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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-K
For Annual and Transition Reports Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 1999
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any amendments
to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of August 31, 1999, was approximately $243,552,940 based on
the closing price of the Common Stock of the Registrant as reported on the
NASDAQ National Market on such date. The number of outstanding shares of the
Registrant's Common Stock as of August 31, 1999 was 12,433,071.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into
Part III of this Form 10-K: the Proxy Statement for the Registrant's 1999 Annual
Meeting of Stockholders scheduled to be held on December 9, 1999.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business ........................................................... 2
Item 2. Properties ......................................................... 27
Item 3. Legal Proceedings .................................................. 28
Item 4. Submission of Matters to a Vote of Security-Holders ................ 28
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ............................................................ 29
Item 6. Selected Financial Data ............................................ 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 31
Item 8. Financial Statements and Supplementary Data ........................ 35
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ............................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant ................. 53
Item 11. Executive Compensation ............................................. 53
Item 12. Security Ownership of Certain Beneficial Owners and Management ..... 53
Item 13. Certain Relationships and Related Transactions ..................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .... 54
[LOGO]
PHARMACYCLICS(R), the Pentadentate Logo(R) [GRAPHIC OMITTED] , ANTRIN(R),
LUTRIN(R), and GADOLITE(R) are registered U.S. trademarks; OPTRIN(TM) and
XCYTRIN(TM) are trademarks of Pharmacyclics, Inc. Other trademarks, trade names
or service marks used herein are the property of their respective owners.
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PART I
ITEM 1. BUSINESS
We are a pharmaceutical company developing products to improve upon
current therapeutic approaches to the treatment of cancer, atherosclerosis and
retinal disease. We use our expertise in the chemistry of biologically-active
metal-containing compounds to develop patented molecules called texaphyrins
which, when injected, accumulate in tumor growths, in the diseased portions of
major blood vessels and in small blood vessel growths in the retina. When we
expose these molecules to various energy sources, such as X-ray, light or
chemical, these metallic molecules energize and by doing so are able to destroy
diseased tissue with minimal damage to surrounding healthy cells. Our lead
texaphyrin-based product candidates are:
o XCYTRIN(TM), a molecule to enhance the effects of radiation and
chemotherapy in treating cancer;
o LUTRIN(R), a molecule for use in photodynamic therapy of cancer;
o ANTRIN(R), a molecule to treat atherosclerosis via
photoangioplasty; and
o OPTRIN(TM), a molecule to treat age-related macular
degeneration, a disease of the retina caused by growth of small
blood vessels, which can lead to blindness.
Our technology is based upon our expertise in developing
biologically-active molecules that are capable of being activated by energy. In
nature, a class of molecules called porphyrins, including heme found in
hemoglobin and chlorophyll found in plants, is found in tissues or organs
responsible for energy production, metabolism or transport functions. Our
texaphyrins, which are synthetic, expanded porphyrins, are designed to take
advantage of two key characteristics of naturally-occurring porphyrins:
interaction with energy and accumulation in tissues with high energy demands.
Texaphyrins are capable of binding larger metal atoms and of capturing, focusing
and transforming X-ray, light or chemical energy into other energy forms. This
allows them to be used for targeted destruction of diseased tissues. In each
case, the type of metal inserted and the form of energy applied determines the
physical, chemical and therapeutic characteristics of the texaphyrin.
Following accumulation at the disease site, which generally occurs in
minutes to a few hours, the appropriate energy form can activate the
texaphyrins' therapeutic effects. Texaphyrins are water soluble, which may make
them safer and easier to administer to patients. The diagram below depicts some
of our texaphyrin-based products under development:
[DIAGRAM]
MARKET OVERVIEW
Cancer
Cancer results from the uncontrolled multiplication of cells which
invade and interfere with the normal function of adjacent tissues and organs.
Frequently, cancer cells become dislodged from their primary site and spread, or
metastasize, to other places in the body. Approximately 1.2 million new cases of
cancer are diagnosed annually in the United States. The appropriate cancer
therapy for each patient depends on the cancer type and careful assessment of
the size, location and existence of spread of the tumor using diagnostic imaging
procedures. Therapy typically includes some combination of surgery, radiation
therapy or chemotherapy.
Chemotherapy and radiation therapy tend to indiscriminately destroy both
healthy and diseased cells and cause serious side effects. As a result,
substantial cancer research has been directed toward improving the effectiveness
of existing therapy while reducing toxicity. These approaches seek to identify
drugs which are capable of targeting the tumor and making the cancer cells more
sensitive and responsive to radiation therapy or chemotherapy. The following are
therapies used in the treatment of cancer:
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Radiation Therapy. Approximately 3,000 physicians specializing in
radiation oncology administer radiation therapy to more than 700,000 patients
annually in the United States. The radiation is usually applied to the tumor
site several times per week over a period of two to six weeks. Radiation therapy
often has toxic effects on healthy tissue surrounding the tumor because the
energy cannot be adequately targeted. An estimated 50% of newly diagnosed cancer
patients, including those with cancers of the lung, breast, prostate, or head
and neck region, will receive radiation therapy as part of their initial
treatment. In addition, approximately 150,000 patients with persistent or
recurrent cancer also will receive radiation therapy. Depending on the
complexity and duration of treatment, a course of radiation therapy for cancer
can cost between $10,000 and $25,000.
Chemotherapy. More than 350,000 patients each year in the United States
receive chemotherapy for treatment of many types of cancer. The serious or
life-threatening side effects of chemotherapy agents, many of which are due to
the drug's lack of selectivity, limit the effectiveness of this treatment.
Chemotherapy drugs tend to distribute themselves throughout the body in normal
tissues as well as in the tumor. Because of their toxicity to normal tissues,
chemotherapy drugs can be administered only in small dosages and accordingly,
the therapeutic benefits may be limited.
Photodynamic Therapy. Photodynamic therapy is a new cancer treatment
based on the use of light energy to activate certain types of drugs known as
photosensitizers. In this procedure, the photosensitizer, ideally one which
accumulates more readily in tumor cells, is injected into the patient. The tumor
site is then illuminated with visible light of a strength and wavelength that is
absorbed by the photosensitizer. Once so activated, the photosensitizer causes
tumor cell death. The FDA approved the first photosensitizing agent in early
1996 for the treatment of obstructing cancers of the esophagus and more recently
for the treatment of particular types of lung cancer. To date, use of such drugs
has been restricted to treatment of superficial or small lesions because these
photosensitizers have been unable to absorb light of a wavelength capable of
penetrating deeply into tissues. Other limitations of photosensitizers have
included unfavorable distribution, prolonged retention in the body, skin
toxicity and insolubility in water, complicating intravenous administration.
Atherosclerosis
Atherosclerosis, or hardening of the arteries, is a disease in which
cholesterol, other fatty materials and inflammatory cells are deposited in the
walls of blood vessels, forming a build-up known as plaque. The accumulation of
plaque narrows the interior of the blood vessels, reducing blood flow.
Atherosclerosis in the coronary arteries can lead to heart attack and death. In
other blood vessels, atherosclerosis can lead to decreased mobility, loss of
function, loss of limbs and other complications such as stroke. Current
treatments for atherosclerosis include surgery and other techniques aimed at
removing or relieving the plaque. Balloon angioplasty is a procedure using
catheter devices inserted inside the vessels to mechanically compress or remove
the obstruction. Currently, more than 600,000 patients per year in the United
States undergo these procedures for treatment of atherosclerosis in the coronary
arteries. These procedures require the use of anti-clotting drugs and,
frequently, the use of devices inserted inside the vessels to reduce the
incidence of reclosure, which results from traumatic damage to the vessel wall.
Generally, these techniques have been limited to treating only short sections of
the diseased vessel.
Blindness Caused by Retinal Degeneration
Age-related degeneration of the retina is the major cause of severe
visual loss in the elderly. There are approximately 1.1 million people with
age-related macular degeneration in the United States, with approximately
200,000 new cases diagnosed annually. Patients with this disease develop blurred
vision and distortion, decreased vision and blind spots in the center of the
visual field. This disease is caused by the abnormal growth and proliferation of
small blood vessels in the retina. Although laser treatment can slow progression
of disease in some patients, it generally fails to prevent progression of the
disease, which ultimately leads to blindness.
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OUR BUSINESS STRATEGY
The key elements of our business strategy include:
o Focusing on drugs that address the large markets for the
treatment of cancer and atherosclerosis. Although our technology
platform can be used to develop a wide range of drug substances,
we have focused our initial efforts on cancer and
atherosclerosis, and particularly on the treatment of
life-threatening cancers in which accelerated regulatory
approval and favorable pricing may be possible.
o Improving upon existing medical procedures. Our products are
designed to be used in conjunction with and to enhance the
safety and effectiveness of, standard medical treatments. We
believe this increases their likelihood of being rapidly adopted
by physicians.
o Creating diverse product opportunities based on our texaphyrin
technology. Our texaphyrin-based technology platform can
incorporate a variety of metals and can be used to target many
different types of disease. Our research and development efforts
are focused on developing new uses for texaphyrins.
o Retaining rights to key products in advanced clinical testing.
We have retained worldwide rights to our XCYTRIN radiation
enhancer, U.S., Canadian and Japanese rights to our LUTRIN
photosensitizer for cancer treatment and worldwide rights to
ANTRIN for photoangioplasty of atherosclerosis. By maintaining
product rights through late-stage clinical development, we
believe that we can create greater value for our products and
retain the opportunity to sell and market our products.
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PRODUCTS UNDER DEVELOPMENT
The table below summarizes our product candidates and their stage of
development:
- -----------------------------------------------------------------------------------------------------
PRODUCT TARGETED DISEASE REGULATORY STATUS(1) MARKETING RIGHTS
CANCER THERAPY
XCYTRIN Brain metastases Phase III Pharmacyclics
Radiation Enhancer
Primary brain tumor Phase I, National Cancer Pharmacyclics
Pancreatic cancer Institute
Lung cancer Pending, National Cancer Pharmacyclics
Prostate Cancer Institute(2)
Childhood gliomas
- -----------------------------------------------------------------------------------------------------
XCYTRIN A variety of cancers Preclinical Pharmacyclics
Chemotherapy
Enhancer
- -----------------------------------------------------------------------------------------------------
LUTRIN Breast cancer Phase II Pharmacyclics in the U.S.,
Photosensitizer Canada and Japan;
Nycomed in rest of world
Esophageal cancer Pending, National Cancer Pharmacyclics
Cervical cancer Institute(2)
Head and neck cancer
Prostate cancer
Lung cancer
Ovarian cancer
- -----------------------------------------------------------------------------------------------------
ATHEROSCLEROSIS THERAPY
ANTRIN Peripheral Phase II Pharmacyclics
Photosensitizer vascular disease
Coronary artery Preclinical Pharmacyclics
disease
- -----------------------------------------------------------------------------------------------------
MACULAR DEGENERATION
OPTRIN Degenerative disease Phase I/II Alcon
Photosensitizer of the retina
- -----------------------------------------------------------------------------------------------------
DIAGNOSTIC IMAGING
CITRA VU Oral magnetic FDA approvable letter E-Z-EM in Europe and
resonance received North America;
imaging contrast agent December 1996 Pharmacyclics in rest of
for abdomen and pelvis world
- -----------------------------------------------------------------------------------------------------
(1) As used above, "Preclinical" means testing on animal models for
indications of safety and efficacy prior to the initiation of human
clinical trials. "Phase I" means initial human clinical trials designed
to establish the safety, dose tolerance and sometimes distribution of a
compound. "Phase I/II" means initial human clinical trials designed to
establish the safety, dose tolerance and, sometimes, distribution of a
compound and which are, in contrast to Phase I clinical trials,
performed on patients with the targeted disease. "Phase II" means human
clinical trials designed to establish safety, optimal dosage and
preliminary activity of a compound. "Phase III" means human clinical
trials designed to lead to accumulation of data sufficient to support a
new drug application, including substantial evidence of safety and
efficacy. "FDA approvable letter" means that the FDA has deemed the drug
capable of registration for commercial use provided that certain
conditions relating to product formulation, stability and manufacturing
can be resolved to the agency's satisfaction.
(2) The National Cancer Institute intends to sponsor clinical studies for
these cancer types and is currently in the process of establishing
protocols for these studies for submission to the FDA.
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CANCER THERAPY
XCYTRIN for Radiation Enhancement
Radiation therapy of cancer destroys cancer cells through exposure to
relatively high doses of externally applied radiation. While cancer cells are
somewhat more sensitive to radiation exposure than healthy tissues, radiation
therapy has toxic effects on healthy tissue surrounding the tumor because the
energy cannot be adequately targeted. Our preclinical studies indicate that
XCYTRIN both accumulates in tumors and increases the local destructive effect of
radiation therapy in those targeted tissues. XCYTRIN's uptake in tumor cells
occurs within minutes of administration and persists for hours, effectively
concentrating the drug's effect on the tumor. XCYTRIN interacts with X-rays
forming substances that enhance the destruction of tumor cells. In preclinical
studies, animals receiving XCYTRIN in conjunction with radiation therapy had
greater tumor response rates as compared to the control group receiving
equivalent doses of radiation therapy alone. Preclinical studies further
indicate that XCYTRIN increases the effect of radiation therapy at the tumor
site, with no increased damage to surrounding healthy tissues. An additional
feature of XCYTRIN is that it is detectable by magnetic resonance imaging
scanning, providing an ongoing method of monitoring its distribution in
patients.
Initially, we intend to seek FDA approval of XCYTRIN for treatment of
patients with tumors which have spread to the brain who are receiving radiation
therapy. This condition occurs in approximately 15% to 20% of all cancer
patients, often in patients with primary lung or breast cancer, and is usually
treated with radiation therapy delivered to the whole brain. The median survival
of patients with tumors which have spread to the brain is about four months.
Patients with this condition develop devastating complications, including severe
headache, seizures, paralysis, blindness and impaired ability to think.
Radiation therapy for treatment of this problem is performed on approximately
170,000 patients per year in the United States and is intended to prevent or
reduce these complications. We believe that XCYTRIN could eventually be used in
many other tumor types and clinical situations requiring radiation therapy.
Clinical Status. We have completed a Phase I clinical trial of XCYTRIN
in 38 adult patients with advanced cancer who received radiation therapy. This
trial was designed to determine the toxicity of a single dose of the drug.
Reversible kidney toxicity was found at the highest doses of drug tested.
Accumulation of XCYTRIN in lung cancer, breast cancer and other tumors has been
confirmed using magnetic resonance imaging.
We have also completed an international multicenter Phase Ib/II clinical
trial to evaluate the safety and efficacy of XCYTRIN in cancer patients
receiving radiation therapy for treatment of tumors which had spread to the
brain. We have compared the results from the Phase Ib/II trial to historical
data using a 528 patient database containing information on clinical features
and outcomes in comparable patients receiving treatment with identical doses of
radiation alone. After 6 months and 12 months, 41% and 25% of XCYTRIN-treated
patients were alive compared to 30% and 14% of the historical controls,
respectively. XCYTRIN treatment was a statistically significant independent
factor in determining survival. The effect of XCYTRIN treatment on neurologic
progression was determined by comparing the causes of death in the treated
patients to those of the control patients. Death due to tumor progression in the
brain was seen in 15% of XCYTRIN-treated patients compared to more than 35% in
the control group.
Statisticians from the Radiation Therapy Oncology Group, a large U.S.
cooperative clinical trial group, performed a similar analysis using its
database. Using a case-matched control analysis, they found that XCYTRIN-treated
patients had better survival than controls, with 30% of XCYTRIN-treated patients
surviving 12 months compared to 11% in the control groups. Forty-nine percent of
control patients died due to tumor progression in the head compared to 15% in
the XCYTRIN group.
We have initiated a controlled Phase III trial with XCYTRIN for the
treatment of patients with tumors that have spread to the brain undergoing whole
brain radiation therapy. We are now enrolling patients at approximately 30 sites
in the U.S., Canada, Netherlands and France. We expect that about 10 additional
centers will participate in the trial including four sites in the United
Kingdom.
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We plan to enroll approximately 425 adult patients in this study.
Patients will be randomly assigned to treatment with either standard whole-brain
radiation therapy or treatment with XCYTRIN plus standard whole-brain radiation
therapy. The XCYTRIN-treated group will receive ten intravenous injections of
XCYTRIN, each prior to ten daily doses of radiation therapy. We will follow all
patients for a minimum of 6 months after treatment or until death. The study
will measure survival, time-to-neurologic progression, tumor response by
magnetic resonance imaging and quality of life. The co-primary end-points of the
study are survival and time-to-neurologic progression assessed by neurological
examinations and neurocognitive testing. Statistically significant improvement
in either survival or time-to-neurologic progression will be considered as
satisfying the primary end point of the trial, and may provide the basis of a
marketing approval. An outside, independent Data Safety Monitoring Board will
monitor the study by reviewing and analyzing interim data two-thirds of the way
into the study for possible early termination of the trial in the event of
significant efficacy or unacceptable toxicity. The FDA has indicated that the
proposed Phase III trial will qualify for "Fast Track" review.
The median survival of patients with tumors that have spread to the
brain is approximately 3 to 4 months and depends on various clinical features
such as tumor type, performance status, age and presence of disease outside the
brain. Although most patients die from disease progression in the brain, many
patients will die due to progression of their disease in other locations in the
body. The trial's patient eligibility requirements are designed to enroll those
patients most likely to succumb to tumor growth in the brain. Improved local
control of tumor growth from radiation therapy in XCYTRIN-treated patients could
result in prolonged survival or time-to-progression compared to radiation
therapy alone.
In addition to our studies in patients with tumors that have spread to
the brain, the National Cancer Institute has agreed to sponsor several clinical
trials with XCYTRIN for additional cancer types:
TARGETED DISEASE LOCATION STATUS
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Primary Brain Tumor UCLA Medical Center and Enrolling patients
University of Southern California
Primary Brain Tumor NABTT (New Approaches to Brain Tumor Pending
Therapy Consortium, comprised of ten
centers)
Primary Brain Tumor University of Chicago Pending
Pediatric Brain Tumors, Children's Cancer Group (CCG), Pending
including Childhood a consortium of U.S. Children's
Glioma Hospitals
Lung Cancer Ohio State University Pending
Pancreatic Cancer University of Pittsburgh Enrolling patients
Pancreatic Cancer Johns Hopkins University Oncology Center Pending
Pancreatic Cancer University of Chicago Enrolling patients
Prostate Cancer Joint Center for Radiation Therapy, Pending
Harvard Medical School
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XCYTRIN for Chemotherapy Enhancement
We are conducting preclinical studies with XCYTRIN as a chemotherapy
enhancer for use in conjunction with certain chemotherapy agents. Chemotherapy
destroys cancer cells by interfering with their metabolism, protein synthesis or
cell division. Because these agents are not tissue-selective, cancer
chemotherapy agents produce serious or life-threatening side effects which
compromise quality of life and increase medical costs for cancer patients.
