SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 0-19319
VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3039129
(State of incorporation) (I.R.S. Employer Identification
No.)
130 WAVERLY STREET
CAMBRIDGE, MASSACHUSETTS 02139-4242
(Address of principal executive offices) (Zip Code)
(617) 577-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. X
As of March 14, 1997 there were outstanding 24,680,649 shares of Common Stock, $.01 par value per share. The aggregate market
value of shares of Common Stock held by non-affiliates of the registrant, based upon the last sales price for such stock on that date as
reported by The Nasdaq Stock Market, was approximately $1,130,544,000.
DOCUMENTS INCORPORATED BY REFERENCE
2002. EDGAR Online, Inc.
Portions of the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to be held on May 8, 1997 are incorporated
by reference into Part III.
This Annual Report on Form 10-K contains forward-looking statements based on current management expectations. When used in this
Report, the words "expects" "anticipates," "estimates," "plans," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties. Factors that could cause actual results to differ from these
expectations include, but are not limited to, thosed discussed in the section of Item 1 entitled "Risk Factors." These forward-looking
statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with
regard thereto or any change in the events, conditions or circumstances on which any such statement is based.
ITEM 1. BUSINESS
PART I
Vertex is engaged in the discovery, development and commercialization of novel, small molecule pharmaceuticals for the treatment of
diseases for which there are currently limited or no effective treatments. The Company is a leader in the use of structure-based drug
design, an approach to drug discovery that integrates advanced biology, biophysics and chemistry in a coordinated and simultaneous
fashion. The Company believes that this integrated approach is applicable to therapeutic targets in a broad range of diseases. Vertex's
goal is to create a portfolio of highly specific, proprietary, small molecule drugs based on its knowledge of the atomic structure of
proteins involved in the control of disease processes. The Company's drug candidates for the treatment of human immunodeficiency
virus ("HIV") infection and acquired immune deficiency syndrom ("AIDS"), cancer multidrug resistance ("MDR") in cancer and two
genetic hemoglobin disorders are currently in clinical development. In addition, the Company has preclinical and research programs
aimed at developing orally available small molecule compounds to treat autoimmune diseases, inflammatory diseases,
neurodegenerative diseases and hepatitis C infection.
STRUCTURE-BASED DRUG DESIGN
Drugs are natural or synthetic compounds that interact with a target molecule, typically a protein, either to induce or to inhibit that
molecule's function within the human body. Traditionally, pharmaceutical products have been discovered through the screening of
thousands of compounds, either from existing chemical libraries or from fermentation broths, against a predictive assay for a particular
disease target. The Company believes that traditional pharmaceutical discovery is an essentially random process which is costly and
inefficient. Advances in biotechnology have led to another method of developing drugs based on the isolation and production of
human recombinant proteins. The Company believes that this approach also has limitations because the resulting pharmaceuticals are
large molecules that cannot be administered orally, are difficult to manufacture and have applications which are limited to the disease
state in which the protein is involved.
Vertex is developing pharmaceutical products using a structure-based drug design approach, which is distinct from the traditional
pharmaceutical and biotechnological approaches. By determining and modeling the three dimensional atomic structure of a target
protein, the Company intends to rationally design or alter chemical compounds to specifically interact with the targeted protein. The
Company believes that structure-based drug design increases the chances for the discovery of multiple lead compounds for selected
protein targets, including targets for which traditional drug discovery has met with limited success. Moreover, the Company believes
that the structure-based drug design process may accelerate optimization of lead compounds, since modification of a lead compound
may be undertaken with knowledge of the relationship between the compound's structure and its desired therapeutic effect, rather than
through experimentation
with randomly generated modifications to that compound.
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The Company's approach to structure-based design is an integrated approach combining efforts in biology, biophysics and chemistry in
a coordinated and simultaneous fashion. To acquire structural information, Vertex applies advanced biophysical and computational
tools, including x-ray crystallography, nuclear magnetic resonance spectroscopy and high resolution computer modeling. As structural
information is gathered, the Company uses combinatorial, computational and medicinal chemistry to design and produce novel, highly
specific small molecule compounds that possess the characteristics required for therapeutic benefit. To arrive at initial lead
compounds, the Company may use traditional approaches, such as screening chemical libraries, natural products or combinatorial
libraries in addition to using known chemical compounds or may apply direct computational methods (de novo design). Throughout
the process, the Company develops biological assays and proprietary animal models, some of which employ the latest advances in
genomics techniques, in order to analyze the function of target proteins. Using these tools, the Company optimizes compounds for
potency and pharmaceutical properties, including tolerability and pharmacokinetics, and manufacturability. The Company selects
clinical candidates from among optimized compounds based on the results of in vitro and in vivo tests designed to predict the
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compounds' safety and efficacy.
Vertex expects to employ all of its core technologies from the initial phases of a program through the entire discovery process.
Information generated through the application of one scientific technique becomes part of the information base from which further
advances may be made by Vertex scientists using other development techniques. Using its approach to structure-based drug design,
Vertex has demonstrated that it is able to solve atomic structures of target proteins, generate lead compounds that bind to the target in
vitro and optimize those compounds to produce drug candidates with desirable pharmaceutical attributes. The Company believes that
its integrated structure-based approach to drug discovery and the applicability of this approach to a broad range of protein targets
provides the Company with significant competitive advantages in the discovery and development of novel therapeutics for a variety of
diseases.
CORPORATE STRATEGY
Vertex is concentrating on the discovery and development of drugs for the treatment of viral diseases, multidrug resistance in cancer,
hemoglobin disorders, autoimmune diseases, inflammatory diseases and neurodegenerative diseases. The Company's research and
development strategy is to identify therapeutic areas in which there is (i) an unmet clinical need, (ii) evidence that interaction with
known protein targets will produce a therapeutic effect and (iii) evidence that the protein targets will be appropriate for structural
analysis using Vertex's scientific approach. The Company's business strategy is to form collaborations with pharmaceutical companies
in programs for which they can provide resources and access to competencies complementary to Vertex's in-house capabilities.
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following are the Company's most advanced product development and research programs.
CLINICAL PROGRAMS
HIV PROGRAM
Overview
Vertex is developing orally deliverable antiviral drugs to treat HIV infection and AIDS. The Company is collaborating with Glaxo
Wellcome plc. ("Glaxo Wellcome") and Kissei
Pharmaceutical Co., Ltd. ("Kissei") in the development of its most advanced HIV protease inhibitor, VX-478. Glaxo Wellcome has
initiated multi-center Phase III clinical trials to assess the safety and efficacy of VX-478 in HIV-positive individuals. The Phase III
clinical trials are intended to support the submission of a New Drug Application ("NDA") for market approval in the United States and
equivalent submissions in Europe and other territories. However, there can be no assurance that these clinical trials will result in the
submission or approval of an NDA for VX-478.
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Background
As of June 1996, approximately 548,000 cases of AIDS had been reported to the U.S. Centers for Disease Control and Prevention and
the current population of surviving AIDS patients in the U.S. was estimated to be approximately 205,000. The U.S. Centers for
Disease Control also estimates that more than 700,000 additional people in the United States are infected with HIV. In 1996, the
World Health Organization reported that approximately 1,500,000 AIDS cases had been reported worldwide, but it is estimated that
the actual total number of cases was over 8,400,000.
AIDS is caused by infection with HIV. HIV infection causes severe immunosuppression and, eventually, death by attacking and
destroying T-cells, which coordinate much of the network of normal immune responses. Progression from HIV infection to AIDS may
take many years. Currently, there are two classes of antiviral drugs approved for the treatment of AIDS, reverse transcriptase inhibitors
and protease inhibitors. AZT, ddI, ddC and 3TC are drugs that act by inhibiting reverse transcriptase, an enzyme required for viral
replication. The clinical utility of each of these drugs is limited by significant side effects and by the development of viral resistance.
While certain anti-HIV drugs may be used alone, the clinical utility of these drugs may be improved if these drugs are administered in
combination. Such combination therapy can delay the onset of viral resistance. Due to the limitations of AZT and other reverse
transcriptase inhibitors, there has been significant interest in developing anti-HIV agents that work by alternative mechanisms such as
HIV protease inhibitors, which act by blocking another viral enzyme involved in HIV replication. The FDA has approved for
marketing HIV protease inhibitors developed by Merck & Co., Inc., Hoffmann-La Roche, Abbott Laboratories, Inc., and Agouron
Pharmaceuticals, Inc.
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The Company believes that the market for protease inhibitors is competitive and that a protease inhibitor compound's utility may be
evaluated based on several key characteristics. These characteristics include efficacy, convenient dosing regimen, high bioavailability
and pharmacokinetics (i.e., high absorption into and sustained presence in the bloodstream), the ability to penetrate the brain and
lymph systems from the bloodstream, an acceptable resistance profile, a favorable side effect profile and practical manufacture.
Clinical Status
Vertex's HIV and AIDS program is focused on the development of a highly specific protease inhibitor designed to effectively block
the replication of HIV and to possess key competitive characteristics. In February 1997, Glaxo Wellcome began a multi-center Phase
III clinical trial in the United States, Canada and Europe to evaluate the tolerability, antiviral efficacy, and durability of the antiviral
response of VX-478 in combination with AZT and 3TC. The protocol calls for VX-478 to be administered orally at a dose of 1200 mg
twice daily in combination with AZT and 3TC. A second group treated with AZT and 3TC will provide a comparison arm for the
clinical trial. Approximately 290 HIV-positive adults are expected to enroll in the trial. In addition, the Company anticipates that
Glaxo Wellcome will begin in the first half of 1997 a second multi-center Phase III clinical trial in the United States and Europe to
assess the safety and efficacy of VX-478 in children. There can be no assurance that clinical trials will result in the submission or
approval of an NDA for VX-478 or that trials that have not yet begun will commence. See "Risk Factors -- Uncertainties Related to
Clinical Trials" and " -- Manufacturing Uncertainties; Reliance on Third
Party Manufacturers."
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In addition to the Phase III trials with AZT and 3TC discussed above, clinical trials of VX-478 alone and in combination with other
anti-HIV agents are being conducted. In September 1996, Glaxo Wellcome initiated a 12-week dose-range finding Phase II clinical
trial testing the safety and efficacy of VX-478 in combination with AZT and 3TC. Recently, this study has been amended to extend
dosing to a minimum of 48 weeks. This study has completed enrollment of approximately 80 participants and the duration of the study
has been extended to 24 weeks. In January 1997, Glaxo Wellcome initiated a 24-week Phase II clinical trial of VX-478 in double
protease regimens, pairing VX-478 with saquinavir (Roche), indinavir (Merck) or nelfinavir (Agouron). Approximately 48 patients are
expected to enroll in the study. Through a collaboration with the ACTG, Glaxo Wellcome, Kissei and Vertex, a 24-week Phase II
clinical trial was initiated in February 1997 to evaluate the safety and efficacy of VX-478 as a single agent. A second group treated
with VX-478, AZT and 3TC will provide a comparison for the clinical trial. The trial will be conducted in the United States at 10
AIDS Clinical Trial Group ("ACTG") clinical centers and is expected to enroll approximately 84 HIV-positive individuals. In 1997,
Glaxo Wellcome plans to initiate a clinical trial to assess the use of VX-478 in combination with 1592U89, a new reverse transcriptase
inhibitor in development by Glaxo Wellcome. There can be no assurance, however, that these clinical trials will commence or proceed
as currently anticipated. See "Risk Factors -- Uncertainties Related to Clinical Trials" and " -- Dependence on Collaborative Partners."
In January 1997, Glaxo Wellcome reported preliminary results from a 60-patient multi-center Phase I/II clinical trial conducted in the
United States and Europe suggesting that VX-478 is well-tolerated and displays potent antiviral activity. At the three highest doses of
VX-478 administered as a single agent (900 mg, 1050 mg or 1200 mg twice daily), the median maximal decrease in viral load ranged
from 1.69 to 1.89 logs, indicating potent antiviral activity. The results indicated that the antiviral activity of VX-478 was
dose-dependent, with increasing doses providing better antiviral effect. The trial also included the administration of VX-478 at a dose
of 900 mg (twice daily) in combination with 1592U89 (300 mg twice daily). For the combination, five of seven patients had viral loads
below the level of detection (400 copies/ml) at four weeks. The median maximal decrease in viral load in this combination group was
2.08 logs. Adverse events reported in the trial, such as rash, nausea and loose stool/diarrhea, were mild and reversible in most cases.
The combination of VX-478 and 1592U89 was well-tolerated, with nausea being the most commonly reported adverse event in this
combination. Of the 60 participants in the trial, five withdrew based on adverse events. The data from this trial is preliminary and
incomplete. There can be no assurance that these results are predictive of results that will be obtained in any future clinical trials. See
"Risk Factors -- Uncertainties Related to Clinical Trials."
In January 1997, Glaxo Wellcome also reported preliminary data from the Phase I/II clinical trial suggesting that resistance did not
develop to VX-478 administered as a single agent over the four week time period. The results of the genotype (sequence) and
phenotype (drug sensitivity) analyses of virus isolated from patients participating in the Phase I/II study (at doses of 300 mg twice
daily; 300 mg three times daily; 900 mg twice daily or 1200 mg twice daily) indicated that resistance did not appear to develop to
VX-478, whether at the lower doses or at the higher doses, where potent antiviral activity was observed. There can be no assurance
that resistance will not occur when VX-478 is administered for longer periods or in combination with other antiviral agents. See "Risk
Factors -- Early Stage of Development; Technological Uncertainty."
In 1995, Kissei completed single dose and multi-dose, placebo-controlled, Phase I clinical trials. Results from these trials reported in
May 1996 indicated that VX-478 was well-tolerated, with no significant adverse experiences or laboratory test abnormalities observed
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at the doses tested. Vertex expects that Kissei will initiate Phase II/III efficacy trials in 1997 in HIV-positive patients that will be
designed based on clinical data from Glaxo Wellcome. There can be no assurance, however, that these clinical trials will commence or
proceed as currently anticipated. See "Risk Factors -- Uncertainties Related to Clinical Trials," " -- Manufacturing Uncertainties;
Reliance on Third Party Manufacturers" and " -- Dependence on Collaborative Partners."
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In collaboration with Glaxo Wellcome, Vertex also is engaged in research to develop additional lead classes of HIV protease
inhibitors. This research is focused on designing compounds with resistance profiles distinct from VX-478.
The Company has one issued United States patent, ten United States patent applications pending, and foreign counterparts to some of
those applications, that claim classes of chemical compounds and/or their uses which include within their scope the Company's lead
drug candidates for treating HIV infection and AIDS. The issued patent and five of the ten United States patent applications, have
claims that include VX-478 within their literal scope. Vertex recently received a Notice of Allowance for claims covering the use of
VX-478 to treat AIDS-related central nervous system disorders. In addition, the Company has one United States patent application that
claims processes for preparing synthetic intermediates useful in the synthesis of a class of compounds that includes VX-478. The
Company also has a non-exclusive, worldwide license under certain G.D. Searle & Company ("Searle") patent applications claiming
HIV protease inhibitors. See "Risk Factors -- Uncertainty Related to Patents and Proprietary Information."
CANCER MULTIDRUG RESISTANCE PROGRAM
Overview
Vertex is developing novel compounds to treat and prevent the occurrence of drug resistance associated with the failure of cancer
chemotherapy by inhibiting cellular mechanisms believed to be responsible for MDR. Two cellular mechanisms implicated in MDR
are P-glycoprotein, or "MDR1," and multidrug resistance associated protein, or "MRP." In June 1996, Vertex commenced a Phase II
multi-center clinical trial to assess the safety and efficacy of the co-administration of VX-710 and doxorubicin in patients with liver
cancer. In 1997, Vertex plans to initiate a Phase II multi-center clinical trial to assess the safety and efficacy of the co-administration
of VX-710 and paclitaxel in patients with breast cancer. Vertex is collaborating with BioChem Therapeutic, Inc. ("BioChem"), a
subsidiary of Biochem Pharma (International) Inc., for the development and commercialization of VX-710 in Canada. The Company
expects that BioChem will initiate Phase II clinical trials of VX-710 for two additional cancers in Canada in 1997. In April 1996, the
Company commenced a Phase I/II dose escalating clinical trial with a second MDR inhibitor, VX-853, an orally-administered
compound in a chemical class distinct from intravenously administered VX-710, in combination with doxorubicin in patients with
solid tumors.
Background
According to the American Cancer Society, there will be an estimated 530,000 new cases of breast, ovarian, lung, liver and colorectal
tumors in the United States in 1997. In addition, the American Cancer Society also estimates that there will be an estimated 95,000
new patients each year in the United States afflicted with blood cancers, such as multiple myeloma, acute myeloid leukemia and
non-Hodgkin's lymphoma. The Company believes that a significant number of these patients may not be effectively treated by
chemotherapy because of MDR.
Multidrug resistance is frequently associated with the failure of chemotherapy. A major contributing factor to MDR is the presence of
molecular pumps that function to expel toxins out of the cell. MDR occurs when these pumps, including MDR1 and MRP, expel
chemotherapeutic agents from cancer cells, preventing the sustained delivery of potent levels of the chemotherapeutic agents required
for therapeutic benefit. As a consequence, such resistant tumor cells cannot be killed efficiently by anticancer drugs such as
methotrexate, doxorubicin, vincristine and paclitaxel. MDR1 has been implicated in MDR in a variety of cancers including liver
cancer, colon cancer,
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pancreatic cancer, chronic myelogenous leukemia and certain lung cancers. MRP was recently identified as another drug efflux pump
and is believed responsible for resistance observed in additional tumor types.
No drug has been approved by the FDA specifically for the treatment of MDR, however, several compounds are in advanced clinical
studies. Certain agents, such as dex-verapamil and an analog of cyclosporin A, have been shown in preliminary human studies to have
some effectiveness in overcoming clinical resistance to certain commonly used chemotherapeutic agents. The Company believes these
drugs may have side effects that could limit broad use.
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Clinical Status
Vertex's lead compound, VX-710, has displayed potent activity in vitro as an inhibitor of MDR for a number of chemotherapeutic
agents in a variety of tumor types. In June 1996, Vertex initiated a Phase II multi-center clinical trial to assess the safety and efficacy
of the co-administration of VX-710 and doxorubicin in patients with liver cancer. The comparison arm for the study involves the
administration of doxorubicin alone. Cross-over from the comparison arm to the study arm is allowed. The clinical trial is expected to
enroll up to 70 patients. The Company has recently added additional investigative sites in order to accelerate enrollment in the trial. In
1997, Vertex plans to initiate a Phase II multi-center trial to assess the safety and efficacy of the co-administration of VX-710 and
paclitaxel in patients with breast cancer. The primary efficacy endpoints in both trials will be response rate and time to disease
progression. In addition, BioChem is planning to initiate Phase II clinical trials of VX-710 in Canada in 1997 in combination with
paclitaxel in patients with ovarian cancer and in combination with doxorubicin in patients with soft tissue sarcoma. There can be no
assurance, however, that clinical trials will commence or proceed as currently anticipated. See "Risk Factors -- Uncertainties Related
to Clinical Trials," " -- Manufacturing Uncertainties; Reliance on Third Party Manufacturers" and " -- Dependence on Collaborative
Partners."
In April 1996, a principal investigator for the ongoing Phase I/II trial reported preliminary results for the VX-710/doxorubicin
combination. The findings, based on 22 patients receiving intravenous doses of up to 160 mg/m(2)/hr, suggest that the regimen was
well-tolerated, with generally mild and reversible side effects at the doses tested. The results also showed that the regimen can be
successfully administered to achieve blood levels shown to reverse MDR in vitro and in preclinical studies. The investigator also
reported that VX-710 did not appear to alter markedly the clearance or half-life of doxorubicin, which the Company believes will
provide future flexibility for dosage. Investigators used an imaging agent, which is ordinarily expelled from the liver by MDR1, as a
marker for MDR1 inhibition by VX-710. In this trial, the level of retention of the imaging agent in the liver suggested that VX-710
was blocking the activity of MDR1.
Vertex's research has identified several proprietary compounds, in addition to VX-710, that are able to return drug resistant cells to a
state of drug sensitivity in vitro. In November 1995, Vertex scientists reported in vitro MDR inhibition results for VX-853, an orally
administered compound in a chemical class distinct from VX-710. The research showed that VX-853 potently blocks MDR mediated
by both MDR1 and MRP. In April 1996, the Company commenced a Phase I/II dose-escalating clinical trial of VX-853 in
combination with doxorubicin in patients with solid tumors.
The Company has one issued United States patent, five United States patent applications pending and several foreign counterpart
applications claiming VX-710 and other compounds for treating multidrug resistance. Vertex recently received a Notice of Allowance
for claims covering VX-710 and structurally related compounds. The issued United States patent claims VX-853 and structurally
related compounds. The Company may seek orphan drug status for certain indications of its MDR compounds.
HEMOGLOBIN DISORDERS PROGRAM
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Overview
Vertex is developing VX-366, a drug to treat sickle cell disease and beta thalassemia, two inherited blood disorders for which there
currently are a limited number of treatments. The Company is collaborating with Alpha Therapeutic Corporation ("Alpha"), a
subsidiary of Green Cross Corporation, and Ravizza Farmaceutici ("Ravizza"), a subsidiary of BASF, in the development of its
hemoglobin disorder compounds.
Background
Sickle cell disease affects one in 375 African-Americans and, to a lesser extent, persons of Eastern Mediterranean, Indian or Saudi
Arabian ancestry. There were an estimated 75,000 sickle cell cases and 10,000 beta thalassemia cases in the United States and Europe
as of 1994.
Sickle cell disease and beta thalassemia are inherited disorders caused by defects in the gene for adult hemoglobin. These diseases are
associated with life-threatening organ damage, cause chronic and recurrent pain and predispose affected individuals to severe
infection.
There are currently a limited number of treatments for beta thalessemia and sickle cell disease. Hydroxyurea, an oral compound
currently marketed as an anti-cancer agent, has been shown, in a Phase III study conducted by the National Institutes of Health, to
improve the symptoms of patients with sickle cell disease. The Company believes, however, that this compound has limitations due to
toxic side effects. Other treatments used to combat symptoms of sickle cell disease and beta thalassemia include antibiotics, pain
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killers and blood transfusions. Several compounds are in clinical development by a number of companies for the treatment of these
diseases.
Clinical Status
Vertex's drug in development for hemoglobin disorders is VX-366. Vertex acquired VX-366, a butyrate compound, in August 1993
under an exclusive license from Children's Hospital Medical Center of Oakland. In June 1996, Ravizza reported results of a four-week
Phase II trial in 12 patients with beta thalassemia, which indicated that VX-366 increased participants' levels of hemoglobin F, a form
of hemoglobin that has been shown to improve symptoms and extend the life span of individuals with sickle cell disease and beta
thalassemia. In September 1995, Vertex entered into a license agreement with Alpha for the development and commercialization of
VX-366 in North, Central and South America. There can be no assurance, however, that clinical trials involving VX-366 will proceed
or that future trials will commence. See "Risk Factors -- Uncertainties Related to Clinical Studies," " -- Manufacturing Uncertainties;
Reliance on Third Party Manufacturers" and " -- Dependence on Collaborative Partners."
