competitive activity in the diabetes market is intense, the
Company believes that pramlintide will occupy a special niche within the
available drug armamentarium. Pramlintide is aimed at restoring the desired
actions of a human hormone that is missing or deficient in people with diabetes
who use insulin, and hormone replacement therapy is a well established treatment
concept. In the case of type 1 diabetes, the Company believes that pramlintide
is the only drug candidate in late stage clinical development for improving
metabolic control. In the case of type 2 diabetes, many patients are unable to
achieve satisfactory glucose and weight control with available oral drugs or
insulin, and the Company believes that pramlintide's initial Phase III data
point to a unique profile of metabolic benefits for these patients. Since
diabetes is a heterogeneous disease with many degenerative complications, it is
believed that polytherapy will increasingly be used to arrest its relentless
progression, and the Company believes that pramlintide's mechanisms of action
are unique and complementary to those of other hypoglycemic agents.
Subcutaneous injections of pramlintide are relatively straightforward for
patients who are already self-injecting insulin. About 75% of subjects
completing pramlintide's Phase III studies have opted to continue open-label
dosing. Moreover, assuming clinical utility is established, alternative delivery
routes and mechanisms may be feasible based on the current dosing requirements
and chemical characteristics of pramlintide.
Nevertheless, pramlintide may compete with several established therapies
for market share. In addition, many companies are pursuing the development of
novel pharmaceuticals which target the same diseases to which pramlintide is
targeted, and several product candidates are in Phase III clinical trials or in
registration. These companies may develop and introduce products competitive
with or superior to pramlintide. Such competitive or potentially competitive
products include troglitazone, and if indications for pramlintide's use
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<PAGE> 12
are expanded to people with diabetes who do not use insulin, may also include
metformin, acarbose, bromocriptine and other oral hypoglycemic agents such as
sulfonylureas.
The Company's competition will be determined in part by the indications for
which the Company's products are developed and ultimately approved by regulatory
authorities. An important factor in competition may be the timing of market
introduction of the Company's or competitors' products. Accordingly, the
relative speed with which AMYLIN or any future corporate partners can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are expected to be important
competitive factors. The Company expects that competition among products
approved for sale will be based, among other things, on product efficacy,
safety, convenience, reliability, availability, price and patent position.
EMPLOYEES
As of December 31, 1997, AMYLIN had 278 full-time equivalent employees, of
whom 52 hold Ph.D. or Sc.D. degrees and eight hold M.D. degrees (four of whom
also hold Ph.D.s). A significant number of the Company's management and
professional employees have had prior experience with pharmaceutical,
biotechnology or medical product companies. AMYLIN believes that it has been
highly successful in attracting skilled and experienced scientific personnel.
None of the Company's employees is covered by collective bargaining agreements
and management considers relations with its employees to be good.
In March 1998 the Company began the process of restructuring its business
by reducing its workforce by about 25% and reducing other non-personnel related
expenses. This restructuring was initiated due to Johnson & Johnson's decision
to withdraw and is part of a program aimed at extending the Company's operating
capital. The Company believes that the principle impact of the restructuring
will be to slow down its preclinical research and development programs and to
defer certain market development efforts for pramlintide.
CLINICAL, SCIENTIFIC AND BUSINESS ADVISORS
AMYLIN works with a network of scientific and business experts who serve as
advisors to the Company. Each advisor has entered into a consulting agreement
with the Company. All of the advisors are employed by employers other than the
Company and have commitments to or consulting or advisory agreements with other
entities that may limit their availability to the Company. The advisors have
agreed, however, not to provide any services to any other entities that might
conflict with the services that they provide the Company.
CLINICAL ADVISORY BOARD
<TABLE>
<S> <C>
Charles M. Clark, Jr., M.D. Professor of Medicine and Pharmacology,
Indiana University School of Medicine;
Co-Director of Regenstrief Institute;
Past President of American Diabetes Association
Stefano Del Prado Associate Director of Metabolic Diseases,
Servizio di Diabetologia
Padova, Italy
Arnold Greis Professor
Diabetes-Forschungs-Institut
Dusseldorf, Germany
Harry Keen, M.D., F.R.C.P. Emeritus Professor of Human Metabolism and Diabetes,
Guys and St. Thomas Hospitals, London;
Honorary President of International Diabetes Foundation
Harold E. Lebovitz, M.D. Professor of Medicine,
SUNY Health Science Center at Brooklyn
Pierre Lefebvre, M.D., Ph.D. Head of Diabetes, Nutrition and Metabolic Disorders
Division, University of Liege Hospital, Belgium;
Past President of European Association for the Study of
Diabetes
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
Jay Skyler, M.D. Professor of Medicine, University of Miami, Department of
Medicine
Fred W. Whitehouse, M.D. Division Head, Endocrinology and Metabolism, Henry Ford
Hospital; Past President of American Diabetes Association
</TABLE>
SCIENTIFIC ADVISORY BOARD
<TABLE>
<S> <C>
Timothy J. Rink, M.D., Sc.D. Chairman and Chief Executive Officer, Aurora Biosciences
Corporation
Sydney Brenner, C.H., Director of Molecular Genetics Unit, Medical Research
Council,
M.D., D. Phil, F.R.C.P. University of Cambridge; Fellow, Royal Society; Foreign
Associate, National Academy of Sciences
C. Nicholas Hales, M.D. Ph.D., Professor of Clinical Biochemistry, University of Cambridge
F.R.C.P
Michael R. Hanley, Ph.D. Professor of Biological Chemistry, University of California,
Davis
Walter M. Lovenberg, Ph.D. President, Lovenberg Associates, Inc., CEO and Director of
Helicon Therapeutics, Inc., and Past Executive Vice
President for R&D, Marion Merrell Dow, Inc.
Iain C. Macintyre, M.D., Ph.D. Associate Director, The William Harvey Institute, St.
Bartholomew's Hospital Medical College
John Dennis McGarry, Ph.D. Professor of Internal Medicine and Biochemistry, University
of Texas, Southwestern Medical Center
Sir Philip Randle, M.D., Professor Emeritus of Clinical Biochemistry, University of
Ph.D., F.R.C.P. Oxford; Fellow, Royal Society
</TABLE>
BUSINESS ADVISORS
<TABLE>
<S> <C>
Donald H. Rumsfeld Retired Chairman and Chief Executive Officer, General
Instrument Corporation
Charles G. Smith, Ph.D. Past Vice President of Research and Development, E.R. Squibb
& Sons; Past Vice President of Research and Development,
Revlon Health Care Group
</TABLE>
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein.
Except for the historical information contained herein, the discussion in
this report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, without limitation, those discussed in the description of
the Company's business above and in "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below, as well as
those discussed in any documents incorporated herein by reference.
Technological Uncertainty; Reliance on Single Drug Candidate in Clinical
Development. All of the Company's products are in research or development, and
no revenues have been generated from product sales. To date, the Company's
resources have been dedicated primarily to the research and development of
potential pharmaceutical products relating to the amylin hormone to treat
metabolic disorders. The physiology of fuel metabolism is highly complex, and
the causes of metabolic disorders, such as diabetes, are not fully known.
Although the Company believes that preclinical, Phase II and initial Phase III
clinical data support the Company's belief that amylin plays an important role
in the regulation of metabolism, there can be no assurance that the Company's
theories are correct or that its product candidates will be effective in the
treatment of metabolic disorders. Although the Company believes the initial
Phase III clinical data about pramlintide's clinical value warrants continuing
with the Phase III development program, there can be no assurance that these
studies will confirm or improve upon the results of the initial Phase III
studies to date or that the data will support regulatory approval of
pramlintide.
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<PAGE> 14
Pramlintide is the only product candidate that the Company currently has in
human clinical studies. The Company's research and development programs other
than pramlintide are at an early stage. Any additional product candidates will
require significant research, development, preclinical and clinical testing,
regulatory approval and commitments of resources prior to commercialization.
There can be no assurance that the Company's research will lead to the discovery
of any additional product candidates or that pramlintide or any such potential
products will be successfully developed, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards, be produced in commercial
quantities at acceptable costs or be marketed successfully. If pramlintide does
not successfully complete clinical testing and meet applicable regulatory
requirements or is not successfully marketed, the Company may not have the
financial resources to continue research and development of other product
candidates. See "Business -- Initial Phase III Clinical Results" and "-- Other
Research and Development Activities."
Future Capital Needs; Uncertainty of Additional Funding. As discussed
previously, the Company's collaborative relationship with Johnson & Johnson will
be terminated in August 1998. Accordingly, the Company must find alternate
sources of capital to complete the development and commercialization of
pramlintide. The Company's future capital requirements will depend on many
factors, including the results of its six-month European Phase III clinical
trials (expected in the fourth quarter of 1998), the ability of the Company to
establish one or more development and/or commercialization collaborations for
its pramlintide program, progress with its other ongoing and new preclinical and
clinical trials, the time and costs involved in obtaining regulatory approvals,
scientific progress in its non-pramlintide research and development programs,
the magnitude of these programs, the costs involved in preparing, filing,
prosecuting, maintaining, enforcing or defending itself against patents,
competing technological and market developments, changes in collaborative
relationships, and the costs of manufacturing scale-up. The Company anticipates
that its existing cash, including interest income from cash investments, and
financial commitments from Johnson & Johnson during the termination notice
period, will be adequate to satisfy the Company's capital requirements into the
first quarter of 1999. If results of the Company's two, six-month European
clinical trials for pramlintide are positive, the Company believes that it
should be able to raise additional funds through other corporate partnerships,
equity offerings, debt offerings, and/or investor partnerships. However, there
can be no assurance that additional financial resources will be raised in the
necessary time frame or on terms favorable to the Company. In the event amylin
is unable to obtain additional financing, the Company may not have the financial
resources to continue research and development of pramlintide or any of the
Company's other product candidates.
Uncertainty Associated with Clinical Trials; Government Regulation. Prior
to marketing, any drug developed by the Company must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the United States Food and Drug Administration ("FDA") and
equivalent foreign authorities. Subject to compliance with applicable
regulations, the Company is undertaking extensive clinical testing to
demonstrate optimal dose, safety and efficacy for its product candidates. The
Company has completed two of six planned Phase III studies and is currently
conducting the remaining four Phase III efficacy studies on the Company's first
product candidate, pramlintide. In the Phase III studies, the Company is testing
whether treatment with pramlintide can improve metabolic control in patients
with diabetes who use insulin. The Company plans to initiate human clinical
testing on exendin in 1998. Further testing of pramlintide and the Company's
other product candidates in research or development may reveal undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. The Company or applicable regulatory authorities may suspend
clinical trials at any time if the subjects or patients participating in such
trials are being exposed to unacceptable health risks. There can be no assurance
that the Company will not encounter problems in clinical trials which will cause
the Company or such regulatory authorities to delay or suspend clinical trials.
In addition, there can be no assurance that any of the Company's products will
obtain regulatory approval for any indication. Products, if any, resulting from
AMYLIN's research and development programs are not expected to be commercially
available for a number of years. See "Business -- Initial Phase III Clinical
Results."
The time required for completing such clinical testing and obtaining such
regulatory approvals is uncertain and approval itself may not be obtained. In
addition, delays or rejections may be encountered based
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<PAGE> 15
upon FDA regulatory review of each submitted New Drug Application ("NDA") and
changes in FDA policies during the period of product development. Similar delays
may also be encountered in other countries. There can be no assurance that, even
after such time and expenditures, regulatory approval will be obtained for any
products developed by the Company. Moreover, prior to receiving regulatory
approval to market its products, the Company may have to demonstrate that its
products represent improved forms of treatment over existing therapies. If
regulatory approval of a product is granted, such approval may be subject to
limitations on the indicated uses for which the product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturers and its manufacturing facilities are subject to continual review
and periodic inspections and later discovery of previously unknown problems with
a product, manufacturer or facility may result in restrictions on such product
or manufacturer, including withdrawal of the product from the market. See
"Business -- Initial Phase III Clinical Results" and "-- Government Regulation."
Termination of Johnson & Johnson Collaboration. In late February 1998,
Johnson & Johnson provided the Company with six-months notice of its intention
to terminate their collaboration for the development and commercialization of
pramlintide. Johnson & Johnson's financial and other obligations under the
Collaboration Agreement will continue during the termination notice period.
Based upon Johnson & Johnson's decision, in early March 1998 AMYLIN initiated
the process of restructuring its operations by reducing its workforce by
approximately 25% and reducing other non-personnel related expenses. The Company
is continuing to evaluate its business operations during the restructuring
process.
As a result of Johnson & Johnson's notice of its intention to terminate the
collaboration, the Company will assume full responsibility for certain product
development, marketing and manufacturing functions that were being undertaken by
Johnson & Johnson. The transition of those functions to the Company will require
the cooperation of third party service providers and manufacturers and Johnson &
Johnson. There can be no assurance that third party service providers and
manufacturers will cooperate in the transition of such services or functions or
that such transitions will proceed in a timely or cost effective manner.
History of Operating Losses. The Company has experienced significant
operating losses since its inception in 1987. As of December 31, 1997, the
Company had an accumulated deficit of approximately $209.7 million. The Company
expects to incur significant additional operating losses over the next several
years. Substantially all of the Company's revenues to date have been derived
from development funding, license fees and milestone payments under
collaborative agreements and from interest income. To date, the Company has not
received any revenues from product sales. To achieve profitable operations, the
Company, alone or with others, must successfully develop, manufacture, obtain
required regulatory approvals and market its products.
Patents and Proprietary Rights. The Company's success will depend in part
on its ability to obtain patent protection for its products and technologies
both in the United States and other countries. The patent positions of
biotechnology and pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions. As of December 31, 1997, the Company owned
or held exclusive rights to 24 issued U.S. patents. In addition, AMYLIN owns or
has exclusive rights to 26 patent applications pending with the U.S. Patent and
Trademark Office (the "U.S. PTO"). The Company intends to file additional
applications as appropriate for patents covering both its products and
processes. Generally, it is the Company's policy to file foreign counterparts in
countries with significant pharmaceutical markets. The Company has filed foreign
counterparts of certain of its issued and pending applications in many
countries. There can be no assurance that patents will issue from any of these
applications or, if patents do issue, that claims allowed on issued patents will
be sufficient to protect the Company's technology. In addition, there can be no
assurance that patents issued to the Company will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide proprietary
protection or commercial advantage to the Company.
Since patent applications in the United States are maintained in secrecy
until patents issue and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
pending patent applications or that it was the first to file patent applications
for such inventions. In the event that a third party has also
14
<PAGE> 16
filed a patent for any of its inventions, the Company may have to participate in
interference proceedings declared by the U.S. PTO to determine priority of
invention, which could result in substantial cost to the Company, even if the
eventual outcome is favorable to the Company. There can be no assurance that the
Company's patents, if issued, would be held valid by a court of competent
jurisdiction. There can be no assurance that the Company will not be obliged to
defend itself in court against allegations of infringement of third-party
patents. An adverse outcome in such a suit could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology.
The Company has received letters from the University of Minnesota (the
"University") and Per Westermark ("Westermark") asserting that pramlintide is
covered by a patent (the "University Patent") which was licensed to the Company
pursuant to a License Agreement dated November 11, 1991 among the Company, the
University and Westermark (the "University License Agreement"). The University
Patent is directed to a different, tumor-derived molecule called "Insulinoma
Amyloid Polypeptide." In its letters, the University and Westermark claim that
they are entitled to 50% of any sublicense fees received by the Company from
sublicensing the University Patent to Johnson & Johnson pursuant to the
Collaboration Agreement, as well as future royalties as specified in the
University License Agreement. The Company has informed the University and
Westermark that no such sublicensing moneys have been received by the Company
from Johnson & Johnson, who is not a sublicensee under the University Patent. On
December 5, 1996, the Company filed a complaint against the University and
Westermark in the U.S. District Court for the Southern District of California
seeking a declaratory judgment that pramlintide is not covered by the University
Patent and that no moneys are owed to the University or Westermark. Although
discussions were underway with the University and Westermark, they did not
result in any agreement regarding the litigation. The Company's complaint was
served on the University and Westermark in April 1997. The Company believes that
the University's and Westermark's assertions are without merit and intends to
defend vigorously against claims that have now been brought against the Company
related to the foregoing.
