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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997 Commission File No. 1-4430
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MAXIM PHARMACEUTICALS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 87-0279983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10835 Altman Row, Suite 150
San Diego, California 92121
(619) 453-4040
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001 Par Value
Redeemable Common Stock Purchase Warrants
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by persons
considered by the registrant for this purpose to be nonaffiliates of the
registrant was approximately $138,757,614 on December 19, 1997, when the
closing price of such stock, as reported in the American Stock Exchange, was
$15.06.
The number of shares outstanding of the registrant's Common Stock, $.001
par value, as of December 19, 1997 was 9,213,653 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended September 30, 1997, are incorporated into Part II hereof.
2. Certain portions of the Registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on February 20, 1998, which will be mailed on or
about January 12, 1998, are incorporated into Part III hereof.
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THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE
COMPANY'S BUSINESS AND PRODUCTS AND THEIR PROJECTED PROSPECTS OR QUALITIES.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, PARTICULARLY
THOSE INHERENT IN THE PROCESS OF DISCOVERING AND DEVELOPING DRUGS THAT CAN BE
PROVEN TO BE SAFE AND EFFECTIVE FOR USE AS HUMAN THERAPEUTICS AND THE
ENDEAVOR OF BUILDING A BUSINESS AROUND SUCH POTENTIAL PRODUCTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THIS FORM 10-K.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN THIS FORM 10-K INCLUDING, WITHOUT
LIMITATION, IN THE SECTION OF ITEM I ENTITLED "RISK FACTORS." AS A RESULT,
THE READER IS CAUTIONED NOT TO PLACE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS.
PART 1
ITEM 1. BUSINESS
OVERVIEW
Maxim Pharmaceuticals, Inc. ("Maxim" or the "Company") is developing
novel therapeutics for the treatment of cancer and infectious disease. The
Company's lead drug, MAXAMINE, is designed to offer a safer treatment that
extends life for seriously ill patients. In many patients with cancer and
chronic infectious diseases, the capacity of the patient's immune system to
detect and destroy tumor cells is compromised. MAXAMINE THERAPY combines the
administration of MAXAMINE, which protects critical immune cells, with the
administration of certain agents which stimulate these immune cells (these
agents include cytokines and other biological response modifiers). This
method of action is designed to allow MAXAMINE THERAPY to improve the immune
system's ability to identify, disable and destroy malignant or infected
cells. The Company believes that MAXAMINE THERAPY has the potential to:
extend life; reduce toxic side effects of cytokines and other biological
response modifiers; maintain the patient's quality of life during therapy;
allow for self-administration at home; and provide cost-effective therapy.
The Company anticipates that by early 1998 it will be conducting three
Phase III clinical trials of MAXAMINE THERAPY for the treatment of cancer.
In June 1997 the Company commenced a 200-patient Phase III clinical trial of
MAXAMINE THERAPY for advanced malignant melanoma in the United States. A
separate international Phase III advanced malignant melanoma trial centered
in Sweden and Australia commenced in November 1997. The Company intends
to commence a Phase III clinical trial for acute myelogenous leukemia ("AML")
in Europe and the United States in early 1998. Furthermore, the Company has
initiated earlier stage clinical trials of MAXAMINE THERAPY for the treatment
of renal cell carcinoma, hepatitis C, and multiple myeloma, and expects to
commence clinical trials of MAXAMINE THERAPY for the treatment of additional
cancers, such as prostate adenocarcinoma, in 1998. All studies of MAXAMINE
THERAPY conducted to date have used MAXAMINE in combination with one or both
of the cytokines interleukin-2 ("IL-2") and interferon-alpha ("IFN-ALPHA").
Both IL-2 and IFN-ALPHA are cytokines with the capacity for stimulating
certain immune functions.
In the Company's two completed Phase II clinical trials for the
treatment of advanced malignant melanoma, MAXAMINE THERAPY produced improved
patient survival outcomes. Median survival time for patients treated with
MAXAMINE THERAPY the two studies exceeded 13 and 15 months, respectively, as
compared with reported median survival times of approximately seven months
for existing available treatments. In patients where the melanoma
metastasized to the liver, MAXAMINE therapy improved median survival time to
18 months compared to predicted survival times of approximately four months
for these patients.
The Company's Phase II clinical trials for the treatment of AML have
demonstrated an improvement of disease-free remission intervals. As of
November 1997, after 23 months of follow-up, 67% of patients treated with
MAXAMINE THERAPY during their first complete remission ("CR1") remain in
complete remission; less than 30% would be expected remain in remission under
current treatments. Patients who relapsed and achieved a second or greater
remission ("CR2+") and were subsequently treated with MAXAMINE THERAPY had
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a median time in remission in excess of 20 months as compared with reported
median time in remission of approximately six months under the current
standard of care. Remission inversion (prolonging the duration of CR2+ to
that equal to or exceeding the patient's prior remission duration) was
achieved in 9 of 12 (75%) patients treated with MAXAMINE THERAPY as compared
with approximately 10% to 20% under the current standard of care.
Maxim is also developing MAXVAX, a mucosal vaccine carrier/adjuvant
platform. The MAXVAX technology is based on the B subunit of cholera toxin
("CTB"), generally regarded as a safe and effective mucosal vaccine carrier.
The Company expects that its future product development efforts will focus on
mucosal vaccines against sexually transmitted diseases, major respiratory
diseases and gastrointestinal tract diseases. The MAXVAX platform is also
being evaluated for therapeutic vaccines and gene-based vaccines. The
Company intends to seek collaborations with pharmaceutical and
biopharmaceutical partners for the development of mucosal vaccine candidates.
Maxim's drug development strategy is designed to facilitate product
development from preclinical to FDA approval and product launch. Once a
product has been launched, Maxim plans to work with numerous collaborators,
both pharmaceutical and clinical, in the oncology and infectious disease
communities to extend the labeling of the drug to other indications. In
order to market its products effectively, the Company intends to develop
marketing alliances with corporate partners and may co-promote and/or
co-market in certain territories.
MAXAMINE IMMUNOTHERAPY PLATFORM
CANCER MARKET
Cancer comprises a large and diverse group of diseases resulting from
the uncontrolled proliferation of abnormal (malignant) cells. Most cancers
will spread beyond their original sites and invade surrounding tissue and may
also metastasize to more distant sites and ultimately cause death in the
patient unless effectively treated. To be effective, cancer treatment must
target not only the primary tumor site but also distant metastases. CANCER
FACTS AND FIGURES, a report from the American Cancer Society, estimates that
a total of approximately 1,380,000 new cases and approximately 560,000 deaths
will be reported for invasive cancers in the United States in 1997.
Predominant forms of cancer include leukemia and lymphoma, breast, lung,
urinary, prostate, melanoma, ovarian, colon, rectal and brain cancers. The
National Cancer Institute estimates that the direct medical cost of treating
cancer in the United States is $35 billion per year. Information regarding
certain cancer indications is summarized below.
Estimated Incidence for Selected Cancers in the United States for 1997
Annual
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New Cases Deaths
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Malignant Melanoma ............................. 40,000 7,000
Acute Myelogenous Leukemia ..................... 9,000 7,000
Prostate Adenocarcinoma ........................ 335,000 42,000
All Invasive Cancers ........................... 1,380,000 560,000
The Company estimates that the size of the anti-cancer pharmaceutical
market in Europe is approximately equivalent to the U.S. market.
Predominant methods of treating cancer generally include surgery,
radiation therapy, chemotherapy and immunotherapy. Although these techniques
have achieved success for certain cancers, particularly when detected in the
early stages, each has drawbacks which may significantly limit their success
in treating certain types and stages of cancer. For example, cancer may
recur even after repeated attempts at surgical removal of tumors or other
treatment. Surgery may be successful in removing visible tumors but may leave
smaller nests of cancer cells in the patient which continue to proliferate.
Radiation or chemotherapy are relatively imprecise methods for the
destruction of cancer cells (i.e., such therapies can kill both cancer cells
and normal cells) and
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have toxic side effects which may themselves be lethal to the patient; these
toxic side effects may also restrict the application of these treatment modes
to less than optimal levels required to ensure eradication of the cancer.
The high number of cancer-related deaths indicate the need for more
efficacious therapies for many patients. In addition, the Company believes
that new cancer therapies will increasingly be required to be more
cost-effective and allow for alternate site or in-home treatment and to
improve patient quality of life during treatment.
HEPATITIS C MARKET
The U.S. Centers for Disease Control and Prevention estimates that
approximately four million Americans are infected with the hepatitis C virus
("HCV"). Approximately 85% of HCV patients develop long-term or chronic
infection, possibly leading to serious liver diseases, cirrhosis (scarring of
the liver), liver cancer and death. HCV is the leading cause of liver cancer
and the primary reason for liver transplantation in the United States. The
World Health Organization and other sources estimate that approximately 60
million people are chronically infected worldwide. The only approved
treatment for HCV is IFN-ALPHA. However, IFN-ALPHA therapy results in sustained,
long-lasting responses in only about 10-15% of chronically infected persons.
IMMUNE SYSTEM MODULATION AGAINST CANCER AND INFECTIOUS DISEASES
In recent years, research has focused on the immune system's ability to
combat cancer and infectious diseases. New drugs, vaccines, chemotherapeutic
agents and advanced radiation therapy technologies are continually being
developed to protect and enhance the response of the immune system to
disease. Many of these technologies, however, have demonstrated significant
limitations in their ability to treat cancer and certain infectious agents.
These limitations include marginal efficacy, severe adverse side effects and
the development of multi-drug resistance.
Since the early 1980's, the cytokines IL-2 and IFN-ALPHA have been studied
for the treatment of many cancers and infectious diseases including advanced
malignant melanoma, renal cell carcinoma, hepatitis C and AML. Cytokines are
naturally occurring molecules that have potent effects related to
inflammation and immune cell functions. The medical community held high
expectations for IL-2 and IFN-ALPHA in the treatment of cancer and infectious
diseases based on findings that these cytokines enhance the anti-tumor
activity of natural killer-cells ("NK-cells") IN VITRO (NK-cells are a
specialized subset of cells which can function to destroy cancer cells and
virally infected cells). Although certain beneficial effects were
demonstrated with IL-2 and IFN-ALPHA therapy in both experimental animals and in
the killing activity of human NK-cells IN VITRO, in only a small portion of
cancer patients do these cytokines demonstrate a clinically significant tumor
response. Further, in chronically infected hepatitis C patients, IFN-ALPHA
therapy results in sustained, long-lasting responses in only about 10-15% of
these cases. Moreover, cytokines generally produce severe adverse
side-effects and are intolerable at high doses.
MAXAMINE TECHNOLOGY
The scientific foundation for MAXAMINE THERAPY is based on discoveries
by the Company's scientists at the University of Goteborg, Sweden. MAXAMINE,
based on a naturally occurring molecule and important immune system
mechanism, was developed to preserve the functions of two kinds of immune
cells, the natural killer-cells (NK-cells) and T-cells, both of which possess
an ability to kill and support the killing of cancer cells and virally
infected cells.
The killing activity of NK-cells and T-cells can be stimulated by
certain agents such as the cytokines, naturally occurring proteins. The
cytokines IL-2 and IFN-ALPHA have been studied and used for the treatment of
many cancers and infectious diseases, but results have been largely
disappointing in most indications. Maxim's research may explain in part why
cytokine therapy using IL-2 or IFN-ALPHA alone has demonstrated limited
efficacy. Phagocytic cells, present in large quantities at the site of malignant
cell growth, may inhibit the tumor-killing activity of NK-cells and T-cells by
releasing reactive oxygen
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metabolites (ROM's). ROM's induce self-destruction (apoptosis) of NK-cells
and T-cells, preventing the NK-cells and T-cells from attacking the tumor and
thus limiting the potential therapeutic effect of cytokines.
Maxim researchers have discovered that when MAXAMINE binds to the type-2
histamine receptor (H(2) receptor) on the surface of phagocytic cells, it can
block the production of ROMs, resulting in enhanced activation of NK-cells
and T-cells. MAXAMINE THERAPY combines MAXAMINE'S preservation of NK and
T-cell function with the stimulation of these functions by cytokines or other
biological response modifiers.
Because MAXAMINE increases the effectiveness of cytokines, lower doses
of cytokines such as IL-2 and IFN-ALPHA can be used in MAXAMINE THERAPY without
compromising the therapeutic effectiveness, thereby reducing side effects
which can lead to the maintenance of the patient's quality of life. The
Company expects that MAXAMINE THERAPY will ultimately encompass the
combination of MAXAMINE and a broad range of cytokines and other biological
response modifiers (agents designed to stimulate the immune system).
BENEFITS OF MAXAMINE
The Company believes that MAXAMINE may be integral in the growing trend
toward combination therapy for certain cancers and infectious diseases and
may offer a number of important clinical and commercial advantages relative
to current therapies or approaches including:
- EXTENDING LIFE. The Company's preliminary clinical data has
provided evidence of improved therapeutic efficacy (extended
survival and remission intervals) over approved therapies or
standards of care. In addition, the combination therapy may extend
the range of indications for the use of cytokine therapies in both
cancer and infectious diseases.
- MAINTAINING QUALITY OF LIFE. MAXAMINE THERAPY reduces toxic side
effects of cytokines and other biological response modifiers,
thereby allowing the maintenance of the patient's quality of life
during therapy.
- OUTPATIENT ADMINISTRATION. MAXAMINE therapy can be
self-administered on an outpatient basis, subcutaneously, rather
than the in-hospital administration required for other therapies.
- COST EFFECTIVE. By utilizing a lower dose of IL-2 or IFN-ALPHA, the
cost to the patient may be reduced below existing treatment
regimens. In addition, MAXAMINE THERAPY is designed to be
delivered on an outpatient basis rather than in-hospital.
MAXAMINE CLINICAL TRIAL STATUS
A number of clinical trials of MAXAMINE THERAPY have been initiated or
are planned by the Company in the near future. By early 1998, the Company
expects to have commenced three Phase III clinical trials for MAXAMINE
THERAPY in various countries around the world, any one of which, if
successful, could provide data necessary to file for the approval to market
MAXAMINE in certain countries. The table below sets forth the disease
indications currently targeted or planned to be targeted by the Company. No
assurance can be given that the Company will be able to commence planned
clinical studies within the time frames set forth below, if at all.
Moreover, the Company cannot predict when clinical studies for all of the
indications set forth below will be completed or whether the results of such
studies will support the filing of NDAs or the equivalent. See "Risk
Factors--No Assurance of Successful Clinical Trials and Product Development."
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MAXAMINE THERAPY Clinical Trial Status
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Indication Phase Status Location
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Advanced Malignant Melanoma Phase III trial Ongoing United States
Phase III trial Ongoing Sweden and Australia
Phase II trial Ongoing Sweden
Acute Myelogenous Leukemia Phase II trial Ongoing Sweden
Phase III trial Planned for early 1998 Europe and United States
Renal Cell Carcinoma Phase I/II trial Ongoing Sweden
Multiple Myeloma Phase I/II trial Ongoing Sweden
Hepatitis C Phase I trial Ongoing Sweden
Phase II trial Planned for 1998 United States
Prostate Adenocarcinoma Phase I trial Planned for 1998 United States
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ADVANCED MALIGNANT MELANOMA
The Company's initial Phase II clinical trial was conducted in Sweden at
the Sahlgrenska University Hospital in Goteborg in which fifteen patients
with advanced metastatic malignant melanoma were treated with a high-dose
regimen of IL-2 together with daily injections of IFN-ALPHA in five-day cycles.
Eight of the patients were also given MAXAMINE THERAPY, which consisted of
MAXAMINE injections twice daily in combination with treatment with IL-2 and
IFN-ALPHA.
The results of the initial Phase II clinical trial indicated that
MAXAMINE may be given as an effective adjuvant to IL-2/IFN-ALPHA therapy. In
the seven patients who did not receive MAXAMINE THERAPY, one partial response
(defined as a 50% reduction of the total tumor burden) was observed in a
patient with skin and lymph node melanoma. In the eight patients treated
with MAXAMINE THERAPY, four partial and two mixed responses were observed.
Notably, two of the MAXAMINE THERAPY patients had complete resolution of
their extensive liver metastases. Sites of response in MAXAMINE THERAPY
patients also included skin, lymph nodes, skeleton, spleen and muscle. In
patients receiving MAXAMINE THERAPY, there was a statistically significant
improvement in overall survival (p LESS THAN 0.03). The MAXAMINE THERAPY
patients had a mean survival of 13.3 months, more than double the mean 6.8
month survival in the control group. One patient remains completely free of
detectable disease more than four years after the onset of MAXAMINE THERAPY.
A second advanced malignant melanoma study was undertaken at the
Sahlgrenska University Hospital in Sweden to determine if MAXAMINE THERAPY
consisting of a lower-dose regimen of the same cytokines (IL-2 and IFN-ALPHA) in
combination with the same doses of MAXAMINE would retain the efficacy seen
previously while reducing the side effects of the cytokine portion of the
treatment. In addition to survival, a goal for MAXAMINE THERAPY is to lower
toxicity of immunotherapy and thus maintain the patients' quality of life.
Lowering the doses of the cytokines reduces many of the side effects of these
drugs, thereby facilitating tolerance of the therapy and even allowing
self-administration of the drugs at home. The median survival time of
patients with advanced (stage IV) malignant melanoma using conventional
treatments is historically reported to be seven months. In this second,
low-dose malignant melanoma study, 11 patients had a median survival time of
15 months, more than double the rate generally reported for the normal course
of the disease and exceeding the favorable results from the high-dose study
described above. In this second malignant melanoma clinical trial MAXAMINE
THERAPY was well-tolerated and most patients were able to treat themselves at
home.
A third Phase II advanced malignant melanoma trial of stage IV patients
is ongoing in Sweden using MAXAMINE in combination with IL-2 and IFN-ALPHA. In
aggregate, MAXAMINE THERAPY has now been studied in three Phase II trials in
a total of 31 patients with stage IV malignant melanoma. In each of the
first two trials the median survival time has exceeded 14 months compared to
reported medians of seven months for conventional treatments. In addition,
of the seven patients having liver metastases, treatment with MAXAMINE
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THERAPY was shown to significantly improve survival outcome (median of 18
months survival as a group) compared to the predicted four months survival
time for these patients.
A multi-center Phase III clinical trial of MAXAMINE THERAPY in the
United States for the treatment of advanced malignant melanoma commenced in
June 1997. In this clinical trial, advanced malignant melanoma patients are
being treated with a combination of MAXAMINE and IL-2, while patients in the
control group are being treated with IL-2 alone. The primary endpoint of the
study is overall patient survival, and the secondary endpoints include time
to progression, tumor response rate, duration of response and quality of
life. The enrollment objective for the study is 200 evaluable patients, 100
in each arm. The study will ultimately be conducted in 25 or more centers in
the United States.
A second international Phase III trial of MAXAMINE THERAPY for the
treatment of advanced malignant melanoma centered in Sweden and Australia
commenced in November 1997. The trial will ultimately be performed in
approximately 8-10 clinical centers in Sweden and a similar number of sites
in Australia. Patients in the MAXAMINE THERAPY arm will receive a
co-administration of MAXAMINE plus low-dose IL-2 and IFN-ALPHA, while patients
in the control arm will receive dacarbazine (DTIC), the most commonly used
chemotherapeutic agent for the treatment of advanced malignant melanoma which
has a reported survival benefit of 6-7 months in advanced malignant melanoma
patients. The international study will be designed to encompass 200
evaluable patients.
ACUTE MYELOGENOUS LEUKEMIA ("AML")
Once diagnosed with AML, patients are typically treated with
chemotherapy to attain remission, yet 75-80% of these patients will relapse
and require additional chemotherapy. The standard of care once a patient is
in remission, however, is no further treatment. Historically, patients in
their first complete remission ("CR1") remain in disease-free remission for a
median time of approximately 12 months. Unfortunately 75-80% of patients in
their first CR ("CR1") will relapse, usually within a year. A subsequent CR
("CR2"), if achieved following chemotherapy or other treatment, normally has
a shorter duration, approximately 50% of the length of the prior CR. Less
than 5% of patients who have relapsed survive long term.
In Phase II clinical trials conducted in Sweden, 30 patients with AML in
complete remission have been evaluated to date in a clinical trial wherein
they were given outpatient MAXAMINE THERAPY. The objective of the study is
to treat AML patients in remission with MAXAMINE and low doses of IL-2 to
prevent relapse and prolong disease-free survival while maintaining a good
quality of life during treatment.
As of November 1997, after 23 months of follow-up, 67% of patients
treated with MAXAMINE THERAPY during their first complete remission ("CR1")
remain in complete remission; less than 30% would be expected remain in
remission under standard treatments. Patients who relapsed and achieved a
second or greater remission ("CR2+") and were subsequently treated with
MAXAMINE THERAPY had a median time to relapse in excess of 20 months as
compared with reported median time to relapse of approximately six months
under the current standard of care. Remission inversion (prolonging the
duration of CR2+ to that equal to or exceeding the patient's prior remission
duration) was achieved in 9 of 12 (75%) patients treated with MAXAMINE
THERAPY as compared with approximately 10% to 20% under the current standard
of care. Interim results from this study were included in a paper published
in LEUKEMIA AND LYMPHOMA in November 1997.
The above findings for patients in CR2+ may be compared to those in a
study published in 1994 in which non-bone marrow transplanted patients were
treated with IL-2 alone. In that study, remission inversion was achieved
with IL-2 alone in only 2 of 29 AML patients, or 7%, and time in CR2+
averaged less than six months (compared to 76% and a median of 20 months for
MAXAMINE THERAPY patients as reported above). In addition, data collected in
Gothenburg, Sweden from 1976 to 1994 representing the natural course for this
disease reported a 9% remission inversion and a mean remission time of only
five and one-half months.
An international Phase III clinical trial of MAXAMINE THERAPY for the
treatment of AML is planned to commence in early 1998 based upon the results
of the data for the ongoing Phase II study. The Company
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currently plans to include clinical sites in both Europe and the United
States and to enroll approximately 300 patients.
HEPATITIS C (HCV)
In mid-1997 the Company initiated a Phase I clinical trial of MAXAMINE
THERAPY for the treatment of HCV. The Company expects to treat up to 15 HCV
patients with a combination of MAXAMINE and IFN-ALPHA. Response to the therapy
will be measured through an evaluation of specific liver function tests and
viral burden. The objective of the trial will be to determine if MAXAMINE
THERAPY is safe and can demonstrate clinical responses among previously
IFN-ALPHA-resistant HCV patients. The study is being conducted in Gothenburg,
Sweden. The Company expects to start a Phase II trial of MAXAMINE THERAPY in
hepatitis C in the United States in 1998.
