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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, 2000
[ ] 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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<S> <C>
DELAWARE 94-3148201
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
995 E. Arques Avenue, Sunnyvale, CA 94085-4521
(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code: (408) 774-0330
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
None None
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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. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of August 31, 2000, was approximately $595,931,623 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 August 31, 2000 was 16,041,731.
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 2000 Annual
Meeting of Stockholders scheduled to be held on December 7, 2000.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business ........................................................... 2
Item 2. Properties ......................................................... 28
Item 3. Legal Proceedings .................................................. 28
Item 4. Submission of Matters to a Vote of Security-Holders ................ 28
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder 29
Matters ............................................................
Item 6. Selected Financial Data ............................................ 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 31
Item 8. Financial Statements and Supplementary Data ........................ 35
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ............................................... 53
PART III
Item 10. Directors and Executive Officers of the Registrant ................. 54
Item 11. Executive Compensation ............................................. 54
Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 54
Item 13. Certain Relationships and Related Transactions ..................... 54
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 55
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PHARMACYCLICS(R), the Pentadentate Logo(R) [GRAPHIC OMITTED] , XCYTRIN(R),
ANTRIN(R), LUTRIN(R), and GADOLITE(R) are registered U.S. trademarks; OPTRIN(TM)
is a trademark of Pharmacyclics, Inc. CITRA VU(TM) is the trademark of E-Z-EM,
Inc. for the oral contrast agent it has licensed from 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
We are a pharmaceutical company developing products to improve upon
current therapeutic approaches to the treatment of cancer, atherosclerosis and
retinal disease. We use our expertise in the chemistry of biologically-active
metal-containing compounds to develop patented molecules called texaphyrins
which, when injected, accumulate in tumor growths, in the diseased portions of
major blood vessels and in small blood vessel growths in the retina. These
molecules disrupt energy production of cells. When the cells are exposed to
various energy sources, such as X-ray, light or chemical, these molecules become
activated and are capable of destroying diseased tissue with minimal damage to
surrounding healthy cells. Our lead texaphyrin-based product candidates are:
- XCYTRIN(R), a molecule to enhance the effects of radiation and
chemotherapy in treating cancer;
- LUTRIN(R), a molecule for use in photodynamic therapy of cancer;
- ANTRIN(R), a molecule to treat atherosclerosis via
photoangioplasty; and
- OPTRIN(TM), a molecule to treat age-related macular
degeneration, a disease of the retina caused by growth of small
blood vessels, which can lead to blindness.
Our technology is based upon our expertise in developing
biologically-active molecules that disrupt cellular bioenergies and are capable
of being activated by energy. In nature, a class of molecules called porphyrins,
including heme found in hemoglobin and chlorophyll found in plants, is found in
tissues or organs responsible for energy production, metabolism or transport
functions. Our texaphyrins, which are synthetic, expanded porphyrins, are
designed to take advantage of two key characteristics of naturally-occurring
porphyrins: interaction with energy and accumulation in tissues with high energy
demands. Texaphyrins are capable of binding larger metal atoms and of capturing,
focusing and transforming X-ray, light or chemical energy into other energy
forms. This allows them to be used for targeted destruction of diseased tissues.
In each case, the type of metal inserted and the form of energy applied to the
cells determines the physical, chemical and therapeutic characteristics of the
texaphyrin.
Following accumulation at the disease site, which generally occurs in
minutes to a few hours, the appropriate energy form can be delivered to the
cells and activate the texaphyrins' therapeutic effects. Texaphyrins are water
soluble, which may make them safer and easier to administer to patients. The
diagram below depicts some of our texaphyrin based products under development:
[GRAPHIC]
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MARKET OVERVIEW
Cancer
Cancer results from the uncontrolled multiplication of cells which
invade and interfere with the normal function of adjacent tissues and organs.
Frequently, cancer cells become dislodged from their primary site and spread, or
metastasize, to other places in the body. Approximately 1.2 million new cases of
cancer are diagnosed annually in the United States. The appropriate cancer
therapy for each patient depends on the cancer type and careful assessment of
the size, location and existence of spread of the tumor using diagnostic imaging
procedures. Therapy typically includes some combination of surgery, radiation
therapy or chemotherapy.
Chemotherapy and radiation therapy tend to indiscriminately destroy both
healthy and diseased cells and cause serious side effects. As a result,
substantial cancer research has been directed toward improving the effectiveness
of existing therapy while reducing toxicity. These approaches seek to identify
drugs which are capable of targeting the tumor and making the cancer cells more
sensitive and responsive to radiation therapy or chemotherapy. The following are
therapies used in the treatment of cancer:
Radiation Therapy. Approximately 3,000 physicians specializing in
radiation oncology administer radiation therapy to more than 700,000 patients
annually in the United States. The radiation is usually applied to the tumor
site several times per week over a period of two to six weeks. 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 receive radiation therapy as part of their initial
treatment. In addition, approximately 150,000 patients with persistent or
recurrent cancer also will receive radiation therapy. Depending on the
complexity and duration of treatment, a course of radiation therapy for cancer
can cost between $10,000 and $25,000.
Chemotherapy. More than 350,000 patients each year in the United States
receive chemotherapy for treatment of many types of cancer. The serious or
life-threatening side effects of chemotherapy agents, many of which are due to
the drug's lack of selectivity, limit the effectiveness of this treatment.
Chemotherapy drugs tend to distribute themselves throughout the body in normal
tissues as well as in the tumor. Because of their toxicity to normal tissues,
chemotherapy drugs can be administered only in small dosages and accordingly,
the therapeutic benefits may be limited.
Photodynamic Therapy. Photodynamic therapy is a new cancer treatment
based on the use of light energy to activate certain types of drugs known as
photosensitizers. In this procedure, the photosensitizer, ideally one which
accumulates more readily in tumor cells, is injected into the patient. The tumor
site is then illuminated with visible light of a strength and wavelength that is
absorbed by the photosensitizer. Once so activated, the photosensitizer causes
tumor cell death. The FDA approved the first photosensitizing agent in early
1996 for the treatment of obstructing cancers of the esophagus and more recently
for the treatment of particular types of lung cancer. To date, use of such drugs
has been restricted to treatment of superficial or small lesions because these
photosensitizers have been unable to absorb light of a wavelength capable of
penetrating deeply into tissues. Other limitations of photosensitizers have
included unfavorable distribution, prolonged retention in the body, skin
toxicity and insolubility in water, complicating intravenous administration.
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Atherosclerosis
Atherosclerosis, or hardening of the arteries, is a disease in which
cholesterol, other fatty materials and inflammatory cells 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, reducing blood flow.
Atherosclerosis in the coronary arteries can lead to heart attack and death. In
other blood vessels, atherosclerosis can lead to decreased mobility, loss of
function, loss of limbs and other complications such as stroke. Current
treatments for atherosclerosis include surgery and other techniques aimed at
removing or relieving the plaque. Balloon angioplasty is a procedure using
catheter devices inserted inside the vessels to mechanically compress or remove
the obstruction. Currently, more than 600,000 patients per year in the United
States undergo these procedures for treatment of atherosclerosis in the coronary
arteries. These procedures require the use of anti-clotting drugs and,
frequently, the use of devices inserted inside the vessels to reduce the
incidence of reclosure, which results from traumatic damage to the vessel wall.
Generally, these techniques have been limited to treating only short sections of
the diseased vessel.
Blindness Caused by Retinal Degeneration
Age-related degeneration of the retina is the major cause of severe
visual loss in the elderly. There are approximately 1.1 million people with
age-related macular degeneration in the United States, with approximately
200,000 new cases diagnosed annually. Patients with this disease develop blurred
vision and distortion, decreased vision and blind spots in the center of the
visual field. This disease is caused by the abnormal growth and proliferation of
small blood vessels in the retina. Although laser treatment can slow progression
of disease in some patients, it generally fails to prevent progression of the
disease, which ultimately leads to blindness. The FDA approved the first
photosensitizing agent for this disease in April 2000.
OUR BUSINESS STRATEGY
The key elements of our business strategy include:
- Focusing on drugs that address the large markets for the
treatment of cancer and atherosclerosis. Although our technology
platform can be used to develop a wide range of pharmaceutical
agents, we have focused our initial efforts on cancer and
atherosclerosis, and particularly on the treatment of
life-threatening cancers in which accelerated regulatory
approval and favorable pricing may be possible.
- Improving upon existing medical procedures. Our products are
designed to be used in conjunction with and to enhance the
safety and effectiveness of, standard medical treatments. We
believe this increases their likelihood of being rapidly adopted
by physicians.
- Creating diverse product opportunities based on our texaphyrin
technology. Our texaphyrin-based technology platform can
incorporate a variety of metals and can be used to target many
different types of disease. Our research and development efforts
are focused on developing new uses for texaphyrins.
- Retaining rights to key products in advanced clinical testing.
We have retained worldwide rights to our XCYTRIN radiation
enhancer, U.S., Canadian and Japanese rights to our LUTRIN
photosensitizer for cancer treatment and worldwide rights to
ANTRIN for photoangioplasty of atherosclerosis. By maintaining
product rights through late-stage clinical development, we
believe that we can create greater value for our products and
retain the opportunity to sell and market our products.
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PRODUCTS UNDER DEVELOPMENT
The table below summarizes our product candidates and their stage of
development:
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PRODUCT TARGETED DISEASE REGULATORY STATUS(1) MARKETING RIGHTS
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CANCER THERAPY
XCYTRIN Brain metastases Phase III Pharmacyclics
Radiation Enhancer
Primary brain tumor Phase I, National Cancer Pharmacyclics
Pancreatic cancer Institute
Childhood gliomas
Lung cancer
Prostate cancer Pending, National Cancer Pharmacyclics
Institute(2)
XCYTRIN A variety of cancers Preclinical Pharmacyclics
Chemotherapy
Enhancer
LUTRIN Breast cancer Phase IIb Pharmacyclics in the
Photosensitizer U.S., Canada and Japan;
Nycomed in rest of world
Prostate cancer Phase I, National Cancer Pharmacyclics
Institute
Esophageal cancer Pending, National Cancer Pharmacyclics
Cervical cancer Institute(2)
Head and neck cancer
Lung cancer
Ovarian cancer
ATHEROSCLEROSIS THERAPY
ANTRIN Peripheral Phase II Pharmacyclics
Photosensitizer artery disease
Coronary artery Phase I Pharmacyclics
disease
MACULAR DEGENERATION
OPTRIN Degenerative disease Phase II Alcon
Photosensitizer of the retina
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(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 distribution of a
compound. "Phase II/IIb" 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 a new drug application, including
substantial evidence of safety and efficacy.
(2) The National Cancer Institute intends to sponsor clinical studies for
these cancer types and is currently in the process of establishing
protocols for these studies for submission to the FDA.
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CANCER THERAPY
XCYTRIN for Radiation Enhancement
Radiation therapy of cancer destroys cancer cells through exposure to
relatively high doses of externally applied radiation. While cancer cells are
somewhat more sensitive to radiation exposure than healthy tissues, radiation
therapy has toxic effects on healthy tissue surrounding the tumor because the
energy cannot be adequately targeted. Our preclinical studies indicate that
XCYTRIN both accumulates in tumors and increases the local destructive effect of
radiation therapy in those targeted tissues. XCYTRIN's uptake in tumor cells
occurs within minutes of administration and persists for hours, effectively
concentrating the drug's effect on the tumor. XCYTRIN disrupts energy production
within cells making cells more responsive to radiation treatment. In preclinical
studies, animals receiving XCYTRIN in conjunction with radiation therapy had
greater tumor response rates as compared to the control group receiving
equivalent doses of radiation therapy alone. Preclinical studies further
indicate that XCYTRIN increases the effect of radiation therapy at the tumor
site, with no increased damage to surrounding healthy tissues. An additional
feature of XCYTRIN is that it is detectable by magnetic resonance imaging
scanning (MRI), providing an ongoing method of monitoring its distribution in
patients.
Initially, we intend to seek FDA approval of XCYTRIN for treatment of
patients with tumors which have spread to the brain who are receiving radiation
therapy. This condition occurs in approximately 15% to 20% of all cancer
patients, often in patients with primary lung or breast cancer, and is usually
treated with radiation therapy delivered to the whole brain. The median survival
of patients with tumors which have spread to the brain is about four months.
Patients with this condition develop devastating complications, including severe
headache, seizures, paralysis, blindness and impaired ability to think.
Radiation therapy for treatment of this problem is performed on approximately
170,000 patients per year in the United States and is intended to prevent or
reduce these complications. We believe that XCYTRIN could eventually be used in
many other tumor types and clinical situations requiring radiation therapy.
Clinical Status. We have completed a Phase I clinical trial of XCYTRIN
in 38 adult patients with advanced cancer who received radiation therapy. This
trial was designed to determine the toxicity of a single dose of the drug.
Reversible kidney toxicity was found at the highest doses of drug tested.
Accumulation of XCYTRIN in lung cancer, breast cancer and other tumors has been
confirmed using magnetic resonance imaging.
We have also completed an international multicenter Phase Ib/II clinical
trial to evaluate the safety and efficacy of XCYTRIN in cancer patients
receiving radiation therapy for treatment of tumors which had spread to the
brain. We have compared the results from the Phase Ib/II trial to historical
data using a 528 patient database containing information on clinical features
and outcomes in comparable patients receiving treatment with identical doses of
radiation alone. After 6 months and 12 months, 41% and 25% of XCYTRIN-treated
patients were alive compared to 32% and 13% of the historical controls,
respectively. XCYTRIN treatment was a statistically significant independent
factor in determining survival. The effect of XCYTRIN treatment on neurologic
progression was determined by comparing the causes of death in the treated
patients to those of the control patients. Death due to tumor progression in the
brain was seen in 12% of XCYTRIN-treated patients compared to more than 35% in
the control group.
Statisticians from the Radiation Therapy Oncology Group, a large U.S.
cooperative clinical trial group, performed a similar analysis using its
database. Using a case-matched control analysis, they found that XCYTRIN-treated
patients had a median survival of 5.9 months compared to 3.8 month median
survival for control patients.
We are conducting a randomized, controlled Phase III trial with XCYTRIN
for the treatment of patients with tumors that have spread to the brain
undergoing whole brain radiation therapy. Over 60 clinical sites are
participating in this study in the U.S., Canada and Europe.
