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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For fiscal year ended September 30, 1995 or
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/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number 0-15190
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ONCOGENE SCIENCE, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3159796
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
106 Charles Lindbergh Blvd., Uniondale, N.Y. 11553
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(Address of Principal Executive Offices) (Zip Code)
516-222-0023
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of November 30, 1995, the aggregate market value of the
Registrant's voting stock held by non-affiliates was $108,209,294. For
purposes of this calculation, shares of Common Stock held by directors,
officers and stockholders whose ownership exceeds five percent of the Common
Stock outstanding at November 30, 1995 were excluded. Exclusion of shares held
by any person should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction of the
management or policies of the registrant, or that such person is controlled by
or under common control with the registrant.
As of November 30, 1995 there were 17,689,042 shares of the
Registrant's $.01 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed not later
than 120 days after September 30, 1995 in connection with the Registrant's 1996
Annual Meeting of stockholders are incorporated by reference into Part III of
this report.
Total Number of Pages: Exhibit Index at Page:
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PART I
ITEM 1. BUSINESS
GENERAL
Oncogene Science, Inc.(the "Company") is a biopharmaceutical company
engaged in the discovery and development of drugs for the treatment of cancer,
cardiovascular disease, and other human diseases associated with abnormalities
of cell growth and control. By virtue of its development and automation of
human cell-based, high throughput drug screens and its novel approach to
identifying lead compounds as clinical development candidates through
cell-based gene transcription screens, the Company is recognized as a world
leader in drug discovery technology. The Company's objective is to be a
leading fully-integrated drug discovery company whose collaborative partners
and pipeline of novel pharmaceutical products provides a high probability of
achieving long-term, profitable growth.
The Company's principal approach to the development of therapeutics is the
identification of compounds that act at the level of gene transcription. Gene
transcription is the process by which genes signal cells to produce or stop
producing particular cellular proteins such as enzymes. The Company believes
that its proprietary gene transcription technology will lead to the development
of novel, orally-active small molecular weight pharmaceuticals. These drugs
act upon target genes to modulate up or down, on or off, the expression of
proteins that are therapeutically relevant to specific diseases.
The Company pursues its drug discovery and development objectives through
collaborations with pharmaceutical companies and through independent,
proprietary programs. Currently the Company is conducting collaborative
programs with four major pharmaceutical companies, Pfizer Inc. ("Pfizer"),
Ciba-Geigy Limited ("Ciba"), Wyeth-Ayerst Research, a division of American Home
Products Corporation ("Wyeth"), and Hoechst Marion Roussel Inc. (together with
its predecessors, "HMRI").
The Company's cancer therapeutics program is focused on the development of
novel pharmaceuticals for the treatment of cancer in humans by either
inhibiting oncogenes or restoring the activity of tumor suppressor genes.
Oncogenes are a class of genes that, upon activation, play a key role in the
conversion of otherwise normal cells to a cancerous state. The inactivation
through mutation or deletion of tumor suppressor genes is associated with the
creation or spread of cancerous tumors. Additionally, the Company is engaged
in the clinical development of pharmaceuticals that decrease the toxic effects
of existing chemotherapeutic agents on non-cancerous cells. The Company also
has a research program in
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cancer diagnostics focused upon the development of tests for the detection of
cancer in serum and tissue.
The Company is collaborating with Pfizer in the development of cancer
therapeutic products. This program currently focuses on inhibitors for various
oncogenes that have been implicated in breast, lung, colon and ovarian cancers,
and compounds that enhance tumor suppressor genes, including p53, the
inactivation of which has been implicated in lung, breast and colon cancers.
Additionally, the Company is working with Ciba in the clinical development of
the protein-based drug TGF-Beta3 for the treatment of oral mucositis, a toxic
side effect of chemotherapy. The Company's collaboration with Ciba also
involves the development of TGF-Beta3 products for certain other indications,
such as wound healing. The Company is involved in a collaborative program with
Wyeth to develop transcription-based drugs for diabetes, asthma, osteoporosis
and immune modulation. Further, the Company is engaged in various joint
programs with HMRI. The first of these involves the development of
gene-transcription based drugs to treat certain indications in the areas of
inflammation, arthritis and metabolic diseases. An additional HMRI program
focuses on the development of gene transcription-based drugs to treat
Alzheimer's disease. Finally, the Company commenced a collaborative program
with Marion Merrell Dow Inc. ("Marion") to develop drugs for a variety of
cardiovascular indications prior to HMRI's acquisition of Marion in July, 1995.
Based on discussions with HMRI, the Company believes that its collaborative
programs with HMRI and Marion will be consolidated and continued. The Company
also is working with Becton Dickinson and Co., Inc. ("Becton") to develop
cancer diagnostic products. See "--Pharmaceuticals--Gene Transcription-Based
Drugs" and "--Cancer Diagnostics."
In addition to its collaborative programs, the Company is engaged in
various proprietary drug discovery and development programs. The main thrust
of the Company's proprietary efforts currently is the identification and
clinical development of compounds that induce the cellular production of
Erythropoietin ("Epo") for the treatment of anemias. Secondarily, the Company
also is pursuing gene transcription-based therapeutics in the areas of sickle
cell disease (and other hematological disorders), muscular dystrophy and
certain other indications. The Company believes certain of its proprietary
discovery and development programs present opportunities to participate in
niche markets not typically addressed by the mainstream pharmaceutical industry
and also to advance novel therapies into clinical arenas where disease needs
are largely unmet.
The Company's research activities since inception have resulted in the
development of extensive know-how and proprietary technologies in the areas in
which the Company has operated. To date, the Company has filed more than 102
U.S. patent applications and over 132 foreign patent applications. The Company
has not
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obtained FDA approval for any of its human therapeutic products, and does not
expect any of such products to be commercially available for at least four
years. The Company has obtained FDA approval for one of its cancer diagnostic
products, but does not expect any of its other diagnostic products to be
commercially available for two to three years.
The Company was incorporated in Delaware in March 1983. In October 1991
the Company acquired the assets of Applied bioTechnology, Inc. (a private
company) related to the research and development of cancer diagnostic and
therapeutic products based on oncogenes and tumor suppressor genes. Until
August 1995, the Company was engaged in the development, manufacture and
marketing of products for the basic and clinical research markets. In August
1995 the Company sold certain of the assets, and all of the business, of its
Research Products Business.
PHARMACEUTICALS
CANCER
Anti-Cancer Drugs - Collaboration with Pfizer
The Company is actively involved in the development of drugs that
specifically inhibit functional activities associated with certain
oncogene-encoded proteins. For example, studies have implicated ras encoded
proteins in cancers of the lung, colon and pancreas, three of the most common
fatal cancers in the Western World. The neu/erb B2 oncogene has been
implicated in breast and ovarian cancers, and studies have indicated that a
high level of expression of neu/erb B2 encoded protein in a tumor correlates
with poor patient prognosis. The Company's approach to the discovery of drugs
which inhibit oncogene-encoded proteins involves a screening methodology that
utilizes proprietary live cell assays to identify compounds that inactivate
oncogene-encoded proteins. Several compounds already have been identified, and
the Company now is investigating their mechanism of action.
A second family of cellular genes involved in the development of cancer
has also been defined. These genes, designated as tumor suppressor genes, or
anti-oncogenes, encode proteins that generally function to block the
proliferative growth of particular cell types. A loss of function of certain
tumor suppressor genes can result in uncontrolled cell growth and thus
contribute to the neoplastic state of a cancer cell. One such tumor suppressor
gene is the p53 tumor suppressor gene. Research has shown that deletions or
mutations in this gene are among the most common genetic aberrations in human
cancer. In addition, such research has shown that the re-introduction of the
normal p53 gene into cancer cells results in an inhibition of cell growth. The
p53 anti-oncogene has been implicated in a significant percentage of breast,
colon, gastric and lung tumors, as well as melanomas. The
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Company has developed novel assays and rapid biochemical screening procedures
for the identification of potential drugs which may restore the functional
balance of the p53 and other tumor suppressor genes.
Pursuant to a Collaborative Research Agreement effective as of April 1,
1991 (which renewed and extended the original collaborative research programs),
the Company and Pfizer are jointly pursuing the discovery and development of
cancer therapeutic products that target oncogenes and anti-oncogenes. The
Company expects this agreement to be renewed under substantially the same terms
effective April 1, 1996.
Currently, the Company's work with Pfizer focuses on eight target
proteins. Additional target proteins are being worked on under the program at
Pfizer. In 1995, the Company's screening program resulted in the
identification of a proprietary inhibitor of the epidermal growth factor
receptor ("EGFR"), a protein associated with head, neck, breast and bladder
cancers. Under this collaboration, this compound was nominated for and
accepted as a candidate for clinical development. Pfizer is currently
conducting pre-Introductory New Drug Application ("IND") safety and toxicity
studies on this compound.
The Company has recently initiated a new very high throughput screening
("VHTS") technique for the assays focussing on the Pfizer targets. VHTS will
allow the company to perform assay screens on more than 360,000 test compounds
per robotic system per eight-week period.
TGF-Beta3 - Collaboration with Ciba
The Company entered into an agreement with Ciba on April 19, 1995
expanding the scope of the two companies' collaborative efforts with respect to
TGF-Beta3. This agreement grants to Ciba, in exchange for royalty payments and
certain other cash payments described below, an exclusive license to
manufacture, use and sell TGF-Beta3 products for oral mucositis and certain
other indications, including wound healing and psoriasis, throughout the world.
Under this agreement, the Company will fund oral mucositis Phase I clinical
trials and Ciba will fund Phase II and III clinical trials. The Company hopes
to file an IND in early 1996, leading to clinical trials for oral mucositis in
1996, although there can be no assurance that this schedule will be met. In
connection with the agreement, Ciba purchased 909,091 shares of the Company's
common stock at $5.50 per share for an aggregate purchase price of $5,000,000.
