SCIOS INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
ASSETS September 30, December 31,
2001 2000
------------------ -----------------
------------------ -----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ $
69,904 3,291
Marketable securities 1,006 35,356
Accounts receivable 6,440
5,217
Inventory 428
--
Prepaid expenses and other assets 488
722
------------------ -----------------
------------------ -----------------
Total current assets 78,266 44,586
Marketable securities, non-current 70,666 32,884
Property and equipment, net 8,642
8,910
Other assets 4,063
2,007
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TOTAL ASSETS $ 161,637 $ 88,387
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,879 $
4,587
Other accrued liabilities 12,116 10,749
Deferred contract revenues 128 16,193
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Total current liabilities 19,123 31,529
Long-term debt 41,350 39,095
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------------------ -----------------
Total liabilities 60,473 70,624
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Stockholders' equity:
Preferred stock; $.001 par value; 20,000,000
shares authorized; 4,991 shares issued and outstanding -- --
Common stock; $.001 par value; 150,000,000
shares authorized; 45,397,905 and 39,166,373 shares
issued and outstanding, respectively
45 39
Treasury stock; 30,000 shares
(445) --
Additional paid-in capital 545,930 428,987
Notes receivable from stockholders
(446) (634)
Deferred compensation, net
(106) (417)
Accumulated other comprehensive income
1,256 1,195
Accumulated deficit (411,407)
(445,070)
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Total stockholders' equity 101,164 17,763
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 161,637 $ 88,387
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The accompanying notes are an integral part of these consolidated financial statements.
SCIOS INC.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
---------------- --------------- --------------- ---------------
----------------------------------- ----------------------------------
(Unaudited) (Unaudited)
Revenues:
Product sales $ $ $ $ --
18,330 -- 20,428
Research and development contracts and royalties
1,284 1,192 3,865 4,568
Gain on sale of marketing rights -- --
-- 9,363
Psychiatric product sales, co-promotion
commissions, net of expenses
-- 1,624 3,142 4,539
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
36,798
19,614 2,816 9,107
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
Costs and expenses:
Cost of sales 2,035
2,035 -- --
Research and development 34,665
12,101 9,645 30,223
Marketing, general and administration 35,105
18,347 3,545 9,771
Restructuring credits -- -- -- (993)
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
71,805
32,483 13,190 39,001
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
Loss from operations (12,869) (10,374) (35,007) (29,894)
----------------- ---------------- --------------- ----------------
Other income and expense:
Interest income
1,929 1,221 3,483 3,809
Interest expense (653) (917) (2,256) (2,927)
Realized gains (losses) on securities (3) (187)
205 594
Other income (expense), net (411) (477) (1,113)
221
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
(110) (418)
1,702 1,344
---------------- --------------- --------------- ----------------
---------------- --------------- --------------- ----------------
Net loss (10,484)
(11,167) (33,663) (30,312)
Other comprehensive income:
Change in unrealized gain on securities 616
700 387 61
---------------- --------------- --------------- ----------------
Comprehensive loss: $ $ (10,097) $ (33,602) $ (29,696)
(10,467)
================ =============== =============== ===============
Loss per common share:
Basic and diluted $ $ $ $
(0.25) (0.28) (0.81) (0.80)
Weighted average number of common
shares outstanding used in the
calculation of net loss per share:
Basic and diluted 45,383,394 37,881,422 41,563,771 37,813,858
The accompanying notes are an integral part of these consolidated financial statements.
SCIOS INC.
Consolidated Statements of Cash Flows
(In thousands)
Nine months ended
September 30,
2001 2000
--------------- --------------
(Unaudited)
Cash flows from operating activities:
Net loss $ (33,663) $ (30,312)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
2,508 2,775
Loss on property and equipment retirement
365 254
Accrued long-term interest payable
2,255 2,927
Gain (loss) on sale of securities
594 187
Amortization of deferred compensation
311 232
Changes in assets and liabilities:
Accounts receivable 108
(1,223)
Accounts payable
2,292 1,342
Inventories (428) --
Other accrued liabilities (1,812)
1,367
Prepaid expenses and other assets (1,822)
1,568
Deferred contract revenue (16,065) (936)
Restructuring (credits) charges -- (1,052)
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Net cash used in operating activities (43,508) (24,719)
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Cash flows from investing activities:
Purchases of property and equipment (853)
(2,605)
Sales/maturities of marketable securities 282,340 63,238
Purchases of marketable securities (286,306) (43,528)
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Net cash provided by (used in) investing activities (6,571)
18,857
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Cash flows from financing activities:
Issuance of common stock and collection of notes
receivable from stockholders, net 116,949
2,123
Purchase of treasury stock (445) --
Payment (issues) of notes receivable (4,561)
188
--------------- --------------
Net cash provided by (used in) financing activities 116,692 (2,438)
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Net increase (decrease) in cash and cash equivalents
66,613 (8,300)
Cash and cash equivalents, at beginning of period
3,291 11,582
--------------- --------------
Cash and cash equivalents, at end of period $ 69,904 $
3,282
=============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
Three months ended Nine months ended
September 30, September 30,
20001 2000 2001 2000
--------------------------------- -------------------------------
Numerator
Basic and Diluted
Net loss $ 11,167 $10,484 $33,663 $30,312
Denominator
Basic and Diluted
Weighted average shares 45,383 37,881 41,564 37,814
Basic and diluted loss per share $ 0.25 $ 0.28 $ 0.81 $ 0.80
The potentially dilutive effect of outstanding options to purchase common stock would have been anti-dilutive as to the
reported losses per share in both 2001 and 2000, and they were therefore excluded from the diluted loss per share calculations for
all periods. Further, in the third quarter of 2000, we paid down the Genentech loan by issuing 4,991 shares of preferred stock. The
preferred stock converts at a rate of 100:1 of common stock at Genentech's option. Although potentially dilutive, the optional
settlement of the Genentech loan through the issuance of preferred stock would have been anti-dilutive in both 2001 and 2000 and was
therefore excluded from the calculations.
