UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
Commission File Number 0-15609
AGOURON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0061928
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10350 North Torrey Pines Road, La Jolla, California 92037-1020
(Address of principal executive offices) (Zip Code)
(619) 622-3000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of February 3, 1999, the
registrant had approximately 31,947,000 shares of Common Stock, no par value,
outstanding.
AGOURON PHARMACEUTICALS, INC.
INDEX
PAGE NO.
--------
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheet - 3
December 31, 1998 and June 30, 1998
Consolidated Statement of Income - 4
Three and Six Months Ended
December 31, 1998 and 1997
Consolidated Statement of Cash Flows- 5
Six Months Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. Other Information
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities 14
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
Signature 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31, June 30,
1998 1998
------------ --------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 34,547 $ 19,098
Short-term investments 39,187 68,025
Accounts receivable, net 68,560 51,341
Inventories 104,419 103,706
Current deferred tax assets 594 564
Other current assets 2,552 5,247
-------------- -------------
Total current assets 249,859 247,981
Property and equipment, net of accumulated
depreciation and amortization of $30,431and $24,321 46,557 47,212
Deferred tax assets 71,680 64,644
Purchased intangibles 3,200 3,500
-------------- -------------
$ 371,296 $ 363,337
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,858 $ 44,393
Accrued liabilities 43,577 35,356
Deferred revenue and advances 17,017 23,563
Current deferred tax liabilities 2,447 1,139
Loan payable and current portion of long-term debt 7,880 15,802
-------------- -------------
Total current liabilities 95,779 120,253
-------------- -------------
Long-term liabilities:
Long-term debt, less current portion 6,375 5,892
Accrued rent 864 1,023
-------------- -------------
Total long-term liabilities 7,239 6,915
-------------- -------------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized,
31,738,847 and 31,053,380 shares issued and outstanding 366,626 348,482
Accumulated other comprehensive income (expense) (161) 384
Accumulated deficit (98,187) (112,697)
-------------- -------------
Total stockholders' equity 268,278 236,169
-------------- -------------
$ 371,296 $ 363,337
============== =============
See accompanying notes to consolidated financial statements.
3
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------------- --------------------------
December 31, December 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues:
Product sales $ 158,193 $ 91,800 $ 292,063 $ 171,302
Contracts 5,416 12,462 11,433 22,465
Royalties and license fees 7,100 400 12,150 2,752
----------- ----------- ----------- ----------
170,709 104,662 315,646 196,519
----------- ----------- ----------- ----------
Operating expenses:
Cost of product sales 74,241 37,942 131,286 72,015
Research and development 39,345 30,322 76,709 57,254
Selling, general and administrative 20,701 14,045 37,843 26,591
Royalties 28,085 15,432 53,978 28,808
----------- ----------- ----------- ----------
162,372 97,741 299,816 184,668
----------- ----------- ----------- ----------
Operating income 8,337 6,921 15,830 11,851
----------- ----------- ----------- ----------
Other income (expenses):
Interest and other income 851 1,488 1,887 2,769
Interest expense (223) (206) (646) (367)
----------- ----------- ----------- ----------
628 1,282 1,241 2,402
----------- ----------- ----------- ----------
Income before income taxes 8,965 8,203 17,071 14,253
Income tax provision 1,345 3,281 2,561 5,701
----------- ----------- ----------- ----------
Net income $ 7,620 $ 4,922 $ 14,510 $ 8,552
=========== =========== =========== ==========
Earnings per share:
Basic $ .24 $ .16 $ .46 $ .28
=========== ========== =========== ==========
Diluted $ .22 $ .15 $ .43 $ .26
=========== ========== =========== ==========
Shares used in calculation of:
Basic 31,410 30,520 31,269 30,242
Diluted 34,237 33,238 33,661 33,298
See accompanying notes to consolidated financial statements.
