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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
For Annual and Transition Reports Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-27066
PHARMACYCLICS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 94-3148201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any amendments
to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of July 31, 1998, was approximately $236,592,372 based on the
closing price of the Common Stock of the Registrant as reported on the NASDAQ
National Market on such date. The number of outstanding shares of the
Registrant's Common Stock as of July 31, 1998 was 12,334,283.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into
Part III of this Form 10-K: the Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders scheduled to be held on December 11, 1998.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Business .............................................................................. 2
Item 2. Properties ............................................................................ 31
Item 3. Legal Proceedings ..................................................................... 31
Item 4. Submission of Matters to a Vote of Security-Holders ................................... 31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................. 32
Item 6. Selected Financial Data ............................................................... 33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 34
Item 8. Financial Statements and Supplementary Data ........................................... 38
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... 56
PART III
Item 10. Directors and Executive Officers of the Registrant ................................... 57
Item 11. Executive Compensation ............................................................... 57
Item 12. Security Ownership of Certain Beneficial Owners and Management ....................... 57
Item 13. Certain Relationships and Related Transactions ....................................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedule 5 and Reports on Form 8-K .................... 58
</TABLE>
PHARMACYCLICS(R), the Pentadentate Logo [LOGO] (R) and GADOLITE(R) are
registered U.S. trademarks; ANTRIN(TM), LUTRIN(TM), and OPTRIN(TM) are
trademarks of Pharmacyclics, Inc. Other trademarks, trade names or service
marks used herein are the property of their respective owners.
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PART I
ITEM 1. BUSINESS
Pharmacyclics, Inc. ("Pharmacyclics" or the "Company") is a pharmaceutical
company developing energy-potentiating drugs to improve radiation therapy and
chemotherapy of cancer, and to enable or improve the photodynamic therapy of
certain cancers, atherosclerotic cardiovascular disease and retinal diseases.
The Company's products are ring-shaped small 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
selectively eliminate diseased tissue. The Company's lead texaphyrin-based
product candidates are Gd-Tex, a gadolinium texaphyrin molecule being developed
for use as a radiation sensitizer (initially in the treatment of brain
metastases) and chemosensitizer; LUTRIN(TM) photosensitizer, a lutetium
texaphyrin molecule being developed as a photosensitizer for use in photodynamic
therapy of cancer; ANTRIN(TM) photosensitizer, a lutetium texaphyrin molecule
being developed as a photosensitizer for use in the photoangioplasty of
atherosclerosis; and OPTRIN(TM) photosensitizer, a lutetium texaphyrin molecule
being developed as a photosensitizer for use in photodynamic therapy of age
related macular degeneration (ARMD).
Gd-Tex is in a multicenter Phase III clinical trial to improve the
efficacy of radiation therapy of brain metastases resulting from a variety of
cancers, including those of the lung and breast. At the May 1998 annual meeting
of the American Society of Clinical Oncology (ASCO), the Company reported
interim results of its Phase Ib/II clinical trial of Gd-Tex in cancer patients
receiving radiation therapy for treatment of brain metastases. Although not a
prospectively randomized trial, the 60 patients evaluated on the trial were
found to have improved tumor response rate and survival compared to case matched
historical controls.
The National Cancer Institute ("NCI") intends to sponsor nine clinical
trials of Gd-Tex for additional cancer indications, including primary cancers of
the brain, head and neck region, lung, pancreas and prostate. The first two NCI
sponsored trials have begun at the University of California at Los Angeles
Medical Center. These studies are enrolling patients with newly diagnosed
primary brain tumors. Other studies are scheduled to begin during 1998 and 1999.
Radiation therapy is administered to more than 700,000 patients annually in the
United States and currently there are no approved radiation sensitizers.
ANTRIN is in a Phase I clinical trial to evaluate its safety and efficacy
for photo-angioplasty treatment of patients with atherosclerotic peripheral
arterial disease. At a recent meeting of the American Society for Photobiology
in July 1998, interim data was reported indicating that ANTRIN photoangioplasty
was well tolerated. In this dose escalation trial primarily designed to evaluate
safety, investigators reported that a dose level had been achieved that resulted
in a reduction in atherosclerotic plaque and improvement in lumen diameter.
There are currently more than 600,000 angioplasty procedures performed annually
in the United States for patients with atherosclerosis.
LUTRIN is in multicenter Phase II clinical trials to evaluate its safety
and efficacy for use in the treatment of recurrent breast cancers to the chest
wall, which are accessible to illumination by externally-applied light. The NCI
has announced its intention to fund additional clinical trials of LUTRIN for
other cancer indications, including primary cancers of the cervix, esophagus,
head and neck region, lung, pancreas, intraperitoneal region, and prostate,
which the Company expects to begin in late 1998 and 1999.
The Company has conducted preclinical studies with OPTRIN 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.
Pharmacyclics is providing OPTRIN to Alcon Pharmaceuticals, Ltd. ("Alcon") under
an evaluation and license agreement pursuant to which Alcon is conducting Phase
I studies in patients with ARMD.
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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 AS ("Nycomed") to sell and market
LUTRIN for cancer therapy outside the United States, Canada and Japan. In
December 1997, the Company entered into an evaluation and license agreement with
Alcon, pursuant to which Alcon has obtained the right to conduct worldwide
development, marketing and sales of OPTRIN for ophthalmology indications.
MARKET OVERVIEW
Cancer
Cancer results from the uncontrolled proliferation of cells which invade
and interfere with the normal function of 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, patients with persistent or recurrent disease also will
receive radiation therapy for palliation of symptoms. 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 U.S.
Food and Drug Administration ("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 drugs'
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.
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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 that 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 light of
the wavelength required to energize such photosensitizers is incapable 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
arteries, 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 more than 600,000
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 that 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.
THE COMPANY'S TECHNOLOGY PLATFORM
The Company's technology utilizes its expertise in biometallic and
expanded porphyrin chemistry to develop energy-potentiating synthetic 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
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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
act freely with adjacent molecules while still being retained within the
texaphyrin structure. The physical and chemical characteristic 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
following administration, 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.
PHARMACYCLICS' BUSINESS STRATEGY
The key elements of the Company's business strategy include:
Develop therapeutic products that address large markets for cancers and
atherosclerosis. The Company possesses a versatile technology platform that it
believes will lead to diverse product opportunities. The Company has focused its
internal resources on the development of therapeutic products that 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 ANTRIN
photosensitizer 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. 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.
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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
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<S> <C> <C> <C>
C A N C E R T H E R A P Y
Gd-Tex Brain metastases Phase III Pharmacyclics
Radiation Sensitizer
Primary brain tumor NCI, Phase I, two trials
Lung cancer NCI, Phase I
Head and neck cancer expected
Pancreatic cancer 1998-1999(2)
Prostate cancer
Pediatric brain tumor
Gd-Tex A variety Preclinical Pharmacyclics
Chemosensitizer of cancers
LUTRIN Breast cancer Phase II Pharmacyclics in the
Photosensitizer US, Canada and Japan,
Cervical cancer NCI, Phase I Nycomed in the rest of
Esophageal cancer expected world
Head and neck cancer 1998-1999(3)
Intraperitoneal cancer
Lung cancer
Pancreatic cancer
Prostate cancer
A T H E R O S C L E R O S I S T H E R A P Y
ANTRIN Peripheral arterial disease Phase I Pharmacyclics
Photosensitizer Coronary disease Preclinical
M A C U L A R D E G E N E R A T I O N
OPTRIN Age-related Phase I Alcon
Photosensitizer macular
degeneration
D I A G N O S T I C I M A G I N G
GADOLITE Oral MRI contrast agent FDA approvable letter E-Z-EM in Europe and
for abdomen and received North America,
pelvis December 1996 Pharmacyclics in the
rest of world
</TABLE>
(1) As used above, "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 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) The NCI intends to sponsor seven clinical trials for these cancer
indications, which the Company expects to be initiated in 1998 and 1999.
(3) The NCI intends to sponsor at least eight clinical trials for these cancer
indications, which the Company expects to be initiated in late 1998 and
1999.
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CANCER THERAPY
Gd-Tex for Radiation Sensitization
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 magnetic resonance imaging ("MRI") scanning, providing a
method for 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 headache, 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 of the drug,
with reversible renal toxicity being the dose-limiting toxicity. Biolocalization
of Gd-Tex in lung cancer, breast cancer and other tumors was confirmed using
MRI. The Company completed a Phase Ib/II clinical trial to evaluate the safety
and efficacy of Gd-Tex in patients with brain metastases receiving 10 daily
intravenous injections of Gd-Tex, each followed by whole-brain radiation
therapy. Preliminary results of this 61 patient trial were reported in May 1998
at the meeting of the American Society of Clinical Oncology. Thirty-nine
patients were entered into the dose escalation Phase Ib portion of the study
designed to determine the dose limiting toxicity. The dose limiting toxicity was
reversible elevation of liver enzymes. There were no significant
infusion-related toxicities. MRI scans showed selective accumulation of Gd-Tex
in brain metastases but not in normal brain tissue. Twenty-two patients were
entered into the Phase II portion of the study and received optimized doses of
Gd-Tex. Three doses were evaluated based on safety and achievement of adequate
plasma levels of the drug. The response rate (defined as greater than 50%
decrease in tumor volume) was 73%. An intent to treat survival analysis was
performed on 60 patients with adequate follow-up. Although not a prospective
randomized trial, a comparison to a historical control database was performed in
order to obtain additional information regarding efficacy. The Gd-Tex treated
patients were compared to the historical controls using a case-matching
statistical technique. Case matching was done to improve comparability between
groups with respect to clinical prognostic features. Gd-Tex treated patients
were found to have statistically significant higher response rate and prolonged
survival compared to case matched controls. In a separate multivariate analysis,
Gd-Tex treatment was found to be one of the most important prognostic features
predictive of survival.
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Based on these results, the Company has initiated a multicenter
prospectively randomized Phase III trial in patients with brain metastases that
is intended to enroll approximately 425 patients. The primary clinical endpoint
of the study is survival. Secondary endpoints include tumor response,
neurocognitive function and quality of life. Patient eligibility requirements in
the study are designed to enroll those patients most likely to die from
uncontrolled progression of tumor in the brain. The study will be monitored by
an independent Data Safety Monitoring Board who will perform an interim analysis
of the data two-thirds into the study for possible early termination in the
event of significant efficacy or unacceptable toxicity.
In parallel with the Company's studies in brain metastases, the NCI
intends to sponsor additional clinical trials of Gd-Tex for other indications.
The first two studies have begun at UCLA Medical Center in primary brain tumor.
Other studies will begin later in 1998 and 1999.
<TABLE>
<CAPTION>
Indication Institutions
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<S> <C>
Primary Brain Tumor UCLA Medical Center
University of Southern California, Norris Comprehensive Cancer Center
Cooper House Systems, Robert Wood Johnson Medical School
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
Head and Neck Cancer Johns Hopkins University Oncology Center
Pancreatic Cancer University of Pittsburgh
Pancreatic Cancer Johns Hopkins University Oncology Center
Prostate Cancer Joint Center for Radiation Therapy, Harvard Medical School
Pediatric Brain Stem Glioma Childrens Cancer Study Group
</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 that 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 selectivity potentiates the
activity of cancer chemotherapy agents in tumor cells where Gd-Tex is taken up,
but not in normal tissues where the drug does not penetrate, thereby increasing
the therapeutic margin of these agents. 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.
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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.
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 Nycomed's LUTRIN sales.
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). Additional potential indications
for the use of LUTRIN include internal cancers such as cancer of the cervix,
lung, esophagus, pancreas, head and neck region and prostate.
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. A drug dose response effect was observed. Nineteen lesions were
evaluated in six patients treated at the maximally-tolerated single dose
("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, were 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 Company commenced a multicenter Phase II clinical trial in recurrent
breast cancer to the chest wall in patients who have failed radiation therapy.
This trial is designed to optimize drug dose and light dose and provide
indications of efficacy and safety. In 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 drug dose limiting toxicity has been found to be
tissue necrosis within the treatment site. The Company is evaluating various
treatment regimens aimed at optimizing efficacy and reducing treatment related
side effects. In parallel with the Company's clinical studies in recurrent
breast cancer to the chest wall, the NCI intends to sponsor clinical trials of
LUTRIN for additional indications including cancer of the cervix, esophagus,
head and neck region, intraperitoneal region, lung, pancreas and prostate. These
studies are expected to begin in late 1998 and 1999.
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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, intravascular exposure of atherosclerotic plaque to
732-nanometer light delivered by means of a fiber optic cylindrical diffuser
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 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 arterial disease,
coronary artery disease and in the treatment or prevention of restenosis. The
Company initiated a Phase I clinical trial at Stanford University Medical Center
for the use of ANTRIN in the photoangioplasty of lower extremity peripheral
arterial disease. Interim data from this trial was presented at the July 1998
meeting of the American Society of Photobiology. Successive cohorts of patients
received single increasing intravenous doses of ANTRIN, followed 24 hours later
by intravascular delivery of light. Photoangioplasty is administered in a
standard cath lab and patients were followed 2-4 weeks later by repeat angiogram
and intravascular ultrasound (IVUS). Although primarily a safety study, a dose
of ANTRIN has been achieved which the Company believes produces reduction in
plaque and increase in lumen diameter assessed by both angiography and IVUS.
This study has now been expanded to include patients with atherosclerosis
involving the arteries up to the level of the aortic bifurcation.
AGE-RELATED MACULAR DEGENERATION THERAPY
The Company and its collaborators have conducted preclinical studies with
OPTRIN in ARMD. These studies have indicated that OPTRIN 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 OPTRIN is provided to Alcon for the
conduct of further preclinical and clinical development, and ultimately,
regulatory submissions, sales and marketing for the treatment of ARMD. Phase I
studies in ARMD are in progress.
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 a new drug application ("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 from the FDA 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,
which also require resolution of current manufacturing uncertainties relating to
GADOLITE. There can be no assurance that the FDA will decide that the NDA
satisfies the criteria for approval. In 1996, the Company received approval from
the Medicines Control Agency to market GADOLITE in the United Kingdom. In April
1998, the Company received approval from the Health Protection Branch of Health
Canada to market GADOLITE in Canada. GADOLITE will not be marketed in Europe or
Canada until product manufacturing and product stability issues are resolved.
Although the process for regulatory approval in Western Europe is similar to
that in the United States, there are numerous and sometimes unique risks
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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 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 and Nycomed is required to produce finished product for its and
Pharmacyclics' use.
Alcon Collaboration. In December 1997, the Company entered into an
evaluation and license agreement with Alcon Pharmaceuticals, Ltd. under which
Alcon acquired worldwide marketing rights to OPTRIN 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 OPTRIN 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 Alcon's product sales.
Alcon will conduct and bear all costs for world-wide development and
commercialization of OPTRIN for ophthalmology indications, as well as costs for
regulatory submissions, until the termination of the agreement. Pharmacyclics is
required to supply bulk drug substance 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 that 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 eight Phase I clinical trials, and to date,
has requested Phase I proposals from potential clinical sites for the treatment
of' cervical, esophageal, head and neck, intraperitoneal region, lung,
pancreatic, and prostate cancers. The Company
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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 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, 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 GADOLITE in
North America. During fiscal 1997, an additional agreement was signed with
E-Z-EM's affiliate, E-Z-EM, Ltd., (together "E-Z-EM") for marketing, sales and
distribution in Europe and certain other countries. 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. As of June 30, 1998,
there have been no sales of GADOLITE in any territory.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company believes its success depends upon, among other things, the
Company's ability to protect its intellectual property position. The Company,
therefore, aggressively pursues, prosecutes, protects, and defends its patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering, e.g., compositions of matter, methods of use and
synthetic methodology relating to its products under development.
As of June 30, 1998, the Company owned or has licensed various rights to
patents and pending applications in the United States, Europe, Japan and
elsewhere throughout the world. The issued U.S. patents expire between 2006 and
2016. There can be no assurance that the Company will have continued success in
prosecuting its patent applications or that patents will issue in respect of
those patent applications. Even if patents are issued and maintained, there can
be no assurance that the patents are or will be of' adequate scope to benefit
the Company, or that any such patents would be upheld as valid and enforceable
with respect to third parties.
Because there are a number of third party patents issued and third party
patent applications filed relating to biometallic and expanded porphyrin
chemistries, the Company believes there is some risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to similar or even the same
compositions, methods, or designs of' the Company or its products. It is
pertinent, however, that patents and patent applications owned or licensed by
the Company cover various aspects, ranging from base compositions, to methods of
manufacture, to processes for use and related applications, of the biometallic
and expanded porphyrin chemistries peculiar to the Company's products. In any
event, if any third party patents
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include claims that are alleged to be infringed and are upheld as valid and
enforceable, the Company could 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 opinions of special patent counsel that the technologies
employed by the Company for its imaging product under development and its
therapeutic agent that is detectable by MRI do not infringe the claims of such
patents; however, there can be no assurances that Schering would not allege
infringement of one or more of those patents. If infringement were alleged, a
legal determination of the infringement of any such patents by any Company
product could have a material adverse affect on the Company's business. Further,
any allegation by Schering of infringement of patent rights by the Company
would likely result in significant legal costs and require substantial
management resources. Schering has sent communications to the Company suggesting
that GADOLITE may infringe certain of such Schering patents. The Company is
aware that Schering has asserted patent rights against at least one other
company in the contrast agent imaging market and that a number of companies
have entered into licensing arrangements with Schering with respect to one or
more of such patents. There can be no assurance that the Company would be able
to obtain a license from Schering, if required. Even if a license could be
obtained, there can be no assurance that the Company would receive commercially
reasonable terms.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with the Company is to be kept confidential and
not disclosed to third parties except in specific circumstances. The agreements
also provide that all inventions conceived by an employee (or consultant or
advisor to the extent appropriate for the services provided) during the course
of the relationship shall be the exclusive property of the Company, other than
inventions unrelated to the Company and developed entirely with the individual's
own time and resources. There can be no assurance that these agreements will not
be breached, and, in some instances, there may not be any appropriate remedy
available to the Company for breach of the agreements. Furthermore, no assurance
can be given that competitors will not independently develop substantially
equivalent proprietary information and techniques, reverse engineer such
information and techniques, or otherwise gain access to the Company's
proprietary technology, or that the Company can meaningfully protect the rights
in unpatented proprietary technology.
MANUFACTURING AND SUPPLIERS
Pharmacyclics currently uses third party manufacturers for producing
various components of the products being developed by the Company. Gd-Tex,
LUTRIN, ANTRIN and OPTRIN bulk drug substances are the subject of a
manufacturing and supply agreement with Celanese (as discussed below). The
Company does not have its own manufacturing facilities. Supply agreements are
being negotiated with additional manufacturers who have the ability to
manufacture, fill, label and package such additional necessary materials prior
to commercial introduction of its products. There can be no assurance that the
Company will be able to enter into additional supply agreements on commercially
acceptable terms or with manufacturers who will be able to deliver supplies in
appropriate quantity and quality to meet commercial demand or that third party
manufacturers will perform their contractual obligations. Any 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.
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Hoechst Celanese Agreement. In September 1996, the Company entered into an
agreement with Hoechst Celanese Corporation (HCC), a manufacturer of chemicals
and pharmaceutical intermediates, for the process optimization, scale-up and
supply of its texaphyrin-based products. In October 1997, the Agreement was
assigned to Celanese, Ltd. ("Celanese"), in connection with HCC's corporate
restructuring. The Agreement presently grants Celanese exclusive worldwide
manufacturing rights and requires Celanese to supply all of Pharmacyclics'
requirements of Gd-Tex and lutetium texaphyrin drug substance for late-stage
clinical and commercial use. During the fourth quarter of fiscal 1998, the
Company received indications from Celanese, that due to a change in its business
focus, Celanese wishes to reduce the scope of its obligations under the
Agreement. The Company and Celanese then initiated discussions aimed at possible
modifications to the Agreement to allow the Company to purchase commercial
material from additional sources while relieving Celanese of certain obligations
under the agreement. The Company believes it is in its best interest to have
multiple sources of drug substance and has commenced efforts to identify
multiple additional sources of bulk drug substance. Such efforts are likely to
consume time and expense and there can be no assurance that the Company will be
successful in obtaining additional supplies of drug substance. Until such
situation is resolved, the Company will be subject to uncertainties regarding
the willingness or ability of Celanese or such additional suppliers to deliver
bulk-drug substance for these products on a timely or commercially attractive
basis.
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 light emitting diodes ("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. The Company has purchased from Quantum Devices, Inc. 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 Rare Earth Medical ("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. The Company has taken delivery of the initial units from Diomed, Inc.
("Diomed") and plans to begin using Diomed lasers in clinical trials in 1998. In
addition, the Company is seeking 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.
