UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
OR
|_| 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 000-23186
BIOCRYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1413174
(State of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2190 Parkway Lake Drive; Birmingham, Alabama 35244
(Address and zip code of principal executive offices)
(205) 444-4600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 Par Value
Indicate by a 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 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|.
While it is difficult to determine the number of shares owned by non-affiliates,
the Registrant estimates that the aggregate market value of the Common Stock on
March 20, 2000 (based upon the closing price shown on the Nasdaq National Market
on March 20, 2000) held by non-affiliates was approximately $331,962,137. For
this computation, the Registrant has excluded the market value of all shares of
its Common Stock reported as beneficially owned by officers, directors and
certain significant stockholders of the Registrant. Such exclusion shall not be
deemed to constitute an admission that any such stockholder is an affiliate of
the Registrant.
The number of shares of Common Stock, par value $.01, of the Registrant
outstanding as of March 20, 2000 was 17,429,994 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with the solicitation of proxies for its 2000 Annual Meeting of
Stockholders are incorporated by reference into Items 11, 12 and 13 under Part
III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
BioCryst Pharmaceuticals, Inc. is a biotechnology company focused on the
development of pharmaceuticals for the treatment of infectious, inflammatory and
cardiovascular diseases and disorders. Our most advanced drug candidate,
RWJ-270201 (formerly referred to as BCX-1812), is an influenza neuraminidase
inhibitor designed to treat and prevent viral influenza. We licensed this drug
candidate to The R.W. Johnson Pharmaceutical Research Institute, or PRI, and
Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies. Since we
began our collaboration with PRI and Ortho-McNeil, RWJ-270201 has moved through
a series of Phase I and Phase II clinical trials and is now in Phase III
clinical trials. Phase III trials are underway in North America and Europe.
Our Business Strategy
Our business strategy is to use structure-based drug design technologies
to develop innovative, small-molecule pharmaceuticals to treat a variety of
diseases and disorders. We focus our drug development efforts on the development
of potent, selective inhibitors of enzymes associated with several diseases.
Enzymes are proteins that cause or enable biological reactions necessary for the
progression of the disease or disorder. The specific enzymes on which we focus
are called enzyme targets. Inhibition of these enzyme targets might be effective
in the treatment of infectious, cardiovascular and other diseases and disorders.
Inhibition means interfering with the functioning of an enzyme target, thereby
stopping or slowing the progression of the disease or disorder. The principal
elements of our strategy are:
o Select and License Promising Enzyme Targets for the Development of
Small-Molecule Pharmaceuticals. We use our technical expertise and
network of academic and industry contacts to evaluate and select
promising enzyme targets to license for developing small-molecule
pharmaceuticals. Generally, small-molecule pharmaceuticals have more
desirable characteristics. We choose enzyme targets that meet as
many of the following criteria as possible:
|_| serve important functions in disease pathways;
|_| have well-defined active sites;
|_| have known animal models that would be indicative of
results in humans; and
|_| have the potential for short duration clinical trials.
o Focus on High Value-Added, Structure-Based Drug Design Technologies.
We focus our drug-discovery activities and expenditures on
applications of structure-based drug design technologies to design
and develop drug candidates. Structure-based drug design is a
process by which we design a drug candidate through detailed
analysis of the enzyme which the drug candidate must inhibit in
order to stop the progression of the disease or disorder. We believe
that structure-based drug design is a powerful tool for rapid and
efficient development of small-molecule drug candidates that have
the potential to be safe, effective and relatively inexpensive to
manufacture. Our structure-based drug design technologies typically
allow us to design and synthesize multiple drug candidates that
inhibit the same enzyme target. We believe this strategy can lead to
broad patent protection and enhance the competitive advantages of
our compounds.
o Develop Inhibitors that are Promising Candidates for
Commercialization. We test multiple compounds to identify those that
are most promising for clinical development. We base our selection
of promising development candidates on desirable product
characteristics, such as initial indications of safety and efficacy.
We believe that this focused strategy allows us to eliminate
unpromising candidates from
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consideration sooner without incurring substantial clinical costs.
In addition, we select drug candidates on the basis of their
potential for relatively efficient Phase I and Phase II clinical
trials that require fewer patients to initially indicate safety and
efficacy. We will consider, however, more complex candidates with
longer development cycles if we believe that they offer promising
commercial opportunities.
An important element of our business strategy is to control fixed costs
and overhead through contracting and entering into license agreements with other
parties. We maintain a streamlined corporate infrastructure that focuses
exclusively on our strongest areas of expertise. By contracting with other
parties specializing in aspects of our business in which we are not as strong,
we believe that we can control costs, enable our drug candidates to reach the
market more quickly and reduce our business risk. Key elements of our
contracting strategy include:
o Entering Into Relationships with Academic Institutions and
Biotechnology Companies. Many academic institutions and
biotechnology companies perform extensive research on the molecular
and structural biology of potential drug development targets. By
entering into relationships with these institutions, we believe we
can significantly reduce the time, cost and risks involved in drug
target development. Our collaborative relationships with such
organizations may lead to the licensing of one or more drug targets.
Upon licensing a drug target from these institutions, the scientists
from these institutions typically become working partners as members
of our structure-based drug design teams. We believe this makes us a
more attractive development partner to these scientists. In
addition, we collaborate with outside experts in a number of areas,
including crystallography, molecular modeling, combinatorial
chemistry, biology, pharmacology, oncology, immunology and
infectious diseases. These collaborations enable us to complement
our internal capabilities without adding costly overhead. We believe
this strategy allows us to save valuable time and expense,
complement our technology platform, and further diversify and
strengthen our portfolio of drug candidates. An example of such a
collaborative relationship is the arrangement that we have with The
University of Alabama at Birmingham, or UAB, which has resulted in
the initiation of most of our early drug development programs.
o Licensing Drug Development Candidates to Other Parties. We plan to
advance drug candidates through early-stage drug development, then
license them to pharmaceutical or biotechnology partners for final
development and global marketing. We believe partnerships are a good
source of development payments, license fees, milestone payments and
royalties. They also reduce the costs and risks of late-stage
product development, regulatory approval, manufacturing and
marketing. We believe that focusing on discovery and early-stage
drug development while benefiting from pharmaceutical partners'
proven development and commercialization expertise will reduce our
internal expenses and allow us to have a larger number of drug
candidates progress to late-stage drug development.
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Products in Development
The following table summarizes BioCryst's development projects as of
February 29, 2000:
<TABLE>
<CAPTION>
PROGRAM AND DELIVERY DEVELOPMENT WORLDWIDE
INDICATION FORM STAGE RIGHTS
<S> <C> <C> <C>
Neuraminidase Inhibitor (RWJ-270201)
Influenza Oral Phase III - Underway PRI/Ortho-McNeil (1)
PNP Inhibitors
Autoimmune diseases Oral Preclinical - Evaluating new
candidates BioCryst
Complement Inhibitors
Cardiopulmonary Bypass Surgery Intravenous Preclinical - Ongoing BioCryst
Parainfluenza Hemagglutinin
Neuraminidase
Croup, bronchitis and viral
pneumonia Oral Discovery BioCryst
Tissue Factor/VIIa
Cardiovascular Oral Discovery BioCryst
</TABLE>
(1) We licensed our neuraminidase inhibitor, RWJ-270201, to PRI and
Ortho-McNeil, both Johnson & Johnson companies.
- ----
Neuraminidase Inhibitor (RWJ-270201)
Influenza Background
Overview. Influenza, commonly known as the flu, is perceived by many
people as a transient, inconvenient viral infection that leaves its sufferers
bed-ridden for a few days. In truth, however, flu is a virulent, acute
respiratory disease that is sometimes deadly. In North America, Western Europe
and Japan, an estimated 70 million to 150 million individuals suffer from
influenza annually. The flu is particularly dangerous to the elderly, young
children and debilitated patients, accounting for approximately 20,000 deaths in
the United States each year. The flu and associated complications are the sixth
leading cause of death in the United States. A 1994 article in The New England
Journal of Medicine estimated that the annual cost to the U.S. economy
associated with influenza epidemics was in excess of $12 billion.
Flu epidemics are regional outbreaks that cause an average of 40,000
flu-related deaths. Flu pandemics, however, are much more severe. Pandemics are
worldwide outbreaks of a particular strain of the virus that occur relatively
infrequently but can be disastrous. The Spanish flu pandemic of 1918-19 killed
more than 20 million people worldwide. In the United States alone, the Asian flu
of 1957-58 resulted in 70,000 deaths, and the Hong Kong flu of 1968-69 caused
34,000 deaths. The worldwide deaths caused by the Asian and Hong Kong pandemics
topped 1.5 million, with an estimated impact to the world economy of $32
billion. Due to increases in the world population and international air travel,
mutation of the flu virus could spread rapidly, resulting in widespread
morbidity and mortality.
Symptoms and Treatment of Influenza. Although influenza is considered a
respiratory disease, flu sufferers usually become acutely ill with high fever,
chills, headache, weakness, loss of appetite and aching joints. The flu sufferer
may also have a sore throat, dry cough and burning eyes.
For most healthy children and adults, influenza is typically a moderately
severe illness. However, for people with pre-existing medical conditions,
influenza can be very severe and, in many cases, fatal. In these patients,
bacterial infections may occur because the body's immune system is so weakened
by influenza that its defenses against bacteria are low. Bacterial pneumonia is
the most common complication of influenza.
The development of effective therapeutics has challenged medical
researchers due to the seasonal variation in viral strains and the highly
infectious nature of influenza. Patients, therefore, have limited treatment
options.
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Amantadine and rimantadine are used for treatment of influenza A but are
ineffective against influenza B. In addition, these drugs cause some adverse
side effects, and the virus may develop resistance to these drugs.
Vaccines are available against the disease but have limitations: people
require advance vaccination; vaccines are limited by their specificity to
particular strains of the virus; and vaccines offer little protection if the
vaccine is inaccurate. In addition, many people decline the required injections
because of fear and/or discomfort. The ability of the virus to change its
structure to avoid the body's natural defenses is a serious obstacle to
developing an effective vaccine against influenza. Different strains can arise
when surface antigens on the virus (the portion of the virus that causes an
immune reaction in humans) undergo minor genetic mutations each year as the
virus replicates. Because of this mutation ability, the immunity acquired in
response to infection by a particular strain of the virus does not provide
adequate protection against viruses that subsequently arise. The production of a
new vaccine each year is not only complex and expensive, but also an inefficient
method of global disease control.
Inhibiting Influenza Neuraminidase. Research during the past two decades
has seen dramatic advances in understanding the molecular structure and function
of the influenza virus. Considerable attention has been focused on the enzyme
neuraminidase, which is located on the surface of the virus. Neuraminidase
assists in the release and spread of the flu virus by breaking the chemical
strands that hold the new viruses to the cell surface, allowing the replicated
virus to spread and infect other cells. This process progresses until the host's
immune response can produce enough antibodies to bring the infection under
control.
Research suggests that inhibiting the neuraminidase enzyme would keep new
viruses attached to the cell surface, thereby preventing the spread of the virus
and the further infection of other cells. The subsequent quantities of virus in
the bloodstream would not be enough to cause disease but would be sufficient to
induce the body to mount an immune response.
In addition to our neuraminidase inhibitor, both Hoffmann-La Roche, in
collaboration with Gilead Sciences, and Glaxo Wellcome have neuraminidase
inhibitors. Hoffmann-La Roche's neuraminidase inhibitor is a twice-a-day, orally
active neuraminidase inhibitor, while Glaxo Wellcome's neuraminidase inhibitor
is administered by dry powder inhaler twice a day. Both drugs have approval for
marketing in the United States and other countries for treatment of influenza.
Our Influenza Neuraminidase Inhibitor
Background. In 1987, scientists at The University of Alabama at
Birmingham, or UAB, in collaboration with our scientists, began determining the
molecular structure of the influenza neuraminidase enzyme from several different
strains of influenza, using X-ray crystallography. Subsequently, our scientists
and UAB scientists developed numerous new inhibitors of these enzymes using
structure-based drug design. We licensed the influenza neuraminidase program
from UAB in 1994 and proceeded to complete the studies of the enzyme's molecular
structure needed to advance the development of neuraminidase inhibitors. The
structure of the active site of influenza neuraminidase is similar among
different viral strains. Because of this similarity, we believe that our
neuraminidase inhibitors may be effective in the treatment and prevention of
influenza, regardless of changes in the virus.
Four of the patented compounds from our development efforts emerged as
viable product development candidates. We called them BCX-1812, 1827, 1898 and
1923. Preclinical studies demonstrated that our drug candidates have the
following benefits:
o excellent safety profile;
o inhibition of both influenza A and B;
o effective when taken orally;
o probable once-a-day dosage; and
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o can be made into a liquid form, allowing for use by the elderly and
young children.
Clinical Development. In September 1998, we entered an exclusive worldwide
license agreement with PRI and Ortho-McNeil to develop and market our
proprietary influenza neuraminidase inhibitors to treat and prevent viral
influenza. Since we began our collaboration with PRI and Ortho-McNeil,
RWJ-270201 has moved through a series of Phase I and Phase II clinical trials
and is now in Phase III clinical trials. In August 1999, we announced the
preliminary results of a Phase II placebo-controlled, randomized study conducted
by PRI for the treatment of healthy volunteers infected with a strain of
influenza A. PRI advised us that the data from this Phase II study indicated a
statistically significant reduction of flu virus in the body and that the drug
was well-tolerated at all dosage levels. Phase III clinical trials are underway
in North America and Europe, but there can be no guarantee that these trials
will be completed and or successful.
PNP Inhibitor
Autoimmune Diseases
Overview. The human immune system employs specialized cells, including
T-cells, to control infection by recognizing and attacking disease-causing
viruses, bacteria and parasites. T-cells are an essential part of the body's
immune system that serve a dual purpose - orchestrating and participating in the
body's immune response. For the most part, this system works flawlessly to
protect the body. However, there are diseases in which T-cells multiply
uncontrollably (T-cell proliferative diseases) or attack normal cells
(autoimmune diseases). Proliferating T-cells have been implicated in a number of
T-cell cancers, including cutaneous T-cell lymphoma. Cutaneous T-cell lymphoma
is a skin cancer in which T-cells, which normally help fight disease, duplicate
rapidly and cause skin cancer.
PNP Inhibition. Purine nucleoside phosphorylase, or PNP, is an enzyme that
is believed to play an important role in T-cell proliferation, because PNP is
necessary to maintain normal DNA synthesis in T-cells. We believe that
inhibiting PNP is a new mechanism for suppressing T-cell replication without
significantly affecting other cells, and we believe this may prove to have an
impact on the treatment of several diseases.
Our PNP Inhibitor
Background. We designed our lead PNP inhibitor drug candidate, BCX-34, to
suppress T-cell replication without significantly affecting other cells. BCX-34
has been in clinical trials since 1992. Our initial approach was to develop a
cream formulation of BCX-34 applied to the skin, which, if effective, could have
led to a rapid, cost-effective regulatory approval. We conducted two Phase III
clinical trials in 1996 and 1997 to determine the effects of topical BCX-34 on
psoriasis, an autoimmune disease that affects the skin, and cutaneous T-cell
lymphoma. These trials, however, did not show statistically significant results
between the treated and placebo groups. Therefore, we discontinued the topical
program.
Current Development Strategy. We believe that, in order for BCX-34 to be
effective, BCX-34 must be administered in a form and an amount that obtains
adequate levels of the drug in the body. In the clinical trials we have
completed with an oral formulation of BCX-34, the dose levels were inadequate to
obtain clinically relevant results. These clinical trials, however, were
effective in establishing the safety of BCX-34 at various dose levels and the
maximum oral dose absorbable by the body.
In early 2000, we completed a clinical trial to evaluate BCX-34 for the
treatment of cutaneous T-cell lymphoma at the maximum oral dose. We had expected
to start a second trial for treatment of various other T-cell cancers with
intravenous therapy in 2000. However, after completing our high dose oral BCX-34
study, we were unable to show any consistent improvement in disease.
Furthermore, upon review of the intravenous PK studies, it became clear that in
order to produce a significant rise in plasma deoxyguanosine (which we think is
necessary for therapeutic effect), any oral dosing would be insufficient - in
fact, any IV dosing would fall short as well. Consequently, for the time being
we have discontinued further studies with BCX-34 and its series of compounds. We
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are, however, exploring another series of PNP inhibitors, which are much more
potent against isolated PNP than is BCX-34.
