<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ----------------------
Commission file number 1-13768
ONCORMED, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1842781
------------------------ ----------------------------------
(State of Incorporation) (I.R.S Employer Identification No.)
205 PERRY PARKWAY
GAITHERSBURG, MARYLAND 20877
----------------------------------------
(Address of principal executive offices)
(Zip code)
(301) 208-1888
----------------------------------------------------
(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 requirements for the past 90 days.
YES x NO
----- -----
At May 6, 1997, there were 7,814,022 shares of Common Stock outstanding at a
par value of $.01.
<PAGE> 2
ONCORMED, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements 3
Balance Sheets as of March 31, 1997 and December 31, 1996. 4
Statements of Operations for the Three Months Ended 5
March 31, 1997 and 1996 and for the Period from Inception
(July 12, 1993) Through March 31, 1997.
Statements of Cash Flow for the Three Months Ended 6
March 31, 1997 and 1996 and for the Period from Inception
(July 12, 1993) Through March 31, 1997.
Notes to Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 26
ITEM 2 Changes in Securities 26
ITEM 3 Defaults Upon Senior Securities 26
ITEM 4 Submission of Matters To A Vote of Security Holders 26
ITEM 5 Other Information 26
ITEM 6 Exhibit and Reports of Form 8-K 26
Signatures 27
Exhibit Index 28
Calculation of Shares Used in Computing Earnings Per Share 29
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
The balance sheet as of March 31, 1997 and the statements of
operations for the three months ended March 31, 1997 and 1996 and for
the period from inception (July 12, 1993) through March 31, 1997 and
the statements of cash flow for the three months ended March 31, 1997
and 1996 and for the period from inception (July 12, 1993) through
March 31, 1997, have been prepared by the Company without audit. In
the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods
presented have been made. The results for the quarter ended March 31,
1997 presented in the accompanying financial statements, are not
necessarily indicative of the results for the entire year or any other
period. The balance sheet at December 31, 1996 has been taken from
the audited financial statements.
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. While
the Company believes that the disclosures made are adequate to make
the information presented therein not misleading, these financial
statements should be read in conjunction with the audited financial
statements and related notes included in the Company's Annual Report
for the year ended December 31, 1996 on Form 10-K filed with the
Securities and Exchange Commission.
3
<PAGE> 4
ONCORMED, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
March 31, December 31,
1997 1996
------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,079,783 $ 6,031,809
Short term investments 3,134,479 1,466,871
Accounts receivable, net allowance for doubtful
accounts of $35,000 and $32,000 60,798 129,366
Other current assets 193,148 306,078
------------- ---------------
Total current assets 8,468,208 7,934,124
------------- ---------------
Non-current assets:
Property and equipment, net 1,117,454 1,179,851
------------- ---------------
Total non-current assets 1,117,454 1,179,851
------------- ---------------
TOTAL ASSETS $ 9,585,662 $ 9,113,975
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 226,985 $ 680,575
Accrued expenses and other liabilities 810,564 593,037
Payable to Oncor, Inc. 92,757 124,730
Deferred revenue 63,764 46,420
------------- ---------------
Total current liabilities 1,194,070 1,444,762
------------- ---------------
Non-current liabilities:
Note payable to Oncor Finance, Inc. 715,751 715,751
Deferred revenue 2,239 3,583
------------- ---------------
Total non-current liabilities 717,990 719,334
------------- ---------------
TOTAL LIABILITIES 1,912,060 2,164,096
------------- ---------------
Commitments And Contingencies (Notes 1 and 6)
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 40,000,000 shares,
authorized, 7,814,022 and 6,991,108 shares issued
and outstanding 78,140 69,911
Additional paid-in capital 30,045,198 25,741,842
Deferred compensation (66,416) (75,629)
Deficit accumulated during the development stage (22,383,320) (18,786,245)
------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 7,673,602 6,949,879
------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,585,662 $ 9,113,975
============= ===============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period From
Inception
(July 12, 1993)
Through
Three Months Ended March 31, March 31,
1997 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
REVENUES $ 115,279 $ 78,233 $ 1,088,359
OPERATING EXPENSES:
Cost of sales - direct 53,966 29,161 515,770
Laboratory operations 706,805 647,914 7,068,837
Selling, general and administrative 1,324,821 1,221,808 13,054,793
Research and development 225,616 137,349 2,185,624
Acquired research and development
projects in-process 1,481,148 -- 1,481,148
------------ ------------ -------------
Total expenses 3,792,356 2,036,232 24,306,172
------------ ------------ -------------
OPERATING LOSS (3,677,077) (1,957,999) (23,217,813)
Interest income 94,600 116,003 984,814
Interest expense (14,598) (13,172) (150,321)
------------- ------------- --------------
NET LOSS $ (3,597,075) $ (1,855,168) $ (22,383,320)
============= ============= ==============
NET LOSS PER SHARE
(unaudited) $ (0.49) $ (0.30) $ (4.17)
========== ========= ==========
SHARES USED IN COMPUTING NET
LOSS PER COMMON SHARE
(unaudited) 7,320,698 6,267,606 5,372,439
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
ONCORMED, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended (July 12, 1993)
March 31, Through
1997 1996 March 31, 1997
------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,597,075) $(1,855,168) $(22,383,320)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization 138,277 116,877 1,181,724
Amortization of deferred compensation 9,213 15,073 213,229
Write off of acquired in-process research
and development projects 1,481,148 -- 1,481,148
Changes in operating assets and liabilities:
Accounts receivable 68,568 11,147 (60,798)
Other assets 112,930 (40,589) (193,148)
Accounts payable (453,590) 422,038 226,985
Accrued expenses and other liabilities 217,527 (76,468) 810,564
Deferred revenue 16,000 (2,907) 66,003
Payable to Oncor, Inc. (31,973) (33,866) 92,757
------------ ------------ -------------
Net cash used in operating activities (2,038,975) (1,443,863) (18,564,856)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (75,879) (146,307) (2,244,178)
Purchases of short-term investments (1,667,608) -- (3,134,479)
------------ ------------ -------------
Net cash used in investing activities (1,743,487) (146,307) (5,378,657)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 2,762,436 13,912,825 25,182,926
Net proceeds from sale of preferred stock -- -- 2,990,439
Net proceeds from exercise of stock options 68,000 11,000 134,180
Net proceeds from Note payable to Oncor Finance, Inc. -- -- 715,751
Decrease in deferred offering costs -- 299,815 --
------------ ------------ -------------
Net cash provided by financing activities 2,830,436 14,223,640 29,023,296
------------ ------------ -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (952,026) 12,633,470 5,079,783
CASH AND CASH EQUIVALENTS, beginning of period 6,031,809 718,844 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 5,079,783 $13,352,314 $ 5,079,783
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in exchange for software
and technology $ -- $ -- $ 55,000
============ ============ =============
Issuance of common stock in exchange for stock
subscription receivable $ -- $ -- $ 25,000
============ ============ =============
Issuance of common stock and warrants in exchange
for research and development projects in-process $ 1,481,148 $ -- $ 1,481,148
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 14,598 $ 13,172 $ 150,321
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
As of March 31, 1997
(Unaudited)
1. BUSINESS DESCRIPTION:
OncorMed, Inc. (the "Company"), was incorporated on July 12, 1993, in the
State of Delaware as a subsidiary of Oncor, Inc. ("Oncor"). Giving effect
to the equity transaction with Incyte Pharmaceuticals, Inc. in February
1997, Oncor's ownership of the Company's outstanding common stock was
reduced to approximately 25.6%. The Company was formed to develop and
provide gene-based cancer diagnostic testing and information services for
physicians, hospitals, clinical laboratories and pharmaceutical companies.
The Company is in the development stage and has a limited operating
history, has incurred operating losses since its inception and expects
losses to continue and increase. Since its inception, the Company has been
engaged in research and development programs and organizational efforts,
including the development of its initial services, recruiting its
scientific and management personnel, establishing marketing capabilities,
engaging its Scientific Advisory Board and raising capital. The Company's
services are currently offered principally in the United States. There can
be no assurance that the Company will be successful in the development or
commercialization of its services or that any required additional financing
will be available when needed or on terms acceptable to the Company.
2. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the entity's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents; investments
with maturities between three and twelve months are considered to be short
term investments. The Company invests its excess funds in commercial paper
with high quality banks, money market instruments in U.S. treasury and
investment grade securities, and overnight reverse repurchase agreements
collateralized by U.S. treasury and investment grade securities. Short
term investments are stated at cost, which approximates market.
Other Current Assets
At March 31, 1997, included in other current assets is approximately
$125,000 for prepaid insurance.
7
<PAGE> 8
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
expense is calculated using the straight-line method over estimated useful
lives of three to five years. Leasehold improvements are amortized over
the shorter of the lease terms or useful lives.
Accrued Expenses
At March 31, 1997, accrued expenses consisted of approximately $368,000 for
payroll and related expenses, $374,000 in professional/legal fees, $35,000
for marketing/operations costs and $34,000 in other expenses.
Revenue Recognition
Revenues are derived from providing genetic testing and information
services and, in certain circumstances, software licensing associated with
its risk assessment service. Revenues from the Company's services are
recognized as those services are provided. Revenues from its risk
assessment service are recognized over the license period.
Research and Development
Research and development costs are charged to expense as incurred.
Net Loss Per Share
Net loss per share is based on the weighted-average number of shares
outstanding during the periods presented. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all shares (including
common shares issuable upon conversion of convertible preferred stock) and
options to purchase shares were treated as if they were outstanding for all
periods prior to the initial public offering. In the periods after the
initial public offering, the effects of options, warrants, and the
outstanding convertible note have not been considered, since the effect
would be antidilutive.
Statement 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all periods presented.
Statement 128 is effective for fiscal years ending after December 15, 1997,
and requires restatement of prior years' earnings per share. Since the
effect of outstanding options is antidilutive, they have been excluded from
the Company's computation of net loss per share. Accordingly, Statement
128 does not have an impact upon historical net loss per share as reported.
Reclassification
Certain 1996 balances have been reclassified to conform with 1997 financial
statement presentation.
8
<PAGE> 9
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. RELATED-PARTY TRANSACTIONS:
License Agreement
Previously, under the license agreement with Oncor (the "Oncor Agreement"),
the Company was obligated to pay royalties on a semi-annual basis to Oncor
for Oncor technologies existing as of the date of the Oncor Agreement,
equal to the greater of (i) six percent of the Company's net sales revenues
resulting from services based on Oncor's technologies, subject to certain
adjustments, or (ii) $100,000. Fees payable to Oncor under the Oncor
Agreement of approximately $50,000, $50,000 and $742,000 are included in
laboratory operations expense for the three months ended March 31, 1997,
1996 and the period from inception (July 12, 1993) to March 31, 1997,
respectively. The Company and Oncor recently agreed to certain changes to
the Oncor Agreement, dated June 6, 1994. Pursuant to the agreement, Oncor
is providing the Company with an exclusive worldwide license to certain of
Oncor's existing human genome technologies that are useful for the purposes
of development and commercialization of certain of the Company's services,
including: (i) testing, detection and/or analysis of cancer-predisposing
genes; (ii) genetic assessment of risk of an individual to develop cancer;
and (iii) testing and analysis for the purposes of cancer management. In
addition, Oncor is providing the Company with a non-exclusive worldwide
license to certain of Oncor's existing human genome technologies, and any
future improvements thereto, to be used by the Company in the provision of
services direct to third parties other than those to whom services are
provided pursuant to the exclusive license. The Company does not have the
right to sublicense any Oncor technologies licensed to it by Oncor without
Oncor's prior written consent. Technologies sublicensed to the Company by
Oncor include technologies covered by the collaborative licensing and
research agreements between Oncor and each of The Johns Hopkins University
and the Massachusetts General Hospital. The term of the agreement shall
expire in June 2004 unless earlier terminated in accordance with its terms.
Under the terms of the agreement, the Company is obligated to make payments
on a quarterly basis to Oncor equal to a range of four percent (4%) to two
percent (2%) of the Company's annual net sales. During the first year of
the agreement, the Company is obligated to pay Oncor a minimum amount equal
to $50,000 per quarter. During the second year of the agreement, the
Company is obligated to pay Oncor a minimum amount equal to $25,000 per
quarter. Thereafter, there shall be no minimum payment required to be made
by the Company to Oncor in connection with the agreement.
In addition, subject to certain third-party contractual limitations, prior
to the license or disposition (whether by assignment, transfer or license)
to a third party by the Company or Oncor of their respective technologies,
the non-offering party shall have a thirty (30) day right of first offer
with respect to such technologies. If the non-offering party accepts the
offer, the Company and Oncor shall negotiate in good faith the terms and
conditions of any such license or acquisition agreement.
Oncor has the primary right and obligation to obtain, maintain and enforce
proprietary rights in relation to all its own technologies and any
improvements to such technologies assigned to Oncor by the Company. The
Company has the primary right and obligation to obtain, maintain and
enforce proprietary rights in relation to all its own technologies.
9
<PAGE> 10
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. RELATED-PARTY TRANSACTIONS: (Continued)
Services Agreements with Oncor, Inc. and Affiliates
As of March 31, 1997, the Company owed Oncor and Codon Pharmaceuticals,
Inc. ("Codon", a 41.6% owned affiliate of Oncor) $92,757 for charges
which include fees payable under the Oncor License, consulting and
equipment expenses. In addition, in June 1994 the Company converted
$715,751 owed to Oncor for license fees previously incurred and for prior
services rendered into a Convertible Subordinated Promissory Note (the
"Note"), which principal is due in June 1999. The Note bears interest at
7 percent and is convertible into common stock at Oncor's option at a
conversion price of $20 per share of common stock. During the fourth
quarter of 1994, Oncor assigned the Note to its wholly-owned subsidiary
Oncor Finance, Inc. Interest expense recorded by the Company relating to
the Note was $12,526 for the three months ended March 31, 1997.