GADOLITE Manufacturing. The Company had entered into a supply agreement
with Glaxo-Wellcome Co. ("Glaxo") under which Glaxo manufactured clinical
quantities of GADOLITE. This agreement has been terminated because of delays in
FDA approval and Glaxo's sale of the facility in which the drug had been
manufactured. The Company has commenced efforts to identify alternative sources
for the manufacture of commercial quantities of GADOLITE and has identified a
subsidiary of E-Z-EM as an alternative supplier of GADOLITE. There can be no
assurance that such a manufacturing change can be effected without a material
adverse effect on the Company's approval and commercialization plans for
GADOLITE.
Abbott Laboratories Development and Supply Agreement. In June 1998, the
Company entered into a development and supply agreement with Abbott under which
Abbott agreed to undertake the development of the drug formulation and packaging
for Gd-Tex. Abbott will receive cost reimbursements related to the development
work and the Company has agreed to purchase Gd-Tex drug product exclusively from
Abbott for the sale in the United States and Canada for a period of five years
from the date of FDA marketing approval. There can be no assurance that the
development of the drug formulation and packaging will be successful or that
Abbott will deliver commercial quantities of Gd-Tex drug product to meet the
Company's requirements.
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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 that 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.
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 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(tm), 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 computed
tomography "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
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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 Investigational New Drug
("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 the FDA as part of an IND, which must become effective before human
clinical trials may 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.
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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 that
allowed for "Fast Track" approval for cancer therapies and other therapies
intended to treat severe or life-threatening diseases. Previously, cancer
therapies had 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 became 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, ANTRIN and OPTRIN photosensitizer products for photodynamic therapy of
certain cancers, atherosclerosis and ARMD, the Company or its collaborators 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 or its collaborators 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 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 good manufacturing practice ("GMP"), which impose
certain procedural and documentation requirements upon the Company and its third
party manufacturers.
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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 prohibiting the marketing of products for unapproved uses.
Under the new FDA Modernization Act of 1997 promoting a drug for an unapproved
indication is 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.
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 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 "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 that included a number of issues that
must be addressed by the Company. The Company is in the process of addressing
these issues, which also require resolution of current manufacturing
uncertainties relating to GADOLITE. There can be no assurance that the FDA will
decide that the NDA satisfies the criteria for approval. In 1996, the Company
received approval from the Medicines Control Agency to market GADOLITE in the
United Kingdom. In April 1998, the Company received approval from the Health
Protection Branch of Health Canada to market GADOLITE in Canada. GADOLITE will
not be marketed in Europe or Canada until product manufacturing and product
stability issues are resolved.
Although the process for regulatory approval in Western Europe is similar
to that in the United States, there are numerous and sometimes unique risks
associated with the approval of a marketing authorization in Europe. There can
be no assurance that authorization to market GADOLITE in other member states
would be granted under the European Union's mutual recognition procedure.
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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 June 30, 1998, the Company had 63 employees, two of whom are
part-time. Fifty-three of its employees are dedicated to research, development,
manufacturing, quality assurance and quality control, regulatory affairs, or
preclinical testing and clinical trials. Fifteen of the Company's employees have
an M.D. or Ph.D. degree.
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this section as well as those discussed
elsewhere in this Form 10-K.
UNCERTAINTIES RELATED TO CLINICAL TRIALS AND PRODUCT DEVELOPMENT
All of the Company's product candidates are in development and have not
generated product sales revenue to date, and there can be no assurance that any
of the Company's products under development will be commercialized or will
generate product sales revenue in the future. To achieve profitable operations,
the Company, alone or with collaborative partners, must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market and
distribute its products under development. The time frame necessary to achieve
these goals for any individual product is long and uncertain. Most of the
Company's product candidates are generally in early stages of development and
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. A number of
factors will impact the timing and ability of the Company to successfully
complete clinical trials for its products under development.
Before obtaining regulatory clearance for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the potential product is safe and efficacious
for use in humans for each target indication. Pharmacyclics has conducted and
plans to continue extensive and costly clinical trials to assess the safety and
efficacy of its potential products. There can be no assurance that the Company
will be permitted to undertake or continue its intended clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the nature of the Company's clinical trial
protocols, existence of competing protocols, size and longevity of the target
patient population, proximity of patients to clinical sites and eligibility
criteria for the trials. There can be no assurance that the Company will obtain
adequate levels of patient enrollment in its clinical trials. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials, which could have a material adverse affect on the Company. In
addition, the 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 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.
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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 payers. There can be no assurance that physicians,
patients, payers or the medical community in general will accept and utilize any
products that may be developed by the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its inception
in April 1991 and, as of June 30, 1998, had an accumulated deficit of
approximately $47.9 million. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing costs of research and development, in addition to increasing
costs related to later stage clinical trials and manufacturing activities. The
Company's ability to achieve profitability is dependent upon its ability, alone
or with others, to successfully complete the development of its proposed
products, obtain the required regulatory clearances and manufacture and market
its proposed products. To date, the Company has not generated revenue from the
commercial sale of its products and does not expect to receive any such revenue
in the near future. All revenues to date have resulted primarily from
non-refundable license, contract research and development and milestone payments
and, to a lesser extent, funding from one government research grant.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The manufacture and marketing of the Company's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the United States and
abroad. Before receiving FDA clearance to market a product, the Company will
have to demonstrate that the product is safe and effective on the patient
population that will be treated. Clinical trials, manufacturing and marketing of
products are subject to the rigorous testing and approval process of the FDA and
equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic
Act and other federal and state statutes and regulations govern and influence
the testing, manufacture, labeling, advertising, distribution and promotion of
drugs and medical devices. As a result, clinical trials and regulatory approval
can take a number of years to accomplish and require the expenditure of
substantial resources. Data obtained from clinical trials are susceptible to
varying interpretations which could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Similar delays also may be
encountered in foreign countries. There can be no assurance that requisite FDA
approvals or those of foreign regulatory authorities will be obtained on a
timely basis, if at all, or that any approvals granted will cover the clinical
indications for which the Company may seek approval. Marketing or promoting a
drug for an unapproved indication is subject to very strict controls under The
Food and Drug Administration Modernization Act of 1997 (the "1997 FDA
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Act"). Furthermore, clearance may entail ongoing requirements for postmarketing
studies. The manufacture and marketing of drugs are subject to continuing FDA
and foreign regulatory review and later discovery of previously unknown issues
with a product, manufacturer or facility may result in restrictions, including
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
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, ANTRIN and OPTRIN photosensitizer products for photodynamic therapy of
certain cancers, atherosclerosis and ARMD, the Company or its collaborators will
also need to obtain the approval of the FDA and other foreign regulatory
authorities for the laser, LEDs or associated light delivery devices used in
such treatments. Such device approval requires additional regulatory submissions
both by the Company or its collaborators and by the manufacturers of such
devices, which must include clinical data obtained from the use of such light
delivery devices, and may result in additional delays or difficulties in
obtaining approval for the use of LUTRIN, ANTRIN or OPTRIN as photosensitizers.
Manufacturers of such light delivery devices currently are under no obligation
to the Company to file or pursue such applications and any delay or refusal on
their part to do so could have a material adverse affect on the Company.
The Company submitted an NDA for 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. There can be no assurance that the FDA will
decide that the NDA satisfies the criteria for approval. In 1996, the Company
received approval from the Medicines Control Agency to market GADOLITE in the
United Kingdom. In April 1998, the Company received approval from the Health
Protection Branch of Health Canada to market GADOLITE in Canada. GADOLITE will
not be marketed in Europe or Canada until product manufacturing and product
stability issues are resolved. Although the process for regulatory approval in
Western Europe is similar to that in the United States, there are numerous and
sometimes unique risks associated with the approval of a marketing authorization
in Europe. There can be no assurance that authorization to market GADOLITE in
other member states would be granted under the European Union's mutual
recognition procedure.
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UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company believes its success depends upon, among other things, the
Company's ability to protect its intellectual property position. The Company,
therefore, aggressively pursues, prosecutes, protects and defends its patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering, e.g., compositions of matter, methods of use and
synthetic methodology relating to its products under development. As of June 30,
1998, the Company owns or has licensed various rights to patents and pending
applications in the U.S., Europe, Japan and elsewhere throughout the world. The
issued U.S. patents expire between 2006 and 2016. There can be no assurance that
the Company will have continued success in prosecuting its patent applications
or that patents will issue in respect of those patent applications. Even if
patents are issued and maintained, there can be no assurance that the patents
are or will be of adequate scope to benefit the Company, or that any such
patents would be upheld as valid and enforceable with respect to third parties.
Because there are a number of third-party patents issued and third-party
patent applications filed relating to biometallic and expanded porphyrin
chemistries, the Company believes there is some risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to similar or even the same
compositions, methods, or designs of the Company or its products. It is
pertinent, however, that patents and patent applications owned or licensed by
the Company cover various aspects, ranging from base compositions, to methods of
manufacture, to processes for use and related applications, of the biometallic
and expanded porphyrin chemistries peculiar to the Company's products. In any
event, if any third-party patents include claims that are alleged to be
infringed and are upheld as valid and enforceable, the Company could nonetheless
be prevented from practicing the subject matter claimed in such patents, or
would be required to obtain licenses from the patent owners of each of such
patents or to redesign its products or processes to avoid infringement. There
can be no assurance that any such licenses would be available or, if available,
would be on terms acceptable to the Company, or that the Company would be
successful in any attempt to redesign its products or processes to avoid
infringement. Litigation or other legal proceedings may be necessary to defend
against claims of infringement, to enforce patents of the Company, or to protect
trade secrets, and could result in substantial cost to, and diversion of efforts
by, the Company.
The Company is aware of several U.S. patents owned or licensed to Schering
AG that relate to the use of agents that enhance MRI scans. The Company has
obtained opinions of special patent counsel that the technologies employed by
the Company for its imaging product under development and its therapeutic agent
that is detectable by MRI do not infringe the claims of such patents; however,
there can be no assurances that Schering would not allege infringement of one or
more of those patents. If infringement were alleged, a legal determination of
the infringement of any such patents by any Company product could have a
material adverse affect on the Company's business. Further, any allegation by
Schering of infringement of patent rights by the Company would likely result in
significant legal costs and require substantial management resources. Schering
has sent communications to the Company suggesting that GADOLITE may infringe
certain of such Schering patents. The Company is aware that Schering has
asserted patent rights against at least one other company in the contrast agent
imaging market and that a number of companies have entered into licensing
arrangements with Schering with respect to one or more of such patents. There
can be no assurance that the Company would be able to obtain a license from
Schering, if required. Even if a license could be obtained, there can be no
assurance that the Company would receive commercially reasonable terms.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with the Company is to be kept confidential and
not disclosed to third parties except in specific circumstances. The agreements
also provide that all inventions conceived by an employee (or consultant or
advisor to the extent appropriate for the services provided) during the course
of the relationship shall be the exclusive property of the Company, other than
inventions unrelated to the Company and developed entirely with the individual's
own time and resources. There can be no assurance that these agreements will not
be breached, and, in some instances, there may not be any appropriate remedy
available to the Company for breach of the
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agreements. Furthermore, no assurance can be given that competitors will not
independently develop substantially equivalent proprietary information and
techniques, reverse engineer such information and techniques, or otherwise gain
access to the Company's proprietary technology, or that the Company can
meaningfully protect the rights in unpatented proprietary technology.
DEPENDENCE UPON THIRD PARTIES
The Company is dependent upon third parties for support in product
development, manufacturing, marketing and distribution. Pursuant to its
collaboration with Nycomed, the Company is dependent upon Nycomed for a portion
of its LUTRIN development costs in the form of milestone payments, and for the
commercialization, when and if LUTRIN is approved, of this product outside the
United States, Canada and Japan. In the field of macular degeneration, the
Company is dependent upon Alcon for preclinical and clinical studies, regulatory
filings and sales and marketing of OPTRIN for ophthalmology indications
worldwide. The Company has entered into agreements with E-Z-EM, Ltd. and E-Z-EM,
Inc. 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.
The Company has no expertise in the development of light sources and
associated light delivery devices required for the Company's photoangioplasty
and photodynamic therapy products under development. Successful development,
manufacturing, approval and distribution of the Company's photosensitization
products will require third party participation for the required light sources,
associated light delivery devices and other equipment. The Company currently
obtains lasers from Coherent Inc., Laserscope, Inc. and Diomed, Inc.; LEDs from
Quantum Devices, Inc.; and cylindrically diffusing light fibers from Rare Earth
Medical on a purchase order basis, and such entities are under no obligation to
continue to deliver light devices on an ongoing basis. Failure to maintain such
relationships may require the Company to develop additional supply sources which
may require additional regulatory approvals and could materially delay
commercialization of the Company's LUTRIN and ANTRIN products under development.
There can be no assurance that the Company will be able to establish or maintain
relationships with other supply sources on a commercially reasonable basis, if
at all, or that the enabling devices will receive regulatory approval for use in
photoangioplasty or photodynamic therapy.
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. Gd-Tex, LUTRIN, ANTRIN and OPTRIN bulk drug
substances are the subject of a manufacturing and supply agreement with
Celanese. The Company does not have its own manufacturing facilities. Supply
agreements are being negotiated with additional manufacturers who have the
ability to manufacture, fill, label and package such additional necessary
materials prior to commercial introduction of its products. There can be no
assurance that the Company will be able to enter into additional supply
agreements on commercially acceptable terms or with manufacturers who will be
able to deliver supplies in appropriate quantity and quality to meet commercial
demand or that third party manufacturers will perform their contractural
obligations. Any failure by these third parties to supply the Company's or the
NCI's requirements for clinical trial materials would have a material adverse
effect upon the completion of such trials and could therefore have a material
adverse effect on the Company.
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In September 1996, the Company entered into an agreement with
Hoechst Celanese Corporation, a manufacturer of chemicals and pharmaceutical
intermediates, for the process optimization, scale-up and supply of its
texaphyrin-based products. In October 1997, the Agreement was assigned to
Celanese, Ltd., in connection with HCC's corporate restructuring. The agreement
presently grants Celanese exclusive worldwide manufacturing rights and requires
Celanese to supply all of Pharmacyclics' requirements of Gd-Tex and lutetium
texaphyrin drug substance for late-stage clinical and commercial use. During the
fourth quarter of fiscal 1998, the Company received indications from Celanese,
that due to a change in its business focus, Celanese wishes to reduce the scope
of its obligations under the agreement. The Company and Celanese then initiated
discussions aimed at possible modifications to the Agreement to allow the
Company to purchase commercial material from additional sources while relieving
Celanese of certain obligations under the agreement. The Company believes it is
in its best interest to have multiple sources of drug substance and has
commenced efforts to identify multiple additional sources of bulk drug
substance. Such efforts are likely to consume time and expense and there can be
no assurance that the Company will be successful in obtaining additional
supplies of drug substance. Until such situation is resolved, the Company will
be subject to uncertainties regarding the willingness or ability of Celanese or
such additional suppliers to deliver bulk-drug substance for these products on a
timely or commercially attractive basis. The Company is engaged in preliminary
discussions with a number of manufacturers of parenteral products regarding
process development and validation, filling, labeling and packaging of the
finished dosage form of LUTRIN, ANTRIN and OPTRIN. A failure to successfully
complete any such agreement could, if the Company could not locate alternate
manufacturing capabilities, have a material adverse impact on the Company's
business, financial condition and results of operations. Prior to regulatory
approval of the Company's products under development, the Company intends to
negotiate supply agreements with manufacturers who will have the ability to
manufacture, fill, label and package such materials prior to commercial
introduction of such products. There are, however, only a limited number of
contract manufacturers that operate under current federal and state GMP
regulations and are capable of manufacturing the Company's products.
Accordingly, there can be no assurance that the Company will be able to enter
into supply agreements on commercially acceptable terms with manufacturers or
that the Company will enter into supply agreements with manufacturers who will
be able to deliver supplies in appropriate quantity and quality to develop and
commercialize its products. Any interruption of supply of its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
LACK OF MARKETING AND SALES EXPERIENCE
The Company currently does not have marketing, sales or distribution
experience. Therefore, to service markets in which it has retained sales and
marketing rights and in the event any of the above agreements is terminated, the
Company must develop a sales force with technical expertise. The Company does
not have any experience in developing, training or managing a sales force. The
Company will incur substantial additional expenses in developing, training and
managing such an organization. There can be no assurance that the Company will
be able to build such a sales force, that the cost of establishing such a sales
force will not exceed any product revenues, or that the Company's direct
marketing and sales efforts will be successful. In addition, the Company
competes with many other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts will compete successfully against such other
companies.
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development
capabilities than the Company, as well as substantially more marketing,
manufacturing, financial and managerial resources. These entities represent
significant competition for the Company. Acquisitions of, or investments in,
competing pharmaceutical or biotechnology companies by large corporations could
increase such competitors' financial, marketing, manufacturing and other
resources. The Company is a relatively new enterprise and is engaged in the
development of novel therapeutic
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technologies. As a result its resources are limited and it may experience
technical challenges inherent in such novel technologies. There can be no
assurance that developments of others will not render the Company's products
under development or technologies noncompetitive or obsolete, or that the
Company will be able to keep pace with technological developments or other
market factors Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing similar therapeutic, diagnostic and/or imaging effects
than products being developed by the Company. The Company is aware that one of
its competitors in the market for photodynamic therapy drugs has received
marketing approval of a product for certain indications in the United States and
other countries. There can be no assurance that the Company's competitors will
not develop products that are safer, more effective or less costly than the
products developed by the Company and, therefore, present a serious competitive
threat to the Company's product offerings.
The medical indications for which the Company is developing its
therapeutic products can also be treated, in the case of cancer, by surgery,
radiation and chemotherapy, in the case of atherosclerosis, by surgery (e.g.,
bypass), angioplasty, atherectomy, the use of stents and drug therapy and in the
case of ARMD by laser photocoagulation. These treatments are widely accepted in
the medical community and have a long history of use. In addition, technological
advances with other therapies for cancer, atherosclerosis and ARMD could make
such other therapies more efficacious or cost-effective than Gd-Tex, LUTRIN,
ANTRIN or OPTRIN 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, ANTRIN as a photosensitizer in
photoangioplasty of atherosclerosis or OPTRIN as a photosensitizer in ARMD to
replace or supplement established treatments for such diseases or that the
therapeutic products the Company is developing will become competitive with
current or future treatments. Further, some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which, when integrated with their product offering, may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes, to establish
additional clinical- and commercial-scale manufacturing arrangements and to
provide for the marketing and distribution of its products. The Company's future
capital requirements will depend on many factors, including, among others,
continued scientific progress of its research and development programs, the
ability of the Company to establish additional collaborative arrangements,
changes in its existing collaborative relationships, progress with preclinical
studies and clinical trials, the time and costs involved in obtaining regulatory
clearance, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and competing technological and market developments. The
Company believes that its cash, cash equivalents, and short-and long-term
investments will be adequate to fund the Company's operations through at least
the calendar year 2000. However, the Company's actual capital requirements will
depend on many factors, including the status of product development; the time
and cost involved in conducting clinical trials and obtaining regulatory
approvals; filing, prosecuting and enforcing patent claims; competing
technological and market developments; and the ability of the Company to market
and distribute its products and establish new collaborative and licensing
arrangements. The Company may seek to raise any necessary additional funds
through equity or debt financings, collaborative arrangements with corporate
partners or other sources which may be dilutive to existing stockholders. In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners or other partners, such arrangements may require the
Company to relinquish rights to certain of its technologies, product candidates
or products under development that the Company would otherwise seek to develop
or commercialize itself. No assurance can be given that such additional funds
will be available on acceptable terms, if at all. If adequate funds are not
available from operations or additional sources of financing, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs which would materially and adversely affect the
Company's business, financial condition and results of operations.
26
<PAGE> 28
DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL
The Company's ability to maintain its competitive position depends on its
ability to attract and retain qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract or retain such persons. The loss
of key personnel or the failure to obtain additional needed personnel or
expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company relies
on consultants and advisors to assist in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by entities other than the Company and may have commitments to, or consulting or
advisory contracts with, other entities that may affect their ability to
contribute to the Company.
VOLATILITY OF STOCK PRICE
The market prices for securities of small capitalization biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies.
Future announcements concerning the Company, its competitors or other
pharmaceutical and biotechnology companies, including the results of preclinical
testing and clinical trials, technological innovations or new therapeutic
products, governmental regulation, developments in patent or other proprietary
rights, litigation, public concern as to the safety of products developed by the
Company or others, comments by securities analysts and general market conditions
may have a significant effect on the market price of the Company's Common Stock.
In addition, the realization of any of the risks described in these "Factors
That May Affect Future Operating Results" could have a dramatic and material
adverse impact on the market price of the Company's Common Stock.
UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The future revenues and profitability of pharmaceutical and related
companies as well as the availability of capital to such companies may be
affected by the continuing efforts of government and third-party payers to
contain or reduce costs of health care through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to government control. In the United States, given recent federal and
state government initiatives directed at lowering the total cost of health care,
it is likely that the U.S. Congress and state legislatures will continue to
focus on health care reform and the cost of prescription pharmaceuticals and on
the reform of the Medicare and Medicaid systems. While the Company cannot
predict whether any such legislative or regulatory proposals will be adopted,
the announcement or adoption of such proposals could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained by governmental
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third-party payers are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the United States and the concurrent growth
of organizations such as HMOs, which could control or significantly influence
the purchase of health care services and products, as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices for the Company's products. The cost containment measures
that health care payers and providers are instituting and the effect of any
health care reform could materially adversely affect the Company's ability to
operate profitably.
PRODUCT LIABILITY EXPOSURE
The testing, manufacture, marketing and sale of the products under
development by the Company entail an inherent risk that product liability claims
will be asserted against the Company. Although the Company is insured against
such risks up to a $10.0 million annual aggregate limit in connection with
clinical trials and commercial sales of its products under development, there
can be no assurance that the Company's present product liability insurance is
adequate. A successful product liability claim in excess of the Company's
27
<PAGE> 29
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.
ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors of the Company to issue shares of
Preferred Stock without stockholder approval and a stockholder rights plan
adopted by the Company may, alone or in combination, have certain anti-takeover
effects. The Company is also subject to provisions of the Delaware General
Corporation Law which may make certain business combinations more difficult.
IMPACT OF YEAR 2000
The Company believes that with upgrades to its existing software and
conversions to new software, all of which are readily available in the market,
the Year 2000 issue will not pose significant operational problems for its
internal computer systems. All required modifications and conversions of
computer systems that are critical to the Company's business operations are
expected to be completed no later than June 30, 1999 which is prior to the
estimated occurrence of any Year 2000 issues. The Company has initiated formal
communications with its significant suppliers and service providers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and will not have an adverse impact on the
Company's systems. The Company estimates that the cost of required upgrades and
conversions will not have a significant impact on its results of operations.
28
<PAGE> 30
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of June
30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard A. Miller, M.D 47 President, Chief Executive Officer and Director
Marc L. Steuer 51 Senior Vice President, Business Development and Chief Financial Officer
Michael J. Hensley, M.D 53 Vice President, Pharmaceutical Development
Leiv Lea 44 Vice President, Finance and Administration
David A. Lowin, Esq 43 Vice President & Intellectual Property Counsel
Hugo Madden, Ph.D 49 Vice President, Chemical Operations
Thomas D. Kiley 55 Director
Joseph S. Lacob (1)(2) 42 Director
Brian A. Markison 38 Director
Joseph C. Scodari (1) 45 Director
Craig C. Taylor (1)(2) 48 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Dr. Miller has served as President, Chief Executive Officer and a Director
since he co-founded the company in April 1991. Dr. Miller was a co-founder of
IDEC Pharmaceuticals Corporation and from 1984 to February 1992 served as Vice
President and a Director. 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.
Mr. Steuer has served as Senior Vice President, Business Development and
Chief Financial Officer since November 1994. From April 1992 to November 1994,
he was Executive Vice President, Business Development and Commercial Affairs for
SciClone Pharmaceuticals, Inc. 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 was a member of the Board of Directors of SciClone
Pharmaceuticals, Inc. from January 1993 through November 1994, and currently
serves as a member of the Board of Directors of a private company. Mr. Steuer
received both B.S. and M.S. degrees in Electrical Engineering from Columbia
University and an M.B.A. from New York University.
Dr. Hensley has served as Vice President, Pharmaceutical Development,
Regulatory and Quality Affairs since October 1997. From 1992 through September
1997, he served as Director of Regulatory Affairs and as Senior Director of Drug
Safety and Clinical Quality Assurance at Chiron Corporation, a biotechnology
company. Dr. Hensley was employed by the FDA for five years, where he was
involved in the implementation of good clinical practice and adverse event
reporting regulations. Dr. Hensley received his M.D. from the Bowman Gray School
of Medicine in 1970 and is a board certified pediatrician with experience in
oncology and clinical pharmacology.
29
<PAGE> 31
Mr. 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.
Mr. Lowin has served as Vice President and Intellectual Property Counsel
since April 1998 and Assistant Secretary of the Company since July 1998. From
1995 to April 1998 he was Vice President, Intellectual Property, Chief Patent
Counsel and Assistant Secretary for Connetics Corporation, a public
biotechnology company. From 1982 to 1995, Mr. Lowin served at Syntex
Corporation, a pharmaceutical company, most recently as Assistant Director of
the Patent Law Department. He received a B.A. degree in Chemistry from Hobart
College and a J.D. from the Franklin Pierce Law Center, where he serves on the
Intellectual Property Law Advisory Committee.
Dr. Madden has served as Vice President, Chemical Operations since June
1998. From 1995 to June 1998, he served as Plant Manager and as Director of
Process Development at Catalytica Pharmaceuticals, Inc., a contract
pharmaceutical manufacturer. From 1977 to 1995, Dr. Madden served in a variety
of positions with Syntex Corporation, a pharmaceutical company. His positions at
Syntex included Technical Director at the Bahamas Chemical Division and Manager
of Process Development and Engineering at the Technology Center in Boulder,
Colorado. Dr. Madden received a B.A. degree in Chemistry from the University of
Oxford and a Ph.D. from the University of London.
Mr. 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 Connetics Corporation, and certain
private biotechnology and other companies. Mr. Kiley received a B.S. degree in
Chemical Engineering from Pennsylvania State University and a J.D. from George
Washington University.
Mr. Lacob was elected as a Director of the Company in June 1991. He is a
General Partner of Kleiner Perkins Caulfied & Byers, a venture capital
investment firm, which he joined in 1987. Mr. Lacob is currently Chairman of the
Board of CellPro, Inc., and is a director of Corixa Corporation, and Heartport,
Inc., as well as several private life sciences companies. Mr. Lacob holds a B.S.
degree 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.
Mr. Markison was elected as a Director of the Company in February 1998.
Mr. Markison is currently Senior Vice President, Neuroscience/Anti-Infective
Sales for Bristol-Myers Squibb Company. Mr. Markison joined Bristol-Myers Squibb
Company in 1982 where he has held a variety of positions including Vice
President, Marketing and Advanced Medical Services for Bristol-Myers Squibb
Oncology. Mr. Markison holds a B.S. degree in Biology from Iona College.
Mr. 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, The Americas 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 Drugs' 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.A. degree in Political Science from
Youngstown State University.
30
<PAGE> 32
Mr. Taylor was elected as a director of the Company in June 1991. He is a
General Partner of AMC Partners 89, L.P., and 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., and 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.
ITEM 2. PROPERTIES
In 1993, the Company entered into an eight-year lease agreement that began
in February 1994 for a 32,500 square foot facility in Sunnyvale, California.
That facility includes administrative, research and development space. The lease
is a non-cancelable operating lease that expires in 2002. Rental payments are
based upon a gradual scale.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
31
<PAGE> 33
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Pharmacyclics, Inc. is listed on the NASDAQ National
Market tier of the NASDAQ Stock Market under the symbol "PCYC." The following
table presents quarterly information on the high and low sales prices of the
Company's Common Stock:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, HIGH LOW
-------------------------- ---- ---
<S> <C> <C>
1997
1st Quarter ................... $18 1/2 $10 1/2
2nd Quarter ................... 17 1/4 12 3/4
3rd Quarter ................... 24 15
4th Quarter ................... 20 1/2 14 1/4
1998
1st Quarter ................... $27 $14 3/8
2nd Quarter ................... 29 1/2 19 7/8
3rd Quarter ................... 29 5/8 20 3/4
4th Quarter ................... 34 7/8 22
</TABLE>
As of July 31, 1998, the Company's Common Stock was held by approximately
129 stockholders of record. The Company has never declared or paid dividends on
its capital stock and does not anticipate paying any dividends in the
foreseeable future.
32
<PAGE> 34
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and related notes included elsewhere herein.
STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------- PERIOD
FROM
INCEPTION
(APRIL 1991)
THROUGH
1994 1995 1996 1997 1998 JUNE 30, 1998
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License and grant revenues .. $ 3,000 $ 79 $ 301 $ 25 $ 2,700 $ 6,105
Contract revenue ............ -- -- -- -- 831 831
-------- -------- -------- -------- -------- --------
Total revenues ........... 3,000 79 301 25 3,531 6,936
-------- -------- -------- -------- -------- --------
Operating expenses:
Research and development .... 6,909 9,330 7,641 9,632 13,973 51,133
General and administrative .. 1,042 996 1,515 1,905 1,987 8,062
-------- -------- -------- -------- -------- --------
Total operating expenses . 7,951 10,326 9,156 11,537 15,960 59,195
-------- -------- -------- -------- -------- --------
Loss from operations ........... (4,951) (10,247) (8,855) (11,512) (12,429) (52,259)
Interest income ................ 164 187 940 1,480 2,826 5,767
Interest expense ............... (253) (419) (320) (226) (72) (1,298)
-------- -------- -------- -------- -------- --------
Loss before income taxes ....... (5,040) (10,479) (8,235) (10,258) (9,675) (47,790)
Provision for income taxes ..... (101) -- -- -- -- (101)
-------- -------- -------- -------- -------- --------
Net loss ....................... $ (5,141) $(10,479) $ (8,235) $(10,258) $ (9,675) $(47,891)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per
share ........................ $ (12.04) $ (1.35) $ (1.11) $ (0.87)
======== ======== ======== ========
Shares used to compute basic and
diluted net loss share ....... 870 6,106 9,264 11,061
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: JUNE 30,
--------------------------------------------------------------------
(in thousands)
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ........................... $ 8,690 $ 376 $ 13,950 $ 15,869 $ 13,456
Short-term investments .............................. -- -- 8,053 14,958 23,189
Long-term investments ............................... -- -- -- 6,103 33,736
Total assets ........................................ 12,050 3,539 25,015 39,707 73,019
Long-term obligations, excluding current installments 1,880 1,429 941 530 275
Deficit accumulated during development stage ........ (9,244) (19,723) (27,958) (38,216) (47,891)
Total stockholders' equity (deficit) ................ 8,769 (1,652) 21,991 36,696 68,641
</TABLE>
33
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this report contains predictions,
estimates and other forward looking statements within the meaning of Section 27A
of the Securities Act of 1993, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
any future performance suggested in this report as a result of the factors,
including those discussed in "Factors That May Affect Future Operating Results,"
elsewhere in this report.
OVERVIEW
Pharmacyclics is a pharmaceutical company developing energy-potentiating
drugs to improve radiation therapy and chemotherapy of cancer, and to enable or
improve the photodynamic therapy of certain cancers, atherosclerotic
cardiovascular disease, and retinal diseases. The Company is currently in
multicenter Phase III clinical trials of Gd-Tex as a radiation sensitizer to
improve the efficacy of radiation therapy of brain metastases resulting from a
variety of cancers, including those of the lung and breast. The Company has also
initiated a Phase I clinical trial for ANTRIN(TM) photosensitizer to evaluate
its safety and efficacy for photoangioplasty treatment of patients with
atherosclerotic peripheral arterial disease. LUTRIN(TM) photosensitizer is in
multicenter Phase II clinical trials to evaluate its safety and efficacy for use
in the treatment of recurrent breast cancers to the chest wall, which are
accessible to illumination by externally-applied light. The NCI intends to
conduct a minimum of nine Phase I clinical trials of Gd-Tex and a minimum of
eight Phase I clinical trials of LUTRIN, each for a variety of additional cancer
indications. In addition, the Company has conducted preclinical studies with
OPTRIN(TM) photosensitizer for use in certain ophthalmic diseases, such as 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 an evaluation and license
agreement with Alcon under which Alcon acquired worldwide marketing rights to
OPTRIN(TM) photosensitizer for ophthalmology indications. Alcon is conducting
Phase I studies in patients with ARMD.
To date, the Company has devoted substantially all of its resources to
research and development. No revenues have been derived from product sales, and
the Company does not expect to receive product revenues for at least the next
several years. The Company has incurred significant operating losses since its
inception in 1991 and, as of June 30, 1998, had an accumulated deficit of
approximately $47.9 million. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing costs of research and development, in addition to costs related
to clinical trials and manufacturing activities. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. The Company's ability to achieve profitability is dependent upon
its ability, alone or with others, to successfully complete the development of
its products under development, and obtain required regulatory clearances and
successfully manufacture and market these products.
RESULTS OF OPERATIONS
Revenues
To date, Pharmacyclics has received only limited revenues, none of which
are from product sales. For the year ended June 30, 1998, revenues were $3.5
million as compared to $25,000 in fiscal 1997. Revenues in fiscal 1998 consisted
of $2.7 million in license revenue and $831,000 in contract revenue associated
with two corporate collaboration agreements.
In fiscal 1998, the Company entered into two corporate collaboration
agreements. Under the first agreement, Nycomed acquired exclusive sales and
marketing rights to LUTRIN for treatment of cancer indications in all markets of
the world excluding the United States, Canada and Japan. LUTRIN is a lutetium
texaphyrin molecule being developed as a photosensitizer for use in photodynamic
therapy of cancer. In exchange for these rights, Nycomed has agreed to pay an
initial non-refundable license fee, milestone
34
<PAGE> 36
payments, contract research and development costs and royalties on product
sales. The second agreement is an evaluation and license agreement with Alcon
under which Alcon acquired worldwide marketing rights to OPTRIN for
ophthalmology indications. Alcon will conduct and bear all costs for worldwide
development and regulatory submissions for ophthalmology indications of OPTRIN.
The Company received an initial, non-refundable, payment from Alcon and will
receive payments based on completion of milestones, as well as royalties on any
future product sales.
The $25,000 of revenue in fiscal 1997 was the result of milestone payments
from E-Z-M, Ltd. related to the signing of a European sales and distribution
agreement and receipt of marketing approval in the UK. Revenue of $301,000 in
fiscal 1996 included $250,000 from E-Z-M pursuant to the August 1995 agreement,
net of licensing fees paid to UT.
Research and Development
Research and development expenses increased to $14.0 million for the year
ended June 30, 1998, compared to $9.6 million in fiscal 1997, an increase of
45%. The increase was primarily related to supporting clinical trials for
Gd-Tex, LUTRIN and ANTRIN. Such costs included clinical product supplies,
clinical site costs and personnel. Research and development expenses incurred in
connection with research contracts were $2.2 million for the year ended June 30,
1998. The Company expects its research and development expenses to grow in
fiscal 1999, reflecting anticipated increased costs related to additions to
staffing and clinical trials.
Research and development expenses were $9.6 million for the year ended
June 30, 1997, compared to $7.6 million in fiscal 1996, an increase of 26%. The
increase was primarily related to supporting clinical trials for both Gd-Tex and
LUTRIN. Such costs included clinical product supplies, purchase and lease of
light sources and internal support of the trials.
General and Administrative
General and administrative expenses for the year ended June 30, 1998 were
$2.0 million compared to $1.9 million in fiscal 1997, an increase of 4%. Fiscal
1997 included approximately $300,000 of financing costs incurred related to a
planned public financing which was subsequently withdrawn due to market
conditions. The increase in fiscal 1998 expense was primarily related to
personnel and related expenses.
General and administrative expenses for the year ended June 30, 1997 were
$1.9 million compared to $1.5 million in fiscal 1996, and increase of 26%. The
increase was primarily a result of approximately $300,000 of financing costs
incurred during fiscal 1997.
Interest Income, Net of Interest Expense
Interest income, net of interest expense, totaled $2.8 million for the
year ended June 30, 1998, compared to $1.3 million in fiscal 1997. The increase
was primarily attributable to increased earnings from higher investment balances
resulting from the public equity offering completed in February 1998.
Interest income, net of interest expense, totaled $1.3 million in fiscal
1997, compared to $620,000 in fiscal 1996. The increase was primarily
attributable to increased earnings from higher investment balances resulting
from private equity placements completed in November 1996 and February 1997.
INCOME TAXES
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $39.6 million for federal income tax reporting purposes and tax
credit carryforwards of approximately $2.1 million for federal reporting
purposes. These amounts expire at various times through 2013. As a result of
ownership changes that have occurred during the past three fiscal years,
management believes that the Company's net operating loss and tax credit carry
forwards are subject to certain annual limitations. See Note 5 of "Notes to
Financial Statements."
35
<PAGE> 37
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 and interest income. Since
inception, the Company has used approximately $40.8 million of cash for
operating activities and approximately $5.3 million of cash for the purchase of
laboratory and office equipment and for payments under capital lease agreements.
As of June 30, 1998, the Company had approximately $70.4 million in cash,
cash equivalents and short and long-term investments. Net cash used in operating
activities was $6.6 million, $8.7 million and $7.4 million for the years ended
June 30, 1998, 1997 and 1996, respectively, and resulted primarily from
operating losses adjusted for non-cash expenses and changes in accounts payable.
Net cash used in investing activities was $36.6 million, $13.3 million and $8.1
million for the years ended June 30, 1998, 1997 and 1996, respectively, and
consisted primarily of net purchases of investments. Net cash provided by
financing activities was $40.9 million, $23.9 million and $29.1 million for the
years ended June 30, 1998, 1997 and 1996, respectively, and consisted primarily
of proceeds from the sale of equity securities.
In February 1998, the Company sold 2,012,500 shares of its common stock at
a price of $21.75 per share which resulted in net proceeds to the Company of
approximately $40.8 million. 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 $16.3 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 on the current status of its product development and
commercialization plans, the Company believes its cash, cash equivalents and
short and long-term investments will be adequate to satisfy its capital needs
through at least the calendar year 2000. However, the Company's actual capital
requirements will depend on many factors, including the status of product
development; the time and cost involved in conducting clinical trials and
obtaining regulatory approvals; filing, prosecuting and enforcing patent claims;
competing technological and market developments; and the ability of the Company
to market and distribute its products and establish new collaborative and
licensing arrangements.
The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. The factors described above will impact the Company's future capital
requirements and the adequacy of its available funds. The Company may be
required to raise additional funds through public or private financings,
collaborative relationships or other arrangements. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish rights to certain of its
technologies, products or marketing territories. The failure of the Company to
raise capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Factors That May
Affect Future Operating Results."
36
<PAGE> 38
IMPACT OF YEAR 2000
The Company believes that with upgrades to its existing software and
conversions to new software, all of which are readily available in the market,
the Year 2000 issue will not pose significant operational problems for its
internal computer systems. All required modifications and conversions of
computer systems that are critical to the Company's business operations are
expected to be completed no later than June 30, 1999 which is prior to the
estimated occurrence of any Year 2000 issues. The Company has initiated formal
communications with its significant suppliers and service providers to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues. There is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and will not have an adverse impact on the
Company's systems. The Company estimates that the cost of required upgrades and
conversions will not have a significant impact on its results of operations.