At September 30, 2001, we had 7,310,087 outstanding stock options at prices ranging from $3.81 to $27.60 per share. At
September 30, 2000, we had 5,238,021 outstanding stock options at prices ranging from $3.69 to $21.13 per share.
4. Industry and Geographic Segment Information
We operate in one business segment, using one measurement of profitability for our business. We receive revenue from product
sales and from licensing and development of products from partners in the United States, Europe and Asia Pacific. At September 30,
2001, all long-lived assets were located in the United States. Revenues for the nine months ended September 30, 2001 were earned in
the United States, from Japan for bulk Fibroblast Growth Factor ("FGF") shipments to Kaken Pharmaceuticals Co., Ltd., and royalty
income from sales of Fiblast(R)spray by Kaken. All revenues from sales of Natrecor(R)were earned in the United States.
Future minimum payments under these leases are as follows:
(in thousands)
2002 $ 1,825
2003 $ 2,069
2004 $ 917
2005 $ 948
2006 $ 979
2007 $ 1,010
2008 $ 868
If the FDA determines that our third-party manufacturing facilities are not adequate, we may lose the ability to manufacture and sell Natrecor®.
Periodically, the FDA is likely to inspect each of the facilities involved in manufacturing Natrecor(R). Natrecor(R)is manufactured for us by Biochemie GmbH, a subsidiary of Novartis, in Austria and is shipped in powder form to Abbott Laboratories in McPherson, Kansas where it is blended, filled and packaged for shipment. Although each facility has previously passed FDA inspections, future inspections may find deficiencies in the facilities or processes that may delay or prevent the manufacture or sale of Natrecor(R). If deficiencies are identified, we may lose the ability to supply and sell Natrecor(R)extended periods of time.We rely on third-party manufacturers, and if they experience any difficulties with their manufacturing processes, we may not obtain sufficient quantities of Natrecor® to assure availability.
We rely on third parties for the manufacture of bulk drug substances and final drug product for clinical and commercial purposes relating to Natrecor(R). Biochemie GmbH is responsible for manufacturing Natrecor(R)in bulk quantities and Abbott Laboratories is responsible for blending, filling and packaging Natrecor(R), and if they encounter problems in these processes, our revenues from future sales of Natrecor(R)could decrease. Natrecor(R)is manufactured using industry-accepted recombinant manufacturing techniques, which must be conducted under strict controls and tight timelines. Natrecor(R)is subject to strict quality control testing during all phases of production and prior to its release to the market. Any quality control testing failures could lead to a reduction in the available supply of Natrecor(R). Biochemie depends on outside vendors for the timely supply of raw materials used to produce our products, including Natrecor(R). Once a supplier's materials have been selected for use in Biochemie's manufacturing process, the supplier in effect becomes a sole or limited source of that raw material due to regulatory compliance procedures. We depend on these third parties to perform their obligations effectively and on a timely basis. If these third parties fail to perform as required, our ability to deliver Natrecor(R)on a timely basis would be impaired. In addition, in the event of a natural disaster, equipment failure, power failure, strike or other difficulty, we may be unable to replace our third party manufacturers in a timely manner and would be unable to manufacture Natrecor(R)to meet market needs. The success of Natrecor(R)is highly dependent on our partner, Innovex L.P., a division of Quintiles Transnational Corp., for marketing, promotion and sales activities. We believe that for Natrecor(R)to be widely adopted, the efforts of an experienced sales force are needed. We have limited experience in managing or operating a marketing organization. Accordingly, we have entered into an exclusive agreement with Innovex to co-promote and sell Natrecor(R)in the United States. As part of our agreement with Innovex, we have hired a sales force of approximately 170 people solely dedicated to the sale of Natrecor(R). If Innovex and we fail to devote appropriate resources to promote, sell and distribute Natrecor(R), sales of Natrecor(R)could be reduced. If Innovex breaches or terminates its agreement with us or otherwise fails to conduct its Natrecor(R)-related activities in a timely manner or if there is a dispute about its obligations, we may need to seek another partner. In that event, we cannot assure you that we will be able to obtain another partner on favorable terms, if at all.The failure of PharmaBio Development, Inc., an affiliate of Innovex, to fulfill its obligation to partially fund the commercialization of Natrecor® may affect our ability to successfully market Natrecor®.
