FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1995
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: 0-15070
Alpha 1 Biomedicals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1253406
(State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or
organization)
Two Democracy Center
6903 Rockledge Drive, Suite 1200
Bethesda, Maryland 20817
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (301) 564-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
None which registered
N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value (Title of Class)
Class C Warrants (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The approximate aggregate market value of voting stock held by nonaffiliates
of the registrant is $3,780,000 as of March 26,
1996. *
The number of shares of registrant's Common Stock outstanding as of March
26, 1996: 8,977,429
Documents Incorporated by Reference
Document Form 10-K Part(s)
None
*The number of shares held by nonaffiliates was determined by
excluding from the number of shares outstanding 336,724 shares of
Common Stock held by directors and officers outstanding at March 26,
1996. Exclusion of shares held by any person should not be construed
to indicate that such person possesses the power, directly or
indirectly, to direct or cause the direction of management and
policies of the registrant, or that such person controls, is
controlled by or is under common control with the registrant.
PART I
Item 1. Business
General
Alpha 1 Biomedicals, Inc. (the "Company") is engaged in the
development of pharmaceutical products. Since its inception in 1982,
the Company's primary activities have consisted of research and
development and the conduct of clinical trials involving several
peptides to which the Company holds proprietary rights.
The current focus of the Company's research and development
efforts is the evaluation of Thymosin beta 4. Recent results from
preclinical experiments have indicated the potential for developing
Thymosin beta 4 as a treatment for cystic fibrosis and possibly other
diseases or conditions. In late 1994, the Company instituted a
development program which has as its initial objective the initiation
of one or more human clinical trials in cystic fibrosis patients.
This program has been suspended pending the receipt of additional
financing. See "Thymosin Beta 4 Development Program."
The Company's earlier product development program involved
primarily the evaluation of Thymosin alpha 1, either solely or in
combination with other agents, as a treatment for a number of specific
disease indications and as a vaccine adjuvant. As part of its
development effort, the Company initiated, sponsored or provided drug
for a number of clinical trials involving Thymosin alpha 1, including
most significantly a Phase III multi-center trial to evaluate the
efficacy of the drug as a treatment for chronic hepatitis B. This
trial did not produce positive results. The Company's developmental
activities involving Thymosin alpha 1 concluded in 1994 with the
licensing by the Company of its proprietary rights to Thymosin alpha 1
to SciClone Pharmaceuticals, Inc. ("SciClone") as part of the
settlement of an arbitration proceeding between the companies. See
"Licensing of Thymosin Alpha 1 Rights."
On September 19, 1995, the Company terminated the joint venture
formerly established to develop certain discoveries for diagnosis or
treatment of Acquired Immunodeficiency Syndrome ("AIDS"). The joint
venture, Viral Technologies, Inc. ("VTI"), was 50% owned by the
Company and 50% owned by CEL-SCI Corporation, a publicly-held
biomedical company ("CEL-SCI"). On October 30, 1995, the Company sold
its 50% interest in VTI to CEL-SCI. See "Viral Technologies Joint
Venture".
In February 1996, the Board of Directors of the Company, due to
the financial circumstances of the Company, approved a plan which
provides for the termination of all ongoing research and development
activities, a reduction in leased space, a reduction in certain
salaries and the severance of administrative staff. The Company also
has entered into negotiations with its major vendors in which it is
seeking to defer payments that are due in exchange for a commitment to
the vendors of revenues received by the Company in the future under
its license agreement with SciClone. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition." In the event that sufficient funding is obtained for the
Thymosin beta 4 program, all amounts then due would become payable
immediately. If additional funding is not obtained, the Company
estimates that its current financial resources are sufficient to fund
its operations, on a substantially scaled-down basis, until the third
quarter of 1996. If additional financing cannot be obtained prior to
that time, the Company likely will be forced to discontinue
operations.
Thymosin Beta 4 Development Program
In 1995, the Company directed its research and development
efforts to an evaluation of the prospects for the commercialization of
the human peptide Thymosin beta 4, to which the Company holds
proprietary rights. See "Proprietary Rights." This program has been
suspended pending the receipt of additional financing.
Technology. Thymosin beta 4 is a chemically synthesized copy
of a 43-amino acid peptide that is a constituent of Thymosin fraction
5, a thymic extract originally isolated by Dr. Allan L. Goldstein, the
Company's Chairman and Chief Scientific Advisor. This peptide is
found in high concentrations in blood platelets, white blood cells and
various other human tissues. Indications for which Thymosin beta 4
may have a clinical benefit include sepsis, cystic fibrosis, chronic
bronchitis, asthma and adult respiratory distress syndrome.
Immune Regulation by Thymosin beta 4
Thymosin beta 4 demonstrates a number of immuno-regulatory
activities when injected into experimental animals. Thymosin beta 4
has been shown to (i) stimulate T-lymphocyte terminal deoxynucleotide-
transferase activity in bone marrow; (ii) enhance antigen presentation
by macrophage; and (iii) inhibit macrophage migration. The
experimental data from septic animals and the correlation with
circulating Thymosin beta 4 levels in human subjects suggest a
potential role for Thymosin beta 4 in treating septic shock and other
related inflammatory diseases.
