<PAGE>
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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27150
__________________
PATHOGENESIS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 91-1542150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
201 ELLIOTT AVENUE WEST, SEATTLE, WASHINGTON 98119
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 467-8100
__________________
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
--- ---
On August 7, 1998, the registrant had an aggregate of 16,258,561 shares of
Common Stock issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
PATHOGENESIS CORPORATION
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents................................................ $ 1,117,730 $ 5,171,591
Investment securities.................................................... 66,098,298 73,869,541
Accounts receivable, net................................................. 5,230,918 --
Interest receivable...................................................... 553,718 656,396
Inventories.............................................................. 8,994,883 4,935,758
Other.................................................................... 1,856,035 2,556,409
------------ -------------
Total current assets................................................ 83,851,582 87,189,695
------------ -------------
Restricted securities...................................................... 675,000 675,000
Property and equipment, at cost:
Leasehold improvements................................................... 8,494,149 7,941,149
Furniture and equipment.................................................. 10,715,505 8,805,566
------------ -------------
19,209,654 16,746,715
Less accumulated depreciation and amortization........................... 8,440,814 7,138,050
------------ -------------
Net property and equipment.......................................... 10,768,840 9,608,665
------------ -------------
License rights............................................................. 15,111,428 --
Other assets, net.......................................................... 106,292 122,189
------------ -------------
Total assets............................................................. $110,513,142 $ 97,595,549
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 520,742 $ 1,168,865
Compensation and benefits................................................ 1,300,264 1,461,167
Clinical development costs............................................... 2,380,223 2,885,107
Other accrued expenses................................................... 4,464,064 2,591,660
Current portion of long-term liability................................... 5,056,603 --
------------ -------------
Total current liabilities........................................... 13,721,896 8,106,799
------------ -------------
Long-term liability, net of current portion................................ 4,770,381 --
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
1,000,000 shares; none issued and outstanding........................... -- --
Common stock, $0.001 par value.
Authorized 60,000,000 shares; 16,257,636 shares and 16,238,649 shares
issued and outstanding at June 30, 1998 and December 31, 1997,
respectively........................................................... 16,258 16,239
Additional paid-in capital............................................... 191,891,263 191,613,454
Deferred compensation.................................................... (1,095,892) (1,295,145)
Accumulated other comprehensive income (loss) --
unrealized gain (loss) on investment securities......................... 66,012 (22,635)
Accumulated deficit...................................................... (98,856,776) (100,823,163)
------------ -------------
Total stockholders' equity............................................... 92,020,865 89,488,750
------------ -------------
Total liabilities and stockholders' equity............................... $110,513,142 $ 97,595,549
============ =============
</TABLE>
See accompanying notes.
<PAGE>
PATHOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------------------------------------
1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales.............................. $13,561,579 $ -- $28,088,610 $ --
Grants and royalties............... 88,049 162,173 225,915 248,411
----------- ----------- ----------- ------------
Total revenues................ 13,649,628 162,173 28,314,525 248,411
Operating expenses:
Cost of sales...................... 2,112,600 -- 4,782,416 --
Research and development........... 6,932,011 6,194,417 13,692,415 12,017,129
Selling, general and administrative 4,604,304 2,014,358 9,952,534 3,355,004
----------- ----------- ----------- ------------
Total operating expenses...... 13,648,915 8,208,775 28,427,365 15,372,133
----------- ----------- ----------- ------------
Operating income (loss) 713 (8,046,602) (112,840) (15,123,722)
----------- ----------- ----------- ------------
Other income (expense):
Investment income, net............. 1,030,621 1,612,587 2,162,264 2,494,640
Other expense...................... (49,537) (22,500) (83,037) (53,321)
----------- ----------- ----------- ------------
Net other income.............. 981,084 1,590,087 2,079,227 2,441,319
----------- ----------- ----------- ------------
Net income (loss)............. $ 981,797 $(6,456,515) $ 1,966,387 $(12,682,403)
=========== =========== =========== ============
Income (loss) per common share:
Basic.............................. $0.06 $(0.40) $0.12 $(0.83)
=========== =========== =========== ============
Diluted............................ $0.06 $(0.40) $0.11 $(0.83)
=========== =========== =========== ============
Weighted average common shares
outstanding:
Basic.............................. 16,252,516 16,078,995 16,247,857 15,236,151
Diluted............................ 17,096,216 16,078,995 17,117,247 15,236,151
</TABLE>
See accompanying notes.
2
<PAGE>
PATHOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss)................................................... $ 1,966,387 $(12,682,403)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization..................................... 1,302,764 956,284
Amortization of discount on long-term liability................... 48,890 --
Amortization of investment premiums (discounts)................... -- 33,082
Compensation expense from stock options........................... 199,253 99,626
Loss on sale of property and equipment............................ -- 8,321
Change in certain assets and liabilities:
Accounts receivable............................................. (5,230,918) --
Interest receivable............................................. 102,678 (459,011)
Inventories..................................................... (4,059,125) (750,126)
Other current assets............................................ 700,374 (126,419)
Other assets, net............................................... 15,897 (24,716)
Accounts payable................................................ (648,123) 46,960
Compensation and benefits....................................... (160,903) 38,528
Clinical development costs...................................... (504,884) 142,236
Other accrued expenses.......................................... 1,872,404 (53,342)
Long-term liability............................................. -- (98,273)
------------ ------------
Net cash used in operating activities........................ (4,395,306) (12,869,253)
------------ ------------
Cash flows from investing activities:
Purchases of investment securities.................................. (34,355,734) (83,806,802)
Sales of investment securities...................................... 42,215,624 35,475,726
Purchases of property and equipment................................. (2,462,939) (2,384,304)
Proceeds from sale of furniture and equipment....................... -- 2,000
Purchase of license rights.......................................... (5,333,334) --
------------ ------------
Net cash provided (used) in investing activities............. 63,617 (50,713,380)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.......................... -- 53,811,964
Proceeds from exercise of stock options............................. 277,828 --
------------ ------------
Total cash provided by financing activities.................. 277,828 53,811,964
------------ ------------
Net decrease in cash and cash equivalents.................... (4,053,861) (9,770,669)
Cash and cash equivalents at beginning of period...................... 5,171,591 14,785,818
------------ ------------
Cash and cash equivalents at end of period............................ $ 1,117,730 $ 5,015,149
============ ============
Supplemental schedule of noncash investing and financing activities -
Seller-financed acquisition of license rights....................... 9,778,094 --
</TABLE>
See accompanying notes.
