<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 September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ______________________
Commission file number 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 October 31, 1997, there were 7,869,688 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 September 30, 1997 and December 31, 1996 4
Statements of Operations for the Three Months Ended 5
September 30, 1997 and 1996; for the Nine Months Ended September 30,
1997 and 1996; and for the Period from Inception (July 12, 1993)
Through September 30, 1997
Statements of Cash Flow for the Nine Months Ended 6
September 30, 1997 and 1996 and for the Period from Inception
(July 12, 1993) Through September 30, 1997
Notes to Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 25
ITEM 2 Changes in Securities 25
ITEM 3 Defaults Upon Senior Securities 25
ITEM 4 Submission of Matters To A Vote of Security Holders 25
ITEM 5 Other Information 25
ITEM 6 Exhibit and Reports of Form 8-K 25
Signatures 26
Exhibit Index 27
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
The balance sheet as of September 30, 1997, the statements of
operations for the three months ended September 30, 1997 and 1996, for
the nine months ended September 30, 1997 and 1996, and for the period
from inception (July 12, 1993) through September 30, 1997, and the
statements of cash flow for the nine months ended September 30, 1997
and 1996 and for the period from inception (July 12, 1993) through
September 30, 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 September
30, 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
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,197,385 $ 6,031,809
Short term investments 1,236,057 1,466,871
Accounts receivable, net allowance for doubtful
accounts of $40,000 and $32,000 146,995 129,366
Other current assets 50,404 306,078
------------ ------------
Total current assets 3,630,841 7,934,124
------------ ------------
Non-current assets:
Property and equipment, net 1,156,744 1,179,851
------------ ------------
Total non-current assets 1,156,744 1,179,851
------------ ------------
TOTAL ASSETS $ 4,787,585 $ 9,113,975
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 193,393 $ 680,575
Accrued expenses and other liabilities 649,781 593,037
Payable to Oncor, Inc. 62,476 124,730
Deferred revenue 88,794 46,420
------------ ------------
Total current liabilities 994,444 1,444,762
------------ ------------
Non-current liabilities:
Note payable to Oncor Finance, Inc. 715,751 715,751
Deferred revenue 1,208 3,583
------------ ------------
Total non-current liabilities 716,959 719,334
------------ ------------
TOTAL LIABILITIES 1,711,403 2,164,096
------------ ------------
Commitments And Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 7,869,688 and 6,991,108 shares issued
and outstanding, respectively 78,697 69,911
Additional paid-in capital 30,166,994 25,741,842
Deferred compensation (99,692) (75,629)
Deficit accumulated during the development stage (27,069,817) (18,786,245)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,076,182 6,949,879
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,787,585 $ 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 September 30, Nine Months Ended September 30, September 30,
1997 1996 1997 1996 1997
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 246,365 $ 199,710 $ 568,740 $ 393,424 $ 1,541,820
OPERATING EXPENSES:
Cost of sales - direct 140,170 115,056 304,816 185,713 766,620
Laboratory operations 1,257,116 722,013 2,630,774 2,090,317 8,992,806
Selling, general and administrative 1,361,960 1,115,393 4,049,978 3,494,472 15,779,950
Research and development 160,070 178,479 582,231 483,208 2,542,239
Acquired research and development
projects in-process -- -- 1,481,148 -- 1,481,148
----------- ----------- ----------- ----------- ------------
Total expenses 2,919,316 2,130,941 9,048,947 6,253,710 29,562,763
----------- ----------- ----------- ----------- ------------
OPERATING LOSS (2,672,951) (1,931,231) (8,480,207) (5,860,286) (28,020,943)
Interest income 50,254 140,659 238,920 401,831 1,129,134
Interest expense (13,037) (13,220) (42,285) (39,522) (178,008)
----------- ----------- ----------- ----------- ------------
NET LOSS $(2,635,734) $(1,803,792) $(8,283,572) $(5,497,977) $(27,069,817)
=========== =========== =========== =========== ============
NET LOSS PER SHARE
(unaudited) $ (0.34) $ (0.26) $ (1.08) $ (0.82) $ (4.78)
=========== =========== =========== =========== ============
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE
(unaudited) 7,828,790 6,990,907 7,654,504 6,743,075 5,662,639
=========== ========== =========== =========== ============
</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
Nine Months Ended (July 12, 1993)
September 30, Through
1997 1996 September 30,1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,283,572) $(5,497,977) $(27,069,817)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 424,465 375,951 1,467,912
Amortization of deferred compensation 52,637 41,049 256,653
Write off of acquired in-process research
and development costs 1,481,148 -- 1,481,148
Changes in operating assets and liabilities:
Accounts receivable (17,629) 18,215 (146,995)
Other assets 255,674 680 (50,404)
Accounts payable (487,182) 97,905 193,393
Accrued expenses and other liabilities 56,744 (156,464) 649,781
Deferred revenue 39,999 (35,239) 90,002
Payable to Oncor, Inc. (62,254) 41,726 62,476
----------- ----------- ------------
Net cash used in operating activities (6,539,970) (5,114,154) (23,065,851)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (401,358) (369,221) (2,569,657)
Purchases of short-term investments 230,814 (2,277,883) (1,236,057)
----------- ----------- ------------
Net cash used in investing activities (170,544) (2,647,104) (3,805,714)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 2,779,177 13,912,825 25,199,667
Net proceeds from sale of preferred stock -- -- 2,990,439
Net proceeds from exercise of stock options 96,913 38,779 163,093
Net proceeds from Note payable to Oncor Finance, Inc. -- -- 715,751
Decrease in deferred offering costs -- 299,815 --
----------- ----------- ------------
Net cash provided by financing activities 2,876,090 14,251,419 29,068,950
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,834,424) 6,490,161 2,197,385
CASH AND CASH EQUIVALENTS, beginning of period 6,031,809 718,844 --
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,197,385 $ 7,209,005 $ 2,197,385
=========== =========== ============
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 $ 42,285 $ 39,522 $ 178,008
=========== =========== ============
</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 September 30, 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"). Oncor
currently owns approximately 25.4% of the Company's outstanding common
stock. 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 services, recruiting its scientific and management
personnel, establishing initial 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, revenue 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.
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.
7
<PAGE> 8
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Accrued Expenses
At September 30, 1997, accrued expenses consisted of approximately
$248,000 for payroll and related expenses, $337,000 in
professional/legal fees, $42,000 for marketing/operations costs and
$23,000 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 financial statements issued 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 Company was
obligated to pay royalties on a semi-annual basis to Oncor for Oncor
technologies existing as of the date of the 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. In February 1997 the Company and Oncor
agreed to certain changes to the license agreement with Oncor (as
amended, the "Oncor Agreement"). Fees payable to Oncor under the license
agreement with Oncor and the Oncor Agreement of approximately $50,000,
$50,000 and $842,000 are included in laboratory operations expense for
the three months ended September 30, 1997, 1996 and the period from
inception (July 12, 1993) to September 30, 1997, respectively.
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 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 Oncor Agreement shall expire in June 2004 unless earlier terminated
in accordance with its terms. Further, in the event of a change of
control of Oncor, the acquiring party shall have the option to either
maintain the Oncor Agreement or to terminate the Oncor Agreement. In the
event that the acquiror terminates the Oncor Agreement, both the
exclusive license and the non-exclusive license shall remain in full
force and effect under rates to be determined.
Under the terms of the Oncor 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
period from April 1, 1997 to March 31, 1998, the Company is obligated to
pay Oncor a minimum amount equal to $50,000 per quarter. During the
period from April 1, 1998 to March 31, 1999, 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 right of first offer
with respect to such technologies. If the non-offering party accepts the
offer, the Company and Oncor shall negotiate in
9
<PAGE> 10
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. RELATED-PARTY TRANSACTIONS: (Continued)
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.
Services Agreements with Oncor, Inc. and Affiliates
As of September 30, 1997, the Company owed Oncor and Codon
Pharmaceuticals, Inc. ("Codon", a 41.6 percent owned affiliate of Oncor)
$62,476 for charges which include fees payable under the Oncor Agreement
and equipment rental. 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 $12,804 for the three months ended September
30, 1997.
Related party revenues and expenses are as follows:
<TABLE>
<CAPTION>
Period from
Inception
Three Months Nine Months (July 12, 1993)
Ended September 30, Ended September 30, Through
---------------------- ------------------------ September 30,
1997 1996 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales to related party $ -- $ 120 $ -- $ 5,700 $ 47,880
Operating expenses to related party:
Laboratory operations 68,000 68,000 204,000 204,610 968,610
Selling, general and administrative -- 463 -- 3,188 977,896
Research and development -- 17,946 1,039 53,838 208,821
</TABLE>
Of the related party expenses for the three months ended September 30,
1997, $18,000 in laboratory operations was for equipment rental from Codon
and $50,000 was related to license fees under the Oncor Agreement.
