<PAGE>
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 September 30, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21699
VIROPHARMA INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-2347624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 Great Valley Parkway
Malvern, Pennsylvania 19355
(Address of Principal Executive Offices and Zip Code)
610-651-0200
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days: Yes X No
--- ---
Number of shares outstanding of the issuer's Common Stock, par value $.002 per
share, as of November 10, 1997: 11,463,106 shares.
1
<PAGE>
VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Balance Sheets at December 31, 1996 and September 30, 1997 3
Statements of Operations for the three months ended
September 30, 1996 and 1997, the nine 4
months ended September 30, 1996 and 1997, and
the period from December 5, 1994 (inception) to
September 30, 1997
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 and the 5
period from December 5, 1994 (inception)
to September 30, 1997
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II. OTHER INFORMATION
Item 2. Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ViroPharma Incorporated
(A Development Stage Company)
Balance Sheets
December 31, 1996 and September 30, 1997
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ ------------
Assets Audited Unaudited
------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 10,810,310 6,605,265
Short-term investments 11,737,369 39,639,867
Other current assets 197,171 450,324
------------ ------------
Total current assets 22,744,850 46,695,456
Equipment and leasehold improvements, net 672,029 998,625
Construction in progress -- 834,760
Restricted investment -- 300,000
Other assets 36,000 174,424
------------ ------------
Total assets $ 23,452,879 49,003,265
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 356,171 585,646
Loan payable - current -- 100,000
Obligation under capital lease - current 52,950 59,688
Accrued expenses and other current liabilities 2,334,026 5,675,217
------------ ------------
Total current liabilities 2,743,147 6,420,551
Loan payable - non-current -- 433,333
Obligation under capital lease - noncurrent 104,571 69,250
------------ ------------
2,847,718 6,923,134
------------ ------------
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000 shares at
December 31, 1996 and September 30, 1997; none outstanding -- --
Common stock, par value $.002 per share. Authorized 27,000,000 shares at
December 31, 1996 and September 30, 1997; issued and outstanding
9,076,861 shares at December 31, 1996 and 11,450,522 at
September 30, 1997 18,154 22,901
Additional paid-in capital 31,758,996 61,494,017
Deferred compensation (661,337) (494,513)
Unrealized gains on available for sale securities 58,311 186,909
Deficit accumulated during the development stage (10,568,963) (19,129,183)
------------ ------------
Total stockholders' equity 20,605,161 42,080,131
------------ ------------
Commitments
Total liabilities and stockholders' equity $ 23,452,879 49,003,265
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended September 30, 1996 and 1997,
the nine months ended September 30, 1996 and 1997, and the
period from December 5, 1994 (inception) to September 30, 1997
<TABLE>
<CAPTION>
Period
December 5,
1994
Three months ended Nine months ended (inception) to
September 30, September 30, September 30,
1996 1997 1996 1997 1997
---------------------------- --------------------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fee $ 1,000,000 - 1,000,000 - 1,000,000
Milestone revenue - 750,000 - 1,500,000 1,500,000
Grant revenue 212,615 - 212,615 - 526,894
---------------------------- --------------------------- --------------
Total revenues 1,212,615 750,000 1,212,615 1,500,000 3,026,894
Operating expenses incurred in the
development stage:
Research and development 1,641,013 3,980,665 4,265,571 8,529,500 18,230,088
General and administrative 352,911 814,127 1,026,630 2,364,649 5,120,790
---------------------------- --------------------------- --------------
Total operating expenses 1,993,924 4,794,792 5,292,201 10,894,149 23,350,878
Interest income, net 67,692 378,845 141,973 833,929 1,194,801
---------------------------- --------------------------- --------------
Net loss (713,617) (3,665,947) (3,937,613) (8,560,220) (19,129,183)
Accretion of redemption value attributable to 853,476 - 1,229,008 - 1,616,445
mandatory redeemable convertible
preferred stock
---------------------------- --------------------------- --------------
Net loss allocable to common
shareholders (1,567,093) (3,665,947) (5,166,621) (8,560,220) (20,745,628)
============================ =========================== ==============
Pro forma net loss per share (0.11) (0.34) (0.64) (0.89)
============================ =========================== ==============
Shares used in computing pro forma
net loss per share 6,730,740 10,750,361 6,158,187 9,636,680
============================ =========================== ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Nine months ended September 30, 1996 and 1997 and the
period from December 5, 1994 (inception) to September 30, 1997
<TABLE>
<CAPTION>
Period
December 5, 1994
Nine months ended (inception) to
September 30, September 30,
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,937,613) (8,560,220) (19,129,183)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 115,384 166,824 338,573
Non-cash warrant value 15,937 11,952 121,872
Depreciation and amortization expense 32,815 183,649 241,670
Changes in assets and liabilities:
Other current assets (81,397) (253,153) (450,324)
Other assets - (138,424) (174,424)
Accounts payable 252,006 229,475 585,646
Accrued expenses and other current liabilities 7,239 3,341,191 5,675,217
----------- ----------- -----------
Net cash used in operating activities (3,595,629) (5,018,706) (12,790,953)
Cash flows from investing activities:
Purchase of equipment (215,106) (510,245) (1,240,297)
Construction in Progress - (834,760) (834,760)
Purchase of short-term investments available for sale (3,963,023) (45,000,027) (71,354,696)
Sales of short-term investments - 1,708,140 6,071,895
Maturities of short-term investments 4,317,003 15,217,987 25,529,844
----------- ----------- -----------
Net cash used in investing activities 138,874 (29,418,905) (41,828,014)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock 7,222,900 - 13,931,243
Net proceeds from issuance of common stock 7,100 29,727,816 45,986,593
Deferred offering costs (243,589)
Proceeds received on notes receivable - - 1,625
