1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15190
OSI Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3159796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Charles Lindbergh Boulevard, Uniondale, New York 11553
(Address of principal executive offices) (Zip Code)
516-222-0023
(Registrant's telephone number, including area code)
(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
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 31, 1998 the registrant had outstanding 21,382,668 shares of common
stock $.01 par value.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONTENTS
Page No.
PART I - FINANCIAL INFORMATION............................................. 3
Item 1. Financial Statements
Consolidated Balance Sheets
- June 30, 1998 and September 30, 1997.......................... 3
Consolidated Statements of Operations
- Three months ended June 30, 1998 and 1997..................... 5
Consolidated Statements of Operations
- Nine months ended June 30, 1998 and 1997...................... 6
Consolidated Statements of Cash Flows
- Nine months ended June 30, 1998 and 1997...................... 7
Notes to Consolidated Financial Statements...................... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 13
PART II - OTHER INFORMATION................................................ 14
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............. 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 15
SIGNATURES................................................................. 17
EXHIBIT INDEX.............................................................. 18
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
Assets 1998 1997
- ------ ----------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $10,151,173 $ 8,636,634
Short-term investments 14,725,153 23,198,035
Receivables, including
trade receivables of $344,473 and
$350,100 at June 30,1998 and
September 30, 1997, respectively 2,234,328 1,215,672
Interest receivable 337,753 475,800
Grants receivable 318,898 179,740
Prepaid expenses and other 988,696 820,151
----------- -----------
Total current assets 28,756,001 34,526,032
----------- -----------
Property, equipment and leasehold
improvements - net 7,915,832 7,752,286
Compound library assets - net 5,946,305 6,800,406
Loans to officers and employees 9,317 34,317
Other assets 2,254,022 1,287,782
Intangible assets - net 8,089,186 9,184,742
----------- -----------
$52,970,663 $59,585,565
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,138,247 $ 4,180,039
Current portion of unearned revenue 1,677,306 733,377
----------- -----------
Total current liabilities 4,815,553 4,913,416
----------- -----------
Other liabilities:
Loan payable 69,175 151,985
Deferred acquisition costs 660,886 630,796
Accrued postretirement benefits cost 1,095,596 944,500
----------- -----------
Total liabilities 6,641,210 6,640,697
----------- -----------
(continued)
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30, September 30,
Liabilities and Stockholders' Equity (cont'd) 1998 1997
- ------------------------------------ ------------ -------------
(unaudited)
Stockholders' equity:
Common stock, $.01 par value;
50,000,000 shares authorized,
22,277,256 and 22,262,220
issued and outstanding at
June 30, 1998 and
September 30, 1997, respectively 222,773 222,622
Additional paid-in capital 104,933,063 104,864,056
Treasury stock, at cost 897,838 shares at
June 30, 1998 and September 30, 1997 (6,284,866) (6,284,866)
Accumulated deficit (52,409,897) (45,657,713)
Cumulative translation adjustments (61,320) (101,531)
Unrealized holding loss on
short-term investments (70,300) (97,700)
------------- -------------
Total stockholders' equity 46,329,453 52,944,868
------------- -------------
Commitments and contingencies
$ 52,970,663 $ 59,585,565
============= =============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
----------------------
1998 1997
----------- ------------
Revenues:
Collaborative program revenues,
principally from related parties $ 3,958,441 $ 2,867,641
Sales 362,839 221,506
Other research revenue 318,897 494,294
License revenues 702,422 0
------------ ------------
5,342,599 3,583,441
------------ ------------
Expenses:
Research and development 5,546,401 4,430,170
Selling, general and administrative 1,952,975 1,849,149
Amortization of intangibles 365,185 365,188
------------ ------------
7,864,561 6,644,507
------------ ------------
Loss from operations (2,521,962) (3,061,066)
Other income (expense):
Net investment income 346,246 480,520
Other (23,881) (24,140)
------------ ------------