In addition, Ciba will pay the Company $10,000,000 if, and at the time, it
decides to initiate Phase IIb or III clinical trials for oral mucositis. In
exchange for such payment, Ciba's license will be expanded to cover all other
indications for TGF-Beta3. Alternatively, Ciba may exercise an option within
four years to expand its license under the agreement to cover all indications
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TGF-Beta3 by making the $10,000,000 payment. Under the agreement, Ciba will
supply the Company will all of its developmental and commercial requirements
for TGF-Beta3.
Oral Mucositis. Oral mucositis is a painful, often debilitating condition
characterized by mouth and throat lesions that frequently occur as side effects
of chemotherapy. Most chemotherapeutic agents exert their lethal effects
primarily against cancerous cells undergoing active growth. Chemotherapeutic
agents also attack normal cells that are subject to rapid division, such as the
epithelial cells lining the mouth and gastrointestinal tract. TGF-Beta3, a
growth regulatory protein discovered by researchers at the Company, selectively
inhibits the growth of specific cell types. The Company has developed
formulations based on TGF-Beta3 as a chemoprotectant to inhibit temporarily the
high proliferative growth rate of certain cells in the mouth and
gastrointestinal tract. The objective for using TGF-Beta3 is to reduce the
toxicity associated with the use of chemotherapeutic agents. If successful,
this strategy may ultimately permit the use of more aggressive chemotherapy
dose regimens.
Wound Healing. In addition to its program for the development of
TGF-Beta3 to treat oral mucositis, the Company is collaborating with Ciba in
the development of TGF-Beta3 in an application to promote wound healing. In
September 1994, Ciba initiated and successfully completed a Phase I safety
trial in Europe using a topical form of TGF-Beta3 in healthy volunteers. Ciba
has completed a Phase I clinical trial in the United States and expects to
initiate Phase II trials in the United States and Europe in early 1996 (as to
which there can be no assurance).
Other Indications. Ciba is currently evaluating additional therapeutic
indications for TGF-Beta3. All of these programs are currently in the
research/feasibility stage.
GENE TRANSCRIPTION-BASED DRUGS
Through the Company's work in oncogenes and anti-oncogenes, it became
apparent that a novel class of pharmaceuticals based on orally active small
molecular weight compounds could be developed for a wide range of diseases, by
modulating the expression of specific cellular proteins through gene
transcription. Gene transcription is the process by which genes produce
cellular proteins. The mechanism whereby an extracellular stimulus affects
gene transcription is termed signal transduction. Pharmacological intervention
during the steps of signal transduction can cause cells to either increase or
decrease the production of specific cellular proteins.
To exploit gene transcription as a method of drug discovery, the Company
has developed proprietary screening methods (assays), which employ live,
genetically engineered cells and unique robotic
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systems to determine whether the test compounds will modulate the expression of
the targeted genes. The Company's high throughput robotic facility is now able
to screen in excess of 3 million compounds per year, and the Company is
currently working with approximately 29 different drug screens. As an
important component of its overall strategy, the Company has established
additional collaborative programs in drug discovery and development, analogous
to its cancer therapeutics program with Pfizer, but targeted to different
therapeutic applications.
Collaboration with Wyeth
During the first quarter of 1992, the Company entered into a collaborative
research agreement with Wyeth, which was extended and expanded in January 1994.
This collaboration utilizes the Company's gene transcription technology in an
effort to develop drugs for the treatment of diabetes, immune system
modulation, asthma and osteoporosis. Under the terms of this agreement, Wyeth
is funding the development program. Royalties will be paid to the Company on
sales of resultant products, if any.
The Wyeth collaboration has been successful in generating
transcriptionally active lead compounds on all four targets. In addition to
this, in-vivo active compounds have been identified for the diabetes and immune
system modulation targets. Wyeth has committed medicinal chemistry resources
to these programs.
Collaboration with HMRI
The Company is pursuing various areas jointly with HMRI. On July 18, 1995
HMRI acquired Marion as part of a transaction in which the pharmaceutical
operations of Marion, Hoechst AG and Hoechst Roussel Pharmaceuticals, Inc.
were combined. The Company had collaborative agreements with all three of
these companies prior to this combination. Based on discussions with HMRI, the
Company believes that all of these agreements will be consolidated. The
Company believes that this consolidation will result in a stronger, more
flexible collaborative program, although it expects the total level of funding
from HMRI will be reduced as compared to the aggregate funding from the three
previously separate entities.
In 1992, prior to the acquisition of Marion by HMRI, the Company entered
into a collaborative agreement with Marion to discover and develop gene
transcription-based drugs to treat certain indications of the area of
cardiovascular disease, including primarily atherosclerosis. In July 1994 the
Company successfully completed the first phase under this collaborative
agreement with the development of gene transcription-based assays. This
resulted in a $1.5 million milestone payment and initiation of the compound
screening phase of the collaboration, which has
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recently been completed. The transcription screens have resulted in the
identification of in-vivo active lead compounds for two targets. These lead
series are currently being evaluated by HMRI. This collaboration has pioneered
the use of primary cell cultures in high throughput screening assays.
The Company commenced a collaborative program with HMRI in January 1993,
focussing on inflammation, arthritis and metabolic diseases. In April 1994,
the Company and HMRI commenced a collaborative arrangement to discover and
develop gene transcription-based drugs to treat Alzheimer's disease. Each of
these programs is in a research phase. The Company's two original HMRI
collaborations (i.e., other than the Marion program) have progressed to the
completion of screening of HMRI's medicinal libraries for all four of the
original targets (in the areas of metabolism, Alzheimer's disease, and
rheumatoid arthritis). The lead compounds identified in these screens are
undergoing further analysis. In particular, certain promising compounds are
being pursued in-vivo and through medicinal chemistry for the first rheumatoid
arthritis target.
Proprietary Drug Discovery and Development
In addition to its collaborative programs, the Company has undertaken
independent efforts to discover and develop gene transcription-based
therapeutics in various areas. The Company initiated compound screening in its
proprietary programs in 1994 and is currently screening compounds against
multiple target proteins associated with chronic anemia, sickle cell disease
and other hematological disorders and muscular dystrophy. The goal of these
programs is to identify small molecule, orally-active compounds that will
regulate the expression of key proteins associated with these diseases.
Generally, the Company's objective with respect to its proprietary programs
will be to identify lead compounds, transition them into clinical development
and manage this clinical development through early-stage clinical trials. The
Company anticipates partnering with a large pharmaceutical firm at or before
this stage for clinical and commercial development of each potential
proprietary product.
Chronic Anemia
Currently, the Company's proprietary discovery and development efforts are
focused primarily on the protein erythropoietin ("Epo"). Injectable
recombinant Epo is now the therapy of choice for the treatment of anemia due to
chronic renal failure. The recombinant drug is currently generating worldwide
sales revenues of over $1.0 billion annually. Epo is also being tested for use
in anemia that develops as a consequence of chemotherapy and for autologous
blood donation. However, the high cost of the recombinant protein and the
requirement that it be administered by injection may place some limitations on
its more widespread use.
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The Company believes that there exists a significant market opportunity for an
effective, small molecular weight compound that induces the cellular production
of Epo and can be administered orally. The Company's gene transcription
screens have resulted in the identification of several lead compounds that
regulate the expression of Epo. The company is undertaking early preclinical
evaluation of these lead compounds.
Other Proprietary Targets
In addition to its efforts with respect to Epo, the Company is seeking to
discover and develop orally active gene transcription-based inducers of certain
proteins for the treatment of sickle cell disease, muscular dystrophy, chronic
myelogenous leukemia and certain viral infections.
Sickle Cell Disease. The marked manifestations of sickle cell disease can
be functionally ameliorated by the presence in blood cells of fetal hemoglobin
("HbF"). Currently, there are no approved drugs for the treatment of sickle
cell disease. The Company has developed an assay to determine the ability of
test compounds to induce the production of HbF. The most advanced compound in
clinical testing for this indication is hydroxyurea, which induces the
expression of HbF. The Company's screening assays have resulted in the
identification of several compounds that are more potent than hydroxyurea. The
Company's goal is to establish, through additional screening and evaluation, a
lead compound that induces expression of HbF as a candidate for clinical
development in this area.
Muscular Dystrophy. The functional impairment of the protein dystrophin
causes muscular dystrophy. Utrophin is a closely related protein, elevated
levels of which in muscle cells may effectively reverse this disease. Based on
initial screening work, the Company has received funding from a private
foundation, which will enable the Company to commence the design and
validation of an appropriate utrophin gene transcription assay. Immediately
upon completion of this assay, the Company will commence screening compounds
for induction of utrophin production.
Others. The Company has designed assays to screen compounds against drug
targets for the treatment of chronic myelogenous leukemia ("CML") and the human
immunodeficiency virus ("HIV"). These screens have identified certain active
molecules. Further evaluation of the compounds identified in the CML screens
is being conducted in the laboratories of certain of the Company's
collaborators in a consortium funded under a federal grant. The Company
anticipates that the clinical development of any lead compounds derived from
these evaluations will be conducted pursuant to a collaborative arrangement
with one or more pharmaceutical firms. The Company is seeking a partner in
order to proceed jointly on further development of its anti-viral program,
which
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includes established screens for HIV.