Proceeds from loan payable 600,000 600,000
Proceeds from notes payable 12,500 - 692,500
Payment of notes payable (50,000) (66,667) (116,667)
Obligation under capital lease 180,610 (28,583) 128,938
----------- ----------- -----------
Net cash provided by financing activities 7,129,521 30,232,566 61,224,232
Net increase (decrease) in cash and cash equivalents 3,672,766 (4,205,045) 6,605,265
Cash and cash equivalents at beginning of period 337,044 10,810,310 -
----------- ----------- -----------
Cash and cash equivalents at end of period $ 4,009,810 6,605,265 6,605,265
=========== =========== ===========
Supplemental disclosure of noncash transactions:
Conversion of Note Payable to Series A and
Series B Preferred Stock $ - - 642,500
Conversion of mandatorily redeemable convertible
preferred stock to common shares - - 16,264,199
Notes issued for 828,750 common shares - - 1,625
Deferred compensation 1,084,905 - 833,086
Accretion of redemption value attributable to
mandatorily redeemable convertible preferred stock 1,229,008 - 1,616,445
Unrealized gains on available for sale securities 24,920 128,598 186,909
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
September 30, 1996 and 1997
(unaudited)
(1) Organization and Business Activities
ViroPharma Incorporated (a development stage company) (the "Company") was
incorporated in Delaware on December 5, 1994. The Company is a
development stage company engaged in the discovery and development of
proprietary antiviral pharmaceuticals for the treatment of diseases
caused by RNA viruses.
The Company is devoting substantially all of its efforts towards
conducting drug discovery and development, raising capital, conducting
clinical trials, pursuing regulatory approval for products under
development, recruiting personnel and building infrastructure. In the
course of such activities, the Company has sustained operating losses and
expects such losses to continue for the foreseeable future. The Company
has not generated any significant revenues or product sales and has not
achieved profitable operations or positive cash flow from operations. The
Company's deficit accumulated during the development stage aggregated
$19,129,183 through September 30, 1997. There is no assurance that
profitable operations, if ever achieved, could be sustained on a
continuing basis.
The Company plans to continue to finance its operations with a
combination of stock issuances, private placements and follow-on public
offerings, license payments, payments from strategic research and
development arrangements and, in the longer term, revenues from product
sales. There are no assurances, however, that the Company will be
successful in obtaining an adequate level of financing needed for the
long-term development and commercialization of its planned products.
Basis of Presentation
The information at September 30, 1997 and for the nine months ended
September 30, 1996 and 1997, is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which, in the opinion
of management, are necessary to state fairly the financial information
set forth therein in accordance with generally accepted accounting
principles. The interim results are not necessarily indicative of results
to be expected for the full fiscal year. These financial statements
should be read in conjunction with the audited financial statements for
the year ended December 31, 1996 included in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
6
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements, continued
(unaudited)
(2) Pro forma net loss per share
For periods subsequent to the Company's Initial Public Offering (IPO) in
November 1996, net loss per share is calculated by dividing the net loss
by the weighted average number of common shares outstanding for the
respective periods adjusted for the dilutive effect, if any, of common
stock equivalents, which consist of stock options and warrants using the
treasury stock method. Common stock equivalents that are anti-dilutive
are excluded from net loss per share calculations subsequent to the IPO.
For periods prior to the Company's IPO, all common and common equivalent
shares from stock options and warrants and convertible preferred stock
issued during the twelve-month period prior to the IPO at prices below
the IPO price are presumed to have been issued in contemplation of the
IPO and have been included in the calculation of pro-forma net loss per
share as if they were outstanding for all periods presented (using the
treasury stock method and an IPO price of $7.00 per share). The
calculation of shares used in computing pro-forma net loss per share
prior to the Company's IPO also included all series of mandatorily
redeemable convertible preferred stock, assuming conversion into shares
of common stock (using the if-converted method) from their respective
original dates of issuance. In the computation of pro forma net loss per
share, accretion of the redemption value attributable to mandatorily
redeemable convertible preferred stock is not included as an increase to
net loss.
The following table sets forth the calculation of total number of shares
used in the computation of pro forma net loss per share for the nine
months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Weighted average common shares outstanding 894,170 9,636,680
Incremental shares assumed to be outstanding
related to common stock, stock options and
warrants granted and convertible preferred
stock based on the treasury stock method 582,083 -
Convertible preferred stock (if-converted method) 4,681,934 -
----------- ------------
Weighted average common and common
equivalent shares used in computation of
pro forma net loss per share 6,158,187 9,636,680
=========== ============
</TABLE>
(3) Manufacturing Agreement
In April 1997, the Company entered into a development agreement with
SELOC AG (SELOC) and SICOR S.A. (SICOR), subsidiaries of Schwarz Pharma
AG, for the manufacture of clinical supplies of pleconaril, the Company's
most advanced drug candidate. Under the terms of the agreement, SELOC and
SICOR will manufacture pleconaril for use in clinical trials and further
develop the synthetic process for production of commercial quantities of
pleconaril.
7
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements, continued
(unaudited)
(4) Common Stock Transactions
In June 1997, certain holders of warrants exercisable for shares of the
Company's common stock exercised such warrants on a cashless basis for an
aggregate of 71,795 shares of common stock that were otherwise
exercisable on a cash basis for 81,597 shares of common stock.
