<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1997
REGISTRATION NO. 333-17769
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ILEX ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8071 74-2699185
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
RICHARD L. LOVE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
11550 IH-10 WEST, SUITE 300 ILEX ONCOLOGY, INC.
SAN ANTONIO, TEXAS 78230 11550 IH-10 WEST, SUITE 300
(210) 949-8200 SAN ANTONIO, TEXAS 78230
(Address, including zip code, and telephone number, (210) 949-8200
including area code, of registrant's principal (Name and address, including zip code, and telephone
executive offices) number, including area code, of agent for service)
</TABLE>
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Copies to:
<TABLE>
<C> <C>
PHILLIP M. RENFRO, ESQ. GEORGE W. BILICIC, JR., ESQ.
FULBRIGHT & JAWORSKI L.L.P. CRAVATH, SWAINE & MOORE
300 CONVENT STREET, SUITE 2200 825 EIGHTH AVENUE
SAN ANTONIO, TEXAS 78205 NEW YORK, NEW YORK 10019
(210) 224-5575 (212) 474-1000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
ILEX ONCOLOGY, INC.
CROSS REFERENCE SHEET
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<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Cover Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors; Selected
Financial Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution......................................... Risk Factors; Dilution
7. Selling Security Holders......................... *
8. Plan of Distribution............................. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered....... Outside Front Cover Page of Prospectus;
Dividend Policy; Description of Capital
Stock
10. Interest of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant....... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Description of Capital Stock;
Certain Transactions; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Management
</TABLE>
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* Not applicable.
i
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
FEBRUARY 18, 1997
PROSPECTUS
2,500,000 SHARES
ILEX ONCOLOGY, INC. [ILEX ONCOLOGY LOGO]
COMMON STOCK
($.01 PAR VALUE)
All of the 2,500,000 shares of Common Stock, $.01 par value (the "Common
Stock"), being offered hereby (the "Shares") are being issued and sold by ILEX
Oncology, Inc. ("ILEX" or the "Company"). It is anticipated that the initial
public offering price will be between $11.00 and $13.00 per share. Prior to this
offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
The Company's Common Stock has been approved for listing on the Nasdaq National
Market under the trading symbol "ILXO."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
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</TABLE>
(1) Before deducting expenses of the offering payable by the Company estimated
at $600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 375,000 additional shares of Common Stock at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC
COWEN & COMPANY
SMITH BARNEY INC.
The date of this Prospectus is , 1997.
<PAGE> 4
ILEX Oncology, Inc. is a drug development company focused on the
development, manufacture and regulatory approval of oncology drugs.
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[Picture of a physician and child] [Picture of two individuals]
</TABLE>
<TABLE>
<C> <C>
The American Cancer Society estimates one in The best way to cure cancer is not to get it
three Americans will be diagnosed with in the first place.
cancer in their lifetime.
</TABLE>
Treatment
ILEX Prevention
Contract Research Services
ILEX's Full Range of Development Services
[Table showing services]
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Preclinical Pharmacology Phase I Clinical Trials
Formulation Phase II Clinical Trials
Synthesis/Sale-up (GMP) NDA Preparation
Toxicology FDA Approval
IND Preparation
</TABLE>
MOST OF THE COMPANY'S COMPOUNDS ARE CURRENTLY UNDERGOING CLINICAL TRIALS WHILE
OTHERS ARE IN PRECLINICAL DEVELOPMENT. TO DATE, THE COMPANY HAS NOT COMPLETED
THE DEVELOPMENT, OR GENERATED REVENUES FROM SALES, OF ANY PRODUCTS, AND FDA
APPROVAL WILL BE REQUIRED BEFORE SUCH PRODUCTS CAN BECOME COMMERCIALLY
AVAILABLE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET
(INCLUDING THE NASDAQ NATIONAL MARKET) OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ILEX(TM) IS A TRADEMARK OF THE COMPANY. TRADEMARKS OF OTHERS ARE ALSO REFERRED
TO IN THIS PROSPECTUS.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto contained
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." In this Prospectus, the
term "Company" or "ILEX" refers to ILEX Oncology, Inc. Except as otherwise
indicated, all information in this Prospectus (i) assumes the conversion of all
outstanding shares of convertible preferred stock of the Company ("Convertible
Preferred Stock") into Common Stock upon consummation of this offering, (ii)
reflects an approximate 1-for-1.752 reverse stock split (the "Reverse Stock
Split") of the outstanding Common Stock effective immediately prior to the
effective date of the Registration Statement of which this Prospectus is a part
and (iii) assumes no exercise of the Underwriters' over-allotment option. See
"Capitalization," "Description of Capital Stock" and "Underwriting."
THE COMPANY
ILEX is a drug development company focused exclusively on oncology. The
Company uses its expertise in the identification, development, manufacturing and
regulatory approval process of oncology drugs to (i) develop cancer treatment
products, (ii) develop products for the prevention of cancer ("chemoprevention")
and (iii) provide contract research services to pharmaceutical and biotechnology
companies. ILEX's objective is to be a leading worldwide oncology drug
development company. The Company has nine cancer treatment compounds under
development, including five in Phase II or Phase III clinical trials. In October
1996, ILEX submitted a New Drug Application ("NDA") to the Food and Drug
Administration ("FDA") seeking accelerated marketing approval for mitoguazone
("MGBG") as a treatment for patients with AIDS-related non-Hodgkin's lymphoma
who have failed an initial treatment regimen ("second-line treatment").
Additionally, ILEX has two chemoprevention compounds under development.
Consistent with its strategy, the Company has established worldwide development
and marketing collaborations ("collaborative arrangements") with Sanofi S.A.
("Sanofi"), Janssen Pharmaceutica N.V., a subsidiary of Johnson & Johnson
("Janssen"), and MGI Pharma, Inc. ("MGI Pharma") for certain of its compounds.
In addition to its proprietary product development programs, the Company offers
contract research organization ("CRO") services to both the pharmaceutical and
biotechnology industries. ILEX believes it is currently the only full-service
provider of contract research services focused exclusively on oncology.
Oncology represents a significant market opportunity. The American Cancer
Society estimates that over 1.3 million new cases of cancer will be diagnosed
and approximately 550,000 cancer deaths, representing approximately 25% of all
projected deaths, will occur in the United States in 1996. Cancer is the second
leading cause of death in the United States and over 10 million people alive
today have a history of cancer. The worldwide oncology drug market was estimated
at approximately $5.6 billion in 1995 and is projected to total approximately $9
billion by the year 2000. While recent data suggests that overall cancer death
rates have declined since 1990, primarily due to an overall reduction in lung
cancer deaths, the death rates resulting from several cancers are still rising,
including non-Hodgkin's lymphoma, pancreatic cancer, multiple myeloma and
chronic leukemia. Moreover, the incidence of cancer increases dramatically with
age, with approximately 80% of cancers diagnosed in the United States occurring
in people the age of 55 and over. Specifically, people over the age of 65 have,
on average, a ten times greater risk of dying from cancer than those in the
under-65 population. Therefore, since the over-65 population is one of the
fastest growing age groups in the United States, it is expected that there will
be an increased need for oncology products. Additionally, due to the
life-threatening nature of cancer, the FDA has announced procedures for
accelerating the approval of oncology agents, thereby reducing the amount of
time required to bring such agents to market. The Company believes that the
increasing demand for oncology products and the acceleration of the oncology
product approval process by the FDA creates a unique opportunity for the Company
to use its expertise in oncology drug development.
ILEX was formed by The Cancer Therapy and Research Foundation of South
Texas ("CTRC") in December 1993 for the purpose of conducting certain advanced
drug development programs and pursuing commercial opportunities which were not
within the scope of CTRC's tax-exempt purpose. CTRC is a non-profit
organization, which, in conjunction with the University of Texas Health Science
Center at San Antonio ("UTHSCSA"), is a National Cancer Institute ("NCI")
designated Comprehen-
3
<PAGE> 6
sive Cancer Center and one of the leading organizations in the United States
conducting clinical testing of oncology drugs. CTRC and its research subsidiary,
CTRC Research Foundation ("CTRC Research") and certain related entities have had
some level of participation in the clinical development of a majority of the
oncology drugs approved for marketing over the past 10 years. The Company
contracts with CTRC Research for laboratory studies, clinical research and
advisory services. Because of the Company's established relationship with, and
geographical proximity to, CTRC Research, ILEX is able to obtain prompt feedback
regarding the safety and efficacy of its compounds. Pharmaceutical companies
seeking assistance from CTRC Research often find it cost-effective to engage
ILEX to monitor studies conducted at CTRC Research. In addition, ILEX has an
option to license certain drug discoveries arising from research programs
conducted at CTRC Research. Although CTRC Research currently owns approximately
30.3% of the outstanding shares of capital stock of the Company and will own
approximately 23.8% upon the closing of this offering, CTRC Research is an
independent entity that neither ILEX nor its management controls. See
"Business -- Relationship with CTRC."
ILEX's objective is to be a leading worldwide oncology drug development
company. The Company believes that its approach of developing proprietary
products for cancer treatment and chemoprevention combined with providing
contract research services to pharmaceutical and biotechnology companies will
generate revenues in the near term and diversify risk, while developing a
portfolio of proprietary products with significant long-term potential. The
Company's strategy consists of the following elements: (i) focusing on the
expanding cancer market; (ii) using its expertise to identify and license from
others ("in-license") compounds in later stages of development; (iii) developing
chemoprevention products; (iv) forming strategic collaborations with corporate
partners ("collaborative partners"); and (v) offering a full range of oncology
product development and manufacturing services.
ILEX has submitted an NDA to the FDA seeking accelerated marketing approval
for MGBG as a second-line treatment for patients with AIDS-related non-Hodgkin's
lymphoma. The Company, in collaboration with Sanofi, plans to expand the
potential uses of MGBG by conducting clinical trials in patients with other
non-Hodgkin's lymphomas, Hodgkin's disease and pancreatic cancer. There can be
no assurance, however, that MGBG will receive FDA approval on a timely basis, if
at all, be commercially viable or achieve market acceptance. ILEX has
established a worldwide development and marketing collaboration with Sanofi for
MGBG. In addition, the Company has established a worldwide development and
marketing collaboration with Janssen for crisnatol mesylate ("Crisnatol"), which
is in Phase III clinical trials for treatment of patients with glioblastoma, a
type of brain tumor. ILEX is also pursuing the development of difluoromethyl
ornithine ("DFMO") for brain tumors, carcinoid syndrome and breast cancer, and
expects to initiate a pivotal Phase II trial in 1997 for breast cancer. The
Company, through a joint venture with MPI Enterprises, L.L.C. ("MPI"), is
developing Piritrexim as a treatment for patients with Kaposi's sarcoma, an AIDS
related cancer, and advanced bladder cancer, and is currently conducting a Phase
III trial in patients with Kaposi's sarcoma.
ILEX is also developing chemoprevention compounds. Physicians are
increasingly able to identify people at risk of developing cancer. For example,
tests are currently available to detect precancerous conditions, such as lesions
of the cervix and recurrent colon polyps. In the future, it is expected that
genetic based tests will also be used to identify high-risk individuals. The
Company is attempting to develop oral, non-toxic drugs which, when taken on a
regular basis ("chronically"), may prevent a progression to cancer. ILEX
believes that clinical development strategies aimed at obtaining marketing
approval based upon achieving intermediate endpoints (such as elimination of
premalignant lesions) will be necessary to the timely development of such drugs.
Currently, the Company has two chemoprevention compounds under development.
Based on the potential market opportunity, the Company plans to devote a
significant portion of its resources to develop chemoprevention products.
In addition to its proprietary product development programs, ILEX offers
CRO services to the pharmaceutical and biotechnology industries. The Company
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
studies ("protocols"), preparation of regulatory submissions, toxicology
services, organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such capabilities, ILEX believes that
it may be able to reduce the time normally required by pharmaceutical and
biotechnology companies and broad-based CROs to develop oncology products and
increase the probability of obtaining regulatory approval.
4
<PAGE> 7
THE OFFERING
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Common Stock offered........................ 2,500,000 shares
Common Stock to be outstanding after the
offering.................................. 11,679,594 shares(1)
Use of proceeds............................. For research and development activities, working
capital and general corporate purposes, which may
include capital expenditures and acquisitions
Nasdaq National Market symbol............... ILXO
</TABLE>
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(1) Based on the number of shares outstanding at December 31, 1996 as if the
conversion of the outstanding Convertible Preferred Stock into shares of
Common Stock had occurred on that date. Excludes (i) 1,141,647 shares of
Common Stock issuable upon exercise of outstanding options and warrants as
of December 31, 1996, at a weighted average exercise price of approximately
$4.21 and $7.63, respectively, and (ii) 624,398 additional shares of Common
Stock reserved for issuance pursuant to the Company's 1995 Stock Option Plan
and 1996 Non-Employee Director Plan as of December 31, 1996. See
"Management -- Stock Option Plans" and "Description of Capital
Stock -- Warrants."
RISK FACTORS
See "Risk Factors" commencing on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
The summary financial information below has been taken or derived from the
audited financial statements and other records of the Company. The summary
financial information should be read in conjunction with the Company's financial
statements including the notes thereto, and the other financial data contained
elsewhere in this Prospectus. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<CAPTION>
INCEPTION
(OCTOBER 1, 1994) YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------
1994 1995 1996
----------------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SUMMARY OF OPERATING STATEMENT DATA:
Revenue:
Product development............................ $1,065 $3,551 $3,581
Contract research services..................... 188 658 1,537
Licensing fees................................. -- -- 3,025
-------- ------ ------
Total revenue............................. 1,253 4,209 8,143
-------- ------ ------
Operating expenses:
Research and development costs................. 945 3,213 3,637
General and administrative..................... 156 1,312 2,886
Costs of contract research services............ 78 330 1,446
Subcontractor costs............................ 119 199 723
-------- ------ ------
Total operating expenses.................. 1,298 5,054 8,692
-------- ------ ------
Operating loss.................................... (45) (845) (549)
Equity in loss in joint venture................... -- -- (750)
Interest income (expense), net.................... (1) 133 684
-------- ------ ------
Net loss.......................................... $ (46) $ (712) $ (615)
======== ====== ======
Net loss per share................................ $ (.01) $ (.09) $ (.07)
======== ====== ======
Weighted average number of shares of common stock
and common stock equivalents outstanding(1).... 7,555 7,747 8,744
======== ====== ======
</TABLE>
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<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED(2)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments in marketable
securities............................................. $22,984 $50,284
Working capital........................................... 11,682 38,982
Total assets.............................................. 27,374 54,674
Accumulated deficit....................................... (1,373) (1,373)
Total stockholders' equity................................ 24,826 52,126
</TABLE>
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(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per share.
(2) As adjusted to reflect the net proceeds to the Company from the sale of
2,500,000 shares of common stock at an initial public offering price of
$12.00 per share and the application of the net proceeds therefrom and the
assumed conversion of all convertible preferred stock to common stock. See
"Use of Proceeds" and "Capitalization".
6
<PAGE> 9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the products which the
Company expects to offer, anticipated research and development expenditures and
regulatory reform, the intent, belief or current expectations of the Company,
its directors or its officers, primarily with respect to the future operating
performance of the Company and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the factors set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
RISK FACTORS
Prospective investors should consider carefully the following risk factors
in addition to the other information presented in this Prospectus before
purchasing any shares of Common Stock being offered hereby.
ABSENCE OF DEVELOPED PRODUCTS; EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTY
OF PRODUCT DEVELOPMENT AND CLINICAL DEVELOPMENT
The Company has no products available for sale and does not expect to have
any products available to be marketed in the near future. The Company's proposed
products are primarily in the development stage and will require extensive
clinical testing prior to submission of any regulatory application for
commercial use. These potential products are subject to the risks of failure
inherent in the development of pharmaceutical products. Some of the Company's
potential products may be found to be unsafe or ineffective or otherwise fail to
receive necessary regulatory clearances, and some have been found to have
adverse side effects in previous clinical trials. A finding that these products
have undesirable or unintended side effects or other characteristics that
prevent or limit their commercial use could have a material adverse effect on
the Company's business, financial condition and results of operations. There can
be no assurance that any products will be developed successfully by the Company
or its partners, prove to be safe and efficacious, receive required governmental
regulatory approvals, be capable of being manufactured on a large scale or at
acceptable costs, be economical to market or achieve market acceptance. There
can also be no assurance that third parties will not market superior products or
that reimbursement to the consumer from government and private insurance plans
and other third-party payors ("third-party payors") will be sufficient or
available.
Although the Company has submitted an NDA to the FDA seeking marketing
approval for MGBG under the accelerated procedures promulgated by the FDA for
drugs to be used to treat life-threatening diseases, there can be no assurance
that MGBG will receive such approval on a timely basis, if at all, be
commercially viable or achieve market acceptance. The failure to obtain FDA
approval of the NDA for MGBG could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has filed only one NDA to date, and does not expect to file another in the near
future. There can be no assurance that the Company will file an NDA for any
other compound or that the Company will receive approvals for such compounds.
The failure to obtain FDA approval for the Company's other compounds could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company's area of focus, oncology, is not thoroughly understood and
there can be no assurance that the drugs the Company is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial
7
<PAGE> 10
resources to conduct the preclinical development and clinical trials necessary
to bring such compounds to market. Drug research and development by its nature
is uncertain. For example, to date, no drug for the prevention of cancer (i.e.
chemoprevention drug) has been approved by the FDA, and there can be no
assurance that the Company will be able to develop successfully a safe and
efficacious chemoprevention drug, that such drug will be commercially viable or
will achieve market acceptance. There is a risk of delay or failure at any
stage, and the time required and cost involved in successfully accomplishing the
Company's objectives cannot be predicted. For example, actual drug research and
development costs could exceed budgeted amounts, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON COLLABORATIVE RELATIONSHIPS; DEPENDENCE ON LICENSEES
The Company's strategy for the development, clinical testing, manufacture
and commercialization of certain of its proposed products depends upon the
Company's entering into various collaborations with corporate partners,
licensors, licensees and others, and is contingent upon the subsequent success
of these third parties in performing their responsibilities. To date, the
Company has entered into corporate collaborations with Sanofi, Janssen, MGI
Pharma and MPI. The amount and timing of capital and resources to be devoted to
these activities by its strategic partners and any future collaborators are not
within the control of the Company. There can be no assurance that such partners
will perform their obligations as expected or that the Company will derive any
additional revenue from such arrangements. There can be no assurance that these
strategic partners or any other future collaborators will not pursue their
existing or alternative products in preference to those being developed in
collaboration with the Company. In addition, there can be no assurance that
these collaborations will be maintained, that these strategic partners or any of
the Company's future collaborators will pay any additional fees to the Company
or that they will market any products pursuant to agreements with the Company.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future, or that such
collaborative arrangements will be maintained or be successful. To the extent
that the Company chooses not to, or is unable to, establish and maintain (or
avoid termination of) such arrangements, it would require substantially greater
capital to undertake development and marketing of its proposed products at its
own expense. In addition, the Company may encounter significant delays in
introducing its proposed products into certain markets or find that the sale of
its proposed products in such markets is adversely affected by the absence of
such collaborative agreements. The Company does not have sales, marketing or
distribution capability. To market any of its products directly, the Company
must develop a marketing and sales force with both technical expertise and
supporting distribution capability. There can be no assurance that the Company
will be able to establish in-house sales and distribution capabilities or
marketing relationships with third parties, that such marketing relationships
will be successful or that the Company will be otherwise successful in gaining
market acceptance for its products. Failure to market or otherwise develop its
products successfully through corporate partners or directly would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Strategic Alliances and Collaborations."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; EXPECTED FUTURE LOSSES
The Company commenced operations in October 1994 and has only a limited
operating history upon which potential investors may base an evaluation of its
performance. Potential investors, therefore, have limited historical financial
information upon which to base an evaluation of the Company's performance and an
investment in shares of Common Stock. The Company's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of operations.
To date, the Company has incurred substantial net losses. Net loss for the
period from inception (October 1, 1994) to December 31, 1994, and for the years
ended December 31, 1995 and 1996 was $46,000, $712,000 and $615,000,
respectively. The Company has not generated any revenues from
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product sales to date, and there can be no assurance that revenues from product
sales will be achieved. ILEX has not generated significant contract research
revenue or revenue sufficient to cover direct and overhead costs associated with
these activities and there can be no assurance that contract research revenue
will be significantly increased. Moreover, even if the Company does achieve
revenues from product sales or increased contract research services, the Company
expects to incur significant operating losses over the next several years. The
Company's ability to achieve a profitable level of operations in the future will
depend in large part on its completing development of its compounds, obtaining
regulatory approvals for such compounds, commercializing these potential
products through marketing agreements with other companies or, if the Company
chooses, marketing such compounds independently, successfully manufacturing such
compounds, achieving market acceptance of such compounds and expanding its
contract research services business. There can be no assurance that the Company
will ever be successful in developing such compounds, obtaining such approvals,
bringing such compounds to market, developing sales, marketing or distribution
capabilities, manufacturing such products, generating market acceptance or
expanding its contract services business. The likelihood of the long-term
success of the Company must be considered in light of the expenses, difficulties
and delays frequently encountered in the development and commercialization of
new pharmaceutical products, competitive factors in the marketplace as well as
the comprehensive and uncertain regulatory environment in which the Company
operates. There can be no assurance that the Company will ever achieve
significant revenues or profitable operations. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funds to conduct research
and development, to develop further its potential pharmaceutical products, to
manufacture and market any pharmaceutical products that may be developed and to
expand its contract research services business. The Company expects its capital
and operating expenditures to increase substantially over the next several
years. The Company has no current sources of funding beyond the proceeds from
this offering, its collaborative agreements with its strategic partners, its
drug development service operations, existing cash and cash equivalents and
investments in marketable securities. The Company believes that the estimated
net proceeds of this offering, its collaborative agreements with strategic
partners, its contract research services, existing cash and cash equivalents and
investments in marketable securities will satisfy its currently budgeted cash
requirements through 1999 based upon the Company's current operating plan and
conditions, but there can be no assurance that the Company will not require, or
choose to raise, additional funds prior to such date. The Company may seek such
additional funding through public or private equity or debt financings,
collaborative or other arrangements with third parties or from other sources.
There can be no assurance, however, that additional funds will be available on
acceptable terms, if at all. If additional funds are raised by issuing equity
securities, further substantial dilution to existing stockholders, including
purchasers of the Common Stock offered hereby, may result. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its development programs, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products or technologies that the Company
would not otherwise relinquish and which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."
DEPENDENCE ON KEY INDIVIDUALS; UNCERTAINTY OF IDENTIFICATION AND ACQUISITION OF
NEW PRODUCT CANDIDATES; NEED FOR ADDITIONAL PERSONNEL
The success of the Company depends upon its ability to identify and obtain
rights to commercially viable oncology compounds and to negotiate favorable
relationships with owners of oncology-related technology. There can be no
assurance that the Company will be successful in identifying commercially viable
oncology compounds, in-licensing the rights to such compounds or negotiating
other favorable relationships. See "Business -- In-Licensing Agreements." Due to
the technical expertise and knowl-
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<PAGE> 12
edge required by ILEX to identify potential compounds or technology acquisition
targets, it has made a strategic decision to rely heavily upon Dr. Daniel Von
Hoff, a founder of the Company and Co-Chairman of the Company's Scientific
Advisory Board. Dr. Von Hoff does not have an employment contract with the
Company, and the consulting contract between the Company and Dr. Von Hoff does
not obligate Dr. Von Hoff to devote any specified level of time or resources to
the development of potential products for ILEX. Dr. Von Hoff has substantial
other professional time commitments, including serving on the scientific
advisory boards of other companies, and there can be no assurance that he will
provide the Company with any product targets in the future. In addition, Dr. Von
Hoff is prohibited under the terms of his consulting agreement from making
recommendations about, or actively participating in decisions regarding the
acquisitions of compounds or technologies (i) owned or discovered by or licensed
to certain entities related to CTRC, or (ii) for which Dr. Von Hoff was the
principal investigator, supervised the principal investigator or provided the
leadership for the clinical or preclinical studies for such compounds or
technologies, when such actions would give the appearance of a conflict. Dr. Von
Hoff is also prohibited from acting as the principal investigator for or
supervising the principal investigator for studies conducted by the Company.
There can be no assurance that the Company, through Dr. Von Hoff or otherwise,
will be successful in selecting product candidates or developing commercial
pharmaceutical products that are safe and efficacious. Discontinuation of the
Company's relationship with Dr. Von Hoff could have a significant adverse effect
on the Company's business, financial condition and results of operation. See
"Management -- Employment and Consulting Agreements."
Because of the specialized scientific nature of the Company's business, the
Company's success is highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. Loss of the services of Mr.
Richard Love or Dr. Von Hoff would be significantly detrimental to the Company's
product development and manufacturing programs and the Company's ability to
identify and obtain rights to commercially viable oncology compounds. Mr. Love's
employment agreement with the Company provides that it is terminable without
cause by either party upon 30 days' notice, and Dr. Von Hoff's consulting
agreement with the Company is terminable without cause by either party upon 60
days' notice. The Company is also highly dependent on the other principal
members of its scientific and management staff, and the loss of the services of
such personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company only maintains key-
man life insurance policies on each of Mr. Love and Dr. Von Hoff, in each case
in the amount of $3 million. See "Business -- Relationship with CTRC" and
"Management."
To expand its research and development programs, pursue its product
development plans and expand its CRO business, the Company will be required to
hire additional qualified scientific and technical personnel, as well as
personnel with expertise in clinical testing and government regulation. There is
intense competition for qualified personnel in the areas of the Company's
activities, and there can be no assurance that the Company will be able to
attract and retain the qualified personnel necessary for the development of its
business. The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and research
institutions. The failure to attract and retain key scientific and technical
personnel would have a material adverse effect on the Company's business,
financial condition and results of operations.
POSSIBLE LOSS OF KEY EMPLOYEES AND OTHER ADVERSE EFFECTS UPON ADVERSE IRS TAX
RULING
CTRC Research is attempting to obtain a private letter ruling from the
United States Internal Revenue Service ("IRS") to confirm certain tax
implications to CTRC Research associated with the formation of the Company by
CTRC. CTRC Research's tax counsel has reported to the Company, based on its
conversations with IRS staff reviewers, that preliminary indications are that
CTRC Research will receive the favorable ruling it is seeking from the IRS.
However, there can be no assurance when, if ever, such a favorable ruling will
be issued. As part of the formation of the Company, shares of Common Stock were
purchased by Mr. Love, Dr. Weis, Dr. Coltman and Dr. Von Hoff (the "Founders").
A provision in the stock purchase agreements, employment agreements and
consulting agreements entered into between ILEX and each of the Founders
requires the Company and the Founders to attempt to reach an
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<PAGE> 13
"equitable adjustment" of the terms of such agreements in the event CTRC
Research is unable to obtain a favorable private letter ruling from the IRS. If
the Company and the Founders are unable to reach or agree upon an "equitable
adjustment" within a specified period after an adverse IRS tax ruling, the
Founders' stock purchases would be rescinded and the Company would be required
to repurchase the Common Stock purchased by the Founders at the purchase price,
approximately $210,000, paid upon formation and the employment and consulting
agreements would automatically terminate. "Equitable adjustment" is not defined
in any of the stock purchase agreements, employment agreements or consulting
agreements, and what constitutes an "equitable adjustment" could, in addition to
considerations in respect of the Founders and the Company, be determined based
on the actions necessary to be taken to minimize any adverse tax consequences to
CTRC Research associated with an adverse IRS tax ruling.
It is the current intention of ILEX to take such actions as are necessary
to maintain the services of the Founders. However, the successful conclusion of
renegotiated agreements satisfactory to the Founders may not be possible both if
it is determined that any transfer to the Founders to replace lost value would
result in adverse tax consequences to CTRC Research and if CTRC Research has a
contract right under the stock purchase agreements, employment agreements or
consulting agreements to preserve its tax-exempt status. Under those
circumstances, the only renegotiated agreement possible between the Company and
the Founders would be one in which the Founders forego a portion of the value
represented by their original stock purchases sufficient to prevent the adverse
consequences to CTRC Research's tax-exempt status. There can be no assurance
that the Founders would agree to such an arrangement.
Any renegotiated agreement with the Founders may include, without
limitation, the issuance of shares of Common Stock or options to purchase shares
of Common Stock to the Founders or cash payments to the Founders. The issuance
of shares of Common Stock or options to purchase shares of Common Stock or cash
payments made by the Company to retain the services of the Founders could be
material, and such issuances or payments could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, such issuances could have a substantial dilutive effect on the value
of outstanding shares of Common Stock. There can be no assurance that any
negotiations with the Founders would be successfully consummated, and the
services of one or more of the Founders may be lost. See
"Management -- Employment and Consulting Agreements." Furthermore, conflicts
between the Company's interest in maintaining the services of the Founders and
the interest of CTRC Research and related entities in maintaining its tax-exempt
status could materially and adversely affect the relationship, or result in
litigation, between the Company and CTRC Research which, in each case, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Dependence on Certain Industries and Clients;
Loss or Delay of CRO Contracts; Dependence on CTRC Research and its Related
Entities."
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS; LOSS OR DELAY OF CRO CONTRACTS;
DEPENDENCE ON CTRC RESEARCH AND ITS RELATED ENTITIES
Most of the Company's CRO contracts are terminable upon 60 to 90 days'
notice by the client. Clients terminate or delay service contracts for a variety
of reasons, including, among others, the failure of a compound being tested to
satisfy safety requirements, unexpected or undesired clinical results of the
compound, the client's decision to forego a particular study, insufficient
patient enrollment or investigator recruitment or production problems resulting
in shortages of the compound. The loss or delay of a large contract or the loss
or delay of multiple contracts could have a material adverse effect on the
business, financial condition and results of operations of the Company. The
Company's contract services revenues are highly dependent on research and
development expenditures by the pharmaceutical and biotechnology industries. The
Company's business, financial condition and results of operations could be
materially and adversely affected by general downturns in, or adverse trends or
factors impacting, the pharmaceutical or biotechnology industries, the impact of
the current trend toward consolidation in these industries or any decrease in
research and development expenditures. The Company has an option to license
certain
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<PAGE> 14
drug discoveries arising from research programs of CTRC Research. However, the
Company has no written agreement to acquire drugs or technology from CTRC
Research other than the Subordinated Option Agreement (as hereinafter defined),
and there can be no assurance that such a relationship will continue. If ILEX
and CTRC Research and its related entities are unable to maintain a mutually
beneficial relationship, including access by the Company to CTRC Research's and
its related entities' patients and investigators and potential contract research
clients, the business, financial condition and results of operations of the
Company could be materially and adversely affected. See "Business -- Contract
Research and Development Services" and "Business -- Relationship with CTRC."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including pharmaceutical and
biotechnology companies, that are engaged in the development of products for
certain of the applications being pursued by the Company. Moreover, products
currently exist in the market that will compete directly with the products that
the Company is seeking to develop. Most of these companies have substantially
greater financial, research and development, manufacturing and marketing
experience and resources than the Company and represent substantial long-term
competition for the Company. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct clinical development, seek patent protection and establish collaborative
arrangements for the development of oncology products. There can be no assurance
that the Company's competitors will not (i) develop more safe and effective
products; (ii) obtain patent protection or intellectual property rights that
limit the Company's or its collaborative partners' ability to commercialize
products that may be developed; or (iii) commercialize products earlier than the
Company. The industry in which the Company competes is characterized by
extensive research and development efforts and rapid technological progress. New
developments occur and are expected to continue to occur at a rapid pace, and
there can be no assurance that discoveries or commercial developments by the
Company's competitors will not render some or all of the Company's potential
products obsolete or non-competitive, which would have a material adverse effect
on the Company's business, financial condition and results of operations. In its
contract research services, the Company primarily competes against in-house
departments of pharmaceutical companies, CROs and, to a lesser extent,
universities and teaching hospitals. Many of these competitors have
substantially greater capital, technical and other resources than the Company
and represent significant long-term competition for the Company. There can be no
assurance that the Company will be able to compete favorably in its contract
research services. See "Business -- Competition."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY POSITION; RIGHTS TO TECHNOLOGY
DEPENDENT UPON COMPLIANCE WITH LICENSES AND AGREEMENTS
The Company's success depends in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others. To date, the Company has no patents issued in its name. There can be
no assurance that the Company's patent position will provide it with significant
protection against competitors or that patents issued to or licensed by the
Company will not be infringed or will not be challenged, invalidated or
circumvented. The patent positions of biotechnology and pharmaceutical companies
can be highly uncertain and often involve complex legal and factual questions,
and therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. There can also be no assurance that the Company
will develop additional technologies, drugs or processes that are patentable,
license new technology, that patents will issue from any patent application or
that claims allowed will be sufficient to protect the Company's products and
technologies. Competitors may have filed applications, may have been issued
patents or may obtain additional patents and proprietary rights relating to
technologies, drugs and processes that compete with those of the Company. The
failure by the Company to protect adequately its technologies, drugs and
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<PAGE> 15
processes covered by issued patents or to obtain patents could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The patents and patent applications in-licensed by the Company have not
been independently investigated by the Company, and there can be no assurance
that any such patents or patent applications will not be challenged or will
provide protection for the Company's compounds. The patent and license
applicable to DHAC recently expired and, as a result, the DHAC technology is
currently available for general public use. In addition, Oxypurinol and
Aminopterin do not have patent protection and United States patents on ILEX's
other current products which expire in the next 10 years include: MGBG (2002);
Crisnatol (2004, 2005); DFMO (2000); and Piritrexim (2007). See "Business --
Patents, Trademarks and Trade Secrets." The Company's rights to its proprietary
compounds are dependent upon compliance with certain licenses and agreements
which require, among other things, certain royalty and other payments, the
Company's reasonable use of the underlying technology of the applicable patents,
as well as the filing of certain regulatory submissions. In addition, the terms
of the Company's license and development agreements with Sanofi require the
parties to agree on a decrease in the royalties and payments to be received by
ILEX under certain limited circumstances. Failure to comply with such licenses
and agreements, which could result in loss of the Company's underlying rights to
one or more of these potential products or a decrease in the payments to ILEX
under the Sanofi agreements, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- In-Licensing Agreements."
Trade secrets are difficult to protect. There can be no assurance that the
Company will be able to meaningfully protect its rights in unpatented
proprietary technology or that others will not independently develop
substantially equivalent proprietary information and techniques, circumvent the
Company's attempts to protect its proprietary technology, or otherwise gain
access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets.
Litigation, which could result in substantial costs to the Company, could
be necessary to protect the Company's Orphan Drug Designations or patent
position or to determine the scope and validity of third-party proprietary
rights, and there can be no assurance that the Company will have the required
resources to pursue such litigation or otherwise to protect its patent rights.
An adverse outcome in litigation with respect to the validity of any Company
patents could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require the Company
to cease using such product or technology, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
There can be no assurance that claims against the Company will not be
raised successfully in the future based on patents or other intellectual
property rights held by others. Such other persons could bring legal actions
against the Company claiming damages and seeking to enjoin clinical testing,
manufacturing and marketing of the affected product. If any actions are
successful, in addition to any potential liability for damages, the Company
could be required to obtain a license in order to continue to manufacture or
market the affected product. There can be no assurance that the Company would
prevail in any such action or that any license required under any such patent
would be made available on acceptable terms, if at all. There has been, and the
Company believes that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If the Company becomes involved in any litigation, it could consume a
substantial portion of the Company's resources and capital regardless of the
outcome of such litigation.
LACK OF OPERATING EXPERIENCE; MANAGEMENT OF GROWTH
The Company has no experience in manufacturing or procuring products in
commercial quantities or selling pharmaceutical products and has only limited
experience in negotiating, establishing and maintaining strategic relationships,
conducting clinical trials and other later-stage phases of the regulatory
approval process. To date, the Company has engaged exclusively in acquiring and
developing
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pharmaceutical compounds and providing clinical research, development and
manufacturing services. The Company's ability to manage its growth, if any, will
require it to continue to improve and expand its management, operational and
financial systems and controls. If the Company's management is unable to manage
growth effectively, the Company's business, financial condition and results of
operations will be adversely affected. In addition, if rapid growth occurs, it
may strain the Company's operational, managerial and financial resources. In the
normal course of business, the Company evaluates potential acquisitions of
patents, compounds, technologies and businesses that could complement or expand
the Company's business. In the event the Company were to identify an appropriate
acquisition candidate, there is no assurance that the Company would be able to
successfully negotiate, finance or integrate such acquired patents, compounds,
technologies or businesses. Furthermore, such an acquisition could cause a
diversion of management time and resources. There can be no assurance that a
given acquisition would not materially adversely affect the Company's business,
financial condition and results of operations.
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF NECESSARY FDA AND OTHER
REGULATORY APPROVALS
The design, development, research, testing, manufacture, labeling,
distribution, marketing and advertising of products such as the Company's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the United States and other countries. The drug approval process
is generally lengthy, expensive and subject to unanticipated delays.
Satisfaction of such regulatory requirements, which includes demonstrating to
the satisfaction of the FDA that the relevant product is both safe and
effective, typically takes several years or more depending upon the type,
complexity and novelty of the product and requires the expenditure of
substantial resources. There can be no assurance that the Company will not
encounter problems in clinical trials which would cause the Company or the FDA
to delay or suspend clinical trials. Any such delay or suspension could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
The Company cannot predict with certainty when, if ever, it might submit
for regulatory review additional compounds currently under development. Once the
Company submits its potential products for review, there can be no assurance
that FDA or other regulatory approvals for any pharmaceutical products developed
by the Company will be granted on a timely basis, if at all. There also can be
no assurance that delays or rejections will not be encountered or that changes
will not be made in FDA policy during the period of product development and FDA
regulatory review of each submitted NDA. A delay in obtaining or failure to
obtain such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Even if such regulatory
approval is obtained, it is limited as to the indicated uses for which the
product may be promoted or marketed. A marketed product, its manufacturer and
the facilities in which it is manufactured are subject to continual review and
periodic inspections. Failure to comply with regulatory requirements and other
factors could subject the Company to regulatory or judicial enforcement actions.
Sales of the Company's products outside the United States will be subject to
foreign regulatory requirements governing clinical trials and marketing approval
which could delay introduction of the Company's products in certain countries.
See "Business -- Government Regulation."
One element of the Company's strategy is to develop chemoprevention
compounds that when taken chronically may prevent the progression to cancer. To
date, the FDA has not approved any chemoprevention compounds and there can be no
assurance that the FDA will approve such compounds in the future. Because there
are currently no chemoprevention drugs which have obtained marketing approval,
the clinical development path is uncertain. There can be no assurance that ILEX
will be able to successfully develop a safe and efficacious chemoprevention
product, that such product will be commercially viable or will achieve market
acceptance.
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POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT RELATED MATTERS AND HEALTH
CARE REFORM
The levels of revenues and profitability of pharmaceutical companies may be
affected by the continuing efforts of governmental and third-party payors to
contain or reduce the costs of health care. The Company cannot predict the
effect that private sector or governmental health care reforms may have on its
business, and there can be no assurance that any such reforms will not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, in both the United States and elsewhere,
sales of prescription drugs are dependent in part on the availability of
reimbursement to the consumer from third-party payors, such as government and
private insurance plans. Third-party payors and others are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective or that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis. In addition, because no
chemoprevention drug has been approved by the FDA to date, there can be no
assurance that any chemoprevention drug developed by the Company, if any, would
be eligible for reimbursement to the consumer. See "Business -- Government
Regulation."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER PROVISIONS
Upon the closing of the offering, CTRC Research will beneficially own
approximately 23.8% of the Company's outstanding shares of Common Stock, and the
Company's executive officers and directors, as a group, will beneficially own
approximately 27.9% of the Company's outstanding shares of Common Stock.
Accordingly, together with CTRC Research, the present directors and executive
officers will have the ability to exercise substantial influence over the
outcome of most stockholders' actions. Moreover, the Company's certificate of
incorporation does not provide for cumulative voting with respect to the
election of directors. Consequently, the present directors and executive
officers, together with CTRC Research, will be able to exercise substantial
influence over the election of the members of the Board of Directors. Such
concentration of ownership could have an adverse effect on the price of the
Common Stock or have the effect of delaying or preventing a change in control of
the Company. In addition, certain provisions of Delaware law and the Company's
Certificate of Incorporation could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. These provisions of Delaware law and the Company's
Certificate of Incorporation may also have the effect of discouraging or
preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. Certain of
these provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders and prevent or eliminate cumulative voting in
the election of directors. These provisions may make it more difficult for
stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. In addition, certain
of the Company's corporate partners have the right to terminate their respective
agreements with the Company upon certain changes in control of the Company,
which may discourage acquisitions or other changes in control (including those
in which stockholders of the Company might otherwise receive a premium for their
shares over then-current market prices). See "Business -- Strategic Alliances
and Collaborations," "Management," "Principal Stockholders," "Description of
Capital Stock -- Preferred Stock" and "-- Certain Anti-Takeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."
RIGHTS OF LICENSORS
Through licenses and other agreements, the Company has various rights to
certain products. The terms of these licenses and agreements generally survive
for a specified period of years; however, the licensor also has the ability to
terminate the license, or render it nonexclusive, if the Company fails to
perform its obligations pursuant to the agreements, or in the case of any
compound acquired from a public health service, including MGBG, if public health
and safety needs require such actions. In certain
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<PAGE> 18
of these agreements the licensor has reserved royalty-free licenses for research
and other purposes. If any of these licenses were terminated or rendered
nonexclusive, the business, financial condition and results of operations of the
Company could be materially and adversely affected. See "Business --
In-Licensing Agreements."
LACK OF COMMERCIAL MANUFACTURING EXPERIENCE; HANDLING OF HAZARDOUS MATERIALS;
ENVIRONMENTAL MATTERS
ILEX is currently responsible for manufacturing bulk drug product for
preclinical and clinical trials of MGBG, Crisnatol and oncology drugs on behalf
of third parties; however, other than MGBG, the compounds being developed by the
Company have never been manufactured on a commercial scale and the Company has
no experience in manufacturing these compounds in commercial quantities. There
can be no assurance that such compounds can be manufactured at a cost, or in
quantities, necessary to make them commercially viable. All facilities and
manufacturing techniques used in the manufacture of compounds for clinical use
or for sale in the United States must be operated in conformity with current
Good Manufacturing Practices ("cGMP") regulations, FDA regulations and
guidelines governing the development and production of pharmaceutical compounds.
The Company's facilities are subject to scheduled periodic regulatory
inspections to ensure compliance with cGMP requirements. Failure on the part of
the Company to comply with applicable requirements could result in the
termination of ongoing research or the disqualification of data for submission
to regulatory authorities. A finding that the Company had materially violated
cGMP requirements could result in additional regulatory sanctions and, in severe
cases, could result in a mandated closing of the Company's facilities, which
would materially and adversely affect the Company's business, financial
condition and results of operations. If the Company proves to be unsuccessful in
supplying compounds on acceptable terms, fails to satisfy regulatory
requirements or if it should encounter delays or difficulties in its third-party
relationships, the Company's clinical testing schedule would be delayed,
resulting in delay in the submission of compounds for regulatory approval or the
market introduction and subsequent sales of such products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's development and preclinical supply contract manufacturing
programs involve or could involve in the future the controlled use of hazardous
materials, chemicals and various radioactive compounds. The Company is subject
to federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials will comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company may incur
substantial costs to comply with environmental regulations if and when the
Company develops commercial scale manufacturing capacity.
POTENTIAL LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE
Clinical research involves the testing of new drugs on human volunteers
pursuant to a research plan, and such testing involves a risk of liability for
personal injury or death to patients due to, among other reasons, possible
unforeseen adverse side effects or improper administration of the new drug. Many
of these patients are already seriously ill and are at risk of further illness
or death. The Company could be materially and adversely affected if it were
required to pay damages or incur defense costs (i) in connection with a claim
outside the scope of indemnity or insurance coverage, (ii) if the indemnity,
although applicable, is not performed in accordance with the terms of the
relevant contract or (iii) if the Company's liability exceeds the amount of
applicable insurance. In addition, there can be no assurance that such insurance
will continue to be available on terms acceptable to the Company, if at all, or
that, if obtained, the insurance coverage will be sufficient to cover any
potential claims or liabilities. Similar risks would exist upon the
commercialization or marketing of any products by the Company or its partners.
See "Business -- Product Liability and Insurance."
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NO PRIOR PUBLIC TRADING MARKET; VOLATILITY OF STOCK PRICE; VARIATION IN
QUARTERLY OPERATING RESULTS
The stock market has experienced significant price and volume fluctuations
that have particularly affected the market prices of equity securities of many
pharmaceutical, biotechnology and developmental stage companies and that are
often unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock. In addition, the market price of the Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, announcements of new collaborations or changes in existing
collaborations by the Company or its competitors, the loss, or prospect of loss,
of a significant contract with one or more of the Company's contract research
clients, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
rumors relating to the Company or its competitors, changes in stock market
analyst recommendations regarding the Company, other pharmaceutical companies or
the pharmaceutical industry generally and general market conditions may have a
significant effect on the market price of the Common Stock. Prior to this
offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or, if one does develop,
that it will continue. The initial public offering price, which will be
established by negotiations between the Company and the Underwriters, may not be
indicative of prices that will prevail in the market after this offering. See
"Underwriting" for a discussion of the factors relevant to the determination of
the initial public offering price.
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations, and quarterly comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. In addition, fluctuations in quarterly results could affect the
market price of the Common Stock in a manner unrelated to the longer term
operating prospects of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ADVERSE EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE OR POSSIBLE
FUTURE ISSUANCES OF SHARES; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market following
this offering, or the prospect of such sales, could have an adverse effect on
the price of the Company's Common Stock. Upon completion of this offering, the
Company will have outstanding 11,679,594 shares of Common Stock (which amount
does not include shares of Common Stock issuable upon the exercise of
outstanding options). The 2,500,000 shares being offered hereby (except for
shares that may be acquired by affiliates of the Company) will be freely
tradeable in the public market without restriction or limitation under the
Securities Act of 1933, as amended (the "Securities Act"). Beginning 180 days
after the effective date of the Registration Statement (the "Effective Date"),
upon the expiration of certain agreements not to sell such shares, an additional
approximately 4,179,012 shares of Common Stock will become eligible for sale
subject to compliance with Rule 144 of the Securities Act. In addition, the
holders of approximately 671,565 shares of Common Stock are entitled to certain
piggy-back registration rights with respect to such shares. If the Company is
required to include in a Company-initiated registration shares held by such
holders pursuant to the exercise of their piggy-back registration rights, sales
made by such holders may have an adverse effect on the Company's ability to
raise needed capital and on the price of the Common Stock. In addition, certain
stockholders hold demand registration rights which permit them to request the
Company to register the shares of Common Stock held by them. If such parties, by
exercising their demand registration rights, cause a large number of shares to
be registered and sold in the public market, such sales may have an adverse
effect on the market price for the Common Stock. In addition, shares of Common
Stock that are issued by the Company to fund its operations or in connection
with an acquisition could also have an adverse effect on the market price for
the Common Stock. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale."
17
<PAGE> 20
The Company is engaged in the preliminary stages of negotiations relating
to a potential long-term contract with a provider of site administration
services, which would include a joint marketing or cooperative alliance between
such provider and the Company's CRO services business. The transaction, as
currently being discussed, could result in the issuance by the Company of up to
approximately 2.5 million shares of Common Stock, some of which would be subject
to performance criteria and achievement of various financial goals. Any such
issuance would result in substantial dilution, including in terms of earnings
per share, to stockholders of the Company and purchasers in this offering. No
assurance can be given that such negotiations will lead to a final transaction
or that any such transaction will achieve satisfactory results.
DILUTION
Purchasers of the Common Stock in this offering will experience an
immediate and substantial dilution in net tangible book value per share of $7.54
per share of Common Stock from the initial public offering price (assuming an
initial public offering price of $12.00 per share). See "Dilution."
18
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $27,300,000
($31,485,000 if the Underwriters' over-allotment option is exercised in full),
based on an assumed initial public offering price of $12.00 per share and after
deducting underwriting discounts and the estimated expenses of this offering
payable by the Company.
The Company is undertaking this offering, and expects to use a majority of
the net proceeds therefrom, to fund its research and development activities,
which may include the formation of joint ventures and other collaborative
relationships. The amount and timing of the net proceeds allocated to specific
research and development activities will depend upon numerous factors, such as
the progress of the Company's drug development programs, the receipt of
necessary regulatory approvals, the cost of preparing, filing, prosecuting,
maintaining, defending and enforcing patent claims and other intellectual
property rights, the status of competitive products and technologies and the
timing and availability of alternative methods of financing for the Company,
including existing or future strategic alliances and joint ventures with third
parties. The Company's research and development expenditures will vary as
product candidates, if any, are added or abandoned or as additional
collaborations are established. In addition, the Company intends to use some of
the proceeds of this offering to expand its CRO services through internal
growth, including acquisition of information technology and expansion of
existing facilities, the acquisitions of other businesses and the formation of
contract research service joint ventures and other strategic collaborations. The
Company intends to use the remainder of the proceeds of this offering for
working capital and general corporate purposes. The Company has not determined
the amount it plans to spend for each purpose or the timing of such
expenditures. Pending such uses, the Company intends to invest the net proceeds
from this offering in United States government securities and investment-grade,
interest-bearing instruments. The Company expects to continue to be able to
avoid the registration requirements of the Investment Company Act of 1940 (the
"1940 Act"). If the Company were required to register as an investment company
under the 1940 Act, it would become subject to substantial regulations with
respect to its capital structure, management, operations, transactions with
affiliates (as defined in the 1940 Act), and other matters. Application of the
provisions of the 1940 Act would have a material adverse effect on the Company.
In the ordinary course of its business, the Company investigates, evaluates
and discusses with others the potential creation of strategic collaborations and
the acquisition of businesses, technologies and compounds which complement the
Company's business. Although the Company currently has no definitive
understandings or agreements with respect to any such strategic collaboration or
acquisition, the Company is actively engaged in discussions with several parties
which may either singly or in the aggregate materially impact the Company's
business, financial condition and results of operations, and the net proceeds
from this offering may be used for such purpose. No assurance can be given,
however, that any such strategic collaboration or acquisition will be made or,
if made, that it will prove to be successful.
The Company believes that the estimated net proceeds of this offering, its
collaborative agreements with strategic partners, its contract research services
and existing cash, cash equivalents and investments and marketable securities
will satisfy its cash requirements through 1999 based on the Company's current
operating plan and conditions, but there can be no assurance that the Company
will not require, or choose to raise, additional funds prior to such date.
DIVIDEND POLICY
The Company has never declared nor paid dividends on its capital stock. The
Company currently intends to retain any future earnings for funding growth and,
therefore, does not intend to pay any cash dividends in the foreseeable future.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) as of December 31, 1996, the actual
capitalization of the Company, and (ii) the capitalization as of such date, as
adjusted, after giving effect to the sale of the 2,500,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00 per
share, less offering expenses and underwriting discounts and the application of
the estimated net proceeds therefrom and the effect of the assumed conversion of
all the outstanding Convertible Preferred Stock into shares of Common Stock. See
"Use of Proceeds" and Note 14 to the Financial Statements. This table should be
read in conjunction with the Company's Financial Statements and the Notes
thereto, and the other financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL(1) AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Convertible Preferred Stock, $0.01 par value; 20,000,000
shares authorized, 7,992,055 shares issued and
outstanding, actual; none issued and outstanding, as
adjusted............................................... $ 80 $ --
Common Stock, $0.01 par value; 40,000,000 shares
authorized, 1,187,539 shares issued and outstanding,
actual; 11,679,594 shares issued and outstanding, as
adjusted(1)............................................ 12 117
Additional paid-in capital................................ 26,218 53,493
Receivables on sale of common stock....................... (111) (111)
Accumulated deficit....................................... (1,373) (1,373)
------- -------
Total stockholders' equity............................. 24,826 52,126
------- -------
Total capitalization.............................. $24,826 $52,126
======= =======
</TABLE>
- ---------------
(1) Excludes, as of December 31, 1996, (i) 1,141,647 shares of Common Stock
issuable upon exercise of outstanding options and warrants at a weighted
average exercise price of approximately $4.21 and $7.63, respectively, and
(ii) 624,398 additional shares reserved for issuance pursuant to the
Company's 1995 Stock Option Plan and 1996 Non-Employee Director Plan. See
"Management -- Stock Option Plans" and "Description of Capital
Stock -- Warrants."
