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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission File Number: 0-10736
-------
MGI PHARMA, INC.
----------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1364647
--------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
6300 West Old Shakopee Road
Suite 110
Bloomington, Minnesota 55438 (952) 346-4700
--------------------------------- ---------------------------------------
(Address of principal executive (Registrant's telephone number,
offices and zip code) including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 15,408,801 shares
--------------------------------- ---------------------------------------
(Class) (Outstanding at May 4, 2000)
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MGI PHARMA, INC.
FORM 10-Q INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - December 31, 1999
and March 31, 2000 3
Statements of Operations - Three Months
Ended March 31, 1999 and 2000 5
Statements of Cash Flows - Three Months
Ended March 31, 1999 and 2000 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 16
PART II. OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
MGI PHARMA, INC.
BALANCE SHEETS
(unaudited)
December 31, March 31,
1999 2000
------------ --------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 8,249,248 $ 6,602,682
Short-term investments 15,901,325 20,220,792
Receivables, less allowances of
$128,771 and $140,464 2,427,901 2,836,747
Inventories 836,865 947,344
Prepaid expenses 153,923 560,198
------------ ------------
Total current assets 27,569,262 31,167,763
Equipment and furniture, at cost
less accumulated depreciation of
$839,300 and $909,448 1,027,482 1,165,793
Other assets 376,992 376,992
------------ ------------
Total assets $ 28,973,736 $ 32,710,548
============ ============
(Continued)
3
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BALANCE SHEETS
(Unaudited)
Page 2
December 31, March 31,
1999 2000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 964,242 $ 697,933
Accrued expenses 2,853,794 3,397,320
Deferred revenue 495,000 --
Other current liabilities 16,321 63,151
------------ ------------
Total current liabilities 4,329,357 4,158,404
------------ ------------
Stockholders' equity:
Preferred stock, 10,000,000
authorized and unissued shares
Common stock, $.01 par value,
30,000,000 authorized shares,
14,979,640 and 15,408,801
Issued shares 149,796 154,088
Additional paid-in capital 93,591,432 97,242,246
Accumulated deficit (69,096,849) (68,844,190)
------------ ------------
Total stockholders' equity 24,644,379 28,552,144
------------ ------------
Total liabilities and
stockholders' equity $ 28,973,736 $ 32,710,548
============ ============
- ----------
See accompanying notes to financial statements.
4
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MGI PHARMA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
--------------------------
1999 2000
---------- ---------
Revenues:
Sales $4,502,943 $4,566,295
Promotion 125,000 250,000
Licensing 871,716 753,670
Interest and other income 194,523 372,846
---------- ----------
5,694,182 5,942,811
---------- ----------
Costs and Expenses:
Cost of sales 307,878 304,071
Selling, general and administrative 3,173,496 3,520,584
Research and development 1,460,905 1,804,218
---------- ----------
4,942,279 5,628,873
---------- ----------
Income before taxes $ 751,903 $ 313,938
Provision for income taxes 68,938 61,279
---------- ----------
Net income $ 682,965 $ 252,659
========== ==========
Net income per common share:
Basic $ 0.05 $ 0.02
Assuming dilution $ 0.04 $ 0.02
Weighted average number of
common shares:
Basic 14,574,929 15,217,199
Assuming dilution 15,475,494 16,831,324
- ----------
See accompanying notes to financial statements.
5
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MGI PHARMA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
-----------------------------
1999 2000
----------- -------------
OPERATING ACTIVITIES:
Net income $ 682,965 $ 252,659
Adjustments for non-cash items:
Depreciation 53,799 70,148
Benefit plan contribution 48,666 47,367
Other 25,136 7,500
Change in operating assets and liabilities:
Receivables (865,663) (408,846)
Inventories 128,123 (110,479)
Prepaid expenses (79,621) (406,275)
Accounts payable and accrued expenses (300,917) 229,850
Deferred revenue (495,000) (495,000)
Other current liabilities 45,246 46,830
----------- ------------
Net cash used in operating activities (757,266) (766,246)
----------- ------------
INVESTING ACTIVITIES:
Purchase of investments (5,814,748) (14,025,339)
Maturity of investments 4,402,458 9,705,872
Purchase of equipment and furniture (2,191) (208,459)
Other (14,304) --
----------- ------------
Net cash used in investing activities (1,428,785) (4,527,926)
----------- ------------
FINANCING ACTIVITIES:
Issuance of shares under stock
plans 231,531 3,647,606
----------- ------------
Net cash provided by financing
activities 231,531 3,647,606
----------- ------------
Decrease in cash and cash equivalents (1,954,520) (1,646,566)
Cash and cash equivalents at
beginning of period 6,513,204 8,249,248
----------- ------------
Cash and cash equivalents at
end of period $ 4,558,684 $ 6,602,682
=========== ============
Supplemental disclosure of cash information:
Cash paid for income taxes $55,000 $140,000
=========== ============
- ----------
See accompanying notes to financial statements.
6
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MGI PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
MGI PHARMA, INC. (MGI or the company) is a pharmaceutical company focused on the
acquisition, development and commercialization of drugs primarily for the
treatment of cancer and rheumatology disorders. MGI focuses its efforts solely
in the United States and creates alliances with other pharmaceutical or
biotechnology companies for its products in other countries.
The company promotes products directly to physicians in the United States using
its own specialty sales force. These products include company-owned Salagen(R)
Tablets (pilocarpine hydrochloride) and Didronel(R) I.V. Infusion (etidronate
disodium), and three copromoted products, Ridaura(R) (auranofin), Luxiq(TM) ans
in the United States using its own specialty sales force. These products include
company-owned Salagen(R) Tablets (pilocarpine hydrochloride) and Didronel(R)
I.V. Infusion (etidronate disodium), and three co-promoted products, Ridaura(R)
(auranofin), Luxiq(TM) (betamethasone valerate) Foam, 0.12%, and Azulfidine
EN-tabs(R) (sulfasalazine delayed release tablets, USP). Salagen Tablets are
approved in the United States for two indications: symptoms of radiation-induced
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 95 percent of company product sales. Didronel I.V. Infusion is used to
treat hypercalcemia (elevated blood calcium) in cancer patients. Co-promoted
products continue to be owned and distributed by the co-promotion partners, so
MGI recognizes promotion fee revenue, rather than product sales revenue for
these products. 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 irofulven, the lead cancer therapy product candidate in
MGI's novel family of proprietary compounds called acylfulvenes. Exclusive
rights in Japan to irofulven and the other acylfulvene analogs were granted to
Dainippon under a development and commercialization agreement in 1995. The
company also provides ongoing clinical support of Salagen Tablets.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the
7
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footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal, recurring adjustments) considered necessary for fair presentation
have been included. Interim results may not be indicative of annual results. For
further information, refer to the financial statements and footnotes included in
the company's report on Form 10-K for the year ended December 31, 1999.
In March 2000, the SEC deferred the implementation date of Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101).
Accordingly, the Company plans to adopt SAB 101 in the second quarter of 2000.
(2) Income Per Common Share
-----------------------
Income per share for the three month periods ended March 31, 1999 and 2000 are
summarized in the following table:
Per
Net Share
Three Month Period Ended Income Shares Amount
------------------------ ------ ------ ------
March 31, 1999
Basic $682,965 14,574,929 $0.05
Effect of
dilutive stock options -- 900,565 ($0.01)
-------------------------------------------
Assuming dilution $682,965 15,475,494 $0.04
March 31, 2000
Basic $252,659 15,217,199 $0.02
Effect of
dilutive stock options -- 1,614,125 --
-------------------------------------------
Assuming dilution $252,659 16,831,324 $0.02
===========================================
(3) Short-Term Investments
----------------------
Because the company has the intent and ability to hold its investments to
maturity, they are considered held-to-maturity investments. As such, they are
stated at amortized cost, which approximates estimated fair value.
Held-to-maturity investments at December 31, 1999 and March 31, 2000 are
summarized in the following table:
1999 2000
----------- -----------
Commercial paper $10,747,279 $19,180,210
Certificates of deposit 3,116,817 1,040,582
Corporate notes 2,037,229 --
----------- -----------
$15,901,325 $20,220,792
=========== ===========
8
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(4) Inventories
-----------
Inventories at December 31, 1999 and March 31, 2000 are summarized as follows:
1999 2000
-------- --------
Raw materials and supplies $160,744 $148,845
Work in process 153,447 299,267
Finished products 522,674 499,232
--------- --------
$836,865 $947,344
========= ========
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
(5) Accrued Expenses
----------------
Accrued expenses at December 31, 1999, and March 31, 2000, are summarized in the
following table:
1999 2000
---------- ----------
Product development commitments $ 860,981 $1,317,040
Bonuses 467,820 218,933
Product return accrual 342,648 478,199
Other accrued expenses 1,182,345 1,383,148
---------- ----------
$2,853,794 $3,397,320
========== ==========
(6) Promotion Revenue
-----------------
In March 1999, MGI and Schein Pharmaceutical, Inc. concluded their agreement for
the promotion of INFeD(R) (iron dextran injection). MGI recognized a minimum
quarterly promotion fee of $125,000 in the first quarter of 1999, and smaller
promotion fees for the remaining three quarters of 1999.
In April 1999, MGI entered into promotion agreements with Connetics Corporation
for the promotion of Ridaura(R) (auranofin) and Luxiq(TM) (betamethasone
valerate) Foam, 0.12%. Under the terms of the agreements, MGI promotes Ridaura
and Luxiq to the rheumatology market in the United States. For Ridaura, MGI
receives $250,000 per quarter for making a specified number of sales calls. For
Luxiq, MGI receives a split of product contribution from Connetics
Corporations's sales of Luxiq in the rheumatology market. The Ridaura agreement
is scheduled to continue through September 30, 2000.
In September 1999, MGI began promoting Azulfidine EN-tabs(R) (sulfasalazine
delayed release tablets, USP) Enteric-coated on behalf of the Pharmacia & Upjohn
Company (P&U) to the rheumatology market in the United States. MGI will earn
promotion revenue based on its ability to increase P&U sales of
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Azulfidine EN-tabs(R). The Azulfidine EN-tabs(R) co-promotion agreement has an
initial term of 42 months from the September 1999 co-promotion marketing launch.
(7) Stock Incentive Plans
---------------------
Under stock incentive plans, designated persons (including officers, directors,
employees and consultants) are granted rights to acquire company common stock.
These rights include stock options and other equity rights. At March 31, 2000,
2,660,462 shares of common stock remain reserved for issuance, of which 408,447
remain available for grant. Options to purchase 2,252,015 shares of common stock
were outstanding, of which 929,777 were exercisable. Options outstanding had a
weighted average exercise price of $10.37 per share.
(8) Stockholders' Equity
--------------------
Changes in selected stockholders' equity accounts for the three months ended
March 31, 2000, were as follows:
Common stock Additional
---------------------- paid-in
Shares Par value capital
---------- --------- ------------
Balance at December 31, 1999 14,979,640 $149,796 $93,591,432
Exercise of stock options 428,698 4,287 3,643,319
Other issuance 463 5 7,495
---------- --------- -----------
Balance at March 31, 2000 15,408,801 $154,088 $97,242,246
========== ========= ===========
(9) Commitments
-----------
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. Future minimum lease
payments for this lease agreement are as follows:
Remainder of 2000 $272,000
2001 441,000
2002 448,000
2003 455,000
2004 455,000
Thereafter 265,000
----------
$2,336,000
==========
10
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(10) Subsequent Event
----------------
In April 2000, MGI entered into a license agreement with CIBA Vision AG pursuant
to which MGI granted CIBA Vision an exclusive, royalty-bearing license to
develop and commercialize Salagen Tablets in Europe, Russia and certain other
countries. Simultaneous with this agreement, the previous agreements with Chiron
B.V. for Salagen Tablets rights in Europe were terminated. Sales of Salagen
Tablets in Europe began in 1995.
Under the license agreement, CIBA Vision is scheduled to pay initial license
fees to MGI upon execution of the agreement and achievement of certain transfer
activities. In addition, CIBA Vision agreed to pay up to four additional
milestone payments to MGI if certain sales targets are achieved. Further, CIBA
Vision agreed to pay royalties to MGI equal to a certain percentage of net sales
revenues. Unless earlier terminated by the parties, the term of the agreement is
12 years and may be extended for additional two-year periods. CIBA Vision
granted to MGI an irrevocable, non-exclusive, royalty-free license allowing MGI
to use any technology or data developed by CIBA Vision relating to Salagen
Tablets.
