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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 April 30, 1999 the registrant had outstanding 21,369,609 shares of common
stock, $.01 par value.
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OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONTENTS
PART I. FINANCIAL INFORMATION..................................................1
Item 1. Financial Statements...............................................1
Consolidated Balance Sheets
- March 31,1999 and September 30, 1998.............................1
Consolidated Statements of Operations
-Three months ended March 31, 1999 and 1998........................2
Consolidated Statements of Operations
-Six months ended March 31, 1999 and 1998..........................3
Consolidated Statements of Cash Flows
-Six months ended March 31, 1999 and 1998..........................4
Notes to Consolidated Financial Statements.........................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........12
PART II. OTHER INFORMATION.................................................13
Item 1. Legal Proceedings.................................................13
Item 2. Changes in Securities.............................................13
Item 3. Defaults Upon Senior Securities...................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 5. Other Information.................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14
SIGNATURES....................................................................16
EXHIBIT INDEX.................................................................17
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSI PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
Assets 1999 1998
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 12,681,174 $ 11,315,166
Short-term investments 8,169,031 13,103,115
Receivables, including trade receivables of
$249,878 and $258,905 at March 31, 1999
and September 30, 1998, respectively 2,696,153 1,720,737
Interest receivable 158,245 283,908
Grants receivable 355,086 406,149
Prepaid expenses and other 741,609 788,496
------------- -------------
Total current assets 24,801,298 27,617,571
------------- -------------
Property, equipment and leasehold improvements - net 7,439,654 7,996,555
Compound library assets - net 4,640,697 5,515,517
Loans to officers and employees 6,433 6,433
Other assets 1,533,933 1,557,903
Intangible assets - net 6,993,631 7,724,001
------------- -------------
$ 45,415,646 $ 50,417,980
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,937,300 $ 4,232,540
Unearned revenue 769,315 1,116,685
------------- -------------
Total current liabilities 3,706,615 5,349,225
------------- -------------
Other liabilities:
Loans payable 11,576 49,326
Deferred acquisition costs 690,977 670,916
Accrued postretirement benefits cost 1,409,267 1,289,267
------------- -------------
Total liabilities 5,818,435 7,358,734
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 22,324,242 and 22,288,583 issued
at March 31, 1999 and September 30, 1998,
respectively 223,242 222,886
Additional paid-in capital 105,083,816 104,963,082
Accumulated deficit (59,156,786) (55,842,181)
Accumulated other comprehensive (loss) income (268,195) 325
Less: treasury stock, at cost; 897,838 shares at
March 31, 1999 and September 30, 1998 (6,284,866) (6,284,866)
------------- -------------
Total stockholders' equity 39,597,211 43,059,246
------------- -------------
Commitments and contingencies
$ 45,415,646 $ 50,417,980
============= =============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
Revenues:
Collaborative program revenues,
principally from related parties $ 4,048,406 $ 3,935,450
Other research revenue 278,439 259,376
License revenue 2,000,000 --
Sales 287,467 235,299
------------ ------------
6,614,312 4,430,125
------------ ------------
Expenses:
Research and development 4,910,772 4,156,141
Production and service costs 485,742 188,794
Selling, general and administrative 2,179,432 2,126,246
Amortization of intangibles 365,185 365,185
------------ ------------
7,941,131 6,836,366
------------ ------------
Loss from operations (1,326,819) (2,406,241)
Other income (expense):
Net investment income 215,348 385,370
Other expense - net (10,969) (62,985)
------------ ------------
Net loss $ (1,122,440) $ (2,083,856)
============ ============
Weighted average number of shares
of common stock outstanding 21,420,332 21,369,283
============ ============
Basic and diluted loss per weighted
average share of common stock
outstanding $ (.05) $ (.10)
============ ============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
Revenues:
Collaborative program revenues,
principally from related parties $ 8,040,684 $ 7,442,876
Other research revenue 579,354 739,808
License revenue 2,050,000 --
Sales 598,417 434,064
------------ ------------
11,268,455 8,616,748
------------ ------------
Expenses:
Research and development 9,388,872 8,560,120
Production and service costs 851,150 401,425
Selling, general and administrative 4,026,601 4,099,004
Amortization of intangibles 730,370 730,370
------------ ------------
14,996,993 13,790,919
------------ ------------
Loss from operations (3,728,538) (5,174,171)
Other income (expense):
Net investment income 446,666 786,607
Other expense - net (32,733) (165,023)
------------ ------------
Net loss $ (3,314,605) $ (4,552,587)
============ ============
Weighted average number of shares
of common stock outstanding 21,411,174 21,367,936
============ ============
Basic and diluted loss per weighted
average share of common stock
outstanding $ (.15) $ (.21)
============ ============
See accompanying notes to consolidated financial statements.
