UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1998
Commission File Number 0-22927
CRESCENDO PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0460388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1454 Page Mill Road, Palo Alto, California 94304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 494-5600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A
Common Stock
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant, as of March 12, 1999: $71,378,631
Number of shares outstanding of each of the registrant's classes of
common stock as of March 12, 1999:
Class A Common Stock, $.01 par value 4,965,470 shares
Class B Common Stock, $1.00 par value 1,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference to
the definitive proxy statement for the registrant's Annual Meeting
of Stockholders to be held on May 6, 1999.
CRESCENDO PHARMACEUTICALS CORPORATION
Annual Report on Form 10-K
for the fiscal year ended December 31, 1998
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3-13
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
EXECUTIVE OFFICERS OF THE REGISTRANT 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-19
Item 7a.Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8. Financial Statements and Supplementary Data 20-34
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 35
PART III
Item 10.Directors and Executive Officers of the Registrant 35
Item 11.Executive Compensation 35
Item 12.Security Ownership of Certain Beneficial Owners and
Management 35
Item 13.Certain Relationships and Related Transactions 35
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports
on Form 8-K. 36
Signatures 37
PART I
Item 1. Business
Notice Concerning Forward-Looking Statements
Some of the statements made in this Form 10-K, including,
without limitation, statements in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", are
forward-looking in nature. Forward-looking statements include but
are not limited to statements that are not historical facts and
statements including forms of the words "intend", "believe", "will",
"may", "could", "expect", "anticipate", "possible" and similar
terms. The occurrence of the events described, and the achievement
of the intended results, are subject to the future occurrence of
many events, some or all of which are not predictable or within the
control of Crescendo Pharmaceuticals Corporation ("Crescendo")
including, without limitation, any possible future actions by ALZA
Corporation ("ALZA"), and various risk factors; therefore, actual
results may differ materially from those anticipated in any forward-
looking statements. The significant risks related to Crescendo's
business are those associated with technology and product
development, clinical development, product manufacturing, regulatory
clearance to market products, patent and intellectual property
matters, medical and market acceptance of products (including third
party reimbursement), changes in the health care marketplace,
commercializing products (including competition), conflicts of
interest between ALZA, and Crescendo and the limited funds available
to complete the development of Crescendo Products.
Overview of Crescendo's Business
Crescendo was incorporated in Delaware on June 26, 1997 and
commenced operations on September 30, 1997. Crescendo was formed by
ALZA for the purpose of selecting and developing human
pharmaceutical products (the "Crescendo Products") and
commercializing such products, most likely through licensing to
ALZA. Crescendo Products generally are expected to combine ALZA's
drug delivery technologies with available therapeutic agents. In
addition, Crescendo may fund the development of products licensed
from third parties that complement ALZA's product pipeline or
otherwise provide a significant commercialization opportunity for
ALZA.
On September 30, 1997, ALZA distributed all of the outstanding
shares of Crescendo Class A Common Stock (the "Crescendo Shares"), a
total of 4,965,470, to the holders of ALZA's common stock and ALZA's
convertible subordinated debentures. Crescendo Shares are traded on The
Nasdaq Stock Market-Service Mark- under the symbol "CNDO." In
connection with the distribution, ALZA contributed $300 million in cash
to Crescendo, which will be used primarily to fund the development of
Crescendo Products. In addition, at the time of the distribution,
Crescendo and ALZA entered into a number of agreements, including a
Development Agreement, Technology License Agreement, License Option
Agreement and Services Agreement, discussed under "Arrangements with
ALZA" below. ALZA holds 1,000 shares of Crescendo Class B Common
Stock.
Since its formation, Crescendo's principal activities have been
conducting product development under its agreements with ALZA. In
accordance with generally accepted accounting principles, Crescendo
is considered a development stage company.
Arrangements with ALZA
DEVELOPMENT AGREEMENT. Crescendo and ALZA have a Development
Agreement pursuant to which ALZA conducts product development and
related activities on behalf of Crescendo under work plans and cost
estimates that have been proposed by ALZA and approved by Crescendo.
Crescendo is required to use the cash initially contributed to it by
ALZA, plus interest thereon, less Crescendo's administrative expenses,
the Technology Fee (discussed below) paid to ALZA, and reserves of up
to $2 million (the "Available Funds") to conduct activities under the
Development Agreement. Activities under the Development Agreement
include the development of Crescendo Products and the identification of
potential new products for development by Crescendo. In addition, ALZA
may, on behalf of Crescendo, perform technical evaluations of product
opportunities involving proprietary agents of third parties that may be
available for licensing or other collaborative arrangements for use in
a Crescendo Product. The fully-burdened costs of all of these
activities are charged by ALZA to Crescendo monthly, as "Development
Costs."
Under the Development Agreement, Crescendo initially agreed to
fund the development of seven products (the "Initial Products"),
which was commenced by ALZA and Therapeutic Discovery Corporation
("TDC"), during the period from August 25, 1997, the date on which
TDC ceased funding such products, through October 31, 1997. As of
December 31, 1998, three of the seven Initial Products (OROS-
registered trademark- oxybutynin, DUROS-registered trademark-
leuprolide and OROS methylphenidate) remained in active development
and/or had been licensed by ALZA. See "Disclosed Products in
Development" below.
All technology developed or otherwise obtained pursuant to the
Development Agreement ("Developed Technology") is owned by ALZA,
subject to Crescendo's right to use such technology in Crescendo
Products. ALZA will pay Crescendo a royalty equal to 1% of net
sales of products, other than Crescendo Products, that use any
patented Developed Technology.
TECHNOLOGY LICENSE AGREEMENT. Crescendo and ALZA have a
Technology License Agreement pursuant to which ALZA has granted to
Crescendo a worldwide license to use ALZA technology solely to
select and develop the Crescendo Products(including the Initial
Products), to conduct related activities, and to commercialize
Crescendo Products. In exchange for the license to use existing
ALZA technology relating to the Initial Products, Crescendo pays a
technology fee (the "Technology Fee") to ALZA, monthly, over a
period of three years, in the amount of $1 million per month for the
first 12 months following the distribution of Crescendo Shares,
$667,000 per month (beginning in September 1998) for the following
12 months and $333,000 per month for the next 12 months. The
Technology Fee will no longer be payable at such time as fewer than
two of the Initial Products are being developed by Crescendo and/or
have been licensed by ALZA pursuant to the License Option (described
below). The Technology Fee is included in research and development
expenses.
LICENSE OPTION AGREEMENT. Pursuant to a License Option
Agreement entered into by Crescendo and ALZA, Crescendo has granted
ALZA an option to acquire a license to each Crescendo Product (the
"License Option"). The License Option for any Crescendo Product is
exercisable on a country-by-country basis at any time until (i) with
respect to the United States, 30 days after clearance by the FDA to
market such Crescendo Product in the United States and (ii) with
respect to any other country, 90 days after the earlier of (a)
clearance by the appropriate regulatory agency to market the
Crescendo Product in such country and (b) clearance by the FDA to
market the Crescendo Product in the United States. The License
Option will expire, to the extent not previously exercised, 30 days
after the expiration of ALZA's option to purchase all of the
outstanding Crescendo Shares ("See Purchase Option" below). If and
to the extent the License Option is exercised as to any Crescendo
Product, ALZA will acquire a perpetual, exclusive license (with the
right to sublicense) to develop, make, have made and use the
licensed product, and to sell and have sold the licensed product in
the country or countries as to which the License Option is
exercised.
LICENSE AGREEMENT. Under the License Agreement, for each
licensed product, ALZA will make payments to Crescendo with respect
to the licensed product equal to 1% of net sales of the licensed
product by ALZA and its sublicensees, distributors and marketing
partners, plus an additional 0.1% of such net sales for each full $1
million of Development Costs of the licensed product that have been
paid by Crescendo, not to exceed 2.5% of net sales in the first year
a licensed product is sold in a major market country, and not to
exceed 3% for the following two years. ALZA has the right to buy out
Crescendo's right to receive payments for any or all licensed
products on a country-by-country or global basis in accordance with
a formula set forth in the License Agreement. As of December 31,
1998, ALZA exercised its option to obtain a worldwide license to one
of the Initial Products, OROS oxybutynin. See "Licensed Products"
below.
PURCHASE OPTION. Pursuant to Crescendo's Restated Certificate of
Incorporation, ALZA has the right to purchase all (but not less than
all) of the Crescendo Shares (the "Purchase Option"). The Purchase
Option is exercisable by written notice to Crescendo at any time until
January 31, 2002, provided that such date will be extended for
successive six month periods if, as of any July 31 or January 31
beginning with July 31, 2001, Crescendo has not paid (or accrued
expenses for) at least 95% of Available Funds pursuant to the
Development Agreement. In any event, the Purchase Option will terminate
on the 60th day after Crescendo provides ALZA with a statement that, as
of the end of any calendar month, there are less than $2.5 million of
Available Funds remaining, accompanied by a report of Crescendo's
independent auditors.
If the Purchase Option is exercised, the exercise price will be
the greatest of:
(a)(i) 25 times the actual payments made by or due from
ALZA to Crescendo under the Development Agreement and the License
Agreement for any product (and, in addition, such payments as would
have been made by or due from ALZA to Crescendo if ALZA had not
previously exercised its payment buy-out option with respect to any
such payments) for the four calendar quarters immediately preceding
the quarter in which the Purchase Option is exercised (provided,
however, that for any product which has not been commercially sold
during each of such four calendar quarters, the portion of the
exercise price for such product will be 100 times the average of the
quarterly payments made by or due from ALZA to Crescendo for each of
such calendar quarters during which such product was commercially
sold) less (ii) any amounts previously paid to exercise any payment
buy out option;
(b) the fair market value of one million shares of ALZA
common stock;
(c) $325 million less all amounts paid by or due from
Crescendo under the Development Agreement to the date the Purchase
Option is exercised; and
(d) $100 million.
In each case, the amount payable as the Purchase Option exercise
price will be reduced to the extent, if any, that Crescendo's
liabilities at the time of exercise (other than liabilities under
the Development Agreement, the Technology License Agreement and the
Services Agreement, described below) exceed Crescendo's cash and
cash equivalents, and short-term and long-term investments
(excluding the amount of Available Funds remaining at such time).
ALZA may pay the exercise price in cash, in ALZA common stock or in
any combination of cash and ALZA common stock.
At December 31, 1998, Crescendo had $175.4 million of Available
Funds remaining.
SERVICES AGREEMENT. Crescendo and ALZA have a Services Agreement
pursuant to which ALZA provides certain administrative services,
including accounting and legal services, to Crescendo. Specified
charges for such services are generally intended to allow ALZA to
recover direct costs of providing the services, including fully-
allocated overhead, plus all out of pocket costs and expenses, but
without any profit (fully-burdened cost). The Services Agreement
originally had a one year term and is renewed automatically for
successive one year terms during the term of the Development Agreement,
unless terminated by Crescendo at any time upon 60 days' written
notice.
Disclosed Products in Development
As described above, under the Development Agreement, Crescendo
agreed to fund the development of the Initial Products through
October 31, 1997. The Initial Products were OROS oxybutynin, DUROS-
registered trademark- leuprolide, OROS methylphenidate, IUTS
progesterone, D-TRANS-registered trademark- testosterone matrix, E-
TRANS-registered trademark- LHRH and E-TRANS Macroflux-trademark-
insulin. As of December 31, 1998, three of the seven Initial
Products (OROS oxybutynin, DUROS leuprolide, and OROS
methylphenidate) were still in active development. On ALZA's
recommendation, Crescendo has ceased funding further development of
the other Initial Products. In addition, in January of 1998,
Crescendo agreed to fund the development of an E-TRANS fentanyl
product for the treatment of chronic and break-through pain. The
disclosed products in active development are described below:
- OROS oxybutynin - The OROS oxybutynin product, for the
treatment of overactive bladder with symptoms including urge urinary
incontinence, urgency and frequency, was approved by the United
States Food and Drug Administration ("FDA") on December 16, 1998.
