<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1996
REGISTRATION NO. 333-00845
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERFERON SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-2313648
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
783 JERSEY AVENUE
NEW BRUNSWICK, NEW JERSEY 08901
(908) 249-3250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAWRENCE M. GORDON, ESQ.
CHIEF EXECUTIVE OFFICER AND GENERAL COUNSEL
INTERFERON SCIENCES, INC.
9 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 230-9513
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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ROBERT J. HASDAY, ESQ. KENNETH R. KOCH, ESQ.
DUANE, MORRIS & HECKSCHER SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
SUITE 2125 551 FIFTH AVENUE
122 EAST 42ND STREET NEW YORK, NEW YORK 10176
NEW YORK, NEW YORK 10168
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, par value $.01 per share................ 6,000,000 shares $2 7/16(1) $14,625,000(1) $5,043.11(2)
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Common Stock, par value $.01 per share................ 1,000,000 shares $2.00(3) $ 2,000,000(3) $ 689.66(2)
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Common Stock, par value $.01 per share................ 1,000,000 shares $2.00(3) $ 2,000,000(3) $ 689.66
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(1) Estimated solely for the purpose of calculating the registration fee based
on the average of the high and low prices of the Common Stock on February 9,
1996 as reported by NASDAQ, pursuant to Rule 457(c).
(2) Previously paid.
(3) Estimated solely for purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INTERFERON SCIENCES, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-2
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REGISTRATION STATEMENT
ITEM AND HEADING LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Summary Financial
Information; Risk Factors; and Selected
Financial Information
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds; Risk
Factors
5. Determination of Offering Price........... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Description of Securities;
Underwriting
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to the
Registrant................................ Inside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk Factors;
Dilution; Use of Proceeds; Price Range of
Common Stock; Dividend Policy; Capitalization;
Selected Financial Information; Management's
Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Certain Transactions;
Description of Securities; Financial
Statements
12. Incorporation of Certain Information by
Reference................................. Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion, Dated April 23, 1996
PROSPECTUS
INTERFERON SCIENCES, INC.
MINIMUM: 5,000,000 SHARES OF COMMON STOCK
MAXIMUM: 8,000,000 SHARES OF COMMON STOCK
The shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Interferon Sciences, Inc., a Delaware corporation (the "Company"), being
offered hereby are being sold by the Company. See "Underwriting" for information
relating to the factors considered in determining the public offering price.
The Common Stock is quoted on the NASDAQ SmallCap Market under the symbol
"IFSC." On April 22, 1996, the last reported sale price of the Common Stock on
the NASDAQ SmallCap Market was $2 3/4 per share.
------------------------
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 9-17 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)(3)
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Per Share................ $2.00 $.14 $1.86
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Total Minimum............ $10,000,000 $ 700,000 $ 9,300,000
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Total Maximum............ $16,000,000 $1,120,000 $14,880,000
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</TABLE>
(1) Excludes additional compensation to be received by Sunrise Securities Corp.,
the underwriter for the Offering (the "Underwriter"), including (i) a
non-accountable expense allowance of 1.5% of the gross proceeds of the
Offering and (ii) options to purchase up to a number of shares of Common
Stock equal to 10% of the number of shares of Common Stock sold in the
Offering, exercisable over a period of four years commencing one year from
the date of this Prospectus at an exercise price equal to 120% of the public
offering price of the shares offered hereby (the "Underwriter's Purchase
Options"). The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities arising under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses payable by the Company of $300,000 if
the minimum number of shares are sold and $390,000 if the maximum number of
shares are sold, including the Underwriter's expense allowance. See
"Underwriting."
(3) The shares of Common Stock are being offered by the Underwriter as the agent
for the Company on a "best efforts" 5,000,000 share minimum, 8,000,000 share
maximum, basis for 30 days from the date of this Prospectus (which period
may be extended for an additional 30 days by the Underwriter). There is no
minimum number of shares required to be purchased by any investor. The
Company's officers, directors, employees, and principal stockholders may
purchase shares of Common Stock in the Offering, but any such purchases will
not be used to satisfy the 5,000,000 share minimum. Pending the sale of the
5,000,000 share minimum, all proceeds will be held in escrow by Bank of
Montreal Trust Company, Escrow Agent for the Offering. After the sale of the
initial 5,000,000 shares, the remaining 3,000,000 shares will also be
offered on a "best efforts" basis. In the event the minimum number of shares
is not sold within the offering period or any extension thereof, the
Offering will terminate and all funds will be returned promptly to
subscribers by the Escrow Agent without any deduction therefrom or interest
thereon.
The shares of Common Stock are being offered on a "best efforts" 5,000,000
share minimum, 8,000,000 share maximum, basis by the Underwriter, subject to
prior sale, withdrawal, or cancellation of the Offering without notice. Any
modification to the Offering will be made by means of an amendment to this
Prospectus. The Company reserves the right to modify, withdraw, or cancel the
Offering without notice, and to reject any orders for the shares of Common Stock
offered hereby, in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of the Underwriter, 135 East 57th Street, New York, New York 10022.
------------------------
SUNRISE SECURITIES CORP.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
AVAILABLE INFORMATION
This Prospectus omits certain of the information contained in the
Registration Statement relating to the securities offered hereby (the
"Registration Statement") which is on file with the Securities and Exchange
Commission (the "Commission"). The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files periodic reports, proxy statements, and
other information with the Commission. Such Registration Statement, reports,
proxy statements, and other information can be inspected, without charge, and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60061. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995 filed by the Company with the Commission is incorporated in this Prospectus
by reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies, supersedes, or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Any person receiving a copy of this
Prospectus may obtain without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein, except for exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the documents which this Prospectus incorporates). Requests should be
directed to: Corporate Secretary, Interferon Sciences, Inc., 783 Jersey Avenue,
New Brunswick, New Jersey 08901, telephone number (908) 249-3250.
------------------------
ALFERON(R) and ALFERON LDO(R) are registered trademarks of the Company.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.
THE COMPANY
General
Interferon Sciences, Inc. (the "Company") is a biopharmaceutical company
currently engaged in the manufacture and sale of ALFERON N Injection, the only
product approved by the United States Food and Drug Administration ("FDA") that
is based upon a natural source, multi-species alpha interferon ("Natural Alpha
Interferon"). ALFERON N Injection is approved for the treatment by injection of
certain types of genital warts and is being developed by the Company for the
potential treatment of hepatitis C, hepatitis B, HIV, multiple sclerosis,
cancers, and other indications. The Company believes that the existing FDA
approval of ALFERON N Injection for one indication should facilitate obtaining
approvals for other indications. The Company also is developing ALFERON N Gel
and ALFERON LDO, the Company's topical and oral formulations of Natural Alpha
Interferon.
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 72 countries, are, as a group, one of the largest
selling of all biopharmaceuticals, with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting millions of people worldwide,
including two to three million people in the United States. As described below,
the Company has recently completed two multi-center Phase 2 trials using Natural
Alpha Interferon for the treatment of hepatitis C, and is presently conducting
one additional such trial. The Company believes that the results of the two
completed trials are promising, and therefore intends to commence shortly a
Phase 3 multi-center, controlled clinical trial.
Natural Alpha Interferon
A substantial portion of worldwide sales of interferon consists of sales of
alpha interferon produced from genetically engineered cells (recombinant alpha
interferon). Based on laboratory studies and clinical trials involving Natural
Alpha Interferon, the Company believes that Natural Alpha Interferon has certain
potential advantages over recombinant alpha interferon including:
Efficacy. Natural Alpha Interferon is used at significantly lower doses
than the competing recombinant alpha interferon product for the
treatment of genital warts and, in laboratory studies, was shown to be
10 to 100 times more effective than equal concentrations of recombinant
alpha interferon in blocking replication of HIV. This unusually potent
anti-HIV activity may be due to specific members of the interferon
family of proteins which are present in Natural Alpha Interferon but not
found in the presently marketed recombinant interferons.
Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. Furthermore, in a Phase 1 clinical trial on 20
asymptomatic HIV-infected patients, investigators at Walter Reed Army
Institute of Research ("Walter Reed") reported that significantly fewer
of the typical side effects associated with recombinant alpha interferon
were observed with Natural Alpha Interferon. In addition,
interferon-neutralizing antibodies, which may limit alpha interferon's
therapeutic benefit, have not been observed to date in clinical trials
with Natural Alpha Interferon in patients not previously treated with
recombinant alpha interferon, even in HIV and hepatitis C patients
treated with high doses of Natural Alpha Interferon three times a week
for up to six months.
3
<PAGE> 6
In contrast, there have been reports of neutralizing antibodies to
recombinant alpha interferons developing in patients being treated with
recombinant alpha interferons.
Although, as described above, the Company believes that Natural Alpha
Interferon may have certain advantages over recombinant alpha interferon, there
can be no assurance that these advantages will enable the Company to obtain a
significant market share for products made with Natural Alpha Interferon.
Moreover, at the present time, the Company is limited in its ability to make
product marketing claims related to these potential advantages until additional
data are available and, in certain instances, until further FDA approvals are
obtained. Additionally, the Company derives Natural Alpha Interferon from human
white blood cells, the cost and availability of which are subject to
fluctuation, in part because the Company does not presently have long-term
agreements for the supply of such cells. Recombinant alpha interferon products
are not dependent on a source of human white blood cells and, therefore, can be
produced in greater volume and at a lower cost per unit than the Company's
formulations of Natural Alpha Interferon products. See "Business -- Scientific
Background."
Marketing, Distribution, and Production
ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is currently marketed and distributed
in the United States exclusively by Purdue Pharma L.P. ("Purdue Pharma" and,
collectively with its affiliates, "Purdue"). The Company and Purdue have entered
into an agreement pursuant to which the Company will repurchase the marketing
rights for ALFERON N Injection in the United States and Canada for $3,260,962 in
cash, subject to minor adjustment. See "Use of Proceeds," "Business -- ALFERON N
Injection -- Approved Indication," and "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue."
In the first quarter of 1995, the Company entered into an agreement with
Fujimoto Diagnostics, Inc. ("Fujimoto") for the development and marketing of
ALFERON N Injection and ALFERON N Gel in Japan. Japan is currently the world's
largest market for interferon products, with estimated 1994 annual sales
approaching $900 million. Under the terms of the agreement, Fujimoto agreed to
purchase $2,000,000 of the Company's Common Stock (of which $1,500,000 has been
purchased to date) and to use its best efforts to develop, and obtain Japanese
regulatory approvals for, ALFERON N Injection and ALFERON N Gel products.
Fujimoto has advised the Company that, to date, it has incurred higher than
anticipated development expenses, and that it has determined that there may be
greater difficulties in obtaining Japanese regulatory approval than originally
anticipated. Fujimoto has, therefore, requested that the Company renegotiate the
agreement. The Company intends to meet with Fujimoto to consider its request. In
April 1996, the Company entered into a supply and distribution agreement
pursuant to which the Company will sell to Cell Pharm GmbH ("Cell Pharm"), and
Cell Pharm will distribute, promote, and sell in Germany, ALFERON N Injection.
Cell Pharm has informed the Company that it intends to market ALFERON N
Injection under the trade name Cellferon(R), pursuant to Cell Pharm's existing
regulatory approval to market Cellferon in Germany for the treatment of hairy
cell leukemia and for the treatment of patients who develop antibodies against
recombinant alpha interferons. In addition, the Company's Natural Alpha
Interferon injectable product was recently approved for sale in Mexico for the
treatment of genital warts and is marketed under the trade name ALTEMOL(R) by
Industria Farmaceutica Andromaco, S.A. De C.V. ("Andromaco"). See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV, and cancer. See "Risk
Factors -- Dependence on Certain Distributors; Limited Marketing Program."
The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi Winthrop, Inc. ("Sanofi") at a production facility located
in McPherson, Kansas. See "Risk Factors -- Regulatory Approvals" and
"Business -- ALFERON N Injection -- Manufacturing."
4
<PAGE> 7
Recently Expanded License
As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann-LaRoche, Inc. ("Hoffmann") and F. Hoffmann-LaRoche Ltd. ("Roche") which
grants the Company the worldwide rights to make, use, and sell, without a
potential patent infringement claim from Hoffmann or Roche, any formulation of
Natural Alpha Interferon. The 1995 license replaced a 1988 non-exclusive license
from Hoffmann which granted the Company the rights to make, use, and sell in the
United States, without a potential patent infringement claim from Hoffmann,
injectable formulations of Natural Alpha Interferon for the treatment of genital
warts or patients with diseases refractory to recombinant interferon therapy.
The 1995 license will enable the Company, if successful in obtaining necessary
regulatory approvals, to expand the formulations of Natural Alpha Interferon it
makes, uses, and sells in the United States and the rest of the world and to
market its products for the treatment of additional indications. See "Risk
Factors -- Potential Patent Infringement Claims," "Business -- ALFERON N
Injection -- Patents and Licenses," and "Business -- ALFERON N
Injection -- Royalty Obligations."
Clinical Trials
The Company has conducted and is conducting or planning various clinical
trials in an effort to obtain approval to market ALFERON N Injection for
additional indications in the United States and around the world.
The Company has recently completed two multi-center, randomized,
open-label, dose-ranging Phase 2 clinical trials in patients infected with
hepatitis C virus (HCV) and is presently conducting one additional such trial.
The objective of these HCV clinical studies is to compare the safety and
efficacy of different doses of Natural Alpha Interferon injected subcutaneously
in naive (previously untreated), refractory (unsuccessfully treated with
recombinant alpha interferon), and relapsing (initially responded to recombinant
alpha interferon but later relapsed) patients. The Company believes that the
results of the two completed trials are promising, and therefore intends to
commence shortly a Phase 3 multi-center, controlled clinical trial.
In a follow-up analysis of patients in the Walter Reed Phase 1 clinical
trial, it was found that an average of 16 months after treatment, CD4 lymphocyte
levels (the white blood cells which normally decline in HIV-infected patients)
remained essentially unchanged or were higher than at the onset of the trial in
11 of 20 patients. In addition, the amount of HIV detectable in the patients'
blood, as measured by a quantitative PCR (Polymerase Chain Reaction) technique,
declined in a dose dependent manner (the greatest declines were observed in the
highest dose group). Although there can be no assurance that the results of
laboratory studies and the Phase 1 clinical trial will be reproduced in a
large-scale, controlled clinical trial, based upon the foregoing, the Company
believes that Natural Alpha Interferon may have potential clinical value in the
treatment of certain HIV-infected patients. The Company is planning to conduct
shortly a Phase 3 multi-center, double-blind, placebo-controlled clinical trial
with HIV-infected patients.
Two additional Phase 2 clinical studies are in progress. One is for the
treatment of Kaposi's sarcoma in patients with AIDS and the other is a
multi-center study in small cell lung cancer patients following successful
treatment by conventional chemotherapy.
Based upon encouraging anecdotal data, the Company is planning, subject to
obtaining funding (from a source other than the Offering) or a sponsor, to
conduct clinical trials utilizing Natural Alpha Interferon for the treatment of
multiple sclerosis, which affects more than 250,000 Americans. See "Business --
ALFERON N Injection -- Clinical Trials for New Indications."
Commercial sales in the United States or Mexico of ALFERON N Injection for
any indication other than the treatment of certain types of genital warts,
commercial sales outside of the United States, Mexico and Germany of ALFERON N
Injection for any indication, and commercial sales anywhere in the world of
either ALFERON N Gel or ALFERON LDO will be contingent upon the completion of
necessary studies and the approval of such products for such uses by the FDA or
foreign regulatory authorities. Submissions for regulatory approval to sell
ALFERON N Injection for the treatment of genital warts have been filed in
various other countries. See "Business -- Governmental Regulation," "Risk
Factors -- Regulatory Approvals," and "Risk Factors -- Foreign Regulatory
Approvals."
5
<PAGE> 8
Although the Company received FDA approval to market ALFERON N Injection in
1989, to date it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1995, the Company had an accumulated
deficit of approximately $70.2 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
August/September Offering
In August and September 1995, the Company completed the sale of 12,000,000
shares of Common Stock for an aggregate of $14,400,000. Such shares were sold
pursuant to a best efforts public offering (the "August/September Offering"),
underwritten by Sunrise Securities Corp. ("Sunrise"), of a minimum of 6,500,000
and a maximum of 12,000,000 shares of Common Stock at a public offering price of
$1.20 per share.
Of the $12,494,000 of net proceeds from the August/September Offering, the
Company has used $1,870,000 to repay indebtedness to certain principal
stockholders and anticipates that it will use approximately $7,000,000 for
research, product development, and clinical trials of the Company's products and
the balance for working capital and general corporate purposes. As of April 1,
1996, the Company had an aggregate of $4,600,000 in cash and cash equivalents.
Until utilized, such cash and cash equivalents are being invested principally in
short-term, interest-bearing investments. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
6
<PAGE> 9
THE OFFERING
<TABLE>
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Common Stock offered hereby.................... A minimum of 5,000,000 shares and a
maximum of 8,000,000 shares, on a best
efforts basis.
Common Stock to be outstanding after the
Offering..................................... A minimum of 39,448,768 shares and a
maximum of 42,448,768 shares(1).
Use of Proceeds................................ The Company anticipates that if the
minimum number of shares are sold,
approximately $3,000,000, and if the
maximum number of shares are sold,
approximately $6,000,000, of the net
proceeds of the Offering will be used for
research, product development, and
clinical trials; $3,760,012 of the net
proceeds will be used to reacquire the
marketing rights for ALFERON N Injection
in the United States and Canada from
Purdue, pay Purdue for certain
distribution services, and purchase from
Purdue vials of ALFERON N Injection and
other assets; and the balance will be used
for working capital and general corporate
purposes. See "Use of Proceeds" and
"Business -- ALFERON N
Injection -- Marketing and Distribution --
Agreements with Purdue."
NASDAQ SmallCap Market Symbol.................. IFSC.
Risk Factors................................... Purchase of the Common Stock offered
hereby involves a high degree of risk.
Prospective purchasers should consider
carefully the factors specified under
"Risk Factors."
</TABLE>
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(1) Does not include (i) 3,045,350 shares of Common Stock reserved for issuance
upon the exercise of options currently outstanding under the Company's stock
option plan, (ii) 1,112,941 shares reserved for issuance upon the exercise
of currently outstanding warrants, (iii) 1,123,333 shares reserved for
issuance upon the exercise of options issued to Sunrise in connection with
the August/September Offering, and (iv) 800,000 shares reserved for issuance
upon exercise of the Underwriter's Purchase Options. See "Underwriting."
7
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
(In thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
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STATEMENT OF OPERATIONS DATA
Revenues(1)............................................ $ 1,296 $ 1,166 $ 51
Research and development costs, net.................... 3,726 5,196 4,151
Loss from operations................................... (7,447) (11,782) (8,347)
Net loss............................................... (7,372) (12,078) (8,460)
Net loss per share of Common Stock..................... (.28) (.62) (.55)
Weighted average number of shares of Common Stock
outstanding.......................................... 26,647 19,594 15,432
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------
AS ADJUSTED(2)
--------------------
ACTUAL MINIMUM MAXIMUM
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BALANCE SHEET DATA
Total assets........................................ $13,953 $19,692 $25,182
Working capital..................................... 7,062 12,801 18,291
Stockholders' equity................................ 12,827 18,566 24,056
</TABLE>
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(1) Substantially all of the Company's revenues in 1994 and 1995 were from sales
of ALFERON N Injection to Purdue. Purdue did not purchase ALFERON N
Injection from the Company in 1993. Purdue has informed the Company that
during 1993, 1994, and 1995, Purdue sold approximately 23,000, 25,000, and
23,900 vials, respectively, and distributed as free samples approximately
2,800, 2,000, and 400 vials, respectively, of ALFERON N Injection from its
inventory. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
(2) Adjusted to give effect to the sale of the minimum and maximum number of
shares in the Offering and the repurchase of certain marketing rights from
Purdue. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
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THE COMPANY
The Company, which was incorporated in Delaware in May 1980, commenced
operations in January 1981 by obtaining from National Patent Development
Corporation ("NPDC"), a principal stockholder of the Company and then its
parent, assets relating to NPDC's programs in human alpha interferon. The
Company's principal offices and research and production facilities are located
at 783 Jersey Avenue, New Brunswick, New Jersey 08901 and its telephone number
is (908) 249-3250.
RISK FACTORS
Prospective investors should consider carefully the following factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the Common Stock offered hereby.
CONTINUING AND INCREASING OPERATING LOSSES; ACCUMULATED DEFICIT. The
Company has experienced significant operating losses since its inception in
1980. As of December 31, 1995, the Company had an accumulated deficit of
approximately $70.2 million. For the years ended December 31, 1995, 1994, and
1993, the Company had losses from operations of approximately $7.4 million,
$11.8 million, and $8.3 million, respectively.
Although the Company received approval to market ALFERON N Injection for
the treatment of genital warts from the FDA in October 1989 and from the
comparable Mexican regulatory authority in December 1994 and recently entered
into an agreement for Cell Pharm to distribute ALFERON N Injection in Germany,
it has had only limited revenues from the sale of ALFERON N Injection to date.
In order for the Company to operate profitably, the Company must sell
significantly more ALFERON N Injection. Increased sales in the United States
will depend primarily upon the attainment of FDA approval to market ALFERON N
Injection for additional indications, of which there can be no assurance. See
"Products Under Development" and "Regulatory Approvals" below in this section.
Moreover, the Company cannot market ALFERON N Injection in other markets unless
appropriate regulatory approvals are obtained. See "Foreign Regulatory
Approvals" below in this section. There can be no assurance that sufficient
quantities of ALFERON N Injection will be sold to allow the Company to operate
profitably.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company will
require substantial funds to conduct research and development and preclinical
and clinical testing and to market its products. The Company anticipates that
its future capital requirements will increase as a result of the repurchase of
certain marketing rights from Purdue. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." For the
years ended December 31, 1995, 1994, and 1993, the cash utilized by the
Company's operations was approximately $7.1 million, $7.8 million, and $7.8
million, respectively. The Company's future capital requirements will depend on
many factors, including: continued scientific progress in its drug development
programs; the magnitude of these programs; progress with preclinical testing and
clinical trials; the time and costs involved in obtaining regulatory approvals;
the costs involved in filing, prosecuting, and enforcing patent claims;
competing technological and market developments; changes in its existing
research relationships; the ability of the Company to establish collaborative
arrangements; and effective commercialization activities and arrangements.
Management believes that the cash currently available and the proceeds of
the Offering will be sufficient to enable the Company to continue operations for
approximately 16 months from the date of this Prospectus if the minimum number
of shares of Common Stock is sold in the Offering and approximately 24 months if
the maximum number of shares of Common Stock is sold, although no assurance can
be given in this regard. To fund the Company's operations beyond such periods,
the Company will require additional funding, whether from financial markets or
collaborative or other arrangements with corporate partners or from other
sources, which may not be available when needed or on terms acceptable to the
Company. Insufficient funds will require the Company further to delay, scale
back, or eliminate certain or all of its research and development programs or to
license third parties to commercialize products or technologies that the Company
would otherwise seek to develop itself or to shut down or curtail its
manufacturing facility. See "Management's
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<PAGE> 12
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
NO GUARANTEED SOURCE OF REQUIRED MATERIALS. The Company uses a number of
essential materials in the production of Natural Alpha Interferon, including
human white blood cells, and has limited sources from which to procure such
materials. The Company does not have long-term agreements for the supply of most
of such materials. There can be no assurance that long-term supply agreements
covering essential materials can be entered into on commercially reasonable
terms, if at all. Although the Company currently obtains human white blood cells
from several sources, the loss of any one source of supply could have a material
adverse effect on the Company. In such event, the Company may be required to
scale back its operations or stop manufacturing such product. The costs and
availability of products and materials required by the Company for the
commercial production of ALFERON N Injection and other products which the
Company may commercially produce are subject to fluctuation depending on a
variety of factors beyond the Company's control, including competitive factors,
changes in technology, and FDA and other governmental regulation and there can
be no assurance that the Company will be able to obtain such products and
materials on terms acceptable to the Company or at all.
DEPENDENCE ON CERTAIN DISTRIBUTORS; LIMITED MARKETING PROGRAM. The Company
currently has marketing arrangements for the distribution of ALFERON N Injection
in North America and several countries outside of North America. However, the
Company and Purdue have entered into an agreement pursuant to which the Company
will reacquire from Purdue marketing rights for ALFERON N Injection in the
United States and Canada. In connection with the agreement, Purdue Pharma agreed
to provide during the first year after the reacquisition certain distribution
services to the Company with respect to 24,000 vials of ALFERON N Injection and
to provide during the second year after the reacquisition, if requested by the
Company, certain distribution services to the Company with respect to up to
30,000 vials of ALFERON N Injection. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." Unless the
Company enters into marketing arrangements with other companies or develops its
own sales force, the Company will be dependent on the ability of its current
distributors to sell sufficient quantities of ALFERON N Injection to allow the
Company to operate profitably. There can be no assurance that the Company will
be able to enter into any such marketing arrangements on acceptable terms, if at
all. In addition, the Company does not have a sales force and has never marketed
and sold a pharmaceutical product, and there can be no assurance that the
Company will be able to successfully market and sell ALFERON N Injection or any
other product. After reacquiring the marketing rights from Purdue, the Company
intends to focus its marketing efforts in the United States on making additional
sales to existing customers. While the Company does not expect to immediately
form a sales force, it will consider doing so based upon sales experience and
any approvals obtained for new indications. See "Business -- ALFERON N
Injection -- Marketing and Distribution" and "Business -- Products under
Development -- ALFERON N Gel and ALFERON LDO -- Sales and Marketing Staff."
PRODUCTS UNDER DEVELOPMENT. The Company's products under development
include (i) ALFERON N Injection for the potential treatment of HIV, hepatitis C,
hepatitis B, multiple sclerosis, cancers, and other indications, (ii) ALFERON N
Gel for the potential treatment of cervical dysplasia, recurrent genital herpes,
other viral diseases, and cancers, and (iii) ALFERON LDO for the potential
treatment of certain symptoms of patients infected with the HIV virus and the
treatment of other viral diseases. However, there can be no assurance that these
products will be cost-effective, safe, and effective treatments for these
diseases, and there is no assurance of receiving regulatory approvals to market
these products. The Company cannot market such products until such approvals are
obtained. Even if such approvals are obtained, there can be no assurance that
any of these products will be successful or will produce significant revenues or
profits for the Company. The ability of the Company to become profitable depends
on the successful commercial development of these products.
POTENTIAL SIDE EFFECTS. The Company is engaged in the manufacture and sale
of a single FDA approved product, ALFERON N Injection for the treatment of
refractory or recurring external genital warts in adults. In clinical trials
conducted for the treatment of genital warts with ALFERON N Injection, patients
have not experienced serious side effects; however, there can be no assurance
that unexpected or unacceptable side
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<PAGE> 13
effects will not be found in the future for this use or other potential uses of
this product or for any other product the Company might develop which could
threaten or limit such product's usefulness. See "Risk of Product Liability"
below.
SUBSTANTIAL COMPETITION. In the United States and Mexico, the Company
currently competes with Schering-Plough Corp.'s ("Schering") injectable
recombinant interferon product and other therapies in the treatment of genital
warts. If and when the Company obtains additional approvals of uses of its
products (such as the approval obtained by Cell Pharm in Germany), it expects to
compete primarily on the basis of product performance with Schering and a number
of additional pharmaceutical companies, both in the United States and abroad,
including Hoffmann, Roche, Amgen Inc., and Glaxo Wellcome Inc. The Company's
potential competitors have developed or may develop products (containing either
alpha interferon or other therapeutic compounds) or other treatment modalities
for those uses. Many of the Company's potential competitors are among the
largest pharmaceutical companies in the world, are well known to the public and
the medical community, and have substantially greater financial resources,
product development, and manufacturing and marketing capabilities than the
Company or its marketing partners. Schering's recombinant interferon product has
achieved market dominance for the treatment of hepatitis C and hepatitis B in
the United States and other markets, and there can be no assurance that, if the
Company is able to obtain regulatory approval of ALFERON N Injection for the
treatment of those diseases, it will be able to achieve any significant
penetration into those markets. In addition, because certain of the competitive
products are not dependent on a source of human blood cells, such products may
be able to be produced in greater volume and at a lower cost than ALFERON N
Injection and the Company's other Natural Alpha Interferon formulations.
Currently, the Company's wholesale price on a per unit basis of ALFERON N
Injection is substantially higher than that of the competitive recombinant alpha
interferon products. Other companies may succeed in developing products earlier
than the Company, obtaining approvals for such products from the FDA more
rapidly than the Company, or developing products that are more effective than
those proposed to be developed by the Company. While the Company will seek to
expand its technological capabilities in order to remain competitive, there can
be no assurance that research and development by others or other medical
advances will not render the Company's technology or products obsolete or
non-competitive or result in treatments or cures superior to any therapy
developed by the Company, or that any therapy developed by the Company will be
preferred to any existing or newly developed technologies. See
"Business -- ALFERON N Injection -- Competition," "Business -- Products under
Development -- ALFERON N Gel," and "Business -- Products under
Development -- ALFERON LDO."
POTENTIAL PATENT INFRINGEMENT CLAIMS. On March 5, 1985, the United States
Patent and Trademark Office issued a patent to Hoffmann claiming purified human
alpha (leukocyte) interferon (regardless of how it is produced). Roche, the
parent of Hoffmann, also has been issued patents covering human alpha interferon
in many countries throughout the world. As of March 31, 1995, the Company
obtained a non-exclusive perpetual license from Hoffmann and Roche which grants
the Company the worldwide rights to make, use, and sell, without a potential
patent infringement claim from Hoffmann or Roche, any formulation of Natural
Alpha Interferon. The license permits the Company to grant marketing rights with
respect to Natural Alpha Interferon products to third parties, except that the
Company cannot grant marketing rights with respect to injectable products in any
country in which Hoffmann or Roche has patent rights covered by the license to
any third party not listed on a schedule of approximately 50 potential marketing
partners without the consent of Hoffmann and Roche, which consent cannot be
unreasonably withheld. There can be no assurance that the Company will not want
to grant such marketing rights to a third party not listed on such schedule, or
that Hoffmann and Roche will not withhold the required consent. In addition, if
such license were terminated, the Company may be subject to a patent
infringement lawsuit by Hoffmann and Roche if it continued to market Natural
Alpha Interferon products. If such a suit were brought, the Company would have
to either counterclaim to attempt to invalidate the Hoffmann and Roche patents
or prove that it did not infringe such patents. See "Business -- ALFERON N
Injection -- Patents and Licenses" and "Business -- ALFERON N
Injection -- Royalty Obligations."
In addition, there may have been other patent applications filed in the
United States and in foreign countries, some of which may have been filed by
potential competitors of the Company, with respect to the
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<PAGE> 14
technologies and/or products which may be required by the Company to produce its
current and proposed products. If any of such patents issue in the United States
or in foreign countries in a form which covers the Company's products or
processes, the Company would be required to obtain licenses under such patents
in connection with the domestic and international commercialization of such
products. There can be no assurance that the Company could obtain licenses under
any of such patents if so issued, particularly if they were issued to companies
directly in competition with the Company, or that, even if the Company could
obtain licenses, it could do so on commercially reasonable terms.
If the sale or use of any of the Company's products were to become the
basis of a patent infringement lawsuit, assuming the Company could not obtain a
license on satisfactory terms, the Company may be required to incur substantial
litigation expenses, and such litigation could also consume substantial
management time, which could have a material adverse effect upon the financial
condition of the Company even if it were to be successful in the litigation. If
the Company proved unsuccessful in such litigation, it may be required to pay a
royalty for the use of the claimed patents or cease producing the products and
redevelop the products in such a way as to avoid infringing any claimed patent
rights. There can be no assurance in such case that the Company could obtain a
license under such patents on commercially reasonable terms or at all, or that
it could successfully redevelop the products to fall outside the scope of the
claim.
It is the Company's policy to seek licenses if it believes that the terms
of such licenses, when weighed against the expense and uncertainties of
potential litigation, are cost effective.
POSSIBLE INABILITY TO PROTECT TECHNOLOGY. To a significant extent, the
ability of the Company to protect its rights in any products or technology it
may develop depends upon its ability to obtain suitable patent or similar
protection. The ability of the Company to obtain patents, and the nature,
extent, and enforceability of the intellectual property rights that are obtained
as a result of the Company's research, involve complex legal and factual issues.
New technology and products developed by the Company may not qualify for patent
protection or, if they do qualify, may be subject to challenge or to protracted
judicial proceedings. In addition, the Company may determine not to seek
additional patent or other protection for its technology or products. It is not
certain that other patents will be issued or, if issued, that they will afford
the Company protection from competitive products. Although the Company's
practice is to require its technical and scientific employees and consultants to
execute confidentiality agreements covering proprietary information, there can
be no assurance that others will not independently make similar discoveries or
otherwise obtain access to proprietary information of the Company. In addition,
the Company has a non-exclusive license agreement with Hoffmann and Roche which
enables the Company to sell its products. There can be no assurance that
Hoffmann or Roche has not granted or will not grant a similar license to another
company with considerably greater financial, technical, and marketing resources
than the Company or that Hoffmann or Roche will not enter the market itself with
a competitive product.
While the Company has recently been issued a United States patent for
Natural Alpha Interferon produced from human peripheral blood leukocytes and has
several patent applications pending, it is possible that others have or may
develop equivalent or superior products or technologies which would not fall
within the scope of the Company's patent claims or which might involve
inventions similar in scope to those of the Company for which patent or similar
rights are obtained by others prior to the time that the Company is able to do
so. See "Business -- ALFERON N Injection -- Patents and Licenses" and
"Business -- Products under Development -- ALFERON N Gel and ALFERON
LDO -- Patents and Licenses."
REGULATORY APPROVALS. The production and marketing of the Company's
products in the United States, as well as its ongoing research and development
activities, are subject to regulation by governmental agencies, most
significantly the FDA. Such regulation includes requirements for obtaining FDA
approval prior to marketing each of its products in the United States. In order
to obtain such FDA approval, the Company must demonstrate, among other things,
the safety and efficacy of each product through pre-clinical and clinical
testing. Obtaining such approvals is a time-consuming process and requires the
expenditure of substantial resources. Each facility in which the products are
produced and packaged, whether operated by the Company or a third party, must
meet the FDA's standards for current good manufacturing practices and must also
be approved prior to marketing any product produced or packaged in such
facility. Any significant change in the
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<PAGE> 15
production process which may be commercially required, including changes in
sources of certain raw materials, or any change in the location of the
production facilities will also require FDA approval. To the extent a portion of
the manufacturing process for a product is handled by an entity other than the
Company, the Company must similarly receive FDA approval for the participation
by such third party in the manufacturing process. For example, the Company has
entered into an agreement with Sanofi pursuant to which Sanofi formulates and
packages ALFERON N Injection. The Company presently has a biologic establishment
license for the facilities in which it produces ALFERON N Injection, which
includes the facilities in which Sanofi formulates and packages ALFERON N
Injection. If the Company's or Sanofi's present manufacturing facilities were
damaged or destroyed or the Company's arrangements with Sanofi were terminated,
there can be no assurance that FDA approval could be obtained for another
facility or that another facility could be built and approved on a timely basis
or on commercially reasonable terms. Delays in obtaining, or the failure to
obtain, any necessary regulatory approvals could have a material adverse effect
on the Company's ability to develop, produce, and sell its products. In
addition, failure of the Company to comply in any respect with FDA requirements
with respect to the production and marketing of biological drug products can
subject the Company to potential civil and criminal penalties and its products
to seizure and other civil enforcement action. Because of the uncertain nature
of many of these requirements, there can be no assurance that regulatory
problems of this type will not occur. See "Business -- Governmental Regulation."
FOREIGN REGULATORY APPROVALS. To market its products outside of the United
States, the Company is subject to numerous and varying foreign regulatory
requirements, implemented by foreign health authorities, governing the design
and conduct of human clinical trials and marketing approval. The approval
procedure varies among countries and can involve additional testing, and the
time required to obtain approval may differ from that required to obtain FDA
approval. At present, foreign marketing authorizations are applied for at a
national level, although certain registration procedures are available within
the European Union (the "EU") to companies wishing to market a product in more
than one EU member country. If a regulatory authority is satisfied that adequate
evidence of safety, quality, and efficacy has been presented, marketing
authorization is usually granted. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries. There
can be no assurance that the Company's products will receive such approvals. In
addition, under certain circumstances, the Company may be required to obtain FDA
authorization to export products for sale in foreign countries. For instance, in
most cases, the Company may not export products that have not been approved by
the FDA unless it first obtains an export permit from the FDA. However, these
FDA export restrictions generally do not apply if the Company's products are
exported in conformance with their United States approvals or are manufactured
outside the United States. At the present time, the Company does not have any
foreign manufacturing facilities.
In May 1990, the Company's licensee applied for a product license in the
United Kingdom for the use of ALFERON N Injection for the intralesional
treatment of refractory or recurring external genital warts in patients 18 years
of age or older. In October 1991, the Committee on Safety of Medicines informed
the Company's licensee that it might be unable to advise the Licensing Authority
to grant a product license. Subsequent oral and written representations made by
the Company to the Committee resolved certain of the issues raised by the
Committee, but the Committee believed that additional information and possibly
clinical work would be necessary to resolve certain other quality and safety
issues and determined to advise the Licensing Authority not to grant a product
license at that time. The Company's licensee was entitled to appeal this
recommendation and has done so. The Company can appear before or make written
representations to the Committee about such advice, but has not done so because
of a lack of funds. The Company is considering whether to continue to pursue
this appeal or to have the Company's licensee withdraw the product license
application. The Company could submit a new application for the same use or for
another use if and when sufficient clinical data is available. There can be no
assurance, however, that approval of the use of ALFERON N Injection for the
treatment of genital warts or any other indication will be obtained even if it
is pursued.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT. The future revenues and profitability of, and availability of
capital for, biotechnology companies may be affected by the
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<PAGE> 16
continuing efforts of governmental and third-party payors to contain or reduce
the costs of health care through various means. For example, in certain foreign
markets, the pricing and profitability of prescription pharmaceuticals is
subject to government control. In Japan, which is currently the world's largest
market for interferon products, the government imposed price cuts ranging from
13.5% to 22.7% in 1994 on certain interferon products then being marketed in
Japan. The Company cannot predict whether similar price cuts will be imposed on
any of the Company's products in Japan or in any other country at such time as
such products are being marketed in such country or the size or duration of any
cuts that may be imposed. However, there can be no assurance that any such cuts
will not have a material adverse effect on the Company's future results of
operations. There have been, and the Company expects there to continue to be, a
number of United States federal and state proposals to implement similar
government control. It is uncertain what form any health care reform legislation
may take or what actions the federal, state, and private payors may take in
response to the suggested reforms. The Company cannot predict when any suggested
reforms will be implemented, if ever, or the effect of any implemented reform on
the Company's business. There can be no assurance, however, that any implemented
reform will not have a material adverse effect on the Company's future results
of operations. The Company's long-term ability to market its products
successfully may depend in part on the extent to which reimbursement for the
cost of such products and related treatment will be available from public and
private health insurers and other organizations. Third-party payors are
increasingly challenging the prices of medical products and services. The
reimbursement status of newly-approved health care products is highly uncertain,
and there can be no assurance that third-party coverage will be available or
that available third-party coverage will enable the Company to maintain price
levels sufficient to realize an appropriate return on its investment in product
development. While recombinant alpha interferon products can be produced at a
lower cost per unit than the Company's formulations of Natural Alpha Interferon
products, until dose regimens and treatment durations are determined, the
Company is unable to determine whether the cost of treatment with the Company's
products will be greater, equal to, or less than the cost of competing
treatments.
ROYALTY OBLIGATIONS. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of its products. Royalty payments under such license agreements
with respect to ALFERON N Injection, ALFERON N Gel, and ALFERON LDO could
aggregate up to 9.5%, 13.5%, and 19.5%, respectively, of the Company's net sales
of such products. See "Business -- ALFERON N Injection -- Royalty Obligations"
and "Business -- Products under Development -- ALFERON N Gel and ALFERON LDO --
Royalty Obligations." Such royalty obligations, together with any additional
royalties which may be payable by the Company, may limit the Company's marketing
strategies and prevent it from obtaining adequate profit margins and could have
a material adverse effect on the commercial exploitation of the Company's
products.
In connection with the acquisition of certain intellectual property and
technology rights from NPDC, the Company agreed to pay NPDC a royalty of $1
million. Such amount is payable if and when the Company generates income before
income taxes, limited to 25% of such income before income taxes per year until
such amount is paid in full. See "Certain Transactions -- Agreements with
NPDC -- Transfer Agreement."
LIMITED PRODUCTION EXPERIENCE. Although the Company has produced ALFERON N
Injection in accordance with its commercial requirements, it has never produced
ALFERON N Injection at levels which would allow the Company to operate
profitably. There can be no assurance that, if the Company's commercial
requirements increase to such levels, the Company will be able to produce
ALFERON N Injection at such levels and at a competitive price.