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We plan to enroll approximately 425 adult patients in this study. At
August 31, 2000, the study had enrolled over 325 patients. Patients are randomly
assigned to treatment with either standard whole-brain radiation therapy or
treatment with XCYTRIN plus standard whole-brain radiation therapy. The
XCYTRIN-treated group will receive ten intravenous injections of XCYTRIN, each
prior to ten daily doses of radiation therapy. We will follow all patients for a
minimum of 6 months after treatment or until death. The study will measure
survival, time-to-neurologic progression, tumor response by magnetic resonance
imaging and quality of life. The co-primary end-points of the study are survival
and time-to-neurologic progression assessed by neurological examinations and
neurocognitive testing. Statistically significant improvement in either survival
or time-to-neurologic progression will be considered as satisfying the primary
end point of the trial, and may provide the basis of a marketing approval. An
outside, independent Data Safety Monitoring Board has been monitoring the study
for safety. The Data Safety Monitoring Board will also perform an interim
efficacy data analysis following two-thirds of the expected events for possible
early termination of the trial in the case of significant efficacy. The FDA has
indicated that the proposed Phase III trial will qualify for "Fast Track"
review.
At the November 1999 Annual Meeting of the American Society for
Therapeutic Radiology and Oncology (ASTRO), we reported results from the lead-in
phase of our Phase III XCYTRIN trial. Twenty-five patients with brain metastases
were evaluated in the open-label lead-in phase of the trial, which was performed
to validate the design of the company's prospective randomized international
multi-center trial. These patients received an injection of XCYTRIN followed by
standard whole brain radiation treatment once a day for 10 days. Investigators
assessed the effects of this treatment on tumor control in the brain using
several methods, including MRI scans to measure tumor response and a battery of
tests to evaluate neurocognitive function. Local control of tumor growth was
also evaluated by determining the rate of death due to brain tumor progression.
MRI scans were available for evaluation in 19 patients. Tumor response, defined
as at least a 50 percent reduction in tumor volume measured by MRI, was seen in
13 of these patients (68 percent) with a median reduction in tumor volume of 83
percent. Follow-up MRI scans showed tumor progression in three of the 19
evaluable patients (16 percent). All 25 patients were evaluated for
neurocognitive progression and survival. Nineteen patients maintained or
improved their neurocognitive function; six patients experienced deterioration
of neurocognitive function. Only one patient died due to tumor progression in
the brain. Median survival for all 25 patients was five months, with more than
30 percent of patients living beyond nine months. XCYTRIN treatment was
well-tolerated with no serious drug-related toxicities observed. Three patients
experienced nausea, two experienced weakness and two others had reversible liver
enzyme abnormalities. The patients enrolled in the study had very advanced
disease. On average, each patient had 12 brain tumors, each measuring an average
of 1.7 cm in diameter. Due to the advanced status of their tumors, 19 patients
were deemed ineligible for radiosurgery, an intensive localized treatment
reserved for patients with limited (in size and number) brain metastases. The
majority of patients in the lead-in phase of the trial had advanced lung or
breast cancer that had spread to the brain. While we believe the results from
the lead-in phase of this trial are encouraging and consistent with other trials
we have conducted with XCYTRIN, they are not sufficient to establish that
XCYTRIN is safe or effective in treating cancer.
The median survival of patients with tumors that have spread to the
brain is approximately 3 to 4 months and depends on various clinical features
such as tumor type, performance status, age and presence of disease outside the
brain. Although most patients die from disease progression in the brain, many
patients will die due to progression of their disease in other locations in the
body. The trial's patient eligibility requirements are designed to enroll those
patients most likely to succumb to tumor growth in the brain. Improved local
control of tumor growth from radiation therapy in XCYTRIN-treated patients could
result in prolonged survival or time-to-progression compared to radiation
therapy alone.
In addition to our studies in patients with tumors that have spread to
the brain, the National Cancer Institute has agreed to sponsor several clinical
trials with XCYTRIN for additional cancer types:
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TARGETED DISEASE LOCATION STATUS
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Primary Brain Tumor UCLA Medical Center Enrolling patients
Primary Brain Tumor Ohio State University Enrolling patients
Primary Brain Tumor NABTT (New Approaches to Brain Tumor Pending
Therapy Consortium, comprised of ten
centers)
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Primary Brain Tumor Case Western Pending
Pediatric Brain Tumors, Children's Cancer Group (CCG), Enrolling patients
including Childhood a consortium of U.S. Children's
Glioma Hospitals
Lung Cancer Ohio State University Enrolling patients
Pancreatic Cancer University of Pittsburgh Enrolling patients
Pancreatic Cancer University of Wisconsin Enrolling patients
Pancreatic Cancer Dartmouth University Enrolling patients
Prostate Cancer Joint Center for Radiation Therapy, Pending
Harvard Medical School
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XCYTRIN for Chemotherapy Enhancement
We are conducting preclinical studies with XCYTRIN as a chemotherapy
enhancer for use in conjunction with certain chemotherapy agents. Chemotherapy
destroys cancer cells by interfering with their metabolism, protein synthesis or
cell division. Because these agents are not tissue-selective, cancer
chemotherapy agents produce serious or life-threatening side effects which
compromise quality of life and increase medical costs for cancer patients.
Preclinical studies conducted by us and our collaborators indicate that XCYTRIN
increases the activity of certain chemotherapy agents in tumors. We believe this
effect is related to XCYTRIN's ability to disrupt cellular bioenergetics
increasing the vulnerability of the cancer cells to cytotoxic chemotherapy.
XCYTRIN's uptake in tumors enhances the activity of cancer chemotherapy agents
in tumor cells but not in normal tissues, thereby increasing the therapeutic
margin. In preclinical studies, animals receiving XCYTRIN and chemotherapy with
either bleomycin or doxorubicin had enhanced tumor responses and survival rates
as compared to control groups receiving equivalent doses of chemotherapy alone.
LUTRIN for Photodynamic Therapy of Cancer
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 is activated
by light of 720 to 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 its tumor cell killing
state. Preclinical studies indicate that LUTRIN selectively accumulates in a
variety of cancer cells.
In October 1997, we entered into an agreement with Nycomed, which
acquired sales and marketing rights to LUTRIN for use in cancer treatment
outside the United States, Canada and Japan. In return for these rights, we
received an up-front licensing fee and will receive future payments based on
achievement of regulatory milestones and royalties on LUTRIN sales. See
"Business -- Research, Clinical Development and Marketing Collaborations" and
"-- Drug and Device Supply Agreements -- Photodynamic Therapy Light Production
and Delivery Devices."
We intend 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 to the
chest wall. This disease affects more then 10,000 patients per year in the
United States. Additional potential uses for LUTRIN include internal cancers
such as cancer of the lung, esophagus, cervix, colon, rectum, prostate, head and
neck region, ovary and genitourinary tract.
Clinical Status. At the May 1999 meeting of the American Society of
Clinical Oncology, we reported results from our Phase II study of LUTRIN. The
Phase II study was designed to evaluate the safety, tolerability and efficacy of
LUTRIN photosensitizer for photodynamic therapy in women with recurrent breast
cancer to the chest wall, for whom previous chemotherapy and radiation therapy
had failed. Fifty-eight treatment courses were given to 52 patients with
advanced disease. Eighty-two percent of these patients had failed three or more
chemotherapy
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regimens and all the patients had recurring or persistent tumors following
radiation therapy to the chest wall. The study evaluated the administration of
different doses of LUTRIN, followed by illumination of the chest wall with light
delivered at either 3 hours, 6 hours, 24 hours, 48 hours, 72 hours or 96 hours
after intravenous injection of the drug. Each patient, in the 11 groups tested,
received illumination with light to large areas of the chest wall (up to 240
cm(2)) encompassing both the tumor and adjacent uninvolved skin. The purpose of
the study was to identify treatment regimens that demonstrated anti-tumor
activity with an acceptable level of toxicity.
Tumor response was based on physical examinations and photographs of the
diseased chest wall. All lesions within the treatment field were evaluated and
an overall assessment of efficacy was made for each patient. Reduction in tumor
size was seen in 64% of patients. In 42% of patients tumors were either not
detectable (20%) or had significant decreases which were evident on physical
examination or photographs (22%).
Safety and tolerability appeared to be dependent on both drug dose and
the time interval between LUTRIN administration and illumination of the chest
wall with light. Patients receiving chest wall illumination 24 hours or more
following intravenous administration of LUTRIN experienced pain at the treatment
site that was manageable with standard narcotic pain medications. Patients
treated with light given at shorter intervals experienced more severe pain,
sometimes requiring conscious sedation. Skin toxicity, including scab formation
or destruction of skin, was seen in the skin overlying the tumors in patients
treated with light at time intervals of less than 24 hours. Only 2 of 18
patients receiving light illumination 24 hours or more after receiving LUTRIN
experienced this toxicity. Skin toxicity was limited to the tumor-involved areas
of skin except in patients receiving the highest doses of LUTRIN followed by
photoillumination given at the shortest intervals.
We are conducting a Phase IIb clinical trial for LUTRIN as a
photosensitizer for use in the photodynamic therapy of patients with recurrent
breast cancers to the chest wall that have failed standard therapies. In
addition to our clinical studies in recurrent breast cancer to the chest wall,
the National Cancer Institute intends to sponsor several clinical trials of
LUTRIN for additional types of cancers. A Phase I trial for prostate cancer has
begun at the University of Pennsylvania. Other potential trials that may be
sponsored by the National Cancer Institute are for cancer of the cervix,
esophagus, head and neck region, pancreas, lung and ovary.
ATHEROSCLEROSIS THERAPY
ANTRIN for Photoangioplasty of Atherosclerosis.
Preclinical studies conducted by Pharmacyclics and our collaborators
have demonstrated that texaphyrins also accumulate in vascular plaque caused by
atherosclerosis. Preclinical studies indicated that following intravenous
injection of ANTRIN, light delivered into the blood vessel using an optical
fiber resulted in non-mechanical reduction or elimination of the plaque without
damage to the lining of the vessel wall using a technique which we refer to as
photoangioplasty. Photoangioplasty with ANTRIN resulted in the elimination of
inflammatory cells from the diseased vessel wall. Current treatments of
atherosclerosis, such as balloon angioplasty, require anti-clotting drugs and
the use of devices inserted inside the vessels to reduce the incidence of
reclosure. We believe that these results suggest that photoangioplasty of
atherosclerosis with ANTRIN has the potential to eliminate or reduce plaque
without complications such as thrombosis and reclosure. Additional preclinical
studies further indicated that photoangioplasty of atherosclerosis with ANTRIN
could be used to treat longer segments of blood vessels, which is not possible
with other currently available techniques. ANTRIN's accumulation in plaque and
relatively rapid clearance from blood may provide advantages over alternative
treatments for atherosclerosis. Removal of inflammatory cells also suggests that
ANTRIN may reduce or stabilize vulnerable plaque. Vulnerable plaque is rich in
inflammatory cells and prone to rupture causing a sudden blood clot and closure
of the vessel. We also believe that photoangioplasty with ANTRIN has potential
use in peripheral arterial disease, coronary artery disease and in the treatment
of restenosis following balloon angioplasty.
Clinical Status. In April 1999, we completed enrollment in our Phase I
study with ANTRIN photoangioplasty for patients with peripheral arterial
disease. Fifty-one patients received an injection of ANTRIN and 47 qualified to
receive photoangioplasty of the lower extremities. The two-part study was
designed to first establish an optimum dose of ANTRIN by treating successive
groups of patients with increasing single doses of the drug. In the second part
of the study, we evaluated three doses of light at several drug dose levels. We
gave ANTRIN intravenously and delivered light to the inside of the diseased
vessel using a 0.89mm optical fiber. We evaluated patients for toxicity
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and local arterial responses by follow-up angiograms and intravascular
ultrasound performed the day of and 28 days after photoangioplasty. Clinical
activity was evaluated using several well-established techniques. The
ankle-brachial index and the Rutherford-Becker standardized classification of
clinical outcomes were measured. The ankle-brachial index is a measurement of
the impact of the obstruction on blood pressure in the affected limb. The
Rutherford-Becker classification scores, which are based on standards for
evaluating and reporting the results of surgical or percutaneous therapy for
peripheral arterial disease, measure the change in clinical symptoms due to the
treatment intervention.
In August 1999, we reported results of this trial at the European
Society of Cardiology meeting in Barcelona, Spain. The study indicated that
Antrin photoangioplasty was well tolerated. There was no evidence of
dose-limiting systemic or vascular toxicities in the drug and light dose ranges
tested. No skin phototoxicity was reported. No treatment-related clinical
laboratory abnormalities were noted. There was no evidence of thrombus, emboli
or vessel wall damage. Mild and self-limited paresthesias, or tingling, in the
fingertips was observed in patients receiving higher doses of drug. Four
patients reported mild and transient skin rash. Baseline and day-28 paired
angiograms were available for 43 patients. Overall, these indicated improvement
in minimal luminal diameter on day 28 compared to baseline. Of the 19 patients
with minimal luminal diameter improvement, 14 had improvement of 10 to 112
percent (mean = 35.6 percent). Intravascular ultrasound data also indicated
plaque regression in the arterial lumen. Forty-seven patients were evaluated
using Rutherford-Becker classification and ankle-brachial index measurements.
Sixty-two percent of these patients had improved Rutherford-Becker scores, and
57 percent had improved ankle-brachial index measurements at day 28.
We are conducting a 375-patient randomized Phase II clinical trial with
ANTRIN for patients with peripheral arterial disease of the lower extremities.
The study is designed to evaluate both prevention of restenosis following
balloon angioplasty and primary treatment of atherosclerosis.
We also are conducting a Phase I clinical trial with ANTRIN for the
treatment of coronary artery disease in patients receiving balloon angioplasty
and stents. This study is primarily designed to evaluate the safety of various
doses of drug and light. Patients will receive follow-up angiograms six months
after treatment to evaluate effects of the treatment on the blood vessels.
RETINAL DEGENERATION THERAPY
OPTRIN for Treatment of Retinal Degeneration.
Pharmacyclics and our collaborators have conducted preclinical studies
with OPTRIN for treatment of degeneration of the retina caused by abnormal
growth of blood vessels. These studies have indicated that OPTRIN selectively
eliminates abnormal retinal capillaries after activation by light of an
appropriate wavelength. We have entered into a development agreement with Alcon,
a leading ophthalmic products company. Under this agreement, we will provide
OPTRIN to Alcon for further preclinical and clinical development, regulatory
submissions and sales and marketing of OPTRIN for the treatment of ophthalmic
diseases.
Clinical Status. Alcon has conducted a Phase I/II clinical trial with
OPTRIN for the photodynamic therapy of patients with retinal degeneration. Alcon
presented interim results from this trial at the June 1999 European Society of
Ophthalmology meeting in Stockholm, Sweden.
