<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 0-27972
TREGA BIOSCIENCES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its charter)
DELAWARE 51-0336233
------------------------------ -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9880 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
(619) 410-6500
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone, including area code, of
registrant's principal executive offices)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
------------------------------ -------------------------------
Common Stock, $0.001 par value 13,995,461
<PAGE> 2
TREGA BIOSCIENCES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets at September 30, 1998 and December
31, 1997............................................................. 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1998 and 1997............................. 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997.................................... 5
Notes to Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................. 15
Item 6 Exhibits ............................................................ 15
SIGNATURE..................................................................... 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Trega Biosciences, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,953 $ 5,457
Short-term investments 7,582 13,970
Accounts receivable and other current assets 1,407 676
-------- --------
Total current assets 11,942 20,103
Property and equipment, net 4,292 2,741
Other assets 2,032 2,275
-------- --------
$ 18,266 $ 25,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,981 $ 211
Accrued compensation 569 497
Other accrued liabilities 954 1,479
Current portion of debt obligations 1,005 2,123
Deferred revenue 4,050 3,002
-------- --------
Total current liabilities 8,559 7,312
Obligations under capital leases 144 298
Long-term equipment notes payable 1,942 1,159
Long-term notes payable 34 132
Deferred rent 139 --
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 40,000,000 at September 30, 1998
Issued and outstanding shares - 13,994,402 and
13,863,562 at September 30, 1998 and December
31, 1997, respectively 14 14
Additional paid-in capital 73,327 73,087
Common stock issuable 16 16
Deferred compensation (774) (1,270)
Accumulated deficit (65,135) (55,629)
-------- --------
Total stockholders' equity 7,448 16,218
-------- --------
$ 18,266 $ 25,119
======== ========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
Trega Biosciences, Inc.
Consolidated Statements of Operations
(in thousands, except net loss per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended,
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Contract research and license fees $ 2,043 $ 1,437 $ 7,217 $ 4,951
Net sales -- -- -- 430
-------- -------- -------- --------
2,043 1,437 7,217 5,381
Costs and expenses:
Cost of sales -- -- -- 341
Research and development 4,658 3,963 13,533 10,471
Selling, general and administrative 1,227 1,238 3,619 3,807
-------- -------- -------- --------
5,885 5,201 17,152 14,619
-------- -------- -------- --------
Loss from operations (3,842) (3,764) (9,935) (9,238)
Other income (expense):
Interest income 185 369 609 1,100
Interest expense (43) (57) (180) (138)
Gain/(loss) on sale of MPS -- -- -- 1,255
-------- -------- -------- --------
Net loss $ (3,700) $ (3,452) $ (9,506) $ (7,021)
======== ======== ======== ========
Basic and diluted net loss per share $ (.26) $ (.25) $ (.68) $ (.52)
======== ======== ======== ========
Shares used in computing basic and diluted
net loss per share 13,982 13,685 13,948 13,522
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Trega Biosciences, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
-------- ---------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,506) $ (7,021)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 1,099 570
Amortization of note receivable discount (38) (24)
Amortization of deferred compensation 496 495
Accrued interest on notes payable (81) --
Gain on disposal of assets (68) --
Realized loss on sale of investment -- 88
Gain on sale of MPS -- (1,255)
Changes in operating assets and liabilities, net of
effects from the transfer of assets from
sale of MPS in 1997:
Accounts receivable (384) (59)
Other current assets (347) (539)
Accounts payable 1,770 (10)
Other accrued liabilities (453) (618)
Deferred rent 139 --
Deferred revenue 1,048 2,626
-------- --------
Net cash used in operating activities (6,325) (5,747)
INVESTING ACTIVITIES
Purchase of short-term investments (7,112) (18,114)
Maturities of short-term investments 13,500 15,960
Purchase of property and equipment (2,646) (1,423)
Proceeds from disposition of equipment 198 --
Proceeds from sale of MPS, net -- 1,592
Notes receivable -- (1,065)
Other assets 147 (1,520)
-------- --------
Net cash provided by/used for investing activities 4,087 (4,570)
FINANCING ACTIVITIES
Principal payments under debt obligations (1,928) (390)
Proceeds from equipment notes and notes payable 1,422 1,290
Issuance of notes payable -- 1,687
Issuance of common stock 240 695
-------- --------
Net cash provided by financing activities (266) 3,282
-------- --------
Net (decrease) in cash and cash equivalents (2,504) (7,035)
Cash and cash equivalents at beginning of period 5,457 13,615
-------- --------
Cash and cash equivalents at end of period $ 2,953 $ 6,580
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 165 $ 76
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Note receivable from the sale of MPS $ -- $ 1,089
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
Trega Biosciences, Inc.
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Trega
Biosciences, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1998,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For more complete information, these financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 1997, included
in the Company's Form 10-K filed with the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and disclosures made in the accompanying notes to the consolidated
financial statements. Actual results could differ from those estimates.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." SFAS No. 128 requires the presentation of basic and diluted earnings per
share amounts. Basic earnings per share is calculated based upon the weighted
average number of common shares outstanding during the period while diluted
earnings per share also gives effect to all potential diluted common shares
outstanding during the period such as options, warrants, convertible securities
and contingently issuable shares. SFAS No. 128 is effective for periods ending
after December 15, 1997. All potential dilutive common shares have been excluded
from the calculation of diluted earnings per share, as their inclusion would be
anti-dilutive.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income" and Statement of Financial Accounting Standard No. 131 ("SFAS No. 131"),
"Segment Information." Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments and
unrealized gains and losses on investments, are required to be reported, net of
their related tax effect, to arrive at comprehensive income. The Company
believes that comprehensive income or loss will not be materially different from
net income or loss. SFAS No. 131 amends the requirements for public enterprises
to report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS No. 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company operates in one business and operating segment only, and therefore the
adoption of this standard did not have a material impact on the Company's
financial statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to
the presentation for the three months and nine months ended September 30, 1998.
6
<PAGE> 7
3. LEASES
LONG-TERM DEBT
In September 1998, the Company obtained a new equipment financing line under
an existing master agreement established in 1997. The new equipment financing
line, of $750,000, was completely drawn down in September 1998. The previous
equipment financing line of $3,000,000 expired in July 1998 with an outstanding
balance of $2,254,000. The loans are secured by the equipment. The terms of the
Company's loan agreement call for amounts drawn down under the loans to be
repaid monthly over a four-year term, including interest payments based on the
average of Federal Reserve three- and five-year treasury notes.
In September 1997, the Company entered into a 10-year lease for its combined
research and development facilities and corporate headquarters. The Company has
occupied such premises since May 1998. Annual rent is initially $1,685,000, but
is subject to annual increases of 3.5%. The Company has the option to extend the
lease for an additional term of five years, subject to terms and conditions
specified in the lease.
4. TPIMS AGREEMENT
Since 1992, the Company has been party to a Research and Option Agreement,
as amended, with Torrey Pines Institute for Molecular Studies ("TPIMS"). A
primary purpose of the Company's relationship with TPIMS has been to give the
Company access to support services provided by TPIMS scientific personnel and to
provide a source of combinatorial libraries and other discoveries. As of April
15, 1997, the Company entered into a Restated and Third Amended Research and
Option Agreement with TPIMS (the "TPIMS Agreement"). In connection with the
TPIMS Agreement, the Company acquired certain patents and purchased technology,
previously invented by TPIMS, in exchange for $1,300,000 (the "Purchase Price")
which, together with $115,000 of accrued interest, was paid to TPIMS on April
14, 1998. In addition, the TPIMS Agreement eliminated potential related
royalties otherwise payable on such patents and purchased technology. The TPIMS
Agreement also extended, through July 14, 1998, the existing funded research
relationship between the parties, and provided for a possible further extension
through April 14, 2000, upon agreement on a work plan. In January 1998, the
Company announced that the TPIMS Agreement would not be extended as a result of
a failure to agree on a work plan. Included in other assets on the Company's
consolidated balance sheets is $1,274,000, reflecting the current fair market
value of the patents and purchased technology.
5. COLLABORATIVE ARRANGEMENTS
In September 1998, the Company entered into a Library Supply and Sublicense
Agreement with Biogen, Inc. ("Biogen") under which the Company will receive a
minimum of $7,500,000 over two years for supplying combinatorial chemistry
libraries. In addition, the Company has agreed to provide Biogen with
non-exclusive worldwide licenses to certain of its chemical-synthesis
technologies.
In July 1998, the Company announced that it had identified several lead
compounds in the first phase of its 1997 Research and Development Agreement with
Ono Pharmaceuticals Co., Ltd., ("Ono"). As a result, Ono decided to fund the
next phase of the program by paying $2,000,000 to the Company.
In May 1998, the Company and Ono reached definitive agreement on terms which
expanded their existing relationship. Under the terms of the new agreement, in
addition to previously agreed to ongoing activities, the Company will create
custom combinatorial libraries, optimize lead compounds discovered by Ono and
undertake screening of those compounds in a target of interest to Ono in
exchange for research funding of $1,875,000 in the aggregate, and potential
milestone payments and royalties.
In May 1998, the Company entered into a Research, Development and License
Agreement with Novartis Pharma AG ("Novartis") under which the Company received
$2,000,000 upon execution of the agreement for past research activities. This
non-refundable fee was recognized as revenue in the second quarter of 1998.
Under the terms of the Agreement, the two companies will conduct a research
program to attempt to identify small-molecule compounds for the treatment of
certain diseases mediated by the melanocortin receptor pathway, including
diabetes, obesity and Syndrome X in humans. In addition, the parties entered
into a Stock Purchase Agreement which granted to the Company the right to sell
specific amounts of its common stock to Novartis upon the satisfaction of
certain conditions. Together, the Agreement and the Stock Purchase Agreement
provide for an amount of guaranteed funding to the Company, and an equity
investment by Novartis in the Company's common stock, which may aggregate up to
$19,000,000, plus potential milestone payments and royalties.
7
<PAGE> 8
In February 1998, the Company announced that it met a milestone in
connection with a May 1997 Research and Supply Agreement with Warner-Lambert
Company ("Warner-Lambert"). Based upon certain screening of the Company's
combinatorial libraries against certain Warner-Lambert biological assays
utilizing Warner-Lambert screening technology, Warner-Lambert has identified a
series of lead compounds which are active in a biological target. The
achievement of this milestone requires Warner-Lambert to purchase $1,500,000 of
the Company's common stock (at fair market value), the timing of which
investment may be determined by the Company prior to February 11, 2000, but does
not obligate Warner-Lambert to develop such compounds.
