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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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.)
230 East Grand Avenue, South San Francisco, California 94080
(address of principal executive offices)
(650) 553-8300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
Preferred Share Purchase Rights
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the of the Common Stock of the registrant held by
non-affiliates as of March 15, 1999 was $180,348,242. (1)
The number shares of Common Stock outstanding at March 15, 1999 was 16,734,658
shares.
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Portions of Registrant's Definitive Proxy Statement which will be filed with the
Commission pursuant to Regulation 14A in connection with the 1999 Annual Meeting
are incorporated herein by reference in Part III of this Report.
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(1) Excludes 6,007,944 shares of the Registrant's Common Stock held by executive
officers, directors and stockholders whose ownership exceeds 5% of the Common
Stock outstanding at March 15, 1999.
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PART I
Item 1. BUSINESS
This Annual Report on Form 10-K contains 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. These forward-looking statements include, but are not
limited to, statements concerning the Company's plans to: continue development
of its current product candidates; conduct clinical trials with respect to
SU101, SU5416, SU6668 and other product candidates; utilize the Company's
capital resources and the time periods related thereto; seek regulatory
approvals; engage third-party manufacturers to supply its clinical trials and
commercial requirements; establish a marketing, sales and distribution
capability; and evaluate additional product candidates for subsequent clinical
and commercial development. These forward-looking statements may be found in the
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections of this Annual Report on Form 10-K.
Forward-looking statements not specifically set forth above may also be found in
these and other sections of the Annual Report on Form 10-K. Each statement is
based on the current expectations of the Company and is subject to the risks and
uncertainties inherent in the Company's business. In accordance with the Private
Securities Litigation Reform Act of 1995, the Company reminds investors that all
such "forward-looking statements" are necessarily only estimates of future
results and that the actual results achieved by the Company may differ
materially from these current expectations due to a number of factors, including
(i) the Company's technological success in developing lead compounds and
products; (ii) the availability and terms of financing of the Company's
operations; (iii) the actions of third parties, including collaborators and
competitors; (iv) the demonstration of the safety and efficacy of the Company's
products at each stage of clinical development; (v) the ability to obtain patent
and other proprietary rights protection for the Company's products; (vi) the
receipt of timely regulatory approval of the Company's products; (vii) the
ability to manufacture product candidates in commercial quantities at reasonable
costs and in a manner acceptable to various regulatory authorities; and (viii)
market acceptance of the Company's products. Factors creating uncertainty are
discussed in more detail in individual sections of this Annual Report on Form
10-K. In particular, see the "Liquidity and Capital Resources" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Overview
SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways. These signalling pathways are regulated by cell-surface
receptors or intracellular signalling molecules known as tyrosine kinases
("TKs"), tyrosine phosphatases ("TPs") and serine-threonine kinases ("STKs"),
three of the largest known families of receptors in the body and key regulators
of critical cellular functions. Aberrant signalling of TKs, TPs and STKs has
been shown to result 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 believes that compounds designed to target
certain kinases and phosphatases and inhibit enzyme activity or prevent the
binding of downstream signalling molecules make attractive therapeutic product
candidates. The Company's research and development efforts in signal
transduction are based in part upon the pioneering accomplishments of SUGEN's
founding scientists, Dr. Axel Ullrich of Max-Planck-Institut fur Biochemie
("MPI") and Dr. Joseph Schlessinger of New York University Medical Center
("NYU").
SU101, the Company's most advanced product candidate, is an inhibitor
of the platelet-derived growth factor receptor ("PDGF TK") signalling pathway.
Imbalances in the PDGF TK signalling pathway have been shown by SUGEN and others
to be implicated in significant subsets of certain types of cancers, including
brain, prostate, lung and ovarian. The Company initiated a Phase III clinical
trial in refractory glioblastoma (an aggressive type of brain cancer) in the
first quarter of 1998 and expects to conduct an interim analysis by year end. A
Phase II study of SU101 as single agent therapy for refractory anaplastic
astrocytoma, another type of malignant brain tumor, is also being conducted in
parallel with the Phase III trial, and at the same centers. A
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Phase II clinical trial 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 in mid-1997, and is expected to be completed by
mid-year. The Company is also conducting a pilot study of SU101 in combination
with mitoxantrone, in preparation for a pivotal Phase III trial as combination
front-line therapy in hormone-refractory prostate cancer patients, set to begin
later this year. In addition, the Company has ongoing Phase II trials in ovarian
and non small cell lung cancers, set for completion in mid 2000. To date, over
400 patients have been treated with SU101 in 13 Company-sponsored clinical
trials.
The Company initiated Phase I clinical testing in September 1997 with
its lead angiogenesis inhibitor, SU5416, a Flk-1/KDR TK inhibitor, which is
designed to inhibit the growth and spread of cancer by preventing the formation
of new blood vessels (angiogenesis) required to nourish the tumor. To date,
SU5416 has shown an excellent safety profile in over 100 patients with a range
of solid tumors, including advanced colorectal, lung and renal cell cancers, and
AIDS-related Kaposi's sarcoma; anecdotal indications of activity have been
observed in a number of patients, including prolonged periods of stable disease
and some instances of tumor shrinkage. After extensive consultation with
numerous oncology opinion leaders, the Company announced plans to accelerate the
development of SU5416 with the initiation of Phase III clinical trials in non
small cell lung and colorectal cancers, and Phase II/III studies in AIDS-related
Kaposi's sarcoma in the U.S. and Europe this year. Meanwhile, the Company will
be working with certain investigators on NCI-sponsored Phase II studies in other
cancer indications. This strategy may expedite the commercialization of SU5416,
which has the potential to become the first specific angiogenesis inhibitor to
reach the U.S. market. There can be no assurance that this commercialization
strategy will result in accelerated commercialization of SU5416 or that other
angiogenesis inhibitors will not receive regulatory approval prior to any
approval of SU5416.
SUGEN's third novel anti-cancer drug candidate is SU6668, which
combines both angiogenic and cytostatic anti-tumor activity by selectively
blocking multiple targets involved in the growth and spread of tumors, including
the Flk-1/KDR, PDGF and fibroblast growth factor (FGF) receptors. SU6668 is
currently in Phase I clinical trials in Europe and in the U.S. using intravenous
and oral formulations, respectively. Both studies are expected to conclude in
the later half of 1999.
SUGEN is also pursuing additional cancer-related drug development
programs, including Pan-Her, Met-TK, CDK2, GRB2, Raf and other proprietary
programs, many of which have lead compounds now undergoing in vivo pharmacology
studies. The Company currently plans to select a lead compound for a small
molecule Pan-Her inhibitor this year, and expects to identify a clinical
candidate for either the Met-TK or CDK2 program in 1999. However, there can be
no assurance that lead compounds will emerge in any of these programs in 1999,
or at all.
SUGEN is also applying its drug discovery and development platform to
areas outside oncology, including ophthalmology, rheumatoid arthritis,
cardiovascular disease, diabetes, and immunology. The Company is awaiting final
results of a Phase I/II clinical trial with SU5271, an epidermal growth factor
receptor ("EGF TK") antagonist, for the treatment of psoriasis; however, the
results seen to date have not been compelling, and given the Company's
prioritization on its cancer programs, the Company does not currently anticipate
moving forward into Phase II with SU5271.
SUGEN employs a target-driven approach to drug discovery and
development. The Company believes that the receptors and signal transduction
pathways that play a causative role in disease states are attractive targets for
drug design and development. SUGEN's drug discovery platform consists of:
(1) target identification, using advanced genomics techniques and
the Company's proprietary bioinformatics program;
(2) target validation in relevant in vivo disease models;
(3) whole cell or other assay design and target-driven screening
of compounds for leads; and
(4) lead optimization using crystallography and computational
chemistry.
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The Company believes that its drug discovery and development platform may reduce
the cost, time and risk associated with bringing potential products to market by
rationally screening for potent and specific drug leads in the early stages of
discovery and optimizing pharmacologic features in the later stages of drug
development, thereby reducing the incidence and severity of side effects.
SUGEN is concurrently pursuing two business strategies for
commercialization of its products and technologies. In the cancer field, SUGEN
intends to build a vertically integrated oncology business in North America,
with the objective of bringing to market a family of target-specific signal
transduction inhibitors proprietary to SUGEN. To market its products
effectively, the Company currently intends to build a focused U.S. sales force
to target the major cancer treatment centers and may explore alliances with
potential marketing and distribution partners to optimize sales. On the European
front, SUGEN recently established SUGEN Europe AG ("SUGEN Europe") as a
currently wholly owned subsidiary in Schaffhausen, Switzerland. This new entity
has become the European licensee for SUGEN's cancer pipeline, with a mission to
build a strong and profitable cancer business in Europe. While the Company had
initially planned to license European rights to its products to a fully
integrated pharmaceutical company, SUGEN has concluded that the available
financial terms of that route would not adequately reflect the market potential
of its products in such a potentially rapidly growing market. SUGEN Europe
expects to work with four or five national distribution partners who bring a
strong local presence on a pan-European scale to maximize product revenue. The
first of these distribution agreements has been concluded with Esteve S.A. of
Spain, and active negotiations are ongoing with respect to the other European
territories. The Company also plans to seek additional corporate partners to
fund product development and to commercialize its products in the rest of the
world. In Japan, the Company entered into an agreement with Taiho Pharmaceutical
Ltd. ("Taiho") for the development and commercialization of SUGEN's angiogenesis
inhibitors for the treatment of cancer. Under this agreement, Taiho contributes
to the worldwide development and clinical trials costs of SU5416 and SU6668,
pays certain milestones, and receives Japanese commercial rights; SUGEN, through
its affiliate, SUGEN International AG ("SUGEN International"), may provide
finished product to Taiho on prenegotiated terms. While the Company generally
intends to retain rights to its cancer programs in North America, SUGEN is
funding a portion of its ongoing cancer research through a collaboration with
Zeneca Limited ("Zeneca") for the development of five cancer targets including
the Aurora2, an oncogene overexpressed in more than 50% of primary colorectal
cancers. Pursuant to its agreement with Zeneca, the Company will have the
opportunity to obtain profit participation rights in the North American market
by contributing to clinical development costs as incurred and in addition will
receive milestone payments and royalties on worldwide sales. Finally, the
Company is collaborating with ASTA Medica Aktiengesellschaft ("ASTA Medica") of
Germany with respect to its Pan-Her and Raf programs currently in drug
discovery; ASTA Medica makes certain payments to SUGEN, and receives European
and Latin American commercial rights in cancer.
Outside of oncology, the Company's strategy is to seek corporate
collaborations or joint ventures to which SUGEN contributes validated targets,
screening technologies and drug leads while the partner provides the
disease-specific and drug development expertise as well as marketing experience,
in addition to providing funding to bring these potential products to market. As
part of this strategy, the Company entered into a collaboration with Vision
Pharmaceuticals, L.P., an affiliate of Allergan, Inc., and Allergan, Inc.
(collectively, "Allergan") for angiogenesis inhibition in ophthalmic
applications. The Company also has an agreement with ProChon Biotech Ltd.
("ProChon") for the development of drugs for the treatment of achondroplasia and
other growth disorders.
Overview of Cellular Signal Transduction Pathways
The last decade of research has led to an increased understanding of
how cells communicate with each other to coordinate the growth and maintenance
of the multitude of tissues within the human body. A key element of this
communication network is the transmission of a signal from the exterior of a
cell to its nucleus, which results in the activation or suppression of specific
genes. This process is called signal transduction. An integral part of signal
transduction is the interaction of ligands, receptors and intracellular signal
transduction molecules ("downstream signalling molecules").
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Ligands are chemical messengers, usually released by one cell to
communicate with a target cell by binding to specific receptors on the target
cell's surface. A receptor generally takes the form of a protein that straddles
a cell's membrane, with its "ligand binding domain" protruding out of the cell
and its "intracellular domain" anchored inside the cell. When a ligand binds to
its receptor, the newly formed receptor/ligand complex triggers the activation
of a cascade of downstream signalling molecules, thereby transmitting the
message from the exterior of the cell to its nucleus. When the message is
received in the nucleus, it dictates the activation or suppression of specific
genes, resulting in the production of proteins that carry out a specific
biological response. Depending on the specific ligand, receptor and downstream
signalling molecules, the resulting signalling cascade may affect different
cellular processes responsible for growth, differentiation, migration or
metabolism.
Tyrosine Kinases, Tyrosine Phosphatases and Serine-Threonine Kinases in Signal
Transduction
Kinases and phosphatases are classes of signalling molecules that are
central to the healthy functioning of all tissues. The Company's research focus
in this area has been on TKs, TPs and selected STKs. At present, there are
approximately 100 known human TKs, including Her2, PDGF TK, and EGF TK, all of
which have been cloned over the last 14 years. TPs were not discovered until
1988, and at present SUGEN believes there are approximately 95 known human TPs.
Generally, when a ligand binds to receptor TKs, the receptors must
dimerize (join in pairs at the cell surface) to become activated. This coupling
activates a specific enzyme activity which resides within the intracellular
domain of each TK. Upon activation, the TKs commence cross-phosphorylation, a
process whereby phosphates (highly charged particles) are added to specific
sites on each of the TKs. These phosphates serve as attachment sites in
downstream signalling molecules. Many of these downstream signalling molecules
in turn become phosphorylated themselves, enabling them to recruit their own
substrates and thus pass on the signal.
Complementing TKs are TPs, which were first characterized in detail by
Dr. Edmond H. Fisher, a 1992 Nobel Laureate, SUGEN collaborator and member of
SUGEN's Science Advisory Board. While the TKs phosphorylate target proteins to
exert their activity, the TPs remove phosphates from target proteins, thereby
regulating the activity of the TKs. Generally, when a receptor TK is activated
by its ligand, a given biologic response is triggered. Conversely, when a TP is
activated, there is usually down regulation of a given biologic response. In
this manner, TKs can be visualized as the "gas pedal" and TPs as the "brake
pedal" for numerous biological processes. Many cellular responses are thus
regulated by the balance between specific TKs and TPs.
The most abundant kinases in the cell are STKs, enzymes which are
involved in controlling the cell cycle, the response of the cell to
environmental stress, the development of certain cells and tissues, and other
processes such as metabolism.
Diseases and Disorders Related to TK, TP and STK Signalling Pathways
TKs, TPs, STKs and their signalling pathways play key roles in a
variety of normal cellular functions involving virtually every cell type in the
body. Examples include the growth of epithelial cells (skin and lining tissues
of internal organs), angiogenesis, proliferation of connective tissue cells
(fibroblasts), survival and differentiation of nerve cells and regeneration of
tissues during wound healing. While normal cellular function involves a balance
between kinase and phosphatase activity, imbalances between these molecules have
been shown to result in a variety of chronic and acute pathological conditions,
including cancer and diabetes as well as in dermatologic, ophthalmic, neurologic
and immunologic disorders.
The close association of TKs, TPs and STKs with disease make them
attractive targets for drug discovery and therapeutic intervention. The
intracellular domains where enzymatic activity occurs can be targeted with great
selectivity by drugs that inhibit enzyme activity or that prevent the binding of
downstream signalling molecules to the phosphorylated receptor. Critical points
further downstream in the signalling
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cascade may also be viable targets since selective intervention at these points
can prevent the message from reaching its final destination in the nucleus.
Product Development Programs
TKs, TPs, STKs and their signalling pathways are implicated in a broad
number of diseases. SUGEN focuses its product development efforts on those areas
which represent significant market opportunities and for which the disease
processes and signalling pathways are well understood. The Company has several
novel product candidates in various stages of development for disease areas in
which there is a critical need for major advances in efficacy and safety over
currently available therapies. These diseases include cancer as well as
diabetes, immunologic, and cardiovascular disorders. See "-Overview."
The following table outlines SUGEN's development and research programs
which are being pursued either independently by SUGEN or in collaboration with
the Company's partners:
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<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Program Indication(s) Status(1) Rights
- ------------------------------------------------------------------------------------------------------------------
Cancer
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SU101 First Relapse malignant glioma Phase III SUGEN
PDGF TK Inhibitor - Monotherapy
Newly diagnosed malignant glioma Phase II
- Combination therapy with BCNU
Prostate cancer Phase I/II pilot
Combination therapy with to prepare for
mitoxantrone Phase III
Ovarian, lung and anaplastic Phase II
astrocytoma
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SU5416 Angiogenesis inhibition Phase I Taiho
Flk-1/KDR TK Antagonist - Most solid tumor types Japan
Colorectal cancer Phase III SUGEN
Non small cell lung cancer (summer) United States and rest of
AIDS-related Kaposi's sarcoma Phase III world
Phase II/III
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SU6668 Angiogenic and cytostatic anti-tumor Phase I SUGEN
Broad Spectrum Inhibitor activity United States and rest of
- Most solid tumors World
Taiho, Japan
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Raf Antagonist Pancreatic, bladder cancers Lead compounds SUGEN
United States and rest of
world
ASTA Medical
Europe and South America
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Pan-Her Antagonist Breast, ovarian, gastric, lung, head Preclinical SUGEN
and neck, prostate cancers United States and rest of
world
ASTA Medical
Europe and South America
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GRB2 Antagonist Multiple TK-driven tumors Lead compounds SUGEN
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Met TK Antagonist Stomach, colorectal and lung cancers Screening SUGEN
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Five cancer targets, Certain major cancers Research and Zeneca
including the Aurora2 screening
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Other proprietary programs Various cancers Research and SUGEN
screening
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Other Programs
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Insulin TP Antagonist Diabetes Type I/Type II Preclinical SUGEN
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Immunology targets Immune suppression, acute Research and SUGEN
inflammation screening
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Flk-1/KDR TK Antagonist Rheumatoid arthritis Preclinical SUGEN
(other targets)
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Flk-1/KDR TK Antagonist Angiogenesis inhibition in Preclinical Allergan
(other targets) ophthalmology
- Diabetic retinopathy
- Macular degeneration
- ------------------------------------------------------------------------------------------------------------------
Neurology targets Neurodegenerative diseases Research and SUGEN
screening
- ------------------------------------------------------------------------------------------------------------------
PDGF TK Antagonist Cardiovascular diseases Lead compounds SUGEN
(and other targets)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "Research" Cloning and characterization of novel TKs,
TPs, STKs and related downstream signalling
molecules (Target Identification) and
validation of the role, if any, of those
molecules in a given disease (Target
Validation).
"Screening" Screening to identify lead compounds.
"Lead Compounds" Evaluating drug leads and/or
natural product extracts in relevant in
vitro cellular models including genetically
engineered cell lines, as well as ex vivo
human tissues and in vivo animal models.
"Preclinical" Pharmacology and toxicology testing in
preclinical models, drug formulation and
manufacturing scale-up to gather necessary
data to comply with applicable regulatory
protocols prior to submission of an IND with
the FDA.
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Cancer
Research over the past 20 years has reinforced the view that cancer is
a disease involving damage, loss or amplification of specific genes. Moreover,
of the numerous oncogenes identified to date, many appear to be abnormal
versions of TK and STK signalling pathway components, such as ligands, TKs or
STKs or downstream signalling molecules. These discoveries have led to the
realization that dysfunctional TK or STK signalling pathways play an integral
role in cancer. More recently, TPs have been implicated as potential tumor
suppressor genes due to their ability to counteract the activity of TKs.
As a result of the close linkage between TK, TP and STK aberrations and
cancer, SUGEN believes that certain cancers can be recategorized according to
specific TK, TP and STK signalling pathway defects rather than merely by
physical location in the body (e.g., breast, lung, brain). Several observations
support this approach; TK overexpression is not a transient phenomenon. Cancer
cells that exhibit TK overexpression do so continuously. In addition, in many
cases a cancer cell exhibits heavy overexpression of only one TK. For instance,
when cancer cells metastasize from a Her2-dependent tumor and establish
themselves at a remote site in the body, the distal tumor has also been observed
to overexpress Her2. Furthermore, SUGEN has shown that certain tumor cells that
overexpress a TK are more sensitive to TK inhibitors than normal cells. The
Company believes that these observations are the basis for a new approach to
cancer therapy which might commence with a sample of biopsy material being sent
to a pathology lab for gene expression profiling in order to determine the
nature of the cellular abnormality, such as overexpression of a TK. This
diagnosis could then be used to select the appropriate target-specific signal
transduction inhibitor for treatment.
Many of the cancers that SUGEN's programs are addressing have patient
subsets with extremely poor prognoses and no alternative for effective
treatment. For example, in certain cancers of the brain, breast, ovary and
pancreas, patient subsets can be defined in advance for which the average
survival time is short. By focusing on these patients initially, the Company
believes that it may be able to demonstrate statistically significant efficacy
with relatively small patient numbers and possibly shortened clinical trial
duration if the compounds prove to be active. There can be no assurance,
however, that the Company will be able to rely on smaller-scale clinical trials
to expedite commercialization of its products.
SU101/PDGF TK Antagonist. SU101 is a synthetic small molecule which inhibits the
platelet-derived growth factor receptor signalling pathway. PDGF is a growth
factor ligand that stimulates the growth of a variety of cell types through
binding to the PDGF TK. The PDGF TK was first cloned by a group of collaborators
led by Dr. Ullrich in 1983. In December 1994, the Company filed its first IND
with the Food and Drug Administration ("FDA") for SU101, a PDGF TK signalling
antagonist.
Imbalances in the PDGF TK signalling pathway have been shown by SUGEN
and others to be implicated in certain types of cancers, including brain,
prostate, lung and ovarian cancers. The Company initiated a Phase III clinical
trial in refractory glioblastoma (an aggressive type of brain cancer) in the
first quarter of 1998 and expects to conduct an interim analysis by year end. A
Phase II study of SU101 as single agent therapy for refractory anaplastic
astrocytoma, another type of malignant brain tumor, is also being conducted in
parallel with the Phase III trial, and at the same centers. A Phase II clinical
trial 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 in mid-1997, and is expected to be completed by mid-year. The Company
is also conducting a pilot study of SU101 in combination with mitoxantrone, in
preparation for a pivotal Phase III trial as combination front-line therapy in
hormone-refractory prostate cancer patients, set to begin later this year. In
addition, the Company has ongoing Phase II trials in ovarian, and non small cell
lung cancers set for completion in mid 2000.
In December 1997, the Company was awarded two method of use patents in
the United States with respect to treating PDGF TK driven cancers with SU101. In
March 1997, the U.S. patent office issued to SUGEN a patent on the formulation
of SU101. The Company presently does not know if commercialization of SU101 will
infringe certain patents issued to a large pharmaceutical company but believes
that these patents may be subject to claims of invalidity as they relate to
SU101. See "-Patents and Proprietary Technology."
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SU5416/Flk-1/KDR TK Antagonist. Formation of the body's network of blood
vessels, or angiogenesis, occurs throughout childhood. This process generally
stops once a person reaches adulthood. Exceptions exist during wound healing and
the menstrual cycle. Angiogenesis is re-triggered in adults, however, during
certain pathological conditions including tumor formation and metastasis, and in
certain ophthalmic disorders, including diabetic retinopathy and macular
degeneration. The pharmaceutical industry has long sought small molecule
inhibitors of angiogenesis with low toxicity profiles because, theoretically,
inhibiting angiogenesis may limit tumor growth, extend the period of
disease-free remission in patients who respond to front-line therapy and reduce
the potential for metastases. The potential markets for such a product include
all patients with solid tumors where angiogenesis inhibition may play a role as
an important adjunctive therapy, and in patients with metastatic disease.
SUGEN and its collaborators have identified the Flk-1/KDR TK as a
receptor for vascular endothelial growth factor ("VEGF") and as a major
regulator of angiogenesis. Blocking Flk-1/KDR TK activity blocks the ability of
most tumors to stimulate formation of blood vessels and thus deprives the tumor
of necessary nutrients. In preclinical studies conducted by researchers at SUGEN
and collaborating laboratories, small molecule inhibitors of the Flk-1/KDR
blocked VEGF-dependent angiogenesis, as well as vascular permeability.