On July 23, 1997, the Company completed a follow-on public offering of 2
million shares of common stock. On August 15, 1997, the underwriters
exercised an over allotment option to purchase an additional 300,000
shares. Net proceeds of the follow-on offering, including the over-
allotment exercise, approximated $29,728,000.
(5) Related Party Transactions
During 1997, the Company loaned an aggregate of $134,765 to two officers
of the Company to defray relocation expenses incurred by them in
connection with their employment by the Company. Each loan is evidenced
by a promissory note, bears interest at the lowest Federal Applicable
Rate and comes due in full on the date of such officer's resignation from
the Company or in monthly installments beginning on the date of
termination of such officer's employment with the Company (other than by
resignation), and extending over a period of between 18 months and 192
months thereafter, depending upon when the termination of employment
occurs. On each anniversary of the date of the respective loans, 25% of
the original principal amount of the loans will be forgiven by the
Company so long as the applicable officer is in the Company's employ.
(6) Commitments
On July 21, 1997, the Company entered into a lease for laboratory and
office space commencing after the current lease expires in 1998. The term
of the new lease is ten years with two five-year renewal options. Under
the lease terms, the Company contributed $834,760 to the cost of the
laboratory construction. The Company also has the right, under certain
circumstances, to purchase the new facility at a purchase price based on
a pre-determined formula.
(7) Subsequent Events
On October 9, 1997, the Company received $1,000,000 from Boehringer
Ingelheim Pharmaceuticals, Inc. ("BI") as an advance on a future
milestone in connection with a Collaborative Research & Development
Agreement ("the Agreement"). Such amount will be creditable against a
milestone, if achieved, or would become due and payable two years after
the termination of the Agreement. The advance bears interest at 8.5% and
is evidenced by a promissory note. If amounts due under the note are not
paid as described in the note, BI may convert the then outstanding
principal balance and accrued interest thereon into shares of the
Company's Common Stock based on the last sale price of such Common Stock
on the date immediately prior to the date on which the Company is
notified of BI's intention to convert the promissory note.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking
statements. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors"
described in the Company's Prospectus dated July 23, 1997 and filed with
the Securities and Exchange Commission.
Since inception, the Company has devoted substantially all of
its resources to its research and product development programs.
ViroPharma has generated no revenues from product sales and has been
dependent upon funding primarily from equity financing. The Company does
not expect any revenues from product sales for at least the next three
year period. The Company has not been profitable since inception and has
incurred a cumulative net loss of $19,129,183 through September 30,
1997. Losses have resulted principally from costs incurred in research
and development activities and general and administrative expenses. The
Company expects to incur additional operating losses over at least the
next several years. The Company expects such losses to increase over
historical levels as the Company's research and development expenses
increase due to further clinical trials, manufacture of drug substance
and preclinical development of pleconaril, and further research and
development related to other product candidates. The Company's ability
to achieve profitability is dependent on developing and obtaining
regulatory approvals for its product candidates, successfully
commercializing such product candidates, which may include entering into
collaborative agreements for product development and commercialization,
and securing contract manufacturing services.
Results of Operations
Three-month period ended September 30, 1997 compared to three-month
period ended September 30, 1996.
The Company earned and received a milestone payment of
$750,000 from Boehringer Ingelheim during the three months ended
September 30, 1997 and a license fee payment of $1,000,000 from
Boehringer Ingelheim during the three months ended September 30, 1996.
Net interest income increased to $378,845 for the three months ended
September 30, 1997 from $67,692 for the three months ended September 30,
1996, principally due to larger invested balances provided by the
proceeds of the Company's initial public offering completed in November
1996 and the follow-on offering completed in July 1997.
Research and development expenses increased to $3,980,665 for
the three months ended September 30, 1997 from $1,641,013 for the three
months ended September 30, 1996. The increase was principally due to the
cost of multiple clinical trials related to pleconaril and the
advancement of drug candidates for the Company's influenza, hepatitis C
and viral pneumonia programs.
General and administrative expenses increased to $814,127 for
the three months ended September 30, 1997 from $352,911 for the three
months ended September 30, 1996. The increase was principally due to
increased personnel expenses and public company costs, as well as to
increased costs associated with the pursuit of corporate collaborations.
The net loss increased to $3,665,947 for the three months
ended September 30, 1997 from $713,617 for the three months ended
September 30, 1996.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Nine-month period ended September 30, 1997 compared to nine-month
period ended September 30, 1996.
The Company earned and received milestone payments of
$1,500,000 from Boehringer Ingelheim during the nine month period ended
September 30, 1997 and a license fee payment of $1,000,000 from
Boehringer Ingelheim during the nine months ended September 30, 1996.
Net interest income increased to $833,929 for the nine months ended
September 30, 1997 from $141,973 for the nine months ended September 30,
1996, principally due to larger invested balances provided by the
proceeds of the Company's initial public offering completed in November
1996 and the follow-on offering completed in July 1997.
Research and development expenses increased to $8,529,500 for
the nine months ended September 30, 1997 from $4,265,571 for the nine
months ended September 30, 1996. The increase was principally due to the
cost of multiple clinical trials related to pleconaril and the
advancement of drug candidates for the Company's influenza, hepatitis C
and viral pneumonia programs.
General and administrative expenses increased to $2,364,649
for the nine months ended September 30, 1997 from $1,026,630 for the
nine months ended September 30, 1996. The increase was principally due
to increased personnel expenses and public company costs, as well as to
increased costs associated with the pursuit of corporate collaborations.
