UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
December 21, 2001
--------------------------------
Date of Report (Date of earliest event reported)
OSI PHARMACEUTICALS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-15190 13-3159796
--------- -------- --------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
58 SOUTH SERVICE ROAD
MELVILLE, NY 11747
---------------------------
(Address of principal executive offices)
(631) 962-2000
----------------------------
(Registrant's telephone number, including area code)
N/A
-----------------------
(Former name or former address, if changed since last report)
THE CURRENT REPORT ON FORM 8-K FILED BY OSI PHARMACEUTICALS, INC. ON JANUARY 7,
2002 IS HEREBY AMENDED TO INCLUDE THE FINANCIAL INFORMATION REQUIRED IN ITEM 7.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 2001 TO DECEMBER 21, 2001
AND YEAR ENDED DECEMBER 31, 2000
CONTENTS
Report of Independent Auditors.......................................... 3
Audited Financial Statements
Balance Sheets.......................................................... 4
Statements of Operations................................................ 5
Statement of Parent Company Equity...................................... 6
Statements of Cash Flows................................................ 7
Notes to Financial Statements........................................... 8
2
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Gilead Sciences, Inc.
We have audited the accompanying balance sheets of the Oncology-Related Assets,
Liabilities and Activities of Gilead Sciences, Inc. (as defined in Note 1) as of
December 21, 2001 and December 31, 2000, and the related statements of
operations, parent company equity, and cash flows for the period from January 1,
2001 to December 21, 2001 and for the year ended December 31, 2000. These
financial statements are the responsibility of the management of Gilead
Sciences, Inc. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Oncology-Related Assets,
Liabilities and Activities of Gilead Sciences, Inc. at December 21, 2001 and
December 31, 2000, and the results of their operations and their cash flows for
the period from January 1, 2001 to December 21, 2001 and the year ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 1, 2002
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ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
BALANCE SHEETS
DECEMBER 21, DECEMBER 31,
2001 2000
----------------------------
Assets
Current assets:
Cash and cash equivalents ............................ $ -- $ --
Prepaid expenses and other ........................... 301,000 241,000
---------- ----------
Total current assets ..................................... 301,000 241,000
Equipment and leasehold improvements, net ................ 6,895,000 7,052,000
Intercompany receivable from Gilead Sciences, Inc. ....... 1,407,000 --
Other noncurrent assets .................................. 413,000 171,000
---------- ----------
$9,016,000 $7,464,000
========== ==========
Liabilities and parent company equity
Current liabilities:
Accounts payable ..................................... $ 385,000 $1,252,000
Accrued clinical and preclinical expenses ............ 664,000 297,000
Accrued compensation and employee benefits ........... 1,407,000 673,000
Other accrued liabilities ............................ 500,000 110,000
Long-term obligations due within one year ............ 448,000 837,000
---------- ----------
Total current liabilities ................................ 3,404,000 3,169,000
Long-term obligations due after one year ................. 181,000 629,000
Commitments and contingencies
Parent company equity .................................... 5,431,000 3,666,000
---------- ----------
$9,016,000 $7,464,000
========== ==========
See accompanying notes.
-4-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
JANUARY 1,
2001 TO YEAR ENDED
DECEMBER 21, DECEMBER 31,
2001 2000
------------------------------
Expenses:
Research and development .......... $ 27,962,000 $ 17,400,000
Selling, general and administrative 7,340,000 6,480,000
------------ ------------
Total expenses ........................ 35,302,000 23,880,000
------------ ------------
Loss from operations .................. (35,302,000) (23,880,000)
Interest expense ...................... 101,000 196,000
------------ ------------
Net loss .............................. $(35,403,000) $(24,076,000)
============ ============
See accompanying notes.
-5-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
STATEMENT OF PARENT COMPANY EQUITY
Balance at December 31, 1999 .................................. $ 3,595,000
Cash investment by Gilead Sciences, Inc. to fund operations 24,147,000
Net loss .................................................. (24,076,000)
------------
Balance at December 31, 2000 .................................. 3,666,000
Cash investment by Gilead Sciences, Inc. to fund operations 37,168,000
Net loss .................................................. (35,403,000)
------------
Balance at December 21, 2001 .................................. $ 5,431,000
============
See accompanying notes.
-6-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
JANUARY 1,
2001 TO YEAR ENDED
DECEMBER 21, DECEMBER 31,
2001 2000
--------------------------------
Operating activities
Net loss .................................................................. $(35,403,000) $(24,076,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ......................................... 2,299,000 2,372,000
Changes in operating assets and liabilities:
Prepaid expenses and other .......................................... (60,000) 215,000
Intercompany receivable from Gilead Sciences, Inc. .................. (1,407,000) --
Other noncurrent assets ............................................. (242,000) (168,000)
Accounts payable .................................................... (867,000) 843,000
Accrued clinical and preclinical expenses ........................... 367,000 209,000
Accrued compensation and employee benefits .......................... 734,000 (256,000)
Other accrued liabilities ........................................... 390,000 (5,000)
------------ ------------
Net cash used in operating activities ..................................... (34,189,000) (20,866,000)
Investing activities
Capital expenditures ...................................................... (2,142,000) (2,185,000)
------------ ------------
Net cash used in investing activities ..................................... (2,142,000) (2,185,000)
Financing activities
Proceeds from cash investments by Gilead Sciences, Inc. ................... 37,168,000 24,147,000
Repayments of long-term debt .............................................. (837,000) (1,096,000)
------------ ------------
Net cash provided by financing activities ................................. 36,331,000 23,051,000
------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... -- --
Cash and cash equivalents at beginning of period .......................... -- --
------------ ------------
Cash and cash equivalents at end of period ................................ $ -- $ --
============ ============
Supplemental disclosure of cash flow information
Interest paid ............................................................. $ 101,000 $ 140,000
============ ============
See accompanying notes.