Four United States patents have issued, which are licensed exclusively by Vertex from Children's Hospital. Three of these patents
claim the use of VX-366 in the treatment of hemoglobin disorders, including sickle cell disease and beta thalassemia. Because
Children's Hospital did not foreign file the application corresponding to that reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may be limited. Vertex has filed three United States
patent applications claiming various compounds and their use in the treatment of hemoglobin disorders.
PRECLINICAL PROGRAMS
IMPDH PROGRAM
Overview
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Vertex is developing novel, orally deliverable immunosuppressive drugs that it believes could selectively halt the growth of
lymphocytes by blocking inosine monophosphate dehydrogenase ("IMPDH"), an enzyme which controls DNA synthesis in
lymphocytes. In December 1996, Vertex selected VX-497 as a lead drug development candidate for autoimmune diseases. Vertex
currently is conducting preclinical trials of VX-497 and plans to initiate clinical trials of VX-497 in 1998.
Background
The activation and proliferation of lymphocytes are associated with a variety of autoimmune diseases, including asthma, psoriasis,
rheumatoid arthritis and systemic lupus, as well as with transplant rejection. Vertex believes that blocking the enzyme IMPDH with an
oral compound designed to specifically bind to the active site of IMPDH may provide a novel way to inhibit the progress of
autoimmune diseases. The Company is aware of only one specific inhibitor of IMPDH currently on the market in the United States,
Hoffmann-La Roche's mycophenolate mofetil, which is approved for acute kidney transplant rejection. The Company believes that
compound-specific side effects of mycophenolate mofetil may limit its use for chronic autoimmune disorders.
Preclinical Status
Vertex has identified novel lead classes of IMPDH inhibitors. In December 1996, Vertex selected VX-497 as a lead drug development
candidate for autoimmune diseases. In laboratory tests and in models of autoimmune disease and transplantation performed to date,
VX-497 has been a potent and well-tolerated immunosuppressive agent. Vertex currently is conducting preclinical trials of VX-497.
The Company plans to initiate clinical trials of VX-497 in 1998. Vertex intends to evaluate VX-497 for psoriasis, an autoimmune
disease of the skin, as the first clinical indication for the compound. There can be no assurance, however, that clinical trials will
commence or proceed as currently anticipated. See"Risk Factors -- Early Stages of Development; Technological Uncertainty," " - --
Manufacturing Uncertainties; Reliance on Third Party Manufacturers" and " -- Uncertainties Related to Clinical Trials."
The Company has two United States patent applications pending, claiming inhibitors of IMPDH, including VX-497 and related
compounds. The Company has another United States patent application pending that claims the crystal structure of IMPDH and the
use of that structure to design inhibitors.
INFLAMMATION PROGRAM
Overview
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Vertex is developing novel drugs to treat acute and chronic inflammatory conditions, including pancreatitis, osteoarthritis and
rheumatoid arthritis. The Company is collaborating with Hoechst Marion Roussel ("HMR") in the development of compounds to block
interleukin-1 beta converting enzyme ("ICE"), which mediates the production and release of the inflammatory cytokine IL-1 beta, as
well as the production of gamma interferon. In February 1997, Vertex selected VX-740 as a lead drug development candidate for
inflammatory diseases.
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Background
Elevation of IL-1 beta levels has been correlated to a number of acute and chronic inflammatory diseases such as asthma,
inflammatory bowel disease, osteoarthritis, pancreatitis and rheumatoid arthritis. There are approximately 2,500,000 cases of
rheumatoid arthritis in the United States alone. ICE was first characterized in late 1991 and represents a novel target for
anti-inflammatory drug discovery. Although several companies are pursuing ICE as a drug target, Vertex is not aware of any company
with an ICE-inhibiting compound in clinical development, and there currently are no IL-1 beta inhibitors approved for marketing.
Preclinical Status
Vertex and HMR have designed potential small molecule inhibitors of ICE that could be used for the treatment of both acute and
chronic inflammatory disorders such as asthma, inflammatory bowel disease, osteoarthritis, pancreatitis and rheumatoid arthritis. In
February 1997, Vertex selected VX-740 as a lead drug development candidate for inflammatory diseases.
Vertex scientists recently discovered that ICE plays a key role in the production of gamma interferon, a key immunoregulator that
modulates antigen presentation, T-cell activation, and cell adhesion. This research was published in the January 10, 1997 issue of the
journal Science. Based on the discovery of a new role for ICE in the production of gamma interferon, Vertex plans to investigate ICE
inhibitors for additional therapeutic uses such as in metastatic cancer, diabetes and sepsis. See "Risk Factors -- Early Stages of
Development; Technological Uncertainty," " -- Manufacturing Uncertainties; Reliance on Third Party Manufacturers" and " --
Uncertainties Related to Clinical Trials."
The Company has fourteen patent applications pending in the United States and several foreign counterpart patent applications
claiming inhibitors of ICE. Vertex recently received a Notice of Allowance in one of those applications. The Company has three patent
applications pending in the United States and several foreign counterpart applications claiming the crystal structure of ICE and
derivatives thereof and various uses of those structures.
RESEARCH PROGRAMS
Neurophilins
Vertex has designed novel, orally deliverable, small molecule compounds that have the potential to be developed as drugs to treat
neurodegenerative diseases, including stroke, peripheral neuropathies and Parkinson's disease and Alzheimer's disease. Vertex has
conducted laboratory experiments the results of which suggest that certain of its compounds stimulate nerve growth. In 1996, Vertex
reported results in a rat model of peripheral nerve injury. The neurophilin compound accelerated the onset of foot movement and
walking compared to the control. In addition, the compound produced a 50 percent increase in the average size of nerve cells in the
injured area as compared to the control animals. Vertex has identified several promising lead compounds and plans to test those
compounds in additional models of nerve growth.
The Company has five United States patent applications claiming the use of certain of its immunosuppressive compounds and certain
of its multidrug resistance compounds for nerve growth applications. The Company also has one issued United States patent and nine
United States patent applications pending that claim compounds useful in nerve growth applications.
Caspases (Apoptosis)
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The goal of Vertex's caspases program is to discover and develop drugs useful for treating neurodegenerative disorders such as
Alzheimer's disease and Parkinson's disease as well as for the prevention of tissue damage resulting from myocardial and cerebral
ischemia.
Vertex is conducting research to design novel drugs for apoptosis (programmed cell death) for neurodegenerative diseases and other
neurodegenerative conditions. This drug discovery effort is based on the Company's knowledge of ICE and its homologues, the
caspases. Vertex has gained a detailed understanding of apoptotic pathways using biological, genomic, and structural data from ICE
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homologues. Vertex has solved the X-ray structure of CPP32, a caspase believed to be important in neuronal apoptosis, and is using
structural information to design small molecule lead compounds that selectively block CPP32 and other caspases.
The Company has one United States patent application claiming a protein involved in apoptosis.
Hepatitis C Protease
The Company is conducting discovery research to design orally deliverable drugs to inhibit hepatitis C protease, an enzyme generally
believed to be essential for replication of the hepatitis C virus ("HCV"). Discovered in 1989, HCV causes chronic inflammation in the
liver. In a majority of patients, HCV establishes a chronic infection that can persist for decades and eventually lead to cirrhosis, liver
failure and liver cancer. HCV infection represents a significant medical problem worldwide for which there is inadequate or no therapy
for a majority of patients. Sources at the U.S. Centers for Disease Control and Prevention recently estimated that approximately 3.9
million Americans, or more than one percent of the population, may be infected with HCV. Currently, there is no vaccine available to
prevent hepatitis C infection. In addition, the only drug approved for the treatment of hepatitis C, interferon alpha, provides long-term
therapeutic benefit to less than 25 percent of patients treated.
In 1996, Vertex solved the structure of the hepatitis C protease, using X-ray crystallography. Vertex is utilizing a variety of advanced
techniques, as well as its experience with HIV protease inhibitors, to design inhibitors of HCV protease enzyme.
Vertex has one United States patent application pending claiming inhibitors of HCV protease. Vertex also has one United States patent
application pending claiming the crystal structure of HCV protease and the use of that structure to design inhibitors. Vertex has an
additional United States patent application claiming methods of identifying HCV protease inhibitors.
MAP Kinases
Vertex is conducting research to design novel anti-inflammatory drugs based on small molecule inhibitors of MAP kinases. MAP
kinases regulate both interleukin-1 and tumor necrosis factor, hormones involved in inflammation and programmed cell death. In 1996,
Vertex solved the structure of p38 MAP kinase using X-ray crystallography. Vertex is conducting research to solve additional related
MAP kinases. Together with the structural information now available, Vertex is using structure-directed high throughput screening to
identify novel lead inhibitors of p38 MAP kinase.
Vertex has one United States patent application pending claiming inhibitors of p38 MAP Kinase.
CORPORATE COLLABORATIONS
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Vertex has entered into corporate collaborations with pharmaceutical companies that provide financial and other resources, including
capabilities in research, development and sales and marketing, to support the Company's research and development programs. To date,
the Company has entered into the following major corporate collaborations.
Glaxo Wellcome plc.
Vertex and Glaxo Wellcome are collaborating on the development of Vertex's HIV protease inhibitors. Under the collaborative
agreement, which commenced in December 1993, Glaxo Wellcome is obligated to pay Vertex up to $42.0 million, comprised of a
$15.0 million initial license payment paid in December 1993, $14.0 million of product research funding over five years and $13.0
million of development and commercialization milestone payments for an initial drug candidate. From the inception of the agreement
in December 1993 through December 31, 1996, Vertex has recognized as revenue $25.0 million. Glaxo Wellcome is also obligated to
pay to Vertex additional development and commercialization milestone payments for subsequent drug candidates. In addition, Glaxo
Wellcome is required to bear the costs of development in its territory under the collaboration. Glaxo Wellcome has exclusive rights to
develop and commercialize Vertex HIV protease inhibitors in all parts of the world except the Far East and will pay Vertex a royalty
on sales. Vertex has retained certain bulk drug manufacturing rights and certain co-promotion rights in the territories licensed to Glaxo
Wellcome. See " -- HIV Program."
Glaxo Wellcome has the right to terminate the research collaboration under its agreement with the Company without cause upon
twelve months' notice given at any time and has the right to terminate the license arrangements under its agreement with the Company
without cause upon twelve months' notice, provided such notice is not given before the research collaboration has been terminated.
Termination by Glaxo Wellcome of the research collaboration under its agreement with the Company will relieve Glaxo Wellcome of
its obligation to make further research support payments under the agreement. Termination by Glaxo Wellcome of the license
arrangements under the agreement will relieve Glaxo Wellcome of its obligation to make further commercialization and development
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milestone and royalty payments, and will end any license granted to Glaxo Wellcome by Vertex thereunder, and could have a material
adverse effect on the Company's business and result of operations. See "Risk Factors -- Dependence on Collaborative Partners."
In June 1996, Vertex and Glaxo Wellcome obtained a non-exclusive, worldwide license under certain Searle patent applications
claiming HIV protease inhibitors to permit Vertex and Glaxo Wellcome to develop, manufacture and market VX-478 free of the risk
of intellectual property claims by Searle. Vertex and Glaxo Wellcome paid Searle $15.0 million and $10.0 million, respectively, for
the license. In addition, the terms of the license require Vertex to pay Searle a royalty on sales. In connection with this transaction,
Glaxo Wellcome purchased 151,792 shares of the Company's Common Stock at a price of $32.94 per share, with net proceeds to the
Company of approximately $5.0 million.
Kissei Pharmaceutical Co., Ltd.
Vertex and Kissei are collaborating on the development of Vertex's VX-478 HIV protease inhibitor. Under the collaborative
agreement, which commenced in April 1993, Kissei is obligated to pay to Vertex up to $20.0 million, comprised of $9.8 million of
product research funding over three years, $7.0 million of development and commercialization milestone payments and a $3.2 million
equity investment. From the inception of the agreement in April 1993 through December 31, 1996, $17.8 million has been received,
including $14.6 million recognized as revenue and $3.2 million as an equity investment. The Company has received the full amount of
research funding specified under the agreement. Kissei has exclusive rights to develop and
commercialize VX-478 in Japan, the People's Republic of China and several other countries in the Far East and will pay Vertex a
royalty on sales. Vertex will manufacture bulk product for Kissei. See " -- HIV Program."
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Hoechst Marion Roussel
Vertex and HMR are collaborating on the development of ICE inhibitors as anti-inflammatory agents. Under the collaborative
agreement, which commenced in September 1993, HMR is obligated to pay to Vertex up to $30.5 million, comprised of $18.5 million
of product research funding over five years and $12.0 million of development and commercialization milestone payments. From the
inception of the agreement in September 1993 through December 31, 1996, $14.5 million has been recognized as revenue. HMR has
exclusive rights to develop and market drugs resulting from the collaborative effort in Europe, Africa and the Middle East, and Vertex
has exclusive development and marketing rights in the rest of the world, except the Far East, where Vertex shares those rights with
HMR. HMR is obligated to pay a royalty to Vertex on any sales made in Europe, and Vertex is obligated to pay a royalty to HMR on
any sales made in the United States or the rest of the Americas. Each party will have the option to co-promote products in the other
party's exclusive territory. Vertex and HMR will each have rights to develop and market the drugs in Far Eastern countries including
Japan.
HMR has the right to terminate the agreement at any time without cause upon twelve months' notice. For a period of one year after any
such termination, HMR retains the right to select one or more compounds for development and to license such compound or
compounds from Vertex, provided HMR resumes research funding and commercialization milestone payments and makes all such
payments that would otherwise have been due but for such termination. See " -- Inflammation Program."
BioChem Therapeutic, Inc.
The Company and BioChem are collaborating on the development and commercialization of VX-710, the Company's lead compound
in its cancer multidrug resistance program. Under the collaborative agreement, which commenced in May 1996, BioChem is obligated
to pay the Company up to $4.0 million comprised of an initial license payment of $500,000 and development and commercialization
milestone payments. BioChem also is obligated to bear the costs of development of VX-710 in Canada. BioChem has exclusive rights
to develop and commercialize VX-710 in Canada. The Company will supply BioChem's requirements of bulk and finished forms of
VX-710. BioChem will make payments to the Company for those materials based on sales of products by BioChem, which will cover
Vertex's cost of supplying materials and will provide a profit to Vertex.
BioChem has the right to terminate the agreement without cause upon six months' notice at any time after May 8, 1997. Termination
will relieve BioChem of any further payment obligations and will end any license granted to BioChem by Vertex under the agreement.
See " -- Cancer Multidrug Resistance Program."
Alpha Therapeutic Corporation
Vertex and Alpha are collaborating on the development and commercialization of VX-366 for the treatment of sickle cell disease and
beta thalassemia. Under the collaborative agreement, which commenced in October 1995, Alpha has agreed to pay Vertex up to $5.0
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million comprised of an initial license payment and development and commercialization milestone payments. From the inception of
the agreement in October 1995 through December 31, 1996, $500,000 has been recognized as revenue. In addition, Alpha is obligated
to pay the costs of development of VX-366 under the collaboration. Alpha has exclusive rights to develop and commercialize VX-366
in
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North, Central and South America. Vertex retains rights in the rest of the world and retains all manufacturing rights worldwide. Alpha
will pay Vertex a royalty based on commercial product sales and will purchase from Vertex its requirements for drug product.
Alpha has the right to terminate the agreement without cause upon six months' notice at any time. Termination will relieve Alpha of
any further payment obligations under the agreement and will end any license granted to Alpha by Vertex thereunder. See " --
Hemoglobin Disorders Program."
Ravizza Farmaceutici S.p.A.
Vertex and Ravizza are collaborating to conduct clinical trials with VX-366 for beta thalassemia and sickle cell disease. Under the
collaboration, which commenced in September 1994, Vertex and Ravizza will share data generated in their respective clinical trial
programs. Ravizza has completed a Phase II clinical trial of VX-366 in Italy in patients with beta thalassemia. In addition, the
arrangement creates a framework for negotiation of an agreement for clinical development and commercialization of VX-366 in
Europe. There can be no assurance, however, that the parties will enter into any such agreement. See " -- Hemoglobin Disorders
Program."
ALTUS BIOLOGICS INC.
Altus Biologics Inc. ("Altus") is a subsidiary of Vertex established in January 1993 to develop, manufacture and sell a class of
industrial catalysts based on a novel and proprietary technology for stabilizing proteins. Altus' initial products use the Company's
CLEC(R) technology to produce cross-linked enzyme crystals.
Although enzymes are among nature's most efficient catalysts, their large-scale commercial use has been limited by their instability and
general incompatibility with many industrial chemical processes. As a result of experiments conducted by Altus and several
commercial partners and prospective customers, the Company believes that CLEC products have properties that overcome many of
these limitations and make them superior to conventional catalysts and enzymes in certain commercial and industrial processes. The
Company believes that CLEC products can be used as catalysts in the manufacture of pharmaceuticals, fine chemicals, foods and
sweeteners, among other things.
Since mid-1994, Altus has launched nine commercial catalyst products in two product families: ChiroCLEC(TM), for the preparation
of optically pure pharmaceuticals and specialty chemicals, and PeptiCLEC(TM), for use in peptide coupling reactions. Altus expects
to launch additional products in 1997. Approximately 215 companies worldwide have purchased CLEC products for feasibility testing.
Altus recently entered into a research and development collaboration with Ciba-Geigy Limited for the development of CLEC
technology for commercial use in detergents.
Altus is conducting research and development aimed at expanding the uses of its CLEC technology to such applications as nerve gas
detoxification, detergenting and anti-oxidants for cosmetics. Some of this research is supported by grants from U.S. government
agencies including the National Institutes of Health, National Science Foundation and the Department of Defense.
The Company has ten United States patent applications and several foreign counterpart applications and patents relating to its CLEC
technology. The Company recently received a Notice of Allowance in one of these applications.
PATENTS AND PROPRIETARY INFORMATION
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The Company has rights in certain patents and pending patent applications that relate to compounds it is developing and methods of
using such compounds. The Company actively seeks, when appropriate, protection for its products and proprietary information by
means of United States and foreign patents, trademarks and contractual arrangements. In addition, the Company relies upon trade
secrets and contractual arrangements to protect certain of its proprietary information and products.
As of February 20, 1997, the Company had a total of six United States patents and 63 United States pending patent applications. The
Company also has an exclusive license under four United States patents, one of which is subject to a reissue application and a
non-exclusive, worldwide license under certain Searle patent applications claiming HIV protease inhibitors. Three of the licensed
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patents and the reissue application claim the use of compounds, including VX-366, for treating hemoglobin disorders, including sickle
cell disease and beta thalassemia. The Company has one issued United States patent and ten United States patent applications claiming
antiviral compounds, and/or their uses, for treating HIV infection and AIDS. The issued patent and five of the ten applications have
claims that include VX-478, the Company's lead drug candidate, within their literal scope. Vertex recently received a Notice of
Allowance for claims covering the use of VX-478 to treat AIDS-related central nervous system disorders. Another of the Company's
United States patent applications claims processes for preparing synthetic intermediates useful in the synthesis of a class of compounds
that includes VX-478. The Company's non-exclusive, worldwide license permits Vertex to develop, manufacture and market VX-478
free of intellectual property claims by Searle. The Company has one issued United States patent and five United States patent
applications claiming VX-710 and other compounds for treating multidrug resistance. Vertex recently received a Notice of Allowance
for claims covering VX-710 and structurally related compounds. The issued patent claims VX-853 and structurally related
compounds. The Company has two United States patent applications pending, claiming inhibitors of IMPDH, including VX-497 and
related compounds. The Company has another United States patent application pending that claims the crystal structure of IMPDH and
the use of that structure to design inhibitors. The Company has fourteen United States patent applications pending claiming inhibitors
of ICE. Vertex recently received a Notice of Allowance in one of those applications. The Company has three patent applications
pending in the United States claiming the crystal structure of ICE and derivatives thereof and various uses of those structures. The
Company has five United States patent applications pending claiming the use of certain of its immunosuppressive compounds and
certain of its multidrug resistance compounds for nerve growth applications. The Company also has one issued United States patent
and nine patent applications pending that claim compounds useful in nerve growth application. The Company has three United States
patents and four United States patent applications claiming specific immunosuppressive compounds. Vertex recently received a Notice
of Allowance in two of those four applications. The Company has one United States patent application claiming a protein involved in
apoptosis. The Company has one United States patent application pending claiming inhibitors of p38 MAP kinase. The Company also
has one United States patent application pending claiming inhibitors of HCV protease. The Company has one United States patent
application pending claiming the crystal structure of HCV protease and the use of that structure to design inhibitors. The Company has
ten United States patent applications claiming CLEC technology. The Company recently received a Notice of Allowance in one of
these applications. The Company has one United States patent claiming a novel device useful in pharmaceutical research. The
Company also has filed international and foreign counterparts based on several of its United States patents and patent applications.
There can be no assurance that any patents will issue from any of the Company's patent applications or, even if patents issue or have
issued, that the claims thereof will provide the Company with any significant protection against competitive products or otherwise be
valuable commercially. Legal standards relating to the validity of patents and the proper scope of their
-15-
claims in the biopharmaceutical field are still evolving, and there is no consistent policy regarding the breadth of claims allowed in
biopharmaceutical patents. No assurance can be given as to the Company's ability to avoid infringing, and thus having to negotiate a
license under, any patents issued to others, or that a license to such patents would be available on commercially acceptable terms, if at
all. Further, there can be no assurance that any patents issued to or licensed by the Company will not be infringed by the products of
others, which may require the Company to engage in patent infringement litigation. In addition to being a party to patent infringement
litigation, the Company could be required to participate in interference proceedings declared by the United States Patent and
Trademark Office. Defense or prosecution of patent infringement litigation, as well as participation in interference proceedings, can be
expensive and time consuming, even in those instances in which the outcome is favorable to the Company. If the outcome of any such
litigation or proceeding were adverse, the Company could be subject to significant liabilities to third parties, could be required to
obtain licenses from third parties or could be required to cease sales of the affected products, any of which could have a material
adverse effect on the Company. See "Risk Factors -- Uncertainty Related to Patents and Proprietary Information."
The Company has licensed on an exclusive basis four United States patents and one United States issue application from Children's
Hospital. Three of these patents and the reissue application claim the use of compounds, including VX-366, in the treatment of
hemoglobin disorders, including sickle cell disease and beta thalassemia. Because Children's Hospital did not foreign file the
application corresponding to the reissue application within one year of filing its corresponding United States application, the
Company's foreign patent rights may be limited. In addition, there can be no assurance that others will not develop independently
substantially equivalent technology, obtain access to the Company's know-how or be issued patents which may prevent the sale of
Company products or require licensing and the payment of significant fees or royalties by the Company in order for it to carry on its
business. Furthermore, there can be no assurance that any such license will be available.
Much of the Company's technology and many of its processes are dependent upon the knowledge, experience and skills of key
scientific and technical personnel. To protect its rights to its proprietary know-how and technology, the Company requires all
employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by employees, consultants, advisors and collaborators. There can be no assurance that
these agreements will effectively prevent disclosure of the Company's confidential information or will provide meaningful protection
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for the Company's confidential information if there is unauthorized use or disclosure. Furthermore, in the absence of patent protection,
the Company's business may be adversely affected by competitors who independently develop substantially equivalent technology. See
" -- Corporate Collaborations," and "Risk Factors -- Dependence on Collaborative Partners" and " -- Uncertainty Relating to Patents
and Proprietary Information."