The following table summarizes the Company's drug discovery and
development programs:
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PROGRAM FIELD NUMBER OF
DRUG
TARGETS
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Proprietary Chronic Anemias 1
Sickle Cell Disease 1
Muscular Dystrophy 1
Chronic Myelogenous
Leukemia 1
Human Immunodeficiency
Virus 3
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Ciba Chemoprotection 1
Wound Healing 1
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HMRI Inflammation 1
Arthritis 1
Metabolic Disease 1
Alzheimer's Disease 1
Cardiovascular Disease 4
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Pfizer Cancer 8
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Wyeth Diabetes 1
Asthma 1
Immune-System Modulation 1
Osteoporosis 1
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TOTAL 29
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CANCER DIAGNOSTICS
The Company is engaged in the development of a series of cancer diagnostic
tests based upon oncogenes and tumor suppressor genes as cancer markers. One
line of these tests utilizes immunoassays and monoclonal antibodies to detect
the cancer markers in readily accessible physiological fluids, such as blood
serum. The other line of diagnostic tests utilizes a series of monoclonal
antibodies capable of measuring the cancer markers in tissue sections using
immunohistochemistry techniques. These tests are designed to aid oncologists
in the confirmation, monitoring, staging, screening and prognosis of human
cancer. These tests may enable reference labs and physicians to diagnose
cancer at an earlier stage, select more effective types of treatment, and more
easily monitor patients during therapy. The current focus of the Company's
diagnostic development program is on breast and colon cancer, but the Company
believes that many of the cancer markers in its program will have clinical
utility for other human tumors, such as lung, prostate, ovarian and stomach
cancer.
The Company has been pursuing serum and tissue based cancer diagnostic
products in collaboration with Becton under a collaborative program started in
October 1991 (after an earlier collaboration from 1984 to 1989). However,
during 1995, Becton decided to focus exclusively on tissue-based diagnostic
tests including immunohistochemistry, i.e., manual pathology diagnostic tests
and image analysis. Becton has reduced funding under this program in fiscal
1996 and the Company is uncertain as to the funding of this program thereafter.
Management believes that the Company or Becton will seek FDA approval for one
or more immunohistochemistry tests for the manual pathology market.
Since October 1995, the Company has independently supported its
development program in serum-based cancer diagnostics. The Company is actively
seeking to form a collaboration with one or more major health care firms for
the clinical and commercial development of its serum-based diagnostic products.
INTELLECTUAL PROPERTY
The Company believes that patents and other proprietary rights are vital
to its business. It is the Company's policy to protect its intellectual
property rights in technology developed by its scientific staff by a variety of
means, including applying for patents in the United States and other major
industrialized countries. The Company also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing technological
innovations to develop and maintain its competitive position. In this regard,
the Company places restrictions in its agreements with third parties, including
research institutions, with respect to the use and disclosure of the Company's
proprietary technology. The Company also has internal nondisclosure
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safeguards, including confidentiality agreements, with its employees,
consultants and scientific advisors.
To date, more than 102 U.S. patent applications and over 132 foreign
patent applications have been filed or acquired by the Company. The Company
currently owns 21 issued U.S. patents and 47 granted foreign patents. In
addition, other institutions have granted exclusive rights under their United
States and foreign patents and patent applications to the Company.
The Company has been granted registration for the trademarks "OSI"(R) and
"TransProbe-1(R)" by the United States Patent and Trademark Office.
There can be no assurance that patents will be issued for the Company's
pending patent applications or any applications which it may file in the
future, that any patent issued will cover a commercially marketable product or
process, or that any patent issued will not be circumvented or invalidated.
Moreover, there can be no assurance that others may not independently develop
the same or similar technology or obtain access to the Company's proprietary
technology. The Company is aware of patent applications filed by, or patents,
issued to, other entities, with respect to technology potentially useful to the
Company and, in some cases, related to products and processes being used or
developed by the Company. The Company currently cannot assess the effect, if
any, that these patents may have on its future operations. The extent to which
efforts by other researchers resulted or will result in patents and the extent
to which the issuance of patents to others would have a material adverse effect
on the Company or would force the Company to obtain licenses from others, if
available, currently is unknown.
The Company is aware of several patents and patent applications owned by
others who may allege infringement by products, including TGF-Beta3, which the
Company is seeking to develop. The Company does not believe it is infringing
any valid claim of a patent owned by any third party and is taking such
actions, consistent with its beliefs, as it deems prudent to minimize the
possibility of any charge of patent infringement being validly raised against
the Company.
MARKETING AND DISTRIBUTION
Those therapeutic products subject to the Company's collaborative
agreements with Pfizer, Ciba, Wyeth and HMRI will be marketed by those
companies and the Company is to receive royalties ranging up to 10% on net
sales of products, depending upon the nature of the product and the ownership
of the underlying technology. The Company expects that products resulting from
future collaborations in gene transcription will be marketed under arrangements
which are similar to these agreements.
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COMPETITION
The biotechnology industry is highly competitive, and the Company expects
competition to intensify as technological advances in the field are made and
become widely known. There are many domestic and foreign biotechnology
companies which are engaged in the same or similar areas of research as those
in which the Company is engaged, many of which have substantially greater
financial, research, human, marketing and distribution resources than the
Company. In addition, there are many large, integrated and established
pharmaceutical, chemical and medical diagnostic companies which have greater
capacity than the Company to develop and to commercialize the technologies upon
which the Company's research and development programs are based. The Company
expects technological development to occur at a rapid rate in the biotechnology
industry. Even if the Company is successful in establishing itself in the
industry, it will be necessary for the Company to maintain a competitive
position with respect to the evolving technology. Universities, colleges, and
various other non-profit organizations are responsible for much of the cancer
research currently being performed. These entities are increasingly becoming
aware of the commercial applications of their research and are seeking patent
protection and license revenues in certain product areas that are competitive
with the Company. Competition in the biotechnology field currently is focused
primarily on research and technological capability. The Company believes that,
as the field develops, manufacturing, regulatory, distribution and marketing
expertise increasingly will be important competitive factors. In this regard,
the Company believes that arrangements with major health care corporations will
be important factors in the commercialization of many of the products which it
is currently developing.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacturing and marketing of the
Company's products. The Company is, and the products which the Company intends
to develop are and will be, subject to certain government regulations.
Products that may be developed and sold by the Company in the United States may
require approval from federal regulatory agencies, such as the FDA, as well as
state regulatory agencies. Products that may be developed and sold by the
Company outside the United States may require approval from foreign regulatory
agencies. The clinical diagnostic products being developed by the Company will
be subject to regulation by the Office of Medical Services of the FDA, and will
require some form of pre-market notification. Therapeutic products will
require clinical evaluation under INDs and, in certain instances, clearance
under the auspices of the Office of Biologics in conjunction with other
appropriate FDA divisions.
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In all cases, the Company will be required to comply with all pertinent
Good Manufacturing Practices of the FDA for medical devices, biologics, and
drugs. Accordingly, the regulations to which the Company and certain of its
products may be subject, and any changes with respect thereto, may materially
adversely affect the Company's ability to produce and market new products
developed by the Company.
A product normally must go through several phases in order to obtain FDA
and other governmental approvals. The research phase involves work up to and
including discovery, research and initial production. The research phase is
followed by the pre-clinical phase, which involves studies in animal models
necessary to support an application to the FDA and foreign health registration
authorities to commence clinical testing in humans. Clinical trials for
pharmaceutical products are conducted in three phases. In Phase I, studies are
conducted to determine safety and dosage limits. In Phase II, studies are
conducted to gain preliminary evidence as to the efficacy of the product. In
Phase III, studies are conducted to provide sufficient data for the statistical
proof as to safety and efficacy, including dose regimen. Phase III is the
final stage of such clinical studies prior to the submission of an application
for approval of a New Drug Application and marketing approval. The amount of
time necessary to complete any of these phases cannot be predicted with any
certainty.
The Company's present and future activities are, and will likely continue
to be, subject to varying degrees of additional regulation under the Atomic
Energy Act, Occupational Safety and Health Act, Environmental Protection Act,
national restrictions on technology transfer, import, export and customs
regulations, and other present and possible future foreign, federal, state and
local regulations.
SCIENTIFIC AND OTHER PERSONNEL
The Company believes that its success will be largely dependent upon its
ability to attract and retain qualified personnel in scientific and technical
fields. As of September 30, 1995, the Company employed 109 persons, of whom 80
were primarily involved in research and development activities, with the
remainder engaged in executive and administrative capacities. All but one of
the Company's 31 scientists have Ph.D. degrees specializing in areas related to
the Company's various technologies. Although the Company believes that it has
been successful to date in attracting skilled and experienced scientific
personnel, competition for such personnel is intense and there can be no
assurance that the Company will continue to be able to attract and retain
personnel of high scientific caliber. The Company considers its employee
relations to be good.
14
15
ITEM 2. PROPERTIES
The Company leases a 30,000 square foot facility located at 106 Charles
Lindbergh Boulevard, Uniondale, New York. The lease is for a period of fifteen
years with a five-year renewal option. The annual base rent starts at $360,000
commencing July 1, 1991, increases by 10% after the first two years, and
thereafter increases by 10% every three years. The Company is also responsible
for all taxes and utilities and the costs of general maintenance and repair of
the facility during the term of the lease.
As of October 4, 1991, the Company entered into a lease for the executive
offices, laboratories and other facilities utilized in the Diagnostic Division
at 80 Rogers Street/129 Binney Street, Cambridge, Massachusetts. The 11,000
square foot facility contains approximately 6,400 square feet of laboratory
space for immunology, molecular biology, tissue culture and protein chemistry,
a small animal testing facility, a process scale-up laboratory and
approximately 4,600 square feet of office space. As of April 2, 1993, this
lease was amended to cover an additional 8,000 square feet at 84 Rogers Street
for additional office and distribution space. The lease for both 80 and 84
Rogers Street expires December 31, 2003. The combined annual base rent is
$180,500. Assuming the Company is successful in its attempt to secure a
collaborative partner in its serum-based diagnostics program, the Company
intends to continue to operate the Diagnostic Division at this facility. In
August 1995, the Company entered into a sublease agreement for approximately
50% of the Cambridge facility with the purchaser of the Research Products
Business for a term of three years, at an annual payment equal to 50% of the
Company's fixed lease payment and related facility costs, plus certain
operating costs.