-7-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 21, 2001
1. Organization and Summary of Significant Accounting Policies
BASIS OF PRESENTATION
Gilead Sciences, Inc. (Gilead) was incorporated in Delaware on June 22,
1987, and is an independent biopharmaceutical company. Gilead's oncology-related
activities seek to provide accelerated solutions for patients and the people who
care for them by discovering and developing proprietary therapeutics for cancer.
On December 21, 2001, OSI Pharmaceuticals, Inc. (OSI) acquired the
oncology-related assets, liabilities and activities (Oncology-Related Assets,
Liabilities and Activities) from Gilead, pursuant to the terms of an Asset
Purchase Agreement, dated as of November 26, 2001 (Asset Purchase Agreement).
The assets purchased by OSI include: (a) a pipeline of three clinical oncology
candidates, (b) certain related intellectual property, and (c) rights to
Gilead's leased facilities located in Boulder, Colorado, as well as leasehold
improvements and certain fixed assets.
The three clinical oncology candidates purchased by OSI are as follows:
PROJECT PROJECT DESCRIPTION DEVELOPMENT STATUS
- --------------------------------------------------------------------------------
NX 211 A liposomal formulation of lurtotecan Phase II clinical trials
GS 7904L A liposomal formulation of a Phase I clinical trials
thymidylate synthase inhibitor
GS 7836 A nucleoside analog of Gemzar(R) Phase I clinical trials
Pursuant to the Asset Purchase Agreement, OSI also assumed all of
Gilead's oncology-related clinical and preclinical obligations, as well as
various lease and other contractual obligations related to the oncology-related
employees and facilities. OSI did not assume the accrued compensation
obligations, and such obligations at December 21, 2001 will be paid by Gilead.
-8-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
BASIS OF PRESENTATION (CONTINUED)
In connection with the acquisition, OSI retained approximately 120
Gilead employees representing expertise in clinical operations, regulatory
affairs, toxicology and in vivo pharmacology. In consideration for the assets,
OSI paid approximately $134.9 million in cash, which includes professional fees
and the assumptions of certain liabilities, and issued 924,984 shares of common
stock, valued at $38.8 million. The value of the 924,984 common shares issued
was determined based on the closing price of OSI's stock on the date of closing.
OSI would also be obligated to pay contingent consideration to Gilead of up to
an additional $30.0 million in either cash or a combination of cash and common
stock, at its option, upon the achievement of certain milestones related to the
development of NX 211 by OSI, the most advanced of Gilead's oncology product
candidates acquired by OSI.
The accompanying financial statements have been derived from Gilead's
historical financial statements as the Oncology-related Assets, Liabilities and
Activities are not a separate enterprise. The financial statements reflect the
financial position, results of operations, and cash flows of Gilead's
Oncology-Related Assets, Liabilities and Activities at Gilead's facilities in
Boulder, Colorado and the United Kingdom for all periods presented generally
allocated on a specific identification basis, as well as certain research and
development costs directly related to the described oncology activities
($5,611,000 in the period from January 1, 2001 to December 31, 2001 and
$2,673,000 in the year ended December 31, 2000) incurred at other Gilead
locations. The financial statements also include allocations from Gilead of
certain corporate expenses which benefited the Oncology-Related Assets,
Liabilities and Activities totaling $1,955,000 for the period from January 1,
2001 to December 21, 2001 and $1,586,000 for the year ended December 31, 2000.
This allocation includes the cost of various administrative services that Gilead
provided including corporate general and administrative functions, such as
executive management, finance and tax, human resources, business development,
legal and investor relations. These costs were allocated to the Oncology-Related
Activities based upon headcount. In the opinion of Gilead management, this
method of allocation is reasonable.
The financial information included herein reflects the financial
position, results of operations, and cash flows of the Oncology-Related Assets,
Liabilities and Activities as a component of Gilead and may not be indicative of
the actual financial position, results of operations, and cash flows had the
business been a separate, stand-alone entity for the periods presented. The
financial information may not be indicative of the actual financial position,
results of operations, and cash flows of the Oncology-Related Assets,
Liabilities and Activities under ownership by OSI.
-9-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
CASH MANAGEMENT
During the period ended December 21, 2001 and the year ended December
31, 2000 Gilead provided cash management services to its Oncology-Related
Activities through a centralized treasury system with the associated
transactions recorded via intercompany accounts. The accompanying financial
statements do not reflect cash balances or interest charged by Gilead. Cash
investments from Gilead have been classified in parent company equity in the
accompanying balance sheets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RESEARCH AND DEVELOPMENT EXPENSES
Major components of research and development (R&D) expenses consist of
personnel costs including salaries and benefits, preclinical toxicology and
pharmacokinetics contracted expenses, clinical study expenses, pharmaceutical
development and drug costs, materials and supplies and overhead allocations
consisting of facilities related costs. Gilead's Oncology-Related R&D Activities
include research, pharmaceutical development and clinical expenses related to
oncology research, preclinical research and clinical development of drug
candidates through Phase I and Phase II clinical trials. Clinical trial costs
are a significant component of R&D costs. Study costs for Phase I and Phase II
clinical trials are accrued based upon patient enrollment. All R&D costs are
charged to expense as incurred.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income. To date, the Oncology-Related Assets, Liabilities and
Activities has not had any significant transactions that are required to be
reported in comprehensive loss other than the Oncology-Related Assets,
Liabilities and Activities net loss.