4. DEFERRED REVENUES:
Deferred revenues consist of prepaid amounts related to laboratory testing
and prepaid fees related to various risk assessment service agreements.
10
<PAGE> 11
ONCORMED, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY:
Stock Option Plan
As of September 30, 1997, 2,250,000 shares of the Company's common stock
had been reserved for issuance, of which options to purchase 1,914,000
shares had been granted. After giving effect to the cancellation of stock
options, shares available for issuance were 511,900 as of September 30,
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,
$12,988, and $225,251 has been recognized for the three months ended
September 30, 1997 and 1996 and for the period from inception (July 12,
1993) to September 30, 1997, respectively.
11
<PAGE> 12
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 September 30,
1997, the Company's accumulated deficit was approximately $27.1 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 and nine months ended September 30, 1997 were
$246,365 and $568,740 compared to $199,710 and $393,424 for the same periods 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 $140,170 and $304,816 for the three months and nine
months ended September 30, 1997 compared to $115,056 and $185,713 for the same
periods in 1996. Cost of sales - direct includes costs for supplies, direct
labor, shipping, royalties (other than those under the Oncor Agreement), and
reference laboratory fees for testing services and computer hardware costs
associated with the Company's risk assessment services. The increase in cost of
sales - direct for the three months reflects the corresponding increase in the
Company's revenues.
12
<PAGE> 13
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
Laboratory operations expenses were $1,257,116 and $2,630,774 for the three
months and nine months ended September 30, 1997 compared to $722,013 and
$2,090,317 for the same periods in 1996. The increase in laboratory operations
expense for the three months was due to a one time up-front fee paid to Cancer
Research Campaign Technology Limited for the grant of a license of patents and
patent applications related to the BRCA2 gene and related discoveries and other
laboratory expenses. The Company believes that a greater portion of laboratory
expenses will be included in cost of sales - direct as sales of the Company's
services increase. Related party expenses incurred during these periods
consisted of technology license fees paid to Oncor and laboratory equipment
rental paid to Codon.
Selling, general and administrative expenses were $1,361,960 and $4,049,978 for
the three months and nine months ended September 30, 1997 compared to $1,115,393
and $3,494,472 for the same periods in 1996. General and administrative expenses
were $1,073,095 and $3,112,728 for the three months and nine months ended
September 30, 1997, respectively, compared with $822,258 and $2,533,234 for the
three months and nine months ended September 30, 1996, respectively. The
increase in general and administrative expenses was due to increased
professional fees, the addition of personnel and related costs, and increased
depreciation expense. Selling expenses were $288,865 and $937,250 for the three
months and nine months ended September 30, 1997, respectively, compared with
$293,135 and $961,238 for the three months and nine months ended September 30,
1996, respectively. Selling expenses remained relatively constant between the
two periods. The Company anticipates that its selling, general and
administrative expenses will increase as it continues to market and sell its
portfolio of services. For the three months and nine months ended September 30,
1997, there were no related party selling, general and administrative expenses
compared to $463 and $3,188 for the corresponding periods in 1996.
Research and development expenses were $160,070 and $582,231 for the three
months and nine months ended September 30, 1997, respectively, compared to
$178,479 and $483,208 for the same periods in 1996. The decrease in research and
development expenses was due to the reduced need for outside consultants on
various projects. There were no related party expenses for the three months
ended September 30, 1997. Related party expenses for the nine months ended
September 30, 1997 consisted of the costs associated with consulting services.
Acquired research and development projects in process was $0 and $1,481,148 for
the three months and nine months ended September 30, 1997, respectively. There
were no associated expenses for the same periods in 1996. A one-time write off
of $1,481,148 during the first quarter of 1997 was associated with a License,
Services and Marketing Agreement with Incyte Pharmaceuticals Inc. (the "Incyte
Agreement").
Total related party expenses, other than the expenses incurred in connection
with the Oncor Agreement, will continue to decrease and remain nominal in the
future.
Interest income was $50,254 and $238,920 for the three months and nine months
ended September 30, 1997, respectively, compared to $140,659 and $401,831 for
the same periods in 1996. The decrease in interest income was due to the
decreased amounts available for investment. Interest expense was $13,037 and
$42,285 for the three months and nine months ended September 30, 1997,
respectively compared to $13,220 and $39,522 for the same periods in 1996.
For the reasons set forth above, net operating losses were $2,635,734 and
$8,283,572 for the three months
13
<PAGE> 14
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
and nine months ended September 30, 1997, respectively, compared to $1,803,792
and $5,497,977 for the same periods in 1996.
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, approximately $13.9 million of net
proceeds from the Company's follow-on offering completed in February 1996 and
$3.0 million in proceeds related to the Incyte Agreement completed in February
1997. 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 also intends to make additional 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 $6.5 million for the nine
months ended September 30, 1997 compared with approximately $5.1 million for the
same period in 1996. The increase was attributable to an increase in the net
operating loss for the nine months ended September 30, 1997.
Cash used in investing activities was $170,544 for the nine months ended
September 30, 1997 compared to $2,647,104 for the same period in 1996. The
decrease was due to a larger amount of short term investments purchased in 1996.
Cash provided by financing activities was $2.9 million for the nine months ended
September 30, 1997 compared with $14.3 million for the same period in 1996. In
the first quarter of 1996, the Company completed the 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 payments associated with the Oncor Agreement,
will be approximately $479,713 through 1998.
Pursuant to a License Agreement (the "BRCA2 Agreement"), dated July 7, 1997, by
and among the Company, Cancer Research Campaign Technology Limited ("CRCT") and
Duke University ("Duke"), CRCT and Duke have granted the Company an exclusive,
worldwide royalty-bearing license to certain patents and patent applications
relating to the BRCA2 gene and related discoveries (the "BRCA2 Technology") for
the purpose of providing diagnostic services, diagnostic products and research
products relating thereto. In consideration of the grant of the license, the
Company has paid CRCT an up-front fee. Contemporaneously, the Company granted
back to CRCT and Duke certain limited rights to use the BRCA2 Technology to
provide diagnostic services to any UK National Health Service Hospital and to
patients affiliated with Duke, respectively. Unless terminated earlier in
accordance with its terms, the BRCA2 Agreement expires, on a country-by-country
basis, on the date of expiration of the last to expire BRCA2 patent in such
country or, if no BRCA2 patent is granted in a given country, ten (10) years
after the first commercial provision of diagnostic services or diagnostic
products in such country.
The Company has incurred negative cash flows from operations since its
inception. The Company has
14
<PAGE> 15
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
expended, and will continue to expend substantial funds to continue its sales
and marketing efforts, research and development programs and laboratory
operations. At October 31, 1997, the Company had cash, cash equivalents and
short term investments of approximately $2.6 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 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
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
Company is currently evaluating options for raising additional financing. The
terms and prices of any future 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.
OTHER MATTERS
In July 1997, the U.S. Patent and Trademark Office issued to Oncormed, Inc. a
patent (No. 5,642,936) regarding a novel bioinformatics method with applications
ranging from an analytic tool in genomics discovery to a screening method for
the identification of patients at risk for particular diseases.
In August 1997, the U.S. Patent and Trademark Office issued to Oncormed, Inc. a
patent (No. 5,654,155) for a full length coding sequence of the BRCA1 gene which
encodes the entire BRCA1 protein. Oncormed's rights in the patented BRCA1 gene
sequence include therapeutics, diagnostic products and diagnostic services.
Mutations of the BRCA1 gene are associated with breast, ovarian and prostate
cancer.
In October 1997, the Company entered into an agreement with Affymetrix, Inc. to
expand its collaboration to co-develop a BRCA1/BRCA2 geneChip array. Upon
successful completion of the co-development project, Affymetrix can sell the
BRCA1/BRCA2 geneChip arrays on which the Company would earn royalties. In
addition, Affymetrix, Inc. licensed diagnostic rights to the BRCA1 and BRCA2
genes from the Company.
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.
15
<PAGE> 16
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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
September 30, 1997, the Company's accumulated deficit was approximately $27.1
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
In February 1997, the Company and Oncor agreed to certain changes to the license
agreement with Oncor (as amended, the "Oncor Agreement"). 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. 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 Oncor Agreement shall
expire in June 2004 unless earlier terminated in accordance with its terms.
Further, in the event of a change of control of Oncor, the acquiring party shall
have the option to either maintain the Oncor Agreement or to terminate the Oncor
Agreement. In the event that the acquiror terminates the Oncor Agreement, both
the exclusive license and the non-exclusive license shall remain in full force
and effect under rates to be determined.