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OSI PHARMACEUTICALS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss $ (3,314,605) $ (4,552,587)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 978,872 912,784
Amortization of library assets 874,820 901,478
Amortization of intangibles 730,370 730,370
Amortization of deferred acquisition costs 20,061 20,060
Changes in assets and liabilities:
Receivables (985,351) (216,216)
Interest receivable 125,663 227,509
Grants receivable 51,063 (80,128)
Prepaid expenses and other 37,298 (100,384)
Other assets 23,970 (402,682)
Accounts payable and accrued expenses (1,269,248) (1,386,244)
Unearned revenue (346,497) 780,483
Accrued postretirement benefits cost 120,000 100,696
------------ ------------
Net cash used in operating activities (2,953,584) (3,064,861)
------------ ------------
Cash flows from investing activities:
Additions to short-term investments (7,289,636) (3,580,855)
Maturities and sales of short-term investments 12,122,970 7,648,490
Additions to library assets -- (304,538)
Additions to property, equipment
and leasehold improvements (545,113) (941,959)
------------ ------------
Net cash provided by investing activities 4,288,221 2,821,138
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options
and employee stock purchase plan 121,090 41,255
Net change in loans payable (35,905) (44,267)
------------ ------------
Net cash provided by (used in) financing activities 85,185 (3,012)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,419,822 (246,735)
Effect of exchange rate changes on cash and cash equivalents (53,814) 58,542
Cash and cash equivalents at beginning of period 11,315,166 8,636,634
------------ ------------
Cash and cash equivalents at end of period $ 12,681,174 $ 8,448,441
============ ============
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 March 31, 1999
and September 30, 1998, its results of operations for the three and six months
ended March 31, 1999 and 1998 and its cash flows for the six months ended March
31, 1999 and 1998. Certain reclassifications have been made to the prior period
consolidated 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 annual report on Form 10-K for the fiscal year ended September 30,
1998.
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 computations for the three and six months ended March 31, 1999
and 1998 since their inclusion would be anti-dilutive.
(2) Comprehensive Income (Loss)
In October 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of SFAS 130 had no impact on the Company's net loss or
total stockholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities (referred to as short-term investments
on the accompanying consolidated balance sheets) and foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income (loss).
Components of comprehensive loss for the three and six months ended March 31,
1999 and 1998 are as follows:
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OSI PHARMACEUTICALS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
For the three months ended
March 31, March 31,
1999 1998
----------- -----------
Net loss $(1,122,440) $(2,083,856)
Other comprehensive income (loss):
Foreign currency translation adjustments (86,378) 24,489
Unrealized holding gains (losses) arising
during period (67,090) 11,300
----------- -----------
(153,468) 35,789
Total comprehensive loss $(1,275,908) $(2,048,067)
=========== ===========
For the six months ended
March 31, March 31,
1999 1998
----------- -----------
Net loss $(3,314,605) $(4,552,587)
Other comprehensive income (loss):
Foreign currency translation adjustments (167,770) 58,542
Unrealized holding gains (losses) arising
during period (100,750) 25,100
----------- -----------
(268,520) 83,642
Total comprehensive loss $(3,583,125) $(4,468,945)
=========== ===========
The components of accumulated other comprehensive income (loss) are as follows:
March 31, September 30,
1999 1998
----------- -----------
Cumulative foreign currency translation $ (186,525) $ (18,755)
Unrealized gain (loss) on short-term investments (81,670) 19,080
----------- -----------
Accumulated other comprehensive income (loss) $ (268,195) $ 325
=========== ===========
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OSI PHARMACEUTICALS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) License Agreement Replacing Co-Venture with BioChem Pharma, Inc.