Actin-binding by Thymosin beta 4
Recent studies have suggested that a principal biochemical
activity of Thymosin beta 4 is binding to actin. Actin is a naturally
occurring protein present in virtually all human cells. Studies over
the last decade have demonstrated that when actin is released into the
circulation by breakdown of cells during infection or disease, it is
toxic. This toxicity may account for some of the various symptoms of
several disease conditions. Actin-binding proteins, including
Thymosin beta 4, have been shown in laboratory experiments to reduce
or eliminate actin-associated pathology. These results suggest a
number of clinical uses of Thymosin beta 4 in moderating the adverse
consequences of extracellular actin.
Cystic Fibrosis
Cystic fibrosis is an inherited disease that affects
approximately 1 in 2,500 Caucasian newborns in the United States and
Europe. The disease is characterized by a defect in ion secretions by
cells of the body, which manifests itself in two primary problems:
pancreatic insufficiency and pulmonary bronchiectasis. The pancreatic
insufficiency can be treated with enzymatic food supplements.
However, the pulmonary defect, which is the most devastating
manifestation of cystic fibrosis, generally leads to loss of lung
function and eventually death in greater than 85% of patients. The
average life expectancy of a cystic fibrosis patient is 29 years.
One symptom of cystic fibrosis is that the lungs of patients fill
with sputum. Recent analysis has shown that the sputum from cystic
fibrosis patients contains actin filaments, making it possible to
theorize that Thymosin beta 4 could have beneficial effects on the
ability of cystic fibrosis patients to clear sputum from their
airways. The Company believes that the clinical development of
Thymosin beta 4 as a sputum clearing agent (or "mucolytic") for the
treatment of cystic fibrosis patients represents the best initial
indication on which to focus its development program.
Product Development. The Company's developmental activities
involving Thymosin beta 4 have consisted of efforts to evaluate its
possible therapeutic uses. Because the Company does not maintain its
own laboratory facilities, the Company expects, subject to the receipt
of the necessary financing, to conduct the required research and
development by funding research programs at academic institutions. In
order to confirm initial findings concerning Thymosin beta 4, the
Company in 1995 supported additional research projects at two
universities aimed at further clarifying the mechanism of action of
Thymosin beta 4. One research program at The George Washington
University ("GWU") focused on the biochemical interaction of Thymosin
beta 4 with actin. This program yielded important new information
about the mechanism of action of Thymosin beta 4. The second research
program, which was carried out in laboratories at St. Louis University
School of Medicine, focused directly on the possible use of Thymosin
beta 4 as a treatment for cystic fibrosis by studying the interaction
of Thymosin beta 4 with sputum from cystic fibrosis patients. The
preliminary results of this program, in the view of the Company and
the researchers, appeared to support the possible clinical utility of
Thymosin beta 4 in the treatment of cystic fibrosis.
The Company has conducted and plans to continue to conduct,
subject to the receipt of the necessary financing, a portion of its
Thymosin beta 4 research program by financially sponsoring research
projects at GWU. Such sponsored research is governed by a research
agreement between the Company and GWU whereby, in return for the
funding by the Company of research, GWU has agreed to grant to the
Company an exclusive worldwide license to any and all resulting
patents, subject to specified royalty and commercialization
obligations of the Company. See "Proprietary Rights." Because of
Dr. Goldstein's relationship with the Company as its Chairman of the
Board and Chief Scientific Advisor and his position as Chairman of the
Department of Biochemistry and Molecular Biology at GWU, the Company
has not funded any research personally conducted by Dr. Goldstein, and
anticipates that any future funding would also be limited to research
projects performed by principal investigators at GWU other than Dr.
Goldstein. The Company also may use the proceeds from any future
financings to enter into similar arrangements with other academic
institutions in connection with its efforts to develop Thymosin
beta 4.
The Company has initiated efforts to obtaining the information
required by the United Status Food and Drug Administration (the "FDA")
in order to submit an Investigational New Drug ("IND") application for
Thymosin beta 4. These efforts have included preliminary studies to
evaluate the toxicity of Thymosin beta 4 in animals and the
development of the analytical procedures necessary to validate the
purity and integrity of the manufactured product before testing. In
December 1994 and July 1995, the Company entered into a research
agreement with commercial vendors to initiate toxicology studies with
Thymosin beta 4. In January 1995, the Company entered into a purchase
agreement with a commercial vendor to develop analytical assays
necessary for the clinical testing of Thymosin beta 4.
In June 1995, the Company submitted a pre-clinical and clinical
development plan to the FDA. In July 1995, Company executives,
advisors and representatives from vendors supplying manufacturing and
toxicology services met with the Division of Pulmonary Drugs at the
FDA. Definitive toxicology studies were initiated in August 1995.