Phase IV clinical studies of the product are continuing. The
product was introduced by ALZA in the United States on February 1,
1999 under the trade name Ditropan-registered trademark- XL.
Synthelabo has rights to market the product in Europe, after
regulatory approval, under an agreement with ALZA.
- DUROS leuprolide - The DUROS leuprolide product is a small
osmotically-driven implantable system designed to deliver leuprolide
continuously for up to 12 months to provide palliative treatment of
advanced prostate cancer. The product is currently in Phase III
clinical trials, and ALZA has stated that it plans to submit an NDA
on the product in 1999.
- OROS methylphenidate - The OROS methylphenidate product is
a once-daily treatment for Attention Deficit Disorder/Attention
Deficit Hyperactivity Disorder. Pivotal Phase III clinical trials
are ongoing, and ALZA has stated that it plans to submit an NDA for
the product in 1999.
- E-TRANS fentanyl (chronic and break-through pain) - ALZA
and Crescendo are developing an E-TRANS fentanyl product for the
treatment of chronic and break-through pain. ALZA and Janssen
Pharmaceutica, Inc. (together with its affiliates "Janssen") have an
agreement pursuant to which Janssen has an option, until a specified
date, to take over funding the continued development of the product
and to commercialize the product worldwide. If Janssen does not
exercise its option, Crescendo has the right to continue the
development of the product with ALZA. The product is in early
development.
Licensed Products
On December 16, 1998, the FDA approved Ditropan XL for marketing
in the United States. The product is the first and only once-a-day
treatment for overactive bladder approved for marketing in the
United States. Also on December 16, 1998, ALZA exercised its option
to obtain a worldwide license to OROS oxybutynin from Crescendo and
announced a commercialization agreement with Synthelabo for the
product in Europe. ALZA launched the product in the United States
under the trade name Ditropan XL on February 1, 1999. Under the
terms of the license agreement between Crescendo and ALZA, Crescendo
will receive payments from ALZA based on worldwide net sales of the
product. For the first three years the rates will be 2.5%, 3.0%,
and 3.0% of net sales, respectively; thereafter the rate is expected
to be between 5% and 6%, based on the Development Costs to date and
future anticipated Development Costs to be paid by Crescendo.
Certain Risks Associated with Crescendo's Business
PRODUCT SELECTION AND DEVELOPMENT RISKS. Each pharmaceutical
product requires extensive development and clinical activities
before an application can be filed for regulatory clearance to
market the product. It should be expected that some of the products
for which development is initiated by Crescendo and ALZA ultimately
will not become commercial products. Among the many risks inherent
in the development process are the following:
- Product Selection - Under the Development Agreement, ALZA
is responsible for identifying and recommending potential candidates
for development as Crescendo Products. There can be no assurance
that ALZA will recommend, or that Crescendo will approve,
appropriate products for development. In addition, for each new
product, the proper performance characteristics must be defined, and
the product must be designed and developed to meet those
characteristics.
- Technology Risks - Crescendo Products generally are
expected to utilize ALZA's drug delivery technologies. To create
successful products, enhancements or modifications to existing ALZA
technologies may be required. ALZA's DUROS and E-TRANS technologies,
which are being utilized in Crescendo Products that are in active
development, are relatively new, and neither of these technologies
has yet been incorporated in a commercially marketed product. See
"Patents and Patent Applications" below.
- Small-Scale Manufacturing - Once a product is developed,
it must be manufactured, on a small scale, for clinical testing.
Small-scale manufacturing can be costly and time-consuming. ALZA's
drug delivery technologies generally require complex manufacturing
processes. In addition, DUROS products require aseptic
manufacturing.
- Clinical Studies - Once a product has been successfully
manufactured on a small scale, trials to show clinical safety and
efficacy must be undertaken and completed. In general, performance
of a product in clinical studies must be consistent with the
selected performance characteristics for that product in order for
the product to be successful. Clinical studies are costly, and can
take many years to complete. There can be no assurance that the
desired outcomes will be shown in the clinical studies.
- Sufficiency of Funding - Crescendo's initial $300 million
of capital was contributed by ALZA. At December 31, 1998, Crescendo
had approximately $175.4 million of Available Funds remaining. ALZA
has no obligation to contribute additional funds. There can be no
assurance that Crescendo will have sufficient funds to complete the
development of the Crescendo Products. See "Risks Associated with
Crescendo's Relationship with ALZA" below.
- Inability to Raise New Capital - Crescendo most likely
would not be able to raise additional capital or borrow funds until
ALZA's Purchase Option is exercised or expires. If the Purchase
Option expires unexercised, there will remain considerable risk that
Crescendo could not raise sufficient funds to continue to develop
its products.
For risks associated with regulatory clearances and pricing
approvals, see "Governmental Regulation" below.
PRODUCT MANUFACTURING AND MARKETING RISKS. Even if Crescendo
Products are developed and receive necessary regulatory clearances
and approvals, there can be no assurance that the Crescendo Products
can be successfully manufactured or marketed. There are numerous
risks associated with the manufacturing and marketing of
pharmaceutical products, including the following:
- Commercial-Scale Manufacturing - Sometimes small-scale
manufacturing processes must be modified in order to achieve
successful commercial manufacturing and to obtain a reproducible,
robust process. Particularly for products incorporating newer ALZA
technologies, this commercial manufacturing scale-up could take
several years and cost millions of dollars. Facilities that
manufacture commercial pharmaceutical products sold in the United
States must pass a rigorous pre-approval inspection by the FDA.
Failure to pass this inspection could delay the introduction of a
product, sometimes for significant periods.
- Manufacturing Capability - If ALZA exercises its License
Option for any Crescendo Product, ALZA may need to expand its
manufacturing capabilities to provide commercial quantities of such
product. If ALZA does not exercise its License Option for any
Crescendo Product, Crescendo will have to make its own arrangements
for manufacturing such product, because Crescendo currently has no
manufacturing capability and does not expect to develop such
capability. To manufacture any Crescendo Product itself, Crescendo
would need substantial additional funds.
- Sales and Marketing Capability - ALZA's sales organization
is currently focused on certain target markets in the United States
and Canada and has no significant operations outside such countries.
If ALZA exercises its License Option for any Crescendo Product, ALZA
may need to develop and/or expand its sales and marketing
capabilities (or arrange for sales and marketing by third parties)
in order to commercialize such product effectively. If ALZA does
not exercise its License Option for any Crescendo Product, Crescendo
will need to find other means to commercialize such product. Many
pharmaceutical company competitors have far larger sales forces and
significantly greater resources and experience in marketing
pharmaceutical products than ALZA or Crescendo. See "Competition"
below.
Changes in the Pharmaceutical Marketplace - Because it
takes many years to bring a pharmaceutical product to market, it is
possible that the competitive environment could change during the
period when a Crescendo Product is in development. For example,
because of changes in the marketplace, a Crescendo Product could
have less commercial potential than was anticipated when the product
was conceived and development was initiated. In such an event, ALZA
may not consider the product attractive for commercialization, and
Crescendo may have expended substantial funds to develop a product
that ALZA may not license and that may not be sufficiently
attractive to third parties.
RISKS ASSOCIATED WITH CRESCENDO'S RELATIONSHIP WITH ALZA. The
terms of the agreements between ALZA and Crescendo and Crescendo's
Restated Certificate of Incorporation were not determined on an
arms'-length basis. As a result, certain events are outside
Crescendo's control and there are certain limits on Crescendo's
activities and its market value.
- No Assurance of Exercise of ALZA's Options - ALZA is not
obligated to exercise the License Option for any Crescendo Product
or to exercise the Purchase Option. The timing of the exercise of
the License Option with respect to any Crescendo Product is, to a
certain extent, within ALZA's control, and if ALZA exercises its
License Option for any Crescendo Product, the continued development
and commercialization of any such product will be controlled by
ALZA. The timing of the exercise of the Purchase Option is also
within ALZA's control and, therefore, ALZA may exercise the Purchase
Option, if at all, when the Purchase Option exercise price is as low
as possible.
- Dependence on ALZA for Personnel and Facilities -
Crescendo depends substantially on ALZA for research and development
activities, including the development of the Crescendo Products, and
for administrative services. However, ALZA must use its personnel
and facilities to meet its obligations to other clients and to
conduct its own activities. There can be no assurance that ALZA's
available personnel and facilities will be adequate for the
performance of its duties to Crescendo.
- Limitations on Crescendo's Activities - Crescendo's
Restated Certificate of Incorporation prohibits Crescendo from
taking or permitting any action that might impair ALZA's rights
under the Purchase Option and does not allow Crescendo to amend its
Restated Certificate of Incorporation to alter the Purchase Option
or Crescendo's authorized capitalization without the consent of
ALZA. Crescendo's ability to raise additional funds may be limited,
or even prevented, by such provisions. In addition, during the term
of ALZA's License Option for each Crescendo Product, Crescendo will
not be able to license such product to any other party. If ALZA
exercises its License Option for a Crescendo Product, Crescendo's
involvement in the commercialization of that product will be
substantially limited.
- Limitation on Crescendo's Market Value - So long as the
Purchase Option is exercisable, the market value of Crescendo
Class A Common Stock will be limited by the formula setting forth
the Purchase Option exercise price in the Crescendo's Restated
Certificate of Incorporation.
Governmental Regulation
Under the United States Food, Drug, and Cosmetic Act, "new
drugs" must obtain clearance from the FDA before they lawfully can
be marketed in the United States. Applications for marketing
clearance must be based on extensive clinical and other testing, the
cost of which is very substantial. Approvals (sometimes including
pricing approvals) are required from health regulatory authorities
in foreign countries, particularly in Europe, before marketing of
pharmaceutical products may commence in those countries.
Requirements for approval may differ from country to country, and
can involve additional testing. There can be substantial delays in
obtaining required clearances from both the FDA and foreign
regulatory authorities after applications are filed. Even after
clearances are obtained in countries that require pricing approvals,
further delays may be encountered before the products become
commercially available.
The manufacture, quality assurance, record-keeping, packaging,
labeling and advertising of all pharmaceutical products are also
subject to extensive FDA regulation and the regulation of comparable
agencies in other countries. Failure to obtain, or any delays in
obtaining, regulatory clearance to market new products, as well as
other regulatory actions and recalls, could adversely affect the
commercial potential of a product.
Patents and Patent Applications
Under the Development Agreement, ALZA determines whether and to
what extent to seek patent protection for Crescendo Products and
Developed Technology. If ALZA declines to seek patent protection
for any Crescendo Product or any Developed Technology, Crescendo
does not have the right to seek such protection on its own.
Patent protection generally has been important in the
pharmaceutical industry and the commercial success of Crescendo
Products may depend, in part, upon ALZA's election to seek patent
protection and its ability to obtain such patents both in the United
States and abroad. Although ALZA's current patents, pending patent
applications, and any patents obtained on future applications
covering any ALZA technology, Developed Technology or Crescendo
Products are likely to be important to Crescendo's future
operations, there can be no assurance that any additional patents
will be issued or that any patents now or hereafter issued will be
of commercial benefit.
In the United States, patents are generally granted for
specified periods of time. Some of ALZA's earlier patents covering
various aspects of certain ALZA technology licensed to Crescendo,
particularly the OROS dosage form, have expired or will expire over
the next several years; however, ALZA technology is generally
covered by multiple patents. If a Crescendo Product were not
covered by ALZA patents, third parties would be able to market the
identical product without payment to Crescendo.
Although a patent has a statutory presumption of validity in
the United States, the issuance of a patent is not conclusive as to
such validity or as to the enforceable scope of the claims of the
patent. There can be no assurance that ALZA patents covering any
ALZA technology, Developed Technology or Crescendo Product will not
be successfully challenged in the future. In some cases, third
parties have initiated reexamination by the Patent and Trademark
Office of patents issued to ALZA, and have opposed ALZA patents in
other jurisdictions. The validity or enforceability of ALZA patents
after their issuance has also been challenged in litigation. If the
outcome of such litigation is adverse to ALZA, third parties may
then be able to use the invention covered by the patent, in some
cases without payment. There can be no assurance that ALZA patents
will not be infringed or successfully avoided through design
innovation.