The net loss increased to $8,560,220 for the nine months
ended September 30, 1997 from $3,937,613 for the nine months ended
September 30,1996.
10
<PAGE>
Liquidity and Capital Resources
The Company commenced operations in December 1994. The Company
is a development stage company and to date has not generated revenues
from product sales. The cash flows used in operations are for research
and development activities and the supporting general and administrative
expenses. Through September 30, 1997, the Company has used approximately
$12.8 million in operating activities. The Company invests its cash in
short-term investments. Through September 30, 1997, the Company has used
approximately $41.8 million in investing activities, including
approximately $39.7 million in short-term investments and $2.1 million
in equipment purchases and new construction. Through September 30, 1997,
the Company has financed its operations primarily through an initial
public offering of common stock, a follow-on offering of common stock
and private placements of redeemable preferred stock and common stock
totaling approximately $61.2 million. At September 30, 1997, the Company
had cash and cash equivalents and short-term investments aggregating
approximately $46.2 million.
The Company leases its corporate and research and development
facilities under an operating lease expiring in 1998. On July 21, 1997,
the Company entered into an operating lease for laboratory and office
space aggregating 48,400 square feet commencing after the current
operating lease expires. Under the lease terms, the company contributed
$834,760 to the cost of the laboratory construction. Annual rent is
expected to increase by approximately $400,000 over current levels. The
Company also has the right, under certain circumstances, to purchase
the new facility at a purchase price based on a predetermined formula.
The Company has financed substantially all of its equipment under two
master lease agreements and one bank loan. The bank loan, which was
consummated in February 1997, is for $600,000, is payable in equal
installments over 72 months, and bears interest at approximately 9%.
The Company is required to repay amounts outstanding under the two
leases within periods ranging from 32 to 48 months. As of September 30,
1997, outstanding borrowings under these arrangements are approximately
$1.2 million. The Company is required to make a milestone payment to
Sanofi, S.A. of up to $2 million upon the earlier of a future milestone
event as defined in the agreement with Sanofi or December 1998. In
addition, the Company would also be required to make certain
significant additional payments, including royalties, as defined,
should agreed-upon future milestones be attained. On October 9, 1997,
the Company received $1,000,000 from Boehringer Ingelheim
Pharmaceuticals, Inc. as and advance on a future milestone in
connection with a Collaborative Research & Development Agreement ("the
Agreement"). Such amount will be creditable against a milestone, if
achieved, or would become due and payable two years after the
termination of the Agreement. The advance bears interest at 8.5% and is
evidenced by a promissory note. If amounts due under the note are not
paid as described in the note, BI may convert the then outstanding
principal balance and accrued interest thereon into shares of the
Company's common stock based on the last sale price of such common
stock on the date immediately prior to the date on which the Company is
notified of BI's intention to convert the promissory note.
The Company has incurred losses from its operations since
inception. The Company expects to incur additional operating losses
over at least the next several years. The Company expects such losses
to increase over historical levels as the Company's research and
development expenses increase due to the cost of further clinical
trials, manufacture of drug substance and preclinical development of
pleconaril, and further research and development related to other
product candidates. The Company will require additional financing for
operations prior to achieving positive cash flows from its commercial
activities. The Company expects that it will need additional financing
to complete all clinical studies for pleconaril and other development
and required testing for any other of the Company's product candidates.
To obtain this financing, the Company may seek to access the public or
private equity markets or enter into additional arrangements with
corporate collaborators. To the extent the Company raises additional
capital by issuing equity securities, ownership dilution to existing
11
<PAGE>
Liquidity and Capital Resources, continued
stockholders may result. There can be no assurance, however, that
additional financing will be available on acceptable terms from any
source.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (Statement 128). The provisions of Statement 128
specify the computation, presentation and disclosure requirements for
earnings per share effective for the year ended December 31, 1997.
Statement 128 should have no significant effect on earnings per share
due to the antidilutive nature of the common stock equivalents issued
to date by the Company. In addition, the FASB issued three statements
that may require additional future disclosure. They are for
comprehensive income, capital structure disclosure and segment
disclosure. The Company will implement the provisions of these
statements starting in 1997 and 1998. The Company does not expect these
statements to have a significant effect on the financial statements.
12
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 2. Use of Proceeds
The company filed its second form SR as of August 19, 1997 (in
connection with its initial public offering on November 19,
1996). The information from August 19 through September 30,
1997 is as follows:
<TABLE>
---------------------------------------------------------- ---------------------
<S> <C>
Purchase and installation of machinery and equipment $ 42,000
---------------------------------------------------------- ---------------------
Repayment of indebtedness 24,000
---------------------------------------------------------- ---------------------
Working Capital 681,000
---------------------------------------------------------- ---------------------
Clinical Development 881,000
---------------------------------------------------------- ---------------------
Research & Development 1,023,000
---------------------------------------------------------- ---------------------
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
10.27 Consulting Agreement dated July 31, 1997 between the
Company and Frank Baldino, Jr.
10.28 Consulting Agreement dated July 31, 1997 between the
Company and Robert J. Glaser.
10.29 Promissory Note of Vincent J. Milano and Christie A.
Milano, dated August 20, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended September 1997.
13
<PAGE>
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.
VIROPHARMA INCORPORATED
Date: November 10, 1997 By: /s/ Claude H. Nash
------------------------------
Claude H. Nash
President, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Vincent J. Milano
------------------------------
Vincent J. Milano
Vice President, Finance & Administration
and Treasurer
(Principal Financial Officer)
14
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.27 Consulting Agreement dated July 31, 1997
between the Company and Frank Baldino, Jr.