In addition, MGI simultaneously entered into a supply agreement with CIBA Vision
pursuant to which MGI agreed to supply CIBA Vision's requirements of Salagen
Tablets until the termination of the license agreement with CIBA Vision.
11
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Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
MGI PHARMA, INC. is a pharmaceutical company focused on the acquisition,
development and commercialization of drugs primarily for the treatment of cancer
and rheumatology disorders. We focus our efforts solely in the United States
and create alliances with other pharmaceutical or biotechnology companies for
our products in other countries.
We promote products directly to physicians in the United States using our own
specialty sales force. These products include our Salagen(R) Tablets
(pilocarpine hydrochloride) and Didronel(R) I.V. Infusion (etidronate disodium),
and three copromoted products, Ridaura(R) (auraanofin), Luxiq(TM) (betamethasone
valerate) Foam, 0.12%, and Azulfidine EN-tabs(R) (sulfasalazine delayed release
tablets, USP). Salagen Tablets are approved in the United States for two
indications: symptoms of radiation-induced 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 accounted for 97 percent of our product sales during 1999.
Didronel I.V. Infusion is used to treat hypercalcemia (elevated blood calcium)
in cancer patients. Copromoted products continue to be owned and distributed by
the copromotion partners, so we recognize promotion fee revenue, rather than
product sales revenue for these products. Outside the United States, we
commercialize our products through various alliances, and have agreements with
several international pharmaceutical companies to commercialize Salagen Tablets
in Europe, Japan and Canada.
Our current product development efforts include clinical and preclinical studies
for irofulven, the lead cancer therapy product candidate in our novel family of
proprietary compounds called acylfulvenes. Exclusive rights in Japan to
irofulven and the other acylfulvene analogs were granted to Dainippon under a
development and commercialization agreement in 1995. We also provide ongoing
clinical support of Salagen Tablets.
Results of Operations
Revenues
- --------
Sales
Total sales revenue increased one percent from $4,502,943 in the first quarter
of 1999 to $4,566,295 in the first quarter of 2000. The modest increase in sales
revenue was due to an increase in the price of Salagen Tablets in December 1999,
offset by a decrease in unit sales.
Sales of Salagen Tablets in the United States provided 98 percent of our product
sales in the first quarter of 2000. As is common in the
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pharmaceutical industry, our domestic sales are made to pharmaceutical
wholesalers for further distribution through pharmacies to the ultimate
consumers of our products. We believe that the flat growth in sales of Salagen
Tablets from the first quarter of 1999 to the first quarter of 2000 is a result
of increased fourth quarter retail purchasing that was consistent with building
inventories in anticipation of potential interruption in supply related to Year
2000 concerns, and moderating growth in the demand for Salagen Tablets. We do
not expect growth in sales of Salagen Tablets to continue at historic rates due
to competition from new products, and moderating growth in the Sjogren's
syndrome portion of the market.
Promotion
Promotion revenue increased 100 percent from $125,000 in the first quarter of
1999 to $250,000 in the first quarter of 2000. This increase reflects promotion
revenue from different product relationships between 1999 and 2000. In 1999, we
concluded our promotion of INFeD(R) under an agreement with Schein
Pharmaceutical, resulting in a minimum quarterly payment of $125,000 in the
first quarter of 1999. Promotion revenue in 2000 reflects payments for the
marketing of Ridaura under an agreement with Connetics Corporation. We have not
yet recognized revenue for two other products: Luxiq, which we promote under an
agreement with Connetics Corporation, and Azulfidine EN-tabs, which we promote
under an agreement with the Pharmacia & Upjohn Company. The Ridaura agreement
continues through September 30, 2000.
Licensing
Licensing revenue decreased 14 percent from $871,716 in the first quarter of
1999 to $753,670 in the first quarter of 2000. The decrease is due to lower
royalties related to our former agricultural business. Revenue from
international partners for Salagen Tablets was flat from the first quarter of
1999 to the first quarter of 2000. In an effort to improve the promotion of
Salagen Tablets, we entered into an agreement with CIBA Vision AG in April 2000
for the sale of Salagen Tablets in Europe. Future licensing revenues will likely
fluctuate between years and from one quarter to another depending on the
achievement of milestones by us or our partners, the level of recurring royalty
generating activities, and the timing of initiating additional licensing
relationships. Quarterly licensing payments from Dainippon concluded with a
$100,000 payment in April 2000.
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Interest and other
Interest and other income increased 92 percent from $194,523 in the first
quarter of 1999 to $372,846 in the first quarter of 2000. The increase is a
result of an increase in the average amount of funds available for investment
and an increase in the investment yield.
Costs and Expenses
- ------------------
Cost of sales
Cost of sales decreased one percent from $307,878 in the first quarter of 1999
to $304,071 in the first quarter of 2000. Although sales revenue increased from
the first quarter of 1999 to the first quarter of 2000, cost of sales decreased
as a result of a change in the product mix between quarters. The first quarter
of 1999 included lower margin sales to international strategic partners for
Salagen Tablets. We believe that cost of sales as a percent of product sales
should continue within its recent annual range of five to eight percent for our
commercialized products.
Selling, general and administrative
Selling, general and administrative expenses increased 11 percent from
$3,173,496 in the first quarter of 1999 to $3,520,584 in the first quarter of
2000. The increase resulted from costs associated with the expansion of the size
of our U.S based sales organization by approximately two-thirds near the end of
the first quarter of 2000. This expansion is expected to significantly increase
total SG&A costs for the rest of 2000.
Research and development
Research and development expense increased 24 percent from $1,460,905 in the
first quarter of 1999 to $1,804,218 in the first quarter of 2000. The increase
reflects the larger costs for the development of irofulven. Enrollment in three
Phase 2 clinical trials, sponsored by us, began in 1998, and has increased
throughout 1999 and the first quarter of 2000. These trials are designed to
evaluate the efficacy and safety of irofulven for the treatment of patients with
ovarian, pancreatic, or prostate cancer who are refractory to current therapies.
In addition, we continue to provide clinical supplies of irofulven for clinical
trials sponsored by the NCI. We intend to initiate a pivotal Phase 3 clinical
trial program by the end of 2000 that could, if successful, become the
fundamental basis of a NDA submission to the FDA for irofulven. Conduct of these
studies is expected to substantially increase research and development costs in
2000 and beyond. Further, emerging data suggests multiple development paths may
be warranted with irofulven. We expect research
14
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and development to increase significantly in the next few years as we pursue
multiple development paths with irofulven.
Tax expense
Our effective tax rate was nine percent in the first quarter of 1999, and 20
percent in the first quarter of 2000. These tax rates reflect a ten percent
foreign tax rate on Dainippon licensing payments and a two percent tax rate for
alternative minimum tax.
Net Income
Net income of $682,965 in the first quarter of 1999 compares to net income of
$252,659 in the first quarter of 2000. The decrease in net income was a result
of a 14 percent increase in costs and expenses, paired with a four percent
increase in revenues. During the next several years, we intend to direct our
efforts toward activities designed to grow long-term revenues, including
expanded development of irofulven and other product candidates. Increased
spending on these initiatives and others may not allow us to remain profitable
on a consistent basis.
Liquidity and Capital Resources
At March 31, 2000, we had cash and investments of $26,823,474 and working
capital of $27,009,359 compared with $24,150,573 and $23,239,905, respectively,
at December 31, 1999. For the three month period ended March 31, 2000, we
received $3,647,606 in cash from issuance of shares under stock award plans, and
used $766,246 of cash to fund our operating activities. We purchased $208,459 in
equipment and furniture, primarily related to the expansion of our commercial
organization.
Cash in excess of current operating needs is invested in money market
instruments in accordance with our 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. We believe we
have sufficient cash and investments to fund our current operations through the
end of 2000. However, substantial amounts of capital are required for
pharmaceutical development and commercialization efforts. For continued
development and commercialization of irofulven and Salagen Tablets, and for the
the acquisition and development of product candidates, we plan to utilize cash
provided from growth in product sales, collaborative arrangements and existing
liquid assets. We are currently pursuing a public offering of 1,000,000 shares
of our common stock.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of federal
securities laws. These statements include statements 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 our actual results to differ materially
from the results
15
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discussed in these statements. Factors that might cause such differences
include, but are not limited to, dependence on sales of Salagen Tablets, the
ability to develop irofulven into an approved and successfully marketed
chemotherapy agent, dependence on a license acquisition strategy, uncertainty of
strategic alliances, and other risks and uncertainties detailed from time to
time in our filings with the Securities and Exchange Commission, including
Exhibit 99 to this Form 10-Q. We do not intend to update any of the
forward-looking statements after the date of this Form 10-Q to conform them to
actual results.
Item 3.
- -------
Quantitative and Qualitative Disclosures About Market Risk
Our operations are not subject to risks of material foreign currency
fluctuations, nor do we use derivative financial instruments in our investment
practices. We place our investments in instruments that meet high credit quality
standards, as specified in our investment policy guidelines. We do not expect
material losses with respect to our investment portfolio or exposure to market
risks associated with interest rates.
16
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MGI PHARMA, INC.
PART II - OTHER INFORMATION
Item 5. Other Information
- -------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the company is hereby filing cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in forward looking statements of the
company made by, or on behalf of the company. See Exhibit 99 to this report.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) LISTING OF EXHIBITS:
10.1 License Agreement, dated 4/11/00, between the Company and
CIBA Vision AG
27 Financial Data Schedule
99 Cautionary Statements
(b) REPORTS ON FORM 8-K
The company filed a report on Form 8-K on March 20, 2000.
17
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SIGNATURES
Pursuant to the requirements 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.
MGI PHARMA, INC.
Date: May 5, 2000 By: /s/ William C. Brown
-------------------------------------
William C. Brown,
Chief Financial Officer
18
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MGI PHARMA, INC.
Quarterly Report on Form 10-Q
for the
Quarter Ended March 31, 2000
EXHIBIT INDEX
-------------
Exhibit
Number Description
- -------- -----------
10.1 License Agreement, dated 4/11/00, between the Company and
CIBA Vision AG
27 Financial Data Schedule
99 Cautionary Statements
<PAGE>
EXHIBIT 10.1
LICENSE AGREEMENT
THIS AGREEMENT is made as of April 11, 2000 (the "Effective Date"), by and
between MGI PHARMA, INC., a Minnesota corporation having its principal place of
business at Suite 110, 6300 West Old Shakopee Road, Bloomington, Minnesota
55438-2318 ("MGI"); and CIBA Vision AG, a Novartis company, organized under the
laws of Switzerland having a place of business at Grenzstrasse 10, CH-8180
Bulach, Switzerland ("CIBA Vision").
Recitals
--------
A. MGI has acquired certain rights, and developed certain data, relating to
the manufacture, use and sale of medicinal products in which a substance known
generically as pilocarpine hydrochloride is the active substance.
B. MGI has obtained from the United States Food and Drug Administration
("FDA") regulatory approval to market and sell pilocarpine hydrochloride as a
treatment for post-radiation xerostomia and xerostomia associated with Sjogren's
syndrome, and, through its previous licensee, has obtained additional marketing
authorizations in the Territory for xerophthalmia associated with Sjogren's
syndrome.
C. CIBA Vision possesses the resources, skill and experience required to
register, market and sell medicinal products incorporating pilocarpine
hydrochloride in such territory;
D. MGI has entered into an agreement with Merck KGaA (successor
organization to E. Merck) pursuant to which MGI has been granted the exclusive
right and license to refer to information contained in regulatory dossiers owned
by Merck KGaA for the purpose of obtaining marketing authorizations throughout
the world for certain medicinal products in which pilocarpine drug substance is
an active substance.
E. MGI is willing to grant to CIBA Vision, and CIBA Vision wishes to obtain
from MGI the right to register, market and sell such medicinal products in the
Territory, all upon and subject to the terms and conditions set forth in this
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto have agreed as follows:
Article 1
INTRODUCTORY PROVISIONS
1.1 Defined Terms. The following terms, when used in capitalized form
in this Agreement, shall have the meanings set forth below:
(a) "Adverse Experience Data" shall mean all data concerning any
serious or unexpected adverse effects, side-effects and
contraindications of any Licensed Product which come to the
attention of either Party or of any Sublicensee of either Party
and which is of such a nature and magnitude that it is required
under the laws of the United States or of any country in the
Territory to be collected, maintained and reported to Competent
Authority.