Suspension of Product Development Program. The Company's product
development program for Thymosin beta 4 was suspended in February 1996
following the publication of a U.S. patent belonging to a U.S.
university and licensed to a U.S. pharmaceutical company. The
decision to suspend the program was based in part on a concern that
the commercialization of Thymosin beta 4 as a mucolytic to treat
cystic fibrosis patients could infringe one or more of the claims
under the issued patent. Resumption of the program is contingent on
additional financing. At the present time, the Company is seeking the
advice of its medical advisors and patent counsel in developing a new
plan for the clinical development and subsequent commercialization of
Thymosin beta 4. This plan may include treating diseases other than
cystic fibrosis or cystic fibrosis using methods in a manner that does
not infringe any existing patent. Such diseases may include sepsis,
cystic fibrosis, chronic bronchitis, asthma and adult respiratory
distress syndrome. Although management believes that several such
alternatives are available, significant additional financing will be
required before any work can begin on the Thymosin beta 4 development
program. See "Management Discussion and Analysis of Financial
Condition and Results of Operations."
Manufacturing. Thymosin beta 4 is manufactured by means of
chemical synthesis. In chemical synthesis, the peptide is created by
chemically joining amino acids, the component building blocks. The
principal advantages of chemical synthesis over other possible means
of manufacture are manufacturing control, product specificity, high
yield, purity and a ready supply of raw material from multiple
commercial sources. The Company entered into contracts with three
commercial manufacturers for the supply of Thymosin beta 4. In
addition, the Company has contacted a number of potential
manufacturers concerning the formulation and delivery of Thymosin beta
4. All manufacturing activity was suspended in February 1996. See
"Management Discussion and Analysis of Financial Condition and Results
of Operations -- Financial Condition."
Clinical Trials. Thymosin beta 4 has not been tested in humans.
Before it could be marketed as a therapeutic agent for a particular
disease or indication, it must undergo a series of clinical trials in
human patients to demonstrate safety and efficacy. See "Government
Regulations." Currently, the Company has inadequate financial
resources to continue its preclinical development program. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." To fund human clinical trials will require
significant additional financing.
Licensing of Thymosin Alpha 1 Rights
Effective September 30, 1994, the Company entered into a new
license agreement with SciClone (the "New SciClone License Agreement")
which supersedes the original license agreement between the parties
entered into in 1990 (the "Original SciClone License Agreement").
Under the New SciClone License Agreement, the Company has granted to
SciClone an exclusive license to the Company's patent and other
proprietary rights with respect to Thymosin alpha 1 to develop, test,
make, use and sell Thymosin alpha 1 and products containing Thymosin
alpha 1 (collectively "Licensed Products") for all human and animal
therapeutic and diagnostic uses. The license covers all countries of
the world, except for Italy, Spain and Portugal.
The major focus of the Company's past activities was an effort to
demonstrate the efficacy of Thymosin alpha 1 as a treatment for
chronic hepatitis B in a Phase III multi-center clinical trial. The
results of this trial, which were analyzed in April 1994, did not show
a statistically significant difference between the response of the
treatment group and the response of the placebo group. This led the
Company to conclude that the Phase III trial efficacy results would
not support a New Drug Application filing with the FDA for the
approval of six months of therapy with Thymosin alpha 1 as a sole
treatment for chronic hepatitis B. The Company concluded that
additional trials were beyond its financial means.
Under the New SciClone License Agreement, the decision whether to
continue the commercial development of Thymosin alpha 1 is at the sole
discretion of SciClone. While the Company understands that SciClone
currently is continuing with its efforts to commercialize Thymosin
alpha 1, there is no assurance that SciClone will be successful.
However, should SciClone be successful in its efforts, the Company
will be entitled to receive a royalty on SciClone's net sales revenue
from Licensed Products that ranges from 3% to 7% depending on whether
SciClone's rights in the country in which the sales occur were
acquired under the New SciClone License Agreement or under the
Original SciClone License Agreement and on whether SciClone enjoys
patent protection or comparable market exclusivity in such country.
The Company's right to receive royalties continues at least until
September 30, 2002. If at the end of this eight-year period the
Company has not realized royalty payments in the amount of $35
million, then SciClone's royalty obligation will continue until the
earlier of (i) the payment to the Company of royalties aggregating $35
million or (ii) September 30, 2009.
The rights to Thymosin alpha 1 in Italy, Spain and Portugal have
been licensed by the Company to Sclavo, S.p.A., an Italian
pharmaceutical company. In July 1991, Sclavo filed an application
with the Italian Ministry of Health requesting regulatory approval to
market Thymosin alpha 1 in Italy for several indications, including
treatment of immune deficiencies and as a vaccine adjuvant. In May
1993, marketing approval was granted for the use of Thymosin alpha 1
as an adjuvant for influenza vaccine in immunocompromised patients.
Under the terms of its license agreement with Sclavo, the Company is
entitled to receive a royalty on product sales. Sclavo has advised
the Company that due to the small patient population for the approved
indication, it does not intend to commence commercial sales of
Thymosin alpha 1 in Italy until the product is approved for additional
indications. Although applications have been filed with the Italian
Ministry of Health for the approval of Thymosin alpha 1 for other
indications, Sclavo has offered no assurances as to whether or when
any such approvals might be obtained. Accordingly, the Company is
unable to predict when sales of Thymosin alpha 1 might commence in
Italy for any indication. The license agreement with Sclavo extends
until the later of (i) the expiration of the patent rights with
respect to Thymosin alpha 1 in the particular country, and (ii) 15
years from the date of the first commercial sale of Thymosin alpha 1
in the covered territory. Should Sclavo's rights in any of the three
countries terminate for any reason, the proprietary rights in that
country automatically are conveyed to SciClone under the terms of the
New SciClone License Agreement.