3
<PAGE>
PATHOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of PathoGenesis
Corporation and subsidiary (Company) and related notes have been prepared in
accordance with Securities and Exchange Commission rules and regulations for
interim financial statements. As permitted by those rules and regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying consolidated financial
statements and these notes should be read in conjunction with the Company's
audited consolidated financial statements for 1997 and the related notes
included in the Company's annual report on Form 10-K.
The information furnished reflects, in the opinion of management, all
adjustments necessary for a fair presentation of the results for the interim
periods presented. Interim results are not necessarily indicative of results for
a full year.
(2) REVENUES
Product sales are recognized when product is shipped. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. Product sales are recorded net of reserves for estimated
chargebacks, returns, discounts and rebates. Allowance for discounts, returns,
bad debts, chargebacks and rebates, which are netted against accounts
receivable, totaled $1,250,983 at June 30, 1998.
Revenues received under grant and royalty agreements are recognized based
on the terms of the underlying agreements.
(3) INVENTORIES
Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market. Inventories consisted of the following:
June 30, 1998 December 31, 1997
------------- -----------------
Finished goods $1,042,088 $2,096,300
Work in progress 3,620,655 733,068
Raw materials and supplies 4,332,140 2,106,390
---------- ----------
$8,994,883 $4,935,758
========== ==========
4
<PAGE>
(4) COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Basic income (loss) per share
computation:
Numerator:
Net income (loss) $ 981,797 $(6,456,515) $ 1,966,387 $(12,682,403)
----------- ----------- ----------- ------------
Denominator:
Weighted average common shares 16,252,516 16,078,995 16,247,857 15,236,151
----------- ----------- ----------- ------------
Basic income (loss) per share
$ 0.06 $ (0.40) $ 0.12 $ (0.83)
=========== =========== =========== ============
Diluted income (loss) per share
computation:
Numerator:
Net income (loss) $ 981,797 $(6,456,515) $ 1,966,387 $(12,682,403)
----------- ----------- ----------- ------------
Denominator:
Weighted average common shares 16,252,516 16,078,995 16,247,857 15,236,151
Effect of dilutive securities:
Common stock warrants 33,952 -- 34,648 --
Stock options 809,748 -- 834,742 --
----------- ----------- ----------- ------------
Dilutive potential common shares 843,700 -- 869,390 --
----------- ----------- ----------- ------------
Denominator for diluted income
(loss) per share 17,096,216 16,078,995 17,117,247 15,236,151
----------- ----------- ----------- ------------
Diluted income (loss) per share $ 0.06 $ (0.40) $ 0.11 $ (0.83)
=========== =========== =========== ============
</TABLE>
Options and warrants to purchase 604,055 and 1,984,102 shares of common stock
that were outstanding during the second quarter of 1998 and 1997, respectively,
were not included in the computation of diluted income (loss) per share because
the representative share increments would be antidilutive. Similarly, options
and warrants to purchase 569,455 and 2,021,685 shares of common stock that were
outstanding during the six-month period ended June 30, 1998 and 1997,
respectively, were not included in the computation of diluted income (loss) per
share.
(5) COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which establishes
new rules for the reporting and display of comprehensive income and its
components. Statement 130 requires companies to report, in addition to net
income, other components of comprehensive income, including unrealized gains or
losses on available-for-sale securities. During the second quarters of 1998 and
1997, total comprehensive income (loss) amounted to $1,017,866 and $(6,372,139),
respectively. Total comprehensive income (loss) for the six-month periods ended
June 30, 1998 and 1997 amounted to $2,055,034 and $(12,699,357), respectively.
Adoption of this disclosure standard had no effect on the Company's results of
operations or financial position as reported in the consolidated financial
statements.
5
<PAGE>
(6) ACQUISITION OF LICENSE RIGHTS
Effective May 29, 1998, the Company entered into an agreement with the
Cystic Fibrosis Foundation (the "Foundation") to acquire all of the Foundation's
rights in TOBI(R) (tobramycin solution for inhalation). In 1994, the Company
entered into license agreements with the Foundation and another party to obtain
worldwide rights to TOBI. Pursuant to its license agreement with the Foundation,
the Company was required to make royalty payments of 2.5% on net product sales,
through the patent expiration date of TOBI. The Company has acquired the
Foundation's rights in TOBI for payment of $16 million, to be made in three
equal annual installments. The first payment was made on May 29, 1998, the
closing date of the agreement.
The purchase amount has been recorded on the Company's consolidated balance
sheet at June 30, 1998, at the net present value of the required cash payments.
The value of the license rights will be amortized to cost of sales over the
remaining life of the TOBI patent.
A corresponding discounted liability has been recorded for the remaining
installment payment obligations to the Foundation. The discount is being
amortized to interest expense over the two-year installment term, using the
effective interest method. The $10,666,666 portion of the purchase price payable
after the closing date is secured by an irrevocable standby letter of credit
issued by a bank. This letter of credit is secured by the Company's investment
securities.