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(b) "Affiliate" when used with reference to either Party shall mean
any entity controlling, controlled by or under common control
with such Party. For purposes hereof, "control" shall mean
ownership, directly or indirectly, of more than fifty percent
(50%) of the securities having the right to vote for election of
directors, in the case of a corporation, and more than fifty
percent (50%) of the beneficial interest in the capital, in the
case of an entity other than a corporation.
(c) "Best Efforts" shall mean those efforts that would be made by a
reasonably prudent business person acting in good faith and in
the exercise of reasonable commercial judgment.
(d) "CIBA Vision Sublicensee" shall mean any entity to which CIBA
Vision has granted, a sublicense pursuant to Article 9.
(e) "Competent Authority" shall mean, in respect of any country, any
agency responsible for the issuance of Marketing Authorizations
for medicinal products marketed in that country.
(f) "Confidential Information" shall mean all information, including
but not limited to Proprietary Product Information, including any
information on the markets, customers, suppliers, patents or
patent applications, inventions, products, procedures, designs,
formulas, business plans, financial projections, organizations,
employees, consultants or any other similar aspects of a Party's
present or future business, the secrecy of which confers a
competitive advantage upon that Party.
(g) "Drug Master File" shall mean Type II Drug Master File No. 8453
on file with the FDA, any supplementary or successor drug master
file in respect of pilocarpine drug substance that may hereafter
be submitted by Merck KGaA to the FDA, or any corresponding drug
master file or similar file in respect of pilocarpine drug
substance that may hereafter be submitted by Merck KGaA to any
Competent Authority in any country other than the United States.
(h) "E. Merck Agreement" shall mean the Supply and License Agreement
dated as of March 19, 1992 between Merck KGaA and MGI.
(i) "Health Registration Dossier" shall mean all documentation which
is now or shall hereafter be on file with the FDA, or any
Competent Authority, which comprises the information and data
submitted to such agency in support of an application made by
either Party, or a Sublicensee of either Party, to such agency
for Marketing Authorization for any Licensed Product for
treatment of any Indication.
(j) "Indication" shall mean any medical condition or set of symptoms
for the treatment of which a medicinal product may be determined
to be useful.
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(k) "Know-How" shall mean all information and data, regardless of
form, which is necessary or useful (i) to the manufacture of the
Licensed Products or (ii) to the development or manufacture of
dose forms or means of delivery of the Licensed Products, and
which is owned, developed, acquired or otherwise licensable by
either Party or any Sublicensee of either Party during the term
of this Agreement.
(l) "Licensed Products" shall mean pharmaceutical products having as
an active substance pilocarpine and including any other forms and
strengths of pilocarpine for parenteral administration, as
described and defined in Exhibit A.
(m) "Marketing Authorization" shall mean any authorization which is
legally required under applicable laws, regulations or
administrative decisions to put a proprietary medicinal product
on the market in any country for use in treatment of any
Indication; including, without limitation, any governmental price
approval or reimbursement approved under a national health
insurance system.
(n) "MGI Sublicensee" shall mean any third party to which MGI shall
have granted a sublicense under the E. Merck Agreement or a
license to use Proprietary Product Information, Know-How or the
Trademark in respect of any country outside the Territory.
(o) "MAT" (or Moving Annual Total) shall mean total cumulative actual
Net Sales Revenue for any consecutive twelve (12) month period
starting with the first day of any month and running through the
last day of any calendar month twelve months later.
(p) "Net Sales Revenue" shall mean the total amount invoiced by CIBA
Vision to third parties for sale of Licensed Product in the
Territory, less (i) allowance or credit for returns, including
withdrawals and recalls; (ii) sales rebates allowed or paid;
(iii) volume and/or cash discounts to the extent that the same
are not reflected in the invoiced price; (iv) sales, value-added
and other taxes that are payable by the buyer and are included in
the invoiced price; (v) transportation, handling and insurance
costs that are payable by the buyer related to such sales and
separately identified and included in the invoice; and (vi)
customs duties related to sales made by the seller to its
customers if separately identified and included in the invoice.
(q) "Party" shall mean either of the two parties to this Agreement.
(r) "Patents" shall mean any and all patents under the laws of any
country or countries which are owned, acquired or otherwise
licensable by either Party or its Sublicensees during the term of
this Agreement and which are necessary or useful (i) to the
manufacture of the Licensed Products, (ii) to the development or
manufacture of dose forms or means of delivery of the Licensed
Products, or (iii) to the use of the Licensed Products in
conjunction with other products.
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(s) "Sublicensee" shall mean either an MGI Sublicensee or a CIBA
Vision Sublicensee.
(t) "Product Launch" shall mean, in respect of each country in the
Territory, the first commercial sale of the Licensed Products for
resale or use in such country.
(u) "Proprietary Product Information" shall mean (i) all information
and data now or hereafter contained in any Drug Master File or
Health Registration Dossier to which either Party, or any
Sublicensee of either Party, shall have the right under
applicable law, regulations and administrative decisions to
refer, to authorize third parties to refer and to prohibit third
parties from referring, for purposes of any application for
Marketing Authorization for any Licensed Product and (ii) all
other information and data now or hereafter in existence which
relates to the development, testing, manufacture, marketing or
use of any Licensed Product and which shall not have entered into
the public domain.
(v) "Supply Agreement" shall mean that certain Supply Agreement, in
the form set forth in Exhibit B hereto, entered into between MGI
and CIBA Vision contemporaneously with the execution of this
Agreement.
(w) "Supporting Data" shall mean all data and information in the
possession of either Party or Sublicensee relating to (i) the
pharmacological or toxicological properties of any Licensed
Product, (ii) pre-clinical or clinical testing and experience in
relation to any Licensed Product, which is not included in any
Health Registration Dossier and (iii) to the extent reasonably
required for purposes of any application for Marketing
Authorization, the chemical composition, manufacturing processes
and quality control testing of the Licensed Products.
(x) "Territory" shall mean the following countries as constituted on
the Effective Date, exclusive of any overseas territories,
departments or possessions of any of such countries: Albania,
Armenia, Austria, Azerbaijan, Belgium, Belarus, Bosnia and
Herzegovina, Bulgaria, Croatia, Cyprus, The Czech Republic,
Denmark, Estonia, Finland, France, Georgia, Germany, Greece,
Hungary, Iceland, Ireland, Italy, Kazakhstan, Kyrgyzstan, Latvia,
Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova,
the Netherlands, Norway, Poland, Portugal, Romania, The Russian
Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Tajikistan, Turkey, Turkmenistan, Ukraine, the United Kingdom,
Uzbekistan and Yugoslavia.
(y) "Trademark" shall mean the trademarks listed in Exhibit D for
each Country or as otherwise agreed on by both parties in
writing, and shall have the same meaning without regard to
whether such trademark is at any given time registered or
otherwise protected under the laws of any country.
1.2 Other Rules of Interpretation. Unless the context clearly
indicates otherwise, the following rules shall govern the interpretation of
this Agreement:
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(a) The definitions of all terms defined herein shall apply equally
to the singular, plural, and possessive forms of such terms.
(b) All references to "Sections," or "Exhibits" shall mean the
corresponding Sections of and Exhibits to this Agreement.
Article 2
LICENSE GRANT
2.1 License to Market and Sell. Subject to the terms and conditions of
this Agreement, MGI hereby grants to CIBA Vision an exclusive right and
license under all Patents, Know-How and Proprietary Product Information
which are or shall hereafter be owned, controlled or otherwise licensable
by MGI, upon and subject to the conditions under which MGI has or shall
have the right to grant such right and license, to apply for Marketing
Authorizations for Licensed Products in each country in the Territory and
to use, market, promote and sell Licensed Products in the Territory. Such
right and license includes, but is not limited to, a sublicense under the
rights and license granted to MGI under the E. Merck Agreement. The right
and license granted herein shall be further subject to the following terms
and conditions:
(a) Such right and license shall include the right of CIBA Vision to
refer to and/or otherwise use, in applications for Marketing
Authorization for Licensed Products in the Territory, to the Drug
Master File as well as any MGI Health Registration Dossier for
any Indication.
(b) Such right and license shall be exclusive to CIBA Vision, and MGI
shall not market, promote or sell Licensed Products within the
Territory or license, supply or otherwise assist any third party
to do so, except as expressly provided herein.
(c) Such right and license shall include the right to grant
sublicenses in accordance with Article 9.
(d) CIBA Vision acknowledges that it shall purchase all of its
requirements for the Licensed Products from MGI as the sole
supplier, on the terms set forth in the Supply Agreement;
provided, however, that its right and license hereunder shall
include the right to specify in its purchase orders for delivery
of Licensed Product which alternate manufacturer, previously
validated and approved as provided in the Supply Agreement, shall
be used by MGI to manufacture such order, as provided in such
Supply Agreement.
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2.2 License Grant-Back. CIBA Vision hereby grants to MGI an
irrevocable, nonexclusive, royalty-free right and license, with right of
sublicense, under (i) all Proprietary Product Information developed by CIBA
Vision or its Sublicensees during the term of this Agreement; and (ii) all
Patents and Know-How conceived and reduced to practice by CIBA Vision or
its Sublicensees during the term of this Agreement in connection with the
use, sale or manufacture of Licensed Products, except for Patents and
Know-How developed by CIBA Vision or its Sublicensees without use of MGI
Confidential Information, as shown by reasonable proof; to apply for
Marketing Authorizations for the Licensed Products in respect of each
country outside the Territory, for all Indications, to market, promote and
sell the Licensed Products in each country outside the Territory pursuant
to such Marketing Authorizations and to manufacture or have manufactured
Licensed Products anywhere in the world. Such right and license shall
include the right to refer, in any application for Marketing Authorization
for the Licensed Products in respect of any country outside the Territory,
to any and all Health Registration Dossiers which CIBA Vision shall
establish with Competent Authorities in the Territory.
2.3 MGI Health Registration Dossiers. MGI shall provide or cause to be
provided to CIBA Vision complete and accurate copies of all documentation
contained in each Health Registration Dossier for the Licensed Products, as
of the Effective Date, within thirty (30) days after MGI's receipt of the
payment provided for in Section 5.1. MGI shall thereafter update such
information to CIBA Vision with any additional documentation it may add to
such Health Registration Dossiers, within thirty (30) days after the date
on which it was submitted to the FDA or other Competent Authority, subject
to Section 2.5. In addition, MGI will furnish or cause to be furnished to
CIBA Vision any information contained in the Drug Master File that is
required to be furnished to any Competent Authority, upon and subject to
the terms and conditions of the E. Merck Agreement.
2.4 CIBA Vision Health Registration Dossiers. CIBA Vision shall
provide to MGI complete and accurate copies of all documentation contained
in CIBA Vision's or its Sublicensee's Health Registration Dossier, within
reasonable time, but no more than sixty (60) days. CIBA Vision shall
thereafter update such information to MGI with any additional documentation
it or any CIBA Vision Sublicensee may add to such Health Registration
Dossiers, within thirty (30) days after the date on which it was submitted
to the respective Competent Authority, subject to Section 2.5.
2.5. Adverse Experience Data Information. Both Parties agree to
mutually exchange, in English, all information relating to the safety of
the Licensed Product (including publications from/in their respective
Territory) in a manner consistent with FDA and ICH guidelines, enabling
both Parties to fully meet their obligations towards regulatory authorities
and to enable them to continuously assess the Licensed Products' safety
profile. Case reports shall be exchanged in a type-written CIOMS or
FDA-3500 format. CIBA Vision will maintain its own Safety Database for the
Territory. Copies of Adverse Experience Data shall be forwarded in English
by facsimile or courier as quickly as may be necessary to permit the
recipient to comply with any applicable legal requirements and within
(i) seven (7) days for fatal or life threatening cases,
(ii) ten (10) days for all other serious events,
(iii) quarterly for all non-serious events,
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after such Adverse Experience data is acquired but in no event later than
the date on which such Adverse Experience Data is provided to any Competent
Authority. All adverse events received by MGI, a Marketing Authorization
Holder (MAH) of Salagen Tablets in the United States, will be relayed to
CIBA Vision and to all other authorized MAH partners outside the Territory
in concert with approved FDA and ICH Guidelines and Regulations. CIBA
Vision shall from time to time provide MGI with a written list of the MAHs
in each country in the Territory to which CIBA Vision will be relaying all
Adverse events.
