-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V5pPKmDm2o+QoLrw3x9vHZkXZbQ/4V9+7jpTTxy+omEr0WHQ0JoyIQy/LZXZsrxP Baa5B4uiWE6VeDC3rLVjaw== 0000950005-97-000933.txt : 19971117 0000950005-97-000933.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950005-97-000933 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYNX THERAPEUTICS INC CENTRAL INDEX KEY: 0000913275 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 943161073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22570 FILM NUMBER: 97717995 BUSINESS ADDRESS: STREET 1: 3832 BAY CENTER PL CITY: HAYWARD STATE: CA ZIP: 94545 BUSINESS PHONE: 5106709300 MAIL ADDRESS: STREET 1: 3832 BAY CENTER PLACE CITY: HAYWARD STATE: CA ZIP: 74545 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997. 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 0-22570 Lynx Therapeutics, Inc. (Exact name of registrant as specified in its charter) Delaware 94-3161073 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3832 Bay Center Place Hayward, CA 94545 (Address of principal executive offices) (Zip Code) (510) 670-9300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Common Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock outstanding as of October 31, 1997, were: 5,889,853; 332,288; 123,299; and 40,000, respectively. The Series B, Series C and Series D Preferred Stock are convertible into Common Stock on a ten-for-one basis. Information regarding the aggregate market value of the Registrant's voting stock is not included because there is currently no established public trading market for the Company's voting stock. Page 1 of 17 Lynx Therapeutics, Inc. INDEX
PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996............................................................... 3 Condensed Consolidated Statements of Operations - three and nine months ended September 30, 1997 and 1996.................................................. 4 Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 1997 and 1996................................................... 5 Notes to Condensed Consolidated Financial Statements.................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 7 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................................................... 10 Item 2. Changes in Securities................................................................... 10 Item 3. Defaults Upon Senior Securities......................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders..................................... 10 Item 5. Other Information....................................................................... 10 Item 6. Exhibits and Reports on Form 8-K........................................................ 10 Signatures ........................................................................................ 11
Page 2 of 17 PART I FINANCIAL INFORMATION Item 1. Financial Statements Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 1997 1996* ---------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 3,418 $ 12,109 Short-term investments -- 1,973 Accounts receivable 156 118 Other current assets 98 158 -------------------- Total current assets 3,672 14,358 Property and equipment: Leasehold improvements 3,795 3,193 Laboratory and other equipment 3,434 2,976 -------------------- 7,229 6,169 Less accumulated depreciation and amortization (3,254) (2,290) -------------------- Net property and equipment 3,975 3,879 Notes receivable from employees 199 175 -------------------- $ 7,846 $ 18,412 ==================== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 353 $ 429 Accrued compensation 240 394 Accrued professional fees 117 169 Deferred revenue from related parties - current 2,750 3,875 Other accrued liabilities 570 373 -------------------- Total current liabilities 4,030 5,240 Deferred revenue from related parties - long-term 229 2,292 Other noncurrent liabilities 171 148 Stockholders' equity: Preferred stock 27,189 27,189 Common stock 17,478 17,361 Notes receivable from stockholders (460) (210) Deferred compensation (1,514) (2,092) Unrealized gain on marketable securities 1 3 Accumulated deficit (39,278) (31,519) -------------------- Total stockholders' equity 3,416 10,732 -------------------- $ 7,846 $ 18,412 ==================== * The Balance Sheet amounts at December 31, 1996, have been derived from audited financial statements at that date but do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. Page 3 of 17 Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net revenues: Revenues from collaborative arrangements with related parties $ 1,124 $ 7,875 $ 3,411 $ 8,625 Other revenues 100 40 270 244 ------------------------------------------- Total revenues 1,224 7,915 3,681 8,869 Operating expenses: Research and development 3,930 2,546 10,382 7,880 General and administrative 427 833 1,444 2,000 ------------------------------------------- Total operating expenses 4,357 3,379 11,826 9,880 ------------------------------------------- Income/(loss) from operations (3,133) 4,536 (8,145) (1,011) Interest income 82 132 386 462 ------------------------------------------- Net income/(loss) $ (3,051) $ 4,668 $ (7,759) $ (549) =========================================== Net income/(loss) per share $ (0.95) $ 0.61 $ (2.44) $ (0.23) =========================================== Shares used in per share computation 3,208 7,700 3,184 2,339 =========================================== See accompanying notes.