Additionally, human endothelial cells were prevented from undergoing cell
division that is required for the formation of new blood vessels.
The Company entered Phase I clinical testing in September 1997 with
SU5416, which to date has shown an excellent safety profile in over 100 patients
with a range of solid tumors, including advanced colorectal, lung and renal cell
cancers, and AIDS-related Kaposi's sarcoma. After extensive consultation with
numerous oncology opinion leaders, the Company announced plans to accelerate the
development of SU5416 with the initiation of Phase III clinical trials in non
small cell lung and colorectal cancers, and Phase II/III studies in AIDS-related
Kaposi's sarcoma in the U.S. and Europe this year. Meanwhile, the Company will
be working with certain investigators on NCI-sponsored Phase II studies in other
cancer indications. This strategy may expedite the commercialization of SU5416,
which has the potential to become the first specific angiogenesis inhibitor to
reach the U.S. market. There can be no assurance that this commercialization
strategy will result in accelerated commercialization of SU5416 or that other
angiogenesis inhibitors will not receive regulatory approval prior to any
approval of SU5416.
The Company had an exclusive research and licensing agreement with the
Max-Planck-Institut fur Physiologische and Klinische Forschung ("MPP") (MPI and
MPP are collectively referred to herein as "Max-Planck Society" or "MPS") to
support the work of Dr. Werner Risau, who was a SUGEN consultant and a director
of MPP, and his laboratory. Dr. Risau was one of the leading researchers in the
field of angiogenesis. Dr. Risau died in August 1998, and the future of this
collaboration has yet to be determined.
SU6668 Broad Spectrum Inhibitor. Through the Company's ongoing research and drug
discovery efforts in angiogenesis, SUGEN has identified additional drug
candidates which have demonstrated good potency on Flk-1/KDR, and additional
targets including FGF-R and PDGF-R which inhibit both the angiogenic process and
tumor growth and survival. In this regard, SUGEN has identified SU6668 as a
compound with these features. SU6668 is currently in Phase I clinical trials in
Europe and in the U.S. using intravenous and oral formulations, respectively.
Both studies are expected to conclude in mid 1999.
Pan-Her Inhibitor. Her2 is a TK target, first cloned by Dr. Ullrich, which is
believed to play an important role in certain aggressive breast, ovarian,
gastric and lung cancers. Dr. Ullrich and Dr. Dennis Slamon of the University of
California at Los Angeles Medical Center and member of SUGEN's Science Advisory
and Clinical Advisory Boards have established the clinical relevance of
overexpression of Her2 in human breast and ovarian cancers. In their study of
approximately 200 patients, it was found that almost 30% of breast and ovarian
cancer patients overexpress Her2 and that high levels of Her2 in a patient's
tumor correlated with reduced survival time. Since that time, subsets of other
types of human tumors have been shown to express high levels of Her2, including
gastric and lung cancers. Animal data from several laboratories has demonstrated
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<PAGE>
that the suppression of Her2 activity has a significant inhibitory effect on
tumor growth, validating Her2 as a target for cancer therapy in the subset of
patients that overexpress this TK.
Genentech's Herceptin, the monoclonal antibody targeting Her2, has
recently been approved for use in the treatment of certain Her2-positive
cancers. While the Company believes that this approval may serve to validate the
concept of targeting aberrant TKs in cancer, SUGEN believes that a small
molecule inhibitor of Her2 TK in addition to the closely related Her1 and Her4
receptors (thus, a Pan-Her inhibitor) has the potential to be a more broadly
applicable and useful product than the antibody approach. SUGEN has identified a
number of small molecule inhibitors of Pan-Her targets. The Company is currently
testing several of these molecules in animal models in order to identify the
clinical candidate in 1999. SUGEN is pursuing its Pan-Her antagonist program in
collaboration with ASTA Medica.
Raf Antagonist. Raf, an STK, is a downstream signalling molecule through which
numerous signalling pathways have been found to converge. Dr. Ulf Rapp, Director
of Molecular Biology at the University of Wurzburg, Germany, a SUGEN consultant
and the discoverer of Raf, has demonstrated that inhibition of Raf blocks the
tumor-forming potential of Ras. The Ras oncogene has long been known to play an
integral role in certain cancers, and may be involved in over 20% of all tumors
including approximately 90% of pancreatic tumors. Moreover, Ras has drawn the
attention of the pharmaceutical industry for many years because of its frequent
mutational activation in tumor cells.
SUGEN has developed proprietary Raf-based assays and has identified
catalytic inhibitors of Raf. The Company believes that drugs that inhibit Raf
signalling may arrest tumors driven by excessive Ras activity and other
oncogenic targets. The Company has been pursuing its Raf antagonist program in
collaboration with ASTA Medica.
Met TK Antagonist. Met TK activity may be implicated in a significant portion of
tumors of the lung, stomach and colon. Moreover, Met TK may play a role in the
metastasis of solid tumors to the bone, liver, and lung. SUGEN has recently
completed target validation studies on Met TK, has established a target-specific
screening cascade, and has derived compounds that are in evaluation for
anti-metastatic behavior in animal models.
CDK2 Antagonist. Aberrant regulation of CDK2 protein kinase activity has been
associated with a wide variety of cancers and tumor types. SUGEN has identified
potent and selective inhibitors of the CDK2 STK that inhibit cell cycle
progression and induce apoptosis. Lead finding efforts are under way to evaluate
compounds for oral efficacy using animal models.
GRB2 Antagonist. Growth factor receptor binding protein 2 ("GRB2"), a downstream
signalling adaptor molecule, was originally cloned by Dr. Schlessinger's
laboratory. GRB2 has been shown to be an essential element in the signal
transduction pathway of many TKs, particularly as a link between TKs and Ras.
(See "Raf Antagonist" above). SUGEN is investigating the role of GRB2 in linking
TK signalling to Ras activation in certain TK induced cancers, with the belief
that inhibition of GRB2 might be of therapeutic benefit for a broad range of
cancers typified by an activation of the TK-Ras pathway. SUGEN holds issued
patents to claims on the GRB2 target and compounds to inhibit GRB2 mediated
signalling. In vivo studies indicate efficacy in tumor growth inhibition with
identified lead compounds when given by the oral route of administration.
Angiogenesis Inhibition for Ophthalmic Disorders. A number of ophthalmological
disorders involve neovascularization of different regions of the eye. Since
Flk-1/KDR TK and other tyrosine kinase targets have been shown to play a crucial
role in ocular neovascularization, SUGEN and Allergan are collaborating to
identify, develop and commercialize novel angiogenesis inhibitors for the
treatment of ophthalmic diseases. In 1998, SUGEN and Allergan, using animal
models, have validated TK targets in order to provide the framework to identify
lead compounds. SUGEN and Allergan are currently in lead optimization to
identify clinical-stage compounds.
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Diabetes
Both Type I and Type II diabetes are characterized by pathologically
high levels of blood glucose due to inefficient cellular uptake and metabolism
of glucose. Type I diabetes is characterized by insufficient levels of insulin
and is thought to be caused by the autoimmune destruction of the pancreatic
cells that make insulin. In contrast, Type II diabetics often produce elevated
levels of insulin, although this insulin does not seem to have sufficient
effect. All Type I and some Type II diabetics are treated with insulin. The
long-term side effects of diabetes and of insulin therapy can be severe.
Dr. Ullrich was the first to clone the TK receptor to which insulin
binds. In a normal state, the body secretes insulin which in turn binds to the
insulin TK. These events activate the insulin TK signalling pathway, resulting
in cellular uptake of glucose and glucose metabolism. In Type I and Type II
diabetes, the TK signalling mechanism is impaired. Certain TPs appear to be
involved in down regulating (dephosphorylating) the insulin TK signalling
pathway. Recently, disruption of a tyrosine phosphatase gene has led to mice
exhibiting features of human diabetes. This target validations work supports the
premise long held by SUGEN that a small molecule which specifically inhibits TPs
that regulate insulin TK signalling, would lead to increased glucose uptake and
metabolism.
SUGEN is currently optimizing lead compounds that inhibit TPs for use
in the treatment of diabetes.
Neurology
TKs, TPs and their signalling pathways are known to play key roles in
the maintenance of the central and peripheral nervous systems. Several known
neurotrophic factors bind to TKs, and thereby regulate differentiation and
survival of neurons. SUGEN has identified novel TKs and TPs whose expression is
restricted to the nervous system and which may serve as therapeutic targets for
intervention in neurological diseases. SUGEN has also identified lead compounds
that act as selective TP inhibitors and are able to stimulate neuron
differentiation in in vitro models.
Immunology
The role of TKs in the generation and maintenance of the human immune
system has been well established by many researchers around the world. SUGEN has
developed a diverse family of TK assays with application to the discovery of
drugs for immunologic disorders. For example, ZAP-70, an intracellular TK, has
been shown to be a primary regulator of T-lymphocyte cell activation of the
immune system. This TK and other TK targets in the immune system represent drug
discovery targets for identifying novel immunosuppressive and immuno-modulating
drugs. SUGEN has identified potent and selective chemical leads for many of
these targets and is progressing a number of these leads into animal studies.
SUGEN's Drug Discovery Technology
SUGEN's primary mission is to discover and develop drugs that target
specific TKs, TPs, and STKs. SUGEN's current drug discovery effort is focused
primarily on the discovery of small molecule drugs derived from synthetic
compound libraries. As compared to biologic pharmaceuticals such as proteins,
peptides and carbohydrates, small molecules often offer advantages as potential
drugs. Small molecules can more easily penetrate cell membranes and may provide
more flexibility with respect to pharmacologic parameters, dose, and delivery,
including by the oral route. SUGEN has been able to identify lead compounds in a
number of its programs that:
(1) penetrate the cell;
(2) effect intracellular targets specifically;
(3) modulate biological function without cytotoxicity;
(4) show favorable oral bioavailability;
(5) can be easily manufactured; and
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(6) show minimal systemic toxicity.
SUGEN's process of drug discovery includes:
(1) target identification;
(2) target validation in relevant cellular and in vivo disease models;
(3) drug screen assay design and screening of compounds for high
quality chemical leads;
(4) lead finding crystallography and computational chemistry; and
(5) lead optimization using medicinal chemistry and pharmacologic
screens.
Target Identification
SUGEN's genomics efforts are focused exclusively on certain families of
signal transduction genes, which make up approximately two percent of the entire
human genome. These families include the TKs, TPs, STKs, adaptor molecules and
certain other important molecules involved in cellular signalling. Within this
specific area of focus, SUGEN identifies and defines the function of novel genes
and their protein products, and in turn assesses their utility as targets for
therapeutic intervention against diseases of interest to the Company.
SUGEN believes that substantially the entire human genome will be
sequenced within a few years, and most of that sequence data will be available
on public databases or elsewhere. SUGEN's target identification effort,
therefore, is focused on determining the function of novel genes. In this
regard, SUGEN has made a strategic commitment to its bioinformatics platform,
representing a bridge between abundant gene sequence data and disease-relevant
discoveries.
SUGEN's bioinformatics program starts with a physical repository of the
approximately 550 protein kinases, 130 protein phosphatases, and 800 other
signal transduction genes. These genes are placed onto a signal transduction
chip, or DNA microarray, in order to study how their expression is regulated in
normal and diseased tissue in addition to other genes discovered by SUGEN but
not published to date. SUGEN also has a proprietary panel of oligonucleotide
primers capable of recognizing genes that are minimally related to genes already
in the SUGEN library. All of this information is supported by an in-house
massively parallel computer processing platform capable of approximately 68,000
million instructions per second (mips) throughput. Using sophisticated pattern
recognition algorithms, SUGEN is able to rapidly mine the public databases
looking for new sequence material of interest, for the complete sequences of
gene fragments identified from cells of interest, for additional members of
newly discovered families of signal transduction genes, or for human homologs of
genes from lower organisms where genetic studies provide information pertinent
to the function of the new human gene.
SUGEN has developed a proprietary DNA array based hybridization
technology called transcript imaging, for which the Company has received a
United States patent. This technology enables SUGEN researchers to rapidly
obtain a comprehensive analysis of the expressions level for all known TKs and
TPs in a small sample of cells or tissue. SUGEN's transcript imaging allows the
Company to identify signalling pathways that play key roles in specific cell
types and, more importantly, to compare diseased cells to healthy cells in order
to determine where aberrant signalling may play a causative role in a disease.
For example, if a particular signal transduction gene is heavily overexpressed
in a significant proportion of samples of a specific tumor type, that gene
becomes a potential candidate for target validation. If the gene can
subsequently be validated as playing a causative role in these tumors, it may be
adopted as a target for drug discovery. SUGEN believes that this technology also
has the potential to become an important diagnostic tool, an opportunity which
SUGEN may seek to pursue in partnership with an established diagnostics company
or otherwise.
Target Validation
A primary challenge in SUGEN's target-driven drug discovery is to
progress as efficiently as possible from identifying a potential new target to
verifying that a drug which specifically acts on that target could have a
significant therapeutic benefit in the treatment of a given disease. Within this
process, "target validation" is a
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crucial step before committing resources to assay development and screening for
target-specific drug leads. The first step in validating a novel target usually
involves developing a battery of proprietary reagents, including truncated or
point-mutated genes, anti-sense constructs and antibodies. In the case of novel
receptors, where the natural ligands and signalling substrates initially may be
unknown, the Company employs a variety of advanced methods for identifying and
cloning these molecules. Using these reagents, the Company then engineers cell
lines in which it has clearly characterized the expression levels and activity
of the target gene. These cell lines can then be used to establish in vitro and
in vivo whether down-regulating the target will block the disease cascade. If
so, the target is considered validated.
Assay Design/Screening
From its inception, SUGEN has built a strong assay development
capability. The Company regards this capability as an important component of its
proprietary position in the discovery and development of target-specific signal
transduction inhibitor drugs. Assay quality has proven to be a very important
determinant of whether screens favor the identification of high-quality chemical
leads with the desired chemical features to make drugs. SUGEN employs both
cell-based and biochemical assays in semi-automated format to support all drug
discovery programs related to TKs, TPs and STKs and related signalling targets.
Lead Finding
SUGEN's drug discovery process employs a cascade of tests including
animal models to ensure that chemicals affect a specific target function that is
consistent with each step of the screening cascade. By employing target-specific
and proprietary screening cascades, SUGEN has identified and continues to
identify high-quality lead compounds which are active in whole cell
environments, are potent and specific on intracellular targets, and which have
shown favorable features when tested in in vivo disease models where the target
plays a role. SUGEN has obtained and generated various in-house chemical
collections for screening. In addition, SUGEN has implemented combinational
chemistry to generate focused chemical collections that effect protein kinase
targets.
SUGEN has integrated crystallographic analysis and computational
chemistry into its drug discovery process. Work conducted in Dr. Schlessinger's
laboratory at NYU, as well as with other collaborators, allows SUGEN scientists
to elucidate the mechanism of compound interactions in the catalytic core of TKs
and provides a basis for further directed synthetic chemistry efforts in lead
generation and potential development of additional compounds against new
targets.
Lead Optimization/Preclinical Development
The objective of SUGEN's lead optimization program is to optimize the
pharmacologic properties of lead compounds by designing and synthesizing
compounds with the best chemical features for systemic efficacy and delivery
with the fewest side effects. The lead optimization process uses a wide variety
of in vivo pharmacologic endpoints in order to derive compounds with the best
clinical utility. SUGEN's expertise derived from its development of several
clinical-stage compounds has led to a proprietary source of information about
the relationships between compounds, specific targets, and the pharmacologic
properties of the compounds which maximizes the efficacious potential of
compounds in the clinical setting and favors commercial potential.
Corporate and Clinical Development Collaborations
The Company's approach to corporate partnering is different in cancer
than it is in other disease areas. In the cancer field, SUGEN intends to build a
vertically integrated oncology business in North America, with the objective of
bringing to market a family of target-specific signal transduction inhibitors
proprietary to SUGEN. To market its products effectively, the Company currently
intends to build a focused U.S. sales force to target the major cancer treatment
centers and may explore alliances with potential marketing and distribution
partners to optimize sales. On the European front, SUGEN recently established
SUGEN Europe as a currently
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wholly owned subsidiary in Schaffhausen, Switzerland. This new entity has become
the European licensee for SUGEN's cancer pipeline, with a mission to build a
strong and profitable cancer business in Europe. While the Company had initially
planned to license European rights to its products to a fully integrated
pharmaceutical company, SUGEN has concluded that the financial terms of that
route would not adequately reflect the market potential of its products in such
a potentially rapidly growing market. SUGEN Europe expects to work with four or
five national distribution partners who bring a strong local presence on a
pan-European scale to maximize product revenue. The first of these distribution
agreements has been concluded with Esteve S.A. of Spain, and active negotiations
are ongoing with respect to the other European territories. The Company plans to
seek additional corporate partners to fund product development and to
commercialize its products in the rest of the world. In Japan, the Company
entered into an agreement with Taiho for the development and commercialization
of SUGEN's angiogenesis inhibitors for the treatment of cancer. Under this
agreement, Taiho contributes to the worldwide development and clinical trials
costs of SU5416 and SU6668, pays certain milestones, and receives Japanese
commercial rights; SUGEN, through its affiliate, SUGEN International, may
provide finished product to Taiho on prenegotiated terms. While the Company
generally intends to retain rights to its cancer programs in North America,
SUGEN is funding a portion of its ongoing cancer research through a
collaboration with Zeneca for the development of five cancer targets, including
Aurora2, an oncogene overexpressed in more than 50% of primary colorectal
cancers. Pursuant to its agreement with Zeneca, the Company will have the
opportunity to obtain profit participation rights in the North American market
by contributing to clinical development costs as incurred and will receive
milestone payments and royalties on worldwide sales. Outside of oncology, the
Company's strategy is to seek corporate collaborations or joint ventures to
which SUGEN contributes validated targets, screening technologies and drug leads
while the partner provides the disease-specific and drug development expertise
as well as marketing experience, in addition to providing funding to bring
potential products to market. As part of this strategy, the Company entered into
a collaboration with Allergan for angiogenesis inhibition in ophthalmic
applications resulting from the Company's Flk-1/KDR TK antagonist program. The
Company also has an agreement with ProChon for the development of drugs for the
treatment of achondroplasia and other growth disorders.
Zeneca Limited
In January 1995, the Company established a research collaboration with
Zeneca. In this collaboration, Zeneca and the Company seek to discover and
develop novel small molecule signal transduction inhibitors that address certain
substantial oncology markets. The collaboration covers five cancer programs, but
excludes all programs upon which the Company is currently building its own
cancer business. The two companies have agreed upon specific programs to be
included initially in the collaboration, with Zeneca supporting SUGEN's work on
these programs for an initial term of five years. The research term is due to
expire in March 2000 unless renewed by mutual consent. SUGEN performs target
identification, target validation, assay development and screening for initial
leads, while Zeneca scientists concentrate on lead identification and
optimization and preclinical and clinical development activities. Zeneca will
market collaboration products worldwide. SUGEN has also granted Zeneca a right
of first negotiation to expand this collaboration in order to encompass
additional SUGEN cancer research projects, but has specifically excluded the
cancer related projects that SUGEN already has in development.
Under the terms of the agreement, Zeneca purchased 789,141 shares of
Common Stock at a price of $15.84 per share. This $12.5 million equity
investment, combined with Zeneca's $7.5 million participation in SUGEN's October
1994 initial public offering, increased Zeneca's ownership in the Company to
approximately 20%. Zeneca has committed not to increase its holdings above this
level without the approval of SUGEN's Board of Directors. Zeneca participated in
the Company's September 1995, October 1996 and November 1997 financings,
purchasing an additional 281,875, 509,000 and 456,000 shares, respectively, of
Common Stock in order to maintain its ownership position. To date, Zeneca has
invested approximately $36.8 million in the Company's Common Stock.
In addition to its equity purchases and annual research funding, Zeneca
paid a $5.0 million technology set-up fee to SUGEN, and will make milestone
payments (which may be offset against royalties over time) tied to the progress
of compounds in the collaboration, and royalties on worldwide sales of any
collaboration
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products. SUGEN will also have the right to contribute to clinical development
costs on each program, thereby earning participation in the North American
profits from successful products coming out of such programs over and above its
royalty entitlement. Apart from this option, Zeneca will be responsible for all
development expenses. If a third party acquires 35% or more of SUGEN's voting
stock, Zeneca may terminate the collaboration agreement but retain exclusive
royalty-bearing license rights to any collaboration products for which IND
filing preparations are complete and a separate license agreement has been
executed. There can be no assurance that this collaboration will result in any
milestones being achieved or any products being successfully developed.
The agreement provides for SUGEN to be granted access to Zeneca's large
proprietary collection of characterized chemical structures for screening
against SUGEN's signal transduction targets, both within and outside this
collaboration, subject to certain restrictions and a right of first licensing
negotiation on Zeneca's part. Zeneca has granted to SUGEN the right of first
negotiation to license from Zeneca oncology products (other than those
specifically excluded under the agreement) which Zeneca decides to license to a
third party.
In January 1996, SUGEN licensed a small molecule inhibitor of the EGF
TK from Zeneca. The compound, SU5271, was licensed from Zeneca as an extension
of the original collaboration agreement SUGEN signed with Zeneca. Under the
terms of this license agreement, Zeneca granted to SUGEN an exclusive, worldwide
license, with right to sublicense the compound, in exchange for milestone and
royalty payments. The agreement provides that SUGEN shall have overall control
and responsibility for the preclinical and clinical development, regulatory
strategy, process development and commercialization of SU5271.
National Cancer Institute
In April 1996, the Company entered into a Collaborative Research and
Development Agreement ("CRADA") with the National Cancer Institute (the "NCI")
for the application of SUGEN's proprietary transcript imaging technology in
order to identify the differences in expression patterns of signal transduction
genes that characterize each of the sixty tumor cell lines which constitute the
NCI's screening panel. Following this transcript imaging analysis of the panel,
the results will be correlated to the data generated over several decades at the
NCI from the screening each year of many thousands of compounds and natural
extracts against the panel. Interesting lead compounds from the NCI's open
repository collection will be tested in SUGEN's target-specific signal
transduction assays, and lead compounds from SUGEN will also be tested against
the NCI panel. SUGEN will have the option to license discoveries made through
this process for adoption into SUGEN's drug discovery programs.
ASTA Medica Aktiengesellschaft
In December 1995, SUGEN and ASTA Medica entered into a collaboration to
research, develop, manufacture, market and distribute potential oncology
products based upon the Company's Pan-Her antagonist and Raf antagonist
programs. Under the terms of the collaboration, ASTA Medica will undertake the
medicinal chemistry and pharmaceutical development work on SUGEN's drug
candidates, and will perform preclinical and clinical development in Europe in
accordance with FDA standards. ASTA Medica paid SUGEN a $4.0 million technology
set-up fee and is providing additional consideration in the form of services
provided by ASTA Medica pursuant to the collaboration but on non-collaboration
programs. Additionally, ASTA Medica purchased $9.0 million of Common Stock at a
price of $20.88 per share. In January 1998, SUGEN and ASTA Medica decided to
proceed into clinical development with their Pan-Her cancer program, marking the
first milestone in SUGEN's collaboration with ASTA Medica. ASTA Medica exercised
its option to satisfy its $500,000 milestone obligation by the purchase of
18,665 shares of SUGEN Common Stock at a price of approximately $26.79 per share
of which the premium above fair market value was recorded as revenue. ASTA
Medica has subsequently made certain cash payments and has purchased additional
SUGEN shares in connection with modifications to the collaboration agreement as
they relate to the Pan-Her program. In due course, SUGEN may receive additional
milestone payments in the two programs if they are successful. The agreement
provides for ASTA Medica to receive exclusive marketing rights to collaboration
products in Greater Europe (including countries and territories located in the
former Soviet Union) and South America, subject to
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an obligation to pay royalties on net sales in such territories to SUGEN. ASTA
Medica also has the right of first offer to manufacture product to be sold in
SUGEN territories. SUGEN retains marketing rights in the rest of the world,
subject to a royalty payable to ASTA Medica in most circumstances.