6. COMMON STOCK
During the third quarter of 1998, the Company issued 41,421 shares of common
stock upon the exercise of options. These shares are included in common stock
outstanding at September 30, 1998.
7. SUBSEQUENT EVENTS
On November 9, 1998, the Company sold and issued 1,866,667 shares of its
common stock (the "shares") to Novartis following the exercise by the Company of
its option to sell such shares to Novartis. The Company obtained this option as
part of its previously announced collaboration with Novartis. The purchase price
for the shares was $3.75 each.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES (SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, STATEMENTS USING WORDS SUCH AS "MAY," "POTENTIAL,"
"EXPECTS," "BELIEVES," "ESTIMATES," "PLANS," "INTENDS," "ANTICIPATES" AND
SIMILAR EXPRESSIONS). THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES (INCLUDING THOSE SET FORTH BELOW, IN THE SECTION OF THIS ITEM 2 OF
THIS QUARTERLY REPORT ON FORM 10-Q UNDER THE CAPTION "RISK FACTORS" AND IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997) THAT
COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE PROJECTED. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY ANY
UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO
REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED.
OVERVIEW
Trega Biosciences, Inc. (the "Company" or "Trega") is a drug discovery
company pursuing the identification and early-stage development of novel,
small-molecule drug therapies through combinatorial chemistry and other drug
discovery technologies. The synthetic chemistry technologies used by Trega in
its combinatorial chemistry program enable the Company to provide a wide range
of small-molecule libraries constructed in single-based compound arrays--a
format that permits the rapid identification of active compounds after testing
in a biological assay. Trega believes its technologies position the Company to
become a leading developer and resource of drug discovery technologies and a
leading provider of novel chemical drug leads to the pharmaceutical industry.
The Company has devoted substantially all of its resources since its founding to
developing methods to synthesize and screen large libraries of chemicals for new
drug discovery and optimization, to developing a select number of chemical
compounds as potential pharmaceutical products, and to acquiring or developing
technologies with the potential to expand the methods available to generate drug
candidates.
The Company leverages its technology platform by entering into
pharmaceutical alliances, providing partners access to the Company's
technologies in exchange for licensing fees and potential milestone payments and
royalties, or by establishing joint-discovery alliances with biotechnology
companies. The timing and amounts of revenues from such alliances, if any, are
subject to significant fluctuations and therefore the Company's results of
operations for any period may not be comparable to the results of operations for
any other period and may not be indicative of future operating results. The
Company will be required to conduct significant research, development and
production activities during the next several years to fulfill its obligations
to corporate partners and for the development of its own compounds. The Company
has been unprofitable since its inception and the Company is unable to predict
when, if ever, it will become profitable. As of September 30, 1998, the
Company's accumulated deficit was approximately $65,135,000.
RESULTS OF OPERATIONS
The Company recorded revenues of approximately $2,043,000 and $7,217,000 for
the three and nine months ended September 30, 1998, compared with $1,437,000 and
$5,381,000 for the same periods in 1997, respectively. The third quarter
revenues for 1998 were derived from shipments of combinatorial libraries or
individual compounds and research conducted under collaborative research
agreements (accounting for approximately $1,784,000) as well as $250,000 derived
from licensing payments from new collaborators and $9,000 in grant and royalty
revenue. By comparison, third quarter revenues for 1997 were exclusively derived
from shipments of combinatorial libraries or individual compounds and research
conducted under collaborative research agreements. Revenues from shipments of
combinatorial libraries or individual compounds and research conducted under
collaborative research agreements for the nine months ended September 30, 1998
and 1997 were approximately $6,447,000 and $4,863,000, respectively. Included in
revenues for the nine months ended September 30, 1998 were $750,000 from
licensing payments. Also included in revenues for the nine months ended
September 30, 1998 were approximately $20,000 in grant and royalty revenue and
approximately $88,000 in grant revenue for the comparative period in 1997. In
addition, net sales of custom peptides and combinatorial peptide libraries by
the Company's former subsidiary, Multiple Peptide Systems, Inc. ("MPS"),
accounted for approximately $430,000 of the total revenues for the first nine
months ended September 30, 1997. MPS was sold on February 28, 1997.
9
<PAGE> 10
As of September 30, 1998, the Company's financial statements reflect a
liability for deferred revenue in the amount of approximately $4,050,000. This
represents the excess of payments received from third parties over the revenue
from libraries shipped or work performed. (See Note 5 of Notes to the Company's
Consolidated Financial Statements included elsewhere herein.)
Cost of sales for the three and nine months ended September 30, 1997 were $0
and $341,000, respectively, and were primarily associated with net sales of
custom peptides and combinatorial peptide libraries by MPS.
The Company incurred research and development expenses totaling
approximately $4,658,000 and $13,533,000 for the three and nine months ended
September 30, 1998, respectively, as compared with approximately $3,963,000 and
$10,471,000 for the same periods in 1997. Increased spending in research and
development during the third quarter of 1998 compared to the same period in 1997
resulted primarily from increased funding for (i) the Company's combinatorial
chemistry, automation and robotics synthesis programs, largely reflecting a
shift in the Company's combinatorial chemistry from mixture-based libraries to
small-molecule libraries formatted in single-based compound arrays, and (ii) the
Company's partnered drug discovery and melanocortin programs. Expenses
associated with arrangements with Torrey Pines Institute for Molecular Studies
("TPIMS") were $77,000 and $944,000 for the three and nine months ended
September 30, 1998, respectively, compared with $401,000 and $1,365,000,
respectively, for the same periods in 1997. Expenses in connection with the
Company's collaboration with Dura Pharmaceuticals, Inc. ("Dura"), a related
party, for the three and nine months ended September 30, 1998 were $250,000 and
$389,000, respectively, compared with $500,000 and $939,000, respectively, for
the same periods in 1997. The Company expects to continue to incur significant
expenses in research and development relating to combinatorial chemistry,
melanocortin biology, product development and clinical trials, as well as for
the development of combinatorial biology technologies (through its subsidiary,
ChromaXome Corp.) and the development of other drug discovery technologies.
The Company's selling, general and administrative expenses total
approximately $1,227,000 and $3,619,000 for the three and nine months ended
September 30, 1998, as compared to $1,238,000 and $3,807,000, respectively, for
the same periods in 1997. Selling, general and administrative expenses are
expected to fluctuate as research and development activities fluctuate.
The Company's interest income decreased to approximately $185,000 and
$609,000 for the three and nine months ended September 30, 1998, respectively,
as compared to $369,000 and $1,100,000, respectively, for the same periods in
1997. The decrease is a result of lower cash balances due to continuing net
losses from operations.
Interest expense for the three and nine months ended September 30, 1998,
were approximately $43,000 and $180,000, respectively, as compared with $57,000
and $138,000 for the same periods in 1997. The decrease in interest expense for
the quarter is a result of the buy-out of equipment from under a capital lease
and the discontinued accrual of interest for patent technology which was paid in
second quarter 1998. However, the year to date increase in interest expense is a
result of utilization of a capital lease and notes payable to fund the
acquisition of laboratory equipment and other capital assets.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash, cash equivalents and
short-term investments totaling approximately $10,535,000 compared with
$19,427,000 at December 31, 1997. The decrease of $8,892,000 in cash, cash
equivalents and short-term investments during the nine months of 1998 resulted
primarily from (i) the funding of operations of approximately $6,325,000, (ii)
the funding of tenant improvements, furniture and equipment for the Company's
combined research and development facilities and corporate headquarters of
approximately $1,025,000 and (iii) $1,415,000 in payment for patents and
purchased technology acquired in 1997 from TPIMS.
On November 9, 1998, the Company sold and issued 1,866,667 shares of its
common stock (the "shares") to Novartis following the exercise by the Company of
its option to sell such shares to Novartis. The Company obtained this option as
part of its previously announced collaboration with Novartis. The purchase price
for the shares was $3.75 each.
In September 1998, the Company entered into a Library Supply and Sublicense
Agreement with Biogen, Inc. ("Biogen") under which the Company will receive a
minimum of $7,500,000 over two years for supplying combinatorial chemistry
libraries. In addition, the Company has agreed to provide Biogen with
non-exclusive worldwide licenses to certain of its chemical-synthesis
technologies.
In July 1998, the Company announced that it had identified several lead
compounds in the first phase of its 1997 Research and Development Agreement with
Ono Pharmaceuticals Co., Ltd., ("Ono"). As a result, Ono decided to fund the
next phase of the program by paying $2,000,000 to the Company.
10
<PAGE> 11
In May 1998, the Company and Ono reached definitive agreement on terms which
expanded their existing relationship. Under the terms of the new agreement, in
addition to previously agreed to ongoing activities, the Company will create
custom combinatorial libraries, optimize lead compounds discovered by Ono and
undertake screening of those compounds in a target of interest to Ono in
exchange for research funding of $1,875,000 in the aggregate, and potential
milestone payments and royalties.
In May 1998, the Company entered into a Research, Development and License
Agreement with Novartis Pharma AG ("Novartis") under which the Company received
$2,000,000 upon execution of the agreement for past research activities. This
non-refundable fee was recognized as revenue in the second quarter of 1998.
Under the terms of the Agreement, the two companies will conduct a research
program to attempt to identify small-molecule compounds for the treatment of
certain diseases mediated by the melanocortin receptor pathway, including
diabetes, obesity and Syndrome X in humans. In addition, the parties entered
into a Stock Purchase Agreement which granted to the Company the right to sell
specific amounts of its common stock to Novartis upon the satisfaction of
certain conditions. Together, the Agreement and the Stock Purchase Agreement
provide for an amount of guaranteed funding to the Company, and an equity
investment by Novartis in the Company's common stock, which may aggregate up to
$19,000,000, plus potential milestone payments and royalties.
In February 1998, the Company announced that it met a milestone in
connection with a May 1997 Research and Supply Agreement with Warner-Lambert
Company ("Warner-Lambert"). Based upon certain screening of the Company's
combinatorial libraries against certain Warner-Lambert biological assays
utilizing Warner-Lambert screening technology, Warner-Lambert has identified a
series of lead compounds which are active in a biological target. The
achievement of this milestone requires Warner-Lambert to purchase $1,500,000 of
the Company's common stock (at fair market value), the timing of which
investment may be determined by the Company prior to February 11, 2000, but does
not obligate Warner-Lambert to develop such compounds.