MAXVAX MUCOSAL VACCINE CARRIER/ADJUVANT PLATFORM
OVERVIEW OF VACCINE MARKET AND INFECTIOUS DISEASES
There remains today a broad range of infectious diseases for which no
therapies currently exist. One of the most promising areas in the fight
against such diseases is the development of vaccines. Recent trends in the
delivery of health care in the United States, including an increased emphasis
on preventive health care, have contributed to significant growth of interest
in disease prevention and development of the vaccine market. Immunization
has long been recognized as an effective means to decrease health care costs
through disease prevention and is one of the key areas given priority
attention by the United States Department of Health and Human Services and
the World Health Organization in their respective public health service
publications. In 1992, revenues for the total world human vaccine market
totaled $1.8 billion, with the U.S. and Europe comprising 75% of the market.
It is estimated that by 1999, the total world market for human vaccine
products will have more than tripled to $5.3 billion and is anticipated to
grow in excess of 20% per year.
MUCOSAL MEMBRANES - A FIRST-LINE DEFENSE
The mucosal membranes (which line the nasal compartment and sinuses,
eyes, ears, oral cavity, respiratory tract, gastrointestinal tract and
urogenital tract) represent the body's first line defense against infections
and are the sites where most infectious agents enter the body. Examples of
infectious pathogens which enter the body through the mucosal membranes are
chlamydia, herpes simplex viruses and HIV, which cause sexually transmitted
diseases; respiratory syncytial virus ("RSV"), pneumococcus and streptococcus
which cause respiratory diseases; and HELICOBACTER PYLORI (ulcers) and
rotavirus (diarrhea) which causes gastrointestinal diseases. There has been
a long-standing interest in developing mucosal vaccines against these and
other important infections.
MAXVAX SYSTEM--MUCOSAL VACCINE CARRIER/ADJUVANT PLATFORM
MAXVAX is a mucosal vaccine carrier/adjuvant platform based on the
cholera toxin B subunit ("CTB"). CTB has already been administered to
hundreds of thousands of patients worldwide and is a major component of an
existing oral cholera vaccine and traveler's diarrhea vaccine. Most current
vaccines have been designed to provide systemic immunity administered through
injection. They treat or prevent infection only after the infecting organism
has entered the blood stream or deep tissues of the body. The mechanisms
which induce mucosal immunity appear to be distinct from those that protect
systemically. The Company believes that the MAXVAX approach to therapeutic
and protective vaccines has the potential to elicit both mucosal and systemic
immunity by delivering antigens directly to the mucosal system. By combining
the Company's proprietary recombinant form of CTB with vaccine antigens
and/or genes, the Company believes that it will be able to develop effective,
new mucosal-based vaccines.
POTENTIAL BENEFITS OF MUCOSAL IMMUNIZATION USING MAXVAX
The Company's MAXVAX approach to therapeutic and protective vaccines has
been shown to elicit both mucosal and systemic immunity and is based upon
"non-injectable" administration. The Company
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believes that there are numerous important clinical and commercial advantages
to mucosal immunization compared with traditional injected vaccine products,
including:
- GREATER CLINICAL EFFICACY. The body's largest defense system
against disease is the mucosal immune system where most infectious
agents enter the body. The Company believes that its mucosal
vaccine platform may likely result in mucosal and systemic immune
stimulation and could more effectively prevent or treat most
infectious diseases, as compared to traditional injected vaccines.
- HIGHER LEVEL OF SAFETY. CTB-based vaccines have been administered
to hundreds of thousands of patients worldwide in clinical trials
for the cholera and traveler's diarrhea. CTB is widely thought to
be a safe and effective mucosal vaccine carrier.
- LOWER COST OF ADMINISTRATION. The administration of the Company's
products by oral, nasal and topical applications involving direct
contact with mucosal surfaces may not require patients to go to
clinics nor will it require trained personnel, thereby effectively
lowering the cost of administration. The vaccines may be
prescribed by a doctor and dispensed by a pharmacy, thus
simplifying delivery and eliminating the multiple office visits
required for injection delivery of most contemporary vaccines.
- IMPROVED VACCINE UTILIZATION. Maxim believes that the relative
ease of administration and the concept of "prescription" vaccines
may improve vaccine utilization over traditionally administered
vaccines. Further, the Company believes that this novel mucosal
vaccine concept may allow development of protective and therapeutic
approaches to diseases where previous vaccines and therapeutics
have failed.
The MAXVAX technology is currently in preclinical development. The
Company has expanded its internal research and development efforts with
emphasis on a mucosal vaccine against chlamydia and a mucosal vaccine against
diphtheria. In addition, the Company has ongoing programs related to
gene-based vaccines and potential therapeutic vaccines. The chlamydia
vaccine utilizes the Company's gene-fusion technology and is nearing a
prototype for animal testing. This program also includes an ongoing human
Phase I study addressing appropriate routes of administration (nasal, oral,
vaginal), dosing and immune response using the MAXVAX carrier alone. The
results of this human study is expected to be published in a scientific
journal. The Company intends to seek collaborations with pharmaceutical and
biopharmaceutical companies for the discovery and development of vaccine
candidates of market interest.
The MAXVAX technology represents an early stage discovery and
development program. As with any such program, substantial additional
research and development will be necessary in order for the Company or its
partners to develop products based on the technology, and there can be no
assurance that the Company's research and development efforts will lead to
development of products that are shown to be safe and effective in clinical
trials and are commercially viable. See "Risk Factors--No Assurance of
Successful Clinical Trials and Product Development."
PRODUCT DEVELOPMENT AND COLLABORATIVE RELATIONSHIPS
The Company conducts its research and other product development efforts
through a combination of its internal research staff and collaborative
programs. For MAXAMINE, the Company relies upon its clinical management
personnel along with arrangements with universities and other clinical
research sites, contract research organizations and similar institutions and
persons for a significant portion of its product development efforts. The
majority of the basic research and development efforts related to MAXVAX were
transferred to the Company's internal laboratories during 1997, although the
Company expects to rely more heavily on pharmaceutical company collaborative
relationships as product development advances.
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The Company has relied upon licensing and other transactions to gain
access to certain of its proprietary technologies. Conduct of the Company's
current and planned clinical trials of MAXAMINE THERAPY relies upon
contractual relationships with universities and other clinical trial sites,
contract research organizations, home nursing organizations, and regulatory
and other consultants. The Company's strategy for development,
commercialization and marketing of MAXAMINE and MAXVAX will involve, where
appropriate, the establishment of marketing and other collaborative
relationships with pharmaceutical industry partners. The Company intends to
seek collaborative relationships in certain targeted development areas,
particularly in situations where the Company believes that the clinical
testing, marketing, manufacturing and other resources of pharmaceutical
collaborators will enable it to more effectively access particular products
or geographic markets.
MARKETING AND SALES
The Company expects to enter into an alliance with one or more
pharmaceutical companies to market MAXAMINE and to assist with funding of
certain portions of the clinical development efforts. The Company is
currently in discussions with potential collaborative marketing partners,
although there can be no assurance that any such relationships can be
consummated, or that any such relationships will be consummated under terms
favorable to the Company. See "Risk Factors--No Marketing and Sales
Capacities; Anticipated Dependence Upon Marketing Alliances."
The treatment of cancer is a highly specialized activity in which the
approximately 3,500 practicing oncologists in the United States tend to be
concentrated in major medical centers. The Company's marketing strategy for
MAXAMINE may include co-promotion or co-marketing of the product with the
Company's future marketing partners.
Due to the nature of the vaccine markets, the Company intends to
establish licensing arrangements with pharmaceutical companies with large
distribution systems for MAXVAX and does not expect to establish a direct
sales capability in the vaccine area.
MANUFACTURING
There are a number of facilities with FDA Good Manufacturing Practice
("GMP") approval available for contract manufacturing of the MAXAMINE
product. The Company does not intend to acquire or establish its own
dedicated manufacturing facilities for MAXAMINE in the foreseeable future.
The Company's strategy has been, and is expected to continue, to contract
with established pharmaceutical manufacturers for the production of MAXAMINE.
The CTB protein portion of MAXVAX is currently being produced by SBL Vaccin
AB ("SBL"), Stockholm, Sweden, under GMP through a system suitable for
large-scale industrial production.
The Company believes that, in the event of the termination of an
agreement with any single supplier or manufacturer, the Company would likely
be able to enter into agreements with other suppliers and/or manufacturers on
similar terms. However, there can be no assurance that there will be
manufacturing capacity available to the Company within the timelines and at
quantities required. See "Risk Factors--No Manufacturing Capabilities."
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company holds five issued or allowed patents and has six patent
applications pending in the United States. In addition, the Company holds
license rights to one issued patent and three patent applications pending in
the United States. Corresponding patent applications have been filed, and in
certain instances patents have been issued, in major international markets.
It is the Company's policy to file, where possible, patent applications to
protect technologies, inventions and improvements that are important to the
development of its business. Maxim's management has devoted substantial
attention and resources to the Company's patent and license portfolio to
obtain the strongest positions available. Maintaining patents and licenses
and conducting an assertive patent prosecution strategy is a high priority of
the Company.
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KEY GRANTED PATENTS AND PENDING APPLICATIONS
The Company holds a patent relating to the combination of IL-2 and H2
receptor agonists ("H2RA's") that was issued by the U.S. Patent and Trademark
Office in September 1994 and has additionally been granted in Europe and
Australia. The Company holds a patent application relating to the
combination of IFN-ALPHA and HRA's which was allowed by the U.S. Patent and
Trademark Office in July 1997 and has also issued in Australia. The Company
also holds four other patent applications in the United States relating to
other cytokines, biotherapies, mechanisms, rates and routes of
administration, and uses which have also been filed internationally.
Maxim holds a worldwide exclusive license to Vitec AB ("Vitec") and
SBL's U.S. and international patents for recombinantly producing CTB for use
in infectious diseases other than cholera, bacterial related diarrheas and
HIV (the Company holds non-exclusive rights to this patent with regard to
HIV). The Company also holds exclusive license rights to related patent
applications as well as a patent application with respect to certain
therapeutic and anti-inflammatory properties of CTB.
A patent application has been filed by the Company in the U.S. Patent
and Trademark Office covering use of CTB to make vaccines against chlamydia
and other sexually transmitted diseases. The Company has filed a U.S. patent
application for the use of CTB and other proteins in gene delivery of DNA or
RNA.
MAXAMINE TECHNOLOGY RIGHTS
In 1993, the Company entered into a technology transfer agreement
pursuant to which the Company purchased the core intellectual property and
patent rights related to its MAXAMINE technology. The technology transfer
agreement requires that the Company pay certain royalty obligations to
inventors of the technology. The Company has also filed additional patent
applications and received additional patents encompassing the MAXAMINE
technology.
MAXVAX LICENSES AND TECHNOLOGY RIGHTS
In 1993, the Company entered into an option and license agreement with
Vitec and SBL, pursuant to which the Company exercised an option for an
exclusive, worldwide license to technology related to CTB for use in a
chlamydia vaccine. Under the agreement, the Company is required to use its
best efforts to engage SBL to manufacture any products which result from the
application of the licensed technology. The Company has to make royalty
payments on the net sales of products using the licensed technology and to
make additional license and milestone payments to Vitec upon the execution of
any sub-licenses. Pursuant to the agreement, any party may terminate the
license agreement, with respect to the rights and duties of that party, as a
result of a material breach of the agreement by another party.
In 1994, the Company entered into a second license agreement with Vitec
and SBL for an exclusive, worldwide license to technology rights related to
CTB for all infectious diseases except chlamydia (which is governed by the
agreement discussed above), HIV (which is governed by a separate
non-exclusive sub-license agreement held by the Company), cholera and
bacterial-related diarrheas. Under the agreement, the Company has agreed to
use its best efforts to engage SBL to manufacture any products which result
from the application of licensed technology, and both Vitec and the Company
shall receive a percentage of any profits that SBL derives from manufacturing
such products. The licensors may terminate the agreement upon a material
breach of the agreement by the Company.
The Company has asked Active i Malmo AB (publ) ("Active"), SBL's recent
acquirer, to address concerns regarding SBL's performance under the 1994
license agreement, including (i) the transfer of technical information and
materials to Maxim as required by the license agreement, (ii) disclosure of
all improvements to the technology licensed to Maxim as required by the
license agreement and (iii) cessation of any activities which conflict with
Maxim's rights under the license agreement. The Company is currently
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discussing resolution of the matter with Active. The Company cannot
determine what impact, if any, an unfavorable resolution of the existing
concerns would have on the commercial value of the CTB technology.
The Company holds other licenses relating to CTB, including a
non-exclusive sub-license to CTB for the prevention and treatment of HIV
infection, and an exclusive, worldwide license to patent applications and
related technology rights with respect to certain therapeutic and
anti-inflammatory properties of CTB.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the development, manufacture and
marketing of the Company's proposed products and in its ongoing research and
product development activities. The nature and extent to which such
regulation applies to the Company will vary depending on the nature of any
products which may be developed by the Company. It is anticipated that all
of the Company's products will require regulatory approval by governmental
agencies prior to commercialization. In particular, human therapeutic and
vaccine products are subject to rigorous preclinical and clinical testing and
other approval procedures of the U.S. Food and Drug Administration ("FDA")
and similar regulatory authorities in European and other countries. Various
governmental statutes and regulations also govern or influence testing,
manufacturing, safety, labeling, storage and record- keeping related to such
products and their marketing. The process of obtaining these approvals and
the subsequent compliance with appropriate statutes and regulations require
the expenditure of substantial time and financial resources. Any failure by
the Company or its collaborators to obtain, or any delay in obtaining,
regulatory approval could adversely affect the marketing of any products
developed by the Company, its ability to receive product revenues and its
liquidity and capital resources. See "Risk Factors--No Assurance of
Regulatory Approval; Government Regulation."
FDA APPROVAL PROCESS
Prior to commencement of clinical studies involving human beings,
preclinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety
of the product. The results of these studies are submitted to the FDA as a
part of an Investigational New Drug ("IND") application, which must become
effective before clinical testing in humans can begin. Typically, clinical
evaluation involves a time consuming and costly three-phase process. In
Phase I, clinical trials are conducted with a small number of subjects to
determine the early safety profile, the pattern of drug distribution and
metabolism. In Phase II, clinical trials are conducted with groups of
patients afflicted with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety. In Phase III,
large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to
demonstrate the efficacy and safety required by the FDA. The FDA closely
monitors the progress of each of the three phases of clinical testing and
may, at its discretion, re-evaluate, alter, suspend or terminate the testing
based upon the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient.
The results of the preclinical and clinical testing on a non-biologic
drug and certain diagnostic drugs are submitted to the FDA in the form of a
New Drug Application ("NDA") for approval prior to commencement of commercial
sales. In the case of vaccines, the results of clinical trials are submitted
as a Product License Application ("PLA"). In responding to an NDA or PLA,
the FDA may grant marketing approval, request additional information or deny
the application if the FDA determines that the application does not satisfy
its regulatory approval criteria. There can be no assurance that approvals
will be granted on a timely basis, if at all. Similar procedures are in
place in countries outside the United States.
The FDA has issued "fast-track" regulations intended to accelerate the
approval process for the development, evaluation and marketing of new
therapeutic products used to treat life-threatening and severely debilitating
illnesses, especially those for which no satisfactory alternative therapies
exist. "Fast- track" designation affords the Company early interaction with
the FDA in terms of protocol design and permits, although it does not
require, the FDA to grant approval after completion of Phase II clinical
trials. On March 29, 1996, the FDA announced further intentions to
accelerate the approval for cancer therapeutics. The
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FDA's cancer drug initiative consists of specific requirements and elements
including accelerated approval for cancer drugs, expanded access for drugs
approved in other countries and facilitating additional uses of approved
cancer drugs. Further, the FDA has stated that it will increase its
proactive role in ensuring cancer drugs become available to patients by
soliciting applications for U.S. approval for products approved overseas and,
for the first time, taking international regulatory approvals into
consideration. The FDA has previously accepted data generated in clinical
trials from Sweden for incorporation in NDAs filed in the United States. The
Company believes that a number of its product candidates may fall under these
regulations, but there can be no assurance that any of the Company's products
will receive this or other similar regulatory treatment.
The Advisory Committee of Immunization Practices ("ACIP") of the Centers
for Disease Control and Prevention ("CDCP") has a role in setting the market
for most, if not all, of the vaccine products Maxim intends to make. The
ACIP meets quarterly to review developing data on licensed vaccines, and
those approaching license, as well as epidemiologic data on the need for
these products. The recommendations of the ACIP on the appropriate use of
vaccines and related products are published in the MORBIDITY AND MORTALITY
WEEKLY REPORT and reprinted in several journals. The CDCP develops
epidemiological data in support of the need for new vaccines and monitors
vaccine usage and changes in disease incidence. In addition, CDCP staff
frequently act as key advisors to the FDA in their review process.
EUROPEAN AND OTHER REGULATORY APPROVAL
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in Europe and other countries will likely
be necessary prior to commencement of marketing the product in such
countries. The regulatory authorities in each country may impose their own
requirements and may refuse to grant, or may require additional data before
granting, an approval even though the relevant product has been approved by
the FDA or another authority. As with the FDA, the European Union ("EU")
countries and other developed countries have very high standards of technical
appraisal and, consequently, in most cases a lengthy approval process for
pharmaceutical products. The process for gaining such approval in particular
countries varies, but generally follows a similar sequence to that described
for FDA approval. In Europe, the European Committee for Proprietary
Medicinal Products provides a mechanism for EU-member states to exchange
information on all aspects of product licensing and assesses license
applications submitted under two different procedures (the multi-state and
the high-tech concentration procedures). The EU has established a European
agency for the evaluation of medical products, with both a centralized
community procedure and a decentralized procedure, the latter being based on
the principle of mutual recognition between the member states.
OTHER REGULATIONS
The Company is also subject to various U.S. federal, state and local and
international laws, regulations and recommendations relating to safe working
conditions, laboratory manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the
Company's research work. The extent of government regulation which might
result from future legislation or administrative action cannot be predicted
accurately.
THIRD-PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through
various means. For example, in certain international markets pricing
negotiations are often required in each country of the European Community,
even if approval to market the drug under the European Medical Evaluation
Authority's centralized procedure is obtained. In the U.S., there have been,
and the Company expects that there will continue to be, a number of federal
and state proposals to implement similar government control. In addition, an
increasing emphasis on managed care in the U.S. has and will continue to
increase the pressure on pharmaceutical pricing. While the Company cannot
predict whether any such legislative or regulatory proposals will be adopted
or the effect such proposals or managed care efforts may have on its
business, the announcement of such proposals or efforts could have a material
adverse effect on the
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Company's ability to raise capital, and the adoption of such proposals or
efforts could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that
such proposals or efforts have a material adverse effect on other
pharmaceutical companies that are prospective corporate partners for the
Company, the Company's ability to establish a strategic alliance may be
adversely affected. In addition, in both the U.S. and elsewhere, sales of
prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third-party payors, such as government and
private insurance plans that mandate predetermined discounts from list
prices. In addition, third-party payors 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 and that reimbursement to
the consumer will be available or will be sufficient to allow the Company to
sell its products on a competitive basis.
COMPETITION
Competition in the discovery and development of methods for treating or
preventing cancer and infectious disease is intense. Numerous
pharmaceutical, biotechnology and medical companies and academic and research
institutions in the United States and elsewhere are engaged in the discovery,
development, marketing and sale of products for the treatment of cancer and
infectious disease. These include surgical approaches, new pharmaceutical
products and new biologically derived products. The Company expects to
encounter significant competition for the principal pharmaceutical products
it plans to develop. Companies that complete clinical trials, obtain
regulatory approvals and commence commercial sales of their products before
their competitors may achieve a significant competitive advantage. A number
of pharmaceutical companies are developing new products for the treatment of
the same diseases being targeted by the Company. In some instances, the
Company's competitors already have products in clinical trials. In addition,
certain pharmaceutical companies are currently marketing drugs for the
treatment of the same diseases being targeted by the Company, and may also be
developing new drugs to address these disorders.
The Company believes that its competitive success will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent
or other protection for its products, obtain required regulatory approvals,
obtain orphan drug status for certain products and manufacture and
successfully market its products either independently or through outside
parties. Many of the Company's competitors have substantially greater
financial, clinical testing, regulatory compliance, manufacturing, marketing,
human and other resources. In addition, the Company will continue to seek
licenses with respect to key technologies related to its fields of interest
and may face competition with respect to such efforts. See "Risk
Factors--Competition."
EMPLOYEES AND CONSULTANTS
As of December 19, 1997, the Company had 23 employees, all but two of
which were based at its headquarters in San Diego, California. The Company
believes its relationships with its employees are satisfactory. Other
experienced professionals and personnel are expected to be hired to join the
Company's management team in 1998 to, among other things, address the
requirements of the expansion of clinical trials of MAXAMINE THERAPY and
other commercialization efforts. See "Risk Factors--Dependence on Qualified
Personnel."
In addition to its employees, Maxim has engaged approximately 12
experienced consultants in the United States, Europe and Australia with
pharmaceutical and business backgrounds to assist in its product development
efforts. The Company plans to leverage its key personnel by making extensive
use of contract laboratories, development consultants, and strategic
partnerships with pharmaceutical companies to conduct the Company's
preclinical and clinical trials.
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RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein.