Certain of the Company's services are 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
16
<PAGE> 17
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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. Oncor currently owns approximately 25.4% 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 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.
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 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 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 Company is currently
evaluating options for raising additional financing. The terms and prices of any
future 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 Patient Populations For Certain Services
Certain of the Company's services currently address subtypes of broader types of
cancers. Patients with such
17
<PAGE> 18
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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
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, 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. Various third party payors have begun to reimburse some
of the Company's services. There can be no assurance that third party
reimbursement for the Company's services will be consistently 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
18
<PAGE> 19
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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, Incyte, and CRCT/Duke 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 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
canceled 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
19
<PAGE> 20
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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.
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.
To date, the important competitive factors for the Company's services have been
availability, accuracy and utility. Other competitive factors, such as price,
availability of reimbursement and response time are becoming more 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, a patent has been issued to the Company in early
August 1997 related to the BRCA1 gene and a patent has been issued in Europe to
CRCT/Duke in October 1997 related to the BRCA2 gene. Although the Company and
certain of the Company's licensors and sublicensors have or may have additional
patent applications pending relating to such technologies and discoveries, there
can be no assurance that patents will be issued as a result of such
20
<PAGE> 21
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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 current or future patents
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 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.
21
<PAGE> 22
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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.
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
22
<PAGE> 23
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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.
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 expertise. The loss
of, or failure to recruit, scientific, technical, sales and marketing and
managerial
23
<PAGE> 24
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations:
(Continued)
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.
24
<PAGE> 25
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
<TABLE>
<CAPTION>
(a) Exhibits filed as part of this Form 10-Q
<S> <C>
Exhibit 11 Calculation of Earnings Per Share.
Exhibit 27 Financial Data Schedule (in EDGAR Filing, only).
10.36* License Agreement, dated July 7, 1997, between the Company, Cancer
Research Campaign Technology Limited and Duke University
(b) Reports on Form 8-K
None.
</TABLE>
* Confidential treatment requested.
25
<PAGE> 26
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.
<TABLE>
<S> <C>
Date: November 13, 1997 /s/ DR. TIMOTHY J. TRICHE
-------------------------------------------------------------------------------------
Dr. Timothy J. Triche, Chairman and Chief Executive Officer
Date: November 13, 1997 /s/ DR. DOUGLAS DOLGINOW
-------------------------------------------------------------------------------------
Dr. Douglas Dolginow, President and Chief Operating Officer
Date: November 13, 1997 /s/ L. ROBERT JOHNSTON, JR.
-------------------------------------------------------------------------------------
L. Robert Johnston, Jr., Vice President and Chief Financial Officer
</TABLE>
26
<PAGE> 27
ONCORMED, INC.
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
EX-11 Calculation of Earnings Per Share 28
EX-27 Financial Data Schedule 29
(in EDGAR transmission only)
10.36 License Agreement, dated July 7, 1997, between the Company,
Cancer Research Campaign Technology Limited and Duke University
</TABLE>
27
<PAGE> 1
LICENSE AGREEMENT
BETWEEN
(1) CANCER RESEARCH CAMPAIGN TECHNOLOGY LIMITED
and
(2) DUKE UNIVERSITY
and
(3) ONCORMED, INC.
FOR
DIAGNOSTIC RIGHTS
TO THE BRCA2 GENE
<PAGE> 2
THIS AGREEMENT is made the 7th day of July 1997
BETWEEN:
CANCER RESEARCH CAMPAIGN TECHNOLOGY LIMITED of Cambridge
House, 6-10 Cambridge Terrace, Regent's Park, London NW1 4JL, UK ("CRCT");
DUKE UNIVERSITY, a non-profit institution having a place of
business at 230 North Building, Durham, North Carolina 27708, USA ("DUKE"); and
ONCORMED, INC. of 205 Perry Parkway, Gaithersburg, Maryland
20877, USA ("ONCORMED")
WHEREAS:
A) Certain employees of the Institute of Cancer Research: Royal Cancer
Hospital ("ICR"), of 17A Onslow Gardens, London SW7 3AL (the "ICR
Inventors"), and an employee of DUKE (the "DUKE Inventor") jointly
characterised a DNA sequence encoding a gene known as "BRCA2" (as
hereinafter defined) which is associated with inherited susceptibility
to breast cancer.
B) During the period in which BRCA2 was characterised, the ICR Inventors
were funded by the Cancer Research Campaign of 10 Cambridge Terrace,
Regent's Park, London NW1 4JL ("CRC"), a major UK cancer research
charity.
C) Under an agreement between CRC, ICR and CRCT dated 15 May 1995, all
rights to the results of CRC-funded research undertaken at ICR vest in
CRCT. Pursuant to that agreement, ICR and the ICR Inventors formally
assigned their rights in and to the invention subsisting in the said
BRCA2 characterisation to CRCT by way of a deed of assignment dated 6
June 1996.
D) The DUKE Inventor carried out the characterisation of BRCA2 during the
normal course of his employment.
E) Patent applications ("BRCA2 Patent Applications", as hereinafter
defined) have been filed for the invention subsisting in the aforesaid
characterisation of BRCA2 in the joint names of CRCT and DUKE.
F) Pursuant to an agreement dated 28 August 1996, CRCT and DUKE have
agreed that CRCT is exclusively responsible for the filing,
prosecution and exploitation of the said BRCA2 Patent Applications and
any patents granted therefrom ("BRCA2 Patents", as hereinafter
defined).
G) It is the desire of both CRCT and DUKE that the rights subsisting in
the BRCA2 Patent Applications and BRCA2 Patents are exploited so as to
ensure the widest possible availability of tests for inherited
susceptibility to breast cancer. In this regard, ONCORMED acknowledges
the not-for-profit status of DUKE and the charitable status of CRC.
<PAGE> 3
H) CRCT and DUKE have agreed to grant ONCORMED an exclusive worldwide
licence to the BRCA2 Patent Applications and BRCA2 Patents subject to
the terms and conditions of this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement and in the Schedules to this Agreement the following
words and phrases shall have the following meanings unless the context
requires otherwise:
"Affiliate" any company, partnership or other entity
which directly or indirectly Controls, is controlled by or is
under common Control with a Party.
"Agreement" this agreement and any and all schedules,
appendices and other addenda to it as may be varied from time
to time in accordance with the provisions of this agreement.
"Approval" permission to use or offer for sale or sell
as granted by the Food and Drug Administration of the United
States of America, or any other authority in the United States
of America or elsewhere, which has been given Federal or State
legal powers to grant such permission.
"BRCA2 Gene" the gene which is associated with inherited
susceptibility to breast cancer and which is encoded, in whole
or part, by the nucleotide sequence set out in the BRCA2
Patent Applications and/or BRCA2 Patents.
"BRCA2 Information" information in a recorded form which
is proprietary to and possessed by either CRCT and/or DUKE and
which arose prior to the date hereof and that which arises
within three (3) years thereafter, where said information
directly relates to the BRCA2 Gene and/or BRCA2 Protein
Products and, where such information specifically concerns the
provision of Diagnostic Services and/or Diagnostic Products.
"BRCA2 Patents Applications" the patent applications
listed in Schedule 1 and any national, international or
regional patent applications derived therefrom, either in
whole or in part.
"BRCA2 Patents" all patents granted and issued from BRCA2
Patent Applications and all continuations,
continuations-in-part, divisions, re-issues, renewals,
substitutions, thereof, as well as any supplementary
protection certificates (or equivalents thereof) in relation
thereto.
"BRCA2 Protein Product" the protein produced after
transcription and translation of the BRCA2 Gene, either in
whole or in part.
<PAGE> 4
"Business Day" 9.30 am to 5.30 pm London time on a day other
than a Saturday, Sunday, bank or other public holiday in
either the UK or the USA.
"Code Of Practice" the code of practice for providing a
Diagnostic Service as set out in Schedule 2 as may be revised
by the Parties, from time to time.
"Competent Authority" any local or national agency,
authority, department, inspectorate, minister, ministry
official or public or statutory person (whether autonomous or
not) of any government of any country having jurisdiction over
this Agreement or any of the Parties or over the development,
validation, provision, and marketing of the Diagnostic
Service.
"Control" the ownership of more than 50% of the issued
share capital or the legal power to direct or cause the
direction of the general management and the policies of the
Party in question.
"Diagnostic Service" a service for diagnosing
susceptibility to breast cancer through determining:
(i) the nucleotide sequence of the BRCA2 Gene in
a sample of DNA from a test recipient and identifying
any Mutations therein; and/or
(ii) determining the presence or absence of BRCA2
Protein Product, either in whole or in part, from a
sample from a test recipient.
