<PAGE> 1
UNITED STATES
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 quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26244
SEQUANA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
California 33-0550509
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11099 N. Torrey Pines Road, Suite 160, La Jolla, CA 92037
(Address of principal executive offices) (Zip code)
(619) 452-6550
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
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 such shorter period that the registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days -- Yes X No__ ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1997
----- --------------
Common Stock, $.001 par value 10,243,558
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SEQUANA THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
COVER PAGE...................................................................................... 1
TABLE OF CONTENTS............................................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 1997 and December 31, 1996............ 3
Consolidated Statements of Operations for the Three Months and Six
Months Ended June 30, 1997 and 1996........................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996........................................................ 5
Notes to Consolidated Financial Statements.................................... 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.................. 11
ITEM 6. Exhibits and Reports on Form 8-K..................................... 11
SIGNATURE....................................................................................... 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SEQUANA THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,176,593 $ 9,402,958
Investment securities, available-for-sale 28,874,567 43,316,733
Marketable equity securities, available-for-sale 6,225,000 --
Receivable from strategic alliance partners 4,417,572 418,763
Other current assets 2,009,227 2,401,592
------------ ------------
Total current assets 57,702,959 55,540,046
------------ ------------
Furniture and equipment, net 8,492,215 8,285,305
Investment in joint venture 1,013,145 --
Other assets 295,572 1,737,075
Notes receivable from officers and employees 465,844 530,844
============ ============
$ 67,969,735 $ 66,093,270
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,668,141 $ 3,965,475
Deferred revenue 4,777,313 3,357,936
Current portion of loans and capital lease obligations 3,177,578 2,396,523
------------ ------------
Total current liabilities 11,623,032 9,719,934
------------ ------------
Loans and capital lease obligations, less current portion 6,147,667 4,524,311
Shareholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized, 10,239,358 shares
and 10,113,243 shares issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 10,239 10,113
Additional paid-in capital 92,473,528 90,611,609
Notes receivable from shareholders (263,037) (237,040)
Deferred compensation (984,206) (1,220,650)
Unrealized gain on marketable equity securities,
available-for-sale 4,770,833 --
Accumulated deficit (45,808,321) (37,315,007)
------------ ------------
Total shareholders' equity 50,199,036 51,849,025
------------ ------------
$ 67,969,735 $ 66,093,270
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to consolidated financial statements.
3
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SEQUANA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue under strategic alliances $ 6,056,724 $ 2,887,247 $ 8,565,692 $ 4,772,802
Operating expenses:
Research and development 7,658,737 6,351,761 15,172,265 11,430,489
General and administrative 1,304,716 1,229,999 2,522,147 2,219,459
------------ ------------ ------------ ------------
8,963,453 7,581,760 17,694,412 13,649,948
------------ ------------ ------------ ------------
Loss from operations (2,906,729) (4,694,513) (9,128,720) (8,877,146)
Equity in net loss of joint venture (333,364) -- (467,855) --
Other income (expense):
Interest income 659,673 927,911 1,376,896 1,574,863
Interest expense (146,350) (107,338) (273,635) (193,999)
============ ============ ============ ============
Net loss $ (2,726,770) $ (3,873,940) $ (8,493,314) $ (7,496,282)
============ ============ ============ ============
Net loss per share $ (0.27) $ (0.39) $ (0.83) $ (0.81)
============ ============ ============ ============
Shares used in computing net
loss per share 10,221,719 9,879,515 10,184,311 9,240,702
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SEQUANA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (8,493,314) $ (7,496,282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,574,256 1,039,667
Amortization of deferred compensation 236,444 217,383
Equity in net loss of joint venture 467,855 --
Change in operating assets and liabilities (2,484,401) 664,416
------------ ------------
Net cash used in operating activities (8,699,160) (5,574,816)
INVESTING ACTIVITIES:
Purchases of investment securities (13,570,994) (37,288,341)
Sales and maturities of investment securities 28,013,160 16,067,498
Purchases of furniture and equipment (1,779,954) (578,823)
Investment in joint venture (1,185,400) --
Other investing activities 51,124 (1,709,477)
------------ ------------
Net cash provided by (used in) investing activities 11,527,936 (23,509,143)
FINANCING ACTIVITIES:
Issuances of common stock 1,381,045 31,173,695
Proceeds from notes payable 3,550,000 --
Repayments of loans and capital lease obligations (1,145,589) (876,218)
Other financing activities 159,403 (12,965)
------------ ------------
Net cash provided by financing activities 3,944,859 30,284,512
------------ ------------
Increase in cash and cash equivalents 6,773,635 1,200,553
Cash and cash equivalents at beginning of period 9,402,958 13,512,688
------------ ------------
Cash and cash equivalents at end of period $ 16,176,593 $ 14,713,241
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 273,635 $ 193,999
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases and loans $ -- $ 2,856,180
============ ============
Unrealized gain on marketable equity securities, available-for-sale $ 4,770,833 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The accompanying financial statements
reflect all adjustments (consisting of normal recurring accruals) which
are, in the opinion of management, considered necessary for a fair
presentation of the results for the interim periods presented. The Company
has experienced significant quarterly fluctuations in operating results and
it expects that these fluctuations in revenues, expenses and net losses
will continue.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information have
read or have access to the audited financial statements for the preceding
fiscal year. Accordingly, these financial statements should be read in
conjunction with the audited financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of
shares outstanding during the interim periods. Shares issuable upon the
exercise of outstanding stock options and warrants are not reflected as
their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute net earnings (loss) per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The adoption of the new standard will have no effect on the
Company's loss per share for the three months and six months ended June 30,
1997 and 1996.