Preclinical studies conducted by us and our collaborators indicate that XCYTRIN
increases the activity of certain chemotherapy agents in tumors. We believe this
effect is related to XCYTRIN's ability to increase formation of cytotoxic
substances produced by certain chemotherapy agents, such as bleomycin and
doxorubicin. XCYTRIN's uptake in tumors enhances the activity of cancer
chemotherapy agents in tumor cells but not in normal tissues, thereby increasing
the therapeutic margin. In preclinical studies, animals receiving XCYTRIN and
chemotherapy with either bleomycin or doxorubicin had enhanced tumor responses
and survival rates as compared to control groups receiving equivalent doses of
chemotherapy alone.
LUTRIN for Photodynamic Therapy of Cancer
To date, photodynamic therapy has been approved for the treatment of
superficial or small lesions because existing photosensitizers have been unable
to absorb light capable of penetrating deeply into tissues. LUTRIN is activated
by light of 720 to 760 nanometers, wavelengths that are optimal for penetrating
through tissue, blood and skin pigmentation such as melanin. After absorbing
light of this wavelength, LUTRIN becomes activated to its tumor cell killing
state. Preclinical studies indicate that LUTRIN selectively accumulates in a
variety of cancer cells.
In October 1997, we entered into an agreement with Nycomed, which
acquired sales and marketing rights to LUTRIN for use in cancer treatment
outside the United States, Canada and Japan. In return for these rights, we
received an up-front licensing fee and will receive future payments based on
achievement of regulatory milestones and royalties on LUTRIN sales. See "--
Research, Clinical Development and Marketing Collaborations" and "--
Manufacturing and Suppliers -- Photodynamic Therapy Light Production and
Delivery Devices."
We intend initially to seek FDA approval for the use of LUTRIN in
photodynamic therapy for patients with invasive surface cancers that are
accessible to externally applied light, such as recurrent breast cancer to the
chest wall. This disease affects more then 10,000 patients per year in the
United States. Additional potential uses for LUTRIN include internal cancers
such as cancer of the lung, esophagus, cervix, colon, rectum, prostate, head and
neck region, ovary and genitourinary tract.
Clinical Status. At the May 1999 meeting of the American Society of
Clinical Oncology, we reported results from our Phase II study of LUTRIN. The
Phase II study was designed to evaluate the safety, tolerability and efficacy of
LUTRIN photosensitizer for photodynamic therapy in women with recurrent breast
cancer to the chest wall, for whom previous chemotherapy and radiation therapy
had failed. Fifty-eight treatment courses were given to 52 patients with
advanced disease. Eighty-two percent of these patients had failed three or more
chemotherapy regimens and all the patients had recurring or persistent tumors
following radiation therapy to the chest wall. The study evaluated the
administration of different doses of LUTRIN, followed by illumination of the
chest wall with light delivered at either 3 hours, 6 hours, 24 hours, 48 hours,
72 hours or 96 hours after intravenous injection of the drug. Each patient, in
the 11 groups tested, received illumination with light to large areas of the
chest wall (up to 240 cm(2)) encompassing both the tumor and adjacent uninvolved
skin. The purpose of the study was to identify treatment regimens that
demonstrated anti-tumor activity with an acceptable level of toxicity.
Tumor response was based on physical examinations and photographs of the
diseased chest wall. All lesions within the treatment field were evaluated and
an overall assessment of efficacy was made for each patient. Reduction in tumor
size was seen in 64% of patients. In 42% of patients tumors were either not
detectable (20%) or had significant decreases which were evident on physical
examination or photographs (22%).
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Safety and tolerability appeared to be dependent on both drug dose and
the time interval between LUTRIN administration and illumination of the chest
wall with light. Patients receiving chest wall illumination 24 hours or more
following intravenous administration of LUTRIN experienced pain at the treatment
site that was manageable with standard narcotic pain medications. Patients
treated with light given at shorter intervals experienced more severe pain,
sometimes requiring conscious sedation. Skin toxicity, including scab formation
or destruction of skin, was seen in the skin overlying the tumors in patients
treated with light at time intervals of less than 24 hours. Only 2 of 18
patients receiving light illumination 24 hours or more after receiving LUTRIN
experienced this toxicity. Skin toxicity was limited to the tumor-involved areas
of skin except in patients receiving the highest doses of LUTRIN followed by
photoillumination given at the shortest intervals.
In addition to our clinical studies in recurrent breast cancer to the
chest wall, the National Cancer Institute intends to sponsor several clinical
trials of LUTRIN for additional types including cancer of the cervix, esophagus,
head and neck region, pancreas, prostate, lung and ovary. We expect some of
these studies to begin in 1999.
ATHEROSCLEROSIS THERAPY
ANTRIN for Photoangioplasty of Atherosclerosis.
Preclinical studies conducted by Pharmacyclics and our collaborators
have demonstrated that texaphyrins also accumulate in vascular plaque caused by
atherosclerosis. Preclinical studies indicated that following intravenous
injection of ANTRIN, light delivered into the blood vessel using an optical
fiber resulted in non-mechanical reduction or elimination of the plaque without
damage to the lining of the vessel wall using a technique which we refer to as
photoangioplasty. Photoangioplasty with ANTRIN resulted in the elimination of
inflammatory cells from the diseased vessel wall. Current treatments of
atherosclerosis, such as balloon angioplasty, require anti-clotting drugs and
the use of devices inserted inside the vessels to reduce the incidence of
reclosure. We believe that these results suggest that photoangioplasty of
atherosclerosis with ANTRIN has the potential to eliminate or reduce plaque
without complications such as thrombosis and reclosure. Additional preclinical
studies further indicated that photoangioplasty of atherosclerosis with ANTRIN
could be used to treat longer segments of blood vessels, which is not possible
with other currently available techniques. ANTRIN's accumulation in plaque and
relatively rapid clearance from blood may provide advantages over alternative
treatments for atherosclerosis. Removal of inflammatory cells also suggests that
ANTRIN may reduce or stabilize vulnerable plaque. Vulnerable plaque is rich in
inflammatory cells and prone to rupture causing a sudden blood clot and closure
of the vessel. We also believe that photoangioplasty with ANTRIN has potential
use in peripheral arterial disease, coronary artery disease and in the treatment
of restenosis following balloon angioplasty.
Clinical Status. In April 1999, we completed enrollment in our Phase I
study with ANTRIN photoangioplasty for patients with peripheral arterial
disease. Fifty-one patients received an injection of ANTRIN and 47 qualified to
receive photoangioplasty of the lower extremities. The two-part study was
designed to first establish an optimum dose of ANTRIN by treating successive
groups of patients with increasing single doses of the drug. In the second part
of the study, we evaluated three doses of light at several drug dose levels. We
gave ANTRIN intravenously and delivered light to the inside of the diseased
vessel using a 0.89mm optical fiber. We evaluated patients for toxicity and
local arterial responses by follow-up angiograms and intravascular ultrasound
performed the day of and 28 days after photoangioplasty. Clinical activity was
evaluated using several well-established techniques. The ankle-brachial index
and the Rutherford-Becker standardized classification of clinical outcomes were
measured. The ankle-brachial index is a measurement of the impact of the
obstruction on blood pressure in the affected limb. The Rutherford-Becker
classification scores, which are based on standards for evaluating and reporting
the results of surgical or percutaneous therapy for peripheral arterial disease,
measure the change in clinical symptoms due to the treatment intervention.
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On August 30, 1999, we reported results of this trial at the European
Society of Cardiology meeting in Barcelona, Spain. The study indicated that
Antrin photoangioplasty was well tolerated. There was no evidence of
dose-limiting systemic or vascular toxicities in the drug and light dose ranges
tested. No skin phototoxicity was reported. No treatment-related clinical
laboratory abnormalities were noted. There was no evidence of thrombus, emboli
or vessel wall damage. Mild and transient paresthesias, or tingling, in the
fingertips was observed in patients receiving higher doses of drug. Four
patients reported mild and transient skin rash. Baseline and day-28 paired
angiograms were available for 43 patients. Overall, these indicated improvement
in minimal luminal diameter on day 28 compared to baseline. Of the 19 patients
with minimal luminal diameter improvement, 14 had improvement of 10 to 112
percent (mean = 35.6 percent). Intravascular ultrasound data also indicated
plaque regression in the arterial lumen. Forty-seven patients were evaluated
using Rutherford-Becker classification and ankle-brachial index measurements.
Sixty-two percent of these patients had improved Rutherford-Becker scores, and
57 percent had improved ankle-brachial index measurements at day 28.
In August 1999, we began a 375-patient Phase II study with ANTRIN for
patients with peripheral arterial disease of the lower extremities. The study is
designed to evaluate both prevention of restenosis following balloon angioplasty
and primary treatment of atherosclerosis.
RETINAL DEGENERATION THERAPY
OPTRIN for Treatment of Retinal Degeneration.
Pharmacyclics and our collaborators have conducted preclinical studies
with OPTRIN for treatment of degeneration of the retina caused by abnormal
growth of blood vessels. These studies have indicated that OPTRIN selectively
eliminates abnormal retinal capillaries after activation by light of an
appropriate wavelength. We have entered into a development agreement with Alcon,
a leading ophthalmic products company. Under this agreement, we will provide
OPTRIN to Alcon for further preclinical and clinical development, regulatory
submissions and sales and marketing of OPTRIN for the treatment of ophthalmic
diseases.
Clinical Status. Alcon is currently conducting a Phase I/II clinical
trial with OPTRIN for the photodynamic therapy of patients with retinal
degeneration. Alcon presented interim results from this trial at the June 1999
European Society of Ophthalmology meeting in Stockholm, Sweden.
Alcon treated 58 patients with the wet form of macular degeneration in
the Phase I/II study, which was designed to evaluate various treatment regimens
in successive groups of patients. Clinical investigators examined increasing
doses of drug and light, and varying time intervals between drug administration
and light delivery in order to define the optimum treatment parameters. Although
primarily a safety study to establish the highest tolerated dose, clinical
investigators assessed clinical activity by angiography and measurements of
vision. Patients received a single intravenous injection of OPTRIN, followed by
light delivered to the retina at various times up to 180 minutes after injection
of the drug. In a subset of patients, clinical investigators performed
angiography to evaluate distribution and drug uptake in the diseased vessels and
clearance from normal retinal tissues.
Clinical investigators found that OPTRIN accumulated selectively in the
abnormal vessels and, depending on the dose of drug and light and the interval
between them, resulted in complete or partial closure of diseased vessels after
activation with light. In patients treated with doses of drug less than or equal
to 2mg/kg, we saw complete or partial closure of diseased vessels in 1 of 19
patients. In the combined groups of patients receiving 2.5 or 3.0 mg/kg of drug,
clinical investigators observed complete or partial closure of diseased vessels
in 9 of 13 patients. Twenty of 26 patients had complete or partial closure when
treated with 4 mg/kg of drug.
Light dose was also an important factor. Clinical investigators saw
complete or partial closure of diseased vessels in 3 of 18 patients treated with
light doses of 50 or 75 Joules/cm(2). At a light dose of 100 Joules/cm(2), 19 of
31 patients had complete or partial closure of diseased vessels. In the combined
group receiving light doses of 125 or 150 Joules/cm(2), 8 of 9 patients had
complete or partial closure of diseased vessels.
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Complete or partial closure of diseased vessels is an indicator for
treatment effect. In a preliminary analysis of the patients with complete or
partial closure, vision had improved when measured one week after treatment. In
the patients without complete or partial closure, vision had decreased when
measured one week after treatment. The difference was statistically significant.
Patients receiving higher doses of OPTRIN experienced transient tingling
of the fingertips. For example, in patients receiving less than or equal to 2
mg/kg of drug, 1 of 19 experienced transient tingling of the fingertips, while
in the combined group of patients treated with 2.5 or 3 mg/kg, 3 of 13
experienced transient tingling of the fingertips. In patients treated with 4
mg/kg, 20 of 26 experienced transient tingling of the fingertips. One patient
developed facial skin toxicity following sun exposure. Clinical investigators
observed no other toxicities. In 5 patients, clinical investigators observed
damage to normal retina. These patients either received the highest dose of drug
(4mg/kg) or received light within a short interval following drug
administration. Clinical investigators observed no retinal damage in patients
who had received high (125 or 150 Joules/cm(2)) doses of light.
DIAGNOSTIC IMAGING AGENT
CITRA VU for Imaging the Gastrointestinal Tract.
Our oral magnetic resonance imaging contrast agent, CITRA VU, is not a
texaphyrin, but is based on one of our patented compounds. CITRA VU is used for
imaging the gastrointestinal tract in patients undergoing MRI procedures of the
abdomen or the pelvis. CITRA VU is an orange-flavored oral formulation designed
to fill the bowel uniformly to improve diagnosis of abdominal or pelvic
diseases.
Clinical Status. We submitted a new drug application for CITRA VU in
September 1995, based upon two multicenter, controlled Phase III studies in
patients receiving MRI scans for known or suspected diseases of the abdomen or
pelvis. We received an approvable letter in December 1996 which required us to
conduct additional product manufacturing and product stability studies. We are
in the process of addressing these issues. We cannot be certain that the new
drug application will satisfy the FDA's criteria for approval. In 1996, we
received approval from the Medicines Control Agency to market CITRA VU in the
United Kingdom. In April 1998, we received approval from the Health Protection
Branch of Health Canada to market CITRA VU in Canada. However, we will not
market CITRA VU in Europe or Canada until we resolve product manufacturing and
product stability issues. In addition, because we are changing the level of
preservatives in the formulation, we will not market CITRA VU in Europe or
Canada until we receive additional marketing approvals.
RESEARCH, CLINICAL DEVELOPMENT AND MARKETING COLLABORATIONS
We rely on relationships with third parties to expand certain research,
clinical development, process development, manufacturing, sales and marketing
functions. In the photodynamic therapy field, we have used outside
collaborations for development of light sources and delivery devices for use in
our preclinical studies and clinical trials so that we could focus on
development of our proprietary photosensitizing products.
National Cancer Institute Collaboration. In April 1997, the Decision
Network Committee of the National Cancer Institute Division of Cancer Treatment,
Diagnosis and Centers voted unanimously to sponsor and fund clinical development
of both XCYTRIN as a radiation enhancer and LUTRIN as a photosensitizer for
cancer treatment. Under this cooperative research and development agreement,
Pharmacyclics and the National Cancer Institute jointly select clinical trials
which will be conducted at leading medical centers for various types of cancer.
For XCYTRIN, the National Cancer Institute plans to conduct several separate
clinical trials for treatment of brain tumors and cancers involving the lung,
pancreas and prostate. For LUTRIN, the National Cancer Institute intends to
sponsor several separate clinical trials for the treatment of esophageal,
cervical, lung, prostate and ovarian cancers. We believe that these National
Cancer Institute-sponsored trials will supplement our own clinical development
efforts for both XCYTRIN and LUTRIN. Although third parties will be conducting
the trials, we will provide clinical supplies of our drugs and we intend to
monitor the progression and results of these trials.
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The University of Texas Agreements. We collaborate with and sponsor
research and development programs at The University of Texas at Austin, through
a group headed by Jonathan Sessler, Ph.D., Professor of Chemistry at The
University of Texas at Austin. Such collaborations and programs extend our
research capabilities in the field of expanded porphyrin chemistry. We have
entered into two license agreements with The University of Texas at Austin that
grant us the worldwide, exclusive right to patents or patent applications that
relate to or result from research conducted at The University of Texas at Austin
on the use, development and syntheses of expanded porphyrin molecules, and
research conducted at The University of Texas at Dallas on the incorporation of
paramagnetic metals into zeolites for use as MRI contrast agents. These
agreements require us to pay royalties as a percentage of net sales to The
University of Texas for products incorporating the licensed technology,
including each of our current product candidates. In addition, we and The
University of Texas at Austin have entered into sponsored research agreements
which expand the products, inventions and discoveries developed by The
University of Texas at Austin to which our license rights apply. In connection
with The University of Texas license agreements, we also entered into a license
agreement with an individual co-inventor of CITRA VU, pursuant to which we have
been granted an exclusive royalty-bearing license to manufacture, use and sell
certain products that fall within the scope of The University of Texas at Dallas
license agreement.
Alcon Collaboration. In December 1997, we entered into an evaluation and
license agreement with Alcon Pharmaceuticals, Ltd. under which Alcon acquired
worldwide marketing rights to OPTRIN for ophthalmology uses. Alcon, a
wholly-owned subsidiary of Nestle S.A., is a global leader in the research,
development, manufacturing and marketing of ophthalmic products. Under the terms
of the agreement, we received an upfront fee for Alcon to evaluate OPTRIN for
ophthalmology uses for a specified time period. If the evaluation is successful,
we will receive an additional license fee, payments upon completion of certain
milestones and royalty payments on product sales. Alcon will conduct and bear
all costs for world-wide development and commercialization of OPTRIN for
ophthalmology uses, as well as costs for regulatory submissions, until the
agreement ends. We are required to supply bulk drug substance to Alcon, and
Alcon will be responsible for formulation and packaging.
E-Z-EM Marketing, Sales and Distribution Arrangement. In August 1995, we
entered into an agreement with E-Z-EM, Inc., a leading manufacturer and
worldwide distributor of oral contrast agents and other products for use in
gastrointestinal radiology, for the exclusive marketing and sale of CITRA VU in
North America. During fiscal 1997, we signed an additional agreement with
E-Z-EM's affiliate, E-Z-EM, Ltd., for marketing, sales and distribution in
Europe. Pharmacyclics and E-Z-EM will share equally in the operating profits
from the sale of CITRA VU in these regions, and we may also receive premium
payments if we achieve certain sales levels. During the term of the agreement,
E-Z-EM is prohibited from distributing products that are directly competitive
with CITRA VU, except for products that had been or were being developed by
E-Z-EM as of the date of our agreement with E-Z-EM and that contain specified
chemical compounds. E-Z-EM may terminate the agreement at any time upon six
months' notice.
Nycomed Collaboration. In October 1997, we entered into an agreement
with Nycomed, granting Nycomed exclusive sales and marketing rights to LUTRIN
for different types of cancer in all markets excluding the United States, Canada
and Japan. In exchange for these rights, Nycomed agreed to pay us up to
approximately $14.0 million in license fees and cost reimbursement, based upon
an agreed budget, milestone payments and development cost subsidies related to
the initial cancer uses for LUTRIN to be developed by us and Nycomed. In each
case, we must reach certain development, clinical or commercialization
milestones to receive payment. Nycomed may pay us approximately $14.0 million in
additional milestone payments and cost reimbursement, assuming similar costs and
agreement upon a similar budget, during the course of development for subsequent
cancer treatments, if such clinical trials are successfully completed. Nycomed
has agreed to bear a portion of the device and clinical development costs
required for regulatory submission for product approval in the United States. We
will then use this information as a basis for approvals in Europe. Pharmacyclics
and Nycomed will make regulatory submissions in our respective marketing
territories. We are required to supply bulk drug substance to Nycomed through
our manufacturing collaborations.
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PATENTS AND PROPRIETARY TECHNOLOGY
We believe our success depends upon our ability to protect our
proprietary technology. We, therefore, aggressively pursue, prosecute, protect
and defend patent applications, issued patents, trade secrets, and licensed
patent and trade secret rights covering certain aspects of our technology.
Our patents, patent applications, and licensed patent rights cover
various compounds, pharmaceutical formulations and methods of use. We own or
have license rights to:
o 62 issued U.S. patents;
o 2 additional allowed patent applications in the U.S.; and
o 32 other pending U.S. patent applications.
