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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, 1999 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
(858) 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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.001 Par Value American Stock Exchange
Redeemable Common Stock Purchase Warrants American Stock Exchange
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. [ ]
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 $221,534,611 on December 23, 1999, when the
closing price of such stock, as reported in the American Stock Exchange, was
$17.6875.
The number of outstanding shares of the registrant's Common Stock,
$.001 par value, as of December 23, 1999 was 12,524,925.
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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, 1999, 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 25, 2000 to be filed with the
Securities and Exchange Commission within 120 days after September 30,
1999, are incorporated into Part III hereof.
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THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS ARE CHARACTERIZED BY
FUTURE OR CONDITIONAL VERBS AND INCLUDE STATEMENTS REGARDING THE RESULTS OF
PRODUCT DEVELOPMENT EFFORTS, THE RESULTS OF CLINICAL TRIALS, THE APPROVAL OF
APPLICATIONS FOR MARKETING APPROVAL OF PHARMACEUTICAL PRODUCTS, 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
THIS FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1999, 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 WE WILL NOT OBTAIN APPROVAL TO MARKET OUR PRODUCTS, THE
NEED FOR ADDITIONAL FINANCING, AND THE DEPENDENCE UPON COLLABORATIVE
PARTNERS. WE DO NOT ASSUME ANY OBLIGATION TO UPDATE FORWARD-LOOKING
STATEMENTS AS CIRCUMSTANCES CHANGE
PART 1
ITEM 1. BUSINESS
Maxim Pharmaceuticals, Inc. is referred to throughout this report as
"Maxim", the "Company", "we" or "us".
OVERVIEW
We are developing a new generation of drugs, therapies and vaccines for
cancer, infectious diseases and topical disorders.
Our lead drug candidate, MAXAMINE -Registered Trademark-, is currently
being tested in three Phase 3 cancer clinical trials in 12 countries around the
world. A Phase 3 trial is a large-scale test designed to be the final human
study demonstrating the safety and efficacy of a drug and supporting an
application to the U.S. Food and Drug Administration or international regulatory
agencies for marketing approval. The initial market launch of MAXAMINE is
planned for early 2001 in the U.S. and late 2001 in certain countries outside
the U.S, subject to receipt of requisite regulatory approvals.
More than 800 patients have been treated in our completed and ongoing
clinical trials. A series of Phase 2 clinical trials was conducted in which
patients with malignant melanoma, the most deadly form of skin cancer, and acute
myelogenous leukemia, the most common acute adult leukemia, were treated with
MAXAMINE. A Phase 2 trial is an intermediate test designed to show preliminary
evidence of efficacy of the drug being tested. These studies have shown a more
than doubling of survival and remission times for patients treated with MAXAMINE
as well as the ability to maintain patient quality of life during treatment with
the drug. Earlier-stage clinical studies have also suggested promise in renal
cell carcinoma, a cancer of the kidneys, and multiple myeloma, a cancer of the
bone marrow.
In November 1999 we announced preliminary 12-week results from a Phase
2 study of MAXAMINE in combination with interferon in the treatment of
previously untreated hepatitis C patients. Hepatitis C is a viral infection
targeting the liver, and the study is designed to evaluate the safety and
activity of four different dose regimens of MAXAMINE in combination with the
standard dose of interferon, an agent currently approved for treatment of
hepatitis C. After 12 weeks of therapy, the combination of MAXAMINE and
interferon achieved a complete biochemical and viral response, the accepted
endpoints for measuring effectiveness of treatment, in 70 percent of all
patients compared to the 20 to 30 percent response that is commonly observed in
patients with similar profiles treated with interferon alone.
A second product platform under development is MAXDERM-TM-, a
MAXAMINE-related series of drug candidates for the treatment of certain topical
disorders. Randomized, blinded, placebo-controlled trials have been conducted in
more than 75 patients. Studies in patients with oral mucositis, a serious side
effect of chemotherapy
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and radiation treatment of cancer patients, and in herpes labialis (cold sores)
suggested that topical gels based upon the MAXDERM technology resolved lesions
more effectively than a placebo control. Other clinical data suggests that
similar gels may be beneficial in the treatment of bed sores, shingles, burns,
eye infections and other related conditions. Our third technology platform,
MAXVAX-TM-, is currently in preclinical development and is designed to
facilitate a new class of needle-free mucosal vaccines for several infectious
diseases including respiratory infections, sexually transmitted diseases, and
gastrointestinal tract diseases.
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 1,220,000 new cases and approximately 560,000 deaths will be
reported for invasive cancers in the United States in 1999. 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 1999 for Initial Target Markets*
<TABLE>
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ANNUAL
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NEW CASES DEATHS
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<S> <C> <C>
Malignant Melanoma....................................................... 88,000 15,000
Acute Myelogenous Leukemia............................................... 20,000 15,000
Renal Cell Carcinoma..................................................... 60,000 24,000
All Invasive Cancers..................................................... 2,440,000 1,120,000
</TABLE>
*These estimates are based upon the American Cancer Society's 1999
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 immunotherapy. Although these techniques
have achieved success for certain cancers, particularly when detected in the
early stages, each has drawbacks which may significantly limit their success in
treating certain types and stages of cancer. For example, cancer may recur even
after repeated attempts at surgical removal of tumors or after other treatment.
Surgery may be successful in removing visible tumors but may leave smaller
undetectible nests of cancer cells in the patient which continue to proliferate.
Radiation and 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
treatments 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. Many existing therapies have been
approved on the basis that they shrink or limit the growth of tumors for a short
period of time, but they have failed to demonstrate that they provide a survival
benefit to patients. Recent communications we have seen from various regulatory
agencies and other groups associated with the regulatory approval process
support our belief that in the future increased patient survival will be the
most relevant measure of a drug's effectiveness. In addition, we believe that
new cancer therapies will be expected to maintain the patients' quality of life
during treatment.
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HEPATITIS C MARKET
Hepatitis C is more easily transmitted than HIV and is now the leading
blood-borne infection in the United States. The U.S. Centers for Disease
Control and Prevention estimates that over four million Americans are infected
with the hepatitis C virus. The World Health Organization and other sources
estimate that at least 200 million people are infected worldwide. Hepatitis is
a disease characterized by inflammation of the liver and, in many cases,
permanent cirrhosis (scarring) of the liver tissues. The cycle of disease from
infection to significant liver damage can take 20 years or more. Some experts
estimate that without substantial improvements in treatment, deaths from
hepatitis C will surpass those from HIV. 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.
IMMUNOTHERAPY FOR CANCER AND INFECTIOUS DISEASES
In recent years, significant research has focused on mechanisms to
enhance the immune system's ability to combat cancer and infectious diseases, a
treatment approach known as immunotherapy. Much of the research in the
immunotherapy area has involved 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. Diseases where
cytokines have been tested include, among others, advanced malignant melanoma,
renal cell carcinoma, hepatitis C and acute myelogenous leukemia. IL-2 and
IFN-(alpha) are potent stimulators of Natural Killer Cells (NK Cells) and T
Cells, white blood cells with anti-tumor and anti-viral capabilities. However,
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
hepatitis C patients do not effectively respond long term to existing therapy.
MAXAMINE TECHNOLOGY
We believe that MAXAMINE is a breakthrough technology that has the
potential to greatly improves immunotherapy - the use of the immune system to
fight cancer and viral infections. In many patients with cancer and chronic
infectious diseases, the capacity of the patient's immune system to detect and
destroy tumor cells or virally infected cells is compromised. MAXAMINE THERAPY
combines the administration of MAXAMINE, an immuno-enhancer that protects
critical immune cells, with the administration of certain agents that stimulate
these immune cells (these agents include cytokines such as IL-2 and
IFN-(alpha)). This combination of actions is designed to allow MAXAMINE THERAPY
to improve the immune system's ability to identify, disable and destroy
malignant or infected cells. MAXAMINE is based on a naturally occurring molecule
and its usefulness in immunotherapy was first 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, and much of the current practice of immunotherapy is based on the fact
that IL-2 and IFN-(alpha) are potent stimulators of NK Cells and T cells.
Maxim's researchers have shown, however, that NK Cells and T Cells are
suppressed by phagocytic cells, another component of the body's immune system.
Phagocytes are a class of white blood cells, which include monocytes,
macrophages and neutrophils, found in abundant quantities in and around tumors
and areas of infection. The release of free 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 virus largely ineffective.
MAXAMINE is designed to modulate the immune system to protect NK Cells
and T Cells, allowing immunotherapy to be more effective. When histamine, a
natural molecule present in the body, or other molecules in the class known as
histamine type-2 (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-stimulating agents, such as IL-2 and IFN-a, to more effectively activate
NK Cells and T Cells, thus enhancing the killing of tumor cells or virally
infected cells.
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We have formulated MAXAMINE so that it may be delivered to patients
through a subcutaneous injection. Among the extensive body of proprietary
protection surrounding our MAXAMINE technology are United States and
international patents and patent applications covering not only MAXAMINE, or
histamine (upon which MAXAMINE is based), but the use of any as H2 receptor
agonist in the treatment of cancer and infectious diseases in Maxim's
combination therapies, as well as patent applications covering the method of
producing MAXAMINE, its mechanism of action, and the use of H2 receptor agonists
in other medical applications. See "Patents, Licenses and Proprietary Rights."
In summary, MAXAMINE increases the effectiveness of basic immune
functions and may be used in combination with, and improve the effectiveness of,
many cytokines and other immunotherapeutic agents. Because MAXAMINE impacts
basic immune functions, it has the potential to be used in a broad range of
cancers and infectious diseases that can be recognized by the immune system.
This potential broad applicability is highlighted by the favorable results
obtained to date in the treatment of patients with malignant melanoma, acute
myelogenous leukemia, renal cell carcinoma and hepatitis C. In addition, 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 and permitting treatment at home.
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 2 clinical trials and other data have
provided evidence of substantially improved therapeutic
efficacy (extended survival and remission intervals) over
approved therapies or standards of care.
- MAINTAINING QUALITY OF LIFE. Phase 2 clinical trials and other
data have indicated that MAXAMINE THERAPY is safe and 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 outpatient
therapy.
- OUTPATIENT ADMINISTRATION. MAXAMINE can be safely administered
on an outpatient basis, subcutaneously, in contrast to the
in-hospital administration required for many other therapies.
- COST EFFECTIVE. 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
We have established an extensive clinical trial base (nine Phase II
trials and three Phase III trials completed or currently underway) staged so
that if these trials are successful, additional product approvals and launches
may follow in the periods subsequent to the initial launch in melanoma.
The table summarizes our current and completed clinical trial
activities for each disease we currently target or may target in the future. We
can give no assurance 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 equivalent applications in Europe and other
territories.
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MAXAMINE THERAPY CLINICAL TRIAL STATUS
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Indication Phase Status Location
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Advanced Malignant Melanoma Phase 3 trial Ongoing, patient United States
enrollment
completed
Advanced Malignant Melanoma Phase 3 trial Ongoing Europe, Australia, Canada and
Israel
Acute Myelogenous Leukemia Phase 3 trial Ongoing United States, Europe,
Australia, Canada and Israel
Renal Cell Carcinoma Phase 2 trial #1 Ongoing Europe
Renal Cell Carcinoma Phase 2 trial #2 Ongoing Europe
Hepatitis C Phase 2 trial Ongoing Europe and Israel
Prostate Adenocarcinoma Preclinical research Completed Europe
</TABLE>
ADVANCED MALIGNANT MELANOMA
Malignant melanoma is the most serious form of skin cancer, and it is
one of the most rapidly increasing cancers in the world. There are more than
300,000 cases of melanoma in the United States, Europe and Australia. Our
initial Phase 2 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-a in five-day cycles. Eight of the
patients were also given MAXAMINE THERAPY, which consisted of MAXAMINE
injections twice daily in combination with IL-2 and IFN-(alpha).
The results of the initial Phase 2 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. Depending upon the
characteristics of the patient group being studied, the survival results of
advanced-stage cancer trials are typically measured by either mean or median
survival. Mean survival represents the average duration of survival for the
group. Median survival represents the point in time at which 50% of the patients
are still surviving. In patients receiving MAXAMINE THERAPY in the initial
trial, there was a statistically significant improvement in overall survival (p
less than 0.03). The MAXAMINE THERAPY patients had a mean survival of 13.3
months, 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 immunotherapy 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, low-dose
malignant melanoma study, 11 patients had a median survival time of 15.5 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 patients were treated at home on an out-patient basis.
A third study in malignant melanoma was conducted in Sweden and
consisted primarily of advanced-stage patients with metastases of their cancer
to the liver. In the three malignant melanoma trials
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combined a total of 16 patients had liver metastases, and the progress of these
patients were subject to additional evaluation due to the historically poor
prognosis for this patient group. The 16 patients treated with MAXAMINE THERAPY
had a substantially improved survival outcome (a mean of 14 months survival as a
group) compared to the reported survival time of four months or less for these
patients.
Our multi-center Phase 3 clinical trial of MAXAMINE THERAPY in the
United States for the treatment of advanced malignant melanoma, commenced in
1997, is nearing completion. 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 the same dose of IL-2
alone. The primary endpoint of the study is overall patient survival and
survival of patients with liver metastases, and the secondary endpoints include
quality of life, tumor response rate, duration of response and quality of life.
More than 50 clinical sites in the United States participated in the study, and
enrollment was completed in February 1999. In March 1999, a Data Safety
Monitoring Board performed an interim analysis of data from the U.S. study and
concluded that there were no safety concerns with the trial and that the study
should continue under its approved protocol.
Recently, clinicians from the lead enrolling site submitted an abstract
describing preliminary survival data from the 40 patients enrolled at their site
to an upcoming cancer conference. The preliminary single-center results
demonstrated a significant difference in overall survival for patients treated
with MAXAMINE. We expect to complete this trial in the first half of the year
2000 and expect to file a New Drug Application with the FDA in mid 2000.
We commenced a second international Phase 3 trial of MAXAMINE THERAPY
for the treatment of advanced malignant melanoma in November 1997 based in
Europe, Australia, Canada and Israel. 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, particularly in Europe and Australia. The endpoints of this study are
the same as the U.S. study described above, and this international study is
designed to include approximately 200 patients.
The two Phase 3 malignant melanoma trials complement each other by
addressing separate clinical and marketing issues:
- - the U.S. Phase 3 trial is designed to seek regulatory approval in the U.S.,
Europe, Australia and other markets by demonstrating that the combination
of MAXAMINE and IL-2 is better at extending patient survival than the
administration of IL-2 alone;
- - the European trial is to broaden the exposure of the drug outside the U.S.
and to seed the international markets for our expected launch and to
provide a comparison of immunotherapy with chemotherapy.
ACUTE MYELOGENOUS LEUKEMIA
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. 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 complete remission will relapse, and the median time in remission before
relapse is only 12 months with current treatments. The prospects for these
relapsed patients is poor, and less than 5% survive long term.
We conducted a Phase 2 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 patients during treatment. MAXAMINE
THERAPY is designed to augment the body's ability to scavenge, attack and
eliminate residual leukemic cells. There are currently no effective remission
therapies for AML patients.
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In the Phase 2 study, 26 patients in their first complete remission
were treated with MAXAMINE THERAPY and experienced a substantial increase in
leukemia-free survival. The patients treated with MAXAMINE THERAPY had achieved
a median time to relapse through the last date of evaluation in December 1999 of
28 months compared to 12 months under the current standard of care (the median
time to relapse of the MAXAMINE patients has the potential to increase as
leukemia-free patients are still under evaluation). 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 with the poorest prognosis for long-term survival.
