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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 Quarter Ended June 30, 2001  Commission File No. 000-21429


ArQule, Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware
(State of Incorporation)
  04-3221586
(I.R.S. Employer Identification Number)

19 Presidential Way, Woburn, Massachusetts 01801
(Address of Principal Executive Offices)

(781) 994-0300
(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 / /

    Number of shares outstanding of the registrant's Common Stock as of July 31, 2001:

Common Stock, par value $.01      20,312,155 shares outstanding




ArQule, Inc.

Quarter Ended June 30, 2001

Table of Contents

 
  Page
PART I—FINANCIAL INFORMATION    

Item 1—Unaudited Consolidated Financial Statements

 

 
 
Consolidated Balance Sheet (Unaudited)
June 30, 2001 and December 31, 2000

 

3
 
Consolidated Statement of Operations (Unaudited)
Three months ended June 30, 2001 and 2000
and six months ended June 30, 2001 and 2000

 

4
 
Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, 2001 and 2000

 

5
 
Notes to Unaudited Consolidated Financial Statements

 

6

Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

 

8

Item 3—Quantitative and Qualitative Disclosures About Market Risk

 

11

PART II—OTHER INFORMATION

 

12

Item 4—Submission of Matters to a Vote of Security Holders

 

12

Signatures

 

14

2


ArQule, Inc.

Consolidated Balance Sheet (Unaudited)

(In thousands, except share data)

 
  June 30,
2001

  December 31,
2000

 
ASSETS              
Current Assets:              
  Cash and cash equivalents   $ 73,609   $ 86,079  
  Marketable securities     15,851     23,940  
  Accounts receivable     5,331     1,564  
  Accounts receivable—related parties     364     718  
  Inventory     519     400  
  Prepaid expenses and other current assets     1,564     1,326  
   
 
 
    Total current assets     97,238     114,027  
  Property and equipment, net     54,803     33,699  
  Non-current marketable securities     4,917      
  Intangible assets     50,620      
  Other assets     337     1,750  
   
 
 
    $ 207,915   $ 149,476  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable and accrued expenses   $ 5,095   $ 4,171  
  Current portion of long-term debt     7,500     3,500  
  Deferred revenue     10,495     11,976  
  Deferred revenue—related parties     144     943  
   
 
 
    Total current liabilities     23,234     20,590  
Long term debt     15,450     7,200  
Deferred revenue     1,133     1,266  
   
 
 
    Total liabilities     39,817     29,056  
   
 
 
Stockholder's Equity:              
  Common stock, $0.01 par value; 50,000,000 shares authorized; 20,307,452 and 17,072,727 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively     203     171  
  Additional paid-in capital     234,084     151,084  
  Accumulated deficit     (57,060 )   (30,683 )
  Accumulated other comprehensive income     81     29  
  Deferred compensation     (9,210 )   (181 )
   
 
 
    Total stockholders' equity     168,098     120,420  
   
 
 
    $ 207,915   $ 149,476  
   
 
 

The accompanying notes are an integral part of these unaudited financial statements.

3


ArQule, Inc.

Consolidated Statement of Operations (Unaudited)

(In thousands, except per share data)

 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
  2001
  2000
  2001
  2000
 
Revenue:                          
  Compound development revenue   $ 12,476   $ 9,543   $ 24,761   $ 17,233  
  Compound development revenue—related parties     1,196     2,541     2,852     5,239  
   
 
 
 
 
    Total revenue     13,672     12,084     27,613     22,472  
   
 
 
 
 
Costs and expenses:                          
  Cost of revenue     5,037     4,199     9,230     8,201  
  Cost of revenue—related parties     1,644     1,118     3,982     2,522  
  Research and development     6,854     4,405     12,742     8,593  
  Marketing, general and administrative     3,074     2,091     5,594     4,452  
  Stock-based compensation     1,925         3,241      
  Amortization of intangibles     1,921         3,202      
  In-process research and development             18,000      
   
 
 
 
 
    Total costs and expenses     20,455     11,813     55,991     23,768  
   
 
 
 
 
    Income (loss) from operations     (6,783 )   271     (28,378 )   (1,296 )
   
 
 
 
 
Net investment income     662     338     2,001     563  
   
 
 
 
 
