SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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: 000-21589
TRIANGLE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 56-1930728
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 University Place
4611 University Drive
Durham, North Carolina 27707
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (919) 493-5980
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 |_|
As of October 15, 1998, there were 24,071,255 shares of Triangle
Pharmaceuticals, Inc. Common Stock outstanding.
Triangle Pharmaceuticals, Inc.
Table of Contents
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September
30, 1998 (unaudited) and December 31, 1997 .......... 3
Condensed Consolidated Statements of Operations
(unaudited) - Three and Nine Months Ended
September 30, 1998 and 1997, and Period From
Inception (July 12, 1995) Through September 30,
1998 ................................................ 4
Condensed Consolidated Statements of Cash Flows
(unaudited) - Nine Months Ended September 30,
1998 and 1997, and Period From Inception (July
12, 1995) Through September 30, 1998 ................ 5
Condensed Consolidated Statements of
Stockholders' Equity - Period From Inception
(July 12, 1995) Through December 31, 1995,
1996, 1997 and the Nine Months Ended September
30, 1998 (unaudited) ................................ 6
Notes to Condensed Consolidated Financial
Statements (unaudited) .............................. 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 9-25
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 26
Signatures ...................................................... 27
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents ...................................... $ 43,715 $ 34,698
Restricted deposits ............................................ 47 43
Investments .................................................... 20,189 23,098
Interest receivable ............................................ 401 300
Prepaid expenses ............................................... 767 791
--------- ---------
Total current assets ......................................... 65,119 58,930
--------- ---------
Property, plant and equipment, net ............................... 3,979 2,872
Investments ...................................................... 9,337 --
Restricted deposits .............................................. 39 76
--------- ---------
Total assets ................................................. $ 78,474 $ 61,878
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................................... $ 3,345 $ 3,152
Capital lease obligation--current .............................. 123 178
Long-term debt--current ........................................ 188 181
Accrued expenses ............................................... 11,755 5,172
--------- ---------
Total current liabilities .................................... 15,411 8,683
--------- ---------
Capital lease obligation--noncurrent ............................. 189 300
Long-term debt--noncurrent ....................................... 16 178
--------- ---------
Total liabilities ............................................ 15,616 9,161
--------- ---------
Commitments and contingencies (See note 4) ....................... -- --
Stockholders' equity:
Common Stock, $0.001 par value; 75,000 shares authorized;
24,071 and 19,995 shares, issued and outstanding, respectively 24 20
Warrants ....................................................... 114 114
Additional paid-in capital ..................................... 158,639 102,260
Accumulated deficit during development stage ................... (95,835) (49,552)
Deferred compensation .......................................... (84) (125)
--------- ---------
Total stockholders' equity ................................... 62,858 52,717
========= =========
Total liabilities and stockholders' equity ................... $ 78,474 $ 61,878
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Period From
Inception
Three Months Ended Nine Months Ended (July 12, 1995)
September 30, September 30, Through
----------------------- ----------------------- September 30,
1998 1997 1998 1997 1998
-------- -------- -------- -------- --------------
Operating expenses:
License fees ...................... $ 167 $ -- $ 6,333 $ 500 $ 10,210
Development ....................... 14,472 6,569 35,906 13,262 63,113
Purchased research and development -- 11,261 -- 11,261 11,261
General and administrative ........ 2,170 1,471 7,207 4,936 18,841
-------- -------- -------- -------- ---------
Loss from operations ................ (16,809) (19,301) (49,446) (29,959) (103,425)
Interest income, net ................ 1,190 1,087 3,163 2,584 7,590
-------- -------- -------- -------- ---------
Net loss ............................ $(15,619) $(18,214) $(46,283) $(27,375) $ (95,835)
======== ======== ======== ======== =========
Basic and diluted net loss per common
share ............................. $ (0.65) $ (0.92) $ (2.06) $ (1.48)
======== ======== ======== ========
Shares used in computing net loss per
common share ...................... 24,058 19,736 22,511 18,492
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Period From
Inception
Nine Months Ended (July 12, 1995)
September 30, Through
----------------------- September 30,
1998 1997 1998
-------- -------- ---------------
Cash flows from operating activities:
Net loss .......................................................... $(46,283) $(27,375) $ (95,835)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ................................... 632 196 1,046
Purchased research and development .............................. -- 11,261 11,261
Stock-based compensation: license fees .......................... -- -- 636
Stock-based compensation: development ........................... 33 34 423
Stock-based compensation: general and
administrative ................................................ 27 92 259
Change in assets and liabilities:
Receivables ..................................................... (101) 408 (401)
Prepaid expenses ................................................ 24 275 (767)
Accounts payable ................................................ 193 796 3,345
Accrued expenses ................................................ 6,564 1,968 11,641
-------- -------- ---------
Net cash used by operating activities ............................. (38,911) (12,345) (68,392)
-------- -------- ---------
Cash flows from investing activities:
Sale (purchase) of restricted deposits .......................... 33 46 (86)
Purchase of investments ......................................... (29,273) (17,565) (91,801)
Proceeds from sale and maturity of investments .................. 22,845 24,464 62,275
Purchase of property, plant and equipment ....................... (1,739) (995) (4,849)
Acquisition of Avid Corporation, net of cash acquired ........... -- (3,053) (3,053)
-------- -------- ---------
Net cash (used) provided by investing activities .................. (8,134) 2,897 (37,514)
-------- -------- ---------
Cash flows from financing activities:
Sale of stock, net of related issuance costs .................... 56,309 29,523 149,202
Sale of options under salary investment option grant program .... 73 53 142
Proceeds from stock options exercised ........................... 1 1 27
Proceeds from notes payable ..................................... -- -- 374
Equipment financing ............................................. -- -- 354
Principal payments on capital lease obligations and notes payable (321) (95) (478)
-------- -------- ---------
Net cash provided by financing activities ......................... 56,062 29,482 149,621
-------- -------- ---------
Net increase in cash and cash equivalents ......................... 9,017 20,034 43,715
Cash and cash equivalents at beginning of period .................. 34,698 25,255 --
-------- -------- ---------
Cash and cash equivalents at end of period ........................ $ 43,715 $ 45,289 $ 43,715
======== ======== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
Convertible
Preferred Stock Common Stock Additional
----------------- --------------- Paid-In Accumulated Deferred
Shares Amount Warrants Shares Amount Capital Deficit Compensation Total
------ ------ -------- ------ ------ ------- ------- ------------ -----
Initial sale of stock ......... 933 $ 1 $ -- 1,175 $ 1 $ 710 $ -- $ -- $ 712
Additional sale of stock ...... 4,249 4 -- 1,495 2 3,137 -- -- 3,143
Stock-based compensation ...... -- -- -- -- -- 12 -- (12) --
Net loss, July 12
through December 31, 1995 ... -- -- -- -- -- -- (967) -- (967)
------ ------- ------ ------ ---- --------- -------- ----- --------
Balance, December 31, 1995 .... 5,182 5 -- 2,670 3 3,859 (967) (12) 2,888
Sale of stock ................. 3,756 4 -- 4,943 5 59,506 -- -- 59,515
Stock-based compensation ...... -- -- 152 700 1 1,127 -- (141) 1,139
Stock options exercised ....... -- -- -- 317 -- 57 -- (26) 31
Conversion of Preferred
to Common Stock ............. (8,938) (9) -- 8,938 9 -- -- -- --
Net loss ...................... -- -- -- -- -- -- (10,917) -- (10,917)
------ ------- ------ ------ ---- --------- -------- ----- --------
Balance, December 31, 1996 .... -- -- 152 17,568 18 64,549 (11,884) (179) 52,656
Sale of stock ................. -- -- -- 2,014 2 29,521 -- -- 29,523
Acquisition of Avid Corporation -- -- -- 400 -- 8,117 -- -- 8,117
Sale of stock options ......... -- -- -- -- -- 70 -- -- 70
Stock-based compensation ...... -- -- (38) -- -- -- -- 48 10
Stock options exercised ....... -- -- -- 13 -- 3 -- 6 9
Net loss ...................... -- -- -- -- -- -- (37,668) -- (37,668)
------ ------- ------ ------ ---- --------- -------- ----- --------
Balance, December 31, 1997 .... -- -- 114 19,995 20 102,260 (49,552) (125) 52,717
(Unaudited)
Sale of stock ................. -- -- -- 4,068 4 56,305 -- -- 56,309
Sale of stock options ......... -- -- -- -- -- 73 -- -- 73
Stock-based compensation ...... -- -- -- -- -- -- -- 36 36
Stock options exercised ....... -- -- -- 8 -- 1 -- 5 6
Net loss ...................... -- -- -- -- -- -- (46,283) -- (46,283)
------ ------- ------ ------ ---- --------- -------- ----- --------
Balance, September 30, 1998 ... -- $ -- $ 114 24,071 $ 24 $ 158,639 $(95,835) $ (84) $ 62,858
====== ======= ====== ====== ==== ========= ======== ===== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share amounts)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Triangle Pharmaceuticals, Inc. and its subsidiary (the "Company" or "Triangle")
as of September 30, 1998 and 1997 have been prepared in accordance with
generally accepted accounting principles and applicable Securities and Exchange
Commission (the "Commission") regulations for interim financial information.
These financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. It is presumed that users of this interim financial information have
read or have access to the audited financial statements for the preceding fiscal
year contained in the Company's Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included. Operating results
for the interim periods presented are not necessarily indicative of the results
that may be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Principles of Consolidation
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation. In September
1998, the Company merged Avid Therapeutics, Inc., an indirect wholly-owned
subsidiary, into Avid Corporation, a direct wholly-owned subsidiary of Triangle.
Both Avid Corporation and Avid Therapeutics, Inc. were acquired by the Company
in August 1997.
3. Net Loss Per Common Share
Basic net loss per common share is computed using the weighted average
number of shares of Common Stock outstanding during the period. Diluted net loss
per common share is computed using the weighted average number of shares of
common and dilutive potential common shares outstanding during the period.
Potential common shares consist of stock options and warrants using the treasury
stock method and are excluded if their effect is antidilutive. For the three
month and nine month periods ended September 30, 1998 and 1997, the weighted
average shares outstanding used in the calculation of net loss per common share
do not include potential common shares outstanding because they have the effect
of reducing net loss per common share.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" ("EPS").
Pursuant to the adoption of SFAS 128 and Securities and Exchange Commission
Staff Accounting Bulletin No. 98, the Company has restated its net loss per
common share for all previously issued periods, including the three month and
nine month periods ending September 30, 1997.
7
Triangle Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except per share amounts)
4. Licensing Agreements
The Company's existing license agreements require future payments of up to
$75,750 contingent upon the achievement of certain development milestones and up
to $30,000 upon the achievement of certain sales milestones. One of the
Company's licensors has the option to receive $2,000 of such future milestone
payments in shares of Common Stock (based on the then current market price) in
lieu of a cash payment. The Company is also obligated to issue up to 2,100
shares of Common Stock upon the achievement of certain development milestones
relating to DMP-450 acquired in the acquisition of Avid Corporation.
Additionally, the Company will pay royalties based on a percentage of net sales
of each licensed product incorporating these drug candidates. Most of the
Company's license agreements require minimum royalty payments commencing three
years after regulatory approval. Depending on the Company's success and timing
in obtaining regulatory approval, aggregate annual minimum royalties and annual
license preservation fees could range from $500 (if only a single drug candidate
is approved for one indication) to $56,500 (if all drug candidates are approved
for all indications) under the Company's existing license agreements.
5. Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS 130 is effective for financial statements for fiscal years beginning after
December 31, 1997 and was adopted by the Company in the three months ended March
31, 1998. Adoption of SFAS 130 did not have a material impact on the Company's
consolidated financial position, results of operations, or cash flows.
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"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for financial statements for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Adoption of SFAS 133 is not expected to have a
material impact on the Company's consolidated financial position, results of
operations, or cash flows.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including those discussed below at "--Risks and
Uncertainties." While this outlook represents management's current judgment on
the future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
The Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements or to reflect events or
circumstances arising after the date hereof.
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's 1997 Annual Report on Form 10-K as well as
with the Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
Triangle is a pharmaceutical company engaged in the development of new
drug candidates primarily in the antiviral area. Since its inception on July 12,
1995, the Company's operating activities have related primarily to recruiting
personnel, negotiating license and option arrangements for its drug candidates,
raising capital and developing its drug candidates. The Company has not received
any revenues from the sale of products and does not expect any of its drug
candidates to be commercially available until at least the year 2000. As of
September 30, 1998, the Company's accumulated deficit was approximately $95.8
million.
The Company's drug development programs require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, clinical trials of drug candidates and payments to the Company's
licensors. The Company has been unprofitable since its inception and expects to
incur substantial and increasing losses for at least the next several years, due
primarily to the expansion of its drug development programs. The Company will
also require substantial capital expenditures relating to activities many of
which may need to occur prior to, and in anticipation of, the potential
regulatory approval of its drug candidates, including expenditures associated
with the establishment of a sales and marketing organization, the manufacture of
drug substance, the development of a distribution system with outside vendors
and other administrative expenditures necessary to support the Company. Many of
these capital expenditures may be incurred irrespective of whether the Company's
drug candidates are approved when anticipated or at all. The Company expects
that losses will fluctuate from period to period and that such fluctuations may
be substantial. See "--Risks and Uncertainties--History of Operating Losses;
Accumulated Deficit; Uncertainty of Future Profitability."
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. The risks, expenses and
difficulties encountered by companies at an early stage of development must be
considered when evaluating the Company's prospects. To address these risks, the
Company must, among other things, successfully develop and commercialize its
drug candidates, secure all necessary proprietary rights, respond to competitive
developments and continue to attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing
these risks. See "--Risks and Uncertainties--Development Stage Company;
Uncertainty of Product Development."
The operating expenses of the Company will depend on several factors,
including the level of development expenses and the potential commercialization
of its drug candidates. Development expenses will depend on the progress and
results of the Company's drug development efforts, which the Company cannot
predict. Management may in some cases be able to control the timing of
development expenses in part by accelerating or decelerating preclinical testing
and clinical trial activities. The level of expenses relating to the
establishment of a sales and marketing organization, the manufacture of drug
substance, the development of a distribution system with outside vendors and
other administrative expenditures will depend on the success of the development
of the Company's drug candidates; however, many of these capital expenditures
may be incurred irrespective of whether the Company's drug candidates are
approved when anticipated or at all. As a result of these factors, the Company
believes that period to period comparisons are not necessarily meaningful and
should not be relied upon as an indication of future performance. Due
9
to all of the foregoing factors, it is possible that the Company's operating
results will be below the expectations of market analysts and investors. In such
event, the prevailing market price of the Company's Common Stock could be
materially adversely affected. See "--Risks and Uncertainties--Volatility of
Stock Price."
Results of Operations
Three Months Ended September 30, 1998 and 1997
Interest Income, Net
The Company had net interest income of $1.2 million for the three months
ended September 30, 1998, compared to $1.1 million for the same period in 1997.
The increase in net interest income is primarily due to larger average cash and
investment balances in 1998 than in 1997 partially offset by a decline in
interest rates received on invested funds. See "--Liquidity and Capital
Resources."
License Fees
License fees totaled $167,000 for the three months ended September 30,
1998, compared to none for the same period in 1997. License fees recorded in
1998 represent the accrual of an annual license preservation fee for one of the
Company's licensed drug candidates.
Development Expenses
Development expenses totaled $14.5 million for the three months ended
September 30, 1998, compared to $6.6 million for the same period in 1997. The
substantial increase in 1998 development expenses, as compared to the same
period in 1997, is the result of the Company's continued and more extensive drug
development activities on its drug candidates. This increase is substantially
attributable to increased clinical trial expense and increased drug synthesis
costs associated with supplying drug necessary to conduct more extensive
clinical trials and toxicology studies. The Company expects its development
expenses to continue to increase in the future due to the continued expansion of
drug development activities on the majority of its drug candidates.
Development activities regarding two of the Company's drug candidates,
Acyclovir Monophosphate ("ACVMP") and CS-92, have been discontinued. Development
activities on these two drug candidates had previously been limited to the
completion of ongoing preclinical tests for ACVMP and a clinical trial for
CS-92. Based, in part, on the results of these studies, management has
determined that a more prudent use of financial and human resources would be to
discontinue their current development. Additionally, the Company has elected to
limit the current support of another drug candidate, 2-CdAP, to the completion
of the ongoing clinical trial. Should circumstances warrant, investment in the
further development of this drug candidate may be reinitiated in the future. The
discontinuation of the ACVMP and CS-92 projects and the limitation of current
support for the 2-CdAP project will allow the Company to concentrate corporate
resources on the other drug candidates within the Company's portfolio that
management believes have the greatest potential.
