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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,
1997.
or
- ------- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from
___________ to ___________.
Commission File Number:
0-24814
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SUGEN, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3629196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
351 Galveston Drive, Redwood City, California 94063
(address of principal executive offices)
(650) 306-7700
(Registrant's telephone number, including area code)
-----------------------------
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 filing requirements
for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock $.01 par value;
13,258,523 shares outstanding at October 31, 1997.
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<PAGE>
<TABLE>
SUGEN, Inc.
INDEX
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets - September 30, 1997
and December 31, 1996 3
Statements of Operations - for the three and nine
months ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows - for the nine
months ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Sales of Unregistered Securities 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
</TABLE>
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS AND NOTES
SUGEN, Inc.
CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 25,533 $ 24,852
Short-term investments 26,521 31,482
Accounts receivable 96 264
Prepaid expenses and other current assets 564 468
--------- ---------
Total current assets 52,714 57,066
Property and equipment, net 3,885 4,095
Other assets 3,548 775
--------- ---------
$ 60,147 $ 61,936
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,889 $ 852
Accrued liabilities 7,986 7,406
Deferred contract revenue 625 375
Capital lease obligations - current portion 2,067 1,835
--------- ---------
Total current liabilities 12,567 10,468
Long-term liabilities:
Capital lease obligations - non-current portion 3,061 2,938
Senior custom convertible notes 17,500 --
--------- ---------
Total long-term liabilities 20,561 2,938
Stockholders' equity:
Common stock 111,049 108,120
Deferred compensation (826) (710)
Note receivable from stockholder (883) (883)
Accumulated deficit (82,321) (57,997)
--------- ---------
Total stockholders' equity 27,019 48,530
--------- ---------
$ 60,147 $ 61,936
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
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<TABLE>
SUGEN, Inc.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Contract revenue (includes amounts from
related party) $ 1,336 $ 2,430 $ 4,307 $ 10,338
Costs and expenses:
Research and development 8,728 7,047 25,304 21,379
General and administrative 1,660 1,104 4,650 4,071
-------- -------- -------- --------
Total costs and expenses 10,388 8,151 29,954 25,450
-------- -------- -------- --------
Operating loss (9,052) (5,721) (25,647) (15,112)
Other income and expenses:
Interest income 576 450 1,879 1,738
Interest expense (249) (167) (593) (521)
-------- -------- -------- --------
Other income, net 327 283 1,286 1,217
======== ======== ======== ========
Net loss $ (8,725) $ (5,438) $(24,361) $(13,895)
======== ======== ======== ========
Net loss per share $ (0.66) $ (0.51) $ (1.86) $ (1.32)
======== ======== ======== ========
Shares used in computing net loss
per share 13,137 10,592 13,079 10,521
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
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<TABLE>
SUGEN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $(24,361) $(13,895)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,271 1,673
Deferred revenue 250 (6,558)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 72 194
Other assets (1,339) (928)
Accounts payable 1,037 400
Accrued liabilities 580 2,346
-------- --------
Net cash used in operating activities (21,490) (16,768)
-------- --------
Cash flows from investing activities
Sales/maturities (purchases) of short-term investments, net 4,998 15,755
Purchases of property and equipment, net (1,800) (1,074)
-------- --------
Net cash provided by investing activities 3,198 14,681
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock, net 1,118 657
Repurchase of common stock -- (2,698)
Proceeds from issuance of senior custom convertible notes 17,500 --
Proceeds from issuance of warrant -- 200
Proceeds from lease financing of property and equipment 1,895 995
Payments under capital lease obligations (1,540) (1,044)
-------- --------
Net cash provided by (used in) financing activities 18,973 (1,890)
-------- --------
Net increase (decrease) in cash and cash equivalents 681 (3,977)
Cash and cash equivalents at beginning of period 24,852 8,226
-------- --------
Cash and cash equivalents at end of period $ 25,533 $ 4,249
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
5
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SUGEN, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial information at September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which
SUGEN, Inc. (the "Company") considers necessary for the fair
presentation of the financial position at such date and the operating
results and cash flows for those periods. The accompanying condensed
financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1996
included in the Company's Form 10-K. The results of the Company's
operations for any interim period are not necessarily indicative of the
results of the Company's operations for a full fiscal year.
