Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND 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, 1996
[ ] 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)
DELAWARE 94-3148201
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
955 E. ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086-4521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 774-0330
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), 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 this Form 10-K or any amendments to
this Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of August 31, 1996, was approximately $42,949,500 based on the
Nasdaq National Market on such date. The number of outstanding shares of the
Registrant's Common Stock as of August 31, 1996 was 8,553,300.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into Part
III of this Form 10-K: the Proxy Statement for the Registrant's 1996 Annual
Meeting of Stockholders scheduled to be held on December 6, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 27
Item 3. Legal Proceedings........................................................... 27
Item 4. Submission of Matters to a Vote of Security-Holders......................... 27
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters........ 28
Item 6. Selected Financial Data..................................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 29
Item 8. Financial Statements and Supplementary Data................................. 32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.................................................................. 47
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 48
Item 11. Executive Compensation...................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 48
Item 13. Certain Relationships and Related Transactions.............................. 48
PART IV
Item 14. Financial Statements, Financial Statement Schedule, Exhibits and Reports on
Form 8-K.................................................................... 48
2
3
PART I
ITEM 1. BUSINESS
Pharmacyclics is developing patented pharmaceutical products designed to
improve radiation and chemotherapy of cancer, enable or improve the photodynamic
therapy of certain cancers and atherosclerotic cardiovascular disease, and
enhance certain diagnostic imaging techniques. These products address
significant market opportunities and are intended to enhance existing medical
procedures and improve the ability of physicians to treat or manage life
threatening and serious conditions. Such products are derived primarily from
Pharmacyclics' core technology in designing and synthesizing small molecules
called expanded porphyrins, which bind metals in a way that allows the resulting
molecule to capture and focus energy to perform specific therapeutic and
diagnostic functions.
The Company's proprietary expanded porphyrins, called "texaphyrins," are
small, ring-shaped molecules that localize in cancer cells and atherosclerotic
plaque where they can be exposed to forms of energy that activate the molecules
to eliminate diseased tissue. The physical and chemical characteristics of the
texaphyrin molecules are determined by the type of metal inserted into the ring
and the form of energy applied to activate the molecule. For example,
texaphyrins can be synthesized to focus and transform X-ray, chemical or light
energy into other forms of energy capable of producing localized destruction of
diseased tissue. This forms the basis for the use of texaphyrins as radiation
sensitizers, chemosensitizers and photosensitizers. One such molecule, Lutetium
Texaphyrin ("Lu-Tex"), is being developed as a photosensitizing agent for use in
photodynamic therapy, and a second, Gadolinium Texaphyrin ("Gd-Tex") is being
developed for use as a radiation sensitizer and chemosensitizer. Lu-Tex is in
multicenter Phase I clinical testing to evaluate its safety and efficacy in the
treatment of certain invasive cancers which are accessible to illumination by
externally applied light. Gd-Tex has completed Phase I testing and is now in a
multicenter Phase I/II clinical trial as a radiation sensitizer to improve the
efficacy and safety of radiation therapy of certain cancers. Gd-Tex also is
being developed to potentiate the activity of certain cancer chemotherapy drugs.
Based on the Company's unique metal binding expertise, it has developed
GADOLITE(R) Oral Suspension ("GADOLITE") for use as an oral contrast agent in
patients undergoing Magnetic Resonance Imaging ("MRI") of the abdomen or pelvis.
In September 1995, the Company submitted a New Drug Application ("NDA") with the
Food and Drug Administration ("FDA") for GADOLITE. In June 1996 the Company
filed an Marketing Authorization Application ("MAA") for GADOLITE with the
Medicines Control Agency ("MCA") in the United Kingdom.
The Company's strategy is to apply its core biometallic chemistry and
expanded porphyrin technology to develop a diverse product portfolio.
Pharmacyclics is leveraging its core technology and products by establishing
relationships with third parties intended to augment its research and
development activities and to provide manufacturing capacity and sales and
marketing capabilities. To date, the Company has retained worldwide marketing
rights for its therapeutic products. The Company also dedicates significant
resources to build and protect its intellectual property rights in the U.S. and
abroad.
ACHIEVEMENTS SINCE LAST FISCAL YEAR
- Completed IPO raising $28M.
- Completed Phase I clinical trial with Gd-Tex radiosensitizer.
- Initiated Multicenter Phase I/II clinical trial with Gd-Tex
radiosensitizer for brain metastases.
- Initiated Phase I clinical trial for Lu-Tex photosensitizer for cancer
treatment using photodynamic therapy.
- Filed MAA for GADOLITE MRI contrast agent in the United Kingdom.
- Finalized worldwide commercial supply agreement with Hoechst Celanese
Corporation ("HCC") for Gd-Tex and Lu-Tex.
3
4
MARKET OVERVIEW
CANCER
Cancers result from the uncontrolled proliferation of cells that invade
adjacent normal tissues and organs and interfere with their function. In some
cases, cancer cells become dislodged from their primary site and spread, or
metastasize, to other anatomic sites. Cancers can arise in almost any location
in the body. In the U.S., there are approximately 1.3 million new cases of
cancer per year and the incidence of cancer is increasing. Over seven million
people in the U.S. today have been diagnosed with cancer, resulting in estimated
annual direct and indirect medical costs of over $50 billion associated with the
management of cancer. Selection of appropriate therapy depends on careful
assessment of the size, location and existence of metastases of the tumor using
diagnostic imaging procedures such as computerized tomography ("CT") and MRI,
which may be further enhanced by the use of contrast agents.
Once the extent of disease has been determined, cancer therapy typically
includes some combination of surgery, radiation therapy or chemotherapy.
Unfortunately, many tumors are not controlled with surgery because of their
size, location or presence of metastases. In these cases, radiation therapy or
chemotherapy are frequently used. Radiation therapy is applied by physicians
specializing in radiation oncology. There are approximately 3,000 such
physicians based in 1,300 radiation treatment centers in the U.S. Chemotherapy
is usually prescribed by physicians who specialize in medical oncology and there
are about 6,000 such specialists in the U.S.
Chemotherapy and radiation therapy destroy both healthy and diseased cells
and cause serious side effects because their cytotoxic effects are not
adequately selective. Substantial research in cancer treatment has been directed
toward improving the efficacy of existing therapy while reducing toxicity, in
addition to searching for new treatment approaches.
Radiation Therapy for Cancer. Radiation therapy is administered to the
anatomic site where the tumor is located, known as the treatment field, while
adjacent normal tissues are shielded to minimize radiation toxicity, and is
usually given several times per week over a period of two to six weeks.
Irradiation of tissues generates free radicals and electrons (highly reactive
and short-lived molecules and particles) that attack intracellular molecules
such as DNA and lead to cell death. Treatment planning and definition of the
treatment field is highly dependent on imaging procedures which are required to
determine the location and size of the tumor and its relationship to adjacent
normal tissues.
Of the over one million newly-diagnosed cancer patients each year in the
U.S., an estimated 50% will be treated with radiation therapy as part of their
initial disease management. This includes patients with cancers of the lung,
breast, prostate, head and neck region and other anatomic sites. In addition,
approximately 150,000 patients with persistent or recurrent disease also will
receive radiation therapy. In total, approximately 700,000 patients receive
radiation therapy for cancer each year in the U.S. Depending on the complexity
and duration of treatment, a course of radiation therapy for cancer can cost
between $10,000 and $25,000. While there currently are no approved radiation
sensitizers, certain chemotherapy agents are frequently used off-label to
increase the effectiveness of radiation therapy. However, the use of
chemotherapy agents as radiation sensitizers is typically limited by lack of
tumor localization and by systemic toxicity. Optimally, a radiation sensitizer
should be safe, simple to administer to the patient and potentiate the effect of
radiation at the tumor site and not the adjacent normal tissue.
Chemotherapy of Cancer. In the U.S., over 350,000 patients per year
receive cytotoxic chemotherapy for treatment of many types of cancer. The
effectiveness of chemotherapy agents usually is limited by their serious or life
threatening side effects. These side effects often include nausea and vomiting,
suppression of white blood cell and platelet counts, renal toxicity, pulmonary
toxicity, neurotoxicity and cardiac toxicity. Chemotherapy drugs distribute
throughout the body in normal tissues as well as in the tumor. The cytotoxic
effects to normal tissues is dose-limiting for most of these drugs, resulting in
a very narrow therapeutic margin. Many recent advances in medical oncology have
resulted from the discovery of drugs that ameliorate the side effects of
chemotherapy agents, such as anti-emetics and blood cell growth factors which
allow for use of higher doses of chemotherapy. Chemosensitizers are drugs which
potentiate the anti-tumor activity of cancer
4
5
chemotherapy agents. Although certain chemosensitizers have been tested
experimentally, no such agents are yet approved. Ideally, a chemosensitizer
should be safe, simple to administer to the patient and potentiate the activity
of the cytotoxic chemotherapy agent in the tumor but not in any normal tissues
or organs, thereby increasing the therapeutic margin.
Photodynamic Therapy for Cancer. Photodynamic therapy, also known as
photochemotherapy, is an emerging cancer treatment based on the combined effects
of visible light and a photosensitizing drug. Photosensitizers are activated by
exposure to light of a specific wavelength. In this procedure, a
photosensitizing agent which accumulates in tumors is injected into the patient.
The tumor site is then illuminated with visible light of a particular energy and
wavelength that is absorbed by the photosensitizer, creating excited state
oxygen molecules in those tissues in which the drug has localized. These
molecules are highly reactive with cellular components and cause tumor cell
death. Recently, the first photosensitizing agent was approved by the FDA for
treatment of obstructing cancers of the esophagus.
To date, photodynamic therapy has been restricted to treatment of
superficial or small lesions because existing photosensitizers have been unable
to absorb light of a wavelength capable of penetrating deeply into tissues.
Other limitations of photosensitizers have included unfavorable biolocalization,
prolonged retention in the body, skin phototoxicity and insolubility in water,
complicating intravenous administration. In addition, some tumors, including
malignant melanoma, contain pigments which have not allowed adequate penetration
of light for photodynamic therapy.
Optimally, a photosensitizer should accumulate selectively in tumors and be
capable of activation with a wavelength of light that is able to penetrate
through tissue, blood and darkly pigmented skin, in order to treat larger or
more deeply situated tumors. Ideally the treatment should be accomplished in a
single outpatient visit. Other important features include safety, lack of skin
phototoxicity and simple administration of the agent to the patient.
ATHEROSCLEROSIS
Atherosclerosis is a progressive and degenerative vascular disease in which
cholesterol and other fatty materials are deposited in the walls of blood
vessels, forming a build-up known as plaque. The accumulation of plaque narrows
the interior of the blood vessels, thereby reducing blood flow. Atherosclerosis
in the coronary arteries can lead to heart attack and death. In peripheral
vessels, atherosclerosis can lead to decreased mobility, loss of function and
other complications such as strokes. Current treatments for atherosclerosis
include surgery and other techniques aimed at removing or relieving the plaque.
Procedures utilizing intravascular devices to mechanically remove or compress
the obstructing lesion include atherectomy and angioplasty, often with stent
placement, and are currently performed on over 400,000 patients per year in the
U.S. These procedures require the use of anticoagulant drugs and, although the
use of stents has reduced the incidence of restenosis, generally have been
limited to localized sections of the diseased vessel.
The optimal interventional treatment for atherosclerosis should effectively
eliminate atherosclerotic plaque without the need for anticoagulant drugs or
stent placement. Since atherosclerosis is a diffuse disease, therapies which can
be used over long segments of the affected vessel offer significant advantages
over treatments limited to short segments of the vessel.
Photodynamic Therapy of Atherosclerosis. Photodynamic therapy to eliminate
atherosclerotic plaque involves administration of a photosensitizing agent which
accumulates in the plaque. The diseased site is then exposed to light delivered
by a catheter containing an optical fiber. This approach may eliminate
cholesterol plaque without damage to the blood vessel lining thereby potentially
eliminating the need for anticoagulants and reducing the frequency of
restenosis. The Company believes that the use of photodynamic therapy for
atherosclerosis previously has been limited by the inability of photosensitizers
to absorb light that is capable of penetrating through blood. The ideal
photosensitizer should localize in atherosclerotic plaque and be readily
activated by light capable of penetrating through blood to reach the drug.
5
6
DIAGNOSTIC IMAGING AGENTS
The worldwide market for imaging agents exceeded $3 billion in 1993,
approximately $250 million of which was associated with MRI. Improved contrast
agents may provide an opportunity to expand the medical indications for MRI. In
1993, approximately 3,300 MRI scanners were used in health care centers in the
U.S., and approximately seven million procedures were performed.
Since the most common cancers originate and spread within the chest,
abdomen or pelvis, the greatest need for additional MRI contrast agents is for
imaging of these areas. These sites are generally difficult to image because of
the close juxtaposition of many overlapping organs. The tortuous pathway and
unpredictable position of the stomach, small intestine and large intestine, in
addition to their being fluid-filled, often makes it difficult to distinguish
such organs from cancers, abscesses or other inflammatory processes in an MRI
scan. Thus, the development of oral MRI contrast agents capable of definitively
marking the gastrointestinal tract could improve the diagnostic quality of scans
of the abdomen and pelvis. Just as oral X-ray contrast agents currently are used
in nearly all CT scans of the abdomen and pelvis, the Company believes that, as
they become available, oral MRI contrast agents will be increasingly used in MRI
scans of the abdomen and pelvis. Improvements in diagnostic certainty resulting
from image enhancement may reduce the need for repeat scanning of patients or
other diagnostic tests, and, by permitting faster scanning and increased patient
throughput, reduce the cost of an MRI scan.
OTHER MARKETS
The Company is also evaluating Lu-Tex for photodynamic therapy of age
related macular degeneration, an eye disease affecting the retina that is a
leading cause of blindness in the U.S. The Company has also prepared and tested
topical formulations of Lu-Tex for various applications in dermatology. Both of
these applications are currently being studied in animal models.
PHARMACYCLICS' BUSINESS STRATEGY
Pharmacyclics' products are designed to address significant market
opportunities in the treatment of certain cancers and atherosclerosis, and in
diagnostic imaging. The key elements of the Company's business strategy include:
DEVELOPING THERAPEUTIC PRODUCTS THAT ADDRESS LARGE MARKETS FOR THE
TREATMENT OF CANCER AND ATHEROSCLEROSIS.
The Company's therapeutic products under development are designed to
improve radiation therapy, chemotherapy and photodynamic therapy for the
treatment of certain cancers and atherosclerosis. The Company's initial
therapeutic product focus has been on treatments for life threatening cancers,
where the Company believes its products may offer measurable improvements in
patient outcomes. This strategy is intended to reduce the time required to
achieve regulatory approval, and achieve both substantial market penetration and
favorable pricing of these products.
APPLYING CORE BIOMETALLIC CHEMISTRY AND EXPANDED PORPHYRIN TECHNOLOGY TO
DEVELOP A DIVERSE PRODUCT PORTFOLIO.
Each of the Company's products under development incorporates one of a
series of metals within a proprietary expanded porphyrin or a zeolite structure.
The resulting synthetic small molecules selectively localize in the body and are
capable of harnessing forms of energy used in a variety of medical applications.
The Company has leveraged its expertise and proprietary position in biometallic
chemistry and expanded porphyrin technology to develop a diverse product
portfolio. Using a series of different metals which may be incorporated into
texaphyrins to enable the molecule to capture and focus different types of
energy, the Company has created several product opportunities based on similar
chemical synthesis, manufacturing and product development activities.