DEVELOPMENT STAGE COMPANY; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY. The Company, as a development stage enterprise, has
experienced net losses every year since its inception and, as of September
30, 1997, had a deficit accumulated during the development stage of
approximately $20.8 million. The Company anticipates incurring substantial
additional losses over at least the next several years due to, among other
factors, the need to expend substantial amounts on its ongoing and planned
clinical trials and anticipated research and development activities, and the
business development and general and administrative expenses associated with
those activities. The Company has not commercially introduced any product
and its products are in varying stages of development and testing. The
Company's ability to attain profitability will depend upon its ability to
develop products that are effective and commercially viable, to obtain
regulatory approval for the manufacture and sale of its products and to
market its products successfully. There can be no assurance that the Company
will ever achieve profitability or that profitability, if achieved, can be
sustained on an ongoing basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NO ASSURANCE OF SUCCESSFUL CLINICAL TRIALS AND PRODUCT DEVELOPMENT. All
drug products currently under development by the Company will require
extensive preclinical and clinical testing prior to regulatory approval for
commercial use. To date, the Company has not completed testing for efficacy
or safety in humans on any of its products. Substantial additional research
and development will be necessary in order for the Company to develop
products based on the Company's MAXAMINE and MAXVAX technologies and there
can be no assurance that the Company's research and development efforts will
lead to development of products that are shown to be safe and effective in
clinical trials and are commercially viable. In addition to further research
and development, potential products based on the Company's MAXAMINE and
MAXVAX technologies will require clinical testing, regulatory approval and
substantial additional investment prior to commercialization. There can be
no assurance that any such products will be successfully developed, prove to
be safe and effective in clinical trials, meet applicable regulatory
standards, be capable of being produced in commercial quantities at
acceptable costs, be eligible for third party reimbursement from governmental
or private insurers, be successfully marketed or achieve market acceptance.
Further, the Company's products may prove to have undesirable or unintended
side effects that may prevent or limit their commercial use. The Company may
find, at any stage of this process, that products that appeared promising in
preclinical studies or Phase I and Phase II clinical trials do not
demonstrate efficacy in larger-scale, Phase III clinical trials and do not
receive regulatory approvals. Accordingly, any product development program
undertaken by the Company may be curtailed, redirected or eliminated at any
time. In addition, there may be delays in the Company's testing and
development schedules, and there can be no assurance that the Company will
meet expected testing and development schedules, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business."
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION. The U.S.
Food and Drug Administration (the "FDA") and comparable agencies in countries
outside the United States impose substantial requirements on the introduction
of therapeutic pharmaceutical products and vaccines through lengthy and
detailed laboratory and clinical testing procedures and other costly and time
consuming procedures. Satisfaction of these requirements typically takes a
number of years and varies substantially based upon the type, complexity and
novelty of the pharmaceutical agent. In general, the FDA approval process
for pharmaceuticals involves the submission of an Investigational New Drug
("IND") application following preclinical studies, clinical trials in humans
to demonstrate the safety and efficacy of the product under the protocols set
forth in the IND and submission of preclinical and clinical data as well as
other information to the FDA in a New Drug Application ("NDA") or Product
License Application ("PLA"). The Company must expend substantial time and
financial resources to conduct clinical trials. The Company's clinical
trials have been primarily conducted overseas and in the future will continue
to be conducted in part overseas. There can be no assurance that the results
of such trials will support the submission or the approval of an NDA or PLA or
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that data from the Company's overseas trials or approvals of the Company's
products in foreign countries outside of the United States, if any, will be
accepted by the FDA. Accordingly, there can be no assurance that FDA or
other regulatory approval for any products developed by the Company will be
granted on a timely basis, or at all. There can be no assurance that the
Company will have sufficient resources to complete the required regulatory
review process, or that the Company could overcome the inability to obtain,
or delays in obtaining, such approvals. The failure of the Company to
receive FDA approval for its products under development would preclude the
Company from marketing and selling its products in the United States.
Therefore, failure to receive such FDA approval would have a material adverse
effect on the business, financial condition and results of operations of the
Company. European and other international regulatory approvals are subject
to the same risks and uncertainties as FDA and other regulatory approvals in
the United States.
The production and marketing of the Company's proposed products, as well
as its ongoing research and development activities, are also subject to
regulation by governmental agencies of the United States and other countries.
The effect of government regulation may be to delay marketing of the
Company's products for a considerable period of time, to impose costly
procedures upon the Company's activities and to furnish a competitive
advantage to larger companies that compete with the Company. Any delay in
obtaining, or failure to obtain, FDA or other necessary regulatory approvals,
including approvals by comparable agencies outside the U.S., would adversely
affect the marketing of the Company's products and the ability to generate
product revenue. In addition, the marketing and manufacturing of
pharmaceuticals are subject to continuing FDA (or comparable international
agency) review and surveillance and failure to comply with regulations or
discovery of previously unknown problems can result in FDA (or comparable
international agency) action against the product or the manufacturer,
including fines, recalls, product seizures and suspension or withdrawal of
previously granted regulatory approvals. Furthermore, government regulation
may increase at any time, creating additional costs and delays for the
Company. The extent of potential adverse government regulation which might
arise from future legislation or administrative action cannot be predicted.
See "Business--Government Regulation."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. It is the policy
of the Company to file patent applications in the United States, Europe and
other major markets throughout the world. The patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions, and the breadth of claims allowed in
biotechnology and pharmaceutical patents cannot be predicted. There can be
no assurance that patents will issue from any of the Company's patent
applications. With respect to already issued patents and any patents which
may issue from the Company's applications, there can be no assurance that
claims allowed will be sufficient to protect the Company's technologies.
Patent applications in the United States are maintained in secrecy until a
patent issues, and the Company cannot be certain that others have not filed
patent applications for technology covered by the Company's pending
applications or that the Company was the first to file patent applications
for such technology. Competitors may have filed applications for, or may
have received patents and may obtain additional patents and proprietary
rights relating to, compounds or processes that block or compete without
infringing on those of the Company. In addition, there can be no assurance
that any patents issued to the Company or to licensors from whom the Company
has licensed rights to its technologies will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.
Other public and private concerns, including universities, may have
filed applications for or have been issued patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of
such patents, the extent to which the Company may wish or need to acquire
licenses under such patents, and the cost or availability of such licenses,
are currently unknown.
In addition to patents and proprietary rights, the Company relies on
unpatented trade secrets and proprietary know-how, and there can be no
assurance that others will not obtain access to or independently develop such
trade secrets and know-how. Although potential corporate partners and the
Company's research partners and consultants are not given access to trade
secrets and proprietary know-how of the Company until
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they have executed confidentiality agreements, these agreements may be
breached by the other party thereto or may otherwise be of limited
effectiveness or enforceability.
The pharmaceutical industry has experienced extensive litigation
regarding patent and other intellectual property rights. Accordingly, the
Company could incur substantial costs in defending itself in suits that may
be brought against the Company claiming infringement of the patent rights of
others or in asserting the Company's patent rights in a suit against another
party. The Company may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with the
patent applications of the Company or other parties. Adverse determinations
in litigation or interference proceedings could require the Company to seek
licenses (which may not be available on commercially reasonable terms) or
subject the Company to significant liabilities to third parties, and could
therefore have a material adverse effect on the Company. See
"Business--Patents, Licenses and Proprietary Rights."
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FUNDING. The
Company's operations to date have consumed substantial amounts of cash.
Negative cash flow from the Company's operations is expected to continue and
to accelerate over at least the next several years. The Company's capital
requirements will depend on numerous factors, including: the progress of
preclinical testing and clinical trials; the progress of the Company's
research and development programs; the time and costs required to obtain
regulatory approvals; the resources devoted to manufacturing methods and
advanced technologies; the timing and amount, if any, of funding obtained
through corporate collaborations; the cost of filing, prosecuting and, if
necessary, enforcing patent claims; the cost of commercialization activities
and arrangements; and the demand for the Company's products if and when
approved. The Company may have to raise substantial additional funds to
complete development of any product or bring products to market. Issuance of
additional equity securities by the Company, for these or other purposes,
could result in dilution to then existing stockholders. There can be no
assurance that additional financing will be available on acceptable terms, if
at all. If adequate funds are not available on acceptable terms, the Company
may be required to delay, scale back or eliminate one or more of its product
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to
certain of its technologies or products that the Company would not otherwise
relinquish, which may 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."
DEPENDENCE ON QUALIFIED PERSONNEL. The Company's future performance
depends in part upon the continued contributions of its senior management and
on the ability to attract and retain qualified management and scientific
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to continue to attract, assimilate or
retain highly qualified technical and management personnel. The loss of key
personnel or the failure to recruit additional personnel or to develop needed
expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Employees and
Consultants."
DEPENDENCE ON COLLABORATIVE PARTNERS. The Company's strategy for the
research, development, clinical testing, manufacturing and commercialization
of certain of its products requires arrangements with corporate and
university collaborators, licensors, marketing partners, licensees,
consultants and others, and is dependent upon the subsequent success of these
outside parties in performing their responsibilities. Although the Company
believes parties to any such arrangements would have an economic motivation
to perform their contractual responsibilities, the amount and timing of
resources to be devoted to these activities may not be within the control of
the Company. In addition, there can be no assurance that collaborators will
not pursue alternative technologies as a means for developing treatments for
the diseases targeted by these collaborative programs. Furthermore, there
can be no assurance that the Company will be able to negotiate acceptable
collaborative arrangements, or that its collaborative arrangements will be
successful. See "Business--Product Development and Collaborative
Relationships."
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NO MARKETING AND SALES CAPABILITIES; ANTICIPATED DEPENDENCE UPON
MARKETING ALLIANCES. The Company has not developed pharmaceutical marketing
or sales capabilities. In order to market and sell certain products, the
Company will need to develop a sales force and a marketing group with
technical expertise, or make appropriate arrangements with strategic
partners. There can be no assurance that the Company will be able to gain
such expertise or that such efforts will be successful. The Company's
strategy for development, commercialization and marketing of MAXAMINE and
MAXVAX is expected to involve, where appropriate, the establishment of
marketing and other collaborative relationships with pharmaceutical industry
partners. There can be no assurance that any such relationships can be
consummated on terms favorable to the Company or that marketing efforts
undertaken by such partners will be successful. See "Business--Marketing and
Sales."
NO ASSURANCE OF MARKET ACCEPTANCE. There can be no assurance that, if
approved for marketing, MAXAMINE or any of the Company's other products in
development will achieve market acceptance. The degree of market acceptance
will depend upon a number of factors, including the scope of regulatory
approvals, the establishment and demonstration in the medical community of
the clinical efficacy and safety of the Company's products and therapies and
their potential advantages over existing treatment methods, and reimbursement
policies of government and third-party payors. There can be no assurance
that physicians, patients, payors or the medical community in general will
accept and utilize any products that may be developed by the Company. See
"Business--Competition" and --Third-Party Reimbursement."
NO MANUFACTURING CAPABILITIES. The Company has not invested in the
development of pharmaceutical manufacturing capabilities. The Company's
strategy has been, and is expected to continue to be for the foreseeable
future, to contract with established pharmaceutical manufacturers for the
production of MAXAMINE. If the Company is unable to contract for
manufacturing capabilities on acceptable terms, the Company's ability to
conduct clinical testing and to produce commercial quantities of product will
be adversely affected, resulting in delays in submissions for regulatory
approval and in commercial product launches, which in turn could materially
impair the Company's competitive position and the possibility of achieving
profitability. There can be no assurance that the Company will be able to
maintain its existing, or acquire or establish new, satisfactory third- party
relationships to provide manufacturing resources. See
"Business--Manufacturing."
COMPETITION. There are many companies, both publicly and privately
held, including well-known pharmaceutical companies, as well as academic and
other research institutions, engaged in developing pharmaceutical and
biologically-derived products for the treatment of cancer and vaccines and
therapeutics for the prevention or the treatment of infectious diseases.
Many of the Company's competitors and potential competitors have
substantially greater capital, research and development capabilities and
human resources than the Company and represent significant competition for
the Company. Many of these competitors have significantly greater experience
than the Company in undertaking preclinical testing and clinical trials of
new pharmaceutical products and obtaining FDA and other regulatory approvals.
If the Company is permitted to commence commercial sales of any product, it
will also be competing with companies that have greater resources and
experience in the manufacturing, marketing and sales of pharmaceutical
products. The Company's competitors may succeed in developing products that
are more effective, less costly, or have a better side effect profile than
any that may be developed by the Company, and such competitors may also prove
to be more successful than the Company in manufacturing, marketing and sales.
See "Business--Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY. The Company is engaged in the
pharmaceutical field, which is characterized by extensive research efforts
and rapid technological progress. New developments in oncology, cancer
therapy, medicinal pharmacology, biochemistry and other fields are expected
to continue at a rapid pace in both industry and academia. There can be no
assurance that research and discoveries by others will not render some or all
of the Company's proposed programs or products noncompetitive or obsolete.
The Company's business strategy is subject to the risks inherent in the
development of new products using new technologies and approaches. There can
be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to address
successfully technological challenges it
17
<PAGE>
encounters in its research and development programs or that commercially
feasible products will ultimately be developed by the Company. See
"Business--Competition."
LEGAL PROCEEDINGS. In March 1997, the former President and Chief
Operating Officer and the Chief Financial Officer of the Company (the "Former
Employees") filed a complaint in the Superior Court in the State of
California, County of San Diego (the "Complaint") seeking claims for certain
purported damages in contract and in tort arising from their respective
terminations of employment with the Company in March 1996. In addition, the
Former Employees asserted possible punitive damages and damages based on
emotional distress. The Former Employees also claimed the right to vested
options of the Company's Common Stock. According to the Complaint, each of
the Former Employees appears to be claiming compensatory damages in excess of
$2 million and punitive damages in excess of $3 million. In June 1997, the
Company filed an answer to the Complaint denying each of the allegations
therein. Pretrial discovery with respect to these legal proceedings has
commenced, and a trial date has been scheduled for May 1998. The Company
believes the Former Employees' claims are without merit and the Company
intends to contest any such claims vigorously. However, there can be no
assurances as to the eventual outcome of such claims or their effect on the
Company's business, financial condition and results of operations. In
addition, an adverse determination in any litigation arising from these
claims or the settlement of such claims could have a material adverse effect
on the Company's business, financial condition and results of operations.
See "Legal Proceedings."
PRODUCT LIABILITY EXPOSURE AND INSURANCE. The Company's business
exposes it to potential product liability risks which are inherent in the
clinical testing, manufacturing and marketing of human therapeutic products.
The Company currently maintains product liability insurance coverage for its
clinical trials, and intends to expand its insurance coverage to include the
sales of commercial products if marketing approval is obtained for MAXAMINE
or other products in development. There can be no assurance that such
coverage is or in the future will be adequate or that adequate insurance will
be available in the future at an acceptable cost, if at all. In addition,
there can be no assurance that a product liability claim, even if the Company
has insurance coverage, would not materially adversely affect the business or
financial condition of the Company.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE; PRICE
VOLATILITY OF THE COMMON STOCK. Sales of substantial amounts of the Common
Stock of the Company in the public market could adversely affect prevailing
market prices for the Common Stock and the ability of the Company to raise
equity capital in the future. The Company's Common Stock currently trades on
the American Stock Exchange and on the Stockholm Stock Exchange.
Historically, the Common Stock has generally experienced relatively low daily
trading volumes in relation to the aggregate number of shares outstanding.
The price and liquidity of the Common Stock may be significantly affected by
trading activity and market factors related to the AMEX and SSE, which
factors and the effects thereof may differ between these markets. In
addition, the securities markets have from time to time experienced
significant price and volume fluctuations that may be unrelated to the
operating performance of particular companies. In addition, the market
prices of the common stock of many publicly traded pharmaceutical or
biotechnology companies have in the past been, and can in the future be
expected to be, especially volatile. Low trading volumes, announcements of
technological innovations or new products by the Company or its competitors,
developments or disputes concerning patents or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by the Company or its competitors, regulatory developments in
both the United States and countries outside of the United States, delays in
the Company's testing and development schedules, events or announcements
relating to the Company's collaborative relationships with others, public
concern as to the safety of biopharmaceutical or biotechnology products and
economic and other external factors, as well as period-to-period fluctuations
in the Company's financial results, may have a significant impact on the
market price or liquidity of the Common Stock.
18
<PAGE>
ITEM 2. PROPERTIES
The Company currently leases approximately 9,500 square feet of
laboratory and office space in San Diego, California. The Company has
determined that additional office facilities will be required to accommodate
the hiring of additional personnel planned as part of the commercialization
of MAXAMINE, including the management of the ongoing and planned clinical
trials. The Company believes it has made appropriate plans to ensure that
such additional facilities will be available as required.
ITEM 3. LEGAL PROCEEDINGS
In March 1997, the former President and Chief Operating Officer and the
Chief Financial Officer of the Company (the "Former Employees") filed a
complaint in the Superior Court in the State of California, County of San
Diego (the "Complaint") seeking claims for certain purported damages in
contract and in tort arising from their respective terminations of employment
with the Company in March 1996. In addition, the Former Employees asserted
possible punitive damages and damages based on emotional distress. The
Former Employees also claimed the right to vested options of the Company's
Common Stock. According to the Complaint, each of the Former Employees
appears to be claiming compensatory damages in excess of $2 million and
punitive damages in excess of $3 million. In June 1997, the Company filed an
answer to the Complaint denying each of the allegations therein. Pretrial
discovery with respect to these legal proceedings has commenced, and a trial
date has been scheduled for May 1998. The Company believes the Former
Employees' claims are without merit and the Company intends to contest any
such claims vigorously. However, there can be no assurances as to the
eventual outcome of such claims or their effect on the Company's business,
financial condition and results of operations. In addition, an adverse
determination in any litigation arising from these claims or the settlement
of such claims could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Legal Proceedings."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1997.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
(a) The information required by this Item 5 is incorporated herein by
reference to the information contained in Note 15 of the Notes to Financial
Statements under the caption "Price Range of Common Stock (Unaudited)" on page
37 of the Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1997, filed as Exhibit 13.1 hereto. In addition to the foregoing,
the Company has entered into a Loan and Security agreement with Silicon Valley
Bank which restricts the payment of dividends by the Company.
(b) On July 9, 1996, the Company's Form SB-2 registration statement (File
No. 333-4854-LA) was declared effective by the Securities and Exchange
Commission. The registration statement, as amended, covered the offering of
2,500,000 shares of the Company's Common Stock, $.001 par value and 2,500,000
Redeemable Common Stock Purchase Warrants (the "Warrants"). The offering
commenced on July 10, 1996 and the sale to the public of 2,500,000 shares of
Common Stock at $7.50 per share was completed on July 15, 1996 for an aggregate
price of $17,480,000. The registration statement included an additional 375,000
shares of Common Stock and/or 375,000 additional Warrants solely to cover
over-allotments. The managing underwriter for the offering was National
Securities Corporation. On July 23, 1996, the Underwriters exercised their
option to purchase 375,000 additional shares of Common Stock and 375,000
additional Warrants. The offering was terminated on July 26, 1996. A total
of 2,875,000 shares of Common Stock and 2,875,000 Warrants were sold in the
offering at an aggregate price of $21,850,000. All of the shares sold in the
offering were sold by the Company.
Expenses incurred by the Company through September 30, 1997 in connection with
the issuance and distribution of Common Stock and Warrants in the offering
included underwriting discounts and commissions of $1,748,000 and other expenses
of $1,882,000. Total offering expenses of $3,630,000 resulted in net offering
proceeds to the Company of $18,220,000. No expenses were paid to directors,
officers or affiliates of the Company or 10% owners of any class of equity
securities of the Company.
Of the net offering proceeds to the Company of $18.2 million, through September
30, 1997, the following payments have been made:
(A) (B)
Purchase and installation of
machinery and equipment 439,000
Repayment of indebtedness 289,000 547,000
Interest earning bonds and securities 12,160,000
R&D expenses 3,170,000
Business development expenses 207,000
G&A expenses 1,020,000
Intellectual property 388,000
(A) Direct or indirect payments to directors, officers, general partners of the
issuer or their associates; to persons owning ten percent or more of any
class of equity securities of the issuer; and to affiliates of the issuer.
(B) Direct or indirect payments to others.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated herein by
reference to the information contained under the caption "Selected Financial
Data" on page 21 of the Company's Annual Report to Stockholders for the
fiscal year ended September 30, 1997, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this Item 7 is incorporated herein by
reference to the information contained under the caption "Management's
Discussion and Analysis" on pages 18-21 of the Company's Annual Report to
Stockholders for the fiscal year ended September 30, 1997, filed as Exhibit
13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS
The information required by this Item 8 is incorporated herein by
reference to the Company's Financial Statements and the Notes to Financial
Statements set forth on pages 21-37 of the Company's Annual Report to
Stockholders for the fiscal year ended September 30, 1997, filed as Exhibit
13.1 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by
reference to the information under the caption "Election of Directors" set
forth in the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after September 30, 1997,
for its Annual Meeting of Stockholders to be held on February 20, 1998.
Information concerning executive officers is incorporated herein by reference
to the information included under the caption "Other Information - Executive
Officers" set forth in the Company's definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the information under the caption "Executive Compensation" set
forth in the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after September 30, 1997,
for its Annual Meeting of Stockholders to be held on February 20, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The information required by this Item 12 is incorporated herein by
reference to the information under the captions "Security Ownership of
Certain Beneficial Owners and Management" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after September 30, 1997, for its Annual Meeting of Stockholders to be
held on February 20, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the information under the captions "Certain Transactions" in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1997, for its Annual
Meeting of Stockholders to be held on February 20, 1998.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. FINANCIAL STATEMENTS
The following financial statements are incorporated herein by
reference from pages 22-38 of the Company's Annual Report to Stockholders for
the fiscal year ended September 30, 1997:
Balance Sheets as of September 30, 1997 and 1996
Statements of Operations for the years ended September 30, 1997,
1996, and 1995, and from October 23, 1989 (date of inception) to
September 30, 1997
Statements of Stockholders' Equity (Deficit) from October 23, 1989
(date of inception) through September 30, 1997
Statements of Cash Flows for the years ended September 30, 1997,
1996, and 1995, and from October 23, 1989 (date of inception) to
September 30, 1997
Notes to Financial Statements
Independent Auditors' Report
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the consolidated financial statements
or notes thereto.
3. EXHIBITS
See list of Exhibits set forth in paragraph (c) below.
The following management contracts or compensatory plans and
arrangements are required to be filed as exhibits to this Annual Report
pursuant to Item 14(c):
10.14 Amended and Restated 1993 Long Term Incentive Plan and forms of
stock option agreements (1)
10.15 Employment Agreement dated October 1, 1997 between the Registrant
and Kurt R. Gehlsen.
10.16 Employment Agreement dated October 1, 1997 between the Registrant
and Dale A. Sander
10.17 Employment Agreement dated November 5, 1997 between the Registrant
and Larry G. Stambaugh.
- -----------------
(1) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated December 31, 1996.
(b) The Company filed no reports on Form 8-K during the fourth quarter of
the fiscal year ended September 30, 1997.