Proprietary Rights
A United States composition of matter patent for Thymosin beta 4,
which expires in 1998, is held by GWU. No corresponding foreign
patent filings were made. The rights under the U.S. patent have been
licensed by GWU to Hoffmann-La Roche Inc. ("HLR"), which in turn has
licensed the U.S. patent rights to the Company on a sole and exclusive
basis. Under its license agreement with HLR, the Company is obligated
to pay HLR a royalty of 8% on net sales (excluding sales for research
purposes) in the United States until the expiration of ten years from
the date of the first commercial sale. If, during this period, the
FDA approves Thymosin beta 4 for sale by a competitor, the royalty due
HLR will be reduced to 4%. HLR is responsible for the royalty due GWU
under the primary license agreement.
In January 1996, the Company learned of a U.S. patent issued to a
U.S. university that made claim to a broad therapeutic area including
the treatment of cystic fibrosis with any drugs like Thymosin beta 4.
Although this patent does not specifically claim Thymosin beta 4, the
broad claims, if valid, could prohibit the Company from
commercializing Thymosin beta 4 as a new mucolytic for the treatment
of cystic fibrosis. The Company has had discussions with the
exclusive licensee of this U.S. patent to explore the possibility of a
license or other business arrangements that would allow the Company to
seek new funding for its cystic fibrosis development program. There
is no assurance that any such license can be obtained on reasonable
business terms. Without such a license, the Company anticipates that
it will be extremely difficult to secure additional financing for the
development of Thymosin beta 4 as a mucolytic for cystic fibrosis.
Under a research agreement with GWU, the Company has funded
Thymosin beta 4 research at GWU and is entitled to a sole and
exclusive worldwide license to any patents that result from such
research. Under the research agreement, the Company is obligated to
pay to GWU a royalty of 4% of net sales of Thymosin beta 4. Pursuant
to the research agreement, patent applications were filed in 1993 in
the United States and in 1994 in Europe covering the use of Thymosin
beta 4 for the treatment of septic shock and in 1994 in the United
States covering the use of Thymosin beta 4 for the treatment of
certain respiratory disorders including cystic fibrosis.
There is no assurance that any of the Company's pending patent
applications will result in the issuance of patents or that any patent
issued will not be subject to challenge. In the case of a claim of
patent infringement, there is no assurance that the Company will be
able to afford the expense of any litigation that may be necessary to
enforce its proprietary rights. Finally, there is no assurance that
no additional patents may issue whose claims if valid would be
infringed by certain uses of Thymosin beta 4.
Viral Technologies Joint Venture
In 1986, the Company made certain discoveries which the Company
believes may be of clinical benefit in the prevention, diagnosis or
treatment of AIDS. These proprietary discoveries involve peptides
related to the p17 gag protein, a core protein of the AIDS virus. In
April 1986, the Company sold a 50% interest in the rights pertaining
to this technology to CEL-SCI. Immediately thereafter, the Company and
CEL-SCI each transferred its interest in these discoveries to VTI, a
joint venture in which the Company and CEL-SCI each own a 50%
interest. The purpose of VTI was to provide the legal mechanism for
joint control by the Company and CEL-SCI of the development of the
discoveries.
On October 30, 1995, the Company sold its 50% interest in VTI to
CEL-SCI. In consideration, the Company received 159,170 shares of CEL-
SCI common stock. See "Management Discussion and Analysis of
Financial Condition and Results of Operations."
Merger - Alpha 1 Acquisition Corp.
On November 13, 1995, the Company entered into an Agreement of
Merger with Alpha 1 Acquisition Corp. ("Acquisition"), a corporation
formed by affiliates of The Castle Group, Ltd. ("Castle"), pursuant to
which Acquisition, subject to stockholder approval and upon the
satisfaction of certain conditions precedent, would be merged into the
Company. Among the conditions precedent was that Acquisition, which
had no material assets, complete a financing which resulted in gross
proceeds of at least $5 million to Acquisition.
On February 8, 1996, Acquisition and the Company by mutual
agreement terminated this merger agreement. The parties took this
action in part due to the identification of a U.S. patent to which a
license may be required in order for the Company to commercialize
Thymosin beta 4 as a mucolytic for the treatment of cystic fibrosis.
See "Proprietary Rights."
Competition
The Company is engaged in a business that is highly competitive.
Research and development activities for new drugs to treat cystic
fibrosis patients are being sponsored or conducted by private and
public institutions and by major pharmaceutical companies located in
the United States and a number of foreign countries. Many of these
companies and institutions have financial and human resources that are
substantially greater than those of the Company, and that have
extensive experience in conducting research and development activities
and clinical testing and in obtaining the regulatory approvals
necessary to market pharmaceutical products.
The major effort in new drug research for cystic fibrosis
patients has focused on pulmonary therapy. Standard treatment using
antibacterial, bronchodilators, oxygen, physiotherapy and exercises is
being supplemented by new approaches including gene therapy, ion
modulators, transplantation, immune modulation, amiloride and protease
inhibitors.
In December 1993, Genentech, Inc. obtained FDA approval for the
commercial sale of Pulmozymer as a treatment for cystic fibrosis.