The issued U.S. patents expire between 2006 and 2016. We also own or license 81
issued non-U.S. patents including 66 patents issued throughout Europe and 112
pending non-U.S. patent applications filed regionally under the Patent
Cooperation Treaty and with the European Patent Office, and nationally in
Canada, Japan, Australia and certain other countries.
We may be unsuccessful in prosecuting our patent applications or patents
may not issue from our patent applications. Even if patents are issued and
maintained, these patents may not be of adequate scope to benefit us, or may
held invalid and unenforceable against third parties.
We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
require all of our employees, consultants, advisors and collaborators to execute
appropriate confidentiality and assignment-of-inventions agreements. These
agreements typically provide that all materials and confidential information
developed or made known to the individual during the course of the individual's
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances, and these agreements provide that all
inventions arising out of the relationship with Pharmacyclics shall be our
exclusive property.
DRUG SUPPLY AGREEMENTS
We currently use third parties to manufacture various components of our
products under development.
Texaphyrin-based Products. In September 1996, we entered into an
agreement with Hoechst Celanese Corporation, a manufacturer of chemicals and
pharmaceutical intermediates, to optimize and scale up a manufacturing process
for and supply of our texaphyrin-based products. In October 1997, Hoechst
Celanese assigned the agreement to Celanese, Ltd. in connection with Hoechst
Celanese's corporate restructuring. This agreement granted Celanese exclusive
worldwide manufacturing rights and required Celanese to supply all of our
texaphyrin-based products for late-stage clinical and commercial use. As a
result of the change in its business focus, Celanese requested that we pursue
alternative supply sources. On August 27, 1999, we entered into an agreement to
terminate the manufacturing and supply agreement with Celanese. Pursuant to that
agreement, Celanese assigned to us all right, title and interest in and to the
manufacturing technology and intellectual property for our texaphyrin-based
products and agreed to make a cash payment of $750,000 to us. The termination
agreement also relieved us of all obligations to pay Celanese for shared
development costs incurred prior to termination of the agreement. As of June 30,
1999, we had accrued approximately $2.8 million associated with such costs.
During discussions with Celanese that resulted in the termination of the
manufacturing and supply agreement, we entered into agreements with three new
manufacturers to evaluate their ability to supply us with the components of the
texaphyrin-based products. They are currently in the process of producing
initial supplies, which include commercial quantities, of such products for
delivery to us during fiscal year 2000. We have sufficient quantity of
texaphyrin-based products to supply our current clinical trial plans.
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Photodynamic Therapy Light Production and Delivery Devices. In
connection with our development of LUTRIN and ANTRIN as photosensitizers, we
have developed certain light sources and delivery methods, such as lasers and
light emitting diodes. We have purchased light emitting diode devices capable of
producing the required wavelength of light for use in photodynamic therapy with
LUTRIN. We have also used light emitting diode devices in preclinical animal
studies and Phase I and Phase II trials. In addition, we have acquired from
CardioFocus, Inc. cylindrically diffusing light fibers for animal studies and
for use in Phase I studies in cardiovascular disease. CardioFocus is also
developing fibers that we intend to use in future LUTRIN and ANTRIN trials. In
October 1997, we entered into a development agreement with Diomed, Inc. under
which Diomed would develop a diode laser system for use in photodynamic therapy.
This effort was successful and we have used Diomed lasers in our ANTRIN clinical
trial and plan to use them in future LUTRIN trials. In addition, we may seek
other suppliers of light delivery devices for clinical trials and commercial
purposes, although we cannot be certain that any agreements will be reached with
such suppliers on terms commercially reasonable to us, if at all.
COMPETITION
We face intense competition from pharmaceutical companies, universities,
governmental entities and others in the development of therapeutic and
diagnostic agents for the treatment of diseases which we target. Many of these
entities have significantly greater research and development capabilities than
us, as well as substantial marketing, manufacturing, financial and managerial
resources. Acquisitions of, or investments in, competing pharmaceutical
companies by large collaborating partners could increase such competitors'
financial, marketing, manufacturing and other resources. Developments by others
may render our products or technologies noncompetitive or obsolete, or we may be
unable to keep pace with technological developments or other market factors.
Competitors may be developing products that have an entirely different approach
or means of accomplishing similar diagnostic, imaging and therapeutic effects
than our products under development.
Although the FDA has not yet approved any agents for the enhancement of
radiation therapy or chemotherapy, we expect significant competition in these
fields, as we believe that one or more companies are developing and testing
products which compete directly with our products under development. These
companies may succeed in developing technologies and products that are more
effective than XCYTRIN or would render our products or technologies obsolete.
Moreover, certain existing chemotherapy agents also are used as radiation
enhancers. See "Risk Factors -- We face rapid technological change and intense
competition."
The FDA has approved Photofrin(R), a photosensitizer developed by QLT
Phototherapeutics, Inc., for the treatment of specific types of cancer. We are
aware of several other photosensitizers in various stages of development for a
number of uses. In addition to QLT Phototherapeutics, Inc., other companies are
developing products in this area. Some companies developing photodynamic therapy
products are developing specialized light delivery devices for their products,
which, when combined with their product offering, may give them a competitive
advantage over our strategy of obtaining such devices from third-party sources.
We also face intense competition in the treatment of atherosclerosis
which currently includes the use of pharmaceutical agents and devices. Various
drugs also have been shown to reduce or prevent atherosclerosis. Balloon
angioplasty and stents are widely-used and generally accepted techniques to
reduce the narrowing of vessels by atherosclerosis. We believe that
photoangioplasty with ANTRIN may provide advantages over these techniques.
We face substantial competition in the treatment of macular
degeneration. Several other approaches to treatment are being investigated,
including the use of other photosensitizers and drugs. Recently, QLT
Phototherapeutics, Inc. reported that their photosensitizer, VISUDYNE, produced
positive clinical results in a controlled phase III clinical trial in patients
with age-related macular degeneration. Although we believe our photosensitizer
has advantages over VISUDYNE, we expect that VISUDYNE will receive regulatory
approval sooner than OPTRIN.
We also expect competition in the development of improved oral MRI
contrast agents to increase substantially.
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GOVERNMENT REGULATION
FDA Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. We believe that our products will be regulated as
drugs by the FDA rather than as biologics or devices.
The process required by the FDA before our products may be marketed in
the U.S. generally involves the following:
o preclinical laboratory and animal tests;
o submission of an IND application which must become effective
before clinical trials may begin;
o adequate and well-controlled human clinical trials to establish
the safety and efficacy of the proposed pharmaceutical in our
intended use; and
o FDA approval of a new drug application.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain that any approval will be granted
on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. We then submit the results of the
preclinical tests, together with manufacturing information and analytical data,
to the FDA as part of an IND, which must become effective before we may begin
human clinical trials. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30-day time period, raises
concerns or questions about the conduct of the trials as outlined in the IND. In
such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before clinical trials can begin. Our submission of an IND may not result in FDA
authorization to commence clinical trials. Further, an independent Institutional
Review Board at the medical center proposing to conduct the clinical trials must
review and approve any clinical study.
Human clinical trials are typically conducted in three sequential phases
which may overlap:
o PHASE I: The drug is initially introduced into healthy human
subjects or patients and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion.
o PHASE II: Involves studies in a limited patient population to
identify possible adverse effects and safety risks, to determine
the efficacy of the product for specific targeted diseases and
to determine dosage tolerance and optimal dosage.
o PHASE III: When Phase II evaluations demonstrate that a dosage
range of the product is effective and has an acceptable safety
profile, Phase III trials are undertaken to further evaluate
dosage, clinical efficacy and to further test for safety in an
expanded patient population at geographically dispersed clinical
study sites.
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In the case of products for severe or life-threatening diseases such as
cancer, the initial human testing is often conducted in patients rather than in
healthy volunteers. Since these patients already have the target disease, these
studies may provide initial evidence of efficacy traditionally obtained in Phase
II trials and thus these trials are frequently referred to as Phase I/II trials.
We cannot be certain that we will successfully complete Phase I, Phase II or
Phase III testing of our product candidates within any specific time period, if
at all. Furthermore, the FDA or the Institutional Review Board or the sponsor
may suspend clinical trials at any time on various grounds, including a finding
that the subjects or patients are being exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of a new drug application for approval
of the marketing and commercial shipment of the product. The FDA may deny a new
drug application if the applicable regulatory criteria are not satisfied or may
require additional clinical data. Even if such data is submitted, the FDA may
ultimately decide that the new drug application does not satisfy the criteria
for approval. Once issued, the FDA may withdraw product approval if compliance
with regulatory standards is not maintained or if problems occur after the
product reaches the market. In addition, the FDA may require testing and
surveillance programs to monitor the effect of approved products which have been
commercialized, and the agency has the power to prevent or limit further
marketing of a product based on the results of these post-marketing programs.
On November 21, 1997, President Clinton signed into law the Food and
Drug Administration Modernization Act. That act codified the FDA's policy of
granting "Fast Track" approval for cancer therapies and other therapies intended
to treat severe or life-threatening diseases. Previously, the FDA approved
cancer therapies primarily based on patient survival rates and/or data on
improved quality of life. The FDA considered evidence of partial tumor
shrinkage, while often part of the data relied on for approval, insufficient by
itself to warrant approval of a cancer therapy, except in limited situations.
Under the FDA's new policy, which became effective on February 19, 1998, the FDA
has broadened authority to consider evidence of partial tumor shrinkage or other
clinical outcomes for approval. This new policy is intended to facilitate the
study of cancer therapies and shorten the total time for marketing approvals;
however, it is too early to tell what effect, if any, these provisions may
actually have on product approvals.
In addition to the drug approval requirements applicable to our LUTRIN
product for photosensitization of certain cancers and ANTRIN for
photoangioplasty of atherosclerosis, we will also need to obtain FDA approval
for the laser and associated light delivery devices used in such treatments. To
obtain approval of such devices, Pharmacyclics and the manufacturers of such
devices must submit additional clinical data obtained from the use of such
devices with LUTRIN and ANTRIN, which may further delay or hinder the approval
process for these photosensitizers. Manufacturers of such light delivery devices
currently are under no obligation to us to file or pursue such applications, and
any delay or refusal on their part to do so could have a material adverse effect
on us.
Satisfaction of the above FDA requirements or similar requirements of
state, local and foreign regulatory agencies typically takes several years and
the actual time required may vary substantially, based upon the type, complexity
and novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing of potential products for a considerable period of time and to
impose costly procedures upon our activities. We cannot be certain that the FDA
or any other regulatory agency will grant approval for any of our products under
development on a timely basis, if at all. Success in preclinical or early stage
clinical trials does not assure success in later stage clinical trials. Data
obtained from preclinical and clinical activities is not always conclusive and
may be susceptible to varying interpretations which could delay, limit or
prevent regulatory approval. Even if a product receives regulatory approval, the
approval may be significantly limited to specific indications. Further, even
after regulatory approval is obtained, later discovery of previously unknown
problems with a product may result in restrictions on the product or even
complete withdrawal of the product from the market. Delays in obtaining, or
failures to obtain regulatory approvals would have a material adverse effect on
our business. Marketing our products abroad will require similar regulatory
approvals and is subject to similar risks. In addition, we cannot predict what
adverse governmental regulations may arise from future U.S. or foreign
governmental action.
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Any products manufactured or distributed by us pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are
required to register their establishments with the FDA and certain state
agencies, and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with good manufacturing practices, which
impose certain procedural and documentation requirements upon us and our third
party manufacturers. We cannot be certain that we or our present or future
suppliers will be able to comply with the GMP regulations and other FDA
regulatory requirements.
The FDA regulates drug labeling and promotion activities. The FDA has
actively enforced regulations prohibiting the marketing of products for
unapproved uses. Under the Modernization Act of 1997, the FDA will permit the
promotion of a drug for an unapproved use in certain circumstances, but subject
to very stringent requirements. We and our products are also subject to a
variety of state laws and regulations in those states or localities where our
products are or will be marketed. Any applicable state or local regulations may
hinder our ability to market our products in those states or localities. We are
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control, and disposal of hazardous or potentially hazardous
substances. We may incur significant costs to comply with such laws and
regulations now or in the future.
The FDA's policies may change and additional government regulations may
be enacted which could prevent or delay regulatory approval of our potential
products. Moreover, increased attention to the containment of health care costs
in the U.S. and in foreign markets could result in new government regulations
which could have a material adverse effect on our business. We cannot predict
the likelihood, nature or extent of adverse governmental regulation which might
arise from future legislative or administrative action, either in the U.S. or
abroad.
EMPLOYEES
As of August 31, 1999, we had 99 employees, 3 of whom were part-time.
Ninety of our employees are engaged in research, development, preclinical and
clinical testing, manufacturing, quality assurance and quality control and
regulatory affairs and 9 in finance, administration and operations. Twenty-one
of our employees have an M.D. or Ph.D. degree. Our future performance depends in
significant part upon the continued service of our key scientific, technical and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of our key employees could harm our business.
Our future success also depends on our continuing ability to attract,
train and retain highly qualified scientific and technical personnel.
Competition for these personnel is intense, particularly in the San Francisco
Bay Area where we are headquartered. Due to the limited number of people
available with the necessary scientific and technical skills, we can give no
assurance that we can retain or attract key personnel in the future. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
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RISK FACTORS
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this section as well as those discussed
elsewhere in this Form 10-K.
RISKS RELATED TO PHARMACYCLICS
ALL OF OUR PRODUCT CANDIDATES ARE IN DEVELOPMENT, AND WE CANNOT BE CERTAIN THAT
ANY OF OUR PRODUCTS UNDER DEVELOPMENT WILL BE COMMERCIALIZED
To be profitable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our
products under development. The time frame necessary to achieve these goals for
any individual product is long and uncertain. Before we can sell any of our
products under development, we must demonstrate through preclinical (animal)
studies and clinical (human) trials that each product is safe and effective for
human use for each targeted disease. We have conducted and plan to continue
extensive and costly clinical trials to assess the safety and effectiveness of
our potential products. We cannot be certain that we will be permitted to begin
or continue our planned clinical trials for our potential products, or if
permitted, that our potential products will prove to be safe and to produce
their intended effects.
The completion rate of our clinical trials depends upon, among other
factors, the rate of patient enrollment. We may fail to obtain adequate levels
of patient enrollment in our clinical trials. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could have a material adverse effect on us.
Additionally, demands on our clinical staff have been increasing and we
expect they will continue to increase as a result of later-stage clinical trials
of our products in development and our monitoring of additional clinical trials.
We may fail to effectively oversee and monitor these many simultaneous clinical
trials, which would result in increased costs or delays of our clinical trials.
Even if these clinical trials are completed, we may fail to complete and submit
a new drug application as scheduled. Even if we are able to submit a new drug
application as scheduled, the Food and Drug Administration may not clear our
application in a timely manner or may deny the application entirely.
Data already obtained from preclinical studies and clinical trials of
our products under development do not necessarily predict the results that will
be obtained from later preclinical studies and clinical trials. Moreover, data
such as ours is susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. A number of companies in the pharmaceutical
industry, including biotechnology companies like us, have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to adequately demonstrate the safety and effectiveness of a
product under development could delay or prevent regulatory clearance of the
potential product and would materially harm our business. Our clinical trials
may not demonstrate the sufficient levels of safety and efficacy necessary to
obtain the requisite regulatory approval or may not result in marketable
products.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO CONTINUE TO HAVE LOSSES
IN THE FUTURE
We have incurred significant operating losses since our inception in
1991 and, as of June 30, 1999, had an accumulated deficit of approximately $67.1
million. We expect to continue to incur significant operating losses over the
next several years as we continue to incur increasing costs for research and
development, clinical trials and manufacturing. Our ability to achieve
profitability depends upon our ability, alone or with others, to successfully
complete the development of our proposed products, obtain the required
regulatory clearances and manufacture and market our proposed products. To date,
we have not generated revenue from the commercial sale of our products and do
not expect to receive any such revenue in the near future. All revenues to date
are primarily from license and milestone payments and, to a lesser extent,
funding from one government research grant.
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FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH ONGOING GOVERNMENTAL
REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS
The manufacture and marketing of our products and our research and
development activities are subject to extensive regulation for safety, efficacy
and quality by numerous government authorities in the United States and abroad.
Before receiving FDA clearance to market a product, we will have to demonstrate
that the product is safe and effective on the patient population and for the
diseases that will be treated. Clinical trials, manufacturing and marketing of
products are subject to the rigorous testing and approval process of the FDA and
equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic
Act and other federal, state and foreign statutes and regulations govern and
influence the testing, manufacture, labeling, advertising, distribution and
promotion of drugs and medical devices. As a result, clinical trials and
regulatory approval can take a number of years to accomplish and require the
expenditure of substantial resources. Data obtained from clinical trials are
susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. We compared the results of our Phase Ib/II clinical trial
of XCYTRIN to historical data using a 528-patient database containing
information on clinical features and outcomes in comparable patients receiving
treatment with identical doses of radiation alone. Historical analyses have many
limitations and, while supportive, are not considered proof that XCYTRIN
improved the outcome of patients enrolled in the study.
In addition, we may encounter delays or rejections based upon additional
government regulation from future legislation or administrative action or
changes in FDA policy during the period of product development, clinical trials
and FDA regulatory review. We may encounter similar delays in foreign countries.
We may be unable to obtain requisite approvals from the FDA and foreign
regulatory authorities, and even if obtained, such approvals may not be on a
timely basis, or they may not cover the clinical uses that we specify.
Marketing or promoting a drug for an unapproved use is subject to very
strict controls. Furthermore, clearance may entail ongoing requirements for
post-marketing studies. The manufacture and marketing of drugs are subject to
continuing FDA and foreign regulatory review and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions, including withdrawal of the product from the market. Any of the
following events, if they were to occur, could delay or preclude us from further
developing, marketing or realizing full commercial use of our products, which in
turn would have a material adverse effect on our business, financial condition
and results of operations:
o failure to obtain or maintain requisite governmental approvals;
o failure to obtain approvals of clinically intended uses of our
products under development; or
o identification of serious and unanticipated adverse side effects
in our products under development.
Manufacturers of drugs also must comply with the applicable FDA good
manufacturing practice regulations, which include quality control and quality
assurance requirements as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to ongoing periodic
inspection by the FDA and corresponding state agencies, including unannounced
inspections, and must be licensed before they can be used in commercial
manufacturing of our products. We or our present or future suppliers may be
unable to comply with the applicable good manufacturing practice regulations and
other FDA regulatory requirements. We have not been subject to a GMP inspection
by the FDA or any state agency.
We may be subject to delays in commercializing our products for
photodynamic therapies due to delays in approvals of the third-party light
sources required for these products. E-Z-EM will not be able to market our CITRA
VU product until we satisfactorily address FDA issues, which may involve
performing an additional pivotal clinical trial.
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ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO
ACHIEVE MARKET ACCEPTANCE WILL HARM OUR BUSINESS
Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:
o the receipt of regulatory approvals for the uses that we are
studying;
o the establishment and demonstration in the medical community of
the safety and clinical efficacy of our products and their
potential advantages over existing therapeutic products and
diagnostic and/or imaging techniques; and
o pricing and reimbursement policies of government and third-party
payors such as insurance companies, health maintenance
organizations and other plan administrators.