PharmaBio has agreed to fund $30.0 million of our costs to launch Natrecor(R)over the first 24 months of Natrecor(R)'s commercialization. Of the $30.0 million, we anticipate that $10.0 million will be paid to us in 2001. If PharmaBio breaches or terminates its agreement with us or otherwise fails to fulfill its financial obligations under the agreement and we are unable to secure alternative funding, we may lose our ability to successfully market Natrecor(R). In the area of acute CHF, we face competition from companies with substantial financial, technical and marketing resources, which could limit our future revenues from Natrecor(R). Many therapeutic options are available for patients with acute CHF. Currently used drugs fall into three main categories: vasodilators, inotropes, and diuretics. Natrecor(R)would compete against both vasodilators and inotropes in the acute CHF market. Many of these drugs are available in generic formulation with an associated low cost. In addition, milrinone, an inotrope, is currently promoted by Sanofi-Synthelabo Inc. We may not be able to compete effectively with these long-standing current forms of therapy. In addition, Natrecor(R)costs more than many of these existing drugs, which may harm our competitive position relative to these drugs. New drugs in development for the treatment of acute CHF would also compete with Natrecor(R)if approved by the FDA or other regulatory agencies. Tezosentan(R), a non-selective endothelin receptor antagonist, is being developed by Actelion LTD. and has been evaluated in Phase III clinical trials as a vasodilator for the treatment of acute CHF. In addition, Abbott had previously submitted an NDA for Simdax(R), a calcium sensitizer described as an inotrope, but withdrew the application in 2000. To our knowledge, Abbott has not announced its intent to refile an NDA for Simdax(R). If any such new drug in development is approved by the FDA or other regulatory agencies, we may not be able to compete effectively with these new forms of therapy. If we fail to gain approval for Natrecor(R)and our other product candidates in international markets, our market opportunities will be limited. We have not yet filed for marketing clearance for the use of Natrecor(R)or any other product candidates in foreign countries, and we may not be able to obtain any international regulatory approvals for Natrecor(R)or any other product we develop. If we fail to obtain those approvals or if such approvals are delayed, the geographic market for Natrecor(R)or our other product candidates would be limited.We will require a partner to market and commercialize Natrecor® and our other product candidates in international markets.
We plan to partner with other companies for the sale of Natrecor(R)and our other product candidates outside of the United States. We cannot assure you that we will be able to enter into such arrangements on favorable terms or at all. In addition, partnering arrangements could result in lower levels of income to us than if we marketed our products entirely on our own. In the event that we are unable to enter into a partnering arrangement for Natrecor(R)or our other product candidates in international markets, we cannot assure you we will be able to develop an effective international sales force to successfully market and commercialize those products. If we fail to enter into partnering arrangements for our products and are unable to develop an effective international sales force, our revenues would be limited.If we fail to obtain additional marketing approvals from the FDA for the use of Natrecor® for additional therapeutic indications or if after approval such approval is subsequently revoked, our revenues from Natrecor® will suffer.
In order to expand the medical uses, or therapeutic indications, for which we may market Natrecor(R), we must successfully complete additional clinical trials, which could be lengthy and expensive and will require the allocation of both substantial management and financial resources. Thereafter, we will have to apply separately to the FDA for clearance to market Natrecor(R)for other indications. We cannot assure you that we will be able to successfully complete the required clinical trials or that the FDA will approve Natrecor(R)for any additional indications. In addition, even if Natrecor(R)is approved by the FDA, we cannot exclude the possibility that serious adverse events related to the use of Natrecor(R)might occur in the future, which could either limit its use or cause the FDA to revoke our approval to market Natrecor(R).We have a history of losses, expect to operate at a loss for the foreseeable future and may never be profitable.