37
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ...................................... 39
Balance Sheet .......................................................... 40
Statement of Operations ................................................ 41
Statement of Cash Flows ................................................ 42
Statement of Stockholders' Equity ...................................... 43
Notes to Financial Statements .......................................... 44
</TABLE>
38
<PAGE> 40
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, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1998,
and for the period from inception (April 1991) through June 30, 1998 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.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 26, 1998
39
<PAGE> 41
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
June 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 13,456 $ 15,869
Short-term investments ............................................................. 23,189 14,958
Accounts receivable ................................................................ 166 --
Prepaid expenses and other current assets .......................................... 166 216
--------- ---------
Total current assets ................................................... 36,977 31,043
Long-term investments .................................................................... 33,736 6,103
Property and equipment, net .............................................................. 2,253 2,504
Other assets ............................................................................. 53 57
--------- ---------
$ 73,019 $ 39,707
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................... $ 3,377 $ 1,323
Accrued liabilities ................................................................ 432 311
Current portion of capital lease obligations ....................................... 255 768
--------- ---------
Total current liabilities .............................................. 4,064 2,402
Capital lease obligations ................................................................ 275 530
Deferred rent ............................................................................ 39 79
--------- ---------
Total liabilities ...................................................... 4,378 3,011
--------- ---------
Commitments (Note 6)
Stockholders' equity:
Preferred stock, $0.0001 par value; authorized --- 1,000,000 shares at June 30,
1998 and 1997; no shares issued and outstanding ............................... -- --
Common stock, $0.0001 par value; authorized --- 24,000,000 at June 30, 1998
and 1997; shares issued and outstanding --- 12,294,292
at June 30, 1998 and 10,102,454 at June 30, 1997 ............................. 1 1
Additional paid-in capital ......................................................... 116,531 74,911
Deficit accumulated during development stage ....................................... (47,891) (38,216)
--------- ---------
Total stockholders' equity ............................................. 68,641 36,696
--------- ---------
$ 73,019 $ 39,707
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 42
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Period
From Inception
Year Ended June 30, (April 1991)
---------------------------------------- Through
1998 1997 1996 June 30, 1998
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Revenues:
License and grant revenues ....... $ 2,700 $ 25 $ 301 $ 6,105
Contract revenue ................. 831 -- -- 831
-------- -------- -------- --------
Total revenues ............. 3,531 25 301 6,936
-------- -------- -------- --------
Operating expenses:
Research and development ......... 13,973 9,632 7,641 51,133
General and administrative ....... 1,987 1,905 1,515 8,062
-------- -------- -------- --------
Total operating expenses ... 15,960 11,537 9,156 59,195
-------- -------- -------- --------
Loss from operations ................... (12,429) (11,512) (8,855) (52,259)
Interest income ........................ 2,826 1,480 940 5,767
Interest expense ....................... (72) (226) (320) (1,298)
-------- -------- -------- --------
Loss before income taxes ............... (9,675) (10,258) (8,235) (47,790)
Provision for income taxes ............. -- -- -- (101)
-------- -------- -------- --------
Net loss ............................... $ (9,675) $(10,258) $ (8,235) $(47,891)
======== ======== ======== ========
Basic and diluted net loss per share ... $ (0.87) $ (1.11) $ (1.35)
======== ======== ========
Shares used to compute basic and diluted
net loss per share ............... 11,061 9,264 6,106
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 43
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Period
From Inception
Year Ended June 30, (April 1991)
----------------------------------- Through
1998 1997 1996 June 30, 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (9,675) $ (10,258) $ (8,235) $ (47,891)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 828 915 732 3,384
Write-down of fixed assets ............................................. 188 -- -- 306
Other .................................................................. -- -- -- (12)
Changes in assets and liabilities:
Accounts receivable ................................................. (166) -- -- (166)
Prepaid expenses and other assets ................................... 54 117 (77) (219)
Accounts payable .................................................... 2,054 570 64 3,377
Accrued liabilities ................................................. 121 11 43 432
Deferred rent ....................................................... (40) (34) 46 39
--------- --------- --------- ---------
Net cash used in operating activities ............................ (6,636) (8,679) (7,427) (40,750)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment ........................................ (765) (283) (16) (1,937)
Proceeds from sale of property and equipment .............................. -- -- -- 112
Purchase of short-term investments ........................................ (28,517) (17,305) (8,053) (49,824)
Purchase of long-term investments ......................................... (31,619) (6,103) -- (37,722)
Sale of short-term investments ............................................ 20,286 10,400 -- 26,635
Sale of long-term investments ............................................. 3,986 -- -- 3,986
--------- --------- --------- ---------
Net cash used in investing activities ............................ (36,629) (13,291) (8,069) (58,750)
--------- --------- --------- ---------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs ........................... 41,620 24,837 26,278 92,793
Proceeds from notes payable ............................................... -- -- 1,000 3,000
Issuance of convertible preferred stock, net of issuance costs ............ -- -- 2,550 20,514
Payments under capital lease obligations ................................. (768) (948) (758) (3,351)
--------- --------- --------- ---------
Net cash provided by financing activities ........................ 40,852 23,889 29,070 112,956
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents ............................. (2,413) 1,919 13,574 13,456
Cash and cash equivalents at beginning of period ............................. 15,869 13,950 376 --
--------- --------- --------- ---------
Cash and cash equivalents at end of period ................................... $ 13,456 $ 15,869 $ 13,950 $ 13,456
========= ========= ========= =========
Supplemental disclosures of cash flows information:
Income taxes paid ......................................................... $ --- $ --- $ --- $ 101
Interest paid ............................................................. $ 72 $ 226 $ 320 $ 1,216
Supplemental disclosure of noncash investing and financing
activities:
Property and equipment acquired under capital lease
obligations ............................................................ $ --- $ 388 $ 437 $ 3,880
Warrants issued ........................................................... $ --- $ --- $ --- $ 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.
42
<PAGE> 44
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
-------------------- ------------------------- Paid-In
Shares Amount Shares Amount Capital
---------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash at $0.02 per share ..... -- $ -- 400,000 $-- $ 6
---------- ------- ---------- ---------- ----------
Balance at June 30, 1991 ................................. -- -- 400,000 -- 6
Issuance of common stock for cash at an average price of
$0.02 per share ....................................... -- -- 97,111 -- 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
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1992 ................................. 2,040,784 -- 497,111 -- 2,675
Issuance of common stock for cash at an average price of
$0.06 per share ....................................... -- -- 49,000 -- 3
Issuance of convertible preferred stock for cash, net of
issuance costs, at $4.88 per share .................... 1,580,095 -- -- -- 7,674
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1993 ................................. 3,620,879 -- 546,111 -- 10,352
Issuance of common stock upon exercise of stock
options at an average price of $0.12 per share ........ -- -- 324,188 -- 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
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1994 ................................. 4,507,839 -- 870,299 -- 18,013
Issuance of common stock upon exercise of stock
options at an average price of $0.24 per share ........ -- -- 38,403 -- 9
Issuance of warrants ..................................... -- -- -- -- 49
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1995 ................................. 4,507,839 -- 908,702 -- 18,071
Issuance of convertible preferred stock for notes payable
and accrued interest at an average of $8.63 per share . 353,483 -- -- -- 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
Issuance of common stock upon initial public offering,
net of issuance costs, for cash at $12 per share ...... -- -- 2,383,450 1 26,042
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
Issuance of common stock upon exercise of purchase
rights at an exercise price of $10.20 per share ....... -- -- 8,379 -- 86
Stock compensation expense ............................... -- -- -- -- 26
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1996 ................................. -- -- 8,549,424 1 49,948
Issuance of common stock, net of issuance costs, for
cash at an average price of $16.93 per share .......... -- -- 1,442,190 -- 24,420
Issuance of common stock upon exercise of stock
options at an average price of $2.74 per share ........ -- -- 96,283 -- 264
Issuance of common stock upon exercise of purchase
rights at an exercise price of $10.51 per share ....... -- -- 14,557 -- 153
Stock compensation expense ............................... -- -- -- -- 126
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1997 ................................. -- -- 10,102,454 1 74,911
Issuance of common stock, net of issuance costs, for
cash at $21.75 per share .............................. -- -- 2,012,500 -- 40,796
Issuance of common stock upon exercise of stock
options at an average price of $6.57 per share ........ -- -- 88,933 -- 584
Issuance of common stock upon exercise of purchase
rights at an exercise price of $14.36 per share ....... -- -- 10,372 -- 149
Issuance of common stock upon exercise of warrants ....... -- -- 80,033 -- --
Stock compensation expense ............................... -- -- -- -- 91
Net loss ................................................. -- -- -- -- --
---------- ------- ---------- ---------- ----------
Balance at June 30, 1998 ................................. -- $ -- 12,294,292 $ 1 $ 116,531
========== ======= ========== ========== ==========
<CAPTION>
Deficit
Accumulated
During
Additional
Development
Stage Total
---------- ----------
<S> <C> <C>
Issuance of common stock for cash at $0.02 per share ..... $ -- $ 6
---------- ----------
Balance at June 30, 1991 ................................. -- 6
Issuance of common stock for cash at an average price of
$0.02 per share ....................................... -- 2
Issuance of convertible preferred stock for cash, net of
issuance costs, at an average price of $1.32 per share -- 2,667
Net loss ................................................. (523) (523)
---------- ----------
Balance at June 30, 1992 ................................. (523) 2,152
Issuance of common stock for cash at an average price of
$0.06 per share ....................................... -- 3
Issuance of convertible preferred stock for cash, net of
issuance costs, at $4.88 per share .................... -- 7,674
Net loss ................................................. (3,580) (3,580)
---------- ----------
Balance at June 30, 1993 ................................. (4,103) 6,249
Issuance of common stock upon exercise of stock
options at an average price of $0.12 per share ........ -- 38
Issuance of convertible preferred stock for cash, net of
issuance costs, at an average price of $8.63 per share -- 7,623
Net loss ................................................. (5,141) (5,141)
---------- ----------
Balance at June 30, 1994 ................................. (9,244) 8,769
Issuance of common stock upon exercise of stock
options at an average price of $0.24 per share ........ -- 9
Issuance of warrants ..................................... -- 49
Net loss ................................................. (10,479) (10,479)
---------- ----------
Balance at June 30, 1995 ................................. (19,723) (1,652)
Issuance of convertible preferred stock for notes payable
and accrued interest at an average of $8.63 per share . -- 3,051
Issuance of convertible preferred stock for cash, net of
issuance costs, at an average price of $8.63 per share -- 2,550
Issuance of common stock upon initial public offering,
net of issuance costs, for cash at $12 per share ...... -- 26,043
Conversion of convertible preferred stock into common
stock ................................................. -- --
Issuance of common stock upon exercise of stock
options at an average exercise price of $1.33 per share -- 122
Issuance of common stock upon exercise of purchase
rights at an exercise price of $10.20 per share ....... -- 86
Stock compensation expense ............................... -- 26
Net loss ................................................. (8,235) (8,235)
---------- ----------
Balance at June 30, 1996 ................................. (27,958) 21,991
Issuance of common stock, net of issuance costs, for
cash at an average price of $16.93 per share .......... -- 24,420
Issuance of common stock upon exercise of stock
options at an average price of $2.74 per share ........ -- 264
Issuance of common stock upon exercise of purchase
rights at an exercise price of $10.51 per share ....... -- 153
Stock compensation expense ............................... -- 126
Net loss ................................................. (10,258) (10,258)
---------- ----------
Balance at June 30, 1997 ................................. (38,216) 36,696
Issuance of common stock, net of issuance costs, for
cash at $21.75 per share .............................. -- 40,796
Issuance of common stock upon exercise of stock
options at an average price of $6.57 per share ........ -- 584
Issuance of common stock upon exercise of purchase
rights at an exercise price of $14.36 per share ....... -- 149
Issuance of common stock upon exercise of warrants ....... -- --
Stock compensation expense ............................... -- 91
Net loss ................................................. (9,675) (9,675)
---------- ----------
Balance at June 30, 1998 ................................. $ (47,891) $ 68,641
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 45
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company
Pharmacyclics, Inc. (the "Company") 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.
Basic and diluted net loss per share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," during the year ended June 30, 1998 and retroactively
restated prior periods. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common and potential
common shares outstanding during the period. Potential common shares consist of
the incremental common shares issuable upon conversion of outstanding
convertible preferred stock (using the if-converted method) and shares issuable
upon the exercise of stock options and warrants (using the treasury stock
method). Potential common shares have been excluded from the computation of
dilutive earnings per share because their effect is anti-dilutive.
Cash equivalents and investments
All highly liquid investments purchased with maturity at the date of
purchase of three months or less are considered to be cash equivalents. The
Company has classified its investments as "available-for-sale." For all periods
presented, the cost of investments approximates their fair market value.
44
<PAGE> 46
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's cash, cash equivalents and investments consisted of
the following (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
Investment type 1998 1997
------- -------
<S> <C> <C>
Cash in bank ........................ $ 321 $ 287
Money market ........................ 13,135 8,047
Debt (state or political subdivision) -- 2,021
Debt (corporate) .................... -- 5,514
------- -------
Cash and cash equivalents ........ $13,456 $15,869
======= =======
Debt (state or political subdivision) $ 3,008 $ 2,003
Debt (corporate) .................... 20,181 12,955
------- -------
Short-term investments ........... $23,189 $14,958
======= =======
Debt (state or political subdivision) $ 2,032 $ --
Debt (corporate) .................... 31,704 6,103
------- -------
Long-term investments ............ $33,736 $ 6,103
======= =======
</TABLE>
Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk
consist principally of cash and cash equivalents and investments. The Company
places its cash equivalents and investments with high-credit quality financial
institutions and invests 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.
Revenue recognition
License fees are recognized as revenue when earned, as evidenced by
achievement of the specified milestones and the absence of any ongoing
performance obligation. Contract and grant revenues are recognized as earned,
primarily based on costs incurred to total estimated costs at completion,
pursuant to the terms of each agreement. License, contract and grant revenues
are generally not subject to repayment. Any amounts received in advance of
performance are recorded as deferred revenue.
Research and development
Research and development costs are expensed as incurred and include costs
associated with contract research performed pursuant to collaborative
agreements. Research and development costs consist of direct and indirect
internal costs related to specific projects as well as fees paid to other
entities which conduct certain research activities on behalf of the Company.
Research and development expenses incurred in connection with research contracts
were $2.2 million for the year ended June 30, 1998.
45
<PAGE> 47
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 the Company's financial instruments, including cash
and cash equivalents, short and long-term investments, accounts receivable and
capital lease obligations approximate fair value due to their short maturities.
Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic
value 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."
Recent accounting standards
In June 1997, the Financial Accounting Standards Board ("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 gains and losses 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.
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.
46
<PAGE> 48
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - AGREEMENTS:
Nycomed Collaboration. In October 1997, the Company entered into an
agreement with Nycomed Imaging A/S ("Nycomed"), in which Nycomed acquired
exclusive sales and marketing rights to LUTRIN(TM) photosensitizer for cancer
indications in all markets of the world excluding the United States, Canada and
Japan. LUTRIN is a lutetium texaphyrin molecule being developed as a
photosensitizer for use in the photodynamic therapy of cancer. In exchange for
these rights, Nycomed has agreed to pay the Company up to approximately $14.0
million in license fees, a portion of the Company's development costs (based
upon an agreed budget), and milestone payments, 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
development costs (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. Upon receipt of
marketing approval by Nycomed for any products developed pursuant to this
agreement, Nycomed will pay the Company a royalty on any future product sales.
The Company is required to supply Nycomed with bulk drug substance. Nycomed is
required to produce finished product for use by it and the Company.
Alcon Collaboration. In December 1997, the Company entered into an
evaluation and license agreement with Alcon Pharmaceuticals Ltd. ("Alcon"),
under which Alcon acquired worldwide marketing rights to OPTRIN(TM)
photosensitizer for ophthalmology indications. OPTRIN is a lutetium texaphyrin
molecule being developed as a photosensitizer for the use in photodynamic
therapy of age related macular degeneration. Alcon will conduct and be
responsible for all costs associated with its worldwide development and
regulatory submissions for ophthalmology indications of OPTRIN. In accordance
with the terms of this agreement, the Company received a non-refundable up-front
payment and may receive additional amounts based on Alcon reaching certain
milestones, as well as royalties on any future product sales. The Company is
required to supply Alcon with bulk drug substance through its manufacturing
collaboration with Celanese; Alcon will be responsible for formulation and
packaging of finished products.
University of Texas License. The Company has entered into two exclusive
patent license agreements with 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 the University. Royalties totaling $275,000 were paid under the agreements
through June 30, 1997, in connection with the E-Z-EM, Inc. agreement described
below. No royalties were paid during the year ended June 30, 1998. In connection
with the UT License Agreement, the Company has entered into a license agreement
with Dr. Stuart W. Young, 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 agreements.
E-Z-EM License. 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 the Company's GADOLITE product in the US. In fiscal 1997,
the Company entered into similar agreement with E-Z-EM, Ltd., an affiliate of
E-Z-EM, Inc. 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. There were no revenues associated with this agreement
for the year ended June 30, 1998.
47
<PAGE> 49
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Hoechst Celanese Agreement. In September 1996, the Company entered into an
exclusive worldwide manufacturing and supply agreement (the "Agreement") with
Hoechst Celanese Corporation ("HCC") for the process optimization, scale up and
supply of its texaphyrin products. In October 1997, HCC assigned the contract to
Celanese, Ltd. ("Celanese") in connection with HCC's corporate reorganization.
The Company has no minimum purchase obligations under the Agreement. During the
fourth quarter of fiscal 1998, the Company received indications that Celanese
wishes to reduce its obligations to the Company under the Agreement. While
discussions with Celanese to revise the scope of the Agreement are in-process,
the Company has commenced efforts to identify multiple additional sources of
bulk drug substance.
NOTE 3 - BALANCE SHEET COMPONENTS:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------- -------
1998 1997
------- -------
<S> <C> <C>
Equipment ....................................................... $ 2,959 $ 2,640
Leasehold improvements .......................................... 1,993 1,932
Furniture and fixtures .......................................... 478 362
------- -------
5,430 4,934
Less accumulated depreciation and amortization .................. (3,177) (2,430)
------- -------
$ 2,253 $ 2,504
======= =======
</TABLE>
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Employee compensation ........................................... $358 $240
Other ........................................................... 74 71
---- ----
$432 $311
==== ====
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY:
Common stock
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 additional 233,450 shares of common stock. The
Company's initial public offering resulted in net proceeds of approximately
$26.0 million.
In November 1996, the Company 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, which resulted in net proceeds of $8.1 million. In
February 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, which resulted in net proceeds of $16.3 million. The Company filed a
registration statement on Form S-3 related to these shares, which was declared
effective on April 22, 1997. In February 1998, the Company sold 2,012,500 shares
of its common stock at a price of $21.75 per share, which resulted in net
proceeds of approximately $40.8 million.
48
<PAGE> 50
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 financing which
occurred in June 1994.
Management ascribed a nominal value to these warrants and reserved 197,540
shares of common stock for future issuance upon exercise of such warrants. In
connection with the Company's IPO, the above warrants were converted into
warrants to purchase shares of common stock. In fiscal 1998, holders of all of
the warrants granted in July 1995 elected "net issue exercises" at an average
market price of $24.15, resulting in the issuance of 80,033 shares of common
stock and the cancellation of warrants to purchase 44,465 shares of common
stock. At June 30, 1998, the Company has reserved 73,042 shares of common stock
for future issuance upon the exercise of the remaining outstanding warrants.
49
<PAGE> 51
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock option plans
1992 Stock Option Plan. The 1992 Stock Option Plan (the "1992 Plan"), as
amended, authorizes 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 are 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 are 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. To date, all options granted under the 1992 Plan have been
granted at 100% of the estimated 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 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 authorizes for issuance 1,528,723 shares of
common stock. The Plan also allows for an additional number of shares equal to
1% of the number of shares of common stock outstanding on the last day of each
future 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.
In the event the Company is acquired by merger, consolidation or asset
sale, options outstanding under the 1995 Plan will immediately vest in full,
except to the extent the options are assumed by the acquiring entity. Any
assumed options will accelerate upon the optionee's involuntary termination
within 18 months following the acquisition. 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 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.
50
<PAGE> 52
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Directors Plan became effective as of the effective date of the
Company's initial public offering. 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
installment over the optionee's period of Board service.
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 fully vested.
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 cancelled in exchange
for cash distribution to the director based upon the tender offer price. The
Directors Plan will terminate on August 1, 2005.
51
<PAGE> 53
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Exercise
for Grant Number Price
--------- -------- ---------
<S> <C> <C> <C>
Balance at June 30, 1995 ........... 206 431 $ 2.50
Authorized ......................... 485 --
Exercised .......................... -- (92) $ 3.09
Granted ............................ (492) 492 $ 10.03
Canceled ........................... 11 (11) $ 6.11
------ ------
Balance at June 30, 1996 ........... 210 820 $ 9.20
Authorized ......................... 842 --
Exercised .......................... -- (96) $ 2.74
Granted ............................ (569) 569 $ 16.69
Canceled ........................... 31 (31) $ 12.21
------ ------
Balance at June 30, 1997 ........... 514 1,262 $ 11.58
Authorized ......................... 602 --
Exercised .......................... -- (89) $ 6.57
Granted ............................ (577) 577 $ 25.33
Canceled ........................... 158 (158) $ 15.41
------ ------
Balance at June 30, 1998 ........... 697 1,592 $ 16.43
====== ======
</TABLE>
A summary of outstanding and vested stock options as of June 30, 1998 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
-------------------------------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Number Contractual Life Price Number Price
- ---------------- --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.08 - $ 5.25 193,165 6.09 $ 3.37 176,333 $ 3.33
$ 7.50 - $ 12.00 299,436 7.14 $ 8.28 162,568 $ 8.57
$13.25 - $ 17.50 310,475 8.42 $ 15.33 81,516 $ 15.04
$17.75 - $ 20.25 252,675 7.96 $ 17.87 86,314 $ 17.82
$20.63 - $ 24.25 214,217 9.03 $ 23.70 17,187 $ 23.94
$26.13 - $ 27.50 322,500 9.77 $ 26.91 2,240 $ 27.13
--------- ---------
1,592,468 8.18 $ 16.43 526,158 $ 9.92
========= =========
</TABLE>
52
<PAGE> 54
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Employee Stock Purchase Plan. The Company adopted an Employee Stock
Purchase Plan (the "Purchase Plan") in August 1995. Qualified employees may
elect to have a certain percentage of their salary withheld to purchase shares
of the Company's common stock under the Purchase Plan. The purchase price per
share is equal to 85 percent of the market value of the stock on specified
dates. The Company has reserved 100,000 shares of common stock under the
Purchase Plan. Sales under the Purchase Plan in fiscal 1998 and 1997 were 10,372
and 14,557 shares of common stock at an average price of $14.36 and $10.51 per
share, respectively. Shares available for future purchase under the Purchase
Plan are 66,692 at June 30, 1998. 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
1998 and 1997 was $15.54 and $9.22 per share, respectively. The weighted average
estimated grant date fair value for purchase awards under the Company's Purchase
Plan during fiscal 1998 and 1997 was $6.85 and $5.51, 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.