In September 1997, the Company entered into a 10-year lease covering a
facility located in San Diego, California, to serve as its combined research and
development facilities and corporate headquarters. The Company's headquarters
and all operations relocated to this facility effective May 4, 1998. The annual
rent is $1,685,000 and is subject to a 3.5% annual escalation clause. The
landlord has agreed to fund up to a specified amount of tenant improvements for
construction, project management, space planning, architect and engineering fees
and other related costs on behalf of the Company. The Company incurred
approximately $1,200,000 to furnish and equip the new facility, of which part
has been funded under an equipment financing line. (See Note 3 of Notes to the
Company's Consolidated Financial Statements.)
The Company has maintained equipment financing lines for the financing of
the majority of its equipment needs. The Company has granted all right title and
security interest in the equipment acquired through these financing sources, as
set forth on periodic equipment schedules, to the lenders (and secured parties).
In September 1998, the Company obtained a new equipment financing line under an
existing master agreement established in 1997. The new equipment financing line,
of $750,000, was completely drawn down in September 1998. The previous equipment
financing line of $3,000,000 expired in July 1998 with an outstanding balance of
$2,254,000. (See Note 3 of Notes to the Company's Consolidated Financial
Statements.)
Since 1992, the Company has been party to a Research and Option Agreement,
as amended, with Torrey Pines Institute for Molecular Studies ("TPIMS"). A
primary purpose of the Company's relationship with TPIMS has been to give the
Company access to support services provided by TPIMS scientific personnel and to
provide a source of combinatorial libraries and other discoveries. As of April
15, 1997, the Company entered into a Restated and Third Amended Research and
Option Agreement with TPIMS (the "TPIMS Agreement"). In connection with the
TPIMS Agreement, the Company acquired certain patents and purchased technology,
previously invented by TPIMS, in exchange for $1,300,000 (the "Purchase Price")
which, together with $115,000 of accrued interest, was paid to TPIMS on April
14, 1998. In addition, the TPIMS Agreement eliminated potential related
royalties otherwise payable on such patents and purchased technology. The TPIMS
Agreement also extended, through July 14, 1998, the existing funded research
relationship between the parties, and provided for a possible further extension
through April 14, 2000, upon agreement on a work plan. In January 1998, the
Company announced that the TPIMS Agreement would not be extended as a result of
a failure to agree on a work plan. Included in other assets on the Company's
consolidated balance sheets is $1,274,000, reflecting the current fair market
value of the patents and purchased technology.
In connection with the Company's research agreement with Dura, the Company
is committed to fund $6,000,000 over four years in a drug discovery and
development collaboration using Dura's proprietary drug delivery technology and
Company compounds (such as HP 228). As of September 30, 1998, $4,650,000 had
been funded since the inception of the 1996 Dura agreement.
11
<PAGE> 12
The Company's future cash requirements will depend on many factors,
including the continuation of its research and development programs, the
acquisition or initiation of new research and development programs, the costs
involved in filing, prosecuting and enforcing patents, competing technological
and market developments, and the scope and results of clinical trials. It is
probable, however, that for at least the foreseeable future, the Company's cash
requirements will exceed its revenues. The Company expects that its primary
potential revenue source for the foreseeable future will be additional
collaborative agreements. The Company intends to seek additional funding through
additional research and development agreements with suitable corporate
collaborators, extensions of existing corporate collaborations, and through
public or private financings if available and consistent with the Company's
business objectives. There can be no assurances, however, that such
collaboration arrangements, or any public or private financings, will be
available on acceptable terms, if at all. If funds are raised through equity
arrangements, further dilution to stockholders may result. If adequate funds are
not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research or development programs or take other
measures to cut costs, which could have a material adverse effect on the
Company. The Company estimates that its existing capital resources, funding
under existing research and development collaborations and the commitment for
equity funding from a former collaborative partner, together with currently
available facility and equipment financing, will be sufficient to fund its
current and planned operations for at least the next 12 months. There can be no
assurances, however, that changes in the Company's research and development
plans or other changes affecting the Company's operating expenses will not
result in the expenditure of such resources before such time. In any event, the
Company will need to raise substantial additional capital to fund its operations
in future periods.
OTHER MATTERS
Impact of Year 2000
The Year 2000 will impact computer programs written using two digits rather
than four to define the applicable year. Any programs with time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operation (including a temporary inability to process
transactions, send invoices or engage in other ordinary activities). This
problem largely affects software programs written years ago, before the issue
came to prominence.
The Company is presently reviewing all of its software for exposure to the
Year 2000 issue, including network and workstation software, and does not
believe that it has significant associated risk. The Company primarily uses
third-party software programs written and updated by outside firms. A plan has
been put into place to request certification from each such firm that its
software is Year 2000 compliant. To assure that all software programs can
successfully work in conjunction with each other after 1999, the Company plans
to test all of its software during 1998 and 1999 using a combination of past and
future dates. Although no problems are expected to result from these tests, the
Company expects that any problems would be corrected by August 1999. The cost of
modifying or replacing software to bring the Company into compliance, if
necessary, is not expected to be material.
Notwithstanding the Company's efforts, there can be no assurances that
problems arising from the Year 2000 will not be encountered with respect to
third parties (such as the Company's collaborators).
RISK FACTORS
THE COMPANY WISHES TO CAUTION READERS THAT THE FOLLOWING IMPORTANT FACTORS,
AMONG OTHERS (INCLUDING THOSE NOTED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997), IN SOME CASES HAVE AFFECTED, AND IN THE
FUTURE COULD AFFECT, THE COMPANY'S ACTUAL CONSOLIDATED RESULTS AND COULD CAUSE
THE COMPANY'S ACTUAL CONSOLIDATED RESULTS FOR FUTURE PERIODS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON
BEHALF OF, THE COMPANY.
NEW AND UNCERTAIN TECHNOLOGIES AND BUSINESS
Drug discovery methods based upon combinatorial chemistry technology are
relatively new compared to traditional methods of drug discovery and there can
be no assurance that these methods will lead to the discovery or development of
commercial pharmaceutical products or that the Company will be able to employ
these or other methods of drug discovery successfully. The Company's technology
development programs (including the Company's combinatorial biology technology
program (conducted through its subsidiary, ChromaXome) and the Company's efforts
to synthesize compounds in combinatorial library formats through automation) are
at early stages of development, and there can be no assurance that such
technology programs will be developed or
12
<PAGE> 13
employed successfully, work efficiently or otherwise enhance the Company's
ability to engage effectively in drug discovery. The types of combinatorial
libraries the Company is capable of offering and the nature of the compounds the
Company is able to synthesize will, in large part, determine the demand for the
Company's drug discovery capabilities. An inability to offer competitive
libraries or an inability to synthesize compounds that have actual or potential
utility would have a material adverse effect on the Company. Failures in the
field of drug discovery, including combinatorial chemistry, could have a
material adverse effect on the Company.
DEPENDENCE ON COLLABORATORS
The Company's strategy for the utilization of its drug discovery
technologies and for the development, clinical testing, manufacturing and
commercialization of any compounds depends upon the formation of collaborations
and arrangements with corporate collaborators, licensors, licensees and others.
There may only be a limited number of pharmaceutical and biotechnology companies
that would potentially collaborate with the Company. Historically,
pharmaceutical and biotechnology companies have conducted lead compound
identification and optimization within their own research departments, due to
the highly proprietary nature of the activities being conducted, the central
importance of these activities to their drug discovery and development efforts
and the desire to obtain maximum patent and other proprietary protection on the
results of their internal programs. Pharmaceutical and biotechnology companies
must be convinced that the Company's drug discovery technologies and expertise
justify outsourcing these programs to the Company. The amount and timing of
resources that current and future collaborators, if any, devote to
collaborations with the Company are not within the control of the Company. There
can be no assurance that such collaborators will perform their obligations as
expected or that the Company will derive any additional revenue from such
arrangements. Because the Company's arrangements with its collaborators may
entail the provision of identical or similar libraries or compounds to multiple
parties, there can be no assurance that conflicts will not arise between
collaborators as to proprietary rights to particular libraries or as to
particular compounds in the Company's libraries. Moreover, the Company's
collaborations may be terminated under certain circumstances by its
collaborators, which terminations could result in the Company relinquishing
rights to products developed jointly with its collaborators. Any such conflicts
or terminations could have a material and adverse effect on the Company.
There can be no assurance that (i) the Company's present or any future
collaborators will not pursue their existing or alternative technologies in
preference to those of the Company, (ii) any product will be developed and
marketed as a result of such collaborations or (iii) the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such current or future collaborative arrangements will
be successful. To the extent that the Company chooses not to or is unable to
establish such arrangements, it will require substantially greater capital to
undertake the research, development and marketing of products at its own
expense. In addition, the Company may encounter significant delays in developing
compounds or find that the development, manufacture or sale of its proposed
products is materially and adversely affected by the absence of such
collaborative agreements.
EARLY STAGE OF PRODUCT DEVELOPMENT
The Company's research and product development programs (including the
Company's program with respect to potential drug candidates for the treatment of
diseases mediated by the melanocortin receptor pathway) are at early stages. Any
compounds resulting from the Company's research and development programs are not
expected to be commercially available for a number of years, if ever, even if
any such compounds are successfully developed and proven to be safe and
effective. There can be no assurances that any of the Company's product
development efforts will be successfully completed, that development
arrangements with pharmaceutical partners will be established on acceptable
terms, if at all, that regulatory approvals will be obtained or will be as broad
as sought, that any candidate products will be capable of being produced in
commercial quantities at reasonable cost, or that any products, if introduced,
will achieve market acceptance or profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The continued development of the Company's technologies and compounds will
require the commitment of substantial additional funds to continue to maintain
the competitiveness of its drug discovery technologies and to conduct the costly
and time consuming research and preclinical and clinical testing necessary to
bring products to market. The Company's future capital requirements will depend
on many factors, including, among others, (i) continued scientific progress in
its research and development programs, (ii) the ability of the Company to
establish and maintain collaborative arrangements with respect to the Company's
drug discovery technologies and the clinical testing of candidate products,
(iii) progress with preclinical and clinical trials, (iv) the costs involved in
further developing and sustaining internal combinatorial chemistry capabilities,
(v) the costs involved in developing additional drug discovery technologies,
including combinatorial biology and the synthesis of compounds through
automation, (vi) the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims, (vii) competing technological and
market developments and
13
<PAGE> 14
(viii) changes in the Company's existing research relationships. Although the
Company estimates that its existing capital resources, funding under existing
research and development collaborations and the commitment for equity funding
from a former collaborative partner, together with currently available facility
and equipment financing, will be sufficient to fund its current and planned
operations for at least the next 12 months, there can be no assurance that
changes will not occur that would consume available capital resources before
such time.