Complement Inhibitors
Complement Cascade
Overview. The human body is equipped with defense mechanisms that respond
aggressively to infection or injury. This response is uniquely designed for each
challenge whether caused by viruses, bacteria, or other matter harmful to the
body. Once the immune system recognizes a "foreign invader," complement is
activated to destroy or remove it. The complement cascade is the term for a
system of functionally linked enzymes that assists in the removal of bacteria or
destruction of cells that the body does not recognize as its own.
If these enzymes do not operate properly, they can cause adverse
biological effects including tissue damage. This occurs in an unregulated way in
certain medical situations such as cardiopulmonary bypass surgery.
Our Complement Inhibitors
Background. Working closely with scientists of The University of Alabama
at Birmingham, we characterized the three-dimensional structure of one of the
components of the complement cascade. In 1997, using X-ray crystallographic and
molecular modeling techniques, we designed and synthesized a class of small
molecule compounds that are highly potent inhibitors of complement and certain
other blood enzymes. These compounds may have applications in the treatment of
several disorders by limiting the rapid and aggressive damage caused by the
activation of complement proteins. In addition, preclinical studies to examine
the safety and efficacy of several of these compounds are currently in progress.
Clinical Development. We completed two Phase I studies of one of the drug
candidates in our complement inhibitor program. These studies showed that the
effective dose for blocking complement activation was too close to toxicologic
limits to be used during cardiopulmonary bypass surgery. Hence, other compounds
in this series are now being evaluated for clinical development.
Tissue Factor/VIIa
A series of complicated reactions that are initiated by a group of enzymes
in the body called the Tissue Factor/VIIa complex forms a blood clot. Animal
tests show that blood clot formation can be minimized by inhibiting the Tissue
Factor/VIIa complex. Tissue Factor/VIIa inhibitors may potentially be useful in
various cardiovascular diseases and disorders. We are attempting to identify
potential inhibitors of Tissue Factor/VIIa. We have an agreement with Sunol
Molecular Corp. to expedite the discovery of new drug candidates designed to
inhibit Tissue Factor/VIIa for our cardiovascular program. Under the terms of
this agreement, Sunol conducts research and supplies us with tissue factor for
our drug design program.
Parainfluenza Hemagglutinin Neuraminidase
The parainfluenza virus, or PIV, affects approximately three million
infants and young children per year in the United States. Complications arising
from infection with PIV result in a significant portion of the cases of croup,
bronchitis and pneumonia in children. In October 1999, we entered into an
agreement with St. Jude Children's Research Hospital in Tennessee, University of
Bath in England and University of St. Andrews in Scotland for research and
development related to PIV. Under the agreement, St. Jude Children's Hospital,
University of Bath and University of St. Andrews will provide us with compounds
that will form the basis for our design and development of potential drug
candidates for the treatment of PIV.
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Structure-Based Drug Design
Structure-based drug design is a drug discovery approach by which we
design synthetic compounds from detailed structural knowledge of the active
sites of enzyme targets associated with particular diseases. Enzymes are
proteins that act as catalysts for many vital biological reactions. Our goal
generally is to design a compound that will fit in the active site of an enzyme
(the active site of an enzyme is the area into which a chemical or biological
molecule fits to initiate a biochemical reaction) and thereby interfere with the
progression of disease.
Our structure-based drug design involves the application of both
traditional biology and medicinal chemistry and an array of advanced
technologies. We use X-ray crystallography, computer modeling of molecular
structures and advanced chemistry techniques to focus on the three-dimensional
molecular structure and active site characteristics of the enzymes that control
cellular biology.
We believe that structure-based drug design technologies are superior to
drug screening techniques. By identifying the target enzyme in advance and by
discovering the chemical and molecular structure of the enzyme, we believe it is
possible to design a better drug to interact with the enzyme. In addition, the
structural data obtained by X-ray crystallographic analysis allows additional
analysis and compound modification at each stage of the biological evaluation.
This capability makes structure-based drug design a powerful tool for rapid and
efficient development of drugs that are highly specific for particular enzyme
target sites.
Research and Development
We initiated our research and development program in 1986, with drug
synthesis beginning in 1987. We have assembled a scientific research staff with
expertise in a broad base of advanced research technologies including protein
biochemistry, X-ray crystallography, chemistry and pharmacology. Our research
facilities include protein biochemistry and organic synthesis laboratories,
testing facilities, X-ray crystallography, computer and graphics equipment and
facilities to make drug candidates on a small scale.
During the years ended December 31, 1997, 1998 and 1999, we spent an
aggregate of $27.6 million on research and development. Approximately $16.8
million of that amount was spent on in-house research and development, and $10.8
million was spent on contract research and development.
Collaborative Relationships
Corporate Alliances
3-Dimensional Pharmaceuticals, Inc.
In October 1996, we signed a research collaboration agreement with
3-Dimensional Pharmaceuticals under which we will share resources and technology
to develop inhibitors of complement enzymes. The agreement combines our
capabilities in structure-based drug design with the selection power of
3-Dimensional Pharmaceuticals' Directed Diversity(R) technology, a proprietary
method of directing combinatorial chemistry and high throughput screening toward
specific molecular targets. In June 1999, we updated and renewed our original
agreement to concentrate on selected complement enzymes as targets for the
design of inhibitors. Under the terms of the agreement, the companies are
responsible for their own research costs. If a drug candidate emerges as a
result of the joint research, the companies will negotiate the product
development and commercialization rights and responsibilities.
The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil
Pharmaceutical, Inc.
We have entered into an exclusive worldwide license agreement with PRI and
Ortho-McNeil to develop and market our proprietary influenza neuraminidase
inhibitors to treat and prevent viral influenza. We received an initial $6.0
million payment from Ortho-McNeil and an additional $6.0 million common stock
equity investment from Johnson & Johnson Development Corporation. In June 1999,
we received a $2.0 million milestone payment from Ortho-McNeil in connection
with the initiation of Phase II clinical testing in the United States. In
February 2000,
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BioCryst received a $4 million milestone payment from PRI in connection with the
initiation of Phase III clinical trials of RWJ-270201, PRI's oral influenza
neuraminidase inhibitor, in North America and Europe. In addition, we may
receive additional cash payments upon achievement of specified developmental and
regulatory milestones and royalties on product sales, if any.
PRI will be responsible for research and development of the compounds,
including expenses. Ortho-McNeil will market products approved by the FDA for
marketing in the United States. Other Johnson & Johnson companies, including
Janssen-Cilag, will market products approved for marketing outside the United
States.
Novartis AG
In 1990, we entered into an exclusive worldwide license agreement with
Novartis AG, formerly Ciba-Geigy, for use of certain of our PNP inhibitors, not
including BCX-34. We received an initial $500,000 payment from Novartis, up to
$300,000 of which is refundable in circumstances specified in the agreement. The
agreement also provides for Novartis to pay us royalties on sales, if any, of
the PNP inhibitors. We may not receive any revenue based on this license
agreement.
Sunol Molecular Corp.
In April 1999, we entered into an agreement with Sunol. This agreement
requires Sunol to conduct research and supply us with protein targets for drug
design to expedite the discovery of new drug candidates designed to inhibit
Tissue Factor/VIIa for our cardiovascular program.
The initial focus of the agreement will be on identifying compounds that
work to inhibit the coagulation cascade of Tissue Factor/VIIa. Tissue
Factor/VIIa is a promising target for the development of anticoagulants for
cardiopulmonary bypass surgery, angioplasty and other cardiovascular disorders.
Sunol will produce Tissue Factor and provide us with quantities of the protein
to assist in the identification of inhibitors specific to the activity of Tissue
Factor/VIIa.
Torii Pharmaceutical Co., Ltd.
In 1996, we granted Torii an exclusive license, with the right to
sublicense, develop, manufacture and commercialize BCX-34 and certain other PNP
inhibitor compounds in Japan for the treatment of rheumatoid arthritis, T-cell
cancers and atopic dermatitis. Torii terminated the exclusive license agreement,
and the rights to develop, manufacture and commercialize BCX-34 and certain
other PNP inhibitor compounds in Japan reverted to us. Torii paid us an
aggregate of $4.0 million for license fees, milestone payments and an equity
investment.
Academic Alliances
The University of Alabama at Birmingham
We have had a close relationship with The University of Alabama at
Birmingham, or UAB, since our formation. Our Chairman and Chief Executive
Officer, Dr. Bugg, was the previous Director of the UAB Center for
Macromolecular Crystallography, and our President and Chief Operating Officer,
Dr. Bennett, was the former President of UAB, the former Chairman of the
Department of Medicine at UAB and a former Chairman of the Department of
Microbiology at UAB. Several of our consultants are employed by UAB. UAB has one
of the largest X-ray crystallography centers in the world with approximately 124
full-time staff members and approximately $20.7 million in research grants and
contract funding in 1998. Three of our early programs, PNP, influenza and
complement inhibitors, originated at UAB. When we were founded in 1986, we
entered into an agreement with UAB which granted us exclusive rights to
discoveries resulting from research relating to PNP. We also entered into an
agreement with UAB that gives us the first option to obtain a non-exclusive
license to patents and copyrights of UAB not developed in collaboration with us
or an exclusive license, in some cases worldwide, to patents, copyrights or
intellectual property arising from research of UAB collaborators or
investigators under contract to us. Subsequently, we entered into agreements
with UAB for influenza neuraminidase and complement inhibitors. Under the terms
of these agreements,
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UAB performed specific research for us in return for research payments and
license fees. UAB has granted us certain rights to any discoveries in these
areas resulting from research developed by UAB or jointly developed with us. We
have agreed to pay certain royalties on sales of any resulting product and to
share in future payments received from other third-party collaborators. UAB has
received and will continue to receive a portion of any license fees, milestone
payments and royalties we receive from PRI and Ortho-McNeil for the influenza
collaboration. We have completed the research under the UAB influenza agreement.
We are continuing to fund the research program under the complement inhibitors
agreement, which entitles us to an assignment of, or a right to an exclusive
license for, any inhibitors of specified complement enzymes developed by UAB
scientists during the period of support or for a one-year period thereafter.
These two agreements have initial 25-year terms, are automatically renewable for
five-year terms throughout the life of the last patent and are terminable by us
upon three-month's notice and by UAB under certain circumstances.
St. Jude Children's Research Hospital, University of Bath and University
of St. Andrews
In October 1999, we entered into an agreement with St. Jude Children's
Research Hospital in Tennessee, University of Bath in England and University of
St. Andrews in Scotland for research and development related to the
parainfluenze virus (PIV). Under the agreement, these organizations will provide
us with compounds that will form the basis for our design and development of
potential drug candidates for the treatment of PIV. Under the terms of these
agreements, these organizations perform specific research for us in return for
research payments and license fees. These organizations have granted us certain
rights to any discoveries in these areas resulting from research developed by
them or jointly developed with us. We have agreed to pay certain royalties on
sales of any resulting product and to share in future payments received from
other third-party collaborators.
Patents and Proprietary Information
Our success will depend in part on our ability to obtain and enforce
patent protection for our products, methods, processes and other proprietary
technologies, preserve our trade secrets, and operate without infringing on the
proprietary rights of other parties, both in the United States and in other
countries. We own or have rights to certain proprietary information, proprietary
technology, issued and allowed patents and patent applications which relate to
compounds we are developing. We actively seek, when appropriate, protection for
our products, proprietary technology and proprietary information by means of
U.S. and foreign patents, trademarks and contractual arrangements. In addition,
we rely upon trade secrets and contractual arrangements to protect certain of
our proprietary information, proprietary technology and products.
To date, we have been issued seven U.S. patents which expire between 2009
and 2015 and relate to our PNP inhibitor compounds. We have also been issued a
U.S. patent covering a manufacturing process for our PNP inhibitors, which
expires in 2015, and have filed a patent application for new processes to
prepare BCX-34 and other PNP inhibitors. The U.S. Patent and Trademark Office
has also issued to us a U.S. patent relating to inhibitors of influenza
neuraminidase, which expires in 2015. We have also tried to protect our
technology through the following patent applications which are still pending: a
U.S. patent application, three provisional U.S. patent applications and a patent
cooperation treaty (PCT) application related to our neuraminidase inhibitors; a
PCT application and a provisional U.S. patent application related to compounds
and methods for detecting influenza virus; a PCT application related to
complement inhibitors; a provisional application relating to inhibiting T-cell
proliferation; and a provisional U.S. application related to deazaguanine
analogs. Our pending applications may not result in issued patents, and our
patents may not provide us with sufficient protection against competitive
products or otherwise be commercially available.
Our success is also dependent upon the skills, knowledge and experience of
our scientific and technical personnel, none of which is patentable. To help
protect our rights, we require all employees, consultants, advisors and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to anyone outside of our company and
requires disclosure and assignment to us of their ideas, developments,
discoveries and inventions. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information.
9
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Marketing and Sales
We lack experience in marketing, distributing and selling pharmaceutical
products. Our strategy is to rely on collaborators, licensees or arrangements
with others to provide for the marketing, distribution and sales of any products
we may develop. We may not be able to establish and maintain acceptable
commercial arrangements with collaborators, licensees or others to perform such
activities.
If approved, RWJ-270201 will likely be the third influenza neuraminidase
inhibitor to the market behind the influenza neuraminidase inhibitors currently
marketed by Glaxo Wellcome and Hoffmann-LaRoche, in collaboration with Gilead
Sciences. We believe this may provide marketing challenges. However, we believe
that there may be some advantages to not being first to market. We expect that
both Glaxo Wellcome and Hoffmann-La Roche will play a major role in establishing
the influenza treatment market and creating a demand for neuraminidase
inhibitors on which Ortho-McNeil will be able to capitalize if our neuraminidase
inhibitor is approved for marketing. Because neuraminidase inhibitors represent
a new class of drugs that could impact a large number of people, a major
education effort will be required to promote acceptance by both the treating
physicians and the target population.
Competition
The pharmaceutical and biotechnology industries are intensely competitive.
Many companies, including biotechnology, chemical and pharmaceutical companies,
are actively engaged in activities similar to ours, including research and
development of drugs for the treatment of infectious, inflammatory and
cardiovascular diseases and disorders. Many of these companies have
substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than we do. In addition, some of them have considerable experience in
preclinical testing, clinical trials and other regulatory approval procedures.
There are also academic institutions, governmental agencies and other research
organizations that are conducting research in areas in which we are working.
They may also market commercial products, either on their own or through
collaborative efforts.
We expect to encounter significant competition for any of the
pharmaceutical products we plan to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, certain pharmaceutical and biotechnology firms,
including major pharmaceutical companies and specialized structure-based drug
design companies, have announced efforts in the field of structure-based drug
design and in the fields of PNP and complement inhibitors. In addition, we are
aware that other companies or institutions are pursuing development of new drugs
and technologies directly targeted at applications for which we are developing
our drug compounds. For example, Glaxo Wellcome's influenza neuraminidase
inhibitor has received approval from the FDA, and they recently received
approval to market their inhibitor in the United States and other countries.
This product is administered in the form of a dry-powder inhaler, which could be
difficult to use and may cause patient discomfort. The FDA also approved the
influenza neuraminidase inhibitor developed by Hoffmann-La Roche, in
collaboration with Gilead Sciences. We believe this may provide marketing
challenges. In addition, other therapies for the treatment or prevention of flu
include vaccines and the drugs amantadine and rimantadine There is also a
vaccine currently in preclinical development that may immunize people against
all strains of the flu virus, rendering flu drug products like ours obsolete.
In order to compete successfully, we must develop proprietary positions in
patented drugs for therapeutic markets that have not been satisfactorily
addressed by conventional research strategies and, in the process, expand our
expertise in structure-based drug design. Our products, even if successfully
tested and developed, may not be adopted by physicians over other products and
may not offer economically feasible alternatives to other therapies.