This product is a human enzyme produced by recombinant DNA technology.
Pulmozymer has been shown to moderately improve pulmonary function by
reducing the viscosity of sputum in cystic fibrosis patients, and
thereby reduces the incidence of pulmonary infections. In addition to
Pulmozymer, other enzymatic mucolytics, such as proteases, have been
tested as a treatment for cystic fibrosis patients, but with
inconsistent results.
If a product developed by the Company for the treatment of cystic
fibrosis is approved, that product can be expected to compete with
other approved products for the same disease including Pulmozymer.
The Company expects that this competition will be based primarily on
clinical efficacy, relative toxicity and price. There is no assurance
that Thymosin beta 4, if approved, would be competitive with
Pulmozymer or any other product then approved on the basis of either
efficacy or cost.
In addition to drugs that treat the progressive lung disease in
cystic fibrosis patients, a number of companies are focusing on gene
therapy with the goal of curing this disease. A number of these
projects are supported by large pharmaceutical companies with
substantial resources. If gene therapy is approved for the treatment
of cystic fibrosis patients this could adversely effect the need for
mucolytic agents such as Thymosin beta 4.
Government Regulation
In the United States, the FDA has principal responsibility for
reviewing and approving applications to market new products for
therapeutic or diagnostic use in humans. The process of obtaining FDA
approval is both expensive and time-consuming, and the development
costs of a successful drug may take a number of years to recover.
There can be no assurance as to the timing or ultimate FDA approval of
any product of the Company.
The procedure for obtaining FDA approval of a new pharmaceutical
product for use in humans involves a series of steps beginning with
animal toxicology studies and continues through three stages of human
clinical trials. Typically, after experimental toxicological and
pharmacological and efficacy data have been obtained, the test results
are submitted to the FDA along with an IND application which includes
the protocol that will be followed in the initial human clinical
trial. If the FDA does not object, the applicant can proceed with the
Phase I trial. Phase I trials consist of pharmacological and safety
studies in a relatively small number of patients under rigidly
controlled conditions in order to establish lack of toxicity and a
safe dosage range. After Phase I testing is completed, one or more
Phase II trials are conducted in a limited number of patients to test
for efficacy in treatment or prevention of a specific disease. The
results of the Phase II trials are analyzed for both clinical efficacy
and safety. If the results demonstrate efficacy and safety, the
clinical trial and other data are submitted to the FDA along with the
protocol for a Phase III trial. Phase III trials consist of extensive
studies in large populations designed to assess the safety of the
agent and the most desirable dosage and treatment regimen for a
specific disease. If the Phase III trial meets acceptable criteria
for efficacy and safety, a New Drug Application (an "NDA") may be
filed with the FDA. The NDA constitutes a request for approval to
market the agent for the disease indication evaluated in the Phase II
and Phase III trials. Usually, the FDA requires two controlled trials
for approval of an NDA, but in rare occasions the FDA has approved
drugs for life-threatening conditions on the basis of one clinical
trial.
Based on the information contained in the NDA, the FDA determines
whether to approve the product for commercial marketing and, if so,
specifies how the product is to be labeled. FDA regulations also
govern the manufacturing process. As a condition of NDA approval, the
FDA may also require ongoing testing and surveillance to monitor the
effects of a pharmaceutical product's use.
Commercialization of the Company's products in countries outside
the United States is subject to regulation by, including clinical
testing under the supervision of, regulatory authorities in such
foreign countries.
Employees
The Company currently employs three individuals of which two are
Ph.D.'s. The Company is not a party to any collective bargaining
agreement.
Item 2. Properties
The Company's corporate headquarters are located in Bethesda,
Maryland where it leases approximately 7,800 square feet of office
space. The lease expires in June 1997. Currently, all laboratory and
manufacturing functions are outsourced. From 1986 through 1994, the
Company conducted laboratory functions at a 3,000 square foot leased
facility located in Foster City, California. When the Company
relocated all laboratory activities to a 27,000 square foot facility
in Sunnyvale, California, this space was subleased until the
expiration of the lease on November 1995. The Company intended to use
the Sunnyvale facility as a research and manufacturing facility for
Thymosin alpha 1. As a consequence of the New SciClone License
Agreement, the Company no longer required a facility to manufacture
Thymosin alpha 1. Subsequently, the Company closed the facility, and
effective March 1995, assigned the lease to a third party, but remains
secondarily liable until expiration of the lease in January 2002. The
assignment has primarily the same terms as the original lease
agreement.
Item 3. Legal Proceedings
On April 29, 1994, a suit was filed in United States District
Court for the District of Maryland against the Company, Dr. Allan
Goldstein and Dr. Vincent F. Simmon, the Company's former President
and Chief Executive Officer. The named plaintiff in the suit was
Schulman, Rogers, Gandal, Pordy & Ecker, P.A. The suit, as to which
the plaintiff sought certification as a class action, alleged that
during the period May 11, 1993, through April 27, 1994, the Company
and certain of its officers made or are responsible for certain false
or misleading public statements regarding the Company, Thymosin alpha
1, the results of Thymosin alpha 1 in the treatment of chronic
hepatitis B, and the prospects for success of Thymosin alpha 1 in
clinical trials and the impact on the Company. The complaint
contended that these alleged misleading statements violated Section
10(b) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 thereunder. The complaint further alleged that Dr. Goldstein and
Dr. Simmon are liable for such statements by reason of their status as
controlling persons of the Company. On May 26, 1994, a second suit
was filed in the United States District Court for the District of
Maryland by Harry T. Cole against the Company, Dr. Goldstein and Dr.