The details and timelines for the exchange of pharmacovigilance information
will be outlined in a separate agreement between the pharmacovigilance
departments of both parties.
2.6 Other Information and Data. Each Party shall provide to the other
Party complete and accurate copies of all documentation containing
Supporting Data, Clinical Study Reports or other Study Reports, and other
data relating to the Licensed Products, which is prepared or acquired by
such Party or any of its respective Sublicensees during the term of this
Agreement.
2.7. English Translation. Both parties shall take best efforts to
provide any information to the other in English. In case a document needs
to be translated exclusively for one party's needs, the same party shall
bear the costs of such translation.
Article 3
MARKET DEVELOPMENT
3.1 Regulatory Approvals and Product Launch. Attached hereto as
Exhibit C is a list of the Marketing Authorizations received for the
Licensed Products as of the Effective Date. CIBA Vision shall prepare and
submit to MGI, within thirty (30) days of the Effective Date, a written
plan for obtaining other Marketing Authorizations for the Licensed Products
in the Territory. CIBA Vision shall submit to Health Authorities all other
applications and supporting data and information that may be necessary to
obtain any other Marketing Authorizations for the Licensed Products in the
Territory in accordance with the approved plan. In particular, CIBA Vision
shall use its Best Efforts, where commercially reasonable, to obtain,
maintain and renew such Marketing Authorizations for the Licensed Products
in each country in the Territory. CIBA Vision shall provide MGI with
written semi-annual reports of its progress in obtaining and maintaining
such Marketing Authorizations, due at marketing meetings according to
section 4.4. CIBA Vision shall also use its Best Efforts, where
commercially reasonable and justifiable, to launch Licensed Products in
each country in the Territory after obtaining Marketing Authorization.
3.2 Mutual Assistance. Each of the Parties shall use its Best Efforts
to provide such assistance as the other Party shall reasonably request for
purposes of obtaining Marketing Authorizations for the Licensed Products,
as follows:
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(a) Each Party shall make its personnel available, both in person and
by telephone, for reasonable periods of time, to advise personnel
of the other Party in connection with its applications for
Marketing Authorization for the Licensed Products. Where such
assistance will require travel of the Party requested to provide
such assistance, the requesting Party shall notify the other
Party of its need therefor at least fifteen (15) days in advance
of the day on which it desires such personnel to be made
available to it, provided that, should unusual circumstances
arise such that either Party requires immediate assistance
hereunder, the other Party shall use its Best Efforts to provide
such assistance without regard to such notice requirement.
(b) The scope of the cooperation between the Parties hereunder shall
include collaboration and assistance in (i) interpretation of any
Health Registration Dossier or other Supporting Data provided by
either Party to the other, (ii) and review of regulatory
documentation and submissions prepared by the other Party.
(c) Each Party shall bear the expenses of its own personnel engaged
in the cooperative efforts provided for in this Section 3.2.
However, it is the intent of the Parties that the scope and
duration of such efforts shall not be such as to require the
hiring of additional personnel or as to conflict with the
efficient operation of either Party's other business. In the
event that more extensive cooperation may be required than can be
achieved in a manner consistent with these criteria, the Parties
will jointly consider possible cost-sharing or other mutually
beneficial solutions.
3.3 Coordination of Testing and Trials. The Parties shall keep one
another fully and currently informed as to all tests and trials that they
intend to carry out for purposes of compliance with regulatory requirements
and shall cooperate in the design of such tests and trials in order to
ensure to the maximum possible extent that duplication of effort will be
avoided, and, that the results will be suitable for filing both with the
FDA and with Competent Authorities in the Territory and will otherwise be
usable for purposes of meeting all applicable regulatory requirements.
Without limiting the generality of the foregoing, the Parties shall use
their Best Efforts to ensure that all clinical trials of the Licensed
Products that they shall undertake after the Effective Date shall be
designed and conducted in accordance with good clinical practices and good
laboratory practices as established for both the United States and the
European Community. Except as otherwise agreed, however, supporting trials
conducted by CIBA Vision in Europe shall be required to meet European
requirements only.
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Article 4
MARKETING
4.1 Promotion and Marketing. CIBA Vision shall commit adequate funding
and use its Best Efforts to fund and support Product Launch, marketing and
sale of Licensed Products throughout the Territory. Within thirty (30) days
after the Effective Date and thereafter each calendar year during the term
of this Agreement within the budget timelines as agreed by both parties,
CIBA Vision shall provide MGI with an annual plan and budget, detailing its
proposed marketing of the Licensed Products in the Territory, on a
country-by-country basis, during the upcoming year. MGI shall be entitled
to review and comment on such plan. In addition, by January 20 of each
calendar year during the term of this Agreement, CIBA Vision shall provide
MGI with a report comparing its actual performance against the annual plan
and budget for the previous calendar year.
4.2 Competing Products. CIBA Vision agrees that it will not, and will
require its Sublicensees not to, during the term of this Agreement develop
or cause to be developed, market, promote or sell within the Territory any
other medicinal product other than Licensed Product with the same mechanism
of action, namely the stimulation of the activity of the exocrine glands by
agonism on cholinergic receptors, and oral administration.
4.3 Assistance by MGI. MGI shall provide reasonable assistance to CIBA
Vision by providing marketing information and sales training materials
relating to the Licensed Products, whether generated by MGI or its
Sublicensees. In addition, MGI shall invite a reasonable number of CIBA
Vision's sales personnel to attend any MGI sales training programs on the
Licensed Products. CIBA Vision shall bear the travel and living expenses
for such of its personnel and any incremental training costs.
4.4 Meetings. Representatives of CIBA Vision and MGI shall meet on a
semi-annual basis, alternating between meeting sites in Europe and the
United States, to discuss CIBA Vision's promotional and marketing efforts
relating to the Licensed Products in the Territory, as well as MGI's
corresponding efforts in the United States.
4.5 Compliance with Laws. CIBA Vision shall ensure that the marketing,
promotion and sale of the Licensed Products complies with the conditions
and requirements of an applicable Marketing Authorizations, and with all
other applicable legal and regulatory requirements in the Territory.
Article 5
LICENSE FEES AND ROYALTIES
5.1 License Fees. CIBA Vision shall pay to MGI a license fee, to be
paid as follows:
(a) one and one half million US Dollars (US$ 1,500,000), within five
(5) business days after CIBA Vision is enabled, as a wholesaler,
to sell Licensed Product in the United Kingdom with the UK Health
Authorities (hereinafter MCA) having approved the 12-month shelf
life extension (36 months) to all existing inventory.
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(b) one and one half million US Dollars (US$ 1,500,000), within five
(5) business days after (i) Global Pharm Inc. has been approved
as a new manufacturer by MCA and (ii) all necessary documents
have been provided to CIBA Vision and/or the MCA in order to
effect a change of the Marketing Authorization Holder in the U.K.
5.2 Milestone Payments. CIBA Vision shall pay to MGI in the following
milestone payments within thirty (30) days of the occurrence of the
applicable milestone
Milestone Payment Milestone Event
---------------- ---------------
US$ 1,000,000 Net Sales Revenues for Licensed Products
reach US$ 5 Million on a MAT basis, but
not due before January 1, 2002
US$ 1,000,000 Net Sales Revenues for Licensed Products
reach US$ 10 million on a MAT basis, but
not due before January 1, 2003
US$ 1,000,000 Net Sales Revenues for Licensed Products
reach US$ 15 million on a MAT basis, but
not due before January 1, 2004
US$ 1,000,000 Cumulative Net Sales Revenues for
Licensed Products reach US$ 35 million,
but not due before January 1, 2005
5.3 Royalties. In addition to the license fees and the milestone
payments provided for under Sections 5.1 and 5.2, CIBA Vision shall pay to
MGI royalties of twenty percent (20%) of Net Sales Revenue on Licensed
Products. Such royalty rate shall be reduced to eight percent (8%) on a
country-by-country basis if and when a generic substitute for the Licensed
Products is sold in a country in the Territory and CIBA Vision loses 20% or
more within previous twenty-four (24) months (on a moving basis), anytime
after the introduction of the generic product in that country. CIBA Vision
shall be entitled to specify delivery of Licensed Product from the approved
manufacturer of Licensed Product with the lower cost. In the event the
higher cost manufacturer is selected, such higher cost will be borne
entirely by CIBA Vision.
5.4 Minimum Sales. In each calendar year, CIBA Vision agrees to sell
the following minimum amounts of the Licensed Products:
Year Minimum Net Sales Revenues
---- --------------------------
2000 No Minimum Sales
2001 Euro 2 million
2002 Euro 4 million
2003 Euro 5 million
Thereafter Euro 5 million in each calendar year.
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If CIBA Vision fails to sell the above minimum amounts, and such failure is
not due to insufficient supply by MGI under the Supply Agreement for
whatever reason, MGI may, at its option and effective upon forty-five (45)
days written notice to CIBA Vision, as the sole remedy, convert this
Agreement and the licenses granted under section 2 (but not the Trademark
license according to section 8) to non-exclusive. CIBA Vision's obligations
under this Section 5.4 shall be reduced, country-by-country, on a pro rata
basis (in accordance to the country relative weight as indicated in Exhibit
F) if and when a generic substitute for the Licensed Products is sold in
any country in the Territory.
5.5 Reports. CIBA Vision shall provide to MGI, on or before the date
which shall be forty-five (45) days after the end of each calendar quarter
during the term of this Agreement, a report which shall show Net Sales
Revenue for such calendar quarter by country and the calculation of the
royalties payable. If actual Net Sales Revenue of any Sublicensee for that
quarter is unavailable at the time such quarterly report is due, CIBA
Vision shall include in its report for that quarter a good faith estimate
of such Net Sales Revenue, and an appropriate adjustment for the difference
between the actual and estimated Net Sales Revenue shall be made in the
report for the following quarter, with a corresponding adjustment in the
amount of royalties payable in respect of that quarter.
5.6 Exchange Rates. All payments related to Milestones and Royalties
shall be made in US Dollar currency. For purposes of determining the amount
of Net Sales Revenue during any calendar month, the total of all sales in
each other currency during such month shall be converted into US Dollar
currency at the rate in effect at the close of the last business day of the
month, as reported by the Wall Street Journal.
5.7 Books and Records. During the term of the Agreement and for three
(3) years thereafter, CIBA Vision shall keep accurate and complete records
showing all sales of Licensed Products by CIBA Vision and its Sublicensees.
Such records shall include all information necessary to verify the total
amount and computation of earned royalties hereunder, and shall be open to
inspection and audit, during reasonable business hours, to the extent
necessary to verify the amount of such royalties. Such inspection and audit
shall be conducted at the request and expense of MGI by an independent
Certified Public Accountant appointed by MGI and reasonably acceptable to
CIBA Vision. In the normal course, such inspection and audit shall be made
not more often than once in each calendar year. Such Certified Public
Accountant shall undertake a confidentiality obligation to CIBA Vision
permitting it to disclose to MGI, and only MGI, the amount of the royalties
due hereunder, and no other information. MGI shall bear the costs of any
such inspection and audit; provided that if any inspection and audit
reveals an underpayment of more than five percent (5%), CIBA Vision shall
reimburse MGI for its out-of-pocket costs for such inspection and audit.
5.8 Taxes. All payments to be made by CIBA Vision will be paid from
its place of business in Switzerland to MGI in the United States pursuant
to this Agreement, and represent net amounts that MGI is entitled to
receive, and shall not be subject to withholding or deduction for any
reason whatever. In the event that such payments become subject to duties,
taxes or charges of whatever kind or nature levied by any country other
than the United States, such payments shall be increased to such an extent
as to allow MGI to receive the net amounts due under this Agreement.
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5.9 Payments.
(a) All amounts related to goods shall be payable according to the
terms agreed on in the Supply Agreement (Exhibit B).
(b) All amounts related to royalties payable for any calendar quarter
under Section 5.3 shall be due on the same date as the report
relating to that quarter, as provided in that section 5.5.
(c) All amounts related to License Fees and Milestone payments shall
be due on the dates and in the currencies as indicated in section
5.1 and 5.2.
(d) Each such payment shall be made by wire transfer to the account
of the Party receiving same at a bank designated in writing by
that Party from time to time. Any overdue amounts hereunder shall
bear interest at the rate of twelve percent (12%) per annum, or
the maximum legal interest rate, whichever is lower.
