<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------
Date of Report (Date of earliest event reported): NOVEMBER 16, 1999
GelTex Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 0-26872 04-3136767
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
153 SECOND AVENUE, WALTHAM,
MASSACHUSETTS 02451 (Address of
principal executive offices and zip code)
Registrant's telephone number, including area code:
(781) 290-5888
9 Fourth Avenue, Waltham, MA 02451
-----------------------------------------------------
(Former name or former address, if
changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 16, 1999, GelTex Pharmaceuticals, Inc., a Delaware corporation
(the "Company") acquired SunPharm Corporation, a Delaware corporation
("SunPharm"), by the merger (the "Merger") of Shine Acquisition Sub, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub")
with and into SunPharm. The Merger was accomplished pursuant to the Agreement
and Plan of Merger, dated as of August 13, 1999 among the Company, SunPharm and
Merger Sub (the "Merger Agreement"), and a related Certificate of Merger,
pursuant to which Merger Sub merged with and into SunPharm. The Merger occurred
following the approval of the Merger Agreement by the stockholders of SunPharm
pursuant to a special meeting of stockholders held on November 16, 1999 and
satisfaction of certain other closing conditions. As a result of the Merger,
each outstanding share of SunPharm Common Stock was converted into approximately
0.14525 of a share of the Company's Common Stock and each outstanding share of
SunPharm Preferred Stock was converted into approximately 0.21788 of a share of
the Company's Common Stock.
A total of approximately 1.2 million shares of the Company's Common Stock
will be issued to former SunPharm stockholders in exchange for all outstanding
SunPharm capital stock. The ratio at which SunPharm's stock was exchanged for
shares of the Company's Common Stock was determined pursuant to a formula set
forth in the Merger Agreement. The formula was agreed upon in arms' length
negotiations and took account of several factors concerning relative valuations
of SunPharm and the Company. Certain adjustments to the purchase price were made
in accordance with the Merger Agreement.
The shares issued to SunPharm stockholders were issued pursuant to the
Registration Statement No. 333-88459 on Form S-4, pursuant to the Securities Act
of 1933, as amended, which became effective as of October 5, 1999 (the "Form
S-4"). Certain options and warrants to purchase SunPharm Common Stock were
assumed by the Company and remain outstanding as options and warrants to
purchase shares of the Company's Common Stock.
The Merger will be accounted for as a purchase transaction.
The above description of the Merger is a summary and as such is not
intended to be complete and is subject to and qualified by reference to the
Merger Agreement, which is attached as Appendix A to the Form S-4 and to a press
release issued by the Company on November 17, 1999 concerning the Company's
acquisition of the SunPharm which is incorporated by reference, and attached
hereto as an exhibit. For a more detailed description of the Merger and the
Merger Agreement, reference is made to the Form S-4.
SunPharm is a research-based development stage pharmaceutical company which
designs and develops small molecule pharmaceutical products. SunPharm's
potential products target disease areas such as cancer, refractory AIDS-related
diarrhea, gastrointestinal disorders and systemic iron overload.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Index to Financial Statements
2
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
PAGE
----
SUNPHARM CORPORATION
Independent Auditors' Report ................................... 4
Balance Sheets ................................................. 5
Statements of Operations ....................................... 6
Statements of Stockholders' Equity ............................. 7
Statements of Cash Flows ....................................... 8
Notes to Financial Statements .................................. 9
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
SunPharm Corporation:
We have audited the accompanying balance sheets of SunPharm Corporation (a
development stage company) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended, and for the period from May 3, 1990 (date of incorporation) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The Company's financial statements for
the period May 3, 1990 (date of incorporation) through December 31, 1994 were
audited by other auditors whose report, dated April 3, 1995, expressed an
unqualified opinion on those statements. The financial statements for the period
May 3, 1990 (date of incorporation) through December 31, 1994 reflect total
revenues and net loss of $1,885,000 and $4,390,367, respectively, of the related
totals. The other auditors' report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such prior period, is based
solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of SunPharm as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the two years then ended, and for the period
from May 3, 1990 (date of incorporation) to December 31, 1998, in conformity
with generally accepted accounting principles.
The Company is in the development stage at December 31, 1998. As discussed
in Note 1 to the financial statements, successful completion of the Company's
development program and ultimately, the attainment of profitable operations is
dependent upon future events, including obtaining adequate financing to fulfill
its development activities, obtaining regulatory approval, and achieving a level
of sales adequate to support the Company's cost structure.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
February 12, 1999
4
<PAGE> 5
SUNPHARM CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
-------------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................................. $ 28,518 $ -- $ 356,969
Investments ...................................................................... -- 1,699,200 4,268,566
Receivables ...................................................................... 635,000 -- --
Prepaid expenses and other ....................................................... 67,375 162,734 206,024
------------ ------------ ------------
Total current assets ..................................................... 730,893 1,861,934 4,831,559
RECEIVABLE FROM STOCKHOLDER ........................................................ 132,078 124,865 106,611
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $24,818, $17,085 and $10,322 ................................................... 53,475 57,933 30,319
OTHER ASSETS ....................................................................... 9,275 9,275 3,250
------------ ------------ ------------
TOTAL ASSETS ....................................................................... 925,721 $ 2,054,007 $ 4,971,739
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 1,046,510 $ 213,627 $ 399,996
Accrued liabilities .............................................................. 101,438 135,580 231,754
Other ............................................................................ 92,961 -- --
Notes payable .................................................................... 14,249 102,706 155,271
------------ ------------ ------------
Total current liabilities ................................................ 1,255,158 451,913 787,021
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Undesignated serial preferred stock, $.001 par value 2,000,000, 2,200,000 and
2,500,000 shares authorized, none issued and outstanding ....................... -- -- --
Series A redeemable convertible preferred stock, $.001 par value, 300,000,
300,000 and 0 shares authorized, issued and outstanding (cumulative dividends
in arrears of .................................................................... 300 300 --
$12,887 at December 31, 1998)
Series B preferred stock, par value $0.001 per share; 200,000 shares authorized;
66,667, 0 and 0 shares issued and outstanding .................................... 67 -- --
Common stock, $.0001 par value, 25,000,000 shares authorized, 7,249,241,
6,621,395 and 5,737,828 issued and outstanding .................................. 725 662 574
Additional paid-in capital ....................................................... 21,671,051 20,871,578 19,687,198
Deficit accumulated during development stage ..................................... (22,001,580) (19,270,446) (15,503,054)
Accumulated other comprehensive income ........................................... -- -- --
------------ ------------ ------------
Total stockholders' equity ............................................... (329,437) 1,602,094 4,184,718
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................................... $ 925,721 $ 2,054,007 $ 4,971,739
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
5
<PAGE> 6
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1990
(DATE OF
NINE MONTHS ENDED YEAR ENDED INCORPORATION) TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,1998
----------------- --------------------- -----------------
1999 1998 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Sponsored Research/Sublicensing
Revenues.............................. $ 625,000 $ 100,000 $ 230,729 $ -- $ 3,115,729
