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FORM 10-Q/A
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 June 30, 1999
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 31, 1999 the registrant had outstanding 21,503,007 shares of common
stock, $.01 par value.
This Form 10-Q/A is being filed to amend Items 5 and 6 of the Form 10-Q of the
registrant for the quarter ended June 30, 1999, which was filed with the
Securities and Exchange Commission on August 16, 1999 (the "Form 10-Q"). Item 5
is hereby amended to include additional information about the registrant's
acquisition of certain assets from Cadus Pharmaceutical Corporation as described
in the Form 10-Q and to provide reference to the financial statements and pro
forma financial information related thereto. Item 6 is hereby amended to include
Exhibit 23, the independent auditor's consent, Exhibit 99.1, financial
statements of Cadus Pharmaceutical Corporation, and Exhibit 99.2, pro forma
financial information related to the acquisition.
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PART II.
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Amendments to the Agreements Related to Anaderm Research Corp.
In 1996, the Company entered into a joint venture with Pfizer Inc.
("Pfizer") and New York University ("NYU") to form Anaderm Research Corp.
("Anaderm"), a company dedicated to the discovery and development of safe,
effective, pharmacologically active agents for certain cosmetic and
quality-of-life indications, such as skin pigmentation, hair loss and wrinkling.
On April 23, 1996, in connection with the formation of Anaderm, the Company,
Pfizer, and Anaderm, entered into a Collaborative Research Agreement (the "1996
Research Agreement") for the discovery and development of novel compounds to
treat the conditions to which Anaderm was dedicated. The Company also entered
into a Stockholders' Agreement (the "1996 Stockholders' Agreement") with Pfizer,
Anaderm, NYU and certain NYU faculty members (the "Faculty Members"). Under the
1996 Stockholders' Agreement, Anaderm issued common stock to Pfizer and the
Company and options to purchase common stock to NYU and the Faculty Members (who
have exercised their options fully). Pfizer holds 82%, the Company holds 14% and
NYU and the Faculty Members collectively hold 4% of Anaderm's common stock. In
exchange for its 14% of Anaderm's common stock, the Company provided formatting
for high throughput screens and conducted compound screening at its own expense
under the 1996 Research Agreement.
On April 23, 1999, the Company entered into an Amended and Restated
Collaborative Research Agreement (the "1999 Research Agreement") with Pfizer and
Anaderm to expand the collaborative program begun by the 1996 Research Agreement
and an Amended and Restated Stockholders' Agreement (the "1999 Stockholders'
Agreement") with Pfizer, Anaderm, NYU and the Faculty Members. The 1999 Research
Agreement is for a term of three years. Pfizer may terminate the 1999 Research
Agreement, however, after the first or second year of the term in its sole
discretion after consultation with Anaderm and the Company to determine whether
satisfactory progress has been made in the research program during the previous
year. The 1999 Research Agreement provides for funding by Pfizer of up to $35
million in total payments to Anaderm to fund the Company's research and
development activities during the three-year term and up to $15 million in
phase-down funding following expiration of the three-year term or earlier
termination by Pfizer. In the expanded program, the Company will continue to
provide a full range of capabilities including assay biology, high throughput
screening, compound libraries, combinatorial, medicinal, and natural product
chemistry, as well as pharmaceutics, pharmacokinetics and molecular biology. The
Company anticipates a significant increase in its staffing of the program to
conduct its drug discovery efforts during the term of the 1999 Research
Agreement. Anaderm or Pfizer will pay royalties to the Company on the sales of
products resulting from the collaboration.
A significant change to the 1996 Stockholders' Agreement by the 1999
Stockholders' Agreement is the addition of a right on the part of each of the
Company, NYU
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and each of the Faculty Members, exercisable at any time prior to December 31,
1999, to require Anaderm or Pfizer to purchase all, but not less than all, of
the shares of common stock of Anaderm held by each such stockholder for a fixed
price based upon a formula as set forth in the 1999 Stockholders' Agreement. The
stockholders, including the Company, also continue to have the right,
exercisable at any time subsequent to April 23, 2000, to require Anaderm or
Pfizer to purchase all, but not less than all, of the shares of common stock of
Anaderm held by each such stockholder at the "Fair Value" (as such term is
defined in the 1999 Stockholders' Agreement) of such shares. In addition,
Anaderm or Pfizer has the right, exercisable at any time subsequent to April 23,
2002, to require the Company, NYU or any Faculty Member to sell to Anaderm all,
but not less than all, of the shares of common stock of Anaderm held by such
stockholder at the Fair Value of such shares. In the 1996 Stockholders'
Agreement, this call right was exercisable by Anaderm only with respect to the
shares owned by NYU and the Faculty Members. Copies of the 1999 Research
Agreement and 1999 Stockholders' Agreement are attached hereto as Exhibits 10.1
and 10.2 and are incorporated herein by reference.