Article 6
INDEMNIFICATION
6.1 Product Liability Claims. Each of the Parties shall indemnify and
hold harmless the other Party, its Affiliates and its Sublicensees from and
against all liabilities, damages, losses, costs and expenses (including
reasonable attorneys' fees) arising out of claims, suits or proceedings
brought by third parties wherein it is alleged that personal injury or
death has resulted from use of the Licensed Product, as follows:
(a) MGI shall indemnify and hold harmless CIBA Vision, its Affiliates
and its Sublicensees if and to the extent that any such claim,
suit or proceeding is based upon alleged or actual (i)
negligence, gross negligence or willful misconduct of or
attributable to MGI in connection with the conduct of preclinical
or clinical testing of any Licensed Product; (ii) negligence,
gross negligence or willful misconduct of or attributable to MGI,
E. Merck, or any contractor of MGI in the manufacture of any
Licensed Product supplied by MGI to CIBA Vision or any of its
Sublicensees; (iii) failure of any Licensed Product supplied by
MGI to CIBA Vision or any of its Sublicensees to conform to the
Product Release Specifications (as defined in the Supply
Agreement) for such Licensed Products or to comply with the
warranties as set forth in the Supply Agreement or with
applicable laws, regulations or administrative decisions; or (iv)
failure of MGI to comply with any provision of this Agreement,
the Supply Agreement or with any applicable laws, regulations
and/or administrative decisions relating to the Licensed
Products; or otherwise arises from the sale or provision of any
Licensed Product by MGI to any third party, except to the extent
subject to indemnification by CIBA Vision pursuant to Section
6.1(b).
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(b) CIBA Vision shall indemnify and hold harmless MGI, its Affiliates
and its Sublicensees if and to the extent that any such claim,
suit or proceeding is based upon alleged or actual (i)
negligence, gross negligence or willful misconduct of or
attributable to CIBA Vision or any of its Sublicensees in
connection with the conduct of any pre-clinical or clinical
testing of any Licensed Product; (ii) negligence, gross
negligence or willful misconduct of or attributable to CIBA
Vision or any of its Sublicensees in the promotion, marketing,
packaging, labeling or sale of any Licensed Product, whether or
not supplied by MGI or (iii) failure of CIBA Vision or any of its
Sublicensees to comply with any provision of this Agreement or
with any applicable laws, regulations and/or administrative
decisions relating to the Licensed Products; or otherwise arises
from the sale or provision of any Licensed Product by CIBA Vision
or its Sublicensees to any third party, except to the extent
subject to indemnification by MGI pursuant to Section 6.1(a).
(c) Whenever either Party shall become aware of a claim, suit or
proceeding in respect of which such Party or any of its
Sublicensees shall be entitled to indemnification under the
provisions of this Agreement, such Party shall give notice in
writing to the other Party, shall permit the other Party to
assume control of the defense or settlement of the matter, and
shall provide, at the expense of the other Party, all authority,
information and assistance which the other Party shall reasonably
request for purposes thereof.
6.2 Further Indemnification. Notwithstanding any other provision
hereof, each Party agrees to indemnify and hold harmless the other Party
from and against any loss, liability, damage or expense (including
reasonable attorney's fees) which the other Party shall suffer, sustain or
become subject to as a direct and proximate result of (i) any gross
negligence or willful misconduct on the part of employees or agents of the
indemnifying Party, its Affiliates or any of its Sublicensees, (ii) any
breach of any covenant or agreement of the indemnifying Party contained in
this Agreement, or (iii) any misrepresentations by the indemnifying Party
in or in connection with this Agreement.
6.3 Subrogation. In the event that either Party shall have indemnified
the other Party under Section 6.1 or Section 6.2, the indemnifying Party
shall be subrogated to the rights of the indemnified Party against any
third party, and such indemnified Party hereby assigns to the indemnifying
Party all claims, causes of action and other rights which the indemnified
Party may then have against any third party, including Sublicensees and, in
the case of MGI, Merck KGaA, or against any contract manufacturer of
Licensed Products supplied under the Supply Agreement, with respect to the
claim, suit or proceeding. Conversely, and without in any way limiting the
obligation of either Party to indemnify the other Party as herein provided,
to the extent that either Party shall fail to perform its indemnification
obligations under Section 6.1 or Section 6.2, such Party owing a duty of
indemnification hereby assigns to the other Party all claims, cause of
action and other rights which the Party owing such duty may then have
against any third party, including Sublicensees and, in the case of MGI,
Merck KGaA, or against any contract manufacturer of Licensed Products
supplied under the Supply Agreement, with respect to the claim, suit or
proceeding.
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6.4 Insurance. Both parties shall procure and maintain adequate
insurance or equivalent coverage in order to be able to cover claims under
this agreement. Upon request, each party shall provide proof of adequate
coverage to the other party.
Article 7
CONFIDENTIALITY
7.1 Non-Use and Non-Disclosure. Each Party acknowledges and agrees
that all the other Party's Confidential Information is confidential and
proprietary to the disclosing Party. Each Party shall not use or disclose
to any third party the other Party's Confidential Information for any
purpose other than as permitted or required hereunder. Each Party shall
take the same reasonable measures necessary to prevent any disclosure by
its employees, agents, contractors, or consultants of the other Party's
Confidential Information as it applies to the protection of its own
Confidential Information.
7.2 Marking. To be entitled to protection as Confidential Information,
all MGI or CIBA Vision documents containing that Party's Confidential
Information shall be appropriately and clearly marked as "Proprietary,"
"Secret," "Confidential," or other words to similar effect. If a disclosure
of Confidential Information is made orally, as in a meeting, the disclosing
Party shall indicate the nature of that information at the time of its
disclosure and shall confirm such designation in writing within ten (10)
days of the date of such disclosure to the receiving Party.
7.3 Exclusions. Information shall not be considered Confidential
Information hereunder if it:
(a) was already in the possession of the receiving Party prior to its
receipt from the disclosing Party, as shown by the receiving
Party's books and records;
(b) is, or becomes, part of the public knowledge or literature
through no fault, act or omission of the receiving Party,
provided, Proprietary Product Information shall not be deemed to
have entered the public domain by reason of its having been filed
with any Competent Authority;
(c) is, or becomes, available to the receiving party from a source
other than the disclosing party, which source has rightfully
obtained the same information and has no obligation of
confidentiality to the disclosing party with respect to it;
(d) is made available on an unrestricted basis by the disclosing
Party to a third party unaffiliated with the disclosing Party; or
(e) is required to be revealed pursuant to law; provided, however,
the receiving Party which is under any such requirement of law
shall give reasonable notice to the disclosing Party of such
requirement and shall cooperate with the disclosing Party in
reasonable legal efforts to limit or mitigate any such revelation
so as to preserve the proprietary nature of any Confidential
Information contained therein.
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7.4 Duration; Surviving Obligation. Each Party's obligations of
non-use and non-disclosure of the other Party's Confidential Information
shall apply during the term of this Agreement and shall also survive for a
period of five (5) years after its termination for any reason.
Article 8
TRADEMARK LICENSE
8.1 License Grant. MGI hereby grants to CIBA Vision an exclusive,
royalty-free right and license, during the term of this Agreement, to use
the Trademark in connection with the marketing, promotion, advertising and
sale or other distribution of the Licensed Products within the Territory
and for no other purpose. Such right and license shall include the right to
grant sublicenses in accordance with Article 9. In the event that the
execution and filing of one or more registered user agreements is required
in connection with the license grant to CIBA Vision or the sublicensing of
any Sublicensee of CIBA Vision under the laws of any country in the
Territory, CIBA Vision shall cause such an agreement to be executed and
filed and provide MGI with evidence of such filing, and MGI shall sign such
documents and otherwise cooperate as necessary to facilitate the filing of
any such agreement.
8.2 Quality Standards. All Licensed Products sold under the Trademark
by CIBA Vision or its Sublicensees, or Co-promotion Partners, shall comply
with reasonable standards adhered to by MGI in its own manufacture and sale
of Licensed Products, which standards shall be provided to CIBA Vision in
writing as soon as feasible, and in any event prior to the filing by CIBA
Vision or its Sublicensees, of the first application for Marketing
Authorization of the Licensed Products in the Territory. Any subsequent
changes in such standards shall be provided to CIBA Vision in writing
sufficiently in advance to permit CIBA Vision reasonably to comply. In
particular, and without limiting the generality of the foregoing, the
following terms and conditions shall apply:
(a) Upon request by MGI, CIBA Vision shall provide MGI with samples
of Licensed Products bearing the Trademark, as well as copies of
all materials, including but not limited to brochures,
professional literature, packaging and consumer instructions,
which are created or intended for use by CIBA Vision or any of
its Affiliates in the advertising, promotion, marketing or sale
of Licensed Products, for examination and testing to verify
compliance with the standards of this Section 8.2. CIBA Vision
shall also permit MGI, at reasonable times, to examine stocks of
Licensed Products held by it or its Sublicensees to verify
compliance with such standards. MGI shall notify CIBA Vision in
writing CIBA Vision shall take reasonable steps to correct the
problem in consultation with MGI.
(b) If MGI notifies CIBA Vision in writing of any nonconformity with
such standards in the Licensed Products sold by CIBA Vision or
its Sublicensees, CIBA Vision shall take all reasonable steps or
measures necessary to ensure that such products are brought into
compliance with the applicable standards.
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8.3 Use of Trademark. CIBA Vision shall market the Licensed Products
under the Trademark; provided, however that if the Trademark is unavailable
or unusable in a particular country in the Territory, the Parties shall
mutually agree on a suitable alternative. In addition, all packages in
which Licensed Products are to be sold to consumers shall, where legally
permissible, bear a legend, stating that Licensed Products are "Sold by
[CIBA Vision or Sublicensee] under License from MGI PHARMA, INC.". CIBA
Vision shall provide to MGI samples of packages bearing the Trademark.
8.4 Registration and Approvals. Attached hereto as Exhibit D is a list
of the registrations and pending applications for registration for the
Trademarks. MGI shall have the sole right to file applications for
trademark registration, and to maintain registrations and pending
applications for the Trademarks in the Territory. However, if MGI fails to
file for a trademark application or to maintain a trademark registration or
pending application in a country in the Territory for more than thirty (30)
days after a respective request by CIBA Vision, CIBA Vision shall have the
right to file for such trademark application or to maintain the trademark
registration or pending application in the name of MGI, and at reasonable
and customary costs to be paid by MGI.
8.5 Reservation of Rights. CIBA Vision acknowledges MGI's proprietary
rights in and to the Trademark, subject to the licenses granted pursuant to
this Agreement. CIBA Vision acknowledges that nothing in this Agreement
shall constitute a grant of any license or right in or to any trademarks,
tradenames or logotypes owned by MGI other than the Trademark. CIBA Vision
shall not adopt, use or register any words, phrases or symbols which are
identical to or confusingly similar to the Trademark and shall not use the
Trademark as part of its corporate or trade name, or in combination with
any other trademark or trade name or permit any third party to do so.
8.6 Infringements. CIBA Vision shall promptly notify MGI upon becoming
aware of any use in the Territory by any third party of the Trademark or of
any similar mark which may constitute an infringement or passing off of the
Trademark. MGI shall have the first right, at its option, to institute
proceedings against third party infringers in respect of infringements
occurring in the Territory. If MGI elects not to institute such proceedings
within a period of thirty (30) days after its discovery of the
infringement, CIBA Vision shall have the right at its option to do so. MGI
shall have the exclusive right in its sole discretion to institute
proceedings against third party infringers in respect of infringements
occurring outside the Territory. Each Party shall cooperate fully with the
other Party in connection with any such proceedings against third-party
infringers, provided that all expenses of such proceedings shall be borne
by the Party instituting the same and any damages which may be awarded or
agreed upon in settlement of such action shall accrue to such Party.
Article 9
SUBLICENSES
9.1 Sublicense Rights. CIBA Vision shall have the right to sublicense
its rights hereunder and shall notify MGI of any sublicense agreement.
9.2 Terms and Conditions of Sublicense Agreements. Each sublicense
agreement with a CIBA Vision Sublicensee shall include terms insuring the
protection of MGI's rights under this Agreement.
