<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, 1998
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.)
405 Eagleview Boulevard
EXTON, PENNSYLVANIA 19341
(Address of Principal Executive Offices and Zip Code)
610-458-7300
(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 12, 1998: 11,485,783 shares.
1
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VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----------
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
Balance Sheets at December 31, 1997 and September 30, 1998 3
Statements of Operations for the three months ended September 30, 1997 and 1998, 4
the nine months ended September 30, 1997 and 1998, and the period from
December 5, 1994 (inception) to September 30, 1998
Statements of Cash Flows for the nine months ended September 30, 1997 and 1998 and 5
the period from December 5, 1994 (inception) to September 30, 1998
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8
RESULTS OF OPERATIONS.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. FINANCIAL STATEMENTS
VIROPHARMA INCORPORATED
(A Development Stage Company)
Balance Sheets
December 31, 1997 and September 30, 1998
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------------- ------------------
ASSETS Audited Unaudited
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,204,330 345,408
Short-term investments 39,164,132 27,014,620
Notes receivable from officers - current 33,691 39,205
Other current assets 461,631 275,308
----------------- ------------------
Total current assets 43,863,784 27,674,541
Equipment and leasehold improvements, net 1,084,720 2,471,664
Construction in progress 860,975 -
Restricted investment 300,000 300,000
Notes receivable from officers - noncurrent 84,102 72,157
Other assets 81,899 81,899
----------------- ------------------
Total assets $ 46,275,480 30,600,261
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 919,970 895,366
Loan payable - current 100,000 100,000
Obligation under capital lease - current 61,487 54,799
Deferred revenue 1,000,000 -
Accrued expenses and other current liabilities 4,573,299 5,608,675
----------------- ------------------
Total current liabilities 6,654,756 6,658,840
Loans payable - non-current 416,667 1,426,667
Obligation under capital lease - non-current 53,186 14,450
----------------- ------------------
7,124,609 8,099,957
----------------- ------------------
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000
shares at December 31, 1997 and September 30, 1998; none issued
or outstanding - -
Common stock, par value $.002 per share. Authorized 27,000,000
shares at December 31, 1997 and September 30, 1998; issued and
outstanding 11,464,106 shares at December 31, 1997 and 11,485,783
shares at September 30, 1998 22,928 22,972
Additional paid-in capital 61,322,384 61,366,069
Deferred compensation (451,721) (298,326)
Unrealized gains on available for sale securities 276,126 164,221
Deficit accumulated during the development stage (22,018,846) (38,754,632)
----------------- ------------------
Total stockholders' equity 39,150,871 22,500,304
----------------- ------------------
Commitments
Total liabilities and stockholders' equity $ 46,275,480 30,600,261
================= ==================
See accompanying notes to financial statements.
</TABLE>
3
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VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended September 30, 1997 and 1998,
the nine months ended September 30, 1997 and 1998, and the
period from December 5, 1994 (inception) to September 30, 1998
<TABLE>
<CAPTION>
Period from
December 5,
1994
Three months ended Nine months ended (inception) to
September 30, September 30, September 30,
1997 1998 1997 1998 1998
-------------- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fee and milestones revenue $ 750,000 750,000 $1,500,000 1,500,000 4,000,000
Grant revenue - - - - 526,894
-------------- --------------- -------------- --------------- ----------------
Total revenues 750,000 750,000 1,500,000 1,500,000 4,526,894
-------------- --------------- -------------- --------------- ----------------
Operating expenses incurred in the
development stage:
Research and development 3,980,665 6,607,790 8,529,500 16,244,718 36,874,282
General and administrative 814,127 1,233,859 2,364,649 3,112,502 9,209,724
-------------- --------------- -------------- --------------- ----------------
Total operating expenses 4,794,792 7,841,649 10,894,149 19,357,220 46,084,006
-------------- --------------- -------------- --------------- ----------------
Loss from operations (4,044,792) (7,091,649) (9,394,149) (17,857,220) (41,557,112)
Interest income, net 378,845 418,069 833,929 1,121,434 2,802,480
-------------- --------------- -------------- --------------- ----------------
Net loss $ (3,665,947) (6,673,580) $ (8,560,220) (16,735,786) (38,754,632)
============== =============== ============== =============== ================