Related party revenues and expenses are as follows:
<TABLE>
<CAPTION>
Period from
Inception
(July 12, 1993)
Three Months Ended March 31, Through
-------------------------------- March 31,
1997 1996 1997
----------- ------------- -------------
<S> <C> <C> <C>
Sales to related party $ -- $ -- $ 47,880
Operating expenses to related party:
Laboratory operations 68,000 68,000 832,610
Selling, general and administrative -- 2,061 977,896
Research and development -- 17,946 207,782
</TABLE>
Of the related party expenses for the three months ended March 31, 1997,
$18,000 in laboratory operations was for equipment rental from Codon. The
other $50,000 of related party expenses was related to the Oncor Agreement.
4. DEFERRED REVENUES:
Deferred revenues consist of prepaid fees related to various risk
assessment service agreements as well as laboratory testing.
10
<PAGE> 11
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY:
Stock Option Plan
As of March 31, 1997, 2,250,000 shares of the Company's common stock had
been reserved for issuance, of which options to purchase 1,818,000 shares
had been granted. After giving effect to the cancellation of stock
options, shares available for issuance were 601,900 as of March 31, 1997.
Compensation expense for employees is recognized for the difference between
the exercise price of the options granted and the fair market value of the
Company's common stock. Compensation expense of $9,213, $15,073, and
$206,825 has been recognized for the three months ended March 31, 1997 and
1996 and for the period from inception (July 12, 1993) to March 31, 1997,
respectively.
6. AGREEMENTS:
Pursuant to a License, Services and Marketing Agreement (the "Incyte
Agreement"), dated February 25, 1997, the Company and Incyte
Pharmaceuticals, Inc., a Delaware corporation ("Incyte"), have formed a
broad-based collaboration in clinical genomics designed to create an
integrated genomics and sequence-based mutation analysis capability for the
two companies. The term of the Incyte Agreement expires on February 25,
2000 (the "Initial Term") unless extended by mutual agreement or earlier
terminated in accordance with its terms.
The Company has agreed to perform certain specified clinical genomic
services relating to the creation of a tissue repository and the
performance of a gene functional studies program (the "Collaborative
Services"). Incyte has agreed to purchase a specified minimum of
Collaborative Services during each year of the Initial Term. In addition,
under the terms of the Incyte Agreement, the Company has obtained a
non-exclusive, royalty-bearing license (without the right to sublicense) to
use Incyte's high-throughput sequencing technology for use in the Company's
clinical diagnostic services for a period ending five (5) years following
termination of the Incyte Agreement, subject to certain limitations. In
consideration for the grant of the license and $3,000,000 in cash paid by
Incyte, the Company has issued to Incyte (i) 773,588 shares of the
Company's Common Stock, and (ii) a warrant to purchase up to an aggregate
of 10% of the Company's Common Stock issued and outstanding on the date of
such warrant's exercise. The warrant is exercisable until February 25,
2000 at an exercise price per share equal to the greater of 110% of the
fair market value per share of Common Stock on the trading day prior to
the date of exercise or (i) $8.00 per share (if the warrant is exercised on
or prior to February 25, 1998), (ii) $9.00 per share (if the warrant is
exercised after February 25, 1998, but on or prior to February 25, 1999),
or (iii) $13.50 per share (if the warrant is exercised after February 25,
1999, but on or prior to February 25, 2000). Notwithstanding the foregoing
sentence, Incyte has the option to fix the exercise price per share during
each of aforementioned periods; provided, however, that in no event shall
the exercise price per share during each of the aforementioned periods be
less than $8.00, $9.00 or $13.50 per share, respectively. The Company has
also agreed to issue to Incyte, under certain circumstances, up to an
additional aggregate of 130,726 shares of the Company's Common Stock.
Pursuant to the terms of an Investor's Rights Agreement between the
Company and Incyte, Incyte was granted certain registration and other
stockholder rights.
11
<PAGE> 12
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. AGREEMENTS: (Continued)
The Company issued certain of the shares to Incyte in consideration for
current and future technologies to further enhance the efficiencies of the
laboratory. The technologies are in development and approximately $1.5
million has been allocated to research and development projects in-process
and expensed in the first quarter of 1997.
12
<PAGE> 13
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations:
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operations and financial condition. The discussion should be read
in conjunction with the audited financial statements of the Company and notes
thereto, included in the Company's Annual Report for the year ended December
31, 1996 on Form 10-K filed with the Securities and Exchange Commission. This
report contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company. Investors
are cautioned that such statements are only predictions and that actual events
or results may differ materially. In evaluating such statements, investors
should carefully consider the various factors identified in this Report which
could cause actual results to differ materially from those indicated by such
forward-looking statements, including the matters set forth under Certain
Factors Affecting Operations and Market Price of Securities.
OVERVIEW
The Company commenced operations in July 1993, has a limited operating history
and is a development stage company. Since its inception, the Company has been
engaged in research and development activities, organizational efforts and
sales and marketing activities, including the development of its services, the
hiring of its scientific and marketing staff and its initial marketing efforts.
The Company has incurred operating losses since its inception. As of March 31,
1997, the Company's accumulated deficit was approximately $22.4 million. The
Company's losses have resulted principally from selling, general and
administrative expenses, laboratory operations and research and development
expenses. Revenues are principally derived from providing genetic testing and
information services and, to a lesser extent, software licensing associated
with its risk assessment service. Revenues from the Company's services, other
than its risk assessment service, are recognized as they are provided.
Revenues from its risk assessment service are recognized over the license
period. The Company has yet to generate any significant revenues and the
Company cannot anticipate when, or if, it will be able to generate significant
revenues in the future. The Company expects its operating losses to continue
as its sales and marketing efforts, research and development programs and
laboratory operations continue and increase. The Company's ability to achieve
profitability depends on its ability to successfully market and sell its
services. There can be no assurance when, or if, the Company will become
profitable. (See Note 1 to the Financial Statements.)
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1997 were $115,279 compared to
$78,233 for the same period in 1996. The increase in revenues is primarily due
to an increase in laboratory testing services. The Company is in the
development stage and cannot anticipate when, or if, it will be able to
generate any significant revenues.
Cost of sales - direct was $53,966 and $29,161 for the three months ended March
31, 1997 and 1996, respectively. Cost of sales - direct includes costs for
supplies, direct labor, shipping, and royalties (other than those under the
Oncor License) for testing services and computer hardware costs associated with
the Company's risk assessment services. The increase in cost of sales - direct
reflected the corresponding increase in the Company's revenues.
Laboratory operations expenses were $706,805 and $647,914 for the three months
ended March 31, 1997 and 1996, respectively. The increase in laboratory
operations expenses was due to the hiring of additional
13
<PAGE> 14
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
personnel to perform commercial testing services. As sales of the Company's
services increase, a greater portion of the expenses associated with laboratory
operations will be included in cost of sales - direct. Related party expenses
incurred during these periods consisted of technology license fees paid to
Oncor and laboratory equipment rent paid to Codon.
Selling, general and administrative expenses were $1,324,821 and $1,221,808 for
the three months ended March 31, 1997 and 1996, respectively. General and
administrative expenses were $997,519 for the three months ended March 31,
1997, compared with $908,165 for the three months ended March 31, 1996. The
increase in general and administrative expenses was due to the addition of
personnel and related costs, and increased professional fees and depreciation
expense. Selling expenses were $327,302 for the three months ended March 31,
1997, compared with $313,643 for the three months ended March 31, 1996.
Selling expenses remained relatively constant between the two periods. The
Company anticipates that its selling expenses will increase as it continues to
market and sell its portfolio of services. There were no related party
selling, general and administrative expenses for the three months ended March
31, 1997. Related party selling, general and administrative expenses were
$2,061 for the corresponding period in 1996.
Research and development expenses were $225,616 and $137,349 for the three
months ended March 31, 1997 and 1996, respectively. The increase in research
and development expenses was primarily due to an increase in personnel and
laboratory supplies to work on various projects. There were no related party
expenses for the three months ended March 31, 1997. Related party research
and development expenses were $17,946 for the corresponding period in 1996.
Related party research and development expenses for the three months ended
March 31, 1996 were for consulting services.
Acquired research and development projects in process was $1,481,148 for the
three months ended March 31, 1997. There were no associated expenses for the
same period in 1996. The write off of $1,481,148 was associated with access to
current and future technolgies under the Incyte Agreement.
Related party expenses, other than the Oncor License, will continue to decrease
and remain nominal in the future.
Interest income was $94,600 and $116,003 for the three months ended March 31,
1997 and 1996, respectively. The decrease in interest income during the first
quarter of 1997 was due to the decreased amounts available for investment.
Interest expense was $14,598 and $13,172 for the three months ended March 31,
1997 and 1996, respectively.
For the reasons set forth above, net operating losses were $3,597,075 and
$1,855,168 for the three months ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenues since the Company's inception. The
Company's operations have been funded through a $1.0 million capital infusion
by Oncor, a $3.0 million private placement of equity securities, approximately
$716,000 in advances from Oncor, approximately $7.4 million of net proceeds
from the Company's initial public offering and approximately $13.9 million of
net proceeds from the Company's follow-on offering completed in February 1996.
Also, in February 1997, the Company received approximately $2.8 million in net
proceeds related to the Incyte Agreement. The Company expects its operating
losses to
14
<PAGE> 15
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
continue as its sales and marketing efforts, research and development programs
and laboratory operations continue and increase. The Company also intends to
make additional laboratory equipment purchases and other capital expenditures
in the future, although currently it has no specific material commitments to do
so.
Cash used in operating activities was approximately $2.0 million for the three
months ended March 31, 1997 compared with approximately $1.4 million for the
same period in 1996. The increase was attributable to an increase in the net
operating loss for the three months ended March 31, 1997, as well as a decrease
in accounts payable.
Cash used in investing activities was $1,743,487 for the three months ended
March 31, 1997 compared to $146,307 for the same period in 1996. The increase
was due to increased amounts invested in short-term investments during the
three months ended March 31, 1997 as compared to the same period in 1996.
The Company and Oncor recently agreed to certain changes to the Restated
Technology License Agreement, dated June 6, 1994. Pursuant to the Oncor
Agreement, Oncor is providing the Company with an exclusive worldwide license
to certain of Oncor's existing human genome technologies that are useful for
the purposes of development and commercialization of certain of the Company's
services, including: (i) testing, detection and/or analysis of
cancer-predisposing genes; (ii) genetic assessment of risk of an individual to
develop cancer; and (iii) testing and analysis for the purposes of cancer
management. In addition, Oncor is providing the Company with a non-exclusive
worldwide license to certain of Oncor's existing human genome technologies, and
any future improvements thereto, to be used by the Company in the provision of
services directly to third parties other than services that are provided
pursuant to the exclusive license. The Company does not have the right to
sublicense any Oncor technologies licensed to it by Oncor without Oncor's prior
written consent. Technologies sublicensed to the Company by Oncor include
technologies covered by the collaborative licensing and research agreements
between Oncor and each of The Johns Hopkins University and the Massachusetts
General Hospital. The term of the agreement shall expire in June 2004 unless
earlier terminated in accordance with its terms.
Under the terms of the agreement, the Company is obligated to make payments on
a quarterly basis to Oncor equal to a range of four percent (4%) to two percent
(2%) of the Company's annual net sales. During the first year of the
agreement, the Company is obligated to pay Oncor a minimum amount equal to
$50,000 per quarter. During the second year of the agreement, the Company is
obligated to pay Oncor a minimum amount equal to $25,000 per quarter.
Thereafter, there shall be no minimum payment required to be made by the
Company to Oncor in connection with the agreement.
In addition, subject to certain third-party contractual limitations, prior to
the license or disposition (whether by assignment, transfer or license) to a
third party by the Company or Oncor of their respective technologies, the
non-offering party shall have a thirty (30) day right of first offer with
respect to such technologies. If the non-offering party accepts the offer, the
Company and Oncor shall negotiate in good faith the terms and conditions of any
such license or acquisition agreement.
Oncor has the primary right and obligation to obtain, maintain and enforce
proprietary rights in relation to all its own technologies and any improvements
to such technologies assigned to Oncor by the Company. The Company has the
primary right and obligation to obtain, maintain and enforce proprietary rights
in relation to all its own technologies.
15
<PAGE> 16
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
Cash provided by financing activities was approximately $2.8 million for the
three months ended March 31, 1997 compared with approximately $14.2 million for
the same period in 1996. In the first quarter of 1996, the Company completed a
follow-on offering which resulted in net proceeds of approximately $13.9
million.
Minimum payments due under lease commitments and various research, license and
consulting agreements, excluding the Oncor License, will be approximately
$367,000 through 1997.
Pursuant to the Incyte Agreement, the Company and Incyte have formed a
broad-based collaboration in clinical genomics designed to create an integrated
genomics and sequence-based mutation analysis capability for the two companies.
The Company has agreed to perform certain specified clinical genomic services
relating to the creation of a tissue repository and the performance of a gene
functional studies program (the "Collaborative Services"). Incyte has agreed
to purchase certain Collaborative Services during each year of the Initial
Term. In addition, under the terms of the Incyte Agreement, the Company has
obtained a non-exclusive, royalty-bearing license (without the right to
sublicense) to use Incyte's high-throughput sequencing technology for use in
the Company's clinical diagnostic services for a period ending five (5) years
following termination of the Incyte Agreement, subject to certain limitations.
In consideration for the grant of the license and $3,000,000 in cash, the
Company has issued to Incyte (i) Seven Hundred Seventy Three Thousand Five
Hundred Eighty Eight (773,588) shares of the Company's Common Stock, and (ii) a
warrant to purchase up to an aggregate of ten percent (10%) of the Company's
Common Stock issued and outstanding on the date of such warrant's exercise.