(7) EMPLOYEE STOCK PURCHASE PLAN
On June 3, 1998, the Company adopted an Employee Stock Purchase Plan. The
plan, which became effective on July 1, 1998, provides substantially all
employees an opportunity to purchase shares of its common stock through payroll
deductions of up to 15% of eligible compensation. Semi-annually, on December 31
and June 30, participant account balances are used to purchase shares of stock
at the lesser of 85% of the fair market value of shares on the date of
subscription (grant date) or date of purchase (exercise date). The aggregate
price for shares purchased by an employee may not exceed $25,000 annually
(subject to limitations imposed by the Internal Revenue Code). The Employee
Stock Purchase Plan expires on June 30, 2008. A total of 200,000 shares are
available for purchases under the plan.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements in this quarterly report on Form 10-Q that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements regarding future
revenues, expenses and profits. These forward-looking statements are subject to
known and unknown risks, uncertainties or other factors which may cause the
actual results of the Company to be materially different from historical results
or any results expressed or implied by the forward-looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to, uncertainties related to the fact that PathoGenesis began commercial
operations only recently, its dependence on TOBI, third party reimbursement and
product pricing, government regulation, drug development and clinical trials,
competition and alternative therapies. Further information regarding these and
other factors is discussed in reports filed from time to time by PathoGenesis
with the Securities and Exchange Commission.
OVERVIEW
The Company was organized in December 1991 to develop novel drugs to treat
serious, chronic human infectious diseases where there is a significant need for
improved therapy. From its incorporation through the end of 1997, the Company
was in a development stage and engaged primarily in research, development,
clinical trials and administrative activities.
The Company began marketing its first drug, TOBI(R) (tobramycin solution
for inhalation), in the U.S. in January 1998. TOBI is a stable, premixed,
proprietary formulation of the antibiotic tobramycin for delivery by inhalation
using a nebulizer. The drug is indicated for the management of cystic fibrosis
patients with Pseudomonas aeruginosa (P. aeruginosa). In March 1998, the Company
filed for approval to market TOBI to cystic fibrosis patients in Canada. It
expects to apply for regulatory approval in the United Kingdom in the fourth
quarter of 1998.
Currently, the Company is investigating TOBI in patients with
bronchiectasis (a form of severe chronic bronchitis) and tuberculosis.
PathoGenesis also is developing rifalazil (PA-1648), an oral drug candidate that
may be a potential replacement for the antibiotic rifampin in tuberculosis
treatment. The Company hopes to report the results of all three Phase II
clinical trials by year-end. In addition, the Company is developing other
inhaled and oral drug candidates for lung infections. The Company has received a
patent for PA-1420, the second entry in its planned portfolio to treat chronic
lung infections.
In May 1998, the Company acquired all rights of the Cystic Fibrosis
Foundation (the "Foundation") in TOBI. In 1994, the Company obtained an
exclusive worldwide license to the use of an aerosol tobramycin solution from
the Foundation and another party. The Foundation's rights in TOBI were acquired
in return for a series of payments to the Foundation over a two-year period. The
acquisition of these rights is expected to immediately improve the gross margins
of the Company, because royalties will no longer have to be paid to the
Foundation on sales of TOBI.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
During the second quarter of 1998, the Company generated income from
operations for the first time since incorporation. The sales of TOBI in the
second quarter were in line with Company expectations. The operating results
reflected a planned increase in operating expenses and costs incurred in
manufacturing and marketing TOBI, compared to the second quarter of 1997. In
addition, the Company continued to engage in research and development of
potential products. Based on the current TOBI sales, the Company anticipates
that it will be profitable for 1998, although there can be no assurance that the
Company will achieve a profit.
7
<PAGE>
Revenues. Revenues in the second quarter of 1998 totaled $13,649,628,
including $13,561,579 from TOBI sales. Research grants and royalties generated
the balance of $88,049. Revenues for the corresponding period in 1997 were
$162,173, which were entirely generated by research grants and royalties. The
Company expects TOBI sales in the third quarter to be in the same range as the
second quarter. Because cystic fibrosis patients are less likely to visit their
doctors in the summer, the Company expects fewer new patients to begin taking
TOBI in mid-year. Therefore, more new patients are expected to start treatment
with TOBI in the fall and winter, which may strengthen fourth quarter sales.
Longer-term data on TOBI in cystic fibrosis patients is scheduled to be
presented at the North American Cystic Fibrosis Conference in October, which
also could improve fourth quarter sales of TOBI. However, there can be no
assurance that actual sales of TOBI will meet the Company's expectations.
Operating Expenses. The Company incurred total operating expenses of
$13,648,915 in the second quarter of 1998, an increase of $5,440,140 from
$8,208,775 for the corresponding period in 1997. The cost of manufacturing and
marketing TOBI accounted for the major part of the increase. In addition,
research and development expenses increased as the Company continued to develop
new drug candidates. Operating expenses should continue to rise moderately in
the remainder of 1998 as production and marketing of TOBI continue, and research
and development efforts progress.
The cost of sales was $2,112,600 in the second quarter of 1998. The Company
did not have any such cost in the corresponding period in 1997. Selling, general
and administrative expenses increased to $4,604,304 in the second quarter of
1998 from $2,014,358 for the corresponding period in 1997. The increase in those
expenses primarily reflects the costs associated with supporting a sales and
marketing effort, as well as additions in administrative staff.
Research and development expense for the second quarter of 1998 increased
by $737,594 to $6,932,011 from $6,194,417 for the corresponding period in 1997.
Such increase was primarily due to ongoing Phase II clinical trials of TOBI for
bronchiectasis and tuberculosis, as well as a Phase II clinical trial of
rifalazil.
Net Income (Loss). The Company generated operating income of $713 in the
second quarter of 1998, compared to an operating loss of $8,046,602 for the
corresponding period in 1997, due to TOBI sales revenues. Including net other
income, the Company had net income of $981,797, compared to a net loss of
$6,456,515 for the second quarter of 1997. Other income primarily represents
income from the Company's investment securities. In the second quarter of 1998,
net investment income decreased by $581,966 to $1,030,621 from $1,612,587 for
the corresponding period in 1997. The decrease was due primarily to lower
average invested cash balances.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues. Revenues in the first six months of 1998 totaled $28,314,525,
including $28,088,610 from TOBI sales. Research grants and royalties generated
the balance of $225,915. Revenues for the corresponding period in 1997 were
$248,411, which were entirely generated by research grants and royalties.
