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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, 1998 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)
8899 University Center Lane, Suite 400
San Diego, California 92122
(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:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
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<S> <C>
Common Stock, $.001 Par Value American Stock Exchange
Redeemable Common Stock Purchase Warrants American Stock Exchange
</TABLE>
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 ___
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. /X/
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 $152,451,889 on December 28, 1998, when the
closing price of such stock, as reported in the American Stock Exchange, was
$15.375.
The number of shares outstanding of the registrant's Common Stock,
$.001 par value, as of December 28, 1998 was 9,915,570.
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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, 1998, 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 19, 1999, which will be mailed on or
about January 11, 1998, are incorporated into Part III hereof.
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THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS REGARDING OUR
BUSINESS AND PRODUCTS AND OUR PROJECTED PROSPECTS AND QUALITIES. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE RESULTS OF
PRODUCT DEVELOPMENT EFFORTS AND CLINICAL TRIALS, AND THE SCOPE AND SUCCESS OF
FUTURE OPERATIONS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND 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, YOU ARE CAUTIONED NOT TO PLACE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
PART 1
ITEM 1. BUSINESS
Maxim Pharmaceuticals, Inc. is referred to throughout this report as
"Maxim", the "Company", "we" or "us".
OVERVIEW
Maxim is developing advanced drugs and vaccines for cancer and
infectious diseases. Clinical trials of our lead drug MAXAMINE-TM- in the
treatment of malignant melanoma and acute myelogenous leukemia have shown a
more than doubling of survival and remission times while maintaining patient
quality of life during treatment. Earlier-stage clinical studies have also
suggested promise in renal cell carcinoma and hepatitis C. We are currently
testing MAXAMINE in three Phase III cancer clinical trials in 12 countries
around the world.
MAXAMINE, an immuno-modulator, is designed to offer a safer
treatment that extends life for seriously ill patients. MAXAMINE is used in
biotherapy, a class of treatments that are intended to improve the ability of
a patient's immune system to identify, disable and destroy malignant or
infected cells. MAXAMINE THERAPY combines the administration of MAXAMINE,
which PROTECTS critical immune cells, with the administration of
biotherapeutic agents such as cytokines designed to STIMULATE these immune
cells. Because MAXAMINE THERAPY is designed to capitalize upon and enhance a
patient's own immune capabilities, we believe that it has the potential to be
used in a wide range of cancers and diseases that can be recognized by the
immune system.
In addition to extending survival, maintaining the quality of a
patient's life during treatment is an important objective of MAXAMINE
THERAPY. MAXAMINE is designed to allow self-administration by patients in
their own homes, and is believed to reduce toxic side effects of cytokines
and other biological response modifiers.
We are conducting three Phase III clinical trials of MAXAMINE
THERAPY for the treatment of cancer. In June 1997 we commenced a 240-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 Europe, Australia and Canada was initiated in
November 1997. Lastly, we commenced a Phase III clinical trial for acute
myelogenous leukemia ("AML") in the United States, Europe, Australia and
Canada in February 1998. Each of these trials are designed to independently
support application for approval to market MAXAMINE.
In two completed Phase II clinical trials for the treatment of
advanced malignant melanoma, MAXAMINE THERAPY substantially improved patient
survival. Median survival time for patients treated with MAXAMINE THERAPY in
the two studies exceeded 13 and 15 months, respectively, as compared with
reported median survival times of approximately six to seven months for
existing available treatments. In patients for which the melanoma had
metastasized to the liver, MAXAMINE THERAPY improved median survival time to
19 months compared to predicted survival times of approximately four months
for these patients.
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<PAGE> Our Phase II clinical trial for the treatment of AML
demonstrated a substantial improvement of disease-free remission intervals.
As of September 1998, after a median of 24 months of follow-up, 58% of
patients treated with MAXAMINE THERAPY during their first complete remission
("CR1") remained in leukemia-free remission. Less than 20-25% would be
expected to remain in remission under current treatments. Furthermore, 65% of
patients treated with MAXAMINE THERAPY without concurrent diseases or
antecedent illnesses remained in leukemia-free remission. Patients who
relapsed and achieved a second or greater remission ("CR2+") and were
subsequently treated with MAXAMINE THERAPY had a median time in remission in
excess of 21 months as compared with the historic reported median time in
remission of approximately six months under the current standard of care.
A Phase II clinical trial of MAXAMINE in the treatment of renal cell
carcinoma was initiated in Europe in late 1998. We have also tested MAXAMINE
in a Phase I trial in hepatitis C (HCV) patients. The study suggested that
the combination of MAXAMINE with interferon-alpha (IFN-(alpha)) is safe in
the treatment of HCV patients, and that MAXAMINE may enhance the efficacy of
IFN-(alpha) in patients who were previously nonresponsive to IFN-(alpha)
therapy. We currently plan to start a Phase II trial in hepatitis C in 1999.
We are also developing MAXDERM-TM-, a MAXAMINE-related drug for
dermatological and other topical applications. Potential uses for MAXDERM
include the treatment of herpes labialis (cold sores), oral mucositis, canker
sores, pressure sores, shingles and burns.
Our third technology, MAXVAX-TM-, is currently in preclinical
development and is designed to facilitate a new class of needle-free vaccines
for major respiratory infections, sexually transmitted diseases,
gastrointestinal tract diseases and other infectious diseases. Nearly 85
percent of infectious diseases enter the body through the mucosal membranes
lining the nose, mouth, eyes, ears, lungs, intestinal and urogenital tracts.
We hope that mucosal vaccines, using the MAXVAX carrier, can provide immune
protection at these mucosal surfaces.
MAXAMINE DRUG FOR CANCER AND INFECTIOUS DISEASES
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 1,230,000 new cases and approximately
565,000 deaths will be reported for invasive cancers in the United States in
1998. 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 for 1998 for Initial Target Markets*
<TABLE>
<CAPTION>
Annual
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New Cases Deaths
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<S> <C> <C>
Malignant Melanoma........................................ 83,000 15,000
Acute Myelogenous Leukemia................................ 19,000 13,000
Renal Cell Carcinoma...................................... 60,000 23,000
All Invasive Cancers...................................... 2,460,000 1,130,000
</TABLE>
*These estimates are based upon the American Cancer Society's 1998
FACTS AND FIGURES doubled to provide an estimate of incidence for the European
Union and Australia.
Predominant methods of treating cancer generally include surgery,
radiation therapy, chemotherapy and biotherapy. Although these techniques
have achieved success for certain cancers, particularly when detected in the
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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 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, we believe that new
cancer therapies will increasingly be expected to maintain patients' 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"). The World Health Organization and other sources estimate that at
least 60 million people are chronically infected worldwide. 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 many countries. The majority of patients do not
effectively respond to existing therapies or to therapies known by us to be
under development.
BIOTHERAPY FOR CANCER AND INFECTIOUS DISEASES
In recent years, significant research has focused on attempts to
capitalize upon and enhance the immune system's ability to combat cancer and
infectious diseases, a treatment approach known as biotherapy. New cytokines,
drugs, vaccines, chemotherapeutic agents and advanced radiation therapy
technologies are continually being developed in attempts to protect and
enhance the response of the immune system. Many of these technologies,
however, have demonstrated significant limitations in their ability to treat
cancer and certain infectious agents. These limitations may include marginal
efficacy, severe adverse side effects and the development of multi-drug
resistance.
Since the early 1980's, much research in the biotherapy area has
included the testing of cytokines, naturally occurring proteins, such as
interleukin-2 (IL-2) and interferon-alpha (IFN-(alpha)) for the treatment of
a number of cancers and infectious diseases including advanced malignant
melanoma, renal cell carcinoma, hepatitis C and AML. Two kinds of immune
cells, the natural killer-cells (NK cells) and T cells, possess an ability to
kill and support the killing of cancer cells and virally infected cells. IL-2
and IFN-alpha are potent stimulators of NK cells and T Cells, yet they are
often rendered ineffective in the treatment of patients as the NK cells and T
cells are suppressed by another component of the body's immune system. As a
result, cytokines demonstrate a clinically significant tumor response in only
a small portion of cancer patients and often produce severe adverse side
effects. Moreover, even with recent advances in the use of IFN-(alpha) in
combination with anti-viral drugs or in sustained release formulations, the
majority of HCV patients do not effectively respond to existing therapy.
MAXAMINE TECHNOLOGY
The method of action of MAXAMINE THERAPY is intended to improve the
immune system's ability to identify, disable and destroy malignant or infected
cells. MAXAMINE may be key to successful biotherapy, the use of the body's own
immune system to fight cancer and infectious diseases. MAXAMINE is based on a
naturally occurring molecule, and its usefulness in biotherapy was discovered by
Maxim's collaborative scientists at the University of Goteborg, Sweden.
Two kinds of immune cells, NK Cells and cytotoxic T Cells, possess an
ability to kill and support the killing of cancer cells and virally infected
cells. Maxim's researchers have shown, however, that NK Cells and T Cells are
suppressed by phagocytes, another component of the body's immune system.
Phagocytes are a class of white blood cells found in abundant quantities at the
site of tumors and viral infections. The release of free
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radicals by phagocytes results in apoptosis (programmed cell death) of NK
Cells and T Cells, thereby destroying their cytotoxic capability and
rendering the immune response against the tumor or virally infected cell
largely ineffective.
MAXAMINE is designed to modulate the immune system to protect NK
Cells and T Cells, making biotherapy more effective. When histamine, a
natural molecule present in the body, or any other molecules in the class
known as H2 receptor agonists, binds to the H2 receptor on the phagocytes,
the production and release of free radicals is temporarily prevented. The
prevention of the release of free radicals thereby allows immune-activating
agents, such as IL-2 and IFN-(alpha), to more effectively activate NK Cells
and T Cells to enhance their killing of tumor cells or virally infected cells.
We have formulated MAXAMINE, an analogue of histamine, so that it
may be delivered to patients through a subcutaneous injection. Among the body
of proprietary protection surrounding our MAXAMINE technology are United
States and international patents and patent applications covering not only
MAXAMINE, or histamine, but the use of any as H2 receptor agonist in the
treatment of cancer and infectious diseases, as well as patent applications
covering their use in other medical applications. See "Patents, Licenses and
Proprietary Rights."
In summary, MAXAMINE THERAPY combines the administration of
MAXAMINE, which protects critical immune cells, with the administration of
biotherapeutic agents designed to stimulate these immune cells. The results
of the series of clinical trials conducted to date highlight the potential of
MAXAMINE to improve the efficacy of certain biotherapeutic agents. Because
MAXAMINE has been shown to increase the effectiveness of cytokines, lower
doses of cytokines such as IL-2 and IFN-(alpha) can potentially be used in
MAXAMINE THERAPY without compromising therapeutic effectiveness, thereby
reducing serious side effects associated with the cytokines. Among the
potential benefits of MAXAMINE THERAPY is the utilization and enhancement of
the body's immune capabilities, thereby making the treatment potentially
applicable to a broad range of cancers and infectious diseases recognizable
by the immune system.
POTENTIAL BENEFITS OF MAXAMINE
We believe 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. Phase II clinical trials and other data have
provided evidence of improved therapeutic efficacy (extended
survival and remission intervals) over approved therapies or
standards of care.
- MAINTAINING QUALITY OF LIFE. Phase II clinical trials and
other data have indicated that MAXAMINE THERAPY may reduce
the toxic side effects of cytokines and other biological
response modifiers, thereby allowing the maintenance of the
patient's quality of life during this outpatient therapy.
- OUTPATIENT ADMINISTRATION. MAXAMINE can be self-administered
on an outpatient basis, subcutaneously, in contrast to the
in-hospital administration required for many other
therapies.
- COST EFFECTIVE. Lower doses of IL-2 or IFN-(alpha) are
possible for many patients, potentially reducing the cost per
treatment cycle below existing treatment regimens. In
addition, the delivery of MAXAMINE THERAPY on an outpatient
basis may eliminate the costs associated with in-hospital
patient care. These factors, combined with the potential
improvements in efficacy, contribute favorably to the
assessment of benefit versus cost for this therapy.
MAXAMINE CLINICAL TRIAL STATUS
Building upon the body of human data generated from a series of Phase
II clinical trials, we have initiated a clinical development program
encompassing three concurrent Phase III clinical trials of MAXAMINE THERAPY for
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the treatment of cancer based in 12 countries. Each of these trials is
designed to independently support regulatory submissions for approval to
market MAXAMINE. Our Phase III trials target advanced malignant melanoma and
AML, but we believe that these are only the first potential uses for the
drug. A Phase II trial is underway in renal cell carcinoma, and earlier-stage
trials have been conducted in hepatitis C and multiple myeloma.
The table summarizes our current and completed clinical trial
activities for each disease we currently target or plan to target. We cannot
predict when clinical studies for any of the indications set forth below will
be completed or whether the results of such studies will support the filing
of New Drug Applications or the equivalent. In addition, we can give no
assurance as to when we will be able to commence planned clinical studies.
MAXAMINE THERAPY Clinical Trial Status
<TABLE>
<CAPTION>
Indication Phase Status Location
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<S> <C> <C> <C>
Advanced Malignant Melanoma Phase III trial Ongoing United States
Advanced Malignant Melanoma Phase III trial Ongoing Five countries (Europe,
Australia and Canada)
Acute Myelogenous Leukemia Phase III trial Ongoing 12 countries (United States,
Europe, Australia
Canada and Israel)
Renal Cell Carcinoma Phase II trial Ongoing Sweden, Denmark and
United Kingdom
Multiple Myeloma Phase I trial Completed Sweden
Hepatitis C Phase I trial Completed Sweden
Hepatitis C Phase II trial Planned for 1999 To be determined
Prostate Adenocarcinoma Preclinical research Completed Sweden
</TABLE>
ADVANCED MALIGNANT MELANOMA
Malignant melanoma is the most serious form of skin cancer. Our
initial Phase II clinical trial was conducted in Sweden at the Sahlgrenska
University Hospital in Goteborg. In that study, 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 the 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 < 0.03). The MAXAMINE THERAPY patients had a mean survival of 13.3 months,
double the mean 6.8 month survival in the control group. One patient remained
completely free of detectable disease more than four years after the
commencement of treatment with MAXAMINE THERAPY.
A second advanced malignant melanoma study was undertaken at the
Sahlgrenska University Hospital in Sweden to determine if MAXAMINE THERAPY
utilizing 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
in the first study, while reducing the side effects of the cytokine portion
of the treatment. In addition to survival, a goal for MAXAMINE THERAPY is to
lower the toxicity of biotherapy and better 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 six to seven months. In this
second,
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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.
In the first two trials the median survival time exceeded 13 and 14
months, respectively, compared to reported medians of six to seven months for
conventional treatments. In addition, of the seven patients having liver
metastases, treatment with MAXAMINE THERAPY was shown to significantly
improve survival outcome (median of 19 months survival as a group) compared
to the predicted four months survival time for these patients.
In July 1997, we commenced a multi-center Phase III clinical trial
of MAXAMINE THERAPY in the United States for the treatment of advanced
malignant melanoma. 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 minimum enrollment objective for the study
was 240 patients. More than 50 clinical sites in the United States are
participating in the study, and we have exceeded the original enrollment goal
for the study. We plan to terminate enrollment in the first half of 1999
after enrolling approximately 300 patients.
We commenced a second international Phase III trial of MAXAMINE
THERAPY for the treatment of advanced malignant melanoma in November 1997
based in five countries, including clinical sites in Europe, Australia and
Canada. 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. DTIC has a reported
survival benefit of six to seven months in advanced malignant melanoma
patients. The international study will be designed to encompass approximately
240 patients.
Our two Phase III malignant melanoma trials are designed to
complement each other by addressing separate clinical and marketing issues.