3. MARKETABLE EQUITY SECURITIES, AVAILABLE-FOR-SALE
At June 30, 1997, the Company classified its equity investment in
Aurora Biosciences Corporation ("Aurora") as marketable equity securities,
available-for-sale in accordance with FASB Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Aurora completed
its initial public offering in June 1997 and, as a result, the Company
reported an unrealized gain of $4.8 million on its investment in Aurora at
June 30, 1997. The unrealized gain represents the excess of the fair value
of Sequana's investment over the original cost ($1.5 million) and is
reported as a separate component of shareholders' equity.
6
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SEQUANA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
4. INVESTMENT IN JOINT VENTURE
In January 1997, the Company and Memorial Sloan-Kettering Cancer
Center ("MSKCC") formed Genos Biosciences, Inc. ("Genos"), a joint venture
focused on the research and identification of genes and related genetic
information of value in the prognosis, diagnosis and possible treatment of
certain common cancers. The Company and MSKCC each own 50% of Genos and
have committed to make capital contributions of approximately $5 million
each to fund its initial operations. The Company invested approximately
$1.2 million in Genos in connection with its formation and anticipates that
Sequana's remaining capital contribution will be funded during 1997 and
early 1998. The investment in Genos is accounted for under the equity
method.
Under terms of the agreement, the Company licensed certain of its
technology to Genos and has contracted with Genos to conduct research and
provide certain other services to the joint venture. Payments to date for
such research and services have not been material.
In connection with the formation of Genos, the Company sold a warrant
to MSKCC to purchase 350,000 shares of the Company's common stock
exercisable at a price of $17.38 per share. The Company's Chairman of the
Board, Chief Executive Officer and Chief Financial Officer are members of
the Board of Directors of Genos.
5. SHAREHOLDERS' EQUITY
In February 1997, pursuant to terms of the strategic alliance
agreement with the Company, Corange International, Ltd. made a $1.25
million private equity investment in the Company, purchasing 56,849 shares
of common stock at a price of $21.99 per share.
6. STRATEGIC ALLIANCES
In June 1997, the Company expanded its strategic alliance with
Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") in the
area of asthma. Under terms of the expanded alliance, Boehringer Ingelheim
doubled its level of research funding to the Company to support additional
research into asthma-related genes. The increased funding support was
effective retroactively to January 1, 1997 and will continue through the
term of the original five-year agreement, subject to certain rights of
early termination.
In June 1997, the Company was awarded a $2 million research milestone
from Boehringer Ingelheim in connection with Sequana's discovery of a gene
responsible for asthma. At June 30, 1997, the Company reported a receivable
from strategic alliance partners of $4.4 million consisting primarily of
the milestone payment and research funding associated with the expansion of
the strategic alliance with Boehringer Ingelheim. The receivable from
strategic alliance partners was received in July 1997.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in February 1993 and has devoted substantially
all of its resources since that time to the development of an integrated
technology platform for discovering and characterizing genes associated with
common human diseases. The Company has also developed or acquired access to a
variety of technologies that the Company believes will be useful in determining
gene function. The Company believes that identification of disease genes and
determination of their biological function will provide insights into the
fundamental causes of these diseases and may facilitate the development of novel
prognostic, diagnostic and therapeutic products. The Company has incurred
substantial operating losses since inception and, as of June 30, 1997, had
incurred a cumulative net loss of $45.8 million. The Company anticipates
incurring additional losses over at least the next several years as it continues
its gene discovery, functional genomics and bioinformatics activities. Continued
expansion of certain research activities may result in increases in both
research and development and general and administrative expenses.