"Diagnostic Product" a product, kit, instrument, tool,
reagent or material which has received regulatory approval in
the country of use or sale, and/or which is being used or sold
by ONCORMED, its Sub-licensees or Affiliates or their
customers for the clinical analysis of the BRCA2 Gene or BRCA2
Protein Product for the purposes of determining any Mutations
therein.
"Documents" paper, notebooks, books, files, ledgers,
records, tapes, discs, diskettes, CD-ROM and any other media
on which Know How can be permanently stored.
"Force Majeure" in relation to any Party, any event or
circumstance which is beyond the reasonable control of that
Party, which event that Party could not have reasonably been
expected to have taken into account at the date of this
Agreement and which results in or causes the failure of that
Party to perform any or all of its obligations under this
Agreement including act of God, lightning, fire, storm, flood,
earthquake, accumulation of snow or ice, lack of water arising
from weather or environmental problems, strike, lockout or
other industrial disturbance, act of the public enemy, war
declared or undeclared, threat of war, terrorist act,
blockade, revolution, riot, insurrection, civil commotion,
public demonstration, student disorder, sabotage, act of
vandalism, prevention from or hindrance in obtaining in any
way materials, energy, or other supplies, explosion, fault or
failure of plant or machinery (which could not have been
<PAGE> 5
prevented by good practice), government restraint, act of
legislature and Directive or requirement of a Competent
Authority governing either Party provided that lack of funds
shall not be interpreted as a cause beyond the reasonable
control of that Party.
"Know How" unpatented technical and other information
which is not in the public domain including ideas, concepts,
experience, data, specifications, procedures for experiments
and tests and results of experimentation and testing as
related to the BRCA2 Gene, BRCA2 Protein Product and/or
development and provision of the Diagnostic Service or
Diagnostic Product.
"Mutations" alterations in the normal wild-type
nucleotide sequence of the BRCA2 Gene or BRCA2 Protein Product
which have been shown to result in an increased genetic
susceptibility to breast cancer.
"Major Countries" those countries listed in Schedule 3.
"Net Sales Revenue" gross income accruing to ONCORMED
and/or its Sub-licensees and Affiliates through the provision
of Diagnostic Services and/or sales or other disposals of
Diagnostic Products and Research Products less the following
items to the extent they are paid or allowed and included in
the invoice price whether or not such costs are invoiced
separately to the purchaser;
a) quantity, trade and/or cash discounts
actually granted;
b) amounts repaid or credited and allowances
including cash, credit or free goods allowances and
amounts given by reason of chargebacks, retroactive
price reductions or billing errors and rebates
(including government-mandated rebates), actually
allowed or paid;
c) amounts refunded or credited for any
Diagnostic Service or Diagnostic Product or Research
Product which was rejected, or in any other way
deemed invalid;
d) freight, shipment and insurance costs in
providing Diagnostic Services and/or transporting
Diagnostic Products and/or Research Products; and
e) non-recoverable taxes, tariffs, customs
duties and surcharges and other governmental charges
incurred in connection with the provision of
Diagnostic Services and/or use, sale or disposal of
Diagnostic Products and/or Research Products.
"Non-Cash Compensation" any value ONCORMED receives from
Sub-licensees and Affiliates appointed by ONCORMED pursuant to
this Agreement which is not directly calculable in monetary
terms.
"Parties" CRCT, DUKE and ONCORMED.
<PAGE> 6
"Research Product" any product marketed specifically
for use in the research market for detection purposes related
to the BRCA2 Gene, protein products and mutations thereof,
where the use, sale, disposal, marketing or any other dealing
of such product is encompassed by any claim of any BRCA2
Patent Applications and/or any BRCA2 Patents. In the event
that a product falls within the definitions of both Diagnostic
Products and Research Products, such product shall be taken as
falling solely within the definition of Diagnostic Products.
"Sub-licence" a sub-licence granted pursuant to Clause 2.2.
"Sub-licensee" any person granted a Sub-licence pursuant to
Clause 2.2.
"Sub-licence Fees" all consideration other than royalty
payments (which are dealt with hereunder by separate payment
arrangements), that accrue to ONCORMED under any Sub-licence.
Where such consideration takes a Non-Cash Compensation form, a
monetary value for that consideration shall be determined
pursuant to Clause 4.3 and such sum shall be deemed to have
been received by ONCORMED for the purposes of Clause 4.3.
Notwithstanding the foregoing, payments received by ONCORMED
or an Affiliate of ONCORMED for the performance of research
and/or development, where such research and/or development
specifically and solely relates to obtaining Approval for a
Diagnostic Service and/or a Diagnostic Product and is not an
extension of any programmes being undertaken by ONCORMED as at
the date hereof, then:
(i) to the extent that such payments cover the
actual cost of such research and/or development; and
(ii) provided that CRCT has given its prior
written approval to the execution of the Sub-Licence
in question;
that portion of such payments which is equal to, or less than,
(***) of the aggregate amounts received (other than royalty
payments) for the grant of the Sub-Licence in question shall
not constitute consideration for the purposes of this
definition.
"Therapeutic Rights" rights to develop, make, have made,
use and sell products and/or services to treat, prevent,
ameliorate, reduce the symptoms of or delay the occurrence of
breast and any other cancers in any way and by any means.
"Valid Claim" a claim in any issued BRCA2 Patent which has
not expired, been revoked or otherwise held to be
unenforceable or invalid by a decision of a court or other
governmental agency or Competent Authority, as determined on a
country-by-country basis.
*** 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
1.2 Unless the context otherwise requires, all references to a particular
Clause or Schedule shall be a reference to that Clause or Schedule in
or to this Agreement as it may be amended from time to time pursuant
to this Agreement.
1.3 The table of contents and headings are inserted for convenience only
and shall be ignored in construing this Agreement.
1.4 Unless the contrary intention appears, words importing the masculine
gender shall include the feminine, and vice versa, and words in the
singular include the plural, and vice versa.
1.5 Unless the contrary intention appears, words denoting persons shall
include any individual, partnership, company, corporation, joint
venture, trust, association, organisation or other entity, in each
case whether or not having a separate legal personality.
1.6 Reference to the words "include" or "including" are to be construed
without limitation to the generality of the preceding words.
1.7 Reference to any statute or regulation includes any modification or
re-enactment of that statute or regulation.
2. GRANT OF LICENCE
2.1 CRCT and DUKE hereby grant ONCORMED:
2.1.1 an exclusive, worldwide licence under the BRCA2 Patent
Applications and BRCA2 Patents to:
(i) provide Diagnostic Services; and
(ii) make, have made, use, offer for sale, and sell
Diagnostic Products;
2.1.2 an exclusive, worldwide licence under the BRCA2 Patent
Applications and BRCA2 Patents to make, have made, use, offer for
sale, and sell Research Products;
2.1.3 a non-exclusive, worldwide licence under the BRCA2 Patent
Applications, BRCA2 Patent and BRCA2 Information to undertake research
on the BRCA2 Gene and BRCA2 Protein Product for the purposes of
providing a Diagnostic Service or Diagnostic Product and/or Research
Product; and
2.1.4 a non-exclusive, worldwide licence under BRCA2 Information for
the purposes of providing a Diagnostic Service and/or making a
Diagnostic Product and/or making a Research Product to the extent that
ONCORMED can demonstrate to CRCT's reasonable satisfaction that the
BRCA2 Information in question is necessary to carry out the service or
make the product.
2.2 ONCORMED shall be entitled to grant sub-licences under the rights
granted to it pursuant to Clause 2.1 to any third party, provided
that:
<PAGE> 8
2.2.1 ONCORMED has given prior written notice of the same to CRCT
and provided CRCT with a draft of the proposed Sub-Licence at least
fifteen (15) Business Days prior to its execution, with a copy
substantially the same as the version that is to be executed (the
"Execution Copy") and has allowed CRCT at least five (5) Business Days
to provide ONCORMED with its comments on the terms set forth in the
Execution Copy. ONCORMED shall give due consideration to all comments
received from CRCT prior to execution of the Sub-Licence, but ONCORMED
shall have absolute discretion as to whether to accept or act on any
of CRCT's comments;
2.2.2 in the case of intended Sub-licences where the consideration
is to comprise, in part or whole, payments in respect of research
and/or development where the same specifically and solely relate to
Diagnostic Services or Diagnostic Products, and would constitute an
extension of a programme(s) being undertaken by ONCORMED as at the
date hereof, such Sub-licences will not be entered into without the
prior written consent of CRCT;
2.2.3 the terms of the Sub-licence, in ONCORMED's reasonable
opinion, reflect the full market value of the rights being
sub-licensed, having used all reasonable endeavours to secure this,
and that the rate at which royalties are to be paid to ONCORMED by the
Sub-licensee is not less than the rate at which royalties are payable
by ONCORMED to CRCT under this Agreement;
2.2.4 the Sub-licence contains undertakings by the Sub-licensee to
observe and perform provisions substantially similar to those
contained in this Agreement with regard to confidentiality,
non-assignability, adherence to the Code of Practice and termination
and an undertaking by the Sub-licensee to make payments to ONCORMED
within thirty (30) Business Days of the date when they fall due and,
in addition, that the terms of any such Sub-licence prohibit, in the
field of Diagnostic Services, any further sub-licensing; and
2.2.5 the Sub-licence is expressed to terminate automatically on the
termination of this Agreement for any reason.