The United States trial is designed to demonstrate that treatment with a
combination of MAXAMINE and IL-2 is better at extending patient survival than
the administration of IL-2 alone. The international trial is designed to
demonstrate that MAXAMINE THERAPY is better at extending patient survival
than dacarbazine (DTIC), a standard treatment throughout the world for
advanced malignant melanoma. A secondary endpoint of both trials is to
evaluate patient quality of life while on MAXAMINE THERAPY.
ACUTE MYELOGENOUS LEUKEMIA ("AML")
Acute Myelogenous Leukemia is the most common form of acute leukemia
in adults, and prospects for long-term survival are poor for the majority of
patients. Once diagnosed with AML, patients are typically treated with
chemotherapy, and the majority achieve complete remission ("CR").
Unfortunately 75-80% of patients who achieve their first CR ("CR1") will
relapse, and the median time in remission before relapse is only 12 months
with current treatments. Relapsed patients are typically treated again with
chemotherapy, and many of these patients die during chemotherapy. Among those
relapsed patients who do survive treatment and achieve a second complete
remission ("CR2"), these subsequent remissions normally have a shorter
duration than the prior CR (a median of only six months in the case of CR2
patients).
We conducted a Phase II study in Sweden in which 39 AML patients in
remission were treated with MAXAMINE THERAPY. The objective of MAXAMINE
THERAPY is to treat AML patients in remission with the combination of
Maxamine and low doses of IL-2 to prevent relapse and prolong leukemia-free
survival while maintaining a good quality of life for the patients during
treatment.
In the Phase II study, patients treated in their first remission
with MAXAMINE THERAPY experienced a substantial increase in leukemia-free
survival, highlighted by the following updated clinical results as of
September 1, 1998 after a median 24 months of follow-up:
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- 58% (15 of 26) of all CR1 patients treated with MAXAMINE remained
in leukemia-free remission. A prior study of AML patients
suggested that only 20-25% of patients would be expected to be
alive after two years.
- 65% (13 of 20) of AML patients without concurrent diseases or
antecedent illnesses treated with MAXAMINE remained in
leukemia-free remission.
- After a median of 24 months of follow up, the median time to
relapse had not been reached in this study as more than 50% of the
MAXAMINE-treated CR1 patients remained leukemia-free. By contrast,
under the normal course for AML, the median time to relapse would
be expected to be reached after only 12 months.
These results were achieved despite the fact that the patients
treated with MAXAMINE were a relatively older group of patients and more than
half (15 of 26) of the patients were categorized as high risk for relapse.
Patients treated in their second or subsequent remission ("CR2+")
historically have a poor prognosis, with about 5% achieving long-term
survival. The 13 CR2+ patients treated with MAXAMINE THERAPY in the Phase II
study experienced a substantial increase in remission duration, and the
median time to relapse for the CR2+ patients was 21 months, more than three
times the six-month historic median. Remission inversion (prolonging the
duration of CR2+ to that equal to or exceeding the patient's prior remission
duration) was achieved in 8 of 11 (73%) patients treated with MAXAMINE
THERAPY as compared with approximately 10% to 20% under the current standard
of care.
In February 1998, we commenced a Phase III AML clinical trial based
in 12 countries, including clinical sites in the United States, Europe,
Australia, Canada and Israel. The trial is designed as a remission therapy to
demonstrate that MAXAMINE THERAPY can prolong leukemia-free remission time
and prevent relapse in AML patients compared to the current standard of care,
which is no therapy during remission. In the study, patients in CR2+ will be
evaluated for up to 18 months, while patients in CR1 will be evaluated up to
24 months. The trial is designed to include up to 400 patients.
RENAL CELL CARCINOMA
Advanced renal cell carcinoma (RCC), cancer of the kidneys, is
resistant to radiation therapy and chemotherapy and patients have a poor
prognosis for survival. A pilot study of six RCC patients was conducted at
the Sahlgrenska Hospital in Gothenburg to evaluate the safety and feasibility
of MAXAMINE THERAPY in this patient group. In the small study, three patients
were treated with MAXAMINE and cytokines (IFN-(alpha) and IL-2) and achieved a
mean survival of 29 months, while another three patients were treated with
the cytokines alone and achieved a mean survival of four months.
In late 1998 we initiated a Phase II clinical trial of MAXAMINE
THERAPY in the treatment of patients with RCC. The trial is designed to
evaluate MAXAMINE THERAPY, consisting in this trial of the combination of
MAXAMINE, a natural cytokine Interferon Alfanative(R) and IL-2, in the
treatment of late-stage RCC patients. Under the trial design, approximately
40 patients are expected to be enrolled and treated for a period of up to
nine months.
HEPATITIS C (HCV)
Hepatitis C ("HCV"), a viral infection that is estimated to afflict
4 million people in the United States and at least 60 million people
worldwide, is a leading cause of liver cirrhosis and liver cancer and the
primary reason for liver transplantation. IFN-(alpha) is the primary
treatment for HCV, but even with recent advances in the use of IFN-(alpha) in
combination with anti-viral drugs or in sustained release formulations, the
majority of patients do not effectively respond to therapy.
In 1998 we reported results from a Phase I feasibility study in HCV
patients using MAXAMINE THERAPY. The study indicated that the combination of
MAXAMINE with IFN-(alpha) is safe in the treatment of HCV patients, and
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that MAXAMINE may enhance the efficacy of IFN-(alpha) in patients who were
previously nonresponsive to IFN-(alpha) therapy. In the study, 10 patients
who were characterized as nonresponders to previous IFN-(alpha) treatment
were put back on treatment with the same dose of IFN-(alpha) plus MAXAMINE.
Eight of the 10 patients had a decrease in ALT levels, an enzyme used to
assess liver function, and two patients achieved a complete normalization of
ALT. Patients treated with MAXAMINE plus IFN-(alpha) also demonstrated
statistically significant decreases of viral load and AST. Based in part on
these results and other support for the potential benefit of MAXAMINE in HCV,
our goal is to commence a Phase II trial in Hepatitis C in 1999.
MAXDERM DERMATOLOGICAL AND TOPICAL THERAPY
MAXDERM was developed to allow for topical delivery of the active
ingredient in MAXAMINE. The noval technology underlying MAXDERM is designed
to modulate the patient's immune system and inflammatory response to treat
certain dermatological conditions and other topical applications. MAXDERM
encompasses certain acquired and internally developed technologies that
include three patents and a number of patent applications covering certain
material compositions and uses. A total of more than 75 patients have been
treated in randomized, double-blinded, placebo controlled pilot studies of
MAXDERM.
Potential uses of MaxDerm include the treatment of herpes labialis
(cold sores), oral mucositis, canker sores, pressure sores, shingles and
burns. We plan to further define our clinical development program for MAXDERM
based on evaluation of the data from the completed preliminary studies as
well as the results of market evaluations.
MAXDERM represents an early stage development program. As with any
such program, substantial additional development will be necessary in order
for us or our partners to develop products based on the technology, and there
can be no assurance that our development efforts will lead to development of
products that are shown to be safe and effective in clinical trials and that
are commercially viable.
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. It is estimated that by 1999, the world market for human
vaccine products will total $5.3 billion.
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MUCOSAL MEMBRANES - A FIRST-LINE DEFENSE
The mucosal membranes that 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 cause 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. We believe 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
our proprietary recombinant form of CTB ("rCTB") with vaccine antigens and/or
genes, we believe that we may be able to develop effective, new needle-free
mucosal-based vaccines.
POTENTIAL BENEFITS OF MUCOSAL IMMUNIZATION USING MAXVAX
The MAXVAX approach to therapeutic and protective vaccines has been
shown to elicit both mucosal and systemic immunity and is based upon
"non-injectable" administration. We believe that there are numerous important
potential 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. We believe that our 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 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 potential
MAXVAX vaccines by oral, nasal and topical applications
involving direct contact with mucosal surfaces may not require
patients to go to clinics or 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. We believe that the relative
ease of administration and the concept of "prescription"
vaccines may improve vaccine utilization over traditionally
administered vaccines. Further, we believe 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. Two
studies published in INFECTION AND IMMUNITY in 1998 highlighted the potential of
MAXVAX. The first was a human vaccination study that
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demonstrated mucosal antibody responses in female volunteers after nasal and
oral application of rCTB, the technology underlying MAXVAX. The results were
important as they confirmed in humans the results of earlier animal studies
in which rCTB has been shown to stimulate strong mucosal immune responses.
The results also support the potential effectiveness of oral and nasal
administration, the two most attractive routes for the delivery of mucosal
vaccines. Also published was a preclinical study that demonstrated the
induction of specific mucosal immunity within the female reproductive tract.
The study's vaccination regimen was a prototype for mucosal vaccination
against human sexually transmitted diseases.
Prototype MAXVAX-based vaccines are currently being prepared and
tested in our laboratories. Our objective is to align ourselves with
corporate collaborators possessing antigens for specific diseases that can be
coupled to the MAXVAX carrier, and to develop vaccine candidates in
collaboration with these partners.
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 us or our partners to
develop products based on the technology, and there can be no assurance that
our research and development efforts will lead to development of products
that are shown to be safe and effective in clinical trials and that are
commercially viable.
PRODUCT DEVELOPMENT AND COLLABORATIVE RELATIONSHIPS
We conduct our research and other product development efforts
through a combination of internal research personnel and collaborative
programs. For MAXAMINE, we rely upon our clinical management personnel in
extensive collaboration with universities and other clinical research sites,
contract research organizations and similar service providers and persons. We
expect to rely upon a similar combination of internal personnel and
collaborators as we expand the clinical and other development of MAXDERM.
Current research and development efforts related to MAXVAX are primarily
conducted in our internal laboratories, although we expect to rely heavily on
pharmaceutical company collaborative relationships to advance the clinical
development of the technology.
We have relied upon licensing and other transactions to gain access
to certain of our proprietary technologies. Conduct of our current and
planned clinical trials of MAXAMINE THERAPY rely heavily upon contractual
relationships with universities and other clinical trial sites, contract
research organizations, home nursing organizations, and regulatory and other
consultants. Our strategy for development, commercialization and marketing of
each of our product candidates will involve, where appropriate, the
establishment of marketing and other collaborative relationships with
pharmaceutical industry partners.
During 1998 we entered into clinical collaborations with Chiron
Corporation, Amgen Inc. and BioNative AB. Each of these companies possess
cytokines that have the potential to benefit from use in combination with
MAXAMINE, and under each of these agreements we receive economic and other
support for important clinical trials without giving up any marketing or
other future rights to MAXAMINE. For example, Chiron is providing the IL-2
requirements and other assistance related to our Phase III AML clinical
trial. These collaborations highlight our belief that MAXAMINE, a combination
therapy, is complementary rather than competitive with many existing and
future drugs, and may be the key to the successful use of many biotherapeutic
agents.
We expect to pursue additional collaborations to further the
expanded use and development of MAXAMINE. We will also seek other
collaborative relationships, particularly for the further development of
MAXVAX and in other situations where we believe that the clinical testing,
marketing, manufacturing and other resources of pharmaceutical or other
collaborators will enable us to more effectively develop particular products
or access geographic markets.
MARKETING AND SALES
We expect that our strategy for the potential global market launch
of MAXAMINE will be based on a combination of direct marketing by Maxim in
the United States, and the establishment of marketing alliances with
pharmaceuticals companies for international markets.
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We are currently undertaking efforts to prepare to market MAXAMINE
directly in the United States. Our objective is to retain the full revenue
stream from the potential sale of MAXAMINE in this key market, and we have
built a core marketing group with experience in planning and managing
successful United States launches of pharmaceutical products. As we move
closer to the potential market launch of MAXAMINE, we have and will continue
to undertake certain activities required to prepare for launch including
market evaluations, reimbursement analysis, and building awareness of the
drug among leading clinicians. 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 approximately 1,500 major
medical centers. Marketing MAXAMINE directly in the United States will
require us to build a marketing infrastructure, including the recruitment and
hiring of sales representatives. Our plan is to defer the build up of this
infrastructure until obtaining some assurance (after a review of Phase III
clinical data and initiation of the regulatory approval process) of the
likelihood and timing of any potential approval to market MAXAMINE in the
United States.
In international markets we are in the process of recruiting,
evaluating and selecting pharmaceutical companies to serve as marketing
collaborators for major geographic regions, including Europe and the Pacific
Rim. We are 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 us.
Due to the nature of the vaccine markets, we intend to establish
agreements with pharmaceutical companies with large distribution systems for
MAXVAX and do not expect to establish a direct sales capability in the
vaccine area. Our marketing strategy for MAXDERM will be developed over time
based upon, among other factors, the specific indications targeted for
therapy.
MANUFACTURING
We do not intend to acquire or establish our own dedicated
manufacturing facilities for MAXAMINE in the foreseeable future. There are a
number of facilities with FDA Good Manufacturing Practice ("GMP") approval
available for contract manufacturing, and we have contracted with established
pharmaceutical manufacturers for the production of MAXAMINE. These
manufacturers are supplying the MAXAMINE requirements under GMP for our
current clinical trial activities, and have demonstrated the capability to
supply commercial quantities of the product for the potential market launch.
The CTB protein portion of MAXVAX is currently being produced by SBL Vaccin
AB, Stockholm, Sweden, under GMP through a system suitable for
large-scale industrial production.
We believe that, in the event of the termination of an agreement
with any single supplier or manufacturer, we would likely be able to enter
into agreements with other suppliers or manufacturers on similar terms.
However, there can be no assurance that there will be manufacturing capacity
available to us within the timelines and at quantities required. We expect,
however, to establish relationships with additional manufacturers during 1999
to provide alternate sources of supply for MAXAMINE.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
We hold five issued or allowed patents and have eleven patent
applications pending in the United States. In addition, we hold license
rights to six issued patents and three patent applications pending in the
United States. Corresponding patent applications have been filed, and in a
number of instances patents have been issued, in major international markets.
Our policy is to file, where possible, patent applications to protect
technologies, inventions and improvements that are important to the
development of our business. We have devoted substantial attention and
resources to our patent and license portfolio in an attempt to develop the
strongest positions available. Maintaining patents and licenses and
conducting an assertive patent prosecution strategy is a priority for us.
KEY GRANTED PATENTS AND PENDING APPLICATIONS
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We hold 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, Australia and
Japan. We also hold a U.S. patent issued in March 1998 relating to the
combination of IFN-(alpha) and H2RA's, and a corresponding patent has also
issued in Australia. We also hold seven other patent applications in the
United States relating to other cytokines, biotherapies, mechanisms, rates
and routes of administration, and other proprietary claims that have also
been filed internationally.
We also hold a worldwide, exclusive license to Professional
Pharmaceuticals, Inc.'s (PPI) three U.S. patents for material compositions
and other rights underlying the MAXDERM technology. We also hold a U.S.
patent application related to the MAXDERM technology. Corresponding patents
for each of the above have also been filed internationally.
In the MAXVAX area, we hold a worldwide exclusive license to the
U.S. and international patents of Vitec AB ("Vitec") and SBL Vaccin AB
("SBL") for recombinantly producing CTB for use in infectious diseases other
than cholera, bacterial related diarrheas and HIV (We hold non-exclusive
rights to this patent with regard to HIV). We also hold exclusive license
rights to related patent applications as well as a patent application with
respect to certain therapeutic and anti-inflammatory properties of CTB.
We have also filed three of our own U.S. and international patent
applications related to MAXVAX, covering the use of CTB to make vaccines
against chlamydia and other sexually transmitted diseases, the use of CTB and
other proteins in gene delivery of DNA or RNA, and methods for developing
CTB-based vaccines.
MAXAMINE TECHNOLOGY RIGHTS
In 1993 we entered into a technology transfer agreement under which
we purchased the core intellectual property and patent rights related to our
MAXAMINE technology. The technology transfer agreement requires that we pay
certain royalty obligations to the two inventors of the technology, although,
as part of a subsequent agreement with us, one of the inventors waived his
royalty rights. We have also filed a number of additional patent applications
and received additional patents encompassing the MAXAMINE technology as
described above.