The Company anticipates that it will be required to raise additional capital
over a period of at least several years in order to conduct its operations. Such
capital may be raised through additional public or private financings, as well
as collaborative arrangements, borrowings and other available sources. There can
be no assurance that additional financing will be available on acceptable terms,
if at all. If adequate funds are not available, the Company may be required to
delay, reduce the scope of or eliminate one or more of its research or
development programs, which could have a material adverse effect on the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has experienced significant operating losses since inception.
For the years ended December 31, 1997, 1996 and 1995, the Company had net losses
of approximately $9,372,000, $11,688,000 and $9,490,000, respectively. For the
nine months ended September 30, 1998, the Company recorded a net loss of
$9,506,000. At September 30, 1998, the Company had an accumulated deficit of
approximately $65,135,000. The Company expects that its ability to achieve
profitability will be dependent upon the ability of the Company to enter into
and achieve success under additional collaborative arrangements or to expand and
achieve success under existing relationships. There can be no assurances that
the Company will be successful in entering into additional collaboration
arrangements that will result in revenues or that the Company will receive
additional revenues under existing collaboration arrangements. If the Company is
unable to receive significantly increased revenues under collaboration
arrangements, the Company expects to incur additional operating losses in the
future and expects cumulative losses to increase as the Company's research and
development efforts and preclinical and clinical testing are expanded. Any
revenues from the achievement of milestones, royalties or license fees from the
discovery, development or sale of a commercial drug by a collaborator are not
expected to be material to the Company's financial position for several years,
if at all. The Company is unable to predict when, if ever, it will become
profitable.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
No information is presented for this Item (the Company is not presently
required to prepare or provide this information pursuant to the Instructions to
Item 305 of Regulation S-K).
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company (the "Annual Meeting") was
held on August 25, 1998 in San Diego, California.
Item 1. -- Election of Directors
Each of the nominees listed was duly elected to the Board of
Directors of the Company at the Annual Meeting by the tally
indicated:
<TABLE>
<CAPTION>
Class I Nominees Votes in Favor Votes Against Abstain/Non-Votes
---------------- -------------- ------------- -----------------
<S> <C> <C> <C>
Harvey S. Sadow 11,829,245 274,885 0
Robert S. Whitehead 11,816,580 287,550 0
</TABLE>
Item 2. -- To Increase the Shares Available under the 1996 Stock Incentive Plan
and to Approve Such Plan as Amended and Restated.
<TABLE>
<CAPTION>
Votes in Favor Votes Against Abstain/Non-Votes
-------------- ------------- -----------------
<S> <C> <C>
6,376,201 2,383,272 3,344,657
</TABLE>
Item 3. -- To Increase the Shares Available under the 1996 Employee Stock
Purchase Plan
<TABLE>
<CAPTION>
Votes in Favor Votes Against Abstain/Non-Votes
-------------- ------------- -----------------
<S> <C> <C>
8,431,432 392,525 3,280,173
</TABLE>
Item 4. -- Ratification of the Company's Independent Auditors
<TABLE>
<CAPTION>
Votes in Favor Votes Against Abstain/Non-Votes
-------------- ------------- -----------------
<S> <C> <C>
11,944,193 137,420 22,517
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
*10.1 Library Supply and Sublicense Agreement dated as of September
30, 1998 between Biogen, Inc. and the Company.
27.1 Financial Data Schedule.
</TABLE>
- ----------
* The Company has requested confidential treatment of certain portions of
this agreement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1998.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Trega Biosciences, Inc.
Date: November 12, 1998 /s/ ROBERT S. WHITEHEAD
-----------------------------------------
Robert S. Whitehead
President, Chief Executive Officer,
Chairman of the Board of Directors and
Acting Chief Financial Officer (Principal
Executive, Financial and Accounting
Officer)
16
<PAGE> 1
CONFIDENTIAL
Exhibit 10.1
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]" OR "[* * *]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
LIBRARY SUPPLY AND SUBLICENSE AGREEMENT
BY AND BETWEEN
BIOGEN, INC.
AND
TREGA BIOSCIENCES, INC.
EFFECTIVE AS OF SEPTEMBER 30, 1998
<PAGE> 2
CONFIDENTIAL
Exhibit 10.1
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT REQUESTED: PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED ARE MARKED "CONFIDENTIAL TREATMENT REQUESTED" AND APPROPRIATE
SECTIONS, WHERE TEXT HAS BEEN OMITTED, ARE NOTED WITH "[CONFIDENTIAL TREATMENT
REQUESTED]" OR "[* * *]." AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
THIS LIBRARY SUPPLY AND SUBLICENSE AGREEMENT effective as of September
30,1998 (the "Agreement"), is entered into between TREGA BIOSCIENCES, INC., a
Delaware corporation ("Trega"), having a place of business at 9880 Campus Point
Drive, San Diego, California 92121, and BIOGEN, INC., a Massachusetts
corporation ("Biogen"), having a place of business at Fourteen Cambridge Center,
Cambridge, Massachusetts 02142.
RECITALS:
WHEREAS, Trega has recognized expertise in small molecule subset
chemistry and compound optimization and has developed the capability to produce
subset libraries, based on [* * *] in [* * *], in large quantities at high
levels of [* * *] ; and
WHEREAS, Trega has rights to certain issued patents pertaining to
devices and methods for the [* * *] of chemical compounds; and
WHEREAS, Biogen desires to acquire certain chemical libraries and
compounds to support its expanding target and screening throughput capability
and to utilize such compounds in an effort to discover, develop and
commercialize products;
WHEREAS, Biogen desires to obtain a non-exclusive license from Trega to
certain [* * *] to assist in the [* * *] of materials received from Trega; and
WHEREAS, Biogen desires to obtain a non-exclusive sublicense from Trega
to certain patented technologies to support its drug discovery, development and
commercialization efforts.
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual covenants set forth below, the parties intending to be legally bound
hereby agree as follows:
-1-
<PAGE> 3
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 1
DEFINITIONS
The following capitalized terms used in this Agreement shall have the following
meaning:
1.1 "Actual Combinatorial Library Information" shall mean information
describing the one or more Templates and the Building Blocks used to create a
Combinatorial Library.
1.2 "Affiliate" as applied to either Party shall mean any company or
other legal entity other than the Party in question, in whatever country
organized, controlling, controlled by or under common control with that Party.
The term "control" means ownership or control, directly or indirectly, of at
least fifty percent (50%), or such lower maximum ownership permitted of foreign
owners by law, of the outstanding stock or voting rights or the right to elect
or appoint a majority of the directors.
1.3 "[* * *] Set" shall mean a set of [CONFIDENTIAL TREATMENT REQUESTED]
which contain at least [CONFIDENTIAL TREATMENT REQUESTED].
1.4 "[* * *] Set Compound" shall mean a compound which is contained in
an [* * *] Set.
1.5 "Building Blocks" shall mean the [CONFIDENTIAL TREATMENT REQUESTED]
that when combined form a Template, or, the structural components appended,
attached, incorporated into or bonded to a Template.
1.6 "Combinatorial Library" shall mean a selected subset of a Virtual
Combinatorial Library that is [CONFIDENTIAL TREATMENT REQUESTED] the Virtual
Combinatorial Library, comprises
-2-
<PAGE> 4
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
P
[CONFIDENTIAL TREATMENT REQUESTED] , and which is synthesized by or on behalf of
Trega for use in its chemicals supply business.
1.7 "Confidential Information" shall mean the information of a Party
identified as, or acknowledged to be, confidential.
1.8 "Contract Year" shall mean the successive 12-month periods under
this Agreement commencing on the Effective Date and ending on the anniversary of
the Effective Date.
1.9 "Effective Date" shall mean the date of this Agreement.
1.10 "FDA" shall mean the United States Food and Drug Administration or
its successor.
1.11 "IND" shall mean an Investigational New Drug application filed with
the FDA in the United States, or its equivalent filed with the governing health
authority in any other country.
1.12 "Joint Patent Rights" shall mean all patents and patent
applications claiming technology jointly invented by Trega and Biogen during the
term of this Agreement, including any provisional applications, priority
applications, divisionals, continuations, continuations-in-part, reissues,
reexaminations, supplemental protection certificates and the like.
1.13 "Lead Compound" shall mean a molecule deemed by Biogen to be
appropriate for additional [* * *] or a molecule actually the subject of such
efforts by or on behalf of Biogen.
1.14 "[CONFIDENTIAL TREATMENT REQUESTED]" shall mean any Valid Claims of
Joint Patent Rights covering Combinatorial Libraries.
1.15 "NDA" shall mean a New Drug Application filed with the FDA in the
United States, or the equivalent product license application filed with the
governing health authority in any other country.
-3-
<PAGE> 5
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
1.16 "Non-standard Reagents" shall mean any reagent, [CONFIDENTIAL
TREATMENT REQUESTED] that costs Trega more than [CONFIDENTIAL TREATMENT
REQUESTED] from the lowest cost, high quality supplier.
1.17 "Party" shall mean Biogen, Inc. and/or Trega Biosciences, Inc. and
their respective Affiliates.
1.18 "Product" shall mean any and all items which have been at any time
prior to the Effective Date or at any time during the term of this Agreement
[CONFIDENTIAL TREATMENT REQUESTED]
1.19 "Proposed Combinatorial Library Information" shall mean the
information describing one or more Templates and Building Blocks planned to be
used at each diversity site of a Template to create a Combinatorial Library.
1.20 "Responsible Party" shall mean the Party responsible for
prosecution, maintenance, enforcement and defense of Joint Patent Rights.
1.21 "Resupply Compound" shall mean a specific Subset Library Compound
or [* * *] Set Compound that is selected by Biogen for synthesis and supplied by
Trega pursuant to Article 2.7.
1.22 "[CONFIDENTIAL TREATMENT REQUESTED]" shall mean all patents and
patent applications claiming [CONFIDENTIAL TREATMENT REQUESTED]
-4-
<PAGE> 6
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
1.23 "Subset Library" shall mean a set of [* * *] containing a [* * *]
of a Combinatorial Library and which is based on [CONFIDENTIAL TREATMENT
REQUESTED] synthesized by or on behalf of Trega, and having [* * *] based upon
one or more selected Templates.
1.24 "Subset Library Compound" shall mean a [* * *] contained within a
Subset Library.
1.25 "Synthesis Protocols" shall mean, with respect to Trega Materials
delivered to Biogen hereunder, a detailed description of the know-how necessary
for a skilled, [* * *] to create compounds contained within such Trega
Materials, but specifically excluding [CONFIDENTIAL TREATMENT REQUESTED]
1.26 "Template" shall mean, with respect to a Virtual Combinatorial
Library, Combinatorial Library, Subset Library, or [* * *] Set [CONFIDENTIAL
TREATMENT REQUESTED] of compounds within such Virtual Combinatorial Library,
Combinatorial Library, Subset Library or [* * *] Set.