General and Administrative Expenses
General and administrative expenses totaled $2.2 million for the three
months ended September 30, 1998, compared to $1.5 million for the same period in
1997. The increase in 1998 general and administrative expenses, as compared to
the same period in 1997, is predominantly attributable to the growth of the
Company's operations to support expanded clinical and development activities,
and increased sales and marketing expenditures as the Company begins to develop
its sales and marketing infrastructure. Specifically, the Company has increased
compensation and general operating expenses associated with increased
development activities and overall corporate growth. The Company expects that
its general and administrative expenses will continue to increase in future
periods as the Company continues to expand development activities and the
development of its sales and marketing organization.
10
Nine Months Ended September 30, 1998 and 1997
Interest Income, Net
The Company had net interest income of $3.2 million in the nine months
ended September 30, 1998 compared to $2.6 million for the same period in 1997.
The increase in interest income is primarily due to larger average cash and
investment balances throughout the 1998 period primarily due to the timing and
proceeds of financing activities within the two nine-month periods. See
"--Liquidity and Capital Resources."
License Fees
License fees totaled $6.3 million for the nine months ended September 30,
1998, as compared to $500,000 for the same period in 1997. The increase in
license fees relates to the recognition of obligations required by license
agreements for the Company's portfolio of drug candidates. Predominantly all
1998 license fees represent fees paid in connection with the Company's execution
of a license agreement for L-FMAU with Bukwang Pharm. Ind. Co., Ltd. ("Bukwang")
which occurred on February 27, 1998 and required a $6.0 million license
initiation fee payment, whereas the $500,000 recorded in 1997 represented the
fees paid for the execution of a license agreement for MKC-442.
Development Expenses
Development expenses totaled $35.9 million for the nine months ended
September 30, 1998 compared to $13.3 million for the same period in 1997.
Development expenses for the nine month period ended September 30, 1998
consisted primarily of expenses for development work relating to drug synthesis,
clinical trials, compensation expense, toxicology studies, patent related
activities, and preclinical testing of the Company's drug candidates.
Development expenses for the nine months ended September 30, 1997 consisted
primarily of expenses for development work relating to drug synthesis,
toxicology studies, clinical trials, compensation and preclinical testing
expenses. The substantial increase in 1998 development expenses, as compared to
the same period in 1997, is the result of the Company's continued and more
extensive drug development activities on its portfolio of drug candidates, as
well as an increase in patent related expenditures for those drug candidates.
Specifically, the increase is primarily attributable to increased clinical trial
expense and increased drug synthesis costs associated with providing drug
necessary to conduct expanded clinical trial activity. The Company expects its
development expenses to continue to increase in the future due to continued
expansion of drug development activities, including preclinical testing and
clinical trials, and the continued pursuit of proprietary rights to its drug
candidates. In addition, if the Company in-licenses or otherwise acquires rights
to additional drug candidates, development expenses would increase as a result.
General and Administrative Expenses
General and administrative expenses totaled $7.2 million for the nine
months ended September 30, 1998 compared to $4.9 million for the same period in
1997. General and administrative expenses for the nine months ended September
30, 1998 consisted primarily of compensation expense; amounts paid for outside
professional services, primarily related to marketing and legal services; and
rent expense. General and administrative expenses for the nine months ended
September 30, 1997 consisted primarily of compensation expense, rent expense and
amounts paid for outside professional services. The increase in 1998 general and
administrative expenses, as compared to the same period in 1997, is primarily
due to increases in compensation and general operating expenses associated with
increased development activities and overall corporate growth as the Company
develops its sales and marketing infrastructure. The Company expects that its
general and administrative expenses will continue to increase in future periods
as the Company continues to expand development activities and the development of
its sales and marketing organization.
Liquidity and Capital Resources
11
The Company has financed its operations since inception (July 12, 1995)
through September 30, 1998 primarily with the net proceeds received from private
placements of equity securities, which provided aggregate net proceeds of
approximately $51.9 million (net of offering costs), and the Company's initial
and secondary public offerings, which provided aggregate net proceeds to the
Company totaling approximately $96.8 million (net of offering costs). In
addition, the Company has received approximately $2.0 million as reimbursement
of certain development expenses under a license agreement for one of its drug
candidates.
At September 30, 1998, the Company had net working capital of
approximately $49.7 million, a decrease of approximately $539,000 over working
capital at December 31, 1997. The decrease is principally the result of
continued development of the Company's drug candidates, payment of the license
initiation fee for L-FMAU, and administrative costs offset by the receipt of
$55.8 million in net proceeds from the Company's secondary public offering
completed on April 15, 1998. At September 30, 1998, the Company's principal
source of liquidity was $43.7 million in cash and cash equivalents and $29.5
million in short- and long-term investments which are "available for sale,"
reflecting an approximate $15.4 million increase of cash, cash equivalent and
investment balances over those at December 31, 1997.
The Company had a note payable and a secured equipment lease line
obligation totaling $516,000 at September 30, 1998 as compared to $837,000 at
December 31, 1997. The decrease in these obligations relates to the Company
liquidating its capital lease obligation assumed in the Avid Corporation
acquisition and normal monthly principal payments on its notes payable and other
capital lease obligation.
The Company expects that its capital requirements will increase
substantially in future periods as the Company funds its drug development
programs, continues to develop a sales and marketing organization, acquires drug
substance from third party manufacturers, develops a distribution system with
third parties and incurs other administrative expenditures necessary to support
the Company. The Company's future capital requirements will depend on many
factors, including the progress of the Company's drug development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the cost, timing and outcome of regulatory reviews, the costs
under the license and/or option agreements relating to the Company's drug
candidates, administrative and legal expenses, the establishment of capacity for
sales and marketing functions, the establishment of relationships with third
parties for manufacturing and sales and marketing functions, and other factors.
Amounts payable by the Company in the future under its existing license
agreements are uncertain due to a number of factors, including the progress of
the Company's drug development programs, the Company's ability to obtain
approval to commercialize any drug candidate and the commercial success of any
approved drug. The Company's existing license agreements require future payments
of up to $75.8 million contingent upon the achievement of certain development
milestones and up to $30.0 million upon the achievement of certain sales
milestones. One of the Company's licensors has the option to receive $2.0
million of such future milestone payments in shares of Common Stock (based on
the then current market price) in lieu of a cash payment. The Company is also
obligated to issue up to 2.1 million shares of Common Stock upon the achievement
of certain development milestones relating to DMP-450 acquired in the
acquisition of Avid Corporation. Additionally, the Company will pay royalties
based on a percentage of net sales of each licensed product incorporating these
drug candidates. Most of the Company's license agreements require minimum
royalty payments commencing three years after regulatory approval. Depending on
the Company's success and timing in obtaining regulatory approval, aggregate
annual minimum royalties and annual license preservation fees could range from
$500,000 (if only a single drug candidate is approved for one indication) to
$56.5 million (if all drug candidates are approved for all indications) under
the Company's existing license agreements.
The Company believes that its existing cash, cash equivalents and
investments balances will be adequate to satisfy its anticipated capital
requirements through August 1999. The Company expects that it will be required
to raise substantial additional funds through equity or debt financings,
collaborative arrangements with corporate partners or from other sources. There
can be no assurance that additional funding will be available on favorable terms
from any of these sources or at all. See "--Risks and Uncertainties--Future
Capital Needs; Uncertainty of Additional Funding."
Litigation and Other Contingencies
12
As discussed below in "--Risks and Uncertainties--Uncertainty of Patents;
Dependence on Patents, Licenses, and Proprietary Rights", the Company is
indirectly involved in several opposition and interference proceedings and one
lawsuit filed in Australia regarding the patent rights related to two of its
licensed drug candidates under active development, including FTC. Although the
Company is not a named party in any of these proceedings, it is obligated to
reimburse its licensors for certain legal expenses associated with these
proceedings. The Company cannot predict the outcome of these proceedings. The
Company believes that an adverse judgment would not result in a material
financial obligation to the Company, nor would the Company have to recognize an
impairment under Statement of Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets" as no amounts have been capitalized related
to these drug candidates. However, any development in these proceedings adverse
to the Company's interests, including but not limited to any adverse development
related to the patent rights licensed to the Company for these two drug
candidates or the Company's rights or obligations related thereto, could have a
material adverse effect on the Company's future consolidated financial position,
results of operations and cash flow.