It is also possible that third parties may obtain patent or
other proprietary rights that may be necessary or useful to
Crescendo. With numerous other companies engaged in developing drug
delivery technologies, it can be expected that other parties may in
some circumstances file patent applications or obtain patents that
compete in priority with ALZA's patent applications. Such
competition may result in adversarial proceedings such as patent
interferences and oppositions, which can increase the uncertainty of
patent coverage. In cases where third parties are first to invent a
particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad so as to prevent
Crescendo from using certain technology or from further developing
or commercializing certain products. If licenses from third parties
are necessary but cannot be obtained, commercialization of Crescendo
Products would be delayed or prevented.
In addition, Crescendo utilizes significant unpatented
proprietary ALZA technology, and there can be no assurance that
others will not develop similar technology.
Competition
It can be expected that all or most of the Crescendo Products
will face competition at the time of introduction into the
marketplace, or thereafter, from different therapeutic agents
intended for treatment of the same indication. In addition, all or
most Crescendo Products will face competition both from traditional
formulations of drugs and from advanced delivery systems being
developed by others. ALZA undertakes client-sponsored product
development activities with major pharmaceutical companies in
addition to its activities on behalf of Crescendo. Such client-
sponsored activities may involve the development of products that
compete directly with Crescendo Products. In addition, ALZA may
itself, without Crescendo funds, develop products using ALZA's drug
delivery technology that compete directly with Crescendo Products.
In some instances, because Crescendo is developing products
which incorporate drugs that are off-patent or being developed by
multiple companies, Crescendo will face competition from products
incorporating the same or substantially similar therapeutic agents.
A major challenge faced by Crescendo and other pharmaceutical
companies is competition from generic pharmaceutical manufacturers.
Generic competitors generally are able to obtain regulatory approval
for off-patent drugs without investing in costly and time-consuming
clinical trials, and need only demonstrate bioequivalence to the
drug they wish to copy. Because of their substantially reduced
development costs, generic companies are often able to charge much
lower prices for their products than the originator of a new
product. Crescendo Products may be subject to generic competition
to the extent competitors can demonstrate bioequivalence without
infringing ALZA patents covering Crescendo Products.
Crescendo's competition potentially includes all of the
pharmaceutical companies in the world, including ALZA and ALZA's
clients. Many of these other pharmaceutical companies have greater
financial resources, technical staffs and manufacturing and
marketing capabilities than ALZA or Crescendo.
Competition among pharmaceutical products is generally based on
performance characteristics and price. Acceptance by hospitals,
physicians and patients is crucial to the success of a product.
Health care reimbursement policies of managed care organizations,
insurers and government agencies will continue to exert pressure on
pricing, and various federal and state agencies have enacted
regulations requiring rebates of a portion of the purchase price of
many pharmaceutical products. Cost-effectiveness, although often
difficult to measure, is becoming increasingly critical to a
successful commercial product.
The health care industry has continued to change rapidly as the
public, government, medical practitioners and the pharmaceutical
industry focus on ways to expand medical coverage while controlling
the growth in health care costs. The growth of managed care
organizations and the resulting pressures for cost-containment in
the United States health care system are expected to continue to put
pressures on the prices charged for pharmaceutical products.
Prescription drug reimbursement practices and the growth of managed
care organizations, pharmaceutical benefit management groups and
group buying organizations, as well as generic and therapeutic
substitution (substitution of a different product for the same
indication), could adversely affect Crescendo's business. Recently,
legislative proposals have been made that could have the effect of
requiring large discounts on the prices that pharmaceutical
companies can charge for products for Medicare participants. A
number of states are also considering this type of legislation. It
is not clear whether, or when, any of these proposals might be
adopted.
Revenues and Net Loss
Revenues consisting of net interest and investment income
earned on invested funds, were approximately $13.9 million in 1998.
For the period from inception (June 26, 1997) through December 31,
1997, revenues were approximately $4.1 million. For the period from
inception (June 26, 1997) through December 31, 1998, revenues were
approximately $18.0 million. Crescendo reported a net loss for the
year ended December 31, 1998 of approximately $95.8 million or
$19.29 per share. For the period from inception (June 26, 1997)
through December 31, 1997, Crescendo reported a net loss of
approximately $28.4 million or $11.33 per share. For the period
from inception (June 26, 1997) through December 31, 1998, Crescendo
reported a net loss of approximately $124.2 million or $29.96 per
share. As Crescendo's funds are utilized under the Development
Agreement and to pay the Technology Fee, lower cash balances will be
available for investment and, therefore, interest and investment
income is expected to decrease. Prior to ALZA's launch of Ditropan
XL, Crescendo did not anticipate revenues other than from interest
and investment income. Under the terms of the license agreement
between Crescendo and ALZA for OROS oxybutynin, Crescendo will
receive payments from ALZA based on worldwide net sales. For the
first three years the rates will be 2.5%, 3.0%, and 3.0% of net
sales, respectively; thereafter the rate is expected to be between
5% and 6%, based on the Development Costs to date and future
anticipated Development Costs of the product to be paid by
Crescendo.
Research and Development Expenses
Crescendo's research and development expenses increased to
approximately $106.0 million in 1998, compared to approximately
$32.3 million for the period from inception (June 26, 1997) through
December 31, 1997. The substantial increase in 1998 reflects the
first full year of operation. For the period from inception (June
26, 1997) through December 31, 1998, Crescendo recorded research and
development expenses of approximately $138.3 million. These
expenses related primarily to development of Crescendo Products
through December 31, 1998 and the payment of the Technology Fee in
an amount equal to $4.0 million and $10.7 million, during the period
from inception (June 26, 1997) through December 31, 1997 and for the
year ended December 31, 1998, respectively ($14.7 million from
inception (June 26, 1997) through December 31, 1998). Crescendo's
research and development expenses are expected to continue at
approximately current levels in 1999, although quarterly
fluctuations may occur. Crescendo expects to spend all Available
Funds within the next two years. How quickly Available Funds are
expended will depend upon the progress of Crescendo Products
currently in development, and the development costs of any future
Crescendo Products proposed by ALZA and accepted for development by
Crescendo
Employees
On December 31, 1998, Crescendo had one employee, Dr. Gary L.
Neil, its President and Chief Executive Officer. Other
administrative services are currently provided to Crescendo by ALZA.
See "Arrangements with ALZA -Services Agreement" above.
Item 2. Properties
Crescendo's corporate offices, which are leased from ALZA,
are located in Palo Alto, California. Crescendo does not own any
facilities.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Position(s) with Registrant and
Principal Occupations for
Name Age Past Five Years
______________________________________________________________________
Gary L. Neil, PhD 58 President and Chief Executive Officer
of Crescendo(since September 1997);
President and Chief Executive Officer of
TDC(1993 to September 1997); Executive Vice
President, Wyeth-Ayerst Research(1990 to
1993).
David R. Hoffmann* 54 Vice President, Finance and Secretary
of Crescendo(since June 1997); Vice
President and Treasurer of ALZA(since
1994); other positions with ALZA, including
Vice President, Finance and Vice President
and Controller(since 1976).
Suzanne C. Martin* 49 Vice President, Research and
Development of Crescendo(since June 1997);
Vice President, Development Programs of
ALZA(since 1994); other positions with
ALZA, including Executive Director, Project
Management and Senior Director of Research
and Development Administration (since
1988).
* Mr. Hoffmann and Ms. Martin are employees of ALZA who provide
services to Crescendo under its agreements with ALZA. They do
not receive compensation from Crescendo.
PART II
Item 5.Market for Registrant's Common Equity and Related
Stockholder Matters
Crescendo Class A Common Stock is traded on The Nasdaq Stock
Market under the symbol "CNDO". Crescendo Class B Common Stock is
not publicly traded. As of March 11, 1999, there were approximately
5,069 holders of record of Crescendo Class A Common Stock and one
holder of Crescendo Class B Common Stock. Crescendo has not paid
any dividends on its Common Stock. Crescendo's Restated Certificate
of Incorporation prohibits the payment of dividends with Available
Funds.
The quarterly high and low closing sales prices of Crescendo
Class A Common Stock for 1998 and 1997 as quoted on The Nasdaq Stock
Market were as follows:
1998 1997*
High Low High Low
____________________________________________________________________
First Quarter $12 7/8 $11 1/2 $ - $ -
Second Quarter 13 5/8 12 1/4 - -
Third Quarter 13 3/16 12 1/4 12 10
Fourth Quarter 13 7/8 12 1/4 12 5/8 11 1/4
* Trading of Crescendo Class A Common Stock commenced in September
1997.
In July 1997, Crescendo sold 100 shares of Common Stock, par
value $1.00, to ALZA at a purchase price of $10 per share. On
September 4, 1997, the 100 shares of Common Stock were converted
into 1,000 shares of Class B Common Stock, $1.00 par value. On
September 29, 1997, Crescendo sold 4,965,470 shares of Class A
Common Stock, $.01 par value, to ALZA at a purchase price of $300
million. On September 30, 1997, ALZA distributed all of the
outstanding shares of Class A Common Stock to its stockholders and
the holders of convertible subordinated debentures. The sales of
Class A Common Stock and of Common Stock (now Class B Common Stock)
to ALZA were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933. The proceeds from such sales are being
used to fund Crescendo's operations, primarily its activities under
the Development Agreement with ALZA and the Technology Fee.
Item 6.Selected Financial Data (in thousands, except per share amounts)
Period from Period from
Year ended inception inception
December 31, (June 26,1997)to (June 26, 1997)to
1998 December 31, 1997 December 31, 1998
___________________________________________________________________________
Revenues:
Net interest and
investment income $ 13,912 $ 4,083 $ 17,995
Loss before taxes (93,370) (28,441) (121,811)
Income taxes 2,425 - 2,425
Net loss (95,795) (28,441) (124,236)
Net loss per
Share (19.29) (11.33) (29.96)
Total assets 193,911 286,587
Item 7.Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Revenues, consisting of net interest and investment income
earned on invested funds, were approximately $13.9 million for 1998.
For the period from inception (June 26, 1997) to December 31, 1997,
revenues were approximately $4.1 million. For the period from
inception (June 26, 1997) through December 31, 1998, revenues were
approximately $18.0 million. Crescendo reported a net loss for the
year ended December 31, 1998 of approximately $95.8 million or
$19.29 per share. For the period from inception (June 26, 1997)
through December 31, 1997, Crescendo reported a net loss of
approximately $28.4 million or $11.33 per share. For the period
from inception (June 26, 1997) through December 31, 1998, Crescendo
reported a net loss of approximately $124.2 million or $29.96 per
share. As Crescendo's funds are utilized under the Development
Agreement and to pay the Technology Fee, lower cash balances will be
available for investment and, therefore, interest and investment
income is expected to continue to decrease. Prior to ALZA's
introduction of Ditropan XL, Crescendo did not anticipate revenues
other than from interest and investment income. Under the terms of
the license agreement between Crescendo and ALZA for OROS
oxybutynin, Crescendo will receive payments from ALZA based on
worldwide net sales of the product. For the first three years the
rates will be 2.5%, 3.0%, and 3.0% of net sales, respectively;
thereafter the rate is expected to be between 5% and 6%, based on
the Development Costs of the product to date and anticipated
Development Costs to be paid by Crescendo. However, there can be no
assurance that revenue relating to commercialized Crescendo Products
will be sufficient in the future to support Crescendo's operations
once the Available Funds are exhausted, or that Crescendo Products
under development will receive regulatory clearance or will be
successfully commercialized.