MAXDERM TECHNOLOGY RIGHTS
In 1998 we entered into a license agreement with PPI for an
exclusive, worldwide license to technology related to material compositions
and other patent rights underlying the MAXDERM technology. The license
agreement requires that we pay certain royalty obligations to PPI. We have
also filed an additional patent application related to the MAXDERM technology.
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MAXVAX LICENSES AND TECHNOLOGY RIGHTS
In 1993 we entered into an option and license agreement with Vitec
and SBL, under which we exercised an option for an exclusive, worldwide
license to technology related to CTB for use in a chlamydia vaccine. Under
the agreement, we are required to use our best efforts to engage SBL to
manufacture any products which result from the application of the licensed
technology. We also have 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. Under 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 we 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 us), cholera and
bacterial-related diarrheas. Under the agreement, we have agreed to use our
best efforts to engage SBL to manufacture any products which result from the
application of licensed technology, and both Vitec and Maxim 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 us.
In January 1998 we filed arbitration in Sweden relating to the
licensors' performance under the above agreements. The arbitration alleges
certain causes of action against the licensors (among other things,
misstatements regarding the scope of Maxim's licensed rights) and seeks
compensatory and punitive damages and declaratory relief. The arbitration
also seeks specific performance of the licensors' obligations under the
agreements (including full disclosure of relevant manufacturing information).
We cannot determine what impact, if any, an unfavorable resolution of the
existing concerns would have on the commercial value of the MAXVAX technology.
We also hold 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 our proposed products and in our ongoing research and product
development activities. The nature and extent to which such regulation
applies to Maxim will vary depending on the nature of any products which may
be developed by us. We anticipate that many if not all of our 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 money. Any failure by us or our collaborators to
obtain, or any delay in obtaining, regulatory approval could adversely affect
the marketing of any products developed by us, and prevent us from generating
product revenues and obtaining adequate cash to continue present and planned
operations.
FDA APPROVAL PROCESS
Prior to commencement of clinical studies involving humans,
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, human
clinical evaluation involves a time consuming and costly three-phase process.
In Phase I, clinical trials are conducted with a small number of people to
assess safety and to evaluate the pattern of drug distribution and metabolism
within the
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body. 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, for
any of our products. Similar procedures are in place in countries outside the
United States.
The Advisory Committee of Immunization Practices ("ACIP") of the
Centers for Disease Control and Prevention ("CDCP") has a role in influencing
the markets for most, if not all, of the vaccine products we intend 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. 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 licensing within one member country followed by mutual
recognition by the other member countries.
OTHER REGULATIONS
We are also subject to various U.S. federal, state, 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 our research
work. The extent of government regulation which might result from future
legislation or administrative action cannot be predicted accurately.
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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 we expect 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 we cannot predict
whether any such legislative or regulatory proposals will be adopted or the
effect such proposals or managed care efforts may have on our business, the
announcement of such proposals or efforts could have a material adverse
effect on our ability to raise capital, and the adoption of such proposals or
efforts could have a material adverse effect on the our 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 us, our ability to
establish corporate collaborations 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. Third-party payors are
increasingly challenging the prices charged for medical products and
services. If we succeed 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 us to sell our 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. We expect to encounter
significant competition for the principal pharmaceutical products we plan to
develop. Companies that complete clinical trials, obtain regulatory approvals
and commence commercial sales of their products before us 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 us, particularly hepatitis C. In some instances, our competitors already
have products in late-stage clinical trials. In addition, certain
pharmaceutical companies are currently marketing drugs for the treatment of
the same diseases being targeted by us, and may also be developing new drugs
to address these disorders.
In the area of biotherapy, the impact of competition for MAXAMINE
may be reduced by the fact that the drug may be complementary to many other
biotherapeutic agents. MAXAMINE THERAPY combines the administration of
MAXAMINE with the administration of biotherapeutic agents. Accordingly,
MAXAMINE and these biotherapeutic agents may not be competitive but may play
complementary and synergistic roles in enhancing the immune system. For this
reason, we believe that continuing advancements in the overall field of
biotherapy may create new opportunities for MAXAMINE.
Many of our competitors have substantially greater financial,
clinical testing, regulatory compliance, manufacturing, marketing, human and
other resources. Additional mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated with our
competitors. We believe that our competitive success will be based on our
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent
or other protection for our products, obtain required regulatory approvals,
obtain orphan drug status for certain products and manufacture and
successfully market our products either independently or through outside
parties.
EMPLOYEES AND CONSULTANTS
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As of December 28, 1998, the Company had 53 employees, all but two
of whom were based at its two facilities 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 our
company in 1999 to, among other things, address the requirements of the
expansion of clinical trials of MAXAMINE and other commercialization efforts.
In addition to our employees, we have engaged a number of
experienced consultants in North America, Europe and Australia with
pharmaceutical and business backgrounds to assist in its product development
efforts. We plan to leverage our key personnel by making extensive use of
contract laboratories, development consultants, and collaborations with
pharmaceutical companies to expand our preclinical and clinical trials.
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RISK FACTORS
In evaluating Maxim and its business, you should carefully consider the
following risk factors in addition to the other information contained herein.
DEVELOPMENT-STAGE COMPANY; HISTORY OF OPERATING LOSSES; UNCERTAINTY
OF FUTURE PROFITABILITY. Maxim, as a development-stage enterprise, has
experienced net losses every year since its inception and, as of September
30, 1998, had a deficit accumulated during the development stage of
approximately $42.7 million. We have not commercially introduced any product
and each of our product candidates are in varying stages of development and
testing. We anticipate incurring substantial additional losses over at least
the next several years due to the need to expend substantial amounts on
clinical trials, other anticipated research and development activities,
preparation for the potential market launch of MAXAMINE, and the general and
administrative expenses associated with these activities. Attaining
profitability will depend upon our ability to develop products that are
effective and commercially viable, to obtain regulatory approval for the
manufacture and sale of our products and to market our products successfully.
We cannot guarantee that we 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."
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FUNDING. Our
operations to date have consumed substantial amounts of cash. Negative cash
flow from our operations is expected to continue and to accelerate over at
least the next several years. Our capital requirements will depend on
numerous factors, including:
- the results of our clinical trials;
- the timing and scope of any additional clinical trials undertaken;
- the scope and results of our research and development programs;
- the time required to obtain regulatory approvals;
- our ability to establish marketing alliances and collaborative
agreements;
- the cost of our internal marketing activities; and
- the cost of filing, prosecuting and, if necessary, enforcing patent
claims.
We will likely have to raise substantial additional funds to
complete development of our products and to bring these products to market.
Issuance of additional equity securities by us, for these or other purposes,
could result in dilution to then existing stockholders. Additional financing
may not be available on acceptable terms, if at all. If adequate funds are
not available on acceptable terms, we may be required to delay, scale back or
eliminate one or more of our product development programs or obtain funds
through arrangements with collaborative partners or others that may require
us to relinquish rights to certain of our technologies or products that we
would not otherwise relinquish, which may have a detrimental effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NO ASSURANCE OF SUCCESSFUL CLINICAL TRIALS AND PRODUCT DEVELOPMENT.
Potential products based on our MAXAMINE, MAXDERM and MAXVAX technologies
will require extensive 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. Additional research
and development and preclinical work will be required before clinical trials
can be initiated with the MAXVAX technology, and may be required before
clinical trials of the MAXAMINE and MAXDERM technologies can be expanded.
We have not completed testing for efficacy or safety in humans on
any of our products. We may find, at any stage of the clinical testing
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. Further, our products may prove to have undesirable or unintended
side effects that may prevent or limit their commercial use. Accordingly, any
product development program undertaken by us may be curtailed, redirected or
eliminated at any time. There may be delays in our expected testing and
development
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schedules, and any such delays could have a material adverse effect on our
business, financial condition and results of operations.
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"). We are expending substantial time and financial
resources to conduct clinical trials, but there can be no assurance that the
results of such trials will support the submission of an NDA or PLA, or that
any such applications will be approved by the FDA or any comparable agencies
on a timely basis, or at all.
We cannot assure that we will have sufficient resources to complete
the required regulatory review process, or that we could overcome the
inability to obtain, or delays in obtaining, such approvals. The failure to
receive FDA approval for our products under development would preclude us
from marketing and selling our products in the United States. Therefore,
failure to receive such FDA approval would prevent us from generating product
revenues and would be extremely detrimental to our business, financial
condition and results of operations. 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 our proposed products, as well as
our 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 our products
for a considerable period of time, to impose costly procedures upon our
activities and to furnish a competitive advantage to larger companies that
compete with us. 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 us. 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. Our success
depends in large part on our ability to obtain, maintain and protect patents,
protect trade secrets and operate without infringing upon the proprietary
rights of others. 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. Patents may not issue from any of
our patent applications. Patent applications in the United States are
maintained in secrecy until a patent issues, and we cannot be certain that
others have not filed patent applications for technology covered by our
pending applications or that we were 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 held by Maxim. In addition, patents currently held by us or issued
to us in the future, or to licensors from whom we have licensed technology
rights, may be challenged, invalidated or circumvented and the rights granted
thereunder may not protect our technologies or provide commercial advantage
to us.
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 us. The scope and validity of such
18
<PAGE>
patents, the extent to which we 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, we rely 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 our research partners
and consultants are not given access to trade secrets and proprietary
know-how of ours until they have executed confidentiality agreements, these
agreements may be breached by the other party or may otherwise be of limited
effectiveness or enforceability.
The pharmaceutical industry has experienced extensive litigation
regarding patent and other intellectual property rights. Accordingly, we
could incur substantial costs in defending ourselves in suits that may be
brought against us claiming infringement of the patent rights of others or in
asserting our patent rights in a suit against another party. We 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 our patent applications or other
parties' patent applications. Adverse determinations in litigation or
interference proceedings could require us to seek licenses that may not be
available on commercially reasonable terms or subject us to significant
liabilities to third parties, and could therefore have a material adverse
effect on us. See "Business--Patents, Licenses and Proprietary Rights."
DEPENDENCE ON QUALIFIED PERSONNEL. Our future performance depends in
part upon the continued contributions of our senior management team and on
our ability to attract and retain qualified management and scientific
personnel. Competition for such personnel is intense, and there can be no
assurance that we 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 our business, financial
condition and results of operations. See "Business--Employees and
Consultants."
DEPENDENCE ON COLLABORATIVE PARTNERS. Our strategy for the clinical
testing, manufacturing, international marketing and certain research and
development activities related to our products requires arrangements with
numerous collaborators. These collaborators include universities, hospitals
and other clinical trial sites, clinical contract research organizations,
contract manufacturers, other corporate and university collaborators,
licensors, marketing partners, licensees, consultants and others. Our success
is dependent upon the success of these outside parties in performing their
responsibilities. Although we believe that these parties will have an
economic motivation to perform their contractual responsibilities, the amount
and timing of resources and skill applied to these activities by our
collaborators may not be within our control. In addition, some collaborators
may pursue alternative technologies as a means for developing treatments for
the diseases targeted by these collaborative programs. Furthermore, we may
not be able to negotiate acceptable collaborative arrangements required in
the future to implement our strategies, and such collaborative arrangements
may not be successful. See "Business--Product Development and Collaborative
Relationships."
NO MARKETING AND SALES CAPABILITIES; ANTICIPATED DEPENDENCE UPON
MARKETING COLLABORATIONS. Our current strategy is to market MAXAMINE directly
in the United States, but we currently do not possess pharmaceutical
marketing or sales capabilities. In order to market and sell MAXAMINE or
other products, we will need to develop a sales force and a marketing group
with relevant pharmaceutical experience, or make appropriate arrangements
with strategic partners. We cannot guarantee that we will be able to attract,
assimilate or retain highly qualified marketing and sales personnel, or
successfully employ them to commercialize MAXAMINE. The inability to develop
the required marketing and sales expertise could have a material adverse
effect on our business, financial condition and results of operations.
Our strategy for the commercialization and marketing of MAXAMINE in
international markets, and for MaxVax in all markets, is expected to rely upon
the establishment of marketing and other collaborative relationships with
pharmaceutical industry partners. We cannot guarantee that any such
relationships can be consummated on terms favorable to us, that such marketing
collaborators will apply adequate resources and skills
19
<PAGE>
to their responsibilities, or that marketing efforts undertaken by such
partners will be successful. See "Business--Marketing and Sales."
NO ASSURANCE OF MARKET ACCEPTANCE. MAXAMINE, and any of our other
products in development, may not achieve market acceptance even if approved
by the FDA and other regulatory agencies. The degree of market acceptance of
our products 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 our products and their
potential advantages over existing treatment methods, and reimbursement
policies of government and other third-party payors. We cannot guarantee that
physicians, patients, payors or the medical community in general will accept
and utilize any products that may be developed by us. See
"Business--Competition" and --Third-Party Reimbursement."
NO MANUFACTURING CAPABILITIES. We do not intend to acquire or
establish our own dedicated manufacturing facilities for MAXAMINE in the
foreseeable future, and have and expect to continue to contract with
established pharmaceutical manufacturers for the production of the product.
If we are unable to continue to contract for manufacturing capabilities on
acceptable terms, our ability to conduct clinical testing and to produce
commercial quantities of MAXAMINE and other products will be adversely
affected. Such manufacturing deficiencies could result in delays in
submissions for regulatory approval and in commercial product launches, which
in turn could materially impair our competitive position and the possibility
of achieving profitability. We cannot guarangee that we will be able to
maintain our existing contract manufacturing relationships, or acquire or
establish new, satisfactory third-party relationships to provide adequate
manufacturing capabilities. See "Business--Manufacturing."
COMPETITION. There are many companies, both publicly and privately
held, including well-known pharmaceutical companies, and 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 our competitors and potential competitors have substantially greater
capital, research and development capabilities and human resources than us
and represent significant competition. Many of these competitors also have
significantly greater experience than us in undertaking preclinical testing
and clinical trials of new pharmaceutical products and obtaining FDA and
other regulatory approvals. Additional mergers and acquisitions in the
pharmaceutical industry may result in even more resources being concentrated
with our competitors. If any of our products are approved for commercial
sale, we will also be competing with companies that have greater resources
and experience in the manufacturing, marketing and sales of pharmaceutical
products. Our competitors may succeed in developing products that are more
effective, less costly, or have better side effect profiles than any that may
be developed by us, and such competitors may also prove to be more successful
than us in manufacturing, marketing and sales. See "Business--Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY. We are 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. Research and
discoveries by others may render some or all of our proposed programs or
products noncompetitive or obsolete. Our business strategy is subject to the
risks inherent in the development of new products using new technologies and
approaches. Unforeseen problems may develop with these technologies or
applications, and we may not be able to successfully address technological
challenges we encounter in our research and development programs to the
extent required to develop commercially feasible products. See
"Business--Competition."
PRODUCT LIABILITY EXPOSURE AND INSURANCE. Our business exposes us to
potential product liability risks which are inherent in the clinical testing,
manufacturing and marketing of human therapeutic products. We currently
maintain product liability insurance coverage for our clinical trials, and
intend to expand our insurance coverage to include the sales of commercial
products if marketing approval is obtained for MAXAMINE or other products
under development. Such coverage may not be adequate now or in the future,
and adequate insurance may not be available in the future at an acceptable
cost, if at all. A product liability claim, even if we have insurance
coverage, could materially adversely affect our business or financial
condition.
20
<PAGE>
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE; PRICE
VOLATILITY OF THE COMMON STOCK. Our common stock currently trades on the
American Stock Exchange and on the Stockholm Stock Exchange. Historically,
our common stock has generally experienced relatively low daily trading
volumes in relation to the aggregate number of shares outstanding. Sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market prices for our common stock and our ability to
raise equity capital in the future.