We may not be able to achieve or earn a profit in the future. We began operations in December 1981, and since that time, with the sole exception of 1983, we have not earned a profit on a full-year basis. Our losses have historically resulted primarily from our investments in research and development. As of September 30, 2001, we had an accumulated deficit of approximately $445.1 million. To date, nearly all of our revenues have come from: |X| sales of Natrecor beginning in August 2001; |X| sales of bulk FGF and royalties from Fiblast(R)Spray sales to Kaken in Japan; |X| one-time signing fees from our corporate partners under agreements supporting the research, development and commercialization of our product candidates; |X| one-time payments from our corporate partners when we achieved regulatory or development milestones; |X| research funding from our corporate partners; and |X| our psychiatric sales and marketing division. We expect that our research, development and clinical trial activities and regulatory approvals, together with future general and administrative activities and the costs associated with launching and commercializing our product candidates and launching and commercializing Natrecor(R)in the United States, will result in significant expenses for the foreseeable future. Our operating results are subject to fluctuations that may cause our stock price to decline. Our revenues and expenses have fluctuated significantly in the past. This fluctuation has in turn caused our operating results to vary significantly from quarter to quarter and year to year. We expect the fluctuations in our revenues and expenses to continue, and thus, our operating results should also continue to vary significantly. These fluctuations may be due to a variety of factors including: |X| our success in selling Natrecor(R); |X| the timing and realization of milestone and other payments from our corporate partners; |X| the timing and amount of expenses relating to our research and development, product development and manufacturing activities; and|X| the extent and timing of costs related to our activities to obtain patents on our inventions and to extend, enforce and/or defend our patents and other rights to our intellectual property.
Because of these fluctuations, it is possible that our operating results for a particular quarter or quarters will not meet the expectations of public market analysts and investors, causing the market price of our common stock to decline. We believe that period-to-period comparisons of our operating results are not a good indication of our future performance, and you should not rely on those comparisons to predict our future operating or share price performance.We depend on our key personnel and we must continue to attract and retain key employees and consultants.
We depend on our key scientific and management personnel. Our ability to pursue the development of our current and future product candidates depends largely on retaining the services of our existing personnel and hiring additional qualified scientific personnel to perform research and development. We also rely on personnel with expertise in clinical testing, government regulation, manufacturing and marketing. Attracting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. Failure to retain our key scientific and management personnel or to attract additional highly qualified personnel could delay the development of our product candidates and harm our business.Other than Natrecor®, our product candidates are at early stages of development, and if we are unable to develop and commercialize these product candidates successfully, we will not generate revenues from these products.
We face the risk of failure normally found in developing biotechnology products based on new technologies. Successfully developing, manufacturing, introducing and marketing our early-stage product candidates will require several years and substantial additional capital.Our operations depend on compliance with complex FDA and comparable international regulations. If we fail to obtain approvals on a timely basis or to achieve continued compliance, the commercialization of our products could be delayed.
We cannot assure you that we will receive the regulatory approvals necessary to commercialize our product candidates, which could cause our business to fail. Our product candidates are subject to extensive and rigorous government regulation by the FDA and comparable agencies in other countries. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If our potential products are marketed abroad, they will also be subject to extensive regulation by foreign governments. In addition, we have only limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede our ability to obtain such approvals. The results of preclinical studies and clinical trials of our products may not be favorable. In order to obtain regulatory approval for the commercial sale of any of our product candidates, we must conduct both preclinical studies and human clinical trials. These studies and trials must demonstrate that the product is safe and effective for the clinical use for which we are seeking approval. We are currently planning to conduct Phase II clinical trials of our lead p38 kinase inhibitor small molecule compound. The results of these or other clinical trials that we may conduct in the future may not be successful. Adverse results from our current or any future trials would harm our business. We also face the risk that we will not be permitted to undertake or continue clinical trials for any of our product candidates in the future. Even if we are able to conduct such trials, we may not be able to satisfactorily demonstrate that the products are safe and effective and thus qualify for the regulatory approvals needed to market and sell them. Results from preclinical studies and early clinical trials are often not accurate indicators of results of later- stage clinical trials that involve larger human populations.Our products use novel alternative technologies and therapeutic approaches, which have not been widely studied.
Many of our product development efforts focus on novel alternative therapeutic approaches and new technologies that have not been widely studied. These approaches and technologies may not be successful. We are applying these approaches and technologies in our attempt to discover new treatments for conditions that are also the subject of research and development efforts of many other companies.Rapid changes in technology and industry standards could render our potential products unmarketable.