Alcon treated 58 patients with the wet form of macular degeneration in
the Phase I/II study, which was designed to evaluate various treatment regimens
in successive groups of patients. Clinical investigators examined increasing
doses of drug and light, and varying time intervals between drug administration
and light delivery in order to define the optimum treatment parameters. Although
primarily a safety study to establish the highest tolerated dose, clinical
investigators assessed clinical activity by angiography and measurements of
vision. Patients received a single intravenous injection of OPTRIN, followed by
light delivered to the retina at various times up to 180 minutes after injection
of the drug. In a subset of patients, clinical investigators performed
angiography to evaluate distribution and drug uptake in the diseased vessels and
clearance from normal retinal tissues.
Clinical investigators found that OPTRIN accumulated selectively in the
abnormal vessels and, depending on the dose of drug and light and the interval
between them, resulted in complete or partial closure of diseased vessels after
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activation with light. In patients treated with doses of drug less than or equal
to 2mg/kg, we saw complete or partial closure of diseased vessels in 1 of 19
patients. In the combined groups of patients receiving 2.5 or 3.0 mg/kg of drug,
clinical investigators observed complete or partial closure of diseased vessels
in 9 of 13 patients. Twenty of 26 patients had complete or partial closure when
treated with 4 mg/kg of drug.
Light dose was also an important factor. Clinical investigators saw
complete or partial closure of diseased vessels in 3 of 18 patients treated with
light doses of 50 or 75 Joules/cm(2). At a light dose of 100 Joules/cm(2), 19 of
31 patients had complete or partial closure of diseased vessels. In the combined
group receiving light doses of 125 or 150 Joules/cm(2), 8 of 9 patients had
complete or partial closure of diseased vessels.
Patients receiving higher doses of OPTRIN experienced self-limited
tingling of the fingertips. For example, in patients receiving less than or
equal to 2 mg/kg of drug, 1 of 19 experienced tingling of the fingertips, while
in the combined group of patients treated with 2.5 or 3 mg/kg, 3 of 13
experienced tingling of the fingertips. In patients treated with 4 mg/kg, 20 of
26 experienced tingling of the fingertips. One patient developed facial skin
toxicity following sun exposure. Clinical investigators observed no other
toxicities. In 5 patients, clinical investigators observed damage to normal
retina. These patients either received the highest dose of drug (4mg/kg) or
received light within a short interval following drug administration. Clinical
investigators observed no retinal damage in patients who had received high (125
or 150 Joules/cm(2)) doses of light.
Alcon is currently conducting a Phase II trial in macular degeneration.
Interim results from this trial were reported at the May 2000 annual meeting of
the Association for Research in Vision and Ophthalmology (ARVO). In this
dose-ranging study, 54 patients with the wet form of age-related macular
degeneration (ARMD) were treated with various doses of drug and light. Patients
received a single intravenous injection of OPTRIN, followed by light delivered
to the retina. Fluorescence imaging was performed to evaluate pharmacokinetics
and drug uptake in choroidal neovascularization (CNV) and clearance from normal
retinal tissues.
Photodynamic therapy with OPTRIN was generally well tolerated at drug
doses of 2.0 mg/kg and light does of 50, 65 or 95 Joules/cm(2). Some patients
experienced mild and self-limited paresthesias (tingling in the fingertips), eye
discomfort and transient retinal damage (i.e., serous detachment). There were no
cases of skin phototoxicity or retinal vessel closure.
Clinical activity was assessed by fluorescein angiography and
measurements of visual acuity. OPTRIN could be shown to be present in the CNV
and, in selected patients, resulted in complete or partial closure of diseased
vessels following activation with light. At one-month follow-up, visual acuity
improved or remained stable in nearly all of the patients.
OTHER PRODUCTS
CITRA VU(TM) for Imaging the Gastrointestinal Tract.
Our oral magnetic resonance imaging contrast agent, CITRA VU, is not a
texaphyrin, but is based on one of our patented compounds. CITRA VU is under
development for use in imaging the gastrointestinal tract in patients undergoing
MRI procedures of the abdomen or the pelvis. CITRA VU is an orange-flavored oral
formulation designed to fill the bowel uniformly to improve diagnosis of
abdominal or pelvic diseases.
We have granted E-Z-EM, Inc. exclusive rights to sell CITRA VU in North
America and granted E-Z-EM's affiliate, E-Z-EM, Ltd., exclusive rights to sell
CITRA VU in Europe. We do not expect significant revenue from this product
should E-Z-EM, or its affiliate, market it in the future.
RESEARCH, CLINICAL DEVELOPMENT AND MARKETING COLLABORATIONS
We rely on relationships with third parties to expand certain research,
clinical development, process development, manufacturing, sales and marketing
functions. In the photodynamic therapy field, we have used outside
collaborations for development of light sources and delivery devices for use in
our preclinical studies and clinical trials so that we could focus on
development of our proprietary photosensitizing products.
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National Cancer Institute Collaboration. In April 1997, the Decision
Network Committee of the National Cancer Institute Division of Cancer Treatment,
Diagnosis and Centers voted unanimously to sponsor and fund clinical development
of both XCYTRIN as a radiation enhancer and LUTRIN as a photosensitizer for
cancer treatment. Under this cooperative research and development agreement,
Pharmacyclics and the National Cancer Institute jointly select clinical trials
which will be conducted at leading medical centers for various types of cancer.
For XCYTRIN, the National Cancer Institute is conducting several separate
clinical trials for treatment of brain tumors and cancers involving the lung,
pancreas and prostate. For LUTRIN, the National Cancer Institute intends to
sponsor several separate clinical trials for the treatment of esophageal,
cervical, lung, prostate and ovarian cancers. A trial for the treatment of
prostate cancer is currently enrolling patients. We believe that these National
Cancer Institute-sponsored trials will supplement our own clinical development
efforts for both XCYTRIN and LUTRIN. Although third parties will be conducting
the trials, we will provide clinical supplies of our drugs and we intend to
monitor the progression and results of these trials.
The University of Texas Agreements. We collaborate with and sponsor
research and development programs at The University of Texas at Austin, through
a group headed by Jonathan Sessler, Ph.D., Professor of Chemistry at The
University of Texas at Austin. Such collaborations and programs extend our
research capabilities in the field of expanded porphyrin chemistry. We have
entered into two license agreements with The University of Texas at Austin that
grant us the worldwide, exclusive right to patents or patent applications that
relate to or result from research conducted at The University of Texas at Austin
on the use, development and syntheses of expanded porphyrin molecules, and
research conducted at The University of Texas at Dallas on the incorporation of
paramagnetic metals into zeolites for use as MRI contrast agents. These
agreements require us to pay royalties as a percentage of net sales to The
University of Texas for products incorporating the licensed technology,
including each of our current product candidates. In addition, we and The
University of Texas at Austin have entered into sponsored research agreements
which expand the products, inventions and discoveries developed by The
University of Texas at Austin to which our license rights apply. In connection
with The University of Texas license agreements, we also entered into a license
agreement with an individual co-inventor of CITRA VU, pursuant to which we have
been granted an exclusive royalty-bearing license to manufacture, use and sell
certain products that fall within the scope of The University of Texas at Dallas
license agreement.
Alcon Collaboration. In December 1997, we entered into an evaluation and
license agreement with Alcon Pharmaceuticals, Ltd. under which Alcon acquired
worldwide marketing rights to OPTRIN for ophthalmology uses. 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, we received an upfront fee for Alcon to evaluate OPTRIN for
ophthalmology uses for a specified time period. Alcon completed the evaluation
and paid us a milestone payment in fiscal 2000. We may also receive additional
payments upon completion of certain milestones and royalty payments on product
sales. Alcon will conduct and bear all costs for world-wide development and
commercialization of OPTRIN for ophthalmology uses, as well as costs for
regulatory submissions, until the agreement ends. We are required to supply bulk
drug substance to Alcon, and Alcon will be responsible for formulation and
packaging.
Nycomed Collaboration. In October 1997, we entered into an agreement
with Nycomed, granting Nycomed exclusive sales and marketing rights to LUTRIN
for different types of cancer in all markets excluding the United States, Canada
and Japan. In exchange for these rights, Nycomed agreed to pay us 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 uses for LUTRIN to be developed by us and Nycomed. In each
case, we must reach certain development, clinical or commercialization
milestones to receive payment. Nycomed may pay us approximately $14.0 million in
additional milestone payments and cost reimbursement, assuming similar costs and
agreement upon a similar budget, during the course of development for subsequent
cancer treatments, if such clinical trials 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. We
will then use this information as a basis for approvals in Europe. Pharmacyclics
and Nycomed will make regulatory submissions in our respective marketing
territories. We are required to supply bulk drug substance to Nycomed through
our manufacturing collaborations. Nycomed is required to produce finished
product for our use.
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PATENTS AND PROPRIETARY TECHNOLOGY
We believe our success depends upon our ability to protect our
proprietary technology. We, therefore, aggressively pursue, prosecute, protect
and defend patent applications, issued patents, trade secrets, and licensed
patent and trade secret rights covering certain aspects of our technology.
Our patents, patent applications, and licensed patent rights cover
various compounds, pharmaceutical formulations and methods of use. We own or
have license rights to:
- 68 issued U.S. patents;
- 1 additional allowed patent application in the U.S.; and
- 7 other pending U.S. patent applications.
The issued U.S. patents expire between 2009 and 2017. We also own or license 89
issued non-U.S. patents including 65 patents issued throughout Europe and 107
pending non-U.S. patent applications filed regionally under the Patent
Cooperation Treaty and with the European Patent Office, and nationally in
Canada, Japan, Australia and certain other countries.
We may be unsuccessful in prosecuting our patent applications or patents
may not issue from our patent applications. Even if patents are issued and
maintained, these patents may not be of adequate scope to benefit us, or may be
held invalid and unenforceable against third parties.
We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
require all of our employees, consultants, advisors and collaborators to execute
appropriate confidentiality and assignment-of-inventions agreements. These
agreements typically provide that all materials and confidential information
developed or made known to the individual during the course of the individual's
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances, and these agreements provide that all
inventions arising out of the relationship with Pharmacyclics shall be our
exclusive property.
DRUG AND DEVICE SUPPLY AGREEMENTS
We currently use third parties to manufacture various components of our
products under development.
Texaphyrin-based Products. In September 1996, we entered into an
agreement with Hoechst Celanese Corporation, a manufacturer of chemicals and
pharmaceutical intermediates, to optimize and scale up a manufacturing process
for and supply of our texaphyrin-based products. In October 1997, Hoechst
Celanese assigned the agreement to Celanese, Ltd. in connection with Hoechst
Celanese's corporate restructuring. This agreement granted Celanese exclusive
worldwide manufacturing rights and required Celanese to supply all of our
texaphyrin-based products for late-stage clinical and commercial use. As a
result of the change in its business focus, Celanese requested that we pursue
alternative supply sources. On August 27, 1999, we entered into an agreement to
terminate the manufacturing and supply agreement with Celanese. Pursuant to that
agreement, Celanese assigned to us all right, title and interest in and to the
manufacturing technology and intellectual property for our texaphyrin-based
products and agreed to make a cash payment of $750,000 to us. The termination
agreement also relieved us of all obligations to pay Celanese for shared
development costs incurred prior to termination of the agreement. As of June 30,
1999, we had accrued approximately $2.8 million associated with such costs.
During discussions with Celanese that resulted in the termination of the
manufacturing and supply agreement, we entered into agreements with three new
manufacturers to evaluate their ability to supply us with the components of the
texaphyrin-based products. Two of the three manufacturers have completed
manufacture of late-stage intermediates. We are in the process of negotiating
commercial supply agreements with each of the three manufacturers.
We have entered into a development and supply agreement with Cook
Pharmaceutical Solutions for the formulation, filling, packaging and labeling of
clinical and commercial quantities of XCYTRIN.
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Photodynamic Therapy Light Production and Delivery Devices. In
connection with our development of LUTRIN and ANTRIN as photosensitizers, we
have developed certain light sources and delivery methods, such as lasers and
light emitting diodes. We have purchased light emitting diode devices capable of
producing the required wavelength of light for use in photodynamic therapy with
LUTRIN. We have also used light emitting diode devices in preclinical animal
studies and Phase I and Phase II trials. In addition, we have acquired from
CardioFocus, Inc. cylindrically diffusing light fibers for animal studies and
for use in our LUTRIN and ANTRIN trials. In October 1997, we entered into a
development agreement with Diomed, Inc. under which Diomed would develop a diode
laser system for use in photodynamic therapy. This effort was successful and we
have used Diomed lasers in our LUTRIN and ANTRIN clinical trials. In addition,
we may seek other suppliers of light delivery devices for clinical trials and
commercial purposes, although we cannot be certain that any agreements will be
reached with such suppliers on terms commercially reasonable to us, if at all.
COMPETITION
We face intense competition from pharmaceutical companies, universities,
governmental entities and others in the development of therapeutic and
diagnostic agents for the treatment of diseases which we target. Many of these
entities have significantly greater research and development capabilities than
us, as well as substantial marketing, manufacturing, financial and managerial
resources. Acquisitions of, or investments in, competing pharmaceutical
companies by large collaborating partners could increase such competitors'
financial, marketing, manufacturing and other resources. Developments by others
may render our products or technologies noncompetitive or obsolete, or we may be
unable 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 therapeutic effects
than our products under development.
Although the FDA has not yet approved any agents for the enhancement of
radiation therapy or chemotherapy, we expect significant competition in these
fields, as we believe that one or more companies are developing and testing
products which compete directly with our products under development. These
companies may succeed in developing technologies and products that are more
effective than XCYTRIN or would render our products or technologies obsolete.
Moreover, certain existing chemotherapy agents also are used as radiation
enhancers. See "Risk Factors -- We face rapid technological change and intense
competition."
The FDA has approved Photofrin(R), a photosensitizer developed by QLT
Phototherapeutics, Inc., for the treatment of specific types of cancer. We are
aware of several other photosensitizers in various stages of development for a
number of uses. In addition to QLT Phototherapeutics, Inc., other companies are
developing products in this area. Some companies developing photodynamic therapy
products are developing specialized light delivery devices for their products,
which, when combined with their product offering, may give them a competitive
advantage over our strategy of obtaining such devices from third-party sources.
We also face intense competition in the treatment of atherosclerosis
which currently includes the use of pharmaceutical agents and devices. Various
drugs also have been shown to reduce or prevent atherosclerosis. Balloon
angioplasty and stents are widely-used and generally accepted techniques to
reduce the narrowing of vessels by atherosclerosis. Treatment of in-stent
stenosis with a brachytherapy (gamma radiation) system was recently unanimously
recommended for marketing approval by an FDA review panel. We believe that
photoangioplasty with ANTRIN may provide advantages over these techniques.