Page 4 of 17 Lynx Therapeutics, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, -------------------- 1997 1996 ---- ---- Cash flows from operating activities Net loss $ (7,759) $ (549) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 964 725 Deferred compensation 429 30 Changes in operating assets and liabilities: Accounts receivable (38) (3,952) Other current assets 60 (79) Accounts payable (76) (465) Accrued liabilities (9) (24) Advance from collaborative partner -- 97 Deferred revenue from related parties (3,188) (1,125) Other noncurrent liabilities 23 43 -------------------- Net cash used in operating activities (9,594) (5,299) Cash flows from investing activities Purchases of short-term investments -- (25,957) Maturities of short-term investments 1,971 23,000 Purchases of property and equipment (1,060) (1,297) Notes receivable from employees (274) 188 -------------------- Net cash provided by/(used in) investing activities 637 (4,066) Cash flows from financing activities Issuance of common stock 266 47 -------------------- Net cash provided by financing activities 266 47 -------------------- Net decrease in cash and cash equivalents (8,691) (9,318) Cash and cash equivalents at beginning of period 12,109 13,779 -------------------- Cash and cash equivalents at end of period $ 3,418 $ 4,461 ==================== See accompanying notes.
Page 5 of 17 Lynx Therapeutics, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 (Unaudited) 1. Basis of presentation The condensed consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "Commission"). Certain prior year amounts have been reclassified to conform with current year presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to Commission rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements include all accounts of the Company and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim periods presented. The results of operations for the three and nine months ended September 30, 1997, are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the Company's year ended December 31, 1996. 2. Net loss per share Net loss per share is calculated based on the weighted average number of common shares outstanding during the period. Common equivalent shares from stock options and convertible Preferred Stock are excluded from the computation as their effect is antidilutive. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" ("EPS"). SFAS 128 requires that companies present two measures of earnings per share, basic and diluted. Basic earnings per share is computed by dividing income or loss applicable to common shareholders by the weighted-average number of common shares outstanding for the period, while diluted EPS reflects the potential dilution of securities that could share in the earnings of the company. SFAS 128 is effective for interim and annual periods ending after December 15, 1997. The Company does not believe the adoption of SFAS 128 will have a material impact on its loss per share calculations. 3. Collaborative Arrangements The Technology Development and Services Agreement, dated October 2, 1995, between Lynx and Hoechst Marion Roussel, Inc. was amended on September 1, 1997. The amendment modifies the technology milestone included in the original agreement and extends the date by which such milestone must be achieved under the contract. If the subject milestone is not met by such date, then Hoechst may either terminate the agreement or extend the technology milestone date. 4. Subsequent Event On October 1, 1997, Lynx closed a private placement of common stock at $10 per share, resulting in gross proceeds of $26.8 million. Proceeds of the financing will be used both to continue development of the Company's Massively Parallel Signature Sequencing technology and to build capacity for its early commercial uses. Page 6 of 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the Company's annual report (Form 10-K) filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1996. Overview Lynx has developed a unique, proprietary technology for the analysis of DNA called Massively Parallel Signature Sequencing. Massively Parallel Signature Sequencing, the Company believes, is the only technology available today that can analyze and identify, simultaneously, very large numbers of DNA molecules or fragments from a single biological sample. Lynx's technology has several major applications and each of these can be applied to the genomes of man, pathogenic organisms, and commercially important plants and animals. These major applications include gene expression analysis, gene expression databases, genomic sequencing and high resolution genomic maps. In 1995, Lynx launched an internal biology-based drug discovery program to establish the concepts, strategies and techniques necessary for the identification of drug targets based on the analysis of differential gene expression. This program is ultimately designed to capitalize on the power of Massively Parallel Signature Sequencing, but in its early phase it is utilizing know-how and intermediate technologies currently resident within Lynx. The initial projects are centered on the medically important field of neurovascular diseases that are particularly well