Basic and diluted net loss per share: (0.34) (0.58) (0.89) (1.46)
============== =============== ============== ===============
Shares used in computing basic and diluted
net loss per share: 10,750,361 11,485,589 9,636,680 11,480,986
============== =============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
4
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VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Nine months ended September 30, 1997 and 1998 and the
period from December 5, 1994 (inception) to September 30, 1998
<TABLE>
<CAPTION>
Period from
December 5, 1994
Nine months ended (inception) to
September 30, September 30,
1997 1998 1998
--------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,560,220) (16,735,786) (38,754,632)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 166,824 153,395 534,760
Non-cash warrant value 11,952 11,952 137,808
Non-cash consulting expense - 12,065 42,115
Depreciation and amortization expense 183,649 305,517 651,817
Changes in assets and liabilities:
Other current assets (253,153) 186,323 (275,308)
Notes receivable from officers - 6,431 (111,362)
Other assets (138,424) - (81,899)
Accounts payable 229,475 (24,604) 895,366
Accrued expenses and other current liabilities 3,341,191 1,120,376 5,693,675
--------------- ------------------ ---------------
Net cash used in operating activities (5,018,706) (14,964,331) (31,267,660)
Cash flows from investing activities:
Purchase of equipment (510,245) (831,486) (3,123,482)
Construction in progress (834,760) - -
Purchase of short-term investments (45,000,027) (24,008,371) (111,471,300)
Sales of short-term investments 1,708,140 - 9,680,414
Maturities of short-term investments 15,217,987 36,045,978 74,640,487
--------------- ------------------ ---------------
Net cash (used in) provided by investing activities (29,418,905) 11,206,121 (30,273,881)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock - - 13,931,243
Net proceeds from issuance of common stock 29,727,816 19,712 45,800,665
Proceeds from deferred revenue - - 1,000,000
Proceeds from loan payable 600,000 - 600,000
Payment of loan payable - (75,000) (158,333)
Proceeds received on notes receivable - - 1,625
Proceeds from notes payable - - 692,500
Payment of notes payable (66,667) - (50,000)
Obligation under capital lease (28,583) (45,424) 69,249
--------------- ------------------ ---------------
Net cash provided by (used in) financing activities 30,232,566 (100,712) 61,886,949
Net increase (decrease) in cash and cash equivalents (4,205,045) (3,858,922) 345,408
Cash and cash equivalents at beginning of period 10,810,310 4,204,330 -
--------------- ------------------ ---------------
Cash and cash equivalents at end of period $ 6,605,265 345,408 345,408
=============== ================== ===============
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 - - 833,086
Accretion of redemption value attributable to
mandatorily redeemable convertible preferred stock - - 1,616,445
Unrealized gains (losses) on available for sale securities 128,598 (111,905) 164,221
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
September 30, 1997 and 1998
(unaudited)
(1) ORGANIZATION AND BUSINESS ACTIVITIES
ViroPharma Incorporated (a development stage company) (the "Company") commenced
operations on December 5, 1994. The Company is a development stage
pharmaceutical company engaged in the discovery and development of new antiviral
medicines.
The Company is devoting substantially all of its efforts towards conducting drug
discovery, raising capital, conducting clinical trials, manufacturing bulk drug
substance and drug product, pursuing regulatory approval for products under
development, marketing and market research activities 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
$38,754,632 through September 30, 1998. 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, 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, 1998 and for the nine months ended September
30, 1997 and 1998, 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, 1997 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Certain amounts from the prior year have been reclassified to
conform to the current year presentation.
(2) COMPREHENSIVE LOSS
In 1998 the Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all
items defined as comprehensive income, including changes in the amounts of
unrealized gains and losses on available for sale securities, be shown as a
component of comprehensive loss. In the Company's annual financial statements,
comprehensive loss will be required to be presented either in a separate
financial statement or as part of either the statement of operations or
statement of stockholders' equity. For interim financial statements, the
Company is permitted to disclose the information in the footnotes to the
financial statements. The disclosures are required for comparative purposes.
The only comprehensive income item the Company has is unrealized gains and
losses on available for sale securities.