20
<PAGE> 23
DILUTION
At December 31, 1996, the Company had net tangible book value of
approximately $24.8 million or $2.70 per share of outstanding Common Stock,
assuming the conversion of all outstanding shares of Convertible Preferred Stock
into shares of Common Stock. Net tangible book value per share is determined by
dividing the net tangible book value (tangible assets less liabilities) of the
Company by the number of shares of Common Stock outstanding. After giving effect
to the issuance and sale of the 2,500,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $12.00 per share) and the
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds," the as adjusted, net tangible book value of the Company at December
31, 1996, would have been $52.1 million or $4.46 per share. This represents an
immediate increase in net tangible book value of approximately $1.76 per share
to the existing stockholders and an immediate dilution of $7.54 per share to new
investors purchasing shares at the initial offering price. The following table
illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Net tangible book value per share as of
December 31, 1996...................................... $2.70
Increase in net tangible book value per share attributable
to new investors....................................... $1.76
-----
As adjusted, net tangible book value per share after this
offering............................................... $ 4.46
------
Dilution per share to new investors......................... $ 7.54
======
</TABLE>
The following table sets forth, as of December 31, 1996, the differences
between the existing stockholders and the new investors with respect to the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 9,179,594 78.6% $26,961,000 47.3% $ 2.94
New investors......... 2,500,000 21.4% $30,000,000 52.7% $12.00
---------- ----- ----------- -----
Total....... 11,679,594 100.0% $56,961,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
outstanding at December 31, 1996. At December 31, 1996, there were outstanding
stock options to purchase 688,680 shares of Common Stock at a weighted average
exercise price of approximately $4.21 per share and options to purchase an
additional 21,411 shares of Common Stock were granted after December 31, 1996 at
a weighted average exercise price of approximately $7.01 per share. In addition,
at December 31, 1996, 452,967 shares of Common Stock were issuable upon exercise
of outstanding warrants at a weighted average exercise price of approximately
$7.63 per share. Assuming the exercise of all outstanding options and warrants,
the total dilution in net tangible book value per share to new investors would
be $7.43. See "Management -- Executive Compensation," "Certain Transactions" and
"Description of Capital Stock."
21
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial information relating to the Company has
been taken or derived from the audited financial statements, and notes related
thereto, and other records of the Company. The statements of operations and
balance sheets for the period from inception (October 1, 1994) to December 31,
1994, and for the years ended December 31, 1995 and 1996 have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report on those statements. The selected financial information should be
read in conjunction with the Company's financial statements, including the notes
thereto, and the other financial data contained elsewhere in this Prospectus.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1994) YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------
1994 1995 1996
----------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
SUMMARY OF OPERATING STATEMENT DATA:
Revenue:
Product development.................................. $1,065 $ 3,551 $ 3,581
Contract research services........................... 188 658 1,537
Licensing fees....................................... -- -- 3,025
------ ------- -------
Total revenue................................... 1,253 4,209 8,143
------ ------- -------
Operating expenses:
Research and development costs....................... 945 3,213 3,637
General and administrative........................... 156 1,312 2,886
Costs of contract research services.................. 78 330 1,446
Subcontractor costs.................................. 119 199 723
------ ------- -------
Total operating expenses........................ 1,298 5,054 8,692
------ ------- -------
Operating loss.......................................... (45) (845) (549)
Other income:
Equity in loss in joint venture...................... -- -- (750)
Interest income...................................... -- 159 688
Interest expense..................................... (1) (26) (4)
------ ------- -------
Net loss................................................ $ (46) $ (712) $ (615)
====== ======= =======
Net loss per share...................................... $ (.01) $ (.09) $ (.07)
====== ======= =======
Weighted average number of shares of common stock and
common stock equivalents outstanding(1).............. 7,555 7,747 8,744
====== ======= =======
BALANCE SHEET DATA:
Cash, cash equivalents and investments in marketable
securities........................................... $ 79 $ 9,636 $22,984
Working capital......................................... (122) 9,004 11,682
Total assets............................................ 1,166 11,257 27,374
Accumulated deficit..................................... (46) (758) (1,373)
Total stockholders' equity.............................. (57) 9,511 24,826
</TABLE>
- ---------------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per share.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Business" and under this heading.
OVERVIEW
ILEX is a drug development company engaged in the business of (i) acquiring
rights to (generally in exchange for the payment of licensing fees and future
royalty payments), and developing for commercialization, drugs for the treatment
of patients with cancer and for the prevention of cancer and (ii) providing
clinical research, development and manufacturing services on a contract basis to
pharmaceutical and biotechnology companies engaged in the development of
oncology products. By using its expertise in the identification, development,
manufacturing and regulatory approval process of oncology drugs, the Company
believes it can develop products for cancer treatment, develop chemoprevention
products and provide contract research services to pharmaceutical and
biotechnology companies. ILEX was formed in December 1993 for the purpose of
conducting certain advanced drug development programs and pursuing commercial
opportunities of CTRC Research, but did not commence operations until October
1994.
The Company has financed its operations primarily through the sale of
Convertible Preferred Stock, through development funding provided by its
collaborative partners under its collaborative agreements, through licensing
fees and milestone payments and, to a lesser extent, through fee-for-service
revenues pursuant to contracts with its CRO clients. See "Business -- Strategic
Alliances and Collaborations." The development funding received by the Company
pursuant to collaborative agreements often includes payments for research to
support the development of specific compounds, recorded as development revenue,
and licensing fees and milestone payments recorded as licensing fees. ILEX's
collaborative agreements are generally conducted on a best efforts basis and
payments for research are recognized based on the time incurred on the related
studies. The Company is reimbursed for investigator costs based on actual costs
incurred or at predetermined rates plus out-of-pocket costs incurred during the
performance of the study. Revenues related to milestone payments are recognized
upon the achievement of the related milestone and when collection is probable.
ILEX also derives revenue from performing CRO services for companies within
the pharmaceutical and biotechnology industries. In general, the Company
provides CRO services to a client based on a pre-specified contract cost that
may be adjusted during the term of the project. The terms of the Company's
engagements vary, ranging from less than one month to several years, and
generally may be terminated upon notice of 30 days or less by the client. The
Company recognizes revenue with respect to its CRO services on a percentage of
completion basis as work is performed.
Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. These costs consist of direct and
indirect costs related to specific projects as well as fees paid to other
entities which conduct certain research activities on behalf of the Company.
ILEX has no products available for sale and, with the exception of MGBG,
does not expect to have any products resulting from its drug development
efforts, including its collaborations with others, commercially available for
several years, if at all. The Company has incurred losses and expects to incur
increasing losses for the foreseeable future as the Company's research and
development expenditures increase. The Company's revenue for the foreseeable
future will be limited to development funding under its collaborative
relationships, fee-for-service revenues pursuant to contracts with its CRO
clients, interest income and other miscellaneous income.
23
<PAGE> 26
During the period from inception through December 31, 1994, and the years
ended December 31, 1995 and 1996, the Company had one collaborative research
agreement that accounted for 85%, 84% and 40% of total revenue, respectively.
RESULTS OF OPERATIONS
ILEX expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned under existing or
future collaborative relationships or joint ventures, if any, technological
advances and determinations as to the commercial potential of compounds, the
progress of the Company's drug development programs, the receipt of regulatory
approvals, acquisitions, the timing of start-up expenses for new facilities,
changes in the Company's mix of services, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, the status of competing products and technologies
and the timing and availability of financing for the Company, including existing
or future strategic alliances and joint ventures with third parties. In
addition, with respect to the Company's contract research services revenues,
fluctuations may result due to a number of factors, including the commencement,
completion or cancellation of large contracts and progress of ongoing contracts.
ILEX believes that comparisons of its quarterly and annual historical results
may not be meaningful and should not be relied upon as an indication of future
performance.
To date, the majority of the Company's expenditures have been for research
and development activities. With the exception of MGBG, ILEX's most clinically
advanced compound, the Company does not expect to receive royalties or other
revenues based upon net sales of drugs that may be developed for a significant
number of years, if at all. ILEX expects research and development expenses to
increase significantly over the next several years as its development programs
progress. In addition, general and administrative expenses necessary to support
such expanded programs are also expected to increase over the next several
years.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1996
Total revenue increased from approximately $4.2 million in the year ended
December 31, 1995 to $8.1 million in 1996. The increase of $3.9 million, or 93%,
was due to an additional $3.0 million of licensing fee revenue, $30,000 of
product development revenue, and $880,000 of contract research services revenue.
The licensing fee revenue was received pursuant to collaborations with Janssen,
MGI Pharma and the MPI joint venture, as well as from a milestone payment from
Sanofi. See "Business -- Strategic Alliances and Collaborations." The
incremental product development revenues were attributable to increased revenues
received by the Company under its product development agreements with Sanofi and
Janssen. The increase in contract research services revenues was a result of an
increased number of contracts.
Total operating expenses increased from approximately $5.1 million in the
year ended December 31, 1995 to $8.7 million in 1996. This increase of $3.6
million, or 74%, was primarily a result of increases in costs of contract
research services of $1.1 million associated with the start-up of the Company's
manufacturing facilities, which commenced operations in early 1996,
subcontractor costs of $520,000 relating to increases in expenditures required
to support the Company's contract research services operations and research and
development costs of approximately $430,000, primarily due to costs associated
with MGBG. In addition, operating expenses increased by approximately $1.6
million due to increases in general and administrative expenses associated with
increased compensation primarily as a result of the increased number of
personnel and, to a lesser extent, business development costs. ILEX anticipates
that general and administrative expenses will substantially increase as the
Company increases the number of products in development, product in-licenses and
collaborations. ILEX believes that research and development costs will increase
substantially in future periods as the Company expands its preclinical and
clinical trials associated with developing additional compounds.
24
<PAGE> 27
Net interest income increased from approximately $133,000 in year ended
December 31, 1995 to income of $684,000 in 1996. This increase of $551,000 is
attributable to an increase in interest income resulting from higher average
balances of cash, cash equivalents and investments in marketable securities from
proceeds received from sales of Convertible Preferred Stock completed in 1995
and 1996.
COMPARISON OF PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1994 AND YEAR ENDED
DECEMBER 31, 1995
Total revenue increased from approximately $1.3 million in the period from
inception through December 31, 1994 to $4.2 million in the year ended December
31, 1995. This increase of $3.0 million, or 236%, was primarily a result of an
increase in product development revenues of $2.5 million, from $1.1 million to
$3.6 million, or 233%, over the same period, which increase was attributable to
a full year of MGBG development activity. Contract research services revenues
increased by $470,000, or 250%, from $190,000 to $660,000, over the same period
due to an increased volume of services rendered.
Total operating expenses increased from approximately $1.3 million in the
period from inception through December 31, 1994 to $5.1 million in the year
ended December 31, 1995. This increase of $3.8 million, or 289%, was primarily a
result of a $2.3 million increase, or 240%, in research and development costs,
which increased from $950,000 to $3.2 million. Research and development costs
increased primarily because there was a full year of associated expenses.
General and administrative expenses increased by $1.2 million, from $160,000 to
$1.3 million, for the same reason. Costs of contract research services and
subcontractor costs increased by $250,000 and $80,000, respectively, due to an
increased volume of contracts.
Net interest income increased from a loss of approximately $1,000 for the
period from inception through December 31, 1994 to income of $133,000 in the
year ended December 31, 1995. This increase of $134,000 is attributable to the
investment of the proceeds from sales of Convertible Preferred Stock completed
in 1995.
INCOME TAXES
As of December 31, 1996, the Company estimates that it had approximately
$1.1 million and approximately $380,000 of net operating loss and tax credit
carryforwards, respectively, which expire at various dates between fiscal 2009
and 2011. The Tax Reform Act of 1986 (the "Tax Act") contains certain provisions
that may limit the Company's ability to utilize net operating loss and tax
credit carryforwards in any given year if certain events occur, including
cumulative changes in ownership interests in excess of 50% over a three-year
period. ILEX experienced a change in ownership interest in excess of 50% as
defined under the Tax Act upon the consummation of its offering of Series B
Convertible Preferred Stock. The Company does not believe that this change in
ownership significantly impacts the Company's ability to utilize its net
operating loss and tax credit carryforwards as of December 31, 1996 because the
amount of the annual limitation under the Internal Revenue Code of such
carryforwards is in excess of the total amount of net operating loss and tax
credit carryforwards. There can be no assurance that ownership changes in future
periods will not significantly limit the Company's use of its existing net
operating loss and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
ILEX has financed its operations primarily through the sale of Convertible
Preferred Stock, through development and licensing fee revenues provided by its
collaborative partners under its collaborative agreements and, to a lesser
extent, through fee-for-service or participatory revenues pursuant to contracts
with its CRO clients along with a $500,000 line of credit received in 1994
(which was repaid in full in February 1996). Since its inception, the Company
has received approximately $26.1 million in net proceeds from the sale of
Convertible Preferred Stock to investors and collaborative partners, $8.2
million in development funding and $3.0 million in licensing or milestone
payments from its collaborative partners
25
<PAGE> 28
and $2.4 million through fee-for-service revenues pursuant to contracts with its
CRO clients. Approximately 86% of the aggregate amount of the Company's
development funding to date has been provided pursuant to its relationship with
Sanofi, with Sanofi providing $220,000, $3.8 million and $3.0 million in
development funding during the years ended December 31, 1994, 1995 and 1996,
respectively. The Company is entitled to receive additional payments under
collaborative agreements in the form of development funding, milestone payments,
if milestones are achieved, and royalties, if products are commercialized.
In the period from the time the Company commenced operations to December
31, 1996, the Company used a total of $1.2 million to fund its operations.
During the years ended December 31, 1994, 1995 and 1996, the Company had cash
provided by (used in) operations of $(40,000), $(410,000) and $(740,000),
respectively. The changes in cash used in operations were the result of costs
associated with increased research and development activities and increased
general and administrative expenses necessary to support increased operations.
The Company's expenditures for equipment and leasehold improvements for the
period from the time the Company commenced operations to December 31, 1996 were
approximately $1.0 million. As of December 31, 1996, the Company had cash, cash
equivalents and investments in marketable securities of approximately $23.0
million and working capital of approximately $11.7 million.
As of December 31, 1996, the Company did not have any material commitments
for capital expenditures. On December 11, 1996, the Company entered into an
agreement with MPI for an equally owned joint venture. Under the agreement, the
Company and MPI have each provided the joint venture with $1.0 million in
initial funding. The funding was provided by the Company's current capital
resources. The joint venture used $1.5 million of its initial funding to
purchase a license for an oncology compound from the Company. Although under no
obligation to do so, ILEX anticipates providing funding to its joint venture
with MPI from time to time as it deems appropriate. See "Business -- Strategic
Alliances and Collaborations."
ILEX's future expenditures and capital requirements will depend on numerous
factors, including without limitation, the progress of its research and
development programs, the progress of its preclinical and clinical testing, the
magnitude and scope of these activities, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements, the ability of the Company to establish, maintain
and avoid termination of collaborative arrangements, the development of
commercialization activities, the growth of the CRO business and the purchase of
capital equipment and acquisitions of compounds, technologies or businesses. The
Company's cash requirements are expected to continue to increase significantly
each year as it expands its activities and operations. There can be no assurance
that the Company will ever be able to generate product revenue or achieve or
sustain profitability.
The Company has no current sources of funding beyond the proceeds from this
offering, its collaborative agreements with its strategic partners, its drug
development service operations, existing cash and cash equivalents and
investments in marketable securities. The Company believes that the estimated
net proceeds of this offering, its collaborative agreements with strategic
partners, its contract research services, existing cash and cash equivalents and
investments in marketable securities will satisfy its currently budgeted cash
requirements through 1999 based upon the Company's current operating plan and
conditions, but there can be no assurance that the Company will not require
additional funds prior to such date. However, if the Company experiences
unanticipated cash requirements resulting from, among other things, delays in
its research and development programs, changes in or terminations of existing
collaborative arrangements or contract research agreements and additional
compound development opportunities, the Company could require additional capital
to fund operations, continue research and development programs, continue
pre-clinical and clinical testing of its proprietary products and commercialize
any products that may be developed. The Company may seek such additional funding
through future public or private equity or debt financings, collaborative or
other
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arrangements with third parties or from other sources. There can be no
assurance, however, that additional funds will be available on acceptable terms,
if at all.
INFLATION
The Company does not believe that inflation has had a significant effect on
the Company's operations to date.
ACCOUNTING MATTERS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. This
statement provides accounting and reporting standards for, among other things,
the transfer and servicing of financial assets, such as factoring receivables
with recourse. This statement is effective for transfers and servicing of
financial assets occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The Company
believes the adoption of this statement will not have an impact on the financial
condition or results of operations of the Company.
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BUSINESS
SUMMARY
ILEX is a drug development company focused exclusively on oncology. The
Company uses its expertise in the identification, development, manufacturing and
regulatory approval process of oncology drugs to (i) develop cancer treatment
products, (ii) develop products for the prevention of cancer and (iii) provide
contract research services to pharmaceutical and biotechnology companies. ILEX's
objective is to be a leading worldwide oncology drug development company. The
Company has nine cancer treatment compounds under development, including five in
Phase II or Phase III clinical trials. In October 1996, ILEX submitted a NDA to
the FDA seeking accelerated marketing approval for MGBG as a second-line
treatment for patients with AIDS-related non-Hodgkin's lymphoma. Additionally,
ILEX has two chemoprevention compounds under development. Consistent with its
strategy, the Company has established worldwide development and marketing
collaborations with Sanofi, Janssen and MGI Pharma for certain of its compounds.
In addition to its proprietary product development programs, the Company offers
CRO services to both the pharmaceutical and biotechnology industries. ILEX
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology. ILEX was formed by CTRC in December
1993 for the purpose of conducting certain advanced drug development programs
and pursuing commercial opportunities which were not within the scope of CTRC's
tax-exempt purpose. See "-- Relationship with CTRC."
ILEX's objective is to be a leading worldwide oncology drug development
company. The Company believes that its approach of developing proprietary
products for cancer treatment and chemoprevention combined with providing
contract research services to pharmaceutical and biotechnology companies will
generate revenues in the near term and diversify risk, while developing a
portfolio of proprietary products with significant long-term potential. The
Company's strategy consists of the following elements: (i) focusing on the
expanding cancer market; (ii) using its expertise to identify and in-license
compounds in later stages of development; (iii) developing chemoprevention
products; (iv) forming strategic collaborations with corporate partners; and (v)
offering a full range of oncology product development and manufacturing
services.
ILEX has submitted an NDA to the FDA seeking accelerated marketing approval
for MGBG as a second-line treatment for patients with AIDS-related non-Hodgkin's
lymphoma. The Company, in collaboration with Sanofi, plans to expand the
potential uses of MGBG by conducting clinical trials in patients with other
non-Hodgkin's lymphomas, Hodgkin's disease and pancreatic cancer. There can be
no assurance, however, that MGBG will receive FDA approval on a timely basis, if
at all, be commercially viable or achieve market acceptance. ILEX has
established a worldwide development and marketing collaboration with Sanofi for
MGBG. In addition, the Company has established a worldwide development and
marketing collaboration with Janssen for Crisnatol, which is in Phase III
clinical trials for treatment of patients with glioblastoma, a type of brain
tumor. ILEX is also pursuing the development of DFMO for brain tumors, carcinoid
syndrome and breast cancer, and expects to initiate a pivotal Phase II trial in
1997 for breast cancer. The Company, through a joint venture with MPI, is
developing Piritrexim as a treatment for patients with Kaposi's sarcoma and
advanced bladder cancer, and is currently conducting a Phase III trial in
patients with Kaposi's sarcoma.
ILEX is also developing chemoprevention compounds. Physicians are
increasingly able to identify people at risk of developing cancer. For example,
tests are currently available to detect precancerous conditions, such as lesions
of the cervix and recurrent colon polyps. In the future, it is expected that
genetic markers will also be used to identify high-risk individuals. The Company
is attempting to develop oral, non-toxic drugs which, when taken chronically,
may prevent a progression to cancer. ILEX believes that clinical development
strategies aimed at obtaining marketing approval based upon achieving
intermediate endpoints will be necessary to the timely development of such
drugs. Currently, the Company has two chemoprevention compounds under
development. Based on the potential market opportunity, the Company plans to
devote a significant portion of its resources to develop chemoprevention
products.
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In addition to its proprietary product development programs, ILEX offers
CRO services to the pharmaceutical and biotechnology industries. The Company
believes it is currently the only full-service provider of contract research
services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such capabilities, ILEX believes that
it may be able to reduce the time normally required by pharmaceutical and
biotechnology companies and broad-based CROs to develop oncology products and
increase the probability of obtaining regulatory approval.
The Company was incorporated in Delaware in 1993. The Company's executive
offices are located at 11550 IH-10 West, Suite 300, San Antonio, Texas 78230.
The Company's phone number is (210) 949-8200.
STRATEGY
ILEX's objective is to be a leading worldwide oncology drug development
company. By using its expertise in the identification, development,
manufacturing and regulatory approval process of oncology drugs, the Company
believes it can develop cancer treatment products, develop chemoprevention
products and provide contract research services to pharmaceutical and
biotechnology companies. ILEX believes that this approach will, in the near
term, generate licensing fees, research and development funding, milestone
payments, and fee-for-service or participatory revenues pursuant to contracts
with its contract research clients, and in the longer term, generate royalty
payments from its corporate partners for its cancer treatment drugs and allow
the Company to generate revenue from its chemoprevention drugs. The Company
believes that this strategy allows the Company to generate revenues in the near
term and diversify risk, while building a portfolio of proprietary products with
significant long-term potential. ILEX's strategy consists of the following
elements:
Focus on the Expanding Cancer Market. The American Cancer Society estimates
that over 1.3 million new cases of cancer will be diagnosed and approximately
550,000 cancer deaths, representing approximately 25% of all projected deaths,
will occur in the United States in 1996. Cancer is currently the second leading
cause of death in the United States, and over 10 million people alive today have
a history of cancer. The worldwide oncology drug market was approximately $5.6
billion in 1995 and is projected to total approximately $9.0 billion by the year
2000. It is expected that there will be an increased need for oncology products
because incidence of cancer increases dramatically with age and the over-65
population is one of the fastest growing age groups in the United States.
Moreover, due to the life threatening nature of cancer, the FDA has announced
procedures for accelerating the approval of oncology agents, thereby reducing
the amount of time required to bring such agents to market. ILEX believes that
the increasing demand for oncology products and the acceleration of the oncology
product approval process by the FDA creates a unique opportunity for the Company
to use its expertise in oncology drug development.
Use its Expertise to Identify and In-License Compounds in Later Stages of
Development. The Company will continue to use the expertise of its management
team and Scientific Advisory Board, as well as its established relationship with
CTRC Research and its related entities, to identify and in-license oncology
compounds for development. ILEX focuses its development activities on cancer
treatment compounds in the later stages of development in order to reduce the
risk associated with drug discovery and early stage development. The Company
concentrates on those compounds that have demonstrated preliminary safety and
efficacy in human and/or animal studies, and that are protected by, among other
things, patents or orphan drug status. There are over 200 oncology drugs
currently in development in the United States. The Company believes that many of
these oncology drugs will become available for in-licensing or equity
participation by ILEX or other market participants because (i) industry
consolidation has caused pharmaceutical and biotechnology companies to
prioritize research and development programs, resulting in numerous licensing
opportunities, (ii) evaluation of a compound's market potential based on its
initial use may lead to an underestimation of the market potential of certain
oncology
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products and (iii) the market potential of certain of these compounds may be
considered too small to be attractive to large drug companies.
Develop Chemoprevention Products. Physicians are increasingly able to
identify people at risk of developing cancer. The Company is attempting to
develop non-toxic, oral drugs which when taken chronically, may prevent the
onset of cancer. The Company believes that chemoprevention drugs may have
utility for individuals diagnosed with precancerous conditions, such as
precancerous lesions of the cervix or recurrent colon polyps and, in the longer
term, may have utility for individuals diagnosed as predisposed to cancer, based
on emerging genetic based tests. Based on the potential market opportunity, the
Company plans to devote a significant portion of its resources to develop
chemoprevention products.
Form Strategic Collaborations with Corporate Partners. ILEX seeks to form
corporate partnerships with pharmaceutical and biotechnology companies to obtain
financial and marketing support for certain of its product development
activities. The Company believes that its product development strategy (i)
minimizes the substantial financial investment otherwise required by ILEX to
develop its oncology drugs, (ii) provides the Company with access to
international markets, (iii) enables the Company to carry an increased number of
products in its oncology drug portfolio and (iv) limits the Company's dependence
on the success of any single product.
Offer Full-Range of Oncology Product Development and Manufacturing
Services. The Company believes it is currently the only full-service provider of
CRO services focused exclusively on oncology. The Company offers its contract
research clients, among other things, expertise in the design of cancer clinical
protocols, preparation of regulatory submissions, toxicology services,
organization and monitoring of clinical trials and state-of-the-art
manufacturing capabilities. As a result of such expertise, the Company believes
that it may be able to reduce the time normally required by other pharmaceutical
and biotechnology companies and broad-based CROs to develop oncology products
and increase the probability of obtaining regulatory approval.
OVERVIEW OF CANCER
Cancer is characterized by uncontrolled cell division resulting in the
growth of a mass of cells commonly known as a tumor. Cancer cells, if not
eradicated, can spread ("metastasize") throughout the body. Cancerous tumors can
arise in almost any tissue or organ within the human body. Cancer is believed to
occur as a result of a number of factors, including genetic predisposition,
environmental agents and irradiation. These factors may result in genetic
changes affecting the ability of cells to regulate normally their growth and
division.
There are currently more than 200 investigational agents being developed in
the United States for treating patients with cancer, more than at any time in
United States history. Most of these agents are being developed for treatment of
advanced disease. Due to the life-threatening nature of cancer, the FDA has
announced procedures for accelerating the approval of oncology agents, thereby
reducing the amount of time required to bring such agents to market. Under these
procedures, an oncology drug can be approved if it is shown to shrink tumors in
Phase II studies and if the developing company commits to performing and
completing Phase III trials after marketing approval.
Treatment of Cancer. The three most prevalent methods of treating patients
with cancer are surgery, radiation therapy and chemotherapy. A cancer patient
often receives a combination of two or all three of these treatment methods.
Surgery and radiation therapy are particularly effective in patients in which
the disease has not yet spread to other tissues or organs. Chemotherapy is the
principal treatment for tumors that have metastasized. The purpose of
chemotherapy is to interfere with the molecular and cellular processes that
control the development, growth and survival of malignant tumor cells.
Chemotherapy involves the administration of drugs designed to kill cancer cells
("cytotoxic drugs") or the administration of hormone analogues to either reduce
the production of, or block the action of, certain hormones, such as estrogens
and androgens, which affect the growth of tumors. In many cases, chemotherapy
consists of the administration of several different drugs in combination.
Because chemotherapeutic
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agents generally attack rapidly dividing cells indiscriminately, damaging normal
as well as cancerous cells, use of such agents often has adverse effects.
Although several types of tumors can now be treated effectively with drugs,
survival rates for the most common tumors have only begun to improve slightly.
In recent years, however, there have been significant advances in molecular
biology, immunology and other related fields of biotechnology which have led to
a better understanding of the processes that regulate the proliferation and
metastasis of malignant cells and by which malfunctioning genes can result in
the formation of tumors.
Prevention of Cancer. There are a number of conditions which can currently
be diagnosed and which predispose an individual to developing cancer. For
example, high-grade cervical dysplasia, if left unattended, often progresses to
invasive cervical cancer. Recurrent colon polyps can lead to colon cancer;
actinic keratosis, a type of sun induced skin lesion, can progress to skin
cancers; and individuals who have had a local tumor removed are at high risk for
having a second tumor. In the near future, physicians will increasingly be able
to use relatively simple genetic-based tests to identify individuals at risk for
developing cancer. The Company believes there is a significant need for
non-toxic, oral drugs which can be prescribed for chronic use to prevent the
onset of cancer in these situations. To date, no drug for the prevention of
cancer (i.e. chemoprevention drugs) has been approved by the FDA, and there can
be no assurance that the Company will be able to develop successfully a safe and
efficacious chemoprevention drug, that such drug will be commercially viable or
will achieve market acceptance.
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PRODUCTS UNDER DEVELOPMENT
ILEX is developing compounds for treating patients with cancer as well as
chemoprevention compounds. The following table summarizes the drugs under
development by the Company and is qualified in its entirety by the more detailed
information following the table and elsewhere in this Prospectus:
PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
WORLDWIDE
MARKETING
COMPOUNDS INDICATION DEVELOPMENT STATUS(1) RIGHTS
--------- ---------- --------------------- ---------
<S> <C> <C> <C>
CANCER TREATMENT
MGBG - AIDS-related, non- NDA submitted October 1996 Sanofi
Hodgkin's lymphoma
- CNS lymphoma Phase II ongoing
- Other non-Hodgkin's Phase I/II ongoing
lymphoma
- Hodgkin's disease Initiate Phase II in 1997
- Pancreatic cancer Initiate Phase I in 1997
DFMO - Brain tumors Phase III ongoing(2) ILEX
- Carcinoid syndrome Initiate Phase II in
1997(2)
- Breast cancer Initiate Pivotal Phase II
in 1997
Piritrexim - Kaposi's sarcoma Phase III ongoing ILEX/MPI(3)
- Advanced bladder cancer Initiate Pivotal Phase II
in 1997
Crisnatol - Glioblastoma Phase III ongoing Janssen (J&J)
- Brain metastasis Phase I ongoing
DHAC - Mesothelioma Phase II completed(2) MGI Pharma
- Myelodysplastic syndrome Initiate Phase II in 1997
(MDS)
Intoplicine - Various solid tumors Initiate Phase I in 1997 ILEX(4)
Aminopterin - Acute lymphocytic Phase I/II ongoing(5) ILEX
leukemia
Oxypurinol - Hyperuricemia(6) Compassionate distribution MGI Pharma
Farnesyl - Various solid tumors Preclinical ILEX
Transferase
Inhibitors
CHEMOPREVENTION
DFMO - High-grade cervical Initiate Phase III in 1997 ILEX
intraepithelial neoplasia
- Prevention of certain Multiple Phase I and II
cancers in high-risk studies ongoing(2)
patients
IL23-7553 - Prevention of certain Preclinical ILEX
(Vitamin D3 cancers in high-risk
Analogue) patients
</TABLE>
- ---------------
(1) Trials indicated are conducted or planned to be initiated by ILEX, except as
otherwise indicated.
(2) Trials conducted or planned to be initiated by NCI.
(3) The Company has formed a joint venture with MPI Enterprises, L.L.C. to
jointly develop Piritrexim.
(4) Rhone-Poulenc Rorer Inc. has retained an option to market Intoplicine in
North America.
(5) Investigator IND.
(6) A condition which results from chemotherapy treatment in some cancer
patients or in patients with gouty arthritis.
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CANCER TREATMENT COMPOUNDS
MGBG (mitoguazone)
Overview. MGBG is the first of a new class of cancer treatment drugs which
inhibit polyamines (substances which are used by dividing cells to stabilize
DNA). MGBG is being developed for the treatment of patients with non-Hodgkin's
lymphoma ("NHL"), Hodgkin's disease and pancreatic cancer. The Company submitted
an NDA to the FDA in October 1996 pursuant to the accelerated procedures
promulgated by the FDA for drugs which may be used to treat life-threatening
diseases, seeking marketing approval for MGBG as a second-line treatment for
patients with AIDS-related NHL. The Company has licensed worldwide marketing
rights to MGBG to Sanofi. MGBG is expected to be marketed under the trade name
Zyrkamine. The use of MGBG is protected by an issued patent in the United States
and MGBG is designated as an Orphan Drug for treatment of patients with diffuse
lymphomas, including AIDS-related NHL. There can be no assurance that MGBG will
receive FDA approval on a timely basis, if at all, become commercially viable or
achieve market acceptance.
Development History. Early clinical trials sponsored by the NCI in the
1970's showed that MGBG had antitumor activity, particularly in leukemias and
lymphomas; however, when administered on a daily dosing schedule, the drug
caused intolerable inflammation of mucus membranes ("mucositis") which led to a
discontinuation of clinical trials. Interest in the drug was renewed in the
1980's when it was discovered that the drug remained in the bloodstream for an
extended period of time and that daily dosing caused an excessive accumulation
of the drug. Subsequent clinical trials using a weekly or bi-weekly schedule
demonstrated that MGBG had significant anti-tumor activity, particularly in
patients with lymphomas, and such a dosing schedule did not cause severe
mucositis or severe toxicity to bone marrow cells (i.e. non-myelosuppressive).
In addition, MGBG has been shown to cross the blood brain barrier, making it an
attractive agent for testing in patients with cancers of the central nervous
system ("CNS"), particularly CNS lymphoma, a disease for which there is
currently no effective therapy. ILEX acquired rights to MGBG based upon MGBG's
demonstrated antitumor activity in human clinical trials. In addition, the
Company believes MGBG may ultimately be used in combination regimens for
treating various types of cancer because it works by a novel mechanism of
action, is not myelosuppressive and has relatively few harmful side effects (is
relatively "well tolerated"). Rights to MGBG were acquired by CTRC Research in
1992 from the Public Health Service ("PHS"), a division of the Department of
Health and Human Services, and were subsequently transferred to ILEX.
ILEX has chosen AIDS-related lymphoma as the first indication for MGBG
because of the drug's demonstrated activity against lymphomas, its lack of
myelosuppression, which is important in patients with AIDS, and its ability to
be transported to the CNS, which is a frequent metastatic site. The choice of
initial ("first-line") therapy for patients with this disease depends on many
factors, but the therapy most commonly used, known as CHOP, is a combination of
cytotoxic agents, cyclophosphamide + doxorubicin + vincristine + prednisone.
Development Status. In October 1996, the Company submitted an NDA to the
FDA seeking marketing approval for MGBG as a treatment for patients with
AIDS-related NHL who have failed a potentially curative regimen such as CHOP.
The Company is seeking marketing approval under the accelerated approval
procedures promulgated by the FDA for anticancer drugs.
The Company has completed two open-labeled Phase II clinical trials in a
total of 90 patients with AIDS-related NHL who had failed at least one
potentially curative treatment regimen. In both studies, 600 mg/M(2) was given
via an intravenous infusion on Days 1 and 8 and once every two weeks thereafter
until disease progression or the patient completed an additional 16 weeks of
treatment after response was first observed. The primary endpoint of the studies
was tumor response rate. Other endpoints included duration of response, survival
and clinical benefit parameters.
The percentage of patients that had a complete remission plus the
percentage of patients that had more than a 50% reduction in the size of their
tumors ("objective response rate") in the 90 patients enrolled in the two
studies was 14.5%. Six patients (6.7%) had a complete remission, seven (7.8%)
had
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<PAGE> 36
a partial response (greater than 50% decrease in tumor size) and 16 (17.8%) had
their disease stabilized. In both studies the drug was well tolerated and there
was evidence that patients who had tumor shrinkage or stabilization also
experienced relief from tumor-associated symptoms. The Company believes these
results are meaningful because there are no approved treatments for patients who
have failed first-line therapy. Additionally, patients who participated in the
studies had very advanced disease and yet some clearly benefitted from tumor
shrinkage and improvement in their tumor-associated symptoms. The Company
believes that MGBG demonstrated a favorable benefit-to-risk ratio in these
studies. The Company is planning to initiate a post-marketing approval Phase III
trial in accordance with the FDA's accelerated approval guidelines. There can be
no assurance, however, that such trial will be successful or that approval will
be obtained under the FDA's accelerated approval guidelines, if at all.
The Company plans to engage in efforts to expand MGBG's indications by
conducting additional trials to demonstrate its efficacy in non-AIDS related
NHL, CNS lymphoma, pancreatic cancer and Hodgkin's disease. The Company
anticipates that MGBG, if approved, will be used in combination with other
agents for these indications. ILEX is conducting a Phase I/II trial in patients
with NHL, using MGBG combined with CHOP and plans to initiate a Phase II trial
in 1997 in patients with lymphoma who have failed bone marrow transplantation. A
Phase II trial has been initiated in patients with CNS lymphoma. The Company
plans to initiate a Phase I trial in 1997 combining MGBG with gemcitabine and a
Phase II trial in patients with either NHL or Hodgkin's disease who have failed
bone marrow transplant treatment.
Marketing. Worldwide marketing rights have been licensed to Sanofi pursuant
to the terms of a license and development agreement between Sanofi and ILEX.
Under the terms of the agreement, ILEX is responsible for providing clinical
trial materials, managing the clinical development of MGBG and preparing and
submitting an NDA. If approved, the NDA and Orphan Drug Designation are to be
assigned to Sanofi, which will be responsible for the marketing and manufacture
of MGBG for commercial distribution. ILEX has received from Sanofi an initial
license fee and development funding for MGBG and is entitled to receive
additional development funding, milestone payments and royalties on sales.
The Company is seeking approval of MGBG initially for second-line treatment
of patients who have AIDS-related NHL, a disease which currently afflicts
approximately 10,000-20,000 persons in the United States. Because of its unique
mechanism of action and lack of myelosuppression, the Company believes MGBG
could be used in combination treatment regimens for non-AIDS-related NHL and
other lymphomas, Hodgkin's disease and pancreatic cancer. These diseases are
newly diagnosed in more than 66,500 people annually in the United States.
Proprietary Position. In November 1994, the exclusive license to the United
States patent for MGBG held by PHS was transferred to ILEX from CTRC Research.
The PHS United States patent, which expires in May 2002, claims the intended
regimen for using MGBG to treat patients with cancer. No international patents
have been issued or are pending. Pursuant to the terms of the agreement with
PHS, ILEX is obligated to pay PHS an annual royalty based on net sales of MGBG.
MGBG is currently designated as an Orphan Drug for the treatment of patients
with diffuse lymphomas, a classification of most lymphomas that are treated by
chemotherapy, including AIDS-related NHL. See "-- Patents, Trademarks and Trade
Secrets" and "-- In-Licensing Agreements."
DFMO
Overview. DFMO is a selective irreversible inhibitor of an enzyme which
controls formation of certain polyamines which are required by dividing cells
such as cancer cells. DFMO was discovered and developed through Phase II trials
by Marion Merrell Dow Inc. ("MMD"), now Hoechst Marion Roussel, Inc. ILEX
obtained a worldwide, exclusive license to DFMO from MMD for use in the fields
of cancer and infectious diseases. ILEX plans to develop DFMO as a treatment for
breast cancer, carcinoid syndrome and possibly brain tumors. The Company plans
to initiate in 1997 pilot studies in patients with breast cancer. In addition,
ILEX plans to develop DFMO as a chemoprevention drug. See "-- Cancer Treatment
Compounds -- DFMO."
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<PAGE> 37
Development History. DFMO's demonstrated activity in many preclinical
cancer and parasitic disease models led MMD to pursue its development as an
agent to treat certain infectious diseases, parasitic diseases and advanced
cancer. MMD obtained marketing approval of DFMO as a treatment for Trypanosoma
brucei gambiense and rhodensiense infections ("African Sleeping Sickness"), a
rare disease found in certain developing countries. MMD supplies an intravenous
dosage form of DFMO to the World Health Organization for distribution for this
indication under the trade name ORNIDYL.
MMD also conducted clinical studies with DFMO in patients with advanced
cancer. DFMO inhibits the growth of tumors rather than killing cancer cells and,
therefore, tumor reductions were rarely seen in most tumor types. However,
promising results were observed when DFMO was used to treat patients with brain
tumors. As a result, the NCI is sponsoring two ongoing, randomized, controlled
Phase III trials in patients with brain tumors with survival as the primary
endpoint. In one study by the Northern California Cancer Center ("NCCC"),
radiation treatment with and without DFMO is being compared in 200 patients
newly diagnosed with glioblastoma multiforme. This study, initiated in 1991,
completed patient accrual in 1996 with an additional one or two years planned
for follow-up. In a second study, initiated in 1992 by the NCI, DFMO is combined
with Procarbazine + cyclohexylnitrosourea ("CCNU") + Vincristine ("PCV") and
compared to PCV alone in patients with primary brain tumors. Either one or both
of these studies could yield results supportive of an NDA filing by ILEX for
DFMO for the treatment of patients with brain tumors. ILEX's Scientific Advisory
Board advised the Company to acquire the rights to DFMO from MMD because (i)
DFMO had demonstrated antitumor activity alone and in combination with other
oncology drugs in numerous laboratory studies, (ii) DFMO's mechanism of action
is novel, (iii) recent clinical studies had indicated that DFMO at low doses
might be effective without the side effects seen at higher doses, (iv) Phase III
studies had been initiated in patients with brain tumors and (v) the NCI was
sponsoring a number of chemoprevention studies using DFMO.
In laboratory studies sponsored by ILEX, DFMO has been shown to be more
active than Tamoxifen in mice implanted with estrogen receptor positive breast
tumors, to be active in tumor cell lines that are resistant to the effects of
Tamoxifen, and to be active in estrogen receptor negative cell lines and to
enhance the effectiveness of paclitaxel. Because many women fail therapy for
advanced disease, there is a significant need for new therapies for breast
cancer. Published studies have also shown that DFMO was more active than the
current therapy, somatostatin, in an animal model used to study carcinoid
tumors. A Phase II trial is expected to be initiated by the NCI in 1997.
Development Status. ILEX plans to evaluate the results of the NCCC study of
DFMO in combination with radiation for the treatment of glioblastoma multiforme
when they are available in 1997 or 1998 and to determine if the clinical results
are sufficient to support an NDA submission. The Company plans to initiate in
1997 two pilot studies in patients with breast cancer, one in patients who have
failed hormonal therapy and a second combining DFMO with Taxol (paclitaxel).
Each study is expected to enroll between 14 and 35 patients depending on the
objective response rate observed. If positive results are seen in either
setting, the Company plans to initiate pivotal Phase II trials. In addition, the
Company plans to support an NCI-sponsored clinical study in patients with
carcinoid syndrome who are failing conventional treatment.
Marketing. The Company will seek one or more partners for development of
this compound outside of the United States and may retain marketing rights in
the United States. The annual incidence of breast cancer, brain tumors and
carcinoid syndrome is estimated to be approximately 186,000, 17,900 and 5,000
persons per year in the United States, respectively. Approximately 45,000 women
die from breast cancer each year and more than 13,000 patients with brain tumors
die from their disease.
Proprietary Position. In August 1995, ILEX obtained a worldwide, exclusive
license to patents held by MMD covering the composition and use of DFMO for the
treatment of cancer and various parasitic infections (excluding African Sleeping
Sickness). Four MMD patents have issued in the United States which expire from
August 16, 2000 through March 26, 2008. Applications for five additional MMD
patents are pending. Fifty foreign patents have issued to MMD; four foreign
applications have been filed by MMD. In November 1996, the Company learned that
notice of allowance of claims had been received for a
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patent claiming the use of DFMO with a number of chemotherapeutic agents. The
Company has filed two United States patent applications for the use of DFMO in
combination with certain drugs used to treat breast cancer and in certain novel
formulations. Pursuant to the terms of a license agreement, ILEX has paid MMD a
licensing fee and is required to pay it certain milestone payments. In addition,
ILEX is obligated to pay MMD a royalty based on net sales of DFMO related to
applications of the product patented by MMD, and a lower royalty for
applications not covered by MMD patents, subject to adjustment under certain
circumstances. See "-- Patents, Trademarks and Trade Secrets" and "-- In-
Licensing Agreements."
PIRITREXIM
Overview. Piritrexim is a novel dihydrofolate reductase inhibitor
originally discovered and developed by Burroughs Wellcome Co., now Glaxo
Wellcome, and The Wellcome Foundation Limited (collectively, "Wellcome") with
demonstrated antitumor activity in patients with advanced bladder cancer,
Kaposi's sarcoma ("KS") and other diseases. ILEX has obtained an exclusive
license to patents held by Wellcome for use of Piritrexim as a treatment of
patients with cancer and related diseases. The Company has initiated a Phase III
trial in patients with KS and is collaborating with the Eastern Cooperative
Oncology Group ("ECOG"), an NCI cooperative group, which is organizing a pivotal
Phase II trial in patients with advanced bladder cancer.
Development History. Piritrexim was discovered and developed by Wellcome as
an agent with potentially superior properties to that of methotrexate. Because
Piritrexim enters the cell by a different mechanism of action than that of
methotrexate, Piritrexim was expected to be active in certain
methotrexate-resistant tumors. Wellcome conducted Phase I and II studies in more
than 700 patients. Tumor responses were noted in patients with advanced bladder
cancer, KS, colon cancer, melanoma, head-and-neck cancer and other cancers. In
published Phase II studies, Piritrexim demonstrated objective response rates
ranging from 23% to 75% in patients with advanced bladder cancer who failed the
standard first-line chemotherapy regimen of methotrexate + vinblastine +
adriamycin + cisplatin ("MVAC"). Because MVAC is a very toxic regimen, there is
a significant need for new effective treatments for advanced bladder cancer.
Wellcome developed an oral and an intravenous formulation of Piritrexim. The
Company has determined that the oral formulation is superior based upon its
safety and efficacy profile. The dose limiting toxicity with this agent is
myelosuppression, and other toxicities observed thus far are considered mild.
ILEX acquired rights from Wellcome to Piritrexim in 1995 upon the recommendation
of its Scientific Advisory Board. The Company sought to acquire rights to
Piritrexim because (i) objective tumor responses were observed in patients with
a number of different types of cancer, (ii) the drug appears to be well
tolerated at the recommended dose and schedules and (iii) the oral formulation
is convenient for patients. The Company believes that Piritrexim has the
potential to be used for treating a number of different diseases in a number of
different regimens.
Development Status. The Company plans to initially pursue a parallel
development path for Piritrexim, developing this agent both for patients with KS
and for those with advanced bladder cancer. The Company has initiated a Phase
III double-blind, placebo-controlled trial for patients with very early stage
KS. These patients typically receive local therapy only. The objective of this
study is to demonstrate that Piritrexim can prevent or reduce the number of new
lesions formed (primary endpoint). The trial, designed for 120 evaluable
patients, is expected to take approximately 18 months to complete. The Company
plans to conduct a Phase II trial with approximately 50 patients to demonstrate
responses in existing KS lesions as its second pivotal study.
The Company also expects two Phase II pivotal studies to be conducted with
approximately 100 patients with advanced bladder cancer who have failed MVAC or
another first-line regimen. ECOG plans to initiate such a study with Piritrexim
in early 1997. The Company plans to initiate a second study in 1997 with United
States, European and Canadian institutions. These two studies are expected to
constitute the two well-controlled pivotal studies required for an NDA under the
accelerated approval mechanism. The Company also plans to conduct a Phase I
trial combining Piritrexim with two other
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chemotherapy drugs with the objective of defining a new first-line regimen for
patients with advanced bladder cancer.
Marketing. The Company estimates that there are at least 10,000
AIDS-related new cases of KS diagnosed each year. The incidence of bladder
cancer in the United States is estimated to be approximately 52,900 patients in
1996, and approximately 11,700 deaths are expected to result from advanced
bladder cancer each year. ILEX and MPI, a drug development company, have formed
an equally owned joint venture to develop Piritrexim. The Company has licensed
Piritrexim to the joint venture in exchange for licensing fees, milestone
payments and royalties. Coincident with the transaction, MPI made an equity
investment of $5 million in ILEX. See "-- Strategic Alliances and
Collaborations -- MPI."
Proprietary Position. In March 1995, the Company obtained an exclusive,
worldwide license to patents held by Wellcome covering the composition and use
of Piritrexim for all cancer indications. Five Wellcome patents have issued in
the United States, the two most relevant of which expire in 2007; these patents
claim the composition of Piritrexim and its use as a treatment of patients with
cancer. The Wellcome Foundation Limited has 36 foreign patents for Piritrexim
with expiration dates ranging from 1999 to 2008. Pursuant to the terms of the
license agreement, ILEX has paid a portion of a licensing fee to Wellcome, with
a final payment due in March 1997. ILEX is also obligated to pay Wellcome
royalties based on net sales of Piritrexim, subject to adjustment under certain
circumstances. See "-- Patents, Trademarks and Trade Secrets" and
"-- In-Licensing Agreements."
CRISNATOL
Overview. Crisnatol is a compound that inhibits DNA and RNA synthesis and
has demonstrated activity in patients with brain tumors. The Company is
currently conducting a 200-patient, multi-center Phase III trial in patients
with glioblastoma multiforme, comparing Crisnatol with Carmustine ("BCNU"), the
only drug currently approved for treatment of this disease. The Company has
licensed worldwide marketing rights to Janssen, a subsidiary of Johnson &
Johnson.
Development History. Crisnatol was discovered and initially selected for
development by Wellcome on the basis of its in vitro and in vivo antitumor
activity. Based on a number of limited Phase I and Phase II trials conducted
under the prior sponsorship of Wellcome, the most promising antitumor activity
for Crisnatol was seen in a Phase II trial for patients with malignant gliomas
and no prior chemotherapy. In a Phase II study conducted by CTRC in 14 patients
with recurrent high-grade brain tumors who had undergone surgery and radiation
treatment, two patients obtained a complete remission and three had their
disease stabilized. The complete remissions have been durable, and both patients
are alive without evidence of disease, six and seven years since initiation of
treatment, respectively. Another patient had disease stabilization that lasted
42 months after receiving ten months of therapy with Crisnatol. The Company
sought to acquire rights to Crisnatol because (i) durable, complete remissions
are rare in patients with recurrent high-grade brain tumors, (ii) the market
potential for this indication alone was sufficiently attractive and (iii)
Crisnatol might be an effective treatment for patients with brain metastasis.
Rights to Crisnatol were acquired by CTRC Research from Wellcome in 1992 and
were subsequently transferred to ILEX.
Development Status. ILEX has initiated a randomized, controlled Phase III
trial in adult patients with glioblastoma multiforme. It is the most serious of
all brain tumors, with median survival of those treated by surgery alone being
approximately three to six months. Studies indicate that the addition of
radiation treatment improves this median survival to 12 months. Nonetheless,
survival remains poor with only 21% of patients surviving two years after being
diagnosed with glioblastoma multiforme and less than 5% surviving five years
after diagnosis.
In an ongoing Phase III adult trial, approximately 200 patients will
receive either Crisnatol or BCNU after both surgery and radiation treatment. As
of October 1, 1996, 52 patients have been enrolled at 12 clinical sites.
Crisnatol is administered by continuous intravenous infusion for a period of
three days on an outpatient basis. The primary endpoint is survival, with
time-to-tumor progression and quality of life as
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the other endpoints. Because tumors in patients with glioblastoma multiforme
usually recur within six months, this trial design is expected to produce
results in a relatively short period of time. An interim analysis of the
clinical data is scheduled to occur in the second quarter of 1997. The adult
clinical trial is expected to be completed in late 1998.
ILEX is also evaluating the use of Crisnatol in combination with radiation
treatment and is exploring prolonged administration in preparation for clinical
trials in patients with brain metastases. The Company is conducting a Phase I
study exploring a longer continuous infusion schedule. The objective is to be
able to administer Crisnatol continuously to patients who are undergoing
radiation therapy for brain metastases in order to completely eradicate cancer
cells that have metastasized to the brain.
ILEX sponsored a Phase I clinical trial in 18 pediatric patients with brain
stem gliomas. The results of this study are currently being analyzed.
Crisnatol's antitumor activity has not been well studied in patients with
diseases other than brain tumors. Crisnatol may have applications in other
neoplastic diseases. Accordingly, ILEX plans to evaluate Crisnatol's potential
in other diseases after the brain tumor studies are completed.
Marketing. In October 1996, ILEX entered into an agreement with Janssen
under which Janssen obtained worldwide rights to manufacture and market
Crisnatol. Under such agreement, ILEX is responsible for process development,
clinical development, and for preparing an NDA in the United States and
registration dossiers outside the United States. ILEX retained an option to
manufacture Crisnatol if Janssen elects to outsource manufacturing. ILEX
received an initial license fee and will receive project funding, milestone
payments and a royalty based upon the gross margin achieved by Janssen.
Coincident with executing the licensing agreement, Johnson & Johnson Development
Corp. made an equity investment of $1 million in ILEX. See "-- Strategic
Alliances and Collaborations -- Janssen."
The annual incidence of glioblastoma multiforme in the United States in
1996 was estimated by the American Brain Tumor Association to be more than
8,500. BCNU is the only drug approved for treatment of patients with high-grade
brain tumors and effectiveness is marginal. Therefore, there is a significant
need for new therapies for this disease. In addition, approximately 80,000
patients annually develop brain metastasis.
Proprietary Position. In November 1994, the exclusive, worldwide license to
Crisnatol for the treatment and/or prophylaxis of cancer was transferred to ILEX
from CTRC Research. This license agreement also provides ILEX with certain
non-exclusive rights for diseases other than cancer. Two Wellcome patents have
issued in the United States, with expiration dates of 2005 and 2006. Wellcome
has 36 patents in 35 foreign countries with expiration dates ranging from 1999
to 2007. Pursuant to the terms of the license agreement, ILEX is obligated to
pay Wellcome a royalty based on net sales of Crisnatol products. See
"-- Patents, Trademarks and Trade Secrets" and "-- In-Licensing Agreements."
DHAC
Overview. Dihydro-5-azacytidine ("DHAC") is an agent that interacts with
DNA and was initially developed as an antitumor agent by the NCI. In Phase II
trials conducted by the NCI, DHAC was shown to induce responses in patients with
mesothelioma, a cancer of the lung pleural cavity which is often attributed to
exposure to asbestos. DHAC was also shown to increase expression of certain
genes needed for inhibition of cancer cell growth. ILEX has licensed DHAC to MGI
Pharma. MGI Pharma plans to develop this agent as a treatment for patients with
myelodysplastic syndrome ("MDS"), a serious pre-leukemic condition, and possibly
as a treatment for patients with prostate cancer. MGI Pharma is expected to
begin Phase II clinical trials for patients with MDS in 1997.
Development History. DHAC was designed as an analogue of 5-azacytidine
("AC"), a drug which had shown potential as a treatment for leukemia, with the
objective of overcoming the severe gastrointestinal toxicities associated with
AC. However, clinical studies conducted by the NCI demonstrated that DHAC was a
drug completely different from AC with significantly less bone marrow toxicity.