We are engaged in a field characterized by extensive research efforts and rapid technological development. New drug discoveries and developments in our field and other drug discovery technologies are accelerating. Our competitors may develop technologies and products that are more effective than any we develop or that render our technology and potential products obsolete or noncompetitive. In addition, our potential products could become unmarketable if new industry standards emerge. To be successful, we will need to enhance our product candidates and design, develop and market new product candidates that keep pace with new technological and industry developments. Many other companies are targeting the same diseases and conditions as we are. Competitive products from other companies could significantly reduce the market acceptance of our products. The markets in which we compete are well established and intensely competitive. We may be unable to compete successfully against our current and future competitors. Our failure to compete successfully may result in pricing reductions, reduced gross margins and failure to achieve market acceptance for our potential products. Our competitors include pharmaceutical companies, biotechnology companies, chemical companies, academic and research institutions and government agencies. For example, many pharmaceutical and biotechnology companies have initiated research programs similar to ours. Many of these organizations have substantially more experience and more capital, research and development, regulatory, manufacturing, sales, marketing, human and other resources than we do. As a result, they may: |X| develop products that are safer or more effective than our product candidates;|X| obtain FDA and other regulatory approvals or reach the market with their products more rapidly than we can, reducing the potential sales of our product candidates;
|X| devote greater resources to market or sell their products; |X| adapt more quickly to new technologies and scientific advances; |X| initiate or withstand substantial price competition more successfully than we can; |X| have greater success in recruiting skilled scientific workers from the limited pool of available talent; |X| more effectively negotiate third-party licensing and collaboration arrangements; and |X| take advantage of acquisition or other opportunities more readily than we can. In addition, our product candidates, if approved and commercialized, will compete against well-established existing therapeutic products that are currently reimbursed by government health administration authorities, private health insurers and health maintenance organizations. We face and will continue to face intense competition from other companies for collaborative arrangements with pharmaceutical and biotechnology companies, for relationships with academic and research institutions and for licenses to proprietary technology. In addition, we anticipate that we will face increased competition in the future as new companies enter our markets and as scientific developments continue to expand the understanding of various diseases. While we will seek to expand our technological capabilities to remain competitive, research and development by others may render our technology or product candidates obsolete or noncompetitive or result in treatments or cures superior to any therapy developed by us.If we are unable to protect our intellectual property rights adequately, the value of our potential products could be diminished.
Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights. Patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and surrounded by a great deal of uncertainty. Accordingly, we cannot assure you that our pending patent applications will result in issued patents. Because certain U.S. patent applications may be maintained in secrecy until a patent issues, we cannot assure you that others have not filed patent applications for technology covered by our pending applications or that we were the first to invent the technology. Other companies, universities and research institutions have or may obtain patents and patent applications that could limit our ability to use, manufacture, market or sell our product candidates or impair our competitive position. As a result, we may have to obtain licenses from other parties before we could continue using, manufacturing, marketing or selling our potential products. Any such licenses may not be available on commercially acceptable terms, if at all. If we do not obtain required licenses, we may not be able to market our potential products at all or we may encounter significant delays in product development while we redesign potentially infringing products or methods. In addition, although we own a number of patents, including issued patents and patent applications relating to Natrecor(R)and certain of our p38 kinase inhibitors, the issuance of a patent is not conclusive as to its validity or enforceability, and third parties may challenge the validity or enforceability of our patents. We cannot assure you how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings. It is possible that a competitor may successfully challenge our patents or that challenges will result in limitations of their coverage. In addition, the cost of litigation to uphold the validity of patents can be substantial. If we are unsuccessful in such litigation, third parties may be able to use our patented technologies without paying licensing fees or royalties to us. Moreover, competitors may infringe our patents or successfully avoid them through design innovation. To prevent infringement or unauthorized use, we may need to file infringement claims, which are expensive and time- consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or may refuse to stop the other party from using the technology at issue on the grounds that its technology is not covered by our patents. Policing unauthorized use of our intellectual property is difficult, and we cannot assure you that we will be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States. In addition to our patented technology, we also rely on unpatented technology, trade secrets and confidential information. We may not be able to effectively protect our rights to this technology or information. Other parties may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We require each of our employees, consultants and corporate partners to execute a confidentiality agreement at the commencement of an employment, consulting or collaborative relationship with us. However, these agreements may not provide effective protection of our technology or information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies. If we fail to negotiate or maintain successful arrangements with third parties, our development and marketing activities may be delayed or reduced. We have entered into, and we expect to enter into in the future, arrangements with third parties to perform research, development, regulatory compliance, manufacturing or marketing activities relating to some or all of our product candidates. If we fail to secure or maintain successful collaborative arrangements, our development and marketing activities may be delayed or reduced. We may be unable to negotiate favorable collaborative arrangements that, if necessary, modify our existing arrangements on acceptable terms. Most of our agreements can be terminated under certain conditions by our partners. In addition, our partners may separately pursue competing products, therapeutic approaches or technologies to develop treatments for the diseases targeted by us or our efforts. Even if our partners continue their contributions to the collaborative arrangements, they may nevertheless determine not to actively pursue the development or commercialization of any resulting products. Also, our partners may fail to perform their obligations under the collaborative arrangements or may be slow in performing their obligations. In these circumstances, our ability to develop and market potential products could be severely limited.We may be required to defend lawsuits or pay damages in connection with the alleged or actual harm caused by our product candidates.