Net loss $ (2,199,597) $ (2,604,686)
============ ============
Weighted average number of shares
of common stock outstanding 21,373,522 21,299,407
============ ============
Basic net loss per share $ (.10) $ (.12)
============ ============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
June 30,
------------------
1998 1997
------------ -----------
Revenues:
Collaborative program revenues,
principally from related parties $ 11,401,317 $ 9,239,373
Sales 796,903 825,542
Other research revenue 1,058,705 1,000,770
License revenues 702,422 0
------------ ------------
13,959,347 11,065,685
------------ ------------
Expenses:
Research and development 15,084,796 12,374,413
Selling, general and administrative 5,475,129 5,435,527
Amortization of intangibles 1,095,555 1,095,554
------------ ------------
21,655,480 18,905,494
------------ ------------
Loss from operations (7,696,133) (7,839,809)
Other income (expense):
Net investment income 1,132,853 1,617,505
Other (188,904) (67,521)
------------ ------------
Net loss $ (6,752,184) $ (6,289,825)
============ ============
Weighted average number of shares
of common stock outstanding 21,369,805 21,699,641
============ ============
Basic net loss per share $ (.32) $ (.29)
============ ============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
------------------
1998 1997
------------- -------------
Cash flows from operating activities:
Net loss $ (6,752,184) $ (6,289,825)
Adjustments to reconcile net loss
to net cash used by operating activities:
Gain (loss) on sale of investments (5,310) 16,775
Depreciation and amortization 1,379,586 1,116,742
Amortization of library assets 1,352,216 826,132
Amortization of intangibles 1,095,556 1,095,554
Amortization of warrants 30,090 30,091
Foreign exchange (gain) loss 40,211 (27,500)
Changes in assets and liabilities:
Receivables (1,018,656) 977,523
Interest receivable (139,158) 40,486
Grants receivable 138,047 52,896
Prepaid expenses and other (168,545) (677,112)
Other assets (966,240) (644,022)
Accounts payable
and accrued expenses (1,041,792) (188,336)
Unearned revenue 943,929 457,875
Accrued postretirement
benefits cost 151,096 112,896
------------ ------------
Net cash used by
operating activities $ (4,961,154) $ (3,099,825)
------------ ------------
Cash flows from investing activities:
Additions to short-term investments $ (2,742,898) $ (3,942,582)
Maturities and sales of short-term investments 11,248,490 10,870,979
Additions to library assets (498,115) (99,624)
Additions to property, equipment and
leasehold improvements (1,543,132) (1,992,422)
Net change in loans to officers and employees 25,000 2,683
------------ ------------
Net cash provided by investing activities $ 6,489,345 $ 4,839,034
------------ ------------
(continued)
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Nine Months Ended
June 30,
-----------------------
1998 1997
------------- --------------
Cash flows from financing activities:
Proceeds from exercise of stock options
and employee stock purchase plan 69,158 200,880
Net change in loans payable (82,810) 98,243
Purchase of treasury stock 0 (8,750,000)
------------ ------------
Net cash used by financing activities $ (13,652) $ (8,450,877)
------------ ------------
Net (decrease) increase in cash
and cash equivalents 1,514,539 (6,711,668)
Cash and cash equivalents at
beginning of period 8,636,634 13,409,866
------------ ------------
Cash and cash equivalents at end of period $ 10,151,173 $ 6,698,198
============ ============
Issuance of treasury stock for
acquisition of license to the Dow
Compound Library 0 $ 2,500,000
============ ============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of OSI
Pharmaceuticals, Inc. and its subsidiaries (the "Company") as of June 30, 1998
and September 30, 1997, its results of operations for the three and nine months
ended June 30, 1998 and 1997 and its cash flows for the nine months ended June
30, 1998 and 1997. Certain reclassifications have been made to the prior period
financial statements to conform them to the current presentation.
It is recommended that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto in the
Company's 1997 Annual Report on Form 10-K.
Results for interim periods are not necessarily indicative of results for the
entire year.
Net loss per share of common stock outstanding is based on the weighted average
number of shares outstanding. Common share equivalents (stock options) are not
included in the computation for the three months and nine months ended June 30,
1998 and 1997 since their inclusion would be anti-dilutive.