6
7
DESIGNING PRODUCTS THAT ENHANCE EXISTING MEDICAL PROCEDURES AND ARE SIMPLE
AND PRACTICAL TO USE.
The Company's products under development are designed to improve the
ability of physicians to treat or manage life threatening or serious conditions.
These products are designed to enhance existing procedures and should result in
accelerated product adoption. For example, the Lu-Tex photosensitizer for cancer
therapy is designed to be given by rapid intravenous infusion, and tumors can be
exposed to light within a few hours, permitting treatment in a single outpatient
visit; the Gd-Tex radiation sensitizer and chemosensitizer each are designed to
be used in conjunction with standard radiation therapy and chemotherapy
procedures; and GADOLITE is intended to improve the diagnostic capabilities of
existing abdominal and pelvic MRI procedures.
LEVERAGING ITS CORE TECHNOLOGY THROUGH COLLABORATIVE RELATIONSHIPS.
The Company is leveraging its proprietary core technology through
collaborative relationships that strengthen its basic research capabilities and
provide manufacturing and marketing capacity, enabling the Company to focus on
the development of new products addressing substantial markets in the areas of
therapeutics for cancer and atherosclerosis. Consistent with this strategy, the
Company is building a series of relationships with third parties to augment its
research and development activities and to provide manufacturing, sales and
marketing capabilities. The Company has utilized a Sponsored Research Agreement
with The University of Texas at Austin for continued research and development of
its expanded porphyrin technology. For its GADOLITE product, the Company has
entered into a North American manufacturing and supply agreement with Glaxo
Wellcome ("Glaxo") and a sales and distribution agreement with E-Z-EM, a leading
distributor worldwide of oral contrast agents. For production of its Lu-Tex and
Gd-Tex products, the Company has entered into a definitive process development
and supply agreement with HCC, a manufacturer of chemicals and pharmaceutical
intermediates. The Company to date has retained worldwide marketing rights for
its therapeutic products.
EXPANDING AND PROTECTING PROPRIETARY TECHNOLOGY AND PRODUCTS.
Since its inception, the Company has dedicated significant resources to
protect its intellectual property. In the U.S., the Company owns or has
exclusive rights to 26 issued patents, 18 allowed patent applications and 41
pending patent applications covering various aspects of its core technology and
products under development. Outside the U.S., the Company is the owner or
exclusive licensee of five corresponding patents, and 40 pending counterpart
patent applications. The Company intends to continue to protect its intellectual
property through additional patent filings.
PHARMACYCLICS' TECHNOLOGY
The Company's products under development are derived from its expertise in
biometallic chemistry and expanded porphyrins, such as the proprietary
texaphyrin molecules developed by the Company and its academic collaborators. In
nature, porphyrins, such as heme or chlorophyll, bind metals, transport ions and
transform energy. In living organisms, porphyrins primarily localize to tissues
or organs responsible for energy production, metabolism or transport functions.
Based on their ability to capture and focus medically useful forms of energy,
Pharmacyclics and its collaborators have designed and synthesized porphyrins,
small, ring-shaped molecules, to perform specific functions in a number of
medical applications. The expanded porphyrins being developed by the Company
consist primarily of its proprietary texaphyrin molecules. For example,
texaphyrins can be synthesized to focus and transform X-ray, chemical or light
energy into other forms of energy capable of producing localized destruction of
diseased tissue. This forms the basis for the use of texaphyrins as radiation
sensitizers, chemosensitizers and photosensitizers. Texaphyrins can also be used
with radiofrequency energy to produce an enhanced MRI signal.
In contrast to naturally occurring porphyrins, synthetic texaphyrins have a
larger central binding ring which makes possible the stable binding of a variety
of lanthanide metals such as gadolinium, lutetium, europium and dysprosium. The
physical and chemical characteristics and product application of the
7
8
texaphyrin molecules are determined by the type of metal inserted into the ring
and the form of energy applied to activate the molecule.
Metal ions act as natural catalysts for a number of biochemical processes.
The binding of metal ions by texaphyrins is unique in that the metal is held
near or within the plane of the molecule. This type of binding allows the metal
to interact freely with adjacent molecules while still being retained within the
texaphyrin structure. As a result of this metal binding configuration,
texaphyrins can be engineered to capture and focus a variety of energy forms
including capture of high energy chemical species, such as free radicals.
As is the case for naturally occurring porphyrins, texaphyrins accumulate
in those areas of the body where substantial energy usage or metabolism occurs,
such as in cancer cells and the cholesterol of atherosclerotic plaque. This
selectivity for particular cell types provides the basis for the Company's
treatment approaches for certain cancers and atherosclerosis. Once localized,
these small molecules can be excited with the appropriate energy form to
activate their therapeutic effects.
PRODUCTS UNDER DEVELOPMENT
Pharmacyclics is pursuing the development of products based on its core
technology in biometallic chemistry and the ability of its proprietary
texaphyrin molecules to capture and focus medically useful forms of energy. By
taking advantage of the Company's unique metal binding technology and the
texaphyrin molecule, Pharmacyclics has developed the following product
candidates:
PRODUCT INDICATION STATUS(1) COLLABORATORS(2)
- ---------------------- ---------------------- ---------------------- ----------------------
CANCER THERAPY
Lu-Tex.............. Photosensitizer for Multicenter Phase I Marketing rights
photodynamic therapy retained
of a variety of
cancers
Gd-Tex.............. Radiation sensitizer Phase I/II for brain Marketing rights
for radiation therapy metastases retained
of a variety of
cancers
Gd-Tex.............. Chemosensitizer for Preclinical Marketing rights
chemotherapy of a retained
variety of cancers
ATHEROSCLEROSIS
THERAPY
Lu-Tex.............. Photosensitizer for Preclinical Marketing rights
photodynamic therapy retained
of atherosclerosis
DIAGNOSTIC IMAGING
GADOLITE............ Oral MRI contrast NDA submitted E-Z-EM, Inc. holds
agent for abdomen and September 1995; MAA North American
pelvis submitted June 1996 marketing rights;
Glaxo holds
manufacturing rights
- ---------------
(1) "Phase I" means initial human studies designed to establish the safety, dose
tolerance and sometimes pharmacokinetics of a compound. "Phase I/II" means
initial human studies designed to establish the safety, dose tolerance and,
sometimes, pharmacokinetics of a compound and are, in contrast to Phase I
studies, performed with patients with the targeted disease. "Phase II"
means human studies designed to establish safety, optimal dosage and
preliminary activity of a compound. "Phase III" means human studies
designed to lead to accumulation of data sufficient to support an NDA,
including data as to efficacy.
(2) The Company has entered into a process development and supply agreement with
Hoechst Celanese for the clinical and commercial supply of its Lu-Tex and
Gd-Tex products. There can be no assurance that the Company will not in the
future enter into licensing agreements with third parties for the marketing
of its products under development.
8
9
CANCER THERAPY
Lu-Tex for Photodynamic Therapy of Cancer
Photodynamic therapy is a minimally invasive treatment modality in which a
photosensitizing drug that localizes to diseased tissue is injected into the
body and then activated with light. To date, photodynamic therapy has been
restricted to the treatment of superficial or small lesions because existing
photosensitizers have been unable to absorb light that is capable of penetrating
deeply into tissues. Lu-Tex is activated by light of 720-760 nanometers,
wavelengths that are optimal for penetrating through tissue, blood and skin
pigmentation such as melanin. After absorbing light of this wavelength, Lu-Tex
becomes activated to a higher energy state capable of generating cytotoxic
singlet oxygen molecules. Preclinical studies conducted by the Company indicate
that Lu-Tex localizes to a variety of cancers. Lu-Tex is a synthetic, well
characterized molecule that is water soluble and, in animal studies conducted by
the Company, was relatively rapidly cleared from the body, reducing potential
toxicity. Because of its relatively rapid clearance from normal tissue, it is
possible to illuminate the tumors within a few hours of drug administration.
This has the potential to simplify clinical use of the drug by permitting its
administration in a single outpatient visit, a substantial improvement over
current photodynamic therapies.
The Company intends to seek initial approval for the use of Lu-Tex in
photodynamic therapy for patients with invasive surface tumors (involving the
skin or subcutaneous tissue) which are accessible to externally applied light.
Such patients include those with chest wall recurrence of breast cancer,
Kaposi's sarcoma, melanoma and other metastatic tumors to the skin or
subcutaneous tissues, which diseases may affect over 50,000 patients per year in
the U.S. Additional indications for the use of Lu-Tex include internal cancers
such as cancer of the lung, breast, esophagus, colon, rectum, prostate, head and
neck region and genitourinary tract, etc.
Clinical Status. Lu-Tex has been administered to 25 patients in the
Company's ongoing Phase I trial in cancer patients with tumors which are
accessible to externally applied light. In these studies, currently being
conducted at the University of Louisville James Brown Cancer Center, the
University of Tennessee Thompson Cancer Center and Stanford University Medical
Center, it has been possible to treat patients with a single rapid infusion of
Lu-Tex followed within a few hours by illumination of the tumor with light in a
single outpatient visit. To date, the Company has seen neither serious systemic
toxicity nor any significant skin phototoxicity in this study that is evaluating
increasing doses of Lu-Tex in order to find a maximally tolerated dose ("MTD").
During treatment a number of patients in these studies experienced pain
localized at the diseased site. In some patients, transient discomfort in the
hands and face was experienced at high drug doses. Tumor responses have been
observed in a variety of tumor types including breast cancer, renal cell cancer,
basal cell cancer, Kaposi's sarcoma and importantly, malignant melanoma. Because
Lu-Tex is activated by tissue-penetrating light, responses have been observed in
large tumors and in lymph nodes involved with cancer located in the soft tissues
beneath the skin. Responses have been seen in patients who were refractory to
other treatment modalities. The responses observed in melanoma patients are of
interest because other photosensitizers have failed to be effective in this
tumor. Melanoma cells contain the pigment melanin, which, except for light of
720-760 nanometers, prevents light from penetrating into tissue where it can
activate the photosensitizer. Furthermore, Lu-Tex's ability to be activated by
light of these wavelengths also indicates that it would be possible to treat
people with darkly pigmented skin.
Gd-Tex for Radiation Sensitization of Cancer
Radiation therapy is based upon the sensitivity of cancer cells exposed to
relatively high dosages of externally applied radiation. Generally, however,
such radiation has toxic effects on healthy tissues surrounding the tumor
because the energy is not adequately targeted. Radiation sensitizers are agents
that increase the cytotoxic effects of radiation. The Company's preclinical
studies indicate that texaphyrins can increase the effect of radiation therapy
by absorbing free electrons which are generated during irradiation of tissues.
Free electron absorption by Gd-Tex results in formation of relatively long-lived
texaphyrin and other free radicals capable of destroying intracellular DNA
molecules. In addition to these physicochemical properties of Gd-Tex, its
propensity to localize selectively in cancer cells confers additional advantages
as a radiation sensitizer since this effect is localized to the tumor. Gd-Tex
uptake in tumors occurs within minutes and
9
10
persists for hours. Preclinical studies also indicate that Gd-Tex enhances
radiation-induced killing of various human and animal cancer cells. Animals
receiving Gd-Tex in conjunction with radiation therapy had enhanced tumor
response and survival rates as compared to the control group receiving
equivalent dosages of radiation therapy alone. Preclinical studies further
indicate that Gd-Tex increases the effect of radiation therapy at the tumor site
but does not increase radiation damage to normal tissues. Another possible
advantage of the Gd-Tex molecule is that its unique properties allow it to be
visualized with MRI. Because radiation therapy requires the use of imaging
procedures to accurately define the treatment field, use of Gd-Tex may allow
more precise imaging of the tumor and improve radiation treatment planning.
The Company initially intends to seek approval of Gd-Tex for brain
metastases. Brain metastases occur in nearly 14% of all cancer patients and are
typically treated with radiation therapy. Radiation therapy for treatment of
brain metastases is performed on approximately 150,000 patients per year in the
U.S. The Company believes that Gd-Tex could be used in many other tumor types
and clinical situations requiring radiation therapy.
Clinical Status. The Company has completed Phase I testing of Gd-Tex in
patients with advanced cancer receiving radiation therapy in a study designed to
determine the MTD. Forty-one patients were treated on this protocol and
reversible renal toxicity was observed at 25 umol/kg, a dose significantly
exceeding that which is expected to produce a radiation sensitization effect.
Biolocalization of Gd-Tex in lung cancer, breast cancer, and sarcomas has been
confirmed. The Company is conducting a multicenter Phase I/II clinical trial to
evaluate the safety and efficacy of Gd-Tex in cancer patients receiving
radiation therapy for treatment of brain metastases at the Joint Center for
Radiation Therapy in Boston, MD Anderson Cancer Center in Houston, the
University of Texas Southwestern Medical Center in Dallas, Northwest Kinetics,
L.L.C. in Tacoma, Washington, and the Institute Gustave Roussy in Paris, and is
in the process of expanding the study to other sites. In this study, an
intravenous dose of Gd-Tex is administered prior to each radiation treatment.
Gd-Tex for Chemosensitization of Cancer
The Company is conducting preclinical studies regarding the use of Gd-Tex
as a chemosensitizer for use in conjunction with certain cytotoxic chemotherapy
agents. Cytotoxic chemotherapy destroys cancer cells by interfering with their
metabolism, protein synthesis or cell division. Generally, however, the damaging
effects of cancer chemotherapy agents are not restricted to the tumor. Because
these agents are not tissue selective, cancer chemotherapy agents produce
serious or life-threatening side effects which compromise quality of life and
increase the cost of management of patients with cancer. Preclinical studies
conducted by the Company and its collaborators indicate that Gd-Tex increases
the activity of certain chemotherapy agents in tumors. This effect is believed
to be related to Gd-Tex's ability to capture cytotoxic free radicals produced by
certain chemotherapy agents, such as doxorubicin and bleomycin. Gd-Tex's
selective uptake in tumors potentiates the activity of cancer chemotherapy
agents in tumor cells but not in normal tissues, thereby increasing the
therapeutic margin. In preclinical studies, animals receiving Gd-Tex and
chemotherapy with either bleomycin or doxorubicin had enhanced tumor responses
and survival rates as compared to control groups receiving equivalent doses of
chemotherapy alone. In these studies, no enhancement of chemotherapy-related
toxicity was noted.
ATHEROSCLEROSIS THERAPY
Lu-Tex for Photodynamic Therapy of Atherosclerosis. Animal studies
conducted by the Company and its collaborators have demonstrated that both
Lu-Tex and Gd-Tex localize to atherosclerotic plaque. In the Company's Phase I
clinical study with Gd-Tex, localization in atherosclerosis in human aortas has
been confirmed using MRI. Based on these studies, the Company believes that
Lu-Tex also should localize in human atherosclerotic plaque. Studies conducted
by the Company also have indicated that following intravenous administration of
Lu-Tex to animals, intravascular exposure of atherosclerotic plaque to 732
nanometer light delivered through a catheter resulted in elimination of the
lesions without damage to the endothelium. The Company believes that these
results suggest that photodynamic therapy of atherosclerosis with Lu-Tex has the
potential to eliminate plaque without complications such as thrombosis and
restenosis, which are associated with techniques such as angioplasty and
atherectomy. These animal studies also have
10
11
shown that photodynamic therapy of atherosclerosis with Lu-Tex could be used to
treat diffuse atherosclerosis over long segments of blood vessels, which is not
possible with other techniques. These results further confirm that Lu-Tex is
activated by light that is capable of penetrating through blood, a shortcoming
that has prevented the successful use of photosensitizers for cardiovascular
applications.