suited to analyses with the Company's gene sequencing and target discovery technologies. Lynx was originally formed in 1992 to target inappropriate gene expression in disease with synthetic DNA fragments designed to bind to, and functionally block, genes whose inappropriate expression could be correlated with disease. Lynx's early efforts in this area formed the foundation and understanding for the development of its new genetic technologies. The research efforts have resulted in a compound (LR-3280) for the prevention of coronary artery restenosis. The acute safety segment of its Phase II study on the LR-3280 has recently been completed. Certain follow-up measurements and analyses from the clinical trial are expected to be completed early next year. Two pharmaceutical companies have purchased the rights to market that compound and have also committed to bear the costs of its continued development. Lynx has been unprofitable since its inception and may incur substantial losses for the next several years, due primarily to the expansion of its research and development programs, including additional development of its Massively Parallel Signature Sequencing technology. Lynx may generate revenues based on its agreements with collaborative partners as a result of achievement of the milestones defined in the agreements. However, there is no guarantee that the milestones will be achieved or that the technologies will be proven successful. Lynx does not anticipate that it will generate significant revenues and profits, if any, from the commercial sale of its products and services for several years, if not longer. There can be no assurance that Lynx will ever successfully develop and market any of its proposed products or that it will ever be able to achieve or sustain profitability. Lynx's business is subject to significant risks, including the risks inherent in its research and development efforts, uncertainties associated with obtaining and enforcing patents, the lengthy and expensive regulatory approval process, and possible competition from other products. The Massively Parallel Signature Sequencing program is dependent upon the successful integration of independent technologies, each of which has its own development risks. In addition, the technology could face competition from the development of similarly efficient, or better, combinations of novel cloning and sequencing techniques. Lynx's therapeutic compounds may not reach the market for a number of reasons Page 7 of 17 even if they appear promising at early stages of development. Such reasons include, but are not limited to, the possibilities that the compounds are found to be toxic or ineffective during clinical trials, the failure to receive necessary regulatory approvals, the difficulty to manufacture on a large scale, or the inability to market a compound due to proprietary rights of third parties. Results of Operations Revenue Lynx had total revenues of approximately $1.2 million and $7.9 million for the quarters ended September 30, 1997, and 1996, respectively. The 1997 revenue was comprised of approximately $1.1 million earned under collaborative agreements with corporate partners, $60,000 in product revenue and $40,000 earned under a government grant. The 1996 revenue was comprised of approximately $7.5 million in initial license fees under collaborative agreements with Tanabe Seiyaku Co., Ltd and Schwarz Pharma AG; $375,000 earned under a collaborative agreement with Hoechst Marion Roussel; and $40,000 from a government grant. Lynx had revenues of approximately $3.7 million and $8.9 million in the nine months ended September 30, 1997, and 1996, respectively. The 1997 revenue consisted of approximately $3.4 million in collaborative revenue, $145,000 in product revenue and $125,000 in grant revenue. The 1996 revenue was comprised of approximately $7.5 million in initial license fees, $1.1 million in collaborative revenue and $244,000 earned from a government grant. Revenue will continue to fluctuate based on activity with current and potential corporate partners, achievement of milestones, and timing of government grant funding. Operating Expenses Research and development expenses were $3.9 million and $2.5 million in the three months ended September 30, 1997, and 1996, respectively. For the nine month periods ended September 30, 1997, and 1996, research and development expenses were approximately $10.4 million and $7.9 million, respectively. In both the three and nine month periods, the increases were primarily due to the costs associated with increased levels of research and development personnel, and the amortization of deferred compensation recorded in conjunction with the Agreement of Merger between Lynx and its majority owned subsidiary, Spectragen, Inc. Lynx expects its research and development expenses to increase due to planned spending for ongoing research and technology development activities and new applications. General and administrative expenses were approximately $427,000 for the quarter ended September 30, 1997, and $833,000 for the quarter ended September 30, 1996. The decrease was due to lower corporate development and legal expenses in the third quarter of 1997 as compared to the