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Common Stock Certificate. (1)
10.1 Form of Indemnification Agreement for directors and officers of the
Registrant. (1)
10.2 Form of Representative's Warrant Agreement between the Company and
National Securities Corporation, as representative of the several
Underwriters (the "Representative"), including form of Representative's
Warrant Certificate. (1)
10.3 Form of Warrant Agreement between the Company, the Representative and
American Stock Transfer & Trust Company, including form of Warrant
Certificate. (1)
10.4 Option to Buy Technology and Rights Agreement, dated March 30, 1993,
between the Registrant and Estero Anstalt. (1)(2)
10.5 Security Agreement, dated July 27,1993, between the Registrant and Estero
Anstalt. (1)(2)
10.6 Exclusive License Agreement, dated June 14, 1995, among the Registrant,
Jan Holmgren, M.D., Ph.D., Cecil Czerkinsky, Duotol AB and Triotol Ltd.
(1)(2)
10.7 Option and License Agreement, dated May 19, 1993, among the Registrant,
Vitec AB and SBL Vaccin AB, as amended. (1)(2)
10.8 License Agreement dated January 14, 1994, among the Registrant, Vitec AB
and SBL Vaccin, AB, as amended. (1)(2)
10.9 Agreement, dated December 2, 1995, among the Registrant, Syntello Vaccine
Development AB and Estero Anstalt. (1)(2)
10.10 Agreement, dated April 23, 1996, among the Registrant, Anders Vahlne,
M.D., Ph.D. and Syntello Vaccine Development AB. (1)(2)
10.11 Letter Agreement, dated February 15, 1996, between the Registrant and
Burrill & Craves, Inc.(1)
10.12 Lease dated November 1, 1996 between DM Spectrum LLC, a California
limited liability company, as Landlord and the Registrant for 3099
Science Park Road, Suite 150, San Diego, California 92121. (3)
10.13 Stock Purchase Agreement, dated as of July 5, 1996, by and between
Dr. Anders Vahlne and the Registrant. (1)
10.14 Amended and Restated 1993 Long-Term Incentive Plan and forms of stock
option agreements. (4)
10.15 Employment Agreement dated October 1, 1997 between the Registrant and
Kurt R. Gehlsen.
10.16 Employment Agreement dated October 1, 1997 between the Registrant and
Dale A. Sander.
23
<PAGE>
10.17 Employment Agreement dated November 5, 1997 between the Registrant and
Larry G. Stambaugh.
10.18 Loan and Security Agreement between the Registrant and Silicon Valley
Bank. (5)
10.19 Financial Advisory Services Agreement between the Registrant and
Rodman & Renshaw, Inc. dated September 17, 1997.(6)
11.1 Statement re: computation of pro forma loss per share.
13.1 Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1997.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.3 Power of Attorney
27.1 Financial Data Schedule.
99.1 Independent Auditors' Report.
_______
(1) Previously filed together with the Registrant's Registration Statement on
Form SB-2 (File No. 333-4854-LA) or amendments thereto and incorporated
herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 thereunder
respecting confidential treatment.
(3) Previously filed together with the Registrant's Annual Report on Form 10-K
(File No. 1-4430) dated September 30, 1996.
(4) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated December 31, 1996.
(5) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated March 31, 1997.
(6) Previously filed together with the Registrant's Registration Statement on
Form S-1 (File No. 333-35895) dated September 18, 1997.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MAXIM PHARMACEUTICALS, INC.
By: /s/ DALE A. SANDER
------------------
Dale A. Sander,
Vice President, Finance
and Chief Financial Officer
Date: December 23, 1997
NOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry G. Stambaugh and Dale A. Sander,
and each of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
that all said attorneys-in-fact and agents, or any of them or their or his
substitute or substituted, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below, by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ LARRY G. STAMBAUGH Chairman of the Board December 23, 1997
- ------------------------- Director, President and
Larry G. Stambaugh Chief Executive Officer
(Principal Executive Officer)
/S/ DALE A. SANDER Vice President, Finance, and December 23, 1997
- ------------------------- Chief Financial Officer
Dale A. Sander (Principal Accounting Officer and
Principal Financial Officer)
/S/ COLIN B. BIER Director December 23, 1997
- -------------------------
Colin B. Bier, Ph.D.
/S/ G. STEVEN BURRILL Director December 23, 1997
- -------------------------
G. Steven Burrill
/S/ PER-OLOF MARTENSSON Director December 23, 1997
- -------------------------
Per-Olof Martensson
/S/ F. DUWAINE TOWNSEN Director December 23, 1997
- -------------------------
F. Duwaine Townsen
</TABLE>
25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Common Stock Certificate. (1)
10.1 Form of Indemnification Agreement for directors and officers of the
Registrant. (1)
10.2 Form of Representative's Warrant Agreement between the Company and
National Securities Corporation, as representative of the several
Underwriters (the "Representative"), including form of Representative's
Warrant Certificate. (1)
10.3 Form of Warrant Agreement between the Company, the Representative and
American Stock Transfer & Trust Company, including form of Warrant
Certificate. (1)
10.4 Option to Buy Technology and Rights Agreement, dated March 30, 1993,
between the Registrant and Estero Anstalt. (1)(2)
10.5 Security Agreement, dated July 27,1993, between the Registrant and Estero
Anstalt. (1)(2)
10.6 Exclusive License Agreement, dated June 14, 1995, among the Registrant,
Jan Holmgren, M.D., Ph.D., Cecil Czerkinsky, Duotol AB and Triotol Ltd.
(1)(2)
10.7 Option and License Agreement, dated May 19, 1993, among the Registrant,
Vitec AB and SBL Vaccin AB, as amended. (1)(2)
10.8 License Agreement dated January 14, 1994, among the Registrant, Vitec AB
and SBL Vaccin, AB, as amended. (1)(2)
10.9 Agreement, dated December 2, 1995, among the Registrant, Syntello Vaccine
Development AB and Estero Anstalt. (1)(2)
10.10 Agreement, dated April 23, 1996, among the Registrant, Anders Vahlne,
M.D., Ph.D. and Syntello Vaccine Development AB. (1)(2)
10.11 Letter Agreement, dated February 15, 1996, between the Registrant and
Burrill & Craves, Inc.(1)
10.12 Lease dated November 1, 1996 between DM Spectrum LLC, a California
limited liability company, as Landlord and the Registrant for 3099
Science Park Road, Suite 150, San Diego, California 92121. (3)
10.13 Stock Purchase Agreement, dated as of July 5, 1996, by and between
Dr. Anders Vahlne and the Registrant. (1)
10.14 Amended and Restated 1993 Long-Term Incentive Plan and forms of stock
option agreements. (4)
10.15 Employment Agreement dated October 1, 1997 between the Registrant and
Kurt R. Gehlsen.
10.16 Employment Agreement dated October 1, 1997 between the Registrant and
Dale A. Sander.
26
<PAGE>
10.17 Employment Agreement dated November 5, 1997 between the Registrant and
Larry G. Stambaugh.
10.18 Loan and Security Agreement between the Registrant and Silicon Valley
Bank. (5)
10.19 Financial Advisory Services Agreement between the Registrant and
Rodman & Renshaw, Inc. dated September 17, 1997.(6)
11.1 Statement re: computation of pro forma loss per share.
13.1 Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1997.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.3 Power of Attorney
27.1 Financial Data Schedule.
99.1 Independent Auditors' Report.
_______
(1) Previously filed together with the Registrant's Registration Statement on
Form SB-2 (File No. 333-4854-LA) or amendments thereto and incorporated
herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 thereunder
respecting confidential treatment.
(3) Previously filed together with the Registrant's Annual Report on Form 10-K
(File No. 1-4430) dated September 30, 1996.
(4) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated December 31, 1996.
(5) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated March 31, 1997.
(6) Previously filed together with the Registrant's Registration Statement on
Form S-1 (File No. 333-35895) dated September 18, 1997.
27
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MAXIM PHARMACEUTICALS, INC.
AND
KURT GEHLSEN, PH.D.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of October 1, 1997, by and between Maxim Pharmaceuticals, Inc.,
(the "Company"), and Kurt Gehlsen, Ph.D. ("Executive"). The Company and
Executive are hereinafter collectively referred to as the "Parties," and
individually referred to as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is willing
to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 The Company hereby employs Executive, and Executive hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement, effective as of the date first set forth above ("Commencement
Date"). This Agreement shall continue in until December 31, 1999, unless
terminated earlier pursuant to Section 5 below.
1.2 Executive shall be the Vice President, Development and Chief
Technical Officer of the Company and shall serve in such other capacity or
capacities as the Chief Executive Officer and/or the Company's Board of
Directors ("Board") may from time to time prescribe.
1.3 Executive shall do and perform all services, acts or things necessary
or advisable to manage and conduct the business of the Company and which are
normally associated with the position of Vice President, Development and Chief
Technical Officer, consistent with the Bylaws of the Company, as well as its
general employment policies and practices, including, but not limited to
management of the Company's research and development programs issuing from its
technologies, including; primary responsibility for business development and
corporate partnering activities, over-site and administration of clinical
trials, supervision of collaborator and contract laboratory relationships,
planning and supervision of research programs, preparation of strategic
development and marketing plans for the Company's technologies, evaluation of
scientific and other technologies for acquisition, and participation in
financing presentations and otherwise representing the Company at various
meetings. However, at all times during his employment Executive shall be
subject to the direction and policies from time to time established by the
Board.
1.4 Unless the Parties otherwise agree in writing, during the term of
this Agreement, Executive shall perform the services he is required to perform
pursuant to this Agreement at the Company's offices, located at 3099 Science
Park Road, Suite 150, San Diego, CA 92121 or at any other place at which the
Company maintains an office; provided, however, that the Company may from time
to time require Executive to travel temporarily to other locations in
connection with the Company's business.
1
<PAGE>
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
2.1 During his employment by the Company, Executive shall devote his full
business energies, interest, abilities and productive time to the proper and
efficient performance of his duties under this Agreement.
2.2 During the term of this Agreement, Executive shall not engage in
competition with the Company, either directly or indirectly, in any manner or
capacity, as adviser, principal, agent, partner, officer, director, employee,
member of any association or otherwise, in any phase of the business of
developing, manufacturing and marketing of products which are in the same field
of use or which otherwise compete with the products or proposed products of the
Company.
2.3 Ownership by Executive, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this paragraph.
3. COMPENSATION OF EXECUTIVE.
3.1 While employed by the Company, as compensation for proper and
satisfactory performance of all duties to be performed hereunder, the Company
shall pay Executive an annual base salary of One Hundred Forty Thousand Dollars
($175,000) per year (the "Base Salary"), payable in regular periodic payments
in accordance with Company policy. Such salary shall be prorated for any
partial year of employment on the basis of a 365-day fiscal year. In addition,
Executive will be eligible for an incentive bonus, based upon defined
milestones, during the agreement period.
3.2 Executive's compensation may be changed from time to time by mutual
agreement of Executive and the Board.
3.3 All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be
collected or withheld by the Company.
3.4 Executive shall be entitled to vacation and illness days consistent
with the Company's standard practice for its employees generally.
3.5 Executive shall, at the discretion of the Board, be entitled to
participate in the benefits for which he is eligible under the terms and
conditions of the standard Company benefits which may be in effect from time to
time and provided by the Company.
4. EXPENSE REIMBURSEMENT.
4.1 Executive shall be entitled to receive prompt reimbursement of all
reasonable business and travel expenses incurred by Executive in connection
with the business of the Company. Such expenses must be properly accounted for
under the policies and procedures established by the Company.
5. TERMINATION.
5.1 The Company may terminate Executive's employment under this Agreement
"for cause" by delivery of written notice to Executive specifying the cause or
causes relied upon for such termination. If Executive's employment under this
Agreement is terminated by the Company for cause under this section, Executive
shall be entitled to receive only accrued Base Salary and other accrued
benefits required by law, prorated to the date of termination. Executive will
not be entitled to severance pay, pay in lieu of notice or any other such
compensation. Grounds for the Company to terminate this Agreement "for cause"
shall be limited to the occurrence of any of the following events:
2
<PAGE>
5.1.1 If Executive is in material breach of any provision of this
Agreement;
5.1.2 Executive's engaging or in any manner participating in any
activity which is competitive with or intentionally injurious to the Company or
which violates any provision of Section 7 of this Agreement;
5.1.3 Executive's commission of any fraud against the Company or
use or appropriation for his personal use or benefit of any funds or properties
of the Company not authorized by the Board to be so used or appropriated;
5.1.4 Executive's conviction of any crime involving dishonesty or
moral turpitude;
5.1.5 Conduct by Executive which in good faith and reasonable
determination of the Board demonstrates gross unfitness to serve.
Any notice of termination given pursuant to this Section 5.1 shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section 9 below.
5.2 The Company may terminate the Executive's employment at any time
without cause upon delivery of written notice to the Executive. Any notice of
termination given pursuant to this Section 5.2 shall effect termination as of
the date specified in such notice or, in the event no such date is specified,
on the last day of the month in which such notice is delivered or deemed
deliverable as provided in Section 9 below. If such termination shall occur
under this Section 5.2, then Executive shall be entitled to continuation of
Base Salary and health benefits for a period of six (6) months from said date
of termination with such Base Salary continuation to be at the rate set forth
in Section 3.1 or, as the case may be, at the rate of Executive's then current
Base Salary in effect as of the date of termination.
5.3 The parties may mutually agree at any time to terminate this
Agreement upon such terms and conditions as may be agreed upon in writing.
5.4 This Agreement shall terminate without notice upon the date of
Executive's death or the date when Executive becomes "completely disabled" as
that term is defined in Section 6.2
5.5 Notwithstanding any provision to the contrary herein, unless
otherwise provided herein or unless otherwise provided by law, Executive may at
any time terminate his employment with the Company hereunder. In such event,
the Company shall not be liable to Executive for the payment of any amount
other than accrued Base Salary and other accrued benefits required by law,
prorated to the date of termination. Executive will not be entitled to
severance pay, pay in leui of notice or any other such compensation.
6. DEATH OR DISABILITY DURING TERM OF EMPLOYMENT.
6.1 Upon termination of Executive's employment pursuant to Section 5.4,
Executive or his estate or personal representative, as the case may be, shall
be entitled to receive Executive's Base Salary and benefits for a period of one
month following the date of death or the date when Executive becomes completely
disabled.
6.2 The term "completely disabled" as used in this Agreement shall mean
the inability of Executive to perform the essential functions of his position
under this Agreement by reason of any incapacity, physical or mental, which the
Board of the Company, based upon medical advice or an opinion provided by a
licensed physician acceptable to the Board of the Company and approved by the
Executive, which approval shall not be unreasonably withheld, determines to
have incapacitated Executive from satisfactorily performing any or all
essential functions of his position for the Company during the foreseeable
future. Based upon such medical advice or opinion, the determination of the
Board of the Company shall be final and binding and the date such determination
is made shall be the date of such complete disability for purposes of this
Agreement.
3
<PAGE>
7. CONFIDENTIAL INFORMATION; NONSOLICITATION.
7.1 Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which is
not old and generally known in the trade, and which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential
Information"). Executive will at all times regard and preserve as confidential
such Confidential Information obtained by Executive from whatever source and
will not, either during his employment with the Company or thereafter, publish
or disclose any part of such Confidential Information in any manner at any
time, or use the same except on behalf of the Company, without the prior
written consent of the Company. As a condition of this Agreement, Executive
will sign and return a copy of the Company's "Proprietary Information and
Inventions Agreement," attached as Exhibit A.
7.2 While employed by the Company and for one (1) year thereafter, the
Executive agrees that in order to protect the Company's confidential and
proprietary information from unauthorized use, that Executive will not, either
directly or through others, solicit or attempt to solicit any employee,
consultant or independent contractor of the Company to terminate his or her
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or business entity; or the
business of any customer, vendor or distributor of the Company which, at the
time of termination or one (1) year immediately prior thereto, was listed on
Company's customer, vendor or distributor list.
8. ASSIGNMENT AND BINDING EFFECT.
8.1 This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, personal representatives, assigns,
administrators and legal representatives. Because of the unique and personal
nature of Executive's duties under this Agreement, neither this Agreement nor
any rights or obligations under this Agreement shall be assignable by
Executive. This Agreement shall be binding upon and inure to the benefit of
the Company and its successors, assigns and legal representatives.
9. NOTICES.
9.1 All notices or demands of any kind required or permitted to be given
by the Company or Executive under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
9.1.1 If to the Company:
Larry Stambaugh
MAXIM PHARMACEUTICALS, INC.
3099 SCIENCE PARK ROAD
SUITE 150
SAN DIEGO, CA 92121
9.1.2 If to Executive:
Kurt Gehlsen, Ph.D.
6923 BLUE ORCHID LANE
CARLSBAD, CA 92009
4
<PAGE>
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
10. CHOICE OF LAW.
10.1 This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California.
11. INTEGRATION.
11.1 This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the subject matter of this Agreement, and supersedes
all prior oral and written employment agreements or arrangements between the
Parties.
12. AMENDMENT.
12.1 This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
13. WAIVER.
13.1 No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier in claimed, and any waiver or any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
14. SEVERABILITY.
14.1 The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid
or illegal. Such court shall have the authority to modify or replace the
invalid or unenforceable term or provision with a valid and enforceable term or
provision which most accurately represents the parties' intention with respect
to the invalid or unenforceable term or provision.
15. INTERPRETATION; CONSTRUCTION.
15.1 The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has consulted with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised,
or had an opportunity to review and revise, this Agreement, and the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this
Agreement.
16. REPRESENTATIONS AND WARRANTIES.
16.1 Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other
agreements between Executive and any other person or entity.
5
<PAGE>
17. COUNTERPARTS.
17.1 This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall contribute one and the
same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
The Company:
MAXIM PHARMACEUTICALS, INC.
By: /s/ LARRY G. STAMBAUGH
Larry G. Stambaugh
Chairman of the Board, President and Chief
Executive Officer
Date: 11/10/97
EXECUTIVE:
/s/KURT R. GEHLSEN
Kurt Gehlsen, Ph.D.
Date: 11/10/97
6
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MAXIM PHARMACEUTICALS, INC.
AND
DALE SANDER
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of October 1, 1997, by and between Maxim Pharmaceuticals, Inc.,
(the "Company"), and Dale Sander ("Executive"). The Company and Executive
are hereinafter collectively referred to as the "Parties," and individually
referred to as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on
the terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is
willing to accept such employment on the terms and conditions set forth in
this Agreement.
AGREEMENT
In consideration of the foregoing recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration,
the Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 The Company hereby employs Executive, and Executive hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement, effective as of the date first set forth above ("Commencement
Date"). This Agreement shall continue in effect for a period beginning with
the Commencement Date and ending December 31, 1999, unless terminated earlier
pursuant to Section 5 below.
1.2 Executive shall be the Vice President, Finance, Chief Financial
Officer and Corporate Secretary of the Company and shall serve in such other
capacity or capacities as the Chief Executive Officer and/or the Company's
Board of Directors ("Board") may from time to time prescribe.
1.3 Executive shall do and perform all services, acts or things
necessary or advisable to manage and conduct the business of the Company and
which are normally associated with the position Vice President, Finance,
Chief Financial Officer and Corporate Secretary of the Company, consistent
with the Bylaws of the Company, as well as its general employment policies
and practices, including, but not limited to management of the corporate
administrative activities, record keeping and reporting requirements,
preparation and review of corporate documents related to regulatory
requirements and board activities, preparation of budgets and strategic
business plans, analysis for acquisitions and other business transactions,
investor relations and development and maintenance of financial community
relationships necessary for raising additional debt and/or equity capital.
However, at all times during his employment Executive shall be subject to the
direction and policies from time to time established by the Board.
1.4 Unless the Parties otherwise agree in writing, during the term of
this Agreement, Executive shall perform the services he is required to
perform pursuant to this Agreement at the Company's offices, located at 3099
Science Park Road, Suite 150, San Diego, CA 92121 or at any other place at
which the Company maintains an office; provided, however, that the Company
may from time to time require Executive to travel temporarily to other
locations in connection with the Company's business.
<PAGE>
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
2.1 During his employment by the Company, Executive shall devote his
full business energies, interest, abilities and productive time to the proper
and efficient performance of his duties under this Agreement.
2.2 During the term of this Agreement, Executive shall not engage in
competition with the Company, either directly or indirectly, in any manner or
capacity, as adviser, principal, agent, partner, officer, director, employee,
member of any association or otherwise, in any phase of the business of
developing, manufacturing and marketing of products which are in the same
field of use or which otherwise compete with the products or proposed
products of the Company.
2.3 Ownership by Executive, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation
with one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this paragraph.
3. COMPENSATION OF EXECUTIVE.
3.1 While employed by the Company, as compensation for proper and
satisfactory performance of all duties to be performed hereunder, the Company
shall pay Executive an annual base salary of One Hundred Twenty Five Thousand
Dollars, $150,000 per year (the "Base Salary"), payable in regular periodic
payments in accordance with Company policy. Such salary shall be prorated
for any partial year of employment on the basis of a 365-day fiscal year. In
addition, Executive will be eligible for an incentive bonus, based upon
defined milestones, during the agreement period.
3.2 Executive's compensation may be changed from time to time by mutual
agreement of Executive and the Board.
3.3 All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to
be collected or withheld by the Company.
3.4 Executive shall be entitled to vacation and illness days consistent
with the Company's standard practice for its employees generally.
3.5 Executive shall, at the discretion of the Board, be entitled to
participate in the benefits for which he is eligible under the terms and
conditions of the standard Company benefits which may be in effect from time
to time and provided by the Company.
4. EXPENSE REIMBURSEMENT.
4.1 Executive shall be entitled to receive prompt reimbursement of all
reasonable business and travel expenses incurred by Executive in connection
with the business of the Company. Such expenses must be properly accounted
for under the policies and procedures established by the Company.
5. TERMINATION.
5.1 The Company may terminate Executive's employment under this
Agreement "for cause" by delivery of written notice to Executive specifying
the cause or causes relied upon for such termination. If Executive's
employment under this Agreement is terminated by the Company for cause under
this section, Executive shall be entitled to receive only accrued Base Salary
and other accrued benefits required by law, prorated to the date of
termination. Executive will not be entitled to severance pay, pay in lieu of
notice or any other such compensation. Grounds for the Company to terminate
this Agreement "for cause" shall be limited to the occurrence of any of the
following events:
2
<PAGE>
5.1.1 If Executive is in material breach of any provision of
this Agreement;
5.1.2 Executive's engaging or in any manner participating in
any activity which is competitive with or intentionally injurious to the
Company or which violates any provision of Section 7 of this Agreement;
5.1.3 Executive's commission of any fraud against the Company
or use or appropriation for his personal use or benefit of any funds or
properties of the Company not authorized by the Board to be so used or
appropriated;
5.1.4 Executive's conviction of any crime involving dishonesty
or moral turpitude;
5.1.5 Conduct by Executive which in good faith and reasonable
determination of the Board demonstrates gross unfitness to serve.