2.3 Subject to the conditions set out in Clause 2.2, ONCORMED shall use
its best efforts to grant at least one Sub-licence under the rights
granted to it pursuant to Clause 2.1.1 (i).
2.4 ONCORMED shall, at its own expense:
2.4.1 provide CRCT with a true copy of any Sub-licence entered into,
within twenty (20) Business Days of the grant thereof; and
2.4.2 at all times, ensure the observance and performance by every
Sub-licensee of the provisions of the Sub-licence and indemnify both
CRCT and DUKE against any loss, damage, costs, claims or expenses
which are awarded against or incurred by either CRCT or DUKE as a
result of:
(i) any breach by any Sub-licensee of any of the
provisions of the Sub-licence, or
(ii) any Diagnostic Product or Diagnostic Service provided
by any Sub-licensee.
<PAGE> 9
2.5 CRCT and DUKE shall notify ONCORMED of any improvements, discoveries
or inventions, arising within five (5) years from the date hereof,
where the subject matter of the same is the BRCA2 Gene and protein
products and mutations thereof, and said improvements, discoveries and
inventions have applicability to Diagnostic Products and Diagnostic
Services and the rights thereto vest in CRCT and/or DUKE. (***)
3. GRANT BACK
3.1 In acknowledgement of the public funds used in the development of the
invention which underlies the licences granted to ONCORMED hereunder,
ONCORMED hereby grants back to CRCT and DUKE the following licences:
3.1.1 to CRCT, a non-exclusive, royalty free sub-licence, with the
right to grant sub-licences under the licence granted pursuant to
Clause 2.1, to the BRCA2 Patent Applications and BRCA2 Patents to
provide Diagnostic Services at its sole discretion and without
reference to ONCORMED, but only on a not-for-profit basis and only to
any UK National Health Service ("NHS") Hospital to:
(i) provide Diagnostic Services to NHS patients of NHS
Hospitals; and/or
(ii) provide Diagnostic Services in relation to NHS
patient samples where said samples have been obtained from NHS
patients and referred to the NHS Hospital in accordance with
NHS practice.
3.1.2 to DUKE, a non-exclusive, royalty free sub-licence under the
licence granted pursuant to Clause 2.1 to the BRCA2 Patent
Applications and BRCA2 Patents to pursue DUKE's own educational,
teaching, and research activities; (***)
3.2 Except as provided for in Clause 3.1, CRCT and DUKE acknowledge and
agree that neither shall have any right or licence to provide
Diagnostic Services and/or Diagnostic Products, either directly or
indirectly, to any third party and that neither shall have the right
to license or to provide Research Products to a third party, except
for research purposes only. (***)
3.3 In the event that a sub-licence has been granted in accordance with
Clause 3.1.1 and the sub-licensee provides a Diagnostic Service where
the majority of the patients who are the subject of the said service
are required to make a specific financial contribution/payment for the
service they receive, the Sub-licence shall, in respect of the NHS
hospital concerned, be terminable at ONCORMED's option.
3.4 DUKE and ONCORMED agree that should DUKE desire to provide Diagnostic
Services beyond the provisions of Clause 3.1.2, DUKE will take a
Sub-licence from ONCORMED, such Sub-licence to be offered to DUKE on
terms to be negotiated in good faith by DUKE and ONCORMED.
*** 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> 10
4. PAYMENTS FOR LICENCES
4.1 (***)
4.2 In the event that it is necessary for ONCORMED to pay royalties to
third parties (other than Oncor or an affiliate thereof) on sales of
Diagnostic Services, Diagnostic Products or Research Products the
royalty rates specified in Clause (***) shall, on a country-by-country
and product/service basis, be reduced by the total cumulative
royalties payable to third parties (other than Oncor (or an affiliate
thereof), Affiliates of ONCORMED and/or Sub-licensees), divided by the
number of said third parties, subject always to a minimum royalty rate
payable to CRCT of one-half of the applicable rate specified in
Clauses (***) as the case may be.
(***)
Reduction of CRCT's royalties under this Clause 4.2 shall only occur
on the payment by ONCORMED of additional royalties where such
additional royalties are due in respect of patented technology whose
claims cover the provision of the Diagnostic Service, Diagnostic
Product or Research Product. Only one royalty shall be payable on each
unit of Diagnostic Service, Diagnostic Product or Research Product.
4.3 ONCORMED (***) In the event that ONCORMED wishes to conclude a
Sub-licence for Non-Cash Compensation, in part or whole, ONCORMED
shall, prior to the execution of such Sub-licence, agree with CRCT a
true and fair monetary value for the same. Payment shall be made
within ten (10) Business Days of such Sub-licence Fees being actually
received by ONCORMED (having used its reasonable endeavours to secure
such Sub-licence Fees).
4.4 For the avoidance of doubt, all sums due to CRCT pursuant to this
Clause 4 shall be non-refundable and non-creditable against any other
payments due to CRCT hereunder and DUKE also hereby agrees and
confirms that the payments made to CRCT hereunder are for the benefit
of both CRCT and DUKE.
4.5 ONCORMED shall pay all royalties due to CRCT hereunder, in respect of
Net Sales Revenue of ONCORMED and its Affiliates in a given quarter or
in respect of royalties actually received from a Sub-licensee in a
given quarter, quarterly in arrears within forty (40) Business Days of
31 March, 30 June, 30 September and 31 December in each year.
*** 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> 11
4.6 All payments due to CRCT under this Agreement shall be made in US
dollars and to the account of "Cancer Research Campaign Technology
Limited" and forwarded to Mr Roger Feather, or any other appointed
nominee of CRCT, at the following address:
Cancer Research Campaign Technology Limited
Cambridge House
6-10 Cambridge Terrace
Regent's Park
London
NW1 4JL
United Kingdom
4.7 All royalties or other sums payable to CRCT hereunder are stated
exclusive of all applicable withholding taxes, sales taxes and other
similar taxes or duties, for which ONCORMED shall be additionally
liable, and shall be paid in cleared funds without any set-off,
deduction or withholding except for any such tax or duty which
ONCORMED is required by law to deduct or withhold. If ONCORMED is
required by law to make any such tax deduction, or withholding or
payment, ONCORMED shall use its reasonable endeavours to enable or
assist CRCT to claim exemption from or, if not possible, a credit for
the deduction or withholding under any applicable double taxation or
similar agreement from time to time in force, and shall from time to
time give CRCT proper evidence as to the deduction or withholding and
payment of the tax deducted or withheld.
4.8 Where CRCT does not receive payment of any sums due to it within
thirty (30) Business Days of the due date, interest shall accrue on
the sum due and owing to CRCT at the rate equivalent to an annual rate
of (***) over the then current base rate of Lloyds Bank plc, for the
UK, calculated on a daily basis, without prejudice to CRCT's right to
receive payment on the due date.
4.9 ONCORMED shall prepare a quarterly statement showing for the
immediately preceding quarter the number of Diagnostic Service tests
carried out and the number of Diagnostic Products sold, each on a
country-by-country basis, the Net Sales Revenue accruing therefrom and
the calculation of Sub-licence Fees and royalties due to CRCT
hereunder. Such statement shall be submitted to CRCT within forty
(40) Business Days of the relevant quarter date.