The following reconciles net loss to comprehensive loss for the quarter and
nine-month periods ended September 30, 1997 and 1998:
<TABLE>
<CAPTION>
Quarter ended Nine-month period ended
September 30, September 30,
1997 1998 1997 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ (3,665,947) (6,673,580) (8,560,220) (16,735,786)
Other comprehensive income:
Unrealized gains (losses) on
available for sale securities 44,425 73,958 128,598 (111,905)
---------------- ---------------- ---------------- ----------------
Comprehensive loss $ (3,621,522) (6,599,622) (8,431,622) (16,847,691)
=============== ================ =============== ===============
</TABLE>
6
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Notes to Financial Statements
September 30, 1997 and 1998
(unaudited)
(3) STOCKHOLDERS RIGHTS PLAN
The Company adopted a Stockholders' Rights Plan (the "Plan") in September
1998. In connection with the Plan, the Company designated from its Preferred
Stock, par value $.001 per share, the Series A Junior Participating Preferred
Shares, par value $.001 per share (the "Series A Preferred Shares"), and
reserved 200,000 Series A Preferred Shares for issuance under the Plan.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that are not statements
of historical facts or statements of current condition. Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "expects," "estimates," "may," "will," or "should" or the
negative thereof or other variations of such terminology, or by discussions of
strategy or intentions. These forward-looking statements, such as statements
regarding present or anticipated scientific progress, development of potential
pharmaceutical products, future revenues, capital expenditures, research and
development expenditures, collaborations and future financings involve
predictions, and are subject to risks and uncertainties. The Company's actual
results, performances or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors
contributing to such risks and uncertainties that might affect the Company's
actual results, performance or achievements include, but are not limited to,
those discussed in "Important Factors Regarding Forward-Looking Statements"
attached as Exhibit 99 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 that is filed with the Securities and Exchange
Commission. Given these risks and uncertainties, current or prospective
investors are cautioned not to place undue reliance on any such forward-looking
statements. Furthermore, the Company disclaims any obligation or intent to
update any such forward-looking statements to reflect future events or
developments.
Since inception, the Company has devoted substantially all of its resources
to its research and product development programs. The Company 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 two-year period. The Company has not been profitable
since inception and has incurred a cumulative net loss of $ 38,754,632 through
September 30, 1998. 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, primarily due to expected increases in the Company's research and
development expenses for the manufacture of bulk drug substance and drug
product, and for further clinical development of the Company's most advanced
drug candidate, pleconaril (including milestone payments that may be payable,
and any significant additional studies for approval in the European Union, if
any are required, under the terms of the Company's agreement with Sanofi, S.A.).
Also, the Company expects to incur expenses related to its marketing and market
research activities for pleconaril, its development of a marketing and sales
staff 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.
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 primarily for research and
development activities and the supporting general and administrative expenses.
Through September 30, 1998, the Company has used approximately $ 31.3 million
in operating activities. The Company invests its cash in short-term
investments. Through September 30, 1998, the Company has used approximately
$30.3 million in investing activities, including $ 27.2 million in short-term
investments and $ 3.1 million in equipment purchases and new construction.
Through September 30, 1998, the Company has financed its operations primarily
through public offerings of common stock, private placements of redeemable
preferred stock, a bank loan, equipment lease lines and a milestone advance
totaling approximately $61.9 million. At September 30, 1998, the Company had
cash and cash equivalents and short-term investments aggregating approximately
$ 27.4 million.
The Company leases its corporate and research and development facilities
under an operating lease expiring in 2008. The Company also has the right to
expand the facility and, 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 is for $600,000, is payable in equal annual
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, 1998, outstanding borrowings
under these three
8
<PAGE>
arrangements are approximately $690,000. The Company is currently negotiating
with a bank for a second term loan for $500,000 to finance new equipment
purchased in 1998. There can be no assurance that the Company will successfully
consummate this loan transaction.
Under the Company's agreement with Sanofi S.A. ("Sanofi"), the Company is
required to make certain additional payments to Sanofi, including royalties, as
defined, should agreed-upon future milestones be attained. The milestone events
contemplate regulatory submissions of new drug applications and regulatory
approvals in various jurisdictions. There can be no assurance that any such
milestones will be attained.
The Company and SELOC France entered into an Addendum to their Development
Agreement (the "SELOC Addendum"). Under the SELOC Addendum, SELOC has
manufactured two validation batches of pleconaril drug substance, and the
Company anticipates that SELOC will manufacture a third validation batch of bulk
drug substance by the first quarter of 1999. SELOC also is assisting the
Company under the SELOC Addendum in preparing the pleconaril drug master file
and is preparing certain documentation that will be required in connection with
the Company's New Drug Application for pleconaril. The Company estimates that
$1.0 million will be payable under the Addendum over the next nine months.
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 Agreement (the "Agreement"). The
Agreement expired in August 1998. Such amount is due and payable in August 2000.
The loan bears interest at 8.5% and is evidenced by a convertible 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, primarily due to expected increases in the Company's research and
development expenses for the manufacture of bulk drug substance and drug
product, and for further clinical development of the Company's most advanced
drug candidate, pleconaril (including milestone payments that may be payable,
and any significant additional studies for approval in the European Union, if
any are required, under the terms of the Company's agreement with Sanofi). Also,
the Company expects to incur expenses related to its marketing and market
research activities for pleconaril, its development of a marketing and sales
staff and further research and development related to other product candidates.