ASTA Medica is an international pharmaceutical company headquartered in
Germany. The Company's research and development is focused on cancer,
respiratory diseases/allergies and disorders of the central nervous
system/epilepsy. The company is owned by Degussa, a company active in the fields
of chemicals, health and nutrition, as well as banking and precious metals.
Allergan
In October 1996, SUGEN entered into a collaboration with Allergan to
identify, develop and commercialize novel angiogenesis inhibitors for the
treatment of ophthalmic diseases. The collaboration aims to establish a
comprehensive effort to identify and validate signal transduction targets for
choroidal and retinal neovascularization. Allergan is the exclusive corporate
partner for SUGEN in ocular diseases of neovascularization and has exclusive
rights to all ophthalmic uses of collaboration products and collaboration
know-how worldwide. In return, Allergan paid SUGEN a $2.0 million initial fee
for past research services and is funding collaboration research and drug
discovery at SUGEN for at least three years. Allergan initially purchased $4.0
million of Common Stock at $20.88 per share and purchased an additional 250,000
shares of Common Stock at $12.00 per share in SUGEN's October 1996 follow-on
offering. SUGEN will also receive payments upon achievement of certain
milestones and royalties with respect to worldwide sales of collaboration
products. In addition, SUGEN will have the right to contribute to clinical
development costs on each program, thereby earning participation in the North
American and European profits from successful products coming out of such
programs over and above its royalty entitlement. Apart from this option,
Allergan will be responsible for all development expenses.
In July 1998, the Company received its first milestone payment of
$437,500, net of royalties to third parties, triggered by the identification and
validation of the kinase receptors playing the primary role in the angiogenic
component of these diseases
Taiho Pharmaceutical Ltd.
In July 1998, the Company entered into an agreement with Taiho for the
development and commercialization of the Company's angiogenesis inhibitors for
the prevention and treatment of cancer. In connection with this agreement, Taiho
will receive marketing rights in Japan, while the Company will retain marketing
rights for the rest of the world. The Company received an initial research
payment, is receiving research and development funding and will receive
additional payments upon the achievement of certain milestones. The Company has
retained the rights to manufacture and supply finished products to Taiho for
sale in Japan on prenegotiated terms.
ProChon Biotech Limited
In June 1998, the Company entered into a collaboration with ProChon Biotech
Limited ("ProChon") to discover and develop small molecule signal transduction
inhibitors for the treatment of achondroplasia and other growth disorders. In
connection with this collaboration, the Company received $3.0 million comprised
of a $750,000 initial research payment and a $2.25 million stock purchase of
93,750 shares of SUGEN Common Stock at $24.00 per share. In addition, the
Company will receive payments upon achievement of certain milestones and
royalties with respect to worldwide sales of collaboration products.
Research Collaborations
SUGEN's scientific founders are Dr. Joseph Schlessinger, Chairman of
the Department of Pharmacology at NYU, and Dr. Axel Ullrich, Director of the
Department of Molecular Biology at MPI in Martinsried, Germany. In the fall of
1991, the Company entered into research collaboration agreements with
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both institutions. More recently the Company has established additional research
collaborations relating to TPs, TKs and STKs identification and screening areas.
New York University Medical Center
In September 1991, SUGEN entered into a research and license agreement
with NYU granting the Company an exclusive worldwide license to the commercial
uses of TK, TP and STK technology being developed at NYU under the leadership of
Dr. Schlessinger. The research program being conducted at NYU centers on an
investigation of the mechanisms underlying the action of TKs, TPs and STKs and
their physiological role, as well as identifying, isolating and cloning new TKs,
TPs and STKs and the components of the signal transduction pathways emanating
from these proteins. The research program is scheduled to expire in 2001.
SUGEN's license to technology developed before or during the research program
will survive indefinitely unless NYU terminates the agreement upon insolvency of
the Company or due to a material breach by the Company. Upon such termination of
the agreement, NYU will continue to own the rights to the technology it has
developed under the agreement. The Company is obligated to pay royalties to NYU
on sales of any SUGEN products for which an IND is filed within four years of
the end of the NYU research period except for certain in-licensed products. As
part of this arrangement, NYU purchased 200,000 shares of SUGEN Common Stock at
the Company's formation.
Max-Planck Society
SUGEN has formed research collaborations with two institutes of the
Max-Plank Society ("MPS") in Germany. These collaborations include licenses from
Garching Innovation GmbH ("Garching"), the licensing arm of MPS.
Max-Planck-Institut fur Biochemie. The Company entered into a research
and license agreement with MPI and Garching which expired in August 1997 but is
expected to be renewed in modified form. This agreement grants SUGEN an
exclusive worldwide license to the commercial uses of TK and TP technology being
developed at MPI under the leadership of Dr. Ullrich. The scope of the research
program includes identification, isolation and cloning of novel receptor TKs and
TPs, characterization of signal transduction pathway components and
investigation of the normal biological role of these proteins as well as their
role in disease. SUGEN's license to technology developed before or during the
research program will survive indefinitely unless MPI terminates the agreement
upon insolvency of the Company or due to a material breach by the Company. Upon
such termination of the agreement, MPI will continue to own the rights to the
technology it has developed under the agreement. The Company is obligated to pay
royalties on sales of any products using this technology. As part of this
arrangement, MPS currently owns 200,000 shares of SUGEN Common Stock purchased
at the Company's formation.
Max-Planck-Institut fur Physiologische und Klinische Forschung. The
Company had an exclusive research and licensing agreement with the
Max-Planck-Institut fur Physiologische and Klinische Forschung ("MPP") (MPI and
MPP are collectively referred to herein as "Max-Planck Society" or "MPS") to
support the work of Dr. Werner Risau, who was a SUGEN consultant and a director
of MPP, and his laboratory. Dr. Risau was one of the leading researchers in the
field of angiogenesis. Dr. Risau died in August 1998, and the future of this
collaboration has yet to be determined.
Other Sources of Materials for Screening
The Company has entered into a number of agreements designed to obtain
novel biochemical and biological compounds and extracts for screening in its
proprietary assay systems. These agreements cover a broad range of chemical
entities from sources across the world. SUGEN also has an agreement with
Panlabs, Inc. of Bothell, Washington for the supply of microbial and fungal
extracts and the isolation and identification of active components from these
extracts. The original agreement was entered into in March 1993 and is renewable
for successive one year periods. The agreement most recently was amended in
early 1997, under which Panlabs will supply the Company with a significant
number of extracts from which the Company can select a portion to be designated
as "selected organisms." SUGEN will own all rights to the selected organisms
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and the active compounds produced by them, including any derivatives. Panlabs is
supplying other companies with similar extracts under similar conditions. In
June 1995, SUGEN and Toyama Prefectural University of Tokyo initiated a
collaboration to discover new drugs for the treatment of cancer and other
diseases by inhibiting TKs and TPs and related molecules. A research team headed
by Professor Toshikazu Oki in the University's Biotechnology Research Center is
provided to SUGEN compounds from Toyama's microbial strain libraries for testing
of potential biological activity. The collaboration ended with the departure of
Professor Oki in the fourth quarter of 1998. In July 1996, SUGEN and the
Institutes of Botany and Microbiology of the Chinese Academy of Sciences
initiated exclusive collaborations to discover novel signal transduction
inhibitor candidates and pharmacophores. The Institute of Botany and the
Institute of Microbiology have provided to SUGEN extracts from the Institutes'
plant and microbial collections for testing of potential biological activity
against SUGEN's signal transduction targets. Other SUGEN compound sources
include natural product libraries from around the globe, including microbial,
fungal and plant extracts, as well as additional sources of small organic
compounds.
Patents and Proprietary Technology
SUGEN's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and in other countries. Patent matters in
biotechnology, and in particular with respect to receptors as screening tools
and/or the DNA encoding them, are highly uncertain and involve complex legal and
factual questions. Accordingly, the availability of and breadth of claims
allowed in biotechnology and pharmaceutical patents cannot be predicted. As of
January 31, 1999, SUGEN held exclusive rights to at least 45 issued U.S.
patents, had exclusive rights to at least 20 U.S. patent applications for which
notices of allowance had been received and had filed and/or held exclusive
licenses to approximately 110 United States patent applications. SUGEN also
holds exclusive rights to many foreign patent applications corresponding to the
United States patents and patent applications.
There can be no assurance that SUGEN will develop products or processes
that are patentable, that patents will issue from any of the pending
applications, or that claims allowed will be sufficient to protect SUGEN's
technology. There can be no assurance that SUGEN's patent applications, if
issued as patents, will not be challenged, invalidated or circumvented, or that
the rights granted thereunder will provide proprietary protection or competitive
advantages to SUGEN. Competitors have filed applications, have been issued
patents, and may file additional applications and obtain additional patents and
proprietary rights relating to products or processes competitive with those of
SUGEN or which could block SUGEN's efforts to obtain patents or commercially
develop its technology.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in the field of TKs, TPs and STKs, related downstream signaling
molecules, and compounds and other modulators thereof. The commercial success of
SUGEN will depend in part on SUGEN not infringing patents issued to competitors
and not breaching the technology licenses upon which any SUGEN products are
based. SUGEN in the past has been, and from time to time in the future may be,
notified of claims that SUGEN may be infringing patents or other intellectual
property rights owned by third parties. Certain patent applications or patents
of SUGEN's competitors may conflict with SUGEN's patents and patent
applications, and SUGEN is aware that other companies have filed patent
applications and have been granted patents in the United States and other
countries claiming subject matter potentially useful or necessary to SUGEN. Such
conflicts could result in a significant reduction in the scope of the coverage
of SUGEN's issued or licensed patents. In addition, if patents are issued to
other companies which contain competitive or conflicting claims and such claims
are ultimately determined to be valid, SUGEN may be required to obtain licenses
to these patents or to develop or obtain alternative technology. If any licenses
are required, there can be no assurance that SUGEN will be able to obtain any
such license on commercially favorable terms, if at all, and if these licenses
are not obtained, SUGEN might be prevented from pursuing the development of
certain of its potential products. SUGEN's breach of an existing license or
failure to obtain a license to any technology that it may require to
commercialize its products may have a material adverse impact on SUGEN.
Litigation, which could result in substantial costs to SUGEN, may also be
necessary to enforce any patents issued or licensed to SUGEN or to determine the
scope and validity of third-party proprietary rights. There can be no assurance
that SUGEN's issued or licensed patents would be held
18
<PAGE>
valid by a court of competent jurisdiction. Even if the outcome of such
litigation is favorable, the cost of such litigation and the diversion of
SUGEN's management resources during such litigation could have a material
adverse effect on SUGEN. An adverse outcome could subject SUGEN to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require SUGEN to cease using such technology, any of which could have
a material adverse effect on SUGEN. If competitors of SUGEN prepare and file
patent applications in the United States that claim technology also claimed by
SUGEN, SUGEN may have to participate in interference proceedings declared by the
Patent and Trademark Office to determine priority of invention, which could
result in substantial cost to SUGEN, even if the eventual outcome is favorable
to SUGEN. When patents are granted in certain countries or regions such as Japan
and the European community, third parties can oppose such issuance. Should the
relevant patent office institute a proceeding termed an opposition, SUGEN may
decide to defend its patent. There can be no assurance that SUGEN will be
successful or that the patent office will not revoke the patent or alter the
scope of protection previously granted.
SU101, a compound generally known by the name leflunomide, is a member
of the isoxazole family of compounds. Leflunomide was discovered more than 17
years ago. In December 1997, the Company received two U.S. patents, Patent Nos.
5,700,823 and 5,700,822, relating to methods of using SU101 for treating various
diseases or disorders including cancers characterized by inappropriate PDGF-R
activity. SUGEN owns the exclusive rights to U.S. Patent No. 5,700,823. SUGEN
has been assigned the exclusive world-wide rights to U.S. Patent No. 5,700,822
and the corresponding foreign applications from all but one of the assignees
with whom negotiations will be undertaken. No assurance can be provided that
such negotiations will be successful, nor that the failure of such negotiations
will not result in a reduced value of U.S. Patent No. 5,700,822 and any foreign
patents that are obtained. In addition, SUGEN has filed several patent
applications in the United States directed to formulations containing SU101 and
the use of such formulations for treating various diseases or disorders
including cancer. Corresponding foreign patent applications have also been
filed. The Company has received two U.S. patents relating to formulations
comprising SU101. Both of these patents cover the formulation including SU101
which SUGEN presently believes will be commercially marketed. SUGEN owns the
exclusive world-wide rights to both of these patents and the corresponding
foreign applications.
SUGEN plans to commercialize SU101 in certain major markets outside the
United States either through affiliates or through licensees. While SUGEN
believes at this time that it will receive patent protection outside the United
States relating to the use of SU101 and formulations containing SU101, there can
be no assurance that any such patent protection will be issued.
Hoechst AG ("Hoechst") holds a number of United States and foreign
patents and has filed applications in the United States and abroad covering
compositions of matter and pharmaceutical uses of leflunomide and structurally
related compounds, including the use of leflunomide for treating cancer. SUGEN
believes its research and development and its clinical trials with SU101 in the
United States are protected from claims of infringement of the United States
patents because such activities are being conducted solely for uses reasonably
related to development and submission of information to the FDA for regulatory
approval. Similar protection may not be available outside the United States.
Although SUGEN cannot predict whether or when SU101 will be approved by the FDA
for marketing in the United States, it believes that certain of Hoechst's
patents in the United States may have expired when marketing does begin and that
the remaining U.S. patents are either subject to claims of invalidity or will
not be infringed by the manufacture and sale of SU101 in the United States for
treating cancer characterized by inappropriate PDGF-R activity. There can be no
assurance that a court will agree with SUGEN's beliefs regarding invalidity and
non-infringement of Hoechst's issued patents, that the term of Hoechst's
existing patents will not be extended, or that the claims of Hoechst's pending
patent applications will not be modified prior to issuance so as to enhance
their validity or scope. To date, Hoechst has not commenced legal proceedings
against SUGEN concerning possible patent infringement. There can be no assurance
that Hoechst in the future will not assert claims against SUGEN. If a court
found SUGEN to be infringing a valid patent issued to Hoechst in the United
States covering the use of leflunomide for treating cancer, SUGEN would be
required to obtain a license from Hoechst to manufacture or sell leflunomide for
treating cancer. There can be no assurance that SUGEN could reach agreement with
Hoechst for a license for SU101 upon favorable terms or at all, if required. The
inability of SUGEN to resolve this matter on favorable terms or at all could
have a material adverse effect on SUGEN. In any
19
<PAGE>
event, the assertion of any such claims, even if resolved favorably to SUGEN,
could result in substantial costs to SUGEN.
The scope, term and validity of Hoechst's patent protection outside the
United States are different than the situation in the United States. SUGEN's
ability to manufacture and sell SU101 outside the United States may be adversely
impacted by this patent protection. If a court found SUGEN to be infringing a
valid patent issued to Hoechst in a foreign country covering the use of
leflunomide for treating cancer, SUGEN would be required to obtain a license
from Hoechst to manufacture or sell leflunomide for treating cancer in the
relevant country. There can be no assurance that SUGEN could reach agreement
with Hoechst for a license for SU101 upon favorable terms or at all, if
required.
SUGEN is currently undertaking clinical trials with the compound
referred to as SU5416. In August 1998, SUGEN received U.S. Patent No. 5,792,783,
with product and methods of use claims covering SU5416. Related applications are
pending abroad, including Japan and the European community. SUGEN holds
exclusive worldwide rights to these applications, except in Japan.
SUGEN is currently undertaking studies of the compound referred to as
SU6668. The compound SU6668 is generically covered by U.S. Patent No. 5,792,783.
SUGEN filed a provisional patent application in the United States specifically
disclosing and claiming SU6668. It is SUGEN's intention to file the material
contained in this application outside of the United States within one year of
the provisional filing date. SUGEN holds exclusive worldwide rights to this
application, except in Japan. There can be no assurance that patents will issue
with claims specifically reciting SU6668. Should such patents issue, there can
be no assurance that the term of such patents will exceed that of U.S. Patent
No. 5,792,783.
SUGEN also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. SUGEN
attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that SUGEN would have adequate remedies for any breach, or that
SUGEN's trade secrets will not otherwise become known or be independently
discovered by competitors. To the extent that SUGEN or its consultants or
research collaborators use intellectual property owned by others in their work
for SUGEN, disputes may also arise as to the rights in related or resulting
know-how and inventions.
Competition
SUGEN is engaged in a rapidly changing field. Other products and
therapies that will compete directly with the products that the Company is
seeking to develop and market currently exist or are being developed.
Competition from fully integrated pharmaceutical companies and more established
biotechnology companies is intense and is expected to increase. Most of these
companies have significantly greater financial resources and expertise in
research and development, manufacturing, conducting preclinical studies and
clinical trials, obtaining regulatory approvals and marketing than the Company.
Many of these competitors have significant products that have been approved or
are in development and operate large, well-funded research and development
programs. For example, Genentech's Herceptin, the monoclonal antibody targeting
Her2-dependent breast tumors, was recently approved for the treatment of Her-2
positive breast cancers. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct research, seek patent protection and establish collaborative
arrangements for products and clinical development and marketing. These
companies and institutions compete with the Company in recruiting and retaining
highly qualified scientific and management personnel. Competition may also arise
from companies pursuing differing technological approaches to cancers and other
disease indications targeted by the Company's product candidates. In addition to
the above factors, SUGEN will face competition based on product efficacy and
safety, the timing and scope of regulatory approvals, availability of supply,
marketing and sales capability, reimbursement coverage, price and patent
position. There is no assurance that the Company's competitors will not develop
more
20
<PAGE>
affordable products, compete more effectively for corporate partnerships or
achieve earlier patent protection or product commercialization than the Company.
Other examples of competition can be found in the field of
angiogenesis, where several biotechnology and pharmaceutical companies are in
the process of developing angiogenesis inhibitors that block the formation of
blood vessels to tumors using direct, indirect, and unknown mechanisms of
action. The stage of these competitive programs range from preclinical to Phase
III clinical development.
Government Regulation
The Company's ongoing research and development activities and the
manufacturing and marketing of the Company's potential products are subject to
extensive regulation by numerous governmental authorities in the United States
and other countries. Failure to comply with applicable FDA or other applicable
regulatory requirements may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production or
injunction, as well as other regulatory action against the Company or its
potential products.
Prior to marketing in the United States, any drug developed by the
Company must undergo rigorous preclinical studies and clinical trials and an
extensive regulatory clearance process implemented by the FDA under the federal
Food, Drug and Cosmetic Act. Satisfaction of such regulatory requirements, which
includes satisfying the FDA that the product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
The Company is focusing its initial development efforts related to SU101 for the
treatment of malignant glioma and selected other solid tumor patient populations
with very poor prognosis. Given the poor prognoses for these patients, the
Company believes that FDA approval could potentially be obtained in a shorter
time period than typically required for approval of New Drug Applications
("NDA"). There can be no assurance, however, that the Company will be able to
rely on accelerated NDA review and approval to expedite the commercialization of
SU101 for these patient populations.
Preclinical studies must be conducted in conformance with the FDA's GLP
regulations. Before commencing clinical trials, the Company must submit to and
receive approval from the FDA of an IND. There can be no assurance that
submission of an IND would result in FDA authorization to commence clinical
trials. Clinical trials must meet requirements for institutional review board
oversight, informed consent and good clinical practice requirements and are
subject to continuing FDA oversight. The Company does not have extensive
experience in conducting and managing the clinical testing necessary to obtain
regulatory approval. Clinical trials may require large numbers of test subjects.
Furthermore, the Company or the FDA may suspend clinical trials at any time if
they believe that the subjects participating in such trials are being exposed to
unacceptable health risks or if the FDA finds deficiencies in the IND or the
conduct of the trials.
Before receiving FDA clearance to market a product, the Company will
have to demonstrate that the product is safe and effective on the patient
population that will be treated. Data obtained from preclinical studies and
clinical trials are susceptible to varying interpretations, which could delay,
limit or prevent regulatory clearances. In addition, delays or rejections may be
encountered based upon additional government regulation, from future
legislation, administrative action or changes in FDA policy during the period of
product development, and FDA regulatory review. Similar delays also may be
encountered in foreign countries. There can be no assurance that even after such
time and expenditures; regulatory clearance will be obtained for any products
developed by the Company. If regulatory clearance of a product is granted, such
clearance will be limited to those disease states and conditions for which the
product is useful, as demonstrated through clinical studies. Marketing or
promoting a drug for an unapproved indication is prohibited. Furthermore,
clearance may entail ongoing requirements for postmarketing studies. Even if
such regulatory clearance is obtained, a marketed product, its manufacturer and
its manufacturing facilities are subject to continual review and periodic
inspections by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including costly recalls or even withdrawal of the product from
the market. There can be no assurance that any compound developed by the Company
alone or in
21
<PAGE>
conjunction with others will prove to be safe and efficacious in clinical trials
and will meet all of the applicable regulatory requirements needed to receive
marketing clearance.
Manufacturers of drugs and biologics also are required to comply with
the applicable FDA good manufacturing practice ("GMP") regulations, which
include requirements relating to quality control and quality assurance as well
as the corresponding maintenance of records and documentation. Manufacturing
facilities are subject to inspection by the FDA, including unannounced
inspection, and must be licensed before they can be used in commercial
manufacturing of the Company's products. There can be no assurance that the
Company or its suppliers will be able to comply with the applicable GMP
regulations and other FDA regulatory requirements. Such failure could have a
material adverse effect on the Company.
The Company may elect to seek approval of SU101 under the
Clinton-Kessler Cancer Initiative. Significant uncertainty exists as to the
extent to which such initiative will result in accelerated review and approval.
Further, the FDA has not made available comprehensive guidelines with respect to
this initiative, retains considerable discretion to determine eligibility for
accelerated review and approval, and is not bound by discussions that an
applicant may have had with FDA staff. Accordingly, the FDA could employ such
discretion to deny eligibility of SU101 as a candidate for accelerated review or
to require additional clinical trials or other information before approving
SU101. A determination that SU101 is not eligible for accelerated review or
delays and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company.
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community ("EC") certain
registration procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is satisfied that
adequate evidence of safety, quality and efficacy has been presented, a
marketing authorization will be granted. This foreign regulatory approval
process includes all of the risks associated with FDA clearance set forth above.
Manufacturing
The Company has no manufacturing facilities and relies on other
manufacturers to produce its compounds for research and development, preclinical
studies and clinical trials. The products under development by the Company have
never been manufactured for commercial purposes, and there can be no assurance
that such products can be manufactured at a cost or in quantities necessary to
make them commercially viable. Any change in the Company's existing
relationships with, or interruption in supply from, its manufacturers of the
compounds used in its clinical trials could affect adversely the Company's
ability to complete its ongoing clinical trials and to market its product
candidates, if approved. Any such change or interruption may have a material
adverse effect on the Company. In the event of a change in the supplier of a
compound used in its clinical trials, the Company would be required to collect
data from its ongoing clinical trials with respect to a compound and file such
data with the FDA to establish comparability between the compound as produced by
different suppliers. There can be no assurance that the Company would be able to
establish such comparability. A failure to establish comparability could lead to
a requirement that the Company conduct additional clinical trials, which would
delay the Company's pursuit of regulatory approval for a product candidate. If
the Company were unable to contract for a sufficient supply of its compounds on
acceptable terms, or if it should encounter delays or difficulties in its
relationships with manufacturers, the Company's preclinical studies and clinical
trial schedule would be delayed, resulting in delay in the submission of
products for regulatory approval or the market introduction and subsequent sales
of such products, which could have a material adverse effect on the Company.