The Company does not anticipate revenues from product sales in the
foreseeable future. The Company's sources of revenue for the next several years
will be payments under existing strategic alliances, license fees, proceeds from
the sale of rights, payments from future strategic alliances and licensing
arrangements, if any, and interest income. Certain payments under strategic
alliances are contingent upon the Company meeting established milestones.
Payments under strategic alliances and licensing arrangements will be subject to
significant fluctuation in both timing and amount and, therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period.
An integral component of Sequana's business strategy is to enter into
strategic alliances with major pharmaceutical and biotechnology companies in
order to develop and commercialize products based on information provided by the
Company's gene discovery, functional genomics and bioinformatics technologies.
In July 1994, the Company entered into a strategic alliance with Glaxo Wellcome
Inc. ("Glaxo") to discover disease genes associated with type II diabetes. In
February 1996, this alliance was expanded to include the study of human obesity.
In June 1995, the Company entered into strategic alliances with Boehringer
Ingelheim International GmbH ("Boehringer Ingelheim") in the area of asthma and
with Corange International, Ltd. ("Corange") in the area of osteoporosis. In
June 1997, the alliance with Boehringer Ingelheim was expanded to support
additional research into asthma-related genes. Pursuant to the terms of the
various agreements, the Company has granted the strategic alliance partners
exclusive worldwide rights to develop and commercialize therapeutic products
which may be discovered as a result of the alliances. Sequana has generally
retained the right to develop and commercialize diagnostic products based on its
gene discoveries. Under the terms of the strategic alliance agreements, the
Company receives ongoing payments for research support, and may receive payments
upon the achievement of certain research and product development milestones and
royalties on the sale of products resulting from the alliance. Such agreements
generally provide the strategic alliance partners certain rights of early
termination. During 1997, the Company also entered into research agreements with
Glaxo in the area of gene function analysis and with ZymoGenetics, Inc. in the
area of bioinformatics and sequencing.
RESULTS OF OPERATIONS
Revenue under strategic alliances increased to $6.1 million for the three
months ended June 30, 1997 from $2.9 million for the comparable period of 1996,
and $8.6 million for the six months ended June 30, 1997 from $4.8 million in the
comparable period of 1996. Such increases were primarily
8
<PAGE> 9
attributable to attainment of the $2 million research milestone and increased
research support resulting from expansion of the strategic alliance with
Boehringer Ingelheim in June 1997 (See Note 6 of Notes to Consolidated
Financial Statements).
Research and development expenses increased to $7.7 million for the three
months ended June 30, 1997 from $6.4 million for the comparable period of 1996,
and $15.2 million for the six months ended June 30, 1997 from $11.4 million in
the comparable period of 1996. The increase in research and development expenses
was primarily attributable to increased costs associated with expansion of the
Company's gene discovery efforts and functional genomics and screening
technology platform. Such costs consisted primarily of increased personnel
expenses, supply costs, and facility and equipment expenses associated with
expansion of the Company's research organization. The Company may continue to
expand its functional genomics, screening and bioinformatics activities in
future periods, and such expansion may result in additional increases in
research and development expenses. In addition, the Company may pursue the
acquisition of additional technologies which it believes could further
complement its gene discovery, functional genomics and bioinformatics
capabilities.
General and administrative expenses increased to $1.3 million for the three
months ended June 30, 1997 from $1.2 million during the comparable period of
1996, and $2.5 million for the six months ended June 30, 1997 from $2.2 million
for the comparable period of 1996. Increases in general and administrative
expenses largely reflect expansion of the Company's administrative organization
to support increased research efforts and business development activities. Such
increases are comprised primarily of costs associated with the addition of
management and support personnel as well as expenses related to increased
business development activities. General and administrative expenses may
increase in future periods as a result of expansion necessary to support
continued increases in research and development programs and business
development activities.
Genos Biosciences, Inc. ("Genos"), the joint venture between Sequana and
Memorial Sloan-Kettering Cancer Center, commenced operations in February 1997.