DIAGNOSTIC IMAGING AGENT
GADOLITE. The Company's oral MRI contrast agent, GADOLITE, is based on a
patented compound and is used for imaging the gastrointestinal tract in patients
undergoing MRI procedures of the abdomen or the pelvis. GADOLITE contains
gadolinium sodium aluminosilicate suspended in an aqueous, orange-flavored oral
formulation designed to fill the bowel uniformly. The Company's preclinical
studies in animals indicated that orally administered GADOLITE is nontoxic even
when used at large multiples of the intended human dose and is not systemically
absorbed.
Clinical Status. The Company's Phase I and II human clinical trials
indicated that GADOLITE is well tolerated, safe and not absorbed from the human
gastrointestinal tract. The Company has conducted two pivotal multicenter
controlled Phase III studies in patients receiving MRI scans for known or
suspected diseases of the abdomen or pelvis. A total of 284 patients received
GADOLITE in these studies, which were completed in March 1995. The Company's
analysis of data from these studies confirmed the safety, tolerability and lack
of absorption of GADOLITE, and indicated that it significantly reduced
diagnostic uncertainty when comparing MRI scans performed with GADOLITE to those
without GADOLITE. The Company believes that these trials establish that GADOLITE
improves the ability to distinguish the gastrointestinal tract from adjacent
anatomic or pathologic structures and thereby assists in the detection or
diagnosis of abnormalities in the abdomen or pelvis. The Company believes that
by reducing diagnostic uncertainty, GADOLITE will lessen the need for repeated
exams and other more invasive diagnostic tests, thereby reducing costs. The
Company submitted an NDA in September 1995 to market this product in the U.S. In
June 1996 the Company filed an MAA with the Medicines Control Agency in the
United Kingdom for authorization to market GADOLITE. If approved in the U.K.,
the Company plans to apply for similar authorization in other member states of
the European Union under mutual recognition procedures.
LU-TEX IN OTHER PHOTODYNAMIC THERAPY APPLICATIONS
The Company is evaluating Lu-Tex for photodynamic therapy of age related
macular degeneration, a retinal eye disease that is a leading cause of blindness
in the U.S. The Company has also prepared topical formulations of Lu-Tex for
various applications in dermatology. Both of these applications are currently
being studied in animal models.
COLLABORATIVE RELATIONSHIPS
The Company has maintained a focus on its core technology in biometallic
chemistry and expanded porphyrin molecules and has utilized relationships with
third parties for research, process development, manufacturing, sales and
marketing. In the photodynamic therapy field, the Company has used outside
collaborations for development of light production and delivery devices for use
in preclinical and clinical trials while focusing on development of its
proprietary photosensitizing drug. The Company has established and intends to
establish additional alliances with companies for late stage product
development, manufacturing, sales, marketing and distribution of certain of its
products. To date, the Company has retained worldwide marketing rights to its
therapeutic products.
THE UNIVERSITY OF TEXAS AGREEMENTS. The Company collaborates with and
sponsors research and development programs at a number of academic institutions,
including The University of Texas ("UT") at Austin, in a group under the
direction of Jonathan Sessler, Ph.D., Professor of Chemistry, to extend its
research capabilities in the field of expanded porphyrin chemistry. The Company
has entered into two license agreements with UT that grant the Company the
worldwide, exclusive right to patents or patent applications that relate to or
result from (i) research conducted by UT Austin on the use, development and
syntheses of expanded porphyrin molecules, and (ii) research conducted by UT
Dallas on the incorporation of paramag-
11
12
netic metals into zeolites for use as MRI contrast agents. These agreements
require the Company to pay royalties as a percentage of net sales to UT for
products incorporating the licensed technology including each of the Company's
current product candidates. In addition, the Company and UT have entered into
sponsored research agreements which expand the products, inventions and
discoveries developed by UT to which the Company's license rights apply.
In connection with the UT license agreements, the Company also entered into
a license agreement with Dr. Stuart W. Young, a co-inventor of GADOLITE, and now
the Vice President, Medical Research of the Company, pursuant to which the
Company has been granted an exclusive royalty-bearing license to manufacture,
use and sell certain products that fall within the scope of the UT Dallas
License Agreement.
HOECHST CELANESE AGREEMENT. In October 1995, the Company entered into a
memorandum of understanding and in September 1996 finalized a definitive
agreement with HCC, a manufacturer of chemicals and pharmaceutical
intermediates, for the process optimization, scale-up and clinical and worldwide
commercial supply of Gd-Tex and Lu-Tex. Under the terms of this agreement, HCC
is obligated to supply drug substance for clinical and commercial use. There can
be no assurance that Hoechst Celanese will deliver bulk-drug substance for
Gd-Tex or Lu-Tex on a timely or commercially attractive basis to the Company.
PHOTODYNAMIC THERAPY LIGHT PRODUCTION AND DELIVERY DEVICES. The Company
has collaborated with Coherent, Inc. ("Coherent") for the development of a laser
that produces 732 nanometer light for use in photodynamic therapy studies. These
lasers and light delivery devices have been purchased from Coherent and are now
in use in the ongoing Phase I clinical studies. Coherent has participated with
the Company in the filing of regulatory documents required for conducting the
Company's Phase I clinical trials with this device. The Company has purchased
from Quantum Devices, Inc. ("Quantum") LED devices that are capable of producing
the required wavelength of light for use in photodynamic therapy with Lu-Tex.
The Company has used LED devices in preclinical animal studies and will purchase
such devices for use in its future clinical trials.
GLAXO WELLCOME SUPPLY AGREEMENT. The Company entered into a supply
agreement with Glaxo under which Glaxo has agreed to manufacture clinical and
commercial quantities of GADOLITE for the U.S. and Canada. Pursuant to the
agreement, Glaxo has agreed to manufacture and the Company has agreed to
purchase certain minimum annual quantities of GADOLITE. In addition, the Company
is obligated to make certain payments upon Glaxo's achievement of certain
process development, quality assurance and supply validation milestones. The
agreement has a five year term and is subject to earlier termination in the
event of breach or if the NDA for GADOLITE is not approved by the FDA on or
prior to January 1, 1998 or if GADOLITE is otherwise not commercialized. See
Note 6 of Notes to Financial Statements.
E-Z-EM MARKETING SALES AND DISTRIBUTION ARRANGEMENT. In August 1995, the
Company entered into an agreement with E-Z-EM, Inc. ("E-Z-EM"), a leading
manufacturer and distributor worldwide of oral contrast agents and other
products for use in gastrointestinal radiology, for the exclusive marketing and
sale of GADOLITE in the U.S., Canada and Mexico. The Company and E-Z-EM will
share equally in the operating profits from the sale of GADOLITE, and the
Company also may receive premium payments based upon product sales if certain
unit sales levels are achieved. During the term of the agreement, E-Z-EM is
prohibited from distributing products that are directly competitive with
GADOLITE, except for products which have been or currently are being developed
by E-Z-EM that contain certain specified chemical compounds. The agreement also
states that the Company and E-Z-EM will enter into good faith negotiations for
the expansion of the agreement beyond North America. The agreement may be
terminated by E-Z-EM at any time with six months' notice. The Company is in
negotiations with E-Z-EM for marketing and distribution rights in some European
countries.
COOK, INCORPORATED AGREEMENT. The Company has non-exclusively licensed to
Cook, Incorporated, a leading provider of catheter products, its technology to
produce MRI detectable materials for catheters. Under the terms of this
agreement, the Company will receive royalties based on a percentage of net sales
of products utilizing its proprietary technology. The Company intends to license
this technology to other catheter and medical device companies.
12
13
PATENTS AND PROPRIETARY TECHNOLOGY
The Company seeks to protect its proprietary position by, among other
methods, continuing to file U.S. and foreign patent applications with respect to
its technology that are important to the development of its business. The
Company plans to aggressively prosecute and defend its patent applications,
issued patents and proprietary information. The Company owns or has exclusive
rights to 26 issued U.S. patents, many of which include composition of matter
claims relating to a number of Pharmacyclics' compounds, 18 allowed patent
applications and 41 pending patent applications. The Company is also the owner
or the exclusive licensee of two counterpart patents issued in Australia, two
counterpart patents issued in Europe, 1 counterpart patent issued in New Zealand
and 40 pending counterpart patent applications in Europe, Japan and certain
other countries. Many of these applications were filed through the Patent
Cooperation Treaty and the European Patent Office and preserve for the Company
the right to file applications in various countries. The existing issued U.S.
patents expire between 2009 and 2014. All of the patents and patent applications
not owned by the Company have been licensed to it pursuant to its agreements
with UT or the Agreement with Dr. Stuart W. Young.
With respect to the individual areas of research and product development
being carried out by the Company, the Company has three issued U.S. patents
related to the GADOLITE product, and two issued and five pending foreign
patents. There are five composition-of-matter issued patents and six allowed and
twelve pending applications in the U.S. related to the texaphyrin compounds,
with two issued patents, and one allowed and five pending applications directed
to synthesis of texaphyrins. Five U.S. patents have issued and two applications
have been allowed relating to photodynamic therapy using texaphyrins. The
Company also has three issued U.S. patents and two allowed and two pending
applications relating to the use of texaphyrins as contrast agents in MRI, as
well as one allowed and two pending applications related to the use of
texaphyrins in radiation sensitization and eight applications (three of which
have been allowed) related to the use of texaphyrins in other areas. Foreign
applications corresponding to the texaphyrins and their uses also have been
filed.
Patent applications in the U.S. are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tend to lag behind actual discoveries and related patent
applications, and the large number of patents and applications and the fluid
state of the Company's development activities make comprehensive patent searches
and analysis impractical or not cost-effective. As a result, the Company has not
made patent or publication searches in the U.S. or in foreign countries to
determine whether materials, processes or designs used by it or its potential
products infringe or will infringe existing patents or foreign patent
applications available to the public. However, because of the number of patents
issued and patent applications filed relating to biometallic and expanded
porphyrin chemistries, Pharmacyclics believes there is a significant risk that
current and potential competitors and other third parties have filed or in the
future will file applications for, or have received or in the future will
receive, patents and will obtain additional proprietary rights relating to
materials or processes used or proposed to be used by the Company. In the event
that any relevant claims of third party patents are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or processes
to avoid infringement. Litigation may be necessary to defend against claims of
infringement, to enforce patents issued to the Company or to protect trade
secrets and could result in substantial cost to, and diversion of effort by, the
Company.
The Company is aware of several U.S. patents owned by or licensed to
Schering AG that relate to MRI contrast agents. Schering AG has sent
communications to the Company suggesting that GADOLITE may infringe certain of
such Schering AG patents. The Company has obtained advice of special patent
counsel that the technologies employed by the Company for its imaging products
under development do not infringe the claims of such patents. A determination of
the infringement of any such patents could have a material adverse effect on the
Company's business. There can be no assurance that Schering AG will not seek to
assert such
13
14
patent rights against the Company, which would result in significant legal costs
and require substantial management resources. The Company is aware that Schering
AG has asserted such 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 such patents. There
can be no assurance that the Company would be able to obtain a license from
Schering AG, if required, on commercially reasonable terms, if at all.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances, and in the case of
employees, provide that all inventions conceived by the individual during such
employment shall be the exclusive property of the Company. There can be no
assurance, however, that these agreements will not be breached or that the
Company will have adequate remedies for any breach. Furthermore, no assurance
can be given that competitors will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's proprietary technology, or that the Company can meaningfully
protect its rights in unpatented proprietary technology.
MANUFACTURING
Pharmacyclics currently uses selected third-party manufacturers for
producing various components of the products being developed by the Company.
Except for the components covered in the agreements with HCC and Glaxo described
above, manufacturers supplying the Company do not currently have the ability to
provide commercial quantities for the Company's intended products. Prior to any
regulatory approval of the Company's other products, the Company intends to
negotiate supply agreements with additional manufacturers who will have the
ability to manufacture, fill, label and package such additional necessary
materials prior to commercial introduction of its products. There can be no
assurance that the Company will be able to enter into supply agreements other
than the HCC and Glaxo agreements on commercially acceptable terms or with
manufacturers who will be able to deliver supplies in appropriate quantity and
quality to meet commercial demand. Any interruption of supply could have a
material adverse effect on the Company's ability to manufacture its products and
thus on the ability to commercialize products.
The Company is currently purchasing light delivery devices from Coherent
and Quantum. In addition, the Company may seek other suppliers of light delivery
devices, although there can be no assurance that any agreements will be reached
with such suppliers on terms commercially reasonable to the Company, if at all.
There also can be no assurance that these devices will be available for
commercial use or that regulatory approval for such devices will be obtained.
COMPETITION
The development of therapeutic and diagnostic agents for human diseases is
intensely competitive. Many different approaches are being developed or have
already been adopted into routine use for the management of diseases targeted by
the Company.
While there are currently no FDA approved radiation sensitizers or
chemosensitizers, the Company expects significant competition in these fields,
as the Company believes that one or more companies may be developing and testing
products which compete directly with the products being developed by the
Company. There can be no assurance that these companies will not succeed in
developing technologies and products that are more effective than Gd-Tex or that
would render the Company's products or technologies obsolete. Certain
chemotherapy agents also are used as radiation sensitizers.
Photofrin(R), a photosensitizer developed by QLT Phototherapeutics Inc.
("QLT"), has been approved by the FDA for treatment of obstructing cancer of the
esophagus. Photofrin also has received marketing approval in Japan, Canada and
certain European countries for various disease indications. The Company believes
that
14
15
the major competitive features for photosensitizers will include their safety,
efficacy, cost and convenience. The Company is aware of several other
photosensitizers in various stages of development for a number of indications.
In addition to QLT, other companies developing products in this area include
Dusa Pharmaceuticals, Inc., Nippon Petrochemical, and PDT, Inc. Some companies
developing photodynamic therapy products are developing specialized light
delivery devices for such products, which when integrated with their product
offering may afford them a competitive advantage relative to the Company's
strategy of sourcing such devices from third parties.
The Company expects competition in the development of improved oral MRI
contrast agents to increase substantially. Current FDA approved and commercially
available intravenous MRI contrast agents include Magnevist(R), Omniscan(R)and
Prohance(R) which are marketed by Schering AG, Nycomed and Bracco-Squibb
Diagnostics, Inc. ("Bracco"), respectively. Gastromark(TM), an oral contrast
agent based on iron particles developed by Advanced Magnetics and licensed to
Mallinckrodt, has received initial indications of its approvability for
commercial sale from the FDA. In addition, there are several oral MRI contrast
agents in various phases of human testing in the U.S., including OMP from
Nycomed, in Phase III testing in the U.S. and on the market in Europe, and
Lumenhance(TM), a manganese-based agent under development by Bracco. In
addition, Schering AG has introduced Enterovist(TM), an oral formulation of its
Magnevist MRI contrast agent, in certain European markets. The Company believes
that GADOLITE may prove superior to these products because it is well tolerated
and capable of producing a strong positive signal at all levels of the
gastrointestinal tract. Although the Company believes that GADOLITE may offer
advantages over competing oral MRI contrast agents, there can be no assurance
that there will be greater acceptance of GADOLITE over other agents. In
addition, to the extent that other diagnostic modalities such as CT and X-ray
may be perceived as providing greater value than MRI, any corresponding decrease
in the use of MRI would have an adverse effect on the demand for GADOLITE.
Competition in the industry from pharmaceutical companies, universities,
governmental entities and others diversifying into the field is intense and is
expected to increase. Many of these entities have significantly greater research
and development capabilities than the Company, as well as substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical companies by large collaborating partners could increase such
competitors' financial, marketing, manufacturing and other resources. There can
be no assurance that developments by others will not render the Company's
products or technologies noncompetitive or obsolete, or that the Company will be
able to keep pace with technological developments or other market factors.
