<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File No. 0-10736
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MGI PHARMA, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1364647
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/935-7335
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 15, 1999 was approximately $114,785,396 (based on the
closing price of such stock as reported by The Nasdaq Stock Market on such
date).
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 15, 1999, was: Common Stock, $.01 par value;
14,595,803 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to certain
information contained in the Registrant's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders to be held on May 11, 1999.
<PAGE>
PART I
Item 1. Business
Overview
MGI PHARMA, Inc. is a pharmaceutical company that acquires, develops
and markets differentiated, specialty pharmaceutical products. The company's
primary business activities are:
* identifying and acquiring products for development
and marketing,
* conducting drug development programs, and
* marketing pharmaceutical products in the United
States and establishing marketing relationships
abroad.
MGI's current product portfolio is comprised of products that address special
needs in the fields of cancer and rheumatology. The company plans to expand the
scope of its product portfolio as its business grows.
The company intends to use its expertise in specialty sales and
marketing and in product development to gain competitive advantage in delivering
products to the marketplace, while reducing scientific risks, development
timelines and capital expenditures. The company promotes its products to
physicians in the United States using its own specialty sales force. In its
development efforts, MGI seeks to reduce the risk of product failure by
acquiring products that have passed preliminary toxicity testing and
demonstrated early-stage efficacy in humans. The company avoids certain
expenditures by outsourcing select functions such as manufacturing and
distribution. Further, the company's marketing efforts are primarily focused on
the U.S. market, using international partnerships to address foreign markets.
MGI's primary commercial product is Salagen(R) Tablets (pilocarpine
hydrochloride), which currently accounts for more than 90 percent of the
company's product sales. MGI developed Salagen Tablets as a treatment for two
different indications: symptoms of radiation-induced xerostomia (chronic dry
mouth) in head and neck cancer patients (FDA approved March 1994; marketing
launch May 1994), and the symptoms of dry mouth associated with Sjogren's
syndrome, an autoimmune disease that damages the salivary glands (FDA approved
February 1998; marketing launch April 1998). Sales of Salagen Tablets in the
United States have grown by more than 40 percent per year for the last three
years. MGI has agreements with three international pharmaceutical companies to
develop and market Salagen Tablets for the European, Japanese and Canadian
markets, as well as distribution agreements with four additional companies for
the smaller markets of Taiwan, Israel, Singapore and Korea.
The company currently markets two other products. Under a promotion
arrangement with Schein Pharmaceutical, Inc., MGI has promoted INFeD(R) (iron
dextran injection) to medical oncologists since July 1997 as a treatment for
iron deficiency anemia in cancer patients. In addition,
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MGI sells Didronel I.V. Infusion (etidronate disodium), a treatment for
hypercalcemia (elevation of blood calcium) of malignancy in the United States.
The company's clinical development efforts are currently focused on the
development and testing of MGI 114, the first agent to advance to human studies
from a family of unique antitumor compounds called acylfulvenes. In mid-1998 MGI
completed the initial Phase I clinical study of MGI 114 to determine the maximum
tolerable dose. By the end of 1998, the company had initiated three Phase II
human clinical trials to evaluate the efficacy of MGI 114 in prostate,
pancreatic and ovarian cancer patients. Under a Clinical Trials Agreement with
MGI, the National Cancer Institute (NCI) has also started several Phase II
trials that will complement MGI's efforts. MGI has licensed rights to Dainippon
Pharmaceutical Co., Ltd. to develop and commercialize MGI 114 in Japan. The
company is currently seeking a partner to develop and commercialize MGI 114 in
Europe and other foreign markets.
Business Strategy
MGI intends to become a leading specialty pharmaceutical company by
successfully marketing differentiated products for niche areas of medicine. The
key elements of the company's strategy are:
Focus on Niche Medical Markets
- ------------------------------
MGI targets niche medical markets because they are generally serviced
by relatively small physician populations that can be well serviced by the
company's specialty sales force. For example, the target markets in the United
States for the two approved indications for Salagen Tablets are approximately
3,700 radiation oncologists and approximately 3,400 rheumatologists. These
physicians can be effectively reached by the company's specialized sales force.
In addition, products such as Salagen Tablets are not as economically attractive
to large pharmaceutical companies. MGI believes it can also use its specialty
sales and marketing expertise to market products for other pharmaceutical and
biotechnology companies which emphasize discovery and basic research and often
do not have a sales force of their own.
Acquisition of Later-Stage Pharmaceuticals
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MGI maintains an active program to identify potential products for
acquisition, either through licensing or various commercial partnering
arrangements. MGI focuses on currently marketable or later-stage development
products because the company believes that it can most effectively use its
expertise in sales and marketing and in product development with such products.
This strategy also reduces MGI's risk of product failure, since such products
are generally past the initial discovery stage, have already passed preliminary
toxicity testing, and have demonstrated early stage efficacy in humans. MGI also
targets small molecule products because they are generally easier and less
costly to produce.
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MGI uses a number of internal and external sources to identify products
for acquisition, to evaluate their scientific and clinical viability, and to
estimate their commercial potential. Through consultants and its own internal
business development efforts, the company continually identifies products for
potential acquisition. Once identified, each product passes through scientific,
clinical and commercial screens to further evaluate its fit in MGI's product
portfolio and the likelihood of its future success.
Outsourcing of Select Functions
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To reduce overhead, control expenses and maintain flexibility, the
company contracts with third parties for a number of business activities,
including but not limited to:
* laboratory studies
* product formulation
* clinical data analysis
* product manufacturing
* product distribution
By using contract manufacturers to produce its current products, which require
relatively small and infrequent production runs, MGI controls its investment in
capital and avoids the risks involved in manufacturing. Similarly, by
contracting with third parties to perform certain research needed to bring its
products to market, the company reduces expenses and risks associated with
maintaining a research facility. MGI expects to continue to contract with third
parties until it is necessary and economical to add such capabilities
internally.
Focus on U.S. Markets
- ---------------------
MGI's commercialization efforts are focused on the U.S. market to
maximize the effectiveness of its specialty sales force and avoid the risk and
expense entailed in maintaining an international sales organization. To address
international markets, MGI enters into collaborative arrangements with other
pharmaceutical or biotechnology companies to develop and commercialize its
products abroad.
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Principal Products
<TABLE>
<CAPTION>
Commercialized Products
=================================================================================================================
Product(1) Principal Indication Status Partner
=================================================================================================================
<S> <C> <C> <C>
Salagen Tablets Symptoms of radiation- Marketed in:
induced xerostomia (dry United States Self-marketed
mouth) in head and neck Canada Pharmacia & Upjohn
cancer patients Six European countries Chiron
Korea Hyundai Pharmaceutical
Israel Megapharm
Approved in:
10 other European countries Chiron
Under development in:
Japan- pivotal trials Kissei Pharmaceutical
Taiwan Sintong Chemical
Singapore Medipharm
- -----------------------------------------------------------------------------------------------------------------
Salagen Tablets Symptoms of dry mouth Marketed in:
in Sjogren's syndrome United States Self-marketed
patients Canada Pharmacia & Upjohn
Israel Megapharm
Under development in:
Europe Chiron
Japan Kissei Pharmaceutical
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INFeD Documented iron Promoted to oncologists in the None
deficiency anemia United States by MGI
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Didronel I.V. Infusion Hypercalcemia of Marketed in:
malignancy United States None
Canada None
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</TABLE>
(1) Except for INFeD, which is owned by Schein Pharmaceutical, Inc., these
products are owned by MGI.
<TABLE>
<CAPTION>
MGI 114 Development Program
==============================================================================================================
Cancer Type Phase of Initiation Dates Status
Development
==============================================================================================================
MGI Sponsored
==============================================================================================================
<S> <C> <C> <C>
Prostate cancer Exploratory Phase II July 1998 December 1998 - Expanded trial
from initial 14 patients to include
additional 16 patients
Pancreatic cancer Phase II November 1998 Patient enrollment underway
Ovarian cancer Exploratory Phase II December 1998 Patient enrollment underway
- --------------------------------------------------------------------------------------------------------------
Variety of advanced Phase I combination safety February 1999 Patient enrollment underway
cancers study with CPT-11
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
=================================================================================================
Cancer Type Phase of Initiation Dates Status
Development
=================================================================================================
NCI Sponsored(1)
=================================================================================================
<S> <C> <C> <C>
Renal, colon and Phase II June - November 1998 Patient enrollment underway
non-small cell lung
cancer
- -------------------------------------------------------------------------------------------------
Colon, breast, Phase II Internal Review Board approved
ovarian and renal
cancer
- -------------------------------------------------------------------------------------------------
Ovarian, cervical, Phase II Protocol being finalized
endometrial and
brain (Glioma)
cancer
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Pediatric solid Phase I September 1998 Patient enrollment underway
tumors
- -------------------------------------------------------------------------------------------------
Leukemia Phase I Protocol being finalized
=================================================================================================
Dainippon Sponsored (2)
=================================================================================================
Variety of cancers Preclinical
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Conducted pursuant to a Clinical Trials Agreement with MGI.
(2) Conducted pursuant to a Development, Marketing and Cooperation Agreement
with MGI.
Salagen(R) Tablets
- ------------------
Salagen Tablets is the first, and currently the only approved, systemic
pharmacologic treatment for symptoms of xerostomia (chronic dry mouth). A
reduction in saliva can result in pain, discomfort, difficulty in eating and
sleeping, rapid tooth decay, periodontal disease, oral infection and severe
halitosis. Persons suffering from dry mouth in the past have used water,
sugar-free hard candies and lozenges and over-the-counter saliva substitutes to
moisten their mouths. Salagen Tablets have been marketed in the United States by
MGI since 1994 as a treatment for symptoms of radiation induced dry mouth in
head and neck cancer patients. In February 1998, the FDA also approved Salagen
Tablets as a treatment for dry mouth associated with Sjogren's syndrome. In
April 1998, the company began marketing the product to rheumatologists and other
physicians who treat Sjogren's patients.
Head and Neck Cancer Market
Radiation therapy used to treat head and neck cancers can permanently
damage salivary glands, resulting in significant chronic reduction of saliva
production. Salagen Tablets address the symptoms of the condition, rather than
its underlying cause. Approximately 40,000 Americans are diagnosed each year
with tumors of the head or neck, with 60 percent receiving radiation therapy to
treat their disease. Thus, the company believes that the potential market for
this indication is approximately 25,000 patients. Patients using Salagen Tablets
generally take them during their
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<PAGE>
course of radiation therapy, which lasts on average three to four months. Other
therapies used to treat this condition are generally considered by physicians
and patients to be inadequate and are limited to products that act as wetting
agents such as water, lozenges and saliva substitutes. Salagen Tablets work by
stimulating the residual functioning tissue in the damaged salivary glands to
increase saliva production, providing patients with a longer-lasting solution
for chronic dry mouth.
Sjogren's Syndrome Market
Sjogren's syndrome is a chronic autoimmune disorder in which the body's
own immune system attacks the moisture-producing glands, particularly the
salivary glands, causing them to lose their ability to produce adequate
moisture. Symptoms of Sjogren's syndrome vary in degree and type, but the common
component is chronic dryness. Patients can exhibit dry mouth, swollen glands,
dry eyes, vaginal dryness and fatigue. The syndrome can be manifested alone
(primary Sjogren's) or in combination with other autoimmune disorders (secondary
Sjogren's).
Current therapies, including Salagen Tablets, address the symptoms of
the condition, rather than its underlying cause, which is not clearly
understood. Estimates of people with Sjogren's syndrome range from 200,000 to 1
million patients in the United States. Not all patients exhibit all symptoms,
but dry mouth is a prevalent and chronic complaint of about one-half of the
Sjogren's syndrome patients who seek treatment. Given varying degrees of
dryness, approximately 50 percent of those patients with dry mouth are potential
candidates for therapy. Thus, the company believes that the number of the U.S.
Sjogren's syndrome patients who could benefit from Salagen Tablets is about
50,000.
In 1994, as a condition of marketing approval for Salagen Tablets in
the head and neck cancer market, the FDA required MGI to conduct several Phase
IV studies. These studies included (1) a two-year carcinogenicity bioassay in
rats; (2) long-term clinical trials after radiation and in Sjogren's syndrome
patients to further clarify the relationship between baseline salivary flow and
the effect of Salagen Tablet therapy, as well as to provide additional safety
data for 5 mg and 10 mg doses; (3) determination of the metabolic fate of
Salagen Tablets in subsets of patients with renal or hepatic insufficiency; (4)
completion of the safety and efficacy evaluation of Salagen Tablets in patients
with Sjogren's syndrome; and (5) evaluation of the feasibility of pediatric
dosing. These studies have been concluded and, with the exception of the
carcinogenicity bioassay, the results have been submitted to the FDA. MGI will
submit the carcinogenicity bioassay to the FDA in 1999.
MGI 114
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MGI 114 is the lead compound of a family of unique antitumor compounds
called the acylfulvenes, that appears to have several characteristics that
improve its chance of becoming an important chemotherapy, including:
* a unique mechanism of action,
* cytotoxic activity against a broad spectrum of tumor types in
preclinical studies,
* activity against tumor cell lines resistant to standard anticancer
therapies,
* synergistic effect against tumor cells when combined with certain
approved drugs, and
* positive signs of antitumor response noted in early human clinical
studies.
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MGI 114's History
MGI acquired the rights to the entire class of acylfulvene agents from
the University of California in September 1993. During 1994, MGI conducted a
number of preclinical tests with MGI 114 to evaluate its effect against a number
of solid tumors. An Investigational New Drug Application was submitted to the
FDA in September 1995 and Phase I human safety testing was initiated in December
1995. In October 1997, MGI initiated a second Phase I study to evaluate the
effectiveness of a different dosing schedule. Both Phase I studies completed
enrollment in 1998, after establishing a maximum tolerated dose level and a
recommended dosing regimen for the initial Phase II trials. The first of several
MGI Phase II studies started in July 1998.
Current Development Status - Phase II Trials
MGI 114 is the company's most clinically advanced of the acylfulvene
agents. In 1998, MGI began three separate Phase II studies in the tumor types
described below:
Prostate Cancer
---------------
In July 1998, MGI began enrollment in an exploratory Phase II trial
with hormone refractory prostate cancer patients. The study was designed to
treat an initial group of 14 patients with MGI 114 and monitor their PSA
(prostate specific antigen) levels, a measurement that is often used by
clinicians to help diagnose and measure the progression of prostate cancer. In
December 1998, the company expanded this trial to include an additional 16
patients after two of the original patients showed a sustained drop in their PSA
levels, meeting the requirement for trial expansion.
Preclinical studies with MGI 114 have shown positive activity against
prostate tumors. Results from such preclinical tests were presented at the
European Organization for Research and Treatment of Cancer/National Cancer
Institute (EORTC/NCI) meeting held in Amsterdam in June 1998. In one animal
study where DU-145 human prostate tumors were implanted in mice, five of eight
animals showed complete elimination of the tumors. In a second study using PC-3
human prostate tumors implanted in mice, all nine mice included in the study
showed a partial shrinkage of their tumor (i.e., greater than a 50 percent
shrinkage), with a mean shrinkage of 72.5 percent.
Among men in the United States, prostate cancer is the most commonly
diagnosed malignancy and the second leading cause of cancer death. The American
Cancer Society estimates that about 39,200 men die annually from prostate cancer
in the United States. Most first-line therapies used to treat prostate cancer
are hormone therapies. Sales of hormone cancer therapies were over $2 billion
worldwide in 1997. Unfortunately, such hormone therapies ultimately lose their
ability to contain disease, leaving patients with few second-line treatment
options.
Pancreatic Cancer
-----------------
In November 1998, MGI began enrollment in a Phase II trial with
pancreatic cancer patients to evaluate MGI 114's ability to treat pancreatic
cancer. This study was designed to include 50 advanced pancreatic cancer
patients who are not responding to treatment with gemcitabine
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(Gemzar(R)), an approved chemotherapy drug commonly used to treat pancreatic
cancer. The study will collect data on patient survival and tumor size following
treatment with MGI 114.
Positive signs of activity against pancreatic cancer have been observed
in earlier preclinical and clinical studies. In MGI's Phase I human safety
study, one patient with pancreatic cancer showed a 70 percent reduction in the
size of his measurable tumor mass. This individual completed seven courses of
treatment with MGI 114 over a period of nine months. In animal studies, MGI 114
has also demonstrated antitumor activity against human pancreatic tumors
implanted in mice. In such studies, one out of ten mice showed complete
elimination of the tumor when treated with half the maximum tolerated dose,
while the remaining nine mice exhibited tumor growth inhibition of approximately
37 percent. At the maximum tolerated dose, nine out of ten mice showed complete
tumor shrinkage. This compared favorably to the results produced by gemcitabine,
which produced tumor growth inhibition of approximately 23 percent at its
maximum tolerated dose.
Pancreatic cancer is the fourth most common cause of cancer-related
death in the United States. It is an aggressive and difficult to diagnose
disease that has few effective treatment options. Currently, the most common
chemotherapy drug used to treat pancreatic cancer is gemcitabine, which was
approved by the FDA in May 1996 and sold approximately $175 million worldwide
for all uses in 1997. The American Cancer Society estimates that 29,000 new
cases of pancreatic cancer are diagnosed in the United States each year and the
death rate virtually equals that incidence rate.
Ovarian Cancer
--------------
In December 1998, MGI started an exploratory Phase II trial with MGI
114 in ovarian cancer patients. The patients for this study are women with
advanced ovarian cancer who did not respond or are no longer responding to a
chemotherapy regimen that includes paclitaxel (Taxol(R)) and platinum-based
agents. Similar to MGI's prostate study, it will initially evaluate 14 ovarian
patients. MGI intends to expand patient enrollment to include 30 patients if at
least one of the initial 14 patients has a 50 percent or greater reduction in
tumor volume that is sustained for at least one month.
Preclinical tests with MGI 114 have shown positive antitumor activity
against ovarian tumor samples obtained from patients. Ovarian tumor data from in
vitro studies (i.e., cell culture tests) was presented at the EORTC/NCI meeting
in June 1998. Yet to be published data from animal studies in ovarian human
tumor cell lines will be presented at the April 1999 American Association of
Cancer Research meeting in Philadelphia, showing positive antitumor activity
against human ovarian tumors implanted in mice.
Ovarian cancer is the leading cause of gynecological cancer deaths
among American women. The American Cancer Society estimates that approximately
25,400 new cases of cancer would be diagnosed and 14,500 would die from the
disease in the United States in 1998. Taxol(R) and Paraplatin(R) are the two
most commonly prescribed drugs to treat ovarian cancer, selling over $900
million and $400 million worldwide for multiple oncology uses in 1997,
respectively.
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Past Development Results
During the third quarter of 1998, MGI concluded enrollment of patients
in its Phase I human safety studies, the goal of which was to determine the
maximum tolerable dose of the drug. In the initial Phase I study, several signs
of positive antitumor response were noted. In patients treated at or near the
currently recommended Phase II dose, an objective partial response (i.e.,
greater than a 50 percent tumor shrinkage) was confirmed in a pancreatic cancer
patient; an objective minor response (i.e., less than a 50 percent tumor
shrinkage) was observed in a patient with cancer of the thymus; and five
patients remained on the study with stable disease for at least four courses of
treatment (approximately four months). Three of these patients had colon cancer,
one had liver cancer, and the other had ampullary cancer.
MGI and its scientific collaborators have conducted numerous
preclinical tests over the last several years. Many of these test results have
been replicated by independent laboratories. These animal studies have shown
that several types of solid tumors were completely eliminated when treated with
MGI 114, including breast, lung, colon, prostate, ovarian, melanoma, gastric,
squamous cell and pancreatic tumors.
The National Cancer Institute
In October 1996, MGI entered into a Clinical Trials Agreement with NCI
under which NCI will sponsor and oversee (at its own expense) several clinical
research programs using MGI 114 in its network of designated cancer centers.
During the second half of 1998, NCI initiated several Phase II studies that are
currently expected to include at least two studies each in breast, colon, renal,
ovarian and non-small cell lung cancer, and one study in cervical cancer. NCI is
also conducting a Phase I study in pediatric cancer patients with solid tumors.
MGI has agreed to provide drug product for all these studies and will have
access to any resulting data.
NCI is also screening several new analogs from the acylfulvene family
for potential antitumor activity and improved safety profiles. Currently, 10
analogs with activity in the primary in vitro screen have been through
additional in vivo testing by NCI. NCI has noted favorable results for all 10
analogs in a hollow fiber in vivo assay.
International Collaborations
In December 1995, MGI granted exclusive rights to the acylfulvenes in
Japan to Dainippon Pharmaceutical Co., Ltd. under a development and
commercialization agreement. Since then, Dainippon has replicated MGI's
preclinical results in the various solid tumor lines and is now preparing to
start its Phase I clinical testing process. MGI is seeking a partner to develop
and commercialize MGI 114 in Europe and other foreign markets.
INFeD(R) (Iron Dextran Injection)
- ---------------------------------
In March 1997, MGI entered into a promotion agreement with Schein
whereby MGI would promote INFeD to the cancer market as a treatment for
documented iron deficiency anemia in patients for whom oral administration of
iron is unsatisfactory or impossible. Schein has been
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marketing INFeD for iron deficiency anemia in the renal dialysis market since
1994. MGI began actively promoting INFeD to oncologists in July 1997. With MGI's
assistance, Schein initiated clinical trials in October 1997 in cancer patients
with anemia to produce additional supportive data for the product's use in the
oncology marketplace. In March 1998, MGI and Schein amended their agreement
whereby Schein agreed to pay MGI a base quarterly revenue stream through 1998.
In September 1998, the FDA seized all products manufactured at Schein's Steris
Laboratories facility in Phoenix, Arizona, including all INFeD inventory. The
seizure action was related to alleged non-compliance with current "good
manufacturing process" requirements and resulted in product shortages and lost
sales of INFeD. In late October 1998, Schein resumed shipping INFeD following a
written consent agreement with the FDA. MGI and Schein are currently determining
if the INFeD relationship will continue beyond 1999.
Didronel(R) I.V. Infusion
- -------------------------
Didronel I.V. Infusion is used to treat hypercalcemia (elevation of
blood calcium) of malignancy, which is the most common life-threatening
metabolic disorder associated with cancer. Hypercalcemia causes mental
confusion, nausea and vomiting, loss of kidney function, and, if left untreated,
death. The condition affects up to 20 percent of all cancer patients sometime
during the course of their disease, but appears to be most prevalent with tumors
that have metastasized to bone (usually lung and breast tumors).
MGI purchased Didronel I.V. Infusion from Procter & Gamble
Pharmaceutical, Inc. in January 1990. Sales of this product enabled MGI to
establish its sales and marketing organization, develop relationships with key
oncologists across the United States and build a presence in the medical
community. Sales of Didronel I.V. Infusion have declined over the last several
years following the introduction of competing products. The company anticipates
that sales of Didronel I.V. Infusion will continue to decline in the future.
Sales and Marketing
MGI currently markets its products in the United States directly to
medical oncologists, radiation oncologists, rheumatologists, select internal
medicine physicians and other physician specialists through its sales force of
22 full-time and 2 part-time representatives, each assigned one of 24 geographic
territories in the United States, and two regional directors. In addition, the
company has an in-house staff which supports the specialty sales force. The
company also uses a variety of marketing programs to reach its targeted
audiences, including telemarketing and journal advertising. The company sells
its products to pharmaceutical wholesalers in the United States who distribute
them to retail and hospital pharmacies.
MGI uses international partnerships to commercialize its products in
foreign markets. The company currently has agreements with Chiron, Kissei and
Pharmacia & Upjohn to develop and commercialize Salagen Tablets for the
European, Japanese and Canadian markets, respectively. The company receives
payments based upon product sales in these territories. The company also has
distribution agreements for Salagen Tablets in Taiwan, Israel, Korea and
Singapore. Under these distribution agreements, MGI generally receives milestone
payments, payments based on product sales and other payments depending on the
territory.
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Research and Development
MGI maintains active drug development programs for all of its new drug
candidates and on-the-market products. Current drug development efforts are
primarily focused on MGI 114. The company's research and development expenses
increased 6 percent in 1998 from 1997 due to the continuing Phase I program and
initiation of the Phase II program for MGI 114. The company is also
participating in post-marketing studies to support the commercialization of
Salagen Tablets.
MGI has incurred significant research and development costs in the past
and believes that substantial capital resources will be required to support
current and future development programs. MGI spent approximately $7.9 million in
1996, $5.0 million in 1997 and $5.3 million in 1998 on research and development.
In recent years, from one-half to two-thirds of MGI's research and development
expense was attributable to contracts with third parties. The company estimates
that approximately 70 percent of MGI's research and development expense in 1999
will be attributable to third party services. Funding for research and
development is expected to come from internally generated funds, joint ventures,
strategic alliances or other sources of capital, including equity or debt
offerings. The company also pursues product acquisitions in order to expand its
development pipeline.
Successful drug development requires a broad spectrum of scientific,
clinical and product development expertise. As part of its strategy, MGI does
not conduct basic research or drug discovery activities because it intends to
acquire rights to drugs that are at least in the human clinical stage of
development. This approach substantially reduces the company's research risk due
to product failure, and eliminates the need for investment in discovery research
laboratories and personnel.
MGI manages its human clinical development of drugs by selectively
outsourcing certain activities. MGI has in-house medical communications
capabilities and regulatory affairs expertise which allow the company to
maintain support systems, monitor adverse drug experience reporting, and file
new drug applications with the FDA. The company outsources other development
activities, such as:
* laboratory and animal studies,
* drug formulation and supply,
* clinical studies at independent sites, and
* monitoring, collection and analysis of data from independent sites.
MGI expects to continue to contract with third parties until it is necessary and
economical to add these capabilities internally. MGI currently has 24 employees
in research and development, regulatory affairs and product formulation.
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Collaborative Agreements
Dainippon Pharmaceutical Co., Ltd.
- ----------------------------------
In October 1995, MGI entered into a development and commercialization
agreement with Dainippon pursuant to which MGI granted an exclusive license to
Dainippon to develop and commercialize acylfulvenes, including MGI 114, in
Japan. Dainippon is currently preparing an investigator brochure to begin Phase
I studies. Dainippon granted back to MGI an irrevocable, exclusive, royalty-free
license allowing MGI to use any technology or data developed by Dainippon
relating to the acylfulvenes. If a resulting product has not been launched in
Japan by October 2005, MGI may terminate the license unless Dainippon elects to
make license continuation payments on a quarterly basis. Dainippon agreed to pay
MGI an initial and continuing quarterly milestone payments through April 2000 of
which the most recent, in the amount of $495,000, was in January 1999, and a
portion of any non-royalty payments made by a sublicensee to Dainippon. In
addition, Dainippon agreed to make available a loan facility to MGI in the
amount of $4,300,000 as a source of additional research and development funds
for the development of MGI 114. Unless earlier terminated by the parties, the
term of the agreement is for the term of MGI's patents in Japan, or 10 years
from the date of the last regulatory approval in Japan, whichever is later.
Thereafter, the agreement may be renewed for additional one year periods.
In addition, MGI entered into a supply agreement with Dainippon in
October 1995 pursuant to which MGI participates in the commercialization of the
product and agrees to supply Dainippon's requirement of the product during the
term of the development, marketing and cooperation agreement described above.
Dainippon agrees to make certain minimum purchase requirements during the first
four years and as agreed upon by the parties thereafter.
Kissei Pharmaceutical Co., Ltd.
- -------------------------------
In December 1994, MGI entered into a license agreement with Kissei
pursuant to which MGI granted to Kissei an exclusive, royalty-bearing license to
develop and commercialize Salagen Tablets in Japan. Kissei is currently
conducting its pivotal clinical program for head and neck cancer. Kissei granted
back to MGI an irrevocable, non-exclusive, royalty-free license allowing MGI to
use any technology or data developed by Kissei relating to Salagen Tablets.
Kissei paid MGI an initial license fee upon execution of the agreement and
agreed to pay MGI additional milestone payments, one of which was paid in 1995
and another in 1997. In addition, Kissei agreed to pay MGI royalties equal to a
certain percentage of net sales revenues, subject to annual minimum
requirements. Unless earlier terminated by the parties, the term of the
agreement is for 10 years from the date Salagen Tablets are launched in Japan.
Thereafter, the agreement may be renewed for additional one year periods by
mutual agreement.