Development Agreement with Pfizer Inc.
Effective as of April 1, 1999, the Company entered into a Development
Agreement (the "Agreement") with Pfizer for the development of certain compounds
derived from the Collaborative Research Agreement, dated as of April 1, 1996,
between Pfizer and the Company. Under the Agreement, the Company will conduct a
development program formulated by the Company and Pfizer which includes
pre-clinical and clinical research through and including Phase II clinical
trials for compounds to assess their safety and efficacy to be developed as
therapeutic agents for the treatment of psoriasis and other related dermal
pathologies. Pursuant to the terms of the Agreement, Pfizer has granted to the
Company an exclusive, with the exception of Pfizer, license to make and use the
compounds for all research purposes in the development program other than the
sale or manufacture for sale of products or processes. At the end of the
development program, Pfizer must notify the Company of its intention to continue
development and commercialization of a compound within three (3) months
following receipt of the data package from the clinical studies. If Pfizer does
so notify the Company of such intention, it will have an exclusive, world-wide
license, with the right to grant sublicenses, to make, use, sell, offer for sale
and import products developed in the course of the development program. If
Pfizer fails to notify the Company of such intention, the Company will receive
an exclusive, world-wide, royalty-bearing license, including the right to grant
sublicenses, to manufacture, use, sell, offer for sale and import products
developed in the course of the development program. The Company, however, has
the right to refuse to accept this license. The party receiving the license must
pay milestone and royalty payments as consideration therefor. The duration of
the licenses is coextensive with the lives of patents related to the licensed
compounds. 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 in the event of certain
defaults by the parties. A copy of the Agreement is attached hereto as Exhibit
10.3 and is incorporated herein by reference.
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Amendment to the Collaborative Agreement with Novartis Pharma AG
During the quarter ended June 30, 1999, the Company entered into
Amendment Nos. 1 and 2, dated April 13, 1999 and May 31, 1999, respectively, to
its Collaborative Agreement, dated April 19, 1995 (the "1995 Agreement") with
Novartis Pharma AG ("Novartis"). Pursuant to the 1995 Agreement, the Company
granted to Novartis an exclusive license with the right to grant sublicenses to
manufacture, have manufactured, use and sell products containing TGF-Beta 3 for
certain indications, referred to as Licensed Indications. The Company also
granted to Novartis an option (originally to expire in April 1999) to acquire
from the Company a license to manufacture, use and sell products containing
TGF-Beta 3 and other TGF-Betas for all other indications not included in the
Licensed Indications. The four year time limit to exercise the option was
extended until May 31, 1999 by Amendment No. 1 to the 1995 Agreement.
Amendment No. 2 changed certain terms of the 1995 Agreement including
the definition of Licensed Indications, the supply of TGF-Betas, the amount of
royalty payments, and the schedules of the Company's patents and applications
and Novartis' patents. Specifically, oral mucositis and the healing of soft
wound tissue were removed from the Licensed Indications. Novartis acknowledged
in Amendment No. 2 that it has discontinued development of products for the
indications of oral mucositis and healing of soft wound tissue. The parties
agreed that all licenses theretofore granted to Novartis with respect to such
discontinued indications are terminated and that the Company is free to continue
development work and to grant licenses to third parties with respect to such
discontinued indications. The Company is also free to use the results of any
development work with respect to the discontinued indications carried out by
Novartis prior to the date of Amendment No. 2 provided that the Company pays to
Novartis royalties and/or certain other agreed-upon amounts with respect to
sales of products resulting from any such continued development work by the
Company or a licensee thereof. Under Amendment No. 2, the new Licensed
Indications are bone, cartilage and tendon repair. Novartis' option was changed
in Amendment No. 2 from an option to include in the definition of Licensed
Indications all indications not already included to (a) an exclusive option to
include in Licensed Indications the treatment of transplant patients (e.g.,
graft protection), the treatment of ischemia (e.g., angina pectoris and
peripheral vascular disease), the treatment of stroke patients, and the
treatment of inflammatory bowel disease, and (b) a non-exclusive option to
include any other additional indications relating to TGF-Betas (other than the
discontinued indications). The payment terms for the option were also amended
and the time period to exercise the option was extended until May 31, 2003.
Copies of Amendment Nos. 1 and 2 are attached hereto as Exhibits 10.4 and 10.5
and are incorporated herein by reference.