Factors that may have a significant impact on the market price or
the liquidity of the common stock also include:
- Actual or potential clinical trial results relating to products
under development by us or our competitors;
- Delays in our testing and development schedules,;
- Events or announcements relating to our collaborative relationships
with others;
- Announcements of technological innovations or new products by us or
our competitors;
- Developments or disputes concerning patents or proprietary rights;
- Regulatory developments in both the United States and countries
outside of the United States;
- Economic and other external factors, as well as period-to-period
fluctuations in our financial results.
External factors may also adversely affect the market prices for our
common stock. The price and liquidity of our common stock may be
significantly affected by the overall trading activity and market factors on
the AMEX and SSE, and these factors may differ between the two 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. 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.
21
<PAGE>
ITEM 2. PROPERTIES
We currently lease approximately 35,000 square feet of laboratory
and office space in two facilities in San Diego, California. Approximately
5,000 square feet of laboratory space is subleased to a third party. We
believe that our existing facilities will be adequate to accommodate the
implementation of our current business strategies.
ITEM 3. LEGAL PROCEEDINGS
None
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, 1998.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
(a) The information required by this Item 5(a) is incorporated herein
by reference to the information set forth on page 34 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1998, filed as Exhibit 13.1
hereto.
In addition, in August and September 1998, the Company issued 10,769 and 16,666
shares of Common Stock, respectively, upon exercise of warrants at a price per
share of $3.00. The Company issued such shares in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933.
(b) During the fiscal year ended September 30, 1998, 392,000 of the
2,875,000 Redeemable Warrants issued in the Company's initial public offering
were exercised for 392,000 shares of Common Stock at an exercise price of $10.50
per share, for aggregate proceeds to the Company of $4,116,000.
Of the net offering proceeds to the Company of $22,336,000, including
$18,220,000 received at the time of the initial public offering and $4,116,000
received upon subsequent exercises of the Redeemable Warrants, through September
30, 1998, the following payments have been made:
<TABLE>
<CAPTION>
(A) (B)
<S> <C> <C>
Purchase and installation of
machinery and equipment 1,101,000
Repayment of indebtedness 289,000 795,000
Interest earning bonds and securities 1,017,000
R&D expenses 14,983,000
Business development expenses 977,000
G&A expenses 2,637,000
Intellectual property 537,000
</TABLE>
(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 set forth on page 35 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1998, 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 17-20 of our Annual Report to Stockholders for
the fiscal year ended, September 30, 1998, filed as Exhibit 13.1 hereto.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We invest our excess cash in interest-bearing investment-grade
securities that we hold for the duration of the term of the respective
instrument. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions
or transactions in any material fashion. Accordingly, we believe that, while
the investment-grade securities we hold are subject to changes in the
financial standing of the issuer of such securities, we are not subject to
any material risks arising from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices or other market changes that
affect market risk sensitive instruments.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is incorporated herein by
reference to the information set forth on pages 21-36 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1998, filed as Exhibit
13.1 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers is
incorporated herein by reference to the information under the captions
"Election of Directors" and "Other Information - Executive Officers" set
forth in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1998, for our Annual
Meeting of Stockholders to be held on February 19, 1999.
Information concerning compliance with Section 16(a) of the Exchange
Act is incorporated herein by reference to the information included under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" set forth
in our definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1998, for our Annual
Meeting of Stockholders to be held on February 19, 1999.
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 our definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1998, for our Annual
Meeting of Stockholders to be held on February 19, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in our definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after
September 30, 1998, for our Annual Meeting of Stockholders to be held on
February 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the information under the caption "Certain Transactions" in our
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after September 30, 1998, for our Annual Meeting of
Stockholders to be held on February 19, 1999.
25
<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, including the Notes
thereto, are incorporated herein by reference from pages 21-36
of our Annual Report to Stockholders for the fiscal year ended
September 30, 1998 filed as Exhibit 13.1 hereto:
Balance Sheets as of September 30, 1998 and 1997
Statements of Operations for the years ended September 30,
1998, 1997, and 1996, and from October 23, 1989 (date of
inception) to September 30, 1998
Statements of Stockholders' Equity from October 23, 1989 (date
of inception) through September 30, 1998
Statements of Cash Flows for the years ended September 30,
1998, 1997, and 1996, and from October 23, 1989 (date of
inception) to September 30, 1998
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).
10.15 Employment Agreement dated October 1, 1998 between the
Registrant and Kurt R. Gehlsen.
10.16 Employment Agreement dated October 1, 1998 between the
Registrant and Dale A. Sander.
10.17 Employment Agreement dated November 9, 1998 between
the Registrant and Larry G. Stambaugh.
10.23 Employment Agreement dated October 1, 1998 between
the Registrant and Geoffrey B. Altman.
(b) The Company filed no reports on Form 8-K during the fourth
quarter of the fiscal year ended September 30, 1998.
26
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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, 1998 between the Registrant and
Kurt R. Gehlsen.
10.16 Employment Agreement dated October 1, 1998 between the Registrant and
Dale A. Sander.
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
10.17 Employment Agreement dated November 9, 1998 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)
10.20 Lease dated January 13, 1998 between British Pacific Properties
Corporation, a California Corporation, as Landlord, and the Registrant.
(7)
10.21 Amendment to Loan and Security Agreement dated March 6, 1998 between
the Registrant and Silicon Valley Bank. (8)
10.22 Lease dated July 2, 1998 between British Pacific Properties Corporation,
a California Corporation, as Landlord, and the Registrant. (9)
10.23 Employment Agreement dated October 1, 1998 between the Registrant and Geoffrey B. Altman.
10.24 Amendment to Loan and Security Agreement dated September 1, 1998
between the Registrant and Silicon Valley Bank
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, 1998.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to page 30.
27 Financial Data Schedule.
99 Independent Auditors' Report.
</TABLE>
- -------
(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 and incorporated herein by
reference.
(4) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated December 31, 1996 and incorporated herein by
reference.
(5) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated March 31, 1997 and incorporated herein by
reference.
(6) Previously filed together with the Registrant's Registration Statement on
Form S-1 (File No. 333-35895) dated September 18, 1997 and incorporated
herein by reference.
28
<PAGE>
(7) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated December 31, 1997 and incorporated herein by
reference.
(8) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated March 31, 1998 and incorporated herein by
reference.
(9) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-4430) dated June 30, 1998 and incorporated herein by
reference.
29
<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 29, 1998
KNOW 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 29, 1998
- ---------------------- Director, President and
Larry G. Stambaugh Chief Executive Officer
(Principal Executive Officer)
/S/ DALE A. SANDER Vice President, Finance, and December 29, 1998
- ----------------------------------- Chief Financial Officer
Dale A. Sander (Principal Accounting Officer and
Principal Financial Officer)
/S/ COLIN B. BIER Director December 29, 1998
- -----------------------------------
Colin B. Bier, Ph.D.
/S/ PER-OLOF MARTENSSON Director December 29, 1998
- -----------------------------------
Per-Olof Martensson
/S/ F. DUWAINE TOWNSEN Director December 29, 1998
- -----------------------------------
F. Duwaine Townsen
</TABLE>
30
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of October 1, 1998, 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, 2000, 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 8899
University Center Lane, Suite 400 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 Ninety Thousand
Dollars ($190,000) 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 of up to 25% of
Base Salary, 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 lieu 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.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
4
<PAGE>
9.1.2 If to Executive:
KURT GEHLSEN, PH.D.
MAXIM PHARMACEUTICALS, INC.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
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.
5
<PAGE>
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.
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
EXECUTIVE:
/s/ KURT R. GEHLSEN
-------------------------------------
Kurt Gehlsen, Ph.D.
6
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of October 1, 1998, by and between Maxim Pharmaceuticals, Inc.,
(the "Company"), and Dale A. 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, 2000, 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 8899
University Center Lane, Suite 400 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 Seventy Thousand
Dollars, $170,000 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 of up to 20% of
base salary, based upon defined milestone, 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 lieu 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
3
<PAGE>
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.
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.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
4
<PAGE>
9.1.2 If to Executive:
DALE SANDER
MAXIM PHARMACEUTICALS, INC.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
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.
5
<PAGE>
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.
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
EXECUTIVE:
/s/DALE A. SANDER
-------------------------------------
Dale A. Sander
6
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 9th day of November, 1998 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,
1998 and shall continue in effect for a term ending on December 31, 2001
("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 $310,000 per year through December
31, 2001 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.
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
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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:
If to the Executive:
Larry G. Stambaugh
17947 Corazon Place
San Diego, California 92127
-4-
<PAGE>
If to the Company:
Maxim Pharmaceuticals, Inc.
8899 University Center Lane, Suite 400
San Diego, California 92122
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 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.
-5-
<PAGE>
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: 11/9/98
/s/ LARRY G. STAMBAUGH
- ---------------------------
Executive
-6-
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of December 28, 1998, by and between Maxim Pharmaceuticals,
Inc., (the "Company"), and Geoffrey B. Altman ("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, 2000, unless terminated earlier
pursuant to Section 5 below.
1.2 Executive shall be the Vice-President, Marketing & Sales 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, Marketing &
Sales of the Company, consistent with the Bylaws of the Company, as well as
its general employment policies and practices. 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 8899
University Center Lane, Suite 400 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 Forty-Five Thousand
Dollars, $145,000 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 of up to 20% of
the Executive's annualized base salary hereunder, 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 lieu 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.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
4
<PAGE>
9.1.2 If to Executive:
GEOFFREY B. ALTMAN
MAXIM PHARMACEUTICALS, INC.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
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.
5
<PAGE>
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.
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
EXECUTIVE:
/s/ GEOFFREY B. ALTMAN
-------------------------------------
Geoffrey B. Altman
6
<PAGE>
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: MAXIM PHARMACEUTICALS, INC.
DATE: SEPTEMBER 1, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Bank") and the borrower named above (the "Borrower"). The Parties
agree to amend the Loan and Security Agreement between them, dated March 15,
1997, as amended by that Amendment to Loan and Security Agreement (the "March
1998 Amendment") dated March 16, 1998, and as otherwise amended from time to
time (the "Loan Agreement"), as follows, effective as of the date hereof.
(Capitalized terms used but not defined in this Amendment, shall have the
meanings set forth in the Loan Agreement.)
1. NEW DEFINITIONS. Section 1.1 of the Loan Agreement is hereby
amended by replacing the definition of "Committed Second Term Line" with the
following:
"Committed Second Term Line" means a credit extension of up to
One Million Dollars ($1,000,000) made pursuant to Section 2.1.3
hereof, and as further limited pursuant to the terms and conditions
of Section 2.1.3 hereof.
2. AMENDED SECTION 2.1.3. The figure of "$125,000" set forth in Section
2.1.3(a) of the Loan Agreement regarding leasehold improvements, as added by the
March 1998 Amendment, is hereby amended to be "$250,000."
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Bank
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. FEE. Borrower shall pay to Bank a fee of $750 in connection
herewith, which shall be in addition to interest and to all other amounts
payable under the Loan Agreement.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Bank and the Borrower, and
the other written documents and agreements between Bank and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Bank and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed. This Agreement and
Consent may be executed in any number of counterparts, which when taken
together shall constitute one and the same agreement.
MAXIM PHARMACEUTICALS, INC. SILICON VALLEY BANK
BY /s/ DALE A. SANDER
------------------
TITLE: BY /s/ SUSAN BATCHEN
-----------------
BY Dale A. Sander TITLE Vice President
TITLE: Chief Financial Officer
-1-
<PAGE>
Exhibit 11.1
Maxim Pharmaceuticals, Inc.
Statement Regarding Computation of Loss Per share
<TABLE>
<CAPTION>
--------------------------------------------------
1996
--------------------------------------------------
Prior to
Effective Subsequent Total
Date of IPO To IPO For Year 1997 1998
----------- ---------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
(10/1/95-7/10/96) (7/11/96-9/30/96)
Weighted average shares outstanding
excluding common shares issued in
accordance with SAB 83 438,229 6,671,237 6,671,237 9,215,416
Number of common shares issued and stock
options and warrants granted in
accordance with SAB 83 2,668,374
Convertible preferred stock 102,866
---------- --------- --------- ---------- -----------
Total shares outstanding 3,209,469 6,671,237 4,074,961 6,671,237 9,215,416
---------- --------- --------- ---------- -----------
---------- --------- --------- ---------- -----------
Net income (loss) (2,378,298) 1,544,810 (833,488) (6,895,149) (21,854,572)
Net loss per share ($0.20) ($1.03) ($2.37)
</TABLE>
<PAGE>
EXHIBIT 13.1
[INSIDE FRONT COVER AND FIRST PAGE]
Maxim is developing advanced drugs and vaccines for cancer and infectious
diseases. Global awareness of our lead drug MAXAMINE-TM- continues to grow as
the immuno-modulator is now in three Phase III cancer trials in 12 countries
around the world.
1998 MILESTONES - MOVING TOWARD GLOBAL COMMERCIALIZATION
- - Commenced an international Phase III clinical trial of MAXAMINE THERAPY-TM-
for the treatment of advanced malignant melanoma in Europe, Australia and
Canada.
- - Commenced a Phase III clinical trial of MAXAMINE THERAPy in acute
myelogenous leukemia (AML) in the United States, Europe, Australia, Canada
and Israel.
- - Expanded the body of human data highlighting the potential benefits of
MAXAMINE THERAPY, including updated Phase II AML clinical results
suggesting substantial increases in leukemia-free remission times.
- - Completed our first three corporate collaborations with Chiron Corporation,
Amgen Inc., and BioNative AB.
- - Commenced a Phase II trial of MAXAMINE THERAPY in the treatment of advanced
renal cell carcinoma, and released pilot study data suggesting that
MAXAMINE has the potential to improve the treatment of renal cell patients.
- - Completed a Phase I trial of MAXAMINE THERAPY in the treatment of hepatitis
C patients, demonstrating safety and suggesting that MAXAMINE has the
potential to benefit the treatment of this wide-spread disease.
- - Completed a $35 million secondary offering, and expanded our shareholder
base with a listing in Europe on the Stockholm Stock Exchange (SSE) to
complement our United States AMEX listing.
- - Expanded our product pipeline by advancing the development of MAXDERM-TM-
for dermatological and other topical applications.
- - Developed prototype vaccines candidates with our MAXVAX-TM- technology, and
published two studies highlighting its feasibility as a carrier.
Note: MAXAMINE, MAXAMINE THERAPY, MAXDERM, MAXVAX and the Maxim logo are
trademarks of Maxim Pharmaceuticals, Inc.
1
<PAGE>
TO OUR SHAREHOLDERS, COLLABORATORS AND ASSOCIATES:
We began Fiscal 1998 with one Phase III cancer trial of MAXAMINE underway and
with the goal of rapidly advancing the global commercialization of this
important drug candidate. Now, in December 1998, clinicians in 12 countries
are treating patients with MAXAMINE in three Phase III cancer trials. During
the last year we also completed three corporate collaborations to assist with
our development efforts. We believe that these results and other
accomplishments during the year clearly achieved our goal of moving closer to
a potential global launch of MAXAMINE. It is apparent from our discussions
with doctors, nurses and patients that there is a vital need for this
prospective treatment for cancer and infectious diseases such as hepatitis C.
During 1998 we also expanded our product pipeline, including the advancement
of the MAXDERM technology for dermatological and other topical therapies. We
also moved the MAXVAX technology closer to the clinic as we work toward the
development of a new class of vaccines.
MAXAMINE PROGRESSES TOWARD GLOBAL LAUNCH
In February 1998 we commenced our third Phase III clinical trial of MAXAMINE,
initiating an international study in Acute Myelogenous Leukemia on three
continents. This trial complements the two ongoing Phase III trials in advanced
malignant melanoma initiated previously. Each of these trials are designed to
independently support regulatory submissions for approval to market MAXAMINE.