We face substantial competition in the treatment of macular
degeneration. Several other approaches to treatment are being investigated,
including the use of other photosensitizers and drugs. Recently, QLT
Phototherapeutics, Inc. received FDA approval for their photosensitizer,
VISUDYNE(TM).
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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
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. We believe that our products will be regulated as
drugs or as a combination of drug and device, by the FDA rather than as
biologics or solely devices.
The process required by the FDA before our products may be marketed in
the U.S. generally involves the following:
- preclinical laboratory and animal tests;
- submission of an IND application which must become effective
before clinical trials may begin;
- adequate and well-controlled human clinical trials to establish
the safety and efficacy of the proposed pharmaceutical in our
intended use; and
- FDA approval of a new drug application.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain 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. We then submit the results of the
preclinical tests, together with manufacturing information and analytical data,
to the FDA as part of an IND, which must become effective before we may begin
human clinical trials. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30-day time period, 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 begin. Our submission of an IND may not result in FDA
authorization to commence clinical trials. Further, an independent Institutional
Review Board at the medical center proposing to conduct the clinical trials must
review and approve any clinical study.
Human clinical trials are typically conducted in three sequential phases
which may overlap:
- PHASE I: The drug is initially introduced into healthy human
subjects or patients and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion.
- PHASE II: Involves studies in a limited patient population to
identify possible adverse effects and safety risks, to determine
the efficacy of the product for specific targeted diseases and
to determine dosage tolerance and optimal dosage.
- PHASE III: When Phase II evaluations demonstrate that a dosage
range of 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 already have the target disease, these
studies may provide initial evidence of efficacy traditionally obtained in Phase
II trials and thus these trials are frequently referred to as Phase I/II trials.
We cannot be certain that we will successfully complete Phase I, Phase II or
Phase III testing of our product candidates within any specific time period, if
at all. Furthermore, the FDA or the Institutional Review Board 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 a new drug application for approval
of the marketing and commercial shipment of the product. The FDA may deny a new
drug application if the 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 new drug application does not satisfy the criteria
for approval. Once issued, the FDA may withdraw product approval 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. That act codified the FDA's policy of
granting "Fast Track" approval for cancer therapies and other therapies intended
to treat severe or life-threatening diseases. Previously, the FDA approved
cancer therapies primarily based on patient survival rates and/or data on
improved quality of life. The FDA considered evidence of partial tumor
shrinkage, while often part of the data relied on for approval, 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 new policy is intended to facilitate the
study of cancer therapies and shorten the total time for marketing approvals;
however, it is too early to tell what effect, if any, these provisions may
actually have on product approvals.
In addition to the drug approval requirements applicable to our LUTRIN
product for photosensitization of certain cancers and ANTRIN for
photoangioplasty of atherosclerosis, we will also need to obtain FDA approval
for the laser and associated light delivery devices used in such treatments. To
obtain approval of such devices, Pharmacyclics and the manufacturers of such
devices must submit additional clinical data obtained from the use of such
devices with LUTRIN and ANTRIN, which may further delay or hinder the approval
process for these photosensitizers. Manufacturers of such light delivery devices
currently are under no obligation to us to file or pursue such applications, and
any delay or refusal on their part to do so could have a material adverse effect
on us.
Satisfaction of the above FDA requirements or similar requirements of
state, local and foreign regulatory agencies typically takes several years and
the actual time required may vary substantially, based upon the type, complexity
and novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing of potential products for a considerable period of time and to
impose costly procedures upon our activities. We cannot be certain that the FDA
or any other regulatory agency will grant approval for any of our products under
development 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 is not always conclusive and
may be susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. Even if a product receives regulatory approval, the
approval may be significantly limited to specific indications. Further, even
after regulatory approval is obtained, later discovery of previously unknown
problems with a product may result in restrictions on the product or even
complete withdrawal of the product from the market. Delays in obtaining, or
failures to obtain regulatory approvals would have a material adverse effect on
our business. Marketing our products abroad will require similar regulatory
approvals and is subject to similar risks. In addition, we cannot predict what
adverse governmental regulations may arise from future U.S. or foreign
governmental action.
Any products manufactured or distributed by us 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 unannounced inspections by the FDA and
certain state agencies for compliance with good manufacturing practices, which
impose certain procedural and documentation requirements upon us and our third
party manufacturers. We cannot be certain that we or our present or future
suppliers will be able to comply with the GMP regulations and other FDA
regulatory requirements.
The FDA regulates drug labeling and promotion activities. The FDA has
actively enforced regulations prohibiting the marketing of products for
unapproved uses. Under the Modernization Act of 1997, the FDA will permit the
promotion of a drug for an unapproved use in certain circumstances, but subject
to very stringent requirements. We and our products are also subject to a
variety of state laws and regulations in those states or localities where our
products are or will be marketed. Any applicable state or local regulations may
hinder our
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ability to market our products in those states or localities. We are 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.
We may 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 enacted which could prevent or delay regulatory approval of our 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 our business. We cannot 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.
EMPLOYEES
As of August 31, 2000, we had 146 employees, 5 of whom were part-time.
130 of our employees are engaged in research, development, preclinical and
clinical testing, manufacturing, quality assurance and quality control and
regulatory affairs and 16 in finance, administration and operations. 27 of our
employees have an M.D. or Ph.D. degree. Our future performance depends in
significant part upon the continued service of our key scientific, technical and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of our key employees could harm our business.
Our future success also depends on our continuing ability to attract,
train and retain highly qualified scientific and technical personnel.
Competition for these personnel is intense, particularly in the San Francisco
Bay Area where we are headquartered. Due to the limited number of people
available with the necessary scientific and technical skills, we can give no
assurance that we can retain or attract key personnel in the future. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
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RISK FACTORS
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our 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.
RISKS RELATED TO PHARMACYCLICS
ALL OF OUR PRODUCT CANDIDATES ARE IN DEVELOPMENT, AND WE CANNOT BE CERTAIN THAT
ANY OF OUR PRODUCTS UNDER DEVELOPMENT WILL BE COMMERCIALIZED
To be profitable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our
products under development. The time frame necessary to achieve these goals for
any individual product is long and uncertain. Before we can sell any of our
products under development, we must demonstrate through preclinical (animal)
studies and clinical (human) trials that each product is safe and effective for
human use for each targeted disease. We have conducted and plan to continue
extensive and costly clinical trials to assess the safety and effectiveness of
our potential products. We cannot be certain that we will be permitted to begin
or continue our planned clinical trials for our potential products, or if
permitted, that our potential products will prove to be safe and to produce
their intended effects.
The completion rate of our clinical trials depends upon, among other
factors, the rate of patient enrollment. We may fail to obtain adequate levels
of patient enrollment in our clinical trials. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could have a material adverse effect on us.
Additionally, demands on our clinical staff have been increasing and we
expect they will continue to increase as a result of later-stage clinical trials
of our products in development and our monitoring of additional clinical trials.
We may fail to effectively oversee and monitor these many simultaneous clinical
trials, which would result in increased costs or delays of our clinical trials.
Even if these clinical trials are completed, we may fail to complete and submit
a new drug application as scheduled. Even if we are able to submit a new drug
application as scheduled, the Food and Drug Administration may not clear our
application in a timely manner or may deny the application entirely.
Data already obtained from preclinical studies and clinical trials of
our products under development do not necessarily predict the results that will
be obtained from later preclinical studies and clinical trials. Moreover, data
such as ours is susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. A number of companies in the pharmaceutical
industry, including biotechnology companies like us, have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to adequately demonstrate the safety and effectiveness of a
product under development could delay or prevent regulatory clearance of the
potential product and would materially harm our business. Our clinical trials
may not demonstrate the sufficient levels of safety and efficacy necessary to
obtain the requisite regulatory approval or may not result in marketable
products.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO CONTINUE TO HAVE LOSSES
IN THE FUTURE
We have incurred significant operating losses since our inception in
1991 and, as of June 30, 2000, had an accumulated deficit of approximately $90.8
million. We expect to continue to incur significant operating losses over the
next several years as we continue to incur increasing costs for research and
development, clinical trials and manufacturing. Our ability to achieve
profitability depends upon our ability, alone or with others, to successfully
complete the development of our proposed products, obtain the required
regulatory clearances and manufacture and market our proposed products. To date,
we have not generated revenue from the commercial sale of our products and do
not expect to receive any such revenue in the near future. All revenues to date
are primarily from license and milestone payments and, to a lesser extent,
funding from one government research grant.
18
<PAGE> 20
FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH ONGOING GOVERNMENTAL
REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS
The manufacture and marketing of our products and our 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, we will have to demonstrate
that the product is safe and effective on the patient population and for the
diseases 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, state and foreign 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. We compared the results of our Phase Ib/II clinical trial
of XCYTRIN to historical data using a 528-patient database containing
information on clinical features and outcomes in comparable patients receiving
treatment with identical doses of radiation alone. Historical analyses have many
limitations and, while supportive, are not considered proof that XCYTRIN
improved the outcome of patients enrolled in the study.
In addition, we may encounter delays or rejections 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. We may encounter similar delays in foreign countries.
We may be unable to obtain requisite approvals from the FDA and foreign
regulatory authorities, and even if obtained, such approvals may not be on a
timely basis, or they may not cover the clinical uses that we specify.
Marketing or promoting a drug for an unapproved use is subject to very
strict controls. Furthermore, clearance may entail ongoing requirements for
post-marketing studies. The manufacture and marketing of drugs are subject to
continuing FDA and foreign regulatory review and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions, including withdrawal of the product from the market. Any of the
following events, if they were to occur, could delay or preclude us from further
developing, marketing or realizing full commercial use of our products, which in
turn would have a material adverse effect on our business, financial condition
and results of operations:
- failure to obtain or maintain requisite governmental approvals;
- failure to obtain approvals of clinically intended uses of our
products under development; or
- identification of serious and unanticipated adverse side effects
in our products under development.
Manufacturers of drugs also must comply with the applicable FDA good
manufacturing practice regulations, which include quality control and quality
assurance requirements as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to ongoing periodic
inspection by the FDA and corresponding state agencies, including unannounced
inspections, and must be licensed before they can be used in commercial
manufacturing of our products. We or our present or future suppliers may be
unable to comply with the applicable good manufacturing practice regulations and
other FDA regulatory requirements. We have not been subject to a GMP inspection
by the FDA or any state agency. We may be subject to delays in commercializing
our products for photodynamic therapies due to delays in approvals of the
third-party light sources required for these products.
ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO
ACHIEVE MARKET ACCEPTANCE WILL HARM OUR BUSINESS
Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:
19
<PAGE> 21
- the receipt of regulatory approvals for the uses that we are
studying;
- the establishment and demonstration in the medical community of
the safety and clinical efficacy of our products and their
potential advantages over existing therapeutic products and
diagnostic and/or imaging techniques; and
- pricing and reimbursement policies of government and third-party
payors such as insurance companies, health maintenance
organizations and other plan administrators.
Physicians, patients, payors or the medical community in general may be
unwilling to accept, utilize or recommend any of our products.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO THIRD-PARTY PATENTS
A number of third-party patent applications have been published, and
some have issued, relating to biometallic and expanded porphyrin chemistries. It
is likely that competitors and other third parties have and will continue to
file applications for and receive patents relating to similar or even the same
compositions, methods or designs as those of our products. If any third-party
patent claims are asserted against the company's products and are upheld as
valid and infringed, we could be prevented from practicing the subject matter
claimed in such patents, require license(s) or have to redesign our products or
processes to avoid infringement. Such licenses may not be available or, if
available, may not be on terms acceptable to us. Alternatively, we may be
unsuccessful in any attempt to redesign our products or processes to avoid
infringement. Litigation or other legal proceedings may be necessary to defend
against claims of infringement, to enforce our patents, or to protect our trade
secrets, and could result in substantial cost to the company, and diversion of
our efforts.
We are aware of several U.S. patents owned or licensed to Schering AG that
relate to pharmaceutical formulations and methods for enhancing magnetic
resonance imaging. We have obtained the opinion of special patent counsel that
the technologies we employ for our imaging product under development and
magnetic resonance imaging detectable compounds do not infringe the claims of
such patents. Nevertheless, Schering AG may still choose to assert one or more
of those patents. If any of our products were legally determined to be
infringing a valid and enforceable claim of any such patents, our business could
be materially adversely affected. Further, any allegation by Schering AG that we
infringed their patents would likely result in significant legal costs and
require the diversion of substantial management resources. Schering AG sent
communications to us suggesting that our oral magnetic resonance imaging
contrast agent, CITRA VU, may infringe certain of their patents. We are aware
that Schering AG 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 AG with respect to one or more of such
patents. We cannot be certain that we would be successful in defending a lawsuit
or able to obtain a license on commercially reasonable terms from Schering AG,
if required.
We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
require our employees, consultants, advisors and collaborators to execute
appropriate confidentiality and assignment-of-inventions agreements with us.
These agreements typically provide that all materials and confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances, and that all inventions
arising out of the relationship with Pharmacyclics shall be our exclusive
property. These agreements may be breached, and in some instances, we may not
have an appropriate remedy available for breach of the agreements. Furthermore,
our competitors may independently develop substantially equivalent proprietary
information and techniques, reverse engineer our information and techniques, or
otherwise gain access to our proprietary technology. We may be unable to
meaningfully protect our rights in unpatented proprietary technology.
20
<PAGE> 22
WE RELY HEAVILY ON THIRD PARTIES
We currently depend heavily and will depend heavily in the future on
third parties for support in product development, manufacturing, marketing and
distribution. We have a collaboration agreement with Nycomed. We rely on Nycomed
for a portion of our 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 retinal
degeneration, we depend on Alcon for preclinical and clinical studies,
regulatory filings and sales and marketing of OPTRIN for ophthalmology uses
worldwide. Alcon may terminate their agreement with us at their election. We
cannot be certain that any of these parties will fulfill their obligations in a
manner that maximizes our revenues. Our failure to receive milestone payments or
any reduction or discontinuance of efforts by our partners or the termination of
these alliances could have a material adverse effect on our business, financial
condition and results of operations.
We also depend upon the National Cancer Institute for the sponsoring and
funding of certain of the clinical trials of our XCYTRIN radiation enhancer and
LUTRIN photosensitizer products in development. We cannot be certain that the
National Cancer Institute will enlist support for all such trials or that it
will continue our funding. If the National Cancer Institute did not support such
trials, we may have to fund the continuation of such trials ourselves or reduce
the number of disease types in our clinical trials.