Simmon. This suit, which also sought certification as a class action,
alleged violations of Rule 10b-5, negligent representations and
control person liability based on substantially the same facts alleged
in the Schulman complaint. On May 27, 1994, a suit was filed in the
United States District Court for the District of Maryland by Allison
and Sidney Formal against the Company, Dr. Goldstein and Dr. Simmon.
The allegations and the relief sought in this suit were identical to
those in the Schulman complaint. The three suits have been
consolidated as a single action captioned In re Alpha 1 Biomedicals,
Inc. Securities Litigation. In a consolidated amended complaint, the
plaintiffs expanded their claims to include the allegation that the
Company made false or misleading public statements concerning its
ability to satisfy its contractual obligation to supply product to
SciClone. On March 13, 1995, the District Court issued an order
dismissing all but one of the claims. On September 26, 1995, the
parties filed a Stipulation of Settlement with the District Court
under which the Company would issue 500,000 shares of its common stock
and make a $100,000 payment in settlement of the remaining claim. The
settlement is subject to the approval of the District Court which is
pending. While the Company continues to believe that the remaining
claim is without merit, it has entered into the settlement agreement
covering this claim to avoid the continuing cost of litigation.
In March 1996, a complaint was filed against the Company by a
former employee in the Circuit Court of Montgomery County, Maryland,
alleging discrimination in employment, wrongful termination and breach
of contract. The Company is evaluating the merits of this claim.
In March 1996, the Company received a complaint which was filed by
a former consultant to the Company in the Circuit Court for Wayne
County, Michigan, alleging negligence, fraud, statutory indemnification
and detrimental reliance. The plaintiff is seeking legal expenses and
related costs associated with the investigation of the consultant by
the Securities and Exchange Commission. The Company is evaluating the
merits of this claim.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
The outstanding classes of the Company's equity securities
consist of Common Stock and Class C Warrants. Each Class C Warrant is
exercisable, at an exercise price of $19.00, to purchase one share of
Common Stock and is redeemable by the Company for nominal
consideration if the price of the Common Stock exceeds $25.00 per
share for a period of 20 consecutive days. Since May 25, 1995, the
Common Stock and the Class C Warrants, which are separately listed,
have traded on the OTC Bulletin Board under the symbol ALBM and ALBML,
respectively. Prior to that date, both issues traded on the NASDAQ
National Market System. The Common Stock was initially issued to the
public in 1986. The Class C Warrants were issued to the public in
1993.
The following table sets forth the high and low closing prices as
reported by OTC Bulletin Board for the Common Stock and the Class C
Warrants since May 25, 1995. Prior to that date, prices represent the
high and low closing market prices reported by the NASDAQ National
Market System.
Common Stock Class C Warrants
High Low High Low
For the year ended
December 31, 1995:
First Quarter 29/32 1/2 3/16 3/32
Second Quarter
April 1-May 24 5/8 15/32 3/32 3/32
May 25 - June 30 9/16 3/10 1/16 1/50
Third Quarter 7/10 15/64 1/50 1/100
Fourth Quarter 13/32 5/32 1/50 1/100
For the year ended
December 31, 1994:
First Quarter 15-1/4 10-3/4 5
3-3/8
Second Quarter 12 1-7/8 4
5/16
Third Quarter 2-3/8 1 1/2
3/16
Fourth Quarter 1-7/16 5/8 1/4
1/8
As of March 6, 1996, there were 490 holders of record of the
Common Stock and 22 holders of record of the Class C Warrants.
The Company has not paid a dividend on the Common Stock and does
not anticipate that any cash dividends will be paid in the foreseeable
future.