third quarter of 1996, which reflected the costs associated with the signing of two corporate collaborative agreements. General and administrative expenses were approximately $1.4 million for the nine months ended September 30, 1997, compared to approximately $2.0 million for the nine months ended September 30, 1996. As in the three-month period, the decrease was due to lower corporate development and legal expenses, as well as slightly lower headcount related expenses. Lynx expects to continue to incur substantial administrative expenses in support of its research and development efforts. Interest Income Interest income was approximately $82,000 and $132,000 for the three months ended September 30, 1997, and 1996, respectively. For the nine months ended September 30, 1997, and 1996, interest income was approximately $386,000 and $462,000, respectively. The decrease was due to lower average cash balances in the three and nine-month periods in 1997 as compared to the same periods in 1996. Page 8 of 17 Liquidity and Capital Resources The net cash used in operating activities of approximately $9.6 million for the nine months ended September 30, 1997, differs from the net loss for the same period primarily due to current period recognition of a portion of previously deferred revenue, offset in part by depreciation and amortization, and deferred compensation expense. Net cash provided by investing activities resulted from maturities of short-term investments partially offset by costs associated with purchases of capital equipment and the expansion of laboratory facilities. Lynx expects that future capital expenditures will be commensurate with growth in the employee base and the development of its Massively Parallel Signature Sequencing and other technologies. At September 30, 1997, Lynx's cash and cash equivalents were approximately $3.4 million. On October 1, 1997, Lynx closed a private placement of common stock at $10 per share, resulting in gross proceeds of $26.8 million. Lynx plans to use the funds to continue development of its Massively Parallel Signature Sequencing technology and to build capacity for its early commercial uses. Pending such uses as described above, Lynx intends to invest its excess cash in short-term, investment grade, interest-bearing securities or certificates of deposit. Since commencing operations as an independent company, Lynx has obtained funding for its operations through sales of preferred and common stock to venture capital investors, institutional investors, and collaborative partners; revenue from collaborative research and development arrangements; interest income; product sales; and government grants. The cost, timing and amount of funds required for specific uses by Lynx cannot be precisely determined at this time and will be based upon Lynx's progress in its research and development, the scope and results of preclinical research and clinical trials, the cost and timing of regulatory approvals, administrative and legal costs, the establishment of corporate collaborations and other arrangements, and the availability of alternate methods of financing. Lynx expects to incur substantial and increasing research and development expenses and intends to seek additional financing, as needed, through debt or equity offerings and from collaborative research and development agreements with corporate partners. There can be no assurance that any additional financing required by Lynx will be available or, if available, will be on terms favorable to Lynx. The Company believes that, at current spending levels, its existing capital resources and interest income thereon will enable it to maintain its current and planned operations through mid 1999. Page 9 of 17 PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. a) Exhibits - The following documents are filed as Exhibits to this report: Exhibit Number Description ------ ----------- 10.32 First Amendment to Technology Development and Services Agreement, dated September 1, 1997, between the Company and Hoechst Aktiengesellschaft and its Subsidiary, Hoechst Marion Roussel.** 27.1 Financial Data Schedule b) No reports on Form 8-K were filed during the quarter ended September 30, 1997. **Portions of this agreement have been deleted pursuant to our request for confidential treatment. Page 10 of 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LYNX THERAPEUTICS, INC. /s/ Sam Eletr ------------------------------------ By: Sam Eletr, Ph.D. Chief Executive Officer and Chairman of the Board Date: November 14, 1997 /s/ Edward C. Albini ------------------------------------ By: Edward C. Albini Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 14, 1997 Page 11 of 17 EX-10.32 2 SERVICES AGREEMENT Exhibit 10.32 Text omitted and filed separately Confidential Treatment Requested Under 17 C.F.R ss.ss.200.80(b) (4), 200.83 and 240.24b-2 FIRST AMENDMENT TO TECHNOLOGY DEVELOPMENT AND SERVICES AGREEMENT This amendment ("First Amendment") to the Technology Development and Services Agreement ("Agreement") is made and entered into as of the first day of September, 1997 (the "First Amended Effective Date") by LYNX THERAPEUTICS, INC., a Delaware corporation, and its majority-owned subsidiaries, including SPECTRAGEN, INC., (collectively referred to as "Lynx") and Hoechst Marion Roussel, Inc., a Delaware corporation, to whom the Agreement was assigned, and its affiliates ("HMRI"). RECITALS WHEREAS, Lynx and HMRI agree that the Practical Application Milestone as set forth in the Agreement needs to be amended; WHEREAS, HMRI continues to desire early, preferred access to Lynx's library analysis capabilities; NOW THEREFORE, in consideration of the foregoing premises and the covenants and promises in the Agreement and in this First Amendment. ARTICLE 1 - DEFINITIONS Capitalized terms used in this First Amendment shall have the meanings ascribed to them in the Agreement unless otherwise defined in or amended by this First Amendment. 