Government Regulation
The FDA regulates the pharmaceutical and biotechnology industries in the
United States, and our drug candidates are subject to extensive and rigorous
domestic government regulations prior to commercialization. The FDA regulates,
among other things, the development, testing, manufacture, safety, efficacy,
record-keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of pharmaceutical products. In foreign countries, our
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<PAGE>
products are also subject to extensive regulation by foreign governments. These
government regulations will be a significant factor in the production and
marketing of any pharmaceutical products that we develop. Failure to comply with
applicable FDA and other regulatory requirements at any stage during the
regulatory process may subject us to sanctions, including:
o delays;
o warning letters;
o fines;
o product recalls or seizures;
o injunctions;
o penalties;
o refusal of the FDA to review pending market approval applications or
supplements to approval applications;
o total or partial suspension of production;
o civil penalties;
o withdrawals of previously approved marketing applications; and
o criminal prosecutions.
The regulatory review and approval process is lengthy, expensive and
uncertain. Before obtaining regulatory approvals for the commercial sale of any
products, we or our licensees must demonstrate that our product candidates are
safe and effective for use in humans. The approval process takes many years,
substantial expenses may be incurred and significant time may be devoted to
clinical development.
Before testing potential candidates in humans, we carry out laboratory and
animal studies to determine safety and biological activity. After completing
preclinical trials, we must file an investigational new drug application,
including a proposal to begin clinical trials, with the FDA. We have filed eight
investigational new drug applications to date and plan to file, or rely on
certain partners to file, additional investigational new drug applications in
the future. Thirty days after filing an investigational new drug application, a
Phase I human clinical trial can start unless the FDA places a hold on the
study.
Our Phase I trials are designed to determine safety in a small group of
patients or healthy volunteers. We also assess tolerances and the metabolic and
pharmacologic actions of our drug candidates at different doses. After we
complete the initial trial, we conduct a Phase II trial to assess safety and
efficacy and establish the optimal dose in patients. If Phase II trial is
successful, we or our licensees conduct a Phase III trial verify the results in
a larger patient population. A Phase III trial is required for FDA approval to
market a drug. A Phase III trial may require hundreds or even thousands of
patients and is the most expensive to conduct. The goal in Phase III is to
collect enough safety and efficacy data to obtain FDA approval for treatment of
a particular disease.
Initiation and completion of the clinical trial phases is dependent on
several factors including things that are beyond our control. For example, the
clinical trials are dependent on patient enrollment, but the rate at which
patients enroll in the study depends on:
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o the size of the patient population we intend to treat;
o the availability of patients;
o the willingness of patients to participate; and
o the patient meeting the eligibility criteria.
Delays in planned patient enrollment may result in increased expense.
After completion of the clinical trials of a product, we or our licensees
must submit a new drug application to the FDA for marketing approval before
commercialization of the product. The FDA may not grant approval on a timely
basis, if at all. The FDA, as a result of the Food and Drug Administration
Modernization Act of 1997, has six months to review and act upon license
applications for priority therapeutics that are for a life-threatening or unmet
medical need. Standard reviews can take between one and two years, and can even
take longer if significant questions arise during the review process. The FDA
may withdraw any required approvals, once obtained.
In addition to clinical development regulations, we and our contract
manufacturers and collaborators must comply with the applicable FDA current good
manufacturing practice regulations. Good manufacturing practice regulations
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Manufacturing
facilities are subject to inspection by the FDA. Such facilities must be
approved before we can use them in commercial manufacturing of our potential
products. We or our contract manufacturers may not be able to comply with the
applicable good manufacturing practice requirements and other FDA regulatory
requirements. If we or our contract manufacturers fail to comply, our business,
financial condition and results of operations will be materially adversely
affected.
In June 1995, we notified the FDA that we submitted incorrect data for our
Phase II studies of BCX-34 applied to the skin for cutaneous T-cell lymphoma and
psoriasis. The FDA inspected us in November 1995 and issued us a List of
Inspectional Observations, Form FDA 483, that cited our failure to follow good
clinical practices. The FDA also inspected us in June 1996, the focus was on the
two 1995 Phase II dose-ranging studies of topical BCX-34 for the treatment of
cutaneous T-cell lymphoma and psoriasis. As a result of the investigation, the
FDA issued us a Form FDA 483, which cited our failure to follow good clinical
practices. As a consequence, our ongoing and future clinical studies may receive
increased scrutiny, which may delay the regulatory review process.
Also in June 1996, the FDA investigated one of the clinical trial sites
that participated in our 1995 Phase II dose-ranging studies of BCX-34 applied to
the skin for the treatment of cutaneous T-cell lymphoma and psoriasis. As a
result, the FDA issued a Form FDA 483 to the principal investigator at a
clinical site which cited a number of deficiencies, including:
o improper delegations of authority by the principal investigator;
o failures to follow the protocols;
o deviations from established procedures of the institutional review
board; and
o discrepancies or deficiencies in documentation and reporting.
Following the failure of BCX-34 applied to the skin in 1997, we
discontinued the development of BCX-34 applied to the skin. In November 1997,
the FDA notified us that they would not accept work performed by the deficient
investigator without further validation. The majority of the work performed by
this investigator was for BCX-34 applied to the skin, which was discontinued in
1997. However, work performed by this investigator for oral BCX-34 will not be
accepted by the FDA to support efficacy in any new drug application.
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<PAGE>
Human Resources
As of February 29, 2000, we had 60 employees, of whom 46 were engaged in
research and development and 14 were in general and administrative functions.
Our scientific staff, 20 of whom hold Ph.D. or M.D. degrees, has diversified
experience in biochemistry, pharmacology, X-ray crystallography, synthetic
organic chemistry, computational chemistry, medicinal chemistry and
pharmacology. We consider our relations with our employees to be satisfactory.
Scientific Advisory Board and Consultants
Our scientific advisory board is comprised of five scientific advisors who
are leaders in certain of our core disciplines or who otherwise have specific
expertise in our therapeutic focus areas. We also have consulting agreements
with a number of other scientists with expertise in our core disciplines or who
are specialists in diseases or treatments on which we focus. The scientific
advisory board meets as a group at scheduled meetings and the consultants meet
more frequently, on an individual basis, with our scientific personnel and
management to discuss our ongoing research and drug discovery and development
projects.
The scientific advisory board consists of the following individuals:
Name Position
- ---- --------
Albert F. LoBuglio, M.D. (Chairman) .......Professor of Medicine and the
Director of The University of Alabama
at Birmingham Comprehensive Cancer
Center.
Gordon N. Gill, M.D. ......................Professor of Medicine and Chair of
the Faculty of Basic Biomedical
Sciences at the University of
California, San Diego School of
Medicine.
Lorraine J. Gudas,Ph.D. ...................Professor and Chairman of the
Department of Pharmacology of Cornell
Medical College and the Revlon
Pharmaceutical Professor of
Pharmacology and Toxicology.
Herbert A. Hauptman, Ph.D. ................President of the Hauptman-Woodward
Medical Research Institute, Inc.
(formerly the Medical Foundation
(Buffalo), Inc.), and Research
Professor in Biophysical Sciences at
the State University of New York
(Buffalo). Recipient of the Nobel
Prize in Chemistry (1985).
Yuichi Iwaki, M.D., Ph.D. .................Professor of Urology and Pathology,
University of Southern California
School of Medicine.
Hamilton O. Smith, M.D. ...................Director of DNA Resources at Celera
Genomics Corporation, Professor,
Molecular Biology and Genetics
Department at The Johns Hopkins
University School of Medicine,
retired. Recipient of the Nobel Prize
in Medicine (1978).
The scientific advisors and the consultants are reimbursed for their
expenses and receive nominal cash compensation in connection with their service
and have been issued options and/or shares of common stock. The scientific
advisors and the consultants are all employed by or have consulting agreements
with entities other than us, some of which may compete with us in the future.
The scientific advisors and the consultants are expected to devote only a small
portion of their time to our business, although no specific time commitment has
been established. They are not expected to participate actively in our affairs
or in the development of our technology. Several of the institutions with which
the scientific advisors and the consultants are affiliated may adopt new
regulations or policies that limit the ability of the scientific advisors and
the consultants to consult with us. The loss of the services of the scientific
advisors and the consultants could adversely affect us to the extent that we are
pursuing research or development in areas relevant to the scientific advisors'
and consultants' expertise. To the extent members of our scientific advisory
board or the consultants have consulting arrangements with or become employed by
any of our competitors, we could be materially adversely affected. One member of
the scientific advisory board, Dr. Gordon N. Gill, is a member of the
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<PAGE>
Board of Directors of the Agouron Institute. The Agouron Institute is a
shareholder in, and has had contractual relationships with, Agouron
Pharmaceuticals, Inc., a subsidiary of Warner-Lambert, that uses a core
technology similar to ours.
Any inventions or processes independently discovered by the scientific
advisors or the consultants may not become our property and will probably remain
the property of such persons or of such persons' employers. In addition, the
institutions with which the scientific advisors and the consultants are
affiliated may make available the research services of their personnel,
including the scientific advisors and the consultants, to our competitors
pursuant to sponsored research agreements. We require the scientific advisors
and the consultants to enter into confidentiality agreements which prohibit the
disclosure of confidential information to anyone outside of our company and
require disclosure and assignment to us of their ideas, developments,
discoveries or inventions. However, our competitors may gain access to trade
secrets and other proprietary information developed by us and disclosed to the
scientific advisors and the consultants.
ITEM 2. PROPERTIES
Our administrative offices and principal research facility are located in
42,950 square feet of leased office space in Riverchase Industrial/Research Park
in Birmingham, Alabama. The lease runs through June 30, 2003 with an option to
lease for an additional three years at current market rates. We believe that our
facilities are adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock MarketSM under the symbol BCRX. The following table sets forth
the low and high prices as reported by Nasdaq for each quarter in 1999 and 1998:
1999 1998
---- ----
Low High Low High
------ ------ ------ -----
First quarter $ 6.38 $11.00 $ 6.88 $ 9.50
Second quarter 6.38 9.50 6.00 9.13
Third quarter 8.38 35.31 6.00 8.00
Fourth quarter 18.50 30.25 4.38 8.44
The last sale price of the common stock on February 29, 2000 as reported by
Nasdaq was $27.00 per share.
As of February 29, 2000, there were approximately 431 holders of record of the
common stock.
The Company has never paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share)
----------------------------------------
Statement of Operations Data: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $ 5,328 $ 7,626 $ 2,693 $ 2,652 $ 885
Research and development expenses 7,683 9,291 10,577 7,586 7,107
Net loss (5,298) (4,785) (10,619) (7,698) (8,576)
Net loss per share (.34) (.34) (.77) (.69) (.96)
Weighted average shares outstanding (in
thousands) 15,380 14,120 13,780 11,171 8,905
</TABLE>
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands)
----------------------
Balance Sheet Data: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and securities $ 70,047 $ 27,012 $ 24,643 $ 35,785 $ 11,414
Total assets 73,387 29,100 26,485 37,149 13,056
Accumulated deficit (58,467) (53,170) (48,384) (37,766) (30,067)
Total stockholders' equity 71,403 27,682 25,285 35,403 11,326
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Such statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed below
as well as those discussed in other filings made by the Company with the
Securities and Exchange Commission.
Overview
Since our inception in 1986, we have been engaged in research and
development activities and organizational efforts, including:
o identification and licensing of enzyme targets;
o drug discovery;
o structure-based design of drug candidates;
o small-scale synthesis of compounds;
o conducting preclinical studies and clinical trials;
o recruiting our scientific and management personnel;
o establishing laboratory facilities; and
o raising capital.
Our revenues have generally been limited to license fees, milestone
payments, interest income, collaboration research, development and option fees.
Research and development revenue on cost-reimbursing agreements is recognized as
expenses are incurred up to contractual limits. Research and development
revenues, license fees, milestone payments and option fees are recognized as
revenue when irrevocably due. Payments received that are related to future
performance are deferred and taken into income as earned over a specified future
performance period. We have not received any revenue from the sale of
pharmaceutical products. It could be several years, if ever, before we will
recognize significant revenues from royalties received pursuant to our license
agreements, and we do not expect to ever generate revenues directly from product
sales. Future revenues, if any, are likely to fluctuate substantially from
quarter to quarter.
We have incurred operating losses since our inception. Our accumulated
deficit at December 31, 1999 was $58.5 million. We will require substantial
expenditures relating to the development of our current and future drug
candidates. During the three years ended December 31, 1999, we spent 39.0% of
our research and development expenses on contract research and development,
including:
o payments to consultants;
o funding of research at academic institutions;
o large scale synthesis of compounds;
o preclinical studies;
16
<PAGE>
o engaging investigators to conduct clinical trials;
o hiring contract research organizations to monitor and gather data on
clinical trials; and
o using statisticians to evaluate the results of clinical trials.
The above expenditures for contract research and development for our
current and future drug candidates will vary from quarter to quarter depending
on the status of our research and development projects. Changes in our existing
and future research and development and collaborative relationships will also
impact the status of our research and development projects. While we may, in
some cases, be able to control the timing of development expenses, in part by
accelerating or decelerating certain of these costs, many of these costs will be
incurred irrespective of whether or not we are able to discover drug candidates
or obtain collaborative partners for commercialization. As a result, we believe
that quarter-to-quarter comparisons of our financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
If we fail to meet the clinical and financial expectations of securities
analysts and investors, it could have a material adverse effect on the price of
our common stock.
Year Ended December 31, 1999 Compared with the Year Ended December 31, 1998
Collaborative and other research and development revenue decreased 60.8%
to $2,499,679 in 1999 from $6,371,095 in 1998, primarily due to a $2.0 million
milestone payment received from PRI and Ortho-McNeil in 1999 compared to the
$6.0 million in up front fees received from PRI and Ortho-McNeil in 1998 for a
license agreement for the Company's influenza neuraminidase inhibitors.
Litigation settlement increased to $1.2 million in 1999, representing the
settlement of a lawsuit concerning a misfiling of a foreign patent by the
Company's former patent counsel. Interest and other income increased 29.8% to
$1,629,046 in 1999 from $1,254,881 in 1998, primarily due to an increase in the
weighted average investment for 1999 as a result of the Company's public
offering in November 1999.
Research and development expenses decreased 17.3% to $7,682,862 in 1999
from $9,291,146 in 1998. The decrease is primarily attributable to a decrease in
costs associated with conducting clinical trials. Such expenses vary from period
to period based on the status of the Company's projects.
General and administrative expenses decreased 5.4% to $2,938,494 in 1999
from $3,104,925 in 1998. The decrease was primarily due to one-time fees
incurred in connection with the license agreement (and related agreements) for
the Company's influenza neuraminidase inhibitors signed in September 1998.
Year Ended December 31, 1998 Compared with the Year Ended December 31, 1997
Collaborative and other research and development revenue increased 537.1%
to $6,371,095 in 1998 from $1,000,000 in 1997, primarily due to the $6.0 million
in up front fees received from PRI and Ortho-McNeil in 1998 for a license
agreement for the Company's influenza neuraminidase inhibitors compared to the
$1.0 million milestone payment received from Torii in 1997. Interest and other
income decreased 25.9% to $1,254,881 in 1998 from $1,692,521 in 1997, primarily
due to a decline in the weighted average investment for 1998.
Research and development expenses decreased 12.2% to $9,291,146 in 1998
from $10,577,369 in 1997. Such expenses vary from period to period based on the
status of the Company's projects. The Company completed two Phase III clinical
trials in 1997. In 1998, the Company commenced two Phase I clinical trials for
its serine protease inhibitor, continued its two Phase I/II clinical trials for
an oral formulation of its PNP inhibitor and initiated preclinical studies for
its influenza neuraminidase and serine protease inhibitors. Overall, the decline
in costs associated with the Company's PNP inhibitor project were partially
offset by the increases in the Company's serine protease and influenza
neuraminidase projects. As a result, there was a slight decrease in 1998 in the
outside research and development efforts associated with the Company's three
primary research and development projects. The Company also reduced some of its
other discretionary costs, which was offset by one-time costs associated with
signing a license agreement for the Company's influenza neuraminidase inhibitors
and certain related agreements in September 1998.
17
<PAGE>
General and administrative expenses increased 15.8% to $3,104,925 in 1998
from $2,682,137 in 1997. The increase was primarily due to the fees and expenses
incurred in connection with the license agreement (and related agreements) for
the Company's influenza neuraminidase inhibitors signed in September 1998.
Interest expense decreased 71.1% to $14,986 in 1998 from $51,880 in 1997.
The decrease was primarily due to a decline in capitalized lease obligations
resulting in lesser interest expense.
