<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-43621
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
PHARMACYCLICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 2834 94-3148201
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
------------------------
995 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086-4521
(408) 774-0330
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. MILLER, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PHARMACYCLICS, INC.
995 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086-4521
(408) 774-0330
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
COPIES TO:
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J. STEPHAN DOLEZALEK, ESQ. DAVID J. SEGRE, ESQ.
LAURIE A. ALLEN, ESQ. ADAM R. DOLINKO, ESQ.
PETER D. ROSENTHAL, ESQ. WILSON SONSINI GOODRICH & ROSATI
CHARLES F. ARAGON, JR., ESQ. PROFESSIONAL CORPORATION
BROBECK, PHLEGER & HARRISON LLP 650 PAGE MILL ROAD
TWO EMBARCADERO PLACE, 2200 GENG ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94303 (650) 493-9300
(650) 424-0160
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 9, 1998
PROSPECTUS
1,750,000 SHARES
LOGO
PHARMACYCLICS, INC.
COMMON STOCK
All of the 1,750,000 shares of Common Stock offered hereby are being sold
by Pharmacyclics, Inc. ("Pharmacyclics" or the "Company"). The Company's Common
Stock is quoted on the Nasdaq National Market under the symbol PCYC. On January
7, 1998, the last reported sale price of the Common Stock was $24.00 per share.
See "Price Range of Common Stock."
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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======================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
Per Share........................... $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
======================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $380,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 262,500 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about January , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
COWEN & COMPANY
PACIFIC GROWTH EQUITIES, INC.
, 1998
<PAGE> 3
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "SEC" or "Commission") under the Securities Act of
1933, as amended (the "Securities Act"), omits certain of the information set
forth in the Registration Statement. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains an
Internet website that contains reports, proxy statements and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such web site is http://www.sec.gov. Copies
of such material can be obtained in person from the Public Reference Section of
the Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is
quoted on the Nasdaq National Market tier of the Nasdaq Stock Market. Reports,
proxy statements and other information concerning the Company may be inspected
at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
------------------
INFORMATION INCORPORATED BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-27066) with the Commission are incorporated herein by reference: (a)
Annual Report on Form 10-K for the fiscal year ended June 30, 1997; (b)
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997; (c)
Definitive Proxy Statement dated November 17, 1997, filed in connection with the
Company's 1997 Annual Meeting of Stockholders; and (d) the description of the
Company's Common Stock which is contained in its Registration Statement on Form
8-A filed under the Exchange Act on October 20, 1995, including any amendment or
reports filed for the purpose of updating such description and the description
of the Company's Series A Junior Participating Preferred Stock contained in the
Company's Registration Statement on Form 8-A filed under the Exchange Act on May
2, 1997.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such reports and documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained or incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Investor Relations, Pharmacyclics, Inc., at the Company's executive
offices located at 995 East Arques Avenue, Sunnyvale, California 94086-4521,
(408) 774-0330.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE AND OTHER
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
------------------
GADOLITE(R) is a registered U.S. trademark of the Company and ANTRIN,
LUTRIN and the Company's stylized logo are trademarks of the Company. Other
trademarks used herein are the property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing or
incorporated by reference in this Prospectus. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. Investors should carefully consider the information set
forth under the heading "Risk Factors."
THE COMPANY
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 and atherosclerotic
cardiovascular disease. The Company's products are small ring-shaped molecules,
called "texaphyrins," which are patented agents derived from Pharmacyclics'
versatile technology platform for designing and synthesizing energy-potentiating
drugs. These texaphyrins localize in cancer cells and atherosclerotic plaque,
where they can be activated by forms of energy, including X-ray, chemical and
light, to eliminate diseased tissue. The Company's lead texaphyrin-based product
candidates are a gadolinium texaphyrin ("Gd-Tex") molecule being developed for
use as a radiation sensitizer and chemosensitizer; LUTRIN(TM), a lutetium
texaphyrin ("Lu-Tex") molecule being developed as a photosensitizer for use in
photodynamic therapy of cancer; and ANTRIN(TM), a Lu-Tex molecule being
developed as a photosensitizer for use in the photoangioplasty of
atherosclerosis.
Gd-Tex radiation sensitizer is in a multicenter Phase II clinical trial to
improve the efficacy and safety of radiation therapy of brain metastases
resulting from a variety of cancers, including those of the lung and breast. At
the October 1997 meeting of the American Society of Therapeutic Radiology and
Oncology ("ASTRO"), the Company reported interim results of its Phase I/II
clinical trial to evaluate the safety and efficacy of Gd-Tex in cancer patients
receiving radiation therapy for treatment of brain metastases. Although this
trial was not designed to demonstrate efficacy, the interim results indicate
that there was a statistically significant increase in median survival times
among those patients receiving higher doses of Gd-Tex. Magnetic resonance
imaging ("MRI") confirmed that Gd-Tex accumulated selectively in the tumors and
not in adjacent normal brain tissue. The National Cancer Institute ("NCI") has
agreed to sponsor nine clinical trials of Gd-Tex for additional cancer
indications, including primary cancers of the brain, head and neck region, lung
and pancreas, which the Company expects will begin during 1998. Radiation
therapy is administered to more than 700,000 patients annually in the United
States and currently there are no approved radiation sensitizers.
LUTRIN 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. At the May 1997 meeting of the American Society of
Clinical Oncology ("ASCO"), the Company reported the results of its Phase I
clinical trial to evaluate the safety of LUTRIN in a variety of tumors
accessible to externally-applied light. Within the treated group of 35 patients,
73 breast cancer lesions were evaluated, with an overall per lesion response
rate of 64%, comprised of a 46% complete response rate and an 18% partial
response rate. The NCI has announced its intention to fund at least five
clinical studies of LUTRIN for additional cancer indications, including primary
cancers of the bladder, esophagus, head and neck region, pancreas and ovaries,
which the Company expects to begin in the second half of 1998.
ANTRIN photosensitizer is in a recently-initiated Phase I clinical trial to
evaluate its safety for photoangioplasty treatment of patients with
atherosclerotic peripheral vascular disease. There are currently more than
400,000 coronary angioplasty procedures performed annually in the United States
for patients with atherosclerosis. In addition, the Company has conducted
preclinical studies with Lu-Tex for use in certain ophthalmic diseases, such as
age-related macular degeneration ("ARMD"), a leading cause of blindness that
affects approximately 200,000 patients per year in the United States.
The Company has retained worldwide marketing rights for its Gd-Tex and
ANTRIN products, as well as U.S., Canadian and Japanese marketing rights for
LUTRIN. Pharmacyclics is leveraging its core technology and products by
establishing relationships with third parties intended to augment its research
and development activities and to provide manufacturing capacity and sales and
marketing capabilities. 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 a development agreement with Alcon
Laboratories, Inc. ("Alcon"), pursuant to which Alcon will conduct worldwide
development, marketing and sales of Lu-Tex for ophthalmology indications.
Pharmacyclics was incorporated in Delaware in 1991. The Company's principal
offices are located at 995 East Arques Avenue, Sunnyvale, California 94086-4521,
and its telephone number is (408) 774-0330.
3
<PAGE> 5
THE OFFERING
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Common Stock offered by the Company................ 1,750,000 shares
Common Stock to be outstanding after the
offering......................................... 11,890,287 shares(1)
Use of proceeds.................................... For research and development activities,
including clinical trials, process
development and manufacturing support;
potentially for investments in
complementary businesses, products or
technologies; and for general corporate
purposes and working capital.
Nasdaq National Market symbol...................... PCYC
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- -------- -------- -------- ------- -------
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STATEMENT OF OPERATIONS DATA:
License and grant revenues........... $ -- $ 3,000 $ 79 $ 301 $ 25 $ -- $ --
Loss from operations................. (3,720) (4,951) (10,247) (8,855) (11,512) (3,093) (3,153)
Net loss............................. $(3,580) $(5,141) $(10,479) $ (8,235) $(10,258) $(2,880) $(2,655)
Net loss per share(2)................ $ (1.65) $ (1.05) $ (1.11) $ (0.34) $ (0.26)
Weighted average common and common
equivalent shares(2)............... 6,353 7,815 9,264 8,552 10,117
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
ACTUAL AS ADJUSTED(3)
-------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....................... $ 24,237 $ 63,337
Long-term investments................................................... 9,605 9,605
Total assets............................................................ 36,397 75,497
Capital lease obligations -- non-current portion........................ 478 478
Deficit accumulated during development stage............................ (40,871) (40,871)
Total stockholders' equity.............................................. 34,163 73,263
</TABLE>
- ------------------------------
(1) Excludes, as of September 30, 1997, an aggregate of 1,439,644 shares of
Common Stock consisting of the following: (i) 1,278,600 shares of Common
Stock issuable upon exercise of options outstanding at a weighted average
exercise price of $12.18 per share and (ii) 161,044 shares of Common Stock
issuable upon exercise of warrants outstanding at a weighted average
exercise price of $6.75 per share.
(2) See Note 1 of Notes to Financial Statements for a description of the
computation of net loss per share.
(3) As adjusted to reflect receipt of the estimated net proceeds from the sale
of 1,750,000 shares of Common Stock at an assumed public offering price of
$24.00 per share. See "Use of Proceeds" and "Capitalization."
------------------------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
4
<PAGE> 6
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
Uncertainties Related to Clinical Trials and Product Development. All of
the Company's product candidates are in development and have not generated
revenue to date, and there can be no assurance that any of the Company's
products under development will be commercialized or will generate 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 Gd-Tex 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.
5
<PAGE> 7
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. 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
payors. There can be no assurance that physicians, patients, payors 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 1991
and, as of September 30, 1997, had an accumulated deficit of approximately $40.9
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'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 license and milestone payments and, to a lesser extent,
funding from one government research grant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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
6
<PAGE> 8
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
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 practice ("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 Gd-Tex 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 Gd-Tex 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 Gd-Tex 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 and ANTRIN products for photodynamic therapy of certain cancers and
atherosclerosis, the Company will also need to obtain the approval of the FDA
and other foreign regulatory authorities for the laser, light emitting diode
("LED") or associated light delivery devices used in such treatments. Such
device approval requires additional regulatory submissions both by the Company
and by the manufacturers of such devices that 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 or
ANTRIN 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. See "Business -- Products Under
Development" and "-- Government Regulation."
The Company submitted an NDA for its GADOLITE(R) Oral Suspension product
("GADOLITE") 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. These
issues are expected to require at least 18 months to resolve before GADOLITE can
be successfully manufactured and marketed. 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. The Company will not market GADOLITE in Europe until all
issues with the product are resolved with the FDA. Although the process for
regulatory approval in Western Europe is similar to that in the United States,
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.
See "-- Limited Manufacturing Experience; Dependence Upon Contract
Manufacturers" and "Business -- Government Regulation."
Uncertainties Regarding Patents and Proprietary Rights. The Company
believes its success depends upon, among other things, the Company's ability to
protect its proprietary position with respect to
7
<PAGE> 9
technology that the Company believes is important to its business. The Company,
therefore, aggressively pursues, prosecutes, protects, and defends patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering certain aspects of the Company's technology.
The Company's patents, patent applications, and licensed patent rights
variously cover composition of matter and method of use claims relating to
certain compounds and their applications and therapeutic uses. The Company owns
or has license rights to 47 issued U.S. patents, eight additional allowed patent
applications in the U.S., and 21 other pending U.S. patent applications. The
issued U.S. patents expire between 2009 and 2014. The Company is also the owner
or licensee of five issued non-U.S. patents (i.e., two patents issued in Europe,
two patents issued in Australia, and one patent issued in New Zealand) and 74
pending non-U.S. patent applications filed among Europe, Japan and certain other
countries and under the Patent Cooperation Treaty ("PCT") designating all PCT
member countries. 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 MRI scans. The
Company has obtained an opinion of special patent counsel that the technologies
employed by the Company for its imaging product under development and MRI
detectable compounds 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 having image-enhancing
properties 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.
8
<PAGE> 10
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, and each of such persons has executed such type
of agreement. These agreements provide that all confidential information
developed 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, and in the case of employees,
provide that all inventions attributable to the individual during such
employment shall be the exclusive property of the Company. 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 Lu-Tex for ophthalmology
indications worldwide. The Company has entered into agreements with E-Z-EM, Ltd.
and E-Z-EM, Inc. (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 Gd-Tex 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.
See "Business -- Research, Clinical Development and Marketing Collaborations."
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. ("Coherent"), Laserscope, Inc. ("Laserscope"),
and Diomed, Inc. ("Diomed"); LEDs from Quantum Devices, Inc. ("Quantum"); and
cylindrically diffusing light fibers from Rare Earth Medical ("REM") 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
9
<PAGE> 11
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. See "Business -- Research, Clinical
Development and Marketing Collaborations" and "-- Manufacturing and Suppliers."
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. Except for Gd-Tex, LUTRIN and
ANTRIN bulk drug substances, which are the subject of a manufacturing and supply
agreement with Hoechst Celanese Corporation ("Celanese"), and GADOLITE, which
has been the subject of a manufacturing and supply agreement with Glaxo-Wellcome
Co. ("Glaxo"), the Company does not have access to the manufacturing capacity
necessary to provide clinical and commercial quantities of the Company's
products. 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. The Company's agreement with Glaxo for
manufacturing and supply of GADOLITE may be terminated because of delay in FDA
approval for GADOLITE. The Company may be required to change manufacturing
sources for GADOLITE. There can be no assurance that the Company can renegotiate
the manufacturing agreement with Glaxo or negotiate a satisfactory manufacturing
agreement with another supplier, that Glaxo would successfully manufacture
sufficient supplies of GADOLITE, or that, if the Company switched suppliers,
such a manufacturing change would not delay the Company's approval and
commercialization plans for GADOLITE. Access to such manufacturing capacity is
necessary for the Company to conduct clinical trials, obtain regulatory approval
and commercialize its products. 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 Gd-Tex, LUTRIN and ANTRIN. 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.
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 either 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. See "Business -- Pharmacyclics'
Business Strategy."
Rapid Technological Change and Intense Competition. The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition in the industry from pharma-
10
<PAGE> 12
ceutical 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, and in the case of atherosclerosis, by surgery (e.g., bypass),
angioplasty, atherectomy, the use of stents and drug therapy. 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 and
atherosclerosis could make such other therapies more efficacious or
cost-effective than Gd-Tex, LUTRIN or ANTRIN and could render the Company's
technology noncompetitive or obsolete. Also, there can be no assurance that
physicians will use Gd-Tex as a radiation sensitizer or chemosensitizer in
cancer treatment, LUTRIN as a photosensitizer in cancer treatment or ANTRIN as a
photosensitizer in photoangioplasty of atherosclerosis 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. See
"Business -- Competition."
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 the net proceeds of this offering, together with its cash, cash
equivalents, short-and long-term investments, will be adequate to satisfy its
capital needs through at least 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
11
<PAGE> 13
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. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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 Common Stock. In addition, the realization of any of the risks described in
these "Risk Factors" could have a dramatic and material adverse impact on the
market price of the Company's Common Stock.
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 payors 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 payors 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
12
<PAGE> 14
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 payors 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 $5.0 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.
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. See "Dividend Policy."
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.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act which are
subject to the "safe harbor" created by those sections. These forward-looking
statements include, but are not limited to, statements concerning the Company's
plans to continue development of its current products under development; conduct
clinical trials with respect to its products under development; utilize the
Company's capital resources and the net proceeds from this offering and the time
periods related thereto; seek regulatory approvals; engage third-party
manufacturers to supply its clinical trials and commercial requirements;
establish a marketing and distribution capability; and evaluate additional
products under development for subse-
13
<PAGE> 15
quent clinical and commercial development. These forward-looking statements may
be found in the "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Forward-looking statements not specifically set
forth above may also be found in these and other sections of this Prospectus.
Actual results could differ materially from those discussed in the
forward-looking statements as a result of certain factors, including those
discussed in "Risk Factors" and elsewhere in this Prospectus.
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,750,000 shares of Common
Stock offered hereby are estimated to be approximately $39.1 million at an
assumed public offering price of $24.00 per share and after deducting the
underwriting discounts and estimated offering expenses ($45.0 million if the
Underwriters' over-allotment option is exercised in full). The Company expects
to use the net proceeds from this offering for research and development
activities, including clinical trials, process development and manufacturing
support and for general corporate purposes, including working capital. A portion
of the proceeds also may be used to acquire or invest in complementary
businesses, products or technologies, although the Company is not currently in
negotiations concerning any such acquisitions or investments. Based upon the
current status of its product development and commercialization plans, the
Company believes that the net proceeds of this offering, together with 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. Pending their
use, the Company intends to invest the net proceeds of this offering in interest
bearing, investment grade securities. See "Risk Factors -- History of Operating
Losses; Uncertainty of Future Profitability"and "-- Future Capital Requirements;
Uncertainty of Access to Capital Markets."
PRICE RANGE OF COMMON STOCK
The Common Stock commenced trading publicly on the Nasdaq National Market
tier of the Nasdaq Stock Market on October 24, 1995 and is traded under the
symbol PCYC. Prior to that date, there was no public market for the Common
Stock. The following table sets forth for the periods indicated the high and low
sales prices of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996
Second Quarter (from October 24, 1995)...................... $16.75 $12.00
Third Quarter............................................... 15.00 12.75
Fourth Quarter.............................................. 20.25 13.75
FISCAL YEAR ENDED JUNE 30, 1997
First Quarter............................................... $18.50 $10.50
Second Quarter.............................................. 17.25 12.75
Third Quarter............................................... 24.00 15.00
Fourth Quarter.............................................. 20.50 14.25
FISCAL YEAR ENDING JUNE 30, 1998
First Quarter............................................... $27.00 $14.37
Second Quarter.............................................. 28.00 21.00
Third Quarter (through January 7, 1998)..................... 25.00 24.00
</TABLE>
As of January 7, 1998, there were 400 holders of record of the Common
Stock. On January 7, 1998, the last sales price reported on the Nasdaq National
Market for the Common Stock was $24.00 per share. See "Risk
Factors -- Volatility of Stock Price."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock. The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted for the sale by
the Company of the 1,750,000 shares of Common Stock offered hereby at an assumed
public offering price of $24.00 per share, after deducting underwriting
discounts and estimated offering expenses payable by the Company. This table
should be read in conjunction with the Financial Statements of the Company and
the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations -- non-current portion....................... $ 478 $ 478
------- --------
Stockholders' equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized;
none issued and outstanding, actual or as adjusted............... -- --
Common stock, $0.0001 par value; 24,000,000 shares authorized;
10,140,287 shares issued and outstanding actual; 11,890,287
shares issued and outstanding as adjusted(1)..................... 1 1
Additional paid-in capital........................................ 75,033 114,133
Deficit accumulated during development stage...................... (40,871) (40,871)
------- --------
Total stockholders' equity................................... 34,163 73,263
------- --------
Total capitalization.................................... $34,641 $ 73,741
======= ========
</TABLE>
- ------------------------------
(1) Excludes, as of September 30, 1997, an aggregate of 1,439,644 shares of
Common Stock consisting of the following: (i) 1,278,600 shares of Common
Stock issuable upon exercise of options outstanding at a weighted average
exercise price of $12.18 per share and (ii) 161,044 shares of Common Stock
issuable upon exercise of warrants outstanding at a weighted average
exercise price of $6.75 per share.
16
<PAGE> 18
DILUTION
Dilution represents the difference between the offering price per share
paid by the purchasers in the offering and the net tangible book value per share
immediately after completion of the offering. The net tangible book value of the
Company at September 30, 1997 was approximately $34.2 million, or $3.37 per
share. Net tangible book value per share represents the amount of the Company's
total tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
1,750,000 shares of Common Stock offered hereby (at an assumed public offering
price of $24.00 per share) and after deducting estimated underwriting discounts
and estimated offering expenses, the net tangible book value of the Company at
September 30, 1997 would have been approximately $73.3 million, or $6.16 per
share. This represents an immediate increase in net tangible book value of $2.79
per share to existing stockholders and an immediate dilution of $17.84 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $24.00
Net tangible book value per share before the offering............. $3.37
Increase per share attributable to new investors.................. 2.79
-----
Net tangible book value per share after the offering................ 6.16
------
Dilution per share to new investors................................. $17.84
======
</TABLE>
17
<PAGE> 19
SELECTED FINANCIAL DATA
The statement of operations data for the years ended June 30, 1995, 1996
and 1997 and the balance sheet data at June 30, 1996 and 1997 are derived from
financial statements audited by Price Waterhouse LLP, independent accountants,
which are included elsewhere in this Prospectus. The statement of operations
data for the years ended June 30, 1993 and 1994 and the balance sheet data at
June 30, 1993, 1994 and 1995 are derived from audited financial statements not
included in this Prospectus. The statement of operations data for the three
months ended September 30, 1996 and 1997 and for the period from inception
(April 19, 1991) through September 30, 1997 and the balance sheet data at
September 30, 1997 are derived from unaudited financial statements included in
this Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the information set forth therein. The operating results for the
three months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the entire year ending June 30, 1998. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
the Notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED INCEPTION
(APRIL 1991)
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30, THROUGH
-------------------------------------------------- ------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1996 1997 1997
------- ------- -------- -------- -------- ------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License and grant revenues.... $ -- $ 3,000 $ 79 $ 301 $ 25 $ -- $ -- $ 3,405
------ ------- ------- ------- ------- ------ ------- -------
Operating expenses:
Research and development...... 3,161 6,909 9,330 7,641 9,632 2,456 2,765 39,925
General and administrative.... 559 1,042 996 1,515 1,905 637 388 6,463
------ ------- ------- ------- ------- ------ ------- -------
Total operating expenses.... 3,720 7,951 10,326 9,156 11,537 3,093 3,153 46,388
------ ------- ------- ------- ------- ------ ------- -------
Loss from operations............ (3,720) (4,951) (10,247) (8,855) (11,512) (3,093) (3,153) (42,983)
Interest income................. 148 164 187 940 1,480 280 532 3,473
Interest expense................ (8) (253) (419) (320) (226) (67) (34) (1,260)
------ ------- ------- ------- ------- ------ ------- -------
Loss before income taxes........ (3,580) (5,040) (10,479) (8,235) (10,258) (2,880) (2,655) (40,770)
Provision for income taxes...... -- (101) -- -- -- -- -- (101)
------ ------- ------- ------- ------- ------ ------- -------
Net loss........................ $(3,580) $(5,141) $(10,479) $ (8,235) $(10,258) $(2,880) $ (2,655) $ (40,871)
====== ======= ======= ======= ======= ====== ======= =======
Net loss per share(1)........... $ (1.65) $ (1.05) $ (1.11) $ (0.34) $ (0.26)
======= ======= ======= ====== =======
Weighted average common and
common equivalent shares(1)... 6,353 7,815 9,264 8,552 10,117
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $ 6,196 $ 8,690 $ 376 $ 22,003 $ 30,827 $ 24,237
Long-term investments............................ -- -- -- -- 6,103 9,605
Total assets..................................... 6,880 12,050 3,539 25,015 39,707 36,397
Capital lease obligations -- non-current
portion........................................ 228 1,880 1,429 941 530 478
Deficit accumulated during development stage..... (4,103) (9,244) (19,723) (27,958) (38,216) (40,871)
Total stockholders' equity (deficit)............. 6,249 8,769 (1,652) 21,991 36,696 34,163
</TABLE>
----------------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the
computation of net loss per share.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
herein.
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 and atherosclerotic
cardiovascular disease. The Company is currently in a multicenter Phase II
clinical trial of Gd-Tex as a radiation sensitizer to improve the safety and
efficacy of radiation therapy of certain cancers and in Phase II clinical trials
for LUTRIN as a photosensitizer to evaluate its safety and efficacy for use in
the treatment of recurrent breast cancers to the chest wall. The NCI has
informed the Company of its intention to conduct a minimum of nine Phase I
clinical trials of Gd-Tex and a minimum of five Phase I clinical trials of
LUTRIN, each for a variety of additional cancer indications. The Company also
recently initiated a Phase I clinical trial for ANTRIN for use as a
photosensitizer in patients with peripheral vascular disease. In addition, the
Company has conducted preclinical studies with Lu-Tex for use in certain
ophthalmic diseases, such as ARMD. In October 1997, the Company entered into a
collaborative agreement with Nycomed to sell and market LUTRIN for cancer
therapy outside the United States, Canada and Japan. In December 1997, the
Company entered into a development agreement with Alcon, pursuant to which Alcon
will conduct worldwide development, marketing and sales of Lu-Tex for
ophthalmology indications.
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, 1997, had an accumulated deficit of
approximately $40.9 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. See "Risk
Factors -- Uncertainties Related to Clinical Trials and Product Development,"
"-- No Assurance of Market Acceptance," "-- History of Operating Losses;
Uncertainty of Future Profitability," "-- Government Regulation; No Assurance of
Regulatory Approvals" and "-- Future Capital Requirements; Uncertainty of Access
to Capital Markets."
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1997 and 1996
Revenues. Since inception, Pharmacyclics has received only limited revenues
and has received no revenues from product sales. For the three months ended
September 30, 1997, no license or grant revenues were recognized. Revenues are
expected to increase during the three months ending December 1997 due to $2.7
million in non-refundable license payments from two collaborative
19
<PAGE> 21
partners. In addition, the Company will be recognizing as contract revenue
non-refundable reimbursement payments due under the Nycomed agreement for a
portion of research expenditures by the Company for LUTRIN.
Research and Development Expenses. Research and development expenses
increased $309,000, or 13%, to $2.8 million for the three month period ended
September 30, 1997 compared to $2.5 million for the same period in 1996. This
increase is primarily the result of costs incurred related to the development of
light supply and delivery devices for use with the Company's photosensitizing
drugs, as well as a write down of certain light devices which the Company
determined had no alternative future use.
Spending on clinical trials remained at substantially the same level during
the three month period ended September 30, 1997 and 1996. During the three
months ended September 30, 1997, the Phase Ib portion of the Gd-Tex radiation
sensitizer clinical trial was completed and the Phase II portion commenced. The
LUTRIN Phase II trial for recurrent breast cancer also commenced during the
three months ended September 30, 1997. During the corresponding period in 1996,
the Phase I clinical trial for Gd-Tex was completed and the Phase I clinical
trial for LUTRIN was initiated. The Company expects its research and development
expense to increase substantially, reflecting anticipated increased costs
related to staffing, preclinical studies, clinical trials and manufacturing
scale-up.
General and Administrative Expenses. General and administrative expenses
were $388,000 for the three months ended September 30, 1997 compared to $637,000
during the same period in 1996. The expenses during the three months ended
September 30, 1996 included approximately $300,000 of financing costs related to
a planned public financing, which was subsequently withdrawn due to market
conditions.
Interest Income, Net of Interest Expense. Interest income, net of interest
expense, was $498,000 for the three months ended September 30, 1997 compared to
$213,000 for the same period in 1996. This increase in interest income primarily
reflected interest earned on proceeds from private placements of equity
securities of approximately $24.5 million completed in November 1996 and
February 1997, as well as from lower interest expense due to maturing equipment
lease lines.
Comparison of Years Ended June 30, 1997, 1996 and 1995
Revenues. The Company's revenues for the years ended June 30, 1997, 1996
and 1995 were $25,000, $301,000 and $79,000, respectively. Revenues for the year
ended June 30, 1997 resulted from a license fee received from E-Z-EM, Ltd. upon
signing an agreement for marketing, sales and distribution in Europe for
GADOLITE and a milestone payment received upon receipt of regulatory approval
for marketing of GADOLITE in the United Kingdom. The total recognized was net of
royalty payments to UT required because the products covered by the E-Z-EM, Ltd.
agreement incorporate the technology licensed by the Company from UT. Revenues
for the year ended June 30, 1996 included $250,000 in license fees from E-Z-EM
under an agreement for marketing and sale in North America for GADOLITE, net of
licensing fees paid to UT. In addition, $51,000 was received under a Small
Business Innovation Research grant from the NCI. All of the revenue recognized
for the year ended June 30, 1995 was derived from this NCI grant.
Research and Development Expenses. Research and development expenses were
$9.6 million for the year ended June 30, 1997, compared to $7.6 million for the
year ended June 30, 1996 and $9.3 million for the year ended June 30, 1995. The
$2.0 million, or 26%, increase from 1996 to 1997 was due primarily to increased
expenditures related to Gd-Tex and LUTRIN clinical trials, including clinical
product supplies, payments to clinical sites, purchase and lease of light
sources and internal support of the trials. During 1997, the Company continued
to enroll patients in its Gd-Tex Phase Ib/II trials in the United States and
France. The LUTRIN Phase I trial was completed and preparation began for the
commencement of the Phase II trial in August 1997. The increase in 1997 in the
cost of clinical product supplies was the result of signing a definitive
agreement with Celanese, under which Celanese
20
<PAGE> 22
is providing the process optimization and scale-up to provide clinical and
commercial supplies of Gd-Tex and LUTRIN.
The decrease in research and development spending in 1996 from 1995
reflected the lower level of clinical activity relating to the Company's
products in 1996. In 1996, the Company was conducting a Phase I trial for LUTRIN
and Phase I and Ib/II trials for Gd-Tex, each of which required a smaller number
of patients. During 1995, the Company conducted multicenter Phase III studies of
GADOLITE and completed the preclinical studies required for an IND filing for
Gd-Tex.
General and Administrative Expenses. General and administrative expenses
for the years ended June 30, 1997, 1996 and 1995 were $1.9 million, $1.5 million
and $1.0 million, respectively. The 27% increase for 1997 compared to 1996
primarily resulted from approximately $300,000 of financing costs incurred
during 1997 related to a planned public financing which was subsequently
withdrawn due to market conditions. The 52% increase in general and
administrative expenses for 1996 compared to 1995 primarily resulted from
insurance, professional services and other expenses incurred related to
conducting business as a public company.
Interest Income, Net of Interest Expense. Interest income, net of interest
expense, was $1.3 million, $620,000 and $(232,000) for the years ended June 30,
1997, 1996 and 1995, respectively. Interest income increased in 1997 as a result
of interest income earned on the proceeds of two private placements of equity
securities of $24.5 million completed in November 1996 and February 1997. The
increase in interest income in 1996 compared to 1995 resulted from interest
earned on the proceeds from the Company's initial public offering ("IPO")
completed in October 1995. Net interest expense in the year ended June 30, 1995
was related to borrowings associated with capital lease financing and notes
payable which was partially offset by interest earned on cash balances.
Income Taxes. At September 30, 1997, the Company had net operating loss
carryforwards of approximately $35.8 million for federal and state income tax
reporting purposes and tax credit carryforwards of approximately $1.6 million
for federal reporting purposes. These amounts expire at various times through
2013. A change of ownership, as defined under Section 382 of the Internal
Revenue Code, occurred as a result of the Company's IPO. Accordingly,
utilization of approximately $17.0 million of the Company's net operating loss
carryforwards will be subject to an annual limitation of approximately $4.0
million. See Note 5 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been primarily
private and public equity financings and proceeds from collaborative research
and development agreements, as well as grant revenues, interest income and
property and equipment financings. Since inception, the Company has used
approximately $36.9 million of cash for operating activities and approximately
$4.2 million of cash for the purchase of laboratory and office equipment and
payments under capital lease agreements.
