FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File Number 0-23666
TRIPOS, INC.
(Exact Name of Registrant as Specified in its Charter)
Utah 43-1454986
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1699 South Hanley Road
St. Louis, Missouri 63144
(Address of Principal Executive Offices and Zip Code)
(314) 647-1099
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock, par
value $.01 per share, as of June 30, 2000: 3,523,466 shares.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION, Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations
for Three Months Ended June 30, 2000 and June 30, 1999
and Six Months Ended June 30, 2000 and June 30, 1999 4
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 2000 and June 30, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, Dec. 31,
2000 1999
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 3,122 $ 813
Notes receivable-other 862 830
Accounts receivable 10,100 14,182
Inventory 3,639 2,595
Prepaid expenses 1,275 242
Deferred income taxes 1,418 1,418
Total current assets 20,416 20,080
Notes Receivable-trade 2,264 2,448
Notes Receivable-other 971 934
Property and equipment,
less accumulated depreciation 13,242 13,899
Capitalized development costs, net 426 572
Goodwill, net of amortization 1,056 1,082
Investment in unconsolidated affiliate 2,423 2,423
Other, net 140 144
Total assets $ 40,938 $ 41,582
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
and capital leases $ 1,166 $ 2,245
Accounts payable 546 1,443
Accrued expenses 2,348 3,187
Deferred revenue 5,991 4,832
Total current liabilities 10,051 11,707
Long-term portion of capital leases 658 1,223
Long-term debt 2,988 7,001
Long-term deferred revenue 1,701 2,485
Deferred income taxes 1,583 1,583
Series-B preferred stock 9,149 -
Shareholders' equity :
Common stock 35 33
Additional paid-in capital 19,639 18,431
Retained deficit (4,583) (1,020)
Other comprehensive income (loss ) (283) 139
Total shareholders' equity 14,808 17,583
Total liabilities and shareholders' equity $ 40,938 $ 41,582
See accompanying notes.
<PAGE>
Item 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Net sales:
Software licenses $ 2,674 $ 1,736 $ 4,222 $ 3,552
Support 1,888 2,091 3,817 4,148
Discovery services 688 1,528 1,476 2,892
Hardware 226 767 959 1,686
Total net sales 5,476 6,122 10,474 12,278
Operating costs and expenses:
Cost of sales 749 1,476 1,938 3,346
Sales and marketing 2,541 2,279 5,125 4,626
Research and development 2,292 2,786 4,587 4,533
General and administrative 1,249 1,300 2,471 2,397
Total costs and expenses 6,831 7,841 14,121 14,902
Loss from operations (1,355) (1,719) (3,647) (2,624)
Other income, net 96 (172) 263 (52)
Loss before income taxes and
preferred dividends (1,259) (1,891) (3,384) (2,676)
Income tax benefit - (718) - (1,017)
Net loss before
preferred dividends (1,259) (1,173) (3,384) (1,659)
Preferred dividends 113 - 179 -
Net loss allocable to common
shareholders $(1,372) $(1,173) $(3,563) $(1,659)
Basic and diluted loss per share $(0.39) $(0.36) $(1.03) $(0.51)
Basic and diluted weighted
average number of shares 3,496 3,268 3,443 3,263
See accompanying notes.
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Item 1. Financial Statements (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30, June 30,
2000 1999
Operating activities:
Net loss $ (3,563) $ (1,659)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of property and equipment 966 820
Amortization of capitalized
development costs and goodwill 239 351
Deferred income taxes - (17)
Accreted dividends on Series B
preferred stock 179 -
Change in operating assets and liabilities:
Accounts receivable 3,782 2,851
Notes receivable-trade 246 (271)
Inventories (1,251) 213
Prepaid expenses and other current assets (1,135) (14)
Accounts payable and accrued expenses (1,409) (679)
Deferred revenue 550 (13)
Net cash provided (used) by
operating activities (1,396) 1,582
Investing activities:
Notes receivable-other (68) (18)
Purchases of property and equipment (783) (4,187)
Capitalized development costs (42) (127)
Acquisition, including investment in
unconsolidated affiliates - (385)
Net cash used in investing activities (893) (4,717)
Financing activities:
Stock issuance pursuant to stock plans 1,109 250
Proceeds from issuance of Series B
preferred stock 8,970 -
Payments on long-term debt and
capital leases (5,122) (131)
Issuance of long-term debt - 2,542
Net cash provided by financing activities 4,957 2,661
Effect of foreign exchange rate changes
on cash and cash equivalents (359) (440)
Net change in cash and cash equivalents 2,309 (914)
Cash and cash equivalents at beginning
of period 813 1,774
Cash and cash equivalents at end
of period $ 3,122 $ 860
See accompanying notes.
<PAGE>
Item 1. Financial Statements (continued)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) Summary of significant accounting policies
Organization
Tripos, Inc. is a leading provider of integrated discovery
software products, software consulting services, and discovery
research services to the pharmaceutical, biotechnology,
agrochemical, and other life sciences industries. We combine
information technology and scientific research to optimize and
accelerate molecular research for the discovery of new products
by our clients.
With a strong foundation in cheminformatics, Tripos provides
its customers with what we believe are distinct competitive
advantages. Our "chemically intelligent" discovery software
tools are able to manage, analyze and share biological and
chemical information. Tripos' software consulting services help
to organize data in a manner that is conducive to discovery
research. Tripos' proprietary chemical compound libraries couple
Tripos' molecular design technology and synthesis capabilities.
Discovery research services leverage Tripos' cheminformatics
expertise in molecular design analysis and medicinal chemistry.
Together, these services allow our customers to take advantage of
recent advances in high throughput screening for biological
activity with a goal of accelerating the development and
commercialization of major new products.
Our customers, a number of which are industry leaders, use
our products and services to reduce product discovery costs and
time, and to accelerate the development of major new products.
To date, Tripos has entered into strategic alliances with
pharmaceutical and biotechnology companies. Certain of these
contracts provide for recurring payments for products and
services over the course of the contract term as well as
milestone payments or ownership of new product discoveries.
Tripos has a geographically diverse customer base, with
approximately half of its revenues derived from European and
other customers outside the United States. Tripos has a
worldwide sales force with offices throughout the United States,
and in England, France and Germany, representatives throughout
the Pacific Rim, and its Tripos Receptor Research chemistry
laboratories in England.
Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in
the United States for complete financial statements. In the
opinion of management, all normal recurring adjustments necessary
for a fair presentation of such financial statements have been
included. Operating results for the three- and six-month periods
ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
(2) Income Taxes
The provision for income taxes is computed using the
liability method. The primary difference between financial
statement and taxable income results from the use of different
methods of computing capitalized development costs, accrued
vacation and customer deposits.