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Article 10
FORCE MAJEURE
10.1 Definition and Notice. "Force Majeure" shall mean any event, not
existing as of the Effective Date and not reasonably within the control of
the Parties as of such date, which, in whole or in material part, prevents
or makes commercially unreasonable one Party's performance of its
obligations under this Agreement. Force Majeure shall include, without
limitation: fire, storm, earthquake, flood, acts of State or other
governmental action, war or civil unrest, strikes, and prolonged shortage
of energy or any other supplies. A Party affected by an event of Force
Majeure shall promptly provide the other Party with written notice
describing the event, its cause and foreseeable duration, and its possible
consequences upon performance under this Agreement.
10.2 Suspension of Performance. After an affected Party has given
notice under Section 10.1, that Party shall be relieved of any liability
under this Agreement, except for the obligation to pay amounts due and
owing, but only to the extent and only for so long as the Force Majeure
prevents performance. The other Party may likewise suspend the performance
of all or part of its obligations, except for the obligation to pay any
amounts due and owing, to the extent that such suspension is commercially
reasonable.
10.3 Termination. If the period of Force Majeure continues for more
than one (1) year, either Party may terminate this Agreement upon giving
notice to the other Party without incurring liability other than the
obligation to make payments due to such date.
Article 11
TERM AND TERMINATION
11.1 Term of Agreement. The term of this Agreement shall commence on
the Effective Date and unless earlier terminated in accordance with the
provisions of Article 11, shall continue in full force and effect until the
twelfth (12th) anniversary of the Effective Date. Thereafter the term of
this Agreement shall automatically be extended for additional two (2) year
terms, unless written notice of termination is given by one party. Notice
of intent to terminate on the anniversary of the original term or any
subsequent extension shall be provided no later than 180 days prior to such
anniversary date.
11.2 Termination.
(a) Either Party shall have the right to terminate this Agreement by
written notice to the other Party with immediate effect:
(i) If such other Party (the "breaching party") is in
material breach of its obligations under this Agreement and has
failed to cure such breach within sixty (60) days after its
receipt of written notice thereof from the non-breaching party in
the case of breach of any obligation to make payment as and when
due hereunder, or within ninety (90) days after its receipt of
such written notice in the case of breach of any other material
obligation hereunder.
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(ii) At any time in the event that the other Party has filed
a petition of any type as to its bankruptcy or insolvency, been
declared bankrupt, become insolvent, made an assignment for the
benefit of creditors, gone into liquidation or receivership, or
had a trustee or receiver appointed.
(b) CIBA Vision shall be entitled to terminate this Agreement with
immediate effect if the Supply Agreement is terminated and CIBA
Vision has not been supplied with Licensed Product by for a
period of more than on hundred eighty (180) days.
11.3 Effect of Termination or Expiration. Upon any termination or
expiration of this Agreement; the following provisions shall apply:
(a) Termination or expiration of this Agreement shall not release
either Party from the obligation to make payment of all amounts
then or thereafter due and payable to the other Party hereunder.
(b) The licenses granted to CIBA Vision hereunder shall terminate on
the effective date of such termination; provided, however, that
notwithstanding any such termination or expiration, CIBA Vision
and its Sublicensees shall have the right to sell any remaining
inventory of Licensed Products in the ordinary course of business
and subject to the payment of royalties hereunder. CIBA Vision
shall transfer to MGI all Marketing Authorizations, Health
Registration Dossiers and any other materials prepared for
purposes of or in connection with applications for Marketing
Authorization in the Territory, whether or not such materials
shall have been submitted to any Competent Authority, as promptly
as possible, and shall take such other steps as may be necessary
or useful in order to permit MGI to pursue each existing
application or a substitute application with the minimum possible
loss of the lead-time acquired by reason of CIBA Vision's
application. In addition, within sixty (60) days after the
termination or expiration of this Agreement, CIBA Vision shall
furnish MGI with a list of all of CIBA Vision's customers to whom
it sold Licensed Products in the last year prior to such
termination.
(c) Subject to its rights to sell remaining inventory, upon any
termination or expiration, CIBA Vision shall cease and desist
from use of the Trademark in any manner. CIBA Vision hereby
grants to MGI in the event of such termination or expiration,
full power of attorney, with the right of substitution, to
cancel, revoke or withdraw any governmental registration or
authorization permitting CIBA Vision to use the Trademark in the
Territory and agrees to provide such further documentation and
assistance as MGI may reasonably request in connection therewith.
(d) The Parties' respective rights and obligations under Article 6
(Indemnification) shall survive termination or expiration of this
Agreement. The Parties' respective rights and obligations under
Article 7 (Confidentiality) shall survive termination or
expiration for a period of three (3) years following expiration
of this Agreement.
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(e) Such termination shall be without prejudice to any other remedies
to which the Parties may be entitled in respect of breach of this
Agreement.
Article 12
LIMITATION OF LIABILITY
12.1 Limitation of Liability. EXCEPT FOR ANY BREACH OF SECTION 4.2
(LOYALTY) OR ARTICLE 7 (CONFIDENTIALITY) OR PERSONAL INJURY, IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY
SHALL HAVE BEEN ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH POTENTIAL
LOSS OR DAMAGE.
Article 13
DISPUTE RESOLUTION
13.1 Negotiation. The Parties agree to consult and negotiate in good
faith to try to resolve any dispute, controversy or claim that arises out
of or relates to this Agreement. Except as provided in Section 13.2, no
formal dispute resolution shall be used by either Party unless and until
the chief executive officers of each Party shall have attempted to meet in
person to achieve such an amicable resolution.
13.2 Reservation for Litigation. Notwithstanding Section 13.3 below,
each Party expressly reserves the right to seek judicial relief (including,
without limitation, an injunction or other preliminary relief) from a court
of competent jurisdiction.
13.3 Arbitration. Subject to the reservation of the Parties under
Section 13.2 above, any dispute, controversy or claim that arises out of or
relates to this Agreement that is not resolved under Section 13.1 shall be
settled by final and binding arbitration in accordance with the
International Arbitration Rules of the American Arbitration Association
("AAA") in effect on the Effective Date, as modified by Section 13.4 below.
Judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction. The place of arbitration shall be
Minneapolis, Minnesota, U.S.A. The arbitration shall be conducted in the
English language by three (3) neutral arbitrators selected by mutual
agreement of the Parties or, if that is not possible within thirty (30)
days of the initial demand for such arbitration, by the AAA. At least one
(1) arbitrator shall have knowledge of and experience in the ethical
pharmaceutical industry, and at least one (1) arbitrator shall have
knowledge of and experience in international law and technology licensing.
13.4 Special Rules. Notwithstanding any provision to the contrary in
the AAA's International Arbitration Rules, the Parties hereby stipulate
that any arbitration hereunder shall be subject to the following special
rules:
(a) The arbitrators may not award or assess punitive damages against
either Party; and
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(b) Each Party shall bear its own costs and expenses of the
arbitration and one-half (1/2) of the fees and costs of the
arbitrators, subject to the power of the arbitrators, in their
sole discretion, to award all such reasonable costs, expenses and
fees to the prevailing Party.
Article 14
REPRESENTATIONS AND WARRANTIES
14.1 By MGI. MGI hereby represents and warrants to CIBA Vision as
follows:
(a) MGI has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
Minnesota, with corporate power to conduct any lawful business
activity. MGI has the corporate power and authority to enter into
this Agreement and the Supply Agreement and to consummate the
transactions contemplated by this Agreement and the Supply
Agreement.
(b) The execution, delivery and performance of this Agreement and the
Supply Agreement, and the consummation of the transactions
contemplated by this Agreement and the Supply Agreement, by MGI
have been duly and validly authorized by all requisite corporate
action. This Agreement and the Supply Agreement have been duly
executed and delivered by MGI and constitute the legal, valid and
binding obligations of MGI, enforceable against MGI in accordance
with their respective terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting the rights of creditors
generally, and by general principles of equity.
(c) The execution, delivery and performance of this Agreement and the
Supply Agreement, and the consummation of the transactions
contemplated by this Agreement and the Supply Agreement, by MGI
do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation
of, or require any authorization, consent (except as may have
been obtained), approval, exemption or other action by or notice
to any court or governmental body, under the provisions of MGI's
Restated Articles of Incorporation or bylaws or any indenture,
mortgage, lease, loan agreement, license or other agreement or
instrument to which MGI is a party, or of any law, statute, rule
or regulation or order, judgment or decree to which MGI is
subject.
(d) MGI has received no notice from E. Merck that it is in material
breach of any of its obligations under the E. Merck Agreement;
and MGI is in compliance in all material respects with the E.
Merck Agreement.
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(e) It is the owner of, or is otherwise entitled to provide to CIBA
Vision and to authorize CIBA Vision to use in the manner
contemplated in this Agreement, all information and data,
including but not limited to any applicable Drug Master Files
and/or Health Registration Dossiers, which it shall provide to
CIBA Vision under and for purposes of this Agreement. Such
warranty shall be deemed to have been reaffirmed, upon each
delivery of information and/or data hereunder, by MGI.
(f) To the best knowledge of MGI, and after diligent research by MGI
with respect to the countries listed in Exhibit D, the use,
marketing, promotion and sale of the Licensed Products under the
Trademark in those countries do not infringe any third party
Patents and/or Trademark rights.
14.2 By CIBA Vision. CIBA Vision hereby represents and warrants to MGI
as follows:
(a) CIBA Vision has been duly organized and is validly existing as a
corporation under the laws of Switzerland, with full corporate
power to conduct the business contemplated by this Agreement and
the Supply Agreement. CIBA Vision has the corporate power and
authority to enter into this Agreement and the Supply Agreement
and to consummate the transactions contemplated by this
Agreement.
(b) The execution, delivery and performance of this Agreement and the
Supply Agreement, and the consummation of the transactions
contemplated by this Agreement and the Supply Agreement, by CIBA
Vision have been duly and validly authorized by all requisite
corporate action. This Agreement and the Supply Agreement have
been duly executed and delivered by CIBA Vision and constitute
the legal, valid and binding obligations of CIBA Vision,
enforceable against CIBA Vision in accordance with their
respective terms, except as enforceability thereof may be limited
by bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the rights of creditors generally, and
by general principles of equity.
(c) The execution, delivery and performance of this Agreement and the
Supply Agreement, and the consummation of the transactions
contemplated by this Agreement and the Supply Agreement, by CIBA
Vision do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation
of, or require any authorization, consent (except as may have
been obtained), approval, exemption or other action by or notice
to any court or governmental body, under the provisions of CIBA
Vision's Articles of Association or any indenture, mortgage,
lease, loan agreement, license or other agreement or instrument
to which CIBA Vision is a party, or of any law, statute, rule or
regulation or order, judgment or decree to which CIBA Vision is
subject.
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(d) It is the owner of, or is otherwise entitled to provide to MGI
and to authorize MGI to use in the manner contemplated in this
Agreement, all information and data, including but not limited to
any applicable Drug Master Files and/or Health Registration
Dossiers, which it shall provide to MGI under and for purposes of
this Agreement. Such warranty shall be deemed to have been
reaffirmed, upon each delivery of information and/or data
hereunder, by CIBA Vision.
Article 15
ADDITIONAL COVENANTS OF MGI
E. Merck Agreement. During the term of this Agreement, MGI agrees fully to
comply with its obligations and to diligently enforce its rights under the E.
Merck Agreement to the extent necessary to preserve its exclusive rights in the
Territory thereunder and to preserve its rights to the supply of pilocarpine
drug substance, except to the extent that such compliance is dependent upon CIBA
Vision and its Sublicensee or is commercially unreasonable. MGI agrees to
provide CIBA Vision with copies of any amendments to or modifications of the E.
Merck Agreement which may be proposed from time to time, sufficiently in advance
of execution to allow CIBA Vision a reasonable time to comment. MGI shall not
terminate the E. Merck Agreement, or agree to any amendment to or modification
of the E. Merck Agreement which may adversely affect any rights of CIBA Vision
under this Agreement or the ability of MGI to perform its obligations under this
Agreement, without the prior written consent of CIBA Vision, which consent shall
not unreasonably be withheld.
Article 16
MISCELLANEOUS
16.1 Entire Agreement. This Agreement, including Exhibits A through F
attached hereto and incorporated as an integral part of this Agreement, and
the Supply Agreement constitute the entire agreement of the Parties with
respect to the subject matter hereof, and supersede all previous agreements
by and between the Parties as well as all proposals, oral or written, and
all prior or contemporaneous negotiations, conversations or discussions
between the Parties related to this Agreement.