In November 1998, the company announced the results of its preliminary
evaluation of the first of four pivotal studies of pleconaril (two in children
and two in adults) for the treatment of viral meningitis. The study was designed
to assess pleconaril's impact on a patient's time to resolution of meningitis
symptoms through a primary endpoint and secondary endpoints. Patients in this
study did not achieve a statistically significant reduction in the primary
endpoint of time to absence of headache in all patients with confirmed
enterovirus infection. However, statistical significance was achieved in
secondary endpoints of total morbidity score (a composite measurement of all
disease symptoms) and global assessment score (a caregiver's assessment of a
patient's illness) at the low dose, and in certain subset analyses of the
primary and secondary endpoints. There were no overall differences in adverse
event rates between placebo and pleconaril treated groups. The Company intends
to use the information obtained from this study and from its other three ongoing
pivotal trials in its New Drug Application. The Company does not expect the
results of this trial to have a material impact on research and development
expenses. The Company will require additional financing for operations and
expansion of its facilities 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, for the development
and required testing of the Company's other product candidates, and to develop
its marketing and sales staffs. To obtain this financing, the Company expects 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
stockholders may result. There can be no assurance, however, that additional
financing will be available on acceptable terms from any source.
RESULTS OF OPERATIONS
Quarters ended September 30, 1998 and 1997
The Company earned and received one milestone payment for $750,000 from BI
in each of the quarters ended September 30, 1998 and 1997. Net interest income
increased to $418,069 for the quarter ended September 30, 1998 from $378,845 for
the quarter ended September 30, 1997.
Research and development expenses increased to $6,607,790 for the quarter
ended September 30, 1998 from $3,980,665 for the quarter ended September 30,
1997. The increase was principally due to the cost of ongoing multiple clinical
trials related to pleconaril being conducted in the quarter ended September 30,
1998. Also, the Company had more scientists conducting discovery research in
the quarter ended September 30, 1998 compared to the quarter ended September 30,
1997 in the area of advancement of drug candidates for the Company's RSV
pneumonia, influenza, and hepatitis C programs. In addition, the Company
incurred increased expenses for pre-clinical activities for the RSV pneumonia
discovery research program in the quarter ended September 30, 1998 versus the
quarter ended September 30, 1997.
9
<PAGE>
General and administrative expenses increased to $1,233,859 for the quarter
ended September 30, 1998 from $814,127 for the quarter ended September 30, 1997.
The increase was principally due to increased marketing and market research
expenses related to pleconaril, salary expenses and facilities costs related to
the Company's move to its current facilities in March 1998.
The net loss increased to $6,673,580 for the quarter ended September 30,
1998 from $3,665,947 for the quarter ended September 30, 1997.
Nine-months ended September 30, 1998 and 1997
The Company earned and received two milestone payments for $1,500,000 from
BI in the nine-month periods ended September 30, 1998 and 1997. Net interest
income increased to $1,121,434 for the nine-month period ended September 30,
1998 from $833,929 for the nine-month period ended September 30, 1997,
principally due to larger invested balances provided by the proceeds of a
follow-on public offering in July 1997.
Research and development expenses increased to $16,244,718 for the nine-
month period ended September 30, 1998 from $8,529,500 for the nine-month period
ended September 30, 1997. The increase was principally due to the cost of
ongoing multiple clinical trials related to pleconaril being conducted in the
nine-month period ended September 30, 1998. The Company recorded $1,200,000 as a
reduction to research and development expenses in the nine-month period ended
September 30, 1998 for the adjustment to a milestone payable to Sanofi and the
reimbursement due from Sanofi for a previously paid license fee. Such amounts
were recorded as research and development expenses in prior periods. Also, the
Company had more scientists conducting discovery research in the nine-month
period ended September 30, 1998 compared to the nine-month period ended
September 30, 1997 in the area of advancement of drug candidates for the
Company's RSV pneumonia, influenza, and hepatitis C programs. In addition, the
Company incurred increased expenses for pre-clinical activities for the RSV
pneumonia discovery research program in the nine-month period ended September
30, 1998 versus the nine-month period ended September 30, 1997.
General and administrative expenses increased to $3,112,502 for the nine-
month period ended September 30, 1998 from $2,364,649 for the nine-month period
ended September 30, 1997. The increase is principally due to increased
marketing and market research expenses related to pleconaril, salary expenses
and facilities costs related to the Company's move to its current facilities in
March 1998.