Interest Income ........................ 38,001 128,726 163,126 280,045 678,433
Other Income ........................... 6,000 -- -- --
----------- ----------- ----------- ----------- ------------
Total revenues ............... 669,001 228,726 393,855 280,045 3,794,162
----------- ----------- ----------- ----------- ------------
EXPENSES:
Research and development ............. 1,856,492 1,852,568 2,509,561 2,417,209 12,495,801
General and administrative ........... 1,368,642 1,382,209 1,651,686 1,769,261 10,078,807
Royalty .............................. 175,000 -- -- -- 490,000
----------- ----------- ----------- ----------- ------------
Total expenses ............... 3,400,134 3,234,777 4,161,247 4,186,470 23,064,608
----------- ----------- ----------- ----------- ------------
Net Loss ............................... $(2,731,133) $(3,006,051) $(3,767,392) $(3,906,425) $(19,270,446)
=========== =========== =========== =========== ============
Loss per Share ......................... $ (0.40) $ (0.52) $ (0.64) $ (0.75)
=========== =========== =========== ===========
Shares Used in Computing
Loss Per Share........................ 6,875,328 5,760,419 5,876,875 5,214,733
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
6
<PAGE> 7
SUNPHARM CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
REDEEMABLE CONVERTIBLE PREFERRED STOCK ADDITIONAL OTHER DURING
SERIES A SERIES B COMMON STOCK PAID-IN COMPREHENSIVE DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME STAGE
------ ------ ------ ------ ------ ------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
services, October 1991
($.0064 per share) ........... 467,400 $ 47 $ 2,953
Issuance of common stock for
License agreement rights,
December 1991 ($.0064 per
share) ....................... 311,600 31 1,969
Issuance of common stock for
cash, December 1991
($.0064 per share) ........... 148,010 15 935
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1991 927,010 93 5,857
Issuance of Series A for cash,
February Through November 1992
($1.67 per Share) ............ 307,500 513,525
Issuance of Series B for cash,
October Through December 1992
($5.00 per share) ............ 32,500 162,500
Issuance of common stock for
services, October 1992
($.32 per share) ............. 3,895 1,250
Issuance of Series B for
services, December 1992
($5.00 per share) ............ 5,000 25,000
Net loss ....................... (998,004)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1992 307,500 513,525 37,500 187,500 930,905 93 7,107 (998,004)
Issuance of Series B for cash,
April Through June 1993
($5.00 per share) ............ 57,500 287,500
Issuance of Series B for
services, June 1993
($5.00 per share) ............ 1,500 7,500
Issuance of common stock for
services, March 1993
($.32 per share) ............. 31,160 3 9,997
Issuance of common stock for
cash, December 1993
($.32 per share) ............. 15,580 2 4,998
Net loss ....................... (1,233,352)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1993 ..... 307,500 513,525 96,500 482,500 977,645 98 22,102 (2,231,356)
Other Comprehensive income:
Deferred compensation 818,308 (818,308)
Amortization of deferred
Compensation ............... 818,308
Exercise of stock options,
September 1994
($.32 per share) ............. 7,790 1 2,499
Issuance of warrants to
purchase Common stock in
connection with the Bridge
notes ($2.63 per share) ...... 600,000
Net loss ....................... (2,159,011)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1994 ..... 307,500 513,525 96,500 482,500 985,435 99 1,442,909 (4,390,367)
Compensation expense ........... 28,188
Conversion of preferred
stock to Common stock ........ (307,500) (513,525) (96,500) (482,500) 634,100 63 995,962
Initial public offering ........ 1,265,000 126 7,175,375
Net loss ....................... (4,369,653)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1995 ..... -- -- -- -- 3,884,535 288 9,642,434 (8,760,020)
Exercise of warrants ........... 236,721 24 458,697
Issuance of common stock ....... 537,623 54 2,636,195
Issuance of common stock for
Settlement of litigation ..... 50,000 5 324,995
Net loss ....................... (2,836,609)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1996 ..... 3,708,879 371 13,062,321 (11,596,629)
Exercise of stock options ...... 75,663 8 15,802
Issuance of common stock ....... 1,953,286 195 6,519,055
Issuance of warrants
for service .................. 90,020
Net loss ....................... (3,906,425)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1997 ..... 5,737,828 574 19,687,198 (15,503,054)
Exercise of stock options ...... 30,002 3 17,582
Issuance of common stock ....... 853,565 85 7,398
Issuance of preferred stock .... 300,000 300 1,159,400
Net loss ....................... (3,767,392)
-------- -------- ------- --------- --------- ----- ----------- --------- ------------
BALANCE, DECEMBER 31, 1998 ..... 300,000 $ 300 $ 6,621,395 $ 662 $20,871,578 $ -- $(19,270,446)
======== ======== ======= ========= ========= ====== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
7
<PAGE> 8
SUNPHARM CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED PERIOD FROM MAY 3, 1990
SEPTEMBER 30, DECEMBER 31, (DATE OF INCORPORATION)
1999 1998 1998 1997 TO DECEMBER 31,1998
---- ---- ---- ---- ----------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ......................................... $(2,731,134) $(3,006,051) $ (3,767,392) $ (3,906,425) $(19,270,446)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ................ 7,733 5,544 8,282 5,692 85,680
Compensation expense related to
options, warrants and stock
appreciation rights .......................... -- -- -- 90,020 999,016
Amortization of deferred offering
costs incurred in connection with
issuance of Bridge Notes ..................... -- -- -- -- 775,000
Write-off of patents ......................... -- -- -- -- 70,120
Increase in receivable from
Stockholder ................................ (7,213) (13,186) (18,254) (96,611) (124,865)
Decrease (increase) in prepaid
expenses and other Assets .................... (539,641) 145,755 37,265 406,042 (170,400)
(Decrease) increase in accounts payable ...... 832,883 (182,994) (186,369) 76,545 213,627
(Decrease) increase in accrued lisbilities.... (34,142) (33,998) (96,174) (637,491) 141,830
Increase in accrued legal fees ............... -- -- -- -- 300,000
Increase in other liabilities .................... 92,961 -- -- -- --
----------- ----------- ------------ ------------ ------------
Total adjustments ....................... 352,581 (78,879) (255,250) (155,803) 2,290,008
----------- ----------- ------------ ------------ ------------
Net cash used in operating activities.... (2,378,552) (3,084,930) (4,022,642) (4,062,228) (16,980,438)
----------- ----------- ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of short-term investments ............ (3,384,030) (4,694,296) (8,553,779) (12,815,678) (26,488,831)
Sales and maturities of short-term Investments. 5,083,230 8,465,508 11,123,145 10,342,424 24,789,631
Purchases of property and equipment ............ (3,275) (25,068) (35,896) (26,824) (79,918)
Payment of patent costs ........................ -- -- -- -- (67,424)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
investing Activities ........................ 1,695,925 3,746,144 2,533,470 (2,500,078) (1,846,542)
----------- ----------- ------------ ------------ ------------
FINANCING ACTIVITIES:
(Repayments of) proceeds from notes payable..... (88,459) (155,271) (52,565) 43,070 2,706
Issuance of Series A redeemable ................ 1,673,225
Convertible Preferred stock .................... -- -- 1,159,700 --
Issuance of Series B redeemable
convertible Preferred stock .................... 266,668 -- -- -- 450,000
Issuance of common stock ....................... 532,935 17,585 25,068 6,535,060 17,298,397
Stock offering costs ........................... -- -- -- -- (597,348)
Proceeds from payable to stockholders .......... -- -- -- 542,500
Repayment of payable to stockholders ........... -- -- -- -- (542,500)
----------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities ............................ 711,145 1,132,203 6,578,130 18,826,980
----------- ----------- ------------ ------------ ------------
NET CHANGE IN CASH ............................... 28,518 523,528 (356,969) 15,824 --
CASH AT BEGINNING OF PERIOD ...................... -- 356,969 356,969 341,145 --
----------- ----------- ------------ ------------ ------------
CASH AT END OF PERIOD ............................ $ 28,518 $ 880,497 $ -- $ 356,969 $
=========== =========== ============ ============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest ......................... $ 2,922 $ 3,550 $ 4,064 $ 2,512 $ 171,516
=========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements (concluded).
8
<PAGE> 9
SUNPHARM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997
and the Period from
May 3, 1990 (Date of Incorporation) to December 31, 1998
1. ORGANIZATION
SunPharm Corporation ("SunPharm" or the "Company"), formerly LexiGen,
Incorporated, was incorporated in the State of Delaware on May 3, 1990, issued
shares of its common stock in 1991, and commenced operations in February 1992.
The Company was formed to develop and commercialize unique and proprietary
polyamine analogs with antiproliferative and other therapeutic uses.