Liquidity and Capital Resources
Cash expenditures have exceeded revenues since the Company's inception.
Our operations have principally been funded through various sources, including
the following:
o public offerings and private placements of equity and debt
securities,
o equipment lease financing,
o facility leases,
o collaborative and other research and development agreements
(including licenses and options for licenses),
o research grants and
o interest income.
In addition, we have attempted to contain costs and reduce cash flow
requirements by renting scientific equipment and facilities, contracting with
other parties to conduct certain research and development and using consultants.
We expect to incur additional expenses, potentially resulting in significant
losses, as we continue and expand our research and development activities and
undertake additional preclinical studies and clinical trials of compounds which
have been or may be discovered. We also expect to incur substantial expenses
related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims.
At December 31, 1999, our cash, cash equivalents and securities
held-to-maturity were $70.0 million, an increase of $43.0 million from December
31, 1998, principally due to the $46.8 million follow-on equity offering offset
by the cash used in operations.
We have financed some of our equipment purchases with lease lines of
credit. We currently have a $500,000 line of credit with our bank to finance
capital equipment. In January 1992, we entered into an operating lease for our
current facilities which expires on June 30, 2003. We have an option to renew
the lease for an additional three years at current market rates. The operating
lease requires us to pay monthly rent ranging from $23,803 and escalating
annually to a minimum of $26,011 per month in the final year, and a pro rata
share of operating expenses and real estate taxes in excess of base year
amounts.
At December 31, 1999, we had long-term capital lease and operating lease
obligations which provide for aggregate minimum payments of $301,171 in 2000,
$299,253 in 2001 and $300,828 in 2002.
Under the terms of our license agreement with The R.W. Johnson
Pharmaceutical Research Institute and Ortho-McNeil for the development and
commercialization of our influenza neuraminidase inhibitors, we received an
initial $6.0 million payment from Ortho-McNeil and an additional $6.0 million
common stock equity investment from Johnson & Johnson Development Corporation in
1998. In June 1999, we received a $2.0 million milestone payment from
Ortho-McNeil in connection with the initiation of Phase II clinical testing in
the United States. In addition, we may receive cash payments upon specified
developmental and regulatory milestones and royalties on product sales, if any.
We cannot assure you that The R.W. Johnson Pharmaceutical Research Institute or
Ortho-McNeil will continue to
18
<PAGE>
develop the product or, if they do so, that such development will result in
receiving milestone payments, obtaining regulatory approval or achieving future
sales of licensed products.
We previously entered into an exclusive license agreement with Torii under
which Torii paid us $1.5 million in initial license fees and made a $1.5 million
equity investment in us in 1996. The first milestone payment of $1.0 million was
received in 1997. This exclusive license agreement was terminated by Torii in
July 1999.
We plan to finance our needs principally from the following:
o our existing capital resources and interest earned on that capital;
o payments under collaborative and licensing agreements with corporate
partners; and
o through lease or loan financing and future public or private
financings.
We believe that our available funds will be sufficient to fund our
operations at least through 2002. However, this is a forward-looking statement,
and there may be changes that would consume available resources significantly
before such time. Our long-term capital requirements and the adequacy of our
available funds will depend upon many factors, including:
o the progress of our research, drug discovery and development
programs;
o changes in existing collaborative relationships;
o our ability to establish additional collaborative relationships;
o the magnitude of our research and development programs;
o the scope and results of preclinical studies and clinical trials to
identify drug candidates;
o competitive and technological advances;
o the time and costs involved in obtaining regulatory approvals;
o the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims;
o our dependence on others, including The R.W. Johnson Pharmaceutical
Research Institute and Ortho-McNeil, for development and
commercialization of our product candidates, in particular, our
neuraminidase inhibitors; and
o successful commercialization of our products consistent with our
licensing strategy.
Additional funding, whether through additional sales of securities or
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to us. The
issuance of preferred or common stock or convertible securities, on terms and
prices significantly more favorable than those of the currently outstanding
common stock, could have the effect of diluting or adversely affecting the
holdings or rights of our existing stockholders. In addition, collaborative
arrangements may require us to transfer certain material rights to such
corporate partners. Insufficient funds may require us to delay, scale-back or
eliminate certain of our research and development programs.
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<PAGE>
Year 2000 Issue
We successfully completed our year 2000 plan prior to year end and have
not experienced any significant problems in the year 2000. The costs incurred to
implement the year 2000 plan were not material.
Certain Risk Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities
We have incurred substantial losses since our inception in 1986, expect to
continue to incur such losses, may never be profitable and may need additional
financing
Since our inception in 1986, we have not been profitable. We expect to
incur additional losses for the foreseeable future, and we expect our losses to
increase as our research and development efforts progress. As of December 31,
1999, our accumulated deficit was approximately $58.5 million. To become
profitable, we must successfully develop drug candidates, enter into profitable
agreements with other parties and our drug candidates must receive regulatory
approval. These other parties must then successfully manufacture and market our
drug candidates. It could be several years, if ever, before we receive royalties
under our existing license agreements or any future license agreements. In
addition, we never expect to generate revenue directly from product sales. If we
do not generate revenue, or if our drug development expenses increase, we may
need to raise additional funds through new or existing collaborations or through
private or public equity or debt financings. If financing is not available on
acceptable terms, or not available at all, we may not have enough capital to
continue our current business strategy.
If The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil were to
terminate, substantially modify or fail to fulfill their obligations under their
license agreement with us, we would lose substantially all of our revenue
If The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil
change their exclusive worldwide license agreement with us, including by
terminating it or failing to fulfill their obligations, we would lose
substantially all of our revenue. Approximately 46.9 % of our revenues for the
year ended December 31, 1999 and approximately 83.5% of our revenues for the
year ended December 31, 1998 resulted from this license agreement. These
revenues represent approximately 40.6% of our total revenues since our inception
in 1986.
Under this agreement, The R.W. Johnson Pharmaceutical Research Institute
and Ortho-McNeil have several rights that could delay or stop the development of
our flu drug candidate, including sole discretion on all elements of research
and development of RWJ-270201, including timing and design of further clinical
trials, sole control over the amount of resources devoted to the research and
development of RWJ-270201 and the right to terminate or cancel the agreement,
which they may do at any time on four months notice.
If our development collaborations with other parties fail, the development of
our drug candidates will be delayed or stopped
We rely completely upon other parties for many important stages of our
drug development programs, including:
o discovery of proteins that cause or enable biological reactions
necessary for the progression of the disease or disorder, called
enzyme targets;
o execution of some preclinical studies and late-stage development for
our compounds and drug candidates; and
o manufacturing, sales, marketing and distribution of our drug
candidates.
Our failure to engage in successful collaborations at any one of these
stages would greatly impact our business. For example, if we do not license
enzyme targets from academic institutions or from other biotechnology companies
on acceptable terms, our product development efforts would suffer. Similarly, if
the contract research organizations that
20
<PAGE>
conduct our initial clinical trials breached their obligations to us, this would
delay or prevent the development of our drug candidates.
Even more critical to our success is our ability to enter into successful
collaborations for the late-stage clinical development, regulatory approval,
manufacture, marketing, sales and distribution of our drug candidates. Our
strategy is to rely upon other parties for all of these steps so that we can
focus exclusively on the key areas of our expertise. This heavy reliance upon
third parties for these critical functions presents several risks, including:
o these contracts may expire or the other parties to the contract may
terminate them, as was the case with our Torii Pharmaceutical Co.,
Ltd. contract;
o our partners may choose to pursue alternative technologies,
including those of our competitors;
o we may have disputes with a partner that could lead to litigation or
arbitration;
o our partners may not devote sufficient capital or resources towards
our drug candidates; and
o our partners may not comply with applicable government regulatory
requirements.
Any problems encountered with our partners could delay or prevent the
development of our compounds, which would severely affect our business, because
if our compounds do not reach the market in a timely manner, or at all, we will
experience a significant decrease in milestone payments received by us and may
never receive any royalty payments.
If the clinical trials of our drug candidates fail, our drug candidates will not
be marketed, which would result in a decrease in, or complete absence of,
revenue
To receive the regulatory approvals necessary for the sale of our drug
candidates, we or our licensees must demonstrate through preclinical studies and
clinical trials that each drug candidate is safe and effective. If we or our
licensees are unable to demonstrate that our drug candidates are safe and
effective, our drug candidates will not receive regulatory approval and will not
be marketed, which would result in a decrease in, or complete absence of,
revenue. The clinical trial process is complex and uncertain. Positive results
from preclinical studies and early clinical trials do not ensure positive
results in clinical trials designed to permit application for regulatory
approval, called pivotal clinical trials. We may suffer significant setbacks in
pivotal clinical trials, even after earlier clinical trials show promising
results. Any of our drug candidates may produce undesirable side effects in
humans. These side effects could cause us or regulatory authorities to
interrupt, delay or halt clinical trials of a drug candidate. These side effects
could also result in the FDA or foreign regulatory authorities refusing to
approve the drug candidate for any targeted indications. We, our licensees, the
FDA or foreign regulatory authorities may suspend or terminate clinical trials
at any time if we or they believe the trial participants face unacceptable
health risks. Clinical trials may fail to demonstrate that our drug candidates
are safe or effective.
Clinical trials are lengthy and expensive. We or our licensees incur
substantial expense for, and devote significant time to, preclinical testing and
clinical trials, yet cannot be certain that the tests and trials will ever
result in the commercial sale of a product. For example, clinical trials require
adequate supplies of drug and sufficient patient enrollment. Delays in patient
enrollment can result in increased costs and longer development times. Even if
we or our licensees successfully complete clinical trials for our product
candidates, our licensees might not file the required regulatory submissions in
a timely manner and may not receive regulatory approval for the drug candidate.
We licensed our drug candidate, RWJ-270201, to Ortho-McNeil and to PRI,
who is conducting Phase III clinical trials. However, the Phase III clinical
trials may not be successful. Even if PRI completes the Phase III trials, we do
not know when, if ever, it will receive FDA or foreign regulatory agency
approvals for, or when Ortho-McNeil will begin marketing of, RWJ-270201. If PRI
is unable to complete the clinical trials or demonstrate the safety and efficacy
of our compounds, the loss of our future revenues that depend on the success of
RWJ-270201 will harm our business.
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<PAGE>
Even if the results of PRI's trials are positive, a product is not likely to be
commercially available for one or more years, if at all.
If we or our licensees do not obtain and maintain governmental approvals for our
products under development, we or our partners will not be able to sell these
potential products, which would significantly harm our business because we will
receive no revenue
We or our licensees must obtain regulatory approval before marketing or
selling our future drug products. If we or our licensees are unable to receive
regulatory approval and do not market or sell our future drug products, we will
never receive any revenue from such product sales. In the United States, we or
our partners must obtain FDA approval for each drug that we intend to
commercialize. The FDA approval process is typically lengthy and expensive, and
approval is never certain. Products distributed abroad are also subject to
foreign government regulation. The FDA or foreign regulatory agencies have not
approved any of our drug candidates. If we or our licensees fail to obtain
regulatory approval we will be unable to market and sell our future drug
products. We have several drug products in various stages of preclinical and
clinical development, however, we are unable to determine when, if ever, any of
these products will be commercially available. Because of the risks and
uncertainties in biopharmaceutical development, our drug candidates could take a
significantly longer time to gain regulatory approval than we expect or may
never gain approval. If the FDA delays regulatory approval of our drug
candidates, our management's credibility, our company's value and our operating
results may suffer. Even if the FDA or foreign regulatory agencies approve a
drug candidate, the approval may limit the indicated uses for a drug candidate
and/or may require post-marketing studies.
The FDA regulates, among other things, the record-keeping and storage of
data pertaining to potential pharmaceutical products. We currently store all of
our preclinical research data at our facilities and do not store duplicate
copies off-site. We could lose important preclinical data if our facilities
incur damage.
If we get approval to market our potential products, whether in the United
States or internationally, we will continue to be subject to extensive
regulatory requirements. These requirements are wide ranging and govern, among
other things:
o adverse drug experience reporting regulations;
o product promotion;
o product manufacturing, including good manufacturing practice
requirements; and
o product changes or modifications.
Our failure to comply with existing or future regulatory requirements, or
our loss of, or changes to, previously obtained approvals, could have a material
adverse effect on our business because we will not receive royalty revenues if
our licensees do not receive approval of our products for marketing.
In June 1995, we notified the FDA that we submitted incorrect efficacy
data for our Phase II trials of BCX-34 applied to the skin for the treatment of
cutaneous T-cell lymphoma and psoriasis. Cutaneous T-cell lymphoma is a skin
cancer in which T-cells, which normally help fight disease in the body,
duplicate rapidly and cause skin cancer. Psoriasis is a disease where the immune
system attacks the body's own skin cells. The FDA inspected us and issued to us
Lists of Inspectional Observations, on Form FDA 483, that cited our failure to
follow good clinical practices. The FDA also issued a Form FDA 483 to a
principal investigator at a clinical trial site, and the FDA notified us that
they will not accept any work performed by this investigator without further
validation. Because of these investigations by the FDA, our ongoing and future
clinical studies or trials may receive increased scrutiny, which would delay the
regulatory review process.
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<PAGE>
If our drug candidates do not achieve broad market acceptance, our business may
never become profitable
Our drug candidates, including our influenza neuraminidase inhibitors, may
not gain the market acceptance required for us to be profitable even after they
receive approval for sale by the FDA or foreign regulatory agencies. Influenza
neuraminidase inhibitors are drugs designed to stop the spread of the flu virus
in the body. The degree of market acceptance of any drug candidates that we or
our partners develop will depend on a number of factors, including:
o cost-effectiveness of our drug candidates;
o their safety and effectiveness relative to alternative treatments,
such as existing drugs amantadine and rimantadine, Hoffmann-La
Roche's and Glaxo Wellcome's influenza neuraminidase inhibitors; or
vaccines for prevention of influenza;
o reimbursement policies of government and third-party payors; and
o marketing and distribution support for our drug candidates.
Physicians, patients, payors or the medical community in general may not
accept or use our drug candidates even after the FDA or foreign regulatory
agencies approve the drug candidates. If our drug candidates do not achieve
significant market acceptance, we will not have enough revenues to become
profitable.
If competitive products from other companies are better than our product
candidates, our future revenues might fail to meet expectations
The biotechnology and pharmaceutical industries are highly competitive and
are subject to rapid and substantial technological change. Other products and
therapies that either currently exist on the market or are under development
could compete directly with some of the compounds that we are seeking to develop
and market. These other products may render some or all of our compounds under
development noncompetitive or obsolete.
If our influenza neuraminidase inhibitor drug candidate, RWJ-270201,
receives FDA or foreign regulatory approval, it will have to compete with a
number of products that are already on the market such as vaccines, the two
influenza neuraminidase inhibitors already on the market, the drugs amantadine
and rimantadine and with additional products that may beat RWJ-270201 to the
market. If approved, RWJ-270201 will be, at best, the third neuraminidase
inhibitor to the market, because the FDA approved Glaxo-Wellcome plc's
neuraminidase inhibitor product in the U.S. and in several other countries, and
because the FDA also approved Hoffman-La Roche's neuraminidase inhibitor. Both
Glaxo-Wellcome and Hoffmann-La Roche, the companies responsible for the
development and marketing of the two neuraminidase inhibitors that reached the
market before RWJ-270201, are large multinational pharmaceutical companies that
have significant financial, technical and human resources and could therefore
establish brand recognition and loyalty with consumers before RWJ-270201 is on
the market. In addition, a vaccine is currently in preclinical development that
may immunize people against all strains of the flu virus, rendering flu drug
products like ours obsolete. Products marketed by our competitors may prove to
be more effective than our own, and our products, if any, may not offer an
economically feasible or preferable alternative to existing therapies. If we
fail to adequately protect or enforce our intellectual property rights or secure
rights to patents of others, the value of those rights would diminish
Our success will depend in part on our ability and the abilities of our
licensors to obtain patent protection for our products, methods, processes and
other technologies to preserve our trade secrets, and to operate without
infringing the proprietary rights of third parties. If we or our partners are
unable to adequately protect or enforce our intellectual property rights for our
products, methods, processes and other technologies, the value of the drug
candidates that we license to derive revenue would diminish. Additionally, if
our products, methods, processes and other technologies infringe the proprietary
rights of other parties, we could incur substantial costs. To date, the U.S.