Operating Expenses. The Company incurred total operating expenses of
$28,427,365 in the first six months of 1998, an increase of $13,055,232 from
$15,372,133 for the corresponding period in 1997. The cost of manufacturing and
marketing TOBI accounted for the majority of the increase.
The cost of sales was $4,782,416 in the first half of 1998. The Company did
not have any such cost in the corresponding period in 1997. Selling, general and
administrative expenses increased to $9,952,534 in the first six months of 1998
from $3,355,004 for the corresponding period in 1997. The increase in those
expenses reflects the costs associated with establishing and supporting a sales
and marketing effort.
Research and development expense for the first half of the year increased
by $1,675,286 to $13,692,415 in 1998 from $12,017,129 for the corresponding
period in 1997. Such increase was primarily due to ongoing Phase II clinical
trials of TOBI for bronchiectasis and tuberculosis, as well as a Phase II
clinical trial of rifalazil.
8
<PAGE>
Net Income (Loss). Operating loss decreased significantly in the first
half of 1998, to $112,840 from $15,123,722 for the corresponding period in 1997,
due to TOBI sales. Including net other income, the Company had net income of
$1,966,387, compared to a net loss of $12,682,403 for the first six months of
1997. Other income primarily represents income from the Company's investment
securities. In the first half of 1998, net investment income decreased by
$332,376 to $2,162,264 from $2,494,640 for the corresponding period in 1997. The
decrease was due primarily to lower average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
From its incorporation through 1997, the Company financed its operations
primarily by the issuance of equity securities.
The Company's combined cash, cash equivalents and investment securities
totaled $67,216,028 at June 30, 1998, a decrease of $11,825,104 from the balance
at December 31, 1997. The primary uses of cash and investments during the six
months ended June 30, 1998, were to finance the Company's operations and working
capital requirements. Accounts receivable and inventories increased by
$5,230,918 and $4,059,125, respectively, in the first half of 1998. Net cash
used in operating activities totaled $4,395,306 for the six months ended June
30, 1998, compared to $12,869,253 in the six months ended June 30, 1997. The
decrease resulted principally from cash generated from sales of TOBI, which was
launched at the beginning of 1998. In addition, the Company made the first
installment payment for the rights in TOBI acquired from the Cystic Fibrosis
Foundation. At June 30, 1998, the Company had working capital of $70,129,686 and
a current ratio of 6.11 to 1.
The Company is reviewing its computer systems to ensure that Year 2000
transactions can be processed properly and that modifications and replacements,
where necessary, can be obtained in a timely manner. The cost is not expected to
have a significant impact on the ongoing results of operations.
The Company plans to continue its policy of investing excess funds in
government securities and investment grade, interest-bearing securities with an
expected maturity of one-and-one-half years or less.
9
<PAGE>
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
The Company's annual meeting was held on June 3, 1998. The following
summarizes the votes at the meeting:
Matter For Withheld
- ------ --- --------
ELECTION OF CLASS III DIRECTORS:
Talat M. Othman 14,690,158 7,748
Eugene L. Step 14,692,441 5,465
Fred Wilpon 14,690,308 7,598
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
APPROVAL OF THE COMPANY'S 14,384,415 274,294 39,197 -
EMPLOYEE STOCK PURCHASE PLAN
RATIFICATION OF THE APPOINTMENT OF 14,669,761 13,688 14,457 -
KPMG PEAT MARWICK LLP AS
INDEPENDENT ACCOUNTANTS FOR THE
COMPANY FOR 1998
</TABLE>
ITEM 5 OTHER INFORMATION
Under amended Rule 14a-4(c) of the Securities and Exchange Commission's
proxy rules, if a shareholder who intends to present a proposal at the 1999
annual meeting of shareholders (other than in accordance with Rule 14a-8 of the
proxy rules) does not notify the Company of the proposal on or before March 5,
1999, management proxies may use their discretionary voting authority to vote on
the proposal when the proposal is brought before the annual meeting, without the
Company advising in its 1999 proxy statement on the nature of the proposal or
how it intends to exercise its discretion.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description of Exhibit
-------------- ----------------------
10.30 Agreement dated as of May 29, 1998 between
the Company and the Cystic Fibrosis
Foundation.
27.1 Financial Data Schedule (for EDGAR filing
only)
(b) REPORTS ON FORM 8-K
NONE
11
<PAGE>
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, on August 12, 1998.
PATHOGENESIS CORPORATION
By: /s/ Wilbur H. Gantz
---------------------------------------------
Wilbur H. Gantz
Chairman and Chief Executive Officer
By: /s/ Alan R. Meyer
---------------------------------------------
Alan R. Meyer
Executive Vice President and
Chief Financial Officer
12
<PAGE>
EXHIBIT 10.30
AGREEMENT
---------
This Agreement is made and entered into as of the 29th day of May, 1998 by
and between PathoGenesis Corporation, a Delaware corporation, having its
principal place of business at 201 Elliott Avenue West, #150, Seattle,
Washington 98119 ("Licensee"), and the Cystic Fibrosis Foundation, a Delaware
not-for-profit corporation, having its principal place of business at 6931
Arlington Road, Bethesda, MD 20814 ("Licensor").
WHEREAS, Licensor and Licensee entered into the License Agreement as of
January 1, 1994 (the "License Agreement") relating to TOBI(TM) (tobramycin
solution for inhalation) pursuant to which Licensor granted to Licensee an
exclusive license to use the Patents, Research and Technology to manufacture,
use, sell and exploit the Product (as such capitalized terms are defined in the
License Agreement) in exchange for certain royalty payments (the "Royalties")
and a lump sum payment provided for in the License Agreement; and
WHEREAS, Licensor wishes to sell to Licensee and Licensee wishes to acquire
from Licensor pursuant to this Agreement all of its rights regarding the subject
matter of the License Agreement, and the parties wish to terminate the License
Agreement upon the terms and for the consideration hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
Section 1. Definition. Capitalized terms not otherwise defined in this
Agreement shall have the same definition as in the License Agreement.