Competitors may be developing products that have an entirely different approach
or means of accomplishing similar diagnostic, imaging and/or therapeutic effects
than products being developed by the Company. These competing products may be
safer, more effective and less costly than the products developed by the Company
and, therefore, may represent a serious competitive threat to the Company's
product offerings.
GOVERNMENT REGULATION
FDA REGULATION AND PRODUCT APPROVAL
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the manufacturing
and marketing of pharmaceutical products. These national agencies and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's products.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an IND application which must
become effective before clinical trials may begin; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the proposed pharmaceutical in its intended indication; and (iv) FDA approval of
an NDA. If the pharmaceutical or compound utilized in the product has been
previously approved for use in another dosage form, then the approval process is
similar, except that certain
15
16
preclinical toxicity tests normally required for the IND may be avoidable. The
testing and approval process requires substantial time, effort, and financial
resources and there can be no assurance that any approval will be granted on a
timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the preclinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before human
clinical trials may be commenced. The IND will automatically become effective 30
days after receipt by the FDA, unless the FDA before that time raises concerns
or questions about the conduct of the trials as outlined in the IND. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Further, each
clinical study must be reviewed and approved by an independent Institutional
Review Board.
Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the
pharmaceutical into healthy human subjects or patients where the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. Phase II involves studies in a limited patient population to (i)
identify possible adverse effects and safety risks, (ii) determine the efficacy
of the product for specific, targeted indications, and (iii) determine dosage
tolerance and optimal dosage. When Phase II evaluations demonstrate that the
product is effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage, clinical efficacy and to further test for
safety in an expanded patient population at geographically dispersed clinical
study sites. The regulatory authority or the sponsor may suspend clinical trials
at any point in this process if either entity concludes that clinical subjects
are being exposed to an unacceptable health risk or for other reasons.
In the case of products for severe or life-threatening diseases, such as
cancer, the initial human testing is sometimes done in patients rather than in
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of an NDA for approval of the marketing
and commercial shipment of the product. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, or may require additional clinical data.
Even if such data is submitted, the FDA may ultimately decide that the NDA does
not satisfy the criteria for approval. Once issued, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and it has the power to prevent or
limit further marketing of a product based on the results of these
post-marketing programs.
Additionally, in March 1996, the FDA announced a new policy intended to
accelerate the approval process for cancer therapies. Previously, cancer
therapies have been approved primarily on the basis of data regarding patient
survival rates and/or improved quality of life. Evidence of partial tumor
shrinkage, while often part of the data relied on for approval, was considered
insufficient by itself to warrant approval of a cancer therapy, except in
limited situations. Under the FDA's new policy, which became effective
immediately, the FDA has broadened the circumstances in which evidence of
partial tumor shrinkage is considered sufficient for approval. This policy is
intended to make it easier to study cancer therapies and shorten the total time
for marketing approvals; however, it is too early to tell what effect this
policy may actually have on product approvals.
In addition to the drug approval requirements applicable to the Company's
Lu-Tex product for photosensitization of certain cancers, the Company will also
need to obtain the approval of the FDA for the
16
17
laser and associated light delivery devices used in such treatments. Such device
approval requires additional submissions both by the Company and by the
manufacturers of such devices and must include clinical data obtained from the
use of such devices with Lu-Tex for photodynamic therapy, and may result in
additional delays or difficulties in obtaining approval for the use of the
Lu-Tex as a photosensitizer. Such light delivery device manufacturers currently
are under no obligation to the Company to file or pursue such applications.
Satisfaction of these FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years and the time needed to
satisfy them may vary substantially, based upon the type, complexity and novelty
of the pharmaceutical product. The effect of government regulation may be to
delay or to prevent marketing of potential products for a considerable period of
time and to impose costly procedures upon the Company's activities. There can be
no assurance that the FDA or any other regulatory agency will grant approval for
any products being developed by the Company on a timely basis, if at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse effect on the Company's business. Marketing the Company's
products abroad will require similar regulatory approvals and is subject to
similar risks. In addition, the Company is unable to predict the extent of
adverse government regulations that might arise from future U.S. or foreign
governmental action.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are
required to register their establishments with the FDA and certain state
agencies, and are subject to periodic inspections by the FDA and certain state
agencies for compliance with GMP, which regulations impose certain procedural
and documentation requirements upon the Company and its third party
manufacturers.
Drug labeling and promotion activities are subject to scrutiny by the FDA
and, in certain instances, the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses. The
Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. The Company is
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control, and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the U.S. and in foreign markets could result in new government
regulations which could have a material adverse effect on the Company's
business. The Company is unable to predict the likelihood of adverse
governmental regulation which might arise from future legislative or
administrative action, either in the U.S. or abroad.
INTERNATIONAL REGULATION
In order for the Company to market its products abroad, the Company must
obtain required regulatory approvals and clearances and otherwise comply with
extensive regulations regarding safety and manufacturing processes and quality.
These regulations, including the requirements for approvals or clearance to
market and the time required for regulatory review, vary from country to
country. There can be no assurance that the Company will obtain regulatory
approvals in such countries or that it will not be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals. Delays in
receipt of approvals to market the
17
18
Company's products, failure to receive these approvals or future loss of
previously received approvals could have a material adverse effect on the
Company's business, financial condition, and results of operations. The time
required to obtain approval for sale in foreign countries may be longer or
shorter than that required for FDA approval, and the requirements may differ. In
June 1996 the Company filed an MAA with the Medicines Control Agency in the
United Kingdom for authorization to market GADOLITE.
The European Community has promulgated rules that require that medical
device products receive by mid-1998 the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. In order to market a laser
or other light delivery device for the Company's Lu-Tex product in Europe, such
CE mark will be required to be obtained, and there can be no assurance that the
Company or its light device suppliers will be successful in meeting such
certification requirements.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM
The commercial success of the Company's products under development will be
substantially dependent upon the availability of government or private
third-party reimbursement for the use of such products. There can be no
assurance that Medicare, Medicaid, HMOs and other third-party payors will
authorize or otherwise budget such reimbursement. Such governmental and third
party payors are increasingly challenging the prices charged for medical
products and services. If the Company succeeds in bringing one or more products
to market, there can be no assurance that such products will be viewed as
cost-effective or that reimbursement will be available to consumers or will be
sufficient to allow the Company's products to be marketed on a competitive
basis. Furthermore, federal and state regulations govern or influence the
reimbursement to health care providers of fees and capital equipment costs in
connection with medical treatment of certain patients. In response to concerns
about the rising costs of advanced medical technologies, the current
administration of the federal government has publicly stated its desire to
reform health care, including the possibility of price controls and revised
reimbursement policies. There can be no assurance that actions taken by the
administration, if any, with regard to health care reform will not have a
material adverse effect on the Company. If any actions are taken by the
administration, such actions could adversely affect the prospects for future
sales of the Company's products. Further, to the extent that these or other
proposals or reforms have a material adverse effect on the Company's ability to
secure funding for its development or on the business, financial condition and
profitability of other companies that are prospective collaborators for certain
of the Company's product candidates, the Company's ability to develop or
commercialize its product candidates may be adversely affected.
Given recent government initiatives directed at lowering the total cost of
health care throughout the U.S., it is likely that the U.S. Congress and state
legislatures will continue to focus on health care reform and the cost of
prescription pharmaceuticals and on the reform of the Medicare and Medicaid
systems. Pharmacyclics cannot predict the likelihood of passage of federal and
state legislation related to health care reform or lowering pharmaceutical
costs. In certain foreign markets pricing of prescription pharmaceuticals is
already subject to government control. Continued significant changes in the
nation's health care system could have a material adverse effect on the
Company's business.
ENVIRONMENTAL REGULATION
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens, and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any significant action to
correct any noncompliance, there can be no assurance that the Company will not
be required to incur significant costs to comply with environmental and health
and safety regulations in the future. The Company's research and development
involves the controlled use of hazardous materials, including but not limited to
certain hazardous chemicals and radioactive materials. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and
18
19
federal regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company.
EMPLOYEES
As of August 31, 1996, the Company had 44 employees, three of whom are
part-time. Thirty-eight of its employees are dedicated to research, development,
manufacturing, quality assurance and quality control, regulatory affairs, or
preclinical and clinical testing. Fifteen of the Company's employees have an
M.D. or Ph.D. degree.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this section as well as those discussed
elsewhere in this Form 10-K.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
To achieve profitable operations on a continuing basis, the Company must
successfully research, develop, test, obtain regulatory approval for,
manufacture, introduce, market and distribute its products. The time frame
necessary to achieve these goals for any individual product is long and
uncertain. Most of the products currently under development by the Company will
require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization.
Additionally, any product the Company succeeds in developing and for which it
gains regulatory approval must then compete for market acceptance and market
share. There can be no assurance that the Company's products will prove to be
effective or that physicians, patients, or clinical or hospital laboratories
will accept the Company's products as readily as other forms of diagnosis and
treatment or as readily as other newly developed therapeutic products and
diagnostic imaging techniques. There can be no assurance that the Company's
research and development efforts will be successful or that any given product
will be safe or effective, capable of being manufactured economically in
commercial quantities, developed in a timely fashion or successfully marketed.
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
Pharmacyclics has conducted and plans to continue to undertake extensive
and costly clinical testing to assess the safety and efficacy of its potential
products. The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the rate of patient enrollment. Patient enrollment is
a function of many factors, including the nature of the Company's clinical trial
protocols, existence of competing protocols, size of the patient population,
proximity of patients to clinical sites and eligibility criteria for the study.
Delays in patient enrollment will result in increased costs and delays, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the FDA may suspend clinical
trials at any time if it concludes that the subjects or patients participating
in such trials are being exposed to unacceptable health risks. Success in
preclinical or early stage clinical trials does not assure success in later
stage clinical trials. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Further, there can be no assurance that clinical testing
will show any current or future product candidate to be safe and effective for
use in humans.
NO ASSURANCE OF PRODUCT APPROVAL
To date, none of the Company's products has been approved for sale in the
U.S. or any international market. Satisfaction of regulatory requirements of the
FDA, or similar requirements by foreign regulatory agencies, typically takes
several years, and the time needed to satisfy them may vary substantially based
upon the type, complexity and novelty of the pharmaceutical product. There can
be no assurance that the FDA or any other regulatory agency will grant approval
for any products being developed by the Company on a timely
19
20
basis, if at all. The Company submitted an NDA for GADOLITE in September 1995.
There can be no assurance that the FDA will decide that the NDA satisfies the
criteria for approval. In addition, in June 1996 the Company filed a Market
Authorization Application ("MAA") with the Medicines Control Agency in the
United Kingdom for authorization to market GADOLITE. Although the process for
regulatory approval in Western Europe is similar to that in the United States,
there are numerous and sometimes unique risks associated with the approval of an
MAA. There can be no assurance that such authorization will be granted or, even
if granted in the United Kingdom, that authorization to market GADOLITE in other
member states would be granted under the European Union's mutual recognition
procedure.
Delay in obtaining or failure to obtain regulatory approvals would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the policies of the FDA and foreign
regulatory bodies may change, and additional regulations may be promulgated
which could prevent or delay regulatory approval of the Company's potential
products. Even if regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which a product may be marketed.
Further, later discovery of previously unknown problems with a product may
result in restrictions on the product, including withdrawal of the product from
the market.
In addition to the drug approval requirements applicable to the Company's
Lu-Tex product for photosensitization of certain cancers and atherosclerosis,
the Company will also need to obtain the approval of the FDA and other foreign
regulatory authorities for the laser, light emitting diode ("LED") or associated
light delivery devices used in such treatments. Such device approval requires
additional regulatory submissions both by the Company and by the manufacturers
of such devices that must include clinical data obtained from the use of such
light delivery devices with Lu-Tex for photodynamic therapy, and may result in
additional delays or difficulties in obtaining approval for the use of Lu-Tex as
a photosensitizer. Such light delivery device manufacturers currently are under
no obligation to the Company to file or pursue such applications.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred operating losses since its inception in 1991 and,
as of June 30, 1996, had an accumulated deficit of approximately $28.0 million.
The Company anticipates that such operating losses will continue over the next
several years, as it continues to incur increasing costs of research and
development, clinical and manufacturing activities. To date, the Company has not
generated revenue from the commercial sale of its products and does not expect
to receive any such revenue until calendar year 1997 at the earliest. All
revenues to date have resulted from license and milestone payments and funding
from a government research grant.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE
The Company must manufacture its products in commercial quantities either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. Except for Gd-Tex and Lu-Tex bulk drug substance,
which are the subject of a manufacturing and supply agreement with HCC, and
GADOLITE, which is the subject of a manufacturing and supply agreement with
Glaxo, the Company does not have access to the manufacturing capacity necessary
to provide clinical and commercial quantities of the Company's products. Access
to such manufacturing capacity is necessary for the Company to conduct clinical
trials, obtain regulatory approval and commercialize its products. The Company
is engaged in preliminary discussions with a number of manufacturers of
parenteral products regarding process development and validation, filling,
labeling and packaging of the finished dosage form of Gd-Tex and Lu-Tex. A
failure to successfully complete such agreement would, if the Company could not
locate alternate manufacturing capabilities, have a material adverse impact on
the Company's business, financial condition and results of operations. Prior to
any regulatory approval of the Company's other products under development, the
Company intends to negotiate supply agreements with manufacturers who will have
the ability to manufacture, fill, label and package such materials prior to
commercial introduction of such products. There are, however, a limited number
of contract manufacturers that operate under current federal and state Good
Manufacturing Practices ("GMP") regulations and are capable of manufacturing the
Company's products. Accordingly, there can be no assurance that the Company will
be able to enter into supply agreements on
20
21
commercially acceptable terms or with manufacturers who will be able to deliver
supplies in appropriate quantity and quality to develop and commercialize its
products. Any interruption of supply of its products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also has entered into a sales and distribution agreement with
E-Z-EM for North American sales, marketing and distribution of GADOLITE. The
Company plans to enter into similar agreements to market GADOLITE in Europe and
Asia. To date, however, no such arrangements have been established, and there
can be no assurance that any such agreements will be entered into. To the extent
that the Company determines not to, or is unable to, enter into co-promotion
agreements or to arrange for third party distribution of its other products or
to the extent that the agreement with E-Z-EM is terminated without a replacement
agreement, significant additional resources will be required to develop a sales
force. There can be no assurance that the Company will be able to establish such
a sales force or enter into such co-promotion or distribution agreements. In
addition, the Company currently has no arrangement for the sale and distribution
of any of its other products under development.
The Company has no expertise in the development of light sources and
associated light delivery devices required for the Company's Lu-Tex
photosensitizer program. Successful development, manufacturing, approval and
distribution of the Company's photosensitization products will require third
party arrangements for the required light sources, associated light delivery
devices and other equipment. The Company currently obtains lasers from Coherent
and LEDs from Quantum on a purchase order basis, and such entities are under no
obligation to continue to deliver light devices on an ongoing basis. Failure to
maintain such relationships may require the Company to develop additional
sources which may require additional regulatory approvals and could delay
commercialization of the Company's Lu-Tex products under development. There can
be no assurance that the Company will be able to establish or maintain
relationships with other sources on a commercially reasonable basis, if at all,
or that such devices will receive regulatory approval for use in photodynamic
therapy.