Year 2000 Compliance
The Company recognizes the need to ensure that Year 2000 hardware and
software issues will not adversely impact its operations. In 1997, the Company
initiated a program, and subsequently established a Year 2000 committee, to
assess the expected impact of the Year 2000 date recognition problem on its
existing internal systems, those which it intends to implement and the systems
of its key business vendors. The purpose of this program is to attempt to ensure
that this problem does not have a material adverse effect on the Company's
business operations or its financial condition. The Company has completed an
assessment of its internal information systems which support business
applications and is in the process of modifying or replacing those portions of
software, hardware and other equipment that it has determined are non-compliant.
Key financial, informational and operational systems, including equipment with
embedded microprocessors, have been inventoried and assessed, and detailed plans
are in place to ready the Company's internal operating systems. Implementation
of required changes to critical internal systems is expected to be complete by
March 31, 1999. Testing and verification of internal systems using internal
and/or external experts for critical internal systems is expected to be
completed by June 30, 1999 and the testing and verification of all other
significant existing internal systems is expected to be completed by September
30, 1999.
In addition, the Company is assessing its key business vendors' Year 2000
compliance so as to minimize the likelihood that noncompliance of any vendor
would significantly impact the Company's operations. Informational requests
and/or formal discussions with key business vendors have been distributed or
initiated and replies and readiness will be evaluated pending receipt or
completion of these inquiries and/or discussions. Key business vendors have been
requested to provide assurances regarding their Year 2000 compliance. Risk
assessment, readiness evaluation, action and contingency plans related to these
vendors are expected to be completed by June 30, 1999. Due to the Company's
evolving internal systems and reliance on third parties, the Company anticipates
periodic reevaluation and maintenance regarding its internal systems and
business vendors throughout 1999.
Historical and projected incremental expenditures associated with the
Company's Year 2000 compliance program are not expected to be material to the
Company's consolidated financial position, results of operations, and cash flow.
Due to the Company's relatively short operating history and evolving internal
systems, the modification or replacement of internal systems has not been, nor
is it expected to be, a material expenditure for the Company. Expenditures
required to make the Company Year 2000 compliant will be, and have been,
expensed as incurred. See "--Risks and Uncertainties--Year 2000; Uncertainty of
Compliance."
Risks and Uncertainties
In addition to the other information contained herein, the following risks
and uncertainties should be carefully considered in evaluating Triangle and its
business.
Development Stage Company; Uncertainty of Product Development
13
Triangle was incorporated in July 1995 and accordingly has only a limited
operating history upon which an evaluation of the Company's business and
prospects can be based. In addition, many of the Company's drug candidates are
in the early developmental stage and all of the Company's drug candidates will
require significant, time consuming and costly development, testing and
regulatory clearances. The Company does not expect any of its drug candidates to
be commercially available until at least the year 2000. The successful
development of any new drug, including each of the Company's drug candidates, is
highly uncertain and is subject to a number of significant risks. These risks
include, among others, the possibility that any or all of the Company's drug
candidates will be found to be ineffective, toxic or otherwise fail to receive
necessary regulatory clearances; that the drug candidates will be uneconomical
to manufacture or market or will not achieve broad market acceptance; that third
parties will hold proprietary rights that will preclude the Company from
marketing the drug candidates; or that third parties will market equivalent or
superior products. The failure of the Company's drug development programs to
result in commercially viable products would have a material adverse effect on
the Company.
History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability
The Company has incurred losses since its inception. As of September 30,
1998, the Company's accumulated deficit was approximately $95.8 million. Losses
have resulted principally from costs incurred in the acquisition and development
of the Company's drug candidates and general and administrative costs. These
costs have exceeded the Company's revenues, which to date have been generated
primarily from interest income. The Company has not generated any revenue to
date from the sale of drugs and does not expect to do so until at least the year
2000. The Company will incur significant additional operating losses over the
next several years and expects these annual losses to increase as the Company's
drug development efforts expand. The Company's ability to achieve profitability
will depend upon its ability to develop and obtain regulatory approval for its
drug candidates and to develop the capacity (or establish and maintain
relationships with third parties) to manufacture, market and sell any drug
candidates it successfully develops. There can be no assurance that the Company
will ever generate significant revenues or achieve profitable operations.
Future Capital Needs; Uncertainty of Additional Funding
The Company's drug development programs require substantial capital
expenditures, including expenditures for preclinical testing, chemical synthetic
scale-up, manufacture of drug substance for clinical trials and toxicology
studies, clinical trials of drug candidates and payments to the Company's
licensors. The Company's future capital requirements will depend on many
factors, including the progress of the Company's drug development programs, the
magnitude of these programs, the scope and results of preclinical testing and
clinical trials, the cost, timing and outcome of regulatory reviews, costs under
the license and/or option agreements relating to the Company's drug candidates
(including the costs of obtaining patent protection for the Company's drug
candidates), the timing and the terms of the acquisition of any additional drug
candidates, the rate of technological advances, determinations as to the
commercial potential of the Company's drug candidates, administrative and legal
expenses, the establishment of internal capacity and third party arrangements
for sales and marketing functions, the establishment of third party arrangements
for manufacturing and other factors. The Company expects that its capital
requirements will increase significantly in the future.
The Company has incurred negative cash flow from operations since
inception and does not expect to generate positive cash flow to fund its
operations for at least the next several years. As a result, additional equity
or debt financings will be required in the future to fund the Company's
operations. There can be no assurance that the Company will be able to
consummate any such financings on favorable terms or at all, or that such
financings, if consummated, will be adequate to meet the Company's capital
requirements. Any additional equity or convertible debt financings could result
in substantial dilution to the Company's stockholders. If adequate funds are not
available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its drug development programs or attempt to continue
development by entering into arrangements with collaborative partners or others
that may require the Company to relinquish some or all of its rights to certain
technologies or drug candidates that the Company would not otherwise desire to
relinquish. In addition, from time to time, the Company considers the
acquisition of technologies and drug candidates that, if completed, could
increase the Company's capital requirements. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company.
14
Uncertainties Related to Clinical Trials
Before obtaining required regulatory approvals for the commercial sale of
any of its drug candidates under development, the Company must demonstrate
through preclinical testing and clinical trials that each product is safe and
effective for use in each target indication. The results from preclinical
testing and early clinical trials may not be predictive of results that will be
obtained in pivotal clinical trials, and there can be no assurance that the
Company's clinical trials will demonstrate sufficient safety and effectiveness
to obtain required regulatory approvals or will result in marketable products. A
number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The administration of any drug candidate developed by the Company may
produce undesirable side effects in humans. The occurrence of side effects could
interrupt, delay or halt clinical trials of such drug candidate and could
ultimately prevent its approval by the United States Food and Drug
Administration ("FDA") or foreign regulatory authorities for any and all
targeted indications. The Company, the FDA or foreign regulatory authorities may
suspend or terminate clinical trials at any time if it is believed that the
trial participants are being exposed to unacceptable health risks. There can be
no assurance that clinical trials will demonstrate that any drug candidate under
development by the Company is safe or effective.
The rate of completion of the Company's clinical trials will depend upon,
among other factors, obtaining adequate supplies of drug substance and the rate
of patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the
proximity of patients to clinical sites and the eligibility criteria for the
clinical trial. Delays in planned patient enrollment can result in increased
costs or longer development times or both, which could have a material adverse
effect on the Company. There can be no assurance that if clinical trials are
successfully completed, the Company will be able to file any required regulatory
submissions in a timely manner or that any such submissions will be approved by
regulatory agencies. Any failure of the Company to complete successfully its
clinical trials and obtain approvals of corresponding regulatory submissions
would have a material adverse effect on the Company.
Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its drug
candidates, defend patents once obtained, maintain trade secrets and operate
without infringing upon the patents and proprietary rights of others and to
obtain appropriate licenses to patents or proprietary rights held by third
parties, both in the United States and in foreign countries. The Company has no
patents in its own name and has only four patent applications of its own pending
and one patent application pending jointly in the names of Triangle employees
and co-inventors from another institution, but has obtained or has an option to
obtain licenses to patents, patent applications and other proprietary rights
from third parties with respect to each of its drug candidates.
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. There can be no assurance that the
Company or its licensors have or will develop or obtain the rights to products
or processes that are patentable, that patents will issue from patent
applications or that claims allowed will be sufficient to protect the technology
licensed to or owned by the Company. In addition, no assurance can be given that
any patents issued to or licensed by the Company will not be challenged,
invalidated, infringed or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. The Company's success will
also depend in large part on the Company not breaching the licenses pursuant to
which the Company obtained its technology and drug candidates.