The warrant is exercisable until February 25, 2000 at an exercise price per
share equal to the greater of one hundred-ten percent (110%) of the fair market
value per share of Common Stock on the trading day prior to the date of
exercise or (i) Eight Dollars ($8.00) per share (if the warrant is exercised on
or prior to February 25, 1998), (ii) Nine Dollars ($9.00) per share (if the
warrant is exercised after February 25, 1998, but on or prior to February 25,
1999), or (iii) Thirteen Dollars and Fifty Cents ($13.50) per share (if the
warrant is exercised after February 25, 1999, but on or prior to February 25,
2000). Notwithstanding the foregoing sentence, Incyte has the option to fix
the exercise price per share during each of aforementioned periods; provided,
however, that in no event shall the exercise price per share during each of the
aforementioned periods be less than Eight Dollars ($8.00), Nine Dollars ($9.00)
or Thirteen Dollars and Fifty Cents ($13.50) per share, respectively. The
Company has also agreed to issue to Incyte, under certain circumstances, up to
an additional aggregate of One Hundred Thirty Thousand Seven Hundred Twenty
Six (130,726) shares of the Company's Common Stock. Pursuant to the terms of
an Investor's Rights Agreement between the Company and Incyte, Incyte was
granted certain registration and other stockholder rights.
The Company has incurred negative cash flows from operations since its
inception. The Company has expended, and will continue to expend substantial
funds to continue its sales and marketing efforts, research and development
programs and laboratory operations. At April 30, 1997, the Company had cash,
cash equivalents and short term investments of approximately $6.9 million. The
Company plans to fund its operations and capital expenditures from its current
cash and future revenues as well as from other sources. The Company's cash
requirements, however, may vary materially from those now planned because of
variations in either the amount or timing of anticipated revenues or
anticipated expenses, relations with strategic partners, changes in the focus
and direction of the Company's research and development programs, the extent of
its sales and marketing efforts and laboratory operations, the size and timing
of any acquisitions, competitive and technological advances and other factors.
To the extent that funds generated
16
<PAGE> 17
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
from the Company's operations, together with its existing capital resources,
are insufficient to meet the Company's operating requirements, it is likely
that the Company will seek to obtain additional funds through equity or debt
financing and collaborative or other arrangements with corporate partners and
others. The terms and prices of any such financings may be significantly more
favorable to investors than to the Company's existing stockholders. No
assurance can be given that any required additional financing will be available
when needed or on terms acceptable to the Company. If adequate additional
funds are not available, the Company may be required to delay, scale back or
eliminate certain of its research and development programs, its sales and
marketing efforts or certain other aspects of its business or to license to
third parties the rights to commercialize services or technologies that the
Company would otherwise undertake itself. The unavailability of adequate funds
in the future would have a material adverse effect on the Company's business,
financial condition and results of operations.
CERTAIN FACTORS AFFECTING OPERATIONS AND MARKET PRICE OF SECURITIES
The Company's future business, financial condition, and results of operations,
and the market price for its securities are dependent on the Company's ability
to successfully manage the following business considerations. No assurance can
be given that the Company will be able to manage such considerations
successfully. The failure to manage such considerations could have a material
adverse effect on the Company's business, financial conditions, and results of
operations, and on the market price of its securities.
Development Stage Company; History of Operating Losses; Uncertainty of Future
Profitability
The Company commenced operations in July 1993, has a limited operating history
and is a development stage company. Since its inception, the Company has been
engaged in research and development activities, organizational efforts and
sales and marketing activities, including the development of its services, the
hiring of its scientific and marketing staff and its initial sales and
marketing efforts. The Company has incurred operating losses since its
inception. As of March 31, 1997, the Company's accumulated deficit was
approximately $22.4 million. The Company's losses have resulted principally
from selling, general and administrative expenses, laboratory operations and
research and development expenses. The Company has yet to generate any
significant revenues and the Company cannot anticipate when, or if, it will be
able to generate significant revenues in the future. The Company expects its
operating losses to continue as its sales and marketing efforts, research and
development programs and laboratory operations continue and increase. The
Company's ability to achieve profitability depends on its ability to
successfully market and sell its services. There can be no assurance when, or
if, the Company will become profitable.
Relationship with Oncor
The Company and Oncor recently agreed to certain changes to the Restated
Technology License Agreement, dated June 6, 1994. Pursuant to the Oncor
Agreement, Oncor is providing the Company with an exclusive worldwide license
to certain of Oncor's existing human genome technologies that are useful for
the purposes of development and commercialization of certain of the Company's
services, including: (i) testing, detection and/or analysis of genes; (ii)
genetic assessment of risk of an individual to develop cancer; and (iii)
testing and analysis for the purposes of cancer management. In addition, Oncor
is providing the Company with a non-exclusive worldwide license to certain of
Oncor's existing human genome technologies, and any future improvements
thereto, to be used by the Company in the provision of services direct to third
parties other than services that are provided pursuant to the exclusive
license. The Company does not have the right to sublicense any Oncor
technologies licensed to it by Oncor without Oncor's prior written consent.
17
<PAGE> 18
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
Technologies sublicensed to the Company by Oncor include technologies covered
by the collaborative licensing and research agreements between Oncor and each
of The Johns Hopkins University and the Massachusetts General Hospital. The
term of the agreement shall expire in June 2004 unless earlier terminated in
accordance with its terms.
The Company is reliant on the technologies licensed directly from Oncor and
from third parties through Oncor which form the basis for some of the Company's
services. The Company's rights under the Oncor Agreement are subject to
certain rights retained by Oncor, which include Oncor's right to use the
licensed technologies for internal, non-commercial research and development
purposes and for development and commercialization of Oncor's products. Oncor
intends to develop its technologies into diagnostic products for sale to third
parties. These third parties may then use these products to provide services
that compete directly with the Company's services, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Oncor Agreement will be renewed
at the end of its initial term or that it will not be terminated earlier
pursuant to its terms. There also can be no assurance that conflicts of
interest between Oncor and the Company will not arise with respect to the Oncor
Agreement, any services that might be provided by Oncor to the Company in the
future or other aspects of the Company's relationship with Oncor.
The Company's rights to technologies licensed to the Company from third parties
through Oncor are subject to various provisions in the license agreements
between such third parties and Oncor. No assurance can be given that Oncor will
perform its obligations under such agreements, that such agreements will not be
terminated or that such agreements can be renewed upon termination or
expiration. If Oncor breaches such agreements or otherwise fails to comply
with such agreements, or if such agreements are terminated or otherwise expire,
the development or commercialization of certain of the Company's services may
be delayed or terminated, or the Company would have to expend substantial
additional resources on development and commercialization, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Giving effect to the equity transaction with Incyte,
Oncor owns approximately 25.6% of the Company's outstanding common stock.
Accordingly, Oncor may be able to effectively control or influence certain
actions such as the election of directors and the authorization of certain
transactions that require stockholder approval and be able to otherwise
effectively control the Company's policies without concurrence of the Company's
other stockholders. In addition, Stephen Turner, Chief Executive Officer and
Chairman of the Board of Directors of Oncor, is a director of the Company, and
Timothy J. Triche, M.D., Ph.D., a director of Oncor, is the Chief Executive
Officer and Chairman of the Board of Directors of the Company.
Limited Patient Populations For Certain Services
Certain of the Company's services currently address subtypes of broader types
of cancers. Patients with such subtypes typically represent only a small
percentage of those patients who are under treatment or have a history of the
broader types of cancer. Accordingly, the market for such services may be
limited and such services may not generate significant revenues.
New and Uncertain Business; Uncertainty of Clinical Utility
The Company's genetic testing and information services represent a new approach
to cancer management for which there is little precedent and for which the
market is evolving. The Company's business is to commercialize recent genetic
discoveries and mutation detection technologies for the early detection and
18
<PAGE> 19
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
management of cancer. The Company's ability to successfully develop its
business is unproven and is dependent on its ability to establish its services
as the standard of care in cancer management and obtain third party
reimbursement for its services; expand the distribution of its services both
domestically and internationally; develop strategic alliances and
collaborations with academic medical centers, research institutions, managed
care organizations, clinical laboratories, pharmaceutical companies, health
care providers and corporate partners; identify, license and develop emerging
genetic discoveries and mutation detection technologies; and continue to expand
its portfolio of services. The Company's ability to succeed is also dependent
upon the acceptance by potential customers and patients of the Company's
services as effective tools for cancer management. There can be no assurance
that the market for the Company's services will continue to evolve or that the
Company's business strategy will be successful. The discoveries and
technologies which form the basis for the Company's services have not been
widely adopted by the medical community. Accordingly, the Company is pursuing
clinical correlation studies at academic medical centers and research
institutions that are designed to determine the clinical utility, reliability
and accuracy of the Company's services. There can be no assurance that these
studies will confirm the clinical utility, reliability and accuracy of the
Company's services. The failure of these studies to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertain Availability of Health Care Reimbursement and Market Acceptance of
Services
The successful commercialization of genetic testing and information services
depends in part on the ability of its customers to obtain adequate
reimbursement for such services and related treatments from governmental
agencies, private health care insurers and other third party payors.
Government and private third party payors are increasingly attempting to
contain health care costs by limiting both the extent of coverage and the
reimbursement rate for new diagnostic and therapeutic products and services.
Medicare has determined that the Company's services are screening services and
therefore are excluded from coverage under Medicare. The Company is seeking
reimbursement approval for its services from various third party payors. There
can be no assurance that third party reimbursement for the Company's services
will be available to its customers or that any such reimbursement will be
adequate. Disapproval of, or limitations in, coverage by third party payors
could materially and adversely affect market acceptance of the Company's
services which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Collaborations and Licenses with Others
The Company's strategy for the research, development and commercialization of
certain of its services is to rely in part on various collaborative and license
arrangements with academic medical centers, research institutions and
commercial entities. Accordingly, the Company is dependent in part upon such
third parties performing their obligations. The Company has entered into
certain collaborative and license arrangements, including an arrangement with
HCI, Affymetrix, ZENECA Diagnostics, and Incyte, and is continually seeking to
enter into additional arrangements with other collaborators and licensors.
There can be no assurance that the Company will be able to enter into
acceptable collaborative and license arrangements in the future or that the
parties with which the Company has established or will establish arrangements
will perform their obligations under such arrangements. There also can be no
assurance that its current arrangements or any future arrangements will lead to
the development of additional services with commercial potential, that the
Company will be able to obtain or license proprietary rights with respect to
any technology developed in connection with these arrangements and that the
Company will be able to ensure the confidentiality of any proprietary rights
and information developed in such arrangements or
19
<PAGE> 20
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
prevent the public disclosure thereof. In general, the Company's collaborative
and license arrangements provide that they may be terminated under certain
circumstances. There can be no assurance that such arrangements will not be
terminated or that the Company will be able to extend any of its collaborative
and license arrangements upon their expiration. The Company currently has
certain licenses from third parties, either directly or indirectly through the
Oncor Agreement, and in the future may require additional licenses from these
or other parties to develop and market commercially viable services. There can
be no assurance that such licenses will be obtainable on commercially
reasonable terms, if at all, or renewable, that the patents underlying such
licenses, if any, will be valid and enforceable or that the nature of the
technology underlying such licenses will remain proprietary.
The Company's rights to technologies licensed to the Company from third parties
through the Oncor Agreement are subject to the license agreements between such
third parties and Oncor. No assurance can be given that the third parties to
these agreements will perform their obligations under such agreements on a
timely basis or at all. If such third parties breach or terminate their
agreements with Oncor or otherwise fail to, or are unable to, comply with the
provisions of their agreements with Oncor for whatever reason, the Company
would have no direct recourse and would be dependent on Oncor to enforce such
agreements. The agreements between Oncor and the third parties expire at
various times. There can be no assurance that these agreements will be renewed
at the end of their initial terms or that such agreements will not be
terminated or cancelled prior to their expiration. The Company has no rights
under these third party agreements and is reliant upon Oncor to negotiate
renewals of such agreements and resolve disputes under such agreements. If the
third parties to the agreements that the Company licenses from Oncor through
the Oncor Agreement breach such agreements or otherwise fail to comply with
such agreements, or such agreements are terminated or otherwise expire, the
development or commercialization of certain of the Company's services may be
delayed or terminated, or the Company would have to expend substantial
additional resources on development and commercialization, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Competition
The Company is engaged in the biotechnology and medical services industries
which are characterized by extensive research and development efforts, rapid
technological progress and intense competition. There are many public and
private companies, including well-known pharmaceutical companies, biotechnology
companies and academic institutions, engaged in developing medical services and
the technology underlying such services. Although there are relatively few
direct competitors of the Company, it is anticipated that the number of direct
competitors will increase significantly in the future. Many of the Company's
current and potential competitors have substantially greater financial and
technological resources, sales and marketing capabilities and experience, and
research and development experience than the Company. Accordingly, the
Company's competitors may succeed in developing services and the underlying
technology more rapidly than the Company and in developing services that are
more accurate and useful and less costly than any of the Company's services.
The Company's competitors also may be more successful than the Company in
marketing and selling such services. In addition, other technologies are, or
in the future may become, the basis for competitive products and services.
Oncor may develop technologies under the Oncor Agreement into products that
Oncor will sell to third parties. These third parties may then use these
products to provide services that compete directly with the Company's services,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
20
<PAGE> 21
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
The Company relies on certain technologies that are not patentable or
proprietary and consequently may be available to the Company's competitors.
Competition may increase further as a result of the potential advances in the
technology underlying the services developed by the Company. The Company also
is aware that other companies have developed or may be developing genetic
testing and information technologies, services and products that are and may be
competitive with the Company's services. There can be no assurance that the
Company's competitors will not succeed in developing technologies, services and
products that are more accurate and useful than any being developed by the
Company or that would render the Company's technology and services obsolete or
noncompetitive.