We may be unsuccessful in entering into additional strategic alliances
for the development or commercialization of other product candidates. Even if we
did enter into any such alliances, they may not be on terms favorable to us or
they may ultimately be unsuccessful. See "Business -- Research, Clinical
Development and Marketing Collaborations."
We have no expertise in the development of light sources and associated
light delivery devices required for our photoangioplasty and photodynamic
therapy products under development. Successful development, manufacturing,
approval and distribution of our photosensitization products will require third
party participation for the required light sources, associated light delivery
devices and other equipment. We currently obtain lasers from Diomed, Inc. and
cylindrically diffusing light fibers from CardioFocus 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 us to
develop additional supply sources which may require additional clinical trials
and regulatory approvals and could materially delay commercialization of our
LUTRIN and ANTRIN products under development. We may be unable to establish or
maintain relationships with other supply sources on a commercially reasonable
basis, if at all, or alternatively, the enabling devices may not receive
regulatory approval for use in photoangioplasty or photodynamic therapy. See
"Business -- Research, Clinical Development and Marketing Collaborations" and
"-- Drug and Device Supply Agreements."
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND THUS RELY HEAVILY UPON CONTRACT
MANUFACTURERS
We must manufacture our products in commercial quantities, either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. We do not own manufacturing facilities necessary to
provide clinical and commercial quantities of our products.
In September 1996, we entered into an agreement with Hoechst Celanese
Corporation, a manufacturer of chemicals and pharmaceutical components, to
optimize and scale up a manufacturing process for and supply of our
texaphyrin-based products. In October 1997, Hoechst Celanese assigned the
agreement to Celanese, Ltd., in connection with Hoechst Celanese's corporate
restructuring. This agreement granted Celanese exclusive worldwide manufacturing
rights and required Celanese to supply all of our texaphyrin-based products for
late-stage clinical and commercial use. As a result of the change in its
business focus, Celanese requested that we pursue alternative supply sources. On
August 27, 1999, we entered into an agreement to terminate the manufacturing and
supply agreement with Celanese. Pursuant to that agreement, Celanese assigned to
us all right, title and interest in and to the manufacturing technology and
intellectual property for our texaphyrin-based products.
During discussions with Celanese that resulted in termination of the
manufacturing and supply agreement, we entered into agreements with three new
manufacturers to evaluate their ability to supply us with the components of the
texaphyrin-based products. The last of these manufacturers has not delivered
commercial quantities of drug
21
<PAGE> 23
substance to us yet, and we cannot be certain that the third manufacturer will
be able to deliver commercial quantities of drug substance on a timely basis. If
this third manufacturer fails to perform its obligation in a timely fashion, our
business could be materially harmed. Due to the addition of alternative
manufacturers, we must demonstrate to the FDA the substantial chemical
equivalence of the materials produced by these manufacturers to the materials
used in our clinical trials to date. Failure to demonstrate chemical equivalence
of the material produced by these manufacturers could involve performing
additional clinical trials and could have a material adverse effect on our
business, financial condition and results of operations. In addition, we are in
the process of negotiating commercial-scale supply agreements with the same
group of manufacturers, but we cannot be certain that we will be able to
successfully negotiate these agreements at all or on commercially acceptable
terms.
We have entered into an agreement with Cook Pharmaceutical Solutions to
formulate, fill, package and label clinical and commercial quantities of
XCYTRIN. Cook also supplies us with clinical quantities of ANTRIN and LUTRIN.
Any interruption of supply of our products from Cook could have a material
adverse affect on our business, financial condition and results of operations.
Any failure by these third parties to supply our requirements or the
National Cancer Institute's requirements for clinical trial materials would
jeopardize the completion of such trials and could therefore have a material
adverse effect on us.
WE LACK MARKETING AND SALES EXPERIENCE
We currently do not have marketing, sales or distribution experience.
Therefore, to service markets in which we have retained sales and marketing
rights and in the event that any of our agreements with Alcon, Nycomed, or
E-Z-EM is terminated, we must develop a sales force with technical expertise. We
have no experience in developing, training or managing a sales force. We will
incur substantial additional expenses in developing, training and managing such
an organization. We may be unable to build such a sales force, the cost of
establishing such a sales force may exceed any product revenues, or our direct
marketing and sales efforts may be unsuccessful. In addition, we compete with
many other companies that currently have extensive and well-funded marketing and
sales operations. Our marketing and sales efforts may be unable to compete
successfully against such other companies.
OUR CAPITAL REQUIREMENTS ARE UNCERTAIN AND WE MAY HAVE DIFFICULTY RAISING NEEDED
CAPITAL IN THE FUTURE
We have expended and will continue to expend substantial funds to
complete the research, development and clinical testing of our products. We 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 our products. Additional funds may not be
available on acceptable terms, if at all. If adequate funds are unavailable from
operations or additional sources of financing, we may have to delay, reduce the
scope of or eliminate one or more of our research or development programs which
would materially and adversely affect our business, financial condition and
operations.
We believe that our cash, cash equivalents and investments, will be
adequate to satisfy our capital needs through at least calendar year 2001.
However, our actual capital requirements will depend on many factors, including:
- continued progress of our research and development programs;
- our ability to establish additional collaborative arrangements;
- changes in our 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
22
<PAGE> 24
- competing technological and market developments.
- our ability to market and distribute our products and establish
new collaborative and licensing arrangements.
We 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 sources, such arrangements may require us to relinquish rights
to some of our technologies, product candidates or products under development
that we would otherwise seek to develop or commercialize ourselves.
23
<PAGE> 25
RISKS RELATED TO OUR INDUSTRY
WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or technologies noncompetitive or obsolete, or we may be unable to
keep pace with technological developments or other market factors. 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 we do, as well as
substantially more marketing, manufacturing, financial and managerial resources.
These entities represent significant competition for us. Acquisitions of, or
investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase such competitors' financial, marketing,
manufacturing and other resources.
We are a relatively new enterprise and are engaged in the development of
novel therapeutic technologies. As a result, our resources are limited and we
may experience technical challenges inherent in such novel technologies.
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 imaging effects than
our products. We are aware that one of our competitors in the market for
photodynamic therapy drugs has received marketing approval of a product for
certain uses in the United States and other countries. Our competitors may
develop products that are safer, more effective or less costly than our products
and, therefore, present a serious competitive threat to our product offerings.
The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation and chemotherapy, and in the case of
atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to
maintain and open blood vessels. These treatments are widely accepted in the
medical community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The market prices for securities of small capitalization biotechnology
companies, including ours, have historically been highly volatile. The market
has from time to time experienced significant price and volume fluctuations
unrelated to the operating performance of particular companies. The market price
of our common stock may fluctuate significantly due to a variety of factors,
including:
- the results of preclinical testing and clinical trials by us or
our competitors;
- 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 us or
others;
- comments by securities analysts; and
- general market conditions in our industry.
In addition, if any of the risks described in these "Risk Factors"
actually occurred, it could have a dramatic and material adverse impact on the
market price of our common stock.
24
<PAGE> 26
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The continuing efforts of government and insurance companies, health
maintenance organizations and other payors of healthcare costs to contain or
reduce costs of health care may affect our future revenues and profitability,
and the future revenues and profitability of our potential customers, suppliers
and collaborative partners and the availability of capital. 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, the U.S. Congress and state legislatures will likely
continue to focus on health care reform, the cost of prescription
pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we
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 our business, financial condition and results of operations.
Our ability to commercialize our products successfully will depend in
part on the extent to which appropriate reimbursement levels for the cost of our
products and related treatment are obtained by governmental authorities, private
health insurers and other organizations, such as HMOs. Third-party payors are
increasingly challenging the prices charged for medical products and services.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for or rejection of our
products. The cost containment measures that health care payors and providers
are instituting and the effect of any health care reform could materially
adversely affect our ability to operate profitably.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
The testing, manufacture, marketing and sale of our products involve an
inherent risk that product liability claims will be asserted against us.
Although we are insured against such risks up to a $10,000,000 annual aggregate
limit in connection with clinical trials and commercial sales of our products,
our present product liability insurance may be inadequate. A successful product
liability claim in excess of our insurance coverage could have a material
adverse effect on our business, financial condition and results of operations.
Any successful product liability claim may prevent us from obtaining adequate
product liability insurance in the future on commercially desirable or
reasonable terms. In addition, product liability coverage may cease 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 our pharmaceutical products. A product liability claim or
recall would have a material adverse effect on our reputation, business,
financial condition and results of operations.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS
In connection with our research and development activities and our
manufacture of materials and products, we are 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 we believe that we
have complied with the applicable laws, regulations and policies in all material
respects and have not been required to correct any material noncompliance, we
may be required to incur significant costs to comply with environmental and
health and safety regulations in the future. Our research and development
involves the controlled use of hazardous materials, including but not limited to
certain hazardous chemicals and radioactive materials. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of such an occurrence, we could be held liable for any damages that
result and any such liability could exceed our resources.
25
<PAGE> 27
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of
June 30, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard A. Miller, M.D................. 49 President, Chief Executive Officer and Director
Cynthia J. Ladd ....................... 45 Senior Vice President, General Counsel and Secretary
Marc L. Steuer ........................ 53 Senior Vice President, Business Development
Leiv Lea............................... 46 Vice President, Finance and Administration and
Chief Financial Officer
Hugo Madden, Ph.D. .................... 50 Vice President, Chemical Operations
Phyllis I. Gardner, M.D.(2) ........... 50 Director
Miles R. Gilburne(2) .................. 49 Director
Richard M. Levy, Ph.D.(1) ............. 62 Director
William R. Rohn(1) .................... 57 Director
Craig C. Taylor(1)(2).................. 49 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.
Ms. Ladd has served as Senior Vice President, General Counsel and
Secretary since May 2000. From 1989 to April 2000, she served in various legal
positions with Genentech, Inc., most recently as Vice President, Corporate Law.
Ms. Ladd received a B.S. degree in Animal Science from the Pennsylvania State
University, an M.S. degree in animal nutrition/biochemistry from Cornell
University and a law degree from Stanford University.
Mr. Steuer has served as Senior Vice President, Business Development
since December 1998. Prior to that, Mr. Steuer served as Senior Vice President,
Business Development and Chief Financial Officer from May 1998 to December 1998.
Prior to that, Mr. Steuer served as Vice President, Business Development and
Chief Financial Officer from November 1994 to May 1998. 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. 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.
Mr. Lea has served as Vice President, Finance and Administration and
Chief Financial Officer since December 1998. Prior to that, Mr. Lea served as
Vice President, Finance and Administration from December 1997 to December 1998.
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.
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.
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<PAGE> 28
Dr. Gardner was elected as a Director of the Company in June 1999. She
is currently the Senior Associate Dean for Education and Associate Professor of
Molecular Pharmacology and Medicine at Stanford University School of Medicine,
where she has been a faculty member since 1984. From 1996 to 1998, she was the
vice president of research and head of ALZA Technology Institute of ALZA
Corporation in Palo Alto, California. Dr. Gardner received her M.D. from Harvard
Medical School in 1976.
Mr. Gilburne was elected as a Director of the Company in March 2000. Mr.
Gilburne is currently a partner in CGLS, an early stage venture capital fund
focused on the life sciences. From January 1995 through January 2000, he was
Senior Vice President, Corporate Development for America Online, Inc., an
internet services company. He is currently a member of the board of directors of
America Online and also serves on the board of America Online Latin America, a
publicly traded subsidiary of America Online. Prior to joining America Online,
Mr. Gilburne was a founding partner of the Silicon Valley office of the law firm
of Weil, Gotshal and Manges and a founding partner of the Cole Gilburne Fund, an
early stage venture capital fund focused on information technology. Mr. Gilburne
received an A.B. degree from Princeton University and a law degree from the
Harvard Law School.
Dr. Levy was elected as a Director of the Company in June 2000. He is
currently President and Chief Executive Officer and a director of Varian Medical
Systems, Inc., a medical equipment company, which he joined in 1968. Dr. Levy
holds a B.S. degree from Dartmouth College and a Ph.D. in nuclear chemistry from
the University of California at Berkeley.
Mr. Rohn was elected as a Director of the Company in March 2000. He is
the Chief Operating Officer of IDEC Pharmaceuticals Corporation, a
biopharmaceutical company , which he joined in 1993. From 1984 to 1993, he was
employed by Adria Laboratories, most recently as Senior Vice President of Sales
and Marketing. Mr. Rohn received a B.A. in Marketing from Michigan State
University.
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 Alloy Ventures, Inc., a venture management firm which
succeeded Asset Management Company, the prior management firm for the Asset
Management funds, since 1998. Mr. Taylor had been with Asset Management Company
from 1977 to 1998. Mr. Taylor is a Director of 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.
27
<PAGE> 29
ITEM 2. PROPERTIES
Our corporate offices are located in Sunnyvale, California, where we
lease approximately 58,000 square feet under two leases that expire in December
2003 and January 2004. These facilities include administrative and research and
development space. Both leases are non-cancelable operating leases. We believe
that our existing facilities are adequate to meet our current and foreseeable
needs or that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
28
<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading publicly on the Nasdaq National Market on
October 24, 1995 and is traded under the symbol "PCYC." Prior to that date,
there was no public market for our common stock. The following table sets forth
for the periods indicated the high and low sales prices of the common stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL YEAR ENDED JUNE 30, 1999
<S> <C> <C>
First Quarter................................ $ 24.00 $ 12.75
Second Quarter............................... 26.00 10.63
Third Quarter................................ 27.25 14.38
Fourth Quarter............................... 29.00 13.38
FISCAL YEAR ENDED JUNE 30, 2000
First Quarter................................ $ 48.00 $23.88
Second Quarter............................... 49.00 28.50
Third Quarter................................ 86.38 35.00
Fourth Quarter............................... 66.88 28.00
</TABLE>
As of August 31, 2000, there were 110 holders of record of our common
stock. We currently anticipate that we will retain all future earnings for use
in our business and do not anticipate paying any cash dividends in the
foreseeable future.