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,
----------------------
1998 1997
---- ----
<S> <C> <C>
Stock option plans:
Expected dividend yield ....... 0% 0%
Expected stock price volatility 60% 49%
Risk free interest rate ....... 5.66% 6.52%
Expected life (years) ......... 6.05 5.95
Stock purchase plan:
Expected dividend yield ....... 0% 0%
Expected stock price volatility 60% 48%
Risk free interest rate ....... 5.28% 5.30%
Expected life (years) ......... 1.45 .25
</TABLE>
Pro forma net loss and net loss per share
Had the Company recorded 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, except
per share amounts):
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net loss:
As reported .......... $ 9,675 $ 10,258
Pro forma ............ 12,085 11,314
Loss per share:
As reported .......... $ 0.87 $ 1.11
Pro forma ............ 1.09 1.22
</TABLE>
53
<PAGE> 55
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The pro forma effect on the net loss and net loss per share for 1998 and
1997 is not representative of the pro forma effect in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to fiscal year 1996.
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,
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 15,822 $ 13,296
Tax credit carryforwards ....... 2,074 1,540
Capitalized start-up costs ..... 830 920
Accounts payable and other ..... 1,259 250
-------- --------
Gross deferred tax assets ...... 19,985 16,006
Less valuation allowance ....... (19,985) (16,006)
-------- --------
Net deferred tax assets ........ $--- $---
======== ========
</TABLE>
A full valuation allowance has been established for the Company's deferred
tax assets 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,
-------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Tax benefit at statutory rate .............. $ 3,386 $ 3,590 $ 2,882
Net operating loss carryforward for which no
benefit was available ................... (3,386) (3,590) (2,882)
------- ------- -------
$ --- $ --- $ ---
======= ======= =======
</TABLE>
54
<PAGE> 56
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At June 30, 1998, the Company had net operating loss carryforwards of
approximately $39.6 million for federal income tax reporting purposes and tax
credit carryforwards of approximately $2.1 million for federal reporting
purposes. These amounts expire at various times through 2013.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses and tax credit carryforwards 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. As a result of ownership changes that have
occurred during the past three fiscal years, management believes that the
Company's net operating loss and tax credit carryforwards are subject to certain
annual limitations.
NOTE 6 - COMMITMENTS:
The Company leases its facilities under a non-cancelable operating lease
that 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 that are included in property
and equipment (Note 3) is as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
Equipment .................................... $ 2,273 $ 2,542
Leasehold improvements ....................... 1,050 1,050
Furniture and fixtures ....................... 278 278
------- -------
3,601 3,870
Less accumulated depreciation and amortization (2,590) (2,060)
======= =======
$ 1,011 $ 1,810
======= =======
</TABLE>
The capital lease agreements require the Company, among other things, to
pay insurance and maintenance costs.
Future minimum lease payments under non-cancelable operating and capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending June 30, Leases Leases
-------------------- ------- ------
<S> <C> <C>
1999 ......................................... $ 285 $ 392
2000 ......................................... 229 371
2001 ......................................... 61 371
2002 ......................................... -- 202
------- ------
575 $1,336
------- ======
Less amount representing interest ............ (45)
------- ------
530
Less current portion ......................... (255)
-------
Long-term portion of capital lease obligations $ 275
=======
</TABLE>
55
<PAGE> 57
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Rent expense for the years ended June 30, 1998, 1997 and 1996 was
$366,000, $371,000 and $366,000, respectively, and $1,812,000 for the period
from inception through June 30, 1998. 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 for rent expense
incurred but not paid at June 30, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
56
<PAGE> 58
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 (with respect to Directors) is
hereby incorporated by reference from the information under the caption
"Election of Directors" contained in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission no later than 120 days from
the end of the Company's last fiscal year in connection with the solicitation of
proxies for its Annual Meeting of Stockholders to be held on December 11, 1998,
(the "Proxy Statement"). The required information concerning MANAGEMENT -
Directors and Executive Officers is contained in Item 1, Part 1, of this Form
10-K under the caption "Directors and Executive Officers" on pages 29 through
31.
The information required by Section 16(a) is hereby incorporated by
reference from the information under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from
the information under the caption "Election of Directors, Summary of Cash and
Certain Other Compensation, Stock Options, Exercises and Holdings" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from
the information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from
the information under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.
57
<PAGE> 59
PART IV
ITEM 14. FINANCIAL STATEMENT, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See Index to Financial Statements under Item 8.
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or
are not required or the information required to be set forth
therein is included in the consolidated financial statement or
notes thereto.
(b) REPORTS ON FORM 8-K
Not Applicable.
(c) EXHIBITS
The following documents are referenced or included in this
report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (Incorporated
by reference to exhibit of the same number to the Annual Report on
Form 10-K for the fiscal year ended June 30, 1997) . . . . . . . .
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
exhibit of the same number to the Annual Report on Form 10-K for
the fiscal year ended June 30, 1997) . . . . . . . . . . . . . . .
4.1 Amended and Restated Investors' Rights Agreement between the
Company and the investors specified therein dated July 31, 1995
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
4.2 Specimen Certificate of the Company's Common Stock (Incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048) . . . . . . .
10.1 Form of Indemnification Agreement between the Company and its
directors and executive officers (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.2 Series C Stock Purchase Agreement dated as of June 13, 1994,
between the Company and the investors specified therein
(Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.3 Investment Agreement dated as of July 31, 1995, between the
Company and the investors specified therein (Incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.4 Form of Series C Preferred Stock Purchase Warrant dated as of July
31, 1995, issued by the Company to the investors listed on
Schedule A thereto (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1, Commission File
No. 33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Master Lease and Warrant Agreements entered into between the
Company and Comdisco, Inc., dated as of July 22, 1992, July 30,
1992, March 31, 1993, June 24, 1993, and October 3, 1994,
respectively (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Commission File No.
33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.6* Patent License Agreement entered into between the Company and The
University of Texas, Austin dated entered into on or about July 1,
1991 (Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.7* Patent License Agreement entered into between the Company and The
University of Texas, Dallas dated as of July 1, 1992, as amended
by the Patent License Agreement dated May 27, 1993 (Incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048) . . . . . . .
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.8* Patent License Agreement entered into between the Company and
Stuart W. Young dated as of October 15, 1992 (Incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.9 Lease Agreement entered into between the Company and New England
Mutual Life Insurance Company dated as of June 17, 1993, as
amended on July 22, 1993, and as further amended on March 1, 1994
(Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.10 Supply Agreement entered into between the Company and Glaxo
Wellcome Company. (f/k/a Burroughs Wellcome Co.) dated as of March
1, 1995 (Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Commission File No.
33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.11* License Agreement entered into between the Company and Cook,
Incorporated, dated as of April 4, 1995 (Incorporated by reference
to Exhibit 10.13 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048) . . . . . . . . . . . . . . . .
10.12* License and Supply Agreement entered into between the Company and
E-Z-EM, Inc. dated as of August 7, 1995 (Incorporated by reference
to Exhibit 10.14 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048) . . . . . . . . . . . . . . . .
10.13 The Company's 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-8,
Commission File No. 333-52881) . . . . . . . . . . . .
10.14 The Company's 1995 Non-Employee Directors' Stock Option Plan
(Incorporated by reference to Exhibit 99.7 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.15 The Company's Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.7 to the Company's Registration Statement
on Form S-8, Commission File No. 333-52881) . . . . . . . . . .
10.16 Employment Agreement entered into between the Company and Richard
A. Miller, M.D. dated as of June 10, 1992 (Incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.17 Employment Agreement entered into between the Company and Marc L.
Steuer dated as of October 31, 1994 (Incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.18 Employment Agreement entered into between the Company and William
C. Dow, Ph.D., dated as of May 20, 1992, as amended by a letter
agreement dated July 8, 1992 (Incorporated by reference to Exhibit
10.21 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.19 Employment Agreement entered into between the Company and Stuart
W. Young, M.D. dated as of April 19, 1993 (Incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.20 Promissory Notes issued by the Company to Stuart W. Young, M.D.
dated as of September 1994 and April 1995, in the amounts of
$65,000 and $30,000, respectively (Incorporated by reference to
Exhibit 10.24 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.21* Master Process Development and Supply Agreement dated September 6,
1996 entered into between the Company and Hoechst Celanese
Corporation (Incorporated by reference to exhibit of the same
number to the . . . . . . . . . . . . . . . . . . . . . . . . . .
10.22 Annual Report on Form 10-K for the fiscal year ended June 30,
1996) Form of Notice of Grant of Stock Option generally to be used
under the 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on Form S-8,
Commission File No. 33-98514) . . . . . . . . . . . . . . . . . .
10.23 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form S-8,
Commission File No. 333-52881) . . . . . . . . . . . . . . . . .
10.24 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciate Right) (Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Commission File
No. 333-52881) . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
59
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.25 Form of Addendum to Stock Option Agreement (Special Tax Election)
(Incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.26 Form of Addendum to Stock Option Agreement (Involuntary
Termination following Change in Control) (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement
on Form S-8, Commission File No. 33-98514) . . . . . . . . . . . .
10.27 Form of Notice of Grant of Automatic Stock Option (Initial Grant)
(Incorporated by reference to Exhibit 99.8 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.28 Form of Notice of Grant of Automatic Stock Option (Annual Grant)
(Incorporated by reference to Exhibit 99.9 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.29 Form of Non-Employee Director Stock Option Agreement (Incorporated
by reference to Exhibit 99.10 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514) . . . . . . .
10.30 Form of Employee Stock Purchase Plan Enrollment/Change Form
(Incorporated by reference to Exhibit 99.12 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.31 Form of Stock Purchase Agreement (Incorporated by reference to
Exhibit 99.13 to the Company's Registration Statement on Form S-8,
Commission File No. 33-98514) . . . . . . . . . . . . . . . . . .
10.32 Form of Special Officer Participation Form (Incorporated by
reference to Exhibit 99.14 to the Company's Registration Statement
on Form S-8, Commission File No. 33-98514) . . . . . . . . . . . .
10.33 Common Stock Purchase Agreement dated November 11,1996, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 333-22747)
10.34 Common Stock Purchase Agreement dated February 21, 1997, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 333-22747)
10.35 Form of Severance Agreement between the Company and certain
executive officers (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended September 30, 1997) . . . . . . . . . . . . . . . . . . . .
10.36* Development, License and Commercialization Agreement, dated
October 17, 1997, by and between the Company and Nycomed Imaging
AS (Incorporated by reference to exhibit of the same number to the
Quarterly report on Form 10-Q for the quarter ended September 30,
1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.37 Employment Agreement, dated October 14, 1997, by and between the
Company and Michael J. Hensley, M.D. (Incorporated by reference to
exhibit of the same number to the Quarterly report on Form 10-Q
for the quarter ended September 30, 1997) . . . . . . . . . . . .
10.38 Employment Agreement, dated December 18, 1997, by and between the
Company and Leiv Lea (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended March 31, 1998) . . . . . . . . . . . . . . . . . . . . . .
10.39* Evaluation and License Agreement, dated December 16, 1997, by and
between Alcon Laboratories, Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-3,
Commission File No. 333-43621) . . . . . . . . . . . . . . . . .
10.40 Employment agreement, dated March 11, 1998, by and between the
Company and David A. Lowin . . . . . . . . . . . . . . . . . . . .
10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden . . . . . . . . . . . . . . . . . . . . .
10.42+ Development and Supply Agreement dated June 16, 1998 entered into
between the Company and Abbott Laboratories Inc. . . . . . . . . .
23.1 Consent of Independent Accountants . . . . . . . . . . . . . . . .
24.1 Power of Attorney (see page 61) . . . . . . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- ----------------
* Confidential treatment has been granted as to certain portions of this
agreement.
+ Confidential treatment has been requested as to certain portions of this
agreement.
60
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 24 , 1998
PHARMACYCLICS, INC.
By: /s/ RICHARD A. MILLER, M.D.
-------------------------------------
Richard A. Miller, M.D.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Richard A. Miller and Marc
L. Steuer, or either of them as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and very act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of the, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD A. MILLER, M.D. President and Chief Executive Officer and September 24, 1998
- -------------------------------------------- Director (Principal Executive Officer)
Richard A. Miller, M.D.
/s/ MARC L. STEUER Senior Vice President, Business Development September 24, 1998
- -------------------------------------------- and Chief Financial Officer (Principal
Marc L. Steuer Financial Officer)
/s/ LEIV LEA Vice President, Finance and Administration September 24, 1998
- -------------------------------------------- (Principal Accounting Officer)
Leiv Lea
/s/ THOMAS D. KILEY Director September 24, 1998
- --------------------------------------------
Thomas D. Kiley
/s/ JOSEPH S. LACOB Director September 24, 1998
- --------------------------------------------
Joseph S. Lacob
/s/ BRIAN A. MARKISON Director September 24, 1998
- --------------------------------------------
Brian A. Markison
/s/ JOSEPH C. SCODARI Director September 24, 1998
- --------------------------------------------
Joseph C. Scodari
/s/ CRAIG C. TAYLOR Director September 24, 1998
- --------------------------------------------
Craig C. Taylor
</TABLE>
61
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company
(Incorporated by reference to exhibit of same number to
the Annual Report on Form 10-K for the fiscal year ended
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
exhibit of same number to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 . . . . . . . . . . . . . . . . .
4.1 Amended and Restated Investors' Rights Agreement between the
Company and the investors specified therein dated July 31, 1995
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
4.2 Specimen Certificate of the Company's Common Stock (Incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048) . . . . . . .
10.1 Form of Indemnification Agreement between the Company and its
directors and executive officers (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.2 Series C Stock Purchase Agreement dated as of June 13, 1994,
between the Company and the investors specified therein
(Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.3 Investment Agreement dated as of July 31, 1995, between the
Company and the investors specified therein (Incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.4 Form of Series C Preferred Stock Purchase Warrant dated as of July
31, 1995, issued by the Company to the investors listed on
Schedule A thereto (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1, Commission File
No. 33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Master Lease and Warrant Agreements entered into between the
Company and Comdisco, Inc., dated as of July 22, 1992, July 30,
1992, March 31, 1993, June 24, 1993, and October 3, 1994,
respectively (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Commission File No.
33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.6* Patent License Agreement entered into between the Company and The
University of Texas, Austin dated entered into on or about July 1,
1991 (Incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.7* Patent License Agreement entered into between the Company and The
University of Texas, Dallas dated as of July 1, 1992, as amended
by the Patent License Agreement dated May 27, 1993 (Incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048) . . . . . . .
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.8* Patent License Agreement entered into between the Company and
Stuart W. Young dated as of October 15, 1992 (Incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.9 Lease Agreement entered into between the Company and New England
Mutual Life Insurance Company dated as of June 17, 1993, as
amended on July 22, 1993, and as further amended on March 1, 1994
(Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048)
10.10 Supply Agreement entered into between the Company and Glaxo
Wellcome Company. (f/k/a Burroughs Wellcome Co.) dated as of March
1, 1995 (Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Commission File No.
33-96048) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.11* License Agreement entered into between the Company and Cook,
Incorporated, dated as of April 4, 1995 (Incorporated by reference
to Exhibit 10.13 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048) . . . . . . . . . . . . . . . .
10.12* License and Supply Agreement entered into between the Company and
E-Z-EM, Inc. dated as of August 7, 1995 (Incorporated by reference
to Exhibit 10.14 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048) . . . . . . . . . . . . . . . .
10.13 The Company's 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-8,
Commission File No. 333-52881) . . . . . . . . . . . . . . . . . .
10.14 The Company's 1995 Non-Employee Directors' Stock Option Plan
(Incorporated by reference to Exhibit 99.7 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.15 The Company's Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.7 to the Company's Registration Statement
on Form S-8, Commission File No. 333-52881) . . . . . . . . . . .
10.16 Employment Agreement entered into between the Company and Richard
A. Miller, M.D. dated as of June 10, 1992 (Incorporated by
reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.17 Employment Agreement entered into between the Company and Marc L.
Steuer dated as of October 31, 1994 (Incorporated by reference to
Exhibit 10.20 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.18 Employment Agreement entered into between the Company and William
C. Dow, Ph.D., dated as of May 20, 1992, as amended by a letter
agreement dated July 8, 1992 (Incorporated by reference to Exhibit
10.21 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.19 Employment Agreement entered into between the Company and Stuart
W. Young, M.D. dated as of April 19, 1993 (Incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048) . . . . . . . . . . . .
10.20 Promissory Notes issued by the Company to Stuart W. Young, M.D.
dated as of September 1994 and April 1995, in the amounts of
$65,000 and $30,000, respectively (Incorporated by reference to
Exhibit 10.24 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048) . . . . . . . . . . . . . . . . . .
10.21* Master Process Development and Supply Agreement dated September 6,
1996 entered into between the Company and Hoechst Celanese
Corporation (Incorporated by reference to exhibit of the same
number to the . . . . . . . . . . . . . . . . . . . . . . . . . .
10.22 Annual Report on Form 10-K for the fiscal year ended June 30,
1996) Form of Notice of Grant of Stock Option generally to be used
under the 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on Form S-8,
Commission File No. 33-98514) . . . . . . . . . . . . . . . . . .
10.23 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form S-8,
Commission File No. 333-52881) . . . . . . . . . . . . . . . . .
10.24 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciate Right) (Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Commission File
No. 333-52881) . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.25 Form of Addendum to Stock Option Agreement (Special Tax Election)
(Incorporated by reference to Exhibit 99.5 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.26 Form of Addendum to Stock Option Agreement (Involuntary
Termination following Change in Control) (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement
on Form S-8, Commission File No. 33-98514) . . . . . . . . . . . .
10.27 Form of Notice of Grant of Automatic Stock Option (Initial Grant)
(Incorporated by reference to Exhibit 99.8 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.28 Form of Notice of Grant of Automatic Stock Option (Annual Grant)
(Incorporated by reference to Exhibit 99.9 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.29 Form of Non-Employee Director Stock Option Agreement (Incorporated
by reference to Exhibit 99.10 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514) . . . . . . .
10.30 Form of Employee Stock Purchase Plan Enrollment/Change Form
(Incorporated by reference to Exhibit 99.12 to the Company's
Registration Statement on Form S-8, Commission File No. 33-98514)
10.31 Form of Stock Purchase Agreement (Incorporated by reference to
Exhibit 99.13 to the Company's Registration Statement on Form S-8,
Commission File No. 33-98514) . . . . . . . . . . . . . . . . . .
10.32 Form of Special Officer Participation Form (Incorporated by
reference to Exhibit 99.14 to the Company's Registration Statement
on Form S-8, Commission File No. 33-98514) . . . . . . . . . . . .
10.33 Common Stock Purchase Agreement dated November 11,1996, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 333-22747)
10.34 Common Stock Purchase Agreement dated February 21, 1997, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 333-22747)
10.35 Form of Severance Agreement between the Company and certain
executive officers (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended September 30, 1997) . . . . . . . . . . . . . . . . . . . .
10.36* Development, License and Commercialization Agreement, dated
October 17, 1997, by and between the Company and Nycomed Imaging
AS (Incorporated by reference to exhibit of the same number to the
Quarterly report on Form 10-Q for the quarter ended September 30,
1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.37 Employment Agreement, dated October 14, 1997, by and between the
Company and Michael J. Hensley, M.D. (Incorporated by reference to
exhibit of the same number to the Quarterly report on Form 10-Q
for the quarter ended September 30, 1997) . . . . . . . . . . . .
10.38 Employment Agreement, dated December 18, 1997, by and between the
Company and Leiv Lea (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended March 31, 1998) . . . . . . . . . . . . . . . . . . . . . .
10.39* Evaluation and License Agreement, dated December 16, 1997, by and
between Alcon Laboratories, Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-3,
Commission File No. 333-43621) . . . . . . . . . . . . . . . . . .
10.40 Employment agreement, dated March 11, 1998, by and between the
Company and David A. Lowin . . . . . . . . . . . . . . . . . . . .
10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden . . . . . . . . . . . . . . . . . . . . .
10.42+ Development and Supply Agreement dated June 16, 1998 entered into
between the Company and Abbott Laboratories Inc. . . . . . . . . .
23.1 Consent of Independent Accountants . . . . . . . . . . . . . . . .
24.1 Power of Attorney (see page 61) . . . . . . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- ----------------
* Confidential treatment has been granted as to certain portions of this
agreement.
+ Confidential treatment has been requested as to certain portions of this
agreement.