The Company believes that its facilities will be adequate to meet current
requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
15
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and is
included for quotation on the Nasdaq National Market under the symbol ONCS.
The following is the range of high and low sales prices by quarter for the
Company's common stock from the first quarter of fiscal 1994 through September
30, 1995 as reported on the Nasdaq National Market:
HIGH LOW
---- ---
1995 FISCAL YEAR
- ----------------
First Quarter $3 3/8 $2 3/8
Second Quarter 3 3/8 2 3/8
Third Quarter 4 5/8 2 15/16
Fourth Quarter 7 1/8 3 1/2
HIGH LOW
---- ---
1994 FISCAL YEAR
- ----------------
First Quarter $4 3/4 $3 1/2
Second Quarter 4 1/8 3 1/8
Third Quarter 3 7/8 2 7/8
Fourth Quarter 3 5/8 2 1/4
As of November 30, 1995, there were approximately 771 holders of record of
the Company's common stock. The Company has not paid any dividends since its
inception and does not intend to pay any dividends in the foreseeable future.
Declaration of dividends will depend, among other things, upon future earnings,
the operating and financial condition of the Company, its capital requirements
and general business conditions.
16
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data with
respect to the Company for each of the years in the five year period ended
September 30, 1995. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein.
Years ended September 30
---------------------------------------------------------------
1995(a) 1994(b) 1993(c) 1992(d) 1991
------- ---- ---- ---- ----
Statement of Operations Data:
Revenues $15,864,999 $16,299,489 $16,088,021 $11,094,175 $ 7,823,883
Expenses:
Research and
development 13,523,043 12,125,210 10,659,806 8,127,466 4,860,226
Production 1,252,990 1,427,981 1,443,649 1,420,686 748,927
Selling, general
and administrative 7,140,208 7,487,090 6,429,701 5,219,606 4,130,777
Amortization of
intangibles 1,696,561 1,745,163 1,745,713 1,745,694 -
Loss from operations (7,747,803) (6,485,955) (4,190,848) (5,419,277) (1,916,047)
Other income, net 768,744 762,031 884,806 882,630 724,450
Relocation related
expenses - - - - (342,653)
Gain on sale of
Research Products 2,720,389 - - - -
Net loss (4,258,670) (5,723,924) (3,306,042) (4,536,647) (1,534,250)
Net loss per share (0.25) (0.35) (0.21) (0.31) (0.17)
Weighted average
number of shares
of common stock
outstanding 16,757,370 16,335,000 16,080,000 14,801,000 9,184,000
Balance Sheet Data:
Cash and short-term
investments $26,786,566 $18,157,891 $22,390,454 $18,897,238 $10,110,352
Accounts Receivable 1,320,015 3,032,839 3,146,990 2,094,464 666,054
Working capital 26,127,781 21,208,145 25,914,827 22,363,383 10,301,199
Total assets 44,057,421 42,040,900 47,614,538 43,930,705 18,079,405
Stockholders' equity 40,549,636 38,656,314 45,044,603 41,960,868 15,867,252
(a) During fiscal 1995, the Company sold its Research Products Business and
also sold shares of its common stock to Ciba-Geigy, Ltd. (See Notes 3 and 8(c)
to the Consolidated Financial Statements.)
(b) During fiscal 1994, the Company changed its method of accounting for
marketable securities to adopt the provisions of the Statement of Financial
Accounting Standards No.115, "Accounting for Certain Investments in Debt and
Equity Securities".
(c)During fiscal 1993, the Company entered into collaborative agreements with
Marion Merrell Dow and Hoechst AG and also sold shares of its common stock to
Marion Merrell Dow (See Notes 4 and 8(c) of Notes to Consolidated Financial
Statements.)
(d)During fiscal 1992, the Company acquired the cancer business of Applied
bioTechnology and completed an offering of its common stock (see Notes 3 and
8(d) of Notes to Consolidated Financial Statements).
17
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues
Total revenues decreased approximately $434,000, or 3% in fiscal year 1995
compared to fiscal year 1994 and increased approximately $211,000 or 1%, in
fiscal year 1994 compared to fiscal year 1993. Collaborative program revenues
increased by approximately $597,000 or 7% in fiscal 1995 due to the
commencement of an additional research program with HMRI in April 1994, the
expansion and extension of the collaborative research agreement with Wyeth in
March 1994 and increases in revenues under the Pfizer agreement with respect to
anti-cancer drugs. These increases were offset by decreased funding from
Pfizer associated with Pfizer's decreased participation in the TGF-Beta3 oral
mucositis program in order to focus exclusively on its collaborative programs
with the Company related to the research and development of anti-cancer drugs.
Previously Pfizer had funded the Company's TGF-Beta3 oral mucositis program as
a supplement to its anti-cancer collaborative program. Under a collaborative
agreement with Ciba, entered into on April 19, 1995, the Company will fund the
development of TGF-Beta3 for oral mucositis through the end of Phase I clinical
trials and Ciba will fund its subsequent clinical development. The increase in
collaborative revenues in fiscal 1995 was also offset by decreases in sales and
other research revenues. The Company sold its Research Products Business to
Calbiochem-Novabiochem International, Inc. on August 2, 1995, and accordingly,
there were no significant sales of the Research Products Business recorded
after this date, nor will these sales contribute to overall revenues in the
future. Sales decreased approximately $651,000 or 13% in fiscal 1995. Other
research revenues decreased approximately $380,000 or 17% in fiscal 1995, which
is largely the result of decreased funding related to a National Cooperative
Drug Discovery Group Grant.
The increase in total revenues in fiscal year 1994 is attributable to
increases of $1,606,000 in collaborative research revenues relating to the
commencement of the additional HMRI collaborative program and a milestone
payment from Marion, grant revenues and sales of research products offset by a
$1,395,000 decrease in the payments from Pfizer. As discussed above, previously
Pfizer had funded the development of TGF-Beta3 as a supplement to the
collaborative program. Sales of research products increased approximately
$110,000 or 2% in fiscal 1994, due primarily to a change in the mix of products
sold. Other research revenues in fiscal 1994 increased by approximately
$408,000 or 22%, compared to the prior fiscal year. The increase in fiscal
1994 is due to an increase in the number and size of grants awarded to the
Company.
18
19
Expenses
Research and development expenses increased by approximately $1,398,000,
or 12% in fiscal year 1995 compared to fiscal year 1994 and increased by
approximately $1,465,000, or 14%, in fiscal year 1994 compared to fiscal year
1993. The increase in fiscal 1995 was due principally to the start during 1994
of the additional research program with HMRI, the expansion and extension of
the Wyeth agreement and the increase in activities related to the Company's
proprietary programs in the area of medicinal and natural products chemistry
and clinical development of TGF-Beta3 for oral mucositis.
The increase in 1994 was due to an increase in expenditures in the
collaborative programs with Marion and the commencement of the additional
program with HMRI, and increased expenses incurred in connection with the
Company's proprietary and grant programs.
Research and development expenses reimbursed by collaborative partners and
government research grants aggregated approximately $12,445,000 $11,075,000,
and $10,305,000, for fiscal years 1995, 1994, and 1993, respectively.
Production expenses decreased approximately $175,000, or 12% for fiscal
year 1995 as compared with fiscal year 1994, reflecting the sale of the
Research Products Business. Production expenses remained approximately
constant in fiscal 1994 compared to fiscal 1993.
Selling, general and administrative expenses decreased approximately
$347,000 or 5% in fiscal 1995 compared to fiscal 1994. This decrease reflects
the reduction in sales and marketing expenses due to the sale of the Research
Products Business, offset by increases in professional fees related to
corporate development activities. Selling, general and administrative expenses
increased approximately $1,057,000 or 16% in fiscal 1994 compared to fiscal
1993. This increase is principally attributable to expenses incurred in the
operations of the Company's French subsidiary and increased payroll and
consulting expenses. In connection with the sale of the Research Products
Business, the Company elected to close down the operations of its French
subsidiary. Costs associated with the close down have been offset against the
gain on the sale of the Research Products Business.
Amortization of intangibles in 1995, 1994, and 1993 represents
amortization of patents and goodwill that resulted from the acquisition of the
cancer diagnostics business of Applied bioTechnology. The decrease in
amortization expense in fiscal 1995 is due to the write-off of a portion of
goodwill in connection with the sale of the Research Products Business.
19
20
Other Income and Expense
Net investment income decreased approximately $24,000, or 3% for fiscal
1995 compared to fiscal 1994. Interest income earned in fiscal 1995 was
higher than in fiscal 1994 despite a lower average principal balance in the
more recent year due to increased interest rates. However, this was offset in
part by a net realized loss on the sale of certain investments.
Net investment income decreased approximately $72,000 or 8% for fiscal
1994 compared to fiscal 1993. This decrease was a result of declining
interest rates and decreased principal balance invested.
The Company sold its Research Products Business to Calbiochem-Novabiochem
International, Inc. on August 2, 1995 for $6 million in cash and and other
considerations. The net gain on the sale was approximately $2.7 million.
New Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" was issued which establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. SFAS No. 121
must be implemented no later than fiscal 1997. The adoption of SFAS No. 121 is
not expected to have material impact on the Company's consolidated financial
position or operating results.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation",
was issued which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, SFAS No. 123 would
permit the Company to continue to measure compensation costs for its stock
option plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees". If the Company
elected to remain with its current accounting, the Company must make pro forma
disclosures of net income and earnings (loss) per share as if the fair value
based method of accounting had been applied. SFAS No. 123 must be implemented
no later than fiscal 1997. The Company has not yet determined the valuation
method it
20
21
will employ or the effect on operating results of implementing SFAS No. 123.
