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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 0-22788
AXYS PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2969941
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
180 KIMBALL WAY, SOUTH SAN FRANCISCO, CALIFORNIA 94080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 829-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of February 29, 2000, based upon the last
trade price of the Common Stock reported on the Nasdaq National Market on such
date, was $553,602,928.*
The number of shares of Common Stock outstanding as of February 29, 2000
was 34,946,051.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement which will be filed with the
Commission pursuant to Section 14a in connection with the 2000 annual meeting of
stockholders are incorporated herein by reference in Part III of this report.
* Excludes approximately 345,868 of the Registrant's outstanding Common Stock
held by directors and officers of the Registrant at February 29, 2000.
Exclusion of shares held by any person should not be construed to indicate
that such person possesses the power, direct or indirect, to direct or cause
the direction of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant.
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PART I.
ITEM 1. BUSINESS
INTRODUCTION
This section discusses the business of Axys Pharmaceuticals, Inc. In this
section we sometimes refer to Axys Pharmaceuticals, Inc. as Axys or our company.
For further information you may contact our web-site at www.axyspharm.com.
You should be aware that the following discussion of our company contains
both historical information and forward-looking statements. Forward-looking
statements are statements made about future events and include projections and
other statements about what may or could happen in the future. You should be
aware that forward-looking statements involve risks and uncertainties. Our
actual results could differ significantly from those you might expect based on
our forward-looking statements. There are a number of reasons that this might
occur. To understand what those reasons are, you should review the sections
below entitled "What Factors Could Cause Our Results to Differ Materially from
Those You Might Expect?" and "What Other Matters Should Stockholders Consider
with Respect to the Company?". You should also consider the additional risk
factors described in the section entitled "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OVERVIEW
Axys is a biopharmaceutical company focused on the discovery, development
and commercialization of therapeutic small molecules. We focus our own resources
on discovering and developing therapeutics for the treatment of various types of
cancer and we collaborate with large pharmaceutical companies in discovering
therapeutics for chronic diseases for which there are large markets.
We have three affiliated companies that were formed to provide capital to
Axys for our drug discovery operations:
- AXYS ADVANCED TECHNOLOGIES, INC. (AAT), which began operations in 1996,
is a 100% owned subsidiary that markets combinatorial chemistry
compounds, enabling technology and services.
- PPGX, INC. (PPGx), a pharmacogenomics subsidiary founded in 1999, is 82%
owned by Axys.
- AKKADIX CORPORATION (Akkadix), previously called Xyris Corporation, an
agricultural biotechnology company founded in 1998, is 38% owned by Axys.
WHAT GIVES US AN EDGE IN DRUG DISCOVERY AND DEVELOPMENT?
The entire drug discovery process runs from target identification and
validation to lead identification to preclinical development to clinical
development. The following sections describe each part of this process and the
technologies that Axys employs in drug discovery.
In recent years, the advent of new drug discovery technologies, including
genomics, bioinformatics, computational sciences, structure-based drug design,
combinatorial chemistry, high throughput screening and pharmacogenomics, has
offered great potential for streamlining the lengthy and expensive process of
drug discovery. We have assembled a premier platform for drug discovery by
combining and integrating these new technologies with the traditional
pharmaceutical sciences, including medicinal chemistry and pharmacology. Our
capabilities in this area, which include assay development, compound screening,
lead optimization, pharmacology and preclinical development, are instrumental in
increasing the speed and efficiency of our drug candidate identification
efforts. In addition, we have functional genomics capabilities, which we are
using to select and validate targets for our cancer research.
As a biopharmaceutical company, our core strengths lie in the portion of
the drug discovery continuum spanning from selection of leads from hits in
primary screens, lead optimization using structure-based drug design,
combinatorial chemistry, to preclinical development and pharmacology. In this
regard, we believe we
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are unique among biotechnology companies in having an in-house medicinal
chemistry group of the size and scope usually found in large pharmaceutical
companies.
TARGET IDENTIFICATION AND VALIDATION
Target identification and validation is the process of identifying and
validating those genetic-based targets that are the most promising for
therapeutic intervention by small molecules. There are numerous potential
targets, which may apply to all manner of diseases. As described below, we are
currently focusing our target identification and validation efforts on
discovering new biochemical pathways in cancer.
The human genome is the collection of all the genetic information of a
human being. Scientifically defined, the human genome consists of 23 pairs of
chromosomes that contain the 100,000 or so genes that define every human's
make-up. Genes are made up of DNA (deoxyribonucleic acid). In humans, a DNA
molecule resembles a twisted ladder and consists of two strands -- a double
helix -- whose carbohydrate-like sides are connected by pairs of
nitrogen-containing chemicals called bases, which form the rungs of the ladder.
The particular order of the bases is called the DNA sequence. In total, there
are approximately 3 billion base pairs of DNA comprising all of the chromosomes
in the human genome. Much effort has been devoted by various governments,
research institutions and companies to mapping out the exact location of each
gene on each chromosome in order to determine the complete DNA sequence of the 3
billion DNA bases. We believe that detailed knowledge of the human genome is or
will be available in the near future, either through public databases or through
commercially available databases.
However, knowing the sequence of a gene is really only the beginning of the
drug discovery process. The next step is the determination of the biological
processes that the gene plays a role in. The term "functional genomics" refers
to a variety of scientific disciplines that examine gene function and identify
disease pathways resulting from a gene or genes that are not functioning
properly. The job of determining the functions of a gene -- and its protein
products -- requires testing in systems that approximate human systems, such as
the C. elegans (nematode worm) system.
Although we were a pioneer in genomics research using positional cloning
techniques in many different disease areas, we concluded in 1999 that many of
our genomics programs were too early stage and too far removed from product
development to justify the sizeable investment that we were making. So, during
the last half of 1999 we wound down our formerly partnered genomics research
programs, transferred our last remaining partnered genomics research program to
our partner (the Parke-Davis Pharmaceutical Research Division of the
Warner-Lambert Company) and shut down our La Jolla research facility. We
continue to utilize our genomics capabilities as part of our cancer research
programs and moved them to our South San Francisco site in the fall of 1999. We
have integrated these capabilities with our functional genomics capabilities to
create a directed set of target identification and validation tools, which
include bioinformatics, a sophisticated antisense knock-out technology,
expression array technology and C. elegans nematode biology, all of which we use
to discover new biochemical pathways in cancer.
Axys makes use of both proprietary and licensed bioinformatics software to
enable the discovery of new genes and the identification of known genes and
species homologs in the our efforts in target identification and validation.
When new gene sequences are identified, we are rapidly able to access both
public and proprietary databases through these software tools. We have, in
particular, developed a proprietary Target Validation System, which we refer to
as TVS, which is used to collect all data gathered on particular genes,
including sequence, and correlation to possible function. Where the function of
a gene needs to be determined, especially in the case where it might play a
pivotal role in a biochemical process, we can use antisense knock-out
technology, either in well-characterized functional systems, such as the
nematode worm, or in mammalian systems. For most applications of antisense as
applied to specific new targets, we have licensed the technology from Atugen. We
also employ sophisticated expression array technology, licensed from Molecular
Dynamics-Amersham. Using this technology, very small arrays are built on glass
slides to study the expression levels of thousands of genes at the same time.
With the information generated from these arrays, we can compare differences in
gene expression between normal and diseased or genetically manipulated cells.
Finally, another technology we use is C. elegans, a microscopic multicellular
round worm that is the most thoroughly
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understood multicellular animal in terms of cellular development, anatomy and
genetic content. C. elegans is useful as a research tool because as many as 70%
of the currently known human disease genes possess a highly significant homolog
(sister gene) in the nematode. In addition to nematodes, we also use other model
systems such as fruit flies, yeast and mice to test the function of genes.
By combining gene expression data and our antisense results with
information about genetic relationships gained from model systems and our
bioinformatics capabilities, we are better able to identify points in biological
pathways that may be the best point of intervention a potential therapeutic. For
a description of some of our more significant target validation and
identification activities in cancer in 1999, see the section below entitled
"What Does Axys' Non-Partnered Research and Development Franchise in Oncology
Look Like?"
Lead Identification
Once a biological point of intervention or target, is identified and
validated, we have the capability to rapidly identify chemical compounds that
chemically regulate the protein product of the relevant gene called a lead. We
have generated lead compounds for new biological targets at a rapid pace by
making use of a broad range of technologies in dual discovery tracks: (1)
structure-based drug design driven by X-ray crystallography and computational
modeling and (2) high-throughput screening combined with chemical compound
diversity.
We use a broad range of scientific capabilities to study the basic
structure of molecules (X-ray crystallography) and advanced chemistry that uses
the knowledge gained from crystallography and structural biology. These
technologies can speed research by enabling an understanding of the precise
three-dimensional structure of a target associated with a disease. Then, we
bring additional computational science capabilities into play. We have a rapid,
flexible molecular docking model that can be used to find a natural or synthetic
"inhibitor" that can bind to the molecule and change the way it will perform in
the body. By using structure-based design, we have the ability to rapidly create
lead compounds that are less likely to cause side effects, be toxic or result in
lengthy delays in drug development due to failed safety studies.
Our medicinal chemists also play an important role in our lead
identification efforts. The chemists obtain iterative structural information
from X-ray crystallography and molecular modeling, complemented by powerful
computational resources and coupled with production-level protein expression and
purification, all of which enables them to develop and refine target compound
families. Our particular strength is in the determination of serine and cysteine
protease protein structures, and the design of small molecules with potency and
specificity among these closely related protein family members. Proteases are
enzymes, which play a critical role in virtually every biological process. We
believe the ability to develop inhibitors of proteases may give us important
advantages in our drug discovery activities.
Our combinatorial chemistry expertise compliments our structure-based
design activities. Combinatorial chemistry capabilities are particularly useful
where there is little known structural information. We have created compound
diversity libraries through our AAT subsidiary, which has synthesized over
400,000 individual compounds to date, and is projected to have made a total of
700,000 such compounds, encompassing over 140 distinct sub-libraries, by
year-end 2000. The medicinal and combinatorial chemists of AAT are able to
generate a wide variety of diversity or lead optimization libraries, depending
on our needs. Assays for high-throughput screening are adapted for automation
and validated for screening against diverse chemical structures to provide data
with a low false positive hit rate. Screening hits are rapidly confirmed or
eliminated based on follow-up assays, and are qualified for further library
expansion and medicinal chemistry based on novelty, potency and selectivity
criteria.
To screen these libraries we use automated robotics systems. These robots
test the binding activity of thousands of compounds against a disease target,
usually a protein. This binding activity is a measure of the compound's ability
to inhibit or potentiate the activity of the protein. The primary role of the
technology is to detect active compounds and supply directions for their
optimization using other techniques. Given the variety and size of chemical
libraries available today, and the need to compare the results from multiple
screenings, data collection and management of information are critical elements
of high throughput screening. We
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maintain data bases of structures, assays performed, screening results and other
similar information in relational data bases, which can be queried from any
number of research parameters.
OPTIMIZATION, PRECLINICAL DEVELOPMENT AND CLINICAL DEVELOPMENT
Once a lead candidate has been identified, the most resource-intensive
stage of the pharmaceutical discovery process begins. This is the process of
identification of a preclinical candidate with the desired pharmaceutical
product profile. It requires directed medicinal chemistry efforts coupled
closely with pharmacokinetics, drug metabolism and efficacy studies in
pharmacology. Our experience in six such programs partnered with major
pharmaceutical companies during the last five years has resulted in an
integration of effort by our medicinal chemists and our pharmacology group.
We believe that we are unique among biotechnology companies in having an
in-house medicinal chemistry group of the size and scope usually found in large
pharmaceutical companies. We use our medicinal chemistry capabilities to improve
the potency, selectivity (won't bind to wrong target), oral bioavailability
(compound can be absorbed by the body when taken orally as a pill), metabolic
stability (how rapidly the body breaks down the compound), and biological
half-life (how long the effects of the drug will last) of a drug candidate.
Among our own medicinal chemistry tools is our patented Delta Technology, which
enhances the ability of lead compounds to act against some proteases implicated
in a broad range of diseases. In December 1997, the United States Patent and
Trademark Office issued us a patent providing us with broad protection of our
Delta Technology. The patent and subsequent issued patents on the same subject,
pertains to technology useful in research for the discovery of unique protease
inhibitors. Delta Technology enables researchers to take a common element that
is always in the blood -- zinc -- and use it to increase the binding potency of
a drug candidate.
Before qualifying for evaluation in human trials, chemical compounds must
pass extensive safety and effectiveness tests. In such tests, we use cell-based
and animal-based models of human disease to provide important information on how
long the drug effects last or the duration of action of a potential drug, as
well as how it is absorbed by the body or metabolized. On-site studies take
advantage of advanced technologies, such as mass spectrometry (a sensitive
analytical method to identify a compound and the products into which it is
broken down), to evaluate hundreds of samples, indicating not only drug
concentrations but also the pharmacodynamic (what the drug does to the body) and
the pharmacokinetic (what the body does to the drug) characteristics of
compounds nearing human clinical trials.
In addition, we can use pharmacogenomics capabilities in our preclinical
and clinical development efforts. Pharmacogenomics is the use of genetic and
genomic information to predict the response of individual patients and patient
populations to drugs. Through our PPGx subsidiary we have developed and are
continuing to develop our bioinformatics platform and computer-based tools to
link genetic data from drug development and medical practice with worldwide
genomic databases. These tools allow us to better determine which patients will
respond to the compounds being tested, as well as eliminate those who may be at
risk of adverse reactions. We believe that pharmacogenomics will revolutionize
clinical trials, improve the success rate of clinical development and reduce
development time and cost.
Finally, while some of our collaborative partners provide clinical
development expertise, we also have an in-house clinical development group, with
extensive prior experience in managing clinical trials, satisfying regulatory
requirements, ensuring manufacturing quality control and quality assurance, this
group is taking our products forward into human testing.
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WHAT DOES AXYS' NON-PARTNERED RESEARCH AND DEVELOPMENT FRANCHISE IN ONCOLOGY
LOOK LIKE?
PROPRIETARY PIPELINE -- ONCOLOGY
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SCREENING/
PROOF OF
CONCEPT PRECLINICAL
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Urokinase -- Angiogenesis/metastasis.................................... X
Axys Serine Protease (ASP) 05 -- Tumor suppressor protein............... X
SERM-b -- Selective estrogen receptor modulators (Beta)................. X
Cathepsin B -- Solid tumor metastasis....................... X
Prostate Specific Antigen -- Prostate cancer................ X
Urokinase receptor antagonists.............................. X
Histone deactylase inhibitors............................... X
Methionine aminopeptidase-2 inhibitors...................... X
MT1-MMP inhibitors.......................................... X
HIF1-a modulators........................................... X
CAAX-2 protease inhibitors.................................. X
</TABLE>
In early 1999 we implemented an initiative to focus our unpartnered
resources on the development of small molecule therapeutics for the treatment of
cancer. We believe that there is a significant market opportunity to meet
current and future medical needs associated with many different types of cancer.
One of the factors contributing to this growth is the aging of the world's
population. As people live longer, cancer becomes more prevalent.
Our decision to focus our resources on cancer therapeutics was also partly
based on the improving regulatory environment for approval of cancer
therapeutics. In recent years, the FDA has established a regulatory "fast track"
for some cancer therapeutics approved reviews. In addition, surrogate markers
such as tumor shrinkage have been increasingly accepted as research endpoints.
The use of surrogate markers may substantially shorten the length of the
necessary clinical research studies.
Further, the company believes that protease inhibition may provide a
treatment method for many cancers, resulting in orally delivered small molecule
therapeutics. These include antiangiogenesis, hypoxia and metastasis inhibition.
Angiogenesis is the process by which blood vessels are formed. Blood vessel
formation and growth is necessary for tumor growth. Antiangiogenesis drugs are
believed to be able to cut off blood vessel growth and thereby reduce the size
of tumors and potentially interfere with their growth. Hypoxia is the
deprivation of oxygen to tumor cells, which can lead to the inhibition of tumor
cell proliferation. Metastasis is the process by which cancer spreads. Drugs
which discourage metastasis are believed to be able to stop cancer from
spreading throughout the body.
We have had research programs underway that range from a preclinical
program in antiangiogenesis to screening and proof-of-concept programs in solid
tumor metastasis, prostate cancer and the insulin growth factor (IGF) pathway to
cancer target identification and validation research programs.
Urokinase. One of our most advanced oncology programs involves the
development of inhibitors of the protease urokinase to interfere with
angiogenesis and metastasis processes. Utilizing a broad range of scientific
capabilities including crystallography and structural biology, our scientists
have extensively analyzed urokinase to identify sites on the molecule best
suited for drug interaction. Using our medicinal chemistry and structure-based
drug design capabilities, a series of drug-like compounds have been screened to
identify potential drugs and select a candidate for preclinical development.
Our lead series of urokinase inhibition drug candidates have been shown in
preclinical testing to be potent and specific which may reduce the chance of
unwanted side effects. The results to date of our tests in animal models show
that urokinase may be required for tumor metastasis, and preclinical studies
have shown activity
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of a urokinase inhibitor in animal models. We plan to select an IND candidate
from the urokinase inhibition program in 2000.
ASP05. Axys is also developing as a protein therapeutic Axys Serine
Protease (ASP) 05, a proprietary tumor suppressor protein discovered in our
protease targeted genomics program. ASP05 is currently being scaled in
production and purification to be evaluated in in vivo xenograft tumor models.
Pending successful outcome of these studies, ASP05 would advance into IND
candidate status in 2000.
SIGNAL
SERM-b. Our first in-licensed program in oncology comes from Signal
Pharmaceuticals. In October 1999 Signal granted us exclusive rights to their
selective estrogen receptor-beta modulators (SERM-b) for the treatment of
cancer. SERM-b compounds are small molecules that selectively modulate the
activity of the newly discovered beta estrogen receptor found in tumors and
certain hormonally sensitive tissues. Preclinical studies are expected to
continue throughout 2000.
Screening/Proof-of-Concept. Particular areas of emphasis in our early-stage
research include hypoxia and angiogenesis. Biological targets identified in
these pathways can be validated as small-molecule drug targets through
additional molecular biology and eventual screening. In 1999, six oncology
targets -- urokinase receptor antagonists, histone deactylase, methionine
aminopeptidase-2, MT1-MMP, HIF1-a, and CAAX-2 protease -- were entered into
high-throughput screening by this process. Two additional protease targets,
prostate-specific antigen (PSA) and Cathepsin B, are being validated in vivo
using antisense and chemical inhibitor approaches.
In addition to these programs, we are continuing to actively seek to
license potential cancer treatment compounds from other biotechnology or
pharmaceutical companies with an emphasis on the pre-clinical and early stage
clinical product opportunities.
WHAT DRUG DISCOVERY PARTNERSHIPS WITH WORLD-CLASS PHARMACEUTICAL PARTNERS DO WE
HAVE?
PARTNERED PIPELINE (PRECLINICAL & CLINICAL)
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PRECLINICAL CLINICAL
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Bayer AG -- Asthma (Tryptase)............................................ X
Bayer AG (option) -- IBD (Tryptase)...................................... X
Merck & Co. -- Osteoporosis (Cathepsin K)................... X
Aventis -- Inflammation (Cathepsin S)....................... X
Seeking to repartner -- Thrombosis (Factor Xa/VIIa)......... X
</TABLE>
Bayer AG (Tryptase Inhibitors/Asthma/Clinical Phase I in 1H 2000)
In 1994 we entered into an agreement with Bayer AG for the research and
development of tryptase inhibitors for the treatment of asthma. Tryptase is a
serine protease that has been shown to regulate inflammation. Tryptase is
released by mast cells as part of an immune response to allergens such as
pollen, mold or grasses and contributes to several biological events which
result in inflammation. Our tryptase inhibitors are designed to slow or halt the
inflammatory process at an early stage, in an attempt to provide safe and
effective therapies for the treatment of the underlying cause of disease, rather
than the symptoms. The most significant indication for tryptase inhibitors is
allergic asthma, as a replacement for inhaled steroid therapies.
Asthma is characterized by generalized airway inflammation and tightness in
the lungs (bronchoconstriction) which makes breathing difficult. Five percent of
the United States population, or approximately 13 million people, are estimated
to suffer from some form of asthma. The exact causes of asthma are not well
understood, and current treatments for asthma include controlling inflammation
through the use of inhaled
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steroids, treating airway constriction through the use of bronchodilators and
prevention of asthma attacks through the daily use of oral leukotriene
inhibitors.
In our collaboration with Bayer, we have established human proof-of-concept
for tryptase as a drug target. This was achieved in previous Phase II clinical
studies of APC 366, an inhaled peptide tryptase inhibitor, which showed that
inhibiting tryptase resulted in improved breathing (reduction in late airway
response) in asthmatics. Bayer is currently in development with a later
generation compound, BAY 44-3428, a small molecule tryptase inhibitor with high
oral bioavailability and circulating half-life. Bayer plans to commence Phase I
clinical trials in the first half of 2000, with the goal of developing BAY
44-3428 as a once-a-day oral therapeutic for the prevention and chronic
treatment of asthma.
Bayer AG (Tryptase Inhibitors/Inflammatory Bowel Disease/Clinical Phase II)
In July 1997, we modified our 1994 research and development agreement with
Bayer to re-acquire the rights to develop tryptase inhibitors for the treatment
of inflammatory bowel disease, and psoriasis which, like asthma, is another mast
cell regulated inflammatory disease.
Inflammatory bowel disease generally refers to two diseases: Ulcerative
colitis and Crohn's disease. Over 500,000 people in the U.S. suffer from
inflammatory bowel disease. Current therapies, which include the use of
corticosteroids and immunosuppressants such as cyclosporine and methotrexate,
expose patients to significant side effects.
Phase II clinical trials are currently underway in the United States, under
our sponsorship, for the treatment of ulcerative colitis with APC 2059, a second
generation tryptase inhibitor administered by subcutaneous injection. Upon the
conclusion of Phase II clinical studies for this indication, Bayer has the
ability to reacquire from us the rights to further develop APC 2059 for this
indication. If Bayer does decide to re-acquire this compound, Bayer would pay an
option fee, which is equal to a multiple of development costs incurred to date,
and would be obligated for additional milestone payments and royalties to Axys.
In November 1999, Axys announced that the discontinuation of further
development of topical cream-based formulation on APC 2059 for psoriasis based
on an analysis of results during a planned interim evaluation of a phase II
study.
Merck (Cathepsin K Inhibitors/Osteoporosis/Preclinical)
In November 1996 we entered into a research and development collaboration
with Merck & Co. to develop small molecule inhibitors of cathepsin K for the
treatment of osteoporosis. Osteoporosis is a disease of the bones that results
in weakened bones which leads to pain, difficulty in moving, deformity and
fractures. This condition mainly affects elderly women.
Cathepsin K belongs to a class of enzymes called cysteine proteases. It is
known to be secreted in excessive amounts by osteoclasts. In the healthy human
body, osteoblast cells are responsible for bone-building while osteoclasts are
responsible for bone degradation. By maintaining a careful balance in each type
of cell's activity, normal bone remodeling and skeletal integrity is achieved.
However, when the rate at which bone is destroyed by the osteoclasts exceeds the
rate at which new bone is produced by osteoblasts, the result is excessive bone
degradation (bone resorption) -- a condition that results in brittle bones and
is characteristic of osteoporosis.
In February 1997, we announced the first-ever solution of the
three-dimensional crystal structure of cathepsin K. In December 1999, we
announced the successful testing of a specific, selective cathepsin K inhibitor
compound in an animal efficacy model, which triggered a milestone payment to us.
In addition, although the research and development relationship was originally
schedule to end after two years and had already been extended for one additional
year, we agreed with Merck in December 1999 to extend this collaboration for
another additional year until early November 2000. Axys and Merck are in the
process of identifying a candidate for IND-enabling studies planned to commence
in late 2000.
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Aventis (Cathepsin S inhibitors/Inflammatory Diseases/Preclinical)
In December 1998 we entered into a collaborative research and development
agreement with Aventis, S.A. (successor to Rhone-Poulenc Rorer). The objective
of the collaboration is the discovery and development of small molecule
therapeutics that inhibit cathepsin S, a human cysteine protease associated with
certain inflammatory diseases. The collaboration is for two years and may be
extended by Aventis for two additional one-year periods.
Cathepsin S is a cysteine protease found in antigen-presenting cells of the
immune system. Unlike many other proteases, it is rarely found in other types of
cells. Cathepsin S is believed to function in a pathway that regulates the
body's ability to fight off these foreign antigens, leading to an inflammatory
reaction. As a result, it may be possible to use inhibitors of cathepsin S to
block the pathway and consequently protect the body from certain inflammatory
diseases and perhaps autoimmune disorders. Our researchers were the first to
solve the three-dimensional X-ray crystal structure of cathepsin S, as reported
in June 1998 in Protein Science.
Cathepsin S is associated with some inflammatory diseases, including
arthritis, asthma, atherosclerosis and a variety of autoimmune diseases. Under
the terms of the agreement, Aventis has exclusive development and marketing
rights to cathepsin S protease inhibitors for respiratory diseases,
atherosclerosis and related conditions and rheumatoid arthritis. Rheumatoid
arthritis affects approximately 2.5 million Americans. Coronary heart disease is
caused by the atherosclerotic narrowing of the coronary arteries and is the
number one cause of death in United States with approximately 500,000 deaths
occurring annually. Stroke is the third leading cause of death in the United
States, with approximately 160,000 deaths occurring annually.
In November 1999, we announced the successful testing of a potent,
selective cathepsin S inhibitor compound in an animal efficacy model of asthma
and received a milestone payment. In addition, current in vivo proof-of-concept
studies are underway and planned for rheumatoid arthritis and atherosclerosis.
Aventis is seeking to identify a candidate for IND-enabling studies scheduled to
commence in late 2000.
No Current Partner (Factors Xa & VIIa & Thrombin Inhibitors/Blood Clotting
Disorders/Preclinical)
In September 1995, we signed a collaboration agreement with the company
that is now known as Pharmacia & Upjohn, Inc. to develop oral therapeutics for
blood clotting disorders, such as deep vein thrombosis, stroke, and myocardial
infarction. More specifically, we had been using our Delta technology and other
technologies to discover inhibitors of Factors Xa and VIIa and thrombin, all of
which are serine proteases. In July 1998 the research support for this
collaboration ended and in February 1999 we formally agreed to end this
collaboration. We are, however, continuing our research efforts and are actively
seeking a new partner for this program. At the present time, we are continuing
to work on the development of compounds, which could result in the nomination as
a clinical candidate.
Factor Xa, factor VIIa and thrombin are three enzymes involved in the blood
clotting process. All three are serine proteases that have been acknowledged as
targets for a host of disorders related to abnormal clotting. Annually, more
than 2 million people are hospitalized in the United States for deep vein
thrombosis, acute myocardial infarction and unstable angina.
WHY AND HOW HAVE WE LEVERAGED OUR TECHNOLOGY PLATFORM?
We will need additional capital in order to continue our research and
development efforts. One way we hope to be able to raise additional capital is
through creating separate companies using our technologies for purposes other
than drug discovery. To accomplish this, we have created three businesses
(combinatorial chemistry, agricultural biotechnology, and pharmacogenomics). At
the same time, we are retaining the intellectual property and assets that these
businesses also make use of for our own drug discovery and development purposes.
In creating these businesses, as separate entities our business model
contemplates that each business should have
- access to and ownership (if necessary) of our relevant technologies, so
that they can continue to pursue their respective businesses
independently,
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- independent management focused on their business, and
- funding from third parties, as necessary, so that we do not have to
divert our own capital from drug discovery.
While the third parties who provide capital for these businesses acquire an
equity ownership position in the businesses, we have retained a sizeable equity
ownership position. Having set up these businesses, secured financing for them
and provided additional business support as necessary, we have positioned
ourselves to receive additional capital by selling some or all of our equity
position in each of these businesses. This could happen in one or more of the
following ways:
- a sale of our equity interest in the business in the course of a public
offering of securities for that business,
- the sale of our equity interest in the business to a third party; or
- a sale of the business to the third party who has provided it with
funding or to some other company.
While we believe that we will be successful in realizing meaningful value
from these affiliated businesses, our ability to do so will depend on the
success of these businesses in executing their business strategies. There can be
no assurance that these affiliated businesses will be successful or that we will
have the ability to sell all or a portion of our equity ownership in these
businesses. In addition, there can be no assurance that the amount we may
receive upon selling our equity ownership interest will provide significant
funding so as to postpone for a meaningful time period the need to engage in
other capital formation activities.
HOW AND WHEN WERE THESE AFFILIATED BUSINESSES SET UP?
The first affiliated business was established in 1997 and spun out as a
subsidiary in 1999 was our combinatorial chemistry business, which is now called
Axys Advanced Technologies, Inc. (AAT). Its web-site is located at
www.axystech.com. It has its own management team and handles the research,
development, sales, marketing and production of its products, including
combinatorial chemistry libraries and related technology developed as part of
our drug discovery efforts beginning in 1995. AAT is evaluated by Axys on a
separate stand alone basis except for certain overhead allocations. In 1999, AAT
produced positive cash flow. We have not needed to seek third party funding for
AAT, and we are continuing to actively seek other ways in which AAT would help
to fund our drug discovery business.
AAT conceives, produces and sells large numbers of diverse combinatorial
chemistry libraries of drug-like compounds, as well as more focused libraries
based around a specific structure. In addition, AAT sells the protocols which
provide the basis for making the libraries that are produced and which also
provide the basis to make other similar drug-like compounds. The customers of
AAT, including Axys, screen these drug-like compounds against biological targets
of interest in an effort to identify lead compounds for their drug discovery
programs. AAT also provides its enabling technology to certain customers.
AAT's customers include major pharmaceutical companies such as Pharmacia &
Upjohn, Parke-Davis, Aventis (formerly Rhone-Poulenc Rorer), Daiichi, Allergan,
Searle and Bristol-Myers Squibb, as well as biotechnology companies such as
Signal Pharmaceuticals, Protein Design Labs, Cephalon and Novalon. In most
cases, these contracts provide for the sale of libraries of hundreds of
thousands of non-exclusive or co-exclusive drug-like compounds over several
years. In some cases the sale of these libraries is accompanied by the sale of
the applicable protocols which describe how to remake the libraries. In
addition, AAT also offers a program that provides access to its combinatorial
chemistry software tools and that teaches a company how to establish its own
combinatorial chemistry program. See Note 13 to "Notes to Consolidated Financial
Statements" for Segment Information.
The second affiliated business, now called Akkadix Corporation, was formed
in 1998 to apply the genomics technologies acquired through the Sequana merger
in 1998 to agricultural use. Its web-site is located at www.akkadix.com.
Akkadix, formerly known as Xyris, is a global agricultural biotechnology company
that uses gene discovery, functional genomics, bioinformatics, structural
biology, combinatorial chemistry and robotic high-throughput screening to
discover new products which impact our day-to-day lives in a number of
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areas through improvements in agriculture. By virtue of two acquisitions during
1999, Akkadix has exclusive access to five different plant genes in selected
crops, licensed from the Salk Institute, and numerous types of proprietary
germplasm to provide a complete genetic research platform for the discovery of
new agricultural products. Akkadix is run by Dr. Jerry Caulder, the former
Chairman and CEO of Mycogen, a diversified agribusiness and biotechnology
company acquired by Dow Chemical Company in 1998. During his 14 years at
Mycogen, Dr. Caulder guided Mycogen from a start-up venture to a leadership
position in the agbiotech market. Prior to joining Mycogen, he spent over 15
years with Monsanto Company, where he managed various aspects of both the
international and domestic business of Monsanto Agricultural Products Company. A
San Francisco-based merchant bank and advisory partnership has provided
substantially all of the initial capital for the business in exchange for a
minority ownership position. We currently own approximately 38% of the
outstanding shares of Akkadix.
The third affiliated business, called PPGx, Inc., was formed early 1999 to
apply genomics technologies from Sequana to clinical trial design and
monitoring. Its web-site is located at www.ppgx.com. PPGx provides a complete
and integrated package of pharmacogenomics products and services to the
pharmaceutical and biotechnology industries in drug development.
Pharmacogenomics is the use of genetic and genomic information to predict the
response of individual patients and patient population to drugs. PPGx offers
high quality and secure DNA banking, high throughput genotyping, rapid
genotyping assay development, polymorphism discovery and gene expression
analysis, clinical trial design and analysis, a bioinformatics- suite of
software products (known as GeneTrials LIMS Version 1.0) and consulting services
to support pharmacogenomics. PPGx is being run by Dr. Joshua S. Baker, the
former executive vice president of global operations for PPD Development, Inc.,
a leading global clinical research organization. PPGx has incorporated Axys'
advanced technology platform, including Axys' genetic sequencing technology,
proprietary bioinformatics software and databases into its product offering.
PPD, Inc., a contract research organization, provides the sales and marketing
support for PPGx. Axys currently owns more than a majority of the outstanding
shares of PPGx.
WHAT FACTORS COULD CAUSE OUR RESULTS TO DIFFER SIGNIFICANTLY FROM THOSE YOU
MIGHT EXPECT?
IF WE FAIL TO DISCOVER OR DEVELOP OR ARE DELAYED IN THE DEVELOPMENT OF
PHARMACEUTICALS, OUR BUSINESS AND RESULTS OF OPERATIONS WILL BE ADVERSELY
AFFECTED.
All of our potential pharmaceutical products are in various stages of
research and development and will require significant additional research and
development efforts before we can sell them. These efforts include extensive
preclinical and clinical testing and lengthy regulatory review and approval by
the FDA. The development of our new pharmaceutical products is highly uncertain
and subject to a number of significant risks. We do not expect any of our
pharmaceuticals to be commercially available for a number of years.
Pharmaceuticals that appear to be promising at early stages of development may
not reach the market for a number of reasons, including the following:
- We or our collaborators may not successfully complete any research and
development efforts;
- Any pharmaceuticals we develop may be found to be ineffective or to cause
harmful side effects during preclinical testing or clinical trials;
- We may fail to obtain required regulatory approvals for any products we
develop;
- We may be unable to manufacture enough of any potential products at an
acceptable cost and with appropriate quality;
- Our products may not be competitive with other existing or future
products;
- Proprietary rights of third parties may prevent us from commercializing
our products.