Genos expects to incur increased operating losses in future periods as it
expands its research and development activities, and such losses will result in
corresponding increases in Sequana's equity in net loss of joint venture.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
public and private offerings of its equity securities (generating net proceeds
of approximately $82 million) and cash received pursuant to the Company's
strategic alliances ($31.2 million). At June 30, 1997, the Company had cash,
cash equivalents and investment securities totaling $45.1 million compared to
$52.7 million at December 31, 1996. The Company also had $6.2 million in
marketable equity securities, available-for-sale at June 30, 1997 (see Note 3 of
Notes to Consolidated Financial Statements). The decrease in cash, cash
equivalents and investment securities during the six months ended June 30, 1997
was largely attributable to cash used in the Company's operating activities,
Sequana's initial $1.2 million investment in Genos (See Note 4 of Notes to
Consolidated Financial Statements) and equipment-related costs. Such cash
disbursements were offset, in part, by $3.5 million in proceeds from the
Company's credit agreement with a bank and $1.4 million in net proceeds from the
issuance of common stock.
Pursuant to terms of the Company's joint venture agreement with Genos (See
Note 4 of Notes to Consolidated Financial Statements), Sequana has committed to
invest an additional $4 million in Genos during 1997 and early 1998. The Company
also has commitments associated with its capital
9
<PAGE> 10
leases, loans and operating leases. In addition to these commitments, the
Company anticipates that it may invest up to an aggregate of $3 million in
equipment during 1997. Terms of the Company's credit agreement with a bank
enable the Company to finance up to an additional $2.5 million of capital
expenditures or other working capital requirements through September 1997,
subject to compliance with certain financial covenants and conditions.
The Company's continued expansion of its research and development
activities, its future capital requirements and the adequacy of its available
funds will depend on many factors, including progress of its gene discovery
programs, the number and breadth of these programs, the continuation of and
achievement of milestones under strategic alliance arrangements, the ability of
the Company to establish additional strategic alliances and licensing
agreements, the progress of the development and commercialization efforts of the
Company's strategic alliance partners, competing technological and market
developments, the costs associated with collecting patient information and DNA
samples, the costs involved in preparing, filing, prosecuting and maintaining
and enforcing patent claims and other intellectual property rights, the
regulatory process and other factors.
The Company believes that its existing cash, cash equivalents and
securities and anticipated cash flows from its current strategic alliances will
be sufficient to support the Company's operations through 1999. The Company is
actively seeking to establish new strategic alliances with potential corporate
partners, and may seek to raise additional financing through public or private
equity or debt financings or licensing arrangements. No assurance can be given
that additional financing or strategic alliance and licensing arrangements will
be available when needed or that, if available, such financing or strategic
alliance and licensing arrangements will be obtainable on terms favorable to the
Company or its shareholders. To the extent the Company raises additional capital
by issuing equity securities, ownership dilution to shareholders will result. In
the event that adequate funds are not available, the Company's business may be
adversely affected. The Company's forecast of the period of time through which
its financial resources will be adequate to support its operations and the
statements with regard to future expansion of its research and development
activities are forward-looking statements, and actual results and timing of
certain events could vary. The factors described earlier in this section will
impact the Company's future capital requirements and the adequacy of its
available funds which could cause the period of time through which the Company's
financial resources will be adequate to support its operations to vary from that
set forth above.
10
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of Sequana Therapeutics, Inc.
was held on June 24, 1997.
(b) The matters voted upon at the meeting and the voting results were
as follows:
(i) The election of seven directors for a term of one year:
Name For Against Withheld
---- --- ------- --------
Irwin Lerner 8,684,504 -- 154,650
Kevin J. Kinsella 8,684,547 -- 154,607
Timothy J.R. Harris 8,684,747 -- 154,407
Howard D. Palefsky 8,684,204 -- 154,950
Richard Darman 8,683,804 -- 155,350
Thomas C. McConnell 8,685,104 -- 154,050
Thomas C. Stephenson 8,684,404 -- 154,750
(ii) Approval of amendment of the Company's 1994 Incentive
Stock Plan to increase the number of shares reserved for
issuance:
For Against Abstain
--- ------- -------
8,203,141 620,875 15,138
(iii) Ratification of the selection of Ernst & Young LLP as
independent auditors of the Company for the fiscal
period ending December 31, 1997:
For Against Abstain
--- ------- -------
8,826,726 8,510 3,918
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
10.18* Amendment to Collaborative Research Agreement of
June 12, 1995 between Registrant and Boehringer
Ingelheim International GmbH. dated June 19, 1997.
10.19 Second Amendment to Expansion Lease by and between
Registrant and Alexandria Real Estate Equities,
Inc. dated as of May 20, 1997.
27.1 Financial Data Schedule
- ------------------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit.
(b) Reports on Form 8-K
None
11
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SEQUANA THERAPEUTICS, INC.
June 30, 1997
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Sequana Therapeutics, Inc.