The dose limiting toxicity of DHAC was shown to be pleurisy, pain in the pleural
cavity surrounding the
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lungs. As a result of this observation, the NCI organized a clinical study of
DHAC as a treatment for patients with mesothelioma. Antitumor responses were
observed in a multi-center clinical trial conducted by the NCI. Trials also
demonstrated that DHAC caused demethylation of DNA, which corrected certain DNA
defects and caused re-expression of certain cell surface receptors. In follow-up
preclinical studies, ILEX investigators demonstrated that DHAC could increase
expression of androgen receptors and, therefore, potentially could be used to
prolong the usefulness of androgen-related therapy in patients with prostate
cancer. In other clinical studies, AC, which has a similar mechanism of action
to that of DHAC, has been shown to reduce the number of transfusions required to
maintain patients with MDS. Since AC is highly toxic to bone marrow, DHAC might
be a better candidate for treatment of patients with MDS.
Development Status. ILEX proposes initially to explore the development of
DHAC in combination with growth factors as a treatment for MDS due to both a
significant need for new treatments for patients with MDS as well as because
DHAC could be as effective as AC without being toxic to bone marrow cells. In
addition, the Company may also propose that its development partner, MGI Pharma,
conduct Phase II clinical trials in patients with mesothelioma and prostate
cancer. The Company expects that Phase II clinical trials will be initiated in
1997 for MDS.
Marketing. The incidence of new cases of MDS in the United States in 1996
is approximately 7,500 and the incidence of prostate cancer is approximately
317,000. ILEX has entered into an agreement with MGI Pharma pursuant to which
MGI Pharma obtained worldwide rights to manufacture and market DHAC. MGI Pharma
agreed to contract with ILEX for 50% or more of the clinical development related
to DHAC or equivalent services related to another project. ILEX will receive a
licensing fee and a royalty based upon sales, if any, achieved by MGI Pharma or
its sublicensee(s). See "-- Strategic Alliances and Collaborations -- MGI
Pharma."
Proprietary Position. The composition of matter patent for DHAC expired in
1994. The Company has applied for a United States patent for the use of DHAC to
enhance androgen therapy in patients with prostate cancer. In addition, the
Company has obtained Orphan Drug Designation for DHAC as a treatment for
patients with mesothelioma. See "-- Patents, Trademarks and Trade Secrets."
OTHER PRODUCTS
Intoplicine. ILEX has licensed intoplicine ("Intoplicine"), a compound that
inhibits two enzymes involved in cancer cell replication, from Rhone-Poulenc
Rorer Inc. ("RPR"). In preclinical studies, Intoplicine demonstrated significant
antitumor activity against human tumor stem cells and in tumor-bearing animal
model systems. RPR terminated development of Intoplicine, because, in Phase I
clinical trials by RPR, patients developed serious liver toxicity at dose levels
below that which RPR believed to be necessary for antitumor activity. ILEX
believes that it is possible to change the dosing schedule to decrease or
eliminate the toxicity. RPR granted ILEX an exclusive, worldwide license to its
United States patent, five foreign patents and five foreign patent applications
on Intoplicine, and agreed to transfer know-how and regulatory documents to the
Company. ILEX plans to test new dosing regimens in Phase I clinical trials of
patients with various tumors beginning in 1997.
Aminopterin. ILEX is collaborating with the University of
Texas -- Southwestern Medical Center at Dallas on the development of aminopterin
("Aminopterin"), a compound in the same family as methotrexate. ILEX assisted
the investigator with the preparation of an Investigational New Drug ("IND")
application and supplied the initial clinical quantities. Early clinical results
from an ongoing Phase I/II trial indicate that the drug may stabilize or shrink
certain tumors (has "activity"). ILEX plans to collaborate in the development of
this agent as a treatment for patients with acute lymphocytic leukemia and
intends to apply for orphan drug status at the appropriate time. Aminopterin is
not covered by any existing patents.
Oxypurinol. In March 1995, ILEX obtained rights to an exclusive, worldwide
license to technology held by Wellcome related to the synthesis and use of
oxypurinol ("Oxypurinol"). Oxypurinol is an analogue of Wellcome's Allopurinol
for the treatment of gout or cancer patients who have high uric acid levels, a
condition resulting from chemotherapy treatment in some cancer patients. ILEX is
currently
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distributing Oxypurinol on a compassionate basis to patients who are allergic to
Allopurinol or who cannot take Allopurinol for other reasons. ILEX intends to
pursue marketing approval of this agent for treatment of patients who have
allergic reactions to Allopurinol utilizing the data that has been collected on
the compassionate use program. ILEX has entered into an agreement with MGI
Pharma pursuant to which MGI Pharma obtained worldwide rights to manufacture and
market Oxypurinol. ILEX is currently responsible for preparing a development
plan. ILEX will receive a licensing fee and funding for data retrieval, analysis
and project planning. Future funding and a milestone payment will depend on the
feasibility of the development plan. See "-- Strategic Alliances and
Collaborations -- MGI Pharma."
Farnesyl Transferase Inhibitors. In July 1996, ILEX obtained rights to an
exclusive, worldwide license from Sother, Inc. to a family of compounds that are
currently in preclinical evaluation and have been shown to inhibit farnesyl
transferase inhibitors. Farnesyl transferase inhibitors is an enzyme that is
involved in the intracellular pathway which is activated in dividing cells. This
enzyme is activated in a large number of tumors and therefore may be a promising
target for new oncolytic agents. These compounds are currently being evaluated
in preclinical studies.
CHEMOPREVENTION COMPOUNDS
The Company believes that drugs can be developed which can be used to treat
premalignant conditions and halt the progression of cells to invasive cancer.
There are a number of conditions which currently can be diagnosed and which
predispose an individual to developing cancer. Examples include (i) high-grade
cervical dysplasia, which if left unattended, often progresses to invasive
cervical cancer; (ii) recurrent colon polyps, which can lead to colon cancer;
(iii) actinic keratosis, which can progress to skin cancers; and (iv) instances
when an individual has had a local tumor removed and is at a high risk for
developing a second tumor. The Company believes that in the near future,
physicians will increasingly be able to use relatively simple genetic-based
tests to identify individuals at risk for developing cancer. There is a
significant need for non-toxic, oral drugs which may be prescribed to prevent
the onset of cancer in these situations.
ILEX believes that clinical development strategies will be fundamental to
the development of chemoprevention drugs. However, because there are currently
no chemoprevention drugs which have obtained marketing approval, the clinical
development path is uncertain. The Company believes that the design of clinical
trials with appropriate intermediate endpoints in terms of demonstrating safety
and efficacy in treating conditions that are known to progress to cancer will be
important to the successful development of these products. Because of the
potential market opportunity and ILEX's expertise in formulating clinical
development strategies, the Company plans to devote significant resources to
develop chemoprevention products. ILEX has two products which are currently
being developed for chemoprevention.
DFMO
Overview. In addition to its cancer treatment potential, DFMO has shown
potential to prevent the onset of cancer. Preclinical models have demonstrated
that DFMO can block one of the steps involved in carcinogenesis in a number of
tumor models. Studies sponsored by the NCI's Division of Cancer Prevention and
Control ("DCPC") have shown that DFMO can reverse certain premalignant
conditions. The Company plans to conduct pivotal trials in patients with
cervical intraepithelial neoplasia ("CIN"), which can lead to cervical cancer,
and other diseases and to collaborate with DCPC in the development of DFMO as a
treatment for recurrent colon polyps, which can lead to colon cancer. The
Company plans to initiate a Phase III clinical trial in 1997 for the treatment
of high-grade CIN. ILEX obtained a worldwide, exclusive license to DFMO for use
in the field of cancer and infectious diseases. ILEX also plans to develop DFMO
as a cancer treatment compound. See "-- Cancer Treatment Compounds -- DFMO."
Development History. Clinical studies conducted by investigators at the
University of Wisconsin demonstrated that low, non-toxic doses of DFMO taken
orally could inhibit the target enzyme, ornithine decarboxylase. Doses equal to
1/20th of those used to treat advanced disease were shown to be
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effective. As a result, DCPC initiated a number of Phase I and II(a)
chemoprevention studies in patients at risk for developing colorectal cancer,
bladder cancer, prostate cancer, skin cancer, cervical cancer or head-and-neck
cancer. In one study, DFMO was shown to regress high-grade CIN lesions in 50% of
women with only 30 days of treatment. High-grade lesions, if not treated, can
progress to cervical cancer. In another randomized, controlled study, DFMO was
shown to reduce actinic keratosis lesions, a condition which can progress to
squamous cell carcinoma of the skin.
Development Status. The Company has entered into a clinical trials
agreement to collaborate with DCPC in the development of DFMO as a
chemoprevention agent. The Company has also completed the design of a Phase III
clinical trial in 120 patients with high-grade CIN who have compromised immune
systems. Such patients are known to have a high risk of recurrence of CIN
lesions and are ultimately at risk for cervical cancer. In this study,
HIV-infected women who have had their CIN lesions surgically removed will be
randomized to receive daily doses of placebo or DFMO and followed to determine
the time-to-disease recurrence in the two groups. The Company expects to start a
Phase III trial in early 1997. The Company also plans to pursue the development
of DFMO to treat actinic keratosis lesions through a partnership with a company
which markets dermatologic products.
DCPC is planning a randomized, placebo-controlled study designed to
demonstrate that DFMO can reduce the recurrence of colon polyps. Individuals who
have recurrent colon polyps are known to be at high risk for developing colon
cancer. NCI and ILEX are reviewing future indications that may include treatment
of patients with recurrent colon polyps, oral leukoplakia and others at risk for
developing prostate cancer.
Marketing. The Company plans to retain marketing rights to DFMO in the
United States and Europe for the oral dose form and to seek marketing partners
in Europe and Japan and for topical uses worldwide.
Proprietary Position. The Company has filed a patent application for the
use of DFMO to treat CIN lesions on behalf of M.D. Anderson Cancer Center and
has obtained an exclusive license to the drug. See "-- Patents, Trademarks and
Trade Secrets" and "-- In-Licensing Agreements."
IL23-7553 (VITAMIN D3 ANALOGUE)
ILEX has obtained an exclusive, worldwide license from Hoffmann-La Roche to
IL23-7553, an analogue of vitamin D3, for uses in the field of cancer. IL23-7553
has been shown in preclinical studies to cause cancer cells to stop dividing
(i.e. differentiation) and to shrink established tumors. At therapeutic
concentrations, IL23-7553 does not appear to cause hypercalcemia, a toxic side
effect caused by vitamin D3. ILEX plans to develop IL23-7553 for the prevention
of several cancers, including prostate cancer. ILEX plans to synthesize the
compound and to conduct all preclinical studies such that it can submit an IND
for IL23-7553 as early as 1998. ILEX is in discussions with DCPC for the
development of this agent.
CONTRACT RESEARCH AND DEVELOPMENT SERVICES
In order to fund its drug development efforts and monitor oncology trends,
the Company provides contract clinical research, development and manufacturing
services to pharmaceutical and biotechnology companies engaged in the
development of oncology drugs. ILEX believes that by using its expertise in the
identification, development, manufacturing and regulatory approval process of
oncology drugs, the Company can provide contract research services to
pharmaceutical and biotechnology companies. The Company believes it is currently
the only full-service provider of contract research services focused exclusively
on oncology.
Companies developing oncology drugs face particular issues related to
conducting clinical studies. Patients are increasingly being seen by physicians
in managed care organizations rather than at teaching institutions. Therefore,
the traditional clinical trial sites often cannot provide sufficient numbers of
patients for studies. In addition, with the FDA's approving new oncology drugs
more rapidly and the large number
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of oncology drugs currently in development, it is critical that clinical trial
designs take into account competing clinical trials and changing treatment
practices.
ILEX's internal clinical staff has extensive knowledge of the current
oncology environment, which the Company believes provides its clients with a
distinct advantage. The Company offers its contract research clients, among
other things, expertise in the design of cancer clinical protocols, preparation
of regulatory submissions, toxicology services, organization and monitoring of
clinical trials and state-of-the-art manufacturing capabilities. As a result,
ILEX believes that it may be able to reduce the time normally required by other
pharmaceutical and biotechnology companies and broad-based CROs to develop
oncology products and increase the probability of obtaining regulatory approval.
The Company estimates that pharmaceutical and biotechnology companies spent
approximately $2.6 billion in 1995 for research and development of anticancer
and endocrine system drugs. During the twelve-month period ended December 31,
1996, ILEX provided services to 15 clients, including four pharmaceutical
companies and 11 biotechnology companies, involving over 25 projects. As of
December 31, 1996, the Company has active contracts with 12 pharmaceutical and
biotechnology companies and is in ongoing discussions with these and additional
companies to manage development programs for their oncology drugs.
ILEX, CTRC and a provider of site administrative services have jointly made
a proposal to a major pharmaceutical company to organize and manage certain
clinical trials for the pharmaceutical company. The parties have executed an
initial agreement to begin work on several clinical studies and are negotiating
a potential five year comprehensive agreement. Under the proposal, ILEX would be
responsible for certain CRO-related activities such as organizing and managing
clinical trials, providing data management services and preparing final reports.
CTRC and the provider of site administrative services would be responsible for
enrolling patients to the clinical studies and obtaining the required data. No
assurance can be given that such negotiations will lead to a comprehensive
agreement or that any such transaction will achieve satisfactory results.
ILEX has in the past derived, and may in the future derive, a significant
portion of its contract research services revenue from a relatively limited
number of major projects or clients. Concentrations of business in the contract
service industry are not uncommon and the Company is likely to experience such
concentration in future years. The Company intends to continue to expand its
contract research business by focusing its marketing efforts on longer term,
multi-phase drug development programs. For the year ended December 31, 1996,
ILEX's top five CRO customers accounted for 84.4% of the Company's contract
research services revenue. The loss of business from a significant client could
materially and adversely affect the Company's business, financial condition and
results of operations.
The Company is engaged in the preliminary stages of negotiations relating
to a potential long-term contract with a provider of site administration
services, which would include a joint marketing or cooperative alliance between
such provider and the Company's CRO services business. The transaction, as
currently being discussed, could result in the issuance by the Company of up to
approximately 2.5 million shares of Common Stock, some of which would be subject
to performance criteria and achievement of various financial goals. Any such
issuance would result in substantial dilution, including in terms of earnings
per share, to stockholders of the Company and purchasers in this offering. No
assurance can be given that such negotiations will lead to a final transaction
or that any such transaction will achieve satisfactory results.
CLINICAL RESEARCH SERVICES
The Company offers its contract research clients a full range of services,
including but not limited to the following:
Study Protocol Design. The protocol defines the medical issues the
study seeks to examine and the statistical tests that will be conducted.
Accordingly, the protocol defines the frequency and type of laboratory and
clinical measures that are to be tracked and analyzed, the number of
patients
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required to produce a statistically valid result, the period of time over
which the patients must be tracked and the frequency and dosage of drug
administration. The Company believes its experience with NDA-directed
studies, knowledge of rapidly changing clinical practices and knowledge of
the FDA's position on acceptable endpoints are very beneficial to the
design of oncology clinical trials.
Site and Investigator Recruitment. The study drug is administered to
patients by physicians, referred to as investigators, at hospitals, clinics
or other locations, referred to as sites. The trial's success depends on
the successful identification and recruitment of investigators with an
adequate base of patients who satisfy the requirements of the study
protocol. ILEX has access to leading sites and investigators through its
relationship with CTRC Research, the Company's Scientific Advisory Board
and investigators used on previous studies.
Patient Enrollment. The speed with which trials can be completed is
significantly affected by the rate at which patients are enrolled by
investigators. ILEX has access to a large patient population through its
relationship with CTRC Research and Southwest Oncology Group ("SWOG"),
which enrolls numerous oncology patients into Phase II and III trials. The
Company also has access to a network of investigators who collaborate with
ILEX, CTRC Research and members of ILEX's Scientific Advisory Board.
Regulatory Affairs Services. ILEX provides comprehensive regulatory
product registration services for pharmaceutical and biotechnology products
in North America and, to a lesser extent, in Europe, including regulatory
strategy formulation, document preparation and liaison with the FDA and
other regulatory agencies. ILEX works closely with clients to devise
regulatory strategies and comprehensive product development programs. The
Company's regulatory affairs experts review existing published literature,
assess the scientific background of a product, assess the competitive and
regulatory environment, identify deficiencies and define the steps
necessary to obtain registration in the most expeditious manner. Through
this service, the Company helps its clients determine the feasibility of
developing a particular product or product line. ILEX's regulatory group
specializes in enabling clients to make timely regulatory submissions with
the final objective of NDA approval. The Company frequently communicates
with the FDA, which the Company believes streamlines the approval process
by allowing the Company to address regulatory concerns early in the
development plan. ILEX also closely monitors evolving regulatory policies
in the United States and internationally, which allows the Company to
design global regulatory strategies with the objective of expedited product
approvals.
Toxicology Services. ILEX performs the full range of drug safety
toxicology analyses in a state-of-the-art, American Association for
Accreditation of Laboratory Animal Care ("AAALAC") accredited facility
currently certified to meet National Institutes of Health U.S. Public
Health Service guidelines and current Good Laboratory Practices ("cGLP")
standards. The Company's drug safety specialists develop and execute
comparative studies, find the mechanism of action and interpret the data to
determine a compound's clinical significance. The Company has also
developed animal models to test compounds for the prevention of alopecia,
mucositis and cardiotoxicity, side effects frequently associated with
cancer treatment drugs. ILEX's Quality Assurance Unit audits all drug
safety studies to certify that technicians are performing the procedures
according to Standard Operating Procedures and/or protocols. The Company
currently manages validated animal testing laboratories at the UTHSCSA for
the purposes of conducting toxicology studies under cGLP.
Manufacturing Expertise. ILEX believes that it is one of only a few
custom chemical synthesis manufacturers focused on bulk oncology drugs in
the United States. The Company conducts its manufacturing operations at a
7,200-square-foot state-of-the-art manufacturing facility, at which it
manufactures bulk drug products for preclinical and clinical trials for CRO
clients and in-licensed compounds. Oncology drugs are complex, toxic
molecules that are difficult to synthesize and require special handling
procedures. ILEX's management team has extensive oncology drug
manufacturing expertise. Most of the compounds being developed by the
Company have never been manufactured on a commercial basis, and the Company
has no experience in manufacturing compounds in
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commercial quantities. There can be no assurance that such compounds can be
manufactured at a cost, or in quantities, necessary to make them
commercially viable.
Additional services provided by the Company include study monitoring and
data collection, report writing and medical services.
RELATIONSHIP WITH CTRC
The Company was incorporated in December 1993 coincident with the transfer
of certain advanced drug development programs, intellectual property rights and
commercial opportunities from CTRC Research. CTRC Research was formed as part of
a program begun by CTRC, a regional cancer treatment and research center located
in San Antonio, Texas, which was founded in 1972 and today, in conjunction with
the UTHSCSA, is an NCI-designated Comprehensive Cancer Center, one of two in the
state of Texas. Under the leadership of Charles Coltman, Jr. M.D., Co-Chairman
of the Company's Scientific Advisory Board, CTRC has become known for its
expertise in clinical research. Dr. Coltman is also Chairman of SWOG. Dr. Daniel
Von Hoff, the other Co-Chairman of the Company's Scientific Advisory Board, was
appointed Director of Research at CTRC in 1988. In 1991, under the direction of
Dr. Von Hoff, CTRC established the Institute for Drug Development ("IDD") under
a Program Agreement with UTHSCSA, with the mission of accelerating the
development of oncology drugs. Primarily through the efforts of Dr. Von Hoff,
IDD has since established one of the largest groups in the United States for
conducting Phase I trials of oncology drugs. In 1991, CTRC also formed CTRC
Research to principally engage in the research activities of CTRC, including the
IDD. CTRC and CTRC Research and its related entities have had some level of
participation in the clinical development of a substantial majority of the
anticancer drugs developed over the past 10 years.
As the majority holder of Series A Preferred Stock, CTRC Research has the
right to elect three members of the Company's Board of Directors. Upon
consummation of the offering, this right will terminate and CTRC Research will
beneficially own approximately 23.8% of the Company's outstanding shares of
Common Stock. Consequently, CTRC Research will have the ability to exercise
substantial influence over the outcome of most stockholders' actions, and such a
concentration of ownership could have an adverse effect on the price of the
Common Stock or have the effect of delaying or preventing a change in control of
the Company. The Company and CTRC Research have an agreement not to commence any
legal action against, in the case of CTRC Research, the Board of Directors of
the Company, other than Directors of the Company who are also employees or
officers of or consultants to ILEX, or, in the case of ILEX, the Board of
Trustees of CTRC Research, for any claim that would have been covered by any
directors' and officers' liability insurance policies maintained by CTRC or
ILEX, as applicable, subject to certain exceptions. This agreement will
terminate upon consummation of this offering, but such agreement will remain in
effect with respect to any activity occurring prior to the termination of the
agreement.
During the period from 1991 through 1994, CTRC Research obtained certain
rights to patents covering MGBG, Crisnatol and DHAC (certain of which have
terminated), and entered into negotiations to license DFMO, Piritrexim,
Intoplicine and Oxypurinol. In addition, CTRC Research entered into a contract
to develop a synthesis process to make a compound for a third party and retained
an option to produce future commercial supplies. In 1993, CTRC incorporated ILEX
as a for-profit subsidiary and, in 1994, transferred certain advanced drug
development programs, intellectual property rights and commercial opportunities
to the Company, and, through CTRC Research, retains an equity position in ILEX.
See "Principal Stockholders."
CTRC Research has agreed to provide certain administrative and technical
assistance to the Company on a fee-for-service basis. In addition, CTRC Research
has a 38,000-square-foot laboratory devoted to preclinical development of
oncology agents. Testing capabilities include growth inhibition tests using
tumor cell lines, various biochemical tests, testing in animals and the human
tumor cloning test. The Company believes that access to these resources will
better enable it to focus its efforts on building highly effective clinical
development, manufacturing and toxicology capabilities. The Company
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expects to continue to engage CTRC Research to conduct clinical studies of
ILEX's products, which enables ILEX to receive timely feedback regarding the
efficacy and safety of new drugs.
CTRC Research and Sanofi have entered into agreements (collectively, the
"Sanofi Agreements"), pursuant to which Sanofi agreed to fund various CTRC
Research programs (the "Research Programs") through December 31, 1997 and
obtained an exclusive option through December 2000 to evaluate and license all
of CTRC Research's commercial drugs, compounds, products and rights arising from
the Research Programs. If Sanofi exercises its options to acquire any such
rights from CTRC Research, the parties must enter into a license and development
agreement for those rights, pursuant to which Sanofi will agree to pay various
licensing fees, royalties and milestone payments to CTRC Research.
If Sanofi declines or fails to exercise its options to license a CTRC
Research product or right, ILEX will have certain rights to negotiate to license
and develop those products pursuant to the terms of a subordinated option
agreement between ILEX and CTRC Research (the "Subordinated Option Agreement").
The terms of the Subordinated Option Agreement provide ILEX with a first right
to negotiate a license for the technology declined by Sanofi and, upon the
expiration of the Sanofi Agreements, a first right to negotiate a funding and
licensing agreement with CTRC Research for programs unencumbered by Sanofi.
However, the terms of that agreement only provide ILEX with an option to
negotiate to license certain of CTRC Research's rights and fund certain of its
programs, to the extent that Sanofi has not licensed or funded such rights or
programs. Moreover, the parties have agreed to negotiate an extension of
Sanofi's exclusive option prior to or upon its expiration. There can be no
assurance that ILEX and CTRC Research will be able to agree on the terms of any
licenses or agreements or that any products acquired or licensed by ILEX will be
successful. The Subordinated Option Agreement expires March 2000, and the
parties have agreed to negotiate the possible renewal of the agreement upon its
expiration.
Prior to the formation of ILEX, Sanofi exercised its option to sublicense
MGBG from CTRC Research. CTRC Research assigned all of its rights and
obligations regarding MGBG to ILEX in November 1994 and, accordingly, Sanofi and
ILEX became parties to license and development arrangements with respect to
MGBG.
The Company believes that its established relationship with CTRC Research
and its related entities and the Company's experienced Scientific Advisory Board
put it in a position to identify and to license novel cancer drugs for
development. In addition, a substantial percentage of all experimental oncology
drugs currently undergoing clinical trials in the United States have been
tested, at one time or another, by CTRC and/or SWOG. ILEX believes its
established relationship with CTRC Research and SWOG allows it to obtain prompt
feedback on the safety and efficacy of its compounds, and access to potential
contract services clients. However, CTRC Research is an independent entity that
neither ILEX nor its management controls. There can be no assurance that ILEX
and CTRC will be able to maintain their mutually beneficial relationship and any
deterioration of such relationship could have a material adverse effect on the
Company's business, financial condition and results of operations.
CTRC Research is attempting to obtain a private letter ruling from the IRS
to confirm certain tax implications to CTRC Research associated with the
formation of the Company by CTRC. CTRC Research's tax counsel has reported to
the Company, based on its conversations with IRS staff reviewers, that
preliminary indications are that CTRC Research will receive the favorable ruling
it is seeking from the IRS. However, there can be no assurance when, if ever,
such a favorable ruling will be issued. As part of the formation of the Company,
shares of Common Stock were purchased by the Founders. A provision in the stock
purchase agreements entered into between ILEX and each of the Founders requires
the Company and the Founders to attempt to reach an "equitable adjustment" of
their stock purchases in the event CTRC Research is unable to obtain a favorable
private letter ruling from the IRS. If the Company and the Founders are unable
to reach or agree upon an "equitable adjustment" within a specified period after
an adverse IRS tax ruling, the Founders' stock purchases would be rescinded and
the Company would be required to repurchase the Common Stock purchased by the
Founders at the purchase price, approximately $210,000, paid upon formation. A
provision in the employment and consulting agreements entered into between the
Company and each of the Founders
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also requires the Company and the Founders to renegotiate in good faith an
"equitable adjustment" to the terms of such agreements in the event that CTRC
Research is unable to obtain a favorable private letter ruling from the IRS. If
the Company is unable to successfully renegotiate the terms of such agreements
after a specified period of time, they automatically terminate. "Equitable
adjustment" is not defined in any of the stock purchase agreements, employment
agreements or consulting agreements, and no basis for determining what
constitutes an "equitable adjustment" is specified in such agreements.
Consequently, what constitutes an "equitable adjustment" could, in addition to
considerations in respect of the Founders and the Company, be determined based
on the actions necessary to be taken to minimize any adverse tax consequences to
CTRC Research associated with an adverse IRS tax ruling.
It is the current intention of ILEX to take such actions as are necessary
to maintain the services of the Founders. However, the successful conclusion of
renegotiated agreements satisfactory to the Founders may not be possible both if
it is determined that any transfer to the Founders to replace lost value would
result in adverse tax consequences to CTRC Research and if CTRC Research has a
contract right under the stock purchase agreements, employment agreements or
consulting agreements to preserve its tax-exempt status. Under those
circumstances, the only renegotiated agreement possible between the Company and
the Founders would be one in which the Founders forego a portion of the value
represented by their original stock purchases sufficient to prevent the adverse
consequences to CTRC Research's tax-exempt status. There can be no assurance
that the Founders would agree to such an arrangement.
Any renegotiated agreement with the Founders may include, without
limitation, the issuance of shares of Common Stock or options to purchase shares
of Common Stock to the Founders or cash payments to the Founders. The issuance
of shares of Common Stock or options to purchase shares of Common Stock or cash
payments made by the Company to retain the services of the Founders could be
material, and such issuances or payments could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, such issuances could have a substantial dilutive effect on the value
of outstanding shares of Common Stock. There can be no assurance that any
negotiations with the Founders would be successfully consummated, and the
services of one or more of the Founders may be lost. See
"Management -- Employment and Consulting Agreements." Furthermore, conflicts
between the Company's interest in maintaining the services of the Founders and
the interest of CTRC Research and related entities in maintaining its tax-exempt
status could materially and adversely affect the relationship, or result in
litigation, between the Company and CTRC Research and related entities which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
STRATEGIC ALLIANCES AND COLLABORATIONS
The Company may develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can
realistically be managed by the Company. However, for most of the Company's
products, including MGBG, Crisnatol, Piritrexim and DHAC, for which greater
resource commitments will be required, the Company has formed or intends to form
corporate partnerships with pharmaceutical companies for product development and
commercialization. In a typical licensing arrangement, a corporate partner would
likely bear the substantial cost of clinical development, scale-up production,
FDA approval and marketing. ILEX has entered into strategic alliances with
respect to MGBG, Crisnatol, Piritrexim and DHAC. Although the Company believes
that these strategic partners and any future corporate partners in these
collaborations have or will have an economic motivation to perform their
contractual responsibilities, the amount and timing of capital to be devoted to
these activities are not within the control of the Company. There can be no
assurance that such partners will perform their obligations as expected or that
the Company will derive any additional revenue from such arrangements.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future, or that such
collaborative arrangements will be successful. To the extent that the Company
chooses not to, or is unable to, establish such arrangements, it would require
substantially greater capital to undertake development and marketing of its
proposed products at
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its own expense and could result in delays in the Company's introduction of new
products. The Company does not currently have sales, marketing or distribution
capability.
Sanofi
Worldwide marketing rights to MGBG have been licensed to Sanofi pursuant to
the terms of a license and development agreement between Sanofi and ILEX. Under
the terms of the agreement, ILEX is responsible for securing clinical trials
materials, managing the clinical development of MGBG and preparing and
submitting an NDA. The NDA, if approved, and Orphan Drug Designation are to be
assigned to Sanofi, which will be responsible for the marketing and
manufacturing of MGBG for commercial distribution. ILEX has received from Sanofi
an initial licensing fee and development funding for MGBG and is entitled to
receive additional development funding, milestone payments and royalties on
sales. There can be no assurance that MGBG will receive regulatory approval on a
timely basis, if at all, be commercially viable or achieve market acceptance.
Janssen
In October 1996, ILEX entered into an agreement with Janssen, a subsidiary
of Johnson & Johnson, under which Janssen obtained worldwide rights to
manufacture and market Crisnatol. Janssen agreed to contract with ILEX for both
process development and clinical development, and ILEX is responsible for
preparing an NDA for the United States and registration dossiers outside the
United States. ILEX retained an option to manufacture Crisnatol if Janssen
elects to outsource manufacturing. ILEX received an initial license fee, and
will receive milestone payments and a royalty based upon the gross margin
achieved by Janssen. Janssen has the right to terminate its support of the
project at any time with 90 days' notice, in which case all rights revert to
ILEX. The agreement also provides that, upon the acquisition of more than 33% of
the outstanding voting securities of ILEX by a pharmaceutical or biotechnology
company with annual worldwide sales of $500 million or more, Janssen may (i)
terminate the agreement in its entirety or (ii) terminate the provisions of the
agreement relating to the development plan and the funding thereof by Janssen
while continuing the license. An interim analysis of the clinical data is
scheduled to occur in April 1997. Coincident with executing the licensing
agreement, Johnson & Johnson Development Corp. made an equity investment of $1
million in ILEX.
MGI Pharma
In November 1996, ILEX entered into agreements with MGI Pharma pursuant to
which MGI Pharma obtained worldwide marketing rights to DHAC and Oxypurinol and
was assigned DHAC's orphan drug designation. With respect to DHAC, MGI Pharma
will either contract with ILEX for a portion of work related to the clinical
development of DHAC or for an equivalent amount of work related to another MGI
Pharma project or projects. With respect to Oxypurinol, ILEX is responsible for
preparing a development plan. With respect to both compounds, ILEX will receive
a licensing fee and periodic payments for development work at ILEX's standard
contract rates. In addition, in the case of Oxypurinol, ILEX may receive a
milestone payment, and in the case of DHAC, ILEX is entitled to receive
royalties based on sales by MGI Pharma or its licensee(s). MGI Pharma has
certain rights to terminate either agreement upon 60 days' notice or (i) the
agreement with respect to Oxypurinol if Wellcome does not consent to amend its
license agreement with ILEX to include non-cancer indications and (ii) the
agreement with respect to DHAC if the NCI fails to transfer the IND or fails to
deliver bulk drug substance from the NCI's inventory for clinical trials.
MPI
In December 1996, ILEX formed a joint venture with MPI to develop
Piritrexim pursuant to which ILEX licensed worldwide rights to manufacture and
market Piritrexim to the joint venture in exchange for licensing fees, milestone
payments and royalties. The joint venture subcontracted with MPI and ILEX to
execute the development plan. ILEX and MPI own the joint venture equally.
Coincident with this transaction, MPI made an equity investment of $5.0 million
in ILEX.
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Potential Future Alliances and Collaborations
In the ordinary course of its business, the Company investigates, evaluates
and discusses with others the potential creation of strategic collaborations,
and the acquisition of businesses, technologies and compounds which complement
the Company's business. Although the Company currently has no definitive
understandings or agreements with respect to any such strategic collaboration or
acquisition, the Company is actively engaged in discussions with several parties
which may either singly or in the aggregate materially impact the Company's
business, financial condition and results of operations. No assurance can be
given, however, that any such strategic collaboration or acquisition will be
made or, if made, that it will prove to be successful.
IN-LICENSING AGREEMENTS
As a part of its business strategy, the Company actively seeks to expand
its product portfolio. Historically, these acquisitions have been in the form of
exclusive licensing arrangements with a number of universities, pharmaceutical
companies, and individual inventors.
The Company's in-license agreements (the "Licenses") generally require the
Company to undertake and pursue with diligence and best efforts the development
of the compounds and technologies licensed and to report on a regular basis on
the Company's development, progress and plans. Each of the Licenses requires
payments of royalties on sales of products covered by the License and, in
several instances, minimum annual royalties. Under most of the Licenses, the
licensor has the first right to sue for infringement of, and defend invalidity
charges against, the licensed patents. All of the Licenses provide that the
licensor or sublicensor may terminate all or a portion of the license or
sublicense in the event of the Company's default in its obligations, including
the obligations to diligently pursue and apply best efforts to the development
of the licensed compound or technology, and, in some instances, in the event of
the Company's insolvency or bankruptcy. In addition, certain Licenses will
automatically terminate if the Company does not achieve certain development
milestones by specified dates or, in lieu thereof, make payments extending such
dates. A termination of any of the Licenses could have a material adverse effect
upon the Company. The Company believes it has complied in all material respects
with the terms of all of its Licenses to date. The Company intends to continue
its licensing program and to engage in compound acquisitions with a primary
focus on clinical stage oncology compounds. There can be no assurance that any
such licenses or acquisitions will be on terms similar to the Licenses or
favorable to the Company.
The Company's agreements with its strategic corporate partners typically
provide that in the event the Company is required to pay a royalty to a third
party in order to market a product in any country because of a third-party
patent in such country, a portion of any such payments may be credited by the
Company against royalties payable to the partner. In addition, if a product
containing the compound subject to the agreement is introduced into any country
in which patent rights do not exist, and sales of such competing product exceed
certain specified percentages of unit sales of the Company's products, then the
royalty rates are subject to reduction. Subject to certain exceptions, the
obligation to pay royalties with respect to net sales in a specific country
typically ceases from eight to 15 years from the date of first commercial sale
of the product in a such country.
ORPHAN DRUG STATUS
Pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act"), the FDA
may designate a drug intended to treat a "rare disease or condition" as an
"orphan drug." A "rare disease or condition" is one which affects less than
200,000 people in the United States, or which affects more than 200,000 people
but for which the cost of development and distribution of the drug will not be
recovered from sales of the drug in the United States. Upon approval of an NDA
for an orphan drug, such drug may be eligible for exclusive marketing rights in
the United States for designated and approved indications for seven years.
Orphan drugs may also be eligible for federal income tax credits for certain
clinical trial expenses. The Company holds orphan drug designations for MGBG for
treatment of patients with diffuse lymphomas
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and for DHAC for treatment of patients with mesothelioma. See "-- Products Under
Development," and "-- Government Regulation."
The Company may receive marketing exclusivity for an orphan drug only if it
is the sponsor of the first NDA approved for the drug for an indication for
which the drug was designated as an orphan drug prior to the approval of such
NDA. Therefore, unlike patent protection, orphan drug status does not prevent
other manufacturers from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the Company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the FDA
would be prohibited from approving the Company's application to market the
product for the relevant indication for a period of seven years. If another
sponsor's NDA for the same drug and the same indication is approved first, but
that drug has not been designated as an orphan drug, the FDA would still be
permitted to approve the Company's NDA without the exclusivity provided by
orphan drug status.
The Company believes that some of its products in addition to MGBG and DHAC
may qualify for designation as orphan drugs. There can be no assurance, however,
that such other products will receive orphan drug status. Moreover, possible
amendment of the Orphan Drug Act by the United States Congress and possible
reinterpretation by the FDA are frequently discussed. Legislation to limit
exclusivity in some respects was passed by Congress, but vetoed by the President
in 1990. FDA regulations reflecting certain other limitations and procedures
went into effect in January 1993. Therefore, there is no assurance as to the
precise scope of protection that may be afforded by orphan drug status in the
future, or that the current level of exclusivity and tax credits will remain in
effect.
PATENTS, TRADEMARKS AND TRADE SECRETS
Proprietary protection for the Company's products is important to the
Company's business. Although the Company seeks appropriate patent protection
both in the United States and abroad for its proprietary technology, to date,
the Company has no patents issued in its name. In addition to seeking its own
patents, the Company has entered into license agreements with various
pharmaceutical companies and research, educational and governmental institutions
to obtain certain patent rights from them for the purpose of developing,
manufacturing and selling potential products using the compounds and
technologies protected by such patents. See the discussion of patent rights
under "-- Products Under Development." Under these agreements, the Company is
obligated to pay royalties of varying rates based upon, among other things,
levels of revenues from the licensed products. Generally, the agreements
continue for a specified number of years or for as long as any licensed patents
remain in force, absent breach of the terms of the agreements or termination of
the agreements. See the discussion of the various license agreements under
"-- Products Under Development." The patent positions of biotechnology and
pharmaceutical companies, however, can be highly uncertain and often involve
complex legal and factual questions, and therefore, the breadth of claims
allowed in biotechnology and pharmaceutical patents cannot be predicted.
The Company's compounds acquired pursuant to in-licensing arrangements are
protected by 14 patents obtained by the Company's licensors in the United
States; six patents of the Company's licensors are pending in the United States.
The Company's licensors also obtained 126 foreign patents (counterparts to the
United States issued patents and patent applications) and nine foreign patents
are pending. The patents and patent applications in-licensed by the Company have
not been independently investigated by the Company, and there can be no
assurance that any such patents or patent applications will not be challenged or
will provide protection for the Company's compounds. The Company has filed two
of its own United States patent applications for the use of DFMO in combination
with certain drugs used to treat breast cancer and in certain novel
formulations. There can be no assurance that a patent will issue as a result of
either such application or what scope of protection that these issued patents
will provide or whether such patents will ultimately be upheld as valid by a
court of competent jurisdiction in the event of a legal challenge. The patent
and license applicable to DHAC recently expired and, as a result, the DHAC
technology is currently available for general public use.
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Notwithstanding the patent and license expiration, ILEX holds an Orphan Drug
Designation for DHAC for the treatment of patients with mesothelioma and has
applied for a patent for using DHAC as a treatment for patients with prostate
cancer. Currently, Orphan Drug Designation provides market exclusivity to ILEX
for this indication for seven years following marketing approval. Following this
period of exclusivity for this indication, however, this product will be deemed
a generic drug for all indications and, therefore, will be subject to
competitive pricing pressures. In addition, Oxypurinol and Aminopterin do not
have patent protection. United States patents on ILEX's other current products
which expire in the next 10 years include: MGBG (2002); Crisnatol (2004, 2005);
DFMO (2000); and Piritrexim (2007).
A number of significant changes in the United States patent laws were
mandated by the North American Free Trade Agreement ("NAFTA") and the General
Agreement on Tariffs and Trade ("GATT"). Legislation enacting these treaties has
been passed into law. The term of exclusive rights afforded by a United States
patent has historically been a period of 17 years measured from the date of
grant. Under the new legislation, the new term of United States patents will
commence on the date of grant, and terminate 20 years from the date on which the
patent application was filed in the United States. Existing patents and future
patents granted on an application filed before June 8, 1995, will have a term
that is the longer of 20 years from the filing date or 17 years from the date of
grant. If a patent issues from a continuation-in-part, divisional or continuing
application, the 20-year patent expiration date is measured from the filing date
of the earliest United States priority application relied on by the applicant.
This change will affect the term of any patent granted on applications filed
subsequent to June 8, 1995, including patents which ultimately mature from
existing applications, if they are refiled as continuations or
continuations-in-part after June 8, 1995.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
United States product patents or use patents may be extended for up to five
years under certain circumstances to compensate the patent holder for the time
required for FDA regulatory review of the product. The benefits of the Act are
available only to the first approved use of the active ingredient in the drug
product and may be applied only to one patent per drug product. This law also
establishes a period of time following FDA approval of certain new drug
applications during which other sponsors may not submit an NDA for the drug.
There can be no assurance that the Company will be able to take advantage of
either the patent term extension or market exclusivity provisions of this law.
No assurance can be given that any patent issued to, or licensed by, the
Company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. No assurance can be given that the Company's patents will afford
protection against competitors with similar compounds or technologies, that
others will not obtain patents claiming aspects similar to those covered by the
Company's patents or applications, that the patents of others will not have an
adverse effect on the ability of the Company to do business or that the patents
issued to or licensed by the Company will not be infringed, challenged,
invalidated or circumvented. Moreover, the Company believes that obtaining
foreign patents may, in some cases, be more difficult than obtaining domestic
patents because of differences in patent laws, and the Company recognizes that
its patent position, therefore, may be stronger in the United States than
abroad. In addition, the protection provided by foreign patents, once they are
obtained, may be weaker than that provided by domestic patents. See
"-- Government Regulation."
In addition to pursuing patent protection in appropriate cases, the Company
also relies on trade secret protection for its unpatented proprietary
technology. However, trade secrets are difficult to protect. There can be no
assurance that the Company will meaningfully protect its rights in such
unpatented proprietary technology or that others will not independently develop
substantially equivalent proprietary information and techniques, circumvent the
Company's attempts to protect its proprietary technology, or otherwise gain
access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. The Company requires its employees and consultants to execute
proprietary information agreements upon commencement of employment or consulting
relationships with the Company, which agreements provide that all confidential
information developed or made known to the individual during the course of the
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relationship shall be kept confidential except in specified circumstances. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary information in
the event of unauthorized use or disclosure of such information.
ILEX is a registered United States trademark of the Company.
COMPETITION
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including pharmaceutical and
biotechnology companies, that are engaged in the development of products for
certain of the applications being pursued by the Company. Moreover, products
currently exist in the market that will compete directly with the products that
the Company is seeking to develop. Most of these companies have substantially
greater financial, research and development, manufacturing and marketing
experience and resources than the Company and represent substantial long-term
competition for the Company. Such companies may succeed in discovering and
developing pharmaceutical products more rapidly than the Company and its
collaborative partners or pharmaceutical products that are safer or more
effective or less costly than any that may be developed by the Company and its
collaborative partners and may also prove to be more successful than the Company
and its collaborative partners in production and marketing. Smaller companies
may also prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and established biotechnology companies.
Academic institutions, governmental agencies and other public and private
research organizations also conduct clinical development, seek patent protection
and establish collaborative arrangements for the development of oncology
products. ILEX will face competition based on product efficacy and safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position. There can
be no assurance that the Company's competitors will not (i) develop more safe
and effective products; (ii) obtain patent protection or intellectual property
rights that limit the Company's or its collaborative partners' ability to
commercialize products that may be developed; or (iii) commercialize products
earlier than the Company. The industry in which the Company competes is
characterized by extensive research and development efforts and rapid
technological progress. New developments occur and are expected to continue to
occur at a rapid pace, and there can be no assurance that discoveries or
commercial developments by the Company's competitors will not render some or all
of the Company's potential products obsolete or non-competitive, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's competitive position also depends on
its ability to attract and retain qualified scientific and other personnel,
develop effective proprietary products, implement development and marketing
plans, obtain patent protection and secure adequate capital resources.
In its contract research services, the Company primarily competes against
in-house departments of pharmaceutical companies, CROs and, to a lesser extent,
universities and teaching hospitals. Many of these competitors have
substantially greater capital, technical and other resources than the Company.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, the ability to manage large and complex medical databases, the ability to
provide statistical and regulatory services, the ability to recruit
investigators and patients, the ability to integrate information technology with
systems to improve the efficiency of contract research, an international
presence with strategically located facilities, financial viability and price.
There can be no assurance that the Company will be able to compete favorably in
these areas.
GOVERNMENT REGULATION
The design, development, research, testing, manufacture, labeling,
distribution, marketing and advertising of products such as the Company's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the United States and other countries. The drug approval process
is generally lengthy, expensive and subject to unanticipated delays. The FDA,
and comparable agencies
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in foreign countries, impose substantial requirements on the introduction of new
pharmaceutical products through lengthy and detailed preclinical and clinical
testing procedures, sampling activities and other costly and time-consuming
compliance procedures. A new drug may not be marketed in the United States until
it has undergone rigorous testing and has been approved by the FDA. The drug may
then be marketed only for the specific indications, uses, formulation, dosage
forms and strengths, approved by the FDA. Similar requirements are imposed by
foreign regulators upon the marketing of a new drug in their respective
countries. Satisfaction of such regulatory requirements, which includes
demonstrating to the satisfaction of the FDA that the relevant product is both
safe and effective, typically takes several years or more depending upon the
type, complexity and novelty of the product and requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformance with
the FDA's good laboratory practice regulations. The Company's compounds require
extensive clinical trials and FDA review as new drugs. Clinical trials will be
vigorously regulated and must meet requirements for FDA review and oversight and
requirements under good clinical practice regulations. There can be no assurance
that the Company will not encounter problems in clinical trials which would
cause the Company or the FDA to delay or suspend clinical trials. Any such delay
or suspension could have a material adverse effect on the Company's business,
financial condition and results of operations.
The steps required before a drug may be marketed in the United States
include (i) preclinical laboratory and animal tests, (ii) submission to the FDA
of an application for an Investigational New Drug exemption, or IND, which must
become effective before human clinical trials may commence, (iii) human clinical
trials to establish the safety and efficacy of the drug, (iv) the submission of
a detailed NDA to the FDA and (v) FDA approval of the NDA. In addition to
obtaining FDA approval for each product, each domestic establishment where the
drug is to be manufactured must be registered with the FDA. Domestic
manufacturing establishments must comply with cGMP and are subject to periodic
inspections by the FDA. Foreign manufacturing establishments also must comply
with cGMP and are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product.
Products must be formulated according to cGMP, and preclinical tests must be
conducted by laboratories that comply with FDA regulations regarding cGLP. The
results of preclinical tests are submitted to the FDA as part of an IND, which
must become effective before the sponsor may conduct clinical trials in human
subjects. Unless the FDA objects to an IND, the IND becomes effective 30 days
following its receipt by the FDA. There is no certainty that submission of an
IND will result in FDA authorization of the commencement of clinical trials.
Clinical trials involve the administration of the investigational drug to
patients. Clinical trials typically are conducted in three phases, which
generally are conducted sequentially, and test for safety, side effects, dosage
tolerance, metabolism and clinical pharmacology. With respect to anticancer
agents, testing typically is done with a small group of patients with advanced
cancers that have proved unresponsive to other forms of therapy. Phase I testing
typically takes one year to complete. Phase II involves tests in a larger but
still limited patient population to determine the efficacy of the drug for
specific indications, to determine optimal dosage and to identify possible side
effects and safety risks. Phase II testing for an indication typically takes
from one and one-half to two and one-half years to complete. If a drug proves to
be efficacious in Phase II evaluations, expanded Phase III trials are undertaken
to evaluate the overall risks and benefits of the drug in relationship to the
treated disease in light of other available therapies. Phase III studies
generally take from two and one-half to five years to complete. There can be no
assurance, however, that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all. Furthermore,
the FDA may suspend clinical trials at any time if it decides that patients are
being exposed to a significant health risk.
The results of the preclinical studies and clinical trials are submitted to
the FDA as part of an NDA for approval of the marketing and commercial shipment
of the drug. The NDA also includes information pertaining to the chemistry,
formulation, activity and manufacture of the drug and each component of the
final product, as well as details relating to the sponsoring company. The NDA
review process takes more than two years on average to complete, although
reviews of treatments for cancer and other life-
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threatening diseases may be accelerated. However, the process may take
substantially longer if the FDA has questions or concerns about a product. In
general, the FDA requires at least two adequate and well-controlled clinical
studies demonstrating efficacy in order to approve an NDA. The FDA may, however,
request additional information, such as long-term toxicity studies or other
studies relating to product safety. Notwithstanding the submission of such data,
the FDA ultimately may decide that the application does not satisfy its
regulatory criteria for approval. Finally, the FDA may require additional
clinical tests following NDA approval.
The Company's area of focus, oncology, is not thoroughly understood and
there can be no assurance that the drugs the Company is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial resources to conduct
the preclinical development and clinical trials necessary to bring such
compounds to market. Drug research and development by its nature is uncertain.
There is a risk of delay or failure at any stage, and the time required and cost
involved in successfully accomplishing the Company's objectives cannot be
predicted. Actual drug research and development costs could exceed budgeted
amounts, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company cannot predict with certainty when, if ever, it might submit
for regulatory review additional compounds currently under development. Once the
Company submits its potential products for review, there can be no assurance
that FDA or other regulatory approvals for any pharmaceutical products developed
by the Company will be granted on a timely basis, if at all. There also can be
no assurance that delays or rejections will not be encountered based upon
additional government regulation from future legislation or administrative
action or that changes will not be made in FDA policy during the period of
product development and FDA regulatory review of each submitted NDA. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if such regulatory approval is obtained, it is limited as to the indicated
uses for which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. Failure to comply with regulatory
requirements and other factors could subject the Company to regulatory or
judicial enforcement actions, including, but not limited to, product recalls or
seizures, injunctions, withdrawal of the product from the market, civil
penalties, criminal prosecution, refusals to approve new products and withdrawal
of existing approvals, as well as potentially enhanced product liability
exposure. Sales of the Company's products outside the United States will be
subject to foreign regulatory requirements governing clinical trials and
marketing approval. These requirements vary widely from country to country and
could delay introduction of the Company's products in certain countries.
One element of the Company's strategy is to develop chemoprevention
compounds that, when taken chronically, may prevent the progression to cancer.
To date, the FDA has not approved any chemoprevention compounds and there can be
no assurance that the FDA will approve such compounds in the future. Because
there are currently no chemoprevention drugs which have obtained marketing
approval, the clinical development path is uncertain. There can be no assurance
that ILEX will be able to successfully develop a safe and efficacious
chemoprevention product, that such product will be commercially viable or will
achieve market acceptance.
In 1988, the FDA issued regulations intended to expedite the development,
evaluation and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. At the present time, MGBG is being developed under such an accelerated
program. There can be no assurance, however, that any future products the
Company may develop will be eligible for evaluation by the FDA under the 1988
regulations. In addition, there can be no assurance that MGBG or any future
products, if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected. Regulatory approval granted under these regulations may be restricted
by the FDA as necessary to ensure the safe use of the drug. In addition,
post-marketing clinical studies
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are required. If drugs do not perform satisfactorily in such post-marketing
clinical studies, the products would likely be required to be withdrawn from the
market.
The Company intends to seek orphan drug status for some of its product
candidates pursuant to the Orphan Drug Act and has been granted orphan drug
status for MGBG for treatment of patients with diffuse lymphomas and for DHAC
for treatment of patients with mesothelioma. There can be no assurance orphan
drug status will be granted for other product candidates or that any such grant
of orphan drug status will provide the Company with any benefits. Although
orphan drug status may provide an applicant exclusive marketing rights in the
United States for a designated indication for seven years following marketing
approval, in order to obtain such benefits, the applicant must be the sponsor of
the first NDA approved for that drug and indication. Moreover, amendment of the
Orphan Drug Act by the United States Congress and reinterpretation by the FDA
are frequently discussed. Legislation to limit exclusivity in some respects was
passed by Congress, but vetoed by the President in 1990. FDA regulations
reflecting certain other limitations and procedures went into effect in January
1993. Therefore, there can be no assurance as to the precise scope of protection
that may be afforded by orphan drug status in the future, or that the current
level of exclusivity will remain in effect. See "-- Orphan Drug Status."
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's cGMP standards, which also must
be observed at all times following approval. Accordingly, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with cGMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product. The FDA may also request a voluntary
recall of a product.
The product testing and approval process is likely to take a substantial
number of years, and involves the expenditure of substantial resources. There
can be no assurance that any approval will be granted. The FDA also may require
post-marketing testing and surveillance to monitor the product and its continued
compliance with regulatory requirements. Upon approval, a drug may only be
marketed for the approved indications in the approved dosage forms and at the
approved levels. Adverse experiences with the product must be reported to the
FDA. The FDA also may require the submission of any lot of the product for
inspection and may restrict the release of any lot that does not comply with FDA
standards, or may otherwise order the suspension of manufacture, recall or
seizure if non-compliant product is discovered. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems concerning safety or efficacy of the product are discovered following
approval.