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ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, 'Accounting For Stock-Based Compensation,' the Company
has elected to follow Accounting Principles Board Opinion (APB) No. 25,
Accounting For Stock Issued To Employees, and related interpretations in
accounting for its employee stock option plans. Under APB 25, if the exercise
price of the Company's employee and director stock options equals or exceeds the
fair value of the underlying stock on the date of grant, no compensation expense
is recognized.
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 (FIN 44), 'Accounting for Certain Transactions Involving
Stock Compensation -- an Interpretation of APB Opinion No. 25.' FIN 44 clarifies
the application of APB 25 with respect to stock-related compensation. The
adoption of FIN 44 on July 1, 2000, did not have a material effect on the
financial position or results of operations of Gilead's Oncology-Related Assets,
Liabilities and Activities.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
recognized using the straight-line method. Estimated useful lives for laboratory
equipment range from four to ten years and estimated useful lives for office
furniture and equipment range from two to six years. Office and computer
equipment includes purchased computer software. There is no internally developed
computer software. Leasehold improvements and capitalized leased equipment are
amortized over the shorter of the lease term or the assets useful life.
OTHER NONCURRENT ASSETS
Other noncurrent assets consist primarily of home purchase loans of
$373,000 and $151,000 as of December 21, 2001 and December 31, 2000,
respectively, due from certain Oncology-Related Assets, Liabilities and
Activities' employees as part of their relocation packages (see Note 9).
-11-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed on a regular basis
for the existence of facts or circumstances both internally and externally that
may suggest impairment. Specific potential indicators of impairment include:
- a significant decrease in the fair value of an asset;
- a significant change in the extent or manner in which an asset
is used or a significant physical change in an asset;
- a significant adverse change in legal factors or in the
business climate that affects the value of an asset;
- an adverse action or assessment by the U.S. Food and Drug
Administration or another regulator;
- an accumulation of costs significantly in excess of the amount
originally expected to acquire or construct an asset; and
- operating or cash flow losses combined with a history of
operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with an
income-producing asset.
Should there be an indication of impairment, Gilead's Oncology-Related
Assets, Liabilities and Activities will confirm this by comparing the estimated
future undiscounted cash flows expected to result from the use of the asset and
its eventual disposition to the carrying amount of the asset. In estimating
these future undiscounted cash flows, assets are grouped at the lowest level for
which there are identifiable cash flows that are largely independent of the cash
flows generated by other asset groups. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss, measured as the excess of the carrying value of the asset over
its fair value, will be recognized. The cash flow estimates used in such
calculations are based on management's best estimates, using appropriate and
customary assumptions and projections at the time.
-12-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
INCOME TAXES
The Oncology-Related Assets, Liabilities and Activities are within the
legal entity of Gilead Sciences, Inc. and are included in Gilead's consolidated
U.S. federal and state income tax returns.
The accompanying financial statements have been prepared assuming the
Oncology-Related Assets, Liabilities and Activities filed separate income tax
returns under the liability method, whereby deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
SEGMENT INFORMATION
Gilead's Oncology-Related Assets, Liabilities and Activities operate in
one business segment which is the research and development of oncology drugs.
All significant assets are located in the United States.
-13-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Organization and Summary of Significant Accounting Policies (continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, 'Business Combinations' (SFAS 141), and No. 142, 'Goodwill
and Other Intangible Assets' (SFAS 142). SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001. SFAS
141 further clarifies the criteria to recognize intangible assets separately
from goodwill. The requirements of SFAS 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. The
adoption of SFAS 141 on July 1, 2001 did not have an impact on the
Oncology-Related Assets, Liabilities and Activities financial position or
results of operations and the adoption of SFAS 142 is not expected to have an
impact on Gilead Sciences, Inc.'s Oncology-Related Assets, Liabilities and
Activities financial position or results of operations.
In August 2001, the FASB issued SFAS 144, 'Accounting for the
Impairment or Disposal of Long-Lived Assets.' SFAS 144 supercedes SFAS 121,
'Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. SFAS 144 establishes a single accounting model for assets
to be disposed of by sale whether previously held and used or newly acquired.
SFAS 144 retains the provisions of APB No. 30 for presentation of discontinued
operations in the income statement, but broadens the presentation to include a
component of an entity. SFAS 144 is effective for fiscal years beginning after
December 15, 2001 and the interim periods within. The adoption of SFAS 144 is
not expected to have an impact on the Oncology-Related Assets, Liabilities and
Activities financial position or results of operations.
-14-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Collaborative Arrangements and Contracts
As part of the Asset Purchase Agreement, Gilead and OSI have entered
into Manufacturing and Transition Services agreements effective December 21,
2001. Under the Manufacturing Agreement, Gilead is required to produce clinical
and commercial supplies of NX 211 and GS 7904L product candidates at Gilead's
manufacturing facility in San Dimas, California. The clinical product supplies
are to be produced for OSI at amounts to be agreed upon by Gilead and OSI. The
commercial product supplies are to be sold to OSI at a price equal to a
multiplier of Gilead's costs. Under the Transition Services Agreement, which is
effective through June 21, 2002, Gilead is required to provide OSI with certain
transition services at a price approximating Gilead's costs. Gilead also is
required to supply additional consultation, assistance, and information
reasonably requested by OSI that does not impose a material additional burden or
a substantial additional cost on Gilead.
The following collaborative arrangements, contractual rights, and
obligations were transferred to OSI pursuant to the Asset Purchase Agreement.
