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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[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
For the transition period from ___ to ___
Commission File Number: 0-27066
PHARMACYCLICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3148201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____
As of September 30, 1998, there were 12,375,354 shares of the Registrant's
Common Stock outstanding, par value $0.0001 per share.
This quarterly report on Form 10-Q consists of 22 pages of which this is page 1.
The Exhibit Index is located at page 21.
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PHARMACYCLICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ---- -- --------------------- -----------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet as of September 30, 1998 and June 30, 1998 .................... 3
Condensed Statement of Operations for the three months ended September 30, 1998
and 1997 .......................................................................... 4
Condensed Statement of Cash Flows for the three months ended September 30, 1998
and 1997 .......................................................................... 5
Notes to Condensed Financial Statements ............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations and Factors that May Affect Future Operating Results ................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................................... 21
Item 2. Changes in Securities ................................................................. 21
Item 3. Defaults Upon Senior Securities ....................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders ................................... 21
Item 5. Other information ..................................................................... 21
Item 6. Exhibits and Reports on Form 8-K ...................................................... 21
SIGNATURES .................................................................................................... 22
</TABLE>
[LOGO]
PHARMACYCLICS(R), the "pentadentate" logo, GADOLITE(R), XCYTRIN(TM), ANTRIN(TM),
LUTRIN(TM), and OPTRIN(TM) are trademarks of Pharmacyclics, Inc. Other
trademarks, trade names or service marks used herein are the property of their
respective owners.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACYCLICS, INC.
(a development stage company)
CONDENSED BALANCE SHEET
(unaudited; in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,110 $ 13,456
Short-term investments 27,207 23,189
Accounts receivable 164 166
Prepaid expenses and other current assets 286 166
--------- ---------
Total current assets 38,767 36,977
Long-term investments 28,277 33,736
Property and equipment, net 2,252 2,253
Other assets 53 53
--------- ---------
$ 69,349 $ 73,019
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,427 $ 3,377
Accrued liabilities 387 432
Current portion of capital lease obligations 235 255
--------- ---------
Total current liabilities 4,049 4,064
Capital lease obligations 220 275
Deferred rent 28 39
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Total liabilities 4,297 4,378
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Stockholders' equity:
Preferred stock -- --
Common stock 1 1
Additional paid-in capital 116,607 116,531
Other 310 --
Deficit accumulated during development stage (51,866) (47,891)
--------- ---------
Total stockholders' equity 65,052 68,641
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$ 69,349 $ 73,019
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENT OF OPERATIONS
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1998 1997
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Revenues:
License and grant revenues $ -- $ --
Contract revenue 235 --
-------- --------
Total revenues 235 --
-------- --------
Operating expenses:
Research and development 4,607 2,765
General and administrative 559 388
-------- --------
Total operating expenses 5,166 3,153
-------- --------
Loss from operations (4,931) (3,153)
Interest income, net 956 498
-------- --------
Net loss $ (3,975) $ (2,655)
======== ========
Basic and diluted net loss per share (Note 2) $ (0.32) $ (0.26)
======== ========
Shares used to compute basic and diluted net loss per
share
12,335 10,117
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,975) $ (2,655)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 206 203
Write-down of equipment -- 188
Changes in assets and liabilities:
Accounts receivable 2 --
Prepaid expenses and other assets (120) 14
Accounts payable 50 (493)
Accrued liabilities (45) (13)
Deferred rent (11) (10)
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Net cash used in operating activities (3,893) (2,766)
-------- --------
Cash flows from investing activities:
Purchases of equipment (205) (183)
Purchases of investments (6,081) (3,502)
Proceeds from sale of investments 7,832 11,933
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Net cash provided by investing activities 1,546 8,248
-------- --------
Cash flows from financing activities:
Payments under capital lease obligations (75) (261)
Proceeds from sale of stock 76 122
-------- --------
Net cash provided by (used in) financing activities 1 (139)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,346) 5,343
Cash and cash equivalents at the beginning of the period 13,456 15,869
-------- --------
Cash and cash equivalents at the end of the period $ 11,110 $ 21,212
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 12 $ 33
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PHARMACYCLICS, INC.
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Pharmacyclics, Inc.
(the "Company" or "Pharmacyclics") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited, condensed financial
statements reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the Company's interim financial
information. These financial statements and notes should be read in conjunction
with the audited financial statements of the Company included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 filed with the
Securities and Exchange Commission on September 25, 1998.
The results of operations for the three months ended September 30, 1998 are not
necessarily indicative of the operating results that may be reported for the
fiscal year ending June 30, 1999 or for any other future period.
REVENUE RECOGNITION
License fees are recognized as revenue when earned, as evidenced by achievement
of the specified milestones and the absence of any ongoing performance
obligation. Contract and grant revenues are recognized as earned, primarily
based on costs incurred to total estimated costs at completion, pursuant to the
terms of each agreement. License, contract and grant revenues are generally not
subject to repayment. Any amounts received in advance of performance are
recorded as deferred revenue.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. Research and development costs consist
of direct and indirect internal costs related to specific projects as well as
fees paid to other entities which conduct certain research activities on behalf
of the Company.
CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments purchased with maturity at the date of purchase of
three months or less are considered to be cash equivalents. The Company
classifies its cash equivalents and investments as "available for sale." For all
periods presented, the cost of investments approximates their fair market value.
NOTE 2 - BASIC AND DILUTED NET LOSS PER SHARE
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of stock options
and warrants (using the treasury stock method) and have been excluded from the
computation of dilutive earnings per share because their effect is
anti-dilutive.
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PHARMACYCLICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - EQUITY
In February 1998, the Company sold 2,012,500 shares of its common stock at a
price of $21.75 per share, which resulted in net proceeds to the Company of
approximately $40,800,000. In February 1997, the Company completed a private
placement of 862,190 shares of Common Stock at $19.05 per share for net proceeds
of $16,300,000. In November 1996, the Company completed a private placement of
580,000 shares of Common Stock at $14.00 per share for net proceeds of
$8,100,000. The Company filed and had declared effective on April 22, 1997, a
registration statement on Form S-3 covering the resales of the securities
purchased in both private placements.
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
Effective July 1998, Pharmacyclics adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting comprehensive income (loss) and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income (loss) as defined includes
all changes in equity (net assets) during a period from nonowner sources.
Examples of items to be included in comprehensive income (loss), which are
currently excluded from the results of operations, include foreign currency
translation adjustments and unrealized gain/loss on available-for-sale
securities.
The Company's total comprehensive losses were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1998 1997
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<S> <C> <C>
Net loss $(3,975) $(2,655)
Net unrealized gains on available-for-sale securities 310 --
------- -------
Comprehensive net loss $(3,665) $(2,655)
======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to historical information, this report contains predictions,
estimates and other forward looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
any future performance suggested in this report as a result of the factors,
including those discussed in "Factors That May Affect Future Operating Results,"
elsewhere in this report and in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.
OVERVIEW
Pharmacyclics is a pharmaceutical company developing energy-potentiating drugs
to improve radiation therapy and chemotherapy of cancer, and to enable or
improve the photodynamic therapy of certain cancers, atherosclerotic
cardiovascular disease, and retinal diseases. The Company is currently in
multicenter Phase III clinical trials with XCYTRIN(TM) (a gadolinium texaphyrin
molecule also known as "Gd-Tex") as a radiation sensitizer to improve the
efficacy of radiation therapy of brain metastases resulting from a variety of
cancers, including those of the lung and breast. The Company has also initiated
a Phase I clinical trial for ANTRIN(TM) photosensitizer to evaluate its safety
and efficacy for photoangioplasty treatment of patients with atherosclerotic
peripheral arterial disease. LUTRIN(TM) photosensitizer is in multicenter Phase
II clinical trials to evaluate its safety and efficacy for use in the treatment
of recurrent breast cancers to the chest wall, which are accessible to
illumination by externally-applied light. The National Cancer Institute ("NCI")
intends to conduct a minimum of nine Phase I clinical trials of XCYTRIN and a
minimum of eight Phase I clinical trials of LUTRIN, each for a variety of
additional cancer indications. In addition, the Company has conducted
preclinical studies with OPTRIN(TM) photosensitizer for use in certain
ophthalmic diseases, such as age-related macular degeneration ("ARMD"). In
October 1997, the Company entered into a collaborative agreement with Nycomed
Imaging A/S ("Nycomed") to sell and market LUTRIN for cancer therapy outside the
United States, Canada and Japan. In December 1997, the Company entered into an
evaluation and license agreement with Alcon Pharmaceuticals, Ltd. ("Alcon")
under which Alcon acquired worldwide marketing rights to OPTRIN photosensitizer
for ophthalmology indications. Alcon is conducting Phase I studies in patients
with ARMD.
To date, the Company has devoted substantially all of its resources to research
and development. No revenues have been derived from product sales, and the
Company does not expect to receive product revenues for at least the next
several years. The Company has incurred significant operating losses since its
inception in 1991 and, as of September 30, 1998, had an accumulated deficit of
approximately $51.9 million. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing costs of research and development, in addition to costs related
to clinical trials and manufacturing activities. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. The Company's ability to achieve profitability is dependent upon
its ability, alone or with others, to successfully complete the development of
its products under development, and obtain required regulatory clearances and
successfully manufacture and market these products.
RESULTS OF OPERATIONS
Revenues
Revenues were $235,000 for the period ended September 30, 1998 compared to no
revenue for the three months ended September 30, 1997. Revenue in fiscal 1999
consisted of contract revenue associated with one of the Company's corporate
collaboration agreements.
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Research and Development
Research and development expenses increased $1,842,000 (67%) to $4,607,000 in
the three months ended September 30, 1998 as compared to $2,765,000 in the three
months ended September 30, 1997. This increase was mainly attributable to
increased clinical trial costs, greater drug purchases and greater personnel
costs. The Company expects research and development spending to increase over
the next several years as product development, clinical trials and core research
efforts continue to expand.
General and Administrative
General and administrative expenses increased $171,000 (44%) to $559,000 in the
three months ended September 30, 1998 as compared to $388,000 in the three
months ended September 30, 1997. This increase was primarily related to an
increase in personnel and related expenses.