Crescendo's research and development expenses increased to
approximately $106.0 million in 1998, compared to approximately
$32.3 million for the period from inception (June 26, 1997) through
December 31, 1997. The substantial increase in 1998 reflects the
first full year of operation. For the period from inception (June
26, 1997) through December 31, 1998, Crescendo incurred research and
development expenses of approximately $138.3 million. These
expenses related primarily to development of Crescendo Products
through December 31, 1998 and include the payment of the Technology
Fee in the amount equal to $4.0 million and $10.7 million, for the
period from inception (June 26, 1997) through December 31, 1997 and
for the year ended December 31, 1998, respectively, ($14.7 million
from inception (June 26, 1997) through December 31, 1998).
Crescendo's research and development expenses are expected to
continue at approximately current levels in 1999, although quarterly
fluctuations may occur.
General and administrative expenses for 1998 were approximately
$1.3 million, and $0.3 million for the period from inception (June
26, 1997) to December 31, 1997. For the period from inception
through December 31, 1998, general and administrative expenses were
approximately $1.6 million. Expenses incurred by Crescendo under
the Services Agreement with ALZA were approximately $224,000 in 1998
and $42,000 for the period from inception (June 26, 1997) through
December 31, 1997. The increase in general and administrative
expense is a result of the first full year of operation. Crescendo
accrues on a monthly basis these expenses, which include (i) third
party direct expenses paid by ALZA on behalf of Crescendo; (ii)
actual salaries, including benefits, of ALZA's personnel performing
services for Crescendo, and (iii) ALZA's standard administrative
overhead charge calculated as a percent of salaries.
Income taxes payable for the year ended December 31, 1998
resulted from capitalization of research expenses for income taxes
purposes only.
In its early years, the results of operations of Crescendo are
expected to reflect primarily interest and investment income on the
funds contributed by ALZA, and research and development expenses
related to development of Crescendo Products and the Technology Fee.
Crescendo's net loss for 1998 was $95.8 million, or $19.29 per
share, compared to $28.4 million, or $11.33 per share from inception
(June 26, 1997) through December 31, 1997. The substantial increase
reflects Crescendo's first full year of operations. Crescendo is
expected to continue to incur significant net losses in the next two
years, as product development expenses under its agreements with
ALZA are expected to continue to exceed investment income and
royalty payments.
Year 2000 Readiness
Crescendo is reliant upon the QuickBooks Pro Version 5.0
software application to record its business activities. This
accounting software has been represented by the manufacturer to be
Year 2000 compliant.
In addition to its internal system, Crescendo is also reliant
upon the capabilities of the computer systems of its vendors,
contractors (including ALZA for administrative functions under the
Services Agreement and for contractual research and development),
U.S. government agencies, and its investment managers. In order to
determine the level of Year 2000 compliance of vendors, contractors
and investment managers, Crescendo has initiated communications with
third parties, including ALZA, with whom it has material direct
business relationships. If any of these third parties experience
failures in their computer systems due to Year 2000 non-compliance,
it could materially affect Crescendo's investment portfolio, ability
to engage in normal business activities and, in particular, the
status of certain product development activities being conducted by
ALZA. Although these risks are outside of Crescendo's control,
Crescendo will continue to assess the responses it receives from
third parties in an effort to address any potential non-compliance
issues. ALZA has advised Crescendo that its operations are largely
Year 2000 compliant, and that it expects to be fully compliant by
the end of 1999.
Crescendo has not incurred any material costs in connection
with its Year 2000 assessment and no conversion of its internal
system is required. Due to the general uncertainty surrounding the
Year 2000 readiness of third parties upon whom Crescendo relies,
Crescendo is unable to determine at this time whether or to what
extent Year 2000 failures will have a material impact on its
operations.
Liquidity and Capital Resources
On September 29, 1997, ALZA contributed $300 million in cash to
Crescendo in exchange for the Crescendo Shares. On September 30,
1997, ALZA distributed the Crescendo Shares to holders of ALZA
common stock and ALZA's outstanding convertible subordinated
debentures, and Crescendo commenced operations. The funds
contributed by ALZA, plus investment income earned thereon, are
being used primarily to fund the development of Crescendo Products
and to conduct related activities. Funds not immediately required
for development activities are invested in low-risk securities.
At December 31, 1998, Crescendo had cash, cash equivalents and
short-term investments of approximately $111.7 million. As
Crescendo's funds continue to be utilized under the Development
Agreement and to pay the Technology Fee to ALZA, increasingly lower
cash balances will be available for investment.
Based on anticipated spending levels for the continued development
of all Crescendo Products currently under development, it is expected
that Crescendo's funds for product development will be exhausted within
the next two years. At that time, product development funding by
Crescendo will cease. However, several factors could impact the level
and timing of Crescendo funding, including the addition of any new
Crescendo Products, the discontinuation of the development of any
Crescendo Products, any commercial arrangements between ALZA and other
companies which would cause ALZA to exercise its License Option with
respect to any Crescendo Product, any change in the number of projects
advancing to or continuing in later stages of development or any
adjustments in the rate of spending on products currently in
development.
When Crescendo's Available Funds are exhausted, certain critical
timetables will be triggered. First, ALZA's Purchase Option will
terminate on the 60th day after Crescendo provides ALZA with a
statement that, as of the end of any calendar month, there are less
than $2.5 million of Available Funds remaining, accompanied by a report
of Crescendo's independent auditors. In addition, ALZA has the right,
for 30 days after expiration of the Purchase Option, to license any or
all Crescendo Products which have not yet been licensed, on a product-
by-product and country-by-country basis. ALZA is under no obligation
to exercise the Purchase Option, or the License Option with respect to
any or all Crescendo Products, and will do so only if ALZA determines
that it is in the best interests of ALZA and its stockholders at the
time the decision is made. In the event that ALZA does not exercise
the Purchase Option, or the License Option for all Crescendo Products,
after Available Funds are exhausted, Crescendo will not have funds to
continue or complete development of any remaining Crescendo Products.
It is not likely that Crescendo would be able to raise any additional
funds during the period when ALZA's Purchase Option is outstanding,
because of the existence of such option. After the expiration of the
Purchase Option, if it is not exercised, Crescendo's ability to obtain
additional funding will be subject to the perception of those investors
with funds available, or the public markets, of the value of
Crescendo's portfolio.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Crescendo's exposure to market risk for changes in interest
rates relates primarily to Crescendo's investment portfolio and long-
term debt obligations. Crescendo does not use derivative financial
instruments in its investment portfolio. Crescendo's investment
policy requires investments with high credit quality issuers and
limits the amount of credit exposure to any one issuer. The primary
objective of Crescendo's investment activities is to preserve
principal.
The table below presents principal amounts and related weighted-
average interest rates by year of maturity for Crescendo's
investment portfolio and debt obligations:
1999 2000 2001 2002 Thereafter Total Fair Value
(in millions)
_____________________________________________________________________________
Cash and cash equivalents
Fixed Rate $54.3 $54.3 $54.3
Average Rate 5.41% 5.41%
Short-term Investments
Fixed Rate $57.4 $57.3 $57.4
Average Rate 5.94% 5.94%
Long-term Investments
Fixed Rate - $25.7 $18.8 $30.2 $4.3 $79.0 $79.4
Average Rate - 6.14% 6.09% 6.79% 5.30% 6.33%
Total Investments
Securities $111.6 $25.7 $18.8 $30.2 $4.3 $190.6 $191.1
Average Rate 5.68% 6.14% 6.09% 6.79% 5.30% 5.95%
Item 8. Financial Statements and Supplementary Data
Crescendo Pharmaceuticals Corporation
(a development stage company)
Statement of Operations
(in thousands, except per share amounts)
Period from Period from
Year ended inception inception
December 31, (June 26, 1997) to (June26, 1997) to
1998 December 31, 1997 December 31, 1998
_____________________________________________________________________________
Revenues:
Net interest and
investment income $ 13,912 $ 4,083 $ 17,995
Expenses:
Research and development
performed under contract
with ALZA Corporation 105,966 32,279 138,245
(a related party)
General and administrative 1,316 245 1,561
_______ _______ _________
Total expenses 107,282 32,524 139,806
Loss before taxes (93,370) (28,441) (121,811)
Income taxes 2,425 - 2,425
________ ________ _________
Net loss $(95,795) $ (28,441) $ (124,236)
=============================================================================
Net loss per common share
Basic $(19.29) $ (11.33) $ (29.96)
=============================================================================
Diluted $(19.29) $ (11.33) $ (29.96)
=============================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
(a development stage company)
Balance Sheet
December 31,
(in thousands, except per share amounts)
1998 1997
_____________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 54,326 $ 179,971
Short-term investments 57,410 29,601
Interest receivable 1,861 967
Prepaid expenses and other
current assets 627 110
Total current assets 114,224 210,646
Employee loan 300 300
Long-term investments 79,387 75,638
______________________________________________________________________
Total assets $ 193,911 $ 286,587
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to ALZA Corporation
(a related party) $ 17,596 $ 15,068
Accrued liabilities 77 40
______________________________________________________________________
Total current liabilities 17,673 15,108
Stockholders' equity:
Class A Common Stock,
$0.01 par value, 6,000 shares
authorized; 4,965
issued and outstanding 50 50
Class B Common Stock,
$1.00 par value, 1 shares
authorized, issued and
outstanding 1 1
Additional paid-in capital 299,949 299,949
Accumulated other comprehensive
income (loss) 474 (80)
Deficit accumulated during
development stage (124,236) (28,441)
____________________________________________________________________
Total stockholders' equity 176,238 271,479
____________________________________________________________________
Total liabilities and
stockholders' equity $ 193,911 $ 286,857
====================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
( development stage company)
Statement of Stockholders' Equity
(in thousands, except number of shares and per share amounts)
ACCUMULATED ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER DEFICIT DURING TOTAL
COMMON COMMON PAID-IN COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
STOCK STOCK CAPITAL (LOSS)INCOME STAGE EQUITY
Issuance of
4,965,470 shares
of Class A
Common Stock
for approximately
$60.42 per share
per share for cash
to ALZA in
Sept 1997 $ 50 $ - $ 299,949 $ - $ - $ 299,999
Conversion of
Common Stock
for $10 per
share for cash to
ALZA and its
subsequent conversion
in September 1997
into 1000 shares of
Class B Common
Stock - 1 - - - 1
Comprehensive loss
Net loss - - - - (28,441) (28,441)
Net change in
unrealized loss on
available-for-sale
securities - - - (80) - (80)
________
Total Comprehensive
loss - - - - - (28,521)
______________________________________________________________________________
Balance,
Dec 31, 1997 50 1 299,949 (80) (28,441) 271,479
Comprehensive loss
Net loss - - - - (95,795) (95,795)
Net change in
unrealized gain on
available-for-sale
securities - - - 554 - 554
_________
Total comprehensive
loss (95,241)
______________________________________________________________________________
Balance,
Dec 31, 1998 $50 $1 $299,949 $ 474 $(124,236) $ 176,238
_______________________________________________________________________________
Crescendo Pharmaceuticals Corporation
(a development stage company)
Statement of Cash Flows
Increases (Decreases) in Cash and Cash Equivalents
(in thousands)
Period from Period from
Year ended inception inception
December 31, (June 26,1997)to (June 26, 1997)to
1998 December 31,1997 December 31, 1998
________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (95,795) $ (28,441) $ (124,236)
Adjustments to
reconcile net loss to net cash
used in operating activities:
Increase in assets:
Interest receivable (894) (967) (1,861)
Prepaid expenses and other assets (517) (110) (627)
Increase in liabilities:
Payable to ALZA Corporation 2,528 15,068 17,596
Accrued liabilities 37 40 77
________________________________________________________________________________
Total adjustments 1,154 14,031 15,185
_______________________________________________________________________________
Net cash used in
operating activities (94,641) (14,410) (109,051)
_______________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale
securities (111,299) (105,319) (216,618)
Sales of available-for sale
securities 80,295 - 80,295
Employee loan, long-term - (300) (300)
________________________________________________________________________________
Net cash used in investing
activities (31,004) (105,619) (136,623)
________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock to
ALZA Corporation - 300,000 300,000
_______________________________________________________________________________
Net cash provided by
financing activities - 300,000 300,000
_______________________________________________________________________________
Net increase (decrease) in cash
and cash equivalents (125,645) 179,971 54,326
_______________________________________________________________________________
Cash and cash equivalents
at beginning of period 179,971 - -
________________________________________________________________________________
Cash and cash equivalents
at end of period $ 54,326 $ 179,971 $ 54,326
================================================================================
See accompanying notes.