If patents are issued to other companies that contain competitive or
conflicting claims and such claims are ultimately determined to be valid, there
can be no assurance that the Company would be able to obtain licenses to these
patents at a reasonable cost or be able to develop or obtain alternative
technology.
In order to protect its proprietary technology and processes, AMYLIN also
relies in part on confidentiality agreements with its corporate partners,
employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach or that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. See "Business -- Patents, Proprietary
Rights, and Licenses."
Competition; Technological Change. Other products are currently in
development or exist in the market that may compete directly with the products
that the Company is seeking to develop and market. Various products are
available to treat type 2 diabetes, including sulfonylureas, metformin,
acarbose, troglitazone and other compounds. In addition, several companies are
developing various approaches to improve treatments for type 1 and type 2
diabetes. There can be no assurance that the Company's products, even if
successfully tested and developed, will have sufficient advantages over existing
products to cause health care professionals to adopt them over such other
products or that the Company's products will offer an economically feasible
alternative to such existing products.
The Company is engaged in a rapidly developing field. A number of companies
are pursuing the development of novel pharmaceuticals which target the same
diseases that AMYLIN is targeting. These companies include biotechnology and
pharmaceutical companies. It is expected that the number of companies seeking to
develop products and therapies for the treatment of diabetes and other metabolic
disorders will increase. There can be no assurance that other products and
therapies will not be developed that will either render the Company's proposed
products obsolete or that will have advantages that will significantly outweigh
the advantages of the products and therapies that the Company is seeking to
develop.
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<PAGE> 17
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. In addition, many of these
competitors have significantly greater experience than the Company in
undertaking preclinical testing and human clinical trials of new pharmaceutical
products and in obtaining regulatory approvals of human therapeutic products.
Accordingly, the Company's competitors may succeed in obtaining FDA approval for
products more rapidly than the Company. Furthermore, if the Company is permitted
to commence commercial sales of products, it may also be competing with respect
to manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. See "Business -- Competition."
Reliance on Third-Party Manufacturers; Manufacture of Pramlintide in
Commercial Quantities. The manufacturing of sufficient quantities of new drugs
is a time consuming and complex process. The Company currently has no facilities
for the manufacture of clinical trial or commercial supplies of pramlintide. The
Company currently relies on third parties to manufacture pramlintide for
preclinical testing and clinical trials. Pramlintide has not yet been
manufactured on a commercial scale. In light of Johnson & Johnson's decision to
terminate its Collaboration with the Company, AMYLIN will likely need to find
another corporate partner or work with contract suppliers who have the
capabilities for the commercial manufacture of pramlintide. All manufacturing
facilities must comply with applicable regulations of the FDA. No assurance can
be given that the Company, alone or together with a new corporate partner, will
be able to make the transition to commercial production. The Company has
established a quality control and quality assurance program, including a set of
standard operating procedures and specifications, designed to ensure that the
Company's products are manufactured in accordance with current good
manufacturing practices ("GMP") and other applicable domestic and foreign
regulations. However, the Company is dependent upon contract manufacturers to
comply reliably with such procedures and regulations. There can be no assurance
that these manufacturers will meet the Company's requirements for quality,
quantity or timeliness. See "Business -- Manufacturing."
Attraction and Retention of Key Employees and Consultants. The Company is
highly dependent on the principal members of its scientific and management
staff, the loss of whose services might impede the achievement of research and
development objectives. Recruiting and retaining qualified scientific personnel
to perform research and development work in the future will also be critical to
the Company's success. Although the Company believes it will be successful in
attracting and retaining skilled and experienced scientific personnel, there can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms given the competition between numerous
pharmaceutical and biotechnology companies, universities and other research
institutions for experienced scientists and management personnel. The Company
does not maintain "key person" insurance on any of its employees. In addition,
the Company relies on consultants and advisors, including its scientific and
clinical advisors, to assist the Company in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by employers other than the Company and have commitments to or consulting or
advisory contracts with other entities that may limit their availability to the
Company.
Absence of Sales and Marketing Organization. The Company has limited
experience in market development and no experience in sales, marketing or
distribution. To market any of its products directly, the Company must obtain
access to marketing and sales forces with technical expertise and with
supporting distribution capability. To this end, the Company believes that it
will likely need to find a corporate partner who can provide primary
responsibility for commercialization of pramlintide, if approved by regulatory
authorities. There can be no assurance that the Company will be able to find
such a corporate partner, or that such a corporate partner will establish
adequate sales and distribution capabilities or be successful in gaining market
acceptance for products.
Uncertainty of Pharmaceutical Pricing and Reimbursement. AMYLIN's ability
to commercialize its products successfully will depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. The levels of revenues and profitability of
pharmaceutical companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets pricing or
profitability of
16
<PAGE> 18
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control.
In addition, both in the United States and elsewhere, sales of prescription
pharmaceuticals are dependent in part on the availability of reimbursement from
third-party payors, such as government and private insurance plans. Third-party
payors are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing pramlintide to the market, there
can be no assurance that it will be considered cost effective and that
reimbursement will be available or will be sufficient to allow the Company to
sell pramlintide on a competitive basis. This could have a material adverse
effect on the Company's business.
Product Liability and Insurance. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic products. Although the Company
currently has product liability insurance, there can be no assurance that it
will be able to maintain such insurance on acceptable terms or that insurance
will provide adequate coverage against potential liabilities.
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, others
may seek to hold the Company liable for any damages that result and any such
liability could exceed the resources of the Company.
Volatility of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies, including AMYLIN, have
historically been highly volatile, and the market from time to time has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of such companies. Given the uncertainty of the Company's
future funding and the pending Phase III clinical results expected during the
fourth quarter of 1998, the Company expects that there may be increased
volatility of its stock price, above that which it has historically experienced,
during the next twelve months. In addition, factors such as fluctuation in the
Company's operating results, announcements of clinical trial results,
technological innovations or new commercial therapeutic products by the Company
or its competitors, governmental policy or regulation, developments in patent or
other proprietary rights, developments in the Company's relationships with
collaborative partners, public concern as to the safety of drugs developed by
the Company and general market conditions may have a significant effect on the
market price of the Common Stock.
ITEM 2. PROPERTIES
AMYLIN's administrative offices and research laboratories are located in
San Diego and Oxford, U.K. The Company occupies an 87,000 square foot
headquarters campus in San Diego under a lease which expires in 2004; the
Company has two consecutive options to renew the lease. Each option is for an
additional five-year period. The facility contains office space and a laboratory
designed specifically for metabolic research. The Company has also sub-leased an
additional 14,000 square feet of office and laboratory space in the vicinity of
the Company's headquarters. The sub-lease expires in June 1998; the Company has
two options to renew the sub-lease. Each option is for an additional six- month
period. In addition, the Company leases a 35,500 square foot facility in San
Diego where its product development operations are located under a lease which
expires in June 2000; the Company has two options to renew this lease. Each
option is for an additional two-year period. AMYLIN EUROPE LIMITED, a wholly
owned subsidiary, occupies approximately 4,400 square feet of office space in
Oxford, U.K.
ITEM 3. LEGAL PROCEEDINGS
The Company has received letters from the University of Minnesota (the
"University")and Per Westermark ("Westermark") asserting that pramlintide is
covered by a patent (the "University Patent") which was licensed to the Company
pursuant to a License Agreement dated November 11, 1991 among the
17
<PAGE> 19
Company, the University and Westermark (the "University License Agreement"). The
University Patent is directed to a different, tumor-derived molecule called
"Insulinoma Amyloid Polypeptide." In its letters, the University and Westermark
claim that they are entitled to 50% of any sublicense fees received by the
Company from sublicensing the University Patent to Johnson & Johnson pursuant to
the Collaboration Agreement, as well as future royalties as specified in the
University License Agreement. The Company has informed the University and
Westermark that no such sublicensing moneys have been received by the Company
from Johnson & Johnson, who is not a sublicensee under the University Patent. On
December 5, 1996, the Company filed a complaint against the University and
Westermark in the U.S. District Court for the Southern District of California
seeking a declaratory judgment that pramlintide is not covered by the University
Patent and that no moneys are owed to the University or Westermark. Although
discussions were underway with the University and Westermark, they did not
result in any agreement regarding the litigation. The Company's complaint was
served on the University and Westermark in April 1997. The Company believes that
the University's and Westermark's assertions are without merit and intends to
defend vigorously against the claims that have now been brought against the
Company related to the foregoing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1997.
18
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Amylin Pharmaceuticals, Inc.'s common stock is traded on The NASDAQ Stock
Market ("NASDAQ") under the ticker symbol "AMLN." The high and low closing
prices (as reported by NASDAQ) for the Company's common Stock for each quarter
during the last two fiscal years were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1997 FISCAL YEAR 1996
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter..................... $16.625 $11.875 $13.500 $ 9.250
Second Quarter.................... 14.000 10.000 12.250 9.000
Third Quarter..................... 15.500 6.875 13.625 8.125
Fourth Quarter.................... 9.750 4.750 13.500 10.750
</TABLE>
As of March 13, 1998 there were approximately 1,107 shareholders of record.
The Company has not declared any dividends and does not expect to pay any
dividends in the foreseeable future.
19
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues under collaborative agreements:
Related party........................... $ 42,609,000 $ 35,803,000 $ 17,045,000 -- --
Other................................... -- -- -- $ 500,000 $ 667,000
------------ ------------ ------------ ------------ ------------
42,609,000 35,803,000 17,045,000 500,000 667,000
Expenses:
Research and development................ 82,281,000 64,998,000 39,337,000 30,255,000 18,988,000
General and administrative.............. 15,592,000 10,420,000 8,318,000 6,383,000 4,387,000
------------ ------------ ------------ ------------ ------------
97,873,000 75,418,000 47,655,000 36,638,000 23,375,000
Net interest income....................... 637,000 1,828,000 1,341,000 1,637,000 2,195,000
------------ ------------ ------------ ------------ ------------
Net loss.................................. $(54,627,000) $(37,787,000) $(29,269,000) $(34,501,000) $(20,513,000)
============ ============ ============ ============ ============
Net loss per share -- basic and diluted... $ (1.70) $ (1.31) $ (1.23) $ (1.71) $ (1.15)
============ ============ ============ ============ ============
Shares used in calculating of net loss per
share -- basic and diluted.............. 32,155,761 28,744,822 23,853,606 20,184,875 17,867,399
CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term
investments............................. $ 52,748,000 $ 62,123,000 $ 53,521,000 $ 29,149,000 $ 56,250,000
Working capital........................... 31,303,000 46,691,000 45,268,000 26,209,000 54,435,000
Total assets.............................. 65,338,000 73,533,000 61,949,000 37,306,000 62,029,000
Long term obligation under capital leases
and long term equipment notes payable... 3,047,000 1,990,000 1,410,000 2,177,000 819,000
Long term note payable to related party... 33,933,000 4,345,000 1,020,000 -- --
Accumulated deficit....................... (209,732,000) (155,105,000) (117,318,000) (88,049,000) (53,548,000)
Total stockholders' equity................ 4,649,000 48,534,000 49,754,000 30,869,000 58,162,000
</TABLE>
Since its inception the Company has never declared a cash dividend.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the discussion in
this report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in this report. Factors that could cause or contribute to such
differences include, without limitation, those discussed in the section entitled
"Liquidity and Capital Resources" herein as well as those discussed in the
description of the Company's business above, and the section titled "Risk
Factors", as well as those discussed in any documents incorporated herein by
reference.
Since its inception in September 1987, Amylin has devoted substantially all
of its resources to its research and development programs. Substantially all of
the Company's revenues to date have been derived from fees and expense
reimbursements under collaborative agreements and from interest income. Amylin
has not received any revenues from the sale of products. The Company has been
unprofitable since its inception and expects to incur additional operating
losses for the next several years. As of December 31, 1997, the Company's
accumulated deficit was approximately $210 million.
Since June 1995, the Company and Johnson & Johnson have been collaborating
on the development and commercialization of pramlintide, a diabetes drug
candidate in Phase III clinical trials. As of December 31, 1997 Johnson &
Johnson entities made various financial payments to the Company totaling $163
million. In late February 1998, Johnson & Johnson provided the Company with
six-months notice of its intention to terminate their collaboration. Johnson &
Johnson's financial and other obligations under the Collaboration Agreement will
continue during the termination notice period. Based upon Johnson & Johnson's
decision, in early March 1998 Amylin initiated the process of restructuring its
operations by reducing its workforce by approximately 25% and reducing other
non-personnel related expenses. The Company believes that its ongoing
restructuring will permit the Company to finance its current operations into the
first quarter of 1999.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE
The Company's revenues were $42.6 million in 1997, $35.8 million in 1996
and $17.0 million in 1995. The revenues recognized in each of the years are
related to the Company's Collaboration Agreement with Johnson & Johnson.
Revenues in 1997 were comprised of Johnson & Johnson's one-half share of
collaboration development expenses incurred by AMYLIN and $9.0 million in option
fee payments made by Johnson & Johnson during the year. The $9.0 million
payments made by Johnson & Johnson included $6.0 million related to the exercise
of Johnson & Johnson's option to broaden the scope of the collaboration with the
Company to include all amylin agonists for the treatment of fuel metabolism
disorders, including diabetes, and $3.0 million related to the exercise of
Johnson & Johnson's option to broaden the scope of the collaboration with the
Company to include all amylin agonists for the treatment of all human diseases.
Revenues in 1996 were comprised of Johnson & Johnson's one-half share of
collaboration development expenses incurred by the Company during the year and
$7.0 million in milestone and option fee payments paid in the third quarter of
the year. Revenues in 1995 were comprised of Johnson & Johnson's one-half share
of collaboration development expenses incurred by the Company along with a
license fee which was paid at the signing of the agreements.
OPERATING EXPENSES
The Company's total operating expenses increased to $97.9 million in 1997
from $75.4 million in 1996 and $47.7 million in 1995, primarily due to increases
in research and development activities during those periods.
Research and development expenses increased to $82.3 million in 1997 from
$65.0 million in 1996 and $39.3 million in 1995. The increase in these
expenditures was primarily due to the costs of expanding pramlintide clinical
development efforts. Several other factors also contributed to this increase,
including increased staffing and increased facilities related expenses.
21
<PAGE> 23
General and administrative expenses increased to $15.6 million in 1997 from
$10.4 million in 1996 and $8.3 million in 1995. Several factors contributed to
the increase including increased pre-launch marketing efforts, increased
staffing to support expanded development efforts, and increased facilities
expenditures.
OTHER INCOME AND EXPENSE
Interest and other income is principally comprised of interest income from
investment of the Company's cash reserves. Interest and other income increased
to $2.6 million in 1997 from $2.3 million in 1996 and $1.6 million in 1995. The
increase was primarily due to an overall higher average cash balance available
for investment between the years.