  Net income (loss)   $ (6,121 ) $ 609   $ (26,377 ) $ (733 )
   
 
 
 
 
Basic net income (loss) per share   $ (0.31 ) $ 0.05   $ (1.35 ) $ (0.05 )
   
 
 
 
 
Weighted average common shares outstanding—Basic     20,030     13,520     19,548     13,362  
   
 
 
 
 
Diluted net income (loss) per share   $ (0.31 ) $ 0.04   $ (1.35 ) $ (0.05 )
   
 
 
 
 
Weighted average common shares outstanding—Diluted     20,030     14,398     19,548     13,362  
   
 
 
 
 

The accompanying notes are an integral part of these unaudited financial statements.

4


ArQule, Inc.

Consolidated Statement of Cash Flows (Unaudited)

(In Thousands)

 
  Six Months Ended
June 30,

 
 
  2001
  2000
 
Increase (Decrease) in Cash and Cash Equivalents              
Cash flows from operating activities:              
  Net loss   $ (26,377 ) $ (733 )
Adjustment to reconcile net loss to net cash used in operating activities:              
    Depreciation and amortization     4,126     3,663  
    Amortization of deferred compensation     3,404     402  
    Amortization of intangible assets     3,202      
    Purchase of in-process research and development     18,000      
    (Increase) decrease in accounts receivable     (412 )   952  
    (Increase) decrease in inventory     (119 )   142  
    Increase in prepaid expenses and other current assets     (89 )   (164 )
    Decrease in other assets     1,657     28  
    Decrease in accounts payable and accrued expenses     (3,093 )   (2,652 )
    Decrease in deferred revenue     (2,413 )   (1,368 )
   
 
 
Net cash (used in) provided by operating activities     (2,114 )   270  
   
 
 
Cash flows from investing activities:              
    Purchases of available-for-sale securities     (23,962 )   (38,527 )
    Proceeds from sale or maturity of marketable securities     27,186     40,455  
    Proceeds from tenant improvement allowance         2,212  
    Acquisitions, net of cash acquired     (1,598 )    
    Additions to property and equipment     (24,035 )   (3,651 )
   
 
 
      Net cash (used in) provided by investing activities     (22,409 )   489  
   
 
 
Cash flows from financing activities:              
    Principal payments of capital lease obligation     (1,179 )   (244 )
    Borrowings of long term debt     16,000      
    Principal payments of long-term debt     (3,750 )   (775 )
    Proceeds from issuance of common stock     982     5,120  
   
 
 
      Net cash provided by financing activities     12,053     4,101  
   
 
 
    Net (decrease) increase in cash and cash equivalents     (12,470 )   4,860  
    Cash and cash equivalents, beginning of period     86,079     4,208  
   
 
 
Cash and cash equivalents, end of period   $ 73,609   $ 9,068  
   
 
 

Supplemental disclosure of non-cash activity:

The accompanying notes are an integral part of these unaudited financial statements.

5



ArQule, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

    ArQule, Inc. is a chemistry-based drug discovery company engaged in the design, discovery, development and production of novel chemical compounds with commercial potential in the pharmaceutical and biotechnology industries. Our operations are focused on the integration of combinatorial chemistry, structure-guided drug design, computational models of drug-like compound characteristics and other proprietary technologies which facilitate the design of drug-like chemical compounds and automate the process of chemical synthesis. We use these integrated technologies to produce screening libraries and to generate and optimize drug development candidates.

2. Basis of Presentation

    We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. These consolidated financial statements should be read in conjunction with our audited financial statements and footnotes related thereto for the year ended December 31, 2000 included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2001 and as amended on May 2, 2001. The unaudited consolidated financial statements include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of June 30, 2001, and the results of our operations for the three and six months ended June 30, 2001 and 2000. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year.

3. Camitro Corporation

    On January 29, 2001, we acquired Camitro Corporation, a privately held predictive modeling company based in Menlo Park, California in a transaction accounted for as a purchase business combination. Pursuant to the terms of the merger agreement, we issued approximately 3.4 million shares of our common stock and $1.7 million in cash in exchange for all of Camitro's outstanding shares and the assumption of all of Camitro's outstanding stock options and warrants. The merger transaction was valued at $84.3 million based on our share price on the measurement date for the merger. The results of operations of Camitro, the estimated fair value of the assets acquired, and liabilities assumed are included in our financial statements from the date of acquisition.