RELIANCE ON THIRD PARTY RELATIONSHIPS
The Company has no manufacturing facilities for commercial production of
its products under development, nor does the Company have experience in sales,
marketing or distribution. The Company's strategy for commercialization of its
products requires entering into various arrangements with corporate and other
collaborators to conduct clinical trials and to manufacture, distribute and
market its products. The Company will be dependent upon the success of these
outside parties performing their responsibilities. There can be no assurance
that such parties will perform their obligations as expected or that the
Company's reliance on others for the clinical development, manufacturing,
distribution and marketing of its products will not result in unforeseen
problems. The Company does not have the ability to conduct these development
activities in house. If one or more of these relationships were terminated or
the organizations did not perform up to expectations, the clinical development
of the Company's product candidates would likely be delayed and could be
substantially impaired depending on the availability and quality of substitute
development capabilities.
RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development
capabilities than the Company, as well as substantially more marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical companies by large collaborating partners could increase such
competitors' financial, marketing, manufacturing and other resources. There can
be no assurance that developments by others will not render the Company's
products or technologies noncompetitive or obsolete, or that the Company will be
able to keep pace with technological developments or other market factors.
Competitors 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 diagnostic, imaging and/or therapeutic effects than products
21
22
being developed by the Company. The Company is aware that one of its competitors
in the market for photodynamic therapy drugs has received marketing approval for
certain indications in the U.S., Canada, The Netherlands, France and Japan for
Photofrin. There can be no assurance that the Company's competitors will not
develop products that are safer, more effective and less costly than the
products developed by the Company and, therefore, present a serious competitive
threat to the Company's product offerings.
Further, the medical indications for which the Company is developing its
therapeutic products also can be treated, in the case of cancer, by surgery,
radiation and chemotherapy, and in the case of atherosclerosis, by surgery
(e.g., bypass), angioplasty, atherectomy, the use of stents and drug therapy.
These treatments are widely accepted in the medical community and have a long
history of use. In addition, technological advances with other therapies for
cancer and atherosclerosis could make such other therapies more efficacious or
cost-effective than Lu-Tex and could render the Company's technology
noncompetitive or obsolete. Also, there can be no assurance that physicians will
use either Gd-Tex as a radiation sensitizer or chemosensitizer in the case of
cancer or Lu-Tex as a photosensitizer in the case of cancer or atherosclerosis
to replace or supplement established treatments for such diseases or that the
therapeutic products the Company is developing will become competitive with
current or future treatments. Further, some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which when integrated with their product offering may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
REQUIREMENTS FOR ADDITIONAL FINANCING AND ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes, to establish
additional clinical and commercial-scale manufacturing arrangements and to
provide for the marketing and distribution of its products. The Company believes
that its cash, cash equivalents and short-term investments and amounts available
under a capital lease agreement will be adequate to satisfy its capital needs
through calendar 1997. However, the actual amount of the Company's capital
requirements will depend on many factors, including the status of the
development of products, the time and costs involved in conducting clinical
trials, obtaining regulatory approvals, and filing, prosecuting and enforcing
patent claims; competing technological and market developments; and the ability
of the Company to market and distribute its products and establish new
collaborative and licensing arrangements. The Company will attempt to raise any
necessary additional funds through equity or debt financings, collaborative
arrangements with corporate partners or from other sources. No assurance can be
given that such additional funds will be available on acceptable terms, if at
all. If adequate funds are not available from operations or additional sources
of financing, the Company's business, financial condition and results of
operations, will be materially and adversely affected.
DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL
The Company's ability to maintain its competitive position depends on its
ability to attract and retain qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract or retain such persons. The loss
of key personnel or the failure to recruit additional personnel or to develop
needed expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company relies
on consultants and advisors to assist in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by entities other than the Company and may have commitments to or consulting or
advisory contracts with other entities that may affect their ability to
contribute to the Company.
UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patent
protection for its products and preserve its trade secrets. In the U.S., the
Company owns or has exclusive rights to 26 issued patents, 18 allowed, and 41
pending patent applications. Outside the U.S., the Company is the owner or
exclusive licensee
22
23
of five counterpart patents, and 40 pending counterpart patent applications.
There can be no assurance that the Company's patent applications will result in
additional patents being issued or that issued patents will afford protection
against competitors with similar technology, nor can there be any assurance that
any patents issued to the Company will not be infringed by or designed around by
others. Even issued patents may later be modified or revoked by the U.S. Patent
and Trademark Office in proceedings instituted by third parties or otherwise
found to be invalid or unenforceable. Moreover, the Company believes that
obtaining foreign patents may be more difficult than obtaining domestic patents
because of differences in patent laws, and believes the protection provided by
foreign patents, if obtained, may be weaker than that provided by domestic
patents.
The Company has not conducted an extensive search of patents issued to
other companies, research or academic institutions or others, and no assurance
can be given that such patents do not exist, have not been filed or could not be
filed or issued which contain claims relating to the Company's technology,
products or processes. Because of the number of patents issued and patent
applications filed relating to biometallic and expanded porphyrin chemistries,
Pharmacyclics believes there is a significant risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to materials or processes
used or proposed to be used by the Company. If such patents have been or become
issued, the holders of such patents may bring claims against the Company for
infringement which may have a material adverse effect on the Company's business,
financial condition and results of operations. As a result, the Company may be
required to obtain licenses from others to develop, manufacture or market its
products. There can be no assurance that the Company will be able to obtain any
such licenses on commercially reasonable terms, if at all.
The Company is aware of several U.S. patents owned by or licensed to
Schering AG that relate to MRI contrast agents. Schering AG has sent
communications to the Company suggesting that GADOLITE may infringe certain of
such Schering AG patents. The Company has obtained advice of special patent
counsel that the technologies employed by the Company for its imaging products
under development do not infringe the claims of such patents. A determination of
the infringement of any such patents could have a material adverse effect on the
Company's business. There can be no assurance that Schering AG will not seek to
assert such patent rights against the Company, which would result in significant
legal costs and require substantial management resources. The Company is aware
that Schering AG has asserted such 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 such
patents. There can be no assurance that the Company would be able to obtain a
license from Schering AG, if required, on commercially reasonable terms, if at
all.
The Company also relies on trade secrets and proprietary know-how that it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, suppliers and licensees. No assurance can be given that others will
not independently develop substantially equivalent proprietary information and
techniques, that others will not otherwise gain access to the Company's
proprietary technology, or disclose such technology, or that the Company can
meaningfully protect its rights in such unpatented proprietary technology.
UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The future revenues and profitability of pharmaceutical and related
companies as well as the availability of capital to such companies may be
affected by the continuing efforts of government and third party payors to
contain or reduce costs of health care through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to government control. In the U.S., given recent federal and state
government initiatives directed at lowering the total cost of health care, it is
likely that the U.S. Congress and state legislatures will continue to focus on
health care reform and the cost of prescription pharmaceuticals and on the
reform of the Medicare and Medicaid systems. While the Company cannot predict
whether any such legislative or regulatory proposals will be adopted, the
announcement or adoption of such proposals could have a material adverse effect
on the Company's business, financial condition and results of operations.
23
24
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained by governmental
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the U.S. and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reform health care or reduce government insurance programs, may all result in
lower prices for the Company's products. The cost containment measures that
health care payors and providers are instituting and the effect of any health
care reform could materially adversely affect the Company's ability to operate
profitably.
PRODUCT LIABILITY EXPOSURE
The testing, manufacturing, marketing and sale of the products under
development by the Company entail an inherent risk that product liability claims
will be asserted against the Company. Although the Company is insured against
such risks up to a $3 million annual aggregate limit in connection with human
clinical trials and commercial sales of its products under development, there
can be no assurance that the Company's present product liability insurance is
adequate. A successful product liability claim in excess of the Company's
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations and may prevent the
Company from obtaining adequate product liability insurance in the future on
commercially reasonable terms. In addition, there can be no assurance that
product liability coverage will continue to be available in sufficient amounts
or at an acceptable cost. An inability to obtain sufficient insurance coverage
at an acceptable cost or otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of pharmaceutical products
developed by the Company. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the U.S. and other
countries. Clinical trials, manufacturing and marketing of products are subject
to the rigorous testing and approval process of the FDA and equivalent foreign
regulatory authorities. As a result, clinical trials and regulatory approval can
take a number of years to accomplish and require the expenditure of substantial
resources. To date, the Company has not received regulatory approval in the U.S.
or any foreign jurisdiction for the commercial sale of any of its products.
There can be no assurance that requisite FDA approvals or those of foreign
regulatory authorities will be obtained on a timely basis, if at all, or that
any approvals granted will cover the clinical indications for which the Company
may seek approval. 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. Failure to
obtain or maintain requisite governmental approvals, failure to obtain approvals
of the clinically intended uses or the identification of adverse side effects of
the Company's products under development could delay or preclude the Company
from further developing a particular product or from marketing its products, or
could limit the commercial use of its products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL REGULATION
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any significant action to
correct any material noncompliance, there can be no assurance that the Company
will not be required to incur
24
25
significant costs to comply with environmental and health and safety regulations
in the future. The Company's research and development involves the controlled
use of hazardous materials, including but not limited to certain hazardous
chemicals and radioactive materials. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
CONTROL BY EXISTING STOCKHOLDERS
The Company's officers, directors and principal stockholders, and certain
of their affiliates beneficially own approximately 57% of the Company's
outstanding Common Stock. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. Additionally, these
stockholders will have significant influence over major corporate transactions
as well as the election of directors of the Company and control over board
decisions.
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market prices for securities of pharmaceutical and biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Future announcements concerning the Company, its competitors or other
pharmaceutical and biotechnology companies including the results of testing and
clinical trials, technological innovations or new therapeutic products,
governmental regulation, developments in patent or other proprietary rights,
litigation or public concern as to the safety of products developed by the
Company or others and general market conditions may have a significant effect on
the market price of the Common Stock. The Company has not paid any cash
dividends on its Common Stock and does not anticipate paying any dividends in
the foreseeable future.
25
26
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------
Richard A. Miller, M.D........... 45 President, Chief Executive Officer and
Director
William C. Dow, Ph.D............. 41 Vice President, Chemical Research and
Development
Cheryl B. Jaszewski.............. 50 Vice President, Finance and Administration
Marc L. Steuer................... 49 Vice President, Business Development and
Chief Financial Officer
Stuart W. Young, M.D............. 53 Vice President, Medical Research
Thomas D. Kiley.................. 53 Director
Joseph S. Lacob(1)............... 40 Director
Patrick F. Latterell(1)(2)....... 38 Director
Joseph C. Scodari................ 43 Director
Craig C. Taylor(1)(2)............ 46 Director
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
DR. MILLER has served as President, Chief Executive Officer and a Director
since the Company was founded in April 1991. In 1989, Dr. Miller co-founded
CellPro, Inc. ("CellPro"), a public biotechnology company, and served as a
Director of CellPro from 1989 to 1991, and Chairman of CellPro's Scientific
Advisory Board until 1993. He continues to serve on CellPro's Scientific
Advisory Board. In 1984, Dr. Miller co-founded IDEC Pharmaceuticals Corporation
where he served as Vice President and a Director until February 1992. Dr. Miller
also is a Clinical Associate Professor of Medicine (Oncology) at Stanford
University Medical Center. Dr. Miller received his M.D., summa cum laude, from
the State University of New York Medical School and is board certified in both
Internal Medicine and Medical Oncology.
DR. DOW has served as Vice President, Chemical Research and Development
since February 1993 and previously as Senior Director, Chemical Research and
Development from July 1992 to February 1993. From 1987 to 1992, he was at
Salutar, Inc., a pharmaceutical company involved in research and development of
MRI contrast agents, where he held positions of increasing responsibility in
discovery and chemical development of contrast agents, last serving as Director,
Chemical Development and Manufacturing. Dr. Dow holds a B.S. and M.S. from
Stanford University in Chemistry and a Ph.D. in Chemistry from the California
Institute of Technology.
MS. JASZEWSKI has served as Vice President, Finance and Administration
since October 1992. From 1986 to 1991, she served as the Director, Planning and
Financial Analysis, which included strategic planning and mergers and
acquisitions, at Nellcor, Inc., a medical device company. From 1991 to 1992, Ms.
Jaszewski was a financial and administrative consultant to various private
companies. Ms. Jaszewski holds a B.A. in Economics and a M.B.A. from Stanford
University.
MR. STEUER has served as Chief Financial Officer and Vice President,
Business Development since November 1994. From April 1992 to November 1994 he
was Executive Vice President, Business Development and Commercial Affairs for
SciClone Pharmaceuticals, Inc. and also served as Chief Financial Officer. From
1985 to 1992, Mr. Steuer served in a variety of roles in the Pilkington
Visioncare Group ("PVG"), which developed, manufactured and distributed medical
devices, pharmaceuticals and equipment for the ophthalmic field. His positions
at PVG included General Manager, Ventures and Licensing and Chief Financial
Officer. Mr. Steuer was a member of the Board of Directors of SciClone
Pharmaceuticals, Inc. from
26
27
January 1993 through November 1994, and currently serves as a member of the
Board of Directors of a private company. Mr. Steuer received his M.S. and B.S.
degrees in Electrical Engineering from Columbia University and a M.B.A. from New
York University.
DR. YOUNG has served as Vice President, Medical Research since September
1993. Dr. Young is a board certified radiologist. From 1977 to 1994 Dr. Young
served as Director of the Contrast Media Laboratory in the Department of
Radiology at Stanford University School of Medicine and he was a tenured
Associate Professor until he joined the Company. Dr. Young received his M.D.
from the Indiana University School of Medicine and his Masters of Business
Management from Stanford University, where he was an A.P. Sloan Fellow.
MR. KILEY was appointed as a Director of the Company in June 1991. He has
been self-employed since 1988 as an attorney, consultant and investor. From 1980
to 1988, he was an officer of Genentech, Inc., serving variously as Vice
President and General Counsel, Vice President for Legal Affairs and Vice
President for Corporate Development. Mr. Kiley is also a Director of
Cardiogenesis Corporation, a medical device company, Geron, Inc., and Connective
Therapeutics, Inc., pharmaceutical companies, and certain private biotechnology
and other companies. Mr. Kiley received a B.S. in Chemical Engineering from
Pennsylvania State University and a J.D. from George Washington University.
MR. LACOB was appointed as a Director of the Company in June 1991. He is a
General Partner of Kleiner Perkins Caufield & Byers, a venture capital
investment firm, which he joined in 1987. Mr. Lacob is currently Chairman of the
Board of CellPro, Inc. and Microcide Pharmaceuticals and a director of
Heartport, Inc., as well as several private life science companies. Mr. Lacob
holds a B.S. in BioChemistry from the University of California, Irvine, a M.S.
in Public Health from the University of California, Los Angeles and a M.B.A.
from Stanford University.
MR. LATTERELL was appointed as a Director of the Company in June 1991. He
is a General Partner of Venrock Associates and Venrock Associates II, L.P.,
venture capital investment groups, which he joined in April 1989. Mr. Latterell
is currently a Director of Biocircuits Corporation, Geron Corporation, Vical,
Inc. and several private biomedical companies. Mr. Latterell holds S.B. degrees
in Biological Sciences and Economics from the Massachusetts Institute of
Technology and a M.B.A. from Stanford University.
MR. SCODARI was appointed as a Director of the Company in December 1994. He
is Corporate Executive Vice President, and President Pharmaceutical Division for
Centocor, Inc. Prior to joining Centocor, he was Senior Vice President and
General Manager, North American Ethicals for Rhone-Poulenc Rorer
Pharmaceuticals, Inc. where he held various positions since 1989. From 1987 to
1989, Mr. Scodari was Executive Vice President of Sterling Drugs U.S. Diagnostic
Imaging Division where he held responsibilities for all marketing and sales and
business development activities for Sterling's imaging agent business. Mr.