The Company is a development stage company which has devoted substantially
all of its efforts to research and product development and has not yet generated
any revenues from the sale of products. At this time, there can be no assurance
of future revenues. In addition, the Company expects to continue to incur losses
for the foreseeable future, and there can be no assurance that the Company will
successfully complete the transition from a development stage company to
successful operations. The research and development activities in which the
Company is engaged involve a high degree of risk and uncertainty. The ability of
the Company to successfully develop, manufacture and market its proprietary
products is dependent upon many factors. These factors include, but are not
limited to, the need for additional financing, the reliance on collaborative
arrangements for research and contractual agreements with corporate partners,
the Company's dependence on its exclusive license agreement with the University
of Florida, the ability to attract and retain key personnel and consultants,
including its founder, and the ability to develop manufacturing, sales and
marketing expertise. In addition, the Company's future success is affected by
the progress of the Company's research and development, the scope and results of
preclinical studies and clinical trials, the cost and timing of regulatory
approvals, the rate of technological advances, determinations as to the
commercial potential of the Company's products under development, the status of
competitive products, the establishment of manufacturing capacity or third-party
manufacturing arrangements, its reliance on research institutions and corporate
partners, the uncertainty of health care reform and the competitive environment
in which the Company operates. The Company's existing capital resources will not
be sufficient to fund the Company's operations to the point of introduction of a
commercially successful product, if and when that time should arrive. No
assurance can be given that additional funds will be available on acceptable
terms, if at all.
In order to continue its research and product development activities as
planned, the Company has raised equity through an initial public offering
("IPO") and various private placements of the Company's Common Stock and Series
A and Series B Redeemable Convertible Preferred Stock. Such offerings through
December 31, 1998 have resulted in proceeds of approximately $19,421,000. The
Company intends to obtain additional funds for research and development through
collaborative arrangements with corporate partners, additional financings, and
from other sources; however, there can be no assurance that the Company will be
able to obtain necessary financing when required or what the terms of any
financing, if obtained, might be. Accordingly, there can be no assurance of the
Company's future success.
In August 1994, the board of directors authorized a 1.558-for-1 stock split
of all outstanding stock, increased the number of shares of authorized common
stock to 25,000,000 and changed the par value of the common stock to $.0001 per
share, all of which was approved by the stockholders in October 1994. All share
and per share amounts have been retroactively restated to reflect the stock
split for all years presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The financial statements are presented in
accordance with generally accepted accounting principles, which require
management to make estimates that affect the reported amounts and contingency
disclosures in the financial statements. Actual results could differ from these
estimates.
PATENT COSTS -- The Company reimburses the University of Florida Research
Foundation, Inc. ("UFRFI"), for direct expenses related to the Company's
licensed patents. Patent costs consist of legal fees and other direct costs
incurred in filing, prosecuting and maintaining the licensed patents. These
costs are charged directly to research and development expense.
INTERIM FINANCIAL STATEMENTS -- The balance sheet as of September 30, 1999,
the statements of operations and the statements of cash flows for the nine month
periods ended September 30, 1999 and 1998 have been prepared by the Company
without an audit. In the opinion of management all adjustments necessary to
conform to Generally Accepted
9
<PAGE> 10
Accounting Principles and the rules and regulation of the Securities and
Exchange Commission for interim financial information have been made, all of
which are normal and recurring in nature.
RESEARCH AND DEVELOPMENT -- Sponsored research payments are recognized as
revenue when the research underlying such payments has been performed. Research
and development expenses are charged to operations as incurred. Research and
development expenses principally include, among other things, consulting fees
and cost reimbursements to UFRFI, preclinical and clinical testing of compounds
under investigation, and salaries and benefits of employees engaged in research
and development activities.
PROPERTY AND EQUIPMENT -- Office and laboratory equipment and leasehold
improvements are carried at cost less accumulated depreciation, which is
computed on a straight-line basis over the estimated useful lives of the related
assets. The useful lives generally fall between 5 and 10 years.
EARNINGS PER SHARE -- During the year ended December 31, 1997, the Company
adopted SFAS No. 128, "Earnings per Share" (SFAS 128). This Statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to all entities with publicly held common stock or potential common
stock. This Statement replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS
excludes dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Similar to fully diluted EPS, diluted EPS reflects the potential
dilution of securities that could share in the earnings. Since the Company has
experienced losses since inception, there is no dilutive effect of any of its
common stock equivalents. Accordingly, only basic EPS is shown.
STOCK OPTIONS, WARRANTS AND SARS -- Effective January 1, 1996, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 establishes a fair value based method of accounting for stock-based employee
compensation plans; however, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
The Company has elected to continue to account for its employee stock
compensation plans under APB Opinion No. 25 with pro forma disclosures of net
earnings and earnings per share, as if the fair value based method of accounting
defined in SFAS 123 has been applied.
RECENTLY ADOPTED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an entity
display an amount representing total comprehensive income for the period in that
statement. SFAS No. 130 requires that an entity classify items of other
comprehensive income by their nature in a financial statement. For example,
other comprehensive income may include foreign currency and unrealized gains and
losses on certain investments in debt and equity securities. In addition, the
accumulated balance of other comprehensive income must be displayed separately
from retained earnings and additional paid in capital in the equity section of a
statement of financial position. Adoption of SFAS No. 130 did not have a
material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") effective for fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. SFAS No. 131
requires reporting of segment profit or loss, certain specific revenue and
expense items and segment assets. It also requires reconciliations of total
segment revenues, total segment profit or loss, total segment assets, and other
amounts disclosed for segments to corresponding amounts reported in the
financial statements. The Company is in one business segment and follows the
requirements of SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information".
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"), effective
for fiscal years beginning after December 15, 1997. SFAS 132 revises employer
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that
10
<PAGE> 11
will facilitate financial analysis and eliminates certain disclosures.
Restatement of disclosures for earlier periods is required. Adoption of SFAS No.
132 did not have a material impact on the financial statements.
NEW ACCOUNTING STANDARDS -- In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
effective for fiscal years beginning after June 15, 1999. SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company has not determined
the effect of this statement on its financial statement disclosure.
3. INITIAL PUBLIC OFFERING AND SUBSEQUENT SECURITIES OFFERINGS
On January 12, 1995, the Company completed an IPO of 1,100,000 units
("Unit") at $7.00 per Unit. Each Unit consisted of one share of the Company's
common stock and one Redeemable Common Stock Purchase Warrant ("IPO Warrant"),
which entitled the holder to purchase one share of common stock at $8.75 per
share until expiration on April 13, 1998, as extended from the original
expiration of January 12, 1998. The IPO Warrants have been subject to redemption
by the Company commencing January 1996 at $.05 per Warrant, providing the
closing bid price of the Company's common stock exceeds $12.25 per share for 20
consecutive trading days ending within five days of the notice of redemption.
Additionally, on February 16, 1995, the underwriter of the offering (the
"Representative") exercised an option to purchase an additional 165,000 Units at
$7.00 per Unit (Representative's over-allotment option).
Proceeds from the Company's IPO were approximately $7,200,000 of cash, net
of underwriting costs and other offering costs of $1,655,000. Of such net
proceeds, approximately $1,793,000 were used to repay the outstanding
indebtedness (including accrued interest and certain fees) of the Company. In
addition, other expenses which were paid included approximately $310,000 for
human clinical trials of DEHOP and DENSPM, $150,000 for research and development
of other potential products, $240,000 for general corporate expenses, and
approximately $210,000 to pay royalties to UFRFI.
In connection with the IPO, the Company sold to the Representative, for
nominal consideration, a unit purchase option to purchase up to 110,000 Units
substantially identical to the Units sold in the offering in all respects,
except that each warrant included in the unit purchase option entitled the
holder to purchase one share of common stock at $11.375 per share. The unit
purchase option will be exercisable during the four-year period commencing
January 12, 1996, at an exercise price of $11.20 per Unit.
Also, during the five-year period from the date of the offering, in the
event the Representative originates a financing or a merger, acquisition, joint
venture, strategic alliance introduction or other similar transaction to which
the Company is a party, the Representative would be entitled to a finder's fee
in consideration of the origination of the transaction. The fee is based upon a
percentage of the consideration paid in the transaction or, in the case of an
introduction to a customer, a five-year royalty on sales. In both instances, the
consideration would consist of 5% of the first $1,000,000, 4% of the next
$1,000,000, and 3% of any amount in excess of $2,000,000.