Date: August 12, 1997 By: /s/ M. Scott Salka
--------------------------------
M. Scott Salka
Vice President of Operations,
Chief Financial Officer and
Principal Financial and
Accounting Officer
12
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EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
10.18* Amendment to Collaborative Research Agreement of June 12, 1995
between Registrant and Boehringer Ingelheim International GmbH.
dated June 19, 1997.
10.19 Second Amendment to Expansion Lease by and between Registrant and
Alexandria Real Estate Equities, Inc. dated as of May 20, 1997.
27.1 Financial Data Schedule
</TABLE>
* Confidential treatment has been requested with respect to certain
portions of this exhibit.
- -------------
13
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80 (b)(4), 200.83
AND 230.406. *INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION.
Boehringer [LOGO]
Ingelheim
Boehringer Ingelheim International - D-55216 Ingelheim am Rhein
- ------------------------------------------------------------------------------
Boehringer Ingelheim
International GmbH
SEQUANA THERAPEUTICS, INC.
11099 NORTH TORREY PINES ROAD
SUITE 160
LA JOLLA, CA 92037
U.S.A.
Your reference: Our reference: Phone-No Fax-No Ingelheim am Rhein
BPG Dr. Mi/is 06132-77-3408 06132-77-3583 June 19, 1997
sequ1907.doc
AGREEMENT OF JUNE 12, 1995
Dear Sirs,
We are writing to confirm our agreement to amend clause 2.3.2 of the above
Agreement to the effect that Sequana will increase its commitment to the
Research from *** to *** FTE's.
Such increase and BI's obligation to fund Research by *** FTE's at Sequana will
be effective as from January 1, 1997 and shall continue for the remainder of the
Research Term provided, however, that BI will have the right to reduce the
number of FTE's to *** from July 1, 1998 upon three (3) months written notice.
Please confirm your agreement by signing below and returning one of the
originals to us.
Best regards, Accepted:
BOEHRINGER INGELHEIM Date: July 1, 1997
INTERNATIONAL GMBH SEQUANA THERAPEUTICS, INC.
ppa.
/s/ M. SALKA
/s/ H.-P. MULLER /s/ U. KUSSEROW ---------------------------------
H.-P. Muller U. Kusserow by: M. Salka
------------------------------
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO EXPANSION LEASE
THIS SECOND AMENDMENT TO EXPANSION LEASE ("Amendment"), dated and effective as
of May 20, 1997 (the "Effective Date"), is entered into by and between SEQUANA
THERAPEUTICS, INC., a California corporation ("Tenant"), and ALEXANDRIA REAL
ESTATE EQUITIES, INC., formerly HEALTH SCIENCE PROPERTIES, INC., a Maryland
corporation ("Landlord") in connection with the following:
A. Landlord and Tenant are parties to that certain Expansion Lease, dated
as of November 20, 1995, as amended by that certain First Amendment to Expansion
Lease dated as of October __, 1996 (as amended, the "Lease"), pursuant to which
Tenant leases from Landlord certain premises (the "Demised Premises") in a
building located at 11099 North Torrey Pines Road, La Jolla, California (the
"Building"), and more particularly described in the Lease. All capitalized terms
used but not otherwise defined herein shall have the meanings given them in the
Lease.
B. Landlord has agreed, among other things, to lease to Tenant certain
portions of the suite in the Building currently designated as Suite 250, which
space shall remain designated as Suite 250 but shall be configured as outlined
on Exhibit A attached hereto (the "Additional Space"), and Tenant has agreed to
accept such Additional Space.
C. Landlord and Tenant now desire to amend the Lease to reflect the lease
of the Additional Space to Tenant upon the terms and conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and the mutual covenants contained
herein, the parties hereto hereby agree as follows:
1. AMENDMENT TO LEASE.
1.1 Effective from and after the Effective Date, Exhibit A- 2 to
the Lease is hereby replaced in its entirety with Exhibit B attached hereto.
<PAGE> 2
1.2 Section 2.1.3(a) of the Lease is hereby amended in its
entirety, effective from and after the Effective Date, to read as follows:
"Rentable Area of the Demised Premises:
55,548 total sq. ft. as follows:
1. Suites 160 & 160-A: 25,063 sq. ft.
2. Suite 160 Exp.: 1,105 sq. ft.
3. Suite 200: 5,821 sq. ft.
4. Suite 210: 2,558 sq, ft.
5. Suite 210 Exp.: 632 sq. ft.
6. Suite 220: 4,403 sq. ft.
7. Suite 250: 2,981 sq. ft.
8. Suite 280: 5,546 sq, ft.
9. Suite 290: 7,439 sq. ft."
1.3 Section 2.1.3(b) of the Lease is hereby amended in its
entirety, effective from and after the Effective Date, to read as follows:
"Rentable Area of Building:
86,962 sq. ft."