As of September 30, 1997, the Company had approximately $33.8 million in
cash, cash equivalents and short- and long-term investments. Net cash used in
operating activities of $2.8 million during the three months ended September 30,
1997 resulted primarily from the net loss incurred during that period and a
decrease in accounts payable. Cash provided by investing activities of $8.2
million for the three months ended September 30, 1997 consisted primarily of
sales of short-term investments partially offset by purchases of long-term
investments.
Net cash used in operating activities was $8.7 million, $7.4 million and
$9.7 million for the years ended June 30, 1997, 1996 and 1995, respectively, and
resulted primarily from operating losses adjusted for non-cash expenses and
changes in prepaid and other assets, accounts payable and accrued liabilities.
Net cash used in investing activities was $13.3 million, $8.1 million and
$30,000 for the years ended June 30, 1997, 1996 and 1995, respectively, and
consisted primarily of net purchases of investments. Net cash provided by
financing activities was $23.9 million, $29.1 million and $1.4 million
21
<PAGE> 23
for the years ended June 30, 1997, 1996 and 1995, respectively, and consisted
primarily of proceeds from the sale of equity securities.
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 $16.4 million. 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 $8.1 million. The Company
filed and had declared effective on April 22, 1997 a registration statement on
Form S-3 covering resales of the securities purchased in both private
placements.
The Company completed an IPO in October 1995, issuing 2,150,000 shares of
Common Stock at $12.00 per share. In November 1995, the underwriters of such
offering exercised an option to acquire an additional 233,450 shares of Common
Stock at the IPO price to cover over-allotments. Proceeds received by the
Company, net of underwriters' commissions and expenses payable by the Company,
totaled approximately $26.0 million.
Based upon the current status of its product development and
commercialization plans, the Company believes that the net proceeds of this
offering, together with 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.
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 "Risk Factors --
Future Capital Requirements; Uncertainty of Access to Capital Markets."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 is effective for the fiscal quarter ending December 31, 1997.
SFAS 128 redefines earnings per share under generally accepted accounting
principles. Under SFAS 128, primary earnings per share is replaced by basic
earnings per share and fully diluted earnings per share is replaced by diluted
earnings per share. Net loss per share as reported is equal to the unaudited pro
forma basic net loss per share based on SFAS 128 for all periods presented.
In June 1997, the FASB issued Statement of Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting comprehensive income and its components in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from nonowner sources. Examples of items to be included in
comprehensive income, which are currently excluded from the results of
operations, including foreign currency translation adjustments and unrealized
gain/loss on available-for-sale securities. The disclosures
22
<PAGE> 24
prescribed by SFAS 130 are effective for fiscal 1999. The Company does not
expect such adoption to have a material effect on its Financial Statements.
Also, in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and
Related Information." SFAS 131 establishes new standards for the way companies
report information about operating segments in annual financial statements. The
disclosures prescribed by SFAS 131 are effective for fiscal 1999. The Company
does not expect such adoption to have a material effect on the Notes to its
Financial Statements.
23
<PAGE> 25
BUSINESS
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 and atherosclerotic
cardiovascular disease. The Company's products are small ring-shaped molecules,
called "texaphyrins," which are patented agents derived from Pharmacyclics'
versatile technology platform for designing and synthesizing energy-potentiating
drugs. These texaphyrins localize in cancer cells and atherosclerotic plaque,
where they can be activated by forms of energy, including X-ray, chemical and
light, to eliminate diseased tissue. The Company's lead texaphyrin-based product
candidates are Gd-Tex, a molecule being developed for use as a radiation
sensitizer and chemosensitizer; LUTRIN, a Lu-Tex molecule being developed as a
photosensitizer for use in photodynamic therapy of cancer; and ANTRIN, a Lu-Tex
molecule being developed as a photosensitizer for use in the photoangioplasty of
atherosclerosis.
Gd-Tex radiation sensitizer is in a multicenter Phase II clinical trial to
improve the efficacy and safety of radiation therapy of brain metastases
resulting from a variety of cancers, including those of the lung and breast. At
the October 1997 meeting of ASTRO, the Company reported interim results of its
Phase I/II clinical trial to evaluate the safety and efficacy of Gd-Tex in
cancer patients receiving radiation therapy for treatment of brain metastases.
Although this trial was not designed to demonstrate efficacy, the interim
results indicate that there was a statistically significant increase in median
survival times among those patients receiving higher doses of Gd-Tex. MRI
scanning confirmed that Gd-Tex accumulated selectively in the tumors and not in
adjacent normal brain tissue. The NCI has agreed to sponsor nine clinical trials
of Gd-Tex for additional cancer indications, including primary cancers of the
brain, head and neck region, lung and pancreas, which the Company expects will
begin during 1998. Radiation therapy is administered to more than 700,000
patients annually in the United States and currently there are no approved
radiation sensitizers.
LUTRIN 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. At the May 1997 meeting of ASCO, the Company reported
the results of its Phase I clinical trial to evaluate the safety of LUTRIN in a
variety of tumors accessible to externally-applied light. Within the treated
group of 35 patients, 73 breast cancer lesions were evaluated, with an overall
per lesion response rate of 64%, comprised of a 46% complete response rate and
an 18% partial response rate. The NCI has announced its intention to fund at
least five clinical studies of LUTRIN for additional cancer indications,
including primary cancers of the bladder, esophagus, head and neck region,
pancreas and ovaries, which the Company expects to begin in the second half of
1998.
ANTRIN photosensitizer is in a recently-initiated Phase I clinical trial to
evaluate its safety for photoangioplasty treatment of patients with
atherosclerotic peripheral vascular disease. There are currently more than
400,000 coronary angioplasty procedures performed annually in the United States
for patients with atherosclerosis. In addition, the Company has conducted
preclinical studies with Lu-Tex for use in certain ophthalmic diseases, such as
ARMD, a leading cause of blindness that affects approximately 200,000 patients
per year in the United States.
The Company has retained worldwide marketing rights for its Gd-Tex and
ANTRIN products, as well as U.S., Canadian and Japanese marketing rights for
LUTRIN. Pharmacyclics is leveraging its core technology and products by
establishing relationships with third parties intended to augment its research
and development activities and to provide manufacturing capacity and sales and
marketing capabilities. In October 1997, the Company entered into a
collaborative agreement with Nycomed to sell and market LUTRIN for cancer
therapy outside the United States, Canada and Japan. In December 1997, the
Company entered into a development agreement with Alcon, pursuant to which Alcon
will conduct worldwide development, marketing and sales of Lu-Tex for
ophthalmology indications.
24
<PAGE> 26
MARKET OVERVIEW
Cancer
Cancer results from the uncontrolled proliferation of cells which invade
and interfere with the normal function of adjacent tissues and organs.
Frequently, cancer cells become dislodged from their primary site and spread, or
metastasize, to other anatomic sites. As of 1994, over seven million people in
the United States had been diagnosed with cancer, with approximately 1.4 million
new cases each year. The appropriate cancer therapy for each patient depends on
histology and careful assessment of the size, location and existence of
metastases of the tumor using diagnostic imaging procedures. Therapy typically
includes some combination of surgery, radiation therapy or chemotherapy.
Chemotherapy and radiation therapy tend to destroy both healthy and
diseased cells and cause serious side effects because their cytotoxic effects
are not adequately selective. As a result, substantial cancer research has been
directed toward improving the efficacy of existing therapy while reducing
toxicity. These approaches seek to identify drugs, generally known as
sensitizers, which are capable of localizing in the tumor and making the cancer
cells more sensitive to radiation therapy or chemotherapy, thereby increasing
the efficacy of such therapy.
Radiation Therapy. Radiation therapy is currently administered to more than
700,000 patients annually in the United States by approximately 3,000 physicians
specializing in radiation oncology. The radiation is applied to the area of the
body where the tumor is located and is generally administered several times per
week over a period of two to six weeks. While adjacent normal tissues are
shielded to minimize radiation toxicity, radiation therapy often has toxic
effects on healthy tissue surrounding the tumor because the energy cannot be
adequately targeted. An estimated 50% of newly diagnosed cancer patients,
including those with cancers of the lung, breast, prostate, or head and neck
region, will be treated with radiation therapy as part of their initial disease
management. In addition, approximately 150,000 patients with persistent or
recurrent disease also will receive radiation therapy. Depending on the
complexity and duration of treatment, a course of radiation therapy for cancer
can cost between $10,000 and $25,000. Radiation sensitizers are agents that
increase the cytotoxic effects of radiation. While there currently are no FDA
approved radiation sensitizers, certain chemotherapy agents are frequently used
off-label to increase the effectiveness of radiation therapy. Optimally, a
radiation sensitizer should be safe, simple to administer and potentiate the
effect of radiation at the tumor site and not the adjacent normal tissue.
Cytotoxic Chemotherapy. Cytotoxic chemotherapy is administered to more than
350,000 patients each year in the United States for treatment of many types of
cancer. The effectiveness of chemotherapy agents usually is limited by their
serious or life threatening side effects, many of which are due to the drug's
lack of selectivity. Chemotherapy drugs distribute throughout the body in normal
tissues as well as in the tumor. The cytotoxic effect to normal tissues is
dose-limiting for most of these drugs, resulting in a very narrow therapeutic
margin. Chemosensitizers are drugs which potentiate the anti-tumor activity of
cancer chemotherapy agents. No chemosensitizer has been approved for use by the
FDA to date, although several are being tested clinically. Ideally, such an
agent should be safe, simple to administer and should potentiate cell killing in
the cancerous tissue but not in adjacent normal tissue.
Photodynamic Therapy. Photodynamic therapy is an emerging cancer treatment
based on the use of light energy to activate a photosensitizing drug. In this
procedure, a photosensitizing agent, ideally one which selectively accumulates
in tumors, is injected into the patient. The tumor site is then illuminated with
visible light of a particular energy and wavelength that is absorbed by the
photosensitizer, creating excited-state oxygen molecules in those tissues in
which the drug has localized. These molecules are highly reactive with cellular
components and cause tumor cell death. The first photosensitizing agent was
approved by the FDA in early 1996 for the treatment of obstructing cancers of
the esophagus and more recently for the treatment of certain types of lung
cancer. To date, use of the approved agent and other experimental agents has
been restricted to treatment of superficial or small lesions because such
photosensitizers have been unable to absorb light of a wavelength capable
25
<PAGE> 27
of penetrating deeply into tissues. Other limitations of photosensitizers have
included unfavorable biolocalization, prolonged retention in the body, skin
phototoxicity and insolubility in water, complicating intravenous
administration. In addition, some tumors, including malignant melanoma, contain
pigments that have not allowed adequate penetration of light for photodynamic
therapy. Optimally, a photosensitizer should accumulate selectively in tumors
and be capable of activation by a wavelength of light that is able to penetrate
through tissue, blood and darkly pigmented skin in order to treat larger or more
deeply situated tumors. Ideally, the treatment should be safe, lack skin
phototoxicity and be simple to administer.
Atherosclerosis
Atherosclerosis is a progressive and degenerative vascular disease in which
cholesterol and other fatty materials are deposited in the walls of blood
vessels, forming a build-up known as plaque. The accumulation of plaque narrows
the interior of the blood vessels, thereby reducing blood flow. Atherosclerosis
in the coronary arteries can lead to heart attack and death. In peripheral
vessels, atherosclerosis can lead to decreased mobility, loss of function, loss
of limbs and other complications such as stroke. Current treatments for
atherosclerosis include surgery and other techniques aimed at removing or
relieving the plaque. Procedures utilizing intravascular devices to mechanically
compress or remove the obstructing lesion include balloon angioplasty and
atherectomy. These procedures are currently performed in the coronary arteries
of more than 400,000 patients per year in the United States. They require the
use of anticoagulant drugs and, frequently, the use of stents to reduce the
incidence of restenosis, which results from traumatic damage to the vessel wall.
Generally, these techniques have been limited to treating only localized
sections of the diseased vessel.
The optimal interventional treatment for atherosclerosis should effectively
eliminate atherosclerotic plaque without the need for anticoagulant drugs or
stent placement to prevent restenosis. Because atherosclerosis is a diffuse
disease, therapies which can be used over long segments of the affected vessel
offer significant advantages over treatments limited to localized sections of
the vessel.
Age-Related Macular Degeneration
ARMD is the major cause of severe visual loss in the elderly, accounting
for up to 90% of legally blind eyes in the United States and approximately
200,000 new cases of ARMD are diagnosed annually in the United States. Patients
with ARMD develop blurred vision and distortion, decreased vision and scotoma or
blind spot, which occurs in the center of the visual field. The disease is
caused by a degeneration of the retina and proliferation of abnormal
capillaries. Although laser photocoagulation can slow progression of disease in
some patients, its lack of selectivity and limited efficacy fail to prevent
progression of the disease, which ultimately leads to blindness. Ideally,
therapy for this disease should be selective for the diseased vessels, minimize
collateral damage and be capable of complete elimination of the diseased
vessels.
26
<PAGE> 28
THE COMPANY'S TECHNOLOGY PLATFORM
The Company's technology utilizes its expertise in biometallic and expanded
porphyrin chemistry to develop synthetic energy-potentiating molecules. In
nature, molecules called porphyrins such as heme or chlorophyll, bind metals,
transport ions and transform energy. Porphyrins are localized in tissues or
organs responsible for energy production, metabolism or transport functions. The
Company's synthetic porphyrins are designed to take advantage of two key
characteristics of naturally-occurring porphyrins: energy potentiation and
selective localization.
Pharmacyclics and its collaborators have designed and patented synthetic
porphyrins, called "texaphyrins," to perform specific functions in a number of
medical applications. Texaphyrins are capable of binding larger metal atoms and
of capturing, focusing and transforming X-ray, chemical or light energy into
other energy forms capable of producing localized destruction of diseased
tissues. These molecules have a larger central binding ring, which makes it
possible to stably bind a variety of lanthanide metals, such as gadolinium,
lutetium, europium or dysprosium. The binding of metal ions by texaphyrins is
unique in that the metal is held near or within the plane of what is otherwise a
flat or plate-shaped molecule. This type of binding allows the metal to interact
freely with adjacent molecules while still being retained within the texaphyrin
structure. In each case, the physical and chemical characteristics of the
texaphyrin, as well as its product applications, are determined by the type of
metal inserted and the form of energy applied.
Once properly localized, which generally occurs in minutes to a few hours,
texaphyrins can be excited with the appropriate energy form to activate their
therapeutic effects. Texaphyrins are water soluble, thereby increasing safety
and simplifying administration to patients.
The diagram below depicts certain texaphyrin-based products under
development by the Company:
LOGO
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PHARMACYCLICS' BUSINESS STRATEGY
The key elements of the Company's business strategy include:
Develop therapeutic products that address large markets for cancer and
atherosclerosis. The Company possesses a versatile technology platform which it
believes will lead to diverse product opportunities. The Company has focused its
internal resources on the development of therapeutic products which address
large markets, such as cancer and atherosclerosis. The Company's initial product
focus is on the treatment of life threatening cancers in which accelerated
regulatory approval and favorable pricing may be possible.
Develop products that enhance existing medical procedures. The Company's
products are designed primarily to be used in conjunction with standard medical
treatments to enhance their safety and efficacy. By facilitating and improving
current treatments, the Company believes its products have the potential to be
rapidly adopted by physicians.
Create diverse products based upon patented texaphyrin technology. The
Company has created several product candidates based on its patented texaphyrin
molecule. This technology platform enables the development of products with
similar chemical synthesis, manufacturing and product development activities
while addressing a variety of indications such as cancer, atherosclerosis and
macular degeneration.
Retain rights to cancer products in the United States. The Company has
retained worldwide rights to its Gd-Tex radiation sensitizer and U.S., Canadian
and Japanese rights to its LUTRIN photosensitizer for cancer treatment. The
Company believes it can build a U.S. sales force for its oncology products due
to the specialized nature of the oncology market. The target customer base for
the Company's Gd-Tex radiation sensitizer is approximately 3,000 physicians
specializing in radiation oncology.
Leverage resources through collaborations. The Company has leveraged its
resources by focusing on research and clinical development and has established
relationships with third parties for process development, manufacturing and
marketing of its products. These relationships have obviated the need for
Pharmacyclics to invest in manufacturing personnel and facilities. The Company
has established a relationship with the NCI to expand clinical development of
both its Gd-Tex radiation sensitizer and LUTRIN photosensitizer products. The
Company believes that this collaboration will expand the potential indications
for its cancer products. The Company's collaborations expand its access to
foreign markets, such as the collaboration with Nycomed for LUTRIN outside the
United States, Canada and Japan, and to new therapeutic indications, such as the
collaboration with Alcon for ophthalmic indications.
Expand and protect proprietary technology and products. Since its
inception, the Company has dedicated significant resources to protect its
intellectual property. In the United States, the Company owns or has exclusive
rights to 47 issued patents, eight allowed patent applications and 30 pending
patent applications covering various aspects of its core technology and products
under development. Outside the United States, the Company is the owner or
exclusive licensee of five corresponding patents and 71 pending counterpart
patent applications.
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PRODUCTS UNDER DEVELOPMENT
The table below summarizes the Company's product candidates and their stage
of development:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT INDICATION REGULATORY STATUS(1) MARKETING RIGHTS
-------------------- -------------------------- ---------------------- ------------------------
<S> <C> <C> <C>
CANCER THERAPY
Gd-Tex Brain metastases Phase II Pharmacyclics
Radiation Sensitizer
Primary brain tumor NCI, Phase I
Lung cancer expected 1998(2)
Head and neck cancer
Pancreatic cancer
--------------------------------------------------------------------------------------------------------
Gd-Tex A variety Preclinical Pharmacyclics
Chemosensitizer of cancers
--------------------------------------------------------------------------------------------------------
LUTRIN Breast cancer Phase II Pharmacyclics in the
Photosensitizer U.S., Canada and Japan,
Melanoma Phase II Nycomed in rest of world
expected 1998
Esophageal cancer NCI, Phase I
Bladder cancer expected 1998(3)
Head and neck cancer
Pancreatic cancer
Ovarian cancer
ATHEROSCLEROSIS THERAPY
ANTRIN Peripheral Phase I Pharmacyclics
Photosensitizer vascular disease
MACULAR DEGENERATION
Lu-Tex Age-related Preclinical Alcon
Photosensitizer macular
degeneration
DIAGNOSTIC IMAGING
GADOLITE Oral MRI contrast agent FDA approvable letter E-Z-EM in Europe and
for abdomen and received December 1996 North America,
pelvis Pharmacyclics in rest of
world
</TABLE>
- --------------------------------------------------------------------------------
(1) As used in this Prospectus, "Preclinical" means testing on animal models for
indications of safety and efficacy prior to the initiation of human clinical
trials. "Phase I" means initial human clinical trials designed to establish
the safety, dose tolerance and sometimes pharmacokinetics of a compound.
"Phase I/II" means initial human clinical trials designed to establish the
safety, dose tolerance and, sometimes, pharmacokinetics of a compound and
which are, in contrast to Phase I clinical trials, performed with patients
with the targeted disease. "Phase II" means human clinical trials designed
to establish safety, optimal dosage and preliminary activity of a compound.
"Phase III" means human clinical trials designed to lead to accumulation of
data sufficient to support an NDA, including data as to efficacy. "FDA
approvable letter" means that the FDA has deemed the drug capable of
registration for commercial use provided that certain issues relating to
product formulation, stability and manufacturing can be resolved to the
agency's satisfaction.
(2) Nine separate clinical trials are being sponsored by the NCI for these
cancer indications, which the Company expects to be initiated during 1998.
(3) The NCI intends to sponsor at least five separate clinical trials for these
cancer indications, which the Company expects to be initiated in the second
half of 1998.
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<PAGE> 31
CANCER THERAPY
Gd-Tex for Radiation Sensitization of Cancer
Radiation therapy of cancer is based upon the destruction of cancer cells
through exposure to relatively high dosages of externally applied radiation.
While cancer cells are somewhat more sensitive to radiation exposure than
healthy tissues, radiation therapy will have toxic effects on healthy tissue
surrounding the tumor because the energy cannot be adequately targeted. The
ability to preferentially target and destroy cancerous regions is largely
limited to shielding, using lead blocks, on regions adjacent to the tumor. The
Company's preclinical studies indicate that Gd-Tex both localizes preferentially
in tumors and increases the local destructive effect of radiation therapy in
those targeted tissues. Gd-Tex uptake in tumors occurs within minutes of
administration and persists for hours, effectively localizing the effect of the
drug to the tumor. Once localized, Gd-Tex absorbs free electrons generated
during irradiation, effectively prolonging and magnifying the destructive action
of highly reactive hydroxyl free radicals. These free radicals are cytotoxic and
destroy the surrounding cancerous tissue. In preclinical studies, animals
receiving Gd-Tex in conjunction with radiation therapy had enhanced tumor
response rates as compared to the control group receiving equivalent doses of
radiation therapy alone. Preclinical studies further indicate that Gd-Tex
increases the effect of radiation therapy at the tumor site, with no increased
damage to surrounding healthy tissues. An additional feature of Gd-Tex is that
it is detectable by MRI scanning, providing an ongoing method of monitoring its
biolocalization in patients.
The Company initially intends to seek FDA approval of Gd-Tex for treatment
of patients with brain metastases who are receiving radiation therapy. Brain
metastases occur in approximately 15% to 20% of all cancer patients, often in
patients with primary lung or breast cancer, and are usually treated with
radiation therapy delivered to the whole brain. The median survival of patients
with brain metastases is about four months. Patients with brain metastases
develop devastating complications, including severe pain, seizures, paralysis,
blindness and impaired cognitive function. Radiation therapy for treatment of
brain metastases is performed on approximately 170,000 patients per year in the
United States and is intended to prevent or reduce these complications. The
Company believes that Gd-Tex could eventually be used in many other tumor types
and clinical situations requiring radiation therapy.
Clinical Status. The Company has completed a Phase I clinical trial of
Gd-Tex in 41 patients with advanced cancer who received radiation therapy. This
trial was designed to determine the maximally-tolerated single dose ("MTD") of
the drug, with reversible renal toxicity being the dose-limiting toxicity.
Biolocalization of Gd-Tex in lung cancer, breast cancer and other tumors has
been confirmed using MRI. The Company is currently conducting the Phase II
portion of an international multicenter Phase I/II clinical trial to evaluate
the safety and efficacy of Gd-Tex in cancer patients receiving radiation therapy
for treatment of brain metastases. In October 1997, the results of the completed
Phase Ib dose-escalation portion of the study were reported at ASTRO. This trial
consisted of 39 patients with brain metastases who received 10 daily intravenous
injections of Gd-Tex, each followed by whole-brain radiation therapy. Of the 39
patients, 26 had lung cancer, six had breast cancer, four had melanoma and three
had other cancers as their primary tumors. The dose-limiting toxicity for this
multi-dose regimen was reversible elevation of liver enzymes. There were no
significant infusion-related toxicities. MRI scans showed selective accumulation
of Gd-Tex in brain metastates but not in normal brain tissue. An intent to treat
survival analysis was performed in which low and higher drug dose groups were
compared. Although this trial was not designed to demonstrate efficacy, patients
receiving higher doses of Gd-Tex were found to have statistically significant
increases in median survival compared to patients receiving lower doses of
Gd-Tex. As of December 15, 1997, the Company had enrolled 15 of up to 20
patients in the Phase II portion of this trial, which is designed to evaluate
safety and response rate in a uniform group of patients. Although this Phase
I/II trial was not a prospective randomized trial, the Company plans to use the
results of this Phase I/II trial as the basis for a randomized Phase III trial
of Gd-Tex that is expected to begin in 1998.
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In parallel with the Company's studies in brain metastases, the NCI has
agreed to sponsor nine separate clinical trials of Gd-Tex for additional
indications, which the Company expects will begin in 1998 pending institutional
review board approval at each site.
<TABLE>
<CAPTION>
INDICATION LOCATION
- ---------------------- --------------------------------------------------
<S> <C>
Primary Brain Tumor UCLA Medical Center, University of Southern
California, Robert Wood Johnson Medical Center
Primary Brain Tumor NABTT (New Approaches to Brain Tumor Therapy
Consortium, comprised of ten centers)
Primary Brain Tumor University of Chicago
Lung Cancer University of Pennsylvania, University of Maryland
Lung Cancer Johns Hopkins University Oncology Center
Head and Neck Cancer University of Pennsylvania, University of Maryland
Head and Neck Cancer Johns Hopkins University Oncology Center
Pancreatic Cancer University of Pittsburgh
Pancreatic Cancer Johns Hopkins University Oncology Center
</TABLE>
Gd-Tex for Chemosensitization of Cancer
The Company is conducting preclinical studies with Gd-Tex as a
chemosensitizer for use in conjunction with certain cytotoxic chemotherapy
agents. Cytotoxic chemotherapy destroys cancer cells by interfering with their
metabolism, protein synthesis or cell division. Because these agents are not
tissue-selective, cancer chemotherapy agents produce serious or life-threatening
side effects which compromise quality of life and increase the cost of
management of patients with cancer. Preclinical studies conducted by the Company
and its collaborators indicate that Gd-Tex increases the activity of certain
chemotherapy agents in tumors. This effect is believed to be related to Gd-Tex's
ability to stabilize cytotoxic free radicals produced by certain chemotherapy
agents, such as bleomycin and doxorubicin. Gd-Tex's selective uptake in tumors
potentiates the activity of cancer chemotherapy agents in tumor cells but not in
normal tissues, thereby increasing the therapeutic margin. In preclinical
studies, animals receiving Gd-Tex and chemotherapy with either bleomycin or
doxorubicin had enhanced tumor responses and survival rates as compared to
control groups receiving equivalent doses of chemotherapy alone.
LUTRIN for Photodynamic Therapy of Cancer
Photodynamic therapy is a minimally invasive treatment in which a
photosensitizing drug that localizes to diseased tissue is injected into the
body and then activated with light energy. To date, photodynamic therapy has
been approved for the treatment of superficial or small lesions because existing
photosensitizers have been unable to absorb light capable of penetrating deeply
into tissues. LUTRIN, the Company's lutetium texaphyrin drug, is activated by
light of 720-760 nanometers, wavelengths that are optimal for penetrating
through tissue, blood and skin pigmentation such as melanin. After absorbing
light of this wavelength, LUTRIN becomes activated to a higher energy state
generating singlet oxygen, a highly cytotoxic molecule. Preclinical studies
indicate that LUTRIN selectively localizes in a variety of cancers. LUTRIN is a
synthetic, well-characterized molecule that is water soluble and is relatively
rapidly cleared from the body, reducing potential toxicity. Because of its
relatively rapid clearance from normal tissue, it is possible to treat the
patient within a few hours of drug administration, providing an advantage over
current photodynamic therapies, which generally require 48 hours or longer prior
to treatment.
The Company's LUTRIN program is focused on drug development and relies on
third parties for manufacture and supply of light sources and delivery devices.
In October 1997, the Company entered into an agreement with Nycomed, which
acquired sales and marketing rights to LUTRIN for cancer indications outside the
United States, Canada and Japan. In return for these rights, the Company
received an up front licensing fee and is to receive future payments based on
achievement of regulatory milestones and royalties on LUTRIN sales. See
"-- Research, Clinical Development and Marketing Collaborations" and
"-- Manufacturing and Suppliers -- Photodynamic Therapy Light Production and
Delivery Devices."
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<PAGE> 33
The Company intends initially to seek FDA approval for the use of LUTRIN in
photodynamic therapy for patients with invasive surface cancers that are
accessible to externally applied light, such as recurrent breast cancer
(involving the skin or subcutaneous tissue) and melanoma. These diseases affect
more than 40,000 patients per year in the United States. Additional indications
for the use of LUTRIN include internal cancers such as cancer of the lung,
esophagus, colon, rectum, prostate, head and neck region and genitourinary
tract.
Clinical Status. The Company presented results from its completed Phase I
clinical trial of LUTRIN for the photodynamic treatment of advanced local or
metastatic cancer accessible to externally applied light at the ASCO meeting in
May 1997. Of the 35 patients enrolled in this dose escalation study, 16 had
breast cancer, seven had melanoma and 12 had other types of tumors. Patients
received a rapid intravenous injection of LUTRIN, followed three to eight hours
later by illumination of the tumors with light. Within the treated group, 73
breast cancer lesions were evaluated, with a total per lesion response rate of
64%, comprised of a 46% complete response (defined as complete disappearance of
the tumor) and 18% partial response (defined as greater than 50% reduction in
tumor size) in this early-stage trial which was not designed to measure
efficacy. Among melanoma patients, 45 lesions were evaluated; a complete
response was achieved in 29% and a partial response was achieved in 20%, for a
total response rate of 49%. A drug dose response effect was observed. Nineteen
lesions were evaluated in six patients treated at the MTD. Fifteen of the
lesions underwent a complete response and two achieved a partial response. Of
the six patients treated at the maximum tolerated dose, all of whom had breast
cancer, four had a complete response and one had a partial response. The overall
clinical response rates, determined by evaluating the response of all the
treated lesions in each patient, was 50% with 17% complete and 33% partial
responses. In breast cancer, the corresponding overall clinical response rates
were 60%, with 27% complete and 33% partial responses. The dose-limiting
toxicity was pain at the treatment site during light illumination, which
occurred at the highest doses administered. At the highest dosage level, some
patients experienced dysesthesia (burning or numbness) in areas exposed to
light, such as the fingertips. There were no systemic toxicities and no
significant skin phototoxicities.
The responses observed in melanoma patients are of particular interest
because other photosensitizers have failed to be effective in that tumor type.
Melanoma cells contain the pigment melanin, which prevents light of less than
700 nanometers from penetrating into tissue where it can activate the
photosensitizer. Furthermore, LUTRIN's ability to be activated by light of such
wavelengths suggests that it could be possible to treat people with darkly
pigmented skin who have not traditionally been candidates for photodynamic
therapy of surface tumors. The Company recently commenced a multicenter Phase II
clinical trial in patients with recurrent breast cancer to the chest wall. This
trial is designed to optimize drug dose and light dose and provide indications
of efficacy. In certain patients entered into the trial with large tumors, pain
at the treatment site has been observed. Pain appears to be related to the size
of the area being treated and has been controlled by narcotics and sedation. The
Company intends to initiate Phase II trials in recurrent melanoma in early 1998.
In parallel with the Company's clinical studies in recurrent breast cancer to
the chest wall and recurrent melanoma, the NCI intends to sponsor a minimum of
five separate clinical trials of LUTRIN for additional indications including
cancer of the bladder, esophagus, head and neck region, pancreas and ovary.
These studies are expected to begin in the second half of 1998.
ATHEROSCLEROSIS THERAPY
ANTRIN for Photoangioplasty of Atherosclerosis
Preclinical studies conducted by the Company and its collaborators have
demonstrated that texaphyrins also localize to atherosclerotic plaque.