<TABLE>
Item 6. Selected Financial Data
BALANCE SHEET DATA
December 31,
1995 1994 1993 1992 1991
Working capital
<C> <C> <C> <C> <C>
$(256,612) $3,383,045 $13,748,345 $1,055,928 $4,919,529
Total assets
1,197,447 4,917,011 17,310,252 3,476,916 6,555,235
Total noncurrent liabilities
- 371,250 421,151 362,373 307,870
Accumulated deficit
(35,624,470) (31,532,273) (20,225,328 (14,582,694) (10,419,988)
Stockholders' equity
(37,204) 3,683,743 14,953,563 2,082,977 5,827,920
STATEMENTS OF OPERATIONS
Year Ended December 31,
1995 1994 1993 1992 1991
Revenue
Licensing Fees
$ - $ - $ 116,666 $ - $ 466,667
Product sales, royalties
and consulting
105,591 720,383 1,258,085 65,683 28,390
105,591 720,383 1,374,751 65,683 495,057
Expenses
Cost of sales
- 131,875 701,561 - -
Research and product development
2,751,744 2,840,814 2,074,080 2,017,949 1,431,654
General and administrative
2,060,891 8,606,641 4,227,066 2,145,742 1,541,494
4,812,635 11,579,330 7,002,707 4,163,691 2,973,148
Operating loss
(4,707,044) (10,858,947) (5,627,956) (4,098,008) (2,478,091)
Other (expense) income
149,245 (100,543) 314,072 156,702 212,296
Equity in loss of VTI
(181,026) (347,455) (328,750) (221,400) (233,275)
Gain on sale of VTI
646,628 - - - -
Net loss
$(4,092,197) $(11,306,945) $(5,642,634) $(4,162,706) $(2,499,070)
Net loss per common share
$ (0.46) $ (1.26) $ (0.68) $ (0.57) $ (0.38)
</TABLE>
Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company was organized to engage in the development of
pharmaceutical products for the treatment of diseases or conditions
that arise as the result of immune system disorders, chronic viral
infections, cancer and autoimmune disease. Since it was founded in
1982 and through mid-1994, the primary focus of the Company was on
efforts to commercialize Thymosin alpha 1 as a treatment for various
disease indications or as a vaccine adjuvant. During this period, the
Company's resources were primarily devoted to the evaluation of
Thymosin alpha 1 as a treatment for chronic hepatitis B. In April
1994, the results of the Company's Phase III multicenter clinical
trial for this indication were analyzed. These results did not show a
statistically significant difference between the response of the
treatment group and the placebo group. This led the Company to
conclude that, without further testing, the results of the Phase III
trial would not support a New Drug Application (an "NDA") to the U.S.
Food and Drug Administration for approval of Thymosin alpha 1 as a
sole treatment for chronic hepatitis B. Further testing, in the view
of the Company, would be needed to support an NDA and would require a
commitment of resources beyond its financial capacity.
In August 1994, the Company entered into a license agreement with
SciClone Pharmaceuticals, Inc. ("SciClone") which became effective
September 30, 1994 (the "New SciClone License Agreement") and which
supersedes the original license agreement between the parties entered
into in 1990 (the "Original SciClone License Agreement"). Under the
New SciClone License Agreement, the Company granted to SciClone an
exclusive license to the Company's patent and other proprietary rights
with respect to Thymosin alpha 1 to develop, test, make, use and sell
Thymosin alpha 1 and products containing Thymosin alpha 1
(collectively "Licensed Products") for all human and animal
therapeutic and diagnostic uses. The license covers all countries of
the world, except for several countries where the rights to Thymosin
alpha 1 are held by other licensees of the Company.
In consideration for the license, the Company is entitled to
receive a royalty on SciClone's net sales revenue from Licensed
Products that ranges from 3% to 7% depending on whether SciClone's
rights in the country in which the sales occur were acquired under the
New SciClone License Agreement or the Original SciClone License
Agreement and on whether SciClone enjoys patent protection or
comparable market exclusivity in such country. The Company's right to
receive royalties continues until September 30, 2002. If at the end
of such period the Company has not realized royalty payments of at
least $35 million, then SciClone's royalty obligation will continue
until the earlier of (i) the payment to the Company of royalties
aggregating $35 million or (ii) September 30, 2009.
Under the New SciClone License Agreement, the decision whether to
continue the commercial development of Thymosin alpha 1 is at the sole
discretion of SciClone. While the Company understands that SciClone
is continuing with its efforts to commercialize Thymosin alpha 1,
there is no assurance either that SciClone will be successful or as to
the amount of the royalty payments that the Company would receive
based on SciClone's commercial sales.
As a consequence of the New SciClone License Agreement, the
Company is no longer engaged in the commercial development of Thymosin
alpha 1. It is the Company's current intention, subject to the
receipt of the necessary financing, to focus on the prospects for the
commercialization of Thymosin beta 4, an actin-binding peptide to
which the Company holds certain proprietary rights.
In November 1995, the Company entered into an Agreement of Merger
with Alpha 1 Acquisition Corp., a corporation formed by affiliates of
The Castle Group, Ltd. The completion of the merger agreement was
contingent upon the private company raising at least $5 million in new
financing. The merger agreement was terminated by mutual agreement in
February 1996, in part due to the recent identification of a U.S.
patent to which a license may be required in order for the Company to
commercialize Thymosin beta 4 as a mucolytic for the treatment of
cystic fibrosis.
The Company has delayed its development program for Thymosin beta
4 and has no products that have received regulatory approval. The
Company has not generated significant revenues from operations and does
not anticipate generating product revenues for the foreseeable future.
The Company will require substantial funding in order to re-activate
and conduct its research and development activities and to manufacture
and market the products which the Company intends to develop.
Management plans include strategic alliances or other partnership
arrangements with entities interested in and with resources to develop
Thymosin beta 4, or other business transactions which would allow the
Company to generate resources to assure continuation of the Company's
operations. Management believes that significant revenue may be
generated under the license agreement with SciClone. However, existing
financial resources will be exhausted before any such revenues are
realized.
Results of Operations
Revenues for the year ended December 31, 1995 were $105,591, as
compared to $720,383 for the year ended December 31, 1994, and
$1,374,751 for the year ended December 31, 1993.