MANUFACTURING
The Company relies on third party manufacturers to produce its compounds for preclinical and clinical purposes and may do so for
commercial production of any compounds that are approved for marketing. The Company has established a quality assurance program,
including a set of standard operating procedures, intended to ensure that third party manufacturers under contract produce the
Company's compounds in accordance with the FDA's current Good Manufacturing Practices ("cGMP") and other applicable
regulations. See " -- Government Regulation."
The Company believes that all of its existing compounds can be produced using established manufacturing methods, primarily through
standard techniques of pharmaceutical synthesis. The
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Company currently does not have the capacity to manufacture its potential products, is dependent on third party manufacturers or
collaborative partners for the production of its compounds for preclinical research and clinical trial purposes and expects to be
dependent on such manufacturers or collaborative partners for some or all commercial production of any of its compounds that are
approved for marketing. The Company believes that it will be able to continue to negotiate such arrangements on commercially
reasonable terms and that it will not be necessary for it to develop internal manufacturing capability in order to successfully
commercialize its products. In the event that the Company is unable to obtain contract manufacturing, or obtain such manufacturing on
commercially reasonable terms, it may not be able to commercialize its products as planned. The Company's objective is to maintain
flexibility in deciding whether to develop internal manufacturing capabilities for certain of its potential products. The Company has no
experience in manufacturing pharmaceutical or other products or in conducting manufacturing testing programs required to obtain
FDA and other regulatory approvals, and there can be no assurance that the Company will develop such capabilities successfully.
Since the Company's potential products are at an early stage of development, the Company will need to improve or modify its existing
manufacturing processes and capabilities to produce commercial quantities of any drug product economically. The Company cannot
quantify the time or expense that may ultimately be required to improve or modify its existing process technologies, but it is possible
that such time or expense could be substantial.
The production of Vertex's compounds is based in part on technology that the Company believes to be proprietary. Vertex may license
this technology to contract manufacturers to enable them to manufacture compounds for the Company. There can be no assurance that
such manufacturers will abide by any limitations or confidentiality restrictions in licenses with Vertex. In addition, any such
manufacturer may develop process technology related to the manufacture of Vertex's compounds that such manufacturer owns either
independently or jointly with the Company. This would increase the Company's reliance on such manufacturer or require the Company
to obtain a license from such manufacturer in order to have its products manufactured. There can be no assurance that any such license
would be available on terms acceptable to the Company, if at all.
Some of the Company's current corporate partners have certain manufacturing rights with respect to the Company's products under
development, and there can be no assurance that such corporate partners' rights will not impede the Company's ability to conduct the
development programs and commercialize any resulting products in accordance with the schedules and in the manner currently
contemplated by the Company. See "Risk Factors -- Manufacturing Uncertainties; Reliance on Third Party Manufacturers."
COMPETITION
The Company is engaged in pharmaceutical fields characterized by extensive research efforts, rapid technological progress and intense
competition. There are many public and private companies, including pharmaceutical companies, chemical companies and
biotechnology companies, engaged in developing products for the human therapeutic applications targeted by Vertex. Further, the
Company believes that interest in the application of structure-based drug design and related technologies may continue and may
accelerate as the technologies become more widely understood. The Company is aware of efforts by others to develop products in each
of the areas in which the Company has products in development. For example, Merck & Co., Inc., Abbott Laboratories, Inc.,
Hoffmann-La Roche, and Agouron Pharmaceuticals, Inc. have HIV protease inhibitors which have been approved by the U.S. Food
and Drug Administration ("FDA") for marketing. The Company is also aware of other companies that have HIV protease inhibitors in
development. There also are a number of competitors that have products under development for the treatment of MDR in cancer and
for the treatment of hemoglobin disorders. In order for the Company to compete successfully
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in these areas, it must demonstrate improved safety, efficacy, ease of manufacturing and market acceptance over its competitors, who
have received regulatory approval and are currently marketing. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are conducting research to develop technologies and products that may compete with those
under development by the Company. In addition, other technologies are, or may in the future become, the basis for competing
products. There can be no assurance that the Company's competitors will not succeed in developing technologies and products that are
more effective than any being developed by the Company or that would render the Company's technology and products obsolete or
noncompetitive. In addition, there can be no assurance that the Company's products in development will be able to compete effectively
with products which are currently on the market.
Many of the Company's competitors have substantially greater financial, technical and human resources than those of the Company. In
addition, many of the Company's competitors have significantly greater experience than the Company in conducting preclinical testing
and human clinical trials of new pharmaceutical products, and in obtaining FDA and other regulatory approvals of products.
Accordingly, certain of the Company's competitors may succeed in obtaining regulatory approval for products more rapidly than the
Company. If the Company obtains regulatory approval and commences commercial sales of its products, it will also compete with
respect to manufacturing efficiency and sales and marketing capabilities, areas in which it currently has no experience. See "Risk
Factors -- Rapid Technological Change and Competition."
PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's ability to commercialize its products successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations ("HMOs"). Third party payors and government authorities
are continuing efforts to contain or reduce the cost of health care. For example, in certain foreign markets, pricing and/or profitability
of prescription pharmaceuticals are subject to government control. There can be no assurance that similar controls will not be
implemented in the United States. Also, the trend toward managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, may
result in lower prices for the Company's products. The cost containment measures that health care providers and third party payors are
instituting and any proposed or future health care reform measures, including any reductions in Government reimbursement programs
such as Medicaid and Medicare, could affect the Company's ability to sell its products and may have a material adverse effect on the
Company.
The success of the Company's products in the United States and other significant markets will depend, in part, upon the extent to which
a consumer will be able to obtain reimbursement for the cost of such products from government health administration authorities,
third-party payors and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved therapeutic
products. Even if a product is approved for marketing, there can be no assurance that adequate reimbursement will be available. The
Company is unable to predict what additional legislation or regulation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect the legislation or regulation would have on the Company's business. Failure
to obtain reimbursement could have a material adverse effect on the Company.
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics are subject to extensive regulation by United States and
foreign governmental authorities. In particular,
pharmaceutical products are subject to rigorous preclinical and clinical testing and to other approval requirements by the FDA in the
United States under the Food, Drug and Cosmetic Act and by comparable agencies in most foreign countries.
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As an initial step in the FDA regulatory approval process, preclinical studies are typically conducted in animals to identify potential
safety problems. For certain diseases, animal models exist that are believed to be predictive of human efficacy. For such diseases, a
drug candidate is tested in an animal model. The results of the studies are submitted to the FDA as a part of the Investigational New
Drug application ("IND"), which is filed to comply with FDA regulations prior to commencement of human clinical testing. For other
diseases for which no appropriately predictive animal model exists, no such results can be filed. For several of the Company's drug
candidates, no appropriately predictive model exists. As a result, no in vivo evidence of efficacy would be available until such
compounds progress to human clinical trials.
Clinical trials are typically conducted in three sequential phases, although the phases may overlap. In Phase I, which frequently begins
with the initial introduction of the drug into healthy human subjects prior to introduction into patients, the compound will be tested for
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safety, dosage tolerance, absorption, bioavailability, biodistribution, metabolism, excretion, clinical pharmacology and, if possible, for
early information on effectiveness. Phase II typically involves studies in a small sample of the intended patient population to assess the
efficacy of the drug for a specific indication, to determine dose tolerance and the optimal dose range and to gather additional
information relating to safety and potential adverse effects. Phase III trials are undertaken to further evaluate clinical safety and
efficacy in an expanded patient population at geographically dispersed study sites, to determine the overall risk-benefit ratio of the
drug and to provide an adequate basis for physician labeling. Each trial is conducted in accordance with certain standards under
protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be evaluated by an independent
Institutional Review Board ("IRB") at the institution at which the study will be conducted. The IRB will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the institution.
Data from preclinical testing and clinical trials are submitted to the FDA in a New Drug Application ("NDA") for marketing approval.
The process of completing clinical testing and obtaining FDA approval for a new drug is likely to take a number of years and require
the expenditure of substantial resources. Preparing an NDA involves considerable data collection, verification, analysis and expense,
and there can be no assurance that approval will be granted on a timely basis, if at all. The approval process is affected by a number of
factors, including the severity of the disease, the availability of alternative treatments and the risks and benefits demonstrated in
clinical trials. The FDA may deny an NDA if applicable regulatory criteria are not satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to the FDA's cGMP regulations, which must be followed at all times. In complying with standards
set forth in these regulations, manufacturers must continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections
by or under the authority of the FDA and by or under the authority of other federal, state or local agencies.
Even after initial FDA approval has been obtained, further studies, including post-marketing studies, may be required to provide
additional data on safety and will be required to gain approval for the use of a product as a treatment for clinical indications other than
those for which the product was initially tested. Also, the FDA will require post-marketing reporting to monitor the side effects of the
drug. Results of post-marketing programs may limit or expand further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication,
manufacturing process, labeling or manufacturing facilities, an NDA supplement may be required to be submitted to the FDA.
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The Orphan Drug Act provides incentives to drug manufacturers to develop and manufacture drugs for the treatment of diseases or
conditions that affect fewer than 200,000 individuals in the United States. Orphan drug status can also be sought for diseases or
conditions that affect more than 200,000 individuals in the United States if the sponsor does not realistically anticipate its product
becoming profitable from sales in the United States. Under the Orphan Drug Act, a manufacturer of a designated orphan product can
seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of
marketing exclusivity for that product for the orphan indication. While the marketing exclusivity of an orphan drug would prevent
other sponsors from obtaining approval of the same compound for the same indication, it would not prevent other types of drugs from
being approved for the same use. The Company has obtained orphan drug status for VX-366 for the treatment of beta thalessemia and
sickle cell disease and, in the future, may apply for orphan drug status for certain indications of MDR in cancer.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a sponsor may be granted marketing exclusivity for a
period of time following FDA approval of certain drug applications if FDA approval is received before the expiration of the patent's
original term. This marketing exclusivity would prevent a third party from obtaining FDA approval for a similar or identical drug
through an Abbreviated New Drug Application ("ANDA"), which is the application form typically used by manufacturers seeking
approval of a generic drug. The statute also allows a patent owner to extend the term of the patent for a period equal to one-half the
period of time elapsed between the filing of an IND and the filing of the corresponding NDA plus the period of time between the filing
of the NDA and FDA approval. The Company intends to seek the benefits of this statute, but there can be no assurance that the
Company will be able to obtain any such benefits.
Whether or not FDA approval has been obtained, approval of a drug product by regulatory authorities in foreign countries must be
obtained prior to the commencement of commercial sales of the product in such countries. Historically, the requirements governing the
conduct of clinical trials and product approvals, and the time required for approval, have varied widely from country to country.
In addition to the statutes and regulations described above, the Company is also subject to regulation under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act
and other present and potential future federal, state and local regulations. See "Risk Factors -- Extensive Government Regulation."
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HUMAN RESOURCES
As of December 31, 1996, Vertex had 178 full-time employees, including 136 in research and development, 23 in laboratory support
services and 19 in general and administrative functions, and three part-time employees. The Company's scientific staff members (58 of
whom hold Ph.D. and/or M.D. degrees) have diversified experience and expertise in molecular and cell biology, biochemistry, animal
pharmacology, synthetic organic chemistry, protein x-ray crystallography, protein nuclear magnetic resonance spectroscopy,
computational chemistry, biophysical chemistry, medicinal chemistry, clinical pharmacology and clinical medicine. In addition, the
Company's Altus subsidiary had 19 full-time employees as of December 31, 1996. The Company's employees are not covered by a
collective bargaining agreement, and the Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS
-20-
The names, ages and positions held by the executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Joshua S. Boger, Ph.D..... 45 Director, President and Chief
Executive Officer
Richard H. Aldrich........ 42 Senior Vice President and Chief Business
Officer
Vicki L. Sato, Ph.D....... 48 Senior Vice President of Research and
Development and Chief Scientific Officer;
Chair of the Scientific Advisory Board
Iain P. M. Buchanan....... 43 Vice President of European Operations;
Managing Director of Vertex
Pharmaceuticals
(Europe) Limited
Thomas G. Auchincloss, Jr. 35 Vice President of Finance and Treasurer
All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and
qualified or until their earlier resignation or removal.
Dr. Boger is a founder of the Company and was its President and Chief Scientific Officer from its inception in 1989 until May 1992,
when he became President and Chief Executive Officer. Dr. Boger has been a director since the Company's inception. Prior to
founding the Company in 1989, Dr. Boger held the position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research
Laboratories in Rahway, New Jersey, where he headed both the Department of Medicinal Chemistry of Immunology & Inflammation
and the Department of Biophysical Chemistry. Dr. Boger is also a Director of Millennium Pharmaceuticals, Inc. Dr. Boger holds a
B.A. in chemistry and philosophy from Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard University.
Mr. Aldrich served as Vice President of Business Development of the Company from June 1989 to May 1992, when he became Vice
President and Chief Business Officer. In December 1993, Mr. Aldrich was promoted to Senior Vice President and Chief Business
Officer. He joined Vertex from Integrated Genetics, where he headed that company's business development group. Previously, he
served as Program Executive at Biogen, Inc., where he coordinated worldwide commercial development of several
biopharmaceuticals, and as Licensing Manager at Biogen S.A. in Geneva, Switzerland, where he managed European and Far Eastern
licensing. Mr. Aldrich previously worked at the Boston Consulting Group, an international management consulting firm. Mr. Aldrich
received a B.S. degree from Boston College and an M.B.A. from the Amos Tuck School of Business, Dartmouth College.
Dr. Sato joined Vertex in September 1992 as Vice President of Research and was appointed Senior Vice President of Research and
Development in September 1994. Previously, she was Vice President, Research and a member of the Scientific Board of Biogen, Inc.
As research head at Biogen, she directed research programs in the fields of inflammation, immunology, AIDS therapy and
cardiovascular therapy from early research into advanced product development. Dr. Sato received an A.B. in biology from Radcliffe
College and A.M. and Ph.D. degrees from Harvard University. Following postdoctoral work in chemistry and immunology at the
2002. EDGAR Online, Inc.
University of
California at Berkeley and Stanford Medical School, she was appointed to the faculty of Harvard University in the Department of
Biology.
-21-
Mr. Buchanan joined the Company in April 1994 from Cilag AG, a subsidiary of Johnson & Johnson based in Zug, Switzerland, where
he served as its Regional Licensing Director since 1987. He previously held the position of Marketing Director of Biogen, Inc. in
Switzerland. Prior to Biogen, Mr. Buchanan served in Product Management at Merck Sharp & Dohme (UK) Limited. Mr. Buchanan
holds a B.Sc. from the University of St. Andrews, Scotland.
Mr. Auchincloss joined the Company in October 1994 after serving as an investment banker at Bear, Stearns & Co. Inc. since 1988,
most recently as Associate Director of the Corporate Finance Department. Prior to Bear Stearns, Mr. Auchincloss was a financial
analyst for PaineWebber, Inc. Mr. Auchincloss holds a B.S. from Babson College and an M.B.A. from The Wharton School,
University of Pennsylvania.
SCIENTIFIC ADVISORY BOARD
-22-
The Company's Scientific Advisory Board consists of individuals with demonstrated expertise in various fields who advise the
Company concerning long-term scientific planning, research and development. The Scientific Advisory Board also evaluates the
Company's research programs, recommends personnel to the Company and advises the Company on technological matters. The
members of the Scientific Advisory Board, which is chaired by Dr. Vicki L. Sato, are:
Vicki L. Sato, Ph.D........ Senior Vice President of Research and
Development and Chief Scientific
Officer, Vertex Pharmaceuticals
Incorporated.
Steven J. Burakoff, M.D.... Chair, Department of Pediatric Oncology,
Dana-Farber Cancer Institute; Professor
of Pediatrics, Harvard Medical School.
Eugene H. Cordes, Ph.D..... Professor of Pharmacy and Chemistry,
University of Michigan at Ann Arbor.
Jerome E. Groopman, M.D.... Chief of the Division of Experimental
Medicine, Beth Israel Deaconess Medical
Center; Recanti Chair in Immunology and
Professor of Medicine, Harvard Medical
School.
Stephen C. Harrison, Ph.D.. Professor of Biochemistry and Molecular
Biology, Harvard University;
Investigator, Howard Hughes Medical
Institute; Professor of Biological
Chemistry and Molecular Pharmacology and
Professor of Pediatrics, Harvard Medical
School.
Jeremy R. Knowles, D. Phil. Dean of the Faculty of Arts and
Sciences, Harvard University; Amory
Houghten Professor of Chemistry and
Biochemistry, Harvard University.
Robert T. Schooley, M.D.... Head, Infectious Disease Division,
University of Colorado Health Sciences
Center; Professor of Medicine,
University of Colorado.
2002. EDGAR Online, Inc.
Other than Dr. Sato, none of the members of the Scientific Advisory Board is employed by the Company, and members may have
other commitments to or consulting or advisory contracts with their employers or other entities that may conflict or compete with their
obligations to the Company. Accordingly, such persons are expected to devote only a small portion of their time to the Company. In
addition to its Scientific Advisory Board, Vertex has established consulting relationships with a number of scientific and medical
experts who advise the Company on a project-specific basis.
-23-
RISK FACTORS
The following risk factors should be considered carefully in addition to the other information contained in this Report.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
The Company was founded in 1989 and has not generated any pharmaceutical product sales. To achieve profitable operations, the
Company, alone or with others, must successfully develop, clinically test, market and sell its products. Any products resulting from the
Company's product development efforts are not expected to be available for sale in the near future, if at all.
The development of new pharmaceutical products is highly uncertain and subject to a number of significant risks. Potential products
that appear to be promising at early stages of development may not reach the market for a number of reasons. Such reasons include the
possibilities that the potential products are found ineffective or cause harmful side effects during preclinical testing or clinical trials,
fail to receive necessary regulatory approvals, are difficult or uneconomical to manufacture on a large scale, fail to achieve market
acceptance or are precluded from commercialization by proprietary rights of third parties.
The products that the Company is pursuing will require extensive additional development, testing and investment, as well as regulatory
approvals, prior to commercialization. No assurance can be given that the Company's product development efforts will be successful,
that required regulatory approvals will be obtained or that any products, if introduced, will be commercially successful. Further, the
Company has no sales and marketing capabilities, and even if the Company's products in development are approved for marketing,
there can be no assurance that the Company will be able to develop such capabilities. In addition, only a limited number of drugs
developed through structure-based drug design have completed clinical trials successfully, been approved by the FDA and been
marketed. One of the Company's potential products, VX-478, is an HIV protease inhibitor which is currently in Phase II clinical trials.
The Company and its collaborative partners recently began Phase III clinical trials. To date, HIV has been shown to develop resistance
to antiviral drugs, including currently marketed HIV protease inhibitors. There can be no assurance that such disease resistance or
other factors will not limit the efficacy of the Company's HIV protease inhibitor. The clinical efficacy of the suppression of
mechanisms of action of MDR in chemotherapy in the treatment of cancer is unproven, and, therefore, there can be no assurance that
the Company's MDR compounds in development will improve the efficacy of chemotherapy. There also can be no assurance that drug
candidates being pursued by the Company will be safe and efficacious, will receive regulatory approvals or will result in commercially
successful products. If any of the Company's development programs is not successfully completed, required regulatory approvals are
not obtained, or products for which approvals are obtained are not commercially successful, the Company's business, financial
condition and results of operations would be materially adversely affected. See "Business -- Product Development and Research
Programs."
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of products under development, the Company must
demonstrate through preclinical studies and clinical trials that such products are safe and efficacious for use in each target indication.
The results of preclinical and initial clinical trials of products under development by the Company are not necessarily predictive of
results that will be obtained from large-scale clinical testing, and there can be no assurance that clinical trials of products under
development will demonstrate the safety and efficacy of such products or will result in a marketable product. The safety and efficacy
of a therapeutic product under development by the Company must be supported by extensive data from clinical trials. A number of
companies have suffered significant setbacks in advanced clinical trials, despite
promising results in earlier trials. The Company currently has four product candidates undergoing clinical trials, VX-478, VX-710,
VX-853 and VX-366. In addition, the Company has a number of products undergoing preclinical development. The data observed to
date is preliminary, and there can be no assurance that the results of ongoing and future trials will be consistent with results observed
in earlier clinical trials or will be sufficient for approval. The failure to demonstrate adequately the safety and efficacy of a therapeutic
drug under development could delay or prevent regulatory approval of the product and could have a material adverse effect on the
Company. In addition, the FDA may require additional clinical trials, which could result in increased costs and significant
-24-
2002. EDGAR Online, Inc.
development delays.
The administration alone or in combination with other drugs of any product developed by the Company may produce undesirable side
effects in humans. The occurrence of such side effects could interrupt, delay or halt clinical trials of such products and could ultimately
prevent their approval by the FDA or foreign regulatory authorities for any or all targeted indications. The Company or the FDA may
suspend or terminate clinical trials at any time if it is believed that the trial participants are being exposed to unacceptable health risks.
Even after approval by the FDA and foreign regulatory authorities, products may later exhibit adverse effects that discourage
widespread use or necessitate their withdrawal from the market. There can be no assurance that any products under development by
the Company will be safe when administered to patients.
The rate of completion of clinical trials of the Company's products is dependent upon, among other factors, the rate of patient accrual.
Patient accrual is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial and the availability of clinical trial material. Delays in planned patient enrollment in clinical trials may
result in increased costs, program delays or both, which could have a material adverse effect on the Company. There can be no
assurance that if clinical trials are completed the Company will be able to submit an NDA or that any such application will be reviewed
and approved by the FDA in a timely manner, if at all. See "Business -- Government Regulation."
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company is engaged in research and development collaborations with Glaxo Wellcome, HMR, Kissei, Alpha and BioChem
pursuant to which these parties have agreed to fund portions of the Company's research and development programs and/or to conduct
certain research and development relating to specified products, in exchange for certain technology, product and marketing rights
relating to those products. Some of the Company's current corporate partners have certain rights to control the planning and execution
of product development and clinical programs, and there can be no assurance that such corporate partners' rights to control aspects of
such programs will not impede the Company's ability to conduct such programs in accordance with the schedules and in the manner
currently contemplated by the Company for such programs.
If any of the Company's corporate collaborators were to terminate its relationship with Vertex, it could have a material adverse effect
on the Company's ability to fund related and other programs and to develop, manufacture and market any products that may have
resulted from such collaboration. There can be no assurance that these collaborations will be completed or successful, or that the
collaborative partners will not pursue alternative means of developing treatments for the diseases targeted by their collaborative
programs with the Company. Glaxo Wellcome has the right to terminate the research collaboration under its agreement with the
Company without cause at any time upon twelve months' notice and has the right to terminate the license arrangements under its
agreement with the Company without cause upon twelve months' notice, provided such notice is not given before the research
collaboration has been terminated. Termination by Glaxo Wellcome of the research collaboration under its agreement with the
Company will relieve Glaxo Wellcome of its obligation to
-25-
make further research support payments under the agreement. Termination by Glaxo Wellcome of the license arrangements under the
agreement will relieve it of its obligation to make further commercialization and development milestone and royalty payments and will
end any license granted to Glaxo Wellcome by Vertex. HMR has the right to terminate its agreement with the Company without cause
upon twelve months' notice at any time. Termination by HMR will relieve HMR of any further payment obligations under its
agreement with the Company. In addition, for a period of one year after any such termination, HMR retains the right to select one or
more compounds for development and to license such compound or compounds from Vertex, provided HMR resumes research
funding and commercialization milestone payments and makes all such payments that would otherwise have been due but for such
termination. Alpha has the right to terminate its agreement with the Company without cause upon six months' notice at any time.