    The purchase price was allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on our estimates of fair value on the acquisition date. The purchase price exceeded the amounts allocated to the identifiable tangible and intangible assets acquired and liabilities assumed by $29.7 million. This excess was classified as goodwill, which is being amortized on a straight-line basis over its estimated useful life of seven years.

    Approximately $18.0 million of the purchase price represents the estimated fair value of the purchased in-process research and development ("IPR&D") that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately expensed in the consolidated statement of operations upon the acquisition date. The value assigned to the IPR&D technology was comprised of the initial suite of ADMET (absorption, distribution, metabolism, elimination, toxicity) models and the upgrade suite of ADME models. The valuation of the IPR&D was determined using the discounted cash flow method. Revenue and expense projections, as well as technology assumptions, were prepared through 2008 based on information provided by Camitro's

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management. Revenue projections for each in-process development project were identified as follows: (1) revenue derived from products relying on core technology, and (2) revenue derived from projects relying on a new IPR&D project. The projected cash flows, adjusted based on probability of success, were discounted using a 50% rate for core technology and a 60% rate for in-process technology. The fair value of IPR&D was determined separately from all other acquired assets using the income approach. The in-process development projects are not expected to reach technological feasibility until sometime during 2001. Management is responsible for the assumptions used to determine the estimated fair value of the IPR&D.

4. Derivative Financial Instruments

    We have adopted the provisions of Statements of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). Our use of derivative financial instruments is limited to the utilization of Interest Rate Swap agreements. Settlement accounting is used for these interest rate swaps, whereby amounts to be paid or received under the interest rate swap agreements are accrued as interest rates change and are recognized as an adjustment to interest expense. These swaps are part of a designated hedging arrangement; therefore, a transition adjustment is not necessary.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

    We are a chemistry-based drug discovery company engaged in the design, discovery, development and production of novel chemical compounds with commercial potential in the pharmaceutical and biotechnology industries. Our operations are focused on the integration of combinatorial chemistry, structure-guided drug design, computational models of drug-like compound characteristics and other proprietary technologies which facilitate the design of drug-like chemical compounds and automate the process of chemical synthesis. We use these integrated technologies to generate and optimize drug development candidates.

    We primarily generate revenue through our collaborative agreements for production and delivery of compound arrays and other research and development services. Under most of these collaborative agreements, we are also entitled to receive milestone and royalty payments if the customer develops products resulting from the collaboration. To date, we have received two milestone payments and no royalty payments. In addition, we have established a number of joint drug discovery programs with biotechnology companies and academic institutions and are pursuing a limited number of our own internal drug discovery programs. We have not yet realized any significant revenue from our joint discovery programs with biotechnology companies and academic institutions or from our internal drug discovery programs. While we expect our revenue to increase in 2001, our financial performance may vary from expectations, including quarterly variations in performance, because levels of revenue are dependent on expanding or continuing existing collaborations, entering into additional corporate collaborations, receiving future milestones and royalty payments, and realizing value from ongoing drug discovery programs, all of which are difficult to anticipate.

    We will continue to invest in technologies that we believe will enhance and expand our capabilities in drug discovery. These continued investments in technology are intended to enhance the novelty, diversity, and medical relevance of our compound arrays and to augment the power and scope of our chemistry capabilities. In addition to investments in technology, we may invest in internal lead optimization programs with the goal of delivering clinical candidates.

    We have incurred a cumulative net loss of $57.1 million through June 30, 2001. Losses have resulted principally from costs incurred in research and development activities related to our efforts to develop our technologies, the acquisition of complementary technologies and associated administrative costs required to support these efforts. While we were profitable in fiscal year 2000, we will not be profitable in 2001 and our ability to achieve sustained profitability is dependent on a number of factors. Such factors include our ability to perform under our collaborations at the expected cost, our ability to expand or to continue our existing collaborations, the timing and cost of additional investments in technology, and the realization of value from the development and commercialization of products in which we have an economic interest. All of these factors are difficult to anticipate.