29
<PAGE> 31
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.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
------------------------------------------------------------------- THROUGH
1996 1997 1998 1999 2000 JUNE 30, 2000
------- -------- -------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License, milestone and grant
revenues ........................ $ 301 $ 25 $ 2,700 $ 750 $ 1,000 $ 7,855
Contract revenue .................. -- -- 831 1,291 604 2,726
------- -------- -------- -------- -------- ---------
Total revenues ................ 301 25 3,531 2,041 1,604 10,581
------- -------- -------- -------- -------- ---------
Operating expenses:
Research and development .......... 7,641 9,632 13,973 21,889 28,590 101,612
General and administrative ........ 1,515 1,905 1,987 2,762 4,409 15,233
------- -------- -------- -------- -------- ---------
Total operating expenses ...... 9,156 11,537 15,960 24,651 32,999 116,845
------- -------- -------- -------- -------- ---------
Loss from operations ................ (8,855) (11,512) (12,429) (22,610) (31,395) (106,264)
Interest income ..................... 940 1,480 2,826 3,398 7,778 16,943
Interest expense .................... (320) (226) (72) (34) (13) (1,345)
------- -------- -------- -------- -------- ---------
Loss before income taxes ............ (8,235) (10,258) (9,675) (19,246) (23,630) (90,666)
Provision for income taxes .......... -- -- -- -- -- (101)
------- -------- -------- -------- -------- ---------
Net loss ............................ $(8,235) $(10,258) $ (9,675) $(19,246) $(23,630) $ (90,767)
======= ======== ======== ======== ======== =========
Basic and diluted net
loss per share(1)................. $ (1.35) $ (1.11) $ (0.87) $ (1.55) $ (1.60)
======= ======== ======== ======== ========
Shares used to compute basic and
diluted net loss per share(1) ..... 6,106 9,264 11,061 12,378 14,723
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments................... $ 22,003 $ 30,827 $ 36,645 $ 45,025 $ 108,710
Long-term investments ..................... -- 6,103 33,736 4,980 69,537
Total assets .............................. 25,015 39,707 73,019 55,557 185,123
Capital lease obligations ................. 1,858 1,298 530 275 59
Deficit accumulated during
development stage ....................... (27,958) (38,216) (47,891) (67,137) (90,767)
Total stockholders' equity (deficit) ...... (21,991) 36,696 68,641 49,957 181,414
</TABLE>
----------
(1) See Note 1 to the financial statements for a description of the
computation of basic and diluted net loss per share.
30
<PAGE> 32
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 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
any future performance suggested in this report as a result of the factors,
including those discussed in "Risk Factors," elsewhere in this report.
OVERVIEW
Pharmacyclics is a pharmaceutical company focused on the development of
products that improve existing therapeutic approaches to cancer, atherosclerosis
and retinal disease. We are conducting a multicenter international Phase III
clinical trial of XCYTRIN(R) to improve the efficacy of radiation therapy of
tumors that have spread to the brain resulting from a variety of cancers,
including those of the lung and breast. We are conducting a Phase IIb clinical
trial for LUTRIN(R) as a photosensitizer for use in the photodynamic therapy of
patients with recurrent breast cancers to the chest wall that have failed
standard therapies. Through our Cooperative Research and Development Agreement,
the National Cancer Institute is conducting Phase I trials of XCYTRIN for
treatment of both primary and pediatric brain tumors, pancreatic cancer and lung
cancer. The National Cancer Institute also intends to conduct several additional
Phase I clinical trials of XCYTRIN and LUTRIN, each for a variety of additional
cancer indications. We are now conducting a multicenter randomized Phase II
clinical trial with ANTRIN(R) for treatment of patients with peripheral arterial
disease and a Phase I trial for treatment of coronary artery disease. In
addition, Alcon is conducting a Phase II clinical trial with OPTRIN(TM) for the
photodynamic therapy of patients with a degenerative disease of the retina
caused by growths of small blood vessels in the retina known as age-related
macular degeneration. Alcon is conducting this trial under a 1997 evaluation and
license agreement that gave Alcon the right to conduct worldwide development,
marketing and sales of OPTRIN for ophthalmology indications. Also in 1997, we
entered into a collaborative agreement with Nycomed to sell and market LUTRIN
for cancer therapy outside the United States, Canada and Japan.
To date, we have devoted substantially all of our resources to research
and development. We have not derived any commercial revenues from product sales,
and we do not expect to receive product revenues for at least the next several
years. We have incurred significant operating losses since our inception in 1991
and, as of June 30, 2000, had an accumulated deficit of approximately $90.8
million. We expect to continue to incur significant operating losses over the
next several years as we continue to incur increasing research and development
costs, in addition to costs related to clinical trials and manufacturing
activities. We expect that losses will fluctuate from quarter to quarter and
that such fluctuations may be substantial. Our achieving profitability depends
upon our ability, alone or with others, to successfully complete the development
of our products under development, and obtain required regulatory clearances and
successfully manufacture and market our products. See "Risk Factors -- All of
our product candidates are in development and we cannot be certain that any of
our products under development will be commercialized," "-- Acceptance of our
products in the marketplace is uncertain and failure to achieve market
acceptance will harm our business," "-- We have a history of operating losses
and we expect to continue to have losses in the future" "-- Failure to obtain
product approvals or comply with ongoing governmental regulations could
adversely affect our business" and "-- Our capital requirements are uncertain
and we may have difficulty raising needed capital in the future."
RESULTS OF OPERATIONS
Comparison of Years Ended June 30, 2000, 1999 and 1998
Revenues. Our revenues for the years ended June 30, 2000, 1999 and 1998
were $1,604,000, $2,041,000 and $3,531,000, respectively. Revenues for the year
ended June 30, 2000 resulted from a milestone payment from Alcon and contract
revenue from Nycomed. Revenues for the year ended June 30, 1999 resulted
primarily from a milestone payment from Alcon and contract revenue from Nycomed
and Alcon. Revenues for the year ended June 30, 1998 consisted primarily of
$2,700,000 in license revenue and $831,000 in contract revenue associated with
the Nycomed and Alcon agreements.
31
<PAGE> 33
Research and Development Expenses. Research and development expenses
were $28,590,000 for the year ended June 30, 2000 compared to $21,889,000 for
the year ended June 30, 1999 and $13,973,000 for the year ended June 30, 1998.
Expenses in fiscal 2000 were reduced by a credit of $3,540,000 associated with
the termination of our manufacturing development and supply agreement with
Celanese, Ltd. Pursuant to the termination agreement, Celanese assigned to us
all rights, title and interest in the manufacturing technology and intellectual
property for our texaphyrin-based products and made a cash payment to us of
$750,000. The termination agreement also relieved us of all obligations to pay
Celanese for shared development costs incurred prior to termination of the
manufacturing development and supply agreement. As of June 30, 1999, we had
accrued $2,790,000 associated with such costs. Excluding the impact of the
Celanese termination agreement, research and development expenses increased
$10,241,000 (47%) to $32,130,000 in fiscal 2000 as compared to fiscal 1999. This
increase was due primarily to increased clinical trial costs, greater drug
purchases and greater personnel costs associated with increased clinical
development activity related to Xcytrin and Antrin. Research and development
expenses incurred in connection with research and development contracts were
$1,725,000 for the year ended June 30, 2000 compared to $3,150,000 for the year
ended June 30, 1999 and $2,200,000 for the year ended June 30, 1998. We expect
research and development expenses to increase in fiscal 2001 as we continue
development of our products. The $7,916,000 (57%) increase in research and
development expenses from fiscal 1998 to 1999 was due primarily to increased
clinical trial costs, greater drug purchases for use in clinical trials and
greater personnel costs.
General and Administrative Expenses. General and administrative expenses
for the years ended June 30, 2000, 1999 and 1998 were $4,409,000, $2,762,000 and
$1,987,000, respectively. The $1,647,000 (60%) increase for fiscal 2000 compared
to fiscal 1999 primarily resulted from higher personnel costs related to
increased headcount to support greater clinical development activities and
higher facility costs due to leasing additional office space. The $775,000 (39%)
increase for fiscal 1999 compared to fiscal 1998 primarily resulted from
increases in personnel and related expenses and costs associated with hiring new
employees. We expect general and administrative expenses to increase in fiscal
2001 to support increased development activities.
Interest Income, Net of Interest Expense. Interest income, net of
interest expense, was $7,765,000, $3,364,000 and $2,754,000 for the years ended
June 30, 2000, 1999 and 1998, respectively. The increase in each of fiscal 2000
and fiscal 1999 was primarily the result of interest earned on higher average
cash balances from sales of common stock in both years. Our cash equivalents and
investments consist primarily of fixed rate instruments.
Income Taxes. At June 30, 2000, we had net operating loss carryforwards
of approximately $87.4 million for federal income tax reporting purposes and tax
credit carryforwards of approximately $3.8 million for federal reporting
purposes. These amounts expire at various times through 2020. As a result of
ownership changes that have occurred during the past four fiscal years, we
believe that utilization of our net operating loss and tax credit carryforwards
is subject to annual limitations. 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. See Note 5
of "Notes to Financial Statements."
Recent Accounting Pronouncements. In March 2000, the Financial
Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation-an Interpretation of APB Opinion No.
25" ("FIN 44"). FIN 44 clarifies the definition of an employee for
the purpose of applying Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is generally effective July 1, 2000. The Company believes
that FIN 44 will not have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 requires that license and other upfront fees received from
research collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earning process. The Company will adopt SAB 101,
as amended, during fiscal 2001 and does not expect such adoption to have a
material effect on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In July 1999, the FASB
32
<PAGE> 34
issued Statement of Financial Accounting Standards No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of
SFAS 133 until fiscal years beginning after June 15, 2000. The Company believes
that SFAS No. 133 will not have a material effect on its financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of working capital have been primarily private and
public equity financings and proceeds from collaborative research and
development agreements, as well as grant revenues, interest income and property
and equipment financings. Since inception, we have used approximately
$83,984,000 of cash for operating activities and approximately $9,417,000 of
cash for the purchase of laboratory and office equipment and payments under
capital lease agreements.
As of June 30, 2000, we had approximately $178,247,000 in cash, cash
equivalents and investments. Net cash used in operating activities was
$24,767,000, $17,243,000 and $6,545,000 for the years ended June 30, 2000, 1999
and 1998, respectively, and resulted primarily from operating losses adjusted
for non-cash expenses and changes in accounts payable and prepaid expenses and
other assets.
Net cash used in investing activities was $90,831,000 in the year ended
June 30, 2000 and consisted primarily of purchases of marketable securities and
property and equipment, partially offset by proceeds from maturities of
marketable securities. Net cash provided by investing activities was $7,414,000
in the year ended June 30, 1999 and consisted primarily of proceeds from the
sale of investments, partially offset by purchases of investments and property
and equipment. Net cash used in investing activities was $36,629,000 in the year
ended June 30, 1998 and consisted primarily of net purchases of investments.
In March 2000, we sold 820,000 shares of our common stock through a
private placement at a price of $73.25 per share resulting in net cash proceeds
to us of approximately $57,600,000. In September and October 1999, we sold a
total of 2,645,000 shares of our common stock at $38.75 per share resulting in
net cash proceeds to us of approximately $96,100,000. In February 1998, we sold
2,012,500 shares of our common stock at a price of 21.75 per share resulting in
net cash proceeds to us of approximately $40,800,000.
Based upon the current status of our product development and
commercialization plans, we believe that our existing cash, cash equivalents and
investments, will be adequate to satisfy our capital needs through at least the
calendar year 2001. However, our 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 our ability to market and distribute our products and
establish new collaborative and licensing arrangements. At June 30, 2000 we had
approximately $2,700,000 in cancelable purchase commitments with two suppliers
of drug components and final bulk drug substance.
Our forecast of the period of time through which our financial resources
will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary materially. The
factors described above will impact our future capital requirements and the
adequacy of our available funds. We may be required to raise additional funds
through public or private financings, collaborative relationships or other
arrangements. We cannot be certain that such additional funding, if needed, will
be available on terms attractive to us, 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 us to relinquish rights to
certain of our technologies, products or marketing territories. Our failure to
raise capital when needed could have a material adverse effect on our business,
financial condition and results of operations. See "Risk Factors -- Risks
Related to Pharmacyclics -- Our capital requirements are uncertain and we may
have difficulty raising capital in the future."
33
<PAGE> 35
IMPACT OF YEAR 2000
In prior years, we implemented a Year 2000 project to address the issue
of computer software and hardware correctly processing dates through and beyond
the Year 2000. The goal of this project was to ensure that all computer software
and hardware that we use or rely upon is retired, replaced or made Year 2000
compliant before December 31, 1999. To date, we have not experienced any Year
2000-related operational issues and are not aware of any material potential
problems that may arise as a result of Year 2000 issues either from our own
internal systems or from the products and services of third parties upon which
we rely.
We expensed external and internal costs specifically associated with
addressing Year 2000 issues as incurred. The total cost of our Year 2000
compliance efforts was not material to our financial condition or results of
operations. We will continue to monitor our business-critical computer
applications and those of our suppliers and vendors throughout the Year 2000 to
ensure that any latent Year 2000 problems that may arise are promptly addressed.
MARKET RISK
Our cash and cash equivalents, investments and capital lease obligations
are comprised primarily of short-term fixed rate instruments. Accordingly, we
are not subject to interest rate risk to any significant degree.
One of our cancelable drug supply agreements is denominated in a foreign
currency. We have not entered into any agreements or transactions to hedge the
risk associated with potential fluctuations in currencies; accordingly, we are
subject to foreign currency exchange risk related to this contract. While we may
enter into hedge or other agreements in the future to actively manage this risk,
we do not believe this risk is material to our financial statements.