Interest Income, Net
Interest income, net increased $458,000 (92%) to $956,000 in the three months
ended September 30, 1998 as compared to $498,000 in the three months ended
September 30, 1997. The increase is primarily attributable to increased earnings
from higher investment balances resulting from a public equity offering
completed in February 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been private and public
equity financings and proceeds from collaborative research and development
agreements, as well as grant and contract revenues and interest income.
As of September 30, 1998, the Company had approximately $66,594,000 in cash,
cash equivalents and investments. Net cash used in operating activities of
$3,893,000 during the three months ended September 30, 1998 resulted primarily
from the net loss for the period. Net cash used in operating activities of
$2,766,000 during the three months ended September 30, 1997 resulted primarily
from the net loss for the period and a decrease in accounts payable, partially
offset by noncash charges for depreciation expense and a write-down of
equipment.
Cash provided by investing activities of $1,546,000 and $8,248,000 for the three
months ended September 30, 1998 and 1997, respectively, consisted primarily of
proceeds from the sale of investments, net of purchases. Net cash provided by
financing activities of $1,000 for the three months ended September 30, 1998
consisted of proceeds from the sale of stock, offset by payments under capital
lease obligations. Net cash used in financing activities of $139,000 for the
three months ended September 30, 1997, consisted of payments under capital lease
obligations, partially offset by proceeds from the sale of stock.
Based on the current status of its product development and commercialization
plans, the Company believes its cash, cash equivalents and short and long-term
investments will be adequate to satisfy its capital needs through at least the
calendar year 2000. However, the Company's actual capital requirements will
depend on many factors, including the status of product development; the time
and cost involved in conducting clinical trials and obtaining regulatory
approvals; filing, prosecuting and enforcing patent claims; competing
technological and market developments; and the ability of the Company to market
and distribute its products and establish new collaborative and licensing
arrangements.
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The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. The factors described above will impact the Company's future capital
requirements and the adequacy of its available funds. The Company may be
required to raise additional funds through public or private financings,
collaborative relationships or other arrangements. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish rights to certain of its
technologies, products or marketing territories. The failure of the Company to
raise capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Factors That May
Affect Future Operating Results."
IMPACT OF YEAR 2000
The Company believes that with upgrades to its existing software and conversions
to new software, all of which are readily available in the market, the Year 2000
issue will not pose significant operational problems for its internal computer
systems. All required modifications and conversions of computer systems that are
critical to the Company's business operations are expected to be completed no
later than June 30, 1999 which is prior to the estimated occurrence of any Year
2000 issues. The Company has initiated formal communications with its
significant suppliers and service providers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There is no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted and
will not have an adverse impact on the Company's systems. The Company estimates
that the cost of required upgrades and conversions will not have a significant
impact on its results of operations.
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
UNCERTAINTIES RELATED TO CLINICAL TRIALS AND PRODUCT DEVELOPMENT
All of the Company's product candidates are in development and have not
generated product sales revenue to date, and there can be no assurance that any
of the Company's products under development will be commercialized or will
generate product sales revenue in the future. To achieve profitable operations,
the Company, alone or with collaborative partners, must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market and
distribute its products under development. The time frame necessary to achieve
these goals for any individual product is long and uncertain. Most of the
Company's product candidates are generally in early stages of development and
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. A number of
factors will impact the timing and ability of the Company to successfully
complete clinical trials for its products under development.
Before obtaining regulatory clearance for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the potential product is safe and efficacious
for use in humans for each target indication. Pharmacyclics has conducted and
plans to continue extensive and costly clinical trials to assess the safety and
efficacy of its potential products. There can be no assurance that the Company
will be permitted to undertake or continue its intended clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the nature of the Company's clinical trial
protocols, existence of competing protocols, size and longevity of the target
patient population, proximity of patients to clinical sites and eligibility
criteria for the trials. There can be no assurance that the Company will obtain
adequate levels of patient enrollment in its clinical trials. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials, which could have a material adverse affect on the Company. In
addition, the U.S. Food and Drug Administration ("FDA") may suspend clinical
trials at any time if, among other reasons, it concludes that patients
participating in such trials are being exposed to unacceptable health risks.
The Company also relies on third parties to assist the Company in
conducting, overseeing and monitoring its clinical trials. If such third parties
fail to perform under their agreements with the Company or fail to meet
regulatory standards in the performance of their obligations under such
agreements, such clinical trials may be delayed or halted. The Company's
reliance on assistance from third parties with respect to its clinical trials is
likely to increase as the Company expands the number and scope of its clinical
trials.
Additionally, demands on the Company's clinical staff have been increasing
and are expected to continue to increase as a result of later-stage clinical
trials of its products in development and its monitoring of additional Phase I
clinical trials of XCYTRIN and LUTRIN for various indications which are being
funded by the NCI. There can be no assurance that the Company will be able to
effectively oversee and monitor these multiple clinical trials. The Company's
inability to effectively manage multiple concurrent clinical trials would result
in increased costs or delays of the Company's clinical trials. There can be no
assurance that the Company will be able to complete the necessary data and
submit a new drug application ("NDA") as scheduled even if clinical trials are
completed or that such application will be reviewed and cleared by the FDA in a
timely manner, if at all.