Upon the closing of the IPO in January 1995, the Series A and Series B
Redeemable Convertible Preferred Stock outstanding automatically converted into
479,700 and 154,400 shares of common stock, respectively. The Company presently
has 2,200,000 shares of undesignated serial preferred stock authorized, with
none issued and outstanding.
During the year ended December 31, 1996, the Company completed a private
placement of 537,623 units pursuant to Regulation D of the Securities Act of
1933 for $5.50 per Unit. Each unit consists of one share of the Company's common
stock and one redeemable Common Stock Purchase Warrant ("1996 Warrant"). The
1996 Warrants included in these units expire four years from the date of
issuance and have exercise prices of $5.50 per share until the anniversary date,
$6.50 per share until the second anniversary date, and $7.50 per share
thereafter. The 1996 Warrants are subject to redemption by the Company at $.01
per 1996 Warrant, provided the Company's common stock closes at a price of
$8.50, $9.50 or $10.50 per share for twenty consecutive days during the second,
third or fourth years, respectively, of the term of the 1996 Warrant.
Proceeds from the private placement as well as proceeds from the warrant
exchange discussed in Note 7 were approximately $3,095,000 in cash, net of
placement agent and other offering costs of approximately $355,000.
During the year ended December 31, 1997, the Company sold 1,948,286 units,
each consisting of one share of the Company's common stock and one redeemable
Common Stock Purchase Warrant ("1997 Warrant") for $3.50 per unit. The 1997
Warrants included in the units expire five years from the date of issuance. In
case of a "cashless exercise," the 1997 Warrant exercise price is $4.00 per
share plus forty percent of the difference between the current trading price of
the Company's common stock and $4.00; in all other cases, the 1997 Warrant
exercise price is $4.00 per share plus thirty percent of the difference between
the current trading price of the Company's common stock and $4.00. The 1997
Warrants are subject to redemption by the Company at the exercise price,
provided the Company's common stock closes at a price of
11
<PAGE> 12
$16.00, $20.00, or $28.00 per share for twenty consecutive days during the
second, third, fourth or fifth years, respectively, of the term of the 1997
Warrant. Proceeds from the private placement were $6,519,250, net of placement
agent and other offering costs of $324,500.
On November 12, 1998, the Company sold 300,000 shares of Series A Redeemable
Convertible Preferred Stock ("Preferred Stock") and 853,565 shares of Common
Stock to certain institutions and other accredited investors in a Private
Placement pursuant to Regulation D under the Securities Act of 1933. The
purchase price for the Preferred Stock and Common Stock sold in the Private
Placement consisted of $1,200,000 in cash and the surrender by the investors of
redeemable Common Stock Purchase Warrants originally issued in the Company's
March 1997 private placement financing (the "1997 Warrants"). Shares of Series A
Preferred Stock are initially convertible to Common Stock on a 1-for-1 basis,
subject to customary antidilution adjustments. Dividends shall accrue on the
Series A Preferred Stock at the rate of 8% per annum. In the event of
liquidation dissolution, or winding up of the Company, or, at the option of the
holders of the Preferred Stock, a consolidation or merger of the Company or a
sale of all or substantially all of its assets, the Preferred Stock will be
entitled to receive in preference to the Company's Common Stock an amount per
share equal to the original purchase price plus any accrued dividends per share.
Redemption of the Preferred Stock is at the request of holders of at least
33 1/3% of such shares outstanding, which request may be made at any time two
years following closing of the Private Placement. In the event of such request,
the Company shall be required to redeem all of the Series A Preferred Stock held
by the requesting holders at a redemption price equal to $4.00 per share
(subject to adjustment), plus any accrued dividends per share. The redemption
price may be paid, at the Company's option, in cash or in shares of the
Company's Common Stock. The Company's intention is to make such redemption in
Common Stock, and accordingly the Series A Preferred Stock has been included in
stockholders' equity. Proceeds to the Company from this Private Placement were
approximately $1,160,000, net of legal fees of $40,000.
4. INVESTMENTS
At December 31, 1998 and 1997, the Company's investments consisted primarily
of United States government agency obligations and high-grade commercial paper.
These investments were considered as available for sale, and cost plus accrued
interest approximated fair market value. At December 31, 1998 and 1997, these
securities had maturities of less than one year.
5. NOTES PAYABLE
In January and March 1993, the Company issued notes payable in the aggregate
principal amount of $522,500 primarily to SunPharm Investors L.P., a limited
partnership in which 7% of the funds loaned to the Company were contributed by
existing stockholders of the Company. Costs associated with this issuance
totaled $57,500. There were also stock purchase warrants issued as discussed in
Note 7. The notes bore interest at 9.5% through January 1995, when they were
repaid.
In August and September 1994, two directors of the Company loaned $5,000 and
$50,000, respectively, to the Company. The loans were repaid from the proceeds
of the Bridge Financing discussed below. In addition, the directors were granted
warrants to acquire 500 and 5,000 shares, respectively, of common stock at an
exercise price of $5.50.
On September 27, 1994, the Company issued notes totaling $1,000,000 as a
bridge financing for the IPO (the "Bridge Notes"). The holders of the Bridge
Notes also received warrants to purchase 228,573 shares of common stock at an
exercise price of $4.375 per share. The estimated value of $600,000 for the
warrants was recorded as additional paid-in capital and deferred offering costs
during 1994. Proceeds of the Bridge Notes were $825,000, net of a $100,000
placement fee paid to the placement agent and $75,000 of offering costs. The
total deferred offering costs of $775,000 were charged to expense upon repayment
of the Bridge Notes in 1995. The Bridge Notes bore interest at an annual rate of
10% and were repaid in January and February 1995 from the proceeds of the IPO.
In November and December 1994, two directors of the Company loaned $100,000
and $75,000, respectively, to the Company. The notes bore interest at 12% per
annum and were repaid from the proceeds of the Offering in January 1995. In
addition, the directors were granted 10,000 and 7,500 warrants, respectively, to
acquire shares of common stock at an exercise price of $7.00. The warrants were
not exercisable until the second anniversary of the completion of the IPO.
In January 1995, two directors of the Company loaned a total of $25,000 to
the Company. The notes bore interest at 12% per annum and were repaid from the
proceeds of the IPO. In addition, the directors were granted warrants to acquire
2,500 shares of common stock at an exercise price of $7.00. The warrants were
not exercisable until the second anniversary of the completion of the IPO.
At December 31, 1998 and 1997, notes payable as shown on the Company's
balance sheets represent obligations resulting from the financing of insurance
premiums.
12
<PAGE> 13
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with Dr. Raymond Bergeron,
inventor of the technology which the Company has licensed, under which the
Company is obligated to pay $8,000 per month for consulting services through
December 1999.
In March 1993, the Company entered into an employment agreement with Mr.
Stefan Borg. The agreement provides for an annual base salary of $120,000 for a
three-year period beginning April 1, 1993. The board of directors approved a
$30,000 bonus upon the closing of the bridge financing discussed in Note 5 and,
effective June 1, 1994, the annual base salary was increased to $132,000. In
March 1995, the board of directors approved a $35,000 bonus for services
performed during the preceding twelve months, extended the agreement to March
31, 1997 and agreed to increase the annual base salary to $150,000, effective
April 1, 1995. In August 1997, the board of directors approved a bonus of
$15,000, the grant of 25,000 incentive stock options (see "1994 Plan" in Note 7)
and an increase in annual base salary to $200,000 effective April 1, 1997. The
employment agreement with Mr. Borg continues in effect on a year-to-year basis
unless terminated.
On December 20, 1995, Dean L. Rider, M.D. ("Rider"), a stockholder of the
Company, filed suit against the Company and Stefan Borg in Superior Court for
the City and County of San Francisco, California, seeking compensatory damages
of over $41 million and punitive damages based upon an alleged agreement between
SunPharm and Rider. In June 1996, the Company settled this litigation with Rider
by issuing Rider 50,000 shares of SunPharm common stock. Such shares have
subsequently been registered for resale. The issuance of the shares was recorded
by a reduction in legal fees accrued at December 31, 1995, which approximated
the fair value of the shares issued. The Company believes that the claims made
by Rider were without merit, and did not admit to any wrongdoing in connection
with the settlement. The Company agreed to the settlement because it believed
the cost of the settlement to be more economical than the cost of continuing to
incur significant legal expenses to defend this matter.