Preclinical studies have also indicated that following intravenous
administration of ANTRIN, the Company's lutetium texaphyrin drug, intravascular
exposure of atherosclerotic plaque to 732-nanometer light delivered through a
catheter resulted in elimination of the plaque without damage to the endothelium
using a technique which the Company refers to as photoangioplasty. The Company
believes that these results suggest that photoangioplasty of atherosclerosis
with ANTRIN has the potential to eliminate or reduce plaque without
complications
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<PAGE> 34
such as thrombosis and restenosis. Additional preclinical studies further
indicated that photoangioplasty of atherosclerosis with ANTRIN could be used to
treat diffuse atherosclerosis over long segments of blood vessels, which is not
possible with other currently available techniques. ANTRIN's selective
localization in plaque and relatively rapid clearance from blood may provide
advantages for its application in the treatment of atherosclerosis. The Company
also believes that photoangioplasty with ANTRIN has potential use in peripheral
vascular disease, coronary artery disease and in the treatment of restenosis.
The Company recently initiated a Phase I clinical trial at Stanford University
Medical Center for the use of ANTRIN in the photoangioplasty of peripheral
vascular disease. This Phase I dose-escalation trial will enroll up to 30
patients to assess the safety of ANTRIN.
AGE-RELATED MACULAR DEGENERATION THERAPY
The Company and its collaborators have conducted preclinical studies with
Lu-Tex in ARMD. These studies have indicated that Lu-Tex selectively damages
abnormal retinal capillaries following activation by light of an appropriate
wavelength. The Company entered into a development agreement with Alcon, a
leading ophthalmic products company, whereby Alcon will conduct all further
preclinical and clinical development, regulatory submissions and sales and
marketing of Lu-Tex for the treatment of ARMD. The Company expects Alcon to
commence Phase I studies in 1998.
DIAGNOSTIC IMAGING AGENT
The Company's oral MRI contrast agent, GADOLITE, is not a texaphyrin, but
is based on a patented compound and is used for imaging the gastrointestinal
tract in patients undergoing MRI procedures of the abdomen or the pelvis.
GADOLITE contains gadolinium sodium aluminosilicate suspended in an aqueous,
orange-flavored oral formulation designed to fill the bowel uniformly.
The Company submitted an NDA for GADOLITE in September 1995, based upon two
multicenter controlled Phase III studies in patients receiving MRI scans for
known or suspected diseases of the abdomen or pelvis. The Company received an
approvable letter in December 1996 requiring the Company to conduct additional
product manufacturing and product stability studies. The Company is in the
process of addressing these issues, and expects to require at least 18 months to
resolve before GADOLITE can be successfully manufactured and marketed. 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. The Company will not market
GADOLITE in Europe until all issues with the product are resolved with the FDA.
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.
Data obtained from preclinical studies and clinical trials of the Company's
products under development are not necessarily indicative of results that will
be obtained from subsequent studies or clinical trials, and such data are
susceptible to varying interpretations which could delay, limit or prevent
further development or regulatory approval.
RESEARCH, CLINICAL DEVELOPMENT AND MARKETING COLLABORATIONS
The Company relies on relationships with third parties to augment certain
research, clinical development, process development, manufacturing, sales and
marketing functions. In the photodynamic therapy field, the Company has used
outside collaborations for development of light sources and delivery devices for
use in preclinical studies and clinical trials while focusing on development of
its proprietary photosensitizing products. The Company retains marketing rights
to Gd-Tex and ANTRIN worldwide and to LUTRIN in the United States, Canada and
Japan.
Nycomed Collaboration. In October 1997, the Company entered into an
agreement with Nycomed, which acquired exclusive sales and marketing rights to
LUTRIN for cancer indications in all markets excluding the United States, Canada
and Japan. In exchange for these rights, Nycomed has
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<PAGE> 35
agreed to pay the Company up to approximately $14.0 million in license fees and
cost reimbursement (based upon an agreed budget), milestone payments and
development cost subsidies related to the initial cancer indications for LUTRIN
to be developed by the Company and Nycomed, in each case subject to attainment
of certain development, clinical or commercialization milestones. Approximately
$14.0 million in additional milestone payments and cost reimbursement (assuming
similar costs and agreement upon a similar budget) may be paid by Nycomed during
the course of development for subsequent cancer indications, if such indications
are successfully completed. Nycomed has agreed to bear a portion of the device
and clinical development costs required for regulatory submission for product
approval in the United States, which information will then be used as a basis
for approvals in Europe. Each company will make regulatory submissions in its
own marketing territories. Pharmacyclics is required to supply bulk drug
substance through its manufacturing collaboration with Celanese and Nycomed
intends to produce finished product for its and Pharmacyclics' use in its plant
in Puerto Rico.
Alcon Collaboration. In December 1997, the Company entered into an
evaluation and license agreement with Alcon Pharmaceuticals, Ltd. under which
its affiliate Alcon acquired worldwide marketing rights to Lu-Tex for
ophthalmology indications. Alcon, a wholly-owned subsidiary of Nestle S.A., is a
global leader in the research, development, manufacturing and marketing of
ophthalmic products. Under the terms of the agreement, the Company received an
upfront fee to evaluate Lu-Tex for ophthalmology indications for a specified
time period (which contemplates completion of a Phase I clinical trial), and if
the evaluation is successful, the Company will receive an additional license
fee, payments upon completion of certain milestones and royalty payments on
product sales. Alcon will conduct and bear all costs for world-wide development
and commercialization of Lu-Tex for ophthalmology indications, as well as costs
for regulatory submissions, until the termination of the Agreement.
Pharmacyclics is required to supply bulk drug substance through its
manufacturing collaboration with Celanese and Alcon will be responsible for
formulation and packaging.
National Cancer Institute Collaboration. In April 1997, the Decision
Network Committee of the NCI Division of Cancer Treatment, Diagnosis and Centers
voted unanimously to sponsor and fund clinical development of both Gd-Tex as a
radiation sensitizer and LUTRIN as a photosensitizer for cancer treatment. This
cooperative research and development agreement provides for the NCI and the
Company to jointly select clinical trials which will be conducted at leading
medical centers for various types of cancer. For Gd-Tex, nine separate clinical
trials are planned for treatment of brain tumors, head and neck cancers, and
cancers involving the lung, pancreas and prostate. For LUTRIN, the NCI intends
to sponsor a minimum of five separate Phase I clinical trials, and to date, has
requested Phase I proposals from potential clinical sites for the treatment of
esophageal, bladder, head and neck, pancreatic and ovarian cancers. The Company
believes that these NCI-sponsored trials will supplement its own clinical
development efforts for both Gd-Tex and LUTRIN. Although the trials will be
conducted by third parties, the Company will need to provide clinical supplies
of its drug and it intends to monitor the progression and results of these
trials.
The University of Texas Agreements. The Company collaborates with and
sponsors research and development programs at UT Austin, through a group under
the direction of Jonathan Sessler, Ph.D., Professor of Chemistry at UT, to
extend its research capabilities in the field of expanded porphyrin chemistry.
The Company has entered into two license agreements with UT that grant the
Company the worldwide, exclusive right to patents or patent applications that
relate to or result from (i) research conducted at UT Austin on the use,
development and syntheses of expanded porphyrin molecules, and (ii) research
conducted at UT Dallas on the incorporation of paramagnetic metals into zeolites
for use as MRI contrast agents. These agreements require the Company to pay
royalties as a percentage of net sales to UT for products incorporating the
licensed technology, including each of the Company's current product candidates.
In addition, the Company and UT have entered into sponsored research agreements
which expand the products, inventions and discoveries developed by UT to which
the Company's license rights apply. In connection with the UT license
agreements, the Company also entered into a license agreement with an individual
co-inventor of GADOLITE, pursuant to which the
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<PAGE> 36
Company has been granted an exclusive royalty-bearing license to manufacture,
use and sell certain products that fall within the scope of the UT Dallas
license agreement.
E-Z-EM Marketing, Sales and Distribution Arrangement. In August 1995, the
Company entered into an agreement with E-Z-EM, a leading manufacturer and
worldwide distributor of oral contrast agents and other products for use in
gastrointestinal radiology, for the exclusive marketing and sale of GADOLITE in
North America. During fiscal 1997, an additional agreement was signed with
E-Z-EM's affiliate, E-Z-EM, Ltd., for marketing, sales and distribution in
Europe. The Company and E-Z-EM will share equally in the operating profits from
the sale of GADOLITE in these regions, and the Company may also receive premium
payments based upon product sales if certain unit sales levels are achieved.
During the term of the agreement, E-Z-EM is prohibited from distributing
products that are directly competitive with GADOLITE, except for products that
had been or were being developed by E-Z-EM as of the date of the Company's
agreement with E-Z-EM and that contain certain specified chemical compounds. The
agreement may be terminated by E-Z-EM at any time upon six months' notice.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company believes its success depends upon, among other things, the
Company's ability to protect its proprietary position with respect to technology
that the Company believes is important to its business. The Company, therefore,
aggressively pursues, prosecutes, protects, and defends patent applications,
issued patents, trade secrets, and licensed patent and trade secret rights
covering certain aspects of the Company's technology.
The Company's patents, patent applications, and licensed patent rights
variously cover composition of matter and method of use claims relating to
certain compounds and their applications and therapeutic uses. The Company owns
or has license rights to 47 issued U.S. patents, eight additional allowed patent
applications in the U.S., and 21 other pending U.S. patent applications. The
issued U.S. patents expire between 2009 and 2014. The Company is also the owner
or licensee of five issued non-U.S. patents (i.e., two patents issued in Europe,
two patents issued in Australia, and one patent issued in New Zealand) and 74
pending non-U.S. patent applications filed among Europe, Japan and certain other
countries and under the Patent Cooperation Treaty ("PCT") designating all PCT
member countries. 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.
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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 MRI scans. The
Company has obtained an opinion of special patent counsel that the technologies
employed by the Company for its imaging product under development and MRI
detectable compounds 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 having image-enhancing
properties 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, and each of such persons has executed such type
of agreement. These agreements provide that all confidential information
developed 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, and in the case of employees,
provide that all inventions attributable to the individual during such
employment shall be the exclusive property of the Company. 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.
MANUFACTURING AND SUPPLIERS
Pharmacyclics currently uses third-party manufacturers for producing
various components of the products being developed by the Company. Except for
Gd-Tex, Lu-Tex, LUTRIN and ANTRIN bulk drug substances, which are the subject of
a manufacturing and supply agreement with Celanese, and GADOLITE, which has been
the subject of a manufacturing and supply agreement with Glaxo, the Company does
not have the manufacturing capacity necessary to provide clinical and commercial
quantities of the Company's products. Prior to any regulatory approval of the
Company's products, the Company intends to negotiate supply agreements with
additional manufacturers who will 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. Any interruption of supply could have a
material adverse effect on the Company's ability to manufacture its products and
thus on the ability to commercialize products.
Hoechst Celanese Agreement. In September 1996, the Company entered into an
agreement with Celanese, a manufacturer of chemicals and pharmaceutical
intermediates, for the process optimization, scale-up and clinical and worldwide
commercial supply of all texaphyrin based products. Under the terms of the
agreement, Celanese is obligated to supply drug substance for clinical and
commercial use in addition to making a lump sum payment and royalties on sales.
There can be no assurance that
36
<PAGE> 38
Celanese will deliver bulk-drug substance for these products on a timely or
commercially attractive basis to the Company.
Photodynamic Therapy Light Production and Delivery Devices. In connection
with its development of LUTRIN and ANTRIN as photosynthesizers, the Company has
also engaged in the development of certain light sources and delivery methods,
such as lasers and LEDs. The Company has collaborated with Coherent, Inc. and
Laserscope, Inc. for the development of lasers that produce 732 nanometer light
for use in photodynamic therapy studies. These lasers and light delivery devices
were acquired and are still being used in ongoing studies. Coherent participated
with the Company in the filing of regulatory documents required for conducting
the Company's Phase I clinical trials. The Company has purchased from Quantum
LED devices capable of producing the required wavelength of light for use in
photodynamic therapy with LUTRIN. The Company has used LED devices in
preclinical animal studies, Phase I and Phase II trials. In addition, the
Company has acquired from REM cylindrically diffusing light fibers for animal
studies and for use in Phase I studies in cardiovascular disease. In October
1997, the Company entered into a development agreement with Diomed under which
Pharmacyclics engaged Diomed to develop a diode laser system for use in
photodynamic therapy. This effort is intended to provide a basis for the
development of a laser diode medical system, which will supplant the more
complex and costly dye laser systems currently used in photodynamic therapy
programs. In addition, the Company may seek other suppliers of light delivery
devices, although there can be no assurance that any agreements will be reached
with such suppliers on terms commercially reasonable to the Company, if at all.
There also can be no assurance that these devices will be available for
commercial use or that regulatory approval for such devices will be obtained.
Glaxo-Wellcome Supply Agreement. The Company entered into a supply
agreement with Glaxo under which Glaxo manufactured clinical quantities of
GADOLITE. This agreement is currently subject to termination because of delays
in FDA approval and Glaxo's sale of the facility in which the drug had been
manufactured. There can be no assurance that the Company will be able to extend
or renew the agreement. Moreover, the Company may be forced to change
manufacturing sources for GADOLITE, no assurance can be given that such a
manufacturing change can be effected without a material adverse effect on the
Company's approval and commercialization plans for GADOLITE. See "Risk
Factors -- Limited Manufacturing Experience: Dependence Upon Contract
Manufacturers."
COMPETITION
The development of therapeutic and diagnostic agents for human diseases is
intensely competitive. Many different approaches are being developed or have
already been adopted into routine use for the management of diseases targeted by
the Company.
Although there are currently no FDA-approved radiation sensitizers or
chemosensitizers, the Company expects significant competition in these fields,
as the Company believes that one or more companies are developing and testing
products which compete directly with the products being developed by the
Company. There can be no assurance that these companies will not succeed in
developing technologies and products that are more effective than Gd-Tex or that
would render the Company's products or technologies obsolete. Moreover, certain
existing chemotherapy agents also are used as radiation sensitizers. See "Risk
Factors -- Rapid Technological Change and Intense Competition."
Photofrin(R), a photosensitizer developed by QLT Phototherapeutics, Inc.
("QLT"), has been approved by the FDA for treatment of obstructive cancer of the
esophagus and certain types of lung cancer. Photofrin has also received
marketing approval in Japan, Canada and certain European countries for various
disease indications. The Company is aware of several other photosensitizers in
various stages of development for a number of indications. In addition to QLT,
other companies are developing products in this area. 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.
Competition in the treatment of atherosclerosis is also intense and
currently includes the use of pharmaceutical agents and interventional devices.
Various drugs also have been shown to reduce or
37
<PAGE> 39
prevent atherosclerosis by reduction of lipids. Balloon angioplasty is a
widely-used and generally accepted technique to reduce the narrowing of vessels
by atherosclerosis. Restenosis following angioplasty has been reduced through
the use of intravascular stents. The Company believes that photoangioplasty with
ANTRIN may provide advantages over these techniques but there can be no
assurance that there will be greater acceptance of photoangioplasty over other
approaches. Other photosensitizers under development by other companies may
prove to be superior to ANTRIN.
Competition in the treatment of ARMD is substantial and includes the
current use of laser photocoagulation. Several other approaches to treatment are
being investigated, including the use of other photosensitizers, drugs and
biologicals, including anti-angiogenesis agents.
The Company expects competition in the development of improved oral MRI
contrast agents to increase substantially. Gastromark, an iron particle-based
oral contrast agent developed by Advanced NMR Systems, Inc. and licensed to
Mallinckrodt, Inc., has received approval for commercial sale from the FDA. In
addition, there are several oral MRI contrast agents in various phases of human
testing in the United States. Although the Company believes that GADOLITE may
offer advantages over competing oral MRI contrast agents, there can be no
assurance that there will be greater acceptance of GADOLITE over other agents.
In addition, to the extent that other diagnostic modalities such as CT and X-ray
may be perceived as providing greater value than MRI, any corresponding decrease
in the use of MRI would have an adverse effect on the demand for GADOLITE.
Competition in the industry from pharmaceutical 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 substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical companies by large collaborating partners could increase such
competitors' financial, marketing, manufacturing and other resources. There can
be no assurance that developments by others will not render the Company's
products or technologies noncompetitive or obsolete, or that the Company will be
able to keep pace with technological developments or other market factors.
Competitors may be developing products that have an entirely different approach
or means of accomplishing similar diagnostic, imaging and/or therapeutic effects
than products being developed by the Company. These competing products may be
safer, more effective and less costly than the products developed by the Company
and, therefore, may represent a serious competitive threat to the Company's
product offerings.
GOVERNMENT REGULATION
FDA Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the manufacturing
and marketing of pharmaceutical products. These agencies and other federal,
state and local entities regulate, among other things, research and development
activities and the testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record keeping, approval, advertising and promotion of the
Company's products.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an IND application which must
become effective before clinical trials may begin; (iii) adequate and well-
controlled human clinical trials to establish the safety and efficacy of the
proposed pharmaceutical in its intended indication; and (iv) FDA approval of an
NDA. If the pharmaceutical or compound utilized in the product has been
previously approved for use in another dosage form, then the approval process is
similar, except that certain preclinical toxicity tests normally required for
the IND may be avoidable. The testing and approval process requires substantial
time, effort, and financial resources and there can be no assurance that any
approval will be granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the preclinical
tests, together with manufacturing information and analytical data, are
submitted to
38
<PAGE> 40
the FDA as part of an IND, which must become effective before human clinical
trials may be commenced. The IND will automatically become effective 30 days
after receipt by the FDA, unless the FDA before that time raises concerns or
questions about the conduct of the trials as outlined in the IND. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Further, each
clinical study must be reviewed and approved by an independent Institutional
Review Board at the medical center proposing to conduct the clinical trials.
Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the
pharmaceutical into healthy human subjects or patients where the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. Phase II involves studies in a limited patient population to (i)
identify possible adverse effects and safety risks, (ii) determine the efficacy
of the product for specific, targeted indications, and (iii) determine dosage
tolerance and optimal dosage. When Phase II evaluations demonstrate that the
product is effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage, clinical efficacy and to further test for
safety in an expanded patient population at geographically dispersed clinical
study sites.
In the case of products for severe or life-threatening diseases such as
cancer, the initial human testing is often conducted in patients rather than in
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA, or the sponsor, may suspend clinical trials at any time on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of an NDA for approval of the marketing
and commercial shipment of the product. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, or may require additional clinical data.
Even if such data is submitted, the FDA may ultimately decide that the NDA does
not satisfy the criteria for approval. Once issued, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and the agency has the power to prevent
or limit further marketing of a product based on the results of these post-
marketing programs.
On November 21, 1997, President Clinton signed into law The Food and Drug
Administration Modernization Act of 1997. That act codified FDA's policy which
allowed for "Fast Track" approval for cancer therapies and other therapies
intended to treat severe or life-threatening diseases. Previously, cancer
therapies have been approved primarily on the basis of data regarding patient
survival rates and/or improved quality of life. Evidence of partial tumor
shrinkage, while often part of the data relied on for approval, was considered
insufficient by itself to warrant approval of a cancer therapy, except in
limited situations. Under the FDA's new policy, which becomes effective on
February 19, 1998, the FDA has broadened authority to consider evidence of
partial tumor shrinkage or other clinical outcomes for approval. This is
intended to make it easier to study cancer therapies and shorten the total time
for marketing approvals; however, it is too early to tell what effect these
provisions may actually have on product approvals.
In addition to the drug approval requirements applicable to the Company's
LUTRIN product for photosensitization of certain cancers and ANTRIN for
photoangioplasty of atherosclerosis, the Company will also need to obtain FDA
approval for the laser and associated light delivery devices used in such
treatments. Such device approval requires additional submissions both by the
Company and by the manufacturers of such devices, must include clinical data
obtained from the use of such devices with LUTRIN or ANTRIN, and may result in
additional delays or difficulties in obtaining approval for
39
<PAGE> 41
the use of these photosensitizers. Manufacturers of such light delivery devices
currently are under no obligation to the Company to file or pursue such
applications.
Satisfaction of the above FDA requirements, or similar requirements of
state, local, and foreign regulatory agencies, typically takes several years and
the time needed to satisfy them may vary substantially, based upon the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon the Company's
activities. There can be no assurance that the FDA or any other regulatory
agency will grant approval for any products being developed by the Company on a
timely basis, if at all. Success in preclinical or early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. If regulatory approval
of a product is granted, such approval may impose limitations on the
indicated uses for which a product may be marketed. Further, even if regulatory
approval is obtained, later discovery of previously unknown problems with a
product may result in restrictions on the product, including withdrawal of the
product from the market. Delay in obtaining, or failure to obtain, regulatory
approvals would have a material adverse effect on the Company's business.
Marketing the Company's products abroad will require similar regulatory
approvals and is subject to similar risks. In addition, the Company is unable to
predict the extent of adverse government regulations that might arise from
future U.S. or foreign governmental action.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are
required to register their establishments with the FDA and certain state
agencies, and are subject to periodic inspections by the FDA and certain state
agencies for compliance with GMP, which impose certain procedural and
documentation requirements upon the Company and its third party manufacturers.
Drug labeling and promotion activities are subject to scrutiny by the FDA
and, in certain instances, the Federal Trade Commission. The FDA has actively
enforced regulations the prohibiting the marketing of products for unapproved
uses. Under the new FDA Modernization Act of 1997 promoting a drug for an
unapproved indication will be permitted in certain circumstances, but is subject
to very stringent requirements. The Company and its products are also subject to
a variety of state laws and regulations in those states or localities where its
products are or will be marketed. Any applicable state or local regulations may
hinder the Company's ability to market its products in those states or
localities. The Company is also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control, and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations now or in the future.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the U.S. and in foreign markets could result in new government
regulations which could have a material adverse effect on the Company's
business. The Company is unable to predict the likelihood, nature or extent of
adverse governmental regulation which might arise from future legislative or
administrative action, either in the U.S. or abroad.
Manufacturers of drugs also are required to comply with the applicable 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.
40
<PAGE> 42
The Company may elect to seek approval of Gd-Tex and LUTRIN under the "Fast
Track" provisions of the FDA Modernization Act of 1997. Significant uncertainty
exists as to the extent to which such provisions will result in accelerated
review and approval. Further, the FDA has not made available any information
with respect to the "Fast Track" provisions, retains considerable discretion to
determine eligibility for "Fast Track" review and approval. Accordingly, the FDA
could employ such discretion to deny eligibility of Gd-Tex 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 Gd-Tex
or LUTRIN is not eligible for "Fast Track" 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.
The Company submitted an NDA for GADOLITE 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 and which are expected to require at least 18 months to
resolve before GADOLITE can be successfully manufactured and marketed. There can
be no assurance that the FDA will decide that the NDA satisfies the criteria for
approval. In addition, in June 1996 the Company filed an MAA with the Medicines
Control Agency in the United Kingdom for authorization to market GADOLITE in
Europe. The Company will not market GADOLITE in Europe until all issues with the
product are resolved with the FDA. 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 an MAA. 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. See "Risk
Factors -- Limited Manufacturing Experience; Dependence Upon Contract
Manufacturers."
International Regulation
In order for Pharmacyclics to market its products abroad, the Company must
obtain required regulatory approvals and clearances and otherwise comply with
extensive regulations regarding safety and manufacturing processes and quality.
These regulations, including the requirements for approvals or clearance to
market and the time required for regulatory review, vary from country to
country. There can be no assurance that the Company will obtain regulatory
approvals in foreign countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
Delays in receipt of approvals to market the Company's products, failure to
receive these approvals or the future loss of previously received approvals
could have a material adverse effect on the Company's business, financial
condition, and results of operations. The time required to obtain approval for
sale in foreign countries may be longer or shorter than that required for FDA
approval, and the requirements may differ.
The European Community has promulgated rules requiring that medical device
products receive by mid-1998 the right to affix the "CE" mark, an international
symbol of adherence to quality assurance standards and compliance with
applicable European medical device directives. In order to market a laser or
other light delivery device for the Company's LUTRIN or ANTRIN products in
Europe, such CE mark must be obtained, and there can be no assurance that the
Company or its suppliers will be successful in meeting the certification
requirements.
EMPLOYEES
As of November 30, 1997, the Company had 54 employees, six of whom are
part-time. Forty-five of its employees are dedicated to research, development,
manufacturing, quality assurance and quality control, regulatory affairs, or
preclinical testing and clinical trials. Fourteen of the Company's employees
have an M.D. or Ph.D. degree.
41
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of
November 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----------- ------------------------------------------------------
<S> <C> <C>
Richard A. Miller, M.D........ 46 President, Chief Executive Officer and Director
William C. Dow, Ph.D. ........ 42 Vice President, Chemical Research and Development
Michael J. Hensley, M.D. ..... 52 Vice President, Regulatory and Quality Affairs
Leiv Lea...................... 44 Vice President, Finance and Administration
Marc L. Steuer................ 50 Vice President, Business Development and Chief
Financial Officer
Thomas D. Kiley............... 54 Director
Joseph S. Lacob(1)............ 41 Director
Patrick F. Latterell(1)(2).... 39 Director
Joseph C. Scodari............. 44 Director
Craig C. Taylor(1)(2)......... 47 Director
</TABLE>
- ------------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Dr. Richard A. Miller has served as President, Chief Executive Officer and
a Director since the Company was founded in April 1991. In 1984, Dr. Miller
co-founded IDEC Pharmaceuticals Corporation, a public biotechnology company,
where he served as Vice President and a Director until February 1992. In 1989,
Dr. Miller co-founded CellPro, Inc. ("CellPro"), a public biotechnology company,
and served as a Director of CellPro from 1989 to 1991, and Chairman of CellPro's
Scientific Advisory Board until 1993. Dr. Miller also is a Clinical Professor of
Medicine (Oncology) at Stanford University Medical Center. Dr. Miller received
his M.D., summa cum laude, from the State University of New York Medical School
and is board certified in both Internal Medicine and Medical Oncology.
Dr. William C. Dow has served as Vice President, Chemical Research and
Development since February 1993 and previously as Senior Director, Chemical
Research and Development from July 1992 to February 1993. From 1987 to 1992, he
was employed by Salutar, Inc., a pharmaceutical company involved in research and
development of MRI contrast agents, where he held positions of increasing
responsibility in discovery and chemical development of contrast agents, last
serving as Director, Chemical Development and Manufacturing. Dr. Dow holds B.S.
and M.S. degrees in Chemistry from Stanford University and a Ph.D. in Chemistry
from the California Institute of Technology.
Dr. Michael J. Hensley has served as Vice President, Regulatory and Quality
Affairs since October 1997. From 1992 through September 1997, he served as
Director, Regulatory Affairs and as Senior Director, Drug Safety and Clinical
Quality Assurance at Chiron Corporation, a biotechnology company. Dr. Hensley
was employed by the FDA five years where he played a key role in the
implementation of good clinical practice and adverse event reporting
regulations. Dr. Hensley received his M.D. degree from the Bowman Gray School of
Medicine in 1970. He is board certified in pediatrics.
Leiv Lea has served as Vice President, Finance and Administration since
December 1997. From September 1996 through November 1997, he served as a
financial consultant for high technology companies and was Acting Chief
Financial Officer for Global Village Communications, Inc. From 1987 through June
1996 he served as Vice President and Chief Financial Officer of Margaux, Inc., a
public company that manufactured refrigeration equipment. Mr. Lea received a
B.S. degree in Agricultural Economics from the University of California, Davis
and an M.B.A. from the University of California, Los Angeles.
42
<PAGE> 44
Marc L. Steuer has served as Chief Financial Officer and Vice President,
Business Development since November 1994. From April 1992 to November 1994, he
was Executive Vice President, Business Development and Commercial Affairs for
SciClone Pharmaceuticals, Inc., a biotechnology company, and also served as its
Chief Financial Officer. From 1985 to 1992, Mr. Steuer served in a variety of
roles in the Pilkington Visioncare Group ("PVG"), which developed, manufactured
and distributed medical devices, pharmaceuticals and equipment for the
ophthalmic field. His positions at PVG included General Manager, Ventures and
Licensing and Chief Financial Officer. Mr. Steuer received his M.S. and B.S.
degrees in Electrical Engineering from Columbia University and an M.B.A. from
New York University.
Thomas D. Kiley was elected as a director of the Company in June 1991. He
has been self-employed since 1988 as an attorney, consultant and investor. From
1980 to 1988, he was an officer of Genentech, Inc., serving variously as Vice
President and General Counsel, Vice President for Legal Affairs and Vice
President for Corporate Development. Mr. Kiley is also a director of
Cardiogenesis Corporation, Geron, Inc. and Connective Therapeutics, Inc., and
certain private biotechnology and other companies. Mr. Kiley received a B.S. in
Chemical Engineering from Pennsylvania State University and a J.D. from George
Washington University.
Joseph S. Lacob was elected as a director of the Company in June 1991. He
is a General Partner of Kleiner Perkins Caufield & Byers, a venture capital
investment firm, which he joined in 1987. Mr. Lacob is currently Chairman of the
Board of CellPro, Inc. and Microcide Pharmaceuticals, Inc. and a director of
Heartport, Inc., as well as several private life science companies. Mr. Lacob
holds a B.S. in Biochemistry from the University of California, Irvine, an M.S.
in Public Health from the University of California, Los Angeles and an M.B.A.
from Stanford University.
Patrick F. Latterell was elected as a director of the Company in June 1991.
He is a General Partner of Venrock Associates and Venrock Associates II, L.P.,
venture capital investment groups, which he joined in April 1989. Mr. Latterell
is currently a director of Biocircuits Corporation, Vical, Inc. and several
private biomedical companies. Mr. Latterell holds S.B. degrees in Biological
Sciences and Economics from the Massachusetts Institute of Technology and an
M.B.A. from Stanford University.
Joseph C. Scodari was elected as a director of the Company in December
1994. He is President and Chief Operating Officer of Centocor, Inc., a
biotechnology company. Prior to joining Centocor, he was Senior Vice President
and General Manager, North American Ethicals for Rhone-Poulenc Rorer
Pharmaceuticals, Inc., a pharmaceutical company, where he held various positions
from 1989. From 1987 to 1989, Mr. Scodari was Executive Vice President of
Sterling Drug's U.S. Diagnostic Imaging Division, where he held responsibilities
for all marketing and sales and business development activities for Sterling's
imaging agent business. Mr. Scodari received a B.S. in Political Science from
Youngstown State University.
Craig C. Taylor was elected as a director of the Company in June 1991. He
is a General Partner of AMC Partners 89, L.P., the general partner of Asset
Management Associates 1989, L.P., a private venture capital partnership. Mr.
Taylor has been with Asset Management Company, a venture management group, since
1977. Mr. Taylor is a Director of Metra Biosystems, Inc., Lynx Therapeutics,
Inc. and several private companies. Mr. Taylor holds B.S. and M.S. degrees in
Physics from Brown University and an M.B.A. from Stanford University.
43
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of November 30,
1997 by: (i) all persons known to the Company to be beneficial owners of five
percent (5%) or more of the Company's Common Stock, (ii) each director, (iii)
each executive officer and (iv) all directors and executive officers as a group.