Chiron B.V.
- -----------
In December 1992, MGI entered into a cooperation and license agreement
with Chiron pursuant to which MGI has granted to Chiron an irrevocable,
royalty-bearing license to develop and commercialize Salagen Tablets in Europe.
Sales of Salagen Tablets in Europe began in 1995. Chiron granted to MGI an
irrevocable, non-exclusive, royalty-free license allowing MGI to use any
-13-
<PAGE>
technology or data developed by Chiron relating to Salagen Tablets. Chiron paid
MGI an initial license fee upon execution of the agreement and agreed to pay MGI
three additional milestone payments. In addition, Chiron agreed to pay MGI
royalties equal to a certain percentage of net sales revenues, with an increased
percentage of sales for two or more indications, subject to annual minimum
requirements. Chiron also agreed to pay MGI decreased royalties during the
three-year period following termination of the agreement. Unless earlier
terminated by the parties, the term of the agreement is for 15 years from the
date of first commercial sales of Salagen Tablets in Europe or the date of
termination of MGI's exclusive rights under MGI's agreement with Merck KgaA with
respect to a major market, whichever is later. Thereafter, the agreement may be
renewed for one additional three-year period and thereupon automatically expires
unless extended by the parties.
In addition, MGI entered into a supply agreement with Chiron in
December 1992 pursuant to which MGI agrees to supply Chiron's requirement of
Salagen Tablets until the termination of the cooperation and license agreement
with Chiron or MGI's agreement with Merck KgaA, whichever is earlier.
Pharmacia & Upjohn, Inc.
- ------------------------
In November 1994, MGI entered into a license agreement with P&U,
pursuant to which MGI has granted to P&U an exclusive, royalty-bearing license
to develop and commercialize Salagen Tablets in Canada. Sales of Salagen Tablets
began in 1997. P&U granted to MGI an irrevocable, non-exclusive, royalty-free
license allowing MGI to use any technology or data developed by P&U relating to
Salagen Tablets. P&U paid MGI an initial license fee upon execution of the
agreement and agreed to pay MGI royalties equal to a percentage of net sales
revenues, subject to annual minimum requirements. In addition, MGI agreed to pay
P&U royalties if MGI promotes Salagen Tablets in Canada in the first or second
year following termination of the agreement. Unless earlier terminated by the
parties, the term of the agreement is for 7 years from the date of first
commercial sales of Salagen Tablets in Canada. Thereafter, the agreement
continues for an additional two-year period and thereupon automatically expires
unless extended by the parties.
In addition, MGI entered into a supply agreement with P&U in November
1994 pursuant to which MGI agrees to supply P&U's requirement of the product
until the termination of the License Agreement with P&U or MGI's agreement with
Merck KgaA, whichever is earlier.
Distribution Agreements
- -----------------------
On the dates listed below, MGI entered into distribution agreements
granting a license to the following four exclusive, independent distributors to
promote and distribute Salagen Tablets in the designated territories:
* Megapharm L.T.D. (Israel) - April 7, 1995
* Sintong Chemical Industrial Ltd. (Taiwan) - April 25, 1995
* Hyundai Pharmaceutical Co., Ltd. (Korea) - September 16, 1996
* Medipharm Pte. Ltd. (Singapore) - April 24, 1998
-14-
<PAGE>
The distributors are required to obtain local authorizations in
connection with the import/ export and distribution of Salagen Tablets in their
designated territory. MGI generally receives milestone payments, payments based
on product sales and other payments depending on the territory. Unless earlier
terminated by the parties, the terms of the agreements range from three to six
years from the date on which the distributor obtains all required approvals and
may be renewed for a term of two or three years.
Manufacturing
MGI does not have and does not intend to own facilities for the
manufacture of its drugs in the near future. The company's marketed and
development-stage pharmaceuticals are manufactured under agreements with third
party manufacturers. MGI's manufacturing and quality assurance personnel
authorize, monitor and approve virtually all aspects of the manufacturing
process. In-process and finished product inventories are analyzed through
independent testing laboratories and the results are reviewed and approved by
MGI prior to release for distribution.
MGI generally carries at least one year of inventory of each of its
marketable products as safety stock. The company has a policy to fill orders by
wholesalers on demand, and does not intend to carry a backlog of orders at any
time.
Salagen(R) Tablets
- ------------------
MGI obtains pilocarpine hydrochloride, the active drug substance for
the manufacture of Salagen Tablets, under an exclusive supply and license
agreement with Merck KgaA. The exclusive term of this agreement ends in April
2004, provided that the agreement may be extended for additional five-year terms
unless earlier terminated by the parties. Upon termination of the exclusive
term, the agreement may continue for an indefinite period on a non-exclusive
basis. The refined raw material is an extract from plants grown and processed
exclusively on carefully managed plantations in South America. The company
believes that the supply of pilocarpine hydrochloride is adequate for the
foreseeable future. Salagen Tablets are currently manufactured for MGI at Global
Pharm Inc. in Toronto, Ontario, Canada pursuant to a manufacturing agreement.
Beginning in November 1999, this agreement may be terminated by either party
upon three years' written notice.
INFeD(R) (Iron Dextran Injection)
- ---------------------------------
INFeD is manufactured and distributed by its owner, Schein
Pharmaceutical, Inc. MGI receives a promotion fee based on sales of INFeD in the
oncology market. MGI is not involved in the manufacture of this product.
Didronel(R) I.V. Infusion
- -------------------------
Pharmaceutical grade etidronate disodium for the manufacture of
Didronel I.V. Infusion is obtained from Procter & Gamble Pharmaceutical, Inc. in
Norwich, New York, under a supply agreement. The agreement provides for
automatic renewal for one-year terms unless either party gives written notice of
termination at least 180 days prior to the end of each calendar year. Didronel
I.V. Infusion is currently manufactured at Taylor Pharmaceuticals, a wholly
owned subsidiary of
-15-
<PAGE>
Akorn, Inc. in Decatur, Illinois. Ben Venue Laboratories, Inc. of Bedford, Ohio
is an approved alternate contract manufacturer of Didronel I.V. Infusion.
MGI 114 and Other Development-Stage Pharmaceuticals
- ---------------------------------------------------
As a regular part of its business, MGI establishes from time to time
contract manufacturing arrangements for its development-stage pharmaceuticals,
including MGI 114. These arrangements are typically short-term and include
purchase orders, supply agreements and development-scale manufacturing
contracts.
Patents and Proprietary Rights
MGI relies on patent rights, orphan drug designation, trade secrets,
trademarks, and nondisclosure agreements to establish and protect its
proprietary rights in its products in both the United States and selected
foreign jurisdictions. Current patent and orphan drug status with respect to
certain of MGI's products are as follows:
<TABLE>
<CAPTION>
======================================================================================================================
Subject Status Issue Date Country
======================================================================================================================
<S> <C> <C> <C>
Salagen Tablets for Orphan drug March 22, 1994 United States
symptoms of radiation-
induced xerostomia in head
and neck cancer patients
- ----------------------------------------------------------------------------------------------------------------------
Salagen Tablets for Orphan drug February 11, 1998 United States
symptoms of Sjogren's
syndrome
- ----------------------------------------------------------------------------------------------------------------------
Method of treating tumors Patents issued August 8, 1995 United States and various
using illudin S and illudin M (United States) other countries
analogs
- ----------------------------------------------------------------------------------------------------------------------
Acylfulvene analogs, Patents issued August 8, 1995, June 4, United States and various
including MGI 114 and use 1996 and October 8, 1996 other countries
of MGI 114, as antitumor (United States)
agent
- ----------------------------------------------------------------------------------------------------------------------
Synthetic methods for Two patents issued March 3, 1998 and January United States; PCT
preparing acylfulvenes 5, 1999 (United States) application filed to preserve
foreign rights
- ----------------------------------------------------------------------------------------------------------------------
Substituted acylfulvene One U.S. patent allowed; -- United States and various
compounds as antitumor various patent applications other countries
agents (not including pending
MGI 114)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The term of a U.S. patent issued from an application filed before June
8, 1995 is the longer of seventeen years from its issue date or twenty years
from its effective filing date. The term of a U.S. patent issuing from an
application filed after June 8, 1995 is twenty years from its effective filing
date. All of the patents covering MGI 114 or its use were issued from
applications filed before June 8, 1995. The Drug Price and Competition and
Patent Term Restoration Act of 1984, the Generic Animal Drug Act, and the Patent
Term Restoration Act generally provide that a patent relating to, among other
items, a human drug product, may be extended for a period of up to five
-16-
<PAGE>
years by the U.S. Commissioner of Patents and Trademarks if the patented item
was subject to regulatory review by the FDA before the item was marketed. Under
these acts, a product's regulatory review period (which consists generally of
the period from the time when the exemption to permit clinical investigations
becomes effective until the FDA grants marketing approval for the product) forms
the basis for determining the length of the extension an applicant may receive.
There can be no assurance that any issued patents will be extended in term.
Orphan drugs are currently provided seven years market exclusivity for
an approved indication following approval to market by the FDA. Orphan drug
designation for the company's products does not, however, insulate the company
from other manufacturers attempting to develop an alternate drug for the
designated indication, or the designated drug for another, separate indication.
The company can make no assurances that any issued patent, whether
domestic or foreign, will provide significant patent protection. Further, patent
positions of pharmaceutical companies are generally uncertain and involve
complex legal and factual issues. Therefore, although the company believes its
patents are valid, it cannot predict with any precision the scope or
enforceability of the claims allowed thereunder. In addition, there can be no
assurance that the company's patent applications will result in issued patents,
that issued patents will provide an adequate measure of protection against
competitive technology which could circumvent such patents or that issued
patents would withstand review and be held valid by a court of competent
jurisdiction. Furthermore, there can be no assurance that any issued patents
will not be infringed or otherwise circumvented by others.
The company also relies on trade secrets and continuing innovation
which it seeks to protect with reasonable business procedures for maintaining
trade secrets, including confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the company will have adequate remedies for any breach or
that the company's trade secrets and proprietary know-how will not otherwise be
known or be independently discovered by competitors.
The company has obtained trademark registration on the Salagen(R)
trademark in the United States and certain foreign jurisdictions. In addition,
the company uses the federally registered Didronel(R) I.V. trademark under a
license with Procter & Gamble Pharmaceutical, Inc. and the INFed(R) trademark
under a license with Schein Pharmaceutical, Inc.
Competition
The pharmaceutical industry is intensely competitive, based mostly on
product performance and pricing. Many members of the industry have resources far
greater than MGI, providing them with potentially greater flexibility in
developing and marketing their products. While the company will seek to protect
its products from direct competition through filing patents, seeking marketing
exclusivity under the Orphan Drug Act, and maintaining technical information as
trade secrets, there is no way to insulate the company from competition from
products with different chemical composition or products made using different
technology. MGI is aware of other pharmaceutical companies which are developing
products which, if and when approved by the FDA, will compete
-17-
<PAGE>
with Salagen Tablets in one or both indications. The company's competitors could
also develop and introduce generic drugs comparable to Salagen Tablets, or drugs
or other therapies that address the underlying causes of the symptoms which
Salagen Tablets treat. There can be no assurance that the company will be
successful in its plan to gain product specific protection for each of its
pharmaceuticals or that developments by others will not render the company's
products noncompetitive or obsolete.
Government Regulation
The company's research and development activities are subject to
significant regulation by numerous governmental authorities in the United States
and other countries. Pharmaceutical products intended for therapeutic use in
humans are governed by FDA regulations in the United States and by comparable
regulations in foreign countries. The process of completing clinical testing and
obtaining FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources without any assurance that approval for
marketing will be granted.
The FDA has established mandatory procedures to regulate the
manufacturing and testing process to assure safety, potency and efficacy of a
product. Following initial formulation, the steps required before any new
prescription pharmaceutical product may be marketed in the United States include
(1) preclinical laboratory and animal tests; (2) the submission to the FDA of an
Investigational New Drug Application ("IND"); (3) adequate and well-controlled
clinical trials to establish the safety and efficacy of the drug; (4) the
submission of an NDA to the FDA; and (5) FDA approval of the NDA prior to any
commercial sale or shipment of the drug.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drug's efficacy and
to identify any significant safety problems. The results of these studies are
submitted to the FDA as part of the IND application. Testing in humans may
commence 30 days after the IND has been filed unless the FDA issues a "clinical
hold."
A three-phase clinical program is usually required for FDA approval of
a pharmaceutical product, unless "fast track approval" is granted. Phase I
clinical trials are conducted to determine the safety and maximum dosage of the
product. If Phase I testing data is positive and there are no limiting adverse
reactions, a Phase II clinical trial is conducted to gain preliminary evidence
as to the safety and efficacy of the product in a selected patient population
for a specific indication. A Phase III clinical trial is conducted on a broader
patient population including patients with multiple disease states and taking
one or more medications to provide sufficient data for the statistical evidence
of safety and efficacy. Phase II and Phase III studies are usually multi-center
trials in order to achieve greater statistical validity and to have a broader
patient population more representative of the population of the country.
Upon completion of clinical testing which demonstrates the product is
safe and effective for a specific indication, an NDA may be filed with the FDA.
This application includes details of the testing processes, preclinical studies,
clinical trials, as well as chemical, analytical, manufacturing, packaging and
labeling information. FDA approval of the application is required before the
applicant may market the new product.
-18-
<PAGE>
Even after initial FDA approval has been obtained, further studies may
be required to provide additional data on safety or efficacy in order to obtain
approval for uses other than those for which the product was initially tested.
Moreover, such approval may entail limitations on the indicated uses for which a
drug may be marketed. Even if FDA approval is obtained, there can be no
assurance of commercial success for any product. Post-marketing testing and
surveillance programs may also be required. The FDA may require withdrawal of an
approved product from the market if any significant safety issues arise while a
product is being marketed. In addition, before, during and after the process of
approval, the company's prescription drug products must all be manufactured in
accordance with "good manufacturing practices" as set forth by the FDA.
In November 1997, the FDA Modernization Act was enacted which
introduced the "fast track" approval process, codifying the accelerated approval
process provided under the FDA's implementing regulations. In contrast to the
standard review process, fast track approval allows the FDA to conditionally
approve a product for market that is intended for the treatment of a serious or
life-threatening condition and has demonstrated a clinical effect "that is
reasonably likely to predict clinical benefit." In order to obtain fast track
approval, there must be sufficient clinical information available to persuade
the FDA that a clinical benefit will be demonstrated in confirming multi-center
clinical trials. Fast track approval then allows a company to market the product
for an indication while the company is conducting the confirming trials. These
confirming trials may require several years to complete. Full approval may be
granted only after the FDA has reviewed the studies, demonstrating the safety
and efficacy of the product, which the FDA required when it initially granted
the fast track approval. If the studies do not demonstrate the safety and
efficacy of a product, the FDA will withdraw its fast track approval.
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while controlling health care costs. Potential approaches that
may affect the company include managed care initiatives, pharmaceutical buying
groups and formulary requirements. The company is unable to predict when any
proposed health care reforms will be implemented, if ever, or the effect of any
implemented reforms on the company's business. Federal, state and local
environmental laws and regulations do not materially affect the company's
operations and the company believes that it is currently in material compliance
with such applicable laws and regulations.
Employees
As of December 31, 1998, MGI had 74 full-time and 4 part-time
employees. Of MGI's employees, 36 are engaged in the company's marketing and
selling effort, 24 are involved in pharmaceutical development, including
regulatory affairs and manufacturing, and 18 are in other management or
administrative positions. No employee of the company is represented by a labor
union or is subject to a collective bargaining agreement. The company believes
that its relations with its employees are satisfactory.
-19-
<PAGE>
Export Sales
Although MGI provides bulk drug substance and marketable drug product
(for Salagen Tablets) to its international partners and distributors, the dollar
amount relative to such transfers have, to date, been immaterial to MGI's
financial position.
Item 2. Properties
The Company's offices are located in approximately 15,000 square feet
of office space leased by the Company in Minnetonka, Minnesota. The lease for
this space expires in September 1999. The Company is currently negotiating a
lease for space in a new location.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-20-
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's common stock trades on The Nasdaq National Market under
the symbol "MOGN." As of March 15, 1998, the Company had approximately 913
shareholders of record and 14,595,803 shares of common stock outstanding. The
Company has not paid cash dividends on its common stock and has no present
intention of paying cash dividends on its common stock.
The following table sets forth the high and low last daily closing
prices as reported by Nasdaq for the periods indicated. Prices represent
transactions between dealers and do not reflect retail markups, markdowns, or
commissions, and may not necessarily represent actual transactions.
High Low
------------ ------------
1998
First Quarter $ 7-3/4 $ 3-7/8
Second Quarter 12-13/16 6-3/4
Third Quarter 8-9/16 5
Fourth Quarter 12-1/8 6-9/32
1997
First Quarter $ 5-1/2 $ 3-7/8
Second Quarter 4-3/4 3-1/2
Third Quarter 5-1/8 3-3/16
Fourth Quarter 5-9/16 3-1/2
-21-
<PAGE>
Item 6. Selected Financial Data
Selected Financial Data MGI
PHARMA, INC.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Sales ............................. $ 12,945 $ 9,345 $ 6,460 $ 4,607 $ 4,276
Promotion ......................... 756 -- -- -- --
Licensing ......................... 3,137 3,090 2,170 7,718 1,636
Interest and other ................ 806 876 950 958 884
-------- -------- -------- -------- --------
17,644 13,311 9,580 13,283 6,796
Costs and expenses:
Cost of sales ..................... 939 768 678 772 563
Selling, general and administrative 10,989 9,339 7,659 7,487 8,845
Research and development .......... 5,302 4,989 7,865 7,266 6,196
Amortization of
intangible assets ............... -- -- -- 372 889
-------- -------- -------- -------- --------
17,230 15,096 16,202 15,897 16,493
-------- -------- -------- -------- --------
Net income (loss) .................... $ 414 $ (1,785) $ (6,622) $ (2,614) $ (9,697)
======== ======== ======== ======== ========
Net income (loss) per common share ...
Basic ............................. $ 0.03 $ (0.13) $ (0.50) $ (0.21) $ (0.82)
Assuming dilution ................. $ 0.03 $ (0.13) $ (0.50) $ (0.21) $ (0.82)
Weighted average number of common
shares:
Basic ......................... 14,368 14,116 13,179 12,509 11,784
Assuming dilution ............. 14,966 14,116 13,179 12,509 11,784
Balance Sheet Data (at period end):
Cash and investments ................. $ 17,081 $ 15,056 $ 17,888 $ 17,979 $ 16,637
Working capital ...................... $ 16,096 $ 13,981 $ 15,820 $ 15,973 $ 14,859
Total assets ......................... $ 21,122 $ 18,191 $ 20,163 $ 20,515 $ 20,284
Total liabilities .................... $ 4,011 $ 3,172 $ 3,796 $ 3,783 $ 4,245
Accumulated deficit .................. $(73,828) $(74,243) $(72,458) $(65,836) $(63,222)
Total stockholders' equity ........... $ 17,111 $ 15,019 $ 16,367 $ 16,732 $ 16,038
</TABLE>
-22-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Overview
MGI PHARMA, INC. (MGI or the company) is a pharmaceutical company that
acquires, develops and markets differentiated, specialty pharmaceutical
products. MGI's current product portfolio is comprised of products that address
special needs in the fields of cancer and rheumatology.
The company promotes its products directly to physicians in the United
States using its own specialty sales force. These products include company-owned
Salagen Tablets (pilocarpine hydrochloride) and Didronel I.V. Infusion
(etidronate disodium), and a copromoted product, INFeD (iron dextran injection).
Salagen Tablets are approved in the United States for two indications: symptoms
of radiation-induced xerostomia (dry mouth) in head and neck cancer patients,
and the symptoms of dry mouth associated with Sjogren's syndrome, an autoimmune
disease that damages the salivary glands. Sales of Salagen Tablets in the United
States account for more than 90 percent of all company product sales. Didronel
I.V. Infusion is used to treat hypercalcemia (elevated blood calcium) in cancer
patients. Under a promotion agreement with Schein Pharmaceutical, Inc., MGI
promotes INFeD in the cancer market for treatment of iron deficiency anemia.
Since Schein continues to own and distribute INFeD, MGI recognizes promotion fee
revenue, rather than product sales revenue. Outside the United States, MGI
commercializes its products through various alliances, and has agreements with
several international pharmaceutical companies to commercialize Salagen Tablets
in Europe, Japan and Canada.
The company's current product development efforts include clinical and
preclinical studies for MGI 114, the lead compound in a family of anti-cancer
analogs known as acylfulvenes. Exclusive Japanese rights to MGI 114 and the
other acylfulvene analogs were granted to Dainippon under a development and
commercialization agreement in 1995. The company also provides continued
clinical support of Salagen Tablets.
Results of Operations
Revenues
- --------
Sales
Sales revenues increased 39 percent to $12,944,620 in 1998, following a
45 percent increase from $6,459,550 in 1996 to $9,344,548 in 1997. The increases
reflect increasing sales of Salagen Tablets. The 1998 increase primarily
reflects broader demand for Salagen Tablets following FDA approval in February
1998 and product launch in April 1998 of Salagen Tablets for the treatment of
Sjogren's syndrome symptoms.
As is typical of the pharmaceutical industry, company sales are made to
pharmaceutical wholesalers in the United States for further distribution through
pharmacies to the ultimate consumers of the company's products. Due to periodic
adjustments in wholesaler buying patterns,
-23-
<PAGE>
MGI sales revenues may fluctuate from quarter to quarter. However, over the long
run, MGI sales are expected to approximate wholesale shipments.
Promotion fee
In March 1998, the company amended its promotion agreement with Schein
for the promotion of INFeD. Under the terms of this amendment, a minimum
promotion fee was set at $125,000 per quarter from July 1, 1997 to December 31,
1998. With this amendment, MGI began recognizing promotion fee revenue, totaling
$756,326 in 1998. MGI and Schein are currently determining if this relationship
will continue beyond 1999.
Licensing
Licensing revenue increased 1 percent to $3,136,568 in 1998, following
a 42 percent increase from $2,170,460 in 1996 to $3,090,375 in 1997. The 1997
increase resulted primarily from receipt of a $747,000 milestone payment from
Kissei upon Kissei's advancement of Salagen Tablets into a pivotal clinical
program in Japan. Even without a similar milestone in 1998, licensing revenue
grew slightly due primarily to an increase in contract minimum payments for
Salagen Tablets rights in Canada, an increase in royalties on technology from
the company's former agricultural business and a scheduled increase in quarterly
payments from Dainippon for continuing acylfulvene (e.g. MGI 114) rights in
Japan. Future licensing revenues will likely fluctuate between years and from
one quarter to another depending on the achievement of milestones by the company
or its partners, the level of recurring royalty generating activities, and the
timing of initiating additional licensing relationships.
Interest and other
Interest and other income decreased 8 percent to $805,996 in 1998,
following an 8 percent decrease from $949,982 in 1996 to $875,906 in 1997. A
lower yield on investments primarily caused the 1998 decrease. A decrease in the
average amount of funds available for investment caused the decrease in interest
income in 1997.
Costs and Expenses
- ------------------
Cost of Sales
Cost of sales increased 22 percent to $938,628 in 1998, following a 13
percent increase from $677,610 in 1996 to $767,680 in 1997. The increases were
due to increased unit sales volume. Management believes that cost of sales as a
percent of product sales should continue near its recent annual range of 7 to 10
percent for its current products. Quarterly changes in product mix may cause
this measure to fluctuate.
Selling, general and administrative
Selling, general and administrative expenses increased 18 percent to
$10,989,017 in 1998, following a 22 percent increase from $7,658,654 in 1996 to
$9,339,110 in 1997. The 1998 increase
-24-
<PAGE>
resulted primarily from increased selling and promotion costs in conjunction
with the April 1998 launch of Salagen Tablets as a treatment for symptoms of dry
mouth from Sjogren's syndrome. The 1997 increase resulted from restructuring the
company's sales and marketing organization, as well as promotion costs
associated with the launch of INFeD in the third quarter of 1997. Selling,
general and administrative expenses are expected to increase in 1999 in
conjunction with further expansion of promotional efforts of Salagen Tablets for
treatment of Sjogren's syndrome symptoms.
Research and development
Research and development expense increased 6 percent to $5,301,578 in
1998, following a 37 percent decrease from $7,865,475 in 1996 to $4,988,584 in
1997. The 1998 increase reflected increasing costs for the development of MGI
114. During 1998, development of MGI 114 transitioned from Phase I to Phase II
clinical studies. Enrollment in three MGI sponsored Phase II studies began in
1998. These studies will begin to evaluate the efficacy of MGI 114 for the
treatment of patients with prostate, pancreatic or ovarian tumors. In addition,
MGI provided clinical supplies of MGI 114 to the National Cancer Institute for
initiation of NCI's clinical studies of MGI 114. The 1997 decrease resulted from
reduced spending for Salagen Tablets, following submission to the FDA in
February 1997 of the supplemental NDA for Sjogren's syndrome. Research and
development spending is expected to increase in 1999 as the development effort
for MGI 114 continues to expand.
Net income (loss)
Net income of $414,287 in 1998 compares with decreasing net losses from
$6,621,747 in 1996 to $1,784,545 in 1997. A reduced net loss in 1997 and
achievement of profitability in 1998 were due to increases in total revenues of
39 percent and 33 percent in 1997 and 1998, respectively, following a decrease
in total costs and expenses of 7 percent in 1997 and an increase in total costs
and expenses of 14 percent in 1998, compared to the prior years.
Tax loss carryforwards
At December 31, 1998, the company had federal net operating loss
carryforwards totaling approximately $75 million available to offset future
taxable income, if any. These tax loss carryforwards will expire from 1999
through 2012, if not utilized. Utilization of the tax loss carryforwards may be
subject to stringent annual limits if a substantial change in MGI ownership
occurs as defined under the current Internal Revenue Code. Insufficient taxable
income or imposition of the annual limits may lead to expiration of tax loss
carryforwards.
Selected Quarterly Operating Results
The following table sets forth certain unaudited financial information
of the company for each of the quarters in the two year period ended December
31, 1998. In management's opinion, this unaudited quarterly information has been
prepared on the same basis as the audited financial statements and includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information for the quarters presented, when read in
conjunction with the Financial Statements and Notes thereto included elsewhere
herein. The company believes that
-25-
<PAGE>
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31, March 31 June 30 September 30 December 31
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- -------- -------- -------- -------- -------- -----------
Statement of Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales ................... $ 2,190 $ 1,997 $ 2,577 $ 2,580 $ 2,629 $ 3,260 $ 3,274 $ 3,781
Promotion ............... -- -- -- -- 375 125 125 131
Licensing ............... 455 520 786 1,329 571 644 1,022 901
Interest and other ...... 234 234 206 202 187 200 209 210
-------- -------- -------- -------- -------- -------- -------- --------
2,879 2,751 3,569 4,111 3,762 4,229 4,630 5,023
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of sales ........... 237 154 205 171 207 293 216 222
Selling, general and
administrative ........ 2,116 2,036 2,317 2,870 2,414 2,650 2,712 3,213
Research and
development ........... 1,062 1,384 1,184 1,359 1,238 1,357 1,317 1,390
-------- -------- -------- -------- -------- -------- -------- --------
3,415 3,574 3,706 4,400 3,859 4,300 4,245 4,825
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) .......... $ (536) $ (823) $ (137) $ (289) $ (97) $ (71) $ 385 $ 198
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic ................. $ (0.04) $ (0.06) $ (0.01) $ (0.02) $ (0.01) $ (0.00) $ 0.03 $ 0.01
Assuming dilution ..... $ (0.04) $ (0.06) $ (0.01) $ (0.02) $ (0.01) $ (0.00) $ 0.03 $ 0.01
Weighted average number
of common shares:
Basic ................. 14,089 14,099 14,135 14,141 14,207 14,326 14,452 14,478
Assuming dilution ..... 14,089 14,099 14,135 14,141 14,207 14,326 15,020 15,321
</TABLE>
Liquidity and Capital Resources
At December 31, 1998, the company had cash and investments of $17,081,265
and working capital of $16,095,725 compared with $15,055,923 and $13,980,555,
respectively, at December 31, 1997. During the year ended December 31, 1998,
operating activities at the company provided $894,867 of cash and an additional
$1,314,761 of cash was received from the exercise of stock options.