The Company leases office space, furniture and equipment under operating
leases. Lease expense for the years ended December 31, 1998 and 1997 was
approximately $83,400 and $75,500, respectively. Future minimum commitments on
operating leases at December 31, 1998 are as follows:
1999 ...................................... $110,000
2000 ...................................... 110,000
2001 ...................................... 110,000
2002 ...................................... 110,000
2003 ...................................... 110,000
--------
$550,000
========
The Company is subject to claims arising in the ordinary course of business
but does not believe that any such claims presently identified will have a
material adverse effect on its financial condition or results of operations.
7. STOCK OPTIONS, WARRANTS AND OTHER INCENTIVE COMPENSATION
In 1992, the Company issued warrants to a director to purchase 77,900 shares
of the Company's common stock. The warrants are exercisable at $1.93 per share.
In connection with certain notes payable issued in 1993, the Company issued
warrants to purchase 155,021 shares and 133,234 shares of the Company's common
stock at exercise prices of $1.93 per share and $3.21 per share, respectively.
These warrants have been recorded at zero in the accompanying financial
statements as the value at the time of issuance was de minimus.
During 1996, the Company offered the Bridge Notes warrant holders discussed
in Note 5 and SunPharm Investors L.P. discussed above a thirty percent reduction
in their applicable exercise price if they exercised their warrants prior to
December 31, 1996. Additionally, for each four warrants exercised, a warrant
identical to those included in the units described in Note 2 would be issued. As
a result of this warrant exchange offer, 62,858 of the Bridge Note warrants and
173,863 of SunPharm L.P. warrants were exercised in exchange for 236,721 shares
of stock and 59,178 new warrants. Proceeds from this transaction were
approximately $459,000 of cash, net of offering costs of approximately $34,000.
The Company's board of directors granted stock options to employees and
other parties to purchase common stock. Employee options generally vest over a
sixty month period or over the term of an employment agreement. Options granted
to consultants generally vest over a particular service period or in connection
with certain milestones. Also, certain options previously granted had immediate
vesting provisions. Most options expire seven years from the date of grant if
not exercised.
13
<PAGE> 14
In April 1994, the board of directors of the Company approved the 1994 Stock
Option Plan (1994 Plan) and reserved 350,550 shares of common stock for issuance
of stock options to employees and consultants. In 1997, the board of directors
increased the number of shares reserved by the Plan to 750,000 shares.
The 1994 Plan is composed of incentive stock options and nonqualified stock
options. The options generally vest over a two- to five-year period, and the
incentive stock options expire 10 years from the date of grant. For the years
ended December 31, 1998 and 1997, there were 50,000 shares and 124,500 shares
granted from this plan, respectively.
On July 10, 1995, the stockholders of the Company approved the SunPharm
Corporation 1995 Nonemployee Directors' Stock Option Plan (the "1995 Directors'
Plan"). The maximum number of shares of common stock with respect to which
options may be granted under this plan is 300,000 as amended in 1997, subject to
appropriate adjustment upon a reorganization, stock split, recapitalization or
other change in the Company's capital structure. Directors who are not employees
or consultants to the Company are eligible to receive nonqualified stock options
which, in accordance with the plan, must be issued at one hundred percent (100%)
of the fair market value of the common stock of the Company on the date of
grant. Directors who are eligible to receive options under the 1995 Directors'
Plan, will be entitled to receive an option to purchase 25,000 shares of common
stock on the date on which they become a director. Additionally, eligible
directors will be entitled to receive options annually on the date of their
reelection to the Board of Directors to purchase 5,000 shares (with an
additional 10,000 shares for the Chairman of the Board of Directors, if he is
eligible) of common stock. For the years ended December 31, 1998 and 1997,
options to purchase 40,000 and 125,000 shares of common stock were granted under
the 1995 Directors' Plan.
In August 1994, the Company elected a director of the Company, and engaged
him as a consultant to provide management, marketing, economic and strategic
planning services during a two-year period. The director was compensated under
such consulting agreement at a rate of $7,500 per month, and by the issuance of
a stock appreciation right ("SAR") for 150,000 common stock equivalents,
exercisable (commencing in 1996 with respect to 50% and in 1997 with respect to
the remainder) in an amount equal to the excess of the fair market value of the
Company's common stock on the date of exercise over the initial public offering
price of the Units. Such stock appreciation right terminates on January 1, 2000.
As consideration for his serving on the Board of Directors, the director was
granted a five-year stock purchase warrant ("Warrant") for 225,000 shares of
common stock of the Company, such warrant being exercisable at a price of $5.50
per share. In 1995, the Company recorded compensation expense of $18,750 and
$28,188 in connection with the SAR and the warrant, respectively, and due to the
terms, may incur additional non-cash charges in the future. No compensation
expense has been recorded since 1995 related to any options, warrants or SARs
based on the quoted market value of the Company's common stock.
During the year ended December 31, 1997, the Company issued warrants to two
investment companies to purchase 150,000 shares of the Company's common stock.
The warrants were valued at approximately $90,000 which represents the fair
value of the services provided. Such amount was expensed with a corresponding
increase to additional paid-in-capital during the year ended December 31, 1997.
SFAS NO. 123 REQUIRED DISCLOSURE
If compensation cost for stock option, SARs and warrant grants ("Grants")
had been determined based on the fair value at the grant dates for 1998 and 1997
consistent with the method prescribed by SFAS No. 123, the Company's net loss
and loss per share would have been adjusted to the pro forma amounts indicated
below:
1998 1997
---- ----
Net loss
As reported ..................... $(3,767,392) $(3,906,425)
Pro forma ....................... (4,204,638) (4,464,082)
Loss per share
As reported ..................... (0.64) (0.75)
Pro forma ....................... (0.72) (0.86)
Under SFAS No. 123, the fair value of each Grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997, respectively:
Dividend yield of 0% and 0%, expected volatility of 155.2% and 77.8%, risk-free
interest rates of 5.28% and 6.33%, and expected lives of 7 and 7 years.
14
<PAGE> 15
A summary of the status of Grants under the Company's stock-based
compensation plans as of December 31, 1998 and 1997, and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
WEIGHTED- WEIGHTED-
GRANTS AVERAGE AVERAGE
------ EXERCISE EXERCISE
PRICE GRANTS PRICE
--------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ...................... 1,561,390 $ 3.48 1,384,696 $ 3.25
Granted ............................................. 90,000 3.19 249,500 3.79
Exercised ........................................... (28,573) 0.40 (72,806) 0.10
Forfeited ............................................ (80,000) 5.42 --
---------- ----------
Outstanding at end of year ............................ 1,542,817 3.42 1,561,390 3.48
========== ==========
Grants exercisable at year-end ........................ 1,298,384 1,205,703
========== ==========
Weighted-average fair value of Grants granted during
the year .............................................. $ 3.09 $ 2.88
========== ==========
</TABLE>
The following table summarizes information about the outstanding Grants at
December 31, 1998:
<TABLE>
<CAPTION>
GRANTS OUTSTANDING GRANTS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 LIFE (YEARS) PRICE 1998 PRICE
--------------- ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$.0064 to $.32 364,873 2.04 $ 0.31 289,473 $ 0.31
$1.60 to $2.99 349,070 5.37 1.95 255,558 1.78
$3.00 to $4.50 178,374 8.56 3.74 119,353 3.71
$5.375 to $5.75 495,500 2.64 5.52 479,000 5.52
$6.54 to $8.75 155,000 5.81 7.19 155,000 7.19
--------- ---------
1,542,817 1,298,384
========= =========
</TABLE>
Remaining non-exercisable Grants as of December 31, 1998 become available
as follows:
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................................ 142,225
2000............................................................................................ 36,083
2001............................................................................................ 34,000
2002............................................................................................ 24,625
2003............................................................................................ 7,500
-------
244,433
=======
</TABLE>
8. FEDERAL INCOME TAXES
The Company has incurred losses since inception and, therefore, has not
been subject to federal income taxes. As of December 31, 1998, the Company has
net operating loss (NOL) and tax credit carryforwards for income tax purposes of
approximately $16,953,000 and $596,000, respectively, which may be available to
reduce future taxable income and future tax liabilities. These carryforwards
begin to expire in 2008.