16.2 Relationship. The Parties are independent contractors and shall
not be deemed to have formed any partnership, joint venture or other
relationship. Neither Party shall make, or represent to any other person
that it has the power or authority to make, any financial or other
commitment on behalf of the other Party.
16.3 Assignment. Subject to section 9 of this agreement, neither Party
shall have the right to assign or otherwise transfer its rights and
obligations under this Agreement except with the prior written consent of
the other Party, provided that a successor in interest by merger, operation
of law, assignment, purchase or otherwise of substantially all of the
business and assets of either Party shall acquire all rights and
obligations of such Party hereunder without any such consent.
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16.4 Notices; Language. Except as may be otherwise provided in this
Agreement, any notice, demand or request given, made or required to be made
shall be in writing and shall be effective, unless otherwise provided
herein, when received after delivery by (a) registered air mail, postage
prepaid; (b) facsimile with electronic confirmation of receipt; or (c) a
reputable international courier such as Federal Express or DHL at the
addresses set forth below or to any other address that a Party specifies in
writing. All reports, notices and communications required or permitted
hereunder shall be in the English language.
If to MGI: MGI PHARMA, INC.
6300 West Old Shakopee Road
Bloomington, MN 55438-2318
USA
Facsimile 612-346-4800
Attention: Legal Department
With copy to: Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile: 612-340-8827
Attention: Tim Hearn, Corporate Counsel
If to CIBA Vision: CIBA Vision AG
Grenzstrasse 10
CH-8180 Bulach
Switzerland
Facsimile: 41-1-862 03 85
Attention: Head Ophthalmic Business Unit
With copy to: Legal Department
Facsimile: 41-1-862 03 84
16.5 Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the law of the State of
Minnesota, USA, excluding Minnesota's choice of law rules.
16.6 Amendment. This Agreement may not be modified or amended, in
whole or in part, except by written agreement signed by both Parties.
16.7 Severability. If one or more of the provisions of this Agreement
is subsequently declared invalid or unenforceable, this Agreement shall be
treated as though that provision were not in this Agreement, and this shall
not affect the validity or enforceability of the remaining provisions of
this Agreement (unless those provisions that are invalidated or
unenforceable are clearly material and inseparable from the other
provisions). The Agreement as modified shall be applied and construed to
reflect substantially the good faith intent of the Parties and to achieve
the economic effects originally intended by the terms hereof.
16.8 Counterparts. This Agreement shall be executed in two or more
counterparts , and each such counterpart shall be deemed an original
hereof.
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16.9 Waiver. No failure by either Party to take any action or assert
any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to
such right.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the Effective Date.
MGI PHARMA, INC. CIBA VISION AG
By /s/ Charles N. Blitzer By /s/ Luzi von Bidder
------------------------------------- -------------------
Charles N. Blitzer Luzi von Bidder
President and Chief Executive Officer President, Ophthalmic
Business Unit
By /s/ Robert M. Johnson By /s/ Simon Martin
------------------------------------- ----------------
Robert M. Johnson, Vice President Simon Martin, Vice President
Manufacturing & International Business Development and
Operations Licensing
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<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 MARCH 31, 2000, AND THE
RELATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,602,682
<SECURITIES> 20,220,792
<RECEIVABLES> 2,836,747
<ALLOWANCES> 140,464
<INVENTORY> 947,344
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0
0
<COMMON> 28,552,144
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<TOTAL-REVENUES> 5,942,811
<CGS> 304,071
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<OTHER-EXPENSES> 1,804,218
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<PAGE>
Exhibit 99
MGI PHARMA, INC.
Report on Form 10-Q
March 31, 2000
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 "safe harbor"
for 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. We desire to take
advantage of these "safe harbor" provisions and are filing this Exhibit 99 in
order to do so. Accordingly, we hereby identify the following important factors
which could cause our actual results to differ materially from any such results
which may be projected, forecast, estimated or budgeted by us in forward-looking
statements made by us 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 do not intend to update any of these forward-looking statements after
the date of this Form 10-Q to conform them to actual results.
If we are unable to sustain profitability in the future, we may be unable to
continue our operations.
We have a limited history of profitability. In order to maintain our
profitability, we must continue to generate revenues from the sale of our
commercially available products, particularly Salagen(R) Tablets, at or beyond
current levels. In addition, our ability to remain profitable will depend upon
the amount of operating expenses that we incur in the future, including expenses
relating to the development and commercialization of irofulven and any other
products that we acquire or develop. We expect to significantly increase our
research and development expenses over the next several years as we continue to
devote resources to the development and commercialization of irofulven.
Therefore, unless we are able to significantly increase revenues from the sale
of Salagen Tablets and our other commercially available products, we will not be
able to maintain our profitability at recent levels, if at all. Any adverse
events relating to the sale of Salagen Tablets, including increased competition
in the markets in which we compete, could adversely impact our ability to
generate such revenues. For example, as a result of the expiration of our orphan
drug status in March 2001 for
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the treatment of symptoms of radiation-induced xerostomia in head and neck
cancer patients and in 2005 for the Sjogren's syndrome indication, could
adversely impact our ability to generate such revenues. Furthermore, because
research and development costs are generally fixed, a delay or decline in
revenues from the sale of our currently available products could cause our
operating results to decline significantly in any given quarter. If we are
unable to maintain our profitability, our ability to continue our business
operations as planned may be harmed.
Our operating results may fluctuate significantly, which may adversely affect
our stock price.
If our operating results do not meet the expectations of investors or securities
analysts, our stock price may decline. Our operating results may fluctuate
significantly from period to period due to a variety of factors including:
o changing demand for our current products, particularly Salagen
Tablets;
o the introduction by others of competing products;
o the pace and breadth of our development programs;
o expenditures incurred to acquire or license and promote additional
products;
o availability of product supply from third-party manufacturers;
o changes in sales and marketing expenditures; and
o the timing of licensing and royalty revenues.
Variations in the timing of our future revenue could cause significant
fluctuations in operating results from period to period and may result in
unanticipated earnings shortfalls or losses. Therefore, we do not believe that
period-to-period comparisons of our operating results are meaningful. However,
securities analysts and investors may set expectations about our business based
upon past operating results. Consequently, if our operating results do not
follow past trends, our stock price may decline.
We depend upon the sale of Salagen Tablets for substantially all of our product
revenues. If any factor adversely impacts sales of Salagen Tablets, our product
revenues will decrease and may decrease significantly.
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We currently derive substantially all of our product revenues from the sale of
Salagen Tablets. U.S. sales of Salagen Tablets represented 98 percent of our
total product sales and 75 percent of our total revenue in the first quarter of
2000, and represented 97 percent of our total product sales and 70 percent of
our total revenue for the year ended December 31, 1999. Any factor adversely
affecting sales of Salagen Tablets could have a material adverse effect on our
business, financial condition and results of operations. In March 2001, our
orphan drug status for Salagen Tablets as a treatment for the symptoms of
radiation-induced xerostomia in head and neck cancer patients will expire. As a
result, competing generic products may enter this market. In addition, we are
currently aware of two other competing products which have already been approved
for commercial sale. If sales of Salagen Tablets decline as a result of this
competition, or for any other reason, our product revenues will decline.
If we do not receive regulatory approvals of irofulven or any of our other
product candidates, or if regulatory approval is delayed for any reason, we will
be unable to commercialize and sell our products as we expect.
Government regulation in the United States and abroad is a significant factor in
the development, manufacturing 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, we must also submit any
labeling, advertising and promotional material to the FDA for review. There is a
risk that the FDA will prohibit use of the marketing material in the form we
desire, which could have a material, adverse effect on our business, financial
condition and results of operations.
Further research and development of irofulven, including further extensive human
clinical testing, will be required prior to submission of a regulatory
application for commercial sale of irofulven. 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 regulatory authorities
in the United States and elsewhere, may not allow us to conduct planned
additional clinical testing of irofulven or any of our other product candidates.
There is also a risk that,
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if permitted, this additional clinical testing will not prove that irofulven is
safe and effective to the extent necessary to permit us to obtain marketing
approvals from regulatory authorities. In addition, interim or final results
obtained in preclinical studies or in Phase 1 and Phase 2 human clinical trials
are not necessarily indicative of results that will be obtained in subsequent or
more extensive testing and commercial experience.
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
manufacturing and 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 policy during the
period of development, or (2) changes in the requirements for regulatory review
of each submitted New Drug Application, or NDA. Even if the FDA approves the
marketing application of a product, this 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 this product or manufacturer that could affect
the commercial viability of the product or could require 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.
Clinical trials are complex and unpredictable and may produce unexpected results
which could affect our ability to commercialize our products.
Before obtaining regulatory approvals for the commercial sale of any product
under development, including irofulven, we must demonstrate through preclinical
studies and clinical trials that the product is safe and effective for use in
each target indication. We have not commenced Phase 3 clinical trials on any of
our product candidates and we will most likely be required to do so before
submitting an NDA for any product candidate. The results from preclinical animal
studies and early human clinical trials may not be predictive of results that
will be obtained in larger scale testing. Some of the results we are announcing
from Phase 2 clinical trials are interim
4
<PAGE>
results and may not be predictive of future results, including final results
from such Phase 2 trials, because, among other factors, patient enrollment and
the time period for evaluating patient results are not complete. Our clinical
trials may not demonstrate the safety and efficacy required for marketing
approval of a product. Failure to adequately demonstrate the safety and efficacy
of a therapeutic product would 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, require 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 previous animal and human
studies.
The time required to complete clinical trials is dependent upon, among other
factors, the rate of patient enrollment. Patient enrollment is a function of
many factors, including:
o the size of the patient population;
o the nature of the protocol requirements;
o the diversion of patients to other trials or marketed therapies;
o our ability to recruit and manage clinical centers and associated
trials;
o the proximity of patients to clinical sites; and
o the patient eligibility criteria for the study.
Factors, such as lack of efficacy and unacceptable toxicities may result in
increased costs and delays or termination of clinical trials prior to
completion. In addition, delays in manufacturing of product for our clinical
trials could impact our ability to complete our clinical trials as planned.
Furthermore, clinical trials must meet various FDA requirements, such as
institutional review board oversight, informed consent, and conformance with
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.
5
<PAGE>
We depend on a single supplier to provide us with the active ingredient for the
production of Salagen Tablets. If such supplier terminates its relationship with
us, or is unable to fill our demand for the ingredient, we may be unable to
produce Salagen Tablets for commercial sale.
We rely on the Fine Chemicals Division of Merck KgaA as our sole and exclusive
supplier of oral-grade pilocarpine hydrochloride, the active pharmaceutical
ingredient in Salagen Tablets. To our knowledge, there is currently no other
producer of pharmaceutical-grade pilocarpine hydrochloride that is capable of
meeting our commercial needs. If our relationship with Merck KgaA terminates, or
Merck KgaA is unable to meet our needs for any reason, we will need to find an
alternative source of pilorcarpine hydrochloride. If we are unable to identify
an alternate source, we may be unable to continue producing Salagen Tablets for
commercial sale. Even if we were able to procure adequate supplies of
pilocarpine hydrochloride from an alternate source, any disruption in our supply
of pilocarpine hydrochloride could have a material adverse effect on our ability
to meet customer demand for Salagen Tablets.
If our third-party manufacturers of Salagen Tablets or any of our other products
cease operations or fail to comply with applicable manufacturing regulations, we
may not be able to meet customer demand in a timely manner, if at all.
We do not have manufacturing facilities and we rely on one third-party
manufacturer for the production of each of our products, including Salagen
Tablets. We intend to continue to rely on others to manufacture any future
products, including any products that we may acquire, and we have no plans to
establish manufacturing facilities. The manufacture of our products is, and will
be, subject to "good manufacturing practices" regulations prescribed by the FDA
or other standards prescribed by the appropriate regulatory agency in the
country of use. There is a risk that our manufacturers, including the current
manufacturer of Salagen Tablets, will not comply with all applicable regulatory
standards, and may not be able to manufacture Salagen Tablets or any other
product for commercial sale. If this occurs, we might not be able to identify
another third-party manufacturer on terms acceptable to us, or any other terms.
Material changes to an approved product, such as manufacturing changes or
additional labeling claims, require further FDA review and approval. Once
obtained, any approval may be withdrawn. Further, if we, our corporate partners
or our contract manufacturers fail to comply with applicable FDA and other
regulatory requirements at any stage during the regulatory process, the FDA may
impose sanctions, including:
6
<PAGE>
o marketing or manufacturing delays;
o warning letters;
o fines;
o product recalls or seizures;
o injunctions;
o refusal of the FDA to review pending market approval applications or
supplements to approval applications;
o total or partial suspension of production;
o civil penalties;
o withdrawals of previously approved marketing applications; or
o criminal prosecutions.