The Company requires all employees and consultants (including certain
scientific advisors) to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and
require disclosure and assignment to the Company of their ideas, developments,
discoveries or inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of the Company
will not gain access to trade secrets and other proprietary information
developed by the Company and disclosed to employees, consultants and/or
scientific advisors.
Given the early stage of the market for the Company's services, the important
competitive factors are availability, accuracy and utility. The Company
anticipates that other competitive factors, such as price, availability of
reimbursement and response time, will become important as the market matures.
Patents and Proprietary Rights
The Company relies on a combination of trade secret and copyright laws and
confidentiality agreements to protect its proprietary technology, rights and
know-how. The Company's success will depend in part on its ability or the
ability of its licensors or sublicensors to obtain patents, defend patents,
maintain trade secrets, defend copyrights and operate without infringing upon
the proprietary rights of others, both in the United States and in foreign
countries. The patent position of companies relying upon biotechnology is
highly uncertain in general and involves complex legal and factual issues, and
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. To date, none of the Company, its licensors or its
sublicensors has been granted any patents related to the technology or genetic
discoveries underlying the Company's services. Although the Company and
certain of the Company's licensors and sublicensors have patent applications
pending relating to such technologies and discoveries, there can be no
assurance that patents will be issued as a result of such patent applications
or that, if issued, such patents will be sufficiently broad to afford
protection against competitors with similar technologies or discoveries. There
can also be no assurance that patents, if any, issued to the Company, or for
which the Company has license or sublicense rights, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The commercial success of the Company
also will depend upon avoiding the infringement of patents issued to third
parties, obtaining licenses to third parties' technologies and genetic
discoveries and maintaining licenses upon which certain of the Company's
services are, or might be, based. In particular, third parties, including
potential competitors, have filed patent applications relating to certain genes
and genetic mutations, including the BRCA1, BRCA2 and p16 genes and related
mutations, underlying certain of the Company's services, and may in the future
file additional patent applications relating to genes and genetic mutations.
In the event that any such patents are issued to such parties, such patents may
preclude the Company, its licensors and sublicensors from obtaining patent
protection for their technologies and discoveries, may hinder or prevent the
Company from providing related genetic testing services and could require the
Company to enter into licenses with such parties or cease such activities.
There can be no assurance that any required licenses would be available on
acceptable terms, or
21
<PAGE> 22
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
at all. Litigation, which could result in substantial cost to the Company, may
be necessary to determine the scope and validity of others' proprietary rights
or to enforce the Company's patent, copyright, trade secret and license and
sublicense rights. The failure by the Company to obtain any such licenses, if
required, and the Company's involvement in such litigation, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Oncor has the primary right and obligation to obtain, maintain and enforce
proprietary rights in relation to its own technologies and any improvements to
such technologies assigned to Oncor by the Company. The amount and timing of
resources devoted to such activities are beyond the Company's control. There
can be no assurance that Oncor will perform such obligations on a timely basis
or at all, or that it will expend sufficient resources on such activities. The
Company has the primary right and obligation to obtain, maintain and enforce
proprietary rights in relation to all its own technologies.
The Company relies on certain technologies, trade secrets and know-how that are
not patentable or proprietary and are available to the Company's competitors.
Although the Company has taken steps to protect its unpatented technologies,
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants and certain of its contractors,
there can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known or be independently developed or
discovered by competitors.
Government Regulation
The Clinical Laboratory Improvement Act ("CLIA"), as amended in 1988, provides
for regulation of clinical laboratories by the United States Department of
Health and Human Services ("HHS"). These regulations mandate that all clinical
laboratories be certified to perform testing on human specimens and provide
specific conditions for certification. These regulations also contain
guidelines for the qualifications, responsibilities, training, working
conditions and oversight of clinical laboratory employees. In addition,
specific standards are imposed for each type of test that is performed in a
laboratory. The Company's laboratory is certified under these regulations and
the Company believes that it is in substantial compliance with these
guidelines. CLIA and the regulations promulgated thereunder are enforced
through continuous quality inspections of test methods, equipment,
instrumentation, materials and supplies on a bi-annual and "spot" basis. While
the United States Food and Drug Administration (the "FDA") does not currently
regulate the genetic tests underlying the Company's services if they are
performed in the Company's CLIA certified clinical laboratory, there can be no
assurance that the FDA will not seek to regulate such tests in the future. If,
in the future, the FDA should determine that the tests underlying the Company's
services should receive FDA approval prior to their provision in the Company's
laboratory, there can be no assurance that such approval would be received on a
timely basis or at all. Any change in CLIA or related regulations, or in the
interpretation thereof, or in the FDA's position on regulating the tests
underlying the Company's services, could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's laboratory is licensed and regulated by the State of Maryland, in
which it is located. The Company's laboratory is also regulated by certain
other states from which the Company may accept specimens. The Company has
received approval for a license from the State of New York and intends to seek
approval from other states as required. No assurance can be given that the
Company will be able to obtain such approvals on a timely basis or at all. The
loss of, or the failure to obtain, any required state license could have a
material adverse effect on the Company's business, financial condition and
results of operations.
22
<PAGE> 23
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
The Company is subject to extensive federal, state and local regulation,
including 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 laws, rules and regulations governing
health care, clinical laboratory activities, waste disposal, handling of toxic,
dangerous or radioactive materials and other matters. Although the Company's
services are currently considered screening services under Medicare and are
therefore excluded from coverage under Medicare, the Company's services may be
subject to laws, rules and regulations governing reimbursement and fraud and
abuses and prohibiting the filing of false claims. These laws, rules and
regulations include "anti-kickback" and "Stark" laws, which contain extremely
broad proscriptions, the violation of which may result in exclusion from
Medicare and Medicaid and criminal and civil penalties. In addition, the
Company is subject to state laws, rules and regulations limiting certain
financial relationships between health care service providers and physicians
and other referral sources. Although the Company believes that it is in
substantial compliance with all applicable laws, rules and regulations, there
can be no assurance that the Company will remain in compliance with applicable
laws, rules and regulations or that changes in, or new interpretations of,
existing laws, rules and regulations would not have a material adverse effect
on the Company's business, financial condition and results of operations.
Risk of Discrimination Against Customers; Potential Adverse Impact on
Insurability; Confidentiality
The availability of genetic predisposition testing has raised certain ethical,
legal and social issues regarding the appropriate utilization and
confidentiality of information provided by such testing. The medical
information obtained or determined about an individual from the Company's
services is of an extremely sensitive nature. In providing its services, the
Company is subject to certain statutory, regulatory and common law requirements
regarding the confidentiality of such medical information. The Company
maintains an internal regulatory compliance review program to monitor
compliance with applicable confidentiality requirements, and believes that it
is in substantial compliance with such requirements. Failure to comply with
such confidentiality requirements could result in material liability to the
Company. It is possible that discrimination by insurance companies could occur
through the raising of premiums by insurers to prohibitive levels, the
cancellation of insurance or the unwillingness to provide coverage to patients
shown to have a genetic predisposition to a particular disease. The Company
could experience a delay in market acceptance or a reduction in the size of its
potential serviceable market if insurance discrimination were to become a
significant factor, which would have a material adverse effect on the Company's
business, financial condition and results of operations. Similarly,
governmental authorities could, for social or other purposes, limit the use of
or prohibit genetic predisposition testing. If efforts by the Company and
others to mitigate potential discrimination are not successful or if the use of
genetic testing is limited, the Company could experience a delay or reduction
in market acceptance of its services, which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
Additional Financing Requirements; Access to Capital
The Company has incurred negative cash flows from operations since its
inception. The Company has expended, and will continue to expend, substantial
funds to continue its sales and marketing efforts, research and development
programs and laboratory operations. The Company plans to fund its operations
and capital expenditures from its current cash and future revenues as well as
from other sources. The Company's cash requirements, however, may vary
materially from those now planned because of variations in either the amount or
timing of anticipated revenues or anticipated expenses, relations with
strategic partners, changes in the focus and direction of the Company's
research and development programs, the extent of its sales and marketing
efforts and laboratory operations, the size and timing of any acquisitions,
competitive and
23
<PAGE> 24
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
technological advances and other factors. To the extent that funds generated
from the Company's operations, together with its existing capital resources,
are insufficient to meet the Company's operating requirements, it is likely
that the Company will seek to obtain additional funds through equity or debt
financing and collaborative or other arrangements with corporate partners and
others. The terms and prices of any such financings may be significantly more
favorable to investors than to the Company's existing stockholders. No
assurance can be given that any required additional financing will be available
when needed or on terms acceptable to the Company. If adequate additional
funds are not available, the Company may be required to delay, scale back or
eliminate certain of its research and development programs, its sales and
marketing efforts or certain other aspects of its business or to license to
third parties the rights to commercialize services or technologies that the
Company would otherwise undertake itself. The unavailability of adequate funds
in the future would have a material adverse effect on the Company's business,
financial condition and results of operations.
Limited Sales and Marketing Capacity
The Company has limited experience in selling and marketing genetic testing and
information services and will have to further develop its sales force and/or
rely on collaborators, licensees or others to provide for the sales and
marketing of its services. There can be no assurance that the Company will be
able to establish adequate sales and marketing capacity or make arrangements
with collaborators, licensees or others to perform such activities on
acceptable terms or at all.
Risk of Liability; Adequacy of Insurance Coverage
The marketing and sale of genetic testing and information services could expose
the Company to the risk of certain types of litigation, including medical
malpractice or negligence claims or contract disputes. The Company currently
maintains $10.0 million in medical malpractice insurance coverage. There can
be no assurance, however, that this coverage will be adequate to protect the
Company against future claims or that insurance will be available to the
Company in the future on acceptable terms, if at all. A medical malpractice or
other claim for which the Company was not adequately insured could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Key Management and Qualified Personnel
The Company is highly dependent upon the efforts of its senior management,
scientific advisory board and consultants. The loss of the services of one or
more members of senior management could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the loss of the services of certain members of the Company's
scientific advisory board and certain consultants could materially and
adversely affect the Company to the extent that the Company is pursuing
research and development in areas of such scientific advisors' or consultants'
expertise. Although the Company is the beneficiary of $1 million key-man life
insurance policies on each of its Chief Executive Officer, Timothy J. Triche,
M.D., Ph.D., and its President and Chief Operating Officer, Douglas Dolginow,
M.D., the Company does not believe such amounts would be adequate to compensate
for the loss of either executive. Due to the specialized scientific nature of
the Company's business, the Company is also highly dependent upon its ability
to attract and retain qualified scientific, technical and key management
personnel. There is intense competition for qualified personnel in the areas
of the Company's activities and there can be no assurance that the Company will
be able to continue to attract and retain the qualified personnel necessary for
the development of its existing business and its expansion into areas and
activities requiring additional
24
<PAGE> 25
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations: (Continued)
expertise. The loss of, or failure to recruit, scientific, technical, sales
and marketing and managerial personnel could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's scientific advisors and consultants may be employed by or have
consulting agreements with entities other than the Company, some of which may
compete with the Company. To the extent that members of the Company's
scientific advisory board or consultants have consulting arrangements with or
become employed by any competitor of the Company, the Company could be
materially and adversely affected. Any inventions or processes independently
discovered by the scientific advisors or the consultants will not, unless
otherwise agreed, become the property of the Company and will remain the
property of such persons or their full-time employers. In addition, the
institutions with which the scientific advisors and consultants are affiliated
may make available the research services of their scientific and other skilled
personnel, including the scientific advisors and consultants, to competitors of
the Company pursuant to sponsored research agreements. Under such sponsored
research agreements, such institutions may be obligated to assign or license to
a competitor of the Company patents and other proprietary information that may
result from research sponsored by an entity other than the Company, including
research performed by a scientific advisor or consultant for a competitor of
the Company.
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation grants the Board of Directors the
authority to issue up to 2,000,000 shares of preferred stock of the Company,
par value $0.01 per share (the "Preferred Stock"), in the future in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be materially and adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. Although the Company has no present plans to issue any shares of
Preferred Stock, it may do so in the future. The issuance of Preferred Stock
could have the effect of discouraging a third party from acquiring a majority
of the outstanding Common Stock of the Company and preventing stockholders from
realizing a premium on their shares. In addition, the Company is subject to
Section 203 of the Delaware General Corporation Law (the "DGCL"), which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain
conditions are met.
25
<PAGE> 26
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None.
Item 2 Changes in Securities
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits filed as part of this Form 10-Q
10.34* Term Sheet, dated February 24, 1997, between the Company
and Oncor.
10.35* License, Services and Marketing Agreement, dated
February 25, 1997, between the Company and Incyte
Pharmaceuticals, Inc.
(b) Reports on Form 8-K
In a report filed on Form 8-K dated March 6, 1997, the Company
announced a collaboration with Incyte Pharmaceuticals, Inc.
* Confidential treatment requested.
26
<PAGE> 27
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 thereunto duly authorized.
ONCORMED, INC.
Date: May 14, 1997 /s/ DR. TIMOTHY J. TRICHE
-------------------------------------------------------
Dr. Timothy J. Triche, Chairman and Chief Executive
Officer
Date: May 14, 1997 /s/ DR. DOUGLAS DOLGINOW
-------------------------------------------------------
Dr. Douglas Dolginow, President and Chief Operating
Officer
Date: May 14, 1997 /s/ L. ROBERT JOHNSTON, JR.
-------------------------------------------------------
L. Robert Johnston, Jr., Vice President and Chief
Financial Officer
27
<PAGE> 28
ONCORMED, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
EX-11 Calculation of Earnings Per Share 29
EX-27 Financial Data Schedule 30
( in EDGAR transmission only)
10.34* Term Sheet, dated February 24, 1997, between the Company and Oncor.
10.35* License, Services and Marketing Agreement, dated February 25, 1997, between the
Company and Incyte Pharmaceuticals, Inc.