A number of pharmaceutical and biotechnology companies, universities and
research institutions have filed patent applications or received patents to
technologies that cover or are similar to the technologies licensed to or owned
by the Company. The Company is aware of certain patent applications previously
filed by and patents already issued to others that conflict with patents or
patent applications licensed to the Company either by claiming the same methods
or compounds or by claiming methods or compounds that could dominate those
licensed to the Company. In addition, there can be no assurance that the Company
is aware of all patents or patent applications that may materially affect the
Company's ability to make, use or sell any drug candidates that are successfully
developed. For example, United States
15
patent applications are confidential while pending in the Patent and Trademark
Office ("PTO"), and patent applications filed in foreign countries are often
first published six months or more after filing. Any conflicts resulting from
third party patent applications and patents could significantly reduce the
coverage of the patents licensed to or owned by the Company and limit the
ability of the Company or its licensors to obtain meaningful patent protection.
If patents are issued to other companies that contain conflicting claims, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. There can be no assurance that the Company will
be able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevented from
pursuing the development or commercialization of its drug candidates, which
would have a material adverse effect on the Company.
The Company is aware of significant risks regarding the patent rights
licensed by the Company relating to two compounds within its existing drug
candidate portfolio that are currently being developed. The Company may not be
able to commercialize FTC or DAPD for human immunodeficiency virus ("HIV")
and/or hepatitis B virus ("HBV") due to patent rights held by third parties
other than the Company's licensors. The Company is aware of numerous patent
applications and issued patents in the United States and numerous foreign
countries held by third parties other than the Company's licensors that relate
to these compounds and their use alone or in combination ("coactively") to treat
HIV and HBV. As a result, the positions of the Company and its licensors with
respect to the use of FTC and DAPD to treat HIV and/or HBV are highly uncertain
and involve numerous complex legal and factual questions that are unknown or
unresolved. If any of these questions is resolved in a manner that is not
favorable to the Company's licensors or the Company, the Company would not have
the right to commercialize FTC and/or DAPD in the absence of a license from one
or more third parties, which may not be available on acceptable terms or at all.
In addition, even in the absence of an unfavorable resolution of any of these
questions, the Company may attempt to obtain licenses from one or more third
parties in order to reduce or eliminate the risks relating to some or all of
these matters. There can be no assurance that the Company will elect to obtain
any such licenses or that such licenses will be available on acceptable terms or
at all. The Company's inability to commercialize any of these compounds could
have a material adverse effect on the Company.
FTC
FTC belongs to the same general class of nucleosides as 3TC, which has
been approved in the United States by the FDA for use in combination with AZT
for the treatment of HIV and by similar regulatory agencies in many other
countries for use in combination with other nucleoside analogues for the
treatment of HIV. 3TC is currently being sold by Glaxo Wellcome plc ("Glaxo")
for the treatment of HIV under a license agreement with BioChem Pharma Inc.
("BioChem Pharma"). The Company obtained its rights to purified forms of FTC
under a license from Emory University ("Emory"). In 1990 and 1991, Emory filed
in the United States and thereafter in numerous foreign countries patent
applications with claims to composition of matter and methods to treat HIV and
HBV with FTC. Yale University ("Yale") filed patent applications on FTC and its
use to treat HBV in 1991 in the United States, and subsequently licensed its
rights under those patent applications to Emory. The Company's license
arrangement with Emory includes all rights to FTC and its uses claimed in the
Yale patent applications.
HIV. Emory received a United States patent in 1993 covering a method to
treat HIV infection with FTC. In September 1998, Emory received a United States
patent containing composition of matter claims for FTC. BioChem Pharma filed a
patent application in the United States in 1989 and was issued a patent in 1991
covering a group of nucleosides in the same general class as FTC, but which did
not include FTC. BioChem Pharma filed foreign patent applications in 1990 based
upon its 1989 United States patent application, and in those foreign
applications included FTC among a large class of nucleosides. The foreign patent
applications are pending in many countries and have issued in a number of
countries with claims directed to FTC and its use to treat HIV. In addition,
BioChem Pharma filed a United States patent application in 1991 specifically
directed to a purified form of FTC that exhibits advantageous properties for the
treatment of HIV on which two patents have issued, one directed to the purified
form of FTC and another directed to a method for treating antiviral diseases
with the purified form of FTC. The PTO has declared an interference between the
latter BioChem Pharma patent and a patent application filed by Emory. There can
be no assurance that Emory will prevail in the interference proceeding, or that
the interference proceeding will not delay the decision of the PTO regarding
Emory's patent application. BioChem Pharma has also filed patent applications in
many
16
foreign countries based upon its 1991 United States patent application, and
patents have issued in certain countries. BioChem Pharma may have additional
patent applications pending in the United States.
In the United States, the first to invent a subject matter is entitled to
patent protection on that invention. With respect to patent applications filed
prior to January 1, 1996, United States patent law provides that if a party
invented a technology outside the United States, then for purposes of
determining the first to invent the technology, that party is deemed to have
invented the technology on the earlier of the date it introduced the invention
in the United States or the date it filed its patent application. In a recent
filing with the Commission, BioChem Pharma stated that since it conducts
substantially all of its research activities outside the United States, it is at
a disadvantage as to inventions made prior to January 1, 1996, with respect to
obtaining United States patents as compared to companies that maintain research
facilities in the United States. The Company does not know whether Emory or
BioChem Pharma was the first to invent the subject matter claimed in their
respective United States patent applications or patents, or whether BioChem
Pharma invented the technology disclosed in its patent applications in the
United States or introduced that technology in the United States before the date
of its patent applications. In foreign countries, the first party to file a
patent application on an invention, not the first to invent the subject matter,
is entitled to patent protection on that invention. While the Company believes
that Emory's patent applications that disclosed FTC as a useful anti-HIV agent
were filed in many foreign countries before BioChem Pharma filed its foreign
patent applications on that subject matter, BioChem Pharma has been issued
patents in several foreign countries. Further, BioChem Pharma has filed for
patent protection on FTC and its uses in certain countries in which Emory did
not file for patent protection. Emory has opposed or otherwise challenged patent
claims on FTC granted to BioChem Pharma in Australia, Japan and Norway. There
can be no assurance that Emory will initiate opposition proceedings in any other
countries or be successful in any pending or subsequently filed foreign
proceeding attempting to revoke patents issued to BioChem Pharma or addressing
the relative rights of BioChem Pharma and Emory. BioChem Pharma has opposed
patent claims on FTC granted to Emory in Japan and Australia. There can also be
no assurance that BioChem Pharma will not make additional challenges to any
Emory patents or patent applications, or that Emory will succeed in defending
any such challenges. There can be no assurance that the sale of FTC by the
Company for the treatment of HIV would not be held to infringe United States and
foreign patent rights of BioChem Pharma. Under the patent laws of most
countries, a product can be found to infringe a third party patent either if the
third party patent expressly covers the product or method of treatment using the
product, or in certain circumstances, if the third party patent, while not
expressly covering the product or method, covers subject matter that is
substantially equivalent in nature to the product or method. If it is determined
that the sale of FTC for the treatment of HIV infringes a BioChem Pharma patent,
the Company would not have the right to make, use or sell FTC for the treatment
of HIV in one or more countries in the absence of a license from BioChem Pharma.
There can be no assurance that the Company could obtain such a license from
BioChem Pharma on acceptable terms or at all.
HBV. Burroughs Wellcome Co. ("Burroughs Wellcome") filed patent
applications in March 1991 and May 1991 in Great Britain on a method to treat
HBV with FTC. Burroughs Wellcome filed similar patent applications in other
countries, which the Company believes includes the United States. Glaxo
subsequently acquired Burroughs Wellcome's rights under those patent
applications. Those patent applications were filed in many foreign countries
prior to the date Emory filed its patent application on the use of FTC to treat
HBV, and therefore, the foreign patent applications filed by Burroughs Wellcome
have priority over those filed by Emory. In July 1996, Emory instituted
litigation against Glaxo in the United States District Court to obtain ownership
of the patent applications filed by Burroughs Wellcome, alleging that Burroughs
Wellcome converted and misappropriated Emory's invention and property, and that
an Emory employee is the inventor or a co-inventor of the subject matter covered
by the Burroughs Wellcome patent applications. There can be no assurance that
Emory will succeed in its efforts to establish ownership rights. If Emory fails
to establish ownership rights, the Company could not make, use or sell FTC for
the treatment of HBV in countries in which patents are issued to Glaxo without a
license from Glaxo. If Emory establishes only co-ownership rights (and not sole
ownership) to these patents and patent applications, laws in Europe, Korea and
perhaps other countries could prohibit Emory from licensing any co-owned patent
rights without Glaxo's consent. If the Company is required to obtain a license
from Glaxo to sell FTC for the treatment of HBV, there can be no assurance that
the Company would be able to obtain such a license on acceptable terms or at
all.