Patent and Trademark Office has issued to us nine U.S. patents for our various
inventions. We have filed additional patent applications and
23
<PAGE>
provisional patent applications with the U.S. Patent and Trademark Office. We
have filed a number of corresponding foreign patent applications and intend to
file additional foreign and U.S. patent applications, as appropriate. We cannot
assure you as to:
o the degree and range of protection any patents will afford against
competitors with similar products;
o if and when patents will issue; or
o whether or not others will obtain patents claiming aspects similar
to those covered by our patent applications.
If the U.S. Patent and Trademark Office upholds patents issued to others
or if the U.S. Patent and Trademark Office grants patent applications filed by
others, we may have to:
o obtain licenses or redesign our products or processes to avoid
infringement;
o stop using the subject matter claimed in those patents; or
o pay damages.
We may initiate, or others may bring against us, litigation or
administrative proceedings related to intellectual property rights, including
proceedings before the U.S. Patent and Trademark Office. Any judgement adverse
to us in any litigation or other proceeding arising in connection with a patent
or patent application could materially and adversely affect our business,
financial condition and results of operations. In addition, the costs of any
such proceeding may be substantial whether or not we are successful.
Our success is also dependent upon the skills, knowledge and experience,
none of which is patentable, of our scientific and technical personnel. To help
protect our rights, we require all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside of our company and
require disclosure and assignment to us of their ideas, developments,
discoveries and inventions. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information, and if any of our proprietary information is disclosed, our
business will suffer because our revenues depend upon our ability to license our
technology and any such events would significantly impair the value of such a
license.
If we fail to retain our existing key personnel or fail to attract and retain
additional key personnel, the development of our drug candidates and the
expansion of our business will be delayed or stopped
We are highly dependent upon our senior management and scientific team,
the loss of whose services might impede the achievement of our development and
commercial objectives. Although we maintain, and are the beneficiary of, a $2.0
million key-man insurance policy on the life of Charles E. Bugg, Ph.D., Chairman
of the Board of Directors and Chief Executive Officer, we do not believe the
proceeds would be adequate to compensate for his loss. We are actively seeking
additional members for our senior management team. Competition for key personnel
with the experience that we require is intense and is expected to continue to
increase. Our inability to attract and retain the required number of skilled and
experienced management, operational and scientific personnel, will harm our
business because we rely upon these personnel for many critical functions of our
business. In addition, we rely on members of our scientific advisory board and
consultants to assist us in formulating our research and development strategy.
All of the members of the scientific advisory board and all of our consultants
are otherwise employed and each such member or consultant may have commitments
to other entities that may limit their availability to us.
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<PAGE>
If users of our drug products are not reimbursed for use, future sales of our
drug products will decline
The lack of reimbursement for the use of our product candidates by
hospitals, clinics, patients or doctors will harm our business. Medicare,
Medicaid, health maintenance organizations and other third-party payors may not
authorize or otherwise budget for the reimbursement of our products.
Governmental and third-party payors are increasingly challenging the prices
charged for medical products and services. We cannot be sure that third-party
payors would view our product candidates as cost-effective, that reimbursement
will be available to consumers or that reimbursement will be sufficient to allow
our product candidates to be marketed on a competitive basis. Changes in
reimbursement policies, or attempts to contain costs in the health care
industry, limit or restrict reimbursement for our product candidates, would
materially and adversely affect our business, because future product sales would
decline and we would receive less royalty revenue.
If we face clinical trial liability claims related to the use or misuse of our
compounds in clinical trials, our management's time will be diverted and we will
incur litigation costs
We face an inherent business risk of liability claims in the event that
the use or misuse of our compounds results in personal injury or death. We have
not experienced any clinical trial liability claims to date, but we may
experience these claims in the future. After commercial introduction of our
products we may experience losses due to product liability claims. We currently
maintain clinical trial liability insurance coverage in the amount of $1.0
million per occurrence and $2.0 million in the aggregate, with an additional
$5.0 million potentially available under our umbrella policy. The insurance
policy may not be sufficient to cover claims that may be made against us.
Clinical trial liability insurance is expensive, difficult to obtain and may not
be available in the future on acceptable terms, if at all. Any claims against
us, regardless of their merit, could materially and adversely affect our
financial condition, because litigation related to these claims would strain our
financial resources in addition to consuming the time and attention of our
management.
If our computer systems fail, we may suffer more harm than other companies
Our drug development activities depend on the security, integrity and
performance of the computer systems supporting them, and the failure of our
computer systems would delay or stop our drug development efforts. We currently
store all of our preclinical and clinical data at our facilities, do not store
duplicate copies of all data off-site and could lose important data if our
systems were impaired. Any significant degradation or failure of our computer
systems could cause us to inaccurately calculate or lose our data. Loss of data
could result in significant delays in our drug development process. We have not
undertaken formal system protections, do not have a detailed emergency plan and
any system failure could harm our business and operations. We are in the process
of upgrading our computer network and systems company-wide. Software we are
currently installing is designed to automatically archive critical scientific
raw data. We are purchasing additional hardware that is designed to keep us
operational in case of computer system failure.
If, because of our use of hazardous materials, we violate any environmental
controls or regulations that apply to such materials, we may incur substantial
costs and expenses in our remediation efforts
Our research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and some waste products. Accidental
contamination or injury from these materials could occur. In the event of an
accident, we could be liable for any damages that result and any liabilities
could exceed our resources. Compliance with environmental laws and regulations
could require us to incur substantial unexpected costs which would materially
and adversely affect our results of operations.
Because stock ownership is concentrated, you and other investors will have
minimal influence on stockholder decisions
Our directors, executive officers and some principal stockholders and
their affiliates, including Johnson & Johnson Development Corporation,
beneficially own approximately 26.6% of our outstanding common stock. As a
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<PAGE>
result, these holders, if acting together, are able to significantly influence
matters requiring stockholder approval, including the election of directors.
This concentration of ownership may delay, defer or prevent a change in our
control.
We have anti-takeover provisions in our corporate charter documents that may
result in outcomes with which you do not agree
Our board of directors has the authority to issue up to 5,000,000 shares
of undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions of those shares without further vote or action by
our stockholders. The rights of the holders of any preferred stock that may be
issued in the future may adversely affect the rights of the holders of common
stock. The issuance of preferred stock could make it more difficult for third
parties to acquire a majority of our outstanding voting stock.
In addition, our certificate of incorporation provides for staggered terms
for the members of the board of directors and super majority approval of the
removal of any member of the board of directors and prevents our stockholders
from acting by written consent. Our certificate also requires supermajority
approval of any amendment of these provisions. These provisions and other
provisions of our by-laws and of Delaware law applicable to us could delay or
make more difficult a merger, tender offer or proxy contest involving us.
Our stock price is likely to be highly volatile and the value of your investment
could decline significantly
The market prices for securities of biotechnology companies in general
have been highly volatile and may continue to be highly volatile in the future.
Moreover, our stock price has fluctuated frequently, and these fluctuations are
often not related to our financial results. The 52-week range of the market
price of our stock has ranged from $6.38 to $37.25 per share, which is a
significantly greater change than that experienced by many other companies. The
following factors, in addition to other risk factors described in this section,
may have a significant impact on the market price of our common stock:
o announcements of technological innovations or new products by us or
our competitors;
o developments or disputes concerning patents or proprietary rights;
o our licensees achieving or failing to achieve development
milestones;
o publicity regarding actual or potential medical results relating to
products under development by us or our competitors;
o regulatory developments in both the United States and foreign
countries;
o public concern as to the safety of pharmaceutical products;
o actual or anticipated fluctuations in our operating results;
o changes in financial estimates or recommendations by securities
analysts;
o economic and other external factors or other disasters or crises;
and
o period-to-period fluctuations in our financial results.
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7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
The primary objective of our investment activities is to preserve
principal while at the same time maximize the income we receive from our
investments without significantly increasing our risk. We invest excess cash
principally in U.S. marketable securities from a diversified portfolio of
institutions with strong credit ratings and in U.S. government and agency bills
and notes, and by policy, limit the amount of credit exposure at any one
institution. Some of the securities we invest in may have market risk. This
means that a change in prevailing interest rates may cause the principal amount
of the investment to fluctuate. To minimize this risk, we schedule our
investments to coincide with our cash flow needs, thus avoiding the need to
redeem an investment prior to its maturity date. Accordingly, we believe we have
no material exposure to interest rate risk arising from our investments.
Therefore, no quantitative tabular disclosure is provided.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
Assets 1999 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents (Notes 1 and 3) $ 8,631,447 $ 12,311,348
Securities held-to-maturity (Notes 1 and 3) 14,545,471 9,961,017
Prepaid expenses and other current assets 1,376,734 598,463
------------- -------------
Total current assets 24,553,652 22,870,828
Securities held-to-maturity (Notes 1 and 3) 46,870,573 4,739,728
Furniture and equipment, net (Notes 1 and 2) 1,780,900 1,407,780
Patents and licenses, less accumulated amortization
of $3,103 in 1999 and $1,991 in 1998 (Note 1) 181,771 81,723
------------- -------------
Total assets $ 73,386,896 $ 29,100,059
============= =============
Liabilities and Stockholders' Equity
Accounts payable $ 291,545 $ 243,075
Accrued expenses (Note 4) 447,904 611,455
Deferred revenue (Note 1) 700,000 --
Accrued taxes, other than income (Note 4) 93,619 136,726
Accrued vacation 128,489 91,919
Current maturities of capital lease obligations (Note 5) 14,970 12,603
------------- -------------
Total current liabilities 1,676,527 1,095,778
------------- -------------
Capital lease obligations (Note 5) 6,896 21,866
------------- -------------
Deferred license fee (Note 9) 300,000 300,000
------------- -------------
Stockholders' equity (Notes 7 and 8):
Preferred stock, $.01 par value, shares authorized-
5,000,000; none issued and outstanding
Common stock, $.01 par value; shares authorized -
45,000,000; shares issued and outstanding -
17,263,878 - 1999; 14,960,088 - 1998 172,639 149,600
Additional paid-in capital 129,698,040 80,702,381
Accumulated deficit (58,467,206) (53,169,566)
------------- -------------
Total stockholders' equity 71,403,473 27,682,415
------------- -------------
Commitments and contingency (Notes 5 and 9)
------------- -------------
Total liabilities and stockholders' equity $ 73,386,896 $ 29,100,059
============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Collaborative and other research
and development (Notes 1 and 9) $ 2,499,679 $ 6,371,095 $ 1,000,000
Litigation settlement 1,200,000 -- --
Interest and other 1,629,046 1,254,881 1,692,521
------------ ------------ ------------
Total revenues 5,328,725 7,625,976 2,692,521
------------ ------------ ------------
Expenses:
Research and development 7,682,862 9,291,146 10,577,369
General and administrative 2,938,494 3,104,925 2,682,137
Interest 5,009 14,986 51,880
------------ ------------ ------------
Total expenses 10,626,365 12,411,057 13,311,386
------------ ------------ ------------
Net loss $ (5,297,640) $ (4,785,081) $(10,618,865)
============ ============ ============
Net loss per share (Note 1) $ (.34) $ (.34) $ (.77)
Weighted average shares outstanding (Note 1) 15,380,100 14,120,364 13,779,698
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total Stock-
Common Paid-in Accumulated Holders'
Stock Capital Deficit Equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 136,977 $ 73,031,864 $ (37,765,620) $ 35,403,221
Exercise of stock options, 79,670 shares 797 272,389 273,186
Employee stock purchase plan sales, 15,933 shares 160 163,632 163,792
Exercise of warrants, 24,330 shares 243 (274) (31)
Compensation cost 63,493 63,493
Net loss (10,618,865) (10,618,865)
------------- ------------- ------------- -------------
Balance at December 31, 1997 138,177 73,531,104 (48,384,485) 25,284,796
Sale of common stock, 918,836 shares 9,188 5,937,047 5,946,235
Exercise of stock options, 144,102 shares 1,441 614,655 616,096
Employee stock purchase plan sales, 23,597 shares 236 144,010 144,246
Exercise of warrants, 55,806 shares 558 295,842 296,400
Compensation cost 179,723 179,723
Net loss (4,785,081) (4,785,081)
------------- ------------- ------------- -------------
Balance at December 31, 1998 149,600 80,702,381 (53,169,566) 27,682,415
Sale of common stock, 2,000,000 shares 20,000 46,757,627 46,777,627
Exercise of stock options, 277,814 shares 2,778 2,003,600 2,006,378
Employee stock purchase plan sales, 26,056 shares 261 179,709 179,970
Compensation cost 54,723 54,723
Net loss (5,297,640) (5,297,640)
------------- ------------- ------------- -------------
Balance at December 31, 1999 $ 172,639 $ 129,698,040 $ (58,467,206) $ 71,403,473
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (5,297,640) $ (4,785,081) $(10,618,865)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 523,530 529,124 648,935
Amortization of patents and licenses 1,112 1,991 --
Non-monetary compensation cost 54,723 179,723 63,493
Changes in operating assets and liabilities-
Prepaid expenses and other assets (778,271) (383,686) 18,677
Accounts payable 48,470 (2,105) (370,253)
Accrued expenses (163,551) 305,022 65,555
Deferred revenue 700,000 -- --
Accrued taxes, other than income (43,107) (29,451) (43,777)
Accrued vacation 36,570 2,142 6,500
------------ ------------ ------------
Net cash used in operating activities (4,918,164) (4,182,321) (10,229,735)
------------ ------------ ------------
Investing activities:
Purchases of furniture and equipment (896,650) (379,367) (1,075,682)
Purchases of other assets (101,160) (14,786) (68,928)
Purchase of marketable securities (60,058,059) (13,564,857) (12,200,183)
Maturities of marketable securities 13,342,760 19,750,500 23,462,683
------------ ------------ ------------
Net cash (used in)/provided by investing activities (47,713,109) 5,791,490 10,117,890
------------ ------------ ------------
Financing activities:
Principal payments of debt and capital lease obligations (12,603) (57,896) (254,547)
Capital leases -- -- 50,763
Exercise of stock options 2,006,378 616,096 273,186
Employee Stock Purchase Plan stock sales 179,970 144,246 163,792
Exercise of warrants -- 296,400 (31)
Sale of common stock, net of issuance costs 46,777,627 5,946,235 --
------------ ------------ ------------
Net cash provided by financing activities 48,951,372 6,945,081 233,163
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (3,679,901) 8,554,250 121,318
Cash and equivalents at beginning of period 12,311,348 3,757,098 3,635,780
------------ ------------ ------------
Cash and cash equivalents at end of period $ 8,631,447 $ 12,311,348 $ 3,757,098
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - Accounting Policies
The Company
BioCryst Pharmaceuticals, Inc., a Delaware corporation, (the "Company") is
a biotechnology company focused on the development of pharmaceuticals for the
treatment of infectious, inflammatory and cardiovascular diseases and disorders.
The Company has five research projects, of which one has been licensed to The R.
W. Johnson Pharmaceutical Research Institute, or PRI, and Ortho-McNeil
Pharmaceutical, Inc., both Johnson & Johnson companies, for clinical
development. While the prospects for a project may increase as the project
advances to the next stage of development, a project can be terminated at any
stage of development. Until the Company generates revenues from either a
research project or an approved product, its ability to continue research
projects is dependent upon its ability to raise funds.
Net Loss Per Share
The Company computes net income (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share. Net
loss per share is based upon the weighted average number of common shares
outstanding during the period. Common equivalent shares from unexercised stock
options and warrants are excluded from the computation as their effect is
anti-dilutive. Common stock equivalents of approximately 2,422,245, 2,469,348
and 2,267,176 shares were not used to calculate net loss per share in 1999, 1998
and 1997, respectively, because of their anti-dilutive effect. There were no
reconciling items in calculating the numerator for net loss per share for any of
the periods presented.
Securities Held-to-Maturity
The Company is required to classify debt and equity securities as
held-to-maturity, available-for-sale or trading. The appropriateness of each
classification is reassessed at each reporting date. The only dispositions were
maturities of securities held-to-maturity. At December 31, 1999, securities
held-to-maturity consisted of $60,419,290 of U.S. Agency securities and $996,754
of high-grade domestic corporate debt carried at amortized cost. All of the
non-current portion of securities held-to-maturity are U.S. Agency securities
that mature in 2001-3. The estimated fair value of all these securities at
December 31, 1999 approximated $60,042,956.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method with estimated useful lives of five and seven
years. Leased laboratory equipment is amortized over the lease life of five
years. Leasehold improvements are amortized over the remaining lease period.