(2) License Agreement with Aurora Biosciences Corporation
Pursuant to a License Agreement effective May 26, 1998, the Company granted to
Aurora Biosciences Corporation ("Aurora") a non-exclusive worldwide license to
practice the technology under the Company's patent for live cell gene
transcription assays utilizing a reporter gene. The Company also granted Aurora
an option to obtain a non-exclusive license to practice the technology under the
Company's patent concerning methods of transcription modulation. The duration of
each license is to be coextensive with the life of the last to expire of the
underlying patents. Aurora has the right to grant sublicenses. The Company
received 75,000 shares of Aurora's common stock with an estimated fair market
value of $400,000 and a license fee of $300,000 upon execution of the agreement.
In addition, Aurora will pay the Company milestone payments and royalties on
sales of products derived from the licensed patents, if any. The Company has
exclusive control over prosecution, maintenance and enforcement of the patents
subject to the agreement.
(3) Research Agreements
(a) Modification of Co-Venture with Sepracor, Inc.
Pursuant to an Amendatory and Collaborative Agreement dated April 1, 1998, the
Company and Sepracor, Inc. ("Sepracor") amended their Collaborative Research
Development and Commercialization Agreement dated March 7, 1997, terminating
certain provisions contained therein, including, without limitation, provisions
establishing the research program. Each party will be free to independently
pursue the discovery of new compounds in the anti-infective area without
incurring any responsibility to the other party. To the extent Sepracor
commercializes certain compounds arising out of the joint venture, however, it
will pay royalties to the Company. The Company will provide discovery biology
and certain other services to Sepracor until September 1, 1998, in exchange for
fees from Sepracor subject to extension on a quarterly basis.
(b) Collaboration with Fujirebio, Inc.
The Company, through its wholly-owned subsidiary, Oncogene Science Diagnostics,
Inc., entered into a Research Collaboration and License Agreement with
Fujirebio, Inc. ("Fujirebio") effective April 1, 1998, creating a collaborative
program focused on discovering and developing certain proprietary cancer assays
and commercializing cancer diagnostic products. Under the agreement, Fujirebio
is to fund the Company's research and development of cancer assays over a
four-year term. The Company is to provide Fujirebio with antibodies, antigens
and other substances necessary to manufacture the diagnostic products derived
from the collaboration. Further, the Company has granted to Fujirebio a
non-exclusive license to, among other things, develop, manufacture and sell the
products developed pursuant to the collaboration in Japan in exchange for
license fees and royalties on product sales. The duration of the license is to
be coextensive with the lives of the patents related to the licensed products.
Each of the parties has rights and obligations to prosecute and maintain patent
rights related to specified areas of the research under the agreement. The
agreement is subject to early termination by either party in the event of
certain defaults.
(c) Alliance with Vanderbilt University
Effective as of April 28, 1998, the Company entered into a Collaborative
Research, Option and Alliance Agreement with Vanderbilt University
("Vanderbilt") to conduct a collaborative research program and seek a corporate
partner to fund a technology collaboration for the discovery and development of
drugs to treat diabetes. The collaborative research is funded by the Company in
exchange for which the Company has the option to negotiate a commercially
reasonable, worldwide, exclusive license from Vanderbilt to develop, make, use,
and sell, products derived from the research program. The Company and Vanderbilt
will commit equal resources to the program, including, among other things,
access to all their respective laboratory facilities and dedicated teams of
research scientists. The Company has certain rights and obligations to prosecute
and maintain patent rights related to specified areas of the research under the
agreement. The agreement is for a term of one year, but shall be automatically
extended upon the execution of a third-party research collaboration agreement
for the term of such collaboration. Each party is prohibited from entering, on
its own without the other party, into a funded collaboration agreement with a
third party for drug discovery in the area of diabetes using certain targets
which are the subject of the collaboration.