Moreover, contract manufacturers that the Company may use must adhere to current
GMP regulations enforced by the FDA through its facilities inspection program.
If these facilities cannot pass a pre-approval plant inspection, the FDA
pre-market approval of the products will not be granted.
22
<PAGE>
Employees
As of December 31, 1998, the Company had 239 full-time employees,
including a technical scientific staff of 147. The Company places an emphasis on
recruiting the highest caliber personnel. The Company has selected and assembled
a group of experienced scientists and managers with skills in a wide variety of
disciplines, including molecular biology, chemistry and pharmaceutical
development. To date, the Company believes it has been successful in its efforts
to recruit qualified employees, and although we cannot guarantee we can continue
to recruit this level of expertise, we expect to be able to do so in the future.
23
<PAGE>
Item 2. PROPERTIES
In the fourth quarter of 1998, the Company relocated its research and
headquarters facilities to a site of approximately 106,000 square feet located
in South San Francisco, California. The Company leases this space under an
operating lease extending until 2015, having renewal options of ten years. The
lease of the Company's previously occupied facilities of approximately 60,000
square feet located in Redwood City, California, was terminated at approximately
the same time as the commencement of the lease of the new facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company believes that its South San Francisco facility, in addition
to its options for additional space at the South San Francisco site, will be
sufficient to meet its needs for the next several years. There can be no
assurances, however, that, additional space, if needed, will be available on
favorable terms, if at all.
Item 3. LEGAL PROCEEDINGS
SUGEN is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since the Company's initial public offering of its common stock in
October 1994, the Company's Common Stock has traded on the Nasdaq Stock Market
under the symbol SUGN. The following table lists the high and low sales prices
for the Company's Common Stock for each quarter of fiscal year 1998 and 1997.
These prices do not include retail markups, markdowns or commissions.
---------------------------
High Low
------------------------------------------------------------
1998
Fourth Quarter $ 17.25 $ 11.13
Third Quarter 18.94 9.75
Second Quarter 18.00 12.63
First Quarter 15.50 11.63
------------------------------------------------------------
1997
Fourth Quarter 21.13 12.63
Third Quarter 20.94 11.88
Second Quarter 13.25 10.00
First Quarter $ 15.25 $ 9.88
------------------------------------------------------------
As of March 15, 1999 there were approximately 299 holders of record of
the Company's Common Stock. On March 15, 1999, the last sale price reported on
the Nasdaq National Market System for the Company's Common Stock was $16.81 per
share.
The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future.
In December 1998, the Company and ASTA Medica entered into a first
amendment to the existing collaboration agreement and issued and sold 13,307
shares of SUGEN Common Stock at $28.18 per share for a total purchase price of
$375,000 under an exemption from registration pursuant to Section 4 (2) of
Securities Act of 1933.
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<PAGE>
Item 6. SELECTED FINANCIAL DATA
Statement of Operations Data:
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Contract revenue (1) $ 14,916 $ 6,031 $ 13,650 $ 13,843 $ 6,270
Costs and expenses:
Research and development 46,851 34,585 29,792 23,226 17,079
General and administrative 9,517 6,227 5,529 5,086 3,106
-------- -------- -------- -------- --------
Total costs and expenses 56,368 40,812 35,321 28,312 20,185
-------- -------- -------- -------- --------
Operating loss (41,452) (34,781) (21,671) (14,469) (13,915)
Other income and expense:
Interest income 3,373 2,786 2,481 1,988 529
Interest expense (1,548) (1,065) (691) (494) (278)
Gain on sale of investment
in Selectide Corporation -- -- -- 1,006 --
-------- -------- -------- -------- --------
Other income, net 1,825 1,721 1,790 2,500 251
-------- -------- -------- -------- --------
Net loss $(39,627) $(33,060) $(19,881) $(11,969) $(13,664)
======== ======== ======== ======== ========
Basic and diluted net loss per share (2) ($ 2.49) ($ 2.47) ($ 1.81) ($ 1.32) ($ 4.37)
======== ======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share (2) 15,934 13,387 10,966 9,085 3,129
======== ======== ======== ======== ========
Pro forma net loss per share (3) ($ 2.27)
========
Shares used in computing pro forma net
loss per share (3) 6,013
========
</TABLE>
Balance Sheet Data:
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 47,297 $ 75,295 $ 56,334 $ 53,253 $ 22,414
Total assets $ 59,333 $ 84,825 $ 61,936 $ 59,243 $ 28,455
Capital lease obligations
- non-current portion $ 5,724 $ 3,152 $ 2,938 $ 3,651 $ 2,087
Senior custom convertible notes $ 5,694 $ 17,500 $ -- $ -- $ --
Accumulated deficit $(130,599) $ (90,988) $ (57,997) $ (37,964) $ (26,270)
Stockholders' equity $ 24,718 $ 49,013 $ 48,530 $ 43,441 $ 18,319
</TABLE>
(1) Includes amounts from related party.
(2) Basic and diluted loss per share for 1994 applies the requirements of Staff
Accounting Bulletin No. 98 ("SAB 98"), issued by the SEC in February 1998.
Under SAB 98, certain shares of common stock and options and warrants to
purchase shares of common stock at prices substantially below the per share
price of shares sold in the Company's initial public offering previously
included in the computation of shares outstanding pursuant to Staff
Accounting Bulletin's Nos. 55, 64 and 83 are now excluded from the
computation.
(3) Pro forma net loss per share information gives effect to the conversion of
all preferred stock outstanding from the date of issuance.
26
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with "Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Annual Report on Form 10-K. Except for the
historical information contained herein, the discussion in this Annual Report on
Form 10-K contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. These forward-looking statements are based on the
current expectations of the Company, and the Company assumes no obligation to
update this information. The cautionary statements made in this Annual Report on
Form 10-K should be read as being applicable to all related forward-looking
statements wherever they appear in this Annual Report on Form 10-K. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include those
discussed under "Liquidity & Capital Resources" below, as well as those
discussed elsewhere herein.
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 initiated a Phase III clinical trial for use of SU101 as a treatment for
refractory glioblastoma during the first quarter of 1998. Additionally, SUGEN
currently has underway multiple Phase II studies including SU101 in combination
with BCNU in front-line glioma, mono-therapy in ovarian and non small cell-lung
cancers and mono-therapy and in combination with mitozantrone in hormone
refractory prostate cancer. A Phase II study of SU101 as single agent therapy
for refractory anaplastic astrocytoma, another type of malignant brain tumor, is
also being conducted in parallel with the Phase III trial, and at the same
centers. To date, approximately 400 patients have been treated with SU101 in
thirteen Company-sponsored clinical trials. The Company's second cancer product
candidate, SU5416, is a Flk-1/KDR TK antagonist which inhibits angiogenesis (the
process by which blood vessels are formed). Currently, the Company is conducting
multiple Phase I clinical trials for SU5416 in solid tumors in Europe and the
U.S. and a Phase I/II study of SU5416 in Kaposi's sarcoma in the U.S. The
Company announced plans to accelerate the development of SU5416 with the
initiation of Phase III clinical trials in non small cell lung and colorectal
cancers and for Phase II/III studies in Kaposi's sarcoma. In December 1998, the
Company filed an Investigational New Drug ("IND") with the U.S. Food and Drug
Administration ("FDA") for its third cancer product, SU6668, a novel broad
spectrum inhibitor of angiogenesis and tumor growth, and is currently initiating
Phase I clinical trials in Europe and the U.S. using intravenous and oral
formulations, respectively. For the year ending December 31, 1998, substantially
all of the Company's revenue apart from interest income has been earned pursuant
to collaborations with Zeneca Limited ("Zeneca"), Taiho Pharmaceutical Ltd.
("Taiho"), Vision Pharmaceuticals L.P., an affiliate of Allergan, Inc.,
Allergan, Inc. (collectively "Allergan"), and ASTA Medica Aktiengesellschaft
("ASTA Medica"). The Company intends to pursue its cancer drug discovery
programs independently in North America and its programs in other disease areas
in collaboration with established pharmaceutical companies.
In June 1998, the Company established SUGEN International AG ("SUGEN
International"), as a wholly-owned subsidiary. SUGEN Europe AG ("SUGEN Europe")
was established in August 1998, as a wholly-owned subsidiary of SUGEN
International. Both entities are incorporated in the Canton of Schaffhausen,
Switzerland. SUGEN International and SUGEN Europe will hold certain rights to
the Company's technology portfolio outside of North America. The entities were
formed to facilitate commercialization of the Company's products outside the
United States.
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 into the clinic. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. As of December 31, 1998, the Company's
accumulated deficit was $130.5 million.
27
<PAGE>
Results of Operations
The Company's revenues for the years ended December 31, 1998, 1997, and
1996 were $14.9 million, $6.0 million, and $13.7 million, respectively. Revenues
for the year ended December 31, 1998 included contract revenue from the Taiho,
Zeneca, Allergan, and ASTA Medica collaborations, milestone payments under the
ASTA Medica and Allergan collaborations, and recognition of initial research
payments received in connection with the Taiho and ProChon Biotech Limited
("Prochon") collaborations. The increase in revenues in 1998 over 1997 was
primarily due to revenue earned under the Taiho and ProChon collaborations, of
which approximately $4.0 million was non-recurring. The Company is actively
pursuing additional collaborations, but no assurance can be given as to the
ability of the Company to conclude such collaborations on a timely basis, or at
all.
Revenues for 1997 included contract revenue from the Zeneca and
Allergan collaborations, and contract services revenue earned under the ASTA
Medica collaboration for services provided by ASTA Medica pursuant to the
collaboration but on non-collaboration programs. The decrease in 1997 revenues
from 1996 was due to the recognition of set-up and wind-down fees associated
with the Allergan, ASTA Medica and Amgen Inc. collaborations in 1996. No such
fees were recognized in 1997.
Research and development expenses for the years ended December 31,
1998, 1997 and 1996 were $46.9 million, $34.6 million, and $29.8 million,
respectively. The increase during 1998 was primarily due the progression of
clinical activities, including expanded Phase II studies and the initiation of a
Phase III registrational study of SU101, in addition to expanded Phase I and
Phase I/II studies of SU5416. The advancement of multiple programs through
preclinical development, including activities associated with the Company's IND
filing of SU6668 combined with higher personnel related costs associated with
the expansion of the Company's research and development programs, led to higher
expenses in 1998. The increase in 1997 expenses from the previous year was
primarily associated with additional personnel dedicated to the Company's
research and development programs. Additional Phase I and Phase II studies of
SU101 and the initiation of Phase I studies of SU5416, also contributed to the
growth in 1997 expenses. The Company expects that its research and development
expenses will continue to grow in future years due to the clinical advancement
of SU101, SU5416 and SU6668, including the related manufacturing and process
development efforts, the hiring of personnel, additional preclinical studies,
the initiation of new clinical trials on additional drug candidates, and
pursuant to requirements under the Company's anticipated future collaborations.
General and administrative expenses for the years ended December 31,
1998, 1997, and 1996 were $9.5 million, $6.2 million and $5.5 million,
respectively. The increase in 1998 was primarily due to higher headcount related
expenses, costs associated with the formation of the Company's international
subsidiaries, non-recurring costs associated with the Company's relocation to
its South San Francisco facility and additional expenses in the areas of
investor relations and business development. The increase in 1997 was primarily
due to increased administrative staffing, the related recruiting and relocation
expenses and costs associated with corporate and business development. The
Company expects that its general and administrative expenses will continue to
increase in order to support the Company's expanding research and development
efforts and the anticipated establishment of a sales and marketing force.
Interest income for the years ended December 31, 1998, 1997, and 1996
was $3.4 million, $2.8 million, and $2.5 million, respectively. These increases
were due to higher investment balances arising primarily from issuances of the
Company's capital stock and convertible debt. Interest expense for the years
ended December 31, 1998, 1997 and 1996 was $1.5 million, $1.1 million, and
$691,000, respectively. The increase in 1998 was primarily due to expenses
related to the issuance of senior custom convertible notes in September 1997.
The increase in 1997 from 1996 was primarily due to the Company's continued use
of capital lease financing for equipment and property improvements related to
its previous facilities. The Company expects that interest expense will continue
to increase in future years due to the continued use of capital lease financing
for equipment and facility improvements and interest expenses associated with
the March 1999 convertible debt financing.
28
<PAGE>
The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carryforwards if there has been
a "change in ownership" as described in Section 382 of the Internal Revenue
Code. Such a change in ownership may have arisen as a result of the Company's
initial public offering or subsequent sales of equity securities.
Liquidity and Capital Resources
At December 31, 1998, the Company had cash, cash equivalents and
short-term investments of approximately $47.3 million compared with
approximately $75.3 million at December 31, 1997. The decrease in cash and
investments during the year ended December 31, 1998 was primarily due to
operating losses. Subsequent to year end, the Company completed a $28.0 million
private placement of senior convertible notes as further discussed below.
Through December 31, 1998, 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 senior custom 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 Taiho, Zeneca, Allergan and ASTA Medica, its cash, cash
equivalents and short-term investments and capital lease financing. In February
1999, the Company secured a $5.0 million lease line for the purchase of
equipment and tenant improvements.
In March 1999, the Company completed the private placement of $28.0
million principal amount of 12% Senior Convertible Notes due 2002 (the "Notes").
The Notes are convertible into SUGEN Common Stock at $20.50 per share. Interest
on the Notes may be paid in SUGEN Common Stock or cash, at the Company's option.
As part of the Note placement, purchasers were issued warrants (the "Warrants")
to acquire up to an additional $21.0 million principal amount of 12% Senior
Convertible Notes which will mature on the third anniversary date of issuance
(the "Warrant Notes"). The Warrant Notes will have principally the same terms
and conditions as the original Notes. The Warrants to purchase the Warrant Notes
are exercisable until March 2001. The Company has the right, at its option, to
require the exercise of the Warrants by the holders in the event that the
closing price of the Company's Common Stock exceeds certain levels during the
term of the Warrants, subject to certain limitations. On or before August 6,
1999, the then outstanding balance of the 5% Senior Custom Convertible Notes
issued in September 1997 with a floating conversion mechanism will be converted
into SUGEN Common Stock in accordance with their terms or, at a premium of
approximately 125% to 132% of their principal amount, exchanged for (i) an
additional principal amount of the 12% Senior Convertible Notes due 2002 (the
"Exchange Notes") and (ii) Warrants to acquire Warrant Notes in a principal
amount equal to 75% of the principal amount of the Exchange Notes. The Warrants
will be accounted for as a derivative financial instrument. See "Notes to
Consolidated Financial Statements-Subsequent Events."
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 $1.5 million, $1.4 million and $1.1 million
in 1999, 2000 and 2001, respectively. Most of these commitments are cancelable
within a three-to-six month period and limit the amounts payable by the Company
for sponsored research under the programs after notice of cancellation. The
Company anticipates renewing certain contracts that expired in 1997 which will
increase future commitments beyond the levels indicated above for 1999 through
2001.
Increase in net equipment and leasehold improvements for the years
ended December 31, 1998, 1997 and 1996 were $3.3 million, $3.2 million and $1.7
million, respectively, which included $5.8 million, $1.4 million and $1.3
million, respectively, of equipment and leasehold improvements financed through
the Company's master lease agreements. 1998 net capital additions consisted of
$6.5 million in gross additions ($3.4 million of which was associated with the
new build-to-suit facility) partially offset by the write-off of $4.1 million of
fully depreciated assets associated with the previously occupied facility.
Additions for 1997 and 1996 primarily included expansion costs associated with
the former facilities, and purchases of lab equipment,
29
<PAGE>
computer hardware and software. Under the capital leases and certain operating
lease arrangements, including the current facility lease agreement, the Company
has lease commitments of approximately $26.2 million through 2003. The Company
intends to fund future capital expenditures 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 for
1999 will be lower than that of the prior year as 1998 included costs associated
with the completion of the Company's new facility. However, the Company's
obligations and related interest expense may increase in future periods if the
Company pursues the option of expanding its facility. See "Properties."
The Company estimates that its existing capital resources, including
the proceeds from the March 1999 placement of the Notes, 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, 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.
Risk Factors
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
cancer drug candidates (SU101, SU5416, and SU6668) have entered clinical trials.
To achieve profitable operations on a continuing basis, the Company, alone or
with collaborative partners, must successfully develop, manufacture, introduce
and market its proposed products. 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. 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 and
clinical testing, are expanded. Substantially all of the Company's revenues to
date have been received pursuant to the Company's collaborations. 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. Some 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. 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. 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 uncertainties regarding protection of patents and
proprietary rights, government regulation, competition, employee issues,
manufacturing uncertainties, the Company's lack of sales and marketing
capabilities, uncertainty of market acceptance of the Company's products, and
uncertainties regarding pharmaceutical pricing and reimbursement.
30
<PAGE>
Year 2000
The Year 2000 Issue is the result of information technologies, computer
systems and scientific and manufacturing equipment being written using two
digits rather than four digits to define the applicable year. As a result,
time-sensitive functions of those software programs and equipment may
misinterpret dates after January 1, 2000, to refer to the twentieth century
rather than the twenty-first century. This could cause system or equipment
shutdowns, failures or miscalculations resulting in inaccuracies in computer
output or disruptions of operations, including, among other things, inaccurate
processing of financial information and/or temporary inability to process
transactions, manufacture products, or engage in similar normal business
activities.
The Company has a Year 2000 Project ("Y2K Project") in place to address
the potential exposures related to the impact on its computer systems and
scientific and manufacturing equipment containing computer related components
for the Year 2000 ("Y2K") and beyond. Approximately half of the Company's Y2K
scheduled work is complete. The remaining work is scheduled to be completed by
the end of the fourth quarter of 1999. The Y2K Project phases include: (1)
inventorying and prioritizing business critical systems; (2) Y2K compliance
analysis; (3) remediation activities including repairing or replacing identified
systems; (4) testing; and (5) developing contingency plans.
An inventory of business critical financial, informational and
operational systems, has been completed. This inventory has been prioritized to
reflect key items of significance. Compliance analysis is approximately 70%
complete for these systems. Remediation activities vary by department, however,
on the average, remediation activities are approximately 50% complete. Testing
of the Company's information technology infrastructure is 50% complete. Testing
of business critical application programs will begin in the second quarter of
1999, and is scheduled to be complete by the fourth quarter of 1999. Contingency
planning will begin in the second quarter of 1999. The Company believes that
with the completed modifications, the Y2K issue will not pose significant
operational problems for its key computer systems and equipment. However, if
such modifications and conversions are not made, or are not completed in a
timely fashion, the Year 2000 issue could have a material impact on the
operations of the Company, the precise degree of which cannot be known at this
time.
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include financial institutions, suppliers,
vendors, and research and development associates. If significant numbers of
these third parties experience failures in their computer systems or equipment
due to Y2K noncompliance, it could affect the Company's ability to process
transactions, manufacture products, or engage in similar normal business
activities. While some of these risks are outside the control of the Company,
the Company has instituted programs, including internal records review and use
of external questionnaires, to identify key third parties, assess their level of
Y2K compliance, update contracts and address any noncompliance issues. The total
cost of the Y2K systems assessments and conversions is funded through operating
cash flows and is not expected to exceed $200,000 of which approximately $20,000
has been spent to date. The actual financial impact could, however, exceed this
estimate.
31
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes to interest
rates and foreign currency exchange rates. A discussion of the Company's
accounting policies for financial instruments and further disclosures relating
to financial instruments is included in the Organization and Significant
Accounting Policies in the Notes to Consolidated Financial Statements.
The Company monitors the risks associated with interest rates and
foreign currency exchange rate risks and has established policies and business
practices to protect against these and other exposures. The Company places its
investments in instruments that meet high credit quality standards, as specified
in the Company's investment policy guidelines; the policy also limits the amount
of credit exposure to any one issue, issuer, or type of instrument and does not
permit derivative financial instruments in its investment portfolio. As the
result, the Company does not expect any material loss with respect to its
investment portfolio.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities, the table presents principal cash flows and related weighted-average
interest rates by expected maturity dates.
<TABLE>
<CAPTION>
Fair
There- Value At
(in millions) 1999 2000 2001 2002 2003 after Total 12/31/98
---------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 24.0 - - - - - $ 24.0 $ 23.9
Weighted average interest rate 5.10%
Short-term investments $ 15.5 $ 7.5 - - - - $ 23.0 $ 23.4
Weighted average interest rate 5.62% 6.17%
</TABLE>
32
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report
beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
33
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Bruce R. Ross resigned from the Company's Board of Directors effective
February 18, 1999 for personal reasons.
The information required by this item is incorporated by reference from
the information under the captions "ELECTION OF DIRECTORS" and "MANAGEMENT"
contained in the Company's definitive proxy statement to be filed no later than
April 30, 1999 in connection with the solicitation of proxies for the Company's
Annual Meeting of Stockholders to be held May 19, 1999 (the "Proxy Statement").
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the information under the caption "EXECUTIVE COMPENSATION" of the Proxy
Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the information under the caption "CERTAIN TRANSACTIONS" in the Proxy Statement.
34
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)
1. Financial Statements Page
The following financial statements of SUGEN, Inc. are included in a
separate section of this report:
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at December 31, 1998 and
1997 F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998 F-4
Consolidated Statement of Stockholders' Equity for the
three years in the period ended December 31, 1998 F-5
Consolidated Statements of Cash Flows for the three
years in the period ended December 31, 1998 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules
All schedules have been omitted as they are not required, not applicable,
or the required information is included in the financial statements or
notes thereto.
35
<PAGE>
3. Exhibits
Exhibit
Number Exhibit
3.1 Restated Certificate of Incorporation, filed February 23, 1995. (2)
3.2(ii) Bylaws of the Registrant. (1)
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Registrant. (5)
4.1 Reference is made to Exhibits 3.1 through 3(ii).2.
4.2 Specimen Stock Certificate. (1)
4.3 Form of 5% Senior Custom Convertible Note due 2000. (15)
4.4 Form of Common Stock Purchase Warrant. (15)
10.1 Form of Investor Rights Agreement, dated December 23, 1992, among
the Registrant and certain investors. (1)
10.2 Registrant's 1992 Amended and Restated Stock Option Plan (the
"Option Plan"), as amended. (11)
10.3 Form of Incentive Stock Option under the Option Plan. (1)
10.4 Form of Nonstatutory Stock Option under the Option Plan. (1)
10.5 Warrant to Purchase 2,666 Shares of Series A Preferred Stock, dated
December 7, 1991, granted by the Registrant to Sanwa Business
Credit Corp. (1)
10.6 Warrant to Purchase 2,666 Shares of Series A Preferred Stock, dated
December 7, 1991, granted by the Registrant to Silicon Valley
Bancshares. (1)
10.7 Warrant to Purchase 5,333 Shares of Series A Preferred Stock, dated
December 7, 1991, granted by the Registrant to Western Technology
Investment. (1)
10.8 Warrant to Purchase 133,333 Shares of Common Stock, dated July 13,
1992, granted by the Registrant to Genentech, Inc. (1)
10.9 Warrant Agreement to Purchase 40,000 Shares of Series D Preferred
Stock, dated October 30, 1992, between the Registrant and
Comdisco, Inc. (1)
10.10 Warrant Agreement to Purchase Shares of Series G(F) Preferred
Stock, dated July 23, 1993, between the Registrant and Comdisco,
Inc. (1)
10.11 Warrant Agreement to Purchase Shares of Series G(F) Preferred
Stock, dated July 23, 1993, between the Registrant and Comdisco,
Inc. (1)
10.12 Stock Swap Agreement, dated July 27, 1992, as amended, between the
Registrant and Selectide Corporation. (1)
10.13++ Amended and Restated Research and License Agreement, dated August
16, 1991, among the Registrant, Max-Planck-Gesellschaft,
Max-Planck-Institut and Garching Innovation GmbH; and Extension,
dated March 31, 1993. (1)
10.14++ Amended and Restated Research and License Agreement, dated
September 1, 1991, between the Registrant and New York
University. (1)
10.15++ Services and Supply Agreement, dated January 1, 1992, between the
Registrant and BioSignal, Ltd. (1)
10.15(i) Exhibit A to Services and Supply Agreement, dated January 1, 1992,
between the Registrant and BioSignal, Ltd. (1)
10.16++ Collaboration and License Agreement, dated November 17, 1992,
between the Registrant and Selectide Corporation. (1)
10.17++ Collaboration Agreement, dated December 18, 1992, between the
Registrant and Amgen, Inc. (1)
10.17(i)++ Amendment Number One to Collaboration Agreement between the
Registrant and Amgen, Inc., dated June 15, 1995. (3)
10.18 Letter of Intent, dated May 27, 1993, among the Registrant, the
State Science & Technology Commission of the Peoples Republic of
China, and International Technology Investment Managers (Asia),
Inc. (1)
10.19++ Amended and Restated Research and License Agreement, between the
Registrant and Yissum Research Development Company of The Hebrew
University of Jerusalem, dated March 27, 1995. (2)
10.20++ Research and License Agreement, dated October 1, 1993, among the
Registrant, Max-Planck-Institut and Garching Innovation GmbH.