We believe that conducting three concurrent Phase III cancer trials of MAXAMINE
THERAPY around the world increases the prospects the commercial success of
MAXAMINE.
In November 1998 clinicians presented updated clinical results from our Phase
II study of MAXAMINE as a remission therapy in patients with AML at a large
international hematology meeting. In a disease where only 20-25% of the
patients would be expected to be alive after two years, more than half the
patients treated with MAXAMINE remain leukemia-free. The number of clinical
sites -- more than 100 -- that have approached Maxim and agreed to
participate in this trial has greatly exceeded our expectations. We believe
that this interest results from the combination of the promising data we have
seen in the Phase II trial, and the fact that this population of patients has
limited options for therapy today.
PROMISING RESULTS AND EXPANDED TESTING IN CANCER
Those of you who have followed Maxim know that MAXAMINE THERAPY has shown
great promise in extending survival and disease-free remission times in a
series of Phase II trials in patients with advanced-stage malignant melanoma
and AML. Although these indications represent the initial disease targets for
MAXAMINE, they are not the only potential uses for the drug.
In November 1998 we initiated a Phase II clinical trial of MAXAMINE THERAPY
in the treatment of patients with advanced renal cell carcinoma (RCC). A
small pilot study of MAXAMINE THERAPY in the treatment of RCC suggested that
patients treated with MAXAMINE survived longer than patients treated with the
standard of care. We are excited to further test MAXAMINE THERAPY in this
patient group as conventional therapies have not improved overall survival
for this patient group.
2
<PAGE>
A 1998 publication of research in the BRITISH JOURNAL OF CANCER suggests that
MAXAMINE potentiates the anti-tumor efficacy of interleukin-2 in treating
established prostate adenocarcinoma in rats. In the report, a team of
researchers at the Department of Oncology, University of Umea, Sweden, showed
that MAXAMINE may also enhance the benefit of radiotherapy of prostate cancer
tumors. Based on these results, new approaches to treating advanced prostate
cancer may be possible.
This new clinical and preclinical data adds to a growing body of research
that supports the potentially broad applicability of the immuno-modulating
attributes of MAXAMINE. We expect to continue the expansion of our clinical
development program into other cancers, most likely in collaboration with our
marketing partners and other corporate collaborators. We also expect to
advance this basic immuno-enhancing technology further into infectious
diseases, including an area of great need, hepatitis C.
HEPATITIS C
In June 1998 we released the results of our Phase I trial in hepatitis C
(HCV). The study indicated that the combination of MAXAMINE with
interferon-alpha (IFN-[ALPHA]) is safe in the treatment of HCV patients, and
that MAXAMINE may enhance the efficacy of IFN-[ALPHA] in patients who were
previously nonresponsive to IFN-[ALPHA] therapy. These results further support
the underlying mechanism of action of MAXAMINE as a potential immuno-modulator
for biotherapeutic treatment of viral infections.
These data encourage us to continue our clinical development of MAXAMINE for
use in the treatment of hepatitis C and possibly other viral infections.
With at least 60 million people infected with HCV world wide, and existing
therapies that are ineffective in the majority of patients, a critical need
exists for a tremendous number of patients. We expect to start a Phase II
trial in hepatitis C in 1999.
CORPORATE COLLABORATIONS AND PREPARATION FOR MARKET LAUNCH
As we move closer to the potential market launch of MAXAMINE, we are
undertaking the activities required to prepare for launch, including market
evaluations, reimbursement analysis and selection of potential marketing
partners. During 1999 we expect to complete and announce our selection of
marketing partners in key regions of the world. In the United States we are
preparing for the direct launch of the product ourselves.
Our corporate collaboration activities in 1998 highlight our belief that
MAXAMINE, a combination therapy, is complementary rather than competitive
with many drugs and may be key to successful biotherapy. During 1998 we
entered into clinical collaborations with Chiron Corporation, Amgen Inc. and
BioNative AB. Each of these companies have cytokines whose efficacy may be
enhanced by using them in combination with MAXAMINE. Under each of these
agreements, we received economic and other support for important clinical
trials without giving up any marketing or other future rights to MAXAMINE.
3
<PAGE>
EXPANDING OUR PRODUCT PIPELINE
During the year we acquired and developed technologies that we believe will
allow for the development of MAXDERM, a MAXAMINE-related technology for
dermatological and other topical treatments. A study in patients with herpes
labialis (cold sores) that showed that MAXDERM resolved lesions more
effectively than a placebo control. We believe that other potential
applications for MAXDERM include oral mucositis, shingles, burns and other
dermatological applications.
During 1988 we have also advanced the preclinical development of our MAXVAX
mucosal vaccine carrier/adjuvant technology. Two 1998 publications in
INFECTION AND IMMUNITY described a human study and a preclinical study, both
of which support the feasibility and potential benefits of using MAXVAX as a
carrier for a new class of needle-free vaccines.
* * * * *
In last year's report we highlighted our goal of building a company whose
products EXTEND LIFE...WITH QUALITY. During the past year we expanded the
breadth of our development efforts while moving closer to potential market
launch. During 1999 we hope to maintain and build upon this momentum and
prepare for the worldwide commercialization of MAXAMINE. We thank our
long-standing shareholders, collaborators, healthcare providers, patients and
associates for their continued loyalty, interest and support, and
enthusiastically look forward to 1999.
Sincerely,
Larry G. Stambaugh
Chairman and Chief Executive Officer
4
<PAGE>
MAXAMINE THERAPY: KEY TO BIOTHERAPY
THE RESULTS FROM AN EXTENSIVE SERIES OF CLINICAL TRIALS OF MAXAMINE THERAPY
IN CANCER PATIENTS SUGGEST A SUBSTANTIAL IMPROVEMENT IN PATIENT SURVIVAL AND
REMISSION TIMES WHILE MAINTAINING QUALITY OF LIFE DURING THERAPY.
Maxim's lead drug, the immuno-modulator MAXAMINE, is designed to offer a
safer treatment that extends life for seriously ill patients. MAXAMINE may
be key to biotherapy -- the use of the body's immune system to fight cancer
and infectious diseases.
The results of an extensive series of clinical trials of MAXAMINE in the
treatment of malignant melanoma and acute myelogenous leukemia suggest a more
than doubling of survival and remission times in patients treated with
MAXAMINE. Earlier-stage clinical studies have also suggested promise for the
use of MAXAMINE in treating renal cell carcinoma and hepatitis C. Because
MAXAMINE THERAPY capitalizes upon and enhances the patient's own immune
capabilities, it has the potential to be used in a wide range of cancers and
infectious or other diseases that can be recognized by the immune system.
MAXAMINE CURRENT CLINICAL TRIAL STATUS
[GRAPH]
The potential broad use of MAXAMINE is further expanded by the fact that the
drug may be complementary to many other biotherapeutic agents. MAXAMINE
THERAPY combines the administration of MAXAMINE, which PROTECTS critical
immune cells, with the administration of biotherapeutic agents designed to
STIMULATE these immune cells. Accordingly, MAXAMINE and these biotherapeutic
agents are not
5
<PAGE>
competitive but play complementary and synergistic roles in enhancing the immune
system as combination therapies.
There are a number of biotherapeutic agents currently available or under
development, but many have achieved only modest effectiveness in most cancers
or infectious diseases as single-agent therapies. The results of a series of
clinical trials conducted to date highlight the potential of combination
therapies using MAXAMINE to improve the efficacy of certain biotherapeutic
agents. Because MAXAMINE'S basic mechanism may benefit many complementary
drugs, we believe that continuing improvements in the field of biotherapy,
such as the development of sustained-release cytokines or tumor vaccines, may
result in greatly expanded opportunities for the use of MAXAMINE.
PATIENT QUALITY OF LIFE
THE ABILITY TO PROVIDE REMISSION THERAPY ON AN OUTPATIENT, AT-HOME BASIS IS
ESSENTIAL TO ALLOW THE PATIENTS TO MAINTAIN AS CLOSELY AS POSSIBLE THEIR
NORMAL LIFESTYLE.
In addition to extending survival, maintaining the quality of the patient's
life during treatment is an important objective of MAXAMINE THERAPY. Cancer
and chronic infectious diseases afflict millions of people worldwide, yet
available treatments can be ineffective, harsh and costly. MAXAMINE THERAPY
is designed to allow self-administered treatment by patients in their own
home, and is believed to reduce toxic side effects of cytokines and other
biotherapeutic agents.
In a Phase II study of MAXAMINE in the treatment of AML, 39 patients
administered more than 8,000 doses of MAXAMINE at home. The majority, 75%,
of the evaluable patients returned to work while taking MAXAMINE THERAPY.
"Quality of life is very important for AML patients during remission," said
Dr. Mats Brune, Department of Hematology, Sahlgrenska University Hospital,
Goteborg, Sweden, principal investigator in the Phase II study. "The ability
to provide remission therapy on an outpatient, at-home basis is essential to
allow the patients to maintain as closely as possible their normal lifestyle."
6
<PAGE>
HOW MAXAMINE THERAPY WORKS
MAXAMINE, an immuno-modulator, is based on a naturally occurring molecule.
Its usefulness in biotherapy was discovered by Maxim's collaborative
scientists at the University of Goteborg, Sweden. Two kinds of immune cells,
natural killer-cells (NK Cells) and cytotoxic T Cells, possess an ability to
kill and support the killing of cancer cells and virally infected cells.
Cytokines, such as interleukin-2 (IL-2) and interferon-alpha (IFN-[ALPHA]), are
potent stimulators of NK Cells and T Cells, yet they are often rendered
ineffective in the treatment of patients as the NK Cells and T Cells are
suppressed by phagocytes, another component of the body's immune system.
MAXAMINE is designed to modulate the immune system to protect NK Cells and T
Cells, making biotherapy more effective.
[Insert Most Current Mechanism Illustration - "Programmed Cell Death of NK Cells
Without Maxamine"]
THE RELEASE OF FREE RADICALS BY PHAGOCYTES RESULTS IN APOPTOSIS (PROGRAMMED CELL
DEATH) OF NK CELLS AND T CELLS, THEREBY DESTROYING THEIR KILLING (CYTOTOXIC)
CAPABILITY AND RENDERING THE IMMUNE RESPONSE AGAINST THE TUMOR OR VIRALLY
INFECTED CELL LARGELY INEFFECTIVE. THESE PHAGOCYTES, A CLASS OF WHITE BLOOD
CELLS, ARE FOUND IN ABUNDANT QUANTITIES AT THE SITE OF TUMORS OR VIRAL
INFECTIONS.
[Insert Most Current Mechanism Illustration - "Maxamine Immuno-Modulator
Technology"]
MAXAMINE, A NATURALLY OCCURRING MOLECULE, ATTACHES TO PHAGOCYTES AND PREVENTS
THE PRODUCTION AND RELEASE OF FREE RADICALS, THEREBY ALLOWING IMMUNE-ACTIVATING
AGENTS, SUCH AS IL-2 AND IFN-[ALPHA], TO MORE EFFECTIVELY ACTIVATE NK CELLS AND
T CELLS TO ENHANCE THE KILLING OF TUMOR CELLS OR VIRALLY INFECTED CELLS.
Because MAXAMINE has been shown to increase the effectiveness of cytokines,
lower doses of cytokines such as IL-2 and IFN-[ALPHA] can potentially be used in
MAXAMINE THERAPY without compromising therapeutic effectiveness, thereby
reducing serious side effects associated with the cytokines. Among the benefits
of MAXAMINE THERAPY is the utilization and enhancement of the body's immune
capabilities, thereby making the treatment potentially applicable to a broad
range of cancers and infectious diseases recognizable by the immune system.
7
<PAGE>
GROWING BODY OF CLINICAL TRIAL RESULTS FOR MAXAMINE THERAPY
For several years we have seen survival benefits in the series of Phase II
clinical trials we conducted with MAXAMINE in malignant melanoma and acute
myelogenous leukemia. One of our goals for 1998, however, was to further
expand the body of data supporting the potential benefit of MAXAMINE into
other diseases. During 1998 clinical results were released showing the
potential benefit of MAXAMINE in renal cell carcinoma and hepatitis C, as was
preclinical data suggesting the potential for use in prostate adenocarcinoma.
MALIGNANT MELANOMA
Malignant melanoma is one of most rapidly increasing cancers in the developed
world, with more than 300,000 cases in the United States, Europe and
Australia. In two completed Phase II trials using MAXAMINE THERAPY in the
treatment of advanced malignant melanoma, overall survival times more than
doubled compared to conventional therapies. Specifically, 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 six to 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.
[GRAPH]
Another very encouraging outcome of these two 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 patient
population. Remarkably, the median survival times of the seven patients with
liver metastases treated with MAXAMINE THERAPY in the first two trials
exceeded 19 months, more than four times longer than the predicted survival
time for these patients.
8
<PAGE>
ACUTE MYELOGENOUS LEUKEMIA
AML is the most common form of acute leukemia in adults, and prospects for
long-term survival are poor for the majority of patients. There are
approximately 20,000 new cases and 15,000 deaths caused by AML each year in
the United States, Europe and Australia.
Once diagnosed with AML, patients are typically treated with chemotherapy, and
the majority achieve complete remission ("CR"). Unfortunately 75-80% of
patients who achieve their first CR ("CR1") will relapse, and the median time in
remission before relapse is only 12 months with current treatments. Relapsed
patients are typically treated again with chemotherapy, and many of these
patients die during chemotherapy. Among those relapsed patients who do survive
treatment and achieve a second complete remission ("CR2"), these subsequent
remissions normally have a shorter duration than the prior CR (a median of only
6 months in the case of CR2 patients).
The objective of MAXAMINE THERAPY is to treat AML patients in remission with a
combination of MAXAMINE and low doses of IL-2 to prevent relapse and prolong
leukemia-free survival while maintaining the quality of life for the patients
during treatment. The intent is to augment the body's ability to scavenge and
attack residual leukemic cells.
In a Phase II study, patients treated in their first remission with MAXAMINE
THERAPY have experienced a substantial increase in leukemia-free survival,
highlighted by the following updated clinical results as of September 1, 1998:
- - 58% (15 of 26) of all CR1 patients treated with MAXAMINE remained in
leukemia-free remission. A prior study of AML patients suggest that only
20-25% of patients would be expected to be alive after two years.
- - 65% (13 of 20) of AML patients without concurrent disease or antecedent
illnesses treated with MAXAMINE remain in leukemia-free remission.
- - After a median of 24 months of follow up, the median time to relapse has
not been reached in this study as more than 50% of the MAXAMINE-treated CR1
patients remain leukemia-free. By contrast, under the normal course for
AML, the median time to relapse would be expected to be reached after only
12 months.
These results were achieved despite the fact that the patients treated with
MAXAMINE were a relatively older group of patients and more than half (15 of 26)
of the patients were categorized as high risk for relapse.
Patients treated in their second or subsequent remission ("CR2+") historically
have a poor prognosis, with only about 5% achieving long-term survival. The 13
CR2+ patients treated with MAXAMINE THERAPY in the Phase II study have
experienced a substantial increase in remission duration, and the median time to
relapse for the CR2+ patients was 21 months, more than three times the six-month
historic median.
9
<PAGE>
[GRAPH]
RENAL CELL CARCINOMA
There are currently approximately 150,000 cases of renal cell carcinoma
(RCC), cancer of the kidneys, in the United States and Europe combined.
Metastatic RCC often is resistant to radiation therapy and chemotherapy, and
the disease results in more than 20,000 deaths each year in the United States
and Europe. Market research conducted with oncologists suggests that RCC is a
logical application for MAXAMINE THERAPY. In addition, a pilot study of six
RCC patients was conducted at the Sahlgrenska Hospital in Goteborg. In the
small study, three patients who were treated with MAXAMINE and cytokines
(interferon-alpha and IL-2) achieved a mean survival of 29 months, while
another three patients who were treated with the cytokines alone achieved a
mean survival of only four months. A Phase II RCC trial was initiated in
late 1998.