Termination will relieve Alpha of any further payment obligations under its agreement with the Company and will also terminate any
license granted to Alpha by Vertex. BioChem has the right to terminate its agreement with the Company without cause upon six
month's notice at any time after May 8, 1997. Termination will relieve BioChem of any further payment obligations under its
agreement with the Company and will terminate any license granted to BioChem thereunder.
The Company may seek additional collaborative arrangements to develop and commercialize its products in the future. There can be
no assurance that the Company will be able to establish acceptable collaborative arrangements in the future or that such collaborative
arrangements will be successful. In addition, there can be no assurance that collaborative partners will not pursue alternative
technologies or develop alternative compounds either on their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases targeted by their collaborative programs with the Company or that
disagreements over rights to technology, other proprietary information or the course of the research and development program will not
occur. Such events could result in the delay or cancellation of programs or product introduction even if regulatory approvals are
obtained. See "Business -- Corporate Collaborations."
2002. EDGAR Online, Inc.
RAPID TECHNOLOGICAL CHANGE AND COMPETITION
The Company is engaged in pharmaceutical fields characterized by extensive research efforts, rapid technological progress and intense
competition. There are many public and private companies, including pharmaceutical companies, chemical companies and
biotechnology companies, engaged in developing products for the human therapeutic applications targeted by Vertex. Further, the
Company believes that interest in the application of structure-based drug design and related technologies may continue and may
accelerate as the technologies become more widely understood. The Company is aware of efforts by others to develop products in each
of the areas in which the Company has products in development. For example, Merck & Co., Inc., Abbott Laboratories, Inc. and
Hoffmann-La Roche have HIV protease inhibitors which have been approved by the FDA for marketing, and Agouron
Pharmaceuticals, Inc. has filed an NDA for an HIV protease inhibitor. The Company is also aware of other companies that have HIV
protease inhibitors in development. There also are a number of competitors that have products under development for the treatment of
MDR in cancer and for the treatment of hemoglobin disorders. In order for the Company to compete successfully in these areas, it
must demonstrate improved safety, efficacy, ease of manufacturing and market acceptance over its competitors, who have received
regulatory approval and are currently marketing. Furthermore, academic institutions, governmental agencies and other public and
private research organizations are conducting research to develop technologies and products that may compete with those under
development by the Company. In addition, other technologies are, or may in the future become, the basis for competing products.
There can be no assurance that the Company's competitors will not succeed in developing technologies and products that are more
effective than any being developed by the Company or that would render the Company's technology and products obsolete or
noncompetitive. In addition, there can be no assurance that the Company's products in development will be able to compete effectively
with products which are currently on the market.
-26-
Many of the Company's competitors have substantially greater financial, technical and human resources than those of the Company. In
addition, many of the Company's competitors have significantly greater experience than the Company in conducting preclinical testing
and human clinical trials of new pharmaceutical products, and in obtaining FDA and other regulatory approvals of products.
Accordingly, certain of the Company's competitors may succeed in obtaining regulatory approval for products more rapidly than the
Company. If the Company obtains regulatory approval and commences commercial sales of its products, it will also compete with
respect to manufacturing efficiency and sales and marketing capabilities, areas in which it currently has no experience. See "Business
-- Competition."
MANUFACTURING UNCERTAINTIES; RELIANCE ON THIRD PARTY MANUFACTURERS
The Company's ability to conduct clinical trials and its ability to commercialize its potential products will depend, in part, on its ability
to manufacture its products on a large scale, either directly or through third parties, at a competitive cost and in accordance with FDA
and other regulatory requirements. Furthermore, for all of the Company's drugs in development, completion of clinical trials and
submission of an NDA will be subject to the establishment of a commercial formulation and manufacturing process. As manufacturing
process development and formulation activities are ongoing throughout the development process, the Company or its collaborators
may encounter difficulties at any time that could result in delays in clinical trials, regulatory submissions and commercialization of its
products, or cause negative financial and competitive consequences. Manufacturing process development and formulation activities for
VX-478 by the Company and Glaxo Wellcome are continuing while clinical trials are underway. There can be no assurance that such
activities will be completed in a timely and successful manner, if at all. The failure to complete such activities in a timely and
successful manner could have a material adverse effect on the business, financial condition or results of operations of the Company.
The Company currently does not have the capacity to manufacture its potential products and is dependent on third party manufacturers
or collaborative partners for the production of its compounds for preclinical research and clinical trial purposes. The Company expects
to be dependent on such manufacturers or collaborative partners for some or all commercial production of any of its compounds that
are approved for marketing. In the event that the Company is unable to obtain contract manufacturing, or obtain such manufacturing on
commercially reasonable terms, it may not be able to conduct or complete clinical trials or, if FDA approval is obtained,
commercialize its products as planned. The Company has no experience in manufacturing pharmaceutical or other products or in
conducting manufacturing testing programs required to obtain FDA and other regulatory approvals, and there can be no assurance that
the Company will successfully develop such capabilities.
Some of the Company's current corporate partners have certain manufacturing rights with respect to the Company's products under
development, and there can be no assurance that such corporate partners' manufacturing rights will not impede the Company's ability
to conduct the development programs and commercialize any resulting products in accordance with the schedules and in the manner
currently contemplated by the Company. See "Business -- Manufacturing."
EXTENSIVE GOVERNMENT REGULATION; UNCERTAINTY OF PRODUCT CLEARANCE AND APPROVAL
2002. EDGAR Online, Inc.
The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic
pharmaceutical products through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly
and time-consuming procedures. Satisfaction of these requirements typically takes several years or longer and may vary substantially
based upon the type, complexity and novelty of the pharmaceutical product. The Company has had only limited experience in
conducting preclinical testing and human clinical trials. In addition, the
Company has not received FDA or other regulatory approvals for any of its product candidates. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. In addition, delays
or rejections may be encountered based on changes in, or additions to, regulatory policies for drug approval during the period of
product development and regulatory review.
-27-
The effect of government regulation may be to delay or prevent the commencement of clinical trials or marketing of Company
products, if any are developed and submitted for approval, for a considerable period of time, to impose costly procedures upon the
Company's activities and to provide a competitive advantage to larger companies or companies more experienced in regulatory affairs
that compete with the Company. There can be no assurance that FDA or other regulatory approval for clinical trials or marketing of
any products developed by the Company will be granted on a timely basis or at all. Delay in obtaining or failure to obtain such
approvals would adversely affect the marketing of the Company's products and the Company's liquidity and capital resources.
Moreover, even if approval is granted, such approval may entail limitations on the indicated uses for which a compound may be
marketed. Even if such regulatory approval is obtained, a marketed drug or compound and its manufacturer are subject to continual
review, and later discovery of previously unknown problems with a product or manufacturer may result in restrictions on such product
or manufacturer, including withdrawal of the product from the market. Failure to comply with applicable regulatory requirements can,
among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions and criminal
prosecution. Further, additional government regulation may be established which could prevent or delay regulatory approval of the
Company's products.
The Company has obtained orphan drug status for VX-366 for the treatment of beta thalassemia and sickle cell disease and may apply
for orphan drug status for certain indications of MDR in cancer. Orphan drug status may, under present regulations, entitle the
Company to certain marketing exclusivity and tax benefits. While the marketing exclusivity of an orphan drug would prevent other
sponsors from obtaining approval of the same compound for the same indication, it would not prevent chemically distinct drugs from
being approved for the same use. There can be no assurance that the Company will receive FDA orphan drug status for any of its
compounds under development for which the Company seeks that status. Moreover, there can be no assurance that the scope of
protection or the level of exclusivity that is currently afforded by orphan drug status will remain in effect in the future. See "Business --
Government Regulation."
The Company's research and development activities involve the controlled use of hazardous materials, chemicals and various
radioactive compounds. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the
event of an accident, the Company could be held liable for any damages or fines that result, and the liability could have a material
adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that statutes or
regulations, applicable to the Company's business which impose substantial additional costs or otherwise materially adversely affect
the Company's operations, will not be adopted.
UNCERTAINTY RELATED TO PATENTS AND PROPRIETARY INFORMATION
The Company's success will depend, in part, on its ability to obtain United States and foreign patent protection for its products and
their uses, to preserve its trade secrets and to operate without infringing the proprietary rights of third parties. Because of the
substantial length of time and expense associated with bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical industry places considerable importance on obtaining patents and maintaining trade secret protection
for new technologies, products and processes. Patent protection may not be available, however, for compounds for use in certain
medical indications, without a demonstration of how to use the compounds and proof in clinical trials that such
compounds may be useful for such target indications. As of February 20, 1997, the Company had a total of six United States patents
and 63 pending United States patent applications. As of that date, the Company also had a non-exclusive, worldwide license under
certain Searle patent applications claiming HIV protease inhibitors. The Company also has been granted an exclusive license under
four United States patents, one of which is subject to a reissue application. The Company also has filed foreign counterparts to some of
its United States patents and patent applications. There can be no assurance that patents will issue from any of the Company's pending
or future patent applications. There can be no assurance that any issued, licensed, pending or future patent will not be infringed by the
-28-
2002. EDGAR Online, Inc.
products of others or provide sufficient protection to exclude others from the Company's present or future technology or products. The
Company has in the past licensed and may in the future license patent rights from others. There can be no assurance, however, that
such licenses will provide adequate protection for the Company's products.
Issued United States patents are presumed valid under United States patent law. No assurance can be given, however, that one or more
of the Company's issued patents will not be declared invalid by a court. Legal standards relating to the validity of patents and the
proper scope of their claims in the biopharmaceutical field are still evolving, and there is no consistent law or policy regarding the
valid breadth of claims in biopharmaceutical patents or the effect of prior art on them. Furthermore, no assurance can be given as to
the degree of protection any patents will afford to the Company's technology or as to the Company's ability to avoid infringing the
claims of the patents held by third parties. Further, there can be no assurance that a license to such patents would be available on terms
acceptable to the Company, if at all. There also can be no assurance that any patents issued to or licensed by the Company will not be
infringed by others.
In addition to being a potential party to patent infringement litigation, the Company could become involved in interference
proceedings declared by the United States Patent and Trademark Office. Defense and prosecution of patent claims, as well as
participation in interference proceedings, can be expensive and time-consuming, even in those instances in which the outcome is
favorable to the Company. If the outcome of any such litigation or proceeding were adverse, the Company could be subject to
significant liabilities to third parties, could be required to obtain licenses from third parties or could be required to cease sales of the
affected products, any of which could have a material adverse effect on the Company.
The Company has licensed on an exclusive basis four United States patents and one United States reissue application from Children's
Hospital Medical Center of Oakland (California) ("Children's Hospital"). Three of these patents and the reissue application claim the
use of compounds, including VX-366, in the treatment of hemoglobin disorders, including sickle cell disease and beta thalassemia.
Because Children's Hospital did not foreign file the application corresponding to the reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may be limited. In addition, there can be no assurance
that others will not develop independently substantially equivalent technology, obtain access to the Company's know-how or be issued
patents which may prevent the sale of the Company's products or require licensing and the payment of significant fees or royalties by
the Company in order for it to carry on its business. Furthermore, there can be no assurance that any such license will be available.
The Company's management and scientific personnel have been recruited from other pharmaceutical and biotechnology companies
and academic institutions. In many cases these individuals are conducting research in similar areas with which they were involved prior
to joining Vertex. As a result, the Company, as well as these individuals, could be subject to allegations of violation of trade secrets
and similar claims. See " -- Dependence on Collaborative Partners" and "Business - -- Corporate Collaborations" and " -- Patents and
Proprietary Information."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
-29-
The Company expects to incur substantially increased research and development and related supporting expenses as it designs and
develops existing and future compounds and undertakes clinical trials of potential drugs resulting from such compounds. The
Company also expects to incur substantial administrative and commercialization expenditures in the future and substantial expenses
related to the filing, prosecution, defense and enforcement of patent and other intellectual property claims. The Company's future
capital requirements will depend on many factors, including the progress of its research and development programs, the scope and
results of preclinical studies and clinical trials, the cost, timing and outcome of regulatory reviews, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market developments, the establishment of additional
collaborative arrangements and the cost of manufacturing facilities and of commercialization activities and arrangements. The
Company anticipates that it will finance these substantial cash needs with its existing cash reserves, together with interest earned
thereon, future payments under its collaborative agreements with Glaxo Wellcome, HMR, Kissei, Alpha and BioChem, facilities and
equipment financing and additional collaborative agreements. To the extent that funds from these sources are not sufficient to fund the
Company's activities, it will be necessary to raise additional funds through public offerings or private placements of debt or equity
securities or other methods of financing. Any equity financings could result in dilution to the Company's then existing stockholders.
Any debt financing, if available at all, may be on terms which, among other things, restrict the Company's ability to pay dividends
(although the Company does not intend to pay dividends for the foreseeable future). If adequate funds are not available, the Company
may be required to curtail significantly or discontinue one or more of its research, drug discovery or development programs, including
clinical trials, or attempt to obtain funds through arrangements with collaborative partners or others that may require the Company to
relinquish rights to certain of its technologies or products in research or development. No assurance can be given that additional
financing will be available on acceptable terms, if at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
2002. EDGAR Online, Inc.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
Vertex has incurred losses since its inception in January 1989. As of December 31, 1996, the Company's accumulated deficit was
approximately $96.9 million. Losses have resulted principally from costs incurred in research and development of the Company's
compounds in development, including clinical trials and material manufacturing costs, the Company's other research programs and
from general and administrative costs. These costs have exceeded the Company's revenues, which to date have been generated
primarily from collaborative arrangements, interest income and research grants. The Company expects to incur additional significant
operating losses in the future and does not expect to achieve profitability from sales of its products in development for several years, if
ever. The Company expects that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. There can
be no assurance that the Company will ever achieve product revenues or profitable operations. Based on the Internal Revenue Code of
1986, as amended, and changes in the Company's ownership, utilization of net operating loss carryforwards and research and
development credits for federal income tax purposes may be subject to annual limitations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's ability to commercialize its products successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations ("HMOs"). Third party payors and government
-30-
authorities are continuing efforts to contain or reduce the cost of health care. For example, in certain foreign markets, pricing and/or
profitability of prescription pharmaceuticals are subject to government control. There can be no assurance that similar controls will not
be implemented in the United States. Also, the trend toward managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, may
result in lower prices for the Company's products. The cost containment measures that health care providers and third party payors are
instituting and any proposed or future health care reform measures, including any reductions in government reimbursement programs
such as Medicaid and Medicare, could affect the Company's ability to sell its products and may have a material adverse effect on the
Company.
The success of the Company's products in the United States and other significant markets will depend, in part, upon the extent to which
a consumer will be able to obtain reimbursement for the cost of such products from government health administration authorities,
third-party payors and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved therapeutic
products. Even if a product is approved for marketing, there can be no assurance that adequate reimbursement will be available. The
Company is unable to predict what additional legislation or regulation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect the legislation or regulation would have on the Company's business. Failure
to obtain reimbursement could have a material adverse effect on the Company.
ABSENCE OF SALES AND MARKETING EXPERIENCE
The Company currently has no experience in marketing or selling pharmaceutical products. The Company must either develop a
marketing and sales force or enter into arrangements with third parties to market and sell any of its product candidates which are
approved by the FDA. In the territories where the Company retains marketing and co-promotion rights, there can be no assurance that
the Company will successfully develop its own sales and marketing experience or that it will be able to enter into marketing and sales
agreements with others on acceptable terms, if at all. If the Company develops its own marketing and sales capability, it will compete
with other companies that currently have experienced and well-funded marketing and sales operations. To the extent that the Company
has or enters into co-promotion or other sales and marketing arrangements with other companies, any revenues to be received by the
Company will be dependent on the efforts of others, and there can be no assurance that such efforts will be successful.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management and scientific team. The loss of the services of one or
more members of the senior management and scientific team might impede the achievement of the Company's development objectives.
Due to the specialized scientific nature of the Company's business, the Company is also highly dependent upon its ability to attract and
retain qualified scientific, technical and key management personnel. There is intense competition for qualified personnel in the areas of
the Company's activities, and there can be no assurance that the Company will be able to continue to attract and retain qualified
personnel necessary for the development of its existing business and its expansion into areas and activities requiring additional
expertise, such as clinical testing, government approvals, production and marketing. See "Human Resources."
2002. EDGAR Online, Inc.
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The Company's business will expose it to potential product liability risks that are inherent in the testing, manufacturing and marketing
of pharmaceutical and other products developed by the Company. The use of the Company's products in clinical trials also exposes the
Company to the
possibility of product liability claims and possible adverse publicity. These risks will increase to the extent the Company's products
receive regulatory approval and are commercialized. The Company maintains product liability insurance for clinical trials. The
Company does not currently have any other product liability insurance. There can be no assurance that the Company will be able to
maintain its existing insurance or be able to obtain or maintain such additional insurance as it may need in the future on acceptable
terms or that the Company's existing insurance or any such additional insurance will provide adequate coverage against potential
liabilities.
-31-
VOLATILITY OF SHARE PRICE; OPTION GRANTS
Market prices for securities of companies such as Vertex are highly volatile, and the market for the securities of such companies,
including the Common Stock of the Company, has from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of these particular companies. Factors such as announcements of results of clinical trials,
technological innovations or new products by Vertex or its competitors, government regulatory action, public concern as to the safety
of products developed by the Company or others, patent or proprietary rights developments and market conditions for pharmaceutical
and biotechnology stocks, in general, could have a significant adverse effect on the future market price of the Common Stock.
As of December 31, 1996, the Company had outstanding options for the purchase of 4,032,609 shares of Common Stock at exercise
prices ranging from $6.48 per share to $37.50 per share. Options for the purchase of 1,624,862 shares of Common Stock were
exercisable as of that date.
ANTI-TAKEOVER PROVISIONS
The Company's charter provides for staggered terms for the members of the Board of Directors. The Company's By-laws grant the
Directors a right to adjourn annual meetings of stockholders, and certain provisions of the By-laws may be amended only with an 80%
stockholder vote. Pursuant to the Company's Stockholder Rights Plan, as amended as of February 21, 1997, each share of Common
Stock has an associated preferred share purchase right (a "Right"). The Rights will not trade separately from the Common Stock until,
and are exercisable only upon, the acquisition or the potential acquisition through tender offer by a person or group of 15% or more of
the outstanding Common Stock. These charter and By-law provisions and the Company's Stockholder Rights Plan may discourage
certain types of transactions involving an actual or potential change in control of the Company which might be beneficial to the
Company or its stockholders.
Shares of any class or series of preferred stock may be issued by the Company in the future without stockholder approval and upon
such terms as the Board of Directors 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 class or series of preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have
the effect of discouraging a third party from acquiring a majority of the outstanding Common Stock of the Company. The Company
has no present plans to issue any shares of any class or series of Preferred Stock.
ITEM 2. PROPERTIES
-32-
The Company leases an aggregate of approximately 110,000 square feet of laboratory and office space in five adjacent facilities at 40
Allston Street, 625 Putnam Avenue, 618 Putnam Avenue, 240 Sidney Street and 130 Waverly Street in Cambridge, Massachusetts.
The lease to the 40 Allston Street, 618 Putnam Avenue and 240 Sidney Street facilities will expire in December 2003. The lease to the
625 Putnam Avenue facility expires in December 1998, subject to an option, at the Company's election, to extend the term through
December 2000. The lease to the 130 Waverly Street facility will expire in December 2005. The Company has occupied
approximately 53,000 square feet of space under this lease, with approximately 7,000 square feet of additional space available for
expansion. The Company believes its facilities are adequate for its current needs. The Company believes it can obtain additional space
on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
2002. EDGAR Online, Inc.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq Stock Market ("Nasdaq") under the symbol "VRTX." The following table sets
forth the high and low last sale prices for each quarter and the last sale price at the end of each quarter for the Common Stock as
reported by Nasdaq for the periods indicated.
1995 HIGH LOW CLOSE
- ------------------------------------------------------------------
First quarter $16 3/4 $13 $13 1/2
Second quarter 16 3/4 12 3/4 16 3/8
Third quarter 23 13 1/2 18 3/4
Fourth quarter 26 1/2 16 1/4 26 1/2
1996
- ------------------------------------------------------------------
First quarter $29 7/8 $22 $26 1/2
Second quarter 38 26 30 3/8
Third quarter 36 1/4 23 1/4 29 1/2
Fourth quarter 40 1/4 28 7/8 40 1/4
The last sale price of the Common Stock on March 6, 1997, as reported by Nasdaq, was $46.00 per share. As of March 5, 1997, there
were 297 holders of record of the Common Stock (approximately 5,200 beneficial holders).
The Company has never declared or paid any cash dividends on its Common Stock and currently expects that future earnings will be
retained for use in its business.
RECENT SALE OF UNREGISTERED SECURITIES
-33-
On June 28, 1996, the Company issued and sold to Glaxo Wellcome, for cash, 151,792 shares of the Company's Common Stock at a
purchase price of $32.94 per share, or an aggregate purchase price of $5,000,028. The securities issued were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on the exemption set forth in Section 4(2) of the Securities Act.
The sale to Glaxo Wellcome was a privately negotiated sale by the Company not involving any public offering.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
-34-
The following selected consolidated financial data for each of the five years in the period ended December 31, 1996 are derived from
the Company's Consolidated Financial Statements audited by Coopers & Lybrand L.L.P., independent accountants. This data should
be read in conjunction with the Company's audited financial statements and related notes, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." No dividends were declared or paid for any of the periods presented.