1.4 Section 2.1.3(c) of the Lease is hereby amended in its
entirety, effective from and after the Effective Date, to read as follows:
"Useable Area of the Demised Premises:
48,716 total sq. ft. as follows:
1. Suites 160 & 160-A: 22,339 sq. ft.
2. Suite 160 Exp.: 962 sq. ft.
3. Suite 200: 4,992 sq. ft.
4. Suite 210: 2194 sq, ft.
5. Suite 210 Exp.: 541 sq. ft.
6. Suite 220: 3,780 sq. ft.
7. Suite 250: 2,515 sq. ft.
8. Suite 280: 4,866 sq, ft.
9. Suite 290: 6,527 sq. ft."
2
<PAGE> 3
1.5 Section 2.1.4 of the Lease is hereby amended in its entirety,
effective from and after the Effective Date, to read as follows:
"Initial Basic Annual Rent:
1. For all of the Demised Premises other than Suite 220:
(51,145 sq. ft.) x ($1.8025 per sq. ft.) x (12 months) =
$1,106,266.35.
2. For Suite 220 until December 17, 1997: (4,403 sq. ft.) x
($2.11 per sq. ft.) x (12 months) = $111,483.96.
3. For Suite 220 from and after December 17, 1997: (4,403 sq.
ft.) x (the Monthly Rental In- stallment at the per square
foot rental rate then payable with respect to the balance of
the De- mised Premises) x (12)."
1.6 Section 2.1.5 of the Lease is hereby amended in its entirety,
effective from and after the Effective Date, to read as follows:
"Initial Monthly Rental Installments of Basic Annual Rent:
1. For all of the Demised Premises other than Suite 220:
(51,145 sq. ft.) x ($1.8025 per sq. ft.) = $92,188.86."
2. For Suite 220 until December 17, 1997: (4,403 sq. ft.) x
($2.11 per sq. ft.) x (12 months) = $9,290.33.
3. For Suite 220 from and after December 17, 1997: (4,403 sq.
ft.) x (the Monthly Rental In- stallment at the per square
foot rental rate then payable with respect to the balance of
the De- mised Premises)."
3
<PAGE> 4
1.7 Section 2.1.6 of the Lease is hereby amended in its entirety,
effective from and after the Effective Date, to read as follows:
"Tenant's Pro Rata Share:
63.87% of the Building as follows:
1. Suites 160 & 160-A: 28.82%.
2. Suite 160 Exp.: 1.27%
3. Suite 200: 6.69%
4. Suite 210: 2.94%
5. Suite 210 Exp.: 0.73%
6. Suite 220: 5.06%
7. Suite 250: 3.43%
8. Suite 280: 6.38%
9. Suite 290: 8.55%"
1.8 Section 2.1.10 of the Lease is hereby amended in its
entirety, effective from and after the Effective Date, to read as follows:
"Address for Rent Payment:
251 South Lake Avenue, Suite 700
Pasadena, California 91101
Address for Notices to Landlord:
11440 West Bernardo Court, Suite 170
San Diego, California 92127
Address for Notices to Tenant:
11099 North Torrey Pines Road, Suite 160
La Jolla, California, 92037"
1.9 Section 2.1.13 of the Lease is hereby amended by adding the
following sentence at the end thereof: "The Tenant Improvement Allowance
originally granted in the amount of $470,300.00 has been spent in its entirety
by Tenant."
1.10 "Available Space", as such term is defined in Section 46.1.1
of the Lease is hereby amended, effective from and after the Effective Date, to
mean any rentable area within the Building which Landlord is not obligated, as
of or prior to the Effective Date, to deliver to any other tenant pursuant to
the terms of such tenant's lease and which rentable area is not
4
<PAGE> 5
otherwise leased to or occupied by any other tenant and is not, as of or prior
to the Effective Date, subject to any term extension options or rights of any
other tenant. Landlord represents that, except for the amendment with Agouron
executed by Landlord substantially concurrently herewith, it has not granted any
similar additional rights to any other tenants since November 30, 1995.
1.11 Section 46.3 of the Lease is hereby amended in its entirety,
effective from and after the Effective Date,to read as follows: " Priority.