(4) Recombinant TGF-Beta 3 Collaboration
In May 1998, Novartis Pharma AG ("Novartis"), the Company's collaborative
partner in the development of TGF-Beta 3 for wound healing and oral mucositis
indications, found that patients treated with TGF-Beta 3 in its Phase II
clinical trials for both indications showed no statistical improvement with
regard to primary clinical end points (e.g., wound closure) compared to patients
treated with placebos. The Company and Novartis are in discussions regarding the
development of TGF-Beta 3 for other indications.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Revenues for the three and nine months ended June 30, 1998 were approximately
$5.3 million and $14.0 million, respectively, representing an increase of $1.8
million or 49%, and an increase of $2.9 million or 26%, respectively, compared
to revenues of $3.6 million and $11.1 million, respectively, reported for the
three and nine months ended June 30, 1997. Collaborative program revenues
increased approximately $1.1 million or 38% and increased approximately $2.2
million or 23%, respectively. The three month increase is primarily due to the
commencement on October 1, 1997 of the funded phase of the collaborative
research and license agreement among the Company, Anaderm Research Corp.
("Anaderm") and Pfizer Inc. ("Pfizer"), as well as an increased level of
research in the collaborative program with Sankyo Company, Ltd. ("Sankyo") to
discover and develop novel pharmaceutical products to treat influenza. The nine
month increase is primarily due to the Anaderm and Sankyo programs and was
partially offset by a decrease in revenues related to the Company's
collaborative program with Hoechst Marion Roussel, Inc. ("HMRI") to discover and
develop small molecules that induce gene expression of the protein
erythropoietin. This decrease in revenues resulted from the Company's
receipt of a $1 million initiation fee from HMRI in the erythopoletin program in
the second quarter of 1997 and reduced funding in connection with the extension
of the first phase of this pragram in April 1998. The nine month increase in
revenue was also offset by the completion, on December 31, 1996, of the funded
discovery phase of the Company's collaborative program with Wyeth-Ayerst
Laboratories relating to the discovery and development of drugs for the
treatment of diabetes and osteoporosis. Sales revenue, representing primarily
service revenue from the pharmaceutical division of the Company's Aston
Molecules Ltd. ("Aston") subsidiary, which the Company acquired in September
1996, increased approximately $141,000 or 64% compared to the prior three-month
period and decreased $29,000 or 3% compared to the prior nine-month period. The
decrease was primarily due to the Company's decision to devote certain of
Aston's resources to internal programs as opposed to sales outside the Company.
Other research revenues, representing primarily government grants and other
research grants, decreased approximately $175,000 or 35%, and increased
approximately $58,000 or 6%, respectively, for the three and nine months ended
June 30, 1998 compared to the three and nine months ended June 30, 1997. The
Company recognized license revenue of approximately $700,000 for the three and
nine months ended June 30, 1998 from the signing of a license agreement on May
26, 1998 with Aurora Biosciences Corporation ("Aurora") covering the Company's
gene transcription patent estate. Under the terms of the agreement, the Company
received 75,000 shares of Aurora common stock with a fair market value of
approximately $400,000 and $300,000 in cash for Aurora's non-exclusive license
and certain sub-licensing rights to the Company's reporter gene patent, and
options to the Company's methods of modulation patent. The Company anticipates
entering into additional licensing agreements for these patents in the future.
EXPENSES
The Company's operating expenses increased by approximately $1.2 and $2.7
million or 18% and 15%, respectively, for the three
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and nine months ended June 30, 1998 compared to the three and nine months ended
June 30, 1997. Research and development expenses increased approximately $1.1
and $2.7 million, or 25% and 22%, respectively. The increase was due to: (1) the
expansion of the Company's joint venture with Anaderm for the discovery and
development of novel compounds to treat pigmentation disorders, wrinkles and
baldness; (2) the joint venture with Sepracor, Inc. ("Sepracor") for the
discovery of certain anti-infective and anti-inflammatory agents, which
commenced in March 1997; and (3) the collaborative agreement with Sankyo for the
discovery and development of novel pharmaceutical products to treat influenza,
which commenced in February 1997. Also contributing to the increase in expenses
were costs associated with the expansion of the Company's natural products
discovery and medicinal chemistry operations at its MYCOsearch, Inc.
("MYCOsearch") and Aston subsidiaries.