The Prescription Drug User Fee Act of 1992 was enacted to expedite FDA
review and approval of new drugs by providing the FDA additional funds through
the imposition of user fees. The Act imposes three kinds of user fees on
manufacturers of prescription drugs: (i) a one-time fee for each single-source
prescription drug application submitted on or after September 1, 1992; (ii) an
annual fee for each establishment that produces single-source prescription
drugs; and (iii) an annual fee for each single-source prescription drug product
marketed.
The Company also will be subject to foreign regulatory requirements
governing clinical trials, manufacturing of products, marketing of products and
product approvals. Whether or not FDA approval has been obtained, approval of a
product by the comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval. Under its
agreement with licensees and distributors in foreign countries, the Company
often requires the licensee or the distributor to be responsible for obtaining
regulatory approvals in their respective territories.
Health care reform, if enacted, could result in significant change in the
financing and regulation of the health care business. The Company is unable to
predict whether such changes will be enacted or, if enacted, the effect of such
changes on the future operation of the Company's business. Changes affecting
drug pricing, drug reimbursement, prescription benefits and levels of
reimbursement for drugs,
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among other changes, could have a materially adverse effect on the Company's
business, financial condition and results of operations.
PRODUCT LIABILITY AND INSURANCE
The Company's business involves the risk of product liability claims. The
Company has not experienced any product liability claims to date. Although the
Company maintains clinical trials liability insurance with coverage limits of $2
million per occurrence and an annual aggregate maximum of $2 million, and
general commercial liability insurance with an additional $5 million umbrella
coverage per occurrence and an annual aggregate maximum of $5 million, there can
be no assurance that product liability claims will not exceed such insurance
coverage limits, which could have a material adverse effect on the Company's
business, financial condition or results of operations, or that such insurance
will continue to be available on commercially reasonable terms, if it all.
EMPLOYEES
As of December 31, 1996, the Company had 64 full-time employees, 48 of whom
are engaged in research and development activities. No employees are covered by
collective bargaining agreements, and the Company believes it maintains good
relations with its employees.
MANUFACTURING AND OTHER FACILITIES
The Company's administrative offices comprise approximately 24,000 square
feet of leased office space in San Antonio, Texas, of which approximately 3,000
square feet are located in CTRC Research's research facility. The Company is in
the process of moving from its current facility into such office space. The
lease governing the Company's existing office space expires at the end of
February, 1997.
The Company leases and operates a 7,200-square-foot manufacturing facility
that has been designed to produce multi-kilogram lot sizes of anticancer
compounds under cGMP. The design of this facility, prepared by ILEX staff, has
been reviewed by the Regional Compliance Office of the FDA and found to be
suitable for production of bulk drugs. The manufacturing facility is owned by a
non-profit corporation that is controlled by CTRC Research and the Texas
Research and Technology Foundation, and provides for the payment by the Company
of fixed monthly rent plus a percentage of gross sales generated from the
facility. These two organizations obtained a grant to build the facility from
the Economic Development Administration. ILEX has a 15-year lease to the
facility with three five-year-extension options.
The Company's facility, which is approximately 50% utilized, has sufficient
capacity to manufacture the materials necessary to satisfy the requirements for
conducting clinical trials of ILEX's current clients and collaborative partners.
The Company will be required to expand its manufacturing facilities or to
contract with other manufacturers in the event the Company's CRO manufacturing
business is expanded or there is a need for commercial quantities of the
Company's compounds.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard L. Love(1)................... 53 President, Chief Executive Officer and Director
Alexander L. Weis, Ph.D.............. 47 Executive Vice President, Chief Scientific
Officer and Director
Timothy J. Williamson................ 53 Senior Vice President, Marketing & Business
Development
James R. Koch........................ 42 Vice President and Chief Financial Officer
Deirdre K. Tessman, Ph.D............. 52 Vice President, Drug Development
Pedro Santabarbara, M.D., Ph.D....... 44 Vice President, Medical Affairs
Gary V. Woods(1)..................... 53 Chairman of the Board
A. Dana Callow, Jr.(1)............... 45 Director
John L. Cassis(1)(2)................. 48 Director
Jason S. Fisherman, M.D.............. 40 Director
Jerry R. Mitchell, M.D., Ph.D........ 55 Director
Ruskin C. Norman, M.D.(2)............ 77 Director
Daniel D. Von Hoff, M.D.............. 49 Director and Co-Chairman of Scientific Advisory
Board
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
RICHARD L. LOVE has served as President, Chief Executive Officer and
Director of the Company since its inception in December 1993. Mr. Love has more
than 30 years of industry experience with more than 16 years in the biosciences
industry. Prior to forming ILEX, Mr. Love was Chief Operating Officer of CTRC
Research from 1991 to 1993. From 1983 through 1991, Mr. Love served as CEO of
Triton Biosciences Inc., a subsidiary of Shell Oil Company, and led the sale of
Triton Biosciences Inc. to Berlex Laboratories, Inc., a subsidiary of Schering,
A.G. Mr. Love earned his B.S. and M.S. in Chemical Engineering from Virginia
Polytechnic Institute.
ALEXANDER L. WEIS, PH.D., has served as Executive Vice President, Chief
Scientific Officer and Director of the Company since October 1994. From 1991
through 1994, Dr. Weis was the Director of Preclinical Research and Development
for CTRC Research. Prior to joining CTRC Research, Dr. Weis worked at Eastman
Kodak Company and Sterling Winthrop Inc. (currently STWB Inc.), the Weizmann
Institute of Sciences, Israel and the Russian Academy of Sciences in the former
USSR. Dr. Weis is also the owner and chief executive officer of Lipitek
International, Inc., one of the Company's subcontractors. See "Certain
Transactions." Dr. Weis received his Ph.D. in Organic Chemistry at the National
Academy of Sciences in the former USSR.
TIMOTHY J. WILLIAMSON has served as Senior Vice President Marketing and
Business Development of the Company since October 1994. From April 1990 through
October 1994, Mr. Williamson served as Vice President for Marketing and Sales
with Boehringer Mannheim Pharmaceuticals Corporation ("Boehringer"). Prior to
joining Boehringer, Mr. Williamson served as Regional Sales Director at
Genentech, Inc. and held various positions with Merck Sharp & Dohme, the U.S.
pharmaceuticals division of Merck & Co. Inc. Mr. Williamson holds his B.A. from
the University of Texas.
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JAMES R. KOCH, CMA, has served as Vice President and Chief Financial
Officer of the Company since August 1996. Mr. Koch was the Vice President,
Finance and Chief Financial Officer for two start-up specialty pharmaceutical
companies, Symphony Pharmaceuticals, Inc. (1993-1996) and Neose Pharmaceuticals
(1991-1993) (currently Neose Technologies, Inc.). His prior experience also
includes ten years in senior financial management positions with G.D. Searle
Pharmaceutical. Mr. Koch holds his M.S. from the Krannert School of Management
at Purdue University and his B.S. in Mechanical Engineering from General Motors
Institute.
DEIRDRE K. TESSMAN, PH.D., has served as Vice President, Drug Development
of the Company since October 1994. From January 1991 to October 1994, Dr.
Tessman served as Director, Worldwide Pharmaceutical Projects for Schering AG,
and from 1987 to 1991 as Director of Pharmaceutical Project Development at
Triton Biosciences Inc. Dr. Tessman has also served as Director of Clinical
Research at Roskon Research Corporation, as Manager of Clinical Research at
Medco Research, Inc. and as a Scientist with Warner-Lambert/Parke Davis. Dr.
Tessman earned her B.S. from Marygrove College, her M.B.A. from the University
of Michigan and her Ph.D. from California Coast University.
PEDRO SANTABARBARA, M.D., PH.D., has served as Vice President, Medical
Affairs since August 1996. Prior to joining ILEX, he was Director of Clinical
Research Oncology for RPR in North America from August 1994 to August 1996, and
served Bristol-Myers Squibb Company in its medical oncology departments in
domestic and international positions from February 1988 to August 1994. Dr.
Santabarbara holds his M.D. and Ph.D. degrees from the University of Barcelona
where he specialized in Internal Medicine and Medical Oncology.
GARY V. WOODS joined ILEX as a Director in December 1993 and was elected
Chairman of the Board in October 1994. Since 1979, Mr. Woods has been employed
as President of McCombs Enterprises, Inc., an organization which invests in
automobile dealerships, oil and gas ventures, real estate and broadcasting. He
currently serves on the Board of Directors of several organizations, including
Titan Holdings, Inc., the CTRC, and the Greater San Antonio Chamber of Commerce,
and is Chairman of the Board of Trustees of CTRC Research. Mr. Woods also served
as President of the San Antonio Spurs, a professional basketball team, from 1988
to 1993. Mr. Woods received his B.B.A. from Southwest Texas State University and
his M.B.A. from Southern Methodist University and is a licensed Certified Public
Accountant.
A. DANA CALLOW, JR. has been a Director of ILEX since October 1995. He is a
partner of several Boston Capital Ventures' partnerships, which he co-founded in
1982. Prior to that, he was a management consultant for Braxton Associates, Inc.
He is or has been a director of many companies, including: PAREXEL
International, Inc., Medical Management of New England, Inc., Tektagen, Inc.,
and Continuity Marketing Corporation, Inc. Mr. Callow received his A.B. from
Tufts University and his M.B.A. from The Amos Tuck School at Dartmouth College.
JOHN L. CASSIS has been a Director of ILEX since October 1995. Mr. Cassis
joined Hambro Health International in 1994. Prior to that, he was a Director of
Salomon Brothers Inc, where he co-founded Salomon Brothers Venture Capital in
1986 and headed it from 1990 to 1994. From 1976 to 1981, he was a Managing
Director of Ardshiel Associates, Inc. (currently Ardshiel Inc.), a merchant
bank. In 1972, Mr. Cassis was employed by Johnson & Johnson ("J&J") where he
founded the Johnson & Johnson Development Corporation, that firm's venture
capital arm, and was J&J's Manager of Acquisitions. Mr. Cassis is currently on
the Board of Directors of HealthTech Services Corp., and is Chairman of the
Board of Directors of IMPATH Inc. and Dome Imaging Systems, Inc. Mr. Cassis
received his A.B. and M.B.A. from Harvard University.
JASON S. FISHERMAN, M.D., has been a Director of ILEX since October 1995.
Dr. Fisherman is currently a partner at Advent International Corporation. Prior
to joining Advent, Dr. Fisherman served as Senior Director of Medical Research
for Enzon, Inc. from 1991 to 1994. Between 1989 and 1992, he managed clinical
development of a number of anticancer drugs at the NCI. Dr. Fisherman is
currently a director of several private health care companies. Dr. Fisherman
received his B.A. in Molecular Biophysics
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and Biochemistry from Yale, his M.D. from the University of Pennsylvania, and
his M.B.A. from Wharton. He is Board-certified in internal medicine and medical
oncology.
JERRY R. MITCHELL, M.D., PH.D., has been a Director of ILEX since December
1996. Dr. Mitchell co-founded MPI Research in November 1995 and has held the
position of Chief Executive Officer of MPI Research since November 1995 and is
co-Chairman of MPI. Between 1989 and November 1995, Dr. Mitchell held various
executive positions with the Upjohn Company. He became President of Upjohn
Laboratories in 1990, a member of Upjohn's Board of Directors in 1991 and,
subsequently, Vice Chairman of the Board in 1993. Dr. Mitchell has served on a
number of national science committees, including the National Academy of
Sciences (two committees), the FDA's Advisory Committee on Gastrointestinal
Drugs and the NIH Pharmaceutical Sciences Committee. He received M.D. and Ph.D.
degrees from Vanderbilt University and completed residency training in internal
medicine at Cornell University Medical Center.
RUSKIN C. NORMAN, M.D., has been a Director of ILEX since December 1993.
Dr. Norman is past member (Senior Partner) of Radiology Physician Associates, as
well as a previous President of St. Luke's Lutheran Hospital. In 1978, he held
the post of Chairman of the National Medical Advisory Committee of the American
Health Care Association. Dr. Norman serves on the Board of Directors of several
companies, including CTRC and Compass Bank -- San Antonio. Dr. Norman holds his
B.S. in Pharmacy from the St. Louis College of Pharmacy and his M.D. from the
Northwestern University Medical School.
DANIEL D. VON HOFF, M.D., has served as Co-Chairman, Scientific Advisory
Board and a Director of the Company since October 1994. Dr. Von Hoff has been
Director of IDD and Chief Executive Officer of CTRC Research since 1989 and
1995, respectively, and has also been a Clinical Professor of Medicine at
UTHSCSA since 1995. He is a holder of an NCI grant to conduct Phase I trials
with compounds from the NCI. Over the past 17 years, Dr. Von Hoff has conducted
national clinical trials with more than 110 new antineoplastic and biologic
agents. Dr. Von Hoff has served on the FDA's Oncology Advisory Committee and was
a member of the Board of Directors of the American Society of Clinical Oncology.
He is currently a member of the Board of Directors of the American Association
for Cancer Research and is the Director of Research for PRN Inc., a division of
Physicians Reliance Network. He is the recipient of numerous awards and honors
including the K. Bagshawe Honorary Lecture for the British Association for
Cancer Research, the EORTC Michel Clavel Lectureship and the Therapeutic
Frontiers Lecture Award from the American College of Clinical Pharmacy. He is a
Fellow of the American Association for the Advancement of Science and is a
recipient of both the Outstanding Professor Award and the Presidential Teaching
Award from UTHSCSA. Dr. Von Hoff holds his B.S. from Carroll College, and his
M.D. from Columbia College of Physicians and Surgeons.
All directors of the Company hold office until the next annual meeting of
stockholders and the election and qualification of their successors. The holders
of the Series A Preferred Stock and Series B Preferred Stock each have the right
to elect three members to the Board. This right to elect directors, along with
the other terms of the Preferred Stock, will be eliminated upon the consummation
of this offering. Each officer of the Company was chosen by the Board of
Directors and serves at the pleasure of the Board of Directors until his or her
successor is appointed or until his or her earlier resignation or removal in
accordance with applicable law.
SCIENTIFIC ADVISORY BOARD
The Company has organized a Scientific Advisory Board which consists of
recognized scientists with expertise in oncology. The members of the Scientific
Advisory Board are appointed by the Board of Directors and review and comment
upon the Company's ongoing and proposed scientific projects. The Scientific
Advisory Board also advises the Company on potential areas of clinical interest
and provides scientific evaluations on products under development. The
Scientific Advisory Board meets semi-annually and certain members meet in
smaller groups or individually with the Company as needed. The Company provides
each member of the Scientific Advisory Board, other than the Co-Chairmen, with a
stipend in the amount of $2,000 per meeting and a one-time grant of an option
for 5,710 shares of the Company's
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Common Stock. The Company also reimburses each member for expenses incurred when
traveling to and attending meetings.
All members of the Scientific Advisory Board have commitments to and/or
consulting contracts with other organizations, including potential competitors
of ILEX, that may limit their availability to the Company. None of these
individuals is expected to devote more than a small portion of his or her time
to the Company. The following are the members of ILEX's Scientific Advisory
Board:
For a biography of DANIEL D. VON HOFF, M.D., see "-- Executive Officers and
Directors."
CHARLES A. COLTMAN, JR., M.D., is Professor of Medicine at the UTHSCSA and
the Director of the San Antonio Cancer Institute. He is President and CEO of
CTRC, Chairman of SWOG, and has received numerous citations for his research in
cancer control and the treatment of leukemias, lymphomas, and Hodgkin's Disease.
Dr. Coltman is Co-Chairman of ILEX's Scientific Advisory Board with Daniel D.
Von Hoff, M.D., and has served in such position since November 1994. Dr. Coltman
holds his M.D. from the University of Pittsburgh School of Medicine.
DAVID SAMUEL ALBERTS, M.D., has been a Professor of Medicine and
Pharmacology at the Arizona Cancer Center, Tucson, since 1975, has been a
Director of Cancer Prevention and Control at the NCI since 1988, and served as
chairman of the Oncology Drug Advisory Committee to the FDA from 1982-1984. Dr.
Alberts received his B.S. from Trinity College in 1962, and his M.D. from the
University of Virginia in 1966.
LAWRENCE H. EINHORN, M.D., has been associated with Indiana University
since 1973 and currently holds the title of Distinguished Professor of Medicine.
Dr. Einhorn has won numerous awards related to his cancer research, especially
in testicular cancer, and is the recipient of a National Cancer Institute
Outstanding Investigator Grant from 1985 through 1999. Dr. Einhorn received his
M.D. degree from the State University of Iowa Medical School in 1967.
MARK R. GREEN, M.D., is the Gilbreth Professor of Clinical Oncology, Chief
of Hematology Oncology and Director of the Hollings Cancer Center at the Medical
University of South Carolina in Charleston, South Carolina. Between 1985 and
1990, he served as the Director of the University of California San Diego Cancer
Center ("UCSD"), an NCI-designated Clinical Cancer Center, and, in 1992, Dr.
Green was appointed the first Edwin and Evelyn Tasch Professor in Cancer
Research at UCSD. He held that position until moving to the Medical University
of South Carolina as Director of the Hollings Cancer Center in August 1996. Dr.
Green's research interests are in clinical investigation with a focus in lung
cancer. He attended Harvard College and Harvard Medical School, receiving his
B.A. degree in 1966, and his M.D. in 1970.
WAUN KI HONG, M.D., is an American Cancer Society Clinical Research
Professor, and Professor of Medicine and Chairman of the Department of
Thoracic/Head and Neck Medical Oncology at M.D. Anderson Cancer Center, where he
also holds the Charles A. LeMaistre Chair in Thoracic Oncology. He received his
oncology training at Memorial Sloan-Kettering Cancer Center, and afterward
served as Chief of Medical Oncology at the Boston V.A. Medical Center until
joining M.D. Anderson in 1984. Dr. Hong is dedicated to translational research
in both head and neck and lung cancer, and also focuses on the area of
chemoprevention.
ALEXANDRA M. LEVINE, M.D., joined the staff at the University of Southern
California School of Medicine in 1977 and is currently a Professor of Medicine
and Chief, Division of Hematology and Medical Oncology. Dr. Levine served as the
Executive Associate Dean of the University of Southern California School of
Medicine from 1985 to 1990. Dr. Levine's research interests include the
hematologic malignancies. She began an active program of AIDS research in 1981,
focused primarily on the cancers related to AIDS, and most recently on HIV
disease in women. She worked with Dr. Jonas Salk from 1987 until his death in
1995 on a potential AIDS vaccine. Dr. Levine was appointed to the Presidential
HIV/AIDS Advisory Council by President Clinton in June 1995, and currently
serves as Chair of the Research Committee for the Presidential Council. Dr.
Levine graduated from University of California at Berkely, and received her M.D.
from the University of Southern California School of Medicine. She
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received training in Internal Medicine and Hematology at the University of
Southern California School of Medicine, and in Oncology at Emory University.
JEFFREY M. TRENT, PH.D., serves as both the Scientific Director and the
Chief of the Laboratory of Cancer Genetics, National Center for Human Genome
Research. Dr. Trent was recruited to the NIH Bethesda campus to establish the
Intramural Research Program of the National Center for Human Genome Research. He
received his Bachelor's Degree from Indiana University, and his Ph.D. from The
University of Arizona. He remained on the faculty at The University of Arizona
for several years, where he served as the Director of Basic Research for the
Arizona Comprehensive Cancer Center. He then accepted an Endowed Chair in
Oncology at The University of Michigan in Ann Arbor where he also directed the
Basic Science Program of the Cancer Center. His research interests are in the
molecular genetics and cytogenetics of human cancer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Company or its stockholders for
monetary damages for breach of their fiduciary duty to the maximum extent
permitted by the Delaware Law. The Delaware Law does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the Delaware Law or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted in
Section 145 of the Delaware Law, the Certificate of Incorporation of the Company
provides that the Company shall indemnify its directors and executive officers
to the fullest extent permitted by Delaware Law, including those circumstances
in which indemnification would otherwise be discretionary, subject to certain
exceptions. The Certificate of Incorporation also provides that the Company may
advance expenses to directors and executive officers incurred in connection with
an action or proceeding as to which they may be entitled to indemnification,
subject to certain exceptions.
The Company has or will enter into indemnity agreements with each of its
directors and executive officers that provide the maximum indemnity allowed to
directors and executive officers by the Delaware Law and the Company's
Certificate of Incorporation, subject to certain exceptions, as well as certain
additional procedural protections. In addition, the indemnity agreements will
provide generally that the Company will advance expenses incurred by directors
and executive officers in any action or proceeding as to which they may be
entitled to indemnification subject to certain exceptions.
The indemnification provisions in the Company's Certificate of
Incorporation and the indemnity agreements to be entered into between the
Company and its directors and executive officers may permit indemnification for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
The Company currently expects to carry director and officer liability
insurance following this offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are Messrs. Cassis, Callow, Woods and Love. The Compensation Committee
makes recommendations to the Board of Directors regarding executive compensation
matters, including decisions relating to salary and bonus and grants of stock
options. During the last fiscal year, Mr. Love participated in deliberations
concerning compensation of executive officers of the Company other than himself.
60
<PAGE> 63
DIRECTOR COMPENSATION
Following this offering, directors of the Company who are not officers or
employees of the Company ("Non-Employee Directors") will receive a fee of $1,000
per Board meeting and committee meeting attended, if such committee meeting is
held on a different day than a Board meeting. Directors of the Company who are
officers or employees of the Company will not receive additional compensation
for serving on the Board or on any committee thereof. The Company makes a
one-time option grant, upon a Non-Employee Director's first appointment to the
Board, to purchase 17,128 shares of Common Stock at the fair market value on the
date of grant. All options become exercisable at a rate of one-forty-eighth per
month, on a cumulative basis. The economic benefit of all options granted to Mr.
Woods and Dr. Norman has been transferred to CTRC Research, and the economic
benefit of the options granted to Mr. Cassis and Mr. Callow have been
transferred to Hambro America Biosciences, Inc. and Boston Capital Ventures III,
Limited Partnership, respectively, stockholders of the Company. See "-- Stock
Option Plans -- 1996 Non-Employee Director Stock Option Plan" and "Principal
Stockholders."
EXECUTIVE COMPENSATION
The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 1996 and 1995 by the Company's (i) Chief Executive Officer
and (ii) four other most highly-compensated executive officers whose total
compensation exceeded $100,000 during 1996 (together, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
---------------------- SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
--------------------------- ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard L. Love 1996 $176,732 $45,000 -- $ 3,400(1)
President and Chief Executive 1995 $175,000 $35,000 28,546 $ 3,400(1)
Officer
Alexander L. Weis, Ph.D. 1996 $160,000 $24,000 -- --
Executive Vice President, 1995 $160,000 $16,000 28,546 --
Chief Scientific Officer
Timothy J. Williamson 1996 $129,000 $25,800 -- --
Senior Vice President, 1995 $112,885 $12,500 47,500 --
Marketing & Business Development
Deirdre K. Tessman, Ph.D. 1996 $134,000 $26,800 22,838 --
Vice President, Drug Development 1995 $125,000 $25,000 47,500 $15,790(2)
Pedro Santabarbara, M.D., Ph.D 1996(3) $ 58,153 $15,000 42,818 $44,843(4)
Vice President, Medical Affairs 1995 -- -- -- --
</TABLE>
- ---------------
(1) Life insurance premiums paid by the Company on behalf of Mr. Love.
(2) Relocation expenses paid by the Company to Dr. Tessman.
(3) Represents amounts received by Dr. Santabarbara after joining the Company in
September 1996.
(4) Represents relocation expenses in the amount of $18,733, a signing bonus of
$25,000 and interest paid on a loan by the Company on behalf of Dr.
Santabarbara in the amount of $1,110.
61
<PAGE> 64
STOCK OPTION PLANS
1995 Stock Option Plan
On April 10, 1995, the Board of Directors of the Company adopted, and the
stockholders of the Company approved, the 1995 Stock Option Plan (the "1995
Stock Option Plan"). The 1995 Stock Option Plan, as amended, provides for the
issuance of up to a maximum of 1,141,807 shares of the Company's Common Stock to
key employees of and consultants to the Company or any of its subsidiaries as
well as to directors of the Company, whether or not employees. Options granted
under the 1995 Stock Option Plan may be either incentive stock options ("ISOs")
or options which do not qualify as ISOs ("non-ISOs").
The 1995 Stock Option Plan is to be administered by a committee of at least
two members of the Board of Directors, chosen by the Board of Directors, and is
currently administered by the Company's Compensation Committee (the
"Committee"). The current members of the Committee are Messrs. Cassis, Callow,
Woods and Love. Subject to the provisions of the 1995 Stock Option Plan, the
Committee has the authority to determine the individuals to whom stock options
will be granted, the number of shares to be covered by each option, the option
price, the type of option, the option period, the vesting restrictions, if any,
with respect to the exercise of the option, the terms for the payment of the
option price and other terms and conditions. After the offering, non-employee
directors of the Company, which include various members of the Committee, will
not be eligible to receive options under the 1995 Stock Option Plan and will
thus qualify as "disinterested directors" within the meaning and for the
purposes of Rule 16b-3 under the Securities Exchange Act of 1934. Payment for
shares acquired upon exercise of an option must be made in cash.
The exercise price for shares may not be less than 100% of the fair market
value of the Common Stock on the date of grant (110% in the case of a grant of
an ISO to an individual who owns 10% or more of the outstanding stock of the
Company or any subsidiary (a "10% Stockholder")). Unless otherwise approved by
the Committee, an option may not be exercised during the first six months after
the date of its grant. All options must expire no later than ten years from the
date of grant. In general, no option may be exercised more than three months
after the termination of the optionee's service with the Company and any of its
subsidiaries. However, the three-month period is extended to 12 months if the
optionee's service is terminated by reason of disability, death or retirement.
No individual may be granted ISOs that become exercisable for the first time in
any calendar year for Common Stock having a fair market value, determined at the
time of grant, in excess of $100,000.
All options granted under the 1995 Stock Option Plan become fully vested
and exercisable upon a change of control of the Company. A "change of control"
of the Company is deemed to have occurred upon the consummation of a merger or
consolidation, or sale of all or substantially all of the Company's business or
assets, and, as a result thereof, less than 50% of the outstanding capital stock
of the surviving or acquiring entity is owned, in the aggregate, by the
stockholders of the Company immediately prior to such merger, consolidation or
sale.
Options may not be transferred during the lifetime of an optionee. Subject
to certain limitations set forth in the 1995 Stock Option Plan and applicable
law, the Board of Directors may amend or terminate the 1995 Stock Option Plan.
By its own terms, the 1995 Stock Option Plan will terminate at the discretion of
the Board of Directors.
At December 31, 1996, the Company has granted options to purchase an
aggregate of 688,680 shares of Common Stock at a weighted average exercise price
per share of $4.21.
1996 Non-Employee Director Stock Option Plan
The Company has adopted the 1996 Non-Employee Director Stock Option Plan
(the "Directors' Plan") to promote the Company's interests by attracting and
retaining highly-skilled, experienced and knowledgeable non-employee directors.
An aggregate of 171,271 shares of Common Stock have been reserved for issuance
under the Directors' Plan. Options granted under the Directors' Plan do not
qualify
62
<PAGE> 65
as incentive stock options within the meaning of Section 422 of the Code. The
Directors' Plan provides for the automatic grant to each of the Company's
current non-employee directors of an option to purchase 17,128 shares of Common
Stock and with respect to newly-elected or appointed non-employee directors, an
automatic grant of an option to purchase 17,128 shares of Common Stock effective
upon his or her initial election or appointment to the Board of Directors. The
options have an exercise price of 100% of the fair market value of the Common
Stock on the date of grant and have a ten-year term. All options become
exercisable at a rate of one-forty-eighth per month, on a cumulative basis. Each
outstanding option is subject to acceleration in the event of a change of
control of the Company (as defined in the Directors' Plan). The options may be
exercised by payment in cash, check or shares of Common Stock.
All options granted under the Directors' Plan become fully vested and
exercisable upon a change of control of the Company. A "change of control" of
the Company is deemed to have occurred upon the consummation of a merger,
consolidation or reorganization, or sale of all or substantially all of the
Company's business or assets, and, as a result thereof, less than 50% of the
outstanding capital stock of the surviving or acquiring entity is owned, in the
aggregate, by the stockholders of the Company immediately prior to such merger,
consolidation, reorganization or sale.
The following tables set forth information concerning individual grants of
stock options, exercises of stock options, and aggregate stock options held for
each of the Named Officers listed in the Summary Compensation Table above for
the year ended December 31, 1996:
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS APPROXIMATE PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE MARKET PRICE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE AT GRANT EXPIRATION -------------------
NAME GRANTED(#)(1) 1996 PER SHARE DATE DATE 5% 10%
---- ------------- ------------- ----------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard L. Love........ -- -- -- -- -- -- --
Alexander L. Weis,
Ph.D................. -- -- -- -- -- --
Timothy J.
Williamson........... -- -- -- -- -- -- --
Deirdre K. Tessman,
Ph.D................. 11,419 3.2% $3.50 $3.50 6/13/06 $ 25,943 $ 68,718
11,419 3.2% $7.01 $7.01 10/20/06 $ 51,960 $137,633
Pedro Santabarbara,
M.D., Ph.D........... 42,818 11.8% $7.01 $7.01 8/27/06 $194,835 $516,085
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of Common Stock on
the date of the grant as determined by the Board appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and the Common Stock received therefor is
sold on the last day of the term of the option for the appreciated price.
The 5% and 10% rates of appreciation are derived from the rules of the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price appreciation. The actual value realized may be greater
than or less than the potential realizable values set forth in the table.
AGGREGATE FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
12/31/96
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)(1)
----------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Richard L. Love................... 14,273 14,273 $121,275 $121,275
Alexander L. Weis, Ph.D........... 14,273 14,273 121,275 121,275
Timothy J. Williamson............. 23,750 23,750 280,840 280,840
Deirdre K. Tessman, Ph.D.......... 23,750 46,588 280,840 434,886
Pedro Santabarbara, M.D.,
Ph.D. .......................... 0 42,818 0 213,814
</TABLE>
- ---------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1996 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1996, the Company has
assumed that the fair market value of the Common Stock issuable upon
exercise of the option was $12.00 per share, the assumed initial public
offering price, since the Common Stock was not traded in an established
market prior to this offering.
63
<PAGE> 66
EMPLOYMENT AND CONSULTING AGREEMENTS
Richard L. Love is a party to an employment agreement with the Company for
a four-year period expiring in November 1998. The agreement provides for an
initial base salary of $175,000 per year. The agreement contains a
non-disclosure covenant and provides that for a period of one year after
termination of employment, Mr. Love may not compete with the Company by engaging
in certain Restricted Activities (as defined in the agreement). The agreement
provides that either party may terminate the agreement without cause upon 30
days' notice. If the agreement is terminated by the Company other than for
cause, the Company is obligated to pay Mr. Love a severance payment, unless Mr.
Love elects to receive limited accelerated vesting of his stock options. See
"Business -- Relationship with CTRC."
Alexander L. Weis, Ph.D., is a party to an employment agreement with the
Company for a four-year period expiring in November 1998. The agreement provides
for an initial base salary of $160,000 per year. The agreement contains a
non-disclosure covenant and provides that for a period of one year after
termination of employment, unless Dr. Weis elects not to receive severance
compensation, Dr. Weis may not compete with the Company by engaging in certain
Restricted Activities (as defined in the agreement). The agreement provides that
either party may terminate the agreement without cause upon 30 days' notice. If
the agreement is terminated by the Company for other than cause, the Company is
obligated to pay Dr. Weis a severance payment, unless Dr. Weis elects (i) to
receive limited accelerated vesting of his stock options or (ii) to have the
limitation on his Restricted Activities terminate on the date of such
termination. Dr. Weis's agreement also permits Dr. Weis to continue to be the
owner and chief executive officer of Lipitek International, Inc., a
subcontractor to the Company. See "Certain Transactions."
James R. Koch is a party to an employment agreement with the Company. The
agreement provides for an initial base salary of $125,000 per year. The
agreement provides that either party may terminate the agreement without cause
upon 30 days' notice; however, in the event the Company elects to terminate the
agreement without cause within three years of the date of the agreement, the
Company is required to pay to Mr. Koch a severance payment. The agreement
contains a non-disclosure covenant and provides that for a period of one year
after termination of employment, Mr. Koch will not compete with the Company,
solicit its customers or recruit its employees.
Pedro Santabarbara, M.D., Ph.D., is a party to an employment agreement with
the Company. The agreement provides for an initial base salary of $180,000 per
year. The agreement provides that either party may terminate the agreement
without cause upon 30 days' notice; however, in the event the Company elects to
terminate the agreement without cause within four years of the date of the
agreement, the Company is required to pay to Dr. Santabarbara a severance
payment. The agreement contains a non-disclosure covenant and provides that for
a period of one year after termination of employment, Dr. Santabarbara will not
compete with the Company, solicit its customers or recruit its employees.
Each of Dr. Von Hoff and Dr. Coltman is a party to a consulting agreement
with the Company pursuant to which they provide consulting services to the
Company in exchange for an annual retainer, compensation for services provided
at a per day and hourly rate, as applicable, and for attending meetings of the
Company's Scientific Advisory Board. The agreements contain a non-disclosure
covenant, provide that either party may terminate the agreement upon 60 days'
notice to the other party and provide that Dr. Von Hoff and Dr. Coltman will not
undertake affiliations that would conflict with their duties and
responsibilities to the Company without the Company's consent. Drs. Von Hoff's
and Coltman's agreements expire in December 1998 and October 1998, respectively.
See "Business -- Relationship with CTRC."
For a discussion of circumstances affecting the termination and other
provisions of the employment and consulting agreements of Mr. Love and Drs.
Weis, Von Hoff and Coltman, see "Business -- Relationship with CTRC."
64
<PAGE> 67
CERTAIN TRANSACTIONS
ILEX was formed in December 1993 for the purpose of conducting certain
advanced drug development programs and pursuing commercial opportunities of
CTRC. As the majority holder of Series A Preferred Stock, CTRC Research has the
right to elect three members of the Company's Board of Directors. Upon
consummation of the offering, this right will terminate and CTRC Research will
beneficially own approximately 23.8% of the Company's outstanding shares of
Common Stock. See "Business -- Relationship with CTRC." The Company and CTRC
Research also have an agreement not to commence any legal action against, in the
case of CTRC Research, the Board of Directors of the Company, other than
Directors of the Company who are also employees or officers of or consultants to
ILEX, or, in the case of ILEX, the Board of Trustees of CTRC Research, for any
claim that would have been covered by any directors' and officers' liability
insurance policies maintained by CTRC or ILEX, as applicable, subject to certain
exceptions. This agreement will terminate upon consummation of this offering,
but such agreement will remain in effect with respect to any activity occurring
prior to the termination of the agreement.
In November 1994, CTRC Research granted the Company a revolving line of
credit of $500,000 bearing interest at the prime rate plus one-half of one
percent. The line of credit provided the Company with sufficient working capital
to initiate operations. At December 31, 1995, the outstanding balance and the
interest rate on this line of credit were $305,000 and nine percent,
respectively. In February 1996, the Company repaid the entire outstanding
balance on the line of credit, and the line of credit was terminated in December
1996.
Pursuant to a services agreement, CTRC Research has agreed to perform
certain administrative and technical support services for the Company. For the
period from October 1, 1994 through December 31, 1994, and for the years ended
December 31, 1995 and 1996, the Company paid CTRC Research approximately
$143,000, $313,000 and $143,000, respectively, for these services and
reimbursement of salaries and benefits. In addition, the Company has a lease
agreement with CTRC Research for office space, a lab and the cGMP facility. For
the period from inception through December 31, 1994, and for the years ended
December 31, 1995 and 1996, the Company paid CTRC Research approximately $5,000,
$49,000 and $34,000, respectively, related to these lease agreements. The
Company leases its cGMP facility from a non-profit corporation that is
controlled by CTRC Research and the Texas Research and Technology Foundation.
Such lease provides that rent will be paid at a fixed monthly rate plus a
percentage of gross sales from the facility, as defined in the lease. The
Company is not required to begin making fixed monthly payments until 1998 or
payments based on a percentage of gross sales until certain gross levels are
achieved. At December 31, 1995 and 1996, the Company had payables to CTRC
Research amounting to approximately $85,000 and $16,000, respectively, related
to the aforementioned services and lease agreements.
Subcontractors provide the Company with consulting services and preclinical
and clinical testing related to certain of its contracts. During the period from
October 1, 1994, through December 31, 1994, and for the years ended December 31,
1995 and 1996, the Company incurred approximately the following expenses for
subcontracting and consulting costs to the named related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
CTRC Research.................................... $ 42,000 $140,000 $ 371,000
Dr. Von Hoff..................................... 36,000 136,000 227,000
UTHSCSA and Dr. Coltman.......................... -- 142,000 433,000
Lipitek International, Inc....................... 111,000 42,000 378,000
-------- -------- ----------
Total.................................. $189,000 $460,000 $1,409,000
======== ======== ==========
</TABLE>
65
<PAGE> 68
At December 31, 1995 and 1996, the following subcontractor and consulting
costs were payable to the named related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
<S> <C> <C>
CTRC Research............................................... $ 5,000 $ 91,000
Dr. Von Hoff................................................ 34,000 60,000
UTHSCSA and Dr. Coltman..................................... 24,000 92,000
Lipitek International, Inc.................................. 21,000 102,000
------- --------
Total............................................. $84,000 $345,000
======= ========
</TABLE>
In June 1996, the Company entered into a services agreement with Lipitek
International, Inc. ("Lipitek"), a corporation whose sole stockholder and chief
executive officer is Dr. Alexander L. Weis, Executive Vice President, Chief
Scientific Officer of the Company. The scope of the services to be performed by
Lipitek pursuant to the agreement and the payment for such services will be
agreed to by the parties on a project-by-project basis. Subject to certain
conditions, the agreement may be terminated on 30 days' notice by either party.
During 1995, the Company entered into consulting services agreements with
Daniel D. Von Hoff, M.D. and Charles A. Coltman, Jr., M.D., co-chairmen of the
Company's Scientific Advisory Board. See "Management -- Employment and
Consulting Agreements." Dr. Von Hoff is also a director of the Company. Under
the terms of the agreements, the consultants are entitled to receive annual
retainers and fixed daily fees for full days of service and hourly fees for
partial days of service. In addition, the consultants exercised their right to
purchase shares of Common Stock under such agreements and financed a portion of
the Common Stock purchases with promissory notes to the Company. The promissory
notes of Dr. Von Hoff and Dr. Coltman are in the principal amounts of $64,000
and $38,000, respectively, and have balances at December 31, 1996 of $59,000 and
$34,000, respectively. The promissory notes each bear interest at an annual rate
of 8% and mature in March 1999.
Pursuant to the terms of their employment agreements, Mr. Love and Dr. Weis
exercised their right to purchase shares of Common Stock and financed a portion
of the Common Stock purchases with promissory notes to the Company. The
promissory notes of Mr. Love and Dr. Weis are each in the principal amount of
$20,000 and have balances at December 31, 1996 of $18,000 and $0, respectively.
Pursuant to the terms of Dr. Santabarbara's employment agreement, the Company
arranged for and guaranteed a loan in the aggregate principal amount of $54,000
in Dr. Santabarbara's name, which loan is repayable on March 1, 1997.
Additionally, the Company has agreed to reimburse Dr. Santabarbara for monthly
interest payments in the amount of $366 on the loan. See
"Management -- Employment and Consulting Agreements."
66
<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1996 and
as adjusted to give effect to the sale by the Company of the shares offered
hereby with respect to (a) each stockholder known by the Company to be the
beneficial owner of 5% or more of the Company's Common Stock, (b) each director
of the Company, (c) each Named Officer and other executive officers and (d) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1)(2) BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
CTRC Research Foundation........................... 2,782,127 30.3% 23.8%
8122 Datapoint
San Antonio, Texas 78229
Boston Capital Ventures III,
Limited Partnership(3)........................... 891,547 9.7% 7.6%
45 School Street
Boston, Massachusetts 02108
Hambro America Biosciences, Inc.(4)................ 836,388 9.1% 7.2%
650 Madison Avenue, 21st Fl.
New York, New York 10022
Perseus Pharmaceuticals, L.L.C.(5)................. 818,383 8.8% 6.9%
The Army and Navy Club Building
1627 I Street N.W., Suite 610
Washington, D.C. 20006
Advent International Corporation(6)................ 688,468 7.5% 5.9%
101 Federal Street
Boston, Massachusetts 02110
MPI Enterprises, L.L.C............................. 475,753 5.2% 4.1%
54943 N. Main Street
Mattawan, Michigan 49071
Pharmacia & Upjohn Company......................... 570,904 6.2% 4.9%
7000 Portage Road
Kalamazoo, Michigan 49001
Daniel D. Von Hoff, M.D.(7)........................ 379,652 4.1% 3.3%
Richard L. Love(8)................................. 288,307 3.1% 2.5%
Alexander L. Weis, Ph.D.(7)........................ 288,307 3.1% 2.5%
Timothy J. Williamson(9)........................... 23,750 * *
Deirdre K. Tessman, Ph.D.(9)....................... 23,750 * *
James R. Koch...................................... -- -- --
Pedro Santabarbara, M.D., Ph.D..................... -- -- --
John L. Cassis(10)(11)............................. 837,816 9.1% 7.2%
A. Dana Callow, Jr.(10)(12)........................ 903,231 9.8% 7.7%
Jason S. Fisherman, M.D.(10)....................... 1,428 * *
Jerry R. Mitchell, M.D., Ph.D.(13)................. 476,824 5.2% 4.1%
Ruskin Norman, M.D.(10)(14)........................ 21,496 * *
Gary V. Woods(10)(15).............................. 46,343 * *
All executive officers and directors as a group (13
persons)(11)(12)(13)(16)......................... 3,290,904 35.5% 27.9%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1996
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other person.
Except as otherwise noted, the street address of the named beneficial owner
is 11550 IH-10 West, Suite 300, San Antonio, Texas 78230.
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<PAGE> 70
(2) To the Company's knowledge, unless otherwise indicated below, the persons
and entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable.
(3) Includes 64,129 shares of Common Stock issuable upon exercise of warrants.
(4) Includes shares of Common Stock held by Cross Atlantic Partners K/S and
Cross Atlantic Partners II K/S, both of which are entities under common
control of Hambro America Biosciences, Inc. Includes 24,552 shares of
Common Stock issuable upon the exercise of warrants.
(5) Includes 163,677 shares of Common Stock issuable upon the exercise of
warrants.
(6) Includes shares of Common Stock held by Rovent II Limited Partnership,
Advent Performance Materials Limited Partnership, ADVENTACT Limited
Partnership and Advent International Investors II Limited Partnership, all
of which are entities under common control of Advent International
Corporation. Includes 23,513 shares of Common Stock issuable upon the
exercise of warrants.
(7) Includes 14,273 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."
(8) Includes 14,273 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."
(9) Consists of shares of Common Stock issuable upon the exercise of options
granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans."
(10) Includes 1,428 shares of Common Stock issuable upon the exercise of options
granted under the Company's 1996 Non-Employee Director Stock Option Plan.
See "Management -- Stock Option Plans."
(11) Includes 836,388 shares beneficially owned by Hambro America Biosciences,
Inc. Mr. Cassis, a partner of Hambro America Biosciences, Inc., may be
deemed to be a beneficial owner of the shares of Common Stock beneficially
owned by Hambro American Biosciences, Inc. Mr. Cassis disclaims any such
beneficial ownership.
(12) Includes 891,547 shares beneficially owned by Boston Capital Ventures III,
Limited Partnership. Mr. Callow, a general partner of the general partner
of Boston Capital Ventures III, Limited Partnership, may be deemed to be a
beneficial owner of the shares of Common Stock beneficially owned by Boston
Capital Ventures III, Limited Partnership. Mr. Callow disclaims any such
beneficial ownership. Includes 1,081 shares of Common Stock issuable upon
exercise of warrants.
(13) Includes 1,071 shares of Common Stock issuable upon exercise of options
under the Company's Non-Employee Director Stock Option Plan. See
"Management -- Stock Option Plans." Includes 475,753 shares beneficially
owned by MPI. Dr. Mitchell, co-founder and Chief Executive Officer of an
affiliate of MPI, may be deemed to be a beneficial owner of the shares of
Common Stock owned by MPI. Mr. Mitchell disclaims any such beneficial
ownership.
(14) Includes 1,159 shares of Common Stock issuable upon the exercise of
warrants.
(15) Includes 3,274 shares of Common Stock issuable upon the exercise of
warrants.
(16) Includes 8,211 shares of Common Stock issuable upon exercise of options
granted under the Company's 1996 Non-Employee Director Stock Option Plan.
Includes 90,319 shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Stock Option Plan. See
"Management -- Stock Option Plans." Includes 5,514 shares of Common Stock
issuable upon exercise of warrants.
68
<PAGE> 71
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.01 par value, and 20,000,000 shares of Preferred Stock, $.01 par
value. As of December 31, 1996, the Company had issued and outstanding 9,179,594
shares of Common Stock which were held of record by 36 stockholders (after
giving effect to the conversion of all outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock into Common Stock and the Reverse Stock Split of the
outstanding shares of Common Stock), and no shares of Preferred Stock will be
outstanding upon consummation of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock, outstanding warrants and related registration rights does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation, as amended, the
various warrant documents and the amended registration rights agreement which
are included as exhibits to the Registration Statement of which this Prospectus
is a part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share for
the election of directors and all matters to be submitted to a vote of the
Company's stockholders. Subject to the rights of any holders of Preferred Stock
which may be issued in the future, the holders of shares of Common Stock are
entitled to share ratably in such dividends as may be declared by the Board of
Directors and paid by the Company out of funds legally available therefor. In
the event of dissolution, liquidation or winding up of the Company, holders of
shares of Common Stock are entitled to share ratably in all assets remaining
after payment of all liabilities and liquidation preferences, if any. Holders of
shares of Common Stock have no preemptive, subscription, redemption, conversion
rights or similar rights. The Company's Certificate of Incorporation does not
provide for cumulative voting rights with respect to the election of directors.
The outstanding shares of Common Stock are, and the shares of Common Stock to be
issued by the Company in connection with this offering will be, duly authorized,
validly issued, fully paid and nonassessable.
Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved Common Stock may be to
enable the Board of Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
current management and possibly deprive the stockholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into 7,992,055 shares of Common Stock. See Note 6 of
Notes to Financial Statements for a description of the currently outstanding
Convertible Preferred Stock. Following the conversion, the Company's Certificate
of Incorporation will be amended to delete all references to such outstanding
series of Preferred Stock. Under the Certificate of Incorporation, as amended,
upon the closing of this offering, the Company's Board of Directors will be
authorized to issue Preferred Stock in one or more series with designations,
rights and preferences determined from time to time by its Board of Directors.
Accordingly, the Company's Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividends, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to holders
of Common Stock. In the event of
69
<PAGE> 72
issuance, the Preferred Stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.
WARRANTS
The Company has issued warrants to purchase 97,054 shares of Common Stock
at $3.50 per share to Vector Securities International, Inc. (the "Vector
Warrants") in connection with the provision of certain financial consulting
services. The Vector Warrants may be exercised in whole at any time or in part
from time to time prior to their expiration in September 2000.
In connection with the private placement of its Series C Preferred stock,
the Company has issued warrants to purchase 327,367 shares of Common Stock at
$8.76 per share (the "Series C Warrants"). The Series C Warrants may be
exercised in whole at any time or in part from time to time prior to their
expiration in July 2001.
The Company has issued warrants to purchase 28,546 shares of Common Stock
at $8.76 per share to Chestnut Partners, Inc. (the "Chestnut Warrants," and,
together with the Vector Warrants and the Series C Warrants, the "Warrants") in
connection with the provision of certain financial consulting services. The
Chestnut Warrants may be exercised in whole at any time or in part from time to
time prior to their expiration in 2001.
The exercise price of the Warrants may be paid in cash or surrender for
cancellation of a portion of the Warrants (valued according to a formula
described in the Warrants). The exercise price for the Warrants and the number
and kind of shares of Common Stock, or other securities and property issuable
upon exercise of the Warrants, are subject to adjustment upon a stock split,
stock dividend or subdivision. Additionally, an adjustment will be made upon a
sale of all or substantially all of the assets of the Company or in the case of
a reorganization, reclassification, consolidation or merger of the Company, in
order to enable holders of Warrants to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable in such event
by a holder of the number of shares of Common Stock that might otherwise have
been purchased upon exercise of the Warrants. The exercise price of the Warrants
is also subject to adjustment in the event of the issuance by the Company of
shares of additional Common Stock subsequent to the date of the Warrants at a
price per share less than the exercise price of the Warrants.
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company, and are subject to certain registration rights
agreements described below. See "-- Registration Rights."
REGISTRATION RIGHTS
In connection with the Company's private placements of its convertible
preferred stock and Warrants, the Company executed a Registration Rights
Agreement. The Registration Rights Agreement, as amended, provides that the
holders of more than an aggregate of 20% of the shares of Common Stock issuable
on conversion of the Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible
Preferred Stock and the Series C Warrants, shall be entitled to two demand
registrations on Form S-1 and an unlimited number of demand registrations on
Form S-2 or S-3, subject to certain limitations as to the amount of shares
registerable and the frequency of such demand registrations. Holders of more
than an aggregate of 50% of the shares of Common Stock issued upon conversion of
CTRC Research's Series A Convertible Preferred Stock and the Common Stock held
by Richard L. Love, Alexander L. Weis, Ph.D., Charles A. Coltman, Jr., M.D. and
Daniel D. Von Hoff, M.D. are also entitled to one demand registration on Form
S-1 and three demand registrations on Form S-2 or S-3.
In addition, if the Company proposes to register any of its securities,
either for its own account, or for the account of other stockholders, the
Company is required, with certain exceptions, to notify the holders described
above and the holder of the Vector Warrants and, subject to certain limitations,
to include in such registration all of the shares of Common Stock requested to
be included by such holders. The
70
<PAGE> 73
Company is generally required to pay all of the expenses of such registrations
other than the underwriting discounts and commissions.
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Upon the consummation of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the
"Anti-Takeover Law") regulating corporate takeovers. The Anti-Takeover Law
prevents certain Delaware corporations from engaging, under certain
circumstances, in a "business combination" (which includes a merger or sale of
more than 10% of the corporation's assets) with any "interested stockholder" (a
stockholder who acquired 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's board of directors) for
three years following the date that such stockholder became an "interested
stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholder's amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of the
Anti-Takeover Law.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Company has no supermajority, staggered board or other anti-takeover
provisions in either its Certificate of Incorporation or Bylaws. The Certificate
of Incorporation of the Company contains provisions which eliminate the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty other than liability for a breach of the duty of loyalty, acts or
omissions not in good faith that constitute a breach of the director's duty to
the Company, acts that involve intentional misconduct or a knowing violation of
the law, transactions in which the director receives an improper benefit and
acts or omissions for which liability is expressly provided by an applicable
statute. The Bylaws of the Company contain provisions requiring the
indemnification of the Company's directors and officers, and persons serving at
the request of the Company as a director or officer of another corporation, to
the fullest extent permitted under the Delaware General Corporation Law. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers of the Company.
LISTING
The Company's Common Stock has been approved for listing on the Nasdaq
National Market under the trading symbol "ILXO."
TRANSFER AGENT
The Transfer Agent for the Common Stock is ChaseMellon Shareholder
Services.
71
<PAGE> 74
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and any sale of substantial amounts of Common Stock in the open market
may adversely affect the market price of the Common Stock offered hereby.
Upon completion of this offering, there will be an aggregate of 11,679,594
shares of Common Stock outstanding assuming (i) no exercise of the Underwriters'
over-allotment option and (ii) no exercise of outstanding options to purchase
Common Stock. Of these shares, the 2,500,000 shares of Common Stock sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless such shares are held by "affiliates" of the
Company, as that term is defined under the Securities Act and the regulations
promulgated thereunder. The remaining 9,179,594 shares of Common Stock (the
"Restricted Shares") are held by officers, directors, employees and other
stockholders of the Company. The Restricted Shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act.
The Company and each of its directors, officers and certain other
stockholders, who own in the aggregate approximately 8,823,432 shares of Common
Stock, have agreed that they will not offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offering of, any
shares of Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock (without the prior consent of Salomon Brothers Inc) for a
period of 180 days after the effective date of the Registration Statement (the
"Effective Date"), provided that the Company may issue and sell shares of Common
Stock pursuant to the 1995 Stock Option Plan and the Directors' Plan.
Beginning 180 days after the Effective Date, approximately 4,179,012 of the
Restricted Shares will become eligible for sale subject to the provisions of
Rule 144 under the Securities Act. The remainder of the Restricted Shares held
by existing stockholders will become eligible for sale at various times
thereafter, subject to the provisions of Rule 144. Additionally, shares issued
pursuant to certain employee benefit plans and contracts with employees in
compliance with Rule 701 under the Securities Act may be sold beginning 90 days
after this offering by non-affiliates of the issuer subject to the manner of
sale requirements of Rule 144, but without compliance with the other
requirements of Rule 144. There are 688,680 shares of the Company's stock
outstanding which are covered by Rule 701.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(116,796 shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. Pursuant to a recent proposal of the
Securities and Exchange Commission (the "Commission") that has not yet been
adopted, the two-year holding period described in the preceding sentence would
be reduced to one year. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. Pursuant to a recent proposal of the
Commission that has not yet been adopted, the three-year holding period
described in the preceding sentence would be reduced to two years.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the Effective Date. However, unless Salomon Brothers Inc gives its
prior written consent, all officers and directors and certain other stockholders
have agreed not to sell or
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<PAGE> 75
otherwise dispose of Common Stock of the Company for the 180-day period after
the Effective Date. See "Underwriting."