Also treated in the Phase 2 study were 13 patients who were in their
second or subsequent complete remission at the time of enrollment (these
patients had relapsed during their first remission and had subsequently
undergone a second round of chemotherapy). Relapsed patients are typically
treated with chemotherapy, and many of these patients die during treatment.
Among those relapsed patients who do survive treatment and achieve a second
complete remission, these subsequent remissions normally have a shorter duration
than the prior complete remission (a median of only six months in the case of
patients in their second complete remission) and prognosis for long-term
survival is poor (less than 5%). The 13 patients treated with MAXAMINE THERAPY
in the Phase 2 study experienced a substantial increase in remission duration,
and the median time to relapse for the CR2+ patients was 16 months, more than
double the six-month historic median.
Also notable in the study was the fact that the patients safely
self-administered more than 8,000 doses of MAXAMINE at home. No unexpected
side effects from the drug have been identified during the study, and 75% of
the evaluable patients returned to work while taking MAXAMINE THERAPY.
In early 1998, we commenced a Phase 3 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 approximately 300 patients.
RENAL CELL CARCINOMA
There are 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 24,000 deaths each year in the United States and Europe. In
a survey, more than 80% of oncologists indicated that they would use MAXAMINE in
RCC upon approval for malignant melanoma.
A pilot study of six RCC patients was conducted in Sweden to evaluate
the safety and feasibility of MAXAMINE THERAPY in this patient group. In this
small study, three patients were treated with MAXAMINE and cytokines (IFN-a 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.
We have two European Phase II studies underway, the objective of which
are to provide the requisite support for the promotion and potential amendment
to labeling of MAXAMINE for the treatment of RCC. The first is a study of the
combination of MAXAMINE, IL-2 and interferon in 40 patients in Sweden and
Denmark. The second is a randomized trial of the combination of MAXAMINE and
IL-2 versus IL-2 alone, in 120 patients in the United Kingdom and Denmark. This
second trial is being funded by our clinical collaborators.
HEPATITIS C
Hepatitis C is more easily transmitted than HIV and is now the leading
blood-borne infection in the United States. More than 4.5 million people are
estimated to be infected with hepatitis C in the U.S., with more than 200
million infected worldwide. Hepatitis C is a disease characterized by
inflammation of the liver and, in many cases, permanent cirrhosis (scarring) of
the liver tissues. The cycle of disease from infection to significant
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liver damage can take 20 years or more. Some experts estimate that without
substantial improvements in treatment, deaths from hepatitis C will surpass
those from HIV.
The standard treatment for hepatitis C is interferon, an
immunotherapeutic agent often given in combination with the anti-viral drug
Ribavirin -Registered Trademark-. The majority of patients do not attain a
sustained response with current therapies. Several factors can influence the
patient's response to therapy including the patient's viral load and the
genotype of the virus with which the patient is infected. Of the several
variations, or genotypes, of hepatitis C, genotype-1 is the most common type in
the U.S. Patients infected with this genotype, and those with viral levels
greater than 2 million copies per milliliter of blood, typically have the
poorest response to treatment.
In 1998 we reported results from a Phase 1 feasibility study in HCV
patients using MAXAMINE THERAPY. In the study, 10 patients who were
characterized as nonresponders after a year of treatment with IFN-a were put
back on treatment with the same dose of IFN-a plus MAXAMINE for 12 weeks. The
study indicated that the combination of MAXAMINE with IFN-a 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-a therapy.
In May 1999 we commenced a Phase 2 clinical trial of MAXAMINE in the
treatment of patients with HCV. The trial is designed to evaluate MAXAMINE
THERAPY, consisting of the combination of MAXAMINE and IFN-(alpha), in the
treatment of chronic hepatitis C patients who have not previously received
treatment with IFN-(alpha). The primary purpose of this study to determine the
most appropriate dose regimen for MAXAMINE in the treatment of chronic hepatitis
C. We also hope to provide further evidence that MAXAMINE may benefit cytokines
such as IFN-(alpha) in the treatment of HCV. The trial is based in the United
Kingdom, Belgium, Israel and Russia, and 129 patients were enrolled. Patients
were randomly assigned to one of four treatment arms, and each patient received
MAXAMINE, in one of four dosing regimens, plus IFN-(alpha). The study will
evaluate the efficacy and safety of each of the four dosing regimens of
MAXAMINE. The primary measures of efficacy in the study will be reduction in
viral load and normalization of liver function, measured by the liver enzyme
ALT.
Patients responding during the first 12 weeks of treatment will
continue treatment through 48 weeks, with evaluations at 24, 48 and 72 weeks.
The study includes a high percentage of patients that would normally be
considered difficult to treat as characterized by high viral loads and a
genotype-1 infection. The mean viral load of the patients in this study was 6.7
million copies per milliliter, and 50% of the patients were infected with
genotype-1.
After 12 weeks of treatment 70 percent of the patients treated with
MAXAMINE attained complete biochemical and viral response. Published reports
suggest that 20 to 30 percent of patients with similar profiles achieve a
complete biochemical and viral response when treated with interferon therapy
alone.
In addition, study results showed that after 4 weeks of treatment, 80
percent of patients achieved greater than a 2 log reduction in viral load or
were complete responders, characterized as rapid responses. Lastly, the results
also suggested that MAXAMINE provided a benefit even in the patients expected to
have a poor prognosis. After 12 weeks of treatment, a complete viral response
was achieved by 61 percent of the patients with a genotype-1 infection, and 62
percent of the patients having greater than 2 million viral copies per
milliliter.
TOPICAL THERAPIES
For millions of patients, topical disorders such as herpes labialis,
herpes zoster, oral mucositis, canker sores, decubitus ulcers, and others result
in prolonged pain, suffering, and slow healing times that can lead to an
increased risk of secondary infection. The patient's immune response, localized
inflammation and wound-healing status may contribute to the difficulty in
treating many of these disorders.
The MAXDERM technology and pipeline of potential products is based on
research on the active molecules underlying MAXAMINE. The MAXDERM discovery may
be able to address the underlying mechanisms that cause many of the above
disorders, and may enhance the cellular immune response, reduce inflammation,
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and enhance the wound healing process. This discovery is novel and differs from
the anti-viral, pain relieving and anti-bacterial approaches underlying many
existing and proposed treatments.
Small pilot, randomized, blinded, placebo-controlled trials have been
conducted in more than 75 patients with oral mucositis, herpes labialis (cold
sores), decubitus ulcers, shingles, burns, and conjunctivitis. Patients
experienced improved healing times when treated with gels based on the MAXDERM
technology compared to a placebo control.
ORAL MUCOSITIS
Oral mucositis (stomatitis) can be induced by a number of different
procedures, drugs or treatments. The most common and debilitating is the
mucositis caused by the treatment of cancer patients with chemotherapy or
radiation. There are possibly a million new cases each year worldwide with no
effective treatments yet available.
Symptoms of oral mucositis include the formation of canker sore-like
lesions within the mouth that may extend to the tongue, throat and
gastrointestinal tract, with mild to severe discomfort and difficulty eating and
drinking. The lesions may last two to three weeks, and in severe cases patients
require hospitalization, morphine to alleviate pain, and termination of cancer
treatment. We believe that a product that would assist patients with this
discomforting condition would fit with our objective of maintaining the quality
of patients' lives during therapy, and would fit strategically with our proposed
marketing plans for Maxamine.
During 1999 we completed two preclinical trials of a gel based on the
MAXDERM technology in oral mucositis suggested that the drug candidate can
prevent and significantly reduce the time required to heal oral lesions. A small
pilot human study was conducted in which nine patients with oral mucositis were
randomized and treated with one of two doses of our gel or a placebo. The
patients treated with our gel experienced complete healing of lesions in a mean
time of three to four days, depending upon the dosage. Patients treated with the
placebo experienced no reduction in lesions during the treatment period.
Patients treated with our gel also reported a reduction in the discomfort
associated with eating and drinking.
HERPES LABIALIS
A pilot study of gels based on the MAXDERM technology was also
conducted in 18 patients with herpes labialis (cold sores). In the randomized,
blinded study, patients with herpes labialis treated with a formulation of our
gel containing the highest concentration of active ingredient demonstrated a
nearly complete (>99%) improvement of their lesions following only four days of
administration. Patients treated with the placebo, conversely, experienced an
increase in mean lesion size during the study period.
FUTURE DEVELOPMENTS
We believe that the MAXDERM technology substantially expands our
product pipeline into therapies for a number of key medical conditions for which
topical delivery is preferred. There are significant unmet needs in the
treatment of herpes, oral mucositis, shingles, decubitus ulcers and other
dermatological ailments. We are currently evaluating the MAXDERM technology and
assessing current and anticipated medical needs to determine the appropriate
disorders in which to conduct more extensive clinical studies and toward the
first product.
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
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
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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.
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,
higher level of safety, lower cost of administration and improved vaccine
utilization.
The MAXVAX technology represents an early stage discovery and
development program which is currently in preclinical development. 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 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 may benefit from use in combination with MAXAMINE. 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 drug (Proleukin -Registered Trademark-)
requirements and other assistance related to our Phase 3 AML clinical trial.
These collaborations reinforce our belief that MAXAMINE 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, for the further development of MAXDERM and MAXVAX or 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
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We expect that the potential global market launch of MAXAMINE will be
based on a combination of direct marketing by Maxim in the United States,
potentially under a collaboration with a pharmaceutical company, and the
establishment of marketing alliances with pharmaceuticals companies for
international markets.
We are currently undertaking efforts to prepare to market MAXAMINE in
the United States, 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 and/or access a marketing infrastructure, including sales representatives,
through a combination of the recruitment of personnel to Maxim, an alliance with
a co-promotion partner, and/or the retention of a contract sales organization.
Our plan is to defer the build up of this infrastructure until obtaining some
assurance (after a review of Phase 3 clinical data and initiation of the
regulatory approval process) of the timing of any potential approval to market
MAXAMINE in the United States.
In 1999 we entered into an agreement granting F. H. Faulding & Co.,
Ltd. (Faulding) the right to market MAXAMINE in Australia and New Zealand.
During 1999 we also entered into an agreement granting MegaPharm, Ltd. the right
to market MAXAMINE in Israel. In other international markets we are in the
process of 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.
Our marketing strategy for MAXDERM will be developed over time based
upon, among other factors, the specific indications targeted for therapy. 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.
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.
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 are currently
establishing relationships with additional manufacturers to provide alternate
sources of supply for MAXAMINE.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
We hold six issued or allowed patents and have twelve patent
applications pending in the United States. In addition, we hold license rights
to eight issued or allowed patents and four 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,
including Europe, Australia and Japan. 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
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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
We hold a U.S. patent relating to the combination of IL-2 and H2
receptor agonists (H2RAs) that has also been granted in Europe, Australia and
Japan. We also hold a U.S. patent relating to the combination of IFN-(alpha) and
H2RAs, and corresponding patents have also issued in Europe and Australia.
Lastly, we hold a U.S. patent encompassing certain treatment with MAXAMINE in
combination with any cytokine or chemotherapeutic agent. We also hold nine other
patent applications in the United States relating to the use of MAXAMINE with
other cytokines and biotherapies, method of production, 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) four U.S. patents issued or allowed for material
compositions and other rights underlying the MAXDERM technology. We also hold
one U.S. patent application related to the MAXDERM technology, and have licensed
another such application from PPI. 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 and 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 two of our own U.S. and an international patent
applications related to MAXVAX, covering the use of CTB to make vaccines against
chlamydia and other sexually transmitted diseases and methods for developing
CTB-based vaccines.
MAXAMINE TECHNOLOGY RIGHTS
In 1993 we entered into a technology transfer agreement under which we
purchased certain 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 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 damages and declaratory relief. The
arbitration also seeks specific performance of the licensors' obligations under
the agreements (including full disclosure of relevant manufacturing
information). In 1999 the arbitration panel ruled that the scope of Maxim's
licensed rights under the agreements is identical to the rights understood and
asserted by Maxim. The panel is expected to rule on the remaining issues in
2000. 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 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 1, 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 2, 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 3, 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.
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.
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
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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 immunotherapy, 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 immunotherapy 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
As of December 23, 1999, the Company had 52 employees, all but three 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 2000 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.
WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES. IF WE DO NOT
BECOME PROFITABLE, WE MAY ULTIMATELY BE FORCED TO DISCONTINUE OUR OPERATIONS.
We are a development-stage enterprise. We have experienced net losses
every year since our inception and, as of September 30, 1999 had an accumulated
deficit of approximately $81.9 million. We anticipate incurring substantial
additional losses over at least the next several years related to developing and
testing our product candidates and preparing for commercialization of our
products. If we do not become profitable, our stock price will be negatively
affected, and we may ultimately be forced to wind down our operations.
WE WILL LIKELY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE. IF WE ARE UNABLE TO
OBTAIN THE FUNDS NECESSARY TO CONTINUE OUR OPERATIONS, WE MAY BE REQUIRED TO
DELAY, SCALE BACK OR ELIMINATE ONE OR MORE OR OUR PRODUCT COMMERCIALIZATION
PROGRAMS.
We have already spent substantial funds developing our products and
business. We expect to continue to have negative cash flow from our operations
for at least the next several years. We will likely have to raise substantial
additional funds to complete the development of our products and to bring them
to market. Our future 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.
Additional financing may not be available on acceptable terms, if at
all. If adequate funds are not available, 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.
THE DEVELOPMENT OF OUR PRODUCTS IS SUBJECT TO UNCERTAINTIES, MANY OF WHICH ARE
BEYOND OUR CONTROL. IF WE FAIL TO SUCCESSFULLY DEVELOP OUR PRODUCTS, OUR ABILITY
TO GENERATE REVENUES WILL BE SUBSTANTIALLY IMPAIRED.
Potential products based on our MAXAMINE, MAXDERM and MAXVAX
technologies will require extensive clinical testing, regulatory approval and
substantial additional investment before we can sell them. We cannot assure you
that any of our 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; or
- be successfully marketed or achieve market acceptance.
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We have not completed final testing for efficacy or safety in humans
for any of our products, and any delay in our expected testing and development
schedules, or any elimination of product development program entirely, will
negatively impact our ability to generate revenues from the sale of our
products.
OUR PRODUCT CANDIDATES ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION WHICH
COULD INCREASE THE COST OF DEVELOPING OUR PRODUCTS AND DELAY OR PREVENT THE
SALES OF OUR PRODUCTS.
Our product candidates are subject to significant regulation by the
U.S. Food and Drug Administration, or the FDA, as well as similar agencies in
countries outside the United States. Satisfaction of lengthy and detailed
laboratory and clinical testing procedures required to submit an application for
regulatory approval is costly and may take a number of years. If we do not
receive FDA approval for our products under development, we will not be able to
market or sell our products in the United States. This would prevent us from
generating product revenue in the United States and would be extremely
detrimental to our business and financial condition. European and other
international regulatory approvals are subject to similar risks and
uncertainties as regulatory approvals in the United States.
We are expending substantial time and financial resources to conduct
clinical trials, but we cannot be sure that the results of our clinical trials
will support the submission of an investigational new drug application or a
product license application, or that any applications we do file will be
approved by the FDA or any similar foreign agency on a timely basis, or at all.
Once we do receive regulatory approval, we will still be subject to
ongoing regulatory requirements. Moreover, government regulation may increase at
any time, creating additional costs and delays for us.
IF WE FAIL TO SECURE ADEQUATE PROTECTION OF OUR INTELLECTUAL PROPERTY OR THE
RIGHT TO USE CERTAIN INTELLECTUAL PROPERTY OF OTHERS, WE MAY NOT BE ABLE TO
PROTECT OUR PRODUCTS AND TECHNOLOGIES FROM COMPETITORS.