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IF WE FAIL TO OBTAIN ADDITIONAL FINANCING TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT EFFORTS.
The development of our potential drugs will require substantially more
money than we currently have. That means we will have to obtain commitments for
substantial funds in order to conduct the costly and time-consuming research and
preclinical and clinical testing activities necessary to develop our drugs. We
cannot be certain that any financing will be available when needed. If we fail
to secure additional financing, as we need it, we will have to delay or
terminate our drug development programs.
We plan to be able to meet some of our needs for money through the sale of
our interests in our affiliated businesses and we are actively pursuing several
alternatives. However, those businesses are still in relatively early stages of
development. We cannot be certain that these businesses will prove to be
financially successful or that we will be able to sell our interest in these
businesses for a substantial amount of money or at all.
Even if we are successful in obtaining financing from sale of our interests
in these affiliated businesses, we believe we will still need to pursue other
financing opportunities to fund our research and development. Our future
financing needs will depend on many factors, including the following:
- scientific progress in the research and development of drug development
programs;
- the size and complexity of these programs;
- the timing, range and results of preclinical studies and clinical trials;
- our ability to establish new and maintain existing collaborations;
- our ability to achieve any milestones under such collaborations; and
- the time and costs involved in getting regulatory approvals or in filing,
enforcing or prosecuting patents.
In February, 2000, we entered into definitive purchase agreements for the
sale of an aggregate 3.5 million newly issued shares of Axys Pharmaceuticals,
Inc. our common stock to selected institutional and other accredited investors
for $31.5 million in gross proceeds. We intend to use net proceeds from this
private placement for working capital and other general corporate purposes.
We expect that existing cash and investments, revenues from existing
collaborations, and the net proceeds from our recently completed private
placement, together with debt financing which we believe is available to us,
will enable us to maintain current and planned operations for 18-24 months. We
continue to actively pursue a variety of financing alternatives.
The drug development process is expensive and we are at an early stage of
development. Therefore, we expect that we will need to continue to raise money
for a number of years until we achieve substantial product or royalty revenues,
if ever. We expect that we will seek additional funding through new
collaborations, the extension of existing collaborations, through sale of our
interests in our affiliated businesses, or through public or private equity or
debt financings. We cannot be certain that additional funding will be available
or that the terms will be acceptable. Existing stockholders will experience
dilution of their investment if we raise additional funds by issuing equity. If
adequate funds are not available, we may delay, reduce or eliminate any of our
research or development programs. Furthermore, we may obtain funds through
arrangements with collaborative partners or others that require us to give up
rights to technologies or products that we would otherwise seek to develop or
commercialize ourselves.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR LONGER THAN EXPECTED, WE MAY BE
UNABLE TO CONTINUE OPERATIONS AND OUR STOCK PRICE MAY DECLINE.
We may never achieve and sustain profitability. We have experienced
significant operating losses since the company started. We have not generated
any pharmaceutical product sales revenue. For the year ended December 31, 1999,
we generated a net loss of approximately $48 million, and as of December 31,
1999, we had an accumulated deficit of approximately $277 million. We expect
that we will continue to incur significant operating losses over at least the
next several years as our research and development efforts and preclinical and
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clinical testing activities continue. Our future profitability depends on our
ability to complete product development and obtain regulatory approval for our
drug candidates. If we fail to become profitable or are unable to sustain
profitability on a quarterly or annual basis, we may be unable to continue
operations and our stock price may decline.
IF WE FAIL TO MAINTAIN OUR EXISTING COLLABORATIVE RELATIONSHIPS AND ENTER INTO
NEW COLLABORATIVE RELATIONSHIPS, DEVELOPMENT OF OUR PRODUCTS COULD BE DELAYED OR
WE MAY NEED TO OBTAIN OTHER SOURCES OF REVENUE.
Our strategy for the development, clinical testing, manufacturing and
commercialization of most of our pharmaceuticals has included entering into
collaborations with corporate partners. We rely to a large extent on the
activities of our collaborators with respect to the development and
commercialization of our pharmaceuticals. All of our collaboration agreements
may be canceled under certain circumstances. In addition, the amount and timing
of resources to be devoted to research, development, eventual clinical trials
and commercialization activities by our collaborators are not within our
control. We cannot guarantee that our partners will perform their obligations as
expected. If any of our collaborators terminate or elect to cancel their
agreements or otherwise fail to conduct their collaborative activities in a
timely manner, the development or commercialization of pharmaceuticals may be
delayed. For example, virtually all of our genomics collaborations have been
cancelled or terminated over time. If in some cases we assume responsibilities
for continuing unpartnered programs after cancellation of a collaboration, we
may be required to devote additional resources to product development and
commercialization or we may cancel certain development programs.
A large portion of our revenues to date have resulted from these
collaborations. The research funding phase of most of our collaborations will
come to an end in the next few years unless continued or extended by agreement
with our collaborators. If our collaborations are not extended or we do not
enter into additional collaborative relationships, we will have to seek other
sources of revenue, including additional financing and/or sell interests in our
affiliated businesses. We cannot be certain that we will receive any additional
revenue from these arrangements beyond the minimum contractual commitments of
our partners.
We have active pharmaceutical product research and development
collaborations with several different partners, including Bayer, Merck, Aventis
(formerly Rhone-Poulenc Rorer) and Signal Pharmaceuticals.
IF WE FAIL TO SATISFY FDA SAFETY AND EFFICACY REQUIREMENTS IN OUR CLINICAL
TRIALS FOR ANY PHARMACEUTICAL, WE WILL BE UNABLE TO COMPLETE THE DEVELOPMENT AND
COMMERCIALIZATION OF THAT PHARMACEUTICAL PRODUCT.
Either we or our collaborators must show through preclinical studies and
clinical trials that each of our pharmaceuticals is safe and effective in humans
for each indication before obtaining regulatory clearance from the FDA for the
commercial sale of that pharmaceutical. If we fail to adequately show the safety
and effectiveness of a pharmaceutical, regulatory approval could be delayed or
denied. The results from preclinical studies and early clinical trials are often
different than the results that are obtained in large-scale testing. We cannot
be certain that we will show sufficient safety and effectiveness in our clinical
trials that would allow us to obtain the needed regulatory approval. A number of
companies in the pharmaceutical industry, including biotechnology companies,
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials.
Any drug is likely to produce some level of toxicity or undesirable side
effects in animals and in humans when administered at sufficiently high doses
and/or for a long period of time. Unacceptable toxicities or side effects may
occur in the course of toxicity studies or clinical trials. If we observe
unacceptable toxicities or side effects, we, our collaborators or regulatory
authorities may interrupt, limit, delay or halt the development of the drug. In
addition, these unacceptable toxicities or side effects could prevent approval
by the FDA or foreign regulatory authorities for any or all indications.
We currently have one compound, APC 2059, in clinical trials for
inflammatory bowel disease. We are performing clinical trials to determine the
safety and effectiveness of APC 2059 for the treatment of inflammatory bowel
disease. As these clinical trials are intended to establish proof-of-principle
in humans, we cannot be certain that we will be able to complete the clinical
trials successfully. Our collaboration partner Bayer is moving forward with
clinical development of a compound developed in our collaboration with them
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for the treatment of asthma that would be taken as a pill. Phase I clinical
trials are being planned to commence in the first half of 2000 to establish the
safety and effectiveness of that compound in the treatment of asthma. We cannot
be certain that the clinical trials of this compound will be initiated or
completed successfully. Finally, we cannot be certain that any other drug
candidates which may enter clinical trials will successfully complete those
trials or that we or our collaborators will be able to show the safety and
effectiveness of these drug candidates.
IF WE FAIL TO OBTAIN REGULATORY APPROVALS TO COMMERCIALLY MANUFACTURE OR SELL
ANY OF OUR PHARMACEUTICALS, OR IF APPROVAL IS DELAYED, WE WILL BE UNABLE TO
GENERATE REVENUE FROM THE SALE OF OUR PRODUCTS.
We must obtain regulatory approval before marketing or selling our future
drug products. In the United States, we must obtain FDA approval for each drug
that we intend to commercialize. The FDA approval process is lengthy and
expensive, and approval is never certain. Products distributed abroad are also
subject to foreign government regulation. The process of obtaining FDA and other
required regulatory approvals can vary a great deal based upon the type,
complexity and novelty of the products involved. Delays or rejections may be
encountered based upon additional government regulation from future legislation
or administrative action or changes in FDA policy during the period of clinical
trials and FDA regulatory review. Similar delays also may be encountered in
foreign countries.
None of our drug candidates has received regulatory approval. If we fail to
obtain this approval, we will be unable to commercially manufacture and sell our
drug products. We have several drugs in various stages of preclinical and
clinical development. These products are not expected to be available for
several more years. Because of the risks and uncertainties involved in
development of drug products, our drug candidates could take significantly
longer to gain approval than we expect or may never gain approval. If regulatory
approval is delayed, our management's credibility, the value of our company and
our operating results could be adversely affected. Even if regulatory approval
of a product is granted, we cannot be certain that we will be able to obtain the
labeling claims necessary or desirable for the successful promotion of those
products.
Even if we obtain regulatory approval, we may be required to continue
clinical studies even after we have started selling a pharmaceutical. In
addition, identification of certain side effects after a drug is on the market
or the occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product. This could delay or prevent us
from generating revenues from the sale of that drug or cause our revenues to
decline.
If regulatory approval is obtained, we will also be subject to ongoing
existing and future FDA regulations and guidelines and continued regulatory
review. In particular, we or any third party that we use to manufacturer the
drug or our collaborators will be required to adhere to regulations setting
forth current good manufacturing practices. The regulations require that we
manufacture our products and maintain our records in a particular way with
respect to manufacturing, testing and quality control activities. Furthermore,
we or our third party manufacturers or our collaborators must pass a
pre-approval inspection of its manufacturing facilities by the FDA before
obtaining marketing approval.
Failure to comply with the FDA or other relevant regulatory requirements
may subject us to administrative or legally imposed restrictions. These include:
warning letters, civil penalties, injunctions, product seizure or detention,
product recalls, total or partial suspension of production and FDA refusal to
approve pending New Drug Applications, called NDAs, or supplements to approved
NDAs.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
Our success depends in large part on our ability to obtain patents,
maintain trade secrets and operate without infringing the rights of others, both
in the United States and in other countries.
Patents may not issue from any of our pending or future applications.
Patent applications in the United States are maintained in secrecy until the
patent issues. As a result, we cannot be certain that others have not filed
patent applications for technology covered by our pending patent applications or
that we were the first to invent the technology. In addition, an issued patent
may be challenged, invalidated or maneuvered around or it
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may otherwise not be sufficient to protect our technology. The patent positions
of biotechnology and pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions. As a result, it is difficult to
predict the broadness of claims allowed in biotechnology and pharmaceutical
patents or their enforceability.
Our commercial success also depends, in part, on not infringing patents
issued to others and not breaching the technology licenses upon which any of our
potential products are based. Competitors may have filed applications for, or
may have received patents and may obtain additional patents and rights relating
to, genes, products or processes that block or compete with ours. A number of
third parties have filed patent applications or received patents in the areas of
our programs. Some of these applications or patents may limit or hinder our
patent applications, or conflict in certain ways with claims made under our
issued patents. Furthermore, in the past we have been, and we may from time to
time in the future be, notified of claims that we are infringing patents or
other intellectual property rights owned by third parties.
We may have to participate in interference proceedings declared by the U.S.
Patent and Trademark Office. These proceedings determine the priority of
invention and the right to a patent for the technology in the U.S. In addition,
lawsuits may be necessary to enforce any patents issued to us or to determine
the scope and validity of the rights of third parties. Lawsuits and interference
proceedings, even if they are successful, are expensive to pursue, and we could
use a substantial amount of our limited financial resources in either case. An
adverse outcome could subject us to significant liabilities to third parties and
require us to license disputed rights from third parties or to cease using such
technology.
It is also unclear whether our trade secrets will provide useful
protection. We protect our own technology and processes, in part, by
confidentiality agreements with our employees, consultants and certain
contractors. However, these agreements may be disregarded or breached, and we
may not have adequate remedies for any breach. In addition, it is possible that
our trade secrets will otherwise become known or be independently discovered by
competitors.
Disputes may arise in the future with regards to the ownership of rights to
any technology developed with collaborators. These and other possible
disagreements with collaborators could lead to delays in the achievement of
milestones or receipt of royalty payments or in research, development and
commercialization of our pharmaceuticals. In addition, these disputes could
require or result in lawsuits or arbitration. Lawsuits and arbitration are
time-consuming and expensive. Even if we win, the cost of these proceedings
could adversely affect our business, financial condition and results of
operations. Furthermore, these proceedings could adversely affect our stock
price or our business reputation and may make the process of entering into
additional collaborative relationships more difficult.
BECAUSE WE DO NOT HAVE MANUFACTURING FACILITIES FOR OUR PROPOSED DRUG PRODUCTS
OR COMMERCIAL MANUFACTURING EXPERIENCE, WE COULD EXPERIENCE MANUFACTURING DELAYS
OR PROBLEMS THAT HURT OUR PRODUCT SALES.
We have no manufacturing facilities for our proposed drug products, and our
potential products have never been commercially manufactured. We must currently
rely on our collaborators, such as Bayer, Merck, and Aventis, to manufacture
products created by our collaborations. We believe that our collaborators or
contract manufacturers or we will be able to manufacture our compounds at a cost
and in quantities necessary to make them commercially acceptable. However, we
cannot be certain that this will be the case. If we or our collaborators or
third party manufacturers are unable to manufacture or contract with others for
a sufficient supply of our compounds on acceptable terms, we may have to delay
any of the following:
- our preclinical and clinical testing schedule;
- our submission of products for regulatory approval; or
- the market introduction and subsequent sales of products.
Any of these delays would adversely affect our financial condition and
results of operations.
In addition to us, our collaborators and contract manufacturers must adhere
to current Good Manufacturing Practices regulations enforced by the FDA through
its facilities inspection program. If these facilities
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cannot pass a pre-approval plant inspection, FDA approval of our products will
not be granted or will be delayed.
With respect to our subsidiary, Axys Advanced Technologies, we are
developing new manufacturing processes to meet the expanding demand for our
combinatorial chemistry libraries. We have never had to manufacture the
quantities of libraries we are committed to delivering during this year. We have
experienced problems in manufacturing in the past that have delayed shipments of
libraries and we may experience manufacturing problems in the future as we
expand our manufacturing capabilities. Problems in manufacturing could delay
shipments of combinatorial chemistry compounds and this would have a material
adverse effect on our financial condition and results of operations.
IF WE ARE UNABLE TO ESTABLISH MARKETING AND DISTRIBUTION CAPABILITIES OR ENTER
INTO ARRANGEMENTS WITH THIRD PARTIES, OUR ABILITY TO GENERATE REVENUES WILL BE
HARMED.
We currently have no sales, marketing or distribution capability. We will
rely on our collaborative relationships, such as those with Bayer, Merck and
Aventis, to market some of our future drug products. In addition, we may enter
into future collaborations in which we rely on our collaborator to market our
drug products. Revenues received under existing and future collaborations will
depend on the success of our collaborator in marketing our drugs. We cannot be
certain that collaborators will devote sufficient resources to the marketing and
sale of our drugs or that the efforts of our collaborators will be successful.
We may also decide to market certain of our future pharmaceuticals by
ourselves. To market any pharmaceuticals ourselves, we must develop a marketing
and sales force with technical expertise and the necessary supporting
distribution capability. If we are unable to develop a marketing and sales
force, we may be unable to effectively sell any of our pharmaceuticals. We do
not know whether we will desire to or be able to establish our own sales and
distribution capabilities or whether we will be able to enter into the necessary
supporting relationships with third parties.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR DRUGS, THERE MAY
BE NO COMMERCIALLY VIABLE MARKET FOR OUR PRODUCTS.
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of outside parties, such
as government health administrators, private health insurance companies and HMOs
seeking to contain or reduce the cost of health care. In some foreign markets,
pricing or profitability of prescription pharmaceuticals is subject to
governmental control. In the United States, there have been, and we expect that
there will continue to be, a number of federal and state proposals to adopt
similar governmental control. In addition, an increasing emphasis on managed
care in the United States has and will continue to increase the pressure on
price of prescription drugs. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products. We cannot be certain that third parties will pay for the costs of our
drugs. Even if we obtain third party reimbursement, we cannot be certain that
reimbursement rates will allow us to profit from the sale of our drugs.
In addition, the announcement of cost containment proposals or efforts
could adversely affect our ability to raise capital and our stock price. In
addition, if these proposals or efforts adversely affect other pharmaceutical
companies that are prospective collaborators with Axys, our ability to establish
or maintain strategic alliances may be adversely affected.
IF PHYSICIANS, INSURERS AND PATIENTS DO NOT ACCEPT OUR PRODUCTS, WE MAY NOT
ACHIEVE SUFFICIENT REVENUE FROM SALE OF THOSE PRODUCTS.
Even if our pharmaceuticals are approved for sale, we are not certain that
physicians, health insurance companies or patients will accept them. If the
medical community and patients do not accept our products, sales of these
products will be adversely affected. The degree of market acceptance will depend
upon a number of factors, including obtaining regulatory approvals,
demonstrating proof in the medical community of the
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clinical effectiveness and safety of our product candidates and their potential
advantages over existing treatment methods and reimbursement policies of
government and third-party payors.
IF WE FAIL TO COMPETE SUCCESSFULLY, OUR REVENUES AND OPERATING RESULTS WILL BE
ADVERSELY AFFECTED.
This is a highly competitive business and many of our competitors have
substantially greater resources than we have. In addition, some of these
companies have considerably more experience in preclinical testing, clinical
trials and other regulatory approval procedures than we have.
Our competitors (including our collaborators) may develop, manufacture and
market products that are more effective or less expensive than ours. They may
also receive regulatory approval for their drugs faster than we can obtain them,
or may commercialize their drugs more quickly than we can. Many of our
competitors have greater financial and management resources than we do, and many
of them have significantly more experience in bringing drugs to market. If our
competitors successfully commercialize drugs to treat the indications that we
are working on before we do, or if their products are less expensive or more
effective than ours, demand for our drugs may suffer and our revenues may be
reduced.
Additionally, certain colleges and universities, governmental agencies and
other research organizations are conducting research in the same areas in which
we are working. These institutions are becoming increasingly aware of the
commercial value of their findings and are becoming more active in seeking
patent protection and licensing arrangements to collect royalties for the use of
technology that they have developed. These institutions also may market
competitive commercial products on their own or through joint ventures.
Currently, they compete with us in recruiting highly qualified scientific
personnel.
IF WE FAIL TO RECRUIT AND RETAIN PROFESSIONAL STAFF, OUR PRODUCT DEVELOPMENT
PROGRAMS WILL BE DELAYED.
We are highly dependent on the senior members of our scientific and
management staff. Retaining and attracting qualified personnel, consultants and
advisors is critical to our success. If we fail to recruit and retain qualified
personnel, our product development efforts will be delayed. We face intense
competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. We are
currently seeking to hire additional qualified scientific personnel to perform
research and development. In addition, we expect that we will need to add
management personnel and develop additional expertise by existing management
personnel in order to expand product development and clinical testing. We cannot
be certain that we will be able to attract and retain such individuals on
acceptable terms or at all.
In addition, our academic collaborators are not our employees. As a result,
we have limited control over their activities and can expect that only limited
amounts of their time will be dedicated to our activities. These academic
collaborators may also have relationships with other commercial entities, some
of whom may compete with Axys.
OUR STOCK MAY BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN VALUE.
Stock prices and trading volumes for biotechnology companies often
fluctuate widely for reasons which may be unrelated to their businesses. Our
stock price could decline as a result of many factors, including:
- announcements of technological innovations or new products by Axys or
other companies;
- developments or disputes concerning patents or other rights;
- publicity regarding actual or potential medical results from products
under development by Axys or other companies;
- regulatory developments in both the United States and foreign countries;
- public concern regarding the safety of biopharmaceutical products;
- any shortfall in our revenues or net income from that expected by
securities analysts;
- changes in analyst's estimates of our financial performance, the
financial performance or our competitors or the financial performance of
biotechnology companies in general;
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- sales of large blocks of our common stock; or
- conditions in the financial markets or economy in general or the
biotechnology industry in particular.
In the past, following large price declines in the public market price of a
company's securities, securities litigation has often been initiated against
that company. Litigation of this type could result in substantial costs and
diversion of management's attention and resources. Any adverse determination in
litigation could subject us to substantial liabilities.
IF PRODUCT LIABILITY CLAIMS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
LIABILITIES.
We may be exposed to liability claims resulting from the use of our
products in clinical trials, or the manufacturing, marketing and sale of any
approved products. These claims may be made directly by consumers,
pharmaceutical companies or others. We maintain product liability insurance
coverage for claims arising from the use of our products which are still in the
developmental phase. However, this insurance coverage is becoming increasingly
expensive. We and our collaborative partners may not be able to obtain and
maintain commercially reasonable product liability insurance. Furthermore, even
if we maintain insurance, the amount may not be enough to protect us against
losses due to a lawsuit. A successful product liability claim against Axys or
series of claims in excess of our insurance could adversely affect our results
of operations and our need for additional financing.
ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW AND IN OUR CHARTER DOCUMENTS AND OUR
STOCKHOLDER RIGHTS PLAN COULD MAKE AN ACQUISITION OF AXYS MORE DIFFICULT.
In 1998, we adopted a stockholder rights plan, which may have the effect of
delaying or preventing an unsolicited takeover of the company. Our certificate
of incorporation and bylaws state that any action taken by stockholders must be
conducted at an annual or special meeting of stockholders and may not be
conducted by written consent. Only the board of directors, the Chairman of the
Board or the President may call special meetings of the stockholders. In
addition, our board of directors has the authority to issue additional shares of
preferred stock and to determine the rights of those shares without any further
action by the stockholders. Those rights could be senior to those of the common
stockholders. The issuance of preferred stock may make it more difficult for a
third party to acquire Axys. These and other charter provisions may discourage
certain types of transactions involving an actual or potential change in control
of Axys. In fact, these provisions may discourage transactions in which the
stockholders might otherwise receive a premium for their shares over then
current prices, and may limit the stockholders' ability to approve transactions
that they think are in their best interests.
Delaware law also prohibits corporations from engaging in a business
combination with any holders of 15% or more of their capital stock until the
holder has held the stock for three years unless, among other things, the board
approves the transaction. Also, under Delaware law, our board of directors may
adopt additional anti-takeover measures in the future.
WHAT OTHER MATTERS SHOULD STOCKHOLDERS CONSIDER WITH RESPECT TO AXYS?
Patents And Proprietary Rights
We hold a number of issued United States patents relating to compositions
of matter, methods of treating disease, combinatorial chemistry and
computational technologies. These patents expire at various dates starting in
year 2013 up to the year 2016. In addition, we have filed and there are now
pending patent applications relating to compositions of matter, methods of
treating disease, combinatorial chemistry, assay techniques, computational
technologies and novel technology for the discovery of novel protease
inhibitors. We intend to file additional patent applications, when appropriate,
relating to our technology and to specific products we develop.
We strategically file selected patent applications to protect technology,
inventions and improvements that are important to the development of our
business. That is our policy, as well as our practice. We also rely upon
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<PAGE> 19
trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position.
The patent positions of pharmaceutical and biotechnology firms, including
Axys, are uncertain and involve complex legal and factual questions. In
addition, the scope of the claims in a patent application can be significantly
modified before the issued patent is issued. As a result, we do not know whether
any of our applications will result in the issuance of patents, or if any of our
issued patents will provide significant protection. We also do not know whether
any of our issued patents will be invalidated. Since patent applications in the
United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, we cannot even be certain that we were the first
creator of inventions covered by our pending patent applications or that we were
the first to file patent applications for such inventions.
In addition, we may have to participate in interference proceedings
declared by the United States Patent and Trademark Office (PTO) to determine
priority of invention. These proceedings determine the priority of invention and
the right to a patent for the technology in the U.S. Such proceedings could
result in substantial costs to us, even if we win.
There can be no assurance that our pending patent applications, if issued,
or our existing patents, will not be invalidated. An adverse outcome could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to stop or modify our use of
such technology.
The development of therapeutic products for applications in the product
fields we are pursuing is intensely competitive. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the areas in which we are
conducting research. In addition, patent applications filed by others relating
to our potential products or technologies may currently be pending. Some of
these applications or patents may limit or hinder our freedom to practice and
could result in a significant reduction of the coverage of our patents, or
potential patents. We are aware of pending patent applications that have been
filed by other companies that may pertain to certain of our technologies. If
patents are issued to these or other companies containing incompatible or
conflicting claims, and such claims are ultimately determined to be valid, we
may be required to obtain licenses to these patents or to develop or obtain
alternative technology.
Furthermore, we have in the past been, and may again be, notified of claims
that we may be infringing patents or other intellectual property rights owned by
third parties. We have obtained licenses under several patents held by third
parties. If necessary or desirable, we may seek additional licenses under other
patents or intellectual property rights. There can be no assurance, however,
that we will be able to obtain a license we seek on reasonable terms or even at
all. As an alternative, we could decide to resort to litigation to challenge a
patent or patents. Such challenges can be extremely expensive and time
consuming. Consequently, they can have a material adverse effect on our
business, financial condition and results of operations.
Much of the unpatentable know-how important to our technology and many of
its processes depends upon the knowledge, experience and skills of key
scientific and technical personnel. To protect our rights to this know-how and
technology, all employees, consultants, advisors and collaborators are required
to enter into confidentiality agreements with the company that prohibits the
disclosure of confidential information to any third party and requires
disclosure to the company of ideas, developments, discoveries and inventions
made by these individuals. There can be no assurance that these agreements will
effectively prevent disclosure of our confidential information or that these
agreements will provide meaningful protection for our confidential information
if there is unauthorized use or disclosure. Our business could be adversely
affected by competitors who develop substantially equivalent technology.
In connection with certain research, we entered into sponsored research
agreements with various researchers and universities. Generally, under these
agreements we fund the research of investigators in exchange for the right or an
option to a license to any patentable inventions that may result in designated
areas. We are obligated to make certain payments during the terms of certain of
the agreements, to pay royalties on net sales of any licensed products and, in
some cases, to negotiate in good faith the business terms
19
<PAGE> 20
of any license executed upon exercise of licensing options. There can be no
assurance that these agreements will not be breached or that we would have
adequate remedies for any breach.
Government Regulation
The manufacturing and marketing of our proposed products and our research
and development activities are subject to regulation for safety, effectiveness
and quality by many governmental authorities in the United States and other
countries. In the United States, drugs are subject to stringent regulation by
the United States Food and Drug Administration (FDA). The Federal Food, Drug and
Cosmetic Act and FDA regulations, as well as other federal and state laws and
regulations, govern, the testing, manufacture, safety, effectiveness, package
labeling, storage, record keeping, approval, advertising and promotion of our
proposed products. Product development and approval takes a long time and
involves the expenditure of a lot of money. If we fail to comply with certain
regulatory requirements, we could be subject to sanctions, such as warning
letters, penalties, criminal prosecution, injunctions, product seizure, product
recalls, total or partial suspension of production, and FDA refusal to approve
pending New Drug Applications (NDA) or costly supplements to approved
applications.
The steps required before a drug may be marketed in the United States
include (i) preclinical laboratory tests, in vivo (animal model) preclinical
studies and formulation studies, (ii) the submission to the FDA of an
application for human clinical testing, known as an Investigational New Drug
Application (IND), which must be accepted by the FDA before human clinical
trials are started, (iii) adequate and well-controlled human clinical trials to
establish the safety and effectiveness of the drug, (iv) the submission of an
NDA to the FDA, and (v) FDA approval of the NDA prior to any commercial sale or
shipment of the drug. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered with the FDA.
Domestic drug manufacturing establishments are subject to inspections twice a
year by the FDA and must comply with Good Manufacturing Practices. To supply
products for use in the United States, foreign manufacturers must comply with
Good Manufacturing Practices and are subject to periodic inspection by the FDA
or by corresponding regulatory agencies in their country. Drug product
manufacturers located in California also must be licensed by the State of
California.
Preclinical tests include laboratory evaluation of what is in the product
and how it was made, as well as animal studies to assess the potential safety
and effectiveness of the product. Preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the preclinical tests are submitted to the FDA as part
of an IND and reviewed by the FDA prior to the start of human clinical trials.
Unless the FDA objects, the IND will become effective 30 days following its
receipt by the FDA. There can be no assurance that submission of an IND will
result in FDA authorization to start clinical trials. Clinical trials involve
the giving the investigational new drug to healthy volunteers and to patients,
under the supervision of qualified investigators. Clinical trials are conducted
in agreement with Good Clinical Practices under instructions that detail the
objectives of the study, the limits to be used to monitor safety and the
effectiveness criteria to be evaluated. Instructions must be submitted to the
FDA as part of the IND. Further, each clinical study must be conducted under the
power of an independent Institutional Review Board ("IRB") at the site where the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the site.
Clinical trials are typically conducted in three phases that go in order,
but the phases may overlap. In Phase I, in which we usually give the drug to
healthy subjects, the drug is tested to determine its metabolism (how the drug
is absorbed by the body), pharmacokinetics (what the body does to the drug) and
pharmacological actions (biological effects) in humans, the side effects
associated with increasing doses and early evidence of how effective the drug
is, if possible. Phase II involves studies in a limited patient population to
(i) determine the effectiveness of the drug for specific, targeted indications,
(ii) determine what amount of the drug works best and how much of the drug can
be tolerated, and (iii) identify possible adverse effects and safety risks. If a
compound is found to be effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials further evaluate the effectiveness of the
drug and further test for safety in a larger group of people at many different
locations.
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<PAGE> 21
There can be no assurance that Phase I, Phase II or Phase III testing will
be completed successfully within any specific time period, if at all, for any of
our proposed products. Furthermore, the FDA or we may suspend or cancel clinical
trials at any time if it is felt that the patients are being exposed to an
unacceptable health risk or the FDA finds errors or incorrect information in the
IND or due to the conduct of the investigation. Further, FDA regulations state
that sponsors of clinical investigations must meet numerous regulatory
requirements, including, selection of qualified investigators, proper monitoring
of the investigations, recordkeeping and record retention, and ensuring that FDA
and all investigators are promptly informed of significant new adverse effects
or risks with respect to the drug.
The results of the drug development, preclinical studies and clinical
studies are submitted to the FDA in the form of an NDA, which, if accepted,
would clear the way for marketing and commercial shipment of the drug. There can
be no assurance that any approval will be granted by the FDA at all or, if
granted, will be granted on a timely basis. The FDA may deny an NDA if certain
regulatory criteria are not satisfied, may require additional testing or
information, or may require post-marketing testing and surveillance to monitor
the safety of our products if the FDA does not view the NDA as containing enough
evidence of the safety and effectiveness of the drug. Even if the company
submits additional data, the FDA may still decide that the application does not
satisfy its regulatory criteria for approval. In addition, even if regulatory
clearance of a drug is granted, such approval may limit the uses for which it
may be marketed. Finally, product approvals may be taken away if regulatory
standards are not maintained or if problems occur following initial marketing.
Among the typical conditions for NDA approval is the requirement that the
proposed manufacturer's quality control and manufacturing procedures conform to
Good Manufacturing Practices, which must be followed at all times. To comply
with these standards, we will have to spend a large amount of time, money and
effort in the area of production and quality control to ensure full technical
compliance.
In addition to regulations enforced by the FDA, we will also be subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds, all of which
are regulated. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards set by state and federal
regulations, the risk of accidental contamination or injury from these materials
is possible. In the event of an accident, the company could be held sued for any
damages that result and any such lawsuit could exceed the insurance and
resources of the company.
For clinical investigation and marketing outside the United States, we are
also subject to foreign regulatory requirements governing human clinical trials
and marketing approval for drugs. These requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely for
European countries both within, and outside, the European Union (EU). We plan to
comply with the European regulatory process by identifying and using clinical
investigators in the member states of the EU and other European countries to
conduct clinical studies. Further, we intend to design our studies to meet FDA,
EU and other European countries' standards.
Within the EU, while marketing authorizations must be supported by clinical
trial data of a type and to the extent set out by EU directives and guidelines,
the approval process for the commencement of clinical trials is not currently
harmonized by EU law and varies from country to country. As far as possible, we
intend to design our studies so as to develop a regulatory package sufficient
for multi-country approval in our European target markets, without the need to
duplicate studies for individual country approvals.
Outside the United States, our ability to market a product is based upon
receiving a marketing authorization from the appropriate regulatory authority.
Currently, foreign marketing authorizations are applied for at a national level,
although within the EU certain registration procedures are available to
companies wishing to market the product in more than one EU member state. If the
regulatory authority is satisfied that enough evidence of safety, quality and
effectiveness has been presented, a marketing authorization will be granted. The
system for obtaining marketing authorizations within the EU changed on January
1, 1995. The current EU registration system is a dual one in which certain
products, such as biotechnology and
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<PAGE> 22
high technology products and those containing new active substances, will have
access to a central regulatory system that provides registration throughout the
entire EU. Other products will be registered by national authorities in
individual EU member states, operating on a principle of mutual recognition.
This foreign regulatory approval process includes all of the same risks involved
in the FDA approval process described above.
Employees
As of December 31, 1999, we employed 298 individuals, of whom 102 hold
Ph.D. or M.D. degrees and 132 hold other advanced degrees. Approximately 251 of
our employees are involved in research and development activities, including a
variety of disciplines within the areas of molecular biology and other
biological sciences, medicinal chemistry, genomics and genetics, bioinformatics,
computer sciences pharmacology, safety assessment and clinical development.
Approximately 47 of our employees are employed in finance, corporate development
and general administrative activities. None of our employees are covered by
collective bargaining agreements, and our management considers relations with
its employees to be good. We also enters into part-time consulting arrangements
with experienced, professional scientists and managers to supplement our work
force.