Section 2. Purchase and Sale
2.1 Closing Date. On the Closing Date (as defined in Section 2.3
hereof), (a) Licensor shall sell, assign and convey to Licensee, and Licensee
shall purchase from Licensor in exchange for the Purchase Price specified in
Section 2.4 of this Agreement, all of Licensor's
<PAGE>
rights, title and interest in all Patent, Product, Research and Technology
rights now or heretofore owned or held by Licensor and licensed, underlying or
relating to the License Agreement (the "Rights"); (b) Licensor will deliver to
Licensee (i) a bill of sale conveying the Rights, free and clear of any lien,
claim or encumbrance and (ii) any document evidencing Licensor's ownership of or
interest in the Rights; and (c) the License Agreement will terminate except to
the extent set forth in Section 2.2 below.
2.2 Terminated Royalty Rights and Obligations; Post-Closing
Indemnification. For the period April 1 through the Closing Date, in lieu of
the Royalties otherwise payable pursuant to Section 4.1 of the License Agreement
on or before August 15, 1998 Licensee will pay to Licensor a royalty equal to
1.25% of Net Revenues from Product sold during the three months ending June 30,
1998. Royalties payable for the period January 1, 1998 through March 31, 1998
also shall be paid by Licensee to Licensor (computed at the 2.5% rate specified
in the License Agreement) on such date. Licensor's right of inspection under
the License Agreement with respect to the books of account and records of
Licensee for the period through June 30, 1998 shall survive the termination of
this Agreement. Licensee assumes responsibility for and shall defend, indemnify
and hold Licensor, its directors, officers, managers, agents and employees
harmless from any and all liability, losses, expenses (including reasonable
attorneys' fees), damages, assessments and claims, whether before or after the
Closing Date arising out of or resulting from (i) any use, sale or disposition
of Product by Licensee or by others receiving or sublicensing Product directly
or indirectly from Licensee, including Licensee's affiliates, agents,
representatives or sublicensees, (ii) the practice by Licensee of any subject
matter covered by the licensed patent, Research and/or Technology or (iii) any
act or omission of Licensee giving rise to a claim of a third party relating to
the License Agreement. Licensee will maintain product
2
<PAGE>
liability insurance with respect to the Product, commensurate with the
reasonable standards of the industry, if reasonably practicable. Upon written
request from Licensor, Licensee will provide Licensor with evidence of such
insurance coverage.
2.3 Closing. The Closing of the transfer contemplated hereby (the
"Closing") shall take place at Licensee's offices, at 5215 Old Orchard Road,
Suite 900, Skokie, Illinois 60077 on or before June 1, 1998 (the date such
Closing takes place shall be referred to herein as the "Closing Date").
2.4 Purchase Price. The total Purchase Price shall be Sixteen
Million Dollars ($16,000,000), payable as follows:
a) Five Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Four Dollars ($5,333,334) at the closing, payable by wire transfer of
immediately available funds to the following account (the "Account"): Crestar
Bank, Richmond, VA, Routing #055002707, Account #209111208.
b) Five Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Three Dollars ($5,333,333) on the first anniversary of the Closing Date
(the "First Anniversary Payment"), payable by wire transfer of immediately
available funds to the Account.
c) Five Million Three Hundred Thirty-Three Thousand Three Hundred
Thirty-Three Dollars ($5,333,333) on the second anniversary of the date of this
Agreement, (the "Second Anniversary Payment"), payable by wire transfer of
immediately available funds to the Account.
2.5 Letter of Credit. The portion of the Purchase Price payable
after the Closing Date shall be secured by an irrevocable letter of credit
issued by the Harris Trust and Savings Bank in the form attached hereto as
Appendix 1 (the "Letter of Credit"). The Letter of Credit
3
<PAGE>
shall secure Licensee's obligation to pay to Licensor the principal amount of
Ten Million Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars
($10,666,666), and shall be reduced to Five Million Three Hundred Thirty-Three
Thousand Three Hundred Thirty-Three Dollars ($5,333,333) after the full
satisfaction of the First Anniversary Payment. Upon receipt of the First
Anniversary Payment, Licensor shall promptly send to Harris Trust and Savings
Bank a letter acknowledging receipt of the First Anniversary Payment in the form
of the letter attached hereto as Appendix 2. Licensor may draw upon the Letter
of Credit for the full amount of the remaining payments (i.e., the remainder of
the First Anniversary Payment and the Second Anniversary Payment) in accordance
with its terms (a) if Licensee fails to make the First Anniversary Payment (or
any portion thereof) by its due date and such amount is not paid by Licensee in
full within ten days after written demand by Licensor to Licensee, or (b) if
Licensee fails to make the Second Anniversary Payment (or any portion thereof)
and such amount is not paid by Licensee in full within ten days after written
demand by Licensor to Licensee for the remaining payment of the portion thereof
that is unpaid.
Section 3. Representations and Warranties.
3.1 Licensee's Representations and Warranties. Licensee
represents and warrants that it has full right, power and authority to enter
into this Agreement.
3.2 Licensor's Representations and Warranties. Licensor
represents and warrants that it has full right, power and authority to enter
into this Agreement and that it is not aware of any claim or threatened claim
challenging or questioning the validity of any of the Rights or of Licensor's
ownership thereof.
Section 4. General Provisions.