2002. EDGAR Online, Inc.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
*Proforma
1996 1996 1995 1994 1993 1992
--------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Consolidated Statement of Operations Data:
Revenues:
Collaborative and other research and
development revenues ..................... $ 13,341 $ 13,341 $ 22,081 $ 19,571 $27,885 $ 3,767
Interest income ........................ 5,257 5,257 5,453 3,574 1,409 1,983
-------- -------- -------- -------- ------- --------
Total revenues .................. 18,598 18,598 27,534 23,145 29,294 5,750
Costs and expenses:
Research and development ............... 35,212 35,212 41,512 34,761 23,164 11,505
General and administrative ............. 7,929 7,929 7,069 5,540 3,520 2,278
License Payment ........................ 15,000 15,000 -- -- -- --
Interest ............................... 462 462 481 439 493 453
-------- -------- -------- -------- ------- --------
Total costs and expenses ........ 58,603 58,603 49,062 40,740 27,177 14,236
-------- -------- -------- -------- ------- --------
Net (loss) profit before taxes ........... (40,005) (40,005) (21,528) (17,595) 2,117 (8,486)
Tax provision ............................ -- -- -- -- 80 --
-------- -------- -------- -------- ------- --------
Net (loss) profit ........................ $(40,005) $(40,005) $(21,528) $(17,595) $ 2,037 $ (8,486)
======== ======== ======== ======== ======= ========
Net (loss) profit per common share ....... $ (2.13) $ (2.13) $ (1.25) $ (1.11) $ 0.16 $ (0.70)
Weighted average number of common
shares outstanding ....................... 18,798 18,798 17,231 15,818 12,451 12,110
DECEMBER 31,
----------------------------------------------------------------------------
*Proforma
1996 1996 1995 1994 1993 1992
--------- --------- -------- --------- -------- --------
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments ............................... $ 279,222 $ 130,359 $ 86,978 $ 106,470 $ 52,103 $ 43,701
Total assets .............................. 292,362 143,499 98,981 116,175 60,992 51,043
Obligations under capital leases, excluding
current portion ......................... 5,617 5,617 4,912 4,729 4,208 3,338
Accumulated deficit ....................... (96,944) (96,944) (56,939) (35,411) (17,816) (19,853)
Total stockholders' equity . .............. 279,689 130,826 85,272 105,478 49,520 43,850
*To give effect to the sale of 3,450,000 shares of common stock in a public offering on March 12, 1997, with net proceeds to the
Company of approximately $148,863,000 (see Note N to the Financial Statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery, development and commercialization of novel, small molecule pharmaceuticals for the
treatment of major diseases for which there are currently limited or no effective treatments. The Company is a leader in the use of
structure-based drug design, an approach to drug discovery that integrates advanced biology, biophysics and chemistry.
The Company is conducting nine significant pharmaceutical research and development programs to develop pharmaceuticals for the
treatment of viral diseases, multidrug resistance in cancer, hemoglobin disorders, autoimmune diseases, inflammatory diseases and
neurodegenerative disorders. Three of these programs are in the development phase, and the other six are in the research phase.
-35-
To date, the Company has not received any revenues from the sale of pharmaceutical products and does not expect to receive such
revenues, if any, in the near future. The Company has incurred since its inception, and expects to incur over the next several years,
significant operating losses as a result of expenditures for its research and development programs. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations may be substantial.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995.
The Company's total revenues decreased to $18,598,000 in 1996 from $27,534,000 in 1995. In 1996, revenues consisted of
$12,013,000 under the Company's collaborative agreements, $5,257,000 in interest earned on invested funds and $1,328,000 in
government grants and other income. Revenue from collaborative agreements consisted of $6,289,000 from the Glaxo Wellcome
collaboration, $4,196,000 from the HMR collaboration, $692,000 from the Kissei collaboration, $225,000 from the Alpha
collaboration, $577,000 from the BioChem collaboration and $34,000 from the Chugai collaboration. The research funding
2002. EDGAR Online, Inc.
requirements of the Chugai and Kissei collaborative agreements concluded in 1995, although Kissei continues to have certain
development funding obligations. In 1995, revenues consisted of $21,587,000 under the Company's collaborative agreements,
$5,453,000 in interest earned on invested funds and $494,000 in government grants and other income. Revenue from collaborative
agreements consisted of $10,053,000 from the Glaxo Wellcome collaboration, $5,370,000 from the Kissei collaboration, $3,749,000
from the HMR collaboration, $1,915,000 from the Chugai collaboration and $500,000 from the Alpha collaboration.
The Company's total costs and expenses increased to $58,603,000 in 1996 from $49,062,000 in 1995. The increase in total costs and
expenses resulted principally from the Company's payment of $15,000,000 to obtain a non-exclusive, world-wide license under certain
Searle patent applications claiming HIV protease inhibitors. Research and development expenses declined to $35,212,000 in 1996
from $41,512,000 in 1995. Although the Company's scientific staffing and facilities expansion added to expense in 1996, the overall
decrease in research and development expense was due primarily to higher costs incurred in 1995 for the manufacturing of bulk
intermediate drug substance for use in clinical trials. In addition, general and administrative expenses increased to $7,929,000 in 1996
from $7,069,000 in 1995. The increase in general and administrative expense principally reflects the impact of personnel additions, the
Company's facilities expansion, and an increase in marketing costs including the addition of marketing and support personnel for the
Company's subsidiary Altus Biologics Inc. ("Altus"). Interest expense decreased to $462,000 in 1996 from $481,000 in 1995 on
higher levels of equipment lease financing due to lower blended rates of interest charged.
-36-
The Company recorded a net loss of $40,005,000 or $2.13 per share in 1996 compared to a net loss of $21,528,000 or $1.25 per share
in 1995.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994.
The Company's total revenues increased to $27,534,000 in 1995 from $23,145,000 in 1994. In 1995, revenues consisted of
$21,587,000 under the Company's collaborative agreements, $5,453,000 in interest earned on invested funds and $494,000 in
government grants and other income. Revenue from collaborative agreements consisted of $10,053,000 from the Glaxo Wellcome
collaboration, $5,370,000 from the Kissei collaboration, $3,749,000 from the HMR collaboration, $1,915,000 from the Chugai
collaboration and $500,000 from the Alpha collaboration. The research funding requirements of the Chugai and Kissei collaborative
agreements concluded in 1995, although Kissei continues to have certain development funding obligations. In 1994, revenues
consisted of $19,327,000 from collaborative agreements, $3,574,000 in interest earned on invested funds and $244,000 in government
grants and other income. Revenue in 1994 from collaborative agreements consisted of $5,346,000 from the Glaxo Wellcome
collaboration, $5,498,000 from the Kissei collaboration, $3,514,000 from the HMR collaboration and $4,969,000 from the Chugai
collaboration.
The Company's total costs and expenses increased to $49,062,000 in 1995 from $40,740,000 in 1994. Research and development
expenses increased 19% to $41,512,000 in 1995 from $34,761,000 in 1994, due, in part, to the costs associated with manufacturing
drug product for use in ongoing clinical trials of the Company's drug candidates and, to a lesser extent, increases in the Company's
research staff. General and administrative expenses increased by 28% to $7,069,000 from $5,540,000 between 1995 and 1994. The
increase in general and administrative expense principally reflects the full year impact of personnel additions and the opening of an
office in the United Kingdom in 1994 to support the Company's research and business development efforts. Also contributing to the
increase were costs associated with the addition of marketing and support personnel for Altus. In addition, the Company experienced
higher legal fees associated with its patent activities. Interest expense increased 10% to $481,000 in 1995 from $439,000 in 1994 as a
result of higher levels of equipment leasing.
The Company recorded a net loss of $21,528,000 or $1.25 per share in 1995 compared to a net loss of $17,595,000 or $1.11 per share
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been funded principally through strategic collaborative agreements, public offerings and private
placements of the Company's equity securities, equipment lease financing, government grants and interest income. The Company
expects to incur increased research and development and related supporting expenses and, consequently, continued losses on a
quarterly and annual basis as it continues to develop existing and future compounds and to conduct clinical trials of potential drugs.
The Company also expects to incur substantial administrative and commercialization expenditures in the future and additional
expenses related to the filing, prosecution, defense and enforcement of patent and other intellectual property rights.
The Company expects to finance these substantial cash needs with its existing cash and investments at December 31, 1996 of
approximately $130.4 million ($279.2 million pro forma for the public offering of 3,450,000 shares of common stock on March 12,
1997), together with interest earned thereon, future payments under its existing collaborative agreements, and facilities and equipment
2002. EDGAR Online, Inc.
financing. To the extent that funds from these sources are not sufficient to fund the Company's activities, it will be necessary to raise
additional funds through public offerings or private placements of securities or other methods of financing. There can be no assurance
that such financing will be available on acceptable terms, if at all.
-37-
The Company and BioChem are collaborating on the development and commercialization in Canada of VX-710, the Company's lead
multidrug resistance reversal agent. Under the development agreement, BioChem is obligated to pay the Company up to $4.0 million
comprised of an initial licensing fee and payments for development and commercialization milestones. From the inception of the
agreement in May 1996 through the year ended December 31, 1996, $500,000 has been recognized as revenue. BioChem will fund
development of VX-710 in Canada, including planned Phase II clinical trials in two different cancer indications. Vertex will supply
BioChem clinical and commercial drug supply needs. In 1996, the Company received additional revenues related to the sale of clinical
trial material to BioChem. BioChem will pay Vertex a portion of its net sales, which will cover Vertex's cost of supplying material and
will provide a profit to Vertex.
The Company and Alpha are collaborating on the development and commercialization of VX-366 for the treatment of sickle cell
anemia and beta thalassemia. Under the collaborative agreement, Alpha is obligated to pay the Company up to $5.0 million comprised
of an initial license fee and payments for development and commercialization milestones. From the inception of the agreement in
October 1995 through the year ended December 31, 1996, $500,000 has been recognized as revenue. In addition, Alpha is obligated to
bear the costs of development of VX-366 under the collaboration. The Company received additional revenue related to
reimbursements for clinical material during 1996. Alpha has the right to terminate the agreement without cause upon six months notice
at any time. Termination will relieve Alpha of any further payment obligations under the agreement and will end the license granted to
Alpha by Vertex.
The Company and Glaxo Wellcome are collaborating on the development of compounds in connection with the Company's HIV
Program. Under the collaborative agreement, Glaxo Wellcome is obligated to pay the Company up to $42.0 million comprised of a
$15.0 million initial license payment paid in 1993, $14.0 million of product research funding over five years and $13.0 million of
development and commercialization milestone payments. From the inception of the agreement in December 1993 through the year
ended December 31, 1996, $25.0 million has been recognized as revenue. Glaxo Wellcome is also obligated to pay to Vertex
additional development and commercialization milestone payments for subsequent drug candidates. In addition, Glaxo Wellcome
agreed to bear the costs of development of drug candidates under the collaboration. The Company has received additional revenue
related to reimbursements for clinical development. Under the agreement, Glaxo Wellcome is also required to pay Vertex a royalty on
sales. Glaxo Wellcome has the right to terminate the research collaboration without cause upon twelve months notice given at any time
and has the right to terminate the license arrangements without cause upon twelve months notice given at any time provided such
notice is not given before the research collaboration has been terminated. Termination by Glaxo Wellcome of the research
collaboration will relieve Glaxo Wellcome of its obligation to make further research support payments under the agreement.
Termination by Glaxo Wellcome of the license arrangements under the agreement will relieve it of its obligation to make further
commercialization and development milestone and royalty payments and will end any license granted to Glaxo Wellcome by Vertex
thereunder. In June 1996, the Company and Glaxo Wellcome obtained a worldwide, non-exclusive license under certain Searle patent
applications in the area of HIV protease inhibition. Vertex paid $15.0 million and Glaxo Wellcome paid $10.0 million to Searle for the
license. The Company also agreed to pay Searle a royalty on sales of VX-478, the Company's lead HIV compound. In connection with
this transaction, a $5.0 million equity investment was made to the Company by Glaxo Wellcome.
The Company and HMR are collaborating on the development of interleukin-1 beta converting enzyme inhibitors as anti-inflammatory
agents. Under the collaborative agreement, HMR is obligated to pay the Company up to $30.5 million, comprised of $18.5 million of
product research funding over five years and $12.0 million of development and commercialization milestone payments. From the
inception of the agreement in September 1993 through the year ended December 31, 1996, $14.5 million has been recognized as
revenue. HMR has the right to terminate the agreement without cause upon twelve months notice at any time. For a period of one year
after
any such termination, HMR retains the right to select one or more compounds for development and to license such compound or
compounds from Vertex, provided HMR resumes all research funding and commercialization milestone payments and makes all such
payments that would otherwise have been due but for such termination. Otherwise, in the case of such termination, all rights to
compounds developed under the research and license agreements will revert to Vertex.
-38-
The Company and Kissei are collaborating on the development of Vertex's VX-478 protease inhibitor. Under the collaborative
agreement, Kissei is obligated to pay the Company up to $20.0 million, comprised of $9.8 million of product research funding through
1995, $7.0 million of development milestone and territory option payments and a $3.2 million equity investment. From the inception
of the agreement in April 1993 through the year ended December 31, 1996, $17.8 million has been received, including $14.6 million
2002. EDGAR Online, Inc.
recognized as revenue and $3.2 million as an equity investment. The Company received additional revenue related to reimbursements
for clinical development during this period. Under the collaboration, Kissei is also required to pay Vertex a royalty on sales.
In March 1997, the Company completed a public offering of 3,450,000 shares of its common stock, which included an over-allotment
exercised by the underwriters for 450,000 shares, at a price to the public of $45.50 per share, with net proceeds to the Company of
approximately $148,863,000. In August 1996, the Company completed a public offering of 3,450,000 shares of its common stock,
which included an over-allotment option exercised by the underwriters for 450,000 shares, at a price to the public of $24 per share,
with net proceeds to the Company of approximately $77,515,000. In June 1996, Glaxo Wellcome purchased 151,792 shares of the
Company's common stock at a price of $32.94 per share, with net proceeds to the Company of approximately $5.0 million. In
November 1994, the Company sold 1,200,000 shares of common stock in a private placement to a subsidiary of BB Biotech AG at a
price of $12.50 per share, with net proceeds to the Company of approximately $15,000,000. In February 1994, the Company sold
3,450,000 shares of common stock in a public offering at a price to the public of $18.00 per share, with net proceeds to the Company
of approximately $58,062,000.
In March 1995, the Company signed a ten-year operating lease for additional facilities for occupancy in early 1996. The Company has
occupied approximately 53,000 square feet of space under this lease and has agreed to occupy approximately 60,000 square feet in
total during the lease period in order to meet its longer-term expansion needs. The costs to lease and equip these facilities will be
funded, in whole or in part, through existing cash and investments and through lease financing, which has been made available to the
Company on acceptable terms. During 1995, the Company deposited $2,316,000 with its bank to collateralize a conditional letter of
credit in the name of the landlord. The letter of credit is redeemable only if the Company defaults on the lease under specific criteria.
These funds are restricted from the Company's use, although the Company is entitled to all interest earned on the funds. The Company
expects to continue its current practice of leasing most of its capital equipment, provided such lease financing continues to be available
to the Company on commercially acceptable terms.
The Company's aggregate cash and investments were $130,359,000 at December 31, 1996, an increase of $43,381,000 from
December 31, 1995. Cash used by operations was $40,253,000 in the year ended December 31, 1996. The Company expended
$3,983,000 to acquire property and equipment, principally for research equipment and facilities. To fund these expenditures, the
Company entered into equipment lease financing in the aggregate amount of $3,727,000. In addition, the Company repaid $2,187,000
of its lease obligations during 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages F-1 though F-17 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
-39-
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PART III
The information regarding directors required by this Item is included in the definitive Proxy Statement for the Company's 1997 Annual
Meeting of Stockholders, to be filed with the Commission on or about April 7, 1997 (the "1997 Proxy Statement"), under "Election of
Directors" and is incorporated herein by reference. The information regarding executive officers required by this Item is included in
Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1997 Proxy Statement under "Executive Compensation" and is incorporated
herein by reference (excluding, however, the "Report on Executive Compensation" and the Performance Graph contained in the 1997
Proxy Statement, which shall not be deemed incorporated herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1997 Proxy Statement under "Security Ownership of Certain Beneficial
Owners and Management" and is incorporated herein by reference.
2002. EDGAR Online, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-40-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The Financial Statements required to be filed by Item 8 of this Annual Report on Form 10-K,
and filed herewith, are as follows:
Page Number
in
this Form
10-K
--------------
Report of Independent Accountants .......................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 ........................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994 ............... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 .......................... F-6
Notes to Consolidated Financial Statements ................. F-7
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules have been omitted because they are either not applicable or the required information is included in the
consolidated financial statements or notes thereto.
2002. EDGAR Online, Inc.
(a)(3) EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Articles of Organization (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration No.
33-43874) and incorporated herein by reference).
3.2 Articles of Amendment filed with the Commonwealth of Massachusetts on
May 17, 1995 (filed as Exhibit 3.1 to the Company's Quarterly Report
on
Form 10-Q for the quarter ended June 30, 1995 (File No. 0-19319) and
incorporated herein by reference).
3.3 By-laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43874) and
incorporated herein by reference).
3.4 Certificate of Vote of Directors Establishing a Series of a Class of
Stock, as filed with the Secretary of the Commonwealth of
Massachusetts
on July 31, 1991 (filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-43874) and incorporated
herein by reference).
-41-
2002. EDGAR Online, Inc.
4.1 Specimen stock certificate (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.2 Stockholder Rights Plan (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.3 First Amendment to Rights Agreement dated as of February 21, 1997
(filed herewith).
10.1 1991 Stock Option Plan, as amended and restated as of May 13, 1993
(filed as Exhibit 28.1 to the Company's Registration Statement on Form
S-8 (No. 33-65742) and incorporated herein by reference).*
10.2 1994 Stock and Option Plan (filed as Exhibit 10.2 to the Company's
1994
Annual Report on Form 10-K (File No. 0-19319) and incorporated herein
by reference).*
10.3 1996 Stock and Option Plan (filed herewith).
10.4 Non-Competition and Stock Repurchase Agreement between the Company and
Joshua Boger, dated April 20, 1989 (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.6 Form of Employee Stock Purchase Agreement (filed as Exhibit 10.3 to
the
Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.7 Form of Employee Non-Disclosure and Inventions Agreement (filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
10.8 Form of Executive Employment Agreement executed by Richard H. Aldrich,
Joshua S. Boger, and Vicki L. Sato (filed as Exhibit 10.6 to the
Company's 1994 Annual Report on Form 10-K (File No. 0-19319) and
incorporated herein by reference).*
10.9 Form of Amendment to Employment Agreement executed by Richard H.
Aldrich, Joshua S. Boger and Vicki L. Sato (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 (File No. 0-19319) and incorporated herein by reference).
10.10 Series C Convertible Preferred Stock Purchase Agreement between the
Company and the party named therein, dated September 21, 1990 (filed
as
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
10.11 Stock Purchase Agreement dated November 10, 1994 between the Company
and Biotech Target S.A. (filed as Exhibit 10.12 to the Company's 1994
Annual Report on Form 10-K (File No. 0-19319) and incorporated herein
by reference).
10.12 Lease dated October 1, 1992 between C. Vincent Vappi and the Company
relating to the premises at 40 Allston Street, 618 Putnam Street, 228
Sidney Street, and 240 Sidney Street (filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 0-19319) and incorporated herein by
2002. EDGAR Online, Inc.
-42-
2002. EDGAR Online, Inc.
reference).
10.13 First Amendment as of March 1, 1995 to the lease between C. Vincent
Vappi and the Company (filed as Exhibit 10.2 to the Company's
Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-19319) and incorporated herein by reference).
10.14 Second Amendment as of February 12, 1997 to Lease between C. Vincent
Vappi and the Company (filed herewith).
10.15 Lease dated March 1, 1993, between Fort Washington Realty Trust and
the
Company, relating to the premises at 625 Putnam Avenue, Cambridge, MA
(filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K
for
the year ended December 31, 1993 (File No. 0-19319) and incorporated
herein by reference).
10.16 First Amendment, dated 1 December 1996, to Lease between Fort
Washington Realty Trust and the Company dated 1 March 1993 (filed
herewith).
10.17 Lease dated March 3, 1995, between Fort Washington Realty Trust and
the
Company, relating to the premises at 130 Waverly Street, Cambridge, MA
(filed as Exhibit 10.15 to the Company's 1994 Annual Report on Form
10-K (File No. 0-19319) and incorporated herein by reference).
10.18 First Amendment to Lease dated March 3, 1995 between Fort Washington
Realty Trust and the Company (filed as Exhibit 10.15 to the Company's
1995 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
10.19 Research and Development Agreement dated April 13, 1993 between the
Company and Kissei Pharmaceutical Co., Ltd. (with certain confidential
information deleted) (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993 (File No.
0-19319) and incorporated herein by reference).
10.20 Research, Development, and License Agreement dated September 8, 1993
between the Company and Roussel Uclaf (with certain confidential
information deleted) (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993 (File No.
0-19319) and incorporated herein by reference).
10.21 License Agreement dated August 6, 1993 between the Company and
Children's Hospital Medical Center of Northern California (with
certain
confidential information deleted) (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September
30, 1993 (File No. 0-19319) and incorporated herein by reference).
10.22 Research Agreement and License Agreement, both dated December 16,
1993,
between the Company and Burroughs Wellcome Co. (with certain
confidential information deleted) (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 0-19319) and incorporated herein by reference).
10.23 License Agreement dated October 2, 1995 between the Company and Alpha
Therapeutic Corporation (with certain confidential information
deleted)
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995 (File No. 0-19319) and
incorporated herein by reference).
2002. EDGAR Online, Inc.
-43-
10.24 License Agreement and Supply Agreement, both dated May 9, 1996,
between
the Company and BioChem Pharma (International) Inc. (with certain
confidential information deleted)(filed as Exhibit 10.1 to the
Company's Quarterly Report on 10-Q for the quarter ended March 31,
1996
(File No. 0-19319) and incorporated herein by reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (File
no. 0-19319) and incorporated herein by reference).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic
format of this Annual Report on Form 10-K submitted to the Securities
and Exchange Commission.
* Compensatory plan or agreement applicable to management and employees.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996.