RISK OF PRODUCT LIABILITY. The Company's products have undergone or will
undergo extensive clinical testing prior to the granting of any regulatory
approval for the purpose, among other things, of determining the safety of such
products. The Company may sell products which cause unexpected adverse reactions
or result in an allergic or other reaction or which are alleged to have
unacceptable adverse side effects. Product liability risk is inherent in the
testing, manufacture, marketing, and sale of the Company's products, and there
can be no assurance that the Company will be able to avoid significant product
liability exposure. Such liability might result from claims made directly by
consumers or by pharmaceutical companies or others selling such products. It is
impossible to predict the scope of injury or liability from such unexpected
reactions, or the
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<PAGE> 17
measure of damages which might be imposed as a result of any claims or the cost
of defending such claims. The Company has a product liability insurance policy
in the amount of $10,000,000. Although the Company believes this amount is
sufficient, there is no assurance that the Company will be able to maintain such
coverage, and even if it does maintain it, in the event that the Company becomes
subject to liability claims in excess of any insurance coverage it may have in
effect, the Company may not have sufficient assets or liquidity to satisfy such
claims which could result in the Company's inability to continue its operations.
Furthermore, any published reports or rumors suggesting a link between a Company
product and injury to a person could be expected to materially impair the
Company's ability to market such product.
RETENTION OF KEY PERSONNEL. Because of the specialized scientific nature
of the Company's business, it is necessary to attract and retain personnel with
a wide variety of scientific capabilities. Competition for such personnel is
intense. There can be no assurance that the Company will continue to attract and
retain personnel of high scientific caliber. None of the Company's key employees
have employment agreements. The Company does not maintain key man life insurance
for any of its key employees and does not intend to obtain such insurance. The
Company's loss of services of certain of its employees or other members of its
staff could have a material adverse effect on the Company's operations. See
"Business -- Research Staff and Employees" and "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST. Based, in part,
on Schedule 13Ds filed by beneficial owners of the Company's securities with the
Commission, as of April 1, 1996, NPDC, David Blech, five trusts of which Mr.
Blech is the income beneficiary but not the trustee (the "Blech Trusts"), and
Biotechnology Investment Group L.L.C. beneficially owned approximately 21.7%,
2.3%, 7.3%, and 7.9%, respectively, of the outstanding shares of Common Stock,
certain of which shares have been pledged to their respective banks as
collateral to secure indebtedness owed to such banks.
Certain conflicts of interest may arise as a result of NPDC's stock
ownership in the Company and certain related transactions between the Company
and NPDC. Furthermore, certain officers of the Company also serve as officers of
NPDC and may have conflicts of interests in allocating management time,
services, and functions between the Company and NPDC. Presently, Samuel H.
Ronel, Ph.D., Vice Chairman, Stanley G. Schutzbank, Ph.D., President, Lawrence
M. Gordon, Chief Executive Officer, Drew R. Stoudt, Vice President Regulatory
Affairs and Quality, and Donald W. Anderson, Controller, devote a portion of
their time to the business of NPDC, which includes some overlapping
responsibilities for the benefit of the Company. In addition, certain directors
of NPDC also serve as directors of the Company. Transactions in which certain
members of the Board of Directors or principal stockholders of the Company may
have a conflict of interest must be approved by a majority of the disinterested
directors. See "Principal Stockholders," "Certain Transactions," "Description of
Securities," and "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
PREFERRED STOCK. The Company's charter provides for 5,000,000 authorized
but unissued shares of Preferred Stock, the rights, preferences, qualifications,
limitations, and restrictions of which may be fixed by the Board of Directors
without any further vote or action by the stockholders. The ability to issue the
Preferred Stock could have the effect of delaying, deferring, or preventing a
change of control of the Company.
SHARES AVAILABLE FOR FUTURE SALE; UNDERWRITER'S PURCHASE OPTIONS. The
Company, the Company's directors and officers (who own in the aggregate 18,100
shares of Common Stock and options and warrants to purchase 2,181,000 shares of
Common Stock), and the Company's principal stockholders (who own in the
aggregate 13,514,316 shares of Common Stock and no options and warrants to
purchase shares of Common Stock), have agreed (subject to certain exceptions)
not to sell, directly or indirectly, any of their shares of Common Stock or
other equity securities of the Company for periods ranging from six to 24 months
from August 14, 1995, without the consent of Sunrise and the Company. On
February 14, 1996, such agreement not to sell lapsed with respect to an
aggregate of 1,500 shares of Common Stock and options and warrants to purchase
382,000 shares of Common Stock owned by certain of the Company's officers. In
addition, certain of such principal stockholders have pledged an aggregate of
9,685,982 shares of Common Stock beneficially owned by them to their respective
banks as collateral to secure indebtedness owed to such banks. Any shares
acquired by lenders pursuant to such pledge arrangements would not be subject to
any agreements not to sell.
15
<PAGE> 18
Also, any shares held by a principal stockholder who was in bankruptcy
proceedings might be released, in the discretion of the bankruptcy court, from
any agreement not to sell. Moreover, Sunrise and the Company may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to agreements not to sell. On the expiration of the
agreements not to sell, and subject to the pledge arrangements, the principal
stockholders may sell certain of the shares of Common Stock held by them
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise. In addition, certain of the principal
stockholders have certain demand and/or "piggyback" registration rights with
respect to the Common Stock beneficially owned by them. The sale of a
significant number of shares of Common Stock, whether by the principal
stockholders, the lenders pursuant to such pledge arrangements, or otherwise,
may adversely affect the market price of the Common Stock. See "Principal
Stockholders" and "Certain Transactions."
The Company currently has outstanding options to purchase 4,168,683 shares
(including options held by Sunrise for 1,123,333 shares) and warrants to
purchase 1,112,941 shares of Common Stock. Moreover, the Company will sell to
the Underwriter and/or its designees, for nominal consideration, the
Underwriter's Purchase Options to purchase up to 800,000 shares of Common Stock.
For the life of the outstanding options and warrants and the Underwriter's
Purchase Options, the holders are given, at nominal cost, the opportunity to
profit if the price for the Common Stock in the public market exceeds the
exercise price of the options, warrants, or Underwriter's Purchase Options,
without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. If the public market price of the Common
Stock does not rise above the exercise price of the options, warrants, or
Underwriter's Purchase Options during the exercise period, then such securities
will expire worthless. As long as the outstanding options, warrants, and the
Underwriter's Purchase Options remain unexercised, the terms under which the
Company could obtain additional capital may be adversely affected. Moreover, the
holders of these securities may be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by these
securities.
REGISTRATION RIGHTS
The Company has granted demand and/or "piggyback" registration rights with
respect to an aggregate of 9,087,424 shares (or options or warrants to purchase
shares) of Common Stock. In March 1995, holders exercised demand registration
rights with respect to an aggregate of 610,000 shares of Common Stock. Upon
exercise of such rights, the Company was required, as expeditiously as
reasonably possible, to prepare and file with the Commission a registration
statement with respect to such shares. Such shares were included in a
registration statement (the "Selling Stockholders' Registration Statement") that
was declared effective by the Commission on December 26, 1995 and the Company
believes that it has complied with its obligations; however, the holders of such
shares may commence litigation alleging that the Company has breached its
obligations. In addition, the holder of warrants to purchase 61,000 shares of
Common Stock at a purchase price of $2.70 per share had the right to receive
notice from the Company of the August/September Offering and of this Offering
and to have its warrants or the underlying shares of Common Stock included in
the related registration statements. The Company did not furnish such notice to
such holder, and such holder may commence litigation as a result, even though
such shares also are included in the Selling Stockholders' Registration
Statement. The Company is unable to predict whether any such litigation will be
commenced and, if it is, the outcome of such litigation.
VOLATILITY OF SHARE PRICE; LACK OF LIQUIDITY. There has been significant
volatility in the market prices for publicly traded shares of biotechnology
companies, including the Company. There can be no assurance that the price of
the Common Stock will remain at or exceed current levels. Factors, such as
announcements of technological or product developments by the Company or its
competitors, governmental regulation, or patent or proprietary rights
developments, may have a significant impact on the market price of the Common
Stock.
Effective August 3, 1995, the trading market for the Common Stock was
changed from the NASDAQ National Market System to the NASDAQ SmallCap Market
because of the failure of the Company to satisfy
16
<PAGE> 19
the listing requirements for the NASDAQ National Market System. The liquidity of
the Common Stock may be adversely affected by such change.
DILUTION. Based on the net tangible book value per share of the Common
Stock as of December 31, 1995, investors in the Offering will likely experience
substantial dilution per share from the public offering price. See "Dilution."
DIVIDENDS ON COMMON STOCK UNLIKELY. The Company does not, in the
foreseeable future, anticipate paying any dividends on the Common Stock. See
"Price Range of Common Stock and Dividend Policy."
NO MARKET MAKING ACTIVITY BY UNDERWRITER. The Underwriter has indicated
that it does not intend to act as a market maker in the Common Stock, which may
adversely affect the price and liquidity of the Common Stock. While 24 firms
currently make a market in the Common Stock, all or some of such firms may
discontinue such activities at any time or from time to time.
LIMITED UNDERWRITING HISTORY. The Underwriter was first registered as a
broker-dealer in February 1992 and has previously participated in only a limited
number of public offerings as an underwriter, though it has acted as syndicate
member, sole placement agent, co-placement agent, selected dealer, or sole
participating broker in more than a dozen public and private offerings.
Prospective purchasers of the Common Stock offered hereby should consider the
Underwriter's limited experience in evaluating an investment in the Common
Stock. See "Underwriting."
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $9,000,000 if the minimum number of shares is sold
and $14,490,000 if the maximum number of shares is sold.
The Company anticipates that of the estimated net proceeds of $9,000,000 if
the minimum number of shares is sold, it will use an aggregate of $3,760,012 to
pay Purdue (consisting of $3,260,962 (subject to minor adjustment) to reacquire
the marketing rights for ALFERON N Injection in the United States and Canada
from Purdue, $240,000 to pay Purdue for certain distribution services, and
$259,050 (subject to minor adjustment) to purchase from Purdue vials of ALFERON
N Injection and other assets), approximately $3,000,000 for research, product
development, and clinical trials of the Company's products, and the balance for
working capital and general corporate purposes. The Company anticipates that of
the estimated net proceeds of $14,490,000 if the maximum number of shares is
sold, it will use an aggregate of $3,760,012 to pay Purdue as set forth above,
approximately $6,000,000 for research, product development, and clinical trials
of the Company's products, and the balance for working capital and general
corporate purposes. The Company reserves the right to reapportion the net
proceeds of the Offering among the foregoing categories or to other uses if it
determines that to do so would be in the best interests of the Company. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue."
Until utilized, the proceeds of the Offering are expected to be invested
principally in short-term, interest-bearing investments.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded in the over-the-counter market and is quoted on
the NASDAQ SmallCap Market under the symbol IFSC. Effective August 3, 1995, the
trading market for the Common Stock was changed from the NASDAQ National Market
System to the NASDAQ SmallCap Market because of the failure of the Company to
satisfy the listing requirements for the NASDAQ National Market System. The
following table sets forth for each period indicated the high and low sales
prices for the Common Stock as reported on the NASDAQ National Market System
through August 2, 1995 and on the NASDAQ SmallCap Market commencing August 3,
1995.
<TABLE>
<CAPTION>
HIGH LOW
--- ---
<S> <C> <C>
1994
First Quarter................................................ $ 53/8 $ 35/8
Second Quarter............................................... 41/8 23/4
Third Quarter................................................ 37/8 11/2
Fourth Quarter............................................... 25/8 11/4
1995
First Quarter................................................ 3 1 /16
Second Quarter............................................... 21/2 1 /16
Third Quarter................................................ 23/4 1 /16
Fourth Quarter............................................... 33/32 1 /16
1996
First Quarter................................................ 211/32 11/2
Second Quarter (through April 22, 1996)...................... 23/4 2 /16
</TABLE>
On April 22, 1996, the last reported sale price of the Common Stock was
$2 3/4 per share. As of April 22, 1996, the Company had 833 stockholders of
record.
The Company has not paid any dividends on the Common Stock since its
inception and does not contemplate paying dividends on the Common Stock in the
foreseeable future.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1995 and (ii) as adjusted to give effect to the sale of the minimum
and maximum number of shares of Common Stock in the Offering and the repurchase
of certain marketing rights from Purdue (see "Business ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue") (assuming no
other changes in the capitalization after December 31, 1995).
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------
AS ADJUSTED
----------------------------
ACTUAL MINIMUM MAXIMUM
------------ ------------ ------------
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, par value $.01 per share,
5,000,000 shares authorized; none issued and
outstanding................................... -- -- --
Common Stock, par value $.01 per share,
55,000,000 shares authorized; 34,448,768
shares issued and outstanding; 39,448,768 and
42,448,768 shares issued and outstanding, as
adjusted(1)................................... $ 344,488 $ 394,488 $ 424,488
Capital in excess of par value..................... 82,641,859 91,591,859 97,051,859
Accumulated deficit................................ (70,159,571) (73,420,533) (73,420,533)
------------ ------------ ------------
Total stockholders' equity............... $ 12,826,776 $ 18,565,814 $ 24,055,814
------------ ------------ ------------
Total capitalization............................. $ 12,826,776 $ 18,565,814 $ 24,055,814
============ ============ ============
</TABLE>
- ---------------
(1) Does not include (i) 3,045,350 shares of Common Stock reserved for issuance
upon the exercise of options outstanding under the Company's stock option
plan, (ii) 1,112,941 shares reserved for issuance upon the exercise of
currently outstanding warrants, (iii) 1,123,333 shares reserved for issuance
upon the exercise of options issued to Sunrise in connection with the
August/September Offering, and (iv) 800,000 shares reserved for issuance
upon exercise of the Underwriter's Purchase Options. See "Underwriting.".
The Company has no short-term or long-term debt or material long-term lease
obligations.
19
<PAGE> 22
DILUTION
As of December 31, 1995, the net tangible book value of the Company was
$12,485,180, or $.36 per share of Common Stock outstanding. Net tangible book
value per share is determined by dividing the tangible net worth of the Company
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding. After giving effect to the sale of the minimum number of shares in
the Offering and the repurchase of certain marketing rights from Purdue (see
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue") (assuming no other changes in the net tangible book value after
December 31, 1995), the adjusted net tangible book value of the Company as of
December 31, 1995 would have been $18,224,218 ($23,714,218 if the maximum number
of shares are sold in the Offering) or $.46 ($.56 if the maximum number of
shares are sold in the Offering) per share. This represents an immediate
increase in net tangible book value of $.10 ($.20 if the maximum number of
shares are sold in the Offering) per share to current stockholders and an
immediate dilution of $1.54 ($1.44 if the maximum number of shares are sold in
the Offering) per share to new investors purchasing shares of Common Stock in
the Offering.
The following table summarizes such per share dilutive effect:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
-------------- --------------
<S> <C> <C> <C> <C>
Offering price(1)............................................. $2.00 $2.00
Net tangible book value per share before the Offering....... $.36 $.36
Increase attributable to shares offered hereby(2)........... .10 .20
---- ----
Adjusted net tangible book value per share after the
Offering.................................................... .46 .56
----- -----
Dilution to new investors(3).................................. $1.54 $1.44
===== =====
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and other
estimated expenses of the Offering to be paid by the Company.
(2) After deduction of underwriting discounts and commissions and other
estimated expenses of the Offering to be paid by the Company.
(3) Dilution represents the difference between the offering price per share and
the adjusted net tangible book value per share after giving effect to the
Offering and the repurchase of certain marketing rights from Purdue.
20
<PAGE> 23
SELECTED FINANCIAL INFORMATION
The following table sets forth the selected financial data of the Company
as of December 31, 1995, 1994, 1993, 1992, and 1991 and for the years ended
December 31, 1995, 1994, 1993, 1992, and 1991 and should be read in conjunction
with the consolidated financial statements and notes thereto contained elsewhere
in this Prospectus. The financial data have been derived from the audited
financial statements of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
------- -------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1)........................................................... $ 1,296 $ 1,166 $ 51 $ 3,306 $ 2,503
Research and development costs, net................................... 3,726 5,196 4,151 3,983 3,162
General and administrative expense.................................... 1,940 4,974(2) 2,367 2,113 1,872
Loss from operations.................................................. (7,447) (11,782) (8,347) (5,953) (5,087)
Interest and other income (expense), net.............................. 75 (295) (113) (44) (809)
Net loss.............................................................. (7,372) (12,078) (8,460) (5,997) (5,896)
Net loss per share of common stock.................................... (.28) (.62) (.55) (.42) (.62)
Dividends............................................................. -- -- -- -- --
Weighted average number of shares of Common Stock outstanding......... 26,647 19,594 15,432 14,357 9,501
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
------- -------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................................... $13,953 $ 8,182 $20,301 $21,096 $25,035
Current maturities of long-term debt.................................. -- 409 1,999 2,001 1,188
Long-term debt, net of current maturities............................. -- -- 138 1,679 3,680
Common Stock subject to repurchase commitment(3)...................... -- 2,730 -- -- --
Working capital (deficiency).......................................... 7,062 (782) 7,985 7,706 12,002
Stockholders' equity.................................................. 12,827 2,979 17,131 16,157 19,045
</TABLE>
- ---------------
(1) Substantially all of the revenues in 1991, 1992, 1994, and 1995 were from
sales of ALFERON N Injection to Purdue. Purdue did not purchase ALFERON N
Injection from the Company in 1993. Purdue has informed the Company that
during 1993, 1994, and 1995 Purdue sold approximately 23,000, 25,000, and
23,900 vials, respectively, and distributed as free samples approximately
2,800, 2,000, and 400 vials, respectively, of ALFERON N Injection from its
inventory. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations -- Liquidity and Capital Resources."
(2) Includes $2,100,000 resulting from the write-off of certain prepaid
royalties. See Note 4 of "Notes to Consolidated Financial Statements."
(3) Represents the Company's commitment as of December 31, 1994 to purchase
shares of Common Stock from Purdue, which commitment terminated upon
completion of the August/September Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue."
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since January 1981, the Company has been primarily engaged in the research
and development of pharmaceutical products containing Natural Alpha Interferon
for the treatment of viral diseases, cancers, and diseases of the immune system.
The Company has experienced significant operating losses since its inception in
1980. Although the Company received approval to market ALFERON N Injection for
the treatment of certain genital warts from the FDA in October 1989 and from the
comparable Mexican regulatory authority in December 1994 and recently entered
into an agreement for Cell Pharm to distribute ALFERON N Injection in Germany,
it has had only limited revenues from the sale of ALFERON N Injection to date.
In order for the Company to operate profitably, the Company must sell
significantly more ALFERON N Injection. Increased sales in the United States
will depend primarily upon the attainment of FDA approval to market ALFERON N
Injection for additional indications. Moreover, the Company cannot market
ALFERON N Injection in other markets unless appropriate regulatory approvals are
obtained. The future revenues and profitability of, and availability of capital
for, biotechnology companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means. The Company has primarily financed its operations to
date through private placements and public offerings of the Company's
securities.
LIQUIDITY AND CAPITAL RESOURCES
As of April 1, 1996, the Company had an aggregate of $4,600,000 in cash and
cash equivalents. Until utilized, such cash and cash equivalents are being
invested principally in short-term interest-bearing investments.
The Company will require substantial funds to conduct research and
development and preclinical and clinical testing and to market its products. The
Company anticipates that its future capital requirements will increase as a
result of the repurchase of certain marketing rights from Purdue. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Agreements
with Purdue." For the years ended December 31, 1995, 1994, and 1993, the cash
utilized by the Company's operations was approximately $7.1 million, $7.8
million, and $7.8 million, respectively. The Company's future capital
requirements will depend on many factors, including: continued scientific
progress in its drug development programs; the magnitude of these programs;
progress with preclinical testing and clinical trials; the time and costs
involved in obtaining regulatory approvals; the costs involved in filing,
prosecuting, and enforcing patent claims; competing technological and market
developments; changes in its existing research relationships; the ability of the
Company to establish collaborative arrangements; and effective commercialization
activities and arrangements.
Management believes that the cash currently available and the proceeds of
the Offering will be sufficient to enable the Company to continue operations for
approximately 16 months from the date of this Prospectus if the minimum number
of shares of Common Stock is sold in the Offering and approximately 24 months if
the maximum number of shares of Common Stock is sold, although no assurance can
be given in this regard. To fund the Company's operations beyond such periods,
the Company will require additional funding, whether from financial markets or
collaborative or other arrangements with corporate partners or from other
sources, which may not be available when needed or on terms acceptable to the
Company. Insufficient funds will require the Company further to delay, scale
back, or eliminate certain or all of its research and development programs or to
license third parties to commercialize products or technologies that the Company
would otherwise seek to develop itself or to shut down or curtail its
manufacturing facility.
In August and September 1995, the Company completed the sale of 12,000,000
shares of Common Stock for an aggregate of $14,400,000 pursuant to the
August/September Offering. Of the $12,494,000 of net proceeds from the
August/September Offering, the Company has used $1,870,000 to repay indebtedness
to certain principal stockholders and anticipates that it will use approximately
$7,000,000 for research, product development, and clinical trials of the
Company's products and the balance for working capital and general corporate
purposes.
22
<PAGE> 25
Between May and August 1995, three principal stockholders of the Company
loaned the Company an aggregate of $1,870,000. Such loans bore interest at prime
plus 2% and were repaid with a portion of the proceeds of the August/September
Offering. See "Certain Transactions -- Other Transactions."
In April 1995, Amarillo Cell Culture Company, Incorporated and its licensee
agreed to purchase an aggregate of $750,000 of the Company's Common Stock at
$2.00 per share, all of which cash was received during the second quarter of
1995. See "Business -- Products Under Development -- ALFERON LDO."
In the first quarter of 1995, the Company concluded an agreement with
Fujimoto, a pharmaceutical company located in Osaka, Japan, for the
commercialization of the Company's ALFERON N Injection and ALFERON N Gel in
Japan. In connection with the agreement, Fujimoto purchased $1,500,000 of the
Company's Common Stock at $1.45 per share (the then market price), all of which
cash was received during the first quarter of 1995, and agreed to purchase an
additional $500,000 of Common Stock on February 6, 1996 at the then market
price. Such additional $500,000 of Common Stock has to date not been purchased.
Fujimoto has advised the Company that, to date, it has incurred higher than
anticipated development expenses, and that it has determined that there may be
greater difficulties in obtaining Japanese regulatory approval than originally
anticipated. Fujimoto has, therefore, requested that the Company renegotiate
such investment agreement and the related commercialization agreement. The
Company intends to meet with Fujimoto to consider its request. See
"Business -- ALFERON N Injection -- Marketing and Distribution -- Other
Marketing and Distribution Arrangements."
In connection with the amendments to agreements with Purdue as described
below, during January 1994, Purdue ordered 45,000 vials of ALFERON N Injection
at an agreed upon price. With respect to this order, approximately
three-quarters of the purchase price of the vials was payable upon shipment by
the Company to Purdue and the balance was payable upon sale by Purdue. A portion
of the shipments to fill this order was made on a consignment basis, i.e. the
purchase was subject to a right of return until notification by Purdue that such
vials have been resold. In June and August 1994, the Company began to fill this
order by making shipments of 10,000 and 10,735 vials, respectively, of ALFERON N
Injection to Purdue on a consignment basis. In addition, shipments of 5,718,
9,040, and 3,562 vials of ALFERON N Injection were made to Purdue in September
1994, April 1995, and September 1995, respectively, on a non-consignment basis.
The 5,945 vial balance of this order was shipped in November 1995 on a
non-consignment basis. In June 1995, the Company received purchase orders from
Purdue totalling 22,744 vials of ALFERON N Injection on a non-consignment basis,
of which 4,431 vials were shipped in November 1995. The balance of the order
will be cancelled when the Company reacquires the marketing rights for ALFERON N
Injection in the United States and Canada from Purdue.
Purdue has informed the Company that from June 1994 through December 31,
1994, it had sold or distributed as free samples approximately 15,800 vials of
the 20,735 vials purchased on a consignment basis, and that as of March 1995,
Purdue had sold or distributed as free samples the balance of such consignment
inventory. Purdue has also informed the Company that during the quarter ended
March 31, 1996 and the years ended December 31, 1995 and 1994, it sold
approximately 4,100 vials, 23,900 vials, and 25,000 vials, respectively, and
distributed as free samples approximately 70 vials, 400 vials, and 2,000 vials,
respectively, of ALFERON N Injection from its inventory.
In January 1994, the Company amended its marketing and distribution
agreements with Purdue and related parties. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue." Pursuant to
such amended agreements, the Company assumed sole responsibility to conduct and
fund clinical trials required to obtain FDA approval for additional indications
for ALFERON N Injection. Prior to these amendments, Purdue was responsible for
the payment of the costs of such clinical trials. The Company anticipates that
the expansion of its research and development efforts and clinical trial
activities and its assuming responsibility for the conduct and funding thereof
will increase operating expenses. The Company anticipates that its future
capital requirements will increase even more as a result of the repurchase with
a portion of the proceeds of the Offering of certain marketing rights from
Purdue. The Company intends to seek to enter into joint ventures or other
arrangements with strategic partners who agree to bear all or part of such
expenses.
23
<PAGE> 26
In connection with the amendments to the agreements with Purdue, the
Company agreed to purchase an aggregate of 994,994 shares of its Common Stock
for $3,979,976 ($4.00 per share) from Purdue and two related entities over a
period of 19 months. The Company purchased 62,500 of such shares of Common Stock
for $250,000 in January 1994 and was obligated to purchase an additional 250,000
shares of Common Stock for $1,000,000 in 1994. In 1994, the Company and Purdue
agreed to offset $700,000 owed to the Company by Purdue, for the purchase of
ALFERON N Injection during 1994, against the Company's obligation to purchase
$1,000,000 of the Company's Common Stock from Purdue in 1994. As of December 31,
1994, $300,000 of this obligation to Purdue had not been paid and was reflected
as a current liability on the balance sheet. In addition, as of March 31, 1995,
the Company had an additional $67,783 of offsets based upon additional sales of
ALFERON N Injection by Purdue leaving $232,217 of this obligation outstanding as
of such date. In April 1995, the Company was required to purchase 62,500 shares
of Common Stock for $250,000 and on August 31, 1995 (or such earlier date on
which the August/September Offering shall have terminated prior to the sale of
minimum number of shares of Common Stock) was obligated to purchase 619,994
shares of Common Stock for $2,479,976. As of July 31, 1995, the Company had
generated sufficient additional offsets based upon additional sales of ALFERON N
Injection to and by Purdue to repay the $232,217 owed to Purdue as of March 31,
1995 and to pay $200,843 of the $250,000 owed to Purdue for the April 1995 stock
repurchase. In July 1995, the Company entered into a further amendment to the
agreements with Purdue, which became effective upon the sale on August 22, 1995
of more than the minimum number of shares of Common Stock in the
August/September Offering, pursuant to which the balance owed to Purdue for the
April 1995 stock repurchase (which had been reduced by further offsets) was
forgiven and the Company obtained an option, exercisable until December 31,
1996, to reacquire the remaining marketing and distribution rights from Purdue.
The exercise price of the option was $5,029,133, subject to reduction as set
forth below, plus 750,000 shares of Common Stock (350,000 shares of Common Stock
if the option had been exercised on or before December 31, 1995). The option
could not be exercised unless the Company simultaneously purchased any of the
619,994 shares of Common Stock described above then held by Purdue for $4.00 per
share. The cash exercise price of the option was reduced by the aggregate of (i)
the amount paid by the Company to Purdue to repurchase any of such 619,994
shares then held by Purdue, (ii) if Purdue sold any or all of such 619,994
shares, which could only be done with the consent of the Company, the amount
received by Purdue from such sale, and (iii) the amount by which the transfer
price for vials sold by the Company to Purdue exceeded $25 per vial. If the
option were not exercised, the Company would no longer have the obligation to
repurchase the 619,994 shares. In addition, the parties agreed that the transfer
price for each vial would be payable $25 in cash and the balance as an offset to
the cash exercise price of the option. If the option were not exercised, such
offsets would have no value.
In April 1996, the Company entered into an agreement with Purdue,
conditioned upon the sale of the minimum number of shares of Common Stock in the
Offering, to reacquire the remaining marketing and distribution rights from
Purdue Pharma and Mundipharma for $3,260,962 in cash, subject to minor
adjustment. In connection with the agreement, (i) Purdue Pharma agreed to
provide during the first year after the reacquisition certain distribution
services to the Company with respect to 24,000 vials of ALFERON N Injection at
an aggregate cost of $240,000, (ii) Purdue Pharma agreed to provide during the
second year after the reacquisition, if requested by the Company, certain
distribution services to the Company with respect to up to 30,000 vials of
ALFERON N Injection at a cost of $15 per vial, and (iii) the Company agreed to
purchase from Purdue Pharma all vials of ALFERON N Injection and all other
assets of Purdue Pharma used exclusively in its ALFERON N Injection business at
an aggregate cost of $259,050 in cash, subject to minor adjustment. In addition,
at the time of entering into the agreement, Purdue sold its remaining 619,994
shares of Common Stock. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Agreements with Purdue." If the Offering is consummated, the
Company will apply $3,760,012 of the net proceeds to reacquire such marketing
rights, pay for the first year's distribution services, and purchase such vials
and other assets. See "Use of Proceeds."
The Company believes that the reacquisition of marketing rights from Purdue
will provide it with greater financial flexibility and control over the
distribution of ALFERON N Injection. After reacquiring the marketing rights from
Purdue, the Company intends to focus its marketing efforts in the United States
on making additional sales to existing customers. While the Company does not
expect to immediately form a
24
<PAGE> 27
sales force, it will consider doing so based upon sales experience and any
approvals obtained for new indications. See "Risk Factors -- Dependence on
Certain Distributors; Limited Marketing Program."
RESULTS OF OPERATIONS
Year Ended December 31, 1995 versus Year Ended December 31, 1994
For the year ended December 31, 1995 (the "1995 Period"), the Company's
revenues of $1,295,662 included $1,260,933 from the sale of ALFERON N Injection
and the balance from sales of research products and other revenues. Revenues of
$1,165,931 for the year ended December 31, 1994 (the "1994 Period") included
$979,425 from the sale of ALFERON N Injection and the balance from sales of
research products, contract research, and other revenues. Cost of goods sold and
excess/idle production costs totalled $3,076,249 in the 1995 Period and
$2,778,109 in the 1994 Period. The inventory which was sold in the 1995 Period
and the 1994 Period had been written down to its net realizable value. For the
portion of the 1995 Period and the 1994 Period during which the facility was
operating, excess/idle production costs primarily represented current production
costs in excess of the estimated net realizable value of inventory produced
which resulted from limited production volumes. Excess/idle production costs
were reduced by suspending ALFERON N Injection production during a portion of
both the 1995 Period and the 1994 Period.
Research and development expenses during the 1995 Period of $3,726,230
decreased by $1,469,469 from $5,195,699 for the 1994 Period, principally because
the Company reduced its level of research and product development on ALFERON N
Injection. The Company received $181,992 and $150,000 during the 1995 Period and
1994 Period, respectively, as rental income from NPDC for the use of a portion
of the Company's facilities, which offset research and development expenses.
General and administrative expenses for the 1995 Period were $1,939,864 as
compared to $4,974,224 for the 1994 Period. The decrease of $3,034,360 was
principally due to the amortization and subsequent write-off of prepaid
royalties totalling $2,100,000 in the 1994 Period and decreases in payroll and
other expenses in the 1995 Period. NPDC provides certain administrative services
for which the Company paid NPDC $120,000 for each of the 1995 Period and the
1994 Period. In addition, during the 1995 Period and the 1994 Period, NPDC
provided to the Company, at its estimated cost, certain personnel and services
which the Company used in its operations. For the 1995 Period and the 1994
Period, such charges amounted to $1,121,145 and $1,194,380, respectively.
Commencing January 1, 1996, the NPDC personnel who had been providing such
services to the Company became employees of the Company, and will provide
certain services to NPDC at the Company's estimated cost.
Interest and other income for the 1995 Period was $155,478 as compared to
$157,929 for the 1994 Period.
For the 1994 Period, the Company realized a net loss of $300,430 on the
sales of marketable securities which resulted from declines in the fair value of
the Company's investments in obligations of agencies of the United States
Government.
Interest expense for the 1995 Period and the 1994 Period was $80,511 and
$152,935, respectively. The decrease of $72,424 was due to reduced long-term
debt.
As a result of the foregoing, the Company incurred net losses of $7,371,714
and $12,077,537 for the 1995 Period and the 1994 Period, respectively.
Year Ended December 31, 1994 versus Year Ended December 31, 1993
For the 1994 Period, the Company's revenues of $1,165,931 included $979,425
from the sale of ALFERON N Injection and the balance from sales of research
products, contract research, and other revenues. The revenues of $51,323 for the
year ended December 31, 1993 (the "1993 Period') were derived from sales of
research products. Cost of goods sold and excess/idle production costs totalled
$2,778,109 in the 1994 Period and $1,880,563 in the 1993 Period. The inventory
which was sold in the 1994 Period had been written down to its net realizable
value. For the portion of the 1994 Period and the 1993 Period during which the
facility was operating, excess/idle production costs primarily represented
current production costs in excess of the estimated net realizable value of
inventory produced which resulted from limited production
25
<PAGE> 28
volumes. Excess/idle production costs were reduced by suspending ALFERON N
Injection production during a portion of both the 1994 Period and the 1993
Period.
Research and development expenses during the 1994 Period of $5,195,699
increased by $1,044,541 from $4,151,158 for the 1993 Period, principally
because, effective January 1994, the Company took over the responsibility for
conducting and funding the hepatitis C clinical studies from Purdue and
increased its level of research and product development of ALFERON N Injection.
The Company received $150,000 and $138,996 during the 1994 Period and 1993
Period, respectively, as rental income from NPDC for the use of a portion of the
Company's facilities, which offset research and development expenses.
General and administrative expenses for the 1994 Period were $4,974,224 as
compared to $2,366,897 for the 1993 Period. The increase of $2,607,327 was
principally due to the amortization and subsequent write-off of prepaid
royalties totalling $2,100,000, increases in payroll, and certain costs related
to a proposed public stock offering which was not consummated. NPDC provides
certain administrative services for which the Company paid NPDC $120,000 for
each of the 1994 Period and the 1993 Period. In addition, during the 1994 Period
and the 1993 Period, NPDC provided to the Company, at its estimated cost,
certain personnel and services which the Company used in its operations. For the
1994 Period and the 1993 Period, such charges amounted to $1,194,380 and
$895,700, respectively.
Interest and other income for the 1994 Period was $157,929 as compared to
$255,344 for the 1993 Period. The decrease of $97,415 was due to less funds
available for investment in the 1994 Period.
For the 1994 Period, the Company realized a net loss of $300,430 from sales
of marketable securities which resulted from declines in the fair value of the
Company's investments in obligations of agencies of the United States
Government. During the 1993 Period, the Company realized a net gain of $3,297
from sales of such investments.
Interest expense for the 1994 Period and 1993 Period was $152,935 and
$371,208, respectively. The decrease of $218,273 was due to reduced long-term
debt.
As a result of the foregoing, the Company incurred net losses of
$12,077,537 and $8,459,862 for the 1994 Period and the 1993 Period,
respectively.
RECENT TAX AND ACCOUNTING DEVELOPMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." Statement 121 requires the
Company to estimate the future cash flows expected to result from the use and
eventual disposition of its property, plant and equipment, and if the sum of
such cash flows is less than the carrying amount of these assets, to recognize
an impairment loss to the extent, if any, that the carrying amount of the assets
exceeds their fair values. The Company believes that, although it has a current
period operating loss and a history of operating losses, expected future cash
flows derived from these assets will be at least equal to their carrying values,
and that no impairment loss will be indicated. The Company bases this assessment
both upon expected future product revenues and upon the fact that it completed a
major manufacturing facility expansion and purchase of manufacturing equipment
in 1991, the cost of which constitutes a major portion of the carrying value of
its property, plant and equipment. The Company believes that this expanded
facility will be suitable for a number of years without significant repairs.
In December 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), effective for
years beginning after December 15, 1995. Under SFAS 123, the Company may elect
either a "fair value" based method or the current "intrinsic value" based method
of accounting prescribed by APB No. 25, "Accounting for Stock Issued to
Employees," for its stock-based compensation arrangements. Under the "intrinsic
value" based method, the Company will be required to disclose in the footnotes
to the consolidated financial statements net income and earnings per share
computed under the "fair value" based method. The Company has elected to
continue accounting for stock-based compensation arrangements using the
"intrinsic value" based method; therefore, the adoption of SFAS 123 will not
impact the Company's results of operations or financial condition.
26
<PAGE> 29
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements reflecting
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, including, but not limited to, uncertainty of
obtaining additional funding for the Company; uncertainty of obtaining United
States regulatory approvals for the Company's products under development and
foreign regulatory approvals for the Company's FDA-approved product and products
under development and, if such approvals are obtained, uncertainty of the
successful commercial development of such products; substantial competition from
companies with substantially greater resources than the Company in the Company's
present and potential businesses; no guaranteed source of required materials for
the Company's products; dependence on certain distributors to market the
Company's products; potential side effects from the use of the Company's
products; potential patent infringement claims against the Company; possible
inability of the Company to protect its technology; uncertainty of
pharmaceutical pricing; substantial royalty obligations payable by the Company;
limited production experience of the Company; risk of product liability; and
risk of loss of key management personnel, all of which are difficult to predict
and many of which are beyond the control of the Company. See "Risk Factors."
27
<PAGE> 30
BUSINESS
THE COMPANY
The Company is a biopharmaceutical company currently engaged in the
manufacture and sale of ALFERON N Injection, the only product approved by the
FDA that is based upon Natural Alpha Interferon. ALFERON N Injection is approved
for the treatment by injection of certain types of genital warts and is being
developed by the Company for the potential treatment of hepatitis C, hepatitis
B, HIV, multiple sclerosis, cancers, and other indications. The Company believes
that the existing FDA approval of ALFERON N Injection for one indication should
facilitate obtaining approvals for other indications. The Company also is
developing ALFERON N Gel and ALFERON LDO, the Company's topical and oral
formulations of Natural Alpha Interferon.
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Currently, various alpha interferon products, approved for 17
different medical uses in over 72 countries, are, as a group, one of the largest
selling of all biopharmaceuticals with estimated 1994 sales in excess of $1.5
billion worldwide. A substantial majority of these sales are for the treatment
of hepatitis C, a liver disease affecting millions of people worldwide,
including two to three million people in the United States. As described below,
the Company has recently completed two multi-center Phase 2 trials using Natural
Alpha Interferon for the treatment of hepatitis C and is presently conducting
one other such trial. The Company believes that the results of the two completed
trials are promising, and therefore intends to commence shortly a Phase 3 multi-
center, controlled clinical trial.
Natural Alpha Interferon
A substantial portion of worldwide sales of interferon consists of sales of
alpha interferon produced from genetically engineered cells (recombinant alpha
interferon). Based on laboratory studies and clinical trials involving Natural
Alpha Interferon, the Company believes that Natural Alpha Interferon has certain
potential advantages over recombinant alpha interferon including:
Efficacy. Natural Alpha Interferon is used at significantly lower doses
than the competing recombinant alpha interferon product for the
treatment of genital warts and, in laboratory studies, was shown to be
10 to 100 times more effective than equal concentrations of recombinant
alpha interferon in blocking replication of HIV. This unusually potent
anti-HIV activity may be due to specific members of the interferon
family of proteins which are present in Natural Alpha Interferon but not
found in the presently marketed recombinant interferons.
Side effects. The principal side effects of alpha interferon are
flu-like symptoms, which are dose dependent. The approved treatment with
ALFERON N Injection utilizes lower doses than the treatment with
recombinant alpha interferon, which may account, in part, for fewer side
effects being observed in patients being treated with Natural Alpha
Interferon. Based on a double-blind study of normal healthy adults, the
Company believes there is evidence that even when given at the same
doses as recombinant alpha interferon, the side effects are lower with
Natural Alpha Interferon. Furthermore, in a Phase 1 clinical trial on 20
asymptomatic HIV-infected patients, investigators at Walter Reed
reported that significantly fewer of the typical side effects associated
with recombinant alpha interferon were observed with Natural Alpha
Interferon. In addition, interferon-neutralizing antibodies, which may
limit alpha interferon's therapeutic benefit, have not been observed to
date in clinical trials with Natural Alpha Interferon in patients not
previously treated with recombinant alpha interferon, even in HIV and
hepatitis C patients treated with high doses of Natural Alpha Interferon
three times a week for up to six months. In contrast, there have been
reports of neutralizing antibodies to recombinant alpha interferons
developing in patients being treated with recombinant alpha interferons.
Although, as described above, the Company believes that Natural Alpha
Interferon may have certain advantages over recombinant alpha interferon, there
can be no assurance that these advantages will enable the Company to obtain a
significant market share for products made with Natural Alpha Interferon.
Moreover, at the present time, the Company is limited in its ability to make
product marketing claims related to these potential advantages until additional
data are available and, in certain instances, until further FDA approvals
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<PAGE> 31
are obtained. Additionally, the Company derives Natural Alpha Interferon from
human white blood cells, the cost and availability of which are subject to
fluctuation, in part because the Company does not presently have long-term
agreements for the supply of such cells. Recombinant alpha interferon products
are not dependent on a source of human white blood cells and, therefore, can be
produced in greater volume and at a lower cost per unit than the Company's
formulations of Natural Alpha Interferon products. See "Business -- Scientific
Background."
Marketing, Distribution, and Production
ALFERON N Injection is approved for sale in the United States for the
intralesional treatment of adults with refractory (resistant to other treatment)
or recurring external genital warts, and is currently marketed and distributed
in the United States exclusively by Purdue. The Company and Purdue have entered
into an agreement pursuant to which the Company will repurchase the marketing
rights for ALFERON N Injection in the United States and Canada for $3,260,962 in
cash, subject to minor adjustment. See "Use of Proceeds," "Business -- ALFERON N
Injection -- Approved Indication," and "Business -- ALFERON N Injection --
Marketing and Distribution -- Agreements with Purdue."