GLAXOSMITHKLINE
In December 2000, Gilead entered into an agreement with Glaxo Wellcome,
now GlaxoSmithKline (Glaxo), which gave Gilead the rights to GS 7904L, a novel
anti-tumor compound. Gilead is developing GS 7904L in a liposome. Under this
agreement, Gilead has exclusive worldwide rights to develop and commercialize GS
7904L for all indications other than malaria. In December 2000, Gilead paid
Glaxo an upfront fee of $2,000,000 and in December 2001 recorded a liability to
Glaxo for $500,000 for a milestone related to dosing the first patient in a
Phase I clinical trial with GS 7904L. These fees and milestones were included in
the Gilead Oncology-Related Assets, Liabilities and Activities' research and
development expenses for the year ended December 31, 2000 and the period from
January 1, 2000 to December 21, 2001, respectively. OSI may be required to make
additional payments to Glaxo if certain developmental goals related to
regulatory approval are achieved and may also be required to pay Glaxo a
percentage of the product's net sales if the product is successfully
commercialized. The agreement expires ten years after the first commercial sale
of the product or the date the last related patent expires.
-15-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Collaborative Arrangements and Contracts (continued)
GLAXOSMITHKLINE (CONTINUED)
In May 1998, Gilead entered into a three-part collaboration with Glaxo
in which Gilead received the exclusive rights (subject to Glaxo's right to elect
to participate in such activities) to develop and commercialize NX 211, a
liposomal formulation of Glaxo's proprietary topoisomerase I inhibitor
(lurtotecan). In December 2000, the collaboration and license agreement was
modified. Under the revised terms of agreement, Glaxo waived its right to
participate in the development and commercialization of NX 211 and its right to
receive royalties, and gave Gilead exclusive rights to the compound. In
exchange, Gilead agreed to increase milestone payments to Glaxo that OSI would
be required to pay in the future upon achieving certain regulatory approvals.
SOUTHERN RESEARCH INSTITUTE
In December 2000, Gilead entered into an agreement with Southern
Research Institute giving Gilead worldwide rights to develop and commercialize
GS 7836, an anti-tumor compound. Under the terms of the agreement, Gilead paid
Southern Research Institute a total option and license fee of $500,000 in 2000
and a $100,000 milestone for a toxicology study milestone in 2001. These fee and
milestone payments were included in the Oncology-Related Assets, Liabilities and
Activities' research and development expenses in the year ended December 31,
2000 and the period from January 1, 2001 to December 21, 2001, respectively. OSI
would be required to make additional payments to Southern Research Institute if
certain development and regulatory goals are achieved and would also be required
to pay Southern Research Institute royalties on net sales of GS 7836 if the
product is successfully commercialized.
-16-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
DECEMBER 21, DECEMBER 31,
2001 2000
-------------------------------
Leasehold improvements ....................... $ 8,295,000 $ 7,371,000
Laboratory equipment ......................... 6,970,000 7,340,000
Office and computer equipment ................ 2,909,000 2,589,000
Capitalized leased equipment ................. 1,775,000 1,819,000
------------ ------------
19,949,000 19,119,000
Less accumulated depreciation and amortization (13,054,000) (12,067,000)
------------ ------------
$ 6,895,000 $ 7,052,000
============ ============
4. Long-Term Obligations
Long-term obligations which were transferred to OSI pursuant to the
Asset Purchase Agreement consist of the following:
DECEMBER 21, DECEMBER 31,
2001 2000
----------------------------
Capital lease obligations: monthly installments; interest rates ranging from
7.00% to 12.56% ........................................................ $ 90,000 $ 613,000
Fixed rate debt: monthly installments through 2003; secured by equipment;
interest rates ranging from 6.89% to 12.38% ............................ 539,000 853,000
--------- -----------
Total obligations .......................................................... 629,000 1,466,000
Less current portion ....................................................... (448,000) (837,000)
--------- -----------
Long-term obligations due after one year ................................... $ 181,000 $ 629,000
========= ===========
-17-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Long-Term Obligations (continued)
Maturities of long-term obligations, including capital lease
obligations, are as follows:
Year ending December 31,
2002................................................................. $493,000
2003................................................................. 186,000
--------
679,000
Less amount representing interest.................................... (50,000)
---------
Total................................................................ $629,000
========
The terms of the various debt agreements require Gilead (and OSI
subsequent to December 21, 2001) to comply with certain operating covenants. At
December 21, 2001, Gilead was in compliance with all such covenants.
5. Commitments and Contingencies
LEASE ARRANGEMENTS
Gilead has entered into various long-term noncancelable operating
leases for facilities in Boulder, Colorado that expire in 2005 and 2006. Each
lease contains either one or two 5-year renewal options. These leases were
assigned to OSI pursuant to the Asset Purchase Agreement.
Rent expense under the operating leases totaled approximately
$1,157,000 in the period from January 1, 2001 to December 21, 2001 and
$1,007,000 in the year ended December 31, 2000.
Gilead has entered into capital leases to finance equipment purchases.
Title to assets acquired under lease lines of credit resides with the lessor.
These leases were assigned to OSI pursuant to the Asset Purchase Agreement. OSI
will have the option to purchase the assets at the end of the lease terms at
fair market value. The leases have remaining terms of one year. At December 21,
2001, no additional amounts were available under these agreements.