Any notice of termination given pursuant to this Section 5.1 shall
effect termination as of the date specified in such notice or, in the event
no such date is specified, on the last day of the month in which such notice
is delivered or deemed delivered as provided in Section 9 below.
5.2 The Company may terminate the Executive's employment at any time
without cause upon delivery of written notice to the Executive. Any notice
of termination given pursuant to this Section 5.2 shall effect termination as
of the date specified in such notice or, in the event no such date is
specified, on the last day of the month in which such notice is delivered or
deemed deliverable as provided in Section 9 below. If such termination shall
occur under this Section 5.2, then Executive shall be entitled to
continuation of Base Salary and health benefits for a period of six (6)
months from said date of termination with such Base Salary continuation to be
at the rate set forth in Section 3.1 or, as the case may be, at the rate of
Executive's then current Base Salary in effect as of the date of termination.
5.3 The parties may mutually agree at any time to terminate this
Agreement upon such terms and conditions as may be agreed upon in writing.
5.4 This Agreement shall terminate without notice upon the date of
Executive's death or the date when Executive becomes "completely disabled" as
that term is defined in Section 6.2
5.5 Notwithstanding any provision to the contrary herein, unless
otherwise provided herein or unless otherwise provided by law, Executive may
at any time terminate his employment with the Company hereunder. In such
event, the Company shall not be liable to Executive for the payment of any
amount other than accrued Base Salary and other accrued benefits required by
law, prorated to the date of termination. Executive will not be entitled to
severance pay, pay in leui of notice or any other such compensation.
6. DEATH OR DISABILITY DURING TERM OF EMPLOYMENT.
6.1 Upon termination of Executive's employment pursuant to Section 5.4,
Executive or his estate or personal representative, as the case may be, shall
be entitled to receive Executive's Base Salary and benefits for a period of
one month following the date of death or the date when Executive becomes
completely disabled.
6.2 The term "completely disabled" as used in this Agreement shall mean
the inability of Executive to perform the essential functions of his position
under this Agreement by reason of any incapacity, physical or mental, which
the Board of the Company, based upon medical advice or an opinion provided by
a licensed physician acceptable to the Board of the Company and approved by
the Executive, which approval shall not be unreasonably withheld, determines
to have incapacitated Executive from satisfactorily performing any or all
essential functions of his position for the Company during the foreseeable
future. Based upon such medical advice or opinion, the determination of the
Board of the Company shall be final and binding and the date such
determination is made shall be the date of such complete disability for
purposes of this Agreement.
3
<PAGE>
7. CONFIDENTIAL INFORMATION; NONSOLICITATION.
7.1 Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which
is not generally known in the trade, and which gives the Company an advantage
over its competitors who do not know or use it, including but not limited to,
techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential
Information"). Executive will at all times regard and preserve as
confidential such Confidential Information obtained by Executive from
whatever source and will not, either during his employment with the Company
or thereafter, publish or disclose any part of such Confidential Information
in any manner at any time, or use the same except on behalf of the Company,
without the prior written consent of the Company. As a condition of this
Agreement, Executive will sign and return a copy of the Company's
"Proprietary Information and Inventions Agreement," attached as Exhibit A.
7.2 While employed by the Company and for one (1) year thereafter, the
Executive agrees that in order to protect the Company's confidential and
proprietary information from unauthorized use, that Executive will not,
either directly or through others, solicit or attempt to solicit any
employee, consultant or independent contractor of the Company to terminate
his or her relationship with the Company in order to become an employee,
consultant or independent contractor to or for any other person or business
entity; or the business of any customer, vendor or distributor of the Company
which, at the time of termination or one (1) year immediately prior thereto,
was listed on Company's customer, vendor or distributor list.
8. ASSIGNMENT AND BINDING EFFECT.
8.1 This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, personal representatives,
assigns, administrators and legal representatives. Because of the unique and
personal nature of Executive's duties under this Agreement, neither this
Agreement nor any rights or obligations under this Agreement shall be
assignable by Executive. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors, assigns and legal
representatives.
9. NOTICES.
9.1 All notices or demands of any kind required or permitted to be
given by the Company or Executive under this Agreement shall be given in
writing and shall be personally delivered (and receipted for) or mailed by
certified mail, return receipt requested, postage prepaid, addressed as
follows:
9.1.1 If to the Company:
Larry Stambaugh
MAXIM PHARMACEUTICALS, INC.
10835 ALTMAN ROW
SUITE 150
SAN DIEGO, CA 92121
9.1.2 If to Executive:
Dale Sander
13292 BENCHLEY ROAD
SAN DIEGO, CA 92130
4
<PAGE>
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified
above. Either Party may change its address for notices by giving notice to
the other Party in the manner specified in this section.
10. CHOICE OF LAW.
10.1 This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State
of California.
11. INTEGRATION.
11.1 This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the subject matter of this Agreement, and
supersedes all prior oral and written employment agreements or arrangements
between the Parties.
12. AMENDMENT.
12.1 This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
13. WAIVER.
13.1 No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier in claimed, and any waiver or any such term,
covenant, condition or breach shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other term, covenant,
condition or breach.
14. SEVERABILITY.
14.1 The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid
or illegal. Such court shall have the authority to modify or replace the
invalid or unenforceable term or provision with a valid and enforceable term
or provision which most accurately represents the parties' intention with
respect to the invalid or unenforceable term or provision.
15. INTERPRETATION; CONSTRUCTION.
15.1 The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has consulted with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised,
or had an opportunity to review and revise, this Agreement, and the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of
this Agreement.
16. REPRESENTATIONS AND WARRANTIES.
16.1 Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing
each of the terms and covenants contained in this Agreement, and that his
execution and performance of this Agreement will not violate or breach any
other agreements between Executive and any other person or entity.
5
<PAGE>
17. COUNTERPARTS.
17.1 This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall contribute one and
the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
The Company:
MAXIM PHARMACEUTICALS, INC.
By: /s/ LARRY G. STAMBAUGH
Larry G. Stambaugh
Chairman of the Board, President and Chief
Executive Officer
Date: 11/10/97
EXECUTIVE:
/s/ DALE A. SANDER
Dale Sander
Date: 11/10/97
6
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 5th day of November, 1997 between
Maxim Pharmaceuticals, Inc. ("Company") and Larry G. Stambaugh ("Executive").
PRELIMINARY STATEMENT
WHEREAS, the Company wishes to retain the Executive as Chairman of the
Board of Directors, President and Chief Executive Officer of the Company, and
the Executive wishes to continue in such positions, all on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the Company and the Executive agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence on October 1,
1997 and shall continue in effect for a term ending on September 30, 2000
("Term"), except as hereinafter provided.
2. POSITION AND DUTIES. Except as may otherwise be agreed upon
between the Company and the Executive, the Company agrees to employ the
Executive, and the Executive agrees to serve the Company, as Chairman of the
Board of Directors, President and Chief Executive Officer. The Executive
shall render such services to the Company as are customary for such positions
and perform all other services incident thereto. At all times, the Executive
shall report directly to the Board of Directors of the Company. The
Executive shall devote substantially all of his working time and efforts to
the business and affairs of the Company, except for time spent for service on
the boards of directors of other corporations, vacations as defined by
Company policy and civic and charitable activities, and shall represent the
Company within its industry.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall, except as the Executive may otherwise agree,
perform his principal activities at the offices of the Company located in San
Diego, California, subject to travel reasonably required for the Company's
business.
<PAGE>
4. COMPENSATION AND RELATED MATTERS.
4.1 BASE SALARY. During the Term, the Company shall pay to the
Executive, in approximately equal installments not less often than twice per
month, a base salary of not less than $275,000 per year through December 31,
2000 and such base salary shall be subject to increase from time to time
based upon recommendations from the Compensation Committee to the Board of
Directors. All amounts payable to the Executive pursuant to this Agreement
shall be paid subject to such reporting and withholding requirements, if any,
as may be imposed by applicable law and applicable Company policy.
4.2 INCENTIVE PLAN. The Executive shall be eligible to receive
bonus payments pursuant to a plan to be prepared by the Company's Board of
Directors with the Executive's participation ("Bonus Plan"). The parties
shall endeavor to establish the initial Bonus Plan at the earliest
practicable time. The Bonus Plan shall provide that, assuming reasonable
satisfaction of the performance criteria to be set forth in the Bonus Plan,
the Executive shall be eligible to earn an annual bonus with respect to each
of the Company's fiscal years during the Term in an amount up to 30% of the
Executive's annualized base salary hereunder, such bonus to be payable within
ninety days after the end of each such fiscal year. The bonus will be based
upon the annualized base salary for the year in which the bonus applies.
4.3 BENEFIT PLANS AND ARRANGEMENT. The Executive shall be
entitled to participate in and receive benefits under the Company's employee
benefit plans and arrangements in effect during the Term. The Company shall
pay the entire cost of the Executive's health, life and disability insurance
coverage under the Company's plans and policies during the Term,
notwithstanding anything to the contrary in such plans and policies.
4.4 PERQUISITES. During the Term, the Executive shall be entitled
to receive fringe benefits ordinarily and customarily provided by the Company
to its senior officers.
4.5 EXPENSES. The Company shall promptly reimburse the Executive
for all normal out-of-pocket expenses related to the Company's business
actually paid or incurred by him in the performance of his services under
this Agreement.
4.6 STOCK OPTIONS. In addition to previously awarded options, the
Company's Board of Directors will award the Executive options to acquire
83,334 shares of Common Stock of the Company at $14.50, a price which is
considered the fair market value of such stock at the date of this Agreement.
-2-
<PAGE>
Options issued will be 25% vested as of September 30, 1998 and the balance
will vest at 25% on each September 30 thereafter.
5. TERMINATION. The Executive's employment hereunder may be
terminated under the following circumstances (without impairing the
Executive's rights under benefit plans and arrangements and the Company's
policies and procedures):
5.1 TERMINATION UPON DEATH OR PERMANENT DISABILITY. The Term
shall automatically terminate in the event of the death or permanent
disability of Executive. For purposes of this Agreement, "permanent
disability" shall mean the inability to perform services hereunder for a
period of six consecutive months.
5.2 TERMINATION BY COMPANY FOR CAUSE. The Company shall have the
option to terminate the Term (a) for cause in the event the Executive engages
in grossly negligent conduct or willful misconduct in connection with the
execution of his duties hereunder which materially and adversely affects the
Company, after written notice by the Company to the Executive of the specific
acts that form the basis for the termination, and (b) for the Executive's
material nonperformance of his duties hereunder, provided the nonperformance
continues uncorrected for a period of thirty days after written notice
thereof by the Company to the Executive specifically identifying the manner
in which the Company believes the Executive has not performed his duties.
For purposes of this Section 5.2, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his act or
omission was in the best interests of the Company.
5.3 SEVERANCE AND LIFE INSURANCE. If the Company terminates
Executive's employment other than for cause pursuant to Section 5.2,
Executive, in lieu of all other remedies and as liquidated damages, shall be
entitled to receive a severance payment equal to his then annual base salary
plus health care insurance coverage for one year or the remainder of the term
of this Agreement, whichever is greater.
The Company shall also during the Term hereof maintain for Executive a term
life insurance policy in the amount of $1,000,000, with Executive's nominee
as beneficiary. Such insurance shall, however, decrease to $750,000 at the
next anniversary of the policy and by $250,000 each anniversary thereafter.
Nothing herein shall derogate from the Executive's rights under employee
benefit plans, programs and arrangements or under applicable law.
-3-
<PAGE>
5.4 CONSTRUCTIVE DISCHARGE. Any significant reduction or adverse
change in the nature or scope of the Executive's authority, duties, status or
position contemplated by Section 2 hereof, including an involuntary
relocation, or a reduction the base salary and/or benefits of the Executive
from those provided for in Section 4 hereof as they may from time to time be
in effect, will be the basis for the Executive's termination of this
Agreement by giving at least 30 days prior notice to the Company and in such
event the termination will be treated as a termination by the Company without
cause under Section 5.3.
5.5 BENEFITS UPON TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION
BY EXECUTIVE. In the event the Company properly terminates Executive's
employment under this Agreement for cause pursuant to Section 5.2 or
Executive voluntary resigns from his employment during the Term:
a. all salary shall be prorated as of the date of
termination and such prorated amount shall be paid to Executive;
b. all stock options or stock appreciation rights granted to
Executive shall be governed by the instruments granting such rights; and
c. the Company shall (i) make such other and further payment
to Executive, his designated beneficiaries and his dependents as may be
provided pursuant to the terms of any employee benefit plan and other
compensation plans, programs and structures, or fringe benefit programs in
which Executive is a participant at the time of the termination of his
employment with the Company and (ii) promptly reimburse the Executive for any
then unreimbursed out-of-pocket expenses pursuant to Section 4.6.
6. ATTORNEYS FEES. If litigation shall be instituted to enforce or
interpret any provision hereof the prevailing party will reimburse the other
part for his reasonable attorneys' fees and disbursements incurred in such
proceeding and will pay prejudgment interest at the legal rate then in effect
on any money judgment or award obtained in such proceeding.
7. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed as follows:
-4-
<PAGE>
If to the Executive:
Larry G. Stambaugh
17947 Corazon Place
San Diego, California 92127
If to the Company:
Maxim Pharmaceuticals, Inc.
10835 Altman Row
San Diego, California 92121
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change in address
shall be effective only upon receipt.
8. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provision
or conditions at the same or at any proper or subsequent time. No agreements
or representations, oral otherwise, expressed or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly or referred to in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California relating to contracts to be performed entirely
therein.
9. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
10. HEADINGS. The headings of the paragraphs herein are for
convenience only and shall have no significance in the interpretation of this
Agreement.
11. BIND AND INURE. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, personal representatives
and successors, including any successor of the Company by reason of any
-5-
<PAGE>
dissolution, merger, consolidation, sale of assets or other reorganization of
the Company.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its seal to be affixed hereunto by its officer thereunto duly authorized,
and Executive has signed this Agreement, as of the day and year first above
written.
MAXIM PHARMACEUTICALS, INC.
By: /s/ DALE A. SANDER
Dale A. Sander
Vice President, Finance and
Chief Financial Officer
Date: 11/10/97
/s/ LARRY G. STAMBAUGH
Executive
-6-
<PAGE>
Exhibit 11.1
Maxim Pharmaceuticals, Inc.
Statement Regarding Computation of Loss Per Share
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------------------
1996
---------------------------------------
Prior to
Effective Subsequent Total
1995 Date of IPO To IPO For Year 1997
---- ----------- ---------- -------- ----
(10/1/95 - (7/11/96 -
7/10/96) 9/30/96)
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding excluding common
shares issued in accordance with
SAB 83 438,229 438,229 6,671,237 6,671,237
Number of common shares issued
and stock options and warrants
granted in accordance with
SAB 83 2,668,374 2,668,374
Convertible preferred stock 102,866 102,866
---------- ---------- --------- --------- ----------
Total shares outstanding 3,209,469 3,209,469 6,671,237 4,074,961 6,671,237
---------- ---------- --------- --------- ----------
---------- ---------- --------- --------- ----------
Net income (loss) (2,790,122) (2,378,298) 1,544,810 (833,488) (6,895,149)
Net loss per share ($0.87) ($0.20) ($1.03)
</TABLE>
<PAGE>
EXHIBIT 13.1
MAXIM PHARMACEUTICALS
EXTENDING LIFE WITH QUALITY
1997 ANNUAL REPORT
Maxim values the quality of patients' lives. By focusing on safety and well-
being as well as effectiveness of therapy, Maxim is developing treatments
designed to extend survival while maintaining a good quality of life. Maxim's
lead drug MAXAMINE has shown substantial promise in Phase II trials and is
currently in international Phase III trials for cancer patients.
1997 - SETTING THE STAGE FOR THE FIRST COMMERCIAL PRODUCT
- - Commenced two Phase III clinical trials of MAXAMINE THERAPY for the
treatment of advanced-stage malignant melanoma, one based in the United
States and a second international trial centered in Sweden and Australia.
- - Prepared for a third Phase III clinical trial of MAXAMINE THERAPy, an
international trial in the treatment of acute myelogenous leukemia to
commence in early 1998.
- - Advanced the ongoing Phase II trials of MAXAMINE THERAPY which continue to
indicate a more than doubling of survival and disease-free remission
intervals while maintaining a good quality of life for our cancer patients.
- - Expanded shareholder base and added the resources necessary for the
commercialization of MAXAMINE with the completion of a $35 million
secondary offering.
- - Listed common stock for trading in Europe on the Stockholm Stock Exchange
(SSE) to complement our United States AMEX listing.
- - Added seasoned, experienced management and staff, collaborators and
clinical investigators to Maxim's team.
Note: MAXAMINE, MAXAMINE THERAPY, MAXVAX and the Maxim logo are trademarks of
the Company.
<PAGE>
TO OUR SHAREHOLDERS, COLLABORATORS AND ASSOCIATES:
We entered fiscal year 1997 with the objective of rapidly advancing the
commercialization of MAXAMINE, our immunotherapeutic drug for the treatment of
cancer and infectious diseases. Maxim clearly achieved this goal during our
first full year as a public company.
Based on positive Phase II trial results, Maxim launched two Phase III clinical
trials of MAXAMINE THERAPY in 1997 and will begin a third Phase III trial in
the first quarter of 1998. The first two Phase III studies examine MAXAMINE
THERAPY as a treatment for patients with advanced malignant melanoma, a rapidly
growing serious form of skin cancer. The third phase III trial will
investigate the use of MAXAMINE THERAPY for patients with acute myelogenous
leukemia (AML), the most common adult leukemia.
In October 1996 we reported interim results of the second Phase II trial of
MAXAMINE THERAPY in the treatment of advanced malignant melanoma. These
results indicated that MAXAMINE THERAPY more than doubled the length of
survival in these late-stage patients compared to conventional therapies,
confirming the results from the initial trial. In November 1997, a paper
published in LEUKEMIA AND LYMPHOMA reported that Phase II trials of MAXAMINE
THERAPY indicated substantially improved disease-free survival in AML patients.
These Phase II trials highlight the potential of MAXAMINE THERAPY to improve
survival outcomes while maintaining a quality of life - in short, EXTENDING
LIFE...WITH QUALITY for our patients.
COMMENCEMENT OF PHASE III TRIALS -MOVING TOWARD FIRST PRODUCT APPROVAL
A cornerstone of our strategy for the commercialization of MAXAMINE is an
aggressive clinical development program encompassing three concurrent Phase III
clinical trials of MAXAMINE THERAPY for the treatment of cancer. In mid 1997
we commenced a 200-patient Phase III clinical trial of MAXAMINE THERAPY for
advanced malignant melanoma in the United States. A second Phase III advanced
malignant melanoma trial was commenced in late 1997 in Sweden and Australia.
Next, we plan to commence a Phase III clinical trial for AML in the United
States, Europe and Australia in early 1998. We expect that a total of more
than 800 patients will be enrolled in these three trials.
We believe that conducting three trials concurrently, in two different diseases
indications, increases the likelihood of successful commercialization -- each
of these trials is designed to independently support regulatory submissions for
approval to market MAXAMINE. In addition, we believe that conducting clinical
trials simultaneously on three continents has the added benefit of building the
worldwide market awareness key to the successful commercial launch of MAXAMINE.
The potential for MAXAMINE THERAPY is demonstrated by the breadth of the
ongoing and planned cancer clinical studies, including, among others, multiple
myeloma, renal cell carcinoma and prostate adenocarcinoma. Infectious diseases
are also an important target;
<PAGE>
Maxim began a Phase I trial of MAXAMINE THERAPY in 1997 as a treatment for
patients chronically infected with hepatitis C.
STRATEGIES FOR MARKET LAUNCH OF MAXAMINE
As the Phase III trials of MAXAMINE THERAPY progress during the upcoming year
and the product moves closer to commercialization, we will begin to implement
our marketing strategy. A key component of the market launch strategy will be
the evaluation and appointment of pharmaceutical marketing partners in key
regions around the world, coupled with preparation for co-promotion by Maxim in
certain markets. Our objective is to select partners with the ability to
maximize the market penetration of MAXAMINE, and to structure collaborations
which maximize the revenue flow to Maxim and provide the resources to
accelerate the expansion of MAXAMINE THERAPY into additional disease
indications.
LOOKING FORWARD - EXPANDING OUR PRODUCT PIPELINE
Building on the success of the MAXAMINE, Maxim plans to pursue additional
development opportunities to fill our product pipeline. Currently in
preclinical development is MAXVAX, a platform which may be key to the
commercialization of mucosal vaccines. The mucosal membranes are the sites
where most infectious agents enter the body, and mucosal vaccines have been
long sought by the healthcare industry. During 1997 we have advanced important
preclinical work regarding MAXVAX, including a vaccine against diphtheria,
which infects millions of people globally.
During fiscal 1997 we established research and development facilities at our
headquarters in San Diego and internalized the majority of our basic research
and development activities. These facilities will allow us to continue the
preclinical development of MAXVAX and other new opportunities. Maxim also has
continued to enhance its proprietary position and received two additional
United States patents, and a number of corresponding international patents,
during the year. We continue to file additional patents as new features and
uses of our technologies are identified.
INCREASED MANAGEMENT AND FINANCIAL STRENGTH
To sustain our success and prepare for the future, we added seasoned,
experienced management and staff, collaborators and clinical investigators to
Maxim's team in 1997. These newest members at Maxim include accomplished
executives with proven track records in international clinical trials,
marketing and manufacturing management. The strong data relating to the Phase
II clinical trials of the MAXAMINE THERAPY have had the added benefit of
facilitating our recruitment of leading cancer investigators on three
continents to assist with the Phase III clinical trials and other development
efforts.
We also added the resources necessary for the commercialization of MAXAMINE
with the completion in October 1997 of a secondary public offering, raising an
additional $35 million in net proceeds. Together with our existing cash
reserves, these funds should
<PAGE>
allow us to complete the Phase III clinical trials of MAXAMINE and prepare for
the commercial launch of the product.