HEPATITIS C
Hepatitis C ("HCV"), a viral infection, is estimated to afflict 4 million people
in the United States and at least 60 million people worldwide. It is a leading
cause of liver cirrhosis and liver cancer, and the primary reason for liver
transplantation. IFN-[ALPHA] is the primary treatment for HCV, but even with
recent advances in the use of IFN-[ALPHA] in combination with anti-viral drugs
or in sustained release formulations, the majority of patients do not
effectively respond to current therapy.
In June 1998 we reported results from a Phase I feasibility study in HCV
patients using MAXAMINE THERAPY. The study indicated that the combination of
MAXAMINE with IFN-[ALPHA] is safe in the treatment of HCV patients, and that
MAXAMINE may enhance the efficacy of IFN-[ALPHA] in patients who were previously
nonresponsive to IFN-[ALPHA] therapy. In the study, 10 patients who were
characterized as nonresponders to previous IFN-[ALPHA] treatment were put back
on treatment with the same dose of IFN-[ALPHA] PLUS MAXAMINE. Eight of the 10
patients had a decrease in liver enzyme (ALT) levels, and two patients achieved
a complete normalization of ALT. Patients treated with MAXAMINE plus IFN-
[ALPHA] also demonstrated statistically significant decreases of viral load and
ALT. Based on these results and other support for the potential benefit of
MAXAMINE in HCV, we plan to commence a Phase II trial in Hepatitis C in 1999.
10
<PAGE>
THREE PHASE III CLINICAL TRIALS ADVANCE MAXAMINE
TOWARD GLOBAL MARKET LAUNCH
THE PARTICIPATION OF MORE THAN 150 CLINICAL TRIAL SITES IN 12 COUNTRIES
HIGHLIGHTS THE INCREASING ACCEPTANCE OF THE POTENTIAL OF MAXAMINE.
Building on the success of the body of human data generated in the Phase II
clinical trials, Maxim has initiated an aggressive clinical development
program encompassing three concurrent Phase III clinical trials of MAXAMINE
THERAPY for the treatment of cancer. Each of these trials is designed to
independently support regulatory submissions for approval to market MAXAMINE.
Two Phase III malignant melanoma trials complement each other by addressing
separate clinical and marketing issues. The United States pivotal trial is
designed to demonstrate that MAXAMINE THERAPY using IL-2 is better at
extending patient survival than the administration of IL-2 alone. We have
achieved the original enrollment target for the trial and expect to cease
enrollment in early 1999. The second pivotal trial, centered in Europe,
Australia and Canada, 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.
A Phase III AML clinical trial is underway in the United States, Europe,
Australia, Canada and Israel. The trial is designed to demonstrate that
MAXAMINE THERAPY as a remission therapy can prevent relapse and prolong
leukemia-free remission time in AML patients compared to the current standard
of care, which is no therapy during remission.
The encouraging Phase II clinical trial data have facilitated 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 900
patients will be enrolled in these three trials combined. Maxim is hopeful
that these trials will lead to an international commercial launch of
MAXAMINE, and help define a new focus in patient care characterized by the
extension of patients' lives...with quality.
MAXAMINE THERAPY - PHASE III CLINICAL TRIALS
<TABLE>
<CAPTION>
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 2nd Half MAXAMINE IL - 2 12 mos. Survival, 300
1997 +IL-2 QOL & Tumor
Response
Malignant Melanoma 5 Countries 2nd Half MAXAMINE DTIC 12 mos. Survival, 240
(Europe, Australia 1997 +IL-2 & IFN-[ALPHA] QOL & Tumor
& Canada) Response
Acute Myelogenous 12 Countries 1st Half MAXAMINE SOC(d) 18/24 Leukemia-Free 400
Leukemia (United States, 1998 +IL-2 mos.(b) Survival
Europe, Australia, QOL
Canada & Israel)
</TABLE>
(a) Expected duration of trial after completion of patient enrollment.
(b) Up to 18 months for patients in CR2+ group, up to 24 months for patients in
CR1 group.
(c) QOL = quality of life.
(d) SOC = standard of care.
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<PAGE>
ACHIEVING THE FULL POTENTIAL OF MAXAMINE THERAPY -- ADDITIONAL TARGET
INDICATIONS
Our Phase III trials target advanced-stage malignant melanoma and AML. We
believe that these are only the first of a number of potential uses for the
drug.
In December 1998 we initiated a Phase II clinical trial of MAXAMINE THERAPY in
the treatment of patients with advanced renal cell carcinoma (RCC). The trial
is designed to evaluate MAXAMINE THERAPY, consisting in this trial of the
combination of MAXAMINE, the natural cytokine Interferon Alfanative-Registered
Trademark- and IL-2, in the treatment of late-stage RCC patients. Under the
trial design, approximately 40 patients are expected to be enrolled and treated
for a period of up to 9 months. Conventional therapies have not improved
overall survival for patients with advanced renal cell carcinoma.
The favorable data from the feasibility study in hepatitis C (HCV) encourages us
to continue our clinical development of MAXAMINE for use in the treatment of
hepatitis C and other possible viral infections. We expect to start a Phase II
trial in hepatitis C in 1999.
A 1998 publication of research in the BRITISH JOURNAL OF CANCER suggests that
MAXAMINE potentiates the anti-tumor efficacy of interleukin-2 (IL-2) in treating
established prostate adenocarcinoma in rats. In the report, a team of
researchers at the Department of Oncology, University of Umea, Sweden, showed
that MAXAMINE also may enhance the benefit of radiotherapy of prostate cancer
tumors. Based on these results, new approaches to treating advanced prostate
cancer may be possible, and we will assess the merits of a clinical trial in
this disease.
We expect to continue the expansion of our clinical development program into
other cancers and infectious diseases, most likely in collaboration with our
marketing partners and other corporate collaborators.
12
<PAGE>
CORPORATE COLLABORATIONS AND PREPARATION FOR GLOBAL MARKET LAUNCH
As we move closer to the potential market launch of MAXAMINE we are
undertaking the activities required to prepare for launch, including the
selection of corporate partners in key international markets. Our strategy
for the commercialization and global market launch of MAXAMINE has three
primary components:
DEVELOPMENT COLLABORATIONS
During 1998 we entered into clinical collaborations with Chiron Corporation,
Amgen Inc. and BioNative AB. Each of these companies have cytokines that
have the potential to benefit from use in combination with MAXAMINE, and
under each of these agreements we receive economic and other support for
important clinical trials without giving up any marketing or other future
rights to MAXAMINE. For example, Chiron is providing the IL-2 requirements
and other assistance related to Maxim's Phase III AML clinical trial. These
collaborations highlight our belief that MAXAMINE, a combination therapy, is
complementary rather than competitive with many existing and future drugs,
and may be the key to successful immunotherapy or biotherapy. We expect to
pursue additional collaborations to further the expanded use and development
of MAXAMINE.
DIRECT MARKETING IN THE UNITED STATES
The Company is preparing for the possibility of marketing MAXAMINE directly
in the United States. Our objective is to retain the full revenue stream
from sales in this important market, and we are building a core marketing
group experienced in planning and managing successful United States launches
of pharmaceutical products. We will defer the build-up of a major marketing
infrastructure until assured of the timing of regulatory approval for
MAXAMINE. As we move closer to the potential market launch of MAXAMINE, we
are undertaking the activities required to prepare for launch including
market evaluations, reimbursement analysis, and building awareness of the
drug among leading clinicians.
MARKETING PARTNERSHIPS
Outside of the United States we are actively evaluating and selecting
marketing partners for major geographic regions, including Europe and the
Pacific Rim. We believe that we have built significant value around MAXAMINE
through our clinical development activities over the past several years,
including the completion of multiple Phase II trials and the commencement of
three Phase III trials. By seeking marketing partners at this later stage of
development, we believe that we may have a better opportunity to maximize our
share of the revenue stream from the sales of MAXAMINE. Our goal is to
complete our selection of the first marketing partners for major regions of
the world during 1999.
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<PAGE>
EXPANDING OUR PRODUCT PIPELINE
MAXDERM - DERMATOLOGICAL AND TOPICAL THERAPY
MAXDERM was developed to allow for topical delivery of the active ingredient
in MAXAMINE. The novel technology underlying MAXDERM is designed to modulate
the patient's immune system and inflammatory response to treat certain
dermatological conditions and other topical applications. MAXDERM
encompasses certain acquired and internally developed technologies that
include three patents and a number of patent applications covering certain
material compositions and uses.
A total of more than 75 patients have been treated in randomized,
double-blinded, placebo-controlled pilot studies of MAXDERM. A pilot study
in patients with herpes labialis (cold sores) suggested that MAXDERM resolved
cold sores more effectively than a placebo control. Small pilot studies
were also conducted in patients with oral mucositis, canker sores, pressure
sores and shingles. No safety concerns were noted in any of the patients,
and in each of the studies suggested that MAXDERM promoted healing better
than the placebo control.
We believe that the MAXDERM technology gives us the opportunity to expand our
product pipeline into therapies for a number of key medical conditions for
which a topical delivery is preferred. There are unmet needs in the
treatment of herpes, oral mucositis, shingles and other dermatological
ailments for which topical treatment is appropriate, and our plan is to
evaluate MAXDERM in further clinical studies.
MAXVAX MUCOSAL VACCINE CARRIER
The Company's MAXVAX technology, currently in preclinical development, is
designed to facilitate a new class of needle-free vaccines for major
respiratory infections, sexually transmitted diseases and gastrointestinal
tract diseases and other infectious diseases. Most of today's vaccines are
administered by injection and stimulate a protective immune response in the
systemic immune system. However, it is the mucosal membranes lining the
nose, mouth, eyes, ears, lungs, intestinal and urogenital tracts where nearly
85 percent of infectious diseases enter the body. It is hoped that mucosal
vaccines, using the MAXVAX carrier, can provide immune protection at these
mucosal surfaces.
(Insert illustration from last year's annual report showing (i) cholera toxin,
(ii) CTB, and (iii) the MaxVax system.)
THE MAXVAX CARRIER/ADJUVANT IS BASED ON A RECOMBINANT FORM OF THE CHOLERA
TOXIN B-SUBUNIT (RCTB). 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. WE ARE 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.
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<PAGE>
Two studies published in INFECTION AND IMMUNITY in 1998 highlighted the
potential of MAXVAX. The first was a human vaccination study that
demonstrated mucosal antibody responses in female volunteers after nasal and
oral application of rCTB, the technology underlying MAXVAX. The results were
important as they confirmed in humans the results of earlier animal studies
in which rCTB has been shown to stimulate strong mucosal immune responses.
The results also support the potential effectiveness of oral and nasal
administration, the two most attractive routes for the delivery of mucosal
vaccines. Also published was a preclinical study that demonstrated the
induction of specific mucosal immunity within the female reproductive tract.
The study's vaccination regimen was a prototype for mucosal vaccination
against human sexually transmitted diseases.
Prototype MAXVAX-based vaccines are currently being tested in our
laboratories. Our objective is to align ourselves with corporate
collaborators possessing antigens for specific diseases that can be coupled
to the MAXVAX carrier, and to develop vaccine candidates in collaboration
with these partners.
15
<PAGE>
OUR GOAL: NOVEL APPROACHES TO PATIENT CARE
We value the quality of patients' lives. Too often the treatments for cancer
and some infectious diseases are as harsh as the illnesses themselves, forcing
patients to make a difficult choice of whether to continue their therapy. By
focusing on safety and well-being as well as effectiveness of therapy, we are
developing treatments designed to extend survival and maintain the patient's
quality of life.
Our lead drug MAXAMINE has shown substantial promise in Phase II trials and
is currently in three international Phase III trials for cancer patients. In
completed and ongoing Phase II trials, patients have lived longer without
debilitating side effects. We are pleased that healthcare providers in 12
countries throughout the world are currently treating their clinical patients
with MAXAMINE.
We also believe that our other product candidates and technologies comprising
our expanding pipeline have the potential to benefit patients with
significant unmet medical needs. We continue to believe that, by developing
a portfolio of therapies that may redefine the future of patient care, we are
strengthening Maxim's value for our shareholders.
We hope to continue to build upon our growing momentum and prepare for the
potential worldwide commercialization of MAXAMINE and our other product
candidates.
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<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. SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS
REGARDING CASH REQUIREMENTS AND YEAR 2000 ISSUES. SUCH STATEMENTS ARE ONLY
PREDICTIONS AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED OR PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO DIFFERENCES INCLUDE RISKS ASSOCIATED WITH
CLINICAL TRIALS AND PRODUCT DEVELOPMENT, REGULATORY APPROVAL AND GOVERNMENT
REGULATION OF THE COMPANY'S PRODUCTS, THE NEED FOR ADDITIONAL FUNDS AND THE
UNCERTAINTY OF ADDITIONAL FUNDING AND DEPENDENCE ON COLLABORATIVE PARTNERS.
THESE FACTORS AND OTHERS ARE MORE FULLY DESCRIBED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998.
OVERVIEW
During the periods encompassed by this Annual Report, Maxim Pharmaceuticals,
Inc. ("Maxim" or the "Company") has devoted substantially all of its
resources to its MAXAMINE(TM) and MAXVAX(TM) 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 those relating to ongoing and planned Phase III and
Phase II 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, 1998, 1997 AND 1996
RESEARCH REVENUE - Research revenue consisting of collaborative support
related to the Company's MAXAMINE clinical trials totaled $181,000 for the
year ended September 30, 1998. There were no such revenues earned in the
years ended September 30, 1997 or 1996.
RESEARCH AND DEVELOPMENT EXPENSES - For the year ended September 30, 1998,
research and development expenses were $20,147,000, an increase of
$14,793,000, or 276%, over the prior year. This increase was primarily
attributable to increased activity related to late-stage cancer clinical
trials of MAXAMINE, including clinical trial site and contract research
organization costs, hiring additional clinical and development personnel, and
other clinical costs. These clinical trials include a Phase III clinical
trial in malignant melanoma commenced in the United States in July 1997, an
international Phase III malignant melanoma clinical trial commenced in
November 1997, and an international Phase III clinical trial in acute
myelogenous leukemia commenced in February 1998. 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, primarily due to increased activity
in cancer clinical trials of MAXAMINE and an expansion of preclinical efforts
for the MAXVAX mucosal vaccine technology.
BUSINESS DEVELOPMENT AND MARKETING AND GENERAL AND ADMINISTRATIVE EXPENSES -
Business development and marketing expenses for the year ended September 30,
1998 were $1,313,000, an increase of $929,000, or 242%, over the same period of
the prior year. This increase was due to additional personnel and other
resources devoted to
17
<PAGE>
preparation for the potential market launch of MAXAMINE, including corporate
partnering efforts, market evaluations and third-party reimbursement
evaluations. For the year ended September 30, 1998, general and
administrative expenses were $2,660,000, an increase of $667,000, or 33%,
over the prior year. This increase was in large part due to the increased
personnel costs and general expenses associated with the Company's expanded
operations. Business development and marketing expenses for the year ended
September 30, 1997 were $384,000, an increase of $271,000, or 241%, over the
prior year. General and administrative expenses for the year ended September
30, 1997 totaled $1,993,000, an increase of $750,000, or 60%, over the prior
year. Both of these increases resulted from the expanded activities described
above.