-18-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Commitments and Contingencies (continued)
LEASE ARRANGEMENTS (CONTINUED)
Aggregate noncancelable future minimum rental payments under operating
and capital leases are as follows:
OPERATING CAPITAL
LEASES LEASES
------------------------
Year ending December 31,
2002.......................................................... $1,160,000 $ 92,000
2003.......................................................... 1,185,000 --
2004.......................................................... 1,208,000 --
2005.......................................................... 1,063,000 --
2006.......................................................... 681,000 --
Thereafter.................................................... -- --
---------- --------
$5,297,000 92,000
==========
Less amount representing interest............................. (2,000)
--------
Total capital lease obligations............................... 90,000
Less current portion.......................................... (90,000)
--------
Capital lease obligations due after one year.................. $ --
========
-19-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Commitments and Contingencies (continued)
CONTINGENT LIABILITY
In connection with the August 1998 sale of a majority interest in its
Proligo subsidiary, Gilead transferred certain property and equipment with a net
book value of $4.5 million to Proligo. The majority of such property and
equipment is financed or leased by Gilead in accordance with the capital leases
described above. Concurrent with this transfer of property and equipment, Gilead
transferred the underlying debt to Proligo pursuant to various Sublease, Consent
and Assignment Agreements (collectively, the Sublease Agreements). As a result,
Gilead is required to pay the debt financing and lease liabilities to the
financial institutions and lessors directly for Proligo's share of the
liabilities. Proligo is required to reimburse Gilead for these amounts and is
bound by the same terms and conditions as those in Gilead's agreements with the
financial institutions and lessors. If Proligo were to default on its
obligations under the Sublease Agreements, Gilead would continue to be liable
for amounts outstanding as of the date of the default. However, in this event,
Proligo's parent company would be obligated to reimburse Gilead for 100% of such
amounts paid. At December 21, 2001, Proligo was current with respect to its
reimbursements to Gilead and the balance of Proligo's future lease and debt
obligations under the Sublease Agreements was $444,000. The Sublease Agreements,
including Gilead's obligations in the event of default by Proligo, were
transferred to OSI pursuant to the Asset Purchase Agreement.
6. Parent Company Equity
EMPLOYEE STOCK PURCHASE PLAN
Under Gilead's Employee Stock Purchase Plan (ESPP), the
Oncology-Related Assets, Liabilities and Activities' employees could purchase
shares of Gilead common stock based on a percentage of their compensation
through December 21, 2001. Under the Asset Purchase Agreement, the
Oncology-Related Assets, Liabilities and Activities' employees were eligible to
participate in the ESPP through December 31, 2001. Subsequent to December 31,
2001, the Oncology-Related Assets, Liabilities and Activities' employees are not
eligible to participate in the ESPP. The purchase price per share must equal at
least the lower of 85 percent of the market value on the date offered or the
date purchased. For the period from January 1, 2001 to December 21, 2001 and the
year ended December 31, 2000, 22,168 and 13,928 shares, respectively, were
issued under the ESPP to the Oncology-Related Assets, Liabilities and Activities
employees.
-20-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Parent Company Equity (continued)
STOCK OPTION PLANS
During the period from January 1, 2001 to December 21, 2001 and the
year ended December 31, 2000, Gilead stock options were issued to employees of
Gilead's Oncology-Related Assets, Liabilities and Activities from various stock
plans adopted by Gilead. These plans authorize incentive stock options to be
granted to employees at an exercise price at least equal to the fair value of
Gilead's common stock on the date of grant as determined by the Board of
Directors. The options vest over five years pursuant to a formula determined by
the Board and expire after ten years. The following table summarizes activity
under the stock option plans issued to employees of Gilead's Oncology-Related
Assets, Liabilities and Activities for the period from January 1, 2001 to
December 21, 2001 and for the year ended December 31, 2000:
PERIOD FROM
JANUARY 1, 2001 TO YEAR ENDED
DECEMBER 21, 2001 DECEMBER 31, 2000
----------------------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
----------------------------------------------------------
Outstanding, beginning of period ..... 839,072 $29.95 518,710 $25.49
Granted .......................... 367,390 35.55 378,500 34.09
Exercised ........................ (142,876) 23.96 (58,138) 17.10
---------- ------ -------- ------
Outstanding, end of period ........... 1,063,586 $32.69 839,072 $29.95
========== ====== ======== ======
Exercisable, end of period ........... 247,947 $27.55 173,643 $22.79
Weighted-average fair value of options
granted .......................... 367,390 $24.12 378,500 $22.11
All option grants had exercise prices not less than the fair value of
the underlying stock on the grant date.
-21-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Parent Company Equity (continued)
STOCK OPTION PLANS (CONTINUED)
As part of the Asset Purchase Agreement, Gilead accelerated the
vesting of 73,182 options resulting in a charge to Gilead of $2,500,000. This
expense is not included in the accompanying statements of operations of the
Oncology-Related Assets, Liabilities and Activities. Subsequent to December 21,
2001, the Oncology-Related Assets, Liabilities and Activities' employees are not
eligible to participate in these plans, and have 100 days to exercise their
outstanding vested options, at which time all unexercised options will be
canceled.
The following is a summary of Gilead options outstanding and options
exercisable at December 21, 2001 for Gilead's Oncology-Related Assets,
Liabilities and Activities employees:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE WEIGHTED-
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS AVERAGE
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------- -------- ----------- --------------
$0.91 - $22.12 114,358 6.11 $15.29 88,193 $15.88
$28.31 - $34.88 666,508 8.29 $30.93 119,259 $32.01
$36.50 - $47.03 212,270 8.73 $39.82 40,495 $39.86
$50.54 - $68.65 70,450 9.54 $56.07 - -
--------- ---- ------ ------- ------
Total 1,063,586 8.23 $32.69 247,947 $27.55
========= ==== ====== ======= ======
-22-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Parent Company Equity (continued)
PRO FORMA DISCLOSURES
The table below presents the pro forma net loss as if compensation cost
for the Gilead stock option plans and the ESPP had been determined based on the
estimated fair value of awards under those plans on the grant or purchase date
for the Oncology-Related Assets, Liabilities and Activities employees.