Within 90 days of the date of this Prospectus, the Company intends to file
a registration statement under the Securities Act to register shares of Common
Stock reserved for issuance under its equity incentive plans, thus permitting
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act. Such registration statements will become
effective immediately upon filing. As of December 31, 1996, options to purchase
688,680 shares of Common Stock at a weighted average exercise price of $4.21 per
share were outstanding under the Company's stock option plans.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to the Underwriters, and each of the Underwriters,
for whom Salomon Brothers Inc, Cowen & Company and Smith Barney Inc. are acting
as representatives (the "Representatives"), has severally agreed to purchase
from the Company the number of shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Salomon Brothers Inc........................................
Cowen & Company.............................................
Smith Barney Inc. ..........................................
---------
Total............................................. 2,500,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares of Common Stock are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated. The Company has been advised by the Representatives that the
several Underwriters propose initially to offer such shares of Common Stock at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other dealers. After the initial
offering, the public offering price and such concessions may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the shares of Common Stock that the Underwriters have agreed to purchase. To
the extent that the Underwriters exercise such option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase a number of
option shares proportionate to such Underwriter's initial commitment.
The Company's officers and directors and the beneficial owners of more than
one percent of the Common Stock have agreed that they will not, without the
prior written consent of Salomon Brothers Inc, offer, sell or contract to sell,
or otherwise dispose of, directly or indirectly, or announce an offering of, any
shares of Common Stock beneficially owned by such person or any securities
convertible into, or exchangeable for, shares of Common Stock during the 180-day
period following the date of this
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<PAGE> 76
Prospectus, other than shares of Common Stock disposed of as bona fide gifts.
The Company has agreed that it will not, without the prior written consent of
Salomon Brothers Inc, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offer of any shares of Common Stock,
options or any securities convertible into, or exchangeable for, shares of
Common Stock during the 180-day period following the date of this Prospectus;
provided, however, that the Company may issue and sell Common Stock pursuant to
any employee stock option in effect at the date of this Prospectus and the
Company may issue Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding on the date of this Prospectus. Salomon
Brothers Inc in its sole discretion may release any of the shares subject to the
lock-up at any time without notice.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
Prior to this offering there has been no public market for the Common
Stock. The price to the public for the Shares will be determined through
negotiations between the Company and the Representatives and will be based on,
among other things, the Company's financial and operating history and condition,
the prospects of the Company and its industry in general, the management of the
Company and the market prices of securities of companies engaged in businesses
similar to those of the Company. There can, however, be no assurance that the
prices at which the Shares will sell in the public market after this offering
will not be lower than the price at which it is sold by the Underwriters.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fulbright & Jaworski L.L.P., San Antonio,
Texas. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
auditing and accounting in giving said reports.
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<PAGE> 77
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any contract or any other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024,
Washington D.C. 20549 and at the following regional offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at Seven World Trade Center, Suite 1300, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 upon the payment of the
fees prescribed by the Commission. The Commission maintains a WorldWide Web site
on the Internet at http://www.sec.gov that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
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<PAGE> 78
ILEX ONCOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1995 and 1996............. F-3
Statements of Operations -- For the Period From Inception
(October 1, 1994) Through December 31, 1994, and for the
Years Ended December 31, 1995 and 1996.................... F-4
Statements of Stockholders' Equity -- For the Period From
Inception (October 1, 1994) Through December 31, 1994, and
for the Years Ended December 31, 1995 and 1996............ F-5
Statements of Cash Flows -- For the Period From Inception
(October 1, 1994) Through December 31, 1994, and for the
Years Ended December 31, 1995 and 1996.................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ILEX Oncology, Inc.:
We have audited the accompanying balance sheets of ILEX Oncology, Inc. (a
Delaware corporation), as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (October 1, 1994) through December 31, 1994, and for the years
ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ILEX Oncology, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from inception (October 1, 1994) through December 31, 1994, and
for the years ended December 31, 1995 and 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Antonio, Texas
January 21, 1997
F-2
<PAGE> 80
ILEX ONCOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,636 $ 5,037
Investments in marketable securities...................... -- 5,768
Accounts receivable, net of allowance for doubtful
accounts of $123 and $123 in 1995 and 1996,
respectively............................................ 720 2,152
Prepaid expenses and other................................ 394 1,047
------- -------
Total current assets................................ 10,750 14,004
------- -------
NONCURRENT ASSETS:
Investment in joint venture............................... -- 250
Investments in marketable securities...................... -- 12,179
------- -------
-- 12,429
PROPERTY AND EQUIPMENT:
Office equipment.......................................... 252 612
Lab equipment............................................. -- 162
Leasehold improvements.................................... 283 300
------- -------
535 1,074
Less -- Accumulated depreciation and amortization......... (28) (133)
------- -------
507 941
------- -------
Total assets........................................ $11,257 $27,374
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances from related party............................... $ 305 $ --
Accounts payable --
Related parties......................................... 85 250
Other................................................... 303 378
Accrued subcontractor costs --
Related parties......................................... 84 345
Other................................................... 680 251
Accrued liabilities....................................... 119 568
Deferred revenue.......................................... 170 530
------- -------
Total current liabilities........................... 1,746 2,322
------- -------
OTHER LONG-TERM LIABILITIES................................. -- 226
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 9, 11 and 13)
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $0.01 par value; 20,000,000
shares authorized --
Series A; 2,991,477 and 2,991,477 issued and outstanding
in 1995 and 1996, respectively......................... 30 30
Series B; 3,101,448 and 3,101,448 issued and outstanding
in 1995 and 1996, respectively......................... 31 31
Series C; none and 1,309,424 issued and outstanding in
1995 and 1996, respectively............................ -- 13
Series D; none and 113,953 issued and outstanding in
1995 and 1996, respectively............................ -- 1
Series E; none and 475,753 issued and outstanding in
1995 and 1996, respectively............................ -- 5
Common stock, $0.01 par value; 40,000,000 shares
authorized; 1,187,539 and 1,187,539 shares issued and
outstanding in 1995 and 1996, respectively.............. 12 12
Additional paid-in capital................................ 10,332 26,218
Receivables on sale of common stock (Note 6).............. (136) (111)
Accumulated deficit....................................... (758) (1,373)
------- -------
Total stockholders' equity.......................... 9,511 24,826
------- -------
Total liabilities and stockholders' equity.......... $11,257 $27,374
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 81
ILEX ONCOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1994) YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ---------------
1994 1995 1996
----------------- ------ ------
<S> <C> <C> <C>
REVENUE:
Product development.................................... $1,065 $3,551 $3,581
Contract research services............................. 188 658 1,537
Licensing fees......................................... -- -- 3,025
------ ------ ------
Total revenue.................................. 1,253 4,209 8,143
------ ------ ------
OPERATING EXPENSES:
Research and development costs......................... 945 3,213 3,637
General and administrative............................. 156 1,312 2,886
Costs of contract research services.................... 78 330 1,446
Subcontractor costs.................................... 119 199 723
------ ------ ------
Total operating expenses....................... 1,298 5,054 8,692
------ ------ ------
OPERATING LOSS........................................... (45) (845) (549)
OTHER INCOME (EXPENSE):
Equity in loss in joint venture........................ -- -- (750)
Interest income........................................ -- 159 688
Interest expense....................................... (1) (26) (4)
------ ------ ------
NET LOSS................................................. $ (46) $ (712) $ (615)
====== ====== ======
NET LOSS PER SHARE....................................... $(0.01) $(0.09) $(0.07)
====== ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS OUTSTANDING................... 7,555 7,747 8,744
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 82
ILEX ONCOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES ISSUED AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- -------------------
SHARES $0.01 SHARES $0.01 SHARES $0.01
ISSUED AND PAR ISSUED AND PAR ISSUED AND PAR
OUTSTANDING VALUE OUTSTANDING VALUE OUTSTANDING VALUE
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, inception (October 1, 1994).................. -- $-- -- $-- -- $--
Net assets transferred and liabilities assumed........ -- -- -- -- -- --
Capital contribution by CTRC Research................. -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
--------- --- --------- --- --------- ---
BALANCES, December 31, 1994............................ -- -- -- -- -- --
Issuance of common stock.............................. -- -- -- -- -- --
Issuance of Series A convertible preferred stock...... 2,991,477 30 -- -- -- --
Private placement of Series B convertible preferred
stock for cash...................................... -- -- 3,101,448 31 -- --
Issuance cost of Series B convertible preferred
stock............................................... -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
--------- --- --------- --- --------- ---
BALANCES, December 31, 1995............................ 2,991,477 30 3,101,448 31 -- --
Private placement of Series C convertible preferred
stock for cash...................................... -- -- -- -- 1,309,424 13
Private placement of Series D convertible preferred
stock for cash...................................... -- -- -- -- -- --
Private placement of Series E convertible preferred
stock for cash...................................... -- -- -- -- -- --
Issuance cost of convertible preferred stock.......... -- -- -- -- -- --
Payments received on receivables on sale of common
stock............................................... -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
--------- --- --------- --- --------- ---
BALANCES, December 31, 1996............................ 2,991,477 $30 3,101,448 $31 1,309,424 $13
========= === ========= === ========= ===
<CAPTION>
SERIES D SERIES E
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- -------------------
SHARES $0.01 SHARES $0.01 SHARES $0.01
ISSUED AND PAR ISSUED AND PAR ISSUED AND PAR
OUTSTANDING VALUE OUTSTANDING VALUE OUTSTANDING VALUE
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, inception (October 1, 1994).................. -- $-- -- $-- -- $--
Net assets transferred and liabilities assumed........ -- -- -- -- 58 --
Capital contribution by CTRC Research................. -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
------- --- ------- --- --------- ---
BALANCES, December 31, 1994............................ -- -- -- -- 58 --
Issuance of common stock.............................. -- -- -- -- 1,187,481 12
Issuance of Series A convertible preferred stock...... -- -- -- -- -- --
Private placement of Series B convertible preferred
stock for cash...................................... -- -- -- -- -- --
Issuance cost of Series B convertible preferred
stock............................................... -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
------- --- ------- --- --------- ---
BALANCES, December 31, 1995............................ -- -- -- -- 1,187,539 12
Private placement of Series C convertible preferred
stock for cash...................................... -- -- -- -- -- --
Private placement of Series D convertible preferred
stock for cash...................................... 113,953 1 -- -- -- --
Private placement of Series E convertible preferred
stock for cash...................................... -- -- 475,753 5 -- --
Issuance cost of convertible preferred stock.......... -- -- -- -- -- --
Payments received on receivables on sale of common
stock............................................... -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
------- --- ------- --- --------- ---
BALANCES, December 31, 1996............................ 113,953 $ 1 475,753 $ 5 1,187,539 $12
======= === ======= === ========= ===
<CAPTION>
RECEIVABLES
ADDITIONAL ON SALE
PAID-IN OF COMMON ACCUMULATED
CAPITAL STOCK DEFICIT TOTAL
---------- ----------- ----------- -------
<S> <C> <C> <C> <C>
BALANCES, inception (October 1, 1994).................. $ -- $ -- $ -- $ --
Net assets transferred and liabilities assumed........ (22) -- -- (22)
Capital contribution by CTRC Research................. 11 -- -- 11
Net loss.............................................. -- -- (46) (46)
------- ----- ------- -------
BALANCES, December 31, 1994............................ (11) -- (46) (57)
Issuance of common stock.............................. 195 (136) -- 71
Issuance of Series A convertible preferred stock...... (30) -- -- --
Private placement of Series B convertible preferred
stock for cash...................................... 10,834 -- -- 10,865
Issuance cost of Series B convertible preferred
stock............................................... (656) -- -- (656)
Net loss.............................................. -- -- (712) (712)
------- ----- ------- -------
BALANCES, December 31, 1995............................ 10,332 (136) (758) 9,511
Private placement of Series C convertible preferred
stock for cash...................................... 9,987 -- -- 10,000
Private placement of Series D convertible preferred
stock for cash...................................... 999 -- -- 1,000
Private placement of Series E convertible preferred
stock for cash...................................... 4,995 -- -- 5,000
Issuance cost of convertible preferred stock.......... (95) -- -- (95)
Payments received on receivables on sale of common
stock............................................... -- 25 -- 25
Net loss.............................................. -- -- (615) (615)
------- ----- ------- -------
BALANCES, December 31, 1996............................ $26,218 $(111) $(1,373) $24,826
======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 83
ILEX ONCOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1,
1994) YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -------------------
1994 1995 1996
------------ ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (46) $ (712) $ (615)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities --
Provision for uncollectible receivables................. -- 123 --
Depreciation and amortization........................... 2 25 105
Equity in loss in joint venture in excess of
distributions......................................... -- -- 750
Change in assets and liabilities --
(Increase) decrease in assets --
Accounts receivable................................ (1,015) 172 (1,432)
Prepaid expenses and other......................... (7) (387) (653)
Increase (decrease) in liabilities --
Accounts payable................................... 380 7 240
Accrued liabilities................................ 577 269 281
Deferred revenue................................... 67 93 360
Other long-term liabilities........................ -- -- 226
------- ------- --------
Net cash provided by (used in) operating activities....... (42) (410) (738)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities........................ -- -- (19,197)
Maturities of marketable securities....................... -- -- 1,250
Purchase of property and equipment........................ (40) (468) (539)
Investment in joint venture............................... -- -- (1,000)
------- ------- --------
Net cash used in investing activities................... (40) (468) (19,486)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash......................... -- 66 --
Repayments of receivables on sale of common stock......... -- 5 25
Issuance of Series B preferred stock...................... -- 10,865 --
Issuance of Series C preferred stock...................... -- -- 10,000
Issuance of Series D preferred stock...................... -- -- 1,000
Issuance of Series E preferred stock...................... -- -- 5,000
Stock issuance costs paid................................. -- (656) (95)
Capital contribution by CTRC Research at inception........ 11 -- --
Advances from related party............................... 150 155 --
Repayment of advances from related party.................. -- -- (305)
------- ------- --------
Net cash provided by financing activities............... 161 10,435 15,625
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ 79 $ 9,557 $ (4,599)
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 79 9,636
------- ------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 79 $ 9,636 $ 5,037
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest................................................ $ 1 $ 20 $ 10
Income taxes............................................ -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 84
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION,
PER SHARE INFORMATION OR AS OTHERWISE INDICATED)
1. ORGANIZATION AND OPERATIONS:
ILEX Oncology, Inc. (the "Company"), formerly Biovensa, Inc., was
incorporated in December 1993 under the laws of the State of Delaware. The
Company was incorporated as a for-profit, wholly owned subsidiary of the CTRC
Research Foundation ("CTRC Research"), a nonprofit organization.
The Company is a drug development company focused exclusively on oncology.
The Company is focused primarily in the areas of identification, development,
manufacturing and regulatory approval of oncology compounds to develop cancer
therapeutics, build a chemoprevention product platform and serve as a
value-added provider of contract development services. In addition to its
proprietary product development programs, the Company offers contract research
services to both the pharmaceutical and biotechnology industries.
Currently, the Company has no products available for sale and expects to
have only one product available to be marketed in the near future. The Company's
proposed products are primarily in the development stage and will require
extensive clinical testing prior to submission of any regulatory application for
commercial use. As well, the Company has incurred net losses to date. The
Company has not generated any revenues from product sales to date, and there can
be no assurance that revenues from product sales will be achieved. The Company's
ability to achieve a profitable level of operations in the future will depend in
large part on its completing development of its compounds, obtaining regulatory
approvals for such compounds, commercializing these potential products through
marketing agreements with other companies or, if the Company chooses, marketing
such compounds independently, successfully manufacturing such compounds,
achieving market acceptance of such compounds and expanding its contract
research services business. There can be no assurance that the Company will ever
be successful in developing such compounds, obtaining such approvals, bringing
such compounds to market, developing sales, marketing or distribution
capabilities, manufacturing such products, generating market acceptance or
expanding its contract research services business.
The Company may require substantial additional funds to conduct research
and development, to develop further its potential pharmaceutical products, to
manufacture and market any pharmaceutical products that may be developed and to
expand its contract research services business. The Company expects its capital
and operating expenditures to increase substantially over the next several
years. The Company has no current sources of funding beyond the proceeds from
the initial public offering (IPO) (see Note 14), its collaborative agreements
with its strategic partners, its drug development service operations, existing
cash and cash equivalents and investments in marketable securities. The Company
believes that the estimated net proceeds of the IPO, its collaborative
agreements with strategic partners, its contract research services, existing
cash and cash equivalents and investments in marketable securities will satisfy
its cash requirements for the foreseeable future. There can be no assurance,
however, that additional funds will be available on acceptable terms, if at all.
Although it was incorporated in December 1993, the Company did not commence
operations until October 1, 1994, after CTRC Research's assignment to the
Company of certain rights and assets, including CTRC Research's advanced drug
development and manufacturing programs.
The Company changed its name to ILEX Oncology, Inc., on December 22, 1994.
Prior to 1996, the Company had been in the development stage.
F-7
<PAGE> 85
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Product Development -- Revenues from drug development studies are either
based on the time incurred on such studies or are recognized on a
percentage-of-completion basis. The Company is reimbursed for investigator costs
based on actual costs incurred or predetermined rates and out-of-pocket costs
incurred during the performance of the study. Revenues related to reimbursed
investigator costs are included in product development revenues and the related
expenses are included as a component of research and development expenses.
Revenues related to the milestone payments of the drug development studies are
recognized based on the completion of the milestone measurements.
Contract Research Services -- Revenues from contract research services are
related to both fixed price and hourly based customer contracts and are
recognized on a percentage-of-completion basis or as such services are
performed.
Licensing Fees -- Revenues from the signing of licensing agreements are
recognized upon the execution of the agreements as the Company has no future
obligations related to the signing of the license agreement and such fees are
non-refundable. Revenues from royalties are recognized in the period the Company
earns such royalties.
Property and Equipment
Property and equipment are reported at cost and depreciated over the
estimated useful lives of the individual assets using the straight-line method.
Leasehold improvements represent capitalized employee salaries related to
construction and other miscellaneous costs incurred to bring the leased cGMP
(current Good Manufacturing Practices) facility (Note 11) into use. Leasehold
improvements are amortized over the lesser of the life of the lease or the
useful life of the related property. Expenditures for maintenance and repairs
are charged to expense as incurred. The estimated lives used in computing
depreciation and amortization are as follows:
<TABLE>
<S> <C>
Office equipment............................................ 3 - 10 years
Lab equipment............................................... 5 - 10 years
Leasehold improvements...................................... 15 years
</TABLE>
Deferred Revenue
Deferred revenue represents advances for services not yet rendered under
contract services and billings in excess of revenue recognized.
Investments in Marketable Securities
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments in
debt securities and marketable equity securities be designated as trading, held
to maturity or available for sale. At December 31, 1996, marketable debt
securities have been categorized as held to maturity and are stated at amortized
cost, as these securities have staggered maturity dates, and management of the
Company does not intend to liquidate these securities before maturity.
Marketable debt securities with an original maturity of less than one year are
classified in the balance sheet as current assets, while securities with a
maturity of greater than one year are classified as long-term assets.
F-8
<PAGE> 86
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Investment in Joint Venture
The Company holds a 50 percent interest in a joint venture for the purpose
of research collaboration endeavors. The Company accounts for its investment in
joint ventures using the equity method of accounting.
Credit Risk and Major Customer
The Company places its excess temporary cash and cash equivalents in a
money market account with a high quality financial institution. At times, such
amounts may be in excess of the FDIC insurance limit. The Company's accounts
receivable are from pharmaceutical and biotechnology companies. Based on the
Company's evaluation of the collectibility of these accounts receivable, an
allowance for doubtful accounts of $123 and $123 was necessary as of December
31, 1995 and 1996, respectively. The remaining accounts receivable are from
pharmaceutical and biotechnology companies that are financially strong and,
thus, the Company believes the exposure to credit risk related to the remaining
accounts receivable is minimal.
From inception through December 31, 1994, and for the years ended December
31, 1995 and 1996, 85 percent, 84 percent, and 40 percent, respectively, of
revenue arose from one customer.
Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Income Taxes
Deferred tax liabilities and assets are recorded based on enacted income
tax rates that are in effect in the period in which the deferred tax liability
or asset is expected to be settled or realized. A change in the tax laws or
rates results in adjustments to the deferred taxes in the period in which the
tax laws or rates are changed.
The Company has incurred losses since inception for both book and tax
purposes as of December 31, 1996. Accordingly, no income taxes have been
provided for in the consolidated financial statements for the period from
inception to December 31, 1994, and for the years ended December 31, 1995 and
1996.
Statements of Cash Flows
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents.
F-9
<PAGE> 87
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Noncash financing and investing activities for the period from October 1,
1994, to December 31, 1994, included CTRC Research's assignment of certain
rights and assets to the Company and the Company's assumption of certain
liabilities related to the issuance of the Series A convertible preferred shares
(See Note 6). In connection with this assignment in 1994, the Company recorded
the following balances as reflected on the books and records of CTRC Research:
<TABLE>
<S> <C>
Office equipment............................................ $ 27
Accrued subcontractor costs................................. 6
Accrued liabilities......................................... (44)
Deferred revenue............................................ (11)
----
Contributed deficit......................................... $(22)
====
</TABLE>
Noncash financing and investing activities for the year ended December 31,
1995, included the sale of $208 of common stock in exchange for a note
receivable for the same amount. (See Note 6.)
Net Loss Per Share
Net loss per share has been computed using the weighted average number of
shares of common stock outstanding during the period, as adjusted for the
1.75161005882673 for 1 reverse stock split discussed in Note 14. Common
equivalent shares attributable to convertible preferred stock, stock options and
warrants are excluded from the computation as their effect is antidilutive.
However, convertible preferred stock, common stock, stock options and warrants
issued prior to the anticipated IPO with a price below the estimated IPO price
have been included as outstanding for all periods presented.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. This
statement provides accounting and reporting standards for, among other things,
the transfer and servicing of financial assets, such as factoring receivables
with recourse. This statement is effective for transfers and servicing of
financial assets occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The Company
believes the adoption of this statement will not have an impact on the financial
condition or results of operations of the Company.
Reclassifications
Certain reclassifications have been made to prior year balances to conform
to current year financial statement presentation.
3. INVESTMENTS IN MARKETABLE SECURITIES:
Marketable securities due within one year and classified as current assets
at December 31, 1996, include the following:
<TABLE>
<CAPTION>
COST FAIR VALUE
------ ----------
<S> <C> <C>
U.S. Treasury securities.................................... $5,768 $5,770
====== ======
</TABLE>
F-10
<PAGE> 88
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Marketable securities due after one year through five years and classified
as noncurrent assets at December 31, 1996, include the following:
<TABLE>
<CAPTION>
COST FAIR VALUE
------- ----------
<S> <C> <C>
U.S. Treasury securities.................................... $12,179 $12,146
======= =======
</TABLE>
Gross unrealized holding gains and losses at December 31, 1996, were
approximately $35 and $65, respectively.
4. INVESTMENT IN JOINT VENTURE:
In December 1996, the Company entered into an agreement with an entity for
an equally owned joint venture for research collaboration endeavors. The Company
provided initial funding of $1,000 to the joint venture.
5. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("FAS 107"), was issued.
FAS 107 requires disclosures of the fair value of financial instruments. The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments held by the Company.
Current assets and current liabilities -- The carrying value approximates
fair value due to the short maturity of these items.
Investment in marketable securities -- The fair value of marketable
securities is based on currently published market quotations.
6. STOCKHOLDERS' EQUITY:
In April 1995, certain consultants and employees of the Company exercised
rights to purchase, in aggregate, 1,187,481 shares of common stock pursuant to
their respective consulting or employment agreements for $208. A portion of this
amount was paid in cash and a portion was financed by the Company. At December
31, 1996, notes receivable from the consultants and employees related to these
financings equaled $111. The notes receivable bear interest at an annual rate of
8 percent and mature in March 1999. Payments of principal and interest are due
quarterly with the remaining balance due at maturity. The notes receivable are
presented as a deduction from stockholders' equity for financial reporting
purposes.
Also in April 1995, the Company issued 2,991,477 shares of Series A
convertible preferred stock in exchange for certain rights and net assets
previously transferred to the Company as capital contributions by CTRC Research.
The rights and net assets previously transferred to the Company were recorded at
the carrying value of its predecessor as of the date of the transfer.
The terms of the Series A convertible preferred stock provide for
cumulative annual dividends of approximately $0.26 per share that are payable at
the discretion of the board of directors, a liquidation preference of
approximately $3.24 per share plus accrued but unpaid dividends, an option to
convert into common stock on a one-share to one-share basis, automatic
conversion to common stock on a one-share to one-share basis upon the effective
completion of the Company's IPO (see Note 14), and various protective provisions
limiting, among other things, issuance of senior equity securities, any merger
or sale of substantially all the assets of the Company and restrictions on the
declaration and payment of dividends.
F-11
<PAGE> 89
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, the Company effected a private placement of 3,101,448
shares of Series B convertible preferred stock. The terms of the Series B
convertible preferred stock provide for cumulative annual dividends of
approximately $0.28 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $3.50 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
14), and various protective provisions comparable to those of the Series A
convertible preferred stock.
In July 1996, the Company effected a private placement of 1,309,424 shares
of Series C convertible preferred stock. The terms of the Series C convertible
preferred stock provide for cumulative annual dividends of approximately $0.61
per share that are payable at the discretion of the board of directors, a
liquidation preference of approximately $7.64 per share plus accrued but unpaid
dividends, an option to convert common stock on a one-share to one-share basis,
automatic conversion to common stock on a one-share to one-share basis upon the
effective completion of the Company's IPO (see Note 14), and various protective
provisions comparable to these of the Series A and Series B convertible
preferred stock.
In November 1996, the Company effected a private placement of 113,953
shares of Series D convertible preferred stock. The terms of the Series D
convertible preferred stock provide for cumulative annual dividends of
approximately $0.72 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $8.78 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
14), and various protective provisions comparable to those of the Series A,
Series B and Series C convertible preferred stock. The Company entered into an
agreement with the holder of the Series D convertible preferred stock in October
1996, related to the development of one of its oncology compounds.
In December 1996, the Company effected a private placement of 475,753
shares of Series E convertible preferred stock. The terms of the Series E
convertible preferred stock provide for cumulative annual dividends of
approximately $0.84 per share that are payable at the discretion of the board of
directors, a liquidation preference of approximately $10.51 per share plus
accrued but unpaid dividends, an option to convert common stock on a one-share
to one-share basis, automatic conversion to common stock on a one-share to
one-share basis upon the effective completion of the Company's IPO (see Note
14), and various protective provisions comparable to those of the Series A,
Series B, Series C and Series D convertible preferred stock. In connection with
the placement of the Series E convertible preferred stock, the Company entered
into an agreement with an entity for an equally owned joint venture for research
collaboration endeavors. (See Note 4.)
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS:
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), was issued. FAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. 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 of the award, which
is usually the vesting period. However, FAS 123 also allows entities to continue
to measure compensation costs for employee stock compensation plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted
FAS 123 effective January 1, 1996, and
F-12
<PAGE> 90
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has elected to remain with the accounting prescribed by APB 25. The Company has
made the required disclosures prescribed by FAS 123.
During 1995, the Company adopted a stock option plan (the "Plan"). Under
the Plan, incentive stock options may be granted to key employees and
consultants of the Company as approved by a committee of the Company's board of
directors. The stock options granted as part of the consulting and employee
agreements described in Note 8 are covered by the Plan. Originally, the Company
had reserved 570,904 shares of common stock for issuance in accordance with the
Plan. In October 1996, the Company increased the number of authorized shares of
common stock reserved for issuance under the Plan to 1,141,807. Stock options
vest pursuant to the individual stock option agreements, usually 25 percent per
year beginning one year from the date of grant, with unexercised options
expiring 10 years from the date of grant.
In October 1996, the Company adopted a nonemployee directors' stock option
plan (the Directors' Plan). Under the Directors' Plan, each nonemployee director
is granted a one-time option equaling 17,128 shares of common stock. In October
and December 1996, the nonemployee directors were granted 119,896 options
exercisable at approximately $7.01 per share. These options vest at 1/48 per
month, with unexercised options expiring 10 years from the date of grant.
A summary of the status of the Company's fixed stock option plans for the
years ended December 31, 1995 and 1996, and changes during the periods on those
dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of period........ -- $ -- 337,490 $2.41
Granted................................. 337,490 2.41 361,982 5.91
Exercised............................... -- -- -- --
Forfeited............................... -- -- (10,792) 4.75
------- ----- ------- -----
Outstanding, end of period.............. 337,490 $2.41 688,680 $4.21
======= ===== ======= =====
Options exercisable at end of period.... 41,981 $1.31 131,393 $2.28
======= ===== ======= =====
Weighted average fair value of options
granted during the period............. $1.09 $3.02
===== =====
</TABLE>
The following table summarizes the information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED -------------------------
AVERAGE NUMBER WEIGHTED
REMAINING WEIGHTED EXERCISABLE AT AVERAGE
NUMBER CONTRACTUAL AVERAGE DECEMBER 31, EXERCISE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE 1996 PRICE
--------------- ----------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.18...................... 110,826 8.5 years $0.18 55,413 $0.18
$3.50...................... 302,720 9.0 years $3.50 69,200 $3.50
$7.01...................... 275,134 9.8 years $7.01 6,780 $7.01
------- -------
688,680 9.2 years $3.26 131,393 $2.28
======= =======
</TABLE>
Because the Company has elected to remain with the accounting prescribed by
APB 25, no compensation cost has been recognized for its fixed stock option
plan. Had compensation cost for the
F-13
<PAGE> 91
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's stock-based compensation plans been determined on the fair value of
the grant dates for awards under those plans consistent with the method of FAS
123, the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net loss
As reported......................................... $ (712) $ (615)
------ ------
Pro forma........................................... $ (725) $ (787)
------ ------
Loss per share
As reported......................................... $(0.09) $(0.07)
------ ------
Pro forma........................................... $(0.09) $(0.09)
------ ------
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the minimum value method as the Company was a nonpublic entity when such
options were granted. This value is the current stock price less the present
value of the exercise price for a stock that does not pay dividends. The
assumptions used for the minimum value computation for the years ended December
31, 1995 and 1996, are: the risk free interest rates are 6.2 percent and 6.5
percent, respectively; the exercise price is equal to the fair market value of
the underlying common stock at the grant date; the expected life of the option
is the term to expiration; and the common stock will pay no dividends. No
disclosures are presented for the period ended December 31, 1994, as no options
were issued at that date.
In connection with the private placement of Series B convertible preferred
stock, the Company issued a warrant for the purchase of 97,054 shares of common
stock at approximately $3.50 per share to the securities firm that assisted in
the private placement of Series B convertible preferred stock. The Company's
management determined the value of the warrant issued was immaterial to the
financial position and results of operations of the Company. The value of the
warrants was based on the exercise price of the warrant and the fair value of
the Company's common stock at the date of issuance as well as the terms of the
warrant issued. The warrant may be exercised in whole at any time or in part
from time to time, prior to its expiration in September 2000.
In connection with the private placement of Series C convertible preferred
stock, the Company issued 327,367 warrants for the purchase of common stock at
approximately $8.76 per share to the Series C convertible preferred
stockholders. The value of the warrants issued were de minimus based on the
exercise price of the warrants and the fair value of the Company's common stock
on the date the warrants were issued. As such, no amount of the Series C
convertible preferred stock was attributed to the warrants. The Company's
management determined the value of the warrant issued was immaterial to the
financial position and results of operations of the Company. The method the
Company used to determine the value of the warrant was to make an assessment of
the fair value of the warrant by: (1) comparing the exercise price of the
warrant to the fair value of the Company's common stock at the date the warrant
was issued (the Company determined that the exercise price of the warrant was in
excess of the fair value of the common stock at the date of issuance); (2)
reviewing the terms of the warrant and noting that the warrants were
non-transferable, they lacked liquidity as there was no current market for
trading such warrants; and (3) the common stock underlying the warrants lacked
liquidity as there was no current market for trading such stock. Based on these
assumptions, the Company believed the value of the warrant was minimal as
compared to the price paid for the Convertible Preferred Series C Stock. The
warrants may be exercised in whole at any time or in part from time to time,
prior to their expiration in July 2001.
F-14
<PAGE> 92
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1996, the Company entered into a consultation agreement with a firm
for services related to the Company's proposed IPO (see Note 14). In connection
with this agreement, the Company issued to the firm a warrant for the purchase
of 28,546 shares of the Company's common stock at approximately $8.76 per share.
The warrant may be exercised in whole or in part from time to time, prior to its
expiration in July 2001. The Company used the same methodology and assumptions
as described for stock options accounted for under SFAS 123 as noted above, for
determining the fair value of the warrant issued. The value of the warrant is
immaterial to the financial position and results of operations of the Company
and will be classified as issuance costs.
8. RELATED-PARTY TRANSACTIONS:
Pursuant to a services agreement, CTRC Research has agreed to perform
certain administrative and technical support services for the Company. For the
period from October 1, 1994, through December 31, 1994, and for the years ended
December 31, 1995 and 1996, the Company paid CTRC Research approximately $143,
$313, and $143, respectively, for these services and reimbursement of salaries
and benefits. As described in Note 11, the Company has lease agreements with
CTRC Research for office space, a lab and the cGMP facility. For the period from
inception through December 31, 1994, and for the years ended December 31, 1995
and 1996, the Company paid CTRC Research approximately $5, $49, and $34,
respectively, related to these lease agreements. At December 31, 1995 and 1996,
the Company had payables to CTRC Research amounting to $85 and $16,
respectively, related to the aforementioned services and lease agreements.
In November 1994, CTRC Research granted the Company a revolving line of
credit of $500 bearing interest at the prime rate plus 1/2 of 1 percent. The
line of credit provided the Company with sufficient working capital to initiate
operations. At December 31, 1995, the outstanding balance and the interest rate
on this line of credit were $305 and 9 percent, respectively. In February 1996,
the Company repaid the entire outstanding balance on the line of credit. In
1996, the Company and CTRC Research terminated the line of credit.
In March 1995, the Company entered into a subordinated option agreement
with CTRC Research. The agreement gives the Company the subordinated option to
acquire licenses or certain marketable rights, as defined in the agreement,
owned by CTRC Research. The subordinated option for any particular marketable
right is exercisable only after a third party, with which CTRC Research has
contracted, elects not to exercise its primary option on the same marketable
right. The subordinated option agreement expires in fiscal year 2000.
Subcontractors provide the Company with consulting services and preclinical
and clinical testing related to certain of its contracts. Such costs may be
included in either research and development costs or subcontractor costs in the
accompanying financial statements. During the period from October 1, 1994,
through December 31, 1994, and for the years ended December 31, 1995 and 1996,
the Company incurred the following expenses for subcontracting costs:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
CTRC Research............................................. $ 42 $140 $ 371
Director of the Company................................... 36 136 227
Stockholders.............................................. -- 142 433
Company owned by officer/director
of the Company.......................................... 111 42 378
---- ---- ------
$189 $460 $1,409
==== ==== ======
</TABLE>
F-15
<PAGE> 93
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1996, the following subcontractor costs were
payable to related parties:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
CTRC Research............................................... $ 5 $ 91
Director of the Company..................................... 34 60
Stockholders................................................ 24 92
Company owned by officer/director of the Company............ 21 102
--- ----
$84 $345
=== ====
</TABLE>
During 1995, the Company entered into consulting services agreements with
two individuals. Both consultants have been designated as co-chairmen of the
Company's Scientific Advisory Board and one of the consultants is also a
director of the Company. Under the terms of the agreements, the consultants are
entitled to receive annual retainers and fixed daily fees for full days of
service or hourly fees for partial days of service. In addition, the consultants
were granted the right to purchase common stock as stipulated in the agreements.
As discussed in Note 6, the consultants exercised this right and financed a
portion of the common stock purchases with a promissory note to the Company.
Each consultant was also granted stock options to acquire 28,546 shares of
common stock. (See Note 7.) The consulting services agreements expire during
fiscal year 1998.
The Company maintains employment agreements with four employees. The terms
of the four agreements provide for base salaries and benefits. Under two of
these agreements, the employees were granted the right to purchase common stock.
As discussed in Note 6, the two employees exercised this right and financed a
portion of the common stock purchases with a promissory note to the Company.
Additionally, each of these two employees was granted stock options to acquire
28,546 shares of common stock. (See Note 7.) Two of these agreements expire in
1998, and the other two may be terminated upon 30 days' notice.
In December 1996, the Company sold the license for an oncology compound to
the joint venture in which the Company owns a 50 percent interest. The Company
recognized license fee revenue of $1,500 from the sale of this license.
9. LICENSING AGREEMENTS:
In 1994, the Company obtained two licensing agreements for oncology
compounds from CTRC Research in conjunction with the assignment described in
Note 1. During 1995 and 1996, the Company entered into six additional licensing
agreements. All of the licensing agreements grant the Company the right to
develop and market the oncology compounds covered by such agreements and to
license the rights to such compounds to other third parties.
Under the terms of the agreements, the Company is required to pay upfront
fees and/or annual fees, as defined in the agreements. For the period from
October 1, 1994, through December 31, 1996, the Company paid upfront fees and/or
annual fees totaling $615. The Company's future commitment under these
agreements is $150,000 due in March of 1997. In addition, the Company must also
pay royalties upon commercialization of the compounds. Under certain agreements,
the Company is required to make milestone payments, as defined in the
agreements. At December 31, 1996, the Company had not attained any of the events
that require a milestone payment.
Pursuant to an agreement with Sanofi, the Company granted Sanofi a
worldwide option to license and use the Company's information relating to two of
its oncology compounds for the development and commercialization of such
compounds. In connection with the agreement, Sanofi agreed to reimburse the
Company for costs incurred in the development of the compounds. In addition, the
Company is entitled to certain milestone payments and royalties on net sales of
the compounds.
F-16
<PAGE> 94
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In December 1994, Sanofi notified the Company of its decision to terminate
support for the development of one of the oncology compounds. In 1995, Sanofi
funded the wind-down effort and paid for certain future obligations the Company
incurred with respect to this compound. Such amounts paid to the Company were
not material to the Company's financial position or results of operations. In
October 1996, the Company reached an agreement with Janssen Pharmaceutica
("Janssen"), an affiliate of Johnson & Johnson Development Corporation, whereby
the Company granted Janssen an option to license and use the Company's
information relating to this compound for its development and commercialization.
In connection with the agreement, Janssen agreed to reimburse the Company for
costs incurred in the development of the compound not to exceed a predetermined
amount. In addition, the Company is entitled to certain milestone payments and
royalties based on various levels of manufacturing costs of marketable product,
as defined in the agreement.
10. EMPLOYEE BENEFITS:
The Company has an employee benefit plan and trust for certain employees
who meet specified length of service requirements. The plan qualifies under
Section 401(k) of the Internal Revenue Code as a salary reduction plan.
Employees may elect to contribute a certain percentage of their salary on a
before-tax basis. Employees are immediately fully vested in their contributions
and begin vesting in employer contributions after one year of service, as
defined in the plan document. The plan is a defined contribution plan with
employer contributions made solely at the discretion of the board of directors.
From inception through December 31, 1996, no employer contributions had been
made by the Company. During the period from inception through December 31, 1994,
and for the years ended December 31, 1995 and 1996, administrative expenses
incurred by the Company related to this plan were not significant.
In December 1990, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS
106"), was issued. FAS 106 requires employers to recognize the obligation to
provide postretirement benefits to employees during the periods that employees
render service to earn the benefit. Previously, generally accepted accounting
principles provided that employers could report such expenses in the period the
related costs were paid. The Company does not provide such benefits to its
employees, thus, FAS 106 has no effect on the results of operations of the
Company.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("FAS 112"), was issued. FAS
112 requires employers to recognize the obligation to provide benefits to former
or inactive employees after employment but before retirement, if certain
conditions are met. The Company does not provide such benefits to its employees,
thus, FAS 112 has no effect on the results of operations of the Company.
11. OPERATING LEASES:
The Company has several noncancelable operating leases for office space,
equipment and the cGMP facility. As described in Note 8, one of the leases is
with CTRC Research, a related party. Rent expense associated with these leases
was approximately $15, $77, and $572 for the period from inception to December
31, 1994, and for the years ended December 31, 1995 and 1996, respectively.
During 1995, the Company entered into a lease agreement with CTRC Research
and the Texas Research and Technology Foundation ("TRTF") for the use of the
cGMP facility. The cGMP facility will be utilized for the manufacturing of
oncology drugs. Under the terms of the lease agreement, which expires in 2010,
the Company is required to make monthly payments commencing in 1998. The
payments will be based on a fixed monthly rate plus a percentage of gross sales,
as defined in the agreement.
F-17
<PAGE> 95
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In February 1996, the Company entered into a noncancelable lease agreement
for equipment to be used in the cGMP facility. The lease requires the Company to
make monthly payments of approximately $16 and expires in 2001. Under the terms
of the agreement, the Company is required to maintain $825 in the form of U.S.
Treasury notes as collateral for the equipment. The U.S. Treasury notes
collateral requirement will be reduced, as defined in the lease agreement,
through the life of the lease.
At December 31, 1996, future minimum lease payments under all operating
leases are as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER TOTAL
------------- ------ ------
<S> <C> <C> <C>
Year ending December 31 --
1997............................................ $ 202 $ 508 $ 710
1998............................................ 120 651 771
1999............................................ 120 665 785
2000............................................ 120 678 798
2001............................................ 120 496 616
Thereafter...................................... 1,070 1,070 2,140
</TABLE>
12. INCOME TAXES:
As of December 31, 1996, the Company had net operating loss carryforwards
of approximately $1,114 for U.S. federal income tax purposes which are available
to reduce future taxable income of which $35, $578 and $501 will expire in 2009,
2010 and 2011, respectively. The tax effects of significant temporary
differences representing deferred income tax assets and liabilities are as
follows as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforward......................... $ 208 $ 379
Expense provisions...................................... 53 90
Other temporary differences, net........................ (11) (13)
Valuation allowance..................................... (250) (456)
----- -----
Total deferred income tax assets.............. $ -- $ --
===== =====
</TABLE>
The valuation allowance as of December 31, 1995 and 1996, represents tax
benefits, primarily certain future net operating loss carryforwards, which were
not realizable at that date.
The Company's income tax benefit at the statutory federal income tax rate
for the period from Inception to December 31, 1994, and for the years ended
December 31, 1995 and 1996, differs from the actual income tax benefit of $0 for
those periods, as the Company has provided a valuation reserve equal to the
income tax benefit amount computed at the statutory federal tax rate.
The availability of the NOL carryforward to reduce U.S. federal taxable
income is subject to various limitations under the Internal Revenue Code of 1986
(the "Code"), as amended, in the event of an ownership change as defined in
Section 382 of the Code. The Company experienced a change in ownership interest
in excess of 50 percent as defined under the Code upon the consummation of its
offering of Series B convertible preferred stock. The Company does not believe
that this change in ownership significantly impacts the Company's ability to
utilize its net operating loss and tax credit carryforwards as of December 31,
1996, because the amount of the annual limitation under the Code of such
carryforwards is in excess of the total amount of net operating loss and tax
credit carryforwards.
F-18
<PAGE> 96
ILEX ONCOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES:
CTRC Research is attempting to obtain a private letter ruling from the U.S.
Internal Revenue Service ("IRS") to confirm certain tax implications to CTRC
Research associated with the formation of the Company by CTRC Research. A
provision in the employment and consulting agreements entered into between the
Company and certain individuals requires the Company and such individuals to
renegotiate the terms of such agreements in the event that CTRC Research is
unable to obtain a favorable private letter ruling from the IRS. If the Company
is unable to successfully negotiate the terms of such agreements, they
automatically terminate. The Company's management does not believe that the
ultimate outcome of the private letter ruling, or any impact it may have on
employment agreements between the Company and certain individuals, will have a
material adverse effect on the financial condition of the Company.
14. SECURITIES OFFERING:
The Company has filed a Registration Statement with the Securities and
Exchange Commission for an underwritten offering of 2,500,000 shares of common
stock (the "Offering"). In connection with the Offering, the board of directors
approved a 1.75161005882673 for 1 reverse stock split of the Company's common
stock effective upon the effective date of the Offering. All common stock,
convertible preferred stock, options, warrants and per share information
included in the accompanying financial statements has been adjusted to give
retroactive effect to the split. The Company expects to use the net proceeds of
the offering to fund its research and development activities, which may include
the formation of joint ventures and other collaborative relationships. In
addition, the Company intends to use some of the proceeds of this offering to
expand its contract research services through internal growth, including the
acquisition of information technology and expansion of other strategic
collaborations. The Company intends to use the remainder of the proceeds of this
offering for working capital and general corporate purposes. Pending the
aforementioned uses, the Company intends to invest the net proceeds of this
offering in government securities and investment-grade, interest-bearing
instruments.
F-19
<PAGE> 97
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Financial Data............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 23
Business............................ 28
Management.......................... 56
Certain Transactions................ 65
Principal Stockholders.............. 67
Description of Capital Stock........ 69
Shares Eligible for Future Sale..... 72
Underwriting........................ 73
Legal Matters....................... 74
Experts............................. 74
Additional Information.............. 75
Index to Financial Statements....... F-1
</TABLE>
---------------------
UNTIL MARCH , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECT- ING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBU- TION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGA- TION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
ILEX ONCOLOGY, INC.
COMMON STOCK
($.01 PAR VALUE)
LOGO
SALOMON BROTHERS INC
COWEN & COMPANY
SMITH BARNEY INC.
PROSPECTUS
DATED , 1997
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions).
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 11,326
NASDAQ National Market System application fee............... 46,700
NASD filing fee............................................. 4,238
Legal fees and expenses..................................... 190,000
Transfer Agent and Registrar fee and expenses............... 10,000
Accounting fees and expenses................................ 160,000
Blue sky fees and expenses (including counsel fees)......... 5,000
Printing costs.............................................. 150,000
Miscellaneous............................................... 22,736
--------
Total............................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. A
Delaware corporation may indemnify any person under such Section in connection
with a proceeding by or in the right of the corporation to procure judgment in
its favor, as provided in the preceding sentence, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action, except that no indemnification shall be
made in respect thereof unless, and then only to the extent that, a court of
competent jurisdiction shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper. A person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
any person who was successful on the merits or otherwise in defense of any
action, suit or proceeding or in defense of any claim, issue or matter in any
proceeding, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. A Delaware corporation may
pay for the expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding in advance of the final disposition upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages
II-1
<PAGE> 99
for a breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases, or (iv) for any
transaction from which the director derived an improper personal benefit.
Article 10 of the Company's Certificate of Incorporation, as amended, eliminates
the liability of directors to the fullest extent permitted by Section 102(b)(7)
of the DGCL. The DGCL permits the purchase of insurance on behalf of directors
and officers against any liability asserted against directors and officers and
incurred by such persons in such capacity, or arising out of their status as
such, whether or not the corporation would have the power to indemnify directors
and officers against such liability.
The Registrant also has a policy insuring its directors and officers
against certain liabilities, including liabilities under the Securities Act.
Section 8 of the Underwriting Agreement (contained in Exhibit 1.1 hereto)
provides for indemnification by the Underwriters of directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, under certain circumstances.
See "Item 17. Undertakings" for a description of the Securities and
Exchange Commission's position regarding such indemnification provisions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act of 1933, as amended (the
"Act"). All share numbers have been adjusted to reflect a 1-for-1.75161005882673
reverse stock split that will occur before the closing of this offering.
The Company was incorporated in December 1993, and January 1994, issued 58
shares of Common Stock to CTRC Research Foundation in exchange for a $1,000
capital contribution.
In November 1994 and January and March 1995, the Company contracted to sell
1,187,481 shares at $0.18 per share of Common Stock to the founders of the
Company, Richard L. Love, Daniel D. Von Hoff, Alexander L. Weis and Charles A.
Coltman. The shares were subsequently issued in early 1995. Each of these sales
was made pursuant to Section 4(2) of the Securities Act.
In April 1995, the Company issued to CTRC Research Foundation and the
University of Texas Health Sciences Center at San Antonio 2,991,477 of its
Series A Convertible Preferred Stock in exchange for certain assets and rights
transferred to the Company as capital contributions, pursuant to Section 4(2) of
the Securities Act.
In September 1995, the Company issued 3,101,448 shares of Series B
Convertible Preferred Stock to various sophisticated private investors, pursuant
to Section 4(2) of the Securities Act and Regulation D thereunder. The aggregate
purchase price for the Series B Convertible Preferred Stock was $10,865,000.
In July 1996, the Company issued to Perseus Pharmaceuticals, L.L.C., Drug
Royalty Corporation, Inc. and certain holders of the Company's Series B
Convertible Preferred Stock, 1,309,424 shares of its Series C Convertible
Preferred Stock and warrants (the "Series C Warrants") for the purchase of
327,367 shares of Common Stock for an aggregate purchase price of $10 million,
pursuant to Section 4(2) of the Securities Act and Regulation D thereunder.
The Series C Warrants entitle the holder, upon exercise thereof, to
purchase from the Company shares of its Common Stock at a price per share of
$8.76. The holders of the Series C Warrants are provided certain registration
rights that arise upon the Company's proposal to register, subsequent to its
initial public offering, the Common Stock for sale to the public under the
Securities Act. The Series C Warrants are also subject to certain adjustments
which may be made to the number of shares purchasable resulting from stock
splits, issuance of additional Common Stock, issuance of additional warrants or
other rights or issuance of securities convertible into Common Stock by the
Company. The
II-2
<PAGE> 100
Company has also issued warrants to Vector Securities International, Inc. and
Chestnut Partners, Inc. for the purchase of 97,054 and 28,546 shares of Common
Stock, respectively. The warrants issued to Vector Securities International,
Inc. were issued in September 1995 in consideration of services rendered in
connection with the offering of the Series B Convertible Preferred Stock and
have an exercise price of $3.50 per share. The warrant issued to Chestnut
Partners, Inc. was issued in July 1996 in consideration of services rendered in
connection with this offering on substantially the same terms as the Series C
Warrant. See "Description of Capital Stock -- Warrants."
In November 1996, the Company issued to Johnson & Johnson Development
Corporation, pursuant to Section 4(2) of the Securities Act and Regulation D
thereunder, 113,953 shares of Series D Convertible Preferred Stock, for an
aggregate purchase price of $1.0 million.
In December 1996, the Company issued to MPI Enterprises, L.L.C., pursuant
to Section 4(2) of the Securities Act and Regulation D thereunder, 475,753
shares of Series E Convertible Preferred Stock, for an aggregate purchase price
of $5.0 million.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
3.1** -- Amended and Restated Certificate of Incorporation of the
Company
3.2** -- Bylaws of the Company, as amended
4.1 -- Specimen of certificate representing Common Stock, $.01
par value, of the Company
5.1 -- Opinion of Fulbright & Jaworski L.L.P. regarding legality
of the Common Stock being registered
10.1** -- Revolving Promissory Note dated November 18, 1994, in the
original principal amount of $500,000, payable by the
Company to CTRC Research Foundation
10.2** -- Loan Agreement dated November 18, 1994 between the
Company and CTRC Research Foundation
10.3** -- Letter Agreement dated December 4, 1996 between the
Company and CTRC Research Foundation terminating the line
of credit
10.4** -- Assignment of Rights and Assets dated November 1994 from
CTRC Research Foundation to the Company
10.5** -- First Amendment to Assignment of Rights and Assets dated
September 1995 between ILEX Oncology, Inc. and CTRC
Research Foundation
10.6** -- Services Agreement dated November 18, 1994 between CTRC
Research Foundation and the Company
10.7** -- Covenant Not To Sue dated September 1995 between CTRC
Research Foundation and the Company
10.8** -- Office Lease dated October 1, 1994 between the Company
and CTRC Research Foundation
10.9** -- Lease Agreement dated October 1, 1994 between Texas
Research and Technology Foundation and the Company
10.10** -- Lease Agreement dated September 1, 1995 between CTRC
Research Foundation and the Company
10.11** -- Commercial Industrial Sublease Agreement between
TRTF/CTRCRF Building Corporation and the Company
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
Exhibit
Number Identification of Exhibit
------- -------------------------
<C> <S>
10.12** -- Agreement dated November 1, 1994 [cGMP Plant] by and among Texas Research and
Technology Foundation, CTRC Research Foundation, TRTF/CTRCRF Building Corporation and
the Company
10.13+** -- License Agreement [Piritrexim Isethionate] dated March 31, 1995 by and among Burroughs
Wellcome Co., The Wellcome Foundation Limited and the Company
10.14+** -- License Agreement [Oxypurinol] dated March 31, 1995 by and among Burroughs Wellcome
Co., The Wellcome Foundation Limited and the Company
10.15+** -- License Agreement [Crisnatol Mesylate] dated November 1, 1993 by and among Burroughs
Wellcome Co., The Wellcome Foundation Limited and CTRC Research Foundation
10.16+** -- Amendment and Agreement with Respect to License Agreement [crisnatol mesylate] dated
October 5, 1996 amending License Agreement dated November 1, 1993 by and among
Burroughs Wellcome Co., The Wellcome Foundation Limited and CTRC Research Foundation
10.17+** -- License Agreement [Eflornithine] between ILEX Oncology, Inc. and Marion Merrell Dow
Inc. and its subsidiaries Merrell Dow Pharmaceuticals Inc. and Marion Merrell Dow
France Et Cie
10.18+** -- Development and License Agreement [crisnatol mesylate] dated October 11, 1996 by and
among the Company and Janssen Pharmaceutica, N.V.