1.27 "Third Party" shall mean any person other than Trega, Biogen and
their respective Affiliates.
1.28 "Trega Materials" shall mean those Subset Libraries, Subset Library
Compounds, Resupply Compounds, [* * *] Sets and [* * *] Set Compounds purchased
by Biogen hereunder.
1.29 "Trega Patent Rights" shall mean all patents and patent
applications claiming Trega Technology, including any provisional applications,
priority applications, divisionals, continuations, continuations-in-part,
reissues, reexaminations, supplemental protection certificates and the like,
renewals, and extensions which are owned by, licensed to, or controlled by
Trega, as of the Effective Date, or as to which Trega acquires ownership or
control at any time during the term of this Agreement, where ownership or
control includes a right to grant license thereto.
-5-
<PAGE> 7
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
1.30 "Trega Synthesis Technologies" shall mean the following patents and
patent applications including any provisional applications, priority
applications, divisionals, continuations, continuations-in-part, reissues,
reexaminations, supplemental protection certificates and the like, renewals, and
extensions: [CONFIDENTIAL TREATMENT REQUESTED]
1.31 "Trega Technology" shall mean all information, data, results,
ideas, trade secrets, concepts, formulae, methods, procedures, techniques,
designs, compositions, plans, specifications, know-how, processes, technical
data, formulations and the like, whether or not patentable or patented, which
are owned by, licensed to, or controlled by Trega as of the Effective Date or as
to which Trega acquires ownership or control at any time during the term of this
Agreement (where ownership or control includes a right to grant licenses
thereto), and which are used to create Trega Materials, but specifically
excluding [CONFIDENTIAL TREATMENT REQUESTED] and Trega Synthesis Technologies.
1.32 "Valid Claim" shall mean a claim of an issued and unexpired patent
included within Trega Patent Rights which has not been revoked or held invalid
or unenforceable by a decision of a court or other governmental agency of
competent jurisdiction from which no appeal can be or is taken within the time
allowed for appeal, and which has not been disclaimed, denied or admitted to be
invalid or unenforceable through reissue, or disclaimer or otherwise.
1.33 "Virtual Combinatorial Library" shall mean a [* * *] collection of
compounds determined by Trega to be chemically feasible. Such compounds
-6-
<PAGE> 8
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
comprise [CONFIDENTIAL TREATMENT REQUESTED] from which a Combinatorial
Library is assembled.
ARTICLE 2
COMPOUND PURCHASE PROVISIONS
2.1 Supply of Subset Libraries. Commencing on the Effective Date and
continuing for a period of two (2) Contract Years thereafter, Trega shall make
available to Biogen during each of the first two Contract Years, upon completion
of synthesis or from existing inventories, Subset Libraries comprising
[CONFIDENTIAL TREATMENT REQUESTED]. Subset Libraries will be based on
Combinatorial Libraries [CONFIDENTIAL TREATMENT REQUESTED] per Contract Year.
Subset Libraries shall be [CONFIDENTIAL TREATMENT REQUESTED] on average
as determined by statistical sampling using appropriate analytical methods,
[CONFIDENTIAL TREATMENT REQUESTED] of [CONFIDENTIAL TREATMENT REQUESTED]. Trega
will test each Subset Library by mass spectrometry to confirm the presence of
each Subset Library Compound. Such testing must confirm the presence of
[CONFIDENTIAL TREATMENT REQUESTED] of Subset Library Compounds. In order to [* *
*] within each Combinatorial Library Trega will implement the process and will
meet the [* * *] described in Exhibit A. Those compounds that compose a
Combinatorial Library that does not meet such [* * *] will not be counted
against Trega's [* * *] described above unless Biogen exercises it right under
Article 6.5 and purchases a Subset Library from such Combinatorial Library. The
process described in Exhibit A may be updated from time to time to enhance [* *
*] whenever feasible. Trega shall promptly notify Biogen, if, subsequent to the
Effective Date, Trega executes an agreement with a Third Party which includes
provisions for the purchase of compounds and which includes [* * *] ("Third
Party [* * *]") different than the then-current [* * *]
-7-
<PAGE> 9
CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
described in Exhibit A. Biogen shall have the option to replace such
then-current [* * *] with such Third Party [* * *].
Within fourteen (14) days of the Effective Date, Trega will present to
Biogen the Actual Combinatorial Library Information for Combinatorial Libraries
in inventory and Proposed Combinatorial Library Information for Combinatorial
Libraries in production for Biogen to determine whether or not it will purchase
Subset Libraries from such Combinatorial Libraries. Prior to the synthesis of
each subsequent Combinatorial Library, Trega will make available to Biogen the
Proposed Combinatorial Library Information of such Combinatorial Library in
order for Biogen to determine, based on the information provided, whether or not
it will likely purchase Subset Libraries based on each such Combinatorial
Library. Within fourteen (14) days from receipt of the Proposed Combinatorial
Library Information, Biogen shall have the opportunity to make suggestions that
may influence the final production of each such Combinatorial Library. Trega
shall, in its sole discretion, determine the Templates and Building Blocks used
to create each Combinatorial Library.
Following completion of each Combinatorial Library, Trega shall present
Biogen the Actual Combinatorial Library Information used in the creation of such
Combinatorial Library. Biogen will notify Trega within fourteen (14) days of
receipt of the Actual Combinatorial Library Information, the number, if any, of
compounds it will purchase from that Combinatorial Library, and provide shipping
instructions including carrier and insurance designations. The Parties may
mutually agree to extend or modify such fourteen (14) day period as appropriate.
Trega shall ship to Biogen a Subset Library containing the agreed upon number of
compounds from such Combinatorial Library. Failure of Biogen to notify Trega of
its decision during such fourteen (14) day period shall be deemed to be
acceptance of such Combinatorial Library structure and composition. Thereafter,
Trega shall be entitled to ship a Subset Library comprising [CONFIDENTIAL
TREATMENT REQUESTED] from such Combinatorial Library to Biogen pursuant to terms
of this Agreement. Trega shall use [* * *] to obtain such shipping insurance as
Biogen shall request.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
2.2 Subset Library Compound Purchase Obligations. Biogen shall be
obligated to purchase [CONFIDENTIAL TREATMENT REQUESTED] Subset Library
Compounds during each of the first two Contract Years.
2.3 Option to Extend Term. The term of supply and purchase of Subset
Libraries may be extended annually beyond the two Contract Years described in
Articles 2.1 and 2.2 upon the mutual written consent of the Parties.
[CONFIDENTIAL TREATMENT REQUESTED] may be obtained. For each annual extension,
if any, the obligations of each Party shall be as described in the provisions of
this Agreement unless changes are mutually agreed upon in writing by the
Parties.
2.4 [* * *] Sets. Biogen may order from Trega, and Trega shall provide,
[* * *] Sets based upon Lead Compounds identified by Biogen from Trega
Materials. Biogen's orders shall be in writing to Trega. Trega shall provide a
proposed delivery date for such [* * *] Set and a cost estimate for any
Non-standard Reagents in writing within fourteen (14) days of receipt of
Biogen's order. Within fourteen (14) days of receipt of Trega's proposed
delivery date, Biogen shall either accept or reject such proposed delivery date
in writing. If Trega does not receive a written response within the fourteen
(14) day period, Trega shall deem the proposed date to be acceptable and will
commence synthesis of the [* * *] Set. [* * *] Sets ordered by Biogen and
provided by Trega shall be sold by Trega exclusively to Biogen and shall not be
sold to any Third Party, nor used by Trega or its Affiliates or collaborators.
[* * *] Sets purchased by Biogen from Trega shall be designated by
Biogen and Trega and will be constructed from the Virtual Combinatorial Library
from which such Lead Compound was identified or derived. [* * *] Sets provided
hereunder shall comprise [CONFIDENTIAL TREATMENT REQUESTED] from the Subset
Library Compounds provided to Biogen, and further distinct from [* * *] Set
Compounds designated by Trega for its use or delivered to Third Parties. [* * *]
Set Compounds shall be provided in [CONFIDENTIAL TREATMENT REQUESTED] with an
average [* * *] Set [CONFIDENTIAL TREATMENT REQUESTED] as determined by
statistical sampling using appropriate analytical methods, sampling
[CONFIDENTIAL TREATMENT REQUESTED] of the [* * *] Compounds in each [* * *] Set.
Trega will test each [* * *] Set by [* * *] to confirm the presence of each [* *
*] Set Compound.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
2.5 Term for Supply of [* * *] Sets. Biogen's option to have Trega
supply [* * *] Sets shall expire [CONFIDENTIAL TREATMENT REQUESTED] under this
Agreement.
2.6 Resupply Compounds. Biogen may order from Trega, and Trega shall
provide to Biogen, Resupply Compounds based upon Lead Compounds identified by
Biogen from Trega Materials. Biogen's order shall be in writing to Trega. Trega
shall respond in writing within fourteen (14) days of receipt of Biogen's order
with a proposed delivery date for such Resupply Compounds. Biogen, within
fourteen (14) days of receipt of Trega's proposed delivery date quote, shall
either accept or reject in writing Trega's proposed delivery date. If Trega does
not receive a written response within such fourteen (14) day period, Trega shall
deem the proposed delivery date to be acceptable and will commence synthesis of
the Resupply Compounds.
Resupply Compounds shall meet the same [* * *] parameters as the earlier
delivered [* * *] Set Compound or Subset Library Compound for which the resupply
has been requested. Resupply Compounds shall be requested and ordered at a
minimum, [CONFIDENTIAL TREATMENT REQUESTED] ordered on a single invoice basis.
2.7 Term for Supply of Resupply Compounds. Biogen's option to have Trega
supply Resupply Compounds shall [CONFIDENTIAL TREATMENT REQUESTED].
2.8 General Terms for Supply of Trega Materials. Trega shall supply
Trega Materials to Biogen pursuant to the following terms and conditions:
(a) The supply of Trega Materials to Biogen shall be governed by
the terms of this Agreement. None of the terms or conditions of any order,
invoice, confirmation or similar instrument shall be applicable, except those
specifying the identity of Trega Materials, quantity ordered, delivery date,
designated carrier and invoice information.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
(b) All Trega Materials supplied under this Agreement shall be
shipped [CONFIDENTIAL TREATMENT REQUESTED]. At the time each Subset Library is
shipped to Biogen hereunder, Trega shall send to Biogen, with respect to each
such Subset Library, a release memo substantially in the form of Exhibit B
attached hereto and release information substantially comprising the items set
forth on Exhibit C attached hereto.