Our success depends in large part on our ability to obtain, maintain
and protect patents and trade secrets and to operate without infringing upon the
proprietary rights of others. If we are unable to do so, our products and
technologies may not provide us with any competitive advantage.
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. As a result, patents may not issue from any of our patent
applications. Further, patent applications in the United States are secret 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 this technology. 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
so that our intellectual property rights may not protect our technologies or
provide commercial advantage to us. In addition, we also rely on unpatented
trade secrets and proprietary know-how, and we cannot be sure that others will
not obtain access to or independently develop such trade secrets and know-how.
The pharmaceutical industry has experienced extensive litigation
regarding patent and other intellectual property rights. Although, to date, we
are not aware of any intellectual property claims against us, in the future, we
could be forced to incur substantial costs in defending ourselves in lawsuits
that are brought against us claiming that we have infringed the patent rights of
others or in asserting our patent rights in lawsuits against other parties. 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.
17
<PAGE>
OUR FAILURE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD PREVENT US FROM
GROWING OUR BUSINESS.
Our future performance and growth 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 we do not know if 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 develop needed expertise could have a material and adverse affect
on our efficiency and on our ability to grow our business.
BECAUSE WE ARE DEPENDENT ON OUR COLLABORATIVE PARTNERS AND CONTRACTORS FOR
CLINICAL TESTING AND FOR CERTAIN RESEARCH AND DEVELOPMENT ACTIVITIES, THE
RESULTS OF OUR CLINICAL TRIALS AND SUCH RESEARCH ACTIVITIES ARE, TO A CERTAIN
EXTENT, BEYOND OUR CONTROL.
Our business strategy requires us to rely on our collaborative partners
and contractors to assist us with clinical testing and certain research and
development activities. As a result, our success is dependent upon the success
of these outside parties in performing their responsibilities. Although we
believe our collaborative partners are economically motivated to perform on
their contractual obligations, we can not control the amount of and timing of
resources and skill applied to these activities by our collaborators. In
addition, we may not be able in the future to negotiate acceptable collaborative
arrangements required to implement our business strategy, and even if we are
able to enter into further collaborative arrangements in the future, we cannot
be sure that these arrangements will be successful.
WE HAVE NO EXPERIENCE MARKETING OR SELLING PHARMACEUTICAL PRODUCTS.
Although we currently intend to co-market MAXAMINE in the United
States, we have never marketed or sold any pharmaceutical product before. In
order to co-market and co-sell MAXAMINE or other products, we will need to
develop a sales force and a marketing group with relevant pharmaceutical
experience, and also to 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. If we cannot develop the required marketing and sales
expertise both internally and through our partnering arrangements, our ability
to generate revenue from product sales will likely suffer.
We intend to rely on our collaborative partners to market and sell
MAXAMINE in international markets, and such arrangements may be sought to market
MAXDERM and MAXVAX in all markets. We have not yet entered into any
collaborative arrangement with respect to marketing or selling MAXAMINE with the
exception of agreements relating to Australia, New Zealand and Israel, and have
not entered into any agreements regarding MAXDERM or MAXVAX, and we cannot
guarantee that we will be able to enter into any such arrangements on terms
favorable to us, or at all. If we are able to enter into marketing and selling
arrangements with collaborative partners we cannot assure you that such
marketing collaborators will apply adequate resources and skills to their
responsibilities, or that their marketing efforts will be successful.
WE WILL BE DEPENDENT ON THIRD PARTY MANUFACTURERS OF OUR PRODUCTS. OUR ABILITY
TO SELL PRODUCT MAY BE HARMED TO THE EXTENT ADEQUATE QUANTITIES OF OUR PRODUCTS
ARE NOT MANUFACTURED ON A TIMELY BASIS.
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 with
third-party manufacturers on acceptable terms, our ability to conduct clinical
testing and to produce commercial quantities of MAXAMINE and other products will
be adversely affected. If we cannot adequately manufacture our products, it
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 guarantee 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 in the future.
18
<PAGE>
OUR PRODUCTS MAY NOT BE ACCEPTED, PURCHASED OR USED BY DOCTORS, PATIENTS OR
PAYORS.
MAXAMINE, and any of our other products in development, may not achieve
market acceptance even if the FDA and similar foreign regulatory agencies
approve the drug. The degree of market acceptance of our products will depend on
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;
- 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 we develop.
WE COMPETE AGAINST MANY COMPANIES AND RESEARCH INSTITUTIONS THAT ARE DEVELOPING
PRODUCTS TO TREAT THE SAME DISEASES AS OUR PRODUCTS. TO THE EXTENT THESE
COMPETITORS ARE SUCCESSFUL IN DEVELOPING AND MARKETING SUCH PRODUCTS, OUR FUTURE
POTENTIAL MARKET SHARE AND REVENUES COULD BE REDUCED.
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. Products developed by any of
these companies or institutions may demonstrate greater safety or efficacy than
our products or be more widely accepted by doctors, patients or payors. Many of
our competitors and potential competitors have substantially greater capital,
research and development capabilities and human resources than we do and
represent significant competition. Many of these competitors also have
significantly greater experience than we do in undertaking preclinical testing
and clinical trials of new pharmaceutical products and obtaining FDA and other
regulatory approvals. If any of our products are approved for commercial sale,
we will also be competing with companies that have greater resources and
experience in manufacturing, marketing and selling pharmaceutical products. To
the extent that any of our competitors succeed in developing products that are
more effective, less costly, or have better side effect profiles than our
products, then our market share could decrease which may have a negative impact
on our business.
THE TECHNOLOGY IN OUR SECTOR IS DEVELOPING RAPIDLY, AND OUR FUTURE SUCCESS
DEPENDS ON OUR ABILITY TO KEEP ABREAST OF TECHNOLOGICAL CHANGE.
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. 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. This may result in our inability to develop
commercially feasible products.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE DUE TO EXTERNAL FACTORS.
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 of our
common stock and our ability to raise equity capital in the future.
19
<PAGE>
Factors that may have a significant impact on the market price or the
liquidity of our 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 American
Stock Exchange and the Stockholm Stock Exchange, 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.
20
<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, 1999.
21
<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 30 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1999, filed as Exhibit 13.1
hereto.
In addition, in July 1999, the Company issued 206,874 shares of
Series A Convertible Preferred Stock, convertible into 2,068,740 shares of
common stock. The Company received net proceeds of approximately $22.5 million
after paying placement fees and expenses of approximately $1,400,000. The
Company issued such shares to qualified accredited investors in reliance upon
the exemption provided by Rule 506 of Regulation D.
(b) Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated herein by
reference to the information set forth on page 18 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1999, 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 15-18 of our Annual Report to Stockholders for
the fiscal year ended, September 30, 1999, filed as Exhibit 13.1 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash
equivalents and investments that have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer
or type of instrument. The securities in our investment portfolio are not
leveraged, are classified as available for sale and are therefore subject to
interest rate risk. We currently do not hedge interest rate exposure. If market
interest rates were to increase by 100 basis points, or 1%, from September 30,
1999 levels, a model calculation suggests that the market value of our
portfolio would decline by an immaterial amount. The modeling technique used
measures the change in market values arising from an immediate hypothetical
shift in market interest rates.
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 19-32 of our Annual Report to
Stockholders for the fiscal year ended September 30, 1999, filed as Exhibit 13.1
hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
22
<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, 1999, for our Annual Meeting of
Stockholders to be held on February 25, 2000.
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, 1999, for our Annual Meeting of
Stockholders to be held on February 25, 2000.
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, 1999, for our Annual
Meeting of Stockholders to be held on February 25, 2000.
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,
1999, for our Annual Meeting of Stockholders to be held on February 25, 2000.
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, 1999, for our Annual Meeting of
Stockholders to be held on February 25, 2000.
23
<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 19-32
of our Annual Report to Stockholders for the fiscal year ended
September 30, 1999 filed as Exhibit 13.1 hereto:
Balance Sheets as of September 30, 1999 and 1998
Statements of Operations for the years ended September 30,
1999, 1998, and 1997, and from October 23, 1989 (date of
inception) to September 30, 1999
Statements of Stockholders' Equity from October 23, 1989 (date
of inception) through September 30, 1999
Statements of Cash Flows for the years ended September 30,
1999, 1998, and 1997, and from October 23, 1989 (date of
inception) to September 30, 1999
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
(a) See list of Exhibits set forth in paragraph (c) below.
(b) The Company filed no reports on Form 8-K during the fourth
quarter of the fiscal year ended September 30, 1999.
(c) Exhibits
INDEX
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation of
Registrant. (1)
3.2 Certificate of Amendment of Amended and Restated Certificate
of Incorporation. (12)
3.3 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions Thereof
of Series A Convertible Preferred Stock. (12)
3.4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred
Stock and Qualifications, Limitations and Restrictions Thereof
of
24
<PAGE>
Series B Convertible Preferred Stock. (13)
3.5 Bylaws of Registrant. (1)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
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)+
10.5 Security Agreement, dated July 27,1993, between the Registrant
and Estero Anstalt. (1)+
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)+
10.7 Option and License Agreement, dated May 19, 1993, among the
Registrant, Vitec AB and SBL Vaccin AB, as amended. (1)+
10.8 License Agreement dated January 14, 1994, among the
Registrant, Vitec AB and SBL Vaccin, AB, as amended. (1)+
10.9 Agreement, dated December 2, 1995, among the Registrant,
Syntello Vaccine Development AB and Estero Anstalt. (1)+
10.10 Agreement, dated April 23, 1996, among the Registrant, Anders
Vahlne, M.D., Ph.D. and Syntello Vaccine Development AB. (1)+
10.11 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. (2)
10.12 Amended and Restated 1993 Long-Term Incentive Plan and forms
of stock option agreements. (3)
10.13 Employment Agreement dated October 1, 1999 between the
Registrant and Kurt R. Gehlsen.+*
10.14 Employment Agreement dated October 1, 1999 between the
Registrant and Dale A. Sander.+*
10.15 Employment Agreement dated October 1, 1999 between the
Registrant and Larry G. Stambaugh.+*
10.16 Loan and Security Agreement between the Registrant and Silicon
Valley Bank. (4)
10.17 Amendment to Loan and Security Agreement dated March 16, 1998
between the Registrant and Silicon Valley Bank. (5)
10.18 Lease dated July 2, 1998 between British Pacific Properties, a
California Corporation, as Landlord, and the Registrant. (6)
10.19 Employment Agreement dated October 1, 1999 between the
Registrant and Geoffrey B. Altman.+*
10.20 Amendment to Loan and Security Agreement dated September 1,
1998 between the Registrant and Silicon Valley Bank. (7)
10.21 License Agreement dated November 6, 1998 among the Registrant,
Professional Pharmaceutical, Inc., Bruce A. Jack, D.D.S. and
B. Thomas White, R.PH. (8)
10.22 Secured Promissory Note dated April 7, 1999 between Larry G.
Stambaugh and the Registrant. (9)
10.23 Secured Promissory Note dated April 14, 1999 between Larry G.
Stambaugh and the Registrant. (9)
10.24 Secured Promissory Note dated April 7, 1999 between Kurt R.
Gehlsen and the Registrant. (9)
25
<PAGE>
10.25 Secured Promissory Note dated April 7, 1999 between Dale A.
Sander and the Registrant. (9)
10.26 Common Stock Purchase Warrant, No.#99AR-1, to purchase 200,000
shares of the Registrant's common stock, issued to The
Kriegsman Group on March 3, 1999. (10)
10.27 Common Stock Purchase Warrant, No.#99PA-1, to purchase 32,390
shares of the Registrant's common stock, issued to The
Kriegsman Group on July 26, 1999. (10)
10.28 Common Stock Purchase Warrant to purchase 300,000 shares of
the Registrant's common stock issued to RGC International
Investors, LDC on July 20, 1999. (10)
10.29 Series B Convertible Preferred Stock Purchase Agreement, dated
November 10, 1999, between the Registrant and certain
purchasers of Registrant's preferred stock. (11)
10.30 Form of Common Stock Purchase Warrant issued to AP Asset
Management AG, The Kriegsman Group and Cappello Partners, LLC.
(11)
10.31 Form of Common Stock Purchase Warrant issued to Evolution
Capital, Wayne Philip Rothbaum and Mitchell Silber.*
13.1 Registrant's Annual Report to Stockholders for the fiscal year
ended September 30, 1999.
23.1 Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney. Reference is made to page 27.
27 Financial Data Schedule.
99 Independent Auditors' Report
- -------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 601 of Regulation S-K.
+ Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 thereunder
respecting confidential treatment.
(1) Previously filed together with Registrant's Registration Statement on Form
SB-2 (File No. 333-4854-LA) or amendments thereto and incorporated herein
by reference.
(2) Previously filed together with Registrant's Annual Report on Form 10-K
(File No. 1-4430) dated September 30, 1996 and incorporated herein by
reference.
(3) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated December 31, 1996 and incorporated herein by
reference.
(4) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated March 31, 1997 and incorporated herein by
reference.
(5) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated March 31, 1998 and incorporated herein by
reference.
(6) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated June 30, 1998 and incorporated herein by reference.
(7) Previously filed together with the Registrant's Annual Report on Form
10-K/A (File No. 1-4430) dated September 30, 1998 and incorporated herein
by reference.
(8) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated December 31, 1998 and incorporated herein by
reference.
(9) Previously filed together with Registrant's Quarterly Report on Form 10-Q
(File No. 1-4430) dated June 30, 1999 and incorporated herein by reference.
(10) Previously filed together with Registration Statement on Form S-3 (File No.
333-84711) or amendments thereto and incorporated herein by reference.
(11) Previously filed together with Registration Statement on Form S-3 (File No.
333-91923) dated December 1, 1999 and incorporated herein by reference.
26
<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 28, 1999
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 28, 1999
- -----------------------------------
Larry G. Stambaugh Director, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ DALE A. SANDER Vice President, Finance, and December 28, 1999
- -----------------------------------
Dale A. Sander Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
/s/ COLIN B. BIER Director December 28, 1999
- -----------------------------------
Colin B. Bier, Ph.D.
/s/ THEODOR H. HEINRICHS Director December 28, 1999
- -----------------------------------
Theodor H. Heinrichs
/s/ GARY E. FRASHIER Director December 28, 1999
- -----------------------------------
Gary E. Frashier
/s/ PER-OLOF MARTENSSON Director December 28, 1999
- -----------------------------------
Per-Olof Martensson
/s/ F. DUWAINE TOWNSEN Director December 28, 1999
- -----------------------------------
F. Duwaine Townsen
</TABLE>
27
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of November 3, 1999, by and between Maxim Pharmaceuticals, Inc.,
(the "Company"), and Kurt R. 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
continued 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 until terminated pursuant to
Section 5 below.
1.2 Executive shall be the Vice-President, Development and Chief
Technical Officer of the Company (or a position of at least comparable status)
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 and/or
the Chief Executive Officer.
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 Two Hundred Thirty Thousand Dollars
($230,000) 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
delivered as provided in Section 9 below. If such termination shall occur
under this Section 5.2, then, in lieu of all other remedies and as liquidated
damages, 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, if greater, at the rate of Executive's then current compensation 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 G. STAMBAUGH
MAXIM PHARMACEUTICALS, INC.
8899 UNIVERSITY CENTER LANE
SUITE 400
SAN DIEGO, CA 92122
4
<PAGE>
9.1.2 If to Executive:
KURT R. 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 R. Gehlsen, Ph.D.
6
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of November 3, 1999, 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
continued 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 until terminated pursuant to
Section 5 below.