10.28 Consulting Agreement dated July 31, 1997
between the Company and Robert J. Glaser.
10.29 Promissory Note of Vincent J. Milano and
Christie A. Milano, dated August 20, 1997.
27 Financial Data Schedule
</TABLE>
15
<PAGE>
EXHIBIT 10.27
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made as of this 31st day of
July, 1997 by and between ViroPharma Incorporated (the "Company") and Frank
Baldino, Jr. (the "Consultant").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Company desires to engage Consultant to provide services to
the Company in accordance with the terms and conditions set forth herein; and
WHEREAS, Consultant desires to provide services to the Company upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of these premises and the mutual promises
made herein and the mutual benefits to be derived herefrom, Consultant and the
Company, intending to be legally bound, hereby agree as follows:
1. Engagement. Upon the terms and subject to the conditions set forth in this
----------
Agreement, the Company hereby agrees to engage Consultant, as an independent
contractor, to make himself reasonably available to provide the Company with
advice and consultation in the areas of financing, business development and
strategic planning (the "Services") to and on behalf of the Company and
Consultant hereby agrees to render such Services to and on behalf of the
Company; provided that in no event shall Consultant be obligated to devote more
than ten (10) hours in any calendar quarter to the Services.
2. Compensation. In full consideration of the provision of the Services and
------------
the obligations undertaken pursuant to this Agreement, the Company agrees to pay
Consultant $1,250 each calendar quarter and to grant Consultant options to
purchase 13,334 shares of the Company's Common Stock, par value $.002 per share,
such options to have an exercise price of $15.125 per share and to vest in equal
increments over a two year period, all as more fully set forth in the Non-
Qualified Stock Option Agreement attached hereto as Exhibit A.
3. TERM. This Agreement shall commence on the date hereof and shall continue
----
for a three (3) year period, unless sooner terminated by the Company upon thirty
(30) days advance written notice to Consultant.
4. CONFIDENTIAL INFORMATION.
------------------------
(a) Without the prior written consent of the Company, Consultant shall not
disclose or use any Confidential Information (as defined below) of the Company
for Consultant's direct or indirect benefit or the direct or indirect benefit of
any third party, and Consultant shall maintain, both during and after
Consultant's engagement, the confidentiality of all Confidential Information of
the Company. In general, "Confidential Information" all information and other
materials of the Company that have not been made available by the Company to the
general public, except as specifically excluded in Section 4(b) below. Failure
to mark any of the Confidential Information as confidential or proprietary shall
not affect its status as Confidential Information under the terms of this
Agreement.
(b) The restrictions set forth in this Section 4 shall not apply to
Confidential Information that: (i) at the time of disclosure by the Company to
Consultant is in, or after disclosure by the Company to Consultant becomes part
of, the public domain, through no improper act on the part of Consultant; (ii)
<PAGE>
was in Consultant's possession at the time of disclosure by the Company; (iii)
is independently developed by Consultant; or (iv) Consultant receives from a
third party.
5. REPRESENTATIONS. Consultant hereby represents that Consultant is not
---------------
subject to any other agreement that Consultant will violate by signing this
Agreement.
6. RELATIONSHIP BETWEEN PARTIES. Consultant will be retained by the Company
----------------------------
strictly for the purposes and to the extent set forth in this Agreement and his
relationship to the Company shall be that of an independent contractor.
Consultant shall not be considered under the provisions of this Agreement or
otherwise as an employee of the Company. Consultant shall be responsible for
the timely payment of his or her own self-employment and income taxes and the
Company shall not deduct or withhold from any monies payable to Consultant
hereunder any amount on account of any tax or employee benefit. Nothing
contained in this Agreement shall create or imply the creation of a partnership
between the Company and Consultant and neither party shall have any authority
(actual or apparent) to bind the other.
7. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
the conflict of law principles of Pennsylvania or any other jurisdiction.
8. MISCELLANEOUS. This Agreement and the Exhibit attached hereto (which is
-------------
incorporated herein by reference) contains the entire agreement and
understanding of the parties relating to the subject matter hereof and merges
and supersedes all prior discussions, agreements and understandings of every
nature between them. This Agreement may not be changed or modified, except by
an agreement in writing signed by both of the parties hereto. This Agreement
may be executed in any number of counterparts, and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
IN WITNESS WHEREOF, the parties have caused this Consulting Agreement
to be executed the day and year first above written.
VIROPHARMA INCORPORATED
By:
---------------------------------
Its:
--------------------------------
CONSULTANT
/s/ Frank Baldino, Jr.
----------------------------------
Frank Baldino, Jr.
-2-
<PAGE>
EXHIBIT 10.28
THIS CONSULTING AGREEMENT (this "Agreement") is made as of this 31st day of
July, 1997 by and between ViroPharma Incorporated (the "Company") and Robert J.
Glaser (the "Consultant").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Company desires to engage Consultant to provide services to
the Company in accordance with the terms and conditions set forth herein; and
WHEREAS, Consultant desires to provide services to the Company upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of these premises and the mutual promises
made herein and the mutual benefits to be derived herefrom, Consultant and the
Company, intending to be legally bound, hereby agree as follows:
1. ENGAGEMENT. Upon the terms and subject to the conditions set forth in
----------
this Agreement, the Company hereby agrees to engage Consultant, as an
independent contractor, to make himself reasonably available to provide the
Company with advice and consultation in the areas of pharmaceutical marketing,
business development and strategic planning (the "Services") to and on behalf of
the Company and Consultant hereby agrees to render such Services to and on
behalf of the Company; provided that in no event shall Consultant be obligated
to devote more than ten (10) hours in any calendar quarter to the Services.