The Tax Reform Act of 1986 provides for an annual limitation on the use of
NOL and tax carryforwards (following certain ownership changes) that could
significantly limit the Company's ability to utilize these carryforwards. The
Company has made no determination concerning whether there has been such a
cumulative change in ownership, and it is possible that such a change in
ownership occurred following the completion of the Company's IPO, subsequent
private placements, and subsequent exercise of the Warrants. Accordingly, the
Company's ability to utilize the aforementioned carryforwards to reduce future
taxable income and tax liabilities may be limited. Additionally, because United
States tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
these attributes for federal income tax purposes.
15
<PAGE> 16
As the Company has had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been established to fully
offset the deferred tax asset related to the net operating losses and other
items. The components of the Company's deferred tax assets at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 6,709,000 $ 4,997,000
Research and development tax credits 596,000 464,000
Deferred compensation 326,000 326,000
----------- -----------
Total deferred tax assets 7,631,000 5,787,000
Less valuation allowance 7,631,000 5,787,000
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
9. RESEARCH AND DEVELOPMENT
In 1991, the Company issued 311,600 shares of common stock to UFRFI,
recorded at $2,000, for exclusive, worldwide license agreement rights. The
Company also paid a maintenance fee to UFRFI in the amount of $50,000 which was
charged to research and development expense. This fee is credited toward
sponsored research payments and/or royalties. In March 1993, the license
agreement was amended to provide for additional patent rights for the Company in
exchange for the Company's payment of patent costs incurred by UFRFI prior to
the amendment, a license fee of $40,000 payable to UFRFI upon execution of the
amendment, the issuance of 31,160 shares of common stock valued at $10,000 and
an increase in annual maintenance fee payable to UFRFI from $50,000 to $100,000.
In September 1996, this agreement was further amended providing for more patent
rights for the Company in exchange for the Company's payment of a one-time
license fee of $50,000 and an increase in the annual maintenance to $200,000
beginning in 1997.
The Company has also entered into a research agreement with UFRFI. For the
years ended December 31, 1996 and 1995, the Company paid $535,000 and $869,000,
respectively, to UFRFI under the terms of the research agreement. The amount
paid in 1995 includes the maintenance fee of $100,000 for 1996. In September
1996, this agreement was amended concurrently with the license agreement
described above for increased sponsored research payments related to the
Company's products from $625,000 in 1995 to $641,000 in 1996, $854,250 in 1997
and $875,000 in 1998. These expenses are charged to operations as incurred.
Failure to pay such costs could result in termination of the license agreement
rights. If UFRFI were to terminate the license, the Company's rights to
manufacture and market the technology and related products would terminate and
such an event would have a material adverse effect on the Company. In 1995, the
Company paid $50,000 to UFRFI for an additional license, described below. The
Company also paid UFRFI $163,000 and $210,00 in 1998 and 1997, respectively, for
reimbursement of patent costs.
The Company agreed to pay a royalty on net sales of licensed products up to
6 percent of net sales for each product. A royalty of 28 percent of sublicensee
payments, but no less than 2 percent of net sales by such sublicensee, will also
be payable to UFRFI. The Company paid UFRFI $210,000 in royalties in 1995, which
were payable as a result of licensing fees received in 1993. At December 31,
1996 the Company had accrued an additional $280,000 liability to UFRFI for
sublicense payments related to the $1 million Warner Lambert milestone payment
earned in 1996. Such amount was paid in 1997.
On May 1, 1993, the Company entered into a sublicensing agreement with
Warner-Lambert. The agreement grants Warner-Lambert the right of first refusal
in the event the Company decides to develop certain other licensed products
under certain circumstances. Under the terms of the agreement, Warner-Lambert
paid the Company $100,000 in May 1993 upon the execution of the agreement and
$750,000 in October 1993 related to the filing of the investigational new drug
application. The payments were recognized as revenue when the payments were
received. Additional payments may be received for the completion of certain
scientific milestones. The agreement provides for Warner-Lambert to pay the
Company a royalty on net sales, as defined. On March 1, 1994, Warner-Lambert
paid the Company $750,000 in consideration for the Company's research and
development activities performed. In 1996, the Company earned an additional $1
million from Warner Lambert, of which $500,000 was receivable as of December
31,1996 and was collected in January, 1997. The agreement will terminate on the
later of the last expiration date of a licensed patent or 10 years from
Warner-Lambert's marketing of a licensed product.
In February 1994, the Company entered into an exclusive sublicense
agreement with Nippon Kayaku. Upon execution of the agreement, Nippon Kayaku
paid the Company $225,000 for research and development performed. The sponsored
research payment was recognized as revenue when the payment was received.
Additional payments may be payable to the Company for the completion of certain
scientific milestones. The agreement provides for Nippon Kayaku to pay the
Company a royalty on net sales, as defined.
16
<PAGE> 17
In addition, Nippon Kayaku will reimburse the Company for direct costs
incurred for preclinical studies performed prior to the agreement. Nippon Kayaku
will also pay a running royalty of 2 percent of net sales as defined for 10
years in the event that Nippon Kayaku elects to manufacture the product. The
agreement will terminate on the later of the last expiration of a licensed
patent or 10 years from Nippon Kayaku's marketing of a licensed product in
Japan.
A director was issued options with an exercise price of $.32 per share to
purchase 77,900 shares of common stock in connection with the exclusive
sublicense agreement with Nippon Kayaku. The original option agreement
stipulated that the options vested upon the completion of specified milestones
and, accordingly, compensation expense was recorded for the portion of the
options that had not vested through September 1994, at which time the Company
amended the agreement to reflect vesting based upon time or the completion of
specified milestones (see Note 7).
10. SUBSEQUENT EVENTS (UNAUDITED)
SURRENDER OF PURCHASE OPTION -- On February 16, 1999, the underwriter of
the Company's IPO agreed to surrender a purchase option for 110,000 shares of
Common Stock exercisable at $11.20 per share, which it had acquired in
connection with the IPO and which was due to expire on January 12, 2000. In
exchange for surrender of this option, the Company agreed to issue an equal
number of shares to the underwriter at $0.60 per share, for total proceeds of
$66,000
PRIVATE PLACEMENT OF PREFERRED STOCK AND COMMON STOCK -- On March 31, 1999,
the Company sold 66,667 shares of Series B Redeemable Convertible Preferred
Stock at $4.00 per share, ("Series B Preferred") and 183,333 shares of Common
Stock at $1.273 per share to an institutional investor in a Private Placement
pursuant to Regulation D under the Securities Act of 1933. The shares of Series
B Preferred are initially convertible to Common Stock on a 1-for-1 basis,
subject to customary antidilution adjustments. Dividends shall accrue on the
Series B Preferred at the rate of 8% per annum. In the event of liquidation,
dissolution, or winding up of the Company, or, at the option of the holders of
the Series B Preferred, a consolidation or merger of the Company or a sale of
all or substantially all of its assets, the Series B Preferred Stock will be
entitled to receive in preference to the Company's Common Stock an amount per
share equal to the original purchase price plus any accrued dividends per share.
Redemption of the Series B Preferred is at the request of holders of at
least 33 1/3% of such shares outstanding, which request may be made at any time
two years following closing of the Private Placement. In the event of such
request, the Company shall be required to redeem all of the Series B Preferred
Stock held by the requesting holders at a redemption price equal to $4.00 per
share (subject to adjustment), plus any accrued dividends per share. The
redemption price may be paid, at the Company's option in cash or in shares of
the Company's Common Stock. The Company's intention is to make such redemption
in Common Stock, and accordingly the Series B Preferred has been included in
stockholder's equity. Net proceeds to the Company from this Private Placement
were $485,000, net of fees of approximately $15,000.