In the first quarter of 1995, the Company entered into an agreement with
Fujimoto for the development and marketing of ALFERON N Injection and ALFERON N
Gel in Japan. Japan is currently the world's largest market for interferon
products, with estimated 1994 annual sales approaching $900 million. Under the
terms of the agreement, Fujimoto agreed to purchase $2,000,000 of the Company's
Common Stock (of which $1,500,000 has been purchased to date) and to use its
best efforts to develop, and obtain Japanese regulatory approvals for, ALFERON N
Injection and ALFERON N Gel products. Fujimoto has advised the Company that, to
date, it has incurred higher than anticipated development expenses, and that it
has determined that there may be greater difficulties in obtaining Japanese
regulatory approval than originally anticipated. Fujimoto has, therefore,
requested that the Company renegotiate the agreement. The Company intends to
meet with Fujimoto to consider its request. In April 1996, the Company entered
into a supply and distribution agreement pursuant to which the Company will sell
to Cell Pharm, and Cell Pharm will distribute, promote, and sell in Germany,
ALFERON N Injection. Cell Pharm has informed the Company that it intends to
market ALFERON N Injection under the trade name Cellferon(R), pursuant to Cell
Pharm's existing regulatory approval to market Cellferon in Germany for the
treatment of hairy cell leukemia and for the treatment of patients who develop
antibodies against recombinant alpha interferons. In addition, the Company's
Natural Alpha Interferon injectable product was recently approved for sale in
Mexico for the treatment of genital warts and is marketed under the trade name
ALTEMOL(R) by Andromaco. See "Business -- ALFERON N Injection -- Marketing and
Distribution -- Other Marketing and Distribution Arrangements."
The Company is also exploring development and marketing arrangements that
would involve the potential use of Natural Alpha Interferon for the treatment of
hepatitis B and C, multiple sclerosis, HIV, and cancer. See "Risk
Factors -- Dependence on Certain Distributors; Limited Marketing Program."
The purified drug concentrate utilized in the formulation of ALFERON N
Injection is manufactured in a Company-owned, FDA-approved facility located in
New Brunswick, New Jersey. ALFERON N Injection is formulated and packaged for
the Company by Sanofi at a production facility located in McPherson, Kansas. See
"Risk Factors -- Regulatory Approvals" and "Business -- ALFERON N
Injection -- Manufacturing."
Recently Expanded License
As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann and Roche which grants the Company the worldwide rights to make, use,
and sell, without a potential patent infringement claim from Hoffmann or Roche,
any formulation of Natural Alpha Interferon. The 1995 license replaced a 1988
non-exclusive license from Hoffmann which granted the Company the rights to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, injectable formulations of Natural Alpha
Interferon for the treatment of genital warts or patients with diseases
refractory to recombinant interferon therapy. The 1995 license will enable the
Company, if successful in obtaining necessary regulatory approvals, to expand
the formulations of Natural Alpha Interferon it makes, uses, and sells in the
United
29
<PAGE> 32
States and the rest of the world and to market its products for the treatment of
additional indications. See "Risk Factors -- Potential Patent Infringement
Claims," "Business -- ALFERON N Injection -- Patents and Licenses," and
"Business -- ALFERON N Injection -- Royalty Obligations."
Clinical Trials
The Company has conducted and is conducting or planning various clinical
trials in an effort to obtain approval to market Natural Alpha Interferon for
additional indications in the United States and around the world.
ALFERON N Injection. The Company has recently completed two multi-center,
randomized, open-label, dose-ranging Phase 2 clinical trials in patients
infected with hepatitis C virus (HCV) and is presently conducting one additional
such trial. The objective of these HCV clinical studies is to compare the safety
and efficacy of different doses of Natural Alpha Interferon injected
subcutaneously in naive (previously untreated), refractory (unsuccessfully
treated with recombinant alpha interferon), and relapsing (initially responded
to recombinant alpha interferon but later relapsed) patients. The Company
believes that the results of the two completed trials are promising, and
therefore intends to commence shortly a Phase 3 multi-center, controlled
clinical trial.
In a follow-up analysis of patients in the Walter Reed Phase 1 clinical
trial, it was found that an average of 16 months after treatment, CD4 lymphocyte
levels (the white blood cells which normally decline in HIV-infected patients)
remained essentially unchanged or were higher than at the onset of the trial in
11 of 20 patients. In addition, the amount of HIV detectable in the patients'
blood, as measured by a quantitative PCR (Polymerase Chain Reaction) technique,
declined in a dose dependent manner (the greatest declines were observed in the
highest dose group). Although there can be no assurance that the results of
laboratory studies and the Phase 1 clinical trial will be reproduced in a
large-scale, controlled clinical trial, based upon the foregoing, the Company
believes that Natural Alpha Interferon may have potential clinical value in the
treatment of certain HIV-infected patients. The Company is planning to conduct
shortly a Phase 3 multi-center, double-blind, placebo-controlled clinical trial
with HIV-infected patients, which is expected to commence in 1996.
Two additional Phase 2 clinical studies are in progress. One is for the
treatment of Kaposi's sarcoma in patients with AIDS and the other is a
multi-center study in small cell lung cancer patients following successful
treatment by conventional chemotherapy.
Based upon encouraging anecdotal data, the Company is planning, subject to
obtaining funding (from a source other than the Offering) or a sponsor, to
conduct clinical trials utilizing Natural Alpha Interferon for the treatment of
multiple sclerosis, which affects more than 250,000 Americans. See
"Business -- ALFERON N Injection -- Clinical Trials for New Indications."
ALFERON N Gel. ALFERON N Gel is a topical Natural Alpha Interferon
preparation which the Company believes has potential in the treatment of
cervical dysplasia, recurrent genital herpes, other viral diseases, and cancers.
The Company has completed a Phase 2 dose ranging study using ALFERON N Gel
at the Columbia Presbyterian Medical Center in New York for the treatment of
mild cervical dysplasia. Based upon Pap Smears, identification tests for the
presence of virus and cervical biopsies, ALFERON N Gel appears to have the
potential for improving the course of cervical dysplasia in the majority of
patients who completed the treatment course. However, since this study utilized
small numbers of patients, there can be no assurance that these results will be
reproduced in a large scale placebo-controlled trial.
In light of the above results, a physician-sponsored study in HIV-infected
women with cervical dysplasia was initiated in 1995.
ALFERON LDO. ALFERON LDO is a low dose oral liquid Natural Alpha
Interferon preparation which the Company believes has potential for treating
certain symptoms of patients infected with the HIV virus and treating other
viral diseases.
At New York's Mount Sinai Hospital, the Company conducted two clinical
trials using ALFERON LDO on patients infected with the HIV virus. Based in part
upon information from these trials, The National
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<PAGE> 33
Institute of Allergy and Infectious Disease ("NIAID") opened for enrollment in
April 1996 a randomized, double-blind, placebo-controlled clinical study with
low dose alpha interferons administered orally (including ALFERON LDO) to
determine interferon's effect on HIV-related symptoms. See "Business -- Products
under Development."
Commercial sales in the United States or Mexico of ALFERON N Injection for
any indication other than the treatment of certain types of genital warts,
commercial sales outside of the United States, Mexico, and Germany of ALFERON N
Injection for any indication, and commercial sales anywhere in the world of
either ALFERON N Gel or ALFERON LDO will be contingent upon the completion of
necessary studies and the approval of such products for such uses by the FDA or
foreign regulatory authorities. Submissions for regulatory approval to sell
ALFERON N Injection for the treatment of genital warts have been filed in
various other countries. See "Business -- Governmental Regulation," "Risk
Factors -- Regulatory Approvals," and "Risk Factors -- Foreign Regulatory
Approvals."
Although the Company received FDA approval to market ALFERON N Injection in
1989, to date, it has had only limited revenue from the sale of ALFERON N
Injection. The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1995, the Company had an accumulated
deficit of approximately $70.2 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CLINICAL TRIALS SUMMARY
The table appearing below summarizes the more detailed information
contained elsewhere in this Prospectus concerning clinical trials of ALFERON N
Injection, ALFERON N Gel, and ALFERON LDO being conducted or proposed to be
conducted and is qualified in its entirety by reference to that information.
<TABLE>
<CAPTION>
POTENTIAL STATUS OF CLINICAL
PRODUCT APPLICATION/INDICATIONS TRIALS(1) SPONSOR
- -------------------- ------------------------- ------------------------- -----------------
<S> <C> <C> <C>
ALFERON N Injection HIV-infected patients Initial Phase 1 completed (2)
Phase 3 expected to Company(3)
commence shortly
Comparison of side Phase 1 completed Purdue
effects in healthy
subjects with recombinant
alpha interferon
Hepatitis C Three multi-center Company(4)
Phase 2 -- two completed,
one in progress
Hepatitis C Phase 2 in Mexico Andromaco(3)
expected to commence
shortly
Hepatitis C Phase 3 expected to Company(3)
commence shortly
Kaposi's sarcoma Phase 2 in progress Company
(in AIDS patients)
Small cell lung cancer Phase 2 open for Investigator(5)
enrollment
Multiple sclerosis Phase 2 proposed (6)
Hepatitis B Phase 2 proposed (6)
ALFERON N Gel Cervical dysplasia Phase 2 completed Company
Cervical dysplasia Phase 2 open for Investigator(5)
(in HIV-infected enrollment
patients)
Mucocutaneous herpes in Phase 2 proposed (6)
immunocompromised
patients
Recurrent genital herpes Phase 2 proposed (6)
ALFERON LDO HIV-infected patients Initial Phase 2 completed Company
HIV-infected patients Phase 2 open for NIAID(3)(5)
enrollment
</TABLE>
- ---------------
(1) Generally, clinical trials for pharmaceutical products are conducted in
three phases. In Phase 1, studies are conducted to determine safety and
tolerance. In Phase 2, studies are conducted to gain preliminary evidence as
to the efficacy of the product as well as additional safety data. In Phase
3, studies are
(footnotes continued on next page)
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<PAGE> 34
conducted to provide sufficient data to establish safety and statistical proof
of efficacy in a specific dose. Phase 3 is the final stage of such clinical
studies prior to the submission of an application for approval of a new drug or
licensure of a biological product or for new uses of a previously-approved
product. See "Business -- Governmental Regulation."
(2) Sponsored by Walter Reed. Partially funded by Purdue and the Company.
(3) United States Notice of Claimed Investigational Exemption for a New Drug
("IND") has been filed.
(4) Previously funded by Purdue; currently funded by the Company.
(5) The Company provides clinical supplies.
(6) The Company anticipates that this trial will not be funded from the
Company's working capital or the proceeds of the Offering. The timing of
this trial will be dependent upon the Company's ability to obtain additional
funding or a sponsor.
SCIENTIFIC BACKGROUND
Interferons are a group of proteins produced and secreted by cells to
combat diseases. Researchers have identified four major classes of human
interferon: alpha, beta, gamma, and omega. The Company's three ALFERON products
contain a form of alpha interferon. The worldwide market for injectable alpha
interferon-based products has experienced rapid growth and various alpha
interferon injectable products are approved for 17 different medical uses in
more than 72 countries.
Alpha interferons are manufactured commercially in three ways: by genetic
engineering, by cell culture, and from human white blood cells. In the United
States, only two types of alpha interferon are approved for commercial sale:
recombinant (genetically engineered) alpha interferon and Natural Alpha
Interferon, which is manufactured from human white blood cells. Outside of the
United States, sales of alpha interferon produced by cell culture account for a
significant portion of the market.
The Company believes that the potential advantages of Natural Alpha
Interferon over recombinant interferon may be based upon their respective
molecular compositions. An analysis of Natural Alpha Interferon shows that it is
composed of a family of proteins containing many different molecular species of
alpha interferon. In contrast, each of the recombinant alpha interferon products
currently approved in the United States contains only a single species.
Researchers have reported that the various species of interferon may have
differing anti-viral activity depending upon the type of virus. Natural Alpha
Interferon presents a broad complement of species which the Company believes may
account for its higher efficacy in laboratory studies with the HIV virus
compared with that of single species recombinant alpha interferon. Natural Alpha
Interferon is also glycosylated, or partially covered with sugar molecules. The
Company believes that the absence of glycosylation and single species
composition of the recombinant alpha interferon products currently approved in
the United States may be responsible for the production of
interferon-neutralizing antibodies seen in patients treated with recombinant
alpha interferons.
Natural Alpha Interferon differs from interferon derived from cell culture
in many respects, including number and type of interferon species, which may
account for the higher antiviral specific activity of Natural Alpha Interferon.
While interferon-neutralizing antibodies have not been observed to date in
clinical trials with Natural Alpha Interferon in patients not previously treated
with recombinant alpha interferon, clinical studies have shown that cell-culture
derived interferon does induce such antibodies, although to a lesser extent than
recombinant interferons. The immunogenicity of cell culture interferon could be
due to different glycosylation or the presence of species not normally found in
the human body or both.
The production of Natural Alpha Interferon is dependent upon a supply of
human white blood cells and other essential materials. The Company currently
obtains white blood cells from FDA-licensed blood donor centers. The Company
currently has no long-term commitments for a supply of such white blood cells.
ALFERON N INJECTION
Approved Indication. On October 10, 1989, the FDA approved ALFERON N
Injection for the intralesional treatment of refractory (resistant to other
treatment) or recurring external genital warts in
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<PAGE> 35
patients 18 years of age or older. Substantially all of the Company's revenues,
to date, have been generated from the sale of ALFERON N Injection for such
treatment. Genital warts, a sexually transmitted disease, are caused by certain
types of human papilloma viruses. A published report estimates that
approximately eight million new and recurrent cases of genital warts occur
annually in the United States alone. Genital warts are usually treated using
caustic chemicals or through physical removal methods. These procedures can be
quite painful and the warts often recur.
In the second quarter of 1996, the Company plans to actively pursue FDA
approval to label and promote ALFERON N Injection for use in combination with
traditional primary treatment (with surgical or chemical methods) as a way to
reduce the recurrence of genital and anal warts.
Clinical Trials for New Indications. In an effort to obtain approval to
market Natural Alpha Interferon for additional indications in the United States
and around the world, the Company is focusing its research program on conducting
and planning various clinical trials for new indications.
Hepatitis C. Chronic viral hepatitis is a liver infection caused by
various hepatitis viruses. The United States Centers for Disease Control
estimates that approximately two to three million people in the United States
are presently infected with the hepatitis C virus ("HCV") and an estimated
170,000 persons become newly infected each year, a majority of whom become
chronic carriers and will suffer gradual deterioration of their liver and
possibly cancer of the liver. Several brands of recombinant and cell-cultured
interferon have been approved by various regulatory agencies worldwide for the
treatment of hepatitis C, including a recombinant product in the United States.
See "Business -- ALFERON N Injection -- Competition." However, reports have
indicated that many patients either do not respond to treatment with the
recombinant product or relapse after treatment. The Company has recently
completed two multi-center, randomized, open-label, dose-ranging Phase 2
clinical trials utilizing ALFERON N Injection with patients chronically infected
with HCV and is presently conducting one additional such trial. The objective of
the Company's HCV clinical studies is to compare the safety and efficacy of
different doses of Natural Alpha Interferon injected subcutaneously in naive
(previously untreated), refractory (unsuccessfully treated with recombinant
interferon), and relapsing (initially responded to recombinant interferon but
later relapsed) patients.
Enrollment of naive patients has been completed at six centers, and all
patients have now finished the 24-week treatment and 24-week follow-up periods.
Patients were treated with one of four dose levels of ALFERON N Injection
administered subcutaneously three times per week. 77 patients were enrolled in
the study with 66 patients completing the 24 weeks of treatment. Of the 66, 63
completed follow-up. In general, treatment was well tolerated, even at the
highest dose.
Results based on ALT values (ALT is a liver enzyme whose change is used to
determine the effectiveness of the therapy) indicated a significant
dose-dependent response rate at the end of treatment. Complete response rates
(normalization of ALT) ranged from 11% (2 of 18) for the lowest dose group to
67% (12 of 18) for the highest. At the end of the follow-up period, complete
response rates ranged from 8% (1 of 13)for the second to lowest dose group to
44% (8 of 18) for the highest. 33% (6 of 18) of the patients receiving the
highest dose exhibited a sustained complete response (normal ALT at the end of
treatment and throughout the follow-up period).
In addition to the ALT testing, the quantity of HCV in the bloodstream of
patients was measured by polymerase chain reaction (PCR) testing. Such testing
also indicated a significant dose-dependent response rate as measured by the
proportion of patients having no detectable HCV in the bloodstream at the end of
treatment. The percent of patients with no detectable HCV in the bloodstream
ranged from 0% (0 of 17) for the lowest dose group to 59% (10 of 17) for the
highest. At the end of the follow-up period, the percent of patients with no
detectable HCV in the bloodstream ranged from 0% (0 of 15) for the lowest dose
group to 24% (4 of 17) for the highest. 18% (3 of 17) of the patients receiving
the highest dose had no detectable HCV in the bloodstream at the end of
treatment and throughout the follow-up period. There was a high correlation
among patients between ALT normalization and no detectable HCV in the
bloodstream at the end of treatment and at the end of the follow-up period.
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Based on an abstract of the results submitted to the American Association
for the Study of Liver Diseases ("AASLD"), this study was selected for an oral
presentation at the AASLD meeting that took place in early November 1995.
Enrollment of refractory patients has been completed at seven centers, and
all patients have finished the 24-week treatment period and the 24-week
follow-up period. Patients were treated with one of three dose levels of ALFERON
N Injection administered subcutaneously three times per week. 69 patients were
enrolled in the study with 63 patients completing the 24 weeks of treatment. Of
the 63, 58 completed follow-up. Again, in general, treatment was well tolerated,
even at the highest dose.
Preliminary results based on ALT values indicated a significant response at
the end of treatment, as measured by normalization or near normalization (ALT
less than 150% of the upper limit of normal) of ALT, in the highest dose group.
At the end of treatment, the complete or near complete response rates were 14%
for the lowest (3 of 22) and middle (3 of 21) dose groups and 25% (5 of 20) for
the highest. 12% of the patients who have completed follow-up (7 of 58) had
complete or near complete response rates at the end of follow-up, including 20%
of the patients (4 of 20) in the lowest dose group, 5% (1 of 19) in the middle
dose group, and 11% (2 of 19) in the highest dose group. Two patients with
neutralizing antibodies at the commencement of the study to the recombinant
interferon product approved in the United States for treatment of hepatitis C
had complete responses: one at the end of treatment (the patient relapsed during
the follow-up period, but had a near complete response rate at the end of the
follow-up period) and the other at the end of the follow-up period.
In addition to the ALT testing, the quantity of HCV in the bloodstream of
patients was measured by PCR testing. Such testing also indicated a significant
response rate at the end of treatment, as measured by the proportion of patients
having at least a 90% reduction in detectable HCV in the bloodstream, in the
highest dose group. At the end of treatment, the percent of patients with at
least a 90% reduction in detectable HCV in the bloodstream ranged from 6% (1 of
18) for the middle dose group to 37% (7 of 19) for the highest. 3% of the
patients who have completed follow-up and for whom data are available (1 of 36,
such patient being in the lowest dose group) showed at least a 90% reduction in
detectable HCV in the bloodstream at the end of follow-up.
At the end of treatment, the percent of patients with either normalization
or near normalization of ALT, or at least a 90% reduction in detectable HCV in
the bloodstream, was 23% (5 of 22) for the lowest dose group, 14% (3 of 21) for
the middle, and 45% (9 of 20) for the highest.
Based on an abstract of the available results submitted to the AASLD, this
study was selected for a poster presentation at the AASLD meeting that took
place in early November 1995.
Enrollment is actively continuing in five centers for relapsing patients.
The original study protocol only permitted patients who had been previously
treated with a single six-month course of recombinant interferon therapy.
However, since so many patients have a disease relapse after a single course of
recombinant interferon therapy, many of them had been treated with two or more
courses of this therapy, and therefore did not qualify for this study. The
inability to enroll qualified patients has delayed the trial and led the Company
recently to amend its protocol to allow for enrollment of patients who have
received up to three six-month courses of recombinant interferon therapy.
The Company believes that the results of the trial with naive patients are
promising. In addition, treatment of naive patients with ALFERON N Injection did
not produce any interferon-neutralizing antibodies. The Company also believes
that the preliminary results of the trial with refractory patients are
promising. Therefore, the Company has filed an IND and intends to commence
shortly a Phase 3 multi-center, controlled clinical trial. However, the Phase 2
trials were dose-ranging trials that were not placebo controlled and did not
involve comparisons to other available therapies, and there can be no assurance
that the use of ALFERON N Injection for the treatment of patients with hepatitis
C will be cost-effective, safe, and effective or that the Company will be able
to obtain FDA approval for such use. Furthermore, even if such approval is
obtained, there can be no assurance that such product will be commercially
successful or will produce significant revenues or profits for the Company. See
"Risk Factors -- Products Under Development."
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In addition to the Company's HCV clinical studies, Andromaco has agreed to
sponsor, under a United States and Mexican IND, a Phase 2 clinical trial in
Mexico of the use of ALFERON N Injection in patients infected with HCV. See
"ALFERON N Injection -- Marketing and Distribution -- Other Marketing and
Distribution Arrangements."
HIV-infected patients. The Human Immunodeficiency Virus ("HIV") infection
is at epidemic levels around the world. The World Health Organization projects
that this virus will affect 30 to 40 million people by the year 2000. HIV
infection usually signals the start of a progressive disease that compromises
the immune systems, ultimately resulting in Acquired Immune Deficiency Syndrome
or AIDS. HIV-infected patients can be asymptomatic for many years before being
afflicted by opportunistic infections or cancer. The Company believes that
slowing the progression of the HIV infection in healthier patients may help
fight against the development of opportunistic infections and cancer.
An article published in AIDS Research and Human Retroviruses in 1993 by
investigators at Walter Reed in collaboration with the Company's scientists
indicated that the various interferon species display vast differences in their
ability to inhibit virus replication. Walter Reed researchers found that the
Company's Natural Alpha Interferon was 10 to 100 times more effective than equal
concentrations of recombinant interferons in blocking the replication of HIV-1,
the AIDS virus, in infected human cells in vitro.
Moreover, the Company's scientists were able to separate members of the
interferon family in single protein fractions or clusters of proteins using
advanced fractionation techniques. The individual fractions were tested for
their ability to block HIV replication in the laboratory by researchers at
Walter Reed. They found that the unusual anti-HIV activity was attributable to
very specific fractions in the Company's product. The most active fractions are
not present in marketed recombinant interferon.
This information provided additional support for a long-held belief of the
Company that its Natural Alpha Interferon has unique anti-viral properties
distinguishing it from recombinant interferon products. In addition, published
reports of trials using recombinant alpha interferon in asymptomatic
HIV-infected patients indicated that while high doses blocked virus production
in many cases, such doses resulted in high levels of adverse reactions, thereby
limiting the usefulness of the recombinant product. These facts led the Walter
Reed researchers to conduct a Phase 1 clinical trial with the Company's product
in asymptomatic HIV-infected patients.
In March 1992, Walter Reed launched a Phase 1 clinical trial with
asymptomatic HIV-infected patients to investigate the safety and tolerance, at
several dose regimens, of Natural Alpha Interferon, self-injected subcutaneously
for periods of up to 24 weeks. The investigators concluded that the treatment
was "surprisingly" well tolerated by patients, at all dose regimens. Preliminary
findings were reported by Walter Reed at the IXth International Conference on
AIDS in Berlin in 1993. The investigators also reported that CD4 white blood
cell counts either stabilized or improved in most patients while on therapy and
that the expected interferon side effects, such as flu-like symptoms, were rare
or absent in the majority of patients treated with the Company's product.
Although this Phase 1 clinical trial was designed primarily to provide
safety information on various doses of Natural Alpha Interferon used for
extended periods of time, there were encouraging indications that certain
disease parameters had stabilized or even improved in certain patients by the
end of the experimental treatment.
In a recent follow-up analysis of patients' blood testing data, it was
found that after an average of 16 months after treatment, CD4 lymphocyte levels
(the white blood cells which normally decline in HIV infected patients) remained
essentially unchanged or were higher than at the onset of the trial in 11 of 20
patients. In addition, the amount of HIV detectable in the patients' blood, as
measured by PCR testing, declined in a dose dependent manner (the greatest
declines were observed in the highest dose group). Also, none of the patients
were found to have developed neutralizing antibodies to Natural Alpha
Interferon, even after being treated three times weekly for many months. These
results were reported at the Third International Congress on Biological Response
Modifiers held in Cancun, Mexico in January 1995, and were selected for a poster
presentation at the 35th Interscience Conference on Antimicrobial Agents and
Chemotherapy held in San
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Francisco in September 1995. A manuscript describing these results has been
accepted for publication in the May 1996 issue of the Journal of Infectious
Diseases.
It is important to note that, because of the small number of study
participants and the absence of a control group, no firm conclusions can be
drawn from these observations. However, the information obtained from this trial
has been helpful in designing a Phase 3 multi-center, double-blind,
placebo-controlled clinical trial of Natural Alpha Interferon in HIV-infected
patients. The IND for this trial has been filed and the study is expected to
commence shortly.
Kaposi's sarcoma (in AIDS patients). Kaposi's sarcoma is a cancerous
growth characterized by vascular skin tumors and affects at least 10% of AIDS
patients in the United States. It is often the first notable manifestation of
AIDS, and as the tumors become more widely disseminated on the skin, it is
associated with visceral lesions and lymph node involvement. Traditional
treatment involves single agent or combination chemotherapy, but the typical
side effects of chemotherapy can be severe. In the United States, recombinant
alpha interferon has been approved for the treatment of Kaposi's sarcoma in AIDS
patients. However, response has been limited and often followed by relapse. To
determine its utility at substantially lower doses than currently approved
recombinant therapies, the Company presently is conducting a Phase 2 clinical
trial in Mexico utilizing ALFERON N Injection for the treatment of Kaposi's
sarcoma in patients with AIDS.
Small Cell Lung Cancer. Small Cell Lung Cancer ("SCLC") represents
approximately 25% of all newly-diagnosed cases of lung cancer and affected
approximately 42,000 people in 1992. Although patients with SCLC initially
respond to high-dose combination chemotherapy regimens, the rate of relapse is
high and such patients have a median survival rate of only 7 to 16 months,
depending upon the extent of disease.
The Company has agreed to supply Natural Alpha Interferon for a
multi-center, physician-initiated, Phase 2 study which is being conducted at
Allegheny General Hospital and at the University of Pittsburgh. Patients who are
in remission following successful treatment with standard chemotherapy will be
entered into this study. They will first receive high dose combination
chemotherapy, followed by peripheral blood stem cell augmentation. One month
after hematologic recovery, patients will then be given Natural Alpha Interferon
injections until evidence of disease progression or intolerable toxicity occurs.
The expected duration of treatment is up to 12 months. The goal of this study is
to investigate Natural Alpha Interferon's potential to extend the disease-free
period and overall survival of these patients. Although the study is open for
enrollment, no patients have reached the phase of treatment with Natural Alpha
Interferon.
Multiple Sclerosis. Multiple sclerosis ("MS") is a chronic, sometimes
progressive, immune-mediated disease of the central nervous system that is
believed to occur in genetically predisposed individuals following exposure to
an environmental factor, such as virus infection. The disease affects an
estimated 250,000 to 350,000 people in the United States, primarily young
adults. Symptoms of MS, including vision problems, muscle weakness, slurred
speech, and poor coordination, are believed to occur when the patient's own
cells attack and ultimately destroy the insulating myelin sheath surrounding the
brain and spinal cord nerve fibers, resulting in improper transmission of
signals throughout the nervous system.
In the United States, a recombinant form of beta interferon has been
approved for the treatment of relapsing-remitting MS. However, reports in the
scientific literature and elsewhere have indicated that the significant adverse
reactions associated with the treatment may limit its usefulness. In December
1995, an FDA advisory panel recommended approval of another recombinant form of
beta interferon for the treatment of MS. Such alternate form appeared to be
effective in slowing the progression of the disease in certain patients (which
is not an indication of the approved form) and to cause less severe adverse
reactions than the approved form. The Company plans to conduct a clinical trial
in order to investigate the potential use of Natural Alpha Interferon for MS,
but does not anticipate starting such trials unless additional funding (from a
source other than the Offering) or a sponsor is secured.
Chronic Viral Hepatitis B. Hepatitis B is currently the most common form
of hepatitis. Approximately three and a half to four million people in the
United States are infected with the hepatitis B virus ("HBV"), with some 300,000
new infections occurring annually and over 200 million infected people
worldwide. HBV is transmitted through contact with infected blood, sexual
intercourse, and needle-sharing among intravenous
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drug users. Infants born to infected mothers may become infected as they pass
through the birth canal. According to the Centers for Disease Control,
approximately 25% of hepatitis B patients develop irreversible chronic liver
conditions, and about 10% of all patients become lifetime carriers and can
transmit the virus to others. The Company plans to conduct clinical trials using
ALFERON N Injection in persons infected with hepatitis B; however, the Company
does not anticipate starting such trials unless additional funding (from a
source other than the Offering) or a sponsor is secured.
Marketing and Distribution.
Agreements with Purdue. In 1988, the Company entered into exclusive
marketing and distribution agreements with Mundipharma Pharmaceutical Company
("Mundipharma"), a related entity of Purdue Pharma, with respect to ALFERON N
Injection, which agreements have been amended from time to time (as amended, the
"Purdue Marketing Agreements"). In 1991, Mundipharma assigned the right to
market and distribute ALFERON N Injection in the United States to Purdue Pharma
and retained the right to market and distribute ALFERON N Injection in Canada,
Western Europe, Israel, India, Japan, and Australia. In 1993, the Company
reacquired the right to market and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into (the "1994
Purdue Amendment") pursuant to which the Company reacquired the right to market
ALFERON N Injection in Western Europe and other countries and took over from
Purdue the conduct and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel, India, and
Australia (the "Returned Territories"), subject to the payment to Mundipharma of
a royalty equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of net sales thereafter; (ii) the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications for ALFERON N Injection; Purdue was granted the right to obtain
marketing and distribution rights for each additional indication of ALFERON N
Injection at such time as the Company files a product license application or
receives FDA approval for any such additional indication, by reimbursing the
Company for some or all of its clinical costs plus an additional lump-sum
payment; and the Company was given the right to reacquire the rights to market
and distribute ALFERON N Injection in the United States and Canada after each of
the first three additional indications if Purdue does not exercise its right to
obtain marketing and distribution rights for such indication, at a price based
on a percentage of total sales or gross profit during a specified period of all
products subject to the agreement; (iii) the Company agreed to purchase for
$4.00 per share 994,994 shares of Common Stock held by Purdue and certain
related parties over a period of 18 months; (iv) Purdue Pharma and Mundipharma
retained the right to market and distribute ALFERON N Injection in the United
States and Canada, respectively, subject to the Company's option (the "First
Option") to reacquire such rights at a price of $12 million until July 25, 1995
($10 million if the First Option had been exercised before January 1995);
provided that the First Option could not have been exercised unless the Company
simultaneously paid the unpaid balance of the purchase price for the 994,994
shares referred to above, which payment would have reduced the First Option
exercise price; and (v) Purdue ordered 45,000 vials of ALFERON N Injection at an
agreed upon price. Unless certain minimum purchase levels are reached during
certain annual periods, or minimum payments are made to the Company in lieu of
such minimum purchases, the Company can terminate Purdue Pharma and
Mundipharma's exclusive marketing and distribution rights. All marketing and
distribution costs are borne by Purdue Pharma and Mundipharma in their
respective territories.
In March 1995, the Company entered into an amendment to the 1994 Purdue
Amendment (the "March 1995 Purdue Amendment") pursuant to which the Company
obtained an option, exercisable until June 30, 1995 (the "Second Option"), to
reacquire the remaining marketing and distribution rights from Purdue Pharma and
Mundipharma. The exercise price of the Second Option was 2.5 million shares of
Common Stock; provided that the Option could not have been exercised unless the
Company simultaneously paid the unpaid balance of the purchase price for the
994,994 shares referred to above. If, 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5 million shares of
Common Stock did not have a value of at least $9,037,807 (which value was
calculated using the average of the closing bid and asked prices of the Common
Stock as quoted by the NASDAQ National Market System for the ten
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trading days ending on the day prior to the Valuation Date), the Company was
required to issue a note for the shortfall. Such note was required to bear
interest at the prime rate and became due and payable 24 months from the
Valuation Date. The Company agreed that it would utilize its best efforts to
ensure that the 2.5 million shares of Common Stock would be registered and
freely tradeable 18 months from the date of exercise of the Second Option. If
the Second Option were exercised, the First Option, the royalty obligations, and
Purdue's right to obtain marketing and distribution rights for new indications
contained in the 1994 Purdue Amendment would have terminated.
In July 1995, the Company entered into an amendment to the 1994 Purdue
Amendment and the March 1995 Purdue Amendment (the "July 1995 Purdue
Amendment"), which became effective upon the sale on August 22, 1995 of more
than the minimum number of shares of Common Stock in the August/September
Offering, pursuant to which the balance owed to Purdue for the 62,500 shares of
Common Stock required to be repurchased in April 1995 was forgiven and the
Company obtained an option, exercisable until December 31, 1996 (the "Third
Option"), to reacquire the remaining marketing and distribution rights from
Purdue Pharma and Mundipharma. The exercise price of the Third Option was
$5,029,133, subject to reduction as set forth below, plus 750,000 shares of
Common Stock (350,000 shares of Common Stock if the Third Option had been
exercised on or before December 31, 1995). The Company agreed that it would
utilize its best efforts to ensure that such shares would be registered and
freely tradeable upon issuance. The Third Option could not be exercised unless
the Company simultaneously paid the unpaid balance of the purchase price for any
of the 994,994 shares referred to above then held by Purdue. The cash exercise
price of the Third Option was reduced by the aggregate of (i) the amount paid by
the Company to Purdue to repurchase any of such 619,994 shares then held by
Purdue, (ii) if Purdue sold any or all of such 619,994 shares, which could only
be done until December 31, 1996 with the consent of the Company, the amount
received by Purdue from such sale, and (iii) the amount by which the transfer
price for vials sold by the Company to Purdue Pharma or Mundipharma exceeded $25
per vial. If the Third Option were exercised, the royalty obligations and
Purdue's right to obtain marketing and distribution rights for new indications
contained in the 1994 Purdue Amendment would terminate. If the Third Option were
not exercised, the Company would no longer have the obligation to repurchase the
619,994 shares. In July 1995, the Company and Purdue also agreed to extend the
date on which the Company was obligated to repurchase the final 619,994 shares
of Common Stock if the July 1995 Purdue Amendment did not become effective from
July 25, 1995 to August 31, 1995 (or such earlier date on which the
August/September Offering shall have terminated prior to the sale of the minimum
number of shares of Common Stock).
Under the terms of the Purdue Marketing Agreements, the Company receives a
transfer price for the sale of vials of ALFERON N Injection to Purdue Pharma or
Mundipharma. Such transfer price is calculated based on either a manufacturing
cost formula or a fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the fixed price
formula, the Company may be entitled to additional payments if the net sales
price received by Purdue Pharma or Mundipharma for ALFERON N Injection exceeds
certain levels. Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial is payable $25 in cash and the balance as an offset to the cash
exercise price of the Third Option. If the Third Option were not exercised, such
offsets would have no value. The Company may choose the applicable formula every
six months. Except as described below, Purdue Pharma and Mundipharma have no
recourse against the Company in the event that they are unable to resell ALFERON
N Injection to third parties.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." In addition, the Company agreed,
under certain circumstances, to replace up to 15,000 vials of ALFERON N
Injection from Purdue's existing inventory at an agreed upon discounted price.
The Company also granted Purdue an option, exercisable (in whole only) until
July 25, 1995, to purchase an additional 100,000 vials of ALFERON N Injection at
an agreed upon discounted price. The option was not exercised.
Purdue Pharma utilizes its affiliate's, The Purdue Frederick Company's,
sales force in the United States. The Purdue Frederick Company's principal
products include BETADINE(R) antiseptics, UNIPHYL(R)
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controlled release theophylline, TRILISATE(R) analgesic/anti-inflammatory
products, and M.S. CONTIN(R) tablets for the prolonged relief of pain in cancer
patients.
In April 1996, the Company entered into an agreement with Purdue,
conditioned upon the sale of the minimum number of shares of Common Stock in the
Offering, to reacquire the remaining marketing and distribution rights from
Purdue Pharma and Mundipharma for $3,260,962 in cash, subject to minor
adjustment. In connection with the agreement, (i) Purdue Pharma agreed to
provide during the first year after the reacquisition certain distribution
services to the Company with respect to 24,000 vials of ALFERON N Injection at
an aggregate cost of $240,000, (ii) Purdue Pharma agreed to provide during the
second year after the reacquisition, if requested by the Company, certain
distribution services to the Company with respect to up to 30,000 vials of
ALFERON N Injection at a cost of $15 per vial, and (iii) the Company agreed to
purchase from Purdue Pharma all vials of ALFERON N Injection and all other
assets of Purdue Pharma used exclusively in its ALFERON N Injection business at
an aggregate cost of $259,050 in cash, subject to minor adjustment. In addition,
at the time of entering into the agreement, Purdue sold its remaining 619,994
shares of Common Stock. If the Offering is consummated, the Company will apply
$3,760,012 of the net proceeds to reacquire such marketing rights, pay for the
first year's distribution services, and purchase such vials and other assets.
See "Use of Proceeds."
The Company believes that the reacquisition of marketing rights from Purdue
will provide it with greater financial flexibility and control over the
distribution of ALFERON N Injection. After reacquiring the marketing rights from
Purdue, the Company intends to focus its marketing efforts in the United States
on making additional sales to existing customers. While the Company does not
expect to immediately form a sales force, it will consider doing so based upon
sales experience and any approvals obtained for new indications. See "Risk
Factors -- Dependence on Certain Distributors; Limited Marketing Program."
Other Marketing and Distribution Arrangements. In April 1996, the Company
entered into a supply and distribution agreement (the "Cell Pharm Agreement")
with Cell Pharm. Cell Pharm, headquartered in Hanover, Germany, is a
privately-owned pharmaceutical company primarily involved in the distribution
and manufacture of products for cancer treatment and other uses. The Cell Pharm
Agreement, which terminates on June 30, 2001 unless renewed, grants Cell Pharm
rights to distribute, promote, and sell ALFERON N Injection in Germany. The Cell
Pharm Agreement provides that the Company will supply Cell Pharm with ALFERON N
Injection at specified prices, and obligates Cell Pharm to purchase specified
minimum amounts in each annual period. In addition, Cell Pharm is required to
pay the Company 50% of the incremental revenue Cell Pharm receives as a result
of selling the ALFERON N Injection at a price higher than a specified price.
Cell Pharm is required to maintain an active and efficient sales and customer
service organization with adequately trained personnel for marketing and selling
the ALFERON N Injection. Cell Pharm represents to the Company that it has
obtained, and Cell Pharm agrees to maintain in effect, all registrations,
approvals, and consents from governments in Germany as are necessary to permit
or facilitate the lawful handling, promotion, and resale of ALFERON N Injection
in Germany. Cell Pharm has informed the Company that it intends to market
ALFERON N Injection under the trade name Cellferon(R), pursuant to Cell Pharm's
existing regulatory approval to market Cellferon in Germany for the treatment of
hairy cell leukemia and for the treatment of patients who develop antibodies
against recombinant alpha interferons.
In the first quarter of 1995, the Company concluded an agreement with
Fujimoto for the commercialization of ALFERON N Injection and ALFERON N Gel in
Japan (the "Fujimoto Agreement"). Fujimoto is affiliated with Fujimoto
Pharmaceutical Company, a 60-year old company with facilities in central Japan.
The Fujimoto Agreement grants Fujimoto exclusive rights to develop, distribute,
and sell ALFERON N Injection and ALFERON N Gel in Japan. Pursuant to the terms
of the Fujimoto Agreement, Fujimoto agreed to fund and conduct all preclinical
and clinical studies required for Japanese regulatory approval. The Company will
sell to Fujimoto ALFERON N Injection and ALFERON N Gel. Fujimoto will also
purchase certain quantities of ALFERON N Injection and ALFERON N Gel at
agreed-upon prices during the preclinical and clinical phases. For the
injectable product, ALFERON N Injection, Fujimoto has advised the Company that
it will initially focus on the use of the product for the treatment of patients
infected with HCV. The first indication to be developed for ALFERON N Gel has
not yet been determined. In connection with the Fujimoto Agreement, Fujimoto
purchased $1,500,000 of Common Stock for $1.45 per share (the then current
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market price), and agreed to purchase an additional $500,000 of Common Stock on
February 6, 1996 at the then current market price. Such additional $500,000 of
Common Stock has to date not been purchased. Fujimoto has advised the Company
that, to date, it has incurred higher than anticipated development expenses, and
that it has determined that there may be greater difficulties in obtaining
Japanese regulatory approval than originally anticipated. Fujimoto has,
therefore, requested that the Company renegotiate the Fujimoto Agreement and the
agreement to purchase an additional $500,000 of Common Stock on February 6,
1996. The Company intends to meet with Fujimoto to consider its request.
In February 1994, the Company entered into an exclusive distribution
agreement for ALFERON N Injection in Mexico with Andromaco, a privately-held
pharmaceutical company headquartered in Mexico City which specializes in
oncology and immunology products. Under the agreement, Andromaco applied for and
recently obtained approval from the Mexican regulatory authorities to sell
ALFERON N Injection for the treatment of genital warts, which will be marketed
under the trade name ALTEMOL(R). Andromaco has also agreed to sponsor, under an
IND, a clinical trial in Mexico of the use of ALFERON N Injection in patients
infected with HCV. The agreement establishes performance milestones for the
maintenance of distribution rights by Andromaco in Mexico. In addition, the
Company has a buy-out option to reacquire the marketing and distribution rights
in Mexico under certain terms and conditions.