Pursuant to an Agreement (the "New Agreement"), dated March 19, 1999, the
Company and BioChem Pharma, Inc. (formerly BioChem Pharma International, Inc.)
("BioChem") amended their Collaborative Research, Development and
Commercialization Agreement, effective as of May 1, 1996, terminating certain
provisions contained therein, including, without limitation, provisions
establishing the research program. Under the New Agreement, BioChem received
from the Company a worldwide, irrevocable, exclusive license, and right to grant
sublicenses, in certain anti-viral targets for a license fee of $2 million. In
addition, each party will be free to independently pursue the discovery of new
compounds in the Hepatitis B and HIV areas without incurring any responsibility
to the other party. To the extent BioChem completes any clinical trials or
pursues any regulatory approvals for any products, however, it will pay
milestones to the Company. In additional, to the extent BioChem commercializes
certain compounds arising out of the joint venture, it will pay royalties to the
Company.
(4) Changes in Securities
On January 6, 1999, the Board of Directors of the Company adopted, subject to
stockholder approval, certain amendments to the Company's Certificate of
Incorporation. At the Annual Meeting of Stockholders held on March 24, 1999,
the amendments were approved. The Certificate of Incorporation amendments (1)
authorize 5,000,000 shares of preferred stock, par value $.01 per share, with
such designations, preferences, privileges and restrictions as may be
determined from time to time by the Company's Board of Directors (see Article
IV of the Certificate of Incorporation, as amended), and (2) require that all
actions taken by stockholders must be taken at an annual or special meeting and
may not be taken by written consent (see Article VII of the Certificate of
Incorporation, as amended). The full text of the Certificate of Incorporation,
as amended, which is effective as of April 13, 1999, is filed herewith and
incorporated herein by reference.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
OSI Pharmaceuticals, Inc. (the "Company") is committed to the discovery and
development of novel, small-molecule pharmaceutical products for
commercialization by the pharmaceutical industry. The Company is exploiting its
full range of discovery and development capabilities by building and sustaining
a pipeline of pharmaceutical product opportunities in selected disease areas.
REVENUES
Revenues for the three and six months ended March 31, 1999 were approximately
$6.6 million and $11.3 million, respectively, representing an increase of $2.2
million or 49% and an increase of $2.7 million or 31%, respectively, compared to
revenues of $4.4 million and $8.6 million reported for the three and six months
ended March 31, 1998, respectively. Collaborative research and development
agreements with Pfizer Inc. ("Pfizer"), Anaderm Research Corp. ("Anaderm"),
Hoechst Marion Roussel, Inc. ("HMRI"), Sankyo Company Ltd., Bayer Corporation,
Fujirebio, Inc., and Helicon Therapeutics, Inc. ("Helicon") accounted for
substantially all of the Company's collaborative program revenues for the three
and six-month periods ended March 31, 1999 and 1998. Total collaborative
revenues of $4.0 million and $8.0 million for the three and six-month periods
increased approximately $113,000 and $598,000, respectively. The three-month
increase was principally due to increased funding from Pfizer and Anaderm for
the discovery and development of novel cosmeceutical compounds. The six-month
increase was primarily due to the expansion of the Anaderm program, as well as
increased funding for the program with Helicon. The increase in revenues was
partially offset by the conclusion in September 1998 of one of the Company's
funded collaborative programs with HMRI relating to the discovery and
development of orally active drugs for the treatment of chronic anemia.
Other research revenues, representing primarily government grants and other
research grants, increased by $19,000, and decreased by $160,000, for the three
and six-month periods ended March 31, 1999, respectively. The changes were due
to timing and awarding of grant funding. License revenues of $2,000,000, in the
second quarter of fiscal 1999, were recorded pursuant to a license agreement
entered into in March 1999 with BioChem Pharma Inc., which replaces an earlier
co-venture program, focused on anti-viral drug discovery. For further
information regarding this agreement see Note 3 to the Consolidated Financial
Statements. Sales revenues derived from the pharmaceutic services of the
Company's Aston Molecules Ltd. ("Aston") subsidiary and from diagnostic sales of
the Company's Oncogene Science Diagnostics Inc. ("OSDI"), subsidiary, increased
by $52,000 and $164,000 for the three and six-month periods ended March 31,
1999.