<PAGE>
Item 1. Financial Statements (continued)
(3) Comprehensive Income
The components of comprehensive income, net of related tax,
for the three- and six-month periods ended June 30, 2000 and 1999
are as follows:
Three Months Six Months Ended
Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Net loss allocable to
common shareholders $(1,372) $(1,173) $(3,563) $(1,659)
Foreign currency
translation adjustments (221) (139) (422) (311)
Comprehensive loss $(1,593) $(1,312) $(3,985) $(1,970)
The components of accumulated other comprehensive income, net of
related tax, at June 30, 2000 and December 31, 1999 are as
follows:
June 30, Dec. 31,
2000 1999
Foreign currency translation adjustments $ (283) $ 139
Accumulated other comprehensive income (loss) $ (283) $ 139
(4) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share for the three- and six-month periods
ended June 30, 2000 and 1999.
Three Months Six Months
Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Numerator:
Numerator for basic earnings
per share-net loss allocable
to common shareholders $(1,372) $(1,173) $(3,563) $(1,659)
Add back preferred dividends (Note A) - N/A - N/A
Numerator for diluted earnings
per share-net loss $(1,372) $(1,173) $(3,563) $(1,659)
Denominator:
Denominator for basic earnings per
share-weighted average shares 3,496 3,268 3,443 3,263
Effect of dilutive securities:
Employee stock options (Note B) - - - -
Preferred shares (Note A) - N/A - N/A
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 3,496 3,268 3,443 3,263
Basic loss per share $(0.39) $(0.36) $(1.03) $(0.51)
Diluted loss per share $(0.39) $(0.36) $(1.03) $(0.51)
Note A: Weighted average shares outstanding were not adjusted for
the conversion of the Series B Preferred Stock as their inclusion
would have been anti-dilutive. Accordingly, the related
preferred dividends were not added back to the numerator for
diluted earnings per share.
Note B: Employee stock options to purchase shares of the
Company's common stock were not included in the June 30, 1999 or
2000 computation of diluted earnings per share because the effect
would have been anti-dilutive. For additional disclosures
regarding earnings per share, see the notes to the Company's 1999
consolidated financial statements in its Form 10-K.
<PAGE>
Item 1. Financial Statements (continued)
(5) Inventory
Tripos maintains a physical inventory of chemical compound
libraries in various states of completion. Costs associated with
the manufacture of compounds are calculated using the standard
cost method and are carried at the lower of cost or market.
Compounds that are acquired from third parties are also carried
at the lower of cost or market. Finished Goods inventory may
periodically contain costs of computer hardware that has been
acquired for resale to the Company's customers.
June 30, Dec. 31,
2000 1999
Raw materials $ 237 $ 256
Work in process 377 533
Finished goods 3,025 1,806
$ 3,639 $ 2,595
(6) Long Term Debt
On March 22, 1999, Tripos received a credit commitment from
LaSalle Bank that refinanced a prior $12,000 Credit Agreement and
mortgage note. The credit commitment was for a total of $15,333
which was broken into three separate secured credit facilities:
a $3,333 real estate mortgage for property with a carrying
value of $4,476, $4,000 three-year term loan, and an $8,000
three-year revolving line of credit. The credit commitment is
collateralized by substantially all of Tripos' U.S. assets and
stock pledges for each of the U.S. and foreign subsidiaries.
The commitment also required Tripos to meet certain financial
covenants, including various coverage ratios and a debt to
capitalization ratio. During 1999, Tripos violated the terms of
the covenants, however, the bank waived the violations and later
amended the terms of the credit facility.
The mortgage note under the current credit commitment calls
for even quarterly principal payments based on a twenty-year
amortization schedule that began June 30, 1999. Borrowings under
the mortgage are subject to a variable interest rate at LIBOR
plus 2.25%. An interest rate swap agreement was entered into
which fixed the interest rate at 7.81%. The $4,000 term note
under the credit commitment was repaid in its entirety in three
installments; $3,000 during the fourth quarter of 1999 and the
balance on February 10, 2000. The revolving line of credit under
the credit commitment requires quarterly interest-only payments
with any remaining borrowings due at the end of the three-year
commitment period. The original $8,000 line of credit was
reduced to $4,000 effective September 30, 1999. Availability
under the revolving line of credit is based on eligible U.S.
accounts receivable. Borrowings under the revolving line of
credit bear interest at variable rates tied to LIBOR or the
bank's prime rate. At June 30, 2000, no borrowings were
outstanding. Tripos' bank granted waivers for two covenant
violations relating to minimum EBITDA and Shareholders' Equity
for the quarters ending March 31 and June 30, 2000.
(7) Series B Preferred Stock
On February 4, 2000, Tripos issued 409 shares of Series B
Preferred Stock for an aggregate purchase price of $9,000.
Cumulative dividends of $1.10 per share per annum are payable
upon the earlier of the conversion or redemption of such share.
Each share of preferred stock may be converted, at the option of
the holder, into one share of Tripos' common stock. The
preferred stock is mandatorily redeemable at the option of the
holder at a price of $22 per share plus accreted dividends on
February 4, 2005 provided that the holder has provided notice of
its intention to have its shares redeemed on or prior to February
4, 2004.
(8) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133"), which is required to be adopted
in years beginning after June 15, 1999. The FASB has since
delayed the effective date until years beginning after June 15,
2000, with the issuance of FAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FAS No. 133". FAS 133 permits early adoption
as of the beginning of any fiscal quarter after its issuance.
Tripos expects to adopt the new Statement effective January 1,
2001. FAS 133 will require us to recognize all derivatives
<PAGE>
Item 1. Financial Statements (continued)
on the balance sheet at fair value. We have not yet determined
what the effect FAS 133 will be on earnings and financial
position.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") on revenue
recognition. SAB 101 was to take effect in January 2000 but has
been delayed by the Commission until the fourth quarter of 2000.
Tripos expects to adopt the provisions of SAB 101 for its fourth
quarter activity and does not expect this adoption to have a
material impact on its revenues or earnings.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-looking Statements
The remainder of this report may contain certain statements
that are forward-looking and involve risks and uncertainties.
Words such as "expects", "anticipates", "projects", "estimates",
"intends", "plans", "believes", variations of such words and
similar expressions are intended to identify such forward looking
statements. These statements are based on current expectations
and projections made by management and are not guarantees of
future performance. Therefore, actual events, outcomes and
results may differ materially from what is expressed or forecast
in such forward-looking statements. Among the factors that could
cause actual results to differ materially from the forward-
looking statements are those set forth under the caption
"Cautionary Statements - Additional Important Factors to be
Considered" in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") in Tripos'
Form 10-K for 1999. Tripos undertakes no obligation to update
any forward-looking statements in this Form 10-Q.