Data obtained from preclinical studies and clinical trials of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical trials. Moreover, such data is susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. In advanced clinical
development, numerous factors may be involved that may lead to different results
in larger, later-stage trials from those obtained in earlier-stage trials.
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A number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to adequately demonstrate
the safety and efficacy of a product under development could delay or prevent
regulatory clearance of the potential product and would have a material adverse
effect on the Company. There can be no assurance that the Company's clinical
trials will demonstrate the sufficient levels of safety and efficacy necessary
to obtain the requisite regulatory approval or will result in marketable
products.
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that, if approved for marketing, any of the
Company's products under development will achieve market acceptance. The degree
of market acceptance will depend upon a number of factors, including the receipt
of regulatory approvals, the establishment and demonstration in the medical
community of the clinical efficacy and safety of the Company's product
candidates and their potential advantages over existing therapeutic products,
diagnostic and/or imaging techniques, and pricing and reimbursement policies of
government and third-party payers. There can be no assurance that physicians,
patients, payers or the medical community in general will accept and utilize any
products that may be developed by the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its inception
in April 1991 and, as of September 30, 1998, had an accumulated deficit of
approximately $51.9 million. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing costs of research and development, in addition to increasing
costs related to later stage clinical trials and manufacturing activities. The
Company's ability to achieve profitability is dependent upon its ability, alone
or with others, to successfully complete the development of its proposed
products, obtain the required regulatory clearances and manufacture and market
its proposed products. To date, the Company has not generated revenue from the
commercial sale of its products and does not expect to receive any such revenue
in the near future. All revenues to date have resulted primarily from
non-refundable license, contract research and development and milestone payments
and, to a lesser extent, funding from one government research grant.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The manufacture and marketing of the Company's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the United States and
abroad. Before receiving FDA clearance to market a product, the Company will
have to demonstrate that the product is safe and effective on the patient
population that will be treated. Clinical trials, manufacturing and marketing of
products are subject to the rigorous testing and approval process of the FDA and
equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic
Act and other federal and state statutes and regulations govern and influence
the testing, manufacture, labeling, advertising, distribution and promotion of
drugs and medical devices. As a result, clinical trials and regulatory approval
can take a number of years to accomplish and require the expenditure of
substantial resources. Data obtained from clinical trials are susceptible to
varying interpretations which could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Similar delays also may be
encountered in foreign countries. There can be no assurance that requisite FDA
approvals or those of foreign regulatory authorities will be obtained on a
timely basis, if at all, or that any approvals granted will cover the clinical
indications for which the Company may seek approval. Marketing or promoting a
drug for an unapproved indication is subject to very strict controls under The
Food and Drug Administration Modernization Act of 1997 (the "1997 FDA Act").
Furthermore, clearance may entail ongoing requirements for postmarketing
studies. The manufacture and marketing of drugs are subject to continuing FDA
and foreign regulatory review and later discovery of previously unknown issues
with a product, manufacturer or facility may result in restrictions, including
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withdrawal of the product from the market. Failure to obtain or maintain
requisite governmental approvals, failure to obtain approvals of the clinically
intended uses or the identification of adverse side effects of the Company's
products under development could delay or preclude the Company from further
developing a particular product or from marketing its products, or could limit
the commercial use of its products, any of which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Manufacturers of drugs also are required to comply with the applicable FDA
good manufacturing practices ("GMP") regulations, which include requirements
relating to quality control and quality assurance as well as the corresponding
maintenance of records and documentation. Manufacturing facilities are subject
to inspection by the FDA, including unannounced inspection, and must be licensed
before they can be used in commercial manufacturing of the Company's products.
There can be no assurance that the Company or its present or future suppliers
will be able to comply with the applicable GMP regulations and other FDA
regulatory requirements.
The Company may elect to seek approval of XCYTRIN and LUTRIN under the
fast track ("Fast Track") provisions codified in the 1997 FDA Act. Significant
uncertainty exists as to the extent to which such changes will result in
accelerated review and approval. Further, the FDA has not made available
comprehensive information with respect to the 1997 FDA Act and retains
considerable discretion to determine eligibility for Fast Track review and
approval. Accordingly, the FDA could employ such discretion to deny eligibility
of XCYTRIN or LUTRIN as a candidate for Fast Track review or to require
additional clinical trials or other information before approving either product.
A determination that XCYTRIN or LUTRIN is not eligible for accelerated review or
delays and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company.
In addition to the drug approval requirements applicable to the Company's
LUTRIN, ANTRIN and OPTRIN photosensitizer products for photodynamic therapy of
certain cancers, atherosclerosis and ARMD, the Company or its collaborators will
also need to obtain the approval of the FDA and other foreign regulatory
authorities for the laser, light emitting diodes ("LEDs") or associated light
delivery devices used in such treatments. Such device approval requires
additional regulatory submissions both by the Company or its collaborators and
by the manufacturers of such devices, which must include clinical data obtained
from the use of such light delivery devices, and may result in additional delays
or difficulties in obtaining approval for the use of LUTRIN, ANTRIN or OPTRIN as
photosensitizers. Manufacturers of such light delivery devices currently are
under no obligation to the Company to file or pursue such applications and any
delay or refusal on their part to do so could have a material adverse affect on
the Company.