The Company is also exploring other development and marketing arrangements
that would involve the potential use of Natural Alpha Interferon for the
treatment of hepatitis B and C, multiple sclerosis, HIV-infected patients, and
cancer.
No sales of ALFERON N Injection can be made in any country in which the
product is not approved for sale. Submissions for regulatory approval to sell
ALFERON N Injection for treatment of genital warts have been filed in a number
of countries other than the United States and regulatory approval has been
obtained in Mexico. In addition, Cell Pharm intends to market ALFERON N
Injection in Germany pursuant to Cell Pharm's existing regulatory approval to
market Cellferon. There can be no assurance, however, that any additional
approvals will be granted. See "Business -- Governmental Regulation," "Risk
Factors -- Regulatory Approvals," and "Risk Factors -- Foreign Regulatory
Approvals."
Manufacturing. The purified drug concentrate utilized in the formulation
of ALFERON N Injection is manufactured in the Company's facility located in New
Brunswick, New Jersey, and ALFERON N Injection is formulated and packaged at a
production facility located in McPherson, Kansas and operated by Sanofi pursuant
to a processing and supply agreement entered into in September 1994. Under the
terms of the agreement with Sanofi, the Company pays Sanofi an agreed price to
formulate and package ALFERON N Injection in accordance with specifications
provided by the Company. These facilities received FDA approval in October 1989.
Subsequently, the Company developed process improvements and completed an
expansion of its manufacturing facility, both of which were approved by the FDA
in June 1991. The process improvements and expanded facility enabled the Company
to reduce the manufacturing costs of ALFERON N Injection and gave the Company
increased production capacity for ALFERON N Injection. See "Risk
Factors -- Regulatory Approvals" and "Business -- Governmental Regulation."
Competition. Presently, INTRON(R) A, manufactured by Schering, is the one
other injectable interferon product approved by the FDA for the treatment of
genital warts. INTRON(R) A is made from recombinant alpha interferon. ALFERON N
Injection also competes with surgical, chemical, and other methods of treating
genital warts. The Company cannot assess the impact products developed by the
Company's competitors or advances in other methods of the treatment of genital
warts will have on the commercial viability of its product.
If and when the Company obtains approvals for additional indications of
ALFERON N Injection and its proposed products (such as the approval obtained by
Cell Pharm in Germany), it expects to compete primarily on the basis of product
performance with a number of pharmaceutical companies (such as Hoffmann, Roche,
Schering, Amgen Inc., and Glaxo Wellcome Inc.), both in the United States and
abroad. In addition, the Company's potential competitors have developed or may
develop products (containing either alpha interferon or other therapeutic
compounds) or other treatment modalities which may compete with the Company's
products. For example, Schering's recombinant interferon product is already
approved for the
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<PAGE> 43
treatment of hepatitis C and hepatitis B in the United States and other markets,
as well as for many other medical uses, and there is no assurance that, if the
Company is able to obtain regulatory approval of ALFERON N Injection for the
treatment of those diseases, it will be able to achieve any significant
penetration into those markets. In addition, since production of the competitive
products is not dependent on a source of human blood cells, such products may be
able to be produced in greater volume and at a lower cost than ALFERON N
Injection. Currently, the Company's wholesale price on a per unit basis of
ALFERON N Injection is substantially higher than that of the competitive
recombinant alpha interferon products. Many of the Company's potential
competitors are among the largest pharmaceutical companies in the world, are
well known to the public and the medical community, and have substantially
greater financial resources and product development, manufacturing, and
marketing capabilities than the Company or its marketing partners.
Patents and Licenses. On March 5, 1985, the United States Patent and
Trademark Office issued a patent to Hoffmann claiming purified human alpha
(leukocyte) interferon (regardless of how it is produced). In 1988, the Company
obtained a non-exclusive license from Hoffmann which allowed the Company to
make, use, and sell in the United States, without a potential patent
infringement claim from Hoffmann, (i) ALFERON N Injection for the treatment of
genital warts and (ii) injectable formulations of interferon alfa-n3 (which is
the same active ingredient contained in ALFERON N Injection), for the treatment
of patients with diseases which are refractory to recombinant interferon
therapy. Roche also has been issued patents covering human alpha interferon in
many countries throughout the world. As of March 31, 1995, the Company obtained
a non-exclusive license from Hoffmann and Roche (the "Hoffmann Agreement") which
grants the Company the worldwide rights to make, use, and sell, without a
potential patent infringement claim from Hoffmann or Roche, any formulation of
Natural Alpha Interferon. The Hoffmann Agreement permits the Company to grant
marketing rights with respect to Natural Alpha Interferon products to third
parties, except that the Company cannot grant marketing rights with respect to
injectable products in any country in which Hoffmann or Roche has patent rights
covered by the Hoffmann Agreement (the "Hoffmann Territory") to any third party
not listed on a schedule of approximately 50 potential marketing partners
without the consent of Hoffmann and Roche, which consent cannot be unreasonably
withheld. The Hoffmann Agreement will enable the Company, if it is successful in
obtaining necessary regulatory approvals, to expand the formulations of Natural
Alpha Interferon it makes, uses, and sells in the United States and the rest of
the world and to market its products for the treatment of additional
indications.
The Company has recently been issued a United States patent, comprised of
15 claims, for Natural Alpha Interferon. The two major claims are for (1) a
highly purified Natural Alpha Interferon composition produced from human
peripheral blood leukocytes and (2) an improved method to produce this
composition. The issuance of this patent gives the Company protection for the
manufacture, use, and sale of its Natural Alpha Interferon product in the United
States and prevents a competitor from producing and using equivalent products
derived from human peripheral blood leukocytes. See "Risk Factors -- Potential
Patent Infringement Claims," "Risk Factors -- Possible Inability to Protect
Technology," and "Business -- ALFERON N Injection -- Royalty Obligations."
Royalty Obligations. The Company is a party to certain license agreements
pursuant to which it is obligated to pay royalties based upon the commercial
exploitation of Natural Alpha Interferon products. Under the terms of the
Hoffmann Agreement, the Company is obligated to pay Hoffmann and Roche an
aggregate royalty on net sales (as defined) of Natural Alpha Interferon products
by the Company in an amount equal to (i) 8% of net sales in the Hoffmann
Territory, and 2% of net sales outside the Hoffmann Territory of products
manufactured in the Hoffmann Territory, up to $75,000,000 of net sales in any
calendar year and (ii) 9.5% of net sales in the Hoffmann Territory, and 2% of
net sales outside the Hoffmann Territory of products manufactured in the
Hoffmann Territory, in excess of $75,000,000 of net sales in any calendar year,
provided that the total royalty payable in any calendar year shall not exceed
$8,000,000. The Hoffmann Agreement can be terminated by the Company on 30 days'
notice with respect to the United States patent, any individual foreign patent,
or all patents owned by Hoffmann or Roche. If the Hoffmann Agreement is
terminated with respect to the patents owned by Hoffmann or Roche in a specified
country, such country is no longer included in the Hoffmann Territory. When the
Company received FDA approval for ALFERON N Injection for the treatment of
genital warts in 1989, the Company became obligated to issue shares of
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<PAGE> 44
Common Stock to Hoffmann as a prepaid royalty against future net sales by the
Company. Under the terms of the Hoffmann Agreement, certain payments previously
made to Hoffmann (including the value of the Common Stock previously issued to
Hoffmann) are available as offsets against 50% of the Company's future royalty
obligations to Hoffmann until the Company obtains an FDA approval to market
ALFERON N Injection for an indication other than genital warts. As of December
31, 1995, the Company had approximately $719,437 of credits available to offset
its future royalty obligations to Hoffmann.
Under the terms of the Purdue Marketing Agreements, the Company is
obligated to pay Mundipharma a royalty equal to 3% of the net sales of ALFERON N
Injection in the Returned Territories until Mundipharma has received royalty
payments equal to $3 million ($5 million under certain circumstances) and 1% of
the Company's net sales in the Returned Territories thereafter. The Purdue
Marketing Agreements will be terminated upon the sale of the minimum number of
shares of Common Stock in the Offering. See "Business -- ALFERON N
Injection -- Marketing and Distribution -- Agreements with Purdue."
In addition, the Company agreed to pay NPDC a royalty of $1 million in
connection with the acquisition of certain intellectual property and technology
rights from NPDC. Such amount is payable if and when the Company generates
income before taxes, limited to 25% of such income before income taxes per year
until the amount is paid in full. See "Risk Factors -- Royalty Obligations" and
"Certain Transactions -- Agreements with NPDC -- Transfer Agreement."
PRODUCTS UNDER DEVELOPMENT
ALFERON N Gel.
ALFERON N Gel is a topical Natural Alpha Interferon preparation which the
Company has developed and believes has potential in the treatment of cervical
dysplasia, vaginal human papilloma virus infection, recurrent genital herpes,
other viral diseases, and cancers.
Clinical Trials for ALFERON N Gel. The Company has completed one clinical
trial and plans to conduct various other clinical trials for its ALFERON N Gel
formulation to develop applications and obtain initial approvals for such
products.
Cervical Dysplasia. Affecting approximately 500,000 to one million women
each year in the United States alone, cervical dysplasia, or abnormal cervical
cells, has been identified as a potential precursor to cervical cancer. Cervical
cancer strikes approximately 13,000 women in the United States each year,
causing 5,000 deaths, and is responsible for more than half a million deaths
worldwide. Cervical dysplasia is caused by certain strains of the human
papilloma virus ("HPV"), the same family of viruses that causes genital warts.
The Company has completed a Phase 2 dose-ranging study using ALFERON N Gel at
the Columbia Presbyterian Medical Center in New York for the treatment of mild
cervical dysplasia. In this pilot study, patients were treated with either a
high or low dose of ALFERON N Gel, both of which were well-tolerated. From both
the high and low dose groups, cytological analyses of Pap smears, identification
tests for the presence of HPV, and cervical biopsies indicated that ALFERON N
Gel potentially improved the course of cervical dysplasia in the majority of
patients who completed the treatment course. Based upon these initial results, a
physician-sponsored study in HIV-infected women with cervical dysplasia has
opened for enrollment, as described below.
Cervical Dysplasia (in HIV-infected patients). Cervical dysplasia is
particularly difficult to treat in HIV-infected women. These women have a high
recurrence rate of cervical dysplasia even after initially successful surgical
treatment. As a result of the preliminary results in the initial cervical
dysplasia study described above, the investigator at Columbia-Presbyterian
Medical Center is conducting this physician-sponsored, multi-center study in
which ALFERON N Gel is being used as an adjuvant to surgical treatment in
HIV-infected women with mild and more severe forms of cervical dysplasia.
Other widespread dermatological lesions potentially treatable with ALFERON
N Gel therapy. Nearly 30 million people in the U.S. are infected with the
herpes simplex type II virus, which is the infectious virus that causes genital
herpes. Up to 500,000 new cases are reported each year, according to the Alan
Guttmacher Institute. To date, there is no cure for genital herpes. Preliminary
findings with a previous formulation of
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<PAGE> 45
recombinant interferon in the Company's proprietary gel showed significant
shortening of the contagious period and relief of symptoms, but the Company
anticipates that it will not start clinical trials unless additional funding
(from a source other than the Offering) or a sponsor is secured. ALFERON N Gel
may also be of benefit to immunocompromised patients with mucocutaneous herpes.
Patients with this form of herpes suffer from persistent skin lesions which have
become resistant to existing therapies. While this disease represents an
important potential target for ALFERON N Gel treatment, the Company anticipates
that additional studies will be dependent upon securing additional funding (from
a source other than the Offering) or a sponsor.
Competition. The Company believes that only one product presently sold in
the United States is indicated for the treatment of recurrent genital herpes.
This product, ZOVIRAX(R), produced by Glaxo Wellcome Inc., contains a drug
called acyclovir which is administered orally in either solution or capsule form
for the management of recurrent episodes of genital herpes. Two other ZOVIRAX(R)
formulations, one of which is an ointment and the other of which is an
intravenous product, also are sold by Glaxo Wellcome Inc. in the United States
for this use. The only currently acceptable standard treatments for cervical
dysplasia in the United States are surgical procedures.
ALFERON LDO.
ALFERON LDO is a low dose oral liquid Natural Alpha Interferon preparation.
In October 1989, the Company entered into an agreement (as amended, the "ACC
Agreement") with Amarillo Cell Culture Company, Incorporated ("ACC"), a
privately-held company located in Amarillo, Texas, engaged in the research and
development of animal health products. Under the terms of the ACC Agreement, the
Company has a non-exclusive license under all of ACC's issued patents, patent
applications, and "know-how" relating to the treatment of humans by the oral
administration of Natural Alpha Interferon in low doses. The Company will be
obligated to pay ACC royalties of 10% on the sales of Natural Alpha Interferon
products using ACC's patented technology as determined under the ACC Agreement.
In addition, ACC has the right to purchase the Company's Natural Alpha
Interferon for use in the animal health market and is obligated to pay royalties
to the Company based upon sales using the Company's Natural Alpha Interferon. In
April 1995, in connection with certain amendments to the ACC Agreement, ACC
agreed to purchase 312,500 shares of Common Stock at $2.00 per share and Pharma
Pacific Management Pty. Ltd. ("PPM"), a company which has also obtained a
license from ACC, agreed to purchase 62,500 shares of Common Stock at $2.00 per
share, all of which shares were purchased during the second quarter of 1995.
Clinical Trials for ALFERON LDO. The Company has conducted and plans to
conduct various clinical trials for its ALFERON LDO formulation to develop
applications and obtain initial approvals for such products.
HIV-infected patients. The Company has completed two studies at Mount
Sinai Medical Center in New York involving ALFERON LDO. One was a
placebo-controlled study in AIDS-related complex ("ARC") patients, and the other
was a dose ranging study in AIDS or ARC patients. The results from the
placebo-controlled study did not demonstrate a significant improvement or
alteration in the expected progression of the disease, although patients
receiving ALFERON LDO reported greater energy and appetite than those given the
placebo. Preliminary results from the dose ranging study indicate that one of
the doses may promote weight gain and an increase in energy.
At the insistence of AIDS groups and community-based physicians who had
been using low-dose formulations of interferon in their practice, the NIAID
agreed to launch a trial of low-dose oral interferon in the United States. An
advisory committee comprised of representatives from interferon manufacturers,
AIDS support groups, the FDA, and the National Institutes of Health was
organized to design a nationwide, controlled study. This study will investigate
the effect of a number of oral dosage forms of alpha interferon on several
quality-of-life parameters of importance to patients infected with HIV.
The Company has been active in helping plan this trial, and has agreed to
make clinical quantities of ALFERON LDO available for use in the study. An IND
for the study was submitted by the NIAID to the FDA in July 1995. The first
batch of clinical supplies for the study has been completed, and the study
opened for enrollment in April 1996.
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Competition. Under the terms of the ACC Agreement, (i) the Company has the
exclusive right to sell ALFERON LDO, containing Natural Alpha Interferon, in the
United States and all foreign countries other than Japan, (ii) ACC and PPM each
has the right to sell any interferon other than Natural Alpha Interferon in the
United States and all foreign countries other than Japan, and (iii) Hayashibara
Biochemical Laboratory has the exclusive right to sell its low dose alpha
interferon in Japan. Therefore, with respect to low dose oral interferon
products, the Company will potentially compete with ACC and PPM in the United
States and in the rest of the world except Japan.
ALFERON N Gel and ALFERON LDO.
Sales and Marketing Staff. The Company does not have a marketing or sales
staff nor does it have a marketing agreement with respect to ALFERON N Gel
(other than the Fujimoto Agreement) or ALFERON LDO and, if FDA marketing
approval of ALFERON N Gel or ALFERON LDO is obtained, no assurance can be given
that the Company will be able to enter into a marketing agreement for such
products on terms satisfactory to the Company. In February 1995, the Company
entered into the Fujimoto Agreement which, among other things, grants Fujimoto
the exclusive right to develop, distribute, and sell ALFERON N Gel in Japan. See
"Business -- ALFERON N Injection -- Other Marketing and Distribution
Agreements."
Patents and Licenses. The United States Patent and Trademark Office issued
two patents to the Company which disclose and claim topical interferon
preparations. The patents encompass interferon preparations for the topical
delivery of one or more interferons to the site of a disease which responds
therapeutically to interferon, and a system for delivering interferon topically
which prevents oxidation of the protein. The inventions specifically encompass
the topical treatment for treating viral diseases, such as herpes genitalis,
with alpha interferon. The Company has various other issued patents and patent
applications pending in the field of biotechnology, purification processes, and
therapeutics. See "Risk Factors -- Potential Patent Infringement Claims," "Risk
Factors -- Possible Inability to Protect Technology," and "Business -- ALFERON N
Injection -- Patents and Licenses."
Royalty Obligations. The Company is a party to certain license agreements,
including the Hoffmann Agreement, pursuant to which it is obligated to pay
royalties based upon commercial exploitation of ALFERON N Gel and ALFERON LDO.
Under the terms of such license agreements, the Company would pay royalties of
up to 13.5% and 19.5% of net sales of ALFERON N Gel and ALFERON LDO,
respectively. See "Risk Factors -- Royalty Obligations."
GOVERNMENTAL REGULATION
Regulations imposed by U.S. federal, state, and local authorities, as well
as their counterparts in other countries, are a significant factor in the
conduct of the research, development, manufacturing, and marketing activities
for present and proposed products developed by the Company.
The Company's or its licensees' potential products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human medical products are subject to rigorous pre-clinical and clinical testing
and other approval procedures by the FDA in the United States and similar health
authorities in foreign countries. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping, and marketing of such products, including the
use, manufacture, storage, handling, and disposal of hazardous materials and
certain waste products. The process of obtaining these approvals and the
subsequent compliance with applicable federal and foreign statutes and
regulations involves a time-consuming process and requires the expenditure of
substantial resources.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or impose costly procedures on the Company's activities, the result
of which may be to furnish an advantage to the Company's competitors. Any delay
in obtaining or failure to obtain such approvals would adversely affect the
marketing of the Company's products and the ability to earn product revenue.
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Before testing of any agents with potential therapeutic value in healthy
human test subjects or patients may begin, stringent government requirements for
pre-clinical data must be satisfied. These data, obtained from studies in
several animal species, as well as from laboratory studies, are submitted in an
IND or its equivalent in countries outside the U.S. where clinical studies are
to be conducted. If the necessary authorizations are received, the Company then
conducts clinical tests of its products on human beings at various unaffiliated
medical centers and institutions. Initial trials (Phase 1) are conducted on a
small number of volunteers to determine whether the drug is safe for human
beings. If the initial trials demonstrate the safety of the product, trials
(Phase 2) are then conducted on patients affected with the disease or condition
under investigation to establish the proper dose and dosing interval. The
findings of these trials are then used to design and implement large-scale
controlled trials (Phase 3) to provide statistical proof of effectiveness and
adequate evidence of safety to meet FDA and/or foreign approval requirements.
The FDA closely monitors the progress of each of the phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend, or terminate
the testing based on the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for completing clinical testing vary between four and ten years. Upon
successful completion of clinical testing of a new drug, a company typically
submits a New Drug Application ("NDA"), or for biological products such as
Natural Alpha Interferon, a Product and Establishment License Applications
("PLA/ELA") to the FDA summarizing the results and observations of the drugs
during the clinical trials.
Each facility in which products are produced and packaged, whether operated
by the Company or a third party, must meet the FDA's standards for current good
manufacturing practices and must also be approved prior to marketing any product
produced or packaged in such facility. Any significant change in the production
process which may be commercially required, including changes in sources of
certain raw materials, or any change in the location of the production
facilities will also require FDA approval. To the extent a portion of the
manufacturing process for a product is handled by an entity other than the
Company, the Company must similarly receive FDA approval for the other entity's
participation in the manufacturing process. The Company has entered into an
agreement with Sanofi, pursuant to which Sanofi formulates and packages ALFERON
N Injection. The Company presently has a biologic establishment license for the
facilities in which it produces ALFERON N Injection, which includes the
facilities in which Sanofi formulates and packages ALFERON N Injection. In
addition, FDA approval would have to be obtained if the Company should choose to
use an outside formulator and/or packager for ALFERON N Gel or ALFERON LDO.
Once the manufacture and sale of a product is approved, various FDA
regulations govern the production processes and marketing activities of such
product. A post-marketing testing, surveillance, and reporting program may be
required to monitor the product's usage and effects. Product approvals may be
withdrawn, or other actions may be ordered, if compliance with regulatory
standards is not maintained.
Each individual lot of Natural Alpha Interferon produced must be tested for
compliance with specifications and released for sale by the FDA prior to
distribution in the marketplace. Even after initial FDA marketing approval for a
product has been granted, further studies may be required to provide additional
data on safety or efficacy; to obtain approval for marketing a product as a
treatment for specific diseases other than those for which the product was
originally approved; to change the dosage levels of a product; to support new
safety or efficacy claims for the product; or to support changes in
manufacturing methods, facilities, sources of raw materials, or packaging.
In many markets, effective commercialization also requires inclusion of the
product in national, state, provincial, or institutional formularies or cost
reimbursement systems. The impact of new or changed laws or regulations cannot
be predicted with any accuracy. The Company uses its own staff of regulatory
affairs professionals and outside consultants to enable it to monitor
compliance, not only with FDA laws and regulations, but also with state and
foreign government laws and regulations. See "Risk Factors -- Regulatory
Approvals."
Promotional and educational communications by the Company and its
distributors also are regulated by the FDA and are governed by statutory and
regulatory restrictions and FDA policies regarding the type and extent of data
necessary to support claims that may be made. The Company currently does not
have data
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<PAGE> 48
adequate to satisfy FDA requirements with respect to potential comparative
claims between Natural Alpha Interferon and competing recombinant interferon
products.
For marketing outside the United States, the Company will also be subject
to foreign regulatory requirements governing human clinical trials,
manufacturing, and marketing approval for drugs and other medical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary widely from country to country. In addition,
under certain circumstances, the Company may be required to obtain FDA
authorization to export products for sale in foreign countries. For instance, in
most cases, the Company may not export products that have not been approved by
the FDA unless it first obtains an export permit from the FDA. However, these
FDA export restrictions generally do not apply if the Company's products are
exported in conformance with their United States approvals or are manufactured
outside the United States. At the present time, the Company does not have any
foreign manufacturing facilities. See "Risk Factors -- Foreign Regulatory
Approvals" and "Risk Factors -- Uncertainty of Pharmaceutical Pricing and
Related Matters; Need for Reimbursement."
RESEARCH STAFF AND EMPLOYEES
As of April 1, 1996, the Company had approximately 69 full-time employees,
of whom approximately 12 hold Ph.D. degrees and 35 hold other degrees in
scientific or technical fields. Of such employees, approximately 18 were engaged
in research and product development, 21 were engaged in manufacturing and
quality control, and the remainder were general and administrative personnel.
Certain direct and indirect management services are provided to the Company by
employees of NPDC and its other subsidiaries pursuant to a Management Agreement
(the "Management Agreement") at a cost to the Company of $120,000 per annum. In
addition, beginning in 1996, certain services, such as legal, maintenance,
shipping and receiving, purchasing, secretarial work, informational retrieval,
and regulatory compliance, are provided by approximately 12 employees of the
Company to NPDC on an "as used" basis at the Company's approximate cost. See
"Certain Transactions -- Agreements with NPDC -- Management Agreement."
RESEARCH AND DEVELOPMENT
During the fiscal years ended December 31, 1995, 1994, and 1993, the
Company expended approximately $3.7 million, $5.2 million, and $4.2 million,
respectively for research and development. Substantially all of these
expenditures were for Company-sponsored research and development programs.
PROPERTIES
The Company's executive offices and its research and production facilities
are located at 783 Jersey Avenue, New Brunswick, New Jersey 08901, and its
telephone number is (908) 249-3250. The Company also maintains offices at 9 West
57th Street, New York, New York 10019, the cost of which is included in the
Management Agreement.
The Company owns two free standing buildings comprising approximately
44,000 square feet located in New Brunswick, New Jersey. The Company occupies
approximately 25,000 square feet for staff offices, for the production and
purification of interferon, for quality control and research activities, and for
the storage of raw, in process, and finished materials. The Company also shares
approximately 9,000 square feet with NPDC and leases approximately 10,000 feet
to NPDC. The Company believes that its current facilities are (i) suitable and
adequate for research and development and commercial production of purified
interferon, (ii) well maintained, and (iii) in good condition. Substantially all
equipment owned by the Company has been acquired over the past ten years and is
in good working condition.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
As of April 1, 1996, the directors and officers of the Company and their
ages and positions are as set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- ------------------------------------------------------
<S> <C> <C>
Martin M. Pollak(1)(2)(3)........... 68 Chairman of the Board
Jerome I. Feldman(1)(2)(3).......... 67 Chairman of the Board's Executive Committee,
Treasurer, and a Director
Samuel H. Ronel, Ph.D............... 59 Vice Chairman
Lawrence M. Gordon.................. 42 Chief Executive Officer and a Director
Stanley G. Schutzbank, Ph.D......... 50 President and a Director
Leon Botstein, Ph.D................. 47 Director
Sheldon L. Glashow, Ph.D(4)......... 63 Director
Scott N. Greenberg.................. 39 Director
Roald Hoffmann, Ph.D.(4)............ 57 Director
Ogden R. Reid(1)(3)(4).............. 70 Director
Donald W. Anderson.................. 46 Controller (Principal Accounting and Financial
Officer) and Secretary
Drew Stoudt......................... 48 Vice President, Regulatory Affairs and Quality
Mei-June Liao, Ph.D................. 45 Vice President, Research and Development
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of Stock Option Committee.
(4) Member of the Audit Committee.
All directors are serving a current term of office which continues until
the next annual meeting of stockholders, and all officers are serving a current
term of office which continues until the next annual meeting of directors.
Martin M. Pollak has been Chairman of the Board since 1981. He is a founder
of NPDC (a holding company) and has been Executive Vice President, Treasurer,
and a director of NPDC since 1959. Mr. Pollak is Chief Executive Officer,
President, and a director of American Drug Company ("ADC"), a subsidiary of NPDC
which markets American-made generic pharmaceutical products in Russia. He has
been Chairman of the Board of General Physics Corporation ("GPC"), a subsidiary
of NPDC which provides engineering, environmental training, and technical
support services to commercial nuclear and fossil power utilities and to the
United States Departments of Defense and Energy, since 1988, and a director
since 1987; Chairman of the Executive Committee of GTS Duratek, Inc.
("Duratek"), a company which provides waste treatment solutions for radioactive,
hazardous, mixed, and other wastes, from 1985 to January 1995 and a director
since 1982; Chairman of the Board and a director of SGLG, Inc. ("SGLG"), a
subsidiary of NPDC, which is a holding company with a 19% interest in GSE
Systems, Inc. ("GSE"), a software simulator company, since May 1991; and a
director of GSE since 1994. Mr. Pollak is Chairman of the Czech and Slovak
United States Economic Council, a trustee of the Board of Trustees of the
Worcester Foundation for Experimental Biology and a director of Brandon Systems
Corporation, a personnel recruiting company, since 1986.
Jerome I. Feldman has been Chairman of the Board's Executive Committee and
a director of the Company since 1981. He has also been the Treasurer of the
Company since 1984. Mr. Feldman is a founder of, and since 1959 has been
President, Chief Executive Officer, and a director of, NPDC. Mr. Feldman is
Chairman of the Board of and a consultant to ADC. He has been Chairman of the
Executive Committee of GPC since 1988 and a director of GPC since 1987; Chairman
of the Board of Duratek from 1985 to January 1995 and a director since 1982 and
Chairman of the Executive Committee and a director of SGLG since May 1991; and a
director of GSE since 1994. He has been a director of Hamilton Financial
Services, Inc., a financial service company, since 1983. He is a trustee of the
New England Colleges Fund and of Bard College.
Samuel H. Ronel, Ph.D. has been Vice Chairman of the Board since January
1996 and was President, Chief Executive Officer, and a director of the Company
from 1981 to January 1996. He was responsible for
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the interferon research and development program since its inception in 1979. Dr.
Ronel joined NPDC in 1970 and has served as the Vice President of Research and
Development of NPDC since 1976 and as the President of Hydro Med Sciences, a
division of NPDC, since 1976. Dr. Ronel served as President of the Association
of Biotechnology Companies, an international organization representing United
States and foreign biotechnology firms, from 1986-88 and has served as a member
of its Board of Directors until 1993. Dr. Ronel was elected to the Board of
Directors of The Biotechnology Industry Organization in 1993.
Lawrence M. Gordon has been Chief Executive Officer and a director of the
Company since January 1996, Vice President of the Company from June 1991 to
January 1996, General Counsel of the Company from 1984 to January 1996, General
Counsel of NPDC since November 1986, and Vice President of NPDC since June 1991.
He was Associate General Counsel of NPDC from 1983 through November 1986. Mr.
Gordon has been a director of GPC since October 1994.
Stanley G. Schutzbank, Ph.D. has been President of the Company since
January 1996, Executive Vice President of the Company from 1981 to January 1996,
and a director of the Company since 1981 and has been associated with the
interferon research and development program since its inception in 1979. He is
involved with all facets of administration and planning of the Company and has
coordinated compliance with FDA regulations governing manufacturing and clinical
testing of interferon, leading to the approval of ALFERON N Injection in 1989.
Dr. Schutzbank joined NPDC in 1972 and has served as the Corporate Director of
Regulatory and Clinical Affairs of NPDC since 1976 and as Executive Vice
President of Hydro Med Sciences since 1982. Dr. Schutzbank is a member of the
Regulatory Affairs Professionals Society and has served as Chairman of the
Regulatory Affairs Certification Board from its inception until 1994. Dr.
Schutzbank received the 1991 Richard E. Greco Regulatory Affairs Professional of
the Year Award for his leadership in developing the United States Regulatory
Affairs Certification Program. In September 1995, Dr. Schutzbank was elected to
serve as President-elect in 1996, President in 1997, and Chairman of the Board
in 1998 of the Regulatory Affairs Professionals Society.
Leon Botstein, Ph.D. has been a director of the Company since 1981 and has
been the President of Bard Dr. Botstein has been a director of Intelogic Trace,
Inc., a computer maintenance and support service company since 1985.College,
Annandale-on Hudson, New York since 1975.
Sheldon L. Glashow, Ph.D. has been a director of the Company since October
1991. He has been a director of GPC since January 1987, a director of GSE since
August 1995, a director of CalCol, Inc., a pharmaceutical company, since 1994,
and was a director of Duratek from 1985 to January 1995. Dr. Glashow is the
Higgins Professor of Physics of Harvard University and was a Distinguished
Professor and Visiting Professor of Physics at Boston University. In 1971, he
received the Nobel Prize in Physics.
Scott N. Greenberg has been a director of the Company since January 1996,
Vice President, Chief Financial Officer, and a director of NPDC since 1989, a
director of GPC since 1987, a director of SGLG since 1991, and chief financial
officer of ADC since January 1994.
Roald Hoffmann, Ph.D. has been a director of the Company since 1991 and a
director of NPDC since 1988. Dr. Hoffmann has been the John A. Newman Professor
of Physical Science at Cornell University since 1974 and is a member of the
National Academy of Sciences and the American Academy of Arts and Sciences. In
1981 he shared the Nobel Prize in Chemistry with Dr. Kenichi Fukui.
Ogden R. Reid has been a director of the Company since 1982, a director of
NPDC since 1979, a director of GPC since January 1988, and Vice Chairman of the
Board of GPC since 1992. He was Vice Chairman and a director of Duratek from
1991 to January 1995. He has also been a director of Royce Laboratories, Inc., a
generic drug company, since 1995. Mr. Reid was Editor and Publisher of the New
York Herald Tribune and of its International Edition, United States Ambassador
to Israel, a six-term member of the United States Congress and a New York State
Environmental Commissioner.
Donald W. Anderson has been the Controller of the Company since 1981 and
Corporate Secretary of the Company since 1988. He has been an officer of various
subsidiaries of NPDC since 1976.
Drew Stoudt has been Vice President, Regulatory Affairs and Quality of the
Company since March 1991. He was Vice President, Quality Assurance and Quality
Control from February 1990 to March 1991.
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<PAGE> 51
Mr. Stoudt has served as Director of Quality Assurance for the Company and other
divisions of NPDC from 1985 to 1990.
Mei-June Liao, Ph.D., has been Vice President, Research and Development of
the Company since March 1995. She has served as a Director, Research &
Development since 1987, and held senior positions in the Company's Research &
Development Department since 1983. Dr. Liao received her Ph.D. from Yale
University and completed a three-year post doctoral appointment at the
Massachusetts Institute of Technology under the direction of Nobel Laureate in
Medicine, Professor H. Gobind Khorana. Dr. Liao has authored many scientific
publications and invention disclosures.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of the Common Stock
beneficially owned as of April 1, 1996, by each person who is known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS(1)
- ----------------------------------------------------------- ------------------ -----------
<S> <C> <C>
National Patent Development Corporation.................... 7,475,148(2) 21.7%
Martin M. Pollak........................................... 7,967,648(2)(3) 22.8%
Jerome I. Feldman.......................................... 7,981,598(2)(4) 22.8%
David Blech................................................ 800,000(5) 2.3%
Nicholas L. Madonia, Trustee............................... 2,287,500(6)(7) 6.6%
Mordechai Jofen, Trustee................................... 240,834(8) 0.7%
Biotechnology Investment Group, L.L.C...................... 2,710,834(9) 7.9%
</TABLE>
- ---------------
(1) The percentage of class calculation assumes for each beneficial owner that
all of the options or warrants are exercised in full only by the named
beneficial owner and that no other options or warrants are deemed to be
exercised by any other stockholders.
(2) Includes (i) 5,300,148 shares of Common Stock owned by NPDC, (ii) 1,359,375
shares of Common Stock owned by Five Star Group, Inc. ("FSGI"), and (iii)
815,625 shares of Common Stock owned by MXL Industries, Inc. ("MXL"). Each
of FSGI and MXL is a wholly-owned subsidiary of NPDC. Based upon the common
stock and Class B Stock of NPDC outstanding at April 1, 1996, Martin M.
Pollak and Jerome I. Feldman, officers and directors of NPDC, and directors
of the Company, controlled in the aggregate approximately 10.2% of the
voting power of all voting securities of NPDC. This percentage for Mr.
Pollak and Mr. Feldman would increase to approximately 45.8% if they
exercised all of the presently outstanding and currently exercisable stock
options to purchase shares of the common stock and Class B Stock of NPDC
held by them. Accordingly, Messrs. Pollak and Feldman, through their
ownership of NPDC common stock, may be deemed to beneficially own the
shares of Common Stock beneficially owned by NPDC, FSGI, and MXL. However,
Messrs. Pollak and Feldman disclaim beneficial ownership of such 7,475,148
shares. 6,975,148 of the shares of Common Stock owned by NPDC, FSGI, and
MXL have been pledged to a bank as collateral to secure indebtedness owed
to such bank. The address of NPDC and Messrs. Pollak and Feldman is 9 West
57th Street, Suite 4170, New York, New York 10019.
(3) Includes (i) 7,475,148 shares of Common Stock beneficially owned by NPDC,
(ii) 1,000 shares of Common Stock held by Mr. Pollak's wife, and (iii)
480,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options held by Mr. Pollak. Mr. Pollak disclaims
beneficial ownership of the shares of Common Stock owned by NPDC and his
wife.
(4) Includes (i) 7,475,148 shares of Common Stock beneficially owned by NPDC,
(ii) 2,950 shares of Common Stock held by certain members of Mr. Feldman's
family, and (iii) 480,000 shares of Common Stock issuable upon exercise of
currently exercisable stock options held by Mr. Feldman. Mr. Feldman
disclaims beneficial ownership of the shares of Common Stock owned by NPDC
and his family.
(5) Excludes (i) 1,130,000 shares of Common Stock held by Freedom Charitable
Remainder Trust ("Freedom") of which David Blech is the income beneficiary
but not the trustee, (ii) 480,000 shares of Common Stock held by Frontier
Charitable Remainder Trust ("Frontier") of which David Blech is the income
beneficiary but not the trustee, (iii) 430,000 shares of Common Stock held
by Sentinel Charitable Remainder Trust ("Sentinel") of which David Blech is
the income beneficiary but not the trustee, (iv) 247,500 shares of Common
Stock held by the Blech Family Trust ("Blech Family Trust") of which David
Blech is the income beneficiary but not the trustee, and (v) 240,834 shares
of Common Stock held by the Edward A. Blech Charitable Remainder Trust
("Edward Blech Trust") of which David Blech is the income beneficiary but
not the trustee. Mr. Blech disclaims beneficial ownership of the shares of
Common Stock held by Freedom, Frontier, Sentinel, Blech Family Trust, and
Edward Blech Trust. Mr. Blech's address is 225 Lafayette Street, Suite
1206, New York, New York 10012.
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<PAGE> 53
(6) Based, in part, on a Schedule 13D filed by the beneficial owner with the
Commission.
(7) Includes 1,130,000 shares of Common Stock held by Freedom, 480,000 shares
of Common Stock held by Frontier, 430,000 shares of Common Stock held by
Sentinel, and 247,500 held by Blech Family Trust, of which trusts Mr. Blech
is the income beneficiary but not the trustee. As sole trustee of each of
the trusts, Mr. Madonia has the right to vote and dispose of the shares
held by such trusts. Mr. Blech disclaims beneficial ownership of such
shares of Common Stock. Mr. Madonia's address is c/o Madonia, Pilles & Co.,
P.A., 30 Outwater Lane, Garfield, New Jersey 07026.
(8) Includes 240,834 shares of Common Stock held by Edward Blech Trust. As sole
trustee of such trust, Mr. Jofen has the right to vote and dispose of the
shares held by such trust. Mr. Blech disclaims the beneficial ownership of
such shares of Common Stock. Mr. Jofen's address is 418 Avenue I, Brooklyn,
New York 11231.
(9) The members of Biotechnology Investment Group, L.L.C. ("BIG"), which is a
limited liability company, are: Collinson Howe Venture Partners, Inc.
(formerly known as Schroder Venture Advisers, Inc.) (Jeffrey J. Collinson
is its president and its sole director and majority owner); Mordechai
Jofen, 418 Avenue I, Brooklyn, New York 11231, as trustee of the Edward
Blech Trust; and Wilmington Trust Company, 1100 N. Market Street,
Wilmington, Delaware 19890, as voting trustee. Such persons may have shared
voting and dispositive power over these shares. All of the shares of Common
Stock owned by BIG have been pledged to Citibank, N.A. as collateral to
secure indebtedness owed to such bank. The address of BIG is 1055
Washington Blvd. Stamford, CT 06901.
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<PAGE> 54
CERTAIN TRANSACTIONS
AGREEMENTS WITH NPDC
Transfer Agreement. As of January 1, 1981, NPDC entered into an agreement
(the "Transfer Agreement") with the Company pursuant to which NPDC (i) licensed
to the Company in perpetuity all of its right, title and interest in and to
certain intellectual property and technology rights (the "Intangible Assets")
relating to its programs in human leukocyte interferon and recombinant DNA and
hybridoma technology and (ii) transferred to the Company its rights under
certain consulting, supply, and research agreements (the "Agreements"). In
consideration of the license and transfer of the Intangible Assets and the
Agreements, the Transfer Agreement provides that the Company will pay to NPDC a
royalty of $1,000,000. Such amount is payable if and when the Company generates
income before income taxes, and is limited to 25% of such income before taxes
per year until the amount is paid in full. See "Risk Factors -- Royalty
Obligations."
Management Agreement. As of January 1, 1981, NPDC entered into the
Management Agreement with the Company pursuant to which certain legal,
financial, and administrative services have been provided by employees of NPDC.
The fee for such services is $120,000 per annum. In addition, the Management
Agreement provided that certain other services provided by NPDC's employees,
such as maintenance, shipping and receiving, purchasing, secretarial work,
information retrieval, and regulatory compliance, would be paid for by the
Company on an "as used" basis at NPDC's approximate cost. During 1995, NPDC
charged $1,121,145 to the Company for such other services. Commencing January 1,
1996, the Management Agreement was amended to provide that such other services
will be provided by employees of the Company to NPDC on an "as used" basis at
the Company's approximate cost. The Company is also covered under certain of
NPDC's insurance policies and pays its proportionate share of insurance costs.
Lease Agreement. The Company owns two free standing buildings aggregating
approximately 44,000 square feet located in New Brunswick, New Jersey. The
Company and NPDC have entered into an agreement for the sharing of the office,
warehouse, and laboratory facility. The Company occupies approximately 25,000
square feet, shares approximately 9,000 square feet with NPDC, and leases
approximately 10,000 square feet of space to NPDC at such location. During 1995,
NPDC paid the Company as rent NPDC's proportionate share of such occupancy costs
(based on both square feet occupied and number of personnel), which amounted to
$181,992.