Tenant's rights in connection with the Expansion Option are and shall be senior
in priority to any similar rights granted after July 31, 1986, to any other
tenants at the Building other than Agouron Pharmaceuticals, Inc. ("Agouron") and
Cytel Corporation ("Cytel"), and Tenant's Expansion Option rights shall be
junior and subordinate to all similar rights of Agouron and Cytel (and their
respective successors and assigns) in existence as of the Effective Date."
2. IMPROVEMENTS; COMMENCEMENT.
2.1 Landlord shall, at Landlord's sole cost and expense, cause to
be constructed in Suite 250 a demising wall, a new doorway and certain other
improvements as may be required to cause Suite 250 to comply with all applicable
building codes and to otherwise comply with the provisions of Section 4.1 of the
Lease immediately prior to delivery of possession thereof to Tenant
(collectively, "Landlord's Work"). Landlord shall use commercially reasonable
efforts to cause Landlord's Work to be commenced and completed as soon as
reasonably possible after the Effective Date. Landlord shall deliver possession
of Suite 250 to Tenant upon the substantial completion (as defined in Section
2.4 hereof) of Landlord's Work.
2.2 Landlord shall provide Tenant with an allowance of $108,340
(the "Additional Improvement Allowance") to construct the tenant improvements
and alterations to the Demised Premises as generally described in Exhibit C
attached hereto (collectively, "Tenant's Work"). Any costs incurred in
performing Tenant's Work in excess of the Additional Improvement Allowance shall
be borne solely by Tenant. All of Tenant's Work shall be performed and
constructed in accordance with Section 17 of the Lease and in accordance with
the terms hereof. Tenant shall have until December 31, 1998 to expend the
Additional Improvement Allowance and Landlord shall have no obligation to fund
or disburse any portion of the Additional Improvement Allowance after such date.
Tenant shall have the right to obtain disbursement of the first $33,000 of the
Additional Improvement Allowance (the "Initial Amount") from Landlord from
5
<PAGE> 6
time to time upon request and without any additional documentation, and
disbursement of the balance of the Additional Improvement Allowance in excess of
the Initial Amount shall be made from time to time but not more frequently than
once per calendar month upon receipt of such lien releases and certificates from
Tenant and Tenant's architects, contractors, subcontractors, suppliers,
mechanics and materialmen as Landlord or Landlord's lenders may reasonably
request, together with such evidence of completion of the Tenant's Work for
which disbursement is requested and of the proper application of any portion of
the Additional Improvement Allowance in excess of the Initial Amount as may have
theretofore been paid or disbursed, and such other information and materials, as
Landlord or Landlord's lenders may reasonably request. Landlord, in its
discretion may elect to make any requested disbursements in excess of the
Initial Amount directly to the contractors or supplier for which disbursement
has been requested. Landlord should not unreasonably withhold its approval with
respect to Tenant's proposed alterations, provided such alterations are
performed by architects, contractors, suppliers or mechanics approved by
Landlord in its sole discretion, exercised in good faith.
2.3 Tenant shall have the right to enter into Suite 250 prior to
the completion of Landlord's Work ("Early Occupancy") for the purpose of
installing Tenant's equipment and other personal property and otherwise
performing Tenant's Work, so long as such entrance and occupancy does not
interfere with the completion of Landlord's Work. During any period of Early
Occupancy, Tenant shall be subject to all of the terms and provisions of the
Lease, as amended hereby, other than the obligation to pay Rent.
2.4 Notwithstanding anything to the contrary contained herein,
Tenant shall have no obligation to pay Rent or perform any other obligation of
the Lease other than in connection with Early Occupancy with respect to Suite
250 until the later to occur of (i) the date Landlord delivers possession with
all of Landlord's Work substantially completed (subject only to a punch list of
items which do not materially interfere with Tenant's use of Suite 250), or (ii)
in connection with Landlord's Work, Landlord has received a temporary
certificate of occupancy, if required, and a substantial completion certificate
from the architect for the occupancy of Suite 250. If neither of the events set
forth in clauses (i) or (ii), above, have occurred on or before June 15, 1997
(the "Target Delivery Date"), then, in addition to Tenant's other rights under
this Amendment, the date on which Tenant is obligated to begin paying Rent with
respect to Suite 250 shall be delayed by one (1) day for each one (1) day after
the
6
<PAGE> 7
Target Delivery Date that neither of the events set forth in clauses (i) or
(ii), above, have occurred.