Patents and Licenses
Patents and licenses are recorded at cost and amortized on a straight-line
basis over their estimated useful lives or 20 years, whichever is lesser.
Income Taxes
The liability method is used in accounting for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 ("Statement No. 109").
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
32
<PAGE>
Revenue Recognition
Research and development revenue on cost-reimbursement agreements is
recognized as expenses are incurred, up to contractual limits. Research and
development revenues, license fees and option fees are recognized as revenue
when irrevocably due. Payments received which are related to future performance
are deferred and taken into income as earned over a specified future performance
period.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers cash
equivalents to be all cash held in money market accounts or investments in debt
instruments with maturities of three months or less at the time of purchase.
Stock-Based Compensation
The Company accounts for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). Under APB No. 25, the Company's stock option and employee stock
purchase plans qualify as noncompensatory plans. Consequently, no compensation
expense is recognized. Stock issued to non-employees is compensatory and a
compensation expense is recognized under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement No.
123").
Use of Estimates
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements. Actual results could differ from
those estimates.
Reclassifications
The 1998 and 1997 financial statements have been reclassified to conform
to the 1999 financial statements. The changes had no effect on the results of
operations previously reported.
Note 2 - Furniture and Equipment
Furniture and equipment consisted of the following at December 31:
1999 1998
Furniture and fixtures $ 596,404 $ 626,756
Laboratory equipment 1,527,775 1,263,873
Leased equipment 50,763 153,937
Leasehold improvements 1,503,426 1,179,730
---------- ----------
3,678,368 3,224,296
Less accumulated depreciation and amortization 1,897,468 1,816,516
---------- ----------
Furniture and equipment, net $1,780,900 $1,407,780
========== ==========
The Company does not have any significant impairment losses under
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Note 3 - Concentration of Credit and Market Risk
The Company invests its excess cash principally in marketable securities
from a diversified portfolio of institutions with strong credit ratings and in
U.S. government and agency bills and notes, and by policy, limits the amount of
credit exposure at any one institution. These investments are generally not
collateralized and primarily mature within one year. The Company has not
realized any losses from such investments. At December 31, 1999,
33
<PAGE>
approximately $7,605,735 is invested in the Fidelity Institution Cash Portfolio,
which invests in treasury notes and repurchase agreements. The Fidelity
Institution Cash Portfolio is not insured.
Note 4 - Accrued Expenses and Taxes
Accrued expenses and taxes were comprised of the following at December 31:
1999 1998
---- ----
Accrued clinical trials $202,524 $427,161
Accrued bonus 80,000 50,000
Stock purchase plan withholdings 110,523 82,356
Accrued other 54,857 51,938
-------- --------
Accrued expenses $447,904 $611,455
======== ========
Accrued franchise tax $ 21,330 $ 86,540
Accrued other 72,289 50,186
-------- --------
Accrued taxes, other than income $ 93,619 $136,726
======== ========
Note 5- Capital Lease Obligations
The Company paid $5,009, $14,986 and $51,880 in interest on debt and lease
obligations for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company had an unused line of credit of $500,000 at December 31, 1999.
The Company has the following capital lease obligations and operating
leases at December 31, 1999:
Capital Operating
Leases Leases
---------- ----------
2000 $ 17,615 $ 283,556
2001 7,191 292,062
2002 -- 300,828
2003 -- 153,792
---------- ----------
Total minimum payments 24,806 $1,030,238
==========
Less interest 2,940
----------
Present value of future minimum payments 21,866
Less current portion 14,970
----------
Non-current portion $ 6,896
==========
Rent expense for operating leases was $348,177, $299,811 and $186,004 in
1999, 1998 and 1997, respectively.
Note 6- Income Taxes
The Company has not had taxable income since incorporation and, therefore,
has not paid any income tax. Deferred tax assets of approximately $26,650,000
and $23,100,000 at December 31, 1999 and 1998, respectively, have been
recognized principally for the net operating loss and research and development
credit carryforwards and have been reduced by a valuation allowance of
$26,650,000 and $23,100,000 at December 31, 1999 and 1998, respectively, which
will remain until it is more likely than not that the related tax benefits will
be realized.
At December 31, 1999, the Company had net operating loss and research and
development credit carryforwards ("Carryforward Tax Benefits") of approximately
$56,400,000 and $5,000,000, respectively, which will expire in 2005 through
2019. Use of the Carryforward Tax Benefits will be subject to a substantial
annual limitation due to the change of ownership provisions of the Tax Reform
Act of 1986. The annual limitation is expected to result in the expiration of a
portion of Carryforward Tax Benefits before utilization, which has been
considered by the Company
34
<PAGE>
in its computations under Statement No. 109. Additional sales of the Company's
equity securities may result in further annual limitations on the use of the
Carryforward Tax Benefits against taxable income in future years.
Note 7- Stockholders' Equity
Warrants
During 1998, warrants were exercised to purchase 49,400 shares with cash
and warrants were exercised to purchase 6,406 shares via net issue exercise by
giving up warrants to purchase 92,394 shares. During 1997, warrants to exercise
24,330 shares were exercised via net issue exercise by giving up warrants to
purchase 25,875 shares. There were no warrants outstanding at December 31, 1999
and 1998.
Options
In November 1991, the Board of Directors adopted the 1991 Stock Option
Plan ("Plan") for key employees and consultants of the Company and reserved
500,000 shares of common stock for the Plan. The Plan was approved by the
stockholders on December 19, 1991. The term of the Plan is for ten years and
includes both incentive stock options and non-statutory options. The option
price for the incentive stock options shall not be less than the fair market
value of common stock on the grant date. The option price per share for
non-statutory stock options may not be less than 85% of the fair market value of
common stock on the date of grant. The options generally vest 25% after one year
and monthly thereafter on a pro rata basis over the next three years until fully
vested after four years. Options are generally granted to all full-time
employees.
There are an aggregate of 2,826,237 shares reserved for future issuance
for the options and the Stock Purchase Plan discussed in Note 7.
The Company follows APB No. 25 in accounting for its Stock Option and
Stock Purchase Plans and accordingly does not recognize a compensation cost. The
Company has adopted the disclosure requirement of Statement No. 123 commencing
in 1996. Since Statement No. 123 is only applied to options granted after 1994,
the pro forma disclosure should not necessarily be considered indicative of
future pro forma results when the full four-year vesting (the period in which
the compensation cost is recognized) is included in the disclosure in 1999. The
fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing method with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: no dividends,
expected volatility of 69.2, 65.6 and 57.8 percent, risk-free interest rate of
6.1, 4.9 and 6.0 percent and expected lives of five years. The weighted-average
grant-date fair values of options granted during 1999 under the Stock Option and
Employee Stock Purchase Plans were $12.56 and $2.85, respectively. Had the
Company adopted Statement No. 123 and determined its compensation cost based on
the fair value at the grant dates in 1999, 1998 and 1997, the Company's net loss
and net loss per share would have been increased to the pro forma amounts shown
below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C> <C>
Net loss As reported $ (5,297,640) $ (4,785,081) $ (10,618,865)
Pro forma (7,179,691) (6,363,575) (11,657,646)
Net loss per share As reported (.34) (.34) (.77)
Pro forma (.47) (.45) (.85)
</TABLE>
The stockholders on April 16, 1993 and on March 1, 1994 (approving the
Board of Directors' action of December 1993) authorized an amended and restated
1991 Stock Option Plan and approved an additional 1,000,000 shares of common
stock for issuance ("Amended Plan"). The Amended Plan includes an increase of
common stock reserved for issuance to 1,500,000 shares and establishes an
automatic option grant program. The automatic option grant program grants
options to new non-employee Board members to purchase 25,000 shares of common
stock at an exercise price of the fair market value at the grant date for a
maximum of ten years and is subject to vesting restrictions and early
termination upon the optionee's cessation of Board service. The vesting and
exercise provisions of the options issued under the Amended Plan are subject to
acceleration, under certain circumstances, upon the occurrence of a hostile
tender offer for more than 50% of the outstanding stock of the Company or if the
Company is acquired. On May
35
<PAGE>
29, 1995, the stockholders approved extending the automatic option grant to
cover non-employee Board members not previously eligible for an automatic grant
and approved an additional 500,000 shares of common stock for issuance,
increasing the common stock reserved for issuance to 2,000,000 shares. On May
14, 1997, the stockholders approved increasing the automatic option grant to
40,000 shares and approved an additional 1,000,000 shares (of which 75,576 were
approved by the Board of Directors in 1996) of common stock for issuance,
increasing the common stock reserved for issuance to 3,000,000 shares. On May
12, 1999, the stockholders approved an additional 400,000 shares of common stock
for issuance, increasing the common stock reserved for issuance to 3,400,000
shares. The following is an analysis of stock options for the three years ending
December 31, 1999:
Weighted
Options Options Average
Available Outstanding Exercise Price
Balance December 31, 1996 66,475 1,841,722 $7.06
Option plan amended 924,424
Options granted (590,810) 590,810 10.21
Options exercised (87,450) 4.02
Options canceled 139,850 (139,850) 10.33
-------- ---------
Balance December 31, 1997 539,939 2,205,232 7.82
Options granted (495,400) 495,400 6.88
Options exercised (144,102) 4.28
Options canceled 77,016 (77,016) 10.38
-------- ---------
Balance December 31, 1998 121,555 2,479,514 7.61
Option plan amended 400,000
Options granted (427,720) 427,720 19.65
Options exercised (277,814) 7.22
Options canceled 80,616 (80,616) 8.24
-------- ---------
Balance December 31, 1999 174,451 2,548,804 9.80
======== =========
There were 1,595,099, 1,456,715 and 1,254,263 options exercisable at
December 31, 1999, 1998 and 1997, respectively. The weighted-average exercise
price for options exercisable was $7.60, $6.94 and $5.84 at December 31, 1999,
1998 and 1997, respectively.
The following table summarizes at December 31, 1999, by price range, (1)
for options outstanding the number of options outstanding, their
weighted-average remaining life and their weighted-average exercise price and
(2) for options exercisable the number of options exercisable and their
weighted-average exercise price:
<TABLE>
<CAPTION>
Outstanding Exercisable
Range Number Life Price Number Price
<S> <C> <C> <C> <C> <C>
$2 to $ 5 456,389 3.7 $3.76 456,389 $3.76
5 to 8 1,040,630 6.9 6.33 604,246 6.17
8 to 12 257,455 6.8 8.69 206,369 8.81
12 to 17 452,410 7.2 14.66 324,095 14.69
22 to 26 341,920 9.9 22.82 4,000 22.81
2 to 26 2,548,804 6.8 9.80 1,595,099 7.60
</TABLE>
Note 8- Employee Benefit Plans
On January 1. 1991, the Company adopted an employee retirement plan
("401(k) Plan") under Section 401(k) of the Internal Revenue Code covering all
employees. Employee contributions may be made to the 401(k) Plan up to limits
established by the Internal Revenue Service. Company matching contributions may
be made at the discretion of the Board of Directors. The Company made
contributions of $151,287, $57,137 and $45,603 in 1999, 1998 and 1997,
respectively.
On May 29, 1995, the stockholders approved an employee stock purchase plan
("Stock Purchase Plan")
36
<PAGE>
effective February 1, 1995. The Company has reserved 200,000 shares of common
stock under the Stock Purchase Plan, of which 102,982 shares remain available
for purchase at December 31, 1999. Eligible employees may authorize up to 15% of
their salary to purchase common stock at the lower of 85% of the beginning or
85% of the ending price during the six-month purchase intervals. No more than
3,000 shares may be purchased by any one employee at the six-month purchase
dates and no employee may purchase stock having a fair market value at the
commencement date of $25,000 or more in any one calendar year. There were
26,056, 23,597 and 15,933 shares of common stock purchased under the Stock
Purchase Plan in 1999, 1998 and 1997, respectively, at a weighted average price
of $6.90, $6.11 and $10.28, respectively, per share.
Note 9- Collaborative and Other Research and Development Contracts
The Company granted Novartis Corporation, formerly Ciba-Geigy Corporation
("Novartis"), an option in 1990 to acquire exclusive licenses to a class of
inhibitors arising from research performed by the Company by February 1991. The
option was exercised and a $500,000 fee was paid to the Company in 1993.
Milestone payments are due upon approval of a new drug application. The Company
will also receive royalties based upon a percentage of sales of any resultant
products. Up to $300,000 of the initial fee received is refundable if sales of
any resultant products are below specified levels.
On November 7, 1991, the Company entered into a joint research and license
agreement with The University of Alabama at Birmingham ("UAB"). UAB performed
specific research on Factor D for the Company for a period of approximately
three years in return for research and license fees. The agreement was replaced
by a new agreement on July 18, 1995 granting the Company a worldwide license in
exchange for funding certain UAB research and sharing in any royalties or
sublicense fees arising from the joint research. On November 17, 1994, the
Company entered into another agreement for a joint research and license
agreement on influenza neuraminidase granting the Company a worldwide license.
Under this agreement, the Company funded certain UAB research and UAB shares in
any royalties or sublicense fees arising from the joint research. The Company
completed its funding required by the agreements for both projects in 1998.
In September 1998, the Company entered into a worldwide license agreement
with PRI and Ortho-McNeil, both Johnson & Johnson companies, to develop and
market products to treat and prevent viral influenza. Under the terms of the
agreement, the Company received an initial $6.0 million in 1998 and a milestone
payment of $2.0 million in 1999. The agreement provides for additional potential
milestone payments and royalties based on future sales of licensed products. PRI
and Ortho-McNeil are responsible for all development, regulatory and
commercialization expenses. The agreement is subject to termination by PRI and
Ortho-McNeil at any time and by the Company in certain circumstances. In
addition, Johnson & Johnson Development Corporation ("JJDC"), another Johnson &
Johnson company, made a $6.0 million equity investment in the Company in
connection with signing the license agreement.
Note 10 - Quarterly Financial Information (Unaudited)(In thousands, except per
share)
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
1999 Quarters
Revenues $ 539 $ 2,502 $ 335 $ 1,952
Net (loss) (2,400) (251) (2,206) (441)
Net (loss) per share (.16) (.02) (.15) (.03)
1998 Quarters
Revenues $ 382 $ 289 $ 6,249 $ 706
Net income (loss) (3,006) (2,981) 2,667 (1,465)
Net income (loss) per share (.22) (.21) .19 (.10)
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BioCryst Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of BioCryst
Pharmaceuticals, Inc. as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioCryst Pharmaceuticals,
Inc. at December 31, 1999 and 1998 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young, LLP
Birmingham, Alabama
January 21, 2000
38
<PAGE>
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 directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
----- --- ----------------------------
<S> <C> <C>
Charles E. Bugg, Ph.D. 58 Chairman, Chief Executive Officer and Director
J. Claude Bennett, M.D. 66 President, Chief Operating Officer and Director
John A. Montgomery, Ph.D. 75 Senior Vice President, Secretary, Chief Scientific Officer
and Director
Ronald E. Gray 59 Chief Financial Officer, Assistant Secretary and Treasurer
(3)
W. Randall Pittman 46 Chief Financial Officer, Assistant Secretary and Treasurer
(3)
John R. Urhin 47 Vice President, Corporate Development
William W. Featheringill (1)(2) 57 Director
Edwin A. Gee, Ph.D. (1)(2) 80 Director
Zola P. Horovitz, Ph.D. 65 Director
Joseph H. Sherrill, Jr. 58 Director
William M. Spencer, III (1)(2) 79 Director
Randolph C. Steer, M.D., Ph.D. 50 Director
</TABLE>
(1) Member of the Compensation Committee ("Compensation Committee").
(2) Member of the Audit Committee ("Audit Committee").
(3) Mr. Gray held this position in 1999 and through January 9, 2000 and Mr.
Pittman was named to this position on January 10, 2000.