(b) Pro Forma Financial Statements
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the merger using the purchase method of accounting. The unaudited pro
forma consolidated balance sheet gives effect to the merger as if it had
occurred on September 30, 1999. The unaudited pro forma consolidated statements
of operations for the year ended December 31, 1998 give effect to the merger as
if they had occurred on January 1, 1998. The unaudited pro forma consolidated
statements of operations for the nine months ended September 30, 1999 give
effect to the merger as if they had occurred on January 1, 1999. The Unaudited
Pro Forma Consolidated Financial Statements do not purport to represent what
GelTex's financial position or results of operations would actually have been if
the merger had in fact occurred on such dates or to project GelTex's financial
position or results of operations as of any future date or for any future
period.
The unaudited pro forma adjustments have been applied to the financial
information derived from the financial statements of GelTex and SunPharm to
account for the merger; accordingly, assets acquired and liabilities assumed are
reflected at their estimated fair values.
As a result of the merger, GelTex will record purchased goodwill and a
nonrecurring charge to operations for acquired in-process research and
development of $9.5 million. The pro forma consolidated financial statements
reflect the allocation to purchased goodwill of $6,894,037. The charge for
acquired in-process research and development has been reflected in the unaudited
pro forma consolidated balance sheet, but excluded from the unaudited pro forma
consolidated statement of operations, because the charge is nonrecurring.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated on
September 30,
17
<PAGE> 18
1999, January 1, 1998 or January 1, 1999, respectively, nor is it necessarily
indicative of future operating results or financial position.
These unaudited pro forma consolidated financial statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements and the related notes thereto of GelTex and
SunPharm and other financial information pertaining to GelTex and SunPharm,
including "GelTex's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "SunPharm's Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Form S-4 or,
in the case of GelTex, incorporated by reference from its Form 10-K filed
on March 31, 1999, its Forms 10-Q's filed on May 14,1999 and August 16, 1999 and
November 12, 1999.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
HISTORICAL PRO FORMA PRO FORMA
GELTEX SUNPHARM ADJUSTMENTS NOTES COMBINED
------ -------- ----------- ----- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,028,577 $ 28,518 $ 6,057,095
Marketable securities 56,161,537 -- 56,161,537
Prepaid expenses and other current asset 4,207,167 702,375 (22,950) A 4,886,592
Due from affiliates 10,251,100 -- 10,251,100
Inventory
Work-in-process 4,035,022 -- 4,035,022
Due from Joint Venture 422,048 -- 422,048
------------- ------------ -------------
Total current assets 81,105,451 730,893 81,813,394
Long-term receivables, affiliates 443,000 132,078 (119,357) A 455,721
Property and equipment, net 7,640,693 53,475 7,694,168
Other assets -- 9,275 9,275
Intangible assets, net 1,089,624 -- 1,089,624
Goodwill -- -- 6,894,037 B 6,894,037
Investment in Joint Venture 11,007,119 -- 11,007,119
------------- ------------ -------------
TOTAL ASSETS $ 101,285,887 $ 925,721 $ 108,963,338
============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and Accrued expenses $ 839,271 $ 1,147,948 651,487 C $ 2,638,706
Obligations due upon close of merger -- -- 571,618 D 571,618
Due to Joint Venture 1,219,800 -- 1,219,800
Notes Payable -- 14,249 14,249
Other -- 92,961 92,961
Current portion of long-term obligations 1,678,002 -- 1,678,002
------------- ------------ -------------
Total current liabilities 3,737,073 1,255,158 6,215,336
Long-term obligations, less current
Portion 3,953,898 -- 3,953,898
Commitments and contingencies -- -- --
Stockholders' equity:
Series A preferred stock -- 300 (300) E --
Series B preferred stock -- 67 (67) E --
Common stock 168,727 725 11,027 E,F 180,479
Additional paid-in capital 187,105,180 21,671,051 (6,953,615) F 201,822,616
Deferred compensation (353,231) -- (353,231)
Other comprehensive gain (loss) (229,838) -- (229,838)
Accumulated deficit during development
Stage -- (22,001,580) 22,001,580 E --
Accumulated deficit (93,095,922) -- (9,530,000) G (102,625,922)
------------- ------------ -------------
Total stockholders' equity 93,594,916 (329,437) 98,794,104
------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 101,285,887 $ 925,721 $ 108,963,338
============= ============ =============
</TABLE>
18
<PAGE> 19
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
GELTEX SUNPHARM ADJUSTMENTS NOTES COMBINED
------ -------- ----------------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative Joint Venture
Project reimbursement $ 4,434,648 $ -- $ 4,434,648
Contract revenue 1,751,669 625,000 2,376,669
------------- ----------- -------------
Total revenue 6,186,317 625,000 6,811,317
Costs and Expenses:
Research and development 20,795,596 1,856,492 22,652,088
Collaborative Joint Venture
Project reimbursement 4,434,648 -- 4,434,648
------------- ----------- -------------
Total research and development 25,230,244 1,856,492 27,086,736
General and administrative 4,778,253 1,368,642 6,146,895
Amortization of purchased goodwill -- -- 738,647 H 738,647
Royalty expense -- 175,000 175,000
------------- ----------- -------------
Total costs and expenses 30,008,497 3,400,134 34,147,278
Loss from operations (23,822,180) (2,775,134) (27,335,961)
Interest income, net 3,023,078 38,001 3,061,079
Other income -- 6,000 6,000
Equity in loss of Renagel Joint
Venture (5,785,378) -- (5,785,378)
------------- ----------- -------------
Net loss $ (26,584,480) $(2,731,133) $ (30,054,260)
============= =========== =============
Basic and diluted net loss per share $ (1.58) $ (0.40) $ (1.67)
============= =========== =============
Shares used in computing basic
and diluted net loss per share 16,853,000 6,875,328 18,028,000
</TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
GELTEX SUNPHARM ADJUSTMENTS NOTES COMBINED
------ -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
License fee and research revenue $ 25,000,000 $ 230,729 -- $ 25,230,729
Collaborative Joint Venture
project reimbursement 7,658,232 -- -- 7,658,232
------------- ----------- ------------
Total revenue 32,658,232 230,729 -- 32,888,961
Costs and Expenses:
Research and development 27,904,064 2,509,561 -- 30,413,625
Collaborative Joint Venture
project reimbursement 7,658,232 -- -- 7,658,232
------------- ----------- ------------
Total research and development 35,562,296 2,509,561 -- 38,071,857
Amortization of purchased goodwill -- -- 984,862 H 984,862
General and administrative 5,583,361 1,651,686 -- 7,235,047
------------- ----------- ------------
Total costs and expenses 41,145,657 4,161,247 46,291,766
Loss from operations (8,487,425) (3,930,518) (13,402,805)
Interest income, net 4,455,737 163,126 4,618,863
Equity in loss of Renagel Joint
Venture (7,535,630) -- (7,535,630)
------------- ----------- ------------
Net loss (11,567,318) (3,767,392) (16,319,572)
============= =========== ============
Basic and diluted net loss per share (0.72) (0.64) (0.95)
============= =========== ============
Shares used in computing basic
and diluted net loss per share 16,023,000 5,876,875 17,198,196
</TABLE>
19
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements give
effect to the merger using the purchase method of accounting. The unaudited
pro forma consolidated balance sheet gives effect to the merger as if it
had occurred on September 30, 1999. The unaudited statements of operations
for the year ended December 31, 1998 give effect to the merger as if it had
occurred on January 1, 1998, and the unaudited pro forma consolidated
statement of operations for the nine months ended September 30, 1999 give
effect to the merger as if it had occurred on January 1, 1999. The
unaudited pro forma consolidated financial statements do not purport to
represent what GelTex's financial position or results of operations would
actually have been if the merger had in fact occurred on such dates or to
project GelTex's financial position or results of operations as of any
future date or for any future period.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
(a) The unaudited pro forma consolidated financial statements reflect the
conversion of all of the outstanding shares of SunPharm common stock and
preferred stock into approximately 1,175,195 shares of GelTex common stock
pursuant to the merger. The exchange ratio for the common stock of 0.14525
and the exchange ratio for the preferred stock of 0.21788 was calculated as
a fraction in accordance with the terms of the Merger Agreement. All
outstanding options and warrants to purchase SunPharm common stock which
did not terminate in connection with the merger will be assumed by GelTex
pursuant to the merger and converted into options and warrants to purchase
shares of GelTex common stock.