(1).
36
<PAGE>
Exhibit
Number Exhibit
10.21++ Exclusive License Agreement, dated January 21, 1994, between the
Registrant and Washington Research Foundation. (1)
10.22 Purchase Agreement between the Registrant and Zeneca Limited, dated
October 4, 1994. (2)
10.23++ Amended and Restated Research and License Agreement between the
Registrant and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Psoriasis"). (8)
10.24++ Amended and Restated Research and License Agreement between the
Registrant and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Papilloma"). (8)
10.25++ Amended and Restated Research and License Agreement between the
Registrant and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Sepsis/Inflammation"). (8)
10.26++ Amended and Restated Research and License Agreement between the
Registrant and Yissum Research Development Company of The Hebrew
University of Jerusalem (labeled "Restenosis"). (8)
10.27 Consulting Agreement, dated August 16, 1991, between the Registrant
and Dr. Joseph Schlessinger. (1)
10.28 Consulting Agreement, dated August 16, 1991, between the Registrant
and Dr. Axel Ullrich. (1)
10.29 Seaport Centre Standard Lease and Addendum I, dated November 12,
1991, between the Registrant and Seaport Center Venture Phase I.
(1)
10.29(i) First Amendment, dated July 8, 1993, to Seaport Centre Standard
Lease between the Registrant and Seaport Center Venture Phase I.
(1)
10.29(ii) Second Amendment, dated June 2, 1995, to Seaport Centre Standard
Lease between the Registrant and Seaport Centre Venture Phase I.
(3)
10.29(iii) Construction Addendum, dated June 2, 1995, to Second Amendment to
Seaport Centre Standard Lease between the Registrant and Seaport
Centre Venture Phase I. (3)
10.30 Registrant's 1994 Employee Stock Purchase Plan. (1)
*10.31 Registrant's 1994 Non-Employee Directors' Stock Option Plan, as
amended. (11)
10.32 Form of Indemnity Agreement to be entered into between the
Registrant and its officers and directors. (1)
10.33 Warrant Agreement to Purchase 7,200 Shares of Series G Preferred
Stock, dated May 5, 1994, between the Registrant and Financing
for Science International, Inc. (1)
10.34++ Research and License Agreement, dated August 1, 1994, between the
Company and the Hospital for Sick Children. (1)
10.34(i) Amendment to Research and License Agreement between the Registrant
and the Hospital for Sick Children, dated August 1, 1995. (4)
10.35 Research and Technology Agreement, dated March 3, 1993, between the
Registrant and PanLabs, Inc., as amended. (1)
10.36++ Collaboration Agreement, between the Registrant and Zeneca Limited,
dated March 22, 1995. (2)
10.37 Agreement for the Purchase of Common Stock of the Registrant by
Zeneca Limited, dated January 6, 1995. (2)
10.38 Loan Agreement and Promissory Note between the Registrant and James
L. Tyree, dated August 29, 1994. (3)
10.39 Deferred Compensation Agreement between the Registrant and James L.
Tyree, dated August 29, 1994. (3)
10.40++ Cooperative Research and Development Agreement between the
Registrant and the National Cancer Institute, dated August 14,
1995. (4)
*10.41 Registrant's 1995 Long-Term Objectives Stock Option Plan for Senior
Management, as amended. (12)
10.42 Form of Nonstatutory Stock Option under the Long-Term Objectives
Stock Option Plan for Senior Management. (6)
37
<PAGE>
Exhibit
Number Exhibit
10.43 Rights Agreement, dated as of August 1, 1995 between the Registrant
and The First National Bank of Boston, as Rights Agent. (5)
10.44 Form of Agreement for the Purchase of Common Stock of the
Registrant and list of participants thereto, dated September 21,
1995. (4)
10.45 Lease Financing Commitment Letter, dated September 12, 1995 between
the Registrant and Financing for Science International, Inc. (4)
10.46++ Collaboration Agreement, between the Registrant and ASTA Medica
Aktiengesellschaft, dated December 5, 1995. (7)
10.47 Agreement for the Purchase of Common Stock of the Registrant by
ASTA Medica Aktiengesellschaft, dated December 5, 1995. (7)
10.48++ Termination and Redemption Agreement between the Registrant and
Amgen Inc., dated January 9, 1996. (8)
10.49++ Warrant to purchase 200,000 shares of Common Stock of the
Registrant, dated January 19, 1996, issued by the Registrant to
Amgen Inc. (8)
10.50++ License Agreement between the Registrant and Zeneca Limited, dated
January 19, 1996. (8)
10.51++ Cooperative Research and Development Agreement between the
Registrant and the National Cancer Institute, dated April 12,
1996. (9)
10.52++ Termination notice, dated May 24, 1996, between the Registrant and
Yissum Research Development Company of The Hebrew University of
Jerusalem (labeled "Sepsis/Inflammation"). (9)
10.53++ Termination notice, dated May 24, 1996. between the Registrant and
Yissum Research Development Company of The Hebrew University of
Jerusalem (labeled "Restenosis"). (9)
10.54++ Research and Development Agreement between the Registrant and
Arqule, Inc. (10)
10.55++ Extension of Research and License Agreement between the Registrant
and the Max Planck Institute. (10)
10.56 Promissory Note received by the Registrant from Stephen
Evans-Freke. (10)
10.57 Agreement for the purchase of Common Stock of the Registrant by
Vision Pharmaceuticals L.P. (10)
10.58++ Collaboration Agreement by and between the Registrant and Vision
Pharmaceuticals L.P. and Allergan, Inc. (10)
10.59++ Extension of Research Agreement between the Registrant and Yissum
Development Company of the Hebrew University. (10)
10.60 James L. Tyree Separation Agreement. (10)
10.61++ Master Lease Agreement, dated March 28, 1997, between the
Registrant and Transamerica Business Credit Corporation. (13)
10.62++ Lease Financing Commitment Letter, dated March 20, 1997, between
the Registrant and Transamerica Business Credit Corporation. (13)
10.63++ Build-To-Suit Lease Agreement, dated June 11, 1997, between the
Registrant and Britannia Pointe Grand Limited Partnership. (14)
10.64++ Form of Warrant for the Purchase of Common Stock, dated June 30,
1997, issued in the connection with Build-To-Suit Lease
Agreement, between the Registrant and Britannia Pointe Grand
Limited Partnership. (14)
10.65++ Second Amended and Restated Research and License Agreement, dated
June 30, 1997, between the Registrant and New York University.
(14)
10.66++ Termination notice, dated June 1, 1997, between the Registrant and
Yissum Research Development Company of The Hebrew University of
Jerusalem. (14)
10.67 Form of Note Purchase Agreement, dated as of September 8, 1997, by
and between the Registrant and the investors named therein. (15)
10.68++ Amended and Restated Master Lease Agreement, dated November 12,
1997, and Lease Financing Commitment Letter, dated November 5,
1997, between the Registrant and Transamerica Business Credit
Corporation.
*10.69 Restricted Stock Bonus Agreement between the Registrant and K.
Peter Hirth, Ph D., dated September 16, 1997.
38
<PAGE>
Exhibit
Number Exhibit
10.70 Common Stock Purchase Agreement dated January 12, 1998 between the
Registrant and ASTA Medica Aktiengesellschaft. (16)
10.71++ First Amendment to Lease, dated March 8, 1998, between the
Registrant and Britannia Pointe Grand Limited Partnership. (16)
10.72 Common Stock Purchase Agreement, dated June 30, 1998, between the
Registrant and Oceana Investment Corporation PLC. (17)
10.73++ Heads of Agreement, dated June 30, 1998, between the Registrant and
ProChon Biotech Limited. (17)
10.74++ Collaboration Agreement, dated July 28, 1998, between the
Registrant, SUGEN International AG, and Taiho Pharmaceutical Co.,
Ltd. (18)
*10.75 Restricted Stock Bonus Agreement between the Registrant and James
L. Knighton, dated October 29, 1998.
*10.76 Letter Agreement between the Registrant and Stephen Evans Freke,
dated July 21, 1998.
10.77+ First Amendment to the Collaboration Agreement, between the
Registrant and ASTA Medica Aktiengesellschaft, dated December 31,
1998.
10.78 Agreement for the Purchase of Common Stock of the Registrant by
ASTA Medica Aktiengesellschaft, dated December 31, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (incorporated in the signature page of the Form
10-K).
27 Financial Data Schedule.
- -------------
* Compensatory Plan.
+ Confidential Treatment has been requested with respect to portions
of this Exhibit.
++ Confidential treatment has previously been granted for portions of
this Exhibit.
(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 on
Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended June 30, 1995.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended September 30, 1995.
(5) Filed as an exhibit to the Form 8-K Current Report dated July 26,
1995 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Registration Statement on
Form S-8 (No. 33-99152), dated November 9, 1995, and incorporated
herein by reference.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14 "Exhibits" of the Company's Annual Report on
Form 10-K as amended, for the year ended December 31, 1995.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended March 31, 1996.
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended June 30, 1996.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended September 30, 1996.
(11) Filed as an exhibit to the Registrant's Registration Statement on
Form S-8 (No. 333-09323), dated August 1, 1996, and incorporated
herein by reference.
(12) Filed as an exhibit to the Registrant's Registration Statement on
Form S-8 (No. 333-09321), dated August 1, 1996, and incorporated
herein by reference.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended March 31, 1997.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended June 30, 1997.
39
<PAGE>
(15) Filed as an exhibit to the Form 8-K Current Report dated September
12, 1997, and incorporated herein by reference.
(16) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended March 31, 1998.
(17) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended June 30, 1998.
(18) Incorporated by reference to identically numbered exhibits filed in
response to Item 6 "Exhibits" of the Company's Form 10-Q for the
quarter ended September 30, 1998.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the year ended December 31, 1998.
40
<PAGE>
Annual Report on Form 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
Consolidated Financial Statements and Supplementary Data
Certain Exhibits
Year Ended December 31, 1998
SUGEN, Inc.
South San Francisco, California
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SUGEN, Inc.
We have audited the accompanying consolidated balance sheets of SUGEN,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SUGEN,
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 5, 1999,
except for Note 13 as to which
the date is March 24, 1999.
F-2
<PAGE>
SUGEN, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 23,901 $ 23,816
Short-term investments 23,396 51,479
Accounts receivable 373 237
Prepaid expenses and other current assets 1,022 754
--------- --------
Total current assets 48,692 76,286
Property and equipment, net 7,863 4,601
Other assets 2,778 3,938
========= ========
$ 59,333 $ 84,825
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,883 $ 1,991
Accrued liabilities 13,910 10,267
Deferred revenue 1,625 625
Capital lease obligations - current portion 2,779 2,277
--------- --------
Total current liabilities 23,197 15,160
Capital lease obligations - non-current portion 5,724 3,152
Senior custom convertible notes 5,694 17,500
--------- --------
Total long-term liabilities 11,418 20,652
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized, issuable in series; 300,000 shares
designated as Series A Junior Participating
Preferred Stock; none issued and outstanding -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; shares issued and outstanding:
16,613,567 and 15,307,146 in 1998 and 1997,
respectively 166 153
Additional paid-in capital 157,005 141,426
Deferred compensation (971) (695)
Note receivable from stockholder (883) (883)
Accumulated other comprehensive income (loss) (53) (69)
Accumulated deficit (130,546) (90,919)
--------- --------
Total stockholders' equity 24,718 49,013
--------- --------
$ 59,333 $ 84,825
========= ========
See accompanying notes.
F-3
<PAGE>
SUGEN, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Years Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Contract revenue (includes amounts
from related party) $ 14,916 $ 6,031 $ 13,650
Costs and expenses:
Research and development 46,851 34,585 29,792
General and administrative 9,517 6,227 5,529
----------- ----------- -----------
Total costs and expenses 56,368 40,812 35,321
----------- ----------- -----------
Operating loss (41,452) (34,781) (21,671)
Other income and expenses:
Interest income 3,373 2,786 2,481
Interest expense (1,548) (1,065) (691)
----------- ----------- -----------
Other income, net 1,825 1,721 1,790
=========== =========== ===========
Net loss $ (39,627) $ (33,060) $ (19,881)
=========== =========== ===========
Basic and diluted net loss per share $ (2.49) $ (2.47) $ (1.81)
=========== =========== ===========
Shares used in computing basic and
diluted net loss per share 15,934,000 13,387,000 10,966,000
=========== =========== ===========
See accompanying notes.
F-4
<PAGE>
SUGEN, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-In Deferred
Shares Amount Capital Compensation
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 10,634,917 $ 106 $ 81,696 $ (397)
Net unrealized loss on available-for-sale
securities of $152 -- -- -- --
Net loss -- -- -- --
Comprehensive income
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net 194,195 2 717 --
Issuance of Common Stock for cash and note
in connection with the exercise of stock
options 132,333 1 883 --
Issuance of Common Stock for cash to
Allergan, net of issuance costs of $32 191,571 2 3,966 --
Issuance of Common Stock for cash in
connection with the follow-on public
offering, net of offering costs of $2,133 2,070,000 21 22,686 --
Issuance of Common Stock upon exercise of
warrants, net 5,434 -- -- --
Repurchase of Common Stock for cash from
Amgen Inc. (235,000) (2) (2,696) --
Issuance of warrants for cash to Amgen Inc. -- -- 200 --
Deferred compensation related to grant of
certain stock options -- -- 538 (538)
Amortization of deferred compensation -- -- -- 225
----------- ----------- ----------- ------------
Balances at December 31, 1996 12,993,450 130 107,990 (710)
Net unrealized gain on available-for-sale
securities of $69 -- -- -- --
Net loss -- -- -- --
Comprehensive income
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net 288,696 3 1,543 --
Deferred compensation related to stock
grant to an officer 25,000 -- 350 (350)
Issuance of Common Stock for cash in
connection with the follow-on public
offering, net of offering costs of $2,340 2,000,000 20 29,640 --
Fair value of warrants issued -- -- 1,903 --
Amortization of deferred compensation -- -- -- 365
----------- ----------- ----------- ------------
Balances at December 31, 1997 15,307,146 153 141,426 (695)
Unnrealized gain on available-for-sale
securities of $48, net of reclassification
adjustment for gains included in net
income of $32 -- -- -- --
Net loss -- -- -- --
Comprehensive income
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net 156,528 2 1,415 --
Deferred compensation related to stock
grant to an officer 20,000 -- 271 (271)
Issuance of Common Stock upon exercise of
warrants, net 1,822 -- -- --
Issuance of Common Stock in connection
with conversions of senior custom
convertible notes, net 1,002,349 10 10,271 --
Issuance of Common Stock for cash to ProChon 93,750 1 2,239 --
Issuance of Common Stock for cash to ASTA
Medica Aktiengesellschaft 31,972 -- 625 --
Fair value of certain options and warrants
granted to external parties -- -- 294 --
Deferred compensation related to certain
options granted to employees -- -- 464 (464)
Amortization of deferred compensation -- -- -- 459
----------- ----------- ----------- ------------
Balances at December 31, 1998 16,613,567 $ 166 $ 157,005 $ (971)
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Note Accumulated
Receivable Other Total
From Comprehensive Accumulated Stockholders'
Stockholder Income Deficit Equity
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $ -- $ 120 $ (38,084) $ 43,441
Net unrealized loss on available-for-sale
securities of $152 -- (152) (152)
Net loss -- -- (19,881) (19,881)
-------------
Comprehensive income (20,033)
-------------
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net -- -- -- 719
Issuance of Common Stock for cash and note
in connection with the exercise of stock
options (883) -- -- 1
Issuance of Common Stock for cash to
Allergan, net of issuance costs of $32 -- -- -- 3,968
Issuance of Common Stock for cash in
connection with the follow-on public
offering, net of offering costs of $2,133 -- -- -- 22,707
Issuance of Common Stock upon exercise of
warrants, net -- -- -- --
Repurchase of Common Stock for cash from
Amgen Inc. -- -- -- (2,698)
Issuance of warrants for cash to Amgen Inc. -- -- -- 200
Deferred compensation related to grant of
certain stock options -- -- -- --
Amortization of deferred compensation -- -- -- 225
----------- ------------- ----------- -------------
Balances at December 31, 1996 (883) (32) (57,965) 48,530
Net unrealized gain on available-for-sale
securities of $69 -- 69 -- 69
Net loss -- -- (33,060) (33,060)
-------------
Comprehensive income (32,991)
-------------
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net -- -- -- 1,546
Deferred compensation related to stock
grant to an officer -- -- -- --
Issuance of Common Stock for cash in
connection with the follow-on public
offering, net of offering costs of $2,340 -- -- -- 29,660
Fair value of warrants issued -- -- -- 1,903
Amortization of deferred compensation -- -- -- 365
----------- ------------- ----------- -------------
Balances at December 31, 1997 (883) 37 (91,025) 49,013
Unnrealized gain on available-for-sale
securities of $48, net of reclassification
adjustment for gains included in net
income of $32 -- 16 -- 16
Net loss -- -- (39,627) (39,627)
-------------
Comprehensive income (39,611)
-------------
Issuance of Common Stock upon exercise of
stock options and in connection with an
employee stock purchase plan, net -- -- -- 1,417
Deferred compensation related to stock
grant to an officer --
Issuance of Common Stock upon exercise of
warrants, net -- -- -- --
Issuance of Common Stock in connection
with conversions of senior custom
convertible notes, net -- -- -- 10,281
Issuance of Common Stock for cash to ProChon -- -- -- 2,240
Issuance of Common Stock for cash to ASTA
Medica Aktiengesellschaft -- -- -- 625
Fair value of certain options and warrants
granted to external parties -- -- -- 294
Deferred compensation related to certain
options granted to employees -- -- -- --
Amortization of deferred compensation -- -- -- 459
----------- ------------- ----------- -------------
Balances at December 31, 1998 $ (883) $ 53 $ (130,652) $ 24,718
=========== ============= =========== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
SUGEN, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
Years Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities
Net loss $(39,627) $(33,060) $(19,881)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,886 3,146 2,308
Issuance of options for non-cash benefits 225 -- --
Changes in operating assets and liabilities:
Accounts receivable (136) 27 24
Prepaid expenses and other current assets (268) (286) 278
Other assets (582) (1,370) (332)
Accounts payable 2,892 1,139 200
Accrued liabilities 3,721 2,861 3,819
Deferred revenue 1,000 250 (6,183)
-------- -------- --------
Net cash used in operating activities (28,889) (27,293) (19,767)
-------- -------- --------
Cash flows from investing activities
Purchases of short-term investments (45,043) (54,884) (27,998)
Maturities of short-term investments 48,521 31,515 36,973
Sales of short-term investments 24,621 3,441 4,418
Purchases of property and equipment, net (6,481) (3,177) (1,665)
-------- -------- --------
Net cash provided by (used in)
investing activities 21,618 (23,105) 11,728
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of Common Stock, net 4,282 31,206 27,395
Proceeds from issuance of senior custom
convertible notes -- 17,500 --
Repurchase of Common Stock -- -- (2,698)
Proceeds from issuance of warrant -- -- 200
Proceeds from lease financing of property
and equipment 5,796 2,750 1,247
Payments under capital lease obligations (2,722) (2,094) (1,479)
-------- -------- --------
Net cash provided by financing activities 7,356 49,362 24,665
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 85 (1,036) 16,626
Cash and cash equivalents at beginning of year 23,816 24,852 8,226
-------- -------- --------
Cash and cash equivalents at end of year $ 23,901 $ 23,816 $ 24,852
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,332 $ 847 $ 691
======== ======== ========
See accompanying notes.
F-6
<PAGE>
SUGEN, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
SUGEN, Inc. (the "Company"), a Delaware corporation founded in July
1991, is a biopharmaceutical company focused on the discovery and development of
small molecule drugs which target specific cellular signal transduction
pathways. These signalling pathways are regulated by cell surface receptors or
intracellular signalling molecules known as tyrosine kinases (TKs),
serine-threonine kinases (STKs) and tyrosine phosphatases (TPs). Aberrant
signalling of TKs, STKs and TPs has been shown to result in a variety of chronic
and acute pathological diseases, including cancer and diabetes as well as
dermatologic, ophthalmic, neurologic and immune disorders. The Company pursues
its drug discovery programs independently and in collaboration with other
pharmaceutical companies.
Principles of Consolidation
The consolidated financial statements include the Company's wholly
owned subsidiaries, SUGEN International AG ("SUGEN International"), and SUGEN
Europe AG ("SUGEN Europe"). In June 1998, the Company established SUGEN
International incorporated in the Canton of Zug, Switzerland, as a wholly-owned
subsidiary. SUGEN Europe was established in August 1998, as a wholly-owned
subsidiary of SUGEN International. SUGEN International and SUGEN Europe will
hold certain rights to the Company's technology portfolio outside of North
America. All material intercompany accounts and transactions have been
eliminated in consolidation.
Formation Costs
Formation costs associated with the establishment of the subsidiaries
are expensed as incurred. These costs include legal, tax, and accounting fees.
Foreign Currency Translation
The functional currency of the Company's wholly-owned subsidiaries is
the Swiss Franc. Assets and liabilities of the subsidiaries are translated at
the United States Dollar exchange rate in effect at the balance sheet date.
Amounts included in the subsidiaries' statements of operations are translated at
the average rate of exchange prevailing during the period. Adjustments resulting
from the translation of financial statements denominated in Swiss Francs, if
significant, are reflected as a separate component of other comprehensive
income.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity
from date of purchase of three months or less to be cash equivalents. All other
liquid investments are classified as short-term investments. The Company limits
its concentration of risk by diversifying its investments among a variety of
industries and issuers.
All debt securities are designated as available-for-sale and are
carried at fair value, with the unrealized gains and losses included in
accumulated other comprehensive income in stockholders' equity. The amortized
cost of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity. Such amortization is
F-7
<PAGE>
1. Organization and Significant Accounting Policies (Continued)
included in interest income. Realized gains and losses and declines in value
judged to be other than temporary on available-for-sale securities are also
included in interest income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities are
included in interest income.
Revenue Recognition
Revenue from collaborative agreements is recorded when earned as
defined under the terms of the agreements. Non-refundable fees received upon
contract signing or terminations are recorded as deferred revenue and recognized
as income when the related start-up or wind-down activities are performed, which
is generally over a twelve month period or less. Non-refundable up-front fees
received as consideration for previous research and development work performed
are recognized in full upon contract execution. Milestones are recorded when
earned. In instances where milestone payments are received in the form of a
stock purchase at a premium above fair market value, equity is recorded at fair
market value and the premium recognized as revenue. Periodic research funding
payments are recognized as revenue as the work is performed.