1.1 "Practical Application Milestone" means achievement by Lynx of sufficient development of MPSS to demonstrate that the reproducibility and specificity of the technology is such that it is ready for practical application, as more specifically set forth in Exhibit A attached hereto. Page 12 of 17 ARTICLE 2 - DEVELOPMENT OF MPSS TECHNOLOGY 2.1 Lynx Program. Lynx shall continue to use commercially reasonable efforts in performing the Development Work, consistent with its normal business practices, with the goal of achieving the Practical Application Milestone expeditiously. Notwithstanding, Lynx makes no representations, warranty or guarantee of any kind that it can or will achieve the Practical Application Milestone at any time. 2.2 Reports and Information. No amendment is made to this Article. 2.3 Ownership of Technology. No amendment is made to this Article. 2.4 Development Payments to Lynx. Lynx acknowledges that Hoechst has paid to Lynx three million U.S. Dollars ($3,000,000), in part, for Lynx's commitment to undertake the Development Work. Lynx agrees that no additional payment by HMRI to Lynx shall be required for Lynx's continued effort to achieve the Practical Application Milestone. Within thirty days after Lynx notifies HMRI that it believes the Practical Application Milestone has been achieved and provides HMRI with the data demonstrating achievement of such milestone, HMRI will, if in agreement, so indicate its agreement or will indicate that, in HMRI's sole discretion, the data is sufficiently satisfactory to HMRI that the milestone has effectively been achieved. In either case, HMRI, in place of Hoechst, agrees to pay Lynx Eight Million U.S. Dollars ($8,000,000) within fifteen (15) days after such indication. In the event that Lynx does not achieve the Practical Application Milestone by January 15, 1998, HMRI, pursuant to Article 5.1, may terminate the Agreement, as amended hereby, or HMRI may, in its sole discretion, allow Lynx up to four months additional time (additional from January 15, 1998) to achieve the Practical Application Milestone and HMRI will indicate to Lynx the extended milestone date. If additional time beyond January 15, 1998 is granted, then the Practical Application Milestone payment shall be reduced by Seven Hundred Fifty Thousand U.S. Dollars ($750,000) for each month thereafter that Lynx does not achieve the Practical Application Milestone (with a maximum reduction of Three Million U.S. Dollars ($3,000,000). In the event that Lynx does not achieve the Practical Application Milestone by the extended milestone date, HMRI may, in its sole discretion exercisable during the thirty day period after the extended milestone date, pay Lynx the milestone payment then due ($8,000,000 less any reduction as set forth above) in lieu of the milestone payment contemplated hereby, in which case the Practical Application Milestone will be deemed to have been achieved on extended milestone date. If the Practical Application Milestone will be deemed to have been achieved on extended milestone date. If the Practical Application Milestone is not so achieved by the extended milestone date and HMRI does not elect to regard the Practical Application Milestone as having been achieved, the Agreement, as amended hereby, will terminate on the thirtieth day following the extended milestone date. Page 13 of 17 ARTICLE 3 - LYNX MPSS SERVICES No amendment is made to this Article. ARTICLE 4 - CONFIDENTIALITY No amendment is made to this Article. ARTICLE 5 - TERM AND TERMINATION 5.1 Term. The provisions of Article 5.1 of the Agreement are amended to provide for termination or expiration as contemplated by Article 2.4. 5.2 All other terms and conditions of Article 5 of the Agreement are not amended hereby. ARTICLE 6 - REPRESENTATIONS AND WARRANTIES No amendment is made to this Article. ARTICLE 7 - MISCELLANEOUS No amendment is made to this Article except that all notices to Hoechst pursuant to article 7.6 of this Agreement shall hereafter be delivered to Hoechst Marion Roussel, Inc. 2110 East Galbraith Road Cincinnati, OH 45215 Attention: General Patent Counsel IN WITNESS WHEREOF, the parties hereto have duly executed this First Amendment as of the date first written above. LYNX THERAPEUTICS, INC. HOECHST MARION ROUSSEL, INC. By: /s/ Sam Eletr By: /s/ Norbert Riedel --------------------------- ------------------------------- Title CEO Title VP, Head of Biotechnology -------------------------- ----------------------------- Date September 10, 1997 Date September 19, 1997 -------------------------- ------------------------------ Page 14 of 17 EXHIBIT A Practical Application Milestone The achievement of the Practical Application Milestone will be demonstrated by testing three components of the Lynx Method. Those components will be termed [...