The number of shares beneficially owned by each director or executive officer is
determined under rules of the SEC and the information is not necessarily
indicative of beneficial ownership for any other purpose. Shares of Common Stock
subject to convertible securities that are currently exercisable or convertible
or which will become exercisable or convertible within 60 days of November 30,
1997 are deemed to be beneficially owned by the person holding such convertible
security for computing the percentage ownership of such person, but are not
treated as outstanding for computing the percentage of any other person. Except
as otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based upon such information furnished by such owners,
have sole investment power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
BENEFICIALLY
NUMBER OF OWNED(1)(2)
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNERS OWNED OFFERING OFFERING
- ----------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Richard A. Miller, M.D.(3)........................... 612,343 5.8%
Quantum Partners LDC(4).............................. 600,000 5.9
Kaya Flamboyan 9
Willemstad
Curacao, Netherlands Antilles
Joseph S. Lacob(5)................................... 159,025 1.6
Patrick F. Latterell(6).............................. 80,014 *
Thomas D. Kiley(7)................................... 170,075 1.7
Craig C. Taylor(8)................................... 216,288 2.1
Joseph C. Scodari(9)................................. 26,667 *
Marc L. Steuer(10)................................... 228,334 2.2
William C. Dow, Ph.D.(11)............................ 161,001 1.6
Michael J. Hensley, M.D.............................. -- * --
Leiv Lea............................................. -- *
All executive officers and directors as a group (10
persons)(12)....................................... 1,653,747 15.0
</TABLE>
- ------------------------------
* Less than 1%.
(1) Percentage of beneficial ownership is calculated assuming 10,195,378 shares
of Common Stock were outstanding as of November 30, 1997. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of November 30, 1997, are deemed outstanding for
computing the percentage of the person holding such option or warrant but
are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) This table is based upon information supplied to the Company by executive
officers, directors and principal stockholders. The address of each officer
and director identified in this table is that of the Company's executive
offices, 995 East Arques Avenue, Sunnyvale, CA 94086. Unless otherwise
indicated in the footnotes to this table and subject to applicable
community property laws, each of the stockholders named in this table has
sole voting and investment power with respect to the shares shown as
beneficially owned by it or him.
44
<PAGE> 46
(3) Includes 13,334, 13,334, and 279,008 shares held in trust for Jordan Andrew
Miller, Jared David Miller and the Miller-Horning Family Trust,
respectively. Also, includes options exercisable for 306,667 shares within
60 days of November 30, 1997.
(4) Excludes 24,500 shares held by Quasar International Partners C.V. Soros
Fund Management LLC may be deemed the beneficial owner of the shares held
by each of Quantum Partners LDC and Quasar International Partners C.V.
(5) Includes options exercisable for 20,000 shares. Also includes 17,100
(including warrants for 17,100 shares) held by persons and entities
affiliated with Kleiner Perkins Caufield & Byers V ("Kleiner Perkins"), as
to which shares Mr. Lacob disclaims beneficial ownership.
(6) Includes 59,940 shares held in trust by the Patrick Latterell Living Trust
and options exercisable for 20,000 shares. Also includes 74 shares held by
persons and entities affiliated with Venrock Associates ("Venrock"), as to
which shares Mr. Latterell disclaims beneficial ownership.
(7) Includes 150,075 shares held in the Kiley Revocable Trust, Thomas D. Kiley,
TEE, Nancy L. Kiley, TEE. Also, includes options exercisable for 20,000
shares within 60 days of November 30, 1997.
(8) Includes options exercisable for 20,000 shares. Also includes 111,096
shares (including warrants for 13,516 shares) held by persons and entities
affiliated with Asset Management Associates 1989, L.P. ("Asset
Management"), as to which shares Mr. Taylor disclaims beneficial ownership.
(9) Represents options exercisable for 26,667 shares.
(10) Represents options exercisable for 176,150 shares.
(11) Includes options exercisable for 101,802 shares.
(12) Includes options and warrants exercisable for 766,002 and 30,616 shares,
respectively. Also includes 111,096 shares held by persons and entities
affiliated with Asset Management and 74 shares held by persons and entities
affiliated with Venrock. Certain directors may be deemed to be the
beneficial owners of such shares, but disclaim such beneficial ownership,
as discussed in Notes 5, 6 and 8 above.
To the Company's knowledge, each beneficial owner of more than ten percent
of the Company's capital stock filed all reports and reported all transactions
on a timely basis with the SEC, the National Association of Securities Dealers,
Inc. ("NASD") and the Company.
45
<PAGE> 47
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Hambrecht & Quist LLC, Cowen & Company and Pacific Growth Equities, Inc.
(collectively, the "Underwriters"), have severally agreed to purchase from the
Company the following respective number of shares of Common Stock (the
"Shares"):
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC.....................................
Cowen & Company...........................................
Pacific Growth Equities, Inc..............................
-------
Total................................................ 1,750,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the Shares directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the public offering
of the Shares, the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 262,500
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each Underwriter will have a
firm commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total number of shares of Common Stock offered hereby. The Company
will be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of shares of
Common Stock offered hereby.
The offering of the Shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company and the Company's directors, officers and certain stockholders
who beneficially own an aggregate of approximately 1,296,682 shares of Common
Stock have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock owned by
them during the 90-day
46
<PAGE> 48
period following the effective date of the registration statement. Hambrecht &
Quist LLC, in its sole discretion, may release any such shares at any time,
without public announcement.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, are acting as counsel for the Underwriters in connection with
certain legal matters relating to the shares of Common Stock offered hereby.
EXPERTS
Statements in this Prospectus in the penultimate paragraph under the
caption "Risk Factors -- Uncertainties Regarding Patents and Proprietary Rights"
and in the penultimate paragraph under the caption "Business -- Patents and
Proprietary Technology" have been reviewed and approved by Brinks Hofer Gilson &
Lione, A Professional Corporation, special patent counsel for the Company, as
experts in such matters, and are included herein in reliance upon and review and
approval.
The financial statements of Pharmacyclics, Inc. at June 30, 1996 and 1997,
and for each of the three years in the period ended June 30, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
47
<PAGE> 49
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants............................................. F-2
Balance Sheet................................................................. F-3
Statement of Operations....................................................... F-4
Statement of Cash Flows....................................................... F-5
Statement of Stockholders' Equity............................................. F-6
Notes to Financial Statements................................................. F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Pharmacyclics, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of stockholders' equity present fairly, in all
material respects, the financial position of Pharmacyclics, Inc. (a development
stage company) at June 30, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
August 22, 1997
F-2
<PAGE> 51
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
1997 1997 1996
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $21,212 $15,869 $13,950
Short-term investments.................................. 3,025 14,958 8,053
Prepaid expenses and other current assets............... 202 216 241
------- ------- -------
Total current assets............................ 24,439 31,043 22,244
Long-term investments..................................... 9,605 6,103 --
Property and equipment, net............................... 2,296 2,504 2,622
Other assets.............................................. 57 57 149
------- ------- -------
$36,397 $39,707 $25,015
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 830 $ 1,323 $ 753
Accrued liabilities..................................... 298 311 300
Current portion of capital lease obligations............ 559 768 917
------- ------- -------
Total current liabilities....................... 1,687 2,402 1,970
Capital lease obligations................................. 478 530 941
Deferred rent............................................. 69 79 113
------- ------- -------
Total liabilities............................... 2,234 3,011 3,024
------- ------- -------
Commitments (Note 6)
Stockholders' equity:
Preferred stock, $0.0001 par value;
authorized -- 1,000,000 shares at September 30, 1997,
June 30, 1997 and 1996; no shares issued and
outstanding.......................................... -- -- --
Common stock, $0.0001 par value;
authorized -- 24,000,000 at September 30, 1997 and
June 30, 1997 and 12,000,000 at June 30, 1996; shares
issued and outstanding -- 10,140,287 and 10,102,454
at September 30, 1997 and June 30, 1997,
respectively, and 8,549,424 at June 30, 1996......... 1 1 1
Additional paid-in capital.............................. 75,033 74,911 49,948
Deficit accumulated during development stage............ (40,871) (38,216) (27,958)
------- ------- -------
Total stockholders' equity...................... 34,163 36,696 21,991
------- ------- -------
$36,397 $39,707 $25,015
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 52
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS INCEPTION
ENDED SEPTEMBER (APRIL 1991)
30, YEAR ENDED JUNE 30, THROUGH
----------------- ----------------------------- SEPTEMBER 30,
1997 1996 1997 1996 1995 1997
------- ------- -------- ------- -------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License and grant revenues....... $ -- $ -- $ 25 $ 301 $ 79 $ 3,405
-------- ------- -------- -------- -------- --------
Operating expenses:
Research and development......... 2,765 2,456 9,632 7,641 9,330 39,925
General and administrative....... 388 637 1,905 1,515 996 6,463
-------- ------- -------- -------- -------- --------
Total operating expenses...... 3,153 3,093 11,537 9,156 10,326 46,388
-------- ------- -------- -------- -------- --------
Loss from operations............... (3,153) (3,093) (11,512) (8,855) (10,247) (42,983)
Interest income.................... 532 280 1,480 940 187 3,473
Interest expense................... (34) (67) (226) (320) (419) (1,260)
-------- ------- -------- -------- -------- --------
Loss before income taxes........... (2,655) (2,880) (10,258) (8,235) (10,479) (40,770)
Provision for income taxes......... -- -- -- -- -- (101)
-------- ------- -------- -------- -------- --------
Net loss........................... $(2,655) $(2,880) $(10,258) $(8,235) $(10,479) $ (40,871)
======== ======= ======== ======== ======== ========
Net loss per share (Note 1)........ $ (0.26) $ (0.34) $ (1.11) $ (1.05) $ (1.65)
======== ======= ======== ======== ========
Weighted average common and common
equivalent shares (Note 1)....... 10,117 8,552 9,264 7,815 6,353
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 53
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD
FROM INCEPTION
SEPTEMBER 30, YEAR ENDED JUNE 30, (APRIL 1991)
------------------- --------------------------------- THROUGH
1997 1996 1997 1996 1995 SEPTEMBER 30, 1997
-------- -------- -------- ------- -------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ (2,655) $ (2,880) $(10,258) $(8,235) $(10,479) $(40,871)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 203 193 915 732 643 2,759
Write-down of property and equipment.. 188 -- -- -- 118 306
Other................................. -- -- -- -- 39 10
Gain on sale of short-term
investments......................... -- -- -- -- (22) (22)
Changes in assets and liabilities:
Prepaid expenses and other assets..... 14 206 117 (77) (185) (259)
Accounts payable...................... (493) 34 570 64 47 830
Accrued liabilities................... (13) 18 11 43 109 298
Deferred rent......................... (10) (4) (34) 46 46 69
-------- -------- -------- -------- -------- --------
Net cash used in operating activities..... (2,766) (2,433) (8,679) (7,427) (9,684) (36,880)
-------- -------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment...... (183) -- (283) (16) (52) (1,355)
Proceeds from sale of property and
equipment............................. -- -- -- -- -- 112
Purchase of short-term investments...... -- (11,571) (17,305) (8,053) (5,478) (21,307)
Purchase of long-term investments....... (3,502) -- (6,103) -- -- (9,605)
Proceeds from the sale of short-term
investments........................... 11,933 4,039 10,400 -- 5,500 18,282
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities.............................. 8,248 (7,532) (13,291) (8,069) (30) (13,873)
-------- -------- -------- -------- -------- --------
Cash flows from financing activities:
Issuance of common stock, net of
issuance costs........................ 122 21 24,837 26,278 9 51,295
Proceeds from notes payable............. -- -- -- 1,000 2,000 3,000
Issuance of convertible preferred stock,
net of issuance costs................. -- -- -- 2,550 -- 20,514
Payments under capital lease
obligations........................... (261) (259) (948) (758) (609) (2,844)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities.............................. (139) (238) 23,889 29,070 1,400 71,965
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents............................. 5,343 (10,203) 1,919 13,574 (8,314) 21,212
Cash and cash equivalents at beginning of
period.................................. 15,869 13,950 13,950 376 8,690 --
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.................................. $ 21,212 $ 3,747 $ 15,869 $13,950 $ 376 $ 21,212
======== ======== ======== ======== ======== ========
Supplemental disclosures of cash flow
information:
Income taxes paid....................... $ -- $ -- $ -- $ -- $ -- $ 101
======== ======== ======== ======== ======== ========
Interest paid........................... $ 33 $ 67 $ 226 $ 320 $ 352 $ 1,177
======== ======== ======== ======== ======== ========
Supplemental disclosure of noncash
investing and financing activities:
Property and equipment acquired under
capital lease obligations............. $ -- $ 178 $ 388 $ 437 $ 317 $ 3,880
======== ======== ======== ======== ======== ========
Warrants issued......................... $ -- $ -- $ -- $ -- $ 49 $ 49
======== ======== ======== ======== ======== ========
Conversion of notes payable and accrued
interest into convertible preferred
stock................................. $ -- $ -- $ -- $ 3,051 $ -- $ 3,051
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 54
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
--------------------- --------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- -------- ---------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash at $0.02
per share.................................. -- $ -- 400,000 $ -- $ 6 $ -- $ 6
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1991.................... -- -- 400,000 -- 6 -- 6
Issuance of common stock for cash at an
average price of $0.02 per share........... -- -- 97,111 -- 2 -- 2
Issuance of convertible preferred stock for
cash, net of issuance costs, at an average
price of $1.32 per share................... 2,040,784 -- -- -- 2,667 -- 2,667
Net loss.................................... -- -- -- -- -- (523) (523)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1992.................... 2,040,784 -- 497,111 -- 2,675 (523) 2,152
Issuance of common stock for cash at an
average price of $0.06 per share........... -- -- 49,000 -- 3 -- 3
Issuance of convertible preferred stock for
cash, net of issuance costs, at $4.88 per
share...................................... 1,580,095 -- -- -- 7,674 -- 7,674
Net loss.................................... -- -- -- -- -- (3,580) (3,580)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1993.................... 3,620,879 -- 546,111 -- 10,352 (4,103) 6,249
Issuance of common stock upon exercise of
stock options at an average price of $0.12
per share.................................. -- -- 324,188 -- 38 -- 38
Issuance of convertible preferred stock for
cash, net of issuance costs, at an average
price of $8.63 per share................... 886,960 -- -- -- 7,623 -- 7,623
Net loss.................................... -- -- -- -- -- (5,141) (5,141)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1994.................... 4,507,839 -- 870,299 -- 18,013 (9,244) 8,769
Issuance of common stock upon exercise of
stock options at an average price of $0.24
per share.................................. -- -- 38,403 -- 9 -- 9
Issuance of warrants........................ -- -- -- -- 49 -- 49
Net loss.................................... -- -- -- -- -- (10,479) (10,479)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1995.................... 4,507,839 -- 908,702 -- 18,071 (19,723) (1,652)
Issuance of convertible preferred stock for
notes payable and accrued interest at an
average of $8.63 per share................. 353,483 -- -- -- 3,051 -- 3,051
Issuance of convertible preferred stock for
cash, net of issuance costs, at an average
price of $8.63 per share................... 295,649 -- -- -- 2,550 -- 2,550
Issuance of common stock upon initial public
offering, net of issuance costs, for cash
at $12 per share........................... -- -- 2,383,450 1 26,042 -- 26,043
Conversion of convertible preferred stock
into common stock.......................... (5,156,971) -- 5,156,971 -- -- -- --
Issuance of common stock upon exercise of
stock options at an average exercise price
of $1.33 per share......................... -- -- 91,922 -- 122 -- 122
Issuance of common stock upon exercise of
purchase rights at an exercise price of
$10.20 per share........................... -- -- 8,379 -- 86 -- 86
Stock compensation expense.................. -- -- -- -- 26 -- 26
Net loss.................................... -- -- -- -- -- (8,235) (8,235)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1996.................... -- -- 8,549,424 1 49,948 (27,958) 21,991
Issuance of common stock, net of issuance
costs, for cash at an average price of
$16.93 per share........................... -- -- 1,442,190 -- 24,420 -- 24,420
Issuance of common stock upon exercise of
stock options at an average price of $2.74
per share.................................. -- -- 96,283 -- 264 -- 264
Issuance of common stock upon exercise of
purchase rights at an exercise price of
$10.51 per share........................... -- -- 14,557 -- 153 -- 153
Stock compensation expense.................. -- -- -- -- 126 -- 126
Net loss.................................... -- -- -- -- -- (10,258) (10,258)
---------- -------- ---------- -------- ------- -------- --------
Balance at June 30, 1997.................... -- -- 10,102,454 1 74,911 (38,216) 36,696
Issuance of common stock upon exercise of
stock options at an average price of $6.52
per share (unaudited)...................... -- -- 17,520 -- 104 -- 104
Issuance of common stock upon exercise of
warrants (unaudited)....................... -- -- 20,313 -- -- -- --
Stock compensation expense (unaudited)...... -- -- -- -- 18 -- 18
Net loss (unaudited)........................ -- -- -- -- -- (2,655) (2,655)
---------- -------- ---------- -------- ------- -------- --------
Balance at September 30, 1997 (unaudited)... -- $ -- 10,140,287 $ 1 $ 75,033 $ (40,871) $ 34,163
========== ======== ========== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 55
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company
Pharmacyclics, Inc. was incorporated in Delaware in April 1991 and
commenced operations during 1992 to develop and market pharmaceutical products
derived from biometallic chemistry for the treatment of certain cancers and
atherosclerosis diseases. Since inception the Company has been in the
development stage, principally involved in research and development and other
business planning activities, with no revenues from product sales. Successful
future operations depend upon the Company's ability to develop, to obtain
regulatory approval for and to commercialize its products. The Company expects
that additional funds will be required to complete the development of its
products and to fund operating losses that are expected to be incurred in the
next several years.
Management's use of estimates and assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Net loss per share
Net loss per share is computed using the weighted average number of
outstanding shares of common stock. In addition, the computation for fiscal 1995
and 1996 includes the effect of the conversion of all shares of Series A, A1, B
and C Convertible Preferred Stock into 5,156,971 shares of common stock
concurrent with the closing of the Company's initial public offering as if they
were converted into shares of common stock on July 1, 1994. Common stock
equivalent shares arising from stock options and warrants are excluded from the
computation because their effect is antidilutive, except that common stock
equivalent shares arising from stock options and warrants (using the treasury
stock method and the initial public offering price) issued during the twelve
month period prior to the initial public offering are included in the
computation of net loss per share as if they were outstanding for all periods
presented prior to the initial public offering.
Cash equivalents and investments
All highly liquid investments with maturity at the date of purchase of
three months or less are considered to be cash equivalents. The Company has
classified its cash equivalents and investments as "available-for-sale." For all
periods presented, the cost of investments approximates their fair market value.
F-7
<PAGE> 56
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
The Company's cash, cash equivalents and investments consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
INVESTMENT TYPE 1997 1997 1996
---------------------------------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash in bank...................... $ 545 $ 287 $ 360
Money market...................... 10,133 8,047 6,562
Debt (state or political
subdivision).................... 3,986 2,021 4,014
Debt (corporate).................. 6,548 5,514 3,014
------- ------- -------
Cash and cash equivalents....... $21,212 $15,869 $13,950
======= ======= =======
Debt (state or political
subdivision).................... $ 995 $ 2,003 $ 1,013
Debt (corporate).................. 2,030 12,955 7,040
------- ------- -------
Short-term investments.......... $ 3,025 $14,958 $ 8,053
======= ======= =======
Debt (corporate).................. $ 9,605 $ 6,103 $ --
------- ------- -------
Long-term investments........... $ 9,605 $ 6,103 $ --
======= ======= =======
</TABLE>
Concentration of credit risk
The Company deposits its excess cash with financial institutions and
invests such excess cash in debt instruments of financial institutions,
corporations and government entities with strong credit ratings. Management of
the Company believes they have established guidelines relative to
diversification and maturities that maintain safety and liquidity.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally four to eight years, or the lease term of the respective
assets, if applicable. Amortization of leasehold improvements is computed using
the straight-line method over the shorter of their estimated useful lives or
lease terms.
Long-lived assets
On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company
to review for impairment its long-lived assets wherever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
In certain situations, an impairment loss would be recognized. The adoption of
SFAS 121 did not have a material impact on the Company's financial statements.
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.
F-8
<PAGE> 57
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
Research and development
Research and development costs are charged to expense as incurred.
Income taxes
The Company provides for income taxes using the liability method. This
method requires that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the tax bases
of assets and liabilities and their financial statement reported amounts.
Fair value of financial instruments
The carrying value of capital lease obligations approximates fair value due
to the short maturities of those instruments.
Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock issued to Employees," and related interpretations. The Company provides
additional proforma disclosures as required under Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."
Interim financial data
The interim financial data as of September 30, 1997 and for the three
months ended September 30, 1997 and 1996 included in the accompanying financial
statements are unaudited; however, in the opinion of the Company, the interim
financial data include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods. The interim financial data are not necessarily indicative of the
results of operations for a full year.
Recent accounting pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 is effective for the fiscal quarter ending December 31, 1997.
SFAS 128 redefines earnings per share under generally accepted accounting
principles. Under SFAS 128, primary earnings per share is replaced by basic
earnings per share and fully diluted earnings per share is replaced by diluted
earnings per share. Net loss per share, as reported, is equal to the unaudited
pro forma basic net loss per share based on SFAS 128 for all periods presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from nonowner sources. Examples of items to be
included in comprehensive income, which are currently excluded from the results
of operations, include foreign currency translation adjustments and unrealized
gain/loss on available-for-sale securities. The disclosures prescribed by SFAS
130 are effective for fiscal 1999. The Company does not expect such adoption to
have a material effect on its financial statements.
F-9
<PAGE> 58
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
Also, in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and
Related Information." SFAS 131 establishes new standards for the way companies
report information about operating segments in annual financial statements. The
disclosures prescribed by SFAS 131 are effective for fiscal 1999. The Company
does not expect such adoption to have a material effect on the notes to its
financial statements.
NOTE 2 -- BALANCE SHEET COMPONENTS:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
1997 1997 1996
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Equipment......................... $ 2,427 $ 2,640 $ 2,250
Furniture and fixtures............ 458 362 324
Leasehold improvements............ 1,963 1,932 1,689
------- ------- -------
4,848 4,934 4,263
Less accumulated depreciation and
amortization.................... (2,552) (2,430) (1,641)
------- ------- -------
$ 2,296 $ 2,504 $ 2,622
======= ======= =======
</TABLE>
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
1997 1997 1996
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Employee compensation............. $ 193 $ 240 $ 220
Other............................. 105 71 80
---- ---- ----
$ 298 $ 311 $ 300
==== ==== ====
</TABLE>
NOTE 3 -- NOTES RECEIVABLE FROM EMPLOYEE:
In September 1994, the Company loaned an employee approximately $65,000.
This note receivable bears interest at 5.86%, with interest payable annually and
principal due in full on August 31, 1997. In April 1995, the Company loaned the
same employee approximately $30,000. This note receivable bears interest at
7.19%, with principal and interest due in full on February 28, 1998. Both notes,
including accrued interest, were fully repaid during fiscal 1997.
NOTE 4 -- STOCKHOLDERS' EQUITY:
Common stock
In October 1995 the Company effected a 2 for 3 reverse stock split. All
share and per share amounts have been adjusted to retroactively reflect this
stock split.
The Company completed its initial public offering on October 23, 1995,
issuing 2,150,000 shares of its common stock. Upon the closing of the offering,
all outstanding shares of Convertible Preferred Stock were automatically
converted into 5,156,971 shares of common stock. On November 6, 1995, the
underwriters of the initial public offering exercised their over-allotment
option with respect to an
F-10
<PAGE> 59
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
additional 233,450 shares of common stock. The Company's initial public offering
resulted in net proceeds of approximately $26.0 million.
On November 11, 1996, Pharmacyclics sold 580,000 shares of unregistered
common stock to a single purchaser in a private placement. The shares were sold
at a price of $14.00 per share and no commissions were paid on the transaction.
On February 21, 1997, Pharmacyclics sold 862,190 shares of unregistered common
stock to four purchasers in a private placement. The shares were sold at $19.05
per share and no commission was paid on the transaction. The Company filed a
registration statement on Form S-3 related to these shares, which was declared
effective on April 22, 1997.
The Company has issued certain shares of its common stock to employees and
consultants. Under the terms of the agreements related to issuance, the Company
has the right to repurchase, at the stockholder's original cost, a declining
percentage of the shares issued for a stipulated period from the date of
issuance. At June 30, 1997, 12,361 shares were subject to such repurchase
rights.
At the December 6, 1996 Annual Meeting, the Company's stockholders voted to
increase the authorized common shares from 12,000,000 to 24,000,000.
Preferred stock
In September 1995, the Company amended its Certificate of Incorporation
effective upon the conversion of the Convertible Preferred Stock to authorize
1,000,000 shares of Preferred Stock, par value $0.0001 per share. The Board of
Directors is authorized to issue the Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
The ability of the Board of Directors of the Company to issue shares of
Preferred Stock without stockholder approval, and the adoption of a stockholder
rights plan, 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.
Warrants
In connection with entering into certain capital leases, the Company issued
to lessors warrants to purchase 73,042 shares of Convertible Preferred Stock at
a weighted average exercise price of $4.49 per share. The warrants are
exercisable at any time prior to their expiration in 2000.
In July 1995, in connection with certain short-term note agreements entered
into prior to the Company's IPO, the Company issued to the holders of such notes
warrants to purchase 57,976 shares of common stock at an exercise price of $8.63
per share.
Also in July 1995, the Company issued warrants to purchase 66,522 shares of
Series C Convertible Preferred Stock at an exercise price of $8.63 per share to
certain holders of such stock, in exchange for an agreement by the holders to
modify certain rights received in connection with the Series C Preferred Stock
financing which occurred in June 1994. These warrants are exercisable
immediately and expire through 2005.
Management ascribed a nominal value to all warrants. As of September 30,
1997, 20,313 warrants have been exercised on a net basis and 161,044 shares of
common stock have been reserved for future issuance upon exercise of the
remaining warrants. In connection with the Company's IPO, all
F-11
<PAGE> 60
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
outstanding warrants to purchase Preferred Stock were converted into warrants to
purchase shares of common stock.
Stock option plans
The 1992 Stock Option Plan (the "1992 Plan"), as amended, authorized the
Board of Directors to grant incentive stock options and non-statutory stock
options to employees, directors and consultants to purchase up to 1,233,334
shares of common stock. Under the 1992 Plan, incentive stock options were
granted at a price not less than 100% of the estimated fair value of the stock
on the date of grant, as determined by the Board of Directors. Nonqualified
stock options were granted at a price not less than 85% of the estimated fair
value of the stock on the date of grant, as determined by the Board of
Directors. All options granted under the 1992 Plan have been granted at 100% of
the fair value of the common stock as determined by the Board of Directors.
Generally, options granted under the 1992 Plan are exercisable on and after
the date of grant, subject to the Company's right to repurchase from the
optionee, at the optionee's original cost per share, any unvested shares which
the optionee has purchased and holds in the event the optionee attempts to
dispose of such shares or in the event of the optionee's termination of
employment with or without cause. The Company's right to repurchase lapses as
the shares become vested. Generally, shares subject to options granted under the
1992 Plan vest at the rate of 1/4th of the shares on the first anniversary of
the grant date of the option, and an additional 1/48th of the shares upon
completion of each succeeding month of continuous employment thereafter. Options
are exercisable for a period of ten years.
1995 Stock Option Plan. The Company's 1995 Stock Option Plan (the "1995
Plan") was adopted by the Board of Directors on August 2, 1995 as the successor
to the 1992 Plan. The 1995 Plan, as amended, authorizes for issuance 1,334,881
shares of common stock, plus an additional number of shares on the first trading
day of each calendar year, commencing January 1, 1996, equal to 1% of the number
of shares of common stock outstanding on the last day of the preceding calendar
year, not to exceed 500,000 shares per year. Shares of common stock subject to
outstanding options, including options granted under the 1992 Plan, that expire
or terminate prior to exercise will be available for future issuance under the
1995 Plan.
Under the 1995 Plan, employees (including officers), non-employee members
of the Board of Directors (other than those serving as members of the
Compensation Committee) and independent consultants may, at the discretion of
the plan administrator, be granted options to purchase shares of common stock at
an exercise price not less than 85% of the fair market value of such shares on
the grant date. Non-employee members of the Board of Directors will also be
eligible for automatic option grants under the Company's 1995 Non-Employee
Directors Stock Option Plan. Generally, shares subject to options under the 1995
Plan vest over a five-year period and are exercisable for a period of ten years.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of common stock. The Compensation Committee may
permit the optionee to pay the exercise price through a promissory note payable
in installments over a period of years. The amount financed may include any
federal or state income and employment taxes incurred by reason of the option
exercise. The Compensation Committee has the authority to effect, from time to
time, the cancellation of outstanding options under the 1995 Plan, including
options incorporated from the 1992 Plan, in
F-12
<PAGE> 61
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
exchange for the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market value of the
common stock on the new grant date.
In the event the Company is acquired by merger, consolidation or asset
sale, the shares of common stock subject to each option outstanding at that time
under the 1995 Plan will immediately vest in full, except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the acquiring entity, and options will accelerate to the extent not assumed by
the acquiring entity. Any assumed options will accelerate and assigned
repurchase rights will terminate upon the optionee's involuntary termination
within 18 months following an acquisition of the Company. The Compensation
Committee also has discretion to provide for the acceleration of one or more
outstanding options under the 1995 Plan (including options incorporated from the
1992 Plan) and the vesting of shares subject to outstanding options upon the
occurrence of certain hostile tender offers. Such accelerated vesting may be
conditioned upon the subsequent termination of the affected optionee's service.
The 1995 Plan also authorizes stock appreciation rights, which provide the
holders with the election to surrender their outstanding options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of common stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of common stock. To
date no such rights have been issued.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on August 1, 2005, unless terminated earlier by the Board.
1995 Non-Employee Directors Stock Option Plan. The Company's 1995
Non-Employee Directors Stock Option Plan (the "Directors Plan") was adopted by
the Board of Directors on August 2, 1995. Automatic option grants are made at
periodic intervals to eligible non-employee Board members under the Directors
Plan. A total of 166,667 shares of common stock have been reserved for issuance
under the Directors Plan.
Each individual serving as a non-employee Board member on the effective
date of the Company's initial public offering was automatically granted a
non-statutory option to purchase 5,000 shares of common stock, vesting in equal
monthly installments for one year after the grant date. Each individual first
elected or appointed as a non-employee Board member after the effective date of
the Company's initial public offering will automatically be granted, on the date
of such election or appointment, a non-statutory option to purchase 10,000
shares of common stock vesting over five years. In addition, on the date of each
Annual Stockholders Meeting, beginning with the 1996 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member after that
Annual Meeting and has been a member of the Board for at least six months will
automatically be granted a non-statutory option to purchase 5,000 shares of
common stock, vesting in equal monthly installments for one year after the grant
date. There will be no limit on the number of such annual 5,000-share option
grants any one non-employee Board member may receive over his or her period of
continued Board service. The exercise price per share of each automatic option
grant will be equal to the fair market value of the common stock on the
automatic grant date. Each automatic option will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase should the optionee's service as a non-employee Board member cease
prior to vesting in the shares. Each 10,000-share grant will vest in five equal
and successive annual installments over the optionee's period of Board service.
Each 5,000-share grant will vest in twelve equal and successive monthly
installments over the optionee's period of Board service.
F-13
<PAGE> 62
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
In the event of the optionee's death or permanent disability or in the
event the Company is acquired by a merger or asset sale and in the event of
certain hostile tender offers, each outstanding option will become exercisable
for fully vested shares. Upon the acquisition of 50% or more of the Company's
outstanding voting stock pursuant to a hostile tender offer, each automatic
option grant outstanding for at least six months may be surrendered
automatically or be canceled in exchange for a cash distribution to the director
based upon the tender offer price. The Directors Plan will terminate on August
1, 2005.