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EXPENSES
The Company's operating expenses increased by approximately $1.1 and $1.2
million or 16% and 9%, respectively, for the three and six months ended March
31, 1999 compared to the three and six months ended March 31, 1998. Research and
development spending for the current three and six-month periods increased
$755,000 and $829,000, respectively, from the prior year periods generally due
to costs associated with increasing average staff levels and increasing expenses
related to: (1) the continued expansion in the discovery and development of
novel cosmeceutical compounds; (2) the joint venture with Helicon for the
discovery of novel drugs for the treatment of long-term memory disorders; (3)
certain other of the Company's proprietary programs; and (4) the expansion of
the Company's medicinal chemistry operations at its Aston subsidiary.
The Company's production and service costs increased by approximately $297,000
and $450,000 for the three and six-month periods ended March 31, 1999,
respectively. The increase was primarily related to costs associated with OSDI
as it expands its manufacturing capacity. Selling, general and administrative
costs for the current three and six-month periods ended March 31, 1999 increased
by $53,000 and decreased by $72,000, respectively, from the prior year periods.
OTHER INCOME AND EXPENSE
Investment income decreased approximately $170,000 and $340,000 or 44% and 43%,
respectively, for the three and six months ended March 31, 1999 compared to the
three and six months ended March 31, 1998. This decrease relates to the decrease
in the principal balance of cash invested.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, working capital (representing primarily cash, cash
equivalents and short-term investments) aggregated approximately $21.1 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. 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 additional collaborations, acquisitions and joint ventures), 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.
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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 investments with its funded collaborations. 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 aware of the challenges associated with the inability of certain
systems to properly format information after December 31, 1999 (the "Year 2000
problem"). The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define an applicable year. 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. 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 has essentially completed the conversion of its financial records to an
Oracle based system which is Year 2000 compliant. The Company does not
anticipate any material disruption in its operations as the result of any
failure of its internal Year 2000 compliance. Through the current period, the
Company has not incurred any significant costs in addressing the Year 2000
problem. Based on current information, any additional costs 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 is in the process of conducting 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 noncompliance of any of their systems. These third
parties include the Company's collaborative partners and its suppliers and
vendors. Disruption of the operations of any of its partners could delay or halt
important research and development programs, cause the loss of data, or have
other unforeseen consequences. The Company is currently contacting all
significant collaborators, suppliers, vendors and financial institutions in
order to identify potential areas of concern. It is anticipated that this
inquiry will be completed during the third quarter of fiscal 1999. 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.
If necessary, the Company intends to create a remediation and contingency plan
to identify and document potential business disruptions and continuity planning
procedures. The focus of this
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activity would be on potential failures of external systems required to carry
out normal business operations including services provided by the public
infrastructure such as, but not limited to, power, electric, transportation and
telecommunications. The Company expects this activity to be an on-going process
throughout fiscal 1999.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for all quarters of
fiscal year beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In
accordance with SFAS 133, an entity is required to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gain and losses to offset related results on the hedged
item in the income statement and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company does not believe that the implementation of SFAS 133
will have a material effect on its results of operations and financial position.