Research and Development Expense
Research and development expense consists of independent research and
development costs, the costs associated with work performed under collaborations
and the Company's sponsored funding of research projects performed by others.
Research and development costs include direct and research-related overhead
expenses and are expensed as incurred.
Depreciation and Amortization
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which are
generally three to five years and leasehold improvements are amortized over ten
years. Amortization of assets held under capital lease is included in
depreciation expense.
Stock Based Compensation
The Company generally grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
employs the intrinsic-value method to value stock option grants.
Net Loss Per Share
Basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding. Stock options, convertible
preferred stock, and warrants are excluded from the computation as their effect
is antidilutive. If the Company had been in a net income position, diluted
earnings per share would have been presented separately and would have included
the effect of outstanding stock options and warrants, calculated using the
treasury stock method.
Comprehensive Income (Loss)
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or shareholders' equity.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130.
F-8
<PAGE>
1. Organization and Significant Accounting Policies (Continued)
Recent Accounting Standards
Effective January 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information", ("SFAS 131") which established revised standards for the
reporting of financial and descriptive information about operating segments in
financial statements. The Company has determined that it operates in only one
segment. Accordingly, the adoption of the Statement had no impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", ("SFAS 133"). SFAS 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The adoption of SFAS 133 is not expected to
have an impact on the Company's results of operations or financial condition.
2. Investments
The following is a summary of available-for-sale securities as of
December 31 (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
-------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
Unrealized Estimated Unrealized Estimated
Gains/ Fair Gains/ Fair
Cost (Losses) Value Cost (Losses) Value
------- ---------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 6,017 $ 37 $ 6,054 $11,518 $ 17 $ 11,535
U.S. corporate notes 14,648 9 14,657 36,393 16 36,409
U.S. corporate
commercial paper 14,273 7 14,280 16,001 2 16,003
Certificates of deposit 4,970 -- 4,970 3,999 2 4,001
Money market funds
and other 7,336 -- 7,336 7,347 -- 7,347
------- ---------- --------- ------- ---------- ---------
$47,244 $ 53 $ 47,297 $75,258 $ 37 $ 75,295
======= ========== ========= ======= ========== =========
Amounts included in:
Cash equivalents $23,896 $ 5 $ 23,901 $23,814 $ 2 $ 23,816
Short-term investments 23,348 48 23,396 51,444 35 51,479
------- ---------- --------- ------- ---------- ---------
$47,244 $ 53 $ 47,297 $75,258 $ 37 $ 75,295
======= ========== ========= ======= ========== =========
</TABLE>
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies and
for debt securities, the fair value approximates the amortized cost. However,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange.
As of December 31, 1998, the average portfolio duration was
approximately six months and the longest contractual maturity did not exceed two
years. Gross realized gains and losses were immaterial during 1998, 1997, and
1996.
F-9
<PAGE>
3. Property and Equipment
Property and equipment consists of the following at December 31 (in thousands):
1998 1997
-------- --------
Leasehold improvements $ 3,960 $ 4,084
Office and computer equipment 4,508 3,251
Laboratory equipment 5,392 4,226
-------- --------
13,860 11,561
Accumulated depreciation and amortization (5,997) (6,960)
-------- --------
Net property and equipment $ 7,863 $ 4,601
======== ========
Property and equipment under capital leases amounted to $10.4
million and $8.9 million as of December 31, 1998 and 1997, with related
accumulated amortization of $4.0 million and $5.1 million, respectively.
4. Accrued Liabilities
The components of accrued liabilities consist of the following at December (in
thousands):
1998 1997
------- -------
Accrued research and development services $ 6,859 $ 5,351
Accrued compensation 1,937 1,176
Accrued professional fees 1,118 859
Other 3,996 2,881
------- -------
$13,910 $10,267
======= =======
5. Research and Development Collaboration Agreements
Zeneca Limited - Related Party
In January 1995, the Company established a collaboration with Zeneca
Limited ("Zeneca") to pursue the research, development and commercialization of
novel anti-cancer drugs targeting cell-surface receptors and intra-cellular
signal transduction pathways. In connection with this agreement, the Company
received an initial $5.0 million technology set-up fee, is receiving additional
cash payments for annual research funding and will receive certain milestone
payments (which may be offset against royalties over time) tied to the progress
of compounds in the collaboration and royalties on worldwide sales of any
collaboration products. The Company will also have the right to contribute to
clinical development costs on each program, thereby earning participation in the
North American profits from successful products coming out of such programs over
and above its royalty entitlement.
As a part of the collaboration agreement, Zeneca purchased 789,141
shares of the Company's Common Stock for $12.5 million, or $15.84 per share.
This $12.5 million equity investment, combined with Zeneca's $7.5 million
participation in SUGEN's October 1994 initial public offering, increased
Zeneca's equity investment in SUGEN to $20.0 million and brought Zeneca's
ownership in the Company to approximately 20%.
Zeneca participated in the Company's November 1997, October 1996 and
September 1995 financings (see Note 9), purchasing an additional 456,000,
509,000 and 281,875 shares of the Company's Common Stock, respectively. These
additional investments maintained Zeneca's ownership level in SUGEN at
approximately 20% and increased its cumulative equity investment in the Company
to $36.8 million. As of December 31, 1998, Zeneca's ownership level in SUGEN was
approximately 18%. Zeneca has committed not to increase its holdings above 20%
without the approval of SUGEN's Board of Directors.
F-10
<PAGE>
5. Research and Development Collaboration Agreements (continued)
Allergan, Inc.
In October 1996, the Company established a research and development
collaboration with Allergan, Inc. and Vision Pharmaceuticals L.P., an affiliate
of Allergan, Inc., (collectively, "Allergan"), to identify, develop and
commercialize novel angiogenesis inhibitors for the treatment of ophthalmic
diseases. The collaboration will also establish a comprehensive effort to
identify and validate signal transduction targets for choroidal and retinal
neovascularization. Allergan will have exclusive rights to all ophthalmic uses
of collaboration products and know-how worldwide. In return, the Company
received a $2.0 million initial payment for past research services, is receiving
annual research funding and expects to receive additional fees upon the
achievement of specified milestones and royalties on any product sales. In
addition, the agreement provides the Company to have the right to contribute to
clinical development costs on each program, thereby earning participation in the
North American and European profits from successful products coming out of such
programs over and above its royalty entitlement. Allergan also purchased 191,571
shares of SUGEN Common Stock at a price of $20.88 per share and participated in
the Company's October 1996 financing (see Note 9), purchasing an additional
250,000 shares of Common Stock, thereby increasing its cumulative equity
investment in SUGEN to $7.0 million.
In July 1998, the first milestone in connection with the Company's
collaboration with Allergan was achieved. In connection with this milestone, the
Company recognized $437,500 in contract revenue, net of royalties.
Amgen, Inc.
In December 1992, the Company established a research and development
collaboration with Amgen Inc. ("Amgen") to discover and develop therapeutic and
diagnostic products in neurobiology and a subset of hematopoiesis. As part of
this collaboration, Amgen made a $4.0 million equity investment, which converted
into 387,878 shares of the Company's Common Stock at the time of the Company's
initial public offering. For the three year period ended December 31, 1995, the
Company received approximately $18.1 million of research funding from Amgen.
In January 1996, the Company and Amgen reached an agreement to
conclude their research collaboration one year earlier than originally planned
due to their changed research priorities. Under the terms of this wind-down
agreement, Amgen made a final cash payment to the Company of $2.5 million (of
which $1.1 million was advanced in December 1995) and forgave certain advance
payments already made to the Company for future research work which was recorded
as wind-down revenue in 1996. Amgen also granted back to SUGEN exclusive
worldwide rights to 22 propriety signal transduction targets discovered in the
course of the collaboration, subject to royalty payments back to Amgen with
respect to potential future product sales. In addition, in January 1996, the
Company redeemed 235,000 shares of its Common Stock from Amgen at a price of
$11.48 per share, thereby reducing Amgen's current holdings of the Company's
Common Stock to 152,878 shares. Amgen also purchased in January 1996 for
$200,000 a seven-year warrant to purchase 200,000 shares of Common Stock at an
exercise price of $15.50 per share.
ASTA Medica Aktiengesellschaft
In December 1995, the Company established an oncology product
development collaboration with ASTA Medica Aktiengesellschaft ("ASTA Medica") to
develop, manufacture and bring to market SUGEN's oncology products based upon
the cell signal transduction targets known as Pan-Her and Raf. The Company
received a $4.0 million technology set-up fee, is receiving additional
consideration in the form of contract services for non-collaboration work and
will receive certain milestone payments tied to the success of the programs and
royalty payments on sales in certain territories. The agreement provides for
ASTA Medica to receive exclusive marketing rights to collaboration products in
Greater Europe (including the former Soviet Union) and South America, subject to
royalties to SUGEN. The Company retains market rights in the rest of the world,
subject to royalties payable to ASTA Medica in most circumstances. In 1995 ASTA
Medica purchased 431,137 shares of SUGEN Common Stock for $9.0 million, or
$20.88 per share. In January 1998, the first milestone in connection with the
Company's collaboration with ASTA Medica was achieved in the Pan-Her cancer
program. ASTA Medica exercised its option to satisfy its $500,000 milestone
obligation through the purchase of 18,665 shares of
F-11
<PAGE>
5. Research and Development Collaboration Agreements (continued)
SUGEN Common Stock at a price of $26.79 of which the premium above fair market
value was recorded as revenue.
In December 1998, the Company and ASTA Medica entered into a first
amendment to the existing collaboration agreement to extend the period of time
for the screening and selection of active compounds under the Pan-Her and Raf
programs. The Company will receive $1.5 million in consideration for extending
the Pan-Her project, $750,000 of which was received in 1998; $375,000 in
contract revenue for 1998 services and the remaining $375,000 for the purchase
of 13,307 shares of SUGEN Common Stock at $28.18 per share. In the event ASTA
Medica elects to extend the screening period under the Raf program, the Company
would receive additional consideration.
ProChon Biotech Limited
In June 1998, the Company entered into a collaboration with ProChon
Biotech Limited ("ProChon") to discover and develop small molecule signal
transduction inhibitors for the treatment of achondroplasia and other growth
disorders. In connection with this collaboration, the Company received $3.0
million comprised of a $750,000 initial research payment and a $2.25 million
stock purchase of 93,750 shares of SUGEN Common Stock at $24.00 per share. In
addition, the Company will receive payments upon achievement of certain
milestones and royalties with respect to worldwide sales of collaboration
products.
Taiho Pharmaceutical Ltd.
In July 1998, the Company entered into an agreement with Taiho
Pharmaceutical Ltd. ("Taiho") for the development and commercialization of the
Company's angiogenesis inhibitors for the prevention and treatment of cancer. In
connection with this agreement, Taiho will receive marketing rights in Japan,
while the Company will retain marketing rights for the rest of the world. The
Company received an initial research payment, is receiving research and
development funding and will receive additional payments upon the achievement of
certain milestones. The Company has retained the rights to manufacture and
supply products to Taiho for sale in Japan.
6. Leases
In June 1997, the Company entered into a build-to-suit facility
lease agreement which extends until 2015 with renewal options totaling an
aggregate of ten years. In connection with this agreement, the Company also
issued warrants to purchase shares of Common Stock. The related fair value of
the warrants was recorded as deferred expenses and is being amortized over the
term of the warrants. In the fourth quarter of 1998, the new facility was
completed, coinciding with the expiration of the Company's pre-existing facility
leases. Rent expense for the office and laboratory facility leases and other
operating leases amounted to $2.4 million, $1.6 million and $1.6 million for
1998, 1997 and 1996, respectively.
Future minimum payments under capital and operating leases at
December 31, 1998 are as follows (in thousands):
Capital Operating
Leases Leases
-------- ---------
Year ended December 31:
1999 $ 3,633 $ 3,033
2000 2,890 3,057
2001 2,129 3,780
2002 1,573 3,856
2003 113 3,943
--------
Total minimum lease payments 10,338
Amount representing interest (1,835)
--------
Present value of minimum lease
payments 8,503
Less current portion (2,779)
--------
Non-current portion $ 5,724
========
F-12
<PAGE>
6. Leases (continued)
Annual rental obligations under operating leases average
approximately $3.5 million from 2004 through the end of the term of the lease.
7. 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 "1997
Notes"). The 1997 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). The 1997 Notes are convertible 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"). Since January 19, 1998, the Conversion
Price may not exceed $14.87, 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 1997 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 which are
amortized to expense over the term of the 1997 Notes. No purchaser of the 1997
Notes will be allowed to convert 1997 Notes and/or warrants which would result
in such person owning more than 4.9% of the then outstanding Common Stock.
Through December 31, 1998, $11.9 million of principal and accrued and unpaid
interest relating to the Company's outstanding senior custom convertible notes
were converted into 1,002,349 shares of Common Stock at the weighted average
price of $11.96 per share.
Upon the occurrence of certain events, at the election of the
holders of the 1997 Notes, the Company may be required to redeem in cash all or
a portion of the 1997 Notes at redemption prices which are at a premium to the
face value of the 1997 Notes. If the 1997 Notes are not converted into Common
Stock upon maturity in September 2000, the 1997 Notes will be exchanged for
13.75% five-year debentures. Pursuant to the terms of the 1997 Notes, in
addition to other covenants, the Company has agreed to certain limitations on
the incurrence of additional indebtedness.
8. Commitments Under Research and Development Programs
The Company enters into license and research agreements, from time
to time, 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 research funding are
approximately $1.5 million, $1.4 million, and $1.1 million in 1999, 2000, and
2001, respectively. The Company anticipates renewing certain contracts that
expired in 1997 which will increase future commitments. Most of these
commitments are cancelable within a three-to-six month period and limit the
amounts payable by the Company for sponsored research under the programs after
notice of cancellation. Related research and development expenses under these
programs were $1.4 million, $3.1 million, and $3.5 million for 1998, 1997 and
1996, respectively.
9. Stockholders' Equity
Preferred Share Purchase Rights Plan
In July 1995, the Board of Directors approved a Preferred Share
Purchase Rights Plan ("Rights Plan"). The Rights Plan provides for the
distribution of a preferred stock purchase right as a dividend for each share of
the Company's Common Stock. This right entitles stockholders to purchase stock
in the Company or in an acquirer of the Company at a discounted price in the
event of certain hostile efforts to acquire control of the Company. The rights
may only be exercised, if at all, until the earlier of July 31, 2000, or the
occurrence of certain events, and may be redeemed by the Company. At December
31, 1998, the rights were not exercisable.
In connection with the Rights Plan, 300,000 shares of the authorized
Preferred Stock were designated as Series A Junior Participating Preferred Stock
("Junior Preferred Stock"), of which one share is equivalent to 100 shares of
Common Stock. Each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all
F-13
<PAGE>
9. Stockholders' Equity (continued)
matters submitted to a vote of the stockholders and shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Company's Preferred Stock. Subject to the rights of the
holders of any shares of Preferred Stock with respect to dividends, the holders
of shares of Junior Preferred Stock, in preference to the holders of Common
Stock, shall be entitled to receive quarterly dividends, when, as and if
declared by the Board of Directors. As of December 31, 1998, no dividends had
been declared and no shares were outstanding.
Common Stock
In November 1997, the Company completed a follow-on public offering
of 2,000,000 shares of Common Stock at a price of $16.00 per share. The net
proceeds to the Company were approximately $29.7 million.
The total number of shares of Common Stock outstanding was
16,613,567 as of December 31, 1998, of which 50,875 were subject to repurchase.
At December 31, 1998, the Company has reserved 5,511,691 shares of Common Stock
for issuance upon exercise of warrants and options and conversion of debt and
38,300 common shares for issuance under the Employee Stock Purchase Plan.
Warrants
The following warrants to purchase shares of common stock were
issued in connection with the Senior Custom Convertible Notes, certain
collaboration agreements, and various license, facility and equipment lease
financing arrangements (also see Notes 5, 6 and 7):
Warrants Outstanding at December 31, 1998
---------------------------------------------------------
Number of Price Per Aggregate
Shares Share Price Expiration Date
--------- --------- ---------- ---------------
332,500 $ 16.74 $5,566,050 September 2000
200,000 15.50 3,100,000 January 2003
70,000 15.44 1,080,800 June 2002
40,000 3.75 150,000 October 1999
36,847 10.31 379,985 July 2000
13,598 12.87 175,006 December 2001
10,000 16.64 166,400 March 2003
7,200 11.25 81,000 December 1999
Note Receivable from Stockholder
In August 1996, an officer of the Company exercised options to
purchase 132,333 shares of common stock at prices ranging from $6.00 to $7.50
per share. As consideration for the purchase, the officer issued a full recourse
Promissory Note (the "Note") to the Company. The Note bears interest of 6.84%
per annum and is due and payable on August 29, 2001. However, in the event that
the officer's continuous status as an employee, director or consultant with the
Company is terminated for any reason prior to the payment in full of the Note,
the Note shall be accelerated and all remaining unpaid principal and interest
shall become due and payable on the 90th day following such termination. In
addition, the officer has pledged the shares purchased with this Note as
collateral.
10. Stock Option and Purchase Plans
Employee Stock Purchase Plan
In April 1994, the Company adopted an Employee Stock Purchase Plan
("ESPP") under which 200,000 shares of Common Stock were reserved for issuance.
All employees of the Company, except those having a 5% or greater ownership
stake in the Company, are eligible to participate in the ESPP provided that on
the first day of an offering period they have been employed by the Company for
at least 30 days and are customarily employed by the Company at least twenty
hours per week and at least five months per calendar year. Offerings will
generally be for
F-14
<PAGE>
10. Stock Option and Purchase Plans (continued)
six months, with the purchase price per share equal to the lower of 85% of the
market value on the date granted (the beginning of the offering period) or on
the date purchased. The next offering period ends on March 31, 1999. As of
December 31, 1998, 161,700 shares had been issued under the ESPP.
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") provides for the grant of
options to purchase shares of Common Stock to employees, including officers,
directors, and consultants, upon terms determined by the Board of Directors. The
options granted under the Plan may be either incentive stock options or
nonstatutory stock options. As of December 31, 1998, an aggregate of 4,250,000
shares of Common Stock had been reserved for issuance under the Plan, of which
750,000 shares are subject to stockholders' approval.
Options granted under the Plan expire no later than ten years from
the date of grant. The option price shall be at least 100% of the fair market
value on the date of grant for incentive stock options. Nonstatutory options,
may be granted as low as 85% of the fair market value on the date of grant. The
options generally become exercisable over a period of four years from the date
of grant. Options may be granted with different vesting terms from time to time
as approved by the Board of Directors. The Plan has been amended to provide for
automatic vesting of options granted upon a change of control, as defined.
As of December 31, 1998, options to purchase 1,194,477 shares of
Common Stock were exercisable, of which 73,163 shares would be subject to
repurchase if all were exercised.
The Company recorded deferred compensation expense for the
difference between the exercise price and the deemed fair value for financial
statement presentation purposes of the Company's Common Stock for certain
options granted prior to shareholder approval in the period between December
1997 through May 1998. This deferred compensation expense aggregated $464,000
and is being amortized over the related vesting period.
1994 Non-Employee Directors' Stock Option Plan
In April 1994, the Board of Directors approved the 1994 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") to provide for the
automatic grant of options to purchase shares of Common Stock to each person who
is elected as a director of the Company and who is not otherwise employed by the
Company (a "Non-Employee Director").
Options granted under this Plan to Non-Employee Directors upon their
initial election to the Board will vest and be exercisable in five equal annual
installments commencing on the date one year after the date of the grant.
Vesting is contingent upon the continuous service of the director. The director
may elect at any time while a Non-Employee Director of the Company to exercise
the option prior to vesting of the option. Any unvested shares so purchased
shall be subject to a repurchase right in favor of the Company. The Directors'
Plan has been amended to provide for automatic vesting of options granted upon a
change of control, as defined. Options granted annually to existing Non-Employee
Directors vest in full on the date ten days prior to the date of the first
annual meeting of stockholders of the Company subsequent to the date of the
grant. The exercise price of options granted under the Directors' Plan must
equal or exceed the fair market value of the Common Stock on the date of grant.
Under this plan, 380,000 shares of Common Stock have been reserved for issuance.
As of December 31, 1998, options for 186,000 shares were outstanding, of which
184,000 and 53,000 shares were exercisable and subject to repurchase if
exercised, respectively.
Long-Term Objectives Stock Option Plan for Senior Management
In July 1995, the Board of Directors adopted the Long-Term
Objectives Stock Option Plan for Senior Management (the "Long-Term Plan"). The
Long-Term Plan provides for the grant of options to purchase shares of Common
Stock to certain senior employee officers, upon terms determined by the Board of
Directors. The options granted under this Plan may be either incentive stock
options or nonstatutory stock options. Options granted under this Plan expire no
later than ten years from the date of grant. The option price shall be at least
100% of the fair
F-15
<PAGE>
10. Stock Option and Purchase Plans (continued)
market value on the date of grant for incentive stock options. Under this plan,
270,000 shares of Common Stock have been authorized for issuance.
In August 1996, the Company amended the terms of the then
outstanding options on 180,000 shares of Common Stock to modify the vesting
provisions. The amendment resulted in $538,000 of deferred compensation which is
being amortized over the remaining vesting period of approximately five years.
The options, as amended in August 1996, vest over a period of approximately six
years.
As of December 31, 1998, options for 180,000 shares were
outstanding, of which 153,000 shares and 74,250 shares were exercisable and
subject to repurchase if exercised, respectively.
Accounting for Stock Based Compensation
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, generally no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997, and 1996, respectively: risk-free interest rates of
4.8%, 5.9% and 5.9%; dividend yields of 0%; volatility factors of the expected
market price of the Company's Common Stock of .53, .55 and .57; and a
weighted-average expected life of the options of three years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different that those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for earnings per
share information):
1998 1997 1996
---------- ---------- ----------
Pro forma net loss $ (42,766) $ (35,604) $ (21,813)
========== ========== ==========
Pro forma net loss per share $ (2.68) $ (2.66) $ (1.99)
========== ========== ==========
The weighted average fair value of options granted during 1998, 1997
and 1996 was $5.64, $5.66 and $5.39, respectively.
F-16
<PAGE>
10. Stock Option and Purchase Plans (continued)
A summary of the Company's stock option activity under the Company's
option plans which include the 1992 Stock Option Plan, the 1994 Non-Employee
Directors' Plan and the Long-Term Objectives Stock Option Plan for Senior
Management is as follows:
Outstanding Stock Options
-------------------------
Shares Weighted
Available Average
For Grant of Number of Price
Options Shares per Share
------------ ---------- ---------
Balance at December 31, 1995 456,660 1,786,428 6.49
Shares authorized 650,000 -- --
Options granted (652,066) 652,066 12.08
Options exercised -- (305,072) 4.60
Options forfeited 235,559 (235,559) 7.85
------------ ----------
Balance at December 31, 1996 690,153 1,897,863 8.54
Shares authorized 900,000 -- --
Options granted (713,500) 713,500 13.15
Options exercised -- (254,836) 5.13
Options forfeited 93,186 (93,186) 11.12
------------ ----------
Balance at December 31, 1997 969,839 2,263,341 10.27
Shares authorized 750,000 --
Options granted (a) (834,656) 834,656 13.61
Options exercised -- (109,285) 7.93
Options forfeited 97,689 (97,689) 12.75
------------ ----------
Balance at December 31, 1998 982,872 2,891,023 11.24
============ ==========
Note:
(a) Of the 834,656 options granted in 1998, options for 22,128 shares
are subject to stockholder approval.