The Company submitted an NDA for its GADOLITE(R) oral suspension product
in September 1995 and received an "approvable" letter in December 1996 which
included a number of issues that must be addressed by the Company. The Company
is in the process of addressing these issues, which also require resolution of
current manufacturing uncertainties relating to GADOLITE. There can be no
assurance that the FDA will decide that the NDA satisfies the criteria for
approval. In 1996, the Company received approval from the Medicines Control
Agency to market GADOLITE in the United Kingdom. In April 1998, the Company
received approval from the Health Protection Branch of Health Canada to market
GADOLITE in Canada. GADOLITE will not be marketed in Europe or Canada until
product manufacturing and product stability issues are resolved. Although the
process for regulatory approval in Western Europe is similar to that in the
United States, there are numerous and sometimes unique risks associated with the
approval of a marketing authorization in Europe. There can be no assurance that
authorization to market GADOLITE in other member states would be granted under
the European Union's mutual recognition procedure.
13
<PAGE> 14
UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company believes its success depends upon, among other things, the
Company's ability to protect its intellectual property position. The Company,
therefore, aggressively pursues, prosecutes, protects and defends its patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering, e.g., compositions of matter, methods of use and
synthetic methodology relating to its products under development. As of
September 30, 1998, the Company owns or has licensed various rights to patents
and pending applications in the U.S., Europe, Japan and elsewhere throughout the
world. The issued U.S. patents expire between 2006 and 2016. There can be no
assurance that the Company will have continued success in prosecuting its patent
applications or that patents will issue in respect of those patent applications.
Even if patents are issued and maintained, there can be no assurance that the
patents are or will be of adequate scope to benefit the Company, or that any
such patents would be upheld as valid and enforceable with respect to third
parties.
Because there are a number of third-party patents issued and third-party
patent applications filed relating to biometallic and expanded porphyrin
chemistries, the Company believes there is some risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to similar or even the same
compositions, methods, or designs of the Company or its products. It is
pertinent, however, that patents and patent applications owned or licensed by
the Company cover various aspects, ranging from base compositions, to methods of
manufacture, to processes for use and related applications, of the biometallic
and expanded porphyrin chemistries peculiar to the Company's products. In any
event, if any third-party patents include claims that are alleged to be
infringed and are upheld as valid and enforceable, the Company could nonetheless
be prevented from practicing the subject matter claimed in such patents, or
would be required to obtain licenses from the patent owners of each of such
patents or to redesign its products or processes to avoid infringement. There
can be no assurance that any such licenses would be available or, if available,
would be on terms acceptable to the Company, or that the Company would be
successful in any attempt to redesign its products or processes to avoid
infringement. Litigation or other legal proceedings may be necessary to defend
against claims of infringement, to enforce patents of the Company, or to protect
trade secrets, and could result in substantial cost to, and diversion of efforts
by, the Company.
The Company is aware of several U.S. patents owned or licensed to Schering
AG ("Schering") that relate to the use of agents that enhance magnetic resonance
imaging ("MRI") scans. The Company has obtained opinions of special patent
counsel that the technologies employed by the Company for its imaging product
under development and its therapeutic agent that is detectable by MRI do not
infringe the claims of such patents; however, there can be no assurances that
Schering would not allege infringement of one or more of those patents. If
infringement were alleged, a legal determination of the infringement of any such
patents by any Company product could have a material adverse affect on the
Company's business. Further, any allegation by Schering of infringement of
patent rights by the Company would likely result in significant legal costs and
require substantial management resources. Schering has sent communications to
the Company suggesting that GADOLITE may infringe certain of such Schering
patents. The Company is aware that Schering has asserted patent rights against
at least one other company in the contrast agent imaging market and that a
number of companies have entered into licensing arrangements with Schering with
respect to one or more of such patents. There can be no assurance that the
Company would be able to obtain a license from Schering, if required. Even if a
license could be obtained, there can be no assurance that the Company would
receive commercially reasonable terms.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with the Company is to be kept confidential and
not disclosed to third parties except in specific circumstances. The agreements
also provide that all inventions conceived by an employee (or consultant or
advisor to the extent appropriate for the services provided) during the course
of the relationship shall be the exclusive property of the Company, other than
inventions unrelated to the Company and developed
14
<PAGE> 15
entirely with the individual's own time and resources. There can be no assurance
that these agreements will not be breached, and, in some instances, there may
not be any appropriate remedy available to the Company for breach of the
agreements. Furthermore, no assurance can be given that competitors will not
independently develop substantially equivalent proprietary information and
techniques, reverse engineer such information and techniques, or otherwise gain
access to the Company's proprietary technology, or that the Company can
meaningfully protect the rights in unpatented proprietary technology.