While the above-described agreements were negotiated with a principal
stockholder of the Company which was then its parent, the Company nevertheless
believes that such agreements are equivalent economically to arms-length
transactions with a third party.
AGREEMENTS WITH DAVID BLECH AND RELATED PARTIES
On May 28, 1993, David Blech, the Chief Executive Officer, sole
shareholder, and a director of D. Blech & Company, Incorporated ("DBC"), and the
Company entered into a Purchase Agreement (the "Purchase Agreement"), pursuant
to which Mr. Blech or his designees purchased for $4.00 per unit, an aggregate
of 2,500,000 units ("Units"), each Unit consisting of two shares of the
Company's Common Stock, one Class A Warrant (the "Class A Warrants") to purchase
one share of Common Stock at an exercise price of $3.25 per share, and one Class
B Warrant (the "Class B Warrants") to purchase one share of Common Stock at an
exercise price of $5.00 per share. The Class A Warrants and the Class B Warrants
expire on August 31, 2000. The following acquisitions were made in installments
pursuant to the Purchase Agreement: (i) two charitable remainder trusts, of
which Mr. Blech is the income beneficiary but not the trustee, purchased an
aggregate of 1,050,000 Units, (ii) Mr. Blech purchased 1,187,500 Units, (iii)
Mark S. Germain, a Managing Director of DBC, purchased 250,000 Units, and (iv)
an unaffiliated purchaser purchased 12,500 Units. The purchasers have certain
demand registration rights as to the securities acquired by them under the
Purchase Agreement. Under the Purchase Agreement, Mr. Blech had the right (which
was never exercised) to cause the Company to nominate two designees of Mr. Blech
(the "Blech Nominees") to the Board of Directors of the Company as long as Mr.
Blech and the other purchasers under the Purchase Agreement beneficially owned,
in the aggregate, at least 2,000,000 shares of Common Stock. In 1993, the
Company paid DBC a $500,000 fee for its services in connection with the Purchase
Agreement.
Pursuant to the Purchase Agreement, a 10-year Voting Agreement (the "Voting
Agreement") among David Blech, NPDC, FSGI, and MXL became effective as of May
28, 1993 pursuant to which NPDC, FSGI,
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<PAGE> 55
and MXL agreed to (a) vote all their shares of Common Stock for the election of
the Blech Nominees as directors of the Company unless Mr. Blech and the other
purchasers under the Purchase Agreement dispose of more than 1,000,000 shares of
Common Stock and (b) restrict transfer of the Common Stock held by them for one
year, subject to certain exceptions. Pursuant to the Voting Agreement, Mr. Blech
and the other purchasers under the Purchase Agreement agreed to vote for the
election of two nominees of NPDC as directors of the Company unless NPDC, MXL
and FSGI disposed of any shares of Common Stock (other than up to 2,000,000
shares disposed of in exchange for debt obligations of NPDC, MXL, or FSGI).
Concurrently with the execution of the Purchase Agreement, the Company entered
into a consulting agreement with DBC under which the Company agreed to pay
$100,000 per year, payable monthly, to DBC for advisory services with respect to
the Company's field of interest and business, strategic, and commercial matters
related to the biotechnology industry. The term of the consulting agreement was
for one year commencing on June 1, 1993, and was renewed on the same terms for
an additional one-year period which expired on June 1, 1995. David Blech and the
Company were unaffiliated prior to the transactions described above, which were
negotiated on an arm's-length basis.
On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of the Company's Common Stock to be managed
by DBC as underwriter. On September 22, 1994, DBC could not meet certain minimum
capital requirements and was forced to discontinue its operations. Consequently,
the Company had to cancel the proposed public offering of Common Stock.
On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with Mr. Blech and certain other parties pursuant to which Sentinel
Charitable Remainder Trust, a trust of which Mr. Blech is the income beneficiary
but not the trustee, purchased 430,000 shares of Common Stock for $1 per share
or an aggregate purchase price of $430,000. The purchase price was negotiated on
an arms-length basis and the shares were sold at a discount to market value as a
result of the Company's need for additional working capital. In addition,
pursuant to such agreement, David Blech and certain other parties agreed to
exchange 2,250,000 Class A Warrants and 2,250,000 Class B Warrants for 900,000
shares of Common Stock. The issuance and exchange of the shares of Common Stock
pursuant to the Purchase and Exchange Agreement were completed in April 1995. In
connection with and in consideration for the Purchase and Exchange Agreement
described above, Mr. Blech and certain other parties and the Company entered
into an agreement (i) terminating and cancelling the Voting Agreement discussed
above, (ii) deleting in its entirety a provision of the Purchase Agreement with
respect to conflicting "piggyback" registration rights, and (iii) deleting in
its entirety the provision of the Purchase Agreement with respect to Board
representation and nomination rights of the Blech Designees.
OTHER TRANSACTIONS
On May 3, 1995, NPDC, BIG, and Edward Blech Trust committed to loan the
Company $600,000, $220,000, and $100,000, respectively. All of such loans were
made by July 6, 1995. Such loans bore interest at prime plus 2% and matured on
the earlier of (i) the first date that the Company receives gross proceeds of at
least $7,500,000 from a public offering (the "Public Offering") of Common Stock
and (ii) November 2, 1995. If the indebtedness matured as a result of a Public
Offering, repayment of principal of the indebtedness was permitted to be made,
at the option of the Company, by delivery of shares of Common Stock valued at
the public offering price per share in the Public Offering. On July 17, 1995,
NPDC and BIG loaned the Company an additional $500,000 and $150,000,
respectively, and between July 17 and August 22, 1995 NPDC loaned the Company an
additional $300,000 on the same terms as the terms of the earlier loans except
that the Company did not have the option to repay the principal of such
additional indebtedness by delivery of shares of Common Stock. All such
indebtedness was repaid out of the proceeds of the August/September Offering.
NPDC, BIG, and Edward Blech Trust used a portion of such funds to purchase
500,000, 183,334, and 83,334 shares of Common Stock, respectively, in the
August/September Offering.
The Company has forgiven a $150,000 loan to Lawrence M. Gordon, Chief
Executive Officer and a director of the Company, and also has forgiven $18,000
of accrued interest on such loan. Such loan had been due July 9, 1997 and bore
interest at a rate of 6% per annum.
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UNDERWRITING
The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with Sunrise Securities Corp. to serve as the Underwriter in
connection with the Offering. Pursuant to the Underwriting Agreement, the
Company has retained the Underwriter to conduct, as its exclusive agent, an
offering of shares of its Common Stock on a 5,000,000 share minimum, 8,000,000
share maximum, "best efforts" basis, for a period terminating 30 days from the
date hereof, unless extended for up to 30 additional days by the Underwriter.
The Company's officers, directors, employees, and principal stockholders may
purchase shares of Common Stock in the Offering, but any such purchases will not
be used to satisfy the 5,000,000 share minimum. Payments shall be made by wire
transfer to Bank of Montreal Trust Company, as escrow agent (the "Escrow
Agent"), pursuant to an escrow agreement entered into by the Company, the
Underwriter, and the Escrow Agent. If at least 5,000,000 shares offered hereby
are sold within the initial 30 day period (or extended period), all funds
received, less the Underwriter's discounts and commissions and expense
allowance, will be delivered to the Company and certificates representing the
shares purchased will be delivered promptly to or for the account of
subscribers. In the event that the minimum number of shares is not sold within
the designated period, all funds will be returned to subscribers without any
deduction therefrom or interest thereon. Until such time as funds have been
released from escrow and the securities delivered to the purchasers thereof,
such purchasers will be deemed subscribers and not security holders.
The Company and the Underwriter shall have an initial closing once at least
5,000,000 shares (and up to the maximum number of shares) have been sold in
order to disburse the proceeds therefrom. Once such shares are sold, the
Offering shall continue either until the Company and the Underwriter agree to
terminate the Offering or until up to the maximum of 8,000,000 shares are sold
or until the Offering period terminates. If any additional shares are sold after
the initial closing, there shall be subsequent closings to disburse the
additional funds received.
The public offering price for the Common Stock has been determined by
negotiation between the Company and the Underwriter. Among the factors
considered in determining the public offering price were the Company's results
of operations, current financial condition, and future prospects, the state of
the markets for its products, the experience of its management, the economics of
its industry in general, the market price and trading history of the Common
Stock, the general condition of the equity securities markets, and the demand
for similar securities of companies considered comparable to the Company.
The Underwriter has advised the Company that it proposes to offer the
shares to the public at the public offering price set forth on the cover page of
this Prospectus.
The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 1.5% of the gross proceeds of the Offering.
The Company also has agreed to sell to the Underwriter or its designees,
options to purchase a number of shares of Common Stock equal to 10% of the
number of shares of Common Stock sold in the Offering at a price of $.001 per
option. The Underwriter's Purchase Options will be exercisable for a period of
four years, commencing one year after the date hereof, at an initial exercise
price per share equal to 120% of the public offering price per share. The
Underwriter's Purchase Options cannot be sold, transferred, assigned, or
hypothecated for one year from the date of their issuance, except that they may
be assigned, in whole or in part, to any successor, officer or partner of the
Underwriter.
The exercise price of, and the number of shares of Common Stock underlying,
the Underwriter's Purchase Options are subject to adjustment in the event of
stock splits, stock dividends, or other similar events. In the event of any
reclassification or other similar change of outstanding Common Stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification or other similar change in
the outstanding Common Stock), or a sale, lease, or conveyance to another
corporation of the property of the Company as, or substantially as, an entirety,
the Underwriter's Purchase Options will thereupon become exercisable only for
the kind and number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares of Common Stock issuable (at the time of
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such reclassification, consolidation, merger, or sale) upon exercise of the
Underwriter's Purchase Options would have been entitled upon such
reclassification, consolidation, merger, or sale.
The holder of the Underwriter's Purchase Options has the right, in lieu of
payment in cash of the exercise price, to surrender all or part of the
Underwriter's Purchase Options in exchange for a number of shares of Common
Stock equal to the value of the Underwriter's Purchase Options being surrendered
(determined by subtracting the aggregate exercise price of the Underwriter's
Purchase Options being surrendered from the Current Market Value (as defined) of
the shares of Common Stock issuable upon exercise of the Underwriter's Purchase
Options being surrendered) divided by the Current Market Price of one share of
Common Stock.
The Company has agreed that it will, on any two occasions during the
five-year period commencing on the date hereof, register the sale of the shares
of Common Stock underlying the Underwriter's Purchase Options at the request of
the holders of a majority of the shares of Common Stock issued or issuable upon
exercise of the Underwriter's Purchase Options. The Company also has agreed,
during the seven-year period commencing from the date hereof, to register on a
"piggyback" basis, on an unlimited number of occasions, such securities whenever
the Company files a registration statement. The Company will bear the expenses
of such registrations, except for any underwriting discounts and commissions and
fees and disbursements of counsel to the holders, and except that the holders
will bear the expenses of the second demand registration.
For the life of the Underwriter's Purchase Options, the holders are given,
at nominal cost, the opportunity to profit if the price of the Common Stock in
the public market exceeds the exercise price of the Underwriter's Purchase
Options, without assuming the risks or benefits of ownership, with a resulting
dilution in the interest of other security holders. If the public price of the
Common Stock does not rise above the exercise price of the Underwriter's
Purchase Options during the exercise period, then such Options will expire
worthless. As long as the Underwriter's Purchase Options remain unexercised, the
terms under which the Company could obtain additional capital may be adversely
affected. Moreover, the holders of the Underwriter's Purchase Options might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain capital by a new offering of its securities on terms more
favorable than those provided by the Underwriter's Purchase Options.
The Underwriter was registered as a broker-dealer and became a member of
the NASD in 1992 and has limited experience in public offerings as an
underwriter, though it has acted as syndicate member, sole placement agent,
co-placement agent, selected dealer, or sole participating broker in more than a
dozen public or private offerings.
On May 10, 1995, the Underwriter was retained by the Company to introduce
the Company to a specified pharmaceutical company. The engagement expired
without any compensation being payable to the Underwriter.
In August and September 1995, the Company completed the August/September
Offering, in which 12,000,000 shares of Common Stock were sold for an aggregate
of $14,400,000 (or $1.20 per share) in a best efforts public offering
underwritten by the Underwriter. In addition to the cash compensation payable to
the Underwriter for its services as underwriter of the August/September
Offering, the Underwriter and its designees also received underwriter's purchase
options exercisable for 1,123,333 shares of Common Stock at a price of $1.86 per
share.
In connection with the August/September Offering, the Company, for a period
of 12 months; the Company's directors and senior officers (who own in the
aggregate 16,600 shares of Common Stock and options and warrants to purchase
1,804,000 shares of common Stock), for a period of 12 months; the Company's
other officers (who own in the aggregate 1,500 shares of Common Stock and
options and warrants to purchase 382,000 shares of Common Stock), for a period
of six months; and the Company's principal stockholders (who own in the
aggregate 13,514,316 shares of Common Stock and no options and warrants to
purchase shares of Common Stock), for a period of 24 months (except that each
such principal stockholder will be permitted to sell not more than 12.9% of its
shares of Common Stock during the second 12 month period), have agreed (subject
to certain exceptions) not to sell, directly or indirectly, any of their shares
of Common Stock or other equity securities of the Company, without the consent
of Sunrise and the Company.
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All such periods commenced on August 14, 1995, and the agreements not to sell of
the Company's other officers lapsed on February 14, 1996. In addition, certain
of such principal stockholders have pledged an aggregate of 9,685,982 shares of
Common Stock beneficially owned by them to their respective banks as collateral
to secure indebtedness owed to such banks. Any shares acquired by lenders
pursuant to such pledge arrangements would not be subject to any agreements not
to sell. Moreover, the Company and Sunrise may, in their sole discretion and any
time without notice, release all or any portion of the securities subject to
agreements not to sell.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 55,000,000 shares of Common Stock. As of
April 1, 1996, 34,448,768 shares of Common Stock were outstanding. In addition,
5,281,624 shares of Common Stock were reserved for issuance upon exercise of
outstanding warrants and options. If the maximum number of shares of Common
Stock are sold in the Offering, 42,448,768 shares of Common Stock will be
outstanding and 6,081,624 shares of Common Stock (plus such number of shares as
may become issuable as a result of antidilution adjustments) will be reserved
for issuance upon exercise of outstanding warrants and options.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters requiring a vote of stockholders. Since the Common Stock does not
have cumulative voting rights, the holders of shares having more than 50% of the
voting power, if they choose to do so, may elect all the directors of the
Company and the holders of the remaining shares would not be able to elect any
directors. See "Principal Stockholders."
Subject to the rights of holders of any series of preferred stock that may
be issued in the future, the holders of the Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Price Range of Common Stock and Dividend
Policy." In the event of a voluntary or involuntary liquidation of the Company,
all shareholders are entitled to a pro rata distribution of the assets of the
Company remaining after payment of claims of creditors and liquidation
preferences of any preferred stock. Holders of Common Stock have no conversion
or preemptive rights. All outstanding shares of Common Stock are, and the shares
of Common Stock offered hereby by the Company when issued and paid for will be,
fully paid and nonassessable.
The transfer agent for the Common Stock is Harris Trust Company of New
York, 77 Water Street, New York, New York 10005.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
none of which is outstanding, the terms of which may be fixed by the Board of
Directors. It is not possible to state the actual effect of any issuance of one
or more series of preferred stock upon the rights of holders of Common Stock
until the Board of Directors of the Company determines the respective rights of
the holders of one or more series of the preferred stock. Such effects might,
however, include: (a) reduction of the amount of funds otherwise available for
payment of cash dividends on Common Stock; (b) restrictions on the payment of
cash dividends on Common Stock; (c) dilution of the voting power of the Common
Stock, to the extent that any series of issued preferred stock has voting rights
or is convertible into Common Stock; and (d) the holders of Common Stock not
being entitled to share in the assets of the Company upon liquidation until
satisfaction of liquidation preferences, if any, in respect of any outstanding
series of preferred stock. Additionally, preferred stock may be issued through a
depositary mechanism thereby increasing the amount of preferred stock that could
be issued.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Andrea D. Kantor, Associate General Counsel of the Company. Ms.
Kantor does not own any shares of Common Stock but has options to purchase
36,750 shares of Common Stock, 33,750 of which are currently exercisable.
Certain other legal matters will be passed on for the Company by Duane, Morris &
Heckscher, New York, New York. Certain legal matters relating to FDA regulations
will be passed on for the Company by Kleinfeld, Kaplan & Becker, Washington,
D.C. Certain legal matters in connection with the Offering will be passed upon
for the Underwriter by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York,
New York.
57
<PAGE> 60
EXPERTS
The audited consolidated financial statements of the Company and its
subsidiary at December 31, 1995 and 1994, and for each of the years in the three
year period ended December 31, 1995 included herein have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Offering, reference is made to the Registration Statement,
including the exhibits thereto, which may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at its
principal office upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance where such contract or other document
is an exhibit to the Registration Statement, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in all respects by such reference.
58
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Consolidated Balance Sheets -- December 31, 1995 and 1994........................... F-3
Consolidated Statements of Operations -- Years ended December 31, 1995, 1994 and
1993............................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity -- Years ended December
31, 1995, 1994 and 1993.......................................................... F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 1995, 1994 and
1993............................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Interferon Sciences, Inc.:
We have audited the consolidated financial statements of Interferon
Sciences, Inc. and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interferon
Sciences, Inc. and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
February 16, 1996
F-2
<PAGE> 63
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $ 7,221,108 $ 330,617
Accounts and other receivables................................ 47,351 35,546
Inventories................................................... 815,978 1,029,158
Consignment inventory......................................... 220,410
Receivables from NPDC and affiliated companies................ 27,211 20,001
Prepaid expenses and other current assets..................... 76,000 55,221
------------ ------------
TOTAL CURRENT ASSETS............................................ 8,187,648 1,690,953
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land.......................................................... 140,650 140,650
Buildings and improvements.................................... 7,384,102 7,384,102
Equipment..................................................... 4,369,424 4,301,317
------------ ------------
11,894,176 11,826,069
Less accumulated depreciation and amortization................ (6,760,181) (6,013,839)
------------ ------------
5,133,995 5,812,230
------------ ------------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $1,049,923
AND $1,018,989
Patent costs.................................................. 341,596 355,019
OTHER ASSETS.................................................... 289,343 323,900
------------ ------------
$ 13,952,582 $ 8,182,102
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.......................... $ $ 409,275
Accounts payable.............................................. 872,552 882,090
Accrued expenses.............................................. 253,254 746,935
Amount due NPDC............................................... 134,347
Amount due Purdue for repurchase of common stock.............. 300,000
------------ ------------
TOTAL CURRENT LIABILITIES....................................... 1,125,806 2,472,647
------------ ------------
COMMON STOCK SUBJECT TO REPURCHASE COMMITMENT (0 AND 682,494
SHARES)....................................................... 2,729,976
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share;
authorized -- 5,000,000 shares; none issued and
outstanding................................................
Common stock, par value $.01 per share;
authorized -- 55,000,000 and 30,000,000 shares; issued and
outstanding -- 34,448,768 and 19,509,291 shares............ 344,488 195,093
Capital in excess of par value.................................. 82,641,859 65,572,243
Accumulated deficit............................................. (70,159,571) (62,787,857)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY...................................... 12,826,776 2,979,479
------------ ------------
$ 13,952,582 $ 8,182,102
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 64
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES
Sales
Alferon N Injection.................................. $ 1,260,933 $ 979,425 $
Research products and other revenues................. 34,729 186,506 51,323
----------- ------------ -----------
Total revenues............................... 1,295,662 1,165,931 51,323
COSTS AND EXPENSES
Cost of goods sold and excess/idle production
costs............................................. 3,076,249 2,778,109 1,880,563
Research and development (net of $181,992, $150,000
and $138,996 of rental income received from
NPDC)............................................. 3,726,230 5,195,699 4,151,158
General and administrative (includes $1,241,145,
$1,314,380 and $1,015,700 of charges from NPDC for
management fees and reimbursements of expenses)... 1,939,864 4,974,224 2,366,897
----------- ------------ -----------
Total costs and expenses..................... 8,742,343 12,948,032 8,398,618
----------- ------------ -----------
LOSS FROM OPERATIONS................................... (7,446,681) (11,782,101) (8,347,295)
Interest and other income............................ 155,478 157,929 255,344
Net (loss) gain on sales of marketable securities.... (300,430) 3,297
Interest expense (includes $34,889 in 1995 to
NPDC)............................................. (80,511) (152,935) (371,208)
----------- ------------ -----------
NET LOSS............................................... $(7,371,714) $(12,077,537) $(8,459,862)
========== =========== ==========
NET LOSS PER SHARE..................................... $ (.28) $ (.62) $ (.55)
========== =========== ==========
Weighted average number of shares outstanding.......... 26,646,654 19,594,285 15,432,287
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 65
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
--------------------- EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992..... 14,411,118 $144,111 $58,263,555 $(42,250,458) $16,157,208
Net proceeds from issuance of
common stock and warrants to D.
Blech and his designees........ 5,000,000 50,000 9,200,501 9,250,501
Issuance of common stock as
required by various
agreements..................... 40,967 410 142,975 143,385
Proceeds from exercise of common
stock options.................. 12,200 122 39,203 39,325
Net loss......................... (8,459,862 ) (8,459,862 )
---------- -------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1993..... 19,464,285 194,643 67,646,234 (50,710,320 ) 17,130,557
Net proceeds from sale of common
stock and warrants............. 610,000 6,100 1,470,335 1,476,435
Commitment to purchase common
stock from Purdue Frederick,
Runham and Banela.............. (994,994) (9,950) (3,970,026) (3,979,976 )
Net proceeds from the sale of
common stock to Sentinel
Charitable Remainder Trust..... 430,000 4,300 425,700 430,000
Net loss......................... (12,077,537 ) (12,077,537 )
---------- -------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1994..... 19,509,291 195,093 65,572,243 (62,787,857 ) 2,979,479
Net proceeds from public sale of
common stock................... 12,000,000 120,000 12,374,035 12,494,035
Termination of commitment to
repurchase common stock from
Purdue Frederick............... 619,994 6,200 2,473,776 2,479,976
Net proceeds from sale of common
stock to Fujimoto Diagnostics,
Inc............................ 1,034,483 10,345 1,472,155 1,482,500
Net proceeds from sale of common
stock to Amarillo Cell Culture
Company, Inc. and its
licensee....................... 375,000 3,750 738,750 742,500
Issuance of common stock in
exchange for warrants to
purchase common stock.......... 900,000 9,000 (9,000)
Proceeds from exercise of common
stock options.................. 10,000 100 19,900 20,000
Net loss......................... (7,371,714 ) (7,371,714 )
---------- -------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1995..... 34,448,768 $344,488 $82,641,859 $(70,159,571) $12,826,776
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 66
INTERFERON SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS USED FOR OPERATIONS:
Net loss.................................................. $ (7,371,714) $(12,077,537) $(8,459,862)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization........................... 777,276 2,926,439 1,017,949
Reduction of other assets............................... 150,000 50,000
Net loss (gain) on sales of marketable securities......... 300,430 (3,297)
Change in operating assets and liabilities:
Receivables from NPDC and affiliated companies.......... (7,210) (1,500) 1,500
Inventories............................................. 213,180 1,129,847 (49,752)
Consignment inventory................................... 220,410 (220,410)
Accounts and other receivables.......................... (561,805) (647,897) 12,023
Prepaid expenses and other current assets............... (20,779) 154,958 (162,338)
Accounts payable and accrued expenses................... (503,219) 604,359 (148,859)
------------ ------------ -----------
Net cash used for operations....................... (7,103,861) (7,781,311) (7,792,636)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities............................ 6,490,406 4,153,719
Purchases of marketable securities........................ (2,496,445) (3,891,422)
Additions to property, plant and equipment................ (68,107) (82,498) (87,412)
Additions to intangible and other assets.................. (132,954) (101,345) (84,537)
------------ ------------ -----------
Net cash (used for) provided by investing
activities....................................... (201,061) 3,810,118 90,348
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from purchase agreement with D. Blech........ 430,000 9,355,500
Net proceeds from sale of common stock and warrants....... 14,719,035 1,476,435
(Decrease) increase in advances from NPDC................. (134,347) 126,297 (38,627)
Reduction of long-term debt............................... (409,275) (1,727,989) (1,542,481)
Purchase of common stock from Runham and Banela........... (250,000)
Loans from principal stockholders......................... 1,870,000
Repayment of loans from principal stockholders............ (1,870,000)
Proceeds from exercise of common stock options............ 20,000 39,325
------------ ------------ -----------
Net cash provided by financing activities.......... 14,195,413 54,743 7,813,717
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents........ 6,890,491 (3,916,450) 111,429
------------ ------------ -----------
Cash and cash equivalents at beginning of year.............. 330,617 4,247,067 4,135,638
------------ ------------ -----------
Cash and cash equivalents at end of year.................... $ 7,221,108 $ 330,617 $ 4,247,067
============= ============= ============
Cash paid for interest expense.............................. $ 79,166 $ 205,190 $ 329,643
============= ============= ============
NON CASH INVESTING AND FINANCING ACTIVITIES:
Issuances of common stock in payment of liabilities....... $ $ $ 143,385
============= ============= ============
Commitment to purchase common stock....................... $ $ 3,729,976 $
============= ============= ============
Offset of receivables in settlement of obligation to
repurchase common stock................................. $ 550,000 $ 700,000 $
============= ============= ============
Termination of commitment to repurchase common stock...... $ 2,479,976 $ $
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 67
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, BUSINESS, TRANSACTIONS WITH NATIONAL PATENT
Since January 1981, Interferon Sciences, Inc. (the "Company") has been
primarily engaged in the research and development of pharmaceutical products
containing alpha interferon for the treatment of viral diseases, cancers and
diseases of the immune system. ALFERON N Injection is a preparation for the
treatment of genital warts by local injection. In October 1989, the Company
received from the Food and Drug Administration ("FDA") approval to market
ALFERON N Injection for the intralesional treatment of refractory or recurring
external genital warts in patients 18 years of age or older. Nationwide
distribution of ALFERON N Injection commenced during July 1991 (See Note 5).
Additional products under development by the Company include ALFERON LDO and
ALFERON N Gel. ALFERON LDO is a low dose oral liquid alpha interferon
preparation which the Company believes has potential for treating HIV-infected
individuals and possibly other viral diseases. ALFERON N Gel is a topical
interferon preparation which the Company believes has potential in the treatment
of cervical dysplasia, recurrent genital herpes, other viral diseases and
cancers (See Note 6).
All commercial sales by the Company of ALFERON N Injection have been to two
distributors, Purdue Pharma L.P. ("Purdue Pharma," and collectively with its
affiliates, "Purdue") in the United States and Industria Farmaceutica Andromaco,
S.A. De C.V. in Mexico.
The Company is a party to a management agreement with National Patent
Development Corporation ("NPDC") pursuant to which certain legal, financial and
administrative services have been provided by employees of NPDC. The fee for
such services in 1995, 1994 and 1993 was $120,000 annually. In addition, during
such years NPDC provided to the Company, at its estimated cost, certain
personnel and services which the Company used in its operations. For the years
ended December 31, 1995, 1994 and 1993, such charges amounted to $1,121,145,
$1,194,380 and $895,700, respectively. Commencing January 1, 1996, the NPDC
personnel who had been providing such services to the Company became employees
of the Company, and will provide certain services to NPDC at the Company's
estimated cost. The Company was also covered under NPDC's insurance policies
except for certain policies which the Company has in its own name beginning in
1994. The Company's allocated portion of insurance costs was $15,000, $114,000
and $291,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company owns the buildings which contain its offices and laboratories
and presently leases out a portion of the buildings to NPDC. Total occupancy
costs for the years ended December 31, 1995, 1994 and 1993 were approximately
$729,000, $760,000 and $686,000, respectively. NPDC paid to the Company as rent
NPDC's proportionate share of such occupancy costs (based on both square feet
occupied and number of personnel), which amounted to $181,992, $150,000 and
$138,996, respectively.
See Note 16 for information with respect to royalty obligations to NPDC.
TRANSACTIONS WITH DAVID BLECH
On May 28, 1993, David Blech, the Chief Executive Officer, sole shareholder
and a director of D. Blech & Company, Incorporated ("DBC"), and the Company
entered into a Purchase Agreement (the "Purchase Agreement"), pursuant to which
David Blech or his designees purchased for $4.00 per unit, an aggregate of
2,500,000 units ("Units"), each Unit consisting of two shares of Common Stock,
one Class A Warrant (the "Class A Warrants") to purchase one share of Common
Stock at an exercise price of $3.25 per share and one Class B Warrant (the
"Class B Warrants") to purchase one share of Common Stock at an exercise price
of $5.00 per share. The Class A Warrants and the Class B Warrants expire on
August 31, 2000. The purchasers have certain registration rights as to the
securities acquired by them under the Purchase Agreement. The Company paid DBC a
$500,000 fee for its services in connection with the Purchase Agreement, and
incurred $100,000 in legal and other fees. In addition, fees totalling
approximately $105,000 relating to this transaction were paid by issuance of
Common Stock to another party.
F-7
<PAGE> 68
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concurrently with the execution of the Purchase Agreement, the Company
entered into a consulting agreement with DBC under which the Company agreed to
pay $100,000 per year, payable monthly, to DBC for advisory services with
respect to the Company's field of interest and business, strategic and
commercial matters related to the biotechnology industry. The term of the
consulting agreement was one year and commenced on June 1, 1993.
On May 13, 1994, the Company filed a registration statement with the
Securities and Exchange Commission, which statement was amended on July 1, 1994
and was subsequently amended again on August 10, 1994, covering a proposed
public offering of 2,000,000 shares of Common Stock through DBC as underwriter.
On September 22, 1994, DBC could not meet certain minimum capital requirements
and was forced to discontinue its operations. Consequently, the Company had to
cancel the proposed public offering of Common Stock.
On December 6, 1994, the Company entered into a Purchase and Exchange
Agreement with David Blech and certain other parties pursuant to which Sentinel
Charitable Remainder Trust purchased 430,000 shares of the Common Stock for
$430,000. In addition, pursuant to such agreement David Blech and another
individual agreed to exchange an aggregate of 462,500 Class A Warrants and
1,200,000 Class B Warrants for an aggregate of 332,500 shares of Common Stock.
The issuance and exchange of the shares of Common Stock by David Blech and the
other individual pursuant to the Purchase and Exchange Agreement were completed
during the first quarter of 1995.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The financial statements include the
operations of the Company and Interferon Sciences Development Corporation
("ISD"), its wholly owned subsidiary.
Statements of cash flows -- For purposes of the statements of cash flows,
the Company considers all highly liquid instruments with maturities of three
months or less from purchase date to be cash equivalents.
Property, plant and equipment -- Property, plant and equipment are carried
at cost. Major additions and betterments are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed currently.
Depreciation -- The Company provides for depreciation and amortization of
plant and equipment following the straight-line method over the estimated useful
lives of such assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASS OF ASSETS USEFUL LIVES
-------------------------------------------------------------- --------------
<S> <C>
Buildings and Improvements.................................... 15 to 30 years
Equipment..................................................... 5 to 10 years
</TABLE>
Intangible assets -- The Company capitalizes costs to obtain and maintain
patents and licenses. Patent costs are amortized over 17 years and license costs
are amortized over 5 years, each on a straight-line basis. To the extent a
patent is determined to be worthless, the related capitalized cost is
immediately expensed.
Revenue recognition -- Sales are recorded generally upon shipment of
product. However, when a sale is made subject to a right of return, revenues are
not recognized until notification by the customer that the product has been
resold, and the related product is recorded as consignment inventory until such
notification.
Collaborative agreement research and development revenues and costs -- The
costs of performing research and development are reported when incurred and are
included in research and development expenses and the purchase of equipment in
accordance with the nature of the costs incurred. Generally, the Company matches
its collaborative research and development revenues in the same accounting
periods in which the
F-8
<PAGE> 69
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related research costs are incurred. However, when the revenues are exhausted,
the Company has the option to continue the research activities at its own
expense.
Inventories -- Inventories, consisting of raw materials, work in process
and finished goods, are stated at the lower of cost or market on a FIFO basis.
Inventories, if any, which are expected to become obsolete before sale or use in
research are written off.
Pension plan -- The Company's employees are included in NPDC's pension
plan. The Company provides for its allocable share of such costs as they accrue.
Effective December 31, 1991, the plan benefits were frozen (See Note 13).
Net loss per share -- Net loss per share is based on the weighted average
number of shares of Common Stock outstanding during the period.
NOTE 3. LIQUIDITY
The Company has experienced significant operating losses since its
inception in 1980. As of December 31, 1995, the Company had an accumulated
deficit of approximately $70.2 million. For the years ended December 31, 1995,
1994 and 1993, the Company had losses from operations of approximately $7.4
million, $11.8 million and $8.3 million, respectively. Although the Company
received FDA approval to market ALFERON N Injection in October 1989, it has had
only limited revenue from the sale of ALFERON N Injection. In order for the
Company to operate profitably, the Company must sell significantly more ALFERON
N Injection. Increased sales will depend primarily upon the expansion of
existing markets and/or successful attainment of FDA approval to market ALFERON
N Injection for additional uses, of which there can be no assurance. There can
be no assurance that sufficient quantities of ALFERON N Injection will be sold
to allow the Company to operate profitably.
In August and September 1995, the Company completed the sale of 12,000,000
shares of Common Stock for an aggregate of $14,400,000 with net proceeds to the
Company of $12,494,000 (the "August/September Offering"). However, the Company
has limited financial resources as of December 31, 1995 with which to support
future operating activities and to satisfy its financial obligations as they
become payable. Insufficient funds will require the Company further to delay,
scale back, or eliminate certain or all of its research and development programs
or license third parties to commercialize products or technologies that the
Company would otherwise seek to develop itself or to shut down or curtail its
manufacturing facility. Consequently, management is actively pursuing raising
required additional capital through private placements and public offerings of
the Company's securities and by licensing rights to its injectable, topical or
oral formulations of alpha interferon or entering into collaborative or other
arrangements with corporate partners.
NOTE 4. AGREEMENTS WITH HOFFMANN-LAROCHE
In June 1988, Hoffmann-LaRoche, Inc. ("Hoffmann") and the Company entered
into an agreement (the "1988 License Agreement") pursuant to which the Company
received a non-exclusive license from Hoffmann, under a U.S. Patent held by
Hoffmann, which enabled the Company to sell ALFERON N Injection in the United
States for the treatment of genital warts. As part of the 1988 License
Agreement, Hoffmann received 100,000 shares of Common Stock in June 1988, the
value of which was recorded as a license cost on the balance sheet in 1988. In
addition, when the Company granted marketing rights to Purdue for the
distribution of ALFERON N Injection (See Note 5), the Company became obligated
to pay Hoffmann $250,000. Such obligation was recorded by the Company as an
additional license cost in 1988. The 1988 License Agreement also required the
Company to pay Hoffmann a royalty of 8% of net sales of ALFERON N Injection up
to $20,000,000 and 9.5% of net sales in excess of $20,000,000 in any calendar
year. Net sales were defined as the invoiced amount of product sold by the
Company (other than to a marketing partner) or by a marketing partner, less
certain deductions. Finally, as a result of receiving FDA approval for
F-9
<PAGE> 70
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALFERON N Injection in 1989, the Company was obligated to issue 484,262 shares
of Common Stock to Hoffmann as a prepaid royalty against a portion of future net
sales by the Company. Such shares, valued at $2,100,000, were issued in February
1990. The value of the Common Stock previously issued for the license as well as
the additional license cost of $250,000 recorded in 1988 were also to be
credited against a portion of future royalties payable to Hoffmann.
In January 1991, the Company and Hoffmann signed an agreement (the
"Hoffmann Gel Agreement") pursuant to which the Company could obtain supplies of
Hoffmann's bulk purified recombinant interferon for use in the Company's topical
products, thereby eliminating the need for the Company to build a recombinant
interferon manufacturing facility. Alternatively, under the Hoffmann Gel
Agreement, the Company could use its own natural alpha interferon in ALFERON N
Gel under a license from Hoffmann.
In January 1991, the 1988 License Agreement was amended to allow the
Company to sell ALFERON N Injection for diseases which are refractory to
recombinant interferon therapy and to redefine net sales as the invoiced amount
of product sold by the Company in arms' length transactions, less certain
deductions.
In March 1992, the Company obtained a non-exclusive license from Hoffmann,
which allowed the Company to make, have made, use and sell in the United States,
without a potential patent infringement claim from Hoffmann, natural alpha
interferon for the oral treatment of human diseases.
F. Hoffmann-LaRoche Ltd. ("Roche"), the parent of Hoffmann, also has been
issued patents covering human alpha interferon in many countries throughout the
world. As of March 31, 1995, the Company obtained a non-exclusive license from
Hoffmann and Roche (the "1995 License Agreement") which grants the Company the
worldwide rights to make, use, and sell, without a potential patent infringement
claim from Hoffmann or Roche, any formulation of Natural Alpha Interferon. The
1995 License Agreement permits the Company to grant marketing rights with
respect to Natural Alpha Interferon products to third parties, except that the
Company cannot grant marketing rights with respect to injectable products in any
country in which Hoffmann or Roche has patent rights covered by the 1995 License
Agreement (the "Hoffmann Territory") to any third party not listed on a schedule
of approximately 50 potential marketing partners without the consent of Hoffmann
and Roche, which consent cannot be unreasonably withheld. The 1995 License
Agreement will enable the Company, if it is successful in obtaining necessary
regulatory approvals, to expand the formulations of Natural Alpha Interferon it
makes, uses, and sells in the United States and the rest of the world and to
market its products for the treatment of additional indications.
On May 6, 1994, the United States Patent and Trademark Office issued an
Office Action in Reexamination on the Hoffmann patent and rejected all of the 14
claims in the Hoffmann patent. Claims in a patent under reexamination are valid
and enforceable until such time as a final disposition on the claims is reached.
On July 11, 1994, Hoffmann filed a response objecting to the Patent Office's
rejection of such claims. On July 20, 1995, the Patent Office issued another
Office Action in Reexamination on the Hoffmann patent and rejected three of the
claims in the Hoffmann patent and concluded that the remaining 11 claims are
patentable. In November 1995, Hoffmann filed another response objecting to the
Patent Office's rejection of such three claims. The outcome of such
reexamination of the Hoffmann patent cannot be determined at this time.
Under the terms of the 1995 License Agreement, the Company is obligated to
pay Hoffmann and Roche an aggregate royalty on net sales (as defined) of Natural
Alpha Interferon products by the Company in an amount equal to (i) 8% of net
sales in the Hoffmann Territory, and 2% of net sales outside the Hoffmann
Territory of products manufactured in the Hoffmann Territory, up to $75,000,000
of net sales in any calendar year and (ii) 9.5% of net sales in the Hoffmann
Territory, and 2% of net sales outside the Hoffmann Territory of products
manufactured in the Hoffmann Territory, in excess of $75,000,000 of net sales in
any calendar year, provided that the total royalty payable in any calendar year
shall not exceed $8,000,000. Net sales are defined as the invoiced amount of
product sold by the Company, less certain deductions. The 1995 License
F-10
<PAGE> 71
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement can be terminated by the Company on 30 days' notice with respect to
the United States patent, any individual foreign patent, or all patents owned by
Hoffmann or Roche. If the 1995 License Agreement is terminated with respect to
the patents owned by Hoffmann or Roche in a specified country, such country is
no longer included in the Hoffmann Territory. If Hoffmann's United States
patent, or the claims in such patent which the marketing of Natural Alpha
Interferon products by the Company might infringe, were found to be invalid, the
Company intends to terminate the 1995 License Agreement with respect to
Hoffmann's United States patent, which would eliminate the royalty payable to
Hoffmann and Roche on net sales in the United States of products manufactured in
the United States. Under the terms of the 1995 License Agreement, the unused
credits against future royalties from the 1988 License Agreement are available
as offsets against 50% of the Company's future royalty obligations to Hoffmann
until the Company obtains an FDA approval to market ALFERON N Injection for an
indication other than genital warts. The value of the Company's Common Stock
which may be credited against royalties payable is the lesser of its value on
the date of issuance and on the date the Company exercises its right to credit
such stock against its royalty obligations. As of December 31, 1995, based upon
the market value of the Common Stock, the Company had approximately $719,437 of
credits available to offset 50% of its future royalty obligations to Hoffmann.
During the second quarter of 1994, the Company adopted a policy of
amortizing prepaid royalties at the greater of the straight line rate over a
five-year period or the amount of royalties incurred based upon sales. During
the third quarter of 1994, the Company, in its quarterly evaluation of whether
the unamortized balance of prepaid royalties is realizable, determined that it
was prudent to write off such prepaid royalties. The Company based this decision
on the reduced market price during the third quarter of the Company's Common
Stock, the uncertainty created by the decision of the United States Patent and
Trademark Office in May 1994 to reexamine the claims of the Hoffmann patent and
upon sales of ALFERON N Injection. During 1994, the amortization and writeoff of
prepaid royalties totalling $2,100,000 were included as general and
administrative expense in the statements of operations and reflected as
depreciation and amortization in the statements of cash flows.
Through December 31, 1995, the Company had incurred $715,669 of royalties
due Hoffmann resulting from sales of ALFERON N Injection. However, the Company
applied $626,054 of the prepayments previously made to Hoffmann against the
amount due.
NOTE 5. AGREEMENTS WITH PURDUE
In 1988, the Company entered into exclusive marketing and distribution
agreements with Mundipharma Pharmaceutical Company ("Mundipharma"), a related
entity of Purdue, with respect to ALFERON N Injection, which agreements have
been amended from time to time (as amended, the "Purdue Marketing Agreements").