<TABLE>
<CAPTION>
R&D G&A TOTAL
--- --- -----
<S> <C> <C> <C>
Drug Discovery.......................................... 155 33 188
AAT..................................................... 57 6 63
PPGx.................................................... 39 8 47
--- -- ---
Total......................................... 251 47 298
=== == ===
</TABLE>
ITEM 2. PROPERTIES
We currently lease approximately 230,000 square feet and occupy
approximately 151,000 square feet of laboratory, support and administrative
space in South San Francisco and La Jolla, California, of which AAT occupies
approximately 29,000 square feet in South San Francisco. Leases expire on these
facilities on December 31, 2001 with respect to approximately 60,056 square
feet, November 30, 2002 with respect to the approximately 13,600 square feet,
November 30, 2003 with regard to 52,200 square feet, July 31, 2005 with respect
to 32,700 square feet and August 4, 2006 for the remainder of the our
facilities. Most of these leases have additional options for extensions. In
addition in 1999, the Company entered into a lease for an adjacent warehouse
building through May 2006 which is convertible into a ground lease for 25 years
with options to extend for two additional 10-year periods. We are considering
whether to convert this lease into a ground lease and building a new medicinal
chemistry building on the property. We are subleasing approximately 80,000
square feet under four sublease agreements, with the leases and subleases
expiring through July 31, 2005. Our existing and planned facilities are believed
to be adequate to meet our present requirements, and we currently believes that
suitable additional space will be available to us, when needed, on commercially
reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are subject to legal proceedings or claims arising in
the ordinary course of its business. While the outcome of any such proceedings
or claims cannot be predicted with certainty, our management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on our consolidated results of operations or consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted to a vote of
the stockholders.
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<PAGE> 23
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below is biographical information on executive officers of Axys as
of February 18, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH AXYS
---- --- ------------------
<S> <C> <C>
John P. Walker.................... 51 Chairman, Chief Executive Officer and Director
Michael C. Venuti, Ph.D........... 46 Senior Vice President, Preclinical Development, Chief
Technical Officer
Daniel F. Hoth, M.D............... 54 Senior Vice President, Chief Medical Officer
Kathleen Stafford................. 42 Senior Vice President, Chief Financial Officer
William J. Newell, J.D............ 42 Senior Vice President, Corporate and Business
Development, General Counsel and Secretary
</TABLE>
JOHN P. WALKER
Mr. Walker has been Chief Executive Officer and a director of Axys since
1993 and was appointed Chairman of the Board in January 1998. From 1993 to
January 1998, he was also President of the company. Prior to joining Axys, Mr.
Walker was the Chairman and Chief Executive Officer of Vitaphore Corporation, a
medical device company which was sold to Union Carbide in 1990, and for a period
of 15 years was an executive with American Hospital Supply Corporation, most
recently having served as President of the Hospital Company. Mr. Walker also
serves as Chairman of Signal Pharmaceuticals, Inc. and Microcide Corporation and
is on the board of directors of Geron Corporation and the Biotechnology Industry
Organization. Mr. Walker received a B.A. degree from the State University of New
York at Buffalo and conducted graduate business studies at Northwestern
University Institute of Management.
MICHAEL C. VENUTI, PH.D.
Dr. Venuti has been Axys' Senior Vice President, Research and Preclinical
Development since November 1998, and had previously served as Senior Vice
President, Research, South San Francisco, Vice President, Research and Chief
Technical Officer since January 1998, February 1997 and July 1996, respectively.
Dr. Venuti joined Axys in November 1994 as Director of Chemistry and was
promoted to Vice President of Chemistry in July 1995, where he served until
February 1997. From 1993 until he joined Axys, he was at Parnassus
Pharmaceuticals, a start-up biotechnology company where he was Vice President,
Chief Scientific Officer and a founder. From 1988 to 1993, Dr. Venuti was at
Genentech, Inc., a biotechnology company, where he was Director of Bioorganic
Chemistry, a program that he helped establish. From 1979 to 1988, Dr. Venuti was
employed at Syntex as a chemistry group leader. Dr. Venuti received an A.B. in
chemistry from Dartmouth College, a Ph.D. in organic chemistry from the
Massachusetts Institute of Technology and was a postdoctoral fellow at the
Syntex Institute of Organic Chemistry.
DANIEL F. HOTH, M.D.
Dr. Hoth joined Axys in June 1999 as Senior Vice President and Chief
Medical Officer. Prior to joining Axys, Dr. Hoth was principal of an independent
consulting practice to pharmaceutical and life science firms, and the National
Institute of Health. Previously, from 1993 to 1997, Dr. Hoth served as Senior
Vice President and Chief Medical Officer at Cell Genesys, where he was
responsible for trials of gene therapy in cancer and HIV. From 1987 to 1993, he
was Director, Division of Acquired Immunodeficiency Syndrome at the National
Institute of Health (NIH), heading all activities under the NIAID's AIDS
program. Dr. Hoth's tenure at the National Cancer Institute (1980 to 1987)
included Chief of the Investigational Drug Branch, as well as the head of the
Cancer Therapy Evaluation Program. Dr. Hoth also served as an instructor and
Assistant Professor of Medicine at Georgetown University School of Medicine. He
received his medical degree at Georgetown University School of Medicine, and
completed his fellowship in medical oncology at Georgetown University Hospital.
23
<PAGE> 24
KATHLEEN STAFFORD
Kathleen Stafford joined Axys as Senior Vice President and Chief Financial
Officer in September 1999. Prior to joining the company, Ms. Stafford was a
consultant to various companies in the biotechnology industry. From early 1995
to the end of 1997, she was the Vice President and Chief Financial Officer of CV
Therapeutics. From early 1994 to late 1994 Ms. Stafford was Chief Financial
Officer of Onyx Pharmaceuticals. Ms. Stafford was Treasurer of Amgen from 1989
to early 1994. She received her M.B.A. degree from Virginia Polytechnic
Institute, and her B.S. degree in combined science from Santa Clara University.
She is a director of the Children's Hospital Oakland Research Institute.
WILLIAM J. NEWELL, J.D.
Mr. Newell is Senior Vice President, Corporate and Business Development,
General Counsel and Secretary. He originally joined Axys as Vice President and
General Counsel in July 1998. From October 1983 to July 1998, Mr. Newell
practiced at the firm of McCutchen, Doyle, Brown & Emerson, LLP (Palo Alto
Office) where he had been a partner since 1990. He received his J.D. from the
University of Michigan Law School and holds an A.B. from Dartmouth College.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Axys' Common Stock began trading on the Nasdaq National Market on November
19, 1993. Prior to that date, there was no public market for the Company's
Common Stock. The company's current ticker symbol is "AXPH". The following table
sets forth, for the periods indicated, the high and low sales prices of the
Common Stock reported on the Nasdaq National Market. These over-the-counter
quotations reflect inter-dealer prices, without retail markup, markdown or
commission, and may not necessarily represent the sales prices in actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1998
First Quarter............................................... $10.75 $7.66
Second Quarter.............................................. 8.75 6.50
Third Quarter............................................... 7.75 3.38
Fourth Quarter.............................................. 7.06 3.69
1999
First Quarter............................................... $ 8.13 $3.75
Second Quarter.............................................. 4.50 3.00
Third Quarter............................................... 4.97 3.56
Fourth Quarter.............................................. 4.96 2.69
</TABLE>
On February 29, 2000, the last sale price reported on the Nasdaq National
Market for the Company's Common Stock was $16.00 per share.
HOLDERS
As of February 29, 2000 there were approximately 565 stockholders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid dividends on its Common Stock and currently does
not plan to pay any cash dividends in the foreseeable future.
24
<PAGE> 25
RECENT SALES OF UNREGISTERED SECURITIES
On October 6, 1999 Axys issued 231 shares of Common Stock, valued at
$822.36 to Kleiner Perkins Caufield Byers VI, in connection with the net
issuance exercise of a warrant.
In July 1999 Axys issued a warrant to purchase 50,000 shares of Common
Stock at $4.06 per share to Reedland Capital. The warrant expires July 30, 2004.
The issuance and sale of such shares was intended to be exempt from
registration and prospectus delivery requirements under the Securities Act of
1933, as amended (the "Securities Act"), by virtue of Section 4(2) thereof due
to, among other things, (i) the limited number of persons to whom the shares
were issued, (ii) the distribution of disclosure documents to the investor,
(iii) the fact that such person represented and warranted to the Company, among
other things, that such person was acquiring the shares for investment only and
not with a view to the resale or distribution thereof, and (iv) the fact that
certificates representing the shares were issued with a legend to the effect
that such shares had not been registered under the Securities Act or any state
securities laws and could not be sold or transferred in the absence of such
registration or an exemption therefrom.
25
<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA
AXYS PHARMACEUTICALS, INC.
The data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" which is included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995(1) 1996 1997 1998(2) 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS:
Revenues.......................... $ 16,727 $ 21,560 $ 24,814 $ 47,422 $ 38,257
Operating costs and expenses:
Cost of goods sold.............. -- -- 1,010 2,058 2,698
Research and development........ 14,689 24,319 30,040 62,176 65,504
General and administrative...... 4,247 5,409 7,153 14,460 14,093
Restructuring charge............ -- -- -- -- 5,175
Acquired in-process research and
development.................. 22,514 230 -- 124,888 --
-------- -------- -------- --------- ---------
Total operating costs and
expenses........................ 41,450 29,958 38,203 203,582 87,470
-------- -------- -------- --------- ---------
Operating loss.................... (24,723) (8,398) (13,389) (156,160) (49,213)
Interest income (expense), net.... 990 2,470 2,422 2,317 260
Equity interest in loss of joint
venture......................... -- -- -- (2,393) (836)
Minority interest................. -- -- -- 112 1,879
Other income/expense, net......... -- -- -- -- (853)
-------- -------- -------- --------- ---------
Net loss.......................... $(23,733) $ (5,928) $(10,967) $(156,124) $ (48,763)
======== ======== ======== ========= =========
Net loss per share, basic and
diluted......................... $ (2.71) $ (0.45) $ (0.73) $ (5.25) $ (1.60)
Weighted average number of shares
used in computing basic and
diluted net loss per share...... 8,745 13,177 15,025 29,758 30,385
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1995(1) 1996 1997 1998 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
marketable investments.......... $ 31,105 $ 66,720 $ 53,408 $ 72,717 $ 26,657
Total assets...................... 40,293 80,832 73,584 107,262 55,734
Long-term obligations............. 16,490 10,676 15,331 16,816 57
Accumulated deficit............... (56,876) (62,804) (73,771) (229,895) (277,211)
Total stockholders' equity........ 7,278 52,900 43,890 60,512 14,047
</TABLE>
- ---------------
(1) Includes the results of operations of Khepri Pharmaceuticals, Inc. from
December 22, 1995 through December 31, 1995, including a one-time charge for
acquired in-process research and development. Excluding such one-time
charge, net loss and net loss per share would have been $1,219,000 and $0.14
per share, respectively.
(2) Includes the results of operations of Sequana Therapeutics, Inc. from
January 8, 1998 through December 31, 1998, including a one-time charge for
acquired in-process research and development. Excluding such one-time
charge, net loss and net loss per share would have been $31,236,000 and
$1.05 per share, respectively.
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains both historical information and
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include projections and other statements of events that may occur at
some point in the future. The company's actual results could differ
significantly from those described in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in this section as well as under "Item 1. Business,"
including, "What Factors Could Cause Our Results To Differ Significantly From
Those You Might Expect?" and "What Other Matters Should Stockholders Consider
with Respect to the Company?"
OVERVIEW
We are an early-stage biopharmaceutical company focused on the discovery,
development and commercialization of small molecules. We invest our own
resources on discovering and developing therapeutics for the treatment of
various types of cancer and we collaborate with large pharmaceutical companies
in discovering therapeutics for chronic diseases for which there are large
markets.
We have three affiliated companies that were formed to provide capital to
Axys for our drug discovery operations:
- Axys Advanced Technologies (AAT), which began operations in 1996 and set
up as a wholly owned subsidiary in 1999 is a 100% owned subsidiary that
markets combinatorial chemistry compounds, enabling technology and
services. It has been profitable since inception. Financial results of
AAT are 100% consolidated into Axys' financial results.
- Akkadix Corporation (Akkadix), an agricultural biotechnology company
founded in 1998 is 38% owned by Axys. It has incurred losses since
inception. Akkadix is separately managed and is funded by third parties.
Akkadix financial results were consolidated into Axys financial results
though August 1999. In September 1999 Axys' ownership in Akkadix reduced
to below 50%. As a result, Akkadix is now accounted for under the equity
method.
- PPGx, Inc. (PPGx), a pharmacogenomics subsidiary founded in 1999, is 82%
owned by Axys and 17.5% owned by PPD, Inc. Financial results of PPGx are
consolidated into Axys' financial results. It has incurred losses since
inception, is separately managed and is funded by third parties.
To date, we have not generated any product revenue in its drug discovery
programs and do not expect to generate such revenues for at least several years.
As of December 31, 1999, we had an accumulated deficit of $277 million. We
expect our sources of revenue, if any, for the next several years to consist of
payments under corporate partnerships, interest income and sales made by our AAT
subsidiary. The process of developing our products will require significant
additional research and development, preclinical testing and clinical trials, as
well as regulatory approval. These activities, together with our general and
administrative expenses are expected to result in significant operating losses
for the foreseeable future. Axys will not receive product revenue or royalties
in our drug discovery programs unless our collaborative partners complete
clinical trials and successfully commercialize one or more of our products. In
addition, there can be no assurance that AAT will remain profitable, or that
Akkadix or PPGx will ever provide funding for our drug discovery operations.
We are subject to risks common to early-stage drug discovery and
development companies, including risks inherent in our research and development
efforts and clinical trials, reliance on collaborative partners, enforcement of
patent and proprietary rights, the need for future capital, potential
competition and uncertainty of regulatory approval. In order for a product to be
commercialized, it will be necessary for us, and in some programs, our
collaborators, to conduct preclinical tests and clinical trials to demonstrate
efficacy and safety of our product candidates, obtain regulatory clearances and
enter into manufacturing, distribution and marketing arrangements as well as
obtain market acceptance. There can be no assurance that we will generate
revenues or achieve and sustain profitability in the future.
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<PAGE> 28
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 Events Which Affected the Company's Operations:
In December 1999 we completed the closing of our La Jolla, CA operations
and relocated our oncology genomics activities to our South San Francisco
headquarters. As a result of this action, a one-time restructure charge of $5.2
million was taken in 1999.
In September 1999, Akkadix Corporation ("Akkadix"), (formerly known as
Xyris Corporation) completed its acquisition of Global Agro, Inc. ("Global"). As
a result of this acquisition, the company's interest in Akkadix fell below 50%
and Akkadix will now be accounted for under the equity method.
In February 1999, we formed a majority owned subsidiary, PPGx, Inc.
("PPGx") which is engaged in the business of providing pharmacogenomic (the
science of how genetic variations among individuals affects drug safety and
efficacy) products and services to the pharmaceutical industry. In connection
with the formation of PPGx, Axys contributed certain assets and technology in
exchange for an 82% ownership interest in PPGx. PPD, Inc. ("PPD"), Axys' partner
in PPGx, contributed certain assets, technology, cash and loan guarantees in
exchange for an 18% ownership interest in PPGx and the exclusive, worldwide
right to market the pharmacogenomic products and services of PPGx.
Our collaborative research programs generally contain one or more of the
following sources of revenue to us:
- Research Support: Payments that are generally based on the number of
researchers Axys is committing to a particular program. These revenues
are recorded when earned through the performance of the required research
by Axys.
- License Fees: Payments that are generally received when the collaboration
agreement is signed. These revenues are amortized over the term of the
agreement.
- Commitment Fees: Payments that are generally received in conjunction with
our commitment to perform certain funded research. These revenues are
recorded over the course of the research efforts.
- Milestone Payments: Payments that are based on our or our partner
achieving certain technical or regulatory milestones in the
collaboration. These revenues are recorded upon the achievement of
mutually agreed upon milestones.
- Premiums paid on Equity Investments: Premiums paid in excess of the fair
market value of the Company's stock is recognized as revenue over the
research period.
Our sales of chemical compound libraries contain one or more of the
following sources of revenue to us:
- Product Sales: As chemical compound libraries are shipped to customers of
AAT, we record revenue based on the contracted price per compound.
- License Fees: Payments that are generally received when compound supply
or technology license agreements are signed. These revenues are
recognized over the term of the agreement.
- Commitment Fees: Payments that are received in conjunction with AAT's
commitment to perform certain obligations under compound supply or
technology license agreements. These revenues are recorded over the
course of the relevant agreement, as performance obligations are
completed.
- Protocol Fees: Payments that are received in exchange for technology
know-how. These revenues are recorded as protocols are delivered.
We have not been profitable since inception and expects to incur
substantial losses for at least the next several years, primarily due to the
cost of its research and development programs, including preclinical studies and
human clinical trials. We expect that losses will fluctuate from quarter to
quarter, that such fluctuations may be substantial, and that results from prior
quarters may not be indicative of future operating results. As of
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<PAGE> 29
December 31, 1999, our accumulated deficit was approximately $277 million.
Included in our accumulated deficit at December 31, 1999 was approximately $147
million of acquired in-process research and development from the acquisition of
Khepri Pharmaceuticals, Inc. in 1995 and the acquisition of Sequana in January
1998.
REVENUES
Collaboration and licensing revenues
Our collaboration and licensing revenues decreased to $25.3 million for the
year ended December 31, 1999, from $38.9 million in 1998. Collaboration and
licensing revenues (which generally consist of research support and license
fees), for the year ended December 31, 1999 were attributable to the
collaborative research agreements with: (i) Parke-Davis for the gene
identification program in schizophrenia and bipolar disorder; (ii) Aventis for
the development of small molecule therapeutics that inhibit cathepsin S,
associated with certain inflammatory diseases, (iii) Bristol-Myers Squibb for
the development of small molecule inhibitors of proteases involved in hepatitis
C virus infection; and (iv) Merck for the development of small molecule
inhibitors of proteases involved in osteoporosis. 1999 revenues decreased when
compared to 1998 due to lower revenues recognized under the following
agreements: (i) the end of research support in June 1999 under the Boehringer
Ingelheim International GmbH agreement for the gene identification program in
asthma; (ii) the winding-down of the Parke-Davis gene identification program for
schizophrenia and bipolar disorder; and (iii) the end of research funding in mid
1998 of the Pharmacia & Upjohn agreement for the development of inhibitors of
Factor Xa. As Axys has shifted its focus to proprietary oncology programs,
collaboration and licensing revenues are expected to continue to decline.
Product revenues
Our product revenues increased to $12.9 million for the year ended December
31, 1999, from $8.5 million in 1998. The increase was primarily due to the
overall increase in compound libraries shipped in 1999, when compared to 1998,
in accordance with the terms of the combinatorial chemistry agreements with
Pharmacia & Upjohn, Parke-Davis, Aventis, Daiichi, Allergan, as well as with
other smaller biotechnology companies. PPGx accounted for approximately $890,000
of product revenue in 1999.
Cost of Goods Sold
Our cost of goods sold increased to $2.7 million for the year ended
December 31, 1999 from $2.1 million in 1998. The increase was primarily due to
more compound libraries shipped in 1999 than 1998 under the combinatorial
chemistry agreements. Cost of goods has a direct relationship to product
revenues.
Research and Development
Our research and development expenses increased to $65.5 million for the
year ended December 31, 1999, from $62.2 million in 1998. The increase was
primarily due to research and development expenses related to Axys' affiliates
PPGx and Akkadix, which are not funded by Axys, as indicated in the table below.
Another contributing factor to the increase was the reduction of approximately
36 individuals in the first quarter of 1999, with an associated severance cost
of approximately $413,000. Akkadix' activities are reflected in the consolidated
results of the company through the date of its merger with Global Agro, which
means through the first eight months of 1999.
<TABLE>
<CAPTION>
OTHER
DRUG AFFILIATED
DISCOVERY AAT BUSINESSES TOTAL
--------- ----- ---------- -----
<S> <C> <C> <C> <C>
Year ended 1999................................ $54.1 $ 5.1 $ 6.3 $65.5
Year ended 1998................................ 57.3 4.9 0.0 62.2
----- ----- ----- -----
(Increase)/Decrease............................ $ 3.2 $(0.2) $(6.3) $(3.3)
===== ===== ===== =====
</TABLE>
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<PAGE> 30
When we acquired Sequana in January 1998, Sequana had the following
research programs in progress: Asthma, partnered with Boehringer Ingelheim Int'l
GmbH; Osteoporosis, partnered with Corange International Ltd.; Non-Insulin
Dependent Diabetes Mellitus (NIDDM), partnered with Glaxo Wellcome, Inc.;
Schizophrenia/Bipolar, partnered with Parke-Davis Pharmaceutical Research
division of Warner-Lambert Company; Obesity, Alzheimer's and Pharmacogenomics.
As of December 31, 1999 the Schizophrenia/Bipolar program was transferred to
Parke-Davis and the Pharmacogenomics program was spun off into the PPGx
subsidiary with PPD. All other programs have ended.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses decreased to $14.1 million for the
year ended December 31, 1999, from $14.5 million in 1998. Decreases were
primarily due to lower expenses as a result of the winding down of activities in
our La Jolla operation. These decreases were offset by the addition of
administrative expenses of our newly formed affiliates, PPGx and Akkadix, not
funded by Axys.
<TABLE>
<CAPTION>
OTHER
DRUG AFFILIATED
DISCOVERY AAT BUSINESSES TOTAL
--------- ----- ---------- -----
<S> <C> <C> <C> <C>
Year ended 1999................................ $10.1 $ 1.5 $ 2.5 $14.1
Year ended 1998................................ 13.1 0.8 0.6 14.5
----- ----- ----- -----
(Increase)/Decrease............................ $ 3.0 $(0.7) $(1.9) $ 0.4
===== ===== ===== =====
</TABLE>
Interest Income and Interest Expense
Interest income decreased to $2.3 million for the year ended December 31,
1999, from $4.7 million in 1998. The decrease was primarily due to the decrease
in average cash and investment balances between the periods. Interest expense
decreased to $2.1 million for the year ended December 31, 1999, from $2.4 in
1998. The decrease was primarily due to the lower debt balances from our lines
of credit and existing leasing arrangements.
Equity Interest in Loss of Joint Venture
Equity interest in loss of joint venture decreased to $0.8 million for the
year ended December 31, 1999 as compared to $2.4 million in 1998 and was due to
the decrease in the loss for Genos. This amount represents Axys' 50% portion of
Genos' loss for 1999 based on our 50% ownership of Genos. The decrease is
primarily due to the winding down of operations of Genos since May 1999. In the
third quarter of 1999, we wrote off the balance of the investment in Genos.
Minority Interest
Minority interest represents another investor's share of a subsidiary's
operating income (loss), where the company owns 51% to 99% of that subsidiary.
Minority interest increased to $1.9 million for the year ended December 1999,
from $112,000 in 1998. This amount is the result of the formation of the
Company's majority owned subsidiary, PPGx, in 1999 and Akkadix, in 1998. Since
we report all of PPGx's expenses as our expenses (see "General and
Administrative" above), this one line allocates a portion of PPGx's loss to the
minority shareholders, and reduces our operating loss.
Restructuring Charge
In December 1999, we completed the closing of our La Jolla, CA operations
and relocated our oncology genomics activities to its South San Francisco
headquarters. As a result of this action, a one-time charge of $7.0 million was
taken during the third quarter, of which $2.2 million related to severance and
other employee-related costs, $1.7 million related to facilities costs, $1.8
million related to the disposal of assets, and $1.3 in other costs associated
with the restructuring. In the fourth quarter the restructure charge was reduced
by $1.8 million, to $5.2 million due to a change in estimates resulting from the
additional subleases of the La Jolla facility we leased, and for better than
expected proceeds from the disposal of equipment and other assets
30
<PAGE> 31
associated with closing down the La Jolla facility. The facilities costs
included lease payments on facilities vacated in La Jolla net of proceeds from
existing subleases. As a result of closing the facility, we eliminated 120
positions of which 93 are included in the severance calculation and 27 positions
were eliminated through attrition and cancellation of open requisitions. At
December 31, 1999, the only remaining accrual relating to the restructuring was
approximately $1.9 million which will be utilized through December 31, 2001.
Other Income/Expense
Other Income and Expense represents primarily the write-off of Axys' 50%
interest in Genos, a joint venture with Memorial Sloan Kettering Cancer Center,
totaling $1.1 million.
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 Events Which Affected The Company's Operations: On January 8, 1998 we
completed the acquisition of Sequana Therapeutics, Inc. ("Sequana"), a genomics
company of approximately 200 employees based in La Jolla, California. We
acquired all of the outstanding stock of Sequana in exchange for Axys common
stock. In general, Sequana was a company of similar size and complexity to Axys.
Sequana's revenues were primarily derived from collaborative research agreements
with most of the same components as those described above for Axys.
Consequently, in comparing the operating results of the company for the periods
ended December 31, 1998 and 1997, Sequana contributed in large part to the
doubling of all of the line items on the Statement of Operations, except
"Product Revenues" and "Cost of Goods Sold," which were applicable to of Axys
alone.
REVENUES
Collaboration and licensing revenues
Our collaboration and licensing revenues increased to $38.9 million for the
year ended December 31, 1998, from $22.5 million in 1997, primarily due to the
acquisition Sequana. If the acquisition had occurred prior to 1997, revenues on
a pro forma basis for 1997 would have been $42.1 million, and would have
therefore been $3.2 million lower in 1998. Collaboration and licensing revenues
for the year ended December 31, 1998 were attributable to the material
collaborative research agreements with: (i) Parke-Davis for the gene
identification program in schizophrenia and bipolar disorder, and includes
research funding; (ii) Boehringer Ingelheim for the gene identification program
in asthma, and include research funding; (iii) Bristol-Myers Squibb for the
development of small molecule inhibitors of proteases involved in hepatitis C
virus infection and include research funding, as well as a licensing fee; (iv)
Merck for the development of small molecule inhibitors of proteases involved in
osteoporosis, and include research funding and the amortization of an up-front
licensing fee; and (v) Aventis for the development of small molecule
therapeutics that inhibit cathepsin S, associated with certain inflammatory
diseases, and include a licensing fee. Although some of these agreements were
new, 1998 revenues decreased when compared to 1997 on a pro forma basis because
of lower revenues recognized under the following agreements: (i) the end of
research funding in July 1998 of the Pharmacia & Upjohn agreement for the
development of inhibitors of Factor Xa; (ii) the end of the research phase in
November 1997 of the Bayer agreement to develop inhibitors of the regulatory
enzymes tryptase and chymase for the treatment of asthma; (iii) the termination
of the Glaxo agreement for the genomics work in the area of type II diabetes and
related conditions; and (iv) the end of the research phase of the SmithKline
Beechum agreement in December 1997 for the inhibition of intracellular viral
proteases.
Product revenues
Our product revenues increased to $8.5 million for the year ended December
31, 1998, from $2.3 million in 1997. The increase was primarily due to the
overall increase in compound libraries shipped in 1998, when compared to 1997,
in accordance with the terms of the combinatorial chemistry agreements with
Pharmacia & Upjohn, Parke-Davis and Rhone-Poulenc Rorer.
31
<PAGE> 32
Cost of Goods Sold
Our cost of goods sold increased to $2.1 million for the year ended
December 31, 1998 from $1.0 million in 1997. The increase was primarily due to
more compound libraries being shipped in 1998 than 1997 under the three
agreements discussed above.
Research and Development
Our research and development expenses increased to $62.2 million for the
year ended December 31, 1998, from $30.0 million in 1997, primarily due to the
acquisition of Sequana and additional costs associated with the clinical trials
of APC-366, prior to the termination of that program. If the acquisition of
Sequana had occurred prior to 1997, research and development expenses would have
been $59.9 million in 1997 on a pro forma basis. The increase on a pro forma
basis to $62.2 million in 1998 from $59.9 million in 1997 was due to the
increase in clinical trial costs discussed above, as well as the expanded
research efforts in drug discovery.
General and Administrative
Our general and administrative expenses increased to $14.5 million for the
year ended December 31, 1998, from $7.2 million in 1997, primarily due to the
Sequana acquisition and the planning of our strategic initiative in oncology.
Additionally, general and administrative expenses for 1998 included all of the
expenses of our subsidiary, Xyris, due to our 82% ownership at December 31,
1998. Further expansions in general and administrative expenses took place in
legal, finance and business development to support our expanded research and
development efforts. These increases for 1998 were offset in part by the
elimination of approximately $3.0 million of outside service costs, executive
management, and other administrative expense from the combining of Arris (as the
company was previously known) and Sequana. If the acquisition of Sequana had
occurred prior to 1997, pro forma basis general and administrative expenses
would have been $12.5 million in 1997. The increase, on a pro forma basis to
$14.5 million in 1998 from $12.5 million in 1997 was primarily due to one-time
charges related to the integration of Sequana, as well as the other
administrative costs discussed above.
Acquired In-Process Research and Development
Acquired in-process research and development (IPR&D) expense increased to
$124.9 million for the year ended December 31, 1998 due to our acquisition of
Sequana Therapeutics on January 8, 1998. That acquisition was accounted for
using the purchase method of accounting and the $174.1 million purchase price
was allocated to the various tangible and intangible assets acquired based on
their respective estimated fair values. As a result, $124.9 million was
allocated to acquired IPR&D. The $124.9 million was expensed as a non-recurring
charge on the acquisition date because the acquired in-process technology had
not yet reached technological feasibility, had no future alternative uses, and
all programs were still in the research phase.
The value of Sequana's projects was determined after estimating the net
cash flows from such projects, and discounting the net cash flows back to their
present value. The net cash flows were based on the Company's estimate of
revenue, research and development costs, general and administrative costs and
income taxes.
When we acquired Sequana in January 1998, Sequana had the following
research programs in progress: Asthma, partnered with Boehringer Ingelheim Int'l
GmbH; Osteoporosis, partnered with Corange International Ltd.; Non-Insulin
Dependant Diabetes Mellitus (NIDDM), partnered with Glaxo Wellcome, Inc.;
Schizophrenia/Bipolar, partnered with Parke-Davis Pharmaceutical Research
division of Warner-Lambert Company; Obesity, Alzheimer's and Pharmacogenomics.
As of December 31, 1999 the Schizophrenia/ Bipolar program was transferred to
Parke-Davis and the Pharmacogenomics program was spun off into the PPGx
subsidiary with PPD. All other programs have ended.
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<PAGE> 33
Interest Income and Interest Expense
Interest income increased to $4.7 million for the year ended December 31,
1998, from $3.4 million in 1997. The increase was primarily due to the increase
in average cash and investment balances between the periods, as a result of the
acquisition of Sequana. Interest expense increased to $2.4 million for the year
ended December 31, 1998, from $1.0 in 1997. The increase was primarily due to
the higher debt balances from our two lines of credit and existing leasing
arrangements following the acquisition of Sequana. We have generally used
drawdowns from its lending arrangements for capital equipment leasehold
improvements.
Equity Interest in Loss of Joint Venture
Equity interest in loss of joint venture increased to $2.4 million for the
year ended December 31, 1998, and was due to the increase in the loss for Genos,
which was acquired as part of our acquisition of Sequana. This amount represents
our 50% portion of Genos' loss for 1998 based on our percentage ownership.
Minority Interest
Minority interest represents another investor's share of a subsidiary's
operating income (loss), where we own 51% to 99% of that subsidiary. Minority
interest increased to $112,000 for the year ended December 1998, from none in
1997. This amount is the result of the formation of our majority owned
subsidiary, Xyris. Since we report all of Xyris' expenses as our expenses (see
"General and Administrative" above), this one line allocates a portion of Xyris'
loss to the minority shareholders, and reduces our operating loss.
Recent accounting pronouncements
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 requires that license and other
up-front fees from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
effect of this change in accounting principle will not have a material effect on
our operating results or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and is not anticipated to have an impact on our
results of operations of financial condition when adopted as we hold no
derivative financial instruments and does not currently engage in hedging
activities.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through private
and public offerings of capital stock, through corporate collaborative research
agreements, and sales of combinatorial chemistry compounds. As of December 31,
1999, we had realized approximately $183 million in net proceeds from offerings
of our capital stock. In addition, we have realized approximately $199 million
since inception from our collaborative research agreements and the sale of
compound libraries.
Our principal sources of liquidity are our cash and investments, which
totaled $26.7 million as of December 31, 1999. We have a $30 million line of
credit under which we had borrowed a total of $17 million as of December 31,
1999. The line is available through July, 2002. PPGx has an $8 million line of
credit that is guaranteed by PPD, under which it had borrowed $6 million as of
December 31, 1999. This line is available through June, 2000. Our cash and
investments at December 31, 1999 include the cash and investments from our
wholly-owned and majority-owned subsidiaries. Our investments also serve as
security for our borrowings under our line of credit.
Net cash used in operating activities during year ended December 31, 1999
was $39.3 million compared to $27.2 million in the same period in 1998. The
increase was primarily due to lower revenues and the costs associated with the
wind down of operations in La Jolla for the year ended December 31, 1999. Cash
used in
33
<PAGE> 34
operating activities is expected to fluctuate from quarter to quarter depending
in part upon the timing and amounts, if any, of cash received from existing and
any new collaboration agreements or the sale of combinatorial chemistry compound
libraries.
We also spent approximately $8.9 million for the purchase of property,
plant and equipment during the year ended December 31, 1999. We expect to
acquire or lease additional equipment in connection with our future research and
development activities, although the magnitude of such purchases or leases is
not presently known. There were no material commitments for capital expenditures
outstanding at December 31, 1999.
Our AAT subsidiary currently has approximately $27.7 million of backlog
from committed contracts for the sale of combinatorial chemistry libraries as of
December 31, 1999.
Our material commitments at December 31, 1999 included our obligations to
perform research under our collaboration agreements with Merck and Aventis (for
which we are fully funded from our partner), our obligations to develop, produce
and deliver combinatorial compounds and transfer related technology under AAT's
combinatorial chemistry agreements with Parke-Davis, Daiichi and Allergan (for
which we receive payments in excess of our costs), our obligations to pay for
research at Signal Pharmaceuticals and our obligations under our line of credit.
We believe that our existing cash and investments (including the proceeds of the
$31.5 million stock issuance described below) will be more than sufficient for
us to fulfill our commitments to Signal Pharmaceuticals for research support of
approximately $1.5 million in 2000 and the lender under our line of credit,
which had a $17 million balance outstanding at December 31, 1999. See also Note
10 to the company's financial statements for all of the company's commitments
under Capital and Operating leases.