We derive additional product revenues from co-promotion arrangements. If these
arrangements terminate for any reason, our revenues will be adversely affected.
In 1999, we entered into agreements with Pharmacia & Upjohn Company to co-
promote Azulfidine EN-tabs(R) in the United States and with Connetics
Corporation to co-promote Luxiq(TM) and Ridaura(R) in the United States. These
co-promotion arrangements provide us with revenue to fund our operations. The
initial term of our agreement with Connetics for the co-promotion of Ridaura is
scheduled to conclude in September 2000, and we can not provide assurance that
it will be extended or renewed. We have no control over how our co-promotion
partners run their own businesses, and existing or future co-promotion partners
may pursue and develop drugs which compete with our co-promoted products. If our
co-promotion partners terminate these arrangements for any reason, or if we fail
to successfully co-promote these products, our revenues could be adversely
affected.
Our business strategy depends on our ability to identify and acquire mid to
late-stage product candidates or approved products.
As part of our business strategy we plan to identify, acquire and develop mid to
late-stage product candidates and identify and acquire approved products for
markets that we can reach through our marketing and distribution channels. If we
fail to acquire, develop and commercialize additional products or product
candidates, or fail
7
<PAGE>
to promote or market commercially successful products, our future business and
results of operations could be materially and adversely affected. Because we do
not directly engage in basic research or drug discovery, we must rely upon third
parties 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 or product candidates.
We may not be able to acquire rights to additional products on acceptable terms,
if at all. Furthermore, we may not be able to successfully develop any product
candidates we acquire. In addition, we may acquire new products with different
marketing strategies, distribution channels and bases of competition than those
of our current products. Therefore, we may not be able to compete favorably in
those product categories.
If we are unable to enter into and maintain relationships with third-party
collaborators, our research and development costs may increase, and we may not
be able to develop any of our product candidates in a timely manner, if at all.
We have entered into relationships with third-party collaborators, including
manufacturers, to assist us in the development of our product candidates. If any
of our collaborators breaches or terminates its agreement with us, or otherwise
fails to conduct its collaborative activities in a timely manner, we may
experience significant delays in the development or commercialization of the
product candidate or the research program covered by the agreement and may be
required to devote additional funds or other resources to these activities.
Furthermore, if we are unable to enter into alternative arrangements to continue
these activities, or are unable to continue these activities on our own, we may
be required to terminate the development program.
Our continued success will depend in large part upon the efforts of outside
parties. For the research, development, manufacture and commercialization of our
products, we will likely enter into various arrangements with other
corporations, licensors, licensees, outside researchers, consultants and others.
However, we cannot assure you that:
o we will be able to negotiate acceptable collaborative arrangements to
develop or commercialize our products;
o any arrangements with third-parties will be successful;
o current or potential collaborators will not pursue treatments for
other diseases or seek alternative means of developing treatments for
the diseases targeted by our programs or products; or
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<PAGE>
o the FDA will believe that our third-party manufacturers are in
compliance with good manufacturing practice requirements, which could
interrupt product supply or result in recall of previously distributed
products.
We rely on multinational and foreign pharmaceutical companies to develop and
commercialize our products and product candidates in markets outside the United
States.
Our strategy for commercialization of our products in foreign markets is to
enter into development and marketing alliances with multinational and foreign
pharmaceutical companies. We have entered into alliances with various companies
related to the marketing of Salagen Tablets in markets outside the United
States. We have entered into an agreement with Dainippon Pharmaceutical Co.,
Ltd. for the development and commercialization of irofulven in Japan. Revenues
from strategic alliances typically include milestone payments and payments based
on product sales. Our continued relationships with strategic partners are
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.
In April 2000, we entered into an agreement with CIBA Vision AG to replace
Chiron B.V. as our partner for the sale of Salagen Tablets in Europe. During the
transition of regulatory and marketing responsibilities from Chiron B.V. to CIBA
Vision AG, issues may arise that could delay CIBA Vision's commercialization
plans for Salagen Tablets.
We depend upon licensing revenue from our marketing partners for a material
portion of our total revenue. Future licensing revenues from these partners
will likely fluctuate from quarter to quarter and year to year depending on:
o the achievement of milestones by us or our partners;
o the amount of product sales and royalty generating activities; and
o the timing of initiating additional licensing relationships.
We believe that our partners in these alliances have an economic motivation to
perform their contractual responsibilities, but we cannot 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
9
<PAGE>
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 future alliances will not be
successful.
If we fail to compete successfully with our large, multinational competitors,
our revenues and operating results will be harmed.
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 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. Currently, MedImmune Oncology, Inc. and SnowBrand
Pharmaceuticals, Inc. have drugs that are approved for sale and compete in the
same markets as Salagen Tablets. Other pharmaceutical companies are developing
products which, if approved by the FDA, will compete directly with Salagen
Tablets. 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, or priced less
than our product, then our business, financial condition and results of
operations could be materially and adversely affected.
If we fail to obtain additional capital to grow our business, we may be unable
to complete our product acquisition, licensing and development programs.
We may need to raise additional funds for various reasons including the
following:
o to fully develop irofulven and other acylfulvene analogs;
o to acquire or license additional products;
o to develop products we have acquired;
o to support the marketing and sales of additional products;
o to obtain necessary working capital; and
o 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
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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.
We are dependent on our key personnel. If we are not able to attract and retain
key employees and consultants, our business could be harmed.
We are highly dependent on the members of our scientific and management staff.
If we are not able to retain any of these persons, our business may suffer. For
us to pursue product development, marketing and commercialization plans, we will
need to hire additional qualified scientific personnel to perform research and
development. We will also need to hire personnel with expertise in clinical
testing, government regulation, manufacturing, sales, marketing and finance. We
may not be able to attract and retain personnel on acceptable terms, given the
competition for such personnel among biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions. If we
are not able to attract and retain qualified personnel, our business will
suffer.
If we are unable to keep up with rapid technological changes in the
pharmaceutical or biotechnology industries, we may be unable to continue our
operations.
The pharmaceutical and biotechnology industries have experienced rapid and
significant technological change. We expect that pharmaceutical technology and
biotechnology will continue to develop rapidly. Our future success will depend,
in large part, on our ability to develop and maintain technology that is
competitive. 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 regimens, 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.
If we are unable to obtain intellectual property protection, or protect our
proprietary technology, we may be unable to compete effectively.
Our ability to compete effectively with other companies will depend, in part, on
our ability to:
o maintain the proprietary nature of our products; and
o obtain patent and other proprietary rights.
11
<PAGE>
We were awarded orphan drug status for Salagen Tablets in 1994 as a treatment
for the symptoms of xerostomia induced by radiation therapy in head and neck
cancer patients and in 1998 for the symptoms of dry mouth associated with
Sjogren's syndrome. Orphan designation provides market exclusivity for seven
years after the product is approved for marketing. Our orphan drug protection
for Salagen Tablets will expire in March 2001 for the treatment of symptoms of
radiation-induced xerostomia in head and neck cancer patients and in 2005 for
the Sjogren's syndrome indication. Upon expiration of our orphan drug protection
for Salagen Tablets, we may face competition from manufacturers of generic
versions of Salagen Tablets.
We hold an exclusive, worldwide license on patents and patent applications
covering acylfulvene proprietary rights including: (1) acylfulvene analogs,
including irofulven and use of irofulven as a cancer therapy agent; (2) the
method of treating tumors using acylfulvene analogs; and (3) synthetic methods
for preparing acylfulvenes. The license applicable to these technologies is
subject to certain statutory rights held by the U.S. Government.
Even though we have licensed patents pertaining to acylfulvene analogs, methods
of treating tumors using such analogs and synthetic methods for preparing
acylfulvenes, this does not mean that we have exclusive rights to all possible
acylfulvene analogs, all possible methods of using acylfulvene analogs to treat
tumors or all possible synthetic methods for preparing acylfulvenes.
Our competitive position also depends, in part, on our ability to:
o enforce our patent rights; and
o operate without infringing upon the proprietary rights of others.
We will be able to protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. Our pending
patent applications, those we may file in the future, or those we license from
third parties, may not result in patents being issued. Patents, if issued, may
be challenged, invalidated or circumvented. In addition, other entities may
develop similar technologies that fall outside the scope of our patents. Thus,
any patent rights that we own or license from third parties may not provide
sufficient protection against potential competitors.
It is possible that our core technologies or activities taken in the course of
developing or selling our products will infringe the
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patents of others. In the event that our technologies infringe the patents or
violate other proprietary rights of third parties and those patents or rights
are enforceable, we and our corporate partners may be prevented from pursuing
product development or commercialization. The laws of foreign countries may not
protect our intellectual property rights to the same extent as do the laws of
the United States.
In addition to patents, we rely on trade secrets and proprietary know-how. We
protect our proprietary technology and processes in part by confidentiality
agreements with our collaborative partners, employees and consultants. There is
a risk that:
o these confidentiality agreements will be breached;
o we will not have adequate remedies for any breach of these agreements;
o our trade secrets will otherwise become known; or
o our trade secrets will be independently discovered and used by
competitors.
If the validity of our patents or other proprietary rights are successfully
challenged, our business will suffer.
The biotechnology and pharmaceutical industries have been characterized by
litigation regarding patents and other intellectual property rights. The defense
and prosecution of intellectual property lawsuits, United States Patent and
Trademark Office interference proceedings and related legal and administrative
proceedings in the United States and internationally involve complex legal and
factual questions. As a result, such proceedings are costly and time-consuming
to pursue and their outcome is uncertain. Litigation may be necessary to:
o enforce our issued and licensed patents;
o protect trade secrets or know-how that we own or license; or
o determine the enforceability, scope and validity of the proprietary
rights of others.
If we become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expense and the efforts of our technical
and management personnel will be diverted. An adverse determination may subject
us to significant liabilities or require us to seek licenses that may not be
available from third parties on commercially favorable terms, if at all.
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Therefore, we and our collaborative partners may be restricted or prevented from
manufacturing and selling products employing our acylfulvene technology or our
other proprietary technologies.
In some cases, litigation or other proceedings may be necessary to defend
against or to assert claims of infringement, to enforce patents issued to us or
our licensors, to protect trade secrets, know-how or other intellectual property
rights owned by us, or to determine the scope and validity of the proprietary
rights of third parties. This litigation could result in substantial costs to
us. An adverse outcome in this litigation or proceeding could subject us to
significant liabilities, requiring us to cease using the technology or to
license the technology from the third party. This could have a material, adverse
effect on our business, financial condition and results of operations.
If the use of one of our products harms people, we may be subject to costly and
damaging product liability 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 effect on our
business, financial condition and results of operations.
In addition to product liability risks associated with sales of products, we may
be liable to the claims of individuals who participate in clinical trials of our
products. A number of patients who participate in trials are already critically
ill when they enter a trial. We cannot assure you that any waivers we may obtain
will protect us from liability or the costs of product liability litigation. Our
product liability insurance may not provide adequate protection against
potential liabilities. Moreover, we may not be able to maintain our insurance on
acceptable terms. As a result of these factors, a product liability claim, even
if successfully defended, could have a material, adverse effect on our business,
financial condition and results of operations.
If we are required to issue a product recall, our future business, results of
operations and financial condition could be harmed.
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Product recalls may be issued at our discretion or at the discretion of the FDA
or other government agencies having regulatory authority for product sales.
Product recalls may occur due to manufacturing issues, safety concerns 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.
If we are unable to obtain adequate reimbursement from government health
administration authorities, private health insurers and other organizations, our
business, results of operations and financial condition could be harmed.
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. Salagen Tablets generally have been
eligible for reimbursement from third-party payors, however, 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 healthcare 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 healthcare
products. Federal and state regulations govern or influence the reimbursement
status of healthcare 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 healthcare system have been proposed in recent
years. Although we cannot predict whether any of these proposals will be
adopted, 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
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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.
Our operations, and the operations of our third party contractors, involve
hazardous materials which could expose us to liability if environmental damage
occurs.
Our business activities involve the controlled use of hazardous materials. We
cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of an accident or environmental discharge, we may be
held liable for any resulting damages, which may exceed our financial resources
and may materially, adversely affect our business, financial condition and
results of operations.
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