We face an inherent business risk of exposure to product liability claims in the event that the use of our product candidates is alleged to have resulted in harm to others. This risk exists in clinical trials as well as in commercial distribution. In addition, the pharmaceutical and biotechnology industries in general have been subject to significant medical malpractice litigation. We may incur significant liability if product liability or malpractice lawsuits against us are successful. Although we maintain product liability insurance, we cannot be sure that this coverage is adequate or that it will continue to be available to us on acceptable terms.We use hazardous materials in our business, and any claims relating to improper handling storage or disposal of these materials could harm our business.
Our research and development activities involve the controlled use of hazardous materials, chemicals, biological agents and radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any resulting damages, and any such liability could exceed our resources. We may be required to incur significant costs to comply with these laws in the future. Failure to comply with these laws could result in fines and the revocation of permits, which could prevent us from conducting our business.Our stock price continues to experience large fluctuations, and you could lose some or all of your investment.
The market price of our stock has been and is likely to continue to be highly volatile. These price fluctuations have been rapid and severe. The market price of our common stock may fluctuate significantly in response to the following factors, most of which are beyond our control: |X| variations in our quarterly operating results; |X| changes in securities analysts' estimates of our financial performance; |X| changes in market valuations of similar companies; |X| announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; |X| additions or departures of key personnel; |X| future sales of common stock; |X| announcements by us or our competitors of technological innovations of new therapeutic products, clinical trial results and developments in patent or other proprietary rights; |X| announcements regarding government regulations, public concern as to the safety of drugs developed by us or others or changes in reimbursement policies; and|X| fluctuations in stock market price and volume, which are particularly common among securities of biopharmaceutical companies.
We are at risk of securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced greater than average stock price volatility in recent years. Several years ago, we were the subject of a securities class action lawsuit, which was eventually dismissed with a determination that the plaintiffs had no basis for their claim. If we face such litigation in the future, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business. We have implemented provisions in our charter documents that may ultimately delay, discourage or prevent a change in our management or control of us. Our certificate of incorporation and bylaws contain provisions that could make it more difficult for our stockholders to replace or remove our directors or to effect any other corporate action. These provisions include those which: |X| prohibit holders of less than ten percent of our outstanding capital stock from calling special meetings of stockholders; |X| prohibit stockholder action by written consent, thereby requiring stockholder actions to be taken at a meeting of our stockholders; and|X| establish advance notice requirements for nominations for election to the board of directors or for proposing matters than can be acted upon by stockholders at stockholder meetings.
Moreover, our certificate of incorporation does not provide for cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates. Some of the above provisions may also have possible anti-takeover effects, which may make an acquisition of us by a third party more difficult, even if such an acquisition could be beneficial to our stockholders. In addition, our certificate of incorporation also authorizes us to issue up to 20,000,000 shares of preferred stock in one or more different series with terms to be determined by our board of directors at time of issuance. As of September 30, 2001, an aggregate of 71,053 shares of preferred stock had been designated for issuance as Series A or Series B preferred stock by the board of directors and 4,991 shares of Series B preferred stock were issued and outstanding. Issuance of other shares of preferred stock could also be used as an anti-takeover device.| Report on Form 8-K Filed on July 13, 2001. On July 10, 2001, Scios Inc., announced that it received a letter from the U.S. Food and Drug Administration stating that the Natrecor® (nesiritide) New Drug Application was approvable. |
| Report on Form 8-K Filed on August 13, 2001. On August 13, 2001, Scios Inc. announced that it has received final approval from the U.S. Food and Drug Administration (FDA) to market Natrecor® (nesiritide) for the intravenous treatment of patients with acutely decompensated congestive heart failure who have shortness of breath (i.e., dyspnea) at rest or with minimal activity. |
| Report on Form 8-K Filed on September 20, 2001. On September 20, 2001, Scios Inc. announced that, effective immediately, its Board of Directors authorized the repurchase of up to $10 million of Scios common stock. |
B. Under the terms of Section 7.2 of the parties aforesaid 749 N. Mary Sublease, Scios may exercise an option to extend the Sublease Term for one period of eleven (11) months from February 1, 2002 through December 31, 2002 (“Option Term”). Scios now wishes to exercise such option.
C. In addition, Scios wishes to further extend its sublease of the Premises for an additional twelve- (12) month period from January 1, 2003 through December 31, 2003 (“extended Sublease Term”). Trimble is willing to agree to such additional extended sublease period.