-44-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VERTEX PHARMACEUTICALS INCORPORATED
March 27, 1997 By: /s/Joshua S. Boger
----------------------------------------
Joshua S. Boger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
2002. EDGAR Online, Inc.
Name Title Date
- ----
/s/Joshua S. Boger Director, President and March 27,
1997
- ----------------------------- Chief Executive Officer
Joshua S. Boger (Principal Executive Officer)
/s/Thomas G. Auchincloss, Jr. Vice President of Finance March 27,
1997
- ----------------------------- and Treasurer
Thomas G. Auchincloss, Jr. (Principal Financial Officer)
/s/Hans D. van Houte Controller March 27,
1997
- -----------------------------
Hans D. van Houte
/s/Barry M. Bloom Director March 25,
1997
- -----------------------------
Barry M. Bloom
Donald R. Conklin
Director March , 1997
/s/Roger W. Brimblecombe Director March 27,
1997
- -----------------------------
Roger W. Brimblecombe
/s/William W. Helman IV Director March 27,
1997
- -----------------------------
William W. Helman IV
/s/Charles A. Sanders Director March 25,
1997
- -----------------------------
Charles A. Sanders
-45-
VERTEX PHARMACEUTICALS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
2002. EDGAR Online, Inc.
Page
Number
-----------
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT ACCOUNTANTS
F-1
To the Board of Directors and Stockholders Vertex Pharmaceuticals Incorporated:
We have audited the accompanying consolidated balance sheets of Vertex Pharmaceuticals Incorporated and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Vertex Pharmaceuticals Incorporated and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand
L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 18, 1997
CONSOLIDATED BALANCE SHEETS
VERTEX PHARMACEUTICALS INCORPORATED
F-2
2002. EDGAR Online, Inc.
December 31,
Pro Forma 1996 -----------------------
(Dollars in thousands) (Note N) (unaudited) 1996 1995
- ------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 183,714 $ 34,851 $ 28,390
Short-term investments 95,508 95,508 58,588
Prepaid expenses and other current assets 1,791 1,791 959
- ------------------------------------------------------------------------------------------------------------
Total current assets 281,013 132,150 87,937
Restricted cash 2,316 2,316 2,316
Property and equipment, net 8,663 8,663 7,840
Other assets 370 370 888
- ------------------------------------------------------------------------------------------------------------
Total assets $ 292,362 $ 143,499 $ 98,981
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Obligations under capital lease $ 2,910 $ 2,910 $ 2,075
Accounts payable 1,391 1,391 3,022
Accrued expenses 2,755 2,755 3,503
Deferred revenue -- -- 197
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 7,056 7,056 8,797
Obligations under capital lease, excluding current portion 5,617 5,617 4,912
- ------------------------------------------------------------------------------------------------------------
Total liabilities 12,673 12,673 13,709
- ------------------------------------------------------------------------------------------------------------
Commitments (Note H)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued
Common stock, $.01 par value; 50,000,000 shares authorized;
21,097,117 and 17,299,139 shares issued and outstanding
in 1996 and 1995, respectively. (24,547,117 shares issued
and outstanding, pro forma 1996, unaudited) 246 211 173
Additional paid-in capital 376,338 227,510 142,038
Equity adjustments 49 49 --
Accumulated deficit (96,944) (96,944) (56,939)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 279,689 130,826 85,272
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 292,362 $ 143,499 $ 98,981
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
VERTEX PHARMACEUTICALS INCORPORATED
F-3
2002. EDGAR Online, Inc.
Year Ended December 31,
----------------------------------
(In thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------
Revenues:
Collaborative and other research and development $ 13,341 $ 22,081 $ 19,571
Interest income 5,257 5,453 3,574
-------- -------- --------
Total revenues 18,598 27,534 23,145
- ------------------------------------------------------------------------------------------
Costs and expenses:
Research and development 35,212 41,512 34,761
General and administrative 7,929 7,069 5,540
License payment 15,000 -- --
Interest 462 481 439
-------- -------- --------
Total costs and expenses 58,603 49,062 40,740
- ------------------------------------------------------------------------------------------
Net loss $(40,005) $(21,528) $(17,595)
- ------------------------------------------------------------------------------------------
Net loss per common share $ (2.13) $ (1.25) $ (1.11)
Weighted average number of common shares outstanding 18,798 17,231 15,818
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
VERTEX PHARMACEUTICALS INCORPORATED
F-4
Common Stock Additional
------------------- Paid-In Equity Accumulated
(In thousands) Shares Amount Capital Adjustments Deficit Total
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 12,484 $ 125 $ 67,211 $(17,816) $ 49,520
Issuances of common stock:
Public offering of common stock 3,450 34 58,028 58,062
Private placement of common stock 1,200 12 14,988 15,000
Benefit plans 61 1 693 694
Repurchases of common stock, at cost (6)
Net change in unrealized holding gains/
losses on marketable securities $ (205) (205)
Translation adjustments 2 2
Net loss (17,595) (17,595)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 17,189 172 140,920 (203) (35,411) 105,478
Issuances of common stock:
Benefit plans 93 1 1,118 1,119
Warrant exercise 17
Net change in unrealized holding gains/
losses on marketable securities 203 203
Net loss (21,528) (21,528)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,299 173 142,038 -- (56,939) 85,272
Issuances of common stock:
Public offering of common stock 3,450 34 77,481 77,515
Private placement of common stock 152 2 4,998 5,000
Benefit plans 196 2 2,993 2,995
Net change in unrealized holding gains/
losses on marketable securities 35 35
Translation adjustments 14 14
Net loss (40,005) (40,005)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 21,097 $ 211 $227,510 $ 49 $(96,944) $130,826
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
F-5
2002. EDGAR Online, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
VERTEX PHARMACEUTICALS INCORPORATED
Year Ended December 31,
----------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(40,005) $(21,528) $(17,595)
Adjustment to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 3,160 3,710 3,485
Changes in assets and liabilities:
Prepaid expenses and other current assets (832) (549) 619
Accounts payable (1,631) 1,624 (2,080)
Accrued expenses (748) 1,231 1,106
Deferred revenue (197) (438) (219)
-------- -------- --------
Net cash provided (used) by operating activities (40,253) (15,950) (14,684)
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of short-term investments (73,035) (61,862) (83,850)
Sales and maturities of short-term investments 36,150 38,304 72,346
Deposit to collateralize letter of credit -- (2,316) --
Expenditures for property and equipment (3,983) (3,078) (4,230)
Other assets 518 (65) (690)
-------- -------- --------
Net cash provided (used) by investing activities (40,350) (29,017) (16,424)
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of capital lease obligations (2,187) (1,790) (1,902)
Proceeds from equipment sale/leaseback 3,727 2,385 2,320
Proceeds from public offerings of common stock 77,515 -- 58,062
Proceeds from private placement of common stock 5,000 -- 15,000
Proceeds from other issuances of capital stock 2,995 1,119 694
-------- -------- --------
Net cash provided (used) by financing activities 87,050 1,714 74,174
- ---------------------------------------------------------------------------------------------
Effect of exchange rates on cash 14 -- 2
- ---------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 6,461 (43,253) 43,068
Cash and cash equivalents at beginning of year 28,390 71,643 28,575
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 34,851 $ 28,390 $ 71,643
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
A. THE COMPANY
Vertex Pharmaceuticals Incorporated (the "Company") uses a range of drug discovery technologies to identify, design and develop
novel, orally deliverable compounds that have the potential to treat major human diseases. To date, the Company has not received any
revenues from the sale of pharmaceutical products and does not expect to receive such revenues in the near future. The Company's
revenues during 1996 principally resulted from research support payments from corporate partners. The Company expects to incur
significant operating losses over the next several years as a result of expenditures for its research and development programs.
The consolidated financial statements include the accounts of the Company and its subsidiaries, Altus Biologics Inc., Vertex Securities
Corporation, Vertex Pharmaceuticals (Europe) Limited and Versal Technologies, Inc. All material intercompany transactions are
eliminated.
2002. EDGAR Online, Inc.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, development by the
Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology,
technological and clinical trial uncertainty, dependence on collaborative partners, share price volatility, the need to obtain additional
funding, reliance on pharmaceutical pricing and reimbursement, uncertainties regarding manufacturing and sales and marketing,
product liability and compliance with government regulations.
B. ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents, which are debt securities, are valued at cost plus accrued interest. The Company considers all highly liquid
investments with original maturities of three months or less at the date of purchase to be cash equivalents. Changes in cash and cash
equivalents may be affected by shifts in investment portfolio maturities as well as by actual cash receipts and disbursements.
Short-term Investments
Short-term investments consist of marketable securities which are classified as available-for-sale. Short-term investments are stated at
fair value with unrealized gains and losses included as a component of stockholders' equity until realized. The fair value of these
securities is based on quoted market prices.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the lesser
of the lease terms or the estimated useful lives of the related assets, generally four or five years for equipment and furniture and three
years for purchased
software. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are
eliminated from the accounts and any resulting gain or loss is reflected in income.
F-7
Revenue Recognition
Revenue under research and development arrangements is recognized as earned under the terms of the respective agreements. License
payments are recorded when received and the license agreements are signed. Product research funding is recorded as revenue,
generally on a quarterly basis, as research effort is incurred. Deferred revenue arises from payments received which have not yet been
earned under research and development arrangements. The Company recognizes milestone payments when the milestones are
achieved.
Research and Development
All research and development costs are expensed as incurred.
Income Taxes
The Company provides for federal and state taxes on pretax income at applicable rates in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Potential future income tax benefits resulting from net operating
losses and unused research and experimentation tax credits are available to offset future income.
Net Loss per Common Share
Net loss per share is computed on the weighted average number of common shares outstanding during the period.
2002. EDGAR Online, Inc.
C. FINANCIAL INSTRUMENTS
F-8
Financial instruments consist of the following at December 31 (in thousands):
1996 1995
------------------- -------------------
Cost Fair Value Cost Fair Value
- ----------------------------------------------------------------------------
Cash $21,253 $21,253 $28,390 $28,390
Cash equivalents
Corporate debt securities 13,598 13,598 -- --
------- ------- ------- -------
Total cash and cash equivalents $34,851 $34,851 $28,390 $28,390
======= ======= ======= =======
Short-term investments
US Government securities
Due within 1 year $ 7,555 $ 7,568 $ 7,622 $ 7,628
Due within 1 to 5 years -- -- 7,591 7,606
Corporate debt securities
Due within 1 year 64,140 64,155 29,590 29,486
Due within 1 to 5 years 23,780 23,785 13,787 13,868
------- ------- ------- -------
Total short-term investments $95,475 $95,508 $58,590 $58,588
======= ======= ======= =======
Gross unrealized holding gains and losses at December 31, 1996, were $89,000 and $56,000, respectively, and at December 31, 1995,
$154,000 and $156,000, respectively. The effect of gross realized gains and losses on the financial statements for the years 1996 and
1995 was immaterial. The cost of securities is based on specific identification.
D. RESTRICTED CASH
On March 16, 1995, the Company signed a ten-year operating lease for additional facilities to be occupied in 1996. In accordance with
the lease agreement, the Company was required to deposit approximately $2,316,000 with its bank to collateralize a conditional,
stand-by letter of credit in the name of the landlord. The letter of credit is redeemable only if the Company defaults on the lease under
specific criteria. These funds are restricted from the Company's use during the lease period, although the Company is entitled to all
interest earned on the funds.
E. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
2002. EDGAR Online, Inc.
December 31,
1996 1995
- --------------------------------------------------------------------
Leasehold improvements $ 4,719 $ 4,558
Furniture and equipment 2,260 2,244
Purchased software 2,418 2,345
Equipment under capital lease 19,303 15,570
- --------------------------------------------------------------------
28,700 24,717
Less accumulated depreciation and amortization 20,037 16,877
- --------------------------------------------------------------------
$ 8,663 $ 7,840
- --------------------------------------------------------------------
The net book value of equipment under capital lease was $7,366,000 and $6,172,000 at December 31, 1996 and 1995, respectively.
F. CAPITAL LEASES
F-9
At December 31, 1996, long-term capital lease obligations were as follows (in thousands):
Year ended December 31,
- ------------------------------------------------------------------------------
1997 $3,429
1998 2,358
1999 1,769
2000 1,164
2001 1,030
- ------------------------------------------------------------------------------
Total 9,750
Less amount representing interest payments 1,223
- ------------------------------------------------------------------------------
Present value of minimum lease payments 8,527
Less current portion 2,910
- ------------------------------------------------------------------------------
$5,617
- ------------------------------------------------------------------------------
During 1996 and 1995, the Company financed under capital lease arrangements an aggregate of $3,727,000 and $2,385,000,
respectively, of asset cost under its master lease agreements. These agreements have a term of four or five years, and require that the
Company maintain a certain level of cash and investments. At the end of the lease term, the Company has the right to either return the
equipment to the lessor or purchase the equipment for fair market value at that time. Interest paid under capital leases was $462,000
and $481,000 in 1996 and 1995, respectively. At December 31, 1996, the Company had availability under its 1996 master lease
agreement to finance up to an additional $2,194,000 of equipment.
G. ACCRUED EXPENSES
2002. EDGAR Online, Inc.
Accrued expenses consist of (in thousands):
December 31,
1996 1995
- ------------------------------------------------------------------------------
Professional fees $1,196 $ 759
Development contract costs 317 1,867
Other 1,242 877
- ------------------------------------------------------------------------------
$2,755 $3,503
- ------------------------------------------------------------------------------
H. COMMITMENTS
Facilities and Equipment
The Company's facilities are leased under operating leases. The Company's long-term facilities leases have terms through the year
2005 and have noncancelable future minimum payments of $2,655,000 in 1997, $2,636,000 in 1998 and 1999, and $2,033,000 in the
years 2000 and 2001. Rental expense was $3,063,000, $1,281,000, and $842,000 in 1996, 1995 and 1994, respectively.
Software
The Company has certain license and maintenance contracts that contain future, committed payments for the support and upgrade of
specific software programs currently used in research. For the years 1997, 1998, 1999, 2000 and 2001, these amounts are $176,000,
$194,000, $213,000, $234,000 and $258,000, respectively.
I. INCOME TAXES
F-10
The Company's federal statutory income tax rate for 1996, 1995 and 1994 was 34%. The Company recorded no income tax benefit for
1996, 1995 and 1994 due to full valuation allowance recorded against net operating losses.
Deferred tax liabilities and assets are determined based on the difference between financial statement and tax bases using enacted tax
rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows (in
thousands):
1996 1995
---------------------
Net operating loss $ 30,567 $ 17,191
Tax credits carryforward 4,089 3,233
Property, plant and equipment 1,253 1,327
Other 526 416
---------------------
Gross deferred tax asset 36,435 22,167
Valuation allowance (36,435)
(22,167)
---------------------
Net deferred tax balance $ -- $ --
=====================
For federal income tax purposes, as of December 31, 1996, the Company has regular tax net operating loss carryforwards of
2002. EDGAR Online, Inc.
approximately $89,903,000 and $4,089,000 of tax credits, which may be used to offset future income. These net operating loss
carryforwards expire beginning in 2005, and the tax credit carryforwards begin to expire in 2004.
The amount of tax credits and net operating loss carryforwards that the Company may utilize in any one year is limited, in accordance
with Internal Revenue Code
Section 382. This limitation arises whenever a cumulative change in ownership in excess of 50% occurs. A change of ownership has
occurred which will limit the amount of net operating loss and tax credits available prior to the change. There may also be a second
change of ownership subsequent to 1996 which may also limit the amount of net operating loss and tax credit utilization in a
subsequent year.
J. COMMON AND PREFERRED STOCK
Common Stock
In August 1996, the Company completed a public offering of 3,450,000 shares of its common stock at a price of $24 per share with net
proceeds to the Company of approximately $77,515,000. In June 1996, Glaxo Wellcome purchased 151,792 shares of the Company's
common stock at a price of $32.94 per share, with net proceeds to the Company of approximately $5,000,000. In November 1994, the
Company sold an additional 1,200,000 shares of common stock in a private placement to a subsidiary of BB Biotech AG at a price of
$12.50 per share, with net proceeds to the Company of approximately $15,000,000. In February 1994, the Company sold 3,450,000
shares of its $.01 par value common stock in an underwritten public offering at a price to the public of $18.00 per share, with net
proceeds to the Company of approximately $58,062,000.
During 1996, an additional 100,000 shares were reserved for the Company's 401(k) Plan and an additional 150,000 shares were
reserved for the Company's Employee Stock Purchase Plan. At December 31, 1996, 5,813,988 shares of the Company's common stock
were reserved for exercise of common stock options granted or to be granted under its 1991 Stock Option Plan, 1994 Stock and
Option Plan, and 1996 Stock and Option Plan, 48,999 shares were reserved for exercise of certain other options granted in 1991,
125,955 shares of common stock were reserved for issuance under the Company's 401(k) Plan, and 140,111 shares of common stock
were reserved for issuance under the Company's Employee Stock Purchase Plan.
F-11
Stock Option Plans
The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. However, pro forma disclosures as
if the Company adopted the cost recognition requirements under FASB Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") in 1996 and 1995 are presented below. No compensation expense was recognized for these plans in
1996, 1995 and 1994.
The Company's 1991 Stock Option Plan (the "1991 Plan"), reserved shares for granting up to 2,000,000 options as either options
intended to qualify as "incentive stock options" under the Internal Revenue Code or non-qualified stock options. The Company's 1994
Stock and Option Plan (the "1994 Plan") reserved an additional 2,000,000 shares to the number of shares previously reserved under
the 1991 Plan which are not granted under the plan or which cease to be outstanding by reason of cancellation. The Company's 1996
Stock and Option Plan
(the "1996 Plan"; together with the 1991 Plan and the 1994 Plan, the "Plans")
reserved an additional 2,000,000 shares to the 1991 Plan and the 1994 Plan. Under the 1994 Plan and the 1996 Plan, stock rights,
which are either (i) incentive stock options, (ii) non-qualified stock options ("NQSOs"), or (iii) award shares of common stock or the
opportunity to make a direct purchase of shares of common stock ("Stock Awards"), may be granted to employees (including officers
and directors who are employees), consultants, advisors and non-employee directors (NQSOs and stock awards only), either as options
intended to qualify as "incentive stock options" under the Internal Revenue Code or as non-qualified stock options. Incentive stock
options granted under the Plans may not be granted at a price less than the fair market value of the common stock on the date of grant.
Non-qualified stock options may be granted at an exercise price established by the Compensation Committee of the Board of
Directors, which may be less than, equal to or greater than the fair value of the common stock on the date of grant. Vesting periods,
generally four or five years, are determined by the Compensation Committee. Incentive stock options granted under the Plans must
expire not more than ten years from the date of grant.
Stock option activity for the years ended December 31, 1996, 1995 and 1994 is as follows (shares in thousands):
F-12
2002. EDGAR Online, Inc.
1996 1995 1994
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at
beginning of year 3,196 $14.63 2,523 $13.13 1,660 $13.36
Granted 1,056 $31.11 829 $18.77 935 $12.64
Exercised (139) $12.96 (42) $11.48 (10) $ 9.72
Canceled (80) $16.11 (114) $12.51 (62) $12.46
------ ----- -----
Outstanding at end
of year 4,033 $18.98 3,196 $14.63 2,523 $13.13
------ ----- -----
Options exercisable
at year-end 1,625 $13.92 1,152 $12.99 662 $12.74
------ ----- -----
Weighted average fair
value of options granted
during the year $15.04 $9.05
------ -----
The fair value of each option granted during 1996 and 1995 was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: (1) expected life of 5.41 years (2) expected volatility of 42% (3) risk-free
interest rate of 6.30% and (4) no dividend yield.
The following table summarizes information about stock options outstanding and exercisable at December 31, 1996 (shares in
thousands):
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
exercise prices Outstanding Contractual Life Price Exercisable Price
- --------------- ----------- ---------------- -------- ----------- --------
$ 6.48 - $ 9.72 145 6.1 $ 8.28 133 $ 8.33
$ 9.73 - $14.58 1,291 7.3 $12.25 822 $12.22
$14.59 - $21.87 1,538 7.9 $17.30 644 $16.48
$21.88 - $32.80 1,002 9.8 $30.73 10 $25.95
$32.81 - $37.50 57 9.5 $37.17 16 $37.14
----- -----
$ 6.48 - $37.50 4,033 8.1 $18.98 1,625 $13.92
----- -----
Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan, substantially all permanent employees may, through payroll withholdings,
purchase shares of the Company's common stock at a price of 85% of the lesser of fair market value at the beginning or end of each
six-month withholding period.
F-13
During 1996, 32,296 shares of common stock at an average price of $19.21 per share were issued to employees under the plan. During
1995, 42,445 shares of common stock at a price of $11.26 per share were issued to employees under the plan. During 1994, 34,263
shares were issued at an average price of $10.73 per share. Had the Company adopted SFAS 123, the weighted average fair value of
each purchase right granted during 1996 and 1995 would have been $5.76 and $3.25, respectively. The fair value was estimated at the
beginning of the withholding period using the Black-Scholes option-pricing model with the following weighted average assumptions:
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(1) expected life of one half year for both years (2) expected volatility of 41% and 35% for 1996 and 1995 respectively (3) risk-free
interest rate of 5.50% for both years and (4) no dividend yield.
Pro forma Disclosures
Had compensation cost for the Company's 1996 and 1995 grants for stock-based compensation plans been determined consistent with
SFAS 123, the Company's net loss and net loss per share for 1996 and 1995 would approximate the pro forma amounts below (in
thousands except per share data):
1996 1995
---- ----
Net loss As reported $(40,005)
$(21,528)
Pro forma $(42,025)
$(21,750)
Net loss per share As reported $ (2.13) $
(1.25)
Pro forma $ (2.24) $
(1.26)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to
awards prior to 1995, and additional awards in future years are anticipated.
Warrants
During 1995, all remaining warrants, originally issued in connection with equipment lease financing transactions, were exercised in
non-cash, net exercise transactions to acquire an aggregate of 16,801 shares of common stock.
Rights
Pursuant to the Company's Stockholder Rights Plan, under an amendment approved by the Board of Directors on February 18, 1997,
but not yet executed by the rights agent, each holder of a share of outstanding common stock also holds one share purchase right (a
"Right") for each share of common stock. Each Right entitles the holder to purchase from the Company one one-hundredth of a share
of Series A junior participating preferred stock, $.01 par value (the "Junior Preferred Shares"), of the Company at a price of $270 per
one one-hundredth of a Junior Preferred Share (the "Purchase Price"). The Rights are not exercisable until the earlier of acquisition by
a person or group of 15% or more of the outstanding common stock (an "Acquiring Person") or the announcement of an intention to
make or commencement of a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a
person or group of 15% or more of the outstanding common stock. In the event that any person or group becomes an Acquiring
Person, each holder of a Right other than the Acquiring Person will thereafter have the right to receive upon exercise that number of
shares of common stock having a market value of two times the Purchase Price and, in the event that the Company is acquired in a
business combination transaction or 50% or more of its assets are sold, each holder of a Right will thereafter have the right to receive
upon exercise that number of shares of common stock of the acquiring company which at the time of the transaction will have a market
value of two times the Purchase Price. Under certain specified circumstances, the Board of Directors of the Company may cause the
Rights (other than Rights owned by such person or group) to be exchanged, in
whole or in part, for common stock or Junior Preferred Shares, at an exchange rate of one share of common stock per Right or one
one-hundredth of a Junior Preferred Share per Right. At any time prior to the acquisition by a person or group of beneficial ownership
of 15% or more of the outstanding common stock, the Board of Directors of the Company may redeem the Rights in whole at a price
of $.01 per Right.
F-14
K. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
The Company and BioChem Therapeutic Inc. ("BioChem") are collaborating on the development and commercialization in Canada of
VX-710, Vertex's lead multidrug resistance reversal agent. Under the development agreement, BioChem is obligated to pay Vertex up
to $4,000,000 comprised of an initial licensing fee and payments for development and commercialization milestones. From the
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inception of the agreement in May 1996 through the year ended December 31, 1996, $500,000 has been recognized as revenue.
BioChem will fund development of VX-710 in Canada, including planned Phase II clinical trials in two different cancer indications.
Vertex will supply BioChem's clinical and commercial drug supply needs. In 1996, the Company received additional revenues related
to the sale of clinical trial material to BioChem. BioChem will pay Vertex a portion of its net sales, which will cover Vertex's cost of
supplying material and will provide a profit to Vertex. Revenues earned from BioChem were $577,000 in 1996.
The Company and Alpha Therapeutic Corporation ("Alpha") are collaborating on the development and commercialization of VX-366
for the treatment of sickle cell disease and beta thalassemia. Under the collaborative agreement, Alpha is obligated to pay the
Company up to $5,000,000 comprised of an initial license fee and payments for development and commercialization milestones. From
the inception of the agreement in October 1995 through the year ended December 31, 1996, $500,000 has been recognized as revenue.
In addition, Alpha is obligated to bear all costs of development of VX-366 under the collaboration. In 1996, the Company received
additional revenues related to the sale of clinical trial material to Alpha. Alpha has the right to terminate the agreement without cause
upon six months' notice at any time. Termination will relieve Alpha of any further payment obligations under the agreement and will
end the license granted to Alpha by Vertex. Vertex will supply Alpha's finished drug product needs and will receive a royalty based on
Alpha's product sales. Revenues earned from Alpha were $225,000 and $500,000 in 1996 and 1995, respectively.