Crescendo Pharmaceuticals Corporation
(a development stage company)
Notes to Financial Statements
Note 1. Basis of Presentation and Significant Accounting Policies
Crescendo was incorporated in Delaware on June 26, 1997 and
commenced operations on September 30, 1997. Crescendo was formed
for the purpose of selecting and developing human pharmaceutical
products and commercializing such products, most likely through
licensing to ALZA. Since its formation, Crescendo's principal
activity has been conducting product development under its
agreements with ALZA. In accordance with generally accepted
accounting principles, Crescendo is considered a development stage
company.
Accounting for Revenues and Expenses
Prior to December 31, 1998, Crescendo's revenue consisted solely
of interest and investment income. Beginning in the first quarter
of 1999, Crescendo expects to derive revenue from the sale of one
Crescendo Product under a license agreement with ALZA. Royalties
will be recognized in the period in which earned, i.e. the period in
which product sales are made by third parties from whom Crescendo
receives, directly or indirectly, product royalties.
Crescendo has incurred and expects to incur most of its expenses
under its agreements with ALZA. Development Costs paid to ALZA
under a Development Agreement and amounts paid to ALZA under a
Services Agreement are recorded as research and development expenses
and general and administrative expenses, respectively, and are
recognized on an accrual basis as incurred. These expenses are
recorded in the period in which services have been provided by ALZA
to Crescendo or in which expenses have been incurred by ALZA on
behalf of Crescendo. See Note 4 for a description of the agreements
between Crescendo and ALZA. The Technology Fee paid to ALZA under a
Technology License Agreement is recorded monthly, as incurred, as
research and development expense.
Investment Risk
Crescendo invests excess cash in money market and fixed income
securities of banks and companies with strong credit ratings, from a
variety of industries, and in U.S. government obligations. These
securities typically bear minimal risk and Crescendo has not
experienced any losses on its investments due to institutional failure
or bankruptcy. Crescendo's investment policy is designed to limit
exposure with any one institution.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents include cash balances and investments
with maturities of three months or less at the time of purchase.
Short-term investments include commercial paper and other highly
liquid investments with maturities less than one year. Cash, cash
equivalents and short-term investments are stated at their fair
value.
Segment Information
Effective January 1, 1998, Crescendo adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
superseded FASB Statement No. 14, Financial Reporting for Segments
of a Business Enterprise. SFAS 131 establishes standards for the
way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating
segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services,
geographic areas, and major customers.
Crescendo has organized its business in one operating segment,
since Crescendo's only business is to engage in pharmaceutical
product development and related activities under its agreements with
ALZA. At December 31, 1998, all of Crescendo's revenue was derived
from its investments in the United States.
Comprehensive Income (Loss)
Effective January 1, 1998, Crescendo adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") which establishes standards for reporting
comprehensive income and its components. Total comprehensive income
(loss) includes net loss plus other comprehensive income, which for
Crescendo comprises of unrealized gains or losses on available-for-
sale securities. The adoption of SFAS 130 had no impact on
Crescendo's results of operations or financial condition.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
the Statement of Financial Accounting Standard No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities",
which will be effective for our fiscal year 2000. This statement
establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments
imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria
are met. Crescendo believes the adoption of SFAS 133 will not have
a material effect on the financial statements.
Note 2. Investments
Crescendo has classified its entire investment portfolio,
including cash equivalents of approximately $53.6 million and $179.9
million at December 31, 1998 and 1997, respectively, as available-
for-sale. Investments in the available-for-sale category are
generally carried at fair market value with unrealized gains and
losses recorded as a separate component of stockholders' equity. At
December 31, 1998, net unrealized gains on available-for-sale
securities were $0.5 million. At December 31, 1997, net unrealized
losses on available-for-sale securities were not material. The cost
of securities when sold is based upon specific identification.
Realized gains for the year ended December 31, 1998 were $0.2
million and were not material for the period from inception (June
26, 1997) through December 31, 1997.
The following is a summary of Crescendo's investment
portfolio(in thousands):
December 31, 1998 Available-for-Sale Securities
____________________________________________________________________
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________________________________________________________________
U.S. Treasury
securities and
obligations of
U.S. government
agencies $57,602 $ 228 $ - $57,830
Collateralized
mortgage
obligations and
asset backed
securities 32,364 85 (310) 32,139
Corporate debt
securities 52,896 472 - 53,368
Money market funds 47,091 - - 47,091
____________________________________________________________________
$189,953 $ 785 $(310) $190,428
December 31, 1997 Available-for-Sale Securities
____________________________________________________________________
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
____________________________________________________________________
U.S. Treasury
securities and
obligations of
U.S. government
agencies $76,248 $ 98 $(41) $76,305
Collateralized
mortgage
obligations and
asset backed
securities 24,681 6 (156) 24,531
Corporate debt
securities 98,432 41 (28) 98,445
Money market funds 85,833 - - 85,833
____________________________________________________________________
$285,194 $ 145 $(225) $285,114
The amortized cost and estimated fair value of securities at
December 31, 1998 and 1997, by contractual maturity, are shown below
(in thousands). Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right
to prepay obligations without prepayment penalties.
1998 1997
_____________________________________________________________________
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
_____________________________________________________________________
Due in one year or less $110,905 $111,041 $209,431 $209,476
Due after one year through
three years 44,460 44,731 35,497 35,513
Due after three years
through five years 34,588 34,656 40,266 40,126
______________________________________________________________________
$189,953 $190,428 $285,194 $285,114
Note 3. Per Share Information
Basic earnings per share is calculated by dividing net loss by
the weighted average common shares outstanding for the period.
Diluted loss per share is calculated by dividing net loss by the
weighted average common shares outstanding for the period plus the
dilutive effect of stock options.
The following table sets forth the computation of Crescendo's
basic and diluted loss per share (in thousands, except per share
amounts):
Period from Period from
Year ended inception inception
December 31, (June 26, 1997)to (June 26, 1997) to
1998 December 31, 1997 December 31,1998
_____________________________________________________________________________
NUMERATOR:
Basic and Diluted
Net loss $(95,795) $(28,441) $(124,236)
DENOMINATOR:
Basic and Diluted
Weighted average shares
outstanding 4,966 2,511 4,148
=============================================================================
Basic net loss per share $(19.29) $(11.33) $(29.96)
=============================================================================
Diluted net loss per share $(19.29) $(11.33) $(29.96)
=============================================================================
Outstanding options to purchase 100,000 shares of Crescendo
Class A Common Stock would have been anti-dilutive in 1997 and 1998
and for the period from inception through December 31, 1998, and
they were therefore excluded from the diluted per share calculations.
Note 4. Arrangements with ALZA Corporation
On September 29, 1997, ALZA contributed $300 million in cash to
Crescendo. On September 30, 1997, all of the Crescendo Shares, (a
total of 4,965,470 shares), were distributed to the holders of ALZA
common stock and ALZA's convertible subordinated debentures.
Crescendo Shares are traded on The Nasdaq Stock Market under the
symbol "CNDO." ALZA holds 1,000 shares of Crescendo Class B Common Stock.
In connection with ALZA's contribution to Crescendo and the
distribution of Crescendo Shares, Crescendo and ALZA entered into a
number of agreements, including a Development Agreement, Technology
License Agreement, License Option Agreement and Services Agreement,
discussed below.
Crescendo and ALZA have a Development Agreement pursuant to
which ALZA conducts product development and related activities on
behalf of Crescendo under work plans and cost estimates which have
been proposed by ALZA and approved by Crescendo. Crescendo is
required to utilize the cash initially contributed to it by ALZA
plus interest thereon, less Crescendo's administrative expenses, the
Technology Fee paid to ALZA and reserves of up to $2 million to
conduct activities under the Development Agreement.
Under the Development Agreement, Crescendo initially agreed to
fund the development of seven products, the development of which was
commenced by ALZA and Therapeutic Discovery Corporation ("TDC"),
from August 25, 1997, the date on which TDC ceased funding such
products, through October 31, 1997. As of December 31, 1998, three
of the seven Initial Products (OROS oxybutynin, DUROS leuprolide and
OROS methylphenidate) remained in active development and/or had been
licensed by ALZA. For the year ended December 31, 1998 and the
period from inception (June 26, 1997) through December 31, 1997,
Crescendo recorded research and development expenses of $106.0
million and $32.3 million, respectively. For the period from
inception (June 26, 1997) through December 31, 1998, Crescendo
recorded research and development expenses of approximately $138.2
million, including a Technology Fee of $14.7 million. These
expenses related primarily to development of the Initial Products
through December 31, 1998.
Crescendo and ALZA have a Technology License Agreement pursuant
to which ALZA has granted to Crescendo a worldwide license to use
ALZA technology solely to select and develop the Crescendo Products,
to conduct related activities, and to commercialize such products.
In exchange for the license to use existing ALZA technology relating
to the seven products initially under development by Crescendo and
ALZA, Crescendo pays a Technology Fee to ALZA, payable monthly over
a period of three years, in the amount of $1 million per month for
the first 12 months following the distribution of Crescendo Shares,
$667,000 per month (beginning in September 1998) for the following
12 months and $333,000 per month for the next 12 months. The
Technology Fee will no longer be payable at such time as fewer than
two of the Initial Products are being developed by Crescendo and/or
have been licensed by ALZA pursuant to the License Option.
Crescendo recorded a Technology Fee expense of $10.7 and $4.0
million for the year ended December 31, 1998 and for the period from
inception (June 26, 1997) through December 31, 1997, respectively,
which is included in research and development expenses. Three of
the seven initial products were in active development and/or had
been licensed at December 31, 1998.
Pursuant to the License Option Agreement entered into by
Crescendo and ALZA, Crescendo has granted ALZA an option to acquire
a license to each Crescendo Product. The License Option for any
such Crescendo Product is exercisable on a country-by-country basis
at any time until (i) with respect to the United States, 30 days
after clearance by the FDA to market such Crescendo Product in the
United States and (ii) with respect to any other country, 90 days
after the earlier of (a) clearance by the appropriate regulatory
agency to market the Crescendo Product in such country and (b)
clearance by the FDA to market the Crescendo product in the United
States. The License Option will expire, to the extent not previously
exercised, 30 days after the expiration of ALZA's Purchase Option,
described below. If and to the extent the License Option is
exercised as to any Crescendo Product, ALZA will acquire a
perpetual, exclusive license (with the right to sublicense) to
develop, make, have made and use the licensed product, and to sell
and have sold the licensed product in the country or countries as to
which the License Option is exercised.
Under the License Agreement for each licensed product, ALZA will
make payments to Crescendo with respect to the licensed product
equal to 1% of net sales of the licensed product by ALZA and its
sublicensees, distributors and marketing partners, plus an
additional 0.1% of such net sales for each full $1 million of
Development Costs of the licensed product that have been paid by
Crescendo, not to exceed 2.5% of net sales in the first year a
licensed product is sold in a major market country, and not to
exceed 3% for the following two years. ALZA has the right to buy
out Crescendo's right to receive payments for any or all licensed
products on a country-by-country or global basis in accordance with
a formula set forth in the License Agreement.