1.2 Executive shall be the Vice-President, Finance, Chief Financial
Officer and Corporate Secretary of the Company (or a position of at least
comparable status) 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 and/or the Chief Executive Officer.
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 Two Hundred Thousand Dollars,
$200,000 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 delivered
as provided in Section 9 below. If such termination shall occur under this
Section 5.2, then in lieu of all other remedies and as liquidated damages,
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, if greater,
at the rate of Executive's then current compensation 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
3
<PAGE>
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.
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>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 26th day of October, 1999 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, 1999
and shall continue in effect until terminated pursuant to Section 5 hereof.
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.
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 $360,000 per year and such base salary
shall be subject to increase, but not reduction, 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 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
<PAGE>
bonus with respect to each of the Company's fiscal years during the Term in
an amount up to 35% 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
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 continuation of his then annual base salary plus health care insurance
coverage for a period of three (3) years from said date of termination, with
such
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base salary continuation to be at the rate set forth in section 4.1 or, if
greater, the rate of the Executive's current base salary at the date of
termination.
The Company shall also during the Term hereof maintain for Executive a term
life insurance policy, with Executive's nominee as beneficiary, in the amount
of $250,000 for the first year of this Agreement. 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.
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:
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If to the Executive:
Larry G. Stambaugh
17947 Corazon Place
San Diego, California 92127
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.
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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: October 26, 1999
/s/ Larry G. Stambaugh
- -----------------------------
Executive
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<PAGE>
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of November 3, 1999, 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
continued 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 until terminated pursuant to
Section 5 below.
1.2 Executive shall be the Vice-President, Marketing & Sales of the
Company (or a position of at least comparable status) 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 and/or the Chief Executive Officer.
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 Sixty-Five Thousand
Dollars, $165,000 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:
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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 delivered
as provided in Section 9 below. If such termination shall occur under this
Section 5.2, then, in lieu of all other remedies and as liquidated damages,
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, if greater,
at the rate of Executive's then current compensation 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
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<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
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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>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES AVAILABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS (I)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (II) MAXIM PHARMACEUTICALS, INC. HAS BEEN FURNISHED AN OPINION OF
COUNSEL ACCEPTABLE TO IT TO THE EFFECT THAT NO REGISTRATION IS LEGALLY REQUIRED
FOR SUCH TRANSFER.
DATE OF ISSUANCE: NOVEMBER 12, 1999 WARRANT NO. #99PB-_
WARRANT TO PURCHASE
________ SHARES
OF COMMON STOCK AS
HEREIN DESCRIBED
MAXIM PHARMACEUTICALS, INC.
COMMON STOCK PURCHASE WARRANT
Void after November 12, 2004
This is to certify that, for value received, ________________ or a proper
assignee (in each case, the "Holder") is entitled to purchase, subject to the
provisions of this Warrant from Maxim Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), at any time during the period from the date of
issuance set forth above (the "Commencement Date") to 5:00 p.m., California
time, on November 12, 2004 (the "Expiration Date") at which time this Warrant
shall expire and become void, _____________________ (_____) SHARES ("Warrant
Shares") of the Company's Common Stock ("Stock"). This Warrant shall be
exercisable at $11.15625 U.S. Dollars per share (the "Exercise Price"). The
number of shares of Stock to be received upon exercise of this Warrant and the
Exercise Price shall be adjusted from time to time as set forth below. This
Warrant also is subject to the following terms and conditions:
1. EXERCISE OF WARRANT. Subject to the terms and conditions hereof,
this Warrant may be exercised in whole or in part at any time from and after the
Commencement Date and before the Expiration Date. Exercise shall be by
presentation and surrender to the Company at its principal office, or at the
office of any transfer agent for its warrants ("Transfer Agent") designated by
the Company, of (i) this Warrant and (ii) a signed cashier's check payable to
the Company in an amount equal to the product of
1.
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the Exercise Price multiplied by the number of Warrant Shares being purchased
upon such exercise. If this Warrant is exercised in part only, the Company or
Transfer Agent shall, as soon as practicable after presentation of this
Warrant upon such exercise, execute and deliver a new Warrant, dated the date
hereof, evidencing the right of the Holder to purchase the balance of the
Warrant Shares purchasable hereunder upon the same terms and conditions
herein set forth. Upon and as of receipt by the Company or Transfer Agent of
such properly completed and duly executed purchase form accompanied by
payment as herein provided, the Holder shall be deemed to be the Holder of
record of the shares of Stock issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such shares of Stock shall not then actually be
delivered to the Holder.
2. CASHLESS EXERCISE.
2.1 In addition to the method of payment set forth in Section
1 and in lieu of any cash payment required thereunder, the Holder of the Warrant
will have the right to exercise the vested portion of the Warrant, in full or in
part, by surrendering the Warrant certificate in the manner specified in Section
1 in exchange for a number of shares equal to the number of shares of Stock as
to which the Warrant is being exercised, less the number of shares of Common
Stock having a Market Price (defined in Section 2.2 below) equal to the
aggregate Exercise Price of the portion of the Warrant being so exercised.
2.2 Market Price shall be the last reported sale price, or in
the case no such reported sales takes place on such day, the average of the last
reported sales prices for the last three (3) trading days, in either case as
reported by the principal United States exchange on which the Common Stock is
listed, on the date on which the Annex A form attached hereto is delivered to
the Company.
3. REGISTRATION RIGHTS. The Company shall use its best efforts to
register for resale on Form S-3, on a delayed or continuous basis, the shares of
stock underlying the Warrant, to the extent such shares are not freely tradable.
4. RESERVATIONS OF SHARES. The Company shall, at all times until the
expiration of this Warrant, reserve for issuance and delivery upon exercise of
this Warrant the number of Warrant Shares as shall be required for issuance and
delivery upon any unexercised portion of this Warrant.
5. FRACTIONAL SHARES. The Company shall not issue any fractional shares
nor scrip representing fractional shares upon exercise of any portion of this
Warrant.
6. NO RIGHTS AS SHAREHOLDER. This Warrant shall not entitle the Holder
to any rights as a shareholder of the Company, either at law or in equity. The
rights of the
2.
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Holder are limited to those expressed in this Warrant and are not enforceable
against the Company except to the extent set forth herein.
7. ADJUSTMENTS IN NUMBER AND EXERCISE PRICES OF WARRANT SHARES.
7.1 The number of shares of Stock for which this Warrant may
be exercised and the Exercise Price therefor shall be subject to adjustments as
follows:
(a) If the Company is recapitalized through the
subdivision or combination of its outstanding shares of Stock into a larger
or smaller number of shares, the number of shares of Stock for which this
Warrant may be exercised shall be increased or reduced, as of the record date
for such recapitalization, in the same proportion as the increase or decrease
in the outstanding shares of Stock, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase of all of the Warrant
Shares issuable hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable immediately
before such record date.
(b) If the Company declares a dividend on Stock
payable in Stock or securities convertible into Stock, the number of shares
of Stock for which this Warrant may be exercised shall be increased as of the
record date for determining which holders of Stock shall be entitled to
receive such dividend, in proportion to the increase in the number of
outstanding shares (and shares of Stock issuable upon conversion of all such
securities convertible into Stock) of Stock as a result of such dividend, and
the Exercise Price shall be adjusted so that the aggregate amount payable for
the purchase of all the Warrant Shares issuable hereunder immediately after
the record date for such dividend shall equal the aggregate amount so payable
immediately before such record date.
7.2 In the event of any reorganization or reclassification of
the outstanding shares of Stock (other than a change in par value or from no par
value to par value, or from par value to no par value, or as a result of a
subdivision or combination) or in the event of any consolidation or merger of
the Company with another entity after which the Company is not the surviving
entity, at any time prior to the expiration of this Warrant, upon subsequent
exercise of this Warrant the Holder shall have the right to receive the same
kind and number of shares of Stock and other securities, cash or other property
as would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger, appropriately adjusted for any subsequent event described in this
Section 7. The Holder shall pay upon such exercise the Exercise Price that
otherwise would have been payable pursuant to the terms of this Warrant. If any
such reorganization, reclassification, consolidation or merger results in a cash
distribution in excess of the then applicable Exercise Price, the Holder may, at
the Holder's option, exercise this Warrant without
3.
<PAGE>
making payment of the Exercise Price, and in such case the Company shall,
upon distribution to the Holder, consider the Exercise Price to have been
paid in full, and in making settlement to the Holder, shall deduct an amount
equal to the Exercise Price from the amount payable to the Holder. In the
event of any such reorganization, merger or consolidation, the corporation
formed by such consolidation or merger or the corporation which shall have
acquired the assets of the Company shall execute and deliver a supplement
hereto to the foregoing effect, which supplement shall also provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Warrant.
7.3 If the Company shall, at any time before the expiration of
this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall have
the right to receive upon exercise of this Warrant, in lieu of the shares of
Stock of the Company that the Holder otherwise would have been entitled to
receive, the same kind and amount of assets as would have been issued,
distributed or paid to the Holder upon any such dissolution, liquidation or
winding up with respect to such Stock receivable upon exercise of this Warrant
on the date for determining those entitled to receive any such distribution. If
any such dissolution, liquidation or winding up results in any cash distribution
in excess of the Exercise Price provided by this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of the Exercise
Price and, in such case, the Company shall, upon distribution to the Holder,
consider the Exercise Price to have been paid in full and, in making settlement
to the Holder, shall deduct an amount equal to the Exercise Price from the
amount payable to the Holder.
7.4 If the Company, at any time while this Warrant is
outstanding, shall issue or sell any share of Common Stock (issued or unissued),
including any share issuable upon the exercise of any option, right or warrant
for no consideration or consideration per share less than 80% of the Exercise
Price of the Warrant then in effect or any rights, options, or warrants or other
securities to subscribe for or otherwise acquire Common Stock at a price less
than such 80%, then the Exercise Price upon each issuance shall be adjusted to
that price determined by multiplying the Exercise Price then in effect by a
fraction:
(a) the numerator of which shall be equal to the sum
of (A) the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares of Common Stock PLUS (B) the number of
shares of Common Stock which the aggregate consideration for the total number
of such additional shares of Common Stock so issued would purchase at a price
per share equal to 80% of the Exercise Price then in effect, and
4.
<PAGE>
(b) the denominator of which shall be equal to the
number of shares of Common Stock outstanding immediately after the issuance
of such additional shares of Common Stock.
Notwithstanding the foregoing, no adjustment of the Exercise
Price shall be made under this Section 7 upon the issuance of options or shares
pursuant to any Company employee benefit plan OR upon the issuance in the
aggregate (cumulative from the dates of issue of the Warrants) of up to $10
million of Common Stock at a discount to the exercise price in effect from time
to time of more than 20%.
7.5 The Company may retain a firm of independent public
accountants of recognized standing (who may be any such firm regularly employed
by the Company) to make any computation required under this Section 7, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section 7.
8. INVESTMENT REPRESENTATIONS.
8.1 The Holder represents and warrants that it is acquiring
the Warrant, and upon exercise will hold the Warrant Shares, solely for its
account for investment and not with a view to or for sale or distribution of
said Warrant or Warrant Shares or any part thereof. The Holder also represents
that the entire legal and beneficial interests of the Warrant and Warrant Shares
the Holder is acquiring is being acquired for, and will be held for, its account
only.
8.2 The Holder understands that the Warrant and Warrant Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act"), on the basis that no distribution or public offering of the stock of the
Company is to be effected. The Holder realizes that the basis for the exemption
may not be present if, notwithstanding its representations, it has in mind
merely acquiring the securities for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. The
Holder has no such intention.
8.3 The Holder is aware that neither the Warrant nor Warrant
Shares may be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met and until the Holder has held the Warrant Shares for at least
two years. Among the conditions for use of the Rule is the availability of
current information to the public about the Company. The Holder understands that
the Company has not made such information available and has no present plans to
do so.
8.4 The Holder represents and warrants that it is an
"accredited investor" as such term is defined in Rule 501(a) under the
Securities Act of 1933, as amended. Specifically, the Holder represents and
warrants that it is either a corporation or
5.
<PAGE>
partnership, not formed for the specific purpose of acquiring securities of
the Company, with total assets in excess of $5,000,000, or an individual
whose net worth exceeds $1,000,000.
9. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
9.1 This Warrant may be transferred, in whole or in part,
subject to the following restrictions. This Warrant and the Warrant Shares or
any other securities ("Other Securities") received upon exercise of this Warrant
shall be subject to restrictions on transferability until registered under the
Act, unless an exemption from registration is available. Until this Warrant and
the Warrant Shares or Other Securities are so registered, this Warrant and any
certificate for Warrant Shares or Other Securities issued or issuable upon
exercise of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, stating that this Warrant,
the Warrant Shares or Other Securities may not be sold, transferred or otherwise
disposed of unless, in the opinion of counsel (which counsel and which opinion
shall be satisfactory to the Company), that the Warrant, the Warrant Shares or
Other Securities may be transferred without such registration.
9.2 Any transfer permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office or to the
Transfer Agent at its offices with a duly executed request to transfer the
Warrant, which shall provide adequate information to effect such transfer and
shall be accompanied by funds sufficient to pay any transfer taxes applicable.
Upon satisfaction of all transfer conditions, the Company or Transfer Agent
shall, without charge, execute and deliver a new Warrant in the name of the
transferee named in such transfer request, and this Warrant promptly shall be
canceled.
9.3 Upon receipt by the Company of evidence satisfactory to it
of loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, of reasonably satisfactory indemnification, or, in
the case of mutilation, upon surrender of this Warrant, the Company will execute
and deliver, or instruct the Transfer Agent to execute and deliver, a new
Warrant of like tenor and date, and any such lost, stolen or destroyed Warrant
thereupon shall become void.
9.4 Each Holder of this Warrant, the Warrant Shares and any
Other Securities shall indemnify and hold harmless the Company, its directors
and officers, and each other person, if any, who controls the Company, against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or any such person may become subject
under the Act or any statute or common law, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or based
upon the disposition by such Holder of the Warrant, the Warrant Shares or Other
Securities in violation of this Warrant.
6.
<PAGE>
9.5 The terms and conditions of this Warrant shall be binding
upon any permitted assignee and successor of the Holder. Any such successor or
assignee shall be obligated to and shall immediately execute an instrument which
provides that such party is bound under the terms of this Warrant. Any transfer,
assignment or other disposition without such execution by the proposed
transferee, assignee or successor shall be null and void.
10. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, as such laws are applied to
contracts entered into and wholly to be performed within the State of
California.
11. ENTIRE AGREEMENT. The undersigned Holder agrees that this Warrant
sets forth the entire understanding between the such Holder and the Company with
respect to the obligation of the Company to issue additional shares of Stock to
such Holder and supersedes all prior oral and written agreements on that
subject, including any prior common stock purchase warrant issued to the Holder.
IN WITNESS WHEREOF, the Company and Holder have executed this Warrant
as of this 12th day of November, 1999.
[WARRANTHOLDER] MAXIM PHARMACEUTICALS, INC.
By: By:
------------------------------- --------------------------------
Larry G. Stambaugh
Chairman of the Board, President
and Chief Executive Officer
7.
<PAGE>
ANNEX A
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase __________ shares of Common Stock and
herewith tenders payment for such shares of Common Stock to the order of Maxim
Pharmaceuticals, Inc. in the amount of $____________ in accordance with the
terms hereof. The undersigned requests that a certificate for such shares of
Common Stock be registered in the name of ________________________________
whose address is _________________________________________________________
__________________________________________________________________________.
If said numbers of shares of Common Stock is less than all of the shares of
Common Stock purchasable hereunder, the undersigned requests that a new
Warrant representing the remaining balance of the shares of Common Stock be
registered in the name of and that such Warrant be delivered to
____________________________________________________________________________,
whose address is____________________________________________________________
____________________________________________________________________________.
Dated:________________________________________________
Signature:____________________________________________
Tax Identification Number:____________________________
1.