2.9 Management of Interactions. Trega and Biogen each shall designate a
person to serve as project manager who shall be the primary contact for all
scientific interactions. Meetings will be held in person or via teleconference,
at least quarterly for Biogen and Trega to exchange information and manage the
activities under this Agreement.
ARTICLE 3
LICENSES
3.1 Technology Grant. Trega hereby grants to Biogen and its Affiliates:
(a) a world-wide, nonsublicensable, nonexclusive sublicense
under Trega Synthesis Technologies to make, have made, use, sell, offer for sale
and import Products, subject to the terms of the License Agreement [CONFIDENTIAL
TREATMENT REQUESTED], and such other agreements described in Exhibit D. This
sublicense shall specifically include the right to [CONFIDENTIAL TREATMENT
REQUESTED];
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
(b) [CONFIDENTIAL TREATMENT REQUESTED] license under Trega Patent
Rights and Trega Technology to make, have made, use, offer for sale, import and
sell [* * *] Set Compounds purchased hereunder; and
(c) a world-wide, sublicensable, nonexclusive license under Trega
Patents Rights and Trega Technology to make, have made, use, offer for sale,
import and sell Products [CONFIDENTIAL TREATMENT REQUESTED].
The foregoing rights and licenses granted in this Article 3 hereby
specifically exclude the right to: (i) [CONFIDENTIAL TREATMENT REQUESTED]; (ii)
evaluate, investigate, or characterize Trega Materials or Products derived from
or based upon Trega Materials for purposes of [CONFIDENTIAL TREATMENT
REQUESTED]; provided, however, that Biogen may evaluate, investigate, or
characterize Trega Materials and Products derived from or based upon Trega
Materials that have [CONFIDENTIAL TREATMENT REQUESTED]; (iii) make, have made,
use, sell, offer for sale, or import Products derived from or based upon Trega
Materials which result from the activities in clauses (i) and (ii) above.
Notwithstanding the foregoing (i), (ii) and (iii), Biogen shall have the right
to screen Trega Materials or Products derived from or based upon Trega Materials
for [CONFIDENTIAL TREATMENT REQUESTED].
Additionally, the foregoing rights and licenses granted to Biogen
hereunder shall [CONFIDENTIAL TREATMENT REQUESTED].
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 4
CONFIDENTIALITY
4.1 Confidential Information. For purposes of Article 4, a Party
communicating Confidential Information shall be referred to as the "Disclosing
Party" and the Party receiving such Confidential Information shall be referred
to as the "Recipient Party." During the term of this Agreement, and for [* * *]
Contract Years following the expiration or earlier termination hereof, the
Recipient Party shall maintain in confidence all Confidential Information and
shall not use, disclose or grant the use of the Confidential Information except
on a need-to-know basis to those directors, officers, affiliates, employees,
consultants, clinical investigators or contractors of the Recipient Party, to
the extent such disclosure is reasonably necessary in connection with the
Recipient Party's activities as expressly authorized by this Agreement. To the
extent that disclosure is authorized by this Agreement, prior to disclosure,
each Party hereto shall obtain agreement of any such person to whom Confidential
Information will be disclosed to hold in confidence and not make use of the
Confidential Information for any purpose other than those permitted by this
Agreement. In order to be treated as Confidential Information hereunder, oral
disclosures shall be identified as confidential at the time of disclosure.
4.2 Permitted Disclosures. The confidentiality obligations contained in
Article 4.1 above shall not apply to the extent that:
(a) any Recipient Party is required (i) to disclose information
by law, order or regulation of a governmental agency or a court of competent
jurisdiction, or (ii) to disclose information to any governmental agency for
purposes of obtaining approval to test or market a product or obtain patent
protection, provided in either case that the Recipient shall provide written
notice thereof to the other Party; or
(b) the Recipient Party can demonstrate that (i) the disclosed
information was public
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CONFIDENTIAL
knowledge at the time of such disclosure to the Recipient Party, or thereafter
became public knowledge, other than as a result of actions of the Recipient
Party in violation hereof; (ii) the disclosed information was rightfully known
by the Recipient Party (as shown by its written records) prior to the date of
disclosure to the Recipient Party by the Disclosing Party hereunder; (iii) the
disclosed information was disclosed to the Recipient Party from a source
unrelated to any Party to this Agreement and not under a duty of confidentiality
to the Disclosing Party; or (iv) the disclosed information was independently
developed by the Recipient Party without such Confidential Information as shown
through reasonable documentary evidence thereof.
4.3 Announcements. The Parties acknowledge that the ability to make
certain information public may be governed by existing or future contractual
obligations of the Parties with Third Parties. To the extent permissible, and
notwithstanding the confidentiality provisions contained in this Article 4,
Biogen hereby grants to Trega the right to publicly disclose achievement of the
following milestones with respect to Products. Biogen shall give Trega
reasonably prompt notice of these events but shall not be required to disclose
to Trega the chemical structure or biological activity of such Product.
(a) Commencement of pre-clinical toxicology;
(b) Filing of the first IND or foreign equivalent thereof;
(c) Initiation of the first Phase II clinical study;
(d) Initiation of the first Phase III clinical study;
(e) Submission of the first NDA, or foreign equivalent thereof;
and
(f) Approval of the first NDA, or foreign equivalent thereof.
Notwithstanding the foregoing, Trega shall not disclose the identity of
such compounds or the targets at which they are directed without the consent of
Biogen. Biogen shall have the right to review and consent to the contents of
such announcements prior to disclosure to the extent that they pertain to
Biogen. Biogen's consent shall not be unreasonably withheld or delayed. The
Parties acknowledge that following the Effective Date, this Agreement shall be
publicly announced in a press release that, prior to its release, is agreed to
in writing by both
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
Parties and shall be filed with the U.S. Securities and Exchange Commission in
satisfaction of Trega's responsibilities as a public company.
ARTICLE 5
INVENTIONS AND PATENT RIGHTS
All matters pertaining to the ownership of inventions, the prosecution
of patents and infringements, the defense against any claims of infringement and
all other intellectual property matters shall be governed by the following
Article 5.
5.1 Ownership of Inventions. The entire right, title, and interest in
and to any and all [CONFIDENTIAL TREATMENT REQUESTED] shall be [CONFIDENTIAL
TREATMENT REQUESTED] shall be [CONFIDENTIAL TREATMENT REQUESTED].
5.2 Patent Enforcement, Prosecution and Maintenance.
(a) Trega shall have the right, in its sole discretion and at its
expense (except as otherwise set forth herein), to control the preparation,
filing, prosecution, enforcement and maintenance of [CONFIDENTIAL TREATMENT
REQUESTED], including oppositions, re-examinations, interferences, nullity
actions, reissues, patent term extensions and similar actions, and will respond
to claims made against [CONFIDENTIAL TREATMENT REQUESTED]. Trega shall keep
Biogen apprised of all activity related to [CONFIDENTIAL TREATMENT REQUESTED]
and shall provide copies of all non-privileged correspondence to and from the
Patent and Trademark Office or foreign equivalent thereof upon Biogen's request.
(b) Trega shall have the right, in its discretion and at its
expense to control the preparation, filing, prosecution, maintenance,
enforcement and defense of all [CONFIDENTIAL TREATMENT REQUESTED], including
oppositions, re-examinations, interferences and nullity actions, reissues,
patent term extensions and similar actions, and will respond to any claims made
against
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
[CONFIDENTIAL TREATMENT REQUESTED]. Biogen shall receive copies of all
correspondence to and from the U.S. Patent Office, or foreign equivalent
thereof, and copies of all documentation related to procurement of [CONFIDENTIAL
TREATMENT REQUESTED]. Trega shall copy Biogen on all correspondence and
pleadings related to [CONFIDENTIAL TREATMENT REQUESTED].
A determination will be made of which Party shall be responsible for
filing, prosecuting, maintaining, enforcing and defending all other [* * *]
based upon a good faith determination of the relative contributions to, and
interest of each Party in, the claimed invention. The Parties shall equally
share all out-of-pocket costs related to filing, prosecuting, maintaining,
defending and enforcing [* * *], except that a Party may at any time choose to
terminate, or to reduce, the funding of costs associated with any of the [* *
*]. In the event that a recovery is obtained by either Party as a result of
enforcing or defending [* * *], such recovery shall first be applied to
reimbursement of unreimbursed legal fees and out-of-pocket expenses incurred by
the Parties in a proportion commensurate to the financial contribution of each
Party to such enforcement and/or defense. The remainder of any such recovery
shall be divided between the Parties in proportion to their financial
contributions to such enforcement and/or defense. The Responsible Party shall
provide drafts of all correspondence to the U.S. Patent and Trademark Office and
foreign equivalent thereof to the other Party for review, allowing a reasonable
time for such other Party to provide comments prior to filing. Additionally, the
Responsible Party shall copy the other Party on all correspondence and pleadings
relevant to enforcement and/or defense of such [* * *]. The Responsible Party
shall give good faith consideration to the comments of the other Party. Each
Party shall cooperate fully with the other Party, execute all lawful papers and
instruments and make all rightful oaths and declarations as may be necessary in
the preparation, prosecution and maintenance of all applications and patents
described therein. Additionally, the Parties shall cooperate fully as necessary
for obtaining supplemental protection certificates, patent extensions, or
equivalents thereof. Neither Party shall settle any action or otherwise consent
to an adverse judgment in such action that diminishes the rights or interest of
the other Party without the express consent of the other Party.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
5.3 Infringement.
(a) If Biogen learns that a Third Party has infringed and/or
misappropriated [CONFIDENTIAL TREATMENT REQUESTED] (referred to hereinafter as
"Infringement"), it shall promptly notify Trega of such apparent Infringement.
Promptly after such notice by Biogen, the Parties shall meet to exchange
information. Trega shall have the right, but not the obligation to institute,
prosecute, and control any actions or proceedings relating to such suspected
Infringement at its sole discretion and at its sole cost and expense. Trega
shall be entitled to receive and retain for its sole use and benefit, any
recovery, settlement, amount awarded in any such suit, including without
limitation, awards of lost profits, damages and/or punitive damages and/or
costs, attorney's fees and awards of sanction.
(b) If either Party shall receive a claim or assertion that
practice of the activities claimed in [CONFIDENTIAL TREATMENT REQUESTED], or the
practice of [* * *] licensed under this Agreement infringes or otherwise
violates the intellectual property rights of any Third Party, then the Party
against whom such claim was made shall promptly notify the other Party to this
Agreement of the claim and all reasonable details relating thereto. The Party
against whom the claim was made shall have the right to defend against such
claim and the other Party shall reasonably cooperate with the Party against whom
the claim was made in the defense of such claim, at the request and expense of
the Party against whom the claim was made. Each Party shall have the right to be
represented by counsel of its own choice and at its own expense in any
proceedings.