Charles E. Bugg, Ph.D., was named Chairman of the Board, Chief Executive
Officer and Director in November 1993 and President in January 1995. Dr. Bugg
relinquished the position of President in December 1996 when Dr. Bennett joined
the Company in that position. Prior to joining the Company, Dr. Bugg had served
as the Director of the Center for Macromolecular Crystallography, Associate
Director of the Comprehensive Cancer Center and Professor of Biochemistry at UAB
since 1975. He was a Founder of the Company and served as the Company's first
Chief Executive Officer from 1987-1988 while on a sabbatical from UAB. Dr. Bugg
also served as Chairman of the Company's Scientific Advisory Board from January
1986 to November 1993. He continues to hold the position of Professor Emeritus
in Biochemistry and Molecular Genetics at UAB, a position he has held since
January 1994.
J. Claude Bennett, M.D., was named President and Chief Operating Officer
in December 1996 and elected a Director in January 1997. Prior to joining the
Company, Dr. Bennett was President of UAB from October 1993 to December 1996 and
Professor and Chairman of the Department of Medicine of UAB from January 1982 to
October 1993. Dr. Bennett served on the Company's Scientific Advisory Board from
1989-96. He also continues to hold the position of Distinguished University
Professor Emeritus at UAB.
John A. Montgomery, Ph.D., has been a Director since November 1989 and has
been Secretary and Chief Scientific Officer since joining the Company in
February 1990. He was Executive Vice President from February 1990 until May
1997, at which time he was named Senior Vice President. Dr. Montgomery was a
Founder of BioCryst. Prior to joining the Company, Dr. Montgomery served as
Senior Vice President of Southern Research Institute ("SRI") of Birmingham from
January 1981 to February 1990. He continues to hold the position of
Distinguished Scientist at SRI, a
39
<PAGE>
position he has held since February 1990.
Ronald E. Gray joined BioCryst in January 1993 as Chief Financial Officer,
a position he held until January 9, 2000. In 1994, Mr. Gray received the
additional title of Assistant Secretary in December 1994 and Treasurer in
January 1995. Effective January 10, 2000, Mr. Gray became a consultant to the
Company, assisting in the transition to a new Chief Financial Officer. Prior to
joining BioCryst, from June 1992 to September 1992, Mr. Gray was Chief Financial
Officer of The ACB Companies, a collection agency. From July 1988 to March 1992,
Mr. Gray was Chief Financial Officer and Secretary of Image Data Corporation, a
medical imaging company. He was previously Vice President of Finance, Secretary
and Treasurer of CyCare Systems, Inc., a health care information processing
company.
W. Randall Pittman joined BioCryst on December 15, 1999 as consultant to
the Chief Executive Officer and became Chief Financial Officer, Assistant
Secretary and Treasurer on January 10, 2000. Prior to joining BioCryst, from
September 1998 to August 1999, Mr.Pittman was Chief Financial Officer of
Scandipharm, a pharmaceutical company. From October 1995 to September 1998, Mr.
Pittman was Senior Vice President Finance of Caremark Inc. (formerly Med
Partners, Inc.), a health care services company. He was previously Executive
Vice President of AmSouth Bancorporation, a regional bank holding company. Mr.
Pittman is a Certified Public Accountant.
John R. Uhrin joined BioCryst in March 1998 as Vice President, Corporate
Development with 21 years of sales and marketing experience in the
pharmaceutical, biotechnology, medical and managed care industries. He joined
BioCryst following 11 years at Genetech, Inc. From 1987 to 1998, he held various
management positions at Genetech, most recently as Director of Special
Projects/Managed Care. Prior to working for Genetech, he held various sales and
management positions with Eli Lilly from 1977 to 1987.
William W. Featheringill was elected a Director in May 1995. Mr.
Featheringill is Chairman and Chief Executive Officer, since June 1995, of
Electronic Healthcare Systems, a software company, and President, Chief
Executive Officer and director, since 1973, of Private Capital Corporation, a
venture capital management company. Mr. Featheringill was Chairman and Chief
Executive Officer of MACESS Corporation, which designs and installs paperless
data management systems for the managed care industry, from 1988 to November
1995. MACESS Corporation merged with Sungard Data Systems in late 1995. From
1985 to December 1994, Mr. Featheringill was the developer, Chairman and
President of Complete Health Services, Inc., a health maintenance organization
which grew, under his direction, to become one of the largest HMOs in the
southeastern United States. Complete Health Services, Inc. was acquired by
United HealthCare Corporation in June 1994.
Edwin A. Gee, Ph.D., was elected a Director in August 1993. Dr. Gee, who
retired in 1985 as Chairman of the Board and Chief Executive Officer of
International Paper Company, has been active as an executive in biotechnology,
pharmaceutical and specialty chemical companies since 1970. He is Chairman
Emeritus and a director of OSI Pharmaceuticals, Inc., one of the leading
biotechnology companies for the diagnosis and treatment of cancer.
Zola P. Horovitz, Ph.D., was elected a Director in August 1994. Dr.
Horovitz was Vice President of Business Development and Planning at
Bristol-Myers Squibb from 1991 until his retirement in April 1994 and previously
was Vice President of Licensing at the same company from 1990 to 1991. Prior to
that he spent over 30 years with The Squibb Institute for Medical Research, most
recently as Vice President Research, Planning, & Scientific Liaison. He has been
an independent consultant in pharmaceutical sciences and business development
since his retirement from Bristol-Myers Squibb in April 1994. He serves on the
Boards of Directors of Avigen, Inc., Clinicor Inc., Diacrin, Inc., Magainin
Pharmaceuticals, Inc., HeavenlyDoor.com Corporation, Shire Pharmaceutical
Corporation and Synaptic Pharmaceutical Corp. Dr. Horovitz is also non-executive
Chairman of Magainin Pharmaceuticals, Inc.
Joseph H. Sherrill, Jr., was elected a Director in May 1995. Mr. Sherrill
served as President of R. J. Reynolds ("RJR") Asia Pacific, based in Hong Kong,
where he oversaw RJR operations across Asia, including licensing, joint ventures
and a full line of operating companies from August 1989 to his retirement in
October 1994. Prior management positions with RJR include Senior Vice President
of Marketing for R.J. Reynolds International, President and Chief Executive
Officer of R.J. Reynolds Tabacos de Brazil, and President and General Manager of
R.J. Reynolds Puerto Rico. He serves on the Board of Directors of Piranha, Inc.,
an information technology company.
40
<PAGE>
William M. Spencer, III, was a founder and has been a Director of the
Company since its inception. Mr. Spencer, who is retired, is also a private
investor in Birmingham, Alabama. He served as Chairman of the Board of the
Company from its founding in 1986 until April 1992. He co-founded and operated
Motion Industries from 1946 through its merger into Genuine Parts Company in
1976. He has founded several businesses and has served on the Board of Directors
of numerous private corporations.
Randolph C. Steer, M.D., Ph.D., was elected a Director in February 1993.
Dr. Steer has been an independent pharmaceutical and biotechnology consultant
since 1989, having a broad background in business development, medical marketing
and regulatory affairs. He was formerly Chairman, President and CEO of Advanced
Therapeutics Communications International, a leading drug regulatory group, and
served as associate director of medical affairs at Marion Laboratories, and
medical director at Ciba Consumer Pharmaceuticals. Dr. Steer serves on the Board
of Directors of Techne Corporation.
In accordance with the terms of the Company's Certificate of
Incorporation, the Board of Directors has been divided into three classes with
members of each class holding office for staggered three-year terms. Mr.
Featheringill's and Mr. Sherrill's terms expire at the 2002 annual meeting, Dr.
Bennett's, Dr. Horovitz's, Mr. Spencer's and Dr. Steer's terms expire at the
2000 annual meeting and Dr. Bugg's, Dr. Montgomery's and Dr. Gee's terms expire
at the 2001 annual meeting (in all cases subject to the election and
qualification of their successors or to their earlier death, resignation or
removal). At each annual stockholder meeting, the successors to the Directors
whose terms expire are elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following their
election and until a successor has been duly elected and qualified. The
provisions of the Company's Certificate of Incorporation governing the staggered
Director election procedure can be amended only by a shareholder's vote of at
least 75% of the eligible voting securities. There are no family relationships
among any of the directors and executive officers of the Company. The Board has
by resolution established the number of directors of the Company at nine (9)
commencing with the 1999 Annual Meeting of Stockholders.
The Company has an Audit Committee, consisting of Messrs. Featheringill,
Gee and Spencer, which is responsible for the review of internal accounting
controls, financial reporting and related matters. The Audit Committee also
recommends to the Board the independent accountants selected to be the Company's
auditors and reviews the audit plan, financial statements and audit results. The
Securities and Exchange Commission has adopted new audit committee disclosure
rules and approved amendments for Nasdaq listing standards relating to audit
committees on December 15, 1999. These changes take effect over the next 18
months. The Audit Committee members are "independent" directors as defined by
the new listing standards.
The Company also has a Compensation Committee consisting of Mr.
Featheringill, Dr. Gee and Mr. Spencer. The Compensation Committee is
responsible for the annual review of officer compensation and other incentive
programs and is authorized to award options under the Company's 1991 Stock
Option Plan.
The Company has a Nominating Committee comprised of all outside directors
with terms not expiring in the current year for which the Nominating Committee
will be nominating persons for election or re-election as directors.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to our definitive Proxy Statement to be filed in
connection with the solicitation of proxies for our 2000 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference to our definitive Proxy Statement to be filed in
connection with the solicitation of proxies for our 2000 Annual Meeting of
Stockholders.
41
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to our definitive Proxy Statement to be filed in
connection with the solicitation of proxies for our 2000 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Financial Statements
Page in
Form 10-K
The following financial statements appear
in Item 8 of this Form 10-K:
Balance Sheets at December 31, 1999 and 1998 28
Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 29
Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 30
Statements of Cash Flows for the three years
ended December 31, 1999, 1998 and 1997 31
Notes to Financial Statements 32 to 37
Report of Independent Auditors 38
No financial statement schedules are included because the information is
either provided in the financial statements or is not required under the
related instructions or is inapplicable and such schedules therefore have
been omitted.
(b) Reports on Form 8-K
None
(c) Exhibits
Number Description
3.1 Composite Certificate of Incorporation of Registrant. Incorporated
by reference to Exhibit 3.1 to the Company's Form 10-Q for the
second quarter ending June 30, 1995 dated August 11, 1995.
3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the second quarter ending June 30, 1995
dated August 11, 1995.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite Certificate
of Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant.
10.1 1991 Stock Option Plan, as amended and restated. Incorporated by
reference to Exhibit 99.1 to the Company's Form S-8 Registration
Statement (Registration No. 333-30751).
10.2 Amendment No. 1 to the 1991 Stock Option Plan, as amended and
restated. Incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q for the second quarter ending June 30, 1999 dated August
12, 1999.
10.3 Form of Notice of Stock Option Grant and Stock Option Agreement.
Incorporated by reference to Exhibit 99.2 and 99.3 to the Company's
Form S-8 Registration Statement (Registration No. 33-95062).
10.4 Warehouse Lease dated January 17, 1992 between Principal Mutual Life
Insurance Company and the Registrant. Incorporated by reference to
Exhibit 10.21 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
42
<PAGE>
10.5 First Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.21 to the Company's Form
10-K for the year ending December 31, 1994 dated March 28, 1995.
10.6 Second Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.24 to the Company's Form
10-Q for the first quarter ending March 31, 1997 dated May 12, 1997.
10.7 Third Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.24 to the Company's Form
10-Q for the first quarter ending March 31, 1998 dated April 29,
1998.
10.8 Fourth Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.22 to the Company's Form
10-Q for the second quarter ending June 30, 1998 dated April 29,
1998.
10.9 Fifth Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.9 to the Company's Form 10-Q
for the second quarter ending June 30, 1999 dated August 12, 1999.
10.10 Employment Agreement dated December 27, 1999 between the Registrant
and Charles E. Bugg, Ph.D.
10.11 Employment Agreement dated December 18, 1996 between the Registrant
and J. Claude Bennett. Incorporated by reference to Exhibit 10.12 to
the Company's Form 10-K for the year ended December 31, 1996 dated
March 28, 1997.
10.12# License Agreement dated April 15, 1993 between Ciba-Geigy
Corporation (now merged into Novartis) and the Registrant.
Incorporated by reference to Exhibit 10.40 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).
10.13 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.4 to the Company's Form S-8 Registration Statement (Registration
No. 33-95062).
10.14 Form of Stock Purchase Agreement dated May 1995 between Registrant
and various parties to purchase 1,570,000 shares of common stock.
Incorporated by reference to Exhibit 10.22 to the Company's Form
10-Q for the second quarter ending June 30, 1995 dated August 11,
1995. 10.15 Form of Registration Rights Agreement dated May 1995
between Registrant and various parties. Incorporated by reference to
Exhibit 10.23 to the Company's Form 10-Q for the second quarter
ending June 30, 1995 dated August 11, 1995.
10.16 Form of Stock Purchase Agreement dated March 22, 1996 among
Registrant and certain investors to purchase 1,000,000 shares of
common stock. Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K dated March 22, 1996.
10.17 Form of Registration Rights Agreement dated March 22, 1996 among
Registrant and certain investors. Incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K dated March 22, 1996.
10.18# License Agreement, dated May 31, 1996, between Registrant and Torii
Pharmaceutical Co., Ltd. ("Torii"). Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K/A dated May 3, 1996 and filed
August 2, 1996.
10.19# Stock Purchase Agreement, dated May 31, 1996, between Registrant and
Torii. Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K/A dated May 3, 1996 and filed August 2, 1996.
10.20# License Agreement dated as of September 14, 1998 between Registrant
and The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical, Inc. Incorporated by reference to
Exhibit 10.23 to the Company's Form 10-Q for the third quarter
ending September 30, 1998 dated November 10, 1998.
43
<PAGE>
10.21 Stock Purchase Agreement dated as of September 14, 1998 between
Registrant and Johnson & Johnson Development Corporation.
Incorporated by reference to Exhibit 10.24 to the Company's Form
10-Q for the third quarter ending September 30, 1998 dated November
10, 1998.
10.22 Stockholder's Agreement dated as of September 14, 1998 between
Registrant and Johnson & Johnson Development Corporation.
Incorporated by reference to Exhibit 10.25 to the Company's Form
10-Q for the third quarter ending September 30, 1998 dated November
10, 1998.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
- ----------------
# Confidential treatment granted.
44
<PAGE>
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 in the City of
Birmingham, State of Alabama, on this 24th day of March, 2000.
BIOCRYST PHARMACEUTICALS, INC.
By: /s/Charles E. Bugg
--------------------------------
Charles E. Bugg, Ph.D.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons in the capacities indicated on
March 24th, 2000:
Signature Title(s)
/s/Charles E. Bugg Chairman, Chief Executive Officer
- --------------------------------- and Director
(Charles E. Bugg, Ph.D.)
/s/J. Claude Bennett President, Chief Operating Officer
- --------------------------------- and Director Executive Vice
(J. Claude Bennett, M.D.) President, Secretary, Chief
/s/John A. Montgomery Scientific Officer and Director
- ---------------------------------
(John A. Montgomery, Ph.D.)
/s/W. Randall Pittman Chief Financial Officer (Principal
- --------------------------------- Financial and Accounting Officer)
(W. Randall Pittman)
/s/ William W. Featheringill Director
- ---------------------------------
(William W. Featheringill)
/s/Edwin A. Gee Director
- ---------------------------------
(Edwin A. Gee, Ph.D.)
Director
- ---------------------------------
(Zola P. Horovitz, Ph.D.)
Director
- ---------------------------------
(William M. Spencer, III)
/s/Joseph H. Sherrill, Jr. Director
- ---------------------------------
(Joseph H. Sherrill, Jr.)
/s/Randolph C. Steer Director
- ---------------------------------
(Randolph C. Steer, M.D., Ph.D.)
45
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered Page
Number Description
3.1 Composite Certificate of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the second quarter ending June
30, 1995 dated August 11, 1995.
3.2 Bylaws of Registrant. Incorporated by reference to
Exhibit 3.1 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite
Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of
the Registrant.
10.1 1991 Stock Option Plan, as amended and restated.
Incorporated by reference to Exhibit 99.1 to the
Company's Form S-8 Registration Statement (Registration
No. 333-30751).
10.2 Amendment No. 1 to the 1991 Stock Option Plan, as
amended and restated. Incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the second
quarter ending June 30, 1999 dated August 12, 1999.