Concurrent with the secondary offering, we listed our common stock for trading
on the Stockholm Stock Exchange. Many of our shareholders are based in Europe,
in large part due to the interest generated by the results from the clinical
trials of MAXAMINE THERAPY conducted in Sweden. Our European listing provides
a regional market for investors wishing to trade in Europe, and allows certain
institutions and other investors previously unable to invest in a U.S.-traded
company to join our shareholders.
* * * * *
We expect that Maxim's program for the rapid development of MAXAMINE, combined
with our management team, commercialization strategies and resource base, will
continue to build a company whose products EXTEND LIFE...WITH QUALITY. By
developing a portfolio of therapies that may define the future of patient care,
we are strengthening Maxim's value for our shareholders. We welcome our new
shareholders, thank our long-standing shareholders for their continued loyalty,
interest and support, and enthusiastically look forward to Maxim's upcoming
year.
Sincerely,
/s/ LARRY G. STAMBAUGH
Larry G. Stambaugh
Chairman and Chief Executive Officer
<PAGE>
MAXAMINE THERAPY: EXTENDING LIFE WITH QUALITY
MAXAMINE CAN BE SAFELY AND EFFECTIVELY SELF-ADMINISTERED BY PATIENTS IN THEIR
OWN HOME...CLINICAL TRIALS USING MAXAMINE THERAPY IN CANCER PATIENTS INDICATE
SUBSTANTIAL IMPROVEMENT IN SURVIVAL AND REMISSION TIMES WHILE MAINTAINING THEIR
QUALITY OF LIFE DURING THERAPY.
Cancer and chronic infectious diseases afflict millions of people worldwide,
yet available treatments can be ineffective, harsh and costly. For many
patients, particularly those with late-stage cancer, treatments such as
chemotherapy, other medications, and radiation have high levels of toxicity and
other side effects that can make therapy intolerable. In addition, many of
these treatments are effective only in terms of short-term tumor response,
without improvement in overall patient survival.
Maxim's lead drug, MAXAMINE, is designed to offer a safer treatment that
EXTENDS LIFE for seriously ill patients. In many patients with cancer and
chronic infectious diseases, the capacity of the patient's immune system to
detect and destroy diseased cells is compromised. MAXAMINE THERAPY combines
the administration of MAXAMINE, which protects critical immune cells, with the
administration of certain agents which stimulate these immune cells. This
elegant and safe method of action is based on a natural defense system and
allows MAXAMINE THERAPY to improve the immune system's ability to identify,
disable and destroy malignant or infected cells.
MAXAMINE THERAPY has shown promise in a series of pre-clinical studies and
Phase II clinical trials as a treatment for patients with advanced malignant
melanoma and AML. Specifically, the studies suggest that MAXAMINE THERAPY has
resulted in a more than doubling of survival and disease-free remission
intervals while maintaining the quality of life for these seriously ill
patients. These results have led many clinicians around the world to believe
that MAXAMINE THERAPY may be integral to the growing trend toward combination
therapy for certain cancers and infectious diseases, and may offer a number of
important clinical and commercial advantages relative to current therapies or
approaches.
POTENTIAL ADVANTAGES OF MAXAMINE THERAPY
- - Extends life
- - Reduces toxic side effects of cytokines and other
biological response modifiers
- - Maintains the patient's quality of life during therapy
- - Allows for self-administration at home
- - Provides cost-effective therapy
The potential broad applicability of its novel mechanism of action may make
MAXAMINE THERAPY applicable to a number of cancers and infectious diseases. In
addition to
<PAGE>
malignant melanoma and AML, clinical trials currently underway or
planned include multiple myeloma, renal cell carcinoma, prostate adenocarcinoma
and viral diseases, notably hepatitis C. The current clinical trial status for
MAXAMINE THERAPY is summarized below.
[GRAPHIC]
*Note: Research and preclinical is completed or clinical trials are being
conducted in reliance upon work completed in other indications.
<PAGE>
CLINICAL RESULTS FOR MAXAMINE THERAPY --
SUCCESSFUL PHASE II TRIALS SET STAGE FOR PHASE III
REMARKABLY, THE MEDIAN SURVIVAL TIMES OF PATIENTS WITH LIVER METASTASES TREATED
WITH MAXAMINE THERAPY IN THE FIRST TWO TRIALS EXCEEDED 18 MONTHS, MORE THAN
FOUR TIMES LONGER THAN THE PREDICTED SURVIVAL TIME FOR THESE PATIENTS.
Phase II trials of MAXAMINE THERAPY in seriously ill cancer patients continue
to indicate improved survival outcomes while maintaining quality of life during
therapy. All studies of MAXAMINE THERAPY conducted to date have used MAXAMINE
in combination with one or both of the cytokines interleukin-2 ("IL-2") and
interferon-alpha ("IFN-ALPHA"). Both IL-2 and IFN-ALPHA have the capacity for
stimulating certain immune functions.
MALIGNANT MELANOMA
Malignant melanoma is one of most rapidly increasing cancers in the developed
world. In two completed Phase II trials of using MAXAMINE THERAPY in the
treatment of advanced malignant melanoma, overall survival times more than
doubled -- the median survival time for patients treated with MAXAMINE THERAPY
in the two studies exceeded 13 and 15 months, respectively, compared to
reported median survival times of seven months for conventional treatments.
Retaining the patient's quality of life was also an important outcome from the
second study. In that study, the doses of the cytokines IL-2 and IFN-ALPHA were
lowered substantially, resulting in reduced side effects and making it possible
for patients to self-administer MAXAMINE THERAPY in their home. As evidenced
by the patient survival times, maintaining quality of life was achieved with no
reduction in efficacy. A third Phase II clinical trial in advanced malignant
melanoma is currently underway in Sweden.
[GRAPHIC]
Another very encouraging outcome of the melanoma clinical trials was the
improved survival seen in patients with liver metastases. Malignant melanoma
frequently metastasizes (spreads) to the liver in advanced-stage patients.
Prognosis in these cases is poor, and the predicted survival time for malignant
melanoma patients with liver metastasis is four months or less. No therapy to
date has reported significant improvements in this
<PAGE>
patient population. Remarkably, the median survival times of patients with
liver metastases treated with MAXAMINE THERAPY in the first two trials exceeded
18 months, more than four times longer than the predicted survival time for
these patients.
[GRAPHIC]
ACUTE MYELOGENOUS LEUKEMIA
AML is the most common form of adult leukemia, and prospects for long-term
survival are poor for a majority of patients. Once diagnosed with AML,
patients are typically treated with chemotherapy, and can achieve complete
remission ("CR") in a majority of cases. Unfortunately 75-80% of patients in
their first CR ("CR1") will relapse, usually within a year. A subsequent CR
("CR2"), if achieved following chemotherapy or other treatment, normally has a
shorter duration, approximately 50% of the length of the prior CR. Less than
5% of patients who have relapsed survive long term.
A Phase II clinical study of MAXAMINE THERAPY is ongoing in Sweden, the
objective of which is to treat AML patients in remission with MAXAMINE and low
doses of IL-2 to prevent relapse and prolong disease-free survival while
maintaining a good quality of life during treatment. As of November 1997,
after 23 months of follow-up, 67% of the CR1 patients treated with MAXAMINE
THERAPY remain in complete remission; in contrast, approximately 30% of
patients would be expected to remain in remission under standard treatments.
For patients treated with MAXAMINE THERAPY in the second or greater remission
("CR2+"), the median time to relapse was 21 months compared to the six-month
historical median. Also, only 10-20% of AML patients who use current treatment
historically achieve remission inversions, the lengthening of subsequent
remission times beyond the duration of their previous remissions. However, 75%
of patients treated with MAXAMINE THERAPY have achieved remission inversion.
<PAGE>
[GRAPHIC]
<PAGE>
DISCOVERY OF NOVEL MECHANISM -HOW MAXAMINE THERAPY WORKS
The scientific foundation for MAXAMINE THERAPY is based on discoveries by the
Company's scientists at the University of Goteborg, Sweden. MAXAMINE, based on
a naturally occurring molecule, preserves the functions of two kinds of immune
cells, the natural killer-cells (NK-cells) and T-cells, both of which possess
an ability to kill and support the killing of cancer cells and virally infected
cells.
The killing activity of NK-cells and T-cells can be stimulated by certain
agents such as cytokines, naturally occurring proteins. The cytokines IL-2
and IFN-ALPHA have been studied and used for the treatment of many cancers
and infectious diseases, but results have been largely disappointing in most
indications. Maxim's research may explain, in part, why cytokine therapy
using IL-2 or IFN-ALPHA alone has demonstrated limited efficacy. Phagocytic
cells, present in large quantities at the site of malignant cell growth, may
inhibit the tumor-killing activity of NK-cells and T-cells by releasing
reactive oxygen metabolites (ROM's). ROM's such as H(2)O(2) induce
self-destruction (apoptosis) of NK-cells and T-cells, preventing the NK-cells
and T-cells from attacking the tumor and thus limiting the potential
therapeutic effect of cytokines.
(Insert illustration showing inhibition of NK-cell by phagocyte.)
PHAGOCYTIC CELLS, WHICH ARE PRESENT IN TUMORS, INHIBIT THE TUMORICIDAL ACTIVITY
OF NK-CELLS AND T-CELLS AND CAN PREVENT THEIR ACTIVATION BY CYTOKINES SUCH AS
IL-2 OR IFN-ALPHA.
Maxim researchers have discovered that when MAXAMINE binds to the type-2
histamine receptor (H(2) receptor) on the surface of phagocytic cells, it can
block the production of ROMs, resulting in enhanced activation of NK-cells
and T-cells. MAXAMINE THERAPY combines MAXAMINE'S protection of NK and
T-cell function with the stimulation of these functions by cytokines or other
biological response modifiers.
(Insert illustration showing protection of NK-cell by Maxamine, and killing of
cancer cells by NK-cell.)
MAXAMINE CAN BLOCK THE PRODUCTION OF ROMS (SUCH AS H2O2), THEREBY PROTECTING
NK-CELLS AND T-CELLS. UNDER SUCH CONDITIONS, ENHANCED ACTIVATION OF NK-CELLS
AND T-CELLS IS POSSIBLE, LEADING TO IMPROVED ANTI-TUMOR AND ANTI-VIRAL
ACTIVITY.
Because MAXAMINE increases the effectiveness of cytokines, lower doses of
cytokines such as IL-2 and IFN-ALPHA can be used in MAXAMINE THERAPY without
compromising therapeutic effectiveness, thereby reducing side effects and
maintaining the patient's quality of life. The Company expects that MAXAMINE
THERAPY will ultimately encompass the combination of MAXAMINE and a broad range
of cytokines and other biological response modifiers (agents designed to
stimulate the immune system).
<PAGE>
PREPARING FOR RAPID COMMERCIALIZATION OF MAXAMINE -- PHASE III CLINICAL
DEVELOPMENT PROGRAM
CONDUCTING THREE CONCURRENT PHASE III TRIALS OF MAXAMINE THERAPY AS A
TREATMENT FOR TWO DIFFERENT DISEASE INDICATIONS INCREASES THE LIKELIHOOD OF
MAXAMINE'S COMMERCIAL SUCCESS. CONDUCTING THE CLINICAL TRIALS ON THREE
CONTINENTS ALSO BUILDS THE WORLDWIDE MARKET AWARENESS KEY TO THE SUCCESSFUL
COMMERCIAL LAUNCH OF MAXAMINE.
Building on the success of the Phase II clinical trials, during 1997 Maxim
initiated an aggressive clinical development program encompassing three
concurrent Phase III clinical trials of MAXAMINE THERAPY for the treatment of
cancer. Two Phase III trials in malignant melanoma were commenced in 1997,
and a Phase III trial in AML is expected to begin in early 1998. Each of
these trials is designed to independently support regulatory submissions for
approval to market MAXAMINE.
The two Phase III malignant melanoma trials complement each other by
addressing separate clinical and marketing issues. The United States trial
is designed to demonstrate that MAXAMINE THERAPY using IL-2 is better at
extending patient survival than the administration of IL-2 alone. The second
pivotal trial, centered in Europe and Australia, is designed to demonstrate
that MAXAMINE THERAPY is better at extending patient survival than
dacarbazine (DTIC), the most commonly used chemotherapeutic agent for the
treatment of advanced malignant melanoma. A secondary endpoint of both
trials is to evaluate patient quality of life while on MAXAMINE THERAPY.
The Phase III AML clinical trial planned to commence in early 1998 is
expected to be held in the United States, Europe and Australia. The trial is
designed as a remission therapy to demonstrate that MAXAMINE THERAPY can
prolong disease-free remission time and prevents relapse in AML patients
compared to the current standard of care, which is no therapy during
remission.
The Phase III trials are critical in proving the safety and effectiveness of
MAXAMINE THERAPY in extending survival or remission times without
debilitating side effects. The encouraging Phase II clinical trial data have
had the added benefit of facilitating our recruitment of leading cancer
investigators on three continents to assist with these Phase III clinical
trials. The Company expects that a total of more than 800 patients will be
enrolled in these three trials. Maxim is hopeful that these trials will lead
to an international launch of MAXAMINE, and will help define a new focus in
patient care characterized by the EXTENSION OF PATIENTS' LIVES...WITH QUALITY.
<PAGE>
MAXAMINE THERAPY - PHASE III CLINICAL TRIALS
- --------------------------------------------------------------------------------
<TABLE>
Protocol
--------------------------
Approximate
Disease Date MAXAMINE Control Primary Number
Indication Location Initiated THERAPY Group Duration Endpoints of Patients
---------- -------- --------- ------- ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(a) (c)
Malignant Melanoma United States July 1997 MAXAMINE IL - 2 12 mos. Survival, 240
+ IL-2 QOL & Tumor
Response
Malignant Melanoma Europe & Australia November MAXAMINE DTIC 12 mos. Survival, 240
1997 + IL-2 & IFN-ALPHA QOL & Tumor
Response
Acute Myelogenous United States, Planned for MAXAMINE SOC (d) 12/18 Disease-Free 360
Leukemia Europe & Australia Early 1998 + IL-2 mos. (b) Survival,
QOL
</TABLE>
(a) Expected duration of trial after completion of patient enrollment.
(b) 12 months for patients in CR2+ group, 18 months for patients in CR1 group.
(c) QOL = quality of life.
(d) SOC = standard of care.
- --------------------------------------------------------------------------------
ACHIEVING THE FULL POTENTIAL OF MAXAMINE THERAPY -- ADDITIONAL TARGET
INDICATIONS
As MAXAMINE moves closer to commercialization for the treatment of malignant
melanoma and AML, Maxim is evaluating the potential of MAXAMINE THERAPY for
treating other cancers. As described previously, the potential broad
applicability of its mechanism of action may make MAXAMINE THERAPY applicable
to a number of cancers and infectious diseases. Phase II studies are ongoing
in multiple myeloma and renal cell carcinoma. Also, as a result of positive
preclinical test results, the Company currently plans to initiate a Phase II
trial in prostate adenocarcinoma in 1998.
Maxim has also initiated a pilot Phase I trial of MAXAMINE THERAPY in
hepatitis C. Hepatitis C, a viral infection, is estimated to afflict 4
million people in the United States and at least 60 million worldwide, and is
a leading cause of liver cirrhosis and liver cancer, and the primary reason
for liver transplantation. Maxim expects to start a Phase II trial of
MAXAMINE THERAPY in hepatitis C in the United States in 1998.
<PAGE>
LOOKING FORWARD: EXPANDING OUR PRODUCT PIPELINE
THE TECHNOLOGY UNDERLYING MAXVAX MAY BE KEY TO A NEW CLASS OF VACCINES WITH
IMPORTANT CLINICAL AND COMMERCIAL ADVANTAGES.
In the coming year, Maxim will continue to capitalize on opportunities that
lead to the development of products that extend life while maintaining the
quality of patients' lives, and that build company value. Maxim's
development efforts have yielded a second technology that expands and
diversifies the Company's product portfolio. MAXVAX, a novel mucosal vaccine
carrier platform, has the potential to yield a new class of vaccines to
provide patients with effective, safe and affordable protection against a
range of infectious diseases.
Mucosal immune protection is particularly important because it represents a
way to fortify the body's first line defense in the mouth, eyes, ears,
respiratory, gastrointestinal and urogenital tracts--the sites where most
pathogens enter the body. Vaccines based on the MAXVAX technology could
establish an effective immune response to battle the bacteria and viruses
that cause a wide variety of diseases, including sexually transmitted
diseases such as chlamydia, herpes and HIV, as well as respiratory or GI
illnesses like respiratory syncytial virus (RSV) and rotavirus.
With development, MAXVAX technology could produce protective and therapeutic
vaccines that would be given as an oral, inhaled or topical agent, rather
than by injection. This new class of vaccines may offer important clinical
and commercial advantages such as greater clinical efficacy, higher levels of
safety, lower delivery costs and improved patient use.
<PAGE>
MAXVAX is based on a harmless portion of the protein made by vibrio cholera,
the Cholera Toxin B subunit (CTB). Scientists bind an antigen from an
infectious agent to the MAXVAX carrier for delivery to the mucosal tissues.
In addition, vectors, plasmids or genes can also be delivered to the mucosal
tissues using MAXVAX. Once the antigen is in the body, the immune system
will recognize it. This recognition will prompt the production of antibodies
initially in the mucosal tissue and then throughout the body, offering two
lines of defense for subsequent exposures to the pathogen.
(Insert illustration shpwing (i) chloera toxin, (ii) CTB, and (iii) the
MaxVax system.)
CHOLERA TOXIN IS COMPRISED OF TWO SUBUNITS; THE A-SUBUNIT, WHICH IS THE KNOWN
TOXIC PORTION OF THE MOLECULE, AND CTB, WHICH IS NON-TOXIC AND BINDS
SPECIFICALLY TO THE GM-1 GANGLIOSIDE MOLECULE ON THE TARGET M-CELL OF THE
MUCOSAE. THE COMPANY IS DEVELOPING THE MAXVAX SYSTEM TO LINK TARGET ANTIGENS
TO CTB. THE CTB-ANTIGEN CONJUGATE THEN BINDS SPECIFICALLY TO M-CELLS FOR
PROCESSING AND PRESENTATION TO THE APPROPRIATE IMMUNE SYSTEM CELLS.
Maxim is focusing first on developing MAXVAX vaccines for chlamydia and
diphtheria. The Company is also testing the MAXVAX technology alone, without
an infectious agent component, in Phase I human studies to establish safe
dosage levels and the best method of administering the vaccine. Maxim
intends to seek collaborations with pharmaceutical and biopharmaceutical
companies for the discovery and development of vaccine candidates of market
interest.
<PAGE>
MAXIM'S PROMISE: A NEW FOCUS IN PATIENT CARE
Maxim values the quality of patients' lives. Too often the treatments for
cancer and some infectious diseases are as harsh as their illnesses, forcing
patients to make a difficult choice of whether to continue their therapy.
Maxim intends to build a future in which seriously ill patients need not face
such choices. By focusing on safety and well-being as well as effectiveness
of therapy, Maxim is developing treatments designed to extend survival and
maintain a good quality of life.
Maxim's lead drug MAXAMINE has shown substantial promise in Phase II trials
and is currently in international Phase III trials for cancer patients. In
completed and ongoing Phase II trials, patients have lived longer without the
debilitating side effects of standard chemotherapies. Maxim's strategy of
conducting concurrent, international trials in patients with different
cancers strengthens the likelihood of a near-term commercial launch. Any one
of the three Phase III cancer trials of MAXAMINE THERAPY, if successful,
could provide the data necessary to file for marketing approval. MAXAMINE
THERAPY'S novel mechanism offers the likelihood of even wider use, which we
are exploring in ongoing or planned earlier-stage trials.
Building on the success of MAXAMINE, your company plans to develop other
pipeline products, notably the mucosal vaccine carrier platform MAXVAX.
Maxim's programs for MAXAMINE, MAXVAX and future products, supported by our
experienced managers, high-value commercialization strategies and strong
resources, are designed to build a competitive company whose products extend
life...with quality.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
During the periods encompassed by this Annual Report, Maxim Pharmaceuticals,
Inc. (the Company) has devoted substantially all of its resources to its
MAXAMINE and MAXVAX product development programs. The Company conducts its
research and product development efforts through a combination of internal
and collaborative programs. For MAXAMINE, in addition to internal management
and staff, the Company relies upon arrangements with universities, other
clinical research sites and contract research organizations for a significant
portion of its product development efforts. The majority of the basic
research and development efforts related to MAXVAX were transferred to the
Company's internal facilities during 1997, and prior to that time the Company
conducted this research primarily through university laboratories. Oversight
of all external and collaborative programs is conducted by the Company's
executive officers and other staff from its headquarters located in San
Diego, California.
Maxim's products are in the development stage and the Company does not expect
revenue from product sales in the near future. The Company expects to
continue to incur losses as it expands its research and development
activities, particularly relating to ongoing and planned Phase III and Phase
II cancer clinical trials using MAXAMINE therapy. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may
be substantial as a result of, among other factors, the number and timing of
clinical trials conducted, the funding, if any, provided as a result of
corporate collaborations, the results of clinical testing, and the timing of
FDA or international regulatory approvals. There can be no assurance that
the Company will successfully develop, commercialize, manufacture or market
its products or ever achieve or sustain product revenues or profitability.
RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
RESEARCH AND DEVELOPMENT EXPENSES - For the year ended September 30, 1997,
research and development expenses were $5,353,000, an increase of $3,744,000,
or 233%, over the prior year. This increase was primarily attributable to
increased activity related to cancer clinical trials of the Company's
MAXAMINE THERAPY, including hiring additional clinical and development
personnel, clinical trial site and contract research organization costs, and
other expenses associated with commencement in June 1997 of a Phase III
cancer clinical trial in the United States, and the preparation for two
international Phase III cancer trials. For the year ended September 30,
1996, research and development expenses were $1,609,000, an increase of
$624,000, or 63%, over the prior year, primarily due to increased activity in
cancer clinical trials of the Company's MAXAMINE THERAPY and an expansion of
preclinical projects for its MAXVAX mucosal vaccine technology.