In 1991, Mundipharma assigned the right to market and distribute ALFERON N
Injection in the United States to its affiliate, Purdue Pharma, and retained the
right to market and distribute ALFERON N Injection in Canada, Western Europe,
Israel, India, Japan, and Australia. In 1993, the Company reacquired the right
to market and distribute ALFERON N Injection in Japan.
In 1994, an amendment to these agreements was entered into (the "1994
Purdue Amendment") pursuant to which the Company reacquired the right to market
ALFERON N Injection in Western Europe and other countries and took over from
Purdue the conduct and funding of clinical trials. Specifically, the 1994 Purdue
Amendment provided, among other things, that (i) the Company reacquired the
right to market ALFERON N Injection in Western Europe, Israel, India, and
Australia (the "Returned Territories"), subject to the payment to Mundipharma of
a royalty equal to 3% of net sales (as defined) in the Returned Territories
until Mundipharma has received royalty payments equal to $3 million ($5 million
under certain circumstances) and 1% of net sales thereafter; (ii) the Company
assumed responsibility for the conduct and funding of clinical trials to develop
new indications for ALFERON N Injection; Purdue was granted the right to obtain
marketing and distribution rights for each additional indication of ALFERON N
Injection at such time
F-11
<PAGE> 72
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as the Company files a product license application or receives FDA approval for
any such additional indication, by reimbursing the Company for some or all of
its clinical costs plus an additional lump-sum payment; and the Company was
given the right to reacquire the rights to market and distribute ALFERON N
Injection in the United States and Canada after each of the first three
additional indications if Purdue does not exercise its right to obtain marketing
and distribution rights for such indication, at a price based on a percentage of
total sales or gross profit during a specified period of all products subject to
the agreement; (iii) the Company agreed to purchase for $4.00 per share 994,994
shares of Common Stock held by Purdue and certain related parties over a period
of 18 months; (iv) Purdue Pharma and Mundipharma retained the right to market
and distribute ALFERON N Injection in the United States and Canada,
respectively, subject to the Company's option (the "First Option") to reacquire
such rights at a price of $12 million until July 25, 1995 ($10 million if the
First Option had been exercised before January 1995); provided that the First
Option could not have been exercised unless the Company simultaneously paid the
unpaid balance of the purchase price for the 994,994 shares referred to above,
which payment would have reduced the First Option exercise price; and (v) Purdue
ordered 45,000 vials of ALFERON N Injection at an agreed upon price. Unless
certain minimum purchase levels are reached during certain annual periods, or
minimum payments are made to the Company in lieu of such minimum purchases, the
Company can terminate Purdue Pharma and Mundipharma's exclusive marketing and
distribution rights. All marketing and distribution costs are borne by Purdue
Pharma and Mundipharma in their respective territories.
In March 1995, the Company entered into an amendment to the 1994 Purdue
Amendment (the "March 1995 Purdue Amendment") pursuant to which the Company
obtained an option, exercisable until June 30, 1995 (the "Second Option"), to
reacquire the remaining marketing and distribution rights from Purdue Pharma and
Mundipharma. The exercise price of the Second Option was 2.5 million shares of
Common Stock; provided that the Option could not have been exercised unless the
Company simultaneously paid the unpaid balance of the purchase price for the
994,994 shares referred to above. If, 18 months from the date of exercise of the
Second Option by the Company (the "Valuation Date"), the 2.5 million shares of
Common Stock did not have a value of at least $9,037,807 (which value was
calculated using the average of the closing bid and asked prices of the Common
Stock as quoted by the NASDAQ National Market System for the ten trading days
ending on the day prior to the Valuation Date), the Company was required to
issue a note for the shortfall. Such note was required to bear interest at the
prime rate and became due and payable 24 months from the Valuation Date. The
Company agreed that it would utilize its best efforts to ensure that the 2.5
million shares of Common Stock would be registered and freely tradeable 18
months from the date of exercise of the Second Option. If the Second Option were
exercised, the First Option, the royalty obligations, and Purdue's right to
obtain marketing and distribution rights for new indications contained in the
1994 Purdue Amendment would have terminated.
In July 1995, the Company entered into an amendment, which became effective
upon the sale on August 22, 1995 of more than the minimum number of shares of
Common Stock in the August/September Offering, to the 1994 Purdue Amendment and
the March 1995 Purdue Amendment (the "July 1995 Purdue Amendment"), pursuant to
which the balance owed to Purdue for the 62,500 shares of Common Stock required
to be repurchased in April 1995 was forgiven and the Company obtained an option,
exercisable until December 31, 1996 (the "Third Option"), to reacquire the
remaining marketing and distribution rights from Purdue Pharma and Mundipharma.
The exercise price of the Third Option is $5,029,133, subject to reduction as
set forth below, plus 750,000 shares of Common Stock (350,000 shares of Common
Stock if the Third Option had been exercised on or before December 31, 1995).
The Company has agreed that it will utilize its best efforts to ensure that such
shares will be registered and freely tradeable upon issuance. The Third Option
may not be exercised unless the Company simultaneously pays the unpaid balance
of the purchase price for any of the 994,994 shares referred to above then held
by Purdue. As of March 1, 1996, Purdue held 619,994 of such shares and such
unpaid balance was $2,479,976. The cash exercise price of the Third Option will
be reduced by the aggregate of (i) the amount paid by the Company to Purdue to
repurchase any of such 619,994
F-12
<PAGE> 73
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares then held by Purdue, (ii) if Purdue sells any or all of such 619,994
shares, which may only be done until December 31, 1996 with the consent of the
Company, the amount received by Purdue from such sale, and (iii) the amount by
which the transfer price for vials sold by the Company to Purdue Pharma or
Mundipharma exceeds $25 per vial. If the Third Option is exercised, the royalty
obligations and Purdue's right to obtain marketing and distribution rights for
new indications contained in the 1994 Purdue Amendment will terminate. If the
Third Option is not exercised, the Company will no longer have the obligation to
repurchase the 619,994 shares. In July 1995, the Company and Purdue also agreed
to extend the date on which the Company was obligated to repurchase the final
619,994 shares of Common Stock if the July 1995 Purdue Amendment did not become
effective from July 25, 1995 to August 31, 1995 (or such earlier date on which
the August/September Offering shall have terminated prior to the sale of the
minimum number of shares of Common Stock).
The Company entered into the 1994 Purdue Amendment, the March 1995 Purdue
Amendment, and the July 1995 Purdue Amendment to provide it with greater
financial flexibility and control over the worldwide marketing and distribution
of ALFERON N Injection. The July 1995 Purdue Amendment provides the Company with
the flexibility to enter into a strategic alliance with a multinational
marketing partner if it elects to exercise the Third Option.
Under the terms of the Purdue Marketing Agreements, the Company receives a
transfer price for the sale of vials of ALFERON N Injection to Purdue Pharma or
Mundipharma. Such transfer price is calculated based on either a manufacturing
cost formula or a fixed price formula (subject to consumer price index
adjustments); provided, however, that if the Company chooses the fixed price
formula, the Company may be entitled to additional payments if the net sales
price received by Purdue Pharma or Mundipharma for ALFERON N Injection exceeds
certain levels. Pursuant to the July 1995 Purdue Amendment, the transfer price
for each vial will be payable $25 in cash and the balance as an offset to the
cash exercise price of the Third Option. If the Third Option is not exercised,
such offsets will have no value. The Company may choose the applicable formula
every six months. Except as described below and in Note 9, Purdue Pharma and
Mundipharma had no recourse against the Company in the event that they were
unable to resell ALFERON N Injection to third parties. Purdue Pharma and
Mundipharma presently have no such recourse.
In January 1994, pursuant to the 1994 Purdue Amendment, Purdue ordered
45,000 vials of ALFERON N Injection at an agreed upon price. In addition, the
Company agreed, under certain circumstances, to replace up to 15,000 vials of
ALFERON N Injection from Purdue's existing inventory at an agreed upon
discounted price. The Company also granted Purdue an option, exercisable (in
whole only) until July 25, 1995, to purchase an additional 100,000 vials of
ALFERON N Injection at an agreed upon discounted price. The option was not
exercised.
NOTE 6. RESEARCH AND DEVELOPMENT AGREEMENT WITH INTERFERON SCIENCES RESEARCH
PARTNERS, LTD.
During January 1984, the Company organized ISD to act as the sole general
partner of Interferon Sciences Research Partners, Ltd., a New Jersey limited
partnership (the "Partnership"). The Company and the Partnership entered into a
development contract whereby the Company received substantially all of the net
proceeds ($4,414,475) of the Partnership's public offering of limited
partnership interests. The Company used the proceeds to perform research,
development and clinical testing on behalf of the Partnership for the
development of ALFERON Gel containing recombinant interferon.
In connection with the formation of the Partnership, ISD agreed to make
additional cash contributions for purposes of continuing development of ALFERON
Gel if the Partnership exhausted its funds prior to development of such product.
ISD is wholly dependent upon the Company for capital to fund such commitment.
The Partnership exhausted its funds during 1986, and the Company contributed a
total of $1,997,000 during the period from 1986 to 1990, for the continued
development of ALFERON Gel. During May 1987, the Company filed a Product License
Application with the FDA for approval to market
F-13
<PAGE> 74
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALFERON Gel. At a meeting with the FDA in February, 1990, the FDA indicated that
additional process development and clinical trials would be necessary prior to
approval of ALFERON Gel. The Company believed, at that time, that the costs to
complete the required process development and clinical trials would be
substantial, and there could be no assurance that the clinical trials would be
successful.
As a result of the above events, in March 1992, the Company withdrew its
FDA Product License Application for ALFERON Gel containing recombinant
interferon. In place of single species recombinant interferon, previously
ALFERON Gel's active ingredient, the Company commenced, in 1992, further
development of ALFERON Gel using the Company's natural source multi-species
alpha interferon ("ALFERON N Gel"). Assuming successful development and
commercial exploitation of ALFERON N Gel, the Company may be obligated to pay
the Partnership royalties equal to 4% of the Company's net sales of ALFERON N
Gel and 15% of revenues received from sublicensing ALFERON N Gel.
NOTE 7. AGREEMENT WITH FUJIMOTO DIAGNOSTICS, INC.
In the first quarter of 1995, the Company concluded an agreement with
Fujimoto Diagnostics, Inc. ("Fujimoto"), a pharmaceutical company located in
Osaka, Japan, for the commercialization of the Company's ALFERON N Injection and
ALFERON N Gel in Japan. In connection with the agreement, Fujimoto purchased
$1,500,000 of Common Stock at $1.45 per share (the then market price), all of
which cash was received during the first quarter of 1995, and agreed to purchase
an additional $500,000 of Common Stock on February 6, 1996 at the then market
price. Such additional $500,000 of Common Stock has to date not been purchased.
To date, Fujimoto has incurred higher than anticipated development expenses, and
Fujimoto has determined that there may be greater difficulties in obtaining
Japanese regulatory approval than originally anticipated. Fujimoto has therefore
requested that the Company renegotiate such investment agreement and the related
commercialization agreement. The Company intends to meet with Fujimoto to
consider its request.
NOTE 8. MARKETABLE SECURITIES
As of January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). There was no material effect on the
consolidated financial statements as a result of the adoption of this principle.
The Company's marketable securities consisted of United States Government
obligations. Under SFAS No. 115, the Company classifies these debt securities as
available-for-sale and records the securities at their fair value. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized. The effect of the change in accounting was not material to the Company
and all of the Company's marketable equity securities were sold by December 31,
1994.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Realized gains and losses for securities classified as available-for-sale
are included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Proceeds from the sale of marketable securities were $6,490,406 for the
year ended December 31, 1994. Net realized losses on such sales for the year
ended December 31, 1994 were $300,430.
F-14
<PAGE> 75
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INVENTORIES
Inventories, consisting of material, labor and overhead, are classified as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- ----------
<S> <C> <C>
Finished goods....................................................... $344,550 $ 342,330
Work in process...................................................... 162,567 303,111
Raw materials........................................................ 308,861 383,717
-------- ----------
$815,978 $1,029,158
======== =========
</TABLE>
Inventories at December 31, 1995 and 1994 are stated at their estimated net
realizable value.
Finished goods inventory at December 31, 1995 consisted of vials of ALFERON
N Injection.
Consignment inventory at December 31, 1994 consisted of ALFERON N Injection
shipped to Purdue during 1994; however such shipment was subject to a right of
return until notification by Purdue that the product had been resold. Such
inventory was resold by Purdue in 1995.
Cost of goods sold and excess/idle production costs for 1995, 1994 and 1993
includes the write-down of 1995, 1994 and 1993 inventories to their estimated
net realizable value.
NOTE 10. LONG TERM DEBT
On March 13, 1990, the Company borrowed $4.2 million from United States
Capital Corporation, an indirect subsidiary of The Hong Kong and Shanghai Bank,
at an effective interest rate of approximately 12.4%. The proceeds of the loan
were used to finance (i) the expansion of the Company's manufacturing facility
and (ii) the purchase of additional equipment for the facility.
During December 1994, the Company renegotiated the terms of the loan such
that the $409,275 balance on the loan was extended, with interest, until April
1995 when the obligation was paid in full.
The Company currently has no long-term debt.
NOTE 11. INCOME TAXES
On May 30, 1991, NPDC exchanged the Company's Class B Common Stock for an
equal number of shares of the Company's Common Stock. As a result, on that date
the Company ceased to be included in NPDC's consolidated Federal income tax
return. For periods subsequent to May 30, 1991, the Company files its own
consolidated Federal income tax return, including its wholly-owned subsidiary.
As a result of the loss allocation rules contained in the Federal income
tax consolidated return regulations, approximately $6,008,000 of net operating
loss carryforwards, which expire in 2001-2006, are available to the Company upon
ceasing to be a member of NPDC's consolidated return group. In addition, the
Company has net operating loss carryforwards from tax years prior to joining the
NPDC consolidated return group of approximately $2,147,000, which expire in
1996-1998. Further, the Company has net operating loss carryforwards for periods
subsequent to May 31, 1991, and through December 31, 1994 of approximately
$29,263,000, which expire in 2006-2009. For the year ended December 31, 1995,
the Company had a tax net operating loss of $7,047,000, which expires in 2010.
At present, the Company believes that the events culminating with the first
closing of the August/ September Offering on August 22, 1995 resulted in an
"ownership change" under Internal Revenue Code Section 382 with respect to its
stock (See Note 3). The Company believes that as a result of the ownership
change, the future utility of its pre-change net operating losses are limited to
an annual amount of
F-15
<PAGE> 76
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $3,230,000. In addition, the Company has approximately $116,000 of
investment tax credit carryforwards and $973,000 of research and development
credit carryforwards that are, in accordance with
Internal Revenue Code Section 383, subject to the annual limitation under
Internal Revenue Code Section 382. The following table summarizes the tax net
operating losses as of December 31, 1995:
<TABLE>
<CAPTION>
YEARS
DESCRIPTION AMOUNT EXPIRE
- ----------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Subject to Section 382........................................... $42,116,000 1996 - 2010
Not Subject to Section 382....................................... 2,349,000 2010
-----------
$44,465,000
===========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.
The Company has, as of December 31, 1995, deferred tax assets of
approximately $16,207,000, deferred tax liabilities of approximately $222,000
and a valuation allowance of approximately $15,985,000. At January 1, 1995, the
valuation allowance was $13,303,000. The increase to the valuation allowance of
$2,682,000 is due primarily to net operating losses.
The tax effects that give rise to these deferred tax assets and liabilities
consist of the following as of December 31, 1995:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards....................................... $ 15,118,000
Tax credit carryforwards............................................... 1,089,000
------------
16,207,000
DEFERRED TAX LIABILITIES
Property and equipment, principally due to differences in
depreciation......................................................... (222,000)
------------
Net deferred tax asset................................................. 15,985,000
Valuation allowance.................................................... (15,985,000)
------------
Net deferred tax asset after valuation allowance....................... $ --
============
</TABLE>
NOTE 12. STOCK OPTIONS, WARRANTS AND OTHER SHARES RESERVED
In 1981, the Company adopted the 1981 Stock Option Plan (the "Plan"),
authorizing a committee of the Board of Directors to grant options, over a
10-year period, to purchase not more than 500,000 shares of Common Stock to
officers, directors, employees and consultants of the Company. Since 1981, the
Plan has been amended several times to increase the number of shares issuable
under the Plan to 3,500,000 and to extend the Plan until 2001. Pursuant to the
terms of the Plan, no option may be exercised after 10 years from the date of
grant. The exercise price for any option issued may not be less than 85 percent
of the market price of the common stock on the date of issuance.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1994 and 1993, include 20,000 shares under a warrant
agreement with U.S. Capital Corporation. Such warrants expired unexercised in
1995.
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1993, include 375,000 shares under warrant agreements
with Purdue. Such warrants were terminated in 1994 as a result of the amended
marketing and distribution agreements with Purdue (See Note 5).
F-16
<PAGE> 77
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options and warrants outstanding and exercisable, and shares reserved for
issuance, at December 31, 1995, include 331,483 shares, and at December 31, 1994
and 1993, include 200,000 shares, under warrant agreements with the underwriter
of the October 1991 public offering of Common Stock.
Options and warrants outstanding and shares reserved for issuance at
December 31, 1995, 1994 and 1993, and options and warrants exercisable at
December 31, 1995 and 1994, include 125,000 shares under a warrant agreement
with Strategic Growth International, the Company's outside public relations
advisor.
Options and warrants outstanding and exercisable, and shares reserved for
issuance, at December 31, 1995, include 595,458 shares, and at December 31, 1994
and 1993, include 5,000,000 shares, under a warrant agreement with David Blech.
During 1995, David Blech and certain other parties exchanged 2,250,000 Class A
Warrants and 2,250,000 Class B Warrants for 900,000 shares of Common Stock (See
Note 1).
Options and warrants outstanding and exercisable, and shares reserved for
issuance at December 31, 1995 and 1994 include 61,000 shares under a warrant
agreement issued as a commission in connection with the sale of shares of Common
Stock to an institutional investor.
Options and warrants outstanding and shares reserved for issuance at
December 31, 1995 include 1,123,333 shares under warrant agreements with the
underwriter of the August/September 1995 Offering.
Changes in options and warrants outstanding during the years ended December
31, 1995, 1994 and 1993, options and warrants exercisable and shares reserved
for issuance at December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
PRICE RANGE NUMBER OF
PER SHARE SHARES
------------ ----------
<S> <C> <C>
Options and Warrants
Outstanding at December 31, 1992................................ $2.25 -- $10.00 3,502,550
Granted......................................................... 2.13 -- 5.00 5,138,250
Exercised....................................................... 2.25 -- 4.25 (12,200)
Terminated...................................................... 3.50 -- 9.00 (28,750)
--------------- ----------
Outstanding at December 31, 1993................................ 2.13 -- 10.00 8,599,850
Granted......................................................... 2.00 -- 2.70 2,318,700
Exercised....................................................... --
Terminated...................................................... 3.13 -- 10.00 (2,638,200)
--------------- ----------
Outstanding at December 31, 1994................................ 2.00 -- 6.50 8,280,350
Granted......................................................... 1.56 -- 4.20 1,920,274
Exercised....................................................... 2.00 -- (10,000)
Terminated...................................................... 2.00 -- 6.50 (4,909,000)
--------------- ----------
Outstanding at December 31, 1995................................ 1.56 -- 4.20 5,281,624
=========
Exercisable
December 31, 1993............................................... 2.13 -- 10.00 7,738,950
=========
December 31, 1994............................................... 2.00 -- 6.50 7,841,200
=========
December 31, 1995............................................... 1.56 -- 4.20 3,575,891
=========
Shares reserved for issuance
December 31, 1993............................................... 8,885,320
=========
December 31, 1994............................................... 8,571,320
=========
December 31, 1995............................................... 5,391,594
=========
</TABLE>
F-17
<PAGE> 78
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. PENSION AND INVESTMENT PLANS
NPDC had a Defined Benefit Pension Plan (the "Plan") for employees of
certain divisions and subsidiaries including those of the Company. Benefits were
based primarily on years of service and a fixed rate of benefits per year of
service. Contributions were intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
Effective December 31, 1991, the Plan benefits were frozen. In the future,
accrued vested benefits will be paid to terminated participants in the form of a
lump sum distribution in cases where the accrued vested benefit is less than
$3,500. Terminated participants can elect a lump sum distribution if the accrued
vested benefit is greater than $3,500 but less than $7,500.
In the event that the accrued vested benefit exceeds the $7,500 payable
limit as outlined in the Plan, payment will be deferred until a terminated
vested participant reaches age 65 or elects early retirement, at age 60 or
later. As of December 31, 1995, 1994 and 1993, the projected benefit obligation
of the NPDC Plan was $5,890,000, $4,469,000 and $4,917,000 and the fair value of
plan assets was $4,352,900, $3,405,000 and $3,528,000. The discount rate used in
determining the actuarial present value of the projected benefit obligation was
7.25%. The expected long-term rate of return on assets was 10 percent.
Effective March 1, 1992, NPDC adopted the 1992 401(k) Savings Plan (the
"Savings Plan"). Effective December 31, 1991, the Plan participants would no
longer accrue benefits under the Defined Benefit Pension Plan, but became
eligible to participate in NPDC's Savings Plan.
NPDC's Savings Plan is for employees who have completed one year of
service; however, past vesting service credit was recognized for employees who
participated in the Savings Plan at the date of initial enrollment, March 1,
1992.
The Savings Plan permits pre-tax contributions to the Savings Plan by
participants pursuant to Section 401(k) of the Internal Revenue Code of 2% to 6%
of base compensation. The Company matches 40% of the participants' eligible
contributions based on a formula set forth in the Savings Plan. For 1995, 1994
and 1993, the Company's contribution to the Savings Plan was $49,000, $53,000
and $49,000, respectively. Participants are fully vested in their contributions
and may withdraw such contributions at time of employment termination, or at age
59 1/2, or earlier in the event of financial hardship. Amounts otherwise are
paid at retirement or in the event of death or disability. Employer
contributions vest at a rate of 20% per year.
The Savings Plan is administered by a trustee appointed by the Board of
Directors of NPDC and all contributions are held by the trustee and invested at
the participants' direction in various mutual funds.
The Company does not provide any post-retirement benefits, other than
pensions, to its employees.
NOTE 14. PROFIT SHARING PLAN
Effective June 6, 1988, the Company adopted the 1988 Profit Sharing Plan
(the "Profit Sharing Plan") providing key employees and consultants with an
opportunity to share in the profits of the Company. The Profit Sharing Plan is
administered by the Company's Compensation Committee.
Pursuant to the terms of the Profit Sharing Plan, the Compensation
Committee, in its sole discretion, based upon the significance of the employee's
contributions to the operations of the Company, selects certain key employees
and consultants of the Company who are entitled to participate in the Profit
Sharing Plan and determines the extent of their participation. The amount of the
Company's profits available for distribution to the participants (the
"Distribution Pool") is the lesser of (a) 10% of the Company's income before
taxes and profit sharing expense and (b) an amount equal to 100% of the base
salary for such year of all the participants in the Profit Sharing Plan. A
number of key employees are eligible to participate in the Profit Sharing Plan.
F-18
<PAGE> 79
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Compensation Committee may require as a condition to participation that
a participant remain in the employ of the Company until the end of the fiscal
year for which payment is to be made. Payments required to be made under the
Profit Sharing Plan must be made within 10 days of the filing of the Company's
tax return. To date, there have been no contributions by the Company under the
Profit Sharing Plan.
NOTE 15. NON-CASH FINANCING AND INVESTING ACTIVITIES
During the years ended December 31, 1995, 1994 and 1993 the following
noncash financing and investing activities occurred:
1995:
Offset of receivables in settlement of obligation to repurchase Common
Stock for $550,000 and forgiveness of balance due.
By agreement, the Company terminated a commitment to repurchase 619,994
shares, valued at $2,479,976, of Common Stock from Purdue.
1994:
The Company committed to purchase 932,494 shares, valued at $3,729,976, of
its Common Stock from Purdue.
Offset of receivables of $700,000 in settlement of obligation to repurchase
Common Stock.
1993:
The Company issued 40,967 shares, valued at $143,385, of Common Stock as
required by various agreements.
NOTE 16. COMMITMENTS AND CONTINGENCIES
As consideration for the transfer to the Company of certain licenses,
rights and assets upon the formation of the Company by NPDC, the Company agreed
to pay NPDC royalties of $1,000,000, but such payments will be made only with
respect to those years in which the Company has income before income taxes, and
will be limited to 25% of such income.
See Notes 4 and 6 for information relating to royalties payable to Roche
and the Partnership, respectively.
In October 1989, the Company entered into a license agreement with a
non-affiliated party for co-exclusive rights to certain low dose oral
formulations of interferon. The Company will be required to pay a royalty of 10%
of net sales, as defined, of products produced and marketed by the Company that
may be developed under the license agreement.
NOTE 17. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
<PAGE> 80
INTERFERON SCIENCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable, approximate fair market
values, because of short maturities or interest rates that approximate current
rates.
F-20
<PAGE> 81
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NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH
SUCH INFORMATION IS GIVEN.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................. 3
The Company......................... 9
Risk Factors........................ 9
Use of Proceeds..................... 18
Price Range of Common Stock and
Dividend Policy................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Information...... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Business............................ 28
Management.......................... 47
Principal Stockholders.............. 50
Certain Transactions................ 52
Underwriting........................ 54
Description of Securities........... 57
Legal Matters....................... 57
Experts............................. 58
Additional Information.............. 58
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
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INTERFERON SCIENCES, INC.
8,000,000 SHARES
OF
COMMON STOCK
------------------
PROSPECTUS
------------------
SUNRISE SECURITIES
CORP.
, 1996
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<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being registered
hereby. All are estimated except the SEC and NASD fees.
<TABLE>
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SEC registration fee...................................................... $ 6,422
NASD fee.................................................................. 2,363
NASDAQ listing fee........................................................ 7,500
Accounting fees and expenses.............................................. 25,000
Legal fees and expenses................................................... 40,000
Blue sky expenses and counsel fees........................................ 12,500
Cost of printing and engraving............................................ 40,000
Transfer agent's fees..................................................... 1,000
Miscellaneous............................................................. 15,215
--------
Total........................................................... $150,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Company's Restated Certificate of Incorporation provides
that the Company shall, to the full extent then permitted by law, indemnify all
persons whom it may indemnify pursuant thereto. In addition, Article 10 of the
Company's Restated Certificate of Incorporation eliminates personal liability of
its directors to the full extent permitted by Section 102(b)(7) of the General
Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties, if such directors or officers acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Section 8 of the Underwriting Agreement (filed as Exhibit 1.1) provides
that the Underwriter will indemnify and hold harmless the Company and each
director, officer, or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based upon information furnished in writing to the Company by the
Underwriter expressly for use therein.
The Company currently has a $1,000,000 directors' and officers' liability
insurance policy.
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<PAGE> 83
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
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(a) -- Exhibits
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise Securities Corp.*
1.2 -- Form of Subscription Agreement.*
1.3 -- Escrow Agreement among the Registrant, Sunrise Securities Corp., and Bank of
Montreal Trust Company.**
3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated herein by
reference to Exhibit 3B of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988.
3.2 -- Certificate of Amendment of Restated Certificate of Incorporation of the
Registrant. Incorporated herein by reference to Exhibit 3.4 of Registration
Statement No. 33-40902.
3.3 -- Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant. Incorporated herein by reference to Exhibit 3.2 of Registration
Statement No. 33-78952.
3.4 -- Certificate of Amendment to the Restated Certificate of Incorporation of the
Registrant*
3.5 -- By-Laws of the Registrant, as amended. Incorporated herein by reference to Exhibit
3.2 of Registration Statement No. 2-7117.
4.1 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2 of
Registration Statement No. 33-40902.
4.2 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob Agam.
Incorporated herein by reference to Exhibit 4.3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.
4.3 -- Form of Purchase Option issued to the Underwriter in connection with the
August/September Offering. Incorporated herein by reference to Exhibit 4.1 of
Registration Statement No. 33-59479.
4.4 -- Form of Underwriter's Purchase Options.*
5.1 -- Opinion of Andrea D. Kantor, Esq., Associate General Counsel of the Registrant, as
to the legality of the securities being registered.**
10.1 -- Transfer and License Agreement among National Patent, Hydron Laboratories, Inc. and
the Registrant dated as of January 1, 1981. Incorporated herein by reference to
Exhibit 10.8 of the Registrant's Registration Statement No. 2-71117.
10.2 -- Management Services Agreement dated January 1, 1981 between the Registrant and
National Patent. Incorporated herein by reference to Exhibit 10.9 of Registration
Statement No. 2-71117.
10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by reference
to Exhibit 10.3 to Registration Statement No. 33-59479.
10.4 -- Cross License Agreement dated October 26, 1984 between Registrant and the
Partnership. Incorporated herein by reference to Exhibit 10V of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1984.
10.5 -- Deleted
10.6 -- Deleted
10.7 -- Deleted
10.8 -- Deleted
10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and Celltech
Limited. Incorporated herein by reference to Exhibit 10.27 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.10 -- Deleted
10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference to Exhibit
10X of the Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
10.12 -- License Agreement dated October 20, 1989 between the Registrant and Amarillo Cell
Culture Company, Incorporated. Incorporated herein by reference to Exhibit 10Y of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.
10.13 -- Deleted
10.14 -- Deleted
</TABLE>
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<PAGE> 84
<TABLE>
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10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P. and the
Registrant. Incorporated herein by reference to Exhibit 10.26 of Registration
Statement No. 33-40902.
10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between Mundipharma
Pharmaceutical Corporation and the Registrant. Incorporated herein by reference to
Exhibit 10.27 of Registration Statement No. 33-40902.
10.17 -- Deleted
10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992 effective March 1, 1992,
Incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1992.
10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by to Exhibit
10.18 to the Registrant's Annual Report on Form 10-K for the Year ended December
31, 1993.
10.20 -- Amendment dated January 26, 1994 to the Amended and Restated Distribution Agreement
dated June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.19 to the Registrant's Annual Report
on Form 10-K for the Year ended December 31, 1993.
10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the Registrant,
Mundipharma Pharmaceutical Company and Purdue Pharma L.P. Incorporated herein by
reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.
10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue Frederick
Company. Incorporated herein by reference to Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.
10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela Corporation and
Runham Corporation. Incorporated herein by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1993.
10.24 -- Deleted
10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and David Blech.
Incorporated herein by reference to Exhibit 10.26 of Registration Statement No.
33-78952.
10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement. Incorporated
herein by reference to Exhibit 10.28 of Registration Statement No. 33-78952.
10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant and
Industria Farmaceutica Andromaco, S.A. Incorporated herein by reference to Exhibit
6(a) to the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994.
10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between Registrant
and Sanofi Winthrop L.P. Incorporated herein by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994.
10.29 -- Amendment dated March 24, 1995 to Distribution Agreement dated as of February 3,
1994 between Registrant and Industria Farmaceutica Andromaco S.A. Incorporated
herein by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchasers. Incorporated herein by
reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the Registrant
and Neoprobe Corp. Incorporated herein by reference to Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.33 -- Agreement dated as of January 24, 1995 between the Registrant and Fujimoto
Diagnostics, Inc. Incorporated herein by reference to Exhibit 10.34 to the
Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
</TABLE>
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<PAGE> 85
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10.34 -- Form of Stock Agreement dated as of August 31, 1994 between the Registrant and
Dimensional Funds Advisors, Inc. Incorporated herein by reference to Exhibit 10.35
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the Registrant and
Capello Capital Corp. Incorporated herein by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant and Purdue Frederick Company. Incorporated herein by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994 between the
Registrant, Banela Corporation and Runham Corporation. Incorporated herein by
reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14, 1991
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution Agreement dated
June 14, 1991 between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.40 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement dated January
26, 1994 among the Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.41 to the Registrant's Annual
Report on
Form 10-K for the year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.42 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.42 -- License Agreement, dated as of March 29, 1995, among the Registrant, Hoffmann-La
Roche, Inc., and F. Hoffmann-La Roche Ltd. Incorporated herein by reference to
Exhibit 10.42 to Registration Statement No. 33-59479.
10.43 -- Amendment of ACC/ISI License Agreement, dated April 27, 1995, between Registrant
and Amarillo Cell Culture Company, Incorporated. Incorporated herein by reference
to Exhibit 10.43 to Registration Statement No. 33-59479.
10.44 -- Form of note issued by the Registrant to National Patent Development Corporation,
Biotechnology Investment Group, L.L.C., and Edward Blech Charitable Remainder
Trust. Incorporated herein by reference to Exhibit 10.44 to Registration Statement
No. 33-59479.
10.45 -- Form of note issued by the Registrant to National Patent Development Corporation
and Biotechnology Investment Group, L.L.C. Incorporated herein by reference to
Exhibit 10.45 to Registration Statement No. 33-59479.
10.46 -- Amendment, dated July 31, 1995, to the Distribution Agreement, dated June 14, 1991,
between the Registrant and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.46 to Registration Statement No. 33-59479.
10.47 -- Amendment, dated July 31, 1995, to the Amended and Restated Distribution Agreement,
dated June 14, 1991, between the Registrant and Mundipharma Pharmaceutical Company.
Incorporated herein by reference to Exhibit 10.47 to Registration Statement No.
33-59479.
10.48 -- Letter dated July 31, 1995, between The Purdue Frederick Company and the Registrant
Incorporated herein by reference to Exhibit 10.48 to the Registration Statement No.
33-59479.
10.49 -- Letter dated July 31, 1995, by and among the Registrant, Banela Corporation, and
Runham Corporation. Incorporated herein by reference to Exhibit 10.49 to
Registration Statement
No. 33-59479.
10.50 -- Amended and Restated R S Agreement, dated July 31, 1995, by and among the
Registrant, Mundipharma Pharmaceutical Company, and Purdue Pharma L.P. Incorporated
herein by reference to Exhibit 10.50 to Registration Statement No. 33-59479.
</TABLE>
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<PAGE> 86
<TABLE>
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10.51 -- Settlement Agreement, dated April 27, 1995, among the Registrant, Amarillo Cell
Culture Company, Incorporated, Pharma Pacific Management Pty. Ltd., Pharma Pacific
Pty. Ltd., Pharma Pacific Ltd., and Fernz Corporation Limited. Incorporated herein
by reference to Exhibit 10.51 to Registration Statement No. 33-59479.
10.52 -- PPM/ACC Sub License Agreement, dated April 27, 1995, between Pharma Pacific
Management Pty. Ltd and Amarillo Cell Culture Company, Incorporated. Incorporated
herein by reference to Exhibit 10.52 to Registration Statement No. 33-59479.
10.53 -- Letter Agreement, dated April 29, 1992, between the Registrant and Strategic Growth
International, Inc. Incorporated herein by reference to Exhibit 10.53 to
Registration Statement No. 33-59479.
10.54 -- Agreement, dated May 27, 1993, between the Registrant and Strategic Growth
International, Inc. Incorporated herein by reference to Exhibit 10.54 to
Registration Statement No. 33-59479.
10.55 -- Lease Agreement, dated August 1, 1995, between the Registrant and National Patent
Development Corporation. Incorporated herein by reference to Exhibit 10.55 to
Registration Statement No. 33-59479.
10.56 -- Amendment dated January 1, 1996 to Management Services Agreement dated January 1,
1981 between the Registrant and National Patent Development Corporation.
Incorporated herein by reference to Exhibit 10.47 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
10.56 -- Supply and Distribution Agreement, dated as of April 3, 1996, between the
Registrant and Cell Pharm GmbH.**
10.57 -- Quality Assurance Agreement, dated as of April 3, 1996, between the Registrant and
Cell Pharm GmbH.**
10.58 -- RS Agreement, dated April 23, 1996, by and among the Registrant, Mundipharma
Pharmaceutical Company, and Purdue Pharma L.P.**
10.59 -- Agreement, dated April 23, 1996, between the Registrant and Purdue Pharma L.P.**
10.60 -- Agreement, dated April 23, 1996, between the Registrant and Mundipharma
Pharmaceutical Company.**
23.1 -- Consent of Independent Auditors.**
23.2 -- Consent of Andrea D. Kantor (included in Exhibit 5.1).**
</TABLE>
(b) Financial Statement Schedules:
None
- ---------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
A. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
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<PAGE> 87
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remains unsold at the
termination of the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and the State of New York, on this
23rd day of April, 1996.
INTERFERON SCIENCES, INC.
By: /s/ LAWRENCE M. GORDON
------------------------------------
Lawrence M. Gordon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in
their capacities on April 23, 1996.
<TABLE>
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/s/ MARTIN M. POLLAK Chairman of the Board
- ---------------------------------------------
Martin M. Pollak
/s/ JEROME I. FELDMAN Chairman of the Board's Executive Committee,
- --------------------------------------------- Treasurer and Director
Jerome I. Feldman
/s/ SAMUEL H. RONEL, PH.D. Vice Chairman of the Board
- ---------------------------------------------
Samuel H. Ronel, Ph.D.
/s/ LAWRENCE M. GORDON Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Lawrence M. Gordon
/s/ STANLEY G. SCHUTZBANK, PH.D. President and Director
- ---------------------------------------------
Stanley G. Schutzbank, Ph.D.
Director
- ---------------------------------------------
Leon Botstein, Ph.D.
Director
- ---------------------------------------------
Sheldon L. Glashow, Ph.D
/s/ SCOTT N. GREENBERG Director
- ---------------------------------------------
Scott N. Greenberg
Director
- ---------------------------------------------
Roald Hoffmann, Ph.D
/s/ OGDEN R. REID Director
- ---------------------------------------------
Ogden R. Reid
/s/ DONALD W. ANDERSON Controller (Principal Accounting and Financial
- --------------------------------------------- Officer)
Donald W. Anderson
</TABLE>
The foregoing constitute a majority of the members of the Board of
Directors.
II-7
<PAGE> 89
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement between the Registrant and Sunrise
Securities Corp.*
1.2 -- Form of Subscription Agreement.*
1.3 -- Escrow Agreement among the Registrant, Sunrise Securities Corp., and
Bank of Montreal Trust Company.**
3.1 -- Restated Certificate of Incorporation of the Registrant. Incorporated
herein by reference to Exhibit 3B of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.
3.2 -- Certificate of Amendment of Restated Certificate of Incorporation of the
Registrant. Incorporated herein by reference to Exhibit 3.4 of
Registration Statement No. 33-40902.
3.3 -- Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant. Incorporated herein by reference to Exhibit 3.2 of
Registration Statement No. 33-78952.
3.4 -- Certificate of Amendment to the Restated Certificate of Incorporation of
the Registrant*
3.5 -- By-Laws of the Registrant, as amended. Incorporated herein by reference
to Exhibit 3.2 of Registration Statement No. 2-7117.
4.1 -- Underwriter's Warrant dated October 29, 1991 between the Registrant and
Commonwealth Associates. Incorporated herein by reference to Exhibit 4.2
of Registration Statement No. 33-40902.
4.2 -- Agam Warrant dated October 29, 1991 between the Registrant and Jacob
Agam. Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991.
4.3 -- Form of Purchase Option issued to the Underwriter in connection with the
August/September Offering. Incorporated herein by reference to Exhibit
4.1 of Registration Statement No. 33-59479.
4.4 -- Form of Underwriter's Purchase Options.*
5.1 -- Opinion of Andrea D. Kantor, Esq., Associate General Counsel of the
Registrant, as to the legality of the securities being registered.**
10.1 -- Transfer and License Agreement among National Patent, Hydron
Laboratories, Inc. and the Registrant dated as of January 1, 1981.
Incorporated herein by reference to Exhibit 10.8 of the Registrant's
Registration Statement No. 2-71117.
10.2 -- Management Services Agreement dated January 1, 1981 between the
Registrant and National Patent. Incorporated herein by reference to
Exhibit 10.9 of Registration Statement No. 2-71117.
10.3 -- Registrant's 1981 Stock Option Plan, as amended. Incorporated herein by
reference to Exhibit 10.3 to Registration Statement No. 33-59479.
10.4 -- Cross License Agreement dated October 26, 1984 between Registrant and
the Partnership. Incorporated herein by reference to Exhibit 10V of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1984.
10.5 -- Deleted
10.6 -- Deleted
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.7 -- Deleted
10.8 -- Deleted
10.9 -- Supply Agreement dated September 25, 1992 between the Registrant and
Celltech Limited. Incorporated herein by reference to Exhibit 10.27 of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1992.
10.10 -- Deleted
10.11 -- Profit Sharing Plan of the Registrant. Incorporated herein by reference
to Exhibit 10X of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.
10.12 -- License Agreement dated October 20, 1989 between the Registrant and
Amarillo Cell Culture Company, Incorporated. Incorporated herein by
reference to Exhibit 10Y of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989.
10.13 -- Deleted
10.14 -- Deleted
10.15 -- Distribution Agreement dated June 14, 1991 between Purdue Pharma L.P.
and the Registrant. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-40902.
10.16 -- Amended and Restated Distribution Agreement dated June 14, 1991 between
Mundipharma Pharmaceutical Corporation and the Registrant. Incorporated
herein by reference to Exhibit 10.27 of Registration Statement No.
33-40902.
10.17 -- Deleted
10.18 -- NPDC 401(k) Savings Plan dated January 9, 1992 effective March 1, 1992,
Incorporated herein by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1992.