Physicians, patients, payors or the medical community in general may be
unwilling to accept, utilize or recommend any of our products.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO THIRD-PARTY PATENTS
A number of third-party patent applications have been published, and
some have issued, relating to biometallic and expanded porphyrin chemistries. It
is likely that competitors and other third parties have and will continue to
file applications for and receive patents relating to similar or even the same
compositions, methods or designs as those of our products. If any third-party
patent claims are asserted against the company's products and are upheld as
valid and infringed, we could be prevented from practicing the subject matter
claimed in such patents, require license(s) or have to redesign our products or
processes to avoid infringement. Such licenses may not be available or, if
available, may not be on terms acceptable to us. Alternatively, we may be
unsuccessful in any attempt to redesign our products or processes to avoid
infringement. Litigation or other legal proceedings may be necessary to defend
against claims of infringement, to enforce our patents, or to protect our trade
secrets, and could result in substantial cost to the company, and diversion of
our efforts.
We are aware of several U.S. patents owned or licensed to Schering AG
that relate to pharmaceutical formulations and methods for enhancing magnetic
resonance imaging. We have obtained the opinion of special patent counsel that
the technologies we employ for our imaging product under development and
magnetic resonance imaging detectable compounds do not infringe the claims of
such patents. Nevertheless, Schering AG may still choose to assert one or more
of those patents. If any of our products were legally determined to be
infringing a valid and enforceable claim of any such patents, our business could
be materially adversely affected. Further, any allegation by Schering AG that we
infringed their patents would likely result in significant legal costs and
require the diversion of substantial management resources. Schering AG sent
communications to us suggesting that our oral magnetic resonance imaging
contrast agent, CITRA VU, may infringe certain of their patents. We are aware
that Schering AG has asserted patent rights against at least one other company
in the contrast agent imaging market and that a number of companies have entered
into licensing arrangements with Schering AG with respect to one or more of such
patents. We cannot be certain that we would be successful in defending a lawsuit
or able to obtain a license on commercially reasonable terms from Schering AG,
if required.
We also rely upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain our competitive position. We
require our employees, consultants, advisors and collaborators to execute
appropriate confidentiality and assignment-of-inventions agreements with us.
These agreements typically provide that all materials and confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances, and that all inventions
arising out of the relationship with Pharmacyclics shall be our exclusive
property. These agreements may be breached, and in some instances, we may not
have an appropriate remedy available for breach of the agreements. Furthermore,
our competitors may independently develop substantially
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equivalent proprietary information and techniques, reverse engineer our
information and techniques, or otherwise gain access to our proprietary
technology. We may be unable to meaningfully protect our rights in unpatented
proprietary technology.
WE RELY HEAVILY ON THIRD PARTIES
We currently depend heavily and will depend heavily in the future on
third parties for support in product development, manufacturing, marketing and
distribution. We have a collaboration agreement with Nycomed. We rely on Nycomed
for a portion of our LUTRIN development costs in the form of milestone payments,
and for the commercialization, when and if LUTRIN is approved, of this product
outside the United States, Canada and Japan. In the field of retinal
degeneration, we depend on Alcon for preclinical and clinical studies,
regulatory filings and sales and marketing of OPTRIN for ophthalmology uses
worldwide. We have entered into agreements with E-Z-EM, Ltd. and E-Z-EM, Inc.
(together "E-Z-EM") for sales, marketing and distribution of CITRA VU in Europe
and North America. E-Z-EM, Alcon or Nycomed may terminate their agreements with
us at their election. We cannot be certain that any of these parties will
fulfill their obligations in a manner that maximizes our revenues. Our failure
to receive milestone payments or any reduction or discontinuance of efforts by
our partners or the termination of these alliances could have a material adverse
effect on our business, financial condition and results of operations.
We also depend upon the National Cancer Institute for the sponsoring and
funding of certain of the clinical trials of our XCYTRIN radiation sensitizer
and LUTRIN photosensitizer products in development. We cannot be certain that
the National Cancer Institute will enlist support for all such trials or that it
will continue our funding. If the National Cancer Institute did not support such
trials, we may have to fund the continuation of such trials ourselves or reduce
the number of disease types in our clinical trials.
We may be unsuccessful in entering into additional strategic alliances
for the development or commercialization of other product candidates. Even if we
did enter into any such alliances, they may not be on terms favorable to us or
they may ultimately be unsuccessful. See "Business -- Research, Clinical
Development and Marketing Collaborations."
We have no expertise in the development of light sources and associated
light delivery devices required for our photoangioplasty and photodynamic
therapy products under development. Successful development, manufacturing,
approval and distribution of our photosensitization products will require third
party participation for the required light sources, associated light delivery
devices and other equipment. We currently obtain lasers from Diomed, Inc., light
emitting diodes from Quantum Devices, Inc. and cylindrically diffusing light
fibers from CardioFocus on a purchase order basis, and such entities are under
no obligation to continue to deliver light devices on an ongoing basis. Failure
to maintain such relationships may require us to develop additional supply
sources which may require additional clinical trials and regulatory approvals
and could materially delay commercialization of our LUTRIN and ANTRIN products
under development. We may be unable to establish or maintain relationships with
other supply sources on a commercially reasonable basis, if at all, or
alternatively, the enabling devices may not receive regulatory approval for use
in photoangioplasty or photodynamic therapy. See "Business -- Research, Clinical
Development and Marketing Collaborations" and "-- Manufacturing and Suppliers."
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND THUS RELY HEAVILY UPON CONTRACT
MANUFACTURERS
We must manufacture our products in commercial quantities, either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. We do not own manufacturing facilities necessary to
provide clinical and commercial quantities of our products.
In September 1996, we entered into an agreement with Hoechst Celanese
Corporation, a manufacturer of chemicals and pharmaceutical components, to
optimize and scale up a manufacturing process for and supply of our
texaphyrin-based products. In October 1997, Hoechst Celanese assigned the
agreement to Celanese, Ltd., in connection with Hoechst Celanese's corporate
restructuring. This agreement granted Celanese exclusive worldwide manufacturing
rights and required Celanese to supply all of our texaphyrin-based products for
late-stage clinical and commercial use. As a result of the change in its
business focus, Celanese requested that we pursue alternative supply
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sources. On August 27, 1999, we entered into an agreement to terminate the
manufacturing and supply agreement with Celanese. Pursuant to that agreement,
Celanese assigned to us all right, title and interest in and to the
manufacturing technology and intellectual property for our texaphyrin-based
products.
During discussions with Celanese that resulted in termination of the
manufacturing and supply agreement, we entered into agreements with three new
manufacturers to evaluate their ability to supply us with the components of the
texaphyrin-based products. None of these manufacturers has delivered commercial
quantities of the components or drug substance to us yet, and we cannot be
certain that they will be able to deliver commercial quantities of the
components or drug substance on a timely basis. Because each of these
manufacturers will supply a component of the bulk drug substance, if any of
these manufacturers fails to perform its obligations in a timely fashion, our
business could be materially harmed. Due to the addition of alternative
manufacturers, we must demonstrate to the FDA the substantial chemical
equivalence of the materials produced by these manufacturers to the materials
used in our clinical trials to date. Failure to demonstrate chemical equivalence
of the material produced by these manufacturers could involve performing
additional clinical trials and could have a material adverse effect on our
business, financial condition and results of operations. In addition, we are in
the process of negotiating commercial-scale supply agreements with the same
group of manufacturers, but we cannot be certain that we will be able to
successfully negotiate these agreements at all or on commercially acceptable
terms. Until the transfer from Celanese to the alternative manufacturers is
completed, we will face uncertainties regarding the willingness or ability of
Celanese or any additional suppliers to deliver bulk drug substance for our
products on a timely and commercially attractive basis. Any interruption of
supply could have a material adverse effect on our ability to manufacture and
commercialize our products.
Any failure by these third parties to supply our requirements or the
National Cancer Institute's requirements for clinical trial materials would
jeopardize the completion of such trials and could therefore have a material
adverse effect on us. We are engaged in preliminary discussions with a number of
manufacturers regarding process development and validation, filling, labeling
and packaging of the finished dosage form of XCYTRIN, LUTRIN and ANTRIN. A
failure to successfully complete any such agreement could, if we could not
locate alternate manufacturing capabilities, have a material adverse effect on
our business, financial condition and results of operations.
E-Z-EM has assumed manufacturing responsibility for CITRA VU through its
affiliate, Therapex. Because of the change in our manufacturing source for CITRA
VU, we must obtain approval of the new source and must demonstrate the
substantial equivalence of the new source to the sources that we used in our
previous clinical trials, which could involve performing additional clinical
trials. Failure to demonstrate equivalence of these sources could have a
material adverse effect on our business, financial condition and results of
operations.
Prior to regulatory approval of our products under development, we
intend to negotiate supply agreements with manufacturers who will have the
ability to manufacture, fill, label and package such materials prior to
commercial introduction of these products. However, only a limited number of
contract manufacturers that operate under current federal and state good
manufacturing practice regulations and are capable of manufacturing our products
exist. Accordingly, we cannot be certain that we will be able to enter into
supply agreements on commercially acceptable terms with manufacturers or that we
will enter into supply agreements with manufacturers who will be able to deliver
supplies in appropriate quantity and quality to develop and commercialize our
products. Any interruption of supply of our products could have a material
adverse effect on our business, financial condition and results of operations.
WE LACK MARKETING AND SALES EXPERIENCE
We currently do not have marketing, sales or distribution experience.
Therefore, to service markets in which we have retained sales and marketing
rights and in the event that any of our agreements with Alcon, Nycomed, or
E-Z-EM is terminated, we must develop a sales force with technical expertise. We
have no experience in developing, training or managing a sales force. We will
incur substantial additional expenses in developing, training and managing such
an organization. We may be unable to build such a sales force, the cost of
establishing such a sales force may exceed any product revenues, or our direct
marketing and sales efforts may be unsuccessful. In addition,
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we compete with many other companies that currently have extensive and
well-funded marketing and sales operations. Our marketing and sales efforts may
be unable to compete successfully against such other companies.
OUR CAPITAL REQUIREMENTS ARE UNCERTAIN AND WE MAY HAVE DIFFICULTY RAISING NEEDED
CAPITAL IN THE FUTURE
We have expended and will continue to expend substantial funds to
complete the research, development and clinical testing of our products. We will
require additional funds for these purposes, to establish additional
clinical-and commercial-scale manufacturing arrangements and to provide for the
marketing and distribution of our products. Additional funds may not be
available on acceptable terms, if at all. If adequate funds are unavailable from
operations or additional sources of financing, we may have to delay, reduce the
scope of or eliminate one or more of our research or development programs which
would materially and adversely affect our business, financial condition and
operations.
We believe that the net proceeds of this offering, together with our
cash, cash equivalents and investments, will be adequate to satisfy our capital
needs through at least calendar year 2001. However, our actual capital
requirements will depend on many factors, including:
o continued progress of our research and development programs;
o our ability to establish additional collaborative arrangements;
o changes in our existing collaborative relationships;
o progress with preclinical studies and clinical trials;
o the time and costs involved in obtaining regulatory clearance;
o the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims; and
o competing technological and market developments.
o our ability to market and distribute our products and establish
new collaborative and licensing arrangements.
We may seek to raise any necessary additional funds through equity or
debt financings, collaborative arrangements with corporate partners or other
sources which may be dilutive to existing stockholders. In addition, in the
event that additional funds are obtained through arrangements with collaborative
partners or other sources, such arrangements may require us to relinquish rights
to some of our technologies, product candidates or products under development
that we would otherwise seek to develop or commercialize ourselves.
RISKS RELATED TO OUR INDUSTRY
WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or technologies noncompetitive or obsolete, or we may be unable to
keep pace with technological developments or other market factors. Technological
competition in the industry from pharmaceutical and biotechnology companies,
universities, governmental entities and others diversifying into the field is
intense and is expected to increase. Many of these entities have significantly
greater research and development capabilities than we do, as well as
substantially more marketing, manufacturing, financial and managerial resources.
These entities represent significant competition for us. Acquisitions of, or
investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase such competitors' financial, marketing,
manufacturing and other resources.
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We are a relatively new enterprise and are engaged in the development of
novel therapeutic technologies. As a result, our resources are limited and we
may experience technical challenges inherent in such novel technologies.
Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing similar therapeutic, diagnostic and imaging effects than
our products. We are aware that one of our competitors in the market for
photodynamic therapy drugs has received marketing approval of a product for
certain uses in the United States and other countries. Our competitors may
develop products that are safer, more effective or less costly than our products
and, therefore, present a serious competitive threat to our product offerings.
The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation and chemotherapy, and in the case of
atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to
maintain and open blood vessels. These treatments are widely accepted in the
medical community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The continuing efforts of government and insurance companies, health
maintenance organizations and other payors of healthcare costs to contain or
reduce costs of health care may affect our future revenues and profitability,
and the future revenues and profitability of our potential customers, suppliers
and collaborative partners and the availability of capital. For example, in
certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, given
recent federal and state government initiatives directed at lowering the total
cost of health care, the U.S. Congress and state legislatures will likely
continue to focus on health care reform, the cost of prescription
pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we
cannot predict whether any such legislative or regulatory proposals will be
adopted, the announcement or adoption of such proposals could have a material
adverse effect on our business, financial condition and results of operations.
Our ability to commercialize our products successfully will depend in
part on the extent to which appropriate reimbursement levels for the cost of our
products and related treatment are obtained by governmental authorities, private
health insurers and other organizations, such as HMOs. Third-party payors are
increasingly challenging the prices charged for medical products and services.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for or rejection of our
products. The cost containment measures that health care payors and providers
are instituting and the effect of any health care reform could materially
adversely affect our ability to operate profitably.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
The testing, manufacture, marketing and sale of our products involve an
inherent risk that product liability claims will be asserted against us.
Although we are insured against such risks up to a $10,000,000 annual aggregate
limit in connection with clinical trials and commercial sales of our products,
our present product liability insurance may be inadequate. A successful product
liability claim in excess of our insurance coverage could have a material
adverse effect on our business, financial condition and results of operations.
Any successful product liability claim may prevent us from obtaining adequate
product liability insurance in the future on commercially desirable or
reasonable terms. In addition, product liability coverage may cease to be
available in sufficient amounts or at an acceptable cost. An inability to obtain
sufficient insurance coverage at an acceptable cost or otherwise to protect
against potential product liability claims could prevent or inhibit the
commercialization of our pharmaceutical products. A product liability claim or
recall would have a material adverse effect on our reputation, business,
financial condition and results of operations.
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OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS
In connection with our research and development activities and our
manufacture of materials and products, we are subject to federal, state and
local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens and wastes. Although we believe that we
have complied with the applicable laws, regulations and policies in all material
respects and have not been required to correct any material noncompliance, we
may be required to incur significant costs to comply with environmental and
health and safety regulations in the future. Our research and development
involves the controlled use of hazardous materials, including but not limited to
certain hazardous chemicals and radioactive materials. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of such an occurrence, we could be held liable for any damages that
result and any such liability could exceed our resources.
YEAR 2000 ISSUES COULD DISRUPT OUR BUSINESS OPERATIONS
We have assessed our exposure to Year 2000-related problems, focusing on
four potential areas of exposure: internal information systems, scientific
equipment, facility support systems and the readiness of significant third
parties with whom we have material business relationships. We have substantially
completed the implementation of all necessary upgrades and believe that the Year
2000 issue will not pose significant operational problems for our internal
computer systems. After an inventory of our major pieces of scientific equipment
and of our major facility support systems such as communications, security and
building maintenance systems, we believe them to be Year 2000-compliant. We have
contacted our significant suppliers and service providers to determine the
extent to which our systems which interact with systems of third parties would
be vulnerable if those third parties failed to address their own Year 2000
issues. We cannot be certain that the systems of other companies on which our
systems rely will be timely converted and any failure by these companies to do
so may have an adverse impact on our systems. We estimate that the cost of the
required upgrades and conversions will not have a significant impact on our
results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of
June 30, 1999, are as follows:
NAME AGE POSITION
- ---- --- --------
Richard A. Miller, M.D................. 48 President, Chief Executive Officer and Director
Marc L. Steuer......................... 52 Senior Vice President, Business Development
Leiv Lea............................... 45 Vice President, Finance and Administration and
Chief Financial Officer
David A. Lowin, Esq.................... 44 Vice President, Intellectual Property Counsel
Hugo Madden, Ph.D. .................... 49 Vice President, Chemical Operations
Phyllis I. Gardner, M.D................ 49 Director
Joseph S. Lacob(1)(2).................. 43 Director
Joseph C. Scodari(1)................... 46 Director
Craig C. Taylor(1)(2).................. 49 Director
- ----------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Dr. Miller has served as President, Chief Executive Officer and a
Director since he co-founded the company in April 1991. Dr. Miller was a
co-founder of IDEC Pharmaceuticals Corporation and from 1984 to February 1992
served as Vice President and a Director. Dr. Miller also is a Clinical Professor
of Medicine (Oncology) at Stanford University Medical Center. Dr. Miller
received his M.D., summa cum laude, from the State University of New York
Medical School and is board certified in both Internal Medicine and Medical
Oncology.
Mr. Steuer has served as Senior Vice President, Business Development
since December 1998. Prior to that, Mr. Steuer served as Senior Vice President,
Business Development and Chief Financial Officer from May 1998 to December 1998.
Prior to that, Mr. Steuer served as Vice President, Business Development and
Chief Financial Officer from November 1994 to May 1998. From April 1992 to
November 1994, he was Executive Vice President, Business Development and
Commercial Affairs for SciClone Pharmaceuticals, Inc. and also served as its
Chief Financial Officer. From 1985 to 1992, Mr. Steuer served in a variety of
roles in the Pilkington Visioncare Group ("PVG"), which developed, manufactured
and distributed medical devices, pharmaceuticals and equipment for the
ophthalmic field. Mr. Steuer received both B.S. and M.S. degrees in Electrical
Engineering from Columbia University and an M.B.A. from New York University.
Mr. Lea has served as Vice President, Finance and Administration and
Chief Financial Officer since December 1998. Prior to that, Mr. Lea served as
Vice President, Finance and Administration from December 1997 to December 1998.
From September 1996 through November 1997, he served as a financial consultant
for high technology companies and was Acting Chief Financial Officer for Global
Village Communications, Inc. From 1987 through June 1996 he served as Vice
President and Chief Financial Officer of Margaux, Inc., a public company that
manufactured refrigeration equipment. Mr. Lea received a B.S. degree in
Agricultural Economics from the University of California, Davis and an M.B.A.
from the University of California, Los Angeles.
Mr. Lowin has served as Vice President and Intellectual Property Counsel
since April 1998 and Assistant Secretary of the Company since July 1998. From
January 1995 to April 1998 he was Vice President, Intellectual Property, Chief
Patent Counsel and Assistant Secretary for Connetics Corporation, a public
biotechnology company. From 1982 to 1995, Mr. Lowin served at Syntex
Corporation, a pharmaceutical company, most recently as Assistant Director of
the Patent Law Department. He received a B.A. degree in Chemistry from Hobart
College and a J.D. from the Franklin Pierce Law Center, where he serves on the
Intellectual Property Law Advisory Committee.