<PAGE>
[Mission statement to be inserted where appropriate]
Maxim's mission is to commercialize novel drugs that extend life with quality
for cancer, infectious diseases and topical disorders. The initial market launch
of our lead drug MAXAMINE(R) planned for early 2001.
1999 MILESTONES - MAXAMINE NEARS FIRST POTENTIAL MARKET LAUNCH
Completed enrollment of U.S. the Phase 3 malignant melanoma trial in record time
positioning us to complete the trial in early 2000 and file New Drug Application
with FDA in mid 2000.
Submitted single-site abstract of 40 patients from U.S. Phase 3 melanoma
trial showing a significant increase in survival for patients treated with
MAXAMINE-Registered Trademark-.
Reported positive preliminary 12-week data from our Phase 2 hepatitis C trial
showing a complete response in 70% of the 129 patients treated with the
combination of MAXAMINE and interferon.
A Data Safety Monitoring Board analyzed interim data from the U.S. Phase 3
melanoma study and concluded that there were no ongoing safety concerns and that
the trial had the opportunity to meet its principal endpoints.
Doctors and patients in 12 countries agreed to participate in our Phase 3 study
in acute myelogenous leukemia highlighting the strong interest and need for an
effective therapy.
Commenced two Phase 2 trials in renal cell carcinoma, including one funded by
our clinical collaborators.
Completed two preclinical trials in oral mucositis of a gel based on our
MAXDERM-Trade Mark- technology showing significantly reduced healing time.
Completed two private placements of preferred stock totaling $44 million.
Entered into first MAXAMINE marketing agreements with F. H. Faulding & Co., Ltd.
in Australia and New Zealand and MegaPharm Ltd., in Israel.
1
<PAGE>
TO OUR SHAREHOLDERS, COLLABORATORS AND ASSOCIATES:
During this important year for Maxim we have moved closer to the first potential
market launch of MAXAMINE, and the growing body of clinical data suggests that
this drug may improve immunotherapy and address critical needs in cancer,
infectious diseases and topical disorders.
Two recent clinical reports on MAXAMINE-Registered Trademark- emphasize the
promise and support the high expectations we have for our lead drug. In
November the largest enrolling center in our United States Phase 3 malignant
melanoma trial submitted an abstract showing a significant increase in
survival for patients treated with Maxamine. Also that month, we reported
preliminary 12-week data from our 129-patient Phase 2 hepatitis C trial
showing a complete response in 70% of the patients treated with the
combination of MAXAMINE and interferon, a two to three time improvement over
what would have been expected without MAXAMINE.
MAXAMINE NEARS FIRST POTENTIAL CANCER APPROVAL
1999 was a milestone year for our 305-patient U.S. Phase 3 study in advanced
malignant melanoma, the most deadly form of skin cancer. Enrollment was
completed in February in record time, highlighting the enthusiasm of
clinicians for the therapy. In March a Data Safety Monitoring Board (DSMB)
performed an interim analysis of data from the study and concluded that there
were no ongoing safety concerns with the trial. The DSMB also concluded that
the trial had the opportunity to meet its principal endpoints and should
continue under its approved protocol.
Recently, clinicians from the largest enrolling center in the Phase 3 trial
submitted an abstract describing preliminary survival data from the 40
patients enrolled at their site to an upcoming cancer conference. The
preliminary single-center results demonstrated a significant difference in
overall survival for patients treated with MAXAMINE. We expect to complete
this trial in the first half of the year 2000 and file a New Drug Application
with the FDA in mid year.
POSITIVE HEPATITIS C RESULTS
The benefits of MAXAMINE have also been applied to the treatment of hepatitis C,
the leading blood-borne infection in the U.S. In November 1999 we reported
preliminary 12-week results from a European Phase 2 dose-ranging study of
MAXAMINE in combination with interferon in the treatment of previously untreated
hepatitis C patients. After 12 weeks of therapy, the combination of MAXAMINE and
interferon achieved a complete biochemical and viral response in 70 percent of
all patients, compared to the 20 to 30 percent response that is commonly
observed in patients with similar profiles treated with interferon alone. More
than 200 million people are afflicted with this virus worldwide, and the early
results support our hypothesis that MAXAMINE may contribute to a more rapid and
durable response in hepatitis C patients who would otherwise respond slowly or
be nonresponsive to treatment.
2
<PAGE>
POTENTIAL FOR MAXAMINE DISCOVERY TO BROADLY BENEFIT CANCER AND INFECTIOUS
DISEASE THERAPY
We published several articles and reported additional clinical and preclinical
results during the year confirming and expanding the application of the MAXAMINE
discovery to immunotherapy. These results support our belief that MAXAMINE
impacts basic immune functions, and has the potential to be used in a broad
range of cancers and infectious diseases that can be recognized by the immune
system.
Our clinical trial program for MAXAMINE is designed so that the initial
launch in malignant melanoma may be followed in subsequent years by market
launches in acute myelogenous leukemia, renal cell carcinoma and hepatitis C.
During the year we advanced the Phase 3 trial of MAXAMINE as a remission
therapy for acute myelogenous leukemia, the most common acute adult leukemia.
Doctors and patients in 12 countries around the world are participating in
this study highlighting the strong interest and the need for an effective
therapy to extend remission times and prevent relapses.
We also commenced two Phase 2 trials in renal cell carcinoma, a serious
cancer of the kidneys, one of which is being funded by our clinical
collaborators. These two trials are designed to facilitate the promotion of
MAXAMINE for the treatment of renal cell carcinoma and to potentially expand
product labeling. Earlier-stage work published during the year also supported
the broad potential applicability of MAXAMINE in other cancers such as
prostate adenocarcinoma and brain cancer (malignant glioma).
EXPANDING OUR PRODUCT PIPELINE
In January we introduced our new platform technology, MAXDERM-TM-, and
reported pilot clinical results in several indications including herpes
labialis (cold sores), shingles, burns and other topical afflictions. During
the year we advanced the development of our topical therapy for oral
mucositis. Oral mucositis is one of the more common and severe complications
of cancer treatment with chemotherapeutic agents or radiation. Oral mucositis
can result in canker sore-like lesions and may take two or three weeks to
heal and require hospitalization. During the year we completed two
preclinical trials of a gel based on the MAXDERM technology in oral mucositis
suggesting that the drug candidate can prevent and significantly reduce the
time to heal oral lesions. In addition, in a randomized blinded pilot human
study in oral mucositis our gel generated complete healing within a mean of
four days.
FINANCING AND COMMERCIALIZATION
We completed two private placements of preferred stock totaling $44 million
during the year. We are particularly pleased with the quality of the
investors in these placements which included existing large shareholders, a
number of new, well-respected institutional investors in both the United
States and Europe.
We expect that the potential global market launch of MAXAMINE in 2001 will be
based on a combination of direct marketing by Maxim in the U.S., possibly in
collaboration with a pharmaceutical company partner, and the establishment of
marketing alliances with
3
<PAGE>
pharmaceutical companies for international markets. Earlier this year we
entered into our first MAXAMINE marketing agreements with F. H. Faulding &
Co., Ltd. in Australia and New Zealand and MegaPharm Ltd. in Israel. We are
in the process of evaluating and selecting pharmaceutical companies to serve
as marketing collaborators for the U.S., Europe and Asia.
* * * * *
Over the last several years we have discussed our goal of building a company
whose products EXTEND LIFE...WITH QUALITY. As we prepare for our first planned
market launch oF MAXAMIne we thank ouR shareholders, collaborators, healthcare
providers, patients and associates for their continued loyalty, interest and
support, and enthusiastically look forward to tomorrow.
Sincerely,
Larry G. Stambaugh
Chairman and Chief Executive Officer
4
<PAGE>
MAXAMINE - IMPROVING IMMUNOTHERAPY
560,000 deaths from cancer each year in the U.S.
1.2 million new cases of cancer each year in the U.S.
4.5 million people infected with hepatitis C in the U.S.
200 million people infected with hepatitis C in the world
The need for more effective treatments for many cancers and infectious diseases
is well known by patients and their families. MAXAMINE is a breakthrough
technology designed to improve immunotherapy - the use of the immune system to
fight cancer and viral infections. More than 800 patients have been treated in
our completed and ongoing clinical trials. A series of Phase 2 clinical trials
of MAXAMINE 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, multiple myeloma
and hepatitis C.
In addition to extending survival, maintaining the quality of a patient's life
during treatment is an important objective of MAXAMINE THERAPY. Many current
treatments for cancer and some infectious diseases are as harsh as the illnesses
themselves, forcing patients to make the difficult choice of whether to continue
therapy. MAXAMINE is intended to be safely administered by patients in their own
homes.
In many patients with cancer and chronic infectious diseases, the capacity of
the patient's immune system to detect and destroy tumor cells or virally
infected cells is compromised. MAXAMINE THERAPY combines the administration of
MAXAMINE, an immuno-modulator that protects critical immune cells, with the
administration of certain agents that stimulate these immune cells (these agents
include cytokines such as interleukin-2 and interferon-alpha, and tumor
vaccines). This combination of actions is designed to allow MAXAMINE THERAPY to
improve the immune system's ability to identify, disable and destroy malignant
or infected cells. We believe that MAXAMINE THERAPY has the potential to:
-- extend life and extend remission duration;
-- reduce the toxic side effects of cytokines;
-- maintain the patient's quality of life during therapy;
-- allow for administration at home; and
-- provide cost-effective therapy.
5
<PAGE>
NEAREST TO MARKET - MAXAMINE FOR MALIGNANT MELANOMA
THE U.S. PHASE 3 TRIAL OF MAXAMINE IN THE TREATMENT OF MALIGNANT MELANOMA WILL
BE COMPLETED IN EARLY 2000, AND WE EXPECT TO FILE OUR NDA IN MID 2000.
Malignant melanoma is the deadliest form of skin cancer, and it is one of the
most rapidly increasing cancers in the developed world. There are more than
300,000 cases of melanoma in the United States, Europe and Australia.
"THE PROGNOSIS FOR MANY ADVANCED MELANOMA PATIENTS IS
POOR, AND THERE IS A REAL NEED FOR A TREATMENT THAT
CAN SUBSTANTIALLY IMPACT SURVIVAL. MAXAMINE APPEARS
TO BE WELL TOLERATED BY MY PATIENTS PARTICIPATING IN
THE STUDY." DR. SANJIV AGARWALA, UNIVERSITY OF
PITTSBURGH
In two Phase 2 clinical trials for the treatment of advanced malignant
melanoma, the combination of MAXAMINE and the cytokines interleukin-2 (IL-2)
and interferon-alpha (IFN-(alpha)) 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. Additionally, a third Phase 2 trial was conducted
focusing primarily on patients with liver metastases, a patient group with a
historically poor prognosis. In the three Phase 2 trials combined, the
patients with liver metastases treated with MAXAMINE THERAPY had a
substantially improved survival outcome (mean survival of 14 months as a
group) compared to the reported survival time of four months or less for
these patients.
MAXAMINE THERAPY IN ADVANCED-STAGE MALIGNANT MELANOMA PATIENTS
Results in patients with liver metastases
[GRAPHIC]
A 305-patient U.S. Phase 3 study in advanced malignant melanoma patients is
nearing completion. In the study, patients are being treated with a combination
of MAXAMINE and IL-2, while patients in the control group are
6
<PAGE>
being treated with the same dose of IL-2 alone. The primary endpoints of the
study are overall patient survival and survival of patients with liver
metastases, and the secondary endpoints include patient quality of life. Due
to strong interest from clinicians, enrollment of the trial was completed in
record time in early 1999. In March 1999, a Data Safety Monitoring Board
(DSMB) performed an interim analysis of data from the U.S. study and
concluded that there were no ongoing safety concerns with the trial. The DSMB
also concluded that the trial had the opportunity to meet its principal
endpoints and should continue under its approved protocol.
Recently, clinicians from the largest enrolling center submitted an abstract
to an upcomiong cancer conference describing preliminary survival data from
the 40 patients enrolled at their site. The preliminary single-center results
demonstrated a significant difference in overall survival for patients
treated with MAXAMINE. We expect to complete this trial in the first half of
the year 2000 and file a New Drug Application (NDA) with the FDA in mid year.
A second Phase 3 trial, centered in Europe, Australia, Canada and Israel, is
designed to compare MAXAMINE THERAPY to dacarbazine (DTIC), the most commonly
used chemotherapeutic agent for the treatment of advanced malignant melanoma.
The two Phase 3 malignant melanoma trials complement each other by addressing
separate clinical and marketing issues:
-- the United States Phase 3 trial is designed to gain regulatory
approval in the U.S., Europe and Australia by demonstrating that the
combination of MAXAMINE and IL-2 is better at extending patient
survival than the administration of IL-2 alone;
-- the objective of the international trial is to broaden physicians'
exposure to the drug outside the U.S., to seed the international
markets for our expected launch, and to provide a comparison of
immunotherapy and chemotherapy.
PHASE 3 TRIALS IN ADVANCED MALIGNANT MELANOMA
<TABLE>
<CAPTION>
PROTOCOL
------------------------------ APPROXIMATE
STUDY MAXAMINE CONTROL PRIMARY ESTIMATED NUMBER
LOCATION OBJECTIVE THERAPY GROUP ENDPOINTS COMPLETION OF PATIENTS
-------- --------- -------- ------- --------- ---------- -----------
(a) (b) (c)
<S> <C> <C> <C> <C> <C> <C>
United States Support regulatory MAXAMINE IL - 2 Survival 2000 305
approvalin the U.S., + IL-2 (overall & (fully
Europe, Australia, liver met enrolled)
and other markets patients) & QOL
Europe, Australia, Prepare markets outside MAXAMINE DTIC Survival 2001 200
Canada & Israel U.S. for launch, evaluate + IL-2 & IFN-(alpha) (overall &
immuno-therapy vs. liver met
chemotherapy patients) & QOL
</TABLE>
(a) QOL = quality of life
(b) Expected duration of trial after completing enrollment is 12 months
7
<PAGE>
MAXAMINE PIPELINE
The discovery represented by MAXAMINE'S mechanism and its potential broad
role in immunotherapy has generated a substantial pipeline of prospective
applications for the drug. We have established an extensive clinical trial
base (nine Phase 2 trials and three Phase 3 trials completed or currently
underway) staged so that additional product approvals and launches should
follow in the periods subsequent to the initial launch in melanoma.
[GRAPHIC]
ACUTE MYELOGENOUS LEUKEMIA
PHASE 3 TRIAL UNDERWAY
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. Unfortunately 75-80% of patients who achieve their first complete
remission will relapse, and the median time in remission before relapse is only
12 months with current treatments. The prospects for these relapsed patients is
poor, and less than 5% survive long term.
[GRAPHIC]
8
<PAGE>
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
patients during treatment. The intent of the combination therapy is to
enhance the body's ability to scavenge and attack residual leukemic cells. In
a Phase 2 study, patients treated in their first remission with MAXAMINE
THERAPY experienced a substantial increase in leukemia-free survival. The
patients treated with MAXAMINE THERAPY achieved a median time to relapse
through the last date of evaluation of 28 months compared to 12 months under
the current standard of care (the median time to relapse of the MAXAMINE
patients may increase as leukemia-free patients are still under evaluation).
We are currently enrolling patients in a 300+ patient Phase 3 trial of MAXAMINE
and IL-2 as a remission therapy for AML. Doctors and patients in 12 countries,
including sites in the United States, Europe, Australia, Canada and Israel, are
participating in this study highlighting the strong interest and need for an
effective remission therapy.