2. COMPENSATION. In full consideration of the provision of the Services and
------------
the obligations undertaken pursuant to this Agreement, the Company agrees to pay
Consultant $1,250 each calendar quarter and to grant Consultant options to
purchase 20,000 shares of the Company's Common Stock, par value $.002 per share,
such options to have an exercise price of $15.125 per share and to vest in equal
increments over a three year period, all as more fully set forth in the Non-
Qualified Stock Option Agreement attached hereto as Exhibit A.
3. TERM. This Agreement shall commence on the date hereof and shall continue
----
for a three (3) year period, unless sooner terminated by the Company upon thirty
(30) days advance written notice to Consultant.
4. CONFIDENTIAL INFORMATION.
------------------------
(a) Without the prior written consent of the Company, Consultant shall not
disclose or use any Confidential Information (as defined below) of the Company
for Consultant's direct or indirect benefit or the direct or indirect benefit of
any third party, and Consultant shall maintain, both during and after
Consultant's engagement, the confidentiality of all Confidential Information of
the Company. In general, "Confidential Information" all information and other
materials of the Company that have not been made available by the Company to the
general public, except as specifically excluded in Section 4(b) below. Failure
to mark any of the Confidential Information as confidential or proprietary shall
not affect its status as Confidential Information under the terms of this
Agreement.
(b) The restrictions set forth in this Section 4 shall not apply to
Confidential Information that: (i) at the time of disclosure by the Company to
Consultant is in, or after disclosure by the Company
<PAGE>
to Consultant becomes part of, the public domain, through no improper act on the
part of Consultant; (ii) was in Consultant's possession at the time of
disclosure by the Company; (iii) is independently developed by Consultant; or
(iv) Consultant receives from a third party.
5. REPRESENTATIONS. Consultant hereby represents that Consultant is not
---------------
subject to any other agreement that Consultant will violate by signing this
Agreement.
6. RELATIONSHIP BETWEEN PARTIES. Consultant will be retained by the Company
----------------------------
strictly for the purposes and to the extent set forth in this Agreement and his
relationship to the Company shall be that of an independent contractor.
Consultant shall not be considered under the provisions of this Agreement or
otherwise as an employee of the Company. Consultant shall be responsible for
the timely payment of his or her own self-employment and income taxes and the
Company shall not deduct or withhold from any monies payable to Consultant
hereunder any amount on account of any tax or employee benefit. Nothing
contained in this Agreement shall create or imply the creation of a partnership
between the Company and Consultant and neither party shall have any authority
(actual or apparent) to bind the other.
7. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
-------------
with the laws of the Commonwealth of Pennsylvania, without regard to the
conflict of law principles of Pennsylvania or any other jurisdiction.
8. MISCELLANEOUS. This Agreement and the Exhibit attached hereto (which is
-------------
incorporated herein by reference) contains the entire agreement and
understanding of the parties relating to the subject matter hereof and merges
and supersedes all prior discussions, agreements and understandings of every
nature between them. This Agreement may not be changed or modified, except by
an agreement in writing signed by both of the parties hereto. This Agreement
may be executed in any number of counterparts, and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
IN WITNESS WHEREOF, the parties have caused this Consulting Agreement to
be executed the day and year first above written.
VIROPHARMA INCORPORATED
By:
---------------------------------
Its:
--------------------------------
CONSULTANT
/s/ Robert J. Glaser
---------------------------------
Robert J. Glaser
-2-
<PAGE>
EXHIBIT 10.29
PROMISSORY NOTE
---------------
$30,658.23 August 20, 1997
For value received, Vincent J. Milano (the "Executive") and Christie A.
Milano, with an address at 301 Woodmere Way, Phoenixville, PA (each, a "Maker"
and collectively, the "Makers"), jointly and severally, hereby promise to pay to
the order of ViroPharma Incorporated, a Delaware corporation with an address at
76 Great Valley Parkway, Malvern PA 19355 (the "Payee"), the principal sum of
Thirty Thousand Six Hundred Fifty Eight Dollars and Twenty Three Cents
($30,658.23) (the "Original Principal Amount"), or such lesser amount as
determined in accordance with Sections 1(c) and 3(a) below, in lawful money of
the United States of America, together with interest thereon, subject to the
terms and conditions as hereinafter provided. The principal sum outstanding
from time to time hereunder shall bear interest at an annual rate of 6.29% per
annum (subject to Sections 3(d) and 6 below). The interest due hereunder shall
be calculated on the basis of a 365-day year by multiplying the interest rate in
effect hereunder by a fraction, the numerator of which is the actual number of
days the principal sum is outstanding and the denominator of which is 365.
1. Purpose; Use of Proceeds; Principal Adjustment.
----------------------------------------------
(a) This Promissory Note (this "Note") is executed by the Makers in
connection with the Makers' relocation ("Relocation") required by Executive's
employment by Payee, the reasonable costs and expenses that the Makers' have
incurred in connection therewith, and Payee's agreement, subject to the
conditions set forth below, to reimburse Payee for such reasonable costs and
expenses in an amount not to exceed the Original Principal Amount first set
forth above. This Note, by itself, is not intended by Payee to preclude
Executive from participation in future compensation increases that may, in the
sole discretion of Payee, be made available by Payee to its officers and
employees from time to time.