The following table summarizes activity under the Company's stock option
plans (in thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
Balance at June 30, 1994............................... 361 315 $ 1.37
Options exercised...................................... -- (39) $ 0.24
Options granted........................................ (193) 193 $ 3.75
Options canceled....................................... 38 (38) $ 1.49
---- -----
Balance at June 30, 1995............................... 206 431 $ 2.50
Options authorized..................................... 485 -- --
Options exercised...................................... -- (92) $ 3.09
Options granted........................................ (492) 492 $10.03
Options canceled....................................... 11 (11) $ 6.11
---- -----
Balance at June 30, 1996............................... 210 820 $ 9.20
Options authorized..................................... 842 -- --
Options exercised...................................... -- (96) $ 2.74
Options granted........................................ (569) 569 $16.69
Options canceled....................................... 31 (31) $12.21
---- -----
Balance at June 30, 1997............................... 514 1,262 $11.58
Options authorized (unaudited)......................... 500 -- --
Options exercised (unaudited).......................... -- (18) $ 6.52
Options granted (unaudited)............................ (63) 63 $21.20
Options canceled (unaudited)........................... 28 (28) $ 9.02
---- -----
Balance at September 30, 1997 (unaudited).............. 979 1,279 $12.18
==== =====
</TABLE>
F-14
<PAGE> 63
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
A summary of outstanding and exercisable stock options as of September 30,
1997 is as follows (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.08 - $ 5.25 244,441 6.74 $ 3.23 189,311 $ 3.07
$ 7.50 - $12.00 312,003 7.87 $ 8.10 123,476 $ 8.55
$13.25 - $17.50 347,575 9.10 $15.29 63,047 $15.03
$17.75 - $27.50 374,581 8.96 $18.52 56,069 $17.50
--------- -------
1,278,600 8.31 $12.18 431,903 $ 8.25
========= =======
</TABLE>
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors on August 2, 1995. A
total of 100,000 shares of common stock are reserved for issuance under the
Purchase Plan, as amended. The Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, provides for 24-month offering periods
with purchases occurring at six month intervals. The initial offering period
commenced on October 23, 1995. The Purchase Plan is administered by the
Compensation Committee of the Board. Employees are eligible to participate in
the initial offering period if they are employed by the Company for at least 20
hours per week and five months per calendar year. For subsequent offering
periods, employees will become eligible to participate if they are employed by
the Company for at least 20 hours per week and five months per calendar year and
have completed 90 days of service with the Company or any affiliate. The
Purchase Plan permits eligible employees to purchase shares of common stock
through payroll deductions, which may not exceed 10% of an employee's cash
compensation. The price of the stock purchased under the Purchase Plan will
generally be 85% of the lower of the fair market value of the common stock at
the beginning of the 24-month offering period or on the applicable semi-annual
purchase date. Employees may end their participation in the offering at any time
during the offering period, and participation ends automatically following
termination of employment with the Company. Each outstanding purchase right will
be exercised immediately prior to a merger or consolidation. The Board may amend
or terminate the Purchase Plan immediately after the close of any offering
period. However, the Board may not materially increase the number of shares of
common stock available for issuance or materially modify the eligibility
requirements for participation or the benefits available to participants without
stockholder approval. The Purchase Plan will terminate in October 2005.
Pro forma disclosure
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted under the Company's stock option plans during fiscal
1997 and 1996 was $9.22 and $7.00 per share, respectively. The weighted average
estimated grant date fair value for purchase awards under the Company's Purchase
Plan during fiscal 1997 and 1996 was $5.51 and $10.18, respectively. The
estimated grant date fair value disclosed by the Company is calculated using the
Black-Scholes model. The Black-Scholes model was developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option and
purchase awards. This model also requires highly subjective assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated grant date fair value.
F-15
<PAGE> 64
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
The following assumptions are included in the estimated grant date fair
value calculations for the Company's stock option and purchase awards:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996
------ ------
<S> <C> <C>
Stock option plans:
Expected dividend yield............................ 0% 0%
Expected stock price volatility.................... 49% 51%
Risk free interest rate............................ 6.52% 5.89%
Expected life (years).............................. 5.95 6.22
Stock purchase plan:
Expected dividend yield............................ 0% 0%
Expected stock price volatility.................... 48% 50%
Risk free interest rate............................ 5.30% 5.42%
Expected life (years).............................. .25 .65
</TABLE>
Pro forma net loss and net loss per share
Had the Company recorded stock compensation based on the estimated grant
date fair value, as defined by SFAS 123, for awards granted under its stock
option plans and stock purchase plan, the Company's net loss and net loss per
share would have been increased to the pro forma amounts below (in thousands,
expect per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Net loss as reported............................. $10,258 $ 8,235
Pro forma net loss............................... 11,314 8,612
Net loss per share as reported................... $ 1.11 $ 1.05
Pro forma net loss per share..................... 1.22 1.10
</TABLE>
The pro forma effect on the net loss and net loss per share for 1997 and
1996 is not representative of the pro forma effect in future years because it
does not take into consideration pro forma compensation expense related to stock
option grants made prior to fiscal 1996.
F-16
<PAGE> 65
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
Shareholder rights plan
In April 1997, the Board of Directors approved a shareholder rights plan
under which stockholders of record on May 1, 1997 received a right to purchase
(a "Right") one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), at
an exercise price of $125 per one one-hundredth of a share, subject to
adjustment. The Rights will separate from the common stock and Rights
certificates will be issued and will become exercisable upon the earlier of (i)
10 business days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the Company's outstanding common stock or
(ii) 10 business days or such later date as may be determined by a majority of
the Board of Directors following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding common stock of the Company. The Rights expire at the close of
business on April 30, 2007. The Company has designated 120,000 shares of its
Preferred Stock as Series A Junior Participating Preferred Stock in connection
with this plan.
NOTE 5 -- INCOME TAXES:
Deferred tax assets are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 13,296 $ 9,193
Tax credit carryforwards....................... 1,540 1,300
Capitalized start-up costs..................... 920 927
Other.......................................... 250 240
-------- --------
Gross deferred tax assets...................... 16,006 11,660
Less valuation allowance....................... (16,006) (11,660)
-------- --------
Net deferred tax assets........................ $ -- $ --
======== ========
</TABLE>
A full valuation allowance has been established for the Company's deferred
tax assets at June 30, 1997 since realization of such assets through the
generation of future taxable income is uncertain.
The provision for income taxes differs from the amount determined by
applying the U.S. statutory income tax rate to the loss before income taxes as
summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax benefit at statutory rate............. $ 3,590 $ 2,882 $ 3,563
Net operating loss carryforward for which
no benefit was available................ (3,590) (2,882) (3,563)
------ ------ ------
$ -- $ -- $ --
====== ====== ======
</TABLE>
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $33.0 million for federal and state income tax reporting purposes
and tax credit carryforwards of approximately $1.5 million for federal reporting
purposes. These amounts expire at various times through 2012.
F-17
<PAGE> 66
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses and tax credit carryovers that can be carried forward may be
impaired or limited in certain circumstances. These circumstances include, but
are not limited to, a cumulative stock ownership change of greater than 50%, as
defined, over a three year period. Such an ownership change occurred as a result
of the Company's initial public offering. As a result, utilization of
approximately $17.0 million of the Company's federal and state net operating
loss and tax credit carryforwards will be subject to an annual limitation of
approximately $4.0 million.
NOTE 6 -- COMMITMENTS:
The Company leases its facilities under a non-cancelable operating lease
which expires in 2001. The Company also leases certain assets under long-term
lease agreements that are classified as capital leases. The total amount of
assets acquired under capital lease arrangements which is included in property
and equipment (Note 2) is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -------------------
1997 1997 1996
--------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Equipment......................... $ 2,274 $ 2,542 $ 2,154
Furniture and fixtures............ 278 278 278
Leasehold improvements............ 1,050 1,050 1,050
------- ------- -------
3,602 3,870 3,482
Less accumulated depreciation and
amortization.................... (2,143) (2,060) (1,381)
------- ------- -------
$ 1,459 $ 1,810 $ 2,101
======= ======= =======
</TABLE>
The capital lease agreements require the Company, among other things, to
pay insurance and maintenance costs.
Future minimum lease payments at June 30, 1997 under all non-cancelable
operating and capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
------------------------------------------------- ------- ---------
<S> <C> <C>
1998............................................. $ 840 $ 407
1999............................................. 285 392
2000............................................. 229 371
Thereafter....................................... 26 572
------ ------
1,380 $ 1,742
======
Less amount representing interest................ (82)
------
1,298
Less current portion............................. (768)
------
Long-term portion of capital lease obligations... $ 530
======
</TABLE>
Rent expense for the years ended June 30, 1997, 1996 and 1995 was $371,000,
$366,000 and $366,000, respectively, and $1,446,000 for the period from
inception through June 30, 1997. The terms of the facility lease provide for
rental payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period and has accrued rent expense incurred
but not paid at June 30, 1997.
F-18
<PAGE> 67
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
At June 30, 1997, the Company has a manufacturing and supply agreement with
a third party under which clinical and commercial quantities of one of its
products will be manufactured for the Company for a period of five years.
Certain minimum quantities of manufactured product will be required to be
purchased by the Company from this party. Upon FDA approval and
commercialization of the product, minimum quantities approximate $2,900,000 over
the contractual period. In addition, the Company will be obligated to make
certain payments to this party for validation, quality assurance and technical
services associated with product manufacturing.
NOTE 7 -- LICENSE AND MARKETING AGREEMENTS:
The Company has entered into two exclusive patent license agreements with
University of Texas ("UT") which permit the Company to exclusively manufacture,
use and sell products covered by patents that result from certain research
conducted by UT. Each agreement requires the Company to pay royalties to UT.
Royalties totaling $275,000 were paid under the agreements through June 30, 1997
in connection with the E-Z-EM, Inc. agreement described below. In connection
with the UT license agreements, the Company has entered into a license agreement
with a co-inventor of GADOLITE, pursuant to which the Company has been granted
an exclusive royalty-bearing license to manufacture, use and sell certain
products that fall within the scope of the UT license agreements.
In August 1995, the Company entered into an agreement with E-Z-EM, Inc., a
leading manufacturer and worldwide distributor of oral contrast agents and other
products for use in gastrointestinal radiology, for the exclusive marketing and
sale of the Company's GADOLITE product in the United States. In fiscal 1997, the
Company entered into a similar agreement with E-Z-EM, Ltd., an affiliate of
E-Z-EM, Inc. (collectively, "E-Z-EM"). The Company and E-Z-EM will share equally
in profits from the sale of GADOLITE, and the Company may also receive premium
payments if certain sales levels are achieved. During the years ended June 30,
1997 and 1996, the Company recorded revenue of $25,000 and $250,000 (net of
royalties paid to UT) upon signing these agreements.
F-19
<PAGE> 68
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information........... 2
Information Incorporated by
Reference..................... 2
Prospectus Summary.............. 3
Risk Factors.................... 5
Use of Proceeds................. 15
Price Range of Common Stock..... 15
Dividend Policy................. 15
Capitalization.................. 16
Dilution........................ 17
Selected Financial Data......... 18
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 19
Business........................ 24
Management...................... 42
Principal Stockholders.......... 44
Underwriting.................... 46
Legal Matters................... 47
Experts......................... 47
Index to Financial Statements... F-1
</TABLE>
======================================================
======================================================
1,750,000 SHARES
LOGO
PHARMACYCLICS, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
HAMBRECHT & QUIST
COWEN & COMPANY
PACIFIC GROWTH EQUITIES, INC.
, 1998
======================================================
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee.............................................. $ 13,247
NASD filing fee................................................... 4,991
Nasdaq additional listing of shares fee........................... 17,500
Accounting fees and expenses...................................... 40,000
Legal fees and expenses........................................... 105,000
Printing and engraving expenses................................... 160,000
Transfer Agent and registrar fees................................. 20,000
Miscellaneous..................................................... 19,262
-------
Total............................................................. $ 380,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL
II-1
<PAGE> 70
(relating to unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that exculpation from liabilities is not permitted under
the DGCL as in effect at the time such liability is determined. The Registrant
has entered into indemnification agreements with all of its officers and
directors, as permitted by the DGCL. Reference is also made to Section 7 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TABLE
- -------------- --------------------------------------------------------------------
<C> <S>
1.1(3) Form of Underwriting Agreement
4.1(1) Form of Stock Certificate
5.1(3) Opinion of Brobeck, Phleger & Harrison LLP
10.1(2)(4) Evaluation and License Agreement, dated December 16, 1997, by and
between Alcon Laboratories, Inc. and the Registrant
11.1(3) Computation of Net Loss Per Share
23.1(4) Consent of Independent Accountants
23.2(3) Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
23.3(3) Consent of Brinks Hofer Gilson & Lione, a Professional Corporation
24.1(3) Power of Attorney (included in the signature page of this
Registration Statement)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048.
(2) Confidential treatment has been requested for certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to Rule
406 under the Securities Act of 1933, as amended, pursuant to an application
for confidential treatment.
(3) Previously filed.
(4) Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
II-2
<PAGE> 71
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, State of California on this
27th day of January, 1998.
PHARMACYCLICS, INC.
By: /s/ RICHARD A. MILLER
------------------------------------
Richard A. Miller, M.D.
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------------- ------------------
<C> <S> <C>
/s/ RICHARD A. MILLER President and Chief Executive Officer January 27, 1998
- --------------------------------- and Director (Principal Executive
Richard A. Miller Officer)
/s/ MARC L. STEUER* Vice President, Business Development January 27, 1998
- --------------------------------- and Chief Financial Officer (Principal
Marc L. Steuer Financial Officer)
/s/ LEIV LEA* Vice President, Finance and January 27, 1998
- --------------------------------- Administration (Principal Accounting
Leiv Lea Officer)
/s/ THOMAS D. KILEY* Director January 27, 1998
- ---------------------------------
Thomas D. Kiley
Director
- ---------------------------------
Joseph S. Lacob
/s/ PATRICK F. LATTERELL* Director January 27, 1998
- ---------------------------------
Patrick F. Latterell
/s/ JOSEPH SCODARI* Director January 27, 1998
- ---------------------------------
Joseph Scodari
/s/ CRAIG C. TAYLOR* Director January 27, 1998
- ---------------------------------
Craig C. Taylor
*By: /s/ RICHARD A. MILLER
- ---------------------------------
Richard A. Miller
Individually and as
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 73
PHARMACYCLICS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------- ------------
<C> <S> <C>
1.1(3) FORM OF UNDERWRITING AGREEMENT
4.1(1) FORM OF STOCK CERTIFICATE
5.1(3) OPINION OF BROBECK, PHLEGER & HARRISON LLP
10.1(2)(4) EVALUATION AND LICENSE AGREEMENT, DATED DECEMBER 16, 1997, BY AND
BETWEEN ALCON LABORATORIES, INC. AND THE REGISTRANT
11.1(3) COMPUTATION OF NET LOSS PER SHARE
23.1(4) CONSENT OF INDEPENDENT ACCOUNTANTS
23.2(3) CONSENT OF BROBECK, PHLEGER & HARRISON LLP (INCLUDED IN EXHIBIT
5.1)
23.3(3) CONSENT OF BRINKS HOFER GILSON & LIONE, A PROFESSIONAL CORPORATION
24.1(3) POWER OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGE OF THIS
REGISTRATION STATEMENT)
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048.
(2) Confidential treatment has been requested for certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to Rule
406 under the Securities Act of 1933, as amended, pursuant to an application
for confidential treatment.
(3) Previously filed.
(4) Filed herewith.
<PAGE> 1
EXHIBIT 10.1
EVALUATION AND LICENSE AGREEMENT
This Evaluation and License Agreement (the "Agreement") is
effective as of this 16th day of December, 1997 (the "Effective Date"), by and
between PHARMACYCLICS, INC., a Delaware corporation, having a principal place of
business at 995 E. Arques Avenue, Sunnyvale, CA 94086-4521 U.S.A
("Pharmacyclics") and ALCON PHARMACEUTICALS LTD., a Swiss corporation, having
its principal place of business at Sinserstrasse 47, CH-6330 Cham, Switzerland
("Alcon").
WITNESSETH
WHEREAS, Pharmacyclics has developed certain proprietary porphyrin-like,
metal-containing agents, including PCI-0123 (as such term is defined below),
which are potentially useful in ophthalmic applications; and
WHEREAS, Alcon wishes to evaluate PCI-0123 on an exclusive basis during a
certain evaluation period in order to determine its commercial interest therein,
and if it elects to do so, to secure worldwide exclusive rights to develop and
commercialize products based thereon in the field of ophthalmology; and
WHEREAS, Pharmacyclics is willing to grant Alcon such exclusive evaluation
rights during the evaluation period and, in the event Alcon makes an election,
such worldwide, exclusive rights to so develop and commercialize products based
thereon in the field of ophthalmology on the terms set forth in this Agreement;
NOW, THEREFORE, the Parties hereto mutually agree as follows:
1. DEFINITIONS. The following definitions will control the
construction of each of the following terms wherever they appear in this
Agreement:
1.1 AFFILIATE shall mean, as to a Party hereto, any person, corporation,
company, partnership, joint venture, firm and/or other entity (a "Person") which
controls, is controlled by or is under common control with such Party. For these
purposes, "control" means direct or indirect ownership or control of at least
fifty percent (50%) of the outstanding voting securities of a corporation or a
comparable equitable interest in any other type of entity.
1.2 ALCON INVENTIONS shall mean all inventions relating to Licensed
Products in the Field made or discovered solely by employees or agents of Alcon,
as well as Alcon's interest in inventions made or discovered jointly by
employees or agents of Alcon and Pharmacyclics, all in the course of the conduct
of the development of Licensed Products under this Agreement.
1.3 ALCON PATENTS shall mean all patent applications claiming any Alcon
Inventions and all patents issued pursuant to any such patent applications, and
all substitutions, divisionals, reexaminations, reissues, renewals,
continuations, continuations-in-part, extensions, supplementary protection
certificates and foreign counterparts thereof.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
<PAGE> 2
1.4 COMPETITIVE PRODUCT shall mean any electromagnetic radiation-activated
porphyrin or porphyrin analog product in the Field, other than the Licensed
Product, which directly competes in the indication or indications for which the
Licensed Product is then being developed, marketed or sold by Alcon.
1.5 CONFIDENTIAL INFORMATION shall have the meaning set forth in Section
15.2.
1.6 DETERMINATION shall have the meaning ascribed thereto in Section 2.8.
1.7 DEVICE shall mean any light source and/or light delivery devices and
related items (including, but not limited to diode chips) developed, produced
and/or manufactured by or on behalf of Pharmacyclics for use in the
photoactivation of the Licensed Product in the Field.
1.8 DRUG SUBSTANCE shall mean a composition containing a Licensed Product
in bulk form.
1.9 EMEA shall mean European Medicines Evaluation Agency.
1.10 EXTENDED LUTETIUM TEXAPHYRIN shall mean any Lutetium Texaphyrin owned
or controlled by Pharmacyclics which does not fall within the definition of
Licensed Product.
1.11 EVALUATION PERIOD shall mean the period commencing on the Effective
Date and terminating (*) after the Effective Date.
1.12 EVALUATION PLAN shall have the meaning ascribed thereto in Section
2.1.
1.13 FDA shall mean the United States Food and Drug Administration.
1.14 FD&C ACT shall mean the United States Food, Drug and Cosmetic Act.
1.15 FIELD shall mean the treatment of ophthalmic diseases or disorders.
1.16 FILL AND FINISH shall mean the filling into final container and
finishing of Drug Substance and packaging of finished Licensed Product.
1.17 FIRST COMMERCIAL SALE shall mean the first sale of the Licensed
Product for use, consumption or resale to any third party customer in the Field
and in the Territory after all relevant approvals have been obtained. For
purposes of this definition, Alcon Affiliates shall not be construed as third
party customers.
1.18 GOOD CLINICAL PRACTICES shall mean the clinical practices recognized
by the FDA in its April 30, 1997 Consolidated Guideline on Good Clinical
Practices and includes, but is not limited to, 21 CFR parts 50, 56, 312, and
812, as they may be amended from time to time.
1.19 GOOD LABORATORY PRACTICES shall mean the laboratory practices covered
by FDA regulations in 21 CFR part 58, as it may be amended from time to time.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
2.
<PAGE> 3
1.20 GOOD MANUFACTURING PRACTICES shall mean the manufacturing practices
covered by FDA regulations in 21 CFR parts 210-226 and 820, as they may be
amended from time to time.
1.21 HEALTH AUTHORITY means the health regulatory agency of a particular
country in the Territory.
1.22 HC AGREEMENT shall mean that certain Master Process Development and
Supply Agreement between Pharmacyclics and HCC dated September 6, 1996 for the
manufacture and supply of Drug Substance.
1.23 HCC shall mean the Hoechst Celanese Corporation or any successor in
interest to the Hoechst Celanese Corporation under the HC Agreement.
1.24 IND shall mean an Investigational New Drug Application filed with the
FDA and any foreign counterparts thereof.
1.25 LICENSED PRODUCT shall mean any therapeutic agent which contains
PCI-0123 or any other Lutetium Texaphyrin. Notwithstanding anything in this
Agreement, "Licensed Product" shall not include (i) any Lutetium Texaphyrin
which is covalently bound to a biological molecule (e.g., sugars, nucleic acids,
peptides, lipids, proteins, hormones, steroids, polynucleotides, carbohydrates
and amino acids), which substantially enhances, relative to PCI-0123, in vivo
biolocalization to an ophthalmic tissue associated with a specific ophthalmic
disease; or (ii) any Lutetium Texaphyrin that is conjugated to a drug or
biological agent having a mechanism of action that is different from the
photosensitization mechanism of a Lutetium Texaphyrin; or (iii) any Lutetium
Texaphyrin that is bound to a Non-Lutetium Texaphyrin.
1.26 LUTETIUM TEXAPHYRIN shall mean any Texaphyrin owned or controlled by
Pharmacyclics which contains lutetium.
1.27 MA shall mean "Marketing Approval," the approval to market and
commercially distribute a pharmaceutical product or medical device, exclusive of
government price or reimbursement approval where applicable, by the FDA, the
EMEA or by the Health Authority (or other appropriate regulatory agency) of a
country within the Territory.
1.28 MAA shall mean an application for MA submitted to the EMEA or other
Health Authority.
1.29 NDA shall mean a new drug application filed with the FDA.
1.30 NET SALES shall mean the final invoiced selling price of Licensed
Product, reduced by the following (to the extent the following are not already
deducted in calculating the final invoiced selling price):
a) rebates or coupon redemptions;
b) transportation charges invoiced, including air freight and insurance;
3.
<PAGE> 4
c) sales, use, excise or ad valorem taxes (to the extent borne by Alcon);
d) rebates or discounts given to buying cooperatives;
e) promotional, cash, trade or volume discounts;
f) credits for returns and pricing adjustments; and
g) allowances or credits to customers for spoiled, damaged or out-dated
product.
In calculating Net Sales, goods placed in inventory or on consignment shall not
be deemed sold until paid by customer. For purposes of this Agreement, Alcon's
intracompany transfers or sales to Affiliates shall not be regarded as sales.
Sales shall not include the distribution of complimentary samples.
1.31 NON-LUTETIUM TEXAPHYRIN shall mean any Texaphyrin owned or controlled
by Pharmacyclics which contains no lutetium.
1.32 PARTY shall mean either Pharmacyclics or Alcon, as the context may
require.
1.33 PCI-0123 shall mean the Texaphyrin compound incorporating lutetium and
having the structure shown in Appendix A and the IUPAC name as follows: Bis
(acetato-O)[9,10-diethyl-20,21-bis[2-[2-(2-methoxyethoxy)ethoxy]ethoxy]-4,15-
dimethyl-8,11-imino-6,3:16,13-dinitrilo-1,18-benzodiazacycloeicosine-5,14-
dipropanolato-N1,N18, N23, N24, N25] lutetium hydrate.
1.34 PCI-0123 FORMULATION shall mean PCI-0123 in final formulation for
human dosing which meets the specifications set forth in Appendix F.
1.35 PCI-0123 SUBSTANCE shall mean a composition containing PCI-0123 in
bulk form which meets the specifications set forth in Appendix E.
1.36 PHARMACYCLICS INVENTIONS shall mean all inventions relating to the
Licensed Product or Device in the Field made or discovered solely by employees
or agents of Pharmacyclics, as well as Pharmacyclics' interest in inventions
made or discovered jointly by employees or agents of Pharmacyclics and Alcon,
all in the course of the conduct of the development of the Licensed Product
under this Agreement.
1.37 PHARMACYCLICS KNOW-HOW shall mean: all non-patented inventions,
know-how, technology, trade secrets, processes, data, methods and any physical,
chemical or biological material or other information which: (i) Pharmacyclics
owns, controls or has a license to (with a right to sublicense) as of the
Effective Date or during the term of this Agreement; and (ii) relates to the
development, Fill and Finish, use (including photoactivation by the Device),
marketing, sale, importation and distribution of a Licensed Product or Device
for use in the Field and in the Territory.
4.
<PAGE> 5
1.38 PHARMACYCLICS PATENTS shall mean: (i) all patents and patent
applications owned or controlled by or licensed to Pharmacyclics (with the right
to grant sublicenses) in the Territory as of the Effective Date or during the
term of this Agreement which are necessary or useful in connection with the
development, use or sale of a Licensed Product or Device in the Field,
including, without limitation, the patents and patent applications listed in
Appendix B hereto; (ii) all patents issued pursuant to any such patent
applications; and (iii) all substitutions, divisionals, reexaminations,
reissues, renewals, continuations, continuations-in-part, extensions, and
supplementary protection certificates of the patents described in (i) and (ii)
of this definition.
1.39 PHARMACYCLICS TECHNOLOGY shall mean the Pharmacyclics Inventions,
Pharmacyclics Patents and Pharmacyclics Know-How.
1.40 PHASE II shall mean that phase of clinical development as defined in
the FD&C Act and applicable regulations promulgated thereunder.
1.41 PHASE III shall mean that phase of clinical development as defined in
the FD&C Act and applicable regulations promulgated thereunder.
1.42 PDT OR PHOTODYNAMIC THERAPY shall mean the treatment of diseases of
the eye by the application of light to the eye containing a photosensitizing
therapeutic agent.
1.43 PROGRAM shall mean the evaluation program carried out by Alcon
pursuant to Article 2 focused on the use of PCI-0123 in treating diseases of the
eye.
1.44 PROGRAM INTELLECTUAL PROPERTY shall have the meaning ascribed thereto
in Section 2.6.
1.45 TERM shall have the meaning set forth in Article 13.
1.46 TERRITORY shall mean all the countries and territories of the world.
1.47 TEXAPHYRIN shall mean any molecule which has as its core structure the
structure set forth on Appendix C.
1.48 UT LICENSE shall mean that certain License Agreement, effective as of
May 28, 1992, between Pharmacyclics and the University of Texas, a copy of which
has been provided by Pharmacyclics to Alcon prior to the Effective Date.
2. EVALUATION PROGRAM.
2.1 PREPARATION AND CONDUCT OF EVALUATION PLAN. Attached hereto as
Appendix D is a general plan (the "Evaluation Plan") which outlines the
activities to be carried out by or on behalf of Alcon in the course of the
Program. The Evaluation Plan also includes an initial forecast of Alcon's
expected needs of PCI-0123 Substance and PCI-0123 Formulation for the Program.
During the Evaluation Period, Alcon shall have the exclusive right to evaluate
PCI-0123 for potential commercial development in the Field. Alcon shall
diligently carry out the tasks and
5.
<PAGE> 6
activities under the Evaluation Plan with the goal of completing the Program
within the Evaluation Period.
2.2 COST OF THE PROGRAM. Alcon shall bear all costs and expenses in
connection with the Program. Within thirty (30) days of receipt of an invoice
therefore, Alcon shall reimburse Pharmacyclics for agreed upon direct expenses
incurred by Pharmacyclics in connection with the Program, including, but not
limited to, Pharmacyclics' direct cost to supply Devices and, as more fully
described in Section 2.4, PCI-0123 Substance and PCI-0123 Formulation.
2.3 COMPLIANCE WITH LAW. Alcon undertakes to comply at all times with the
applicable laws and regulations of the FDA and any other governmental
requirements which apply to activities to be performed pursuant to the
Evaluation Plan, including, but not limited to, safety regulations and
regulations relating to the handling and disposal of animals.
2.4 SUPPLY OF PCI-0123 SUBSTANCE AND PCI-0123 FORMULATION.
(a) Pharmacyclics will supply Alcon with PCI-0123 Substance and
PCI-0123 Formulation in amounts sufficient to carry out the Program.
(b) The price of all PCI-0123 Substance and PCI-0123 Formulation
supplied to Alcon pursuant to Section 2.4(a) shall be equal to (*) for the
respective form of PCI-0123.
(c) Alcon will provide written purchase orders to Pharmacyclics for
the PCI-0123 Substance and PCI-0123 Formulation required for conducting the
Program. With each order, Alcon will provide a forecast of its requirements for
three calendar months thereafter. Pharmacyclics will deliver or cause to be
delivered PCI-0123 Substance and PCI-0123 Formulation within thirty (30) days
from receipt of an order from Alcon or at a later date if so requested in the
order. In the event Pharmacyclics fails to timely deliver the PCI-0123 Substance
and/or PCI-0123 Formulation in accordance with this subsection 2.4(c), Alcon's
sole remedy shall be to extend the Evaluation Period for an amount of time
corresponding to the delay of any such delivery. Delivery is made EXW (Incoterms
1990) Pharmacyclics facility in Sunnyvale.
2.5 ACQUISITION OF DEVICE. Upon reasonable request by Alcon, Pharmacyclics
shall assist Alcon in the acquisition of a Device suitable for pre-clinical and
clinical studies of a Licensed Product in the Field. Alcon shall reimburse
Pharmacyclics for any expenses pre-approved by Alcon which were incurred by
Pharmacyclics in assisting Alcon with the acquisition of the Device.
2.6 INTELLECTUAL PROPERTY DEVELOPED DURING THE EVALUATION PERIOD.
Ownership of any and all patentable and non-patentable inventions, know-how,
technology, data, and analyses of results relating to PCI-0123, PCI-0123
Substance, PCI-0123 Formulation and/or Devices that are developed in the
performance of the Program (the "Program Intellectual Property") that are
developed by employees, agents or others acting on behalf of Pharmacyclics or
Alcon shall be owned by Pharmacyclics without further consideration or royalty
obligation. Alcon shall take all necessary actions to assign, and to have its
employees and agents assign, such Program Intellectual Property to
Pharmacyclics. In the event Alcon makes the Determination, all such
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
6.
<PAGE> 7
Program Intellectual Property shall be deemed to be part of the Pharmacyclics
Technology. Regardless of whether Alcon makes the Determination, Pharmacyclics
hereby grants a perpetual, worldwide, non-exclusive royalty-free license to
Alcon to practice the Program Intellectual Property that is developed by
employees, agents or others acting on behalf of Alcon for all purposes except to
develop, make, use, sell, offer for sale or import Texaphyrins.