5.4 Utility. Trega and its designees shall be entitled to screen all
[CONFIDENTIAL TREATMENT REQUESTED] (including, without limitation, [CONFIDENTIAL
TREATMENT REQUESTED] which are suitable, or can be made suitable, and to
evaluate, test, analyze, and use the Combinatorial Libraries to discover the
[CONFIDENTIAL TREATMENT REQUESTED] with respect thereto.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
5.5 [CONFIDENTIAL TREATMENT REQUESTED]
5.6 Limitations. [CONFIDENTIAL TREATMENT REQUESTED]
ARTICLE 6
PAYMENT OBLIGATIONS
6.1 Sublicense Fee. Biogen shall pay to Trega a [CONFIDENTIAL TREATMENT
REQUESTED], payable on the Effective Date of this Agreement, [CONFIDENTIAL
TREATMENT REQUESTED].
6.2 Payments for Subset Libraries. Biogen shall pay to Trega the sum of
[CONFIDENTIAL TREATMENT REQUESTED]. Upon shipment of any Trega Materials to
Biogen hereunder, Trega shall submit an invoice therefor to Biogen, and Biogen
shall pay each such invoice in full within thirty (30) days of receipt.
6.3 [* * *] Set Payments. Biogen shall pay Trega a [CONFIDENTIAL
TREATMENT REQUESTED] Set delivered to Biogen under Article 2.5 above.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
6.4 Resupply Compound Payments. Biogen shall pay Trega a [CONFIDENTIAL
TREATMENT REQUESTED] sample of Resupply Compounds, [CONFIDENTIAL TREATMENT
REQUESTED]. For quantities actually synthesized by Trega that are greater or
less than the amount requested by Biogen, Biogen may, at its option, purchase
such material [CONFIDENTIAL TREATMENT REQUESTED], provided that the quality and
identity standards are met.
6.5 Non-conforming Trega Materials. For any Trega Materials which do not
meet the applicable quality or identity requirements Biogen may, in its sole
discretion, choose to purchase such Trega Materials. [CONFIDENTIAL TREATMENT
REQUESTED].
6.6 Milestone Payments. Biogen shall pay to Trega the following
nonrefundable amounts upon achievement of the milestones set forth below by a
Product [CONFIDENTIAL TREATMENT REQUESTED].
a) [* * *] or foreign equivalent thereof $[* * *]
b) [* * *] $[* * *]
c) [* * *] $[* * *]
d) [* * *] or foreign equivalent thereof $[* * *]
e) [* * *] or foreign equivalent thereof $[* * *]
6.7 Change of Control Termination Fee. Biogen shall pay to Trega a
[CONFIDENTIAL TREATMENT REQUESTED] within ten (10) days of its written notice to
Trega to terminate this Agreement under Article 7.5 below.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
6.8 Payment Method. Upon shipment of any Trega Materials to Biogen
hereunder, Trega shall submit an invoice therefore to Biogen, and Biogen shall
pay each such invoice in full within thirty (30) days of receipt. All payments
under this Agreement shall be paid in United States dollars to Trega by bank
wire transfer in immediately available funds to such account as designated by
Trega on or before the date on which such payment is due.
6.9 Late Payments. Unless otherwise provided in this Agreement, Biogen
shall pay interest to Trega hereunder on the aggregate amount of any payments
that are not paid on or before the date such payments are due under this
Agreement, at a rate per annum equal to the [CONFIDENTIAL TREATMENT REQUESTED].
6.10 Taxes and Other Charges . Biogen shall pay all federal, state,
county or municipal sales or use taxes, excise or similar charges (other than
taxes that may be assessed on the income of Trega), assessed or charged in
connection with the purchase of the Trega Materials pursuant to this Agreement.
6.11 Entire Consideration. The payments in Article 6 shall constitute
the entire consideration for the rights and licenses granted hereunder, and no
further consideration, payments or royalties shall be paid by Biogen to Trega.
ARTICLE 7
TERM AND TERMINATION
7.1 Expiration. Unless terminated earlier pursuant to Article 7.2 below,
the term of this Agreement shall expire on the expiration of Biogen's and
Trega's obligations under this Agreement.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
7.2 Termination for Cause. Either Party may terminate this Agreement
upon or after the breach of any material provision of this Agreement, if the
breaching Party has not cured such breach within ninety (90) days after notice
thereof from the other Party.
7.3 Consequences of Breach. If Biogen terminates this Agreement under
Section 7.2 for breach by Trega [CONFIDENTIAL TREATMENT REQUESTED]:
[CONFIDENTIAL TREATMENT
[CONFIDENTIAL TREATMENT REQUESTED]
REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
If Trega terminates this Agreement under Article 7.2 for breach by
Biogen, Biogen shall [CONFIDENTIAL TREATMENT REQUESTED]. The foregoing shall be
Trega's sole remedy for such breach.
7.4 Effect of Expiration and Termination. Expiration or termination of
this Agreement shall not relieve the Parties of any obligation accruing prior to
such expiration or termination except as set forth above. The provisions of
Articles 3, 4, 5, and 9 shall survive the expiration or termination of this
Agreement. [CONFIDENTIAL TREATMENT REQUESTED]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
[CONFIDENTIAL TREATMENT REQUESTED], except in the case of breach by Trega, as
described in Article 7.3 above, in which case [* * *] shall be reduced.
7.5 Change of Control. In the event of a change of control of Trega
during the term of this Agreement, Biogen may terminate its obligations to [* *
*] hereunder within [CONFIDENTIAL TREATMENT REQUESTED] such change of control if
such change of control materially interferes with Trega's ability to perform
under the Agreement. Additionally, within [* * *] days of a change of control
Biogen may terminate its obligations to [* * *] hereunder if such change of
control results in control by a [CONFIDENTIAL TREATMENT REQUESTED]
A termination under this Article 7.5 shall not, however relieve Biogen
of its obligations to pay milestones as set forth in Article 6. In the event
that Biogen chooses to terminate under this Article 7.5, Biogen shall continue
to be entitled to [CONFIDENTIAL TREATMENT REQUESTED].
A change of control shall be deemed to have occurred if: (a) any Person
who is not as of the Effective Date a Beneficial Owner, becomes the Beneficial
Owner (as hereinafter defined), directly or indirectly, of securities of Trega
representing more than 50% of the combined voting power of Trega's then
outstanding securities; (b) the stockholders of Trega approve a plan of complete
liquidation or dissolution or there is consummated an agreement for the sale or
disposition by Trega of all or substantially all of the Company's assets, or the
sale or disposition of all or substantially all of its subset chemistry business
to another Person. For purposes hereof, (1) the term "Person" shall have the
meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) Trega or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of Trega or any of its affiliates, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
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CONFIDENTIAL
securities, (iv) a Person , more than 50 % of which is owned, directly or
indirectly, by the stockholders of Trega in substantially the same proportions
as their ownership of stock of Trega, or (v) any Person who is, on the Effective
Date, a 5% Beneficial Owner of Trega's securities who comes to acquire 50% or
more of Trega's securities, and whose principal business is financial
investment. The term "Beneficial Owner" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Each Party hereby represents and warrants to the other Party as follows:
8.1 Existence and Power. It (a) is duly organized, validly existing and
in good standing under the laws of the state or other jurisdiction of
incorporation in which it is organized, (b) has the requisite power and
authority and the legal right to own and operate its property and assets, to
lease the property and assets it operates under lease, and to carry on its
business as it is now being conducted, and (c) is in compliance with all
requirements of applicable law, except to the extent that any noncompliance
would not have a material adverse effect on the properties, business, financial
or other condition of such Party and would not materially adversely affect such
Party's ability to perform its obligations under this Agreement.
8.2 Authorization and Enforcement of Obligations. Such Party (a) has the
requisite power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (b) has taken all necessary action
on its part to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder. This Agreement has been duly executed
and delivered on behalf of such Party, and constitutes a legal, valid and
binding obligation, enforceable against such Party in accordance with its terms.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
8.3 Right to Sublicense. [CONFIDENTIAL TREATMENT REQUESTED].
8.4 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other persons required to be obtained by such
Party in connection with this Agreement have been obtained.
8.5 No Conflict. The execution and delivery of this Agreement and the
performance of such Party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations and (b) do not
conflict with, or constitute a default under, any contractual obligation of such
Party.
8.6 Pending Actions. Each represents that it is not aware of any action,
suit, inquiry or investigation, or any claim, demand or notice of default
against it, which if adversely determined would affect the rights granted under
this Agreement.
8.7 Patents. Trega hereby represents and warrants to Biogen that:
(a) [CONFIDENTIAL TREATMENT REQUESTED].
(b) [CONFIDENTIAL TREATMENT REQUESTED].
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
(c) [CONFIDENTIAL TREATMENT REQUESTED].
8.8 Experimental Materials. Biogen hereby acknowledges that all Trega
Materials are experimental in nature, are for research purposes only, and have
not been approved for use in humans or animals.
8.9 [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
[CONFIDENTIAL TREATMENT REQUESTED]
ARTICLE 9
INDEMNITY
9.1 [CONFIDENTIAL TREATMENT REQUESTED]
9.2 [CONFIDENTIAL TREATMENT REQUESTED]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
[CONFIDENTIAL TREATMENT REQUESTED]
9.3 Procedure. The Party that intends to claim indemnification under
this Article (the "Indemnitee") shall promptly notify the indemnifying Party
(the "Indemnitor") or any loss, claim, damage, liability or action with respect
to which the Indemnitee intends to claim such indemnification, and the
Indemnitor shall assume the defense thereof with counsel mutually satisfactory
to the Indemnitee whether or not such claim is rightfully brought; provided,
however, that an Indemnitee shall have the right to retain its own counsel, with
the fees and expenses to be paid by the Indemnitor if Indemnitor does not assume
the defense, or if representation of such Indemnitee by the counsel retained by
the Indemnitor would be inappropriate due to actual or potential differing
interests between such Indemnitee and any other person represented by such
counsel in such proceedings. The indemnity agreement in this Article shall not
apply to amounts paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of the Indemnitor,
which consent shall not be withheld or delayed unreasonably. The failure to
deliver notice to the Indemnitor within a reasonable time after the commencement
of any such action, only if prejudicial to its ability to defend such action,
shall relieve such Indemnitor of any liability to the Indemnitee under this
Article, but the omission to deliver notice to the Indemnitor will not relieve
it of any liability that it may have to any Indemnitee otherwise than under this
Article. The Indemnitor shall not settle the action or otherwise consent to an
adverse judgment in such action that diminishes the rights or interest of the
Indemnitee without the express consent of the Indemnitee. The Indemnitee under
this Article, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigations of any action,
claim or liability covered by this indemnification. The Indemnitee shall keep
the Indemnitor informed of any investigation and the Indemnitor shall have the
right to review and comment on the conduct of the investigation.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
9.4 Insurance.
(a) [CONFIDENTIAL TREATMENT REQUESTED]
(b) [CONFIDENTIAL TREATMENT REQUESTED]
ARTICLE 10
FORCE MAJEURE
Neither Party shall be held liable or responsible to the other Party nor
be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement to the extent, and
for so long as, such failure or delay is caused by or results from causes beyond
the reasonable control of the affected Party including but not limited to fire,
earthquakes, floods, embargoes, war, acts of war (whether war be declared or
not), insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other Party.