Liquidity and Capital Resources
At September 30, 1995, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $26,128,000.
The Company has been, and will continue to be, dependent upon
collaborative research revenues, government research grants, interest income
and cash balances until products developed from its technology are commercially
marketed. On April 19, 1995, Ciba purchased 909,091 shares of the Company's
common stock for an aggregate purchase price of $5,000,000.
During 1995, Marion was acquired by HMRI as part of a transaction in which
the pharmaceutical operations of Hoechst AG, Hoechst Roussel Pharmaceuticals,
Inc. and Marion were consolidated. The Company is aware that HMRI is
conducting a review of all its research and development programs. However,
based on discussions with HMRI, the Company expects its programs with HMRI to
continue under one overall agreement in the future. The Company anticipates
that the annual funding under the consolidated agreement will be somewhat lower
than the aggregate level of the annual funding under the three previously
separate agreements.
Since its commencement in 1991 and until the second quarter of fiscal
1995, the cancer diagnostics collaborative program with Becton has focused on
both serum-based and histochemical immunoassays. During the second quarter of
fiscal 1995, Becton decided to focus exclusively on cellular cancer
diagnostics including histochemical immunoassays and reduce its funding under
this program in fiscal 1996. The Company is uncertain as to the funding of this
program thereafter. The Company is continuing the development of serum-based
cancer diagnostic products and is in discussions with possible new
collaborative partners in this area, but cannot predict the outcome.
The Company believes that with the funding from its collaborative
research programs, government research grants, interest income, and cash
balances, the Company's financial resources are adequate for its current needs.
However, the Company's capital requirements may vary as a result of a number of
factors, including, competitive and technological developments, and the time
and expense required to obtain governmental approval of products, some of which
factors are beyond the Company's control. There can be no assurance that
scheduled payments will be made by third parties, that current agreements will
not be cancelled, that government research grants will continue to be received
at current levels or that unanticipated events requiring the expenditure of
funds will not occur. Further, there can be no assurance that the
21
22
Company will be able to obtain any additional required funds, or, if such funds
are available, that such funds will be available on favorable terms. The
Company expects to commence a new technology development program during fiscal
year 1996. This program is intended to expand the Company's technological
capabilities in the drug discovery area and is anticipated to involve an
expenditure of $7-10 million over a 3-year period. The Company has not
determined definitively the method or methods by which it will fund this
program. The scope of this program and the total amount invested may be
affected by the ability of the Company to obtain financing from external
sources on terms the Company deems acceptable.
22
23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements:
Page
Number
------
Independent Auditors' Report F-1
Consolidated Balance Sheets
September 30, 1995 and 1994 F-2
Consolidated Statements of Operations - Years ended
September 30, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders'
Equity - Years ended
September 30, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows - Years ended
September 30, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-7
23
24
INDEPENDENT AUDITORS' REPORT
The Stockholders
and Board of Directors
Oncogene Science, Inc.:
We have audited the accompanying consolidated balance sheets of Oncogene
Science, Inc. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oncogene
Science, Inc. and subsidiaries at September 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1995 in conformity with generally
accepted accounting principles.
During fiscal 1994, the Company changed its method of accounting for
income taxes and marketable securities to adopt the provisions of the
Statements of Financial Accounting Standards No.109, "Accounting for Income
Taxes", and No.115, "Accounting for Certain Investments in Debt and Equity
Securities", respectively.
KPMG PEAT MARWICK LLP
Jericho, New York
December 1, 1995
F-1
25
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
1995 1994
---- ----
ASSETS
- ------
Current assets:
Cash and cash equivalents $17,919,609 $ 322,308
Short-term investments 8,866,957 17,835,583
Receivables, including
trade receivables of $163,132 and
$956,747 at September 30, 1995
and 1994, respectively 1,320,015 3,032,839
Inventory - 1,744,663
Interest receivable 45,263 147,222
Grants receivable 433,530 659,621
Prepaid expenses 518,150 445,464
---------- -----------
Total current assets 29,103,524 24,187,700
---------- ----------
Property, equipment and leasehold
improvements - net 5,709,515 6,554,237
Other receivable 262,703 425,520
Loans to officers and employees 25,516 85,516
Other assets 325,582 118,068
Intangible assets - net 8,630,581 10,669,859
----------- -----------
$44,057,421 $42,040,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued
expenses $2,825,702 $2,522,171
Current portion of unearned revenue 150,041 457,384
--------- ----------
Total current liabilities 2,975,743 2,979,555
--------- ----------
Other liabilities:
Long-term portion of unearned revenue 165,839 216,588
Accrued postretirement benefit cost 366,203 188,443
--------- ----------
Total liabilities 3,507,785 3,384,586
--------- ----------
Stockholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized,
17,683,047 shares issued at
September 30, 1995 and
16,564,715 shares issued at
September 30, 1993 176,830 165,647
Additional paid-in capital 66,735,375 61,199,670
Accumulated deficit (26,129,341) (21,870,671)
Cumulative foreign currency
translation adjustment (55,669) (41,773)
Unrealized holding loss on
short-term investments (35,000) (654,000)
----------- ------------
40,692,195 38,798,873
Less: treasury stock, at cost;
222,521 shares at
September 30, 1995 and 1994 (142,559) (142,559)
----------- ------------
Total stockholders' equity 40,549,636 38,656,314
---------- -----------
Commitments and contingencies
$44,057,421 $42,040,900
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
26
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
------------------------------------
1995 1994 1993
---- ---- ----
Revenues:
Collaborative program
revenues, principally
from related parties $9,685,856 $ 9,089,295 $ 9,396,609
Sales 4,286,540 4,937,917 4,827,185
Other research revenue 1,892,603 2,272,277 1,864,227
---------- ---------- -----------
15,864,999 16,299,489 16,088,021
---------- ---------- -----------
Expenses:
Research and development 13,523,043 12,125,210 10,659,806
Production 1,252,990 1,427,981 1,443,649
Selling, general and
administrative 7,140,208 7,487,090 6,429,701
Amortization of
intangibles 1,696,561 1,745,163 1,745,713
---------- ---------- -----------
23,612,802 22,785,444 20,278,869
---------- ---------- -----------
Loss from operations (7,747,803) (6,485,955) (4,190,848)
----------- ----------- -----------
Other income (expense):
Net investment income 834,830 858,904 930,428
Other expense (66,086) (96,873) (45,622)
Gain on sale of Research
Products Business 2,720,389 - -
----------- ----------- -----------
Net loss $(4,258,670) $(5,723,924) $(3,306,042)
------------ ------------ ------------
Weighted average number
of shares of common
stock outstanding 16,757,370 16,335,000 16,080,000
=========== =========== ===========
Net loss per weighted
average share of
common stock
outstanding $ (.25) $ (.35) $ (.21)
============ ============ ===========
See accompanying notes to consolidated financial statements.
F-3
27
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
Unrealized
Foreign Holding Total
Common stock Additional Currency Loss on Stock-
------------------- Paid-in Accumulated Translation Short-term Treasury holders'
Shares Amount Capital Deficit Adjustment Investments Stock Equity
------ ------ ----------- ------------ ------------ ----------- -------- --------
Balance at September 30, 1992 15,285,092 $152,851 $54,791,281 $(12,840,705) $ - $ - $(142,559) $41,960,868
Options exercised 175,729 1,758 386,272 - - - - 388,030
Issuance of common stock
for employee purchase plan 211 2 974 - - - - 976
Sale of common stock and
warrants to
Marion Merrell Dow 1,090,909 10,909 5,989,091 - - - - 6,000,000
Foreign currency
translation adjustment - - - - 771 - - 771
Net loss - - - (3,306,042) - - - (3,306,042)
---------- -------- ----------- ----------- --------- -------- --------- -----------
Balance at September 30, 1993 16,551,941 165,520 61,167,618 (16,146,747) 771 - (142,559) 45,044,603
Options exercised 10,700 107 25,724 - - - - 25,831
Issuance of common stock for
employee purchase plan
and other 2,074 20 6,328 - - - - 6,348
Unrealized holding loss on
short term investments - - - - - (654,000) - (654,000)
Foreign currency translation
adjustment - - - - (42,544) - - (42,544)
Net loss - - - (5,723,924) - - - (5,723,924)
---------- -------- ----------- ------------ --------- -------- --------- ------------
Balance at September 30, 1994 16,564,715 165,647 61,199,670 (21,870,671) (41,773) (654,000) (142,559) 38,656,314
Options exercised 206,025 2,060 571,408 - - - - 573,468
Issuance of common stock for
employee purchase plan
and other 3,216 32 10,523 - - - - 10,555
Unrealized holding gain on
short term investments - - - - - 619,000 - 619,000
Sale of common stock to Ciba-Geigy 909,091 9,091 4,953,774 - - - 4,962,865
Foreign currency translation
adjustment - - - - (13,896) - - (13,896)
Net loss - - - (4,258,670) - - - (4,258,670)
---------- -------- ----------- ------------ --------- -------- --------- ------------
Balance at September 30, 1995 17,683,047 $176,830 $66,735,375 $(26,129,341) $ (55,669) $(35,000) $(142,559) $40,549,636
========== ======== =========== ============= ========== ========= ========= ===========
See accompanying notes to consolidated financial statements.