2.7 EXCHANGE OF INFORMATION; REPORTS DURING THE EVALUATION PERIOD.
(a) Pharmacyclics shall make available to Alcon such Pharmacyclics
Know-How, regulatory reports, communiques, chemistry, stability and safety data
on PCI-0123, and information on the Device, as Pharmacyclics has in its
possession, subject to any confidentiality agreements between Pharmacyclics and
third parties, as are necessary or useful to accomplishing the goals of the
Evaluation Plan. Pharmacyclics' technical personnel will be reasonably available
to consult with Alcon from time-to-time to assist in the accomplishment of the
Evaluation Plan; provided that Alcon shall reimburse Pharmacyclics for all
expenses which are incurred by Pharmacyclics' employees and consultants under
this Section 2.7(a); provided, however, such expenses are pre-approved by Alcon.
(b) Upon reasonable prior notice, Alcon shall allow technical
personnel and consultants of Pharmacyclics to access all Program data generated
during the Program. Also upon reasonable notice, Alcon personnel involved in the
Program shall be available for discussions with Pharmacyclics personnel
regarding the progress of the Program. Alcon shall make monthly telephonic or
written reports to Pharmacyclics about the status of the Program. In addition,
Alcon shall make detailed quarterly written reports to Pharmacyclics. Such
quarterly reports shall contain detailed summaries of all pertinent information
that was obtained in the course of the Program and Program Intellectual Property
that was developed by Alcon during the period covered by the report. In the
event that, based on such detailed summaries, Pharmacyclics wishes to review any
underlying data arising from the Program and/or Alcon's analyses of the results
of the Program, Alcon shall make such data and analyses available to
Pharmacyclics and, upon the reasonable request of Pharmacyclics, Alcon will
provide copies of such data and/or analyses to Pharmacyclics. Formal status
meetings shall be held quarterly and may be held by teleconference. Within
thirty (30) days from the end of the Evaluation Period, Alcon shall provide to
Pharmacyclics a draft of a final written report and, within sixty (60) days from
the end of the Evaluation Period, a final written report, which shall include
all information, data and analyses of the results that were obtained and Program
Intellectual Property that was developed by Alcon in the course of the Program.
(c) Alcon shall allow clinical personnel and consultants of
Pharmacyclics, at their own expense and without interfering with Alcon personnel
and investigators to visit the clinical trials sites, if any, wherein clinical
trials are being conducted by or on behalf of Alcon in the course of the
Program. In the event Pharmacyclics desires to visit a particular clinical trial
site, it shall notify Alcon of the time and place it desires to visit. Based on
Pharmacyclics request, Alcon shall arrange a visit to the particular trial site,
at a mutually agreed upon time, and shall accompany Pharmacyclics personnel on
their visit to the particular clinical site. Notwithstanding anything in this
Section 2.7(c), Pharmacyclics personnel shall not monitor, direct or attempt to
direct any of the Alcon investigators in carrying out their clinical
responsibilities.
7.
<PAGE> 8
(d) Pharmacyclics shall also make quarterly written reports to Alcon
regarding the progress of Pharmacyclics and HCC in producing PCI-0123 Substance
which complies with the specifications of Appendix E, part II.
(e) Alcon will be responsible for the administrative handling of all
filings and other communications with Health Authorities during the Evaluation
Period (including, but not limited to, INDs) in all countries of the Territory
for the Licensed Product and the Device in the Field (collectively, the
"Evaluation Period Regulatory Filings"), unless otherwise required by the Device
manufacturer or required by the laws or regulations of the applicable
jurisdiction. Alcon shall use best efforts to give Pharmacyclics the opportunity
to comment upon, prior to filing, all Evaluation Period Regulatory Filings, in
order to advise Alcon of any possible improvements of the proposed filings
Pharmacyclics believes to be necessary or useful, provided, however,
Pharmacyclics shall provide its comments on a given Evaluation Period Regulatory
Filing, if any, to Alcon within three (3) business days of Pharmacyclics'
receipt of such filing. It is understood that Alcon may provide components of
such Evaluation Period Regulatory Filings to Pharmacyclics in a piecemeal
manner, as such components are prepared by Alcon. Alcon shall in good faith
consider Pharmacyclics' opinion and advice when filing the Evaluation Period
Regulatory Filings. Notwithstanding the foregoing, in all events the final
decision as to the content and timing of such filings shall be made by Alcon.
Alcon will pay all fees and expenses related thereto. Alcon shall keep
Pharmacyclics informed of the status of Evaluation Period Regulatory Filings on
an ongoing and timely basis, including, providing copies of all Evaluation
Period Regulatory Filings and any supplements or amendments thereto, to
Pharmacyclics. During the Evaluation Period, Alcon shall be the sole holder of
the Evaluation Period Regulatory Filings, and will at its own expense, be
responsible for all administrative matters necessary to compile and submit the
Evaluation Period Regulatory Filings for the Licensed Product in each country of
the Territory. During the Evaluation Period, Alcon shall also be responsible for
maintaining the Evaluation Period Regulatory Filings and will bear the
registration renewal fees for the Evaluation Period Regulatory Filings of the
Licensed Product in each country of the Territory in which same are filed. In
the event Alcon makes the Determination, the Evaluation Period Regulatory
Filings shall be deemed to be "Regulatory Filings" for purposes of Section 9.1.
2.8 DEVELOPMENT AND COMMERCIALIZATION DETERMINATION. During the Evaluation
Period, Alcon shall evaluate development and commercialization opportunities for
Licensed Products in the Field. Not later than forty-five (45) days after the
end of the Evaluation Period, Alcon shall notify Pharmacyclics in writing
whether or not it desires to go forward and pursue additional development and
commercialization of Licensed Products in the Field. In the event Alcon
determines to so continue such development and commercialization (the
"Determination") it shall provide Pharmacyclics with written notice of its
decision and shall pay Pharmacyclics the license fee pursuant to Section 4.2. In
the event that Alcon chooses not to so continue, (i) this Agreement shall
terminate immediately, (ii) all rights of Alcon created by this Agreement with
regard to Licensed Products shall expire, except as provided in Section 2.6,
(iii) Pharmacyclics shall be free to pursue the development and
commercialization of Licensed Products alone, through or in collaboration with,
a third party, (iv) Alcon shall return any and all remaining quantities of
PCI-0123 Substance, PCI-0123 Formulation, any materials derived from PCI-0123
Substance or PCI-0123 Formulation, all Devices (except for Devices that have
been purchased by Alcon from Pharmacyclics or a third party), all Program
Intellectual Property and data, and all
8.
<PAGE> 9
other Pharmacyclics Confidential Information and (v) Alcon shall assign or
otherwise transfer to Pharmacyclics all Evaluation Period Regulatory Filings.
3. LICENSE GRANTS; EXCLUSIVITY.
3.1 DEVELOPMENT AND EVALUATION LICENSES. Subject to the terms and
conditions of this Agreement and effective only in the event of a Determination,
Pharmacyclics hereby grants to Alcon an exclusive (even as to Pharmacyclics)
sublicense under the Pharmacyclics Technology governed by the UT License and an
exclusive (even as to Pharmacyclics) license under all other Pharmacyclics
Technology, to conduct clinical development in humans of Licensed Products for
use in the Field and in the Territory. Subject to the terms and conditions of
this Agreement and effective only in the event of a Determination, Pharmacyclics
hereby grants to Alcon an exclusive (except as to Pharmacyclics) sublicense
under the Pharmacyclics Technology governed by the UT License and an exclusive
(except as to Pharmacyclics) license under all other Pharmacyclics Technology,
to evaluate Licensed Products for use in the Field and in the Territory.
3.2 COMMERCIALIZATION LICENSE. Subject to the terms and conditions of this
Agreement, and effective only in the event of a Determination, Pharmacyclics
hereby grants to Alcon an exclusive (even as to Pharmacyclics) sublicense under
the Pharmacyclics Technology governed by the UT License and an exclusive (even
as to Pharmacyclics) license under all other Pharmacyclics Technology, to
import, Fill and Finish, market, sell, offer for sale and distribute Licensed
Products for use in the Field and in the Territory.
3.3 UT LICENSE. Alcon acknowledges and understands that the licenses to the
Pharmacyclics Technology granted to Alcon under Sections 3.1 and 3.2 contemplate
sublicenses of certain of such Pharmacyclics Technology under and pursuant to
the UT License, and that such sublicensed Pharmacyclics Technology is subject to
any rights retained by the University of Texas, including, without limitation,
rights with respect to patent infringement, prosecution and maintenance under
Sections 7 and 13 of the UT License, or retained by the United States government
pursuant to the UT License.
3.4 SUBLICENSE RIGHTS. Alcon shall have the right to sublicense the
licenses granted in Sections 3.1 and 3.2, subject to the prior written approval
of Pharmacyclics, which approval shall not be unreasonably withheld or delayed,
so long as each sublicensee agrees to be bound mutatis mutandis by all of the
terms and conditions of this Agreement, except that no consent of Pharmacyclics
shall be required for sublicenses to Affiliates of Alcon.
3.5 RIGHTS UPON EXPIRATION. Upon the expiration of Alcon's obligations to
pay royalties pursuant to Section 4.5, and provided that this Agreement has not
been terminated early pursuant to Article 14, Alcon's license rights granted
hereunder with respect to Licensed Products then sold by Alcon and/or its
Affiliates shall become paid-up, royalty-free, irrevocable and perpetual.
3.6 EXCLUSIVITY; RIGHT OF FIRST NEGOTIATION.
9.
<PAGE> 10
(a) EXCHANGE OF INFORMATION; REPORTS DURING POST-EVALUATION PERIOD.
During the post-Evaluation Period of this Agreement, Pharmacyclics and Alcon
personnel shall routinely, but not less than annually, conduct meetings for
purposes of disclosing to Alcon any information Pharmacyclics has in its
possession relative to any Texaphyrins, including Extended Lutetium Texaphyrins
and Non-Lutetium Texaphyrins, or any other chemical entities which Pharmacyclics
believes may have application in the Field. The foregoing sentence: (i) shall
not apply to information which Pharmacyclics is contractually precluded from
disclosing and (ii) shall not apply with respect to Texaphyrins and any other
chemical entities which (x) Alcon has indicated, pursuant to Subsection
3.6(c)(1) or 3.6(c)(2), it is not interested in developing and commercializing
and (y) Pharmacyclics is developing and commercializing, either on its own or
with a third party.
(b) MACULAR DEGENERATION RETINOPATHY. For so long as Alcon is
developing one or more Licensed Products in the field of macular degeneration
retinopathy, Alcon shall have the exclusive right, during the period running
from the Effective Date and ending upon the earlier of (i) Alcon's receipt of
its first MA or NDA approval for a Licensed Product or (ii) (*) year anniversary
of the Effective Date, to evaluate any Extended Lutetium Texaphyrin or
Non-Lutetium Texaphyrin in the field of macular degeneration retinopathy, and
the exclusive right to negotiate a separate agreement with Pharmacyclics for a
license to any Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin in the
field of macular degeneration retinopathy. For the avoidance of any doubt, for
so long as Alcon is developing one or more Licensed Products in the field of
macular degeneration retinopathy, Pharmacyclics shall not enter into a license
agreement or negotiate a license, covenant or other technology transfer
agreement, including a screening agreement, with any third party relating to an
Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin for use in the field of
macular degeneration retinopathy prior to the earlier of (i) Alcon's receipt of
its first MA or NDA approval for a Licensed Product, or (ii) (*) year
anniversary of the Effective Date. Following the earlier date of the preceding
sentence, in the event Pharmacyclics obtains bona fide animal or human data
which suggests the likelihood of improved efficacy, safety and/or performance of
an Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin over a Licensed
Product in the treatment of macular degeneration retinopathy, Pharmacyclics
shall be free to engage in negotiations with third parties for the license of
such Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin for use in treating
such macular degeneration retinopathy; provided, however, Pharmacyclics first
offers to negotiate with Alcon for a license of such Extended Lutetium
Texaphyrin or Non-Lutetium Texaphyrin for the treatment of such macular
degeneration retinopathy, pursuant to Section 3.6(c).
(c) RIGHT OF FIRST NEGOTIATION.
(1) EXTENDED LUTETIUM TEXAPHYRINS, NON-LUTETIUM TEXAPHYRINS.
Subject to this Section 3.6, in the event Pharmacyclics desires to sell or
license the rights to an Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin
in the Field and has obtained bona fide animal or human data which suggests the
likelihood that such Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin has
application in the Field, Pharmacyclics shall provide written notice
("Additional Texaphyrins Notice") to Alcon. The Additional Texaphyrins Notice
shall contain a description of the Extended Lutetium Texaphyrin or Non-Lutetium
Texaphyrin, along with a detailed description of such animal or human data.
Within thirty (30) days of receipt of the
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
10.
<PAGE> 11
Additional Texaphyrins Notice from Pharmacyclics, Alcon shall provide a written
notice ("Alcon Interest Notice") to Pharmacyclics indicating whether it is
interested in developing and commercializing such Extended Lutetium Texaphyrin
or Non-Lutetium Texaphyrin in the Field. If Alcon is not interested,
Pharmacyclics shall have no obligations to Alcon with respect to such Extended
Lutetium Texaphyrin or Non-Lutetium Texaphyrin. If Alcon is interested in
licensing such Texaphyrin, the parties shall negotiate in good faith an
agreement for the development and commercialization of such Extended Lutetium
Texaphyrin or Non-Lutetium Texaphyrin in the Field. In the event the parties are
unable to reach such an agreement within ninety (90) days of the date of the
Alcon Interest Notice, Pharmacyclics shall be free to develop and commercialize
such Extended Lutetium Texaphyrin or Non-Lutetium Texaphyrin in all fields
and/or enter into an agreement with a third party to do so; provided, however,
that Pharmacyclics shall not enter into such agreement with a third party which
contains terms less favorable to Pharmacyclics than those last offered by Alcon
pursuant to the preceding sentence, without first offering such less favorable
terms to Alcon. As used in the preceding sentence, the term "less favorable
terms" shall be construed to mean the basic financial terms, i.e., licensing
fees, milestone fees, royalty payments and the financial value of any
cross-licensing provision that are, in totality, less favorable than the same
basic financial terms last offered by Alcon under this Section 3.6(c)(1).
(2) OTHER PHARMACYCLICS COMPOUNDS. In the event Pharmacyclics
desires to grant a license to any other compound for use in the Field, other
than an Extended Lutetium Texaphyrin or a Non-Lutetium Texaphyrin (an "Other
Compound"), Pharmacyclics shall provide written notice to Alcon. Within thirty
(30) days of receipt of such notice from Pharmacyclics, Alcon shall provide a
written notice (the "Other Compound Interest Notice") to Pharmacyclics
indicating whether it is interested in developing and commercializing such Other
Compound in the Field under this Subsection 3.6(c)(2). If Alcon is not
interested, Pharmacyclics shall have no obligations to Alcon with respect to
Other Compound. If Alcon is interested in licensing such Other Compound, the
parties shall negotiate in good faith an agreement for the development and
commercialization of such Other Compound in the Field. In the event the parties
are unable to reach such an agreement within ninety (90) days of the Other
Compound Interest Notice, Pharmacyclics shall be free to develop and
commercialize such Other Compound in any field and/or enter into an agreement
with a third party to do so.
(d) DILIGENCE. In the event Alcon licenses an Extended Lutetium
Texaphyrin or a Non-Lutetium Texaphyrin (a "Second Generation Product") from
Pharmacyclics, pursuant to a separate license agreement entered into as provided
for in Section 3.6(b) or (c) (a "Second License Agreement"), for use in treating
the same pathology as the pathology for which a Licensed Product, at the time,
is being developed or commercialized by Alcon (the "Common Pathology"), and if,
in the course of developing such Second Generation Product, Alcon makes a good
faith determination that the Second Generation Product demonstrates improved
efficacy, safety and/or performance over Licensed Product for treatment of the
Common Pathology and therefore Alcon ceases all development and
commercialization of Licensed Product for the Common Pathology, then the
diligence requirements of Sections 8.2 and 8.3 of this Agreement will be waived
for the Licensed Product for the Common Pathology and, as will be set forth in
the Second License Agreement, diligence obligations similar to those set forth
in Sections 8.2 and 8.3 of this Agreement will be apply with respect to the
Second Generation Product for the Common Pathology.
11.
<PAGE> 12
3.7 COVENANTS OF ALCON. Subject to the terms of this Agreement, and during
the Term of this Agreement, Alcon covenants that it shall not, nor shall it
permit any Affiliate to, use or practice directly or indirectly any
Pharmacyclics Know-How, and, until expiration of the applicable patent, any
inventions claimed in any Pharmacyclics Patents, for any purposes other than
those explicitly contemplated by this Agreement. Alcon shall ensure that any
permitted sublicense under this Agreement shall contain terms with the same
effect as this Section 3.7, and agrees that it will, at Pharmacyclics' request,
take all measures necessary to enforce the pertinent terms of such sublicense
against the sublicensee.
3.8 COMPETITIVE PRODUCTS.
(a) Following the Determination and during the Term of this Agreement
in the event that Alcon (i) initiates human clinical trials of a Competitive
Product with the intention of commercializing such Competitive Product during
the Term of this Agreement; (ii) initiates commercial sale of a Competitive
Product; or (iii) enters into an agreement pursuant to which it acquires rights
to a Competitive Product (whether by assignment, license or otherwise) with the
intention of commercializing such Competitive Product during the Term of this
Agreement, other than an agreement described in Section 3.8(b), then
Pharmacyclics shall have the right to immediately terminate this Agreement.
Alcon shall promptly notify Pharmacyclics if it undertakes any of the above
activities.
(b) In the event Alcon acquires a third party entity and such third
party entity was, at the time of such acquisition, developing or commercializing
a Competitive Product (an "Acquired Company Competitive Product"), Alcon shall
provide written notice of such acquisition and a description of the Acquired
Company Competitive Product to Pharmacyclics and the following shall apply:
(i) if, at the time of such acquisition, the Acquired Company
Competitive Product has received MA anywhere in the Territory and the Licensed
Product has not yet received MA anywhere in the Territory, Alcon shall continue
with development of the Licensed Product as set forth in this Agreement
(including, but not limited to, in accordance with Sections 8.1 and 8.2). Within
thirty (30) days of the date upon which the Licensed Product receives MA
anywhere in the Territory, Alcon shall elect whether to (x) continue
commercializing the Acquired Company Competitive Product in the Territory or (y)
commence commercializing Licensed Product in the Territory and shall provide
written notice to Pharmacyclics indicating which option it has elected. In the
event Alcon elects to continue commercializing the Acquired Company Competitive
Product in the Territory, then Pharmacyclics shall have the right to immediately
terminate this Agreement. In the event Alcon elects to commence commercializing
Licensed Product in the Territory, then Alcon shall, within (*) of such
election, cease marketing and selling (and enabling third parties to market and
sell) Acquired Company Competitive Product in the Territory.
(ii) if, at the time of such acquisition, the Acquired Company
Competitive Product has not yet received MA anywhere in the Territory and the
Licensed Product has received MA anywhere in the Territory, Alcon may continue
with development of the Acquired Company Competitive Product. Within thirty (30)
days of the date upon which the
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
12.
<PAGE> 13
Acquired Company Competitive Product receives MA anywhere in the Territory,
Alcon shall elect whether to (x) continue commercializing the Licensed Product
in the Territory or (y) commence commercializing Acquired Company Competitive
Product in the Territory and shall provide written notice to Pharmacyclics
indicating which option it has elected. In the event Alcon elects to commence
commercializing the Acquired Company Competitive Product in the Territory, then
Pharmacyclics shall have the right to immediately terminate this Agreement. In
the event Alcon elects to continue commercializing Licensed Product in the
Territory, then Alcon shall not market or sell (or enable third parties to
market or sell) Acquired Company Competitive Product in the Territory.
(iii) if, at the time of such acquisition, the Acquired Company
Competitive Product has not yet received MA anywhere in the Territory and the
Licensed Product has not yet received MA anywhere in the Territory, Alcon shall
continue with development of the Licensed Product as set forth in this Agreement
(including, but not limited to, in accordance with Sections 8.1 and 8.2) and may
also elect to develop the Acquired Company Competitive Product. Within thirty
(30) days of the later of (m) the date upon which the Licensed Product receives
MA anywhere in the Territory and (n) the date upon which the Acquired Company
Competitive Product receives MA anywhere in the Territory, Alcon shall elect
whether it wishes to (x) commercialize the Acquired Company Competitive Product
in the Territory or (y) commercialize Licensed Product in the Territory and
shall provide written notice to Pharmacyclics indicating which option it has
elected. In the event Alcon elects to commercialize the Acquired Company
Competitive Product in the Territory, then Pharmacyclics shall have the right to
immediately terminate this Agreement. In the event Alcon elects to commercialize
Licensed Product in the Territory, then Alcon shall either (p) commencing on the
date of such election, not market or sell (or enable third parties to market or
sell) Acquired Company Competitive Product in the Territory (in the event the
Licensed Product received MA first) or (q) within (*) of such election, cease
marketing and selling (and enabling third parties to market and sell) Acquired
Company Competitive Product in the Territory (in the event the Acquired Company
Competitive Product received MA first).
(iv) if, at the time of such acquisition, the Acquired Company
Competitive Product has received MA anywhere in the Territory and the Licensed
Product has received MA anywhere in the Territory, Alcon shall, within thirty
(30) days of such acquisition, elect whether it wishes to (x) continue
commercializing the Acquired Company Competitive Product in the Territory or (y)
continue commercializing Licensed Product in the Territory and shall provide
written notice to Pharmacyclics indicating which option it has elected. In the
event Alcon elects to continue commercializing the Acquired Company Competitive
Product in the Territory, then Pharmacyclics shall have the right to immediately
terminate this Agreement. In the event Alcon elects to continue commercializing
Licensed Product in the Territory, then Alcon shall, within (*) of such
election, cease marketing and selling (and enabling third parties to market and
sell) Acquired Company Competitive Product in the Territory.
For purposes of Subsections 3.8(b)(i), (ii), (iii) and (iv), inclusion of the
phrases "enabling third parties to market and sell" and "enable third parties to
market or sell" shall not be deemed to preclude Alcon from selling outright to a
third party all rights to the Acquired Company
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
13.
<PAGE> 14
Competitive Product (including applicable patent rights, MAs and trademarks),
thereby enabling such third party to market and sell the Acquired Company
Competitive Product.
3.9 DEVELOPMENT OF LICENSED PRODUCTS OUTSIDE THE FIELD.
(a) In the event that Pharmacyclics enters into an agreement with any
third party for the development, marketing and sale of a Licensed Product which
has the same chemical structure as a Licensed Product then under development or
commercialized by Alcon (a "Third Party Compound") for indications outside the
Field, but for sale in the Territory (a "Third Party Agreement"), it will ensure
that:
(i) The proposed Third Party Compound differs in its formulation
in such a manner that prescribing physicians could not reasonably be expected to
substitute in the marketplace such Third Party Compound for the Licensed
Product(s) then being developed or commercialized by Alcon in the Field; or
(ii) The proposed development program differs in such other
respects from the Alcon development program hereunder or its anticipated
commercialized Licensed Product then under development so as to otherwise ensure
that the substitution referred to in (i) above could not reasonably be expected
to occur.
It is expressly acknowledged that, as of the Effective Date, Pharmacyclics has
entered into a Third Party Agreement with Nycomed Imaging AS ("Nycomed"),
whereby Nycomed has been granted a license to develop, market and sell PCI-0123
and/or other Lutetium Texaphyrins outside the Field in certain countries in the
Territory. In addition, it is expressly acknowledged that Pharmacyclics may
enter into other Third Party Agreements in the future.
(b) From and after the date Pharmacyclics enters into such Third Party
Agreement, each Party agrees and understands that Alcon will not be permitted to
modify any Licensed Product, whether with respect to its formulation or
otherwise, where such modification would materially increase the likelihood that
prescribing physicians reasonably would substitute in the marketplace such
Licensed Product for one or more Third Party Compounds then being developed
and/or sold for use outside the Field but for sale in the Territory. Alcon will
ensure that any permitted sublicense under this Agreement contains terms with
the same effect as this Section 3.9. Upon entering into any such Third Party
Agreement, Pharmacyclics agrees to disclose to Alcon in confidence those
portions of such Third Party Agreement that are reasonably necessary to
demonstrate compliance with this Section 3.9.
(c) Pharmacyclics agrees to keep Alcon reasonably informed as to the
development programs under any Third Party Agreements, subject to the
confidentiality provisions of Article 15, in order to allow Alcon to monitor
Pharmacyclics' compliance with its obligations under this Section 3.9. Alcon
agrees to inform Pharmacyclics promptly of any adverse implications of such
third party development programs anticipated by Alcon and Pharmacyclics agrees
to meet with Alcon in good faith to address such adverse implications.
14.
<PAGE> 15
(d) In the event that, despite the Parties' compliance with their
obligations under Subsections (a), (b) and (c) above, (x) a Third Party Compound
which is marketed or sold for use outside the Field and in the Territory is
nonetheless substituted in the marketplace for a Licensed Product marketed and
sold by Alcon, its Affiliates or sublicensees hereunder and/or (y) a Licensed
Product which is marketed and sold by Alcon, its Affiliates or sublicensees for
use in the Field and in the Territory but is nonetheless substituted in the
marketplace for Third Party Compound for use outside the Field and in the
Territory, the following shall apply:
(i) Alcon shall provide to Pharmacyclics any and all audit data
collected by Alcon in its normal course of business with respect to (a) Alcon's
sales of Licensed Product used in the Field and in the Territory, (b) Alcon's
sales of Licensed Products used outside the Field in the Territory, (c) sales of
Third Party Compounds used in the Field and the Territory, and (d) sales of
Third Party Compounds used outside the Field in the Territory;
(ii) Pharmacyclics shall require that any and all third party
licensees under all Third Party Agreements provide to Pharmacyclics all audit
data collected by such third party with respect to the sales referenced in
Subsection (i) above and, subject to Article 15, Pharmacyclics shall provide
such data to Alcon;
(iii) Alcon shall analyze all data developed by Alcon and
provided by Pharmacyclics' third party licensees and shall first develop a
methodology for determining the extent and nature of sales of Licensed Products
by Alcon outside the Field and by such third party licensees within the Field,
in the Territory (the "Audit Methodology") which shall be subject to the
approval of Pharmacyclics and the third party licensee(s). Upon such approval,
Alcon shall then determine the sales for each party using the agreed to Audit
Methodology and all audit data developed by Alcon and provided by Pharmacyclics
under Subsection (i) and (ii) above. In the event data is required to determine
Alcon's sales of Licensed Product used outside the Field, in addition to that
provided by Pharmacyclics under Subsection (ii), Alcon will reimburse
Pharmacyclics for all reasonable costs associated with Pharmacyclics', or the
third party licensees' collection of such additional data. In the event data is
required to determine sales of Third Party Compounds used in the Field, in
addition to that provided by Alcon under Subsection (i), Pharmacyclics will
reimburse Alcon for all reasonable costs associated with Alcon's collection of
such additional data. Alcon will be responsible for collecting all data outside
the scope of normal business of Pharmacyclics or its third party licensee(s)
relating to the sale of Licensed Product used outside the Field. The Audit
Methodology shall be the sole mechanism for reconciling the appropriate net
profit to each of Alcon and such third party licensees, as well as the royalty
owed Pharmacyclics for sales of such Licensed Product, in the Territory.
3.10 MODIFICATIONS TO LICENSED PRODUCT. Alcon agrees that it shall not make
any changes to the chemical structure of any Licensed Product except upon the
prior written approval of Pharmacyclics. In the event Alcon wishes to make a
change to the formulation of a Licensed Product, it will provide written notice
of such proposed change to Pharmacyclics, so that Pharmacyclics can comply with
its obligations under Section 3.9(a) (as well as with similar obligations in
Third Party Agreements) and Alcon can comply with its obligations under Section
3.9(b).
15.
<PAGE> 16
3.11 ADDITIONAL LICENSED PRODUCTS. The parties acknowledge and agree that
nothing contained in this agreement shall obligate Pharmacyclics to develop or
supply to Alcon any Licensed Product other than PCI-0123. In the event the
parties agree that Pharmacyclics should develop and/or supply any additional
Licensed Products to Alcon for use in the Field, such development shall be
undertaken pursuant to a separate development agreement between the parties;
provided, however, such separate development agreement shall only financially
obligate Alcon to reimburse Pharmacyclics for its reasonable development costs
and supply of any such additional Licensed Products, and shall not contain any
other financial terms, including, but not limited to, licensing fees or
milestone payments provided further, however, subject to Section 4.3(d), the
milestone payments and royalties set forth in Sections 4.3 and 4.4 shall apply
to the development and commercialization of such additional Licensed Products.
4. LICENSE FEE, MILESTONE PAYMENTS AND ROYALTIES.
4.1 TECHNOLOGY ACCESS FEE. In consideration of the rights granted by
Pharmacyclics to Alcon hereunder and the access to and use of Pharmacyclics
Technology during the Program, Alcon shall pay or cause to be paid to
Pharmacyclics a non-refundable technology access fee equal to (*) within ten
(10) days of the Effective Date.
4.2 LICENSE FEE. A non-refundable license fee of (*) shall be due upon the
Determination.
4.3 MILESTONE PAYMENTS. In consideration of the licenses granted by
Pharmacyclics under Sections 3.1 and 3.2, following the Determination, Alcon
shall make non-refundable payments to Pharmacyclics, as follows:
(a) upon the completion of Phase II or the beginning of Phase III for
the Licensed Product, whichever is earlier, (*);
(b) upon the filing of the first NDA or MAA for the Licensed Product,
(*); and
(c) upon the first NDA Approval or receipt of the first MA for the
Licensed Product, (*) of such amount shall be credited against amounts due
pursuant to Section 4.4, provided, however, in each calendar year, such credit
shall not exceed the lesser of (*) of the royalty otherwise due to Pharmacyclics
under Section 4.4(a) for such year.
(d) After a given milestone payment has been made under this Section
4.3, the same milestone payment shall not be due again for the subsequent
development of any Licensed Product (including for any Licensed Products
developed pursuant to a separate development agreement as described in Section
3.11). For the avoidance of any doubt, once Alcon pays Pharmacyclics (*) in
Milestone Payments required under this Section 4.3 for the development of a
Licensed Product, no other Milestone Payments shall ever be due by Alcon for the
subsequent development of any other Licensed Product.
4.4 ROYALTIES.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
16.
<PAGE> 17
(a) Subject to Sections 4.4(c) and (d), in exchange for the Licenses
granted under Section 3.1 and 3.2, Alcon shall also pay to Pharmacyclics a
marginal royalty on annual, aggregate Net Sales of all Licensed Products in all
countries of the Territory (the "Net Sales Base"), as set forth below:
(*) of all Net Sales up to (*); and
(*) of all Net Sales in the range of (*); and
(*) of all Net Sales in excess of (*).
(b) Subject to Section 4.4(c), in addition to the royalties paid to
Pharmacyclics under Section 4.4(a), and in consideration for the rights
sublicensed to Alcon through the UT License, Alcon shall also pay to
Pharmacyclics a royalty, on annual, aggregate Net Sales of all Licensed Products
in all countries of the Territory, as follows:
(*) of all Net Sales in the range of (*); and
(*) of all Net Sales in excess (*).