The net loss increased to $16,735,786 for the nine-month period ended
September 30, 1998 from $8,560,220 for the nine-month period ended September 30,
1997.
YEAR 2000 IMPACT
The Company is assessing the potential impact of the year 2000 issue on the
ability of the Company's computerized information systems to accurately process
information that may be date-sensitive. Any of the Company's programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. The Company utilizes a number of computer
programs across its entire operation, including computer programs of third
parties with whom the Company does business. The Company has not completed its
assessment, but currently believes that costs of addressing this issue will not
have a material adverse impact on the Company's financial position. However, if
the Company and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk to the
Company. In order to assure that this does not occur, the Company plans to
devote all resources required to resolve any significant year 2000 issues in a
timely manner.
10
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PART II - OTHER INFORMATION
----------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.29 Non-Qualified Stock Option Agreement dated August 4, 1998
between the Company and Howard Pien.
10.30 Non-Qualified Stock Option Agreement dated September 10, 1998
between the Company and Robert J. Glaser.
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a stockholders Rights plan on Form 8-K during the
quarter ended September 30, 1998.
11
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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 13, 1998 By: /s/ Claude H. Nash
------------------------------
Claude H. Nash
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
By: /s/ Vincent J. Milano
------------------------------
Vincent J. Milano
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
12
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EXHIBIT INDEX
- --------------------------------------------------------------------
Exhibit Description
10.29 Non-Qualified Stock Option Agreement dated August 4,
1998 between the Company and Howard Pien.
10.30 Non-Qualified Stock Option Agreement dated September
10, 1998 between the Company and Robert J. Glaser.
27 Financial Data Schedule
13
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Exhibit 10.29
VIROPHARMA INCORPORATED
STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
ViroPharma Incorporated (the "Company") hereby grants to Howard Pien
(the "Optionee") an option to purchase a total of 20,000 shares of Common Stock
of the Company, at the price and on the terms set forth herein, and in all
respects subject to the terms, definitions and provisions of the ViroPharma
Incorporated Stock Option Plan (the "Plan") applicable to non-qualified stock
options, which terms and provisions are hereby incorporated by reference herein.
Unless the context herein otherwise requires, the terms defined in the Plan
shall have the same meanings when used herein.
1. NATURE OF THE OPTION. This Option is intended to be a
nonstatutory stock option and is not intended to be an Incentive Stock Option
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or to otherwise qualify for any special tax benefits to
the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted this 4th
day of August, 1998, and it may not be exercised later than August 3, 2008,
subject to earlier termination, as provided in the Plan.
3. OPTION EXERCISE PRICE. The Option exercise price is $19.50 per
Share.
4. EXERCISE OF OPTION. This Option shall be exercisable during its
term only in accordance with the terms and provisions of the Plan and this
Option Agreement as follows:
(A) RIGHT TO EXERCISE. This Option shall vest and be exercisable
as follows:
VESTING DATE NUMBER SHARES VESTING
------------ ---------------------
August 3, 1999 6,666 Shares
August 3, 2000 6,667 Shares
August 3, 2001 6,667 Shares
(B) METHOD OF EXERCISE. This Option shall be exercisable during
its term by written notice which shall state the election to exercise this
Option, the number of full Shares in respect to which this Option is being
exercised and which shall contain or be accompanied by such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be reasonably required by the Company as
contemplated by the Plan. Such written notice shall be signed by the Optionee
and shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price. Payment of the
purchase price shall be by check or
1
<PAGE>
such other consideration and other method of payment as may be authorized by the
Board or the Committee pursuant to the Plan. The certificate or certificates for
the Shares as to which the Option shall be exercised shall be registered in the
name of the Optionee and, if required by applicable law, shall be legended as
required under the Plan.
(C) RESTRICTIONS ON EXERCISE. This Option may not be exercised if
the issuance of the Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities laws or other laws or regulations.
5. INVESTMENT REPRESENTATIONS. Unless the Shares have been
registered under the Securities Act of 1933, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(A) The Optionee is acquiring this Option, and upon exercise of
this Option, he will be acquiring the Shares for investment for his own account,
not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(B) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN ELIGIBLE PERSON. Subject to the
provisions of Section 7 hereof: (a) if the Optionee is other than a consultant
or advisor to the Company and ceases to serve the Company or its Subsidiaries
for any reason other than death or Disability and thereby terminates his status
as an Eligible Person, the Optionee (or in the event the Optionee dies
following termination of employment, then the Optionee's executor or
administrator) shall have the right to exercise this Option at any time within
the three (3) month period after the date of such termination to the extent that
the Optionee was entitled to exercise the Option at the date of such
termination; and (b) if the Optionee is as a consultant or advisor to the
Company, such termination shall not accelerate the expiration date of the
Option; provided, however, that if the Optionee dies following such termination,
then the Option must be exercised within the 12-month period following the date
of death.