PERIOD FROM
JANUARY 1,
2001 TO YEAR ENDED
DECEMBER 21, DECEMBER 31,
2001 2000
------------ ------------
Net loss as reported ............... $(35,403,000) $(24,076,000)
Pro forma adjustment ............... (6,547,000) (3,889,000)
------------ ------------
Pro forma net loss ................. $(41,950,000) $(27,965,000)
============ ============
-23-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Parent Company Equity (continued)
PRO FORMA DISCLOSURES (CONTINUED)
Fair values of awards granted under the stock option plans and ESPP
were estimated at grant or purchase dates using a Black-Scholes option pricing
model. The Oncology-Related Assets, Liabilities and Activities used the multiple
option approach and the following assumptions:
PERIOD FROM
JANUARY 1,
2001 TO YEAR ENDED
DECEMBER 21, DECEMBER 31,
2001 2000
------------- ------------
Expected life in years (from vesting date):
Stock options .................................... 4.89 4.80
ESPP ............................................. 1.57 0.71
Discount rate:
Stock options .................................... 4.76% 6.33%
ESPP ............................................. 6.03% 6.12%
Volatility:
Stock options .................................... 85% 76%
ESPP ............................................. 71% 68%
Expected dividend yield .............................. 0% 0%
The weighted average estimated fair value of ESPP shares purchased was
$27.26 for 2001, and $21.87 for 2000.
-24-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Income Taxes
The Oncology-Related Assets, Liabilities and Activities are within the
legal entity of Gilead Sciences, Inc. and are included in Gilead's consolidated
U.S. federal and state income tax returns. The accompanying financial statements
have been prepared assuming the Oncology-Related Assets, Liabilities and
Activities had filed separate tax returns as a stand-alone company for the
periods presented. Because of the Oncology-Related Assets, Liabilities and
Activities' net losses and lack of earnings history, no current provision or
benefit has been recorded because deferred tax assets related to the net
operating losses of approximately $59,000,000 incurred during the period from
January 1, 2000 through December 21, 2001 have been fully offset by a valuation
allowance.
Gilead retains the right to these net operating loss carryforwards and
they will not transfer to OSI as part of the Asset Purchase Agreement. The
federal net operating loss carryforwards would have expired in 2020 and 2021, if
not utilized. However, on a stand-alone basis, utilization of net operating
losses would have been subject to an annual limitation due to ownership change
limitations provided in the Internal Revenue Code and similar state provisions.
This annual limitation may have resulted in the expiration of the net operating
losses before utilization.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred tax assets and liabilities as of December 21, 2001
and December 31, 2000 are as follows:
DECEMBER 21, DECEMBER 31,
2001 2000
------------ ------------
Net operating loss carryforwards ........... $ 23,000,000 $ 9,600,000
------------ ------------
Total deferred tax assets .................. 23,000,000 9,600,000
Valuation allowance ........................ (23,000,000) (9,600,000)
------------ ------------
Net deferred tax assets recognized ......... $ -- $ --
============ ============
-25-
ONCOLOGY-RELATED ASSETS, LIABILITIES AND ACTIVITIES
OF GILEAD SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Retirement Savings Plan
Gilead maintains a retirement savings plan (the Plan) under which
eligible employees could defer compensation for income tax purposes under
Section 401(k) of the Internal Revenue Code of 1986. In addition, the Plan
includes a company match of 50% of employee contributions up to a maximum of 6%
eligible annual compensation up to an annual maximum company match of $2,500.
Under the Plan, employees can contribute up to 15% of their eligible annual
compensation. For the period from January 1, 2001 to December 21, 2001 and the
year ended December 31, 2000, Gilead contributed $159,000 and $106,000,
respectively, in matching contributions for the Gilead Oncology-Related Assets,
Liabilities and Activities employees. Under the Asset Purchase Agreement, the
Oncology-Related Assets, Liabilities and Activities' employees were eligible to
participate in the Plan through December 31, 2001. Subsequent to December 31,
2001, these employees have several options regarding their 401(k) balances
including: rolling their funds out of the Plan, cashing out of the Plan or
maintaining their funds in the Plan if a certain minimum balance requirement is
met.
9. Related Party Transactions
Home purchase loan agreements (Home Loans) and bridge loans (Bridge
Loans) were provided for certain Oncology-Related Assets, Liabilities and
Activities' employees as part of their relocation packages. During the period
from January 1, 2001 to December 21, 2001, one Vice President was issued a Home
Loan in the amount of $100,000 and certain other employees were issued Home
Loans totaling $120,000. During the year ended December 31, 2000, one Vice
President was issued a Home Loan in the amount of $100,000 and another employee
was issued a Home Loan totaling $52,500. Under the Home Loans, 50% of the
original principal is forgiven over years six to ten of the loan provided that
the employees are continuously employed during the ten-year period. If the
employee is terminated, the Home Loan is due 90 days from termination. The loans
are non-interest bearing unless the employee terminates.
Additionally, Gilead Oncology-Related Assets, Liabilities and
Activities' employees were issued Bridge Loans during 2001 and 2000. As of
December 21, 2001, only one Bridge Loan to an employee remained outstanding in
the amount of $250,000 and is included in prepaid and other assets. Bridge loans
are due at the earlier of the date of sale of the prior residence or one year
from the date of the Bridge Loan. The one-year anniversary date of this Bridge
Loan is August 2002.