Subsequent to the end of Tripos' second quarter of fiscal
2000, Arena Pharmaceuticals, Inc. registered 6,900,000 shares of
common stock for the purpose of its initial public offering,
including broker overallotments. Arena's shares were priced at
$18 per share upon commencement of trading. After the offering
Tripos held approximately 9.4% of the outstanding shares of
Arena, giving effect to the conversion of a note receivable from
Arena and the exercise of warrants. Arena is now traded on the
Nasdaq National Market system under the symbol ARNA. Tripos'
investment in Arena Pharmaceuticals is subject to a number of
restrictions and uncertainties, many of which are beyond Tripos'
control. In particular, Tripos is subject to an agreement
restricting its ability to sell any Arena common stock that
expires in January 2001 and will be subject to substantial
restrictions under federal securities laws. In addition, Tripos
cannot provide any assurance to its investors about the market
for Arena common stock, the potential volatility in the market
price of Arena's common stock, or the ability of Tripos to sell
any of its Arena common stock should Tripos seek to make such
sales in the future.
Overview
Tripos, Inc. is a leading provider of an integrated array of
discovery software, software consulting services, and discovery
research services to the pharmaceutical, biotechnology,
agrochemical, and other life sciences industries. Tripos
combines information technology and scientific research to
optimize and accelerate molecular research for the discovery of
new products by its clients.
Tripos generates its revenues from a diversified offering of
products and services. Our foundation is the software license
and support products we sell to the life sciences industries.
Over 80% of software license revenues are sold to the
pharmaceutical and biotechnology industries; however, no single
customer represents more than 10% of revenues to Tripos. Tripos
licenses its software and support in the form of one to three
year renewable contracts for any of its more than 50 software
modules available for sale.
Tripos' integration of chemistry and biological data in the
life sciences industries creates a revenue stream for software
consulting services. Tripos maintains a staff of specialists who
use its proprietary data integration framework to configure
customized solutions for data management. Revenue is generated
on a billable rate per day and is recognized as services are
performed.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Tripos leverages its expertise in chemical compound library
design technology to develop and manufacture general screening
libraries for sale to the life sciences industries. Its current
library of over 70,000 highly pure and diverse compounds, is
marketed under the name LeadQuestT.
Tripos' sale and manufacture of chemical compound libraries
has created the opportunity to offer follow-up contract research
services to customers for design and synthesis of focused
libraries for lead optimization. A contract of this nature may
be derived from the follow-up of positive biological activity in
a LeadQuest compound sold to a customer or may come from
compounds originated by the customer.
In 2000, Tripos began to market a comprehensive research
process to its life sciences customers for rapid and cost
effective discovery. The process combines advanced informatics,
chemistry and biology products and services, and proprietary
discovery technologies for efficient lead development,
refinement, and optimization. Tripos will also work with its
collaborators to achieve the milestones associated with this type
of contract. These multi-million dollar contracts may include
royalties and milestones. In June 2000, Tripos signed its first
major contract to provide these comprehensive services with Lipha
S.A., a pharmaceutical subsidiary or Merck KgaA. Under this
agreement, Tripos will utilize a wide range of its technologies,
including its molecular design and informatics capabilities, to
create novel drug candidate libraries and implement a web-based
informatics system to provide Lipha with real-time access to
project data and results.
In February 2000, Tripos entered into a strategic alliance
with LION Biosciences AG to integrate LION's bioinformatics with
Tripos' cheminformatics expertise. The companies intend to
jointly market their products and services to the life sciences
industry. As part of this alliance, LION made a $9.0 million
investment in convertible preferred stock of Tripos. These funds
are being used for general corporate purposes.
Late in 1999, Tripos created a strategic alliance with
Cyprotex, a newly formed company whose focus is development of in-
vitro screens and data modeling capabilities to predict
biological reactions of new chemical entities. These reactions
are essential in determining the survival of new drug candidates.
Tripos and Cyprotex will jointly market their services to the
drug discovery market.
Tripos also acts as a reseller of computer hardware in
conjunction with software sales. Hardware sales are generally
made to facilitate integration of Tripos' software into customer
research activities and are not a focus of Tripos' sales
activities. Tripos acts merely as an authorized reseller for a
single vendor and does not maintain any inventory. Accordingly,
margins on these sales are relatively modest.
Tripos licenses its discovery software tools to customers,
provides ongoing support, including upgrades selected by
customers, and provides consulting services to its customers that
enable integration of Tripos' discovery tools to customers'
discovery operations. Certain long-term software licenses may,
subject to certain rules of SOP 97-2 and SOP 98-4, be recognized
over the life of the contract. Tripos generally expenses its
research and development costs associated with software
enhancements and new software tools. Thus, a significant portion
of the costs associated with development and enhancement of
software is accounted for as research and development and not as
a cost of software sales.
Tripos has staffed its worldwide operations to efficiently
execute its current business plan. The quarterly expenses
include the fixed costs of research and development for software
development, software consulting services, and contract research.
Tripos believes that its selling and administrative costs will
remain constant on a quarterly basis. Variability in quarterly
expenses primarily occurs in relation to the level of revenues
for sales compensation, performance bonuses, third party R&D
services and software consulting service contracts.
Over the past two years Tripos has used its capital
resources to fund investments in the building of chemistry
production facilities, chemical compound library inventories,
collaborative drug discovery programs, staffing new business
segments, and investments in Arena Pharmaceuticals. In the
future, Tripos expects to dedicate available cash to maintain
capital infrastructure and conduct operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Tripos' revenues and expenses vary from quarter to quarter
depending upon, among other things, the timing of customers
budget processes, the success of our sales efforts, the lengthy
sales cycle and Tripos' ability to influence customers and
prospective customers to make decisions to outsource portions of
their discovery process, the size of the customers' capital
expenditure budgets, the ability to produce compound libraries in
a timely manner, market acceptance of new products and enhanced
versions of existing products, the timing of new product
introductions by Tripos and other vendors, changes in pricing
policies by Tripos, partners and other vendors, consolidation in
customer base, and changes in general economic and competitive
conditions. In addition, Tripos may choose to negotiate a long-
term software license contract that may, subject to certain rules
of SOP 97-2 and SOP 98-4, be recognized ratably over the life of
the contract. See Note 1 of the Notes to Consolidated Financial
Statements for the year ended December 31, 1999 for a further
discussion of revenue recognition policies. A substantial
portion of revenues for each quarter is attributable to a limited
number of orders and tends to be realized toward the end of each
quarter. Thus, even short delays or deferrals of sales near the
end of a quarter can cause quarterly results to fluctuate
substantially. Tripos' quarterly results can be affected by the
mix of its revenue components.