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 the Company's annual report
on Form 10-K for the fiscal year ended September 30, 1998.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash flow and earnings are subject to fluctuations due to changes
in interest rates in its investment portfolio of debt securities, to the fair
value of equity instruments held, and to foreign currency exchange rates. The
Company maintains an investment portfolio of various issuers, types and
maturities. These securities are classified as available-for-sale and,
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a component of comprehensive income (loss). The
Company's investments in certain biotechnology companies are carried on either
the equity method of accounting or at cost for equity securities that do not
have readily determinable fair values. Other-than-temporary losses are recorded
against earnings in the same period the loss was deemed to have occurred. The
Company does not currently hedge this exposure and there can be no assurance
that other-than-temporary losses will not have a material adverse impact on the
Company's results of operations in the future.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On January 6, 1999, the Board of Directors of the Company adopted, subject to
stockholder approval, certain amendments to the Company's Certificate of
Incorporation. At the Annual Meeting of Stockholders held on March 24, 1999, the
amendments were approved. The Certificate of Incorporation amendments (1)
authorize 5,000,000 shares of preferred stock, par value $.01 per share, with
such designations, preferences, privileges, and restrictions as may be
determined from time to time by the Company's Board of Directors (see Article IV
of the Certificate of Incorporation, as amended), and (2) require that all
actions taken by stockholders must be taken at an annual or special meeting and
may not be taken by written consent (see Article VII of the Certificate of
Incorporation, as amended). The full text of the Certificate of Incorporation,
as amended, which is effective as of April 13, 1999, is filed herewith and
incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on March 24, 1999. The
following nine directors were elected:
Votes For Votes Withheld
--------- --------------
1. Gary E. Frashier 17,775,507 980,539
2. Edwin A. Gee, Ph.D. 17,768,677 987,369
3. Colin Goddard 17,780,294 975,752
4. G. Morgan Brown 17,777,807 978,239
5. John H. French II 17,771,527 984,519
6. Daryl K. Granner, M.D. 17,778,394 977,652
7. Walter M. Lovenberg, Ph.D. 17,777,944 978,102
8. Steve M. Peltzman 17,692,746 1,063,300
9. John P. White 17,778,207 977,839
An amendment to the Company's Certificate of Incorporation authorizing 5,000,000
shares of preferred stock was approved (11,470,673 shares voted in favor,
2,082,409 shares voted against, 163,687 shares abstained and there were
5,039,277 broker non-votes).
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An amendment to the Company's Certificate of Incorporation requiring that all
actions by stockholders must be taken at an annual or special meeting of
stockholders and not by written consent was approved (11,954,887 shares voted in
favor, 1,853,910 shares voted against, 125,413 shares abstained and there were
4,821,836 broker non-votes).
The appointment of KPMG LLP as the Company's independent accountants for the
year ending September 30, 1999 (18,566,549 shares voted in favor, 83,568 shares
voted against and 105,929 shares abstained).
ITEM 5. OTHER INFORMATION
LICENSE AGREEMENT REPLACING CO-VENTURE WITH BIOCHEM PHARMA, INC.
Pursuant to an Agreement (the "New Agreement"), dated March 19, 1999, the
Company and BioChem Pharma, Inc. (formerly BioChem Pharma International, Inc.)
("BioChem") amended their Collaborative Research, Development and
Commercialization Agreement, effective as of May 1, 1996, terminating certain
provisions contained therein, including, without limitation, provisions
establishing the research program. Under the New Agreement, BioChem received
from the Company a worldwide, irrevocable, exclusive license, and right to grant
sublicenses, in certain anti-viral targets for a license fee of $2 million. In
addition, each party will be free to independently pursue the discovery of new
compounds in the Hepatitis B and HIV areas without incurring any responsibility
to the other party. To the extent BioChem completes any clinical trials or
pursues any regulatory approvals for any products, however, it will pay
milestones to the Company. In additional, to the extent BioChem commercializes
certain compounds arising out of the joint venture, it will pay royalties to the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1* Certificate of Incorporation, as amended
3.2 Amended and Restated By-Laws (1)
10.1* Agreement, dated as of March 19, 1999, by and between
the Company and BioChem Pharma Inc.
27* Financial Data Schedule
----------
* Filed herewith.
(1) Included as an exhibit to the Company's current
report on Form 8-K, filed on January 8, 1999, and
incorporated herein by reference.
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(b) REPORTS ON FORM 8-K
The Company filed two current reports on Forms 8-K on January
8, 1999 and February 18, 1999, respectively, with the
Securities and Exchange Commission via EDGAR, pertaining to
the adoption of a Shareholders Rights Plan by the Board of
Directors. The earliest event covered by both reports occurred
on January 6, 1999.
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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: May 14, 1999 /s/ Colin Goddard, Ph.D
--------------------------------------------
Colin Goddard, Ph.D.
President and Chief Executive Officer
Date: May 14, 1999 /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
3.2 Amended and Restated By-Laws (1)
10.1* Agreement, dated as of March 19, 1999, by and between the
Company and BioChem Pharma Inc.
27* Financial Data Schedule
- ----------
* Filed herewith.
(1) Included as an exhibit to the Company's current report on Form 8-K,
filed on January 8, 1999, and incorporated herein by reference.
17