2.5 Landlord agrees that it shall not construct or cause to be
constructed any material additional rentable square footage in the atrium
portion of the Building without the prior consent of Tenant, which shall not be
unreasonably withheld, conditioned or delayed; provided, however, that Landlord
and Tenant agree that Tenant may consider the aesthetic impact upon the atrium
of the Building and upon the Demised Premises as a result of any such proposed
construction. Landlord acknowledges that it has no current plans to expand the
rentable area of the Building into the atrium.
3. RIGHT OF FIRST OFFER TO LEASE ADJACENT PAD.
In the event that Landlord constructs or determines to pursue a
build-to-suit project for a free-standing office or laboratory building upon the
land immediately adjacent to the Building and more particularly described on
Exhibit D attached hereto and desires to lease such new building for any purpose
other than for parking, storage or placement of temporary trailers, Landlord
shall deliver written notice thereof to Tenant, together with the terms and
conditions upon which Landlord desires to lease such new building. Tenant shall
have ten (10) business days following receipt of Landlord's notice to deliver to
Landlord written notification of Tenant's agreement to lease from Landlord such
new building upon the same terms and conditions as set forth in Landlord's
notice. In the event Tenant fails to deliver notice of acceptance within such
ten (10) business day period, or if Landlord and Tenant are unable to agree upon
any of the terms of the lease agreement for such premises after negotiating in
good faith, Tenant shall be deemed to have waived any right to lease such new
building; provided, however, that in the event Landlord does not lease such new
building within one-hundred eighty (180) days thereafter, any proposed lease,
for any purpose other than for parking, storage or placement of temporary
trailers, shall again be subject to the provisions of this Section 3.
4. MISCELLANEOUS:
4.1 This Amendment shall be deemed to have been exe- cuted and
delivered within the State of California, and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with, and governed
by, the laws of the State of California.
7
<PAGE> 8
4.2 This Amendment is the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior and
contemporaneous oral and written agreements and discussions. This Amendment may
be amended only by an agreement in writing, signed by the parties hereto.
4.3 This Amendment is binding upon and shall inure to the benefit
of the parties hereto, their respective agents, employees, representatives,
officers, directors, divisions, subsidiaries, affiliates, assigns, heirs,
successors in interest and shareholders.
4.4 Each party has cooperated in the drafting and prepa- ration
of this Amendment. Hence, in any construction to be made of this Amendment, the
same shall not be construed against any party.
4.5 Each term of this Amendment is contractual and not merely a
recital. 4.6 This Amendment may be executed in counterparts, and when each party
has signed and delivered at least one such counterpart, each counterpart shall
be deemed an original, and, when taken together with other signed counterparts,
shall constitute one Amendment, which shall be binding upon and effective as to
all parties.
4.7 The unenforceability of a portion of this Amendment shall not
affect the enforceability of the remainder of this Amendment.
4.8 The parties will execute all such further and additional
documents as shall be reasonable, convenient, necessary or desirable to carry
out the provisions of this Amendment.
4.9 Except as specifically amended or modified by this Amendment,
the Lease (including, without limitation, Tenant's expansion and extension
rights contained in the Lease as modified hereby) remains in full force and
effect.
4.10 EACH PARTY ACKNOWLEDGES THAT IT HAS HAD ADEQUATE OPPORTUNITY
TO CONSULT WITH LEGAL COUNSEL OF ITS CHOOSING IN CONNECTION WITH THE EXECUTION
HEREOF AND HAS DONE SO, OR VOLUNTARILY ELECTED NOT TO DO SO.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
"Tenant"
SEQUANA THERAPEUTICS, INC.,
a California corporation
By: /s/ M. SALKA
--------------------------------
Its: VP, CFO
-------------------------------
"Landlord"
ALEXANDRIA REAL ESTATE EQUITIES,
INC., formerly known as HEALTH SCI-
ENCE PROPERTIES, INC.,
a Maryland corporation
By: /s/ GARY A. KREITZER
--------------------------------
Its: Senior Vice President
-------------------------------
9
<PAGE> 10
EXHIBIT C
Tenant's Work
Improvements to the Demised Premises, including, without limitation,
wiring and building laboratory benches.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,177
<SECURITIES> 28,874
<RECEIVABLES> 4,417
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,703
<PP&E> 14,237
<DEPRECIATION> (5,745)
<TOTAL-ASSETS> 67,970
<CURRENT-LIABILITIES> 11,623
<BONDS> 6,148
<COMMON> 92,484
0
0
<OTHER-SE> 3,524
<TOTAL-LIABILITY-AND-EQUITY> 67,970
<SALES> 0
<TOTAL-REVENUES> 8,566
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,493)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> 0
</TABLE>