PHASE 3 TRIAL IN ACUTE MYELOGENOUS LEUKEMIA
<TABLE>
<CAPTION>
PROTOCOL
------------------------ APPROXIMATE
STUDY MAXAMINE CONTROL PRIMARY ESTIMATED NUMBER
LOCATION OBJECTIVE THERAPY GROUP ENDPOINTS COMPLETION OF PATIENTS
-------- --------- -------- ------- --------- ---------- -----------
(a) (b) (c)
<S> <C> <C> <C> <C> <C> <C>
U.S., Europe, Support regulatory MAXAMINE SOC Leukemia-free 2002 300+
Australia, approval in the U.S., + IL-2 survival
Canada & Israel Europe, and other & QOL
major markets
</TABLE>
(a) SOC = standard of care (current standard is to offer no treatment in
remission)
(b) QOL = quality of life
(c) For patients in second or greater complete remission, expected
follow-up is 18 months after completion of enrollment
RENAL CELL CARCINOMA
2 PHASE 2 TRIALS UNDERWAY
There are 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. In a preliminary
survey more than 80% of oncologists indicated that they would use MAXAMINE in
RCC upon approval for malignant melanoma.
A pilot study of MAXAMINE THERAPY in the treatment of RCC showed a
substantial improvement in survival in the patients treated with the
combination of MAXAMINE and IL-2. We have two European Phase 2 studies
underway, the objective of which is to provide the requisite support to
provide for the promotion and potential amendment to labeling for the
treatment of RCC. The first trial has been fully enrolled with 40 patients.
The second trial, planned to include up to 120 patients, is being funded by
our clinical collaborators.
9
<PAGE>
HEPATITIS C
Hepatitis C is more easily transmitted than HIV and is now the leading
blood-borne infection in the United States.
More than 4.5 million people are estimated to be infected with hepatitis C in
the U.S., and more than 200 million are infected worldwide.
Hepatitis C is a disease characterized by inflammation of the liver and, in many
cases, permanent cirrhosis (scarring) of the liver tissues. The cycle of disease
from infection to significant liver damage can take 20 years or more. Some
experts estimate that without substantial improvements in treatment, deaths from
hepatitis C will surpass those from HIV.
The standard treatment for hepatitis C is interferon-alpha (IFN-alpha), an
immunotherapeutic agent often given in combination with the anti-viral drug
ribavirin. The majority of patients do not attain a sustained response with
current therapies. Several factors can influence the patient's response to
therapy including the patient's viral load and the genotype or variation of
the virus with which the patient is infected. Of the several variations, or
genotypes, of hepatitis C, genotype-1 is the most common type in the U.S.
Patients infected with this genotype, and those with viral levels greater
than 2 million copies per milliliter of blood, typically have the poorest
response to treatment.
We are currently conducting a Phase 2 dose-ranging study of MAXAMINE in
combination with IFN-alpha in the treatment of previously untreated hepatitis
C-infected patients. The ongoing study is designed to evaluate the safety and
activity of four different dose regimens of MAXAMINE in combination with the
standard dose of IFN-alpha.
PHASE 2 TRIALS IN HEPATITIS C
<TABLE>
<CAPTION>
PROTOCOL
------------------------ APPROXIMATE
STUDY MAXAMINE CONTROL PRIMARY ESTIMATED NUMBER
LOCATION OBJECTIVE THERAPY GROUP ENDPOINTS COMPLETION OF PATIENTS
-------- --------- -------- ------- --------- ---------- -----------
(a)
<S> <C> <C> <C> <C> <C> <C>
Europe Selection of Maxamine MAXAMINE Single arm Viral & 2001 129
& Israel dose, demonstrate that + IFN-(alpha) biochemical
Maxamine improves (ALT) response
immunotherapy (IFN-alpha)
</TABLE>
(a) Evaluations will be performed at 24 and 48 weeks in 2000, and at 72
weeks in 2001
The trial enrolled 129 patients and is designed to test four different dose
regimens of MAXAMINE in combination with standard interferon therapy (3 MIU
three times per week). Patients responding during the first 12 weeks of
treatment will continue treatment through 48 weeks, with evaluations at 24, 48
and 72 weeks. The study enrolled a high percentage of patients that
10
<PAGE>
would normally be considered difficult to treat as characterized by high
viral loads and a genotype-1 infection. The mean viral load of the patients
in this study was 6.7 million copies per milliliter, and 50% of the patients
were infected with genotype-1.
After 12 weeks of treatment 70 percent of the patients treated with MAXAMINE
attained complete biochemical and viral response. Published reports suggest that
20 to 30 percent of patients with similar profiles achieve a complete
biochemical and viral response when treated with interferon therapy alone.
PHASE 2 TRIAL IN HEPATITIS C
[GRAPH]
The results also suggested that MAXAMINE provided a benefit even in the
patients expected to have a poor prognosis. After 12 weeks of treatment, a
complete viral response was achieved by 61 percent of the patients with a
genotype-1 infection, and 62 percent of the patients having greater than 2
million viral copies per milliliter. Lastly, study results showed that after
4 weeks of treatment, 80 percent of patients achieved greater than a 2 log
reduction in viral load or were complete responders, characterized as "rapid
responses". The preliminary results support our hypothesis the MAXAMINE may
contribute to a mere rapid and durable response in hepatitis C patients who
would otherwise respond slowly or be nonresponsive to treatment.
"TYPICALLY, A RAPID RESPONSE TO HEPATITIS C
TREATMENT, OR A COMPLETE RESPONSE BY WEEK
12, IS A STRONG INDICATOR OF LONG-TERM
SUSTAINED RESPONSE. I AM IMPRESSED WITH THE
PRELIMINARY RESULTS OF THIS STUDY AS THEY SHOW
THAT MAXAMINE, IN COMBINATION WITH INTERFERON,
ACHIEVED A SUBSTANTIALLY HIGHER PERCENTAGE
OF RAPID RESPONSES THAN IS USUALLY OBSERVED
WITH INTERFERON ALONE."
FREDERIK NEVENS M.D., UZ GASTHUISBERG, BELGIUM
11
<PAGE>
TOPICAL THERAPIES
For millions of patients, topical disorders such as herpes labialis, herpes
zoster, oral mucositis, canker sores, decubitus ulcers, and others result in
prolonged pain, suffering, and slow healing times that can lead to an increased
risk of secondary infection. The patient's immune response, localized
inflammation and wound-healing status may contribute to the difficulty in
treating many of these disorders.
The MAXDERM technology and pipeline of potential products is based on research
on the active molecules underlying MAXAMINE. The MAXDERM discovery may be able
to address the underlying mechanisms that cause many of the above disorders, and
may enhance the cellular immune response, reduce inflammation, and enhance the
wound healing process. This discovery is novel and differs from the anti-viral,
pain relieving and anti-bacterial approaches underlying many existing and
proposed treatments.
Small pilot, randomized, blinded, placebo-controlled trials have been conducted
in more than 75 patients with oral mucositis, herpes labialis (cold sores),
decubitus ulcers, shingles, burns, and conjunctivitis. Patients experienced
improved healing times when treated with gels based on the MAXDERM technology
compared to a placebo control.
ORAL MUCOSITIS
Oral mucositis (stomatitis) can be induced by a number of different procedures,
drugs or treatments. The most common and debilitating is the mucositis caused by
the treatment of cancer patients with chemotherapy or radiation. There are
possibly a million new cases each year worldwide with no effective treatments
yet available.
Symptoms of oral mucositis include the formation of canker sore-like lesions
within the mouth that may extend to the tongue, throat and gastrointestinal
tract, with mild to severe discomfort and difficulty eating and drinking. The
lesions may last 2 to 3 weeks, and in severe cases patients require
hospitalization, morphine to alleviate pain, and termination of their cancer
treatment. We believe that a product that would assist patients with this
discomforting condition would fit with our objective of maintaining the quality
of patients' lives during therapy, and would fit strategically with our proposed
marketing plans for Maxamine.
During 1999 we completed two preclinical trials of a gel based on the MAXDERM
technology in oral mucositis suggesting that the drug candidate can prevent and
significantly reduce the time to heal oral lesions. A small pilot human study
was conducted in which nine patients with oral mucositis were randomized and
treated with one of two doses of our gel or a placebo. The patients treated with
our gel experienced complete healing of lesions in a mean time of three to four
days, depending upon the dosage. Patients treated with the placebo experienced
no
12
<PAGE>
reduction in lesions during the treatment period. Patients treated with our
gel also reported a reduction in the discomfort associated with eating and
drinking.
PILOT HUMAN STUDY OF MAXIM GEL IN ORAL MUCOSITIS
[GRAPH]
HERPES LABIALIS
A pilot study of gels based on the MAXDERM technology was also conducted in 18
patients with herpes labialis (cold sores). In the randomized, blinded study,
patients with herpes labialis treated with our gel containing the highest
concentration of active ingredient demonstrated a nearly complete (>99%)
improvement of their lesions following only four days of administration.
Patients treated with the placebo, conversely, experienced an increase in mean
lesion size during the study period.
MAXVAX MUCOSAL VACCINE CARRIER
The Company's MAXVAX-Trade Mark- technology, currently in preclinical
development, is designed to facilitate a new class of needle-free mucosal
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.
Prototype MAXVAX-based vaccines have been tested in our laboratories. Our
objective is to align 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.
13
<PAGE>
OUR GOAL: IMPROVE PATIENT CARE
We value the quality of patients' lives. For the past several years we have
discussed our goal of developing treatments designed to extend survival and
maintain the patient's quality of life. With our first Phase 3 trial of MAXAMINE
nearing completion, we now stand poised to turn words into actions.
Recent communications we have seen from various regulatory agencies and other
groups associated with the regulatory approval process further support the
merits of our strategy of using patient survival and quality of life as
principal endpoints for our cancer studies. There appears to be less interest in
approving and paying for drugs in the future that only shrink or limit the
growth of tumors for a short period of time without providing a survival benefit
to the patients. Studies with MAXAMINE have consistently shown a benefit to
patients in a number of cancers in terms of increased survival, the most
important measurement of the benefit provided to a patient. In addition,
patients treated with MAXAMINE are able to treat themselves at home and maintain
a better quality of life compared to conventional therapies.
We hope to expand our potential for improving patient care by successfully
advancing the application of MAXAMINE to additional cancers and to hepatitis C,
and by continuing the development of our other product candidates such as our
topical therapy for oral mucositis.
14
<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, 1999.
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-Registered Trademark-, MaxDerm-TM- and MAXVAX-TM- product
development programs. The Company conducts its research and product development
efforts through a combination of internal and collaborative programs. 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.
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 continues its research and development activities,
particularly those relating to Phase 3 and Phase 2 clinical trials using
MAXAMINE THERAPY and the preparation for the planned market launch of MAXAMINE.
Losses may fluctuate from quarter to quarter and 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, 1999, 1998 AND 1997
RESEARCH AND COLLABORATION REVENUE - For the year ended September 30, 1999,
research and collaboration revenue consisting of collaborative support and
fees for exclusive MAXAMINE marketing rights for the territories of
Australia, New Zealand and Israel totaled $1,078,000, compared to $181,000
for the year ended September 30, 1998. There were no such revenues earned in
the year ended September 30, 1997.
RESEARCH AND DEVELOPMENT EXPENSES - For the year ended September 30, 1999,
research and development expenses were $36,638,000, an increase of $16,491,000,
or 82%, 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 3 clinical trial in malignant melanoma
commenced in the United States in July 1997, an international Phase 3
malignant melanoma clinical trial commenced in November 1997, a global Phase 3
clinical trial in acute myelogenous leukemia commenced in February 1998, and a
European Phase 2 clinical trial in hepatitis C commenced in May 1999. A Phase
3 trial is a large-scale test designed to be the final human study
demonstrating the safety and efficacy of a drug and supporting an application to
the U.S. Food and Drug Administration or international regulatory agencies for
marketing approval. A Phase 2 trial is an intermediate test designed to show a
preliminary evidence of efficacy of the drug being tested. 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, primarily due to
increased activity in cancer clinical trials of MAXAMINE.
15
<PAGE>
BUSINESS DEVELOPMENT AND MARKETING AND GENERAL AND ADMINISTRATIVE EXPENSES
Business development and marketing expenses for the year ended September 30,
1999 were $1,683,000, an increase of $370,000, or 28%, over the same period of
the prior year. This increase was due to additional personnel and other
resources devoted to 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, 1999, general and
administrative expenses were $2,881,000, an increase of $221,000, or 8%, over
the prior year. This increase was due to general expenses associated with the
Company's expanded operations. 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 prior year. General and administrative expenses for the year
ended September 30, 1998 totaled $2,660,000, an increase of $667,000, or 33%,
over the prior year. Both of these increases resulted from the expanded
activities described above.
OTHER INCOME (EXPENSE) - Investment income was $1,023,000 for the year ended
September 30, 1999, a decrease of $1,225,000, or 54%, from the prior year, as
a result of the reduction in the principal balance of interest-bearing
investments liquidated to finance the operations of the Company. Investment
income for the year ended September 30, 1998 totaled $2,248,000, 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. Interest expense for the year ended September 30, 1999 was $146,000, an
increase of $57,000, or 64%, over the same period of the prior year. This
increase was primarily attributable to interest incurred on additional
advances made under the Company's line of credit agreement used to finance
qualified equipment purchases. Interest expense for the year ended September
30, 1998 was consistent with that of the prior year and totaled $89,000.
NET LOSS - Net loss for the year ended September 30, 1999 totaled $39,709,000,
an increase of $17,855,000, or 82%, over the prior year. The increase was
primarily due to the expansion of research and development and general corporate
activities described above, and also includes $483,000 of accrued dividends on
preferred stock included in the net loss applicable to common stock. Net loss
for the year ended September 30, 1998 totaled $21,855,000, an increase of
$14,959,000, or 217%, over the prior year. Net loss per share of common stock
for the year ended September 30, 1999 was $3.94, an increase of $1.57, or 66%,
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, 1998 was
$2.37, an increase of $1.34, or 130% from 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.
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, preparation for the planned market launch of MAXAMINE, 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, an international follow-on public offering
in October 1997 and a private offering of preferred stock in July 1999 that
provided net proceeds to the Company of approximately $18.2 million $34.7
million and $18.3 million, respectively.
As of September 30, 1999, the Company had cash, cash equivalents and
investments totaling approximately $18.0 million. On November 10, 1999, the
Company completed a private placement which provided net proceeds to the
Company of approximately $22.5 million, resulting in cash, cash equivalents
and investments of $40.5 million on an as-adjusted basis. For the years ended
September 30, 1999, 1998 and 1997, net cash used in the Company's operating
activities was approximately $36.0 million, $14.8 million and $5.9 million,
respectively. The Company's cash requirements may fluctuate 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 may result in
an increase in cash requirements are three Phase 3 cancer clinical trials and
three Phase 2 clinical trials of MAXAMINE currently underway, and preparation
for the planned market launch of MAXAMINE.
16
<PAGE>
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 cost 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. The Company
plans to pursue the issuance of additional equity securities and to pursue
corporate marketing alliances and collaborative agreements, as required to meet
its cash requirements. 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 on its common stock and
does not contemplate the payment of cash dividends on its common stock 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 has also completed its
process of verifying whether its major suppliers, service providers and
financial institutions are Year 2000 compliant and believes that they are
compliant. The Company will continue to monitor the compliance of these parties.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is principally confined to our cash equivalents
and investments that have maturities of less than two years. We maintain a
non-trading investment portfolio of investment grade, liquid debt securities
that limits the amount of credit exposure to any one issue, issuer or type of
instrument. The securities in our investment portfolio are not leveraged, are
classified as available-for-sale and are therefore subject to interest rate
risk. We currently do not hedge interest rate exposure. If market interest
rates were to increase by 100 basis points, or 1%, from September 30, 1999
levels, a model calculation suggests that the market value of our portfolio
would decline by an immaterial amount. The modeling technique used measures
the change in market values arising from an immediate hypothetical shift in
market interest rates.