10.19 -- Amendment dated January 26, 1994 to the Distribution Agreement dated
June 14, 1991 between the Registrant and Purdue Pharma L.P. Incorporated
herein by to Exhibit 10.18 to the Registrant's Annual Report on Form
10-K for the Year ended December 31, 1993.
10.20 -- Amendment dated January 26, 1994 to the Amended and Restated
Distribution Agreement dated June 14, 1991 between the Registrant and
Mundipharma Pharmaceutical Company. Incorporated herein by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.
10.21 -- Amended and Restated RS Agreement dated January 26, 1994 among the
Registrant, Mundipharma Pharmaceutical Company and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1993.
10.22 -- Agreement dated January 26, 1994 between the Registrant and The Purdue
Frederick Company. Incorporated herein by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the Year ended December
31, 1993.
10.23 -- Agreement dated January 26, 1994 among the Registrant, Banela
Corporation and Runham Corporation. Incorporated herein by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
Year ended December 31, 1993.
10.24 -- Deleted
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.25 -- Purchase Agreement dated as of May 28, 1993 between the Registrant and
David Blech. Incorporated herein by reference to Exhibit 10.26 of
Registration Statement No. 33-78952.
10.26 -- Form of Warrant to be issued pursuant to the Purchase Agreement.
Incorporated herein by reference to Exhibit 10.28 of Registration
Statement No. 33-78952.
10.27 -- Distribution Agreement dated as of February 3, 1994 between Registrant
and Industria Farmaceutica Andromaco, S.A. Incorporated herein by
reference to Exhibit 6(a) to the Registrant's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 1994.
10.28 -- Processing and Supply Agreement dated as of September 1, 1994 between
Registrant and Sanofi Winthrop L.P. Incorporated herein by reference to
Exhibit 6(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
10.29 -- Amendment dated March 24, 1995 to Distribution Agreement dated as of
February 3, 1994 between Registrant and Industria Farmaceutica Andromaco
S.A. Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.30 -- Purchase and Exchange Agreement dated as of December 6, 1994 between the
Registrant, David Blech and certain designated purchasers. Incorporated
herein by reference to Exhibit 10.31 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.31 -- Purchase and Exchange Agreement dated as of January 31, 1995 between the
Registrant and Neoprobe Corp. Incorporated herein by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.32 -- Stock Purchase Agreement dated as of January 24, 1995 between the
Registrant and Fujimoto Diagnostics, Inc. Incorporated herein by
reference to Exhibit 10.33 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.33 -- Agreement dated as of January 24, 1995 between the Registrant and
Fujimoto Diagnostics, Inc. Incorporated herein by reference to Exhibit
10.34 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.34 -- Form of Stock Agreement dated as of August 31, 1994 between the
Registrant and Dimensional Funds Advisors, Inc. Incorporated herein by
reference to Exhibit 10.35 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.35 -- Form of Warrant Agreement dated as of August 31, 1994 between the
Registrant and Capello Capital Corp. Incorporated herein by reference to
Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
10.36 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant and Purdue Frederick Company. Incorporated herein
by reference to Exhibit 10.37 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.37 -- Amendment dated March 29, 1995 to Agreement dated January 26, 1994
between the Registrant, Banela Corporation and Runham Corporation.
Incorporated herein by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.38 -- Amendment dated March 29, 1995 to Distribution Agreement dated June 14,
1991 between the Registrant and Purdue Pharma L.P. Incorporated herein
by reference to Exhibit 10.39 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
10.39 -- Amendment dated March 29, 1995 to Amended and Restated Distribution
Agreement dated June 14, 1991 between the Registrant and Mundipharma
Pharmaceutical Company. Incorporated herein by reference to Exhibit
10.40 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.40 -- Amendment dated March 29, 1995 to Amended and Restated RS Agreement
dated January 26, 1994 among the Registrant, Mundipharma Pharmaceutical
Company and Purdue Pharma L.P. Incorporated herein by reference to
Exhibit 10.41 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.41 -- Letter dated March 29, 1995 between the Registrant and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.
10.42 -- License Agreement, dated as of March 29, 1995, among the Registrant,
Hoffmann-La Roche, Inc., and F. Hoffmann-La Roche Ltd. Incorporated
herein by reference to Exhibit 10.42 to Registration Statement No.
33-59479.
10.43 -- Amendment of ACC/ISI License Agreement, dated April 27, 1995, between
Registrant and Amarillo Cell Culture Company, Incorporated. Incorporated
herein by reference to Exhibit 10.43 to Registration Statement No.
33-59479.
10.44 -- Form of note issued by the Registrant to National Patent Development
Corporation, Biotechnology Investment Group, L.L.C., and Edward Blech
Charitable Remainder Trust. Incorporated herein by reference to Exhibit
10.44 to Registration Statement No. 33-59479.
10.45 -- Form of note issued by the Registrant to National Patent Development
Corporation and Biotechnology Investment Group, L.L.C. Incorporated
herein by reference to Exhibit 10.45 to Registration Statement No.
33-59479.
10.46 -- Amendment, dated July 31, 1995, to the Distribution Agreement, dated
June 14, 1991, between the Registrant and Purdue Pharma L.P.
Incorporated herein by reference to Exhibit 10.46 to Registration
Statement No. 33-59479.
10.47 -- Amendment, dated July 31, 1995, to the Amended and Restated Distribution
Agreement, dated June 14, 1991, between the Registrant and Mundipharma
Pharmaceutical Company. Incorporated herein by reference to Exhibit
10.47 to Registration Statement No. 33-59479.
10.48 -- Letter dated July 31, 1995, between The Purdue Frederick Company and the
Registrant Incorporated herein by reference to Exhibit 10.48 to the
Registration Statement No. 33-59479.
10.49 -- Letter dated July 31, 1995, by and among the Registrant, Banela
Corporation, and Runham Corporation. Incorporated herein by reference to
Exhibit 10.49 to Registration Statement
No. 33-59479.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
</TABLE>
<TABLE>
<C> <C> <S> <C>
10.50 -- Amended and Restated R S Agreement, dated July 31, 1995, by and among
the Registrant, Mundipharma Pharmaceutical Company, and Purdue Pharma
L.P. Incorporated herein by reference to Exhibit 10.50 to Registration
Statement No. 33- 59479.
10.51 -- Settlement Agreement, dated April 27, 1995, among the Registrant,
Amarillo Cell Culture Company, Incorporated, Pharma Pacific Management
Pty. Ltd., Pharma Pacific Pty. Ltd., Pharma Pacific Ltd., and Fernz
Corporation Limited. Incorporated herein by reference to Exhibit 10.51
to Registration Statement No. 33-59479.
10.52 -- PPM/ACC Sub License Agreement, dated April 27, 1995, between Pharma
Pacific Management Pty. Ltd and Amarillo Cell Culture Company,
Incorporated. Incorporated herein by reference to Exhibit 10.52 to
Registration Statement No. 33-59479.
10.53 -- Letter Agreement, dated April 29, 1992, between the Registrant and
Strategic Growth International, Inc. Incorporated herein by reference to
Exhibit 10.53 to Registration Statement No. 33-59479.
10.54 -- Agreement, dated May 27, 1993, between the Registrant and Strategic
Growth International, Inc. Incorporated herein by reference to Exhibit
10.54 to Registration Statement No. 33-59479.
10.55 -- Lease Agreement, dated August 1, 1995, between the Registrant and
National Patent Development Corporation. Incorporated herein by
reference to Exhibit 10.55 to Registration Statement No. 33-59479.
10.56 -- Amendment dated January 1, 1996 to Management Services Agreement dated
January 1, 1981 between the Registrant and National Patent Development
Corporation. Incorporated herein by reference to Exhibit 10.47 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
10.56 -- Supply and Distribution Agreement, dated as of April 3, 1996, between
the Registrant and Cell Pharm GmbH.**
10.57 -- Quality Assurance Agreement, dated as of April 3, 1996, between the
Registrant and Cell Pharm GmbH.**
10.58 -- RS Agreement, dated April 23, 1996, by and among the Registrant,
Mundipharma Pharmaceutical Company, and Purdue Pharma L.P.**
10.59 -- Agreement, dated April 23, 1996, between the Registrant and Purdue
Pharma L.P.**
10.60 -- Agreement, dated April 23, 1996, between the Registrant and Mundipharma
Pharmaceutical Company.**
23.1 -- Consent of Independent Auditors.**
23.2 -- Consent of Andrea D. Kantor (included in Exhibit 5.1).**
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
Exhibit 1.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made as of the __ day of
______, 1996, among Interferon Sciences, Inc. a Delaware corporation (the
"Company"), Sunrise Securities Corp. (the "Underwriter"), and Bank of Montreal
Trust Company (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Company proposes to offer and sell a minimum of 5,000,000
and a maximum of 8,000,000 shares (the "Shares") of common stock, par value $.01
per share, of the Company in an offering (the "Offering") registered pursuant to
a Registration Statement (as amended, the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "SEC"); and
WHEREAS, the Underwriter has agreed to offer the Shares as the agent of
the Company on a "best efforts" basis; and
WHEREAS, the Company needs to provide for the safekeeping and
investment of the proceeds of the sale of the Shares until such time as the
Company accepts subscriptions for at least 5,000,000 Shares (excluding Shares
sold to the Company's officers, directors, employees, and principal
stockholders) and the proceeds of the sale of such Shares are deposited with the
Escrow Agent (the "Minimum Subscription") or until such time as the Offering
terminates and the Escrow Agent is required to return such proceeds to the
subscribers as provided for herein; and
WHEREAS, the form of subscription agreement (the "Subscription
Agreement") for the Offering provides that the purchase price of the Shares will
be directly wired to the Escrow Agent; and
WHEREAS, the Escrow Agent is a bank, as defined in Section 3(a)(6) of
the Securities Exchange Act of 1934 (a "Bank"), and has consented to act as
escrow depository and to receive and hold the funds deposited pursuant thereto
in escrow for the Company and the various subscribers;
NOW, THEREFORE, in consideration of the mutual promises of the parties,
it is hereby agreed as follows:
SECTION 1. Delivery of Registration Statement. The Company shall
deliver to the Escrow Agent a conformed copy of the Registration Statement, and
any amendments thereto.
SECTION 2. Escrow Deposit. The Escrow Agent shall receive and hold
funds in payment for the Shares, together with any interest earned on such
funds, in an escrow account designated
<PAGE> 2
as "Interferon Sciences Escrow Account" (the "Escrow Account") upon the terms
and conditions stated herein.
SECTION 3. List of Subscribers. The Underwriter shall furnish or cause
to be furnished to the Escrow Agent, not less than daily, a list, substantially
in the form of Exhibit A hereto, containing the name of, the address of, the
number of Shares subscribed for by, the subscription amount the Underwriter had
been advised had been delivered that day to the Escrow Agent on behalf of, and
the social security or tax identification number, if applicable, of each
subscriber whose funds the Underwriter had been advised had been delivered that
day to the Escrow Agent. Such list shall be accompanied by a completed W-9 form
(or, in the case of any subscriber who is not a United States citizen or
resident, a completed W-8 form) for each listed subscriber. The Escrow Agent
shall notify the Underwriter and the Company of any discrepancy between the
subscription amounts set forth on any list delivered pursuant to this Section 3
and the subscription amounts received by the Escrow Agent. The Escrow Agent is
authorized to revise such list to reflect the actual subscription amounts
received and the release of any subscription amounts pursuant to Section 5. Any
provision of this Agreement to the contrary notwithstanding, until the Escrow
Agent has received a list reflecting a subscriber's subscription, the Escrow
Agent shall have no obligation to deposit or invest the funds received from such
subscriber.
SECTION 4. Investment of Escrow Funds. All funds deposited pursuant to
this Agreement shall be deposited by the Escrow Agent, at reasonable and
convenient times after receipt, in a money market account which invests all of
its assets in short-term obligations backed by the full faith and credit of the
United States of America. All funds will be invested only in investments
permissible under SEC Rule 15c2-4, it being understood that investment in the
above-described escrow account is permissible under such rule.
SECTION 5. Termination of Escrow.
(a) At such time as the Company and Underwriter jointly notify
the Escrow Agent in writing that the Company has accepted Subscription
Agreements for at least the Minimum Subscription and that the other conditions
for a closing of all or a portion of the Shares have been met and the Escrow
Agent has received available good funds for at least the Minimum Subscription,
the Escrow Agent shall promptly release to the Company all cleared funds then
deposited pursuant to this Agreement, together with any interest earned thereon.
(b) If the Escrow Agent has previously released to the Company
pursuant to Section 5(a) all funds then deposited pursuant to this Agreement,
the Escrow Agent shall promptly release to the Company all additional funds
deposited pursuant to this Agreement, together with any interest earned thereon,
upon joint written notice from the Company and the Underwriter that the Company
has accepted additional Subscription Agreements and that the conditions for an
additional closing of a portion of the Shares have been met.
(c) As soon as practicable after the earlier of (i) the
receipt of joint written instructions from the Company and the Underwriter to
comply with the provisions of this Section
2
<PAGE> 3
5(c) and (ii) 60 days after the date that the Registration Statement is declared
effective by the SEC, this Agreement shall terminate and the Escrow Agent shall
return all funds then held, without interest, to the subscribers depositing such
funds, and the Escrow Agent shall pay all interest to the Company.
SECTION 6. Books and Records. During the term of this Escrow Agreement,
the Escrow Agent shall keep accurate books and records of all transaction
hereunder. The Company and Underwriter shall have access to such books and
records at all reasonable times.
SECTION 7. Compensation. The Escrow Agent shall receive as compensation
for services hereunder the sum of $2,500 plus transaction fees equal to $5.00
per check issued, and $15.00 per wire transfer, by the Escrow Agent. Any
additional services requested beyond the scope and time frame of this Agreement
shall be assessed in a reasonable amount commensurate with the services
rendered.
SECTION 8. Indemnification. The Company hereby agrees to indemnify and
hold harmless the Escrow Agent against any and all losses, claims, damages,
liabilities, and reasonable expenses, including reasonable administrative and
counsel fees, which may be imposed upon the Escrow Agent or incurred by the
Escrow Agent in connection with the performance of its duties hereunder or by
reason of any litigation arising from this Escrow Agreement or involving the
subject matter hereof or the funds deposited hereunder; provided, however, that
such indemnity shall not extend to any such losses, claims, damages,
liabilities, or expenses which are so imposed upon or incurred by the Escrow
Agent by reason of its failure to perform or observe any of its obligations
hereunder.
SECTION 9. Transfer. Any party may terminate this Agreement on 30 days'
prior written notice to the others provided that, prior to the effective date of
termination hereof, a Bank acceptable to the Company and Underwriter has agreed
to act as escrow agent under terms substantially identical hereto and the Escrow
Agent has transferred to such Bank all funds, interest, records, and other
materials held by it as Escrow Agent.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers or representatives as of the day and
year first above written.
INTERFERON SCIENCES, INC.
By:________________________
Name:______________________
Title:_____________________
SUNRISE SECURITIES CORP.
By:________________________
Name:______________________
Title:_____________________
BANK OF MONTREAL TRUST
COMPANY
By:________________________
Name:______________________
Title:_____________________
4
<PAGE> 5
EXHIBIT A
INTERFERON SCIENCES, INC./SUNRISE SECURITIES CORP.
SUMMARY OF CASH RECEIVED
NEW PARTICIPANT DEPOSIT
Deposit Date: _________________ Date:___________________
Investment Date: ______________ List Number_____________
Batch Number: _________________ Page __ of______________
Approved By:____________
For Bank Use Only
TITLE: ________________________ JOB#:___________________
<TABLE>
<CAPTION>
ORIGINATING BANK
NAME DEPOSIT SHARES ADDRESS TAX ID NUMBER FOR BANK USE ONLY AND FED. REFERENCE #
<S> <C> <C> <C> <C> <C> <C>
TAX CODE
EXEMPT (Y/N)
W-9(YR) NRS
W-8(YR)
1000(B7)
- ------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III
TAX CODE
EXEMPT (Y/N)
W-9(YR) NRS
W-8(YR)
1000(B7)
- ------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III
TAX CODE
EXEMPT (Y/N)
W-9(YR) NRS
W-8(YR)
1000(B7)
- ------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III
TAX CODE
EXEMPT (Y/N)
W-9(YR) NRS
W-8(YR)
1000(B7)
- ------------------------------------------------------------------------------------------------------------------------
Broker Misc. Misc. II Misc. III
</TABLE>
A - 1
<PAGE> 1
EXHIBIT 5.1
INTERFERON SCIENCES, INC. [LOGO] [LETTERHEAD]
April 23, 1996
Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901
Gentlemen:
Reference is made to the Registration Statement on Form S-2 (Registration
No. 333-00845) of Interferon Sciences, Inc. (the "Company") relating to the
registration of shares of the Company's common stock, par value $.01 per share
(the "Common Stock").
I am Associate General Counsel of the Company, and have examined such
corporate records and other documents as I have deemed relevant. Based upon the
above, I am of the opinion that the Common Stock to be sold pursuant to the
Registration Statement is validly authorized and issued, fully paid, and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of my name in the Prospectus.
Very truly yours,
Andrea D. Kantor
<PAGE> 1
SUPPLY AND DISTRIBUTION AGREEMENT
Agreement, dated as of April 3, 1996, between INTERFERON SCIENCES,
INC., a Delaware corporation having its office at 783 Jersey Avenue, New
Brunswick, NJ 08901, USA ("INTERFERON SCIENCES"), and Cell Pharm GmbH, a company
incorporated under the laws of Germany having its office at Medical Park, Feodor
Lynen Strasse 23, D-30625 Hannover, Germany ("CELL PHARM").
WHEREAS, INTERFERON SCIENCES has developed and owns certain
registration documentation for a product Alferon(R) N Injection with its active
ingredient human leukocyte interferon, allowing INTERFERON SCIENCES to sell such
product in the USA; and
WHEREAS, CELL PHARM has developed and owns certain registration
documentation for a product cellferon(R) Injektion with its active ingredient
human leukocyte interferon, allowing CELL PHARM to sell such product in Germany;
and
WHEREAS, CELL PHARM wishes to obtain human leukocyte interferon for its
product from INTERFERON SCIENCES instead of its present supplier, and has
obtained the approval necessary to change its supplier from the Bundesinstitut
for Arzneimittel und Medizinprodukte (Federal Institute for Drugs and Medical
Devices); and
WHEREAS, INTERFERON SCIENCES is willing to supply its formulation of
human leukocyte interferon to CELL PHARM under the terms and conditions herein
set forth;
NOW, THEREFORE, INTERFERON SCIENCES and CELL PHARM, in view of the
foregoing premises and in consideration of the terms and conditions hereafter
set forth and intending to be legally bound, agree as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following terms shall have the following meanings
ascribed to them:
(a) "ACTIVE INGREDIENT" means Interferon Alfa-n3 in liquid
injectable dosage form at a concentration level of 1,000,000
IU/.2 ml.
(b) "AFFILIATE" means, with respect to either PARTY, a PERSON
controlling, controlled by, or under common control with that
party.
(c) "AGREEMENT" means this Supply and Distribution Agreement, as
it may be amended from time to time.
(d) "ANNUAL PERIOD" means the period commencing on July 1 of each
year and ending on June 30 of the following year, except that
the first Annual Period
<PAGE> 2
shall commence on the date hereof and end on June 30, 1997
(and shall be deemed to have five quarters, the first quarter
ending on June 30, 1996) and the last Annual Period shall end
on the date of termination of this AGREEMENT.
(e) "AVERAGE NET SELLING PRICE" of the PRODUCTS in an ANNUAL
PERIOD means the average invoiced selling price of PRODUCTS
sold by CELL PHARM or its AFFILIATES in such ANNUAL PERIOD
less all of the following: discounts, allowances, returns,
and, to the extent invoiced to and separately paid by the
customer, sales taxes, duties, shipping charges, and
insurance.
(f) "CELL PHARM" means CELL PHARM GmbH, a company incorporated
under the laws of Germany, and its permitted successors and
assigns.
(g) "FDA" means the United States Food and Drug Administration.
(h) "INTERFERON SCIENCES" means INTERFERON SCIENCES, INC., a
Delaware corporation, and its permitted successors and
assigns.
(i) "PARTICIPATE IN" means directly or indirectly, for its or his
own benefit or for, with, or through any other person or
entity, own, manage, operate, control, loan money to, or
participate in the ownership, management, operation, or
control of, or be connected as a director, officer, employee,
partner, licensor, licensee, consultant, distributor, agent,
independent contractor, or otherwise with, or acquiesce in the
use of its or his name in.
(j) "PARTIES" means CELL PHARM and INTERFERON SCIENCES.
(k) "PERSON" means and includes an individual, a corporation, a
partnership, or any other entity or association.
(l) "PORT OF ENTRY" means, at the option of INTERFERON SCIENCES,
Hamburg, Frankfurt, or Hannover, Germany.
(m) "PRODUCT" means a vial of the ACTIVE INGREDIENT which conforms
to the Specifications and contains 5,000,000 IU of the ACTIVE
INGREDIENT.
(n) "SPECIFICATIONS" means the pharmaceutical, microbial,
biochemical, and physical specifications (other than
individual vial packaging and labelling) for a vial of the
ACTIVE INGREDIENT as approved by the FDA from time to time.
(o) "TERM" means the duration of this Agreement, as set out in
Section 19.1.
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(p) "TERRITORY" means Germany.
(q) "$" means United States dollars.
1.2 If any term or provision of this AGREEMENT is held invalid or
unenforceable, the remaining terms and provisions hereof shall not be
affected, but shall be valid and enforceable to the fullest extent
permitted by law.
1.3 This AGREEMENT and the Quality Assurance Agreement, dated as of the
date hereof, between the PARTIES incorporate the entire understanding
of the PARTIES in relation to the subject matter hereof and revoke and
supersede any and all agreements, contracts, understandings, and
arrangements that might have existed regarding such subject matter
between the PARTIES.
1.4 Subject to Section 18.1, this AGREEMENT, including the validity,
construction, interpretation, and performance hereof, shall be governed
by the laws of Switzerland, without giving effect to conflicts of law.
1.5 The headings used in this AGREEMENT are intended for help only and
shall not be considered part of the written understanding between the
PARTIES.
2. APPOINTMENT OF DISTRIBUTOR
2.1 INTERFERON SCIENCES grants to CELL PHARM on an exclusive basis and CELL
PHARM accepts the right to distribute, promote, and sell PRODUCTS in
the TERRITORY during the TERM, upon and subject to the terms and
conditions set out in this AGREEMENT.
2.2 CELL PHARM shall purchase from INTERFERON SCIENCES all such quantities
of PRODUCTS as CELL PHARM shall require from time to time during the
TERM for the purposes of resale in the TERRITORY.
2.3 CELL PHARM shall not during the TERM purchase the ACTIVE INGREDIENT or
PRODUCTS from any Person other than INTERFERON SCIENCES or a supplier
designated by INTERFERON SCIENCES. CELL PHARM is not authorized to
itself manufacture the ACTIVE INGREDIENTS or PRODUCTS, unless otherwise
separately agreed under the express terms of a written licensing
agreement with INTERFERON SCIENCES. If the Bundesinstitut for
Arzneimittel und Medizinprodukte requires that CELL PHARM purchase
purified drug concentrate of the ACTIVE INGREDIENT rather than
PRODUCTS, the PARTIES agree to negotiate in good faith an amendment to
this AGREEMENT granting CELL PHARM rights and obligations with respect
to purified drug concentrate of the ACTIVE INGREDIENT comparable to
those granted in this AGREEMENT with respect to the PRODUCTS.
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2.4 CELL PHARM shall not directly or indirectly promote, sell, or
distribute the ACTIVE INGREDIENT or PRODUCTS outside the TERRITORY nor
establish any sales branch or warehouse outside the TERRITORY for the
purposes of sales of the ACTIVE INGREDIENT or PRODUCTS outside the
TERRITORY.
2.5 CELL PHARM may appoint sub-distributors for PRODUCTS in the TERRITORY,
subject to INTERFERON SCIENCES's prior written approval. The
appointment of a sub-distributor shall be on such terms and conditions
as CELL PHARM may require, but consistent with the terms and conditions
of this AGREEMENT.
3. INDEPENDENT TRADE STATUS
3.1 Each of the PARTIES in performing this AGREEMENT shall be and be deemed
to be acting as an independent contractor. Accordingly, CELL PHARM
shall purchase PRODUCTS from INTERFERON SCIENCES and resell them to
CELL PHARM's customers in CELL PHARM's name and for its own account.
Neither of the PARTIES shall have any authority whatsoever to act as
agent or representative of the other PARTY nor any authority or power
to contract or create any obligation or liability on behalf of the
other or otherwise bind the other in any way for any purpose.
3.2 All costs and expenses connected with the promotion, distribution, and
resale of the PRODUCTS in the TERRITORY shall be borne by CELL PHARM
except as otherwise specifically provided in this AGREEMENT.
3.3 INTERFERON SCIENCES shall have no control over CELL PHARM's choice
of customers or any other aspect of its business.
4. PRICE, PAYMENT TERMS, AND ANNUAL MINIMUM PURCHASE QUANTITIES
4.1 Subject to Section 4.9, the price for each PRODUCT purchased by CELL
PHARM in any ANNUAL PERIOD will initially be $65.00 for the first
25,000 PRODUCTS purchased in such ANNUAL PERIOD, $60.00 for the next
25,000 PRODUCTS purchased in such ANNUAL PERIOD, $55.00 for the next
50,000 PRODUCTS purchased in such ANNUAL PERIOD, and $50.00 for any
PRODUCTS in excess of 100,000 purchased in such ANNUAL PERIOD. There
shall be added to such prices the costs incurred by INTERFERON SCIENCES
to ship PRODUCTS to the PORT OF ENTRY and to insure such shipments. The
risk of loss or damage in shipping to the PORT OF ENTRY shall be borne
by INTERFERON SCIENCES.
4.2 Subject only to the exceptions described below in this Article 4, the
prices set forth in Section 4.1 shall be firm for all purchase orders
requisitioning PRODUCTS to be shipped in the first ANNUAL PERIOD. For
deliveries in any succeeding ANNUAL PERIOD, INTERFERON SCIENCES may
increase such prices to cover any increase in costs of materials,
direct labor, and overhead related thereto and, subject only to the
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exceptions described below in this Article 4, such prices shall be firm
for all purchase orders requisitioning PRODUCTS to be shipped in such
ANNUAL PERIOD. INTERFERON SCIENCES shall provide clear written
explanations for any cost increase, and CELL PHARM shall have the right
at its expense to have any increase in costs verified by an independent
certified public accountant prior to paying any price increase. Both
CELL PHARM and INTERFERON SCIENCES recognize that the prices in Section
4.1 do not provide for unexpected, substantial currency fluctuations.
Fluctuations exceeding plus or minus 5% of the exchange ratio on the
date hereof of $ for German Marks would be considered substantial. CELL
PHARM and INTERFERON SCIENCES agree to negotiate in good faith a
revised selling price in the event of such fluctuations throughout the
TERM.
4.3 The price of PRODUCTS delivered to CELL PHARM will be paid not more
than 30 days from the date of the airway bill in $ or any other
currency mutually agreed upon, by bank transfer to INTERFERON
SCIENCES's designated bank account, and be deemed paid when received.
CELL PHARM hereby orders 1,539 PRODUCTS at a price of $100,000 and
agrees to pay such amount not more than 15 days from the date of the
airway bill. CELL PHARM shall bear all costs in connection with
effecting payments, except that each PARTY shall bear its own bank fees
for money transfers. CELL PHARM will under no circumstances be liable
to pay for PRODUCTS not shipped to CELL PHARM. INTERFERON SCIENCES
reserves the right to unilaterally require other payment terms in the
event of any uncured defaults by CELL PHARM in making timely payments
for purchased PRODUCTS.
4.4 In addition to the per PRODUCT purchase price calculated as set forth
above, CELL PHARM shall pay INTERFERON SCIENCES 50% of the incremental
revenue received by CELL PHARM in each ANNUAL PERIOD as a result of the
AVERAGE NET SELLING PRICE of the PRODUCTS in that ANNUAL PERIOD
exceeding 280 German Marks. Within 30 days of the end of each ANNUAL
PERIOD, (a) CELL PHARM shall furnish to INTERFERON SCIENCES a schedule
setting forth the AVERAGE NET SELLING PRICE of the PRODUCTS, and the
number of PRODUCTS sold, in that ANNUAL PERIOD and (b) if any amount is
owed pursuant to this Section 4.4 with respect to such ANNUAL PERIOD,
CELL PHARM shall pay such amount in $ or any other currency mutually
agreed upon, by bank transfer to INTERFERON SCIENCES's designated bank
account, such payment to be deemed paid when received.
4.5 CELL PHARM shall keep records relating to the transactions covered by
this AGREEMENT in accordance with generally accepted accounting
principles, and such records shall be available for inspection by
INTERFERON SCIENCES's independent certified public accountant, under
the obligation of confidentiality, at reasonable intervals during
normal business hours at CELL PHARM's offices, only to confirm that the
correct amounts have been paid under Section 4.4. If such inspection
determines that (a) the difference between the amounts actually paid
under Section 4.4 and the
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correct amounts that should have been paid under Section 4.4 exceeds
(b) 2% of the amounts actually paid under Section 4.4, an adjusting
payment shall be made by the relevant PARTY not more than 30 days from
the date of such determination.
4.6 CELL PHARM will pay all German import duties, if any, and any
applicable sales or goods and services taxes imposed by the Government
of Germany, if any, or any Province thereof, except that each PARTY
shall share on an equitable basis any import duty payable solely
because Certificate of Origin Form A cannot be provided. INTERFERON
SCIENCES will pay all United States export duties, if any.
4.7 CELL PHARM shall be free to set its resale price for the PRODUCTS.
4.8 CELL PHARM shall purchase a minimum of 5,000 PRODUCTS in the first
ANNUAL PERIOD, 10,000 PRODUCTS in the second ANNUAL PERIOD, 15,000
PRODUCTS in the third ANNUAL PERIOD, 20,000 PRODUCTS in the fourth
ANNUAL PERIOD, and 25,000 PRODUCTS in the fifth ANNUAL PERIOD. The
minimum purchase requirement in each Annual Period commencing with the
sixth shall be agreed to in good faith prior to the extension of the
TERM to include such ANNUAL PERIOD.
4.9 INTERFERON SCIENCES agrees that CELL PHARM shall be entitled to
purchase up to 2,000 PRODUCTS in each ANNUAL PERIOD at the price
applicable for PRODUCTS in excess of 100,000 purchased in such ANNUAL
PERIOD even if less than 100,000 PRODUCTS have been purchased in such
ANNUAL PERIOD, provided that such PRODUCTS are used in clinical trials
and CELL PHARM receives no payment for such PRODUCTS from any source.
Any PRODUCTS so purchased shall not be considered PRODUCTS purchased in
such ANNUAL PERIOD for purposes of determining the price of other
PRODUCTS purchased in such ANNUAL PERIOD.
5. ORDERS, PRODUCTION PLANNING, AND REPORTS
5.1 CELL PHARM shall order PRODUCTS from INTERFERON SCIENCES with a written
purchase order setting forth the number of PRODUCTS ordered and the
desired delivery date. CELL PHARM acknowledges that orders should
generally be placed at least four months prior to the desired delivery
date. An order shall be accepted only by written confirmation from
INTERFERON SCIENCES.
5.2 On the date hereof, CELL PHARM shall furnish INTERFERON SCIENCES with
its projected requirements of PRODUCTS for each of the quarters of the
first ANNUAL PERIOD. On the first day of the second quarter of the
first ANNUAL PERIOD, and the first day of every quarter thereafter
during the TERM, CELL PHARM shall give INTERFERON SCIENCES its
projected requirement for the fourth succeeding quarter and an update
of the projections already given. The projections furnished shall be
for the purpose of aiding INTERFERON SCIENCES's production schedule but
shall not be binding on CELL PHARM.
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5.3 Within thirty days from the end of each quarter of each ANNUAL PERIOD,
CELL PHARM shall furnish to INTERFERON SCIENCES a schedule setting
forth the number of PRODUCTS sold in that quarter, and shall furnish to
INTERFERON SCIENCES such additional information concerning such matters
as INTERFERON SCIENCES may reasonably require from time to time.
6. QUALITY OF PRODUCTS
6.1 INTERFERON SCIENCES warrants to CELL PHARM that upon delivery at the
PORT OF ENTRY all of the PRODUCTS shall meet the SPECIFICATIONS.
6.2 NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE MADE OR WILL
BE DEEMED TO HAVE BEEN MADE BY INTERFERON SCIENCES REGARDING THE
PRODUCTS, EXCEPT TO THE EXTENT EXPRESSLY STATED HEREIN. Neither CELL
PHARM nor any of its employees, agents, or representatives is
authorized to give any warranties or make any representations on behalf
of INTERFERON SCIENCES. In no event shall INTERFERON SCIENCES be held
liable for any lost profits or any other incidental or consequential
damages in connection with any claims arising out of or related to any
PRODUCTS supplied by INTERFERON SCIENCES to CELL PHARM.
6.3 CELL PHARM will promptly upon receipt of PRODUCTS inspect and analyze
or cause to be inspected and analyzed each batch of PRODUCTS delivered.
Any claims regarding the quality or quantity of PRODUCTS delivered
shall be made in writing specifying in reasonable detail the nature or
basis for the claim and citing relevant control numbers or other
information to enable specific identification of the PRODUCTS in
question. CELL PHARM shall be deemed to have waived all claims against
INTERFERON SCIENCES in connection with any PRODUCTS, and such PRODUCTS
shall be deemed to have met the SPECIFICATIONS upon delivery at the
PORT OF ENTRY, if no such claim is made within 30 days of shipment of
such PRODUCTS. All claims timely received by INTERFERON SCIENCES from
CELL PHARM regarding PRODUCTS shall be handled on a case by case basis
during which time INTERFERON SCIENCES or its designee shall have the
right to first inspect any PRODUCTS involved before being required to
take any action with respect thereto.
6.4 If the PARTIES fail to agree as to whether a delivered quantity of
PRODUCTS met the SPECIFICATIONS upon delivery at the PORT OF ENTRY,
then the PARTIES shall co-operate to have the batch in dispute analyzed
by an internationally recognized independent testing laboratory (e.g.
the "Zentrallaboratorium Deutscher Apotheker", with offices in
Eschorn/Frankfort, or the Paul Ehrlich Institute for Sera and Vaccines)
selected by the agreement of the PARTIES. The results of said
laboratory's testing shall be deemed final as to any dispute over
whether PRODUCTS met the SPECIFICATIONS upon delivery at the PORT OF
ENTRY. If said batch of
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PRODUCTS was determined to have met the SPECIFICATIONS upon delivery at
the PORT OF ENTRY, then CELL PHARM shall bear all costs of the
independent laboratory testing. If said batch of the PRODUCTS was
determined not to have met the SPECIFICATIONS upon delivery at the PORT
OF ENTRY, then CELL PHARM shall return to INTERFERON SCIENCES or
dispose of such quantity of the PRODUCTS as was determined not to have
met the SPECIFICATIONS upon delivery at the PORT OF ENTRY in such
manner as INTERFERON SCIENCES shall direct and at INTERFERON
SCIENCES's expense and INTERFERON SCIENCES shall in such case bear
all costs of the independent laboratory testing.
6.5 Any quantity of the PRODUCTS found not to have met the SPECIFICATIONS
upon delivery at the PORT OF ENTRY will be replaced with conforming
PRODUCTS or INTERFERON SCIENCES may, at its option, credit CELL PHARM's
account for the purchase price thereof, it being expressly agreed by
the PARTIES that such replacement or credit shall be the sole and
exclusive remedy of CELL PHARM for INTERFERON SCIENCES's delivering
PRODUCTS that did not meet the SPECIFICATIONS upon delivery at the PORT
OF ENTRY.
6.6 CELL PHARM shall not make any alteration or permit alterations to be
made to the PRODUCTS.
6.7 Each of the PARTIES agrees to provide to the other promptly all
clinical and technical information, data, and know-how which it
develops during the TERM concerning the use and sale of the PRODUCTS.
Each PARTY shall inform the other immediately of any adverse experience
associated with PRODUCTS which comes to its attention.
7. THIRD PARTY CLAIMS
7.1 INTERFERON SCIENCES shall indemnify CELL PHARM against claims for death
or personal injury resulting from any proper third party claims,
demands, proceedings, actions, and judgements to the extent determined
to have arisen out of and been caused solely by the fault, negligence,
or wrongdoing of INTERFERON SCIENCES in the manufacture or formulation
of PRODUCTS and provided that CELL PHARM shall have first promptly
notified INTERFERON SCIENCES in writing of the existence of any such
claim, demand, proceeding, or action made against CELL PHARM and have
permitted INTERFERON SCIENCES to deal with the same in such manner as
INTERFERON SCIENCES deems necessary or appropriate. CELL PHARM shall
render such assistance as INTERFERON SCIENCES may reasonably request in
dealing with the same and CELL PHARM agrees not to settle any such
claim or demand or take any action which would compromise or prejudice
INTERFERON SCIENCES's interests relating thereto without the prior
consultation and written consent of INTERFERON SCIENCES, otherwise CELL
PHARM shall have been deemed to have waived its indemnification rights
hereunder.
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7.2 CELL PHARM shall defend, indemnify, and hold INTERFERON SCIENCES
harmless from and against all claims, actions, demands, proceedings,
judgements, damages, losses, costs, expenses (including reasonable
attorney's fees and costs), or other liabilities of any kind which
arise out of or are the result of any fault, negligence, act or failure
to act, or misconduct of CELL PHARM or any or its employees, agents,
representatives, or sub-distributors, or any breach or default by it or
them of any duty or obligation arising under this AGREEMENT or under
any sub-distribution agreement.
8. COMPLIANCE WITH LAWS
8.1 After such time as risk of loss passes to CELL PHARM, CELL PHARM shall
be responsible for compliance with all applicable laws and regulations
in relation to the handling, promotion, and resale of the PRODUCTS.
CELL PHARM will take no action that would cause the export of the
PRODUCTS to violate United States law.
8.2 CELL PHARM will comply with laws and regulations of governmental
authorities in the TERRITORY relating to advertising and labelling of
the PRODUCTS.
8.3 INTERFERON SCIENCES shall be responsible for compliance with all
applicable laws and regulations in relation to the PRODUCTS prior to
such time as risk of loss passes to CELL PHARM.
9. GOVERNMENTAL APPROVALS
9.1 CELL PHARM will in its own name and at its own cost, obtain and
maintain such registrations, approvals, and consents from governments
and health authorities in the TERRITORY, including the performing of
required clinical trials or studies, as may be necessary to permit or
facilitate the lawful handling, promotion, and resale of PRODUCTS in
the TERRITORY. In addition, CELL PHARM may in its own name and at its
own cost, obtain and maintain such registrations, approvals, and
consents from governments and health authorities in the European Union
and Switzerland, including the performing of required clinical trials
or studies, as may be necessary to permit or facilitate the lawful
handling, promotion, and resale of PRODUCTS in the European Union and
Switzerland, provided that such action does not preclude INTERFERON
SCIENCES or its licensee or designee from taking the same action. CELL
PHARM acknowledges and agrees that no action taken by it with respect
to the European Union or Switzerland shall modify the definition of
TERRITORY or otherwise increase the rights granted to it under this
Agreement.
9.2 CELL PHARM represents to INTERFERON SCIENCES that it has obtained all
registrations, approvals, and consents from governments in the
TERRITORY as are necessary to permit or facilitate the lawful handling,
promotion, and resale of PRODUCTS in the TERRITORY. CELL PHARM will
promptly notify INTERFERON
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SCIENCES if any such registration, approval, or consent lapses or if
any additional such registration, approval, or consent becomes
necessary.
9.3 INTERFERON SCIENCES will provide, in advance of implementation, written
details of any and all significant changes to the manufacturing,
processing, handling, and packaging of the ACTIVE INGREDIENT or the
PRODUCTS delivered to CELL PHARM, for the purpose of permitting CELL
PHARM to notify and obtain appropriate regulatory approvals for said
changes. INTERFERON SCIENCES will implement said significant changes
only after written confirmation from CELL PHARM. Notwithstanding the
foregoing, INTERFERON SCIENCES may unilaterally implement such changes
if required to do so by law.
10. PROMOTION
10.1 CELL PHARM will during the TERM maintain an active and efficient sales
and customer service organization with adequately trained personnel for
marketing and selling the PRODUCTS. Subject to INTERFERON SCIENCES's
obligation to fill CELL PHARM's confirmed orders, CELL PHARM will use
all reasonable efforts to maintain an adequate stock of PRODUCTS to
meet market demand. CELL PHARM will use all reasonable efforts to
effectively advertise, promote, and develop demand for sale of the
PRODUCTS in the TERRITORY.
11. TRADEMARKS
11.1 CELL PHARM may, at its discretion, use its own trademarks in
association with the PRODUCTS.
12. CONFIDENTIALITY
12.1 CELL PHARM acknowledges that manufacturing of the PRODUCTS is dependent
on confidential proprietary information and formulae owned by
INTERFERON SCIENCES. Furthermore, all data provided from INTERFERON
SCIENCES to CELL PHARM under this AGREEMENT is deemed confidential and
proprietary information of INTERFERON SCIENCES. Subject to Section
12.2, CELL PHARM agrees to hold in strictest confidence and not to
disclose to third parties or itself use any such information except to
the extent necessary in connection with this AGREEMENT in accordance
with the terms and conditions of the same.