Results of Operations
Net sales for the second quarter of 2000 were $5,476
compared to $6,122 in 1999. The Company experienced decreases in
hardware and discovery services revenues that were only partially
offset by an increase in software related revenues in the
quarter.
For the three months ended June 30, 2000, software licenses
sales increased 54.0% to $2,674. Certain software license sales
that were anticipated to occur in the first quarter of 2000 were
completed in the second quarter. In addition, Tripos experienced
strong software license sales in the Pacific Rim in the quarter.
Support revenues decreased 9.7% to $1,888 compared to the second
three-month period in 1999. Discovery Services sales accounted
for $688 in the second quarter of 2000 and $1,528 in the same
period in 1999. Hardware sales decreased by 70.5% to $226 for
the second quarter 2000. For the six months ended June 30, 2000,
software licenses sales increased 18.9% to $4,222. Support
revenues decreased 8.0% to $3,817 compared to the same six-
month period in 1999. Discovery Services sales accounted for
$1,476 for the six-month year-to-date period in 2000 and $2,892
for the same period in 1999.
Hardware sales decreased by 43.1% to $959 for the six-month
period in 2000. The decreases in Discovery Service business are
attributable to multiple large orders of promotionally priced
compounds in the first half of 1999 and a delay in entering a
contract research project with Lipha S.A. Support sales have
decreased primarily due to the increasing popularity of Tripos'
token-system method of selling software products. As token-
system sales make up a larger share of the overall software
revenue, the distinction between software license and support
revenues becomes less pronounced. In the future, it will be more
appropriate to measure the changes in the combined software and
support revenues rather than as separate revenue sources. Sales
to existing customers represent 84% of total net sales for the
six-month period ending June 30, 2000.
Net sales for the Company's activities outside of North
America represented approximately 54.5% for the second quarter of
2000 compared to 58.9% for the same period in 1999. Net sales in
Europe decreased 30.4% in the quarter compared to the same period
in 1999 and accounted for 38.2% and 48.1% of net sales for the
three-month periods in 2000 and 1999, respectively. Sales in
second quarter 2000 for Europe were adversely affected by large
promotionally priced compound orders in 1999 that were not
repeated in 2000. Net sales in the Pacific Rim, principally
Japan, increased 48.5% compared to the second quarter of 1999 and
accounted for 16.3% and 9.8% of net sales for the respective
periods. Year-to-date net revenues outside of North America
represented 54.0% in 2000 and 58.7% in 1999. Net sales in Europe
decreased 30.6% for the six-months ending June 30, 2000 and
accounted for 39.6% of total net sales compared to 48.7% in the
same period in 1999. Year-to-date net sales in the Pacific Rim
increased by 22.8% over 1999 and grew to 14.4% of total net sales
from 10.0% in 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Cost of sales for the three-month period ending June 30,
2000 decreased 49.2% compared to the same period in 1999. Cost
of sales was $749 and $1,476 for the second quarter of 2000 and
1999, respectively. Cost of sales as a percent of net sales was
13.7% and 24.1% for the three-month periods in 2000 and 1999,
respectively. Cost of sales for the six-month period ending June
30, 2000 decreased 42.1% compared to the same period in 1999.
Six-month year-to-date cost of sales was $1,938 and $3,346 for
2000 and 1999, respectively. These changes were due to decreased
costs directly related to lower sales of lower margin product
lines such as hardware and discovery services, specifically
LeadQuest compounds, compared to the prior year.
Gross profit margin percentage for the second quarter 2000
increased to 86.3% from 75.9% of total net sales in the second
quarter of 1999. For the six-months year-to-date, gross margin
increased to 81.5% from 72.7% in the same period in 1999. These
increases in gross profit percentage are due to the decreases in
cost of sales described above.
Sales and marketing expenses increased 11.5% to $2,541
compared to $2,279 for the three-month period in 1999. Sales and
marketing expenses as a percentage of net sales were 46.4% and
37.2% for the three-month periods in 2000 and 1999, respectively.
The increase in percent to sales is primarily due to lower net
sales and higher advertising costs in the second quarter of 2000.
For the six-month period ending June 30, 2000, sales and
marketing expense increased 10.8% to $5,125 compared to 1999 and
represented 48.9% and 37.7% of net sales, respectively.
Research and development expenses decreased to $2,292 from
$2,786 and represented 41.9% and 45.5% of net sales for the three-
month periods in 2000 and 1999, respectively. Six-month year-to-
date R&D expenses remained stable at around $4,500. The decrease
in expenses for the second quarter of 2000 reflects the end of
funding for joint projects with Arena Pharmaceuticals and the
Wolfson Institute in 1999. These projects have now moved out of
joint preliminary development and are being marketed to large
pharmaceutical companies for pre-clinical testing and analysis.
General and administrative expenses decreased 3.9% to $1,249
for the second quarter of 2000 compared to $1,300 in 1999, and
represent 22.8% and 21.2% of net sales for the respective
periods. For the six-month periods in 2000 and 1999, G&A
expenses were 2,471 and 2,397, respectively or 23.6% and 19.5% of
total net sales.
Other income (expense) changed from expense of $172 for the
second quarter of 1999 to $96 of income for the comparable period
in 2000. The six-month period in 2000 had income of $263
compared to other expense of $51 in 1999. These changes were due
to the proceeds from investment by Lion Bioscience in the first
quarter of 2000 that allowed Tripos to reduce its long-term bank
debt and generate interest income from the excess funds.
Income tax benefit was $718,000 for the three-month period
in 1999, which represented an effective tax rate of 38%. No
income tax benefit was recorded in the first or second quarter of
2000 due to the recognition of a valuation allowance on the
future tax benefits of net operating losses in the U.K.
Management believes that the net operating loss carryforwards
will be utilized in future periods. The effective tax rate
utilized for the quarter and six-month year-to-date periods ended
June 30, 2000 reflects management's estimate of such rate for the
fiscal year ending December 31, 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity, Capital Resources and Capital Commitments
For the six-month in period ending June 30, 2000, net cash
used by operations was $1,396 primarily due to the year-to-date
net loss of $3,563 partially offset by depreciation ($966),
amortization ($239), accrued unpaid dividends ($179) and deferred
revenue ($550) while changes in the remaining current liabilities
and assets negated each other. In 1999, net cash provided by
operations came from decreases in trade accounts receivable of
$2,851 along with depreciation ($820), amortization ($351) offset
by the year-to-date net loss of $1,659, an increase in notes
receivable ($271) and a decrease in accounts payable and accrued
expenses ($679).
Cash used by investing activities in 2000 was principally
related to property and equipment ($783) needed throughout the
company and interest ($68) accruing on other notes receivable.