</TABLE>
* Confidential treatment requested.
28
<PAGE> 1
TERM SHEET
LICENSING ARRANGEMENT
BETWEEN
ONCOR, INC.
AND
ONCORMED, INC.
THIS TERM SHEET CONSTITUTES A BINDING OBLIGATION OF EACH OF ONCOR, INC., A
MARYLAND CORPORATION ("ONCOR"), AND ONCORMED, INC., A DELAWARE CORPORATION
("ONCORMED"). ONCOR AND ONCORMED AGREE TO NEGOTIATE IN GOOD FAITH TO AMEND AND
RESTATE THE EXISTING AGREEMENT (AS DEFINED BELOW). SUCH AMENDED AND RESTATED
AGREEMENT SHALL BE REFERRED TO HEREIN AS THE "NEW AGREEMENT." IN THE EVENT
THAT ANY TERM OR CONDITION OF THE EXISTING AGREEMENT CONFLICTS WITH THE AGREED
UPON TERMS AND CONDITIONS SET FORTH HEREIN, THE TERMS AND CONDITIONS SET FORTH
HEREIN SHALL GOVERN AND CONTROL AND SHALL BE INCORPORATED INTO THE NEW
AGREEMENT AND SUPERSEDE ANY CONFLICTING TERMS AND CONDITIONS OF THE EXISTING
AGREEMENT. THE NEW AGREEMENT, IF AND WHEN EXECUTED, SHALL SUPERSEDE THE
EXISTING AGREEMENT AND THIS TERM SHEET.
AMENDED AND RESTATED TECHNOLOGY LICENSE AGREEMENT
CURRENT ARRANGEMENT Restated Technology License
Agreement, dated as of June 6,
1994 (the "Existing Agreement").
PARTIES Oncor and OncorMed (collectively,
the "Parties").
DEFINED TERMS Capitalized terms used but not
defined herein shall have the
meanings ascribed to such terms
in the Existing Agreement.
IMPROVEMENTS TO ONCOR TECHNOLOGY; In consideration for the
ONCORMED TECHNOLOGY; amendments to the Existing
ASSIGNMENT Agreement set forth herein and
in the New Agreement, OncorMed
agrees that any existing and
future Improvements, whether
discovered, invented, developed
or acquired by OncorMed, to Oncor
Technology or Additional Oncor
Technology shall automatically be
assigned to Oncor without any
further consideration. Oncor
Technology and existing
Improvements to Oncor Technology,
discovered, invented, developed
or acquired by OncorMed, are set
forth on Schedule A hereto.
In consideration for the
amendments to the Existing
Agreement set forth herein and in
the New Agreement, OncorMed shall
be assigned ownership rights to
all existing and future OncorMed
Technology (except Improvements,
whether discovered, invented,
developed or acquired by
OncorMed, to Oncor Technology or
Additional Oncor Technology which
shall automatically be assigned
to Oncor without any further
consideration). Existing
OncorMed Technology is set forth
on Schedule A hereto.
<PAGE> 2
The Parties will take all steps
necessary to promptly perfect the
assignment and transfer of (i)
the Improvements to the Oncor
Technology and (ii) the OncorMed
Technology without any further
consideration.
LICENSE In addition to an exclusive
license set forth in the Existing
Agreement in the OncorMed Defined
Field, the New Agreement shall
provide that Oncor shall license
to OncorMed, on a non-exclusive
basis, the Oncor Technology and
the existing and future
Improvements to Oncor Technology
assigned to it for use in the
"New Defined Field," which shall
be defined as: "The provision by
OncorMed of services direct to
third parties other than the
services that are included in the
OncorMed Defined Field." The
exclusive and non-exclusive
license described in the
immediately preceding sentence
shall be referred to herein as
the "License." OncorMed shall
not have the right to grant
sublicenses of any rights
exclusively licensed to it by
Oncor within the OncorMed Defined
Field pursuant to the terms of
the Existing Agreement or the New
Agreement, except with the prior
written approval of Oncor, which
approval shall not be
unreasonably withheld. OncorMed
shall not have the right to grant
sublicenses of any rights
non-exclusively licensed to it by
Oncor within the New Defined
Field pursuant to the terms of
the Existing Agreement or the New
Agreement, except with the prior
written approval of Oncor, which
approval may be withheld at
Oncor's sole discretion.
<PAGE> 3
PAYMENTS In lieu of the royalty payment
(the "Existing Royalty Payment")
set forth in the Existing
Agreement, the New Agreement
shall provide that OncorMed shall
make payments to Oncor (the "New
Payments") equal to the
percentage set forth below of (1)
OncorMed's annual Net Sales (as
reported in OncorMed's quarterly
and annual reports filed from
time to time with the Securities
and Exchange Commission) less (2)
any such Net Sales as shall be
mutually agreed from time to time
by the Parties ((1) less (2)
shall be referred to as the "Base
Revenue"). The payments due
shall be calculated as follows:
(i) for aggregate annual Base
Revenues of up to (****), the
payment due shall be four percent
(4%) of such Base Revenues, (ii)
for aggregate annual Base
Revenues of between (****) and
(****), the payment due shall be
three percent (3%) of such Base
Revenues, and (iii) for aggregate
annual Base Revenues in excess of
(****), the payment due shall be
two percent (2%) of such Base
Revenues. The payments due shall
be calculated and paid quarterly
in arrears within forty-five (45)
days of the end of the previous
quarter. "Net Sales" shall be
defined as: "gross revenues and
fees due to OncorMed and its
sublicensees (which have been
approved by Oncor) from the sale
of any service less (i) any
allowances actually made and
taken for returns, refunds or
recalls; trade discounts actually
allowed in amounts and for
purposes customary in the trade;
an allowance for actual bad
debts, not to exceed six percent
(6%) of gross revenues and fees;
sales, use, value-added and
similar taxes and duties and
similar governmental assessments;
transportation, packing and
shipping insurance actually paid;
and the direct costs (as
determined in accordance with
generally accepted accounting
principles) to OncorMed and its
sublicensees (which sublicensees
have been approved by Oncor) of
any reagents, chemicals, supplies
and materials used in providing
the service." During the first
year the New Agreement is in
effect, OncorMed shall be
obligated to pay at least a
minimum payment equal to $50,000
per quarter. During the second
year the New Agreement is in
effect, OncorMed shall be
obligated to pay at least a
minimum payment equal to $25,000
per quarter. Thereafter,
OncorMed shall not be obligated
to pay Oncor a minimum payment.
Upon the execution of the New
Agreement, OncorMed shall have no
further obligation to pay the
Existing Royalty Payment Amounts.
The New Payments will go into
effect on April 1, 1997.
**** Denotes language for
which the Company has
requested confidential
treatment pursuant to
the rules and
regulations of the
Securities Exchange Act
of 1934, as amended.
<PAGE> 4
OWNERSHIP RIGHTS Oncor shall own all proprietary
rights, interest in and title to
all (a) Oncor Technology it has
discovered, invented, developed
or acquired, and (b) Additional
Oncor Technology, and that Oncor
alone shall have a direct license
with the licensor of those parts
of the Oncor Technology and
Additional Oncor Technology which
are licensed to Oncor by third
parties. OncorMed shall own all
proprietary rights, interest in
and title to all OncorMed
Technology and that OncorMed
alone shall have a direct license
with the licensor of those parts
of the OncorMed Technology which
are licensed to OncorMed by third
parties. Oncor shall own all
Improvements, whether discovered,
invented, developed or acquired
by OncorMed, to Oncor Technology
and Additional Oncor Technology.
RIGHT OF FIRST OFFER Except for Improvements to Oncor
Technology or Additional Oncor
Technology either discovered,
invented, developed or acquired
by OncorMed and assigned to Oncor
pursuant to the terms set forth
herein, and subject to certain
contractual provisions in which
third parties limit the
transferability of licensed,
assigned or otherwise transferred
technology, prior to the license
or disposition (whether by
assignment or license) to a third
party of Oncor Technology,
Additional Oncor Technology, or
OncorMed Technology (in each case
"Transferable Technology"), the
offering party shall offer the
other party terms for a license
or assignment, and the other
party shall have a thirty (30)
day period in which to license or
acquire the Transferable
Technology on the offered terms.
If the offer is declined or is
not accepted during such period,
the offering party may license or
dispose (whether by assignment,
transfer or license) of the
Transferable Technology to a
third party on terms no more
favorable to the third party than
the terms offered by such
offering party to the other party
to the New Agreement. If the
offer is accepted, the Parties
agree to negotiate in good faith
the terms and conditions of any
such license or acquisition
agreement; provided, however,
that if the Parties are unable to
agree upon the terms and
conditions of any such license or
acquisition agreement within
thirty (30) days of the
acceptance of the offer, the
offering party may license or
dispose (whether by assignment,
transfer or license) of the
Transferable Technology to a
third party on terms no more
favorable to the third party than
the terms offered by such
offering party to the other party
to the New Agreement.
<PAGE> 5
(****) TECHNOLOGY Notwithstanding the right of
first offer referenced above,
(****), OncorMed shall offer
Oncor terms for a license or
assignment of such technology,
and the Parties shall enter into
good faith negotiations for a
license or assignment agreement
on terms and conditions mutually
acceptable to both Parties. In
the event that the Parties are
not able to reach agreement
within ninety (90) days from the
date Oncor first receives such
offer, then OncorMed shall be
entitled to license or assign
such technology to third parties
on terms that are no more
favorable to the third party than
the final terms offered by
OncorMed to Oncor during such
ninety (90) day period (the
"Consideration Period").
(****) TECHNOLOGY At any time prior to the end of
the Consideration Period, Oncor
can exercise a right to enter
into a sublicense for any (****)
technology licensed, acquired or
developed by OncorMed in which
(i) (****) and (ii) (****).
PROPRIETARY RIGHTS Oncor will retain the right and
discretion to apply for,
prosecute, maintain and defend
all Proprietary Rights in the
Oncor Technology, the Additional
Oncor Technology and the
Improvements thereto discovered,
invented, developed or acquired
by OncorMed. OncorMed will
retain the right and discretion
to apply for, prosecute, maintain
and defend all Proprietary Rights
in the OncorMed Technology (other
than Improvements, whether
discovered, invented, developed
or acquired by OncorMed, to Oncor
Technology and Additional Oncor
Technology).
PUBLICATIONS OncorMed shall be entitled at its
sole discretion to make any
publication, public announcement,
press release or other disclosure
which incorporates or makes
reference to OncorMed Technology
(other than Improvements, whether
discovered, invented, developed
or acquired by OncorMed, to Oncor
Technology and Additional Oncor
Technology). OncorMed shall have
no obligation to inform Oncor of
any such publication, public
announcement, press release or
other disclosure.
**** Denotes language for
which the Company has
requested confidential
treatment pursuant to
the rules and
regulations of the
Securities Exchange Act
of 1934, as amended.
<PAGE> 6
ENFORCEMENT Oncor shall have the sole right
to enforce any Proprietary Right
to the Oncor Technology, the
Additional Oncor Technology and
the Improvements thereto
discovered, invented, developed
or acquired by OncorMed.
OncorMed shall have the sole
right to enforce any Proprietary
Right to the OncorMed Technology
(other than Improvements, whether
discovered, invented, developed
or acquired by OncorMed, to Oncor
Technology and Additional Oncor
Technology).
CHANGE IN CONTROL (****)
CONFIDENTIALITY Section 12(c) of the Existing
Agreement shall be amended to
read as follows: "Upon any
termination of this Agreement,
each party will promptly return
or destroy any Proprietary
Information of the other and any
copies, extracts and derivatives
thereof, except as otherwise set
forth in this Agreement;
provided, however, that each
party shall be entitled to retain
one copy of such Proprietary
Information for its corporate
files solely for use in any
litigation or dispute involving
such Proprietary Information.
**** Denotes language for
which the Company has
requested confidential
treatment pursuant to
the rules and
regulations of the
Securities Exchange Act
of 1934, as amended.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Term
Sheet as of the 24th day of February, 1997.
ACCEPTED AND AGREED:
ONCOR, INC.
By: /s/ Cecil Kost
---------------------------------------
Name: Cecil Kost
-------------------------------------
Title: President and COO
------------------------------------
ONCORMED, INC.
By: /s/ Doug Dolginow
---------------------------------------
Name: Doug Dolginow
-------------------------------------
Title: President
------------------------------------
<PAGE> 8
SCHEDULE A
I. (****)
II. (****)
III. (****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
<PAGE> 1
LICENSE, SERVICES AND MARKETING AGREEMENT
THIS LICENSE, SERVICES AND MARKETING AGREEMENT (the "Agreement") dated
as of February 25, 1997 (the "Effective Date"), is entered into between Incyte
Pharmaceuticals, Inc., a Delaware corporation ("Incyte"), having a place of
business located at 3174 Porter Drive, Palo Alto, CA 94304, and OncorMed, Inc.,
a Delaware corporation ("OncorMed"), having a place of business located at 205
Perry Parkway, Gaithersburg, MD 20877.