Scodari received a B.S. in Political Science from Youngstown State University.
MR. TAYLOR was appointed as a Director of the Company in June 1991. He is a
General Partner of AMC Partners 89, L.P., the general partner of Asset
Management Associates 1989, L.P., a private venture capital partnership. Mr.
Taylor has been with Asset Management Company, a venture management group, since
1977. Mr. Taylor is a Director of Occupational Health & Rehabilitation (formerly
Telor Ophthalmic Pharmaceuticals, Inc.), Metra BioSystems, Inc. and Lynx
Therapeutics, Inc., and several private companies. Mr. Taylor holds B.S. and
M.S. degrees in Physics from Brown University and a M.B.A. from Stanford
University.
ITEM 2. PROPERTIES
In 1993 the Company entered into an eight year lease agreement beginning in
February 1994 for 32,500 square foot facility in Sunnyvale, California. This
facility includes administrative space and research and development space. The
lease is a non-cancelable operating lease which expires in 2002. Rental payments
are based upon a gradual scale.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
27
28
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common shares of Pharmacyclics, Inc. are listed on the National
Association of Securities Dealers Automated Quotation National Market System
under the symbol PCYC. The following table presents quarterly information on the
high and low sales prices of the Company's common stock for the fiscal year
1996.
FISCAL YEAR HIGH LOW
--------------------------------------------------------------- ---- ---
1996
2nd Quarter.................................................... $16 3/4 $12
3rd Quarter.................................................... 15 12 3/4
4th Quarter.................................................... 20 1/4 13 3/4
As of August 31, 1996, the Company's common stock was held by 94
stockholders of record. The Company has never declared or paid dividends on its
capital stock and does not anticipate paying any dividends in the forseeable
future.
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.
PERIOD
FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
------------------------------------------------------ THROUGH
1992 1993 1994 1995 1996 JUNE 30, 1996
----- ------- ------- -------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
Revenues:
License and grant
revenues............... $ -- $ -- $ 3,000 $ 79 $ 301 $ 3,380
----- ------- ------- -------- ------- --------------
Operating expenses:
research and
development............ 487 3,161 6,909 9,330 7,641 27,528
General and
administrative......... 58 559 1,042 996 1,515 4,170
----- ------- ------- -------- ------- --------------
Total operating
expenses........ 545 3,720 7,951 10,326 9,156 31,698
----- ------- ------- -------- ------- --------------
Loss from operations........ (545) (3,720) (4,951) (10,247) (8,855) (28,318)
Interest income............. 22 148 164 187 940 1,461
Interest expense............ -- (8) (253) (419) (320) (1,000)
----- ------- ------- -------- ------- --------------
Loss before income taxes.... (523) (3,580) (5,040) (10,479) (8,235) (27,857)
Provision for income
taxes..................... -- -- (101) -- -- (101)
----- ------- ------- -------- ------- --------------
Net loss.................... $(523) $(3,580) $(5,141) $(10,479) $(8,235) $(27,958)
===== ======= ======= ======== ======= ==========
Net loss per share.......... $ (1.65) $ (1.05)
======== =======
Weighted average common and
common equivalent
shares.................... 6,353 7,815
======== =======
28
29
JUNE 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Cash and cash equivalents............. $ 2,116 $ 6,196 $ 8,690 $ 376 $ 13,950
Short-term investments................ -- -- -- -- 8,053
Total Assets.......................... 2,157 6,880 12,050 3,539 25,015
Long term obligations, excluding
current installments................ -- 228 1,880 1,429 941
Deficit accumulated during development
stage............................... (523) (4,103) (9,244) (19,723) (27,958)
Total Stockholders' equity
(deficit)........................... 2,152 6,249 8,769 (1,652) 21,991
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain statements of a forward-looking nature
relating to future events or the future performance of the Company. Such
statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed in
"Factors That May Affect Results" elsewhere in this report.
OVERVIEW
During the period from its inception in April 1991 through the fiscal year
ended June 30, 1992, the Company was engaged in organizational activities,
including negotiating agreements with The University of Texas with respect to
licensing of certain aspects of its core technology in biometallic chemistry and
recruiting scientific and management personnel. Since June 1992 the Company has
devoted substantially all of its resources to the research and development of
proprietary pharmaceutical products to facilitate and improve treatments for
cancer and atherosclerosis and to improve certain diagnostic imaging procedures.
As these products are still under development, no revenues have been derived
from the sale of products and the Company does not expect to receive revenues
from the sale of any of its products until calendar year 1997 at the earliest.
The Company has financed its operations primarily through the sale of
equity securities and, in October 1995, completed its initial public offering,
issuing 2,383,450 shares of its Common Stock, resulting in net proceeds of
approximately $26.0 million. In addition, cash has been received in connection
with entering into certain product licenses and license option agreements. No
revenues have been derived from the sale of products under development. The
Company is pursuing additional collaborative agreements for the financing of its
research and development efforts and for the commercialization of its products.
However, no assurance can be given that these efforts will result in any such
agreements or that the Company will obtain significant revenues therefrom.
The Company has been unprofitable since inception and had an accumulated
deficit of $28 million at June 30, 1996. Successful future operations depend
upon the Company's ability to develop, to obtain regulatory approval for and to
commercialize its products, of which there can be no assurance. The Company will
require additional funds to complete the development of its products and to fund
operating losses that are expected to be incurred in the next several years.
RESULTS OF OPERATIONS
Revenue
To date, Pharmacyclics has received only limited revenues and no revenues
from operations. During the fiscal year ending June 30, 1996, $301,000 was
recognized compared to $79,000 in fiscal 1995.
The fiscal 1996 revenue includes two milestone payments received pursuant
to an August 1995 product distribution agreement with E-Z-EM. Under this
agreement, the Company recorded $250,000 as revenue (net of licensing related
expenses paid to The University of Texas). In addition, $51,000 was received
under a
29
30
Small Business Innovation Research ("SBIR") grant from the National Cancer
Institute during the same period. All of the revenue recorded in fiscal 1995 was
from the same grant.
In fiscal 1994, the Company recognized $2,000,000 under an option whereby
the Company agreed, for six months, to refrain from entering into any
discussions or agreements relating to licensing certain technology. No license
agreement was consummated pursuant to this option. The Company also recognized
$1,000,000 under an agreement for the development and commercialization of
certain diagnostic imaging products in certain Asian countries. This agreement
was terminated during fiscal 1995.
Research and Development
Research and development expenses totaled $7,641,000 during fiscal 1996
compared to $9,330,000 during fiscal 1995, a decrease of 18%. The decrease was
due to fluctuations in the level of clinical activity relating to the Company's
products. During fiscal 1995, the Company was conducting multi-center Phase III
studies of GADOLITE(R) Oral Suspension and completing the preclinical studies
required for an Investigational New Drug Application (IND) filing for
gadolinium-texaphyrin (Gd-Tex). By comparison, fiscal 1996 included a Phase I
trial for lutetium-texphyrin (Lu-Tex) and Phase I and Phase Ib/II trials for
Gd-Tex, each of which required a smaller number of patients. There will continue
to be significant period-to-period variations in research and development
expenses related to the timing of clinical and preclinical trials and other
research activities. The Company currently expects its research and development
expenses to increase in future periods due to planned expansion in clinical
trials and research activities.
For the year ended June 30, 1995 research and development spending totaled
$6,909,000. This increase during fiscal 1995 of 35% was the result of growth in
the research organization and the costs associated with the Phase III
GADOLITE(R) multi-center trials.
General and Administrative
General and administrative expenses totaled $1,515,000 during fiscal 1996
compared to $996,000 during fiscal 1995, an increase of 52%. The increase was
primarily the result of insurance, professional services and other expenses
related to conducting business as a public company. The Company expects that
costs related to being a public company will result in higher levels of general
and administrative expenditures in future years.
General and administrative expenses decreased slightly from $1,042,000 in
fiscal 1994 to $996,000 in fiscal 1995.
Interest and Other Income
Interest income, net of interest expense totaled $620,000 for fiscal 1996,
compared to net interest expense of $232,000 for the same period in the prior
fiscal year. The increase in interest income is the result of interest earned on
the proceeds from the Company's initial public offering completed in October
1995. The expenses in the prior year were related to borrowings associated with
capital lease financing and notes payable which offset interest on income from
cash and cash equivalents.
Interest expense, net of interest income, during fiscal 1994 was $89,000.
This increase in net interest expense reflects interest on lease lines resulting
from growth in equipment and facilities.
Income Taxes
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $23.0 million and tax credits carryforwards of approximately $1.3
million for federal and state income tax reporting purposes, respectively. These
amounts expire at various times through 2010. A change of ownership, as defined
under Section 382 of the Internal Revenue Code, occurred as a result of the
Company's initial public offering. Accordingly, utilization of approximately
$17.0 million of the Company's net operating loss carryforwards will be subject
to an annual limitation of approximately $4.0 million. See Note 5 of Notes to
Financial Statements.
30
31
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through June 30,
1996 primarily through the sale of equity securities, payments under third party
agreements and proceeds from its initial public offering. From inception through
June 30, 1996, the Company has used approximately $25.3 million of cash for
operating activities and approximately $2.8 million of cash for the purchase of
laboratory and office equipment and payments under capital lease agreements.
Net cash used in operating activities of $7.4 million for fiscal year ended
June 30, 1996, resulted primarily from the net loss incurred during that period
and increases in accounts payable, accrued liabilities, and depreciation
expense. On June 30, 1996, the Company had approximately $22.0 million in cash,
cash equivalents and short-term investments.
The Company expects to incur ongoing levels of expenditures which may not
only fluctuate from quarter to quarter but which are expected to increase as the
levels of clinical activity for the Company's products under development
increases. Additional expenditures may occur in commercializing the Company's
first product, GADOLITE. As a result of both these factors, as well as the costs
associated with being a public company, the Company expects to report increased
expenses for research and development and general and administrative activities
for at least the next several years. The Company's future liquidity and capital
requirements will depend upon numerous factors, including the progress of the
Company's product development efforts, the progress of the Company's clinical
trials, actions relating to regulatory matters, the costs and timing of
expansion of product development, manufacturing, marketing and sales activities,
future third-party collaborations, the extent to which the Company's products
gain market acceptance, and competitive developments. Although the Company
believes that the Company's current cash, cash equivalents and short-term
investments will be sufficient to meet the Company's operating and capital
requirements through calendar 1997, there can be no assurance that the Company
will not require additional financing within this time frame.
The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. The factors described above will impact the Company's future capital
requirements and the adequacy of its available funds. The Company may be
required to raise additional funds through public or private financing,
collaborative relationships or other arrangements. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories. The failure of the Company
to raise capital when needed could have a material adverse effect on the
Company's business, financial condition and results of operations. See " Factors
That May Affect Results."
FUTURE POSSIBLE COMPENSATION EXPENSE
In May 1996, the Company granted to certain employees options to purchase
approximately 211,000 shares of Common Stock at $17.75 per share (the then fair
market value of such shares). Approximately 160,000 of such options were in
excess of the number of options authorized to be granted under the Company's
1995 Stock Option Plan. The Company expects to grant additional options to
purchase approximately 200,000 shares of Common Stock prior to the 1996 Annual
Meeting of Stockholders currently scheduled for December 1996 (the "Annual
Meeting"), with an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. All such option grants are subject
to stockholder approval at the Annual Meeting. As a result, in the event the
fair market value of the Company's Common Stock on the date of the Annual
Meeting exceeds the exercise price of the respective stock options, the Company
will be required to record compensation expense in an amount equal to such
difference multiplied by the number of shares subject to such option and
recognized on a straight-line basis over the vesting period of the option,
generally five years.
31
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants..................................................... 33
Balance Sheet -- June 30, 1996, and 1995.............................................. 34
Statement of Operations -- Years ended June 30, 1996, 1995 and 1994 and Period from
Inception (April 1991) to June 30, 1996............................................. 35
Statement of Cash Flows -- Years ended June 30, 1996, 1995 and 1994 and Period from
Inception (April 1991) to June 30, 1996............................................. 36
Statement of Stockholders' Equity -- Period from Inception (April 1991) to June 30,
1996................................................................................ 37
Notes to Financial Statements......................................................... 38
32
33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Pharmacyclics, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of stockholders' equity (deficit) present
fairly, in all material respects, the financial position of Pharmacyclics, Inc.
(a development stage company) at June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, and for the period from inception (April 1991) through June 30,
1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
August 20, 1996
33
34
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS)
JUNE 30,
---------------------
1996 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 13,950 $ 376
Short-term investments............................................... 8,053 --
Prepaid expenses..................................................... 241 164
-------- --------
Total current assets......................................... 22,244 540
Property and equipment, net............................................ 2,622 2,850
Deposits............................................................... 54 54
Notes receivable from employee......................................... 95 95
-------- --------
$ 25,015 $ 3,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................... $ 753 $ 689
Accrued liabilities.................................................. 300 257
Current portion of capital lease obligations......................... 917 749
Notes payable........................................................ -- 2,000
-------- --------
Total current liabilities.................................... 1,970 3,695
Capital lease obligations.............................................. 941 1,429
Deferred rent.......................................................... 113 67
-------- --------
Total liabilities............................................ 3,024 5,191
-------- --------
Commitments (Note 6)
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; authorized -- 1,000,000 shares at
June 30, 1996; no shares issued and outstanding................... -- --
Convertible preferred stock, $0.0001 par value;
authorized -- 6,666,667 shares at June 30, 1995; shares issued and
outstanding -- 4,507,839 at June 30, 1995......................... -- --
Common stock, $0.0001 par value; authorized -- 10,000,000 shares at
June 30, 1995, 12,000,000 at June 30, 1996; shares issued and
outstanding -- 908,702 at June 30, 1995 and 8,549,424 at June 30,
1996 respectively................................................. 1 --
Additional paid-in capital........................................... 49,948 18,071
Deficit accumulated during development stage......................... (27,958) (19,723)
-------- --------
Total stockholders' equity (deficit)......................... 21,991 (1,652)
-------- --------
$ 25,015 $ 3,539
======== ========
The accompanying notes are an integral part of these financial statements.
34
35
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM
INCEPTION
(APRIL 1991)
YEAR ENDED JUNE 30, THROUGH JUNE
-------------------------------- 30,
1996 1995 1994 1996
------- -------- ------- --------------
Revenues:
License and grant revenues................... $ 301 $ 79 $ 3,000 $ 3,380
------- -------- ------- --------
Operating expenses:
Research and development..................... 7,641 9,330 6,909 27,528
General and administrative................... 1,515 996 1,042 4,170
------- -------- ------- --------
Total operating expenses............. 9,156 10,326 7,951 31,698
------- -------- ------- --------
Loss from operations........................... (8,855) (10,247) (4,951) (28,318)
Interest income................................ 940 187 164 1,461
Interest expense............................... (320) (419) (253) (1,000)
------- -------- ------- --------
Loss before income taxes....................... (8,235) (10,479) (5,040) (27,857)
Provision for income taxes..................... -- -- (101) (101)
------- -------- ------- --------
Net loss....................................... $(8,235) $(10,479 $(5,141) $(27,958)
======= ======== ======= ========
Net loss per share (Note 1).................... $ (1.05) $ (1.65)
======= ========
Weighted average common and common equivalent
shares (Note 1).............................. 7,815 6,353
======= ========
The accompanying notes are an integral part of these financial statements.