4
AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
--------------------------
December 31,
--------------------------
1998 1997
---------- -----------
Cash flows from operating activities:
Cash received from product sales, contracts, royalties
and license fees $ 291,881 $ 197,268
Cash paid to suppliers, employees and service providers (302,271) (173,520)
Interest received 1,859 2,819
Interest paid (646) (367)
----------- -----------
Net cash provided (used) by operating activities (9,177) 26,200
----------- -----------
Cash flows from investing activities:
Proceeds from maturities/sales of short-term investments 44,053 56,824
Purchases of short-term investments (15,760) (105,707)
Purchases of property and equipment (6,053) (9,313)
----------- ------------
Net cash provided (used) by investing activities 22,240 (58,196)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 9,825 9,417
Proceeds from credit line 30,000 12,600
Principal payments on credit line, long-term debt
and capital leases (37,439) (12,972)
----------- -----------
Net cash provided (used) by financing activities 2,386 9,045
----------- -----------
Net increase (decrease) in cash and cash equivalents 15,449 (22,951)
Cash and cash equivalents at beginning of period 19,098 52,484
----------- -----------
Cash and cash equivalents at end of period $ 34,547 $ 29,533
=========== ===========
Reconciliation of net income to net cash provided (used) by operating
activities:
Net income $ 14,510 $ 8,552
Depreciation and amortization 7,008 3,968
Provision for deferred income taxes 2,561 5,701
Net (increase) decrease in accounts receivable
and other current assets (14,524) (12,373)
Net (increase) decrease in inventories (713) (20,119)
Net increase (decrease) in accounts payable, accrued liabilities,
deferred revenue and advances, and other liabilities (18,019) 40,471
----------- -----------
Net cash provided (used) by operating activities $ (9,177) $ 26,200
=========== ===========
See accompanying notes to consolidated financial statements.
5
AGOURON PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(December 31, 1998)
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") was organized and
incorporated in California in June 1984. Agouron is an integrated pharmaceutical
company committed to the discovery, development, manufacturing and marketing of
innovative therapeutic products engineered to inactivate proteins which play key
roles in cancer, AIDS and other serious diseases. The Company, through its own
sales and marketing organization, is currently marketing in the United States
its first drug, VIRACEPT(R) (nelfinavir mesylate) for treatment of HIV
infection. The Company is also conducting pivotal phase II/III clinical trials
for AG3340 for treatment of lung and prostate cancer. In addition, Agouron has
initiated a phase II/III pivotal clinical trial of REMUNE(TM) (AG1661), an
immune-based therapeutic agent for treatment of HIV infection and AIDS being
co-developed by Agouron and The Immune Response Corporation ("IRC"). Further,
the Company has a number of programs in progress for discovery or development of
other new drugs in the fields of cancer, viral disease and other serious
diseases. The Company is also using the proprietary core drug discovery
technology of Alanex Corporation ("Alanex"), a wholly-owned subsidiary of the
Company, to accelerate the steps necessary to discover small-molecule drug
candidates, from the initial identification of compounds that exhibit activity
against selected biological targets to the progression of these compounds to
drug candidates for human clinical trials.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
FINANCIAL STATEMENTS AND ESTIMATES
The consolidated balance sheet as of December 31, 1998 and the consolidated
statements of income and cash flows for the three and six-month periods ended
December 31, 1998 and 1997 have been prepared by the Company and have not been
audited. Such financial statements, in the opinion of management, include all
adjustments necessary for their fair presentation in conformity with generally
accepted accounting principles. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's June 30, 1998 Annual Report on Form 10-K. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations. Interim results are not necessarily indicative of results for the
full year.
6
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures as of the date of the financial statements. Actual results
could differ from such estimates.
INVENTORIES
The inventories consist of the following components:
December 31, June 30,
1998 1998
------------- -------------
Raw materials and work in process $ 99,100 $ 95,517
Finished goods 5,319 8,189
------------- -------------
$ 104,419 $ 103,706
============= =============
PRODUCT SALES
The Company has the exclusive right to market its anti-HIV drug VIRACEPT in the
United States and Canada. Accordingly, the Company ships VIRACEPT to wholesalers
throughout the United States and certain provinces of Canada, and recognizes
sales revenue upon shipment. Sales are reported net of discounts, rebates,
chargebacks and product returns.
Also included in product sales for the three and six-month periods ended
December 31, 1998 are approximately $45,593,000 and $72,276,000 of sales (at
cost plus contractually determined mark-ups) to F. Hoffmann-La Roche Ltd
("Roche") of clinical and commercial drug supplies to be used by Roche in its
licensed territory. For the three and six-month periods ended December 31, 1997,
sales to Roche were approximately $7,292,000 and $11,420,000. The Company
receives a royalty on Roche's subsequent commercial sales of such drug supplies.
ROYALTIES AND LICENSE FEES
Royalty revenues are recognized based on estimated and actual sales of licensed
products in licensed territories.