In December 1998, ALZA exercised its option to obtain a worldwide
license to OROS oxybutynin (Ditropan XL) from Crescendo and
announced a agreement with Synthelabo for the OROS oxybutynin
product in Europe. Under the terms of the license agreement between
Crescendo and ALZA, Crescendo will receive payments from ALZA based
on worldwide net sales of the product. For the first three years
the rates will be 2.5%, 3.0%, and 3.0% of net sales, respectively;
thereafter the rate is expected to be between 5% and 6%, based on
the Development Costs of the product to date and future anticipated
Development Costs to be paid by Crescendo.
Pursuant to Crescendo's Restated Certificate of Incorporation,
ALZA has a Purchase Option which gives ALZA the right to purchase
all (but not less than all) of the Crescendo Shares. The Purchase
Option is exercisable by written notice to Crescendo at any time
until January 31, 2002, provided that such date will be extended for
successive six month periods if, as of any July 31 or January 31
beginning with July 31, 2001, Crescendo has not paid (or accrued
expenses for) at least 95% of Available Funds pursuant to the
Development Agreement. In any event, the Purchase Option will
terminate on the 60th day after Crescendo provides ALZA with a
statement that, as of the end of any calendar month, there are less
than $2.5 million of Available Funds remaining, accompanied by a
report of Crescendo's independent auditors.
If the Purchase Option is exercised, the exercise price will be
the greatest of:
(a)(i) 25 times the actual payments made by or due from ALZA to
Crescendo under the Development Agreement and the License
Agreement for any product (and, in addition, such payments as
would have been made by or due from ALZA to Crescendo if ALZA
had not previously exercised its payment buy-out option with
respect to any such payments) for the four calendar quarters
immediately preceding the quarter in which the Purchase Option
is exercised (provided, however, that for any product which has
not been commercially sold during each of such four calendar
quarters, the portion of the exercise price for such product
will be 100 times the average of the quarterly payments made by
or due from ALZA to Crescendo for each of such calendar quarters
during which such product was commercially sold) less (ii) any
amounts previously paid to exercise any payment buy-out option;
(b) the fair market value of one million shares of ALZA common
stock;
(c) $325 million less all amounts paid by or due from Crescendo
under the Development Agreement to the date the Purchase Option
is exercised; and
(d) $100 million.
In each case, the amount payable as the Purchase Option exercise
price will be reduced to the extent, if any, that Crescendo's
liabilities at the time of exercise (other than liabilities under
the Development Agreement, the Technology License Agreement, and the
Services Agreement described below) exceed Crescendo's cash and cash
equivalents, and short-term and long-term investments (excluding the
amount of Available Funds remaining at such time). ALZA may pay the
exercise price in cash, in ALZA common stock or in any combination
of cash and ALZA common stock.
Crescendo and ALZA have a Services Agreement pursuant to which
ALZA provides certain administrative services, including accounting
and legal services, to Crescendo. Specified charges for such
services are generally intended to allow ALZA to recover direct
costs including fully allocated overheads of providing the services,
plus all out of pocket costs and expenses, but without any profit.
The Services Agreement originally had a one year term and is renewed
automatically for successive one year terms during the term of the
Development Agreement, unless terminated by Crescendo at any time
upon 60 days' written notice. General and administrative expenses
incurred under this agreement for the year ended December 31, 1998
and the period from inception (June 16, 1997) through December 31,
1997 were approximately $224,000 and $42,000, respectively, and
approximately $266,000 for the period from inception (June 26, 1997)
through December 31, 1998. Crescendo accrues on a monthly basis
these expenses, which include (i) third party direct expenses paid
by ALZA on behalf of Crescendo; (ii) actual salaries, including
benefits, of ALZA's personnel performing services for Crescendo and
(iii) ALZA's standard administrative overhead charge, calculated as
a percent of salaries.
At December 31, 1998, the amount payable to ALZA was
approximately $17.6 million. This payable is comprised of
approximately $17.4 million under the Development Agreement and
approximately $0.2 million under the Services Agreement. At
December 31, 1997, the amount payable to ALZA was approximately
$15.1 million. This payable comprised of approximately $15.0
million under the Development Agreement and approximately $0.1
million under the Services Agreement. The Technology License Fee is
paid in the month it is accrued.
Note 5. Stock Option Plan
Crescendo has a stock option plan under which 200,000 shares of
Crescendo Class A Common Stock have been reserved for issuance to
employees, consultants and directors. During the period from
inception (June 26, 1997) through December 31, 1997, options to
purchase 50,000 shares were granted to Crescendo's president and
chief executive officer at an exercise price of $11.00 per share.
Each of the five remaining members of Crescendo's Board of Directors
were granted options to purchase 10,000 shares at exercise prices
ranging from $11.28 to $11.50 per share. All outstanding options
have an exercise price equal to the fair market value of the
Crescendo Class A Common Stock on the date of grant. The options
are exercisable in four equal annual installments beginning one year
after the date of grant and expire ten years after the date of
grant.
Financial Accounting Standards Board SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), prescribes a fair value
method of accounting for stock options. SFAS 123 gives companies a
choice of recognizing related compensation expense by adopting the
new fair value method or continuing to measure compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Crescendo has elected to follow APB
25 in accounting for its stock options.
Had compensation expense for stock options been determined
using the fair value method in accordance with SFAS 123, Crescendo's
pro forma net loss and net loss per share would have been as
follows:
Period from Period from
inception inception
Year ended (June 26, 1997)to (June 26,1997)to
(In thousands, December 31, December 31, December 31,
except per share amounts) 1998 1997 1998
_____________________________________________________________________________
Net loss
As reported $ (95,795) $ (28,441) $ (124,236)
Pro forma (95,919) (28,471) (124,390)
Net loss per share
(basic and diluted)
As reported $ (19.29) $ (11.33) $ (29.96)
Pro forma (19.32) (11.34) (29.98)
The historical proforma impact of applying the fair value
method is not representative of the impact that may be expected in
the future due to additional options that may be granted in the future.
The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1997
____________________________________________________________
Risk-free interest rate 6.0%
Expected dividend yield 0
Expected volatility 23.0%
Expected life (in years) 3.5
No options were granted during the year ended December 31, 1998.
Changes in the assumptions can materially affect the fair value
estimate and therefore the existing models do not necessarily
provide a reliable single measure of the fair value of Crescendo's
stock options.
A summary of Crescendo's stock option activity, and related
information for year ended 1998 and the period ended 1997, follows:
______________________________________________________________________
Weighted
Average
Options Exercise
(in thousands) Price
1998 1997 1998 1997
______________________________________________________________________
Outstanding-beginning
of period 100 - $ - $ -
Granted - 100 11.23 11.23
____________________________________________________________________
Outstanding-end of period 100 100 $ 11.23 $11.23
======================================================================
Exercisable-end of year 25 - $ 11.23 $ -
Weighted-average fair
value of options
granted during 1997 $2.93
At December 31, 1998, 100,000 shares were available for grant
under Crescendo's Stock Option Plan. At December 31, 1998, the
weighted average remaining contractual life of the outstanding
options was 8.78 years.
Note 6. Dividends
Crescendo's restated certificate of incorporation prohibits the
payment of dividends from Available Fund.
Note 7. Income Taxes
The provision for income taxes consists of:
Period Period
from inception from inception
Year ended (June 26, 1997)to (June 26, 1997)to
December 31, December 31, December 31,
1998 1997 1998
___________________________________________________________________________
(in thousands)
Taxes currently payable:
Federal $1,919 $ - $1,919
State 506 - 506
_______ ______ ______
Total $2,425 $ - $2,425
===========================================================================
A reconciliation of the provision for income taxes to the federal
statutory tax rate (35%) follows:
Period Period
from inception from inception
Year ended (June 26, 1997)to (June 26, 1997)to
December 31, December 31, December 31,
1998 1997 1998
____________________________________________________________________________
(in thousands)
Expected tax benefit
statutory rate $(32,680) $(9,954) $(42,634)
State taxes (5,340) (1,621) (6,961)
Tax effect of capitalized
expenses which provide no
current tax benefit 40,445 11,575 52,020
______ _______ ________
Total $ 2,425 $ - $ 2,425
============================================================================
Deferred tax assets consist primarily of research expenditures
capitalized for income taxes purposes only. Deferred tax assets of
approximately $52 million and $11.5 million at December 31, 1998 and
1997, respectively, have been fully offset by a valuation allowance
because of Crescendo's lack of earnings history. The valuation
allowance for deferred tax assets increased by $40.4 million during
the year ended December 31, 1998 and $11.6 million for the period
from inception (June 26, 1997) to December 31, 1997.
Note 8. Quarterly Financial Data (unaudited)
The net loss and loss per share for the six quarters beginning
with the quarter ended September 30, 1997 and ending with the
quarter ended December 31, 1998 were, sequentially, approximately
$6.3 million and $113.53 per share, $22.2 million and $4.46 per
share, $17.9 million and $3.60 per share, $25.6 million and $5.16
per share, $25.0 million and $5.03 per share, and $27.3 million and
$5.50 per share.
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CRESCENDO PHARMACEUTICALS CORPORATION
We have audited the accompanying balance sheets of Crescendo
Pharmaceuticals Corporation (a development stage company) as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31,
1998 and for the periods from inception (June 26, 1997) to December
31, 1997 and December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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 Crescendo
Pharmaceuticals Corporation (a development stage company) at December
31, 1998 and 1997, and the results of its operations and its cash
flows for the year ended December 31, 1998 and for the periods from
inception (June 26, 1997) to December 31, 1997 and December 31, 1998,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 5, 1999
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Crescendo incorporates by reference the information concerning
its directors set forth under the heading "Election of Directors" on
pages 1 through 4 in Crescendo's definitive proxy statement dated
March 31, 1999 for its Annual Meeting of Stockholders to be held on
May 6, 1999 (the "Proxy Statement"). Information concerning
Crescendo's executive officers appears at the end of Part I of this
Annual Report on page 14. Crescendo also incorporates by reference
the information set forth under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance" on Page 5 of the Proxy
Statement.
Item 11. Executive Compensation
Crescendo incorporates by reference the information "Summary
Compensation Table", "1998 Option Grants" and "1998 Aggregated
Option Exercises and Fiscal Year End Option Values" set forth under
"Executive Compensation" on pages 4 and 5 in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Crescendo incorporates by reference the information set forth
under the heading "Beneficial Stock Ownership" on pages 8 and 9 in
the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Crescendo incorporates by reference the information set forth
under the heading "Certain Transactions" on page 10 in the Proxy
Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements (See Item 8)
2. Financial Statement Schedules (None)1
3. Exhibits
3.1 Restated Certificate of Incorporation of
Crescendo, as corrected, filed as Exhibit 10.1 to
ALZA Corporation's Form 10-Q (File No. 1-6247) dated
November 6, 1997.2
3.2 Bylaws of Crescendo, dated June 29, 1997,
filed as Exhibit 3.2 to Crescendo's Form S-1 (File No.
333-31281) dated September 5, 1997.2
10.1 Services Agreement between
Crescendo and ALZA, filed as Exhibit 10.1 to
Crescendo's Form 10-Q (File No. 0-22927) dated
November 14, 1997.2
10.2 Technology License Agreement between Crescendo
and ALZA, filed as Exhibit 10.2 to ALZA's
Form 10-Q (File No. 1-6247) dated November 6, 1997.2
10.3 Development Agreement between Crescendo and ALZA,
filed as Exhibit 10.3 to ALZA's Form 10-Q
(File No. 1-6247) dated November 6, 1997.2
10.4 License Option Agreement between Crescendo and ALZA, filed as
Exhibit 10.4 to ALZA's Form 10-Q (File No. 1-6247) dated
November 6, 1997.2
10.5 1997 Stock Option Plan, filed as Exhibit 10.6 to
Crescendo's Form S-1 (File No. 333-31281) dated
September 5, 1997.2,3
10.6 License Agreement between Crescendo and ALZA Corporation
concerning OROS-registered trademark- oxybutynin dated
December 16, 1998.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period.
(1) Schedules have been omitted because the required information is
not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is
included in the financial statements, including the notes thereto.