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Dr. Madden has served as Vice President, Chemical Operations since June
1998. From 1995 to June 1998, he served as Plant Manager and as Director of
Process Development at Catalytica Pharmaceuticals, Inc., a contract
pharmaceutical manufacturer. From 1977 to 1995, Dr. Madden served in a variety
of positions with Syntex Corporation, a pharmaceutical company. His positions at
Syntex included Technical Director at the Bahamas Chemical Division and Manager
of Process Development and Engineering at the Technology Center in Boulder,
Colorado. Dr. Madden received a B.A. degree in Chemistry from the University of
Oxford and a Ph.D. from the University of London.
Dr. Gardner was elected as a Director of the Company in June 1999. She
is currently the Senior Associate Dean for Education and Associate Professor of
Molecular Pharmacology and Medicine at Stanford University School of Medicine,
where she has been a faculty member since 1984. From 1996 to 1998, she was the
vice president of research and head of ALZA Technology Institute of ALZA
Corporation in Palo Alto, California. Dr. Gardner received her M.D. from Harvard
Medical School in 1976.
Mr. Lacob was elected as a Director of the Company in June 1991. He is a
General Partner of Kleiner Perkins Caufield & Byers, a venture capital
investment firm, which he joined in 1987. Mr. Lacob is currently a Director of
Corixa Corporation, Sportsline USA, Inc., and Heartport, Inc., as well as
several private life science and internet companies. Mr. Lacob holds a B.S.
degree in Biochemistry from the University of California, Irvine, an M.S. in
Public Health from the University of California, Los Angeles, and an M.B.A. from
Stanford University.
Mr. Scodari was elected as a Director of the Company in December 1994.
He is President and Chief Operating Officer of Centocor, Inc., a biotechnology
company. Prior to joining Centocor, he was Senior Vice President and General
Manager, The Americas for Rhone-Poulenc Rorer Pharmaceuticals, Inc., a
pharmaceutical company, where he held various positions from 1989. From 1987 to
1989, Mr. Scodari was Executive Vice President of Sterling Drugs' U.S.
Diagnostic Imaging Division, where he held responsibilities for all marketing
and sales and business development activities for Sterling's imaging agent
business. Mr. Scodari received a B.A. degree in Political Science from
Youngstown State University.
Mr. Taylor was elected as a Director of the Company in June 1991. He is
a General Partner of AMC Partners 89, L.P., and the General Partner of Asset
Management Associates 1989, L.P., a private venture capital partnership. Mr.
Taylor has been with Alloy Ventures, Inc., a venture management firm which
succeeded Asset Management Company, the prior management firm for the Asset
Management funds, since 1998. Mr. Taylor had been with Asset Management Company
from 1977 to 1998. Mr. Taylor is a Director of Lynx Therapeutics, Inc. and
several private companies. Mr. Taylor holds B.S. and M.S. degrees in Physics
from Brown University and an M.B.A. from Stanford University.
ITEM 2. PROPERTIES
Our corporate offices are located in Sunnyvale, California, where we
lease approximately 32,500 square feet under a lease that expires in January
2002. As of August 31, 1999, the annual base rent for this facility was
approximately $384,000. This facility includes administrative and research and
development space. In April 1999, we entered into a 2 1/2 year lease, with a one
year automatic renewal option, for an 18,000 square feet facility also in
Sunnyvale. This facility is used for administrative space, and the annual base
rent is approximately $348,000. Both leases are non-cancelable operating leases.
We believe that the office space that we currently lease in Sunnyvale will be
sufficient to meet our needs through at least the next 12 months.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading publicly on the Nasdaq National Market on
October 24, 1995 and is traded under the symbol "PCYC." Prior to that date,
there was no public market for our common stock. The following table sets forth
for the periods indicated the high and low sales prices of the common stock.
HIGH LOW
------ ------
FISCAL YEAR ENDED JUNE 30, 1998
First Quarter................................ $27.00 $14.38
Second Quarter............................... 28.00 21.00
Third Quarter................................ 29.62 20.75
Fourth Quarter............................... 34.88 22.00
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter................................ $24.00 $12.75
Second Quarter............................... 26.00 10.63
Third Quarter................................ 27.25 14.38
Fourth Quarter............................... 29.00 13.38
As of August 31, 1999, there were 108 holders of record of our common
stock. We currently anticipate that we will retain all future earnings for use
in our business and do not anticipate paying any cash dividends in the
foreseeable future.
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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
1995 1996 1997 1998 1999 JUNE 30, 1999
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
License and grant revenues .............. $ 79 $ 301 $ 25 $ 2,700 $ 750 $ 6,855
Contract revenue ........................ -- -- -- 831 1,291 2,122
-------- -------- -------- -------- -------- --------
Total revenues ...................... 79 301 25 3,531 2,041 8,977
-------- -------- -------- -------- -------- --------
Operating expenses:
Research and development ................ 9,330 7,641 9,632 13,973 21,889 73,022
General and administrative .............. 996 1,515 1,905 1,987 2,762 10,824
-------- -------- -------- -------- -------- --------
Total operating expenses ............ 10,326 9,156 11,537 15,960 24,651 83,846
-------- -------- -------- -------- -------- --------
Loss from operations ...................... (10,247) (8,855) (11,512) (12,429) (22,610) (74,869)
Interest income ........................... 187 940 1,480 2,826 3,398 9,165
Interest expense .......................... (419) (320) (226) (72) (34) (1,332)
-------- -------- -------- -------- -------- --------
Loss before income taxes .................. (10,479) (8,235) (10,258) (9,675) (19,246) (67,036)
Provision for income taxes ................ -- -- -- -- -- (101)
-------- -------- -------- -------- -------- --------
Net loss .................................. $(10,479) $ (8,235) $(10,258) $ (9,675) $(19,246) $(67,137)
======== ======== ======== ======== ======== ========
Basic and diluted net loss per share(1) ... $ (12.04) $ (1.35) $ (1.11) $ (0.87) $ (1.55)
======== ======== ======== ======== ========
Shares used to compute basic and
diluted net loss per share(1) ........... 870 6,106 9,264 11,061 12,378
======== ======== ======== ======== ========
JUNE 30,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments .. $ 376 $ 22,003 $ 30,827 $ 36,645 $ 46,405
Long-term investments .............................. -- -- 6,103 33,736 5,067
Total assets ....................................... 3,539 25,015 39,707 73,019 55,557
Capital lease obligations .......................... 2,178 1,858 1,298 530 275
Deficit accumulated during development stage ....... (19,723) (27,958) (38,216) (47,891) (67,137)
Total stockholders' equity (deficit) ............... (1,652) 21,991 36,696 68,641 49,957
- ----------
(1) See Note 1 to the financial statements for a description of the
computation of basic and diluted net loss per share.
30
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, this report contains predictions,
estimates and other forward looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
any future performance suggested in this report as a result of the factors,
including those discussed in "Risk Factors," elsewhere in this report.
OVERVIEW
Pharmacyclics is a pharmaceutical company focused on the development of
products that improve existing therapeutic approaches to cancer, atherosclerosis
and retinal disease. We are currently in a multicenter international Phase III
clinical trial of XCYTRIN to improve the efficacy of radiation therapy of tumors
that have spread to the brain resulting from a variety of cancers, including
those of the lung and breast. We have completed a Phase II clinical trial for
LUTRIN as a photosensitizer to evaluate its safety, tolerability and efficacy
for use in the photodynamic therapy of recurrent breast cancers to the chest
wall. Through our Cooperative Research and Development Agreement, the National
Cancer Institute intends to conduct several Phase I clinical trials of XCYTRIN
and LUTRIN, each for a variety of additional cancer indications. We have also
completed a Phase I clinical trial for ANTRIN to evaluate its safety and
efficacy for photoangioplasty treatment of patients with peripheral arterial
disease involving the blood vessels of the lower extremities. In addition, Alcon
is conducting a Phase I/II clinical trial of OPTRIN for the photodynamic therapy
of patients with a degenerative disease of the retina caused by growths of small
blood vessels in the retina known as age-related macular degeneration. Alcon is
conducting this trial under a 1997 evaluation and license agreement that gave
Alcon the right to conduct worldwide development, marketing and sales of OPTRIN
for ophthalmology indications. Also in 1997, we entered into a collaborative
agreement with Nycomed to sell and market LUTRIN for cancer therapy outside the
United States, Canada and Japan.
To date, we have devoted substantially all of our resources to research
and development. We have not derived any commercial revenues from product sales,
and we do not expect to receive product revenues for at least the next several
years. We have incurred significant operating losses since our inception in 1991
and, as of June 30, 1999, had an accumulated deficit of approximately $67.1
million. We expect to continue to incur significant operating losses over the
next several years as we continue to incur increasing research and development
costs, in addition to costs related to clinical trials and manufacturing
activities. We expect that losses will fluctuate from quarter to quarter and
that such fluctuations may be substantial. Our achieving profitability depends
upon our ability, alone or with others, to successfully complete the development
of our products under development, and obtain required regulatory clearances and
successfully manufacture and market our products. See "Risk Factors -- All of
our product candidates are in development and we cannot be certain that any of
our products under development will be commercialized," "-- Acceptance of our
products in the marketplace is uncertain and failure to achieve market
acceptance will harm our business," "-- We have a history of operating losses
and we expect to continue to have losses in the future" "-- Failure to obtain
product approvals or comply with ongoing governmental regulations could
adversely affect our business" and "-- Our capital requirements are uncertain
and we may have difficulty raising needed capital in the future."
RESULTS OF OPERATIONS
Comparison of Years Ended June 30, 1999, 1998 and 1997
Revenues. Our revenues for the years ended June 30, 1999, 1998 and 1997
were $2,041,000, $3,531,000 and $25,000, respectively. Revenues for the year
ended June 30, 1999 resulted primarily from a milestone payment from Alcon and
contract revenue from Nycomed and Alcon. Revenues in fiscal 1998 consisted
primarily of $2,700,000 in license revenue and $831,000 in contract revenue
associated with the Nycomed and Alcon agreements. The $25,000 of revenue in
fiscal 1997 was the result of milestone payments from E-Z-EM related to the
signing of a European sales and distribution agreement and receipt of marketing
approval in the United Kingdom for CITRA VU.
31
33
Research and Development Expenses. Research and development expenses
were $21,889,000 for the year ended June 30, 1999, compared to $13,973,000 for
the year ended June 30, 1998 and $9,632,000 for the year ended June 30, 1997.
The $7,916,000, or 57% increase from 1998 to 1999 was due primarily to increased
clinical trial costs, greater drug purchases for use in clinical trials and
greater personnel costs. Research and development expenses incurred in
connection with research and development contracts were $3,150,000 for the year
ended June 30, 1999. We expect research and development expenses to increase in
fiscal 2000 as we continue development of our products.
The $4,341,000, or 45% increase in research and development spending in
1998 from 1997 was due primarily to supporting clinical trials for XCYTRIN,
LUTRIN and ANTRIN. Such costs included clinical product supplies, clinical site
costs and personnel. Research and development expenses incurred in connection
with research and development contracts were $2,200,000 for the year ended June
30, 1998.
General and Administrative Expenses. General and administrative expenses
for the years ended June 30, 1999, 1998 and 1997 were $2,762,000, $1,987,000 and
$1,905,000, respectively. The $775,000, or 39% increase for 1999 compared to
1998 primarily resulted from increases in personnel and related expenses and
costs associated with hiring new employees. General and administrative expenses
increased $82,000, or 4%, for 1998 compared to 1997. The increase in fiscal 1998
expense was primarily related to personnel and related expenses. General and
administrative expenses in fiscal 1997 included approximately $300,000 of
financing costs related to a planned public financing which was withdrawn due to
market conditions. We expect general and administrative expenses to increase in
fiscal 2000.
Interest Income, Net of Interest Expense. Interest income, net of
interest expense, was $3,364,000 $2,754,000 and $1,254,000 for the years ended
June 30, 1999, 1998 and 1997, respectively. The increase in each of 1999 and
1998 was primarily the result of interest earned on higher average cash balances
from a public equity offering completed in February 1998. Our cash equivalents
and investments consist primarily of fixed rate instruments that are not subject
to interest rate risk.
Income Taxes. At June 30, 1999, we had net operating loss carryforwards
of approximately $58.0 million for federal income tax reporting purposes and tax
credit carryforwards of approximately $2.9 million for federal reporting
purposes. These amounts expire at various times through 2019. As a result of
ownership changes that have occurred during the past four fiscal years, we
believe that utilization of our net operating loss and tax credit carryforwards
is subject to annual limitations. See Note 6 of "Notes to Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of working capital have been primarily private and
public equity financings and proceeds from collaborative research and
development agreements, as well as grant revenues, interest income and property
and equipment financings. Since inception, we have used approximately
$57,750,000 of cash for operating activities and approximately $7,427,000 of
cash for the purchase of laboratory and office equipment and payments under
capital lease agreements.
As of June 30, 1999, we had approximately $51,472,000 in cash, cash
equivalents and investments. Net cash used in operating activities was
$17,243,000, $6,545,000 and $8,553,000 for the years ended June 30, 1999, 1998
and 1997, respectively, and resulted primarily from operating losses adjusted
for non-cash expenses and changes in accounts payable. Net cash provided by
investing activities was $7,414,000 in the year ended June 30, 1999 and
consisted primarily of proceeds from the sale of investments, partially offset
by purchase of investments and property and equipment. Net cash used in
investing activities was $36,629,000 and $13,291,000 for the years ended June
30, 1998 and 1997, respectively, and consisted primarily of net purchases of
investments. Net cash provided by financing activities was $303,000, $40,761,000
and $23,763,000 for the years ended June 30, 1999, 1998 and 1997, respectively,
and consisted primarily of proceeds from the sale of equity securities.
In February 1998, we sold 2,012,500 shares of our common stock at a
price of $21.75 per share which resulted in net proceeds to us of approximately
$40.8 million. In February 1997, we completed a private placement of
32
34
862,190 shares of common stock at $19.05 per share for net proceeds of $16.3
million. In November 1996, we completed a private placement of 580,000 shares of
common stock at $14.00 per share for proceeds of $8.1 million. We filed and had
declared effective on April 22, 1997, a registration statement on Form S-3
covering resales of the securities purchased in both private placements.
Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our existing cash, cash equivalents and investments, will be
adequate to satisfy our capital needs through at least the calendar year 2001.
However, our actual capital requirements will depend on many factors, including
the status of product development; the time and cost involved in conducting
clinical trials and obtaining regulatory approvals; filing, prosecuting and
enforcing patent claims; competing technological and market developments; and
our ability to market and distribute our products and establish new
collaborative and licensing arrangements. At June 30, 1999 we had approximately
$7.4 million in cancelable purchase commitments with three suppliers of drug
components and final bulk drug substance and one supplier of lasers.
Our forecast of the period of time through which our financial resources
will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary materially. The
factors described above will impact our future capital requirements and the
adequacy of our available funds. We may be required to raise additional funds
through public or private financings, collaborative relationships or other
arrangements. We cannot be certain that such additional funding, if needed, will
be available on terms attractive to us, or at all. Furthermore, any additional
equity financing may be dilutive to existing stockholders and debt financing, if
available, may involve restrictive covenants. Collaborative arrangements, if
necessary to raise additional funds, may require us to relinquish rights to
certain of our technologies, products or marketing territories. Our failure to
raise capital when needed could have a material adverse effect on our business,
financial condition and results of operations. See "Risk Factors -- Risks
Related to Pharmacyclics -- Our capital requirements are uncertain and we may
have difficulty raising capital in the future."
IMPACT OF YEAR 2000
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead, the so-called "Year 2000" problem. If not corrected, those
programs could cause date-related transaction failures.
We have assessed our exposure for Year 2000-related problems focusing on
four potential areas of exposure -- internal information systems, scientific
equipment, facility support systems and the readiness of significant third
parties with whom we have material business relationships.
Internal Information Systems
We are using a number of computers and computer programs across all of
our operations. We have performed an inventory of our computer equipment and
computer programs. To date, we have identified no significant internal
information systems as non-Year 2000-compliant and we have enacted procedures to
assure that all purchases of new systems are Year 2000-compliant.
Scientific Equipment
We have taken an inventory of the major pieces of our scientific
equipment. We believe all major pieces of our scientific equipment to be Year
2000-compliant.
33
35
Facility Support Systems
We have also taken an inventory of our major facility support systems
such as communications, security and building maintenance systems. We believe
all major systems to be Year 2000-compliant.
Third Parties With Major Business Relationships
We depend upon a large number of third parties that provide information,
goods and services to us. These include financial institutions, suppliers,
vendors, research partners and governmental entities. We have begun surveying
all of our major vendors and other third party interests to determine whether
their systems are Year 2000-compliant. We cannot guarantee that all of our key
suppliers, partners and others will achieve Year 2000 compliance in a timely
manner. The failure of our vendors and partners to successfully address the Year
2000 issue could have a material adverse effect on our ability to fully address
our Year 2000 issue. Such failures could materially affect our results of
operations, liquidity and financial condition.
Our contingency plan to minimize the risks associated with Year 2000
issues consists primarily of arranging for adequate supplies of bulk drug
substances to ensure that our ongoing clinical trials are not interrupted. Our
contingency plan has been substantially implemented as of August 1999.
We expense external and internal costs specifically associated with
addressing Year 2000 issues as incurred. To this point, these costs have not
been material and we do not expect such costs to be material in the future. We
cannot be certain, however, that our assessment of Year 2000's potential impact
on us will not change as we complete our assessment, or that Year 2000 will not
ultimately cause a material disruption in our business.
MARKET RISK
Our cash and cash equivalents, investments and debt are comprised
primarily of short-term fixed rate instruments. Accordingly, we are not subject
to interest rate risk to any significant degree.
One of our cancelable drug supply agreements is denominated in a foreign
currency. We have not entered into any agreements or transactions to hedge the
risk associated with potential fluctuations in currencies; accordingly, we are
subject to foreign currency exchange risk related to this contract. While we may
enter into hedge or other agreements in the future to actively manage this risk,
we do not believe this risk is material to our financial statements.
34
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants.........................................36
Balance Sheet.............................................................37
Statement of Operations...................................................38
Statement of Cash Flows...................................................39
Statement of Stockholders' Equity (Deficit)...............................40
Notes to Financial Statements.............................................42
35
37
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, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years in
the period ended June 30, 1999, and for the period from inception (April 1991)
through June 30, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
July 23, 1999
36
38
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
JUNE 30,
-------------------------
1999 1998
--------- ---------
Current assets:
Cash and cash equivalents ............................. $ 3,930 $ 13,456
Short-term investments ................................ 42,475 23,189
Accounts receivable ................................... 309 166
Prepaid expenses and other current assets ............. 463 166
--------- ---------
Total current assets .......................... 47,177 36,977
Long-term investments ................................... 5,067 33,736
Property and equipment, net ............................. 3,228 2,253
Other assets ............................................ 85 53
--------- ---------
$ 55,557 $ 73,019
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 4,563 $ 3,377
Accrued liabilities ................................... 747 432
Current portion of capital lease obligations .......... 216 255
--------- ---------
Total current liabilities ..................... 5,526 4,064
Capital lease obligations ............................... 59 275
Deferred rent ........................................... 15 39
--------- ---------
Total liabilities ............................. 5,600 4,378
--------- ---------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized at June 30, 1999 and 1998;
no shares issued and outstanding .................. -- --
Common stock, $0.0001 par value; 24,000,000 shares
authorized at June 30, 1999 and 1998;
shares issued and outstanding -- 12,428,871 at
June 30, 1999 and 12,294,292 at June 30, 1998 ..... 1 1
Additional paid-in capital ............................ 117,178 116,531
Accumulated other comprehensive income ................ (85) --
Deficit accumulated during development stage .......... (67,137) (47,891)
--------- ---------
Total stockholders' equity .................... 49,957 68,641
--------- ---------
$ 55,557 $ 73,019
========= =========
The accompanying notes are an integral part of these financial statements.