For the three and six-month periods ended December 31, 1998, the Company has
accrued and/or received royalties of approximately $6,800,000 and $11,725,000
resulting from estimated and actual net sales of VIRACEPT by Roche within its
licensed territory. For the three and six-month periods ended December 31, 1997,
Roche royalties were approximately $400,000 and $752,000.
License fees are recognized as revenue when earned as generally evidenced by
certain factors including: receipt of such fees, satisfaction of any performance
obligations and the non-refundable nature of such fees. In August 1998, the
Company and JT granted Roche certain exclusive rights to VIRACEPT in Mexico. For
such rights, the Company realized as revenue a license fee of $125,000 from
Roche. In December 1998, the Company granted to Zarix
7
Limited, a biopharmaceutical development company, certain exclusive rights to
THYMITAQ, an anti-cancer drug. For such rights, the Company realized as revenue
a license fee of $300,000.
INCOME TAX PROVISION
The Company records a provision for current and deferred income taxes using the
liability method.
EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of common
shares outstanding during a period. Diluted earnings per share is based upon the
weighted average number of common shares outstanding and dilutive common stock
equivalents during a period. Common stock equivalents are options under the
Company's stock option plans which are included in the earnings per share
computation under the treasury stock method and common shares expected to be
issued under the Company's employee stock purchase plan.
Common stock equivalents of approximately 2,827,000 and 2,392,000 shares for the
three and six-month periods ended December 31, 1998 were used to calculate
diluted earnings per share. For the three and six-month periods ended December
31, 1997, common stock equivalents of approximately 2,718,000 and 3,056,000
shares were used to calculate diluted earnings per share. There are no
reconciling items in calculating the numerator for basic and diluted earnings
per share for any of the periods presented.
CERTAIN CONCENTRATIONS
A portion of the Company's research and development expenditures are related to
programs funded in part by corporate partners. The termination of such
collaborative research and development programs could result in the absence of
any prospective funding for such programs and the need to evaluate the level of
future program spending, if any.
NOTE 2 - COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income," which
establishes new rules for the reporting and display of comprehensive income and
its components. FAS 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income. The
Company presents such information in its statement of stockholders' equity on an
annual basis and in a footnote in its quarterly reports. During the three and
six-month periods ended December 31, 1998, total comprehensive income was
$7,227,000 and $13,965,000, respectively. During the three and six-month periods
ended December 31, 1997, total comprehensive income was $4,922,000 and
$8,552,000.
8
NOTE 3 - SUBSEQUENT EVENT
On January 26, 1999, the Company announced that it had signed a definitive
agreement to merge with Warner-Lambert Company, a worldwide company devoted to
discovering, developing, manufacturing, and marketing quality pharmaceuticals,
consumer healthcare, and confectionary products. Warner-Lambert employs more
than 40,000 people worldwide. The proposed merger, which is subject to approval
by Agouron's shareholders and federal regulators, will be treated as a "pooling
of interests" for accounting purposes. If approved, each share of Agouron common
stock will be converted into the right to receive that number of shares of
Warner-Lambert common stock equal to $60.00 divided by an average closing sales
price of Warner-Lambert common stock prior to the effective date of the merger,
except that such ratio will not be less than .8108 or more than .9300.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
When used in this discussion, the words "believes," "anticipates" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties (including those associated with
continued growth of VIRACEPT sales, the impact of competitive products and
regulatory approvals) which could cause actual results to differ materially from
those projected. See "Important Factors Regarding Forward-Looking Statements"
attached as Exhibit 99 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1998 and incorporated herein by reference. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
OVERVIEW
The Company is committed to the discovery, development, manufacturing and
marketing of human pharmaceuticals targeting cancer, AIDS, and other serious
diseases. Operations to date have been principally funded from the Company's
equity-derived working capital, various collaborative arrangements and, most
recently, from the gross margin contribution of VIRACEPT. The net income
reported in the three and six-month periods ended December 31, 1998 and 1997 is
principally due to the commercialization of VIRACEPT while the Company's prior
net operating losses reflect primarily the result of its independent research
and substantial investment in the clinical and commercial development of
VIRACEPT and certain anti-cancer compounds.
In March 1997, VIRACEPT was approved for marketing in the United States. In
January 1998, March 1998 and August 1998, VIRACEPT was approved for marketing in
Europe, Japan and Canada, respectively. For the three and six-month periods
ended December 31, 1998, due principally to the increasing product contribution
from VIRACEPT sales, license fees and royalties, the Company realized a net
income of $7,620,000 and $14,510,000.