For the same period in 1999, cash used in investing activities
was allocated to property and equipment at Tripos Receptor
Research ($4,187) and an increase in the investment in Arena
Pharmaceuticals, Inc. ($385).
The Company anticipates that current working capital of
$10,365, together with continued cash flow from operations,
payments to be received under current and contemplated strategic
partnership contracts, the $4,000 line of credit and access to
equipment lease financing, will be sufficient to fund its
operations for at least the next twelve months. For a
description of certain factors that could adversely affect the
Company's future capital requirements and the adequacy of its
available funds, including factors that are beyond the Company's
control, see the discussion under the caption "Cautionary
Statements-Additional Important Factors to be Considered" in the
Company's Annual Report on Form 10-K for the year ended December
31, 1999.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material litigation
and is not aware of any threatened material litigation.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
One matter was submitted to a vote of the
shareholders of the Company at its Annual Meeting of
Shareholders on May 11, 2000:
The following directors were elected to serve for
the ensuing year or until the earlier of death,
resignation or removal. Votes cast were as follows:
Votes Votes
"For" "Withhold Authority"
Ralph S. Lobdell 2,628,660 22,960
Alfred Alberts 2,628,064 23,556
Stewart Carrell 2,626,455 25,165
John P. McAlister 2,629,146 22,474
Gary Meredith 2,626,473 25,147
Ferid Murad 2,628,660 22,960
<PAGE>
Item 5. Other Information
Under Section 2.13 of Article II of the Company's
Bylaws, any shareholder proposal submitted with respect
to Tripos, Inc.'s 2001 Annual Meeting of Shareholders,
which proposal is submitted outside the requirements of
Rule 14a-8 under the Securities Exchange Act of 1934,
will be considered untimely if notice thereof is received
by the Company before February 9, 2001 or after March 11,
2001.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
10.18 Consulting Services Agreement between Tripos, Inc.
and Lipha S.A. *
27 Financial Data Schedule
(b) No reports on Form 8-K were required to be filed
during the period from March 31, 2000 to June 30, 2000.
* Confidential treatment has been requested with respect to
certain portions of this Exhibit pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934. The omitted portions have been
filed separately with the Commission.
TRIPOS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
TRIPOS, INC.
Date: August 10, 2000 /s/ John P. McAlister
President and
Chief Executive Officer
Date: August 10, 2000 /s/ Colleen A. Martin
Chief Financial Officer, Secretary
Exhibit 10.18
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The omitted
portion has been separately filed with the Commission.
Consulting Service Agreement
(Exhibit C)
With
Lipha S.A.
Tripos Inc. Contacts:
James P. Rizzi, Ph.D.
Senior Director of Discovery Research Services
Peter C. Hecht, Ph.D
Vice President European Operations
Tripos Inc.
1699 South Hanley Road
St. Louis, MO 63144
Tel: (314) 647 1099
Fax: (314) 647 9241
Email: [email protected]
Web address: www.tripos.com
May 29th 2000
<PAGE>
Executive Summary.
Objective: The objective for Lipha is the discovery
of novel, orally active, inhibitors of specified
targets, namely, "XXXXXXXXXX" and "XXXXXXXXXX".
Lipha have active discovery programs with both
targets and now seek additional expertise from
Tripos to provide lead compounds through directed
library design and synthesis to achieve this
objective. The ultimate goal of the project will be
compounds with the designated potency and
appropriate pharmacokinetic profile required to move
forward into lead optimization. Information
presented by Lipha would suggest that Tripos'
technology could make significant contributions to
advancement of these projects.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
Contents
1. Project Plan Overview
1.1. "XXXXXXXXXX"
1.2. "XXXXXXXXXX"
2. Project Step I
2.1. "XXXXXXXXXX" Lead Hopping
2.2. "XXXXXXXXXX" High Throughput Screening
2.3. "XXXXXXXXXX" High Throughput Screening
2.4 Focussed Libraries in Step 1
3. Project Step II
3.1. "XXXXXXXXXX" Lead series criteria
3.2. "XXXXXXXXXX" Lead series criteria
4. Project Organization
4.1. Frequency of reports
4.2. Project management staff
4.3. Subcontractors
4.4 Visiting scientist
5. Informatics
6. PK Studies
6.1 Step 1
6.2 Step 2
7. Resource and Timelines
8. Terms and conditions
8.1. Announcements
8.2. Termination
8.3. IPR and Exclusivity of compounds
9. Tripos Inc. background information
Appendices
A. Project Plan
B. Virtual Private Network (ExtraNet)
C. Payment Schedule
D. Biology Protocols
E. Profiling Protocols
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
1. Project Plan Overview:
The project plan being proposed (Appendix A) deals
simultaneously with both "XXXXXXXXXX" and
"XXXXXXXXXX" targets. However, the approach for
each target will differ due to the substantial
disparity in the existing knowledge base for each
of these targets. The project plan is designed to
be flexible in terms of the utilization of
resources for all key activities, and could be
modified according to the way the project unfolds.
The main strategic points are as follows:
1.1. "XXXXXXXXXX": Requires the exploration of other
chemistries that may result in leads for which Lipha may
determine and pursue patent positions. This process is known
as Lead HoppingT and can be achieved using our ChemSpaceT
technology. Tripos will use the existing knowledge base to
build large virtual libraries around both new and validated
chemistries to allow rapid optimization of the resulting lead
series. From these virtual libraries a selection of shape
similar compounds will be synthesized and screened.
Simultaneously, a selected set of existing compounds will be
screened against the "XXXXXXXXXX" target to provide
experimental opportunities to identify additional lead series.
1.2. "XXXXXXXXXX": The knowledge base for "XXXXXXXXXX" is
not as extensive as "XXXXXXXXXX" but active compounds are also
available from the literature. The most logical approach for
the "XXXXXXXXXX" target is to use the limited information
available to guide further screening efforts against this
target. While new computational models will be developed,
drawing upon existing work by Lipha scientists, the primary
thrust will be directed toward screening.
High throughput screening will be conducted in two
parts, with a decision point after initial screening
to trigger a second round (Appendix A). Either
target "XXXXXXXXXX" could be selected for the second
round or screening could be terminated completely.
This decision will depend on the comparative numbers
and quality of hits from the first round. The
results from screening against both these targets
can be used to enhance the knowledge base for future
use in library design and the selection of potential
actives.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
2. Project Step I
2.1. "XXXXXXXXXX" Lead Hopping - Up to "XXXXXXXXXX"
unique libraries, based on our proprietary Lead
Hopping process, each of approximately "XXXXXXXXXX"
to "XXXXXXXXXX" compounds will be designed and
synthesized. The starting point for Lead Hopping
will be the literature and patent precedents
provided by Lipha, subsequent literature review by
Tripos, and any internal SAR information supplied by
Lipha which is considered confidential, as
referenced in the original consulting services
agreement. This comprises the following steps:
.