Cash in excess of current operating needs is invested in money market
instruments in accordance with the company's investment policy. This policy
emphasizes principal preservation, so it requires strong issuer credit ratings
and limits the amount of credit exposure from any one issuer or industry.
Substantial amounts of capital are required for pharmaceutical
development and commercialization efforts. For continued development and
commercialization of MGI 114, Salagen Tablets and products acquired through the
company's product acquisition strategy, the company plans to utilize cash
provided from growth in product sales, collaborative arrangements and existing
liquid assets. The company may also seek other sources of funding, including
additional equity or debt issuances, or may manage the pace of developing its
product candidates. The company
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<PAGE>
anticipates that current cash and investments are sufficient to fund existing
operations for at least two years.
Year 2000
Worldwide, many currently installed computer systems and software are
coded to accept only two-digit entries in the date code fields. These date code
fields will need to accept four-digit entries to distinguish 21st century dates
from 20th century dates. Unless it is resolved, this problem could result in
system failures or miscalculations causing disruptions of business operations
(including, among other things, a temporary inability to process transactions,
send invoices or engage in other similar business activities). As a result, many
companies' computer systems and software need to be upgraded or replaced in
order to comply with Year 2000 requirements. The extent of potential global
impact of the Year 2000 problem is uncertain. However, if not corrected in a
timely manner, it could affect national economies generally, and MGI
specifically.
The company has formed a project team (consisting of representatives from
its various departments) to address internal and external Year 2000 issues. The
company's internal computer systems are being reviewed to assess and remediate
Year 2000 problems. The company's assessment of internal systems includes its
information technology (IT), as well as non-IT systems (those systems containing
embedded technology in the form of microprocessors or other similar circuitry).
The company's Year 2000 compliance program includes the following phases:
identifying systems that need to be modified or replaced; carrying out
remediation work to modify existing systems or convert to new systems; and
conducting validation testing of systems and applications to ensure compliance.
The company is currently in the second and third phases of this program. Those
systems that have been replaced or modified are being tested. Other systems are
scheduled for replacement or upgrade.
The amount of further remediation work required to address Year 2000
problems is not expected to be extensive. The company has replaced most of its
financial and operational systems in the last several years, and management
believes that the new equipment and software substantially address Year 2000
issues. However, the company must further modify some of its existing hardware
and software in order for its computer systems to function properly in the Year
2000 and thereafter. The company estimates that it will complete its Year 2000
compliance program for all its significant internal systems no later than
October 1, 1999.
In addition, the company is requesting assurances from its major
suppliers that they are addressing the Year 2000 issue and that products
purchased by the company from such suppliers will function properly in the Year
2000. Also, contacts are being made with the company's major customers. These
actions are intended to help mitigate the possible external impact of the Year
2000 problem. However, it is impossible to fully assess the potential
consequences in the event service interruptions from suppliers occur or in the
event that there are infrastructure disruptions in areas such as utilities,
communications, transportation, banking and government.
The total estimated cost for resolving the company's Year 2000 issues is
approximately $740,000, of which approximately $580,000 has been spent through
December 31, 1998. This total cost estimate includes the cost of replacing
non-compliant systems in cases where the company has
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<PAGE>
accelerated plans to replace such systems. Estimates of Year 2000 costs are
based on numerous assumptions, and there can be no assurance that the estimates
are correct or that actual costs will not be materially greater than
anticipated.
Based on its assessments to date, the company believes it will not
experience material disruption as a result of Year 2000 problems in internal
processes, information processing or interface with major customers, or with
processing orders and billing. However, if certain critical third-party
providers, such as those providing product distribution, banking, contract
manufacturing, electricity, water or telephone service, experience difficulties
resulting in disruption of service to the company, a shutdown of the company's
operations at its Minnesota headquarters could occur for the duration of the
disruption. The company has not yet developed a contingency plan to provide for
continuity of operation in the event of various problem scenarios, but it will
assess the need to develop such a plan based on the outcome of its validation
phase of its Year 2000 compliance program and the results of surveying its major
suppliers and customers. Assuming no major disruption in service from utility
companies or other critical third-party providers, the company believes that it
will be able to manage its total Year 2000 transition without any further
material effect on the company's results of operations or financial condition.
Market Risk Considerations
The company does not have operations subject to risks of material
foreign currency fluctuations, nor does it use derivative financial instruments
in its operations or investment portfolio. The company places its investments in
instruments that meet high credit quality standards, as specified in the
company's investment policy guidelines. The company does not expect any material
loss with respect to its investment portfolio or exposure to market risks
associated with interest rates.
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The statement requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The company plans to adopt the new standard in 1999.
The company is currently evaluating SFAS No. 133, but does not expect that it
will have a material effect on its financial statements.
In 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-1, Accounting for Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and does not
require additional disclosures. The company intends to adopt SOP 98-1 in 1999.
The adoption is not expected to have a material impact on the company's
financial position or results of operations.
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<PAGE>
Cautionary Statement
This document contains forward-looking statements within the meaning of
the federal securities laws. These statements include representations regarding
intent, belief, or current expectations of the company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the company's actual results
to differ materially from the results discussed in these statements. Factors
that might cause such differences include, but are not limited to, dependence on
sales of Salagen Tablets, dependence on a license acquisition strategy,
uncertainty of strategic alliances, the ability to develop MGI 114 into an
approved and successfully marketed chemotherapy agent, and other risks and
uncertainties detailed from time to time in the company's filings with the
Securities and Exchange Commission, including Exhibit 99 to this Annual Report
on Form 10-K for the year ending December 31, 1998.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The company does not have operations subject to risks of material
foreign currency fluctuations, nor does it use derivative financial instruments
in its operations or investment portfolio. The company places its investments in
instruments that meet high credit quality standards, as specified in the
company's investment policy guidelines. The company does not expect any material
loss with respect to its investment portfolio or exposure to market risks
associated with interest rates.
-29-
<PAGE>
Item 8. Financial Statements and Supplementary Data
MGI PHARMA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents .................................... $ 6,513,204 $ 7,057,091
Short-term investments ....................................... 10,568,061 7,998,832
Accounts receivable, less allowances of $97,960 and $84,215 .. 1,410,539 1,073,993
Inventories .................................................. 1,285,368 838,058
Prepaid expenses ............................................. 329,953 184,280
------------ ------------
Total current assets ....................................... 20,107,125 17,152,254
Equipment and furniture, at cost less accumulated depreciation of
$1,062,405 and $808,720 ...................................... 540,084 618,862
Other assets .................................................... 474,859 419,904
------------ ------------
Total assets .................................................... $ 21,122,068 $ 18,191,020
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable ............................................. $ 794,266 $ 384,428
Accrued expenses ............................................. 2,712,884 2,331,016
Deferred revenue ............................................. 495,000 450,000
Other current liabilities .................................... 9,250 6,255
------------ ------------
Total current liabilities .................................. 4,011,400 3,171,699
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000 authorized shares,
14,542,472 and 14,195,563 issued and outstanding shares .... 145,425 141,956
Additional paid-in capital ................................... 90,850,590 89,222,575
Notes receivable from officers ............................... (56,999) (102,575)
Accumulated deficit .......................................... (73,828,348) (74,242,635)
------------ ------------
Total stockholders' equity ................................. 17,110,668 15,019,321
------------ ------------
Commitments (Note 5)
Total liabilities and stockholders' equity ...................... $ 21,122,068 $ 18,191,020
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
MGI PHARMA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales ............................................ $ 12,944,620 $ 9,344,548 $ 6,459,550
Promotion ........................................ 756,326 -- --
Licensing ........................................ 3,136,568 3,090,375 2,170,460
Interest and other ............................... 805,996 875,906 949,982
------------ ------------ ------------
17,643,510 13,310,829 9,579,992
------------ ------------ ------------
Costs and Expenses:
Cost of sales .................................... 938,628 767,680 677,610
Selling, general and administrative .............. 10,989,017 9,339,110 7,658,654
Research and development ......................... 5,301,578 4,988,584 7,865,475
------------ ------------ ------------
17,229,223 15,095,374 16,201,739
------------ ------------ ------------
Net income (loss) ................................... $ 414,287 $ (1,784,545) $ (6,621,747)
============ ============ ============
Net income (loss) per common share:
Basic .......................................... $ 0.03 $ (0.13) $ (0.50)
Assuming dilution .............................. $ 0.03 $ (0.13) $ (0.50)
Weighted average number of common shares outstanding:
Basic .......................................... 14,367,627 14,116,471 13,178,790
Assuming dilution .............................. 14,966,112 14,116,471 13,178,790
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
MGI PHARMA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .............................. $ 414,287 $ (1,784,545) $ (6,621,747)
Adjustments for non-cash items:
Depreciation ................................ 253,685 180,935 96,907
Stock contribution to benefit plan .......... 314,496 259,727 210,981
Other ....................................... 8,293 15,154 --
Changes in operating assets and liabilities:
Accounts receivable ......................... (336,546) 5,977 (349,790)
Inventories ................................. (447,310) (243,894) 409,114
Prepaid expenses ............................ (145,673) (130,844) (10,019)
Accounts payable and accrued expenses ....... 785,640 (1,078,843) 119,084
Deferred revenue ............................ 45,000 450,000 --
Other current liabilities ................... 2,995 (1,456) 386
------------ ------------ ------------
Net cash provided by (used in) operating
activities .................................. 894,867 (2,327,789) (6,145,084)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of investments ..................... (18,699,585) (15,688,037) (23,802,567)
Maturity of investments ..................... 16,130,356 17,356,458 23,038,675
Purchase of equipment and furniture ......... (174,907) (572,663) (80,844)
Payments on officer notes receivable ........ 45,576 2,358 480,924
Other ....................................... (54,955) (99,387) (9,817)
------------ ------------ ------------
Net cash provided by (used in) investing
activities .................................. (2,753,515) 998,729 (373,629)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net proceeds from issuance of shares ........... -- -- 5,497,611
Issuance of shares under stock plans ........ 1,314,761 165,582 166,102
------------ ------------ ------------
Net cash provided by financing activities ...... 1,314,761 165,582 5,663,713
------------ ------------ ------------
Decrease in cash and cash equivalents .......... (543,887) (1,163,478) (855,000)
Cash and cash equivalents at beginning of period 7,057,091 8,220,569 9,075,569
------------ ------------ ------------
Cash and cash equivalents at end of period ..... $ 6,513,204 $ 7,057,091 $ 8,220,569
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
MGI PHARMA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Additional receivable Total
Common paid-in from Accumulated stockholders'
stock capital officers deficit equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .......... $127,816 $ 82,872,883 $ (432,082) $(65,836,343) $ 16,732,274
Exercise of stock options,
15,746 shares ...................... 158 60,054 -- -- 60,212
Employee stock purchase plan,
28,203 shares ...................... 282 105,608 -- -- 105,890
Employee retirement savings plan
contribution, 44,325 shares ........ 443 208,457 -- -- 208,900
Issuances of shares, 1,200,000 shares.. 12,000 5,485,611 -- -- 5,497,611
Other issuances, 11,692 shares ........ 117 56,882 (56,999) -- --
Note payment .......................... -- -- 384,148 -- 384,148
Net loss .............................. -- -- -- (6,621,747) (6,621,747)
-------- ------------ ------------ ------------ ------------
Balance at December 31, 1996 .......... 140,816 88,789,495 (104,933) (72,458,090) 16,367,288
Exercise of stock options,
5,675 shares ....................... 57 39,869 -- -- 39,926
Employee stock purchase plan,
45,916 shares ...................... 459 140,351 -- -- 140,810
Employee retirement savings plan
contribution, 62,398 shares ........ 624 252,860 -- -- 253,484
Note payment .......................... -- -- 2,358 -- 2,358
Net loss .............................. -- -- -- (1,784,545) (1,784,545)
-------- ------------ ------------ ------------ ------------
Balance at December 31, 1997 .......... 141,956 89,222,575 (102,575) (74,242,635) 15,019,321
Exercise of stock options,
275,786 shares ..................... 2,758 1,184,504 -- -- 1,187,262
Employee stock purchase plan,
31,442 shares ...................... 314 135,478 -- -- 135,792
Employee retirement savings plan
contribution, 39,681 shares ........ 397 308,033 -- -- 308,430
Note payment .......................... -- -- 45,576 -- 45,576
Net income ............................ -- -- -- 414,287 414,287
-------- ------------ ------------ ------------ ------------
Balance at December 31, 1998 .......... $145,425 $ 90,850,590 $ (56,999) $(73,828,348) $ 17,110,668
======== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS MGI PHARMA, INC. (MGI or the company) is a
pharmaceutical company that acquires, develops and markets differentiated
specialty pharmaceutical and medical products for therapeutic markets of unmet
need. MGI's current product portfolio is comprised of products that address
special needs in the fields of oncology and rheumatology, however, the company
plans to expand its scope, including expansion into other niche areas, as it
grows its business. The company markets its products to physicians throughout
the United States, with sales made to pharmaceutical wholesalers for
distribution to the ultimate consumers. U.S. sales of Salagen(R) Tablets
(pilocarpine hydrochloride) account for the vast majority of company sales. The
company is commercializing its products outside the United States through
various alliances, and has agreements with several international pharmaceutical
companies to commercialize Salagen(R) Tablets outside the U.S., including the
markets of Europe, Japan and Canada. Current product development efforts include
clinical and preclinical studies for MGI 114, the lead compound in a family of
promising anti-cancer analogs, and continued clinical support of Salagen(R)
Tablets. Exclusive rights to MGI 114 and the other acylfulvene analogs were
granted to Dainippon Pharmaceutical Co., Ltd. under a development and
commercialization agreement in 1995.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The company considers highly
liquid marketable securities with remaining maturities of ninety days or less at
the time of purchase to be cash equivalents. Other highly liquid marketable
securities with remaining maturities of one year or less at the time of purchase
are classified as short-term investments.
The company classifies short-term marketable security investments as
held-to-maturity investments because it has the intent and the ability to hold
its investments to maturity. As such, they are stated at amortized cost, which
approximates estimated fair value. Amortized cost is adjusted for amortization
of premiums and discounts to maturity, and this amortization is included in
interest and other income in the accompanying statements of operations.
CONCENTRATION OF CREDIT RISK Financial instruments that may subject the company
to significant concentrations of credit risk consist primarily of short-term
marketable security investments and trade accounts receivable.
Cash in excess of current operating needs is invested in accordance with the
company's investment policy. This policy emphasizes principal preservation, so
it requires strong issuer credit ratings and limits the amount of credit
exposure from any one issuer or industry.
The company grants credit primarily to pharmaceutical wholesale distributors
throughout the United States in the normal course of business. Five wholesalers
account for approximately 90 percent of company sales. Customer credit
worthiness is routinely monitored and collateral is not normally required.
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<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
SALES RECOGNITION Sales and related costs are recognized upon shipment of
product to customers. Sales are recorded net of provisions for returns,
discounts, Medicaid rebates and chargebacks.
LICENSING REVENUE RECOGNITION Licensing revenue is recognized when underlying
performance criteria for payment have been met and the company has an
unconditional right to such payment. Depending on a license agreement's terms,
recognition criteria may be satisfied upon achievement of milestones, passage of
time or product sales by the licensee. Payments received by the company in
excess of amounts earned are classified as deferred revenue.
STOCK BASED COMPENSATION The company applies the intrinsic value method
described in APB Opinion No. 25 in accounting for the issuance of stock
incentives to employees and directors and, accordingly, no compensation expense
has been recognized in the financial statements. In accordance with Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation,
pro forma information reflecting compensation cost for such issuances is
presented in the Stockholders' Equity footnote.
ADVERTISING AND PROMOTION EXPENSE Costs of advertising and promotion are
expensed as incurred and were, $1,617,828, $1,241,214 and $1,012,727 in 1998,
1997 and 1996, respectively. The company does not defer any costs related to
direct-response advertising.
DEPRECIATION Depreciation of equipment and furniture is provided over the
estimated useful lives of the respective assets on a straight-line basis.
Estimated useful lives of equipment and furniture range from three to ten years.
INCOME TAXES Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases. The
measurement of deferred tax assets is adjusted, if necessary, by a valuation
allowance for any tax benefits which are not assured of realization.
INCOME PER COMMON SHARE Basic income per share is calculated by dividing net
income (loss) by the weighted-average common shares outstanding during the
period. Income per share assuming dilution reflects the potential dilution to
basic income per share that could occur upon conversion or exercise of
securities, options, or other such items, to common shares using the treasury
stock method based upon the weighted-average fair value of the company's common
shares during the period.
USE OF ESTIMATES Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions affecting reported
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<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
asset and liability amounts 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.
NEW ACCOUNTING PRONOUNCEMENTS In 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and presentation of comprehensive
income and its components (revenue, expense, gains and losses) in a full set of
general purpose financial statements. The Company has adopted SFAS No. 130, but
because it does not have any components of comprehensive income, net
income and comprehensive net income are identical.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 132,
Employers' Disclosure about Pensions and Other Postretirement Benefits, which
requires companies to disclose certain information about pensions and other
postretirement benefits. The Company adopted SFAS No. 132 in fiscal 1998;
however, it does not impact its financial statement disclosures.
In 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company plans to adopt the new standard in 1999. The Company is currently
evaluating SFAS No. 133, but does not expect that it will have a material effect
on its financial statements.
In 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, Accounting for Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and does not
require additional disclosures. The Company intends to adopt SOP 98-1 in 1999.
The adoption is not expected to have a material impact on the Company's
financial position or results of operations.
BASIS OF PRESENTATION Certain prior year amounts have been reclassified to
conform with current year presentation.
2. Short-Term Investments
Held-to-maturity investments, stated at amortized cost (which approximates
estimated fair value) at December 31, 1998 and 1997 are summarized as follows:
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<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
1998 1997
-------------- -------------
Commercial paper $ 6,434,638 $ 5,035,698
Corporate notes 4,133,423 871,612
Certificates of deposit -- 2,091,522
-------------- -------------
$ 10,568,061 $ 7,998,832
============== =============
3. Inventories
Inventories at December 31, 1998 and 1997 are summarized as follows:
1998 1997
-------------- -------------
Raw materials and supplies $ 83,016 $ 12,436
Work in process 531,952 662,337
Finished products 670,400 163,285
-------------- -------------
$ 1,285,368 $ 838,058
============== =============
4. Accrued Expenses
Accrued expenses at December 31, 1998 and 1997 are summarized as follows:
1998 1997
-------------- -------------
Bonuses $ 536,683 $ 489,000
Product return accrual 467,547 305,044
Product development commitments 446,429 368,248
Third party manufacturing 422,334 194,843
Retirement plan contribution 204,619 177,249
Other accrued expenses 635,272 796,632
-------------- -------------
$ 2,712,884 $ 2,331,016
============== =============
5. Leases
The company leases office space and computer software under noncancellable lease
agreements that contain renewal options and require the company to pay operating
costs, including property taxes, insurance and maintenance. Rent expense was,
$437,227, $396,092 and $357,161 in 1998, 1997 and 1996, respectively. Future
minimum lease payments under noncancellable lease agreements are $249,617 in
1999, and $0 thereafter.
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<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
6. Licensing Arrangements
During 1995, MGI entered into a cooperative development and commercialization
agreement with Dainippon Pharmaceutical Co., Ltd., a Japanese pharmaceutical
company, whereby MGI granted Dainippon exclusive rights to its acylfulvenes in
Japan. Under this agreement, Dainippon is expected to make milestone payments
during the precommercial phase and MGI will participate in the commercial
success of the drug product in Japan by supplying Dainippon with bulk drug
substance. Quarterly license payments are scheduled to be received into 2000.
The precommercial phase will conclude upon receipt of approval to market the
first acylfulvene product in Japan and payment of the approval milestone by
Dainippon. In conjunction with this 1995 agreement, MGI issued 750,000 shares of
common stock to Dainippon and received net proceeds of $2.8 million from this
issuance. Licensing revenue from Dainippon was $1,845,000, $1,665,000 and
$1,485,000 in 1998, 1997 and 1996, respectively.
During 1994, MGI licensed exclusive rights to commercialize Salagen(R) Tablets
in Japan to Kissei Pharmaceutical Co., Ltd., a Japanese pharmaceutical company.
Kissei is scheduled to make certain milestone payments, with the final milestone
payment due upon its filing for product approval in Japan. MGI will participate
in the commercial success of the product through royalty payments based on
product sales in Japan. In 1997, a $747,000 milestone payment was received as a
result of Kissei's advancement of Salagen(R) Tablets into a pivotal clinical
program.
MGI has entered into licensing agreements for the commercialization of
Salagen(R) Tablets in Europe and Canada with Chiron B.V. and Pharmacia & Upjohn,
Inc., respectively. Under these arrangements, MGI receives payments based upon
product sales in the respective territories.
To build its product pipeline, the company acquires rights to develop and market
pharmaceuticals and medical products from others. Under this approach, the
company may be required to pay up-front, development services and milestone
fees. In addition, the company may be required to pay royalties on net sales
upon marketing the products. Within a period of time after providing notice, the
company generally may terminate its licenses.
7. Stockholders' Equity
PUBLIC STOCK OFFERING On September 9, 1996, the company issued 1,200,000 shares
of common stock at $5 per share in a public offering and received proceeds of
$5,497,611 (net of issuance expenses).
SHAREHOLDER RIGHTS PLAN On July 14, 1998, the company declared a dividend of one
preferred share purchase right (Right) for each outstanding share of common
stock of the company. Each Right entitles the registered holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock, at a
price of $50.00 per one one-hundredth of a preferred share (subject
-38-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
to adjustment). The Rights become exercisable only if certain change in
ownership control events occur and the company does not redeem the Rights. The
Rights expire on July 14, 2008, if not previously redeemed or exercised.
STOCK INCENTIVE PLANS Under stock incentive plans, designated persons (including
officers, directors and employees) have been or may be granted rights to acquire
company common stock. These rights include stock options and other equity
rights. At December 31, 1998, 3,040,120 shares of common stock remain reserved
for issuance, of which 852,644 shares remain available for grant.
Stock options become exercisable over varying periods and expire up to ten years
from date of grant. Options may be granted in the form of incentive stock
options or nonqualified stock options. The option price for incentive stock
options cannot be less than fair market value on the date of the grant. The
option price for nonqualified stock options may be set by the Board of
Directors.
Stock option activity in the three years ended December 31, 1998 is summarized
as follows:
Average
Number of Price per
Shares Share
-------------- -------------
Outstanding at December 31, 1995 1,631,053 $8.20
Granted 908,707 4.70
Exercised (15,746) 3.82
Canceled (656,562) 7.25
--------------
Outstanding at December 31, 1996 1,867,452 6.87
Granted 511,306 4.31
Exercised (5,675) 4.37
Canceled (291,933) 6.31
--------------
Outstanding at December 31, 1997 2,081,150 6.32
Granted 472,408 4.81
Exercised (275,786) 4.27
Canceled (90,296) 4.43
--------------
Outstanding at December 31, 1998 2,187,476 $6.33
==============
-39-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
The following table summarizes information concerning options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Price Outstanding Life Price Exercisable Price
- ------------------------ ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$3.38 - $3.75 223,962 7.83 $ 3.72 67,670 $ 3.71
$3.88 - $4.00 370,558 8.48 3.94 50,752 3.97
$4.13 - $4.69 230,391 6.95 4.41 128,359 4.41
$4.75 - $4.88 577,614 7.62 4.78 346,322 4.77
$5.00 - $5.75 266,927 6.63 5.61 187,277 5.68
$6.00 - $11.50 214,069 7.13 9.34 114,369 10.73
$12.00 - $30.00 303,955 4.97 14.10 282,705 13.68
----------- -----------
Total 2,187,476 7.18 6.33 1,177,454 7.50
=========== ===========
</TABLE>
OFFICER LOANS Loans to officers were made to facilitate the purchase of company
stock. The loans are full recourse, unsecured obligations. At December 31, 1998,
$56,999 of principal remains outstanding, which is payable upon demand.
EMPLOYEE STOCK PURCHASE PLAN Under the company's employee stock purchase plan,
substantially all employees may purchase shares of common stock at the end of
semiannual purchase periods at a price equal to the lower of 85% of the stock's
fair market value on the first or last day of that period. Plan funding occurs
throughout the purchase period by pre-elected payroll deductions of up to 15% of
regular pay. No compensation expense results from the plan. Shares issued under
the plan were 31,442, 45,916 and 28,203 at average prices of $4.32, $3.07 and
$3.76 per share in 1998, 1997 and 1996, respectively. At December 31, 1998,
145,167 shares remain reserved for future issuance under the plan.
-40-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
FAIR VALUE OF STOCK PLANS The company applies APB Opinion No. 25 in accounting
for its stock incentive plans for designated persons and, accordingly, no
compensation cost has been recognized in the financial statements for employee
and director stock options granted under its stock plans in the financial
statements. Had the company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the company's net
earnings (loss) would have been reported as shown below:
1998 1997 1996
----------- ------------ ------------
Net income (loss):
As reported $ 414,287 $ (1,784,545) $ (6,621,747)
Pro forma (694,849) $ (2,679,700) $ (7,787,810)
Net income (loss) per
common share:
As reported basic $ 0.03 $ (0.13) $ (0.50)
Pro forma basic $ (0.05) $ (0.19) $ (0.59)
Pro forma amounts only reflect options granted from 1995 to 1998. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to January 1, 1995 is not considered.
The per share weighted-average fair value of stock options granted during 1998,
1997 and 1996 was $2.73, $2.22 and $2.27, respectively, on the date of grant,
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998 1997 1996
------ ------ ------
Expected dividend yield 0% 0% 0%
Risk-free interest rate 5.00% 5.40% 6.50%
Annualized volatility 0.61 0.52 0.45
Expected life, in years 5 5 5
RETIREMENT SAVINGS PLAN The company's retirement savings plan conforms to
Section 401(k) of the Internal Revenue Code and participation is available to
substantially all employees. Under the savings plan, participants may contribute
a percentage of their eligible compensation for investment in company common
stock or other investment vehicles. The company matches a portion of employee
contributions and may also make discretionary contributions ratably to all
eligible employees. Company contributions are made in the form of company common
stock and become fully vested when an employee attains five years of service.
Contribution expense was $314,496,
-41-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
$259,727 and $210,981 in 1998, 1997 and 1996, respectively. The company had
249,767 shares reserved for future issuance under the savings plan at December
31, 1998.
PREFERRED STOCK At December 31, 1998, 10,000,000 shares of preferred stock
remain issuable. Issuance is subject to Board of Directors' action.
8. Money Purchase Retirement Plan
The company sponsors a money purchase retirement plan covering substantially all
employees. Under the plan, the company contributes a percentage of participating
employees' eligible compensation. Company contributions resulted in expense of
$198,647, $154,615 and $126,564 in 1998, 1997 and 1996, respectively.
9. Income Taxes
The company incurred losses for tax purposes in each year of the three-year
period ended December 31, 1998, and, accordingly, no income taxes were provided.
Effective tax rates differ from statutory federal income tax rates in the years
ended December 31, 1998, 1997 and 1996 as follows:
1998 1997 1996
------- ------- -------
Statutory federal income
tax rate 35.0% (35.0)% (35.0)%
Valuation allowance change (27.9) 42.2 23.6
Research activities credit (36.2) (2.7) 1.8
Orphan drug credit (53.6) (28.7) --
State income taxes, net of
federal benefit 2.5 (2.5) (2.5)
Stock option exercises (109.4) (0.1) (0.1)
Net operating loss
expiration 174.1 22.9 10.6
Other 15.5 3.9 1.6
------- ------- -------
0.0% 0.0% 0.0%
======= ======= =======
-42-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
Deferred taxes as of December 31, 1998 and 1997 consist of the following:
1998 1997
------------ ------------
Deferred tax assets:
Receivable allowances $ 36,734 $ 31,581
Inventory allowances 2,277 64,312
Product return allowance 175,330 114,392
Miscellaneous accrued expenses 40,930 50,828
Net operating loss carryforward 28,205,491 28,684,299
Research credit carryforward 2,172,631 2,022,772
Orphan drug credit 735,030 512,875
Alternate minimum tax credit carryforward 48,295 48,295
------------ ------------
31,416,718 31,529,354
Less valuation allowance (31,394,482) (31,510,334)
------------ ------------
$ 22,236 $ 19,020
============ ============
Deferred tax liabilities:
Tax depreciation greater than book $ 22,236 $ 19,020
At December 31, 1998, the company had net operating loss carryforwards of
approximately $75,215,000 for federal income tax purposes, which begin to expire
in 1999. Additionally, the company had research credit carryforwards of
approximately $2,173,000, which begin to expire in 1999. The net change in the
valuation allowance for the years ended December 31, 1998 and 1997 was a
decrease of $115,852 in 1998 and an increase of $753,348 in 1997. A full
valuation allowance has been provided against the deferred tax asset because, at
this time, it has been determined that it is not more likely than not the
deferred asset will be realized. When this determination changes upon future
generation of taxable income, a reduction of $485,000 of the valuation allowance
will be recorded as an increase to paid in capital since it is attributable to
the exercise of stock options in 1998.