In February, 2000, we entered into definitive purchase agreements for the
sale of an aggregate 3.5 million newly issued shares of Axys Pharmaceuticals,
Inc. common stock to selected institutional and other accredited investors for
$31.5 million in gross proceeds. We intend to use net proceeds from this private
placement for working capital and other general corporate purposes.
We expect that existing cash and investments, revenues from existing
collaborations, and the net proceeds from our recently completed private
placement, together with debt financing which we believe is available to us,
will enable us to maintain current and planned operations for 18-24 months. We
continue to actively pursue a variety of financing alternatives.
The drug development process is expensive and we are at an early stage of
development. Therefore, we expect we will continue to need to raise money in the
future until we achieve substantial product or royalty revenues, if ever. We
expect that we will continue to seek additional funding from time to time
through one or more of the following: new collaborations, the extension of
existing collaborations, the sale of our interests in our affiliated businesses,
or through public or private equity or debt financings. Furthermore, we may
obtain funds through arrangements with collaborative partners or others that
require us to give up rights to technologies or products that we would otherwise
seek to develop or commercialize ourselves. We cannot be certain that additional
funding will be available or that, if available, the terms will be acceptable.
Existing stockholders will experience dilution of their investment if additional
funds are raised through private or public stock sales. If adequate funds are
not available, we may delay, reduce or eliminate any of our research or
development programs.
IMPACT OF THE YEAR 2000
In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our products, our
internal systems, or the products and services of third parties. We expensed
approximately $119,000 during 1999 and $0 in 1998 in connection with remediating
our systems. During 2000, we expect to remediate
34
<PAGE> 35
certain non-critical systems at an estimated cost of $40,000 that will be funded
through operating cash flows. Any remaining expense relates to other remediation
efforts and will be charged to expense as incurred. We will continue to monitor
our mission critical computer applications and those of our suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Due to the composition of our interest earning assets (88% mature within
one year) and interest bearing liabilities, we believe that the market risk is
not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AXYS PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 36
Consolidated Balance Sheets................................. 37
Consolidated Statements of Operations....................... 38
Consolidated Statement of Stockholders' Equity.............. 39
Consolidated Statements of Cash Flows....................... 40
Notes to Consolidated Financial Statements.................. 41
</TABLE>
35
<PAGE> 36
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Axys Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Axys
Pharmaceuticals, Inc. (formerly Arris Pharmaceutical Corporation) as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Axys Pharmaceuticals, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Palo Alto, California
February 18, 2000
36
<PAGE> 37
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 23,577 $ 36,261
Short-term marketable investments......................... 3,080 23,999
Accounts receivable, trade................................ 4,786 2,140
Inventories............................................... 2,258 435
Prepaid expenses and other current assets................. 1,524 4,513
--------- ---------
Total current assets.............................. 35,225 67,348
Marketable investments...................................... -- 12,457
Property and equipment, net................................. 18,873 21,510
Investment in joint venture................................. -- 1,908
Note receivable from officer................................ 715 821
Intangible assets, net...................................... -- 2,200
Other assets................................................ 921 1,018
--------- ---------
$ 55,734 $ 107,262
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,563 $ 3,788
Accrued compensation...................................... 2,980 4,232
Other accrued liabilities................................. 5,284 2,956
Deferred revenue.......................................... 2,083 8,698
Current portion of capital lease and debt obligations..... 23,646 9,872
--------- ---------
Total current liabilities......................... 38,556 29,546
Capital lease and debt obligations, noncurrent.............. 57 16,816
Minority interest........................................... 3,074 388
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $0.001 par value, 50,000,000 shares
authorized, 30,471,281 and 30,234,150 shares issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 291,328 290,291
Accumulated other comprehensive income (loss)............... (70) 116
Accumulated deficit......................................... (277,211) (229,895)
--------- ---------
Total stockholders' equity........................ 14,047 60,512
--------- ---------
$ 55,734 $ 107,262
========= =========
</TABLE>
See accompanying notes.
37
<PAGE> 38
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997(1)
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Collaboration and licensing revenues.................... $ 25,329 $ 38,910 $ 22,499
Product revenues........................................ 12,928 8,512 2,315
-------- --------- --------
Total revenues.................................. 38,257 47,422 24,814
Operating costs and expenses:
Cost of goods sold...................................... 2,698 2,058 1,010
Research and development................................ 65,504 62,176 30,040
General and administrative.............................. 14,093 14,460 7,153
Restructuring charge.................................... 5,175 -- --
Acquired in-process research and development............ -- 124,888 --
-------- --------- --------
Total operating costs and expenses.............. 87,470 203,582 38,203
-------- --------- --------
Operating loss............................................ (49,213) (156,160) (13,389)
Interest income........................................... 2,346 4,720 3,436
Interest expense.......................................... (2,086) (2,403) (1,014)
Equity interest in loss of joint venture.................. (836) (2,393) --
Minority interest......................................... 1,879 112 --
Other income/(expense).................................... (853) -- --
-------- --------- --------
Net loss.................................................. $(48,763) $(156,124) $(10,967)
======== ========= ========
Basic and diluted net loss per share...................... $ (1.60) $ (5.25) $ (0.73)
======== ========= ========
Shares used in computing basic and diluted net loss per
share................................................... 30,385 29,758 15,025
======== ========= ========
</TABLE>
- ---------------
(1) Represents the results of Arris Pharmaceutical Corporation only.
See accompanying notes.
38
<PAGE> 39
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
NOTE OTHER
COMMON STOCK RECEIVABLE COMPREHENSIVE TOTAL
--------------------- FROM INCOME ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT OFFICER (LOSS) DEFICIT EQUITY
---------- -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996.................. 14,831,975 $115,904 $(200) $ -- $ (62,804) $ 52,900
Exercise of options and a warrant to purchase
common stock................................. 313,000 1,327 -- -- -- 1,327
Issuance of common stock in connection with the
ESPP......................................... 58,114 555 -- -- -- 555
Forgiveness of note receivable................. -- -- 75 -- -- 75
Net loss and comprehensive loss................ -- -- -- -- (10,967) (10,967)
---------- -------- ----- ----- --------- ---------
Balances at December 31, 1997.................. 15,203,089 117,786 (125) -- (73,771) 43,890
Exercise of options and warrants to purchase
common stock................................. 91,649 621 -- -- -- 621
Issuance of common stock for cash.............. 132,254 1,063 -- -- -- 1,063
Issuance of common stock in connection with the
ESPP......................................... 189,145 1,091 -- -- -- 1,091
Issuance of common stock in connection with the
acquisition of Sequana Therapeutics, Inc..... 14,618,013 169,730 -- -- -- 169,730
Forgiveness of note receivable................. -- -- 125 -- -- 125
Net loss....................................... -- -- -- -- (156,124) (156,124)
Unrealized gain on securities.................. -- -- -- 116 -- 116
---------
Comprehensive loss............................. (156,008)
---------- -------- ----- ----- --------- ---------
Balance at December 31, 1998................... 30,234,150 290,291 -- 116 (229,895) 60,512
Exercise of options and warrants to purchase
common stock................................. 34,874 132 -- -- -- 132
Issuance of common stock in connection with the
ESPP......................................... 202,257 905 -- -- -- 905
Deconsolidation of Akkadix Corporation......... -- -- -- -- 1,447 1,447
Net loss....................................... -- -- -- -- (48,763) (48,763)
Unrealized loss on securities.................. -- -- -- (186) -- (186)
---------
Comprehensive loss............................. (48,949)
---------- -------- ----- ----- --------- ---------
Balance at December 31, 1999................... 30,471,281 $291,328 $ -- $ (70) $(277,211) $ 14,047
========== ======== ===== ===== ========= =========
</TABLE>
See accompanying notes.
39
<PAGE> 40
AXYS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997(1)
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.................................................. $(48,763) $(156,124) $(10,967)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash restructure charge............................. 1,598 --
Depreciation and amortization........................... 11,135 10,156 4,183
(Gain)loss on disposal of fixed assets.................. (176) 44 --
Equity interest in loss of joint venture................ 836 2,393 --
Acquired in-process research and development............ -- 124,888 --
Forgiveness of note receivable from officer............. 160 155 75
Minority interest....................................... 1,879 388 --
Changes in assets and liabilities:
Accounts receivable................................... (2,646) (839) (1,301)
Inventories........................................... (1,823) (435) --
Prepaid expenses and other current assets............. 3,254 636 (585)
Other assets.......................................... 43 (2,469) (345)
Accounts payable...................................... 775 (5,818) 183
Accrued compensation.................................. (1,252) 2,440 313
Other accrued liabilities............................. 2,328 808 578
Deferred revenue...................................... (6,615) (3,382) (6,620)
-------- --------- --------
Net cash and cash equivalents used in operating
activities................................................ (39,267) (27,159) (14,486)
Cash flows from investing activities
Available for-sale-securities:
Purchases............................................... (77,003) (56,065) (22,092)
Maturities.............................................. 110,193 92,105 3,249
Held-to-maturity securities:
Purchases............................................... -- -- (9,683)
Maturities.............................................. -- -- 46,704
Sale of restricted cash and investments..................... -- -- 7,250
Acquisition, net of cash received........................... -- 13,270 --
Investment in joint venture................................. (25) (2,000) --
Change in investment in consolidated subsidiaries and
affiliates................................................ 3,351 -- --
Proceeds from sale of property and equipment................ 877 119 --
Expenditures for property and equipment..................... (8,862) (8,263) (6,297)
-------- --------- --------
Net cash and cash equivalents provided by investing
activities................................................ 28,531 39,166 19,131
Cash flows from financing activities
Net proceeds from issuance of common stock................ 1,037 2,775 1,882
Proceeds from issuance of note payable and capital lease
obligations............................................. 53,292 6,174 19,115
Principal payments on note payable and capital lease
obligations............................................. (56,277) (7,633) (13,526)
-------- --------- --------
Net cash and cash equivalents (used by) provided by
financing activities...................................... (1,948) 1,316 7,471
-------- --------- --------
Net (decrease) increase in cash and cash equivalents........ (12,684) 13,323 12,116
Cash and cash equivalents, beginning of year................ 36,261 22,938 10,822
-------- --------- --------
Cash and cash equivalents, end of year...................... $ 23,577 $ 36,261 $ 22,938
======== ========= ========
Supplemental disclosure of cash flows information:
Cash paid during the year for interest.................... $ 2,130 $ 2,284 $ 826
======== ========= ========
Supplemental schedule of noncash investing and financing
activities:
Issuance of common stock and value of options and warrants
issued in acquisitions.................................. $ -- $ 169,730 $ --
======== ========= ========
Noncash acquisition of equipment under capital lease...... $ -- $ -- $ 1,719
======== ========= ========
</TABLE>
- ---------------
(1) Represents the results of Arris Pharmaceutical Corporation only.
See accompanying notes.
40
<PAGE> 41
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Axys Pharmaceuticals, Inc., a Delaware corporation ("Axys" or the
"Company"), formerly known as Arris Pharmaceutical Corporation ("Arris"), is an
early-stage biopharmaceutical company focused on the discovery, development and
commercialization of small molecules. The Company focuses its own resources on
discovering and developing therapeutics for the treatment of various types of
cancer and collaborates with large pharmaceutical companies in discovering
therapeutics for chronic diseases for which there are large markets.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Axys Advanced Technologies, Inc., Arris
Pharmaceuticals Canada, Inc., and Sequana Therapeutics, Inc. ("Sequana") (See
"Acquisition of Sequana", Note 3), and includes the accounts of PPGx, Inc., a
majority owned subsidiary of the Company (See "Formation of PPGx, Inc.", Note
6). All significant intercompany accounts and transactions have been eliminated.
The Company owns approximately 38% of Akkadix Corporation ("Akkadix"),
formerly known as Xyris Corporation (See "Formation of Akkadix Corporation",
Note 5). The Company owns 50% of Genos, a joint venture with Memorial
Sloan-Kettering Cancer Center ("MSKCC"). These investments are accounted for
under the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material.
Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents. Investments
with maturities greater than three months and less than one year are classified
as short-term investments.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. The Company currently considers all its investment securities as
available-for-sale. Available-for-sale securities are reported at estimated fair
market value with the related unrealized gains and losses included in
stockholders' equity. Realized gains and losses, and declines in value judged to
be other than temporary are included in interest income and expense. Realized
gains and losses have been immaterial. The cost of securities sold is based on
the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. At December 31, 1999, inventories consisted of the following (in
thousands):
<TABLE>
<S> <C>
Raw materials............................... $ 156
Finished goods.............................. 2,102
------
Total....................................... $2,258
======
</TABLE>
41
<PAGE> 42
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and Amortization
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets. Machinery and equipment has estimated
useful lives ranging from 3 to 5 years and furniture and office equipment has a
useful life of 5 years. Purchased computer software is amortized over 3 years.
Leasehold improvements are amortized over the term of the lease or economic
useful life, whichever is shorter.
Revenue Recognition
The Company recognizes revenues from its collaborative research programs,
as well as from product sales.
The company's collaborative research programs generally contain one or more
of the following sources of revenue:
- Research Support: Payments that are generally based on the number of
researchers Axys is committing to a particular program. These revenues
are recorded when earned through the performance of the required research
by Axys.
- License Fees: Payments that are generally received when the collaboration
agreement is signed. These revenues are amortized over the term of the
agreement.
- Commitment Fees: Payments that are generally received in conjunction with
our commitment to perform certain funded research. These revenues are
recorded over the course of the research efforts.
- Milestone Payments: Payments that are based on our or our partner
achieving certain technical or regulatory milestones in the
collaboration. These revenues are recorded upon the achievement of
mutually agreed upon milestones.
- Premiums paid on Equity Investments: Premiums paid in excess of the fair
market value of the Company's stock is recognized as revenue over the
research period.
Our sales of chemical compound libraries contain one or more of the
following sources of revenue:
- Product Sales: As chemical compound libraries are shipped to customers of
AAT, we record revenue based on the contracted price per compound.
- License Fees: Payments that are generally received when compound supply
or technology license agreements are signed. These revenues are
recognized over the term of the agreement.
- Commitment Fees: Payments that are received in conjunction with AAT's
commitment to perform certain obligations under compound supply or
technology license agreements. These revenues are recorded over the
course of the relevant agreement, as performance obligations are
completed.
- Protocol Fees: Payments that are received in exchange for technology
know-how. These revenues are recorded as protocols are delivered.
Research and Development
Research and development expenses consist of costs incurred for independent
and collaborative research and development. These costs include direct costs and
research-related overhead expenses. Research and development expenses under the
collaborative research agreements approximate the research support revenue
recognized under the agreements of $16,649,000, $24,804,000, and $13,622,000, in
1999, 1998 and 1997 respectively.
42
<PAGE> 43
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), the Company has elected
to continue 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 option and purchase plans. See Note 9 for pro forma
disclosures required by FAS 123.
Net Loss Per Share
Basic earnings per share is computed based on the weighted average number
of shares of the Company's common stock outstanding. In addition, there were
other dilutive securities in the form of options and warrants to purchase
4,876,824, 5,050,026 and 2,168,860 shares of common stock outstanding at
December 31, 1999, 1998, and 1997, respectively. These shares, which would
normally be included in the computation of dilutive earnings per share, were not
included in that computation because the effect would be antidilutive.
Comprehensive Income
As of January 1, 1998, the Company adopted the Statement of Financial
Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income."
Comprehensive loss is comprised of reported net loss and unrealized holding
gains and losses on available-for-sale securities. Comprehensive loss has been
shown in the Consolidated Statements of Stockholders' Equity.
Segment Information
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131). FAS 131 superseded FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." FAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. FAS 131 also establishes standards for related disclosures
about products and services, geographical areas, and major customers. The
adoption of FAS 131 did not affect results of operations or financial position,
but did affect the disclosure of segment information (see "Segment Information",
Note 13).
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 and is not anticipated to have an impact on the
Company's results of operations of financial condition when adopted as the
Company holds no derivative financial instruments and does not currently engage
in hedging activities.
In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 requires that license and other
up-front fees from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
effect of this change in accounting principle will not have a material effect on
the Company's prior period results.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
43
<PAGE> 44
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING CHARGE
In December 1999, the Company completed the closing of its San Diego, CA
operations and relocated its oncology genomics activities to its South San
Francisco headquarters. As a result of this action, a one-time charge of $7.0
million was taken during the third quarter, of which $2.2 million related to
severance and other employee-related costs, $1.7 million related to facilities
costs, $1.8 million related to the disposal of assets, and $1.3 in other costs
associated with the restructuring. In the fourth quarter of 1999 the restructure
charge was reduced by $1.8 million to $5.2 million due to a change in estimates
resulting from the additional subleases of the San Diego facility leased by the
Company, and for better than expected proceeds from the disposal of equipment
and other assets associated with closing down the San Diego facility. The
facilities costs included lease payments on facilities vacated in San Diego net
of proceeds from existing subleases. As a result of closing the facility, the
Company eliminated 120 positions of which 93 are included in the severance
calculation and 27 positions were eliminated through attrition and cancellation
of open requisitions.
The following table summarizes the Company's 1999 restructuring charge
activity for the twelve months ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Q3, 1999 Q4, 1999 Q4 RESERVE
CASH/ RESTRUCTURE CHANGE IN PAYMENT/ BALANCE
DESCRIPTION NON/CASH CHARGE ESTIMATE WRITE-OFF AT 12/31/99
----------- -------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Severance and benefits..................... Cash $(2,210) $ -- $1,115 $(1,095)
Facilities................................. Cash (1,664) 511 405 (748)
Contractual Research Commitments........... Cash (214) -- 133 (81)
------- ------ ------ -------
Subtotal -- Cash........................... (4,088) 511 1,653 (1,924)
------- ------ ------ -------
Work-force in Place and Other.............. Non-Cash (1,110) -- 1,110 --
Equipment disposal......................... Non-Cash (1,810) 1,322 488 --
------- ------ ------ -------
Subtotal -- Non-Cash....................... (2,920) 1,322 1,598 --
------- ------ ------ -------
Total............................ $(7,008) $1,833 $3,251 $(1,924)
======= ====== ====== =======
</TABLE>
The Company anticipates that the remaining accruals for severance and
benefits will be utilized by December 31, 2000 and the remaining accruals for
committed payments will be utilized by March 31, 2000. The Company anticipates
that the remaining accruals for facilities will be utilized over the period
through lease termination on December 31, 2001.
3. ACQUISITION OF SEQUANA
On January 8, 1998, the Company acquired all of the outstanding capital
stock of Sequana, a genomics company that used industrial-scale gene discovery
technology and functional genomics to discover and characterize genes that cause
certain common diseases. The Company issued shares of Axys Common Stock in
exchange for all the outstanding common stock of Sequana, on the basis of 1.35
shares of Axys' common stock for one share of Sequana common stock. The purchase
price of $174,070,000 consisted of (i) the issuance of 14,618,013 shares of
Company common stock valued at $168,107,000, in exchange for all outstanding
Sequana capital stock, (ii) the issuance of Company warrants valued at
$1,623,000 in exchange for all of the outstanding Sequana warrants, and (iii)
transaction costs totaling $4,340,000.
The allocation of the purchase price was determined as follows:
<TABLE>
<S> <C>
Net tangible assets acquired................................ $ 45,882,000
Assembled workforce of Sequana.............................. 3,300,000
Acquired in-process research and development................ 124,888,000
------------
Total............................................. $174,070,000
============
</TABLE>
44
<PAGE> 45
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisition has been accounted for as a purchase and accordingly, the
original purchase price was allocated to acquired assets and assumed liabilities
based upon their estimated fair values at the date of acquisition, and to the
estimated fair value of in-process research and development ("IPR&D") was
charged as an expense in the Axys consolidated financial statements as such
acquired IPR&D had not reached technological feasibility. Intangible assets were
being amortized on a straight-line basis over 36 months. The September 30, 1999
unamortized balance of $1.3 million for the assembled work force was written off
in connection with the Company's third-quarter restructuring.
The value allocated to purchased IPR&D was determined by estimating the
costs to develop the purchased in-process technology into viable products,
estimating the resulting net cash flows from such projects, and discounting the
net cash flows back to their present value. The discount rate included a factor
that takes into account the Company's weighted average cost of capital and the
uncertainty surrounding the successful development of the purchased in-process
technology.
The acquired in-process research and development projects in the Sequana
acquisition consisted of eight significant research and development projects. As
of December 31, 1999, the schizophrenia/bipolar program was transferred to
Parke-Davis and the pharmacogenomics program was spun off into the PPGx
subsidiary. All other programs have been terminated.
The operating results of Sequana from January 1, 1998 to December 31, 1998
have been included in the Company's consolidated results of operations. The
operating results of Sequana from January 1, 1998 to January 8, 1998 (date of
acquisition) are considered immaterial.
The following unaudited pro forma financial summary is presented as if the
operations of the Company and Sequana were combined as of January 1, 1997. The
unaudited pro forma combined results are not necessarily indicative of the
actual results that would have occurred had the acquisition been consummated at
that date, or of the future operations of the combined entities. Nonrecurring
charges, such as the acquired in-process research and development charge of
$124.9 million are not reflected in the following pro forma financial summary.
PRO FORMA FINANCIAL SUMMARY FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNT)
-------------------------
<S> <C>
Contract Revenues....................................... $ 44,399
Net Loss................................................ $(26,108)
Basic and diluted net loss per share.................... $ (0.89)
</TABLE>
4. INVESTMENT IN JOINT VENTURE
In January 1997, Sequana formed Genos with Memorial Sloan-Kettering Cancer
Center to focus on research and identification of genes and related genetic
information of values in the prognosis, diagnosis and positive treatment of
certain common cancers. As of December 31, 1998 Sequana had invested $5.2
million and licensed certain of its technology to Genos and has contracted with
Genos to conduct research and provide certain other services to the joint
venture. Payments to date for such research and services have not been material.
In May 1999, the Board of Directors of Genos decided to suspend its
research activities and wind up its affairs. The Company is receiving back
rights to use its technology in the identification of programs in oncology from
Genos. As a result of winding up of Genos, the Company has taken a one-time
charge of $1.1 million in the third quarter of 1999, representing the total
carrying value of the investment in Genos, which is included in other expense in
the consolidated statement of operations.
45
<PAGE> 46
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the formation of Genos, Sequana issued a warrant to
MSKCC to purchase 350,000 shares of Sequana's common stock. That warrant was
assumed by the Company as part of the acquisition of Sequana on January 8, 1998,
and was converted to a warrant to purchase an aggregate of 472,500 shares of
Axys common stock at a price of $12.87 per share and expires in September 2000.
5. FORMATION OF AKKADIX CORPORATION
In May 1998, the Company formed a majority owned subsidiary, Akkadix
Corporation ("Akkadix", formerly known as Xyris Corporation), which was
established to leverage Axys' existing pharmaceutical technology in the
agricultural biotechnology market. In connection with the formation of Akkadix,
the Company granted Akkadix the right, for a limited period, to negotiate an
exclusive license in the field of agriculture to all Axys technology in exchange
for an 82% ownership interest. A third party contributed $500,000 cash in
exchange for a 15% ownership interest in Akkadix. Under the terms of the
financing, the Company granted the third party the right (the "Put Option") to
require the Company to purchase all of the third party's interest in Xyris in
exchange for that number of shares of the Company whose market value equals
$500,000 at the date of the exercise of the Put Option.
In February 1999, Akkadix executed an exclusive license to the Company's
technology in the field of agriculture (the "Technology License"). The Company
received additional shares of Akkadix in exchange for the Technology License.
Also in February 1999, Akkadix closed a financing in which it raised $4.5
million from a third party. During the second quarter of 1999, Akkadix completed
subsequent financing in which it raised $5 million from other third parties.
Under the terms of these financings, and a prior $500,000 financing, the Company
has granted the third parties the right (the "Put Option") to require the
Company to purchase all of the their interests in Akkadix in exchange for that
number of shares of the Company whose market value equals $10 million at the
date of the exercise of the Put Option. The Put Option may be exercised at any
time through February 2, 2001.
On September 9, 1999 Akkadix completed its acquisition of Global Agro, Inc.
("Global"), a privately held California corporation. Under the terms of the
merger, all outstanding shares of Global stock were converted into Series B
preferred stock of Akkadix. On November 1, 1999 Akkadix exchanged 100,000 shares
of Series C preferred stock for all of the net assets of Maize Genetic
Resources, Inc. ("Maize"), a privately held foundation seed corn company. Both
acquisitions were accounted for as a purchase.
The net effect of issuance of shares in connection with the financings and
acquisitions by Akkadix of other companies has changed the Company's ownership
in Akkadix from 82% at December 31, 1998, to 52% at June 30, 1999, to 39.3% at
September 30, 1999 and finally to 38.3% at December 31, 1999. Therefore,
Akkadix' balance sheet is no longer consolidated into the Company's balance
sheet from and after September 9, 1999 when the Company's ownership fell below
50%. Akkadix's results of operations are included with the Company's results of
operations through the date of merger between Akkadix and Global. Subsequent to
the acquisition of Global, the Company deconsolidated the effects of Akkadix
from the Balance Sheet through the Statement of Stockholders Equity and
accounted for its investment in Akkadix using the equity method of accounting.
6. FORMATION OF PPGX, INC.
In February 1999, the Company announced the formation of a majority-owned
subsidiary, PPGx, Inc. ("PPGx"), which is engaged in the business of providing
pharmacogenomic (the science of how genetic variations among individuals affects
drug safety and efficacy) products and services to the pharmaceutical and
biotechnology industries. In connection with the formation of PPGx, Axys
contributed certain fixed assets, which were recorded at the Company's net book
value, and technology in exchange for an 82% ownership
46
<PAGE> 47
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
interest in PPGx. PPD, Inc. ("PPD"), Axys' partner in PPGx, contributed certain
assets, technology, cash and loan guarantees in exchange for an 18% ownership
interest in PPGx and the exclusive, worldwide right to market the
pharmacogenomic products and services of PPGx.
Under the terms of a shareholder agreement between the Company and PPD, PPD
has the option (the "PPD Option") to purchase 32% of PPGx from the Company at
various escalating prices until February 1, 2002. Under certain circumstances,
the Company has the option to put (the "Axys Put") 32% of PPGx to PPD. Upon
exercise of the PPD Option or the Axys Put, the Company and PPD would have equal
ownership positions in PPGx. At such time as either the PPD Option or the Axys
Put is exercised, the Company would also become a co-guarantor of a certain PPGx
line of credit to the extent any borrowings are outstanding at that time.
Additionally, at any time after the fifth anniversary of the formation of PPGx,
the Company and, provided either the PPD Option or the Axys Put have been
exercised, PPD have the right to buy all of the outstanding equity interests in
PPGx at fair market value in accordance with the terms of buy-sell provisions of
the shareholder agreement.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash equivalents and marketable investments:
The following is a summary of available-for-sale securities at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999:
Commercial paper of U.S. corporations.......... $ 3,317 $ -- $-- $ 3,317
U.S. treasury securities....................... 5,000 -- -- 5,000
Certificates of deposit........................ 28 -- -- 28
Securities of foreign corporations............. 2,148 -- 56 2,092
U.S. agency securities......................... 10,952 -- 14 10,938
------- ---- --- -------
$21,445 $ -- $70 $21,375
======= ==== === =======
AT DECEMBER 31, 1998:
Commercial paper of U.S. corporations.......... $23,572 $ 35 $-- $23,607
U.S. treasury securities....................... 500 1 -- 501
Certificates of deposit........................ 4,003 9 -- 4,012
Securities of foreign corporations............. 3,431 13 -- 3,444
U.S. agency securities......................... 7,801 24 -- 7,825
Municipal obligations.......................... 4,001 34 -- 4,035
------- ---- --- -------
$43,308 $116 $-- $43,424
======= ==== === =======
Balance sheet classification:
AT DECEMBER 31, 1999:
Cash equivalents............................... $18,295 $ -- $-- $18,295
Short-term marketable investments.............. 3,150 -- 70 3,080
------- ---- --- -------
$21,445 $ -- $70 $21,375
======= ==== === =======
AT DECEMBER 31, 1998:
Cash equivalents............................... $ 6,967 $ 1 $-- $ 6,968
Short-term marketable investments.............. 23,928 71 -- 23,999
Marketable investments......................... 12,413 44 -- 12,457
------- ---- --- -------
$43,308 $116 $-- $43,424
======= ==== === =======
</TABLE>
47
<PAGE> 48
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Estimated fair value of other financial instruments:
The carrying value of the notes payable approximate their estimated fair
value. The fair value of the notes payable was estimated based on current
interest rates available to the Company for debt instruments with similar terms,
degree of risk and remaining maturities. The carrying values of all other
financial instruments approximate their estimated fair values, any realized
gains and losses recognized have been immaterial.
8. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment.................................. $29,119 $33,039
Purchased software....................................... 1,946 1,748
Furniture and office equipment........................... 2,702 2,220
Leasehold improvements................................... 14,614 12,420
Construction in progress................................. 227 262
------- -------
48,608 49,689
Less accumulated depreciation and amortization........... 29,735 28,179
------- -------
$78,343 $77,868
======= =======
</TABLE>
Property and equipment includes approximately $14,168,000 and $15,011,000
recorded under capital leases at December 31, 1999 and 1998, respectively.
Amortization is included with depreciation expense. Accumulated amortization of
equipment under capital leases was approximately $13,891,000 and $12,886,000 at
December 31, 1999 and 1998, respectively.
9. STOCKHOLDERS' EQUITY
Common Stock
At December 31, 1999 common stock was reserved for issuance as follows (in
thousands):
<TABLE>
<S> <C>
Stock options (including the Stock Bonus Plan).............. 5,234
Warrants.................................................... 678
Employee stock purchase plan................................ 559
-----
6,471
=====
</TABLE>
Stock Options
The Company has various equity incentive plans under which it issues stock
options to employees, consultants and members of the Board of Directors. The
Company's plans include the 1997 Equity Incentive Plan under which incentive
stock options or non-qualified stock options may be granted, or restricted stock
may be issued, at the discretion of the Board of Directors to employees,
directors and consultants to purchase the Company's common stock; the 1997
Non-Officer Equity Incentive Plan, under which non-officer employees and
consultants may be granted non-qualified stock options to purchase the Company's
common stock; the 1989 Stock Option Plan, under which directors, officers,
employees, and consultants may be issued restricted stock, or granted incentive
stock options or nonqualified stock options to purchase the Company's common
stock, at the discretion of the Board of Directors; and the 1994 Non-Employee
Directors' Stock Option Plan, whereby nonqualified stock options are
automatically granted to non-employee directors to
48
<PAGE> 49
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase the Company's Common stock. The 1989 Stock Option Plan expired in 1999,
reducing by approximately 700,000 shares the number of shares available to be
granted under all of the Company's plans.
All options granted under these Plans become exercisable pursuant to the
applicable terms of the grant. For stock options granted through December 31,
1997, the exercise price of the options was computed at the average market value
of the Company's common stock for the 15 days preceding the grant date. For
options granted after December 31, 1997, the exercise price is equal to the
market value of the Company's common stock on the date of grant. Generally
options vest ratably over four years and expire ten years from the date of
grant.
In October 1998, the Company offered its employees the right to exchange
their then outstanding options to purchase shares of common stock with exercise
prices ranging from $4.31 to $15.59, for new options to purchase shares with
exercise prices of $4.00 per share for non-officer employees and $5.00 per share
for executive officer employees. Under this program, options to purchase
3,643,387 shares were exchanged resulting in a decrease in aggregate purchase
price from $34,254,046 to $15,560,548. All new options had an additional year of
vesting added to the original vesting term.
Transactions under all of the above equity incentive plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
------------------------------
WEIGHTED
SHARES NUMBER OF AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- ---------- ----------------
<S> <C> <C> <C>
Balances at December 31, 1996...................... 147,196 1,764,356 $ 9.10
---------- ---------- ------
Shares reserved.................................. 1,750,000 -- --
Options granted.................................. (646,744) 646,744 $12.93
Options exercised................................ -- (281,694) $ 2.91
Options canceled................................. 129,782 (129,782) $11.26
---------- ----------
Balances at December 31, 1997...................... 1,380,234 1,999,624 $11.06
---------- ---------- ------
Shares reserved.................................. 2,850,000 --
Options granted.................................. (7,080,180) 7,080,180 $ 5.86
Options exercised................................ -- (226,193) $ 3.23
Options canceled................................. 4,433,158 (4,433,158) $ 9.28
---------- ----------
Balances at December 31, 1998...................... 1,583,212 4,420,453 $ 4.80
---------- ---------- ------
Shares reserved.................................. -- --
Options granted.................................. (1,699,539) 1,699,539 $ 4.31
Options exercised................................ -- (34,643) $ 3.38
Options canceled................................. 1,886,403 (1,886,403) $ 4.57
Shares expired................................... (735,135) -- --
---------- ---------- ------
Balances at December 31, 1999...................... 1,034,941 4,198,946 $ 4.72
========== ========== ======
</TABLE>
The weighted average fair value of stock options outstanding under the
plans were $4.72, $4.80 and $11.06 in 1999, 1998, and 1997, respectively.
49
<PAGE> 50
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options outstanding and exercisable by price range at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
OPTIONS AVERAGE OPTIONS
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
RANGE OF 1999 LIFE EXERCISE 1999 EXERCISE
EXERCISE PRICES (SHARES) (IN YEARS) PRICE (SHARES) PRICE
- ---------------- -------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$0.35 - $ 3.94 714,387 9.02 $ 3.45 146,415 $ 2.65
$3.96 - $ 4.00 1,544,577 3.89 $ 4.00 777,587 $ 3.99
$4.06 - $ 5.00 1,314,456 6.36 $ 4.78 678,999 $ 4.89
$5.09 - $ 8.13 420,396 8.06 $ 6.09 191,315 $ 6.07
$8.38 - $15.36 205,130 7.40 $11.43 111,368 $11.88
--------- ---------
4,198,946 6.12 $ 4.72 1,905,684 $ 4.88
========= =========
</TABLE>
Warrants
As of December 31, 1999, the Company had issued and outstanding warrants to
purchase a total of 677,878 shares of the Company's common stock at prices
ranging from $4.06 to $13.46 per share. These warrants expire at various dates
from 2000 through 2005.