37
39
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
-------------------------------------- THROUGH JUNE 30,
1999 1998 1997 1999
-------- -------- -------- --------
Revenues:
License and grant revenues ........... $ 750 $ 2,700 $ 25 $ 6,855
Contract revenue ..................... 1,291 831 -- 2,122
-------- -------- -------- --------
Total revenues ............... 2,041 3,531 25 8,977
-------- -------- -------- --------
Operating expenses:
Research and development ............. 21,889 13,973 9,632 73,022
General and administrative ........... 2,762 1,987 1,905 10,824
-------- -------- -------- --------
Total operating expenses ..... 24,651 15,960 11,537 83,846
-------- -------- -------- --------
Loss from operations ................... (22,610) (12,429) (11,512) (74,869)
Interest income ........................ 3,398 2,826 1,480 9,165
Interest expense ....................... (34) (72) (226) (1,332)
-------- -------- -------- --------
Loss before income taxes ............... (19,246) (9,675) (10,258) (67,036)
Provision for income taxes ............. -- -- -- (101)
-------- -------- -------- --------
Net loss ............................... $(19,246) $ (9,675) $(10,258) $(67,137)
======== ======== ======== ========
Basic and diluted net loss per share ... $ (1.55) $ (0.87) $ (1.11)
======== ======== ========
Shares used to compute basic and
diluted net loss per share ............ 12,378 11,061 9,264
======== ======== ========
The accompanying notes are an integral part of these financial statements.
38
40
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
INCEPTION
YEAR ENDED JUNE 30, (APRIL 1991)
---------------------------------- THROUGH JUNE 30,
1999 1998 1997 1999
-------- -------- -------- ----------------
Cash flows from operating activities:
Net loss .................................................... $(19,246) $ (9,675) $(10,258) $ (67,137)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization . .......................... 909 828 915 4,293
Stock compensation expense ............................... 89 91 126 332
Write-down of fixed assets ............................... -- 188 -- 306
Other .................................................... -- -- -- (12)
Changes in assets and liabilities:
Accounts receivable .................................... (143) (166) -- (309)
Prepaid expenses and other assets ...................... (219) 54 117 (548)
Accounts payable ....................................... 1,186 2,054 570 4,563
Accrued liabilities .................................... 315 121 11 747
Deferred rent .......................................... (24) (40) (34) 15
-------- -------- -------- ---------
Net cash used in operating activities ............... (17,243) (6,545) (8,553) (57,750)
-------- -------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment .......................... (1,884) (765) (283) (3,821)
Proceeds from sale of property and equipment ................ -- -- -- 112
Purchase of short-term investments .......................... (14,331) (28,517) (17,305) (50,603)
Purchase of long-term investments ........................... (7,704) (31,619) (6,103) (58,778)
Proceeds from maturities of short-term investments .......... 4,547 20,286 10,400 27,429
Proceeds from maturities of long-term investments ........... 26,586 3,986 -- 34,325
-------- -------- -------- ---------
Net cash provided by (used in) investing activities . 7,414 (36,629) (13,291) (51,336)
-------- -------- -------- ---------
Cash flows from financing activities:
Issuance of common stock, net of
issuance costs ........................................... 558 41,529 24,711 93,108
Proceeds from notes payable ................................. -- -- -- 3,000
Issuance of convertible preferred
stock, net of issuance costs ............................. -- -- -- 20,514
Payments under capital lease obligations .................... (255) (768) (948) (3,606)
-------- -------- -------- ---------
Net cash provided by financing activities ........... 303 40,761 23,763 113,016
-------- -------- -------- ---------
Increase (decrease) in cash and cash equivalents .............. (9,526) (2,413) 1,919 3,930
Cash and cash equivalents at beginning of period .............. 13,456 15,869 13,950 --
-------- -------- -------- ---------
Cash and cash equivalents at end of period .................... $ 3,930 $ 13,456 $ 15,869 $ 3,930
======== ======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid ........................................... $ -- $ -- $ -- $ 101
Interest paid ............................................... 34 72 226 1,250
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment acquired under
capital lease obligations ................................ -- -- 338 3,880
Warrants issued ............................................. -- -- -- 49
Conversion of notes payable and accrued
interest into convertible preferred stock ................ -- -- -- 3,051
The accompanying notes are an integral part of these financial statements.
39
41
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONVERTIBLE
PREFERRED COMMON
--------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------ ------- ------
Issuance of common stock for cash
at $0.02 per share ....................... -- $ -- 400,000 $ --
--------- ----- ------- -----
Balance at June 30, 1991 ................... -- -- 400,000 --
Issuance of common stock for cash
at an average price of $0.02 per share ... -- -- 97,111 --
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$1.32 per share .......................... 2,040,784 -- -- --
Net loss ................................... -- -- -- --
--------- ----- ------- -----
Balance at June 30, 1992 ................... 2,040,784 -- 497,111 --
Issuance of common stock for cash
at an average price of $0.06 per share ... -- -- 49,000 --
Issuance of convertible preferred
stock for cash, net of issuance
costs, at $4.88 per share ................ 1,580,095 -- -- --
Net loss ................................... -- -- -- --
--------- ----- ------- -----
Balance at June 30, 1993 ................... 3,620,879 -- 546,111 --
Issuance of common stock upon
exercise of stock options at an
average price of $0.12 per share ......... -- -- 324,188 --
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$8.63 per share .......................... 886,960 -- -- --
Net loss ................................... -- -- -- --
--------- ----- ------- -----
Balance at June 30, 1994 ................... 4,507,839 -- 870,299 --
Issuance of common stock upon
exercise of stock options at an
average price of $0.24 per share ......... -- -- 38,403 --
Issuance of warrants ....................... -- -- -- --
Net loss ................................... -- -- -- --
--------- ----- ------- -----
Balance at June 30, 1995 ................... 4,507,839 -- 908,702 --
Issuance of convertible preferred
stock for notes payable and
accrued interest at an average
of $8.63 per share ....................... 353,483 -- -- --
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$8.63 per share .......................... 295,649 -- -- --
Issuance of common stock upon
initial public offering, net of
issuance costs, for cash at $12
per share ................................ -- -- 2,383,450 1
Conversion of convertible
preferred stock into common stock ........ (5,156,971) -- 5,156,971 --
Issuance of common stock upon
exercise of stock options at an
average exercise price of $1.33
per share ................................ -- -- 91,922 --
========= ===== ======== =====
DEFICIT
ACCUMULATED ACCUMULATED
ADDITIONAL OTHER DURING
PAID-IN COMPREHENSIVE DEVELOPMENT
CAPITAL INCOME STAGE TOTAL
----------- ------------- ------------ --------
Issuance of common stock for cash
at $0.02 per share .......................... $ 6 $ -- $ -- $ 6
------- ----- -------- --------
Balance at June 30, 1991 ...................... 6 -- -- 6
Issuance of common stock for cash
at an average price of $0.02 per share ...... 2 -- -- 2
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$1.32 per share ............................. 2,667 -- -- 2,667
Net loss ...................................... -- -- (523) (523)
------- ----- -------- --------
Balance at June 30, 1992 ...................... 2,675 -- (523) 2,152
Issuance of common stock for cash
at an average price of $0.06 per share ...... 3 -- -- 3
Issuance of convertible preferred
stock for cash, net of issuance
costs, at $4.88 per share ................... 7,674 -- -- 7,674
Net loss ...................................... -- -- (3,580) (3,580)
------- ----- -------- --------
Balance at June 30, 1993 ...................... 10,352 -- (4,103) 6,249
Issuance of common stock upon
exercise of stock options at an
average price of $0.12 per share ............ 38 -- -- 38
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$8.63 per share ............................. 7,623 -- -- 7,623
Net loss ...................................... -- -- (5,141) (5,141)
------- ----- -------- --------
Balance at June 30, 1994 ...................... 18,013 -- (9,244) 8,769
Issuance of common stock upon
exercise of stock options at an
average price of $0.24 per share ............ 9 -- -- 9
Issuance of warrants .......................... 49 -- -- 49
Net loss ...................................... -- -- (10,479) (10,479)
------- ----- -------- --------
Balance at June 30, 1995 ...................... 18,071 -- (19,723) (1,652)
Issuance of convertible preferred
stock for notes payable and
accrued interest at an average
of $8.63 per share .......................... 3,051 -- -- 3,051
Issuance of convertible preferred
stock for cash, net of issuance
costs, at an average price of
$8.63 per share ............................. 2,550 -- -- 2,550
Issuance of common stock upon
initial public offering, net of
issuance costs, for cash at $12
per share ................................... 26,042 -- -- 26,043
Conversion of convertible
preferred stock into common stock ........... -- -- -- --
Issuance of common stock upon
exercise of stock options at an
average exercise price of $1.33
per share ................................... 122 -- -- 122
======= ===== ======== ========
The accompanying notes are an integral part of these financial statements.
40
42
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
FOR THE PERIOD FROM INCEPTION (APRIL 1991) THROUGH JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $10.20 per share .. -- $ -- 8,379 $ --
Stock compensation expense ............... -- -- -- --
Net loss ................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at June 30, 1996 ................. -- -- 8,549,424 1
Issuance of common stock, net of
issuance costs, for cash at an
average price of $16.93 per share ...... -- -- 1,442,190 --
Issuance of common stock upon
exercise of stock options at an
average price of $2.74 per share ....... -- -- 96,283 --
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $10.51 per share .. -- -- 14,557 --
Stock compensation expense ............... -- -- -- --
Net loss ................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at June 30, 1997 ................. -- -- 10,102,454 1
Issuance of common stock, net of
issuance costs, for cash at
$21.75 per share ....................... -- -- 2,012,5 --
Issuance of common stock upon
exercise of stock options at an
average price of $6.57 per share ....... -- -- 88,933 --
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $14.36 per share .. -- -- 10,372 --
Issuance of common stock upon
exercise of warrants ................... -- -- 80,033 --
Stock compensation expense ............... -- -- -- --
Net loss ................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at June 30, 1998 ................. -- -- 12,294,292 1
---------- ---------- ---------- ----------
Issuance of common stock upon
exercise of stock options at an
average price of $5.10 per share ....... -- -- 75,275 --
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $12.77 per share .. -- -- 13,643 --
Issuance of common stock upon
exercise of warrants ................... -- -- 45,661 --
Stock compensation expense ............... -- -- -- --
Comprehensive income:
Unrealized loss on investments ......... -- -- -- --
Net loss ................................. -- -- -- --
---------- ---------- ---------- ----------
Balance at June 30, 1999 ................. -- $ -- 12,428,871 $ 1
========== ========== ========== ==========
DEFICIT
ACCUMULATED ACCUMULATED
ADDITIONAL OTHER DURING
PAID-IN COMPREHENSIVE DEVELOPMENT
CAPITAL INCOME STAGE TOTAL
---------- ------------ -------------- ----------
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $10.20 per share .. $ 86 $ -- $ -- $ 86
Stock compensation expense ............... 26 -- -- 26
Net loss ................................. -- -- (8,235) (8,235)
---------- ---------- ---------- ----------
Balance at June 30, 1996 ................. 49,948 -- (27,958) 21,991
Issuance of common stock, net of
issuance costs, for cash at an
average price of $16.93 per share ...... 24,420 -- -- 24,420
Issuance of common stock upon
exercise of stock options at an
average price of $2.74 per share ....... 264 -- -- 264
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $10.51 per share .. 153 -- -- 153
Stock compensation expense ............... 126 -- -- 126
Net loss ................................. -- -- (10,258) (10,258)
---------- ---------- ---------- ----------
Balance at June 30, 1997 ................. 74,911 -- (38,216) 36,696
Issuance of common stock, net of
issuance costs, for cash at
$21.75 per share ....................... 40,796 -- -- 40,796
Issuance of common stock upon
exercise of stock options at an
average price of $6.57 per share ....... 584 -- -- 584
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $14.36 per share .. 149 -- -- 149
Issuance of common stock upon
exercise of warrants ................... -- -- -- --
Stock compensation expense ............... 91 -- -- 91
Net loss ................................. -- -- (9,675) (9,675)
---------- ---------- ---------- ----------
Balance at June 30, 1998 ................. 116,531 -- 47,891 68,641
---------- ---------- ---------- ----------
Issuance of common stock upon
exercise of stock options at an
average price of $5.10 per share ....... 384 -- -- 384
Issuance of common stock upon
exercise of purchase rights at
an exercise price of $12.77 per share .. 174 -- -- 174
Issuance of common stock upon
exercise of warrants ................... -- -- -- --
Stock compensation expense ............... 89 -- -- 89
Comprehensive income:
Unrealized loss on investments ......... -- (85) -- (85)
Net loss ................................. -- -- (19,246) (19,246)
---------- ---------- ---------- ----------
Balance at June 30, 1999 ................. $ 117,178 $ (85) $ (67,137) $ 49,957
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
41
43
PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company
Pharmacyclics, Inc. was incorporated in Delaware in 1991 and commenced
operations during 1992 to develop and market pharmaceutical products to improve
upon current therapeutic approaches to the treatment of cancer, atherosclerosis
and retinal disease. Since inception, the company has been in the development
stage, principally involved in research and development and other business
planning activities, with no commercial revenues from product sales. Successful
future operations depend upon the company's ability to develop, to obtain
regulatory approval for and to commercialize its products. The company 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. The company operates in one business segment.
Management's use of estimates and assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Basic and diluted net loss per share
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon conversion of outstanding convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the treasury stock method).
Potential common shares have been excluded from the computation of dilutive
earnings per share because their effect is anti-dilutive.
Cash equivalents and investments
All highly liquid investments purchased with maturity at the date of
purchase of three months or less are considered to be cash equivalents. The
company has classified its investments as "available-for-sale." For all periods
presented, the cost of investments approximates their fair market value. Gains
and losses on securities sold are recorded based on the specific identification
method and are included in the results of operations.
42
44
The company's cash, cash equivalents and investments consisted of the
following (in thousands):
JUNE 30,
----------------------
INVESTMENT TYPE 1999 1998
- --------------- ------- -------
Cash in bank .............................. $ 320 $ 321
Money market .............................. 3,610 13,135
------- -------
Cash and cash equivalents ............... $ 3,930 $13,456
======= =======
Debt (state or political subdivision) ..... $ 2,030 $ 3,008
Debt (corporate) .......................... 40,445 20,181
------- -------
Short-term investments .................. $42,475 $23,189
======= =======
Debt (state or political subdivision) ..... $ 1,010 $ 2,032
Debt (corporate) .......................... 4,057 31,704
------- -------
Long-term investments ................... $ 5,067 $33,736
======= =======
At June 30, 1999 the company's long-term investments were scheduled to
mature at various dates through February 2001.
Concentration of credit risk
Financial instruments that potentially subject the company to credit
risk consist principally of cash, cash equivalents and investments. The company
places its cash, cash equivalents and investments with high-credit quality
financial institutions and invests in debt instruments of financial
institutions, corporations and government entities with strong credit ratings.
Management of the company believes they have established guidelines relative to
diversification and maturities that maintain safety and liquidity.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the shorter of the estimated useful lives of
the assets, generally four to eight years, or the lease term of the respective
assets, if applicable. Amortization of leasehold improvements is computed using
the straight-line method over the shorter of their estimated useful lives or
lease terms.
Long-lived assets
The company identifies and records impairment losses on long-lived
assets when events and circumstances indicate that the assets might be impaired.
No significant impairment losses have been recorded to date with respect to the
company's long-lived assets, which consist primarily of property and equipment
and leasehold improvements.
Revenue recognition
License fees are recognized as revenue when earned, as evidenced by
achievement of the specified milestones and the absence of any on-going
performance obligation. Contract and grant revenues are recognized as earned,
primarily based on costs incurred to total estimated costs at completion,
pursuant to the terms of each agreement. License, contract and grant revenues
are not subject to repayment. Any amounts received in advance of performance are
recorded as deferred revenue.
Research and development
Research and development costs are expensed as incurred and include
costs associated with contract research performed pursuant to collaborative
agreements. Research and development costs consist of direct and indirect
internal costs related to specific projects as well as fees paid to other
entities which conduct
43
45
certain research activities on behalf of the company. Research and development
expenses incurred in connection with research contracts were $3.2 million and
$2.2 million for the years ended June 30, 1999 and 1998, respectively.
Income taxes
The company provides for income taxes using the liability method. This
method requires that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the tax bases
of assets and liabilities and their financial statement reported amounts.
Fair value of financial instruments
The carrying value of the company's financial instruments including cash
and cash equivalents, short- and long-term investments, accounts receivable and
accrued liabilities approximate fair value due to their short maturities. The
carrying value of the company's capital lease obligations approximate fair value
based on borrowing rates currently available to the company.
Stock-based compensation
The company accounts for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation."
NOTE 2 -- AGREEMENTS:
University of Texas License. The company has entered into two exclusive
patent license agreements with The University of Texas which permit the company
to exclusively manufacture, use and sell products covered by patents that result
from certain research conducted by The University of Texas. Each agreement
requires the company to pay royalties to The University of Texas. Royalties
totaling $275,000 were paid under the agreements through June 30, 1997 in
connection with the E-Z-EM, Inc. agreement described below. No royalties were
paid during either of the years ended June 30, 1999 and 1998. In connection with
The University of Texas license agreement, the company has entered into a
license agreement with Dr. Stuart W. Young, a co-inventor of CITRA VU(TM),
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 University of Texas agreements.
Alcon Collaboration. In December 1997, the company entered into an
evaluation and license agreement with Alcon Pharmaceuticals Ltd., under which
Alcon acquired worldwide marketing rights to OPTRIN(TM) photosensitizer for
ophthalmology uses. OPTRIN is a lutetium texaphyrin molecule being developed as
a photosensitizer for the use in photodynamic therapy of retinal degeneration.
Alcon will conduct and be responsible for all costs associated with its
worldwide development and regulatory submissions for ophthalmology uses of
OPTRIN. In accordance with the terms of this agreement, the company received a
non-refundable, up-front payment and may receive additional amounts based on
Alcon reaching certain milestones, as well as royalties on any future product
sales. The company is required to supply Alcon with bulk drug substance through
its manufacturing collaboration with Celanese; Alcon will be responsible for
formulation and packaging of finished products.