F-4
28
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30,
------------------------------------
1995 1994 1993
---- ---- ----
Cash flow from operating activities:
Net loss $(4,258,670) $(5,723,924) $(3,306,042)
Adjustments to reconcile net
loss to net cash used
by operating activities:
Gain on sale of Research Products
Business (2,720,389) - -
Loss on sale of investments 118,141 - -
Depreciation and amortization 1,037,044 1,165,809 955,952
Amortization of intangibles 1,696,561 1,745,163 1,745,713
Foreign exchange loss (13,896) (26,649) 5,319
Changes in assets and liabilities, net
of the effects of the sale of the
Research Products Business:
Receivables 1,605,217 114,152 (1,052,526)
Inventory 216,405 (197,570) (132,236)
Interest receivable 101,959 (107,890) 171,643
Grants receivable 226,091 105,895 (497,240)
Prepaid expenses (196,491) (98,068) 27,674
Other receivable 162,817 92,090 (517,610)
Other assets (234,378) 23,863 (115,851)
Accounts payable
and accrued expenses (586,276) 232,439 468,673
Unearned revenue (358,092) 415,972 (209,500)
Accrued postretirement
benefit cost 177,760 78,568 109,875
------- --------- ----------
Net cash used by
operating activities $(3,026,197) $(2,180,150) $(2,346,156)
------------ ------------ ------------
Continued
See accompanying notes to consolidated financial statements.
F-5
29
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended September 30,
------------------------------------
1995 1994 1993
---- ---- ----
Cash flows from investing activities:
Additions to short-term
investments (3,723,180) (5,918,880) (29,092,688)
Maturities and sales of short-term
investments 13,192,665 9,135,823 25,827,272
Additions to property,
equipment and leasehold
improvements (403,275) (1,512,543) (1,486,646)
Disposition of equipment - - 12,028
Net change in loans to officers
and employees 10,400 (40,258) (4,702)
Proceeds from sale of Research Products
Business 6,000,000 - -
Foreign currency transaction - (15,897) (4,548)
--------- ---------- ----------
Net cash provided by (used in)
investing activities 15,076,610 1,648,245 (4,749,284)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 4,962,865 - 6,000,000
Proceeds from exercise
of stock options and
employee stock purchase plan 584,023 32,180 389,006
Repayment of loan
to stockholders - - 1,000,000
---------- ---------- ----------
Net cash provided by
financing activities 5,546,888 32,180 7,389,006
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 17,597,301 (499,725) 293,566
Cash and cash equivalents at
beginning of year 322,308 822,033 528,467
---------- ---------- ----------
Cash and cash equivalents
at end of year $17,919,609 $ 322,308 $ 822,033
=========== ========== ==========
F-6
30
ONCOGENE SCIENCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Oncogene Science, Inc. and its wholly owned subsidiaries Applied
bioTechnology, Inc. and Oncogene Science S.A., a foreign subsidiary. All
intercompany balances and transactions have been eliminated. The Company is
engaged in the research and development of biopharmaceutical products for the
treatment and diagnosis of cancer, cardiovascular and other human diseases
associated with abnormalities of cell growth and control.
(b) Revenue Recognition
Collaborative research revenues represent funding arrangements for the
conduct of research and development ("R&D") in the field of biotechnology and
are recognized when earned in accordance with the terms of the contracts and
the related development activities undertaken. Other research revenues are
recognized pursuant to the terms of grants which provide reimbursement of
certain expenses related to the Company's other R&D activities. Collaborative
and other research revenues are accrued for expenses incurred in advance of the
reimbursement and deferred for cash payments received in advance of
expenditures. Such deferred revenues are recorded as revenue when earned.
(See Note 3)
Revenue from the sale of diagnostic and research reagent products is
recognized at time of shipment.
(c) Patents and Goodwill
As a result of the Company's research and development programs, including
programs funded pursuant to the research and development funding agreements
(See Note 4), the Company has applied for a number of patents in the United
States and abroad. Such patent rights are of significant importance to the
Company to protect products and processes developed. Costs incurred in
connection with patent applications for the Company's research and development
programs have been expensed as incurred.
Patents and goodwill acquired in connection with the acquisition of
Applied bioTechnology's cancer business in October 1991, have been capitalized
and are being amortized on a straight-line basis over the remaining lives of
the respective patents, and over five years for goodwill. The Company
continually evaluates the recoverability of its intangible assets by assessing
whether the amortized value can be recovered through expected future results.
F-7
31
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
(d) Research and Development Costs
Research and development costs are charged to operations as incurred and
include direct costs of research scientists and equipment and an allocation of
laboratory facility and central service. In fiscal years 1995, 1994, and 1993
R&D activities include approximately $5,695,740, $3,516,000, and $3,012,000, of
independent R&D, respectively. Independent R&D represents those research and
development activities, including research and development activities funded by
government research grants, substantially all the rights to which the Company
will retain. The balance of research and development represents expenses under
the collaborative agreements funded by Pfizer Inc. (Pfizer), Becton Dickinson
and Co.(Becton), Wyeth-Ayerst, a division of American Home Products (Wyeth),
Marion Merrell Dow Inc. (Marion), Hoechst AG and Hoechst-Roussel. On July 18,
1995, Marion, Hoechst AG and Hoechst-Roussel merged forming a new company named
Hoechst Marion Roussel Inc. (HMRI). The Company believes all of the Hoechst
collaborative agreements will continue under HMRI.
(e) Inventories
Inventories represent principally diagnostics and research reagent
products and are stated at the lower of standard costs (approximating average
costs) or market. During fiscal 1995, the Company sold the business and certain
assets, including inventory, of the Research Products Business. (See Note 3)
(f) Depreciation and Amortization
Depreciation of equipment is provided over the estimated useful lives of
the respective asset groups on a straight-line basis. Leasehold improvements
are amortized on a straight-line basis over the lesser of the estimated useful
lives or the remaining term of their lease.
(g) Income Taxes
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires that the Company recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under SFAS No.
109, deferred tax liabilities and assets are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates in
effect for the years in which the differences are expected to reverse.
F-8
32
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The adoption of SFAS No. 109 did not have any impact on the financial position
or results of operations of the Company. The Company, in years prior to
fiscal 1994, accounted for income taxes in accordance with Accounting
Principles Board Opinion No. 11, "Accounting for Income Taxes."
(h) Loss Per Share
Loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Common share equivalents (stock
options) are not included in the computation since their inclusion would be
anti-dilutive.
(i) Cash and Cash Equivalents
The Company includes as cash equivalents reverse repurchase agreements,
treasury bills, and other time deposits with original maturities of three
months or less.
(2) Investments
The Company invests its excess cash in U.S. Government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification of
its cash investments and their maturities that should maintain safety and
liquidity. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates. The Company uses the specific
identification method to determine the cost of securities sold.
The Company adopted SFAS No. 115, "Accounting for Investments in Certain
Debt and Equity Securities," (SFAS No. 115) as of October 1, 1993. SFAS No.
115 requires securities classified as available for sale to be recorded at
estimated fair value. The Company's short-term investments, which include
United States Treasury obligations and corporate debt securities with original
maturities in excess of one year, are classified as securities available for
sale based upon management's current investment policy. Such investments,
prior to the adoption of SFAS No. 115, were recorded at the lower of cost or
estimated market value with aggregate declines in market value below amortized
cost charged against earnings. Under SFAS No. 115, changes in the net
unrealized gains or losses of available for sale securities are reported as a
separate component in stockholder's equity. The adoption of SFAS No. 115 had
no material impact on the Company's financial position.
F-9
33
The following is a summary of available-for-sale securities as of
September 30, 1995 and 1994:
GROSS
UNREALIZED FAIR
1995 COST LOSSES VALUE
---- ---- (GAINS) -----
-------
US Treasury Securities
and obligations of US
Government agencies $6,232,027 $ (85,942) $6,146,085
Corporate debt
securities 2,669,930 50,942 2,720,872
--------- --------- ---------
TOTAL $8,901,967 $(35,000) $8,866,957
=========== ========= ==========
GROSS
UNREALIZED FAIR
1994 COST LOSSES VALUE
---- ---- ------ -----
US Treasury Securities
and obligations of US
Government agencies $16,753,928 $ (458,000) $16,295,928
Corporate debt
securities 1,735,655 (196,000) 1,539,655
----------- ----------- -----------
TOTAL $18,489,583 $ (654,000) $17,835,583
=========== =========== ===========
Realized losses on sales of investments during fiscal 1995 were approximately
$149,000. The Company has not realized any significant gains or losses on the
sale of its short-term investments during fiscal years 1994 and 1993.
(3) SALE OF RESEARCH PRODUCTS BUSINESS
On August 2, 1995, the Company sold certain assets and the business of
the Research Products Business (Business) to Calbiochem-Novabiochem
International, Inc. (Calbiochem) for $6.0 million in cash. The assets sold
included the Business' line of research products sold or intended for sale to
the academic, industrial and clinical research markets, existing inventory,
property and equipment and certain other assets. The Company retained the
trade accounts receivable and accounts payable outstanding on the date of sale.
In connection with the sale, the Company wrote off the unamortized goodwill
related to the Business of approximately $343,000. The sale resulted in a net
gain of approximately $2.7 million.
The Company also signed a sublease agreement with Calbiochem relating to
the Cambridge facility for a term of three years, at an annual payment equal to
50% of the Company's fixed lease payment
F-10
34
and related facility costs, plus certain operating costs or approximately
$448,000 per annum.
(4) PRODUCT DEVELOPMENT CONTRACTS
Effective April 1, 1986, the Company entered into a collaborative research
agreement (the "Agreement") with Pfizer. On December 14, 1990, the Company and
Pfizer entered into an agreement to extend the Agreement ("Extension
Agreement") for up to an additional five years effective April 1, 1991.
Pursuant to the Extension Agreement, Pfizer agreed to provide the Company with
up to $16,225,000 in research funding, essentially on a ratable basis, over the
five-year period ending April 1, 1996. In consideration for the funding
commitments by Pfizer, the Company has granted to Pfizer certain rights to
human cancer therapeutic products developed by the Company.