10.19+** -- License Agreement [Farnesyl Transferase Inhibitors] dated July 1, 1996 by and between
Sother Limited and the Company
10.20+** -- License Agreement [RP 60475] dated November 18, 1994 between Rhone-Poulenc Rorer S.A.
and the Company
10.21+** -- Agreement dated November 25, 1996 between Hoffmann-La Roche, Inc. and the Company
[RO23-7553]
10.22+ -- License and Development Agreement [MGBG] dated October 1, 1992 between Sterling
Winthrop Inc. and CTRC Research Foundation
10.23+** -- Research Collaboration Agreement dated December 12, 1995 between CTRC Research
Foundation and Sanofi
10.24** -- Consent, Acknowledgment and Waiver Agreement dated September 1994 by and among CTRC
Research Foundation, Sterling Winthrop Inc. and the Company
10.25+** -- Drug Development Project Agreement [4-hydroperoxycyclophosphamide] effective April 1,
1993 between CTRC Research Foundation and MGI Pharma, Inc.
10.26** -- Material Transfer Agreement [Dihydro-5-Azacytidine] dated March 9, 1995 between the
Company and the National Institutes of Health
10.27+** -- Patent License Agreement--Exclusive [Methyl-Glyoxal Bis-Guanylhydrazone] dated
September 8, 1991 between the National Institutes of Health and Cancer Therapy and
Research Center
10.28** -- Agreement for Services dated February 15, 1995 between the Company and The University
of Texas Health Science Center at San Antonio
10.29** -- Agreement for Services effective September 20, 1994 between CTRC Research Foundation
and The University of Texas Health Science Center at San Antonio
10.30** -- Master Services Agreement (Preclinical Services) dated June 11, 1996 by and between the
Company and Lipitek International, Inc.
</TABLE>
II-4
<PAGE> 102
<TABLE>
<C> <S>
10.31** -- Letter Agreement dated September 28, 1995 between Cross Atlantic Partners K/S, Boston
Capital Ventures III. Limited Partnership, Rovent II Limited Partnership, CTRC Research
Foundation and the Company
10.32** -- Warrant for the purchase of shares of Common Stock dated September 1995 between the
Company and Vector Securities International, Inc.
10.33 -- Warrant for the Purchase of shares of Common Stock dated July 1996 between the Company
and Chestnut Partners, Inc.
10.34** -- Institute for Drug Development Program Agreement dated September 20, 1994 between CTRC
Research Foundation and The University of Texas Health Science Center at San Antonio
10.35** -- Subordinated Option Agreement dated March 27, 1995 between CTRC Research Foundation and
the Company
10.36** -- Employment Agreement dated November 2, 1994 between Richard L. Love and the Company
10.37** -- Amendment to Employment Agreement dated April 4, 1995 between Richard L. Love and the
Company
10.38** -- Amendment to Employment Agreement dated September 27, 1995 between Richard L. Love and
the Company
10.39** -- Employment Agreement dated November 2, 1994 between Alexander L. Weis, Ph.D. and the
Company
10.40** -- Amendment to Employment Agreement dated April 10, 1995 between Alexander L. Weis, Ph.D.
and the Company
10.41** -- Amendment to Employment Agreement dated September 27, 1995 between Alexander L. Weis,
Ph.D. and the Company
10.42** -- Employment Agreement dated August 13, 1996 between James R. Koch and the Company
10.43** -- Employment Agreement dated August 27, 1996 between Pedro Santabarbara, M.D., Ph.D. and
the Company
10.44** -- Letter Agreement dated November 2, 1994 between Alexander L. Weis, Ph.D. and the
Company
10.45** -- Consulting Services Agreement dated March 16, 1995 between the Company and Charles A.
Coltman, Jr., M.D.
10.46** -- Consulting Services Agreement dated January 1, 1995 between the Company and Daniel Von
Hoff, M.D.
10.47** -- 1995 Stock Option Plan for the Company
10.48** -- 1996 Non-Employee Director Stock Option Plan for the Company
10.49** -- Form of Non-Employee Director Stock Option Agreement
10.50** -- Third Amended and Restated Registration Rights Agreement between the Company, CTRC and
the holders of the Series B, C, D and E Preferred Stock
10.51** -- Convertible Preferred Stock Purchase Agreement dated September 29, 1995 among the
Company and the holders of Series B Preferred Stock
10.52** -- Convertible Preferred Stock Purchase Agreement dated December 11, 1996 between the
Company and MPI
10.53** -- Convertible Preferred Stock Purchase Agreement dated November 11, 1996 between the
Company and Johnson & Johnson Development Corporation
</TABLE>
II-5
<PAGE> 103
<TABLE>
<CAPTION>
Exhibit
Number Identification of Exhibit
------- -------------------------
<C> <S>
10.54** -- Convertible Preferred Stock Purchase Agreement dated as of July 22, 1996 among the
Company and the holders of Series C Preferred Stock
10.55** -- Form of Pledge Agreement between Cancer Therapy and Research Center Endowment and each
of Gary V. Woods, Ruskin C. Norman, M.D. and Robert V. West, Jr., Ph.D.
10.56+** -- Exclusive License Agreement [Oxypurinol] dated November 27, 1996 between MGI Pharma,
Inc. and the Company
10.57+** -- Exclusive License Agreement [DHAC] dated November 27, 1996 between MGI Pharma, Inc. and
the Company
10.58** -- Stock Purchase Agreement dated April 11, 1995 between Daniel Von Hoff and the Company
10.59** -- Stock Purchase Agreement dated April 11, 1995 between Alexander L. Weis and the Company
10.60** -- Stock Purchase Agreement dated April 11, 1995 between Richard L. Love and the Company
10.61** -- Stock Purchase Agreement dated April 11, 1995 between Charles A. Coltman, Jr. and the
Company
10.62** -- Promissory Note dated April 12, 1995 between Daniel Von Hoff and the Company
10.63** -- Promissory Note dated April 12, 1995 between Richard L. Love and the Company
10.64** -- Promissory Note dated April 12, 1995 between Charles A. Coltman, Jr. and the Company
10.65** -- Promissory Note dated April 12, 1995 between Alexander L. Weis and the Company
10.66** -- Ownership Restriction Agreement dated December 11, 1996 between MPILEX Management,
L.L.C., MPILEX Partners, L.P. and holders of units thereof.
10.67** -- Agreement of Limited Partnership of MPILEX Partners, L.P. among MPILEX Management,
L.L.C.
10.68** -- Regulations of MPILEX Management, L.L.C. dated December 1996.
10.69+ -- License Agreement dated December 11, 1996 between MPILEX Partners, L.P. and the Company
11.1** -- Computation of Earnings Per Share
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Fulbright & Jaworski L.L.P. (included in 5.1)
24.1** -- Power of Attorney (included on signature page of initial filing of this Registration
Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
** Previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
II-6
<PAGE> 104
(b) Financial Statement Schedules:
All financial statement schedules, for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission, are
not required under the related instructions, are inapplicable or information
required is included in the financial statements and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Antonio, State of Texas on February 17, 1997.
ILEX ONCOLOGY, INC.
By: /s/ RICHARD L. LOVE
----------------------------------
Richard L. Love
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY V. WOODS* Director February 17, 1997
- -----------------------------------------------------
Gary V. Woods
/s/ RICHARD L. LOVE President, Chief Executive February 17, 1997
- ----------------------------------------------------- Officer and Director
Richard L. Love (Principal Executive
Officer)
/s/ ALEXANDER L. WEIS, Ph.D.* Director February 17, 1997
- -----------------------------------------------------
Alexander L. Weis, Ph.D.
/s/ JAMES R. KOCH* Vice President and Chief February 17, 1997
- ----------------------------------------------------- Financial Officer
James R. Koch (Principal Financial and
Accounting Officer)
/s/ DANIEL D. VON HOFF, M.D.* Director February 17, 1997
- -----------------------------------------------------
Daniel D. Von Hoff, M.D.
/s/ JOHN L. CASSIS* Director February 17, 1997
- -----------------------------------------------------
John L. Cassis
/s/ A. DANA CALLOW, JR.* Director February 17, 1997
- -----------------------------------------------------
A. Dana Callow, Jr.
/s/ RUSKIN C. NORMAN, M.D.* Director February 17, 1997
- -----------------------------------------------------
Ruskin C. Norman, M.D.
/s/ JASON S. FISHERMAN, M.D.* Director February 17, 1997
- -----------------------------------------------------
Jason S. Fisherman, M.D.
/s/ JERRY R. MITCHELL, M.D., Ph.D.* Director February 17, 1997
- -----------------------------------------------------
Jerry R. Mitchell, M.D., Ph.D.
*By: /s/ RICHARD L. LOVE
--------------------------------------------------
Richard L. Love
as Attorney-in-Fact
</TABLE>
II-8
<PAGE> 106
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
3.1** -- Amended and Restated Certificate of Incorporation of the
Company
3.2** -- Bylaws of the Company, as amended
4.1 -- Specimen of certificate representing Common Stock, $.01
par value, of the Company
5.1 -- Opinion of Fulbright & Jaworski L.L.P. regarding legality
of the Common Stock being registered
10.1** -- Revolving Promissory Note dated November 18, 1994, in the
original principal amount of $500,000, payable by the
Company to CTRC Research Foundation
10.2** -- Loan Agreement dated November 18, 1994 between the
Company and CTRC Research Foundation
10.3** -- Letter Agreement dated December 4, 1996 between the
Company and CTRC Research Foundation terminating the line
of credit
10.4** -- Assignment of Rights and Assets dated November 1994 from
CTRC Research Foundation to the Company
10.5** -- First Amendment to Assignment of Rights and Assets dated
September 1995 between ILEX Oncology, Inc. and CTRC
Research Foundation
10.6** -- Services Agreement dated November 18, 1994 between CTRC
Research Foundation and the Company
10.7** -- Covenant Not To Sue dated September 1995 between CTRC
Research Foundation and the Company
10.8** -- Office Lease dated October 1, 1994 between the Company
and CTRC Research Foundation
10.9** -- Lease Agreement dated October 1, 1994 between Texas
Research and Technology Foundation and the Company
10.10** -- Lease Agreement dated September 1, 1995 between CTRC
Research Foundation and the Company
10.11** -- Commercial Industrial Sublease Agreement between
TRTF/CTRCRF Building Corporation and the Company
10.12** -- Agreement dated November 1, 1994 [cGMP Plant] by and
among Texas Research and Technology Foundation, CTRC
Research Foundation, TRTF/CTRCRF Building Corporation and
the Company
10.13+** -- License Agreement [Piritrexim Isethionate] dated March
31, 1995 by and among Burroughs Wellcome Co., The
Wellcome Foundation Limited and the Company
10.14+** -- License Agreement [Oxypurinol] dated March 31, 1995 by
and among Burroughs Wellcome Co., The Wellcome Foundation
Limited and the Company
10.15+** -- License Agreement [Crisnatol Mesylate] dated November 1,
1993 by and among Burroughs Wellcome Co., The Wellcome
Foundation Limited and CTRC Research Foundation
10.16+** -- Amendment and Agreement with Respect to License Agreement
[crisnatol mesylate] dated October 5, 1996 amending
License Agreement dated November 1, 1993 by and among
Burroughs Wellcome Co., The Wellcome Foundation Limited
and CTRC Research Foundation
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
Exhibit
Number Identification of Exhibit
------- -------------------------
<C> <S>
10.17+** -- License Agreement [Eflornithine] between ILEX Oncology, Inc. and Marion Merrell Dow
Inc. and its subsidiaries Merrell Dow Pharmaceuticals Inc. and Marion Merrell Dow
France Et Cie
10.18+** -- Development and License Agreement [crisnatol mesylate] dated October 11, 1996 by and
among the Company and Janssen Pharmaceutica, N.V.
10.19+** -- License Agreement [Farnesyl Transferase Inhibitors] dated July 1, 1996 by and between
Sother Limited and the Company
10.20+** -- License Agreement [RP 60475] dated November 18, 1994 between Rhone-Poulenc Rorer S.A.
and the Company
10.21+** -- Agreement dated November 25, 1996 between Hoffmann-La Roche, Inc. and the Company
[RO23-7553]
10.22+ -- License and Development Agreement [MGBG] dated October 1, 1992 between Sterling
Winthrop Inc. and CTRC Research Foundation
10.23+** -- Research Collaboration Agreement dated December 12, 1995 between CTRC Research
Foundation and Sanofi
10.24** -- Consent, Acknowledgment and Waiver Agreement dated September 1994 by and among CTRC
Research Foundation, Sterling Winthrop Inc. and the Company
10.25+** -- Drug Development Project Agreement [4-hydroperoxycyclophosphamide] effective April 1,
1993 between CTRC Research Foundation and MGI Pharma, Inc.
10.26** -- Material Transfer Agreement [Dihydro-5-Azacytidine] dated March 9, 1995 between the
Company and the National Institutes of Health
10.27+** -- Patent License Agreement--Exclusive [Methyl-Glyoxal Bis-Guanylhydrazone] dated
September 8, 1991 between the National Institutes of Health and Cancer Therapy and
Research Center
10.28** -- Agreement for Services dated February 15, 1995 between the Company and The University
of Texas Health Science Center at San Antonio
10.29** -- Agreement for Services effective September 20, 1994 between CTRC Research Foundation
and The University of Texas Health Science Center at San Antonio
10.30** -- Master Services Agreement (Preclinical Services) dated June 11, 1996 by and between the
Company and Lipitek International, Inc.
10.31** -- Letter Agreement dated September 28, 1995 between Cross Atlantic Partners K/S, Boston
Capital Ventures III. Limited Partnership, Rovent II Limited Partnership, CTRC Research
Foundation and the Company
10.32** -- Warrant for the purchase of shares of Common Stock dated September 1995 between the
Company and Vector Securities International, Inc.
10.33 -- Warrant for the Purchase of shares of Common Stock dated July 1996 between the Company
and Chestnut Partners, Inc.
10.34** -- Institute for Drug Development Program Agreement dated September 20, 1994 between CTRC
Research Foundation and The University of Texas Health Science Center at San Antonio
10.35** -- Subordinated Option Agreement dated March 27, 1995 between CTRC Research Foundation and
the Company
10.36** -- Employment Agreement dated November 2, 1994 between Richard L. Love and the Company
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT NUMBER IDENTIFICATION OF EXHIBIT
-------------- -------------------------
<C> <S>
10.37** -- Amendment to Employment Agreement dated April 4, 1995
between Richard L. Love and the Company
10.38** -- Amendment to Employment Agreement dated September 27,
1995 between Richard L. Love and the Company
10.39** -- Employment Agreement dated November 2, 1994 between
Alexander L. Weis, Ph.D. and the Company
10.40** -- Amendment to Employment Agreement dated April 10, 1995
between Alexander L. Weis, Ph.D. and the Company
10.41** -- Amendment to Employment Agreement dated September 27,
1995 between Alexander L. Weis, Ph.D. and the Company
10.42** -- Employment Agreement dated August 13, 1996 between James
R. Koch and the Company
10.43** -- Employment Agreement dated August 27, 1996 between Pedro
Santabarbara, M.D., Ph.D. and the Company
10.44** -- Letter Agreement dated November 2, 1994 between Alexander
L. Weis, Ph.D. and the Company
10.45** -- Consulting Services Agreement dated March 16, 1995
between the Company and Charles A. Coltman, Jr., M.D.
10.46** -- Consulting Services Agreement dated January 1, 1995
between the Company and Daniel Von Hoff, M.D.
10.47** -- 1995 Stock Option Plan for the Company
10.48** -- 1996 Non-Employee Director Stock Option Plan for the
Company
10.49** -- Form of Non-Employee Director Stock Option Agreement
10.50** -- Third Amended and Restated Registration Rights Agreement
between the Company, CTRC and the holders of the Series
B, C, D and E Preferred Stock
10.51** -- Convertible Preferred Stock Purchase Agreement dated
September 29, 1995 among the Company and the holders of
Series B Preferred Stock
10.52** -- Convertible Preferred Stock Purchase Agreement dated
December 11, 1996 between the Company and MPI
10.53** -- Convertible Preferred Stock Purchase Agreement dated
November 11, 1996 between the Company and Johnson &
Johnson Development Corporation
10.54** -- Convertible Preferred Stock Purchase Agreement dated as
of July 22, 1996 among the Company and the holders of
Series C Preferred Stock
10.55** -- Form of Pledge Agreement between Cancer Therapy and
Research Center Endowment and each of Gary V. Woods,
Ruskin C. Norman, M.D. and Robert V. West, Jr., Ph.D.
10.56+** -- Exclusive License Agreement [Oxypurinol] dated November
27, 1996 between MGI Pharma, Inc. and the Company
10.57+** -- Exclusive License Agreement [DHAC] dated November 27,
1996 between MGI Pharma, Inc. and the Company
10.58** -- Stock Purchase Agreement dated April 11, 1995 between
Daniel Von Hoff and the Company
10.59** -- Stock Purchase Agreement dated April 11, 1995 between
Alexander L. Weis and the Company
10.60** -- Stock Purchase Agreement dated April 11, 1995 between
Richard L. Love and the Company
</TABLE>
<PAGE> 109
<TABLE>
<C> <S>
10.61** -- Stock Purchase Agreement dated April 11, 1995 between Charles A. Coltman, Jr. and the
Company
10.62** -- Promissory Note dated April 12, 1995 between Daniel Von Hoff and the Company
10.63** -- Promissory Note dated April 12, 1995 between Richard L. Love and the Company
10.64** -- Promissory Note dated April 12, 1995 between Charles A. Coltman, Jr. and the Company
10.65** -- Promissory Note dated April 12, 1995 between Alexander L. Weis and the Company
10.66** -- Ownership Restriction Agreement dated December 11, 1996 between MPILEX Management,
L.L.C., MPILEX Partners, L.P. and holders of units thereof.
10.67** -- Agreement of Limited Partnership of MPILEX Partners, L.P. among MPILEX Management,
L.L.C.
10.68** -- Regulations of MPILEX Management, L.L.C. dated December 1996.
10.69+ -- License Agreement dated December 11, 1996 between MPILEX Partners, L.P. and the Company
11.1** -- Computation of Earnings Per Share
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Fulbright & Jaworski L.L.P. (included in 5.1)
24.1** -- Power of Attorney (included on signature page of initial filing of this Registration
Statement)
27 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
<PAGE> 1
EXHIBIT 1.1
[Draft--2/4/97]
ILEX Oncology, Inc.
2,500,000 Shares *
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
, 1997
Salomon Brothers Inc
Cowen & Company
Smith Barney Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
ILEX Oncology, Inc., a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, 2,500,000 shares of Common Stock, $.01 par value ("Common
Stock") of the Company (the "Underwritten Securities"). The Company also
proposes to grant to the Underwriters an option to purchase up to 375,000
additional shares of Common Stock (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities").
1. Representations and Warranties.
The Company represents and warrants to, and agrees with, each
Underwriter as set forth below in this Section 1. Certain terms used in this
Section 1 are defined in paragraph (i) hereof.
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file number 333-
17769) on Form S-1, including a related preliminary prospectus, for the
- --------------------
* Plus an option to purchase from ILEX Oncology, Inc. up to 375,000
additional shares to cover over-allotments.
<PAGE> 2
2
registration under the Securities Act of 1933, as amended (the "Act"),
of the offering and sale of the Securities. The Company may have filed
one or more amendments thereto, including the related preliminary
prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (A) prior to
effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or
(B) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (B), the Company has included in such registration
statement, as amended at the Effective Date, all information (other than
Rule 430A Information) required by the Act and the rules thereunder to
be included in the Prospectus with respect to the Securities and the
offering thereof. As filed, such amendment and form of final
prospectus, or such final prospectus, shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Securities and the offering thereof and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be
included or made therein. Upon your request, but not without your
agreement, the Company also will file a Rule 462(b) Registration
Statement in accordance with Rule 462(b).
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date and on any date on which shares
sold in respect of the Underwriters' over-allotment option are
purchased, if such date is not the Closing Date (a "Settlement Date"),
the Prospectus (and any supplements thereto) will, comply in all
material respects with the applicable requirements of the Act and the
rules thereunder; on the Effective Date, the Registration Statement did
not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not
<PAGE> 3
3
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any
filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus
(together with any supplement thereto) will not, include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
the information contained in or omitted from the Registration Statement,
or the Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through the Representatives specifically for
inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(c) The Company owns, or has obtained licenses for, the patents
and patent applications referenced or described in the Prospectus as
being owned by or licensed to it (such owned and licensed patents and
patent applications collectively, the "Patents"); except to the extent
any of the following would not have a material adverse effect on the
condition (financial or other), business, properties, prospects, net
worth or results of operations of the Company that is or would be,
singly or in the aggregate, material to the Company, whether or not
occurring in the ordinary course of business (a "Material Adverse
Effect"), or except as set forth in the Prospectus under the captions
"Risk Factors -- Uncertainty Regarding Patents and Proprietary Position;
Rights to Technology Dependent Upon Compliance with Licenses and
Agreements", "Risk Factors -- Extensive Government Regulation; No
Assurance of Necessary FDA and Other Regulatory Approvals", "Business --
In-Licensing Agreements", "Business -- Orphan Drug Status" or "Business
-- Patents, Trademarks and Trade Secrets", (i) to the Company's
knowledge, there are no rights of third parties to any such Patents;
(ii) to the Company's knowledge, there is no material infringement by
third parties of any such Patents; (iii) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by
others challenging the Company's rights in or to any such Patents, and
the
<PAGE> 4
4
Company is unaware of any facts which would form a reasonable basis for
any such claim; (iv) to the Company's knowledge, there is no pending or
threatened action, suit, proceeding or claim by any governmental
authorities or others challenging the validity or scope of any such
Patents, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (v) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of
others, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (vi) to the Company's knowledge,
without the Company's having engaged in any affirmative diligence out of
the ordinary course of business, there is no U.S. patent or published
U.S. patent application which contains claims that dominate or may
dominate any Patents described in the Prospectus as being owned by or
licensed to the Company or that interferes with the issued or pending
claims of any such Patents; (vii) to the Company's knowledge the Patents
are free and clear of the claims of others and of all liens, security
interests and encumbrances whatsoever; and (viii) without the Company's
having engaged in any affirmative diligence out of the ordinary course
of business, there is no prior art of which the Company is aware that
may render any U.S. patent held or used by the Company invalid or any
U.S. patent application held by the Company invalid or any U.S. patent
application held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office (the "PTO").
(d) The Company owns, possesses or has obtained all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities (including the
Federal Drug Administration (the "FDA") and all foreign regulatory
agencies), all self-regulatory organizations and all courts and other
tribunals, domestic or foreign, necessary to own or lease, as the case
may be, and to operate its properties and to carry on its business as
conducted as of the date hereof, except where failure to have obtained
or made the same would not have a Material Adverse Effect, and the
Company has
<PAGE> 5
5
not received any actual notice of any proceeding relating to revocation
or modification of any such license, permit, certificate, consent,
order, approval or other authorization, except as described in the
Registration Statement and the Prospectus under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Position;
Rights to Technology Dependent Upon Compliance with Licenses and
Agreements", "Risk Factors -- Extensive Government Regulation; No
Assurance of Necessary FDA and Other Regulatory Approvals", "Business --
In-Licensing Agreements", "Business -- Orphan Drug Status" or "Business
-- Patents, Trademarks and Trade Secrets"; and the Company is in
compliance with all applicable statutes, laws, ordinances, rules, orders
and regulations of any governmental entity ("Applicable Laws") relating
to the conduct of its business as conducted as of the date hereof, the
violation of which would have a Material Adverse Effect.
(e) The Company owns, possesses or has the right to use the
Patents, trademarks, service marks, trade secrets and other proprietary
information and materials (collectively, the "Intellectual Property")
employed by it in connection with the business conducted by it as of the
date hereof; to the Company's knowledge, there are no infringements of
or conflicts with asserted rights of others with respect to any
Intellectual Property rights that, if determined adversely to the
Company, would individually or in the aggregate have a material adverse
effect on the Company.
(f) the descriptions set forth in the Prospectus under the
headings "Risk Factors -- Uncertainty Regarding Patents and Proprietary
Position; Rights to Technology Dependent Upon Compliance with Licenses
and Agreements", "Risk Factors -- Extensive Government Regulation; No
Assurance of Necessary FDA and Other Regulatory Approvals", "Business --
In-Licensing Agreements", "Business -- Orphan Drug Status" or "Business
-- Patents, Trademarks and Trade Secrets" with respect to the
Intellectual Property owned or used by the Company is accurate in all
material respects and presents fairly the material disclosed therein.
<PAGE> 6
6
(g) Schedule II attached hereto identifies, as of the date
hereof, all U.S. patents and U.S. patent applications filed by the
Company. As of [recent specified date], the Company was listed in the
records of the PTO as a holder of record of each of the patents and
patent applications listed in Schedule II. To the Company's knowledge,
each of the patent applications listed in Schedule II have been filed on
behalf of the Company with the PTO in accordance with the rules and
regulations of the PTO and each patent application listed in Schedule II
has been awarded a filing date by the PTO.
(h) to the Company's knowledge, there is no interference
proceeding or public use proceeding with respect to any application set
forth in Schedule II.
(i) The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "the Effective Date" shall mean
each date that the Registration Statement, any post-effective amendment
or amendments thereto and any Rule 462(b) Registration Statement became
or become effective. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus referred
to in paragraph (a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration state-
<PAGE> 7
7
ment referred to in paragraph (a) above, including exhibits and
financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become
effective) and, in the event any post-effective amendment thereto or any
Rule 462(b) Registration Statement becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as
the case may be. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule
430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules under
the Act. "Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement
and any amendments thereto filed pursuant to Rule 462(b) relating to the
offering covered by the initial registration statement (file number 333-
17769).
2. Purchase and Sale. (a) Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
$ per share, the amount of the Underwritten Securities set forth opposite
such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up
to 375,000 shares of the Option Securities at the same purchase price per share
as the Underwriters shall pay for the Underwritten Securities. Said option may
be exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in
part at any time (but not more than once) on or before the 30th day after the
date of the Prospectus upon written or telegraphic notice by the
Representatives to the Company setting forth the number of shares of the Option
Securities as to which the several Underwriters are exercising the option and
the Settlement Date. Delivery of certificates for the shares of Option
<PAGE> 8
8
Securities by the Company, and payment therefor to the Company, shall be made
as provided in Section 3 hereof. The number of shares of the Option Securities
to be purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Securities to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Securities,
subject to such adjustments as you in your absolute discretion shall make to
eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for
in Section 2(b) hereof shall have been exercised on or before the second
business day prior to the Closing Date) shall be made at 10:00 AM, New York
City time, on , 1997, or such later date (not later than
, 1997) as the Representatives shall designate, which date and time
may be postponed by agreement among the Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for
the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through
the Representatives of the aggregate purchase price thereof to or upon the
order of the Company by certified or official bank check or checks drawn on or
by a New York Clearing House bank and payable in same day funds or by wire
transfer of New York Clearing House bank same day funds. Delivery of the
Underwritten Securities and the Option Securities shall be made at such
location as the Representatives shall reasonably designate at least one
business day in advance of the Closing Date and payment for such Securities
shall be made at the office of Cravath, Swaine & Moore, New York, New York.
Certificates for the Securities shall be registered in such names and in such
denominations as the Representatives may request not less than two full
business days in advance of the Closing Date.
The Company agrees to have the Securities available for
inspection, checking and packaging by the Representatives in New York, New
York, not later than 1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised
after the second business day prior to the Closing Date, the Company will
deliver (at the expense of the Company) to the Representatives, at Seven World
Trade
<PAGE> 9
9
Center, New York, New York, on the date specified by the Representatives (which
shall be within three business days after exercise of said option),
certificates for the Option Securities in such names and denominations as the
Representatives shall have requested against payment of the purchase price
thereof to or upon the order of the Company by certified or official bank check
or checks drawn on or by a New York Clearing House bank and payable in same day
funds or by wire transfer of New York Clearing House bank same day funds. If
settlement for the Option Securities occurs after the Closing Date, the Company
will deliver to the Representatives on the Settlement Date for the Option
Securities, and the obligation of the Underwriters to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set
forth in the Prospectus.
5. Agreements.
(a) The Company agrees with the several Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement, supplement to the Prospectus or any Rule
462(b) Registration Statement without your prior consent. Subject to
the foregoing sentence, if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory
to the Representatives of such timely filing. Upon your request, the
Company will cause the Rule 462(b) Registration Statement, completed in
compliance with the Act and the applicable rules and regulations
thereunder, to be filed with the
<PAGE> 10
10
Commission pursuant to Rule 462(b) and will provide evidence
satisfactory to the Representatives of such filing. The Company will
promptly advise the Representatives (A) when the Registration Statement,
if not effective at the Execution Time, and any amendment thereto, shall
have become effective, (B) when the Prospectus, any supplement thereto
or any Rule 462(b) Registration Statement shall have been filed (if
required) with the Commission pursuant to Rule 424(b), (C) when, prior
to termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (D) of
any request by the Commission for any amendment of the Registration
Statement or any Rule 462(b) Registration Statement or supplement to the
Prospectus or for any additional information, (E) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (F) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose. The Company will use its best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the
<PAGE> 11
11
Representatives an earnings statement or statements of the Company which
will satisfy the provisions of Section 11(a) of the Act and Rule 158
under the Act.
(iv) The Company will furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request. The Company will furnish or cause to be furnished
to the Representatives copies of all reports on Form SR required by Rule
463 under the Act. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
(v) The Company will arrange for the qualification of the
Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay the fee of the National Association of Securities Dealers,
Inc., in connection with its review of the offering, which is estimated
to be $4,238.
(vi) The Company will not, for a period of 180 days following
the Execution Time, without the prior written consent of Salomon
Brothers Inc, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce the offering of, any other shares of
Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock; provided, however, that the Company may issue
and sell Common Stock pursuant to any employee stock option plan of the
Company in effect at the Execution Time and the Company may issue Common
Stock issuable upon the conversion of securities or the exercise of
warrants outstanding at the Execution Time[; provided, further, that the
Company may sell [ ] shares of Common Stock to [PRN] pursuant to
______ ].
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as
<PAGE> 12
12
the case may be, shall be subject to the accuracy of the representations and
warranties on the part of the Company contained herein as of the Execution
Time, the Closing Date and any Settlement Date pursuant to Section 3 hereof, to
the accuracy of the statements of the Company made in any certificates pursuant
to the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior
to the Execution Time, unless the Representatives agree in writing to a
later time, the Registration Statement will become effective not later
than (i) 6:00 PM New York City time on the date of determination of the
public offering price, if such determination occurred at or prior to
3:00 PM New York City time on such date, or (ii) 12:00 Noon on the
business day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any
such supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Representatives the
opinion of Fulbright & Jaworski, L.L.P., counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is organized, with the corporate power and
authority to own its properties and conduct its business as described in
the Prospectus, and is duly qualified to do business and is in good
standing in the State of Texas;
(ii) the Company's authorized capital stock and outstanding
capital stock is as set
<PAGE> 13
13
forth in the Prospectus under the caption "Description of Capital
Stock"; the capital stock of the Company conforms as to legal matters in
all material respects to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock"; the
outstanding shares of Common Stock have been duly and validly authorized
and issued and are fully paid and nonassessable; the Securities have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities are duly authorized for listing,
subject to official notice of issuance, on the Nasdaq National Market;
the certificates for the Securities are in valid and sufficient form;
and the holders of outstanding shares of capital stock of the Company
are not entitled to preemptive or other rights to subscribe for the
Securities;
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company
required to be disclosed in the Registration Statement which is not
adequately disclosed in the Prospectus under the caption "Business--
Legal Proceedings", and there is no franchise, contract or other
document required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, which is not described or
filed as required;
(iv) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus (other than
the financial statements and schedules and other financial, statistical
and accounting information contained therein as to which such counsel
need express no opinion) comply as to form
<PAGE> 14
14
in all material respects with the applicable requirements of the Act and
the rules thereunder;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) to the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated herein,
except (a) such as have been obtained under the Act, (b) such as may be
required under the blue sky and state securities laws of any
jurisdiction applicable to the offering and sale of the Securities by
the Underwriters and such as may be required for the clearance of the
underwriting arrangements relating to such offering and sale with the
NASD (as to which such counsel need express no opinion), and (c) such
other approvals (specified in such opinion) as have been obtained;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
charter or by-laws of the Company or the terms of any indenture or other
agreement or instrument known to such counsel and to which the Company
is a party or bound or any judgment, injunction, order or decree known
to such counsel to be applicable to the Company of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over the Company;
(viii) except as set forth in the Registration Statement and the
Prospectus under the caption "Description of Capital Stock--Registration
Rights," to the knowledge of such counsel after due inquiry no holders
of securities of the Company have rights to the registration of such
securities under the Registration Statement;
(ix) to Counsel's Knowledge (as defined herein), except to the
extent any of the following would not have a Material Adverse Effect and
except as set forth in the Prospectus (i) the Company owns, or has
obtained licenses for, the
<PAGE> 15
15
Intellectual Property, (ii) there are no rights of third parties to any
Patents; (iii) there is no material infringement by third parties of any
such Patents; (iv) there is no pending or threatened action, suit,
proceeding or claim by others challenging the Company's rights in or to
any such Patents; (v) there is no pending or threatened action, suit,
proceeding or claim by any governmental authorities or others
challenging the validity or scope of any such Patents; (vi) there is no
pending or threatened action, suit, proceeding or claim by others that
the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others; and (vii)
the Patents are free and clear of all liens, security interests and
encumbrances whatsoever. "Counsel's Knowledge" as used herein shall
mean counsel has relied solely upon (i) representations made to such
<PAGE> 16
16
counsel by officers of the Company and (ii) where appropriate, searches
conducted by such counsel (x) in the records of the U.S. Patent Office
on [a recent date] (y) in the records of the U.S. Trademark Office on [a
recent date] and (z) in the Uniform Commercial Code Index maintained by
the Texas Secretary of State on [a recent date].
(x) to Counsel's Knowledge (i) the Company owns, possesses or has
obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other governmental
authorities (including the FDA and all foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may be, and
to operate its properties and to carry on its business as conducted as
of the date hereof, except where failure to have obtained or made the
same would not have a Material Adverse Effect; (ii) the Company has not
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the Prospectus;
and (iii) the Company is in compliance with all Applicable Laws relating
to the conduct of its business as conducted as of the date hereof, the
violation of which would have a Material Adverse Effect;
(xi) to Counsel's Knowledge, there are no infringements of or
conflicts with asserted rights of others with respect to any
Intellectual Property that, if determined adversely to the Company,
would individually or in the
<PAGE> 17
17
aggregate have a material adverse effect on the Company;
(xii) the descriptions set forth in the Prospectus under the
headings "Risk Factors -- Uncertainty Regarding Patents and Proprietary
Position; Rights to Technology Dependent Upon Compliance with Licenses
and Agreements", "Business -- In-Licensing Agreements" or "Business --
Patents, Trademarks and Trade Secrets" with respect to the Intellectual
Property owned or used by the Company is accurate in all material
respects and presents fairly the material disclosed therein;
(xiii) To Counsel's Knowledge Annex I of the opinion identifies,
as of the date hereof, all U.S. patents and U.S. patent applications
filed by the Company. As of [recent specified date], the Company was
listed in the records of the PTO as a holder of record of each of the
patents and patent applications listed in Annex I. Based on a search of
the documents of record in the PTO as of [recent specified date], a
review of the Company's records through such date, and a review of a
certificate of an officer of the Company, such counsel has no knowledge
of any facts that lead such counsel to conclude that the Company does
not have clear title to each of the patents and patent applications
listed in Annex I;
<PAGE> 18
18
(xiv) to such counsel's knowledge, the information in the
Prospectus under the caption "Business--Patents, Trademarks and Trade
Secrets" to the extent it constitutes a description of the current state
of U.S. Patent Law is accurate; and
(xv) the formation of the Company by The Cancer Therapy and
Research Foundation of South Texas in December 1993 and related
transactions were done in accordance with the Texas Non-Profit
Corporation Act.
In addition, such counsel shall state that they have participated
in conferences with officers and other representatives of the Company,
representatives of the independent accountants of the Company, representatives
of the Underwriters and representatives of counsel for the Underwriters, at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel need not pass upon, and need
not assume any responsibility for, the accuracy, completeness or fairness of
any statement contained in the Registration Statement or the Prospectus (except
for those statements referred to in the opinions expressed in the first two
clauses of subsection (ii) above) and has made no independent check or
verification thereof, such counsel shall state that on the basis of the
foregoing, no facts have come to such counsel's attention that has led such
counsel to believe that the Registration Statement, as of the date thereof,
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or the date of
such opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that such counsel need express no opinion or belief with
respect to the financial statements, financial statement schedules and other
<PAGE> 19
19
financial, accounting and statistical data included therein or excluded
therefrom.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
States of New York and Texas, the United States or the General Corporation Law
of the State of Delaware, to the extent such counsel deems proper and as
specified in such opinion, upon the opinion of other counsel of good standing
whom such counsel believes to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include any
supplements thereto at the Closing Date or at the Settlement Date.
(c) The Representatives shall have received from Cravath, Swaine
& Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such documents as they request
for the purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any supplements
to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Closing Date with the
same effect as if made on the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threatened;
and
<PAGE> 20
20
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
other), earnings, business or properties of the Company, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(e) At the Execution Time and at the Closing Date, Arthur
Andersen LLP shall have furnished to the Representatives a letter or letters,
dated respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration
Statement and the Prospectus and reported on by them comply in
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company; carrying out
certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which
would not necessarily reveal matters of significance with respect
to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and
compensation, executive and audit committees of the Company; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company as to transactions and events subsequent to December 31,
1996, nothing came to their attention which caused them to
believe that:
(1) with respect to the period subsequent to
December 31, 1996, there were any changes, at a specified
date not more than five business days prior to the date of
the letter, in the long-term debt,
<PAGE> 21
21
cash, cash equivalents and temporary investments or
capital stock of the Company or decreases in the total
stockholders' equity of the Company or decreases in
working capital of the Company as compared with the
amounts shown on the December 31, 1996, balance sheet
included in the Registration Statement and the Prospectus,
or for the period from January 1, 1996, to such specified
date there were any decreases, as compared with the
corresponding period in the preceding year; in revenues or
increases in total operating expenses or in total or per
share amounts of net losses of the Company, except in all
instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary by
the Representatives; or
(2) the information included in the Registration
Statement and the Prospectus in response to Regulation S-
K, Item 301 (Selected Financial Data), Item 302
(Supplementary Financial Information) and Item 402
(Executive Compensation) is not in conformity with the
applicable disclosure requirements of Regulation S-K; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company) set forth in the Registration Statement and the
Prospectus, including the information set forth under the
captions "Prospectus Summary", "Risk Factors", "Use of Proceeds",
"Capitalization", "Summary Financial Information", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", "Business", "Management", "Principal Stockholders"
and "Certain Transactions" in the Prospectus, agrees with the
accounting records of
<PAGE> 22
22
the Company, excluding any questions of legal interpretation.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
The Representatives shall have also received from Arthur Andersen
LLP a letter stating that the Company's system of internal accounting controls
taken as a whole is sufficient to meet the broad objectives of internal
accounting control insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be material in
relation to the financial statements of the Company (sometimes referred to as a
"No Material Weakness Letter").
(f) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement (exclusive of
any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in the
letter or letters referred to in paragraph (e) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company the effect of which, in any case referred
to in clause (i) or (ii) above, is, in the judgment of the Representatives, so
material and adverse as to make it impractical or inadvisable to proceed with
the offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto).
(g) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A hereto from
each officer and director of the Company and each holder of one percent (1%) or
more of any class of the outstanding capital stock of the Company addressed to
the Representatives, in which each such person agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
an offering of, any shares of Common Stock beneficially owned by such person or
any securities convertible into, or exchangeable for, shares of Common Stock
for a period of 180 days following the Execution Time without the prior written
consent of Salomon Brothers Inc, other than shares of Common Stock disposed of
as bona fide gifts.
<PAGE> 23
23
(h) Prior to the Closing Date, the Company shall have furnished
to the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, New York, on the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Securities Exchange Act
of 1934 (the "Exchange Act") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise,
<PAGE> 24
24
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein and (ii) with respect to any
untrue statement or omission of a material fact made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 8(a) shall not
inure to the benefit of any Underwriter (or any of the directors, officers,
employees and agents of such Underwriter or any controlling person of such
Underwriter) from whom the person asserting any such loss, claim, damage or
liability purchased the Securities concerned, to the extent that any such loss,
claim, damage or liability of such Underwriter occurs under the circumstances
where it shall have been determined by a court of competent jurisdiction by
final and nonappealable judgment that (w) the Company had previously furnished
copies of the Prospectus to the Underwriters, (x) delivery of the Prospectus
was required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Prospectus was
corrected in the Prospectus and (z) there was not sent or given to such person,
at or prior to the written confirmation of the sale of such Securities to such
person, a copy of the Prospectus. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement,
<PAGE> 25
25
and each person who controls the Company within the meaning of either the Act
or the Exchange Act, to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to written information
relating to such Underwriter furnished to the Company by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability which any Underwriter may otherwise have.
The Company acknowledges that the statements set forth in the last paragraph of
the cover page and under the heading "Underwriting" in any Preliminary
Prospectus and the Prospectus constitute the only information furnished in
writing by or on behalf of the several Underwriters for inclusion in any
Preliminary Prospectus or the Prospectus, and you, as the Representatives,
confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such
<PAGE> 26
26
counsel with a conflict of interest, (ii) the actual or potential defendants
in, or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action
or (iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying
party will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and by the Underwriters from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and of the Underwriters in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
<PAGE> 27
27
considerations. Benefits received by the Company shall be deemed to be equal
to the total net proceeds from the offering (before deducting expenses), and
benefits received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the Company or the Underwriters. The Company and the Underwriters
agree that it would not be just and equitable if contribution were determined
by pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase
shall constitute a default in the performance of its or their obligations under
this Agreement, the remaining Underwriters shall be obligated severally to take
up and pay for (in the respective proportions which the amount of Securities
set forth opposite their names in Schedule I hereto bears to the aggregate
amount of Securities set forth opposite the names of all the remaining
Underwriters) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase; provided, however, that in the event that the
aggregate amount of Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase shall exceed 10% of the aggregate amount of
Securities set forth in Schedule I hereto, the remaining Underwriters shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of the Securities, and if such
<PAGE> 28
28
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination
in the absolute discretion of the Representatives, by notice given to the
Company prior to delivery of and payment for the Securities, if prior to such
time (i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on either
the New York Stock Exchange or the Nasdaq National Market, (ii) a banking
moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of
the Company or its officers and of the Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or the Company or any
of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to
<PAGE> 29
29
the Representatives, will be mailed, delivered or telefaxed and confirmed to
them, care of Salomon Brothers Inc, at Seven World Trade Center, New York, New
York, 10048, attention: Legal Department; or, if sent to the Company, will be
mailed, delivered or telefaxed and confirmed to it at 14785 Omicron Drive,
Suite 101, San Antonio, Texas 78245, attention of James R. Koch.
13. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
ILEX Oncology, Inc.
By:
---------------------------
Name:
Title:
<PAGE> 30
30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Cowen & Company
Smith Barney Inc.
By: Salomon Brothers Inc
By:
--------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE> 31
EXHIBIT A
[Letterhead of officer, director or major shareholder of
ILEX Oncology, Inc.]
ILEX Oncology, Inc.
Public Offering of Common Stock
, 1997
Salomon Brothers Inc
Cowen & Company
Smith Barney Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between ILEX
Oncology, Inc., a Delaware corporation (the "Company") and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Common Stock, $.01 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter into
the Underwriting Agreement, the undersigned agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
an offering of, any shares of Common Stock beneficially owned by the
undersigned or any securities convertible into, or exchangeable for, shares of
Common Stock for a period of 180 days following the day on which the
Underwriting Agreement is executed without the prior written consent of Salomon
Brothers Inc, other than shares of Common Stock disposed of as bona fide gifts.
If for any reason the Underwriting Agreement shall be terminated
prior to the Closing Date (as defined in the
<PAGE> 32
2
Underwriting Agreement), the agreement set forth above shall likewise be
terminated.
Yours very truly,
[Signature of officer,
director or major shareholder]
[Name and address of
officer, director or major
shareholder]
<PAGE> 33
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Securities
Underwriters To Be Purchased
- ------------ -----------------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . .
----------------
Total . . . . . . . . . . . . . .
================
</TABLE>
<PAGE> 1
EXHIBIT 4.1
[ILEX ONCOLOGY, INC. LOGO]
ILEX ONCOLOGY, INC.
INCORPORATED UNDER THE COMMON STOCK
LAWS OF THE STATE OF DELAWARE
C
THIS CERTIFICATE IS TRANSFERABLE CUSIP 451923 6
IN NEW YORK, NEW YORK AND DALLAS, TEXAS SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES, WITH A
PAR VALUE $.01 PER SHARE, OF
ILEX ONCOLOGY, INC., transferable in person or by duly authorized attorney on
the books of the Corporation upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and facsimile
signatures of its duly authorized officers.
Dated: Dated:
/s/ RICHARD L. LOVE COUNTERSIGNED AND REGISTERED:
President ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT AND REGISTRAR
[SEAL]
/s/ JAMES R. KOCH By
Secretary AUTHORIZED SIGNATURE
<PAGE> 2
ILEX ONCOLOGY, INC.
The Company will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Company, as well as the qualifications, limitations and
restrictions relating to those preferences and/or rights. A stockholder may
make the request to the Company or to its Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts to
right of survivorship Minors
and not as tenants Act
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHARES
----------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
----------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Company with full power of substitution in the premises.
Dated
---------------------------------
X
-----------------------------------------
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION X
OR ENLARGEMENT OR ANY CHANGE -----------------------------------------
WHATEVER. (SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE GUARANTEED BY:
<PAGE> 1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
Exhibit 5.1
February 18, 1997
ILEX Oncology, Inc.
11550 I.H. 10 West, Suite 300
San Antonio, Texas 78230
Gentlemen:
We have acted as counsel for ILEX Oncology, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of 2,875,000 shares of the
Company's common stock, $.01 par value ("Common Stock"), to be offered upon the
terms and subject to the conditions set forth in the Registration Statement on
Form S-1 (the Registration Statement, as amended at the time it becomes
effective, being herein referenced to as the "Registration Statement") relating
thereto filed with the Securities and Exchange Commission.
In connection therewith, we have examined originals or copies certified
or otherwise identified to our satisfaction of the certificate of incorporation
of the Company, the by-laws of the Company, the corporate proceedings with
respect to the offering of shares of Common Stock and such other documents and
instruments as we have deemed necessary or appropriate for the expression of
the opinions contained herein.
We have assumed the authenticity and completeness of all records,
certificates and other instruments submitted to us as originals, the conformity
to original documents of all records, certificates and other instruments
submitted to us as copies, the authenticity and completeness of the originals
of those records, certificates and other instruments submitted to us as copies
and the correctness of all statements of fact contained in all records,
certificates and other instruments that we have examined.
Based on the foregoing, and having regard for such legal considerations
as we have deemed relevant, we are of the opinion that the shares of Common
Stock proposed to be issued have been duly and validly authorized for issuance
and, when issued, delivered, sold and paid for in accordance with the terms of
the Registration Statement, will be duly and validly issued, fully paid and
nonassessable.
<PAGE> 2
ILEX Oncology, Inc.
February 18, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included as part of the Registration Statement. In
giving this consent we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 10.22
[Confidential treatment has been requested for portions of this exhibit. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the commission.]
LICENSE AND DEVELOPMENT AGREEMENT
THIS AGREEMENT, effective as of the 1st day of October, 1992 (the "Effective
Date"), is by and between Sterling Winthrop Inc. of 90 Park Avenue, New York,
New York, 10016, U.S.A., (hereinafter call "Sterling," which expression
includes its subsidiaries, successors and assignees) and the CTRC Research
Foundation of 8122 Datapoint Drive, Suite 600, San Antonio, Texas, 78229,
U.S.A. (hereinafter called "CTRC," which expression includes its subsidiaries,
successors and assignees).
WITNESSETH:
WHEREAS, Sterling is engaged in pharmaceutical research and development
activities directed to the discovery, development and commercialization of
cancer therapy agents; and
WHEREAS, CTRC's mission includes acceleration of the discovery, development and
clinical use of therapeutic agents for the treatment of human cancers; and
WHEREAS, CTRC has Commercial Rights to a Product for the treatment of human
cancers, which Product and Commercial Rights are more fully described on
Exhibit A and incorporated herein ("The Product"); and
WHEREAS, Sterling has exercised its option to obtain a license to develop and
market the Product;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Sterling and CTRC agree as follows:
ARTICLE I. DEFINITIONS
1.1 Unless plainly stated otherwise, all defined terms in the Research
Collaboration Agreement and Option Agreement, dated October 1, 1992, shall have
the same meaning in this Agreement.
a. "ACQUISITION COSTS" shall mean those necessary out-of-pocket
costs (applicable to the Field of Use) incurred or paid by CTRC to Third
Parties from whom Commercial Rights are acquired, to obtain Commercial Rights
to any Licensed Product or Licensed Technology including any licensing fees,
future royalty, milestone or other payment obligations.
b. "ANNIVERSARY DATE" shall mean January 1, 1994, and every
January 1st thereafter throughout the term of this Agreement, including any
extensions thereof.
c. "BUSINESS DAY" shall mean a day on which banks are open for
business in New York, USA.
<PAGE> 2
d. COMMERCIAL RIGHTS" shall mean CTRC's legal right by patent,
contract, agreement, copyright, trademark, or other means to make, have made,
use, sell or have sold in any country any compound, material technology or
know-how within the Field of Use for commercial purposes, including Inventions,
Know-How or Products.
e. "CTRC AFFILIATE" shall mean any present or future firm,
company, joint venture or other entity which directly or indirectly is
controlled by or is under the common control of CTRC. "Control" shall mean the
legal power to direct or cause the direction of the general management and
policies of such entity whether through ownership of at least [**] percent
[**] of voting securities, by contract or otherwise.
f. 'CTRC INFORMATION" shall mean information developed or
otherwise acquired by or for CTRC, including all animal and human laboratory
and clinical data, technical information, Know-How, inventions, techniques,
processes, technology, systems, formulae, results of experimentation, designs,
statistics and records pertaining to products and technology subject to
Sterling's option set forth in the Option Agreement, and all information
relating to the contents of the Research Collaboration Agreement, including
Data Information Packages, necessary to effectuate the grant of license to
Sterling, including CTRC's exclusive property as provided in Article 3.7 of the
Research Collaboration Agreement.
g. "DATA/INFORMATION PACKAGES" shall mean those documents which
CTRC shall submit to Sterling in accordance with Article 2.4 of the Option
Agreement, and generally will be in the following product/technology
categories:
(i) Products which have been tested in human clinical
trials. Data/Information packages will include summaries of and
access to all regulatory filings, clinical studies to date and a
description of all Commercial Rights.
(ii) Products which are, in CTRC's opinion, suitable for
human clinical evaluation. The Data/Information Package is intended
to be of such content and quality as to be suitable for filing of an
Investigational New Drug Application (IND) with the Food and Drug
Administration (FDA) with the reasonable expectation of initiating
Phase I clinical trials in human volunteers, and will also include a
description of all Commercial Rights.
(iii) Technology which may be applied in the research and
development of products within the Field of Use. For a technology to
be offered for license, there should exist one or more Patent
Applications and scientific data to indicate that the technology can
immediately be applied to the discovery and development of Products
within the Filed of Use. Notwithstanding the above, non-patented
technology, including know-how, may make up, in whole or in part, a
Data/Information Package.