OTHER INCOME AND EXPENSE
Investment income decreased approximately $134,000 and $485,000 or 28% and 30%,
respectively, for the three and nine months ended June 30, 1998 compared to the
three and nine months ended June 30, 1997. This decrease relates to the decrease
in the principal balance invested.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, working capital (representing primarily cash, cash equivalents
and short-term investments) aggregated approximately $23.9 million. The Company
is dependent upon collaborative research revenues, government research grants,
interest income and cash balances, and will remain so until products developed
from its technology are successfully commercialized.
In connection with the formation of Helicon Therapeutics, Inc. ("Helicon") in
July 1997, the Company agreed to perform $1 million of molecular screening
services for Helicon through approximately July 1998 (and grant to Helicon a
non-exclusive license with respect to certain screening technology) in exchange
for its shares of Helicon's capital stock. Helicon is to provide research
funding to the Company for the second and third years of the initial three-year
term of this program. In addition, pursuant to its agreement with Pfizer and
Anaderm, the Company will contribute approximately $800,000 in drug discovery
resources (including assay biology, high throughput screening, lead optimization
and chemistry) to Anaderm in fiscal 1998 and, assuming Anaderm achieves certain
milestones, approximately an additional $1 million in such resources through
fiscal 1999.
The Company believes that with the funding from its collaborative research
programs, government research grants, interest income, and cash balances, its
financial resources are adequate for its operations for approximately the next
three to four years based on its current business plan even if no milestone
payments or royalties are received during this period. However, the Company's
capital requirements may vary as a result of a number of factors, including, but
not limited to, competitive and technological developments, funds required for
further expansion or enhancement of the Company's technology platform (including
possible
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additional joint ventures, collaborations and acquisitions), potential milestone
payments, and the time and expense required to obtain governmental approval of
products, some of which factors are beyond the Company's control.
One of the Company's strategic objectives is to manage its financial resources
and the growth of its drug discovery and development programs so as to balance
its proprietary efforts and co-ventures with its funded collaborations. In
pursuing this objective, the Company has expanded the scope of its discovery and
development activities without significantly increasing its rate of cash
consumption. The Company expects to continue its current level of
expenditures and capital investment over the next several years to enhance its
drug discovery technologies, pursue internal proprietary drug discovery
programs, and to commit resources to co-ventures with pharmaceutical companies.
Examples of the Company's co-ventures with pharmaceutical companies include the
formation of Helicon in July 1997 with Cold Spring Harbor Laboratory and
Hoffman-La Roche Inc., and the formation of Anaderm in April 1996 with Pfizer
and New York University. Generally the Company expects to commit greater
resources to such programs in exchange for greater commercialization rights, as
compared to its traditional collaborative research programs in which the Company
receives research funding and royalties on sales of commercialized products. If
the developmental activities on which one or more of these ventures are focused
are successful, then the Company will be required to make substantial additional
capital investment in such venture(s) in order to maintain its percentage
participation.
There can be no assurance that scheduled payments will be made by third parties,
that current agreements will not be canceled, that government research grants
will continue to be received at current levels, that milestone payments will be
made, or that unanticipated events requiring the expenditure of funds will not
occur. Further, there can be no assurance that the Company will be able to
obtain any additional required funds on acceptable terms, if at all. Failure to
obtain additional funds when required would have a material adverse effect on
the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company is currently working to resolve the potential impact of the Year
2000 problem on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define an
applicable year. Substantially all of the Company's biology and chemistry
databases are stored on Oracle tables and ISIS chemical structure databases,
which are Year 2000 compliant, as are its Novell network servers. The Company
currently plans to convert its financial records to an Oracle based system and
is in the process of implementing a new planning and budgeting package, both of
which are Year 2000 compliant. The Company expects these systems to be
operational by December 31, 1999. Based on current
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information, the cost of addressing remaining potential Year 2000 problems
associated with the Company's internal systems and operations are not expected
to have a material adverse impact to the Company's financial position, results
of operations, or cash flows in future periods.