Interest and other expense is principally comprised of interest expense
resulting from long-term debt obligations. Debt financing has been utilized by
the Company to acquire laboratory and other equipment and to fund tenant
improvements to the Company's facilities. In addition, in accordance with the
terms of the Company's Collaboration Agreement with Johnson & Johnson, Johnson &
Johnson has advanced the Company's share of pramlintide pre-launch marketing
expenses incurred since the date of the collaboration. Separately, in September
1997, the Company received proceeds of approximately $30.6 million from a draw
down under its Development Loan Facility with Johnson & Johnson. The proceeds
were used to fund the Company's one-half share of development expenses for
pramlintide during the second through fourth quarters of 1997. In conjunction
with the borrowing under the Development Loan Facility, the Company issued
warrants to Johnson & Johnson to purchase 1,530,950 shares of the Company's
common stock. The estimated value of the warrants will be amortized to interest
expense over the life of the Development Loan Facility. Both the development
loan and the pre-marketing loan were provided under the terms and conditions of
the Company's Loan Agreement with Johnson & Johnson and will be repaid with
interest over time out of the Company's share of future pramlintide profits, if
any, subject to certain exceptions set forth in the Loan Agreement. Interest and
other expense was $2.0 million in 1997 as compared to $0.4 million in 1996 and
$0.3 million in 1995. The increase in interest expense was primarily due to the
interest associated with the development loan debt, amortization of the
valuation placed on the warrants, and interest expense related to the
pre-marketing loan.
NET LOSS
The net loss for the year ended December 31, 1997 was $54.6 million as
compared to $37.8 million in 1996 and $29.3 million in 1995. The increase in the
net loss over this three year period was the result of the Company's expanded
clinical development and product development efforts in support of pramlintide.
AMYLIN expects to incur substantial operating losses over the next several
years due to continuing expenses associated with its research and development
programs, including preclinical and clinical testing of product candidates, and
related general and administrative support. Operating losses may fluctuate from
quarter to quarter as a result of differences in the timing of expenses incurred
and revenues recognized.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through private placements of preferred stock, sales of common stock, its
collaboration with Johnson & Johnson, and operating and capital lease
obligations.
In June 1995, the Company entered into the Collaboration Agreement for the
development and commercialization of pramlintide, a diabetes drug candidate
currently in Phase III clinical trials. In conjunction with the Collaboration
Agreement, the Company simultaneously entered into a Stock Purchase Agreement
with Johnson & Johnson Development Corporation (a wholly owned subsidiary of
Johnson & Johnson and referred to herein as Johnson & Johnson) and the Loan
Agreement.
In September 1997, the Company received proceeds of approximately $30.6
million from a draw down under its Development Loan Facility with Johnson &
Johnson. The proceeds were applied against the Company's one-half share of
development expenses for pramlintide incurred during the second through fourth
22
<PAGE> 24
quarters of 1997. The loan carries an interest rate of 9.0%. In conjunction with
the borrowing, the Company issued warrants to Johnson & Johnson to purchase
1,530,950 shares of the Company's common stock with a fixed exercise price of
$12 per share and a 10-year exercise period. The loan is repayable 12 months
after approval of a new drug application for pramlintide out of 50% of the
Company's pramlintide profits, subject to certain exceptions set forth in the
Loan Agreement. The loan is secured by the Company's issued patents and pending
patent applications relating to amylin.
In late February 1998, Johnson & Johnson provided the Company six-months
notice of its intention to terminate their collaboration. All product rights
held by the collaboration will be returning to AMYLIN following the termination
of the collaboration. Johnson & Johnson's financial and other obligations under
the Collaboration Agreement will continue during the termination notice period.
Based upon Johnson & Johnson's decision, in early March 1998 AMYLIN initiated
the process of restructuring its operations by reducing its workforce by
approximately 25% and reducing other non-personnel related expenses. The Company
believes that its ongoing restructuring will permit the Company to finance its
current operations into the first quarter of 1999.
Prior to Johnson & Johnson's notification of its intent to terminate the
collaboration, the regulatory strategy for pramlintide was based on plans for
global filings in both type 1 and type 2 diabetes during the first half of 2000.
However, as the Phase III trials have proceeded, AMYLIN scientists and advisors
have concluded that available data should support an earlier European filing for
use by type 1 patients. In the major pharmaceutical markets, there are about
two-million type 1 patients for whom the only important glucose-control drug is
insulin. The Company believes that Europe offers the earliest market
opportunity. Thus, AMYLIN aims to file its first marketing application in Europe
for type 1 diabetes during the first half of 1999 and, subject to approval of
this indication, plans to submit regulatory filings in Europe for type 2
diabetes in the first half of 2000.
The Company plans to file a New Drug Application in the United States
during the first half of 2000 for type 1 and type 2 diabetes. The acceleration
of the regulatory filing in Europe for type 1 diabetes will require a
significant dedication of resources, including financial resources, to that
program.
At December 31, 1997, the Company had $52.7 million in cash, cash
equivalents and short-term investments as compared to $62.1 million at December
31, 1996. The Company invests its cash in U.S. government and other highly rated
liquid debt instruments.
The Company intends to use its financial resources for the ongoing
development of pramlintide, including the Phase III clinical trials, for the
expansion of its exendin research program, and for other general corporate
purposes. To the extent that clinical trials of the Company's compounds progress
as planned, research and development expenses will include costs of supplying
materials for and conducting pramlintide clinical trials, research activities to
further explore amylin biology, and research and development of other compounds
targeted at metabolic diseases. The amounts actually expended for each purpose
may vary significantly depending upon numerous factors, including the progress
of the Company's research and development programs, the results of preclinical
and clinical studies, the timing of regulatory submissions and approvals, if
any, technological advances, determinations as to commercial potential of the
Company's compounds, and the status of competitive products. Expenditures will
also depend upon the availability of additional sources of funds, the
establishment of collaborative arrangements with other companies, and other
factors.
As of December 31, 1997, the Company leased or sub-leased approximately
99,000 square feet of space. At this time, the Company expects to incur less
than $1.0 million of capital expenditures in 1998. These expenditures will
primarily be directed toward the purchase of new equipment to support research
and development efforts and for tenant improvements.
The Company does not expect to generate a positive internal cash flow for
several years due to substantial additional research and development costs,
including costs related to drug discovery, preclinical testing, clinical trials,
manufacturing costs, and general and administrative expenses necessary to
support such activities. The Company cash resources will be directed toward the
funding of the Phase III studies and other ancillary studies in the pramlintide
clinical program, and on the initiation of human clinical trials on exendin
23
<PAGE> 25
in 1998. The Company plans to continue advancing its expanded research and
development pipeline when resources permit. The Company anticipates that pending
the completion of its corporate restructuring, its existing cash, including
interest income from cash investments, and financial commitments from Johnson &
Johnson during the termination notice period, will be adequate to satisfy the
Company's capital requirements into the first quarter of 1999. The Company
believes that if the results of its two six-month European clinical trials for
pramlintide are positive it should be able to raise additional funds through
other corporate partnerships, equity offerings, debt offerings, and/or investor
partnerships. However, there can be no assurance that additional financial
resources will be raised in the necessary time frame or on terms favorable to
the Company. In the event Amylin is unable to obtain additional financing, the
Company may not have the financial resources to continue research and
development of pramlintide or any of the Company's other product candidates.
The Company cannot assure that any of its drug candidates will successfully
meet all of their development goals. Important technical milestones remain to be
achieved before the Company can commercialize any of its products, and failure
to achieve these milestones could seriously jeopardize the Company's chances of
success and its financial condition would be adversely affected. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in its research and development programs, the magnitude of
these programs, progress with preclinical and clinical trials, the time and
costs involved in preparing regulatory submissions and seeking regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining,
and enforcing patents, the costs of defending against litigation, competing
technological and market developments, the ability of the Company to establish
collaborative arrangements for its other research and development programs, and
the cost of manufacturing scale-up.
Prior to marketing, any drug developed by the Company must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the Food and Drug Administration (FDA) and equivalent foreign
authorities. Human clinical testing is now underway on the Company's first
product candidate, pramlintide, and the Company plans to initiate human clinical
testing on exendin in 1998. Subject to compliance with FDA and foreign
authorities regulations, the Company plans to undertake extensive clinical
testing to demonstrate optimal dose, safety, and efficacy for its product
candidates in humans. Although the Company believes the initial Phase III
clinical data about pramlintide's clinical value warrants continuing with the
Phase III development program, there can be no assurance that these studies will
confirm or improve the results of the initial Phase III studies to date or that
the data will support regulatory approval of pramlintide. Further testing of
pramlintide and the Company's other product candidates in research or
development may reveal undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. The Company or
the regulatory authorities may suspend clinical trials at any time if the
subjects or patients participating in such trials are being exposed to
unacceptable health risks. There can be no assurance that the Company will not
encounter problems in clinical trials which will cause the Company or the
regulatory authorities to delay or suspend clinical trials. In addition, there
can be no assurance that any of the Company's products will obtain regulatory
approval for any indication. Products, if any, resulting from Amylin's research
and development programs are not expected to be commercially available for a
number of years.
The Company believes that patent and other proprietary rights are important
to its business, and in this regard intends to file applications as appropriate
for patents covering both its products and processes. Litigation, which could
result in substantial cost to the Company, may also be necessary to enforce any
patents issued to the Company or to determine the scope and validity of
third-party proprietary rights. The Company is currently in litigation with the
University of Minnesota and Per Westermark. See "Legal Proceedings."
In addition, it is uncertain whether any unasserted third-party patents
will require the Company to alter its products or processes, obtain licenses, or
cease certain activities. If any licenses are required, there can be no
assurances that the Company will be able to obtain any such license on
commercially favorable terms, if at all. Failure by the Company to prevail in
any litigation or to obtain a license to any technology that it may require to
commercialize its products may have a material adverse impact on the Company.
24
<PAGE> 26
YEAR 2000 ISSUE
The Company is currently developing a plan to provide assurances that its
systems and software infrastructure are Year 2000 compliant. Key financial,
information and operation systems will be assessed and plans will be developed
to address required system modifications. Given the relatively small size of the
Company's systems and the relatively new hardware, software and operating
systems, management does not anticipate any significant delays in becoming Year
2000 compliant. However, the Company is unable to control whether the firms and
vendors that it does business with currently and in the future have systems that
are Year 2000 compliant. To the extent that these firms and vendors would be
unable to provide services and ship products, the Company's operations could be
affected. However, management does not believe that Year 2000 changes will have
a material impact on the Company's business and financial condition or results
of operations.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 27
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................. 28
Consolidated Statements of Operations....................... 29
Consolidated Statement of Stockholders' Equity.............. 30
Consolidated Statements of Cash Flows....................... 31
Notes to Consolidated Financial Statements.................. 32
</TABLE>
26
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Amylin Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Amylin
Pharmaceuticals, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amylin
Pharmaceuticals, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
January 23, 1998,
except for the last paragraph of Note 5,
as to which the date is
March 2, 1998
27
<PAGE> 29
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 46,903,000 $ 42,654,000
Short-term investments.................................... 5,845,000 19,469,000
Receivable from related party............................. 966,000 2,089,000
Other current assets...................................... 1,298,000 1,142,000
------------- -------------
Total current assets.............................. 55,012,000 65,354,000
Property and equipment, at cost:
Equipment................................................. 14,707,000 11,480,000
Leasehold improvements.................................... 4,763,000 3,349,000
------------- -------------
19,470,000 14,829,000
Less accumulated depreciation and amortization............ (10,860,000) (8,075,000)
------------- -------------
8,610,000 6,754,000
Patents and other assets at cost, net....................... 1,716,000 1,425,000
------------- -------------
$ 65,338,000 $ 73,533,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,278,000 $ 4,829,000
Accrued liabilities, including other deferred revenue..... 10,606,000 4,628,000
Deferred collaborative revenue from related party......... 6,357,000 7,954,000
Current portion of notes payable to unrelated parties..... 1,240,000 722,000
Current portion of obligations under capital leases....... 228,000 531,000
------------- -------------
Total current liabilities......................... 23,709,000 18,664,000
Note payable and capital lease obligations.................. 3,047,000 1,990,000
Note payable to related party............................... 33,933,000 4,345,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 7,500,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $.001 par value, 50,000,000 shares
authorized, 32,394,433 and 31,977,186 issued and
outstanding at December 31, 1997 and 1996,
respectively........................................... 33,000 32,000
Additional paid-in capital................................ 215,245,000 204,800,000
Accumulated deficit....................................... (209,732,000) (155,105,000)
Deferred compensation..................................... (893,000) (1,177,000)
Unrealized losses on short-term investments............... (4,000) (16,000)
------------- -------------
Total stockholders' equity........................ 4,649,000 48,534,000
------------- -------------
$ 65,338,000 $ 73,533,000
============= =============
</TABLE>
See accompanying notes.
28
<PAGE> 30
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues under collaborative agreements
from related party............................. $ 42,609,000 $ 35,803,000 $ 17,045,000
Expenses:
Research and development....................... 82,281,000 64,998,000 39,337,000
General and administrative..................... 15,592,000 10,420,000 8,318,000
------------ ------------ ------------
97,873,000 75,418,000 47,655,000
------------ ------------ ------------
Loss from operations............................. (55,264,000) (39,615,000) (30,610,000)
Interest and other income........................ 2,613,000 2,274,000 1,640,000
Interest and other expense....................... (1,976,000) (446,000) (299,000)
------------ ------------ ------------
Net loss......................................... $(54,627,000) $(37,787,000) $(29,269,000)
============ ============ ============
Basic net loss per share......................... $ (1.70) $ (1.31) $ (1.23)
============ ============ ============
Shares used in computing net loss per share --
basic and diluted............................. 32,155,761 28,744,822 23,853,606
============ ============ ============
</TABLE>
See accompanying notes.