(2) Incorporated by reference.
(3) A management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c)
of Form 10-K.
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.
Date:____3/26/99_________ Crescendo Pharmaceuticals Corporation
By __/s/_ Dr. Gary L. Neil _
Dr. Gary L. Neil
President and
Chief Executive Officer
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.
__/s/ Dr. Gary L. Neil _______ __/s/ David R. Hoffmann ____
Dr. Gary L. Neil David R. Hoffmann
President, Chief Executive Vice President, Finance and
Officer and Director Principal Financial
Date:____3/26/99_____ and Accounting Officer
Date:____3/26/99_____
__/s/ Dr. Terrence F. Blaschke /s/ Dr. Gerald J. Papariello
Dr. Terrence F. Blaschke Dr. Gerald J. Papariello
Director Director
Date:____3/26/99_____ Date:____3/26/99_____
__/s/ Jerry T. Jackson ______ __/s/ Ley S. Smith _________
Jerry T. Jackson Ley S. Smith
Director Director
Date:____3/26/99_____ Date:____3/26/99_____
__/s/Dr. M. David MacFarlane_
Dr. M. David MacFarlane
Director
Date:____3/26/99_____
This License Agreement (the "Agreement") is made this 16th
day of December, 1998 by and between ALZA Corporation, a Delaware
corporation ("ALZA"), and Crescendo Pharmaceuticals Corporation
("Crescendo"), a Delaware corporation.
BACKGROUND
A. Crescendo and ALZA have entered into a License Option
Agreement and certain other agreements dated as of September 5,
1997.
B. Section 2 of the License Option Agreement provides for a
license, the terms of which are to be set forth herein.
Now, therefore, the parties agree as follows:
1. Definitions.
For purposes of this Agreement, the following terms
shall have the meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other
entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, the designated party. "Control" shall mean
ownership of at least 50% of the shares of stock entitled to vote
for the election of directors in the case of a corporation, and
at least 50% of the interests in profits in the case of a
business entity other than a corporation.
1.2 "Development Agreement" shall mean the Development
Agreement between ALZA and Crescendo dated as of September 5,
1997.
1.3 "Development Cost(s)" shall mean the cost of
activities undertaken pursuant to the Development Agreement with
respect to the Licensed Product, determined in accordance with
Exhibit A thereto.
1.4 "Infringing Product" shall mean any product sold
by a third party, other than pursuant to an agreement with ALZA,
(i) which incorporates the same therapeutic agent or agents as
incorporated in the Licensed Product and (ii) in the case of a
Licensed Product using an ALZA drug delivery system, which
incorporates a delivery system substantially similar to that
incorporated in the Licensed Product, and (iii) which infringes
or is alleged to infringe any patent or patents owned by,
licensed to or controlled by ALZA.
1.5 "License Option Agreement" shall mean the License
Option Agreement between ALZA and Crescendo dated as of September
5, 1997.
1.6 "Licensed Product" shall mean the product listed
on Attachment A hereto.
1.7 "Major Market Country" shall mean any of the
following countries: the United States, France, Germany, Italy,
Japan or the United Kingdom.
1.8 "Net Sales" shall mean the total amount invoiced in United
States dollars (or converted thereto in accordance with Section
5.2 hereof) on sales of a Licensed Product by ALZA (or its
Affiliates) or any ALZA sublicensee, distributor or marketing
partner (or its Affiliates) to unrelated third parties such as
wholesalers, hospitals and others, in bona fide arm's-length
transactions, less the following deductions, in each case related
specifically to the Licensed Product and actually allowed and
taken and not otherwise recovered by or reimbursed to ALZA (or
its Affiliates) or such sublicensee, distributor or marketing
partner (or its Affiliates): (i) trade, cash and quantity
discounts; (ii) taxes on sales (such as sales or use taxes) to
the extent added to the sales price and set forth separately as
such in the total amount invoiced; (iii) freight, insurance and
other transportation charges to the extent added to the sales
price and set forth separately as such in the total amount
invoiced; and (iv) amounts repaid or credited by reason of
rejections, defects or returns or because of retroactive price
reductions, chargebacks or rebates under government programs.
Net Sales shall also include the fair market value of all other
consideration received (a) by ALZA (or its Affiliates) with
respect to sales by them of the Licensed Product to unrelated
third parties from persons other than sublicensees, distributors
or marketing partners (or their Affiliates) or (b) by any
sublicensee, distributor or marketing partner (or its Affiliates)
with respect to their sales of the Licensed Product to unrelated
third parties, in each case whether such consideration is in
cash, payment in kind, exchange or other form.
1.9 "Territory" shall mean the country or
countries listed on Attachment B hereto, as amended from time to
time by the parties in connection with the exercise by ALZA of
its option for additional countries under the License Option
Agreement or the surrender by ALZA of its rights to commercialize
the Licensed Product in any country or countries.
2. Grant of License.
2.1 Grant. Crescendo hereby grants to ALZA an
exclusive, perpetual license, with the right to sublicense, to
develop, make, have made and use the Licensed Product and to sell
and have sold the Licensed Product in the Territory. ALZA agrees
to use diligent efforts to conduct or have conducted any
remaining activities necessary to complete the development of the
Licensed Product in the Territory through regulatory clearance to
market the Licensed Product in the Territory. Such activities
will be undertaken at no cost to Crescendo, unless Crescendo
agrees otherwise in writing. Promptly after regulatory
clearance, ALZA shall commence and continue to use diligent
efforts to commercialize the Licensed Product in each Major
Market Country of the Territory through the manufacture and sale
or the sublicensing of the Licensed Product, devoting to the
Licensed Product the same resources as other pharmaceutical
companies of similar size devote to products with similar market
potential and with similar relative importance to their product
portfolios. ALZA may use reasonable business discretion in the
allocation of its technological and monetary resources in
performing its obligations hereunder, taking into account not
only the Licensed Product but also activities for its own account
and its obligations under its other agreements with third
parties. Crescendo acknowledges that ALZA will continue to own
and have the right to use any clinical supplies, materials and
other assets purchased, manufactured or developed for use in the
development of such Licensed Product, without any additional
payment to or reimbursement of Crescendo.
2.2 No Other Commercialization. ALZA shall not
commercialize the Licensed Product in any country except pursuant
to this Agreement.
3. Product Payments.
3.1 Payments.
(a) In consideration of the grant of the license,
ALZA shall make payments to Crescendo ("Product Payments") with
respect to the Licensed Product as follows: 1% of Net Sales of
the Licensed Product in the Territory, plus an additional 0.1% of
such Net Sales for each full $1 million of Development Costs of
the Licensed Product paid by Crescendo. Notwithstanding the
foregoing, Product Payments for any quarter will not exceed 2.5%
of Net Sales, on a quarterly basis, in the Territory for the
first four calendar quarters during which the Licensed Product is
commercially sold in the first Major Market Country, and 3% of
Net Sales, on a quarterly basis, for each of the following eight
completed calendar quarters.
(b) In determining Product Payments, Development
Costs shall be determined as of the last day of each calendar
quarter, in order to determine the rates payable with respect to
Net Sales for the next calendar quarter for all countries
included in the Territory as of the first day of such next
calendar quarter, and for any country added to the Territory
during such next calendar quarter.
(c) In determining Product Payments, Net Sales by
ALZA shall be reduced by the dollar amount of any license or
similar payments made by or due from ALZA or its Affiliates to
third parties with respect to sales of such Licensed Product in
the Territory. If license or similar payments are made to third
parties with respect to sales of both the Licensed Product in the
Territory and to sales of other products, ALZA shall allocate
such payments, if necessary, in a commercially reasonable manner.
3.2 Term of Payments. The obligation to make Product
Payments hereunder shall continue until 15 years after the date
of the first commercial sale of the Licensed Product in any Major
Market Country, and shall terminate as to all countries at the
end of such 15-year period.
3.3 Buy-Out of Payments.
(a) ALZA shall have the option, in its discretion, at any time
after the end of the twelfth calendar quarter during which the
Licensed Product was commercially sold in any country, to buy out
its remaining obligations to make Product Payments with respect
to Net Sales of such Licensed Product in such country. The buy-
out price shall be an amount equal to 15 times the Product
Payments made by or due from ALZA to Crescendo with respect to
Net Sales of such Licensed Product in such country for the four
calendar quarters immediately preceding the quarter in which the
buy-out option is exercised, plus 15 times such additional
Product Payments as would have been made but for the 2.5% and 3%
limits set forth in Section 3.1 on Product Payments for such
period.
(b) ALZA shall have the option, in its discretion, at any time
after the end of the twelfth calendar quarter during which the
Licensed Product was commercially sold in either the United
States or two other Major Market Countries, to buy out its
remaining obligations to make Product Payments with respect to
Net Sales of such Licensed Product in the Territory. The buy-out
price shall be an amount equal to (i) 20 times (A) the Product
Payments made by or due from ALZA to Crescendo for such Licensed
Product in the Territory, plus (B) such payments as would have
been made by or due from ALZA to Crescendo if ALZA had not
exercised any country-specific buy-out option with respect to Net
Sales of such Licensed Product, plus (C) such additional Product
Payments as would have been made but for the 2.5% and 3% limits
set forth in Section 3.1 on Product Payments for such period, in
each case, for the four calendar quarters immediately preceding
the quarter in which the buy-out option is exercised, less (ii)
any amounts previously paid to exercise any country-specific buy-
out option with respect to Net Sales of such Licensed Product.
4 Accounting.
4.1 Reports. Within 90 days after the end of each
calendar quarter for which Product Payments are due, ALZA shall
render an accounting to Crescendo, on a country-by-country basis,
with respect to all Product Payments due for such quarter. Such
report shall indicate, for such quarter, the quantity and dollar
amount of Net Sales of the Licensed Product by ALZA and its
Affiliates, sublicensees, distributors and marketing partners
(and their Affiliates), or other consideration with respect to
Net Sales, with respect to which payments are due; provided,
however, that if ALZA shall not have received from any
sublicensee, distributor or marketing partner a report of its
(and its Affiliates') sales for such quarter, then such sales
shall be included in the next quarterly report. In case no
Product Payments are due for any calendar quarter, ALZA shall so
report.
4.2 Records; Review by Accountants. ALZA shall keep
and maintain, in accordance with generally accepted accounting
principles, proper and complete records and books of account
documenting all amounts paid or payable by ALZA to Crescendo.
Crescendo shall have the right, once in each calendar year during
regular business hours and upon reasonable notice to ALZA, at
Crescendo's expense, to examine or have examined by a certified
public accountant or similar person, such of the records of ALZA
as may be necessary to verify the accuracy of the reports and
payments made under this Agreement. Such examination shall take
place not later than two years following the year in question,
and only one examination may take place with respect to any
period as to which such books and records are examined. ALZA
shall obtain, for itself and for Crescendo, similar reasonable
rights to audit information pertaining to Net Sales from each
party appointed to commercialize any product as to which payments
are due in Crescendo hereunder.
5 Times and Currencies of Payments.
5.1 Payments. Payments shown by each calendar quarter
report to have accrued shall be due and payable on the date such
report is due and shall be paid in United States dollars. Any
and all taxes due or payable on such payments or with respect to
the remittance thereof shall be deducted from such payments and
shall be paid by ALZA to the proper taxing authorities, and proof
of payment shall be secured and sent to Crescendo as evidence of
such payment. The rate of exchange to be used in computing the
amount of the United States dollars due to Crescendo in
satisfaction of payment obligations with respect to sales in
foreign countries shall be calculated by converting the amount
due in such foreign currency into United States dollars at the
rate for the purchase of United States dollars with such currency
as published in The Wall Street Journal on the last business day
of the calendar quarter for which payment is being made.
5.2 Certain Foreign Payments. If governmental regulations
prevent remittance from any foreign country of any amounts due
under Section 3.1 in respect of that country, ALZA shall so
notify Crescendo in writing, and the obligation under this
Agreement to make payments with respect to sales in that country
shall be suspended (but the amounts due but not paid shall
continue to accrue) until such remittances are possible.