(b) The Makers shall use all of the proceeds of this Note to defray the
reasonable costs and expenses realized or incurred by the Makers in connection
with the Relocation, including but not limited to any loss on the sale of the
Makers' former residence; moving, closing and other costs incident to the
Makers' purchase of a new residence; and a down payment on such new residence
(collectively, the "Relocation Costs"), but for no other purpose.
(c) The Original Principal Amount first set forth above reflects the
Makers' estimate of the Relocation Costs previously provided by them to Payee
(the "Estimated Relocation Costs"). The Makers shall provide Payee, within five
(5) business days after the closing of the purchase of the Makers' new residence
(the "Closing"), with an itemized list of the Relocation Costs actually incurred
by the Makers (the "Actual Relocation Costs"), together with a copy of the
settlement sheet prepared at the Closing and copies of such other invoices and
receipts that are available to document the Actual Relocation Costs. The Actual
Relocation Costs shall be subject to the approval of Payee, such approval not to
be unreasonably withheld by Payee (the Actual Relocation Costs so approved, the
"Approved Relocation Costs"). If the Approved Relocation Costs are less than
the Estimated Relocation Costs, then (i) the Makers shall remit to Payee, within
five (5) business days after Payee's request, the difference between the
Estimated Relocation Costs minus the Approved Relocation Costs (the "Excess"),
and (ii) upon Payee's receipt of the Excess, the principal amount due under this
Note automatically shall be adjusted to reflect the Approved Relocation Costs
(the "Adjusted Principal Amount"). In no event shall Payee have any additional
obligation to the Makers if the Actual Relocation Costs or the Approved
Relocation Costs exceed the Estimated Relocation Costs.
<PAGE>
2. Insurance. Within a reasonable time after the date hereof, Payee may
---------
attempt to acquire an insurance policy on the life of Executive (the "Insurance
Policy") that names Payee as the loss payee. Executive shall cooperate with
Payee in obtaining the Insurance Policy, and Executive warrants that he has no
knowledge of any facts concerning his physical health or otherwise that would
discourage a reputable insurance company from insuring the life of Executive at
reasonable rates and based on generally accepted insurance underwriting
standards.
3. Principal Reduction and Payment.
-------------------------------
(a) Subject to the terms and conditions set forth below, on each one (1)
year anniversary of this date of this Note, commencing on the first anniversary
of the date of this Note and continuing through and including the fourth
anniversary of the date of this Note (such four year period, the "Forgiveness
Term"), the principal amount of this Note shall be reduced by the product of
twenty-five percent (25%) times the lesser of the Original Principal Amount set
forth in the first paragraph of this Note or the Adjusted Principal Amount
determined in accordance with Section 1(c) above (each, a "Forgiven
Installment"), and on and after each such anniversary date the Makers shall have
no further obligation to pay Payee, and Maker shall be released from all
liability to Payee with respect to, the applicable Forgiven Installment plus all
accrued and unpaid interest with respect thereto.
(b) If Executive's employment by Payee is terminated prior to the
expiration of the Forgiveness Term as a result of the resignation of Executive,
then from and after the date that Executive notifies Payee of Executive's
intention to resign (the "Resignation Date"), Section 3(a) shall be of no
further force or effect, and upon the earlier of the date that Executive
commences employment with any third party or the expiration of the ninety (90)
day period after the Resignation Date, the Makers shall pay to Payee the
principal amount of this Note and all accrued and unpaid interest with respect
thereto that is then outstanding and has not been previously forgiven pursuant
to Section 3(a) (the "Outstanding Balance").
(c) If Executive's employment by Payee is terminated prior to the
expiration of the Forgiveness Term due to an event that is covered by the
Insurance Policy, then the entire Outstanding Balance shall be deemed forgiven
and the proceeds of the Policy shall be Payee's sole recourse in respect of the
Outstanding Balance.
(d) If Executive's employment by Payee is terminated prior to the
expiration of the Forgiveness Term for any reason other than that described in
Sections 3(b) or (c) above, including but not limited to the termination of
Executive's employment by Payee for any reason or no reason, then from and after
the effective date of such termination (the "Termination Date"), Section 3(a)
shall be of no further force or effect, and the Makers shall thereafter be
liable for the prompt payment of the Outstanding Balance; provided that, from
and after the Termination Date, the interest rate of this Note shall be adjusted
to reflect the lowest applicable Federal rate then in effect for promissory
notes having a repayment period equal to the "Payment Term" of this Note, as
defined below. Principal and interest payments in respect of the Outstanding
Balance shall be due and payable in consecutive monthly installments in the
amounts to be set forth in the amortization schedule described in Section
3(d)(ii) below (each, a "Monthly Payment"), on the first day of each month
commencing with the month immediately following the Termination Date and
continuing until the expiration of the Payment Term, at Payee's address set
forth above or at such other address as Payee shall designate in writing to
either Maker. Each Monthly Payment first shall be applied against accrued
interest amounts then outstanding, and the balance of such Monthly Payment shall
then be applied against the principal amount of this Note.
2
<PAGE>
(i) The "Payment Term" shall be the number of months, commencing
with the Termination Date, listed below opposite the applicable period in which
the Termination Date occurs:
Termination Date Payment Period
---------------- --------------
Before the first anniversary of the date of this Note 72 Months
After the first anniversary of the date of this Note, but 54 Months
before the second anniversary of this Note
After the second anniversary of the date of this Note, but 36 Months
before the third anniversary of this Note
After the third anniversary of the date of this Note, but 18 Months
before the fourth anniversary of this Note
(ii) Within a reasonable time after the Termination Date, but in any
event prior to the date that the first Monthly Payment is due and payable
hereunder, Payee shall provide Maker with an amortization schedule for the
Outstanding Balance that reflects the Monthly Payments due for the Payment Term,
and such amortization schedule shall be a supplement to this Note.