IMPACT OF INFLATION
The impact of inflation on the operations of the Company for the years ended
September 30, 1999, 1998 and 1997 was not material.
17
<PAGE>
SELECTED FINANCIAL DATA
Selected financial data in thousands except per share data.
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Research and development expenses $ 36,638 $ 20,147 $ 5,353 $1,609 $ 985
Net loss applicable to common stock (39,709) (21,855) (6,895) (833) (2,790)
Net loss per share of common stock $ (3.94) $ (2.37) $ (1.03) $(0.20) $ (0.87)
Weighted average shares outstanding 10,079 9,215 6,671 4,075 3,209
</TABLE>
<TABLE>
<CAPTION>
As of September 30
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------- ---------- ---------- ---------- ----------
SELECTED BALANCE SHEET DATA: As
Adjusted(1) Actual
------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and investments $40,498 $17,942 $35,769 $12,160 $19,144 $513
Total assets 47,004 24,515 42,022 15,858 21,255 2,454
Long-term debt, less current portion 908 908 977 555 - 247
Deficit accumulated during the development stage (81,913) (81,913) (42,687) (20,832) (13,937) (13,103)
Stockholders' equity (deficit) 33,332 10,843 31,116 13,393 20,124 (3,644)
</TABLE>
(1) Adjusted to reflect the net proceeds from a private placement of preferred
stock completed by the Company in November 1999.
18
<PAGE>
BALANCE SHEETS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
As of September 30
------------------------------------------
1999 1998
------------------ ------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,543,977 $ 11,217,429
Short-term investments in marketable securities 11,398,363 21,031,568
Accrued interest and other current assets 2,800,611 2,491,308
------------------ ------------------
Total current assets 20,742,951 34,740,305
Investments in marketable securities - 3,519,554
Patents and licenses, net 2,002,349 1,839,167
Property and equipment, net 1,473,807 1,693,402
Deposits and other assets 296,234 229,157
------------------ ------------------
Total assets $ 24,515,341 $ 42,021,585
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,090,832 $ 9,014,831
Accrued expenses 3,630,306 374,652
Accrued dividends 482,844 -
Note payable 79,129 176,784
Current portion of long-term debt 480,640 361,675
------------------ ------------------
Total current liabilities 12,763,751 9,927,942
Long-term debt, less current portion 908,380 977,213
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized;
206,874 and 0 shares of Series A convertible preferred issued
and outstanding at September 30, 1999 and 1998, respectively;
liquidation preference of $20,118,496 and $0 at September 30,
1999 and 1998, respectively 207 -
Common stock, $.001 par value, 35,000,000 shares authorized;
10,205,697 and 9,885,576 shares issued and outstanding at
September 30, 1999 and 1998, respectively 10,206 9,886
Additional paid-in capital 92,818,050 73,807,327
Deficit accumulated during the development stage (81,912,974) (42,686,624)
Deferred compensation (2,943) (14,159)
Net unrealized loss on investments available for sale (69,336) -
------------------ ------------------
Total stockholders' equity 10,843,210 31,116,430
------------------ ------------------
Total liabilities and stockholders' equity $ 24,515,341 $ 42,021,585
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<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,
1999 1998 1997 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Research and collaboration revenue $ 1,077,800 $ 180,750 $ - $ 4,204,551
Operating expenses:
Research and development 36,637,714 20,146,649 5,353,165 72,138,786
Business development
and marketing 1,682,664 1,313,019 383,667 3,608,773
General and administrative 2,880,647 2,659,930 1,992,629 14,891,590
----------------- ----------------- ----------------- -----------------
Total operating expenses 41,201,025 24,119,598 7,729,461 90,639,149
Other income (expense):
Investment income 1,023,013 2,247,577 927,050 4,485,370
Interest expense (146,056) (89,101) (77,562) (2,216,528)
Other income (expense) 19,918 (74,200) (15,176) (35,692)
Gain on sale of subsidiary - - - 2,288,474
----------------- ----------------- ----------------- -----------------
Total other income (expense) 896,875 2,084,276 834,312 4,521,624
----------------- ----------------- ----------------- -----------------
Net loss before preferred stock dividends (39,226,350) (21,854,572) (6,895,149) (81,912,974)
Dividends on preferred stock 482,844 - - 482,844
----------------- ----------------- ----------------- -----------------
Net loss applicable to common stock $ (39,709,194) $ (21,854,572) $ (6,895,149) $ (82,395,818)
================= ================= ================= =================
Net loss per share of common stock $ (3.94) $ (2.37) $ (1.03)
================= ================= =================
Weighted average shares outstanding 10,078,765 9,215,416 6,671,237
================= ================= =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Preferred Stock Additional
----------------- Common Stock Paid-In
Shares Amount Shares Amount Capital
--------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 23, 1989 (inception) - $ - - $ - $ -
Issuance of common stock at $.001 - - 1,000 8,029 -
Net income - - - - -
--------- ------- ----------- --------- -------------
Balance at December 31, 1989 - - 1,000 8,029 -
Net income - - - - -
--------- ------- ----------- --------- -------------
Balance at December 31, 1990 - - 1,000 8,029 -
Net income - - - - -
--------- ------- ----------- --------- -------------
Balance at December 31, 1991 - - 1,000 8,029 -
Additional funding - - 42 - 1,259,249
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at December 31, 1992 - - 1,042 8,029 1,259,249
Net effect of reorganization and issuance of
common stock to account for reverse
acquisition - - 181,371 (7,847) 53,002
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1993 - - 182,413 182 1,312,251
Issuance of common stock at $60 per share
for consulting and professional services - - 1,098 1 65,999
Issuance of Series A preferred stock
for cash at $3.00 per share 250,000 250 - - 487,250
Issuance of common stock to convert bridge debt
financing at prices from $52.50 to $75 per
share - - 112,440 113 5,933,894
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1994 250,000 250 295,951 296 7,799,394
Issuance of common stock at $3.00 per share
upon conversion of debt - - 553,254 553 1,659,210
Issuance of common stock pursuant to anti-
dilutive provisions in previous bridge
debt financing - - 1,137,343 1,137 (1,137)
Issuance of common stock at $3.00 per
share for subscription receivable - - 103,667 104 310,896
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1995 250,000 250 2,090,215 2,090 9,768,363
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Subscription Loss On
Receivable/ Investments
Accumulated Deferred Available for
Deficit Compensation Sale Total
------------- -------------- ------- ------------
<S> <C> <C> <C> <C>
Balance at October 23, 1989 (inception) $ - $ - $ - $ -
Issuance of common stock at $.001 - - - 8,029
Net income 44 - - 44
------------- ---------- ------- ------------
Balance at December 31, 1989 44 - - 8,073
Net income 751 - - 751
------------- ---------- ------- ------------
Balance at December 31, 1990 795 - - 8,824
Net income 272 - - 272
------------- ---------- ------- ------------
Balance at December 31, 1991 1,067 - - 9,096
Additional funding - - - 1,259,249
Net loss (2,445,184) - - (2,445,184)
------------- ---------- ------- ------------
Balance at December 31, 1992 (2,444,117) - - (1,176,839)
Net effect of reorganization and issuance of
common stock to account for reverse
acquisition (1,197,822) - - (1,152,667)
Net loss (4,238,731) - - (4,238,731)
------------- ---------- ------- ------------
Balance at September 30, 1993 (7,880,670) - - (6,568,237)
Issuance of common stock at $60 per share
for consulting and professional services - - - 66,000
Issuance of Series A preferred stock
for cash at $3.00 per share - - - 487,500
Issuance of common stock to convert bridge debt
financing at prices from $52.50 to $75 per
share - - - 5,934,007
Net loss (2,432,623) - - (2,432,623)
------------- ---------- ------- ------------
Balance at September 30, 1994 (10,313,293) - - (2,513,353)
Issuance of common stock at $3.00 per share
upon conversion of debt - - - 1,659,763
Issuance of common stock pursuant to anti-
dilutive provisions in previous bridge
debt financing - - - -
Issuance of common stock at $3.00 per
share for subscription receivable - (311,000) - -
Net loss (2,790,122) - - (2,790,122)
------------- ---------- ------- ------------
Balance at September 30, 1995 (13,103,415) (311,000) - (3,643,712)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Additional
--------------- Common Stock Paid-In
Shares Amount Shares Amount Capital
--------- ------- ----------- --------- -------------
<S> <C> <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 2,249,255
Receipt of subscription receivable - - - - -
Issuance of common stock and warrants
at $3.75 per unit for cash - - 465,504 465 1,740,033
Issuance of common stock at $4.50 per share for
cash - - 400,000 400 1,799,600
Exercise of common stock options - - 400 1 2,999
Issuance of common stock at $7.50 per share and
warrants at $.10 per warrant in initial public
offerin - - 2,875,000 2,875 18,217,215
Conversion of preferred stock to common stock (250,000) (250) 102,866 103 147
Options granted to employees - - - - 394,999
Amortization of deferred compensation - - - - -
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1996 - - 6,678,631 6,679 34,172,611
Options granted to consultant - - - - 96,903
Amortization of deferred compensation - - - - -
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1997 - - 6,678,631 6,679 34,269,514
Issuance of common stock at $15.25 per share
in follow-on offering - - 2,500,000 2,500 34,710,939
Exercise of common stock purchase warrants 392,000 392 4,115,608
Exercise of stock options and warrants - - 313,304 314 634,222
Options granted to consultants - - - - 50,438
Contribution to 401(k) plan - - 1,641 1 26,606
Amortization of deferred compensation - - - - -
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1998 - - 9,885,576 9,886 73,807,327
Issuance of Series A preferred stock
for cash at $97.25 per share 206,874 207 - - 18,258,794
Exercise of stock options and warrants - - 313,671 314 1,082,568
Option granted to consultants - - - - 79,727
Contribution to 401(k) plan - - 6,450 6 72,478
Dividends on Series A preferred stock - - - - (482,844)
Unrealized loss on investments available for sale - - - - -
Amortization of deferred compensation - - - - -
Net loss - - - - -
--------- ------- ----------- --------- -------------
Balance at September 30, 1999 206,874 $ 207 10,205,697 $ 10,206 $ 92,818,050
--------- ------- ----------- --------- -------------
--------- ------- ----------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Subscription Loss On
Receivable Investments
Accumulated Deferred Available for
Deficit Compensation Sale Total
------------- ---------- ----------- ------------
<S> <C> <C> <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
offerin - - - 18,220,090
Conversion of preferred stock to common stock - - - -
Options granted to employees - (163,124) - 231,875
Amortization of deferred compensation - 44,385 - 44,385
Net loss (833,488) - - (833,488)
------------- ---------- ----------- ------------
Balance at September 30, 1996 (13,936,903) (118,739) - 20,123,648
Option granted to consultant - - - 96,903
Amortization of deferred compensation - 67,826 - 67,826
Net loss (6,895,149) - - (6,895,149)
------------- ---------- ----------- ------------
Balance at September 30, 1997 (20,832,052) (50,913) - 13,393,228
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
Options 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) - - (21,854,572)
------------- ---------- ----------- ------------
Balance at September 30, 1998 (42,686,624) (14,159) - 31,116,430
Issuance of Series A preferred stock -
for cash at $97.25 per share - - - 18,259,001
Exercise of stock options and warrants - - - 1,082,882
Options granted to consultants - - - 79,727
Contribution to 401(k) plan - - - 72,484
Dividends on Series A preferred stock - - - (482,844)
Unrealized loss on investments available for sale - - (69,336) (69,336)
Amortization of deferred compensation - 11,216 - 11,216
Net loss (39,226,350) - - (39,226,350)
------------- ---------- ----------- ------------
Balance at September 30, 1999 $ (81,912,974) $ (2,943) $ (69,336) $ 10,843,210
------------- ---------- ----------- ------------
------------- ---------- ----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
STATEMENTS OF CASH FLOWS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
From Inception
Year Ended September 30 (October 23, 1989)
-------------------------------------------------- through
1999 1998 1997 September 30, 1999
--------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (39,226,350) $ (21,854,572) $ (6,895,149) $ (81,912,974)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 678,908 407,525 262,784 2,130,361
Amortization of premium on investments 249,340 129,603 156,342 535,285
Stock options issued as compensation 90,943 87,193 164,729 619,125
Stock contributions to 401(k) plan 72,485 26,607 - 99,092
Net book value of disposed assets 2,922 74,681 4,435 210,286
Loss on write-off of patents 144,318 20,050 53,144 406,580
Gain on sale of subsidiary - - - (2,288,474)
Other - - - (283,658)
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 85,697 (1,721,985) 132,449 (2,213,124)
Other assets and deposits (462,077) 357,736 (583,496) (839,037)
Accounts payable (923,999) 7,932,792 676,278 8,090,831
Accrued expenses 3,255,654 (222,736) 118,765 3,651,516
--------------- --------------- ---------------- ---------------
Net cash used in operating activities (36,032,159) (14,763,106) (5,909,719) (67,995,358)
INVESTING ACTIVITIES:
Purchases of marketable securities (20,756,917) (35,572,687) (10,835,442) (82,239,034)
Sales and maturities of marketable securities 33,591,000 22,604,050 14,041,000 70,236,050
Additions to patents and licenses (517,175) (212,947) (652,053) (3,224,962)
Purchases of property and equipment (252,560) (1,098,586) (804,454) (2,963,841)
Cash acquired in acquisition of business - - - 985,356
Proceeds from sale of diagnostic division - - - 496,555
--------------- --------------- ---------------- ---------------
Net cash provided (used) by investing activities 12,064,348 (14,280,170) 1,749,051 (16,709,876)
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
and warrants 1,082,881 39,463,974 - 66,204,721
Net proceeds from issuance of preferred stock 18,259,001 - - 18,746,501
Proceeds from issuance of notes payable and
long-term debt 444,435 596,840 814,380 6,432,078
Payments on notes payable and long-term debt (491,958) (247,632) (276,278) (3,786,373)
Proceeds from issuance of notes payable to
related parties - - - 4,982,169
Payments on notes payable to related parties - - - (1,329,885)
--------------- --------------- ---------------- ---------------
Net cash provided by financing activities 19,294,359 39,813,182 538,102 91,249,211
--------------- --------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents (4,673,452) 10,769,906 (3,622,566) 6,543,977
Cash and cash equivalents at beginning of period 11,217,429 447,523 4,070,089 -
--------------- --------------- ---------------- ---------------
Cash and cash equivalents at end of period $ 6,543,977 $11,217,429 $ 447,523 $ 6,543,977
--------------- --------------- ---------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<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 diseases, 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 statements 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-Registered Trademark-, MaxDerm-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. 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. 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 continues its research and
development activities and sponsorship of clinical trials, and as it prepares
for the potential market launch of its first Maxamine product. 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 are classified as short-term investments. Management
determines the appropriate classification of investments at the time of purchase
and reevaluates such designation as of each balance sheet date. During the
current fiscal year, management reclassified its investments as
available-for-sale from its prior policy of held-to-maturity to better reflect
anticipated holding periods. Available-for-sale investments are stated at fair
value with net unrealized gains or losses reported in stockholders' equity.