*** 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> 12
4.10 ONCORMED shall, and shall procure that its Sub-licensees shall, keep
true and accurate records and books of account containing all data
necessary for the calculation of the amounts payable by it to CRCT
pursuant to this Agreement. Such records and books of account shall be
kept for three (3) years following the end of the calendar year to
which they relate and shall, upon reasonable notice having been given
by CRCT, be open at all reasonable times on Business Days for
inspection, under the terms of confidentiality contained in this
Agreement, by an independent firm of accountants appointed by
agreement between the Parties or, failing such agreement within thirty
(30) Business Days, the President for the time being of the Institute
of Chartered Accountants of England and Wales in London. Any such
examination shall take place not later than three (3) years following
the expiration of the period to which it relates and there shall be no
more than one examination per year. The costs and expenses relating
to such inspection shall be borne by CRCT unless it is established
that as a result of an error ONCORMED has failed to pay at least
ninety-five percent (95%) of the full amount due and owing under this
Agreement, in which event the costs and expenses of such inspection
shall be borne by ONCORMED. In addition any outstanding payments due
to CRCT which are identified as a result of carrying out the
investigation shall be made over to CRCT immediately.
5. INTELLECTUAL PROPERTY
5.1 The ownership of BRCA2 Patent Applications and BRCA2 Patents shall at
all times remain vested in CRCT and DUKE unless otherwise agreed
between CRCT and DUKE.
5.2 CRCT shall be responsible for the filing, prosecution, appeal
proceedings and maintenance of BRCA2 Patent Applications and BRCA2
Patents in the Major Countries and such other countries and
jurisdictions that ONCORMED agrees to fully fund in accordance with
Clause 5.4, unless otherwise agreed in writing by CRCT, DUKE and
ONCORMED and shall at all times use all reasonable endeavours to
accommodate the reasonable requirements of ONCORMED in relation to
matters of filing, prosecution and maintenance.
5.3 Notwithstanding the provisions of Clause 5.2, CRCT and ONCORMED shall
within sixty (60) Business Days of the signing of this Agreement cause
their respective patent agents to agree upon an appropriate course of
action for the filing and prosecution or BRCA2 Patent Applications in
the United States of America (US) including agreement on the identity
of a firm of patent attorneys to be appointed in the US.
5.4 (***)
5.5 (***)
5.6 CRCT shall keep ONCORMED fully informed of the progress of the
prosecution of BRCA2 Patent Applications and maintenance of the BRCA2
Patents and shall furnish copies of such documents as received from
CRCT's patent agents relating thereto.
*** 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> 13
5.7 If any claim is made or threatened against CRCT, DUKE, ONCORMED or a
Sub-licensee (in the case of the latter, where this is made known to
ONCORMED) by any third party that the exercise by ONCORMED or a
Sub-licensee, as the case may be, of the rights granted pursuant to
this Agreement infringes any patent or other rights of any other
person, the Party first notified shall fully notify CRCT, and DUKE or
ONCORMED, as the case may be, as soon as possible. ONCORMED shall
have the right to defend such claims and shall be given all reasonable
assistance by CRCT and DUKE (***)
5.8 ONCORMED at its own cost and expense shall have the right to bring
suit against any party which infringes the rights granted to ONCORMED
pursuant to this Agreement. In such circumstances, ONCORMED shall
notify CRCT and DUKE of the steps which ONCORMED proposes to take in
enforcing its rights prior to taking any such action. CRCT and DUKE
shall provide ONCORMED, at ONCORMED's sole cost and expense, with such
assistance in connection therewith as ONCORMED may reasonably request.
In the event that ONCORMED takes action against infringers of the
rights granted to it hereunder, any and all financial remuneration
awarded to ONCORMED in relation to such action shall be shared equally
with CRCT after ONCORMED has recouped any and all legal, litigation
and patent costs, expenses, disbursements paid by ONCORMED to third
parties, directly incurred in taking such action (including, but not
limited to the fees and expenses of legal counsel, investigators and
expert witnesses).
6. OBLIGATIONS
6.1 Subject to the regulations of any applicable regulatory body, or of
any applicable State or Federal laws in the United States, or any
applicable laws of any jurisdiction in which OncorMed or a
sub-licensee is doing business, ONCORMED shall, and shall procure that
its Sub-licensees shall, use reasonable endeavours to provide
Diagnostic Services in accordance with the guidelines set out in the
Code of Practice, and to provide Diagnostic Services in accordance
with the guidelines set out in the Code of Practice.
6.2 ONCORMED shall use its reasonable endeavours to provide the Diagnostic
Services in at least the Major Countries, either directly or by
sub-licensing the rights granted to it under this Agreement.
6.3 ONCORMED shall use its reasonable endeavours to develop, use, offer
for sale and sell the Diagnostic Products in at least the Major
Countries, either directly or by sub-licensing the rights granted to
it under this Agreement.
6.4 In the event that CRCT concludes an agreement with a third party
covering the Therapeutic Rights under any BRCA2 Patent Application
and/or BRCA2 Patent, CRCT shall pay over to ONCORMED, within thirty
five (35) Business Days of receipt by CRCT from said third 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.
<PAGE> 14
7. CONFIDENTIALITY
7.1 Each Party undertakes and agrees not at any time for any reason
whatsoever to disclose or permit to be disclosed to any third party or
otherwise make use of or permit to be made use of, any trade secrets
or confidential information relating to another Party's technology or
the business affairs or finances of another Party or of an Affiliate,
Sub-licensee or of any suppliers, agents, distributors, or customers
of another Party which come into its possession pursuant to this
Agreement. For the purposes of this Clause 7, BRCA2 Information
constitutes confidential information of CRCT and/or DUKE, as the case
may be, and the quarterly statements provided by ONCORMED pursuant to
Clause 4.9, to either CRCT or DUKE shall constitute confidential
information of ONCORMED.
7.2 It is expected that DUKE will not receive confidential technical or
scientific information under this Agreement. Therefore, it is agreed
that the reception of any such confidential technical and scientific
information by DUKE from ONCORMED shall be provided for under a
separate agreement.
7.3 The obligations of confidence set out in this Clause 7 shall not
extend to any information which:
7.3.1 is, or shall become, generally available to the public
otherwise than by reason of a breach by the recipient Party of the
provisions of this Clause; or
7.3.2 is known to the recipient Party and is at its free disposal
prior to its receipt from another Party, as can be shown by written
record; or
7.3.3 is subsequently disclosed to the recipient Party without
obligations of confidence by another party owing no such obligations
in respect thereof; or
7.3.4 is required to be disclosed by any applicable law or any
regulatory authority to which a Party is from time to time subject to;
or
7.3.5 is independently developed by a person or persons with no
access to the confidential information disclosed by a Party, as
demonstrated by written records.
7.4 Except as specified in 7.2 herein, the obligations of each Party under
this Clause 7 shall survive the expiration or termination of this
Agreement for whatever reason.
7.5 ONCORMED shall procure that the Sub-licensees and its Affiliates, and
CRCT and DUKE shall procure that their Affiliates and those third
parties which have been granted Therapeutic Rights, shall, to the
extent that any of the same have access to any trade secrets or
confidential information proprietary to another Party, are informed of
the secret and confidential nature of the same and are made aware of
and subject to equivalent obligations of confidentiality to those set
out under this Clause 7.
7.6 Each Party agrees to keep the terms and conditions of this Agreement
confidential and not disclose the same to any third party unless, and
to the extent, required by any applicable law or regulation.
Notwithstanding the foregoing, ONCORMED may disclose the terms and
conditions and copies of this
<PAGE> 15
Agreement to third parties that are subject to a confidentiality
obligation covering the same, provided that such third parties are
potential or current Sub-Licensees or investors. ONCORMED shall
endeavour to give CRCT written notice of any disclosures to potential
or current Sub-licensees or investors, but any failure to provide such
notice shall not be a material breach of this Agreement for the
purposes of Clause 9.
8. WARRANTIES, INDEMNITY AND LIABILITY
8.1 CRCT and DUKE each represent that to the best of their knowledge and
belief they are the sole owners of BRCA2 Patent Applications and the
inventions claimed therein and that they are free to enter into this
Agreement.
8.2 ONCORMED represents that it is free to enter into this Agreement.
8.3 (***)
8.4 (***)
8.5 Neither CRCT nor DUKE shall be liable to ONCORMED or its Sub-licensees
nor shall ONCORMED and/or its Sub-licensees be liable to CRCT or DUKE
in contract, tort, negligence, breach of statutory study or otherwise
for any loss, damage, cost or expense of any nature whatsoever of an
indirect or consequential nature (including any economic loss or other
loss of turnover, profits, business or goodwill) arising out of or in
connection with this Agreement or the subject matter of this
Agreement.
8.6 ONCORMED shall maintain in force at its sole cost and expense, with
reputable insurance companies, general liability insurance and
products liability insurance coverage in an amount reasonably
sufficient to protect against liability (***) CRCT and/or DUKE shall
have the right to ascertain from time to time that such coverage
exists, such right to be exercised in a reasonable manner.