<PAGE> 1
Exhibit 10.40
PHARMACYCLICS, INC.
995 East Arques Avenue
Sunnyvale, CA 94086-4593
March 11, 1998
David Lowin
115 Foxwood Road
Portola Valley, CA 94028
Dear David;
On behalf of the Company's Board of Directors, I am pleased to make you
an offer to join the Company as its Vice President & Intellectual Property
Counsel. The purpose of this letter is to set forth the terms of your proposed
employment with the Company, including your compensation level and benefit
entitlements.
1. EMPLOYMENT AND DUTIES.
A. The Company will employ you as Vice President & Intellectual
Property Counsel, commencing April 1, 1998, and you will accordingly make
yourself available on a full-time basis to assume that position on or before
such date. In that position, you will report directly to the VP Business
Development & CFO.
B. You will perform the duties inherent in your position in good
faith and to the best of your ability and will render all services which may be
reasonably required of you in such position. While you are employed with the
company, you will devote your full time and effort to the business and affairs
of the Company. Your principal place of operations will be at the Company's
corporate offices, which are presently located in Sunnyvale, California.
2. COMPENSATION.
A. Your initial annual base salary will be at the rate of
$200,000.00 per year. Your base salary will be subject to adjustment by the
Company's Board of Directors for each calendar year of service following the
1998 calendar year.
B. Your base salary will be paid at periodic intervals in accordance
with the Company's payroll practices for salaried employees.
C. The Company will deduct and withhold, from the base salary and
bonuses payable to you hereunder, any and all applicable Federal, state and
local income and employment withholding taxes and any other amounts required to
be deducted or withheld by the Company under applicable statute or regulation.
<PAGE> 2
Page 2
3. EMPLOYEE STOCK OPTIONS. As soon as possible after you join the
Company as Vice President & Intellectual Property Counsel, you will be granted a
stock option to purchase 60,000 shares of Pharmacyclics Common Stock. The option
will have an exercise price equal to 100% of the fair market value of the
Pharmacyclics Common Stock on the grant date and will have a maximum term of 10
years, subject to earlier termination upon your cessation of employment with the
Company. The option will become exercisable as follows: the option will become
exercisable for 12,000 shares upon completion of one year of service after your
date of hire, the option will become exercisable for the remaining 48,000 shares
in a series of 48 equal successive monthly installments upon completion of each
month of service thereafter. All vesting under your option will cease upon your
termination of employment. The remaining terms and conditions of your option
will be in accordance with the standard provisions utilized for stock option
grants under the Company's 1995 Stock Option Plan.
4. EXPENSE REIMBURSEMENT. You will be entitled to reimbursement from
the Company for all customary, ordinary and necessary business expenses incurred
by you in the performance of your duties hereunder, provided you furnish the
Company with vouchers, receipts and other details of such expenses within thirty
(30) days after they are incurred.
5. FRINGE BENEFITS. You will be eligible to participate in any group
life insurance plan, group medical and/or dental insurance plan, accidental
death and dismemberment plan, short-term disability program and other employee
benefit plans, including the Section 401(k) plan and the Employee Stock Purchase
Plan, which are made available to executive officers of the Company and for
which you otherwise qualify.
6. VACATION. You will accrue paid vacation benefits in accordance with
Company policy.
7. RESTRICTIVE COVENANTS. During the period of service as full-time
Vice President & Intellectual Property Counsel:
(i) you will devote your full working time and effort to the
performance of your duties as Vice President & Intellectual
Property Counsel; and
(ii) except as approved by VP Business Development & CFO you will
not directly or indirectly, whether for your own account or as
an employee, consultant or advisor, provide services to any
business enterprise other than the Company.
<PAGE> 3
Page 3
However, you will have the right to perform such incidental
services as are necessary in connection with (a) your private passive
investments, (b) your charitable or community activities, and (c) your
participation in trade or professional organizations, but only to the
extent such incidental services do not interfere with the performance
of your services as Vice President & Intellectual Property Counsel.
8. PROPRIETARY INFORMATION. Upon the commencement of your services as
Vice President & Intellectual Property Counsel, you will sign and deliver to the
Company the standard-form Proprietary Information and Inventions Agreement
required of all key employees of the Company.
9. TERMINATION OF EMPLOYMENT.
A. Your employment as Vice President & Intellectual Property Counsel
pursuant to this agreement will be entirely at will.
B. The Company may terminate your employment under this agreement at
any time for any reason, with or without cause (as defined below), by providing
you with at least thirty (30) days prior written notice. However, such notice
requirement will not apply to the termination of your employment for cause
pursuant to subparagraph D below.
C. You may terminate your employment under this agreement at any
time for any reason upon thirty (30) days prior written notice to the Company.
D. The Company may at any time, upon written notice, terminate your
employment hereunder for cause. Such termination will be effective immediately
upon such notice.
For purposes of this agreement, your employment with the Company will
be deemed to have been involuntarily terminated for cause if your services are
terminated by the Company for one or more of the following reasons:
(i) acts of fraud or embezzlement or other intentional misconduct
which adversely affects the Company's business, or
(ii) failure to correct any material deficiency in the performance
of your services as Vice President & Intellectual Property
Counsel within thirty (30) after written notification of such
deficiency from the Board, or
(iii) misappropriation or unauthorized disclosure or use of the
Company's proprietary information.
<PAGE> 4
Page 4
Please indicate your acceptance of the foregoing provisions of this
employment agreement by signing the enclosed copy of this agreement and
returning it to the Company.
Very truly yours,
PHARMACYCLICS, INC.
By ________________________________
Title: Vice President & CFO
ACCEPTED BY AND AGREED TO
Signature:________________________
David Lowin
Dated:_____________, 1998
<PAGE> 1
Exhibit 10.41
PHARMACYCLICS, INC.
995 East Arques Avenue
Sunnyvale, CA 94086-4593
May 28, 1998
Hugo Madden
302 Whitelem Drive
Palo Alto, CA 94306
Dear Hugo:
On behalf of the Company's Board of Directors, I am pleased to make you
an offer to join the Company as its Vice President Manufacturing. The purpose of
this letter is to set forth the terms of your proposed employment with the
Company, including your compensation level and benefit entitlements.
1. EMPLOYMENT AND DUTIES.
A. The Company will employ you as Vice President Manufacturing,
commencing not later than July 1, 1998, and you will accordingly make yourself
available on a full-time bases to assume that position on or before such date.
In that position, you will report directly to the President.
B. You will perform the duties inherent in your position in good
faith and to the best of your ability and will render all services which may be
reasonably required of you in such position. While you are employed with the
company, you will devote your full time and effort to the business and affairs
of the Company. Your principal place of operations will be at the Company's
corporate offices, which are presently located in Sunnyvale, California.
2. COMPENSATION.
A. Your initial base salary will be at the rate of $160,000.00 per
year. Your base salary will be subject to adjustment by the Company's Board of
Directors for each calendar year of service following the 1998 calendar year.
B. Your base salary will be paid at periodic intervals in accordance
with the Company's payroll practices for salaried employees.
<PAGE> 2
Page 2
C. The Company will deduct and withhold, from the base salary and
bonuses payable to you hereunder, any and all applicable Federal, state and
local income and employment withholding taxes and any other amounts required to
be deducted or withheld by the Company under applicable statute or regulation.
3. EMPLOYEE STOCK OPTIONS. As soon as possible after you join the
Company as Vice President Manufacturing, you will be granted a stock option to
purchase 50,000 shares of Pharmacyclics Common Stock. The option will have an
exercise price equal to 100% of the fair market value of the Pharmacyclics
Common Stock on the grant date and will have a maximum term of 10 years, subject
to earlier termination upon your cessation of employment with the Company. The
option will become exercisable as follows: the option will become exercisable
for 10,000 shares upon completion of one year of service after your date of
hire, the option will become exercisable for the remaining 40,000 shares in a
series of 48 equal successive monthly installments upon completion of each month
of service thereafter. All vesting under your option will cease upon your
termination of employment. The remaining terms and conditions of your option
will be in accordance with the standard provisions utilized for stock option
grants under the Company's 1995 Stock Option Plan.
4. EXPENSE REIMBURSEMENT. You will be entitled to reimbursement from
the Company for all customary, ordinary and necessary business expenses incurred
by you in the performance of your duties hereunder, provided you furnish the
Company with vouchers, receipts and other details of such expenses within thirty
(30) days after they are incurred.
5. FRINGE BENEFITS. You will be eligible to participate in any group
life insurance plan, group medical and/or dental insurance plan, accidental
death and dismemberment plan, short-term disability program and other employee
benefit plans, including the Section 401(k) plan and the Employee Stock Purchase
Plan, which are made available to executive officers of the Company and for
which you otherwise qualify.
<PAGE> 3
Page 3
6. VACATION. You will accrue paid vacation benefits in accordance with
the Company policy in effect for executive officers.
7. RESTRICTIVE COVENANTS. During the period of service as Vice
President Regulatory & Quality Affairs:
(i) you will devote your full working time and effort to the
performance of your duties as Vice President Regulatory &
Quality Affairs; and
(ii) except as approved by the President & CEO you will not
directly or indirectly, whether for your own account or as an
employee, consultant or advisor, provide services to any
business enterprise other than the Company.
However, you will have the right to perform such incidental services as
are necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services as Vice President Regulatory
& Quality Affairs.
8. PROPRIETARY INFORMATION. Upon the commencement of your services as
Vice President Regulatory & Quality Affairs, you will sign and deliver to the
Company the standard-form Proprietary Information and Inventions Agreement
required of all key employees of the Company.
9. TERMINATION OF EMPLOYMENT: SALARY CONTINUATION.
A. Your employment as Vice President Regulatory & Quality Affairs
pursuant to this agreement will be entirely at will.
B. The Company may terminate your employment under this agreement at
any time for any reason, with or without cause (as defined below), by providing
you with at least thirty (30) days prior written notice. However, such notice
requirement will not apply to the termination of your employment for cause
pursuant to subparagraph D below.
C. You may terminate your employment under this agreement at any
time for any reason upon thirty (30) days prior written notice to the Company.
D. The Company may at any time, upon written notice, terminate your
employment hereunder for cause. Such termination will be effective immediately
upon such notice.
<PAGE> 4
Page 4
For purposes of this agreement, your employment with the Company will
be deemed to have been involuntarily terminated for cause if your services are
terminated by the Company for one or more of the following reasons:
(i) acts of fraud or embezzlement or other intentional misconduct
which adversely affects the Company's business, or
(ii) failure to correct any material deficiency in the performance
of your services as Vice President Regulatory & Quality
Affairs within thirty (30) after written notification of such
deficiency from the Board, or
(iii) misappropriation or unauthorized disclosure or use of the
Company's proprietary information.
Please indicate your acceptance of the foregoing provisions of this
employment agreement by signing the enclosed copy of this agreement and
returning it to the Company.
Very truly yours,
PHARMACYCLICS, INC.
By _________________________________
Title: President and Chief Executive
Officer
ACCEPTED BY AND AGREED TO
Signature:________________________
Hugo Madden
Dated:_____________, 1998
<PAGE> 1
Exhibit 10.42
CONFIDENTIAL TREATMENT REQUESTED UNDER
17.C.F.R. SECTIONS 200.80(b) (4), 200.83 and 240.24b-2
DEVELOPMENT AND SUPPLY AGREEMENT
Gd-Tex
This Agreement is entered into as of this 16th date of June, 1998, by and
between Pharmacyclics Inc., having a principal place of business at 995 E.
Arques Avenue, Sunnyvale, CA 94086 ("Pharmacyclics") and Abbott Laboratories,
having a principal place of business at 100 Abbott Park Road, Abbott Park,
Illinois 60064-3500 ("Abbott").
WITNESSETH:
WHEREAS, Pharmacyclics either owns or has a license to certain rights
relating to the proprietary compound gadolinium texaphyrin, a human
pharmaceutical agent for the treatment of certain diseases;
WHEREAS, Pharmacyclics desires to develop such agent and wishes to market
and commercially distribute such agent;
WHEREAS, Abbott has the experience and expertise necessary to perform
development, final formulation, analytical testing and quality assurance
services for the manufacturing, labeling and packaging of such pharmaceutical
agent on behalf of Pharmacyclics; and
WHEREAS, Pharmacyclics desires that Abbott perform such services, and
Abbott desires to perform such services for such finished pharmaceutical agent.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, Pharmacyclics and Abbott agree as follows:
<PAGE> 2
1. DEFINITIONS.
1.1 "Contract Year" shall mean the twelve-month period commencing on the
first day of the month of either January, April, July, or October, whichever one
is the first to follow the first month that Pharmacyclics makes its first bona
fide sale of Product in the U.S. to a non-affiliate customer after Pharmacyclics
has received an approved NDA from the FDA.
1.2 "Delivery Systems" shall mean [***]
1.3 "Drug" shall mean the proprietary compound gadolinium texaphyrin, a
human pharmaceutical agent used for the treatment of certain diseases.
1.4 "Drug Substance" shall mean the Drug in bulk form that Pharmacyclics
(or its third party supplier) delivers to Abbott for incorporation into Product
which meets the Drug Substance Specifications.
1.5 "Drug Substance Specifications" shall mean the detailed analytical
description of the Drug Substance, which shall be set forth on Exhibit 1.5.
1.6 "Effective Date" shall mean the date first above written.
1.7 "FD&C Act" shall mean the United States Federal Food, Drug and
Cosmetic Act, as may be amended from time to time.
1.8 "FDA" shall mean the United States Food and Drug Administration or any
successor entity.
1.9 "GMPs" shall mean the practices set out in the guidelines and
regulations published as the Current Good Manufacturing Practices of the FDA, as
amended from time to
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 3
time, as well as all applicable federal, state and local laws, rules and
regulations in the United States.
1.10 "Health Authority" shall mean the health regulatory agency of a
country in the Territory or the European Union.
1.11 "NDA" shall mean a New Drug Application, as defined in the FD&C Act
and applicable regulations promulgated thereunder, as amended from time to time
or equivalent application to the Health Authority of a country other than the
United States.
1.12 "Product" shall mean the Drug in final dosage form packaged as a
finished product in the Delivery Systems, and conforming to the Product
Specifications.
1.13 "Product Specifications" shall mean the detailed analytical
description of the Product, which the parties shall develop mutually and which
the parties may amend from time to time based on written mutual agreement which
shall be set forth on Exhibit 1.13.
1.14 "Territory" shall mean the United States of America and Canada.
2. PRODUCT DEVELOPMENT PROJECT.
Promptly after the execution of this Agreement, the parties shall
undertake a product development project consisting of the specific research and
development activities detailed in Articles 3 and 4 hereof. The parties shall
use best reasonable efforts to complete successfully the product development
project. It is understood and agreed that there is no guarantee that the product
development project will be successful and no warranty or guarantee of any kind
is given by either party that a marketable product will result from the project.
The parties shall conduct
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the project in accordance with a product development project timetable that the
parties shall develop and which shall be set forth on Exhibit 2.
3. ABBOTT'S RESEARCH AND DEVELOPMENT RESPONSIBILITIES.
The objective of the product development project shall be for Abbott to
develop the Drug in the Delivery Systems and to assist Pharmacyclics in
obtaining an approved NDA in the Territory and foreign equivalents covering the
Product. Abbott shall manufacture clinical and commercial supplies of the
Product and deliver the Product to Pharmacyclics, which Pharmacyclics shall then
sell such commercial supplies as a human pharmaceutical product, as herein
provided. To that end, Abbott shall have the following responsibilities:
a. Identify or obtain compatible FDA approved materials, including, but
not limited to, components, containers, closures and labeling
materials, for use in developing and manufacturing the Product;
where the parties shall agree mutually to such materials.
b. Manufacture, label and package clinical batches, stability supplies
and process validation batches of Product in accordance with current
GMP's and perform, as required, the Drug solution extractable
studies set forth on Exhibit 3, the protocols of which the parties
shall agree to mutually.
c. Develop optimal terminal sterilization cycles for the Product which
the parties shall agree to mutually.
d. Prepare suitable manufacturing instructions and manufacturing
controls for inclusion in regulatory submissions which the parties
shall agree to mutually.
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e. Provide appropriate Health Authority with letters of authorization
referencing Abbott's Drug Master File containing microbiological
data, process validation data, batch documents and other data
required to support regulatory submissions.
f. Provide Pharmacyclics and appropriate Health Authority with letters
of reference to Abbott's applicable NDAs, including NDA supplements,
ANDAs and Drug Master Files ("DMFs") needed to support
Pharmacyclics' worldwide regulatory submissions and assist
Pharmacyclics in responding to questions from government regulatory
agencies concerning the Product.
g. Conduct manufacturing equipment, material contact and cleaning
validation studies, sterilization process validation studies, filter
compatibility studies, container closure kinetics and, in a timely
manner, develop data required to pass FDA pre-approval and other
appropriate Health Authority inspections and to support the
manufacture of the Product in the Abbott manufacturing facility.
h. Permit Pharmacyclics or its designee to conduct all necessary GMP
and Quality Assurance ("QA") reviews of Abbott facilities, systems,
documentation, including review and receipt of copies of Abbott
manufacturing batch records and QA/QC release documentation.
i. Provide Pharmacyclics with acceptable environmental impact
statements for inclusion with regulatory submissions, if required.
j. Assist Pharmacyclics in the development of instructions for use,
which will be submitted as labeling in regulatory submissions
relating to the Product.
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k. Provide Pharmacyclics (or its sublicensees) with all information,
data, reports, etc. that Pharmacyclics may reasonably request
relating to manufacturing, documentation, development and stability
reports, etc. for regulatory submissions.
l. Perform stopper extractable studies with Product where the parties
shall agree to such protocols.
4. PHARMACYCLICS' PRODUCT RESEARCH AND DEVELOPMENT RESPONSIBILITIES.
Pharmacyclics shall have the following research and development
responsibilities:
a. Develop Product formulation in consultation with Abbott.
b. Provide approved Drug Substance, with certificates of analysis, at no cost
to Abbott, for formulation studies, stability batches, manufacturing
studies, and development needs as required by Abbott for execution of its
responsibilities under this Agreement. Drug Substance shall conform with
the Drug Substance Specifications.
c. Provide Abbott with assay standards for Drug Substance and any other
proprietary assay standards and certificates of analysis as may be
required to perform quality control testing.
d. Develop, validate and provide to Abbott analytical test methods for Drug
Substance and Product HPLC determination of potency, impurities, and
degradation products to be used for regulatory submissions, as well as for
use in manufacture of Product.
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e. Provide all compendial specifications and testing instructions for Drug
Substance, if such specifications are available.
f. Provide Abbott with technical data on Drug Substance to include: 1)
material safety data sheets with environmental and safety information; and
2) additional detailed data, if necessary, to define potential hazards and
to establish employee exposure levels and equipment cleanability limits.
g. Perform and be responsible for all clinical/efficacy studies necessary to
obtain marketing approval.
h. Conduct all stability testing and compile data for regulatory submissions.
i. Prepare and submit to appropriate Health Authorities information covering
the Product, respond to all questions from the Health Authorities, take
necessary steps to obtain marketing approvals and maintain the approved
regulatory submissions related thereto.
j. Provide Abbott with copies of regulatory filings as necessary for Abbott
to obtain regulatory pre-inspections.
k. Conduct all other research and development and other work required to
submit appropriate regulatory submissions and obtain marketing approvals
covering the Product.
l. Maintain a stability program for and retain samples of the marketed
Product.
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5. PAYMENT FOR ABBOTT'S DEVELOPMENT EFFORTS.
5.1 Research and Development Fee. To reimburse Abbott for its
participation in the product development project, Pharmacyclics shall pay to
Abbott a non-refundable (subject to Section 11.2 hereof) research and
development fee of [***] for Abbott's research efforts relating to the [***]
Delivery Systems only. The research and development fee shall be paid to Abbott
according to the following milestones; provided, however, if Abbott does not
achieve certain milestones below, no payments shall be due for such milestone:
a. [***] within thirty (30)
days after Abbott receives Drug Substance from Pharmacyclics [***]
and Pharmacyclics receives Abbott's invoice for the amount due. Any
advance payment made by Pharmacyclics prior to the final execution
of this Agreement for start-up of the product development project
shall be credited against this installment.
b. [***] within thirty (30)
days after receipt and acceptance by Pharmacyclics of NDA stability
supplies (and copies of associated batch records) from Abbott and
receipt of Abbott's invoice for the amount due.
c. [***] within thirty (30)
days after Pharmacyclics files an NDA or a foreign equivalent
covering the Product and receipt of Abbott's invoice for the amount
due.
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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Supplemental international regulatory work and development work to support
international filings outside the Territory or outside of the European Union
shall be quoted separately on a country-by-country basis.