Change in Method of Computing Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). Effective December 31, 1997, the Company will adopt SFAS
128. In accordance with the Statement, the Company will be required to
change the method currently used to compute earnings per share and
restate all prior periods. The impact of SFAS 128 on the calculation of
basic and dilutive earnings per share is expected to have no impact on
the net loss per share to be presented at year end.
2. Accrued Liabilities
The components of accrued liabilities consist of the following:
September 30, December 31,
1997 1996
------------ ------------
(In thousands)
Accrued research & development services $3,827 $3,724
Accrued compensation 923 883
Accrued professional fees 747 524
Other 2,489 2,275
------ ------
$7,986 $7,406
====== ======
6
<PAGE>
3. Senior Custom Convertible Notes
In September 1997, the Company completed the sale of $17.5 million
principal amount of 5% Senior Custom Convertible Notes due 2000 (the
"Notes"). The Notes were sold at par, mature on September 12, 2000 and
bear interest at a rate of 5% per annum (payable in Common Stock or
cash, at the Company's option). Beginning on December 11, 1997, the
Notes may be converted, together with accrued and unpaid interest and
subject to certain limitations, into shares of Common Stock at a
conversion price equal to the average of the two lowest trade prices of
the Common Stock during the 20 trading days immediately preceding the
date of conversion (the "Conversion Price"). Beginning January 19,
1998, the Conversion Price may not exceed 115% of the average closing
bid price of the Common Stock for the 20 trading days immediately
preceding such date. In connection with the issuance of the Notes, the
Company issued warrants to purchase up to 332,500 shares of Common
Stock at an exercise price of $16.74 per share. Cash and non-cash
issuance costs (including the fair value of the warrants) totaled
approximately $2.6 million and are recorded as deferred costs (included
in Other Assets in the accompanying Balance Sheet at September 30,
1997) to be amortized to expense over the term of the Notes. No
purchaser of the Notes will be allowed to convert Notes and/or warrants
which would result in such person owning more than 4.9% of the then
outstanding Common Stock.
Upon the occurrence of certain events, at the election of the holders
of the Notes, the Company may be required to redeem in cash all or a
portion of the Notes at redemption prices which are at a premium to the
face value of the Notes. If the Notes are not converted into Common
Stock upon maturity in September 2000, the Notes will be exchanged for
13.75% five-year debentures. Pursuant to the terms of the Notes, in
addition to other covenants, the Company has agreed to certain
limitations on the incurrence of additional indebtedness.
7
<PAGE>
SUGEN, Inc.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information contained herein, the following
discussion contains words such as "intends," "believes," "anticipates," "plans,"
"expects" and similar expressions which are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 which are subject to the
"safe harbor" created by those sections. The Company's actual results could
differ significantly from the results discussed in these forward-looking
statements. Factors that could cause or contribute to such differences include
the factors discussed below as well as the factors discussed in the Company's
October 24, 1997 Form S-3 and Form 10-K for the year ended December 31, 1996.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events.
Overview
SUGEN was founded in July 1991 to discover and develop new classes of
small molecule drugs which target specific cellular signal transduction
pathways. These signalling pathways are involved in a variety of chronic and
acute pathological diseases, including cancer and diabetes as well as in
dermatologic, ophthalmic, neurologic and immune disorders. The Company's most
advanced product candidate is SU101, a PDGF TK signalling antagonist. The
Company is in the process of completing the data analysis on a Phase II clinical
trial for use of SU101 as a treatment for refractory malignant glioma and
currently expects to initiate a Phase III clinical trial in this indication in
late 1997, subject to FDA review of the planned trial design. A Phase II study
of SU101 in combination with BCNU, the chemotherapy drug that is part of the
standard treatment regimen in newly diagnosed brain cancer patients, was
initiated recently, and the Company currently expects to initiate a Phase II
clinical trial of SU101 in hormone refractory prostate cancer by the end of
1997. To date, over 140 patients have been treated with SU101 in seven
Company-sponsored clinical trials including patients with brain, ovarian,
prostate and non-small cell lung cancers. The Company is also conducting its
initial Phase I clinical trial for its second cancer product candidate, SU5416,
a Flk-1/KDR TK antagonist which inhibits angiogenesis (the process by which
blood vessels are formed). In addition, the Company is conducting a Phase I
clinical trial for SU5271, an EGF TK antagonist, for the treatment of psoriasis.