4
<PAGE>
4.1 Governing Law. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the internal
substantive laws of the State of Maryland, without giving effect to any
principle or rule of conflict or choice of laws. Any action suit, or other
proceeding seeking to enforce any right, remedy, obligation, duty, covenant or
provision of, or arising out of, this Agreement shall be brought and entered
against any party hereto exclusively in any federal or state court of the State
of Maryland or of the United States located in the State of Maryland. Each party
hereto irrevocably submits to the personal jurisdiction of any such court and
irrevocable waives, to the fullest extent of the law, any objection that it may
now or hereafter have to the laying of venue in any such court and any claim
that such action, suit or proceeding has been brought in an inconvenient forum.
4.2 Notices. Any notice, request, instruction or other document
to be given hereunder by any party hereto to any other party shall be in writing
and delivered personally or sent by registered or certified mail, return receipt
requested, postage pre-paid, as follows:
To: PathoGenesis Corporation
5215 Old Orchard Road, Suite 900
Skokie, Illinois 60077
Attn: Wilbur H. Gantz, President
With copy to: PathoGenesis Corporation
5215 Old Orchard Road, Suite 900
Skokie, Illinois 60077
Attn: Cameron S. Avery, General Counsel
To: Cystic Fibrosis Foundation
6951 Arlington Road
Bethesda, MD 20814
Attn: Robert J. Beall
With copy to: Swidler & Berlin, Chtd.
3000 K Street, N.W., #300
Washington, D.C. 20077
Attn: Kenneth I. Schaner
5
<PAGE>
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt of the specified individual at such party (or to such party's agents for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided shall be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is placed in the mail.
4.3 Waiver. Any of the terms or conditions of this Agreement may
be waived in writing at any time by the party which is entitled to the benefits
thereof. No waiver of any of the provisions of this Agreement shall be deemed to
or constitute a waiver of any other provision hereof, whether or not similar.
4.4 Headings. The headings of the Sections and Paragraphs of this
Agreement are included for convenience only and shall not be deemed to
constitute part of this Agreement or to effect the construction hereof.
4.5 Severability. If any provisions hereof shall be held by any
court of competent jurisdiction to be illegal, void or unenforceable, such
provision shall be of no force and effect, but the illegality or
unenforceability shall have no effect and shall not impair the enforceability of
any other provision of this Agreement.
4.6 Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument. Each party shall receive
a counterpart agreement fully executed by the other party.
6
<PAGE>
4.7 Limitation of Agreement. Nothing in this Agreement shall have
any effect on the separate contractual relationship between PathoGenesis and
CHMC or any other entity with respect to the Product or with respect to the
Patents, Research or Technology.
4.8 Further Assurances. Upon the reasonable request of either
party, the other party shall enter into any additional agreements and execute
any additional certificates or other documents that may be reasonably
appropriate to fully implement this Agreement.
4.9 Entire Agreement. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. The Agreement may not be
amended except by a written agreement executed by the party to be charged with
the amendment. No amendment, modification, or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
PATHOGENESIS CORPORATION
By: /s/ Wilbur H. Gantz
-------------------
Its: Chairman and CEO
CYSTIC FIBROSIS FOUNDATION
By: /s/ Robert J. Beall
-------------------
Its: President and CEO
8
<PAGE>
APPENDIX 1
Letter of Credit
9
<PAGE>
HARRIS TRUST AND SAVINGS BANK ATTN: LETTER OF CREDIT SECTION
P.O. BOX 755 311 W. MONROE ST., 13TH FLOOR
CHICAGO, IL 60690-0755 CHICAGO, IL 60606
OUR IRREVOCABLE STANDBY DATE OF ISSUE: MAY 28, 1998
LETTER OF CREDIT NUMBER SPL36471 PAGE: 1
BENEFICIARY: APPLICANT:
CYSTIC FIBROSIS FOUNDATION PATHOGENESIS CORPORATION
6951 ARLINGTON ROAD 5215 OLD ORCHARD ROAD
BETHESDA, MD 20814 SUITE 910
ATTN: R.J. BEALL, PRESIDENT & CEO SKOKIE, IL 60077
AMOUNT AVAILABLE: USD 10,666,666.00
TEN MILLION SIX HUNDRED SIXTY SIX
THOUSAND SIX HUNDRED SIXTY SIX AND
00/100'S US DOLLARS
EXPIRY DATE: JUNE 30, 2000
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SPL36471 BY
ORDER AND FOR THE ACCOUNT OF PATHOGENESIS CORPORATION THE "APPLICANT") IN THE
AMOUNT OF $10,666,666.00 (TEN MILLION SIX HUNDRED SIXTY SIX THOUSAND SIX HUNDRED
SIXTY SIX AND 00/100 U.S. DOLLARS) IN FAVOR OF CYSTIC FIBROSIS FOUNDATION (THE
"BENEFICIARY") AND AUTHORIZE BENEFICIARY TO DRAW AT SIGHT ON HARRIS TRUST AND
SAVINGS BANK.
DRAFTS ON US AT SIGHT MUST BE ACCOMPANIED BY BENEFICIARY'S SIGNED CERTIFICATE
FOR DRAW (PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE BENEFICIARY)
IN THE FORM OF EXHIBIT A ATTACHED HERETO.
THE AMOUNT OF ANY DRAFT(S) DRAWN UNDER THIS CREDIT ARE TO BE ENDORSED ON THE
REVERSE SIDE HEREOF. SUCH DRAFT(S) MUST BEAR THE CLAUSE "DRAWN UNDER HARRIS
TRUST AND SAVINGS BANK IRREVOCABLE STANDBY LETTER OF CREDIT NO. SPL36471 DATED
MAY 28, 1998."
WE HEREBY AGREE WITH DRAWERS THAT DRAFTS AND DOCUMENTS AS SPECIFIED ABOVE WILL
BE DULY HONORED UPON PRESENTATION TO HARRIS TRUST AND SAVINGS BANK, LETTER OF
CREDIT SECTION, 311 WEST MONROE STREET, 13TH CHICAGO, IL 60606, ATTN: STANDBY
LETTER OF CREDIT UNIT, IF PRESENTED ON OR BEFORE JUNE 30, 2000.