8.7 Except for the representations made by CRCT and DUKE in Clause 8.1,
nothing in this Agreement shall be deemed to be a representation or
warranty by either CRCT or DUKE of the validity of any BRCA2 Patents
or the accuracy, safety, efficacy, or usefulness, for any purpose, of
any BRCA2 Information, BRCA2 Patent Applications, or BRCA2 Patents.
CRCT and DUKE shall have no obligation, express or implied, to
supervise, monitor, review or otherwise assume responsibility for the
production, manufacture, testing, marketing or sale of any licensed
product nor any liability whatsoever to ONCORMED or any third party
for or on account of any injury, loss, or damage of any kind or
nature, sustained by, or damage assessed or asserted against, or any
other liability incurred by or in connection with or resulting from:
8.7.1 the production, use or sale of any BRCA2 Protein Product,
Research Product, Diagnostic Product or Diagnostic Service; or
*** 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> 16
8.7.2 the use of BRCA2 Information, BRCA2 Patent Applications or
BRCA2 Patents; or
8.7.3 any advertising or other promotional activities with respect
to any of the foregoing.
8.8 Under no circumstances shall CRCT or DUKE's liability to ONCORMED
under this Agreement, together, in total exceed the sums paid by
ONCORMED from time to time to CRCT pursuant to Clause 4.
8.9 The provisions of this Clause 8 shall survive the expiration or
termination of this Agreement, for whatever reason.
9. TERM AND TERMINATION
9.1 This Agreement shall come into effect on the Commencement Date and
shall expire, on a country by country basis, on the date of expiration
of the last to expire BRCA2 Patent in that country or, if no BRCA2
Patent is granted in a given country, ten (10) years after the first
commercial provision of BRCA2 Diagnostic Service or sale or disposal
of BRCA2 Diagnostic Product.
9.2 If ONCORMED and all the permitted Sub-licensees no longer wish to
undertake the provision of Diagnostic Services and/or the development,
use or sale of Diagnostic Products, ONCORMED shall so notify CRCT in
writing and this Agreement shall terminate ninety (90) Business Days
from receipt of such notice.
9.3 Either CRCT and DUKE acting together on the one hand or ONCORMED on
the other hand ("the Terminating Party") shall have the right to
terminate this Agreement forthwith upon giving written notice of
termination to ONCORMED on the one hand or CRCT and DUKE together on
the other hand, as the case may be, ("the Defaulting Party"), upon the
occurrence of any of the following events at any time during this
Agreement:
9.3.1 the Defaulting Party commits a material breach of this
Agreement which in the case of a breach capable of remedy shall not
have been remedied within forty (40) Business Days of the receipt by
it of a notice identifying the breach and requiring its remedy;
9.3.2 the Defaulting Party for a period of longer than sixty (60)
Business Days suspends payment of its debts or otherwise ceases or
threatens to cease to carry on its business or becomes bankrupt or
insolvent (including without limitation being deemed to be unable to
pay its debts);
9.3.3 a proposal is made or a nominee or supervisor is appointed for
a composition in satisfaction of the debts of the Defaulting Party or
a scheme or arrangement of its affairs, or the Defaulting Party enters
into any composition or arrangement for the benefit of its creditors,
or proceedings are commenced in relation to the Defaulting Party under
any law, regulation or procedure relating to the re-construction or
re-adjustment of debts (including where a petition is filed or
proceeding commenced seeking any reorganisation, arrangement,
composition or re-adjustment under any applicable bankruptcy,
insolvency, moratorium, reorganisation or other similar law affecting
creditor's rights or where the Defaulting Party consents to, or
acquiesces in, the filing of such a petition);
<PAGE> 17
9.3.4 the Defaulting Party takes, without the consent of the
Terminating Party (such consent not to be unreasonably withheld), any
action, or any legal proceedings are started or other steps taken by a
third party, with a view to:
(i) the winding up or dissolution of the Defaulting Party
(other than for the reconstruction of a solvent company for
any purpose, including the inclusion of any part of the share
capital of the Defaulting Party in the Official List of the
London Stock Exchange or in the list of the New York or
American Stock Exchange or quotation of the same on the
National Association of Securities Dealers Automated Quotation
System or an application by the Defaulting Party for
registration as a public company in accordance with the
requirements of the Companies Act 1985); or
(ii) the appointment of a liquidator, trustee, receiver,
administrative receiver, receiver and manager, interim
receiver custodian, sequestrator or similar officer of the
Defaulting Party against the Defaulting Party or a substantial
part of the assets of the Defaulting Party, or anything
analogous to any of the foregoing occurs under the laws of any
country.
9.3.5 Notwithstanding the foregoing provisions of this Clause 9.3,
ONCORMED shall only be deemed to be a Defaulting party in relation to
any of the events set for in Clauses 9.3.2, 9.3.3 and 9.3.4, if
ONCORMED has failed to cure or terminate the event or arrangements
within a period of sixty (60) days from the date of the first
occurrence of such event or arrangements. In any event the provisions
of this Clause 9.3 shall not apply to ONCORMED in respect of any
proceedings under Chapter 11 of the United States Bankruptcy Code made
by or against ONCORMED which contemplate ONCORMED continuing its
operations.
9.4 CRCT and DUKE, acting together and not separately, shall, unless both
have given their prior written approval, have the right to terminate
this Agreement forthwith should any third party, which falls within
one or more of the categories set forth in (***) acquire Control
of ONCORMED. The Parties agree that CRCT and DUKE may add further
categories of third parties to Schedule 4 from time to time by
providing written notice thereof to ONCORMED. However, only Schedule
4 as updated prior to the date on which the Board of Directors of
ONCORMED approves the sale of the "controlling interest" to a third
party, shall be considered when applying the provisions of this Clause
9.4.
10. CONSEQUENCES OF TERMINATION
10.1 Upon expiry or termination of this Agreement for whatever reason:
10.1.1 the licence rights granted by CRCT and DUKE to ONCORMED
pursuant to Clause 2 shall terminate immediately;
10.1.2 ONCORMED shall pay to CRCT within thirty (30) Business Days
all sums due to CRCT and/or DUKE which have accrued prior to the date
of termination or expiry; and
10.1.3 ONCORMED shall return, and shall procure that its Affiliates
and Sub-licensees shall return, to CRCT or as CRCT shall direct all
Documents which embody and pertain to BRCA2 Patent Applications and
BRCA2 Patents and
<PAGE> 18
their use thereof and make no further use of the same for any reason
whatsoever provided however, that ONCORMED shall be entitled to keep
one set, in strict confidence, for legal retention records purposes
only.
10.2 Termination or expiry of this Agreement for whatever reason shall not
affect the accrued rights of the Parties arising in any way out of
this Agreement as at the date of termination and in particular but
without limitation the right to recover damages and interest, and all
provisions which are expressed to survive this Agreement shall remain
in full force and effect.
10.3 Notwithstanding the provisions of Clause 10.1.1, termination or expiry
of this Agreement for whatever reason shall be without prejudice to
the right of ONCORMED or its Affiliates and/or Sub-licensees to fulfil
orders received prior to the termination subject to the payment of
royalties on any Net Sales Revenue accruing in respect thereof at the
rates set out in (***).
11. ASSIGNMENT
11.1 Save as otherwise provided in this Agreement, no Party shall without
the prior written consent of the other Parties, assign the benefit
and/or burden of this Agreement nor sub-contract any of its
obligations hereunder unless otherwise permitted by the terms hereof.
12. FORCE MAJEURE
12.1 If a Party (the "Non-Performing Party") is unable to carry out any of
its obligations under this Agreement due to Force Majeure this
Agreement shall remain in effect but the Non-Performing Party's
relevant obligations under this Agreement and the relevant obligations
of the other Parties ("the Innocent Parties") under this Agreement
shall be suspended for a period equal to the duration of the
circumstance of Force Majeure provided that:
12.1.1 the suspension of performance is of no greater scope than is
required by the Force Majeure;
12.1.2 the Non-Performing Party gives the Innocent Parties prompt
notice describing the circumstance of Force Majeure, including the
nature of the occurrence and its expected duration, and continues to
furnish regular reports during the period of Force Majeure;
12.1.3 the Non-Performing Party uses all reasonable efforts to remedy
its inability to perform and to mitigate the effects of the
circumstance of Force Majeure; and
12.1.4 as soon as practicable after the event which constitutes Force
Majeure the Parties shall discuss how best to continue their
operations as far as possible in accordance with this Agreement.
12.2 If Force Majeure is continuing at the expiry of three (3) months
either of the Innocent Parties may give thirty (30) Business Days
written notice to terminate this Agreement to the Non-Performing Party
and termination shall occur if the Force Majeure is continuing at the
end of that thirty (30) Business Day notice period.