BioChem Pharma filed a patent application in May 1991 in Great Britain
also directed to a method to treat HBV with FTC. BioChem Pharma filed similar
patent applications in other countries, and in January 1996 was issued a
17
patent in the United States. The PTO has declared an interference between the
BioChem Pharma patent and a patent application filed by Yale. Yale licensed all
of its rights relating to FTC and its uses claimed in this patent application to
Emory, which subsequently licensed these rights to the Company. There can be no
assurance that Yale will prevail in the interference proceeding, or that the
interference proceeding will not delay the decision of the PTO regarding Yale's
patent application. In addition, interference proceedings may be declared with
respect to other patent applications filed by Emory, Burroughs Wellcome's patent
application and BioChem Pharma's issued United States patent. There can be no
assurance that Emory will pursue or succeed in any such proceedings. The Company
cannot sell FTC for the treatment of HBV in the United States unless the BioChem
Pharma patent is held invalid by a United States court or administrative body or
unless the Company obtains a license from BioChem Pharma. There can be no
assurance that the Company would be able to obtain such a license on acceptable
terms or at all. In July 1991, BioChem Pharma was issued a United States patent
on the use of 3TC to treat HBV and has corresponding patent applications pending
or issued in foreign countries. If it is determined that the use of FTC to treat
HBV is not substantially different from the use of 3TC to treat HBV, a court
could hold that the use of FTC to treat HBV infringes these BioChem Pharma 3TC
patents.
In addition, BioChem Pharma has filed in the United States and foreign
countries several patent applications on manufacturing methods relating to a
class of nucleosides that includes FTC, from which several patents have issued
in the United States and many foreign countries. If the Company uses a
manufacturing method that is covered by patents issued on any of these
applications, the Company would not be able to manufacture FTC without a license
from BioChem Pharma. There can be no assurance that the Company would be able to
obtain such a license on acceptable terms or at all.
DAPD
The Company obtained its rights to DAPD under a license from Emory and the
University of Georgia Research Foundation, Inc. ("UGARF"). The DAPD portfolio
licensed to the Company consists of five issued United States patents and
several United States and foreign patent applications that cover a method for
the synthesis of DAPD and its use to treat HIV and HBV. Emory and UGARF filed
patent applications claiming these inventions in the United States in 1990 and
1992. BioChem Pharma filed a patent application in the United States in 1988 on
a group of nucleosides in the same general class as DAPD and their use to treat
HIV, and has filed corresponding patent applications in foreign countries. The
PTO issued a patent to BioChem Pharma in 1993 covering a class of nucleosides
that includes DAPD and its use to treat HIV. Corresponding patents have been
issued to BioChem Pharma in many foreign countries. Emory has filed an
opposition to BioChem Pharma's granted patent application in the European Patent
Office based, in part, upon Emory's assertion that BioChem Pharma's patent does
not disclose how to make DAPD, and Emory has informed the Company that Emory
intends to challenge BioChem Pharma's patents and patent applications in other
countries. Patent claims granted to Emory on a portion of the DAPD technology by
the Australian Patent Office have been opposed by BioChem Pharma. There can be
no assurance that a court or administrative body would invalidate BioChem
Pharma's patent claims or that a sale of DAPD by the Company would not infringe
BioChem Pharma's patents. If Emory, UGARF and the Company do not challenge, or
are not successful in any challenge to, BioChem Pharma's issued patents or
pending patent applications (or patents that may issue as a result of such
applications), the Company will not be able to manufacture, use or sell DAPD in
the United States and any foreign countries in which BioChem Pharma receives a
patent without a license from BioChem Pharma. There can be no assurance that the
Company would be able to obtain such a license from BioChem Pharma on acceptable
terms or at all.
With respect to any of the Company's drug candidates, litigation,
opposition and interference proceedings, including the currently pending
proceedings, could result in substantial cost to the Company. The Company
expects the costs of the currently pending interference proceedings to increase
significantly during the next several years. The Company anticipates that
additional litigation and/or patent interference or opposition proceedings will
be necessary or may be initiated by the Company's licensors or by third parties
to enforce any patents to which the Company has rights or to determine the
scope, validity and enforceability of other parties' proprietary rights and the
priority of an invention, any of which could result in substantial costs and/or
delays to the Company. The outcome of any of these proceedings may affect the
Company's drug candidates and technology. United States patents carry a
presumption of validity and generally can be invalidated only through clear and
convincing evidence. As indicated above, two interferences have already been
declared by the PTO in connection with the FTC technology. There can be no
assurance that the
18
Company's licensed patents would be held valid by a court or administrative body
or that an alleged infringer would be found to be infringing. Further, with
respect to the drug candidates licensed or optioned by the Company from Emory,
UGARF, The Regents of the University of California (the "Regents"), The DuPont
Merck Pharmaceutical Company ("DuPont Merck") and Mitsubishi Chemical
Corporation ("Mitsubishi"), each of these licensors is primarily responsible for
any patent prosecution activities for the technology licensed to the Company,
such as litigation, interference, opposition or other actions and, except for
litigation expenses incurred by DuPont Merck and all patent prosecution expenses
incurred by Mitsubishi, the Company is required to reimburse these licensors for
the costs they incur in performing these activities. Similarly, Yale and UGARF,
the licensors of L-FMAU to Bukwang, are primarily responsible for patent
prosecution activities with respect to L-FMAU at the Company's expense. As a
result, the Company generally does not have the ability to institute or
determine the conduct of any such patent proceedings unless Emory, UGARF, the
Regents, DuPont Merck, Mitsubishi and/or Yale do not elect to institute or elect
to abandon such proceedings. In cases where Emory, UGARF, the Regents, DuPont
Merck, Mitsubishi and/or Yale elect to institute and prosecute patent
proceedings, the Company's rights will be dependent in part upon the manner in
which these licensors conduct the proceedings. These licensors could, in any
proceedings they elect to initiate and maintain, decide not to vigorously pursue
or defend or to settle such proceedings on terms that are not favorable to the
Company. An adverse outcome in any patent litigation or interference proceeding
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease using such technology, any of which could have a material adverse effect
on the Company. Moreover, the mere uncertainty resulting from the initiation and
continuation of any technology related litigation or interference proceeding
could have a material adverse effect on the Company pending resolution of the
disputed matters.
The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors. The Company has filed an application for but has
not obtained a trademark registration with respect to its corporate name and its
logo. The Company is aware that several other companies use trade names that are
similar to the Company's for their businesses. If the Company is not able to
obtain any licenses that may be necessary for the Company to use its corporate
name, it may be required to change its corporate name. The Company's management
personnel were previously employed by other pharmaceutical companies. In many
cases, these individuals are conducting drug development activities for the
Company in areas similar to those in which they were involved prior to joining
the Company. As a result, the Company, as well as these individuals, could be
subject to allegations of violation of trade secrets and other similar claims.
Extensive Government Regulation; No Assurance of Regulatory Approval
Human pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping, reporting and marketing of pharmaceutical products. The
process of obtaining these approvals and the subsequent compliance with
appropriate United States and foreign statutes and regulations are time
consuming and require the expenditure of substantial resources. In addition,
these requirements and processes vary widely from country to country. The time
required for completing preclinical testing and clinical trials and obtaining
regulatory approvals is uncertain. The Company may decide to replace a drug
candidate in preclinical testing and/or clinical trials with a modified drug
candidate, thus extending the development period. In addition, the FDA or
similar foreign regulatory authorities may require additional clinical trials,
which could result in increased costs and significant development delays. Delays
or rejections may also be encountered based upon changes in FDA policy during
the period of product development and FDA review. Similar delays or rejections
may be encountered in other countries. The Company's drug candidates may not
qualify for accelerated development and/or approval under FDA regulations and,
even if some of the Company's drug candidates qualify for accelerated
development and/or approval, they may not be approved for marketing sooner than
would be historically expected or at all and their approval (if any) may be
conditioned on the performance of postmarketing studies or other conditions.