Employee Stock Purchase Plan
In October 1993, the Company adopted the 1993 Employee Stock Purchase Plan
(the "Purchase Plan") under which employees who meet certain minimum employment
criteria are eligible to participate. Eligible employees may purchase common
stock of the Company at a purchase price of 85% of the lower of the fair market
value of the stock at the offering commencement date or purchase date, within a
two-year offering period. In 1999, the Board of Directors and, the Company's
stockholders approved an additional 500,000 shares to be reserved under the
Purchase Plan. Under the Purchase Plan, 202,257 shares were issued in 1999.
Shareholders Rights Plan
On October 8, 1998, the Board of Directors adopted a Preferred Share
Purchase Rights Plan (the "Plan") designed to enable all stockholders to realize
the full value of their investment and to provide for fair and equal treatment
for all stockholders in the event an unsolicited attempt were made to acquire
the Company. In connection with the Plan, the Board declared a dividend of one
preferred share purchase right (a "Right") for each share of common stock of the
Company outstanding on October 28, 1998 and further directed the issuance of one
such right with respect to each share of the Company's common stock that is
issued after October 28, 1998. If a person, entity or group of affiliated or
associated persons acquires beneficial ownership of 15% or more of the Company's
common stock, or announces a tender offer for 15% or more of the Company's
common stock, the rights will be distributed. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, at a price of $35.00 per one one-hundredth
of a Preferred Share subject to adjustment. The Rights are redeemable prior to
any person's acquisition of more than 15% of the Company's common stock and will
expire on October 7, 2008.
Stock-Based Compensation
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock-based compensation plans because, as discussed below,
the alternative fair value accounting provided for under SFAS 123 requires use
of option valuation models that were not developed for use in valuing employee
stock
50
<PAGE> 51
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
options and employee stock-based awards. Compensation expense under APB 25 with
respect to such awards has been immaterial.
Pro Forma Disclosures
Pro forma information regarding net loss and net loss per share is required
by FAS 123, and has been determined as if the Company had accounted for its
stock-based awards granted subsequent to December 31, 1994 under the fair value
method of FAS 123. The fair value for these stock-based awards was estimated at
the date of grant using a Black-Scholes option-pricing model. 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
stock-based awards have characteristics significantly different from 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
the Company's stock-based awards to its employees.
The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
OPTIONS PURCHASE PLAN
-------------------- --------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (years)............................ 3.0 3.0 3.0 0.5 0.5 0.5
Expected volatility.............................. 0.65 0.59 0.58 0.92 0.65 0.54
Risk-Free interest rate.......................... 5.58% 5.13% 6.23% 4.81% 5.17% 5.67%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
stock-based awards are amortized to pro forma net loss over the option's vesting
period and the purchase plan's six-month purchase period. The Company's as
reported and pro forma information follows (in thousands, except for net loss
per share information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
---------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Net loss
As reported............................................. $(48,763) $(156,124) $(10,967)
Pro forma............................................... $(52,757) $(163,470) $(14,418)
Net loss per share -- basic and diluted
As reported............................................. $ (1.60) $ (5.25) $ (0.73)
Pro forma............................................... $ (1.74) $ (5.49) $ (0.96)
</TABLE>
For pro forma purposes in accordance with FAS 123, the repricing of
employee stock options during 1998 is treated as a modification of the
stock-based award, with the original options being repurchased and new options
granted. Any additional compensation arising from the modification is recognized
over the remaining vesting period of the new grant.
10. COMMITMENTS
Leases
The Company leases office and laboratory facilities and equipment. Rent
expense, net of sublease income of $1,385,000 in 1999 ($780,000 in 1998 and
$597,000 in 1997), for the years ended December 31, 1999, 1998, and 1997 was
approximately $2,168,000 $3,293,000, and $1,622,000, respectively.
51
<PAGE> 52
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under non-cancelable leases, net of
non-cancelable sublease income of $1,882,000, $1,497,000 $816,000, $911,000,
$930,000, and $549,000 for 2000, 2001, 2002, 2003, 2004 and thereafter,
respectively, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000...................................................... $ 548 $1,685
2001...................................................... -- 1,915
2002...................................................... -- 881
2003...................................................... -- 733
2004...................................................... -- 93
Thereafter................................................ -- 308
----- ------
Total minimum lease payments................................ 548 $5,615
======
Less amount representing interest........................... (15)
-----
Present value of future lease payments...................... 533
Less current portion........................................ (533)
-----
Non-current portion of capital lease obligations............ $ --
=====
</TABLE>
Lines of Credit and Note Payable
In July 1999, the Company refinanced its two lines of credit, one with
Sumitomo Bank, Limited ("Sumitomo") and one with Sumitomo and Silicon Valley
Bank, jointly for a new $30 million revolving line of credit with Foothill
Capital Corporation. The initial draw down on this line of credit repaid the
previous notes with Sumitomo and Silicon Valley Bank. The balance outstanding at
December 31, 1999 was $17 million. The new line is subject to the terms of a
security agreement, and is fully secured by the Company's marketable
investments. Interest is due on the line monthly and is computed at the
reference rate for Wells Fargo Bank, which approximates 8.50% at December 31,
1999. The line is available through July 2002.
PPGx, Inc. has an $8 million revolving line of credit, which is guaranteed
by PPD, Inc. Interest is accrued monthly and is computed at the LIBOR rate,
which approximates 6.8% at December 31, 1999. The amount outstanding on this
line as of December 31, 1999 was $6 million. The balance of any unpaid principal
and interest is due June 30, 2000.
In February 1997, the Company entered into a lending arrangement with one
of its facility lessors for tenant improvements. The loan amount was $350,000,
with interest accruing at 9% per annum. Principal and interest are due monthly
through July 1, 2001.
Principal maturities of the lines of credit and note payable at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000................................... $23,113
2001................................... 57
-------
$23,170
=======
</TABLE>
11. RELATED PARTY TRANSACTIONS
In February 1999, the Company entered into an employment agreement with its
Chief Executive Officer that extends through January 31, 2003. The agreement
provided for compensation and bonus provisions in exchange for continued service
and an agreement not to compete. In addition, the agreement provides for
52
<PAGE> 53
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
forgiveness of a note receivable, totaling $560,000. In addition, the agreement
provides for the forgiveness of accrued interest and a partial tax gross-up. The
principal portion of the notes forgiven pursuant to the employment agreement and
a predecessor employment agreement in 1999, 1998 and 1997 was $160,000, $155,000
and $75,000, respectively.
In December 1999, the Company entered into employment agreements with its
Sr. Vice President of Research and Preclinical Development and its Sr. Vice
President, Corporate and Business Development and General Counsel. These
agreements provide for compensation, bonus and stock acceleration in the event
of a change in control in exchange for continued service.
12. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(K) retirement savings plan for all of its
eligible employees. Each participant in the plan may elect to contribute 1% to
20% of his or her annual salary to the plan, subject to statutory limitations.
The Company matches 50% of the first 6% of the salary contributed by the
employee. The Company's match is done with the Company's stock. The expense
charged to operations under this plan for fiscal 1999, 1998 and 1997 was
$458,253, $295,180 and $276,000, respectively.
13. SEGMENT INFORMATION
The Company operates three segments: (i) drug discovery, through
collaborative research agreements and unpartnered programs in oncology, (ii)
combinatorial chemistry through it's wholly owned subsidiary, Axys Advanced
Technologies (AAT) through the sale of chemical compound libraries, and (iii)
other affiliated businesses, which includes PPGx, engaged in pharmacogenomics,
and Akkadix which is engaged in agricultural biotechnology. The Company's
reportable segments are strategic business units that offer different products
and services. They are each managed separately because they perform different
services utilizing different and distinct operations. Our other affiliated
businesses are self funded.
Information as to the operations of drug discovery, AAT, and other
affiliated businesses is set forth below based on the nature of the products and
services offered. The Company evaluates performance based on several factors, of
which the primary financial measure is business segment net income or loss.
Revenues for AAT include product sales and license, commitment and protocol fees
associated with the respective agreements. Net income for AAT does not include
corporate overhead allocations, except for a facilities
53
<PAGE> 54
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
charge and information systems charge in 1999 and a facilities charge in 1998.
The accounting policies of the business segments are the same as those described
in the summary of accounting policies (Note 1).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Drug discovery.................................. $ 24,084 $ 35,760 $ 20,499
AAT............................................. 13,287 11,662 4,315
Other affiliated businesses..................... 886 -- --
-------- --------- --------
Total consolidated................................ $ 38,257 $ 47,422 $ 24,814
======== ========= ========
Net income (loss):
Drug discovery(1)............................... $(44,899) $(152,846) $(11,294)
AAT............................................. 4,007 4,172 327
Other affiliated businesses....................... (7,871) (7,450) --
-------- --------- --------
Total consolidated................................ $(48,763) $(156,124) $(10,967)
======== ========= ========
Assets:
Drug discovery.................................. $ 40,916 $ 101,888 $ 70,367
AAT............................................. 9,337 5,137 3,217
Other affiliated businesses....................... 5,481 237 0
-------- --------- --------
Total consolidated................................ $ 55,734 $ 107,262 $ 73,584
======== ========= ========
</TABLE>
- ---------------
(1) Includes one-time charges of $6.2 million for restructure costs associated
with the winding up of operations at the San Diego facility, and the
write-off of Genos in 1999, and $125 million and $0.2 million in acquired
in-process research and development recorded in 1998 and 1997, respectively,
related to certain acquisitions during those years.
Other affiliated businesses represent the results of Akkadix's principal
activities, which commenced in 1998 and are included through August 1999, and
the results of PPGx's principal activities, which commenced in 1999.
14. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $114,500,000 and $11,100,000, respectively.
The Company also had federal and California research and other tax credit
carryforwards of approximately $5,800,000 and $2,800,000, respectively. The
federal net operating loss and credit carryforwards will expire at various dates
beginning in the year 2004 through 2019, if not utilized. The state of
California net operating losses will expire at various dates beginning in 2000
through 2004, if not utilized.
The utilization of the net operating losses and credits may be subject to a
substantial 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.
54
<PAGE> 55
AXYS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 39,600,000 $ 26,100,000
Research and other credit............................. 8,600,000 7,200,000
Capitalized research expenses......................... 26,500,000 24,400,000
Fixed asset depreciation.............................. 3,200,000 2,600,000
Other................................................. 4,500,000 2,400,000
------------ ------------
Total deferred tax assets............................... 82,400,000 62,700,000
Valuation allowance..................................... (82,400,000) (62,700,000)
------------ ------------
Net deferred tax........................................ $ -- $ --
============ ============
</TABLE>
The net valuation allowance increased by approximately $33,100,000 and
$4,700,000 during the years ended December 31, 1998 and 1997, respectively.
Approximately $1,500,000 of the valuation allowance for deferred tax assets
relates to benefits of stock options deductions which, when recognized, will be
allocated directly to contributed capital.
15. REVENUES FROM SIGNIFICANT PARTNERS AND CUSTOMERS
Major customers, responsible for 10% or more of revenues include drug
discovery partners and pharmaceutical and biotechnology companies, which
purchase AAT compound libraries. The percentages of sales of each of these major
customers to total revenue for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 31% 14% --
Customer B.................................................. 14% 4% --
Customer C.................................................. 13% 10% --
All Others.................................................. 42% 42% 100%
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</TABLE>
16. SUBSEQUENT EVENTS
In February 2000 the Company entered into a definitive purchase agreement
for the sale of 3.5 million newly issued shares of Axys Pharmaceuticals, Inc.
common stock to selected institutional and other accredited investors for
approximately $31.5 million in gross proceeds.
55
<PAGE> 56
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
information under the captions "Proposals to be Voted Upon", "Nominees for
Directors" and "Compliance with the Reporting Requirements of Section 16"
contained in our definitive proxy statement to be filed no later than April 30,
1999 in connection with the solicitation of proxies for our annual meeting of
stockholders to be held May 26, 1999 (the "Proxy Statement"). In addition, the
information contained in Part I of this Form 10-K under the caption "Executive
Officers of the Registrant" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the captions "Compensation of Executive Officers,"
"Compensation of Non-Employee Directors" and "Employment Agreements and
Change-in-Control Arrangements" contained in 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 "Axys Stock Ownership of Beneficial Owners,
Directors and Management" contained 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 "Relationships and Transactions You Should Know
About" contained in the Proxy Statement.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) INDEX TO FINANCIAL STATEMENTS
The Financial Statements required by this item are submitted in Part II,
Item 8 of this report.
(2) INDEX TO FINANCIAL STATEMENTS SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or in the notes thereto.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation.
Incorporated by reference to Ex. 3.1 filed on Form 10-K
filed on March 31, 1998.
3.2 Amended and Restated Bylaws.(1)
3.3 Registrant's Certificate of Designation of Series A Junior
Participating Preferred Stock incorporated by reference to
Exhibit 99.3 filed on Form 8-K dated October 8, 1998.
4.1 Rights Agreement dated as of October 8, 1998, among the
Registrant and ChaseMellon Shareholders Services, LLC,
incorporated by reference to Exhibit 99.2 filed on Form 8-K
dated October 8, 1998.
4.2 Form of Rights Certificate, incorporated by reference to
Exhibit 99.4 filed on Form 8-K dated October 8, 1998.
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.1 Registration Rights Agreement, among the Registrant and the
other parties therein, dated January 7, 1998.
10.2 1989 Stock Plan, as amended.(2)
10.3 Form of Employee Stock Purchase Plan and Form of Offering
Document.(2)(12)
10.4+ 1997 Equity Incentive Plan. Incorporated by reference to
Exhibit 10.4 filed on Form 10-Q filed on August 15, 1998.
10.6 Standard Industrial Lease between the Registrant and Shelton
Properties, Inc., dated October 15, 1992, with related
addenda and amendment.(1)
10.7 Third Amendment to Lease between Registrant and Shelton
Properties, Inc., dated March 29, 1994.(4)
10.8 Master Equipment Lease Agreement between the Registrant and
Phoenix Leasing Incorporated, dated as of April 12, 1993,
with related amendments.(1)
10.11** Research and License Agreement between the Registrant and
Amgen Inc., dated May 28, 1993.(1)
10.14 Consent and Waiver between the Registrant, Amgen Inc., and
the Whitehead Institute for Biomedical Research, dated May
28, 1993.(1)
10.15** Collaboration Agreement between the Registrant and Pharmacia
AB, dated March 29, 1993.(1)
10.16** Project Agreement between the Registrant and Pharmacia AB,
dated March 29, 1993.(1)
10.17 Form of Restricted Stock Purchase Agreement.(1)(2)
10.18+ Form of Indemnity Agreement entered into between the
Registrant and its officers and directors.(1)(2)
10.19 Stock Bonus Grant Plan.(2)(3)
10.20 Financing Agreement between Hambrecht and Quist Guaranty
Finance, L.P., dated March 29, 1994, including Security
Agreement and Warrant Purchase Agreement of even date.(4)
10.22+ 1994 Non-Employee Directors' Stock Option Plan, as amended
on January 7, 1998. Incorporated by reference to Exhibit
10.22 filed on Form 10-K filed on March 31, 1998.
10.23 Fourth Amendment to Lease dated October 15, 1992 between the
Registrant and Shelton Properties, Inc., dated October 1,
1994.(5)
10.24** Collaborative Research and License Agreement between the
Registrant and Bayer AG, dated November 28, 1994.(6)
10.25** Research Agreement between the Registrant and Pharmacia AB,
dated December 21, 1994.(5)
10.26 Form of Fifth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc. dated
August 28, 1996.(6)
10.27 Master Equipment Lease Agreement between the Registrant and
GE Capital, dated August 18, 1995.(6)
10.28** Collaborative Research and License Agreement between the
Registrant and Pharmacia AB, dated August 29, 1995.(6)
10.33 Amendment to Agreement dated March 29, 1993 between the
Registrant and Kabi Pharmacia AB, dated January 31, 1996.(9)
10.34 First Amendment to Research and License Agreement, dated May
28, 1993, between Registrant and Amgen, Inc., dated February
2, 1996.(9)
10.35 Research Agreement between the Registrant and Pharmacia &
Upjohn, Inc., a Delaware corporation, dated February 29,
1996.(9)
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.36 Form of Sixth Amendment to Lease dated October 15, 1992
between the Registrant and Shelton Properties, Inc., dated
March 29, 1996.(9)
10.37 Financing Agreement between Hambrecht and Quist Guaranty
Finance, LLC, dated March 29, 1996, including Security
Agreement and Warrant Purchase Agreement of even date.(9)
10.39 Standard Industrial Lease between the Registrant and The
Equitable Life Assurance Society of the United States, dated
August 5, 1996.(10)
10.42** Research Collaboration and License Agreement between Merck &
Co., Inc. and the Registrant, dated November 6, 1996.(7)
10.44 Collaborative Research and License Agreement between
SmithKline Beecham Corporation and the Registrant, dated
June 27, 1996.(11)
10.52 Expansion Lease by and between Health Science Properties,
Inc. and Sequana dated as of November 20, 1995.(15)
10.53** Collaborative Research Agreement dated as of June 30, 1995
by and between Sequana and Corange International, Ltd.(14)
10.54** Collaborative Research Agreement dated as of June 12, 1995
by and between Sequana and Boehringer Ingelheim
International GmbH.(14)
10.55+ Form of Indemnification Agreement between the Registrant and
its officers and directors.(14)
10.59 Merger Agreement and Plan of Reorganization Agreement
between Sequana, Sequana Merger Sub, Inc., NemaPharm, Inc.
and the Shareholders of NemaPharm, Inc., dated July 19,
1996.(17)
10.61** Joint Venture Agreement among Sequana Therapeutics, Inc.,
Memorial Sloan-Kettering Cancer Center and Genos
Biosciences, Inc., dated January 29, 1997.(19)
10.62* Amendment to Collaborative Research Agreement of June 12,
1995 between Sequana and Boehringer Ingelheim International
GmbH, dated June 19, 1997.(20)
10.63 Second Amendment to Expansion Lease by and between Sequana
and Alexandria Real Estate Equities, Inc., dated as of May
20, 1997.(20)
10.64 Agreement and Plan of Merger and Reorganization dated
November 2, 1997, by and among the Registrant, Beagle
Acquisition Sub, Inc., a California corporation and wholly
owned subsidiary of the Registrant and Sequana.(21)
10.67* Collaboration Agreement dated as of October 1997 by and
between the Registrant and Bristol-Myers Squibb Company.
Incorporated by reference to Exhibit 10-67 filed on Form
10-K filed on March 31, 1998.
10.68* Collaboration Agreement dated as of October 31, 1997 by and
between Sequana and Warner-Lambert Company. Incorporated by
reference to Exhibit 10-68 filed on Form 10-K filed on March
31, 1998.
10.71 $750,000 Promissory Note, dated September 2, 1997, issued by
John P. Walker, to the Registrant. Incorporated by reference
to Exhibit 10-71 filed on Form 10-K filed on March 31, 1998.
10.72 Employment Agreement, dated August 29, 1997, by and between
John Walker and the Registrant. Incorporated by reference to
Exhibit 10-72 filed on Form 10-K filed on March 31, 1998.
10.78 1997 Equity Incentive Plan, dated January 7, 1998.(22)
10.83 Amendment to the Collaborative Research Agreement between
Sequana and Corange International Ltd., effective June 30,
1995, dated January 9, 1998.(24)
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.84* Amendment No. 2 to the Collaborative Research Agreement
between Sequana and Corange International Ltd., dated June
30, 1995, effective February 23, 1998.(24)
10.86 Lease Agreement between Sequana and ARE-John Hopkins Court,
LLC, dated as of January 7, 1998.(24)
10.87* Termination of Collaborative Research Agreement between
Sequana and Glaxo Wellcome, Inc., effective February 1,
1998.(25)
10.88* Combinatorial Chemistry Agreement between the Registrant and
Warner-Lambert Company, dated May 15, 1998.(25)
10.89* Collaboration Agreement by and among the Registrant and its
subsidiaries, NemaPharm, Inc. and Sequana, and Roche
Bioscience, dated June 1, 1998.(25)
10.90* Amendment dated September 21, 1998 to the Collaboration
Agreement between Warner-Lambert Company and Sequana, dated
October 31, 1997.(26)
10.91 1997 Non-Officer Equity Incentive Plan.(26)
10.93* Second Amendment to the Research Collaboration and License
Agreement between Arris Pharmaceutical Corp. and Merck and
Co., Inc., dated November 5, 1998.
10.94* Collaborative Research and License Agreement between the
Registrant and Rhone-Poulenc Rorer Pharmaceuticals, Inc.,
dated December 11, 1998.
10.95* Combinatorial Chemistry Agreement between the Registrant and
Rhone-Poulenc Rorer Pharmaceuticals, Inc., dated December
22, 1998.
10.96 Agreement, dated June 11, 1998, by and between William
Newell and the Registrant.
10.97 Employment Agreement, dated February 26, 1999, between the
John Walker and the Registrant.(27)
10.98 Series A Preferred Stock Purchase Agreement, dated February
2, 1999 by and among Xyris Corporation, Bay City Capital
Fund I and the Registrant.(27)
10.99 Third Amendment to Expansion Lease, dated August 24, 1998
between the Registrant and ARE-11099 North Torrey Pines,
LLC.(27)
10.100 Fourth Amendment to Expansion Lease, dated March 31, 1999
between the Registrant and ARE-11099 North Torrey Pines,
LLC.(27)
10.101 First Amendment to the Research Agreement, dated February
28, 1999 between the Registrant and Pharmacia & Upjohn,
Inc.(27)
10.102 Seventh Amendment to Standard Industrial Lease Multi-tenant,
dated February 13, 1998, between Shelton Corporation and the
Registrant.(27)
10.103 Eighth Amendment to Standard Industrial Lease Multi-tenant,
dated November 18, 1998 between Shelton International
Holdings, Inc. and the Registrant.(27)
10.104 Ninth Amendment to Standard Industrial Lease Multi-tenant,
dated November 18, 1998 between Shelton International
Holdings, Inc. and the Registrant.(27)
10.105* Termination of Collaborative Research Agreement, dated
February 13, 1999 between Corange International, Ltd. and
the Registrant.(27)
10.106* Termination Agreement dated February 5, 1999 between
Pharmacia and Upjohn AB and the Registrant.(27)
10.107* Combinatorial Chemistry Agreement between Axys Advanced
Technologies, Inc. and Daiichi Pharmaceutical Co., Ltd.,
signed June 30, 1999.(28)
10.108* Amendment to the Collaboration Agreement between the Sequana
and Boehringer Ingelheim GmH, dated June 14, 1999.(28)
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.109 Series A Preferred Stock Purchase Agreement dated May 14,
1999, by and among Xyris Corporation, The North American
Nutrition & Agribusiness Fund and the Registrant.(28)
10.110 Series A Preferred Stock Purchase Agreement dated May 14,
1999, by and among Xyris Corporation and Missouri Soybean
Merchandise Council and the Registrant.(28)
10.111 Fourth Amendment to Expansion Lease between Sequana and
ARE -- 11099 North Torrey Pines, LLC, dated March 31,
1999.(28)
10.112* First Amendment to Lease between ARE-JOHN HOPKINS COURT LLC
and Sequana, dated December 1, 1998.(28)
10.113** Combinatorial Chemistry Agreement between Axys Advanced
Technologies, Inc. and Allergan, Inc., dated September 27,
1999.(29)
10.114** Loan Agreement by and between Axys Pharmaceuticals, Inc. and
Foothill Capital Corporation, dated July 26, 1999.(29)
10.115 Warrant to Purchase Common Stock, issued to Reedland Capital
Partners, dated July 30, 1999.(29)
10.116 Registration Rights Agreement by and among the Registrant
and Reedland Capital Partners, dated July 30, 1999.(29)
10.117 Fifth Amendment to Expansion Lease by and between the
Registrant and Alexandria Real Estate Equities, dated
October 1999.(29)
10.118* Termination of Collaborative Research and License Agreement
between Registrant and Bristol-Myers Squibb Pharmaceutical
Research Institute dated December 31, 1999.
10.119* Research Collaboration License Agreement between the
Registrant and Merck & Co., Inc. dated November 18, 1999.
10.120* Amendment to the Collaboration Agreement between the
Registrant and Warner-Lambert Company dated October 1, 1999.
10.121 Employment Agreement, dated December 14, 1999 between
William J. Newell and the Registrant.
10.122 Employment Agreement, dated December 14, 1999 between
Michael C. Venuti and the Registrant.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (incorporated in the signature page of
this Form 10-K).
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Compensatory Benefit Plan or management contract.
* Confidential treatment has been requested with respect to certain portions
of this exhibit.
** Confidential treatment has been granted with respect to certain portions of
this exhibit.
(1) Incorporated herein by reference to the Registration Statement on Form S-1
filed October 5, 1993, as amended thereto (file number 33-69972).
(2) Compensation plan.
(3) Incorporated herein by reference to the Registration Statement on Form S-8
filed January 31, 1994 (file number 33-69972).
(4) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 1994.
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.
60
<PAGE> 61
(6) Incorporated herein by reference to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1995.
(7) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-K for the fiscal year ended December 31, 1996
(8) Incorporated herein by reference to the Registrant's Current Report on Form
8-K, filed November 13, 1995.
(9) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended March 31, 1996.
(10) Incorporated herein by reference to the Registration Report on Form 10-Q
for the quarter ended September 30, 1996.
(11) Incorporated herein by reference to the Registration Statement filed on
Form S-3/A filed September 19, 1996 (file number 333-09307).
(12) Incorporated by reference to the Registration Statement on Form S-8 filed
July 29, 1996 (file number 333-09095).
(13) Incorporated by reference to exhibit 10.47 to the Registrant's Report on
Form 10-Q for the quarter ended October 31, 1997.
(14) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed June 14, 1995 as amended (Reg. No. 33-93460).
(15) Incorporated by reference to exhibits filed with Sequana's Registration
Statement on Form S-1, filed February 12, 1996 as amended (Reg. No.
333-01226).
(16) Incorporated by reference to exhibit 10.14 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1996.
(17) Incorporated by reference to exhibit 10.15 to Sequana's Report on Form 10-Q
for the quarter ended September 30, 1996.
(18) Incorporated by reference to exhibit 10.16 filed with Sequana's Report on
Form 10-K, as amended, for the fiscal year ended December 31, 1996.
(19) Incorporated by reference to exhibit 10.17 to Sequana's Report on Form 10-Q
for the quarter ended March 31, 1997.
(20) Incorporated by reference to exhibit 10.18 to Sequana's Report on Form 10-Q
for the quarter ended June 30, 1997.
(21) Incorporated by reference to exhibit 4.1 to the Schedule 13D filed by the
Registrant on November 12, 1997.
(22) Incorporated by reference to Appendix E to the Registrants Registration
Statement on Form S-4, filed November 27, 1997.
(23) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-K for the fiscal year ended December 31, 1997.
(24) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended March 31, 1998.
(25) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended June 30, 1998.
(26) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended September 30, 1998.
(27) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended March 31, 1999.
(28) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended June 30, 1999.
61
<PAGE> 62
(29) Incorporated herein by reference to the Registrant's Registration Report on
Form 10-Q for the quarter ended September 30, 1999.
(b) REPORTS ON FORM 8-K
None
(c) See Exhibits listed under Item 14(a)(3).
(d) All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or in the noted thereto.
62
<PAGE> 63
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 on the 24th day of
February, 2000.
AXYS PHARMACEUTICALS, INC.
BY: /s/ JOHN P. WALKER
------------------------------------
John P. Walker
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the following page constitutes and appoints John P. Walker and Kathleen
Stafford, or any of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN P. WALKER Chief Executive Officer February 24, 2000
- ----------------------------------------------------- and Director
John P. Walker (Principal executive
officer)
/s/ KATHLEEN STAFFORD Senior Vice President and February 24, 2000
- ----------------------------------------------------- Chief Financial Officer
Kathleen Stafford (Principal financial and
accounting officer)
/s/ ANN M. ARVIN, M.D. Director March 6, 2000
- -----------------------------------------------------
Ann M. Arvin, M.D.
/s/ VAUGHN M. KAILIAN Director February 24, 2000
- -----------------------------------------------------
Vaughn M. Kailian
/s/ DONALD KENNEDY, PH.D. Director February 24, 2000
- -----------------------------------------------------
Donald Kennedy, Ph.D.
Director February , 2000
- -----------------------------------------------------
Irwin Lerner
/s/ ALAN C. MENDELSON Director February 24, 2000
- -----------------------------------------------------
Alan C. Mendelson
/s/ J. LEIGHTON READ, M.D. Director February 24, 2000
- -----------------------------------------------------
J. Leighton Read, M.D.
</TABLE>
63
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.118
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Agreement") is made and entered into
effective as of December 31, 1999 (the "Effective Date"), by and between AXYS
PHARMACEUTICALS, INC. ("AXYS"), a Delaware corporation, formerly known as Arris
Pharmaceutical Corporation, having a place of business at 180 Kimball Way, South
San Francisco, CA 94080, and BRISTOL-MYERS SQUIBB COMPANY ("BMS"), a Delaware
corporation having a place of business at Route 206 and Province Line Road,
Princeton, NJ 08543-4000. Axys and BMS may be referred to herein individually as
a "Party" or, collectively, as the "Parties."
RECITALS
A. The Parties are parties to that certain Collaborative Research and
License Agreement entered into by Arris Pharmaceutical Corporation and BMS dated
October 24, 1997 (the "Collaboration Agreement"), and they now wish to terminate
the Collaboration Agreement as provided in this Agreement.
B. Concurrent with the execution of this Agreement, and in partial
consideration for terminating the Collaboration Agreement pursuant to the terms
of this Agreement and the surviving rights and obligations set forth under the
Collaboration Agreement, BMS and Axys Advanced Technologies, Inc.(a subsidiary
of Axys) are entering into a Combinatorial Chemistry Agreement (the
"Combinatorial Chemistry Agreement").
NOW THEREFORE, the Parties agree as follows:
1. DEFINITIONS. Any capitalized terms used in this Agreement not defined
herein shall have the meanings as defined in the Collaboration Agreement.
2. TERMINATION OF AGREEMENT. The Parties agree that Collaboration
Agreement is hereby terminated, and that such termination shall be deemed to be
a termination by BMS pursuant to the provisions of Section 10.3(i) of the
Collaboration Agreement. All the consequences, rights and obligations of the
Parties under the Collaboration Agreement based on a termination pursuant to the
provisions of Section 10.3(i) of the Collaboration Agreement shall apply, except
as otherwise provided in this Agreement. BMS is hereby deemed automatically to
have granted to Axys as of the Effective Date all the rights that are to be
granted to Axys under Sections 10.5(b) and 10.5(d) of the Collaboration
Agreement.
3. TERMINATION OF OBLIGATIONS. The Parties agree that any and all of the
following obligations are deemed to have terminated and ceased as of [ * ]: (a)
all the Parties' obligations to conduct any further Research work under the
Collaboration Agreement; and (b) BMS's obligation to fund the Research pursuant
to Section 2.5 of the Collaboration Agreement. Further,
1.
<PAGE> 2
the Parties agree that, notwithstanding the provisions of Sections 2.9 and
10.3(i) of the Collaboration Agreement, [ * ] shall have no obligation to [ * ],
and any such obligations is hereby waived and terminated.
4. MISCELLANEOUS PROVISIONS.
(a) ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder nor any surviving right or obligation under
the Collaboration Agreement shall be assignable by a Party without the prior
written consent of the other; provided, however, that a Party may assign this
Agreement and any surviving rights and obligations under the Collaboration
Agreement to any Affiliate or to any successor in interest by way of merger,
acquisition or sale of all or substantially all of its assets in a manner such
that the assignee shall be liable and responsible for the performance and
observance of all such Party's duties and obligations hereunder and thereunder.
This Agreement and any surviving rights and obligations under the Collaboration
Agreement and the Collaboration Agreement shall be binding upon the successors
and permitted assigns of the Parties. Any assignment not in accordance with this
Section 4(a) shall be void.
(b) ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement, the
surviving provisions of the Collaboration Agreement, and the Combinatorial
Chemistry Agreement constitute and contain the entire understanding and
agreement of the Parties respecting the subject matter hereof and cancel and
supersede any and all prior negotiations, correspondence, understandings and
agreements between the Parties, whether oral or written, regarding such subject
matter. No waiver, modification or amendment of any provision of this Agreement,
the surviving provisions of the Collaboration Agreement, and the Combinatorial
Chemistry Agreement shall be valid or effective unless made in writing and
signed by a duly authorized officer of each Party.
(c) APPLICABLE LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, USA,
applicable to contracts entered into and to be performed wholly within the State
of New York, excluding conflict of laws principles.
(d) WAIVER. A waiver by either Party of any of the terms and
conditions of this Agreement or the surviving provisions of the Collaboration
Agreement in any instance shall not be deemed or construed to be a waiver of
such term or condition for the future or of any subsequent breach hereof. All
rights, remedies, undertakings, obligations and agreements contained in this
Agreement the surviving provisions of the Collaboration Agreement shall be
cumulative and none of them shall be in limitation of any other remedy, right,
undertaking, obligation or agreement of either Party.
(e) COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, any one of which need not contain the signature of
more than one Party but all such counterparts taken together shall constitute
one and the same agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
2.
<PAGE> 3
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.
AXYS PHARMACEUTICALS, INC. BRISTOL-MYERS SQUIBB COMPANY
By: /s/ John P. Walker By /s/ William H. Koster, Ph.D.
--------------------------------- ----------------------------------
Name: John P. Walker Name: William H. Koster, Ph.D.
------------------------------- --------------------------------
Title: Chairman Title: Senior Vice President, Applied
------------------------------ Discovery & Exploratory
Development
Date: 1/14/00 Date:
------------------------------- --------------------------------
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3.
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.119
THIRD AMENDMENT TO AGREEMENT
This is the third amendment to the Research Collaboration and License
Agreement between MERCK & CO., INC., a corporation organized and existing under
the laws of New Jersey ("MERCK") and ARRIS PHARMACEUTICAL CORPORATION, a
corporation organized and existing under the laws of Delaware, now known as Axys
Pharmaceuticals, Inc. ("Axys") made as of November 6, 1996 (the "Agreement").