29
<PAGE> 31
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NOTES UNREALIZED
COMMON STOCK ADDITIONAL RECEIVABLE GAINS(LOSSES)
-------------------- PAID-IN ACCUMULATED DEFERRED FROM ON SHORT-TERM
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION STOCKHOLDERS INVESTMENTS
---------- ------- ------------ ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................. 20,828,328 $21,000 $120,222,000 $ (88,049,000) $ (616,000) $(21,000) $(687,000)
Issuance of common
stock in private
placement............ 1,086,957 1,000 7,477,000 -- -- -- --
Issuance of common
stock in public
offerings............ 6,010,769 6,000 38,969,000 -- -- -- --
Issuance of common
stock upon exercise
of options........... 91,785 -- 409,000 -- -- -- --
Repayment of notes
receivable for
issuance of common
stock................ -- -- -- -- -- 21,000 --
Deferred compensation
related to stock
options.............. -- -- (83,000) -- 83,000 -- --
Amortization of
deferred
compensation......... -- -- -- -- 533,000 -- --
Unrealized gain on
available-for-sale
securities........... -- -- -- -- -- -- 737,000
Net loss............... -- -- -- (29,269,000) -- -- --
---------- ------- ------------ ------------- ----------- -------- ---------
Balance at December 31,
1995................. 28,017,839 28,000 166,994,000 (117,318,000) -- -- 50,000
Issuance of common
stock in public
offering............. 2,012,500 2,000 18,767,000 -- -- -- --
Issuance of common
stock in private
placement............ 1,500,000 1,000 14,999,000 -- -- -- --
Issuance of common
stock upon exercise
of options........... 446,847 1,000 1,967,000 -- -- -- --
Deferred compensation
related to stock
options.............. -- -- 2,073,000 -- (2,073,000) -- --
Amortization of
deferred
compensation......... -- -- -- -- 896,000 -- --
Unrealized loss on
available-for-sale
securities........... -- -- -- -- -- -- (66,000)
Net loss............... -- -- -- (37,787,000) -- -- --
---------- ------- ------------ ------------- ----------- -------- ---------
Balance at December 31,
1996................. 31,977,186 32,000 204,800,000 (155,105,000) (1,177,000) -- (16,000)
Issuance of common
stock upon exercise
of options........... 417,247 1,000 2,100,000 -- -- -- --
Deferred compensation
related to stock
options.............. -- -- 261,000 -- (261,000) -- --
Amortization of
deferred
compensation......... -- -- -- -- 545,000 -- --
Discount on Note
Payable related to
grant of common stock
warrants............. -- -- 8,084,000 -- -- -- --
Unrealized gain on
available-for-sale
securities........... -- -- -- -- -- -- 12,000
Net loss............... -- -- -- (54,627,000) -- -- --
---------- ------- ------------ ------------- ----------- -------- ---------
Balance at December 31,
1997................. 32,394,433 $33,000 $215,245,000 $(209,732,000) $ (893,000) $ -- $ (4,000)
========== ======= ============ ============= =========== ======== =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1994................. $ 30,870,000
Issuance of common
stock in private
placement............ 7,478,000
Issuance of common
stock in public
offerings............ 38,975,000
Issuance of common
stock upon exercise
of options........... 409,000
Repayment of notes
receivable for
issuance of common
stock................ 21,000
Deferred compensation
related to stock
options.............. --
Amortization of
deferred
compensation......... 533,000
Unrealized gain on
available-for-sale
securities........... 737,000
Net loss............... (29,269,000)
------------
Balance at December 31,
1995................. 49,754,000
Issuance of common
stock in public
offering............. 18,769,000
Issuance of common
stock in private
placement............ 15,000,000
Issuance of common
stock upon exercise
of options........... 1,968,000
Deferred compensation
related to stock
options.............. --
Amortization of
deferred
compensation......... 896,000
Unrealized loss on
available-for-sale
securities........... (66,000)
Net loss............... (37,787,000)
------------
Balance at December 31,
1996................. 48,534,000
Issuance of common
stock upon exercise
of options........... 2,101,000
Deferred compensation
related to stock
options.............. --
Amortization of
deferred
compensation......... 545,000
Discount on Note
Payable related to
grant of common stock
warrants............. 8,084,000
Unrealized gain on
available-for-sale
securities........... 12,000
Net loss............... (54,627,000)
------------
Balance at December 31,
1997................. $ 4,649,000
============
</TABLE>
See accompanying notes.
30
<PAGE> 32
AMYLIN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $(54,627,000) $(37,787,000) $(29,269,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 2,865,000 2,345,000 2,069,000
Deferred revenue from related party............ (1,597,000) 3,336,000 4,618,000
Deferred rent and other expense................ (17,000) (25,000) (25,000)
Amortization of deferred compensation.......... 545,000 896,000 533,000
Amortization of warrants issued with debt...... 299,000 -- --
Changes in operating assets and liabilities:
Receivable from related party............... 1,123,000 (1,866,000) (223,000)
Other current assets........................ (156,000) 130,000 6,000
Accounts payable............................ 449,000 3,352,000 302,000
Accrued liabilities......................... 5,995,000 1,750,000 765,000
------------ ------------ ------------
Net cash flows used in operating activities...... (45,121,000) (27,869,000) (21,224,000)
INVESTING ACTIVITIES:
Purchases of short-term investments.............. (15,541,000) (38,972,000) (38,208,000)
Maturities of short-term investments............. 19,005,000 29,642,000 11,326,000
Sales of short-term investments.................. 10,172,000 26,607,000 12,595,000
Purchase of equipment and leasehold
improvements................................... (4,641,000) (3,278,000) (1,999,000)
Increase in deposits, patents and other assets... (371,000) (313,000) (124,000)
------------ ------------ ------------
Net cash flows provided by (used in) investing
activities 8,624,000 13,686,000 (16,410,000)
FINANCING ACTIVITIES:
Issuance of notes payable........................ 40,467,000 5,379,000 1,020,000
Principal payments on capital leases and
equipment notes payable........................ (1,822,000) (988,000) (921,000)
Issuance of common stock, net.................... 2,101,000 35,737,000 46,883,000
------------ ------------ ------------
Net cash flows provided by financing
activities..................................... 40,746,000 40,128,000 46,982,000
------------ ------------ ------------
Increase in cash and cash equivalents............ 4,249,000 25,945,000 9,348,000
Cash and cash equivalents at beginning of
period......................................... 42,654,000 16,709,000 7,361,000
------------ ------------ ------------
Cash and cash equivalents at end of period....... $ 46,903,000 $ 42,654,000 $ 16,709,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................... $ 411,000 $ 281,000 $ 290,000
============ ============ ============
</TABLE>
See accompanying notes.
31
<PAGE> 33
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business activity
Amylin Pharmaceuticals, Inc. ("Amylin" or the "Company") was incorporated
in Delaware on September 29, 1987. The Company is focused on developing novel
therapeutics for people with metabolic disorders. The Company is conducting a
series of Phase III clinical trials of its leading drug candidate, Pramlintide,
which is being developed to improve glucose control in people with Type I
(juvenile-onset) and Type II (maturity-onset) diabetes who use insulin.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Amylin Europe Limited. All significant
intercompany transactions and balances have been eliminated in consolidation.
Research revenues under collaborative agreements and research and development
expenses
Research revenues under collaborative agreements are recorded when earned
as research activities are performed. Payments in excess of amounts earned are
deferred. Research and development costs are expensed as incurred.
Cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments consist principally of
U.S. government securities and other highly liquid debt instruments. The Company
considers instruments with remaining maturities of less than 90 days when
purchased to be cash equivalents.
Concentration of credit risk
The Company invests its excess cash in U.S. government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification and
maturities that maintain safety and liquidity. These guidelines are periodically
reviewed.
Investments
The Company has classified its debt securities as available-for-sale, and
accordingly, carries its short-term investments at fair value, and unrealized
holding gains or losses on these securities are carried as a separate component
of stockholders' equity. The amortized cost of debt securities in this category
is adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary (of which there have been
none to date) on available-for-sale securities are included in interest income.
The cost of securities sold is based on the specific identification method.
Depreciation and amortization
Depreciation of equipment is computed using the straight-line method over
two to five years. Leasehold improvements are amortized over the shorter of the
estimated useful lives of the assets or the remaining term of the lease.
Amortization of equipment under capital leases is reported with depreciation of
property and equipment. Patents consist of patent filing costs which are
amortized over the estimated economic life of the patents when issued.
32
<PAGE> 34
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Net loss per share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, Earnings per Share ("Statement No. 128").
Statement No. 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. The adoption of
Statement No. 128 had no effect on the Company's financial statements.
Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related Interpretations ("APB
25"), in accounting for its employee stock options. Under APB 25, when the
exercise price of the Company's employee stock options is not less than the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New accounting standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both of
these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss. SFAS No. 131 amends
the requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined by SFAS No. 131, are components of an enterprise for which financial
information is available and evaluated regularly by the Company in deciding how
to allocate resources and in assessing performance. The financial information is
required to be reported on the basis that it is used internally for evaluating
the segment performance. The Company believes it operates in one business and
operating segment and does not believe adoption of SFAS No. 131 will have a
material impact on the Company's financial statements.
33
<PAGE> 35
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. INVESTMENTS
The following is a summary of investments as of December 31, 1997 and 1996,
including $37,211,000 and $31,543,000 classified as cash equivalents in the
accompanying balance sheets as of December 31, 1997 and 1996, respectively. All
respective investments mature in less than one year.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities and obligations of
U.S. government agencies................. $21,832,000 $ -- $ (3,000) $21,829,000
Other debt securities...................... 21,228,000 -- (1,000) 21,227,000
----------- -------- ---------- -----------
Total...................................... $43,060,000 $ -- $ (4,000) $43,056,000
=========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Treasury securities and obligations of
U.S. government agencies................. $21,955,000 $ -- $ (13,000) $21,942,000
Other debt securities...................... 29,073,000 -- (3,000) 29,070,000
----------- -------- ---------- -----------
Total...................................... $51,028,000 $ -- $ (16,000) $51,012,000
=========== ======== ========== ===========
</TABLE>
The gross realized gains on sales of available-for-sale securities totaled
$1,000 and $29,000 and the gross realized losses totaled $3,000 and $5,000 for
the years ended December 31, 1997 and 1996, respectively.
3. COMMITMENTS
Leases
The Company leases its facilities and certain machinery and equipment under
operating and capital leases. The minimum annual rent on the Company's
facilities is subject to increases based on stated rental adjustment terms of
certain leases, taxes, insurance and operating costs. Certain equipment leases
require the Company to provide the lessor with a guaranteed residual at the end
of the lease term at which time title to the equipment passes to the Company.
Minimum future annual obligations for operating leases for years ending
after December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 2,339,000
1999............................................ 2,682,000
2000............................................ 2,632,000
2001............................................ 2,601,000
Thereafter...................................... 7,460,000
-----------
Total minimum lease payments.......... $17,714,000
===========
</TABLE>
Rent expense for 1997, 1996, and 1995 was $2,697,000, $2,315,000, and
$2,283,000, respectively.
34
<PAGE> 36
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Debt
As of December 31, 1997, the Company had an outstanding loan of $190,000
for financing of equipment and tenant improvements. The loan is payable over
forty-eight months which commenced on February 1, 1995. Payments include
principal and monthly interest of prime plus 1.75% (10.25% at December 31, 1997)
of the outstanding principal balance. Principal payments due for 1998 and 1999
are $175,000 and $15,000, respectively. The loan agreement contains provisions
for the complete repayment of any outstanding principal balance should the
Company's cash balances fall below certain minimum levels.
In 1996, the Company entered into a master line of credit agreement (as
amended) to provide up to $5,000,000 of net financing for standard equipment
through December 31, 1997. As of December 31, 1997, the Company had an
outstanding loan balance of $4,097,000. Borrowings under each loan schedule are
payable over forty-eight months to include principal and monthly interest based
on the average of three and five-year U.S. Treasury maturities (approximately
10.20% at December 31, 1997). Principal payments due in 1998 through 2001 are
$1,065,000, $1,184,000, $1,211,000, and $637,000, respectively. The credit
agreement provides the lender with a security interest in all equipment financed
under the line.
In November 1997, the Company entered into a commitment agreement to enter
into a financing agreement which will provide up to $2,700,000 of financing for
equipment purchases. Borrowings under this agreement will be payable over a
sixty month period with principal payments commencing on January 1, 1999.
Monthly interest payments will be calculated based on prime plus 0.5% of the
outstanding principal balance and will commence with any outstanding balance in
1998. The credit agreement provides the lender with a security interest in all
equipment financed under the agreement and requires payment of a security
deposit should the Company's cash balances fall below certain minimum levels.
4. STOCKHOLDERS' EQUITY
Stock Purchase Plan
In November 1991, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan"), under which 500,000 shares of common stock may be issued to
eligible employees, including officers. The price of common stock under the
Purchase Plan is equal to the lessor of 85% of the market price on the effective
date of an employee's participation in the plan or 85% of the fair market value
of the common stock at the purchase date. At December 31, 1997, 302,391 shares
of common stock had been issued under the plan.
Stock Options
Under the Company's 1991 Stock Option Plan (the "Plan"), 7,000,000 shares
of common stock are reserved for issuance upon exercise of options granted to
employees and consultants of the Company. The Plan provides for the grant of
incentive and nonstatutory stock options. The exercise price of incentive stock
options must equal at least the fair market value on the date of grant, and the
exercise price of nonstatutory stock options may be no less than 85% of the fair
market value on the date of grant. Additionally, the Company is authorized to
issue supplemental stock options for up to 70,000 options outside of the Plan.
The maximum term of all options granted is ten years.
Under the company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") 350,000 shares of common stock are reserved for issuance upon
exercise of nonqualified stock options granted to Non-Employee Directors of the
Company.
35
<PAGE> 37
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The following table summarizes option activity:
<TABLE>
<CAPTION>
SHARES
UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994................ 3,523,636 $ 8.08
Granted....................................... 3,152,238 $ 5.14
Exercised..................................... (21,331) $ 3.29
Cancelled..................................... (2,346,310) $ 8.48
---------- ------
Outstanding at December 31, 1995................ 4,308,233 $ 5.74
Granted....................................... 1,927,796 $10.58
Exercised..................................... (404,671) $ 4.46
Cancelled..................................... (331,576) $ 9.43
---------- ------
Outstanding at December 31, 1996................ 5,499,782 $ 7.31
Granted....................................... 566,914 $11.94
Exercised..................................... (376,826) $ 4.71
Cancelled..................................... (327,231) $ 8.48
---------- ------
Outstanding at December 31, 1997................ 5,362,639 $ 7.91
========== ======
</TABLE>
At December 31, 1997, 1,150,054 shares remained available for grant or
sale.
Following is a further breakdown of the options outstanding as of December
31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED EXERCISE
AVERAGE AVERAGE PRICE OF
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS OPTIONS
EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISABLE
- ---------------- ----------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.00 286,702 3.88 $ 2.00 286,702 $ 2.00
$ 4.50 - $ 6.75 1,899,605 6.28 $ 4.84 1,676,398 $ 4.79
$ 6.875 - $10.00 1,380,874 8.13 $ 7.96 577,585 $ 7.85
$10.25 - $14.875 1,795,458 8.24 $12.06 758,489 $11.61
--------- ---- ------ --------- ------
5,362,639 7.28 $ 7.91 3,299,174 $ 6.65
========= ==== ====== ========= ======
</TABLE>
Adjusted pro forma information regarding net loss and loss per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options and stock purchase plan under the fair
value method of SFAS No. 123. The fair value for these options was estimated at
the date of grant using the "Black-Scholes" method for option pricing with the
following weighted average assumptions for 1997, 1996 and 1995, respectively:
risk-free interest of 5.71%, 6.39%, and 6.39%; dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of 65.4%,
64.7% and 64.7%; and a weighted-average expected life of the option of five
years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the option is amortized to expense over the option's vesting period.
The Company's adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Adjusted pro forma net loss...... $(59,850,000) $(41,969,000) $(31,576,000)
Adjusted pro forma net loss per
share.......................... $ (1.86) $ (1.46) $ (1.32)
</TABLE>
36
<PAGE> 38
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The weighted-average fair value of options granted during 1997, 1996, and
1995 was $7.14, $6.67, and $3.17, respectively.
Stock Warrants
In May 1997, in conjunction with an amendment to a License Agreement, the
Company issued warrants to the licensor to purchase 20,000 shares of the
Company's common stock with a fixed exercise price of $11.375 per share and a
10-year exercise period.
On September 30, 1997, in conjunction with the draw down under the
Development Loan Facility with Johnson & Johnson, the Company issued a warrant
to Johnson & Johnson to purchase 1,530,950 shares of the Company's common stock
at an exercise price of $12.00 per share which expires on September 29, 2007
(see "Collaborative Agreements").
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance at
December 31, 1997:
<TABLE>
<S> <C>
1991 Stock Option Plan................................... 7,000,000
Employee Stock Purchase Plan............................. 500,000
Directors Plan........................................... 350,000
Warrants................................................. 1,550,950
---------
9,400,950
=========
</TABLE>
5. COLLABORATIVE AGREEMENTS
Johnson & Johnson
In June 1995, the Company entered into a worldwide Collaboration Agreement
(the "Collaboration Agreement") with LifeScan, Inc. for the development and
commercialization of Pramlintide, a diabetes drug candidate currently in Phase
III clinical trials. In conjunction with the Collaboration Agreement, the
Company also entered into a Stock Purchase Agreement with Johnson & Johnson
Development Corporation ("JJDC") and a Loan Agreement with Johnson & Johnson.