35
36
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
INCEPTION
(APRIL 1991)
THROUGH
YEAR ENDED JUNE 30, JUNE 30,
----------------------------- ------------
1996 1995 1994 1996
-------- -------- ------- ------------
Cash flows from operating activities:
Net loss........................................... $ (8,235) $(10,479) $(5,141) $(27,958)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 732 643 321 1,776
Write-down of fixed assets...................... -- 118 -- 118
Other........................................... -- 39 -- 39
Gain on sale of short-term investments.......... -- (22) -- (22)
Changes in assets and liabilities:
Prepaid expenses................................... (77) (89) 9 (231)
Deposits........................................... -- (1) 19 (54)
Notes receivable from employee..................... -- (95) -- (95)
Accounts payable................................... 64 47 411 753
Accrued liabilities................................ 43 109 74 300
Deferred rent...................................... 46 46 21 113
-------- -------- ------- ------------
Net cash used in operating activities.............. (7,427) (9,684) (4,286) (25,261)
-------- -------- ------- ------------
Cash flows from investing activities:
Purchase of property and equipment................. (16) (52) (770) (1,085)
Proceeds from sale of property and equipment....... -- -- 112 112
Purchase of short-term investments................. (8,053) (5,478) -- (14,380)
Proceeds from the sale of short-term investments... -- 5,500 849 6,349
-------- -------- ------- ------------
Net cash (used in) provided by investing
activities......................................... (8,069) (30) 191 (9,004)
-------- -------- ------- ------------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs.... 26,278 9 38 26,336
Proceeds from notes payable........................ 1,000 2,000 -- 3,000
Issuance of convertible preferred stock, net of
issuance costs.................................. 2,550 -- 7,623 20,514
Payments under capital lease obligations........... (758) (609) (225) (1,635)
-------- -------- ------- ------------
Net cash provided by financing activities.......... 29,070 1,400 7,438 48,215
-------- -------- ------- ------------
Increase (decrease) in cash and cash equivalents..... 13,574 (8,314) 3,343 13,950
Cash and cash equivalents at beginning of period..... 376 8,690 5,347 --
-------- -------- ------- ------------
Cash and cash equivalents at end of period........... $ 13,950 $ 376 $ 8,690 $ 13,950
======== ======== ======= =========
Supplemental disclosures of cash flows information:
Income taxes paid during the period................ $ -- $ -- $ 101 $ 101
======== ======== ======= =========
Interest paid during the period.................... $ 320 $ 352 $ 238 $ 918
======== ======== ======= =========
Supplemental disclosure of noncash investing and
financing activities:
Property and equipment acquired under capital lease
obligations..................................... $ 437 $ 317 $ 2,367 $ 3,492
======== ======== ======= =========
Warrants issued.................................... $ -- $ 49 $ -- $ 49
======== ======== ======= =========
Conversion of notes payable and accrued interest
into convertible preferred stock................ $ 3,051 $ -- $ -- $ 3,051
======== ======== ======= =========
The accompanying notes are an integral part of these financial statements.
36
37
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONVERTIBLE DEFICIT
PREFERRED COMMON ADDITIONAL ACCUMULATED
STOCK STOCK PAID-IN DURING
-------------------- ------------------- ---------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ------- ---------- ------- ---------- ----------- --------
Issuance of common stock for cash at $0.02 -- $ -- 400,000 $ -- $ 6 $ -- $ 6
per share................................
----------- ------- ---------- ------- ---------- ----------- --------
Balance at June 30, 1991................... -- -- 400,000 -- 6 -- 6
Issuance of common stock for cash at an -- -- 97,111 -- 2 -- 2
average price of $0.02 per share.........
Issuance of convertible preferred stock for 2,040,784 -- -- -- 2,667 -- 2,667
cash, net of issuance costs, at an
average price of $1.32 per share.........
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 -- -- 49,000 -- 3 -- 3
average price of $0.06 per share.........
Issuance of convertible preferred stock for 1,580,095 -- -- -- -- 7,674
cash, net of issuance costs, at $4.88 per
share....................................
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 -- -- 324,188 -- 38 -- 38
stock options at an average price of
$0.12 per share..........................
Issuance of convertible preferred stock for 886,960 -- -- -- -- 7,623 --
cash, net of issuance costs, at an
average price of $8.63 per share.........
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 -- -- 38,403 -- 9 -- 9
stock options at an average price of
$0.24 per share..........................
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 353,483 -- -- -- 3,051 -- 3,051
notes payable and accrued interest at an
average of $8.63 per share...............
Issuance of convertible preferred stock for 295,649 -- -- -- 2,550 -- 2,550
cash, net of issuance costs, at an
average price of $8.63 per share.........
Issuance of common stock upon initial -- -- 2,383,45 1 26,042 -- 26,043
public offering, net of issuance costs,
for cash at $12 per share................
Conversion of convertible preferred stock (5,156,971) -- 5,156,971 -- -- -- --
into common stock........................
Issuance of common stock upon exercise of -- -- 91,922 -- 122 -- 122
stock options at an average exercise
price of $1.33 per share.................
Issuance of common stock upon exercise of -- -- 8,379 -- 86 -- 86
purchase rights at an exercise price of
$10.20 per share.........................
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
========== ======== ========= ======== ========= =========== =========
The accompanying notes are an integral part of these financial statements.
37
38
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company
Pharmacyclics, Inc. (the "Company") was incorporated in Delaware in April
1991 and commenced operations during 1992 to develop and market pharmaceutical
products derived from biometallic chemistry for the treatment of certain
cancers, atherosclerosis diseases and contrast agents for magnetic resonance
imaging. Since its inception the Company has been in the development stage,
principally involved in research and development and other business planning
activities, with no revenues from product sales. Successful future operations
depend upon the Company's ability to develop, to obtain regulatory approval for
and to commercialize its products. The Company expects that additional funds
will be required to complete the development of its products and to fund
operating losses that are expected to be incurred in the next several years.
Initial public offering
In October 1995 the Company effected a 2 for 3 reverse stock split. All
share and per share amounts have been adjusted to retroactively reflect this
stock split.
The Company completed its initial public offering on October 23, 1995,
issuing 2,150,000 shares of its common stock. Upon the closing of the offering,
all outstanding shares of Convertible Preferred Stock were automatically
converted into 5,156,971 shares of common stock. On November 6, 1995, the
underwriters of the initial public offering exercised their over-allotment
option with respect to an additional 233,450 shares of common stock. The
Company's initial public offering resulted in net proceeds of approximately
$26.0 million.
Management's use of estimates and assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Net loss per share
The Company's historical capital structure was not indicative of its
prospective structure due to the conversion of all shares of Convertible
Preferred Stock into common stock concurrent with the closing of the Company's
initial public offering in October 1995. Accordingly, net loss per share for the
year ended June 30, 1994 is not considered meaningful and has not been presented
herein.
Net loss per share for the years ended June 30, 1995 and 1996 is computed
using the weighted average number of outstanding shares of common stock. In
addition, the computation includes the effect of the conversion of all shares of
Series A, A1, B and C Convertible Preferred Stock into 5,156,971 shares of
common stock concurrent with the closing of the Company's initial public
offering as if they were converted into shares of common stock on July 1, 1994.
Common stock equivalent shares arising from stock options and warrants are
excluded from the computation because their effect is antidilutive, except that
common stock equivalent shares arising from stock options and warrants (using
the treasury stock method and the initial public offering price) issued during
the twelve month period prior to the initial public offering are included in the
computation of net loss per share as if they were outstanding for all periods
presented prior to the initial public offering.
38
39
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash equivalents and short-term investments
All highly liquid investments purchased with maturity at the date of
purchase of three months or less are considered to be cash equivalents.
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). The adoption of SFAS 115 did not have a material
impact on the Company's financial condition or results of operations. The
Company has classified its cash equivalents and short-term investments as
"available-for-sale." For all periods presented, cost of investments
approximated fair market value.
The Company's cash, cash equivalents and short-term investments consisted
of the following (in thousands):
JUNE 30,
------------------
INVESTMENT TYPE 1996 1995
----------------------------------------------------------------- ------- ----
Cash in bank..................................................... $ 360 $ 2
Money market..................................................... 6,562 374
Debt (state or political subdivision)............................ 4,014 --
Debt (corporate)................................................. 3,014 --
------- ----
Cash and cash equivalents.............................. $13,950 $376
======= ====
Debt (state or political subdivision)............................ $ 1,013 $ --
Debt (corporate)................................................. 7,040 --
------- ----
Short-term investments................................. $ 8,053 $ --
======= ====
Concentration of credit risk
The Company deposits its excess cash with financial institutions and
invests such excess cash in debt instruments of financial institutions,
corporations and government entities with strong credit ratings. Management of
the Company believes they have established guidelines relative to
diversification and maturities that maintain safety and liquidity.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally four to eight years, or the lease term of the respective
assets, if applicable. Amortization of leasehold improvements is computed using
the straight-line method over the shorter of their estimated useful lives or
lease terms.
Research and development
Research and development costs are charged to expense as incurred.
Income taxes
The Company provides for income taxes using the liability method. This
method requires that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the tax bases
of assets and liabilities and their financial statement reported amounts.
Reclassifications
Certain 1994 amounts have been reclassified to conform with the current
presentation.
39
40
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying value of capital lease obligations approximate fair value due
to the short maturity of those instruments.
Adoption of recent accounting standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121")
which requires the Company to review for impairment its long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
such assets might not be recoverable. In certain situations, an impairment loss
would be recognized. The Company will adopt SFAS 121 during fiscal 1997 and,
based on its initial evaluation, does not expect its adoption to have a material
impact on the Company's financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") which established a fair value based method of
accounting for stock-based compensation plans and requires additional
disclosures for those companies who elect not to adopt the new method of
accounting. The Company will adopt SFAS 123 during fiscal 1997. The Company
intends to continue to account for employee stock options using the intrinsic
value method prescribed by APB Opinion No. 25 and to adopt the "disclosure only"
pro forma alternative described in SFAS 123.
NOTE 2 -- BALANCE SHEET COMPONENTS:
Property and equipment consists of the following (in thousands):
JUNE 30,
--------------------
1996 1995
------- ------
Equipment....................................................... $ 2,250 $1,802
Furniture and fixtures.......................................... 324 318
Leasehold improvements.......................................... 1,689 1,689
------- ------
4,263 3,809
Less accumulated depreciation and amortization.................. (1,641) (959)
------- ------
$ 2,622 $2,850
======= ======
Accrued liabilities consists of the following (in thousands):
JUNE 30,
---------------
1996 1995
---- ----
Employee compensation............................................... $220 $184
Other............................................................... 80 73
---- ----
$300 $257
==== ====
NOTE 3 -- NOTES RECEIVABLE FROM EMPLOYEE:
In September 1994, the Company loaned an employee approximately $65,000.
This note receivable bears interest at 5.86%, with interest payable annually and
principal due in full on August 31, 1997. In April 1995, the Company loaned the
same employee approximately $30,000. This note receivable bears interest at
7.19%, with principal and interest due in full on February 28, 1998.
40
41
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock
The Company has issued certain shares of its common stock to employees and
consultants. Under the terms of the agreements related to issuance, the Company
has the right to repurchase, at the stockholder's original cost, a declining
percentage of the shares issued for a stipulated period from the date of
issuance. At June 30, 1996 20,833 shares were subject to such repurchase rights.
Preferred Stock
In September 1995, the Company amended its Certificate of Incorporation
effective upon the conversion of the Convertible Preferred Stock to authorize
1,000,000 shares of Preferred Stock, par value $0.0001 per share. The Board of
Directors is authorized to issue the Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
Warrants
In connection with entering into certain capital leases, the Company issued
to lessors warrants to purchase 73,042 shares of Convertible Preferred Stock at
a weighted average exercise price of $4.49 per share. The warrants are
exercisable at any time prior to their expiration in 2000.
In July 1995, in connection with certain short-term note agreements entered
into prior to the Company's initial public offering, the Company issued to the
holders of such notes payable warrants to purchase 57,976 shares of Series C
Convertible Preferred Stock at an exercise price of $8.63 per share.
Also in July 1995, the Company issued warrants to purchase 66,522 shares of
Series C Convertible Preferred Stock at an exercise price of $8.63 per share to
certain holders of such stock, in exchange for an agreement by the holders to
modify certain rights received in connection with the Series C financing which
occurred in June 1994.
Management ascribed a nominal value to these warrants and has reserved
197,540 shares of common stock for future issuance upon exercise of such
warrants. In connection with the Company's initial public offering, the above
warrants were converted into warrants to purchase shares of common stock.
Stock Option Plans
The 1992 Stock Option Plan (the "1992 Plan"), as amended, authorizes the
Board of Directors to grant incentive stock options and non-statutory stock
options to employees, directors and consultants to purchase up to 1,233,334
shares of common stock. Under the 1992 Plan, incentive stock options are granted
at a price not less than 100% of the estimated fair value of the stock on the
date of grant, as determined by the Board of Directors. Nonqualified stock
options are granted at a price not less than 85% of the estimated fair value of
the stock on the date of grant, as determined by the Board of Directors. To
date, all options granted under the 1992 Plan have been granted at 100% of the
estimated fair value of the common stock as determined by the Board of
Directors.
Generally, options granted under the 1992 Plan are exercisable on and after
the date of grant, subject to the Company's right to repurchase from the
optionee at the optionee's cost per share, any unvested shares which the
optionee has purchased and holds in the event the optionee attempts to dispose
of such shares or in the event of the optionee's termination of employment with
or without cause. The Company's right to repurchase lapses as the shares become
vested. Generally, shares subject to options granted under the 1992
41
42
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 834,881 shares of common stock, plus an additional
number of shares on the first trading day of each calendar year, commencing
January 1, 1996, equal to 1% of the number of shares of common stock outstanding
on the last day of the preceding calendar year not to exceed 500,000 shares per
year. Shares of common stock subject to outstanding options, including options
granted under the 1992 Plan, that expire or terminate prior to exercise will be
available for future issuance under the 1995 Plan.
Under the 1995 Plan, employees (including officers), non-employee members
of the Board of Directors (other than those serving as members of the
Compensation Committee) and independent consultants may, at the discretion of
the plan administrator, be granted options to purchase shares of common stock at
an exercise price not less than 85% of the fair market value of such shares on
the grant date. Non-employee members of the Board of Directors will also be
eligible for automatic option grants under the Company's Non-Employee Directors
Stock Option Plan. Generally, shares subject to options under the 1995 Plan vest
over a five-year period, and are exercisable for a period of ten years.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of common stock. Options may also be exercised on
a cashless basis through the same-day sale of the purchased shares. The
Compensation Committee may permit the optionee to pay the exercise price through
a promissory note payable in installments over a period of years. The amount
financed may include any federal or state income and employment taxes incurred
by reason of the option exercise. The Compensation Committee has the authority
to effect, from time to time, the cancellation of outstanding options under the
1995 Plan, including options incorporated from the 1992 Plan, in exchange for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the common stock
on the new grant date.
In the event the Company is acquired by merger, consolidation or asset
sale, the shares of common stock subject to each option outstanding at the time
under the 1995 Plan will immediately vest in full, except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the acquiring entity, and options will accelerate to the extent not assumed by
the acquiring entity. Any assumed options will accelerate and assigned
repurchase rights will terminate upon the optionee's involuntary termination
within 18 months following 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 1995 Plan also authorizes stock appreciation rights, which provide the
holders with the election to surrender their outstanding options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of common stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of common stock. To
date no such rights have been issued.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on August 1, 2005, unless sooner terminated by the Board.