5.2 Changes in Project Scope. If changes occur in the product development
project or Product Specifications, or if technical difficulties result that
require Abbott to perform either additional work or repeat work and the reasons
for such work are not due to Abbott's fault or negligence, Pharmacyclics shall
pay Abbott's costs for such work, subject to Pharmacyclics' prior approval.
Following Pharmacyclics' review and approval of such protocols, Abbott shall
implement such new or modified protocols. Reimbursement for such additional work
shall be at the rate [***] plus out-of-pocket costs for reasonable travel and
substance, materials and supplies. Abbott shall provide Pharmacyclics with a new
or revised test protocol with cost estimates for such work and Pharmacyclics
shall pay Abbott within thirty (30) days of completion of such work.
5.3 Additional Certification Costs. Abbott has several validated terminal
sterilization cycles and each one is documented in a master sterilization
package. If a new master sterilization certification package is required by the
FDA, Pharmacyclics shall pay Abbott for the additional costs. Abbott currently
estimates such cost to be [***].
6. CLINICAL AND STABILITY BATCHES.
After Product formulation, concentration and fill volume have been
specified by Pharmacyclics in consultation with Abbott, and after Abbott has
completed successfully all the
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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work required prior to such manufacturing stability and clinical batches in
accordance with the project development project, Pharmacyclics shall place a
purchase order for and Abbott shall provide to Pharmacyclics clinical or
stability supplies consisting of three (3) lots of Product. All lots shall be
manufactured from different production lots of Drug Substance, if possible.
Abbott and Pharmacyclics shall develop mutually a protocol which shall define
the formulation, concentration, fill volume, and the components for each lot.
If additional clinical or stability supplies other than those specified
above or if sample lots from the Abbott manufacturing facility are required by
Pharmacyclics or the FDA or other Health Authority, Pharmacyclics will issue
separate purchase orders for such supplies. The per unit cost of Product
manufactured in connection with this Article 6 shall be as set forth on Exhibit
8.6.1.
7. PHARMACYCLICS' REGULATORY SUBMISSIONS.
Pharmacyclics agrees that Abbott shall have the right to review the
portions of Pharmacyclics' proposed regulatory submissions relating to Abbott's
packaging or manufacturing procedures before the submissions are filed with the
appropriate Health Authority. Abbott shall complete its review within ten (10)
days after receipt from Pharmacyclics of a proposed regulatory submission or
amendment. Abbott's failure to comment upon any such submission or amendment
within such ten (10) day period shall be deemed to be approval of submission or
amendment. Abbott shall consult with and advise Pharmacyclics in responding to
questions from the regulatory agencies regarding Pharmacyclics' submission(s)
for Product. Abbott agrees that Pharmacyclics shall be the sole owner of any
regulatory submission filed pursuant to this Agreement. In the event that Abbott
is required to include any Product-specific information in a
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DMF or other regulatory filing, Pharmacyclics shall have the same right and
responsibilities of review and approval of such regulatory filing as are set
forth in this Article 7 for Abbott's review and approval of Pharmacyclics'
regulatory submissions and amendments.
8. MANUFACTURE AND SUPPLY OF PRODUCT.
8.1 Purchase and Sale of Product. Pursuant to the terms and conditions of
this Article 8, during the term of this Agreement Abbott shall manufacture (at
its manufacturing facility in North Chicago, Illinois or such other Abbott
manufacturing plant that the parties may mutually agree to), sell and deliver
Product exclusively to Pharmacyclics (or its sublicensees) and Pharmacyclics (or
its sublicensees) shall purchase Product exclusively from Abbott and take
delivery of Pharmacyclics' (or its sublicensees) total requirements of Product
for sale in the Territory. In addition, Abbott shall manufacture, sell and
deliver Product exclusively to Pharmacyclics for all of Pharmacyclics' (or its
sublicensees') total worldwide requirements of the Product. Product shall be
manufactured in accordance with the Product Specifications. Product
Specifications may be altered from time to time by written agreement of the
parties without the necessity of amending this Agreement.
8.2 Pharmacyclics' Purchase Requirement. During the term of this
Agreement, Pharmacyclics shall purchase from Abbott and take delivery of
Pharmacyclics' total requirements of Product for sale in the Territory, but not
less than one (1) batch of Product each Contract year where a batch shall be
approximately twenty-five thousand (25,000) units. In lieu of taking delivery of
Product, Pharmacyclics may pay for its minimum purchase requirement at the
prices set forth on Exhibit 8.6.1 and waive Abbott's manufacture and delivery
obligations for Product.
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In the latter event, Abbott shall invoice Pharmacyclics for the amount payable,
and Pharmacyclics shall pay Abbott within thirty (30) days after receipt of
Abbott's invoice.
8.3 Minimum Orders and Delivery Variances. The minimum quantity of Product
ordered hereunder in any one order shall be the minimum batch size of the Abbott
manufacturing facility which is estimated to be approximately twenty-five
(25,000) units. Delivery of Product by Abbott may vary plus/minus five percent
(+5%) from unit quantities ordered by Pharmacyclics and such delivery shall be
in full compliance with this Agreement.
8.4 Government Approvals. Notwithstanding any other provision of this
Agreement, Abbott shall have no obligation to manufacture, sell or deliver
Product to Pharmacyclics and Pharmacyclics shall have no obligation to purchase
and take delivery of Product for commercial purposes until Pharmacyclics has
obtained necessary government approvals required to sell Product in the then
relevant territories of the United States or selected international markets.
8.5 Manufacture of Product.
8.5.1 Abbott shall manufacture Product for Pharmacyclics from Drug
Substance and Product package inserts that Pharmacyclics shall supply to Abbott
at no cost to Abbott. Pharmacyclics shall supply Drug Substance and Product
package inserts in quantities sufficient to satisfy Abbott's gross manufacturing
requirements. Drug Substance and Product package inserts shall be delivered
F.O.B. Abbott's plant pursuant to no-cost purchase orders issued by Abbott to
Pharmacyclics. Pharmacyclics warrants to Abbott that Drug Substance supplied to
Abbott hereunder shall meet the Drug Substance Specifications. It is agreed that
Abbott's use of Drug Substance received from Pharmacyclics shall be limited to
research and development contemplated by this Agreement and the manufacture of
Product for Pharmacyclics. Within
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thirty (30) days after receipt of Drug Substance supplied by Pharmacyclics
hereunder, Abbott shall 1) examine the shipment in order to determine whether it
meets the Drug Substance Specifications, and 2) notify Pharmacyclics of any
claim that any portion of that shipment fails to meet the agreed upon Drug
Substance Specifications. In the event of such claim, Pharmacyclics shall have
the right to confirm such findings at Abbott's manufacturing location, and upon
such confirmation, Pharmacyclics shall replace, at no cost to Abbott, the
portion of the Drug Substance shipment which does not conform to the Drug
Substance Specifications. If due to an intentionally wrongful act or any
negligent act or omission on Abbott's part, and as a result thereof, Product
manufactured hereunder fails to conform with Product Specifications, Abbott's
sole liability, with respect to replacement of Product, in such case shall be
limited to replacement of Product, at no cost to Pharmacyclics, with conforming
Product using Drug Substance purchased from Pharmacyclics at Pharmacyclics'
purchase cost/kg as evidenced by Pharmacyclics' invoices provided by notice to
Abbott from time to time.
8.5.2 Title to Drug Substance supplied by Pharmacyclics hereunder shall
remain with Pharmacyclics. Abbott shall assume all responsibility and risk for
the safekeeping, storage and handling for all shipments of Drug Substance
delivered hereunder. In the event of loss or damage, Pharmacyclics shall supply
to Abbott Drug Substance required for replacement at Pharmacyclics' purchase
cost/kg as evidenced by Pharmacyclics' invoices provided by notice to Abbott
from time to time. The consumption of Drug Substance for the manufacture of
Product shall be in accordance with the maximum consumption factors to be
mutually agreed upon in writing as promptly as practicable by Abbott and
Pharmacyclics and subject to change from time to time.
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8.5.3 If non-standard, specialized equipment is required to manufacture
Product for Pharmacyclics, the cost of such equipment shall be paid by
Pharmacyclics, subject to Pharmacyclics' prior approval of such costs, which
approval shall not be unreasonably withheld. Abbott shall advise Pharmacyclics
of specialized equipment required and the estimated cost(s) associated with the
purchase and installation of such equipment. Pharmacyclics shall be billed for
all approved costs after installation and acceptance of the equipment by Abbott.
Pharmacyclics shall make payment no later than thirty (30) days after receipt of
an invoice. Title to the equipment shall be in Abbott's name. Upon termination
or expiration of this Agreement, Abbott shall, at its option, transfer ownership
of such specialized equipment to Pharmacyclics or purchase the equipment by
paying Pharmacyclics the then current book value of the equipment. If Abbott
uses the specialized equipment for manufacture of a product other than Product
for Pharmacyclics, Abbott shall promptly notify Pharmacyclics and purchase the
equipment by paying Pharmacyclics the then current book value of the equipment
based on an amortization schedule in accordance with current United States
Federal Tax Codes. This provision shall not apply to any standard equipment
normally used or required for the manufacture of Product or for additional
standard equipment required to increase production capacity or efficiency at
Abbott's manufacturing plant.
8.5.4 Abbott shall manufacture Product in conformance with the Product
Specifications. Abbott shall grant Pharmacyclics reference rights to all DMFs
(or equivalent information) necessary to support Pharmacyclics' applications for
marketing authorizations for the Product. To effect this, Abbott shall execute
Letters of Authorization to regulatory authorities worldwide permitting such
regulatory authorities to consult Abbott's DMFs in their
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<PAGE> 15
review of Pharmacyclics' Product marketing applications and marketing
authorizations. Copies of such Authorization Letters shall be sent to
Pharmacyclics. Abbott shall keep its DMFs up-to-date at all times and shall
inform Pharmacyclics prior to any modifications in order to permit Pharmacyclics
to amend or supplement any affected regulatory applications and files for the
Product. Abbott shall label Product in accordance with label copy Pharmacyclics
shall provide to Abbott. The parties may modify, by mutual agreement, such copy
from time to time. Pharmacyclics shall reimburse Abbott for Abbott's actual
costs of making any label copy changes that Pharmacyclics requests. In the event
that the Health Authority or other regulatory authority does not accept DMFs,
Abbott shall provide Pharmacyclics with all necessary information contained in
the DMFs, including manufacturing, process and proprietary information, in order
that Pharmacyclics may file a complete marketing authorization application
directly with such Health Authority or regulatory agency.
8.5.5 Abbott's quality control procedures and in-plant quality control
checks on manufacturing the Product for Pharmacyclics shall be applied in the
same manner as Abbott applies such procedures and checks to products Abbott
manufactures and sells for itself. In addition, Abbott will test and release to
Pharmacyclics Product in accordance with the test methods set forth on Exhibit
8.5.5 to assure that Product conforms to the Product Specifications. Both the
Product test methods and the Product Specifications may be changed from time to
time by agreement of the parties.
8.5.6 Pharmacyclics (or its designated agent) shall have the right, upon
reasonable written notice to Abbott, to conduct during normal business hours a
GMP quality assurance audit and inspection of Abbott's records and production
facilities relating to the manufacture of
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<PAGE> 16
Product, and follow-up audits as necessary. Such audits and inspections may be
conducted prior to production of the first commercial Product order placed by
Pharmacyclics and thereafter once each calendar year. In addition, Abbott shall
permit Pharmacyclics (or its designated agent), upon reasonable written notice,
to enter those areas of Abbott's production and quality control facilities
devoted to the Product and to examine production and quality control records
relating to the Product at reasonable times, and accompanied by an authorized
Abbott representative, in order to audit production of the Product or as
required to complete timely investigations of Product quality. Visits by
Pharmacyclics to Abbott's production facilities may involve the transfer of
Confidential Information and shall be subject to the terms of Article 12 hereof.
The results of such audits and inspections shall be considered Confidential
Information under Article 12 and shall not be disclosed to third persons,
including, but not limited to, the FDA and other government regulatory agencies,
unless required by law and upon prior written notice to Abbott.
8.5.7 All Product shipped to Pharmacyclics shall include a Certificate of
Analysis. Pharmacyclics shall have a period of sixty (60) days from the date of
receipt of Product to inspect and reject any shipment of Product on the grounds
that it does not conform with Product Specifications. Pharmacyclics shall have
the right to return at Abbott's cost any Product which does not conform. All or
part of any shipment shall be held for Abbott's disposition and at Abbott's
expense if found to be not in conformance with Product Specifications, provided
Abbott confirms such nonconformance through test methods described in Exhibit
8.5.5 and other mutually acceptable quality control procedures and provided
further that such nonconformance is not due to Drug Substance supplied by
Pharmacyclics hereunder. Any Product not rejected by Pharmacyclics pursuant to
this Subparagraph 8.5.7 shall be deemed accepted and all claims with
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<PAGE> 17
respect to Product not conforming with Product Specifications waived by
Pharmacyclics, except as to latent defects which are not reasonably
discoverable.
Provided, however, if Pharmacyclics rejects any shipment of Product
pursuant to this Section 8.5.7 (including for latent defects) and Abbott
disagrees that the rejection was reasonable and the parties can not agree within
five (5) days of initiating good faith negotiations, the parties shall use a
mutually agreed upon third party to test the Product and any relevant
information to determine whether the Product meets the Product Specifications.
The findings of such third party shall be binding on both parties. If the third
party determines that the Product meets the Product Specifications,
Pharmacyclics shall pay the cost of employing such third party and Pharmacyclics
shall be deemed have accepted the Product shipment. Alternatively, if the third
party determines that the Product does not meet the Product Specifications,
Abbott shall pay the cost of employing such third party and Abbott shall credit
Pharmacyclics' account for the cost of the Drug Substance.
8.5.8 Pharmacyclics shall notify Abbott of any Product complaints
involving Abbott's packaging in sufficient time to allow Abbott to evaluate the
complaints and assist Pharmacyclics in responding to such complaints. Abbott
shall notify Pharmacyclics of any Product complaints in sufficient time to allow
Pharmacyclics to evaluate the complaints and assist Abbott in responding to such
complaints.
8.5.9 Recalls. Pharmacyclics shall notify Abbott promptly if any Product
is the subject of a recall, market withdrawal or correction, and Pharmacyclics
and/or its designee shall have sole responsibility for the handling and
disposition of such action(s). Pharmacyclics and/or its designee shall bear the
costs of all recalls, market withdrawals or corrections of Product unless
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such action(s) shall have been the result of Abbott's breach of any of the
warranties set forth in Paragraph 8.9 hereof, in which case Abbott shall bear
the cost of such action(s), including the transportation and destruction of the
Product, and shall also credit Pharmacyclics for the price paid by Pharmacyclics
for the Product; provided, however, Abbott's liability for product recall
expense hereunder shall in no event exceed the total value of monies
Pharmacyclics has paid (to date) to Abbott hereunder. Pharmacyclics and/or its
designee shall serve as the sole point (for so long as Abbott determines, in its
reasonable discretion, that Abbott does not have a significant business interest
at stake) of contact with the FDA or other Health Authority concerning any
recalls, market withdrawals or corrections with respect to the Product.
8.6 Price and Payment
8.6.1 Product shall be delivered by Abbott at prices set forth in Exhibit
8.6.1 of this Agreement.
8.6.2 Abbott shall invoice Pharmacyclics upon delivery of Product for
quantity shipped. Payment shall be made by Pharmacyclics net thirty (30) days
from the date of receipt of Abbott's invoice.
8.6.3 Pharmacyclics shall pay any federal, state, county or municipal
sales or use tax, excise, customs charges, duties or similar charge, or any
other tax assessment (other than that assessed against income), license, fee or
other charge lawfully assessed or charged on the manufacture, sale or
transportation of Product sold pursuant to this Agreement.
8.7 Delivery
Product shall be delivered to Pharmacyclics, F.O.B. Abbott's plant at
North Chicago, Illinois or other plant agreed upon by Pharmacyclics and Abbott.
Title shall pass to
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Pharmacyclics at Abbott's North Chicago, Illinois plant . Shipment shall be via
a carrier that Pharmacyclics designates and to such destination that
Pharmacyclics requests in writing.
8.8 Orders and Forecasts
8.8.1 Pharmacyclics shall, within one hundred twenty (120) days after
filing its NDA for the Product, provide Abbott with a written estimate of
Pharmacyclics' quarterly requirements for commercial Product for the first year.
Abbott acknowledges that such quantities are estimates only. Provided, further,
Pharmacyclics shall have the right to order Product for clinical trials prior to
filing an NDA.
8.8.2 Abbott and Pharmacyclics shall cooperate fully in estimating and
scheduling production for the first commercial order that Pharmacyclics shall
place in anticipation of regulatory approval of the Product.
8.8.3 Pharmacyclics shall place its first firm commercial order within
three (3) months following its receipt of its first approved Product NDA. At the
same time, Pharmacyclics shall provide to Abbott Pharmacyclics' estimate of its
quarterly requirements for the next succeeding nine (9) calendar month period.
8.8.4 Prior to expiration of the first three (3) calendar month period
following the first Product regulatory approval date, Pharmacyclics shall place
a firm order for the next consecutive three (3) month period. Thereafter,
Pharmacyclics shall place its firm quarterly orders no later than ninety (90)
days prior to the commencement of each succeeding three (3) calendar month
period. At the time firm quarterly orders are placed, Pharmacyclics shall give
Abbott Pharmacyclics' estimate of its quarterly requirements for the next
succeeding nine (9) calendar month period.
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8.8.5 Each purchase order for Product shall be governed by the terms of
this Agreement and none of the provisions of such purchase order shall be
applicable except those specifying quantity ordered, delivery dates, special
shipping instructions and invoice information.
8.9 Guarantees and Warranties
8.9.1 Pharmacyclics guarantees to Abbott that all Drug Substance delivered
to Abbott pursuant to this Agreement shall at the time of delivery not be
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, as amended, or within the meaning of any applicable state or
municipal law in which the definitions of adulteration and misbranding are
substantially the same as those contained in the Federal Food, Drug and Cosmetic
Act, as such act and such laws are constituted and effective at the time of
delivery and will not be an article which may not under the provisions of
Sections 404 and 505 of such Act be introduced into interstate commerce.
8.9.2 Abbott guarantees to Pharmacyclics that Product delivered to
Pharmacyclics pursuant to this Agreement shall, at the time of delivery, not be
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, as amended, or within the meaning of any applicable state or
municipal law in which the definitions of adulteration and misbranding are
substantially the same as those contained in the Federal Food, Drug and Cosmetic
Act, as such Act and such laws are constituted and effective at the time of
delivery and will not be an article which may not under the provisions of
Sections 404 and 505 of such Act be introduced into interstate commerce.
8.9.3 Abbott represents and warrants to Pharmacyclics that Product shall
be free from defects in material and workmanship and shall be manufactured and
provided by Abbott (i) in
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accordance and conformity with the Product Specifications and in compliance with
this Agreement and (ii) in compliance with all applicable statutes, laws, rules
or regulations, including those relating to the environment, food or drugs and
occupational health and safety, including, without limitation, those enforced or
promulgated by the United States Food and Drug Administration (including,
without limitation, compliance with GMPs). Abbott shall also use reasonable
commercial best efforts to comply with European Union GMP requirements.
The foregoing warranties shall not extend to any nonconformity or defect
which relates to or is caused by the Drug Substance that Pharmacyclics supplies
to Abbott. Notwithstanding Subparagraph 8.9.4, solely with respect to
replacement Product the provisions of Subparagraphs 8.5.1 and 8.5.7 shall be
Pharmacyclics' sole and exclusive remedy for non-conforming or defective
Product. ABBOTT MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO
PRODUCT. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
ARE HEREBY DISCLAIMED BY ABBOTT. Neither party shall be liable to the other for
indirect, incidental or consequential damages resulting from any breach of this
Agreement.
8.9.4 Abbott shall indemnify and hold Pharmacyclics, its affiliates,
officers, directors and employees harmless from and against all claims, causes
of action, settlement costs, including reasonable attorney's fees, losses or
liabilities of any kind related to this Agreement and asserted by third persons
which arise out of or are attributable to 1) any intentional wrongful act or any
negligent act or omission on the part of Abbott's employees, agents or
representatives, 2) the lack of safety or efficacy of the I.V. bags glass
bottles supplied by Abbott resulting from the
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manufacture or sterilization performed by Abbott hereunder or 3) Abbott's
intellectual property rights relating to the manufacturing methods and processes
Abbott employs to manufacture the Product, including those rights associated
with the attendant bottles, bag, and/or Delivery Systems. Pharmacyclics shall
indemnify and hold Abbott, its affiliates, officers, directors and employees
harmless from and against all claims, causes of action, settlement costs,
including reasonable attorney's fees, losses or liabilities of any kind related
to this Agreement and asserted by third persons which arise out of or are
attributable to 1) any intentional wrongful act or any negligent act or omission
on the part of Pharmacyclics' employees, agents or representatives, 2) involve
the use of or lack of safety or efficacy of Drug Substance, Drug or Product or
3) Pharmacyclics intellectual property rights relating to the Drug. Provided,
however, neither party shall indemnify the other party for any claim, cause of
action, settlement costs, loss or liability arising out of or attributable to
such other party's breach of its obligations under this Agreement.