LifeScan, Inc. and JJDC, each of which are wholly-owned subsidiaries of Johnson
& Johnson, are referred to herein as Johnson & Johnson.
Johnson & Johnson paid the Company a license fee, which was recognized as
revenue upon the signing of the Collaboration Agreement in 1995. Approximately
$33.6 million, $27.4 million and $12.0 million of development payments were made
to the Company and recognized as revenues during 1997, 1996 and 1995,
respectively. Also included in receivables from related party was $1.0 million
and $0.7 million of pre-marketing expenses due to the Company from Johnson &
Johnson as of December 31, 1997 and 1996, respectively. Additionally, the
Company's December 31, 1997 balance sheet includes approximately $6.4 million in
short-term deferred revenues reflecting amounts advanced from Johnson & Johnson
representing an equalization payment for its share of projected development
expenses for the first quarter of 1998. Payments from Johnson & Johnson to
Amylin Pharmaceuticals for development expenses are recognized as revenue in the
period in which they are earned.
In accordance with the terms of the Stock Purchase Agreement, Johnson &
Johnson purchased 3,455,407 shares of the Company's common stock through
December 31, 1997, approximately 10.7% of the Company's common shares
outstanding. Therefore, Johnson & Johnson is considered a related party.
In September 1997, the Company received proceeds of approximately $30.6
million from the loan facility (the "Development Loan Facility"). The proceeds
were applied against the Company's one-half share of
37
<PAGE> 39
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
development expenses for Pramlintide during the second through fourth quarters
of 1997. The loan carries an interest rate of 9.0%. In conjunction with the
borrowing, the Company issued warrants to Johnson & Johnson to purchase
1,530,950 shares of the Company's common stock over a 10-year exercise period.
The estimated fair value of the warrants has been accounted for as a discount
from the face value of the note. The loan is repayable 12 months after approval
of a new drug application for Pramlintide out of 50% of the Company's
Pramlintide profits, if any, subject to certain exceptions set forth in the
Development Loan facility. The loan is secured by the Company's issued patents
and patent applications relating to amylin.
As of December 31, 1997, Johnson & Johnson entities have made various
financial payments to the Company totaling approximately $163 million. As
discussed above, these payments primarily include funding of one-half of the
Pramlintide development costs, a draw down from a development loan facility, the
purchase of $30 million of the Company's common stock, milestone and option fee
payments, funding of Pramlintide pre-marketing costs and license fees. As of
December 31, 1997, the Company owed Johnson & Johnson approximately $10.4
million for its share of pre-launch marketing expenses.
In late February 1998, Johnson & Johnson provided the Company with
six-months notice of its intention to terminate their collaboration. Johnson &
Johnson's financial and other obligations under the Collaboration Agreement will
continue during the termination notice period. Based upon Johnson & Johnson's
decision, in early March 1998 Amylin initiated the process of restructuring its
operations, which will include reducing its workforce by approximately 25% to
ensure that cash is available into the first quarter of 1999. The impact of this
restructuring will slow down other (non-Pramlintide) research programs. The
Company intends on raising additional funds from capital markets and corporate
partners during the course of 1998. There can be no assurance that the Company
will be able to raise such additional funds.
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1997 and 1996 are shown below. A valuation allowance of $91,950,000, of
which $24,360,000 is related to 1997 changes, has been recognized as of December
31, 1997 to offset the deferred tax assets as realization of such assets is
uncertain.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Capitalized research expenses................. $ 9,653,000 $ 6,760,000
Net operating loss carryforwards.............. 68,892,000 48,560,000
Research and development credits.............. 9,615,000 7,355,000
Other......................................... 3,790,000 4,915,000
------------ ------------
Total deferred tax assets....................... 91,950,000 67,590,000
Valuation allowance for deferred tax assets..... (91,950,000) (67,590,000)
------------ ------------
Net deferred tax assets......................... $ -- $ --
============ ============
</TABLE>
Approximately $382,000 of the valuation allowance for deferred tax assets
relates to stock option deductions which when recognized will be allocated
directly to additional paid-in capital.
At December 31, 1997, the Company has federal, California and foreign tax
net operating loss carryforwards of approximately $192,651,000, $24,394,000 and
$2,979,000, respectively. The difference between the federal and California tax
loss carryforwards is attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards. The federal and California tax loss
carryforwards will begin expiring in 2002 and 1998 respectively unless
previously utilized. The Company also has federal and California research and
develop-
38
<PAGE> 40
AMYLIN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
ment tax credit carryforwards of $7,990,000 and $2,358,000, respectively, which
will begin expiring in 2002 unless previously utilized.
Under the Tax Reform Act of 1986, the use of the Company's net operating
loss and credit carryforwards may be limited if a cumulative change in ownership
of more than 50% occurs within a three-year period. However, the Company does
not believe that such a limitation would have a material impact upon the future
utilization of these carryforwards
7. CONTINGENCIES
The Company has received letters from the University of Minnesota (the
"University") and Per Westermark ("Westermark") asserting that Pramlintide is
covered by a patent (the "University Patent") which was licensed to the Company
pursuant to a License Agreement dated November 11, 1991 among the Company, the
University and Westermark (the "University License Agreement"). In its letters,
the University and Westermark claim that they are entitled to 50% of any
sublicense fees received by the Company from sublicensing the University Patent
to Johnson & Johnson pursuant to the Collaboration Agreement, as well as future
royalties as specified in the University License Agreement. The Company has
informed the University and Westermark that no such sublicensing moneys have
been received by the Company from Johnson & Johnson, who is not a sublicensee
under the University Patent. On December 5, 1996, the Company filed a complaint
against the University and Westermark in the U.S. District Court for the
Southern District of California seeking a declaratory judgment that Pramlintide
is not covered by the University Patent and that no moneys are owed to the
University or Westermark. Although discussions were underway with the University
and Westermark, they did not result in any agreement regarding the litigation.
The Company's complaint was served on the University and Westermark in April
1997. The Company believes that the University's and Westermark's assertions are
without merit and intends to defend vigorously against the claims brought
against the Company related to the foregoing.
39
<PAGE> 41
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 1998 Annual Meeting (the "Proxy
Statement") under the headings "Nominees" and "Background of Executive Officers
not Described Above."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."
40
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Reference is made to the Index to Consolidated Financial Statements
under Item 8 in Part II hereof, where these documents are listed.
(2) Financial Statement Schedules: All schedules have been omitted because
they are not applicable or required, or the information required to be
set forth therein is included in the Consolidated Financial Statements
or notes thereto included in Item 8 "Financial Statements and
Supplementary Data".
(3) Exhibits -- See (c) below.
(b) There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1997.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- -------- ------- -----------
<C> <C> <S>
(1) 3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
(1) 3.2 Amended and Restated Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
(1) 10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
(15) 10.2 Registrant's 1991 Stock Option Plan, as amended (the "Option
Plan").
(8) 10.3 Form of Incentive Stock Option Agreement under the Option
Plan with related schedule.
(1) 10.4 Form of Supplemental Stock Option Agreement under the Option
Plan.
(1) 10.5 Form of Supplemental Stock Option Agreement not granted
under the Option Plan with related schedule.
(15) 10.6 Registrant's Employee Stock Purchase Plan and related
offering document.
(1) 10.7 Stock Purchase Agreement, dated as of October 28, 1991,
between the Registrant and the parties named therein, as
amended.
(1)(2) 10.8 License Agreement, dated as of November 22, 1991, among the
Registrant, the Regents of the University of Minnesota, and
Per Westermark.
(1) 10.9 Lease, dated as of January 2, 1989, between the Registrant
and Nippon Landic (USA), Inc., the assignee of
NEXUS/GADCO-UTC, as amended.
(3) 10.10 Lease Agreement, dated as of January 22, 1993, between the
Registrant and Loma Palisades, Ltd., a California Limited
Partnership, and related Sublease Agreements, each dated
January 21, 1993 between the Registrant and Lam Research
Corporation.
(3) 10.11 Master Equipment Lease Agreement Number 10453, Equipment
Financing Agreement Number 10753, Negative Covenant Pledge
Agreements and Collateral Security Agreement, each dated as
of March 19, 1993, between the Registrant and Lease
Management Services, Inc.
(15) 10.12 Registrant's Non-Employee Directors Stock Option Plan (the
"Directors' Plan").
(4) 10.13 Form of Nonstatutory Stock Option Agreement under the
Directors' Plan
(5) 10.14 Sublease Agreement, dated September 1, 1994, between the
Registrant and ORINCON Corporation.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- -------- ------- -----------
<C> <C> <S>
(5) 10.15 Loan Agreement, dated July 5, 1994, and related Note and
Credit Terms and Conditions Agreement between the Registrant
and Imperial Bank.
(5) 10.16 Phantom Stock Unit Agreement, dated January 4, 1995, between
the Registrant and Farview Management Co., L.P.
(6)(7) 10.17 Collaboration Agreement, dated June 20, 1995 between the
Registrant and LifeScan, Inc.
(6)(7) 10.18 Stock Purchase Agreement, dated June 20, 1995 between the
Registrant and Johnson & Johnson Development Corporation.
(6)(7) 10.19 Loan and Security Agreement, dated June 20, 1995 between the
Registrant and Johnson & Johnson.
(6)(7) 10.20 Agreement to Discontinue Collaboration, dated June 20, 1995
between the Registrant and Glaxo Wellcome, Inc.
(8) 10.21 Consulting Agreement, dated June 15, 1995, between the
Registrant and Joseph C. Cook, Jr., as amended on March 25,
1996, and related Nonstatutory Stock Option grant dated June
15, 1995.
(8) 10.22 Addendums No. 10453 and 10753 to Master Lease Agreement
dated January 19, 1996 between the Registrant and Lease
Management Services with Related Negative Covenant Pledge
Agreement and Collateral Security Agreement.
(9) 10.23 Employment agreement dated July 11, 1996, between the
registrant and Richard M. Haugen.
(10)(11) 10.24 Patent and Technology License Agreement, Consulting
Agreement and Nonstatutory Stock Option Agreement dated
October 1, 1996, between the Registrant and Dr. John Eng.
(10)(11) 10.25 Collaborative Research and Assignment Agreement dated
October 15, 1996, among the Registrant, London Health
Sciences Centre and Dr. John Dupre.
(12) 10.26 Employment agreement dated August 1, 1996 between the
Registrant and Howard E. Greene, Jr.
(12) 10.27 Amendment dated November 5, 1996 to the Lease Agreement,
dated January 22, 1993, between the Registrant and Loma
Palisades, Ltd., a California Limited Partnership.
(12) 10.28 Amendment dated January 15, 1997 to the Consulting
Agreement, dated June 15, 1995, between the Registrant and
Joseph C. Cook, Jr.
(12) 10.29 Addendum to the Master Financing Agreement No, 10753 dated
January 19, 1996 between the Registrant and Lease Management
Services with amendments to the Related Negative Covenant
Pledge Agreement and Collateral Security Agreement, each
dated as of January 30, 1997.
(12) 10.30 Sublease Agreement, dated January 31, 1997, between the
Registrant and Gensia, Inc.
(12) 10.31 Fourth Amendment dated February 26, 1997 to the Lease
Agreement, dated January 2, 1989, between the Registrant and
Nippon Landic (U.S.A.), Inc., as amended.
(13)(14) 10.32 Collaboration Agreement between the Registrant and Hoechst
Marion Roussel Dated March 31, 1997.
(13)(14) 10.33 License and Option Agreement between the Registrant and
Hoechst Marion Roussel Dated March 31, 1997.
(15) 10.34 Registrant's Directors' Deferred Compensation Plan.
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- -------- ------- -----------
<C> <C> <S>
(16) 10.35 Warrant Agreement between the Registrant and the Medical
Research Council dated May 9, 1997.
(16) 10.36 Promissory Note dated September 30, 1997 issued by the
Registrant to Johnson & Johnson.
(16) 10.37 Warrant Agreement between the Registrant and Johnson &
Johnson dated September 30, 1997.
10.38 Amendment dated September 1, 1996 to Option Agreements
between the Registrant and Howard E. Greene, Jr.
10.39 Margin Account Loan Agreement between the Registrant and
Bradford and Kimberly Duft dated December 19, 1997.
10.40 Credit Agreement and related Note between the Registrant and
Imperial Bank dated January 15, 1998.
10.41 Amendment dated February 1, 1998 to Option Agreements
between the Registrant and Marjorie T. Sennett.
(1) 22.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to page 40.
</TABLE>
(d) Executive Compensation Plans and Arrangements
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- -------- ------- -----------
<C> <C> <S>
(1) 10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
(15) 10.2 Registrant's 1991 Stock Option Plan, as amended (the "Option
Plan").
(8) 10.3 Form of Incentive Stock Option Agreement under the Option
Plan with related schedule.
(1) 10.4 Form of Supplemental Stock Option Agreement under the Option
Plan.
(1) 10.5 Form of Supplemental Stock Option Agreement not granted
under the Option Plan with related schedule.
(15) 10.6 Registrant's Employee Stock Purchase Plan and related
offering document.
(15) 10.12 Registrant's Non-Employee Directors Stock Option Plan (the
"Directors' Plan").
(4) 10.13 Form of Nonstatutory Stock Option Agreement under the
Directors' Plan.
(5) 10.16 Phantom Stock Unit Agreement, dated January 4, 1995, between
the Registrant and Farview Management Co., L.P.
(8) 10.21 Consulting Agreement, dated June 15, 1995, between the
Registrant and Joseph C. Cook, Jr., as amended on March 25,
1996, and related Nonstatutory Stock Option grant dated June
15, 1995.
(9) 10.23 Employment agreement dated July 11, 1996, between the
Registrant and Richard M. Haugen.
(12) 10.26 Employment agreement dated August 1, 1996 between the
Registrant and Howard E. Greene, Jr.
(12) 10.28 Amendment dated January 15, 1997 to the Consulting
Agreement, dated June 15, 1995, between the Registrant and
Joseph C. Cook, Jr.
(15) 10.34 Registrant's Directors' Deferred Compensation Plan.
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
FOOTNOTE NUMBER DESCRIPTION
- -------- ------- -----------
<C> <C> <S>
10.38 Amendment dated September 1, 1997 to Option Agreements
between the Registrant and Howard E. Greene, Jr.
10.39 Margin Account Loan Agreement between the Registrant and
Bradford and Kimberly Duft dated December 19, 1997.
10.41 Amendment dated February 1, 1998 to Option Agreements
between the Registrant and Marjorie T. Sennett.
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 33-44195) or amendments thereto and incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 Thereunder
Respecting Confidential Treatment dated January 17, 1992.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(7) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated March 7, 1997.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(9) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(10) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(11) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated December 20, 1996.
(12) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(13) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
(14) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated June 24, 1997.
(15) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.
(16) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMYLIN PHARMACEUTICALS, INC.
By: /s/ Joseph C. Cook, Jr.
-----------------------------------
Joseph C. Cook, Jr.
Chief Executive Officer,
Chairman of the Board and
Director
Date: March 30, 1998
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Joseph C. Cook, Jr., as his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments to this Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming that all said attorneys-in-fact and agents, or any of
them or their or his substitute or substituted, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ JOSEPH C. COOK, JR. Chief Executive Officer, March 30, 1998
- ----------------------------------------------------- Chairman of the Board and
Joseph C. Cook, Jr. Director (Principal
Executive Officer and
Principal Financial
Officer)
/s/ KARL H. OLSEN Treasurer and Controller March 30, 1998
- ----------------------------------------------------- (Principal Accounting
Karl H. Olsen Officer)
/s/ JAMES C. BLAIR Director March 30, 1998
- -----------------------------------------------------
James C. Blair
/s/ JAMES C. GAITHER Director March 30, 1998
- -----------------------------------------------------
James C. Gaither
/s/ HOWARD E. GREENE, JR. Director March 30, 1998
- -----------------------------------------------------
Howard E. Greene, Jr.