OTHER INCOME (EXPENSE) - Investment income was $2,248,000 for the year ended
September 30, 1998, an increase of $1,321,000 over the prior year, primarily
resulting from income on the proceeds of the Company's follow-on public
offering completed in October 1997. Investment income for the year ended
September 30, 1997 totaled $927,000, an increase of $667,000 over the prior
year, as a result of a full year of income on the proceeds of the Company's
initial public offering completed in July 1996. Interest expense for the year
ended September 30, 1998 was consistent with that of the prior year and
totaled $89,000. 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 31, 1995. 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, 1998 totaled
$21,855,000, an increase of $14,959,000 over the prior year. The increase was
due to the expansion of research and development and general corporate
activities described above, partially offset by the current year increase in
investment income. Net loss for the year ended September 30, 1997 totaled
$6,895,000, an increase of $6,062,000 over the prior year. Net loss per share
of common stock for the year ended September 30, 1998 was $2.37, an increase
of $1.34 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, 1997 was $1.03, an increase of $.83 from the prior year, due to the
increase in net loss for the year offset by 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 these
activities. The Company has financed its operations primarily through the
sale of its equity securities, including an initial public offering in July
1996 and an international follow-on public offering in October 1997 which
provided net proceeds to the Company of approximately $18.2 million and $34.7
million, respectively.
As of September 30, 1998, the Company had cash, cash equivalents and
investments totaling approximately $35.8 million. For the years ended
September 30, 1998, 1997 and 1996, net cash used in the Company's operating
activities was approximately $14.8 million, $5.9 million and $2.7 million,
respectively. 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 approved for sale by government regulatory bodies.
Among the activities that are expected to result in an increase in cash
requirements are three Phase III cancer clinical trials of MAXAMINE currently
underway.
The Company's cash requirements may vary materially from those now planned
because of the results and scope of clinical trials and other research and
development activities, the time required to obtain regulatory approvals, the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to establish
marketing alliances and collaborative arrangements and the costs of the
Company's internal marketing 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
18
<PAGE>
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.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is related to computer software utilizing two digits
rather than four to define the appropriate year. As a result, any of the
Company's computer programs or any of the Company's suppliers or vendors that
have date sensitive software may incur system failures or generate incorrect
data if "00" is recognized as 1900 rather than 2000.
The Company has determined that the computer systems utilized internally in
its daily operations are Year 2000 compliant. The Company is in the process
of verifying whether its major suppliers, service providers and financial
institutions are Year 2000 compliant and expects to complete this review by
March 31, 1999. The total cost of this process is expected to be less than
$50,000. Although the Company has no material systems that interface directly
with third party systems, there can be no assurance that the systems and
networks of its key suppliers and service providers will not be affected by
the Year 2000 issues, which could have an adverse effect on the Company's
business, operating results and financial condition. In particular, the
Company has engaged several third parties to retain and maintain all of the
clinical, statistical and other information related to the Company's clinical
trials. These third parties have indicated that they are aggressively working
to identify and remediate any Year 2000 issues they may have, and that they
expect to have any necessary remediation completed by December 1999. However,
in the event these third parties' Year 2000 compliance efforts are
unsuccessful, data relating to the Company's clinical trials could be
destroyed or corrupted, which could have a material adverse effect on the
Company's business, operating results and financial condition. In an effort
to minimize the potential risks of the failure of such third parties' Year
2000 efforts, the Company intends to archive data, both in electronic and
paper formats, through December 1999, after which paper backup will be used.
The Company's archival records will be updated on a monthly basis
NEW ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board ("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 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
This statement, requiring only additional informational disclosures, is
effective for the Company's fiscal year ending September 30, 1999. 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 is also effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This statement,
requiring only additional informational disclosures, is effective for the
Company's fiscal year ending September 30, 1999. In February 1998 the FASB
issued SFAS No. 132, "EMPLOYER'S DISCLOSURES ABOUT PENSIONS AND OTHER POST
RETIREMENT BENEFITS." This statement specifies information to be disclosed by
employers for defined benefit plans or defined benefit post retirement plans.
This statement is effective for financial statement periods beginning after
December 15, 1997. As of September 30, 1998 the Company has no defined
benefit plans or defined benefit post retirement plans. In June 1998 the FASB
issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES." This statement addresses hedging activities relating to changes
in foreign exchange rates and other futures contracts. As of September 30,
1998 the Company has no investments in derivatives.
IMPACT OF INFLATION
19
<PAGE>
The impact of inflation on the operations of the Company for the years ended
September 30, 1998, 1997 and 1996 was not material.
20
<PAGE>
BALANCE SHEETS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
As of September 30
-------------------------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,217,429 $ 447,523
Short-term investments in marketable securities 21,031,568 9,389,690
Accrued interest and other current assets 2,491,308 576,836
------------------- -------------------
Total current assets 34,740,305 10,414,049
Investments in marketable securities 3,519,554 2,322,398
Patents and licenses, net 1,839,167 1,815,428
Property and equipment, net 1,693,402 718,988
Deposits and other assets 229,157 586,893
------------------- -------------------
Total assets $ 42,021,585 $ 15,857,756
------------------- -------------------
------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,014,831 $ 1,082,038
Accrued expenses 374,652 597,388
Note payable 176,784 102,161
Current portion of long-term debt 361,675 127,712
------------------- -------------------
Total current liabilities 9,927,942 1,909,299
Long-term debt, less current portion 977,213 555,229
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; 9,885,576 and
6,678,631 shares issued and outstanding at
September 30, 1998 and 1997, respectively. 9,886 6,679
Additional paid-in capital 73,807,327 34,269,514
Deficit accumulated during the development stage (42,686,624) (20,832,052)
Deferred compensation (14,159) (50,913)
------------------- -------------------
Total stockholders' equity 31,116,430 13,393,228
------------------- -------------------
Total liabilities and stockholders' equity $ 42,021,585 $ 15,857,756
------------------- -------------------
------------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<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,
1998 1997 1996 1998
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Research revenue $ 180,750 $ - $ - $ 3,126,751
Operating expenses:
Research and development 20,146,649 5,353,165 1,608,931 35,501,072
Business development
and marketing 1,313,019 383,667 112,454 1,926,109
General and administrative 2,659,930 1,992,629 1,242,743 12,010,943
----------------- ------------------ ------------------ ------------------
Total operating expenses 24,119,598 7,729,461 2,964,128 49,438,124
Other income (expense):
Investment income 2,247,577 927,050 259,625 3,462,357
Interest expense (89,101) (77,562) (197,028) (2,070,472)
Other expense (74,200) (15,176) (220,431) (191,164)
Gain on sale of subsidiary - - 2,288,474 2,288,474
----------------- ------------------ ------------------ ------------------
Total other income (expense) 2,084,276 834,312 2,130,640 3,489,195
----------------- ------------------ ------------------ ------------------
Loss from continuing operations (21,854,572) (6,895,149) (833,488) (42,822,178)
Discontinued operations:
Loss from operations of discontinued
diagnostic division - - - (347,608)
Gain on sale of diagnostic division - - - 483,162
----------------- ------------------ ------------------ ------------------
Net loss $ (21,854,572) $ (6,895,149) $ (833,488) $ (42,686,624)
----------------- ------------------ ------------------ ------------------
Net loss per share of common stock $ (2.37) $ (1.03) $ (0.20)
----------------- ------------------ ------------------
Weighted average shares outstanding 9,215,416 6,671,237 4,074,961
----------------- ------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Preferred Stock
------------------------- Common Stock
Shares Amount Shares Amount
--------------- ------------------------------ ------------------
<S> <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 -
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at December 31, 1992 - - 1,042 8,029
Net effect of reorganization and issuance of common
stock to account for reverse acquisition - - 181,371 (7,847)
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1993 - - 182,413 182
Issuance of common stock at $60 per share
for consulting and professional services - - 1,098 1
Issuance of Series A preferred stock
for cash at $3.00 per share 250,000 250 - -
Issuance of common stock to convert bridge debt
financing at prices from $52.50 to $75 per share - - 112,440 113
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1994 250,000 250 295,951 296
Issuance of common stock at $3.00 per share
upon conversion of debt - - 553,254 553
Issuance of common stock pursuant to anti-dilutive
provisions in previous bridge debt financing - - 1,137,343 1,137
Issuance of common stock at $3.00 per
share for subscription receivable - - 103,667 104
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1995 250,000 250 2,090,215 2,090
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit
-------------------------- -------------------------
<S> <C> <C>
Balance at October 23, 1989 (inception) $ - $ -
Issuance of common stock at $.001 - -
Net income - 44
-------------------------- -------------------------
Balance at December 31, 1989 - 44
Net income - 751
-------------------------- -------------------------
Balance at December 31, 1990 - 795
Net income - 272
-------------------------- -------------------------
Balance at December 31, 1991 - 1,067
Additional funding 1,259,249 -
Net loss - (2,445,184)
-------------------------- -------------------------
Balance at December 31, 1992 1,259,249 (2,444,117)
Net effect of reorganization and issuance of common
stock to account for reverse acquisition 53,002 (1,197,822)
Net loss - (4,238,731)
-------------------------- -------------------------
Balance at September 30, 1993 1,312,251 (7,880,670)
Issuance of common stock at $60 per share
for consulting and professional services 65,999 -
Issuance of Series A preferred stock
for cash at $3.00 per share 487,250 -
Issuance of common stock to convert bridge debt
financing at prices from $52.50 to $75 per share 5,933,894 -
Net loss - (2,432,623)
-------------------------- -------------------------
Balance at September 30, 1994 7,799,394 (10,313,293)
Issuance of common stock at $3.00 per share
upon conversion of debt 1,659,210 -
Issuance of common stock pursuant to anti-dilutive
provisions in previous bridge debt financing (1,137) -
Issuance of common stock at $3.00 per
share for subscription receivable 310,896 -
Net loss - (2,790,122)
-------------------------- -------------------------
Balance at September 30, 1995 9,768,363 (13,103,415)
<CAPTION>
Subscription
Receivable /
Deferred
Compensation Total
------------------- --------------------------
<S> <C> <C>
Balance at October 23, 1989 (inception) $ - $ -
Issuance of common stock at $.001 - 8,029
Net income - 44
------------------- --------------------------
Balance at December 31, 1989 - 8,073
Net income - 751
------------------- --------------------------
Balance at December 31, 1990 - 8,824
Net income - 272
------------------- --------------------------
Balance at December 31, 1991 - 9,096
Additional funding - 1,259,249
Net loss - (2,445,184)
------------------- --------------------------
Balance at December 31, 1992 - (1,176,839)
Net effect of reorganization and issuance of common
stock to account for reverse acquisition - (1,152,667)
Net loss - (4,238,731)
------------------- --------------------------
Balance at September 30, 1993 - (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)
------------------- --------------------------
Balance at September 30, 1994 - (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)
------------------- --------------------------
Balance at September 30, 1995 (311,000) (3,643,712)
</TABLE>
23
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Preferred Stock
------------------------- Common Stock
Shares Amount Shares Amount
--------------- ------------------------------ ------------------
<S> <C> <C> <C> <C>
Issuance of common stock at $3.00 per share in
exchange for repayment of note payable to bank - - 744,646 745
Receipt of subscription receivable - - - -
Issuance of common stock and warrants
at $3.75 per unit for cash - - 465,504 465
Issuance of common stock at $4.50 per share for cash - - 400,000 400
Exercise of common stock options - - 400 1
Issuance of common stock at $7.50 per share and
warrants at $.10 per warrant in initial public offering - - 2,875,000 2,875
Conversion of preferred stock to common stock (250,000) (250) 102,866 103
Options granted to employees - - - -
Amortization of deferred compensation - - - -
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1996 - - 6,678,631 6,679
Option granted to consultant - - - -
Amortization of deferred compensation - - - -
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1997 - - 6,678,631 6,679
Issuance of common stock at $15.25 per share
in follow-on offering - - 2,500,000 2,500
Exercise of common stock purchase warrants 392,000 392
Exercise of stock options and warrants - - 313,304 314
Option granted to consultants - - - -
Contribution to 401(k) plan - - 1,641 1
Amortization of deferred compensation - - - -
Net loss - - - -
--------------- --------- -------------------- ------------------
Balance at September 30, 1998 - $ - 9,885,576 $ 9,886
--------------- --------- -------------------- ------------------
--------------- --------- -------------------- ------------------
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit
-------------------------- -------------------------
<S> <C> <C>
Issuance of common stock at $3.00 per share in
exchange for repayment of note payable to bank 2,249,255 -
Receipt of subscription receivable - -
Issuance of common stock and warrants
at $3.75 per unit for cash 1,740,033 -
Issuance of common stock at $4.50 per share for cash 1,799,600 -
Exercise of common stock options 2,999 -
Issuance of common stock at $7.50 per share and
warrants at $.10 per warrant in initial public offering 18,217,215 -
Conversion of preferred stock to common stock 147 -
Options granted to employees 394,999 -
Amortization of deferred compensation - -
Net loss - (833,488)
-------------------------- -------------------------
Balance at September 30, 1996 34,172,611 (13,936,903)
Option granted to consultant 96,903 -
Amortization of deferred compensation - -
Net loss - (6,895,149)
-------------------------- -------------------------
Balance at September 30, 1997 34,269,514 (20,832,052)
Issuance of common stock at $15.25 per share
in follow-on offering 34,710,939 -
Exercise of common stock purchase warrants 4,115,608 -
Exercise of stock options and warrants 634,222
Option granted to consultants 50,438 -
Contribution to 401(k) plan 26,606 -
Amortization of deferred compensation - -
Net loss - (21,854,572)
-------------------------- -------------------------
Balance at September 30, 1998 $ 73,807,327 $ (42,686,624)
-------------------------- -------------------------
-------------------------- -------------------------
<CAPTION>
Subscription
Receivable /
Deferred
Compensation Total
------------------- --------------------------
<S> <C> <C>
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)
------------------- --------------------------
Balance at September 30, 1996 (118,739) 20,123,648
Option granted to consultant - 96,903
Amortization of deferred compensation 67,826 67,826
Net loss - (6,895,149)
------------------- --------------------------
Balance at September 30, 1997 (50,913) 13,393,228
Issuance of common stock at $15.25 per share
in follow-on offering - 34,713,439
Exercise of common stock purchase warrants - 4,116,000
Exercise of stock options and warrants 634,536
Option granted to consultants - 50,438
Contribution to 401(k) plan - 26,607
Amortization of deferred compensation 36,754 36,754
Net loss - (21,854,572)
------------------- --------------------------
Balance at September 30, 1998 $ (14,159) $ 31,116,430
------------------- --------------------------
------------------- --------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
STATEMENTS OF CASH FLOWS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Year Ended September 30 October 23, 1989
------------------------------------------------- (inception) to
1998 1997 1996 September 30, 1998
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (21,854,572) $ (6,895,149) $ (833,488) $ (42,686,624)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 407,525 262,784 128,719 1,451,453
Amortization of premium on investments 129,603 156,342 - 285,945
Stock options issued as compensation 87,193 164,729 276,260 528,182
Stock contributions to 401(k) plan 26,607 - - 26,607
Loss on disposal of property and equipment 74,681 4,435 128,248 207,364
Loss on write-off of patents 20,050 53,144 189,068 262,262
Gain on sale of subsidiary - - (2,288,474) (2,288,474)
Loss on write-off of receivable from related party - - 147,803 147,803
Other - - 27,032 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 (1,721,985) 132,449 (695,609) (2,298,821)
Other assets and deposits 357,736 (583,496) 14,214 (376,960)
Accounts payable 7,932,792 676,278 70,204 9,014,830
Accrued expenses (222,736) 118,765 150,629 395,862
--------------- --------------- ---------------- ----------------
Net cash used in operating activities (14,763,106) (5,909,719) (2,685,394) (31,963,199)
INVESTING ACTIVITIES:
Purchases of marketable securities (35,572,687) (10,835,442) (15,073,988) (61,482,117)
Maturities of marketable securities 22,604,050 14,041,000 - 36,645,050
Additions to patents and licenses (212,947) (652,053) (213,196) (2,707,787)
Purchases of property and equipment (1,098,586) (804,454) (23,524) (2,711,281)
Cash acquired in acquisition of business - - - 985,356
Proceeds from sale of diagnostic division - - - 496,555
--------------- --------------- ---------------- ----------------
Net cash provided (used) by investing activities (14,280,170) 1,749,051 (15,310,708) (28,774,224)
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
and warrants 39,463,974 - 24,324,588 65,121,840
Proceeds from issuance of notes payable and
long-term debt 596,840 814,380 81,675 5,987,643
Payments on notes payable and long-term debt (247,632) (276,278) (2,603,000) (3,294,415)
Proceeds from issuance of notes payable to
related parties - - - 4,982,169
Payments on notes payable to related parties - - (250,000) (1,329,885)
Net proceeds from issuance of preferred stock - - - 487,500
--------------- --------------- ---------------- ----------------
Net cash provided by financing activities 39,813,182 538,102 21,553,263 71,954,852
--------------- --------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 10,769,906 (3,622,566) 3,557,161 11,217,429
Cash and cash equivalents at beginning of period 447,523 4,070,089 512,928 -
--------------- --------------- ---------------- ----------------
Cash and cash equivalents at end of period $ 11,217,429 $ 447,523 $ 4,070,089 $ 11,217,429
--------------- --------------- ---------------- ----------------
--------------- --------------- ---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<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 provide the basis for certain drugs
and vaccines for 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 Reorganization reflects the equity activity of SVD.