<PAGE> 3
h. "FIELD OF USE" shall mean all applications of a Licensed
Product of Licensed Technology in the treatment and/or mitigation of cancer
i. "FIST COMMERCIAL SALE" shall mean the first commercial sale
in any country after the date the New Drug Application (NDA), Product License
Agreement (PLA) or equivalent application for a Licensed Product is approved.
j. "FUNDING PERIOD" shall mean each twelve (12) month calendar
period during which Sterling makes payments under Article III of the Research
Collaboration Agreement. The first such funding period shall actually
encompass fifteen (15) months, from October 1, 1992 to December 31, 1993.
k. "INVENTION" shall mean any invention or discovery (whether or
not patented or patentable) in the Field of Use which is originated or
conceived or first reduced to practice, arising out of the performance of the
Research collaboration Agreement.
l. "KNOW-HOW" shall mean all technical and other information
arising from the Research Program, including, but not limited to, all data,
results of experiments, formulae, specifications, procedures, tests, compounds,
cell lines, cultures, constructs, vectors, development strains,
micro-organisms, assay systems, assay protocol and assay supporting material,
fermentation and purification material and techniques.
m. "LICENSE" shall mean a license to a Licensed Product or
Licensed Technology under Research Collaboration Agreement.
n. "LICENSE AND DEVELOPMENT AGREEMENT" shall mean an agreement
executed between the parties providing the terms under which a Licensed Product
or Licensed Technology shall be licensed and developed, and which shall comply
with the provisions of Articles 4.2 and 4.3 of the Option Agreement.
o. "LICENSED PRODUCT" shall mean a Product upon which Sterling
has exercised its option under the Option Agreement.
p. "LICENSED TECHNOLOGY" shall mean a technology or Know-How
upon which Sterling has exercised its option under the Option Agreement.
q. "NET SALES" shall mean the total of all charges invoiced to
customers by Sterling, any Sterling Affiliate, and/or its sub-licensees for
Licensed Product less: (a) normal trade and cash discounts actually allowed;
(b) credits or refunds actually allowed for spoiled, damaged, out-dated, or
returned goods; (c) sales and other excise taxes imposed and paid directly with
respect to the sales; (d) transportation costs paid on behalf of the customer;
and (e) commissions and rebates; provided, however, that sales between Sterling
and any Affiliate shall not be included in such computations. No sales of
Licensed Product to any person(s) shall be counted more than once i the
calculation of Net Sales.
<PAGE> 4
r. "OPTION AGREEMENT" shall mean the agreement between CTRC and
Sterling dated October 1, 1992, a copy of which is attached as Exhibit I, as
amended April 1, 1994, a copy of which is attached as Exhibit II.
s. "PARTIES" shall mean CTRC and Sterling.
t. "PATENT APPLICATIONS" shall mean any patent applications with
respect to an Invention.
u. "PATENTS" shall mean any patents containing a Valid Claim,
granted on or pursuant to Patent Applications, including any continuations,
renewals, extensions or re-issues or any divisions thereof.
v. "PRODUCT(S)" shall mean all products which embody, in part or
whole, the Inventions, Patents, Patent Applications or Know-How.
w. "PROGRAM COUNCIL" shall mean the committee composed of members
designated by Sterling and CTRC, whose duties are set forth in Article II of
the Research Collaboration Agreement.
x. "RESEARCH COLLABORATION AGREEMENT" shall mean the Agreement
between CTRC and Sterling, dated October, 1, 1992, a copy of which is attached
as Exhibit III, as amended April 1, 1994, a copy of which is attached as
Exhibit IV.
y. "RESEARCH PROGRAM" shall mean the research and preclinical
development program being or to be carried out by CTRC and Sterling as agreed
to between the Parties. Any clinical development to be carried out by CTRC and
Sterling shall be subject to a separate License and Development Agreement.
z. "STERLING AFFILIATE" shall mean any present or future firm,
company or joint venture or other entity which directly or indirectly controls,
is controlled by or is under the common control of Sterling. "Control" shall
mean the legal power to direct or cause the direction of at least [**] percent
[**] of voting securities, by contract or otherwise. For the purposes of this
Agreement, "Sterling Affiliate" shall also include Elf-Sanofi S.A. and all
companies formed by the Joint Venture of Sterling and Elf-Sanofi S.A.
aa) "STERLING INFORMATION" shall mean any and all information and
technology which is applied to or derived from activities conducted by or on
behalf of Sterling with respect to ny compounds, materials, technologies, or
Know-How, the rights to which are owned by Sterling. Excluded from this
definition is that information which is incorporated in any Joint Invention or
CTRC Invention.
bb) "STERLING PROJECTS" shall men any work under the Research
Program on compounds, materials, technologies, or Know-How, the rights to which
are owned by Sterling, and to which Sterling controls the decisions on funding
and program protocols.
<PAGE> 5
cc) "THIRD PARTY" shall mean a person or entity which is not a
Party or a CTRC Affiliate or Sterling Affiliate.
dd) "VALID CLAIM" shall mean a claim of an issued Patent relating
to a Licensed Product or CTRC Information held by CTRC during the existence of
the Patent together with any renewals or extensions thereof or a claim of a
Patent Application, which claim has not been declared or rendered invalid by
reexamination, re-issue, disclaimer or unappealable final judgment of a court
of competent jurisdiction. If no Patent has issued within fifteen (15) years
after the earliest filing date of an application, then the claims of such
application will not be considered valid.
1.2 Additionally, the following words and phrases shall have the following
meanings:
a. "DEVELOPMENT PLAN" shall mean the plan described in Schedule
B to this Agreement and incorporated herein.
b. "EFFECTIVE DATE", as used in this Agreement, the Research
Collaboration Agreement, the Option Agreement, or any other License and
Development Agreement shall refer to the Agreement in which the term is used,
unless plainly stated otherwise.
c. "FULLY ALLOCATED COSTS" shall mean the total direct and
indirect costs attributable to a given project. Indirect costs shall mean
those general and administrative costs of CTRC, both internal and external,
which are not specifically attributable to a given project, but which are
accounted to each project using a formula derived from CTRC's standard
allocating method. Such costs shall be calculated and invoiced to Sterling on
a monthly basis.
d. "LICENSE YEAR" shall mean the twelve (12) month period
following the effective date of any License and Development Agreement, and each
succeeding twelve (12) month period during the pendency of the License, until
the date of First Commercial Sale of Product.
e. "PHS AGREEMENT" means the license agreement between CTRC and
the United States Public Health Service, dated September 8, 1991, a copy of
which is attached hereto as Exhibit V.
f. "THE PRODUCT," for purposes of this Agreement, shall mean the
Licensed Product know as MGBG, with its attendant Commercial Rights, as more
fully described in Schedule A to this Agreement. With respect to any other
License and Development Agreement, it shall mean the Licensed Product described
in a similar attachment to that particular agreement.
ARTICLE 2 - WARRANTY
CTRC represents and warrants that as the owner of the Commercial
Rights in and to The Product, as more specifically set forth in Exhibit A
attached hereto, that it
<PAGE> 6
has the sole right to grant licenses for such Commercial Rights, and that it
has not granted licenses thereunder to any other person or entity. CTRC
represents and warrants that, to its knowledge, no rights of a Third Party are
infringed or breached by the grant of this License to Sterling.
ARTICLE 3 - GRANT
3.1 Subject to their terms and conditions of this Agreement and the PHS
Agreement, CTRC hereby grants to Sterling, and Sterling accepts, an exclusive
worldwide license to make, have made, use or sell The Product, together with
its related CTRC Information, in the Filed of Use. CTRC agrees to transfer to
Sterling ownership of all regulatory documents, product inventory or other
tangible materials which CTRC has in its possession and which are required for
Sterling to effectuate this grant.
3.2 Sterling agrees to abide by the terms of the PHS Agreement.
3.3 Sterling shall have the right to grant sub-licenses in accordance with
Section 2.3 of the Option Agreement. In addition, Sterling shall be
responsible for the operations of its sub-licensee, as if the operations were
carried out by Sterling, including the payment of applicable licensing fees,
milestone payments, and royalties, whether or not paid to Sterling by the
sub-licensee. In no event shall CTRC be entitled to receive duplicative
licensing fees, milestone payments or royalties from sub-licensee and Sterling.
ARTICLE 4 - LICENSING FEES, MILESTONE PAYMENTS AND ROYALTIES
4.1 LICENSING FEE: Sterling has paid to CTRC a Licensing Fee of
five hundred thousand dollars ($ 500,000), which amount has been determined
pursuant to Article 4.4 of the Option Agreement. The intended use of The
Product is for treatment of patients with non-Hodgkin's lymphoma, prostrate
cancer and head and neck cancers.
4.2 MILESTONE PAYMENTS: Upon achievement of any development or
commercialization milestone as described in this Article 4.2, Sterling will pay
to CTRC a Milestone Payment as specified below:
a. Upon the filing of the first Investigational New Drug
Application ("IND") by Sterling or CTRC for The Product in each of the U.S.,
the first major country (France, Germany or the United Kingdom) of the European
Economic Community (EC), or Japan, Sterling will pay to CTRC a Milestone
Payment of one hundred thousand dollars ($ 100,000), ($ 300,000 maximum);
b. Upon the filing of the first New Drug Application ("NDA"),
Product License Application ("PLA"), or equivalent by Sterling or CTRC for The
Product in each of the U.S., the first major country of the EC, or Japan,
Sterling will pay to CTRC a Milestone Payment of two hundred fifty thousand
dollars ($ 250,000), ($ 750,000 maximum); and
<PAGE> 7
c. Upon receipt by Sterling or CTRC of an approval to sell The
Product in the U.S., the first major country of the EC, or Japan, for each new
approved indication (new tumor type), for a maximum of two such indications,
Sterling will pay to CTRC a milestone payment of [**] dollars
($ [**] ) for each such indication ($ [**] maximum).
d. Sterling will pay to CTRC a bonus payment (in addition to any
other payments under this or any other Agreement) upon receipt of an approval
to sell The Product in the U.S. The amount of such bonus payment will be based
on the date of receipt of such approval as follows:
(i) [**] dollars ($ [**] ) if The Product
is approved for sale within three (3) years of Sterling's written
exercise of its Option to license The Product; or
(ii) If The Product is approved more than three (3) years
after Sterling's written exercise of its Option to license, a payment
of [**] dollars ($ [**] ) per month for each month ahead of
the anticipated approval date set forth in the Development Plan, up to
a maximum of [**] dollars ($ [**] ).
4.3 Certain payments made to CTRC under Articles 4.1 and 4.2 above shall
be credited to Sterling's funding commitment of the Research Program, as
provided in Article III of the Research Collaboration Agreement, or any
amendments thereto.
4.4 ROYALTIES: Whether sold by Sterling, a Sterling Affiliate, an
assignee, or sub-licensee, Sterling will pay to CTRC a royalty on Net Sales of
The Product as follows:
(a) For sales of The Product in countries covered by a
Valid Claim or for which market exclusivity has been obtained de facto
and by statutory or regulatory grant or decree, such as the drug Price
competition and Patent Term Restoration Acto of 1984, 21 United States
Code Section 505(j) (or foreign counterpart), CTRC will be paid a
royalty as follows:
ROYALTY IN PERCENT
ANNUAL NET SALES OF ANNUAL NET SALES
---------------- -------------------
[S] [C]
$[**] to [**] [**]%
$[**] to [**] [**]%
in excess of $[**] [**]%
such royalties will be paid until the last to expire of all Valid
Claims or market exclusivity determinations for The Product.
or
<PAGE> 8
(b) For sales of The Product in countries not covered by
a Valid Claim or de facto and legal market exclusivity obtained by
statutory or regulatory grant or decree, CTRC will be paid a royalty
not to exceed [**] ([**]%) percent. Such royalties will be
paid until ten (10) years after the date of First Commercial Sale in
that country for The Product.
4.5 COMPETITION: The parties understand that a competitive version of
The Product may be presently available for sale in certain EC countries.
Consequently, at the time an NDA or equivalent application for The Product is
first filed in the U.S., Japan, or the EC as set forh in Section 4.2(b), the
Parties will review the competitive situation to determine in good faith if the
remaining milestone payments and royalties set forth in this Article 4 are
still appropriate and would provide a fair return to Sterling in view of
economic conditions existing at that time in each particular market. In the
event that the Parties in good faith agree that such payments and rates are no
longer appropriate, the parties will negotiate a reasonable reduction of the
remaining payments and rates set forth therein, taking into account the
particular market where sale of The Product is contemplated.
4.6 MINIMUM ROYALTIES: Minimum annual royalties of [**]
dollars ($ [**] ) shall be payable on a quarterly basis beginning at the end
of the second full calendar quarter following the date of the First Commercial
Sale in the United States of The Product. Quarterly minimum royalty payments
shall be made at the end of each calendar quarter thereafter, and shall be in
amounts equal to the difference between the royalty actually accrued as
determined by this Agreement, and the minimum quarterly royalty of
[**] dollars ($ [**] ).
4.7 Starting with the firs calendar quarter ending at least sixty (60)
days after the First Commercial Sale of Product, Sterling shall make written
financial reports and royalty payments to CTRC within thirty (30) days after
the end of each calendar quarter. Such reports shall state the number,
description and aggregate Net Sales of The Product during such completed
calendar quarter, and the resulting calculation pursuant to Article 4.3 above
of earned royalty payments due to CTRC for such completed calendar quarter.
With each such report, Sterling shall include payment due to CTRC of all
royalties for the calendar quarter covered by such report. The remittance of
royalties payable on Net Sales of The Product shall be made to CTRC at the
official rate of exchange of the currency of the country from which the
royalties are payable, as quoted by the Wall Street Journal (or in the event
there is no Wall Street Journal quote for such currency, the rate of exchange
shall be established by the issuer of such currently) for the last Business Day
of the calendar quarter in which the royalties are payable, less any
withholding or transfer taxes which are applicable. Sterling shall supply CTRC
with proof of payment of such taxes paid on CTRC's behalf and shall cooperate
with CTRC in obtaining credit or refund of any such taxes. The parties shall
cooperate with each other in making lawful arrangements in the event royalties
payable by Sterling are earned in a country whose currency is blocked on
exchange into U.S. dollars. Whenever any payment hereunder shall be stated to
be due on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
<PAGE> 9
4.8 Sterling shall promptly notify CTRC in writing of all submissions to
appropriate regulatory authorities for approvals to sell The Product in any
country (other than those submitted by CTRC), of the date such approvals are
granted, and the date of First Commercial Sale of The Product under this
Agreement. Upon request, Sterling shall provide to CTRC copies of such
approvals, and reasonable access to such submission.
4.9 Sterling shall keep true and accurate records and books of accounts
containing all data necessary for the calculation of the royalties payable to
CTRC under this Agreement. Such records and books of account for the prior
three (3) year period shall be made available at Sterling's principal office in
the United States on reasonable notice at all reasonable times during
Sterling's normal business hours for inspection by an independent auditor on
behalf of CTRC or by an authorized officer of CTRC.
ARTICLE V - DEVELOPMENT RESPONSIBILITIES AND COSTS
5.1 Sterling hereby assigns to CTRC, and CTRC accepts, subject to the
terms and conditions of this Agreement, the responsibility for implementing the
Development Plan for The Product, up to and including obtaining FDA marketing
approval for The Product. Upon receipt of such approval, but not sooner
(unless otherwise agreed by the Parties), CTRC shall transfer and assign to
Sterling all pre-approval regulatory documents necessary for marketing the
product, including the IND and NDA for The Product. Upon request, CTRC will
provide Sterling with a right of cross reference to all such regulatory
documents in order to further Sterling's development efforts for The Product.
5.2 CTRC will use its best efforts to perform the work outlined in the
Development Plan, in accordance with the terms of this Agreement, and shall
provide Sterling with reasonable access to and copies of all data and documents
reflecting work performed under the Development Plan.
5.3 CTRC shall have the right to subcontract certain duties under the
Development Plan. In the event CTRC does subcontract any such duties, it shall
be responsible for the subcontractor with the applicable terms of this
Agreement, including but not limited to Article VI and Article 11.4.
5.4 CTRC shall notify the Program Council prior to entering into any
subcontracts requiring an expenditure of [**] dollars ($ [**] ) or
more in any License Year.
5.5 Sterling shall reimburse CTRC for its Fully Allocated Costs incurred
in implementing the Development Plan, in accordance with Exhibit B, within
thirty (30) days of receipt of an invoice, which shall be issued by CTRC on a
monthly basis.
5.6 CTRC shall report on its progress in implementing the Development
Plan, including its performance against budget, at quarterly meetings during
the period in
<PAGE> 10
which The Product is being developed. Such development activities will be
supervised by the Program Council, which shall among other things, coordinate
development activities between the parties, including the exchange of
information and documents, establish project teams, and coordinate
responsibilities for regulatory filings and communications with regulatory
agencies.
5.7 The Program council, on an annual basis, will review and modify the
Development Plan and adjust the budget as appropriate. If the parties fail to
each mutual agreement on a change to the Development Plan, Sterling will make
the final decision on such change; provided that prospective modifications to
the Development Plan which may cause the Development Plan budget to increase or
decrease by more than [**] percent ([**]%) of CTRC's external costs or
contractual obligations from then current levels shall only be made with the
prior written consent of CTRC. Both parties will exercise their discretion
under this paragraph in good faith. Notwithstanding the foregoing, Sterling
shall have the right, based upon its good faith determination, to unilaterally
terminate or suspend the Development Plan in view of safety considerations
relating to Product testing or use, without further obligation to CTRC under
this Agreement.
5.8 Sterling shall reimburse CTRC for its Acquisition Costs for The
Product, as listed in Exhibit D, within thirty (30) days after receiving an
invoice from CTRC. Such payments will be in addition to any payments required
under Articles 4.1, 4.2, 4.4 and 4.6.
5.9 In the event that Sterling exercises its right to terminate, suspend
or discontinue the Development Plan, in accordance with Section 5.7 or 8.3,
then Sterling agrees to reimburse CTRC for its reasonable and necessary costs
incurred during the winding down period, which period will in no event extend
longer than twelve (12) months from the date of suspension. Such costs shall
include, but no be limited to, those non-cancelable contracts and commitments
which CTRC has entered into in contemplation of this agreement. CTRC shall use
its best efforts to minimize any such costs incurred by virtue of cancellation.
ARTICLE VI - CONFIDENTIALITY AND SECURITY
In addition to the provisions of Article IV and Article V of the
Research Collaboration Agreement, which are incorporated herein by reference,
the parties agree as follows:
6.1 It is understood that CTRC Information is proprietary and
confidential. Sterling hereby agrees to maintain the confidentiality of all
such CTRC Information.
6.2 It is understood that Sterling Information is proprietary and
confidential. CTRC hereby agrees to maintain the confidentiality of all such
Sterling Information.
<PAGE> 11
6.3 The Parties' obligations of confidentiality with respect to CTRC
Information and Sterling Information shall expire ten (10) years from the date
of receipt of the information.
6.4 The parties agree that they shall each use their best efforts to
ensure that Third Parties with whom they may contract to perform duties, as
permitted by this Agreement, shall abide by the provisions of this Article VI.
6.5 The parties acknowledge the right of CTRC to publication or oral
presentation of the results of any research, work or development done pursuant
to this Agreement. CTRC agrees that it will give Sterling an opportunity to
review any publication or presentation at least thirty (30) days prior to the
expected publication or presentation date, and consult with CTC with respect to
such publication or presentation date, and consult with CTRC with respect to
such publication or presentation. Nothing in this Agreement shall be construed
to prevent CTRC from publishing substantially all of the results of the
research conducted under this License which would be useful or beneficial to
the interested public.
ARTICLE VII - PATENT PROSECUTION
7.1 Upon execution of this Agreement, Sterling shall reimburse CTRC for
its reasonable out-of-pocket costs incurred (prior to the Effective Date) for
preparation, filing, prosecution and maintenance of any Patent Application(s)
pertaining to The Product. All such cost reimbursements shall be fully
creditable against future earned royalties from The Product.
7.2 Sterling will be responsible for all preparation, filing, prosecution
and maintenance of Patents or Patent Applications covering The Product, at its
expense, after the Effective Date. CTRC shall cooperate with Sterling in all
such activities and agrees to have executed by its employees appropriate
documents submitted by Sterling to obtain, perfect or maintain title, and to
cause such employees to furnish information and date in their possession
reasonably necessary to maintain such Patents in accordance with the provisions
of this Agreement.
7.3 CTRC shall have the right to consult with Sterling regarding the
content of said Patent Applications, prior art searches and correspondence, and
to comment thereon. Sterling shall consider all such comments offered by CTRC,
it being agreed, however, that all final decisions respecting conduct of the
prosecution of said Patent Applications shall reset solely in the discretion of
Sterling.
ARTICLE VII - DILIGENCE
8.1 Sterling shall use reasonable diligence according to usual business
practices to develop, manufacture and commercialize The Product in the U.S.,
major countries of the EC, and Japan, subject to all then existing regulatory
and economic conditions. Sterling shall earnestly and in good faith endeavor
to develop and market the product
<PAGE> 12
within a reasonable time after the Effective ate, in amounts sufficient to meet
the anticipated market demand therefor. In this regard, Sterling shall provide
CTRC with semi-annual written reports demonstrating Sterling's good faith
efforts (other than efforts by CTRC) to meet the diligence requirement, the
first such report to be provided twelve (12) months after the Effective Date.
8.2 With respect to The Product, Sterling shall be deemed to have met its
diligence obligations under this Article VIII if it has met its funding
obligations under Exhibit B, or agreed modifications thereof.
8.3 Sterling shall promptly give written notice to CTRC in the event that
funding falls below the agreed minimum level for any License Year, as set forth
in Exhibit B, and Sterling has not paid to CTRC such shortfall within thirty
(30) days after the end of the License Year. Sterling shall also give written
notice if a decision is made to discontinue the development and/or
commercialization of a Licensed Product in either of the U. S., major countries
of the EC, ( as defined in Section 4.20), or Japan (individually the
"Territory" or collectively the "Territories"). Upon either such notice, CTRC
shall have the first option, or if the parties are unable to reach agreement on
such buy-back provisions, Sterling shall have a period not to exceed 180 days
from that point of refusal or disagreement to sub- license The product to a
Third Party, provided that CTRC shall have a right to match any bona fide
offers from such Third Party. If Sterling does not sub-license The Product
within 180 days, and if CTRC does not buy back such rights, the license will
terminate and all Commercial Rights for The Product in such discontinued
territory will revert to CTRC.
8.4 If The Product has been approved for commercial sale in any country
and all required milestone payments have been made to CTRC, Sterling shall have
no obligation to make The Product available to CTRC for license or re-purchase
should Sterling seek to out-license or sell The Product for any reason.
ARTICLE IX - INFRINGEMENT
9.1 ENFORCEMENT. In the event that CTRC or Sterling determines that a
Third Party is making, using or selling The Product in any country, and within
the scope of a Valid Claim in that country, the parties shall have a period of
sixty (60) days from the date of such notice of alleged infringement to agree
between themselves whether and under what conditions and procedures to enforce
the infringed-upon Patent. If the parties do not agree, Sterling shall have
the first right to bring, at its own expense, an infringement action against
any Third Party. If Sterling does not proceed with a particular patent
infringement action within sixty (60) days thereafter, CTRC, after notifying
Sterling in writing, shall be entitled to institute proceedings against such
infringer at its own expense.
9.2 DEFENSE. In the event that Sterling or a Sterling affiliate or a
sub-licensee is sued by a Third Party charging infringement of a Patent because
of the manufacture, use, or sale by Sterling or a Sterling Affiliate or sub-
licensee of The Product, or in the
<PAGE> 13
event a Third Party brings an action to obtain a declaration of Patent
invalidity against CTRC and/or Sterling, each party will promptly notify the
other; and
(i) The named defendant(s) shall have the first right to
defend said action(s) at its or their own cost and expense and to
control ensuing litigation; or
(ii) If the named defendant(s) elect not to defend the
action(s), the other party may elect to defend the action(s) at its
own cost and expense and to control the ensuing litigation.
9.3 MUTUAL PROVISIONS. In both enforcement and defense actions the
following shall apply:
(i) The party conducting the suit shall have full control
over its conduct, but the other party will reasonably assist and
cooperate in such litigation upon request and be reimbursed for
reasonable out-of- pocket expenses incurred while providing any
requested assistance to the requesting party.
(ii) Any recovery as a result of litigation and settlement
thereof and any damages awarded shall be the property of the party
bearing the financial responsibility for such litigation.
(iii) Any royalties required to be paid by Sterling to a
Third Party as a result of such litigation or settlement thereof shall
be subtracted from the total of all charges in the determination of
Net Sales in the country of such action in the calculation of
royalties payable to CTRC.
ARTICLE X - TERM AND TERMINATION
10.1 This Agreement shall commence on the Effective Date and shall remain
in full force and effect on a country by country basis until the last to expire
of Valid Claims for The Product or, in the event of no Valid Claims, for a
period of ten (10) years from First Commercial Sale of The Product on a country
by country basis, whichever is later. Upon such expiration, Sterling will have
a fully paid-up license to make, use and sell The Product; provided however,
either party may terminate this Agreement prior to the end of the ten (10) year
period on three (3) months notice, but only in the event that any of the
following circumstances arise:
(i) The other party is in material breach or default with
respect to any material term or provision hereof and fails to cure
same within sixty (60) days after written notification thereof;
(ii) The other party is adjudicated bankrupt, has filed
against it any petition under bankruptcy, insolvency or similar law,
which is not dismissed
<PAGE> 14
within sixty (60) days, has a receiver appointed for its business or
property, or makes a general assignment for the benefit of creditors;
or
10.2 Subsequent to regulatory approval to market The Product in a given
country, but prior to the end of the period described in Article 10.1, if
Sterling, a Sterling Affiliate, sub-licensee or assignee, at its discretion
elects to terminate the commercialization or sale of The Product in that
country, then CTRC may terminate this Agreement solely as to that county, on
three (3) months notice.
10.3 Termination of this Agreement shall not affect Sterling's obligations
under Articles IV or VI hereof, nor any other rights of either party accrued
prior to such termination.
ARTICLE XI - WARRANTIES AND INDEMNIFICATIONS
11.1 Sterling hereby represents that as of the date of this Agreement, it
has the full right and authority to enter into and perform this Agreement, and
that Sterling is free of any duties or obligations to Third Parties which may
conflict with the terms of this Agreement.
11.2 CTRC hereby represents that as of the date of this Agreement, it has
the full right and authority to enter into and perform this Agreement, and that
CTRC is free of any duties or obligations to Third Parties which may conflict
with the terms of this Agreement.
11.3 Except as set forth in Article 11.4, each Party to this Agreement
shall be responsible for its own acts relating to the performance of its duties
and obligations hereunder. Neither Party shall be liable to the other for
costs, expenses, liability, damages and claims for any injury or death to
persons or damage to or destruction of property or other loss arising out of or
in connection with use of The Product by either Party, but his provision shall
not relieve either Party of the consequences of its own negligence.
11.4 Sterling hereby indemnifies and holds harmless CTRC, its subsidiaries
and CTRC Affiliates from any claim by Third Parties arising out of the use of
The Product in clinical trials, provided that such use was conducted in
accordance with applicable laws and regulations, the applicable Study Protocol
and in the absence of gross negligence or willful misconduct by CTRC. Where
CTRC is the sponsor of such clinical trials, Sterling shall have final approval
of all Protocols and informed Consents for such trials. CTRC shall give
written notice to Sterling of any claims as soon as reasonably possible, and
provide assistance to Sterling in its handling of the claim. Sterling, and/or
its insurers, shall take over such claim and may defend or settle it in its
discretion.
11.5 Neither CTRC nor any of its subsidiaries or CTRC Affiliats assume any
responsibility for the manufacture or product specifications or end-use of The
Product if manufactured by or for or sold by Sterling or by any sub-licensee or
Sterling Affiliate,
<PAGE> 15
with the exception of any of The Product manufactured by CTRC. All warranties
in connection with Teh Product made by Sterling (or its sub-licensee or
Sterling Affiliate involved) as manufacturer and/or seller shall not directly
or impliedly obligate CTRC or any of its subsidiaries or other CTRC Affiliates,
with the exception of any of The Product manufactured by CTRC. Sterling hereby
indemnifies and holds harmless CTRC, its subsidiaries and CTRC Affiliate,
except for gross negligence or willful misconduct of another party, from any
claim by Third Parties alleging that The Product or its manufacture,
recommended use, delivery or operating performance has failed to comply with
any warranty or contract between Sterling (or the sub-licensee, or Sterling
Affiliate) and such Third Party, with the exception of any of The Product
manufactured by CTRC. Sterling warrants and represents that under its
self-insurance program it has sufficient funds to honor the indemnities in this
Article XI.
11.6 In no event shall CTRC or Sterling be liable to the other for any
incidental or consequential damages including, but not limited to, loss of
profit or revenues or other indirect damages, whether a claim for such
liability or damages is premised upon breach of contract, breach or warranty,
fulfillment of warranty, negligence, strict liability, misrepresentation, fraud
indemnity or any other theories of liability.
11.7 CTRC and Sterling each warrants that it will comply with all
applicable laws and regulations in connection with its performance of this
Agreement, including the Food, Drug and Cosmetic Act and the Animal Health
Welfare Act.
ARTICLE XII - INDEPENDENT CONTRACTOR
In the performance of this Agreement, the status of CTRC, including
its employees and agents, shall be that of independent contractors and not as
employees, agents, or fiduciaries of Sterling and as such have no right to make
commitments for or on behalf of Sterling.
ARTICLE XIII - GOVERNING LAW AND ARBITRATION
13.1 This Agreement is to be read and construed in accordance with and be
governed by laws of the State of New York.
13.2 The parties agree that all disputes, controversies or claims that may
arise between them (including their agents and employees) arising out of the
operation of this agreement, shall be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration award shall be final and binding on all parties,
and may include attorney's fees and costs to the prevailing party. The
arbitration shall be held in San Antonio, Texas, U.S.A.
<PAGE> 16
ARTICLE XIV - NOTICE
Any notice or other document required to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if left at or
sent by First class, registered, express or ail mail to a party at the address
set out below for such party or such other address as the party may from time
to time designate by written notice to the other:
Address of Sterling
Sterling Winthrop Inc.
90 Park Avenue
New York, New York 10016 U.S.A.
Attention: President
Sterling Winthrop Pharmaceuticals
Research Division
Facsimile Number: 215/889-8867
and
General Counsel, Sterling Winthrop Inc.
Facsimile Number: 212/907-3084
Address of CTRC
CTRC Research Foundation
8122 Datappoint, Suite 600
San Antonio, Texas 78229 U.S.a.
Attention: Chief Operating Officer, CTRC
Facsimile Number: 210/692-9823
ARTICLE XV - ASSIGNMENT
15.1 Subject to the provisions of Articles 15.2 and 15.3, no Party to this
Agreement shall assign to any Third Party the benefit and/or burden of this
Agreement without the prior written consent of the other, which consent shall
not be unreasonably withheld.
15.2 CTRC shall be entitled, with the consent of Sterling which shall not
be unreasonably withheld, to assign, transfer, or in any manner provide, in
whole or part, the benefit and/or burden of this Agreement to a subsidiary or
CTRC Affiliate or the University of Texas Health Science Center at San Antonio
("UTHSCSA"); provided that such CTRC Affiliate, subsidiary or UTHSCSA
undertakes and agrees in writing to assume, observe and perform the rights and
powers and/or duties and obligations of CTRC under the provisions of this
Agreement being assigned, transferred or otherwise provided.
<PAGE> 17
15.3 Sterling shall be entitled, without consent, to assign, transfer, or
in any manner provide, in whole or part, the benefit and/or burden of this
Agreement to a subsidiary or Sterling Affiliate. In addition, Sterling may
without consent assign, transfer, or in any manner provide, in whole or part,
the benefit and/or burden of this Agreement to any Sterling Affiliate or
company with which it may merge or form a joint venture with respect to its
pharmaceutical oncology assets; provided that such Sterling affiliate or other
company undertakes and agrees in wiritng to assume, observe and perform the
rights and powers and/or duties and obligations of Sterling under the
provisions of this Agreement being assigned, transferred or otherwise provided.
ARTICLE XVI - MISCELLANEOUS
16.1 ENTIRE AGREEMENT AND INTEGRATION. This Agreement, the Research
Collaboration Agreement, and the Option Agreement constitute the full and
complete agreement and understanding between the Parties and supersede any and
all prior written and oral agreements with respect to The Product. The terms
and conditions of the Research Collaboration Agreement and Option Agreement, to
the extent applicable, shall be incorporated into the provisions of this
Agreement; provided however that in the event of any conflict or inconsistency,
the terms and conditions of this Agreement shall govern. This Agreement may
not be modified or amended without a written instrument executed by CTRC and
Sterling.
16.2 FORCE MAJEURE. Neither party shall be liable for any delay or
default in performance hereunder due to any cause beyond its reasonable
control, including but not limited to acts of God or the public enemy; laws,
regulations, acts or requests of any government or any government officer or
agent purporting to act under duly constituted authority; wars, floods, fires,
storms, strikes, lockouts, interruptions of transportation, freight embargoes,
or failures, exhaustion or unavailability on the open market or delays in
delivery of material, equipment or services necessary to the performance of any
provision hereof; or happening of any unforeseen act, misfortune or casualty by
which performance hereunder is delayed or prevented. The provisions of the
Article 16.2 shall not relieve either party of the obligation to make promptly
when due any monetary payment hereunder and shall not be applicable to
financial difficulties of either party or to the inability of either party to
obtain financing.
16.3 WAIVER. Sterling or CTRC may, by an instrument in writing, extend the
time for or waive the performance of any of the obligations of the other or
waive compliance by the other with any of the convenats or conditions contained
in this Agreement. Any such waiver of a condition or a covenant shall not be
deemed as a waiver of any subsequent breach or default.
16.4 SEVERABILITY. If any term or provision of this Agreement or the
application thereof to any party, person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to any party, person or circumstance
other than those as to which it is held
<PAGE> 18
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 19
IN WITNESS whereof the parties have entered into this Agreement by their duly
authorized officers the day and year first written above.
CTRC RESEARCH FOUNDATION
NAME:_____________________________
TITLE:____________________________
DATE:_____________________________
STERLING WINTHROP INC.
NAME:_____________________________
TITLE:____________________________
DATE:_____________________________
<PAGE> 1
EXHIBIT 10.33
ILEX ONCOLOGY, INC.
Warrant for the purchase of shares of Common Stock
Dated January 31, 1997, but effective as of
July 22, 1996
50,000 Shares
FOR VALUABLE CONSIDERATION RECEIVED, ILEX Oncology, Inc., a Delaware
corporation (the "Company"), hereby certifies that Chestnut Partners, Inc. or
assigns thereof is entitled to purchase from the Company, at any time or from
time to time prior to 5:00 P.M., New York City time, on that date which is five
(5) years from the date hereof, 50,000 paid and nonassessable shares of the
common stock, par value $.01 per share, of the Company upon payment of the
purchase price of $5.00 per share. (Hereinafter, (i) said common stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder or under any
other Warrant (as hereinafter defined) are referred to as the "Warrant Shares,"
(iii) the aggregate purchase price payable hereunder for the Warrant Shares is
referred to as the "Aggregate Warrant Price," (iv) the price payable hereunder
for each of the Warrant Shares is referred to as the "Per Share Warrant Price,"
(v) this Warrant, all identical warrants issued on the date hereof and all
warrants hereafter issued in exchange or substitution for this Warrant or such
other warrants are referred to as the "Warrants" and (vi) the holder of this
Warrant is referred to as the "Holder" and the holder of this Warrant and all
other Warrants are referred to as the "Holders"). The Aggregate Warrant Price
is not subject to adjustment. The Per Share Warrant Price is subject to
adjustment as hereinafter provided; in the event of any such adjustment, the
number of Warrant Shares shall be adjusted by dividing the Aggregate Warrant
Price by the Per Share Warrant Price in effect immediately after such
adjustment.
1. Exercise of Warrant.
This Warrant may be exercised, in whole at any time or in part from
time to time, prior to its expiration as set forth above by the Holder
by the surrender of this Warrant (with the subscription form at the
end hereof duly executed) at the address set forth in Section 9
hereof, together with proper payment of the Aggregate Warrant Price,
or the proportional part thereof if this Warrant is exercised in part.
Payment for Warrant Shares shall be made by (i) cashier's check or by
wire transfer of funds or (ii) the surrender for cancellation of a
portion of this Warrant having a fair market value (as determined
below) equal to the Aggregate Warrant Price. The fair market value of
the portion of such surrendered Warrant shall equal the product of (a)
the number of Warrant Shares covered by such surrendered portion
multiplied by (b) the difference between (I) the fair market value of
one Warrant Share based on the closing price (or if a closing price is
unavailable, the average of the closing bid and asked prices) for the
Common Stock if the Common Stock is traded on an organized
<PAGE> 2
securities market or, in all other events, as determined by the Board
of Directors of the Company in good faith minus (II) the Per Share
Warrant Price. The holder shall surrender for cancellation only a
portion of this Warrant covering a number of whole Warrant Shares; in
the event that as a result of the foregoing requirement the fair
market value of the portion of this Warrant surrendered exceeds the
Aggregate Warrant Price, such excess shall be paid to such holder in
cash. If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the
Holder is entitled to receive a new Warrant covering the Warrant
shares which have not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such
Warrant Shares. Upon such surrender of this Warrant, the Company will
(a) issue a certificate or certificates in the name of the Holder for
the largest number of whole shares of the Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the
Holder shall be entitled, pay to the Holder cash in an amount equal to
the fair value of such fractional share, (determined in such
reasonable manner as the Board of Directors of the Company shall
determine), and (b) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate
part thereof if this Warrant is exercised in part, pursuant to the
provisions of this Warrant.
2. Reservation of Warrant Shares: Listing.
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times (a) have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of
this Warrant, the shares of the Common Stock and other securities and
properties as from time to time shall be receivable upon the exercise
of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and (b) if the
Company has effected a public offering of its Common Stock pursuant to
a registration statement declared effective under the Securities Act
of 1933, as amended, and is subject to the periodic reporting
requirements of Section 12 or Section 15 of the Securities Exchange
Act of 1934, as amended, keep the shares of the Common Stock
receivable upon the exercise of this Warrant available for quotation
on the National Association of Securities Dealers Automated Quotation
("NASDAQ") Official System (or other national securities exchange upon
which the Common Stock is listed) upon notice of issuance.
3. Protection Against Dilution.
(a) In case the Company shall hereafter issue or sell any
Additional Stock (as defined below), the Per Share Warrant
Price shall be adjusted so that the Holder of any Warrant upon
the exercise hereof shall be entitled to receive the number of
shares of Common Stock or other capital stock of the Company
which he would have owned had he exercised the Warrant
immediately prior to such event. An adjustment made pursuant
to this Section 3(a) shall become effective immediately after
the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in
the case of a subdivision,
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<PAGE> 3
combination or reclassification. If, as a result of an
adjustment made pursuant to this Section 3(a), the Holder of
any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other capital stock of the
Company, the Board of Directors (whose determination shall be
conclusive and shall be described in a written notice to the
Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant
Price between or among shares of such classes of capital stock
or shares of Common Stock and other capital stock.
(b) In case of any capital reorganization or reclassification, the
Holder of this Warrant shall have the right thereafter to
convert such Warrant into the kind and amount of securities,
cash or other property which he would have owned or have been
entitled to receive immediately after such reorganization or
reclassification had this Warrant been exercised immediately
prior to the effective date of such reorganization or
reclassification and in any such case, if necessary,
appropriate adjustment shall be made in the application of the
provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant
to the end that the provisions set forth in this Section 3
shall thereafter correspondingly be made applicable, as nearly
as may be reasonable, in relation to any shares of stock or
other securities or, in relation to any shares of stock or
other securities or property thereafter deliverable on the
conversion of this Warrant. The above provisions of this
Section 3(b) shall similarly apply to successive
reorganizations or reclassifications. The issuer of any
shares of stock or other securities or property thereafter
deliverable on the conversion of this Warrant shall be
responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization or
reclassification and of said provisions so proposed to be
made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event.
In case of any consolidation or merger to which the Company is
a party or upon any sale or conveyance to another entity of
the property of the Company as an entirety or substantially as
an entirety, other than a consolidation, merger, sale or
conveyance in which the Company is the continuing corporation,
or in the case of any statutory exchange of securities with
another corporation (excluding any exchange effected in
connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right
thereafter to convert such Warrant into the kind and amount of
securities, cash or other property which he would have owned
or have been entitled to receive immediately after such
consolidation, merger, sale or conveyance had this Warrant
been exercised immediately prior to the effective date of such
consolidation, merger, sale or conveyance. The above
provisions shall similarly apply to successive consolidations,
mergers, sales or conveyances. The issuer of any shares of
stock or other securities or property thereafter deliverable
on the conversion of this Warrant shall be responsible for all
-3-
<PAGE> 4
of the agreements and obligations of the Company hereunder.
Notice of any such consolidation, merger, sale, conveyance or
statutory exchange shall be mailed to the Holders of the
Warrants not less than 15 days prior to such event.
(c) In case the Company shall hereafter issue or sell any
Additional Stock (as defined below), or engage in a
transaction which is deemed to involve the issuance or sale of
Additional Stock, for a consideration per share less than the
Per Share Warrant Price in effect immediately prior to the
issuance or sale of such Additional Stock, then such Per Share
Warrant Price in effect immediately prior to each such
issuance or sale shall (except as otherwise provided in this
clause (c)) be adjusted to a price determined by dividing (X)
an amount equal to the sum of (a) the product derived by
multiplying the Per Share Warrant Price in effect immediately
prior to such issue or sale times the number of shares of
Common Stock outstanding immediately prior to such issue or
sale, plus (b) the consideration, if any, received by or
deemed to have been received by the Company upon such issue or
sale, by (Y) an amount equal to the sum of (c) the number of
shares of Common Stock outstanding immediately prior to such
issue or sale, plus (d) the number of shares of Common Stock
issued or sold or deemed to have been issued or sold in such
issue or sale. The number of shares of Common Stock
outstanding for purposes of clauses (X) and (Y) immediately
above shall include any shares of Common Stock issuable (i)
upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock or the Series E Preferred Stock, (ii) upon
exercise of any warrants outstanding on the Warrant Date to
purchase shares of Common Stock (subject to appropriate
adjustment for stock splits, stock combinations, stock
dividends, reclassifications and similar events affecting the
Common Stock), (iii) upon the exercise of any options granted
to employees, advisors, officers, directors and consultants
of, and other persons performing services for, the Company in
connection with their advisory or other relationship with the
Company pursuant to option plans approved by the Board of
Directors of the Company, and (iv) upon exercise and/or
conversion or exchange of options, rights or convertible or
exchangeable securities as provided in section 3(d)(5).
(1) In the case of the issuance or sale of Common
Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof and excluding
any amounts paid or payable by the purchaser for interest or
dividends accrued but unpaid through the date of purchase.
(2) In the case of the issuance or sale of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair value thereof as determined in good faith by the Board of
Directors.
-4-
<PAGE> 5
(d) In the case of the issuance, grant or sale (whether directly
or by assumption on a merger or otherwise) after the Warrant
Date of (i) options to purchase or rights to subscribe for
Common Stock (whether or not immediately exercisable), (ii)
securities by their terms convertible into or exchangeable for
Common Stock (whether or not immediately convertible or
exchangeable) or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities
(where the shares of Common Stock issuable upon exercise of
such options or rights or upon conversion or exchange of such
securities are not excluded from the definition of Additional
Stock) (whether or not immediately exercisable, convertible or
exchangeable), if such options, rights or convertible or
exchangeable securities provide for a consideration per share
of Additional Stock (determined as provided in this Section 3)
less than the Per Share Warrant Price (as in effect
immediately prior to such issuance, grant or sale), then the
following provisions shall apply:
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections 3(c)(1) and
3(c)(2)), if any, received by the Company upon the issuance of
such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock
covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for
any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends),
plus the minimum additional consideration, if any, to be
received by the Company upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in the
manner provided in Sections 3(c)(1) and 3(c)(2)).
(3) In the event of any change in the number of
shares of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but
not limited to, a change resulting from the anti-dilution
provisions thereof, the Per Share Warrant Price in effect at
the time shall forthwith be readjusted to such Per Share
Warrant Price as would have obtained had the adjustment that
was made upon the issuance of such options, rights or
securities not converted prior to such change or the options
or rights related to such securities not converted prior to
such
-5-
<PAGE> 6
change had been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of
Common Stock upon the exercise of any such options or rights
or the conversion or exchange of such securities and in any
event such adjustment shall not result in a Per Share Warrant
Price greater than the Per Share Warrant Price as in effect on
the original adjustment date immediately preceding such
original adjustment (as otherwise appropriately adjusted for
stock splits, stock combinations, stock dividends,
reclassifications and similar events affecting the Warrants).
(4) In the event of any change in the exercise
price deliverable upon exercise of such options or rights or
the conversion or exchange price or ratio deliverable upon or
to be utilized in connection with any such conversion of or
exchange for such convertible or exchangeable securities, the
Per Share Warrant Price in effect at the time shall forthwith
be readjusted to such Per Share Warrant Price as would have
been obtained had the adjustment that was made upon the
issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change been made upon the
basis of such change, but no further adjustment shall be made
for the actual issuance of Common Stock upon the exercise of
any such options or rights or the conversion or exchange of
such securities and in any event such adjustment shall not
result in a Per Share Warrant Price greater than the Per Share
Warrant Price as in effect on the original adjustment date
immediately preceding such original adjustment (as otherwise
appropriately adjusted for stock splits, stock combinations,
stock dividends, reclassifications and similar events
affecting the Warrants).
(5) Upon the expiration of any such options or
rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Per Share
Warrant Price shall forthwith be readjusted to such Per Share
Warrant Price as would have obtained had the adjustment which
was made upon the issuance of such options, rights or
securities or options or rights related to such securities
been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of
such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights
related to such securities, and in any event such adjustment
shall not result in a Per Share Warrant Price greater than the
Per Share Warrant Price as in effect on the original
adjustment date immediately preceding such original adjustment
(as otherwise appropriately adjusted for stock splits, stock
combinations, stock dividends, reclassifications and similar
events affecting the Warrants).
(e) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease
of at least $0.01 per share of Common Stock; provided,
however, that any adjustments which by reason of this Section
3(e) are not required to be made shall be
-6-
<PAGE> 7
carried forward and taken into account in any subsequent
adjustment; provided further, however that adjustments shall
be required and made in accordance with the provisions of this
Section 3 (other than this Section 3(e)) not later than such
time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or
Common Stock issuable upon exercise hereof. All calculations
under this Section 3 shall be made to the nearest cent or to
the nearest share, as the case may be. Anything in this
Section 3 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Per Share Warrant
Price, in addition to those required by this Section 3, as it
in its discretion shall deem to be advisable in order that any
stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
(f) Whenever the Per Share Warrant Price is adjusted as provided
in this Section 3 and upon any modification of the rights of a
Holder of Warrants in accordance with this Section 3, the
Company shall promptly provide a certificate of the chief
financial officer of the Company setting forth the Per Share
Warrant Price and the number of Warrant Shares after such
adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause
copies of such certificate to be mailed to the Holders of the
Warrants.
(g) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common
Stock, other than a cash distribution out of earned surplus,
the Company shall mail notice thereof to the Holders of the
Warrants not less than 15 days prior to the record date fixed
for determining shareholders entitled to participate in such
dividend or other distribution.
(h) "Warrant Date" with respect to the Warrants means July 22,
1996.
(i) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section
3(c)) by the Company after the Warrant Date other than:
a. Common Stock issued pursuant to a transaction
described in subsection 3(c).
b. Common Stock issued or issuable upon conversion of
shares of a Preferred Stock issued by the Company.
c. Common Stock issued or issuable pursuant to (i)
warrants outstanding as of the Warrant Date,
including this Warrant, and the warrants to purchase
573,395 shares of Common Stock issued to the
purchasers of the Series C Preferred Stock or (ii)
options granted to employees, advisors, officers,
directors and consultants
-7-
<PAGE> 8
of, and other persons performing services for,
Company in connection with their advisory or other
relationship with the Company pursuant to option
plans approved by the Board of Directors of the
Company, but not to exceed 2,300,000 shares (subject
to appropriate adjustment for stock splits, stock
combinations, stock dividends, reclassifications and
similar events affecting the Common Stock)
(including, without limitation, pursuant to options
outstanding as of the Warrant Date) less that number
of shares of Common Stock previously issued pursuant
to such option plans as of the date such exclusion is
being determined.
4. Fully Paid Stock; Taxes.
The Company agrees that the shares of the Common Stock represented by
each and every certificate for Warrant Shares delivered on the
exercise of this Warrant shall, at the time of such delivery, be
validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive rights, and the Company will take all such
actions as may be necessary to assure that the par value or stated
value, if any, per share of the Common Stock is at all times equal to
or less than the then Per Share Warrant Price. The Company further
covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes which may
be payable in respect of the issue of any Warrant Share or certificate
therefor.
5. Registration Rights.
The Holder of this Warrant and/or Warrant Shares shall have certain
registration and other rights as set forth in the Fourth Amended and
Restated Registration Rights Agreement (the "Agreement") dated as of
January 31, 1997, which is attached hereto as Appendix A. This
Warrant is referred to in the Agreement as the Chestnut Warrants.
6. Loss, Etc., of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
7. Warrant Holder Not Shareholders.
Except as otherwise provided herein, this Warrant does not confer upon
the Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters
whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
-8-
<PAGE> 9
8. Amendment.
These Warrants may be amended by mutual agreement of the Company and
the Holders of a majority of the then outstanding Warrants.
9. Communication.
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and
shall be deemed to have been given if the same is in writing and is
mailed by first-class mail, postage prepaid, addressed as set forth
below.
If to the Company: ILEX Oncology, Inc.
14785 Omicron Drive
San Antonio, TX 78245-3217
Attn: Corporate Secretary
or such other address as the Company has designated in writing to the
Holder.
If to the Holder: Chestnut Partners, Inc.
One Financial Center
Boston, MA 02111-2621
or such other address as the Holder has designated in writing to the
Company.
10. Headings.
The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
11. Applicable Law.
This Warrant shall be governed by and construed in accordance with the
law of the State of Texas without giving effect to the principles of
conflicts of law thereof.
-9-
<PAGE> 10
IN WITNESS WHEREOF, ILEX Oncology, Inc. has caused this Warrant to be signed by
its President and its corporate seal to be hereunto affixed and attested by its
Secretary this 31st day of January, 1997, but to be effective as of July 22,
1996.
/s/ Richard L. Love
----------------------------
Richard L. Love
President
ATTEST:
/s/
- ----------------------------------------------
Corporate Secretary
- --------------------------
[Corporate Seal]
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<PAGE> 11
SUBSCRIPTION
The undersigned, __________________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase _________ shares
of the Common Stock of ILEX Oncology, Inc. covered by said Warrant, and makes
payment therefor in full at the price per share provided by said Warrant.
Dated: Signature:
--------------------------- -------------------------
Address:
-------------------------
-------------------------
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<PAGE> 12
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers unto
_________________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
ILEX Oncology, Inc.
Dated: Signature:
--------------------------- -------------------------
Address:
----------------------------
----------------------------
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<PAGE> 13
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ________________________ hereby assigns and transfers unto
______________________________ the right to purchase _________________ shares
of the Common Stock of ILEX Oncology, Inc. by the foregoing Warrant, and a
proportionate part of said Warrant and the rights evidenced hereby, and does
irrevocably constitute and appoint _______, attorney, to transfer that part of
said Warrant on the books of ILEX Oncology, Inc.
Dated: Signature:
----------------------------- ------------------------
Address:
--------------------------
--------------------------
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<PAGE> 1
EXHIBIT 10.69
[Confidential treatment has been requested for portions of this exhibit. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the commission.]
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is effective as of the 11th day of December,
1996, by and among MPILEX Partners, L.P., a Delaware limited partnership
("NEWCO"), having an address at 14785 Omicron Drive, San Antonio, Texas
78245-3217, U.S.A. and ILEX Oncology Inc. ("ILEX"), formerly known as Biovensa
Inc., having an address at 14785 Omicron Drive, San Antonio, Texas 78245-3217,
U.S.A.
WHEREAS, ILEX entered an agreement (the "B.W. Agreement") with
Burroughs Wellcome Co. (now known as Glaxo Wellcome Inc.) ("B.W. Co.") and the
Wellcome Foundation Limited ("WFL"), pursuant to which ILEX was granted a
license, with the right to sublicense, to certain worldwide rights to make,
use, and sell piritrexim isethionate, also known as 2, 4--diamino--6 (2,
5--dimethoxybenzyl)--5--methylpyrido--(2, 3--D) pyrimidine, in all forms and
formulations; and
WHEREAS, NEWCO is interested in obtaining an exclusive sublicense of
ILEX's worldwide rights to such Patent Rights and Know-How to use and sell the
Compound and Products containing the Compound; and
WHEREAS, ILEX is willing to grant such license to NEWCO;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, the parties hereto mutually agree as
follows:
ARTICLE 1. DEFINITIONS
As used in this Agreement, the following terms, whether used in the
singular or the plural, shall have the following meanings:
1.1 "Affiliate" means any corporation or entity which controls, is
controlled by, or is under common control with ILEX or NEWCO. A corporation or
entity shall be regarded as in control of another corporation if it owns or
directly or indirectly controls at least [**] of the voting
stock of the other corporation, or (i) in the absence of the ownership of at
least [**] of the voting stock of a corporation or (ii) in the
case of a non-corporate entity, if it possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation or non-corporate entity, as applicable.
1.2 "Agreement" means this License Agreement.
1.3 "Approval Date" means the calendar date upon which necessary
government authorities in a country issue final approval legally required
before a Product may be commercialized in such country.