Through September 30, 1997, all of the Company's revenue has been earned
pursuant to collaborations with Zeneca Limited ("Zeneca"), ASTA Medica
Aktiengesellschaft ("ASTA Medica"), Vision Pharmaceuticals L.P., an affiliate of
Allergan, Inc. and Allergan, Inc. (collectively "Allergan") and Amgen Inc.
("Amgen"). SUGEN intends to pursue its drug discovery programs independently and
in collaboration with established pharmaceutical companies.
The financial results for the nine months ended September 30, 1997
reflect planned increases in operating expenses necessary for advancing multiple
product candidates through the development process. The Company has not been
profitable since inception and expects to incur substantial losses for the
foreseeable future, primarily due to the expansion of preclinical and clinical
development activities as more of its proprietary cancer-related programs
progress toward and into the clinic. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial.
As of September 30, 1997, the Company's accumulated deficit was $82.3 million.
8
<PAGE>
In September 1997, the Company completed the sale of $17.5 million
principal amount of 5% Senior Custom Convertible Notes (the "Notes"). The Notes
were sold at par, mature on September 12, 2000 and bear interest at a rate of 5%
per annum (payable in Common Stock or cash at the Company's option). Beginning
on December 11, 1997, the Notes may be converted, together with accrued and
unpaid interest and subject to certain limitations, into shares of Common Stock
at a conversion price equal to the average of the two lowest trade prices of the
Common Stock during the 20 trading days immediately preceding the date of
conversion (the "Conversion Price"). Beginning January 19, 1998, the Conversion
Price may not exceed 115% of the average closing bid price of the Common Stock
for the 20 trading days immediately preceding such date. In connection with the
issuance of the Notes, the Company issued warrants to purchase up to 332,500
shares of Common Stock at an exercise price of $16.74 per share. Cash and
non-cash issuance costs (including the fair value of the warrants) totaled
approximately $2.6 million and are recorded as deferred expenses to be amortized
to expense over the term of the Notes. No purchaser of the Notes will be allowed
to convert Notes and/or warrants which would result in such person owning more
than 4.9% of the then outstanding Common Stock.
Upon the occurrence of certain events, at the election of the holders
of the Notes, the Company may be required to redeem in cash all or a portion of
the Notes at redemption prices which are at a premium to the face value of the
Notes. If the Notes are not converted into Common Stock upon maturity in
September 2000, the Notes will be exchanged for 13.75% five-year debentures.
Pursuant to the terms of the Notes, in addition to other convenants, the Company
has agreed to certain limitations on the incurrence of additional indebtedness.
Recent Developments
In November 1997, the Company sold 2,000,000 shares of its Common Stock
in an underwritten public offering at a price of $16.00 per share, resulting in
net proceeds of approximately $29.7 million. As part of the offering, Zeneca
purchased 456,000 shares of Common Stock. In addition, the Company has granted
the underwriters an option to purchase an additional 300,000 shares of Common
Stock to cover over-allotments, if any.
Results of Operations
The Company's revenues for the three and nine months ended September
30, 1997 were $1.3 million and $4.3 million, respectively. These results compare
to revenues of $2.4 million and $10.3 million for the same periods last year.
Revenues for the three and nine months ended September 30, 1997 included
contract revenue from the Allergan and Zeneca collaborations and contract
services revenue earned under the ASTA Medica collaboration for services
rendered by ASTA Medica pursuant to the collaboration but on non-collaboration
programs. In 1996, revenues included contract revenues earned from existing
collaborations, set-up fees associated with the ASTA Medica collaboration and
wind-down fees in connection with the termination of the Amgen collaboration
agreement. The Company recognizes revenue from set-up fees and wind-down fees as
the related activities are performed, which is generally over a twelve-month
period or less. Through December 31, 1996, the set-up and wind-down fees from
the ASTA Medica and Amgen collaborations, respectively, had been fully
recognized as revenue. Going forward, the Company will not recognize any
additional revenue under the Amgen collaboration and will recognize additional
revenue under the ASTA Medica collaboration only upon the achievement of
specified milestones and for services rendered by ASTA Medica pursuant to the
collaboration but on non-collaboration programs. As a result, 1997 contract
revenue will continue to be lower than 1996 in the absence of additional
collaboration agreements entered into during the current year. The Company is
actively pursuing additional collaborations, but no assurance can be given as to
the ability of the Company to enter such collaborations on a timely basis, or at
all.