.
.
.
.
.
.
.
2.2. "XXXXXXXXXX" High Throughput Screening - A block of
50,000 general screening compounds from LeadQuest library will
be submitted for high throughput screening against the
"XXXXXXXXXX" target in accordance with the protocol provided
appendix D. This should provide alternative hits for
subsequent evaluation and inclusion within the evolving
knowledge base. Additional block of 50,000 compounds will be
selected and screened depending on the success of previous
results. The selection will be made based on chemistry and
diversity analyses of the compounds available from Discovery
Technologies Ltd., and with respect to screening and SAR
information from Lipha. The fees for selecting and screening
these additional ensembles are included in the schedule
identified in appendix C. "XXXXXXXXXX" values will be
determined for the confirmed hits and an appropriate subset of
compounds will be submitted for pharmacokinetic, metabolic
assessment and pharmacological activity on a secondary
cellular model at Lipha.
2.3. "XXXXXXXXXX" High Throughput Screening - Similar to
above, a block of 50,000 general screening compounds from
LeadQuest library will be submitted for high throughput
screening against the "XXXXXXXXXX" target in
* The information marked by "XXXXXXXXXX" has been
omitted pursuant to a request for confidential treatment.
The omitted portion has been separately filed with the
Commission.
<PAGE>
accordance with the protocol provided appendix D.
This will provide alternative hits for subsequent
evaluation and inclusion within the evolving
knowledge base. Additional block of 50,000
compounds will be selected and screened depending
on the success of previous results. The selection
will be made based on chemistry and diversity
analyses screening and SAR information from Lipha.
The fees for selecting and screening these
additional ensembles are included in the schedule
identified in appendix C. "XXXXXXXXXX" values will
be determined for the confirmed hits and an
appropriate subset of compounds will be submitted
for pharmacokinetic and metabolic assessment
(Appendix E). For a detailed flow chart of Step I
see the project plan (Appendix A).
2.4. Focussed Libraries in Step 1 - In accord with Tripos'
flexible approach, the resources attributed to up to
"XXXXXXXXXX" of the lead hopping library activities could be
switched to a focussed library activity based on hits emerging
from screening in step 1. These focussed libraries could be
associated with either "XXXXXXXXXX" or "XXXXXXXXXX" targets
alone, or with both. The type of scenario that would trigger
this switch in step 1 is if promising screening hits were
discovered that initially fell short of the project's ultimate
target threshold for biological activity. In such a situation
a rapid focussed library approach could well deliver a
compound with the characteristics necessary to trigger step 2
of the project, and ultimately lead to a successful project
outcome for Lipha. Decisions regarding redirection of project
resources will be the responsibility of the joint project
management.
All compounds synthesized under the terms of this
service agreement will be considered the property
of Lipha. Any compound material remaining after
all testing has been completed will be supplied to
Lipha.
3. Project Step II
Again Tripos has a flexible approach to Step II
which includes lead explosion, patent space
exploration, and SAR development. At this stage it
is envisaged that one target will be selected for
progression, and that additional compound series
will be prepared that expand the SAR knowledge
around the selected leads and explore added
potential for Lipha's enlarging coverage in the
identified patent space. Additional compounds will
be selected for pharmacokinetic evaluation with the
goal of designing more drug relevant compounds.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
Advancement to Step II will be determined by the
project management team, as described in section 4
of this document. The decision to proceed with any
series will be at the discretion of the Lipha
project manager. There are three potential areas
where advancement is likely to proceed, from the
directed Lead Hopping libraries around "XXXXXXXXXX",
from the general screening results around
"XXXXXXXXXX" or from the general screening results
around "XXXXXXXXXX".
3.1. "XXXXXXXXXX" Criteria for Selection as a lead Series:
. "XXXXXXXXXX".
. "XXXXXXXXXX"
. "XXXXXXXXXX"
3.2. "XXXXXXXXXX" Criteria for selection as a lead series:
. "XXXXXXXXXX"
. "XXXXXXXXXX"
. "XXXXXXXXXX"
4. Project Organization
Lipha and Tripos will designate one contact person
in each organization as the project managers. It
will be their responsibility to assume joint control
of the project. Tripos will provide project
coordination, support and management.
4.1 Frequency of reports: The following reporting schedule
will be set up:
Every two weeks: Conference call.
Monthly: written summary of work and results in
a format to be agreed.
Quarterly: Meetings would be arranged as
required by Lipha
Final Report: summarize all work and results.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
4.2. Project Management: Tripos will appoint "XXXXXXXXXX" as
the project manager who will carry the primary responsibility
for all Tripos aspects of the project. He will be assisted by
"XXXXXXXXXX" who will manage the chemistry resource and
"XXXXXXXXXX" managing the computational components for the
project. Lipha will appoint "XXXXXXXXXX" as the project leader
who will carry the primary responsibility for all Lipha
aspects of the project. He will be assisted by "XXXXXXXXXX"
for the "XXXXXXXXXX" target, "XXXXXXXXXX" for the "XXXXXXXXXX"
target, "XXXXXXXXXX" for the chemistry, "XXXXXXXXXX" for the
computational aspects, "XXXXXXXXXX" for the high throughput
screening and "XXXXXXXXXX" for the PK screening.
4.3. Subcontractors: Tripos will appoint and subcontract the
High Throughput Screening services from Discovery Technologies
Ltd. of Basle, Switzerland. Tripos will appoint and
subcontract the pharmacokinetic profiling to Cyprotex,
Operating Division of Medeval Ltd. of Manchester, England
(here after Cyprotex). Tripos will coordinate and manage all
data from these two organizations via a Tripos provided
solution that will be made accessible to Lipha. It is
envisaged that representatives from both these organizations
would be present on the project management team
4.4. Visiting Scientist: Lipha may desire to send a visiting
scientist to Tripos Receptor Research at any time during the
course of this project. In this event, Lipha will meet all
cost associated with the visit. Tripos will accommodate such
requests provided that dates and duration are mutually
agreeable in light of other Tripos activities.
5. Informatics
For the duration of this service agreement Tripos
will provide access to the underlying informatics
supporting these discovery programs. There are
several extranet connectivity options available and
the final configuration will depend on the system
requirements and inevitable budget constraints. It
is proposed that a secure connection be established
to permit viewing by Lipha of data stored and
managed using the existing MetaLayer installation at
Tripos Receptor Research. "XXXXXXXXXX". There are
essentially four components required to establish
the Lipha extranet.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
. Hardware infrastructure: To provide connectivity and meet
the security requirements that have been identified for the
system.
. Line charges: Fees required in order to provide the
desired level of user access and bandwidth for the system.