If the Optionee ceases to serve the Company due to death or
Disability, this Option may be exercised at any time within the 12-month period
after the date of death or termination of service due to Disability, in the case
of death, by the Optionee's estate or by a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of Disability,
by the Optionee or his legal guardian or representative, but in any case only to
the extent the Optionee was entitled to exercise this Option at the date of such
termination.
To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or to the extent the Option is not exercised
within the time specified herein, this Option shall terminate. Notwithstanding
the foregoing, this Option shall not be exercisable after the expiration of the
term set forth in Section 2 hereof.
2
<PAGE>
7. FORFEITURE OF OPTION.
(A) Termination for Cause. Notwithstanding any other provision of
---------------------
this Option, if the Optionee's employment or service is terminated by the
Company and the Board or the Committee makes a determination that the Optionee
(i) has engaged in any type of disloyalty to the Company, including without
limitation, fraud, embezzlement, theft, or dishonesty in the course of his
employment, or has breached any fiduciary duty owed to the Company, or (ii) has
been convicted of a felony or (iii) has disclosed trade secrets or confidential
information of the Company or (iv) has breached any agreement with the Company
in respect of confidentiality, non-disclosure, non-competition or otherwise, all
unexercised Options shall terminate on the earlier of the date of termination
for "cause" or the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it, if any, in the same form as it was paid
(or in cash at the Company's discretion). Notwithstanding anything herein to
the contrary, the Company may withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a determination resulting in
forfeiture.
(B) Non-Competition. Notwithstanding any other provision of this
---------------
Option, if, during the 3-month period following a termination of service, which
period shall be extended to 12 months in the event of a termination due to
Disability, (i) an Optionee who is other than a consultant or advisor to the
Company commences any employment or engagement with or by a competitor of the
Company (including, but not limited to, full or part-time employment or
independent consulting work), as determined in the sole discretion of the Board
or the Committee, provided that the employment of Optionee by SmithKline Beecham
plc shall not be deemed to be employment of Optionee with or by a competitor of
the Company for purposes of this Agreement, or (ii) an Optionee who is a
consultant or advisor, has entered into an agreement with the Company which
contains non-competition covenants and violates the terms of his or her non-
competition covenant, as determined in the sole discretion of the Board or the
Committee, then in either case all of such Optionee's unexercised Options shall
terminate immediately upon the commencement of such competitive activity.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee (or by such Optionee's
representative pursuant to Section 6). Subject to the foregoing and the terms of
the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. CONTINUATION OF EMPLOYMENT OR ENGAGEMENT. Neither the Plan nor
this Option shall confer upon any Optionee any right to continue in the service
of the Company or any of its Subsidiaries or limit, in any respect, the right of
the Company to discharge the Optionee at any time, with or without cause and
with or without notice.
10. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other
3
<PAGE>
disposition of the Shares issued upon exercise of this Option. If the amount of
any consideration payable to the Optionee is insufficient to pay such taxes or
if no consideration is payable to the Optionee, upon the request of the Company,
the Optionee (or such other person entitled to exercise the Option pursuant to
Section 6 hereof) shall pay to the Company an amount sufficient for the Company
to satisfy any federal, state or local tax withholding requirements it may
incur, as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon the exercise of this Option.
11. THE PLAN. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board or the Committee is authorized to adopt rules
and regulations not inconsistent with the Plan as it shall deem appropriate and
proper. A copy of the Plan in its present form is available for inspection
during business hours by the Optionee or the persons entitled to exercise this
Option at the Company's principal office.
12. ENTIRE AGREEMENT. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania.
14. AMENDMENT. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute and attest this instrument as of this 4th day of August,
1998.
VIROPHARMA INCORPORATED
By:________________________
Claude H. Nash
President and Chief Executive Officer
4
<PAGE>
ACKNOWLEDGMENT
--------------
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he or she has read and is familiar
with the terms and provisions thereof and hereby accepts this Option subject to
all of the terms and provisions of the Option Agreement and the ViroPharma
Incorporated Stock Option Plan (the "Plan"). The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board or the Committee upon any questions arising under the Plan.
Date: ____________________ _________________________
Signature of Optionee
_________________________
Name of Optionee
_________________________
Address
_________________________
City, State, Zip Code
5
<PAGE>
Exhibit 10.30
VIROPHARMA INCORPORATED
STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
ViroPharma Incorporated (the "Company") hereby grants to Robert J.