Asset Purchase Agreement with Cadus Pharmaceutical Corporation
(a) Description of the Acquisition
On July 30, 1999, the Company acquired certain assets from Cadus
Pharmaceutical Corporation, a Delaware corporation ("Cadus"), pursuant to the
terms of an
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Asset Purchase Agreement (the "Asset Purchase Agreement") dated the same date.
The assets purchased (the "Assets") include (a) certain assets associated with
certain of Cadus' research programs (including the GPCR Directed Chemistry
Program and a collaboration with Solvay Pharmaceuticals B.V.), (b) Cadus'
compound library, (c) the purchase or license of certain intellectual property
rights, and (d) certain furniture, equipment, inventory, and supplies. Several
assets were retained by Cadus, including (a) monies in escrow in connection with
the judgment of SIBIA Neurosciences, Inc. against Cadus, (b) cash and accounts
receivable, (c) Cadus' Living Chip Technology, (d) Cadus' Functional Genomics
Program, and (e) Cadus' Research Collaboration and License Agreement with
SmithKline Beecham Corporation (the "SmithKline Research Agreement").
Forty-seven Cadus employees, consisting of thirty-six employed in science and
eleven employed in administration and support, were hired by the Company. The
Company intends to continue to utilize some of the Assets in the GPCR Directed
Chemistry Program and the collaboration with Solvay Pharmaceuticals B.V., but
expects to deploy the balance of the Assets in other research areas.
The purchase price for the Assets was $1.5 million in cash plus an
additional $74,096 in cash for certain prepaid expenses plus the assumption of
certain liabilities, including liabilities under Cadus' facility lease (the
"Facility Lease") in Tarrytown, New York (approximately 45,569 square feet) as
of July 1, 1999 (approximately $898,249 in rental payments per annum through
December 31, 2002) and an equipment lease with GECC Capital Corporation
("GECC"). On August 23, 1999, OSI elected to payoff the GECC lease in exchange
for a payment of $2.8 million and obtained ownership of the fixed assets covered
by the lease agreement. On September 21, 1999, Cadus reimbursed the Company
$308,000 in exchange for those fixed assets that have been retained by Cadus for
its own use. The source of the cash portion of the purchase price and the
subsequent decision to payoff the lease agreement with GECC was the Company's
existing cash resources. Liabilities assumed will be paid from such cash
resources and working capital.
In connection with the acquisition, the Company entered into the
following additional agreements with Cadus: (a) a Patent License Agreement, (b)
a Technology License Agreement, and (c) a Software License Agreement, pursuant
to which the Company obtained non-exclusive licenses for the use and practice of
certain of Cadus' patents, Cadus' technology and Cadus' software programs,
respectively. The Company and Cadus also entered into another Patent License
Agreement under which the Company will license back to Cadus on a non-exclusive
basis certain of the patents which were assigned to the Company as part of the
acquisition.
In connection with the acquisition, the Company adopted a Non-Qualified
Stock Option Plan for Former Employees of Cadus (the "Cadus Stock Plan") to
induce certain former employees of Cadus to accept employment with the Company.
The Company granted options to purchase an aggregate of 415,000 shares of common
stock of the Company at a purchase price of $5.00 per share. These options
become exercisable on July 30, 2000. The Asset Purchase Agreement and the Cadus
Stock Plan are attached hereto as Exhibits 2.1 and 2.2, and are incorporated
herein by reference.
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(b) Financial Statements of Business Acquired
The audited financial statements of Cadus as of December 31, 1998 and
1997 for each of the years in the three-year period ended December 31, 1998 are
filed herewith as Exhibit 99.1.
(c) Pro Forma Financial Information
The unaudited pro forma condensed combined financial information
related to the Cadus acquisition is filed herewith as Exhibit 99.2. The
unaudited pro forma condensed combined financial statements combine the
historical balance sheets and statements of operations of the Company and Cadus
giving effect to the asset acquisition using the purchase method of accounting
for a business combination.
Cadus' year-end is December 31. The unaudited pro forma condensed
combined statement of operations for the year ended September 30, 1998 includes
the audited consolidated statement of operations of the Company for the year
ended September 30, 1998 and the audited statement of operations of Cadus for
the year ended December 31, 1998. The unaudited pro forma condensed combined
statement of operations for the nine months ended June 30, 1999 includes the
Company's unaudited consolidated statement of operations for the nine months
ended June 30, 1999 and the combination of the unaudited statements of
operations of Cadus for the three months ended December 31, 1998 and the six
months ended June 30, 1999.