. Bandwidth management software: To ensure the appropriate
bandwidth and access is reserved for Lipha's use.
. System Management: Resource required for installation,
setup and maintenance of the system.
Our cost assumptions are based on remote access to
the Tripos Intranet via the Internet for a
"XXXXXXXXXX" concurrent user system viewing data
stored and managed in Bude, England. See appendix B
6. PK Studies.
6.2. Step 1 As the project progress and confirmed hits from
screening are identified initial PK profiling will begin on
compounds of interest (appendix E) and it is expected that the
number of compounds profiled will not exceed "XXXXXXXXXX" or
the initial screens and perhaps "XXXXXXXXXX" compounds for
detailed in-vivo studies.
6.3. Step 2 The second step will require additional profiling
(appendix E) with fewer compounds as results dictate. These
costs will need to be assessed separately and upon the
selection of specific studies. Overall cost for profiling
studies are directly related to the number of compounds
submitted for testing, and numbers and types of assays. Thus
the actual profiling cost will remain dynamic and determined
by the project management team in light of results obtained.
Our current estimates suggest that step two profiling will be
approximately "XXXXXXXXXX". The project managers as outlined
in section 4 of this document will be responsible for the
selection of any and all compounds that are submitted for PK
profiling.
7. Resources and Time lines.
Tripos has assembled a project plan, see appendix A,
implementing the recently agreed strategic approach
for discovery of novel leads against these two
targets. This project plan calls for a project
timeline of June 2000 through June 2001. We also
estimate that a brief period, perhaps 1 or 2 months
of project management will be required to fully
summarize the project and transfer data to Lipha.
The required resources are comprised of:
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
. Project management
. Computational chemists for model development & data
analysis
. Library design specialists for virtual library creation
and compound selection
. Medicinal and supporting chemistry
. Research chemists for Combinatorial chemistry validation
. Production chemists for scale-up and library production
. Analytical Chemists
. High throughput screening at DTL
. PK at Cyprotex
Overall the Tripos contribution represents
approximately "XXXXXXXXXX" to "XXXXXXXXXX" FTE years
excluding services provided by sub-contractors.
8. Terms and conditions
Tripos undertakes this project proposal with the
understanding that, like all research work, there is
no guarantee of success. However, Tripos will use
its best efforts in the application of our
technology and sound scientific practice to further
the course of these projects toward the stated goal.
We firmly believe that our approach increases the
probability of success. However, past performance,
does not guarantee any future outcome. The project
plan and cost estimates assume the inclusion of both
targets with natural decision points based on
progress obtained.
Upon signing of this exhibit, an up front fee of
$"XXXXXXXXXX" will be paid to Tripos for its
application of its ChemSpaceT technology to the
project. This fee will also include access to 50,000
compounds from the LeadQuest library, "XXXXXXXXXX"
standard format, to be screened against both
"XXXXXXXXXX" and "XXXXXXXXXX" targets. In
addition, for the duration of the service agreement
Tripos will provide the necessary infrastructure to
establish an extranet providing access, from the
existing Lipha network, to project data and
informatics as detailed in section 5.0
Tripos will assume all responsibility for invoicing
of fees incurred during the course of this project.
Quarterly billings will be submitted to Lipha that
reflect a standardized resource level throughout the
project plus any fees due subcontractors for work
performed under this service agreement, as defined
by the payment schedule in appendix C.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
8.1. Announcements.
The financial and scientific aspects of this scope
of work project, including the related therapeutic
focus, shall be held in confidence by all parties.
However, Lipha agrees that for reasons related to
materiality as a public company, Tripos will issue
a press release and otherwise announce the existence
and other more general aspects of the collaboration.
Provided, however, that Tripos shall not include
Lipha's name or any details regarding Lipha's
identity that would allow a reader to construe that
Lipha is the pharmaceutical collaborator. Tripos
shall provide a copy to Lipha prior to any such
release. Tripos may also rely on Lipha as a
collaborative customer reference in its related
business presentations to other potential clients.
8.2. Progress based termination.
As the two targets call for different approaches
during the initial stages of the project, it is
logical that they should have different termination
criteria. In the case of "XXXXXXXXXX", initial
emphasis is being placed on further screening to
identify additional active compounds that may be
either optimized directly or used to Lead Hop to
other chemical classes of interest. In the event
that no such leads are found and computational work
provides no clear alternatives, the "XXXXXXXXXX"
project would be terminated without further effort
or penalty payments due to Tripos.
In the case of "XXXXXXXXXX", if no lead is found, at
the end of step 1 and computational work provides no
clear alternatives, the "XXXXXXXXXX" project would
be terminated without further effort or penalty
payments due to Tripos.
In the event that Lipha prematurely terminates the
project for any other reasons, payment in full will
be required for all work undertaken and costs
incurred by Tripos and its appointed subcontractors
plus a cancellation fee equal to "XXXXXXXXXX" of the
standardized Tripos rate defined in the payment
schedule - appendix C. ("XXXXXXXXXX" $) -
("Cancellation Fee") - as well as any uncancellable
payment obligations of Tripos to its subcontractors
under the terms of this service agreement as defined
in appendix C; provided however that in the event
that there is a change in the control of Tripos such
that Lipha has reasonable concern that persons not
authorized by Lipha may gain access to proprietary
scientific information about the project, Lipha may
terminate this service agreement without incurring
the Cancellation Fee obligation.
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
8.3. IPR and exclusivity of compounds.
Inventorship will be determined by the usual
criteria ("XXXXXXXXXX") and any rights that
"XXXXXXXXXX" may have in any composition of matter
patent related to the compounds synthesized
hereunder shall be assigned to "XXXXXXXXXX" by
"XXXXXXXXXX", as referenced in the original
consulting services agreement. At "XXXXXXXXXX"
request and expense, "XXXXXXXXXX" agrees that it
will, and will cause any of its employees working on
the project, to execute and deliver any documents
and information as reasonably necessary to assist
"XXXXXXXXXX" in related patent filings which
"XXXXXXXXXX" may elect to pursue. In the event of
dissolution of "XXXXXXXXXX" as corporate entity,
"XXXXXXXXXX" will agree to transfer all the
laboratory notes and raw data related to the patents
which would be filed regarding the compounds
synthesized hereunder.
All compounds prepared directly for this
"XXXXXXXXXX" project will be considered the
proprietary property of "XXXXXXXXXX" and will be
theirs to do with as they see fit and provided
however that to the extent that the structure(s)
formulation preexisted in "XXXXXXXXXX" database
"XXXXXXXXXX" shall not delete said structure from
its "XXXXXXXXXX" for the purpose of future searches
and results thereof.