Glaser (the "Optionee") an option to purchase a total of 20,000 shares of Common
Stock of the Company, at the price and on the terms set forth herein, and in all
respects subject to the terms, definitions and provisions of the ViroPharma
Incorporated Stock Option Plan (the "Plan") applicable to non-qualified stock
options, which terms and provisions are hereby incorporated by reference herein.
Unless the context herein otherwise requires, the terms defined in the Plan
shall have the same meanings when used herein.
1. NATURE OF THE OPTION. This Option is intended to be a
nonstatutory stock option and is not intended to be an Incentive Stock Option
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or to otherwise qualify for any special tax benefits to
the Optionee.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted this 10th
day of September, 1998, and it may not be exercised later than July 30, 2007
subject to earlier termination, as provided in the Plan.
3. OPTION EXERCISE PRICE. The Option exercise price is $15.125 per
Share.
4. EXERCISE OF OPTION. This Option shall be exercisable during its
term only in accordance with the terms and provisions of the Plan and this
Option Agreement as follows:
(A) RIGHT TO EXERCISE. This Option shall vest and be exercisable
as follows:
Vesting Date Number of Shares Vesting
------------ ------------------------
<TABLE>
<CAPTION>
<S> <C>
Immediately 6,666
May 27, 1999 6,666
May 27, 2000 6,667
</TABLE>
(B) METHOD OF EXERCISE. This Option shall be exercisable during
its term by written notice which shall state the election to exercise this
Option, the number of full Shares in respect to which this Option is being
exercised and which shall contain or be accompanied by such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be reasonably required by the Company as
contemplated by the Plan. Such written notice shall be signed by the Optionee
and shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price. Payment of the
purchase price shall be by check or such other consideration and other method of
payment as may be authorized by the Board or the Committee pursuant to the Plan.
The certificate or certificates for the Shares as to which the Option shall be
exercised shall be registered in the name of the Optionee and, if required by
applicable law, shall be legended as required under the Plan.
1
<PAGE>
(C) RESTRICTIONS ON EXERCISE. This Option may not be exercised if
the issuance of the Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities laws or other laws or regulations.
5. INVESTMENT REPRESENTATIONS. Unless the Shares have been
registered under the Securities Act of 1933, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(A) The Optionee is acquiring this Option, and upon exercise of
this Option, he will be acquiring the Shares for investment for his own account,
not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(B) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. TERMINATION OF STATUS AS AN ELIGIBLE PERSON. Subject to the
provisions of Section 7 hereof: (a) if the Optionee is other than a consultant
or advisor to the Company and ceases to serve the Company or its Subsidiaries
for any reason other than death or Disability and thereby terminates his status
as an Eligible Person, the Optionee (or in the event the Optionee dies
following termination of employment, then the Optionee's executor or
administrator) shall have the right to exercise this Option at any time within
the three (3) month period after the date of such termination to the extent that
the Optionee was entitled to exercise the Option at the date of such
termination; and (b) if the Optionee is as a consultant or advisor to the
Company, such termination shall not accelerate the expiration date of the
Option; provided, however, that if the Optionee dies following such termination,
then the Option must be exercised within the 12-month period following the date
of death.
If the Optionee ceases to serve the Company due to death or
Disability, this Option may be exercised at any time within the 12-month period
after the date of death or termination of service due to Disability, in the case
of death, by the Optionee's estate or by a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of Disability,
by the Optionee or his legal guardian or representative, but in any case only to
the extent the Optionee was entitled to exercise this Option at the date of such
termination.
To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or to the extent the Option is not exercised
within the time specified herein, this Option shall terminate. Notwithstanding
the foregoing, this Option shall not be exercisable after the expiration of the
term set forth in Section 2 hereof.
7. FORFEITURE OF OPTION.
(A) Termination for Cause. Notwithstanding any other provision of
---------------------
this Option, if the Optionee's employment or service is terminated by the
Company and the Board or the Committee makes a determination that the Optionee
(i) has engaged in any type of disloyalty to the
2
<PAGE>
Company, including without limitation, fraud, embezzlement, theft, or dishonesty
in the course of his employment, or has breached any fiduciary duty owed to the
Company, or (ii) has been convicted of a felony or (iii) has disclosed trade
secrets or confidential information of the Company or (iv) has breached any
agreement with the Company in respect of confidentiality, non-disclosure, non-
competition or otherwise, all unexercised Options shall terminate on the earlier
of the date of termination for "cause" or the date of such determination. In the
event of such a determination, in addition to immediate termination of all
unexercised Options, the Optionee shall forfeit all Option shares for which the
Company has not yet delivered share certificates to the Optionee and the Company
shall refund to the Optionee the Option price paid to it, if any, in the same
form as it was paid (or in cash at the Company's discretion). Notwithstanding
anything herein to the contrary, the Company may withhold delivery of share
certificates pending the resolution of any inquiry that could lead to a
determination resulting in forfeiture.