34
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................................... 36
Balance Sheets...................................................................... 37
Statements of Operations............................................................ 38
Statements of Cash Flows............................................................ 39
Statements of Stockholders' Equity (Deficit)........................................ 40
Notes to Financial Statements....................................................... 43
</TABLE>
35
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Pharmacyclics, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of cash flows and of stockholders' equity (deficit)
present fairly, in all material respects, the financial position of
Pharmacyclics, Inc. (a development stage company) at June 30, 2000 and 1999, and
the results of its operations and its cash flows for each of the three years in
the period ended June 30, 2000, and for the period from inception (April 1991)
through June 30, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America 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 14, 2000
36
<PAGE> 38
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 43,536 $ 3,930
Short-term marketable investments ............................................. 65,174 41,095
Accounts and other receivables ................................................ 15 309
Prepaid expenses and other current assets ..................................... 2,925 1,930
--------- ---------
Total current assets .................................................. 111,650 47,264
Long-term marketable investments ................................................ 69,537 4,980
Property and equipment, net ..................................................... 3,796 3,228
Other assets .................................................................... 140 85
--------- ---------
$ 185,123 $ 55,557
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 2,851 $ 4,563
Accrued liabilities ........................................................... 764 747
Current portion of capital lease obligations .................................. 59 216
--------- ---------
Total current liabilities ............................................. 3,674 5,526
Capital lease obligations ....................................................... -- 59
Deferred rent ................................................................... 35 15
--------- ---------
Total liabilities ..................................................... 3,709 5,600
--------- ---------
Commitments (Note 6)
Stockholders' equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized at
June 30, 2000 and 1999; no shares issued and outstanding ................... -- --
Common stock, $0.0001 par value; 24,000,000 shares authorized at June
30, 2000 and 1999; shares issued and outstanding -- 16,007,456 at June
30, 2000 and 12,428,871 at June 30, 1999 ................................... 2 1
Additional paid-in capital .................................................... 272,685 117,178
Accumulated other comprehensive (loss) ........................................ (506) (85)
Deficit accumulated during development stage .................................. (90,767) (67,137)
--------- ---------
Total stockholders' equity ............................................ 181,414 49,957
--------- ---------
$ 185,123 $ 55,557
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 39
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
-------------------------------------- THROUGH JUNE 30,
2000 1999 1998 2000
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License and milestone revenues......... $ 1,000 $ 750 $ 2,700 $ 7,855
Contract revenue ...................... 604 1,291 831 2,726
-------- -------- -------- ---------
Total revenues ................ 1,604 2,041 3,531 10,581
-------- -------- -------- ---------
Operating expenses:
Research and development .............. 28,590 21,889 13,973 101,612
General and administrative ............ 4,409 2,762 1,987 15,233
-------- -------- -------- ---------
Total operating expenses ...... 32,999 24,651 15,960 116,845
-------- -------- -------- ---------
Loss from operations .................... (31,395) (22,610) (12,429) (106,264)
Interest income ......................... 7,778 3,398 2,826 16,943
Interest expense ........................ (13) (34) (72) (1,345)
-------- -------- -------- ---------
Loss before income taxes ................ (23,630) (19,246) (9,675) (90,666)
Provision for income taxes .............. -- -- -- (101)
-------- -------- -------- ---------
Net loss ................................ $(23,630) $(19,246) $ (9,675) $ (90,767)
======== ======== ======== =========
Basic and diluted net loss per share .... $ (1.60) $ (1.55) $ (0.87)
======== ======== ========
Shares used to compute basic
and diluted net loss per share .......... 14,723 12,378 11,061
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 40
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
--------------------------------------- THROUGH JUNE 30,
2000 1999 1998 2000
--------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (23,630) $(19,246) $ (9,675) $ (90,767)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 1,194 909 828 5,487
Stock compensation expense ...................... 88 89 91 420
Write-down of fixed assets ...................... 12 -- 188 318
Other ........................................... -- -- -- (12)
Changes in assets and liabilities:
Accounts and other receivables ................ 294 (143) (166) (15)
Prepaid expenses and other assets ............. (1,050) (329) 54 (3,065)
Accounts payable .............................. (1,712) 1,186 2,054 2,851
Accrued liabilities ........................... 17 315 121 764
Deferred rent ................................. 20 (24) (40) 35
--------- -------- -------- ---------
Net cash used in operating activities ...... (24,767) (17,243) (6,545) (83,984)
--------- -------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment ................. (1,774) (1,884) (765) (5,820)
Proceeds from sale of property and equipment ....... -- -- -- 112
Purchases of marketable investments ................ (145,808) (21,835) (60,136) (253,722)
Proceeds from maturities of marketable
investments ...................................... 56,751 31,133 24,272 118,505
--------- -------- -------- ---------
Net cash provided by
(used in) investing activities ........... (90,831) 7,414 (36,629) (140,925)
--------- -------- -------- ---------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs .... 155,420 558 41,529 248,753
Proceeds from notes payable ........................ -- -- -- 3,000
Issuance of convertible preferred stock, net of
issuance costs ................................... -- -- -- 20,514
Payments under capital lease obligations ........... (216) (255) (768) (3,822)
--------- -------- -------- ---------
Net cash provided by financing
activities ............................... 155,204 303 40,761 268,445
--------- -------- -------- ---------
Increase (decrease) in cash and cash equivalents ..... 39,606 (9,526) (2,413) 43,536
Cash and cash equivalents at beginning of period ..... 3,930 13,456 15,869 --
--------- -------- -------- ---------
Cash and cash equivalents at end of period ........... $ 43,536 $ 3,930 $ 13,456 $ 43,536
========= ======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid .................................. $ -- $ -- $ -- $ 101
Interest paid ...................................... 13 34 72 1,263
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital lease
obligations ...................................... -- -- -- 3,881
Warrants issued .................................... -- -- -- 49
Conversion of notes payable and accrued interest
into convertible preferred stock ................. -- -- -- 3,051
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE> 41
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER DURING
--------------------- -------------------- PAID-IN COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
---------- -------- ---------- ------- ---------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash at
$0.02 per share ....................... -- $ -- 400,000 $ -- $ 6 $ -- $ -- $ 6
---------- -------- --------- ------- ------- ------ -------- -------
Balance at June 30, 1991 ................ -- -- 400,000 -- 6 -- -- 6
Issuance of common stock for cash at an
average price of $0.02 per share ...... -- -- 97,111 -- 2 -- -- 2
Issuance of convertible preferred stock
for cash, net of issuance costs, at
an average price of $1.32 per share ... 2,040,784 -- -- -- 2,667 -- -- 2,667
Net loss ................................ -- -- -- -- -- -- (523) (523)
---------- -------- --------- ------- ------- ------ -------- -------
Balance at June 30, 1992 ................ 2,040,784 -- 497,111 -- 2,675 -- (523) 2,152
Issuance of common stock for cash at an
average price of $0.06 per share ...... -- -- 49,000 -- 3 -- -- 3
Issuance of convertible preferred stock
for cash, net of issuance costs, at
$4.88 per share ....................... 1,580,095 -- -- -- 7,674 -- -- 7,674
Net loss ................................ -- -- -- -- -- -- (3,580) (3,580)
---------- -------- --------- ------- ------- ------ -------- -------
Balance at June 30, 1993 ................ 3,620,879 -- 546,111 -- 10,352 -- (4,103) 6,249
Issuance of common stock upon exercise
of stock options at an average price
of $0.12 per share .................... -- -- 324,188 -- 38 -- -- 38
Issuance of convertible preferred stock
for cash, net of issuance costs, at
an average price of $8.63 per share ... 886,960 -- -- -- 7,623 -- -- 7,623
Net loss ................................ -- -- -- -- -- -- (5,141) (5,141)
---------- -------- --------- ------- ------- ------ -------- -------
Balance at June 30, 1994 ................ 4,507,839 -- 870,299 -- 18,013 -- (9,244) 8,769
Issuance of common stock upon exercise
of stock options at an average price
of $0.24 per share .................... -- -- 38,403 -- 9 -- -- 9
Issuance of warrants .................... -- -- -- -- 49 -- -- 49
Net loss ................................ -- -- -- -- -- -- (10,479) (10,479)
---------- -------- --------- ------- ------- ------ -------- -------
Balance at June 30, 1995 ................ 4,507,839 -- 908,702 -- 18,071 -- (19,723) (1,652)
Issuance of convertible preferred stock
for notes payable and accrued interest
at an average of $8.63 per share ...... 353,483 -- -- -- 3,051 -- -- 3,051
Issuance of convertible preferred stock
for cash, net of issuance costs, at an
average price of $8.63 per share ....... 295,649 -- -- -- 2,550 -- -- 2,550
Issuance of common stock upon initial
public offering, net of issuance
costs, for cash at $12 per share ....... -- -- 2,383,450 1 26,042 -- -- 26,043
Conversion of convertible preferred stock
into common stock ...................... (5,156,971) -- 5,156,971 -- -- -- -- --
Issuance of common stock upon exercise of
stock options at an average exercise
price of $1.33 per share ............... -- -- 91,922 -- 122 -- -- 122
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 42
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER DURING
--------------------- -------------------- PAID-IN COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
---------- -------- ---------- ------- ---------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of purchase rights at an
exercise price of $10.20 per
share ............................... -- $ -- 8,379 $-- $ 86 $ -- $ -- $ 86
Stock compensation expense ............ -- -- 26 -- -- 26
Net loss .............................. -- -- -- -- -- -- (8,235) (8,235)
------- ----- ---------- ----- -------- ------ ------- --------
Balance at June 30, 1996 .............. -- -- 8,549,424 1 49,948 -- (27,958) 21,991
Issuance of common stock, net of
issuance costs, for cash at an
average price of $16.93 per share ... -- -- 1,442,190 -- 24,420 -- -- 24,420
Issuance of common stock upon exercise
of stock options at an average price
of $2.74 per share .................. -- -- 96,283 -- 264 -- -- 264
Issuance of common stock upon exercise
of purchase rights at an exercise
price of $10.51 per share ........... -- -- 14,557 -- 153 -- -- 153
Stock compensation expense ............ -- -- -- -- 126 -- -- 126
Net loss .............................. -- -- -- -- -- -- (10,258) (10,258)
------- ----- ---------- ----- -------- ------ ------- --------
Balance at June 30, 1997 .............. -- -- 10,102,454 1 74,911 -- (38,216) 36,696
Issuance of common stock, net of
issuance costs, for cash at $21.75
per share ........................... -- -- 2,012,500 -- 40,796 -- -- 40,796
Issuance of common stock upon exercise
of stock options at an average
price of $6.57 per share ............ -- -- 88,933 -- 584 -- -- 584
Issuance of common stock upon exercise
of purchase rights at an exercise
price of $14.36 per share ........... -- -- 10,372 -- 149 -- -- 149
Issuance of common stock upon exercise
of warrants ......................... -- -- 80,033 -- -- -- -- --
Stock compensation expense ............ -- -- -- -- 91 -- -- 91
Net loss .............................. -- -- -- -- -- -- (9,675) (9,675)
------- ----- ---------- ----- -------- ------ ------- --------
Balance at June 30, 1998 .............. -- -- 12,294,292 1 116,531 -- (47,891) 68,641
Issuance of common stock upon exercise
of stock options at an average price
of $5.10 per share .................. -- -- 75,275 -- 384 -- -- 384
Issuance of common stock upon exercise
of purchase rights at an exercise
price of $12.77 per share ........... -- -- 13,643 -- 174 -- -- 174
Issuance of common stock upon exercise
of warrants ......................... -- -- 45,661 -- -- -- -- --
Stock compensation expense ............ -- -- -- -- 89 -- -- 89
Comprehensive (loss):
Change in unrealized loss on
investments ......................... -- -- -- -- -- (85) -- (85)
Net loss .............................. -- -- -- -- -- -- (19,246) (19,246)
------- ----- ---------- ----- -------- ------ ------- --------
Balance at June 30, 1999 .............. -- -- 12,428,871 1 117,178 (85) (67,137) 49,957
Issuance of common stock upon exercise
of stock options at an average price
of $13.88 per share ................. -- -- 102,372 -- 1,421 -- -- 1,421
Issuance of common stock upon exercise
of purchase rights at an exercise
price of $25.62 per share ........... -- -- 11,213 -- 287 -- -- 287
Issuance of common stock, net of
issuance costs, for cash at an
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 43
<TABLE>
<CAPTION>
DEFICIT
CONVERTIBLE ACCUMULATED ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER DURING
-------------------- -------------------- PAID-IN COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
-------- -------- ---------- ------- ---------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
average price of $44.36 per share ..... -- $ -- 3,465,000 $ 1 $ 153,711 $ -- $ -- $153,712
Stock compensation expense .............. -- -- -- -- 88 -- -- 88
Comprehensive (loss):
Change in unrealized loss on
investments ......................... -- -- -- -- -- (421) -- (421)
Net loss ................................ -- -- -- -- -- -- (23,630) (23,630)
------ ------ ---------- ---- --------- ------- -------- --------
Balance at June 30, 2000 ................ -- $ -- 16,007,456 $ 2 $ 272,685 $ (506) $(90,767) $181,414
====== ====== ========== ==== ========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 44
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 1991
and commenced operations during 1992 to develop and market pharmaceutical
products to improve upon current therapeutic approaches to the treatment of
cancer, atherosclerosis and retinal disease. Since inception, the company has
been in the development stage, principally involved in research and development
and other business planning activities, with no commercial 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 operates in one business segment.
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
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).
Options and warrants to purchase 2,548,634, 1,981,701 and 1,665,510 shares of
common stock were outstanding at June 30, 2000, 1999 and 1998, respectively, but
have been excluded from the computation of dilutive net loss per share because
their effect is anti-dilutive.
Cash equivalents and investments
All highly liquid investments purchased with an original maturity date
of three months or less are considered to be cash equivalents. The company has
classified all its investments as "available-for-sale." For all periods
presented, the cost of these investments approximates their fair market value.
Unrealized gains and losses are included in other comprehensive income (loss) .
Gains and losses on securities sold are recorded based on the specific
identification method and are included in the results of operations.
43
<PAGE> 45
The company's cash, cash equivalents and investments consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
INVESTMENT TYPE 2000 1999
--------------- ------- -------
<S> <C> <C>
Cash in bank ............................. $ 246 $ 320
Money market ............................. 23,810 3,610
Debt (state or political subdivision) .... 7,000 --
Debt (corporate) ......................... 12,480 --
------- -------
Cash and cash equivalents .............. $43,536 $ 3,930
======= =======
Debt (state or political subdivision) .... $14,949 $ 2,000
Certificates of deposit .................. 1,000 --
Debt (corporate) ......................... 49,225 39,095
------- -------
Short-term marketable investments ...... $65,174 $41,095
======= =======
Debt (state or political subdivision) .... $ 2,000 $ 990
Debt (corporate) ......................... 67,537 3,990
------- -------
Long-term marketable investments ....... $69,537 $ 4,980
======= =======
</TABLE>
At June 30, 2000, the company's long-term marketable investments were
scheduled to mature at various dates through June 2002.
Concentration of credit risk
Financial instruments that potentially subject the company to credit
risk consist principally of cash, cash equivalents and investments. The company
places its cash, 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.
Long-lived assets
The company identifies and records impairment losses on long-lived
assets when events and circumstances indicate that the assets might be impaired.
No significant impairment losses have been recorded to date with respect to the
company's long-lived assets, which consist primarily of property and equipment
and leasehold improvements.
Revenue recognition
License and milestone payments are recognized as revenue when earned, as
evidenced by achievement of the specified milestones and the absence of any
on-going performance obligation. Contract revenue is recognized as earned,
primarily based on costs incurred to total estimated costs at completion,
pursuant to the terms of each agreement. License, milestone and grant revenues
are not subject to repayment. Any amounts received in advance of performance are
recorded as deferred revenue.