Crescendo shall have the right, upon written notice to ALZA, to
receive payment in any such country in the local currency.
5.3 Late Payments. Any payments due hereunder that
are not made when due shall bear interest at the lesser of 10%
per annum or the maximum rate as may be allowed by law, beginning
on the date when Crescendo has notified ALZA that such payments
are overdue.
6 Patent Infringement.
6.1 Notice. Each party shall promptly notify the
other party of use or sale by a third party of an Infringing
Product.
6.2 Legal Action. If a third party manufactures or
sells an Infringing Product, ALZA may, at its own expense, bring
legal action to restrain such infringement and for damages. Any
recoveries resulting from any such action shall be first applied
to reimburse ALZA for its expenses (including reasonable
attorneys' fees) incurred in bringing the action. Crescendo will
be entitled to a share of the remaining recoveries in the same
percentage as the percentage of Net Sales as to which Product
Payments are due to Crescendo during the period of the
infringement or alleged infringement. If (a) ALZA fails to take
the necessary steps to restrain such infringement or alleged
infringement by litigation or otherwise within 90 days after
either party's notice described in Section 6.1, (b) if the
infringement or alleged infringement occurs during a period for
which Crescendo is entitled to receive Product Payments
hereunder, and (c) if over a period of at least two calendar
quarters such Infringing Product achieves an annualized unit
sales volume in the country of infringement equal to 25% of the
annualized unit sales volume of the Licensed Product sold by ALZA
and its Affiliates, sublicensees, distributors and marketing
partners (and their Affiliates) in such country during such year,
then Crescendo may institute, in its own name, at its own expense
and with the right to all recoveries, such litigation or other
appropriate action as it may deem appropriate to restrain such
infringement, provided that Crescendo has first given to ALZA 60
days advance notice of its intention to take such action, and
provided further, that ALZA has not itself taken appropriate
action during such 60 day period.
6.3 Cooperation. If either party desires to bring an
action in accordance with Section 6.2, the other party agrees to
cooperate fully with the party bringing such action in the
pursuit thereof, at the expense of the party bringing such action
and to the extent reasonably requested by such party. If the
third party in any such action brought by Crescendo brings a
counteraction for invalidation or misuse of a patent covering the
Licensed Product, Crescendo promptly shall notify ALZA and ALZA
may, within six months of the notification, join and participate
in such action at its own expense.
6.4 Settlement. Each party agrees not to settle any
action it brings in a manner that would adversely affect the
other party without the other party's prior written approval.
7 Effective Date and Term.
7.1 Effective Date and Term. This Agreement will
become effective in accordance with Section 2.3 of the License
Option Agreement and, unless terminated in accordance with any of
the provisions hereof, shall remain in full force and effect
thereafter.
8 Indemnification.
8.1 Indemnity. ALZA shall indemnify, defend and hold
Crescendo (and its Affiliates) harmless from and against any and
all liabilities, claims, demands, damages, costs, expenses or
money judgments incurred by or rendered against Crescendo and its
Affiliates, which arise out of the use, design, labeling or
manufacture, processing, packaging, sale or commercialization of
the Licensed Product by ALZA, its Affiliates, subcontractors,
sublicensees, distributors and marketing partners (and their
Affiliates). Crescendo shall permit ALZA's attorneys, at ALZA's
discretion and cost, to control the defense of any claims or
suits as to which Crescendo may be entitled to indemnification
hereunder, and Crescendo agrees not to settle any such claims or
suits without the prior written consent of ALZA. Crescendo shall
have the right to participate, at its own expense, in the defense
of any such claim or demand to the extent it so desires.
8.2 Notice. Crescendo shall give ALZA prompt notice
in writing, in the manner set forth in Section 11.7 below, of any
claim or demand made against Crescendo for which Crescendo may be
entitled to indemnification under Section 8.1.
9 Disclaimers.
CRESCENDO DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A)
THAT THE LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN,
OR THE MANUFACTURE, USE OR SALE THEREOF, WILL BE FREE FROM CLAIMS
OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE
ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE,
COMPREHENSIVENESS OR MERCHANTABILITY OF THE LICENSED PRODUCT OR
ANY TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR
FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION,
THE DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF THE LICENSED
PRODUCT. CRESCENDO DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER
NATURE, EXPRESS OR IMPLIED.
10 Termination.
10.1 Termination by Crescendo. Crescendo may, in its
discretion, terminate this Agreement in the event that ALZA:
(a) breaches any of its material obligations
hereunder and such breach continues for a period of 60 days after
written notice thereof; or
(b) enters into any proceeding, whether voluntary
or otherwise, in bankruptcy, reorganization or arrangement for
the appointment of a receiver or trustee to take possession of
ALZA's assets or any other proceeding under any law for the
relief of creditors or makes an assignment for the benefit of its
creditors.
10.2 Termination by ALZA. ALZA may terminate this
Agreement with respect to one or more countries included in the
Territory upon 30 days' prior written notice to Crescendo if ALZA
elects for any reason to discontinue commercialization of the
Licensed Product in such country.
10.3 Consequences of Termination. Termination of this
Agreement for any reason in accordance with the terms hereof
shall be without prejudice to:
(a) Crescendo's right to receive all payments
accrued under Section 3 prior to the effective date of such
termination; and
(b) any other remedies which either party may
then or thereafter have hereunder or otherwise. If this
Agreement terminates pursuant to this Section 10, ALZA shall
immediately discontinue any promotion and sales of the Licensed
Product. Notwithstanding the foregoing, in the event of any
termination under this Section 10, ALZA may sell its inventory in
stock on the date of termination for a period of up to six months
after the termination, and shall remit payments to Crescendo in
respect thereto in accordance with this Agreement.
11 Miscellaneous.
11.1 Waiver, Remedies and Amendment. Any waiver by
either party hereto of a breach of any provisions of this
Agreement shall not be implied and shall not be valid unless such
waiver is recited in writing and signed by such party. Failure
of any party to require, in one or more instances, performance by
the other party in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or
relinquishment of the future performance of any such terms or
conditions or of any other terms and conditions of this
Agreement. A waiver by either party of any term or condition of
this Agreement shall not be deemed or construed to be a waiver of
such term or condition for any other term. All rights, remedies,
undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended
except in writing signed by both parties.
11.2 Assignment. Neither party may assign its rights
and obligations hereunder without the prior written consent of
the other party, which consent may not be unreasonably withheld;
provided, however, that ALZA may assign such rights and
obligations hereunder to an Affiliate of ALZA or to any person or
entity with which ALZA is merged or consolidated or which
acquires all or substantially all of the assets of ALZA.
11.3 Arbitration.
(a) All disputes which may arise under, out of or in
connection with this Agreement shall be settled by arbitration
conducted in the City of San Francisco, State of California, in
accordance with the then existing rules of the American
Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction
thereof. The parties hereby agree that service of any notices in
the course of such arbitration at their respective addresses as
provided for in Section 11.7 of this Agreement shall be valid and
sufficient.
(b) In any arbitration pursuant to this Section 11.3,
the award shall be rendered by a majority of the members of a
board of arbitration consisting of three members who shall be
appointed by the parties jointly, or if the parties cannot agree
as to three arbitrators within 30 days after the commencement of
the arbitration proceeding, then one arbitrator shall be
appointed by ALZA and one arbitrator shall be appointed by
Crescendo within 60 days after the commencement of the
arbitration proceeding. The third arbitrator shall be appointed
by mutual agreement of such two arbitrators. In the event of
failure of the two arbitrators to agree within 75 days after
commencement of the arbitration proceeding upon the appointment
of the third arbitrator, the third arbitrator shall be appointed
by the American Arbitration Association in accordance with its
then existing rules. Notwithstanding the foregoing, in the event
that any party shall fail to appoint an arbitrator it is required
to appoint within the specified time period, such arbitrator and
the third arbitrator shall be appointed by the American
Arbitration Association in accordance with its then existing
rules. For purposes of this Section 11.3, the "commencement of
the arbitration proceeding" shall be deemed to be the date upon
which a written demand for arbitration is received by the
American Arbitration Association from one of the parties.
11.4 Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together
shall constitute this Agreement.
11.5 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the state of
California as applied to residents of that state entering into
contracts to be performed in that state.
11.6 Headings. The headings set forth at the beginning
of the various sections of this Agreement are for convenience and
form no part of the Agreement between the parties.
11.7 Notices. Notices required under this Agreement
shall be in writing and sent by registered or certified mail,
postage prepaid, or by facsimile and confirmed by registered or
certified mail, postage prepaid, and addressed as follows:
If to ALZA: ALZA Corporation
950 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8048
Attention: Senior Vice President and
General Counsel
If to Crescendo: Crescendo Pharmaceuticals
Corporation
1454 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 496-8250
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the
date of mailing or upon receipt if sent by facsimile (but only if
followed by certified or registered confirmation). Either party
may change the address at which notice is to be received by
written notice pursuant to this Section 11.7.
11.8 Severability. If any provision of this Agreement
is held by a court of competent jurisdiction to be invalid or
unenforceable, it shall be modified, if possible, to the minimum
extent necessary to make it valid and enforceable or, if such
modification is not possible, it shall be stricken and the
remaining provisions shall remain in full force and effect.
11.9 Relationship of the Parties. For all purposes of
this Agreement, Crescendo and ALZA shall be deemed to be
independent contractors and anything in this Agreement to the
contrary notwithstanding, nothing herein shall be deemed to
constitute Crescendo and ALZA as partners, joint venturers, co-
owners, an association or any entity separate and apart from each
party itself, nor shall this Agreement constitute any party
hereto an employee or agent, legal or otherwise, of the other
party for any purposes whatsoever. Neither party hereto is
authorized to make any statements or representations on behalf of
the other party or in any way to obligate the other party, except
as expressly authorized in writing by the other party. Anything
in this Agreement to the contrary notwithstanding, no party
hereto shall assume nor shall be liable for any liabilities or
obligations of the other party, whether past, present or future.
11.10 Survival. The provisions of Sections 1, 4.2,
8, 9, 10.3, 11.1, 11.3, 11.5, 11.6, 11.7, 11.8, 11.9 and this
Section 11.10 shall survive the termination for any reason of
this Agreement. Any payments due under this Agreement with
respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party
shall be liable to the other due to the termination of this
Agreement as provided herein, whether in loss of good will,
anticipated profits or otherwise.
11.11 Force Majeure. Neither party to this
Agreement shall be liable for failure or delay in the performance
of any of its obligations hereunder, if such failure or delay is
due to causes beyond its reasonable control including, without
limitation, acts of God, earthquakes, fires, strikes, acts of
war, or intervention of any governmental authority, but any such
delay or failure shall be remedied by such party as soon as
possible after the removal of the cause of such failure or delay.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first set forth above.
ALZA CORPORATION
By: /s/ Peter D.Staple
Title: Sr. Vice President, General
Counsel and Assistant Secretary
CRESCENDO PHARMACEUTICALS CORPORATION
By: _/s/_Dr. Gary L. Neil
Title: President & Chief Executive
Officer
ATTACHMENT A
LICENSED PRODUCT
OROS-registered trademark- oxybutynin (referred to as CPC-1)
ATTACHMENT B
TERRITORY
DATE OF EXERCISE COUNTRY
December 16, 1998 worldwide
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<PERIOD-END> DEC-31-1998
<CASH> 54,326
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<RECEIVABLES> 1,861
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 114,224
<PP&E> 0
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<TOTAL-ASSETS> 193,911
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0
0
<COMMON> 51
<OTHER-SE> 176,187
<TOTAL-LIABILITY-AND-EQUITY> 193,911
<SALES> 0
<TOTAL-REVENUES> 13,912
<CGS> 0
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<OTHER-EXPENSES> 105,966
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (93,370)
<INCOME-TAX> 2,425
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