In the event amounts due the University of Texas by Pharmacyclics on sales of
Licensed Product are to be reduced pursuant to Section 5.4 of the UT License,
Alcon will provide Pharmacyclics with any data obtained by Alcon in Alcon's
normal course of business which is necessary or useful for Pharmacyclics to
calculate the reduced amount due from Pharmacyclics to the University of Texas.
For the avoidance of any doubt, the above royalty rates of Subsections 4.4(a)
and 4.4(b) are based on Net Sales accrued during each annual period ending
December 31st. As such, the royalty rates are based on each new calendar year,
and are not cumulative across years (i.e., successive years' Net Sales are not
added together in calculating Net Sales for royalty rate determination).
(c)
(i) COMBINATION PRODUCTS. In the event a Licensed Product is
combined with other pharmaceutical agents for sales to third parties, for
purposes of calculating Net Sales for Sections 4.4(a) and 4.4(b), the Net Sales
attributable to sales of the Licensed Product will be a pro rata share of the
Net Sales attributable to the combined product, based on the ratio P1/(P1 + P2),
where
P1 = the fair market value of the Licensed Product;
P2= the fair market value of the other pharmaceutical agents (the
"Other Agents").
If the Licensed Product is sold as a stand-alone product, the "fair market
value" of P1 will be the selling price of the stand-alone Licensed Product. If
the Other Components are sold as stand-alone products, the "fair market value"
of P2 will be the sum of the selling prices of the Other Agents as stand-alone
products. If the Licensed Product and/or the Other Agents are not sold as
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
17.
<PAGE> 18
stand-alone products, then the ratio P1/(P1 + P2) shall be determined by Alcon
and Pharmacyclics in good faith based on the relative fair market values of the
Licensed Product and the Other Agents as determined by mutual agreement of the
parties or, if the parties cannot agree on such ratio, the ratio P1/(P1 + P2)
shall be determined by a third party expert in such matters. Such third party
expert shall be jointly selected by the parties.
(ii) KITS, SYSTEMS. In the event that a Licensed Product is sold
in combination with or as part of a kit, package or system, for purposes of
calculating Net Sales for Sections 4.4(a) and 4.4(b), the Net Sales attributable
to sales of the Licensed Product will be based on Alcon's average selling price
for the stand alone Licensed Product as represented in Alcon's price catalogue.
(d) Notwithstanding anything in this Section 4.4, in any country of
the Territory in which:
(x) a Competitive Product consisting of a Lutetium Texaphyrin is
marketed by a third party for the same indication in the Field for which Alcon
or an Alcon Affiliate or an Alcon sublicensee is marketing Licensed Product; and
(y) the sales of such Competitive Product are having a material
adverse effect on the sales of Licensed Product; and
(z) either (i) no Pharmacyclics Patents exist to protect Alcon's
exclusive sale of a Licensed Product in the Field or (ii) the Pharmacyclics
Patents have expired, have been invalidated or have otherwise held
unenforceable, then, for purposes of calculating Net Sales for Section 4.4(a),
Net Sales shall be reduced (*), by multiplying Net Sales by the factor (*). In
all other countries where there is no such Competitive Product, Net Sales shall
not be reduced.
4.5 DURATION OF ROYALTY PAYMENTS. Pursuant to Section 4.4, Alcon shall pay
to Pharmacyclics the royalties set forth in Section 4.4 on the Net Sales of each
Licensed Product in the Territory on a country-by-country basis, for the longer
of: (i) the last to expire of the Pharmacyclics Patent(s) which protect Alcon's
exclusive sale of a Licensed Product in that country; or (ii) 10 years after the
First Commercial Sale of the Licensed Product.
5. PAYMENTS, REPORTS AND RECORDS.
5.1 PAYMENTS. Royalties accruing in any calendar quarter shall be paid by
Alcon, Alcon Affiliates and/or Alcon sublicensees, as the case may be, within
thirty (30) days after the end of such quarter. Simultaneously with the delivery
of each such royalty payment, Alcon, Alcon Affiliates and/or Alcon sublicensees,
as the case may be, shall deliver to Pharmacyclics a report indicating, on a
country-by-country basis: (i) Net Sales for each Licensed Product, (ii) all
deductions taken under Section 1.29, by category, where available to Alcon in
Alcon's normal course of business, in arriving at Net Sales, and (iii) the
calculations used in determining any reductions in Net Sales pursuant to
Subsection 4.4(c) or (d). Alcon, Alcon Affiliates and Alcon sublicensees, will
keep records in sufficient detail to enable the royalties to be determined, and
an
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
18.
<PAGE> 19
independent certified public accountant selected by Pharmacyclics shall have
access to the records of Alcon, Alcon Affiliates and Alcon sublicensees during
reasonable business hours for the purpose of verifying for Pharmacyclics, in
respect of any calendar quarter ending not more than three calendar years prior
to the date of such request, the correctness of any report and/or payment made
under this Agreement. Such accountant shall be bound by a confidentiality
agreement and shall not disclose any information other than information relating
solely to the accuracy of the reports and payments made under this Agreement.
Any such audit shall be at Pharmacyclics' expense, unless such audit reveals an
underpayment by Alcon of (*), in which case Alcon shall bear such expense.
5.2 LATE PAYMENTS. Any amount not paid when due under this Agreement shall
bear interest at the prevailing prime rate for commercial loans at the time of
such underpayment.
5.3 EXCHANGE RATES; BLOCKED CURRENCY. Royalties due on Net Sales by Alcon,
Alcon Affiliates or Alcon sublicensees to third party customers shall be
calculated and paid by Alcon in United States Dollars using an exchange rate in
accordance with Alcon corporate guidelines consistent with how Alcon calculates
exchange rates for its own internal accounting purposes. In the event that, by
reason of regulations or taxes of any kind, it becomes impossible or illegal for
Alcon, an Alcon Affiliate or an Alcon sublicensee as to any country to transfer,
or have transferred on its behalf, royalty or other payments to Pharmacyclics in
the United States, such royalties or other payments shall be deposited in local
currency in the relevant country to the credit of Pharmacyclics in a recognized
banking institution designated by Pharmacyclics or, if none is designated by
Pharmacyclics within a period of thirty (30) days, in a recognized banking
institution selected by Alcon, an Alcon Affiliate or an Alcon sublicensee, as
the case may be, and identified in a notice in writing given to Pharmacyclics.
5.4 TAX CONSEQUENCES. All witholding or other taxes or fees levied by Swiss
governmental entities on any payments due under the Agreement to Pharmacyclics,
including but not limited to, the Determination Fee, License Fees, Milestone
Payments, royalties and expense reimbursements shall be borne in their entirety
by Alcon and shall not reduce the amount of any payment made to Pharmacyclics.
To the extent Pharmacyclics claims a credit for such Swiss taxes against its
U.S. tax liability, Pharmacyclics agrees to reimburse that amount to Alcon.
6. MANUFACTURE AND SUPPLY OF LICENSED PRODUCT.
6.1 SUPPLY OF DRUG SUBSTANCE.
(a) PHASE III CLINICAL TRIALS AND COMMERCIAL SUPPLY. Alcon
acknowledges and understands that Pharmacyclics has entered into the HC
Agreement and that, pursuant to the HC Agreement, HCC has the right to supply to
Pharmacyclics all of its worldwide requirements for Drug Substance for Phase III
clinical trials and commercial sale. Pharmacyclics agrees, based on Alcon's
election of one of the following two supply options, to either: (i) cause HCC to
supply to Alcon all of Alcon's requirements of Drug Substance for Phase III
clinical trials and commercial sale during the term of this Agreement; or (ii)
enter into negotiations with Alcon and HCC for the supply by HCC of Drug
Substance directly to Alcon for Phase III clinical trials and commercial sale,
in either case, as Alcon shall determine following the Effective Date. In the
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
19.
<PAGE> 20
event Pharmacyclics supplies Drug Substance to Alcon through and under the HC
Agreement, Alcon and Pharmacyclics shall enter into a separate supply agreement
(the "Pharmacyclics Supply Agreement"), which such agreement shall set forth the
terms and conditions of such supply; provided, however, that (a) for commercial
supply, the price to be paid by Alcon for such Drug Substance will be equal to
(*) and (b) for supply for Phase III clinical trials, the price to be paid by
Alcon for such Drug Substance will be (*) therefor. In the event Pharmacyclics
is unable to supply Drug Substance under the Pharmacyclics Supply Agreement,
such agreement will provide that Alcon can draw up to (*) of its requirements of
Drug Substance from amounts inventoried by HCC pursuant to the HC Agreement. In
the event Alcon elects to negotiate with HCC for supply directly by HCC to
Alcon, such supply will be conducted pursuant to a separate supply agreement by
and between Alcon (and, where deemed appropriate, Pharmacyclics) and HCC (the
"HCC/Alcon Supply Agreement"). Pharmacyclics will use good faith efforts to
negotiate an HCC/Alcon Supply Agreement which provides that, in the event HCC is
unable to supply Drug Substance under the HCC/Alcon Supply Agreement, such
agreement will provide that Alcon can draw up to (*) of its requirements of Drug
Substance from amounts inventoried by HCC pursuant to the HCC/Alcon Supply
Agreement.
(b) PRE-PHASE III CLINICAL TRIALS. Pharmacyclics agrees to supply all
of Alcon's requirements of Drug Substance for pre-Phase III clinical trials
during the term of this Agreement, pursuant to a separate supply agreement
(which may be the Pharmacyclics Supply Agreement) to be entered into by the
parties. The price to be paid by Alcon for such Drug Substance will be equal to
(*) therefor. Pharmacyclics understands that it is Alcon's desire to use Drug
Substance supplied by HCC for Phase II and Phase II/III trials and Pharmacyclics
agrees that Alcon will not be deemed to be in breach of Section 8.2 of this
Agreement if any failure of Alcon to perform under Section 8.2 arises as a
result of delays in obtaining Drug Substance from HCC for Phase II trials or
Phase II/III trials.
6.2 FILL AND FINISH OF LICENSED PRODUCTS. Following the Determination date,
Alcon shall inform Pharmacyclics whether Alcon desires to have supplied to it
finished, but not packaged, Licensed Product. In the event Alcon prefers to be
supplied finished Licensed Product, such supply shall be pursuant to the
Pharmacyclics' Supply Agreement referred to in Section 6.1 and shall be supplied
in lieu of or in addition to Drug Substance, and (a) for commercial supply shall
be at a price (*) and (b) for supply for clinical trials shall be at a price
equal (*) therefor. For the avoidance of doubt, the (*) in the preceding
sentence shall include (*). Where Alcon prefers to be supplied Drug Substance,
it shall undertake itself all Fill and Finish activities. In such event and upon
request of Alcon, Pharmacyclics shall transfer to Alcon the Pharmacyclics
Know-How with regard to Fill and Finish. Alcon shall Fill and Finish Licensed
Product in accordance with the applicable MAs and such Fill and Finish shall be
done in accordance with all applicable regulatory requirements, including
current Good Manufacturing Practices.
6.3 FORMULATION WORK. Pharmacyclics shall have no responsibility under this
Agreement for performing any formulation work on the Licensed Product. Subject
to the other terms of this Agreement, Alcon shall arrange for such formulation
work to be done or shall do such formulation work itself, all at the sole
expense of Alcon. In order to allow Pharmacyclics to comply with its obligations
under Section 3.9 of this Agreement and similar obligations in Third Party
Agreements, Alcon hereby covenants that the finished Licensed Product developed,
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
20.
<PAGE> 21
marketed and sold by Alcon pursuant to this Agreement will have a formulation
which is sufficiently different from the PCI-0123 Formulation that prescribing
physicians could not reasonably be expected to substitute in the marketplace
Alcon's finished Licensed Product for the PCI-0123 Formulation.
6.4 STANDBY LICENSE. The Pharmacyclics Supply Agreement or the HCC/Alcon
Supply Agreement, as applicable, will provide that, under circumstances to be
set forth in such supply agreement, in the event Pharmacyclics or HCC is unable
or unwilling to fill Alcon's orders for Licensed Product or Drug Substance, as
is required under Sections 6.1 and 6.2, Pharmacyclics will grant Alcon a
royalty-free, world-wide license to make or have made any Drug Substance.
7. MANUFACTURE AND SUPPLY OF DEVICES.
Pharmacyclics agrees to assist Alcon, upon Alcon's reasonable request, in
determining the specifications for and obtaining sources of supply for the
Device.
8. DILIGENCE IN DEVELOPMENT AND COMMERCIALIZATION.
8.1 DEVELOPMENT STRATEGY. Attached hereto as Appendix G is an initial
timeline and development plan for the regulatory approval in the United States,
Europe and Japan of Licensed Product for the treatment of macular degeneration
retinopathy. Such initial timeline and development plan shall be updated by
Alcon and provided to Pharmacyclics from time to time and no less frequently
than on an annual basis. Alcon agrees that, within sixty (60) days of receipt of
the first MA for the Licensed Product, it shall present Pharmacyclics with a
development plan for the development, regulatory approval and commercialization
of Licensed Product throughout the Territory (the "Development Plan"). Within
thirty (30) days of receipt of the Development Plan, Pharmacyclics shall provide
Alcon with comments on the Development Plan. Alcon shall consider all such
comments in good faith, and shall modify the Development Plan as Alcon deems
necessary. From time to time during the implementation of the Development Plan,
but not less than annually, Alcon shall inform Pharmacyclics of any updates to
its development, regulatory approval and/or commercialization strategy. Alcon
will be responsible for, and shall keep Pharmacyclics reasonably apprised of,
the specific preclinical and clinical activities necessary to obtain MA in
different countries in the Territory. Pharmacyclics' personnel and its
consultants shall continue to be allowed to comment on the Development Plan as
it is revised over time and such comments shall be considered in good faith by
Alcon for implementation in the development, regulatory and commercialization
strategy. In addition, Alcon shall keep Pharmacyclics informed, not less than
annually (and by January 1st of each year), of Alcon's, its Affiliates' and
sublicensees' global marketing strategies for each Licensed Product, including
but not limited to, an annual forecast of sales for Licensed Product.
8.2 DEVELOPMENT OF LICENSED PRODUCT. Alcon shall use best efforts to
develop the Licensed Product for approval in the widest number of geographic
markets consistent with the Development Plan and its overall product development
strategy. Such development shall be pursued at Alcon's own expense. Alcon shall
use its good faith business and scientific judgment as applied to commercial
development projects, to allocate sufficient time, effort, equipment and
facilities to carry out development of the Licensed Product. Alcon shall devote
the same degree
21.
<PAGE> 22
of attention and diligence to such development efforts as it
devotes to compounds of comparable market potential. Alcon shall conduct its
efforts hereunder in compliance with all current Good Laboratory Practices,
current Good Clinical Practices, and current Good Manufacturing Practices and
all other legal requirements.
8.3 MARKETING EFFORTS; REQUIRED MARKETS. Alcon, its Affiliates and
sublicensees each, will use reasonable best efforts to obtain MA of, and to
commercialize, the Licensed Product and the related Device for sale in, at a
minimum, the United States, Europe and Japan, as well as in other countries in
the Territory according to the Development Plan. Such reasonable best efforts
shall require the dedication by Alcon, its Affiliates and Alcon sublicensees of
resources consistent with the resources which would have been used by Alcon at
the relevant time in relation to a product with similar clinical applications
generated from Alcon's own research endeavor which Alcon had decided to market.
8.4 REPORTS AND DATA. Alcon shall provide written quarterly development
progress reports to Pharmacyclics. Alcon will provide Pharmacyclics with access
to all data generated by Alcon for use by Pharmacyclics and its licensees in
support of Licensed Product development outside of the Field, at no cost to
Pharmacyclics; provided, however, Pharmacyclics may only provide such data to a
given third party licensee for use outside the Field if such third party
licensee has agreed that Pharmacyclics may provide Alcon with access to all data
generated by such third party licensee for use by Alcon in support of Licensed
Product development inside the Field, at no cost to Alcon. Accordingly, to the
extent not precluded by third-party contracts, Pharmacyclics will provide Alcon
with access to all data generated by Pharmacyclics and its licensees for use by
Alcon in support of Licensed Product development inside the Field, at no cost to
Alcon. In addition to the foregoing, Alcon shall use best efforts to give
Pharmacyclics the opportunity to review and comment upon all preclinical and
clinical protocols, prior to implementation, in order to advise Alcon of any
possible improvements to the proposed protocol Pharmacyclics believes to be
necessary or useful, provided, however, Pharmacyclics shall provide its comments
on a given protocol, if any, to Alcon within three (3) business days of
Pharmacyclics' receipt of such protocol. In all events the final decision as to
the content and timing of the filing of such protocols with a Health Authority
shall be made by Alcon.
8.5 MARKETING RESTRICTIONS. Alcon hereby covenants that it will not,
without the prior written authorization of Pharmacyclics, solicit the sale of
Licensed Products, or advertise, market or promote Licensed Products outside of
the Field.
8.6 TRADEMARK. Alcon, its Affiliates and permitted sublicensees shall sell
the Licensed Product in the Territory using a trademark selected by Alcon and
approved by Pharmacyclics, such approval not to be unreasonably withheld (the
"Trademark"). Alcon shall own the Trademark and the use thereof will inure
strictly to Alcon's benefit.
8.7 PACKAGING. Unless otherwise agreed, the Licensed Product shall be sold
under Alcon's name or trade name. All packaging for the Licensed Product shall
comply with applicable government rules and regulations. In addition, packaging
for the Licensed Product shall indicate, as appropriate: (i) that Pharmacyclics
is the holder of the patent(s) under which the Licensed Product is licensed; and
(ii) the name of the manufacturer(s) of the Licensed Product.
22.
<PAGE> 23
8.8 COSTS. Alcon shall be responsible for all costs and expenses associated
with its development and commercialization of Licensed Products. Pharmacyclics
shall provide, upon reasonable request, reasonable assistance to Alcon in such
development efforts, at Alcon's expense, if approved in advance by Alcon.
9. REGULATORY MATTERS.
9.1 GOVERNMENT APPROVAL. Alcon will be responsible for the administrative
handling of all filings and other communications with Health
Authorities (including, but not limited to, INDs, NDAs and MAAs) in
all countries of the Territory for the Licensed Product and the Device
in the Field (collectively, the "Regulatory Filings"), unless
otherwise required by the Device manufacturer or required by the laws
or regulations of the applicable jurisdiction. Alcon shall use best
efforts to give Pharmacyclics the opportunity to comment upon, prior
to filing, all Regulatory Filings, in order to advise Alcon of any
possible improvements of the proposed filings Pharmacyclics believes
to be necessary or useful provided, however, Pharmacyclics shall
provide its comments on a given Regulatory Filing, if any, to Alcon
within three (3) business days of Pharmacyclics' receipt of such
filing. It is understood that Alcon may provide components of such
Regulatory Filings to Pharmacyclics in a piecemeal manner, as such
components are prepared by Alcon. Alcon shall in good faith consider
Pharmacyclics' opinion and advice when filing the Regulatory Filings.
Notwithstanding the foregoing, in all events the final decision as to
the content and timing of such filings shall be made by Alcon. Alcon
will pay all fees and expenses related thereto. Alcon shall keep
Pharmacyclics informed of the status of Regulatory Filings on an
ongoing and timely basis, including, providing copies of all
Regulatory Filings and any supplements or amendments thereto, to
Pharmacyclics. Alcon shall be the sole holder of the Regulatory
Filings, and will at its own expense, be responsible for all
administrative matters necessary to compile and submit the Regulatory
Filings for the Licensed Product in each country of the Territory.
Alcon shall also be responsible for maintaining the Regulatory Filings
and will bear the registration renewal fees for the Regulatory Filings
of the Licensed Product in each country of the Territory in which same
are filed.
9.2 RIGHT TO REFERENCE DATA. Each party shall grant the other party and the
other party's sublicensees, for no additional consideration, the right to
reference stability and other required chemistry, manufacturing and control data
for Drug Substance and finished Licensed Product formulation, including any Drug
Master Files owned by HCC, in support of all regulatory filings, to the extent
owned or controlled by the granting party.
9.3 ADVERSE REACTION REPORTING.
(a) Alcon shall advise Pharmacyclics, by telephone or facsimile,
within such time as is required by the FDA or foreign equivalent (with respect
to the severity and/or increased frequency of such adverse reaction) after it
becomes aware of any adverse reaction to the use of the Licensed Product
developed, marketed or sold by Alcon. Alcon shall provide Pharmacyclics with a
written report delivered by confirmed facsimile of any reported adverse
reaction, stating
23.
<PAGE> 24
the full facts known to it, including but not limited to customer name, address,
telephone number and lot or serial number, as appropriate. For the avoidance of
doubt, notwithstanding anything in this Section 9.3(a), Alcon shall be
responsible for all adverse event reporting with the applicable Health
Authorities for Licensed Product developed, marketed or sold by Alcon.
(b) Pharmacyclics shall advise Alcon, by telephone or facsimile,
within such time as is required by the FDA or foreign equivalent (with respect
to the severity and/or increased frequency of such adverse reaction) after it
becomes aware of any adverse reaction to the use of the Licensed Product
developed, marketed or sold outside the Field by Pharmacyclics or a third party
licensee. Pharmacyclics shall provide Alcon with a written report delivered by
confirmed facsimile of any reported adverse reaction, stating the full facts
known to it.
9.4 COMPLIANCE. Alcon shall comply with all health registration laws,
regulations and orders of any government entity within the Territory and with
all other governmental requirements relating to the promotion, marketing and
sale of the Licensed Products.
10. LIABILITY AND INDEMNIFICATION.
10.1 INDEMNIFICATION BY ALCON. Except for Costs covered by Section 10.2,
Alcon shall indemnify, defend and hold harmless Pharmacyclics, its Affiliates
and sublicensees and all officers, directors, employees and agents thereof
(collectively, "Pharmacyclics Indemnitees") from all damages, losses, claims,
judgments, liabilities, cost and expenses, including without limitation,
reasonable attorneys fees and expenses (collectively, "Costs"), whether the
foregoing are based in contract, tort, negligence or product liability incurred
by or assessed against any Pharmacyclics Indemnitees that arise out of or
incident to injury or death of persons or damage to or destruction of property
caused or alleged to be caused by: (i) the negligence, recklessness or willful
misconduct of Alcon or its officers or employees; or (ii) any representation
made or warranty given by Alcon with respect to the Licensed Product (other than
the labeling for the Licensed Product as approved by the FDA, EMEA or Health
Authority). In the event of any such claim against or Costs incurred by any of
the Pharmacyclics Indemnitees, Pharmacyclics shall promptly notify Alcon of such
claim or Costs. Alcon shall manage and control, at its sole expense, the defense
and/or settlement of any such claim against a Pharmacyclics Indemnitee. The
Pharmacyclics Indemnitees shall cooperate with Alcon and may, at their option
and expense, be represented in (but not control) any such action or proceeding.
Alcon shall not be liable for any settlement entered into or cost or expense
incurred by the Pharmacyclics Indemnitees in relation to any such action or
proceeding without Alcon's written authorization (unless Alcon shall have failed
to assume management and control of the defense and settlement of the matter as
provided above in this Section 10.1).
10.2 INDEMNIFICATION BY PHARMACYCLICS. Except for Costs covered by Section
10.1, Pharmacyclics shall indemnify, defend and hold harmless Alcon, its
Affiliates and sublicensees and all officers, directors, employees and agents
thereof (collectively, "Alcon Indemnitees") from all Costs, whether the
foregoing are based in contract, tort, negligence or product liability, incurred
by or assessed against any Alcon Indemnitees that arise out of or incident to
injury or death of persons or damage to or destruction of any property caused or
alleged to be caused by the negligence, recklessness or willful misconduct of
Pharmacyclics or its officers or employees. In
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the event of any such claim against or Costs incurred by any of the Alcon
Indemnitees, Alcon shall promptly notify Pharmacyclics of such claim or Costs.
Pharmacyclics shall manage and control, at its sole expense, the defense and/or
settlement of any such claim against an Alcon Indemnitee. The Alcon Indemnitees
shall cooperate with Pharmacyclics and may, at their option and expense, be
represented in (but not control) any such action or proceeding. Pharmacyclics
shall not be liable for any settlement entered into or cost or expense incurred
by the Alcon Indemnitees in relation to any such action or proceeding without
Pharmacyclics' written authorization (unless Pharmacyclics shall have failed to
assume management and control of the defense and settlement of the matter as
provided above in this Section 10.2).
11. INTELLECTUAL PROPERTY DEVELOPED POST-EVALUATION PERIOD.
11.1 OWNERSHIP OF INTELLECTUAL PROPERTY.
(a) Except as provided in this Agreement, Pharmacyclics shall retain
all of its right, title and interest in and to all Pharmacyclics Technology,
copyrights, trade marks, trade name, and all other intellectual property owned
by it as of the Effective Date which is embodied in or appurtenant to Licensed
Products.
(b) Ownership of inventions (whether or not patentable) arising from
work performed after the Evaluation Period, if any, pursuant to this Agreement
shall be determined in accordance with the principles of United States laws of
inventorship.
11.2 LICENSES.
(a) LICENSE FOR USE OUTSIDE THE FIELD OF OPHTHALMOLOGY. Alcon hereby
grants to Pharmacyclics a worldwide, non-exclusive, royalty-free license, with
the right to sublicense, under the Alcon Post-Evaluation Period Intellectual
Property, to make, use, sell, offer for sale and import Licensed Product and any
Device outside the Field. For purposes of this Section 11.2, "Alcon
Post-Evaluation Period Intellectual Property" shall mean all patentable and
non-patentable inventions, know-how, technology, data, and analyses of results
relating to PCI-0123, other Licensed Products and Devices that are developed
after the Evaluation Period by employees, agents or others acting on behalf of
Alcon.
11.3 PATENT PROSECUTION AND MAINTENANCE.
(a) Pharmacyclics has the sole right to continue prosecution and
maintenance of the Pharmacyclics Patents, at its own expense. Pharmacyclics
shall provide Alcon with copies of all patent applications, prosecution
documents, correspondence with government entities, and other information that
Alcon may request with respect to the Pharmacyclics Patents.
(b) Pharmacyclics shall have the right, at its option, to prepare,
file and prosecute any patent applications with respect to any Pharmacyclics
Inventions owned solely by Pharmacyclics. In connection therewith, Alcon agrees
to cooperate with Pharmacyclics in the preparation and prosecution of all such
patent applications and in the maintenance of any patents issued.
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(c) The Parties shall mutually determine which Party shall file,
prosecute and maintain patent applications with respect to inventions jointly
owned by Pharmacyclics and Alcon. The Parties shall bear all out-of-pocket costs
of such patents equally, and shall cooperate with each other in connection with
all such filings. Each Party shall have the right to review and comment on any
joint patent application prior to its filing, and to consult with the filing
Party with respect to prosecution of such application.
(d) Alcon shall have the right, at its option, to prepare, file,
prosecute and maintain any patent applications with respect to any Alcon
Inventions owned solely by Alcon. With respect to the Alcon Patents, and in
connection therewith, Pharmacyclics agrees to cooperate with Alcon in the
preparation and prosecution of all such patent applications and in the
maintenance of any patents issued. Alcon shall provide Pharmacyclics with copies
of all patent applications, prosecution documents, correspondence with
government entities, and other information that Pharmacyclics may request with
respect to the Alcon Patents.
11.4 INFRINGEMENT OF THIRD PARTY PATENTS.
(a) If a third party asserts that a patent or other proprietary right
owned by it is infringed by the manufacture, use, importation, offer for sale or
sale of a Licensed Product in the Field and in the Territory and such alleged
infringement arises in whole or in part from Alcon's use of the Pharmacyclics
Technology (a "Claim"), the Party against whom such a Claim was asserted shall
immediately provide the other Party notice of such Claim and the related facts
in reasonable detail. Unless it is mutually agreed that the Parties should
proceed jointly in defending such an action, the Party sued shall defend such
action. The other Party shall cooperate in connection therewith and shall have
the right to be represented separately by counsel of its own choice, at its own
expense. The entity (whether Pharmacyclics or Alcon) that controls the defense
of such a Claim with respect to the Licensed Product in the Field and in the
Territory shall also have the right to control settlement of such Claim;
provided, however, that no settlement shall be entered into without the consent
of the other Party. To the extent that any of the costs set forth in clauses
(i), (ii) or (iii) of this sentence are attributable to infringement arising
from Alcon's use of the Pharmacyclics Technology, Alcon shall have the right to
deduct from and offset against royalties otherwise payable to Pharmacyclics
under Section 4.4(a), the following: (i) all litigation costs related to such
Claim; (ii) any money damages paid by Alcon or its Affiliates pursuant to any
judgment or settlement resulting from such Claim; and (iii) any royalty that
Alcon and/or its Affiliates and sublicensees are required to pay to a third
party in settlement of such Claim in order to continue to exercise Alcon's
license rights as set forth in this Agreement. Notwithstanding the foregoing, in
no event shall royalties owed Pharmacyclics under Section 4.4(a) be reduced by
more than (*) in any given royalty period.
(b) In the event a third party asserts that a patent or other
proprietary right owned by it is infringed by Pharmacyclics or its Affiliates as
a consequence of Alcon's manufacture, use, importation, offer for sale or sale
of a Licensed Product in the Field and in the Territory and such alleged
infringement does not arise from Alcon's use of the Pharmacyclics Technology,
Alcon shall indemnify and hold harmless Pharmacyclics, its Affiliates and
sublicensees and all officers, directors, employees and agents thereof from all
damages, losses,
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
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claims, judgments, liabilities, cost and expenses, including without limitation,
reasonable attorneys fees and expenses arising from such third party claims.
11.5 THIRD PARTY INFRINGEMENT/MISAPPROPRIATION.
(a) If either Party becomes aware of any infringement of the
Pharmacyclics Patents or misappropriation of the Pharmacyclics Know-How by a
third party in the Territory in the Field, such Party shall promptly give notice
thereof to the other Party and shall provide the other Party with any evidence
or other information in its possession relating to such infringement or
misappropriation. The Parties shall thereupon consult together in good faith as
to the action to be taken.
(b)
(1) Pharmacyclics shall have the first right, but not the
obligation, to commence legal proceedings against any infringer of any
Pharmacyclics Patent or misappropriation of Pharmacyclics Know-How in the
Territory in the Field and in this case (subject to the provisions of the next
two sentences) any damages recovered shall belong to Pharmacyclics. In the event
Pharmacyclics commences such legal proceedings, Alcon may join in such
proceedings within sixty (60) days after its receipt of notice from
Pharmacyclics of the commencement of such proceedings if Alcon agrees to pay an
amount equal to fifty percent (50%) of the cost of such proceedings. In such
event, any damages, settlement fees or other consideration for past or future
infringement in the Field and in the Territory received as a result of such
proceedings shall be shared by Pharmacyclics and Alcon equally.