AGREEMENT NOW THEREFORE, in consideration for the agreements of Trimble and Scios contained herein and other valuable consideration, Trimble and Scios hereby amend their 749 N. Mary Sublease as follows: 1. Extended Sublease Term. The term of the 749 N. Mary Sublease shall be extended for the period commencing on February 1, 2002 and terminating on December 31, 2003 ("Extended Sublease Term"). 2. Extended Sublease Term Base Rent. Base Rent due and payable by Subtenant to Sublandlord during the Extended Sublease Term shall be as follows: Dates Base Rental Rate Monthly Rent ----- ---------------- ------------- February 1,2002- $1.95/SF/Mo $65,520.00/Mo December 31,2002 January 1, 2002- $2.20/SF/Mo $73,920.00/Mo December 31, 20033. Extension Condition; Cross Default. Sublandlord’s agreement to extend the term of the 749 N. Mary Sublease from January 1, 2003 through December 31, 2003 under the terms of this First Amendment to Sublease is conditioned upon Subtenant’s execution of that certain Sublease Agreement with respect to premises located at 617 N. Mary Ave., Sunnyvale, CA. (the “617 N. Mary Sublease”) concurrently herewith. Subtenant hereby agrees that a default beyond any applicable cure period by Subtenant under the terms of the 617 N. Mary Sublease as amended shall be a default under the Sublease entitling the Sublandlord immediately to exercise its remedies thereunder.
4. Master Landlord Consent; Deemed exercise of Extension Option in Absence of Master Landlord’s Consent. Subtenant acknowledges and agrees that Sublandlord’s ability to extend the period of the 749 N. Mary Sublease from January 1, 2003 through December 31, 2003 is conditioned on the prior written consent of Master Landlord as provided in the Master Lease. Should Master Landlord refuse its consent to such extension of the term of the 749 N. Mary Sublease from January 1, 2003 through December 31, 2003 on terms acceptable to Sublandlord, this Amendment shall be deemed to be amended by the exclusion of the extension of the term from January 1, 2003 through December 31, 2003. In the event of such refusal to consent (1) Sublandlord shall not be responsible to Subtenant for any other costs or expenses Subtenant may have incurred by reason of its entering into this Amendment, and (2) Subtenant shall be deemed to have effectively exercised it option to extent the term of the Sublease in accordance with Section 7.2 of the 749 N. Mary Sublease, and the new expiration date of the term of the 749 N. Mary Sublease shall be December 31, 2002.
5. Entire Agreement. This Amendment contains the entire agreement of the parties| hereto with respect to its subject matter, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein shall be of any force and effect. |
__________ David W. Gryska Address for Notice: ------------------- Chief Financial Officer - Scios Inc. 820 West Maude Avenue Sunnyvale, CA 94086
b) Lease Agreement dated November 17, 1995 regarding the premises located at 810 West Maude Avenue, Sunnyvale, CA.
As a Consequence of such exercise, the term of each of the Leases is hereby extended to August 31, 2008, in accordance with the terms of each Lease.
Sincerely, Scios Inc. By___/S/David W. Gryska ---------------------------------- Name: David W. Gryska Title: Chief Financial Officer cc: Anna B. Pope, Esq.A. WHEREAS, by Lease Agreement dated January 22, 1993 Landlord leased to Alpha 1 Biomedicals, Inc., a Delaware corporation 15,018 ± square feet of that certain 51,680 ± square foot building located at 810 W. Maude Ave., Sunnyvale, California, the details of which are more particularly set forth in said January 22, 1993 Lease Agreement, and B. WHEREAS, said Lease was amended by Amendment No. 1 dated September 1, 1993 by changing the classification of parking spaces as set forth in Paragraph 45 of said Lease Agreement from sixty-four (64) nonexclusive parking spaces to eight (8) exclusive parking spaces and fifty-six (56) nonexclusive parking spaces, and, C. WHEREAS, said Lease was amended by Amendment No. 2 dated December 27, 1993 which: (i) changed the street address of Tenant’s Leased Premises to 820 West Maude Avenue, (ii) increased the total square footage leased by 11,902 ± square feet or from 15,018 ± 26,920 ± square feet, (iii) extended the Lease Term for three (3) years five (5) months commencing on September 1, 1998 and ending on January 31, 2002, (iv) amended the Basic Rent schedule to reflect the increase in square footage and Term, (v) deleted Paragraph 46 (“FIRST OPTION TO EXTENT LEASE FOR FIVE (5) YEARS”) in its entirety and, (vi) replaced Paragraph 47 (“SECOND OPTION TO EXTEND LEASE FOR FIVE (5) YEARS”), and, D. WHEREAS, said Lease was amended by Amendment No. 3 dated March 1, 1994 which changed the effective date of the increase in square footage from February 1, 1994 to March 1, 1994 and amended the Basic Rent and Aggregate Rent accordingly, and, E. WHEREAS, said Lease was amended by Landlord’s Consent to Assignment dated March 20, 1995 which was acknowledged the assignment of said Lease from Alpha 1 Biomedicals, Inc., to Scios Nova, Inc., and F. WHEREAS, said Lease was amended by Amendment No. 4 dated December 7, 1995 which added a “Lease Co-Terminous” Paragraph and a “Cross Default” Paragraph, and, G. WHEREAS, said Lease was amended by Letter Agreement dated September 17, 1996 whereby Landlord acknowledged Tenant’s name change from “Scios Nova, Inc.”, a Delaware corporation to “Scios Inc.”, a Delaware corporation, effective March 26, 1996, and, H. WHEREAS, it is now the desire of the parties hereto amend the Lease by (i) extending the Term for six (6) years, seven (7) months, changing the Termination Date from January 31, 2002 to August 31, 2008, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly, (iii) increasing the Security Deposit required under the Lease, (iv) amending Lease Paragraphs 9 (“Taxes”), and 12 (“Property Insurance”), (v) replacing Lease Paragraphs 10 (“Liability Insurance”), and 36 (“Limitation of Liability”), and (vi) adding a paragraph (“Authority to Execute”) to said Lease Agreement as hereinafter set forth.