-43-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
10. Segment and Geographic Information
In the current year, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information, which establishes standards for disclosure about
operating segments, products, geography and major customers. The company
operates in the single operating segment of specialty pharmaceuticals.
Essentially all of its long-lived assets are located in the United States.
Operating revenues attributed to U.S. and foreign customers in the years ended
December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----------- ----------- ----------
United States
Sales $12,742,831 $ 9,041,335 $6,377,982
Promotion 756,326 -- --
Licensing 820,451 541,863 601,287
----------- ----------- ----------
14,319,608 9,583,198 6,979,269
----------- ----------- ----------
Foreign
Sales 201,789 303,213 81,568
Promotion -- -- --
Licensing 2,316,117 2,548,512 1,569,173
----------- ----------- ----------
2,517,906 2,851,725 1,650,741
----------- ----------- ----------
Total
Sales 12,944,620 9,344,548 6,459,550
Promotion 756,326 -- --
Licensing 3,136,568 3,090,375 2,170,460
----------- ----------- ----------
$16,837,514 $12,434,923 $8,630,010
=========== =========== ==========
-44-
<PAGE>
MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS - (continued)
11. Quarterly Financial Data (Unaudited)
Following is a summary of quarterly financial results in the years ended
December 31:
First Second Third Fourth
-------- -------- -------- --------
(in thousands, except per share amounts)
1998
Total revenues $ 3,762 $ 4,229 $ 4,630 $ 5,023
Net income (loss) (97) (71) 385 198
Income (loss) per common share:
Basic (0.01) (0.00) 0.03 0.01
Assuming dilution (0.01) (0.00) 0.03 0.01
Weighted average shares:
Basic 14,207 14,326 14,452 14,478
Assuming dilution 14,207 14,326 15,020 15,321
1997
Total revenues $ 2,879 $ 2,752 $ 3,569 $ 4,111
Net income (loss) (536) (823) (137) (289)
Loss per common share: (0.04) (0.06) (0.01) (0.02)
Weighted average shares: 14,089 14,099 14,135 14,141
Loss per common share is computed based upon the weighted average number of
shares outstanding during each period. Basic and diluted loss per share amounts
for loss periods are identical as the effect of potential common shares is
antidilutive.
-45-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MGI PHARMA, INC.:
We have audited the accompanying balance sheets of MGI PHARMA, INC. as of
December 31, 1998 and 1997, and the related statements of operations, cash flows
and stockholders' equity for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MGI PHARMA, INC. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
-46-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the headings "Election of Directors"
and "Executive Officers of the Company" on pages 2 through 6 of the Company's
Proxy Statement for its 1999 Annual Meeting of Shareholders, to be held on May
11, 1999 (the "Proxy Statement"), is incorporated herein by reference.
Item 11. Executive Compensation
The information contained under the heading "Executive Compensation" on
pages 7 through 14 of the Proxy Statement is incorporated herein by reference,
other than the subsection thereunder entitled "Report of Compensation Committee
on Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Security Ownership of
Certain Beneficial Owners and Management" on page 16 of the Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
-47-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page in this
(a) 1. Financial Statements Annual Report
-------------------- -------------
Balance Sheets at
December 31, 1998 and 1997 30
Statements of Operations
for the Years Ended December 31,
1998, 1997 and 1996 31
Statements of Cash Flows
for the Years Ended December 31,
1998, 1997 and 1996 32
Statements of Stockholders'
Equity for the Years Ended December 31,
1998, 1997 and 1996 33
Notes to Financial Statements 34
Independent Auditors' Report 46
2. Financial Statement Schedules
Independent Auditors' Report on
Financial Statement Schedule 63
Schedule II - Valuation and Qualifying Accounts 64
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
financial statements or the notes thereto.
-48-
<PAGE>
3. Exhibits
--------
Exhibit No.
- -----------
3.1 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-2,
File No. 33-40763).
3.2 Restated Bylaws of the Company, as amended to date (Incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
4.2 Rights Agreement, dated as of July 14, 1998, between the Company
and Norwest Bank, Minnesota, N.A. (including the form of Rights
Certificate attached as Exhibit B thereto) (Incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A, filed July 15, 1998).
*10.1 1993 Nonemployee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
*10.2 Nonemployee Director Stock Option Plan (Incorporated by reference
to Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.3 Deferred Compensation Plan for Nonemployee Directors (Incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995).
*10.4 1994 Stock Incentive Plan (Incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.5 1984 Stock Option Plan (Incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
*10.6 1982 Incentive Stock Option Plan (Incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
*10.7 Stock Acquisition Assistance Loan Program (Incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
-49-
<PAGE>
*10.8 1997 Stock Incentive Plan (Incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
*10.9 Termination Agreement, dated as of January 2, 1999, with James V.
Adam.
*10.10 Termination Agreement, dated as of January 2, 1999, with Lori-jean
Gille.
*10.11 Termination Agreement, dated as of January 2, 1999 with Charles N.
Blitzer.
*10.12 Stock Purchase and Loan Agreement, dated May 14, 1996, between the
Company and Charles N. Blitzer (Incorporated by reference to
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.13 Lease Agreement, dated August 7, 1989, with ALSCOR Investors Joint
Venture, as amended by that certain Amendment to Office Lease,
dated October 30, 1989, with ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.14 Second Amendment to Office Lease, dated May 3, 1991 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.15 Third Amendment to Office Lease, dated September 23, 1992 between
the Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.16 Fourth Amendment to Office Lease, dated September 23, 1992 between
the Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.17 Fifth Amendment to Office Lease, dated March 10, 1995 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.18 Sixth Amendment to Office Lease, dated March 21, 1997 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.19 Trademark License Agreement, dated as of December 31, 1989,
between the Company and Norwich Eaton Pharmaceutical, Inc.
(Incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
-50-
<PAGE>
**10.20 Supply and License Agreement, dated March 19, 1992, among E Merck
Fine Chemicals Division, EM Industries and the Company
(Incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.21 Development, Marketing and Cooperation Agreement, dated October
23, 1995, between the Company and Dainippon Pharmaceutical Co.,
Ltd. (Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).
10.22 Manufacturing Agreement, dated December 12, 1995, between the
Company and Global Pharm Inc. (Incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
**10.23 Promotion Agreement, dated March 11, 1997, between the Company and
Schein Pharmaceutical, Inc. (Incorporated by reference to Exhibit
10.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.24 First Amendment to Promotion Agreement, dated March 24, 1998,
between the Company and Schein Pharmaceutical, Inc. (Incorporated
by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).
**10.25 Exclusive License Agreement, dated August 31, 1993, between the
Company and The Regents of the University of California.
11 Computation of Net Income (Loss) Per Common Share.
23 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation
Reform Act of 1995.
* Items that are management contracts or compensatory plans or
arrangements required to be filed as an exhibit pursuant to Item
14(c) of this Form 10-K.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibits 10.20, 10.23 and 10.25
have been deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment.
(b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended
December 31, 1998.
-51-
<PAGE>
MGI PHARMA, INC. Retirement Savings Plan
The following unaudited financial statements and schedules of the
Company's Retirement Savings Plan are included herein in lieu of filing a Form
11-K for such plan, pursuant to General Instruction F to Form 10-K and Rule
15d-21:
Page in this
Annual Report
-------------
Statements of Net Assets Available for
Participants at December 31, 1998 and 1997 53
Statements of Changes in Net Assets Available
for Participants in the years ended
December 31, 1998 and 1997 54
Notes to Financial Statements 56
Schedule 1 - Schedule of Investments Held
at End of Plan Year 60
Schedule 2 - Reportable Transactions 61
-52-
<PAGE>
STATEMENTS OF NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
December 31
--------------------------
1998 1997
---------- ----------
Investments at fair value:
Shares of registered investment companies:
Invesco Stable Value $ 397,184 $ 210,030
Vanguard Group:
Fixed Income, GNMA 119,440 103,992
Primecap 448,386 284,334
Index 500 110,720 40,109
World, International Growth 285,051 235,539
Fidelity Puritan 581,045 559,287
Baron Asset 28,820 --
Janus Worldwide 62,389 --
MGI PHARMA, INC. common stock 2,452,310 755,951
Participant notes receivable 47,834 46,010
---------- ----------
4,533,179 2,235,252
---------- ----------
Receivables:
Contributions receivable:
Employer 213,808 156,747
Employees -- --
---------- ----------
213,808 156,747
---------- ----------
Cash 5,067 12,169
---------- ----------
Net assets available for participants $4,752,054 $2,404,168
========== ==========
- ---------------------------------------------------
See accompanying notes to financial statements.
-53-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------------------------------------
Shares of registered investment companies
--------------------------------------------------------------------------------------
Vanguard Group
--------------------------------------------------------
Invesco Fixed
Stable Income Index World Intl. Fidelity
Value GNMA Primecap 500 Growth Puritan
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets:
Investment income:
Net appreciation (depreciation) $ -- $ (684) $ 43,475 $ 9,559 $ (4,693) $ (16,214)
in fair value of investments
Dividends 18,304 9,180 44,313 9,055 42,975 107,012
Interest -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
18,304 8,496 87,788 18,614 38,282 90,798
----------- ----------- ----------- ----------- ----------- -----------
Contributions:
Employer -- -- -- -- -- --
Participation 30,584 12,877 88,811 39,481 68,037 76,442
----------- ----------- ----------- ----------- ----------- -----------
30,584 12,877 88,811 39,481 68,037 76,442
----------- ----------- ----------- ----------- ----------- -----------
Total additions 48,888 21,373 176,599 58,095 106,319 167,240
----------- ----------- ----------- ----------- ----------- -----------
Distributions (2,901) (2,235) (3,263) (140) (25,826) (3,636)
Transfers between funds, net 141,167 (3,672) (9,284) 12,656 (30,981) (141,846)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 187,154 15,448 164,052 70,611 49,512 21,758
Net assets available for participants:
Beginning of year 210,030 103,992 284,334 40,109 235,539 559,287
----------- ----------- ----------- ----------- ----------- -----------
End of year $ 397,184 $ 119,440 $ 448,386 $ 110,270 $ 285,051 $ 581,045
=========== =========== =========== =========== =========== ===========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------------------
Shares of registered
investment companies
--------------------------
MGI
Barson Janus Common Participant
Asset Worldwide Stock Notes Other Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets:
Investment income:
Net appreciation (depreciation) $ (32,865) $ 10,090 $ 1,449,334 $ -- $ -- $ 1,458,002
in fair value of investments
Dividends 37,863 237 -- -- -- 268,939
Interest -- -- -- 4,059 -- 4,059
----------- ----------- ----------- ----------- ----------- -----------
4,998 10,327 1,449,334 4,059 -- 1,731,000
----------- ----------- ----------- ----------- ----------- -----------
Contributions:
Employer -- -- 100,399 -- 213,808 314,207
Participation 537 945 42,709 -- 9,288 369,711
----------- ----------- ----------- ----------- ----------- -----------
537 945 143,108 -- 223,096 683,918
----------- ----------- ----------- ----------- ----------- -----------
Total additions 5,535 11,272 1,592,442 4,059 223,096 2,414,918
----------- ----------- ----------- ----------- ----------- -----------
Distributions 0 0 (18,365) -- -- (56,384)
Transfers between funds, net 23,285 51,117 122,282 (2,235) (173,137) (10,648)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 28,820 62,389 1,696,359 1,824 49,959 2,347,886
Net assets available for participants:
Beginning of year 0 0 755,951 46,010 168,916 2,404,168
----------- ----------- ----------- ----------- ----------- -----------
End of year $ 28,820 $ 62,389 $ 2,452,310 $ 47,834 $ 218,875 $ 4,752,054
=========== =========== =========== =========== =========== ===========
</TABLE>
-----------------------------------------------
See accompanying notes to financial statements.
-54-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------------------------------------
Shares of registered investment companies
---------------------------------------------------------------------
Vanguard Group
------------------------------------------------------
Invesco Fixed
Stable Income Index World Intl.
Value GNMA Primecap 500 Growth
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Additions to net assets:
Investment income:
Net appreciation (depreciation) in
fair value of investments $ -- $ 2,056 $ 4,030 $ 1,754 $ (15,085)
Dividends 13,479 6,380 7,687 564 16,290
Interest -- -- -- -- --
----------- ----------- ----------- ----------- -----------
13,479 8,436 11,717 2,318 1,205
----------- ----------- ----------- ----------- -----------
Contributions:
Employer -- -- -- -- --
Participation 28,403 12,829 28,997 7,315 74,306
----------- ----------- ----------- ----------- -----------
28,403 12,829 28,997 7,315 74,306
----------- ----------- ----------- ----------- -----------
Total additions 41,882 21,265 40,714 9,633 75,511
----------- ----------- ----------- ----------- -----------
Distributions -- -- (1,029) -- (834)
Transfers between funds, net (15,652) 10,177 244,649 30,476 (67,888)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) 26,230 31,442 284,334 40,109 6,789
Net assets available for participants:
Beginning of year 183,800 72,550 -- -- 228,750
----------- ----------- ----------- ----------- -----------
End of year $ 210,030 $ 103,992 $ 284,334 $ 40,109 $ 235,539
=========== =========== =========== =========== ===========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------------------------------
Shares of registered
investment companies
--------------------------
Fidelity Investments
--------------------------
Retirement MGI Common Participant
Puritan Growth Stock Notes Other Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets:
Investment income:
Net appreciation (depreciation) in
fair value of investments $ 39,541 $ 47,148 $ (78,734) $ -- $ -- 710
Dividends 37,481 914 -- -- -- 82,795
Interest -- -- -- 4,252 -- 4,252
----------- ----------- ----------- ----------- ----------- -----------
77,022 48,062 (78,734) 4,252 -- 87,757
----------- ----------- ----------- ----------- ----------- -----------
Contributions:
Employer -- -- 110,861 -- 156,747 267,608
Participation 76,532 49,487 38,262 -- 8,835 324,966
----------- ----------- ----------- ----------- ----------- -----------
76,532 49,487 149,123 -- 165,582 592,574
----------- ----------- ----------- ----------- ----------- -----------
Total additions 153,554 97,549 70,389 4,252 165,582 680,331
----------- ----------- ----------- ----------- ----------- -----------
Distributions (7,343) (4,747) (7,746) -- -- (21,699)
Transfers between funds, net 138,979 (360,277) 161,148 (6,526) (147,824) (12,738)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) 285,190 (267,475) 223,791 (2,274) 17,758 645,894
Net assets available for participants:
Beginning of year 274,097 267,475 532,160 48,284 151,158 1,758,274
----------- ----------- ----------- ----------- ----------- -----------
End of year $ 559,287 $ -- $ 755,951 $ 46,010 $ 168,916 $ 2,404,168
=========== =========== =========== =========== =========== ===========
</TABLE>
-----------------------------------------------
See accompanying notes to financial statements.
-55-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
1. Description of Plan
-------------------
The following description of the MGI PHARMA, INC. Retirement Savings
Plan (the "Plan") provides only general information. Participants
should refer to the Summary Plan Description for a more complete
description of the Plan's provisions. The plan is a defined
contribution retirement savings plan sponsored by MGI PHARMA, INC.
("MGI"). It conforms to Section 401(k) of the Internal Revenue Code and
therefore defers income taxes on qualifying contributions and Plan
earnings. The Plan benefits eligible employees by accumulating
retirement assets during their working careers through employee
participation in a systematic savings and investment program to which
MGI also contributes. The Plan is administered by an Administrative
Committee appointed for that purpose by MGI's Board of Directors and
all Plan administrative costs are currently borne by MGI.
At December 31, 1998, 67 employees were participants in the Plan. The
Plan is available to every employee of MGI who completes six months of
employment, is at least 21 years old, and is scheduled for at least
1,000 hours of service annually. Eligible employees may participate in
the Plan through: (1) contributions of up to 10% of their compensation;
(2) employer matching contributions equal to 50% of employee
contributions, up to 6% of an employee's compensation; (3) employer
discretionary contributions; and (4) employee rollover contributions.
Contributions are subject to certain limitations.
Employee contributions and related earnings are directed by the
participant into available investment options and are fully vested at
all times. Employer contributions are in the form of MGI common stock.
Following full vesting, a participant may elect to redirect investment
of employer contributions to any of the plan's investment alternatives.
At December 31, 1998, employer directed balances totaled $717,289 of
the MGI common stock fund. Employer contributions are 20% vested after
completion of two years of employment, 40% after three years, 75% after
four years and 100% after five years. Employer discretionary
contributions are allocated to a participant's account based upon
his/her pro rata share of total recognized compensation during the
year. Forfeitures are used to reduce the amount of MGI's contributions
to the Plan.
A participant's account may mature and be distributed upon the
occurrence of one of the following: (1) death, (2) retirement, (3) the
attainment of 70-1/2 years of age, (4) termination of employment, (5)
termination of the Plan or (6) upon certain MGI "change in control"
events. Distributions may be a lump sum of cash and MGI common stock
held in a participant's account.
-56-
<PAGE>
Investments
-----------
The following investment alternatives are available to participants:
Registered Investment Companies Funds:
Invesco Funds Group:
Stable Value - The INVESCO Retirement Trust Stable Value Fund ("Stable
Value Fund") seeks to provide a high level of current income while
preserving principal, primarily by investing in a diversified portfolio
of investment contracts with insurance companies, banks or other
financial institutions. An investment contract is an agreement to
provide a specific rate of return for a period of time. Risk in these
contracts relates to the financial performance of the issuing entity
and in certain cases a portfolio of marketable securities securing the
investment.
Vanguard Group:
Fixed Income, GNMA - The GNMA portfolio is part of the Fixed Income
Securities Fund, a no-load, open-end, diversified fund that seeks to
provide a high level of current income while maintaining a high level
of principal protection and liquidity. The portfolio invests at least
80% of its assets in Government National Mortgage Association ("GNMA"
or "Ginnie Mae") pass-through mortgage backed certificates representing
part ownership of a pool of mortgage loans. The mortgage loans
underlying GNMA certificates are guaranteed by the full faith and
credit of the U.S. Government.
Primecap Fund - The Vanguard/PRIMECAP Fund, Inc. is an open-end
diversified investment company that seeks to provide long-term growth
of capital by investing principally in common stocks. Dividend income
is incidental to this objective. The Fund selects stocks primarily on
the basis of above-average earnings growth potential and quality of
management.
Vanguard Index 500 - Vanguard Index 500 portfolio is part of the
Vanguard Index Trust, an open-end investment company that includes six
separate, diversified mutual fund portfolios. The Index 500 portfolio
seeks to track the performance of the Standard and Poor's 500 Composite
Stock Price Index, which emphasizes stocks of large U.S. companies.
World, International Growth - The International Growth Portfolio is
part of the World Fund, a no load, open end, diversified equity
security fund. The portfolio seeks to provide long-term capital growth
by investing primarily in equity securities of growth companies located
outside the United States.
Fidelity Investments:
Puritan - The Puritan fund is an open-end, diversified security fund
that seeks to primarily provide income by investing in common stocks,
preferred stocks and bonds.
Baron Funds:
Asset Fund - The Baron Asset Fund is an open-end, diversified security
fund that seeks capital appreciation through investments in securities
of small and medium sized companies with undervalued assets or
favorable growth prospects. Production of income, if any, is incidental
to this objective.
-57-
<PAGE>
Janus Funds:
Worldwide Fund - The Janus Worldwide Fund is a diversified fund that
seeks long-term growth of capital by investing primarily in common
stocks of foreign and domestic issuers.
MGI PHARMA, INC. common stock - MGI PHARMA, INC. (the Plan Sponsor)
common stock is publicly traded, with trades reported on the NASDAQ
National Market System. MGI is a pharmaceutical company that acquires,
develops and markets differentiated speciality pharmaceutical products.
MGI has not paid, and has no present intention of paying cash dividends
on its common stock.
Participant Notes Receivable
----------------------------
Participants may borrow from their accounts a minimum of $1,000 up to
the lesser of $50,000 or one-half of their balances. Loan transactions
are treated as transfers between the relevant investment fund and the
Participant Notes fund. Loan terms generally cannot exceed five years.
The loans are secured by balances in the participant's accounts and
bear interest fixed at 1% above the prime rate upon initiation of the
loan. Principal and interest is paid monthly or by more frequent
installments.
2. Summary of Accounting Policies
------------------------------
Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the accrual
method of accounting.
Investment Valuation and Income Recognition
-------------------------------------------
Plan investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices that represent
the net asset value of shares held by the Plan at year-end. Company
stock is valued at its quoted market price of $9.75 and $3.8125 per
share at December 31, 1998 and 1997, respectively. Participant notes
receivable are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date. Investment income is allocated to
participants' accounts based upon their pro rata share of the
respective investment balance during the income period.
Payment of Benefits
-------------------
Benefits are recorded when paid.
3. Federal Income Taxes
--------------------
The Plan received a tax qualification letter from the Internal Revenue
Service stating that it is a qualified plan under the Internal Revenue
Code ("IRC"), and therefore the associated trust is exempt from federal
income taxes. Following the qualification letter, the Plan
administration believes operation of the Plan has been performed in a
manner to maintain compliance with the applicable requirements of the
IRC.
-58-
<PAGE>
4. Party-in-interest Transactions
------------------------------
The Plan engaged in transactions involving the acquisition or
disposition of units of participation in collective investment funds of
the Trustee, which is a party-in-interest with respect to the Plan.
These transactions are not considered "prohibited transactions" under
ERISA and are for short-term investment of cash balances pending
reinvestment.
5. Plan Termination
----------------
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and
to terminate the Plan subject to the provisions of ERISA. In the event
of Plan termination, participants will become 100 percent vested in
their accounts.
-59-
<PAGE>
Schedule 1
SCHEDULE OF INVESTMENTS HELD AT END OF PLAN YEAR
MGI PHARMA, INC. Retirement Savings Plan
December 31, 1998
(unaudited)
Number of Fair Market
Description Shares/Units Cost Value
- ------------------------------------------ ------------ ---------- ----------
Shares of registered investment companies: 397,184 $ 397,184 $ 397,184
Invesco Stable Value
Vanguard Group:
Fixed Income, GNMA 11,430 119,611 119,440
Primecap Fund 9,408 407,877 448,386
Index 500 972 101,145 110,720
World, International Growth 15,187 284,745 285,051
Fidelity Puritan 28,952 595,026 581,045
Baron Fund 570 20,216 28,820
Janus Worldwide 1,317 52,300 62,389
MGI PHARMA, INC. common stock 251,519 1,540,600 2,452,310
Participant notes receivable 47,834 47,834 47,834
---------- ----------
Total $3,567,668 $4,533,179
========== ==========
-60-
<PAGE>
Schedule 2
REPORTABLE TRANSACTIONS
MGI PHARMA, INC. Retirement Savings Plan
Year ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Total Total Total Dollar Total Dollar
Number of Number of Value of Value of Net Gain
Description Purchases Sales Purchases Sales or (Loss)
- -------------------------------- --------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Shares of registered investment
companies:
Invesco Stable Value 63 13 330,042 141,758 0
Vanguard Group:
Fixed Income, GNMA 53 10 147,208 132,320 (519)
Primecap Fund 57 12 127,221 34,267 2,966
Index 500 55 3 54,196 827 (16)
World, International Growth 49 10 76,615 59,672 (4,999)
Fidelity Puritan 61 15 228,324 239,703 (2,253)
Baron Asset 11 1 312,316 250,632 (41,468)
Janus Worldwide 9 0 52,300 0 0
MGI PHARMA, INC. common stock 25 13 130,091 137,827 48,078
</TABLE>
-61-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1999 MGI PHARMA, INC.
By /s/ Charles N. Blitzer
---------------------------------
Charles N. Blitzer, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
Charles N. Blitzer President, Chief )
Executive Officer )
(principal executive )
officer) and Director )
)
William C. Brown* Vice President, )
Finance (principal financial )
and accounting officer) )
)
Andrew J. Ferrara* Director ) By /s/ Charles N. Blitzer
) -------------------------
) Charles N. Blitzer
Joseph S. Frelinghuysen* Director ) Pro se and as
) Attorney-in Fact*
Michael E. Hanson* Director )
)
Hugh E. Miller* Director )
) Dated: March 30, 1999
Timothy G. Rothwell* Director )
)
Lee J. Schroeder* Director )
)
Arthur Weaver M.D.* Director )
</TABLE>
* By Power of Attorney filed with this report as Exhibit 24 hereto.
-62-
<PAGE>
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors and Stockholders
MGI PHARMA, INC.:
Under the date of February 5, 1999, we reported on the balance sheets of MGI
PHARMA, INC., as of December 31, 1998 and 1997, and the related statements of
operations, cash flows, and stockholders' equity for each of the years in the
three-year period ended December 31, 1998, as contained in the 1998 Annual
Report to Shareholders. These financial statements and our report thereon are
included in the annual report on Form 10-K for the year 1998. In connection with
our audits of the aforementioned financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 5, 1999
-63-
<PAGE>
MGI PHARMA, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
----------------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions (1) End of Period
- ------------------------------------- ---------- ----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Deducted from asset accounts
Accounts receivable allowance $ 84,215 $ 296,570 $ -- $ 282,825 $ 97,960
Year ended December 31, 1997
Deducted from asset accounts
Accounts receivable allowance $ 68,254 $ 214,410 $ -- $ 198,449 $ 84,215
Year ended December 31, 1996
Deducted from asset accounts
Accounts receivable allowance $ 160,535 $ 152,795 $ -- $ 245,076 $ 68,254
</TABLE>
(1) Discounts by customers, or write-offs of uncollectible accounts, net of
recoveries.
-64-
<PAGE>
EXHIBIT INDEX
MGI PHARMA, INC.
Annual Report on Form 10-K
For
Year Ended December 31, 1998
Exhibit No.
- -----------
3.1 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-2,
File No. 33-40763).
3.2 Restated Bylaws of the Company, as amended to date (Incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
4.2 Rights Agreement, dated as of July 14, 1998, between the Company
and Norwest Bank, Minnesota, N.A. (including the form of Rights
Certificate attached as Exhibit B thereto) (Incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A, filed July 15, 1998).
*10.1 1993 Nonemployee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
*10.2 Nonemployee Director Stock Option Plan (Incorporated by reference
to Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.3 Deferred Compensation Plan for Nonemployee Directors (Incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995).
*10.4 1994 Stock Incentive Plan (Incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.5 1984 Stock Option Plan (Incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
*10.6 1982 Incentive Stock Option Plan (Incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
*10.7 Stock Acquisition Assistance Loan Program (Incorporated by
reference to Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
-65-
<PAGE>
*10.8 1997 Stock Incentive Plan (Incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
*10.9 Termination Agreement, dated as of January 2, 1999, with James V.
Adam.
*10.10 Termination Agreement, dated as of January 2, 1999, with Lori-jean
Gille.
*10.11 Termination Agreement, dated as of January 2, 1999 with Charles N.
Blitzer.
*10.12 Stock Purchase and Loan Agreement, dated May 14, 1996, between the
Company and Charles N. Blitzer (Incorporated by reference to
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.13 Lease Agreement, dated August 7, 1989, with ALSCOR Investors Joint
Venture, as amended by that certain Amendment to Office Lease,
dated October 30, 1989, with ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.14 Second Amendment to Office Lease, dated May 3, 1991 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.15 Third Amendment to Office Lease, dated September 23, 1992 between
the Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994). 10.16 Fourth Amendment
to Office Lease, dated September 23, 1992 between the Company and
ALSCOR Investors Joint Venture (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.17 Fifth Amendment to Office Lease, dated March 10, 1995 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.18 Sixth Amendment to Office Lease, dated March 21, 1997 between the
Company and ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
-66-
<PAGE>
10.19 Trademark License Agreement, dated as of December 31, 1989,
between the Company and Norwich Eaton Pharmaceutical, Inc.
(Incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
**10.20 Supply and License Agreement, dated March 19, 1992, among E Merck
Fine Chemicals Division, EM Industries and the Company
(Incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.21 Development, Marketing and Cooperation Agreement, dated October
23, 1995, between the Company and Dainippon Pharmaceutical Co.,
Ltd. (Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).
10.22 Manufacturing Agreement, dated December 12, 1995, between the
Company and Global Pharm Inc. (Incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
**10.23 Promotion Agreement, dated March 11, 1997, between the Company and
Schein Pharmaceutical, Inc. (Incorporated by reference to Exhibit
10.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.24 First Amendment to Promotion Agreement, dated March 24, 1998,
between the Company and Schein Pharmaceutical, Inc. (Incorporated
by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).
**10.25 Exclusive License Agreement, dated August 31, 1993, between the
Company and The Regents of the University of California.
11 Computation of Net Income (Loss) Per Common Share.
23 Consent of KPMG Peat Marwick LLP.
24 Power of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation
Reform Act of 1995.
* Items that are management contracts or compensatory plans or
arrangements required to be filed as an exhibit pursuant to Item
14(c) of this Form 10-K.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibits 10.20, 10.23 and 10.25
have been deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment.
-67-
<PAGE>
EXHIBIT 10.9
TERMINATION AGREEMENT
This Agreement is made as of the 2nd day of January, 1999, between MGI
PHARMA, INC., a Minnesota corporation, with its principal offices at Suite 300E
Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343 (the "Company")
and James V. Adam ("Employee"), residing at 8101 Crescent Court, Eden Prairie,
Minnesota, 55347.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon Employee's separation from
employment with the Company under any of the circumstances described herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interests of the Company and its shareholders to provide
stable conditions of employment for Employee notwithstanding the possibility,
threat or occurrence of certain types of change in control, thereby enhancing
the Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Employee notwithstanding the possibility, threat or occurrence of
a bid to take over control of the Company, and to induce Employee to remain in
the employ of the Company, and for other good and valuable consideration, the
Company and Employee agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the date
hereof as first written above and shall continue through December 31, 1999;
provided that commencing on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than twelve months prior to such January 1, the Company shall
have given notice that it does not wish to extend this Agreement (which notice
may not, in any event, be given sooner than January 1, 2000); and provided,
further, that notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 24 months beyond the term
provided herein if a Change in Control (as defined in Section 3(i) hereof) shall
have occurred during such term.
2. Termination of Employment
(i) Prior to a Change in Control. Prior to a Change in Control (as defined
in Section 3(i) hereof), the Company may terminate Employee from employment with
the Company at will, with or without Cause (as defined in Section 3(iii)
hereof), at any time.
(ii) After a Change in Control
(a) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
not terminate Employee from
-1-
<PAGE>
employment with the Company except as provided in this Section 2(ii) or as
a result of Employee's Disability (as defined in Section 3(iv) hereof) or
his death.
(b) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
have the right to terminate Employee from employment with the Company at
any time during the term of this Agreement for Cause (as defined in Section
3(iii) hereof), by written notice to the Employee, specifying the
particulars of the conduct of Employee forming the basis for such
termination.
(c) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement: (x) the Company
shall have the right to terminate Employee's employment without Cause (as
defined in Section 3(iii) hereof), at any time; and (y) the Employee shall,
upon the occurrence of such a termination by the Company without Cause, or
upon the voluntary termination of Employee's employment by Employee for
Good Reason (as defined in Section 3(ii) hereof), be entitled to receive
the benefits provided in Section 4 hereof. Employee shall evidence a
voluntary termination for Good Reason by written notice to the Company
given within 60 days after the date of the occurrence of any event that
Employee knows or should reasonably have known constitutes Good Reason for
voluntary termination. Such notice need only identify the Employee and set
forth in reasonable detail the facts and circumstances claimed by Employee
to constitute Good Reason.
Any notice given by Employee pursuant to this Section 2 shall be effective five
business days after the date it is given by Employee.
3. Definitions
(i) A "Change in Control" shall mean:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or successor provision thereto, whether or not the Company
is then subject to such reporting requirement;
(b) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities;
(c) the Continuing Directors (as defined in Section 3(v) hereof) cease
to constitute a majority of the Company's Board of Directors; provided that
such change is the direct or indirect result of a proxy fight and contested
election or elections for positions on the Board of Directors; or
-2-
<PAGE>
(d) the majority of the Continuing Directors (as defined in Section
3(v) hereof) determine in their sole and absolute discretion that there has
been a change in control of the Company.
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Employee's employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof) or for death:
(a) the assignment to Employee of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Employee immediately prior to a Change in Control;
(b) a reduction by the Company in Employee's base salary as in effect
immediately prior to a Change in Control;
(c) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Employee as compared to the terms and administration of
such program immediately prior to a Change in Control;
(d) the Company's requiring Employee to be based anywhere other than
within 50 miles of Employee's office location immediately prior to a Change
in Control, except for requirements of temporary travel on the Company's
business to an extent substantially consistent with Employee's business
travel obligations immediately prior to a Change in Control;
(e) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health-and-accident plan or disability plan in which Employee is
participating immediately prior to a Change in Control (or plans providing
Employee with substantially similar benefits), the taking of any action by
the Company which would adversely affect Employee's participation in, or
materially reduce Employee's benefits under, any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee immediately
prior to such Change in Control, or the failure by the Company to provide
Employee with the number of paid vacation days to which Employee is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(f) the failure by the Company to obtain, as specified in Section 5(i)
hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.
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(iii) "Cause" shall mean termination by the Company of Employee's
employment based upon (a) the willful and continued failure by Employee
substantially to perform his duties and obligations (other than any such failure
resulting from his incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Employee's termination for Good
Reason) or (b) the willful engaging by Employee in misconduct which is
materially injurious to the Company, monetarily or otherwise. For purposes of
this Section 3(iii), no action or failure to act on Employee's part shall be
considered "willful" unless done, or omitted to be done, by Employee in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(iv) "Disability" shall mean any physical or mental condition which would
qualify Employee for a disability benefit under the Company's long-term
disability plan.
(v) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (a) was a member of the Board of Directors on the date of this Agreement as
first written above or (b) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors. For purposes of this Section 3(v): "Acquiring Person"
shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) who or which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the shares of Common Stock of the Company
then outstanding, but shall not include the Company, any subsidiary of the
Company or any employee benefit plan of the Company or of any subsidiary of the
Company or any entity holding shares of Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
4. Benefits upon Termination under Section 2(ii)(c)
(i) Upon the termination (voluntary or involuntary) of the employment of
Employee pursuant to Section 2(ii)(c) hereof, Employee shall be entitled to
receive the benefits specified in this Section 4. The amounts due to Employee
under subparagraphs (a), (b) and (c) of this Section 4(i) shall be paid to
Employee not later than one business day prior to the date that the termination
of Employee's employment becomes effective (the "Employment Termination Date").
All benefits to Employee pursuant to this Section 4(i) shall be subject to any
applicable payroll or other taxes required by law to be withheld.
(a) The Company shall pay to Employee any and all amounts payable to
Employee pursuant to any standard or general severance policy of the
Company or its Board of Directors;
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(b) In lieu of any further base salary payments to Employee for
periods subsequent to the Employment Termination Date, the Company shall
pay as severance pay to Employee a lump-sum cash amount equal to
twenty-four (24) times the Employee's monthly base salary (as in effect in
the month preceding the month in which the termination becomes effective or
as in effect in the month preceding the Change in Control, whichever is
higher);
(c) The Company shall also pay to Employee all legal fees and expenses
incurred by Employee as a result of such termination of employment
(including all fees and expenses, if any, incurred by Employee in seeking
to obtain or enforce any right or benefit provided to Employee by this
Agreement whether by arbitration or otherwise); and
(d) Any and all contracts, agreements or arrangements between the
Company and Employee prohibiting or restricting the Employee from owning,
operating, participating in, or providing employment or consulting services
to, any business or company competitive with the Company at any time or
during any period after the Employment Termination Date, shall be deemed
terminated and of no further force or effect as of the Employment
Termination Date, to the extent, but only to the extent, such contracts,
agreements or arrangements so prohibit or restrict the Employee; provided
that the foregoing provisions shall not constitute a license or right to
use any proprietary information of the Company and shall in no way affect
any such contracts, agreements or arrangements insofar as they relate to
nondisclosure and nonuse of proprietary information of the Company
notwithstanding the fact that such nondisclosure and nonuse may prohibit or
restrict the Employee in certain competitive activities.
(ii) Employee shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 4 shall not be reduced
by any compensation earned by Employee as a result of any employment by another
employer or from any other source.
(iii) In the event that any payment or benefit received or to be received
by Employee in connection with a Change in Control of the Company or termination
of Employee's employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
Change in Control of the Company (collectively, the "Total Payments")) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest,
penalties or additions to tax with respect to such excise tax (such excise tax,
together with any such interest, penalties or additions to tax, are collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive
from the Company an additional cash payment (a "Gross-Up Payment") within thirty
business days of such determination in an amount
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such that after payment by Employee of all taxes (including such interest,
penalties or additions to tax imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. All
determinations required to be made under this Section 4(iii), including whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the independent accounting firm retained by the Company on the date of
the Change in Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Employee within 15 business days
of the Employment Termination Date, or such earlier time as is requested by the
Company. If the Accounting Firm determines that no Excise Tax is payable by
Employee, it shall furnish Employee with an opinion that Employee has
substantial authority not to report any Excise Tax on his or her federal income
tax return.
Any uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder shall be resolved
in favor of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were less than the
Gross-Up Payments that should have been made by the Company ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that Employee is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment, if any, that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were more than the
Gross-Up Payments that should have been made by the Company ("Overpayment"),
consistent with the calculations required to be made hereunder. Employee agrees
to refund to the Company the amount of any Overpayment that the Accounting Firm
shall determine has occurred hereunder. Any determination by the Accounting Firm
as to the amount of any Gross-Up Payment, including the amount of any
Underpayment or Overpayment, shall be binding upon the Company and Employee.
5. Successors and Binding Agreement
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if employee terminated Employee's
employment after a Change in Control for Good Reason, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date that
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the termination of Employee's employment becomes effective. As used in this
Agreement, "Company" shall mean the Company and any successor to its business
and/or assets which executes and delivers the agreement provided for in this
Section 5(i) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement is personal to Employee, and Employee may not assign or
transfer any part of Employee's rights or duties hereunder, or any compensation
due to Employee hereunder, to any other person. Notwithstanding the foregoing,
this Agreement shall inure to the benefit of and be enforceable by Employee's
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
6. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the
Minneapolis-St. Paul metropolitan area, in accordance with the applicable rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
7. Modification; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days'
prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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11. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity and performance, and without taking into
consideration the conflict of law provisions of such state.
12. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof and
constitutes the entire agreement of the parties relating to the subject matter
hereof; provided that this Agreement shall not supersede or limit in any way
Employee's rights under any benefit plan, program or arrangements in accordance
with their terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, all as of the date first written above.
MGI PHARMA, INC.
By /s/ C. N. Blitzer
------------------------------------
Its CEO
------------------------------------
EMPLOYEE
/s/ James V. Adam
------------------------------------
COO
------------------------------------
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EXHIBIT 10.10
TERMINATION AGREEMENT
This Agreement is made as of the 2nd day of January, 1999, between MGI
PHARMA, INC., a Minnesota corporation, with its principal offices at Suite 300E
Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343 (the "Company")
and Lori-jean Gille ("Employee"), residing at 3443 St. Louis Avenue,
Minneapolis, Minnesota, 55416.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon Employee's separation from
employment with the Company under any of the circumstances described herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interests of the Company and its shareholders to provide
stable conditions of employment for Employee notwithstanding the possibility,
threat or occurrence of certain types of change in control, thereby enhancing
the Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Employee notwithstanding the possibility, threat or occurrence of
a bid to take over control of the Company, and to induce Employee to remain in
the employ of the Company, and for other good and valuable consideration, the
Company and Employee agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the date
hereof as first written above and shall continue through December 31, 1999;
provided that commencing on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than twelve months prior to such January 1, the Company shall
have given notice that it does not wish to extend this Agreement (which notice
may not, in any event, be given sooner than January 1, 2000); and provided,
further, that notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 24 months beyond the term
provided herein if a Change in Control (as defined in Section 3(i) hereof) shall
have occurred during such term.
2. Termination of Employment
(i) Prior to a Change in Control. Prior to a Change in Control (as defined
in Section 3(i) hereof), the Company may terminate Employee from employment with
the Company at will, with or without Cause (as defined in Section 3(iii)
hereof), at any time.
(ii) After a Change in Control
(a) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
not terminate Employee from
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employment with the Company except as provided in this Section 2(ii) or as
a result of Employee's Disability (as defined in Section 3(iv) hereof) or
his death.
(b) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
have the right to terminate Employee from employment with the Company at
any time during the term of this Agreement for Cause (as defined in Section
3(iii) hereof), by written notice to the Employee, specifying the
particulars of the conduct of Employee forming the basis for such
termination.
(c) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement: (x) the Company
shall have the right to terminate Employee's employment without Cause (as
defined in Section 3(iii) hereof), at any time; and (y) the Employee shall,
upon the occurrence of such a termination by the Company without Cause, or
upon the voluntary termination of Employee's employment by Employee for
Good Reason (as defined in Section 3(ii) hereof), be entitled to receive
the benefits provided in Section 4 hereof. Employee shall evidence a
voluntary termination for Good Reason by written notice to the Company
given within 60 days after the date of the occurrence of any event that
Employee knows or should reasonably have known constitutes Good Reason for
voluntary termination. Such notice need only identify the Employee and set
forth in reasonable detail the facts and circumstances claimed by Employee
to constitute Good Reason.
Any notice given by Employee pursuant to this Section 2 shall be effective five
business days after the date it is given by Employee.
3. Definitions
(i) A "Change in Control" shall mean:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or successor provision thereto, whether or not the Company
is then subject to such reporting requirement;
(b) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities;
(c) the Continuing Directors (as defined in Section 3(v) hereof) cease
to constitute a majority of the Company's Board of Directors; provided that
such change is the direct or indirect result of a proxy fight and contested
election or elections for positions on the Board of Directors; or
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(d) the majority of the Continuing Directors (as defined in Section
3(v) hereof) determine in their sole and absolute discretion that there has
been a change in control of the Company.
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Employee's employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof) or for death:
(a) the assignment to Employee of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Employee immediately prior to a Change in Control;
(b) a reduction by the Company in Employee's base salary as in effect
immediately prior to a Change in Control;
(c) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Employee as compared to the terms and administration of
such program immediately prior to a Change in Control;
(d) the Company's requiring Employee to be based anywhere other than
within 50 miles of Employee's office location immediately prior to a Change
in Control, except for requirements of temporary travel on the Company's
business to an extent substantially consistent with Employee's business
travel obligations immediately prior to a Change in Control;
(e) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health-and-accident plan or disability plan in which Employee is
participating immediately prior to a Change in Control (or plans providing
Employee with substantially similar benefits), the taking of any action by
the Company which would adversely affect Employee's participation in, or
materially reduce Employee's benefits under, any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee immediately
prior to such Change in Control, or the failure by the Company to provide
Employee with the number of paid vacation days to which Employee is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(f) the failure by the Company to obtain, as specified in Section 5(i)
hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.
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<PAGE>
(iii) "Cause" shall mean termination by the Company of Employee's
employment based upon (a) the willful and continued failure by Employee
substantially to perform his duties and obligations (other than any such failure
resulting from his incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Employee's termination for Good
Reason) or (b) the willful engaging by Employee in misconduct which is
materially injurious to the Company, monetarily or otherwise. For purposes of
this Section 3(iii), no action or failure to act on Employee's part shall be
considered "willful" unless done, or omitted to be done, by Employee in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(iv) "Disability" shall mean any physical or mental condition which would
qualify Employee for a disability benefit under the Company's long-term
disability plan.
(v) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (a) was a member of the Board of Directors on the date of this Agreement as
first written above or (b) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors. For purposes of this Section 3(v): "Acquiring Person"
shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) who or which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the shares of Common Stock of the Company
then outstanding, but shall not include the Company, any subsidiary of the
Company or any employee benefit plan of the Company or of any subsidiary of the
Company or any entity holding shares of Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
4. Benefits upon Termination under Section 2(ii)(c)
(i) Upon the termination (voluntary or involuntary) of the employment of
Employee pursuant to Section 2(ii)(c) hereof, Employee shall be entitled to
receive the benefits specified in this Section 4. The amounts due to Employee
under subparagraphs (a), (b) and (c) of this Section 4(i) shall be paid to
Employee not later than one business day prior to the date that the termination
of Employee's employment becomes effective (the "Employment Termination Date").
All benefits to Employee pursuant to this Section 4(i) shall be subject to any
applicable payroll or other taxes required by law to be withheld.
(a) The Company shall pay to Employee any and all amounts payable to
Employee pursuant to any standard or general severance policy of the
Company or its Board of Directors;
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(b) In lieu of any further base salary payments to Employee for
periods subsequent to the Employment Termination Date, the Company shall
pay as severance pay to Employee a lump-sum cash amount equal to
twenty-four (24) times the Employee's monthly base salary (as in effect in
the month preceding the month in which the termination becomes effective or
as in effect in the month preceding the Change in Control, whichever is
higher);
(c) The Company shall also pay to Employee all legal fees and expenses
incurred by Employee as a result of such termination of employment
(including all fees and expenses, if any, incurred by Employee in seeking
to obtain or enforce any right or benefit provided to Employee by this
Agreement whether by arbitration or otherwise); and
(d) Any and all contracts, agreements or arrangements between the
Company and Employee prohibiting or restricting the Employee from owning,
operating, participating in, or providing employment or consulting services
to, any business or company competitive with the Company at any time or
during any period after the Employment Termination Date, shall be deemed
terminated and of no further force or effect as of the Employment
Termination Date, to the extent, but only to the extent, such contracts,
agreements or arrangements so prohibit or restrict the Employee; provided
that the foregoing provisions shall not constitute a license or right to
use any proprietary information of the Company and shall in no way affect
any such contracts, agreements or arrangements insofar as they relate to
nondisclosure and nonuse of proprietary information of the Company
notwithstanding the fact that such nondisclosure and nonuse may prohibit or
restrict the Employee in certain competitive activities.
(ii) Employee shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 4 shall not be reduced
by any compensation earned by Employee as a result of any employment by another
employer or from any other source.
(iii) In the event that any payment or benefit received or to be received
by Employee in connection with a Change in Control of the Company or termination
of Employee's employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
Change in Control of the Company (collectively, the "Total Payments")) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest,
penalties or additions to tax with respect to such excise tax (such excise tax,
together with any such interest, penalties or additions to tax, are collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive
from the Company an additional cash payment (a "Gross-Up Payment") within thirty
business days of such determination in an amount
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such that after payment by Employee of all taxes (including such interest,
penalties or additions to tax imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. All
determinations required to be made under this Section 4(iii), including whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the independent accounting firm retained by the Company on the date of
the Change in Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Employee within 15 business days
of the Employment Termination Date, or such earlier time as is requested by the
Company. If the Accounting Firm determines that no Excise Tax is payable by
Employee, it shall furnish Employee with an opinion that Employee has
substantial authority not to report any Excise Tax on his or her federal income
tax return.
Any uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder shall be resolved
in favor of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were less than the
Gross-Up Payments that should have been made by the Company ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that Employee is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment, if any, that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were more than the
Gross-Up Payments that should have been made by the Company ("Overpayment"),
consistent with the calculations required to be made hereunder. Employee agrees
to refund to the Company the amount of any Overpayment that the Accounting Firm
shall determine has occurred hereunder. Any determination by the Accounting Firm
as to the amount of any Gross-Up Payment, including the amount of any
Underpayment or Overpayment, shall be binding upon the Company and Employee.
5. Successors and Binding Agreement
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if employee terminated Employee's
employment after a Change in Control for Good Reason, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date that
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the termination of Employee's employment becomes effective. As used in this
Agreement, "Company" shall mean the Company and any successor to its business
and/or assets which executes and delivers the agreement provided for in this
Section 5(i) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement is personal to Employee, and Employee may not assign or
transfer any part of Employee's rights or duties hereunder, or any compensation
due to Employee hereunder, to any other person. Notwithstanding the foregoing,
this Agreement shall inure to the benefit of and be enforceable by Employee's
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
6. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the
Minneapolis-St. Paul metropolitan area, in accordance with the applicable rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
7. Modification; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days'
prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE>
11. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity and performance, and without taking into
consideration the conflict of law provisions of such state.
12. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof and
constitutes the entire agreement of the parties relating to the subject matter
hereof; provided that this Agreement shall not supersede or limit in any way
Employee's rights under any benefit plan, program or arrangements in accordance
with their terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, all as of the date first written above.
MGI PHARMA, INC.
By /s/ C. N. Blitzer
------------------------------------
Its CEO
------------------------------------
EMPLOYEE
/s/ Lori-jean Gille
------------------------------------
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<PAGE>
EXHIBIT 10.11
TERMINATION AGREEMENT
This Agreement is made as of the 2nd day of January, 1999, between MGI
PHARMA, INC., a Minnesota corporation, with its principal offices at Suite 300E
Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343 (the "Company")
and Charles N. Blitzer ("Employee"), residing at 11291 Landing Road, Eden
Prairie, Minnesota, 55347.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon Employee's separation from
employment with the Company under any of the circumstances described herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interests of the Company and its shareholders to provide
stable conditions of employment for Employee notwithstanding the possibility,
threat or occurrence of certain types of change in control, thereby enhancing
the Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Employee notwithstanding the possibility, threat or occurrence of
a bid to take over control of the Company, and to induce Employee to remain in
the employ of the Company, and for other good and valuable consideration, the
Company and Employee agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the date
hereof as first written above and shall continue through December 31, 1999;
provided that commencing on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than twelve months prior to such January 1, the Company shall
have given notice that it does not wish to extend this Agreement (which notice
may not, in any event, be given sooner than January 1, 2000); and provided,
further, that notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 24 months beyond the term
provided herein if a Change in Control (as defined in Section 3(i) hereof) shall
have occurred during such term.
2. Termination of Employment
(i) Prior to a Change in Control. Prior to a Change in Control (as defined
in Section 3(i) hereof), the Company may terminate Employee from employment with
the Company at will, with or without Cause (as defined in Section 3(iii)
hereof), at any time.
(ii) After a Change in Control
(a) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
not terminate Employee from
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<PAGE>
employment with the Company except as provided in this Section 2(ii) or as
a result of Employee's Disability (as defined in Section 3(iv) hereof) or
his death.
(b) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement, the Company shall
have the right to terminate Employee from employment with the Company at
any time during the term of this Agreement for Cause (as defined in Section
3(iii) hereof), by written notice to the Employee, specifying the
particulars of the conduct of Employee forming the basis for such
termination.
(c) From and after the date of a Change in Control (as defined in
Section 3(i) hereof) during the term of this Agreement: (x) the Company
shall have the right to terminate Employee's employment without Cause (as
defined in Section 3(iii) hereof), at any time; and (y) the Employee shall,
upon the occurrence of such a termination by the Company without Cause, or
upon the voluntary termination of Employee's employment by Employee for
Good Reason (as defined in Section 3(ii) hereof), be entitled to receive
the benefits provided in Section 4 hereof. Employee shall evidence a
voluntary termination for Good Reason by written notice to the Company
given within 60 days after the date of the occurrence of any event that
Employee knows or should reasonably have known constitutes Good Reason for
voluntary termination. Such notice need only identify the Employee and set
forth in reasonable detail the facts and circumstances claimed by Employee
to constitute Good Reason.
Any notice given by Employee pursuant to this Section 2 shall be effective five
business days after the date it is given by Employee.
3. Definitions
(i) A "Change in Control" shall mean:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or successor provision thereto, whether or not the Company
is then subject to such reporting requirement;
(b) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities;
(c) the Continuing Directors (as defined in Section 3(v) hereof) cease
to constitute a majority of the Company's Board of Directors; provided that
such change is the direct or indirect result of a proxy fight and contested
election or elections for positions on the Board of Directors; or
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<PAGE>
(d) the majority of the Continuing Directors (as defined in Section
3(v) hereof) determine in their sole and absolute discretion that there has
been a change in control of the Company.
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Employee's employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof) or for death:
(a) the assignment to Employee of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Employee immediately prior to a Change in Control;
(b) a reduction by the Company in Employee's base salary as in effect
immediately prior to a Change in Control;
(c) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Employee as compared to the terms and administration of
such program immediately prior to a Change in Control;
(d) the Company's requiring Employee to be based anywhere other than
within 50 miles of Employee's office location immediately prior to a Change
in Control, except for requirements of temporary travel on the Company's
business to an extent substantially consistent with Employee's business
travel obligations immediately prior to a Change in Control;
(e) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health-and-accident plan or disability plan in which Employee is
participating immediately prior to a Change in Control (or plans providing
Employee with substantially similar benefits), the taking of any action by
the Company which would adversely affect Employee's participation in, or
materially reduce Employee's benefits under, any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee immediately
prior to such Change in Control, or the failure by the Company to provide
Employee with the number of paid vacation days to which Employee is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(f) the failure by the Company to obtain, as specified in Section 5(i)
hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.
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<PAGE>
(iii) "Cause" shall mean termination by the Company of Employee's
employment based upon (a) the willful and continued failure by Employee
substantially to perform his duties and obligations (other than any such failure
resulting from his incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Employee's termination for Good
Reason) or (b) the willful engaging by Employee in misconduct which is
materially injurious to the Company, monetarily or otherwise. For purposes of
this Section 3(iii), no action or failure to act on Employee's part shall be
considered "willful" unless done, or omitted to be done, by Employee in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(iv) "Disability" shall mean any physical or mental condition which would
qualify Employee for a disability benefit under the Company's long-term
disability plan.
(v) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (a) was a member of the Board of Directors on the date of this Agreement as
first written above or (b) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors. For purposes of this Section 3(v): "Acquiring Person"
shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) who or which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the shares of Common Stock of the Company
then outstanding, but shall not include the Company, any subsidiary of the
Company or any employee benefit plan of the Company or of any subsidiary of the
Company or any entity holding shares of Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
4. Benefits upon Termination under Section 2(ii)(c)
(i) Upon the termination (voluntary or involuntary) of the employment of
Employee pursuant to Section 2(ii)(c) hereof, Employee shall be entitled to
receive the benefits specified in this Section 4. The amounts due to Employee
under subparagraphs (a), (b) and (c) of this Section 4(i) shall be paid to
Employee not later than one business day prior to the date that the termination
of Employee's employment becomes effective (the "Employment Termination Date").
All benefits to Employee pursuant to this Section 4(i) shall be subject to any
applicable payroll or other taxes required by law to be withheld.
(a) The Company shall pay to Employee any and all amounts payable to
Employee pursuant to any standard or general severance policy of the
Company or its Board of Directors;
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<PAGE>
(b) In lieu of any further base salary payments to Employee for
periods subsequent to the Employment Termination Date, the Company shall
pay as severance pay to Employee a lump-sum cash amount equal to
twenty-four (24) times the Employee's monthly base salary (as in effect in
the month preceding the month in which the termination becomes effective or
as in effect in the month preceding the Change in Control, whichever is
higher);
(c) The Company shall also pay to Employee all legal fees and expenses
incurred by Employee as a result of such termination of employment
(including all fees and expenses, if any, incurred by Employee in seeking
to obtain or enforce any right or benefit provided to Employee by this
Agreement whether by arbitration or otherwise); and
(d) Any and all contracts, agreements or arrangements between the
Company and Employee prohibiting or restricting the Employee from owning,
operating, participating in, or providing employment or consulting services
to, any business or company competitive with the Company at any time or
during any period after the Employment Termination Date, shall be deemed
terminated and of no further force or effect as of the Employment
Termination Date, to the extent, but only to the extent, such contracts,
agreements or arrangements so prohibit or restrict the Employee; provided
that the foregoing provisions shall not constitute a license or right to
use any proprietary information of the Company and shall in no way affect
any such contracts, agreements or arrangements insofar as they relate to
nondisclosure and nonuse of proprietary information of the Company
notwithstanding the fact that such nondisclosure and nonuse may prohibit or
restrict the Employee in certain competitive activities.