All Home Loans and Bridge Loans outstanding at December 21, 2001 were
transferred to OSI pursuant to the Asset Purchase Agreement.
-26-
(B) PRO FORMA FINANCIAL INFORMATION.
On December 21, 2001, OSI acquired certain assets from Gilead
Sciences, Inc. ("Gilead") for which OSI paid to Gilead $130
million in cash and 924,984 shares of OSI common stock valued at
$40 million upon the closing of the acquisition. OSI would also be
obligated to pay to Gilead up to an additional $30 million in
either cash or a combination of cash and common stock, at its
option, upon the achievement of certain milestones related to the
development of OSI-211 (formerly NX211).
The unaudited pro forma condensed combined financial information
was determined using the purchase method of accounting. The
unaudited pro forma condensed combined statements of operations
give effect to the acquisition as if it had occurred at the
beginning of the periods presented. The acquisition has been
included in OSI's most recent balance sheet filed on the Form 10-Q
for the three months ended December 31, 2001, and, therefore, a
pro forma balance sheet has not been presented, herein.
The unaudited pro forma condensed combined statement of operations
for the twelve months ended September 30, 2001 combines the
audited historical consolidated statement of operations of OSI for
the year ended September 30, 2001 and the unaudited historical
statement of operations of Gilead's oncology assets for the
twelve-month period ended September 30, 2001. The unaudited pro
forma condensed combined statement of operations for the three
months ended December 31, 2001 combines the unaudited historical
consolidated statement of operations of OSI for the three months
ended December 31, 2001 and the unaudited historical statement of
operations of Gilead's oncology assets for the period from October
1, 2001 through December 21, 2001. The pro forma information for
the periods presented reflect certain adjustments from the
previously filed Form 8-K as a result of certain adjustments that
arose from the audits of the Gilead oncology assets financial
statements, as of December 31, 2000 and December 21, 2001 and for
the twelve months ended December 31, 2000 and the period from
January 1, 2001 to December 21, 2001.
The unaudited pro forma condensed combined financial information
is provided for informational purposes only and does not purport
to represent what the actual results would have been had the
acquisition occurred on the assumed date, nor is it necessarily
indicative of future results. The unaudited pro forma condensed
combined financial information does not include the realization of
cost savings from operating efficiencies, synergies or other
restructuring resulting from the acquisition.
-27-
OSI PHARMACEUTICALS, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INFORMATION
THREE MONTHS ENDED DECEMBER 31, 2001
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2001
----------------------------------------------------------------------
GILEAD PRO FORMA
ONCOLOGY PRO FORMA COMBINED
OSI ASSETS ADJUSTMENTS RESULTS (a)
------------- ------------- ------------- -------------
Revenues ................................................ $ 5,892,189 $ -- $ -- $ 5,892,189
------------- ------------- ------------- -------------
Expenses:
Research and development ........................... 17,253,998 6,848,481 143,551(b) 24,246,030
Acquired in-process research and development ....... 130,200,000 -- (130,200,000)(a) --
Production and service costs ....................... 49,803 -- -- 49,803
Selling, general and administrative ................ 5,805,826 1,713,011 38,159 (b) 7,556,996
Amortization of intangibles ........................ 309,381 -- -- 309,381
------------- ------------- ------------- -------------
153,619,008 8,561,492 (130,018,290) 32,162,210
------------- ------------- ------------- -------------
Loss from operations .................................... $(147,726,819) $ (8,561,492) $ 130,018,290 $ (26,270,021)
Interest and other income (expense) ..................... 5,344,753 (18,497) (1,881,210)(c) 3,445,046
------------- ------------- ------------- -------------
Loss before cumulative effect of change in accounting
policy ............................................... $(142,382,066) $ (8,579,989) $ 128,137,080 $ (22,824,975)
============= ============= ============= =============
Basic and diluted loss per share before cumulative
effect of change in accounting policy ................ $ (3.95) N/A N/A $ (0.62)
============= ============= ============= =============
Basic and diluted weighted average number of shares of
common stock outstanding ............................. 36,079,172 -- 924,984(d) 36,893,560
============= ============= ============= =============
See accompanying notes to the unaudited pro forma
condensed combined financial information.
-28-
OSI PHARMACEUTICALS, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INFORMATION
TWELVE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
TWELVE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------------------------------------
GILEAD PRO FORMA
ONCOLOGY PRO FORMA COMBINED
OSI ASSETS ADJUSTMENTS RESULTS (a)
------------- ------------- ------------- -------------
Revenues .................................................... $ 26,021,916 $ -- $ -- $ 26,021,916
------------- ------------- ------------- -------------
Expenses:
Research and development ............................... 56,038,070 28,088,778 574,202(b) 84,701,050
Production and service costs ........................... 262,080 -- -- 262,080
Selling, general and administrative .................... 15,770,805 7,198,165 152,636(b) 23,121,606
Amortization of intangibles ............................ 741,910 -- -- 741,910
------------- ------------- ------------- -------------
72,812,865 35,286,943 726,838 108,826,646
------------- ------------- ------------- -------------
Loss from operations ........................................ $ (46,790,949) $ (35,286,943) $ (726,838) $ (82,804,730)
Interest and other income (expense) ......................... 25,660,515 (122,699) (7,524,841)(c) 18,012,975
------------- ------------- ------------- -------------
Loss before non-recurring charges directly attributed to
acquisition and cumulative effect of change in accounting
policy ................................................... $ (21,130,434) $ (35,409,642) $ (8,251,679) $ (64,791,755)
============= ============= ============= =============
Basic and diluted loss per share before non-recurring charges
directly attributed to acquisition and cumulative
effect of change in accounting policy .................... $ (0.62) N/A N/A $ (1.86)
============= ============= ============= =============
Basic and diluted weighted average number of shares of
common stock outstanding ................................. 33,851,735 -- 924,984(d) 34,776,719
============= ============= ============= =============
See accompanying notes to the unaudited pro forma
condensed combined financial information.