RESULTS OF OPERATIONS
PRODUCT SALES
Product sales for the three and six-month periods ended December 31, 1998 were
approximately $158,193,000 and $292,063,000, which included sales in North
America of $112,600,000 and $219,787,000, respectively. The Company anticipates
that VIRACEPT sales in North America will meet or exceed $440,000,000 in fiscal
1999.
10
CONTRACT REVENUES
Collaborative research and development agreements with Japan Tobacco Inc.
("JT"), Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd (collectively "HLR")
accounted for substantially all of the Company's contract revenues for the three
and six-month periods ended December 31, 1998 and 1997. Total contract revenues
for the three and six-month periods decreased approximately 57% and 49% due
principally to termination of the HLR collaboration in fiscal 1998.
ROYALTIES AND LICENSE FEES
Royalty revenues of approximately $6,800,000 and $11,725,000 have been
recognized in the three and six-month periods ended December 31, 1998 based on
estimated and actual Roche sales of VIRACEPT in its licensed territory.
Royalties for the three and six-month periods increased from the prior year
periods due to growth in European market share and sales volume.
COST OF PRODUCT SALES
The aggregate cost of product sales as a percentage of product sales was
approximately 47% and 45% for the three and six-month periods ended December 31,
1998. The aggregate cost of product sales as a percentage of product sales was
approximately 41% and 42% for the three and six-month periods ended December 31,
1997. Gross margins on North America commercial sales were approximately 72% and
71% for the three and six-month periods ended December 31, 1998. The Company
anticipates that gross margins on North America sales will approximate 72% for
fiscal 1999.
RESEARCH AND DEVELOPMENT
Research and development spending for the current three and six-month periods
increased 30% and 34% from the prior year periods due generally to costs
associated with increasing average staff levels and staff related spending, and
increasing expenses associated with the clinical development of certain of the
Company's anti-viral and anti-cancer compounds.
In fiscal 1997, the Company acquired Alanex Corporation ("Alanex", a research
company) and recorded a write-off of $57,500,000 (or 92% of the purchase price,
including transaction costs), representing the values determined by management
to be attributable to the in-process technology purchased. Of the amount written
off, approximately 95% was attributed to and supported by a discounted cash flow
analysis of three drug discovery programs which anticipated revenues beginning
in 2003. Approximately 40% of the value was attributed to a compound with
obesity and cardiovascular indications, 30% for compounds with depression and
anxiety indications and 25% for a program to treat endometriosis and sex-hormone
dependent tumors. The Company believes that the allocations and aggregate values
attributable to these programs were reasonable and appropriate based on the
commercial potential, beginning in 2003, of these three drug discovery programs,
which remain the subject of research or development efforts at December 31,
1998.
11
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs for the current three and six-month
periods increased by 47% and 42% from the prior year periods due principally to
increasing sales and marketing activities and the support of VIRACEPT phase IV
marketing studies.
ROYALTIES
The Company's obligation to share VIRACEPT profits with JT is reflected in
royalty expense for the three and six-month periods ended December 31, 1998 and
represents approximately 25% of North America product sales. Royalty expense in
the prior year periods was approximately 20% of North America product sales.
INCOME TAX PROVISION
The income tax provision in the current quarter has been computed using an
effective, combined federal and state rate of 15%. The cash obligation of such
provision has been mostly offset by the utilization of deductions generated by
the exercise of stock options and/or the utilization of deferred tax benefits
(comprised mostly of net operating loss carryforwards and research tax credits).
YEAR 2000
The Year 2000 issue results from computer programs and systems that were created
to accept only two digit dates. Such systems may not be able to distinguish 20th
century dates from 21st century dates. This could result in miscalculations and
system failures that could inhibit a company's ability to engage in normal
business activities.
The Company has established a Year 2000 project team and is utilizing a
multi-phased approach to address this issue. The phases included in the
Company's plan are the awareness, assessment, remediation, testing,
implementation, and contingency planning phases. The Company has completed the
awareness and assessment phases and has begun to correct and replace those
systems that are not Year 2000 compliant. The Company expects to complete
internal remediation efforts by the end of fiscal year 1999, and to complete the
validation and contingency phases by the end of calendar 1999.