THIS CREDIT MAY BE REDUCED AT ANY TIME AND FROM TIME TO TIME UPON RECEIPT BY US
OF BENEFICIARY'S WRITTEN NOTICE ADDRESSED TO US THAT BENEFICIARY DESIRES SUCH
REDUCTION TO BE MADE.
10
<PAGE>
HARRIS TRUST AND SAVINGS BANK ATTN: LETTER OF CREDIT SECTION
P.O. BOX 755 311 W. MONROE ST., 13TH FLOOR
CHICAGO, IL 60690-0755 CHICAGO, IL 60606
OUR IRREVOCABLE STANDBY LETTER OF DATE OF ISSUE: MAY 28, 1998
CREDIT NUMBER SPL36471 PAGE: 2
PARTIAL DRAWS ARE PERMITTED. ANY PARTIAL DRAWING HEREUNDER SHALL BE ENDORSED
HEREON BY US AND THIS CREDIT SHALL BE RETURNED TO THE HOLDER HEREOF (EXCEPT
AFTER A DRAWING WHICH EXHAUSTS THE AVAILABLE CREDIT HEREUNDER).
EXCEPT SO FAR AS IS OTHERWISE EXPRESSLY STATED HEREIN THIS CREDIT IS SUBJECT TO
THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE, PARIS, PUBLICATION NO. 500 AND ENGAGES US IN
ACCORDANCE WITH THE TERMS THEREOF.
HARRIS TRUST AND SAVINGS BANK
- --------------------------
AUTHORIZED SIGNING OFFICER
11
<PAGE>
HARRIS TRUST AND SAVINGS BANK ATTN: LETTER OF CREDIT SECTION
P.O. BOX 755 311 W. MONROE ST., 13TH FLOOR
CHICAGO, IL 60690-0755 CHICAGO, IL 6060
OUR IRREVOCABLE STANDBY LETTER OF DATE OF ISSUE: MAY 28, 1998
CREDIT NUMBER SPL36471 PAGE: 3
EXHIBIT A
IRREVOCABLE STANDBY LETTER
OF CREDIT NO. SPL36471
CERTIFICATE FOR DRAW
THE UNDERSIGNED, A DULY AUTHORIZED REPRESENTATIVE OF CYSTIC FIBROSIS FOUNDATION
AS BENEFICIARY UNDER THAT CERTAIN IRREVOCABLE STANDBY LETTER OF CREDIT NO.
SPL36471 DATED MAY 28, 1998, ESTABLISHED BY HARRIS TRUST AND SAVINGS BANK,
HEREBY CERTIFIES AS FOLLOWS:
PATHOGENESIS CORPORATION AS APPLICANT HAS FAILED TO MAKE PAYMENT OF AMOUNTS
WITHIN TEN DAYS AFTER THEIR DUE DATE THAT HAVE BECOME DUE UNDER THAT CERTAIN
AGREEMENT DATED AS OF _____________, 1998 BY AND BETWEEN THE BENEFICIARY AND THE
APPLICANT.
THE BENEFICIARY HEREBY REQUESTS A DRAW-IN THE AMOUNT OF $____________ WHICH
CORRESPONDS TO THE TOTAL AMOUNT OWING AND UNPAID AS OF THIS DATE.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS EXECUTED THIS CERTIFICATE AS OF
______________, 1998.
CYSTIC FIBROSIS FOUNDATION
BY:
-------------------------
TITLE:
----------------------
(TITLE OF AUTHORIZED REPRESENTATIVE OF BENEFICIARY)
12
<PAGE>
APPENDIX 2
----------
[CYSTIC FIBROSIS FOUNDATION LETTERHEAD]
[Date]
Harris Trust and Savings Bank
Letter of Credit Section
311 West Monroe Street
13th Floor
Chicago, IL 60606
RE: IRREVOCABLE STANDBY LETTER OF CREDIT
NUMBER SPL 36471 Dated May 28, 1998 (the "Letter of Credit")
------------------------------------------------------------
Dear [Authorized Representative]:
Pursuant to the May 29, 1998, agreement between PathoGenesis Corporation
and the Cystic Fibrosis Foundation (the "Agreement"), the Cystic Fibrosis
Foundation hereby acknowledges receipt of the First Anniversary Payment (as
defined in the Agreement) in the amount of Five Million, Three Hundred Thirty-
Three Thousand, Three Hundred Thirty-Three U.S. Dollars ($5,333,333). The
Cystic Fibrosis Foundation hereby notifies the Harris Trust and Savings Bank to
reduce the Letter of Credit from Ten Million, Six Hundred Sixty-Six Thousand,
Six Hundred Sixty-Six U.S. Dollars ($10,666,666) to Five Million, Three Hundred
Thirty-Three Thousand, Three Hundred Thirty-Three U.S. Dollars ($5,333,333),
effective immediately.
Cystic Fibrosis Foundation
By:
---------------------------------
Printed Name:
-----------------------
Its:
--------------------------------
<PAGE>
BILL OF SALE AND ASSIGNMENT
KNOW ALL BY THESE PRESENTS THAT:
1. Transfer. The Cystic Fibrosis Foundation, a Delaware not-for-profit
corporation ("Licensor"), pursuant to the Agreement dated as of May 29, 1998
(the "Agreement") (capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Agreement), by and among the Licensor and
PathoGenesis Corporation, a Delaware corporation ("Licensee"), for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, does hereby grant, sell, convey, transfer, assign and deliver to
Licensee and its successors and assigns, all of the Licensor's right, title and
interest in and to all of the Patents, Research, Product and Technology as
defined in Schedule A attached hereto, including all patent, trademark,
copyright and other intellectual property rights thereto and applications and
registrations thereon, together with all accrued rights of action, royalties and
damages from any past or present infringement or misappropriation of any such
rights in the United States and all foreign countries (collectively the
"Purchased Assets").