(2) In the event Pharmacyclics does not initiate such
proceedings, Alcon may commence legal proceedings against any infringer of any
Pharmacyclics Patent or misappropriation of Pharmacyclics Know-How in the
Territory in the Field, and Pharmacyclics may join in such proceedings within
sixty (60) days after its receipt of notice from Alcon of the commencement of
such proceedings if Pharmacyclics agrees to pay an amount equal to fifty percent
(50%) of the cost of such proceedings. In such event, any damages, settlement
fees or other consideration for past or future infringement in the Field and in
the Territory received as a result of such proceedings shall be shared by
Pharmacyclics and Alcon equally. If Pharmacyclics does not commence or join any
legal proceedings against the infringement or misappropriation in the Territory
in the Field, Alcon may at its own cost and expense, and in its own name,
commence such legal proceedings and in such case any damages recovered shall
belong to Alcon. Further, in such event, Pharmacyclics shall cooperate with
Alcon as reasonably requested by Alcon and at Alcon's expense, and with respect
to any legal proceedings brought by Alcon, Pharmacyclics shall agree to be named
as a party thereto, provided that Alcon agrees to indemnify, defend and hold
harmless Pharmacyclics from all costs incurred by or assessed against
Pharmacyclics in connection with any actions or counterclaims relating to such
legal proceedings except in the case that the applicable Pharmacyclics Patent(s)
are invalidated, and, except for costs incurred by or assessed against
Pharmacyclics as a result of Pharmacyclics' negligence or willful misconduct
directly related to such proceedings.
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11.6 LOSS OF EXCLUSIVITY. In the event any federal agency exercises
march-in-rights as to any Licensed Product contemplated hereunder, Alcon shall
be afforded most favored licensee status with respect to any licenses granted in
the exercise of such march-in-rights, and shall be entitled to adopt the terms
of any such license deemed by Alcon to be more favorable to Alcon, and/or any
lower royalty rates; provided, however, that such march-in by any federal agency
was not enabled by Alcon's failure to achieve practical application of a
Licensed Product as defined in 35 U.S.C. Section 203. Pharmacyclics shall give
immediate notice to Alcon of any exercised march-in-rights.
12. WARRANTIES AND REPRESENTATIONS.
12.1 AUTHORIZATION. Each Party hereto represents and warrants to the other
that its execution and delivery hereof has been duly authorized by all necessary
corporate action and that the terms and conditions of this Agreement, and its
obligations hereunder, do not conflict with or violate any terms or conditions
of any other agreement or commitment to which it is a signatory or by which it
is bound.
12.2 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
PHARMACYCLICS TECHNOLOGY IS PROVIDED TO ALCON HEREUNDER WITH NO WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF DESIGN, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
12.3 WARRANTY. Pharmacyclics expressly warrants that, to the best of its
knowledge and as of the Effective Date, Alcon is free to practice, including the
marketing and sale of, any of the Licensed Products contemplated hereunder, and
that Pharmacyclics has no knowledge of any patents which could so encumber
Alcon.
13. TERM. The Term of this Agreement ("Term") shall run from the Effective
Date and terminate upon the last to expire of all royalty or other payment
obligations hereunder, or as earlier terminated pursuant to Article 14.
14. TERMINATION.
14.1 DURING EVALUATION PERIOD.
(a) TERMINATION BY ALCON. During the Evaluation Period, Alcon may
terminate this Agreement for any reason upon thirty (30) days written notice to
Pharmacyclics.
(b) TERMINATION BY PHARMACYCLICS. If, during the Evaluation Period,
Alcon initiates evaluation of a Competitive Product, other than for competitive
comparison, or initiates the development of, or commences in-licensing
discussions for, a Competitive Product, then Pharmacyclics shall have the right
to immediately terminate this Agreement. Alcon shall promptly notify
Pharmacyclics if it undertakes any of the above activities.
14.2 EARLY TERMINATION BY ALCON. Following the Determination, Alcon may
terminate this Agreement for any reason or no reason, upon ninety (90) days
written notice to
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Pharmacyclics. In the event of any such termination, the provisions of Section
14.3(a) through (e) shall apply.
14.3 EARLY TERMINATION BY PHARMACYCLICS. Failure by Alcon to comply with
any of its material obligations and conditions in this Agreement shall be
considered a breach of this Agreement, and shall entitle Pharmacyclics to give
Alcon notice requiring Alcon to cure such breach. Alcon shall have sixty (60)
days to cure any such breach, except for breaches arising from failure to pay,
in which case Alcon shall have twenty (20) days to cure. In the event Alcon does
not cure any such breach in the time provided, Pharmacyclics may terminate this
Agreement by giving notice to take effect immediately. Upon any termination
under this Section 14.3, Pharmacyclics shall be entitled to such remedies as are
available at law and in equity and in addition:
(a) all licenses granted to Alcon under this Agreement shall
terminate, except for the license grant contained in Section 2.6;
(b) Pharmacyclics may, at its option, assume sponsorship of any
clinical trials for the Licensed Product in the Field then in effect. In
addition, Alcon will transfer to Pharmacyclics ownership of any Regulatory
Filings (as such term is defined in Section 9.1); provided, however, that
Pharmacyclics first reimburse Alcon for all of Alcon's out-of-pocket development
costs related to such trials and any MAAs and/or NDAs. Upon receipt of such
reimbursement, Alcon will use reasonable best efforts to cooperate with
Pharmacyclics and all government entities in causing such transfer to occur.
Alcon will bring all documentation relating to clinical trials up to date and
will transfer ownership of such documentation to Pharmacyclics;
(c) Alcon may sell off any existing inventory of Licensed Product,
provided it continues to comply with its payment obligations related thereto;
(d) To the extent not previously provided, Alcon shall transfer to
Pharmacyclics copies of all files, information, raw data, analyses and reports
relating to the Licensed Product and Devices and (i) with respect to Licensed
Product, Pharmacyclics and its licensees shall have the right to use such files,
information, raw data, analyses and reports both inside and outside of the Field
and (ii), with respect to Devices, to the extent not precluded by third-party
agreements, Pharmacyclics and its licensees shall have the right to use such
files, information, raw data, analyses and reports both inside and outside of
the Field;
(e) Pharmacyclics will grant to Alcon a worldwide, non-exclusive,
royalty-free license, without right to sublicense, under the Pharmacyclics
Post-Evaluation Period Intellectual Property, to make, use, sell, offer for sale
and import any Device inside the Field. For purposes of this Section 14.3(e),
"Pharmacyclics Post-Evaluation Period Intellectual Property" shall mean all
patentable and non-patentable inventions, know-how, technology, data, and
analyses of results relating to Devices, that are developed after the Evaluation
Period by employees, agents or others acting on behalf of Pharmacyclics.
Notwithstanding the foregoing, and without prejudice to Pharmacyclics' right to
terminate this Agreement under this Section 14.3, Pharmacyclics shall refer the
dispute (Alcon's material
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breach) to the CEOs of both parties for resolution for a ninety (90) day period
prior to taking any legal action against Alcon.
14.4 TERMINATION BY ALCON. Failure by Pharmacyclics to comply with any of
its material obligations and conditions in this Agreement shall be considered a
breach of this Agreement, and shall entitle Alcon to give Pharmacyclics notice
requiring Pharmacyclics to cure any such breach within sixty (60) days. Any
alleged breach or default under a Pharmacyclics Supply Agreement or any alleged
breach by Pharmacyclics' suppliers shall not be considered a breach or default
by Pharmacyclics of this Agreement. In the event Pharmacyclics fails to cure
such breach within the time provided, Alcon may terminate this Agreement. Upon
any termination under this Section 14.4, Alcon shall be entitled to such
remedies as are available at law and in equity and in addition:
(a) Alcon may sell off any existing inventory of Licensed Product,
provided it continues to comply with its payment obligations related thereto;
and
(b) Alcon shall retain ownership of all INDs, MAAs, NDAs or MAs which
relate to the Licensed Product and the Device(s).
(c) To the extent not previously provided, Pharmacyclics shall
transfer to Alcon copies of all files, information, raw data, analyses and
reports relating to the Devices and, to the extent not precluded by third-party
agreements, Alcon and its licensees shall have the right to use such files,
information, raw data, analyses and reports as they relate to Devices inside the
Field;
(d) Pharmacyclics will grant to Alcon a worldwide, non-exclusive,
royalty-free license, without right to sublicense, under the Pharmacyclics
Post-Evaluation Period Intellectual Property, to make, use, sell, offer for sale
and import any Device inside the Field. For purposes of this Section 14.4(d),
"Pharmacyclics Post-Evaluation Period Intellectual Property" shall mean all
patentable and non-patentable inventions, know-how, technology, data, and
analyses of results relating to Devices, that are developed after the Evaluation
Period by employees, agents or others acting on behalf of Pharmacyclics.
Notwithstanding the foregoing, and without prejudice to Alcon's right to
terminate this Agreement under this Section 14.4, Alcon shall refer the dispute
(Pharmacyclics' material breach) to the CEOs of both parties for resolution for
a ninety (90) day period prior to taking any legal action against Pharmacyclics.
14.5 TERMINATION FOR A COMPETITIVE PRODUCT. Pharmacyclics shall have the
right to terminate this agreement under the conditions set forth in Section 3.8.
In the event of any such termination, the provisions of Section 14.3(a) through
(e) shall apply.
14.6 DAMAGES. IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A
CLAIM OR ACTION OF
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CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE,
ARISING OUT OF THIS AGREEMENT.
14.7 WAIVER. The right of either Party to terminate this Agreement, as
hereinabove provided, shall not be affected in any way by its waiver of, or
failure to take action with respect to, any previous default. 14.8 SURVIVAL.
Notwithstanding anything else in this Agreement to the contrary, the Parties
agree that Section 2.6 and Articles 10, 11, 12 and 15 shall survive the
termination or expiration of this Agreement, as the case may be, to the extent
required thereby for the full observation and performance by either or both of
the Parties hereto.
14.8 SURVIVAL. Notwithstanding anything else in this Agreement to the
contrary, the Parties agree that Section 2.6 and Articles 10, 11, 12 and 15
shall survive the termination or expiration of this Agreement, as the case may
be, to the extent required thereby for the full observation and performance by
either or both of the Parties hereto.
15. CONFIDENTIALITY.
15.1 CONFIDENTIAL INFORMATION. All information considered confidential by
the disclosing party shall be marked "Confidential" or, if disclosed in a manner
other than a document shall be followed within thirty (30) days by a written
statement describing the information and identifying it as confidential.
15.2 TREATMENT OF CONFIDENTIAL INFORMATION. Each party shall treat all
information obtained from the other party in the manner described above or
developed pursuant to this Agreement ("Confidential Information") as secret and
shall not disclose any of such Confidential Information to any third party.
Furthermore, the parties shall not use Confidential Information, except for the
purpose of exercising the rights granted and performing their obligations
hereunder. The foregoing obligations of confidential treatment and non-use shall
expire five (5) years from the date of termination of this Agreement.
15.3 EXCEPTIONS. The above obligations do not apply to Confidential
Information, which:
(a) at the time of disclosure is in the public domain; or
(b) thereafter lawfully becomes a part of the public domain other than
through disclosure by or through the receiving party; or
(c) was known to the receiving party prior to the disclosure thereof
by the disclosing party, as evidenced in the receiving party's written records;
or
(d) is disclosed to the receiving party by a third party not under
obligation of confidentiality to the disclosing party with respect to said
disclosure; or
(e) is subsequently developed by an employee of the receiving party
without actual knowledge of its disclosure by the disclosing party; or
(f) the receiving party is required by law (including the rules and
regulations of the SEC or a national exchange on which its stock is traded, or
the FDA or foreign counterpart
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thereto) to disclose, provided that it gives the disclosing party reasonable
notice of its intent to disclose such information
15.4 TERMS OF THIS AGREEMENT. Subject to Article 16 the Parties agree that
the existence and terms of this Agreement shall be considered Confidential
Information subject to Section 15.2, except that relevant portions of the
Agreement may be confidentially disclosed to any Pharmacyclics licensees or
potential licensees, wherein such licensees are licensing a Licensed Product for
use outside the Field, and wherein such relevant portions are for the purpose of
informing the Pharmacyclics licensees of their rights and obligations under any
agreement made with Pharmacyclics. Likewise, Pharmacyclics shall confidentially
disclose to Alcon, relevant portions of any agreement made with a third party
licensee, wherein such licensees are licensing a Licensed Product for use
outside the Field, and wherein such relevant portions are for the purpose of
informing Alcon of its rights and obligations under this Agreement.
15.5 PRIOR CONFIDENTIALITY AGREEMENTS. Information disclosed under the
terms of the confidentiality agreements by and between the parties dated April
3, 1996 and August 7, 1997 shall be covered by the terms of this Article 15.
16. PUBLICITY.
16.1 The Parties agree that, subject to the terms of this Article 16, with
respect to any press releases regarding this Agreement, each shall review the
other Party's proposed press releases prior to their distribution to the media
and public. The initial press releases have been approved by the parties as of
the Effective Date. Subject to Article 15, if, within forty-eight (48) hours of
receipt of any subsequent press release, the receiving Party does not object to
its contents, the receiving Party's acceptance shall be deemed to have been
given, and the disclosing Party shall be free to distribute the press release.
If the receiving Party does object to the contents of the press release within
forty-eight (48) hours of its receipt, the Parties agree to discuss within the
following forty-eight (48) hours a mutually acceptable solution.
16.2 Notwithstanding Section 16.1, if a Party's proposed press release uses
language which is substantially similar with respect to this Agreement as
language in a previous press release which was approved by the other party, no
review by the other party is required.
17. FORCE MAJEURE. Neither Party shall be considered in default or be liable to
the other Party for any delay in performance or non-performance caused by
circumstances beyond the reasonable control of such Party, including but not
limited to acts of God, explosion, fire, flood, war, whether declared or not,
accident, labor strike, sabotage order or decrees or any court or action of
governmental authority.
18. SUCCESSION AND ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either Party without the prior written consent of the other
Party, which shall not be unreasonably withheld or delayed; provided that either
Party may assign this Agreement or any of its rights hereunder to any of its
Affiliates (although, in such event, Alcon shall assure that its Affiliates
perform all of Alcon's obligations set forth in this Agreement); and provided
further, that either Party may assign this Agreement in connection with the
merger, consolidation, transfer
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or sale of substantially all of the assets the business unit to which this
Agreement relates. Any purported assignment in violation of the preceding
sentence shall be void. Any permitted assignee shall assume all obligations of
its assignor under this Agreement. No assignment shall relieve either Party of
responsibility for the performance of any accrued obligation which such Party
then has hereunder.
19. NOTICES. Any notice or report required or permitted to be given or made
under this Agreement by one of the Parties to the other shall be in writing and
shall be deemed to have been delivered upon personal delivery or (a) in the case
of notices provided between Parties in the continental United States,
forty-eight (48) hours after deposit in the mail or noon on the business day
next following deposit with a reputable overnight courier, (b) in the case of
notices provided between Parties, at least one of which is outside the United
States, ten (10) days after deposit in the mail or noon on the second business
day next following deposit with a reputable overnight express courier service,
and (c) in the case of notices provided by telecopy (which notice shall be
followed immediately by an additional notice pursuant to clause (a) or (b) above
if the notice is of a default hereunder)' upon completion of transmissions to
the addressee's telecopier, as follows (or at such other addresses or facsimile
numbers as may have been furnished in writing by one of the Parties to the other
as provided in this Section 19):
If to Pharmacyclics: Pharmacyclics, Inc.
995 E. Arques Avenue
Sunnyvale, CA
94086-4521
U.S.A.
Attention: Marc Steuer, Vice President,
Business Development
If to Alcon: Alcon Pharmaceuticals Ltd.
Sinserstrasse 47
CH-6330 Cham
Switzerland
Attention: Guido Koller, General Manager
With a copy to: Alcon Laboratories, Inc.
6201 South Freeway
Fort Worth, Texas 76134
U.S.A
Attention: James Arno, Ph.D.
Vice President, Intellectual Property Law
and R&D Counsel
20. AFFILIATES. To the extent that any obligations or agreements are imposed
upon Affiliates of a Party under this Agreement, such Party shall cause
such Affiliates to fulfill such obligations and agreements.
21. WAIVER. Failure of either Party to require, in one or more instances,
performance by the other Party in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment
of the future performance of any such terms and conditions or of any other
term and condition of this Agreement.
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22. ENTIRE AGREEMENT AND AMENDMENT; TITLES.
22.1 ENTIRE AGREEMENT. This Agreement, together with its Appendices,
constitutes the entire agreement between the Parties with respect to the subject
matter hereof. In the event of an inconsistency between the text of this
Agreement and one or more Appendices, the text of this Agreement shall prevail.
It cancels and supersedes all prior written and oral agreements, understandings
and declarations between the Parties in respect of the subject matter of this
Agreement.
22.2 TITLES. The titles of the Sections of this Agreement are for general
reference and convenience only and this Agreement shall not be construed and
interpreted by reference to such titles.
23. SEVERABILITY. In case one or several provisions of this Agreement should be
declared ineffective or void by any court of competent jurisdiction or a
government agency having jurisdiction, such declaration shall not affect the
remainder of this Agreement which will remain in full force and effect. The
provisions which were declared ineffective or void shall be replaced by new
effective ones which shall be in their sense and regarding the intentions of the
Parties in respect of this Agreement as similar as possible to the provisions
ineffective or void.
24. NO AGENCY. Nothing herein shall be deemed to constitute either Party as the
agent or representative of the other Party, or both Parties as joint venturers
or partners for any purpose. Except as set forth herein, neither Party shall be
responsible for the acts or omissions of the other Party, and neither Party will
have authority to act on behalf of, represent or obligate the other Party in any
way without prior written authority from the other Party.
25. GOVERNING LAW. This Agreement is governed by, and construed in accordance
with, the laws of the State of California without reference to choice of law
principles. Any claim or controversy arising out of or related to this Agreement
or any breach hereof shall be submitted to a court of applicable jurisdiction in
the State of California, and each party hereby consents to the jurisdiction and
venue of such court.
26. MODIFICATIONS. Any modification or addition to this Agreement shall be
valid only if it is confirmed in writing by the duly authorized officers of both
Parties.
34.
<PAGE> 35
27. LITIGATION. If any party to this agreement institutes legal proceedings
against the other party with respect to this Agreement, the losing or defaulting
party shall pay the prevailing party reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of the action.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives as of the date
first above written.
Pharmacyclics, Inc. Alcon Pharmaceuticals Ltd.
By: /s/ Marc Steuer By: /s/ [ILLEGIBLE]
---------------------------------- ------------------------------
Title: VP/CFO Title: Gen. Mgr.
------------------------------- ---------------------------
Date: 16-DEC '97 Date: Dec. 16, 1997
-------------------------------- ----------------------------
Appendices attached hereto:
Appendix A: PCI-0123
Appendix B: Pharmacyclics Patents
Appendix C: Structure of Texaphyrin
Appendix D: Evaluation Plan
Appendix E: PCI-0123 Substance Specifications
Appendix F: PCI-0123 Formulation Specification
Appendix G: Initial Timeline and Development Plan for United States,
Europe and Japan
35.
<PAGE> 36
APPENDIX A
PCI-0123 STRUCTURE
[GRAPHIC OMITTED]
36.
<PAGE> 37
APPENDIX B
PHARMACYCLICS PATENTS AND PATENT APPLICATIONS:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Title Country Pat./Appln. No.
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Metal Complexes of Water-Soluble Texaphyrins Australia Pat. 664877
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
New Zealand Pat. 246795
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
(*) (*)
- -----------------------------------------------------------------------------------------------------------
United States Pat. 5,252,720
- -----------------------------------------------------------------------------------------------------------
Hydroxylated Texaphyrins United States Pat. 5,457,183
- -----------------------------------------------------------------------------------------------------------
Metal Complexes of Texaphyrins United States (*)
- -----------------------------------------------------------------------------------------------------------
Use of Texaphyrins in Ocular Diagnosis and Therapy United States (*)
- -----------------------------------------------------------------------------------------------------------
PCT* (*)
- -----------------------------------------------------------------------------------------------------------
Water-Soluble Texaphyrin Metal Complexes United States Pat. 5,439,570
for Singlet Oxygen Production
- -----------------------------------------------------------------------------------------------------------
Photodynamic Therapy of Pigment-Related Lesions PCT* (*)
- -----------------------------------------------------------------------------------------------------------
United States (*)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
37.
<PAGE> 38
APPENDIX C
TEXAPHYRIN STRUCTURE
BASIC TEXAPHYRIN CORE STRUCTURE:
[GRAPHIC OMITTED]
BASIC TEXAPHYRIN CORE STRUCTURE, SHOWING THE TYPICAL SITES OF MODIFICATION:
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Structure (i), showing Structure (ii), showing
non-nitrogen substitutions: nitrogen substitutions:
38.
<PAGE> 39
APPENDIX D
EVALUATION PLAN
(*)
(*)
(*)
(*)
(*)
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
39.
<PAGE> 40
If the results indicate an ophthalmic safety and efficacy profile acceptable to
Alcon, then LuTex will be developed as described on the following pages.
- --------------------------------------------------------------------------------
PCI-0123 SUPPLIES ESTIMATE FOR THE PROGRAM
PCI-0123 SUBSTANCE:
(*)
PCI-0123 FORMULATION: (assumption 0.23% PCI-0123/ml; 20 ml vials - SERES lots
unless Celanese lots are qualified)
(*)
* These amounts of PCI-0123 Substance and PCI-0123 Formulation will be provided
pursuant to a purchase order delivered by Alcon to Pharmacyclics promptly after
the Effective Date.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
40.
<PAGE> 41
APPENDIX E
DRUG SUBSTANCE SPECIFICATIONS:
I. EVALUATION PERIOD. It is understood that the Drug Substance
specifications for the Evaluation Plan will meet the current Drug Substance
profile produced by SERES, and as specified in Table 1, unless Drug Substance
becomes available from HCC
TABLE 1
Testing Requirements Method Specifications
(*) (*) (*)
================================================================================
(*) (*) (*)
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
41.
<PAGE> 42
II. POST EVALUATION PERIOD. It is understood that the Drug
Substance will be produced by HCC with a demonstrated validated process
consistent with regulatory agencies/committees (i.e., FDA, EMEA, CPMP, MOH, ICH)
guidelines. In the event HCC is unable to meet the specifications in Table 2,
Pharmacyclics will be responsible for chemical and toxicological studies
necessary to establish the suitability of the Drug Substance in meeting the
above regulatory guidelines. Notwithstanding the foregoing, Alcon shall be
responsible for funding and conducting any studies specifically related to
ocular toxicity.
TABLE 2
Test Specifications
(*) (*)
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
42.
<PAGE> 43
APPENDIX F
PCI-0123 FORMULATION SPECIFICATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM: LUTETIUM TEXAPHYRIN (PCI-0123) INJECTION 2 MG/ML
TESTING REQUIREMENTS METHOD SPECIFICATIONS
<S> <C> <C>
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*) (*)
(*) (*)
- -------------------------------------------------------------------------------
</TABLE>
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
43.
<PAGE> 44
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM: LUTETIUM TEXAPHYRIN (PCI-0123) INJECTION 2 MG/ML
COMPOSITION PERCENT DEFINED AS [W/V]
<S> <C>
(*) (*)
(*) (*)
(*) (*)
(*) (*)
Store under refrigeration (2(Degree)-8(Degree) C). Do not freeze.
- -------------------------------------------------------------------------------
</TABLE>
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
44.
<PAGE> 45
APPENDIX G
INITIAL TIMELINE AND DEVELOPMENT PLAN FOR UNITED STATES, EUROPE AND JAPAN
DEVELOPMENT PLAN:
o OBJECTIVE:
(*)
o PERFORMANCE PROFILE:
(*)
o APPROACH:
(*)
ESTIMATED DEVELOPMENT EVENTS:
(*)
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 406.
45.
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS.................................................................................1
1.1 Affiliate............................................................................1
1.2 Alcon Inventions.....................................................................1
1.3 Alcon Patents........................................................................1
1.4 Competitive Product..................................................................2
1.5 Confidential Information.............................................................2
1.6 Determination........................................................................2
1.7 Device...............................................................................2
1.8 Drug Substance.......................................................................2
1.9 EMEA.................................................................................2
1.10 Extended Lutetium Texaphyrin.........................................................2
1.11 Evaluation Period....................................................................2
1.12 Evaluation Plan......................................................................2
1.13 FDA..................................................................................2
1.14 FD&C Act.............................................................................2
1.15 Field................................................................................2
1.16 Fill and Finish......................................................................2
1.17 First Commercial Sale................................................................2
1.18 Good Clinical Practices..............................................................2
1.19 Good Laboratory Practices............................................................2
1.20 Good Manufacturing Practices.........................................................3
1.21 Health Authority.....................................................................3
1.22 HC Agreement.........................................................................3
1.23 HCC..................................................................................3
1.24 IND..................................................................................3
1.25 Licensed Product.....................................................................3
1.26 Lutetium Texaphyrin..................................................................3
1.27 MA...................................................................................3
1.28 MAA..................................................................................3
1.29 NDA..................................................................................3
</TABLE>
i.
<PAGE> 47
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
1.30 Net Sales............................................................................3
1.31 Non-Lutetium Texaphyrin..............................................................4
1.32 Party................................................................................4
1.33 PCI-0123.............................................................................4
1.34 PCI-0123 Formulation.................................................................4
1.35 PCI-0123 Substance...................................................................4
1.36 Pharmacyclics Inventions.............................................................4
1.37 Pharmacyclics Know-How...............................................................4
1.38 Pharmacyclics Patents................................................................5
1.39 Pharmacyclics Technology.............................................................5
1.40 Phase II.............................................................................5
1.41 Phase III............................................................................5
1.42 PDT or Photodynamic Therapy..........................................................5
1.43 Program..............................................................................5
1.44 Program Intellectual Property........................................................5
1.45 Term.................................................................................5
1.46 Territory............................................................................5
1.47 Texaphyrin...........................................................................5
1.48 UT License...........................................................................5
2. EVALUATION PROGRAM..........................................................................5
2.1 Preparation and Conduct of Evaluation Plan...........................................5
2.2 Cost of the Program..................................................................6
2.3 Compliance with Law..................................................................6
2.4 Supply of PCI-0123 Substance and PCI-0123 Formulation................................6
2.5 Acquisition of Device................................................................6
2.6 Intellectual Property Developed during the Evaluation Period.........................6
2.7 Exchange of Information; Reports during the Evaluation Period........................7
2.8 Development and Commercialization Determination......................................8
3. LICENSE GRANTS; EXCLUSIVITY.................................................................9
3.1 Development and Evaluation Licenses..................................................9
</TABLE>
ii.
<PAGE> 48
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
3.2 Commercialization License.............................................................9
3.3 UT License............................................................................9
3.4 Sublicense Rights.....................................................................9
3.5 Rights Upon Expiration................................................................9
3.6 Exclusivity; Right of First Negotiation...............................................9
3.7 Covenants of Alcon...................................................................12
3.8 Competitive Products.................................................................12
3.9 Development of Licensed Products Outside The Field...................................14
3.10 Modifications to Licensed Product....................................................15
3.11 Additional Licensed Products.........................................................16
4. LICENSE FEE, MILESTONE PAYMENTS AND ROYALTIES...............................................16
4.1 Technology Access Fee................................................................16
4.2 License Fee..........................................................................16
4.3 Milestone Payments...................................................................16
4.4 Royalties............................................................................17
4.5 Duration of Royalty Payments.........................................................18
5. PAYMENTS, REPORTS AND RECORDS...............................................................19
5.1 Payments.............................................................................19
5.2 Late Payments........................................................................19
5.3 Exchange Rates; Blocked Currency.....................................................19
6. MANUFACTURE AND SUPPLY OF LICENSED PRODUCT..................................................20
6.1 Supply of Drug Substance..............................................................20
6.2 Fill and Finish of Licensed Products..................................................20
6.3 Formulation Work......................................................................21
6.4 Standby License.......................................................................21
7. MANUFACTURE AND SUPPLY OF DEVICES...........................................................21
8. DILIGENCE IN DEVELOPMENT AND COMMERCIALIZATION..............................................22
8.1 Development Strategy..................................................................22
8.2 Development of Licensed Product.......................................................22
8.3 Marketing Efforts; Required Markets...................................................22
</TABLE>
iii.
<PAGE> 49
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8.4 Reports and Data......................................................................23
8.5 Marketing Restrictions................................................................23
8.6 Trademark.............................................................................23
8.7 Packaging.............................................................................23
8.8 Costs.................................................................................23
9. REGULATORY MATTERS..........................................................................23
9.1 Government Approval...................................................................23
9.2 Right to Reference Data...............................................................24
9.3 Adverse Reaction Reporting............................................................24
9.4 Compliance............................................................................25
10. LIABILITY AND INDEMNIFICATION..............................................................25
10.1 Indemnification by Alcon..............................................................25
10.2 Indemnification by Pharmacyclics......................................................25
11.INTELLECTUAL PROPERTY DEVELOPED POST-EVALUATION PERIOD......................................26
11.1 Ownership of Intellectual Property....................................................26
11.2 Licenses..............................................................................26
11.3 Patent Prosecution and Maintenance....................................................26
11.4 Infringement of Third Party Patents...................................................27
11.5 Third Party Infringement/Misappropriation.............................................27
11.6 Loss of Exclusivity...................................................................28
12. WARRANTIES AND REPRESENTATIONS.............................................................29
12.1 Authorization.........................................................................29
12.2 Disclaimer............................................................................29
12.3 Warranty..............................................................................29
13. TERM.......................................................................................29
14. TERMINATION................................................................................29
14.1 During Evaluation Period..............................................................29
14.2 Early Termination by Alcon............................................................29
14.3 Early Termination by Pharmacyclics....................................................29
14.4 Termination by Alcon..................................................................30
</TABLE>
iv.
<PAGE> 50
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
14.5 Termination for a Competitive Product.................................................31
14.6 Damages...............................................................................31
14.7 Waiver................................................................................31
14.8 Survival..............................................................................32
15. CONFIDENTIALITY............................................................................32
15.1 Confidential Information.............................................................32
15.2 Treatment of Confidential Information................................................32
15.3 Exceptions...........................................................................32
15.4 Terms of this Agreement..............................................................32
15.5 Prior Confidentiality Agreements.....................................................33
16. PUBLICITY..................................................................................33
17. FORCE MAJEURE..............................................................................33
18. SUCCESSION AND ASSIGNMENT..................................................................33
19. NOTICES....................................................................................34
20. AFFILIATES.................................................................................34
21. WAIVER.....................................................................................34
22. ENTIRE AGREEMENT AND AMENDMENT; TITLES.....................................................35
22.1 Entire Agreement.....................................................................35
22.2 Titles...............................................................................35
23. SEVERABILITY...............................................................................35
24. NO AGENCY..................................................................................35
25. GOVERNING LAW..............................................................................35
26. MODIFICATIONS..............................................................................35
27. LITIGATION.................................................................................36
</TABLE>
v.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
consisting part of this Registration Statement on Form S-3 of our report dated
August 22, 1997 appearing on page 33 of Pharmacyclics, Inc. Annual Report on
Form 10-K for the year ended June 30, 1997. We also consent to the use in the
Prospectus constituting part of this Registration Statement on Form S-3 of our
report dated August 22, 1997 relating to the financial statements of
Pharmacyclics, Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
/s/ PRICE WATERHOUSE LLP
San Jose, California
January 28, 1998
2