E-Z-EM License. In August 1995, the company entered into an agreement
with E-Z-EM, Inc., a leading manufacturer and worldwide distributor of oral
contrast agents and other products for use in gastrointestinal radiology, for
the exclusive marketing and sale of the company's CITRA VU product in the United
States. In fiscal 1997, the company entered into a similar agreement with
E-Z-EM, Ltd., an affiliate of E-Z-EM. The company and E-Z-EM will share equally
in profits from the sale (if any) of CITRA VU, and the company may also receive
premium payments if certain sales levels are achieved. During the year ended
June 30, 1997, the
44
46
company recorded revenue of $25,000 (net of royalties aid to The University of
Texas) upon signing these agreements. There were no revenues associated with
these agreements for the years ended June 30, 1999 and 1998.
Nycomed Collaboration. In October 1997, the company entered into an
agreement with Nycomed Imaging A/S, in which Nycomed acquired exclusive sales
and marketing rights to LUTRIN(TM) photosensitizer for cancer treatments in all
markets of the world excluding the United States, Canada and Japan. LUTRIN is a
lutetium texaphyrin molecule being developed as a photosensitizer for use in the
photodynamic therapy of cancer. In exchange for these rights, Nycomed has agreed
to pay the company up to approximately $14.0 million as a combination of license
fees, a portion of the company's development costs, based upon an agreed budget,
and milestone payments related to the initial cancer treatments for LUTRIN to be
developed by the company and Nycomed, in each case subject to attainment of
certain development, clinical or commercialization milestones. Approximately
$14.0 million in additional milestone payments and development costs (assuming
similar costs and agreement upon a similar budget) may be paid by Nycomed during
the course of development for subsequent cancer treatments, if such treatments
are successfully completed. Upon receipt of marketing approval by Nycomed for
any products developed pursuant to this agreement, Nycomed will pay the company
a royalty on any future product sales. The company is required to supply Nycomed
with bulk drug substance. Nycomed is required to produce finished product for
use by it and the company.
Hoechst Celanese Agreement. In September 1996, the company entered into
an agreement with Hoechst Celanese Corporation, a manufacturer of chemicals and
pharmaceutical intermediates, to optimize and scale up a manufacturing process
for and supply of drug substance. In October 1997, Hoechst Celanese assigned the
agreement to Celanese, Ltd. in connection with Hoechst Celanese's corporate
restructuring. As a result of the change in its business focus Celanese
requested that Pharmacyclics pursue alternative supply sources. Celanese and the
company are presently negotiating the definitive terms and conditions of an
agreement pursuant to which Celanese will transfer the manufacturing process it
developed with the company to other manufacturers. The company has entered into
agreements with three new manufacturers to evaluate their ability to supply the
company with components of bulk drug substance. These new manufacturers are
currently in the process of producing initial supplies, which include commercial
quantities, of such products for delivery to the company during fiscal year
2000.
NOTE 3 -- BALANCE SHEET COMPONENTS:
Property and equipment consists of the following (in thousands):
JUNE 30,
-----------------------
1999 1998
------- -------
Equipment........................................ $ 4,008 $ 2,959
Leasehold improvements........................... 2,688 1,993
Furniture and fixtures........................... 618 478
------- -------
7,314 5,430
Less accumulated depreciation and amortization... (4,086) (3,177)
------- -------
$ 3,228 $ 2,253
======= =======
Accrued liabilities consist of the following (in thousands):
JUNE 30,
-----------------------
1999 1998
------- -------
Employee compensation............................ $ 683 $ 358
Other............................................ 64 74
------- -------
$ 747 $ 432
======= =======
45
47
NOTE 4 -- STOCKHOLDERS' EQUITY:
Common stock
In November 1996, the company sold 580,000 shares of unregistered common
stock to a single purchaser in a private placement. The shares were sold at a
price of $14.00 per share, which resulted in proceeds of $8.1 million. In
February 1997, the company sold 862,190 shares of unregistered common stock to
four purchasers in a private placement. The shares were sold at $19.05 per
share, which resulted in net proceeds of $16.3 million. The company filed a
registration statement on Form S-3 related to these shares, which was declared
effective on April 22, 1997. In February 1998, the company sold 2,012,500 shares
of its common stock at a price of $21.75 per share, which resulted in net
proceeds of approximately $40.8 million.
Preferred stock
In September 1995, the company amended its Certificate of Incorporation
effective upon the conversion of the Convertible Preferred Stock to authorize
1,000,000 shares of Preferred Stock, par value $0.0001 per share. The Board of
Directors is authorized to issue the preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
The ability of the company's Board of Directors to issue shares of
preferred stock without stockholder approval, and the adoption of a stockholder
rights plan, may alone or in combination have certain anti-takeover effects. The
company is also subject to provisions of the Delaware General Corporation Law
which may make certain business combinations more difficult.
Shareholder rights plan
In April 1997, the Board of Directors approved a shareholder rights plan
under which stockholders of record on May 1, 1997 received a right to purchase
(a "Right") one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"), at
an exercise price of $125 per one one-hundredth of a share, subject to
adjustment. The Rights will separate from the common stock and Rights
certificates will be issued and will become exercisable upon the earlier of (i)
10 business days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the company's outstanding common stock or
(ii) 10 business days or such later date as may be determined by a majority of
the Board of Directors following the commencement of, or announcement of, an
intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding common stock of the Company. The Rights expire at the close of
business on April 30, 2007. The company has designated 120,000 shares of its
Preferred Stock as Series A Junior Participating Preferred Stock in connection
with this plan.
Warrants
In connection with 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. 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 warrants to purchase 57,976 shares of common stock at an exercise price of
$8.63 per share. Also in July 1995, the company issued warrants to purchase
66,522 shares of convertible preferred stock at an exercise price of $8.63 per
share to certain holders of such stock, in exchange for an agreement by the
holders to modify certain rights received in connection with the Series C
preferred stock financing which occurred in June 1994. Management ascribed a
nominal value to these warrants.
46
48
In connection with the company's initial public offering, the above
warrants were converted into warrants to purchase shares of common stock. In
fiscal 1998, holders of all of the warrants granted in July 1995 elected "net
issue exercises" at an average market price of $24.15 per share, resulting in
the issuance of 80,033 shares of common stock and the cancellation of warrants
to purchase 44,465 shares of common stock. In fiscal 1999, warrants for 45,661
shares were exercised. The remaining 14,706 warrants are exercisable at $4.88
per share and expire in 2000. At June 30, 1999, the company has reserved 14,706
shares of common stock for future issuance upon the exercise of the remaining
outstanding warrants.
Stock option plans
1992 Stock Option Plan. The 1992 Stock Option Plan (the "1992 Plan"), as
amended, authorizes the Board of Directors to grant incentive stock options and
non-statutory stock options to employees, directors and consultants to purchase
up to 1,233,334 shares of common stock. Under the 1992 Plan, incentive stock
options are granted at a price not less than 100% of the estimated fair value of
the stock on the date of grant, as determined by the Board of Directors.
Nonqualified stock options are granted at a price not less than 85% of the
estimated fair value of the stock on the date of grant, as determined by the
Board of Directors. To date, all options granted under the 1992 Plan have been
granted at 100% of the estimated fair value of the common stock as determined by
the Board of Directors.
Generally, options granted under the 1992 Plan are exercisable on and
after the date of grant, subject to the company's right to repurchase from the
optionee, at the optionee's original cost per share, any unvested shares which
the optionee has purchased and holds in the event the optionee attempts to
dispose of such shares or in the event of the optionee's termination of
employment with or without cause. The company's right to repurchase lapses as
the shares become vested. Generally, shares subject to options granted under the
1992 Plan vest at the rate of 1/4th of the shares on the first anniversary of
the grant date of the option, and an additional 1/48th of the shares upon
completion of each succeeding month of continuous employment thereafter. Options
are exercisable for a period of ten years.
1995 Stock Option Plan. The company's 1995 Stock Option Plan (the "1995
Plan") was adopted by the Board of Directors on August 2, 1995, as the successor
to the 1992 Plan. The 1995 Plan authorizes for issuance 2,052,579 shares of
common stock. Beginning on January 1, 1996, the 1995 Plan also allows for an
annual increase to the number of shares available for issuance equal to 1% of
the number of shares of common stock outstanding on the last day of the
preceding calendar year, not to exceed 500,000 shares per year. Shares of common
stock subject to outstanding options, including options granted under the 1992
Plan, that expire or terminate prior to exercise will be available for future
issuance under the 1995 Plan.
Under the 1995 Plan, employees (including officers), non-employee
members of the Board of Directors (other than those serving as members of the
Compensation Committee) and independent consultants may, at the discretion of
the plan administrator, be granted options to purchase shares of common stock at
an exercise price not less than 85% of the fair market value of such shares on
the grant date. Non-employee members of the Board of Directors will also be
eligible for automatic option grants under the company's 1995 Non-Employee
Directors Stock Option Plan. Generally, shares subject to options under the 1995
Plan vest over a five-year period and are exercisable for a period of ten years.
In the event the company is acquired by merger, consolidation or asset
sale, options outstanding under the 1995 Plan will immediately vest in full,
except to the extent the options are assumed by the acquiring entity. Any
assumed options will accelerate upon the optionee's involuntary termination
within 18 months following the acquisition. The Compensation Committee also has
discretion to provide for the acceleration of one or more outstanding options
under the 1995 Plan (including options incorporated from the 1992 Plan) and the
vesting of shares subject to outstanding options upon the occurrence of certain
hostile tender offers. Such accelerated vesting may be conditioned upon the
subsequent termination of the affected optionee's service.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan
will terminate on August 1, 2005, unless terminated earlier by the Board.
47
49
1995 Non-Employee Directors Stock Option Plan. The Company's 1995
Non-Employee Directors Stock Option Plan (the "Directors Plan"), was adopted by
the Board of Directors on August 2, 1995. Automatic option grants are made at
periodic intervals to eligible non-employee Board members under the Directors
Plan. The Directors Plan became effective as of the effective date of the
Company's initial public offering. A total of 166,667 shares of common stock
have been reserved for issuance under the Directors Plan.
Each individual serving as a non-employee Board member on the effective
date of the company's initial public offering was automatically granted a
non-statutory option to purchase 5,000 shares of common stock, vesting in equal
monthly installments for one year after the grant date. Each individual first
elected or appointed as a non-employee Board member after the effective date of
the company's initial public offering will automatically be granted, on the date
of such election or appointment, a non-statutory option to purchase 10,000
shares of common stock vesting over five years. In addition, on the date of each
annual stockholders meeting, beginning with the 1996 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member after that
annual meeting and has been a member of the Board for at least six months will
automatically be granted a non-statutory option to purchase 5,000 shares of
common stock, vesting in equal monthly installments for one year after the grant
date. There will be no limit on the number of such annual 5,000-share option
grants any one non-employee Board member may receive over his or her period of
continued Board service. The exercise price per share of each automatic option
grant will be equal to the fair market value of the common stock on the
automatic grant date. Each automatic option will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase should the optionee's service as a non-employee Board member cease
prior to vesting in the shares. Each 10,000-share grant will vest in five equal
and successive annual installments over the optionee's period of Board service.
Each 5,000-share grant will vest in twelve equal and successive monthly
installment over the optionee's period of Board service.
In the event of the optionee's death or permanent disability or in the
event the company is acquired by a merger or asset sale and in the event of
certain hostile tender offers, each outstanding option will become fully vested.
Upon the acquisition of 50% or more of the Company's outstanding voting stock
pursuant to a hostile tender offer, each automatic option grant outstanding for
at least six months may be surrendered automatically or be cancelled in exchange
for cash distribution to the director based upon the tender offer price. The
Directors Plan will terminate on August 1, 2005.
The following table summarizes activity under the company's stock option
plans (in thousands, except per share amounts):
OPTIONS OUTSTANDING
------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE EXERCISE
FOR GRANT NUMBER PRICE PER SHARE
--------- ------ ---------------
Balance at June 30, 1996..... 210 820 $ 9.20
Authorized................... 842 -- --
Exercised.................... -- (96) 2.74
Granted...................... (569) 569 16.69
Canceled..................... 31 (31) 12.21
---- ------
Balance at June 30, 1997..... 514 1,262 11.58
Authorized................... 602 -- --
Exercised.................... -- (89) 6.57
Granted...................... (577) 577 25.33
Canceled..................... 158 (158) 15.41
---- ------
Balance at June 30, 1998..... 697 1,592 16.43
Authorized................... 524 -- --
Exercised.................... -- (75) 5.10
Granted...................... (671) 671 19.25
Canceled..................... 221 (221) 20.37
---- ------
Balance at June 30, 1999..... 771 1,967 17.38
==== ======
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50
A summary of outstanding and vested stock options as of June 30, 1999 is
as follows:
OPTIONS OUTSTANDING OPTIONS VESTED
----------------------------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE PRICE PER SHARE NUMBER PRICE PER SHARE
- --------------- --------- ---------------- --------------- --------- ---------------
$ 0.08 - $ 5.25 144,230 5.17 $ 3.62 144,230 $ 3.62
7.50 - 12.00 258,435 6.14 8.30 186,522 8.43
13.25 - 17.50 571,265 8.61 16.28 118,258 15.07
17.75 - 20.25 474,115 8.22 19.05 156,201 18.37
20.63 - 24.25 237,550 8.83 23.57 58,625 23.54
26.13 - 27.50 281,400 8.78 26.94 47,327 26.92
--------- ---------
1,966,995 7.69 17.38 711,163 13.22
========= =========
Employee Stock Purchase Plan. The company adopted an Employee Stock
Purchase Plan in August 1995. Qualified employees may elect to have a certain
percentage of their salary withheld to purchase shares of the company's common
stock under the Purchase Plan. The purchase price per share is equal to 85% of
the fair market value of the stock on specified dates. The company has reserved
100,000 shares of common stock under the Purchase Plan. Sales under the Purchase
Plan in fiscal 1999, 1998 and 1997 were 13,643, 10,372 and 14,557 shares of
common stock at an average price of $12.77, $14.36 and $10.51 per share,
respectively. Shares available for future purchase under the Purchase Plan are
53,049 at June 30, 1999. The Purchase Plan will terminate in October 2005.
Pro forma disclosure
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted under the company's stock option plans during fiscal
1999, 1998 and 1997 was $13.74, $15.54 and $9.22 per share, respectively. The
weighted average estimated grant date fair value of purchase awards under the
company's Purchase Plan during fiscal 1999, 1998 and 1997 was $13.46, $6.85 and
$5.51, respectively. The estimated grant date fair value is calculated using the
Black-Scholes model.
The following assumptions are included in the estimated grant date fair
value calculations for the company's stock option and purchase awards:
YEAR ENDED JUNE 30,
---------------------------------------
1999 1998 1997
------- ------- -------
Stock option plans:
Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility . ........ 86% 60% 49%
Risk free interest rate .................. 5.15% 5.66% 6.52%
Expected life (years) .................... 5.10 6.05 5.95
Stock purchase plan:
Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility .......... 86% 60% 48%
Risk free interest rate .................. 4.68% 5.28% 5.30%
Expected life (years) .................... 1.28 1.45 0.25
49
51
Pro forma net loss and net loss per share
Had the company recorded compensation based on the estimated grant date
fair value, as defined by SFAS 123, for awards granted under its stock option
plans and stock purchase plan, the company's net loss and net loss per share
would have been increased to the pro forma amounts below (in thousands, except
per share amounts):
YEAR ENDED JUNE 30,
------------------------------------------------
1999 1998 1997
---------- ---------- ----------
Net loss:
As reported ........... $ (19,246) $ (9,675) $ (10,258)
Pro forma ............. (22,500) (12,085) (11,314)
Net loss per share:
As reported ........... $ (1.55) $ (0.87) $ (1.11)
Pro forma ............. (1.82) (1.09) (1.22)
The pro forma effect on the net loss and net loss per share for fiscal
1999, 1998 and 1997 is not representative of the pro forma effect in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to fiscal year 1996.
NOTE 5 -- COMPREHENSIVE INCOME (LOSS):
Effective July 1, 1998, the company adopted Statement of Financial
Accounting Standards No. 130, ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income (loss) and its
components in a year end financial statement that is displayed with the same
prominence as other financial statements. Similar information should be provided
in the notes to financial statements. Comprehensive income (loss) as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income (loss), which
are excluded from the results of operations, include foreign currency
translation adjustments and unrealized gains (losses) on available-for-sale
securities.
The company did not record comprehensive income during fiscal 1998 and
1997 as such amounts were not material. During fiscal 1999, comprehensive income
(loss) consisted of net unrealized losses on available-for-sale securities of
$85,000, resulting in comprehensive net loss of $19,331,000.
NOTE 6 -- INCOME TAXES:
Deferred tax assets are summarized as follows (in thousands):
JUNE 30,
-------------------------
1999 1998
-------- --------
Net operating loss carryforwards ..... $ 22,830 $ 15,822
Tax credit carryforwards ............. 3,666 2,074
Capitalized start-up costs ........... 501 830
Accounts payable and other ........... 1,537 1,259
-------- --------
Gross deferred tax assets ............ 28,534 19,985
Less valuation allowance ............. (28,534) (19,985)
-------- --------
Net deferred tax assets .............. $ -- $ --
======== ========
A full valuation allowance has been established for the company's
deferred tax assets since realization of such assets through the generation of
future taxable income is uncertain.
50
52
The provision for income taxes differs from the amount determined by
applying the U.S. statutory income tax rate to the loss before income taxes as
summarized below (in thousands):
YEAR ENDED JUNE 30,
---------------------------------------
1999 1998 1997
------- ------- -------
Tax benefit at statutory rate ........... $ 6,736 $ 3,386 $ 3,590
Net operating loss carryforward for
which no benefit was available ....... (6,736) (3,386) (3,590)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
At June 30, 1999 Company had net operating loss carryforwards of
approximately $58.0 million for federal income tax reporting purposes and tax
credit carryforwards of approximately $2.9 million for federal reporting
purposes. These amounts expire at various times through 2019.
Under the Tax Reform Act of 1986, the amounts of and the benefit from
net operating losses and tax credit carryforwards that can be carried forward
may be impaired or limited in certain circumstances. These circumstances
include, but are not limited to, a cumulative stock ownership change of greater
than 50%, as defined, over a three year period. As a result of ownership changes
that have occurred during the past four fiscal years, management believes that
utilization of the company's net operating loss and tax credit carryforwards is
subject to certain annual limitations.
NOTE 7 -- COMMITMENTS:
The company leases its facilities under non-cancelable operating leases
that expires in 2001. The company also leases certain assets under long-term
lease agreements that are classified as capital leases. The total amount of
assets acquired under capital lease arrangements that are included in property
and equipment (Note 3) is as follows (in thousands):
JUNE 30,
-----------------------
1999 1998
------- -------
Equipment .......................................... $ 2,273 $ 2,273
Leasehold improvements ............................. 1,050 1,050
Furniture and fixtures ............................. 278 278
------- -------
3,601 3,601
Less accumulated depreciation and amortization ..... (3,020) (2,590)
------- -------
$ 581 $ 1,011
======= =======
The capital lease agreements require the company, among other things, to
pay insurance and maintenance costs.