There can be no assurance that even after substantial time and expenditures, any
of the Company's drug candidates under development will receive marketing
approval in any country on a timely
19
basis or at all. If the Company is unable to demonstrate the safety and
effectiveness of its drug candidates to the satisfaction of the FDA or foreign
regulatory authorities, the Company will be unable to commercialize its drug
candidates and will be materially adversely affected. Further, even if
regulatory approval of a drug candidate is obtained, the approval may entail
limitations on the indicated uses for which the drug candidate may be marketed.
A marketed product, its manufacturer and the manufacturer's facilities are
subject to continual review and periodic inspections, and subsequent discovery
of previously unknown problems with a product, manufacturer or facility may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. The failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspension of regulatory
approvals, refusal to approve pending applications, refusal to permit exports
from the United States, product recalls, seizure of products, injunctions,
operating restrictions and criminal prosecutions. Further, the FDA and/or
foreign regulatory authorities may adopt policy changes or additional government
regulations that could prevent or delay regulatory approval of the Company's
drug candidates.
The effect of governmental regulation may be to delay the marketing of new
products for a considerable period of time or to prevent such marketing
altogether, to impose costly requirements on the Company's activities or to
provide a competitive advantage to other companies that compete with the
Company. Adverse clinical results by others could have a negative impact on the
regulatory process and timing with respect to the development and approval of
the Company's drug candidates. A delay in obtaining or failure to obtain
regulatory approvals for any of the Company's drug candidates could have a
material adverse effect on the Company. To the extent that the Company's drug
candidates are intended for use as coactive (i.e., combination) therapy with one
or more other drugs, adverse safety, effectiveness or regulatory developments in
connection with such other drugs may also have a material adverse effect on the
Company. The extent and character of potentially adverse governmental regulation
that may arise from future legislation or administrative action cannot be
predicted.
The Company is also subject to various federal, state and local laws and
regulations relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with its development work.
Intense Competition; Risk of Technological Change
The Company is engaged in segments of the pharmaceutical industry that are
highly competitive and rapidly changing. If successfully developed and approved,
the drug candidates that the Company is currently developing will compete with
numerous existing therapies. In addition, a number of companies are pursuing the
development of novel pharmaceuticals that target the same diseases the Company
is targeting. The Company believes that a significant number of drugs are
currently under development and will become available in the future for the
treatment of HIV, HBV and cancer. The Company anticipates that it will face
intense and increasing competition in the future as new products enter the
market and advanced technologies become available. There can be no assurance
that any products that are successfully developed by the Company will be more
effective, or more effectively marketed and sold, than any products that may be
developed by the Company's competitors. Competitive products may render the
Company's licensed technology and products obsolete or noncompetitive prior to
the Company's recovery of development or commercialization expenses incurred
with respect to any such products. The development by others of a cure or new
treatment methods for the indications for which the Company is developing drug
candidates could render the Company's drug candidates noncompetitive, obsolete
or uneconomical. Many of the Company's competitors have significantly greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. Many of these companies
also have extensive experience in preclinical testing and clinical trials,
obtaining FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. Many of these competitors also have products that have
been approved or are in late stage development and operate large, well funded
research and development programs. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
20
If the Company's drug candidates are successfully developed and approved,
the Company will face competition based on the safety and effectiveness of its
products, the timing and scope of regulatory approvals, the availability of
supply, marketing and sales capability, reimbursement coverage, price, patent
position and other factors. There can be no assurance that the Company's
competitors will not develop or commercialize more effective or more affordable
technology or products, or obtain more effective patent protection, than the
Company. Accordingly, the Company's competitors may succeed in commercializing
products more rapidly or effectively than the Company, which could have a
material adverse effect on the Company.
Risks Related to License and Option Agreements
The agreements pursuant to which the Company has in-licensed or obtained
an option to in-license its drug candidates permit the Company's licensors to
terminate the agreements under certain circumstances, such as the failure by the
Company to achieve certain development milestones or the occurrence of an
uncured material breach by the Company. The termination of any of these
agreements could have a material adverse effect on the Company. Upon termination
of the license agreements with Emory, UGARF and Bukwang, the Company is required
to grant to Emory, UGARF and Bukwang a non-exclusive, royalty free license to
all of the Company's interest in the licensed technology (including any
improvements to the technology developed by the Company). Upon termination of
the license agreement with DuPont Merck, the Company is required to transfer all
approved and pending New Drug Applications relating to DMP-450 to DuPont Merck.
In addition, the license and option agreements with Emory, UGARF, the Regents,
DuPont Merck and Mitsubishi provide that each of these licensors is primarily
responsible for any patent prosecution activities for the technology licensed to
the Company, such as litigation, interference, opposition or other actions and,
except for litigation expenses incurred by DuPont Merck and all patent
prosecution expenses incurred by Mitsubishi, the Company is required to
reimburse these licensors for the costs they incur in performing these
activities. Similarly, Yale and UGARF, the licensors of L-FMAU to Bukwang, are
primarily responsible for patent prosecution activities with respect to L-FMAU
at the Company's expense. The Company believes that these costs as well as other
costs under the license and option agreements relating to the Company's drug
candidates will be substantial and may increase significantly during the next
several years, and any inability or failure of the Company to pay these costs
with respect to any drug candidate could result in the termination of the
license or option agreement for such drug candidate, which could have a material
adverse effect on the Company.
Lack of Manufacturing Capabilities
The Company does not have any manufacturing capacity and relies on third
party manufacturers for the manufacture of all of its clinical trial material.
The Company currently plans to expand its existing relationships or to seek to
establish relationships with additional third party manufacturers for the
commercial production of any products it may develop. There can be no assurance
that the Company will be able to establish or maintain relationships with third
party manufacturers on commercially acceptable terms or that third party
manufacturers will be able to manufacture products in commercial quantities
under applicable Good Manufacturing Practices regulations of the FDA, or similar
requirements of foreign regulatory authorities, on a cost effective basis. The
Company's dependence upon third parties for the manufacture of its products may
adversely affect the Company's profit margins and its ability to develop and
commercialize products on a timely and competitive basis. Further, there can be
no assurance that manufacturing or quality control problems will not arise in
connection with the manufacture of the Company's products or that third party
manufacturers will be able to maintain the necessary governmental licenses and
approvals to continue manufacturing the Company's products. Any failure to
establish or maintain relationships with third parties for its manufacturing
requirements on commercially acceptable terms would have a material adverse
effect on the Company.
Lack of Sales and Marketing Capabilities
The Company will have to develop a sales force or rely on marketing
partners or other arrangements with third parties for the marketing,
distribution and sale of any products it develops. The Company currently intends
to market in the United States most of the drug candidates that it successfully
develops primarily through a direct sales force and outside the United States
through a combination of a direct sales force and arrangements with third
parties. There can be no assurance that the Company will be able to establish
marketing, distribution or sales capabilities or
21
make arrangements with third parties to perform those activities on terms
satisfactory to the Company or that any internal capabilities or third party
arrangements will be cost-effective.
In addition, any third parties with whom the Company establishes
marketing, distribution or sales arrangements may have significant control over
important aspects of the commercialization of the Company's products, including
market identification, marketing methods, pricing, composition of sales force
and promotional activities. There can be no assurance that the Company will be
able to control the amount and timing of resources that any third party may
devote to the Company's products or prevent any third party from pursuing
alternative technologies or products that could result in the development of
products that compete with the Company's products and the withdrawal of support
for the Company's programs.
Dependence on Third Parties for Development and Acquisition of Drug Candidates
The Company has engaged and intends to continue to engage third party
contract research organizations ("CROs") to perform certain functions in
connection with the development of the Company's drug candidates. Although the
Company has designed the clinical trials for its drug candidates, many of the
clinical trials have been conducted by CROs. As a result, many important aspects
of the Company's drug development programs have been and will continue to be
outside the direct control of the Company. In addition, there can be no
assurance that the CROs or other third parties will perform all of their
obligations under arrangements with the Company. In the event that the CROs or
other third parties do not perform clinical trials in a satisfactory manner or
breach their obligations to the Company, the development and commercialization
of any drug candidate may be delayed or precluded, which would have a material
adverse effect on the Company. The Company does not intend to engage in drug
discovery. The Company's strategy for obtaining additional drug candidates is to
utilize the relationships of its management team and Scientific Advisory Board
to identify drug candidates for in-licensing from companies, universities,
research institutions and other organizations. There can be no assurance that
the Company will succeed in acquiring additional drug candidates on acceptable
terms or at all.