W I T N E S S E T H:
WHEREAS, Incyte owns or has rights in certain patent rights and
know-how regarding certain high-throughput DNA sequencing, cloning, gene
expression profiling, and data analysis technologies; and
WHEREAS, Incyte has compiled and is compiling, and owns, certain
information and data regarding certain cDNAs (as defined below) and genomic
DNAs in confidential databases which may be useful in human diagnostics and
prognostics; and
WHEREAS, Incyte owns or has rights in certain rights and know-how
regarding certain cDNAs as well as certain of the proteins they encode; and
WHEREAS, OncorMed has expertise in gene function characterization; and
WHEREAS, OncorMed owns or has rights in certain patent rights and
know-how regarding certain technologies associated with DNA analysis and has
expertise in developing diagnostic services; and
WHEREAS, OncorMed can procure human cells and tissues which are
removed for the purpose of patient care and diagnosis, the advancement of
medical research or education and/or discarded; and
WHEREAS, OncorMed desires to cooperate with Incyte for the purposes of
providing Incyte with cells and tissues and coordinating access to the Tissue
Repository (as defined below) utilizing such tissues and in exchange for
Incyte's funding the
1
<PAGE> 2
development of the Tissue Repository and for OncorMed's gaining access to the
Tissue Repository and Tissue Repository Database (as defined below) provided by
Incyte; and
WHEREAS, OncorMed desires to utilize certain gel-based sequencing
technology owned by Incyte for its sequence-based human diagnostics business;
and
WHEREAS, Incyte desires to secure access to technology and rights to
intellectual property resulting from research performed by OncorMed utilizing
Incyte's proprietary DNA sequences, gel based sequencing technology, and/or
other technology of Incyte's provided at Incyte's discretion to OncorMed.
WHEREAS, simultaneous and in connection with entering into this
Agreement, Incyte will purchase 372,555 shares of Common Stock of OncorMed for
$3,000,000 pursuant to the Securities Purchase Agreement between Incyte and
OncorMed.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of the Agreement, the terms defined in this Article 1 shall have
the respective meanings set forth below:
1.1 "Affiliate" shall mean shall mean an entity directly or indirectly
controlling, controlled by or under common control with a Party, where control
means the ownership or control, directly or indirectly, of more than fifty
percent (50%) of all of the voting power of the shares (or other securities or
rights) entitled to vote for the election of directors or other governing
authority, as of the Effective Date or hereafter during the Term of this
Agreement; provided that such entity shall be considered an Affiliate only for
the time during which such control exists.
2
<PAGE> 3
1.2 "cDNA" shall mean a DNA copy of human mRNA.
1.3 "Collaborative Inventions" shall mean any patentable discovery,
improvement, or invention conceived of or reduced to practice by OncorMed and
Incyte personnel during and under this Agreement using Licensed Technology
which are not Incyte Technology, Gene Product Inventions, Technology
Improvements, or Inventions under OncorMed Technology. Any Inventions that are
Collaborative Inventions will be mutually agreed to be such by the Development
Team from time to time.
1.4 "Collaborative Services" shall mean the Gene Functional Studies
Program, Tissue Repository Services and/or any other services which the Parties
mutually agree in writing shall be provided by OncorMed to Incyte during and
under the Term of this Agreement all as set forth in Annex A hereto, as such
Annex A is amended from time to time during the term of this Agreement in
accordance with Section 13.4 hereof.
1.5 "DNA Sequence Information" shall mean any human nucleotide sequence
provided by Incyte to OncorMed.
1.6 "Fair Market Value" shall mean the price or value that would be paid
by a Third Party purchaser in an arm's-length transaction.
1.7 "Full Length Clone(s)" shall mean with respect to a given human gene a
specific, purified cDNA clone containing the nucleotide sequence of the entire
amino acid coding region of such human gene.
1.8 "Gel-Based Sequencing Technology" shall mean technology, whether or
not patentable, developed by Incyte prior to, and during the term of this
Agreement, used by Incyte in its high throughput slab gel-based DNA sequencing
operation, provided to OncorMed during and under this Agreement. and described
in Annex C to this Agreement, as such annex may be amended from time to time
during the term of the Agreement in accordance with Section 13.4 hereof.
1.9 "Gene Functional Studies Program" shall mean functional analyses of
Gene Products, that are provided by OncorMed to Incyte.
3
<PAGE> 4
1.10 "Gene Product Invention(s)" shall mean Invention(s) made by OncorMed
utilizing a Gene Product provided by Incyte to OncorMed during and under this
Agreement.
1.11 "Gene Product(s)" shall mean any DNA Sequence Information or cDNA
clone(s) corresponding to a given gene, and materials that are developed or
derived therefrom, or are based thereon (including without limitation, partial
cDNAs, DNAs, genes, full length cDNAs corresponding thereto, RNAs, peptides,
polypeptides and proteins encoded thereby).
1.12 "Incyte Technology" shall mean all technology owned by Incyte,
including, but not limited to, all patents, patent applications, technical
information, data, materials, apparatuses, know-how and other proprietary
rights, including the Research Information, Gel-Based Sequencing Technology,
Technology Improvements, Gene Products provided by Incyte to OncorMed, Gene
Product Inventions, the LifeSeq Database and Transcript Imaging analysis
technology, proprietary to Incyte, which, on the Effective Date of this
Agreement, or at any time during the term of this Agreement, Incyte owns or has
a right to license. Incyte Technology shall not include Collaborative
Inventions.
1.13 "Invention(s)" shall mean any patentable discovery, improvement, or
invention conceived of or reduced to practice by OncorMed utilizing Licensed
Technology or a Gene Product provided to OncorMed by Incyte during and under
this Agreement including, but not limited to, new uses, processes, methods,
formulas and techniques. Inventorship, which may or may not include Incyte
personnel, is to be established in accordance with U.S. patent law.
1.14 "Licensed Technology" shall mean the technology, including Gel-Based
Sequencing Technology and Gene Product(s) which Incyte provides to OncorMed and
describes in writing in Annex C to this Agreement, as such annex shall be
amended from time to time during the term of the Agreement in accordance with
Section 13.4 hereof.
4
<PAGE> 5
1.15 "Licensing Revenues" shall mean (****)
1.16 "Net Sales" shall mean (****)
1.17 "OncorMed Clinical Diagnostic Services" shall mean mutation analysis
information provided for a fee or other consideration by OncorMed to Third
Parties relating to an analysis of individual genes.
1.18 "OncorMed Technology" shall mean all technology owned by OncorMed and
any discovery or invention (whether or not patentable) conceived of or reduced
to practice by OncorMed: 1) without use of Incyte Technology as can be
documented by written record created at the time of such independent discovery
or invention, or 2) utilizing the Gel-Based Sequencing Technology or Technology
Improvements solely for purposes of the OncorMed Clinical Diagnostic Services,
and which are not Technology Improvements, Gene Product Inventions or
Collaborative Inventions.
1.19 "Party" shall mean Incyte or OncorMed.
1.20 "Person" shall mean an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.21 "Research Information" shall mean all data, know-how, information,
conclusions and reports produced by OncorMed under the Collaborative Services
pursuant to this Agreement.
1.22 "Technology Improvements" shall mean patents and patent applications,
as well as technical information, data, materials, apparatuses, know-how and
other proprietary rights, whether patentable or not, resulting from OncorMed's
use of Licensed Technology, which are modifications, improvements and
enhancements to such Licensed Technology made by OncorMed during the term (as
defined in 2.3.1 hereof) of this Agreement.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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1.23 "Territory" shall mean the United States, Mexico and Canada.
1.24 "Third Party" shall mean any Person other than Incyte and OncorMed.
1.25 "Tissue Repository" shall mean a repository of human tissue samples
collected by OncorMed, along with corresponding non-confidential patient and
other information with respect to such tissue samples as described in Annex B
to the Agreement, as such Annex shall be amended from time to time during the
term of this Agreement.
1.26 "Tissue Repository Database" shall mean Incyte's relational database
which will contain information provided by the Tissue Repository Services.
1.27 "Tissue Repository Services" shall mean those services pursuant to
which OncorMed will create the Tissue Repository as described in Annex B to the
Agreement, as such Annex shall be amended from time to time during the Term of
this Agreement.
ARTICLE 2
COLLABORATIVE SERVICES
2.1 Performance of Services. During the term of this Agreement, OncorMed,
under the direction of Dr. Douglas Dolginow, or a mutually acceptable
alternate, shall perform the Collaborative Services in accordance with the
Annexes attached hereto and pursuant to the terms and conditions set forth in
this Agreement. In connection therewith, OncorMed will furnish the personnel,
equipment and facilities that OncorMed deems necessary to carry out such
Collaborative Services.
2.2 Collaborative Services.
2.2.1 Tissue Repository Services. OncorMed will provide the Tissue
Repository Services in accordance with the specifications set forth in
Annex B to the Agreement. During the term of this Agreement, Incyte
will provide OncorMed with reasonable access to the Tissue Repository
and Tissue Repository Database; provided that Incyte shall have the
first right to designate tissues for Incyte's
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exclusive use. Incyte will own the Tissue Repository and retain the
sole right to commercialize the Tissue Repository; provided, however,
that if Incyte elects not to maintain the Tissue Repository, OncorMed
may maintain such Tissue Repository on terms to be agreed between the
Parties.
2.2.2 Gene Functional Studies Program. OncorMed will perform the
Gene Functional Studies Program in accordance with the specifications
set forth in Annex D. Incyte shall select specific DNA Sequence
Information of interest for study and will provide to OncorMed Gene
Product(s) corresponding to such DNA sequences, as available. The
Development Team (as defined herein) will develop a (brief) written
plan for studies on the Gene Product(s) provided by Incyte to
OncorMed, setting forth the scope of each gene function study to be
undertaken. A description of the scope of each plan is included in
Annex D, to be amended from time to time during the Term of this
Agreement.
2.2.3 Other Collaborative Services. The Parties, by mutual
agreement, may identify additional Collaborative Services to be
provided by OncorMed during the Term of this Agreement.
2.3 Term of Collaborative Services.
2.3.1 Term. The Term of this Agreement shall commence on the
Effective Date hereof and continue for a period of three (3) years
thereafter unless earlier terminated pursuant to Article 9 (the
"Term").
2.3.2 Extended Term. The Parties may, by mutual agreement, extend
the Term of this Agreement. If each Party agrees to extend the Term
of this Agreement under this Section 2.3.2, each Party agrees to
negotiate in good faith on a project-by-project basis, the fee to be
paid by Incyte for such continued services, it being understood that
Incyte shall no longer be obligated to purchase any minimum dollar
amount of such services.
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2.4 Funding of the Collaborative Services.
2.4.1 (****)
2.4.2 (****)
2.4.3 (****)
2.5 Records and Reports.
2.5.1 Records. OncorMed and Incyte each shall maintain records, in
sufficient detail and in good scientific manner appropriate for patent
purposes, which shall be complete and accurate and shall fully and
properly reflect all work done and results achieved in the performance
of the Collaborative Services (including all data in the form required
under all applicable laws and regulations). OncorMed will maintain
accounting records of expenditures on performance of Collaborative
Services in sufficient detail for Incyte to verify OncorMed's use of
funding provided by Incyte pursuant to Section 2.4.
2.5.2 Inspection of Records. Incyte shall have the right, at its own
expense during normal business hours and upon reasonable notice, to
inspect and copy all such records of OncorMed relating to the
Collaborative Services to the extent reasonably required for Incyte to
protect its interests under the Agreement relating to (i) accounting
for and reconciling records of expenditures relating to OncorMed's
performance of the Collaborative Services and (ii) scientific records
and notes and other materials relating to Gene Product Inventions and
Technology Improvements and Research Information. Incyte shall
maintain such records and the information of OncorMed contained
therein in confidence and shall not use such records or information
except to the extent otherwise permitted by the Agreement.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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2.6 Development Team.
2.6.1 Composition of the Development Team. The Collaborative
Services shall be conducted under the direction of the development
team comprised of three (3) representatives of Incyte and three (3)
representatives of OncorMed (the "Development Team"). The initial
representatives of each Party on the Development Team are set forth on
Annex E attached hereto. Any substitution of its representatives by
either Party will be mutually agreed upon.
2.6.2 Meetings. The Development Team shall meet not less than once
each calendar quarter during the Term of the Agreement unless
otherwise agreed, on such dates and at such times and places as agreed
to by Incyte and OncorMed, alternating between the sites of Incyte and
OncorMed, or such other locations as the Parties shall mutually agree.
Each Party will pay its own expenses relating to the attendance of its
representatives at such meetings. At such meetings, the Development
Team shall determine the scope, priority and Fair Market Value of the
Collaborative Services.
2.6.3 Development Team Reports. Within thirty (30) days following
each Development Team meeting during the Term of this Agreement unless
otherwise agreed, OncorMed shall prepare and provide to each Party a
reasonably detailed written summary report which shall (a) describe
the work performed to date on the Collaborative Services, (b) evaluate
the work performed in relation to the goals of the Collaborative
Services set forth in Annex A, (c) state any determination of the
Development Team not to proceed with any of the Collaborative Services
or any specific project or component thereof, (d) evaluate the results
of Collaborative Services performed to date, and (e) state any
determination of the Development Team regarding any anticipated
regulatory submissions with respect to such Collaborative Services.
2.6.4 Dispute Resolution. All disagreements within the Development
Team with respect to the projects to be performed as the Collaborative
Services and the Fair Market Value of such services shall be resolved
by the presentation of the dispute by the representatives of the
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<PAGE> 10
Development Team to the chief executive officer of each of Incyte and
OncorMed. Such executives shall meet to discuss each Party's view and
to explain the basis for their respective positions of such
disagreement, and in good faith shall attempt to resolve such
disagreement among themselves. If such executives cannot resolve a
dispute within 15 days, the disputed project(s) will not be performed.
2.7 Fair Market Value of Collaborative Services. The determination of the
Fair Market Value of the Collaborative Services shall be made by the
Development Team prior to the initiation of each project, taking into
consideration standard industry rates for comparable services, when available,
as well as other criteria, including but not limited to, the time within which
the services are required to be provided, the volume of services and priority
requested for such services.
2.8 (****)
2.9 Provision of Collaborative Services to Third Parties. In the event
that the Parties agree that OncorMed will perform other Collaborative Services
pursuant to Section 2.2.3 hereof on behalf of a Third Party, OncorMed shall
have the right to approve the terms and conditions (other than the price
payable by the Third Party to Incyte) of such Collaborative Services.