9
<PAGE>
Research and development expenses increased to $8.7 million and $25.3
million for the three and nine months ended September 30, 1997, respectively,
from $7.0 million and $21.4 million for the same periods last year. The increase
during 1997 was primarily due to higher personnel related costs associated with
the expansion of the Company's research and development programs. In addition,
the progression of clinical trials, including expanded Phase I and Phase II
clinical trials of the Company's lead anti-cancer compound, SU101, and the
initiation of clinical trials for SU5271 and SU5416 contributed to higher
expenses during 1997. Further, the continued advancement of multiple programs
through preclinical development, including costs associated with the Company's
June 1997 IND filing with the Food and Drug Administration ("FDA") for SU5416,
an angiogenesis inhibitor, and for SU101 in combination with BCNU, led to higher
expenses in the first nine months of 1997. The Company expects that its research
and development expenses will continue to grow in future years due to the hiring
of personnel, additional preclinical studies, the progression of SU101, SU5416
and other clinical trials, the initiation of new clinical trials on additional
drug candidates, requirements under the Company's anticipated future
collaborations and the expansion of the Company's facilities.
General and administrative expenses for the three and nine months ended
September 30, 1997 were $1.7 million and $4.7 million, respectively, from $1.1
million and $4.1 million for the same periods last year. The increase during
1997 was primarily due to added headcount and higher consulting expenses. The
Company expects that its general and administrative expenses will continue to
increase in future periods in order to support the Company's research and
development efforts.
Interest income for the three and nine months ended September 30, 1997
were $576,000 and $1.9 million, respectively. The Company earned slightly higher
interest income during 1997, despite the decline in interest rates from the same
period last year, due to higher investment balances arising primarily from
issuances of Common Stock. Interest expense for the three and nine months ended
September 30, 1997 was $249,000 and $593,000, respectively. The Company's
interest expense was higher for the first nine months of 1997 than for the same
period last year, as the third quarter interest expense included additional
interest expense related to the Notes. The Company expects that interest expense
will continue to increase in future periods due to the continued use of capital
lease financing for equipment and facility improvements and higher debt expense
in connection with the issuance of the Notes.
Liquidity and Capital Resources
The Company had cash, cash equivalents and short-term investments of
approximately $52.1 million at September 30, 1997, compared with approximately
$56.3 million at December 31, 1996. The decrease in cash and investments during
the nine months ended September 30, 1997 was primarily due to operating losses,
partially offset by the net cash proceeds of approximately $16.3 million
received in connection with the issuance of the Notes.
Through September 30, 1997, the Company's principal sources of
financing have been its initial and follow-on public offerings of Common Stock,
placements of the Company's Preferred and Common Stock and convertible notes and
funds received under the Company's corporate collaborations. The Company's
current principal sources of liquidity are its research and development
collaborations with ASTA Medica, Zeneca and Allergan, its cash, cash equivalents
and short-term investments and capital lease financing.
The Company has entered into license and research agreements whereby
the Company funds research projects performed by others or in-licenses compounds
from third parties. Some of the agreements may require the Company to make
milestone and royalty payments. Under these programs, commitments for external
research funding are approximately $2.8 million and $1.9 million in 1997 and
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<PAGE>
1998, respectively. Most of these commitments are cancelable within a three to
nine month period and limit the amounts payable by the Company for sponsored
research under the programs after notice of cancellation by the Company.
From time to time, the Company evaluates potential investments in
complementary businesses, products or technologies. Currently, the Company is
considering modest investments in such complementary businesses.