The following table summarizes information concerning currently outstanding
options:
Exercisable
Outstanding Stock Options Stock Options
----------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Price Per
Prices of Shares Life Price of Shares Share
- -------------- --------- ----------- --------- --------- ---------
$0.38 - $0.38 25,508 3.4 $ 0.38 25,508 $ 0.38
1.13 - 1.13 75,308 4.6 1.13 75,308 1.13
2.44 - 2.44 44,760 5.2 2.44 41,694 2.44
5.00 - 7.50 300,248 6.0 6.33 284,590 6.32
7.88 - 11.75 821,860 7.2 10.44 625,682 10.28
11.88 - 17.63 1,614,041 9.1 13.41 475,609 13.49
19.00 - 19.00 9,298 8.5 19.00 3,086 19.00
--------- ---------
$0.38 - $19.00 2,891,023 8.0 $ 11.24 1,531,477 9.73
========= =========
F-17
<PAGE>
11. Related Party Transactions
In 1995, the Company entered into a collaboration agreement with
Zeneca (see Note 5). As of December 31, 1998, Zeneca owned approximately 18% of
the Company's outstanding Common Stock.
In connection with the resignation of an officer in June 1996, the
Company recorded approximately $500,000 in connection with the forgiveness of
loans and salary continuation.
In August 1996, an officer and director of the Company exercised
options to purchase 132,333 shares of Common Stock (See Note 9). As
consideration for the purchase of these shares and related tax liability upon
the exercise of the options, the officer issued a full recourse promissory note
in the amount of $1.1 million to the Company, of which approximately $883,000 is
included in stockholders' equity. In addition, the Company provided secured
loans to certain key employees and officers to assist in the down payments for
the purchase of their personal residences, all of which are forgivable after
specified years of employment. Included in Other Assets is approximately
$446,000 of loans receivable from certain key employees and officers at December
31, 1998.
In September 1997 and October 1998, the Company granted a total of
45,000 shares of Common Stock, to certain officers and recorded deferred
compensation expense in the combined amount of $621,000, which is being
amortized over the vesting period of the shares.
Revenues derived under arrangements with related parties comprised
approximately 21%, 51%, and 22% of total revenues in 1998, 1997 and 1996,
respectively.
12. Income Taxes
The Company's current loss consists of a loss from U.S. and foreign
operations of $18.6 million and $21.0 million, respectively.
As of December 31, 1998, the Company had federal and state net
operating loss carryforwards of approximately $104.7 million and $3.8 million,
respectively. The Company also had federal and California research and
development tax credit carryforwards of approximately $4.1 million and $3.1
million, respectively. The federal net operating loss and credit carryforwards
will expire at various dates beginning in the year 2006 through 2018, if not
utilized. The State of California net operating losses will expire at various
dates beginning in 1999 through 2003, if not utilized.
Utilization of the Company's U.S. federal and state net operating
loss carryforwards and credits may be subject to an annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization.
For Swiss tax purposes, the Company has net operating losses of
approximately $21.0 million which will expire in 2005. The Company does not
expect to derive future tax savings from these losses.
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows as of December 31 (in thousands):
1998 1997
-------- --------
Net operating loss carryforwards $ 35,800 $ 30,400
Research credits carryforwards 6,300 3,700
Capitalized R&D 3,100 1,700
Deferred revenue 200 100
Other - net 2,300 1,900
-------- --------
Total deferred tax assets 47,700 37,800
Valuation allowance for deferred tax assets (47,700) (37,800)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
F-18
<PAGE>
12. Income Taxes (continued)
Due to the Company's history of losses, the deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$14.3 million and $8.0 million for the fiscal years ended December 31, 1997 and
1996, respectively.
Deferred tax assets as of December 31, 1998 include approximately
$1.5 million relating to the exercise of stock options, which will be credited
to equity when realized.
13. Subsequent Events
In February 1999, the Company secured a $5.0 million capital lease
line to finance the purchase of equipment and tenant improvements.
In March 1999, the Company completed the private placement of $28.0
million principal amount of 12% Senior Convertible Notes due 2002 (the "Notes").
The Notes are convertible into SUGEN Common Stock at $20.50 per share. Interest
on the Notes may be paid in SUGEN Common Stock or cash, at the Company's option.
As part of the Note placement, purchasers were issued warrants (the "Warrants")
to acquire up to an additional $21.0 million principal amount of 12% Senior
Convertible Notes which will mature on the third anniversary date of issuance
(the "Warrant Notes"). The Warrant Notes will have principally the same terms
and conditions as the original Notes. The Warrants to purchase the Warrant Notes
are exercisable until March 2001. The Company has the right, at its option, to
require the exercise of the Warrants by the holders in the event that the
closing price of the Company's Common Stock exceeds certain levels during the
term of the Warrants, subject to certain limitations. On or before August 6,
1999, the then outstanding balance of the 1997 Notes with a floating conversion
mechanism (See Note 7) will be converted into SUGEN Common Stock in accordance
with their terms or, at a premium of approximately 125% to 132% of their
principal amount, exchanged for (i) an additional principal amount of the 12%
Senior Convertible Notes due 2002 (the "Exchange Notes") and (ii) Warrants to
acquire Warrant Notes in a principal amount equal to 75% of the principal amount
of the Exchange Notes.
The estimated fair value of the Warrants will be determined at the
time of issuance and adjusted to their fair value while outstanding and
unexercised. The non cash fair value of the Warrants, together with the costs
and expenses related to the issuance of the Notes and Warrants will be recorded
as debt issuance costs and amortized to expense over the term of the Notes.
Further, if upon exercise of the Warrants the fair value of the Company's Common
Stock is more than $20.50 per share (the conversion price of the Warrant Notes),
the Company may record an additional non cash expense for such beneficial
conversion feature (if such benefit exceeds the previously recorded fair value
of the Warrants).
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of South
San Francisco, State of California, on March 29, 1999.
SUGEN, INC.
By: /s/ Stephen Evans-Freke
-----------------------------------
Stephen Evans-Freke
Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen Evans-Freke and James L.
Knighton, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen Evans-Freke Chief Executive Officer and March 29, 1999
- -------------------------- Chairman of the Board
(Stephen Evans-Freke) (Principal Executive Officer)
/s/ James L. Knighton Senior Vice President and March 29, 1999
- -------------------------- Chief Financial Officer
(James L. Knighton) (Principal Financial and
Accounting Officer)
/s/ Axel Ullrich Director March 29, 1999
- --------------------------
(Axel Ullrich)
<PAGE>
/s/ Richard D. Spizzirri Director and Secretary March 29, 1999
- --------------------------
(Richard D. Spizzirri)
/s/ Jeremy L. Curnock Cook Director March 29, 1999
- --------------------------
(Jeremy L. Curnock Cook)
/s/ Heinrich Kuhn Director March 29, 1999
- --------------------------
(Heinrich Kuhn)
/s/ Donald E. Nickelson Director March 29, 1999
- --------------------------
(Donald E. Nickelson)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-64439), dated September 28, 1998, pertaining to the SUGEN, Inc. 1992
Stock Option Plan and the 1994 Non-Employee Directors' Stock Option Plan, and in
the Registration Statement (Form S-3 No. 333-37687), dated October 10, 1997
pertaining to the registration of 1,780,000 shares of common stock, of our
report dated February 5, 1999, except for Note 13 as to which the date is March
24, 1999 with respect to the consolidated financial statements of SUGEN, Inc.
included in this Annual Report (Form 10-K) for the year ended December 31, 1998.
Palo Alto, California
March 29, 1999
RESTRICTED STOCK BONUS AGREEMENT
WITH JAMES L. KNIGHTON
This Agreement is made as of the 29th day of October, 1998, by and
between SUGEN, Inc., a Delaware corporation (the "Company"), and James L.
Knighton ("Recipient").
Witnesseth:
Whereas, Recipient provides valuable services to the Company;
Whereas, the Company desires to issue, and Recipient desires to
receive, shares of the Company's common stock ("Common Stock") in consideration
for services rendered to the Company or for its benefit; and
Whereas, the issuance of Common Stock hereunder is in connection with
and in furtherance of the Company's compensatory benefit program for
participation of the Company's employees, directors, officers, consultants and
advisors.
Now, Therefore, It Is Agreed between the parties as follows:
1. The Company hereby awards to Recipient twenty thousand (20,000)
shares of Common Stock (the "Shares"), subject to the following terms and
conditions.
2. Provided that Recipient has continuously rendered services to the
Company or any affiliate of the Company from and after the date of this
Agreement through October 29, 1999, ten thousand (10,000) Shares shall vest on
October 29, 1999 (the "First Vesting Date"). Provided that Recipient has
continuously rendered services to the Company or any affiliate of the Company
from and after the date of this Agreement through October 29, 2000, the
remaining ten thousand (10,000) Shares shall vest on October 29, 2000, (the
"Second Vesting Date" and with the First Vesting Date, collectively, the
"Vesting Dates"). However, to the extent the Vesting Dates occur on a date on
which the trading of the applicable vested Shares either (i) would result in
liability to Recipient under Rule 10b-5 as promulgated under the Securities
Exchange Act of 1934, as amended, or (ii) would be prohibited under the
Company's trading window policy designed to prevent violations of Rule 10b-5,
then the Vesting Dates shall be delayed, as applicable, until the first date on
which Recipient could trade the applicable vested Shares without either
incurring liability under Rule 10b-5 or violating the Company's insider trading
window policy.
3. If at any time prior to the Second Vesting Date, Recipient ceases to
render services to the Company or any affiliate of the Company (the
"Separation"), any and all unvested Shares shall immediately cease vesting,
Recipient shall have no further right in the unvested Shares and the unvested
Shares shall automatically be reacquired by the Company.
4. Recipient may satisfy any federal, state or local tax withholding
obligation relating to the acquisition of the Shares by any of the following
means or by a combination of such means: (1) tendering a cash payment, (2)
authorizing the Company to withhold shares from the Shares otherwise issuable to
Recipient as a result of the acquisition of the Shares, or (3) delivering to the
Company owned and unencumbered shares of the Common Stock of the Company.
<PAGE>
5. Recipient acknowledges that the Shares to be issued pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and that the Shares are deemed to constitute "restricted
securities" under Rule 144 promulgated under the Securities Act. In this
connection, Recipient warrants and represents to the Company that Recipient is
holding the Shares for Recipient's own account and that Recipient has no present
intention of distributing or selling said stock except as permitted under the
Securities Act. Recipient further warrants and represents that Recipient has
either (i) a preexisting personal or business relationship with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect his or her own interests in connection with the receipt of the Shares by
virtue of the business or financial expertise of any professional advisors to
Recipient who are unaffiliated with, and who are not compensated by, the Company
or any of its affiliates, directly or indirectly. Recipient further acknowledges
that the exemption from registration under Rule 144 will not be available for at
least two (2) years from the date of acquisition of the Shares, unless at least
one (1) year from the date of acquisition (i) a public trading market then
exists for the Common Stock of the Company, (ii) adequate information concerning
the Company is then available to the public and (iii) other terms and conditions
of Rule 144 are complied with; and that any disposition of the Shares may be
made only in limited amounts in accordance with such terms and conditions.
6. Until the applicable Vesting Date, the Shares shall be issued in
book form only and share certificates shall not be issued. Notwithstanding the
foregoing, in the event that certificates representing the Shares are issued,
all such certificates shall have endorsed thereon the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
UNVESTED AND SUBJECT TO FORFEITURE IN ACCORDANCE WITH THE RESTRICTED
STOCK BONUS AGREEMENT BETWEEN THE ISSUER AND THE REGISTERED HOLDER, OR
THE PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE ISSUER'S
PRINCIPAL OFFICE. ANY TRANSFER OR ATTEMPTED TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS VOID WITHOUT THE PRIOR EXPRESS
WRITTEN CONSENT OF THE ISSUER."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED UNLESS THE SECURITIES ARE REGISTERED UNDER THE
SECURITIES ACT OR AN EXEMPTION THEREFROM IS AVAILABLE."
7. Recipient agrees that it shall in no event make any disposition of
all or any portion of the Shares unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said registration statement; or
2
<PAGE>
(ii) (a) Recipient shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, (b) Recipient shall have
furnished the Company with an opinion of its own counsel to the effect that such
disposition will not require registration of the Shares under the Securities
Act, and (c) such opinion of its counsel shall have been concurred in by counsel
for the Company, such concurrence not to be unreasonably withheld, and the
Company shall have advised Recipient of such concurrence.
8. The Company shall not be required (i) to transfer on its books any
Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or the terms of the Securities Act, or
(ii) to treat as owner of such Shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such Shares shall have been
so transferred.
9. Subject to the provisions of this Agreement, Recipient shall, during
the term of this Agreement, exercise all rights and privileges of a stockholder
of the Company with respect to the Shares. Recipient shall be deemed to be the
holder of the Shares for purposes of receiving any dividends which may be paid
with respect to such Shares and for purposes of exercising any voting rights
relating to such Shares, even if some or all of such Shares have not yet vested
and been released from the Company's reacquisition right.
10. If any change is made in the Shares subject to this Agreement
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), this Agreement will be appropriately adjusted in the
class(es) of securities, maximum number of Shares and price per Share subject to
this Agreement.
11. In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; (3) any other capital reorganization in which more than fifty percent
(50%) of the shares of the Company entitled to vote are exchanged; (4) a
transaction or group of related transactions involving the sale of all or
substantially all of the Company's assets; (5) the acquisition by any person,
entity or group (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any subsidiary of the Company) of the
beneficial ownership, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power in the
election of members of the board of directors of the Company; or (6) a change in
the composition of the Company's Board of Directors such that, during any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the Board of Directors, together with individuals who are Approved
New Directors (as defined below), cease for any reason to have authority to cast
at least a majority of the votes which all directors on the Board are entitled
to vote; then, to the extent not prohibited by law, the time during the Vesting
Date shall be accelerated prior to such event. For purposes of this Agreement,
an "Approved New Director" shall be a Board member whose election, or the
nomination for election by the Company's stockholders, was approved by a vote of
a majority of
3
<PAGE>
the votes entitled to be cast by the directors then still in office who were
directors at the beginning of the period.
12. The acquisition and vesting of the Shares may have adverse tax
consequences to the Recipient which may avoided or mitigated by filing an
election under Section 83(b) of the Internal Revenue Code, as amended (the
"Code"). Such election must be filed within thirty (30) days after the date of
this Agreement. RECIPIENT ACKNOWLEDGES THAT IT IS HIS OWN RESPONSIBILITY, AND
NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF
RECIPIENT REQUESTS THE COMPANY TO MAKE THE FILING ON HIS OR HER BEHALF.
13. Rights and obligations under this Agreement shall not be impaired
by any amendment of this Agreement unless (i) the Company requests the consent
of Recipient and (ii) Recipient consents in writing.
14. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent
of this Agreement.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to the other party hereto at its address
hereinafter shown below its signature or at such other address as such party may
designate by ten (10) days' advance written notice to the other party hereto.
16. This Agreement shall be governed by the laws of the State of
California without regard to such State's principles of conflict of laws.
17. This Agreement shall inure to the benefit of the successors and
assigns of the Company and, subject to the restrictions on transfer herein set
forth, shall be binding upon Recipient, his or her heirs, executors,
administrators, successors and assigns.
18. This Agreement does not constitute an employment contract nor shall
be deemed to create in any way whatsoever any obligation on Recipient's part to
continue in the employ of the Company or any affiliate of the Company, or to
limit the ability of the Company or any affiliate of the Company to terminate
Recipient's employment with the Company or affiliate of the Company at any time,
for any reason or for no reason.
19. This Agreement constitutes the entire, final and exclusive
statement of the agreement between the parties hereto with respect to the
subject matter hereof.
4
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as
of the date first above written.
Recipient:
/s/ James L. Knighton
- ---------------------
James L. Knighton
Address:
153 Terrace Drive
San Francisco, California 94127
SUGEN, Inc.:
/s/ Stephen Evans-Freke
- -----------------------
Stephen Evans-Freke
Chief Executive Officer and
Chairman of the Board of Directors
5
CONFIDENTIAL
CONFIDENTIAL
- ------------
Date: July 21, 1998
To: Stephen Evans-Freke
Chairman and Chief Executive Officer
cc: Susan Kanaya, Treasurer, SUGEN, Inc.
Brian Cunningham, Cooley Godward
From: Donald E. Nickelson
Chairman of the Compensation Committee
SUGEN, Inc. Board of Directors
Reference: Your Compensation
Dear Stephen:
The Executive Committee and Compensation Committee of SUGEN's Board of
Directors have settled on the following proposal in order to secure your
continuing services as Chief Executive Officer of SUGEN for up to one year
beyond the July 30, 1998 date by which you had previously intended to withdraw
from this position. The Board respects your desire to step back to the position
of Non-Executive Chairman of SUGEN, Inc. and SUGEN, Europe. It is understood,
therefore, that your commitment to stay on for the time being will be satisfied
as soon as a Chief Executive Officer candidate acceptable to the Board has been
selected and has himself or herself accepted this position, and that in any case
you will have no continuing obligation to continue as Chief Executive Officer
beyond June 30, 1999.
In consideration for your commitment to serve as Chief Executive Officer
for up to one further year, SUGEN promises to transfer to you up to 100,000
shares of fully paid-up common stock of SUGEN, Inc. ("Shares"), provided the
following conditions are satisfied. If SUGEN appoints a new Chief Executive
Officer prior to July 1, 1999, SUGEN will transfer 50,000 shares to you within
10 days following such appointment, but not earlier than January 4, 1999. If
SUGEN (including its affiliated entities) raises at least an additional $30
million in new money prior to July 1, 1999, SUGEN will transfer to you 50,000
Shares within 10 days following the completion of such transaction, but not
earlier than January 4, 1999. Both contingencies may be met by any means in
order to count for these purposes. Until the time of transfer under the
foregoing conditions, you are not a shareholder of SUGEN in respect of any of
the 100,000 Shares.
You will continue to be paid your present salary, subject to year-end
reviews if still applicable, and will be entitled to the appropriate year-end
bonus regardless of whether a new Chief Executive Officer has been appointed by
that time.
It is understood by the Board that you are in the process of relocating
your family to the East Coast, and that your personal time will be split between
the East Coast, SUGEN's Bay Area
1.
<PAGE>
facilities, and Europe to the extent that the establishment of SUGEN Europe
requires your presence there. The Board is comfortable with this arrangement so
long as you are physically at SUGEN with reasonable frequency and are fully
available and functional by phone, fax, and e-mail when on the East Coast. The
Board also appreciates that you are now in the position of maintaining two large
mortgages since you have purchased a house in Maine and have been unable to
place your Hillsborough, CA house on the market this last Spring as planned. It
is understood that you have now listed your Hillsborough house, in which your
family no longer resides. With effect as of July 1, 1998, SUGEN will pay the
monthly cost of your mortgages on the property, estimated at approximately
$16,786.36 per month (these amounts may fluctuate due to changes in interest
rates), by direct payment to First Republic against their monthly invoices.
If this proposal is acceptable to you, please confirm by signing below in
the indicated space on each copy of this letter, returning one to me with copy
to Susan Kanaya and Brian Cunningham, and retaining the other for your records.
Sincerely,
/s/ Donald E. Nickelson
Donald E. Nickelson
Agreed:
/s/ Stephen Evans-Freke July 22, 1998
- ------------------------------------- ------------------------
Stephen Evans-Freke Date
Chairman and Chief Executive Officer
2
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. ss.ss. 200.80(b)(4),
200.83 and 240.24b-2
AMENDMENT FIRST
This first amendment (the "Amendment"), dated December 31, 1998, ("Effective
Date of this Amendment") entered by and between SUGEN, Inc., a Delaware
corporation, located at 230 East Grand Avenue, South San Francisco, California
94080-4811 ("SUGEN") and ASTA Medica Aktiengesellschaft, a German corporation,
with headquarters at Weissmuellerstrasse 45, D-60314 Frankfurt am Main, Germany
("ASTA Medica") amends and with respect to the terms below supersedes the
respective terms in the Collaboration Agreement by and between the same Parties,
dated December 5, 1995 (the "Agreement"). All other terms and conditions of the
Agreement shall abide this Amendment. SUGEN and ASTA Medica are each considered
a "Party" and together considered the "Parties" hereto.
Whereas, ASTA Medica seeks to extend the period of time for screening and
selection of Active Compounds under the Raf and Her2 Projects, as referenced in
Section 2.5 of the Agreement; and
Whereas, under Article 5 of the Agreement, in which SUGEN contracts for services
to be performed by ASTA Medica and charged against a monetary credit held by
ASTA Medica, SUGEN seeks to fully utilize the remaining credit for the provision
of the contract services;
Now Therefore, in consideration of the foregoing and the covenants and mutual
promises, the Parties hereby agree to amending the Agreement as follows:
1. Extension of the Raf Project. ASTA Medica [...***...] extend screening
activities under the Raf Project beyond the current final date of [...***...].
During such [...***...]. In the event that [...***...] in consideration of such
extension. Such compensation shall be payable as follows:
A. [...***...] payable by ASTA Medica in cash [...***...]; and
B. [...***...] payable by ASTA Medica in exchange for SUGEN Common
Stock, to be issued and sold to ASTA Medica on March 31, 1999 pursuant to that
certain Common Stock Purchase Agreement, by and between ASTA Medica and SUGEN,
dated contemporaneously herewith, at a price per share equal to twice the fair
market value thereof. Such fair market value shall be determined to be equal to
the average last reported sales price of a share of SUGEN Common Stock as
reported for the NASDAQ (National Market) for the twenty (20) business days
preceding the day on which the payment is made.
2. Her2 Project.
<PAGE>
2.1 Extension of the Her2 Project. In consideration of SUGEN's
agreement to extend the Screening Period (as defined in Section 2.4(c) of the
Agreement) and screening activities under the Her2 Project until [...***...],
ASTA Medica shall pay SUGEN [...***...] payable as follows:
A. [...***...] (US$375,000) payable by ASTA Medica in exchange for
SUGEN Common Stock, to be issued and sold to ASTA Medica on December
31, 1998 pursuant to that certain Common Stock Purchase Agreement, by
and between ASTA Medica and SUGEN, dated contemporaneously herewith,
at a price per share equal to twice the fair market value thereof.
Such fair market value shall be determined to be equal to the average
last reported sales price of a share of SUGEN Common Stock as reported
for the NASDAQ (National Market) for the twenty (20) business days
preceding the day on which the payment becomes due;
B. [...***...] payable by ASTA Medica in cash [...***...]; and
C. [...***...] payable by ASTA Medica in exchange for SUGEN Common
Stock, to be issued and sold to ASTA Medica on March 31, 1999 pursuant
to that certain Common Stock Purchase Agreement, by and between ASTA
Medica and SUGEN, dated contemporaneously herewith, at a price per
share equal to twice the fair market value thereof. Such fair market
value shall be determined to be equal to the average last reported
sales price of a share of SUGEN Common Stock as reported for the
NASDAQ (National Market) for the twenty (20) business days preceding
the day on which the payment becomes due.
ASTA Medica shall also be responsible for [...***...] in accordance with Section
6.1 of the Agreement [...***...] in accordance with terms and conditions of the
Agreement and this Amendment.
2.2 Her2 Project Research Payment. ASTA Medica agrees to pay SUGEN a
research payment of [...***...] for research conducted on the Her2 Project by
SUGEN in [...***...]. Such payment shall be payable by ASTA Medica in cash no
later than [...***...].
3. Termination of Projects. ASTA Medica and SUGEN agree on new criteria for
continuation of Projects to replace the corresponding provision of Section
4.2(c) of the Agreement. The Parties hereby agree that in the event [...***...],
then such Project shall terminate. Upon such termination of a Project, the
Parties shall enter into a License Agreement as provided for in the relevant
remaining part of Section 4(c) of the Agreement.