The purpose of this third amendment is to extend the Research Program Term
through November 5, 2000, and to increase the number of FTEs for the period
September 1, 1999 through November 5, 2000.
1. In accordance with the provisions of Section 2.8 and Section 5.2(d)
of the Agreement and subject to MERCK's right to terminate the Research Program
and the Agreement in accordance with Section 8.2, the Research Program Term is
extended through November 5, 2000, and the parties agree that [ * ] FTEs will be
required during the period September 1, 1999 through November 5, 2000. The FTEs
for the period September 1, 1999 through November 5, 1999 shall be payable at an
annual rate of [ * ] per FTE. The FTEs for the period November 6, 1999 through
November 5, 2000 shall be payable at an annual rate of [ * ] per FTE.
2. Attachment 2.1 setting forth the Research Program is hereby amended
to include the additional research work set forth on the attachment to this
third amendment.
3. Capitalized terms used and not otherwise defined herein shall have
the respective meanings set forth in the Agreement. The Agreement, together with
the first amendment dated February 9, 1998, the second amendment dated November
5, 1998 and this third amendment contain the entire understanding of the parties
with respect to their subject matter. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of the Agreement as amended by the first, second and third
amendments. All other terms and conditions of the Agreement, as amended,
continue in full force and effect. The Agreement and its amendments may be
amended, or any term thereof modified, only by a written instrument duly
executed by both parties hereto.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
18 November, 1999.
MERCK & CO., INC. AXYS PHARMACEUTICAL, INC.
BY: /s/ Roger M. Perlmutter, M.D., Ph.D. BY: /s/ John P. Walker
------------------------------------ -------------------------
Roger M. Perlmutter, M.D., Ph.D. John P. Walker
Executive Vice President Chairman
Worldwide Basic Research Chief Executive Officer
And Preclinical Development
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
1.
<PAGE> 2
Attachment 2.1
Research Program
ATTACHMENT 2.1
RESEARCH PROGRAM
The work outlined below, initiated [ * ], will be completed by [ * ].
1. [ * ]
[ * ]
2. [ * ]
[ * ]
3. [ * ]
[ * ]
4. [ * ]
[ * ]
5. [ * ]
[ * ]
6. [ * ]
[ * ]
7. [ * ]
a. [ * ]
b. [ * ]
c. [ * ]
d. [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
1.
<PAGE> 3
Attachment 2.1
Research Program
APPENDIX A
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
2.
<PAGE> 4
Attachment 2.1
Research Program
APPENDIX B
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3.
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Attachment 2.1
Research Program
APPENDIX C
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
4.
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Attachment 2.1
Research Program
APPENDIX D
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
5.
<PAGE> 1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
EXHIBIT 10.120
AMENDMENT TO THE COLLABORATION AGREEMENT
WARNER-LAMBERT COMPANY
AND
SEQUANA THERAPEUTICS, INC.
OCTOBER 1, 1999
<PAGE> 2
AMENDMENT TO THE COLLABORATION AGREEMENT
This AMENDMENT TO THE COLLABORATION AGREEMENT (the "Agreement"),
effective as of October 1, 1999 (the "Effective Date"), is made by and between
WARNER-LAMBERT COMPANY, a Delaware corporation, with a principal place of
business at 201 Tabor Road, Morris Plains, New Jersey 07950 ("Warner"), and
SEQUANA THERAPEUTICS, INC., a California corporation and a wholly-owned
subsidiary of Axys Pharmaceuticals, Inc. ("Axys"), with a principal place of
business at 11099 N. Torrey Pines Road, La Jolla, California 92037 ("Sequana").
Sequana and Warner may be referred to herein individually as a "Party" and
collectively as the "Parties."
BACKGROUND
WHEREAS, Sequana and Warner are parties to that certain Collaboration
Agreement by and between Sequana and Warner dated October 31, 1997; and
WHEREAS, the Parties wish to amend and restate the Collaboration
Agreement by, and subject to the terms and conditions of, this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises contained herein, Sequana and Warner hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the meanings set forth below.
1.1 "AFFILIATE" means, with respect to a Party, any corporation,
association or other entity that directly or indirectly controls, is controlled
by or is under common control with such Party. As used in this definition of
"Affiliate," the term "control" means direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting or income interest in the applicable
corporation or other business entity.
1.2 "AGENCY" means the U.S. Food and Drug Administration or any
successor entity (the "FDA"), and agencies of other governments of other
countries having similar jurisdiction over the development, manufacturing and
marketing of pharmaceuticals.
1.3 "ANTISENSE" means a nucleic acid, or a functional analog, derivative
or homologue thereof, that (a) is complementary to a segment of DNA of a target
Gene or such target Gene's cognate RNA, and (b) upon delivery by any means,
alters the transcription, processing, elaboration, RNA expression, or protein
production of or by such target Gene.
1.4 "AREA" means either of Bipolar Disorder or Schizophrenia.
1.5 "ARRAY WORK" means all data generated by Sequana resulting from
Sequana's use of microarray technology to identify disease and treatment genes
(or ESTs) differentially expressed in [ * ], or disease and treatment genes (or
ESTs) differentially expressed in [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
1.
<PAGE> 3
1.6 "BACKGROUND TECHNOLOGY" shall mean all proprietary inventions,
methods, ideas, know-how, data, software, protocols, techniques and information
(a) that (i) Sequana Controlled on the Collaboration Effective Date or (ii)
Sequana developed prior to the Sequana Research Termination Date independently
and outside the scope of this Agreement, and in either case had the right to
contribute to the Research Program; and (b) that is necessary for the research,
design, development, testing, use, manufacture or sale of Collaboration
Products, including, without limitation, all United States and foreign patents
and patent applications relating thereto (including, without limitation, all
reissues, extensions, substitutions, confirmations, registrations,
revalidations, additions, continuations, continuations-in-part, and divisions
thereof).
1.7 "BIOINFORMATIONAL DATABASE" means the relational database of all
genetic and sample information generated pursuant to the Research Program, and
the related genotype sample files.
1.8 "BIPOLAR DISORDER" means bipolar affective disorder, bipolar I
disorder, bipolar II disorder and schizoaffective disorder (bipolar subtype).
1.9 "COLLABORATION AGREEMENT" means that certain Collaboration Agreement
entered into by and between Sequana and Warner effective as of October 31, 1997.
1.10 "COLLABORATION ASSETS" means the items described in Schedule 1.10.
1.11 "COLLABORATION EFFECTIVE DATE" means October 31, 1997.
1.12 "COLLABORATION PRODUCT" means any of the following if developed by
Warner or its Affiliates or Sublicensees: (a) a therapeutic human product, an
active ingredient of which is a Compound; (b) a therapeutic product that is a
Protein, Gene Therapy, Antisense or Vaccine product that is based upon, derived
from or active against a Disease Gene or Disease Gene Product; or (c) a
diagnostic, prognostic or pharmacogenetic product in the form of a device,
compound, kit or service developed based upon or derived from research involving
(in whole or in part) the Current Linkages or the Array Work and conducted prior
to [ * ].
1.13 "COLLABORATION TECHNOLOGY" means all Know-How and Patent Rights
conceived of, reduced to practice or otherwise developed solely by a Party or
jointly by the Parties pursuant to and during the course of the Research
Program, but specifically excluding all Background Technology.
1.14 "COMPOUND" means any molecule with a molecular weight of [ * ] that
is identified by Warner or its Affiliates or Sublicensees through application of
an assay or animal model developed based on a Disease Gene or Disease Gene
Product.
1.15 "CONFIDENTIAL INFORMATION" shall have the meaning ascribed in
Section 9.1.
1.16 "CONTINUED RESEARCH PROGRAM" means any program of research and
development in the Field conducted by Warner and its Affiliates and Sublicensees
after the Effective Date.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
2.
<PAGE> 4
1.17 "CONTROL" or "CONTROLLED" means, with respect to any material,
Know-How or intellectual property right, that the Party owns or has a license to
such material, Know-How or intellectual property right and has the ability to
grant the access, the license, the sublicense or the assignment to such
material, Know-How or intellectual property right to the other Party, as
provided for herein without violating an agreement with, or infringing any
rights of, a Third Party as of the time the Party would be first required
hereunder to make such assignment or grant such access, license or sublicense to
the other Party.
1.18 "CURRENT LINKAGES" means those candidate linkage sites identified
through the Research Program and existing on the Effective Date, [ * ].
1.19 "DISEASE GENE" means (a) a Gene identified by a Schizophrenia or
Bipolar Disorder disease associated haplotype that is sufficiently small to
define a single gene product, or (b) a Gene with a mutation which is shown to be
genetically associated with Schizophrenia or Bipolar Disorder and is consistent
with a Schizophrenia or Bipolar Disorder related biological function, in each
case only if identified from the Current Linkages, or identified by Warner (or
its Affiliates or Sublicensees) through Warner's (or its Affiliates' or
Sublicensees') use of the Array Work, prior to [ * ]. Notwithstanding the
foregoing, a Gene, which would otherwise be deemed a Disease Gene under the
preceding sentence, shall not be deemed a Disease Gene if at its time of
identification by Warner, its Affiliates or its Sublicensees, (i) the sequence
of such Gene and its association with Schizophrenia or Bipolar Disorder is in
the public domain, or (ii) such Gene already has been publicly proposed by a
Third Party to be a target for a disease in the Area.
1.20 "DISEASE GENE MILESTONE" means the milestone described in Section
5.3(b)(i).
1.21 "DISEASE GENE PRODUCT" means any protein product, or fragment
thereof, of a Disease Gene, identified at any time during the term of this
Agreement.
1.22 "FIELD" means research and drug discovery aimed at identifying
human Genes and Gene sequence information for the purpose of discovering
compounds, and the development and commercialization of such compounds useful
for the treatment of Schizophrenia or Bipolar Disease.
1.23 "FULL TIME EQUIVALENT" or "FTE" means a full-time employee or the
equivalent thereof.
1.24 "GENE" means a gene, including without limitation all its
regulatory sequences, and any and all variants thereof, including without
limitation "splice variants," polymorphisms, alleles and mutations of such gene.
1.25 "GENE THERAPY" means the introduction of a Gene into a person for
therapeutic purposes by (a) in vivo introduction for incorporation into cells of
such person, or (b) ex vivo introduction into cells for transfer into a person.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
3.
<PAGE> 5
1.26 "IBD TECHNOLOGY" means the technology described in Schedule 1.26
hereto, to the extent that such technology is Controlled by Sequana at the time
of Warner's exercise of the IBD Option as described in Section 4.5.
1.27 "IND" means an Investigational New Drug application, as defined in
the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder,
or any corresponding foreign application, registration or certification.
1.28 "KNOW-HOW" means all ideas, inventions, data, instructions,
processes, formulas, expert opinions and information, including, without
limitation, biological, chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical, safety, manufacturing and
quality control data and information, in each case, which are necessary or
useful for and are specific to the research, design, development, testing, use,
manufacture or sale of Collaboration Products. "Know-How" does not include any
inventions included in the Patent Rights.
1.29 "NET SALES" means the gross amount invoiced by Warner or Sequana,
or their Affiliates or Sublicensees, as the case may be, for sales to Third
Parties (other than Sublicensees) in arm's length transactions of the applicable
Collaboration Products and any and all services provided in connection with
sales of such Collaboration Products [ * ]. A "sale" shall include any transfer
or other disposition for consideration, and Net Sales shall include the fair
market value of all other consideration received by the selling Party or its
Affiliates or permitted Sublicensees in respect of any grant of rights to make,
use, sell or otherwise distribute Collaboration Products, whether such
consideration is in cash, payment in kind, exchange or another form.
In the case of discounts on "bundles" of products or services which
include Collaboration Products, the selling Party may, [ * ] The selling party
shall provide the other party documentation, reasonably acceptable to the other
party, establishing such average discount with respect to each "bundle." [ * ]
1.30 "NEW DRUG APPLICATION" or "NDA" means a New Drug Application, as
defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, and any corresponding foreign application, registration or
certification.
1.31 "PATENT RIGHTS" means all United States and foreign patents
(including all reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) in each case, claiming an invention
which is necessary or useful for the design, development, testing, use,
manufacture or sale of Collaboration Products.
1.32 "PROTEIN" means any of a class of compounds, other than a Compound,
composed of a variety of amino acids joined by peptide linkages, including
aggregates, hybrids, fragments and analogs thereof, as well as naturally
post-translationally modified variants thereof (i.e., glycosylated proteins) and
chemically modified versions thereof (e.g., pegylated or liposomally
encapsulated proteins).
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
4.
<PAGE> 6
1.33 "RESEARCH PROGRAM" shall have the meaning set forth in the
Collaboration Agreement.
1.34 "SCHIZOPHRENIA" means schizophrenia, schizoaffective disorder
(depressive subtype) and schizophrenic spectrum disorders (schizophreniform
disorder, schizotypal disorders and NOS psychotic disorder).
1.35 "SEQUANA COLLABORATION TECHNOLOGY" means all Collaboration
Technology that is Controlled by Sequana as of the Effective Date, specifically
including the Collaboration Assets, but specifically excluding any Sequana
Software.
1.36 "SEQUANA RESEARCH TERMINATION DATE" means the Effective Date or
September 30, 1999, whichever is earlier.
1.37 "SEQUANA SOFTWARE" means the Software described in Schedule 1.37.
1.38 "SOFTWARE" means computer code (in source or object form) that is
Controlled by Sequana and that, when executed by a digital computer, provides
said computer with the capability of manipulating numbers, text and/or graphics
in a manner defined by said computer code.
1.39 "SUBLICENSEE" means a Third Party to whom Warner has granted a
license or sublicense under the Collaboration Technology to make, have made,
import, use, sell, offer for sale or otherwise exploit a Collaboration Product
in the Territory. As used in this Agreement, "Sublicensee" shall also include a
Third Party to whom Warner has granted the right to distribute the Collaboration
Product in the Territory.
1.40 "THIRD PARTY" means any party other than Warner or Sequana or their
respective Affiliates.
1.41 "TVS SOFTWARE" means the Target Validation System software
described in Schedule 1.37 and all data embedded therein.
1.42 "VACCINE" means a prophylactic or therapeutic agent that acts by
inducing a humoral and/or cell-mediated immune response directed against an
antigen.
1.43 "VALID CLAIM" means a claim of a pending patent application within
the Patent Rights (provided such application has not been pending for more than
[ * ] years from the date it was first filed with the governmental agency with
jurisdiction over patent applications) or an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable or
invalid by a court or other governmental agency of competent jurisdiction, and
which has not been disclaimed or admitted to be invalid or unenforceable through
reissue or otherwise.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
5.
<PAGE> 7
2. AMENDMENT OF THE COLLABORATION AGREEMENT
The Parties agree that the Collaboration Agreement is hereby amended in
its entirety and restated by this Agreement as of and for the period following
the Sequana Research Termination Date, except as otherwise expressly and
specifically provided herein.
3. RESEARCH PROGRAM
3.1 TERMINATION OF CURRENT SEQUANA RESEARCH PROGRAM.
(a) The Parties hereby agree that Sequana's participation in the
Research Program shall end as of the Sequana Research Termination Date, and
Warner thereafter shall be entitled to conduct the Continued Research Program,
in its sole discretion, subject to the terms set forth herein.
(b) Warner shall incur no further financial obligation under Section
5.3 of the Collaboration Agreement after the Sequana Research Termination Date;
provided, however, that (i) Warner shall make all payments due to Sequana under
Section 5.3 of the Collaboration Agreement through the Sequana Research
Termination Date, and (ii) Warner shall pay Sequana for the FTEs used to
transfer the Collaboration Assets to Warner as further described in Sections 3.3
and 5.2 of this Agreement.
3.2 CONTINUED RESEARCH PROGRAM.
(a) Warner's conduct of the Continued Research Program may, in
Warner's sole discretion, include all research and development of the Current
Linkages and Array Work by Warner, its Affiliates or its Sublicensees following
the Sequana Research Termination Date. Warner shall have no obligation to
conduct the Continued Research Program. Neither Party makes any warranty that
the Continued Research Program shall achieve any research objectives.
(b) After the Sequana Research Termination Date, Warner shall be
[ * ] for [ * ] in conducting the Continued Research Program, including, without
limitation, the acquisition of any technology or intellectual property rights,
in each case, which Warner deems, in its sole discretion, to be necessary or
useful for the conduct of the Continued Research Program. It is understood and
agreed that Sequana shall [ * ] any activities under the Continued Research
Program and shall incur [ * ] with respect thereto, other than [ * ] pursuant
hereto.
(c) If Warner hires or retains any individual or entity who was
employed or retained by (i) Axys or Sequana or (ii) any vendor, contractor,
consultant or similar entity retained by Axys or Sequana, which individual or
entity performed activities related to the Research Program, Axys and Sequana
hereby waive [ * ] applicable to such entity or individual, but only to the
extent such restrictions would prevent such entity or individual from [ * ],
including [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
6.
<PAGE> 8
3.3 TRANSFER OF COLLABORATION ASSETS. Sequana agrees to transfer to
Warner all the Collaboration Assets, subject to the terms of this Section 3.3.
The Collaboration Assets are transferred by Sequana and accepted by Warner "as
is."
(a) Sequana shall use [ * ] efforts to transfer to Warner all the
Collaboration Assets, other than the [ * ], by [ * ], but Sequana shall transfer
such Collaboration Assets to Warner (other than the [ * ]) by a date that is in
no event later than [ * ], except that the [ * ] shall be delivered no later
than [ * ]. Sequana shall target the transfer of the [ * ] to Warner by [ * ].
(b) Sequana shall use [ * ] efforts to complete the transfer of the
[ * ] as soon as is reasonably possible following the Effective Date.
(c) Warner shall pay for [ * ] paid to Third Parties for
transferring the Collaboration Assets to a Warner-designated location. Sequana
shall provide the FTEs designated on Schedule 3.3 in order to effect such
transfer, [ * ] in accordance with Section 5.2.
3.4 PATIENT SAMPLE COLLECTION AND OTHER THIRD PARTY COSTS. Sequana will
transfer to Warner all patient sample collections that are in its Control and
that [ * ], and shall transfer to Warner all other patient sample collections
that [ * ] other than the patient sample collection [ * ], as to which Sequana
will use [ * ] efforts to transfer such collection to Warner. Sequana will
assign to Warner as soon as practicable all right, title and interest in all
outstanding Third Party contracts covering the collection of such samples (each
such contract, a "Collection Contract"); provided however that Warner
acknowledges that the transfer of those samples that are not in Sequana's
Control and the assignment hereunder of one or more Collection Contracts may
require the consent of Third Parties, and that Sequana may not be able to obtain
such consent; and provided further that Sequana shall not be required to make
any payments to transfer such samples or assign any Collection Contract to
Warner. Notwithstanding the foregoing, Sequana shall make all payments to such
Third Parties which are due and owing under such contracts and for which Sequana
has been paid by Warner. At Warner's written request, Sequana shall [ * ].
Warner's obligations under Section 2.2.2 of the Collaboration Agreement will
continue in full force and effect with respect to each Collection Contract until
such time as the assignment of such contract to Warner becomes effective.
Following assignment of each Collection Contract, Warner shall be directly
responsible for all payments due to a Third Party under such contract. In the
event Warner notifies Sequana in writing that it does not desire to assume any
particular Collection Contract prior to the assignment thereof to Warner,
Sequana will retain the applicable patient samples and terminate such contract;
provided that Warner shall be responsible for and reimburse Sequana for [ * ].
3.5 RECORDS. In accordance with its normal record keeping practices,
Warner shall maintain records of its research and development activities
relating to Collaboration Products.
3.6 REPORTS. Until the first commercial sale of a Collaboration Product,
Warner shall, periodically and not less often than semi-annually during the term
of this Agreement, prepare and provide to Sequana, a written statement, signed
by the program director for the Continued Research Program or his superior,
describing whether any milestones for which
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
7.
<PAGE> 9
Sequana is entitled to payment hereunder were achieved, or whether any
Collaboration Products have begun development, since the last written report and
whether Warner is continuing any research or development efforts under the
Continued Research Program. Upon the written request of Sequana from time to
time (but not more frequently than once every six months), a financial or other
officer of Warner shall certify in writing whether any milestones or other
payments are due and owing from Warner hereunder, together with a description,
if applicable, in reasonable detail of any such milestones or other payments.
4. TECHNOLOGY TRANSFER
4.1 ASSIGNMENT OF SEQUANA COLLABORATION TECHNOLOGY.
(a) Sequana hereby assigns to Warner all of Sequana's right, title
and interest to the Sequana Collaboration Technology and intellectual property
rights therein. Sequana shall, as reasonably requested by Warner, take all
necessary steps to perfect Warner's title to the Sequana Collaboration
Technology, at Warner's expense.
(b) Sequana shall deliver to Warner, at the time Sequana delivers
the Collaboration Assets hereunder, all documents and other materials in
Sequana's possession and Control that materially embody the Collaboration
Technology. If Warner identifies any documents or other materials embodying the
Sequana Collaboration Technology that it reasonably believes may be in Sequana's
possession and Control, and requests such documents or materials from Sequana in
writing by [ * ], then Sequana shall promptly search for such documents or
materials, and may cure any breach of this Section 4.1(b) by delivering to
Warner such documents or materials as it may locate as soon as is reasonably
practicable. Sequana shall deliver the originals of such documents or materials,
if so requested by Warner, to the extent that such originals are reasonably
available. If Warner has not identified any documents or other materials
embodying the Sequana Collaboration Technology that it reasonably believes may
be in Sequana's possession and Control and requested such documents or materials
from Sequana in writing by [ * ], then Sequana shall be deemed to have fully
delivered all such documents and materials hereunder and shall have no further
obligations under this subsection (b).
4.2 LICENSING OF BACKGROUND TECHNOLOGY. Subject to the terms and
conditions of this Agreement, Sequana hereby grants to Warner an exclusive (even
as to Sequana), worldwide license under Sequana's interest in the Background
Technology that was licensed to Warner under the Collaboration Agreement as of
the Effective Date, with the right to sublicense, to the extent necessary for
Warner (a) to conduct the Continued Research Program, (b) make, have made, use
and import Compounds and (c) to make, have made, use, import, offer for sale and
sell Collaboration Products.
4.3 SEQUANA SOFTWARE.
(a) LICENSE. Subject to the terms and conditions of this Agreement,
Sequana hereby grants to Warner a non-exclusive, nontransferable, worldwide,
royalty-free license, without the right to sublicense except to its Affiliates
and collaborative partners, to the Sequana Software, to use and duplicate and to
make derivative works of the Sequana Software, in each case, solely to conduct
internal research pursuant to the Continued Research Program. Sequana
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
8.
<PAGE> 10
shall provide Warner with a copy of all such Software, in object code or, to the
extent available, source code format as requested by Warner.
(b) TVS SOFTWARE. Sequana shall provide Warner with such
documentation, if any, relating to the TVS Software that is in Sequana's
possession as of the Effective Date solely for use pursuant to subsection (a)
above. In the event that during the [ * ] period following the Effective Date,
Sequana makes any upgrades or bug fixes to its internal version of the TVS
Software, then Sequana shall provide to Warner, without additional charge, such
bug fixes or upgrades to the TVS Software in the form in which such upgrades are
developed; it being understood that Sequana shall have no obligation to develop
or make any such upgrades or bug fixes or any other changes to such TVS Software
or any other Software existing as of the Effective Date. The TVS Software shall
be available to Warner in object and/or source code form and shall include any
source code for tools developed for the transfer of the data to and from TVS, as
requested by Warner. Sequana shall be responsible for transferring all Research
Program data, from the instance of the TVS Software used in [ * ] to the
instance of the TVS Software which is [ * ].
4.4 NO IMPLIED LICENSES, RESERVATION OF RIGHTS. No rights or licenses
with respect to any intellectual property owned by Sequana or Warner are granted
or shall be deemed granted hereunder or in connection herewith, other than those
rights expressly granted in Sections 4.1, 4.2 and 4.3. Sequana hereby reserves
all rights to such intellectual property, other than as expressly set forth in
Sections 4.1, 4.2 and 4.3 above, including without limitation the right to
freely use, assign, transfer, grant licenses thereunder and otherwise dispose of
such intellectual property for any purpose consistent with the terms of this
Agreement.
4.5 IBD OPTION.
(a) Sequana hereby grants to Warner an exclusive, non-transferable
option to acquire [ * ] (the "IBD Option"), subject to the terms and conditions
of this Section 4.5.
(b) The IBD Option may be exercised by Warner at any time during the
period from the Effective Date through [ * ] by providing Sequana with written
notice that Warner is exercising the IBD Option. If Warner exercises the IBD
Option as described in this subsection (b), then as soon as reasonably possible
following such exercise date:
(i) The Parties shall agree upon a reasonable mechanism and
schedule for the [ * ] in light of Sequana's need to obtain the consents and
cooperation of certain Third Parties in connection with [ * ]; and
(ii) Sequana shall use [ * ] efforts to obtain such consents and
cooperation from third parties necessary to [ * ], and shall [ * ].
Upon [ * ] as described in subsections (i) and (ii) above, Warner
shall pay Sequana an exercise fee of [ * ] in exchange for such [ * ], and
Sequana shall be deemed to have [ * ]. In the event Warner refuses to pay
Sequana the exercise fee (in whole or in part) because [ * ] in Warner's
reasonable judgment, Warner shall provide Sequana, upon its written request,
with a listing (in reasonable detail) of the [ * ], and the Parties shall work
cooperatively to [ * ].
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
9.
<PAGE> 11
In the event that Warner elects to [ * ], and Sequana shall have no further
obligations to Warner under this Section 4.5.
(c) In the event that Warner does not exercise the IBD option as
described in subsection (b) above by [ * ], the IBD option shall expire, and
Sequana thereafter shall have no further obligations to Warner under this
Section 4.4.
(d) Sequana covenants that, after the Effective Date and prior to
[ * ], it shall not [ * ]. Sequana further represents and warrants that [ * ].
5. CONSIDERATION
5.1 TECHNOLOGY TRANSFER FEE. In partial consideration for the rights
granted and materials transferred to Warner herein, Warner shall pay to Sequana
a non-creditable, non-refundable technology transfer fee of [ * ]. Such amount
shall be paid to Sequana [ * ]. The first such payment shall be paid [ * ], and
the second such payment shall be paid [ * ].
5.2 FTE-BASED PAYMENTS.
(a) With respect to the transfer of the Collaboration Assets other
than the Bioinformational Database, Warner shall pay Sequana [ * ] as
reimbursement for the work of the [ * ] FTEs described in Schedule 3.3 through
[ * ], subject to subsection (c) below. Such amount shall be Warner's sole
payment obligation with respect to the FTEs used to transfer such Collaboration
Assets, regardless of whether such FTEs continue to work to transfer such
Collaboration Assets beyond [ * ], except as provided in Section 5.2(b).
(b) With respect to the pre-transfer preparation and transfer of the
Bioinformational Database and the TVS Software, Warner shall pay to Sequana a
monthly fee of [ * ] per FTE used for such work after [ * ] and prior to [ * ],
and Warner shall promptly reimburse Sequana for all consultants used in such
work; provided that no consultant time after [ * ] shall be paid for by Warner
unless otherwise agreed by the Parties. Sequana shall use no less than [ * ] and
no more than [ * ] FTEs and/or individual consultants at a time to effect such
transfer unless otherwise agreed in writing by Warner. Promptly after each of
[ * ], Sequana shall provide Warner with time documentation comparable to that
provided in the Research Program with respect to all such FTEs being paid for by
Warner and shall provide Warner with copies of the bills it receives from the
consultants it uses to effectuate such transfer.
(c) If, during a particular month, a FTE ceases its activities with
respect any of the foregoing services, or a FTE is removed from the performance
of such services, then Warner shall only be responsible for the pro rata portion
of such monthly fee for such FTE with respect to such month. Sequana shall
invoice Warner monthly with respect to such FTE costs, providing reasonable
detail, and Warner shall pay such invoices within [ * ] of receipt.
5.3 MILESTONES.
(a) GENERAL. The Parties jointly shall be responsible for
determining in good faith when and if each of the milestone events described in
subsections (b) and (c) below has
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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occurred. In the event the Parties cannot agree whether a milestone event has
occurred after a period of thirty (30) days, the decision will be referred to
the Chief Executive Officer of Sequana and Warner's President of its Parke-Davis
Pharmaceutical Research Division for good faith resolution for a period of
thirty (30) days. In the event that such individuals are unable to resolve such
dispute during such 30 day period, subject to Section 13.1, either Party may
thereafter pursue any remedies it may have at law or in equity.
(b) [ * ].
(i) Within thirty (30) days of each and every occurrence of the
milestone event set forth below (the "[ * ]"), Warner will pay
to Sequana the indicated non-refundable, non-creditable
milestone payment:
Milestone Amount
--------- ------
[ * ] [ * ]
(c) [ * ]. If any Disease Gene is identified prior to [ * ], then
within thirty (30) days following the occurrence of the relevant events
specified below, Warner shall pay to Sequana for a Collaboration Product which
is [ * ], the indicated non-refundable, non-creditable milestone amounts:
Milestones Amount
---------- ------
[ * ]. [ * ]
[ * ]. [ * ]
[ * ]. [ * ]
[ * ]. [ * ]
[ * ]. [ * ]
In no event shall any of the milestone payments set forth in this
subsection (c) be paid more than [ * ] with respect to each of Schizophrenia and
Bipolar Disorder. The payment due under this subsection (c) shall be made with
respect to each applicable Collaboration Product; provided, however, that [ * ].
5.4 ROYALTIES.
(a) COLLABORATION PRODUCT ROYALTIES. In consideration of the rights
granted hereunder, Warner shall pay the following royalties to Sequana with
respect to annual aggregate Net Sales of Collaboration Products, on a
Collaboration Product-by-Collaboration Product basis:
[ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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(b) COMPUTATION OF ROYALTIES. All sales of Collaboration Products
between Warner and any of its Affiliates and Sublicensees shall be disregarded
for purposes of computing Net Sales and royalties under this Section 5.4, and in
such instances royalties shall be payable only upon sales to unlicensed Third
Parties. Nothing herein contained shall obligate Warner to pay Sequana more than
one royalty payment on any unit of a Collaboration Product.
(c) ROYALTY TERM. The obligation of Warner to pay royalties under
this Section 5.4 shall continue for each Collaboration Product on a
product-by-product and country-by-country basis, until such time as there are no
Valid Claims in such country covering such Collaboration Product.
5.5 THIRD PARTY ROYALTIES. [ * ] shall be responsible for the payment of
any royalties, license fees and milestone and other payments due to any other
Third Party(ies) under licenses or similar agreements entered into by [ * ],
which are necessary or useful for the manufacture, use, import, or sale of
Collaboration Products.
5.6 WITHHOLDING TAXES. Any income or other tax that Warner, its
Affiliates or Sublicensees is required to withhold and pay on behalf of Sequana
with respect to the royalties payable under this Agreement shall be deducted
from and offset against said royalties prior to remittance to Sequana; provided,
however, that in regard to any tax so deducted, Warner shall give or cause to be
given to Sequana such assistance as may reasonably be necessary to enable
Sequana to claim exemption therefrom or credit therefor, and in each case shall
furnish Sequana proper evidence of the taxes paid on its behalf.
6. BOOKS AND RECORDS
6.1 ROYALTY REPORTS AND PAYMENTS. The royalties due under Section 5.4
shall be paid quarterly, within sixty (60) days after the close of each calendar
quarter, or earlier, if practical, immediately following each quarterly period
in which such royalties are earned. With each such quarterly payment, Warner
shall furnish Sequana a royalty statement setting forth, on a country-by-country
and Collaboration Product-by-Collaboration Product basis, the total number of
units of each royalty bearing Collaboration Product sold hereunder for the
quarterly period for which the royalties are due. Simultaneously with the
delivery of each such report, Warner shall pay to Sequana the total royalties,
if any, due to Sequana for the period of such report. If no royalties are due,
Warner shall so report. In addition, at Sequana's request, but no more often
than once in any twelve (12) month period, Warner shall report to Sequana on a
country-by-country and Collaboration Product-by-Collaboration Product basis the
amounts of any deductions and/or adjustments to Net Sales taken by Warner
pursuant to Section 1.30 with respect to Net Sales in the preceding four (4)
calendar quarters.
6.2 PAYMENT METHOD; LATE PAYMENTS. All amounts due Sequana hereunder
shall be paid in U.S. dollars by wire transfer in immediately available funds to
a bank account designated by Sequana. Any payments or portions thereof due
hereunder which are not paid on the date such payments are due under this
Agreement shall bear interest at a rate equal to the lesser of prime rate as
reported by the Citibank (or its successor in interest), New York, New York,
plus two percent (2%), or the maximum rate permitted by law, calculated on the
number of days such
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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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payment is delinquent, compounded monthly. This Section 6.2 shall in no way
limit any other remedies, in law or equity, available to Sequana.
6.3 CURRENCY CONVERSION. Royalties earned shall first be determined in
the currency of the country in which they are earned and then converted to its
equivalent in United States currency. The buying rates of exchange for
converting the currencies involved into the currency of the United States quoted
by Citibank (or its successor in interest) New York, New York at the close of
business on the last business day of the quarterly period in which the royalties
were earned shall be used to determine any such conversion.
6.4 RESTRICTIONS ON PAYMENTS. The obligation to pay royalties under this
Agreement shall be waived and excused to the extent that statutes, laws, codes
or government regulations in a particular country prevent such royalty payments;
provided, however, in such event, if legally permissible, Warner shall pay the
royalties owed to Sequana by depositing such amounts in a bank account in such
country that has been designated by Sequana and promptly report such payment to
Sequana.
6.5 RECORDS; INSPECTION. Warner and its Affiliates shall keep (and cause
its Sublicensees to keep) complete, true and accurate books of account and
records for the purpose of determining the royalty amounts payable under Section
5.4. Such books and records shall be kept reasonably accessible for at least
three (3) years following the end of the calendar quarter to which they pertain.