    Upon consummation of the Camitro acquisition in January 2001, we immediately charged to income $18.0 million representing the estimated fair value of purchased in-process technology that had not yet reached technological feasibility and had no alternative future use (see note 3 of notes to consolidated financial statements). The value was determined by estimating the costs to develop the purchased in-process research and development into commercially viable products, estimating the resulting net cash flows from such projects, and discounting the net cash flows back to their present values. The discount rate in each project takes into account the uncertainty surrounding the successful development and commercialization of the purchased in-process technology. The resulting net cash flows from such projects were based on our management's best estimates of revenue, cost of sales, research and development costs, selling, general and administrative costs and income taxes from such projects.

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    If these projects are not successfully developed, our revenue and profitability may be adversely affected in future periods. Additionally, the value of other intangible assets acquired may become impaired. We are continuously monitoring our development projects. Management believes that the assumptions used in the valuation of purchased in-process technology represent a reasonably reliable estimate of the future benefits attributable to the purchased in-process technology. No assurance can be given that actual results will approximate those assumed values in future periods.

    We plan to use a portion of our existing cash to develop the purchased in-process technology related to the acquisition of Camitro into commercially viable products. This development primarily consists of completion of all planning, designing, prototyping, high-volume manufacturing verification and testing activities that are necessary to establish that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Management's estimate of the costs to be incurred to develop the purchased in-process technology into commercially viable products has not materially changed from the estimates disclosed at the time of the acquisition.

    This report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements reflecting management's current expectations regarding our future performance. These statements can generally be identified by the use of forward-looking words such as "believe," "expect," "plan," "intend," "may," will," "should," "anticipate," or similar words and phrases. Forward-looking statements reflect management's current expectations, which are based on certain assumptions regarding revenue growth and profitability, the progress of product development efforts under collaborative agreements, the executions of new collaborative agreements, our development of technology acquired from Camitro, and other factors relating to our growth. Such expectations may not materialize, and therefore actual results could differ materially from those anticipated, if, among other things, product development efforts are delayed or suspended, negotiations with potential collaborators are delayed or unsuccessful, or if other assumptions prove to be incorrect. For a complete description of risks and uncertainties that may cause actual results to differ materially from management's current expectations, please refer to Exhibit 99.1 to our Annual Report on Form 10-K filed on March 22, 2001 and as amended on May 2, 2001. We will not update any forward-looking statements to reflect events or circumstances that occur after the date of that report, except as may be required by law.

Results of Operations

Three and Six Months Ended June 30, 2001 and 2000

    Revenue.  Our revenue for the three months ended June 30, 2001 increased $1.6 million or approximately 13 percent to $13.7 million from $12.1 million for the same period in 2000. Revenue was $27.6 million and $22.5 million for the six months ended June 30, 2001 and 2000, respectively. These increases are primarily due to incremental fees received for delivery of additional compounds to Pfizer Inc and Bayer AG.

    Cost of revenue.  Our cost of revenue for the three months ended June 30, 2001 increased $1.4 million or approximately 26 percent to $6.7 million from $5.3 million for the same period in 2000. Cost of revenue was $13.2 million and $10.7 million for the six months ended June 30, 2001 and 2000, respectively. These increases are primarily attributable to increased costs for producing Custom Array sets for Pfizer Inc and Bayer AG in concert with our incremental deliverables. Our gross margins were 52 percent for each of the six month periods ended June 30, 2001 and 2000.

    Research and development expenses.  Our research and development expenses for the three months ended June 30, 2001 increased $2.5 million or approximately 56 percent to $6.9 million from

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$4.4 million for the same period in 2000. Research and development expenses were $12.7 million and $8.6 million for the six months ended June 30, 2001 and 2000, respectively. This increase is the result of our ongoing efforts to augment and enhance our chemistry capabilities and proprietary complementary technologies, including increased personnel, as we expand our lead optimization and drug discovery programs.

    Marketing, general and administrative expenses.  Our marketing, general and administrative expenses for the three months ended June 30, 2001 increased $1.0 million or approximately 47 percent to $3.1 million from $2.1 million for the same period in 2000. Marketing, general and administrative expenses were $5.6 million and $4.5 million for the six months ended June 30, 2001 and 2000, respectively. These increases were primarily associated with increased administrative costs to support our growth during 2001, particularly salaries and recruiting expenses related to growth in the number of employees.