4. Failure to Comply. Failure to comply with the payment requirements under
Sections 1 and/or 2 of this Amendment shall result in ASTA Medica's forfeiture
of its rights in accordance with Section 10.2 of the Agreement with regard to
the respective Project(s) to which the default in payment and failure to cure
applies.
2
<PAGE>
5. Further Screening Activities. SUGEN agrees to extend further screening
activities on Active Compounds as provided for in Section 2.7 of the Agreement
for an additional [...***...], with the new ending date of [...***...].
6. Non-competition. ASTA Medica and SUGEN agree that [...***...] under Section
4.3 of the Agreement [...***...] as provided for in Section 1 of this Amendment.
7. Contract Services Credit Extension. ASTA Medica agrees to extend the time
under which SUGEN is obligated to use a partial existing credit (under Section
5.2 of the Agreement) in the remaining amount equal to the difference between
[...***...] of the original credit and the total amount of all statements of
contract services performed by ASTA Medica under Section 5.1 of the Agreement
through the Effective Date of this Amendment. SUGEN's remaining credit shall
[...***...]. Such services must be used by SUGEN by [...***...].
8. Independence of Projects. Any decisions with respect to Raf and Her2 Projects
shall be made independently of each other, and termination of any one of the
Projects shall not result in the termination of the other or in the termination
of the Agreement.
This Amendment has been executed by the Parties as of the Effective Date of this
Amendment.
SUGEN, Inc. ASTA Medica Aktiengesellschaft
By: /s/ Stephen Evans-Freke By: /s/ Bernard Kastler
--------------------------------- ----------------------------------
Stephen Evans-Freke Bernard Kastler
- ------------------------------------ --------------------------------------
Name Name
Chairman and Chief Executive Officer Member of the Executive Board
Title Title
3
AGREEMENT
for the purchase of Common Stock of
SUGEN, INC.
by
ASTA MEDICA AKTIENGESELLSCHAFT
<PAGE>
Table Of Contents
Page
1. Purchase and Sale of Common Stock.....................................1
1.1 Issue of Common Stock........................................1
2. Closing Date; Delivery................................................1
2.1 First Closing................................................1
2.2 Payment and Delivery.........................................1
2.3 Second Closing...............................................2
2.4 Delivery.....................................................2
3. Representations, Warranties and Covenants of the Company..............2
3.1 Organization.................................................2
3.2 Authority....................................................2
3.3 Issuance of the Shares.......................................2
3.4 Registration Rights Covenant.................................2
4. Representations, Warranties and Covenants of Purchaser................5
4.1 Legal Power..................................................6
4.2 Due Execution................................................6
4.3 Investment Representations and Covenants.....................6
4.4 Standstill Covenant..........................................7
4.5 Lockup Covenant..............................................7
5. Conditions to First Closing...........................................8
5.1 Conditions to Obligations of Purchaser.......................8
5.2 Conditions to Obligations of the Company.....................8
6. Conditions to Second Closing..........................................8
6.1 Conditions to Obligations of Purchaser.......................8
6.2 Conditions to Obligations of the Company.....................9
7. Miscellaneous.........................................................9
7.1 Governing Law................................................9
7.2 Successors and Assigns.......................................9
7.3 Entire Agreement............................................10
7.4 Separability................................................10
7.5 Amendment and Waiver........................................10
i.
<PAGE>
7.6 Notices.....................................................10
7.7 Fees and Expenses...........................................10
7.8 Titles and Subtitles........................................10
7.9 Counterparts................................................10
7.10 Consent to Jurisdiction and Venue...........................10
ii.
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement) is made as of the
31st day of December, 1998, by and between SUGEN, Inc., a Delaware corporation
(the "Company"), and Asta Medica Aktiengesellschaft, a German corporation
("Purchaser"). In connection with that First Amendment, dated as of December 31,
1998 (the "First Amendment"), to that certain Collaboration Agreement, dated as
of December 5, 1995, by and between the Company and Purchaser (the
"Collaboration Agreement"), and in consideration of the mutual promises,
representations, warranties and conditions set forth in this Agreement, the
Company and Purchaser agree as follows:
1. Purchase and Sale of Common Stock.
1.1 Issue of Common Stock.
(a) The Company has authorized the issuance and sale of up to
the aggregate number of shares of its common stock, $.01 par value (the "Common
Stock"), set forth in Sections 2.1 and 2.3 hereof (the "Shares").
(b) In reliance upon Purchaser's representations and
warranties contained in Section 4 hereof and subject to the terms and conditions
set forth herein, the Company agrees to sell to Purchaser the Shares, to be
issued and sold at a price per share equal to two hundred percent (200%) of the
Fair Market Value thereof. For purposes of this Agreement, Fair Market Value
shall equal the average closing sales price of a share of Common Stock as
reported for the Nasdaq National Market for the twenty (20) business days
preceding the day on which the Shares are issued.
(c) In reliance upon the representations and warranties of the
Company contained in Section 3 hereof and subject to the terms and conditions
set forth herein, Purchaser hereby agrees to purchase the Shares at the per
share purchase price set forth above.
2. Closing Date; Delivery.
2.1 First Closing. The closing of the sale and purchase of that number
of Shares (the "Initial Shares") under this Agreement (the "First Closing"),
having a value of $375,000 based on a price per share equal to two hundred
percent (200%) of the Fair Market Value thereof, shall be held on or about 10:00
a.m. (Pacific Standard Time) on or about December 31, 1998 (the "First Closing
Date"), at the offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, California, or at such other time and place as the
Company and Purchaser may agree. At the First Closing, the Company will issue
and sell, and Purchaser will purchase, the Initial Shares for an aggregate
purchase price of $375,000.
2.2 Payment and Delivery. At the First Closing, subject to the terms
and conditions hereof, the Company will deliver to Purchaser a stock
certificate, registered in the name of Purchaser, representing the Initial
Shares to be purchased by Purchaser from the Company, dated
1.
<PAGE>
as of the First Closing Date, against payment of the purchase price therefor by
wire transfer, unless other means of payment shall have been agreed upon by
Purchaser and the Company.
2.3 Second Closing. The closing of the sale and purchase of that number
of Shares (the "Additional Shares") under this Agreement (the "Second Closing"),
having a value of $375,000 based on a price per share equal to two hundred
percent (200%) of the Fair Market Value thereof, shall take place on March 31,
1999 (the "Second Closing Date") at the offices of Cooley Godward LLP, Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California, or at such other time
and place as the Company and Purchaser may agree. At the Second Closing, the
Company will issue and sell, and Purchaser will purchase, the Additional Shares
for an aggregate purchase price of $375,000; provided, however, that the
Company's sole remedy for failure by ASTA Medica to purchase the Additional
Shares at the Second Closing shall be forfeiture of ASTA Medica's rights in
accordance with Section 4 of the First Amendment.
2.4 Delivery. At the Second Closing, subject to the terms and
conditions hereof, the Company will deliver to Purchaser a stock certificate,
registered in the name of Purchaser, representing the Additional Shares to be
purchased by Purchaser from the Company, dated as of the Second Closing Date,
against payment of the purchase price therefor by wire transfer, unless other
means of payment shall have been agreed upon by Purchaser and the Company
3. Representations, Warranties and Covenants of the Company
The Company hereby represents and warrants to Purchaser as follows:
3.1 Organization. The Company is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
3.2 Authority. The Company has all requisite power and authority to
enter into this Agreement, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, and upon execution and delivery by
the Company, this Agreement will constitute a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditor's rights from time to time in
effect, and subject to general equity principles.
3.3 Issuance of the Shares. The Shares, when issued pursuant to the
terms of this Agreement, will be duly and validly authorized and issued, fully
paid and nonassessable.
3.4 Registration Rights Covenant.
(a) At any time during the 180-day period immediately
following the termination of the Screening Period (as defined in the
Collaboration Agreement, as amended by the First Amendment), Purchaser shall
have the right to cause the Company to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), for a public offering
of no less than 250,000 shares of Common Stock beneficially owned by Purchaser,
2.
<PAGE>
provided that such shares include all of the Shares, by delivering written
notice thereof to the Company specifying the number of Shares to be included in
such registration and the intended method of distribution thereof (the
"Registration Request"). Upon receipt of the Registration Request, the Company
shall, as expeditiously as possible, use its best efforts to promptly effect the
registration under the Securities Act, and all applicable state securities laws,
to the extent necessary to permit the sale or other disposition by Purchaser of
the Shares to be so registered in accordance with such notice.
(b) The demand registration rights granted in Section 3.4(a)
are subject to the following limitations: (i) the Company shall not be obligated
to effect more than one registration pursuant to Section 3.4(a), (ii) the
Company shall not be obligated to effect such registration for a period of 60
days following the closing of an underwritten public offering of the Company's
equity securities that is in registration at the time of the receipt of the
Registration Request (provided that the period within which Purchaser may demand
registration hereunder will be extended by the number of days by which the
registration requested by Purchaser is delayed pursuant to this sentence); and
(iii) if the Company shall furnish to Purchaser a certificate signed by the
Chairman of the Board of Directors of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration to be
effected at such time, then the Company shall have the right to defer the filing
of the registration for a period of not more than 180 days after receipt of the
Registration Request (provided that the period within which Purchaser may demand
registration hereunder will be extended by the number of days by which the
registration requested by Purchaser is delayed pursuant to this sentence).
(c) If and when the Company is required by the provisions of
Section 3.4(a) to include all of the Shares in a registration under the
Securities Act, Purchaser will furnish in writing such information as is
reasonably requested by the Company for inclusion in the registration statement
relating to such offering and such other information and documentation as the
Company shall reasonably request, and the Company will, as expeditiously as
possible:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such securities and
use its best efforts to cause such registration to become and remain effective
for such period as may be necessary to permit the successful marketing of such
securities but not exceeding 120 days (excluding any period during which a stop
order is in effect).
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act and to keep such registration statement effective for that period
of time specified in paragraph (i) of this section.
(iii) Furnish to Purchaser such number of
prospectuses and preliminary prospectuses in conformity with the requirements of
the Securities Act, and such other documents as such Purchaser may reasonably
request in order to facilitate the public sale or other disposition of the
Shares registered hereunder.
3.
<PAGE>
(iv) Use its best efforts to register or qualify the
Shares covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as Purchaser shall reasonably request and do
any and all other acts and things which may be necessary or desirable to enable
Purchaser to consummate the public sale or other disposition in such
jurisdictions of the Shares covered by such registration statement, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(d) In the event of a registration of any of the Shares under
the Securities Act pursuant to Section 3.4(a) in connection with an underwritten
public offering, the Company will enter into and perform its obligations under
an underwriting agreement, in usual and customary form, with the managing
underwriters of such offering, including without limitation providing usual and
customary indemnification. In the event Purchaser proposes to sell Shares in
accordance with this Section pursuant to an underwritten offering, the Company
shall have the right to approve the managing underwriters for such offering;
provided, however, that such approval shall not be unreasonably withheld.
Purchaser will also provide usual and customary indemnification to the Company
and its affiliates with respect to claims, losses and damages arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that in no event shall any indemnity under this Section
3.4(d) exceed the gross proceeds from the offering received by Purchaser.
(e) At any time or from time to time following termination of
the Screening Period (as defined in the Collaboration Agreement, as amended by
the First Amendment), if the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 3.4(a) hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not permit
secondary sales, then the Company will:
(i) promptly give to Purchaser a written notice
thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 3.4(f) below, and in any
underwriting involved therein, all the Shares specified in a written request or
requests made by Purchaser and received by the Company within twenty (20) days
after the written notice from the Company described in clause (i) above is
mailed or delivered by the Company.
(f) If the registration of which the Company gives notice to
Purchaser is for a registered public offering involving an underwriting, the
Company shall so advise Purchaser as a part of the written notice given pursuant
to Section 3.4(e)(i). In such event, the right of Purchaser to registration
pursuant to Section 3.4(e) shall be conditioned upon Purchaser's participation
in such underwriting and the inclusion of Purchaser's Shares in the underwriting
to the extent
4.
<PAGE>
provided herein. Purchaser shall (together with the Company and the other
holders of securities of the Company with registration rights to participate
therein distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of Sections 3.4(e) or (f), if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Shares from, or limit the number of Shares to be included in, the registration
and underwriting. The Company shall so advise Purchaser and other holders of
securities requesting registration, and the number of shares that are entitled
to be included in the registration and underwriting shall be allocated first to
the Company for securities being sold for its own account and thereafter the
number of shares that are entitled to be included in the registration shall be
allocated among Purchaser and other holders requesting inclusion of shares on a
pro rata basis, subject to any prior agreements among the Company and its other
stockholders, but only to the extent that such other agreements provide for
additional limitations on the number of shares such other stockholders or the
Company will be entitled to include in the registration, which agreements are in
effect as of the date hereof. If Purchaser or any other person does not agree to
the terms of any such underwriting, Purchaser and any other such person shall be
excluded therefrom by written notice from the Company or the underwriter. Any
Shares or other securities excluded or withdrawn from such underwriting shall
also be withdrawn from such registration.
(g) As used herein, "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Section 3.4, including,
without limitation, all registration, qualification and filing fees; printing
expenses; fees and disbursements of counsel for the Company (and the fees and
disbursements of counsel for the Company in its capacity as counsel to the
Purchaser hereunder; if Company counsel does not make itself available for this
purpose, the Company will pay the reasonable fees and disbursements of one
counsel for the Purchaser as selected by Purchaser) and of the Company's
independent accounting firm; blue sky fees and expenses; underwriting discounts
and commissions and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company). Purchaser will pay
all Registration Expenses in connection with a registration pursuant to Section
3.4(a) hereof; provided, however, that in the event of a registration of the
Shares pursuant to Section 3.4(a) either as a result of a material breach of the
Collaboration Agreement by the Company or the inability to replace a Project
pursuant to Section 2.6 of the Collaboration Agreement, or if Purchaser
withdraws its demand for registration after having learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to Purchaser at the time of its demand (in which case Purchaser shall retain its
rights pursuant to Section 3.4(a)), all Registration Expenses shall be borne by
the Company. All Registration Expenses in connection with any registration
pursuant to Section 3.4(e) hereof shall be borne by the Company; provided,
however, that any incremental expenses incurred by the Company solely by reason
of Purchaser's exercise of registration rights pursuant to Section 3.4(e) shall
be borne by the Purchaser.
5.
<PAGE>
(h) The rights conferred upon Purchaser under this Section 3.4
may be assigned by Purchaser to any permitted transferee of the Shares, provided
that each such transfer complies with Section 4.5 and provided, further, that
only Purchaser shall be authorized to give notice to the Company of any request
for registration under this Section 3.4(a) and only Purchaser shall be entitled
to receive notice pursuant to Section 3.4(a) hereof.
4. Representations, Warranties and Covenants of Purchaser.
Purchaser hereby represents, warrants and covenants with the Company as
follows:
4.1 Legal Power. Purchaser has the requisite corporate power and is
authorized to enter into this Agreement, to purchase the Shares hereunder and to
carry out and perform its obligations under the terms of this Agreement.
4.2 Due Execution. This Agreement has been duly authorized executed and
delivered by Purchaser, and upon due execution and delivery by the Company, this
Agreement will be a valid and binding agreement of Purchaser.
4.3 Investment Representations and Covenants.
Purchaser is acquiring the Shares for its own account, not as nominee
or agent, for investment and not with a view to or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act. Purchaser understands that the Shares have not been registered
under the Securities Act, but are instead being offered and sold to Purchaser
pursuant to an exemption from registration contained in the Securities Act based
in part upon the following representations and warranties:
(a) Purchaser is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its own interests.
Purchaser must bear the economic risk of this investment unless the Shares are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares. Purchaser also understands that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow such Purchaser to
transfer all or any portion of the Shares under the circumstances, in the
amounts or at the times Purchaser might propose.
(b) Purchaser is acquiring the Shares for such Purchaser's own
account for investment only, and not with a view towards their distribution.
(c) Purchaser represents that by reason of its, or of its
management's, business or financial experience, Purchaser has the capacity to
protect its own interests in connection with the transactions contemplated in
this Agreement.
(d) Purchaser has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also
6.
<PAGE>
had the opportunity to ask questions of and receive answers from, the Company
and its management regarding the terms and conditions of this investment.
(e) Purchaser acknowledges and agrees that the Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Purchaser has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things: the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) and the number of shares being sold during any
three-month period not exceeding specified limitations. Each certificate
representing Shares shall be stamped or otherwise imprinted with a legend
substantially similar to the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL THEY ARE REGISTERED UNDER THE ACT OR UNLESS (A) THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED OR (B) SUCH SALE IS MADE
PURSUANT TO RULE 144 UNDER THE ACT.
4.4 Standstill Covenant. Purchaser agrees that neither Purchaser nor
any of its affiliates will in any manner, directly or indirectly (i) effect,
seek, offer or propose to effect any acquisition of any securities or assets of
the Company, any tender or exchange offer, merger, business combination,
recapitalization or other extraordinary transaction involving the Company or any
solicitation of proxies or consents to vote any voting securities of the
Company, (ii) form, join or in any way participate in a "group" (as defined in
the Exchange Act) with respect to any voting securities of the Company, (iii)
solicit or participate in any solicitation of proxies relating to the election
of directors of the Company, or (iv) enter into any agreement with any other
person with respect to the foregoing, or assist any other person to do any of
the foregoing; provided that (A) Purchaser may purchase additional securities in
an amount sufficient to allow Purchaser to own up to 4.9% of the then
outstanding shares of Common Stock of the Company (excluding any shares issued
directly to Purchaser or its Affiliates by the Company); (B) the transfer of
Shares in accordance with Section 4.5 and the voting thereof by the transferee
shall not be deemed a prohibited group formation or proxy solicitation; and (C)
this sentence shall not prohibit the acquisition or disposition of shares for
investment purposes only in the open market in the ordinary course by any
pension fund or trust for the benefit of employees of Purchaser or its
affiliates.
4.5 Lockup Covenant. Purchaser agrees that during the Screening Period
(as defined in the Collaboration Agreement, as amended by the First Amendment),
Purchaser will not, without the prior written approval of the Company, offer,
sell or otherwise dispose of, directly or
7.
<PAGE>
indirectly, any capital stock of the Company which Purchaser may own directly,
indirectly or beneficially; provided that (i) Purchaser may transfer some or all
of the Shares to a corporation, partnership or other legal entity of which
Purchaser has actual control, but only if such transferee agrees in writing to
hold such Shares subject to all of the provisions of this Agreement and to
transfer such Shares to Purchaser if such transferee ceases to be controlled by
Purchaser (all such Shares so transferred shall be deemed to be shares held by
Purchaser for all purposes hereunder), (ii) the restrictions contained in this
sentence shall terminate automatically upon the acquisition by any person or
group (as defined in the Exchange Act), other than Purchaser and its affiliates,
of more than 21% of the outstanding voting securities of the Company, and (iii)
this sentence shall not prohibit the acquisition or disposition of shares for
investment purposes only in the open market in the ordinary course by any
pension fund or trust for the benefit of employees of Purchaser or its
affiliates.
5. Conditions to First Closing.
5.1 Conditions to Obligations of Purchaser. Purchaser's obligation to
purchase the Initial Shares at the First Closing is subject to the fulfillment,
at or prior to the First Closing, of all of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects on the First Closing
Date with the same force and effect as if they had been made on and as of said
date. The Company shall have performed all obligations and conditions herein
required to be performed by it on or prior to the First Closing Date.
(b) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to Purchaser.
5.2 Conditions to Obligations of the Company. The Company's obligation
to issue and sell the Initial Shares at the First Closing is subject to the
fulfillment, to the Company's satisfaction, on or prior to the First Closing, of
the following conditions:
(a) Representations and Warranties True. The representations
and warranties made by Purchaser in Section 4 hereof shall be true and correct
at the First Closing Date with the same force and effect as if they had been
made on and as of the date of the First Closing Date.
(b) Performance of Obligations. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by them on or before the First Closing Date, and Purchaser
shall have delivered payment to the Company in respect of its purchase of
Initial Shares.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Initial Shares at the
8.
<PAGE>
First Closing pursuant to this Agreement shall have been duly obtained and shall
be effective on and as of the First Closing Date. No stop order or other order
enjoining the sale of the Initial Shares shall have been issued and no
proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC or any commissioner of corporations or similar
officer of any state having jurisdiction over this transaction. At the time of
the First Closing, the sale and issuance of the Initial Shares to be purchased
and sold at the First Closing shall be legally permitted by all laws and
regulations to which Purchaser and the Company are subject.
6. Conditions to Second Closing.
6.1 Conditions to Obligations of Purchaser. Purchaser's obligation to
purchase the Additional Shares at the Second Closing is subject to the
fulfillment, at or prior to the Second Closing, of all of the following
conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects on the Second Closing
Date with the same force and effect as if they had been made on and as of said
date. The Company shall have performed all obligations and conditions herein
required to be performed by it on or prior to the Second Closing Date.
(b) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Second
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to Purchaser.
6.2 Conditions to Obligations of the Company. The Company's obligation
to issue and sell the Additional Shares at the Second Closing is subject to the
fulfillment, to the Company's satisfaction, on or prior to the Second Closing,
of the following conditions:
(a) Representations and Warranties True. The representations
and warranties made by Purchaser in Section 4 hereof shall be true and correct
at the Second Closing Date with the same force and effect as if they had been
made on and as of the date of the Second Closing Date.
(b) Performance of Obligations. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by them on or before the Second Closing Date, and Purchaser
shall have delivered payment to the Company in respect of its purchase of
Additional Shares.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Additional Shares at the Second Closing pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Second Closing Date. No stop order or other order enjoining the sale of
the Additional Shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the SEC or
any commissioner of
9.
<PAGE>
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Second Closing, the sale and issuance of the
Additional Shares to be purchased and sold at the Second Closing shall be
legally permitted by all laws and regulations to which Purchaser and the Company
are subject.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California, without regard to principles of conflict of laws.
7.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
7.3 Entire Agreement. This Agreement and the Exhibits hereto, and the
other documents delivered pursuant hereto, constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
7.4 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.5 Amendment and Waiver. Except as otherwise provided herein, any term
of this Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and Purchaser. Any
amendment or waiver effected in accordance with this section shall be binding
upon any holder of any security purchased under this Agreement (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
7.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and
Purchaser at the addresses included herein.
7.7 Fees and Expenses. The Company and Purchaser shall bear their own
expenses and legal fees with respect to this Agreement and the transactions
contemplated hereby.
10.
<PAGE>
7.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.10 Consent to Jurisdiction and Venue. Any claim or controversy
arising out of or related to this Agreement or any breach hereof shall be
submitted to a court of applicable jurisdiction in the State of California and
each party hereby consents to the jurisdiction and venue of such court.
11.
<PAGE>
In Witness Whereof, the parties hereto have executed this Common Stock
Purchase Agreement as of the date set forth in the first paragraph hereof.
SUGEN, Inc.
By: /s/ Stephen Evans-Freke
Name: Stephen Evans-Freke
Title: Chief Executive Officer and
Chairman of the Board
Asta Medica Aktiengesellschaft
By:_________________________________________
Name:_______________________________
Title:______________________________
12.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
Form 10-K for the twelve months ended December 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,901
<SECURITIES> 23,396
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,692
<PP&E> 13,860
<DEPRECIATION> (5,997)
<TOTAL-ASSETS> 59,333
<CURRENT-LIABILITIES> 23,197
<BONDS> 11,418
0
0
<COMMON> 166
<OTHER-SE> 24,552
<TOTAL-LIABILITY-AND-EQUITY> 59,333
<SALES> 0
<TOTAL-REVENUES> 14,916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,548
<INCOME-PRETAX> (39,627)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,627)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,627)
<EPS-PRIMARY> (2.49)
<EPS-DILUTED> (2.49)
</TABLE>