Compounds of interest to Lipha from the LeadQuestT
screening libraries are provided on a non-exclusive
basis. Should Lipha require additional material for
any particular compound it can be purchased or re-
synthesized depending on the current inventory
situation.
<PAGE>
9. Tripos - background information.
Over the last twenty years Tripos has pioneered many
of the predictive molecular design technologies
commonly employed by the industry today. This
impressive record of innovation provides a solid and
proprietary foundation on which to base
collaborative discovery research projects. These
projects draw upon the extensive library design
capabilities and predictive technologies that have
been assembled in a unique process to assist in the
identification and rapid optimization of pre-
clinical therapeutic candidates, as follows:
Tripos uniquely combines computational and
experimental science with information technology to
rapidly design, synthesize, analyze and optimize
lead compounds. We have more than 20 years of
experience in developing innovative computational
solutions to speed discovery. Our industry-leading
SYBYL and UNITY software tools support effective
molecular design and analysis. Our proprietary
ChemSpace technology rapidly searches databases
containing trillions of potential chemical compounds
to identify drug-like molecules that are similar in
shape to lead candidates. This enables rapid lead
optimization and provides a means to design a wide
range of scaffolds into our target libraries.
Tripos has a unique chemical synthesis process that
is integrated with informatics to produce novel,
information-rich compounds of high purity that can
be screened reliably and optimized rapidly. Tripos
is a leader in integrating informatics with
discovery research. Our MetaLayer and associated web-
based technology provides desktop access to diverse
discovery data. It enables Tripos to create
customized decision support systems for its clients
to drive efficient, effective research. The system
integrates dispersed data sources, facilitating data
access for scientists through a single user
interface, thereby promoting ease-of-use and
cohesive teamwork.
This process has already been successfully employed
in the discovery of pre-clinical candidates for
schizophrenia and glaucoma. In both of these
examples new leads were identified from carefully
designed libraries and rapidly optimized using
extensions of the design that followed the SAR. In
another example, Tripos technology was independently
found to be substantially more predictive than
either traditional or combinatorial chemistry
approaches commonly in use. In all cases, these
impressive results were obtained in a fraction of
the time taken and at a fraction of the cost of
traditional methodologies.
Key to the success of this process is the
development of an informatics system that ties
together the theoretical model development with
experimental evaluation and chemical synthesis. The
progressive accumulation of a knowledge base allows
systematic exploration of pharmaceutically relevant
parameter space to optimize biological activity
while experimental pharmacokinetic profiling guides
the design toward higher quality leads.
Our goal is to provide our clients with high-quality
leads in the shortest possible time, with the right
properties to progress through clinical development
to market. Our knowledge-based discovery process
focuses on those properties which are responsible
for success or failure in development, thereby
enabling selection of the best leads to pursue.
Tripos is an established drug discovery partner with
a record of innovation over the last 20 years. We
offer a unique suite of services for drug discovery
backed by a long record of accomplishment and of
corporate stability. Scientists leading this project
have a successful record in drug discovery with
compounds under development and in the clinic. The
objective for Lipha is the discovery of novel
patentable compounds. Tripos' unique analysis,
design and synthesis methods will be utilized to
analyze existing data and generate highly relevant
compounds with our proprietary library design
technology.
<PAGE>
Appendix A
(see attached excel sheet - Appendix A.xls)
"XXXXXXXXXX"
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the
Commission.
<PAGE>
Appendix B
Solution A: (As described in email of 4/14 from "XXXXXXXXXX")
"XXXXXXXXXX"
Appendix C
Payment Schedule
Date of Invoice Item or service fee Amount USD $
"XXXXXXXXXX"
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Commission.
<PAGE>
APPENDIX D
"XXXXXXXXXX"
Lipha: Tripos:
___________________________ __________________________
Authorized signature Authorized signature
___________________________ __________________________
Title Title
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Commission.
<PAGE>
APPENDIX E
"XXXXXXXXXX"
Lipha: Tripos:
__________________________ _________________________
Authorized signature Authorized signature
__________________________ _________________________
Title Title
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Commission.
<PAGE>
By the signatures of their authorized representatives
hereunder, Lipha S.A. ("Lipha") and Tripos SARL)
("Tripos") agree to and accept, effective as of 30th
May 2000, this Exhibit, including the attached
appendices A to E hereto, which is [are] hereby made
part of, and agreed to be subject to the terms of, the
Consulting Services Agreement dated 31st March 1999
between Lipha and Tripos, and to any additional terms
specified below as applicable to the Lipha Dual Target
Project. In the event of any conflict between the
terms of the Consulting Services Agreement and the
terms of this Exhibit, the terms of this Exhibit shall
apply.
1. The total collective liability of Tripos and its partners
hereunder shall in no event exceed the amount paid by Lipha
hereunder.
2. THE PARTIES ACKNOWLEDGE THAT THIS SERVICE AGREEMENT
CONSISTS OF SCIENTIFIC RESEARCH, THE OUTCOME OF WHICH IS NOT
PRECISELY KNOWN ON THE DATE OF THIS AGREEMENT. TRIPOS MAKES
NO REPRESENTATIONS AND NO EXPRESS OR IMPLIED WARRANTIES OF ANY
KIND WITH RESPECT TO THE CERTAINTY OF SOME OF THE ANTICIPATED
RESULTS OR THE PERFORMANCE OF ANY RESULTS, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS OF RESULTS FOR ANY PARTICULAR PURPOSE. TRIPOS MAKES
NO WARRANTY ABOUT THE ACCURACY OR COMPREHENSIVENESS OF ANY
PATENTABILITY ASSESSMENT METHODOLOGY OR FUNCTIONALITY THAT IT
MAY DEVELOP OR APPLY HEREUNDER AND LIPHA AGREES THAT TRIPOS
SHALL HAVE NO RESPONSIBILITY OR LIABILITY, OR LIPHA RELIEVED
OF ANY PAYMENT OBLIGATION, FOR ANY RELIANCE WHICH LIPHA MAY
PLACE ON SUCH FUNCTIONALITY OR FOR LIPHA'S FINAL DETERMINATION
OF PATENTABILITY IN APPLICATIONS LIPHA MAY MAKE.
3. Target exclusivity: Tripos is committed to work on the
two "XXXXXXXXXX" and "XXXXXXXXXX" targets exclusively for
Lipha, for the duration of this work and for "XXXXXXXXXX"
additional years after the termination of Tripos' work on the
respective specified target.
4. Except for termination in the event of material
breach or failure to reasonably perform by Tripos,
any termination by Lipha hereunder shall require
ninety (90) days' prior written notice.
Lipha: Tripos:
__________________________ ___________________________
Authorized signature Authorized signature
__________________________ ___________________________
Title Title
* The information marked by "XXXXXXXXXX" has been omitted
pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Commission.