Net additions of equipment and leasehold improvements for the nine
months ended September 30, 1997 and 1996 were $1.8 million and $1.1 million,
respectively, which included $1.9 million and $995,000, respectively, of
equipment and leasehold improvements financed through the Company's master lease
agreements. Capital additions during the first nine months of 1997 included the
initial phases of a limited facility expansion and the continued investment in
enhancing the Company's laboratory capabilities. In March 1997, the Company
secured an additional capital lease line in the amount of $3.5 million for the
purchase of equipment and facilities improvements. At September 30, 1997, the
Company had $2.3 million available under this line. In November 1997, the
Company entered into a commitment for an additional capital lease line in the
amount of $5.0 million for the purchase of equipment and facilities
improvements. The Company intends to fund future capital expenditure principally
through lease financing or other debt arrangements, although there can be no
assurance that such financing will be available.
The Company expects that its capital additions and equipment purchases
for 1997 will be higher than that of the prior year primarily due to anticipated
facility improvements to its laboratory and office space. In June 1997, the
Company entered into a build-to-suit facility lease agreement. Construction of
the new facility is targeted for completion during the fourth quarter of 1998,
which coincides with the expiration of the Company's current facility leases.
Although the Company has not expended significant amounts to date, the Company
expects to invest in facility improvements and incur move related costs during
1998 as it approaches building completion. Accordingly, it is expected that the
Company's capital lease obligations and related interest expense as well as its
depreciation expense will increase in future periods.
The Company estimates that its existing capital, after giving effect to
the net proceeds of its November 1997 Common Stock offering, together with
facility and equipment financing, expected revenues from current collaborations
and net income from investment activities, will be sufficient to fund its
planned operations into 2000. However, there can be no assurance that the
underlying assumed levels of revenue and expense will prove accurate. Whether or
not these assumptions prove to be accurate, the Company will need to raise
substantial additional capital to fund its operations. The Company intends to
seek such additional funding through collaborative arrangements, public or
private equity or debt financing and capital lease transactions; however, there
can be no assurance that additional financing will be available on acceptable
terms or at all. If additional funds are raised by issuing equity securities,
further dilution to stockholders may result. In addition, in the event that
additional funds are obtained through arrangements with collaborative partners
or other partners, such arrangements may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself. 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.
The Company is at an early stage of development and must be evaluated
in light of the uncertainties and complications present in a biotechnology
company. The Company has been in existence only since 1991 and to date three
drug candidates (SU101, SU5271 and SU5416) have entered clinical
11
<PAGE>
trials. To achieve profitable operations, the Company, alone or with
collaborative partners, must successfully develop, manufacture, introduce and
market its proposed products. There can be no assurance that the Company will be
able to discover any additional lead compounds or develop any commercial
products. The time necessary to achieve market success for any individual
product is long and uncertain. Products, if any, resulting from the Company's
research and development programs are not expected to be commercially available
for a number of years, even if they are developed successfully and proven to be
safe and effective. Before obtaining regulatory clearance for the commercial
sale of any of its products under development, the Company must demonstrate
through preclinical studies and clinical trials that the potential product is
safe and efficacious for use in humans for each target indication. The failure
to adequately demonstrate the safety and efficacy of a product under clinical
development could delay or prevent regulatory clearance of the potential product
and could have a material adverse effect on the Company. In addition, several of
the Company's currently proposed products are subject to development and
licensing arrangements with the Company's collaborators. Therefore, the Company
is dependent on the research and development efforts of these collaborators with
respect to some of its proposed products and is entitled only to a portion of
the revenues, if any, realized from the commercial sale of any of the potential
products covered by the collaborations in many jurisdictions. The Company has
experienced significant operating losses since its inception. The Company
expects to incur significant operating losses at least for the next several
years and expects cumulative losses to increase as the Company's research and
development efforts, including preclinical studies and clinical trials, are
expanded. All of the Company's revenues to date have been received pursuant to
the Company's collaborations or interest income from cash, cash equivalent and
short term investments. Should the Company or its collaborators fail to perform
in accordance with the terms of any of their agreements, any consequent loss of
revenue under the agreements could have a material adverse effect on the
Company's results of operations. The foregoing risks reflect the Company's early
stage of development and the nature of the Company's industry and potential
products. Also inherent at the Company's stage of development are a range of
additional risks, including manufacturing uncertainties, the Company's lack of
sales and marketing capabilities, competition, uncertainties regarding
protection of patents and proprietary rights, government regulation and
uncertainties regarding pharmaceutical pricing and reimbursement.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. SALES OF UNREGISTERED SECURITIES
On September 12, 1997, the Company completed the sale of $17,500,000
principal amount of 5% Senior Custom Convertible Notes due 2000 (the "Notes").