Investments classified as held to maturity are carried at amortized cost in the
absence of any other than temporary
23
<PAGE>
decline in market value. Realized gains and losses, and declines in value judged
to be other than temporary are included in interest income. The cost of
securities sold is computed using the specific identification method.
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.
PATENTS, TRADEMARKS AND LICENSES - The Company capitalizes certain legal costs
and acquisition costs related to patents, trademarks 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,
trademarks are registered or the license is acquired.
LOSS PER SHARE OF COMMON STOCK - Net loss per share of common stock is computed
by dividing the net loss after deduction of dividends on preferred stock by the
weighted average number of shares of common stock outstanding during the period.
Diluted loss per share, calculated by including the additional common shares
issuable upon exercise of outstanding convertible preferred stock, options and
warrants in the weighted average share calculation, is not presented as these
securities are antidilutive.
FOREIGN CURRENCY TRANSLATION - The Company accounts for translation of foreign
currency in accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation."
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, cash
equivalents, investment 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.
COMPREHENSIVE INCOME - Effective January 1, 1998 the Company adopted Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 requires reporting and displaying comprehensive income and
its components in a full set of general-purpose financial statements. The
Company's 1999 unrealized loss on investments represents the only component of
comprehensive income that is excluded from net loss.
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.
3. INVESTMENT SECURITIES
The following is a summary of all of the Company's investment securities. All of
the Company's securities are classified as available-for-sale. Determination of
estimated fair value is based upon quoted market prices at September 30, 1999
and at cost at September 30, 1998:
<TABLE>
<CAPTION>
September 30
1999 1998
--------------------- -------------------
<S> <C> <C>
Cash equivalents:
U.S. corporate debt securities $ - $ 6,113,617
Taxable auction securities - 1,600,000
U.S. corporate equity securities - 1,000,000
===================== ===================
$ - $ 8,713,617
===================== ===================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
September 30
1999 1998
--------------------- -------------------
<S> <C> <C>
Short-term investments in marketable securities:
U.S. corporate debt securities $ 6,833,323 $ 8,635,181
Securities of foreign corporations 4,565,040 7,396,387
Certificates of deposit - 5,000,000
--------------------- -------------------
$ 11,398,363 $ 21,031,568
===================== ===================
Investments in marketable securities:
U.S. corporate debt securities $ - $ 2,510,120
Securities of foreign corporations - 1,009,434
===================== ===================
$ - $ 3,519,554
===================== ===================
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30
1999 1998
---- ----
<S> <C> <C>
Laboratory equipment $ 560,404 $ 548,433
Office equipment and furniture 1,399,751 1,203,565
Leasehold improvements 303,441 263,097
--------- ---------
2,263,596 2,015,095
Less accumulated depreciation and amortization (789,789) (321,693)
--------- ---------
$1,473,807 $1,693,402
--------- ---------
--------- ---------
</TABLE>
At September 30, 1999, property and equipment included equipment under capital
leases of $251,283 with related accumulated amortization of $52,351. At
September 30, 1998, property and equipment included equipment under capital
leases of $251,283 with related accumulated amortization of $2,094.
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended September 30 From Inception
------------------------------------ Through
1999 1998 1997 September 30,1999
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Noncash investing and
financing activities:
Dividend on convertible preferred stock $482,844 $ - $ - $ 482,844
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
Other liabilities transferred - - - (121,210)
Note payable transferred - - - (2,421,560)
Other accruals - - - 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 147,509 84,260 83,167 1,560,551
</TABLE>
25
<PAGE>
6. ACCRUED INTEREST AND OTHER CURRENT ASSETS
Accrued interest and other current assets consist of the following:
<TABLE>
<CAPTION>
September 30
1999 1998
---- ----
<S> <C> <C>
Prepaid clinical trial costs $1,904,117 $1,590,800
Notes receivable from related parties 395,000 -
Accrued interest 331,293 583,070
Prepaid insurance 105,270 214,761
Consultant fees - 29,333
Other 64,931 73,344
---------- ----------
$2,800,611 $2,491,308
========== ==========
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30
1999 1998
---- ----
<S> <C> <C>
Clinical trial costs $3,215,549 $ -
Compensation 366,182 316,942
Other 48,575 57,710
---------- --------
$3,630,306 $374,652
========== ========
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30
1999 1998
---- ----
<S> <C> <C>
Credit agreement with bank, secured
by all assets of the Company $ 1,235,390 $ 1,138,034
Capital lease agreement, secured by
certain equipment 153,630 200,854
----------- ------------
1,389,020 1,338,888
Less current portion (480,640) (361,675)
----------- ------------
$ 908,380 $ 977,213
============ ============
</TABLE>
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, $983,619 in outstanding advances under the amended line of credit
converted to a term loan payable in equal installments over 48 months,
including interest at prime plus 0.25%. The term loans are secured by all
assets of the Company. Maturities of long-term debt approximate the following
for each of the five years ending September 30, 2004: 2000 - $431,000; 2001 -
$431,000; 2002 - $311,000; 2003 -$63,000; and none thereafter.
9. STOCKHOLDERS' EQUITY
PREFERRED STOCK - In July 1999, the Board of Directors designated 300,000 shares
of a new series of preferred stock, the Series A Convertible Preferred Stock
("Series A Preferred"). On July 20, 1999, the Company sold 206,874 shares of
Series A Preferred in a private transaction at a price of $97.25 per share. The
Company received net proceeds of $18,259,001 after placement fees and other
issuance costs.
26
<PAGE>
Each share of Series A Preferred is convertible into 10 shares of the
Company's common stock at a fixed price of $9.725 per share of common stock.
The Series A Preferred has a dividend of 12% payable in cash or in additional
shares of Series A Preferred at the option of the holder. The Company has the
right to effect an automatic conversion of the Series A Preferred into common
stock on or after October 18, 1999. In the event of an automatic conversion
during the first year that the Series A Preferred is outstanding, the Company
must pay the holders upon conversion, in cash or additional shares of Series
A Preferred at the option of the holder, an amount equal to the dividends
that would have been paid had the Series A Preferred remained outstanding for
one year after issuance. At September 30, 1999, accrued dividends related to
the Series A Preferred totaled $482,844.
On November 15, 1999 the Company effected an automatic conversion of the
Series A Preferred. The conversion of the Series A Preferred resulted in the
issuance of 2,294,820 shares of common stock, 226,080 of which related to
settlement of dividend and conversion obligations.
WARRANTS - At September 30, 1999, warrants to purchase 3,293,494 shares of the
Company's common stock at a weighted average exercise price of $10.30 per share
are outstanding, all of which are exercisable.
Included in the above total warrants outstanding are 2,483,000 warrants to
purchase common stock ("Redeemable Warrants") issued in connection with the
Company's initial public offering in July 1996. 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 $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.
The Company has also issued warrants to purchase common stock to certain
consultants of the Company and in connection with its initial public offering
and 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 810,494 shares of the Company's common stock at a weighed
average exercise price of $9.69 per share are outstanding at September 30, 1999,
all of which are 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) for options granted to employees and directors. 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, 1999, 1998 and 1997 totaled $11,216,
$36,755 and $67,826, respectively.
27
<PAGE>
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, 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 $3.75 - $20.25
Granted 273,833 $7.875 - $15.25
Exercised (230,333) $3.75
Canceled (54,125) $9.25 - $18.6875
--------
Outstanding September 30, 1999 856,691 $3.75 - $20.25
======= ===== ======
</TABLE>
At September 30, 1999, options for 508,016 shares of common stock are
exercisable and the remaining 348,675 become exercisable at various dates
through September 23, 2003. The options expire at various dates through
September 23, 2006. The following table summarizes information concerning
outstanding and exercisable options as of September 30, 1999.
<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>
$3.75 219,733 $3.75 3.59 years 202,399 $3.75
$7.00 - $9.99 231,666 $8.93 4.81 years 135,168 $8.91
$10.00 - $14.99 340,042 $13.30 5.88 years 126,202 $13.27
$15.00 - $20.25 65,250 $16.62 5.58 years 43,500 $16.07
</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,
1999, 1998 and 1997 would have been increased by $1,351,000 ($0.13 per share),
$1,082,000 ($0.12 per share) and $742,000 ($0.12 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 1999, 1998 and 1997, respectively: risk-free interest rates of
6.059%, 4.20% and 5.80%; dividend yield of 0%; volatility factors of the
expected market price of the Company's common stock of 76%, 64% and 73%; and an
expected life of the option of five years. These assumptions resulted in
weighted-average fair values of $7.10, $7.50 and $5.00 per share for stock
options granted in the fiscal years ended September 30, 1999, 1998 and 1997,
respectively.
401(k) PLAN - The Company has 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)
28
<PAGE>
plan for the fiscal years ended September 30, 1999, 1998 and 1997 were $73,327,
$38,194 and $5,031, respectively, primarily in the form of Company common stock.
10. INCOME TAXES
The Company has deferred income tax assets which have been fully reserved as
follows:
<TABLE>
<CAPTION>
September 30
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $35,918,000 $19,262,000
General business credit carryforwards 2,747,000 1,240,000
Other 86,000 88,000
--------- ---------
Total net deferred tax assets 38,751,000 20,590,000
Valuation allowance for deferred tax assets (38,751,000) (20,590,000)
----------- -----------
Net deferred tax assets $ - $ -
========== ===========
</TABLE>
At September 30, 1999, the Company has federal and California tax net operating
loss carryforwards of approximately $30,236,000 and $5,682,000, respectively.
The federal tax loss carryforwards began expiring in the current fiscal year.
The California tax loss carryforwards began expiring in fiscal 1998.
As a result of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforwards and tax
credit carryforwards are subject to an annual limitation in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future taxable income.
11. 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, 2004,
and thereafter: 2000 - $989,000; 2001 - $1,028,000; 2002 - $790,000; 2003 -
$765,000; and none thereafter. Total rent expense for the fiscal years ended
September 30, 1999, 1998 and 1997 was $995,001, $519,376 and $281,150,
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 $166,000 for the year ending September
30, 2000. Total rent revenue for the fiscal year ended September 30, 1999 was
$230,000.
12. 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.
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 agreement included payments by the Company
totaling $700,000 and requires that the Company pay certain royalty
obligations to an inventor of the technology based upon Company revenues.
29
<PAGE>
13. RELATED PARTY TRANSACTIONS
In April and July 1999, the Company entered into loan agreements with three of
its executive officers to finance income taxes associated with the exercise of
stock options. The amounts outstanding on the loans total $395,000 at September
30, 1999. The loans bear interest at rates ranging from 7% to 8% per annum and
mature one year from date of issuance.
14. SUBSEQUENT EVENTS
On November 10, 1999, the Company issued 267,664 shares of Series B Convertible
Preferred Stock ("Series B Preferred") in a private transaction at a price of
$89.25 per share. The Company received net proceeds of approximately $22,500,000
million after placement fees and other issuance costs. Each share of Series B
Preferred is convertible into 10 shares of the Company's common stock at a fixed
price of $8.925 per share of common stock, therefore 2,676,640 shares of common
stock are issuable upon conversion of the Series B Preferred.
The Series B Preferred has a dividend of 12% payable in cash or in additional
shares of Series B Preferred at the option of the holder. The Company has the
right to effect an automatic conversion of the Series B Preferred into common
stock on or after February 8, 2000. In the event of an automatic conversion
during the first year that the Series B Preferred is outstanding, the Company
must pay the holders upon conversion, in cash or additional shares of Series B
Preferred at the option of the holder, an amount equal to the dividends that
would have been paid had the Series B Preferred remained outstanding for one
year after issuance. The Series B Preferred were issued in a private transaction
and may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The Company is obligated
under the terms of this transaction to file a registration statement within 30
days of the sale of the Series B Preferred regarding resale of the common stock
issuable upon conversion of the Series B Preferred. If such registration
statement is not effective within 90 days after the closing of the sale of the
Series B Preferred, the dividend rate on the Series B Preferred will increase to
15% until such registration statement becomes effective.
15. QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results of operations for the years ended September 30,
1999 and 1998 were as follows :
<TABLE>
<CAPTION>
Year ended September 30, 1999
---------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses $8,779,013 $8,649,746 $9,617,430 $9,591,525
Net loss applicable to common stock (9,448,205) (9,685,476) (9,931,432) (10,161,237)
Net loss per share of common stock $(0.95) $(0.97) $(0.97) $(1.05)
</TABLE>
<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 applicable to common stock (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)
</TABLE>
16. 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
30
<PAGE>
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 Ended 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
Fiscal Year Ended September 30, 1999
First Quarter $16-1/2 $11-5/8
Second Quarter 15-5/8 10-1/2
Third Quarter 11-3/8 9
Fourth Quarter 10-5/8 7-1/2
</TABLE>
On December 23, 1999 the last reported sales price of the Common Stock,
as reported by the AMEX, was $17.6875 per share. As of such date, there were
approximately 7200 holders of record of the Common Stock. The Company has not
paid cash dividends on its common stock and has no intention to do so in the
foreseeable future. The Company has entered into a bank loan agreement which
has the potential to restrict the payment of dividends by the Company.
31
<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, 1999 and 1998, 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, 1999
and for the period from inception (October 23, 1989) through September 30,
1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999 and for the period from inception (October 23,
1989) through September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
San Diego, California
November 19, 1999
32
<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
Gary E. Frashier
CHAIRMAN
OSI PHARMACEUTICALS, INC.
Theodor H. Heinrichs
RETIRED GENERAL PARTNER,
HAMBRECHT & QUIST LIFE SCIENCE VENTURE
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. 858-453-4040
fax 858-453-5005
10-K AVAILABILITY
The Company's annual report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended September 30, 1999 is available through the
website at www.sec.gov and a copy of the report, without exhibits, will be
provided 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 are 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
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004-1202
INDEPENDENT AUDITORS
KMPG LLP
750 B Street, Suite 1500
San Diego, California 92101
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS ARE CHARACTERIZED BY FUTURE OR
CONDITIONAL VERBS AND INCLUDE STATEMENTS REGARDING THE RESULTS OF PRODUCT
DEVELOPMENT EFFORTS, THE RESULTS OF CLINICAL TRIALS, THE APPROVAL OF
APPLICATIONS FOR MARKETING OF PHARMACEUTICAL PRODUCTS, 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, 1999, 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 WE WILL NOT OBTAIN APPROVAL TO
MARKET OUR PRODUCTS, THE NEED FOR ADDITIONAL FINANCING, AND THE DEPENDENCE
UPON COLLABORATIVE PARTNERS. WE DO NOT ASSUME ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS AS CIRCUMSTANCES CHANGE
33
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
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. 333-84711 on Form S-3, 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. (a development
stage company) of our report dated November 19, 1999 relating to the balance
sheets of Maxim Pharmaceuticals, Inc. as of September 30, 1999 and 1998, 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, 1999, and
from the period from inception (October 23, 1989) through September 30, 1999,
which report appears in the September 30, 1999 annual report on Form 10-K of
Maxim Pharmaceuticals, Inc.
/s/ KPMG LLP
- -------------
San Diego, California
December 22, 1999
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 6,543,977
<SECURITIES> 11,398,363
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,742,951
<PP&E> 2,263,596
<DEPRECIATION> 789,789
<TOTAL-ASSETS> 24,515,341
<CURRENT-LIABILITIES> 12,763,751
<BONDS> 908,380
0
207
<COMMON> 10,206
<OTHER-SE> 10,832,797
<TOTAL-LIABILITY-AND-EQUITY> 24,515,341
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,637,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,056
<INCOME-PRETAX> 39,709,194
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,709,194
<EPS-BASIC> 3.94
<EPS-DILUTED> 3.94
</TABLE>