AGREEMENT NOW THEREFORE, for the valuable consideration, receipt of which is hereby acknowledged, and in consideration of the hereinafter mutual promises, the parties hereto do agree as follows: 1. TERM OF LEASE: Pursuant to Paragraph 8 of Amendment No. 2, Tenant has exercised its Option to Extend. Therefore it is ------------- agreed between the parties that the Term of said Lease Agreement shall be extended for an additional six (6) year, seven (7) month period, and the Lease Termination Date shall be changed from January 31, 2002 to August 31, 2008. 2. BASIC RENTAL FOR EXTENDED TERM OF LEASE: The monthly Basic Rental for the Extended Term of Lease shall be as follows: --------------------------------------- On February 1, 2002, the sum of THIRTY THREE THOUSAND SIX HUNDRED FIFTY AND NO/100 DOLLARS ($33,650.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2002. On September 1, 2002, the sum of THIRTY FOUR THOUSAND NINE HUNDRED NINETY SIX AND NO/100 DOLLARS ($34,996.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2003. On September 1, 2003, the sum of THIRTY SIX THOUSAND THREE HUNDRED FORTY TWO AND NO/100 DOLLARS ($36,342.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2004. On September 1, 2004, the sum of THIRTY SEVEN THOUSAND SIX HUNDRED EIGHTY EIGHT AND NO/100 DOLLARS ($37,688.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2005. On September 1, 2005, the sum of THIRTY NINE THOUSAND THIRTY FOUR AND NO/100 DOLLARS ($39,034.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2006. On September 1, 2006, the sum of FORTY THOUSAND THREE HUNDRED EIGHTY AND NO/100 DOLLARS ($40,380.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2007. On September 1, 2007, the sum of FORTY ONE THOUSAND SEVEN HUNDRED TWENTY SIX AND NO/100 DOLLARS ($41,726.00) shall be due, and a like sum due on the first day of each month thereafter through and including August 1, 2008. The Aggregate Basic Rent for the Lease shall be increased by $2,997,542.00 or from $2,756.477.80 to $5,754,019.80. 3. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by $5,384.00, or from $67,300.00 to $72,684.00, payable upon ---------------- Tenant's execution of this Amendment No. 5. 4. TAXES: Lease Paragraph 9 ("Taxes") shall be amended to include the following language: -----| “The term “Real Estate Taxes” shall also include supplemental taxes related to the period of Tenant’s Lease Term whenever levied, including any such taxes that may be levied after the Lease Term has expired”. |
| Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law.” |
8. AUTHORITY TO EXECUTE. The parties executing this Agreement hereby warrant and represent that they are properly authorized to execute this Agreement and bind the parties on behalf of whom they execute this Agreement and to all of the terms, covenants and conditions of this Agreement as they relate to the respective parties hereto.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of said January 22, 1993 Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 5 to Lease as of the day and year least written below. LANDLORD: TENANT: JOHN ARRILLAGA SURVIVOR'S SCIOS INC., TRUST a Delaware corporation By/s/ John Arrillaga By/s/ David W. Gryska ------------------------------ ---------------------------------- John Arrillaga, Trustee Date: 7/24/01 David W. Gryska ------------------------- ------------------------------------ Print or Type Name RICHARD T. PERRY SEPARATE Title: CFO ------------------------------ PROPERTY TRUST By/s/ Richard T. Peery Date: 7/20/01 ------------------------------ ------------------------------- Richard T. Peery, Trustee Date: 7/24/01 --------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCIOS INC. November 8, 2001 By: /s/ Richard B. Brewer ---------------------- Richard B. Brewer, President and CEO November 8, 2001 By: /s/ David W. Gryska -------------------- David W. Gryska, Senior Vice President and CFO