The Company has not conducted an evaluation of the extent to which the
operations of the material third parties with whom it regularly deals may be
disrupted by any Year 2000 non-compliance of any of their systems. These third
parties include the Company's collaborative partners and co-venturers, and its
suppliers and vendors. Disruption of the operations of any of its partners or
co-venturers could delay or halt important research and development programs,
cause the loss of data or have other unforeseen consequences. Year 2000
problems experienced by the Company's suppliers and vendors could cause a
disruption of the Company's operations. The Company currently is unable to
estimate the likelihood of any of these risks being realized, or if realized,
the impact they may have on the Company. Any such occurrence could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
SFAS No. 132 revises current disclosure requirements for employers' pensions and
other retiree benefits. These standards are effective for years beginning after
December 15, 1997. These standards expand or modify current disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations and cash flows.
FORWARD LOOKING STATEMENTS
Certain of the matters and subject areas discussed in this report that are not
statements of current or historical fact are "forward-looking statements" that
convey information about potential future circumstances and developments. These
forward-looking statements are necessarily based on various assumptions, involve
known and unknown risks and generally are subject to the inherent risks and
uncertainties surrounding expectations regarding future occurrences. As a
result, the Company's actual future experience may differ materially from the
results, achievements or performance described or implied in such statements.
Factors that might cause the Company's actual future experience to differ
materially from the forward-looking statements include, but are not limited to,
(i) the Company's absence of commercialized drug products, (ii) the Company's
dependence on third parties for clinical development and commercialization of
potential products, (iii) the potential failure of the Company's lead compound
currently in clinical trials to progress successfully through clinical
development, (iv) the potential failure of any drug candidates that emerge from
the Company's discovery operations to progress successfully to or through
clinical development, (v) competition, (vi) government regulation, (vii)
pharmaceutical pricing and (viii) the effect of any internal or external Year
2000 problems. Certain of these and additional factors that may cause the
Company's actual future experience to differ materially from the forward-looking
statements contained in this report are discussed in Exhibit 99 to the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
MODIFICATION OF CO-VENTURE WITH SEPRACOR, INC.
Pursuant to an Amendatory and Collaborative Agreement dated April 1,
1998, the Company and Sepracor, Inc. ("Sepracor") amended their Collaborative
Research Development and Commercialization Agreement dated March 7, 1997,
terminating certain provisions contained therein, including, without limitation,
provisions establishing the research program. Each party will be free to
independently pursue the discovery of new compounds in the anti-infective area
without incurring any responsibility to the other party. To the extent Sepracor
commercializes certain compounds arising out of the joint venture, however, it
will pay royalties to the Company. The Company will provide discovery biology
and certain other services to Sepracor until September 1, 1998, in exchange for
fees from Sepracor subject to extension on a quarterly basis.
COLLABORATION WITH FUJIREBIO, INC.
The Company, through its wholly-owned subsidiary, Oncogene Science
Diagnostics, Inc., entered into a Research Collaboration and License Agreement
with Fujirebio, Inc. ("Fujirebio") effective April 1, 1998, creating a
collaborative program focused on discovering and developing certain proprietary
cancer assays and commercializing cancer diagnostic products. Under the
agreement, Fujirebio is to fund the Company's research and development of cancer
assays over a four-year term. The Company is to provide Fujirebio with
antibodies, antigens and other substances necessary to manufacture the
diagnostic products derived from the collaboration. Further, the Company has
granted to Fujirebio a non-exclusive license to, among other things, develop,
manufacture and sell the products developed pursuant to the collaboration in
Japan in exchange for license fees and royalties on product sales. The duration
of the license
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is to be coextensive with the lives of the patents related to the licensed
products. Each of the parties has rights and obligations to prosecute and
maintain patent rights related to specified areas of the research under the
agreement. The agreement is subject to early termination by either party in the
event of certain defaults.
LICENSE TO AURORA BIOSCIENCES CORPORATION
Pursuant to a License Agreement effective May 26, 1998, the Company
granted to Aurora Biosciences Corporation ("Aurora") a non-exclusive worldwide
license to practice the technology under the Company's patent for live cell gene
transcription assays utilizing a reporter gene. The Company also granted Aurora
an option to obtain a non-exclusive license to practice the technology under the
Company's patent concerning methods of transcription modulation. The duration of
each license is to be coextensive with the life of the last to expire of the
underlying patents. Aurora has the right to grant sublicenses. The Company
received 75,000 shares of Aurora's common stock with an estimated fair market
value of $400,000 and a license fee of $300,000 upon execution of the agreement.