8.9.5 Each indemnified party agrees to give the indemnifying party prompt
written notice of any matter upon which such indemnified party intends to base a
claim for indemnification (an "Indemnity Claim") under this Subparagraph. The
indemnifying party shall have the right to participate jointly with the
indemnified party in the indemnified party's defense, settlement or other
disposition of any Indemnity Claim.
With respect to any Indemnity Claim relating solely to the payment of
money damages and which could not result in the indemnified party becoming
subject to injunctive or other equitable relief or otherwise adversely affect
the business of the indemnified party in any manner, and as to which the
indemnifying party shall have acknowledged in writing the obligation to
indemnify the indemnified party hereunder, the indemnifying party shall have the
sole right to
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defend, settle or otherwise dispose of such Indemnity Claim, on such terms as
the indemnifying party, in its sole discretion, shall deem appropriate, provided
that the indemnifying party shall provide reasonable evidence of its ability to
pay any damages claimed and with respect to any such settlement shall have
obtained the written release of the indemnified party from the Indemnity Claim.
The indemnifying party shall obtain the written consent of the indemnified
party, which shall not be unreasonably withheld, prior to ceasing to defend,
settling or otherwise disposing of any Indemnity Claim if as a result thereof
the indemnified party would become subject to injunctive or other equitable
relief or the business of the indemnified party would be adversely affected in
any manner.
9. PRESS RELEASE.
After execution of this Agreement either party may issue a press release
or other public announcement regarding the Agreement; provided, however, any
such release or announcement shall be submitted prior to its issuance to the
other party for review, approval and release timing. If a party hereto has an
affirmative legal duty to publicize information relating to the subject matter
hereof, the parties agree that this Article 9 shall not be construed to restrict
such party from performing such duty.
10. NO EXPRESS OR IMPLIED LICENSE.
No license, express or implied, is granted to Pharmacyclics to use Abbott
proprietary technology, know-how or rights relating to the Delivery Systems, the
associated administration sets or filters, or formulation of I.V. solutions
other than for the purposes of this Agreement. If
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Abbott deems, in its sole discretion, any improvement or invention patentable
related to Abbott's proprietary technology, know-how or rights relating to the
Delivery Systems, or formulation of I.V. or glass bottle solutions, and made or
reduced to practice in the course of this Agreement by Abbott, then Abbott shall
be entitled to apply for patent protection on such improvements or inventions at
Abbott's expense and risk. No license, express or implied, is granted to Abbott
to use Pharmacyclics' proprietary technology, know-how or rights relating to the
Drug, other than for the purposes of this Agreement. If Pharmacyclics in its
sole discretion deems patentable any improvement or invention related to
Pharmacyclics' proprietary technology, know-how or rights relating to the Drug,
then Pharmacyclics shall be entitled to apply for patent protection on such
improvements or inventions at its expense and risk.
11. TERM AND TERMINATION.
11.1 This Agreement shall commence on the Effective Date and the initial
term shall expire at the end of the fifth Contract Year. Thereafter, the term
shall continue automatically until terminated. This Agreement may be terminated
upon expiration of such five-year term upon not less than twenty-four (24)
months prior written notice from one party to the other. Thereafter this
Agreement may be terminated upon not less than twenty-four (24) months prior
written notice from one party to the other.
11.2 Pharmacyclics may terminate the product development project as
described in Article 2 at any time upon one hundred and twenty (120) days prior
written notice if Pharmacyclics determines, in good faith, that the Product is
not technically or commercially feasible. Abbott may terminate the product
development project as described in Article 2 at any
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time upon one hundred and twenty (120) days prior written notice if Abbott
determines, in good faith, that the Product is not technically feasible. If the
product development project is terminated, Abbott shall advise Pharmacyclics of
Abbott's actual research and development costs on the product development
project. Based upon Abbott's actual costs and Pharmacyclics' payments to Abbott,
an appropriate adjustment, negotiated in good faith, shall be made. If
Pharmacyclics requests, Abbott shall provide to Pharmacyclics a summary of costs
payable pursuant to this Paragraph. After Pharmacyclics makes full payment of
any adjustment required by this Paragraph, this Agreement shall terminate.
11.3 Either party may terminate this Agreement by giving to the other
sixty (60) days prior written notice as follows:
a. Upon the bankruptcy or the insolvency of the other party; or
b. Upon the breach of any warranty or any other material provision of
this Agreement by the other party if the breach is not cured within
sixty (60) days after written notice thereof to the party in
default.
11.4 Upon termination (not resulting from a breach by Abbott) pursuant to
this Article 11, Pharmacyclics shall reimburse Abbott for Abbott's cost of all
supplies purchased and on hand or on order, if such supplies were ordered by
Abbott based on firm purchase orders or Pharmacyclics estimates of its
requirements of Product and such supplies cannot be reasonably used by Abbott
for other purposes. Abbott shall invoice Pharmacyclics for amounts due
hereunder. Payment shall be made pursuant to Subparagraph 8.6.2.
11.5 In the event of any termination, Abbott shall return any remaining
inventory of Drug Substance and Product to Pharmacyclics at Pharmacyclics'
expense, unless such
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termination shall have been as a result of a breach of this Agreement by Abbott,
in which case such inventory shall be returned at Abbott's expense.
12. CONFIDENTIAL INFORMATION.
12.1 It is recognized by the parties that during the term of this
Agreement the parties will exchange Confidential Information. Abbott agrees that
it shall not disclose Confidential Information received from Pharmacyclics, and
shall not use Confidential Information disclosed to it by Pharmacyclics for
Abbott's benefit (other than as provided herein) or for the benefit of any third
person. Pharmacyclics agrees that it shall not disclose Confidential Information
received from Abbott, and shall not use Confidential Information disclosed to it
by Abbott for Pharmacyclics' benefit (other than as provided herein) or for the
benefit of any third person. For purposes of this Agreement, Confidential
Information shall include all information disclosed hereunder in writing and
identified as being confidential or if disclosed orally is reduced to writing
within thirty (30) days of oral disclosure and identified as being confidential,
except any portion thereof which:
a. is known to the recipient before receipt thereof under this
Agreement;
b. is disclosed in good faith to the recipient after acceptance of this
Agreement by a third person lawfully in possession of such
information and not under an obligation of nondisclosure;
c. is or becomes part of the public domain through no fault of the
recipient;
d. is developed by the recipient independently of information disclosed
hereunder as evidenced by the recipient's written records or other
competent evidence; or
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e. is required by law to be disclosed.
Notwithstanding the above, nothing contained in this Agreement shall
preclude Pharmacyclics or Abbott from utilizing Confidential Information as may
be necessary in prosecuting patent rights of the parties pursuant to Article 12
hereof, or obtaining governmental marketing approvals, or in manufacturing
Product pursuant to this Agreement; provided that each party shall use efforts
to maintain the confidentiality of the other party's Confidential Information at
least commensurate with its own efforts to protect its own Confidential
Information. The obligations of the parties relating to Confidential Information
shall expire ten (10) years after the termination of this Agreement.
13. FORCE MAJEURE.
13.1 Any delay in the performance of any of the duties or obligations of
either party hereto (except the payment of money) shall not be considered a
breach of this Agreement and the time required for performance shall be extended
for a period equal to the period of such delay, provided that such delay has
been caused by or is the result of any acts of God, acts of the public enemy,
insurrections, riots, embargoes, labor disputes, including strikes, lockouts,
job actions, or boycotts, fires, explosions, floods, shortages of material or
energy, or other unforeseeable causes beyond the control and without the fault
or negligence of the party so affected. The party so affected shall give prompt
notice to the other party of such cause, and shall take whatever reasonable
steps are necessary to relieve the effect of such cause as rapidly as possible.
13.2 If Abbott becomes subject to an event of force majeure or problems
are encountered which interfere with production of Product at Abbott's North
Chicago plant, the
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parties shall mutually agree on implementation of an agreed upon action plan to
transfer production to another Abbott plant, contemplated on the date of this
Agreement to be at Abbott's Rocky Mount, North Carolina plant. However, if
Abbott transfers production of the Product to another Abbott plant for other
than an event of force majeure, Abbott shall be responsible for equipment and
validation expenses. Parties shall meet after the execution of this Agreement
and at the request of either party to discuss and define such an action plan.
14. NOTICES.
All notices hereunder shall be delivered personally, or by registered
or certified air mail, postage prepaid, to the following addresses of the
respective parties:
To: Pharmacyclics:
Marc Steuer
VP Business Development
995 E. Arques Ave.
Sunnyvale, CA 94086
With copy to: General Counsel
995 E. Arques Ave.
Sunnyvale, CA 94086
To: Abbott Laboratories
100 Abbott Park Road
Abbott Park, Illinois 60064-3500 U.S.A.
Attention: General Counsel
With copy to: President,
Hospital Products Division
With copy to: Domestic Legal Operations
100 Abbott Park Road
Abbott Park, IL 60064-3500
Attention: Divisional Vice President
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Notices shall be effective upon receipt if personally delivered or
delivered by facsimile, or on the third business day following the date of
mailing. A party may change its address listed above by notice to the other
party.
15. APPLICABLE LAW AND ALTERNATIVE DISPUTE RESOLUTION.
15.1 This Agreement shall be construed, interpreted and governed by the
laws of the State of Illinois, except for its or any other jurisdiction's choice
of law rules.
15.2 Dispute Resolution. The parties recognize that bona fide disputes may
arise which relate to the parties' rights and obligations under this Agreement.
Both parties agree that such disputes (except for those disputes relating to
Product conformance which shall be addressed in the manner described in
Subparagraph 8.5.7 hereof) shall be resolved by Alternative Dispute Resolution
("ADR") in accordance with the procedure set forth in Exhibit 15.2.
16. ASSIGNMENT.
Neither party shall assign this Agreement nor any part thereof without the
prior written consent of the other party; provided, however, 1) either party may
assign this Agreement to one of its wholly owned subsidiaries without the other
party's consent, or 2) either party, without such consent, may assign or sell
the same in connection with the transfer or sale of substantially its entire
business to which this Agreement pertains or in the event of its merger or
consolidation with another company. Any permitted assignee shall assume all
obligations of its assignor under this Agreement. No assignment shall relieve
any party of responsibility for the performance of any accrued obligation which
such party then has hereunder.
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17. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all written or oral prior
agreements or understandings with respect thereto.
18. SEVERABILITY.
This Agreement is subject to the restrictions, limitations, terms and
conditions of all applicable governmental regulations, approvals and clearances.
If any term or provision of this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and this
Agreement shall he interpreted and construed as if such term or provision, to
the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein.
19. WAIVER - MODIFICATION OF AGREEMENT.
No waiver or modification of any of the terms of this Agreement shall be
valid unless in writing and signed by authorized representatives of both parties
hereto. Failure by either party to enforce any such rights under this Agreement
shall not be construed as a waiver of such rights nor shall a waiver by either
party in one or more instances be construed as constituting a continuing waiver
or as a waiver in other instances.
20. EXHIBITS.
All Exhibits referred to herein are hereby incorporated by reference
thereto.
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21. SUBLICENSEES.
Abbott shall negotiate in good faith to enter into a Development and
Supply Agreement with Pharmacyclics' sublicensees which would contain such
representations, warranties, indemnities, covenants and provisions normally
associated with pharmaceutical manufacturing/supply arrangements and be similar
to those contained in this Agreement.
The parties intending to be bound by the terms and conditions hereof
have caused this Agreement to be signed by their duly authorized
representatives on the date first above written.
ABBOTT LABORATORIES PHARMACYCLICS
By /s/ By /s/
------------------------------- ----------------------------
Name (Printed) Richard A. Gonzalez Name (Printed) Marc Steuer
-------------------- -----------------
Title SVP/ President Title SVP/CFO
----------------------------- --------------------------
Date 7/28/98 Date 24 June 98
------------------------- ---------------------------
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Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 1.5
Drug Substance Specifications
Parameter Specification
<PAGE> 33
- -------------------------------------------------------------------------------
DRUG SUBSTANCE PART NUMBER: [***]
FINAL PRODUCT
SPECIFICATIONS SPECIFICATION REVISION NUMBER: 1
- -------------------------------------------------------------------------------
ITEM: [***]
- -------------------------------------------------------------------------------
QUALITY APPROVAL DATE EXPIRATION PERIOD: TBD
SAMPLE SIZE: [***]
[SIG] 14 APR 98 RETAINED SAMPLE:[***]
CHEMICAL FORMULA: [***] FORMULA WT:[***]
DESCRIPTION: [***] PRECAUTIONS IN HANDLING: SEE MSDS
STORAGE CONDITIONS: [***]
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TESTING REQUIREMENTS METHOD SPECIFICATIONS
<S> <S> <S>
[***] [***] [***]
</TABLE>
- -------------------------------------------------------------------------------
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
<PAGE> 34
PROCEDURE UTILIZING F-0020: SPECIFICATIONS COMMITTEE (QAM-005)
PART NUMBER: FP-LL#. Issued by Quality Assurance Department
SPECIFICATION EDITION NUMBER: First issuance = 1, second = 2, etc...
ITEM: Final Product's name
EXPIRATION DATE: The expiration date is assigned by the PCYC
Quality Assurance Department
RETAINED SAMPLE: A quantity sufficient to perform all required
tests at least twice. Cannot be used without
written authorization from the head of the
Quality Assurance Department
SAMPLE SIZE: A quantity sufficient to perform all required
tests
TESTING REQUIREMENTS: Names of tests performed
METHOD: Designated method numbers (QCM-###)
SPECIFICATIONS: Parameters within which test results must fall in
order to allow the Quality Control Department to
release the Final Product
<PAGE> 35
Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 1.13
Product Specifications
<PAGE> 36
- --------------------------------------------------------------------------------
DRUG PRODUCT PART NUMBER: [***]
FINAL PRODUCT [LOGO]
SPECIFICATIONS SPECIFICATION EDITION NUMBER: 2
- --------------------------------------------------------------------------------
ITEM: [***]
- --------------------------------------------------------------------------------
QUALITY ASSURANCE APPROVAL DATE
[SIG] 7 AUG 96
- --------------------------------------------------------------------------------
TESTING REQUIREMENTS METHOD SPECIFICATIONS
[***] [***] [***]
- --------------------------------------------------------------------------------
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
<PAGE> 37
PROCEDURE UTILIZING F-0012: SPECIFICATIONS COMMITTEE (QAM-005)
PART NUMBER: FP-LL#. Issued by Quality Assurance Department.
SPECIFICATION EDITION NUMBER: First issuance = 1, second = 2, etc.
ITEM: Final Product's name.
COMPOSITION: A listing of the product's components.
% DEFINED AS (W/V): (Weight (grams) of component + unit volume of Final Product)
X 100
EXPIRATION DATE: The expiration date is assigned by the Pharmacyclics Quality
Assurance Department.
RETAINED SAMPLE: A quantity sufficient to perform all required tests at least
twice. Cannot be used without written authorization from the head of the Quality
Assurance Department.
SAMPLE SIZE: A quantity sufficient to perform all required tests.
<PAGE> 38
DRUG PRODUCT PART NUMBER: [***]
FINAL PRODUCT
SPECIFICATIONS SPECIFICATION EDITION NUMBER: 2
- --------------------------------------------------------------------------------
Item: [***]
- --------------------------------------------------------------------------------
EXPIRATION DATE: TBD
QUALITY ASSURANCE APPROVAL DATE STORAGE CONDITIONS: [***]
RETAINED SAMPLE: [***]
[SIG] 7 Aug. 96 SAMPLE SIZE: [***]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
COMPOSITION PERCENT DEFINED AS [w/v]
[***] [***]
</TABLE>
- --------------------------------------------------------------------------------
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
<PAGE> 39
PROCEDURE UTILIZING F-0012: SPECIFICATIONS COMMITTEE (QAM-005)
PART NUMBER: FP-LL#. Issued by Quality Assurance Department.
SPECIFICATION EDITION NUMBER: First issuance = 1, second = 2, etc.
ITEM: Final Product's name.
COMPOSITION: A listing of the product's components.
% DEFINED AS (W/V): (Weight (grams) of component + unit volume of Final
Product) X 100
EXPIRATION DATE: The expiration date is assigned by the Pharmacyclics Quality
Assurance Department.
RETAINED SAMPLE: A quantity sufficient to perform all required tests at least
twice. Cannot be used without written authorization from the head of the
Quality Assurance Department.
SAMPLE SIZE: A quantity sufficient to perform all required tests.
<PAGE> 40
Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 8.6.1
Product Prices
<TABLE>
<CAPTION>
Premix Bottle 50 mL Fill Volume 200 mL Fill Volume
- -------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
<TABLE>
<CAPTION>
Premix CR3 Flexible
Container 50 mL Fill Volume 200 mL Fill Volume
------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
Prices are firm through 1999. Beginning January 1, 2000 and on each succeeding
January 1 during the term hereof, prices may be adjusted by Abbott. Price
adjustment shall be effective for deliveries beginning January 1 of each year.
Such adjustment shall not exceed the annual percentage increase for the most
recent twelve (12) month period for which figures are available in the Price
Index, Pharmaceutical Preparations, Ethical (Prescription), Commodity Code
06-35, issued by the Bureau of Labor Statistics, U.S. Department of Labor times
a factor of [***].
The price per bottle is for Product packaged twelve (12) unites per corrugate
shipper. The price per flexible container is for Product packaged in twenty-four
(24) units per corrugate shipper.
*** Indicates that material has been omitted and confidential treatment
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
<PAGE> 41
Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 8.5.5
Product Test Methods
<PAGE> 42
Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 3
Drug Solution Extractable Studies
<PAGE> 43
Development and Supply Agreement
Pharmacyclics
and
Abbott Laboratories
Exhibit 15.2
Alternative Dispute Resolution
The parties recognize that bona fide disputes may arise which relate to the
parties' rights and obligations under this Agreement. Both parties agree that in
the event of such a dispute, they shall refer the dispute to the respective
presidents or their equivalents (the "Resolution Officers") of the affected
business units. The Resolution Officers will endeavor, in good faith, to resolve
the dispute.
In the event the Resolution Officers are unable to resolve the dispute within
fifteen (15) days of the day the dispute is first referred to the Resolution
Officers and the dispute relates solely to a Technical or Regulatory Matter (as
defined below), the parties shall, within fifteen (15) days of the date on which
the Resolution Officers have determined they are unable to resolve the dispute,
select a mutually agreeable outside consulting firm which they will instruct to
review the details of the dispute and any submissions from the parties. The
consulting firm will then issue a binding ruling on the Technical or Regulatory
Matter. Such binding ruling shall be issued within thirty (30) days of the date
on which the matter is first presented to the consulting firm.
If the consulting firm agrees with Pharmacyclics' position on the Technical or
Regulatory Matter, Abbott will pay the fees and costs of such consulting firm.
If the consulting firm agrees with Abbott's position on the Technical or
Regulatory Matter, Pharmacyclics will pay the fees and costs of such consulting
firm. If the consulting firm agrees in part with Pharmacyclics' position and in
part with Abbott's position on the Technical or Regulatory Matter, the
consulting firm will determine how its fees and costs shall be divided between
the parties.
In the event the Resolution Officers are unable to resolve the dispute within
fifteen (15) days of the day the dispute is first referred to the Resolution
Officers and the dispute does not relate solely to a Technical or Regulatory
Matter, the parties will consider in good faith resolving the dispute through
alternative dispute resolution techniques before pursuing litigation.
Notwithstanding the foregoing, neither party shall be precluded, at any time,
from seeking relief of any nature in an applicable court of law.
For purposes of this Section, "Technical or Regulatory Matter" shall mean any
matter concerning whether (i) the relevant specifications are being met; or (ii)
Product is manufactured in accordance with GMP and other applicable statutes,
laws, rules and regulations.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-95514, 333-21551 and 333-52881) of
Pharmacyclics, Inc., of our report dated August 26, 1998 appearing on page 39 of
this Form 10-K.
PricewaterhouseCoopers LLP
San Jose, California
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEET AND UNAUDITED CONDENSED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,456
<SECURITIES> 23,189
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,977
<PP&E> 5,430
<DEPRECIATION> (3,177)
<TOTAL-ASSETS> 73,019
<CURRENT-LIABILITIES> 4,064
<BONDS> 275
0
0
<COMMON> 1
<OTHER-SE> 68,641
<TOTAL-LIABILITY-AND-EQUITY> 73,019
<SALES> 0
<TOTAL-REVENUES> 3,531
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> (9,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,675)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> 0
</TABLE>