DEPENDENCE UPON THIRD PARTIES
The Company is dependent upon third parties for support in product
development, manufacturing, marketing and distribution. Pursuant to its
collaboration with Nycomed, the Company is dependent upon Nycomed for a portion
of its LUTRIN development costs in the form of milestone payments, and for the
commercialization, when and if LUTRIN is approved, of this product outside the
United States, Canada and Japan. In the field of macular degeneration, the
Company is dependent upon Alcon for preclinical and clinical studies, regulatory
filings and sales and marketing of OPTRIN for ophthalmology indications
worldwide. The Company has entered into agreements with E-Z-EM, Inc. and E-Z-EM,
Ltd. (together "E-Z-EM") for sales, marketing and distribution of GADOLITE in
Europe and North America. These agreements may be terminated by E-Z-EM, Alcon or
Nycomed, respectively, at their election. There can be no assurance that any of
these parties will fulfill their obligations in a manner that maximizes revenues
for the Company. The failure by the Company to receive milestone payments or any
reduction or discontinuance of efforts by the Company's partners or the
termination of these alliances could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is also dependent upon the NCI for the sponsoring and funding
of certain of the clinical trials of the Company's XCYTRIN radiation sensitizer
and LUTRIN photosensitizer products in development. There can be no assurance
that the NCI will enlist support for all such trials or that it will continue
its funding. If such trials are not supported by the NCI, the Company may be
required to fund its own continuation of such trials or reduce the number of
indications for which it would pursue clinical trials.
There can be no assurance that the Company will be successful in entering
into additional strategic alliances for the development or commercialization of
other product candidates, nor that any such alliances, if entered into, will be
on terms favorable to the Company or that they will ultimately be successful.
The Company has no expertise in the development of light sources and
associated light delivery devices required for the Company's photoangioplasty
and photodynamic therapy products under development. Successful development,
manufacturing, approval and distribution of the Company's photosensitization
products will require third party participation for the required light sources,
associated light delivery devices and other equipment. The Company currently
obtains lasers from Coherent Inc., Laserscope, Inc. and Diomed, Inc.; LEDs from
Quantum Devices, Inc.; and cylindrically diffusing light fibers from Rare Earth
Medical on a purchase order basis, and such entities are under no obligation to
continue to deliver light devices on an ongoing basis. Failure to maintain such
relationships may require the Company to develop additional supply sources which
may require additional regulatory approvals and could materially delay
commercialization of the Company's LUTRIN and ANTRIN products under development.
There can be no assurance that the Company will be able to establish or maintain
relationships with other supply sources on a commercially reasonable basis, if
at all, or that the enabling devices will receive regulatory approval for use in
photoangioplasty or photodynamic therapy.
15
<PAGE> 16
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE UPON CONTRACT MANUFACTURERS
The Company must manufacture its products in commercial quantities either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. XCYTRIN, LUTRIN, ANTRIN and OPTRIN bulk drug
substances are the subject of a manufacturing and supply agreement with
Celanese. The Company does not have its own manufacturing facilities. Supply
agreements are being negotiated with additional manufacturers who have the
ability to manufacture, fill, label and package such additional necessary
materials prior to commercial introduction of its products. There can be no
assurance that the Company will be able to enter into additional supply
agreements on commercially acceptable terms or with manufacturers who will be
able to deliver supplies in appropriate quantity and quality to meet commercial
demand or that third party manufacturers will perform their contractual
obligations. Any failure by these third parties to supply the Company's or the
NCI's requirements for clinical trial materials would have a material adverse
effect upon the completion of such trials and could therefore have a material
adverse effect on the Company.
In September 1996, the Company entered into an agreement with Hoechst
Celanese Corporation ("HCC"), a manufacturer of chemicals and pharmaceutical
intermediates, for the process optimization, scale-up and supply of its
texaphyrin-based products. In October 1997, the Agreement was assigned to
Celanese, Ltd. ("Celanese"), in connection with HCC's corporate restructuring.
The agreement presently grants Celanese exclusive worldwide manufacturing rights
and requires Celanese to supply all of Pharmacyclics' requirements of XCYTRIN
and lutetium texaphyrin drug substance for late-stage clinical and commercial
use. During the fourth quarter of fiscal 1998, the Company received indications
from Celanese, that due to a change in its business focus, Celanese wishes to
reduce the scope of its obligations under the agreement. The Company and
Celanese then initiated discussions aimed at possible modifications to the
Agreement to allow the Company to purchase commercial material from additional
sources while relieving Celanese of certain obligations under the agreement. The
Company believes it is in its best interest to have multiple sources of drug
substance and has commenced efforts to identify multiple additional sources of
bulk drug substance. Such efforts are likely to consume time and expense and
there can be no assurance that the Company will be successful in obtaining
additional supplies of drug substance. Until such situation is resolved, the
Company will be subject to uncertainties regarding the willingness or ability of
Celanese or such additional suppliers to deliver bulk-drug substance for these
products on a timely or commercially attractive basis. The Company is engaged in
preliminary discussions with a number of manufacturers of parenteral products
regarding process development and validation, filling, labeling and packaging of
the finished dosage form of LUTRIN, ANTRIN and OPTRIN. A failure to successfully
complete any such agreement could, if the Company could not locate alternate
manufacturing capabilities, have a material adverse impact on the Company's
business, financial condition and results of operations. Prior to regulatory
approval of the Company's products under development, the Company intends to
negotiate supply agreements with manufacturers who will have the ability to
manufacture, fill, label and package such materials prior to commercial
introduction of such products. There are, however, only a limited number of
contract manufacturers that operate under current federal and state GMP
regulations and are capable of manufacturing the Company's products.