2.10 Revenues for Collaborative Services. All revenues resulting from
commercialization of the Collaborative Services solely funded by Incyte shall
be retained by Incyte. Any revenues generated from commercialization of any
additional Collaborative Services provided pursuant to Section 2.2.3 of the
Agreement and funded jointly by Incyte and OncorMed will be allocated to the
Parties pro rata according to the relative contributions of each Party.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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ARTICLE 3
HEREDITARY CANCER INSTITUTE DATA BASE
OncorMed and Incyte hereby agree, to the extent that Incyte has an interest
therein, to negotiate in relation to the grant of rights from OncorMed to
Incyte for the Hereditary Cancer Institute Database, to the extent that
OncorMed has the right to grant rights thereunder. The Parties also hereby
confirm that no consideration has been received by OncorMed in respect of the
foregoing understanding that the Parties may negotiate a sublicense to the
Hereditary Cancer Institute Database in favor of Incyte.
ARTICLE 4
LICENSED TECHNOLOGY
4.1 Licensed Technology. Incyte hereby grants to OncorMed a non-exclusive,
royalty-free license during the Term of this Agreement (without the right to
sublicense) to the Licensed Technology, the Technology Improvements. Research
Information, the Tissue Repository, the Tissue Repository Database, and the
Gene Product Inventions to use such Licensed Technology, the Technology
Improvements, Research Information, the Tissue Repository, the Tissue
Repository Database, and the Gene Product Inventions solely for the purpose of
providing the Collaborative Services.
4.2 Gel-Based Sequencing Technology.
4.2.1 License during Term of Agreement. Incyte hereby grants
OncorMed a non-exclusive, royalty-bearing license (without the right
to sublicense) to use Incyte's Gel-Based Sequencing Technology and the
Technology Improvements for use solely in OncorMed Clinical Diagnostic
Services during the Term of this Agreement.
4.2.2 License after Termination of Agreement. Incyte hereby grants
OncorMed a non-exclusive royalty-bearing license to the Gel-Based
Sequencing Technology and Technology Improvements, as set forth in
Annex C hereof as of the date of termination of this Agreement, solely
for
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use in OncorMed Clinical Diagnostic Services, which license shall
commence upon the termination of this Agreement and terminate five
years thereafter; provided, however that this license shall not take
effect if this Agreement is terminated pursuant to Section 9.2 hereof.
The royalty rate payable by OncorMed for such license shall be
re-negotiated by the parties on the first and third anniversaries of
the termination of this Agreement.
4.2.3 Sites Licensed to use Gel-Based Sequencing Technology.
OncorMed agrees to notify Incyte in writing of all sites where Gel
Based Sequencing Technology is installed as long as OncorMed retains
a license to such Gel Based Sequencing Technology from Incyte.
4.3 No Implied Licenses. No implied right or license is granted to
OncorMed to utilize the Incyte Technology in a manner not expressly included
within the scope of the licenses granted pursuant to this Agreement. OncorMed
may not transfer any Incyte Technology to any Third Party for any purpose.
ARTICLE 5
PAYMENTS AND ROYALTIES
5.1 Consideration for License to Gel-Based Sequencing Technology. In
consideration for the license to the Gel-Based Sequencing Technology and the
Technology Improvements granted to OncorMed in Section 4.2 above, during the
term of the license to the Gel Based Sequencing Technology , OncorMed shall pay
to Incyte a royalty (****). If OncorMed intends to offer additional OncorMed
Clinical Diagnostics Services which utilize the Gel-Based Sequencing Technology
or Technology Improvements, OncorMed shall pay to Incyte royalties which shall
be determined by mutual written agreement of the Parties prior to any sales of
such services. All payments due under this Section 5.1 shall be made within 30
days of the end of the calendar quarter in which the revenues for sales are
received. (****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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5.2 Fee Payments on Gene Product Inventions. Incyte will pay OncorMed a
percentage of Licensing Revenues in accordance with the guidelines outlined in
schedule of payments attached hereto as Annex F (the "Gene Product Invention(s)
Fee"). (****)
5.3 Records Retention. OncorMed and Incyte each agree to keep for at
least three (3) years records of all revenues they receive related to this
Agreement in sufficient detail to permit the other Party to confirm the
accuracy of its payment calculations; provided, however that with respect to
Incyte's providing of records to OncorMed, that the identity of other
Contributing Institutions and the nature of their contributions and any other
information (except for information as to the amount and the percentage of
Licensing Revenues paid to Contributing Institutions), with respect to other
Contributing Institutions which Incyte is contractually bound to keep
confidential shall not be disclosed to OncorMed. Once a year, at the request
and the expense of the requesting Party, upon at least five (5) days' prior
written notice, the non-investigating Party shall permit a nationally
recognized, independent, certified public accountant appointed by the
requesting Party and acceptable to the non-investigating Party, to examine
these records solely to the extent necessary to verify such calculations,
provided that such accountant has entered into a confidentiality agreement with
the requesting Party substantially similar to the confidentiality provisions of
this Agreement, limiting the use and disclosure of such information to purposes
germane hereto. Results of any such examination shall be made available to
both Incyte and OncorMed. If such examination reveals an underpayment by 10% or
more, the non-investigating Party shall pay all costs of such examination. In
the event such accountant concludes that additional payments were owed, the
additional royalties shall be paid within 30 days of the date the requesting
Party delivers to the other Party such accountant's written report so
concluding.
5.4 Expenses. Unless otherwise agreed or provided herein, Incyte and
OncorMed will each be responsible for its own expenses hereunder.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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5.5 Late Payments. Late payments by either Party under this Agreement
shall incur interest at the rate of 1.5% per month. A payment shall be deemed
to be late if made more than five (5) business days after such payment is due
under this Agreement.
ARTICLE 6
INTELLECTUAL PROPERTY
6.1 (****)
6.2 Rights to OncorMed Technology. OncorMed retains all rights to the
OncorMed Technology. Incyte may not transfer any OncorMed Technology it may
receive from OncorMed to any Third Party for any purpose.
6.3 Ownership of Collaborative Inventions. All Collaborative Inventions
will be co-owned by Incyte and OncorMed, with each Party owning 50% title in
such Collaborative Invention(s).
6.4 Patent Prosecution, Maintenance, Enforcement and Defense. (****)
shall be responsible for and shall control the preparation, filing,
prosecution, maintenance, enforcement and defense of all patents and patent
applications, copyrights and other proprietary rights related to the Gene
Product Inventions, Technology Improvements, and Collaborative Inventions.
(****) shall pay all costs incurred in connection with Gene Product Inventions
and Technology Improvements, and (****) and (****) shall each pay half of all
costs incurred in connection with Collaborative Inventions.
6.5 Ownership of Patents Refused by (****). If (****) notifies (****) in
writing that (****) refuses to file a patent application for any Gene Product
Invention or Collaborative Invention, (****) shall have the right, at its sole
expense, to prepare and file patent applications it deems desirable to protect
such Invention if mutually agreed by (****). If (****) exercises the foregoing
right, (****) agrees to provide reasonable cooperation in connection with the
foregoing to (****). Rights to such Invention(s) shall be mutually agreed by
the Parties.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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6.6 Cooperation. As part of the Collaborative Services (****) undertakes
that it shall do all things which are reasonably necessary or desirable to
enable (****) to evaluate all Inventions made or developed by (****) during and
under this Agreement for possible patent protection by (****). (****) shall do
all things which are reasonably necessary or desirable in order for (****) to
establish, maintain and assert any patent rights, including the execution of
all documents necessary or desirable so that title or other rights can be
established by (****) and maintained and so that any patent filings for Gene
Product Inventions and Technology Improvements can be made, prosecuted and
maintained by (****) in accordance with its standard practice for protection of
its intellectual property. Such actions shall include provision by (****) to
(****) of Full Length Clone(s) corresponding to a Gene Product from partial
cDNA clone(s) provided by (****) to (****) under Article 2 hereof. (****)
undertakes that it shall identify to (****) any technology owned by Third
Parties (the "Enabling Technology") of which (****) becomes aware during the
term of the Agreement which is necessary to (****) for use of the Licensed
Technology to provide the Collaborative Services in order for (****) to
negotiate with any such Third Party to obtain access to the Enabling
Technology. Any licensing or other fees required to be paid to Third Parties in
order for (****) to obtain access to the Enabling Technology shall be paid by
(****).
ARTICLE 7
REPRESENTATIONS AND WARRANTIES, COVENANTS AND CLOSING CONDITIONS
7.1 Authorization and Enforcement of Obligations. Each Party hereby
represents and warrants to the other Party that such Party has the corporate
power and authority and the legal right to enter into the Agreement to perform
its obligations hereunder and to grant the licenses granted hereunder.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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7.2 No Consents. Each Party hereby represents and warrants to the other
Party that all necessary consents, approvals and authorizations of all
governmental authorities and other Persons required to be obtained by such
Party in connection with the Agreement have been obtained.
7.3 No Conflict. Each Party hereby represents and warrants to the other
Party that the execution and delivery of the Agreement and the performance of
such Party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable laws or regulations, and (b) do not conflict with, or
constitute a default under, any contractual obligation of it. As of the
Effective Date, such Party is not a party to any currently pending claim,
action, suit or proceeding related in any way to such Party's Technology.
7.4 No Enabling Technology. Incyte represents and warrants that, as of
the Effective Date, it is not aware of any Enabling Technology necessary for
OncorMed's use of the Licensed Technology, provided that OncorMed follows the
protocol specified by Incyte and utilizes the reagents from the vendor
specified by Incyte.
7.5 Licensed Technology. Incyte represents and warrants that, as of the
Effective Date, to Incyte's knowledge, without having performed any searches or
investigations, there are no Third Party interests or claims to the Licensed
Technology.
7.6 No Third Party Rights. OncorMed represents and warrants that, as of
the Effective Date, (i) it is not a party to any agreements with any Third
Parties which would give rise to any rights or claims of such Third Party to
Invention(s) and Technology Improvements developed by OncorMed under this
Agreement and, (ii) in order to perform the Collaborative Services specified in
the Annexes hereto, as may be amended from time to time, OncorMed does not need
to use any technology owned by or to which a Third Party has rights.
7.7 DISCLAIMER OF WARRANTIES.
7.7.1 EXCEPT FOR THE FOREGOING PROVISIONS OF THIS ARTICLE 7, NOTHING
IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY GIVEN OR
REPRESENTATION MADE BY INCYTE THAT THE USE OF ANY LICENSE GRANTED
HEREUNDER OR THE USE OF THE LICENSED TECHNOLOGY WILL NOT INFRINGE THE
PATENT RIGHTS OF ANY OTHER PERSON. FURTHERMORE, INCYTE MAKES NO
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REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
LICENSED TECHNOLOGY AS TO ITS ACCURACY, COMPLETENESS, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. ONCORMED ACKNOWLEDGES THAT
INCYTE PROVIDES SEQUENCING INFORMATION ON AS-IS BASIS AND SUCH
INFORMATION MAY CONTAIN ERRORS. INCYTE EXPRESSLY DISCLAIMS THE
FITNESS OF THE LICENSED TECHNOLOGY FOR USE IN THE DIAGNOSIS OF HUMAN
DISEASE.
7.7.2 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY
GIVEN OR REPRESENTATION MADE BY ONCORMED THAT THE ONCORMED TECHNOLOGY,
COLLABORATIVE SERVICES, THE TISSUE REPOSITORY OR THE USE OF THE DATA
FROM GENE FUNCTION STUDIES WILL NOT INFRINGE THE PATENT RIGHTS OF ANY
OTHER PERSON. FURTHERMORE, ONCORMED MAKES NO REPRESENTATIONS OR
WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO THE ONCORMED TECHNOLOGY,
THE DATA FROM THE GENE FUNCTION STUDIES, THE TISSUE REPOSITORY OR
COLLABORATIVE SERVICES AS TO THEIR ACCURACY, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. INCYTE
ACKNOWLEDGES THAT ONCORMED PROVIDES THE ONCORMED TECHNOLOGY, THE DATA
FROM GENE FUNCTION STUDIES, THE COLLABORATIVE SERVICES AND THE TISSUE
REPOSITORY ON AN AS-IS BASIS AND THAT SUCH DATA, TISSUES OR SERVICES
MAY CONTAIN ERRORS.
7.8 Covenant of OncorMed on Tissue Repository. Prior to obtaining tissues
for inclusion in the Tissue Repository, OncorMed will obtain all necessary
patient consents, releases, permits and other authorization required by all
applicable federal, state, local and foreign governmental authorities and
agencies thereof for the collection and use of human tissue samples from such
patients . Such consents, releases, permits and authorizations will provide for
the release of such tissue samples at no cost to Incyte.
7.9 Compliance with Laws. Each Party will comply with all applicable laws,
ordinances and regulations of federal, state, local and foreign governmental
authorities and agencies thereof with respect to the performance of its
obligations under the Agreement.
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7.10 (****)
7.11 Execution of Proprietary Information and Inventions Agreement. Each
employee of OncorMed that performs work on the Collaborative Services or
otherwise has access to the Licensed Technology, Technology Improvements or
Gene Product Inventions shall have executed a Proprietary Information and
Invention Agreement in the form attached hereto as Annex G prior to obtaining
access to the Licensed Technology, Technology Improvements, or Gene Product
Inventions.
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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ARTICLE 8
CONFIDENTIALITY AND PUBLICATION
Unless otherwise agreed in writing, each Party agrees to hold in
confidence and not disclose to any Third Party Information received from the
other Party. For purposes of this Agreement, "Information" shall mean
technical and business information belonging to each Party, including, where
appropriate and without limitation, any information, business, financial,
scientific data, transcript and nucleic acid sequence data, patent disclosures,
patent applications, structures, models, techniques, processes, software and
hardware configurations, compositions, compounds, apparatus and the like.
All Incyte Technology and OncorMed Technology is hereby confirmed to
be confidential under the terms of this Agreement.