(ii) Employee shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 4 shall not be reduced
by any compensation earned by Employee as a result of any employment by another
employer or from any other source.
(iii) In the event that any payment or benefit received or to be received
by Employee in connection with a Change in Control of the Company or termination
of Employee's employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
Change in Control of the Company (collectively, the "Total Payments")) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest,
penalties or additions to tax with respect to such excise tax (such excise tax,
together with any such interest, penalties or additions to tax, are collectively
referred to as the "Excise Tax"), then Employee shall be entitled to receive
from the Company an additional cash payment (a "Gross-Up Payment") within thirty
business days of such determination in an amount
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<PAGE>
such that after payment by Employee of all taxes (including such interest,
penalties or additions to tax imposed with respect to such taxes), including any
Excise Tax, imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. All
determinations required to be made under this Section 4(iii), including whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the independent accounting firm retained by the Company on the date of
the Change in Control (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Employee within 15 business days
of the Employment Termination Date, or such earlier time as is requested by the
Company. If the Accounting Firm determines that no Excise Tax is payable by
Employee, it shall furnish Employee with an opinion that Employee has
substantial authority not to report any Excise Tax on his or her federal income
tax return.
Any uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder shall be resolved
in favor of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were less than the
Gross-Up Payments that should have been made by the Company ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that Employee is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment, if any, that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were more than the
Gross-Up Payments that should have been made by the Company ("Overpayment"),
consistent with the calculations required to be made hereunder. Employee agrees
to refund to the Company the amount of any Overpayment that the Accounting Firm
shall determine has occurred hereunder. Any determination by the Accounting Firm
as to the amount of any Gross-Up Payment, including the amount of any
Underpayment or Overpayment, shall be binding upon the Company and Employee.
5. Successors and Binding Agreement
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if employee terminated Employee's
employment after a Change in Control for Good Reason, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date that
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<PAGE>
the termination of Employee's employment becomes effective. As used in this
Agreement, "Company" shall mean the Company and any successor to its business
and/or assets which executes and delivers the agreement provided for in this
Section 5(i) or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(ii) This Agreement is personal to Employee, and Employee may not assign or
transfer any part of Employee's rights or duties hereunder, or any compensation
due to Employee hereunder, to any other person. Notwithstanding the foregoing,
this Agreement shall inure to the benefit of and be enforceable by Employee's
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
6. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the
Minneapolis-St. Paul metropolitan area, in accordance with the applicable rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
7. Modification; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days'
prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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11. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity and performance, and without taking into
consideration the conflict of law provisions of such state.
12. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof and
constitutes the entire agreement of the parties relating to the subject matter
hereof; provided that this Agreement shall not supersede or limit in any way
Employee's rights under any benefit plan, program or arrangements in accordance
with their terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, all as of the date first written above.
MGI PHARMA, INC.
By /s/ Lori-jean Gille
------------------------------------
Its Senior Vice President
------------------------------------
EMPLOYEE
/s/ C. N. Blitzer
------------------------------------
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EXHIBIT 10.25
EXCLUSIVE LICENSE AGREEMENT
Between
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
and
MGI PHARMA, INC.
for
METHOD OF TREATING TUMORS USING
ACYLFULVENE (ILLUDIN) ANALOGS
U.C. Case No.88-196-1,-2,-3
August 31, 1993
<PAGE>
TABLE OF CONTENTS
BACKGROUND
1. DEFINITIONS ..........................................................3
2. GRANT ................................................................6
3. SUBLICENSES ..........................................................7
4. LICENSE ISSUE FEE, LICENSE MAINTENANCE FEES
AND MILESTONE PAYMENTS ..........................................7
5. ROYALTIES ...........................................................10
6. DILIGENCE ...........................................................13
7. PROGRESS AND ROYALTY REPORTS ........................................16
8. BOOKS AND RECORDS ...................................................18
9. TERM OF THE AGREEMENT/RESEARCH AGREEMENT ............................18
10. TERMINATION BY THE REGENTS ..........................................20
11. TERMINATION BY LICENSEE .............................................20
12. DISPOSITION UPON TERMINATION ........................................21
13. USE OF NAMES AND TRADEMARKS .........................................22
14. LIMITED WARRANTY ....................................................22
15. PATENT PROSECUTION AND MAINTENANCE ..................................24
16. PATENT MARKING ......................................................27
17. PATENT INFRINGEMENT .................................................27
18. INDEMNIFICATION .....................................................29
19. NOTICES .............................................................30
20. ASSIGNABILITY .......................................................30
21. LATE PAYMENTS .......................................................31
22. WAIVER ..............................................................31
23. FAILURE TO PERFORM ..................................................31
24. GOVERNING LAWS ......................................................32
25. PREFERENCE FOR UNITED STATES INDUSTRY ...............................32
26. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION .........................32
27. EXPORT CONTROL LAWS .................................................32
28. CONFIDENTIALITY .....................................................33
29. INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT .......................34
30. MISCELLANEOUS .......................................................35
EXHIBIT A - DEVELOPMENT PLAN
EXHIBIT B - STOCK OPTION AGREEMENT
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<PAGE>
EXCLUSIVE LICENSE AGREEMENT
---------------------------
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective as of
the 31st day of August, 1993, by and between THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 (hereinafter
referred to as "The Regents"), and MGI Pharma, Inc., a Minnesota corporation
having a principal place of business at 300 E. Opus Center, 9900 Bren Road East,
Minneapolis, MN 55343-9667 (hereinafter referred to as "Licensee").
BACKGROUND
----------
Certain inventions disclosed under UC Case No. 88-196-1,-2,-3,
generally characterized as METHOD OF TREATING TUMORS USING ILLUDIN ANALOGS,
hereinafter collectively referred to as the "Invention," were made in the course
of research at the University of California, San Diego by Drs. Michael J.
Kelner, Trevor C. McMorris and Raymond Taetle (hereinafter, "Inventors").
Licensee entered into a Secrecy Agreement (U.C. Control No. 93-20-0063)
with The Regents effective January 25, 1993 and terminating on January 25, 1998
for the purpose of evaluating the Invention (hereinafter referred to as the
"Secrecy Agreement").
The development of the Invention was sponsored in part by the United
States Department of Health and Human Services and as a consequence this license
is subject to overriding obligations to the Federal Government as set forth in
35 U.S.C. 200-212 and applicable governmental implementing regulations. Pursuant
to 35 U.S.C. 200-212, The Regents may elect to retain title to any invention
(including the Invention) made by it under U.S. Government funding. If The
Regents
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elects to retain title to the Invention, The Regents is required by law to grant
to the U.S. Government a nontransferable, paid up, non-exclusive, irrevocable
license to use the Invention by or on behalf of the U.S. Government throughout
the world. The Regents has elected to retain title and granted the
aforementioned licenses to the U.S. Government to the Invention.
Licensee is a "small business firm" as defined in 15 U.S.C. 632.
Licensee is desirous of obtaining certain rights from The Regents for
the commercial development, manufacture, use, and sale of the Invention, and The
Regents is willing to grant such rights on the terms and conditions set forth in
this Agreement.
Licensee's early access to Regents' Technology prior to the effective
date of this Agreement provides the consideration for Licensee's continuing
royalty obligation for use of Regents' Technology.
Both parties recognize and agree that royalties due hereunder will be
paid on both pending patent applications and issued patents as well as on
Regents' Technology (as hereinafter defined).
The Regents is desirous that the Invention be developed and utilized to
the fullest extent so that the benefits can be enjoyed by the general public.
The parties agree as follows:
1. DEFINITIONS
--------------
1.1 "Affiliate" means any corporation or other business entity which
directly or indirectly controls, is controlled by, or is under common control
with Licensee to the extent of, at least fifty percent (50%) of the outstanding
stock or other voting rights entitled to elect directors.
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1.2 "Data" means all oral and written information received by Licensee,
its Affiliates or its sublicensees from The Regents, the Inventors, or their
agents or representatives regarding the Invention or Licensed Products,
including but not be limited to Regents' Technology, technical information,
patent applications, and prosecution documents and this Agreement.
1.3 "Improvements" means any improvements to the Invention or to
Regents' Patent Rights on which a patent application may be filed now or
hereafter owned by The Regents and developed under either or both of the
Research Agreements entered into pursuant to the terms of Article 9.3 of this
Agreement by or under the supervision of one or more of the Inventors and
relating to the development of Illudin Analogs.
1.4 "Licensed Method" means any process, method, or use which is
covered by Regents' Patent Rights or whose use or practice would constitute, but
for the license granted to Licensee pursuant to this Agreement, an infringement
of any issued or pending claim within Regents' Patent Rights.
1.5 "Licensed Product" means any material or product or kit, or any
service, process or procedure that either (1) is covered by Regents' Patent
Rights or whose manufacture, use, or sale would constitute, but for the license
granted to Licensee pursuant to this Agreement, an infringement of any claim
within Regents' Patent Rights or (2) is developed, made, used, sold, registered,
or practiced using Regents' Technology or Licensed Method or which may be used
to practice the Licensed Method, in whole or in part.
1.6 "Major Market Countries" shall mean Japan, Germany, France and the
United Kingdom.
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1.7 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold or transferred by Licensee, its Affiliates, and its sublicensees
plus rebates and allowances received by Licensee, its Affiliates or sublicensees
of amounts that have been deducted from gross sales less the sum of the
following actual and customary deductions included on the invoice and actually
paid: cash, trade, or quantity discounts; sales, use, tariff, or other excise
taxes imposed upon particular sales; import/export duties; and transportation
charges. Sales among Licensee, its Affiliates and its sublicensees for ultimate
third party use shall be disregarded for purposes of computing royalties.
Royalties shall be payable upon sales or transfers at arms-length consideration
between unrelated third parties.
1.8 "Regents' Patent Rights" means all pending or issued U.S. and
foreign patents and patent applications, owned by The Regents, including any
reissues, extensions, substitutions, continuations, divisions and
continuations-in-part (only to the extent, however, that claims in the
continuations-in-part are entitled to the priority filing date of the parent
patent application or are conceived and first actually reduced to practice under
the Research Agreements and which Licensee has elected to include under this
Agreement) based on the subject matter claimed in or covered by U.S. Patent
Application Serial Numbers 416,395 filed October 3, 1989 (now abandoned),
606,511 filed October 31, 1990 or 015,179 filed February 9, 1993 and patent
applications added to this Agreement pursuant to the provisions of the Research
Agreements.
1.9 "Regents' Technology" means all information and physical objects
related to the Invention or Licensed Product (other than Regents' Patent
Rights), including but not limited to formulations, data, drawings and sketches,
designs, testing and test results, regulatory information of a like nature,
whether patentable or not, owned or controlled by The Regents and which The
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Regents have the right to disclose and license to third parties and which arose
in the Inventors' laboratories under the direction of one or more of the
Inventors prior to the effective date of this Agreement or under one or more of
the Research Agreements. Upon Licensee's written request within thirty (30) days
after receipt thereof, The Regents (subject to the availability of the
Inventors) shall, if applicable, certify that the specific information provided
by The Regents arose in the Inventors' laboratories under the direction of one
or more of the Inventors prior to the effective date of this Agreement or under
one or more of the Research Agreements.
1.10 "Research Agreements" means the research agreements to be executed
between Licensee and The Regents through the San Diego campus's Contract and
Grant Office which contract will fund further research to be performed on said
campus by the Inventors in the field of Regents' Patent Rights.
1.11 "Territory" shall mean all countries of the world.
2. GRANT
--------
2.1 Subject to the limitations set forth in this Agreement, The Regents
hereby grants to Licensee, to the extent it has the legal right to do so, an
exclusive license under Regents' Patent Rights and Regents Technology to make,
have made, use, and sell Licensed Products and to practice Licensed Method in
the Territory during the term of this Agreement.
2.2 The license granted hereunder shall be subject to the overriding
obligations to the U.S. Government set forth in 35 U.S.C. 200-212 and applicable
governmental implementing regulations and to the licenses granted to the U.S.
Government which are referred to in the Background.
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2.3 The Regents expressly reserves the right to use the Invention,
Regents' Patent Rights, Regents' Technology, Licensed Products, Licensed Methods
and associated information and technology for educational and research purposes
only and to publish all or any part of the foregoing, and the results of use
thereof.
2.4 The Regents, principally through the Inventors, has provided
Regents' Technology to Licensee. It is understood that at the time of disclosure
to the Licensee some of the Regents' Technology may have been made available to
the public without restrictions. Within thirty (30) days after the date of
execution hereof the parties shall jointly prepare in good faith a specific list
of existing Regents' Technology documentation to be delivered by The Regents to
Licensee hereunder, and The Regents shall deliver such documentation to Licensee
with six months thereafter.
3. SUBLICENSES
--------------
3.1 The Regents grants to Licensee the right to grant sublicenses to
third parties under the licenses granted in Article 2 provided Licensee has
current exclusive rights thereto (subject to the rights of the U.S. Government
and The Regents) under this Agreement. To the extent applicable, such
sublicenses shall include all of the rights of and obligations due to The
Regents (and, if applicable, to the United States Government) that are contained
in this Agreement.
3.2 Within thirty (30) days after execution thereof, Licensee shall
provide The Regents with a copy of each sublicense granted hereunder, and shall
thereafter collect and guarantee payment of all royalties due The Regents from
sublicensees and summarize and deliver all reports due The Regents from
sublicensees.
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3.3 Upon termination of this Agreement for any reason, The Regents, at
its sole discretion, shall determine whether any or all sublicenses shall be
canceled or assigned to The Regents.
4. LICENSE-ISSUE FEE. LICENSE MAINTENANCE FEES
----------------------------------------------
AND MILESTONE PAYMENTS
----------------------
4.1 Within thirty (30) days after the execution of this Agreement, as a
License Issue Fee, Licensee shall pay to The Regents ***, issue to The Regents
*** shares of the common stock of Licensee, and grant to The Regents options to
purchase *** shares of common stock of Licensee. Said License Issue Fee is non-
refundable and is not an advance against royalties except to the extent that
options granted under this Section 4.1 and under the Option Agreement Attached
hereto as Exhibit A may not vest and may not become exercisable under the
provisions of the Option Agreement.
4.2 Licensee shall pay to The Regents a License Maintenance Fee of ***,
beginning on the first anniversary of execution of this Agreement and continuing
annually on each anniversary thereof until the first NDA on a Licensed Product
is submitted to the U.S. FDA. Said License Maintenance Fee is non-refundable and
is not an advance against royalties.
4.3 Licensee shall pay to The Regents Milestone Payment Fees in
accordance with the following schedule (the total Milestone Payment Fees due at
any milestone shall not exceed the total of the United States milestone due on
such date):
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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EVENT AMOUNT
================================================================================
(a) Upon filing an application US UK, FRANCE, GERMANY
for an IND with United States -- -------------------
Food and Drug Administration & JAPAN
or its equivalent in a Major -------
Market Country or July 15,
1996, whichever is earlier *** ***
- --------------------------------------------------------------------------------
(b) Upon submitting an
NDA with the United States
Food and Drug Administration
or its equivalent in a Major *** ***
Market Country or ***,
whichever is earlier
- --------------------------------------------------------------------------------
(c) Upon the first final
approval of an NDA by the
United States Food and
Drug Administration or its *** ***
equivalent in another
country of the Territory
================================================================================
Said Milestone Payment Fees shall be paid to The Regents within thirty (30) days
after the occurrence of the event set forth on said schedule and shall not be
refundable or creditable against royalties, except that up to *** payable under
Section 4.3(c) shall be credited in installments of up to *** per year in each
calendar year that royalties payable to The Regents on Net Sales exceed ***.
In each such year, up to the first *** of royalties payable in excess of ***
shall be withheld by Licensee as a credit, until a cumulative amount of ***
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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has been so withheld. All amounts withheld shall be reported to The Regents
under Section 7.5.
4.4 The options referred to in Article 4.1 shall be granted, shall vest
and may be exercised in accordance with a separate agreement, the "Stock Option
Agreement for Purchase of Shares of Common Stock of MGI Pharma, Inc.", between
the parties which is attached hereto as Exhibit B.
5. ROYALTIES
------------
5.1 Except as otherwise required by law, Licensee shall pay to The
Regents a royalty on Net Sales during the term of this Agreement in accordance
with the following schedule:
Annual Net Sales Royalty Rate
---------------- ------------
*** ***
*** ***
*** ***
Upon receipt by The Regents of cumulative royalties of ***, the royalty rate
shall be changed to ***. The aforementioned royalty rates in this Section 5.1
shall be reduced to the following in any country of the Territory where no
Regents' Patent Rights exist:
Annual Net Sales Royalty Rate
---------------- ------------
*** ***
*** ***
Only one royalty shall be charged on each Licensed Product sold under this
Agreement.
5.2 Royalties payable to The Regents shall be paid to The Regents
quarterly on or before the following dates of each calendar year:
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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February 28
May 31
August 31
November 30
Each such payment will be for unpaid royalties which accrued within or prior to
the most recently completed calendar quarter.
5.3 Licensee shall pay to The Regents a minimum annual royalty equal to
the amount set forth on the following schedule:
Year of Commercial Marketing 1 2 3 4 & thereafter
--- --- --- ---
Minimum Royalty *** *** *** ***
for the term of this Agreement beginning with the date of first commercial sale
of Licensed Product. Such minimum annual royalty shall be paid to The Regents by
the last day of the second month of each Year of Commercial Marketing and shall
be credited against the earned royalty due and owing for the Year of Commercial
Marketing in which the minimum payment was made. Each "Year of Commercial
Marketing" shall commence on the first day of the calendar quarter immediately
following the date of first commercial sale of Licensed Product or an
anniversary thereof.
5.4 All amounts due The Regents shall be payable in United States
Dollars in San Francisco, California. When Licensed Products are sold for monies
other than United States Dollars, the earned royalties will first be determined
in the foreign currency of the country in which such Licensed Products were sold
and then converted into equivalent United States Dollars. The exchange rate will
be the United States Dollar exchange rate determined in accordance with
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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Generally Acceptable Accounting Principles and Licensee's normal accounting
practices used by Licensee to record revenues from such country for the period
in question.
5.5 Royalties earned with respect to sales occurring in any country
outside the United States shall not be reduced by any taxes, fees, or other
charges imposed by the government of such country on the remittance of royalty
income. Licensee shall also be responsible for all bank transfer charges.
5.6 If at any time legal restrictions prevent the acquisition or prompt
remittance of United States Dollars by Licensee with respect to any country
where a Licensed Product is sold, Licensee shall pay royalties due to The
Regents from Licensee's other sources of United States Dollars.
5.7 In the event that any patent or any claim thereof included with
Regents' Patent Rights shall be held invalid in a final decision by a court of
competent jurisdiction and last resort and from which no appeal has or can be
taken, all obligation to pay royalties based on such patent or claim or any
claim patentably indistinct therefrom shall cease as of the date of such final
decision. Licensee shall not, however, be relieved from paying any royalties
that accrued before such decision or that are based on another patent or claim
not involved in such decision, or that are based on Regents' Technology.
5.8 If a license to the Invention has been granted to the United States
Government, no royalties shall be payable hereunder on Licensed Products sold to
the U.S. Government. Licensee and its sublicensees shall reduce the amount
charged for Licensed Products sold to the United States Government by an amount
equal to the royalty for such Licensed Products otherwise due The Regents as
provided herein.
6. DILIGENCE
------------
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6.1 Licensee, upon execution of this Agreement, shall use all
reasonable efforts to develop, test, obtain regulatory approval, manufacture,
and sell Licensed Products in all countries of the Territory and shall use all
reasonable efforts to market Licensed Products in all such countries within a
reasonable time after execution of this Agreement and in quantities sufficient
to meet the market demands therefor. Licensee shall begin pharmacology and
toxicology testing of test material, which testing need not comply with good
laboratory practices, in several animal model systems within one hundred twenty
(120) days after receipt of such material (of a reasonably acceptable quality to
Licensee) from the Inventors in accordance with the Research Agreements. If such
material is not acceptable to Licensee, Licensee shall so notify The Regents in
writing within sixty (60) days after receipt of such material.
6.2 Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting its diligence obligations hereunder.
6.3 Licensee shall endeavor to obtain all necessary governmental
approvals for the manufacture, use, and sale of Licensed Products.
6.4 If Licensee fails to perform any of the following:
(6.4.1) proceed with development of Licensed Products
substantially in accordance with the plan set forth
on Exhibit B hereto; or
(6.4.2) submit an IND application on Licensed Product to the
United States Food and Drug Administration prior to
July 15, 1996; or
(6.4.3) submit an NDA application to the United States Food
and Drug Administration prior to *** and foreign
counterparts thereof to comparable agencies in Major
Market Countries other than Japan prior to
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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*** and in any other countries (including Japan)
prior to ***; or
(6.4.4) commence commercial marketing of Licensed Products in
each country of the Territory within the later of six
(6) months after receiving final marketing approval
of such Licensed Product in such country, or sixty
(60) days after receiving written notice from
Licensor requiring commencement of commercial
marketing; or
(6.4.5) diligently fill the market demand for Licensed
Products in each country following commencement of
marketing in such country at all times during the
exclusive period of this Agreement;
(6.4.6) spend an aggregate of not less than $250,000 for the
development and marketing of Licensed Products during
each year of this Agreement commencing August 15,
1995 and ending on the date of NDA submission and an
aggregate of $300,000 during the first two (2) years
of this Agreement;
(6.4.7) continue to support research under the Research
Agreements at the levels and for the term provided
for in the Research Agreements so long as the
Research Agreements have not been terminated due to
breach by The Regents;
then The Regents shall have the right and option, upon sixty (60) days written
notice, either to terminate this Agreement or to reduce Licensee's exclusive
license to a nonexclusive license as to both Regents' Patent Rights and Regents'
Technology. If such termination or reduction is based on failure of diligence as
to a particular country (including but not limited to each Major Market
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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<PAGE>
Country), such termination or reduction shall be effective only as to such
country or countries; in addition, at Licensee's request, The Regents shall
consider Licensee's reasons for failure of diligence and shall negotiate in good
faith during said sixty (60) day period for possible modification of royalty
rates and/or diligence obligations in lieu of termination. Should Licensee fail
to fulfill the diligence requirements or reach agreement with The Regents within
said sixty (60) day period, the notice shall be effective at the end of said
period. Funding paid under the Research Agreements may be counted in fulfilling
the obligations in Section 6.4.6.
(6.5) Upon Licensee's written request made within sixty (60) days after
completion of Licensee's initial Phase II Clinical Trials for Licensed Product
in the United States, and provided that such trials have been completed by
September 1, 1998, the parties agree to negotiate in good faith for the possible
revision of the submission dates as set forth in Section 6.4.3 for submitting
marketing applications for Licensed Product in countries other than the United
States. During such negotiations, the parties shall consider, among other
things, regulatory requirements for such countries (including any need for
additional or supplemental preclinical or clinical trials), standard industry
practice, the remaining term of Regents' Patent Rights in such countries and the
effect that revision of the submission dates would have on royalties due to The
Regents hereunder.
(6.6) In the event The Regents has terminated this Agreement under
Section 6.4.3 as to a country other than the United States or a Major Market
Country, and The Regents wishes to grant a license for Licensed Products for
such country to another licensee, The Regents shall first offer to relicense
Licensed Products to Licensee on the more favorable (to The Regents) of (a) the
terms and conditions in this Agreement or (b) the terms and conditions offered
by the other potential licensee. Licensee shall have thirty (30) days after said
offer to accept such offer in writing. If such offer is
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accepted, Licensee shall also pay to The Regents with such written acceptance a
relicensing fee of Twenty Thousand Dollars ($20,000) per country.
7. PROGRESS AND ROYALTY REPORTS
-------------------------------
7.1 Beginning February 28, 1994 and semi-annually thereafter, Licensee
shall submit to The Regents, for the purpose only of allowing The Regents to
follow the progress of development, a brief progress report in a form reasonably
satisfactory to The Regents covering the activities of Licensee and its
sublicensees related to the development and testing of all Licensed Products and
the obtaining of the governmental approvals necessary for marketing. Such
progress reports shall be made for each Licensed Product in each country of the
Territory until the first commercial sale of such Licensed Product occurs in
such country and thereafter (no more often than annually) if reasonably
requested by The Regents.
7.2 The progress reports submitted under section 7.1 shall include
sufficient information to enable The Regents to determine Licensee's progress in
fulfilling its obligations under Article 6 including, but not be limited to, the
following topics:
- summary of work completed
- key scientific discoveries
- summary of work in progress
- current schedule of anticipated events or milestones
- market plans for introduction of Licensed Products in countries of
the Territory in which Licensed Product has not been introduced
- a summary of resources (dollar value) spent in the reporting
period for research, development and marketing of Licensed Product
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- activities in obtaining sublicensees and activities of sublicensees
- progress under the Research Agreements
7.3 Licensee shall have a continuing responsibility to keep The Regents
informed of the large/small entity status (as defined by the United States
Patent and Trademark Office) of itself and its sublicensees.
7.4 Licensee shall report to The Regents in its immediately subsequent
progress and royalty report the date of first commercial sale of a Licensed
Product in each country.
7.5 After the first commercial sale of a Licensed Product anywhere in
the world, Licensee shall make quarterly royalty reports to The Regents on or
before each February 28, May 31, August 31 and November 30 of each year. Each
such royalty report shall show (a) the units and gross sales and Net Sales
through the end of the most recent calendar quarter of each type of Licensed
Products on which royalties have not been paid; (b) the royalties, in U.S.
dollars, payable hereunder with respect to such sales; (c) the method used to
calculate the royalty; and (d) the exchange rates used, if any.
7.6 If no sales of Licensed Products have been made during any
reporting period, a statement to this effect shall be made by Licensee.
8. BOOKS AND RECORDS
--------------------
8.1 Licensee shall keep books and records accurately showing all
Licensed Products manufactured, used, and/or sold under the terms of this
Agreement. Such books and records shall be preserved for at least (5) years from
the date of the royalty payment to which they pertain and shall be open to
inspection by representatives or agents of The Regents at reasonable times upon
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reasonable notice. Licensee shall not be required to retain books and records
showing transactions required to calculate royalties for more than five (5)
years.
8.2 The out of pocket costs incurred by The Regents in having its
representatives perform such an examination shall be borne by The Regents.
However, if an error in royalties of more than five percent (5%) of the total
royalties due for any year is discovered, then such out of pocket costs shall be
borne by Licensee.
9. TERM OF THE AGREEMENT/RESEARCH AGREEMENTS
--------------------------------------------
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the provisions of this Agreement, this Agreement
shall be in force from the effective date recited on page one and shall remain
in effect in each country of the Territory until the longer of, (i) expiration
of the last-to-expire patent licensed under this Agreement in such country or,
(ii) ten years from the date of first commercial sale of Licensed Product in
such country. Upon expiration of this Agreement as to any country with respect
to which Licensee has performed all its obligations hereunder, Licensee shall
have a paid up license to Regents' Technology for such country.
9.2 Any expiration or termination of this Agreement shall not affect
the rights and obligations set forth in the following Articles:
Article 8 Books and Records
Article 12 Disposition Upon Termination
Article 13 Use of Names, Trademarks and Confidential Information
Article 18 Indemnification
Article 23 Failure to Perform
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Article 28 Confidentiality
9.3 Licensee shall enter into agreements with The Regents concerning
Research Agreements and/or an alternative, reasonably satisfactory to The
Regents, within four (4) months of execution of this Agreement for at least
Three Hundred Thousand Dollars ($300,000), plus shall arrange to fund the
production of approximately one hundred (100) grams of at least one of the two
leading candidate illudin NCE's over the next forty two (42) months by the
Inventors, at a cost of approximately Seventy Five Thousand Dollars ($75,000).
Improvements to Regents' Patent Rights or Regents' Technology conceived and
first reduced to practice under the Research Agreements shall fall within the
scope of this Agreement. If any inventions other than Improvements are conceived
and first reduced to practice under the Research Agreements, Licensee shall have
the first right to negotiate a license thereto, as provided in the Research
Agreements. If any such inventions which are not Improvements are added to this
Agreement new License Issue Fees, License Maintenance Fees, Milestone Payment
Fees, royalties, minimum royalties and diligence provisions will be negotiated
by the parties in good faith on commercially reasonable terms.