***...], [...***...] and [...***...]. These three components of the Lynx method will be tested in the chosen mammalian cell culture system ([...***...] and [...***...] induced with [...***...] and [...***...] according to the [...***...]) to provide sufficient support for validation of this technology. In terms of [...***...], this method must demonstrate it is at least as useful as existing methods available to HMR in which this mammalian cell culture system has been tested. To that end, it is agreed that HMR will share with Lynx the identity and expression pattern of a number of genes ([...***...] to [...***...]) known to be [...***...] in this biological paradigm and these [...***...] genes must appear in the Lynx datasets and reflect the qualitative [...***...] expected from known results as well. Should there be a discrepancy in the appearance of any of these [...***...] expressed genes, Lynx will run appropriate Northern Blot analyses to determine the existence or absence of those genes in question in that biological material. In addition, HMR will also share with Lynx the identity of all available genes from internal and external sources based on this biological model. In order to accommodate the known efficiency of the [...***...] used in the Lynx experiment, [...***...] percent of those sequences from this HMR dataset must also appear in the Lynx validation data. For this section of the validity evaluation, should any sequences from the HMR dataset not appear in the Lynx dataset, HMR will choose a maximum of [...***...] sequences which Lynx will probe against their libraries to determine their presence or absence. The presence of [...***...] of these genes during the library probe will indicate that the Practical Application Milestone has not been met. The absence of these genes in the library probe will be sufficient to remove them from further consideration in the validation experiment. All sequence data sets delivered by HMR will be analyzed to assure there is sufficient sequence information, given the expected [...***...] near the [...***...] end of the sequence, to overlap with the expected Lynx signature. In terms of [...***...], this method must provide more information than is currently available to HMR. To that end, HMR will choose [...***...] additional genes, other than those above, which are differentially expressed in the Lynx validation experiment with a minimum expression level of [...***...] copies per sequencing run [...***...] and confirm their existence through biological evaluation, i.e. northern blot. These genes will be chosen by HMR at the time the data become available from the first [...***...] sequencing runs [...***...]. In terms of [...***...] of the Lynx technology, all genes repeated in the Lynx datasets, [...***...] of expressed genes, must have, within the set of [...***...] as well as within the set of [...***...] sequencing runs, a maximum difference within any pair of that set falling within [...***...]. - ------------------ *Confidential Treatment Requested Page 15 of 17 Additionally, prior to beginning the validation sequencing, Lynx will complete its internal [...***...] sequencing experiment and forward this data to HMR. Also, HMR will hold that the validation will be met only when [...***...] sets of [...***...] sequencing runs of [...***...] and [...***...] sequencing runs of [...***...] material meet the above standards internally and across the sets as described in the validation scheme. This will provide assurance to HMR that the technology will be applicable with minimal sequencing runs. It is also agreed that when the first [...***...] sequencing runs have been completed according to the attached scheme, HMR will analyze the dataset to determine the maximal signature length necessary for the remaining validation experiment only. These results will be applied to the remaining [...***...] sequencing runs. Also, although not formally part of the validation experiment, HMR will validate the preparation of [...***...] at Lynx by performing Northern blot analyses on one [...***...] sample each from the [...***...] and [...***...] cell cultures for selected genes on this material as well as material prepared at HMR using the identical protocols. To this end, Lynx agrees to provide [...***...] of [...***...] from one each of the [...***...] and [...***...] samples. /s/ Sam Eletr /s/ Norbert Riedel - ---------------------------- ---------------------------- Lynx Therapeutics, Inc. for Hoechst Marion Roussel - ------------------ *Confidential Treatment Requested Page 16 of 17 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FORM 10-Q PERIOD ENDED SEPTEMBER 30, 1997. 1,000 9-MOS DEC-31-1997 JAN-1-1997 SEP-30-1997 3,418 0 156 0 0 3,672 7,229 (3,254) 7,846 4,030 0 0 27,189 17,478 (41,251) 7,846 0 3,681 0 0 11,826 0 0 (7,759) 0 (7,759) 0 0 0 (7,759) (2.44) (2.44)
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