44
<PAGE> 46
Recent accounting pronouncements
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation-an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the definition of an employee for the purpose of applying Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," the
criteria for determining whether a plan qualifies as a noncompensatory plan, the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is generally effective
July 1, 2000. The Company believes that FIN 44 will not have a material effect
on its financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 requires that license and other upfront fees received from
research collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earning process. The Company will adopt SAB 101,
as amended, during fiscal 2001 and does not expect such adoption to have a
material effect on its financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In July 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS
137 deferred the effective date of SFAS 133 until fiscal years beginning after
June 15, 2000. The Company believes that SFAS No. 133 will not have a material
effect on its financial statements.
Inventories
The company has purchased certain components of its texaphyrin-based
drug substance that are expected to be available in the future to support the
commercial launch of its products currently under development. Until the
commercial viability of such products has been demonstrated and the necessary
regulatory approvals received, the company will continue to charge all such
amounts to research and development expense.
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 $1.7 million, $3.2 million and $2.2 million for the years ended June 30,
2000, 1999 and 1998, respectively.
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
accrued liabilities approximate fair value due to their short
45
<PAGE> 47
maturities. The carrying value of the company's capital lease obligations
approximate fair value based on borrowing rates currently available to the
company.
Stock-based compensation
The company accounts for employee 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 pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."
Reclassifications
Certain amounts have been reclassified in the accompanying financial
statements to conform to the fiscal 2000 presentation.
NOTE 2 -- AGREEMENTS:
University of Texas License. The company has entered into two exclusive
patent license agreements with The University of Texas which permit the company
to exclusively manufacture, use and sell products covered by patents that result
from certain research conducted by The University of Texas. Each agreement
requires the company to pay royalties to The University of Texas. Royalties
totaling $275,000 were paid under the agreements through June 30, 1997. No
royalties were paid during each of the years ended June 30, 2000, 1999 and 1998.
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(TM) photosensitizer for
ophthalmology uses. OPTRIN is a lutetium texaphyrin molecule being developed as
a photosensitizer for the use in photodynamic therapy of retinal degeneration.
Alcon will conduct and be responsible for all costs associated with its
worldwide development and regulatory submissions for ophthalmology uses 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 or with any successor third party
supplier; Alcon will be responsible for formulation and packaging of finished
products.
Nycomed Collaboration. In October 1997, the company entered into an
agreement with Nycomed Imaging A/S, in which Nycomed acquired exclusive sales
and marketing rights to LUTRIN(TM) photosensitizer for cancer treatments 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 as a combination of license
fees, a portion of the company's development costs, based upon an agreed budget,
and milestone payments related to the initial cancer treatments 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 treatments, if such treatments
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. 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.
46
<PAGE> 48
NOTE 3 -- BALANCE SHEET COMPONENTS:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
------- -------
<S> <C> <C>
Equipment ....................................................... $ 4,964 $ 4,008
Leasehold improvements .......................................... 2,853 2,688
Furniture and fixtures .......................................... 669 618
------- -------
8,486 7,314
Less accumulated depreciation and amortization .................. (4,690) (4,086)
------- -------
$ 3,796 $ 3,228
======= =======
</TABLE>
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
------- -------
<S> <C> <C>
Employee compensation ........................................... $ 664 $ 683
Other ........................................................... 100 64
------- -------
$ 764 $ 747
======= =======
</TABLE>
NOTE 4 -- STOCKHOLDERS' EQUITY:
Common stock
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. In September and October 1999, the company sold a total of
2,645,000 shares of its common stock at $38.75 per share resulting in net cash
proceeds of approximately $96.1 million. In March 2000, the company sold 820,000
shares of unregistered common stock to four purchasers in a private placement.
The shares were sold at $73.25 per share, which resulted in net proceeds of
approximately $57.6 million. The company filed a registration statement on Form
S-3 related to these shares, which was declared effective on April 11, 2000.
Preferred stock
As amended, the company's Certificate of Incorporation authorizes
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 company's Board of Directors 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.
47
<PAGE> 49
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.
Warrants
In connection with the company's initial public offering during 1995,
outstanding warrants to purchase shares of preferred stock 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 per share, resulting in the issuance of 80,033 shares of
common stock and the cancellation of warrants to purchase 44,465 shares of
common stock. In fiscal 1999, warrants for 45,661 shares were exercised. The
remaining 14,706 warrants are exercisable at $4.88 per share and expire during
2000. At June 30, 2000, the company has reserved 14,706 shares of common stock
for future issuance upon the exercise of the remaining outstanding warrants.
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 original cost per share, any unvested shares which
the optionee has purchased and holds in the event the optionee attempts to
dispose of such shares or in the event of the optionee's termination of
employment with or without cause. The company's right to repurchase lapses as
the shares become vested. Generally, shares subject to options granted under the
1992 Plan vest at the rate of 1/4th of the shares on the first anniversary of
the grant date of the option, and an additional 1/48th of the shares upon
completion of each succeeding month of continuous employment thereafter. Options
are exercisable for a period of ten years.
48
<PAGE> 50
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 2,703,580 shares of
common stock. Beginning on January 1, 1996, the 1995 Plan also allows for an
annual increase to the number of shares available for issuance equal to 1% of
the number of shares of common stock outstanding on the last day of the
preceding calendar year, not to exceed 500,000 shares per year. Shares of common
stock subject to outstanding options, including options granted under the 1992
Plan, that expire or terminate prior to exercise will be available for future
issuance under the 1995 Plan.
Under the 1995 Plan, employees, 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.
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 196,667 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
49
<PAGE> 51
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.
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 PER SHARE
--------- ------ ---------------
<S> <C> <C> <C>
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
Authorized .................. 524 -- --
Exercised ................... -- (75) 5.10
Granted ..................... (671) 671 19.25
Canceled .................... 221 (221) 20.37
------ ------
Balance at June 30, 1999 .... 771 1,967 17.38
Authorized .................. 681 -- --
Exercised ................... -- (103) 13.88
Granted ..................... (723) 723 56.97
Canceled .................... 53 (53) 23.38
------ ------
Balance at June 30, 2000 .... 782 2,534 28.70
====== ======
</TABLE>
A summary of outstanding and vested stock options as of June 30, 2000 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 PER SHARE NUMBER PRICE PER SHARE
--------------- ------ ---------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
$0.08 - $5.25 119,295 4.20 $ 3.60 119,295 $ 3.60
7.50 - 17.63 776,554 6.88 13.85 395,325 11.60
17.75 - 24.25 653,930 7.37 20.53 340,735 19.94
26.13 - 48.94 391,106 8.27 29.67 102,981 28.10
51.63 - 66.13 488,293 9.93 58.10 1,817 58.86
72.63 - 78.13 104,750 9.69 77.71 917 78.13
--------- ---------
2,533,928 7.80 28.70 961,070 15.48
========= =========
</TABLE>
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% of the fair 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 2000, 1999 and 1998 were 11,213, 13,643
and 10,372 shares of common stock at an average price of $25.62, $12.77 and
$14.36 per share, respectively. Shares available for future purchase under the
Purchase Plan are 41,836 at June 30, 2000. The Purchase Plan will terminate in
October 2005.
50
<PAGE> 52
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
2000, 1999 and 1998 was $40.84, $13.74 and $15.54 per share, respectively. The
weighted average estimated grant date fair value of purchase awards under the
company's Purchase Plan during fiscal 2000, 1999 and 1998 was $18.06, $13.46 and
$6.85, respectively. The estimated grant date fair value is calculated using the
Black-Scholes valuation model.
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,
-----------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Stock option plans:
Expected dividend yield ................ 0% 0% 0%
Expected stock price volatility ........ 81% 86% 60%
Risk free interest rate ................ 6.37% 5.15% 5.66%
Expected life (years) .................. 5.61 5.10 6.05
Stock purchase plan:
Expected dividend yield ................ 0% 0% 0%
Expected stock price volatility ........ 81% 86% 60%
Risk free interest rate ................ 6.25% 4.68% 5.28%
Expected life (years) .................. 2.00 1.28 1.45
</TABLE>
Pro forma net loss and net loss per share
Had the company recorded compensation cost 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,
--------------------------------------------
2000 1999 1998
---------- ---------- ----------
Net loss:
<S> <C> <C> <C>
As reported ............ $ (23,630) $ (19,246) $ (9,675)
Pro forma .............. (29,060) (22,500) (12,085)
Net loss per share:
As reported ............ $ (1.60) $ (1.55) $ (0.87)
Pro forma .............. (1.97) (1.82) (1.09)
</TABLE>
The pro forma effect on the net loss and net loss per share for fiscal
2000, 1999 and 1998 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.
51
<PAGE> 53
NOTE 5 -- INCOME TAXES:
Deferred tax assets are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net operating loss carryforwards ...... $ 32,607 $ 22,830
Tax credit carryforwards .............. 5,291 3,666
Capitalized start-up costs ............ 637 501
Accounts payable and other ............ 595 1,537
-------- --------
Gross deferred tax assets ............. 39,130 28,534
Less valuation allowance .............. (39,130) (28,534)
-------- --------
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,
-----------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Tax benefit at statutory rate ............ $ 8,271 $ 6,736 $ 3,386
Net operating loss carryforward for
which no benefit was available.......... (8,271) (6,736) (3,386)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
At June 30, 2000, the company had federal and state net operating loss
carryforwards of approximately $87.4 million and $49.3 million, respectively,
and federal and state credit carryforwards of $3.8 million and $2.2 million,
respectively, available to offset future taxable income. These amounts expire at
various times through 2020.
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 four fiscal years, management believes that
utilization of the company's net operating loss and tax credit carryforwards is
subject to certain annual limitations.
52
<PAGE> 54
NOTE 6 -- COMMITMENTS:
The company leases its facilities under non-cancelable operating leases
that expire in fiscal 2004. 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,
-----------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Equipment .............................. $ 1,830 $ 2,273 $ 2,273
Leasehold improvements ................. 1,050 1,050 1,050
Furniture and fixtures ................. 238 278 278
------- ------- -------
3,118 3,601 3,601
Less accumulated depreciation and
amortization ......................... (2,807) (3,020) (2,590)
------- ------- -------
$ 311 $ 581 $ 1,011
======= ======= =======
</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>
2001 ................................................ $ 61 $ 906
2002 ................................................ -- 1,146
2003 ................................................ -- 1,436
2004 ................................................ -- 767
------ ------
61 $4,255
======
Less amount representing interest ................... (2)
------
59
Less current portion ................................ (59)
------
Long-term portion of capital lease obligations ...... $ --
======
</TABLE>
Rent expense for the years ended June 30, 2000, 1999 and 1998 was
$731,000, $457,000 and $366,000, respectively, and $3,000,000 for the period
from inception (April 1991) through June 30, 2000. The terms of the facility
leases 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, 2000.
At June 30, 2000, the company had approximately $2,700,000 in cancelable
purchase commitments from two suppliers of drug components and final bulk drug
substance.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
53
<PAGE> 55
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 7, 2000,
(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 "Executive Officers and Directors" on pages 26 through
27.
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.
54
<PAGE> 56
PART IV
ITEM 14. FINANCIAL STATEMENTS, 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
None.
(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)
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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)
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 Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)
10.22 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)
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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)
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 (Incorporated by reference to exhibit
of the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden (Incorporated by reference to exhibit of
the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)
10.42* Development and Supply Agreement dated June 16, 1998 entered into
between the Company and Abbott Laboratories Inc (Incorporated by
reference to exhibit of the same number to the Annual Report on
Form 10-K for the year ended June 30, 1999)
10.43 Termination Agreement, dated as of August 27, 1999, by and
between Registrant and Celanese, Ltd. (Incorporated by reference
to Exhibit 10.1 to an 8-K filed on September 3, 1999)
10.44* Master Development and Supply Agreement, dated March 20, 2000 by
and between Cook Imaging Corporation, D.B.A. Cook Pharmaceutical
Solutions, and the Registrant (Incorporated by reference to
Exhibit 10.1 to the Quarterly report on Form 10-Q for the quarter
ended March 31, 2000)
10.45 Employment agreement, dated March 23, 2000 by and between the
Company and Cynthia J. Ladd
23.1 Consent of Independent Accountants
24.1 Power of Attorney (see page 59)
27.1 Financial Data Schedule
</TABLE>
----------------
* Confidential treatment has been granted as to certain portions of this
agreement.
58
<PAGE> 60
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 22, 2000
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 Leiv
Lea, 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 them, 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 September 22, 2000
----------------------------------- Executive Officer and
Richard A. Miller, M.D. Director (Principal
Executive Officer)
/s/ LEIV LEA Vice President, Finance September 22, 2000
----------------------------------- and Administration and
Leiv Lea Chief Financial and
Accounting Officer
(Principal Accounting
Officer)
/s/ PHYLLIS I. GARDNER, M.D. Director September 22, 2000
-----------------------------------
Phyllis I. Gardner
/s/ MILES R. GILBURNE Director September 22, 2000
-----------------------------------
Miles R. Gilburne
/s/ RICHARD M. LEVY, PH.D. Director September 22, 2000
-----------------------------------
Richard M. Levy
/s/ WILLIAM R. ROHN Director September 22, 2000
-----------------------------------
William R. Rohn
/s/ CRAIG C. TAYLOR Director September 22, 2000
-----------------------------------
Craig C. Taylor
</TABLE>
59
<PAGE> 61
EXHIBIT INDEX
<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)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
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)
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 Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)
10.22 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)
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EXHIBIT
NUMBER DESCRIPTION
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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)
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 (Incorporated by reference to exhibit
of the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)
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<PAGE> 64
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EXHIBIT
NUMBER DESCRIPTION
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10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden (Incorporated by reference to exhibit of
the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)
10.42* Development and Supply Agreement dated June 16, 1998 entered into
between the Company and Abbott Laboratories Inc (Incorporated by
reference to exhibit of the same number to the Annual Report on
Form 10-K for the year ended June 30, 1999)
10.43 Termination Agreement, dated as of August 27, 1999, by and
between Registrant and Celanese, Ltd. (Incorporated by reference
to Exhibit 10.1 to an 8-K filed on September 3, 1999)
10.44* Master Development and Supply Agreement, dated March 20, 2000 by
and between Cook Imaging Corporation, D.B.A. Cook Pharmaceutical
Solutions, and the Registrant (Incorporated by reference to
Exhibit 10.1 to the Quarterly report on Form 10-Q for the quarter
ended March 31, 2000)
10.45 Employment agreement, dated March 23, 2000 by and between the
Company and Cynthia J. Ladd
23.1 Consent of Independent Accountants
24.1 Power of Attorney (see page 59)
27.1 Financial Data Schedule
</TABLE>
----------------
* Confidential treatment has been granted as to certain portions of this
agreement.