The following summary of certain terms of the Notes does not purport to be a
complete description of the terms of the Notes and is qualified in its entirety
by reference to the Note Purchase Agreement and the form of Note, which are
incorporated by reference herein and copies of which are filed as Exhibits 4.1
and 4.2 to the Company's Form 8-K filed on September 18, 1997. The Notes were
sold at par, mature on September 12, 2000 and bear interest at a rate of 5% per
annum (payable in cash or, at the election of the Company, shares of Common
Stock valued at the fair market value of the Common Stock at the time of the
interest payment). Beginning on December 11, 1997, the Notes may be converted,
together with accrued and unpaid interest and subject to certain limitations,
into shares of Common Stock at a conversion price equal to the average of the
two lowest trade prices of the Common Stock as reported on the Nasdaq National
Market during the 20 trading days immediately preceding the conversion date (the
"Conversion Price"). Beginning on January 19, 1998 (the "Fixed Conversion
Date"), the Conversion Price may not exceed 115% of the average closing bid
price of the Common Stock for the 20 trading days immediately preceding the
Fixed Conversion Date.
No purchaser of the Notes will be allowed to convert Notes or exercise
Warrants or Placement Fee Warrants (as defined below), or any combination
thereof, if such conversion or exercise would result in such person beneficially
owning more than 4.9% of the then outstanding Common Stock. If at any time the
number of shares issuable upon conversion of the Notes exceeds the number of
shares of Common Stock available for issuance in connection with the Notes
without obtaining the approval of the Company's stockholders in accordance with
Nasdaq requirements, then, at the Investors' option, the Company may be required
to redeem from the Investors in cash (at redemption prices ranging from 112.5%
to 120% depending on the date of redemption) a sufficient principal amount of
Notes so that the remaining Notes are fully convertible. The Company may also
redeem the Notes in connection with an acquisition of the Company at redemption
prices ranging from 125% to 130%. Upon the occurrence and continuation of an
event of default, the Company will be required to redeem the Notes at redemption
prices ranging from 115% to 122.5%.
If the Notes are not converted into Common Stock, upon maturity in
September 2000, the Notes will be exchanged for 13.75% five-year debentures.
Pursuant to the terms of the Notes, in addition to other covenants, the Company
has agreed to certain limitations on the incurrence of additional indebtedness.
In connection with the issuance of the Notes, the Company issued warrants to
purchase up to 262,500 shares of Common Stock at an exercise price of $16.74 per
share (the "Warrants").
Diaz & Altschul Capital, LLC of New York City was placement agent in
the transaction. In consideration for its services as placement agent, the
Company paid Diaz & Altschul Capital, LLC a fee of $875,000 and issued to its
designee, Diaz & Altschul Group, LLC, warrants to acquire 70,000 shares of
Common Stock at an exercise price of $16.74 per share (the "Placement Fee
Warrants").
The offering of the Notes was made in reliance on Section 4(2) and
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act"), based on the fact that the offer and sale of the Notes was made without
general solicitation or advertising to accredited investors (as defined in the
Act), each of which made representations that such investor was acquiring the
Notes and Warrants for its own account for investment purposes and agreed to
transfer restrictions and other conditions set forth in the Act.
Item 5. OTHER INFORMATION
Anthony B. Evnin, Ph.D. resigned from the Company's Board of Directors
effective October 1, 1997. This resignation reflects the normal transition of
venture capital representatives off the board of directors of companies in which
a venture fund's investment stake has been reduced as a result of distributing
venture fund shares.