Accordingly, there can be no assurance that the Company will be able to enter
into supply agreements on commercially acceptable terms with manufacturers or
that the Company will enter into supply agreements with manufacturers who will
be able to deliver supplies in appropriate quantity and quality to develop and
commercialize its products. Any interruption of supply of its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
16
<PAGE> 17
LACK OF MARKETING AND SALES EXPERIENCE
The Company currently does not have marketing, sales or distribution
experience. Therefore, to service markets in which it has retained sales and
marketing rights and in the event any of the above agreements is terminated, the
Company must develop a sales force with technical expertise. The Company does
not have any experience in developing, training or managing a sales force. The
Company will incur substantial additional expenses in developing, training and
managing such an organization. There can be no assurance that the Company will
be able to build such a sales force, that the cost of establishing such a sales
force will not exceed any product revenues, or that the Company's direct
marketing and sales efforts will be successful. In addition, the Company
competes with many other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts will compete successfully against such other
companies.
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development
capabilities than the Company, as well as substantially more marketing,
manufacturing, financial and managerial resources. These entities represent
significant competition for the Company. Acquisitions of, or investments in,
competing pharmaceutical or biotechnology companies by large corporations could
increase such competitors' financial, marketing, manufacturing and other
resources. The Company is a relatively new enterprise and is engaged in the
development of novel therapeutic technologies. As a result its resources are
limited and it may experience technical challenges inherent in such novel
technologies. There can be no assurance that developments of others will not
render the Company's products under development or technologies noncompetitive
or obsolete, or that the Company will be able to keep pace with technological
developments or other market factors Competitors have developed or are in the
process of developing technologies that are, or in the future may be, the basis
for competitive products. Some of these products may have an entirely different
approach or means of accomplishing similar therapeutic, diagnostic and/or
imaging effects than products being developed by the Company. The Company is
aware that one of its competitors in the market for photodynamic therapy drugs
has received marketing approval of a product for certain indications in the
United States and other countries. There can be no assurance that the Company's
competitors will not develop products that are safer, more effective or less
costly than the products developed by the Company and, therefore, present a
serious competitive threat to the Company's product offerings.
The medical indications for which the Company is developing its
therapeutic products can also be treated, in the case of cancer, by surgery,
radiation and chemotherapy, in the case of atherosclerosis, by surgery (e.g.,
bypass), angioplasty, atherectomy, the use of stents and drug therapy and in the
case of ARMD by laser photocoagulation. These treatments are widely accepted in
the medical community and have a long history of use. In addition, technological
advances with other therapies for cancer, atherosclerosis and ARMD could make
such other therapies more efficacious or cost-effective than XCYTRIN, LUTRIN,
ANTRIN or OPTRIN and could render the Company's technology noncompetitive or
obsolete. Also, there can be no assurance that physicians will use XCYTRIN as a
radiation sensitizer or chemosensitizer in cancer treatment, LUTRIN as a
photosensitizer in cancer treatment, ANTRIN as a photosensitizer in
photoangioplasty of atherosclerosis or OPTRIN as a photosensitizer in ARMD to
replace or supplement established treatments for such diseases or that the
therapeutic products the Company is developing will become competitive with
current or future treatments. Further, some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which, when integrated with their product offering, may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
17
<PAGE> 18
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes, to establish
additional clinical- and commercial-scale manufacturing arrangements and to
provide for the marketing and distribution of its products. The Company's future
capital requirements will depend on many factors, including, among others,
continued scientific progress of its research and development programs, the
ability of the Company to establish additional collaborative arrangements,
changes in its existing collaborative relationships, progress with preclinical
studies and clinical trials, the time and costs involved in obtaining regulatory
clearance, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and competing technological and market developments. The
Company believes that its cash, cash equivalents, and short-and long-term
investments will be adequate to fund the Company's operations through at least
the calendar year 2000. However, the Company's actual capital requirements will
depend on many factors, including the status of product development; the time
and cost involved in conducting clinical trials and obtaining regulatory
approvals; filing, prosecuting and enforcing patent claims; competing
technological and market developments; and the ability of the Company to market
and distribute its products and establish new collaborative and licensing
arrangements. The Company may seek to raise any necessary additional funds
through equity or debt financings, collaborative arrangements with corporate
partners or other sources which may be dilutive to existing stockholders. In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners or other partners, such arrangements may require the
Company to relinquish rights to certain of its technologies, product candidates
or products under development that the Company would otherwise seek to develop
or commercialize itself. No assurance can be given that such additional funds
will be available on acceptable terms, if at all. If adequate funds are not
available from operations or additional sources of financing, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs which would materially and adversely affect the
Company's business, financial condition and results of operations.
DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL
The Company's ability to maintain its competitive position depends on its
ability to attract and retain qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract or retain such persons. The loss
of key personnel or the failure to obtain additional needed personnel or
expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company relies
on consultants and advisors to assist in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by entities other than the Company and may have commitments to, or consulting or
advisory contracts with, other entities that may affect their ability to
contribute to the Company.
VOLATILITY OF STOCK PRICE
The market prices for securities of small capitalization biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies.
Future announcements concerning the Company, its competitors or other
pharmaceutical and biotechnology companies, including the results of preclinical
testing and clinical trials, technological innovations or new therapeutic
products, governmental regulation, developments in patent or other proprietary
rights, litigation, public concern as to the safety of products developed by the
Company or others, comments by securities analysts and general market conditions
may have a significant effect on the market price of the Company's Common Stock.
In addition, the realization of any of the risks described in these "Factors
That May Affect Future Operating Results" could have a dramatic and material
adverse impact on the market price of the Company's Common Stock.
18
<PAGE> 19
UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The future revenues and profitability of pharmaceutical and related
companies as well as the availability of capital to such companies may be
affected by the continuing efforts of government and third-party payers to
contain or reduce costs of health care through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to government control. In the United States, given recent federal and
state government initiatives directed at lowering the total cost of health care,
it is likely that the U.S. Congress and state legislatures will continue to
focus on health care reform and the cost of prescription pharmaceuticals and on
the reform of the Medicare and Medicaid systems. While the Company cannot
predict whether any such legislative or regulatory proposals will be adopted,
the announcement or adoption of such proposals could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained by governmental
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third-party payers are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the United States and the concurrent growth
of organizations such as HMOs, which could control or significantly influence
the purchase of health care services and products, as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices for the Company's products. The cost containment measures
that health care payers and providers are instituting and the effect of any
health care reform could materially adversely affect the Company's ability to
operate profitably.
PRODUCT LIABILITY EXPOSURE
The testing, manufacture, marketing and sale of the products under
development by the Company entail an inherent risk that product liability claims
will be asserted against the Company. Although the Company is insured against
such risks up to a $10.0 million annual aggregate limit in connection with
clinical trials and commercial sales of its products under development, there
can be no assurance that the Company's present product liability insurance is
adequate. A successful product liability claim in excess of the Company's
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations and may prevent the
Company from obtaining adequate product liability insurance in the future on
commercially desirable or reasonable terms. In addition, there can be no
assurance that product liability coverage will continue to be available in
sufficient amounts or at an acceptable cost. An inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of pharmaceutical products developed by the Company. A product
liability claim or recall would have a material adverse effect on the Company's
business, financial condition and results of operations.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
In connection with its research and development activities and its
manufacture of materials and products under development, the Company is subject
to federal, state and local laws, rules, regulations and policies governing the
use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials, biological specimens and wastes.
Although the Company believes that it has complied with the applicable laws,
regulations and policies in all material respects and has not been required to
take significant action to correct any material noncompliance, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental and health and safety regulations in the future. The
Company's research and development involves the controlled use of hazardous
materials, including but not limited to certain hazardous chemicals and
radioactive materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an occurrence, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company.
19
<PAGE> 20
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock to date
and does not anticipate paying any dividends in the foreseeable future.
ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors of the Company to issue shares of
Preferred Stock without stockholder approval and a stockholder rights plan
adopted by the Company may, alone or in combination, have certain anti-takeover
effects. The Company is also subject to provisions of the Delaware General
Corporation Law which may make certain business combinations more difficult.
IMPACT OF YEAR 2000
The Company believes that with upgrades to its existing software and
conversions to new software, all of which are readily available in the market,
the Year 2000 issue will not pose significant operational problems for its
internal computer systems. All required modifications and conversions of
computer systems that are critical to the Company's business operations are
expected to be completed no later than June 30, 1999 which is prior to the
estimated occurrence of any Year 2000 issues. The Company has initiated formal
communications with its significant suppliers and service providers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and will not have an adverse impact on the
Company's systems. The Company estimates that the cost of required upgrades and
conversions will not have a significant impact on its results of operations.
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, (the "Exchange Act") the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHARMACYCLICS, INC.
(Registrant)
Dated: November 12, 1998 By: /s/ RICHARD A. MILLER, M.D.
-------------------------------------
Richard A. Miller, M.D.
President and Chief Executive Officer
Dated: November 12, 1998 By: /s/ LEIV LEA
------------------------------------
Leiv Lea
Vice President, Finance and
Administration
22
<PAGE> 23
INDEX TO EXHIBITS
EXHIBITS
NUMBER DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEET AND UNAUDITED CONDENSED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,110
<SECURITIES> 27,207
<RECEIVABLES> 164
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,767
<PP&E> 5,636
<DEPRECIATION> (3,384)
<TOTAL-ASSETS> 69,349
<CURRENT-LIABILITIES> 4,049
<BONDS> 235
0
0
<COMMON> 1
<OTHER-SE> 65,051
<TOTAL-LIABILITY-AND-EQUITY> 69,349
<SALES> 0
<TOTAL-REVENUES> 235
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (3,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,975)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