BUSINESS DEVELOPMENT AND GENERAL AND ADMINISTRATIVE EXPENSES - Business
development expenses for the year ended September 30, 1997 were $384,000, an
increase of $271,000, or 241%, over the same period of the prior year. This
increase was due to additional personnel and other resources devoted to
corporate partnering efforts and market evaluations. Business development
expenses for the year ended September 30, 1996 were consistent with the prior
year and totaled $112,000. For the year ended September 30, 1997, general
and administrative expenses were $1,993,000, an increase of $750,000, or 60%,
over the prior year. This increase was in large part due to the increased
personnel, insurance, reporting and compliance costs associated with a full
year of operation as a public company. For the year ended September 30,
1996, general and administrative expenses totaled $1,243,000, an increase of
$243,000, or 24%, as a result of $276,000 in compensation expense related to
stock options issued to management, directors and consultants; no such
expense was incurred in the prior year.
OTHER INCOME (EXPENSE) - Investment income was $927,000 for the year ended
September 30, 1997, an increase of $667,000 over the prior year, due to a
full year of income on the proceeds of the Company's initial public offering
<PAGE>
completed in July 1996. Investment income for the year ended September 30,
1996 totaled $260,000, an increase of $254,000 over the prior year, as a
result of three months of income on the proceeds of the initial public
offering. Interest expense for the year ended September 30, 1997 decreased
$119,000, or 61%, to $78,000 compared to the prior year due to the repayment
of $2,853,000 of notes payable and long-term debt subsequent to December
1995. Interest expense for the year ended September 30, 1996 was $197,000, a
decrease of $290,000, or 60%, from the prior year primarily due to the
repayment of debt discussed above. During the year ended September 30, 1996
the Company recorded a gain of $2,288,000 from the sale of a subsidiary of
the Company.
NET LOSS - Net loss for the year ended September 30, 1997 totaled $6,895,000,
an increase of $6,062,000 over the prior year. The increase was due to the
current year expansion of research and development and general corporate
activities, partially offset by the current year increase in investment
income. The remainder of the increase was due to the aforementioned gain on
sale of subsidiary of $2,288,000 recorded in the year ended September 30,
1996. Net loss for the year ended September 30, 1996 totaled $833,000, a
decrease of $1,957,000 from the prior year. The decrease resulted primarily
from the gain on sale of subsidiary. Net loss per share of common stock for
the year ended September 30, 1997 was $1.03, an increase of $.83 over the
prior year, due to the increase in net loss for the year offset partially by
an increase in the number of shares of common stock outstanding. Net loss
per share of common stock for the year ended September 30, 1996 was $.20, a
decrease of $.67 from the prior year, due to the decrease in net loss for the
year and an increase in the number of shares of common stock outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company, as a development stage enterprise, anticipates incurring
substantial additional losses over at least the next several years due to,
among other factors, the need to expend substantial amounts on its ongoing
and planned clinical trials, other research and development activities, and
business development and general corporate expenses associated with those
activities. The Company has financed its operations primarily through the
sale of its equity securities, including an initial public offering in July
1996 which provided approximately $18.2 million, net of financing costs, to
the Company.
As of September 30, 1997, the Company had cash, cash equivalents and
investments totaling approximately $12.2 million. For the years ended
September 30, 1997, 1996 and 1995, net cash used in the Company's operating
activities was approximately $5.9 million, $2.7 million and $2.6 million,
respectively. Subsequent to September 30, 1997 the Company completed a
secondary public offering which provided net proceeds to the Company of
approximately $34.8 million. The Company expects its cash requirements to
increase significantly in future periods as it conducts additional research
and development activities including clinical trials, other research and
development activities, and efforts associated with the commercial launch of
any products that are developed. Among the activities which are expected to
result in an increase in cash requirements are two Phase III cancer clinical
trials of the MAXAMINE THERAPY commenced in June 1997 in the U.S. and in
November 1997 internationally, a third Phase III trial of the MAXAMINE
THERAPY planned for the first quarter of 1998, and other planned clinical
trials.
The Company's cash requirements may vary materially from those now planned
because of the results of clinical trials and other research and development,
the time and costs involved in obtaining regulatory approvals, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market
developments, changes in the Company's existing research relationships, the
ability of the Company to establish collaborative arrangements and the
development of the Company's product commercialization activities. As a
result of these factors, it is difficult to predict accurately the timing and
amount of the Company's cash requirements. In order to successfully
commercialize any of its products, the Company expects that it will
ultimately be required to seek additional funds through public or private
financings or collaborative arrangements with corporate partners. The
issuance of additional equity securities could result in substantial dilution
to the Company's stockholders. There can be no assurance that additional
funding will be available on terms acceptable to the Company, if at all. The
failure to fund its capital requirements would have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company has never paid a cash dividend and does not contemplate the
payment of cash dividends in the foreseeable future.
<PAGE>
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "EARNINGS PER SHARE." This statement specifies the
computation, presentation, and disclosure requirements for earnings per share
for entities with publicly held common stock or potential common stock. This
statement shall be effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted, however, retroactive restatement is required. At this time the
Company does not believe that this statement will have a significant impact
on the financial position or results of operations for the year ending
September 30,1998. In February 1997 the FASB issued SFAS No. 129,
"DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE." This statement shall be
effective for financial statements for both interim and annual periods ending
after December 15, 1997. At this time the Company does not believe that this
statement will have a significant impact on the financial statement
disclosures for the year ending September 30, 1998. In June 1997 the FASB
issued SFAS No. 130, "REPORTING COMPREHENSIVE INCOME." This statement
established standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement shall be effective for
fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. In June 1997 the FASB issued SFAS No. 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This statement
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that enterprises report selected information about operating
segments in interim financial reports issued to stockholders. This statement
shall be effective for fiscal years beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years is
to be restated.
IMPACT OF INFLATION
The impact of inflation on the operations of the Company for the years ended
September 30, 1997, 1996 and 1995 was not material.
SELECTED FINANCIAL DATA
(in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Research and development expenses $5,353 $1,609 $ 985 $ 999 $3,416
Net loss (6,895) (833) (2,790) (2,433) (4,239)
Net loss per share (1.03) (0.20) (0.87) (0.82) (1.48)
Weighted average shares outstanding 6,671 4,075 3,209 2,961 2,859
</TABLE>
<TABLE>
<CAPTION>
As of September 30
----------------------------------------------------------
1997 1996 1995 1994 1993
--------------------- ---- ---- ---- ----
As Adjusted(1) Actual
-------------- ------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash, cash equivalents and investments $46,960 $ 12,160 $ 19,144 $ 513 $ 119 $ 335
Total assets 50,658 15,858 21,255 2,454 1,878 2,688
Long-term debt, less current portion 555 555 - 247 640 7,395
Deficit accumulated during the development stage (20,832) (20,832) (13,937) (13,103) (10,313) (7,881)
Stockholders' equity (deficit) 48,193 13,393 20,124 (3,644) (2,513) (6,568)
</TABLE>
(1) Adjusted to reflect the net proceeds from a secondary public offering
completed by the Company in October 1997.
<PAGE>
BALANCE SHEETS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
As of September 30
-------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 447,523 $ 4,070,089
Short-term investments in marketable securities 9,389,690 12,563,622
Accrued interest and other current assets 576,836 709,285
------------ ------------
Total current assets 10,414,049 17,342,996
Investments in marketable securities 2,322,398 2,510,366
Patents and licenses, net 1,815,428 1,367,235
Property and equipment, net 718,988 31,037
Other assets 586,893 3,397
------------- ------------
Total assets $ 15,857,756 $ 21,255,031
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,082,038 $ 405,760
Accrued expenses 597,388 478,623
Note payable 102,161 -
Current portion of long-term debt 127,712 247,000
------------- -------------
Total current liabilities 1,909,299 1,131,383
Long-term debt, less current portion 555,229 -
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized: - -
none issued or outstanding.
Common stock, $.001 par value, 20,000,000 shares authorized;
6,671,237 shares issued and outstanding at
September 30, 1997 and 1996. 6,672 6,672
Additional paid-in capital 34,269,521 34,172,618
Deficit accumulated during the development stage (20,832,052) (13,936,903)
Deferred compensation (50,913) (118,739)
------------- -------------
Total stockholders' equity 13,393,228 20,123,648
------------- -------------
Total liabilities and stockholders' equity $ 15,857,756 $ 21,255,031
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENTS OF OPERATIONS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
From Inception
(October 23, 1989)
Year Ended September 30 Through
------------------------------------------ September 30,
1997 1996 1995 1997
------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development $ 5,353,165 $ 1,608,931 $ 984,778 $ 15,354,423
Business development 383,667 112,454 116,969 613,090
General and administrative 1,992,629 1,242,743 999,745 9,351,013
-------------- ------------ -------------- --------------
Total operating expenses 7,729,461 2,964,128 2,101,492 25,318,526
Other income (expense):
Investment income 927,050 259,625 5,590 1,214,780
Interest expense (77,562) (197,028) (486,671) (1,981,371)
Other expense (15,176) (220,431) (207,549) (116,964)
Gain on sale of subsidiary - 2,288,474 - 2,288,474
Research grant revenue - - - 2,946,001
-------------- ------------ -------------- --------------
Total other income (expense) 834,312 2,130,640 (688,630) 4,350,920
-------------- ------------ -------------- --------------
Loss from continuing operations (6,895,149) (833,488) (2,790,122) (20,967,606)
Discontinued operations:
Loss from operations of discontinued
diagnostic division - - - (347,608)
Gain on sale of diagnostic division - - - 483,162
-------------- ------------ -------------- --------------
Net loss $ (6,895,149) $ (833,488) $ (2,790,122) $ (20,832,052)
-------------- ------------ -------------- --------------
-------------- ------------ -------------- --------------
Net loss per share of common stock $ (1.03) $ (0.20) $ (0.87)
-------------- ------------ --------------
-------------- ------------ --------------
Weighted average shares outstanding 6,671,237 4,074,961 3,209,469
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------- ------------------- Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balance at October 23, 1989
(inception) - $ - - $ - $ -
Issuance of common stock at
$.001 - - 1,000 8,029 -
Net income - - - - -
---------- ----- --------- ------- -----------
Balance at December 31, 1989 - - 1,000 8,029 -
Net income - - - - -
---------- ----- --------- ------- -----------
Balance at December 31, 1990 - - 1,000 8,029 -
Net income - - - - -
---------- ----- --------- ------- -----------
Balance at December 31, 1991 - - 1,000 8,029 -
Additional funding - - 42 - 1,259,249
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at December 31, 1992 - - 1,042 8,029 1,259,249
Net effect of reorganization
and issuance of common
stock to account for reverse
acquisition - - 173,977 (7,854) 53,009
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at September 30, 1993 - - 175,019 175 1,312,258
Issuance of common stock at $60
per share for consulting and
professional services - - 1,098 1 65,999
Issuance of Series A preferred
stock for cash at $3.00 per
share 250,000 250 - - 487,250
Issuance of common stock to
convert bridge debt financing
at prices from $52.50 to $75
per share - - 112,440 113 5,933,894
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at September 30, 1994 250,000 250 288,557 289 7,799,401
Issuance of common stock at
$3.00 per share upon conversion
of debt - - 553,254 553 1,659,210
Issuance of common stock pursuant
to anti-dilutive provisions in
previous bridge debt financing - - 1,137,343 1,137 (1,137)
Issuance of common stock at $3.00
per share for subscription
receivable - - 103,667 104 310,896
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at September 30, 1995 250,000 250 2,082,821 2,083 9,768,370
Issuance of common stock at $3.00
per share in exchange for
repayment of note payable to bank - - 744,646 745 2,249,255
Receipt of subscription receivable - - - - -
Issuance of common stock and
warrants at $3.75 per unit for
cash - - 465,504 465 1,740,033
Issuance of common stock at
$4.50 per share for cash - - 400,000 400 1,799,600
Exercise of common stock options - - 400 1 2,999
Issuance of common stock at $7.50
per share and warrants at $.10
per warrant in initial public
offering - - 2,875,000 2,875 18,217,215
Conversion of preferred stock
to common stock (250,000) (250) 102,866 103 147
Options granted to employees - - - - 394,999
Amortization of deferred
compensation - - - - -
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at September 30, 1996 - - 6,671,237 $ 6,672 $34,172,618
Option granted to consultant - - - - 96,903
Amortization of deferred
compensation - - - - -
Net loss - - - - -
---------- ----- --------- ------- -----------
Balance at September 30, 1997 - $ - 6,671,237 $ 6,672 $34,269,521
---------- ----- --------- ------- -----------
---------- ----- --------- ------- -----------
</TABLE>
<TABLE>
<CAPTION>
Subscription
Receivable/
Accumulated Deferred
Deficit Compensation Total
------------ ------------ -----------
<S> <C> <C> <C>
Balance at October 23, 1989
(inception) $ - $ - $ -
Issuance of common stock at
$.001 - - 8,029
Net income 44 - 44
------------ --------- -----------
Balance at December 31, 1989 44 - 8,073
Net income 751 - 751
------------ --------- -----------
Balance at December 31, 1990 795 - 8,824
Net income 272 - 272
------------ --------- -----------
Balance at December 31, 1991 1,067 - 9,096
Additional funding - - 1,259,249
Net loss (2,445,184) - (2,445,184)
------------ --------- -----------
Balance at December 31, 1992 (2,444,117) - (1,176,839)
Net effect of reorganization
and issuance of common
stock to account for reverse
acquisition (1,197,822) (1,152,667)
Net loss (4,238,731) (4,238,731)
------------ --------- -----------
Balance at September 30, 1993 (7,880,670) (6,568,237)
Issuance of common stock at $60
per share for consulting and
professional services - - 66,000
Issuance of Series A preferred
stock for cash at $3.00 per
share - - 487,500
Issuance of common stock to
convert bridge debt financing
at prices from $52.50 to $75
per share - - 5,934,007
Net loss (2,432,623) - (2,432,623)
------------ --------- -----------
Balance at September 30, 1994 (10,313,293) - (2,513,353)
Issuance of common stock at
$3.00 per share upon conversion
of debt - - 1,659,763
Issuance of common stock pursuant
to anti-dilutive provisions in
previous bridge debt financing - - -
Issuance of common stock at $3.00
per share for subscription
receivable - (311,000) -
Net loss (2,790,122) - (2,790,122)
------------ --------- -----------
Balance at September 30, 1995 (13,103,415) (311,000) (3,643,712)
Issuance of common stock at $3.00
per share in exchange for
repayment of note payable to bank - - 2,250,000
Receipt of subscription receivable - 311,000 311,000
Issuance of common stock and
warrants at $3.75 per unit for
cash - - 1,740,498
Issuance of common stock at
$4.50 per share for cash - - 1,800,000
Exercise of common stock options - - 3,000
Issuance of common stock at $7.50
per share and warrants at $.10
per warrant in initial public
offering - - 18,220,090
Conversion of preferred stock
to common stock - - -
Options granted to employees - (163,124) 231,875
Amortization of deferred
compensation - 44,385 44,385
Net loss (833,488) - (833,488)
------------ --------- -----------
Balance at September 30, 1996 $(13,936,903) $(118,739) $20,123,648
Option granted to consultant - - 96,903
Amortization of deferred
compensation - 67,826 67,826
Net loss (6,895,149) - (6,895,149)
------------ --------- -----------
Balance at September 30, 1997 $(20,832,052) $ (50,913) $13,393,228
------------ --------- -----------
------------ --------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENTS OF CASH FLOWS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Year Ended September 30 October 23, 1989
------------------------------------------- (inception) to
1997 1996 1995 September 30, 1997
------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (6,895,149) $ (833,488) $(2,790,122) $(20,832,052)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 262,784 128,719 53,581 1,043,928
Amortization of premium on investments 156,342 - - 156,342
Stock options issued as compensation 164,729 276,260 - 440,989
Loss on write-off of patents 53,144 189,068 - 242,212
Gain on sale of subsidiary - (2,288,474) - (2,288,474)
Loss on disposal of property and equipment 4,435 128,248 - 132,683
Loss on write-off of receivable from related party - 147,803 - 147,803
Other - 27,032 24,669 51,701
Gain on sale of diagnostic division - - - (483,162)
Loss on write-off of purchased research
and development - - - 2,646,166
Cumulative effect of reorganization - - - 1,152,667
Changes in operating assets and liabilities:
Accrued interest and other current assets 132,449 (695,609) 1,779 (576,836)
Other assets (583,496) 14,214 46,966 (734,696)
Accounts payable 676,278 70,204 42,089 1,082,038
Accrued expenses 118,765 150,629 17,105 618,598
------------- ------------ ----------- ------------
Net cash used in operating activities (5,909,719) (2,685,394) (2,603,933) (17,200,093)
INVESTING ACTIVITIES:
Purchases of marketable securities (10,835,442) (15,073,988) - (25,909,430)
Maturities of marketable securities 14,041,000 - - 14,041,000
Additions to patents and licenses (652,053) (213,196) (274,901) (2,494,840)
Purchases of property and equipment (804,454) (23,524) - (1,612,695)
Cash acquired in acquisition of business - - - 985,356
Proceeds from sale of diagnostic division - - - 496,555
------------- ------------ ----------- ------------
Net cash provided (used) by investing activities 1,749,051 (15,310,708) (274,901) (14,494,054)
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and
long-term debt 814,380 81,675 3,427,992 5,390,803
Payments on notes payable and long-term debt (276,278) (2,603,000) - (3,046,783)
Proceeds from issuance of notes payable to
related parties - - 925,000 4,982,169
Payments on notes payable to related parties - (250,000) (1,079,885) (1,329,885)
Net proceeds from issuance of common stock
and warrants - 24,324,588 - 25,657,866
Net proceeds from issuance of preferred stock - - - 487,500
------------- ------------ ----------- ------------
Net cash provided by financing activities 538,102 21,553,263 3,273,107 32,141,670
------------- ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (3,622,566) 3,557,161 394,273 447,523
Cash and cash equivalents at beginning of period 4,070,089 512,928 118,655 -
------------- ------------ ----------- ------------
Cash and cash equivalents at end of period $ 447,523 $ 4,070,089 $ 512,928 $ 447,523
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION
Maxim Pharmaceuticals, Inc. (the "Company") was incorporated in Delaware in
1954 under the name "Wilco Oil & Minerals, Corp." and has existed under
various names since then. From 1987 to 1993, the Company operated as a
medical diagnostics products company under the name "General Biometrics,
Inc." In 1993, the Company merged with Syntello Vaccine Development AB
("SVD"), a Swedish biopharmaceutical company, in an exchange of stock
accounted for as a reverse acquisition (the "Reorganization"). Upon
completion of the Reorganization, the Company changed its name to "Syntello,
Inc." and commenced its operations as a biopharmaceutical company. The
Company's proprietary technologies, which target the treatment and prevention
of cancer and infectious disease, were acquired during and following the
Reorganization. The Company sold its medical diagnostic division in 1994 and
sold SVD in July 1996. Since December 1995, the Company has operated under
the name "Maxim Pharmaceuticals, Inc." The statements of operations'
inception-to-date information reflects the cumulative operations of SVD from
the date of its inception (October 23, 1989). The statement of stockholders'
equity (deficit) for the periods from inception to the date of the 1993
reverse acquisition reflects the equity activity of SVD.
Since the Reorganization, the Company has devoted substantially all of its
resources to its MAXAMINE and MAXVAX product development programs. The
Company conducts its research and other product development efforts through a
combination of internal and collaborative programs. For MAXAMINE, in
addition to internal management and staff, the Company relies upon
arrangements with universities, other clinical research sites and contract
research organizations for a significant portion of its product development
efforts. The majority of the basic research and development efforts related
to MAXVAX were transferred to the Company's internal facilities during 1997,
and prior to that time the Company conducted this research primarily through
university laboratories. Oversight of all external and collaborative programs
is conducted by the Company's executive officers and other staff from its
headquarters located in San Diego, California.
The Company expects to incur substantial losses as it expands its research
and development activity and sponsorship of clinical trials. The future
success of the Company is likely to be dependent on its ability to obtain
additional capital to develop and commercialize its proposed products and,
ultimately, upon its ability to attain future profitable operations. There
can be no assurance that the Company will be successful in obtaining such
financing, or that it will attain positive cash flow from operations (Note 13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE - The Company has not earned significant revenues from
planned principal operations. Accordingly, the Company's activities have
been accounted for as those of a "Development Stage Enterprise" as set forth
in Financial Accounting Standards Board Statement No. 7 ("SFAS 7"). Among the
disclosures required by SFAS 7 are that the Company's financial statements be
identified as those of a development stage company, and that the statements
of operations, stockholders' equity (deficit) and cash flows disclose
activity since the date of the Company's inception.
CONCENTRATION OF CREDIT RISK - The Company invests its excess cash in U.S.
government securities and other highly liquid debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities to safely
maintain an adequate level of liquidity.
CASH EQUIVALENTS AND INVESTMENTS IN MARKETABLE SECURITIES - Investments with
original maturities of less than 90 days are considered cash equivalents, and
all other investments which mature within one year are classified as
short-term investments. The Company has classified all investments as
held-to-maturity securities. Investments are carried at cost, which
approximates market. The investments mature at various dates through
February 1999.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets.
<PAGE>
PATENTS AND LICENSES - The Company capitalizes certain legal costs and
acquisition costs related to patents and licenses. Accumulated costs are
amortized over the lesser of the legal lives or the estimated economic lives
of the proprietary rights, generally seven to ten years, using the
straight-line method and commencing at the time the patents are issued or the
license is acquired. Effective October 1, 1996, the Company adopted
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of:" ("SFAS 121"). SFAS
requires losses from impairment to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets before interest are less
than the assets' carrying amount. The adoption of SFAS 121 did not have a
material effect of the Company's financial statements for the year ended
September 30, 1997.
CAPITAL STOCK - On January 5, 1996, the Company effected a 1-for-2000 reverse
stock split and changed the par value of the common stock from $.0001 per
share to $.001 per share and changed the par value of the preferred stock
from $.01 per share to $.001 per share. On May 9, 1996, the Company effected
a 100-for-1 stock split. On July 10, 1996, upon the effective date of its
initial public offering (Note 7), the Company effected a 2-for-3 reverse
stock split of its common stock. All common and preferred stock share
amounts, par values and the additional paid-in capital amounts have been
restated to reflect the above transactions.
LOSS PER SHARE OF COMMON STOCK - Loss per share of common stock is computed
by dividing the net loss by the weighted average number of shares of common
stock outstanding during the period. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, for periods preceding
the effective date of the initial public offering all common and common
equivalent shares issued during the twelve-month period prior to the
effective date have been included in the calculation as if they were
outstanding for all such periods, using the treasury stock method and the
public offering price of common stock. For periods subsequent to the initial
public offering, common stock equivalents have not been included as they are
antidilutive.