On October 4, 1991, the Company and Becton established a collaborative
research program to develop cancer diagnostic products. The Company and Becton
share equally the cost of discovery phase and pre-clinical research and
development. If Food and Drug Administration ("FDA") approval is obtained,
these products will be sold to the clinical markets by Becton. The Company
will retain some manufacturing rights. Unless terminated by either party, the
collaborative research program will continue for an initial five-year term
through September 30, 1996.
Effective December 31, 1991, the Company entered into a collaborative
research agreement with Wyeth. This agreement was extended and expanded in
January 1994 for an additional 3 years to provide for additional funding of
approximately $4,300,000.
Effective January 1, 1993, the Company and Marion entered into a
collaborative research and license agreement to identify and develop
transcription-based drugs to treat certain indications in the area of
cardiovascular disease. The agreement provided for payments to the Company of
$11,000,000 in research funding and license fees over a five year period
through December 31, 1997. Marion invested $6,000,000 in common stock (See Note
8(b)). The payments with respect to 1996 and 1997 are being consolidated into
a proposed new research agreement.
On January 4, 1993, the Company and Hoechst AG entered into a
collaborative research agreement to jointly develop gene transcription-based
drugs to treat certain indications in the areas of inflammation, viral
infection and metabolic diseases. In April 1994, the Company and
Hoechst-Roussel, a unit of Hoechst AG, entered into a collaborative agreement
to discover and develop gene transcription-based drugs to treat Alzheimer's
disease.
On July 18, 1995 Marion was acquired by an affiliate of Hoechst AG. The
new company was named HMRI. All of the Company's collaborative agreements with
Marion, Hoechst AG and Hoechst-Roussel have continued under HMRI. The Company
expects the related programs to continue under one overall agreement in the
future.
F-11
35
In April 1995, the Company entered into an agreement with Ciba-Geigy Ltd.
("Ciba") to expand the scope of the two companies' collaborative efforts with
respect to the development of TGF-Beta3 for the treatment of oral mucositis and
other indications. Under the agreement, the Company will fund development
through Phase I clinical trials and Ciba will fund Phase II and III clinical
trials. Ciba will pay the Company $10 million if, and at the time, it decides
to initiate Phase IIB. or III clinical trials or, at the option of Ciba, within
four years of the agreement date. The payment will be characterized, at Ciba's
option, as a milestone payment or a purchase of the Company's common stock at
the higher of $5.50 per share or the then current market price. In exchange
for such payment, Ciba's license will be expanded to include all other
indications for TGF-Beta3.
Under the terms of aformentioned collaborative research agreements, the
collaborative partners will pay the Company royalties ranging from 2% to 10% of
net sales of products resulting from these research programs. To date, the
Company has not received any royalties pursuant to these agreements. The
Company or its collaborative partners may terminate each of the collaborative
research programs upon the occurrence of certain events.
Total collaborative research revenues under the aforementioned agreements
are as follows:
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994 1993
---- ---- ----
Related Parties:
Pfizer $3,505,427 $3,373,573 $4,768,606
Becton 1,400,094 1,392,314 1,334,534
HMRI 3,405,335 3,026,532 2,211,936
---------- ---------- ----------
$8,310,856 $7,792,419 $8,315,076
Other 1,375,000 1,296,876 1,081,533
---------- ---------- ----------
Total $9,685,856 $9,089,295 $9,396,609
========== ========== ==========
F-12
36
(5) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost and
consist of the following:
SEPTEMBER 30,
ESTIMATED -----------------
LIFE (YEARS) 1995 1994
------------ ---- ----
Laboratory equipment 5-15 $6,765,012 $6,376,997
Office furniture and
equipment 5-10 1,622,524 1,708,534
Automobile equipment 3 12,697 12,697
Leasehold improvements Life of lease 4,176,290 4,214,228
--------- ---------
12,576,523 12,312,456
Less: accumulated
depreciation and
amortization 6,867,008 5,758,219
--------- ---------
Net property,
equipment and
leasehold
improvements $5,709,515 $6,554,237
========== ==========
(6) INTANGIBLE ASSETS
The components of intangible assets are as follows:
SEPTEMBER 30,
----------------------------
1995 1994
---- ----
Patents $7,945,038 $ 8,712,250
Goodwill 685,543 1,957,609
---------- -----------
$8,630,581 $10,669,859
========== ===========
The above amounts reflect accumulated amortization of $5,808,119 and
$5,236,407 at September 30, 1995 and 1994, respectively.
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at September 30, 1995 and 1994 are
comprised of:
SEPTEMBER 30,
------------------
1995 1994
---- ----
Accounts payable $1,497,601 $1,326,744
Accrued future lease escalations 355,516 282,718
Accrued payroll and employee benefits 243,073 155,039
Accrued incentive compensation 424,705 426,189
Accrued expenses 304,807 331,481
------- ----------
$2,825,702 $2,522,171
========== ==========
F-13
37
(8) STOCKHOLDERS' EQUITY
(a) Stock Option Plans
The Company has established three stock option plans for its employees,
officers, directors and consultants. The Plans are administered by the
Compensation Committee of the Board of Directors, which may grant either
non-qualified or incentive stock options. The Committee determines the
exercise price and vesting schedule at the time the option is granted. Options
vest over various periods and may expire no later than 10 years from date of
grant. The total authorized shares under these plans is 3,400,000.
The following table summarizes changes in the number of common shares
subject to options in the stock option plans during the years ended September
30, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
Beginning of year 2,048,325 1,644,945 1,278,045
Granted-$3.50 to $4.13
per share in 1995;
$4.00 to $4.75
per share in 1994;
$4.38 to $5.25 per
share in 1993; 803,000 475,500 498,000
Exercised (206,025) (10,700) (109,729)
Cancelled (624,021) (61,420) (21,371)
--------- ---------- ----------
End of year-$1.75 to
$5.63 per share 2,021,279 2,048,325 1,644,945
========= ========== ==========
Exercisable 952,883 1,081,874 790,899
======= ========== ==========
At September 30, 1995, the Company has reserved 2,021,079 shares of its
authorized common stock for all shares issuable under option.
On March 22, 1995, the Company granted the right to current option holders
to surrender their current options in exchange for replacement options on the
basis of three replacement options for four options surrendered. The exercise
price of the replacement options was $3.50 per share, which was greater than
the market price on the date of exchange. The replacement options vested 25%
upon grant with the remaining 75% vesting pro rata on a monthly basis over the
following three years. Option holders surrendered 606,000 options in exchange
for 454,500 replacement options.
F-14
38
(b) Sale of Stock to Marion Merrell Dow
In December 1992, the Company entered into the common stock purchase and
common stock warrant purchase agreements with Marion. The company issued
1,090,909 shares of common stock at $5.50 per share and a warrant to purchase
up to 500,000 additional shares at $5.50 per share which are exercisable during
the period December 1994 to December 1999. The proceeds to the Company were
$6,000,000.
(c) Sale of Stock to Ciba-Geigy
On April 19, 1995, Ciba-Geigy purchased 909,091 shares of the Company's
common stock at $5.50 per share for an aggregate purchase price of $5,000,000.
(d) Stock Purchase Plan
On May 1, 1993, the Company adopted an Employee Stock Purchase Plan under
which eligible employees may contribute up to 10% of their base earnings toward
the quarterly purchase of the Company's Common Stock. The employees purchase
price is derived from a formula based on the fair market value of the common
stock. No compensation expense is recorded in connection with the plan.
During fiscal 1995, 1994 and 1993, 3,216, 2,074 and 211 shares were issued with
18, 13 and 10 employees participating in the plan, respectively.
(9) INCOME TAXES
There is no provision (benefit) for federal or state income taxes, since the
Company has incurred operating losses since inception and has established a
valuation allowance equal to the total deferred tax asset.
The tax effect of temporary differences, net operating loss carry-forwards and
research and development tax credit carry-forwards as of September 30, 1994 and
1995 are as follows:
1995 1994
---------- -----------
Deferred tax assets:
Net operating loss carryforward $8,122,444 $6,421,863
Research & development credits 554,838 373,500
Inventory - 838,361
Intangible assets 1,274,336 863,220
Other 469,396 227,958
--------- --------
$10,421,014 $8,724,902
Valuation allowance (10,421,014) (8,724,902)
----------- ----------
$ - $ -
========== ==========
F-15
39
As of September 30, 1995, the Company has available federal net operating loss
carry forwards of approximately $24 million which will expire in various years
from 1999 to 2010, and may be subject to certain annual limitations. The
Company's research and development tax credit carry forwards noted above expire
in various years through from 1999 to 2010.
(10) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases office, operating and laboratory space under various
lease agreements.
Rent expense was approximately $750,000, $743,000, and $656,000 for the
fiscal years ended September 30, 1995, 1994, and 1993, respectively.
The following is a schedule by fiscal years of future minimum rental
payments required as of September 30, 1995, assuming expiration of the lease
for the Uniondale facility on June 30, 2006 and the Cambridge facility on
December 31, 2003.
1996 $ 587,800
1997 619,375
1998 627,163
1999 644,288
2000 and thereafter 4,319,474
----------
$6,798,100
==========
(b) Contingencies
The Company has received several letters from other companies and
universities advising the Company that various products being marketed and
research being conducted by the Company may be infringing on existing patents
of such entities. These matters are presently under review by management and
outside counsel for the Company. Where valid patents of other parties are
found by the Company to be in place, management will consider entering into
licensing arrangements with the universities and/or other companies or
discontinuing the sale or use of any infringing products. Management believes
that the ultimate outcome of these matters will not have a material adverse
effect on the financial position of the Company.
(11) RELATED PARTY TRANSACTIONS
Effective January 1, 1993, the Company compensates its independent outside
directors on a $1,000 retainer per month. This amount increased to $1,500
effective January 1, 1995. For the years ended September 30, 1995, 1994 and
1993 such fees amounted to $99,000, $66,000 and $45,000, respectively. The
Company also has compensated four directors for consulting services performed.
