EXHIBIT 99.2
NUVELO, INC.
PRO FORMA FINANCIAL INFORMATION
On January 31, 2003, Hyseq, Inc. and Variagenics. Inc. completed their
previously announced merger pursuant to the Agreement and Plan of Merger, dated
as of November 9, 2002, by and among Hyseq, Vertical Merger Corp., a
wholly-owned subsidiary of Hyseq, and Variagenics. Vertical Merger Corp. was
merged with and into Variagenics, with Variagenics surviving the merger as a
wholly owned-subsidiary of Hyseq As a result of the merger, Variagenics
shareholders received 1.6451 shares of Hyseq common stock in exchange for each
Variagenics share for a total of approximately 39.8 million Hyseq shares, at an
approximate purchase price of $48.6 million net of estimated transaction costs
of $3.8 million. Promptly thereafter, Variagenics was merged upstream into Hyseq
with Hyseq as the surviving entity. In connection with the upstream merger,
Hyseq changed its name to Nuvelo, Inc.
The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition. The company is in
the process of evaluating the value of the property and equipment; thus, the
allocation for the purchase price is subject to refinement.
At January 31, 2003
----------------------
(dollars in thousands)
Assets:
Cash, cash equivalents and short term investments $ 50,867
Restricted cash 750
Other current assets 846
Property and equipment 5,365
Intangible assets 300
Capitalized merger costs 2,153
Total assets acquired 60,282
Liabilities:
Accounts payable and accrued liabilities (2,537)
Capital lease obligations (3,146)
Total liabilities assumed (5,683)
---------
Net assets acquired $ 54,599
=========
The fair value of the net assets acquired of $54.6 million exceeded the
purchase price of $52.4 million resulting in negative goodwill that has been
allocated between property and equipment, $2.1 million and intangible assets,
$0.1 million.
The pro forma condensed combining statements of operations are presented
to illustrate the effects of the merger on the historical operating results of
Hyseq and Variagenics. The unaudited pro forma condensed combining statements of
operations for the year ended December 31, 2002 and for the three months ended
March 31, 2003 give effect to the merger as if it had occurred on January 1,
2002.
The unaudited pro forma condensed combining statement of operations for
the year ended December 31, 2002, has been derived from, and should be read in
conjunction with, the historical audited consolidated statement of operations,
including the notes thereto, of each of Hyseq and Variagenics. For Hyseq, those
financial statements are included in Nuvelo's Annual Report on Form 10-K for the
year ended December 31, 2002, which is incorporated herein by reference. For
Variagenics, the statement of operations are included in Exhibit 99.1 to
Nuvelo's Current Report on Form 8-K/A to which this Exhibit 99.2 relates.
The unaudited pro forma condensed combining statement of operations for
the three months ended March 31, 2003, has been derived from, and should be read
in conjunction with, the historical consolidated statement of operations,
including the notes thereto, of Nuvelo. Those financial statements are included
in Nuvelo's Quarterly Report on Form 10-Q for the period ended March 31, 2003,
which is incorporated
herein by reference. The Quarterly Report reflects the balance sheet and
statement of operations for the combined companies as of February 1, 2003. For
Variagenics, the statement of operations are unreported elsewhere and include
the statement of operations for the month ended January 31, 2003.
The pro forma condensed combining statements of operations are presented
for informational purposes and are not necessarily indicative of the results of
operations of Nuvelo that would have occurred had the merger been consummated as
of the dates indicated. In addition, the proforma consolidated condensed
financial statements are not necessarily indicative of the future operating
results of Nuvelo. Pursuant to Rule 11-02(c)(1) of Regulation S-X, no pro forma
condensed combining balance sheet is required to be presented.
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PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2002
(In thousands, except per share data)
(unaudited)
HISTORICAL PRO FORMA
----------------------------------- -------------------------------------
HYSEQ (A) VARIAGENICS (B) ADJUSTMENTS (C) COMBINED
--------------- --------------- --------------- ----------------
Revenues:
Product sales - 450 - 450
Contract revenues 26,433 980 - 27,413
--------------- --------------- --------------- ----------------
Total revenues 26,433 1,430 - 27,863
Operating expenses:
Cost of product sales - 236 236
Research and development 50,157 21,058 (717) 70,498
General and administrative 18,144 11,806 (71) 29,879
Restructuring 2,067 3,228 5,295
--------------- --------------- --------------- ----------------
Total operating expenses 70,368 36,328 (788) 105,908
Loss from operations (43,935) (34,898) 788 (78,045)
Other income (expense):
Interest income 87 1,471 - 1,558
Interest expense (1,242) (336) - (1,578)
--------------- --------------- --------------- ----------------
Total other income (expense) (1,155) 1,135 - (20)
Loss before minority interest (45,090) (33,763) 788 (78,065)
Loss attributable to minority interest 112 - - 112
--------------- --------------- --------------- ----------------
Net loss (44,978) (33,763) 788 (77,953)
=============== =============== =============== ================
Loss per share, basic and diluted: $ (2.08) $ (1.42) $ - $ (1.28)
Shares used in calculation of loss per share: 21,661 23,798 - 60,811
(a) Reflects the historical operating results of Hyseq, now Nuvelo, for the year
ended December 31, 2002
(b) Reflects the historical operating results of Variagenics for the year ended
December 31, 2002
(c) Pro forma adjustments to record the effect of the merger for the year ended
December 31, 2002:
- reduction of Variagenics' historical depreciation expense associated
with the carrying value of the long-term assets that were reduced due to
the estimated fair value of the acquired net assets exceeding the purchase
price.
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PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2003
(In thousands, except per share data)
(Unaudited)
HISTORICAL PRO FORMA
--------------------------------- ----------------------------------
NUVELO (A) VARIAGENICS (B) ADJUSTMENTS (C) COMBINED
--------------- --------------- --------------- ----------------
Revenues:
Product sales - - - -
Contract revenues 1,283 39 - 1,322
--------------- --------------- --------------- ----------------
Total revenues 1,283 39 - 1,322
Operating expenses:
Cost of product sales - - -
Research and development 10,803 1,143 (55) 11,891
General and administrative 3,891 2,953 (2,158) 4,686
Restructuring - - - -
--------------- --------------- --------------- ----------------
Total operating expenses 14,694 4,096 (2,213) 16,577
Loss from operations (13,411) (4,057) 2,213 (15,255)
Other income (expense):
Interest income 49 106 - 255
Interest expense (361) (56) - (417)
Gain (loss) on sale of fixed assets 40 - - 40
--------------- --------------- --------------- ----------------
Total other income (expense) (172) 50 - (122)
Loss before minority interest (13,583) (4,007) 2,213 (15,377)
Loss attributable to minority interest - - -
--------------- --------------- --------------- ----------------
Net loss (13,583) (4,007) 2,213 (15,377)
=============== =============== =============== ================
Loss per share, basic and diluted: $ (0.27) $ (0.17) - $ (0.24)
Shares used in calculation of loss per share: 49,636 24,184 - 62,897
(a) Reflects the historical operating results of Nuvelo, for the three months
ended March 31, 2003, including the results of Variagenics from the date of
acquisition
(b) Reflects the historical operating results of Variagenics for the month ended
January 31, 2003 only
(c) Pro forma adjustments to record the effect of the merger for the three
months ended March 31, 2003:
- reduction of Variagenics' historical depreciation expense associated
with the carrying value of the long-term assets that were reduced due to
estimated fair value of the acquired net assets exceeding the purchase
price, and Variagenics' merger related transaction costs included in the
historical operating results of Variagenics that were recorded by Nuvelo
as part of the purchase price.
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