10.3 Form of Notice of Stock Option Grant and Stock Option
Agreement. Incorporated by reference to Exhibit 99.2 and
99.3 to the Company's Form S-8 Registration Statement
(Registration No. 33-95062).
10.4 Warehouse Lease dated January 17, 1992 between Principal
Mutual Life Insurance Company and the Registrant.
Incorporated by reference to Exhibit 10.21 to the
Company's Form S-1 Registration Statement (Registration
No. 33-73868).
10.5 First Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.21 to the Company's Form 10-K for the year
ending December 31, 1994 dated March 28, 1995.
10.6 Second Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.24 to the Company's Form 10-Q for the first
quarter ending March 31, 1997 dated May 12, 1997.
10.7 Third Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.24 to the Company's Form 10-Q for the first
quarter ending March 31, 1998 dated April 29, 1998.
10.8 Fourth Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.22 to the Company's Form 10-Q for the second
quarter ending June 30, 1998 dated April 29, 1998.
10.9 Fifth Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.9 to the Company's Form 10-Q for the second
quarter ending June 30, 1999 dated August 12, 1999.
10.10 Employment Agreement dated December 27, 1999 between the 48
Registrant and Charles E. Bugg, Ph.D.
10.11 Employment Agreement dated December 18, 1996 between the
Registrant and J. Claude Bennett. Incorporated by
reference to Exhibit 10.12 to the Company's Form 10-K
for the year ended December 31, 1996 dated March 28,
1997.
10.12# License Agreement dated April 15, 1993 between
Ciba-Geigy Corporation (now merged into Novartis) and
the Registrant. Incorporated by reference to Exhibit
10.40 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).
46
<PAGE>
10.13 Employee Stock Purchase Plan. Incorporated by reference
to Exhibit 99.4 to the Company's Form S-8 Registration
Statement (Registration No. 33-95062).
10.14 Form of Stock Purchase Agreement dated May 1995 between
Registrant and various parties to purchase 1,570,000
shares of common stock. Incorporated by reference to
Exhibit 10.22 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.
10.15 Form of Registration Rights Agreement dated May 1995
between Registrant and various parties. Incorporated by
reference to Exhibit 10.23 to the Company's Form 10-Q
for the second quarter ending June 30, 1995 dated August
11, 1995.
10.16 Form of Stock Purchase Agreement dated March 22, 1996
among Registrant and certain investors to purchase
1,000,000 shares of common stock. Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K
dated March 22, 1996.
10.17 Form of Registration Rights Agreement dated March 22,
1996 among Registrant and certain investors.
Incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K dated March 22, 1996.
10.18# License Agreement, dated May 31, 1996, between
Registrant and Torii Pharmaceutical Co., Ltd. ("Torii").
Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K/A dated May 3, 1996 and filed August
2, 1996.
10.19# Stock Purchase Agreement, dated May 31, 1996, between
Registrant and Torii. Incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K/A dated May 3,
1996 and filed August 2, 1996.
10.20# License Agreement dated as of September 14, 1998 between
Registrant and The R.W. Johnson Pharmaceutical Research
Institute and Ortho-McNeil Pharmaceutical, Inc.
Incorporated by reference to Exhibit 10.23 to the
Company's Form 10-Q for the third quarter ending
September 30, 1998 dated November 10, 1998.
10.21 Stock Purchase Agreement dated as of September 14, 1998
between Registrant and Johnson & Johnson Development
Corporation. Incorporated by reference to Exhibit 10.24
to the Company's Form 10-Q for the third quarter ending
September 30, 1998 dated November 10, 1998.
10.22 Stockholder's Agreement dated as of September 14, 1998
between Registrant and Johnson & Johnson Development
Corporation. Incorporated by reference to Exhibit 10.25
to the Company's Form 10-Q for the third quarter ending
September 30, 1998 dated November 10, 1998.
23.1 Consent of Independent Auditors. 53
27.1 Financial Data Schedule. 54
- --------
# Confidential treatment granted.
47
EXHIBIT 10.10
December 27, 1999
Dr. Charles E. Bugg
Chairman and CEO
BioCryst Pharmaceuticals, Inc.
2190 Parkway Lake Drive
Birmingham, Alabama 35244
Dear Dr. Bugg:
This letter agreement (the "Agreement") will serve to confirm our
agreement with respect to the terms and conditions of the employment of Dr.
Charles E. Bugg (the "Employee") by BioCryst Pharmaceuticals, Inc., a Delaware
corporation ("BioCryst"), after December 31, 1999.
The terms and conditions of such employment are as follows:
1. Term of Employment. Subject to the terms and conditions of this Agreement,
BioCryst hereby employs Employee, effective January 1, 2000, as Chairman of the
Board and Chief Executive Officer of BioCryst, and Employee hereby accepts such
employment. In addition, during the terms of this Agreement, BioCryst shall use
its best efforts to provide that the Employee shall be elected as a member of
the Board of Directors of BioCryst each year. BioCryst acknowledges and agrees
that after December 31, 1999 Employee may also hold positions at the University
of Alabama at Birmingham as Professor Emeritus of Biochemistry, Adjunct Senior
Scientist in the Comprehensive Cancer Center, Adjunct Senior Scientist in the
Center for Macromolecular Crystallography, and such other appointments that
might be offered to the Employee from time to time, and the Employee will be
permitted to devote up to ten percent (10%) of his time to such activities and
to research and other activities at the University of Alabama at Birmingham, if
the Employee desires to participate in such activities. Otherwise, after
December 31, 1999 the Employee shall devote his full business time and energies
to BioCryst. Except as provided in this paragraph 1, the Employee shall not,
during the term of his employment, engage in any other business activity that
would interfere with, or prevent him from carrying out, his duties and
responsibilities under this Agreement. BioCryst hereby agrees and acknowledges
that any compensation which the Employee receives from participation in such
allowable activities shall be outside the scope of this Agreement and in
addition to any compensation received hereunder. The term of employment of
Employee under this Agreement shall commence as of January 1, 2000 and shall
terminate on December 31, 2002, unless earlier terminated in accordance with the
provisions of paragraph 3 hereof.
2. Basic Full-Time Compensation and Benefits.
(a) As basic yearly compensation for services rendered under this
Agreement for services rendered under paragraph 1 of this Agreement,
Employee shall be entitled to receive from BioCryst, for the term of his
full-time employment under this Agreement, an aggregate salary of $355,465
per year which remuneration shall be payable in equal monthly installments
of $29,602.08 on the first business day of each month during the term of
this Agreement, beginning on January 1, 2000. This salary will be reviewed
annually by the Board of Directors and may be raised at the discretion of
the Board.
(b) In addition to the basic compensation set forth in (a) above,
Employee shall be entitled to receive such other benefits and perquisites
provided to other executive officers of BioCryst which benefits may
include, without limitation, reasonable vacation, sick leave, medical
benefits, life insurance, and participation in profit sharing or
retirement plans.
48
<PAGE>
(c) In addition to the compensation set forth in paragraphs 2(a) and
(b) above, the Board of Directors of BioCryst may from time to time, in
its discretion, also grant such other cash or stock bonuses to the
Employee either as an award or as an incentive as it shall deem desirable
or appropriate.
3. Stock Options.
(a) BioCryst hereby agrees that it will grant a stock option to the
Employee on or before December 31 of each year during the term of this
Agreement, beginning with the year 2000, to purchase at least 25,000
shares of Common Stock of BioCryst, par value $0.01 per share (the "Common
Stock"), from the authorized and unissued stock or treasury stock of
BioCryst, based on the performance of the Employee. The Board of Directors
of BioCryst shall determine, in its sole discretion, based upon the
performance of the Employee and the results of operations of BioCryst for
the immediately preceding twelve (12) months, the number of shares which
may be purchased pursuant to each such option, provided the number of
shares shall not in any case be less than 25,000. In addition, BioCryst
shall also grant to the Employee an option to purchase 100,000 shares of
BioCryst Common Stock upon the occurrence of each of the following:
(i) submission by BioCryst to the United States Food
and Drug Administration (the "FDA") of any new
drug application;
(ii) submission by any licensee of BioCryst to the FDA
of any new drug application utilizing a product or
process licensed by the licensee from BioCryst;
(iii) final approval of each such new drug application
of either BioCryst or such licensee by the FDA.
The exercise price per share for each share of BioCryst Common Stock
subject to each such option shall be the fair market value thereof on the
date such option is granted.
(b) The parties intend for the options granted pursuant to this
Agreement (the "Options") to qualify as "incentive stock options," as that
term is defined in Section 422 of the Internal Revenue Code of 1986, as
amended ("Section 422"). The parties understand that the portion of any
Option, together with the portion of any other incentive stock option
granted by BioCryst and its parent and subsidiary corporations, if any,
which may become exercisable in any year in excess of an aggregate of
$100,000 fair market value, determined as of the date such Option or other
option, as the case may be, was granted, may not be treated as an
incentive stock option under Section 422. The Options may be exercised and
the Common Stock may be purchased by the Employee as a result of such
exercise only within the periods and to the extent hereinafter set forth.
(c) Each Option shall be 25% exercisable one year after the date it
was granted, and the remaining seventy-five percent (75%) shall vest and
become exercisable at the rate of 1/48th per month, commencing with the
thirteenth (13th) month after the date such Option was granted, and
continuing to vest for the succeeding months until fully vested and
exercisable. Notwithstanding the foregoing, in the event of a Change in
Control or Structure, as defined below, or as set forth in subparagraphs
(d) or (e) below, the entire amount of each Option shall become
immediately exercisable.
(d) If the Employee suffers a period of permanent disability, as
defined in paragraph 4(b) below, the entire amount of each Option may be
exercised at any time after termination for such disability and before the
earlier of twenty-four (24) months or the expiration date of the Option.
(e) In the event of the death of the Employee, the executor or
administrator of the estate of the Employee, or other reliable transferee,
shall have the right to exercise each Option, in its entirety, within the
earlier of twenty-four (24) months after the Employee's death or before
the original expiration of the Option. Except as provided in this
subparagraph (e), the Employee shall not have the right to transfer any
Option.
49
<PAGE>
(f) Subject to paragraphs 3(c), (d), and (e) above, each Option may,
in the Employee's sole discretion, be exercised in full at one time as to
the total number of shares of Common Stock then exercisable, or in part
from time to time as to a specific number of shares of Common Stock then
exercisable. A partial exercise of an Option will not affect the
exercisability of the remainder of the Option.
(g) In no event shall the period for exercising an Option exceed ten
(10) years from the date such Option is granted.
(h) For purposes of this Agreement, the term "Change of Control or
Structure" shall mean:
(i) The acquisition by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than fifty
percent (50%) of the then outstanding shares of Common
Stock at the time of such event or the combined voting
power of BioCryst's then outstanding voting securities
generally entitled to vote in the election of directors,
or
(ii) any merger, consolidation or business combination of
BioCryst with or into any other entity, or
(iii) any transaction effected by a sale of substantially all
the assets of BioCryst.
(i) In the event the employment of the Employee is terminated for
any reason other than as set forth in subparagraph (d) or (e) above, the
Employee may, within three (3) months following the date of such
termination, exercise each Option to the full extent that they were
exercisable immediately prior to the date of such termination, subject,
however, to the limitation set forth in subparagraph (g) above.
(j) All numbers of shares set forth above or subject to any Option
and all option prices, shall be subject to appropriate anti-dilution
adjustment to take account of stock splits, stock dividends, merger,
consolidation, reclassification or the like subsequent to the date hereof.
4. Termination. Notwithstanding the provisions of paragraph 1 hereof, the
employment of the Employee under this Agreement may be terminated in the
following circumstances:
(a) BioCryst may terminate the employment of Employee hereunder
immediately for "Cause" and without payment. "Cause" for termination of
Employee's employment hereunder shall exist if Employee
(i) shall confess to committing or shall be convicted of any
felony or any crime involving moral turpitude, or
(ii) shall have engaged in gross and willful misconduct which
is materially injurious to the business of BioCryst.
(b) BioCryst may terminate the employment of the Employee hereunder
upon thirty (30) days written notice if the Employee shall have suffered a
period of permanent disability, which shall for purposes of this Agreement
be defined as the inability of Employee to perform his duties hereunder by
reason of physical or mental incapacity for ninety (90) days, whether
consecutive or not, during any consecutive twelve (12) month period.
Upon such termination of employment, all rights of Employee to receive any
future payments under paragraph 2 above shall cease.
50
<PAGE>
5. Non-Competition.
(a) Non-Competition Agreement. The Employee agrees that for one (1)
year following the termination of this Employment Agreement by reason of
the voluntary termination by the Employee, without cause on the part of
BioCryst, the Employee shall not become the Chief Executive Officer or
become a key executive of another for-profit business enterprise whose
activities are at such time directly competitive with BioCryst.
(b) Equitable Remedies. Employee acknowledges and recognizes that a
violation of this paragraph by Employee may cause irreparable and
substantial damage and harm to BioCryst or its affiliates, could
constitute a failure of consideration, and that money damages will not
provide a full remedy for BioCryst for such violations. Employee agrees
that in the event of his breach of this paragraph, BioCryst will be
entitled, if it so elects, to institute and prosecute proceedings at law
or in equity to obtain damages with respect to such breach, to enforce the
specific performance of this paragraph by Employee, and to enjoin Employee
from engaging in any activity in violation hereof.
6. Miscellaneous.
(a) Entire Agreement. This Agreement, including the exhibits hereto,
constitutes the entire agreement between the parties relating to the
employment of the Employee by BioCryst and there are no terms relating to
such employment other than those contained in this Agreement. No
modification or variation hereof shall be deemed valid unless in writing
and signed by the parties hereto. No waiver by either party of any
provision or condition of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
(b) Assignability. This Agreement may not be assigned without prior
written consent of the parties hereto. To the extent allowable pursuant to
this Agreement, this Agreement shall be binding upon and shall inure to
the benefit of each of the parties hereto and their respective executors,
administrators, personal representatives, heirs, successors and assigns.
(c) Notices. Any notice or other communication given or rendered
hereunder by any party hereto shall be in writing and delivered personally
or sent by registered or certified mail, postage prepaid, at the
respective addresses of the parties hereto as set forth below.
(d) Captions. The section headings contained herein are inserted
only as a matter of convenience and reference and in no way define, limit
or describe the scope of this Agreement or the intent of any provision
hereof.
(e) Taxes. All amounts to be paid to Employee hereunder are in the
nature of compensation for Employee's employment by BioCryst, and shall be
subject to withholding, income, occupation and payroll taxes and other
charges applicable to such compensation.
(f) Governing Law. This Agreement is made and shall be governed by
and construed in accordance with the laws of the State of Alabama without
respect to its conflicts of law principles.
(g) Date. This Agreement is dated as of December 27, 1999.
51
<PAGE>
If the foregoing correctly sets forth our understanding, please signify
your acceptance of such terms by executing this Agreement, thereby signifying
your assent, as indicated below.
Yours very truly,
BIOCRYST PHARMACEUTICALS, INC.
By: /s/ William W. Featheringill
` ----------------------------------------
Its: Chairman, Compensation Commitee
---------------------------------------
Address:
2190 Parkway Lake Drive
--------------------------------------------
Birmingham, Alabama 35244
--------------------------------------------
AGREED AND ACCEPTED, as of this 27th day of December_____________________,
1999.
/s/ Charles E. Bugg
--------------------------------------------
Charles E. Bugg
Address:
4370 Cliff Road
Birmingham, Alabama 35222
52
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-81110, 33-95062 and 333-30751) pertaining to the
BioCryst Pharmaceuticals, Inc. 1991 Stock Option Plan of our report dated
January 21, 2000, with respect to the financial statements of BioCryst
Pharmaceuticals, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1999.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 23, 2000
53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BioCryst
Pharmaceuticals, Inc. Financial Statements, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 8,631,447
<SECURITIES> 61,416,044
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,553,652
<PP&E> 3,678,368
<DEPRECIATION> 1,897,468
<TOTAL-ASSETS> 73,386,896
<CURRENT-LIABILITIES> 1,676,527
<BONDS> 0
0
0
<COMMON> 172,639
<OTHER-SE> 71,230,834
<TOTAL-LIABILITY-AND-EQUITY> 71,403,473
<SALES> 0
<TOTAL-REVENUES> 5,328,725
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,621,356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,009
<INCOME-PRETAX> (5,297,640)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,297,640)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