/s/ GINGER L. HOWARD Director March 30, 1998
- -----------------------------------------------------
Ginger L. Howard
/s/ VAUGHN M. KAILIAN Director March 30, 1998
- -----------------------------------------------------
Vaughn M. Kailian
/s/ TIMOTHY J. WOLLAEGER Director March 30, 1998
- -----------------------------------------------------
Timothy J. Wollaeger
</TABLE>
45
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------- ----------- --------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.................................................. (1)
3.2 Amended and Restated Bylaws of the Registrant............... (1)
4.1 Reference is made to Exhibits 3.1 and 3.2................... (1)
10.1 Form of Indemnity Agreement entered into between the
Registrant and its directors and officers................... (1)
10.2 Registrant's 1991 Stock Option Plan, as amended (the "Option
Plan")...................................................... (15)
10.3 Form of Incentive Stock Option Agreement under the Option
Plan with related schedule.................................. (8)
10.4 Form of Supplemental Stock Option Agreement under the Option
Plan........................................................ (1)
10.5 Form of Supplemental Stock Option Agreement not granted
under the Option Plan with related schedule................. (1)
10.6 Registrant's Employee Stock Purchase Plan and related
offering document........................................... (15)
10.7 Stock Purchase Agreement, dated as of October 28, 1991,
between the Registrant and the parties named therein, as
amended..................................................... (1)
10.8 License Agreement, dated as of November 22, 1991, among the
Registrant, the Regents of the University of Minnesota, and
Per Westermark.............................................. (1)(2)
10.9 Lease, dated as of January 2, 1989, between the Registrant
and Nippon Landic (USA), Inc., the assignee of
NEXUS/GADCO-UTC, as amended................................. (1)
10.10 Lease Agreement, dated as of January 22, 1993, between the
Registrant and Loma Palisades, Ltd. a California Limited
Partnership, and related Sublease Agreements, each dated
January 21, 1993 between the Registrant and Lam Research
Corporation................................................. (3)
10.11 Master Equipment Lease Agreement Number 10453, Equipment
Financing Agreement Number 10753, Negative Covenant Pledge
Agreements and Collateral Security Agreement, each dated as
of March 19, 1993, between the Registrant and Lease
Management Services, Inc. .................................. (3)
10.12 Registrant's Non-Employee Directors' Stock Option (the
"Directors' Plan").......................................... (15)
10.13 Form of Nonstatutory Stock Option Agreement under the
Directors' Plan............................................. (4)
10.14 Sublease Agreement, dated September 1, 1994, between the
Registrant and ORINCON Corporation.......................... (5)
10.15 Loan Agreement, dated July 5, 1994, and related Note and
Credit Terms and Conditions Agreement between the Registrant
and Imperial Bank........................................... (5)
10.16 Phantom Stock Unit Agreement, dated January 4, 1995, between
the Registrant and Farview Management Co., L.P. ............ (5)
10.17 Collaboration Agreement, dated June 20, 1995 between the
Registrant and LifeScan, Inc. .............................. (6)(7)
10.18 Stock Purchase Agreement, dated June 20, 1995 between the
Registrant and Johnson & Johnson Development Corporation.... (6)(7)
10.19 Loan and Security Agreement, dated June 20, 1995 between the
Registrant and Johnson & Johnson............................ (6)(7)
10.20 Agreement to Discontinue Collaboration, dated June 20, 1995
between the Registrant and Glaxo Wellcome, Inc. ............ (6)(7)
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------- ----------- --------
<C> <S> <C>
10.21 Consulting Agreement, dated June 15, 1995, between the
Registrant and Joseph C. Cook, Jr., as amended on March 25,
1996, and related Nonstatutory Stock Option grant dated June
15, 1995.................................................... (8)
10.22 Addendums No. 10453 and 10753 to Master Lease Agreement
dated January 19, 1996 between the Registrant and Lease
Management Services with Related Negative Covenant Pledge
Agreement and Collateral Security Agreement................. (8)
10.23 Employment agreement dated July 11, 1996, between the
Registrant and Richard M. Haugen............................ (9)
10.24 Patent and Technology License Agreement, Consulting
Agreement and Nonstatutory Stock Option Agreement dated
October 1, 1996, between the Registrant and Dr. John Eng.... (10)(11)
10.25 Collaborative Research and Assignment Agreement dated
October 15, 1996, among the Registrant, London Health
Sciences Centre and Dr. John Dupre.......................... (10)(11)
10.26 Employment agreement dated August 1, 1996 between the
Registrant and Howard E. Greene, Jr. ....................... (12)
10.27 Amendment dated November 5, 1996 to the Lease Agreement,
dated January 22, 1993, between the Registrant and Loma
Palisades, Ltd., a California Limited Partnership........... (12)
10.28 Amendment dated January 15, 1997 to the Consulting
Agreement, dated June 15, 1995, between the Registrant and
Joseph C. Cook, Jr. ........................................ (12)
10.29 Addendum to the Master Financing Agreement No. 10753 dated
January 19, 1996 between the Registrant and Lease Management
Services with amendments to the Related Negative Covenant
Pledge Agreement and Collateral Security Agreement, each
dated as of January 30, 1997................................ (12)
10.30 Sublease Agreement, dated January 31, 1997, between the
Registrant and Gensia, Inc. ................................ (12)
10.31 Fourth Amendment dated February 26, 1997 to the Lease
Agreement, dated January 2, 1989, between the Registrant and
Nippon Landic (U.S.A.), Inc., as amended.................... (12)
10.32 Collaboration Agreement between the Registrant and Hoechst
Marion Roussel Dated March 31, 1997......................... (13)(14)
10.33 License and Option Agreement between the Registrant and
Hoechst Marion Roussel Dated March 31, 1997................. (13)(14)
10.34 Registrant's Directors' Deferred Compensation Plan.......... (15)
10.35 Warrant Agreement between the Registrant and the Medical
Research Council dated May 9, 1997.......................... (16)
10.36 Promissory Note dated September 30, 1997 issued by the
Registrant to Johnson & Johnson............................. (16)
10.37 Warrant Agreement between the Registrant and Johnson &
Johnson dated September 30.................................. (16)
10.38 Amendment dated September 1, 1996 to Option Agreements
between the Registrant and Howard E. Greene, Jr.............
10.39 Margin Account Loan Agreement between the Registrant and
Bradford and Kimberly Duft dated December 19, 1997..........
10.40 Credit Agreement and related Note between the Registrant and
Imperial Bank dated January 15, 1998........................
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION FOOTNOTE
- ------- ----------- --------
<C> <S> <C>
10.41 Amendment dated February 1, 1998 to Option Agreements
between the Registrant and Marjorie T. Sennett..............
22.1 Subsidiaries of the Registrant.............................. (1)
23.1 Consent of Ernst & Young LLP, Independent Auditors..........
24.1 Power of Attorney. Reference is made to page 40.............
</TABLE>
- ---------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 33-44195) or amendments thereto and incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 Thereunder
Respecting Confidential Treatment dated January 17, 1992.
(3) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
(5) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(7) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated March 7, 1997.
(8) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(9) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(10) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(11) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated December 20, 1996.
(12) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(13) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.
(14) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Exchange Act of 1934 and Rule 24b-2
Thereunder Respecting Confidential Treatment dated June 24, 1997.
(15) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997.
(16) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
<PAGE> 1
Exhibit 10.38
AMENDMENT NO. 1 TO INCENTIVE
STOCK OPTION AGREEMENTS DATED MARCH 15, 1993,
APRIL 11, 1994, AND FEBRUARY 8, 1996
This Amendment No. 1 (the "Agreement") to Incentive Stock Option
Agreements dated March 15, 1993, April 11, 1994, And February 8, 1996 between
Amylin Pharmaceuticals, Inc. (the "Company") and Howard E. Greene, Jr.
("Optionee") (the "Option Agreements") is effective as of September 1, 1996 (the
"Effective Date").
RECITALS
WHEREAS, the Option Agreements provide to Optionee options to purchase
up to the following numbers of shares of the Company's Common Stock (the
"Options"), subject to the conditions set forth in the Option Agreements,
including but not limited to continued employment of the Optionee by the
Company:
<TABLE>
<S> <C>
March 15, 1993 Option 50,000 shares
April 11, 1994 Option 100,000 shares
February 8, 1996 Option 40,000 shares
</TABLE>
WHEREAS, the Optionee and the Company have agreed a change in the
Optionee's employee status from full-time to half-time, and have further agreed
that the Optionee will continue to vest shares under the Agreement, but at
one-half the rate of vesting set forth in the Option Agreements.
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the Optionee and the Company hereby agree as follows:
AGREEMENT
MARCH 15, 1993 AND APRIL 11, 1994 OPTION AGREEMENTS.
As of the Effective Date, the parties hereby agree that, subject to the
conditions set forth in the March 15, 1993 and April 11, 1994 Option Agreements,
the rate at which the Options will become exercisable shall be reduced so that
the Options will now become exercisable with respect to .034223135% of the total
number of shares subject to such option for each day of continuous employment
occurring after the Effective Date. Shares of the Company's Common Stock
exercisable under the Options prior to the Effective Date shall continue to be
exercisable following the Effective Date subject to the conditions in the Option
Agreements.
<PAGE> 2
Amendment No. 1 to Incentive Stock Agreements
September 1, 1996
Page 2
FEBRUARY 8, 1996 OPTION AGREEMENT.
The parties agree that, rather than becoming exercisable on the
Anniversary Date of February 8, 1997 with respect to one-fourth (1/4) of the
total number of shares subject to the Option granted in February 8, 1996 Option
Agreement, such Option shall become exercisable on July 17, 1997 with respect to
one-fourth (1/4) of the total number of shares subject to the option, provided
that the Optionee continues as an employee of the Company or an affiliate
through July 17, 1997.
After July 17, 1997, for as long as the Optionee continues as an
employee of the Company or an affiliate, the rate at which the Option will
become exercisable shall be reduced so that the Option will now become
exercisable with respect to .034223135% of the total number of shares subject to
this Option.
Except as specifically provided herein, this Agreement is not intended
and shall not be construed to amend or in any way alter the terms and conditions
of the Option Agreements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
AMYLIN PHARMACEUTICALS, INC. OPTIONEE:
By:/s/ Bradford J. Duft By:/s/ Howard E. Greene, Jr.
Bradford J. Duft Howard E. Greene, Jr.
Vice President and General Counsel
<PAGE> 1
Exhibit 10.39
December 19, 1997
Bradford L Duft
Kimberly Duft
P.O. Box 1133
Rancho Santa Fe, California 92067
RE: MARGIN ACCOUNT LOAN
Dear Brad and Kim:
This letter sets forth our agreement regarding your margin account no.
231-19174 (the "Margin Account") with BT Alex Brown Incorporated ("BTAW').
1. Concurrently herewith, Amylin Pharmaceuticals, Inc. (the "Company") will
deliver to BTAB the sum of $124,000 (the "Amylin Funds") to be held by BTAB
in an interest-bearing account (the "Amylin Account") solely as collateral
for your Margin Account obligations pursuant to the Guaranty Agreement in
the form attached hereto as Exhibit A (the "Cross Guaranty Agreement").
2. Subject to the terms of the Cross Guaranty Agreement, as of March 19,
1998 (or such earlier date as Amylin reasonably determines that the Amylin
Account is no longer necessary as collateral for your Margin Account
obligations), Amylin shall close the Amylin Account and any and all Amylin
Funds remaining in the Amylin Account (together with all accrued interest
thereon) shall be returned to Amylin as promptly as practicable.
3. To the extent that the full amount of the Amylin Funds, together with all
interest that may be accrued thereon at the rate applicable to the Amylin
Account is not returned to Amylin in accordance with paragraph 2, the
shortfall shall be deemed to be a loan by Amylin to you made as of March 19,
1998, which shall be repaid by you in accordance with the provisions of this
letter (the "Loan").
4. The Loan shall bear interest at an annual rate equal to 8.875%, with such
accrual to commence as of March 19, 1998. The full amount of the Loan
together with all accrued interest thereon shall be due and payable at any
time following March 19, 1998 on demand by Amylin.
<PAGE> 2
Bradford J. Duft
Kimberly Duft
December 19, 1997
Page 2
5. The Loan shall be secured by, and Amylin shall have a security interest
in, all shares of Amylin Common Stock and all options to purchase Amylin
Common Stock owned beneficially or of record by you now or at any time prior
to March 19, 1998 or prior to repayment of the Loan in full (the
"Securities"). You agree to promptly execute such further documentation and
promptly take such additional actions as Amylin may reasonably request
(including but not limited to execution of a Security Agreement in form
reasonably satisfactory to Amylin and the delivery to Amylin or its designee
of all certificates and agreements representing your Securities to the
extent you are permitted to do so under the terms of the BTAB Margin Account
or any other margin account to which you may be a party) in order to perfect
such security interest or otherwise carryout the purposes of this letter.
You agree that in no event will you sell or otherwise transfer any
Securities prior to March 19, 1998 and the repayment in full of the Loan;
provided that at your discretion you may elect to (i) sell shares of Common
Stock held in your Margin Account the proceeds of which will promptly be
applied to reduce your Margin Account indebtedness to BTAB and/or (ii)
permit BTAB to cover any margin call on your Margin Account which would
otherwise be covered by Amylin Funds.
6. Payments on the Loan will be credited first to any interest due and then
to outstanding principal. Except as set forth in paragraph 4, demand,
presentment, notice, notice of demand, notice for payment, protest and
notice of dishonor are hereby waived by you. No delay or omission in
exercising any rights under this letter shall operate as a waiver, and no
waiver under this letter will be effective unless it is done expressly and
in writing. The prevailing party shall be entitled to collect its reasonable
attorneys' fees in connection with any action by a party to enforce its
rights under this letter.
7. This letter agreement shall be binding on and inure to the benefit of
each of the parties hereto and their respective heirs, personal
representatives, successors and assigns. This letter agreement shall be
governed by and construed in accordance with the laws of the state of
California as such laws apply to agreements among California residents made
and to be performed entirely within the state of California. This letter
agreement may be executed in two or more counterparts, each of which shall
be deemed an original, all of which together shall constitute one and the
same instrument The terms of this letter agreement may only be altered or
amended by a writing duly executed by the parties.
<PAGE> 3
Bradford J. Duft
Kimberly Duft
December 19, 1997
Page 3
If you are in agreement with the foregoing, please sign and date the
enclosed copy of this letter agreement in the place indicated below and
return it to me.
Sincerely,
AMYLIN PHARMACEUTICALS. INC.
/s/ Marjorie T. Sennett
-----------------------
Marjorie T. Sennett
Senior Vice President and Chief Financial Officer
Agreed to and accepted this 19th day of December, 1997:
BRADFORD J. DUFT KIMBERLY DUFT
/s/ Bradford J. Duft /s/ Kimberly Duft
- --------------------------- ---------------------------
<PAGE> 4
GUARANTY AGREEMENT
BT Alex. Brown Incorporated
Attn: Retail Credit
1290 Avenue of the Americas, 10th Floor
New York, NY 10104
Gentlemen:
1. In consideration of your opening, and/or continuing, an account or
accounts (which separately or jointly, with any and all renewals thereof, are
hereinafter referred to as "said guaranteed account") with, or otherwise giving
credit in said guaranteed account to Bradford J. Duft and/or Kimberly S. Duft
including with respect to the account bearing account number 231-19174
(hereinafter referred to as the "Customer"), on such terms and conditions as
may, from time to time, be agreed to between you and the Customer (notice of
which is hereby waived), the undersigned (hereinafter referred to as the
"Guarantor") hereby unconditionally agrees to pay to you, on demand, any
indebtedness which may now or hereafter be owing you by the Customer on said
guaranteed account to the extent that moneys are deposited in a separate BT
Alex. Brown account #231-34796.