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 11
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred, nor, except
as expressly provided hereunder, may any right or obligations hereunder be
assigned, sublicensed, or transferred by either Party without the consent of the
other Party; provided, however, that either Trega or Biogen may, without such
consent, assign this Agreement and its rights and obligations hereunder in
connection with the transfer or sale of all or substantially all of its business
(or, in the case of Trega, all or substantially all of its [* * *],or in the
event of its merger or consolidation or change in control or similar
transaction. Any permitted assignee shall assume all obligations of its assignor
under this Agreement. In the event that such Assignment by Trega constitutes a
change of control of Trega, the provisions of Article 7.5 shall apply.
ARTICLE 12
SEVERABILITY
Each Party hereby acknowledges that it does not intend to violate any
public policy, statutory or common laws, rules, regulations, treaty or decision
of any government agency or executive body thereof of any country or community
or association of countries. Should one or more provisions of this Agreement be
or become invalid, the Parties shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the Parties would have entered into this Agreement with
such provisions. In case such provisions cannot be agreed upon, the invalidity
of one or several provisions of this Agreement shall not affect the validity of
this Agreement as a whole, unless the invalid provisions are of such essential
importance to this Agreement that it is to be reasonably assumed that the
Parties would not have entered into this Agreement without the invalid
provisions.
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CONFIDENTIAL
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the Parties to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, U.S. first class mail or courier), U.S. first class mail or
courier, postage prepaid (where applicable), addressed to such other Party at
its address indicated below, or to such other address as the addressee shall
have last furnished in writing to the address or and (except as otherwise
provided in this Agreement) shall be effective upon receipt by the addressee.
If to Trega: Trega Biosciences, Inc.
9880 Campus Point Drive
San Diego, California 92121
Attention: President
If to Biogen: Biogen, Inc.
Vice President of Marketing, Sales and Business Development
Fourteen Cambridge Center
Cambridge, MA 02142
With copy to: Vice President-General Counsel
13.2 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to the
conflicts of law principles thereof.
13.3 Compliance with Applicable Laws. Biogen, its Affiliates and
(sub)licensees shall use reasonable efforts to comply with all applicable laws,
regulations and governmental orders in connection with their respective
activities related to this Agreement, including without limitation the research,
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<PAGE> 32
CONFIDENTIAL
development, manufacture, use and sale of Products. Without limiting the
foregoing, Biogen, its Affiliates and (sub)licensees shall use reasonable
efforts to observe and comply with all applicable United States and foreign laws
with respect to the transfer of Products and related technical data to foreign
countries.
13.4 Entire Agreement. This Agreement contains the entire understanding
of the Parties with respect to the subject matter hereof. All express or implied
agreements and understandings, either oral or written, heretofore made are
expressly superseded by this Agreement. This Agreement may be amended, or any
term hereof modified, only by a written instrument duly executed by both
Parties.
13.5 Headings. The captions to the several Articles hereof are not part
of this Agreement, but are merely guides or labels to assist in locating and
reading the several Articles hereof.
13.6 Independent Contractors. It is expressly agreed that Trega and
Biogen shall be independent contractors and that the relationship between the
two Parties shall not constitute a partnership, joint venture or agency. Neither
Trega nor Biogen shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the Party to do so.
13.7 Waiver. The waiver by either Party of any (i) right hereunder, (ii)
of a failure to perform or of a breach by the other Party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other Party, whether of a similar nature or otherwise.
13.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 33
CONFIDENTIAL
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
TREGA BIOSCIENCES, INC.
By: Robert S. Whitehead
------------------------------------
Signature: /s/ Robert S. Whitehead
-----------------------------
Title: President and CEO
---------------------------------
BIOGEN, INC.
By: James B. Tobin
------------------------------------
Signature: /s/ James B. Tobin
-----------------------------
Title: President and CEO
---------------------------------
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
[CONFIDENTIAL TREATMENT REQUESTED]
[Three (3) Pages of Text Have Been Omitted]
-33-
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT B
[CONFIDENTIAL TREATMENT REQUESTED]
[Three (3) Pages of Text Have Been Omitted]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT C
[CONFIDENTIAL TREATMENT REQUESTED]
[Four (4) Pages of Text Have Been Omitted]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT D
[CONFIDENTIAL TREATMENT REQUESTED]
[Eighteen (18) Pages of Text Have Been Omitted]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT E
[CONFIDENTIAL TREATMENT REQUESTED]
[Two (2) Pages of Text Have Been Omitted]
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 DEFINITIONS
1.1 "Actual Combinatorial Library Information 2
1.2 "Affiliate 2
1.3 "[* * *] Set 2
1.4 "[* * *] Set Compound 2
1.5 "Building Blocks 2
1.6 "Combinatorial Library 2
1.7 "Confidential Information 3
1.8 "Contract Year 3
1.9 "Effective Date 3
1.10 "FDA 3
1.11 "IND 3
1.12 "[* * *] 3
1.13 "Lead Compound 3
1.14 "[CONFIDENTIAL TREATMENT REQUESTED] 3
1.15 "NDA 3
1.16 "Non-standard Reagents 4
1.17 "Party 4
1.18 "Product 4
1.19 "Proposed Combinatorial Library Information 4
1.20 "Responsible Party 4
1.21 "Resupply Compound 4
1.22 [CONFIDENTIAL TREATMENT REQUESTED] 4
1.23 "Subset Library 5
1.24 "Subset Library Compound 5
1.25 "Synthesis Protocols 5
1.26 "Template 5
1.27 "Third Party 5
1.28 "Trega Materials 5
1.29 "Trega Patent Rights 5
1.30 "Trega Synthesis Technologies 6
1.31 "Trega Technology 6
1.32 "Valid Claim 6
1.33 "Virtual Combinatorial Library 6
Article 2 COMPOUND PURCHASE PROVISIONS
2.1 Supply of Subset Libraries 7
2.2 Subset Library Compound Purchase Obligations 9
2.3 Option to Extend Term 9
2.4 [* * *] Sets 9
2.5 Term for Supply of [* * *] Sets 10
2.6 Resupply Compounds 10
2.7 Term for Supply of Resupply Compounds 10
</TABLE>
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
<S> <C> <C>
2.8 General Terms for Supply of Trega Materials 10
2.9 Management of Interactions 11
Article 3 LICENSES
3.1 Technology Grant 11
Article 4 CONFIDENTIALITY
4.1 Confidential Information 13
4.2 Permitted Disclosures 13
4.3 Announcements 14
Article 5 INVENTIONS AND PATENT RIGHTS
5.1 Ownership of Inventions 15
5.2 Patent Enforcement, Prosecution and Maintenance 15
5.3 Infringement 17
5.4 Utility 17
5.5 [* * *] 18
5.6 Limitations 18
Article 6 PAYMENT OBLIGATIONS
6.1 Sublicense Fee 18
6.2 Payments for Subset Libraries 18
6.3 [* * *] Set Payments 18
6.4 Resupply Compound Payments 19
6.5 Non-conforming Trega Materials 19
6.6 Milestone Payments 19
6.7 Change of Control Termination Fee 19
6.8 Payment Method 20
6.9 Late Payments 20
6.10 Taxes and Other Charges 20
6.11 Entire Consideration 20
Article 7 TERM AND TERMINATION
7.1 Expiration 20
7.2 Termination for Cause 21
7.3 Consequences of Breach 21
7.4 Effect of Expiration and Termination 21
7.5 Change of Control 22
Article 8 REPRESENTATIONS AND WARRANTIES
8.1 Existence and Power 23
8.2 Authorization and Enforcement of Obligations 23
8.3 Right to Sublicense 24
8.4 Consents 24
8.5 No Conflict 24
8.6 Pending Actions 24
</TABLE>
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CONFIDENTIAL CONFIDENTIAL TREATMENT REQUESTED
<TABLE>
<S> <C> <C>
8.7 Patents 24
8.8 Experimental Materials 25
8.9 [CONFIDENTIAL TREATMENT REQUESTED] 25
Article 9 INDEMNITY
9.1 [* * *] 26
9.2 [* * *] 26
9.3 Procedure 27
9.4 Insurance 28
Article 10 FORCE MAJEURE 28
Article 11 ASSIGNMENT 29
Article 12 SEVERABILITY 29
Article 13 MISCELLANEOUS
13.1 Notices 30
13.2 Applicable Law 30
13.3 Compliance with Applicable Laws 30
13.4 Entire Agreement 31
13.5 Headings 31
13.6 Independent Contractors 31
13.7 Waiver 31
13.8 Counterparts 31
EXHIBIT A [CONFIDENTIAL TREATMENT REQUESTED] 33
EXHIBIT B [CONFIDENTIAL TREATMENT REQUESTED] 34
EXHIBIT C [CONFIDENTIAL TREATMENT REQUESTED] 35
EXHIBIT D [CONFIDENTIAL TREATMENT REQUESTED] 36
EXHIBIT E [CONFIDENTIAL TREATMENT REQUESTED] 37
</TABLE>
-iii-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE
SHEET AT SEPTEMBER 30, 1998 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,953
<SECURITIES> 7,582
<RECEIVABLES> 375
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,942
<PP&E> 6,908
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<TOTAL-ASSETS> 18,266
<CURRENT-LIABILITIES> 8,559
<BONDS> 0
0
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<COMMON> 14
<OTHER-SE> 7,434
<TOTAL-LIABILITY-AND-EQUITY> 18,266
<SALES> 0
<TOTAL-REVENUES> 7,217
<CGS> 0
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<OTHER-EXPENSES> 17,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> (9,506)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,506)
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