The Company and Glaxo Wellcome plc ("Glaxo Wellcome") are collaborating on the development of compounds in connection with
the Company's HIV Program. Under the collaborative agreement, Glaxo Wellcome agreed to pay the Company up to $42,000,000
comprised of a $15,000,000 initial license payment paid in 1993, $14,000,000 of product research funding over five years and
$13,000,000 of development and commercialization milestone payments. From the inception of the agreement in December 1993
through the year ended December 31, 1996, $25,000,000, including a $2,000,000 milestone payment in December 1995 upon
commencement of a Phase I/II trial, has been recognized as revenue. Glaxo Wellcome is also obligated to pay to Vertex additional
development and commercialization milestone payments for subsequent drug candidates. In addition, Glaxo Wellcome agreed to bear
all costs of development of drug candidates under the collaboration. In 1994, 1995 and 1996, the Company received additional
revenue related to reimbursements for clinical development. Under the agreement, Glaxo Wellcome is also required to pay Vertex a
royalty on sales. Glaxo Wellcome has the right to terminate the research collaboration without cause upon twelve months' notice given
at any time and has the right to terminate the license arrangements without cause upon twelve months' notice given at any time
provided such notice is not given before the research collaboration has been terminated. Termination by Glaxo Wellcome of the
research collaboration will relieve Glaxo Wellcome of its obligation to make further research support payments under the agreement.
Termination by Glaxo Wellcome of the license arrangements under the agreement will relieve it of its obligation to make further
commercialization and development milestone and royalty payments and will end any
F-15
license granted to Glaxo Wellcome by Vertex thereunder. Revenues earned from Glaxo Wellcome were $6,289,000, $10,053,000 and
$5,346,000 for 1996, 1995 and 1994. In June 1996, the Company and Glaxo Wellcome obtained a worldwide, non-exclusive license
under certain G.D. Searle & Co. ("Searle") patent applications in the area of HIV protease inhibition. Vertex paid $15,000,000 and
Glaxo Wellcome paid $10,000,000 to Searle for the license. The Company also agreed to pay Searle a royalty on sales of VX-478, the
Company's lead HIV compound.
The Company and Hoechst Marion Roussel ("HMR") are collaborating on the development of interleukin-1 beta converting enzyme
inhibitors as anti-inflammatory agents. Under the collaborative agreement, HMR is obligated to pay the Company up to $30,500,000,
comprised of $18,500,000 of product research funding over five years and $12,000,000 of development and commercialization
milestone payments. From the inception of the agreement in September 1993 through the year ended December 31, 1996, $14,500,000
has been recognized as revenue. HMR has the right to terminate the agreement without cause upon twelve months' notice at any time.
For a period of one year after any such termination, HMR retains the right to select one or more compounds for development and to
license such compound or compounds from Vertex, provided HMR resumes all research funding and commercialization milestone
payments and makes all such payments that would otherwise have been due but for such termination. Otherwise, in the case of such
termination, all rights to compounds developed under the research and license agreements will revert to Vertex. The Company also
received additional revenue related to reimbursement for patent filings in HMR's territories. Revenues earned under the HMR
agreement were $4,196,000, $3,749,000, and $3,514,000 in 1996, 1995 and 1994, respectively.
The Company and Kissei Pharmaceutical Co., Ltd. ("Kissei") are collaborating on the research and development of compounds in
connection with the Company's HIV Program. Under the collaborative agreement, Kissei is obligated to pay the Company up to
$20,000,000, comprised of $9,800,000 of product research funding through 1995, $7,000,000 of development milestone and territory
option payments and a $3,200,000 equity investment. In December 1995, Vertex recognized $2,700,000 in revenue which represented
a territory option payment Kissei exercised for the rights to develop VX-478 in certain other Far East countries in addition to Japan
and the People's Republic of China. From the inception of the agreement in April 1993 through the year ended December 31, 1996,
$17,842,000 has been received including $3,200,000 as an equity investment and $14,642,000 was recognized as revenue. The
Company received additional revenue related to reimbursements for clinical development in 1996, 1995 and 1994. Under the
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collaboration, Kissei is also required to pay Vertex a royalty on sales. Revenues earned under the Kissei agreement were $692,000,
$5,370,000, and $5,498,000 in 1996, 1995 and 1994, respectively. Product research funding under this agreement ended at December
31, 1995.
F-16
The Company and Chugai Pharmaceutical Co., Ltd. ("Chugai") entered into a collaborative agreement for research and development
of immunosuppressive compounds in conjunction with Vertex's Autoimmune Diseases Program. Under the collaborative agreement,
Chugai agreed to pay Vertex up to $30,300,000, composed of $19,300,000 of product research funding until 1995, $9,000,000 of
development and commercialization milestone payments and a $2,000,000 equity investment. Research funding under this agreement
ended in the first half of 1995 and the research collaboration ended in October of 1995. Revenues earned under the Chugai Agreement
were $34,000, $1,915,000, and $4,969,000 in 1996, 1995 and 1994, respectively. All of the research funding received from Chugai
has been applied to defray costs of the collaborative research program.
L. EMPLOYEE BENEFITS
The Company has a 401(k) retirement plan in which substantially all of its permanent employees are eligible to participate.
Participants may contribute up to 15% of their annual compensation to the plan, subject to statutory limitations. For 1996, the
Company declared discretionary matching contributions to the plan in the aggregate amount of $444,000, payable in the form of shares
of the Company's common stock. Of these shares, 7,013 were issued as of December 31, 1996 with the remaining 5,734 issuable in
1997. For 1995, the Company declared discretionary matching contributions to the plan in the aggregate amount of $354,000, payable
in the form of 17,469 shares of the Company's common stock, issued in 1996. For 1994, the Company declared discretionary matching
contributions to the plan in the aggregate amount of $263,000, payable in the form of shares of the Company's common stock. Of these
shares, 10,063 were issued as of December 31, 1994 with the remaining 9,750 issued in 1995.
M. RELATED PARTY
A sibling of the Company's president is a partner in the law firm representing the Company to which $472,000, $255,000, and
$437,000 in legal fees were paid in 1996, 1995 and 1994, respectively.
N. SUBSEQUENT EVENT (UNAUDITED)
On March 12, 1997, the Company completed a public offering of 3,450,000 shares of its common stock. The Company anticipates
using the net proceeds of approximately $148,863,000 primarily to fund research and product development programs, including
clinical trials, and for general corporate purposes. The unaudited pro forma balance sheet of the Company as of December 31, 1996
has been adjusted to reflect the issuance and sale of 3,450,000 shares of common stock on March 12, 1997 and receipt of the net
proceeds therefrom.
F-17
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EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Articles of Organization (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration No.
33-43874) and incorporated herein by reference).
3.2 Articles of Amendment filed with the Commonwealth of Massachusetts on
May 17, 1995 (filed as Exhibit 3.1 to the Company's Quarterly Report
on
Form 10-Q for the quarter ended June 30, 1995 (File No. 0-19319) and
incorporated herein by reference).
3.3 By-laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43874) and
incorporated herein by reference).
3.4 Certificate of Vote of Directors Establishing a Series of a Class of
Stock, as filed with the Secretary of the Commonwealth of
Massachusetts
on July 31, 1991 (filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-43874) and incorporated
herein by reference).
4.1 Specimen stock certificate (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.2 Stockholder Rights Plan (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-40966) or
amendments thereto and incorporated herein by reference).
4.3 First Amendment to Rights Agreement dated as of February 21, 1997
(filed herewith).
10.1 1991 Stock Option Plan, as amended and restated as of May 13, 1993
(filed as Exhibit 28.1 to the Company's Registration Statement on
Form S-8 (No. 33-65742) and incorporated herein by reference).*
10.2 1994 Stock and Option Plan (filed as Exhibit 10.2 to the Company's
1994 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).*
10.3 1996 Stock and Option Plan (filed herewith).
10.4 Non-Competition and Stock Repurchase Agreement between the Company and
Joshua Boger, dated April 20, 1989 (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.6 Form of Employee Stock Purchase Agreement (filed as Exhibit 10.3 to
the Company's Registration Statement on Form S-1 (Registration No.
33-40966) or amendments thereto and incorporated herein by
reference).*
10.7 Form of Employee Non-Disclosure and Inventions Agreement (filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
10.8 Form of Executive Employment Agreement executed by Richard H.
Aldrich, Joshua S.
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Boger, and Vicki L. Sato (filed as Exhibit 10.6 to the Company's 1994
Annual Report on Form 10-K (File No. 0-19319) and incorporated herein
by reference).*
10.9 Form of Amendment to Employment Agreement executed by Richard H.
Aldrich, Joshua S. Boger and Vicki L. Sato (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (File No. 0-19319) and incorporated herein by
reference).
10.10 Series C Convertible Preferred Stock Purchase Agreement between the
Company and the party named therein, dated September 21, 1990 (filed
as
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 33-40966) or amendments thereto and incorporated
herein by reference).
10.11 Stock Purchase Agreement dated November 10, 1994 between the Company
and Biotech Target S.A. (filed as Exhibit 10.12 to the Company's
1994 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
10.12 Lease dated October 1, 1992 between C. Vincent Vappi and the Company
relating to the premises at 40 Allston Street, 618 Putnam Street, 228
Sidney Street, and 240 Sidney Street (filed as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 0-19319) and incorporated herein by reference).
10.13 First Amendment as of March 1, 1995 to the lease between C. Vincent
Vappi and the Company (filed as Exhibit 10.2 to the Company's
Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No.
0-19319) and incorporated herein by reference).
10.14 Second Amendment as of February 12, 1997 to Lease between C. Vincent
Vappi and the Company (filed herewith).
10.15 Lease dated March 1, 1993, between Fort Washington Realty Trust and
the
Company, relating to the premises at 625 Putnam Avenue, Cambridge, MA
(filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K
for
the year ended December 31, 1993 (File No. 0-19319) and incorporated
herein by reference).
10.16 First Amendment, dated 1 December 1996, to Lease between Fort
Washington Realty Trust and the Company dated 1 March 1993 (filed
herewith).
10.17 Lease dated March 3, 1995, between Fort Washington Realty Trust and
the
Company, relating to the premises at 130 Waverly Street, Cambridge, MA
(filed as Exhibit 10.15 to the Company's 1994 Annual Report on Form
10-K (File No. 0-19319) and incorporated herein by reference).
10.18 First Amendment to Lease dated March 3, 1995 between Fort Washington
Realty Trust and the Company (filed as Exhibit 10.15 to the Company's
1995 Annual Report on Form 10-K (File No. 0-19319) and incorporated
herein by reference).
10.19 Research and Development Agreement dated April 13, 1993 between the
Company and Kissei Pharmaceutical Co., Ltd. (with certain confidential
information deleted) (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993 (File No.
0-19319) and incorporated herein by reference).
10.20 Research, Development, and License Agreement dated September 8, 1993
between the
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Company and Roussel Uclaf (with certain confidential information
deleted) (filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993 (File No. 0-19319)
and incorporated herein by reference).
10.21 License Agreement dated August 6, 1993 between the Company and
Children's Hospital Medical Center of Northern California (with
certain
confidential information deleted) (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September
30, 1993 (File No. 0-19319) and incorporated herein by reference).
10.22 Research Agreement and License Agreement, both dated December 16,
1993,
between the Company and Burroughs Wellcome Co. (with certain
confidential information deleted) (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 0-19319) and incorporated herein by reference).
10.23 License Agreement dated October 2, 1995 between the Company and Alpha
Therapeutic Corporation (with certain confidential information
deleted)
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995 (File No. 0-19319) and
incorporated herein by reference).
10.24 License Agreement and Supply Agreement, both dated May 9, 1996,
between
the Company and BioChem Pharma (International) Inc. (with certain
confidential information deleted)(filed as Exhibit 10.1 to the
Company's Quarterly Report on 10-Q for the quarter ended March 31,
1996
(File No. 0-19319) and incorporated herein by reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995
(File no. 0-19319) and incorporated herein by reference).
23 Consent of Independent Accountants (filed herewith).
27 Financial Data Schedule (submitted as an exhibit only in the
electronic
format of this Annual Report on Form 10-K submitted to the Securities
and Exchange Commission.
* Compensatory plan or agreement applicable to management and employees.
EXHIBIT 4.3
FIRST AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of February 21, 1997, to the Rights Agreement, dated as of July 1, 1991 (the "Rights Agreement"), between
Vertex Pharmaceuticals Incorporated, a Massachusetts corporation (the "Company"), and The First National Bank of Boston, as
Rights Agent (the "Rights Agent").
The Company and the Rights Agent have heretofore executed and entered into the Rights Agreement. Pursuant to Section 27 of the
Rights Agreement, the Company and the Rights Agent may from time to time supplement or amend the Rights Agreement in
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accordance with the provisions of Section 27 thereof. All acts and things necessary to make this Amendment a valid agreement,
enforceable according to its terms, have been done and performed, and the execution and delivery of this Amendment by the Company
and the Rights Agent have been in all respects duly authorized by the Company and the Rights Agent.
In consideration of the foregoing and the mutual agreements set forth herein, the parties hereto agree as follows:
1. Section 1(a) of the Rights Agreement is hereby amended in its entirety to read as follows:
(a) "Acquiring Person" shall mean any Person (as hereinafter defined) who or which, together with all Affiliates and Associates (as
such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as hereinafter defined) of 15% or more of the
Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as hereinafter defined) of the
Company, any employee benefit plan of the Company or any Subsidiary of the Company, any entity holding Common Shares for or
pursuant to the terms of any such plan, or any Person who, alone or together, with all Affiliates and Associates of such Person, is, as of
the date of this Agreement, the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as a result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases
by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common
Shares of the Company, then such Person shall be deemed to be an "Acquiring Person".
2. Section 3(a) of the Rights Agreement is hereby amended in its entirety to read as follows:
(a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth business day (or such later date as may be
determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) of, or of the
first public announcement of the intention of any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of
any such plan) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 15% or more of the then outstanding Common Shares (including any such date
which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common
Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
3. Section 7(b) of the Rights Agreement is hereby modified and amended by deleting the amount $60 and substituting $270 therefore.
There shall be no adjustment to the Purchase Price as set forth in Section 7(b), as modified and amended hereby, pursuant to Section
11(a)(i) with respect to any event described in Section 11(a)(i) which occurred prior to the date of this Amendment.
4. If any term, provision, covenant or restriction of this Amendment is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment, and the Rights
Agreement, shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
5. This Amendment shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts and for all purposes
shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts to be made and
performed entirely within such Commonwealth.
6. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and the same instrument.
7. In all respects not inconsistent with the terms and provisions of this Amendment to the Rights Agreement, the Rights Agreement is
hereby ratified, adopted, approved and confirmed. In executing and delivering this Amendment, the Rights Agent shall be entitled to
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all the privileges and immunities afforded to the Rights Agent under the terms and conditions of the Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and attested, all as of the date and year
first above written.
Attest: VERTEX PHARMACEUTICALS
INCORPORATED
By: /s/ Sarah P. Cecil By: /s/ Richard H. Aldrich
------------------------------
----------------------------------
Name: Sarah P. Cecil Name: Richard H. Aldrich
Title: Corporate Attorney Title: Senior Vice President
Attest: THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Jocelyn J. Turner By: /s/ Colleen H. Shea
------------------------------
----------------------------------
Name: Name:
Title: Account Manager Title: Administration Manager
EXHIBIT 10.3
VERTEX PHARMACEUTICALS INCORPORATED
1996 STOCK AND OPTION PLAN
(as amended on February 18, 1997 and restated)
1. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Vertex Pharmaceuticals
Incorporated 1996 Stock and Option Plan, have the following meanings:
Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as amended.
Committee means the Compensation Committee of the Board of Directors or any successor thereto appointed by the Board of
Directors pursuant to Section 4 hereof to administer this Plan.
Common Stock means shares of the Company's common stock, $.01 par value.
Company means Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.
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Disability or Disabled means permanent and total disability as defined in
Section 22(e)(3) of the Code.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of a Share of Common Stock on a particular date shall be the mean between the highest and lowest quoted selling
prices on such date (the "valuation date") on the securities market where the Common Stock of the Company is traded, or if there were
no sales on the valuation date, on the next preceding date within a reasonable period (as determined in the sole discretion of the
Committee) on which there were sales. In the event that there were no sales in such a market within a reasonable period, the fair
market value shall be as determined in good faith by the Committee in its sole discretion.
ISO means an option intended to qualify as an incentive stock option under Code
Section 422.
Key Employee means an employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving
as an officer or director of the Company or of an Affiliate), designated by the Committee to be eligible to be granted one or more
Stock Rights under the Plan.
NQSO means an option which is not intended to qualify as an ISO.
Non-Employee Director means a member of the Board of Directors who is not an employee of the Company or any Affiliate.
Option means an ISO or NQSO granted under the Plan. Participant means a Key Employee, Non-Employee Director, consultant or
advisor of the Company to whom one or more Stock Rights are granted under the Plan. As used herein, "Participant" shall include
"Participant's Survivors" and a Participant' s permitted transferees where the context requires.
Participant's Survivors means a deceased Participant's legal representatives and/or any person or persons who acquires the Participant's
rights to a Stock Right by will or by the laws of descent or distribution.
Plan means this Vertex Pharmaceuticals Incorporated 1996 Stock and Option Plan, as amended from time to time.
Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of
capital stock into which the Shares are changed or for which they are exchanged within the provisions of
Section 3 of the Plan. The Shares issued upon exercise of Stock Rights granted under the Plan may be authorized and unissued shares
or shares held by the Company in its treasury, or both.
Stock Agreement means an agreement between the Company and a Participant executed and delivered pursuant to the Plan, in such
form as the Committee shall approve.
Stock Award means an award of Shares or the opportunity to make a direct purchase of Shares of the Company granted under the Plan.
Stock Right means a right to Shares of the Company granted pursuant to the Plan as an ISO, an NQSO or a Stock Award.
2. PURPOSES OF THE PLAN
The Plan is intended to encourage ownership of Shares by Key Employees, Non-Employee Directors and certain consultants and
advisors to the Company in order to attract such persons, to induce them to work for the benefit of the Company or of an Affiliate and
to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting
of Stock Rights to Key Employees, Non-Employee Directors, consultants and advisors of the Company.
3. SHARES SUBJECT TO THE PLAN
The number of Shares subject to this Plan as to which Stock Rights may be granted from time to time shall be 2,000,000 plus the
number of shares of Common Stock previously reserved for the granting of options under the Vertex Pharmaceuticals Incorporated
1991 Stock Option Plan and 1994 Stock and Option Plan but not granted thereunder, or the equivalent of such number of Shares after
the Committee, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Section 17 of this Plan.
If an Option granted hereunder or any option granted under the 1991 Stock Option Plan or 1994 Stock and Option Plan ceases to be
2002. EDGAR Online, Inc.
"outstanding", in whole or in part, or if the Company shall reacquire any Shares issued pursuant to Stock Awards, the Shares which
were subject to such Option and any Shares so reacquired by the Company shall also be available for the granting of other Stock
Rights under the Plan. Any Stock Right shall be treated as "outstanding" until such Stock Right is exercised in full, or terminates or
expires under the provisions of the
Plan, or by agreement of the parties to the pertinent Stock Agreement, without having been exercised in full.
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4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee is authorized to:
a. Interpret the provisions of the Plan or of any Option, Stock Award or Stock Agreement and to make all rules and determinations
which it deems necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be designated as Key Employees and which of the Key
Employees, Non-Employee Directors, consultants and advisors of the Company and its Affiliates shall be granted Stock Rights;
c. Determine the number of Shares and exercise price for which a Stock Right or Stock Rights shall be granted;
d. Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted; and
e. In its discretion, accelerate the date of exercise of any installment of any Stock Right; provided that the Committee shall not
accelerate the exercise date of any installment of any Option granted to any Key Employee as an ISO (and not previously converted
into an NQSO pursuant to Section 20) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of
the Code, as described in Section 6.2.3.
provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the
context of preserving the tax status under Code Section 422 of those Options which are designated as ISOs and shall be in compliance
with any applicable provisions of Rule 16b-3 under the Exchange Act. Subject to the foregoing, the interpretation and construction by
the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the
Board of Directors, if the Committee is other than the Board of Directors.
The Committee may employ attorneys, consultants, accountants or other persons, and the Committee, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or valuations of such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding upon the Company, all Participants, and all other
interested persons. No member or agent of the Committee shall be personally liable for any action, determination, or interpretation
made in good faith with respect to this Plan or grants hereunder. Each member of the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this
Plan unless arising out of such member's own fraud or bad faith. Such indemnification shall be in addition to any rights of
indemnification the members of the Committee may have as directors or otherwise under the by-laws of the Company, or any
agreement, vote of stockholders or disinterested directors, or otherwise.
5. ELIGIBILITY FOR PARTICIPATION
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The Committee shall, in its sole discretion, name the Participants in the Plan, provided, however, that each Participant must be a Key
Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate at the time a Stock Right is granted.
Notwithstanding the foregoing, the Committee may authorize the grant of a Stock Right to a person not then an employee,
Non-Employee Director, consultant or advisor of the Company or of an Affiliate; provided, however, that the actual grant of such
Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of execution of the
Stock Agreement evidencing such Stock Right. The granting of any Stock Right to any individual shall neither entitle that individual
to, nor disqualify him or her from, participation in other grant of Stock Rights. Notwithstanding anything to the contrary contained in
this Plan, no Stock Rights shall be granted to any director or officer of the Company except in accordance with the applicable rules of
the Nasdaq Stock Market or other securities market where the Common Stock is traded.
6. TERMS AND CONDITIONS OF OPTIONS
2002. EDGAR Online, Inc.
6.1 General. Each Option shall be set forth in writing in a Stock Agreement, duly executed by the Company and, to the extent required
by law or requested by the Company, by the Participant. The Committee may provide that Options be granted subject to such
conditions as the Committee may deem appropriate including, without limitation, subsequent approval by the shareholders of the
Company of this Plan or any amendments thereto, provided, however, that the option price per share of the Shares covered by each
Option shall not be less than the par value per share of the Common Stock. Each Stock Agreement shall state the number of Shares to
which it pertains, the date or dates on which it first is exercisable and the date after which it may no longer be exercised. Option rights
may accrue or become exercisable in installments over a period of time, or upon the achievement of certain conditions or the
attainment of stated goals or events. Exercise of any Option may be conditioned upon the Participant's execution of a Share purchase
agreement in form satisfactory to the Committee providing for certain protections for the Company and its other shareholders,
including requirements that the Participant's or the Participant's Survivors' right to sell or transfer the Shares may be restricted, and the
Participant or the Participant's Survivors may be required to execute letters of investment intent and to acknowledge that the Shares
will bear legends noting any applicable restrictions.
6.2 ISOs. ISOs shall be issued only to Key Employees. In addition to the minimum standards set forth in Section 6.1, ISOs shall be
subject to the following terms and conditions, with such additional restrictions or changes as the Committee determines are appropriate
but not in conflict with Code Section 422 and relevant regulations and rulings of the Internal Revenue Service:
6.2.1 ISO Option Price: The Option price per Share of the Shares subject to an ISO shall not be less than one hundred percent (100%)
of the Fair Market Value per share of the Common Stock on the date of grant of the ISO; provided, however that the Option price per
share of the Shares subject to an ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in
Code Section 424(d), more than ten percent (10%) of the total combined voting power of all classes of share capital of the Company or
an Affiliate, shall not be less than one hundred ten percent (110%) of the said Fair Market Value on the date of grant.