10. TERMINATION BY THE REGENTS
------------------------------
10.1 If Licensee should breach or fail to perform any material
provision of this Agreement, then The Regents may give written notice of such
default (Notice of Default) to Licensee. If Licensee should fail to cure such
default within sixty (60) days of the effective date of such notice, The Regents
shall have the right to terminate this Agreement and the licenses herein by a
second written notice (Notice of Termination) to Licensee. If a Notice of
Termination is sent to Licensee, this Agreement shall automatically terminate on
the effective date of such notice. Such termination shall not relieve Licensee
of its obligation to pay all amounts due to The Regents as of the effective
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date of termination and shall not impair any accrued rights of The Regents. Such
Notices shall be subject to Article 19 (Notices).
11. TERMINATION BY LICENSEE
---------------------------
11.1 Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to The Regents. Such notice of termination shall be subject to
Article 19 (Notices), and termination of this Agreement shall be effective
ninety (90) days from the effective date of such notice.
11.2 Any termination pursuant to the above paragraph shall not relieve
the Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
12. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION
-------------------------------------------------------------
12.1 Upon termination of this Agreement by either party (i) Licensee
shall have the privilege of disposing of all previously made or partially made
Licensed Products, but no more, within a period of one hundred and twenty (120)
days, provided, however, that the sale of such Licensed Products shall be
subject to the terms of this Agreement including, but not limited to, the
payment of royalties at the rate and at the time provided herein and the
rendering of reports thereon; (ii) Licensee shall promptly return, and shall
cause its Affiliates and sublicensees to return to The Regents all Regents'
Technology and other property belonging to The Regents, if any, which has been
provided to Licensee or its Affiliates or sublicensees hereunder, and all copies
and facsimiles thereof and derivatives therefrom (except that Licensee may
retain one copy of written material for
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record purposes only, provided such material is not used by Licensee for any
other purpose and is not disclosed to others); and (iii) upon election by The
Regents and reimbursement of Licensee's direct costs to acquire or develop such
information, Licensee shall provide The Regents with copies of all information
relating to Licensed Product or Licensed Method developed or acquired by
Licensee or its Affiliates, and The Regents shall have the worldwide
non-exclusive right to use such information in connection with its research and
in connection with the relicensing of Regents' Patent Rights and Regents'
Technology, provided, however, that the provisions of (iii) shall apply only if
this Agreement is voluntarily terminated by Licensee under the provisions of
Section 11.1. or terminated for cause by The Regents under the provisions of
Section 6.4 or 10.1.
13. USE OF NAMES AND TRADEMARKS
-------------------------------
13.1 Nothing contained in this Agreement shall be construed as
conferring any right on Licensee or its Affiliates to use in advertising,
publicity, or other promotional activities any name, trade name, trademark, or
other designation of The Regents (including contraction, abbreviation or
simulation of any of the foregoing). Unless required by law, the use by Licensee
of the name, "The Regents of the University of California" or the use by
Licensee of the name of "The University of California" or any campus of the
University of California is expressly prohibited and Licensee shall not use such
names in any manner without The Regents' prior written consent.
14. LIMITED WARRANTY
--------------------
14.1 Except as otherwise provided in this Article and except for the
licenses to the United States Government under 35 U.S.C. 200 et seq., The
Regents warrants to Licensee that it has the lawful right to grant this license
and has not granted any previous express licenses on or to The Regents' Patent
Rights. To the best of the knowledge of The Regents' Manager of Health Care
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Licensing, The Regents has granted no express or implied licenses to Regents'
Patent Rights or Regents' Technology.
14.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS OR REGENTS TECHNOLOGY WILL NOT
INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
14.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
MANUFACTURE, SALE OR USE OF THE INVENTION OR LICENSED PRODUCTS OR LICENSED
METHODS OR REGENTS' TECHNOLOGY.
14.4 Nothing in this Agreement shall be construed as:
(14.4.1) a warranty or representation by The Regents as to the
validity or scope of any Regents' Patent Rights; or
(14.4.2) a warranty or representation that anything made,
used, sold or otherwise disposed of under any license
granted in this Agreement is or will be free from
infringement of patents of third parties; or
(14.4.3) an obligation to bring or prosecute actions or suits
against third parties for patent infringement except
as provided in Article 17; or
(14.4.4) conferring by implication, estoppel or otherwise any
license or rights under any patents or other property
rights of The Regents other than Regents' Patent
Rights, Licensed Methods and Regents' Technology
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as defined herein, regardless of whether such patents
are dominant or subordinate to Regents' Patent
Rights; or
(14.4.5) an obligation to furnish any information not provided
in Regents' Patent Rights or Regents' Technology (as
delivered to Licensee prior to the effective date of
this Agreement or under the Research Agreements or
pursuant to Section 2.4 of this Agreement).
15. PATENT PROSECUTION AND MAINTENANCE
--------------------------------------
15.1 The Regents shall diligently prosecute and maintain the United
States patents comprising Regents' Patent Rights using counsel of its choice.
The Regents' counsel shall take instructions only from The Regents. The Regents
shall provide Licensee with copies of all relevant documentation so that
Licensee may be informed and apprised of the continuing prosecution. Licensee
shall keep said documentation confidential in accordance with Article 28.
15.2 The Regents shall use reasonable efforts to amend any patent
application to include claims reasonably requested by Licensee to protect the
products contemplated to be sold under this Agreement.
15.3 The Regents shall cooperate with Licensee in applying for an
extension of the term of any patent included within Regents' Patent Rights if
appropriate under the Drug Price Competition and Patent Term Restoration Act of
1984. Licensee shall prepare all such documents, and The Regents agrees to
execute such documents and to take such additional action as Licensee may
reasonably request in connection therewith.
15.4 All past, present, and future costs of preparing, filing,
prosecuting, defending and maintaining all United States patent applications
and/or patents, including interferences and
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opposition, and all corresponding foreign patent applications and patents
covered by Regents' Patent Rights shall be borne by Licensee. Such costs include
patent prosecution costs for this Invention incurred by The Regents prior to the
execution of this Agreement of approximately $49,652.99 based on information
currently available to The Regents, which amount shall be due within thirty (30)
days of the execution of this Agreement. Current and future costs for patent
prosecution and maintenance shall be billed to Licensee by The Regents as
incurred and shall be payable within thirty (30) days of the billing date. The
Regents shall use reasonable efforts to deliver all billings to Licensee no
later than five (5) days after the start of such thirty (30) day period.
15.5 The Regents shall, at the request of Licensee, file, prosecute,
and maintain patent applications and patents covered by Regents' Patent Rights
in foreign countries if available. Licensee consents to the filing of all PCT
and foreign patent applications that have already been filed as of the effective
date of this Agreement. Licensee shall notify The Regents within seven (7)
months of the filing of the corresponding United States application of its
decision to obtain all other foreign patents. Such notice shall be in writing,
and shall identify the countries desired. The absence of such a notice from
Licensee shall be considered by The Regents to be an election not to request
foreign rights.
15.6 The preparation, filing and prosecuting of all foreign patent
applications filed at Licensee's request, as well as the defense and maintenance
of all resulting patents, shall be at the sole expense of Licensee. Such patents
shall be held in the name of The Regents and shall be obtained using counsel of
The Regents' choice.
15.7 Licensee's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect, provided,
however, that Licensee may terminate its
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obligations with respect to any given patent application or patent upon three
(3) months written notice to The Regents. The Regents shall use its best efforts
to curtail patent cost when such a notice is received from Licensee. Licensee
shall promptly pay patent costs which cannot be so curtailed. Commencing on the
effective date of the notice, The Regents may continue prosecution and/or
maintenance of such applications(s) or patent(s) at its sole discretion and
expense, and Licensee shall have no further rights or licenses thereunder.
15.8 The Regents shall have the right to file patent applications at
its own expense in any country or countries in which Licensee has not elected to
secure patent rights or in which Licensee's patent rights hereunder have
terminated, and such applications and resultant patents shall not be subject to
this Agreement and may be freely licensed by The Regents to others together with
Regents' Technology for such country or countries. In the event The Regents has
filed a patent application at its own expense in a country hereunder other than
a Major Market Country, a member of the European Economic Community or EFTA, or
the United States, and in the event The Regents wishes to grant a license for
Licensed Products for such country to another licensee, The Regents shall first
offer to relicense Licensed Products for each country to Licensee on the more
favorable (to The Regents) of (a) the terms and conditions of this Agreement, or
(b) the terms and conditions offered by the other potential licensee. Licensee
shall have thirty (30) days to accept such offer. If such offer is accepted,
Licensee shall pay to The Regents a relicensing fee of four (4) times its cost
of obtaining patent rights in such country or Twenty Thousand Dollars ($20,000)
whichever is greater.
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16. PATENT MARKING
------------------
16.1 Licensee shall mark all Licensed Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
17. PATENT INFRINGEMENT
-----------------------
17.1 In the event that Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, Licensee shall call
The Regents' attention thereto in writing and shall provide The Regents with
reasonable evidence of such infringement. Both parties to this Agreement agree
that during the period and in a jurisdiction where Licensee has exclusive rights
under this Agreement, neither will notify a third party of the infringement of
any of Regents' Patent Rights without first obtaining consent of the other
party, which consent shall not be unreasonably withheld. Both parties shall use
reasonable efforts in cooperation with each other to terminate such infringement
without litigation.
17.2 Licensee may request that The Regents take legal action against
the infringement of Regents' Patent Rights. Such request shall be made in
writing and shall include reasonable evidence of such infringement and damages
to Licensee. If the infringing activity has not been abated within ninety (90)
days following the effective date of such request, The Regents shall have the
right to:
a) commence suit on its own account; or
b) refuse to participate in such suit,
and The Regents shall give notice of its election in writing to Licensee by the
end of the one hundredth (100th) day after receiving notice of such request from
Licensee. In the event The Regents elects to bring suit in accordance with this
paragraph, Licensee may thereafter join such suit at its own expense. Licensee
may thereafter bring suit-for patent infringement if and only if The Regents
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elects not to commence suit and if the infringement occurred during the period
and in a jurisdiction where Licensee had exclusive rights under this Agreement.
However, in the event Licensee elects to bring suit in accordance with this
paragraph, The Regents may thereafter join such suit at its own expense.
17.3 Such legal action as is decided upon shall be at the expense of
the party on account of when suit is brought and all recoveries recovered
thereby shall belong to such party, provided, however, that legal action brought
jointly by The Regents and Licensee and participated in by both shall be at the
joint expense of the parties and all recoveries shall be shared jointly by them
in proportion to the share of expense paid by each party.
17.4 Each party shall cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit, except that either party may be represented by counsel of its choice
in any suit brought by the other party, at the expense of the party choosing
representation by separate counsel.
18. INDEMNIFICATION
-------------------
18.1 Licensee shall (and shall require its sublicensees to) indemnify,
hold harmless and defend The Regents, its officers, employees, and agents, the
sponsors of the research that led to the Invention, and the Inventors against
any and all claims, suits, losses, liabilities, damages, costs, fees, and
expenses resulting from or arising out of exercise of this license or any
sublicense. This indemnification includes, but is not limited to, all product
liability.
18.2 Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement and obtain, keep in
force and maintain Comprehensive or Commercial
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Form General Liability Insurance (contractual liability included), or an
equivalent program of self insurance, with limits as follows:
(a) Each Occurrence $1,000,000
(b) Products/Completed Operations Aggregate $5,000,000
(c) Personal and Advertising Injury $1,000,000
(d) General Aggregate (commercial form only $5,000,000
It is expressly understood, however, that the coverages and limits
referred to under the above shall not in any way limit the liability of
Licensee. Licensee shall furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates shall:
(18.2.1) Provide for thirty (30) day advance written notice to
The Regents of a modification.
(18.2.2) Indicate that The Regents has been endorsed as an
additional insured under the coverages referred to
under the above.
18.3 The Regents shall promptly notify Licensee in writing of any claim
or suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 18. Licensee shall keep The Regents
informed on a current basis of its defense of any claims pursuant to this
Article 18.
19. NOTICES
-----------
19.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to such other address as it shall designate by written notice given to
the other party.
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<PAGE>
In the case of Licensee: MGI PHARMA, INC.
300 E Opus Center
9900 Bren Road East
Minneapolis, MN 55343-9667
Attention: Vice President - General Counsel
In the case of The Regents: THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: Assistant Director, Office of Technology
Transfer
Referring to: UC Case No. 88-196
20. ASSIGNABILITY
-----------------
20.1 This Agreement is binding upon and shall inure to the benefit of
The Regents, its successors and assigns, but shall be personal to Licensee and
assignable by Licensee only with the written consent of The Regents, which
consent shall not be unreasonably withheld, or without the written consent of
The Regents to a purchaser of substantially all of the pharmaceutical business
of Licensee.
21. LATE PAYMENTS
-----------------
21.1 In the event royalty payments or -fees -or patent, cost
reimbursements are not received by The Regents when due, Licensee shall pay to
The Regents interest charges at a rate of ten (10) percent compounded per annum.
Such interest shall be calculated from the date payment was due until actually
received by The Regents.
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<PAGE>
22. WAIVER
----------
22.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
23. FAILURE TO PERFORM
----------------------
23.1 In the even of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
24. GOVERNING LAWS
------------------
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of such patent or patent application.
25. PREFERENCE FOR UNITED STATES INDUSTRY
-----------------------------------------
25.1 Because this Agreement grants the exclusive right to use or sell
the Invention in the United States, Licensee agrees that any products embodying
this Invention or product through the use thereof, which are intended to be used
or sold in the United States, will be manufactured substantially in the United
States.
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<PAGE>
26. FOREIGN GOVERNMENT APPROVAL AND REGISTRATION
------------------------------------------------
26.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee shall assume all legal obligations to do so and the costs in
connection therewith.
27. EXPORT CONTROL LAWS
-----------------------
27.1 Licensee shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products and related technical
data to foreign countries, including, without limitation, the International
Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.
28. CONFIDENTIALITY
-------------------
28.1 Licensee shall not use Data except for the sole purpose of
performing under the terms of this Agreement; shall safeguard Data against
disclosure to others with the same degree of care as it exercises with its own
data of a similar nature; and shall not disclose Data to others (except to its
employees, agents or consultants, Affiliates or sublicensees who are bound to
Licensee by a like obligation of confidentiality) without the express written
permission of The Regents, except that Licensee shall not be prevented from
using or disclosing any of the Data:
(28.1.1) which Licensee can demonstrate by written
records was previously known to it;
(28.1.2) which is now, or becomes in the future, information
generally available to the public in the form
supplied, other than through acts or omissions of
Licensee;
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<PAGE>
(28.1.3) which is lawfully obtained by Licensee from sources
independent of The Regents; and
(28.1.4) whose use or disclosure is required by law (including
requirements of government regulatory authorities).
The obligations of Licensee under this Section 28.1 shall continue for a period
ending the later of (i) five (5) years from the early termination of this
Agreement in its entirety or (ii) the expiration date of this Agreement in its
entirety provided The Regents has not given written notice to Licensee within
ninety (90) days after such expiration that Licensee is in default of its
obligations under this Agreement.
29. INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT
-------------------------------------------------
29.1 In the event either party receives notice pertaining to any patent
included within Regents' Patent Rights pursuant to the Drug Price Competition
and Patent Term Restoration Act of 1984, (Public Law 98-417, hereinafter, "the
Act") including but not necessarily limited to notices pursuant to Sections 101
and 103 of the Act from persons who have filed an Abbreviated New Drug
Application ("ANDA") or a "paper" New Drug Application, ("paper NDA"), or in the
case of an infringement of Regents' Patent Rights as defined in Section 271(e)
of Title 35 of the United States Code, such party shall notify the other party
promptly but in no event later than ten (10) days after receipt of such notice.
29.2 If Licensee wishes action to be taken against such infringement,
as provided in the Act, Licensee shall request such action by written notice to
The Regents. Within thirty (30) days of receiving said request, The Regents will
give written notice to Licensee of its election to:
(29.2.1) commence suit on its own account; or
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<PAGE>
(29.2.2) refuse to participate in such suit.
In the event The Regents elects to bring suit in accordance with this paragraph,
Licensee may thereafter join such suit at its own expense. Licensee may
thereafter bring suit for patent infringement as provided by the Act if and only
if The Regents elects not to commence suit and if the infringement occurred
during the period that Licensee had exclusive rights in the United States under
this Agreement. However, in the event Licensee elects to bring suit in
accordance with this paragraph, The Regents may thereafter join such suit at its
own expense.
29.3 The provisions of paragraphs 17.3 and 17.4 shall likewise apply to
any legal action brought under this Article 29.
29.4 The Regents hereby authorizes Licensee to include in any NDA for a
Licensed Product, a list of patents included within Regents' Patent Rights
identifying The Regents as patent owner.
30. MISCELLANEOUS
-----------------
30.1 The headings of the several articles are inserted for convenience
of reference only and are not intended to a part of or to affect the meaning or
interpretation of this Agreement.
30.2 This Agreement shall not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
30.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
30.4 This Agreement and the option agreement referred to in Section 4.4
hereof and the Research Agreements referred to in Section 9.3 hereof embody the
entire understanding of the parties and shall supersede all previous
communications, representations or understandings, either oral or
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<PAGE>
written, between the parties relating to the subject matter hereof. The Secrecy
Agreement is hereby terminated. In the event of an inconsistency between this
Agreement and the Research Agreements, this Agreement shall prevail.
30.5 In case any of the provisions contained in this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
IN WITNESS WHEREOF, both The Regents and Licensee have executed this
Agreement (which includes Exhibits A and B attached hereto), in duplicate
originals, by their duly authorized representatives, on the day and year
hereinafter written.
MGI PHARMA, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ Charles C. Muscoplat By: /s/ William T. Davis
------------------------------ -----------------------------
Name: Charles C. Muscoplat Name: William T. Davis
Title: Executive Vice President, Title: Associate Director
New Business Office of Technology Transfer
Date: 8/31/93 Date: 8/31/93
---------------------------- ---------------------------
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<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
MGI PHARMA, INC.
This Agreement is made this ___ day of August, 1993, by and between MGI
PHARMA, INC., a Minnesota corporation (the "Company"), and THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA ("Optionee").
WHEREAS, the Company and Optionee have entered into an Exclusive License
Agreement for Method of Treating Tumors Using Illudin Analogs (U.C. Case No.
88-196-1,-2,-3) dated as of the date hereof (the "License Agreement"); and
WHEREAS, pursuant to the License Agreement, Optionee is entitled to receive
options to purchase shares of common stock, $.01 par value per share (the
"Common Stock"), of the Company upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants Optionee the right and option
(the "Option") to purchase all or any part of an aggregate of *** shares of
Common Stock on the terms and conditions set forth in this Agreement.
2. Vesting of Exercise Rights. Subject to the terms and conditions of this
Agreement, the Option granted hereby shall become vested and exercisable at
option exercise prices, subject to adjustments as noted below (the "option
exercise price"), as follows:
(a) Options to purchase *** shares of Common Stock will vest and
become immediately exercisable as of the date of this Agreement at an
option exercise price per share equal to the dosing price of the Common
Stock as reported on the NASDAQ National Market System on the date of this
Agreement.
(b) Options to purchase *** shares of Common Stock will vest and
become exercisable in installments of options to purchase *** shares of
Common Stock, commencing on the first anniversary of the date of this
Agreement and continuing on each anniversary thereafter until all such
options have vested. Such options will be exercisable at the option
exercise price per share equal to the sum of (i) the closing price of the
Common Stock as reported on the NASDAQ National Market System on the date
of Agreement and (ii) ***.
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
A-1
<PAGE>
(c) Except as otherwise set forth below, options to purchase ***
shares of Common Stock will vest and become exercisable upon the earlier of
G) the date on which a new drug application is filed with the United States
Food and Drug Administration ("FDA") in accordance with the provisions of
the License Agreement or (ii) ***. Such options will be exercisable at an
option exercise price per share equal to the lesser of (i) *** or (ii) the
closing price of the Common Stock as reported on the NASDAQ National Market
System on the date which is three years after the date of this Agreement.
(d) Except as otherwise set forth below, options to purchase ***
shares of Common Stock will vest and become exercisable upon the date of
receipt of final marketing approval in the United States (as determined in
accordance with the License Agreement). Such options will be exercisable at
an option exercise price per share equal to the lesser of (i) *** or (ii)
the closing price of the Common Stock as reported on the NASDAQ National
Market System on the date which is five years after the date of this
Agreement.
Notwithstanding, the vesting schedule set forth in (c) and (d) above, in
the event that there are NDA equivalent submissions or final marketing approvals
in any Major Market Countries (as such terms are used in the License Agreement)
prior to an NDA submission or final marketing approval in the United States and
the Company is obligated to pay the Regents Milestone Payment Fees (as such term
is defined in the License Agreement) under the License Agreement, (i) the
options described in (c) above shall vest and become exercisable in
installments of options to purchase *** shares of Common Stock upon the
submission of an NDA equivalent in each Major Market Country, and (ii) the
options described in (d) above shall vest and become exercisable in installments
of options to purchase *** shares of Common Stock upon the receipt of final
marketing approvals in each Major Market Country; provided, however, that if at
any time there is an NDA submission or receipt of final marketing approval in
the United States all options described in (c) and (d) above shall-vest and
become exercisable in full as described in (c) and (d) above.
3. Termination of Vesting; Termination of Options.
(a) Notwithstanding the vesting provisions contained in Section 2
hereof, none of the options described in such Section 2 shall continue to
vest upon the earlier of (i) termination of the License Agreement and (ii)
fifteen (15) years from the date of this Agreement.
(b) Upon vesting in full of the respective options described in
Section 2 hereof (and subject to the provisions of Section 3(a) hereof),
Optionee agrees to exercise such options no later than the date which is
fifteen (15) years from the date of this Agreement. If Optionee shall fail
to exercise such options within the time period set forth in this Section
3(b), such options shall terminate and be of no further force and effect.
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
A-2
<PAGE>
4. Method of Exercise of Option. Subject to the foregoing, the Option may
be exercised, in whole or in part, by written notice of exercise delivered to
the Company at least twenty (20) days prior to the intended date of exercise at
the principal office of the Company and upon payment to it by cash, certified
check or ,bank draft of the option exercise price for such shares. The shares so
purchased shall be deemed to be issued as of the later of (i) the close of
business on the date of exercise set forth in the notice of exercise or (ii) the
date of payment to the Company of the applicable option exercise price.
Certificates for the shares of stock so purchased, bearing the restrictive
legend set forth at the end of this Agreement, shall be delivered to the holder
within fifteen (15) days after options shall have been exercised.
5. Nonassessability/Reservation for Issuance. The Company covenants and
agrees that all shares that may be issued upon exercise of the Option shall,
upon issuance, be duly authorized and issued, fully paid and nonassessable
shares. The Company further covenants and agrees that the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the Option, a sufficient number of shares of its Common Stock.
6. Anti-Dilution Provisions. The option exercise price shall be subject to
adjustment from time to time as hereinafter provided in this Section 6.
(a) If the Company at any time divides the outstanding shares of its
Common Stock into a greater number of shares (whether pursuant to a stock
split, stock dividend or otherwise), and conversely, if the outstanding
shares of its Common Stock are combined into a smaller number of shares,
the option exercise price in effect immediately prior to such division or
combination shall be proportionately adjusted to reflect the reduction or
increase in the value of each such common share.
(b) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for such common shares, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale,
Optionee shall have the right to purchase and receive upon the basis and
upon the terms and conditions specified in this Agreement and in lieu of
the shares of the Common Stock immediately theretofore purchasable and
receivable upon the exercise of the Option, such shares of stock, other
securities or assets as would have been issued or delivered to Optionee if
it had exercised the Option and had received such shares of Common Stock
prior to such reorganization, reclassification, consolidation, merger or
sale. The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and mailed to Optionee at the last address of Optionee appearing
on the books of the
A-3
<PAGE>
Company, the obligation to deliver to Optionee such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
Optionee may be entitled to purchase.
(c) If the Company takes any other action, or if any other event
occurs, which does not come within the scope of the provisions of Section
6(a) or 6(b), but which should result in an adjustment in the option
exercise price and/or the number of shares subject to the Option in order
to fairly protect the rights of Optionee, an appropriate adjustment shall
be made by the Company.
(d) Upon each adjustment of the option exercise price, Optionee shall
thereafter be entitled to purchase, at the option exercise price resulting
from such adjustment, the number of shares obtained by multiplying the
option exercise price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the option exercise price
resulting from such adjustment.
(e) Upon any adjustment of the option exercise price, the Company
shall give written notice thereof, by first class mail, postage prepaid,
addressed to Optionee at the last address of Optionee as shown on the books
of the Company, which notice shall state the option exercise price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of the Option,
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
7. No Rights as a Shareholder. Optionee shall have no rights as a
shareholder with respect to shares covered by the Option until the date of the
issuance of a stock certificate therefor following due and proper exercise of
such Option.
8. Restrictions on Transfer.
(a) Optionee, by acceptance hereof, agrees to give written notice to
the Company before transferring this Option or transferring any shares of
the Common Stock issuable or issued upon the exercise of this Option of
Optionee's intention to do so, describing briefly the manner of any
proposed transfer of the Option represented hereby or Optionee's intention
as to the shares of Common Stock issuable upon the exercise hereof or the
intended disposition to be made of shares of Common Stock upon such
exercise. Promptly upon receiving such written notice, the Company shall
present copies thereof to counsel for the Company. If, in the opinion of
such counsel, the proposed transfer of the Option represented hereby or
disposition of shares may be effected without registration or qualification
(under any federal or state law) of the Option or the shares of Common
Stock issuable or issued upon the exercise hereof, the Company, as promptly
as practicable, shall notify Optionee of such opinion, whereupon Optionee
shall be entitled to transfer the Option, or to exercise the Option in
accordance with its terms and dispose
A-4
<PAGE>
of the shares received upon such exercise or to dispose of shares of Common
Stock received upon the previous exercise of the Option, all in accordance
with the terms of the notice delivered by Optionee to the Company, provided
that an appropriate legend in substantially the form set forth at the end
of this Agreement respecting the foregoing restrictions on transfer and
disposition may be endorsed on this Agreement or the certificates for such
shares.
(b) Subject to the provisions of Section 8(a), this Agreement and all
rights hereunder are transferable, in whole or in part, at the principal
office of the Company by Optionee in person or by duly authorized attorney,
upon surrender of this Agreement properly endorsed to any person or entity
who represents in writing that he/it is acquiring the Option represented
hereby for investment and without any view to the sale or other
distribution thereof. Each holder of the Option represented hereby, by
taking or holding the same, consents and agrees that the bearer of this
Agreement, when endorsed, may be treated by the Company and all other
persons dealing with this Agreement as the absolute owner hereof for any
purpose and as the person entitled to exercise the Option, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may
treat the registered owner hereof as the owner for all purposes.
(c) Notwithstanding the provisions of Sections 8(a) and (b) hereof,
Optionee intends to transfer certain options granted hereunder to the
Inventors (as that term is defined under the License Agreement), in
accordance with Optionee's Patent Policy. The Company waives the
requirements of Sections 8(a) and (b) hereof only with respect to the
transfer of options to the Inventors as outlined in this Section 8(c).
(d) Shares of the Company's Common Stock are presently traded on. the
NASDAQ National Market System, and, at the time of the signing of this
Agreement, the Company satisfies the requirements of Rule 144 ("Rule 144")
of the Securities Act of 1933, as amended (the "Securities Act"), so as to
enable Common Stock of the Company to be sold under the provisions of Rule
144. The Company agrees to make all efforts to continue to meet the
requirements of Rule 144 or any successor or equivalent thereto promulgated
by the Securities and Exchange Commission (the Commission").