(B) Non-Competition. Notwithstanding any other provision of this
---------------
Option, if, during the 3-month period following a termination of service, which
period shall be extended to 12 months in the event of a termination due to
Disability, (i) an Optionee who is other than a consultant or advisor to the
Company commences any employment or engagement with or by a competitor of the
Company (including, but not limited to, full or part-time employment or
independent consulting work), as determined in the sole discretion of the Board
or the Committee, provided that the employment of Optionee by McKesson
Corporation (including but not limited to the McKesson Pharmaceutical Services
division of McKesson Corporation) shall not be deemed to be employment of
Optionee with or by a competitor of the Company for purposes of this Agreement,
or (ii) an Optionee who is a consultant or advisor, has entered into an
agreement with the Company which contains non-competition covenants and violates
the terms of his or her non-competition covenant, as determined in the sole
discretion of the Board or the Committee, then in either case all of such
Optionee's unexercised Options shall terminate immediately upon the commencement
of such competitive activity.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee (or by such Optionee's
representative pursuant to Section 6). Subject to the foregoing and the terms of
the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. CONTINUATION OF EMPLOYMENT OR ENGAGEMENT. Neither the Plan nor
this Option shall confer upon any Optionee any right to continue in the service
of the Company or any of its Subsidiaries or limit, in any respect, the right of
the Company to discharge the Optionee at any time, with or without cause and
with or without notice.
10. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 6 hereof)
shall pay to the Company an amount sufficient for the Company
3
<PAGE>
to satisfy any federal, state or local tax withholding requirements it may
incur, as a result of the grant or exercise of this Option or the sale or other
disposition of the Shares issued upon the exercise of this Option.
11. THE PLAN. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board or the Committee is authorized to adopt rules
and regulations not inconsistent with the Plan as it shall deem appropriate and
proper. A copy of the Plan in its present form is available for inspection
during business hours by the Optionee or the persons entitled to exercise this
Option at the Company's principal office.
12. TERMINATION OF OTHER AGREEMENTS; ENTIRE AGREEMENT. This
Agreement hereby terminates the Consulting Agreement dated July 31, 1997 between
Optionee and the Company and the Nonqualified Stock Option Agreement dated July
31, 1997 between Optionee and the Company. This Agreement, together with the
Plan and the other exhibits attached thereto or hereto, represents the entire
agreement between the parties.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania.
14. AMENDMENT. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute and attest this instrument this 10th day of September, 1998.
VIROPHARMA INCORPORATED
By: _________________________
Claude H. Nash
President and Chief Executive Officer
4
<PAGE>
ACKNOWLEDGMENT
- --------------
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he or she has read and is familiar
with the terms and provisions thereof and hereby accepts this Option subject to
all of the terms and provisions of the Option Agreement and the ViroPharma
Incorporated Stock Option Plan (the "Plan"). The Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board or the Committee upon any questions arising under the Plan.
Date: September 10, 1998
Signature of Optionee
_________________________
Name of Optionee
_________________________
Address
_________________________
City, State, Zip Code
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 345,408 345,408
<SECURITIES> 27,014,620 27,014,620
<RECEIVABLES> 111,362 111,362
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,674,541 27,674,541
<PP&E> 3,038,535 3,038,535
<DEPRECIATION> 566,871 566,871
<TOTAL-ASSETS> 30,600,261 30,600,261
<CURRENT-LIABILITIES> 6,658,840 6,658,840
<BONDS> 0 0
0 0
0 0
<COMMON> 22,972 22,972
<OTHER-SE> 22,477,332 22,477,332
<TOTAL-LIABILITY-AND-EQUITY> 30,600,261 30,600,261
<SALES> 0 0
<TOTAL-REVENUES> 1,500,000 750,000
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 19,357,220 7,841,649
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 118,557 34,292
<INCOME-PRETAX> (16,735,786) (6,673,580)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (16,735,786) (6,673,580)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,735,786) (6,673,580)
<EPS-PRIMARY> (1.46) (.58)
<EPS-DILUTED> (1.46) (.58)
</TABLE>