2. The Guarantor agrees that this guaranty shall be effective not only
with respect to said guaranteed account but also with respect to any and all
renewals thereof; that said guaranteed account may be changed from time to
time by the purchase or sale or exchange of securities or other property, or by
payments or by deliveries of securities or other property by or to or upon the
order of the Customer; and that said guaranteed account may be closed out by
you at any time; and that in general, you may deal with and accept the orders
of the Customer with respect to transactions in said guaranteed account,
without notice to the Guarantor, the same as if this guaranty had not been
given.
3. The Guarantor agrees that to secure said guaranteed account or to pay
any indebtedness due therein, the Guarantor hereby grants to you a security
interest in such money, securities or other property you may at any time hold
or have in any account or accounts of the Guarantor, or in which the Guarantor
may have an interest; that you may pledge and repledge any of such securities
or other property, either separately or with any other securities or property,
for such sum or a greater sum than may be due you in said guaranteed account,
and without retaining the possession or control for delivery of a like amount
of similar securities or property; that you may proceed at any time, in your
discretion, and without prior demand or notice, to enforce said lien by the
sale of any such securities or property of the Guarantor, in any manner and
upon such terms as you may determine. At any such sales or other disposition
you may yourself purchase the whole or any part of the collateral sold, free
from any right of redemption on the part of the undersigned, which right is
hereby waived and released. The undersigned further agrees that enforcement by
you of said lien in any manner, in whole or in part, shall not in any way
affect the continuing liability of the Guarantor for any remaining indebtedness
in said guaranteed account; that any demand on the Guarantor to perform the
obligation of the guaranty, or any action or proceedings brought to enforce the
liability of the Guarantor hereunder shall not release or otherwise affect said
lien; and that you shall at all times have both the liability of the
<PAGE> 5
Guarantor and said lien to secure to you payment of any indebtedness in said
guaranteed account, enforcement of both of which may be pursued concurrently or
separately.
4. By written notice to you, the Guarantor may at any time
terminate its obligations and rights hereunder in respect to future
transactions in said guaranteed account; but notwithstanding such termination
as to future transactions the obligations of the Guarantor hereunder with
respect to any indebtedness in said guaranteed account, including any losses
incurred in liquidating said guaranteed account during a reasonable time
subsequent to the receipt of such notice, shall continue in full force and
effect until such indebtedness, including all interest due on said
indebtedness, has been paid in full to you.
5. The undersigned hereby agrees that this guaranty shall not be
impaired or otherwise affected by any failure to call for, take, hold, protect
or perfect, continue the perfection of or enforce any security interest in or
other lien upon, any collateral for said guaranteed accounts, or by failure to
exercise, delay in the exercising or waiver of, or forebearance with respect
to, any right or remedy available to you.
6. The undersigned hereby acknowledges that it has derived or
expects to derive a financial or other advantage from each and every extension
of credit granted to this Customer.
7. The undersigned agrees to pay on demand all expenses (including
reasonable expenses for legal services of any kind and cost of any insurance
and payment of taxes or other charges) of, or incidental to, the custody, care,
sales or collection of, or realization upon, any collateral in said guaranteed
account or in any way relating to the enforcement or protection of your rights
hereunder.
8. This guaranty shall continue to be effective or be reinstated,
as the case may be, if at any time all or any part of any payment is rescinded
or must be restored or returned by you whether under any insolvency, bankruptcy
or reorganization proceeding or otherwise.
9. This guaranty is a guaranty of payment and not of collection,
and you shall be under no obligation to take any action against the Customer or
any other person liable with respect to said guaranteed account or resort to
any collateral security held by you as a condition precedent to the undersigned
being obligated to perform as agreed herein. The undersigned hereby waives any
rights to interpose any defense, counterclaim or offset of any nature and
description which it may have or which may exist between and among you, the
Customer and/or the undersigned.
11. This guaranty shall be binding upon the Guarantor and any
permitted assigns and shall inure to your benefit of any successor firm or
firms. This guaranty shall be construed in accordance with the laws of
the State of Maryland.
2
<PAGE> 6
12. This guaranty embodies the entire agreement and understanding between
you and the undersigned with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
Guarantors:
- ----------
#231-34796
Amylin Pharmaceuticals, Inc. WITNESS:
Signed, /s/ MARJORIE T. SENNETT Signed, CECELIA HULL
------------------------------ -------------------------
Senior Vice President & CFO
Dated, 12/19/97 Dated, 12/19/97
------------------------------- -------------------------
- -------------------------------------
3
<PAGE> 1
Exhibit 10.40
CREDIT AGREEMENT
This Agreement is made by and between Amylin Pharmaceuticals, Inc.
("Borrower") and Imperial Bank, a California banking corporation, ("Bank").
In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:
1. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
1.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and existing
and in good standing under the laws of Delaware, without limit as to the
duration of its existence and is authorized and in good standing to do business
in the State of California; Borrower has corporate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has the
power and adequate authority to make and carry out this Agreement
1.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
certificate of incorporation or by-laws, as the case may be, and this Agreement
is the valid, binding and legally enforceable obligation of Borrower in
accordance with its terms; subject only to bankruptcy, insolvency or similar
laws affecting creditors rights generally.
1.03 NO CONFLICT. The execution, delivery and performance of this Agreement are
not in contravention of or in conflict with any material agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other encumbrance
to be created or imposed upon any such property by reason thereof.
1.04 LITIGATION. Except as set forth in the Borrower's most recent Form 10-Q
filed with the Securities and Exchange Commission, there is no litigation or
other proceeding pending or threatened against or affecting Borrower which if
determined adversely to Borrower or its interest would have a material adverse
effect on the financial condition of Borrower, and Borrower is not in default
with respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
1.05 FINANCIAL CONDITION. The balance sheet of Borrower as of September 30,
1997, a copy of which has heretofore been delivered to Bank by Borrower, and all
other material statements and data submitted in writing by Borrower to Bank in
connection with this request for credit are to the best of Borrower's knowledge
true and correct, and said balance sheet truly presents the financial condition
of Borrower as of the date thereof, and has been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since September 30, 1997, there have been no material adverse changes to
Borrower's financial condition. Borrower has no knowledge of any liabilities,
<PAGE> 2
CREDIT AGREEMENT
JANUARY 15, 1998
contingent or otherwise, at September 30, 1997 not reflected in said balance
sheet, and Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in the
ordinary and normal course of its business, which may have a materially adverse
effect upon its financial condition, operations or business as now conducted.
1.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
3.03 hereof.
1.07 TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for re-negotiation of profits.
1.08 TRADEMARKS, PATENTS. Except as set forth in the Borrower's most recent Form
10-Q filed with the Securities and Exchange Commission, Borrower, as of the date
hereof, possesses all necessary trademarks, trade names, copyrights, patents,
patent rights, and licenses to conduct its business as now operated, without any
known conflict with the valid trademarks, trade names, copyrights, patents and
license rights of others.
1.09 REGULATION U. None of the proceeds of any loan from the Bank to Borrower
shall be used to purchase or carry margin stock (as defined within Regulation U
of the Board of Governors of the Federal Reserve system).
2. LOAN COMMITMENT
2.01 LOAN COMMITMENT. Subject to the terms of this Agreement and the related
documents specified in section 2.05 below, Bank hereby agrees to make periodic
advances ("Advances") to Borrower from time to time during the Commitment Period
(defined below), not to exceed at any time the aggregate principal amount of two
million seven hundred thousand dollars ($2,700,000) (the "Credit Facility").
2.03 COMMITMENT PERIOD. Bank's obligation to make Advances to Borrower hereunder
shall commence as of January 1, 1998 and continue until December 31, 1998
subject to the provisions of Section 5 of this Agreement (the "Commitment
Period").
2.04 ADVANCE REQUESTS. Advance requests shall be evidenced by an Advance Request
form substantially in the form of Exhibit A hereto and duly executed by an
authorized officer of Borrower (the "Advance Request"). Each Advance shall be
repaid by Borrower pursuant to the terms of the Note in an amount of up to two
million seven hundred thousand dollars ($2,700,000) of even date herewith (the
"Note"). Advance Requests shall specify (a) the amount of the Advance requested
by Borrower, (b) the requested disbursement date therefor, and (c) disbursement
instructions in the form of either account information for a Borrower account at
Bank into which proceeds should be deposited, or outgoing wire transfer
instructions. Following the receipt of any properly executed Advance Request,
Bank shall disburse the Advance in lawful money of the United States of America
in accordance with such Advance Request.
2.05 LOAN DOCUMENTS. Notwithstanding any contrary provision of the Agreement,
each Advance pursuant to the Agreement shall be made subject to and in
accordance with each of the
2
<PAGE> 3
CREDIT AGREEMENT
JANUARY 15, 1998
following (together with this Agreement, collectively referred to as the "Loan
Documents"), all of which are hereby incorporated herein and made a part hereof:
a. Note dated January 15, 1998 between Borrower and Bank.
b. Agreement to Provide Insurance (Real or Personal Property)
dated January 15, 1998, executed by Borrower.
c. General Security Agreement (Tangible and Intangible
Personal Property) dated January 15, 1998, executed by Borrower.
d. Corporate Resolution Regarding Credit dated January 15,
1998, executed by Borrower.
3. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under
borrowings, or other indebtedness, it will, unless Bank shall otherwise consent
in writing:
3.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
3.02 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment and as to property insurance have Bank named as loss payee in an
Lenders "Loss Payable" Endorsement Form 438BFU or equivalent.
3.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
affect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to
the extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto.
3.04 FINANCIAL COVENANTS.
a. LIQUIDITY COVENANT. Have and maintain a balance of cash, cash
equivalents, and Short-Term Investments ("Liquidity") of at least
$10,000,000.00. If Liquidity falls below $10,000,000.00, Borrower
shall provide collateral in the form of cash or cash equivalents
to Bank equal to 50% of the outstanding amount of the loan.
Following the pledge of such collateral in conjunction with a
violation of this Liquidity covenant, if Borrower
3
<PAGE> 4
CREDIT AGREEMENT
JANUARY 15, 1998
subsequently complies with this Liquidity covenant and other
terms and conditions of its indebtedness to Bank, the collateral
shall be returned to the Borrower. "Short-Term Investments" are
defined as readily negotiable "Margin Stocks" as defined by
Regulation U with a per-share market value of no less than
$5.00; or municipal, corporate, or United States Government debt
instruments rated "Baa" or higher. Borrower may also include in
this Liquidity covenant monies contractually available to
Borrower from Johnson & Johnson which are not subject to
cancellation or restriction by Johnson & Johnson; such monies
may be included in this Liquidity covenant for no more than two
consecutive fiscal quarters in any one fiscal year.
3.05 RECORDS AND REPORTS. Maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times and upon reasonable notice
during normal business hours; and furnish Bank:
a. QUARTERLY FINANCIAL STATEMENT. Within forty-five (45) days
after the close of each quarter of each fiscal year of Borrower,
commencing with the quarter next ending, Form 10-Q as required
by the Securities and Exchange Commission;
b. ANNUAL FINANCIAL STATEMENT. As soon as available, and in any
event within ninety (90) days after the close of each fiscal
year of Borrower, Form 10-K as required by the Security and
Exchange Commission;
c. CERTIFICATION OF CHIEF FINANCIAL OFFICER. Within ninety (90)
days after the end of each fiscal year of Borrower, a
certificate of chief financial officer of Borrower, delivered on
behalf of Borrower, stating that Borrower has performed and
observed in all material respects each and every covenant
contained in this Agreement to be performed by it and that no
event has occurred and no condition then exists which
constitutes an event of default hereunder or would constitute
such an event of default upon the lapse of time or upon the
giving of notice and the lapse of time specified herein; or, if
any such event has occurred or any such condition exists,
specifying the nature thereof;
d. LIQUIDITY STATEMENT. Within 21 days of each month end of
Borrower, a cash, cash equivalent and Short-Term Investment
position statement executed by an authorized officer of
Borrower.
e. MANAGEMENT LETTER. In connection with each fiscal year end
financial statement furnished to Bank hereunder, any management
letter of Borrower's independent certified public accountant.
3.06 NOTICE OF DEFAULT. Promptly notify Bank in writing of the occurrence of any
Event of Default hereunder ("Event of Default") or any event which upon notice
and lapse of time would be an Event of Default.
3.07 ATTORNEY'S FEES. Pay promptly to Bank without demand after notice, with
interest thereon from the date of expenditure at the rate applicable to any
loans from Bank to Borrower, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or
4
<PAGE> 5
CREDIT AGREEMENT
JANUARY 15, 1998
compromising any such loan after the occurrence of an Event of Default, whether
or not suit is filed. If suit is brought to enforce any provision of this
Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and court costs in addition to any other remedy or recovery
awarded by the court.
4. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, it will
not, without Bank's written consent, which consent shall not be unreasonably
withheld:
4.01 TYPE OF BUSINESS. Make any substantial change in the character of its
business.
4.02 LIENS AND ENCUMBRANCES. Other than in the ordinary course of business,
create, incur, or assume any mortgage, pledge, encumbrance, lien or charge of
any kind upon any asset now owned, other than liens for taxes not delinquent and
liens in Bank's favor, except for those already existing as of September 30,
1997.
4.03 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business and consistent with past practices or make any investment in the
securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of any
person or other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its business and
consistent with past practices.
4.04 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Except in the
ordinary course of business or for the betterment of the business, purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary course of its business or for the
betterment of the business; or except in the ordinary course of business or for
the betterment of the business, sell, lease assign or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation the selling of any dividends, property or other asset accompanied by
the leasing back of the same.
5. EVENTS OF DEFAULT
The occurrence of any of the following Events of Default shall,
at Bank's option, terminate Bank's commitment to lend and make all sums of
principal and interest then remaining unpaid on all Borrower's indebtedness to
Bank immediately due and payable, all without demand, presentment or notice, all
of which are hereby expressly waived:
5.01 FAILURE TO PAY. Failure to pay any installment of principal or interest on
any indebtedness of Borrower to Bank within five (5) days after notice is
delivered to Borrower that the indebtedness is past-due.
5.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower if such failure is not
remedied within ten (10) days after written notice is received from Bank.
5
<PAGE> 6
CREDIT AGREEMENT
JANUARY 15, 1998
5.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any respect.
5.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
5.05 JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of attachment,
or similar process shall be entered or filed against Borrower or any of its
assets and shall remain unvacated, unbonded or unstayed for a period later than
five days prior to the date of any proposed sale thereunder.
5.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
6. MISCELLANEOUS PROVISIONS
6.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank
or any holder of any note issued by Borrower to Bank, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under this Agreement or any note issued in
connection with a loan that Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
6.02 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
6.03 INUREMENT. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower.
6.04 INTENTIONALLY LEFT BLANK.
6.05 OFFSET. In addition to and not in limitation of all rights of offset that
Bank or other holder of any note issued by Borrower in favor of Bank may have
under applicable law, Bank or other holder of such notes shall, upon the
occurrence of any Event of Default or any event which with the passage of time
or notice would constitute such an Event of Default, have the right to
appropriate and apply to the payment of the outstanding under any such note any
and all balances, credits, deposits, accounts or monies of Borrower then or
thereafter with Bank or other holder, within ten (10) days after the Event of
Default, and notice of the occurrence of any Event of Default by Bank to
Borrower.