42
43
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity under the 1992 Plan and 1995 Plan
(in thousands, except per share amounts):
OPTIONS OPTIONS OPTION PRICE PER
AVAILABLE OUTSTANDING SHARE
--------- ----------- -----------------
Balance at June 30, 1993....................... 520 480 $0.08 - $ 0.49
Options exercised.............................. -- (324) $0.08 - $ 0.49
Options granted................................ (167) 167 $0.49 - $ 5.25
Options cancelled.............................. 8 (8) $0.08 - $ 0.49
---- ----
Balance at June 30, 1994....................... 361 315 $0.08 - $ 5.25
Options exercised.............................. -- (39) $0.08 - $ 0.49
Options granted................................ (193) 193 $3.75
Options cancelled.............................. 38 (38) $0.49 - $ 3.75
---- ----
Balance at June 30, 1995....................... 206 431 $0.08 - $ 5.25
Options authorized............................. 318 --
Options exercised.............................. -- (92) $0.08 - $18.625
Options granted................................ (472) 472 $7.50 - $17.75
Options cancelled.............................. 11 (11) $0.49 - $17.75
---- ----
Balance at June 30, 1996....................... 63 800 $0.08 - $17.75
==== ====
At June 30, 1996 options to purchase 205,221 shares were vested.
In May 1996, the Company granted options to purchase approximately 211,000
shares of common stock at $17.75 (the then fair market value of such shares) per
share to certain employees. The Company expects to grant additional options to
purchase approximately 200,000 shares of common stock prior to the 1996 Annual
Meeting of Stockholders currently scheduled for December 1996 (the "Annual
Meeting"), with an exercise price equal to the fair market value of the
Company's common stock on the date of grant. All such option grants are subject
to stockholder approval at the Annual Meeting. As a result, the Company will be
required to record compensation expense in the event the fair market value of
the Company's common stock on the date of the Annual Meeting exceeds the
exercise price of the respective stock options, in an amount equal to such
difference multiplied by the number of shares subject to such option and
recognized on a straight-line basis over the vesting period of the option,
generally five years.
1995 Non-Employee Directors Stock Option Plan. The Company's 1995
Non-Employee Directors Stock Option Plan (the "Directors Plan") was adopted by
the Board of Directors on August 2, 1995. Automatic option grants are made at
periodic intervals to eligible non-employee Board members under the Directors
Plan. The Directors Plan became effective as of the effective date of the
Company's initial public offering. A total of 166,667 shares of common stock
have been reserved for issuance under the Directors Plan.
Each individual serving as a non-employee Board member on the effective
date of the Company's initial public offering was automatically granted a
non-statutory option to purchase 5,000 shares of common stock, vesting in equal
monthly installments for one year after the grant date. Each individual first
elected or appointed as a non-employee Board member after the effective date of
the Company's initial public offering will automatically be granted, on the date
of such election or appointment, a non-statutory option to purchase 10,000
shares of common stock vesting over five years. In addition, on the date of each
Annual Stockholders Meeting, beginning with the 1996 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member after that
Annual Meeting and has been a member of the Board for at least six months will
automatically be granted a non-statutory option to purchase 5,000 shares of
common stock vesting in equal monthly installments for one year after the grant
date. There will be no limit on the number of such
43
44
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
annual 5,000-share option grants any one non-employee Board member may receive
over his or her period of continued Board service. The exercise price per share
of each automatic option grant will be equal to the fair market value of the
common stock on the automatic grant date. Each automatic option will be
immediately exercisable; however, any shares purchased upon exercise of the
option will be subject to repurchase should the optionee's service as a
non-employee Board member cease prior to vesting in the shares. Each 10,000-
share grant will vest in five equal and successive annual installments over the
optionee's period of Board service. Each 5,000-share grant will vest in twelve
equal and successive monthly installments over the optionee's period of Board
service.
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 automatic grant will vest in
full so that each such option will become exercisable for fully vested shares.
Upon the acquisition of 50% or more of the Company's outstanding voting stock
pursuant to a hostile tender offer, each automatic option grant outstanding for
at least six months may be surrendered automatically or be cancelled in exchange
for a cash distribution to the director based upon the tender offer price.
THE DIRECTORS PLAN WILL TERMINATE IN ALL EVENTS ON AUGUST 1, 2005.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan"), was adopted by the Board of Directors on August 2, 1995.
A total of 50,000 shares of common stock are reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section 423
of the Internal Revenue Code, provides for 24-month offering periods with
purchases occurring at six month intervals. The initial offering period
commenced on October 23, 1995. The Purchase Plan is administered by the
Compensation Committee of the Board. Employees become eligible to participate in
the initial offering period if they are employed by the Company for at least 20
hours per week and five months per calendar year. For subsequent offering
periods, employees will become eligible to participate if they are employed by
the Company for at least 20 hours per week and five months per calendar year and
have completed 90 days of service with the Company or any affiliate. The
Purchase Plan permits eligible employees to purchase common stock through
payroll deductions, which may not exceed 10% of an employee's cash compensation.
The price of stock purchased under the Purchase Plan will generally be 85% of
the lower of the fair market value of the common stock at the beginning of the
24-month offering period or on the applicable semi-annual purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically following termination of
employment with the Company. Each outstanding purchase right will be exercised
immediately prior to a merger or consolidation. The Board may amend or terminate
the Purchase Plan immediately after the close of any offering period. However,
the Board may not materially increase the number of shares of common stock
available for issuance or materially modify the eligibility requirements for
participation or the benefits available to participants without stockholder
approval. The Purchase Plan will in all events terminate in October 2005.
NOTE 5 -- INCOME TAXES:
The provision for income taxes for the year ended June 30, 1994 consists
primarily of foreign withholding taxes on payments received by the Company under
a license agreement (Note 7).
44
45
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets (liabilities) are summarized as follows (in thousands):
JUNE 30,
--------------------
1996 1995
-------- -------
Deferred tax assets:
Net operating loss carryforwards............................ $ 9,193 $ 5,926
Tax credit carryforwards.................................... 1,300 1,100
Capitalized start-up costs.................................. 927 935
Other....................................................... 240 110
-------- -------
Gross deferred tax assets................................... 11,660 8,071
Less valuation allowance.................................... (11,660) (7,997)
Net deferred tax assets..................................... -- 74
Deferred tax liabilities:
Other....................................................... -- (74)
-------- -------
$ -- $ --
======== =======
A 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 loss before income taxes as
summarized below (in thousands):
YEAR ENDED JUNE 30,
-------------------------------
1996 1995 1994
------- ------- -------
Tax benefit at statutory rate....................... $ 2,882 $ 3,563 $ 1,714
State income taxes, net of federal benefit.......... -- -- (1)
Foreign taxes....................................... -- -- (100)
Net operating loss carryforward for which no benefit
was available..................................... (2,882) (3,563) (1,714)
------- ------- -------
$ -- $ -- $ (101)
======= ======= =======
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $23.0 million and tax credits carryforwards of approximately $1.3
million for federal and state income tax reporting purposes, respectively. These
amounts expire at various times through 2010.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses and tax credit carryovers that can be carried forward may be
impaired or limited in certain circumstances. These circumstances include, but
are not limited to, a cumulative stock ownership change of greater than 50%, as
defined, over a three year period. Such an ownership change occurred as a result
of the Company's initial public offering. As a result, utilization of
approximately $17,000,000 of the Company's federal and state net operating loss
and tax credit carryforwards will be subject to an annual limitation of
approximately $4,000,000.
45
46
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- COMMITMENTS:
The Company leases its facilities under a non-cancelable operating lease
which expires in 2001. The Company also leases certain assets under long-term
lease agreement that are classified as capital leases. The total amount of
assets acquired under capital lease arrangements which is included in property
and equipment (Note 2), is as follows (in thousands):
JUNE 30,
-------------------
1996 1995
------- -------
Equipment...................................................... $ 2,154 $ 1,619
Furniture and fixtures......................................... 278 375
Leasehold improvements......................................... 1,050 1,050
------- -------
3,482 3,044
Less accumulated depreciation and amortization................. (1,381) (811)
------- -------
$ 2,101 $ 2,233
======= =======
The capital lease agreements require the Company, among other things, to
pay insurance and maintenance costs. Under the terms of a capital lease
agreement, the Company may acquire additional equipment of up to $385,000 at
June 30, 1996.
Future minimum lease payments at June 30, 1996 under all non-cancelable
operating and capital leases are as follows (in thousands):
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
----------------------------------------------------------------- ------ ---------
1997............................................................. $1,085 $ 400
1998............................................................. 723 407
1999............................................................. 171 392
2000............................................................. 113 371
Thereafter....................................................... -- 572
------ ---------
$2,092 $ 2,142
=======
------
Less amount representing interest................................ (234)
------
1,858
Less current portion............................................. (917)
------
Long-term portion of capital lease obligations................... $ 941
======
Rent expense for the years ended June 30, 1993, 1994, 1995 and 1996 was
$104,000, $236,000, $366,000, and $366,000 respectively, and $1,075,000 for the
period from inception through June 30,1996. The terms of the facility lease
provide for rental payments on a graduated scale. The Company recognizes rent
expense on a straight-line basis over the lease period and has accrued for rent
expense incurred but not paid at June 30, 1996.
The Company has a manufacturing and supply agreement with a third party
under which clinical and commercial quantities of certain products will be
manufactured for the Company for a period of five years. Certain minimum
quantities of manufactured product will be required to be purchased by the
Company from this party. Upon FDA approval and commercialization of the product,
minimum quantities approximate $8,500,000 over the contractual period. In
addition, the Company will be obligated to make certain payments to this party
for validation, quality assurance and technical services associated with product
manufacturing.
46
47
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LICENSE AND MARKETING AGREEMENTS:
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. Each agreement requires the Company to pay royalties to the
University. Royalties totaling $250,000 were paid under the agreements through
June 30, 1996 in connection with the E-Z-EM, Inc. ("E-Z-EM") agreement described
below.
During fiscal 1994, the Company received $2,000,000 from a corporation
under an option agreement whereby the Company agreed, for a six month period of
time, to refrain from entering into any discussions or agreements relating to
the licensing or sale of certain of the Company's future products in Europe and
Japan. The Company recorded the $2,000,000 as license income when management
ascertained that the Company had complied with all requirements under the option
agreement.
In April 1994, the Company entered into a license agreement with a
corporation for the production, use and/or sale of certain of the Company's
diagnostic products used in magnetic resonance imaging. The license is exclusive
with respect to the use and sale of the products in certain countries in the Far
East. The Company received and recognized license revenue of $1,000,000 under
the agreement during fiscal 1994. Under terms of the agreement, the Company was
to receive additional milestone payments and ongoing royalty payments based on a
stipulated percentage of amounts received from the sale of the products.
However, the license agreement was terminated in January 1995 at the option of
the license holder, prior to the achievement of any additional milestones or
product sales. Accordingly, no revenue was recognized relating to the agreement
during the year ended June 30, 1995, and the year ended June 30, 1996.
In August 1995, the Company entered into an agreement with E-Z-EM, a
leading manufacturer and worldwide distributor of oral contrast agents and other
products for use in gastrointestinal radiology, for the exclusive marketing and
sale of the Company's GADOLITE product in the U.S., Canada and Mexico. The
Company and E-Z-EM will share equally in profits from the sale of GADOLITE, and
the Company may also receive premium payments if certain sales levels are
achieved. During the year ended June 30, 1996 the Company recorded revenue of
$250,000 (net of royalties paid to UT) as a result of meeting certain milestones
with respect to the GADOLITE product, including the filing of a New Drug
Application with the Food and Drug Administration.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
47
48
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 Meetings of Shareholders to be held on
December 6, 1996 (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 of the Company" on pages 26
and 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" of 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.
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE, EXHIBITS AND
REPORTS ON FORM 8-K
(A)1. FINANCIAL STATEMENTS
See Index to Financial Statements under Item 8.
(A)2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
consolidated financial statement or notes thereto.
(B) REPORTS ON FORM 8-K
Not Applicable
(C) EXHIBITS
EXHIBIT
NO.
-------
3.1 Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, Commission File
No. 333-05985).
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).
48
49
EXHIBIT
NO.
-------
4.1 Amended and Restated Investors' Rights Agreement between the Company and the
investors specified therein dated July 31, 1995 (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1, Commission File
No. 33-96048).
4.2 Specimen Certificate of the Company's Common Stock (Incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1, Commission File
No. 33-96048).
10.1 Form of Indemnification Agreement between the Company and its directors and
executive officers (Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048).
10.2 Series C Stock Purchase Agreement dated as of June 13, 1994 between the Company
and the investors specified therein (Incorporated by reference to Exhibit 10.4 to
the Company's Registration Statement on Form S-1, Commission File No. 33-96048).
10.3 Investment Agreement dated as of July 31, 1995 between the Company and the
investors specified therein (Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1, Commission File No. 33-96048).
10.4 Form of Series C Preferred Stock Purchase Warrant dated as of July 31, 1995 issued
by the Company to the investors listed on Schedule A thereto (Incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048).
10.5 Master Lease and Warrant Agreements entered into between the Company and Comdisco,
Inc. dated as of July 22, 1992, July 30, 1992, March 31, 1993, June 24, 1993 and
October 3, 1994, respectively (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Commission File No. 33-96048).
10.6* Patent License Agreement entered into between the Company and The University of
Texas, Austin dated entered into on or about July 1, 1991 (Incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048).
10.7* Patent License Agreement entered into between the Company and The University of
Texas, Dallas dated as of July 1, 1992, as amended by the Patent License Agreement
dated May 27, 1993 (Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, Commission File No. 33-96048).
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 Co. (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).
49
50
EXHIBIT
NO.
-------
10.13 The Company's 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.16
to the Company's Registration Statement on Form S-1, Commission File No.
33-96048).
10.14 The Company's 1995 Non-Employee Directors' Stock Option Plan (Incorporated by
reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1,
Commission File No. 33-96048).
10.15 The Company's Employee Stock Purchase Plan (Incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1, Commission File No.
33-96048).
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.
11.1 Computation of Net Loss and ProForma Net Loss per Share.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
24.1 Power of Attorney (see pages 53 and 54).
27 Financial Data Schedule.
- ---------------
* Confidential treatment has been granted as to certain portions of this
agreement.
** Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended, pursuant to an
application for confidential treatment.
50
51
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 27, 1996
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 who signature appears
below constitutes and appoints jointly and severally, Richard A. Miller and Marc
L. Steuer, or either of them as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every 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.
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
President and Chief Executive September 27, 1996
/s/ RICHARD A. MILLER Officer and Director
- ------------------------------------------ (Principal Executive Officer)
Richard A. Miller
Vice President, Business September 27, 1996
/s/ MARC L. STEUER Development and Chief
- ------------------------------------------ Financial Officer (Principal
Marc L. Steur Financial and Accounting
Officer
Vice President, Finance and September 27, 1996
/s/ CHERYL B. JASZEWSKI Administration (Principal
- ------------------------------------------ Accounting Officer)
Cheryl B. Jaszewski
/s/ THOMAS D. KILEY Director September 27, 1996
- ------------------------------------------
Thomas D. Kiley
/s/ JOSEPH S. LACOB Director September 27, 1996
- ------------------------------------------
Joseph S. Lacob
51
52
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
/s/ PATRICK F. LATTERELL Director September 27, 1996
- ------------------------------------------
Patrick F. Latterell
/s/ JOSEPH SCODARI Director September 27, 1996
- ------------------------------------------
Joseph Scodari
/s/ CRAIG C. TAYLOR Director September 27, 1996
- ------------------------------------------
Craig C. Taylor
52