Such records will be open for inspection during such three (3) year period by a
representative or agent of Sequana reasonably acceptable to Warner, which
approval shall not be unreasonably withheld for the purpose of verifying the
royalty statements. Such inspections may be made no more than once each calendar
year, at reasonable times mutually agreed by Warner and Sequana. Sequana's
representative or agent will be obliged to execute a reasonable confidentiality
agreement prior to commencing any such inspection and may only disclose to
Sequana the amount of any variance or error. Sequana shall bear the costs and
expenses of inspections conducted under this Section 6.5, unless a variation or
error producing an underpayment in royalties payable exceeding [ * ] of the
amount payable for any inspection period is established in the course of any
such inspection, whereupon all costs relating to the inspection and any unpaid
amounts that are discovered will be paid by Warner, together with interest on
such unpaid amounts at the rate specified in Section 6.2 above.
7. COMMERCIALIZATION
7.1 PRODUCT DEVELOPMENT. Warner shall be responsible for all costs of
conducting and shall have the sole and exclusive right to conduct, in its sole
discretion, such development of Collaboration Product(s) as Warner may choose to
do, including, without limitation, conducting clinical trials, under its own
IND, and paying for all expenses incurred by it in conducting clinical trials
for such Collaboration Products. In addition, Warner shall be responsible, at
its sole expense, for all commercialization of and shall have the sole and
exclusive right to conduct, in its sole discretion, commercialization of such
Collaboration Products throughout the world as Warner may choose to do. [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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8. REPRESENTATIONS AND WARRANTIES
8.1 LEGAL AUTHORITY. Each Party represents and warrants to the other
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.
8.2 NO CONFLICTS. Each Party represents and warrants that as of the
Effective Date it is not a party to any agreement or arrangement with any Third
Party or under any obligation or restriction, including pursuant to its
Certificate of Incorporation or Bylaws, which in any way limits or conflicts
with its ability to fulfill any of its obligations under this Agreement, and
shall not enter into any such agreement during the term of this Agreement.
8.3 SEQUANA REPRESENTATIONS. Sequana represents and warrants to Warner
as follows:
(a) From the Collaboration Effective Date, Sequana [ * ]; and
(b) As of the Effective Date, Sequana Controls the Sequana Software.
8.4 DISCLAIMER OF WARRANTIES. Sequana and Warner each specifically
disclaim that the research and development of Collaboration Products will be
successful, in whole or part. SEQUANA AND WARNER EXPRESSLY DISCLAIM ANY
WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT
TO THE BACKGROUND TECHNOLOGY, COLLABORATION TECHNOLOGY OR COLLABORATION
COMPOUNDS INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY BACKGROUND TECHNOLOGY,
COLLABORATION TECHNOLOGY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein, the
Parties agree that the receiving Party shall keep completely confidential and
shall not publish or otherwise disclose and shall not use for any purpose except
for the purposes contemplated by this Agreement: (a) in the case where Warner is
the receiving Party, any Sequana Background Technology, or any other data,
samples, technical and economic information (including the economic terms
hereof), commercialization, clinical and research strategies and know-how and
other information provided to Warner by Sequana (Sequana in such case to be the
"Disclosing Party") in connection with either this Agreement or the
Collaboration Agreement, other than the Collaboration Technology and the IBD
Technology transferred to Warner pursuant hereto; and (b) in the case where
Sequana is the receiving party, any Collaboration Technology and all other data,
results and information developed pursuant to the Research Program or the
Continued Research Program and solely owned by Warner, and any other data,
samples, technical and economic information (including the economic terms
hereof), commercialization, clinical and research strategies and know-how and
other information provided to Sequana by Warner (Warner in such case to be the
"Disclosing Party") in connection with either this Agreement or
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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<PAGE> 16
the Collaboration Agreement ((a) and (b) collectively, the "Confidential
Information"). Notwithstanding the preceding sentence, the Parties agree that
all confidential or proprietary information pertaining to the Research Program
and assigned to Warner hereunder shall be deemed to be Warner's Confidential
Information for purposes of this Agreement. "Confidential Information" shall not
include:
(i) information that is or becomes part of the public domain
through no wrongful act of the non-Disclosing Party or its Affiliates; and
(ii) information that is obtained after the date hereof by the
non-Disclosing Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party with respect to such
Confidential Information;
(iii) information that is known to the non-Disclosing Party or
one or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the non-Disclosing Party's written records; and
(iv) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent and for the sole purpose of such legally required disclosure, and
provided that (A) the non-Disclosing Party notifies the Disclosing Party
reasonably in advance so that the Disclosing Party may seek a protective order
for such Confidential Information, and (B) the non-Disclosing Party cooperates
fully with the Disclosing Party in such efforts; or
(v) information which has been independently developed by the
non-Disclosing Party without the aid or use of any Confidential Information.
9.2 PERMITTED DISCLOSURES. Confidential Information may be disclosed to
employees, agents, consultants, sublicensees or suppliers of the non-Disclosing
Party or its Affiliates, but only to the extent reasonably required to
accomplish the purposes of this Agreement and only if the non-Disclosing Party
obtains prior written agreement from its employees, agents, consultants,
sublicensees or suppliers to whom disclosure is to be made to hold in confidence
and not make use of such information for any purpose other than those permitted
by this Agreement. Each Party will use at least the same standard of care as it
uses to protect proprietary or confidential information of its own to ensure
that such employees, agents, consultants, sublicensees or suppliers do not
disclose or make any unauthorized use of the Confidential Information.
Notwithstanding any other provision of this Agreement, each Party may disclose
the terms of this Agreement to prospective lenders, investment bankers and other
financial institutions of its choice solely for purposes of financing the
business operations of such Party either (a) upon the written consent of the
other Party or (b) if the disclosing Party obtains a signed confidentiality
agreement with such entity or financial institution with respect to such
information, upon terms substantially similar to those contained in this Article
9.
9.3 PUBLICITY. All publicity, press releases and other announcements
relating to this Agreement or the modifications to the Collaboration Agreement
contemplated hereby shall be reviewed in advance by, and shall be subject to the
approval of, both Parties; provided, however,
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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that either Party may (a) publicize the existence and general subject matter of
this Agreement without the other Party's approval, and (b) disclose the terms of
this Agreement only to the extent required to comply with applicable securities
laws, and in the case of (b), the non-Disclosing Party shall have the right to
review and comment on such disclosure prior to its submission, where
practicable. Once a particular disclosure described in (a) has been approved for
disclosure, either Party may make disclosures which do not differ materially
therefrom without any need for further consents. Notwithstanding the foregoing,
Warner shall have an unrestricted right to publish any information regarding the
status or results of the Continued Research Program or other activities
regarding development and/or commercialization of any and all Collaboration
Products, provided that Warner shall not disclose any of Sequana's Confidential
Information.
9.4 TERM OF CONFIDENTIALITY. All obligations of confidentiality and
non-use imposed upon the Parties under this Agreement shall continue
indefinitely until such time as the information that is subject to such
obligations no longer comprises Confidential Information under one of the
exceptions set forth in Section 9.1.
10. RELEASE OF CLAIMS
10.1 MUTUAL RELEASE.
(a) Effective upon the Sequana Research Termination Date, Warner
hereby forever generally and completely releases and discharges Sequana and its
servants, agents, directors, officers and employees, of and from any and all
claims and demands of every kind and nature, in law, equity or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, and in
particular, of and from all claims and demands of every kind and nature, known
and unknown, suspected and unsuspected, disclosed and undisclosed, for damages
actual and consequential, past, present and future, arising out of or in any way
related to the Parties' respective obligations, activities and/or dealings with
one another pursuant to the Collaboration Agreement prior to such date, but
excluding from the foregoing (i) any claims or demands arising out of or in any
way related to claims for breach of those provisions of the Collaboration
Agreement relating to (1) obligations of confidentiality, (2) limitations on use
of the Background Technology (as defined in the Collaboration Agreement) or of
the Collaboration Technology (as defined in the Collaboration Agreement) or (3)
the provisions contained in Sections 2.6 and 4.6, the second sentence of Section
15.7 or the second sentence of Section 15.12 of the Collaboration Agreement; or
(ii) claims asserted by Third Parties, including claims by Warner arising out of
claims asserted by Third Parties.
(b) Effective upon the Sequana Research Termination Date, Sequana
hereby forever generally and completely releases and discharges Warner and its
servants, agents, directors, officers and employees, of and from any and all
claims and demands of every kind and nature, in law, equity or otherwise, known
and unknown, suspected and unsuspected, disclosed and undisclosed, and in
particular of and from all claims and demands of every kind and nature, known
and unknown, suspected and unsuspected, disclosed and undisclosed, for damages
actual and consequential, past, present and future, arising out of or in any way
related to the Parties' respective obligations, activities and/or dealings with
one another pursuant to the Collaboration Agreement prior to such date, but
excluding from the foregoing any claims or demands arising
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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out of or in any way related to: (i) any claims or demands arising out of or in
any way related to claims for breach of those provisions of the Collaboration
Agreement relating to (1) obligations of confidentiality, (2) limitations on use
of the Background Technology (as defined in the Collaboration Agreement) or of
the Collaboration Technology (as defined in the Collaboration Agreement) or (3)
the provisions contained in Sections 2.6 and 4.6, the second sentence of Section
15.7 or the second sentence of Section 15.12 of the Collaboration Agreement;
(ii) any claims asserted by Third Parties, including claims by Sequana arising
out of claims asserted by Third Parties; (iii) all payments due to Sequana under
Section 5.3 of the Collaboration Agreement up to and including the Sequana
Research Termination Date; and (iv) all patient sample collection reimbursement
payments due to Sequana pursuant to Section 2.2.2 of the Collaboration Agreement
prior to the effective date that each applicable patient sample collection
agreement is assigned to Warner pursuant to Section 3.4 of this Agreement.
(c) It is understood and agreed that the release set forth in
subsection (a) above, in the case of Warner, and subsection (b) above, in the
case of Sequana, is a full, complete and final general release of any and all
claims described as aforesaid, and each Party agrees that such release shall
apply to all unknown, unanticipated, unsuspected and undisclosed claims,
demands, liabilities, actions or causes of action, in law, equity or otherwise,
as well as those which are now known, anticipated, suspected or disclosed.
(d) Each Party has been fully advised by its respective attorney of
the contents of section 1542 of the Civil Code of the State of California, and
that section and the benefits thereof, and of any equivalent law or rule in any
other applicable jurisdiction, are hereby expressly waived. Section 1542 reads
as follows:
"Section 1542. (General Release - Claims Extinguished.) A general
release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with
the debtor."
10.2 PERIOD OF EFFECTIVENESS. For the avoidance of doubt, the Parties
acknowledge and agree that the releases set forth in Section 10.1 above are
effective only as to claims, demands, liabilities, actions or causes of action,
in law, equity or otherwise, whenever made, arising out of or related to the
activities of the Parties pursuant to the Collaboration Agreement prior to the
Sequana Research Termination Date, and shall be of no force and effect with
respect to any other claims, demands, liabilities, actions or causes of action,
in law, equity or otherwise, including without limitation those arising out of
or in any way related to this Agreement.
11. INDEMNIFICATION
11.1 WARNER. Warner hereby agrees to defend, indemnify and hold harmless
Sequana and its Affiliates and their respective employees, agents, officers,
directors and permitted assigns (each a "Sequana Indemnitee") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a "Claim") arising out of or resulting from (a)
negligence or willful misconduct by Warner; (b) a breach of any of the
representations or warranties of Warner
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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under this Agreement; or (c) the research and development, manufacture, use,
promotion, marketing, sale or other distribution of any Collaboration Product,
or any use or disposition of the Collaboration Technology, by Warner or its
Affiliates or Sublicensees, except, in each case, to the extent that such Claim
arises out of or results from the negligence or willful misconduct of any
Sequana Indemnitee.
11.2 SEQUANA. Sequana agrees to defend, indemnify and hold harmless
Warner and its Affiliates and their respective employees, agents, officers,
directors and permitted assigns (each a "Warner Indemnitee") from and against
any claims by a Third Party resulting in any liabilities, damages, settlements,
claims, actions, suits, penalties, fines, costs or expenses incurred (including,
without limitation, reasonable attorneys' fees and other expenses of litigation)
(any of the foregoing, a "Claim") arising out of or resulting from (a) the
negligence or willful misconduct of Sequana, or (b) a breach of any of the
representations or warranties of Sequana under this Agreement, (c) Sequana's
conduct of the Research Program prior to the Sequana Research Termination Date,
except, in each case, to the extent that such Claim arises out of or results
from the negligence or willful misconduct of any Warner Indemnitee.
11.3 PROCEDURE. A Party or person (the "Indemnitee") that intends to
claim indemnification under this Article 11 shall promptly notify the other
Party (the "Indemnitor") in writing of any loss, claim, damage, liability or
action in respect of which the Indemnitee or any of its Affiliates, or their
directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume sole control over the defense
and settlement thereof with counsel chosen by Indemnitor, with consent of
Indemnitee, which consent shall not be unreasonably withheld. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article 11. At the Indemnitor's request, the Indemnitee under this Article
11, and its employees and agents, shall cooperate fully with the Indemnitor and
its legal representatives in the investigation and defense of any action, claim
or liability covered by this indemnification and provide full information with
respect thereto.
12. TERM AND TERMINATION
12.1 TERM. This Agreement shall be effective as of the Effective Date
and, unless otherwise terminated earlier pursuant to the other provisions of
this Article 12, shall continue in full force and effect on a Collaboration
Product-by-Collaboration Product and country-by-country basis until the date
that neither Warner nor its Affiliates or Sublicensees has any remaining royalty
obligations to Sequana in such country under this Agreement.
12.2 TERMINATION FOR CAUSE. Either Party may terminate this Agreement in
the event the other Party has materially breached or defaulted in the
performance of any of its obligations hereunder, and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
Party by the nonbreaching Party, or if a cure of such default cannot reasonably
be effected within such sixty (60) day period, the defaulting Party has failed
to deliver within such period a plan for curing such breach or default which is
reasonably sufficient to effect a cure. Any termination shall become effective
at the end of such sixty (60) day period
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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unless the breaching Party has cured any such breach or default prior to the
expiration of the sixty (60) day period, or has delivered to the other Party a
plan for curing such breach which is reasonably acceptable to the other Party.
Notwithstanding the above, in the case of a failure to pay any amount due
hereunder, the period for cure of any such default following notice thereof
shall be ten (10) days and, unless payment is made within such ten day period,
the termination shall become effective at the end of such period.
12.3 EFFECT OF TERMINATION.
(a) ACCRUED RIGHTS AND OBLIGATIONS. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination, nor preclude either Party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
(b) RETURN OF CONFIDENTIAL INFORMATION. Upon any termination of this
Agreement, Warner and Sequana shall promptly return to the other Party all
Confidential Information received from the other Party (except one copy of which
may be retained by legal counsel solely for purposes of monitoring compliance
with the provisions of Article 9 and archival purposes).
(c) LICENSES. In the event of any termination of this Agreement by
Sequana pursuant to Section 12.2, the licenses granted Warner in Article 4 shall
terminate concurrently.
12.4 SURVIVAL. Sections 6.5, 12.3 and 12.4 and Articles 7, 8, 9, 10, 11,
13 and 14 shall survive the expiration or termination of this Agreement for any
reason.
13. DISPUTE RESOLUTION
13.1 MEDIATION. If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure.
13.2 VENUE. The exclusive venue of any dispute arising out of or in
connection with the performance of or any breach of this Agreement, shall be the
state courts or U.S. District Court located in or for Sequana's principal place
of business, and the Parties hereby irrevocably consent to the personal
jurisdiction of such courts.
14. MISCELLANEOUS
14.1 GOVERNING LAW. This Agreement and any dispute arising from the
performance or any breach hereof shall be governed by and construed in
accordance with the laws of the State of New York, as such laws are applied to
agreements entered into between residents of, and to be performed entirely
within, the State of New York.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
19.
<PAGE> 21
14.2 WAIVER. No failure on the part of Sequana or Warner to exercise and
no delay in exercising any right under this Agreement, or provided by statute or
at law or in equity or otherwise, shall impair, prejudice or constitute a waiver
of any such right, nor shall any partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
14.3 ASSIGNMENT. This Agreement may not be assigned by either Party to
any Third Party hereto without the written consent of the other Party hereto;
except either Party may assign this Agreement, without such consent, to (a) an
Affiliate of such Party; or (b) an entity that acquires all or substantially all
of the business or assets of such Party (or with respect to Warner, all of
Warner's pharmaceutical research and development business or assets) to which
this Agreement pertains, whether by merger, reorganization, acquisition, sale,
or otherwise. The terms and conditions of this Agreement shall be binding on and
inure to the benefit of the permitted successors and assigns of the Parties. Any
assignment not in conformance with this Section 14.3 shall be null, void and of
no legal effect.
14.4 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or sent by nationally
recognized overnight express delivery service, registered or certified mail,
return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other Parties hereto:
Warner: Warner-Lambert Company
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: President
Parke-Davis Pharmaceutical Research
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
Attn: Vice President, General Counsel
Sequana: Axys Pharmaceuticals, Inc.
180 Kimball Way
South San Francisco, Ca 94086
Attn: Chief Executive Officer
with a copy to: Legal Department
14.5 FORCE MAJEURE. Neither Party shall be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, hostilities between nations,
governmental law, order or regulation, embargo, action by the government or any
agency thereof, act of God, storm, fire, accident, labor dispute or strike,
sabotage, explosion or
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
20.
<PAGE> 22
other similar or different contingencies, in each case, beyond the reasonable
control of the respective Party. The Party affected by force majeure shall
provide the other Party with full particulars thereof as soon as it becomes
aware of the same (including its best estimate of the likely extent and duration
of the interference with its activities), and will use its best endeavors to
overcome the difficulties created thereby and to resume performance of its
obligations as soon as practicable. If the performance of any obligation under
this Agreement is delayed owing to a force majeure for any continuous period of
more than six (6) months, the Parties hereto shall consult with respect to an
equitable solution, including the possible termination of this Agreement.
14.6 INDEPENDENT CONTRACTORS. It is understood that both Parties hereto
are independent contractors and are engaged in the operation of their own
respective businesses, and neither Party hereto is to be considered the agent or
partner of the other Party for any purpose whatsoever. Neither Party has any
authority to enter into any contracts or assume any obligations for the other
Party or make any warranties or representations on behalf of the other Party.
Sequana acknowledges that neither it nor any of its employees are employees of
Warner or members of any of its benefit plans and that neither it nor any of its
employees are eligible to participate in any such benefit plans even if it is
later determined that its or any of its employees' status during the period of
this Agreement was that of an employee of Warner. In addition, Sequana waives
any claim that it may have under the terms of any such benefit plans or under
any law for participation in or benefits under any of Warner's benefit plans.
14.7 ADVICE OF COUNSEL. Sequana and Warner have each consulted counsel
of their choice regarding this Agreement, and each acknowledges and agrees that
this Agreement shall not be deemed to have been drafted by one Party or another
and will be construed accordingly.
14.8 SEVERABILITY. In the event that any provisions of this Agreement
are determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force and
effect without said provision. The Parties shall in good faith negotiate a
substitute clause for any provision declared invalid or unenforceable, which
shall most nearly approximate the intent of the Parties in entering this
Agreement.
14.9 COMPLIANCE WITH LAWS. Each Party shall furnish to the other Party
any information requested or required by that Party during the term of this
Agreement to enable that Party to comply with the requirements of any U.S. or
foreign federal, state and/or government agency. Each Party shall comply with
all applicable U.S., foreign, state, regional and local laws, rules and
regulations relating to its activities to be performed pursuant to this
Agreement, including without limitation, the United States Foreign Corrupt
Practices Act, United States export regulations and such other United States and
foreign laws and regulations as may be applicable, and shall obtain all
necessary approvals, consents and permits required by the applicable agencies of
the government of the United States and foreign jurisdictions.
14.10 NO IMPLIED LICENSES OR WARRANTIES. No right or license under any
patent application, issued patent, know-how or other proprietary information is
granted or shall be granted by implication. All such rights or licenses are or
shall be granted only as expressly provided in the terms of this Agreement.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
21.
<PAGE> 23
14.11 ENTIRE AGREEMENT. This Agreement together with the attached
Schedules entered by the Parties of even date herewith, constitute the entire
agreement, both written or oral, with respect to the subject matter hereof, and
supersede all prior or contemporaneous understandings or agreements, whether
written or oral, between Warner and Sequana with respect to such subject matter.
14.12 HEADINGS. The captions to the several Sections and Articles hereof
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.
14.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and which together shall
constitute one instrument.
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
22.
<PAGE> 24
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
WARNER-LAMBERT COMPANY SEQUANA THERAPEUTICS, INC.
By: /s/ Peter B. Corr By:/s/ Daniel H. Petree
------------------------------------ ------------------------------
Name: Peter B. Corr Name: Daniel H. Petree
---------------------------------- ----------------------------
Title: President, R&D Corporate V.P. Title: President & CEO
--------------------------------- --------------------------
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 25
SCHEDULE 1.10
COLLABORATION ASSETS
1. [ * ]
2. [ * ]
3. [ * ]
4. [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 26
SCHEDULE 1.11(a)
EQUIPMENT
1. [ * ]
2. [ * ]
3. [ * ]
4. [ * ]
5. [ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 27
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 28
SCHEDULE 1.26
IBD TECHNOLOGY
1. [ * ]
2. [ * ]
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE> 29
SCHEDULE 1.37
SEQUANA SOFTWARE
Software includes: the applications, source code (except as noted) and code
libraries used to analyze data from the Research Program, all applicable
documentation (as available), training materials (as available), and where
possible Y2K compliance / testing information, as specifically described below.
For Perl applications and apple scripts there is no object code. "*" designates
that the source code is unavailable.
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
B-2.
<PAGE> 30
SCHEDULE 3.3
FTEs
[ * ]
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
B-3.
<PAGE> 1
EXHIBIT 10.121
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is entered into as of
the 14th day of December, 1999 (the "Effective Date"), by and between William J.
Newell ("Executive") and Axys Pharmaceuticals, Inc. (the "Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for Executive's services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
ARTICLE I
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
1.1 "BOARD" means the Board of Directors of the Company.
1.2 "CAUSE" means:
(a) Executive's intentional action or intentional failure to act
that was performed in bad faith and to the material detriment of the business of
the Company;
(b) Executive's intentional refusal or intentional failure to act in
accordance with any lawful and proper direction or order of the Board or the
appropriate individual to whom Executive reports;
(c) Executive's willful and habitual neglect of Executive's duties
of employment;
(d) Executive's violation of any noncompetition or noninterference
agreement that Executive has entered into with the Company; or
(e) Executive's conviction of a felony crime involving moral
turpitude;
provided, however, that if any of the foregoing events under clauses (a), (b),
(c) or (d) above is capable of being cured, the Company shall provide written
notice to Executive describing the nature of such event and Executive shall
thereafter have ten (10) business days to cure such event.
1.
<PAGE> 2
1.3 "CHANGE IN CONTROL" means the occurrence of any of the following
events:
(a) a dissolution, liquidation or sale of all or substantially all
of the assets of the Company;
(b) a merger or consolidation in which the Company is not the
surviving corporation;
(c) a reverse merger in which the Company is the surviving
corporation but shares outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or
(d) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors.
1.4 "COMPANY" means Axys Pharmaceuticals, Inc. or, following a Change in
Control, the surviving entity resulting from such transaction.
1.5 "COVERED TERMINATION" means (i) an Involuntary Termination Without
Cause that occurs at any time, without regard to a Change in Control, or (ii) a
voluntary termination for Good Reason that occurs on or after the effective date
of a Change in Control.
1.6 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
1.7 "GOOD REASON" means that any of the following are undertaken without
Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities
that results in any diminution or adverse change of Executive's position,
status, circumstances of employment or scope of responsibilities;
(b) a reduction by the Company in Executive's annual base salary as
in effect on the effective date of the Change in Control;
(c) the taking of any action by the Company that would adversely
affect Executive's participation in, or reduce Executive's benefits under, the
Company's benefit plans (including equity benefits) as of the effective date of
the Change in Control, except to the extent the benefits of all other executives
of the Company are similarly reduced;
(d) a relocation of Executive's principal office to a location more
than forty (40) miles from the location at which Executive was performing
Executive's duties as
2.
<PAGE> 3
of the effective date of the Change in Control, except for required travel by
Executive on the Company's business;
(e) any material breach by the Company of any provision of this
Agreement; or
(f) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
1.8 "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal
or discharge other than for Cause. The termination of Executive's employment as
a result of Executive's death or disability will not be deemed to be an
Involuntary Termination Without Cause.
ARTICLE II
EMPLOYMENT BY THE COMPANY
2.1 POSITION AND DUTIES. Subject to terms set forth herein, the Company agrees
to continue to employ Executive in the position of Senior Vice President,
Corporate and Business Development and General Counsel and Executive hereby
accepts such continued employment. Executive shall serve in an executive
capacity and shall perform such duties as are customarily associated with the
position of Senior Vice President, Corporate and Business Development and
General Counsel and such other duties as are assigned to Executive by the
Company's Chief Executive Officer. Executive will report to the Chief Executive
Officer. During the term of Executive's employment with the Company, Executive
will devote Executive's best efforts and substantially all of Executive's
business time and attention (except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by the Company's
general employment policies or as otherwise set forth in this Agreement) to the
business of the Company.
2.2 EMPLOYMENT AT WILL. Both the Company and Executive shall have the right to
terminate Executive's employment with the Company at any time, with or without
Cause, and without prior notice. If Executive's employment with the Company is
terminated, Executive will be eligible to receive severance benefits to the
extent provided in this Agreement.
2.3 EMPLOYMENT POLICIES. The employment relationship between the parties shall
also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
3.
<PAGE> 4
ARTICLE III
COMPENSATION
3.1 BASE SALARY. Executive shall receive for services to be rendered hereunder
an annual base salary of $243,000.00, payable on the regular payroll dates of
the Company, subject to increase in the sole discretion of the Board of
Directors.
3.2 BONUS. Executive shall be eligible for a discretionary bonus, in an amount
to be determined solely by the Company, in its discretion.
3.3 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and
benefits for which Executive is eligible under the terms and conditions of the
standard Company benefits and compensation practices that may be in effect from
time to time and are provided by the Company to its executive employees
generally.
3.4 COMPENSATORY STOCK AWARD. At the Board's meeting on the date hereof, the
Board granted Executive an option to acquire seventy-five thousand (75,000)
shares of the common stock of the Company (the "Option"). The Option has been
granted pursuant to the Company's 1997 Equity Incentive Plan. The Option is an
incentive stock option for purposes of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent permitted under the Code. The
exercise price per share of the Option will be equal to one hundred percent
(100%) of the fair market value of the Company's common stock, as determined
pursuant to the Company's 1997 Equity Incentive Plan, on the date of grant.
Subject to Executive's continued employment by the Company, the Option vests as
to one-forty-eighth (1/48) of the shares of common stock subject to the Option
each calendar month for forty-eight (48) months, counted from the Option's date
of grant. In all other respects, the Option is to be governed by the terms of
the Plan, including the option agreement and grant notice thereunder.
ARTICLE IV
SEVERANCE AND CHANGE IN CONTROL BENEFITS
4.1 SEVERANCE BENEFITS. If Executive's employment terminates due to a Covered
Termination after the date of execution of this Agreement, Executive shall
receive any annual base salary and bonus compensation that has accrued but is
unpaid as of the date of such Covered Termination. Within thirty (30) days
following the date on which the Release described in Section 4.4 below becomes
effective in accordance with its terms, Executive shall also receive a lump sum
payment equal to one hundred percent (100%) of Executive's annual base salary as
in effect during the last regularly scheduled payroll period immediately
preceding the Covered Termination, all of the foregoing subject to applicable
tax withholding. In addition, following a Covered Termination, Executive and
Executive's covered dependents shall be eligible to continue their health care
benefit coverage as permitted by COBRA (Internal Revenue Code Section 4980B) at
the same cost to Executive as in effect immediately prior to the Covered
Termination for the one (l)-year period following the Covered Termination.
Executive shall be entitled to maintain
4.
<PAGE> 5
coverage for Executive and Executive's eligible dependents at Executive's own
expense for the balance of the period that Executive is entitled to coverage
under COBRA.
4.2 ACCELERATION OF VESTING OF OUTSTANDING OPTIONS.
(a) If Executive's employment with the Company terminates due to a
Covered Termination within thirteen (13) months following the effective date of
a Change in Control, then the Option to purchase the Company's common stock
granted to Executive pursuant to Section 3.3 above shall become immediately
fully vested and exercisable as of the date of such Covered Termination.
(b) Notwithstanding (a) above, if Executive's employment terminates
in connection with a Change in Control that is a transaction that is accounted
for as a pooling of interests for financial accounting purposes, then no portion
of Executive's Option shall accelerate unless the Company receives reasonable
assurances from its independent public accountants (and from the acquiring
party's independent public accountants) that in their good faith judgment such
acceleration will not affect the pooling of interests accounting treatment of
such Change in Control transaction.
4.3 PARACHUTE PAYMENTS. If any payment or benefit Executive would
receive in connection with a Change in Control from the Company or otherwise
("Payment") would (i) constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) but for this sentence, be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then such Payment shall be reduced to the
Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of
the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in Executive's receipt, on an
after-tax basis, of the greater amount of the Payment notwithstanding that all
or some portion of the Payment may be subject to the Excise Tax. If a reduction
in payments or benefits constituting "parachute payments" is necessary so that
the Payment equals the Reduced Amount, reduction shall occur in the following
order unless Executive elects in writing a different order (provided, however,
that such election shall be subject to Company approval if made on or after the
effective date of the Change in Control): reduction of cash payments;
cancellation of accelerated vesting of stock awards; reduction of employee
benefits. In the event that acceleration of vesting of stock award compensation
is to be reduced, such acceleration of vesting shall be cancelled in the reverse
order of the date of grant of Executive's stock awards unless Executive elects
in writing a different order for cancellation.
The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required
5.
<PAGE> 6
hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and Executive within fifteen (15) calendar days after the date on
which Executive's right to a Payment is triggered (if requested at that time by
the Company or Executive) or such other time as requested by the Company or
Executive. If the accounting firm determines that no Excise Tax is payable with
respect to a Payment, either before or after the application of the Reduced
Amount, it shall furnish the Company and Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and Executive.
4.4 RELEASE. Upon the occurrence of a Covered Termination, and prior to the
receipt of any benefits under Section 4.1 (except pursuant to the first sentence
thereof) and Section 4.2 on account of the occurrence of such Covered
Termination, Executive shall execute a Release (the "Release") in the form
attached hereto as Exhibit A or Exhibit B, as appropriate. Such Release shall
specifically relate to all of Executive's rights and claims in existence at the
time of such execution and shall confirm Executive's obligations under the
Company's standard form of proprietary information agreement. It is understood
that Executive has a certain period to consider whether to execute such Release,
and Executive may revoke such Release within seven (7) business days after
execution. In the event Executive does not execute such Release within the
applicable period, or if Executive revokes such Release within the subsequent
seven (7) business day period, none of the aforesaid benefits shall be payable
under this Agreement and this Agreement shall be null and void.
4.5 MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided under this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by any retirement benefits received by
Executive after the date of the Covered Termination, or otherwise.
ARTICLE V
PROPRIETARY INFORMATION OBLIGATIONS
5.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary
Information and Inventions Agreement attached hereto as Exhibit C.
5.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of Executive's employment with
the Company and the termination of this Agreement. Executive acknowledges that a
remedy at law for any breach or threatened breach by Executive of the provisions
of the Proprietary Information and Inventions Agreement would be inadequate, and
Executive therefore agrees that the
6.
<PAGE> 7
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
ARTICLE VI
OUTSIDE ACTIVITIES
6.1 Except with the prior written consent of the Board, Executive shall not
during the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor. Executive may engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of
Executive's duties hereunder.
6.2 During the term of Executive's employment by the Company, except on behalf
of the Company, Executive shall not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by Executive to compete directly with the Company, throughout the world,
in any line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding,
Executive may own, as a passive investor, securities of any competitor
corporation, so long as Executive's direct holdings in any one such corporation
shall not in the aggregate constitute more than 1% of the voting stock of such
corporation.
ARTICLE VII
NONINTERFERENCE
While employed by the Company, and for one (1) year immediately following
the date on which Executive terminates employment or otherwise ceases providing
services to the Company, Executive agrees not to interfere with the business of
the Company by soliciting or attempting to solicit any employee of the Company
to terminate such employee's employment in order to become an employee,
consultant or independent contractor to or for any competitor of the Company.
Executive's duties under this Article 7 shall survive termination of Executive's
employment with the Company and the termination of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail, to the
Company at its primary office location and to Executive at Executive's address
as listed on the Company payroll.
7.
<PAGE> 8
8.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of any provisions of this
Agreement, they shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit A, Exhibit B and Exhibit
C constitute the entire agreement between Executive and the Company and are the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter; provided, however, that this Agreement shall not supersede the
letter agreement entered into between Executive and the Company on June 11,
1998, and in the event of any inconsistency between the terms of this Agreement
and those of said side letter agreement, the terms of the latter shall control.
They are entered into without reliance on any promise or representation other
than those expressly contained herein or therein, and they cannot be modified or
amended except in a writing signed by an officer of the Company.
8.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.
8.6 HEADINGS. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of Executive's duties hereunder and Executive may not assign
any of Executive's rights hereunder, without the written consent of the Company,
which shall not be withheld unreasonably.
8.8 ARBITRATION. Unless otherwise prohibited by law or specified below, all
disputes, claims and causes of action, in law or equity, arising from or
relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco County, California through Judicial
Arbitration & Mediation Services/Endispute ("JAMS") under the then existing JAMS
arbitration rules. However, nothing in this section is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration. Each party in any such
arbitration shall be responsible for its own attorneys' fees, costs and
necessary disbursement; provided, however, that if one party refuses to
arbitrate and the other party seeks to compel arbitration by court order, if
such other party prevails, it shall be entitled to recover
8.
<PAGE> 9
reasonable attorneys' fees, costs and necessary disbursements. Pursuant to
California Civil Code Section 1717, each party warrants that it was represented
by counsel in the negotiation and execution of this Agreement, including the
attorneys' fees provision herein.
8.9 ATTORNEYS' FEES. If either party hereto brings any action to enforce rights
hereunder, each party in any such action shall be responsible for its own
attorneys' fees and costs incurred in connection with such action.