6.06 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
6
<PAGE> 7
CREDIT AGREEMENT
JANUARY 15, 1998
6.07 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
6.08 INTEGRATION CLAUSES. Except for documents and instruments specifically
referenced herein, the Agreement constitutes the entire agreement between Bank
and Borrower regarding any loan or loans from Bank to Borrower, and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value. In the event of a conflict or inconsistency
among any other documents and instruments and this Agreement, the provisions of
this Agreement shall prevail.
6.09 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
6.10 MODIFICATION. This Agreement may be modified only by a writing signed by an
authorized representative of each party hereto.
6.11 NOTICES. All communications and notices hereunder shall be in writing and
shall be transmitted to Borrower and Bank at:
Borrower: Amylin Pharmaceuticals, Inc.
9373 Towne Centre Drive
San Diego, CA 92121
Attn: Chief Financial Officer
Tel: (619) 552-2200
Fax: (619) 552-2212
Bank: Imperial Bank
701 B Street, Suite 600
San Diego, CA 92101
Attn: Regional Vice President
Tel: (619) 338-1500
Fax: (619) 234-2234
7. GOVERNING LAW; JUDICIAL REFERENCE.
7.01 GOVERNING LAW. This Agreement shall be deemed to have been made in the
State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.
7.02 JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this
Agreement, which controversy, dispute or claim is not settled in writing within
thirty (30) days after the "Claim Date" (defined as the date on which a party
subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be
7
<PAGE> 8
CREDIT AGREEMENT
JANUARY 15, 1998
settled by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive remedy for
the settlement of any controversy, dispute or claim concerning this Agreement,
including whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court in the County where the Real Property, if any, is
located or Los Angeles County if none (the "Court"). The referee shall be a
retired Judge of the Court selected by mutual agreement of the parties, and if
they cannot so agree within forty-five (45) days after the Claim Date, the
referee shall be promptly selected by the Presiding Judge of the Court (or his
representative). The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
Each party shall have one peremptory challenge pursuant to CCP Section 170.6.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the date of selection of the referee and (b) try any and all
issues of law or fact and report a statement of decision upon them, if possible,
within ninety (90) days of the Claim Date. Any decision rendered by the referee
will be final, binding and conclusive and judgment shall be entered pursuant to
CCP Section 644 in any court in the State of California having jurisdiction. Any
party may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon thirty (30) days written notice, and request for production or
inspection of documents shall be responded to within thirty (30) days after
service. All disputes relating to discovery which cannot be resolved by the
parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
8
<PAGE> 9
CREDIT AGREEMENT
JANUARY 15, 1998
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The provisions with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
This Agreement is executed on behalf of the parties by duly authorized
representatives as of January 15, 1998.
IMPERIAL BANK ("BANK")
By: /s/ Mike Berrier
-----------------------------------------
Mike Berrier, Vice President
Date: 1/27/98
AMYLIN PHARMACEUTICALS, INC. ("BORROWER")
By: /s/ Bradford J. Duft
-----------------------------------------
Bradford J. Duft
Senior Vice President and General Counsel
Date: 1/23/98
----------------
9
<PAGE> 10
CREDIT AGREEMENT
JANUARY 15, 1998
NOTE
Maximum of $2,700,000.00 San Diego, California, January 15, 1998.
On December 1, 2003 and as hereinafter provided for value received, to
undersigned promises to pay to IMPERIAL BANK ("Bank") a California banking
corporation, or order, at its San Diego Regional office, the principal sum of $
2,700,000.00 or such sums up to the maximum if so stated, as the Bank may now or
hereafter advance to or for the benefit of the undersigned in accordance with
the terms hereof, together with interest from date of disbursement or N/A,
whichever is later, on the unpaid principal balance at the rate at 0.500 % per
year in excess of the rate of interest which Bank has announced as its prime
lending rate (the "Prime Rate"), which shall vary concurrently with any change
in such Prime Rate, or $250.00 whichever is greater. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance is outstanding, divided by 360, which shall, for interest
computation purposes, be considered one year.
Interest shall be payable monthly in addition to principal beginning February
28, 1998, and if not so paid shall become a part of the principal. All payments
shall he applied first to any rate charges owing, then to interest and the
remainder, if any, to principal. Principal shall be payable in installments of $
* or more, each installment on the last day of each month, beginning February
28, 1998. Advances not to exceed any unpaid balance owing at any one time equal
to the maximum amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining to
this note, at the option of the holder hereof and without notice or demand, the
entire balance of principal and accrued interest then remaining unpaid shall (a)
become immediately due and payable, and (b) thereafter bear interest, until paid
in full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time-to-time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due/** the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of any
attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent/** five or more days,
Obligor agrees to pay Bank a late charge in the amount of 5% of the payment so
due and unpaid, in addition to the payment; but nothing in this paragraph is to
be construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
10
<PAGE> 11
CREDIT AGREEMENT
JANUARY 15, 1998
**in accordance with the Credit Agreement dated January 15, 1998.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and, reasonably attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed hereon. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and waives
demand and protest and the right to assert any statute of limitations. Any
married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each, Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement In connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect to
any of the security. Any delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any dead of trust, security agreement
or other agreement, shall Not operate as a waiver of such right, or of any other
right. under this note or any deed of trust, security agreement or other
agreement in connection herewith.
*See Addendum I to Note attached hereto and made a part hereof by this
reference.
This Note is subject to the terms and
conditions of the Credit Agreement Amylin Pharmaceuticals, Inc. a
dated January 15,1998 and all Delaware Corporation
amendments thereto and replacements
therefor. By: /s/ Marjorie T. Sennett
------------------------------
11
<PAGE> 12
CREDIT AGREEMENT
JANUARY 15, 1998
Attached to that certain Note dated January 15, 1998 in the amount of
$2,700,000.00 executed by AMYLIN PHARMACEUTICALS, INC., a Delaware corporation.
ADDENDUM I
Advances under the Note shall be available through December 31, 1998. On said
date, the outstanding balance of the advances shall be converted to an
amortizing loan payable in 60 equal monthly payments of principal plus accrued
interest commencing January 30, 1999.
All principal and accrued but unpaid interest shall be in any event be due and
payable on December 1, 2003.
AMYLIN PHARMACEUTICALS, INC., a Delaware corporation.
By: /s/ Marjorie T. Sennett
------------------------
12
<PAGE> 1
EXHIBIT 10.41
AMENDMENT NO. 1 TO INCENTIVE STOCK OPTION AGREEMENTS
This Amendment No. 1 (the "Agreement") to Incentive Stock Option
Agreements dated November 20, 1991 (50,000 shares), December 1, 1994 (40,000
shares), December 1, 1994 (2,880 shares), April 3, 1995 (45,000 shares), April
3, 1995 (25,000 shares), December 1, 1995 (20,000 shares), February 8, 1996
(23,000 shares), December 1, 1996 (20,000 shares) and June 1, 1997 (10,000
shares) between AMYLIN PHARMACEUTICALS, INC. (the "Company") and MARJORIE T.
SENNETT ("Optionee") under the Company's 1991 Stock Option Plan (the "Option
Agreements") is effective as of February 1, 1998 (the "Effective Date").
RECITALS
WHEREAS, the Option Agreements provide to Optionee rights to purchase up
to the following numbers of shares of the Company's Common Stock (the
"Options"), in accordance with and subject to the terms and conditions set forth
in the Option Agreements, including but not limited to terms and conditions
relating to continued employment of the Optionee by the Company all as more
fully set forth therein:
<TABLE>
<S> <C>
November 20, 1991 Option 50,000 shares
December 1, 1994 Option 2,880 shares
December 1, 1994 Option 40,000 shares
April 3, 1995 Option 45,000 shares
April 3, 1995 Option 25,000 shares
December 1, 1995 Option 20,000 shares
February 8, 1996 Option 23,000 shares
December 1, 1996 Option 20,000 shares
June 1, 1997 Option 10,000 shares
</TABLE>
WHEREAS, the Optionee and the Company have agreed a change in the
Optionee's employee status from full time to four-tenths (4/10) time, and have
further agreed that the Optionee will continue to vest shares under the
Agreement, but at four-tenths (4/10) the rate of vesting set forth in the Option
Agreements, subject to adjustment; and
WHEREAS, the Optionee and the Company have agreed that in the event of
the Optionee's termination as an employee of the Company or an affiliate of the
Company (as defined in the Plan) prior to October 31, 1999 (other than by reason
of death or disability) the vested options under the Option Agreements shall
remain exercisable until January 31, 1999.
<PAGE> 2
Amendment No. 1 to Incentive Stock Option Agreements
February 1, 1998
Page 2
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the Optionee and the Company hereby agree as follows:
AGREEMENT
1. AMENDMENT TO NOVEMBER 20, 1991 (50,000 SHARES), DECEMBER 1, 1994 (40,000
SHARES), DECEMBER 1, 1994 (2,880 SHARES), APRIL 3, 1995 (45,000 SHARES),
APRIL 3, 1995 (25,000 SHARES), DECEMBER 1, 1995 (20,000 SHARES),
FEBRUARY 8, 1996 (23,000 SHARES), DECEMBER 1, 1996 (20,000 SHARES) AND
JUNE 1, 1997 (10,000 SHARES) OPTION AGREEMENTS
As of the Effective Date, the parties hereby agree that, subject to the
terms and conditions set forth in the November 20, 1991 (50,000 shares),
December 1, 1994 (40,000 shares), December 1, 1994 (2,880 shares), April 3, 1995
(45,000 shares), April 3, 1995 (25,000 shares), December 1, 1995 (20,000
shares), February 8, 1996 (23,000 shares), December 1, 1996 (20,000 shares) and
June 1, 1997 (10,000 shares) Option Agreements and the additional terms and
conditions of this Agreement, in the event of the Optionee's termination as an
employee of the Company or an affiliate of the Company prior to October 31, 1999
other than by reason of death or permanent disability, the Options vested under
each of the aforementioned Option Agreements as of the date of the Optionee's
termination as an employee of the Company or an affiliate of the Company shall
remain exercisable until January 31, 1999.
2. DECEMBER 1, 1994 (40,000 SHARES), DECEMBER 1, 1995 (20,000 SHARES),
FEBRUARY 8, 1996 (23,000 SHARES) AND DECEMBER 1, 1996 (20,000 SHARES)
OPTION AGREEMENTS.
As of the Effective Date, the parties hereby agree that, subject to the
terms and conditions set forth in the December 1, 1994 (40,000 shares), December
1, 1995 (20,000 shares), February 8, 1996 (23,000 shares) and December 1, 1996
(20,000 shares) Option Agreements and the additional terms and conditions of
this Agreement, the rate at which the Options will become exercisable shall be
reduced so that the Options will now become exercisable with respect to
.027378508% of the total number of shares subject to such Option Agreements for
each day Optionee is an employee of the Company or an affiliate of the Company
after the Effective Date.
Notwithstanding the foregoing, on every three (3) month anniversary of
this Agreement and on Optionee's final date of employment with the Company or an
affiliate of the Company Optionee shall submit a report to the Company stating
the hours worked by Optionee on behalf of the Company during the stated period.
If during such period Optionee's average rate of part-time service exceeds
four-tenths (4/10) of the full-time rate of
<PAGE> 3
Amendment No. 1 to Incentive Stock Option Agreements
February 1, 1998
Page 3
service over such period, then the daily rate of vesting applicable to said
Option Agreements for such period shall be recalculated using the following
formula:
(#of hours actually worked by Optionee during stated period) x (.06844627)
--------------------------------------------------------------------------
minimum # of hours worked by a full-time employee during stated period
; said number equaling the percentage of the total number of shares subject to
such Option Agreements vested for each day Optionee was an employee of the
Company or an affiliate of the Company during the stated period. If during such
period Optionee's average rate of part-time service is less than or equal to
four-tenths (4/10) of the full-time rate of service over such period, then the
rate of vesting applicable to said Option Agreements shall be the rate set forth
in the immediately preceding paragraph.
3. JUNE 1, 1997 (10,000 SHARES) OPTION AGREEMENT.
The parties agree that, rather than becoming exercisable on the
Anniversary Date of June 1, 1998 with respect to one-fourth (1/4) of the total
number of shares subject to the Option granted in the June 1, 1997 (10,000
Shares) Option Agreement, such Option shall become exercisable on November 28,
1998 (the "Cliff Vesting Date") with respect to one-fourth (1/4) of the total
number of shares subject to the Option, provided that the Optionee continues as
an employee of the Company or an affiliate of the Company through the Cliff
Vesting Date.
After the Cliff Vesting Date, for as long as the Optionee continues as
an employee of the Company or an affiliate of the Company, the rate at which the
Option will become exercisable shall be reduced so that the Option will now
become exercisable with respect to .027378508% of the total number of shares
subject to this Option for each day Optionee is an employee of the Company or an
affiliate of the Company after the Cliff Vesting Date.
Notwithstanding the foregoing, on every three (3) month anniversary of
this Agreement following the Cliff Vesting Date and on Optionee's final date of
employment with the Company or an affiliate of the Company Optionee shall submit
a report to the Company stating the hours worked by Optionee during the stated
period. If during such period Optionee's average rate of part-time service
exceeds four-tenths (4/10) of the full-time rate of service over such period,
then the daily rate of vesting applicable to said Option Agreement for such
period shall be recalculated using the following formula:
(#of hours actually worked by Optionee during stated period) x (.06844627)
--------------------------------------------------------------------------
minimum # of hours worked by a full-time employee during stated period
; said number equaling the percentage of the total number of shares subject to
such Option Agreement vested for each day Optionee was an employee of the
Company or an affiliate of
<PAGE> 4
Amendment No. 1 to Incentive Stock Option Agreements
February 1, 1998
Page 4
the Company during the stated period. If during such period Optionee's average
rate of part-time service is less than or equal to four-tenths (4/10) of the
full-time rate of service over such period, then the rate of vesting applicable
to said Option Agreement shall be the rate set forth in the immediately
preceding paragraph.
Except as specifically amended herein, the Option Agreements shall
remain in full force and effect in accordance with their terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
AMYLIN PHARMACEUTICALS, INC. OPTIONEE:
By:/s/ Richard M. Haugen By:/s/ Marjorie T. Sennett
Richard M. Haugen Marjorie T. Sennett
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 33-32896, 33-32894, and 33-45092) pertaining to the 1991 Stock
Option Plan, Non-Employee Directors' Stock Plan, and the 1991 Employee Stock
Purchase Plan, of our report dated January 23, 1998, except for the last
paragraph of Note 5, as to which the date is March 2, 1998, with respect to the
consolidated financial statements of Amylin Pharmaceuticals, Inc. included in
the Annual Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
San Diego, California
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF ITEM 8 ON FORM 1OK AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) ITEM 8 ON FORM 10-K.
</LEGEND>
<CIK> 0000881464
<NAME> AMYLIN PHARMACEUTICALS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,903,000
<SECURITIES> 5,845,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,012,000
<PP&E> 19,469,000
<DEPRECIATION> 10,860,000
<TOTAL-ASSETS> 65,338,000
<CURRENT-LIABILITIES> 23,709,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 4,617,000
<TOTAL-LIABILITY-AND-EQUITY> 65,338,000
<SALES> 0
<TOTAL-REVENUES> 45,222,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 97,873,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,975,000
<INCOME-PRETAX> 0
<INCOME-TAX> (54,627,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,627,000)
<EPS-PRIMARY> (1.70)
<EPS-DILUTED> (1.70)
</TABLE>