<PAGE> 2
1.4 "Base Currency" means (i) Dollars, with respect to sales of
Products in the U.S. and royalties payable to ILEX thereon; and (ii) Sterling,
with respect to sales of Products in the Non-U.S. Territory and royalties
payable to ILEX thereon.
1.5 "B.W. Agreement" means the License Agreement entered into by
Burroughs Wellcome Co., the Wellcome Foundation Limited, and ILEX effective as
of the Operative Date. A copy of the B.W. Agreement is attached hereto as
Exhibit "I" and made a part hereof.
1.6 "Compound" means the chemical known as piritrexim isethionate,
having the chemical structure set forth on Appendix II attached hereto and made
a part hereof.
1.7 "Cost of Manufacturing" means the actual cost incurred by ILEX
in the manufacture of formulated Compound, including all packaging,
transportation and handling charges, excise, use, and sales taxes, or any
import/export duties actually paid.
1.8 "Dollars" or "$" means United States dollars.
1.9 "Effective Date" means the date appearing at the beginning of
this Agreement.
1.10 "Europe" means all countries which are Member States, from
time to time, of the European Economic Area.
1.11 "FDA" means the United States Food and Drug Administration or
any successor entity.
1.12 "Field" means the treatment or prophylaxis of cancer in humans
and conditions other than cancer which are associated with cancer or the
treatment or prophylaxis of cancer in humans.
1.13 "First Commercial Sale" means the date on which NEWCO or a
sublicensee first transfers title to a Product to a Third Party for monetary
consideration.
1.14 "ILEX's License Rights" means the license rights B.W. Co. and
WFL granted ILEX in the B.W. Agreement.
1.15 "IND" means an Investigational New Drug application or any
equivalent successor application.
1.16 "Know-How" means all inventions, technical data, techniques,
knowledge, and other information, whether or not patented or patentable, that
are (i) reasonably necessary to manufacture a Product or to use the Compound in
the Field, including all regulatory filings, clinical trial data, synthesis
and analytic procedures and reference standards, and (ii) owned by ILEX or
licensed to ILEX under the B.W. Agreement.
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<PAGE> 3
1.17 "Major European Country" shall mean any of Great Britain,
France, Germany, Italy, Spain, or the Netherlands.
1.18 "NDA" means a New Drug Application or any equivalent successor
application.
1.19 "Net Sales," with respect to any Product containing the
Compound as the sole active ingredient, means the gross sales (i.e., gross
invoice prices) of such Product billed by NEWCO and its sublicensees to Third
Party customers, less: (i) actual credited allowances to such Third Party
customers for spoiled, damaged, outdated and returned Product and for
allowances in lieu of returned Product following price increases; (ii) the
amounts of customary trade and cash discounts, to the extent such trade and
cash discounts are not deducted by NEWCO or its sublicensees at the time of
invoice in order to arrive at the gross invoice prices; (iii) all
transportation and handling charges, sales taxes, excise taxes, use taxes,
value added taxes, other similar taxes, or import/export duties actually paid;
and (iv) all other invoiced allowances and adjustments actually credited to
customers including, but not limited to, rebates paid to Third Party payors,
whether during the specific royalty period, as defined in Section 5.1, or not.
1.20 "Net Sales," with respect to any Product containing one or
more active ingredients in addition to the Compound, means the gross sales of
such Product billed by NEWCO and its sublicensees to Third Party customers,
less all the allowances, adjustments, discounts, taxes, duties and other
charges referred to in clauses (i) through (iv) of Section 1.18, multiplied by
a fraction, the numerator of which shall be the manufacturing cost or
acquisition cost, as applicable, of the Compound included in such Product and
the denominator of which shall be the manufacturing cost or acquisition cost,
as applicable, of all active ingredients in such Product, including the
Compound. These costs shall be computed using the standard cost accounting
procedures of ILEX in accordance with generally accepted accounting principles
(i.e., GAAP).
1.21 "Operative Date" means the 31st day of March, 1995, the date
which the B.W. Agreement became effective.
1.22 "Patent Rights" means, collectively, the B.W. Co. Patent
Rights and the WFL Patent Rights licensed to ILEX under the B.W. Agreement as
more fully described in Exhibit "I" attached hereto and made a part hereof.
1.23 "Product" means the Compound or any product containing the
Compound as an active ingredient, which is (i) covered by a Valid Claim or (ii)
made or developed using the Know-How.
1.24 "Registration" means in relation to any Product such approvals
by government authorities in a country (including price approvals) as may be
legally required before such Product may be commercialized in such country.
1.25 "Sterling" or "L" means English Pounds Sterling.
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<PAGE> 4
1.26 "Submittal Date" means the calendar date upon which NEWCO
forwards, whether by mail, facsimile, electronically, carrier, or otherwise, a
Registration dossier or NDA to appropriate government authorities.
1.27 "Technology" means the Patent Rights together with all
Know-How related or pertaining to the Field.
1.28 "Territory" means the U.S. and Non-U.S. Territory.
1.29 "Non-U.S. Territory" means the entire world excluding the
U.S.
1.30 "Third Party" means any party other than MPI Enterprises,
L.L.C. ("MPI"), ILEX, NEWCO, ILEX's and NEWCO's respective Affiliates, and
NEWCO's sublicensees.
1.31 "U.S." means the United States of America, its territories and
possessions.
1.32 "Valid Claim" means a claim of an issued and unexpired patent
included within the Patent Rights which has not been held unenforceable,
unpatentable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.
ARTICLE 2. REPRESENTATIONS & WARRANTIES
Each party hereto represents and warrants to the other that it is free
to enter into this Agreement and to carry out its obligations hereunder,
including, in the case of ILEX, the right to grant the license granted by it
pursuant to Article 3 hereof. Except as set forth in this Article 2, ILEX
makes no representations or warranties with respect to the Patent Rights or the
Know-How.
ARTICLE 3. GRANT
3.1 License Grant. Subject to the provisions of Section 3.2 and 3.3
in respect of the exclusive sublicense granted in this Section 3.1, and B.W.
Co.'s and WFL's reservation of rights set forth in Section 3.3 of the B.W.
Agreement, and any other limitation upon ILEX's License Rights set forth in the
B.W. Agreement, ILEX hereby grants to NEWCO, under the Patent Rights and
Know-How, an exclusive sublicense in the Territory in the Field with a right to
sublicense, to make, have made, use and sell Products.
3.2 Reservation of Rights. ILEX hereby reserves the perpetual,
royalty-free right to practice the Patent Rights and to use the Know-How for
research purposes.
3.3 Manufacturing and Marketing Rights. ILEX hereby reserves the
rights set forth in Sections 8.3 and Article 9.
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<PAGE> 5
ARTICLE 4. LICENSE FEE AND MILESTONE PAYMENTS
4.1 License Fee. As partial consideration for the licenses
granted hereunder, NEWCO will pay ILEX a total sum of One Million Five Hundred
Thousand Dollars ($1,500,000) upon Effective Date.
4.2 Milestone Payments. As partial consideration for the licenses
granted hereunder, and subject to fulfillment of preconditions to payment
referred to in this Section 4.2, NEWCO will pay ILEX the following sums:
(i) [**] within ten (10)
days of the Submittal Date of the first NDA in the
United States;
(ii) [**] within ten
(10) days of the Submittal Date of the first
Registration dossier in a Major European Country;
(iii) [**] within ten
(10) days of the Submittal Date of the first
Registration in Japan;
(iv)
[**] within ten (10) days of the Approval
Date of the first Approval of the NDA in the United
States;
(v)
[**] within ten (10) days of the Approval
Date of the first Registration dossier by a Major
European Country;
(vi) [**] within ten (10)
days of the Approval Date of the first Registration
dossier in Japan.
4.3 Payment. Payment of each installment of the License Fee and
Milestone Payment shall be made in Dollars directly to ILEX.
ARTICLE 5. ROYALTIES
5.1 Earned Royalties. Subject to adjustment as set forth in
Section 5, NEWCO shall pay ILEX a royalty on Net Sales of Products in (i) the
U.S. and in (ii) the Non-U.S. Territory at the royalty rate of [**]
on Net Sales of Products in the respective Territories in a calendar
year, except as provided below.
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<PAGE> 6
Royalties shall be paid in respect of Net Sales of Products in a given
country of the Territory for a period of ten (10) years from the date of First
Commercial Sale of the first Product in such country. Thereafter, royalties
shall be paid in respect of a given Product only so long as the manufacture,
sale or use of such Product in such country would, but for the license granted
herein, infringe a Valid Claim. With respect to countries where all Valid
Claims expire before the 10-year period, the royalty rate on Net Sales of
Products shall be reduced to [**] for the remainder of the
10-year period. Notwithstanding the foregoing, however, with respect to Europe
only, royalties on Net Sales of a given Product which are payable only by
virtue of clause (ii) of Section 1.22 shall be payable on a country-by-country
basis commencing with the first commercial sale of such Product in such country
and ending on the earlier of (x) the date on which the Know-How used to make
and develop such Product becomes published or generally known to the public
through no fault on the part of NEWCO or its Affiliates or sublicensees or (y)
the eighth (8th) anniversary of the commercial sale of the first Product in
such country.
5.2 Payment to B.W. Co. and WFL. ILEX hereby undertakes and
agrees to transfer the applicable royalty payments to B.W. Co. and WFL, in
accordance with the B.W. Agreement. ILEX shall indemnify and hold NEWCO, its
Affiliates, directors, officers, employees and agents harmless from and against
any liabilities for ILEX's breach of this Section 5.2 and NEWCO shall have the
right to set off future royalties due ILEX pursuant to Section 5.1 by the
amount of such liability.
5.3 Third Party Sales.
(i) With respect to any country in which Patent Rights do not
exist, if (a) a product containing the Compound as an active ingredient for use
in the Field is introduced by a Third Party (a "Competitive Product") and (b)
sales by such Third Party exceed the applicable percentage set forth below of
unit sales of NEWCO and its sublicensees of Products in such country in any
calendar quarter, then the royalty rates specified in Sections 5.1 applicable
to sales by NEWCO and its sublicensees of Products in such country during such
calendar quarter shall be adjusted as set forth below:
<TABLE>
<CAPTION>
% Third Party Unit Sales ("X") %
------------------------------ --
Reduction in Section 5.1 Royalty Rates
- --------------------------------------
<S> <C>
X less than or equal to [**] [**]
[**] less than X less than [**] [**]
X greater than or equal to [**] [**]
</TABLE>
By way of example only, if in a given calendar quarter a Third Party's unit
sales of a Competitive Product in a country were [**] of
the unit sales by NEWCO and its sublicensees of Products in such country for
the same calendar quarter, the royalty rates applicable to such sales by NEWCO
and its sublicensees during such calendar quarter would be [**]
.
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<PAGE> 7
(ii) For purposes of this Section 5.3, Third Party unit sales shall
be measured by the sales reported by IMS America Ltd. of Plymouth Meeting,
Pennsylvania and its affiliates ("IMS") or another independent marketing firm
selected and paid by NEWCO and reasonably acceptable to ILEX. NEWCO shall
furnish to ILEX copies of reports of IMS or such other auditing firm for the
relevant calendar quarter(s), together with NEWCO's royalty reports and NEWCO's
royalty payments for the relevant quarters.
5.4 Accrual of Royalties. No royalty shall be payable on a
Product made, sold, or used for tests or development purposes or distributed as
samples. No royalties shall be payable on sales among NEWCO and NEWCO's
sublicensees, but royalties shall be payable on the initial subsequent sale by
NEWCO or its sublicensees to a Third Party. No multiple royalty shall be
payable because the manufacture, use or sale of a Product is covered by more
than one Valid Claim or is subject to both Know-How and a Valid Claim.
5.5 Third Party Royalties. If (i) NEWCO or its sublicensees and
(ii) ILEX agree that NEWCO or its sublicensees are required to pay royalties to
any Third Party because the manufacture, use or sale of a Compound contained in
a given Product infringes any patent or other intellectual property rights of
such Third Party in a given country, NEWCO or its sublicensees may deduct equal
amounts from royalties thereafter due to ILEX pursuant to paragraph 5.1 with
respect to Net Sales of such Product in such country up to [**]
of the royalties or such other fees paid to such Third Party, subject to the
limitation in the immediately following sentence. In no event shall the
royalties due to ILEX, pursuant to Paragraph 5.1, on such Net Sales of such
Product in such country on account of any reduction pursuant to this Section
5.5 be thereby reduced by more than [**] of the royalties
which otherwise would have been due hereunder on such Net Sales of such Product
in such country.
ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING
6.1 Royalty Reports; Records. During the term of this Agreement,
NEWCO shall furnish to ILEX, in respect of Net Sales of Products in the U.S.
and in respect of Net Sales of Products in the Non-U.S. Territory, a written
report or reports covering each calendar quarter (a "Royalty Period") showing
(i) the Net Sales of all Products in the U.S. or the Non-U.S. Territory, as
applicable, during the Royalty Period; (ii) the royalties, payable in the Base
Currency, which shall have accrued hereunder in respect of such sales; (iii)
withholding taxes, if any, required by law to be deducted in respect of such
sales; and (iv) the exchange rates used in determining the amount of the
royalties payable in the Base Currency. With respect to sales of Products
invoiced in the Base Currency, the Net Sales and royalty payable shall be
expressed in such Base Currency. With respect to sales of Products invoiced in
a currency other than the Base Currency, the Net Sales and royalty payable
shall be expressed in the domestic currency of the party making the sale
together with the Base Currency equivalent of the royalty payable, calculated
using the simple average of the exchange rates published in the London
Financial Times under the heading "World Value of the Pound" on the last day of
each month during the Royalty Period in which the London Financial Times' Guide
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<PAGE> 8
is published (currently Tuesdays). If any sublicensee makes any sales invoiced
in a currency other than its domestic currency, the Net Sales shall be
converted to its domestic currency in accordance with the sublicensee's normal
accounting principles. NEWCO shall furnish to ILEX appropriate evidence of
payment of any tax or other amount required by applicable laws or regulations
to be deducted from any royalty payment. Reports shall be due on the
forty-fifth (45th) day following the close of each respective calendar quarter.
NEWCO shall keep accurate records in sufficient detail to enable the royalties
payable hereunder to be determined. NEWCO shall be responsible for all
royalties and late payments that are due to ILEX but have not been paid by
NEWCO's sublicensees to NEWCO
6.2 Right to Audit. Upon the written request of B.W. Co. or WFL
or ILEX (the "Auditing Party"), at its expense and not more than once in each
calendar year (i.e., once for B.W. Co. and once for WFL and once for ILEX),
NEWCO shall permit an independent public accountant, selected by the Auditing
Party, and acceptable to NEWCO (the "Auditor"), which acceptance shall not be
unreasonably refused, to have access during normal business hours to those
records of NEWCO as may be reasonably necessary to verify the accuracy of the
royalty reports furnished by NEWCO pursuant to Section 6.1 of this Agreement in
respect of any calendar year ending not more than forty-eight (48) months prior
to the date of such request. NEWCO shall include in each sublicense granted by
it pursuant to this Agreement a provision requiring the sublicensee to keep and
maintain records of sales made pursuant to such sublicense and to grant access
to such records by the Auditor. If the Auditor's report shows any underpayment
of royalties, within twenty five (25) days after NEWCO's receipt of such
report, NEWCO shall remit to ILEX (i) the amount of such underpayment and (ii)
if such underpayment exceeds [**] of the total royalties owed to
the Auditing Party for the calendar year then being audited, the reasonable and
necessary fees and expenses of the Auditor, subject to reasonable
substantiation thereof. Any overpayment of royalties shall be fully creditable
against future royalties payable to the Auditing Party in subsequent Royalty
Periods.
6.3 Confidentiality of Records. The Auditing Party agrees that
all information subject to review under this Article 6 or under any sublicense
agreement is confidential and that it and its accountant shall retain all such
information in confidence in accordance with the provisions of Article 13
hereof. At NEWCO's request, the Auditor shall execute a confidentiality
agreement with respect to the information subject to review under this Article
6.
ARTICLE 7. ROYALTY AND OTHER PAYMENTS
7.1 Royalty Payment Due Dates. Royalties shown to have accrued in
each royalty report provided for under Article 6 of this Agreement shall be due
and payable on the date such royalty report is due. Payment of royalties in
whole or in part may be made in advance of such due date.
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<PAGE> 9
7.2 Currency Restrictions. Except as hereinafter provided in this
Section 7.2, all royalties due shall be paid in the Base Currency. If at any
time legal restrictions prevent the prompt remittance of part or all royalties
with respect to any country of the Territory where the Products are sold, NEWCO
shall have the right and option to make such payments by depositing the amount
thereof in local currency to ILEX's account in a bank or depository in such
country.
7.3 Interest. Royalties, Milestone, and other payments required
to be paid by NEWCO pursuant to this Agreement shall, if overdue, bear interest
at a per annum rate of [**] or the maximum rate allowed by
law, whichever is less, until paid. The payment of such interest shall not
preclude ILEX from exercising any other rights it may have because any payment
is overdue.
ARTICLE 8. DEVELOPMENT AND MARKETING PROGRAM
8.1 Development Plan. NEWCO shall prepare a development program
and budget (the "Development Plan") to conduct clinical studies and such other
work as is necessary to file for and obtain marketing approval of the Compound,
for one or more indications, in the United States, Europe, and Japan. NEWCO
shall exercise its best efforts to formulate the Development Plan in the
shortest time possible.
8.2 Oversight of Development Plan. ILEX and NEWCO agree that
NEWCO shall oversee the Development Plan. On an annual basis, NEWCO shall
review, modify, and adjust the Development Plan as appropriate. NEWCO shall
undertake and comply with ILEX's obligations set forth in Sections 8.1, 8.2,
and 8.3 of the B.W. Agreement.
8.3 Commercialization Plan. ILEX will have a right of first
refusal to market the Products in the countries for which approval to market
has been obtained, provided that ILEX reasonably demonstrate that it has
reasonably competitive capabilities and pricing to accomplish such marketing.
8.4 Progress Reports. Until commercial introduction of the first
Product, NEWCO will provide a semiannual report to ILEX summarizing NEWCO's
activities related to the development of the Products and securing of the
requisite Registrations during the semiannual period covered by such report.
ARTICLE 9. MANUFACTURE AND SUPPLY
ILEX shall have the exclusive right, except to the extent that the
partners in NEWCO agree to have a back-up manufacturer, to supply formulated
Product to NEWCO and its sublicensees provided that ILEX can reasonably
demonstrate that it has reasonably competitive capabilities and can supply such
Product at reasonably competitive prices. The parties will use their
reasonable efforts to keep the cost of Product below [**] of Net
Sales.
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<PAGE> 10
ARTICLE 10. PATENT RIGHTS
10.1 Patent Prosecution and Maintenance. The parties acknowledge
and agree that pursuant to the B.W. Agreement, B.W. Co. and WFL have primary
responsibility for preparation, filing, prosecution, and maintenance of Patent
Rights. Should at any time during the term of this Agreement, ILEX be given
the opportunity to prosecute any patent application or to maintain any Patent
Rights in any country in the Territory pursuant to Article 9.1 of the B.W.
Agreement, ILEX shall (i) use reasonable efforts to prosecute patent
applications within the Patent Rights, to obtain patents thereon and to
maintain any such patents during the term hereof using patent counsel of their
choice, or (ii) offer NEWCO the right to prosecute such patent application
and/or to maintain such patent at NEWCO's expense.
10.2 Patent Prosecution Costs. NEWCO shall reimburse ILEX for the
reasonable out-of-pocket expenses incurred in the performance of ILEX's, B.W.
Co.'s, or WFL's obligations pursuant to Section 10.1 and out-of-pocket expenses
ILEX incurred pursuant to section 9.3 of the B.W. Agreement. ILEX shall
invoice NEWCO for such expenses on or before April 30 and October 31 of each
year with respect to those out-of-pocket expenses ILEX has incurred for the six
(6) month period ending on the last day of the immediately preceding August or
February. Such invoice shall itemize, in reasonable detail, the expenses which
have been incurred on a country-by-country basis. Payment of each invoice
shall be due net twenty (20) days after its date.
ARTICLE 11. THIRD PARTY INFRINGEMENT
In the event that NEWCO becomes aware that a product containing the
Compound for use in the Field is being made, used or sold in the Territory and
it believes that such product infringes a Valid Claim, it shall promptly advise
ILEX of all the relevant facts and circumstances known by it in connection with
the infringement. In the event that (i) ILEX and B.W. Co. and WFL shall fail,
within ninety (90) days after ILEX receives notice from NEWCO, either (a) to
terminate such infringement or (b) to institute an action to prevent
continuation thereof and, thereafter, to prosecute such action diligently, or
(ii) ILEX earlier notifies NEWCO that ILEX and B.W. Co. and WFL do not plan to
terminate the infringement or institute such action, then NEWCO shall have the
right to do so at its own expense. ILEX shall cooperate with NEWCO in such
effort including being joined as a party to such action, if necessary. Any
damages or costs recovered in connection with any action filed by NEWCO
hereunder, after first reimbursing NEWCO for its out-of- pocket costs and
expenses of litigation, shall be deemed to be Net Sales of Products in the
calendar year actually received by NEWCO and royalties shall be payable by
NEWCO to ILEX thereon in accordance with the terms of this Agreement. Any
damages or costs recovered in connection with any action filed by ILEX
hereunder, after reimbursing ILEX for its out-of-pocket costs and expenses of
litigation and royalties due to either B.W. Co. or WFL, respectively, in
accordance with the B.W. Agreement shall be divided among ILEX and NEWCO on an
equal basis. Any damages or costs recovered in connection with any action
filed by B.W. Co. or WFL, respectively, in connection with any action filed by
it under Article 10 of the B.W. Agreement, after first reimbursing B.W. Co. or
WFL for its out-of-pocket
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<PAGE> 11
costs and expenses of litigation, shall be divided by ILEX and NEWCO in equal
amounts of [**] .
ARTICLE 12. INDEMNIFICATION; INSURANCE
12.1 Indemnification by NEWCO. NEWCO agrees to indemnify and hold
ILEX, its Affiliates, directors, officers, employees and agents harmless from
and against any liabilities or damages or expenses in connection therewith
(including reasonable attorneys' fees and costs and other expenses of
litigation) resulting from (i) claims arising out of NEWCO's or its
sublicensees' testing, use, manufacture or sale of the Products; (ii) the
successful enforcement (i.e., a judgment issued by a court of competent
jurisdiction against NEWCO, unappealable or unappealed by NEWCO within the time
allowed therefor) by ILEX of its indemnification rights set forth in clause (i)
of this Section 12.1; or (iii) the successful enforcement (i.e., a judgment
issued by a court of competent jurisdiction against NEWCO, unappealable or
unappealed by NEWCO within the time allowed therefor) by either B.W. Co. or WFL
of a claim against ILEX that arises under the B.W. Agreement.
12.2 Indemnification Procedures. If ILEX (the "indemnitee")
intends to claim indemnification under this Article 12, ILEX shall promptly
notify NEWCO (the "indemnitor") in writing of any action, claim or liability in
respect of which the indemnitee or any of its Affiliates, directors, officers,
employees or agents intend to claim such indemnification. The indemnitee shall
permit, and shall cause its Affiliates, directors, officers, employees and
agents to permit, the indemnitor, at its discretion, to settle any such action,
claim or liability and agrees to the complete control of such defense or
settlement by the indemnitor; provided, however, that such settlement does not
adversely affect the indemnitee's rights hereunder or impose any obligations on
the indemnitee in addition to those set forth herein in order for it to
exercise such rights. No such action, claim or liability shall be settled
without the prior written consent of the indemnitor and the indemnitor shall
not be responsible for any legal fees or other costs incurred other than as
provided herein. The indemnitee and its Affiliates, directors, officers,
employees and agents shall cooperate fully with the indemnitor and its legal
representatives in the investigation and defense of any action, claim or
liability covered by this indemnification. The indemnitee shall have the
right, but not the obligation, to be represented by counsel of its own
selection and expense.
12.3 Insurance.
(i) NEWCO shall take out and maintain, at its own expense, during
the term of this Agreement, and for a minimum of two (2) years following the
expiration, termination or cancellation of this Agreement, product liability
coverage from an insurance company or companies reasonably satisfactory to
ILEX. During the clinical development of Products, such coverage shall be at
least [**] per occurrence. Promptly upon commercial introduction of the
initial Product, the parties shall negotiate in good faith an increase in such
coverage. The insurance policy relating to such coverage shall name ILEX, B.W.
Co., and WFL as additional insureds by way of endorsement or otherwise as their
respective interests may appear.
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<PAGE> 12
(ii) Within thirty (30) days after the Effective Date, NEWCO shall
cause to be delivered to ILEX an insurance certificate evidencing the insurance
coverage required by Subsection 12.3(i). Such insurance certificate shall name
ILEX, B.W. Co., and WFL as additional insureds as their respective interests
may appear.
ARTICLE 13. CONFIDENTIALITY
13.1 Treatment of Confidential Information. Except as otherwise
provided in this Article 13, during the term of this Agreement and for a period
of five (5) years thereafter:
(i) NEWCO will retain in confidence and use only for purposes of
this Agreement any information and data supplied by or on behalf of ILEX to
NEWCO under this Agreement; and
(ii) ILEX will retain in confidence and use only for purposes of
this Agreement any information and data supplied by or on behalf of NEWCO to
ILEX under this Agreement.
For purposes of this Agreement, all such information and data which a
Party is obligated to retain in confidence shall be called "Information."
13.2 Right to Disclose. To the extent it is reasonably necessary
or appropriate to fulfill its obligations or exercise its rights under this
Agreement or any rights which survive termination or expiration hereof, a party
may disclose Information to its Affiliates, sublicensees (actual and
prospective), investors (actual and prospective), consultants, outside
contractors and clinical investigators on condition that such entities or
persons agree (i) to keep the Information confidential for at least the same
time periods and to the same extent as each party is required to keep the
Information confidential and (ii) to use the Information only for such purposes
as such party is entitled to use the Information. Each party or its Affiliates
or, if applicable, its sublicensees may disclose such Information to government
or other regulatory authorities to the extent that such disclosure (a) is
reasonably necessary to obtain patents or authorizations, to conduct clinical
trials and to market commercially the Product, provided such party is otherwise
entitled to engage in such activities under this Agreement or (b) is otherwise
required by applicable laws or regulations. To the extent reasonably necessary
or appropriate to fulfill its obligations or exercise its rights under the B.W.
Agreement or any rights that survive termination or expiration thereof, ILEX
may disclose information to B.W. Co. or WFL, under terms set forth in Sections
12.1-12.5 of the B.W. Agreement.
13.3 Release From Restrictions. The obligation not to disclose
Information shall not apply to any part of such Information that (i) is or
becomes patented, published or otherwise part of the public domain other than
by acts of the party obligated not to disclose such Information (for purposes
of this Article 13, the "receiving party") or its Affiliates or sublicensees in
contravention of this Agreement; (ii) is disclosed to the receiving party or
its Affiliates or sublicensees by a Third Party, provided such Information was
not obtained by such Third Party directly or indirectly
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<PAGE> 13
from the other party under this Agreement; (iii) prior to disclosure under this
Agreement, was already in the possession of the receiving party or its
Affiliates or sublicensees, provided such Information was not obtained,
directly or indirectly, from the other party under this Agreement or under an
obligation of confidence; (iv) results from research and development by the
receiving party or its Affiliates or sublicensees independent of disclosures
from the other party under this Agreement; (v) has been approved for
publication by the parties hereto; or (vi) is Product-related information which
is reasonably required to be disclosed in connection with the marketing of the
Product.
13.4 Confidentiality of Agreement. Except as otherwise required by
law or applicable regulation or the terms of this Agreement or otherwise
mutually agreed upon by the hereto, each party shall treat as confidential the
terms, conditions and existence of this Agreement. Notwithstanding the
foregoing, a party may disclose such terms, conditions and existence to an
Affiliate or, in the case of NEWCO, a sublicensee, which agrees to be bound by
the terms of this Section 13.4 to the same extent as such party.
13.5 Right to Publication. NEWCO agrees that ILEX shall have the
right to publish or to present publicly (collectively, a "Publication") the
results of any research, work or other development performed pursuant to this
Agreement by or on behalf of ILEX (collectively, the "Results"). ILEX agrees
to submit any proposed Publication to NEWCO for its review at least thirty (30)
days prior to submission or presentation of such Publication. If NEWCO
requests a delay in submission or presentation based on patent considerations,
NEWCO agrees to delay such submission or presentation for a period not to
exceed ninety (90) days from the date of such request. ILEX further agrees to
give due consideration to any comments made by NEWCO with respect to such
Publication but, except as set forth in the immediately following sentence,
ILEX shall determine the content of the Publication.
ARTICLE 14. TERM; TERMINATION
14.1 Term; Termination. Unless terminated sooner pursuant to
Section 14.3 this Agreement shall become effective as of the Effective Date and
shall continue in full force and effect until the expiration of the later of
ILEX's obligation to pay royalties under the B.W. Agreement or NEWCO's
obligation to pay royalties hereunder; at which time, notwithstanding anything
to the contrary contained herein, all rights licensed to NEWCO herein shall be
deemed to be converted to a fully paid, non-exclusive, irrevocable, royalty
free license of the Technology in the Territory to use, sell and have sold
Products incorporating, utilizing or otherwise commercially exploiting the
Technology in the Field. Upon expiration or termination of this Agreement with
respect to one or more countries of the Territory, the rights and obligations
of the parties with respect to such country or countries shall cease, except as
follows:
(i) the rights and obligations of the parties under Article 12
shall survive termination or expiration;
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<PAGE> 14
(ii) upon expiration or termination for any reason, the obligations
of confidentiality and use of Information under Article 13 shall survive for
the period provided therein;
(iii) upon termination, NEWCO's obligations under Sections 14.3,
14.4 and 14.5 shall survive; and
(iv) expiration or termination of this Agreement shall not relieve
the parties of any other obligation accruing prior to such termination.
14.2 Paragraph 13.2 of the B.W. Agreement. ILEX agrees not to
exercise its rights under Section 13.2 of the B.W. Agreement unless (i) NEWCO
is in breach of this Agreement or (ii) ILEX and NEWCO agree to do so.
14.3 Termination For Cause.
(i) ILEX may terminate this Agreement in the U.S. and/or in the
Non-U.S. Territory upon the occurrence of any of the following:
(a) upon or after the bankruptcy, insolvency,
dissolution or winding up of NEWCO (other than dissolution or
winding up for the purposes of reconstruction or
amalgamation);
(b) upon or after the breach of any material
provision of this Agreement by NEWCO if such breach is not
cured within twenty (20) days after ILEX gives NEWCO written
notice thereof, it being understood that if such breach
relates solely to NEWCO's obligations in the U.S., then this
Agreement may be terminated only as to the U.S.; and, if such
breach relates solely to NEWCO's obligations in the Non-U.S.
Territory, then this Agreement may be terminated only as to
the Non-U.S. Territory;
(c) upon the abandonment by NEWCO of the
development of the Products. As used in this clause (c), the
term "abandonment," in respect of development of the
Products, shall mean that NEWCO or its sublicensees have
failed for a period of five (5) or more consecutive months to
conduct any development, testing, regulatory or manufacturing
activity reasonably necessary in order to prepare and file
such Registration for such Product in the U.S., unless such
failure was due to (x) reasons beyond its or their control
(such as circumstances of the type described in Article 21
hereof) or (y) the failure by ILEX to perform its obligations
hereunder. NEWCO shall give ILEX prompt written notice of
the abandonment of the development of the Products; or
(d) upon the termination of the B.W. Agreement,
in whole or in part, by either B.W. Co. or WFL, it being
understood that if the B.W. Agreement termination relates
solely to ILEX's License Rights in the U.S., then this
Agreement may be terminated only as to the U.S.; and, if such
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<PAGE> 15
termination relates solely to ILEX's License Rights in the
Non-U.S. Territory, then this Agreement may be terminated only
as to the Non-U.S. Territory;
(ii) NEWCO may terminate this Agreement upon the occurrence of any
of the following:
(a) the bankruptcy, insolvency, dissolution or
winding up of ILEX (other than dissolution or winding up for
the purposes of reconstruction or amalgamation);
(b) the breach of any material provision of this
Agreement by ILEX if such breach is not cured within sixty
(60) days after NEWCO gives ILEX written notice thereof;
(c) the NEWCO Board of Managers determines that the
Compound is not approvable for any indications in the Field.
14.4 NEWCO's Obligations Upon Termination. Upon termination (but
not expiration) of this Agreement for any reason, (i) NEWCO shall promptly pay
to ILEX any amounts due under the terms of this Agreement including License
Fees and Royalty Fees which have accrued as of the date of termination (ii)
NEWCO agrees to cooperate fully with ILEX or its respective nominee, to
transfer or to hand over to ILEX or its respective nominee, health
registrations and sales registrations regarding the Products in the country or
countries in which termination has occurred and (iii) in the event of
termination with respect to all countries of the Territory, NEWCO shall return
to ILEX all copies of the Information supplied by either hereunder, except that
NEWCO's legal department may retain one copy of the Information for purposes of
determining the scope of its obligations hereunder, and all rights that ILEX
granted NEWCO hereunder shall revert back to ILEX and NEWCO shall grant ILEX a
nonexclusive royalty free license in any improvements to the Know-How or Patent
Rights, including but not limited to any trade secret, patentable improvement
or patent rights.
14.5 Disposition of Product. Upon termination of this Agreement
with respect to all countries of the Territory, NEWCO shall provide ILEX with a
written inventory of all the Products (in the form of raw materials, work-in-
process and finished goods) in its and its sublicensees' possession and shall
have the right to dispose of such Products within six (6) months thereafter,
subject to fulfillment of its royalty obligations relating thereto.
Notwithstanding the foregoing, upon termination of this Agreement in all
countries of the Territory, NEWCO shall promptly return or destroy, at ILEX's
election, any materials supplied by ILEX pursuant to Article 15.
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14.6 Sublicensees Upon Termination. If any party terminates the
Agreement and sublicensees are not then in default under the terms of their
sublicensee agreements hereunder, ILEX shall have the right (but not the
obligation) to assume and continue such sublicense agreements with payments
thereunder being made by the sublicensees directly to ILEX, as the case may be,
without any further obligations on the part of NEWCO with respect thereto.
ARTICLE 15. TRANSFER TO NEWCO
Within the twenty (20) day period following the Effective Date, ILEX
shall make available to NEWCO all of the Technology, and ILEX shall assign to
NEWCO IND 30,692 for the Compound. NEWCO shall acknowledge acceptance of such
assignment to the FDA promptly after it is made by ILEX. Within the twenty
(20) day period following effective date, ILEX shall transfer legal title to
formulated Compound delivered by B.W. Co. pursuant to Article 14.2 of the B.W.
Agreement. ILEX shall supply the formulated Compound "AS IS" and subject to
the limitations of Sections 14.2 and 14.3 of the B.W. Agreement.
ARTICLE 16. ASSIGNMENT
This Agreement may not be assigned or otherwise transferred by NEWCO
without the written consent of ILEX; provided, however, that NEWCO may, without
such consent, assign this Agreement in connection with the transfer or sale of
all or substantially all of its business related to the Products or in the
event of its merger or consolidation with another company. Any purported
assignment in violation of the preceding sentence shall be void. Any permitted
assignee shall assume all obligations of its assignor under this Agreement. No
assignment shall relieve NEWCO of responsibility for the performance of any
accrued obligation which NEWCO then has hereunder.
ARTICLE 17. PATENT MARKING
NEWCO agrees to mark all Products made, used or sold under the terms
of this Agreement, or their containers, in accordance with applicable patent
marking laws.
ARTICLE 18. REGISTRATION OF LICENSES
NEWCO agrees to register or give required notice concerning this
Agreement, through itself or through a sublicensee, in each country of the
Territory where there exists a Valid Claim and an obligation under law to so
register or give notice, to pay all costs and legal fees connected therewith
and shall otherwise comply with all national laws applicable to this Agreement.
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<PAGE> 17
ARTICLE 19. PATENT TERM EXTENSION
NEWCO hereby agrees to cooperate fully with ILEX and its Affiliates in
obtaining an extension of the term of any patent included within the Patent
Rights under the applicable laws of any country including, but not limited to,
the Drug Price Competition and Patent Term Restoration Act of 1984. NEWCO
agrees to execute such documents and to take such additional actions as ILEX or
any of its Affiliates may reasonably request in connection therewith. NEWCO
further agrees promptly (and in any event within seven (7) days) to provide
ILEX with a copy of each product registration certificate, via facsimile, which
NEWCO receives in respect of a Product in any country for purposes of ILEX
seeking such an extension.
ARTICLE 20. B.W. AGREEMENT
Each of the parties agrees to abide by and comply with the terms of
the B.W. Agreement. Any terms of this Agreement that are inconsistent with the
B.W. Agreement or that would be interpreted as a breach by ILEX of the B.W.
Agreement shall be interpreted to comply with the B.W. Agreement.
ARTICLE 21. FORCE MAJEURE
A party shall not be held liable or responsible to another party nor
be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement, other than an
obligation to make a payment, when such failure or delay is caused by or
results from fires, floods, embargoes, government regulations, prohibitions or
interventions, wars, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts, acts of God, or any
other cause beyond the reasonable control of the affected party.
ARTICLE 22. SEVERABILITY
Each party hereby expressly agrees and contracts that it is not the
intention of any party to violate any public policy, statutory or common laws,
rules, regulations, treaty or decision of any government agency or executive
body thereof of any country or community or association of countries; that if
any word, sentence, paragraph, clause or combination thereof in this Agreement
is found by a court or executive body with judicial powers having jurisdiction
over this Agreement or any of the parties hereto in a final unappealed order,
to be in violation of any such provisions in any country or community or
association of countries, such words, sentences, paragraphs, clauses or
combination shall be inoperative in such country or community or association of
countries and the remainder of this Agreement shall remain binding upon the
parties hereto.
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ARTICLE 23. NOTICES
Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed to have been properly given if delivered in person,
or if mailed by registered or certified mail (return receipt requested),
postage prepaid, or by facsimile (and promptly confirmed by such registered or
certified mail), to the addresses given below or such other addresses as may be
designated in writing by the parties from time to time during the term of this
Agreement. Any notice sent by registered or certified mail as aforesaid shall
be deemed to have been given when mailed.
In the case of ILEX:
ILEX Oncology Inc.
14785 Omicron Drive
San Antonio, Texas 78245-3217
Attention: President
Facsimile No.: (210) 677-6009
and with a copy to:
Fulbright & Jaworski L.L.P.
Attention: Thomas D. Paul
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: (713) 651-5151
Facsimile No.: (713) 651-5246
In the case of NEWCO:
MPILEX Partners, L.P
14785 Omicron Dr., Suite 101
San Antonio, Texas 78245
and with a copy to:
MPI Development, Inc.
54943 N. Main St.
Mattawan, Michigan 49071
Attention: J. R. Mitchell, M.D., Ph.D.
Telephone: (616) 668-3336
Facsimile No.: (616) 668-4151
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<PAGE> 19
with a copy to:
Howard & Howard Attorneys, P.C.
Attention: Joseph B. Hemker
The Kalamazoo Building, Suite 402
107 West Michigan Avenue
Kalamazoo, Michigan 49007-3956
Telephone: (616) 382-1483
Facsimile No.: (616) 382-1568
ARTICLE 24. GOVERNING LAW AND ARBITRATION
24.1 Governing Law. This Agreement is to be read and construed in
accordance with and be governed by laws of the State of Texas, exclusive of its
choice of law rules. Each party hereby irrevocably submits to jurisdiction in
the courts of the State of Texas for any dispute that arises under this
Agreement. The parties hereby exclude the application of The Convention for
the International Sale of Goods.
24.2 Alternative Dispute Resolution. All claims, disputes,
controversies and other matters in question arising out of or relating to this
Agreement shall be settled in accordance with the provisions of Appendix III
attached hereto, and judgment may be entered upon the arbitration award in any
court having jurisdiction thereof.
ARTICLE 25. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. The parties hereto may alter any of the
provisions of this Agreement, but only by a written instrument duly executed by
both parties hereto. B.W. Co. and ILEX agree that the Letter Agreement is
hereby terminated.
ARTICLE 26.
COMPLIANCE WITH UNITED STATES OF AMERICA AND FOREIGN LAWS AND STANDARDS
26.1 Marketing Regulations. Each party shall be responsible for
complying with all FDA rules regulations and requirements and with all FDA
equivalent laws, rules, requirements and regulations in the countries outside
the United States covering the marketing and sale of Product.
26.2 Manufacturing Regulations. Each party shall be responsible
for complying with all FDA rules regulations and requirements and with all FDA
equivalent laws, rules, requirements and regulations in the countries outside
the United States covering the manufacture of Product.
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<PAGE> 20
26.3 Export Laws. Each party shall be responsible for compliance
with all laws, rules and regulations covering the exportation or importation of
Product.
26.4 Foreign Corrupt Practices Act.
(i) Agreement. Each party agrees that neither it nor any
of its employees or agents will, directly or indirectly, in connection
with the solicitation of sales or sales of Products to customers:
(a) make any payment to any officer or employee
of any government, or to any political party or official
thereof, where such payment either (1) is unlawful under laws
applicable thereto, or (2) would be unlawful under the Foreign
Corrupt Practices Act of 1977, as amended (the "Act"), of the
United States of America;
(b) make any payment to any person, if such
payment constitutes an illegal bribe, illegal kickback or
other illegal payment under laws applicable thereto; or
(c) commit, directly or indirectly, any other act
or omission in violation of any applicable law, regulation,
rule or custom having the effect of law.
(ii) No Authorization. Neither party nor any of a party's
employees is authorized under this Agreement to engage in any of the
activities described in Section 26.4(i), and each party agrees that no
such activity will be in furtherance of its relationship with the
other party or of the business of the other party. Each party affirms
that neither it nor any of its employees or agents is an official or
an employee of any government.
(iii) Indemnification. In the event a party or its
employees engage in any of the activities described in Section
26.4(i), and if such activities result in any judicial, quasi-judicial
or administrative proceedings involving the other party, or its
employees or agents, the party engaging in such activities will
indemnify the other party and such employees or agents of the other
party, for all expenses, including, but not limited to, attorneys'
fees and expenses of investigation, incurred in the course of such
proceedings.
(iv) Reporting. Each party agrees to report to the other
party any solicitation to engage in any activity described in Section
26.4(i) as soon as possible after it becomes aware of such
solicitation, but in no event more than ten calendar days thereafter.
Each party agrees further to provide all information concerning such
solicitation which the other party may reasonably request.
26.5 Local Law. Each party shall be responsible for compliance
with all local, state, federal and foreign governmental laws, rules,
regulations and requirements for the marketing, sale or other transfer of
Product.
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ARTICLE 27. WAIVER
The failure of a party to enforce at any time for any period any of
the provisions hereof shall not be construed as a waiver of such provisions or
of the rights of such party thereafter to enforce each such provision.
ARTICLE 28. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same document.
ARTICLE 29. CAPTIONS
The captions to the several Articles and Sections hereof are not a
part of this Agreement, but are merely guides or labels to assist in locating
and reading the several Articles and Sections hereof.
[Signatures on next page.]
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IN WITNESS WHEREOF, the parties have executed this License Agreement
as of the Effective Date.
ILEX ONCOLOGY, INC.
By: /s/ Richard L. Love
-----------------------------------------
Richard L. Love, President
MPILEX PARTNERS, L.P.
By: MPILEX Management, L.L.C.
By: /s/ J. R. Mitchell
--------------------------------
J. R. Mitchell, M.D., Ph.D.,
Vice President
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<PAGE> 23
APPENDIX I
B.W. Agreement to be set forth herein.
AI-1
<PAGE> 24
APPENDIX II
Piritrexim isethionate or
2,4-Diamino-6(2,5-dimethoxybenzyl)-5-methylpyrido-(2,3- d)pyrimidine:
has a molecular weight of: 451.50
and the formula: C17H19N5O2oC2H6O4S
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<PAGE> 25
APPENDIX III
ALTERNATIVE DISPUTE RESOLUTION
All disputes between the Parties relating to this Agreement shall be
settled by the following procedures:
1. NEGOTIATION
1.1 Within thirty (30) days of the incurred acts,
occurrences and/or omissions giving rise to the dispute, the aggrieved party
shall give detailed written notice to the other party of the aggrieved party's
specific complaint including the amount of actual damages and expenses,
including attorneys' fees, claimed or incurred by the aggrieved party. The
aggrieved party shall include copies of all documents which support its claims.
1.2 Within thirty (30) days after receipt of the notice,
the party receiving the notice shall tender to the other party a written
response, including an offer of settlement, if appropriate. Any offer of
settlement not accepted with thirty (30) days of receipt by the aggrieved party
shall be deemed to have been rejected.
1.3 The tender of an offer of settlement is not an
admission of engaging in an unlawful act or practice or of liability.
1.4 In the event the parties are unable to settle their
disputes after following the procedures set forth above, with fifteen (15) days
thereafter, the parties shall submit their disputes to mediation.
2. MEDIATION
2.1 Consent to Mediator. Both parties shall share
equally in the naming of the mediator. The mediator shall act as an advocate
for resolution and shall use his or her best efforts to assist the parties in
reaching a mutually acceptable settlement.
2.2 Conditions Precedent to Serving as Mediator. The
mediator shall not serve as a mediator in any dispute in which he or she has
any financial or personal interest in the result of the mediation. Prior to
accepting an appointment, the mediator shall disclose any circumstance likely
to create a presumption of bias or prevent a prompt meeting with the parties.
In the event that the parties disagree as to whether the mediator shall serve,
the mediator shall not serve.
2.3 Authority of Mediator. The mediator does not have
the authority to decide any issue for the parties, but will attempt to
facilitate the voluntary resolution of the dispute by the parties. The
mediator is authorized to conduct joint and separate meetings with the parties
and to offer suggestions to assist the parties in achieving settlement. If
necessary, the mediator may also obtain expert advice concerning technical
aspects of the
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dispute, provided that the parties agree and assume the expenses of obtaining
such advice. Arrangements for obtaining such advice shall be made by the
mediator or the parties, as the mediator shall determine. Likewise, the
mediator may request the limited production of documents from both parties in
defense of their respective claims. The mediator shall not disclose the
parties in defense of their respective claims. The mediator shall not disclose
the actual documents without the consent of the offering party. However, in
his or her discussions with the respective parties, the mediator will be
permitted to share summary oral information from any such documents.
2.4 Length of Mediation. Mediation proceedings shall not
extend beyond two (2) days, without the consent of the parties.
2.5 Commitment to Participate in Good Faith. The parties
further agree that at any time following the mediation process but prior to the
initiation of binding arbitration, the president or highest ranking senior
level executive of the respective companies shall meet or confer telephonically
in one last effort to resolve the dispute. During each phase of the
alternative dispute evaluation process, the parties agree to act in good faith
to settle the dispute, if possible.
3. ARBITRATION.
3.1 All claims, disputes, controversies and other matters
in question arising out of or relating to the Agreement or to the alleged
breach thereof shall be settled by Negotiation between the parties as described
in Section 1 of this Appendix III or by Mediation between the parties as
described in Section 2 of this Appendix III. If such negotiation and mediation
are unsuccessful, the parties agree to submit to binding arbitration. The
parties agree the arbitration shall be administered by the American Arbitration
Association ("AAA") and conducted in accordance with its Commercial Arbitration
Rules, except as otherwise provided in accordance with procedures set forth in
Sections 3.2 through 3.3 (xiii) of this Appendix III or as the parties may
otherwise agree.
3.2 Notice. Notice of demand for binding arbitration
shall be given in writing to the other party pursuant to the Agreement.
3.3 Binding Arbitration. Upon filing of a notice of
demand for binding arbitration by either party, arbitration shall be commenced
and conducted as follows:
(i) Arbitrator. All claims, disputes,
controversies, and other matters (collectively "matters") in question shall be
referred to and decided and settled by an arbitrator that has been found
acceptable by both Licensor and Licensee. Selection of the arbitrator shall be
made within ten (10) business days after the date of filing of a demand for
arbitration. In the event the parties cannot agree on the selection of the
arbitrator within ten (10) business days of delivery of the written notice
invoking arbitration, the arbitrator shall be selected pursuant to the AAA
Commercial Arbitration Rules.
(ii) Cost of Arbitration. The cost of arbitration
proceedings, including without limitation the arbitrator's compensation and
expenses, hearing room
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charges, court reporter transcript charges etc., shall be borne by the parties
equally or otherwise as the arbitrator may determine. The arbitrator may award
the prevailing party its reasonable attorneys' fees and costs incurred in
connection with the arbitration. The arbitrator is specifically instructed to
award attorneys' fees for instances of abuse in the discovery process.
(iii) Location of Proceedings. The arbitration
proceedings shall be held in San Antonio, Texas, unless the parties agree
otherwise.
(iv) Pre-hearing Discovery. The parties shall
have the right to conduct and enforce pre- hearing discovery in accordance with
the then current Federal Rules of Civil Procedure, subject to these
limitations:
(a) Each party may serve no more than one set of
interrogatories limited to fifty items;
(b) Each party may depose the other party's expert
witnesses who will be called to testify at the hearing, plus
two fact witnesses without regard to whether they will be
called to testify (each party will be entitled to a total of
nor more than 24 hours of depositions of the other party's
witnesses), provided however, that the arbitrator may provide
for additional depositions upon showing of good cause; and
(c) Document discovery and other discovery shall be
under the control of and enforceable by the arbitrator.
(v) Discovery disputes. All discovery disputes
shall be decided by the arbitrator. The arbitrator is empowered;
(a) to issue subpoenas to compel pre-hearing
document or deposition discovery;
(b) to enforce the discovery rights and obligations
of the parties; and
(c) to otherwise control the scheduling and conduct
of the proceedings.
Notwithstanding any contrary foregoing provisions, the arbitrator
shall have the power and authority to, and to the fullest extent practicable
shall, abbreviate arbitration discovery in a manner which is fair to all
parties in order to expedite the conclusion of each alternative dispute
resolution proceeding.
(vi) Pre-hearing Conference. Within fifteen (15)
days after selection of the arbitrator or as soon thereafter as is mutually
convenient to the arbitrator, the arbitrator shall hold a pre-hearing
conference to establish schedules for completion of discovery, for exchange of
exhibit and witness lists, for arbitration briefs, for the hearing, and to
decide procedural matters and all other questions that may be presented.
(vii) Hearing Procedures. The hearing shall be
conducted to preserve its privacy and to allow reasonable procedural due
process. Rules of evidence need not be strictly followed, and the hearing
shall be streamlined as follows:
(a) Documents shall be self-authenticating, subject
to valid objection by the opposing party;
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(b) Expert reports, witness biographies,
depositions, and affidavits may be utilized, subject to the
opponent's right of a live cross-examination of the witness in
person;
(c) Charts, graphs, and summaries shall be utilized
to present voluminous data, provided (i) that the underlying
data was made available to the opposing party thirty (30) days
prior to the hearing, and (ii) that the preparer of each
chart, graph, or summary is available for explanation and live
cross-examination in person;
(d) The hearing should be held on consecutive
business days without interruption to the maximum extent
practicable; and
(e) The arbitrator shall establish all other
procedural rules for the conduct of the arbitration in
accordance with the rules of arbitration of the Center for
Public Resources.
(viii) Governing Law. This arbitration provision
shall be governed by, and all rights and obligations specifically enforceable
under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1, et
seq.). All disputes under this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware. No conflict-of-laws rule or
law that might refer such construction or interpretation to the laws of another
jurisdiction shall be considered.
(ix) Consolidation. No arbitration shall include,
by consolidation, joinder, or in any other manner, any additional person not a
party to the Agreement, except by written consent of both parties containing a
specific reference to this Agreement.
(x) Award. The arbitrator is empowered to render
an award of general compensatory damages and equitable relief (including,
without limitations, injunctive relief), but is not empowered to award
exemplary, special or punitive damages. The award rendered by the arbitrator
(1) shall be final; (2) shall not constitute a basis for collateral estoppel as
to any issue; and (3) shall not be subject to vacation or modification.
(xi) Waiver of Any Right to Punitive or Exemplary
Damages. All persons subject to the Agreement expressly agree to WAIVE ANY
RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES of any kind, whether this right
or claim could accrue NOW OR IN THE FUTURE under applicable law. However, in
the event a court determines that the express waiver set forth in Section 3(xi)
of this Appendix III is unenforceable, then the arbitrator, and not a court,
shall determine if punitive or exemplary damages should be awarded and, if
awarded, the amount thereof.
(xii) Confidentiality. The parties hereto will
maintain the substance of any proceedings hereunder in confidence and the
arbitrator, prior to any proceedings hereunder, will sign an agreement whereby
the arbitrator agrees to keep the substance of any proceedings hereunder in
confidence.
(xiii) Severability. In the event any court or
other tribunal concludes any portion of this Appendix III to be void or
otherwise unenforceable for any reason, the
AIII-4
<PAGE> 29
remainder of this Appendix III shall survive and is deemed severable, such that
the parties' express purpose to arbitrate any unresolved Controversy shall be
recognized and given effect.
AIII-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
Registration Statement. (R No. 333-17769)
ARTHUR ANDERSEN LLP
San Antonio, Texas
February 14, 1997
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1996, AND THE STATEMENT OF OPERATIONS FOR THE PERIOD
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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