FOREIGN CURRENCY TRANSLATION - The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting
Standards No. 52 "Foreign Currency Translation." During the periods in which
the Company owned SVD, the U.S. dollar was considered the functional currency
of this Swedish subsidiary. Monetary assets and liabilities were translated
using the exchange rate in effect at the balance sheet date, and non-monetary
assets and liabilities were translated at historical rates. Revenues and
expenses were translated at the average rates in effect during the year. All
translation adjustments and transaction gains and losses were recognized in
operations as other income or expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, cash
equivalents, investments in marketable securities, accounts payable and
accrued expenses are considered to be representative of their respective fair
values because of the short-term nature of these financial instruments. The
carrying amount of the notes payable and long-term debt are reasonable
estimates of fair value as the loans bear interest based on market rates
currently available for debt with similar terms.
USE OF ESTIMATES - 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 the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of expenses during
the reporting period. Actual results could differ from these estimates.
RECLASSIFICATIONS - Certain amounts in the prior years' financial statements
have been reclassified to conform with current year classifications.
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30
1997 1996
---- ----
Laboratory equipment $454,115 $ -
Office equipment and furniture 365,239 56,187
Leasehold improvements 25,963 -
-------- ------
845,317 56,187
Less accumulated depreciation and amortization (126,329) (25,150)
-------- ------
$718,988 $31,037
-------- ------
-------- ------
During the year ended September 30, 1996, the Company transferred laboratory
equipment with a net book value of $128,248 to a former Swedish collaborating
scientist and former director of the Company.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended September 30 From Inception
------------------------------- Through
1997 1996 1995 September 30,1997
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Noncash investing and
financing activities:
Issuance of common stock
to convert debt $ - $ - $1,659,763 $ 7,593,770
Sale of subsidiary:
Net patents sold - 154,296 - 154,296
Other liabilities transferred - (121,210) - (121,210)
Note payable transferred - (2,421,560) - (2,421,560)
Other accruals - 100,000 - 100,000
Acquisition of subsidiary:
Assets acquired - - - 4,917,359
Liabilities assumed - - - (5,911,481)
Net equity effect of acquisition - - - (994,122)
Supplemental disclosure of cash
flow information:
Cash paid for interest 83,167 341,126 202,627 1,476,291
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30
1997 1996
---- ----
Compensation $185,848 $ 79,868
Professional fees 167,985 201,179
Collaborator fees 130,000 100,000
Other 113,555 97,576
-------- --------
$597,388 $478,623
-------- --------
-------- --------
<PAGE>
6. LINE OF CREDIT AGREEMENT AND LONG-TERM DEBT
In March 1997 the Company entered into a line of credit agreement with a
bank. Under the agreement the Company may borrow up to $900,000 during 1997
to fund qualified equipment purchases. At January 1, 1998 any outstanding
advances under the line of credit will convert to a term loan payable in
equal installments over 48 months, including interest at prime plus 0.5%.
The loan is secured by all assets of the Company. At September 30, 1997
aggregate advances under the line of credit totaled $660,965.
Long-term debt consists of the following:
September 30
1997 1996
---- ----
Credit agreement with bank, secured
by all assets of the Company $660,965 $ -
Capital lease agreement, secured by
certain equipment 21,976
Note payable, secured by a priority interest
in certain technology and rights - 247,000
-------- ---------
682,941 247,000
Less current portion (127,712) (247,000)
-------- ---------
$555,229 $ -
-------- ---------
-------- ---------
In July 1993, the Company issued a note payable to a company for $600,000 in
partial consideration for certain worldwide exclusive rights related to its
Maxamine technology. In June 1997, the Company made the final payment of
principal of $247,000 due under the note.
7. STOCKHOLDERS' EQUITY
JULY 1996 INITIAL PUBLIC OFFERING - During July 1996 the Company completed
an initial public offering in which it sold 2,875,000 shares of common stock
and 2,875,000 detachable warrants to purchase common stock ("Redeemable
Warrants"). The Company received net proceeds of $18,220,090 after
underwriting discounts and other issuance costs of $3,629,910.
WARRANTS - At September 30, 1997, warrants to purchase 3,707,642 shares of
the Company's common stock at a weighted average exercise price of $9.86 per
share are outstanding, of which warrants to purchase 3,576,087 shares are
exercisable.
Included in the above total warrants outstanding are 2,875,000 Redeemable
Warrants issued in connection with the aforementioned initial public
offering. Each Redeemable Warrant allows the holder thereof to purchase one
share of common stock at an exercise price of $10.50. The Redeemable
Warrants may be exercised at any time during the period commencing July 10,
1997 and terminating July 10, 2001. Commencing January 10, 1998, the
Company may redeem the Redeemable Warrants at $0.01 per warrant upon 30 days
prior written notice to the holders (i) if the average closing bid price of
the common stock equals or exceeds $12.00 per share for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption, and (ii) the holder fails
to exercise the warrant within the 30-day notice period. In connection with
the initial public offering the Company also issued warrants to the
underwriter under which the underwriter may purchase up to 250,000 shares of
common stock at a price of $9.00 per share and up to 250,000 warrants at a
price of $0.12 per warrant. The warrants issuable upon exercise of the
initial public offering warrants are exercisable at a price of $12.38 per
share of common stock.
The Company has also issued warrants to purchase common stock to certain
consultants of the Company and in connection with private placements of
equity securities. These warrants generally have terms ranging from five to
seven years, and some include vesting provisions. Such warrants to purchase
332,642 shares of the Company's common stock at an exercise price of $3.00
per share were outstanding at September 30, 1997, of which warrants to
purchase 201,087 shares were exercisable.
<PAGE>
STOCK OPTIONS - In 1993, the Company established a stock option plan (the
"1993 Plan") under which incentive and nonqualified stock options have been
granted to key employees, directors and consultants of the Company. Under
the 1993 Plan as amended, options may be granted to purchase up to 1,000,000
shares of common stock; options that are granted generally vest over four
years and have a maximum term of ten years.
During the year ended September 30, 1997, the Company adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). As allowed
under the provisions of SFAS No. 123, the Company applies Accounting
Principals Board Opinion No. 25 and related interpretation in accounting for
its stock option plans. In May 1996, the Company issued options to purchase
526,665 shares of common stock under the 1993 Plan at an exercise price of
$3.75 per share to members of management, directors and consultants.
Concurrently, the Company also canceled previously issued options held by
certain of these persons. Of the options issued, 305,833 were immediately
exercisable with the remaining options vesting over a period of two to five
years. In accordance with Accounting Principles Board Opinion No. 25, as a
result of the issuance the Company expects to record compensation expense of
approximately $395,000 over the vesting period of the options. Such
compensation expense recorded during the fiscal years ended September 30,
1997 and 1996 totaled $67,826 and $276,260, respectively.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Per Share
--------- ---------
<S> <C> <C>
Outstanding September 30, 1994 34,067 $7.50 - $60.00
Granted 3,333 $7.50
Exercised - -
Canceled (533) $60.00
-------
Outstanding September 30, 1995 36,867 $7.50
Granted 527,334 $3.75
Exercised (400) $7.50
Canceled (53,134) $3.75 - $7.50
-------
Outstanding September 30, 1996 510,667 $3.75
Granted 271,665 $7.00 - $14.50
Exercised - -
Canceled - -
-------
Outstanding September 30, 1997 782,332 $3.75 - $14.50
-------
-------
</TABLE>
At September 30, 1997, options for 449,691 shares of common stock are
exercisable and the remaining 332,641 become exercisable at various dates
through January 2, 2002. The options expire at various dates through
September 25, 2004. The following table summarizes information concerning
outstanding and exercisable options as of September 30, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -----------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Price Range Shares Exercise Price Contractual Life Shares Exercise Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.75 510,666 $ 3.75 5.59 years 394,232 $ 3.75
$7.00 - $9.99 238,166 $ 8.78 6.47 years 53,959 $ 8.69
$10.00 - $14.50 33,500 $12.58 6.81 years 1,500 $ 10.02
</TABLE>
<PAGE>
If the Company had elected to account for its stock options under the fair
value method prescribed by SFAS 123, the net losses for the years ended
September 30, 1997 and 1996 would have been increased by $742,000 ($0.12 per
share) and $839,000 ($0.21 per share), respectively. The fair value of these
options was estimated at the date of grant using the "Black-Scholes" method
for option pricing and the following weighted average assumptions for 1997
and 1996, respectively: risk-free interest rates of 5.80% and 5.76%; dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of 73%; and an expected life of the option of five years. These
assumptions resulted in weighted-average fair values of $5.00 and $2.51 per
share for stock options granted in the fiscal years ended September 30, 1997
and 1996, respectively.
401(k) PLAN - In July 1997 the Company established a 401(k) retirement plan
(the "401(k) Plan") under which employees meeting eligibility requirements
may elect to participate and contribute to the 401(k) Plan. The 401(k) Plan
provides for matching contributions by the Company in an amount equal to the
lesser of 50% of the employees' deferral or 3% of the employees' qualifying
compensation. The Company contribution may be made in the form of either the
common stock of the Company or cash at the discretion of the Company's Board
of Directors.
8. INCOME TAXES
The Company has deferred income taxes which have been fully reserved as
follows:
September 30
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards 10,665,000 $7,434,000
General business credit carryforwards 453,000 276,000
Other 149,000 87,000
----------- ----------
Total net deferred tax assets 11,267,000 7,797,000
Valuation allowance for deferred tax assets (11,267,000) (7,797,000)
----------- ----------
Net deferred tax assets $ - $ -
----------- ----------
----------- ----------
At September 30, 1997, the Company has federal and California tax net
operating loss carryforwards of approximately $28,500,000 and $9,800,000,
respectively. The federal tax loss carryforwards will begin expiring in
fiscal 1999 unless previously utilized. The California tax loss
carryforwards will begin expiring in fiscal 1998.
As a result of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforwards and
tax credit carryforwards are subject to an annual limitation in future
periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce
future taxable income.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases laboratory and administrative office
facilities under a five-year operating lease agreement that commenced
December 1996. Future minimum lease commitments approximate the following
for each of the five years ended September 30, 2002, and thereafter: 1998 -
$320,000; 1999 - $333,000; 2000 - $346,000; 2001 - $360,000; 2002 - $69,000;
and none thereafter. Total rent expense for the fiscal years ended September
30, 1997, 1996 and 1995 was $281,150, $87,456 and $78,449, respectively.
CONTINGENCY - In March 1997, the former President and Chief Operating
Officer and the Chief Financial Officer of the Company (the "Former
Employees") filed a complaint in the Superior Court in the State of
California, County of San Diego (the "Complaint") seeking claims for certain
purported damages in contract and in tort arising from their respective
terminations of employment with the Company in March 1996. In addition, the
Former Employees asserted possible punitive damages and damages based on
emotional distress. The Former Employees also claimed the right to vested
options of the Company's Common Stock. According to the Complaint, each of
the Former Employees appears to be claiming compensatory damages in excess of
$2 million and punitive damages in excess of $3 million. In June 1997, the
Company filed an answer to the Complaint denying each of the allegations
therein.
<PAGE>
Pretrial discovery with respect to these legal proceedings has commenced, and
a trial date has been scheduled for May 1998. The Company believes the
Former Employees' claims are without merit and the Company intends to contest
any such claims vigorously. However, there can be no assurances as to the
eventual outcome of such claims or their effect on the Company's business,
financial condition and results of operations. In addition, an adverse
determination in any litigation arising from these claims or the settlement
of such claims could have a material adverse effect of the Company's
business, financial condition and results of operations.
10. LICENSES AND COLLABORATIVE AGREEMENTS
The Company's strategy for development of its technologies includes the
acquisition and the in-licensing of technologies, and the establishment of
collaborative relationships with university, governmental and other entities.
Material licensing and collaborative agreements are described below.
In 1993, the Company entered into a technology transfer agreement with a
Liechtenstein corporation pursuant to which the Company purchased
intellectual property and patent rights related to its MAXAMINE cancer and
infectious disease technology. The total purchase price under the agreement
was $700,000, of which $600,000 was paid pursuant to a promissory note issued
by the Company and secured by the purchased technology. At September 30,
1997, all obligations under the promissory note have been satisfied. The
technology transfer agreement also requires that the Company pay certain
royalty obligations to inventors of the technology.
In 1993, the Company entered into an agreement with two Swedish companies,
Vitec AB and SBL Vaccin AB ("SBL"), pursuant to which the Company obtained an
exclusive, worldwide license to certain vaccine carrier technology, including
two patent applications, for the treatment of chlamydia. Under the
agreement, the Company is required to use its best efforts to engage SBL to
manufacture any products which result from the application of the licensed
technology. The Company has made payments of $150,000 to Vitec AB under this
agreement, and has agreed to make royalty payments on the net sales of
products using the licensed technology and to make additional license and
milestone payments to Vitec AB upon the execution of any sublicenses.
In 1994, the Company entered into a second license agreement with Vitec AB
and SBL for an exclusive, worldwide license to rights related to the carrier
technology for all infectious diseases with the exception of (i) chlamydia
(governed by the agreement discussed above), (ii) HIV (governed by a
sublicense agreement held by the Company) and (iii) cholera and
bacterial-related diarrheas. Under the agreement, the Company has agreed to
use its best efforts to engage SBL to manufacture any products which result
from the application of licensed technology, and both Vitec AB and the
Company shall receive a percentage of any profits that SBL derives from
manufacturing such products. The Company paid an initial license fee of
$100,000, and in 1996 paid a minimum milestone payment of $400,000 under the
agreement. The agreement also requires the Company to make royalty payments
based on net sales of products which utilize the licensed technology.
11. RELATED PARTY TRANSACTIONS
In February 1996, the Company entered into an agreement with a business
consulting firm to provide strategic planning and advisory services for
$10,000 per month for three years, and warrants to purchase up to 173,333
shares of common stock at an exercise price of $3.00 per share vesting over
36 months. In April 1996, the chief executive officer of this firm was
elected as a director of the Company. The Company made payments totaling
$120,000 and $80,000 in connection with the consulting agreement during the
years ended September 30, 1997 and 1996, respectively.
In September 1996 the Company repaid a $250,000 note payable, and paid
interest in the amount of $39,056, to a shareholder of the Company.
As described in Note 12, in July 1996 the Company sold its ownership interest
in a subsidiary to a former director and shareholder of the Company for
$1.00, and recorded a gain on the disposal of $2,288,474. During the year
ended September 30, 1996 the Company also transferred laboratory equipment
with a net book value of $128,248 to this former director.
<PAGE>
As part of its program of research and development, the Company has retained
certain scientists and other consultants to consult with the Company and
perform research and development services. Certain of these consultants were
considered related parties as they were holders of the Company's common stock
(or warrants, or options, to purchase common stock), and one such consultant
was formerly a director of the Company.
12. DISPOSAL OF CERTAIN OPERATIONS
On July 5, 1996, the Company sold its ownership interest in its Swedish
subsidiary, SVD, to a former Swedish collaborating scientist and former
director and shareholder of the Company for $1.00. The Company recorded a
gain on the disposal of SVD of $2,288,474, representing the excess of SVD's
liabilities over its assets as of the date of sale. SVD's primary liability
at the date of sale was a $2,421,560 Swedish Industrial Fund loan from the
Swedish government. SVD's assets consisted primarily of capitalized patent
costs. The sale transferred certain technology rights related to certain
peptides for use in vaccination and induction of neutralizing antibodies
against HIV. In connection with the sale, the Company received a
non-exclusive sublicense to the MAXVAX mucosal vaccine carrier for
development of vaccines for the treatment of HIV infection.
13. SUBSEQUENT EVENT - SECONDARY PUBLIC STOCK OFFERING
During October 1997 the Company completed a secondary public offering in
which it sold 2,500,000 shares of common stock at a price of $15.25 per
share. The Company received net proceeds of approximately $34,800,000 after
underwriting discounts and other issuance costs.
14. QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results of operations for the years ended September 30,
1997 and 1996 were as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended September 30, 1997
---------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses $539,592 $1,215,456 $1,538,480 $2,059,637
Net loss (764,560) (1,596,618) (1,953,443) (2,580,528)
Net loss per share of common stock (0.11) (0.24) (0.29) (0.39)
<CAPTION>
Year ended September 30, 1996
---------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses $219,388 $593,896 $341,777 $453,870
Net income (loss) (570,879) (922,009) (885,410) 1,544,810
Net income (loss) per share of common stock (0.12) (0.16) (0.14) 0.25
</TABLE>
<PAGE>
15. PRICE RANGE OF COMMON STOCK (UNAUDITED)
The Company's common stock currently trades on both the American Stock
Exchange ("AMEX") and the Stockholm Stock Exchange ("SSE"). Concurrent with
the Company's initial public offering, the Company's common stock began
trading on the AMEX under the symbol "MMP" on July 10, 1996. Prior to date
there was no established public trading for the common stock. The following
table shows the high and low sales price for the common stock by quarter, as
reported by the AMEX, for the period subsequent to the initial public
offering:
Price Range
Period High Low
------ ---- ---
Fiscal Year Ending September 30, 1996
Fourth Quarter (commencing July 10, 1996) $11 $7-3/4
Fiscal Year Ending September 30, 1997
First Quarter $10-5/8 $7
Second Quarter 11-1/4 6-3/4
Third Quarter 9-3/4 7-7/8
Fourth Quarter 16-1/2 8-1/2
On December 19, 1997 the last reported sales price of the Common Stock, as
reported by the AMEX, was $15 1/16 per share. As of such date, there were
approximately 1,200 holders of the Common Stock. On October 24, 1997,
concurrent with the completion of a secondary public offering, the Company's
common stock commenced trading on the SSE under the symbol "MAXM." The
Company has not paid cash dividends and has no intention to do so in the
foreseeable future.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Maxim Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Maxim Pharmaceuticals,
Inc. (a development stage company) as of September 30, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended September 30, 1997
and for the period from inception (October 23, 1989) through September 30,
1997. 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 Maxim Pharmaceuticals, Inc.
(a development stage company) as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997 and for the period from inception
(October 23, 1989) through September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
October 31, 1997
<PAGE>
CORPORATE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
EXECUTIVE OFFICERS CORPORATE HEADQUARTERS
Larry G. Stambaugh 10835 Altman Row, Suite 150
CHAIRMAN OF THE BOARD, San Diego, California 92121
PRESIDENT AND CHIEF EXECUTIVE OFFICER tel. 619-453-4040
fax 619-453-5005
Kurt R. Gehlsen, Ph.D. 10-K AVAILABILITY
VICE PRESIDENT, DEVELOPMENT AND A copy of the company's annual report
CHIEF TECHNICAL OFFICER to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended
Dale A. Sander September 30, 1997, without exhibits,
VICE PRESIDENT, FINANCE, will be made available to any Stockholder
CHIEF FINANCIAL OFFICER upon written request to:
AND CORPORATE SECRETARY Maxim Pharmaceuticals, Inc.
10835 Altman Row, Suite 150
San Diego, California 92121
DIRECTORS STOCK LISTING
Larry G. Stambaugh The shares of the Company's common
CHAIRMAN OF THE BOARD, stock and redeemable common stock is
PRESIDENT AND CHIEF EXECUTIVE OFFICER traded on the American Stock Exchange
under the symbol "MMP", and on the
Colin B. Bier, Ph.D. Stockholm Stock Exchange under the
MANAGING DIRECTOR symbol "MAXM". The Company's redeemable
ABA BIORESEARCH common stock purchase warrants are
traded on the American Stock Exchange
G. Steven Burrill under the symbol "MMP.WS".
CHIEF EXECUTIVE OFFICER
BURRILL & COMPANY LLC TRANSFER AGENT
American Stock Transfer & Trust Company
Per-Olof Martensson 40 Wall Street
PRINCIPAL New York, New York 10005
POM ADVISORY SERVICES AB
CORPORATE COUNSEL
F. Duwaine Townsen Cooley Godward LLP
MANAGING PARTNER 4365 Executive Drive, Suite 1100
VENTANA GROWTH FUNDS San Diego, California 92121
INDEPENDENT AUDITORS
KMPG Peat Marwick LLP
750 B Street, Suite 3000
San Diego, California 92101
</TABLE>
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK
FACTORS" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED SEPTEMBER 30, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE UNCERTAINTIES ASSOCIATED WITH PRODUCT DEVELOPMENT,
THE RISK THAT PRODUCTS THAT APPEARED PROMISING IN EARLY CLINICAL TRIALS DO
NOT DEMONSTRATE EFFICACY IN LARGER-SCALE CLINICAL TRIALS, THE RISK THAT
CLINICAL TRIALS WILL NOT COMMENCE WHEN PLANNED, THE RISK THAT THE COMPANY
WILL NOT OBTAIN APPROVAL TO MARKET ITS PRODUCTS.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Maxim Pharmaceuticals, Inc.
We consent to incorporation by reference in the registration statement (No.
333-11375) on Form S-8 of Maxim Pharmaceuticals, Inc. of our report dated
October 31, 1997, relating to the balance sheets of Maxim Pharmaceuticals,
Inc. (a development stage company) as of September 30, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended September 30, 1997,
and for the period from inception (October 23, 1989) through September 30,
1997, which report appears in the September 30, 1997 annual report on Form
10-K of Maxim Pharmaceuticals, Inc.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
December 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 447,523
<SECURITIES> 9,389,690
<RECEIVABLES> 45,876
<ALLOWANCES> 45,876
<INVENTORY> 0
<CURRENT-ASSETS> 10,414,049
<PP&E> 845,317
<DEPRECIATION> (126,329)
<TOTAL-ASSETS> 15,857,756
<CURRENT-LIABILITIES> 1,909,299
<BONDS> 555,229
0
0
<COMMON> 6,672
<OTHER-SE> 13,386,556
<TOTAL-LIABILITY-AND-EQUITY> 13,393,228
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,353,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,562
<INCOME-PRETAX> (6,895,149)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,895,149)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,895,149)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Maxim Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Maxim Pharmaceuticals,
Inc. (a development stage company) as of September 30, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended September 30, 1997
and for the period from inception (October 23, 1989) through September 30,
1997. 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 Maxim Pharmaceuticals, Inc.
(a development stage company) as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997 and for the period from inception
(October 23, 1989) through September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
October 31, 1997