Since the Reorganization, the Company has devoted substantially all of its
resources to its MAXAMINE(TM) and MAXVAX(TM) 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. 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.
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. All investments are classified and recorded as held to maturity.
Investments are carried at cost, which approximates market. The investments
mature at various dates through May, 2000.
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.
26
<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.
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 8), 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 - Effective October 1, 1997, the Company
adopted Financial Accounting Standards Board Statement No. 128, "Earnings per
Share" (SFAS 128). Net 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. Dilutive loss per share, calculated by
including the additional common shares issuable upon exercise of outstanding
options and warrants in the weighted average share calculation, is not
presented as these securities are antidilutive. 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.
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.
27
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30
1998 1997
---- ----
<S> <C> <C>
Laboratory equipment $548,433 $454,115
Office equipment and furniture 1,203,565 365,239
Leasehold improvements 263,097 25,963
--------- --------
2,015,095 845,317
Less accumulated depreciation and amortization (321,693) (126,329)
--------- ---------
$1,693,402 $718,988
--------- --------
--------- --------
</TABLE>
At September 30, 1998, property and equipment included equipment under capital
leases of $251,283 with related amortization of $2,094. For the year ended
September 30, 1997, property and equipment included equipment under capital
leases of $23,059 with related amortization of $1,601.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended September 30 From Inception
--------------------------------------- Through
1998 1997 1996 September 30,1998
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Noncash investing and financing activities:
Fixed assets acquired via capital lease $ 220,199 $ $ $ 220,199
Other asset acquired via note payable 192,487 192,487
Issuance of common stock
to convert debt - - - 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 84,260 83,167 341,126 1,560,551
</TABLE>
5. ACCRUED INTEREST AND OTHER CURRENT ASSETS
Accrued interest and other current assets consist of the following:
<TABLE>
<CAPTION>
September 30
1998 1997
---- ----
<S> <C> <C>
Prepaid clinical trial costs $1,590,800 $ -
Accrued interest 583,070 384,816
Prepaid insurance 214,761 128,707
Consultant fees 29,333 29,333
Other 73,344 33,980
---------- --------
$2,491,308 $ 576,836
---------- --------
---------- --------
</TABLE>
28
<PAGE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30
1998 1997
---- ----
<S> <C> <C>
Compensation $316,942 $185,848
Professional fees 17,985 167,985
Collaborator fees - 130,000
Other 39,725 113,555
------- --------
$374,652 $597,388
-------- --------
-------- --------
</TABLE>
7. 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 was permitted to borrow up to $900,000 during
1997 to fund qualified equipment purchases. At January 1, 1998, $718,620 in
outstanding advances under the line of credit converted to a term loan payable
in equal installments over 48 months, including interest at prime plus 0.5%. In
1998 the line of credit agreement was amended to permit the Company to borrow up
to an additional $1,000,000 during 1998. On January 1, 1999, any outstanding
advances under the amended line of credit will convert to a term loan payable in
48 equal installments, including interest at prime plus 0.25%. At September 30,
1998, advances under the line of credit totaled $539,184. The term loan and
borrowings under the amended line of credit are both secured by all assets of
the Company.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30
1998 1997
---- ----
<S> <C> <C>
Credit agreement with bank, secured
by all assets of the Company $ 1,138,034 $ 660,965
Capital lease agreement, secured by
certain equipment 200,854 21,976
--------- ----------
1,338,888 682,941
Less current portion (361,675) (127,712)
-------- --------
$ 977,213 $ 555,229
------- ---------
------- ---------
</TABLE>
8. STOCKHOLDERS' EQUITY
OCTOBER 1997 FOLLOW-ON PUBLIC OFFERING - During October 1997 the Company
completed a follow-on 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 $34,713,439 after underwriting discounts and other
issuance costs of $1,124,061.
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, 1998, warrants to purchase 2,847,181 shares of the
Company's common stock at a weighted average exercise price of $9.88 per share
are outstanding, of which warrants to purchase 2,760,515 shares are exercisable.
Included in the above total warrants outstanding are 2,483,000 Redeemable
Warrants issued in connection with the 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. The
Company may redeem the Redeemable Warrants at
29
<PAGE>
$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
and/or its designees had the right to purchase up to 250,000 shares of common
stock at a price of $9.00 per share and up to 250,000 shares of common stock
at a price of $12.50 per share. At September 30, 1998, warrants to purchase
13,601 shares at $9.00 per share and warrants to purchase 92,225 shares at
$12.50 per share are outstanding.
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 258,355
shares of the Company's common stock at an exercise price of $3.00 per share are
outstanding at September 30, 1998, of which warrants to purchase 171,689 shares
were exercisable.
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 1,300,000 shares of common
stock; options that are granted generally vest over four years and have a
maximum term of ten years.
The Company applies 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, 1998, 1997 and 1996
totaled $36,755, $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, 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
Granted 193,834 $14.375 - $20.25
Exercised (91,957) $3.75 - $10.125
Canceled (16,893) $3.75 - $18.3125
-------
Outstanding September 30, 1998 867,316
-------
-------
</TABLE>
30
<PAGE>
At September 30, 1998, options for 551,542 shares of common stock are
exercisable and the remaining 315,774 become exercisable at various dates
through August 20, 2002. The options expire at various dates through August 20,
2005. The following table summarizes information concerning outstanding and
exercisable options as of September 30, 1998.
<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>
$3.75 451,666 $ 3.75 4.59 years 415,332 $ 3.75
$7.00 - $9.99 197,066 $ 8.91 5.42 years 78,151 $ 8.94
$10.00 - $14.99 139,084 $14.15 6.10 years 29,059 $13.99
$15.00 - $20.25 79,500 $16.41 6.55 years 29,000 $15.74
</TABLE>
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, 1998, 1997 and 1996 would have been increased by $1,082,000
($0.12 per share), $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 1998, 1997 and 1996, respectively: risk-free
interest rates of 4.20%, 5.80% and 5.76%; dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of 64%,
73% and 73%; and an expected life of the option of five years. These
assumptions resulted in weighted-average fair values of $7.50, $5.00 and
$2.51 per share for stock options granted in the fiscal years ended September
30, 1998, 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. Company
contributions to the 401(k) plan for the fiscal years ended September 30, 1998,
1997 and 1996 were $38,194, $5,031 and $0, respectively.
9. INCOME TAXES
The Company has deferred income taxes which have been fully reserved as follows:
<TABLE>
<CAPTION>
September 30
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $19,262,000 $10,665,000
General business credit carryforwards 1,240,000 453,000
Other 88,000 149,000
--------- ----------
Total net deferred tax assets 20,590,000 11,267,000
Valuation allowance for deferred tax assets (20,590,000) (11,267,000)
----------- -----------
Net deferred tax assets $ - $ -
---------- ----------
---------- ----------
</TABLE>
At September 30, 1998, the Company has federal and California tax net operating
loss carryforwards of approximately $50,096,000 and $25,217,000, respectively.
The federal tax loss carryforwards will begin expiring
31
<PAGE>
in fiscal 1999 unless previously utilized. The California tax loss carryforwards
began expiring in the current fiscal year.
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.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - In July 1998 the Company entered into a five-year
operating lease commencing in September 1998 for approximately 25,400 square
feet of office facilities located in San Diego, California. The Company also
leases laboratory facilities under a five-year operating lease agreement that
commenced in December 1996. Future minimum lease commitments for all building
leases approximate the following for each of the five years ending September
30, 2003, and thereafter: 1999 - $921,000; 2000 - $984,000; 2001 -
$1,024,000; 2002 -$786,000; 2003 - $762,000; and $64,000 thereafter. Total
rent expense for the fiscal years ended September 30, 1998, 1997 and 1996 was
$519,376, $281,150 and $87,456, respectively.
In June 1998 the Company entered into a two-year sublease agreement, whereby the
Company sublet approximately 4,800 square feet of its laboratory facilities.
Future minimum lease income approximates the following for each of the two years
ending September 30, 2000: 1999 - $244,000; 2000 - $169,000. Total rent revenue
for the fiscal year ended September 30, 1998 was $32,899.
11. 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 an inventor 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.
32
<PAGE>
12. 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. Effective August 1998 the Company
terminated the above referenced consulting agreement. The Company made
payments totaling $30,000, $120,000 and $80,000 in connection with the
consulting agreement during the years ended September 30, 1998, 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.
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.
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.
13. QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results of operations for the years ended September 30,
1998 and 1997 were as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended September 30, 1998
-------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses $2,909,584 $3,493,278 $6,075,063 $7,668,724
Net loss (3,150,306) (3,768,447) (6,709,516) (8,226,303)
Net loss per share of common stock $(0.37) $(0.41) $(0.72) $(0.85)
<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 income (loss) (764,560) (1,596,618) (1,953,443) (2,580,528)
Net income (loss) per share of common stock $(0.11) $(0.24) $(0.29) $(0.39)
</TABLE>
33
<PAGE>
14. 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. On October 24,
1997, concurrent with the completion of a follow-on public offering, the
Company's common stock commenced trading on the SSE under the symbol "MAXM."
The following table shows the high and low sales price for the common stock
by quarter, as reported by the AMEX, for the periods indicated:
<TABLE>
<CAPTION>
Price Range
Period High Low
------ ---- ---
<S> <C> <C>
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
Fiscal Year Ending September 30, 1998
First Quarter $19-1/4 $12-1/4
Second Quarter 16-5/8 13-3/4
Third Quarter 23 14-1/8
Fourth Quarter 20-1/2 14
</TABLE>
On December 28, 1998 the last reported sales price of the Common Stock,
as reported by the AMEX, was $15.375 per share. As of such date, there were
approximately 5,000 holders of record of the Common Stock. The Company has
not paid cash dividends and has no intention to do so in the foreseeable
future. The Company has entered into a Loan and Security Agreement with
Silicon Valley Bank which restricts the payment of dividends by the Company.
34
<PAGE>
15. SELECTED FINANCIAL DATA (UNAUDITED)
Selected financial data in thousands except per share data.
<TABLE>
<CAPTION>
Year Ended September 30
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Research and development expenses $20,147 $5,353 $1,609 $985 $999
Net loss (21,855) (6,895) (833) (2,790) (2,433)
Net loss per share $(2.37) $(1.03) $(0.20) $(0.87) $(0.82)
Weighted average shares outstanding 9,215 6,671 4,075 3,209 2,961
</TABLE>
<TABLE>
<CAPTION>
As of September 30
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash, cash equivalents and investments $35,769 $12,160 $19,144 $513 $119
Total assets 42,022 15,858 21,255 2,454 1,878
Long-term debt, less current portion 977 555 - 247 640
Deficit accumulated during the development stage (42,687) (20,832) (13,937) (13,103) (10,313)
Stockholders' equity (deficit) 31,116 13,393 20,124 (3,644) (2,513)
</TABLE>
35
<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, 1998 and 1997, 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, 1998 and for the
period from inception (October 23, 1989) through September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998 and for the period from inception (October 23,
1989) through September 30, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
November 5, 1998
36
<PAGE>
CORPORATE INFORMATION
EXECUTIVE OFFICERS
Larry G. Stambaugh
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Kurt R. Gehlsen, Ph.D.
VICE PRESIDENT, DEVELOPMENT AND
CHIEF TECHNICAL OFFICER
Dale A. Sander
VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER
AND CORPORATE SECRETARY
Geoffrey B. Altman
VICE PRESIDENT,
MARKETING AND SALES
DIRECTORS
Larry G. Stambaugh
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Colin B. Bier, Ph.D.
MANAGING DIRECTOR
ABA BIORESEARCH
Per-Olof Martensson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KARO BIO AB
F. Duwaine Townsen
MANAGING PARTNER
VENTANA GROWTH FUNDS
CORPORATE HEADQUARTERS
8899 University Center Lane, Suite 400
San Diego, California 92122
tel. 619-453-4040
fax 619-453-5005
10-K AVAILABILITY
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended September 30, 1998, without exhibits,
will be made available to any stockholder upon written request to:
Maxim Pharmaceuticals, Inc.
8899 University Center Lane, Suite 400
San Diego, California 92122
STOCK LISTING
The shares of the Company's common stock is traded on the American Stock
Exchange under the symbol "MMP", and on the Stockholm Stock Exchange under the
symbol "MAXM". The Company's redeemable common stock purchase warrants are
traded on the American Stock Exchange under the symbol "MMP.WS".
TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
CORPORATE COUNSEL
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121
INDEPENDENT AUDITORS
KMPG Peat Marwick LLP
750 B Street, Suite 3000
San Diego, California 92101
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING
THE RESULTS OF PRODUCT DEVELOPMENT EFFORTS AND CLINICAL TRIALS, AND THE SCOPE
AND SUCCESS OF FUTURE OPERATIONS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND
OUR 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 OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998, 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 WE WILL NOT OBTAIN APPROVAL TO MARKET
OUR PRODUCTS, THE NEED FOR ADDITIONAL FINANCING, AND THE DEPENDENCE UPON
COLLABORATIVE PARTNERS.
37
<PAGE>
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, registration statement (No. 333-35669) on Form S-8,
registration statement (No. 333-47695) on Form S-8, registration statement
(No. 333-65011) on Form S-3, registration statement (No. 333-52403) on Form
S-3, and registration statement (No. 333-4854-LA) on Form S-3 of Maxim
Pharmaceuticals, Inc. of our report dated November 5, 1998, relating to the
consolidated balance sheets of Maxim Pharmaceuticals, Inc. (a development
stage company) of our report dated November 5, 1998, relating to the balance
sheets of Maxim Pharmaceuticals, Inc. as of September 30, 1998 and 1997, and
the related statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended September 30, 1998, and
from the period from inception (October 23, 1989) through September 30, 1998,
which report appears in the September 30, 1998 annual report on Form 10-K of
Maxim Pharmaceuticals, Inc.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
December 28, 1998
<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, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 11,217,429
<SECURITIES> 21,031,568
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,740,305
<PP&E> 2,015,095
<DEPRECIATION> (321,693)
<TOTAL-ASSETS> 42,021,585
<CURRENT-LIABILITIES> 9,927,942
<BONDS> 977,213
0
0
<COMMON> 9,886
<OTHER-SE> 31,106,544
<TOTAL-LIABILITY-AND-EQUITY> 42,021,585
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,146,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,101
<INCOME-PRETAX> (21,854,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,854,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,854,572)
<EPS-PRIMARY> 2.37
<EPS-DILUTED> 2.37
</TABLE>
<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, 1998 and 1997, 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, 1998
and for the period from inception (October 23, 1989) through September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 and for the period from inception
(October 23, 1989) through September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
November 5, 1998