The foregoing obligation shall not apply to Information which:
(a) the receiving Party can demonstrate by record, either
in print or electronic media, had been previously discovered by or was
known to the receiving Party prior to the time of receipt; or
(b) was in the public domain at the time of receipt by
the receiving Party; or
(c) becomes part of the public domain through no fault of
the receiving Party; or
(d) is lawfully received by the receiving Party from a
Third Party having a right to disclose it to the receiving Party; or
(e) is required to be disclosed in a judicial or
administrative proceeding or to an administrative agency after all
reasonable legal remedies or steps for maintaining such information in
confidence have been utilized; or
(f) the receiving Party independently discovered or
developed the Information without the aid, application, or
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use of Information, as can be documented by written records created at
the time of such independent discovery or development.
Neither Party may use the confidential Information or the other Party for any
purpose except as specifically provided in this Agreement.
ARTICLE 9
TERMINATION
9.1 Termination by Incyte.
9.1.1 Prior to the expiration of the Term of this Agreement in
accordance with Section 2.3.1 or 2.3.2, Incyte shall submit written
notice of its intention to terminate specifying the reasons for such
termination and the actions, if any, that OncorMed may take to
remediate the circumstances giving rise to such notice of termination.
If OncorMed does not take appropriate action to remediate the
circumstances set forth in Incyte's notice to Incyte's satisfaction
within ten (10) business days of receipt of such notice, this
Agreement is terminated and OncorMed will promptly return to Incyte
all remaining funds paid by Incyte pursuant to Section 2.4 hereof, or
other funding pursuant to any extension under Section 2.3.2, which
have not been expended in paying the Fair Market Value of the
Collaborative Services in accordance with Annex A hereto.
9.1.2 Incyte shall have the right to earlier terminate this
Agreement in accordance with the provisions of Section 9.1.1 hereof in
the event that (****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
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9.2 Termination for Change of Control Either Party may terminate this
Agreement upon a Change of Control of the other Party. "Change of Control" for
purposes of this Section 9.2 shall mean (i) the consolidation of a Party with
or merger of a Party with or into any Third Party pursuant to which the
stockholders of a Party immediately prior to such consolidation or merger will
not own, immediately after such consolidation or merger, at least a majority of
the voting power of the surviving entity's voting securities or (ii) an event
or series of events as a result of which more than 50% of the combined voting
power of the then outstanding securities of a Party entitled to vote generally
in the election of directors becomes beneficially owned by one Third Party or
group of Third Parties. "Group" and "beneficial ownership" for purposes of the
preceding sentence shall have the meanings set forth in Section 13(d)(1) of the
Securities Exchange Act of 1934, as amended, and Rules 13d-3 and 13d-5 under
such Act. Upon termination of this Agreement pursuant to this Section 9.2, the
licenses granted by Incyte to OncorMed pursuant to Sections 4.1 and 4.2.1 will
terminate.
9.3 Termination for Cause. Either Party may terminate this Agreement upon
or after the breach of any material provision of this Agreement by the other
Party if the other Party has not cured such breach within thirty (30) days
after notice thereof by the non-breaching Party. Upon termination of this
Agreement pursuant to this Section 9.2, the licenses granted by Incyte to
OncorMed pursuant to Section 4.1 and 4.2.1 will terminate.
9.4 Effect of Expiration or Termination.
9.4.1 Expiration or termination of this Agreement shall not relieve
the Parties of any obligation accruing prior to such expiration or
termination, and the provisions of Sections 4.2.2, 5.1, 5.2, 5.3, 5.5,
and 9.4 and Articles 6, 7, 8, 10, 12 and 13 any causes of action
arising under this Agreement shall survive the expiration or
termination of this Agreement.
9.4.2 Upon termination of this Agreement pursuant to Section 9.2
hereof, OncorMed shall, at Incyte's written request, return or destroy
all materials and records associated with Research Information,
Licensed Technology, Technology Improvements and Gene Product
Inventions.
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9.4.3 Upon termination of the license(s) granted by Incyte to
OncorMed under Section 4.2.2 of this Agreement, OncorMed shall, at
Incyte's written request, return or destroy all records associated
with Gel Based Sequencing and Technology Improvements.
9.4.4 Upon expiration of the Term of this Agreement, or upon
termination of this Agreement pursuant to Section 9.1 or 9.3 hereof,
OncorMed shall, at Incyte's written request, return or destroy all
materials and records associated with Research Information, Technology
Improvements, and Gene Product Inventions.
9.4.5 Notwithstanding the above, one copy of each record regarding
Gel-Based Sequencing Technology and Technology Improvements specified
in Annex C of this Agreement may be retained at the New York office of
Brobeck, Phleger and Harrison solely such that such record may be made
available to OncorMed as required for purposes of regulatory
compliance.
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 Indemnification by OncorMed. OncorMed shall indemnify and hold Incyte
harmless from all losses, liabilities, damages and expenses, including
reasonable attorneys' fees and costs resulting from any claim, demand, action
or proceeding by a Third Party arising out of any breach of this Agreement by
OncorMed or any act or omission of OncorMed in connection with (i) its
collection, use and storage of human tissues for the Tissue Repository and (ii)
its performance of the Collaborative Services and Tissue Repository Services.
10.2 Indemnification and Insurance for OncorMed Clinical Diagnostic
Services. OncorMed shall maintain liability insurance including product
liability insurance with respect to the sale of OncorMed Clinical Diagnostic
Services Products by OncorMed in such amount as OncorMed customarily maintains
with respect to the research, development and sales of its other services.
OncorMed shall maintain such insurance for so long as it continues to sell any
OncorMed Clinical Diagnostic Services which utilize the Gel-Based Sequencing
Technology, and thereafter for so long as OncorMed maintains insurance for
itself covering such research, development or sales. OncorMed
22
<PAGE> 23
shall indemnify and hold Incyte harmless from all claims, demands, liabilities,
damage and expenses, including reasonable attorneys' fees and costs, resulting
from any claim, demand, action or proceeding arising out of or in connection
with OncorMed Clinical Diagnostic Services which utilize the Gel-Based
Sequencing Technology, except for those claims covered by Incyte's indemnity in
favor of OncorMed in Section 10.3 hereof.
10.3 Indemnification by Incyte. Incyte shall indemnify and hold OncorMed
and its officers, directors, employees and agents harmless from all losses,
liabilities, damages and expenses, including but not limited to reasonable
attorneys' fees and costs, resulting from any claim, demand, action or
proceeding by a Third Party regarding the infringement by Licensed Technology
of any patent, copyright, trademark, trade secret or other intellectual
property right of any Third Party, or regarding any misrepresentation made by
Incyte or its agents to Third Parties with respect to the Collaborative
Services.
10.4 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 10 shall promptly notify the other Party
(the "Indemnitor") of any claim, demand, action or proceeding for which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the right to the extent the Indemnitor so desires, to control the defense
thereof with counsel of its selection; provided, however, that the Indemnitee
shall have the right to retain its own advisory counsel, with the fees and
expenses to be paid by the Indemnitee, if representation of the Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. If Indemnitor does not elect
within (30) days after such notice to so control the defense of such
proceeding, Indemnitee may undertake such control, and Indemnitor shall be
entitled to advisory counsel of its own selection. The indemnity agreement in
this Article 10 shall not apply to amounts paid in settlement of any claim,
demand, action or proceeding if such settlement is effected without the written
consent of the Indemnitor, which consent shall not be withheld unreasonably.
The failure to deliver 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 10, but the omission so to
23
<PAGE> 24
deliver notice to the Indemnitor will not relieve it of any liability that it
may have to the Indemnitee otherwise than under this Article 10. The
Indemnitee under this Article 10 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 furnish all evidence and assistance within its control.
ARTICLE 11
FORCE MAJEURE
Neither Party shall be held liable or responsible to the other Party
nor be deemed to have defaulted under or breached the Agreement for failure or
delay in fulfilling or performing any term of the Agreement to the extent, and
for so long as, such failure or delay is caused by or results from causes
beyond the reasonable control of the affected Party including but not limited
to fire, floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or other Party.
ARTICLE 12
DISPUTE RESOLUTION
The Parties to this Agreement shall first use all reasonable efforts
to amicably resolve any disputes arising out of or relating to the Agreement by
direct discussions or mediation. If, after ninety (90) days, the Parties fail
to resolve the dispute, either Party may submit the dispute to final and
binding arbitration held in a venue specified by the Party against which the
arbitration has been submitted and administered by the American Arbitration
Association ("AAA"), pursuant to the Commercial Arbitration Rules of the AAA at
the time of submission before a single neutral, independent, and impartial
arbitrator ("Arbitrator") applying the procedural rules relating to such
arbitration in such venue; provided, however, that disputes among the
Development Team representatives related to projects to be performed under the
Collaborative Services and the Fair Market Value of Collaborative Services will
not be submitted to arbitration, but will be resolved in accordance with
Section 2.6.4 hereof.
24
<PAGE> 25
The Arbitrator's award shall be a final and binding determination of the
dispute and shall be fully enforceable as an arbitration award by any court of
competent jurisdiction over the Parties. The prevailing Party shall be entitled
to recover its reasonable attorneys' fees and expenses, including arbitration
administration fees, incurred in connection with such proceeding. Neither
Party nor the Arbitrator may disclose the existence, content, or results of any
arbitration hereunder without the prior written consent of both Parties.
25
<PAGE> 26
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any consent, notice or report required or permitted to be
given or made under the Agreement by one of the Parties hereto to the other
Party shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, U.S. first class mail or courier), U.S. first
class mail or courier, postage prepaid (where applicable), addressed to such
other Party at its address indicated below, or to such other address as the
addressee shall have last furnished in writing to the addressor and (except as
otherwise provided in the Agreement) shall be effective upon receipt by the
addressee.
If to Incyte:
------------------------------
------------------------------
------------------------------
Attention:
------------------
Telecopier:
------------------
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, CA 94104
Attention: Stanton D. Wong, Esq.
Telecopier: (415) 983-1200
If to OncorMed:
------------------------------
------------------------------
------------------------------
Attention:
------------------
Telecopier:
------------------
with a copy to: Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, NY 10019
Attention: Alexander D. Lynch, Esq.
Telecopier: (212) 586-7878
13.2 Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law principles thereof.
26
<PAGE> 27
13.3 Assignment. Neither Party shall assign its rights or obligations under
the Agreement, in whole or in part, by operation of law or otherwise, without
the prior written consent of the other Party, to any other Person, including
Company X. Any purported assignment in violation of this Section 13.3 shall be
void.
13.4 Waivers and Amendments. No change, modification, extension,
termination or waiver of the Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the Parties hereto. The waiver by either Party hereto of
any right hereunder or the failure to perform or of a breach by the other Party
shall not be deemed a waiver of any other right hereunder or of any other
breach or failure by said other Party whether of a similar nature or otherwise.
13.5 Public Announcements. Except as required by applicable law or
regulations, Incyte and OncorMed shall jointly approve any public announcements
relating to the transactions described herein or the relationship between the
parties.
13.6 Entire Agreement. The Agreement, including the Annexes hereto,
embodies the entire understanding between the Parties and supersedes any prior
understanding and agreements between and among them respecting the subject
matter hereof. There are no representations, agreements, arrangements or
understandings, oral or written, between the Parties hereto relating to the
subject matter of the Agreement which are not fully expressed herein.
13.7 Severability. Any of the provisions of the Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof and without affecting the validity or enforceability of any
of the terms of the Agreement in any other jurisdiction.
13.8 Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27
<PAGE> 28
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the
date first set forth above.
Incyte
By
----------------------------------------------
Title
-------------------------------------------
OncorMed
By
----------------------------------------------
Title
-------------------------------------------
28
<PAGE> 29
ANNEX A
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
29
<PAGE> 30
ANNEX B
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
30
<PAGE> 31
ANNEX C
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
31
<PAGE> 32
ANNEX D
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
32
<PAGE> 33
ANNEX E
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
33
<PAGE> 34
ANNEX F
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
34
<PAGE> 35
ANNEX G
(****)
**** Denotes language for which the Company has requested confidential
treatment pursuant to the rules and regulations of the Securities
Exchange Act of 1934, as amended.
35
<PAGE> 36
Schedule 5.1
(****)
**** Denotes language for which the Company has requested
confidential treatment pursuant to the rules and regulations
of the Securities Exchange Act of 1934, as amended.
36
<PAGE> 1
Exhibit 11
ONCORMED, INC.
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
NET LOSS PER SHARE
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended (July 12, 1993)
March 31, Through
1997 1996 March 31, 1997
------------ ----------- ---------------
<S> <C> <C> <C>
Common Stock (weighted average shares outstanding) 7,320,698 6,267,606 5,097,404
Treasury Stock effect to acquire Common Stock
granted in the twelve months prior to the
Company's initial public offering -- -- 275,035
------------ ----------- ------------
Shares used in computing net loss per share 7,320,698 6,267,606 5,372,439
============ =========== ============
</TABLE>
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and the Statement of Operations filed as part of the annual report on Form
10-Q and is qualified in its entirety by reference to such annual report on Form
10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,079,783
<SECURITIES> 3,134,479
<RECEIVABLES> 96,172
<ALLOWANCES> 35,374
<INVENTORY> 0
<CURRENT-ASSETS> 8,468,208
<PP&E> 2,299,178
<DEPRECIATION> 1,181,724
<TOTAL-ASSETS> 9,585,662
<CURRENT-LIABILITIES> 1,194,070
<BONDS> 0
0
0
<COMMON> 78,140
<OTHER-SE> 29,978,782
<TOTAL-LIABILITY-AND-EQUITY> 9,585,662
<SALES> 115,279
<TOTAL-REVENUES> 115,279
<CGS> 53,966
<TOTAL-COSTS> 3,792,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,598
<INCOME-PRETAX> (3,597,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,597,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,597,075)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> 0
</TABLE>