8.10 CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
AXYS PHARMACEUTICALS, INC.
By: /s/ John P. Walker
--------------------------------
Date: 12/14/99
------------------------------
Accepted and agreed this
14th day of December, 1999
/s/ William J. Newell
- ----------------------------
WILLIAM J. NEWELL
Exhibit A: Release (Individual Termination)
Exhibit B: Release (Group Termination)
Exhibit C: Proprietary Information and Inventions Agreement
9.
<PAGE> 10
EXHIBIT A
RELEASE
(INDIVIDUAL TERMINATION)
Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement
1.
<PAGE> 11
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have twenty-one (21) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; and (E) this Release shall not be effective
until the date upon which the revocation period has expired, which shall be the
eighth (8th) day after this Release is executed by me.
WILLIAM J. NEWELL
-------------------------------------
Date:
--------------------------------
2.
<PAGE> 12
EXHIBIT B
RELEASE
(GROUP TERMINATION)
Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement
1.
<PAGE> 13
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have forty-five (45) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; (E) this Release shall not be effective until
the date upon which the revocation period has expired, which shall be the eighth
day (8th) after this Release is executed by me; and (F) I have received with
this Release a detailed list of the job titles and ages of all employees who
were terminated in this group termination and the ages of all employees of the
Company in the same job classification or organizational unit who were not
terminated.
WILLIAM J. NEWELL
-------------------------------------
Date:
--------------------------------
2.
<PAGE> 14
EXHIBIT C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 15
ARRIS PHARMACEUTICAL CORPORATION
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with ARRIS Pharmaceutical Corporation
("ARRIS"), and in consideration of my employment with ARRIS and my receipt of
the compensation now and hereafter paid to me by ARRIS, I agree to the
following:
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment
with ARRIS is for an unspecified duration and constitutes "at-will" employment.
I acknowledge that this employment relationship may be terminated at any time,
with or without cause, at the option of either ARRIS or myself, with or without
notice.
2. CONFIDENTIAL INFORMATION.
(a) ARRIS AND THIRD PARTY INFORMATION. I agree at all times during
the term of my employment and thereafter, to hold in strictest confidence, and
not to use, except for the benefit of ARRIS, or to disclose to any person, firm
or corporation without written authorization of an officer of ARRIS, any
Confidential Information of ARRIS. I understand that "Confidential Information"
means any ARRIS proprietary information, technical data, trade secrets or
know-how, including, but not limited to, research and product plans, products,
services, customer lists and customers (including, but not limited to, customers
of ARRIS on whom I called or with whom I became acquainted during the term of my
employment), markets, developments, inventions, processes, formulas, technology,
marketing, finances or other business information disclosed to me by ARRIS
either directly or indirectly in writing, orally or otherwise. I recognize that
ARRIS has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on ARRIS's part to
maintain the confidentiality of such information and to use it only for certain
limited purposes, and I understand that such information is also Confidential
Information. I further understand that Confidential Information does not include
any of the foregoing items that has become publicly known and made generally
available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with ARRIS, improperly use or disclose any proprietary information or
trade secrets of any former or concurrent employer or other person or entity and
that I will not bring onto the premises of ARRIS any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
1.
<PAGE> 16
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets that were made by me prior to my
employment with ARRIS (collectively referred to as "Prior Inventions"), that
belong to me, that relate to ARRIS's proposed business, products or research and
development, and that are not assigned to ARRIS hereunder; or, if no such list
is attached, I represent that there are no such Prior Inventions. If in the
course of my employment with ARRIS, I incorporate into a ARRIS product, process
or machine a Prior Invention owned by me or in which I have an interest, ARRIS
is hereby granted and will have a non-exclusive, royalty-free, irrevocable,
perpetual, worldwide license, with the right to grant sublicenses, to make, have
made, modify, use, and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full
written disclosure to ARRIS, and will hold in trust for the sole right and
benefit of ARRIS, and hereby assign to ARRIS, or its designee, all my right,
title, and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under patent, copyright or similar laws, that I
may solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of ARRIS (collectively referred to as "Inventions"), except as
provided in Section 3(e) below. I further acknowledge that all original works of
authorship that are made by me (solely or jointly with others) within the scope
of and during the period of my employment with ARRIS and that are protectable by
copyright are works made for hire," as that term is defined in the United States
Copyright Act.
(c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all inventions made by me (solely or jointly with
others) during the term of my employment with ARRIS. The records will be in the
form of notes, sketches, drawings, and any other format that may be specified by
ARRIS. The records will be available to and remain the sole property of ARRIS at
all times.
(d) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist ARRIS's,
or its designee, at ARRIS's expense, in every way to secure ARRIS' rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including disclosing
to ARRIS all pertinent information and data with respect thereto, and executing
all applications, specifications, oaths, assignments and all other instruments
that ARRIS shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to ARRIS, its successors, assigns and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers will
continue after the termination of this Agreement. If ARRIS is unable because of
my
2
<PAGE> 17
mental of physical incapacity or for any other reason to secure my signature to
apply for or to pursue any application for any United States or foreign patents
or copyright registrations covering Inventions or original works of authorship
assigned to ARRIS as above, then I hereby irrevocably designate and appoint
ARRIS and its duly authorized officers and agents as my agent and attorney in
fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to ARRIS do not apply to any
invention that qualifies fully under the provisions of California Labor Code
Section 2870 (attached hereto as Exhibit B). I will advise ARRIS promptly in
writing of any inventions that I believe meet the criteria in California Labor
Code Section 2870 and that are not otherwise disclosed in Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with ARRIS, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
ARRIS is now involved or becomes involved during the term of my employment, nor
will I engage in any other activities that conflict with my obligations to
ARRIS.
5. RETURNING ARRIS DOCUMENTS. I agree that, at the time of leaving the
employ of ARRIS, I will deliver to ARRIS (and will not keep in my possession,
recreate or deliver to anyone else) any and all documents or property, or
reproductions of any such documents or property, developed by me pursuant to my
employment with ARRIS or otherwise belonging to ARRIS, its successors or
assigns.
6. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with ARRIS for
any reason, whether with or without cause, I will not either directly or
indirectly solicit, induce, recruit or encourage any of ARRIS's employees to
leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the ARRIS, either for
myself or for any other person or entity.
7. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document requested by ARRIS to carry out the terms of this Agreement. I
represent that my performance of all the terms of this Agreement will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by ARRIS. I have not entered into,
and I agree I will not enter into, any oral or written agreement in conflict
with the terms of this Agreement.
3
<PAGE> 18
8. ARBITRATION AND EQUITABLE RELIEF.
(a) ARBITRATION. Except as provided in Section 8(b) below, I agree
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, will be
settled by arbitration to be held in San Mateo County, California, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction. ARRIS and I will each pay one-half of the
costs and expenses of such arbitration, and each of us will separately pay our
counsel fees and expenses.
(b) EQUITABLE REMEDIES. I agree that it would be impossible or
inadequate to measure and calculate ARRIS's damages for any breach of the
covenants set forth in Sections 2,3, and 5 herein. Accordingly, I agree that if
I breach my obligations under any of such Sections, ARRIS will have, in addition
to any other right or remedy available, the right to obtain injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further agree
that no bond or other security will be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance. I hereby further consent to the personal
jurisdiction of the state and federal courts located in California for any
lawsuit filed there against me by ARRIS arising from or relating to this
Agreement.
9. GENERAL PROVISIONS
(a) GOVERNING LAW. This agreement will be governed by the laws of
the State of California without reference to conflicts of laws principles.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between ARRIS and me relating to the subject matter hereof and
merges all prior discussions between us. No modification of or amendment to this
Agreement, or any waiver of any rights under this Agreement, will be effective
unless in writing signed by the party to be charged. Any subsequent change or
changes in my duties, salary or compensation will not affect the validity or
scope of this Agreement.
4
<PAGE> 19
(c) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of ARRIS, its successors, and its assigns.
Date: 7/20/98 Signature: /s/ William J. Newell
---------------------------- -------------------------
William J. Newell
-----------------------------------
Name of Employee (typed or printed)
ARRIS Pharmaceuticals, Inc.
Name: /s/ Linda Ballenger
-----------------------------------
Print Name: Linda Ballenger
-----------------------------
Title: Comp. & Benefits Manager
----------------------------------
5
<PAGE> 20
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
IDENTIFYING # OR
Title __________________________________ Date _______________ Brief Description
X No inventions or improvements
- ---
_____ Additional sheets attached
Signature of Employee /s/ William J. Newell
-----------------------
Print Name of Employee William J. Newell
Date 7/20/98
Signature of Supervisor /s/ John P. Walker
---------------------
Print Name of Supervisor John P. Walker
Date 7/20/98
6
<PAGE> 21
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
" (a) ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN
EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS IN AN
INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT THE
EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER'S
EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION EXCEPT FOR THOSE
INVENTIONS THAT EITHER:
(1) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF
THE INVENTION TO THE EMPLOYER'S BUSINESS, OR ACTUAL OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER.
(2) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER.
(3) TO THE EXTENT A PROVISION IN AN EMPLOYEE AGREEMENT PURPORTS
TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED
FROM BEING REQUIRED TO BE ASSIGNED UNDER SUBDIVISION (a), THE
PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS
UNENFORCEABLE."
7
<PAGE> 1
EXHIBIT 10.122
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is entered into as of
the 14th day of December, 1999 (the "Effective Date"), by and between Michael C.
Venuti, Ph.D. ("Executive") and Axys Pharmaceuticals, Inc. (the "Company").
WHEREAS, the Company desires to continue to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for Executive's services; and
WHEREAS, Executive wishes to continue to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
ARTICLE I
DEFINITIONS
For purposes of the Agreement, the following terms are defined as
follows:
1.1 "BOARD" means the Board of Directors of the Company.
1.2 "CAUSE" means:
(a) Executive's intentional action or intentional failure to act
that was performed in bad faith and to the material detriment of the business of
the Company;
(b) Executive's intentional refusal or intentional failure to act in
accordance with any lawful and proper direction or order of the Board or the
appropriate individual to whom Executive reports;
(c) Executive's willful and habitual neglect of Executive's duties
of employment;
(d) Executive's violation of any noncompetition or noninterference
agreement that Executive has entered into with the Company; or
(e) Executive's conviction of a felony crime involving moral
turpitude;
provided, however, that if any of the foregoing events under clauses (a), (b),
(c) or (d) above is capable of being cured, the Company shall provide written
notice to Executive describing the nature of such event and Executive shall
thereafter have ten (10) business days to cure such event.
1.
<PAGE> 2
1.3 "CHANGE IN CONTROL" means the occurrence of any of the following
events:
(a) a dissolution, liquidation or sale of all or substantially all
of the assets of the Company;
(b) a merger or consolidation in which the Company is not the
surviving corporation;
(c) a reverse merger in which the Company is the surviving
corporation but shares outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or
(d) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors.
1.4 "COMPANY" means Axys Pharmaceuticals, Inc. or, following a Change in
Control, the surviving entity resulting from such transaction.
1.5 "COVERED TERMINATION" means (i) an Involuntary Termination Without
Cause that occurs at any time, without regard to a Change in Control, or (ii) a
voluntary termination for Good Reason that occurs on or after the effective date
of a Change in Control.
1.6 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
1.7 "GOOD REASON" means that any of the following are undertaken without
Executive's express written consent:
(a) the assignment to Executive of any duties or responsibilities
that results in any diminution or adverse change of Executive's position,
status, circumstances of employment or scope of responsibilities;
(b) a reduction by the Company in Executive's annual base salary as
in effect on the effective date of the Change in Control;
(c) the taking of any action by the Company that would adversely
affect Executive's participation in, or reduce Executive's benefits under, the
Company's benefit plans (including equity benefits) as of the effective date of
the Change in Control, except to the extent the benefits of all other executives
of the Company are similarly reduced;
(d) a relocation of Executive's principal office to a location more
than forty (40) miles from the location at which Executive was performing
Executive's duties as
2.
<PAGE> 3
of the effective date of the Change in Control, except for required travel by
Executive on the Company's business;
(e) any material breach by the Company of any provision of this
Agreement; or
(f) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
1.8 "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal
or discharge other than for Cause. The termination of Executive's employment as
a result of Executive's death or disability will not be deemed to be an
Involuntary Termination Without Cause.
ARTICLE II
EMPLOYMENT BY THE COMPANY
2.1 POSITION AND DUTIES. Subject to terms set forth herein, the Company agrees
to continue to employ Executive in the position of Senior Vice President,
Research and Preclinical Development and Chief Technical Officer and Executive
hereby accepts such continued employment. Executive shall serve in an executive
capacity and shall perform such duties as are customarily associated with the
position of Senior Vice President, Research and Preclinical Development and
Chief Technical Officer and such other duties as are assigned to Executive by
the Company's Chief Executive Officer. Executive will report to the Chief
Executive Officer. During the term of Executive's employment with the Company,
Executive will devote Executive's best efforts and substantially all of
Executive's business time and attention (except for vacation periods as set
forth herein and reasonable periods of illness or other incapacities permitted
by the Company's general employment policies or as otherwise set forth in this
Agreement) to the business of the Company.
2.2 EMPLOYMENT AT WILL. Both the Company and Executive shall have the right to
terminate Executive's employment with the Company at any time, with or without
Cause, and without prior notice. If Executive's employment with the Company is
terminated, Executive will be eligible to receive severance benefits to the
extent provided in this Agreement.
2.3 EMPLOYMENT POLICIES. The employment relationship between the parties shall
also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
3.
<PAGE> 4
ARTICLE III
COMPENSATION
3.1 BASE SALARY. Executive shall receive for services to be rendered hereunder
an annual base salary of $250,000.00, payable on the regular payroll dates of
the Company, subject to increase in the sole discretion of the Board of
Directors.
3.2 BONUS. Executive shall be eligible for a discretionary bonus, in an amount
to be determined solely by the Company, in its discretion.
3.3 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and
benefits for which Executive is eligible under the terms and conditions of the
standard Company benefits and compensation practices that may be in effect from
time to time and are provided by the Company to its executive employees
generally.
3.4 COMPENSATORY STOCK AWARD. At the Board's meeting on the date hereof, the
Board granted Executive an option to acquire seventy-five thousand (75,000)
shares of the common stock of the Company (the "Option"). The Option has been
granted pursuant to the Company's 1997 Equity Incentive Plan. The Option is an
incentive stock option for purposes of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent permitted under the Code. The
exercise price per share of the Option will be equal to one hundred percent
(100%) of the fair market value of the Company's common stock, as determined
pursuant to the Company's 1997 Equity Incentive Plan, on the date of grant.
Subject to Executive's continued employment by the Company, the Option vests as
to one-forty-eighth (1/48) of the shares of common stock subject to the Option
each calendar month for forty-eight (48) months, counted from the Option's date
of grant. In all other respects, the Option is to be governed by the terms of
the Plan, including the option agreement and grant notice thereunder.
ARTICLE IV
SEVERANCE AND CHANGE IN CONTROL BENEFITS
4.1 SEVERANCE BENEFITS. If Executive's employment terminates due to a Covered
Termination after the date of execution of this Agreement, Executive shall
receive any annual base salary and bonus compensation that has accrued but is
unpaid as of the date of such Covered Termination. Within thirty (30) days
following the date on which the Release described in Section 4.4 below becomes
effective in accordance with its terms, Executive shall also receive a lump sum
payment equal to one hundred percent (100%) of Executive's annual base salary as
in effect during the last regularly scheduled payroll period immediately
preceding the Covered Termination, all of the foregoing subject to applicable
tax withholding. In addition, following a Covered Termination, Executive and
Executive's covered dependents shall be eligible to continue their health care
benefit coverage as permitted by COBRA (Internal Revenue Code Section 4980B) at
the same cost to Executive as in effect immediately prior to the Covered
Termination for the one (l)-year period following the Covered Termination.
Executive shall be entitled to maintain
4.
<PAGE> 5
coverage for Executive and Executive's eligible dependents at Executive's own
expense for the balance of the period that Executive is entitled to coverage
under COBRA.
4.2 ACCELERATION OF VESTING OF OUTSTANDING OPTIONS.
(a) If Executive's employment with the Company terminates due to a
Covered Termination within thirteen (13) months following the effective date of
a Change in Control, then the Option to purchase the Company's common stock
granted to Executive pursuant to Section 3.3 above shall become immediately
fully vested and exercisable as of the date of such Covered Termination.
(b) Notwithstanding (a) above, if Executive's employment terminates
in connection with a Change in Control that is a transaction that is accounted
for as a pooling of interests for financial accounting purposes, then no portion
of Executive's Option shall accelerate unless the Company receives reasonable
assurances from its independent public accountants (and from the acquiring
party's independent public accountants) that in their good faith judgment such
acceleration will not affect the pooling of interests accounting treatment of
such Change in Control transaction.
4.3 PARACHUTE PAYMENTS. If any payment or benefit Executive would receive in
connection with a Change in Control from the Company or otherwise ("Payment")
would (i) constitute a "parachute payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for
this sentence, be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then such Payment shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be either (x) the largest portion of the Payment that
would result in no portion of the Payment being subject to the Excise Tax or (y)
the largest portion, up to and including the total, of the Payment, whichever
amount, after taking into account all applicable federal, state and local
employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in Executive's receipt, on an after-tax
basis, of the greater amount of the Payment notwithstanding that all or some
portion of the Payment may be subject to the Excise Tax. If a reduction in
payments or benefits constituting "parachute payments" is necessary so that the
Payment equals the Reduced Amount, reduction shall occur in the following order
unless Executive elects in writing a different order (provided, however, that
such election shall be subject to Company approval if made on or after the
effective date of the Change in Control): reduction of cash payments;
cancellation of accelerated vesting of stock awards; reduction of employee
benefits. In the event that acceleration of vesting of stock award compensation
is to be reduced, such acceleration of vesting shall be cancelled in the reverse
order of the date of grant of Executive's stock awards unless Executive elects
in writing a different order for cancellation.
The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required
5.
<PAGE> 6
hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.
The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and Executive within fifteen (15) calendar days after the date on
which Executive's right to a Payment is triggered (if requested at that time by
the Company or Executive) or such other time as requested by the Company or
Executive. If the accounting firm determines that no Excise Tax is payable with
respect to a Payment, either before or after the application of the Reduced
Amount, it shall furnish the Company and Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and Executive.
4.4 RELEASE. Upon the occurrence of a Covered Termination, and prior to the
receipt of any benefits under Section 4.1 (except pursuant to the first sentence
thereof) and Section 4.2 on account of the occurrence of such Covered
Termination, Executive shall execute a Release (the "Release") in the form
attached hereto as Exhibit A or Exhibit B, as appropriate. Such Release shall
specifically relate to all of Executive's rights and claims in existence at the
time of such execution and shall confirm Executive's obligations under the
Company's standard form of proprietary information agreement. It is understood
that Executive has a certain period to consider whether to execute such Release,
and Executive may revoke such Release within seven (7) business days after
execution. In the event Executive does not execute such Release within the
applicable period, or if Executive revokes such Release within the subsequent
seven (7) business day period, none of the aforesaid benefits shall be payable
under this Agreement and this Agreement shall be null and void.
4.5 MITIGATION. Executive shall not be required to mitigate damages or the
amount of any payment provided under this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by Executive as a result of
employment by another employer or by any retirement benefits received by
Executive after the date of the Covered Termination, or otherwise.
ARTICLE V
PROPRIETARY INFORMATION OBLIGATIONS
5.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary
Information and Inventions Agreement attached hereto as Exhibit C.
5.2 REMEDIES. Executive's duties under the Proprietary Information and
Inventions Agreement shall survive termination of Executive's employment with
the Company and the termination of this Agreement. Executive acknowledges that a
remedy at law for any breach or threatened breach by Executive of the provisions
of the Proprietary Information and Inventions Agreement would be inadequate, and
Executive therefore agrees that the
6.
<PAGE> 7
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
ARTICLE VI
OUTSIDE ACTIVITIES
6.1 Except with the prior written consent of the Board, Executive shall not
during the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor. Executive may engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of
Executive's duties hereunder.
6.2 During the term of Executive's employment by the Company, except on behalf
of the Company, Executive shall not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known by Executive to compete directly with the Company, throughout the world,
in any line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding,
Executive may own, as a passive investor, securities of any competitor
corporation, so long as Executive's direct holdings in any one such corporation
shall not in the aggregate constitute more than 1% of the voting stock of such
corporation.
ARTICLE VII
NONINTERFERENCE
While employed by the Company, and for one (1) year immediately
following the date on which Executive terminates employment or otherwise ceases
providing services to the Company, Executive agrees not to interfere with the
business of the Company by soliciting or attempting to solicit any employee of
the Company to terminate such employee's employment in order to become an
employee, consultant or independent contractor to or for any competitor of the
Company. Executive's duties under this Article 7 shall survive termination of
Executive's employment with the Company and the termination of this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail, to the
Company at its primary office location and to Executive at Executive's address
as listed on the Company payroll.
7.
<PAGE> 8
8.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of any provisions of this
Agreement, they shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its Exhibit A, Exhibit B and Exhibit
C constitute the entire agreement between Executive and the Company and are the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. They are entered into without reliance on any promise or
representation other than those expressly contained herein or therein, and they
cannot be modified or amended except in a writing signed by an officer of the
Company.
8.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.
8.6 HEADINGS. The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of Executive's duties hereunder and Executive may not assign
any of Executive's rights hereunder, without the written consent of the Company,
which shall not be withheld unreasonably.
8.8 ARBITRATION. Unless otherwise prohibited by law or specified below, all
disputes, claims and causes of action, in law or equity, arising from or
relating to this Agreement or its enforcement, performance, breach, or
interpretation shall be resolved solely and exclusively by final and binding
arbitration held in San Francisco County, California through Judicial
Arbitration & Mediation Services/Endispute ("JAMS") under the then existing JAMS
arbitration rules. However, nothing in this section is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration. Each party in any such
arbitration shall be responsible for its own attorneys' fees, costs and
necessary disbursement; provided, however, that if one party refuses to
arbitrate and the other party seeks to compel arbitration by court order, if
such other party prevails, it shall be entitled to recover reasonable attorneys'
fees, costs and necessary disbursements. Pursuant to California Civil Code
Section 1717, each party warrants that it was represented by counsel in the
8.
<PAGE> 9
negotiation and execution of this Agreement, including the attorneys' fees
provision herein.
8.9 ATTORNEYS' FEES. If either party hereto brings any action to enforce rights
hereunder, each party in any such action shall be responsible for its own
attorneys' fees and costs incurred in connection with such action.
8.10 CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
AXYS PHARMACEUTICALS, INC.
By: /s/ John P. Walker
---------------------------------
Date: 12/14/99
-------------------------------
Accepted and agreed this
14th day of December, 1999
/s/ Michael C. Venuti
- ----------------------------
MICHAEL C. VENUTI, PH.D.
Exhibit A: Release (Individual Termination)
Exhibit B: Release (Group Termination)
Exhibit C: Proprietary Information and Inventions Agreement
9.
<PAGE> 10
EXHIBIT A
RELEASE
(INDIVIDUAL TERMINATION)
Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement
1.
<PAGE> 11
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have twenty-one (21) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; and (E) this Release shall not be effective
until the date upon which the revocation period has expired, which shall be the
eighth (8th) day after this Release is executed by me.
MICHAEL C. VENUTI, PH.D.
----------------------------------
Date:
-----------------------------
2.
<PAGE> 12
EXHIBIT B
RELEASE
(GROUP TERMINATION)
Certain capitalized terms used in this Release are defined in the
Executive Employment Agreement (the "Agreement") which I have executed and of
which this Release is a part.
I hereby confirm my obligations under the Company's proprietary
information and inventions agreement.
I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
Except as otherwise set forth in this Release, in consideration of
benefits I will receive under the Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Release, including, but not limited to: all such claims and
demands directly or indirectly arising out of or in any way connected with my
employment with the Company or the termination of that employment, including but
not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands related
to salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
severance pay, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"); the federal Employee Retirement
Income Security Act of 1974, as amended; the federal Americans with Disabilities
Act of 1990; the California Fair Employment and Housing Act, as amended; tort
law; contract law; statutory law; common law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the implied
covenant of good faith and fair dealing; provided, however, that nothing in this
paragraph shall be construed in any way to release the Company from its
obligation to indemnify me pursuant to the Company's indemnification obligation
pursuant to agreement or applicable law.
I acknowledge that I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration
given under the Agreement
1.
<PAGE> 13
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that: (A) my waiver
and release do not apply to any rights or claims that may arise on or after the
date I execute this Release; (B) I have the right to consult with an attorney
prior to executing this Release; (C) I have forty-five (45) days to consider
this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following the execution of this Release by
the parties to revoke the Release; (E) this Release shall not be effective until
the date upon which the revocation period has expired, which shall be the eighth
day (8th) after this Release is executed by me; and (F) I have received with
this Release a detailed list of the job titles and ages of all employees who
were terminated in this group termination and the ages of all employees of the
Company in the same job classification or organizational unit who were not
terminated.
MICHAEL C. VENUTI, PH.D.
----------------------------------
Date:
-----------------------------
2.
<PAGE> 14
EXHIBIT C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 15
ARRIS PHARMACEUTICAL CORPORATION
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with ARRIS Pharmaceutical Corporation
("ARRIS"), and in consideration of my employment with ARRIS and my receipt of
the compensation now and hereafter paid to me by ARRIS, I agree to the
following:
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment
with ARRIS is for an unspecified duration and constitutes "at-will" employment.
I acknowledge that this employment relationship may be terminated at any time,
with or without cause, at the option of either ARRIS or myself, with or without
notice.
2. CONFIDENTIAL INFORMATION.
(a) ARRIS AND THIRD PARTY INFORMATION. I agree at all times during
the term of my employment and thereafter, to hold in strictest confidence, and
not to use, except for the benefit of ARRIS, or to disclose to any person, firm
or corporation without written authorization of an officer of ARRIS, any
Confidential Information of ARRIS. I understand that "Confidential Information"
means any ARRIS proprietary information, technical data, trade secrets or
know-how, including, but not limited to, research and product plans, products,
services, customer lists and customers (including, but not limited to, customers
of ARRIS on whom I called or with whom I became acquainted during the term of my
employment), markets, developments, inventions, processes, formulas, technology,
marketing, finances or other business information disclosed to me by ARRIS
either directly or indirectly in writing, orally or otherwise. I recognize that
ARRIS has received and in the future will receive from third parties their
confidential or proprietary information subject to a duty on ARRIS's part to
maintain the confidentiality of such information and to use it only for certain
limited purposes, and I understand that such information is also Confidential
Information. I further understand that Confidential Information does not include
any of the foregoing items that has become publicly known and made generally
available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with ARRIS, improperly use or disclose any proprietary information or
trade secrets of any former or concurrent employer or other person or entity and
that I will not bring onto the premises of ARRIS any unpublished document or
proprietary information belonging to any such employer, person or entity unless
consented to in writing by such employer, person or entity.
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<PAGE> 16
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets that were made by me prior to my
employment with ARRIS (collectively referred to as "Prior Inventions"), that
belong to me, that relate to ARRIS's proposed business, products or research and
development, and that are not assigned to ARRIS hereunder; or, if no such list
is attached, I represent that there are no such Prior Inventions. If in the
course of my employment with ARRIS, I incorporate into a ARRIS product, process
or machine a Prior Invention owned by me or in which I have an interest, ARRIS
is hereby granted and will have a non-exclusive, royalty-free, irrevocable,
perpetual, worldwide license, with the right to grant sublicenses, to make, have
made, modify, use, and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full
written disclosure to ARRIS, and will hold in trust for the sole right and
benefit of ARRIS, and hereby assign to ARRIS, or its designee, all my right,
title, and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under patent, copyright or similar laws, that I
may solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of ARRIS (collectively referred to as "Inventions"), except as
provided in Section 3(e) below. I further acknowledge that all original works of
authorship that are made by me (solely or jointly with others) within the scope
of and during the period of my employment with ARRIS and that are protectable by
copyright are works made for hire," as that term is defined in the United States
Copyright Act.
(c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all inventions made by me (solely or jointly with
others) during the term of my employment with ARRIS. The records will be in the
form of notes, sketches, drawings, and any other format that may be specified by
ARRIS. The records will be available to and remain the sole property of ARRIS at
all times.
(d) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist ARRIS's,
or its designee, at ARRIS's expense, in every way to secure ARRIS' rights in the
Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including disclosing
to ARRIS all pertinent information and data with respect thereto, and executing
all applications, specifications, oaths, assignments and all other instruments
that ARRIS shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to ARRIS, its successors, assigns and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers will
continue after the termination of this Agreement. If ARRIS is unable because of
my
2
<PAGE> 17
mental of physical incapacity or for any other reason to secure my signature to
apply for or to pursue any application for any United States or foreign patents
or copyright registrations covering Inventions or original works of authorship
assigned to ARRIS as above, then I hereby irrevocably designate and appoint
ARRIS and its duly authorized officers and agents as my agent and attorney in
fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(e) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to ARRIS do not apply to any
invention that qualifies fully under the provisions of California Labor Code
Section 2870 (attached hereto as Exhibit B). I will advise ARRIS promptly in
writing of any inventions that I believe meet the criteria in California Labor
Code Section 2870 and that are not otherwise disclosed in Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with ARRIS, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
ARRIS is now involved or becomes involved during the term of my employment, nor
will I engage in any other activities that conflict with my obligations to
ARRIS.
5. RETURNING ARRIS DOCUMENTS. I agree that, at the time of leaving the
employ of ARRIS, I will deliver to ARRIS (and will not keep in my possession,
recreate or deliver to anyone else) any and all documents or property, or
reproductions of any such documents or property, developed by me pursuant to my
employment with ARRIS or otherwise belonging to ARRIS, its successors or
assigns.
6. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with ARRIS for
any reason, whether with or without cause, I will not either directly or
indirectly solicit, induce, recruit or encourage any of ARRIS's employees to
leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the ARRIS, either for
myself or for any other person or entity.
7. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document requested by ARRIS to carry out the terms of this Agreement. I
represent that my performance of all the terms of this Agreement will not breach
any agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by ARRIS. I have not entered into,
and I agree I will not enter into, any oral or written agreement in conflict
with the terms of this Agreement.
3
<PAGE> 18
8. ARBITRATION AND EQUITABLE RELIEF.
(a) ARBITRATION. Except as provided in Section 8(b) below, I agree
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, will be
settled by arbitration to be held in San Mateo County, California, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction. ARRIS and I will each pay one-half of the
costs and expenses of such arbitration, and each of us will separately pay our
counsel fees and expenses.
(b) EQUITABLE REMEDIES. I agree that it would be impossible or
inadequate to measure and calculate ARRIS's damages for any breach of the
covenants set forth in Sections 2,3, and 5 herein. Accordingly, I agree that if
I breach my obligations under any of such Sections, ARRIS will have, in addition
to any other right or remedy available, the right to obtain injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further agree
that no bond or other security will be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance. I hereby further consent to the personal
jurisdiction of the state and federal courts located in California for any
lawsuit filed there against me by ARRIS arising from or relating to this
Agreement.
9. GENERAL PROVISIONS
(a) GOVERNING LAW. This agreement will be governed by the laws of
the State of California without reference to conflicts of laws principles.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between ARRIS and me relating to the subject matter hereof and
merges all prior discussions between us. No modification of or amendment to this
Agreement, or any waiver of any rights under this Agreement, will be effective
unless in writing signed by the party to be charged. Any subsequent change or
changes in my duties, salary or compensation will not affect the validity or
scope of this Agreement.
4
<PAGE> 19
(c) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of ARRIS, its successors, and its assigns.
Date: 11/4/94 Signature: /s/ Michael C. Venuti
------------------------------ ------------------------
Michael C. Venuti
--------------------------------
Name of Employee (typed or printed)
ARRIS Pharmaceuticals, Inc.
Name: /s/ Linda Ballenger
-------------------------------
Print Name: Linda Ballenger
-------------------------
Title: Comp. & Benefits Manager
-----------------------------
5
<PAGE> 20
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying # or
Title __________________________________ Date _______________ Brief Description
X No inventions or improvements
_____ Additional sheets attached
Signature of Employee /s/ Michael C. Venuti
----------------------
Print Name of Employee Michael C. Venuti
----------------------
Date 11/4/94
-------
Signature of Supervisor Heinz Gschwend
------------------
Print Name of Supervisor Heinz Gschwend
------------------
Date 11/9/94
-------
6
<PAGE> 21
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(3) To the extent a provision in an employee agreement purports
to require an employee to assign an invention otherwise excluded
from being required to be assigned under subdivision (a), the
provision is against the public policy of this state and is
unenforceable."
7
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-74720, 33-80852, 333-09095, 333-44667, 333-44669, 333-36639,
33-92900, 333-00500, 333-36645 and 333-84199) pertaining to the 1989 Stock
Plan, 1993 Employee Stock Purchase Plan, 1993 Employee Stock Bonus Plan, 1994
Non-Employee Directors' Stock Option Plan, 1997 Equity Incentive Plan and 1997
Non-Officer Equity Incentive Plan of Axys Pharmaceuticals, Inc. of our report
dated February 18, 2000 with respect to the consolidated financial statements
of Axys Pharmaceuticals, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1999.
ERNST & YOUNG LLP
Palo Alto, California
March 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, statements of operations and statements of cash
flows included in the Company's Form 10-K for the year ended December 31,
1999, and is qualified in its entirety by reference to such financial statements
and notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 23,577
<SECURITIES> 3,080
<RECEIVABLES> 4,786
<ALLOWANCES> 0
<INVENTORY> 2,258
<CURRENT-ASSETS> 35,225
<PP&E> 48,608
<DEPRECIATION> (29,735)
<TOTAL-ASSETS> 55,734
<CURRENT-LIABILITIES> 38,556
<BONDS> 0
0
0
<COMMON> 291,328
<OTHER-SE> 14,047
<TOTAL-LIABILITY-AND-EQUITY> 55,734
<SALES> 12,928
<TOTAL-REVENUES> 38,257
<CGS> 2,698
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 84,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,086
<INCOME-PRETAX> (49,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,763)
<EPS-BASIC> (1.60)
<EPS-DILUTED> (1.60)
</TABLE>