13
<PAGE>
Item 5. OTHER INFORMATION (Continued)
Christine E. Gray-Smith has indicated her intention to resign as Vice
President, Finance and Assistant Secretary effective November 30, 1997. It is
anticipated that Ms. Gray-Smith will continue as an employee of the Company
until January 1998.
The Company's Board of Directors has appointed Mr. Stephen Evans-Freke
as Acting Chief Financial Officer pending the appointment of a permanent Chief
Financial Officer. Ms. Susan Kanaya has been appointed to the position of
Treasurer and Chief Accounting Officer, and Ms. Marta Moreno has been appointed
Assistant Controller.
<TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (2)
3.2(ii) Bylaws of the Registrant (1)
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of
the Registrant (3)
4.1 Form of Note Purchase Agreement, dated as of September 8, 1997, by and between the
Company and the investors named therein (4)
4.2 Form of 5% Senior Custom Convertible Note due 2000 (4)
4.3 Form of Common Stock Purchase Warrant (4)
27 Financial Data Schedule
<FN>
- ----------------
(1) Incorporated by reference to identically numbered exhibits filed in response to Item 16
"Exhibits" of the Company's Registration Statement on Form S-1, as amended (File Number
33-77074), which became effective October 4, 1994.
(2) Incorporated by reference to identically numbered exhibits filed in response to Item 14
"Exhibits" of the Company's Annual Report of Form 10-K for the year ended December 31,
1994.
(3) Filed as an exhibit to the Form 8-K Current Report dated July 26, 1995 and incorporated
herein by reference.
(4) Filed as an exhibit to the Form 8-K Current Report dated September 12, 1997, and
incorporated herein by reference.
</FN>
</TABLE>
(b) Reports on Form 8-K
SUGEN, Inc. filed a Current Report on Form 8-K, dated September 12,
1997, in connection with the private placement of $17.5 million
aggregate principal amount of its 5% Senior Custom Convertible Notes
due 2000.
Additionally, the Company filed a Current Report on Form 8-K dated
October 27, 1997, in connection with the proposed follow-on public
offering of Common Stock by the Company.
14
<PAGE>
SUGEN, Inc.
SIGNATURES
Date: November 13, 1997 SUGEN, Inc.
By: /s/ Stephen Evans-Freke By: /s/ Christine E. Gray-Smith
------------------------------- ---------------------------
Stephen Evans-Freke Christine E. Gray-Smith
Chairman and Vice President, Finance
Chief Executive Officer (Principal Financial Officer)
15
<PAGE>
<TABLE>
SUGEN, Inc.
EXHIBIT INDEX
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation (2)
3.2(ii) Bylaws of the Registrant (1)
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of the
Registrant (3)
4.1 Form of Note Purchase Agreement, dated as of September 8, 1997, by and between
the Company and the investors named therein (4)
4.2 Form of 5% Senior Custom Convertible Note due 2000 (4)
4.3 Form of Common Stock Purchase Warrant (4)
27 Financial Data Schedule
<FN>
- ----------
(1) Incorporated by reference to identically numbered exhibits filed in response to Item 16
"Exhibits" of the Company's Registration Statement on Form S-1, as amended (File Number
33-77074), which became effective October 4, 1994.
(2) Incorporated by reference to identically numbered exhibits filed in response to Item 14
"Exhibits" of the Company's Annual Report of Form 10-K for the year ended December 31,
1994.
(3) Filed as an exhibit to the Form 8-K Current Report dated July 26, 1995 and incorporated
herein by reference.
(4) Filed as an exhibit to the Form 8-K Current Report dated September 12, 1997, and
incorporated herein by reference.
</FN>
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Company's Form 10-Q for the nine months ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 25,533
<SECURITIES> 26,521
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,714
<PP&E> 10,184
<DEPRECIATION> 6,299
<TOTAL-ASSETS> 60,147
<CURRENT-LIABILITIES> 12,567
<BONDS> 20,561
<COMMON> 111,049
0
0
<OTHER-SE> (84,030)
<TOTAL-LIABILITY-AND-EQUITY> 60,147
<SALES> 0
<TOTAL-REVENUES> 4,307
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593
<INCOME-PRETAX> (24,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,361)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,361)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