Dependence on Key Employees
The Company is highly dependent on its senior management and scientific
staff, including Dr. David Barry, the Company's Chairman and Chief Executive
Officer. Except for Dr. Barry, the Company has not entered into non-competition
agreements with any of its personnel. The loss of the services of any member of
its senior management or scientific staff may significantly delay or prevent the
achievement of product development and other business objectives. Retaining and
attracting qualified personnel, consultants and advisors is critical to the
Company's success. In order to pursue its drug development programs and
marketing plans, the Company will be required to hire additional qualified
scientific and management personnel. Competition for qualified individuals is
intense and the Company faces competition from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on acceptable terms or at all, and the failure to do so would have a
material adverse effect on the Company. In addition, the Company relies on
members of its Scientific Advisory Board to assist the Company in formulating
its drug development strategy. All of the members of the Scientific Advisory
Board are employed by other employers and each such member may have commitments
to, or consulting or advisory contracts with, other entities that may limit his
availability to the Company.
Uncertainty of Health Care Reform Measures and Third Party Reimbursement
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase pressure on
pharmaceutical pricing. While the Company cannot predict whether legislative or
regulatory proposals will be adopted or what effect those proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in whole or in part on the availability of reimbursement to the consumer from
third party payors, such as government and private insurance plans, and these
third party payors
22
frequently mandate predetermined discounts from list prices. Third party payors
are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more products to the
market, there can be no assurance that these products will be considered cost
effective or that reimbursement to the consumer will be available or will be
sufficient to allow the Company to sell its products on a competitive basis.
No Assurance of Market Acceptance
The Company's success will depend in substantial part on the extent to
which any products it develops achieve market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt and scope
of regulatory approvals, the establishment and demonstration in the medical
community of the safety and effectiveness of the Company's products and their
potential advantages over existing treatment methods, and reimbursement policies
of government and third party payors. There can be no assurance that physicians,
patients, payors or the medical community in general will accept or utilize any
product that the Company may develop.
Year 2000; Uncertainty of Compliance
The Year 2000 issue is the result of date-sensitive devices, systems and
computer programs that were deployed using a two digit rather than a four digit
recognition system to define an applicable year. Utilization of any technologies
with this two digit recognition system could result in system failure or
miscalculations causing disruption of operations, including the temporary
inability to process transactions or conduct normal business activities in the
new millennium. The Company anticipates that its internal systems, equipment,
processes and its key business vendors will be substantially Year 2000
compliant. Accordingly, the Company expects that the Year 2000 issue will not
pose significant operational problems either from its internal systems and
equipment or from key business vendors. If the Company fails to implement its
Year 2000 compliance plan successfully or in a timely manner, or if the Company
fails to identify significant two digit dependencies in its systems or with key
business vendors; these failures could have a material adverse effect on the
Company.
While the Company has initiated a program and task force to assess the
systems of key business vendors with which the Company deals, or on which the
Company's systems rely, and from which written assurances have been solicited,
it is extremely difficult to assess the likelihood of these third parties' Year
2000 compliance or the impact this noncompliance may have on Triangle's
operations at this time. If there are significant delays or unanticipated Year
2000 issues with key business vendors, the Year 2000 issue could have a material
adverse effect on the Company's development of its portfolio of drug candidates
and its future consolidated results of operations, cash flow and financial
condition.
Risks Relating to Coactive Therapy
The Company's success will also depend in large part on the extent to
which coactive therapy for the treatment of HIV in the United States and Europe
and for the treatment of HBV in developing areas of the world, particularly
Asia, achieves market acceptance. Present coactive treatment regimens for the
treatment of HIV are expensive (published reports indicate the cost per patient
per year can exceed $13,000), and may increase as new combinations are
developed. These costs have resulted in limitations in the reimbursement
available from third party payors for the treatment of HIV infection, and the
Company expects that reimbursement pressures will continue in the future. If
coactive therapy is accepted as a method to treat HBV infection, treatment
regimens are also likely to be expensive. The Company expects that even the cost
of monotherapy for HBV will be considered expensive in developing countries
where HBV is most prevalent. Any failure of coactive therapy to achieve
significant market acceptance for the treatment of HIV or potentially HBV could
have a material adverse effect on the Company.
Limited Product Liability Insurance; Insurance Risks
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company currently has only limited product
liability insurance relating to potential claims arising from its clinical
trials. The Company intends to expand its insurance coverage if and when
23
the Company begins marketing commercial products. There can be no assurance,
however, that the Company will be able to obtain any additional product
liability insurance on commercially acceptable terms or that the Company will be
able to maintain its existing insurance and/or any additional insurance it may
obtain in the future at a reasonable cost or in sufficient amounts to protect
the Company against potential losses. A successful product liability claim or
series of claims brought against the Company could have a material adverse
effect on the Company.
Hazardous Materials
The Company's drug development programs involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company.
Concentration of Stock Ownership; Control by Management and Existing
Stockholders
As of October 15, 1998, the Company's directors, executive officers and
their respective affiliates beneficially owned approximately 33.6% of the
Company's outstanding Common Stock. As a result, these stockholders will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and the approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company that may be favored
by other stockholders.
Volatility of Stock Price
The market price of the Company's Common Stock is likely to be volatile
and could be subject to wide fluctuations in response to factors such as
announcements of the results of clinical trials, developments with respect to
patents or proprietary rights, announcements of technological innovations, new
products or new contracts by the Company or its competitors, actual or
anticipated variations in the Company's operating results due to a number of
factors including, among others, the level of development expenses, changes in
financial estimates by securities analysts, conditions and trends in the
pharmaceutical and other industries, adoption of new accounting standards
affecting the industry, general market conditions and other factors. As a
result, it is possible that the Company's operating results will be below the
expectations of market analysts and investors, which could have a material
adverse effect on the prevailing market price of the Common Stock.
Sales of a substantial number of shares of the Company's Common Stock in
the public market could adversely affect the market price of the Common Stock.
As of October 15, 1998, there were 24,071,255 shares of Common Stock
outstanding, of which a majority were immediately eligible for resale in the
public market without restriction. In addition, holders of approximately
8,100,000 shares of Common Stock (including shares issuable upon the exercise of
outstanding warrants) are entitled to certain rights with respect to
registration of such shares of Common Stock for offer or sale to the public, and
the Company has filed a registration statement to register the resale of
2,789,500 of these shares. Any such sales may have an adverse effect on the
Company's ability to raise needed capital through an offering of its equity or
convertible debt securities and may adversely affect the prevailing market price
of the Common Stock.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many pharmaceutical and biotechnology companies and that often
have been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations, may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of the securities of companies in the
pharmaceutical and biotechnology industries, securities class action litigation
has often been instituted against those companies. Such litigation, if
instituted against the Company, could result in substantial costs and a
diversion of management attention and resources, which would have a material
adverse effect on the Company. The realization of any of the risks described in
these "Risks and Uncertainties" could have a dramatic and adverse impact on the
market price of the Common Stock.
24
Antitakeover Effects of Charter, Bylaws and Delaware Law
The Company's Second Restated Certificate of Incorporation (the
"Certificate") authorizes the Company's Board of Directors (the "Board") to
issue shares of undesignated preferred stock without stockholder approval on
such terms as the Board may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any such preferred stock that may be issued in the future. Moreover, the
issuance of such preferred stock may make it more difficult for a third party to
acquire, or may discourage a third party from acquiring, a majority of the
voting stock of the Company. The Company's Restated Bylaws (the "Bylaws") divide
the Board into three classes of directors with each class serving a three year
term. These and other provisions of the Certificate and the Bylaws, as well as
certain provisions of Delaware law, could delay or impede the removal of
incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interest of the Company's stockholders. Such provisions could limit the
price that certain investors might be willing to pay in the future for the
Common Stock.
No Dividends
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business.
25
TRIANGLE PHARMACEUTICALS, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedule
b. Reports on Form 8-K.
None
26
TRIANGLE PHARMACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRIANGLE PHARMACEUTICALS, INC.
Date: November 6, 1998 By: /s/ David W. Barry
-------------------------------------
David W. Barry
Chairman and Chief Executive Officer
TRIANGLE PHARMACEUTICALS, INC.
Date: November 6, 1998 By: /s/ James A. Klein, Jr.
-------------------------------------
James A. Klein, Jr.
Chief Financial Officer and Treasurer
27