Future minimum lease payments under non-cancelable operating and capital
leases are as follows (in thousands):
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
- -------------------- -------- ---------
2000 ............................................... $ 229 $ 708
2001 ............................................... 61 751
2002 ............................................... -- 313
-------- --------
290 $ 1,772
========
Less amount representing interest .................. (15)
--------
................................................... 275
Less current portion ............................... (216)
--------
Long-term portion of capital lease obligations ..... $ 59
========
51
53
Rent expense for the years ended June 30, 1999, 1998, and 1997 was
$457,000, $366,000 and $371,000, respectively, and $2,269,000 for the period
from inception through June 30, 1999. The terms of the facility leases provide
for rental payments on a graduated scale. The company recognizes rent expense on
a straight-line basis over the lease period and has accrued for rent expense
incurred but not paid at June 30, 1999.
At June 30, 1999, the company had approximately $7.4 million in
cancelable purchase commitments with three suppliers of drug components and
final bulk drug substance and one supplier of lasers.
NOTE 8 -- SUBSEQUENT EVENT (unaudited):
On August 27, 1999, the company entered into an agreement to terminate
its manufacturing and supply agreement with Celanese (see Note 2). Pursuant to
that agreement, Celanese assigned to the company all right, title and interest
in and to the manufacturing technology and intellectual property for bulk drug
substance and agreed to make a cash payment of $750,000 to the company. The
termination agreement also relieved the company of all obligations to pay
Celanese for shared development costs incurred prior to termination of the
agreement. As of June 30, 1999, the company had accrued approximately $2.8
million associated with such costs. Substantially all of the amounts discussed
above will be reflected as a reduction in research and development expense
during the quarter ending September 30, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
52
54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 (with respect to Directors) is
hereby incorporated by reference from the information under the caption
"Election of Directors" contained in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission no later than 120 days from
the end of the Company's last fiscal year in connection with the solicitation of
proxies for its Annual Meeting of Stockholders to be held on December 9, 1999,
(the "Proxy Statement"). The required information concerning MANAGEMENT -
Directors and Executive Officers is contained in Item 1, Part 1, of this Form
10-K under the caption "Executive Officers and Directors" on pages 26 through
27.
The information required by Section 16(a) is hereby incorporated by
reference from the information under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
from the information under the caption "Election of Directors, Summary of Cash
and Certain Other Compensation, Stock Options, Exercises and Holdings" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference
from the information under the caption "Stock Ownership of Management and
Certain Beneficial Owners" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference
from the information under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.
53
55
PART IV
ITEM 14. FINANCIAL STATEMENT, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See Index to Financial Statements under Item 8.
(a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or
are not required or the information required to be set forth
therein is included in the consolidated financial statement
or notes thereto.
(b) REPORTS ON FORM 8-K
Pharmacyclics filed a report on Form 8-K on September 3,
1999, relating to the termination of its manufacturing,
development and supply agreement with Celanese, Ltd.
(c) EXHIBITS
The following documents are referenced or included in this
report.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company
(Incorporated by reference to exhibit of the same number to the
Annual Report on Form 10-K for the fiscal year ended June 30,
1997)...........................................................
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048)......................
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
exhibit of the same number to the Annual Report on Form 10-K for
the fiscal year ended June 30, 1997)............................
4.1 Amended and Restated Investors' Rights Agreement between the
Company and the investors specified therein dated July 31, 1995
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
4.2 Specimen Certificate of the Company's Common Stock (Incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.1 Form of Indemnification Agreement between the Company and its
directors and executive officers (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.2 Series C Stock Purchase Agreement dated as of June 13, 1994,
between the Company and the investors specified therein
(Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
10.3 Investment Agreement dated as of July 31, 1995, between the
Company and the investors specified therein (Incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.4 Form of Series C Preferred Stock Purchase Warrant dated as of
July 31, 1995, issued by the Company to the investors listed on
Schedule A thereto (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1, Commission
File No. 33-96048)..............................................
10.5 Master Lease and Warrant Agreements entered into between the
Company and Comdisco, Inc., dated as of July 22, 1992, July 30,
1992, March 31, 1993, June 24, 1993, and October 3, 1994,
respectively (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.6* Patent License Agreement entered into between the Company and
The University of Texas, Austin dated entered into on or about
July 1, 1991 (Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
54
56
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.7* Patent License Agreement entered into between the Company and
The University of Texas, Dallas dated as of July 1, 1992, as
amended by the Patent License Agreement dated May 27, 1993
(Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
10.8* Patent License Agreement entered into between the Company and
Stuart W. Young dated as of October 15, 1992 (Incorporated by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.9 Lease Agreement entered into between the Company and New England
Mutual Life Insurance Company dated as of June 17, 1993, as
amended on July 22, 1993, and as further amended on March 1,
1994 (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.10 Supply Agreement entered into between the Company and Glaxo
Wellcome Company. (f/k/a Burroughs Wellcome Co.) dated as of
March 1, 1995 (Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.11* License Agreement entered into between the Company and Cook,
Incorporated, dated as of April 4, 1995 (Incorporated by
reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.12* License and Supply Agreement entered into between the Company
and E-Z-EM, Inc. dated as of August 7, 1995 (Incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.13 The Company's 1995 Stock Option Plan (Incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form
S-8, Commission File No. 333-52881).............................
10.14 The Company's 1995 Non-Employee Directors' Stock Option Plan
(Incorporated by reference to Exhibit 99.7 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.15 The Company's Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.7 to the Company's Registration
Statement on Form S-8, Commission File No. 333-52881)...........
10.16 Employment Agreement entered into between the Company and
Richard A. Miller, M.D. dated as of June 10, 1992 (Incorporated
by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.17 Employment Agreement entered into between the Company and Marc
L. Steuer dated as of October 31, 1994 (Incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.18 Employment Agreement entered into between the Company and
William C. Dow, Ph.D., dated as of May 20, 1992, as amended by a
letter agreement dated July 8, 1992 (Incorporated by reference
to Exhibit 10.21 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.19 Employment Agreement entered into between the Company and Stuart
W. Young, M.D. dated as of April 19, 1993 (Incorporated by
reference to Exhibit 10.22 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.20 Promissory Notes issued by the Company to Stuart W. Young, M.D.
dated as of September 1994 and April 1995, in the amounts of
$65,000 and $30,000, respectively (Incorporated by reference to
Exhibit 10.24 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.21* Master Process Development and Supply Agreement dated September
6, 1996 entered into between the Company and Hoechst Celanese
Corporation (Incorporated by reference to exhibit of the same
number to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)............................................
10.22 Form of Notice of Grant of Stock Option generally to be used
under the 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on Form
S-8, Commission File No. 33-98514)..............................
55
57
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.23 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form
S-8, Commission File No. 333-52881).............................
10.24 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciate Right) (Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Commission
File No. 333-52881).............................................
10.25 Form of Addendum to Stock Option Agreement (Special Tax
Election) (Incorporated by reference to Exhibit 99.5 to the
Company's Registration Statement on Form S-8, Commission File
No. 33-98514)...................................................
10.26 Form of Addendum to Stock Option Agreement (Involuntary
Termination following Change in Control) (Incorporated by
reference to Exhibit 99.6 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514)............
10.27 Form of Notice of Grant of Automatic Stock Option (Initial
Grant) (Incorporated by reference to Exhibit 99.8 to the
Company's Registration Statement on Form S-8, Commission File
No. 33-98514)...................................................
10.28 Form of Notice of Grant of Automatic Stock Option (Annual Grant)
(Incorporated by reference to Exhibit 99.9 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.29 Form of Non-Employee Director Stock Option Agreement
(Incorporated by reference to Exhibit 99.10 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.30 Form of Employee Stock Purchase Plan Enrollment/Change Form
(Incorporated by reference to Exhibit 99.12 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.31 Form of Stock Purchase Agreement (Incorporated by reference to
Exhibit 99.13 to the Company's Registration Statement on Form
S-8, Commission File No. 33-98514)..............................
10.32 Form of Special Officer Participation Form (Incorporated by
reference to Exhibit 99.14 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514)............
10.33 Common Stock Purchase Agreement dated November 11,1996, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No.
333-22747)......................................................
10.34 Common Stock Purchase Agreement dated February 21, 1997, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No.
333-22747)......................................................
10.35 Form of Severance Agreement between the Company and certain
executive officers (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended September 30, 1997).......................................
10.36* Development, License and Commercialization Agreement, dated
October 17, 1997, by and between the Company and Nycomed Imaging
AS (Incorporated by reference to exhibit of the same number to
the Quarterly report on Form 10-Q for the quarter ended
September 30, 1997).............................................
10.37 Employment Agreement, dated October 14, 1997, by and between the
Company and Michael J. Hensley, M.D. (Incorporated by reference
to exhibit of the same number to the Quarterly report on Form
10-Q for the quarter ended September 30, 1997)..................
10.38 Employment Agreement, dated December 18, 1997, by and between
the Company and Leiv Lea (Incorporated by reference to exhibit
of the same number to the Quarterly report on Form 10-Q for the
quarter ended March 31, 1998)...................................
10.39* Evaluation and License Agreement, dated December 16, 1997, by
and between Alcon Laboratories, Inc. (Incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on Form
S-3, Commission File No. 333-43621).............................
10.40 Employment agreement, dated March 11, 1998, by and between the
Company and David A. Lowin (Incorporated by reference to exhibit
of the same number to the Annual Report on Form 10-K for the
year ended June 30, 1999).......................................
56
58
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden (Incorporated by reference to exhibit of
the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)............................................
10.42* Development and Supply Agreement dated June 16, 1998 entered
into between the Company and Abbott Laboratories Inc
(Incorporated by reference to exhibit of the same number to the
Annual Report on Form 10-K for the year ended June 30, 1999)....
10.43 Termination Agreement, dated as of August 27, 1999, by and
between Registrant and Celanese, Ltd. (Incorporated by reference
to Exhibit 10.1 to an 8-K filed on September 3, 1999)...........
23.1 Consent of Independent Accountants..............................
24.1 Power of Attorney (see page 58).................................
27 Financial Data Schedule.........................................
- ----------------
* Confidential treatment has been granted as to certain portions of this
agreement.
57
59
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, 1999
PHARMACYCLICS, INC.
By: /s/ RICHARD A. MILLER
-------------------------------------
Richard A. Miller, M.D.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Richard A. Miller and Leiv
Lea, or either of them as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and very act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD A. MILLER, M.D. President and Chief September 27, 1999
- ----------------------------------- Executive Officer and
Richard A. Miller, M.D. Director (Principal
/s/ LIEV LEA Executive Officer)
- ------------------------------------ Vice President, Finance September 27, 1999
Leiv Lea and Administration and
Chief Financial and
Accounting Officer
(Principal Accounting
Officer)
/s/ PHYLLIS I. GARDNER Director September 27, 1999
- -----------------------------------
Phyllis I. Gardner
/s/ JOSEPH S. LACOB Director September 27, 1999
- -----------------------------------
Joseph S. Lacob
/s/ JOSEPH C. SCODARI Director September 27, 1999
- -----------------------------------
Joseph C. Scodari
/s/ CRAIG C. TAYLOR Director September 27, 1999
- -----------------------------------
Craig C. Taylor
58
60
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company
(Incorporated by reference to exhibit of the same number to the
Annual Report on Form 10-K for the fiscal year ended June 30,
1997)...........................................................
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Commission File No. 33-96048)......................
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (Incorporated by reference to
exhibit of the same number to the Annual Report on Form 10-K for
the fiscal year ended June 30, 1997)............................
4.1 Amended and Restated Investors' Rights Agreement between the
Company and the investors specified therein dated July 31, 1995
(Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
4.2 Specimen Certificate of the Company's Common Stock (Incorporated
by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.1 Form of Indemnification Agreement between the Company and its
directors and executive officers (Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.2 Series C Stock Purchase Agreement dated as of June 13, 1994,
between the Company and the investors specified therein
(Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
10.3 Investment Agreement dated as of July 31, 1995, between the
Company and the investors specified therein (Incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.4 Form of Series C Preferred Stock Purchase Warrant dated as of
July 31, 1995, issued by the Company to the investors listed on
Schedule A thereto (Incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-1, Commission
File No. 33-96048)..............................................
10.5 Master Lease and Warrant Agreements entered into between the
Company and Comdisco, Inc., dated as of July 22, 1992, July 30,
1992, March 31, 1993, June 24, 1993, and October 3, 1994,
respectively (Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.6* Patent License Agreement entered into between the Company and
The University of Texas, Austin dated entered into on or about
July 1, 1991 (Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
61
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.7* Patent License Agreement entered into between the Company and
The University of Texas, Dallas dated as of July 1, 1992, as
amended by the Patent License Agreement dated May 27, 1993
(Incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, Commission File No.
33-96048).......................................................
10.8* Patent License Agreement entered into between the Company and
Stuart W. Young dated as of October 15, 1992 (Incorporated by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.9 Lease Agreement entered into between the Company and New England
Mutual Life Insurance Company dated as of June 17, 1993, as
amended on July 22, 1993, and as further amended on March 1,
1994 (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.10 Supply Agreement entered into between the Company and Glaxo
Wellcome Company. (f/k/a Burroughs Wellcome Co.) dated as of
March 1, 1995 (Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1, Commission File
No. 33-96048)...................................................
10.11* License Agreement entered into between the Company and Cook,
Incorporated, dated as of April 4, 1995 (Incorporated by
reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.12* License and Supply Agreement entered into between the Company
and E-Z-EM, Inc. dated as of August 7, 1995 (Incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.13 The Company's 1995 Stock Option Plan (Incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form
S-8, Commission File No. 333-52881).............................
10.14 The Company's 1995 Non-Employee Directors' Stock Option Plan
(Incorporated by reference to Exhibit 99.7 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.15 The Company's Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.7 to the Company's Registration
Statement on Form S-8, Commission File No. 333-52881)...........
10.16 Employment Agreement entered into between the Company and
Richard A. Miller, M.D. dated as of June 10, 1992 (Incorporated
by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.17 Employment Agreement entered into between the Company and Marc
L. Steuer dated as of October 31, 1994 (Incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.18 Employment Agreement entered into between the Company and
William C. Dow, Ph.D., dated as of May 20, 1992, as amended by a
letter agreement dated July 8, 1992 (Incorporated by reference
to Exhibit 10.21 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.19 Employment Agreement entered into between the Company and Stuart
W. Young, M.D. dated as of April 19, 1993 (Incorporated by
reference to Exhibit 10.22 to the Company's Registration
Statement on Form S-1, Commission File No. 33-96048)............
10.20 Promissory Notes issued by the Company to Stuart W. Young, M.D.
dated as of September 1994 and April 1995, in the amounts of
$65,000 and $30,000, respectively (Incorporated by reference to
Exhibit 10.24 to the Company's Registration Statement on Form
S-1, Commission File No. 33-96048)..............................
10.21* Master Process Development and Supply Agreement dated September
6, 1996 entered into between the Company and Hoechst Celanese
Corporation (Incorporated by reference to exhibit of the same
number to the Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)............................................
10.22 Form of Notice of Grant of Stock Option generally to be used
under the 1995 Stock Option Plan (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on Form
S-8, Commission File No. 33-98514)..............................
62
EXHIBIT
NUMBER DESCRIPTION
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10.23 Form of Stock Option Agreement (Incorporated by reference to
Exhibit 99.3 to the Company's Registration Statement on Form
S-8, Commission File No. 333-52881).............................
10.24 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciate Right) (Incorporated by reference to Exhibit 99.4 to
the Company's Registration Statement on Form S-8, Commission
File No. 333-52881).............................................
10.25 Form of Addendum to Stock Option Agreement (Special Tax
Election) (Incorporated by reference to Exhibit 99.5 to the
Company's Registration Statement on Form S-8, Commission File
No. 33-98514)...................................................
10.26 Form of Addendum to Stock Option Agreement (Involuntary
Termination following Change in Control) (Incorporated by
reference to Exhibit 99.6 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514)............
10.27 Form of Notice of Grant of Automatic Stock Option (Initial
Grant) (Incorporated by reference to Exhibit 99.8 to the
Company's Registration Statement on Form S-8, Commission File
No. 33-98514)...................................................
10.28 Form of Notice of Grant of Automatic Stock Option (Annual Grant)
(Incorporated by reference to Exhibit 99.9 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.29 Form of Non-Employee Director Stock Option Agreement
(Incorporated by reference to Exhibit 99.10 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.30 Form of Employee Stock Purchase Plan Enrollment/Change Form
(Incorporated by reference to Exhibit 99.12 to the Company's
Registration Statement on Form S-8, Commission File No.
33-98514).......................................................
10.31 Form of Stock Purchase Agreement (Incorporated by reference to
Exhibit 99.13 to the Company's Registration Statement on Form
S-8, Commission File No. 33-98514)..............................
10.32 Form of Special Officer Participation Form (Incorporated by
reference to Exhibit 99.14 to the Company's Registration
Statement on Form S-8, Commission File No. 33-98514)............
10.33 Common Stock Purchase Agreement dated November 11,1996, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No.
333-22747)......................................................
10.34 Common Stock Purchase Agreement dated February 21, 1997, by and
among the Company and the persons listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No.
333-22747)......................................................
10.35 Form of Severance Agreement between the Company and certain
executive officers (Incorporated by reference to exhibit of the
same number to the Quarterly report on Form 10-Q for the quarter
ended September 30, 1997).......................................
10.36* Development, License and Commercialization Agreement, dated
October 17, 1997, by and between the Company and Nycomed Imaging
AS (Incorporated by reference to exhibit of the same number to
the Quarterly report on Form 10-Q for the quarter ended
September 30, 1997).............................................
10.37 Employment Agreement, dated October 14, 1997, by and between the
Company and Michael J. Hensley, M.D. (Incorporated by reference
to exhibit of the same number to the Quarterly report on Form
10-Q for the quarter ended September 30, 1997)..................
10.38 Employment Agreement, dated December 18, 1997, by and between
the Company and Leiv Lea (Incorporated by reference to exhibit
of the same number to the Quarterly report on Form 10-Q for the
quarter ended March 31, 1998)...................................
10.39* Evaluation and License Agreement, dated December 16, 1997, by
and between Alcon Laboratories, Inc. (Incorporated by reference
to Exhibit 10.1 to the Company's Registration Statement on Form
S-3, Commission File No. 333-43621).............................
10.40 Employment agreement, dated March 11, 1998, by and between the
Company and David A. Lowin (Incorporated by reference to exhibit
of the same number to the Annual Report on Form 10-K for the
year ended June 30, 1999).......................................
63
EXHIBIT
NUMBER DESCRIPTION
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10.41 Employment agreement, dated May 28, 1998, by and between the
Company and Hugo Madden (Incorporated by reference to exhibit of
the same number to the Annual Report on Form 10-K for the year
ended June 30, 1999)............................................
10.42* Development and Supply Agreement dated June 16, 1998 entered
into between the Company and Abbott Laboratories Inc
(Incorporated by reference to exhibit of the same number to the
Annual Report on Form 10-K for the year ended June 30, 1999)....
10.43 Termination Agreement, dated as of August 27, 1999, by and
between Registrant and Celanese, Ltd. (Incorporated by reference
to Exhibit 10.1 to an 8-K filed on September 3, 1999)...........
23.1 Consent of Independent Accountants..............................
24.1 Power of Attorney (see page 58).................................
27 Financial Data Schedule.........................................
- ----------------
* Confidential treatment has been granted as to certain portions of this
agreement.