    Merger related charges.  Our merger related charges for the three months ended June 30, 2001 were $3.8 million, comprised of $1.9 million for stock-based compensation and $1.9 million for the amortization of goodwill and other intangibles. For the six months ended June 30, 2001, our total merger related charges amounted to $6.4 million, i.e. recognition of $3.2 million for aggregate stock-based compensation and $3.2 million in total amortization of goodwill and other intangibles. In the first quarter of 2001, we recognized a one-time charge of $18.0 million for in-process research and development.

    Net investment income.  Our net investment income for the three months ended June 30, 2001 increased $0.4 million or approximately 96 percent to $0.7 million from $0.3 million for the same period in 2000. Net investment income was $2.0 million and $0.6 million for the six months ended June 30, 2001 and 2000, respectively. Interest income rose in 2001 primarily due to our higher average cash balance as a result of our sale of common stock in the fourth quarter of 2000.

    Net income (loss).  Our net loss for the three months ended June 30, 2001 was $(6.1) million, compared to net income of $0.6 million for the same period in 2000. Our net loss was $(26.4) million and $(0.7) million for the six months ended June 30, 2001 and 2000, respectively. Our net loss in 2001 is primarily attributable to $24.4 million in merger-related amortization and charges from our acquisition of Camitro (approximately $3.8 million in the three months ended June 30, 2001) and our increased investment in research and development as we enhance our drug discovery platform.

Liquidity and Capital Resources

    At June 30, 2001, we held cash, cash equivalents and marketable securities (including non-current marketable securities) with a value of $94.4 million, compared to $110.0 million at December 31, 2000. Our working capital at June 30, 2001 was $74.0 million. We have funded operations through June 30, 2001 with sales of common stock and payments from corporate collaborators.

    For the six months ended June 30, 2001, our net cash flow from operating activities decreased by $2.4 million compared to the same period in 2000. This change reflected the difference between a $2.1 million use of cash (negative flow) in operating activities for the six months ended June 30, 2001 and a $0.3 million source of cash from operating activities (positive flow) for the same period in 2000. The difference is a consequence primarily of the timing of payments from our corporate collaborations.

    For the six months ended June 30, 2001, our net cash flow from investing activities decreased by $22.9 million compared to the same period in 2000. This change reflected the difference between a $22.4 million use of cash (negative flow) in investing activities for the six months ended June 30, 2001 and a $0.5 million cash provided (positive flow) from investing activities for the same period in 2000. The principal reason for this change was our purchase of our facility and the adjacent lot in Woburn, Massachusetts for $20.5 million in March 2001.

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    For the six months ended June 30, 2001, our net cash flow from financing activities increased by $8.0 million compared to the same period in 2000. This change reflected the difference between $12.0 cash provided (positive flow) by investing activities for the six months ended June 30, 2001 and $4.0 cash provided (positive flow) from investing activities for the same period in 2000. The principal reason for this change was that, in March 2001, we amended and extended our term loan agreement with Fleet National Bank to borrow an additional $16.0 million in order to finance our facility and land purchase. Principal amounts are payable in 16 equal quarterly installments beginning on April 1, 2001. Interest payments are made monthly in arrears beginning on the first day of the month following commencement of the amended agreement. Interest accrues at the rate of one month LIBOR plus 1.75%. At June 30, 2001, our average interest rate on this additional debt was approximately 6.01%. This constituted the full utilization of our existing credit facility with Fleet.

    We expect that our available cash and marketable securities, together with operating revenues and investment income will be sufficient to finance our working capital and capital requirements for the foreseeable future. Our cash requirements may vary materially from those now planned depending upon the results of our drug discovery and development strategies, our ability to enter into any additional corporate collaborations in the future and the terms of such collaborations, the results of research and development, the need for currently unanticipated capital expenditures, competitive and technological advances, acquisitions and other factors. We cannot guarantee that will be able to obtain additional customers for our products and services, or that such products and services will produce revenues adequate to fund our operating expenses. If we experience increased losses, we may have to seek additional financing from public or private sales of our securities, including equity securities. There can be no assurance that additional funding will be available when needed or on acceptable terms.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We own financial instruments that are sensitive to market risk as part of our investment portfolio. Our investment portfolio is used to preserve our capital until it is used to fund operations, including our research and development activities. None of these market-risk sensitive instruments are held for trading purposes. We invest our cash primarily in money market mutual funds and U.S. government and other investment grade debt securities. These investments are evaluated quarterly to determine the fair value of the portfolio. Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity. We have implemented policies regarding the amount and credit ratings of investments. Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk. Additionally, we entered into two interest rate swap agreements with Fleet National Bank primarily to reduce the impact of changes in interest rates on our cash flows. The impact on our financial position and results of operations from likely changes in interest rates should not be material.