4. Prepayment; Set-Off. This Note may be prepaid in full or in part at any
-------------------
time without premium or penalty. The amounts due from the Makers hereunder
shall not be subject to set-off by the Makers.
5. Default and Acceleration. The entire principal balance that has not been
------------------------
reduced or paid pursuant to Section 3 above, and all accrued interest thereon,
shall become immediately due and payable upon demand by Payee if one or more of
the following events shall have happened at any time after the Termination Date
(each an "Event of Default") and shall be continuing at the time of such demand
(except that no demand shall be necessary in the case of Subsection (b) below):
(a) Default shall have been made in the payment of any principal or
interest when and as due hereunder;
(b) Either Maker shall: (i) file in any court pursuant a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of either of their assets; (ii) propose a written agreement
for the composition or extension of the debts of either of them; (iii) be served
with an involuntary petition against either of them, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof; or (iv) make an assignment for the benefit of
creditors; or
(c) The entry of a material financial judgment against either Maker, or
the issuing of any attachment or garnishment against any property of either
Maker.
6. Default Rate. Notwithstanding anything to the contrary in this Note, upon
------------
an Event of Default, or if Executive resigns his employment with Payee and the
Outstanding Balance is not paid within the period required by Section 3(b)
above, interest on the unpaid balance of this Note shall be deemed to have
accrued at a rate equal to the lesser of eighteen percent (18%) per annum or the
highest rate otherwise allowed by law (the "Default Rate").
3
<PAGE>
7. Presentment, Costs, Etc. The Makers hereby waives presentment, protest,
-----------------------
notice of protest, and notice of dishonor. Subject to the provisions herein,
each Maker covenants that if an Event of Default occurs, he or she will, to the
extent that he or she it may lawfully promise so to do, pay to Payee such
further amount as shall be sufficient to cover the cost and expense of
collection or any other costs incurred by Payee in the exercise of any of its
rights, remedies or powers under this Note, including reasonable compensation to
the attorneys and accountants of Payee, and any amount thereof not paid promptly
following demand therefor shall be added to the principal sum then due hereunder
and shall bear interest at the Default Rate from the date of such demand until
the date that such amounts are paid in full.
8. Remedies Cumulative. No right or remedy conferred upon or reserved to
-------------------
Payee hereunder, or now or hereafter existing at law or in equity or by statute
or other legislative enactment, is intended to be exclusive of any other right
or remedy, and each and every such right or remedy shall be cumulative and
concurrent, and shall be in addition to every other such right or remedy, and
may be pursued singly, concurrently, successively or otherwise, at the sole
discretion of Payee, and shall not be exhausted by any one exercise thereof but
may be exercised as often as occasion therefor shall occur.
9. Waiver. Each Maker agrees that Payee may release, compromise, forbear
------
with respect to, waive, suspend, extend or renew any of the terms hereunder (and
each Maker hereby waives any notice of any of the foregoing), and any action
taken by Payee pursuant to the foregoing shall in no way be construed as a
waiver or release of any right or remedy of Payee, or of any Event of Default,
or of any liability or obligation of either Maker, under this Note.
10. Successors and Assigns. This Note may be freely assigned by Payee. The
-----------------------
obligations of the Makers under this Note may not be assigned without the prior
written consent of Payee. This Note inures to the benefit of Payee and binds
the Makers, and their respective successors, heirs and permitted assigns.
11. Notices. All notices required to be given to any of the parties hereunder
--------
shall be in writing and shall be deemed to have been sufficiently given for all
purposes when presented personally to such party or sent by certified or
registered mail, or any national overnight delivery service, to such party at
its address first set forth above, or to such other address for which notice is
duly given to the other party. Such notice shall be deemed to be given when
received if delivered personally, the next business day after the date sent if
sent by national overnight delivery service, or two (2) business days after the
date mailed if mailed by certified or registered mail. Whenever the giving of
notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
4
<PAGE>
12. Governing Law. This Note shall be governed as to its validity,
-------------
interpretation, and effect by the laws of the Commonwealth of Pennsylvania,
notwithstanding the conflict-of-law doctrines of Pennsylvania or any other
jurisdiction. Any legal proceeding arising out of or relating to this Note
shall be heard in the Chester County, Pennsylvania Court or in the United States
District Court for the Eastern District of Pennsylvania, and each Maker hereby
consents to the personal and exclusive jurisdiction of such courts and hereby
waives any objection that such Maker may have to the laying of venue of any such
proceeding and any claim or defense of inconvenient forum.
IN WITNESS WHEREOF, the undersigned has executed this Note on the date
first above written.
/s/ Vincent J. Milano
------------------------
Vincent J. Milano
/s/ Christie A. Milano
-------------------------
Christie A. Milano
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,605,265
<SECURITIES> 39,639,867
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,695,456
<PP&E> 1,240,297
<DEPRECIATION> 241,672
<TOTAL-ASSETS> 49,003,265
<CURRENT-LIABILITIES> 6,420,551
<BONDS> 0
0
0
<COMMON> 22,901
<OTHER-SE> 42,057,230
<TOTAL-LIABILITY-AND-EQUITY> 49,003,265
<SALES> 0
<TOTAL-REVENUES> 1,500,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,894,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,106
<INCOME-PRETAX> (8,560,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,560,220)
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<EXTRAORDINARY> 0
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<NET-INCOME> (8,560,220)
<EPS-PRIMARY> (.89)
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</TABLE>