9. Registration Rights.
(a) If the Company receives a request signed by the holders, in the
aggregate, of at least 50% of the shares of Common Stock issued or issuable
upon exercise of the Option (all such persons making such request being
hereinafter referred to in this Section 9 as the "Requesting Holders")
stating that such Requesting Holders desire to have (i) a specified number
of the shares of Common Stock issued or issuable upon exercise of the
Option and/or (ii) except as otherwise provided below, the shares of the
Common Stock (including, without limitation, any greater number of shares
of Common Stock issued
A-5
<PAGE>
pursuant to a stock split, stock dividend or otherwise with respect to such
shares) issued to Optionee pursuant to the License Agreement (the
"Restricted Shares" and together with the shares issued or issuable upon
exercise of the Option, the "Demand Shares") registered under the
Securities Act on Form S-3 or any successor or equivalent thereto adopted
under the Securities Act ("Form S-3"), the Company shall, as soon as
practicable (and in no event later than nine (9) months from the date that
the Company receives the request from the Requesting Holders), use its best
efforts to file a registration statement on Form S-3 under the Securities
Act covering such Demand Shares and the proposed sale or distribution
referred to in such notice and to cause such registration to become
effective under the Securities Act as soon as practicable after the filing
thereof. If the Company shall have begun the process of registering shares
of its Common Stock prior to receipt of the request of the Requesting
Holders pursuant to this Section 9, the Company, in its sole reasonable
discretion, shall determine whether such Demand Shares shall be included as
a part of such offering. If the Company determines that such Demand Shares
shall not be included in such offering, then the holders of such Demand
Shares shall not be deemed to have exercised the right to require the
Company to register the Demand Shares pursuant to this Section 9.
In the event the Company determines to include unissued shares in any
public offering pursuant to a registration statement initiated by Requesting
Holders and in the good faith judgment of the managing underwriter of such
public offering (if applicable), the inclusion of such securities would
interfere with the successful marketing of the Demand Shares or require the
exclusion of any portion of the Demand Shares to be registered, the Company
shall include first the securities of the Requesting Holders and then any
unissued shares. The Company shall be obligated to prepare and file no more than
one registration statement pursuant to this Section 9.
In the event that the holders of a majority of the Demand Shares for which
registration has been requested pursuant to this Section 9 determine for any
reason not to proceed with a public distribution or sale at any time before the
Form S-3 covering the Demand Shares to be sold publicly has been declared
effective by the Commission, and such Form S-3, if theretofore filed with the
Commission, is withdrawn with respect to the Demand Shares covered thereby, and
the holders of such Demand Shares agree to bear their own expenses incurred in
connection therewith and to reimburse the Company for the expenses incurred by
it attributable to the registration of such Demand Shares, then the holders of
such shares shall not be deemed to have exercised the right to require the
Company to register Demand Shares pursuant to this Section 9. If a registration
statement filed by the Company at the request of Requesting Holders pursuant to
this Section 9 is (i) withdrawn at the initiative of the Company or (ii) is not
declared effective by the Commission within three (3) months of the filing of
the registration statement with the Commission, then the holders of Demand
Shares shall not be deemed to have exercised the right to require the Company to
register Demand Shares pursuant to this Section 9. The right of the Requesting
Holders to request a registration of the Restricted Shares pursuant to this
Section 9 shall not apply provided that the Company shall deliver an opinion of
its counsel that
A-6
<PAGE>
all of the Restricted Shares which such Requesting Holders proposes to sell may
lawfully be sold or distributed publicly without registration under Rule 144.
The managing underwriter, if any, of an offering registered pursuant to
this Section 9 shall be selected by the Company and shall be reasonably
acceptable to the Requesting Holders.
(b) in connection with any registration of Demand Shares under the
Securities Act pursuant to this Section 9, the Company will furnish each
Requesting Holder whose Demand Shares are registered thereunder with a copy
of the registration statement and all amendments thereto and will supply
each such Holder with copies of any prospectus included therein (including
a preliminary prospectus and all amendments and supplements thereto), in
such quantities as may be reasonably necessary for the purposes of the
proposed sale or distribution covered by such registration. In connection
with any such registration of Demand Shares, the Company will, at the
request of the managing underwriters with respect thereto (if applicable),
use its best efforts to qualify such registered shares for sale under the
securities of "blue sky" laws of such states as is reasonably required to
permit the distribution of such registered shares; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereof to qualify to do business in any state where it is not then
qualified or to take any action that would subject it to tax or to the
general service of process in any state where it is not then subject.
If at any time during the effectiveness of the registration statement, the
Company determines, after consulting with its legal counsel, that the latest
prospectus provided to the Requesting Holders fails or may fail to comply with
the requirements of the Securities Act or any rule promulgated thereunder and
such non-compliance could result in liability to the Company or the Requesting
Holders, the Company shall notify the Holders who have not then sold all of
their shares included in the registration not to use the prospectus until such
time (not later than 30 days from the date of such notice) as the Company
prepares and delivers a prospectus that is not defective (or files any document
that is incorporated by reference in the existing prospectus). During such
period, the Company shall instruct its transfer agent to impose stop-transfer
notices on the Company's Common Stock transfer books.
(c) Except as otherwise required by state securities or "blue sky"
laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by the Company in connection with carrying
out its obligations under this Section 9 shall be borne by the Company;
provided, however, that each Requesting Holder shall pay (i) the filing fee
required to be paid under the Securities Act at the time of filing the
registration statement with respect to the Demand Shares (as of the date of
this Agreement, such fee is equal to 1/32 of 1% of the maximum aggregate
price at which the Demand Shares are proposed to be offered), (ii) all
costs and expenses of counsel for
A-7
<PAGE>
the Holder and (iii) all underwriting discounts, commissions, as the case
may be, and all transfer fees with respect to the sale of the Demand Shares
by the Requesting Holders.
10. Waiver. Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
A-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MGI PHARMA, INC.
By
---------------------------------
Kenneth F. Tempero
its Chairman and Chief Financial
Officer
THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By
---------------------------------
A-9
<PAGE>
RESTRICTION ON TRANSFER
The security evidenced hereby has not been registered under the Securities
Act of 1933 or any state securities laws and may not be sold, transferred,
assigned, offered, pledged or otherwise distributed for value unless there is an
effective registration statement under such act or laws covering such security
or the Company receives an opinion of counsel for the holder of this security
(concurred in by counsel for the Company) stating that such sale, transfer,
assignment, pledge or distribution is exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933 and all
applicable state securities laws.
A-10
<PAGE>
OPTION EXERCISE
(To be signed only upon exercise of Option)
The undersigned, the holder of the options represented by the foregoing
agreement, hereby irrevocably elects to exercise options to purchase _____ of
the shares of common stock of MGI PHARMA, INC., and herewith makes payment of
$________ therefor in cash or by check and requests that the certificates for
such shares be issued in the name of, and be delivered to ________, whose
address is set forth below the signature of the undersigned.
Dated: _____________
---------------------------------
---------------------------------
---------------------------------
(Name and Address of Transferee)
A-11
<PAGE>
OPTION ASSIGNMENT
(To be signed only upon transfer of Option)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________ the right represented by the foregoing Agreement to purchase the
shares of Common Stock of MGI PHARMA, INC., issuable upon the exercise of the
options to which the Agreement relates and appoints _______________________
attorney to transfer such right on the books of MGI PHARMA, INC., with full
power of substitution in the premises.
Dated: _____________
---------------------------------
---------------------------------
---------------------------------
(Name and Address of Transferee)
A-12
<PAGE>
EXHIBIT B
[Graph of Approximate Drug Development
Schedule for Illudin Analogs ***]
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
B-1
<PAGE>
Exhibit 11
Computation of Net Income (Loss) Per Common Share
MGI PHARMA, INC.
(Unaudited)
The following information is required in computations of basic and diluted loss
per common share in each year ended December 31:
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------- ----------- -----------
Net income (loss) $ 414,287 $(1,784,545) $(6,621,747)
Common shares:
Basic 14,367,627 14,116,471 13,178,790
Assuming dilution 14,966,112 14,116,471 13,178,790
Net income (loss) per common share:
Basic $ 0.03 $ (0.13) $ (0.50)
Assuming dilution $ 0.03 $ (0.13) $ (0.50)
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
MGI PHARMA, INC.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-13785, 33-23098, 33-23099, 33-42341, 33-65026, 33-79024 and 33-38453) on Form
S-8 of MGI PHARMA, INC. of our reports dated February 5, 1999, relating to the
balance sheets of MGI PHARMA, INC. as of December 31, 1998 and 1997, and the
related statements of operations, cash flows, stockholders' equity and the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1998, which reports are included in or incorporated by
reference in the annual report on Form 10-K of MGI PHARMA, INC.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 30, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Charles N. Blitzer and Lori-jean
Gille, and each of them, his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign an Annual Report
on Form 10- K of MGI PHARMA, INC., and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
- --------- ----- ----
Charles N. Blitzer President, Chief Executive March 9, 1999
Officer and Director (principal
executive officer)
William C. Brown Vice President, Finance March 19, 1999
(principal financial and
accounting officer)
Andrew J. Ferrara Director March 9, 1999
Joseph S. Frelinghuysen Director March 9, 1999
Michael E. Hanson Director March 9, 1999
Hugh E. Miller Director March 9, 1999
Timothy G. Rothwell Director March 9, 1999
Lee J. Schroeder Director March 9, 1999
Arthur Weaver, M.D. Director March 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEET OF MGI PHARMA, INC. AS OF DECEMBER 31, 1998, AND THE
RELATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,513,204
<SECURITIES> 10,568,061
<RECEIVABLES> 1,410,539
<ALLOWANCES> 97,960
<INVENTORY> 1,285,368
<CURRENT-ASSETS> 20,107,125
<PP&E> 540,084
<DEPRECIATION> 1,062,405
<TOTAL-ASSETS> 21,122,068
<CURRENT-LIABILITIES> 4,011,400
<BONDS> 0
0
0
<COMMON> 17,110,668
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,122,068
<SALES> 12,944,620
<TOTAL-REVENUES> 17,643,510
<CGS> 938,628
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,301,578
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 414,287
<INCOME-TAX> 0
<INCOME-CONTINUING> 414,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,287
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<PAGE>
Exhibit 99
MGI PHARMA, INC.
Annual Report on Form 10-K
December 31, 1998
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for the forward-looking statements to encourage companies to provide
prospective information without fear of litigation so long as those statements
are identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. The company desires to
take advantage of these new "safe harbor" provisions and is filing this Exhibit
99 in order to do so. Accordingly, the company hereby identifies the following
important factors which could cause the company's actual results to differ
materially from any such results which may be projected, forecast, estimated or
budgeted by the company in forward-looking statements made by the company from
time to time in reports, proxy statements, registration statements and other
written communications, or in oral forward-looking statements made from time to
time by the company's officers and agents.
We have a history of losses and may not be profitable in the future.
For many years, our revenues have not been sufficient to offset all of our
expenses. We had a net income of $414,287 for 1998 and a net loss of
approximately $1.8 million for 1997. We have had net losses in previous years.
At December 31, 1998, we had an accumulated deficit of approximately $73.8
million. Our profitability in the future will depend on many factors, including:
* our ability to increase sales of Salagen Tablets,
* the level of investment required to conduct Phase II and III trials
and commercialize MGI 114, and
* the costs incurred and revenues generated in bringing any newly
acquired products to market.
The development of MGI 114 is expected to require a substantial increase in our
research and development expenditures. There is a risk that we will not be able
to achieve profitability in 1999 or sustain profitability thereafter.
Substantially all of our product revenues come from Salagen Tablets.
We derive substantially all of our product revenues from the sale of
Salagen Tablets. In 1998, our U.S. sales of Salagen Tablets were $12.3 million,
representing 95 percent of our total product sales and 70 percent of our total
revenue in 1998. Any factor adversely affecting sales of Salagen Tablets could
have a material adverse effect on our business, financial condition and results
of operations. One such factor could be the expiration in March 2001 of orphan
drug protection for Salagen Tablets as a treatment for the
1
<PAGE>
symptoms of radiation induced xerostomia in head and neck cancer patients. We
anticipate that sales of our other product, Didronel I.V. Infusion, will
continue to represent a minor portion of total product sales.
Our future success depends on our ability to identify and acquire new products.
Our future success depends on our ability to identify and acquire new
products targeted at niche markets that we can promote through our marketing and
distribution channels. Because we do not engage in basic research or drug
discovery, we must rely upon the willingness of others to sell or license
product opportunities to us. Other companies, including some with substantially
greater financial, marketing and sales resources, are competing with us to
acquire such products. We may not be able to acquire rights to additional
products on acceptable terms, if at all. If we fail to acquire additional
products or fail to promote or market commercially successful products, our
future business, financial condition and results of operations would be
materially and adversely affected. In addition, the marketing strategy,
distribution channels and bases of competition of newly acquired products may be
different than those of our current products. There is a risk that we will not
be able to compete favorably in those product categories.
We depend on foreign partners to sell our products outside of the United States.
Our strategy for deriving revenues from sales of our products in foreign
markets is to enter into marketing alliances with multinational and foreign
pharmaceutical companies. We have entered into alliances with various companies
related to the marketing of Salagen Tablets in foreign markets. We have entered
into an agreement with Dainippon for the development and commercialization of
MGI 114 in Japan. We are seeking a development and commercialization partner for
MGI 114 in Europe. Revenues from strategic alliances typically include milestone
payments and payments based on product sales. Our continued relationships with
strategic partners is dependent in part on the successful achievement of
development milestones. If we or our partners do not achieve these milestones,
or we are unable to enter into agreements with our partners to modify their
terms, our business could be adversely affected.
Licensing revenue from foreign partners was $2.3 million or 13 percent of
total revenues in 1998 and $2.5 million or 19 percent of total revenues in 1997.
Future licensing revenues will likely fluctuate from quarter to quarter and year
to year depending on:
* the achievement of milestones by us or our partners,
* the amount of product sales and royalty generating activities, and
* the timing of initiating additional licensing relationships.
Additionally, royalties are based on sales in foreign currencies. Thus the U.S.
dollar value of such royalties will fluctuate with currency exchange rates.
Although we believe that our partners in these alliances have an economic
motivation to perform their contractual responsibilities, we cannot fully
control the amount and timing of resources they devote to these activities. The
terms of these alliances generally provide that they may be terminated prior to
their expiration under circumstances that may be outside our control. The early
termination of one or more of these strategic alliances could materially and
adversely affect our business, financial condition and results of operations.
There is a risk that we will not be able to negotiate additional strategic
alliances on acceptable terms or that such alliances will not be successful.
2
<PAGE>
We will need additional capital to grow our business.
We may need to raise additional funds for various reasons including the
following:
* to acquire or license additional products,
* to develop products we have acquired,
* to support the marketing and sales of additional products,
* to obtain necessary working capital, and
* to fund operating losses.
We may seek additional funding through public and private financing, including
equity and debt financing. Adequate funds for these purposes may not be
available when needed or on terms acceptable to us. Insufficient funds may cause
us to delay, scale back, or abandon some or all of our product acquisition and
licensing programs and product development programs.
Substantially all of the worldwide supply of the active ingredient in Salagen
Tablets is produced by one company.
We rely on the Fine Chemicals Division of Merck KgaA as our sole and
exclusive supplier of pilocarpine hydrochloride, the active pharmaceutical
ingredient in Salagen Tablets. We believe that Merck KgaA produces substantially
all of the worldwide supply of pharmaceutical grade pilocarpine hydrochloride.
To our knowledge, there is no other producer of pilocarpine hydrochloride with a
significant portion of the worldwide supply. The Company believes the processing
facility and raw material requirements for the production of pilocarpine
hydrochloride would make it difficult for any new producers to enter this
market. Although the company might be able to procure adequate supplies of
pilocarpine hydrochloride from an alternate source, we have not identified or
qualified such a source. A disruption in our supply of pilocarpine hydrochloride
from Merck KgaA could have a material adverse effect on our business, financial
condition and results of operations.
We have no manufacturing facility. We depend on third-party manufacturers to
produce Salagen Tablets.
We do not have manufacturing facilities and we rely on one third-party
manufacturer for the production of Salagen Tablets. We intend to continue to
rely on others to manufacture our products, including any products that we may
acquire, and we have no plans to establish manufacturing facilities. Manufacture
of our products is subject to "good manufacturing practices" regulations,
prescribed by the U.S. Food and Drug Administration or other standards
prescribed by the appropriate regulatory agency in the country of use. There is
a risk that our current manufacturer of Salagen Tablets will not comply with all
applicable regulatory standards, and that we might not be able to identify
another third-party manufacturer on terms acceptable to us, or any other terms.
MGI 114 may not be safe or effective in humans.
Although we have commenced Phase II human clinical testing of MGI 114,
further research and development, including additional preclinical and extensive
human clinical testing, will be required prior
3
<PAGE>
to submission of a regulatory application for commercial sale of MGI 114. There
is a risk that this research and development will not be successful and will not
result in a product that will qualify for approval by regulatory authorities for
commercial sale. Clinical testing of a pharmaceutical product is subject to
approvals by various governmental regulatory authorities. There is a risk that
domestic and foreign regulatory authorities may not allow us to conduct planned
additional clinical testing of MGI 114. There is also a risk that, if permitted,
such additional clinical testing will not prove that MGI 114 is safe and
effective to the extent necessary to permit us to obtain marketing approvals
from regulatory authorities. In addition, results obtained in preclinical
studies or in Phase I and Phase II human clinical trials are not necessarily
indicative of results that will be obtained in subsequent or more extensive
preclinical or clinical testing.
Clinical trials are complex and unpredictable and may produce unexpected
results.
Before obtaining regulatory approvals for the commercial sale of any
product under development, including MGI 114, we must demonstrate through
preclinical studies and clinical trials that the product is safe and effective
for use in each target indication. The results from preclinical animal studies
and early clinical trials may not be predictive of results that will be obtained
in larger scale testing. There is a risk that clinical trials will not
demonstrate the safety and efficacy of a product. The failure to adequately
demonstrate the safety and efficacy of a therapeutic product could substantially
delay or prevent regulatory approval of the product. There is a risk that
unacceptable toxicities or side effects will occur at any time in the course of
human clinical trials or commercial use of any product. The appearance of
unacceptable toxicities or side effects could interrupt, limit, delay or abort
the development of a product or, if previously approved and launched,
necessitate its withdrawal from the market. A number of companies in the
biotechnology industry have suffered significant setbacks in advanced clinical
trials, even after experiencing promising results in early animal and human
testing. The rate of completion of clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment is a function
of many factors, including:
* the size of the patient population,
* the nature of the protocol or any competing protocol,
* the company's ability to recruit and manage clinical centers and
associated trials,
* the proximity of patients to clinical sites, and
* the eligibility criteria for the study.
Factors, such as unacceptable toxicities and delays in planned patient
enrollment, may result in increased costs and delays or termination of clinical
trials prior to completion. Clinical trials generally must meet requirements for
institutional review board oversight and informed consent, as well as regulatory
agency prior review, oversight and good clinical practice requirements. Even
after being approved by the FDA or foreign regulatory authorities, products may
later exhibit adverse effects that prevent their widespread use or necessitate
their withdrawal from the market. There is always a risk that any product under
development may not be safe when administered to humans.
MGI has fewer resources than most of its competitors.
Competition in the pharmaceutical industry is intense. Most of our
competitors are large, multinational pharmaceutical companies that have
considerably greater financial, sales, marketing and technical resources
4
<PAGE>
than we do. Most of our present and potential competitors also have dedicated
research and development capabilities that may allow them to develop new or
improved products that compete with our products. We are aware of other
pharmaceutical companies which are developing products which, if and when
approved by the FDA, will compete directly with Salagen Tablets in one or both
indications. Our competitors could also develop and introduce generic drugs
comparable to Salagen Tablets, or drugs or other therapies that address the
underlying causes of the symptoms which Salagen Tablets treat. If a product
developed by a competitor is more effective than our product, then our business,
financial condition and results of operations could be materially and adversely
affected.
Our success depends on our ability to keep up with rapid technological changes
in the pharmaceutical industry.
The pharmaceutical industry has experienced rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly. Our future success will depend, in large part, on our ability
to develop and maintain a competitive position. Technological development by
others may result in our products becoming obsolete before they are marketed or
before we recover any of our development and commercialization expenses incurred
with respect to such products. In addition, alternative therapies or new medical
treatments could alter existing treatment regimes, and thereby reduce the need
for one or more of our products, which would materially and adversely affect our
business, financial condition and results of operations.
Intellectual property protection may be difficult to obtain or ineffective. We
may not be able to protect adequately our patents and proprietary rights.
Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our products. We were
awarded orphan drug status for Salagen Tablets as a treatment for the symptoms
of xerostomia induced by radiation therapy in head and neck cancer patients and
for the symptoms of dry mouth associated with Sjogren's syndrome. Orphan
designation provides market exclusivity for seven years after the product is
registered. We hold an exclusive license on three patents covering (1)
acylfulvene analogs, including MGI 114 and use of MGI 114, as an anti-tumor
agent; (2) the method of treating tumors using other analogs; and (3) synthetic
methods for preparing acylfulvenes. There is a risk that:
* others will independently develop proprietary technologies and
processes that are the same as or substantially equivalent to ours,
* we will not be able to obtain patents for future products,
* current or future, issued or licensed patents or know-how will not
afford us adequate protection against competitors with similar
technologies or processes, or
* others will infringe upon or design around our patents.
We could incur substantial costs in defending suits brought against us based on
our patents or in bringing suits to protect our patents or patents we license.
We also protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. There is a risk that:
5
<PAGE>
* these confidentiality agreements will be breached,
* we will not have adequate remedies for any breach of these agreements,
* our trade secrets will otherwise become known, or
* our trade secrets will be independently discovered by competitors.
Our operating results may fluctuate significantly.
Our results of operations may fluctuate significantly from period to period
due to a variety of factors including:
* continuing demand for our current products,
* the introduction of new products,
* the stream of licensing and royalty revenues,
* expenditures incurred to acquire or license and promote additional
products,
* interruptions in or availability of supply by third-party
manufacturers,
* changes in sales and marketing expenditures, and
* the pace of our development programs.
Because our operating expenses are based on anticipated sales levels, variations
in the timing of revenue could cause significant fluctuations in operating
results from period to period and may result in unanticipated earnings
shortfalls or losses. Our revenue may display significant variations due to the
impact of new contract and licensing arrangements, the completion or termination
of those contracts and arrangements, and the timing and amounts of milestone
payments. There is always a risk that we will not be successful in maintaining
profitability and avoiding losses in any future period.
We may not receive regulatory approvals required to sell our products in the
United States and abroad.
Government regulation in the United States and abroad is a significant
factor in the development, production and marketing of our products. Prior to
marketing, each of our products must undergo an extensive regulatory approval
process conducted by the FDA in the United States and by comparable agencies in
other countries. The approval process can take many years and require the
expenditure of substantial resources. There is a risk that any product we
develop will not be approved by the FDA or any foreign regulatory authority in a
timely manner, if at all. Generally, only a very small percentage of newly
discovered pharmaceutical compounds that enter preclinical development are
approved for sale. Once a product is approved for sale, the company must submit
any labeling, advertising and promotional materials to the FDA for review. There
is a risk that the FDA will prohibit use of the marketing materials in the form
we desire, which could have a material adverse effect on our business, financial
condition and results of operations.
We depend on external laboratories and medical institutions to conduct our
preclinical and clinical testing. This research must comply with good clinical
and laboratory practices required by the FDA. The data obtained from preclinical
and clinical testing are subject to varying interpretations that could delay,
limit or prevent regulatory approval. We also may encounter delays or rejection
due to (1) changes in FDA personnel
6
<PAGE>
or policy during the period of development, or (2) changes in the requirements
for regulatory review of each submitted New Drug Application. Even if the FDA
approves the marketing application of a product, such approval may entail
commercially unacceptable limitations on the uses, or "indications," for which a
product may be marketed. Further studies may be required to provide additional
data on product safety or effectiveness. The FDA also requires post-marketing
adverse event surveillance programs to monitor a product's side effects.
An FDA approved product and its manufacturer are subject to continual
regulatory review. The discovery of previously unknown problems with a product
may result in restrictions or sanctions on such product or manufacturer,
including the withdrawal of the product from the market. Most changes in the
manufacturing procedures we use for our approved products, including a change in
manufacturer, will require the prior approval of the FDA. This could have an
adverse effect upon our ability to continue the commercialization or sale of a
product.
Our success depends in part on our ability to obtain adequate prices for our
products and the availability to the users of our products of reimbursement from
third party payors.
Our profitability will depend in part on (1) the price we are able to
charge for our products and (2) the availability of adequate reimbursement for
our products from third-party payors, such as government entities, private
health insurers and managed care organizations. Third-party payors are
increasingly challenging the pricing of medical products and services. There is
much uncertainty as to the pricing flexibility pharmaceutical companies will
have with respect to newly approved health care products. In the United States,
we expect that there will continue to be a number of federal and state proposals
to implement government control of pricing and profitability of prescription
pharmaceuticals. Cost controls, if mandated by a government agency, could
decrease the price that we receive for our current or future products. Cost
controls could also prevent the recovery of potentially substantial development
costs and an appropriate profit margin. This would have a material adverse
effect on our business, financial condition and results of operations.
There is also much uncertainty about the reimbursement status of health
care products. Federal and state regulations govern or influence the
reimbursement status of health care products in many situations. Although
third-party reimbursement is not currently an issue for us, there is a risk that
reimbursement will not be available in the future for our products, or that such
third-party reimbursement will not be adequate. If government entities and other
third-party payors do not provide adequate reimbursement levels for our
products, our business, financial condition and results of operations would be
materially, adversely affected. A number of legislative and regulatory proposals
aimed at changing the nation's health care system have been proposed in recent
years. Although we cannot predict whether any of these proposals will be
adopted, or the effect that any such proposal may have on our business, these
proposals, if enacted, could have a material adverse effect on our business,
financial condition and results of operations. In certain countries, the sales
price of a product must also be approved after marketing approval is granted.
There is a risk that we will not be able to obtain satisfactory prices in
foreign markets even if we obtain marketing approval from foreign regulatory
authorities.
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We face product liability risks and our existing insurance may not be adequate
to cover any claims.
We face exposure to product liability claims in the event that the use of
our product is alleged to have harmed someone. Although we have taken, and
continue to take, what we believe are appropriate precautions, there is a risk
that we will not be able to avoid significant product liability exposure. We
currently have product liability insurance in the amount of $15 million per
occurrence and in the aggregate for the year. There is a risk that our insurance
will not be sufficient to cover any potential claims. There is also a risk that
adequate insurance coverage will not be available in the future on commercially
reasonable terms, if at all. The successful assertion of an uninsured product
liability or other claim against us would have a material adverse affect our
business, financial condition and results of operations.
We could be required to issue a product recall.
Product recalls may be issued at our discretion, at the discretion of the
FDA, the U.S. Federal Trade Commission or other government agencies having
regulatory authority for product sales. Product recalls may occur due to
disputed labeling claims, manufacturing issues, quality defects or other
reasons. Although none of our products have been recalled, we cannot assure you
that product recalls will not occur in the future. We do not carry any insurance
to cover the risk of a product recall. Any product recall could materially
adversely affect our business, financial condition and results of operations.
Our stock price is volatile.
The market price of our common stock, like securities of other small
companies, has fluctuated significantly in recent years and is likely to
fluctuate in the future, regardless of our operating performance. The market
price of our common stock may be significantly affected by many factors,
including:
* announcements regarding commercial products, patents or proprietary
rights,
* the progress of clinical trials or government regulation,
* public concern as to the safety of drugs,
* the issuance of securities analysts' reports,
* fluctuations in our financial performance from period to period, and
* general market conditions.
We may experience problems related to year 2000 issues.
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not known,
and, if not corrected in a timely manner, could affect us and the U.S. and world
economy generally.
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The total estimated cost for resolving our Year 2000 issues is
approximately $740,000, of which approximately $580,000 has been spent through
December 31, 1998. The total cost estimate includes the cost of replacing
non-compliant systems as a remediation cost in cases where we have accelerated
plans to replace such systems. Estimates of Year 2000 costs are based on
numerous assumptions. There is a risk that the estimates may not be correct and
that actual costs may be materially greater than anticipated.
Based on our assessments to date, we believe we will not experience any
material disruption as a result of Year 2000 problems in internal processes,
information processing or interface with major customers, or with processing
orders and billing. However, if certain critical third-party providers, such as
those providing product distribution, banking, contract manufacturing,
electricity, water or telephone service, experience difficulties resulting in
disruption of service to us, a shutdown of our operations at our headquarters
could occur for the duration of the disruption.
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