The Company has initiated communications with all of its significant external
business partners to determine the extent to which the Company is vulnerable to
their failures and to ascertain Year 2000 compliance and risk. The Company
intends to monitor the progress of these significant business partners and will
develop contingency plans in the event that a significant exposure is
identified. While the Company is not presently aware of any such significant
exposure, there can be no guarantee that the systems of the third-parties on
which the Company relies will be Year 2000 compliant, or, that a failure to
remediate by another company would not have a material adverse effect on the
Company.
12
The Company estimates that the total cost of its Year 2000 project will not
exceed $1,000,000, including costs already incurred. The anticipated cost of the
project and the dates on which the Company expects to complete major milestones
are based on management's best estimates using information that is currently
available. Based on its current estimates, the Company does not anticipate that
the costs associated with the Year 2000 project will have a material adverse
effect on the Company's business, financial position, or results of operation.
LIQUIDITY AND CAPITAL RESOURCES
Prior to fiscal 1998, the Company has relied principally on equity financings
and corporate collaborations to fund its operations and capital expenditures.
Beginning in fiscal 1998, the gross margin from commercial sales of VIRACEPT
contributed significantly to the Company's overall working capital requirements.
Commercial sales of VIRACEPT for the three and six-month periods ended December
31, 1998 resulted in gross margins of approximately $83,952,000 and
$160,777,000.
At December 31, 1998, the Company had net working capital of approximately
$154,080,000, an increase of $26,352,000 over June 30, 1998 levels due
principally to the Company's pre-tax profit of $17,071,000 and $9,825,000 in
proceeds from the issuance of common stock. Individual working capital
components significantly impacted by the commercialization of VIRACEPT include
trade accounts receivable (an increase of $11,639,000), inventories (an increase
of $713,000), accounts payable (a decrease of $19,535,000) and accrued
liabilities (an increase of $8,221,000, primarily due to accrued royalties
payable to JT). It is anticipated that these working capital components and cash
and short-term investments will continue to be significantly impacted by
VIRACEPT sales. At December 31, 1998, the Company had cash, cash equivalents and
short-term investments of approximately $73,734,000. The Company believes that
its current capital resources, existing contractual commitments and anticipated
VIRACEPT product sales are sufficient to maintain its current operations through
fiscal 1999. This belief is based on current research and clinical development
plans, anticipated working capital requirements associated with the expanding
commercialization of VIRACEPT, the current regulatory environment, historical
industry experience in the development of therapeutic drugs and general economic
conditions.
The Company believes that additional financing may be required to meet the
planned operating needs after fiscal 1999 if significant and increasing positive
cash flows are not generated from commercial activities. Such needs would
include the expenditure of substantial funds to continue and expand research and
development activities, conduct existing and planned preclinical studies and
human clinical trials and to support the increasing working capital requirements
of a growing commercial infrastructure including manufacturing, sales and
marketing capabilities. As a result, the Company anticipates pursuing various
financing alternatives such as collaborative arrangements and additional public
offerings or private placements of securities. If such alternatives are not
available, the Company may be required to defer or restrict certain commercial
activities, delay or eliminate expenditures for certain of its potential
products under development, cancel licenses from third parties or to license
third parties to commercialize products or technologies that the Company would
otherwise seek to develop or commercialize itself.
13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings:
The Company is involved in certain legal or administrative
proceedings generally incidental to its normal business
activities. While the outcome of any such proceedings cannot
be accurately predicted, the Company does not believe the
ultimate resolution of any such existing matters should have a
material adverse effect on its financial position or results
of operations.
On January 27, 1999, an action entitled Ruben v. Agouron
Pharmaceuticals, Inc., et. al. was filed in San Diego Superior
Court against the Company, members of its board of directors,
and Warner-Lambert Company. The complaint, which purports to
be a class action filed on behalf of the Company's
shareholders, alleges that the board breached fiduciary duties
in connection with the decision to enter into the Agreement
and Plan of Merger among the Company, WLC Acquisition
Corporation and Warner-Lambert Company, dated as of January
26, 1999. The complaint purports to seek various forms of
relief, including a preliminary and permanent injunction
against consummation of the transaction with Warner-Lambert
Company and/or money damages. The Company believes the
allegations are without merit.
ITEM 2. Changes in Securities: None
ITEM 3. Defaults Upon Senior Securities: None.