    See notes 2 and 7 to the consolidated financial statements in our 2000 Annual Report on Form 10-K filed March 22, 2001, and as amended on May 2, 2001, for a description of our use of derivatives and other financial instruments. The carrying amounts reflected in the consolidated balance sheet of cash and cash equivalents, trade receivables, and trade payables approximates fair value at June 30, 2001 due to the short-term maturities of these instruments.

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ArQule, Inc.

PART II—OTHER INFORMATION

Item 1—Legal Proceedings. None.

Item 2—Changes in Securities and Use of Proceeds. None.

Item 3—Defaults Upon Senior Securities. None.

Item 4—Submission of Matters to a Vote of Security Holders

    At the Annual Meeting of Stockholders held on May 17, 2001, our stockholders voted as follows:


Total Votes "For" Laura Avakian   14,319,988
Total Votes "Withheld" for Laura Avakian   48,687

Total Votes "For" Werner Cautreels, Ph.D

 

14,319,988
Total Votes "Withheld" for Werner Cautreels, Ph.D.   48,687

Total Votes "For" Tuan Ha-Ngoc

 

14,319,988
Total Votes "Withheld" for Tuan Ha-Ngoc   48,687

    The proposal received a plurality of the votes cast by the stockholders entitled to vote thereon and, therefore, Ms. Avakian, Dr. Cautreels, and Dr. Ha-Ngoc were re-elected to the Board of Directors.

    Ariel Elia, L. Patrick Gage, Ph.D., Dr. Stephen A. Hill and Michael Rosenblatt, M.D. all continued their terms in office.


Total Votes "For" the Proposal   14,021,076
Total Votes "Against" the Proposal   335,758
Abstentions   11,841

    The proposal received the affirmative vote of a majority of the shares of common stock outstanding and, therefore, was adopted.


Total Votes "For" the Proposal   6,504,423
Total Votes "Against" the Proposal   3,377,311
Abstentions   11,335
Broker Non-Votes   4,475,606

    The proposal received the affirmative vote of a majority of the shares of common stock present or represented at the meeting and entitled to vote thereon and, therefore, was adopted.

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Total Votes for the Proposal   9,759,656
Total Votes Against the Proposal   123,998
Abstentions   9,435
Broker Non-Votes   4,475,606

    The proposal received the affirmative vote of a majority of the shares of common stock present or represented at the meeting and entitled to vote thereon and, therefore, was adopted.

Item 5—Other Information. None.

Item 6(a)—Exhibits:

Exhibits

  Description
10.1*   Amended and Restated Research and Development Agreement between Sankyo Co., LTD. and ArQule dated April 2, 2001. Filed herewith.

    *Certain confidential material contained in this document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Item 6(b)—Reports on Form 8-K. None.

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ArQule, Inc.


SIGNATURES

    Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    ARQULE, INC.

Date: August 13, 2001

 

 

 

/s/ 
DAVID C. HASTINGS   
David C. Hastings
(Vice President, Chief Financial Officer and Treasurer)

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ArQule, Inc.
Exhibit Index

Item 6(a)—Exhibits:

Exhibit No.

  Description

10.1*   Amended and Restated Research and Development Agreement between Sankyo Co., LTD. and ArQule dated April 2, 2001. Filed herewith.

*Certain confidential material contained in this document has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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QuickLinks

ArQule, Inc. Quarter Ended June 30, 2001 Table of Contents
ArQule, Inc. Consolidated Balance Sheet (Unaudited) (In thousands, except share data)
ArQule, Inc. Consolidated Statement of Operations (Unaudited) (In thousands, except per share data)
ArQule, Inc. Consolidated Statement of Cash Flows (Unaudited) (In Thousands)
ArQule, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ArQule, Inc.
ArQule, Inc.
SIGNATURES
ArQule, Inc. Exhibit Index