-29-
OSI PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
1. Pro Forma Basis of Presentation and Adjustments
The unaudited pro forma condensed combined financial information was
determined using the purchase method of accounting. The unaudited pro forma
condensed combined statements of operations give effect to the acquisition as if
it had occurred at the beginning of the periods presented.
The unaudited pro forma combined statement of operations for the twelve
months ended September 30, 2001 combines the audited historical consolidated
statement of operations of OSI for the year ended September 30, 2001 and the
unaudited historical statement of operations of Gilead's oncology assets for the
twelve-month period ended September 30, 2001. The unaudited pro forma combined
statement of operations for the three months ended December 31, 2001 combines
the unaudited historical consolidated statement of operations of OSI for the
three months ended December 31, 2001 and the unaudited historical statement of
operations of Gilead's oncology assets for the period from October 1, 2001
through December 21, 2001.
The purchase price allocation was determined with assistance from a
valuation performed by a third-party valuation firm. The purchase price and
purchase-price allocation of the acquisition are as follows:
Purchase Price Paid
Cash, including estimated transaction expenses ......... $ 134,942,500
Common stock ........................................... 40,000,000
-------------
174,942,500
Purchase Price allocation
In-process research and development .................... $ 130,200,000
Notes receivable ....................................... 622,500
Other assets ........................................... 41,000
Fixed assets ........................................... 10,528,700
Liabilities assumed .................................... (2,177,600)
-------------
Total allocation ....................................... $ 139,214,600
Excess purchase price over identifiable assets and liabilities $ 35,727,900
=============
-30-
OSI PHARMACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
2. Pro Forma Adjustments to Pro Forma Condensed Combined Financial
Information
(a) The charge to earnings of $130.2 million resulting from the
acquired in-process research and development has been excluded
from the pro forma combined statement of operations for the
twelve months ended September 30, 2001 and the three months
ended December 31, 2001, since the charge is non-recurring and
directly related to the acquisition.
A third-party valuation firm was used to assess and value the
purchased in-process research and development from the
acquisition. The value was determined by estimating the projected
net cash flows related to products under development based upon
future revenues to be earned upon commercialization of such
products. These cash flows were discounted back to their net
present value. The resulting projected net cash flows from such
projects were based on management's estimates of revenues and
operating profits related to such products.
(b) Represents additional depreciation expense relating to the mark-up
to fair value of the fixed assets acquired. The depreciation
expense is allocated to research and development expense and to
selling and administrative expenses.
(c) Represents a reduction of interest income as a result of the cash
payment of approximately $134.9 million relating to the
acquisition of the Gilead oncology assets and the net decrease in
cash related to the operations of the Gilead oncology assets,
which is assumed to have occurred evenly over the periods
presented.
(d) Reflects the shares issued to Gilead valued at $40 million as part
of the purchase price for the acquisition of the Gilead oncology
assets.
-31-
(C) EXHIBITS.
---------
2.1(1) Asset Purchase Agreement, dated November 26, 2001, by
and between Gilead Sciences, Inc. and OSI
Pharmaceuticals, Inc.
2.2(1) OSI Pharmaceuticals, Inc. Non-Qualified Stock Option
Plan for Former Employees of Gilead Sciences, Inc.
4.1(1) Investor Rights Agreement, dated December 21, 2001, by
and between Gilead Sciences, Inc. and OSI
Pharmaceuticals, Inc.
10.1(1)(2) Manufacturing Agreement, dated December 21, 2001, by
and between Gilead Sciences, Inc. and OSI
Pharmaceuticals, Inc.
23.1(3) Consent of Ernst & Young LLP, independent auditors.
99.1(1) Press release, dated December 21, 2001.
- --------------
(1) Included as an exhibit to the company's current report on Form
8-K, filed on January 7, 2002, and incorporated herein by
reference.
(2) Portions of this exhibit have been redacted and are the
subject of a confidential treatment request filed with the
Secretary of the Securities and Exchange Commission pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(3) Filed herewith.
-32-
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 hereunto duly authorized.
Date: March 6, 2002 OSI PHARMACEUTICALS, INC.
By: /s/ ROBERT L. VAN NOSTRAND
--------------------------
Name: Robert L. Van Nostrand
Title: Vice President, Chief Financial
Officer and Secretary
-33-
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1(1) Asset Purchase Agreement, dated November 26, 2001, by and
between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc.
2.2(1) OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for
Former Employees of Gilead Sciences, Inc.
4.1(1) Investor Rights Agreement, dated December 21, 2001, by and
between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc.
10.1(1)(2) Manufacturing Agreement, dated December 21, 2001, by and
between Gilead Sciences, Inc. and OSI Pharmaceuticals, Inc.
23.1(3) Consent of Ernst & Young LLP, independent auditors.
99.1(1) Press release, dated December 21, 2001.
- --------------
(1) Included as an exhibit to the company's current report on Form
8-K, filed on January 7, 2002, and incorporated herein by
reference.
(2) Portions of this exhibit have been redacted and are the
subject of a confidential treatment request filed with the
Secretary of the Securities and Exchange Commission pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(3) Filed herewith.
-34-