6.2.2 Term of ISO: Each ISO shall expire not more than ten (10) years from the date of grant; provided, however, that an ISO granted
to a Participant who owns, directly or by reason of the applicable attribution rules in Code
Section 424(d), more than ten percent (10%) of the total combined voting power of all classes of share capital of the Company or an
Affiliate, shall expire not more than five (5) years from the date of grant.
6.2.3 Limitation on Yearly ISO Exercisability: The aggregate Fair Market Value (determined at the time each ISO is granted) of the
stock with respect to which ISOs are exercisable for the first time by each Participant in any calendar year (under this or any other ISO
plan of the Company or an Affiliate) shall not exceed the maximum amount allowable under Section 422 of the Code.
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6.2.4 Limitation on Grant of ISOs: No ISOs shall be granted after December 8, 2004, the date which is ten (10) years from the earlier
of the date of the adoption of this Plan and the date of the approval of the Plan by the shareholders of the Company.
6.3 Non-Employee Directors' Options. Each Non-Employee Director, upon first being elected or appointed to the Board of Directors,
shall be granted an NQSO to purchase 20,000 Shares. Each such Option shall (i) have an exercise price equal to eighty-five percent
(85%) of the Fair Market Value (per share) on the date of grant of the Option, (ii) have a term of ten (10) years, and (ii) shall become
cumulatively exercisable in sixteen (16) equal quarterly installments, upon completion of each full quarter of service on the Board of
Directors after the date of grant. In addition, on June 1 of each year, each Non-Employee Director shall be granted a NQSO to
purchase 5,000 shares. Each such Option shall (i) have an exercise price equal to the Fair Market Value (per share) on the date of grant
of such Option, (ii) have a term of ten (10) years, and (iii) be exercisable in full immediately on the date of grant. Any director entitled
to receive an Option grant under this Section may elect to decline the Option. Notwithstanding the provisions of Section 24 concerning
amendment of the Plan, the provisions of this Subsection shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. Notwithstanding anything to the
contrary contained in any other provisions of this Plan, the Committee shall have no discretion to vary the terms of Options granted
under this Section 6.3 from those set forth herein. The provisions of Sections 11, 13 and 14 below shall not apply to Options granted
pursuant to this Subsection.
6.4 Limitation on Number of Options Granted. Notwithstanding anything in this Plan to the contrary, no Participant shall be granted
Options in any calendar year for the purchase of more than 200,000 Shares.
7. TERMS AND CONDITIONS OF STOCK AWARDS
Each Stock Award shall be set forth in a Stock Agreement, duly executed by the Company and, to the extent required by law or
requested by the Company, by the Participant. The Stock Agreement shall be in the form approved by the Committee, with such
changes and modifications to such form as the Committee, in its discretion, shall approve with respect to any particular Participant or
Participants. The Stock Agreement shall contain terms and conditions which the Committee determines to be appropriate and in the
2002. EDGAR Online, Inc.
best interest of the Company; provided, however, that the purchase price per share of the Shares covered by each Stock Award shall
not be less than the par value per Share. Each Stock Agreement shall state the number of Shares to which the Stock Award pertains,
the date prior to which the Stock Award must be exercised by the Participant, and the terms of any right of the Company to reacquire
the Shares subject to the Stock Award, including the time and events upon which such rights shall accrue and the purchase price
therefor, and any restrictions on the transferability of such Shares.
8. EXERCISE OF STOCK RIGHTS AND ISSUANCE OF SHARES
A Stock Right (or any part or installment thereof) shall be exercised by giving written notice to the Company, together with provision
for payment of the full purchase price in accordance with this Section for the Shares as to which such Stock Right is being exercised,
and
upon compliance with any other condition(s) set forth in the Stock Agreement. Such written notice shall be signed by the person
exercising the Stock Right, shall state the number of Shares with respect to which the Stock Right is being exercised and shall contain
any representation required by the Plan or the Stock Agreement.
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Payment of the purchase price for the Shares as to which such Stock Right is being exercised shall be made (a) in United States dollars
in cash or by check, or (b) at the discretion of the Committee, through delivery of shares of Common Stock already owned by the
Participant not subject to any restriction under any plan and having a fair market value equal as of the date of exercise to the cash
exercise price of the Stock Right, determined in good faith by the Committee, or (c) at the discretion of the Committee, by any other
means, including a promissory note of the Participant, which the Committee determines to be consistent with the purpose of this Plan
and applicable law, or (d) at the discretion of the Committee, in accordance with a cashless exercise program established with a
securities brokerage firm, and approved by the Committee, or
(e) at the discretion of the Committee, by any combination of (a), (b), (c) and
(d) above. Notwithstanding the foregoing, the Committee shall accept only such payment on exercise of an ISO as is permitted by
Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such Stock Right was exercised to the Participant (or to
the Participant's Survivors, as the case may be). In determining what constitutes "reasonably promptly," it is expressly understood that
the delivery of the Shares may be delayed by the Company in order to comply with any law or regulation which requires the Company
to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable
Shares.
9. RIGHTS AS A SHAREHOLDER
No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such
Stock Right, except after due exercise thereof and tender of the full purchase price for the Shares being purchased pursuant to such
exercise and registration of the Shares in the Company's share register in the name of the Participant.
10. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS
ISOs and, except as otherwise provided in the pertinent Stock Agreement, NQSOs and Stock Awards shall not be transferable by the
Participant other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder, provided, however, that the
designation of a beneficiary of a Stock Right by a Participant shall not be deemed a transfer prohibited by this Section . Except as
provided in the preceding sentence or as otherwise permitted under an NQSO or Stock Award Stock Agreement, a Stock Right shall be
exercisable, during the Participant's lifetime, only by such Participant (or by his or her legal representative) and shall not be assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or
similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be
null and void.
11. EFFECT OF TERMINATION OF SERVICE
11.1 Except as otherwise provided in the pertinent Stock Agreement or as otherwise provided in Sections 12, 13 or 14, if a Participant
ceases to be an employee, director, consultant or advisor with the Company and its Affiliates (a "Termination of Service") (for any
reason other than termination "for cause", Disability, or death) before the Participant has exercised all Stock
2002. EDGAR Online, Inc.
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Rights, the Participant may exercise any Stock Right granted to him or her to the extent that the Stock Right is exercisable on the date
of such Termination of Service, but only within the originally prescribed term of the Stock Right. Notwithstanding the foregoing,
except as provided in Section 13, in no event may an ISO be exercised later than three (3) months after the Participant's termination of
employment with the Company and its Affiliates.
11.2 The provisions of this Section , and not the provisions of Section 13 or 14, shall apply to a Participant who subsequently becomes
disabled or dies after the Termination of Service; provided, however, that in the case of a Participant's death within three (3) months
after the Termination of Service, the Participant's Survivors may exercise the Stock Right within one (1) year after the date of the
Participant's death, but in no event after the date of expiration of the term of the Stock Right.
11.3 Notwithstanding anything herein to the contrary, if subsequent to a Participant's Termination of Service, but prior to the exercise
of a Stock Right, the Committee determines that, either prior or subsequent to the Participant's Termination of Service, the Participant
engaged in conduct which would constitute "cause" (as defined in Section 12), then such Participant shall forthwith cease to have any
right to exercise any Stock Right.
11.4 Absence from work with the Company or an Affiliate because of temporary disability (any disability other than a permanent and
total Disability as defined in Section 1 hereof), or a leave of absence for any purpose, shall not, during the period of any such absence,
be deemed, by virtue of such absence alone, a Termination of Service, except as the Committee may otherwise expressly provide.
11.5 A change of employment or other service within or among the Company and its Affiliates shall not be deemed a Termination of
Service, so long as the Participant continues to be an employee, director, consultant or advisor of the Company or any Affiliate;
provided, however, that if a Participant's employment with the Company or an Affiliate should cease (other than to become an
employee of another Affiliate or of the Company), then Section 11.1 above shall apply as to any ISOs granted to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR "CAUSE"
Except as otherwise provided in the pertinent Stock Agreement, in the event of a Termination of Service of a Participant "for cause"
all outstanding and unexercised Stock Rights as of the date the Participant is notified his or her service is terminated "for cause" will
immediately be forfeited. For purposes of this Section 12, "cause" shall include (and is not limited to) dishonesty with respect to the
Company and its Affiliates, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential
information, conduct substantially prejudicial to the business of the Company or any Affiliate, and termination by the Participant in
violation of an agreement by the Participant to remain in the employ of the Company of an Affiliate. The determination of the
Committee as to the existence of cause will be conclusive on the Participant and the Company. "Cause" is not limited to events which
have occurred prior to a Participant's Termination of Service, nor is it necessary that the Committee's finding of "cause" occur prior to
termination. If the Committee determines, subsequent to a Participant's Termination of Service but prior to the exercise of a Stock
Right, that either prior or subsequent to the Participant's termination the Participant engaged in conduct which would constitute
"cause," then the right to exercise any Stock Right shall be forfeited. Any definition in an agreement between a Participant and the
Company or an Affiliate which contains a conflicting definition of "cause" for termination and which is in effect at the time of such
termination shall supersede the definition in this Plan with respect to that Participant.
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13. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY
Except as otherwise provided in the pertinent Stock Agreement, in the event of a Termination of Service by reason of Disability, the
Disabled Participant may exercise any Stock Right granted to him or her to the extent exercisable but not exercised on the date of
Disability. A Disabled Participant may exercise such rights only within a period of not more than one (1) year after the date that the
Participant became Disabled or, if earlier, within the originally prescribed term of the Stock Right.
The Committee shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a
procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such
procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by
the Committee, the cost of which examination shall be paid for by the Company.
14. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT
Except as otherwise provided in the pertinent Stock Agreement, in the event of death of a Participant while the Participant is an
employee, director, consultant or advisor of the Company or of an Affiliate, any Stock Rights granted to such Participant may be
exercised by the Participant's Survivors to the extent exercisable but not exercised on the date of death. Any such Stock Right must be
2002. EDGAR Online, Inc.
exercised within one (1) year after the date of death of the Participant.
15. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the particular exercise of an Stock Right shall have been effectively
registered under the Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"), the Company shall be under no
obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise such Stock Right shall warrant to the Company, at the time of such exercise or receipt, as the case may
be, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale
in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the
provisions of the following legend which shall be endorsed upon the certificate(s) evidencing their Shares issued pursuant to such
exercise or such grant:
"The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any action or obtaining of any consent which the Company deems
necessary under any applicable law (including, without limitation, state securities or "blue sky" laws).
16. DISSOLUTION OR LIQUIDATION OF THE COMPANY
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Upon the dissolution or liquidation of the Company, all Stock Rights granted under this Plan which as of such date shall not have been
exercised will terminate and become null and void; provided, however, that if the rights of a Participant have not otherwise terminated
and expired, the Participant will have the right immediately prior to such dissolution or liquidation to exercise any Stock Right to the
extent that such Stock Right is exercisable as of the date immediately prior to such dissolution or liquidation.
17. ADJUSTMENTS
Upon the occurrence of any of the following events, a Participant's rights with respect to any Stock Right granted to him or her
hereunder which have not previously been exercised in full shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the Participant and the Company relating to such Stock Right or in any employment
agreement between a Participant and the Company or an Affiliate:
17.1 Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller
number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of such Stock Right shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision,
combination or stock dividend. The number of Shares subject to options to be granted to Non-Employee Directors pursuant to
Section 6.3 shall also be proportionately adjusted upon the occurrence of such events.
17.2 Consolidations or Mergers. If the Company is to be consolidated with or acquired by another entity in a merger in which the
Company is not the surviving entity, a sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), either (i)
the Committee or the board of directors of any entity assuming the obligations of the Company hereunder, shall, as to outstanding
Options, make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then
subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with
the Acquisition or securities of any successor or acquiring entity; or (ii) the vesting of all outstanding Options shall be accelerated and
such Options shall become fully exercisable immediately prior to the Acquisition, notwithstanding any restrictions or vesting
conditions set forth therein.
17.3 Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company (other than a transaction
described in Section 17.2 above) pursuant to which securities of the Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, a Participant upon exercising a Stock Right shall be entitled to receive for the purchase price
2002. EDGAR Online, Inc.
paid upon such exercise the securities he or she would have received if he or she had exercised such Stock Right prior to such
recapitalization or reorganization.
17.4 Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to Section 17.1, 17.2 or 17.3 with respect
to ISOs shall be made only after the Committee determines whether such adjustments would constitute a "modification" of such ISOs
(as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If
the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments, unless the holder of an ISO specifically requests in writing that such
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adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such "modification" on his or
her income tax treatment with respect to the ISO.
18. ISSUANCES OF SECURITIES
Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares
subject to Options. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property
(including without limitation, securities) of the Company.
19. FRACTIONAL SHARES
No fractional share shall be issued under the Plan and the person exercising any Stock Right shall receive from the Company cash in
lieu of any such fractional share equal to the Fair Market Value thereof determined in good faith by the Board of Directors of the
Company.
20. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOs
Any Options granted under this Plan which do not meet the requirements of the Code for ISOs shall automatically be deemed to be
NQSOs without further action on the part of the Committee. The Committee, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's ISOs (or any portion thereof) that have not been
exercised on the date of conversion into NQSOs at any time prior to the expiration of such ISOs, regardless of whether the Participant
is an employee of the Company or an Affiliate at the time of such conversion. Such actions may include, but not be limited to,
extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such
conversion, the Committee (with the consent of the Participant) may impose such conditions on the exercise of the resulting NQSOs as
the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any Participant the right to have such Participant's ISOs converted into NQSOs, and no such conversion
shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the Participant, may also
terminate any portion of any ISO that has not been exercised at the time of such termination.
21. WITHHOLDING
In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act ("FICA")
withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant's salary,
wages or other remuneration in connection with the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Section 22), the Participant shall advance in cash to the Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company's
Common Stock, is authorized by the Committee (and permitted by law), provided, however, that with respect to persons subject to
Section 16 of the Exchange Act, any such withholding arrangement shall be in compliance with any applicable provisions of Rule
16b-3 promulgated under
Section 16 of the Exchange Act. For purposes hereof, the Fair Market Value of any shares withheld for purposes of payroll
withholding shall be determined in the manner provided in Section 1 above, as of the most recent practicable date prior to the date of
exercise. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant my
be required to advance the difference in cash to the Company or the Affiliate
employer. The Committee in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
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2002. EDGAR Online, Inc.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each Key Employee who receives an ISO must agree to notify the Company in writing immediately after the Key Employee makes a
"Disqualifying Disposition" of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition
(including any sale) of such shares before the later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the ISO. If the Key Employee has died before such Shares
are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.
23. EFFECTIVE DATE; TERMINATION OF THE PLAN
The Plan shall be effective on December 12, 1996, the date of its approval by the Board of Directors. The Plan will terminate on
December 12, 2006. The Plan may be terminated at an earlier date by vote of the Board of Directors; provided, however, that any such
earlier termination will not affect any Stock Rights granted or Stock Agreements executed prior to the effective date of such
termination.
24. AMENDMENT OF THE PLAN; AMENDMENT OF STOCK RIGHTS
The Plan may be amended by the stockholders of the Company. The Plan may also be amended by the Board of Directors or the
Committee, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan
or Stock Rights to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise)
as may be afforded incentive stock options under Section 422 of the Code, to the extent necessary to ensure that Stock Rights granted
or to be granted under the Plan are in accordance with Rule 16b-3 under the Exchange Act, and to the extent necessary to qualify the
shares issuable upon exercise of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any
national securities exchange or quotation in any national automated quotation system of securities dealers. No modification or
amendment of the Plan shall adversely affect his or her rights under a Stock Right previously granted to a Participant without such
Participant's consent.
In its discretion, the Committee may amend any term or condition of any outstanding Stock Right, provided, (i) such term or condition
as amended is permitted by the Plan, (ii) if the amendment is adverse to the Participant, such amendment shall be made only with the
consent of the Participant, (iii) any such amendment of any ISO shall be made only after the Committee determines whether such
amendment would constitute a "modification" of any Stock Right which is an ISO (as that term is defined in Section 424(h) of the
Code) or would cause any adverse tax consequences for the holder of such ISO, and (iv) with respect to any Stock Right held by any
Participant who is subject to the provisions of
Section 16(a) of the Exchange Act, any such amendment shall be made only after the Committee determines whether such amendment
would constitute the grant of a new Stock Right.
25. EMPLOYMENT OR OTHER RELATIONSHIP
Nothing in this Plan or any Stock Agreement shall be deemed to prevent the Company or an Affiliate from terminating the
employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment,
consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
26. GOVERNING LAW
-11-
This Plan shall be construed and enforced in accordance with the law of The Commonwealth of Massachusetts.
-12-
EXHIBIT 10.14
Second Amendment to Lease
2002. EDGAR Online, Inc.
Date: As of February 12, 1997
Lease: A certain lease dated October 1, 1992 between the
Landlord, as landlord, and the Tenant, as tenant,
as
to the Premises, as amended by First Amendment to
Lease dated as of March 1, 1995 (the "First
Amendment")
Landlord: C. Vincent Vappi
Tenant: Vertex Pharmaceuticals Incorporated
Premises: As defined in the Lease, the 618 Putnam
Premises, 40 Allston Premises, 228 Sidney Premises,
and 240 Sidney Premises (including Phase II of
the Sidney Premises), as amended herein
A. Landlord and Tenant have continuing obligations under the Lease.
R E C I T A L S
B. Landlord and Tenant desire to extend the term and modify certain terms of the Lease as set forth herein.
NOW, THEREFORE, For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Landlord and Tenant agree as follows:
1. Paragraph I of the Lease and paragraph 1 of the First Amendment are amended to provide that the defined term, "240 Sidney
Premises" includes all space in the building located at 240 Sidney Street, Cambridge, Massachusetts. The total rentable square feet of
the Premises upon and after the effective date of this Amendment is 35,000.
2. Paragraph II of the Lease is amended to provide that the Lease, as previously extended, shall expire at 11:59 P.M. on December 31,
2003. As used in the Lease as hereby amended, the word "term" shall mean the Original Term and the Extended Term, as extended
and amended previously and herein.
3. Paragraph 3 of the First Amendment is deleted in its entirety.
4. Paragraph III of the Lease is amended to provide that:
Page 1 of 2
Commencing January 1, 1997 through December 31, 2001, the Base Rent shall be $10.37 per rentable square foot of the Premises, or
$363,000.00 annually (pro rata reduced for any portion of a Year) payable in monthly installments of $30,250.00;
Commencing January 1, 2002 through December 31, 2003, the Base Rent shall be $11.93 per rentable square foot of the Premises, or
$417,450.00 annually (pro rata reduced for any portion of a Year) payable in monthly installments of $34,787.50.
5. In all other respects, the Lease remains in full force and effect and unmodified hereby.
6. Notwithstanding anything to the contrary contained herein, this Second Amendment is subject to and conditional upon the
Landlord's obtaining a loan secured by a mortgage on the Premises by April 15, 1997. In the event that such a mortgage loan is not
concluded within such thirty-day period, this Second Amendment shall be null and void and of no effect.
Signed under seal as of the date first written above.
Landlord:
2002. EDGAR Online, Inc.
/s/ C. Vincent Vappi
---------------------------------
C. Vincent Vappi
Tenant:
VERTEX PHARMACEUTICALS INCORPORATED
By: /s/ Richard H. Aldrich
-------------------------------------------
Page 2 of 2
EXHIBIT 10.16
FIRST AMENDMENT, DATED 1 DECEMBER 1996, TO LEASE AGREEMENT
BETWEEN FORT WASHINGTON REALTY TRUST AND VERTEX PHARMACEUTICALS INCORPORATED
DATED 1 MARCH 1993
Fort Washington Realty Trust and Vertex Pharmaceuticals Incorporated hereby agree to amend the current lease on 625 Putnam
Avenue, Cambridge, dated 1 March 1993, as follows:
page 1, Section 1.1; page 2, Section 2; and page 2 & 3, Section 3.1; Extension of original term:
Term: 1 February 1997 through 31 December 1998 Rent: 15,750 sq ft at $15.24/sq ft/yr=$240,000/yr=$20,000/month
page 36, Section 11.10: Option to extend beyond first extension:
Tenant's option to Extend: 1 January 1999 through 31 December 2000, at a rent of 15,750 sq ft at $18.00/sq
ft/yr=$283,500/yr=$23,625/month
Triple-net of all taxes, insurance, utilities, and operating expenses.
All other provisions of said lease shall remain unchanged
Signatories certify that they are empowered to commit their respective organization in matters pertaining to this agreement, executed in
December 1996
2002. EDGAR Online, Inc.
LESSOR: LESSEE:
/s/ HENRY H. KOLM
/s/ ELIZABETH C. KOLM /s/ RICHARD H. ALDRICH
- ------------------------------ -----------------------------------
Fort Washington Realty Trust Vertex Pharmaceuticals Incorporated
By: Henry H. Kolm, Trustee By: Richard H. Aldrich
Elizabeth C. Kolm, Trustee Senior VP, Chief Business
Officer
Date: 18 Jan 1996 Date: 16 Dec 1996
COOPERS COOPERS & LYBRAND L.L.P.
&LYBRAND
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of Vertex Pharmaceuticals Incorporated on Form S-8 (File
Nos. 33-48030, 33-48348, 33-65742, 33-93224 and 33-12325) of our report dated February 18, 1997 on our audits of the consolidated
financial statements of Vertex Pharmaceuticals Incorporated and Subsidiaries as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996 which report is included in this Form 10-K.
/s/ Coopers & Lybrand
L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1997
ARTICLE 5
MULTIPLIER: 1,000
CURRENCY: US DOLLARS
PERIOD TYPE
FISCAL YEAR END
PERIOD START
PERIOD END
EXCHANGE RATE
CASH
SECURITIES
RECEIVABLES
ALLOWANCES
INVENTORY
CURRENT ASSETS
PP&E
DEPRECIATION
TOTAL ASSETS
CURRENT LIABILITIES
BONDS
YEAR
DEC 31 1996
JAN 01 1996
DEC 31 1996
1
34,851
95,508
0
0
0
132,150
28,700
20,037
143,499
7,056
0
2002. EDGAR Online, Inc.
PREFERRED MANDATORY
PREFERRED
COMMON
OTHER SE
TOTAL LIABILITY AND EQUITY
SALES
TOTAL REVENUES
CGS
TOTAL COSTS
OTHER EXPENSES
LOSS PROVISION
INTEREST EXPENSE
INCOME PRETAX
INCOME TAX
INCOME CONTINUING
DISCONTINUED
EXTRAORDINARY
CHANGES
NET INCOME
EPS PRIMARY
EPS DILUTED
0
0
211
130,615
143,499
0
18,598
0
58,141
0
0
462
(40,005)
0
0
0
0
0
(40,005)
(2.13)
0
End of Filing
2002. EDGAR Online, Inc.