13. GOVERNING LAW
*** 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> 19
13.1 The validity, construction and performance of this Agreement shall be
governed by the laws of England and subject to the non-exclusive
jurisdiction of the English Courts.
14. ARBITRATION
14.1 Any dispute concerning the validity, construction or performance of
this Agreement shall first be promptly considered in good faith
discussions by senior executive officers of the Parties in an attempt
to resolve the dispute and if such discussions should fail to resolve
the dispute it shall be subject, upon written notice from any Party to
each of the other Parties, to arbitration to be resolved by a panel of
three arbitrators as expeditiously as possible in accordance with the
Rules of Conciliation and Arbitration of the International Chamber of
Commerce (ICC), unless the Parties agree otherwise. For disputes
related to patent matters, the dispute shall be in accordance with the
then current ICC Patent Arbitration Rules. For all other disputes,
the dispute shall be in accordance with the then current ICC
Commercial Arbitration Rules. The decision and award rendered by the
arbitrators shall be final and binding upon the Parties. Each Party
shall bear its own costs and expenses, including attorney's fees, in
connection with the arbitration. Judgement upon the award may be
entered in any court having jurisdiction thereof. Any arbitration
pursuant to this Clause 14 shall be held in London, England.
15. WAIVER
15.1 No Party shall be deemed to have waived any of its rights or remedies
whatsoever unless the waiver is made in writing and signed by a duly
authorised representative of that Party. In particular, no delay or
failure of any Party in exercising or enforcing any of its rights or
remedies whatsoever shall operate as a waiver of those rights or
remedies so as to preclude or impair the exercise or enforcement of
those rights or remedies nor shall any partial exercise or enforcement
of any right or remedy by any Party preclude or impair any other
exercise or enforcement of that right or remedy by that Party.
16. SEVERANCE OF TERMS
16.1 If the whole or any part of this Agreement is or becomes or is
declared illegal, invalid or unenforceable in any jurisdiction for any
reason (including both by reason of the provisions of any legislation
and also by reason of any court or Competent Authority which either
has jurisdiction over this Agreement or has jurisdiction over any of
the Parties):
16.1.1 in the case of the illegality, invalidity or un-enforceability
of the whole of this Agreement it shall terminate only in relation to
the jurisdiction in question; or
16.1.2 in the case of the illegality, invalidity or un-enforceability
of part of this Agreement that part shall be severed from this
Agreement in the jurisdiction in question and that illegality,
invalidity or un-enforceability shall not in any way whatsoever
prejudice or affect the remaining parts of this Agreement which shall
continue in full force and effect.
<PAGE> 20
16.2 If in the reasonable opinion of any Party any severance under this
Clause 16 materially affects the commercial basis of this Agreement,
the Parties shall discuss, in good faith, ways to eliminate the
material effect.
17. ENTIRE AGREEMENT AND VARIATIONS
17.1 Except for the agreements referred to in Recitals C and F, this
Agreement embodies and sets forth the entire agreement and
understanding of the Parties and supersedes all prior oral or written
agreements, understandings or arrangements relating to the specific
subject matter of this Agreement. No Party shall be entitled to rely
on any agreement, understanding or arrangement which is not expressly
set forth in this Agreement. It is agreed that should any grant of a
right to ONCORMED by CRCT or DUKE be found to be in conflict with or
otherwise further limited by any previous agreement between CRCT and
DUKE in a way not contemplated by the Parties, that this Agreement
shall be controlling in the interpretation of the grant of rights.
17.2 No director, officer, employee or agent of any Party is authorised to
make any representation or warranty to another Party not contained in
this Agreement, and each Party acknowledges that it has not relied on
any such oral or written representations or warranties.
17.3 No variation, amendment, modification or supplement to this Agreement
shall be valid unless made in writing in the English language and
signed by a duly authorised representative of each Party.
18. NOTICES
18.1 Any notice or other document to be given under this Agreement shall be
in writing in the English language and shall be deemed to have been
duly given if left at or sent by courier, fax (provided a confirmation
copy is sent by mail) recorded mail or registered mail to a Party at
the addresses set out below for such Party or such other addresses as
the Party may from time to time designate by written notice to the
others.
Address of CRCT
Cambridge House
6-10 Cambridge Terrace
Regent's Park
London NW1 4JL
United Kingdom
For the attention of the Chief Executive
Fax No. +44(0) 171 487 4637
Address of ONCORMED, Inc.
205 Perry Parkway
Gaithersburg
Maryland 20877
United States of America
For the attention of Dr Doug Dolginow
Fax No. (+)1 301 527 1539
<PAGE> 21
A copy of any notice to ONCORMED under this Agreement shall be sent
to the law firm of:
Brobeck Phleger & Harrison LLP
1633 Broadway
47th Floor
New York, NY 10019
United States of America
For the attention of Nigel L Howard
Fax No. (+)1 212 586 7878
Address of Duke University
Office of Science and Technology
Duke University
PO Box 90083
230 North Building
Durham
North Carolina 27708
United States of America
For the attention of Dr Andrew Balber
Fax No. (+)1 919 681 7559
19. COUNTERPARTS
19.1 This Agreement may be executed in any number of counterparts and by
the different Parties by separate counterparts, each of which when so
executed shall be the original, and all of which shall constitute one
and the same instrument. Complete sets of counterparts shall be lodged
with each Party.
20. THIS AGREEMENT NOT TO CONSTITUTE A PARTNERSHIP
20.1 None of the provisions of this Agreement shall be deemed to constitute
a partnership between the Parties and none of the Parties shall have
any authority to bind the others in any way except as provided in this
Agreement.
21. COSTS
21.1 Each Party shall bear its own legal costs, legal fees and other
expenses incurred in the preparation and execution of this Agreement.
22. PUBLIC STATEMENTS
22.1 Except as provided in Clause 22.2, no Party will, without the prior
written consent of each other Party:
22.1.1 use in advertising, publicly or otherwise, any trade-name,
personal name, trademark, trade device, service mark, symbol, or any
abbreviation, contraction or simulation thereof, owned by another
Party; or
22.1.2 represent, either directly or indirectly, that any product or
service of another Party is a product or service of the representing
Party or that it is made in accordance with or utilises the
information or documents of another Party.
<PAGE> 22
22.2 The restrictions in Clause 22.2 shall not apply to the following:
22.2.1 a press release, in a form agreed to by all the Parties,
publicly announcing this Agreement; or
22.2.2 use as required by any applicable law or governmental
regulation.
<PAGE> 23
IN WITNESS whereof this Agreement has been executed by duly authorised officers
of the Parties on the date first above written.
Signed by:
------------------------
For and on behalf of
CANCER RESEARCH CAMPAIGN
TECHNOLOGY LIMITED
Dr S E Foden
Chief Executive
Signed by:
------------------------
For and on behalf of
DUKE UNIVERSITY
Robert L. Taber
Associate Vice Chancellor
Signed by:
------------------------
For and on behalf of
ONCORMED, INC.
Doug Dolginow
President
<PAGE> 24
SCHEDULE 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.
<PAGE> 25
SCHEDULE 2
(***)
*** 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> 26
SCHEDULE 3
(***)
*** 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> 27
SCHEDULE 4
(***)
*** 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
Exhibit 11
ONCORMED, INC.
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
NET LOSS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended Nine months ended (July 12, 1993)
September 30, September 30, Through
1997 1996 1997 1996 September 30, 1997
----------- ---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Common Stock 7,828,790 6,990,907 7,654,504 6,743,075 5,420,196
Treasury Stock effect to acquire Common Stock
granted in the twelve months prior to the
Company's initial public offering -- -- -- -- 242,443
----------- ---------- ----------- ----------- ------------
Shares used in computing net loss per share 7,828,790 6,990,907 7,654,504 6,743,075 5,662,639
=========== =========== =========== =========== ============
</TABLE>
28
<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
10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM
10Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,197,385
<SECURITIES> 1,236,057
<RECEIVABLES> 186,564
<ALLOWANCES> 39,569
<INVENTORY> 0
<CURRENT-ASSETS> 3,630,841
<PP&E> 2,624,657
<DEPRECIATION> 1,467,913
<TOTAL-ASSETS> 4,787,585
<CURRENT-LIABILITIES> 994,444
<BONDS> 0
0
0
<COMMON> 30,245,691
<OTHER-SE> (27,169,509)
<TOTAL-LIABILITY-AND-EQUITY> 4,787,585
<SALES> 568,740
<TOTAL-REVENUES> 568,740
<CGS> 304,816
<TOTAL-COSTS> 9,048,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,285
<INCOME-PRETAX> (8,283,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,283,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,283,572)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> 0
</TABLE>