(b) The total consideration of $15.5 million consists of GelTex common
stock valued at $14.4 million, transaction costs of approximately $0.8
million and $0.3 million of SunPharm options and warrants assumed. The
purchase price will be allocated based on the fair value of assets acquired
and liabilities assumed, netting to $(0.9) million, acquired in-process
research and development of $9.5 million and purchased goodwill of $6.9
million. In-process research and development charges resulting from the
merger have not been reflected in the pro forma consolidated statement of
operations, as they are considered non-recurring charges.
Acquired in-process research and development (IPR&D) for the merger
was evaluated utilizing the present value of the estimated after-tax cash
flows expected to be generated by the purchased technology, which, at the
effective time of the merger, had not reached technological feasibility.
The cash flow projections for revenues are based on estimates of growth
rates and the aggregate size of the respective market for each product;
probability of technical success give the stage of development at the time
of acquisition; royalty rates based on prior licensing agreements;
product's sales cycles; and the estimated life of a product's underlying
technology. Estimated operating expenses and income taxes are deducted from
estimated revenue projections to arrive at estimated after-tax cash flows.
Projected operating expenses include general and administrative expenses,
and research and development costs. The rates utilized to discount
projected cash flows range from 40% to 50% depending upon the relative risk
of the return and the weighted average cost of capital for GelTex at the
time of the merger.
The unaudited pro forma consolidated financial statements reflect
acquired IPR&D of approximately $9.5 million, representing the values
determined by the Company's management to be attributable to the IPR&D
assets associated with the technology acquired in the SunPharm acquisition.
Of this amount, approximately $8.7 million is related to the DENSPM for
solid tumor cancer project and approximately $0.8 million is related to the
DEHOP for AIDS-related diarrhea project. The values associated with these
programs represent GelTex's management ascribed values, based on the
discounted cash flows currently expected from the technologies acquired. If
these projects are not successfully developed, the business, operating
results, and financial condition of GelTex may be adversely affected.
As of the date of the merger agreement was signed, GelTex concluded
that once completed, the technologies under development can only be
economically used for its specific and intended purposes and that IPR&D
technology has no alternative future uses after taking into consideration
the overall objectives of the project, progress toward the objectives, and
uniqueness of developments to these objectives.
c) The unaudited pro forma consolidated balance sheets includes
adjustments necessary to give effect to the merger as if it had occurred on
September 30, 1999 and to reflect the allocation of the acquisition cost to
the fair value of tangible and intangible assets acquired and liabilities
assumed as noted above, including a charge to retained earnings for
acquired in-process research and development and the elimination of
SunPharm's equity accounts. The pro forma consolidated statements of
operations include the adjustments necessary to give effect to the merger
as if it had occurred at the beginning of the respective periods.
Adjustments included in the pro forma consolidated balance sheets and
statements of operations are summarized as follows:
(A) Forgiveness of notes receivable from officers of $142,307,
20
<PAGE> 21
(B) Valuation of purchased goodwill of $6,894,037, seven year
remaining life,
(C) Accrual for transaction-related costs of approximately $651,487,
principally for valuation, legal, accounting services and an
investment advisory fee, incurred by GelTex and SunPharm.
(D) Accrual for severance and other payouts associated with
pre-existing severance plans of approximately $571,618.
(E) Elimination of the SunPharm equity accounts.
(F) Issuance of GelTex common stock, $0.01 par value. The value of
GelTex common stock is equal to the product of 1,175,196 shares
multiplied by $12.31 per share, less costs of issuing shares of
approximately $22,000.
(G) Charge to operations for in-process research and development of
approximately $9,530,000 .
(H) Amortization of purchased goodwill based upon the useful life of 7
years.
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
Pro forma basic and diluted net loss per share amounts for the nine month
periods ended September 30, 1999 and 1998, are based upon the historical
weighted-average number of GelTex common stock outstanding adjusted to reflect
the issuance, as of January 1, 1998, of approximately 1,175,196 shares of GelTex
common stock, which amount excludes outstanding shares subject to repurchase in
accordance with SFAS No. 128. The impact of outstanding options including
SunPharm options, is not included in the calculation of basic and diluted net
loss per share as the effect would be antidilutive.
(d) Exhibits.
2.1 Agreement Plan of Merger dated August 13, 1999. Filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
period ending June 30, 1999 and incorporated herein by reference.
20.1 Press release dated November 17, 1999 announcing the closing of
the Agreement and Plan of Merger.
23.1 Consent of Deloitte & Touche, LLP, Independent Auditors.
21
<PAGE> 22
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 hereunto duly authorized.
GELTEX PHARMACEUTICALS, INC.
(Registrant)
Date: December 1, 1999 /s/ Paul J. Mellett
-------------------
Paul J. Mellett
Chief Financial Officer
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 Agreement Plan of Merger dated August 13, 1999. Filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the period ending June 30, 1999 and incorporated herein by reference.
20.1 Press release dated November 17, 1999 announcing the closing of the Agreement and Plan of Merger.
23.1 Consent of Deloitte & Touche, LLP, Independent Auditors.
</TABLE>
23
<PAGE> 1
EXHIBIT 20.1
[GELTEX LOGO]
CONTACTS: Mark Skaletsky Justin Jackson or
President and CEO Miriam Weber (media)
GelTex Pharmaceuticals, Inc. Burns McClellan
781-434-3500 212-213-0006
GELTEX PHARMACEUTICALS COMPLETES ACQUISITION OF SUNPHARM CORPORATION
WALTHAM, MA, NOVEMBER 17, 1999 -- GelTex Pharmaceuticals, Inc. (Nasdaq:
GELX) today announced that the Company has completed its acquisition of SunPharm
Corporation (Nasdaq: SUNP), a life sciences firm developing proprietary
pharmaceuticals based on expertise in polyamine and iron chelator technologies.
Under the terms of a merger agreement announced in August 1999, all outstanding
preferred and common stock of SunPharm have been converted into GelTex shares in
a transaction valued at approximately $14.5 million based upon closing price of
GelTex stock on November 16, 1999. The acquisition will be accounted for under
the "purchase accounting" method.
"As previously reported, we believe that the benefits to GelTex include
the acquisition of clinical-stage compounds, as well as earlier programs that
are complementary to our focus," said Mark Skaletsky, President and Chief
Executive Officer of GelTex. "We look forward to advancing several of these
programs into clinical development over the next 12 months."
SunPharm's R&D pipeline is based on two chemically related classes of
molecules -- polyamines and iron chelators. SunPharm's lead compound, a
polyamine analogue ("DENSPM"), is currently undergoing clinical testing in a
multicenter Phase 2 study being conducted by corporate partner, the Parke-Davis
Pharmaceutical Research division of Warner-Lambert Company, in patients with
solid tumor cancers. A second compound, an injectable iron chelator, has
recently been licensed to Schein Pharmaceutical. Clinical testing is expected to
begin next year.
SunPharm develops small-molecule pharmaceutical products consisting of
novel polyamine analogues and metal chelators, invented at the University of
Florida and licensed exclusively to the Company for the development of products
for treating cancer, AIDS-related diarrhea, gastrointestinal inflammation, iron
overload and other indications.
GelTex Pharmaceuticals, Inc. develops polymer-based, non-absorbed
pharmaceuticals that selectively bind and eliminate target substances from the
intestinal tract resulting in a systemic medical benefit.
This news release contains forward-looking statements based on current
expectations and assumptions that involve risks and uncertainties that could
cause actual outcomes and results to differ materially. These risks and
uncertainties include the results of research which could affect the progression
of certain programs into clinical development. GelTex disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
####
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated February 12, 1999 with respect to
the financial statements of SunPharm Corporation included in the Form 8-K of
GelTex Pharmaceuticals, Inc. dated December 1, 1999.
Deloitte & Touche LLP
Certified Public Accountants
Jacksonville, Florida
December 1, 1999
24