Two
F-16
40
directors have consulting agreements, the other two were paid on a per diem
basis. For the years ended September 30, 1995, 1994 and 1993, consulting
services in the amounts of $90,000, $85,000 and $56,000 respectively, were paid
by the Company pursuant to these arrangements.
One director is a partner in a law firm which represents the Company on
its patent and license matters. Fees paid to this firm for the year ended
September 30, 1995 are estimated to be approximately $260,000. Fees paid for
this firm for the years ended September 30, 1994 and 1993 amounted to
approximately $372,000 and $538,000, respectively.
(12) EMPLOYEE SAVINGS AND INVESTMENT PLAN
The Company sponsors an Employee Savings and Investment Plan under Section
401(k) of the Internal Revenue Code. The plan allows employees to defer from
2% to 10% of their income on a pre-tax basis through contributions into
designated investment funds. For each dollar the employee invests up to 6% of
his or her earnings, the Company will contribute an additional 50 cents into
the funds. For the years ended September 30, 1995, 1994, and 1993, the
Company's expenses related to the plan were approximately $180,000, $168,000
and $131,000, respectively.
(13) EMPLOYEE RETIREMENT PLAN
On November 10, 1992, the Company adopted a plan which provides
postretirement medical and life insurance benefits to eligible employees, board
members and qualified dependents. Eligibility is determined based on age and
service requirements. These benefits are subject to deductibles, co-payment
provisions and other limitations.
The Company utilizes SFAS No. 106, "Employer's Accounting for Post
Retirement Benefits Other Than Pensions" to account for the benefits to be
provided by the plan. Under SFAS No. 106 the cost of post retirement medical
and life insurance benefits is accrued over the active service periods of
employees to the date they attain full eligibility for such benefits. As
permitted by SFAS No. 106, the Company elected to amortize over a 20 year
period the accumulated post retirement benefit obligation related to prior
service costs.
F-17
41
Net postretirement benefit cost includes the following components:
1995 1994 1993
---- ---- ----
Service cost for benefits
earned during the period $107,175 $ 65,830 $ 70,867
Interest cost on accumulated
postretirement benefit
obligation 47,181 15,591 19,742
Amortization of unrecognized
net loss (gain) 5,855 (20,402) -
Amortization of initial
benefits attributable to
past service 17,549 17,549 19,266
-------- -------- --------
Net postretirement benefit
cost $177,760 $ 78,568 $109,875
======== ======== ========
The accrued postretirement benefit cost at September 30, 1995 and 1994
were as follows:
1995 1994
---- ----
Accumulated post retirement benefit obligation-
fully eligible active plan participants $790,437 $285,582
Unrecognized cumulative net gain (loss) (121,517) 223,127
Unrecognized transition obligation (302,717) (320,266)
--------- --------
Accrued postretirement benefit cost $366,203 $188,443
========= ========
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.5 percent and a health care cost trend rate of
approximately 12 percent decreasing to 6 percent in year 1999 and thereafter
for 1995 and 1994. Increasing the assumed health care cost trend rates by one
percentage point in each year and holding all other assumptions constant would
increase the accumulated post-retirement benefit obligation as of September 30,
1995 and 1994 by approximately $106,000 and $94,000 respectively.
F-18
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
24
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's Proxy Statement for its 1996
Annual Meeting to be filed with the Securities and Exchange Commission not
later than 120 days after September 30, 1995. (The "1996 Proxy")
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1996 Proxy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1996 Proxy.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
similarly named section of the Registrant's 1996 Proxy.
25
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements are included in Part
II, Item 8:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial statement schedules:
All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
(3) Exhibits - The list of all exhibits appears on pages 26, 27, 28,
and 29.
(b) Reports on Form 8-K
None.
26
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONCOGENE SCIENCE, INC.
By /s/ GARY E. FRASHIER
-----------------------------
Gary E. Frashier
Chief Executive Officer
Date: December 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GARY E. FRASHIER Chief Executive Officer December 13, 1995
- ----------------------------- and Director
Gary E. Frashier
/s/ STEVE M. PELTZMAN President, Chief Operating December 13, 1995
- ----------------------------- Officer and Director
Steve M. Peltzman
/s/ J. GORDON FOULKES Vice President, Chief Scientific December 13, 1995
- ----------------------------- Officer and Director
J. Gordon Foulkes, Ph.D.
/s/ ROBERT L. VAN NOSTRAND Vice President, Finance and December 13, 1995
- ----------------------------- Administration (Principal Financial
Robert L. Van Nostrand Officer)
/s/ EDWIN A. GEE Director December 13, 1995
- -----------------------------
Edwin A. Gee, Ph.D.
/s/ GARY TAKATA Director December 13, 1995
- -----------------------------
Gary Takata
/s/ G. MORGAN BROWNE Director December 13, 1995
- -----------------------------
G. Morgan Browne
/s/ WALTER MILLER Director December 13, 1995
- -----------------------------
Walter Miller
/s/ JOHN P. WHITE Director December 13, 1995
- -----------------------------
John P. White, Esq.
/s/ JOHN H. FRENCH, II Director December 13, 1995
- -----------------------------
John H. French, II
/s/ WALTER M. LOVENBERG Director December 13, 1995
- -----------------------------
Walter M. Lovenberg, Ph.D.
27
46
INDEX TO EXHIBITS
Exhibits Page No.
-------- --------
3.1* Certificate of Incorporation, as
amended
3.2* By-Laws
10.1 1985 Stock Option Plan (1)
10.2 1989 Incentive and Non-Qualified Stock
Option
Plan (3)
10.3 1993 Incentive and Non-Qualified Stock
Option Plan (filed as an exhibit to
the Company's Registration Statement
on Form S-8 (File No. 33-64713), and
incorporated herein by reference)
10.4 1993 Employee Stock Purchase Plan
(filed as an exhibit to the Company's
Registration Statement on Form S-8
(File No. 33-60182), and incorporated
herein by reference)
10.5 Employment Agreement dated as of
February 9, 1990 between the Company
and Gary E. Frashier (3)
10.6 Employment Agreement dated as of
August 27, 1991 between the Company
and Steven M. Peltzman (4)
10.7 Employment Agreement dated
December 30, 1986 between the Company
and Gordon Foulkes (3)
10.8 Consulting Agreement between the
Company and Dr. Edwin A. Gee (1)
10.9 Lease dated as of October 12, 1990
between the Company and Charles
Bergwell (3)
10.10 First Amendment Lease dated April 2,
1993 between the Company and the
Trustees of the Cambridge East Trust
(filed as an exhibit to the Company's
Annual Report on Form 10-K for the
fiscal year ended September 30, 1993,
and incorporated herein by reference)
10.11 Form of Warrant Purchase Agreement (1)
10.12 Agreement dated as of February 18,
1987 between The University of
Massachusetts and Applied
bioTechnology, Inc. (2)
28
47
10.13 Letter Agreement dated October 1, 1991
among AbT Acquisition Corp., the
Company and E.I. DuPont de Nemours and
Company (2)
10.14 Agreement dated as of September 16,
1991 between Applied bioTechnology,
Inc. and Becton Dickinson and Company
(2)
10.15 Amendment and Consent to Assignment
dated as of October 4, 1991 between
the Company and Becton Dickinson and
Company (2)
10.16 Collaborative Research Agreement dated
as of October 4, 1991 between the
Company and Becton Dickinson and
Company (2)
10.17 License Agreement between the Company
and Becton Dickinson and Company (2)
10.18 Amendment dated December 5, 1991 to
License Agreement between the Company
and Becton Dickinson and Company (4)
10.19* OSI Royalty Free License Agreement
dated April 1, 1986 between the
Company and Pfizer Inc.
10.20* Pfizer Royalty Free License Agreement
dated April 1, 1986 between the
Company and Pfizer Inc.
10.21* Royalty Agreement dated April 1, 1986
between the Company and Pfizer Inc.
10.22 License Agreement dated December 14,
1990 between the Company and Pfizer
Inc. (3)
10.23 Collaborative Research Agreement dated
April 1, 1991 between the Company and
Pfizer Inc. (3)
10.24 Collaborative Research Agreement dated
as of December 31, 1991 between the
Company and American Home Products
Corporation (5)
10.25 Common Stock Purchase Warrant granted to Marion
Merrell Dow, Inc. dated December 11, 1992 (5)
10.26 Collaborative Research and License
Agreement dated December 11, 1992
between the Company and Marion Merrell
Dow, Inc. (5)
10.27* Collaborative Agreement dated as of
April 19, 1995 between the Company and
Ciba-Geigy Limited
10.28* Letter Agreement dated as of April 19,
1995 between the Company and
Ciba-Geigy Limited
29
48
10.29* Registration Rights Agreement dated as
of April 19, 1995 between the Company
and Ciba-Geigy Limited
10.30 Asset Purchase Agreement dated
June 26, 1995 among the Company,
Calbiochem-Novabiochem International,
Inc. and Calbiochem-Novabiochem
Corporation (6)
10.31 Sublease dated August 2, 1995 between
the Company and Calbiochem-Novabiochem
Corporation (6)
10.32 New Product License Right of First
Refusal Agreement dated August 2, 1995
between the Company and
Calbiochem-Novabiochem Corporation (6)
21* Subsidiaries of the Company
23* Consent of KPMG Peat Marwick, LLP,
independent public accountants
27* Financial Data Schedule
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* Filed herewith.
(1) Filed as an exhibit to the Company's registration statement on Form S-1
(File No. 33-3148), and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's registration statement on Form
S-2, as amended (File No. 33-42369), and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991, and incorporated herein by
reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, as amended, and incorporated herein
by reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K dated
August 2, 1995, and incorporated herein by reference.
30