14
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Company held its Annual Meeting of Shareholders on
December 16, 1998. The following actions were taken at the
meeting:
1. Shareholders elected nine directors to serve until the
next annual meeting. Of the 31,282,508 shares of Common
Stock of the Company outstanding as of the October 19,
1998 record date for the Annual Meeting (the
"Outstanding Shares"), the number of votes cast for and
the number of votes withheld or voted against each
nominee for director were as follows:
Votes
Votes Against or
For Withheld
Peter Johnson 27,904,017 127,489
Gary E. Friedman 27,903,517 127,989
John N. Abelson 27,901,277 130,229
Patricia M. Cloherty 27,602,377 429,129
A. E. Cohen 27,602,877 428,629
Michael E. Herman 27,607,127 424,379
Irving S. Johnson 27,605,663 425,843
Antonie T. Knoppers 27,603,209 428,297
Melvin I. Simon 27,904,147 127,359
2. A proposal (the "Divisional Stock Proposal") was
approved. The proposal approved the amendment and
restatement of the Company's Articles of Incorporation
to (i) increase the number of shares of authorized
Common Stock to 150,000,000 shares, of which 75,000,000
shares would initially be designated as Agouron
Pharmaceuticals Stock and 25,000,000 shares would
initially be designated as Oncology Division
("Oncoceutics") Common Stock, (ii) provide
authorization to the Board to designate and issue any
undesignated shares in one or more additional series of
Common Stock, to determine the number of shares,
rights, preferences, privileges and restrictions of any
such series, and to increase or decrease the number of
shares of any existing series, and (iii) convert each
share of the Company's existing Common Stock into one
share of Agouron Pharmaceuticals Stock and 0.5 shares
of Oncoceutics Stock. 21,535,439 shares were voted in
favor of the proposal, 5,530,848 shares were voted
against the proposal, 138,535 shares abstained and
4,077,686 shares were not voted or were broker
non-votes.
3. A proposal to amend the Company's 1996 Stock Option
Plan to increase the number of shares available for
issuance under such plan by 1,000,000 shares was
approved. 22,165,340 shares were voted in favor of the
proposal, 4,640,301 shares were voted against the
proposal, 399,181 shares abstained and 826,684 shares
were not voted or were broker non-votes.
15
4. A proposal to amend the Company's Employee Stock
Purchase Plan to increase the number of shares
available for purchase under such plan by 200,000
shares was approved. 25,820,930 shares were voted in
favor of the proposal, 1,020,130 shares were voted
against the proposal, 363,762 shares abstained and
826,684 shares were not voted or were broker non-votes.
5. The selection of PricewaterhouseCoopers LLP as the
Company's independent accountants was ratified.
27,857,821 shares were voted in favor of the proposal,
66,419 shares were voted against the proposal, 107,266
shares abstained and 0 shares were not voted or were
broker non-votes.
ITEM 5. Other Information: None
ITEM 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
4.1(1) Amended and Restated Rights Agreement dated
as of November 10, 1998 between Agouron
Pharmaceuticals, Inc. and ChaseMellon
Shareholder Services, L.L.C.
10.1(2) Amended and Restated 1996 Stock Option Plan.
10.2(2) Amended and Restated Employee Stock Purchase
Plan.
10.3(3) Amended 1998 Employee Stock Option Plan.
10.4 Agreement and Plan of Merger dated as of
January 26, 1999 among Warner-Lambert Company,
WLC Acquisition Corporation and Agouron
Pharmaceuticals, Inc.
10.5 Stock Option Agreement dated as of January 26,
1999, by and between Agouron Pharmaceuticals,
Inc. and Warner-Lambert Company.
10.6 Form of Employment Agreement dated January 26,
1999 executed with Peter Johnson, Marvin R.
Brown, Gary E. Friedman, Barry D. Quart and
R. Kent Snyder (named executive officers in
Proxy Statement dated November 12, 1998).
27. Financial Data Schedule for the quarter ended
December 31, 1998.
b. Reports on Form 8-K: None.
- ------------------
(1) Incorporated by reference to Form 8-K filed January 19, 1999.
(2) Incorporated by reference to Form S-4 filed August 13, 1998.
(3) Incorporated by reference to Form S-8 filed January 19, 1999.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGOURON PHARMACEUTICALS, INC.
Date: February 5, 1999 /s/ Steven S. Cowell
---------------------------------------
Steven S. Cowell
Corporate Vice President, Finance
Chief Financial Officer
Chief Accounting Officer
17