TO HAVE AND TO HOLD all of the properties, assets and rights granted and
transferred hereby, with the appurtenances thereof, unto the Licensee, its
successors and assigns forever, to and for their own use and benefit.
2. Power of Attorney. For the consideration aforesaid, the Licensor
hereby constitutes and appoints the Licensee, its successors and assigns, the
true and lawful attorney or attorneys of the Licensor, with full power of
substitution, for the Licensor and in its name and stead, or otherwise, but on
behalf and for the benefit of the Licensee, its successors and assigns to demand
and receive from time to time, any and all properties hereby granted, sold,
assigned, transferred, conveyed or delivered and give receipts and releases for
and in respect of the same and any part thereof, and from time to time to
institute and prosecute in the name of the Licensor or otherwise, but for the
benefit of the Licensee, its successors and assigns, any and all proceedings at
law, in equity or otherwise, which the Licensee, its successors or assigns, may
deem proper in order to collect, assert or enforce any claim, right or title of
any kind in and to the Purchased Assets hereby granted, sold, conveyed,
assigned, transferred or delivered and to defend or compromise any or all
actions, suits or proceedings in respect of any of the Purchased Assets and do
all such acts and things in relation thereto as the Licensee, its successors and
assigns, shall deem advisable, the Licensor hereby declaring that the
appointment made and the powers hereby granted and coupled with an interest and
are and shall be irrevocable by the Licensor in any manner and for any reason.
3. Covenants. The Licensor for itself and its successors and assigns,
does hereby covenant with the Licensee and its successor and assigns, that the
Licensor and its successors and assigns will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered all such
further acts, deeds, bills of sale, transfers, assignments, conveyances, powers
of attorney, conveying and confirming unto the Licensee, its successors and
<PAGE>
assigns, all and singular, the Purchased Assets hereby granted, sold, assigned,
transferred, conveyed and delivered as the Licensee, its successors or assigns,
shall reasonably require.
4. Representations. Licensor represents and warrants that: (a) Licensor
has all requisite power and authority to own or have an interest in the rights
assigned hereunder and to execute, deliver and perform this Bill of Sale and
Assignment; (b) this Bill of Sale and Assignment constitutes a legal, valid and
binding obligation of Licensor and does not violate or conflict with, result in
a breach of or constitute a default under (or an event which with due notice or
lapse of time, or both, would constitute a breach of or default under) or result
in the creation of any lien, security interest or other encumbrance under (i)
any note, agreement, contract, license, instrument, lease or other obligation to
which Licensor is a party or by which it is bound, (ii) any judgment, order,
decree, ruling or injunction, or (iii) any statute, law, regulation or rule of
any governmental agency or authority; and (c) Licensor has not heretofore
assigned, transferred, mortgaged, encumbered or conveyed the rights assigned
hereunder to any person or entity other than Licensee.
5. Conflict With Agreement. In the event that any provision of this Bill
of Sale and Assignment be constructed to conflict with a provision in the
Agreement, the provision in the Agreement shall be deemed to be controlling.
6. Counterparts. This Bill of Sale and Assignment shall be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original and all of which shall constitute the same instrument. Each party
shall receive a counterpart agreement fully executed by the other party.
IN WITNESS WHEREOF, Cystic Fibrosis Foundation and PathoGenesis Corporation
have each caused this instrument to be signed in its name by its duly authorized
officer to be effective as of the 29th day of May, 1998.
LICENSOR: LICENSEE:
CYSTIC FIBROSIS FOUNDATION PATHOGENESIS CORPORATION
By: /s/ Robert J. Beall By: /s/ Wilbur H. Gantz
------------------- -------------------
Name: Robert J. Beall Name: Wilbur H. Gantz
Title: President/CEO Title: Chairman and CEO
<PAGE>
SCHEDULE A
----------
1. "Patents" shall mean Licensor's rights in patents and applications for
patents, if any, covering the Technology and Research, now or hereafter issued
or applied for, any reissues, divisions, substitutions, continuations,
continuations-in-part, continued prosecution applications, reexaminations
thereof and extensions thereof.
2. "Product" shall mean any products that include an aerosol tobramycin
solution or any other aerosol aminoglycoside solution for treatment of
bronchopulmonary infections, including but not limited to those in patients with
cystic fibrosis.
3. "Research" means all laboratory and clinical research, including but
not limited to pre-clinical and clinical trial data, nebulizer studies, etc.
relating to the use of aerosol tobramycin solution and any other aerosol
aminoglycoside solution for treatment of bronchopulmonary infections, including
but not limited to those in patients with cystic fibrosis, conducted by
Children's Hospital and Medical Center and funded by Licensor.
4. "Technology" means all technology currently owned by Licensor relating
to the use of aerosol tobramycin solution or any other aerosol aminoglycoside
solution for treatment of bronchopulmonary infections, including, but not
limited to those in patients with cystic fibrosis.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PATHOGENESIS CORPORATION
FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,117,730
<SECURITIES> 66,098,298
<RECEIVABLES> 5,230,918
<ALLOWANCES> 0<F1>
<INVENTORY> 8,994,883
<CURRENT-ASSETS> 83,851,582
<PP&E> 19,209,654
<DEPRECIATION> 8,440,814
<TOTAL-ASSETS> 110,513,142
<CURRENT-LIABILITIES> 13,721,896
<BONDS> 0
0
0
<COMMON> 16,258
<OTHER-SE> 92,004,607
<TOTAL-LIABILITY-AND-EQUITY> 110,513,142
<SALES> 28,088,610
<TOTAL-REVENUES> 28,314,525
<CGS> 4,782,416
<TOTAL-COSTS> 28,427,365
<OTHER-EXPENSES> 83,037
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,966,387
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,966,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966,387
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
<FN>
<F1>THE AMOUNT OF RECEIVABLES REPORTED IS NET OF $1,250,983 OF ALLOWANCES.
<F2>THE TOTAL COSTS INCLUDE LOSS PROVISION OF $134,350.
</FN>
</TABLE>