The unaudited pro forma condensed combined balance sheet gives effect
to the acquisition as if it had occurred on June 30, 1999. The unaudited pro
forma condensed combined statements of operations for the fiscal year ended
September 30, 1998 and the nine months ended June 30, 1999 assume the asset
acquisition was effected on October 1, 1997.
The unaudited pro forma condensed combined financial statements were
prepared by utilizing the accounting principles of the respective entities as
outlined in each entity's historical financial statements. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable under the circumstances. The unaudited pro
forma condensed combined financial information is provided for illustrative
purposes only. The Company and the acquired research operations of Cadus may
have performed differently had they always been combined. The unaudited pro
forma condensed combined financial information may not be indicative of the
historical results that would have been achieved had the Company and the
acquired research operations always been combined nor the future results that
the Company will experience after the acquisition.
The information is only a summary and should be read in conjunction
with the Company's historical consolidated financial statements and related
notes contained in the annual reports and other information that was previously
filed with the Securities and Exchange Commission.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1+* Asset Purchase Agreement, dated July 30, 1999, by and
between Cadus Pharmaceutical Corporation and the
Company.
2.2 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option
Plan for Former Employees of Cadus Pharmaceutical
Corporation.
3.1 Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated By-Laws.(2)
10.1* Collaborative Research Agreement, dated as of April
23, 1999, by and among Pfizer Inc., the Company and
Anaderm Research Corp.
10.2* Anaderm Research Corp. Amended and Restated
Stockholders' Agreement, dated April 23, 1999.
10.3* Development Agreement, dated as of April 1, 1999, by
and between Pfizer Inc. and the Company.
10.4 Amendment No. 1, dated as of May 31, 1999, by and
between Novartis Pharma AG and the Company.
10.5* Amendment No. 2, dated as of April 13, 1999, by and
between Novartis Pharma AG and the Company.
23 Independent Auditors' Consent of KPMG LLP.
27 Financial Data Schedule.
99.1 The audited financial statements of Cadus
Pharmaceutical Corporation as of December 31, 1998
and 1997 for each of the years in the three-year
period ended December 31, 1998.
99.2 Unaudited Pro Forma Condensed Combined Balance Sheet
and Statements of Operations of the Company.
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+ The Schedules to the Asset Purchase Agreement have
been omitted pursuant to Item 601(b)(2) of Regulation
S-K under the Securities Exchange Act of 1934, as
amended. The omitted schedules from this filing will
be provided upon request.
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* 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.
(1) Included as an exhibit to the Company's quarterly
report on Form 10-Q, filed on May 14, 1999, and
incorporated herein by reference.
(2) Included as an exhibit to the Company's current
report on Form 8-K, filed on January 8, 1999, and
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K on June 28,
1999 with the Securities and Exchange Commission via EDGAR,
pertaining to the adoption of a new Shareholders Rights Plan,
redemption of rights under the Company's old Shareholders
Rights Plan and termination of the Company's old Shareholders
Rights Plan by the Board of Directors. The earliest event
covered by the report occurred on June 23, 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: October 15, 1999 By: /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
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2.1+* Asset Purchase Agreement, dated July 30, 1999, by and between
Cadus Pharmaceutical Corporation and the Company.
2.2 OSI Pharmaceuticals, Inc. Non-Qualified Stock Option Plan for
Former Employees of Cadus Pharmaceutical Corporation.
3.1 Certificate of Incorporation, as amended.(1)
3.2 Amended and Restated By-Laws.(2)
10.1* Collaborative Research Agreement, dated as of April 23, 1999,
by and among Pfizer Inc., the Company and Anaderm Research
Corp.
10.2* Anaderm Research Corp. Amended and Restated Stockholders'
Agreement, dated April 23, 1999.
10.3* Development Agreement, dated as of April 1, 1999, by and
between Pfizer Inc. and the Company.
10.4 Amendment No. 1, dated as of May 31, 1999, by and between
Novartis Pharma AG and the Company.
10.5* Amendment No. 2, dated as of April 13, 1999, by and between
Novartis Pharma AG and the Company.
23 Independent Auditors' Consent of KPMG LLP.
27 Financial Data Schedule.
99.1 The audited financial statements of Cadus Pharmaceutical
Corporation as of December 31, 1998 and 1997 for each of
the years in the three-year period ended December 31, 1998.
99.2 Unaudited Pro Forma Condensed Combined Balance Sheet and
Statements of Income of the Company.
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+ The Schedules to the Asset Purchase Agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K under the Securities
Exchange Act of 1934, as amended. The omitted schedules from this
filing will be provided upon request.
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* 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.
(1) Included as an exhibit to the Company's quarterly report on Form 10-Q,
filed on May 14, 1999, and incorporated herein by reference.
(2) 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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