In addition, Aurora will pay the Company milestone payments and royalties on
sales of products derived from the licensed patents, if any. The Company has
exclusive control over prosecution, maintenance and enforcement of the patents
subject to the agreement.
ALLIANCE WITH VANDERBILT UNIVERSITY
Effective as of April 28, 1998, the Company entered into a
Collaborative Research, Option and Alliance Agreement with Vanderbilt University
("Vanderbilt") to conduct a collaborative research program and seek a corporate
partner to fund a technology collaboration for the discovery and development of
drugs to treat diabetes. The collaborative research is funded by the Company in
exchange for which the Company has the option to negotiate a commercially
reasonable, worldwide, exclusive license from Vanderbilt to develop, make, use,
and sell, products derived from the research program. The Company and Vanderbilt
will commit equal resources to the program, including, among other things,
access to all their respective laboratory facilities and dedicated teams of
research scientists. The Company has certain rights and obligations to prosecute
and maintain patent rights related to specified areas of the research under the
agreement. The agreement is for a term of one year, but shall be automatically
extended upon the execution of a third-party research collaboration agreement
for the term of such collaboration. Each party is prohibited from entering, on
its own without the other party, into a funded collaboration agreement with a
third party for drug discovery in the area of diabetes using certain targets
which are the subject of the collaboration.
RECOMBINANT TGF-BETA 3 COLLABORATION
In May 1998, Novartis Pharma AG ("Novartis"), the Company's
collaborative partner in the development of TGF-Beta 3 for wound healing and
oral mucositis indications, found that patients treated with TGF-Beta 3 in its
Phase II clinical trials for both indications showed no statistical improvement
with regard to primary clinical end points (e.g., wound closure) compared to
patients treated with placebos. The Company and Novartis are in discussions
regarding the development of TGF-Beta 3 for other indications.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws, as amended (2)
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10.1 Employment Agreement, dated April 30, 1998, between
the Company and Colin Goddard, Ph.D.
*10.2 Amendatory and Collaborative Agreement, dated as of
March 31, 1998, by and between the Company and
Sepracor, Inc.
*10.3 Research Collaboration and License Agreement, dated
as of April 1, 1998, by and among the Company,
Oncogene Science Diagnostics, Inc. and Fujirebio,
Inc.
*10.4 License Agreement, dated as of May 26, 1998, by and
between the Company and Aurora Biosciences
Corporation.
27 Financial Data Schedule
---------------
(1) Included as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended December
31, 1997, filed on February 17, 1998, and
incorporated herein by reference.
(2) Included as an exhibit to the Company's registration
statement on Form S-3 (File No. 333-937) initially
filed on February 14, 1996, and incorporated herein
by reference.
* 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.
(b) REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OSI PHARMACEUTICALS, INC.
-------------------------
(Registrant)
Date: August 14, 1998 /s/ Gary E. Frashier
-----------------------------
Gary E. Frashier
Chief Executive Officer
Date: August 14, 1998 /s/ Robert L. Van Nostrand
-----------------------------------
Robert L. Van Nostrand
Vice President and Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws, as amended (2)
10.1 Employment Agreement, dated April 30, 1998, between the
Company and Colin Goddard, Ph.D.
*10.2 Amendatory and Collaborative Agreement, dated as of March 31,
1998, by and between the Company and Sepracor, Inc.
*10.3 Research Collaboration and License Agreement, dated as of
April 1, 1998, by and among the Company, Oncogene Science
Diagnostics, Inc. and Fujirebio, Inc.
*10.4 License Agreement, dated as of May 26, 1998, by and between
the Company and Aurora Biosciences Corporation.
27 Financial Data Schedule
-------------------
(1) Included as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1997, filed on
February 17, 1998, and incorporated herein by reference.
(2) Included as an exhibit to the Company's registration statement
on Form S-3 (File No. 333-937) initially filed on February 14,
1996, and incorporated herein by reference.
* 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.
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