12.2 CELL PHARM's obligations of confidentially will not apply to the extent
that it is required to disclose or use the information in question in
obtaining governmental registration, consents, or approvals hereunder
or to the extent necessary to handle, promote, or resell the PRODUCTS;
provided that CELL PHARM shall, to the extent possible, inform the
PERSONS to whom such information is disclosed of the
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confidential nature of such information and request confidential
treatment of such information.
12.3 INTERFERON SCIENCES hereby agrees to hold in strictest confidence and
not to disclose to third parties or itself use (expect to the extent
necessary in connection with this AGREEMENT) any information or reports
delivered by CELL PHARM to INTERFERON SCIENCES and any information
designated in writing as confidential by CELL PHARM of which INTERFERON
SCIENCES becomes informed during the TERM.
12.4 Upon termination of this AGREEMENT for any reason, each PARTY will
promptly return to the other PARTY all confidential information of the
other PARTY in its possession or control.
12.5 The confidentially obligations in Sections 12.1 and 12.3 shall not
apply to confidential information received by one PARTY from the other
to the extent:
(a) it was known to the receiving PARTY before receipt from the
other PARTY and can be documented as such by competent proof
by the receiving PARTY;
(b) it was in the public domain at the time of its receipt or
entered the public domain through no fault of the receiving
PARTY;
(c) it was disclosed to a PARTY by a third party who was under no
obligation of confidentiality to the other PARTY;
(d) disclosure of such information is required by law; or
(e) necessary to enforce this AGREEMENT.
13. FORCE MAJEURE
13.1 A PARTY shall not be held liable to the other for failure of any
performance or obligation required of that PARTY under this AGREEMENT
to the extent such is prevented by reason of force majeure including,
but not limited to, industrial disputes, strikes, lockouts, riots,
mobs, floods, fires, or other natural disasters or Acts of God, wars
declared or undeclared, embargo, or events caused by reason of laws,
regulations, or orders by any governments, governmental agency, or
instrumentality or by any other supervening unforeseeable circumstances
whatsoever beyond the control of either PARTY.
13.2 The PARTY affected by an event of force majeure shall give prompt
written notice to the other PARTY with description in reasonable
details of the same. A PARTY shall
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be excused from performance only to the extent affected and only for
the period of the force majeure.
14. DEFAULT, TERMINATION
14.1 Either of the PARTIES shall have the right without prejudice to any
rights exercisable or claims for damage or other relief, to terminate
this AGREEMENT immediately for cause by written notice to the other
PARTY in any of the following events:
(a) if the other PARTY applies for judicial or extra-judicial
settlement with its creditor, makes an assignment for the
benefit of its creditors, voluntarily files for bankruptcy, or
otherwise discontinues business; or the entry of an order or
decree adjudging the other PARTY bankrupt or insolvent, or
appointing a receiver or trustee in bankruptcy, or commencing
liquidation or dissolution proceedings, and the continuance of
any such order or decree unstayed and in effect for a period
of 60 consecutive days; or
(b) if the other PARTY breaches any of the material terms or
conditions of this AGREEMENT and shall fail to fully cure such
breach within 30 days of receipt of written notice from the
PARTY asserting the breach; provided that the cure period for
any default in payment by CELL PHARM for purchased PRODUCTS
shall be ten days from INTERFERON SCIENCES's written notice of
default.
14.2 After termination of this AGREEMENT for any reason, CELL PHARM shall
have the right to buy a sufficient quantity of PRODUCTS from INTERFERON
SCIENCES, on the terms of this AGREEMENT, to meet all CELL PHARM's
supply obligations in existence at the time of termination.
14.3 Upon termination of this AGREEMENT for any reason, INTERFERON SCIENCES
shall, subject to Section 14.2, have the right to repurchase, and CELL
PHARM agrees to sell to INTERFERON SCIENCES, any remaining stock of the
PRODUCTS which is no longer required to meet all CELL PHARM's supply
obligations in existence at the time of termination. INTERFERON
SCIENCES may only purchase PRODUCTS which at such time still comply
with the SPECIFICATIONS, have a remaining shelf life of at least 12
months, and which remain unsold by CELL PHARM as of the effective date
of said termination. The repurchase price shall be the same price at
which CELL PHARM originally purchased said PRODUCTS. INTERFERON
SCIENCES shall exercise its repurchase right by indicating its intent
to so do in writing to be given no later than 30 days after the
effective date of termination.
14.4 During the TERM and for a period of two years after the date of
termination of this AGREEMENT, CELL PHARM and its AFFILIATES will not
engage in, or PARTICIPATE IN any other business or organization which
engages in, the manufacture, sale, or distribution of interferon
products (other than the PRODUCTS
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during the TERM); provided that this Section 14.4 shall not be
applicable if CELL PHARM shall rightfully terminate this AGREEMENT
pursuant to Section 14.1. CELL PHARM agrees that the provisions of this
Section 14.4 are necessary and reasonable to protect INTERFERON
SCIENCES and that if any restriction contained in this Section 14.4
shall be deemed to be invalid, illegal, or unenforceable by reason of
the extent, duration, or geographical scope thereof, or otherwise, then
the arbitrator or court making such determination shall have the right
to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form such restriction shall then
be enforceable in the manner contemplated hereby.
14.5 The failure of either PARTY at any time to enforce any of the terms or
provisions or conditions of this AGREEMENT or exercise any right
hereunder shall not constitute a waiver of the same or affect that
PARTY's right to enforce or exercise the same.
15. NOTICES AND COMMUNICATIONS
15.1 All notices in connection with this AGREEMENT shall be in writing and
be in the English language, as shall all other written communications
and correspondence, and may be given by personal delivery, prepaid
registered airmail letter, telecopier, or telegram addressed to the
PARTY required or entitled to receive the same at its address or
telefax number set out below, or to such other address or telefax
number as such PARTY shall have designated by like notice to the other
PARTY. Notice of termination of this AGREEMENT if given by telecopier
or telegram shall be confirmed by prepaid registered airmail letter
dated and posted within 24 hours. The effective date of any notice if
served by personal delivery, telecopier, or telegram shall be deemed
the first business day in the city of destination following the
dispatch and if given by prepaid registered airmail letter only, it
shall be deemed served seven days after the date of posting.
15.2 Notices to INTERFERON SCIENCES shall be to:
INTERFERON SCIENCES, INC.
783 Jersey Avenue
New Brunswick, N.J. 08901-3605
U.S.A.
Telephone: 001 (908) 249-3250
Telefax: 001 (908) 249-6895
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Notices to CELL PHARM shall be to:
CELL PHARM GmbH
Medical Park
Feodor Lynen Strasse 23
D-30625 Hannover, Germany
Telephone: 011-49 511 54 86 81
Telefax: 011-49 511 54 86 80
16. AMENDMENTS
16.1 No modification or amendments to this AGREEMENT shall be binding upon
either PARTY unless in writing signed by the duly authorized
representatives of both PARTIES hereto.
17. ASSIGNMENT
17.1 Neither PARTY shall assign this AGREEMENT or any of its rights, nor
delegate any of its duties or obligations, except to an AFFILIATE,
without the prior written consent of the other. Any assignment or
delegation in violation of this provision shall be deemed nil and void.
18. ARBITRATION
18.1 All disputes arising out of or in connection with this AGREEMENT shall
be finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce in accordance with said Rules
then in effect with arbitration to be held in Stockholm, Sweden. The
arbitration shall be conducted in the English language. Judgment upon
the award rendered by the arbitrators may be entered with, issued, and
enforced by any court having competent jurisdiction.
19. TERM
19.1 This AGREEMENT shall become effective on the date of its execution and
shall remain in effect until June 30, 2001. Unless either PARTY gives
written notice to the other at least 90 days prior to the last day of
the said initial TERM of its intention to terminate the AGREEMENT, the
TERM of this AGREEMENT shall automatically be deemed to be renewed for
one year at a time until otherwise terminated by a PARTY in accordance
with the terms of this AGREEMENT.
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20. CLINICAL STUDIES
20.1 CELL PHARM agrees to conduct at its expense clinical studies using the
ACTIVE INGREDIENT for the treatment of chronic myelogeous leukemia and
hepatitis C. Such studies shall commence in the first ANNUAL PERIOD.
21. DIFFERENT SIZE PRODUCTS
21.1 As soon as reasonably practicable after the PARTIES agree as to how
expenses will be handled, INTERFERON SCIENCES will seek FDA approval to
manufacture and export to CELL PHARM vials containing 3,000,000 IU and
10,000,000 IU of the ACTIVE INGREDIENT. If INTERFERON SCIENCES obtains
such approval, the PARTIES agree to negotiate in good faith an
amendment to this AGREEMENT granting CELL PHARM rights and obligations
with respect to the new vials comparable to those granted in this
AGREEMENT with respect to the PRODUCTS. Such amendment would, among
other things, change the definitions of AVERAGE NET SELLING PRICE and
PRODUCT and modify Sections 4.4 and 4.8.
22. LANGUAGE
22.1 The PARTIES have requested that this AGREEMENT and all related
documents be in English.
15
<PAGE> 16
EXECUTED by the PARTIES as follows:
CELL PHARM GmbH
By: _________________ By: _________________
Name: _________________ Name: _________________
Title: _________________ Title: _________________
Date: _________________ Date: _________________
INTERFERON SCIENCES, INC.
By: _________________ By: _________________
Name: _________________ Name: _________________
Title: _________________ Title: _________________
Date: _________________ Date: _________________
16
<PAGE> 1
QUALITY ASSURANCE AGREEMENT
Agreement, dated as of April 3, 1996, between INTERFERON SCIENCES,
INC., a Delaware corporation having its office at 783 Jersey Avenue, New
Brunswick, NJ 08901, USA ("Contract Acceptor"), and Cell Pharm GmbH, a company
incorporated under the laws of Germany having its office at Medical Park, Feodor
Lynen Strasse 23, D-30625 Hannover, Germany ("Contract Giver").
WHEREAS, Contract Giver and Contract Acceptor have entered into a
Supply and Distribution Agreement dated as of the date hereof (the "Supply and
Distribution Agreement"); and
WHEREAS, the Contract Acceptor is a manufacturer of pharmaceutical
products, having a manufacturing authorization in accordance with the USA FDA
Drug Law and being subject to monitoring by the FDA; and
WHEREAS, the Contract Acceptor complies with the currently recognized
rules such as "Rules governing medicinal products in the European Community,"
Vol. IV,"Guide to Good Manufacturing Practice" for medicinal products including
relevant annexes; Good manufacturing practices for pharmaceutical products
published by the WHO and relevant additional and supplementary guidelines, GMP
rules published in CFR Section 210, 211 (USA); and
WHEREAS, the Contract Giver is a manufacturer of pharmaceutical
products, having a manufacturing authorization in accordance with the German
Drug Law and being subject to monitoring by the competent authorities; and
WHEREAS, the Contract Giver complies with the currently recognized
rules such as "Rules governing medicinal products in the European Community,"
Vol IV, "Guide to Good Manufacturing Practice" for medicinal products including
relevant annexes; Good manufacturing practices for pharmaceutical products
published by the WHO and relevant additional and supplementary guidelines, GMP
rules published in CFR Section 210, 211 (USA);
NOW, THEREFORE, Contract Giver and Contract Acceptor, in view of the
foregoing premises and in consideration of the terms and conditions hereafter
set forth and intending to be legally bound, agree as follows:
1. SUBJECT MATTER OF AGREEMENT
1.1 The Contract Acceptor shall manufacture for the Contract Giver the
products itemized in Appendix I. The overview of functions and
responsibilities is annexed as Appendix II.
<PAGE> 2
2. STARTING MATERIALS
2.1 Starting materials are defined as:
(a) Raw materials: active and inactive ingredients necessary for
the production of the product(s);
(b) Materials that although no longer contained in the product in
their original form were used for the manufacture of the
product (e.g. water, organic solvents); and
(c) Packaging materials.
All starting materials are listed in Appendix III
2.2 The responsibility for the purchase of the starting materials is given
in Appendix II.
2.3 (a) The Contract Acceptor is responsible for the quality of
starting materials purchased by it. These materials shall be
analyzed with regard to the specifications and methods annexed
as Appendix IV. The Contract Acceptor will provide the
Contract Giver with certificates of analysis of starting
materials whenever requested by the Contract Giver.
(b) For the starting materials made available by the Contract
Giver, the quality shall be certified by the Contract Giver in
the form of a Certificate of Analysis which accompanies the
shipment of each batch of starting material. The
specifications and methods are annexed as Appendix IV. The
Contract Acceptor shall at least check the following upon
receipt of the starting material from the Contract Giver:
(i) Intactness of the container and closure;
(ii) Concurrence of the labelling with the
delivery notes; and
(iii) Identity testing of the content.
(c) Contract Acceptor stores all starting materials in a way that
no interference as to their quality may occur.
(d) Contract Acceptor is responsible for keeping reserve samples
of each batch of active starting material. These samples shall
be kept for at least two years. The size of the reserve
samples must be such that it is possible to perform two full
quality control analyses (without microbiological testing).
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<PAGE> 3
3. PRODUCTION
3.1 The production of the products shall be performed according to the
Master Production Formulae and instructions annexed as Appendix V. All
significant alterations of the Master Production Formulae and
instructions must be agreed upon by both parties in any case. Changes
can only be made by mutual consent. New instructions shall become
effective as of the date of signature.
4. QUALITY CONTROL
4.1 The products delivered by the Contract Acceptor shall comply with the
specifications contained in Appendix VI.
5. BATCH RECORDS
5.1 Contract Acceptor commits to keep a record of the production and
controls of each batch for at least six years and to give a copy of it
to Contract Giver upon request. The batch production and control record
shall include at least the following:
(a) Name and form of product;
(b) Batch number of product being manufactured;
(c) Dates and times of commencements of significant intermediate
stages and of completion of production;
(d) Batch number or test number and amounts of each starting
material used;
(e) Equipment used including information on which product was
produced immediately beforehand;
(f) Any relevant processing operation or event and its
confirmation signed by the responsible operators;
(g) Theoretical and actual yields of major steps in the
processing, detailed information on deviations, exceptional
occurrences, e.g. defects and their repairs, signed by an
authorized person;
(h) Results of in-process controls and laboratory testing and
decisions following these results; and
(i) Signature of the responsible production and quality control
personnel.
6. BATCH ACCOMPANYING DOCUMENTS
6.1 Contract Acceptor commits itself to deliver with every batch a
Certificate of Production Compliance in the form contained in Appendix
VII and other batch accompanying documents such as a Certificate of
Analysis in the form contained in Appendix VII according to the
specifications contained in Appendix IV.
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<PAGE> 4
7. RESERVE SAMPLES OF THE PRODUCTS
7.1 Contract Acceptor is responsible for keeping reserve samples of each
batch of product produced under this Agreement. These samples shall be
kept for at least two years. The size of reserve samples must be such
that it is possible to perform at least two full quality control
analyses (without microbiological testing). The Contract Giver is
responsible for the keeping of samples which are mandatory by law.
8. STORAGE; PACKAGING; LABELLING AND SHIPMENTS
8.1 Storage conditions and packaging/labelling instructions for the
shipment of the products are set forth in Appendix VIII of this
Agreement.
9. THIRD PARTIES
9.1 The Contract Acceptor may employ third parties to execute the tasks
given to it by the Contract Giver. The names of these third parties and
their duties have to be listed in the overview of functions and
responsibilities in Appendix II. The responsibility regarding the
quality of the product and all legal requirements therewith connected
rests with the Contract Acceptor and cannot be conferred to a third
party by a separate agreement. Any change with regard to this matter is
subject to a mutual agreement between Contract Giver and Contract
Acceptor and is required to be approved by both parties in writing.
10. INSPECTIONS
10.1 The Contract Acceptor agrees that Contract Giver or its duly authorized
representatives have the right to audit the premises where the products
are manufactured, including packaging, storage, quality control and
distribution.
10.2 These audits will be scheduled to be mutually convenient to both
parties. Corrective actions resulting from the observations during the
inspection have to be performed as soon as possible. The Contract
Acceptor will report to the Contract Giver about its efforts in the
carrying out of the corrective actions within a laid down time frame.
The Contract Acceptor shall with best efforts support the Contract
Giver at the occasion of inspections performed by drug monitoring
authorities. Third parties shall be regularly inspected by the Contract
Acceptor. They are also subject to inspections by the Contract Giver.
The latter inspections shall be performed only in the presence of the
Contract Acceptor unless otherwise agreed upon. The centralized control
for these audits towards the third party shall be the responsibility of
the Contract Acceptor. This encompasses the scheduling as well as the
surveillance concerning corrective actions. The Contract Giver shall
not contact the third party directly.
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<PAGE> 5
11. QUALITY DEFECTS
11.1 Both parties agree to contact each other immediately as soon as they
become aware of serious quality defects.
12. PERSONS TO CONTACT
12.1 The relevant persons who should be contacted in case of questions that
may arise concerning all pharmaceutical/technical matters which are
objects of this Agreement are listed in Appendix IX.
13. CONFIDENTIALITY
13.1 The Contract Acceptor and the Contract Giver undertake to apply the
confidentiality provisions contained in the Supply and Distribution
Agreement with regard to their know-how and in particular their
manufacturing instructions. None of the contracting parties shall be
entitled to use the know-how of the other party made known within the
framework of this Agreement after termination of this Agreement without
the consent of the other party.
14. FINAL PROVISIONS
14.1 This Agreement shall become effective upon its signature by the
contracting parties and shall have a duration corresponding to the
Supply and Distribution Agreement.
14.2 Any alteration or amendments of this Agreement and its Appendices
requires the written consent of both parties.
14.3 Supplementary agreements are listed, if necessary, in Appendix X.
14.4 Upon request parts of this Agreement may be forwarded to the competent
authorities.
14.5 If individual provisions of this Agreement are invalid, they shall be
replaced by provisions which come as close to the intended provision as
is admissible.
15. LANGUAGE
15.1 The PARTIES have requested that this Agreement and all related
documents be in English.
5
<PAGE> 6
EXECUTED by the PARTIES as follows:
CELL PHARM GmbH
By: _________________ By: _______________
Name: _________________ Name: _______________
Title: _________________ Title: _______________
Date: _________________ Date: _______________
INTERFERON SCIENCES, INC.
By: _________________ By: _______________
Name: _________________ Name: _______________
Title: _________________ Title: _______________
Date: _________________ Date: _______________
6
<PAGE> 1
Exhibit 10.58
R S AGREEMENT
This R S AGREEMENT (the "Agreement"), dated April 23, 1996, by and
among INTERFERON SCIENCES, INC., a Delaware corporation with an office at 783
Jersey Avenue, New Brunswick, New Jersey 08901 ("ISI"), MUNDIPHARMA
PHARMACEUTICAL COMPANY, a Bermuda general partnership with an office at
Mundipharma House, P.O. Box HM 2332, 14 Par-la-Ville Road, Hamilton HMJX,
Bermuda ("MPCO"), and PURDUE PHARMA L.P., a Delaware limited partnership with an
office at 100 Connecticut Avenue, Norwalk, Connecticut 06850-3590 ("Purdue
Pharma"),
W I T N E S S E T H :
WHEREAS, ISI and MPCO are parties to an Agreement dated the date
hereof (the "MPCO Agreement"); and
WHEREAS, ISI and Purdue Pharma are parties to an Agreement dated the
date hereof (the "Purdue Pharma Agreement"); and
WHEREAS, ISI, MPCO and Purdue Pharma are parties to an Amended and
Restated R S Agreement dated July 31, 1995 (the "1995 R S Agreement"); and
WHEREAS, subject to the provisions of Section 4 hereof, the parties
hereto desire to set forth their
<PAGE> 2
agreement with respect to the MPCO Agreement and the Purdue Pharma Agreement and
to terminate the 1995 R S Agreement, all on the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
1. Definitions. Except as otherwise defined herein, capitalized
terms used herein without definition shall have the same respective meanings as
provided in the MPCO Agreement and the Purdue Pharma Agreement.
2. Termination of 1995 R S Agreement. Subject to the provisions of
Section 4 hereof, the 1995 R S Agreement shall be terminated effective as of May
7, 1996 or such earlier date that all of the conditions in Section 4 hereof
shall have been satisfied; provided, however, that Section 10 of the 1995 R S
Agreement shall survive such termination. The parties agree that the date of
termination of the 1995 R S Agreement shall constitute the Effective Date under
the MPCO Agreement and the Purdue Pharma Agreement.
3. Consideration for Termination of MPCO Distribution Agreement.
Notwithstanding the provisions of Section 3 of the MPCO Distribution Agreement,
it is the intention of the parties that MPCO receive as
2
<PAGE> 3
consideration for the termination of the MPCO Distribution Agreement an
amount equal to $3,520,012 less the Asset Purchase Price to be paid to Purdue
Pharma for the Assets pursuant to Section 4 of the Purdue Pharma Agreement
(estimated for purposes of calculating the Termination Fee due to MPCO under the
MPCO Agreement to be $259,050 (i.e., 5,000 Vials at $51.81 per Vial)). In the
event that the Asset Purchase Price to be paid to Purdue Pharma for the Assets
pursuant to Section 4 of the Purdue Pharma Agreement is greater than or less
than $259,050, then on or before May 7, 1996 the amount of the difference, if
greater, shall be deducted from the $3,260,962 Termination Fee to be paid to
MPCO, and the amount of the difference, if less, shall be added to the
$3,260,962 Termination Fee to be paid to MPCO.
4. Effectiveness of this Agreement, MPCO Agreement and Purdue Pharma
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
the MPCO Agreement or the Purdue Pharma Agreement, this Agreement, the MPCO
Agreement and the Purdue Pharma Agreement shall only be effective if on or
before May 7, 1996 ISI shall have paid (a) to MPCO the termination fee under the
MPCO Agreement and (b) to Purdue Pharma the service fee and the asset purchase
price under the Purdue Pharma Agreement with the result that MPCO and Purdue
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<PAGE> 4
Pharma shall have received on or before May 7, 1996 the aggregate amount of
$3,760,012 net. In addition, this Agreement shall only be effective if ISI
obtains on or before May 7, 1996 $10,000,000 or more in gross proceeds to ISI
from ISI's currently proposed underwritten public offering of shares of ISI's
common stock. if ISI fails to satisfy the conditions set forth in this section
4, this Agreement shall be null and void, and the 1995 RS Agreement and all
provisions thereof shall continue in full force and effect as if this Agreement
had never existed.
5. Termination.
(a) MPCO may terminate the MPCO Agreement on 90-days' written notice
to ISI in the event of a material breach by ISI of any of the terms of the
Purdue Pharma Agreement unless during said 90-day period such breach is cured,
or best efforts have been made to begin to cure such breach and the breach is
then cured within a reasonable time thereafter. Purdue Pharma may terminate the
Purdue Pharma Agreement on 90-days' written notice to ISI in the event of a
material default by ISI of any of the terms of the MPCO Agreement unless during
said 90-day period such breach is cured, or best efforts have been made to begin
to cure such breach and the breach is then cured within a reasonable time
thereafter.
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<PAGE> 5
(b) ISI may terminate the MPCO Agreement on 90-days' written notice to
MPCO in the event of a material breach by Purdue Pharma of any of the terms of
the Purdue Pharma Agreement unless during said 90-day period such breach is
cured, or best efforts have been made to begin to cure such breach and the
breach is then cured within a reasonable time thereafter. ISI may terminate the
Purdue Pharma Agreement on 90-days' written notice to Purdue Pharma in the event
of a material default by MPCO of any of the terms of the MPCO Agreement unless
during said 90-day period such breach is cured, or best efforts have been made
to begin to cure such breach and the breach is then cured within a reasonable
time thereafter.
6. Remedies. Each of the parties hereto shall be entitled to assert
under this Agreement, or under either one or both of the MPCO Agreement and the
Purdue Pharma Agreement to which it is a party, any remedy which it would
otherwise have been entitled to assert under such agreement if the separate
agreements contained in this Agreement, the MPCO Agreement and the Purdue Pharma
Agreement had been incorporated into one agreement.
7. Miscellaneous.
(a) All notices and communications required or permitted by this
Agreement shall be in
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<PAGE> 6
writing and shall be deemed to be duly given if delivered or sent in
accordance with the provisions of the MPCO Agreement or the Purdue Pharma
Agreement, as the case may be.
(b) This Agreement shall be governed and construed in accordance
with the laws of the State of New York, without giving effect to principles of
conflicts of law.
(c) This Agreement may be executed in counterparts each of which
when so executed and delivered shall constitute an original and all of which
together shall constitute one and the same instrument.
(d) This Agreement, the MPCO Agreement and the Purdue Pharma
Agreement contain the entire understanding and agreement among the parties
hereto with respect to the subject matter hereof, supersede all prior oral and
written understandings and agreements relating thereto, and may not be modified,
discharged, or terminated orally.
(e) Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or any party as agent of any
other party.
(f) Any waiver by any party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such
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<PAGE> 7
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
(g) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(h) Each of the parties hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement or a breach of this Agreement. In any such action
or proceeding, each of the parties waives personal service of any summons,
complaint, or other process and agrees that service thereof may be made in
accordance with Section 7(a). Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceedings, each of the parties shall appear or answer such
summons,
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<PAGE> 8
complaint, or other process. Should any of the parties so served fail to appear
or answer within such 30-day period or such extended period, as the case may be,
such party shall be deemed in default and judgment may be entered by the other
party against such party for the amount as demanded in any summons, complaint,
or other process so served.
(i) None of the parties hereto shall assign this Agreement without
the prior written consent of the others; provided, however, that MPCO and Purdue
Pharma shall have the right to assign this Agreement to an Affiliate or
Affiliates without the prior written consent of ISI.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
INTERFERON SCIENCES, INC.
By____________________________________
Title: Chief Executive Officer
MUNDIPHARMA PHARMACEUTICAL
COMPANY
By____________________________________
Title: General Manager
PURDUE PHARMA L.P.
By: Purdue Pharma Inc.,
its general partner
By____________________________________
Title: Vice President
9
<PAGE> 1
EXHIBIT 10.59
AGREEMENT, dated April 23, 1996 between INTERFERON SCIENCES, INC., a
Delaware corporation with an office at 783 Jersey Avenue, New Brunswick, New
Jersey 08901 ("ISI"), and PURDUE PHARMA L.P., a Delaware limited partnership
with an office at 100 Connecticut Avenue, Norwalk, Connecticut 06850-3590
("Purdue Pharma"),
W I T N E S S E T H :
WHEREAS, ISI and Purdue Pharma are parties to a Distribution
Agreement, dated June 14, 1991, as amended by Amendment dated January 26, 1994,
Amendment dated March 29, 1995 and Amendment dated July 31, 1995 (the
"Distribution Agreement"); and
WHEREAS, subject to the provisions of Section 5 hereof, ISI and
Purdue Pharma desire to terminate the Distribution Agreement in accordance with
the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the same respective meanings as provided in the Distribution
Agreement.
2. Termination of Distribution Agreement. Subject to the provisions
of Section 5 hereof, the
<PAGE> 2
Distribution Agreement shall be terminated effective as of May 7, 1996 or
such earlier date that the parties shall agree (the "Effective Date"); provided,
however, that Sections 10(b), 11 and 12(a), (b), (c) and (d) of the Distribution
Agreement shall survive such termination to the extent that the event,
circumstance, action or omission giving rise to the rights and obligations of
the parties pursuant to such sections occurred during periods prior to the
Effective Date.
3. Distribution Services.
(a) First Year. Subject to the provisions of Section 5 hereof,
during the one-year period commencing on the Effective Date and ending on the
first anniversary of the Effective Date (the "First Year"), Purdue Pharma shall
provide Distribution Services (as defined below) to ISI in the United States
with respect to the first 24,000 Vials shipped during the First Year. For
purposes of this Section 3, "Distribution Services" shall mean warehousing the
24,000 Vials, processing orders for the 24,000 Vials, packaging the 24,000
Vials, distributing the 24,000 Vials to purchasers in the United States,
invoicing purchasers of the 24,000 Vials, processing returns and rebates with
respect to the 24,000 Vials, collecting payments from the purchasers of the
24,000 Vials, and remitting such payments net of the deductions described below
to ISI. ISI shall in its sole
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<PAGE> 3
discretion determine the sales and marketing program for the 24,000 Vials,
including, without limitation, the cost of the Product and cash discounts and
samples to be given to purchasers of the Product; provided, however, that ISI
shall not take any action that will materially increase Purdue Pharma's cost of
Distribution Services set forth below in this Section 3(a). Purdue Pharma shall
be compensated for its Distribution Services at a cost of $240,000 ($10 per
Vial) (the "Service Fee") payable on the Effective Date, and Purdue Pharma shall
be entitled to retain the $240,000 Service Fee even if ISI requires Distribution
Services with respect to less than 24,000 Vials.
Within 30 days after the end of each calendar month, Purdue Pharma
shall (i) determine the gross amount collected from the sale of the applicable
portion of the 24,000 Vials during such month, (ii) deduct therefrom the amount
of rebates and cash discounts included in such gross amount, all to the extent
attributable to such month and (iii) remit to ISI the amount referenced in
clause (i) above less the deductions referenced in clause (ii) above together
with a statement of the gross amount collected and the applicable deductions for
such month. Purdue Pharma shall permit ISI's certified public accountant on
reasonable notice and at reasonable times to inspect the accounts, books and
records of Purdue Pharma relevant to the calculation of the amounts to be
remitted to ISI hereunder
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for the purpose of verifying such amounts. Such inspection shall only be to the
extent necessary to verify the amounts due to ISI hereunder, and ISI shall cause
such certified public accountant to maintain in strictest confidence all
information obtained in such inspection and the disclosures to ISI of the
results of such inspection. ISI's certified public accountant shall be entitled
to disclose to ISI information obtained during the course of such inspection but
only to the extent that such information relates solely to Purdue Pharma's
Alferon N Injection business. To the extent that such information also relates
to any other business of Purdue Pharma, ISI's certified public accountant shall
not be permitted to disclose such information to ISI but shall only be entitled
to disclose the accuracy of such information and the amount of any discrepancy
to ISI.
Anything contained in this Agreement to the contrary
notwithstanding, (i) with respect to its Distribution Services, Purdue Pharma
shall only be required to pay, subject to reimbursement through the Service Fee,
for (A) foam inserts, Obergfel's commission (approximately 1% of the sales price
per Vial), Obergfel's order charge (approximately $5 per 18 Vials), shipping
charges from Sanofi to Obergfel, shipping charges from Obergfel to customers,
refrigerant bags (approximately $.37 each), mold foam insert PPVs (approximately
$.34 each), labels (approximately $.41 each), shippers (approximately $51.60
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<PAGE> 5
each), ADE reporting, medical inquiry and regulatory charges (approximately
$10,000 per year), and FDA user fees ($12,600 per year), if any and (B) Purdue
Pharma's internal costs for its order processing, packaging, distribution,
collection and payment services, and (ii) ISI shall pay all other costs in
connection with the 24,000 Vials and the Distribution Services, including,
without limitation, the costs of Vials, samples, returns, freight, handling and
destruction charges for returns, cash discounts, sales promotion, literature
promotion, clinical grants and insurance, and ISI shall, in accordance with
Section 3(c) below and Section 12(e) of the Distribution Agreement, continue to
include Purdue Pharma as an additional named insured on its product liability
insurance.
(b) Second Year. Subject to the provisions of Section 5 hereof,
at ISI's sole option, Purdue Pharma shall provide Distribution Services to ISI
with respect to up to the first 30,000 Vials shipped during the one-year period
commencing on the first anniversary of the Effective Date and ending on the
second anniversary of the Effective Date (the "Second Year"). Any such
Distribution Services provided by Purdue Pharma to ISI during the Second Year
shall be on the same terms and conditions as set forth above in Section 3(a),
except that Purdue Pharma's Service Fee shall be $15.00 per Vial.
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(c) Applicability of Provisions of Distribution Agreement. The
provisions of Sections 10, 11, 12(d) and 12(e) of the Distribution Agreement
shall apply mutatis mutandis to this Agreement so long as Purdue Pharma is
performing Distribution Services or may be subject to liability as a result of
the performance of Distribution Services.
(d) Indemnification. So long as Purdue Pharma is performing
Distribution Services or may be subject to liability as a result of the
performance of Distribution Services, ISI shall defend, indemnify and hold
harmless Purdue Pharma from and against any and all damages, liabilities, costs
and expenses, including, without limitation, reasonable attorneys' fees, arising
from or related to any claim pertaining to the manufacture, warehousing,
packaging, marketing, promotion, distribution and/or sale of Vials or the
Product, other than to the extent that damages, liabilities, costs, and expenses
are held to arise from the negligence or misconduct of Purdue Pharma.
(e) Title and Risk of Loss. Subject to the provisions of Section
5 hereof, from and after the Effective Date, title to, and risk of loss of, the
Assets (as defined in Section 4 below) shall remain with ISI at all times.
Notwithstanding anything to the contrary, ISI shall bear all risk of expiration
of Vials and shall be responsible for all
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costs of destruction and disposition of Vials and the Product upon the
termination of Purdue Pharma's Distribution Services.
4. Purchase of Inventory. ISI shall purchase on the Effective Date
all of the assets of Purdue Pharma used exclusively in its Alferon N Injection
business, including, without limitation, Purdue Pharma's then existing
inventory of Vials and packaging materials, marketing materials, customer
lists, artwork, printing plates, data and copyrighted material (collectively,
the "Assets"), all at a cost of $51.81 per Vial (the "Asset Purchase Price");
provided, however, that, although ISI may use and sell the purchased Assets
containing Purdue Pharma's name until such Assets have been depleted, ISI shall
not create, use or sell any new materials containing Purdue Pharma's name and
shall discontinue the use of Purdue Pharma's name as soon as is reasonably
practicable after completion of Purdue Pharma's marketing service; and
provided, further, that, notwithstanding the foregoing, with respect to the
15,000 Vials currently on order by Purdue Pharma as of the date hereof, ISI and
Purdue Pharma agree that such order is hereby canceled, and ISI shall retain
said 15,000 Vials and shall not charge Purdue Pharma for them.
5. EFFECTIVENESS OF AGREEMENT. THIS AGREEMENT SHALL ONLY BE
EFFECTIVE (a) IF ISI PAYS TO PURDUE PHARMA IN IMMEDIATELY AVAILABLE FUNDS ON OR
BEFORE THE EFFECTIVE DATE
7
<PAGE> 8
THE SERVICE FEE SET FORTH IN SECTION 3(a) ABOVE AND THE ASSET PURCHASE PRICE SET
FORTH IN SECTION 4 ABOVE AND (b) IF ISI OBTAINS ON OR BEFORE THE EFFECTIVE DATE
$10,000,000 OR MORE IN GROSS PROCEEDS TO ISI FROM ISI'S CURRENTLY PROPOSED
UNDERWRITTEN PUBLIC OFFERING OF SHARES OF ISI'S COMMON STOCK. IF ISI FAILS TO
SATISFY THE CONDITIONS SET FORTH IN THE PRECEDING SENTENCE ON OR BEFORE THE
EFFECTIVE DATE, THIS AGREEMENT SHALL BE NULL AND VOID, AND THE DISTRIBUTION
AGREEMENT AND ALL PROVISIONS THEREOF SHALL CONTINUE IN FULL FORCE AND EFFECT AS
IF THIS AGREEMENT HAD NEVER EXISTED.
6. Miscellaneous.
(a) All notices and other communications required or permitted by
this Agreement to be given to a party shall be in writing and shall be deemed to
be duly given if personally delivered (which includes delivery by Federal
Express or similar service), sent by telecopier or mailed by certified or
registered mail, return receipt requested, to the party concerned at its address
as set forth on page 1 (or at such other address as a party may specify by
notice to the other). All notices and communications if given to ISI shall be
addressed to the attention of its President with a copy to ISI's Chief Executive
Officer, c/o National Patent Development Corp., 9 West 57th Street, Suite 4170,
New York, New York 10019 or if given to Purdue Pharma shall be addressed to its
8
<PAGE> 9
President with a copy to Howard R. Udell, Esq., Millard, Greene and Udell, 100
Connecticut Avenue, Norwalk, Connecticut 06850-3590.
(b) This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof,
supersedes all prior oral and written understandings and agreements relating
thereto, and may not be modified, discharged or terminated orally.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws.
(d) Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(e) If any provision of this Agreement is invalid, illegal or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is
9
<PAGE> 10
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.
(f) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(g) Neither party hereto shall assign this Agreement without the
prior written consent of the other.
(h) Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or either party as agent of
the other party.
(i) Each of the parties hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement or a breach of this Agreement. In any such action
or proceeding, each of the parties waives personal service of any summons,
complaint, or other process and agrees that service thereof may be made in
accordance with Section 6(a). Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceedings, each of the parties shall appear or answer such
summons, complaint, or other process. Should any of the parties so
10
<PAGE> 11
served fail to appear or answer within such 30-day period or such extended
period, as the case may be, such party shall be deemed in default and judgment
may be entered by the other party against such party for the amount as demanded
in any summons, complaint, or other process so served.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
INTERFERON SCIENCES, INC.
By_________________________
Title: Chief Executive
Officer
PURDUE PHARMA L.P.
By: Purdue Pharma Inc.,
its general partner
By_________________________
Title: Vice President
11
<PAGE> 1
Exhibit 10.60
AGREEMENT, dated April 23, 1996, between INTERFERON SCIENCES, INC.,
a Delaware corporation with an office at 783 Jersey Avenue, New Brunswick, New
Jersey 08901 ("ISI"), and MUNDIPHARMA PHARMACEUTICAL COMPANY, a Bermuda general
partnership with an office at Mundipharma House, 14 Par-la-Ville Road, Hamilton
HMJX, Bermuda ("MPCO"),
W I T N E S S E T H :
WHEREAS, ISI and MPCO are parties to an Amended and Restated
Distribution Agreement, dated June 14, 1991, as further amended by letter
agreement dated May 24, 1993, Amendment dated January 26, 1994, Amendment dated
March 29, 1995 and Amendment dated July 31, 1995 (the "Distribution Agreement");
and
WHEREAS, subject to the provisions of Section 4 hereof, ISI and MPCO
desire to terminate the Distribution Agreement in accordance with the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
1. Defined Terms. Capitalized terms used herein without definition
shall have the same respective meanings as provided in the Distribution
Agreement.
<PAGE> 2
2. Termination of Distribution Agreement. Subject to the provisions
of Section 4 hereof, the Distribution Agreement shall be terminated effective as
of May 7, 1996 or such earlier date as the parties shall agree (the "Effective
Date"); provided, however, that Section 10(b) of the Distribution Agreement
shall survive such termination.
3. Consideration for Termination of Distribution Agreement. Subject
to the provisions of Section 4 hereof, as consideration for the termination of
the Distribution Agreement, ISI shall deliver to MPCO on the Effective Date
$3,260,962 in immediately available funds (the "Termination Fee").
4. Effectiveness of Agreement. This Agreement shall only be
effective (a) if ISI pays to MPCO in immediately available funds on or before
the effective date the termination fee set forth in Section 3 above and (b) if
ISI obtains on or before the effective date $10,000,000 or more in gross
proceeds to ISI from ISI's currently proposed underwritten public offering of
shares of ISI's common stock. if ISI fails to satisfy the conditions set forth
in the preceding sentence on or before the effective date, this Agreement shall
be null and void, and the Distribution Agreement and all provisions thereof
shall continue in full force and effect as if this Agreement had never existed.
2
<PAGE> 3
5. Miscellaneous.
(a) All notices and other communications required or permitted by
this Agreement to be given to a party shall be in writing and shall be deemed to
be duly given if personally delivered (which includes delivery by Federal
Express or similar service), sent by telecopier or mailed by certified or
registered mail, return receipt requested, to the party concerned at its address
as set forth on page 1 (or at such other address as a party may specify by
notice to the other). All notices and communications if given to ISI shall be
addressed to the attention of its President with a copy to ISI's Chief Executive
Officer, c/o National Patent Development Corp., 9 West 57th Street, Suite 4170,
New York, New York 10019 or if given to MPCO shall be addressed to its General
Manager with a copy to Howard R. Udell, Esq., Millard, Greene and Udell, 100
Connecticut Avenue, Norwalk, Connecticut 06850-3590.
(b) This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof,
supersedes all prior oral and written understandings and agreements relating
thereto, and may not be modified, discharged or terminated orally.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New
3
<PAGE> 4
York, without giving effect to principles of conflicts of laws.
(d) Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(e) If any provision of this Agreement is invalid, illegal or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(f) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(g) Neither party hereto shall assign this Agreement without the
prior written consent of the other; provided, however, that MPCO shall have the
right to assign
4
<PAGE> 5
this Agreement to an Affiliate or Affiliates without the prior written consent
of ISI.
(h) Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or either party as agent of
the other party.
(i) Each of the parties hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement or a breach of this Agreement. In any such action
or proceeding, each of the parties waives personal service of any summons,
complaint, or other process and agrees that service thereof may be made in
accordance with Section 5(a). Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceedings, each of the parties shall appear or answer such
summons, complaint, or other process. Should any of the parties so served fail
to appear or answer within such 30-day period or such extended period, as the
case may be, such party shall be deemed in default and judgment may be entered
by the other party against such party for the amount as demanded in any summons,
complaint, or other process so served.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
INTERFERON SCIENCES, INC.
By_________________________
Title: Chief Executive
Officer
MUNDIPHARMA PHARMACEUTICAL
COMPANY
By_________________________
Title: General Manager
6
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Interferon Sciences, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
New York, New York
April 22, 1996