Revenues in 1995 were attributable primarily to consulting
services provided to SciClone, whereas revenues in the 1994 and 1993
periods were primarily the result of product sales and related charges
to SciClone. In 1993, the Company also recorded revenue from milestone
payments of $116,666 under the Original SciClone License Agreement. As
a consequence of the New SciClone License Agreement, the Company will
not realize any future revenue arising from product sales to SciClone
or milestone payments relating to the development of Thymosin alpha 1.
Expenses in 1995 totaled $4,812,635, as compared to $11,579,330 in
1994 and $7,002,707 in 1993. The decrease in expenses in 1995 from
1994 was attributable primarily to higher expenses in 1994 as a result
of non-recurring general and administrative expenses incurred in
connection with (i) the Company's arbitration proceeding with SciClone
and negotiation of a New SciClone License Agreement and (ii) the
closing of the Company's Sunnyvale, California facility. The 1995
expenses were reduced as a result of staff reductions and related
costs.
Expenses in 1993 were primarily attributable to the recognition of
cost of goods sold and increased general and administrative expenses
primarily reflecting increases in legal fees and other costs incurred
in connection with arbitration proceedings with SciClone, which began
in 1993.
Research and development expenses reflect a slight decrease in
1995 from 1994 reflecting the Company's redirection of its efforts from
Thymosin alpha 1 to Thymosin beta 4 technology, whereas 1994 expense
reflects an increase over 1993 expense as a result of increased costs
incurred in connection with clinical trials.
The net effect of operating activities was a net operating loss of
$4,707,044 in 1995, as compared to net operating losses of $10,858,947
in 1994 and $5,627,956 in 1993.
The 1995 increase in other income (expense) over 1994 expense is
primarily a result of the partial recapture of the prior year's
unrealized losses associated with short term investments, net of (i)
interest income in 1995 which reflects a decrease from the prior year
as a result of decreased cash and short term investment balances and
(ii) a loss on the sale of CEL-SCI Common Stock acquired in the sale of
the Company's 50% ownership of VTI, where 1994 and 1993 amounts consist
of interest income only.
During 1995, equity loss of VTI reflects the research payments to
VTI for the conduct of clinical activities of $181,026, as compared to
losses of $347,445 and $328,750 in 1994 and 1993, respectively. The
gain on sale of VTI represents the proceeds of the sale of the
Company's interest in VTI.
On January 1, 1994, the Company, as required, adopted SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities."
Under the requirement, short term investments must be stated at values
which approximate current market. The SFAS No. 115 losses recorded for
1995 and 1994 were $37,091 and $386,995, respectively.
Capital Resources and Liquidity
Since its inception in 1982, the Company's efforts have been
directed toward conducting research and development, sponsoring
clinical trials of its proprietary products, the construction and
equipping of laboratory and production facilities, and the manufacture
of product for research, testing and clinical trials. The Company's
accumulated deficit of $35,624,470 through December 31, 1995 has been
primarily funded by the proceeds from the issuance of equity securities
(and interest earned on such funds), the licensing of technology
developed or acquired by the Company and limited product sales.
During 1995, revenues consisted of consulting services and
royalty income from SciClone. These revenue sources are substantially
below the level required to cover fully the Company's expenses or to
provide adequate cash flow. The Company currently has no other
revenue-generating sources. Although the Company believes that
royalty income from product sales of Thymosin alpha 1 by SciClone
could be significant in the future, the Company does not have an
adequate basis for estimating future royalty revenue that might be
realized. The Company currently believes, based on its existing
resources, that it will have sufficient cash to sustain its operations
to the third quarter of 1996. If additional financing cannot be
obtained prior to that time, the Company will likely be forced to
discontinue operations.
Beginning with the halting of Thymosin alpha 1 clinical studies
and the licensing to SciClone of additional rights to Thymosin alpha 1
under the New SciClone License Agreement in 1994, the Company has
undertaken a cost reduction program which continues to date. As a
result, the Company has reduced staffing levels from 29 employees to
its current three employees and has closed all facilities except for
its headquarters space. The Company also is attempting to sublease
its existing space which exceed the needs of its current staffing.
During 1995, the Company refocused its research efforts to
Thymosin beta 4. Research activities and pre-clinical studies were
initiated and accelerated based on anticipated cash resources that the
Company expected to realize from the proposed merger with a company
affiliated with The Castle Group, Ltd. In anticipation of the merger
and the cash that was to become available, the Company commenced
placing orders for the conduct of research studies and for the purchase
of Thymosin beta 4 material totaling $2,704,000. In January 1996, the
Company learned of the issuance of a U.S. patent that could block the
commercialization of Thymosin beta 4 as a mucolytic for the treatment
for cystic fibrosis. Thereafter, the merger agreement was terminated by
mutual agreement. The Company has delayed its development program for
Thymosin beta 4, and has no products that have received regulatory
approval. The Company has not generated significant revenues from
operations and does not anticipate generating product revenues for the
foreseeable future. The Company will require substantial funding in
order to re-activate and conduct its research and development
activities and to manufacture and market the products which the Company
intends to develop.
Management's current plans include strategic alliances or other
partnership arrangements with entities interested in and with
resources to develop Thymosin beta 4, or other business transactions
which would allow the Company to generate resources to assure
continuation of the Company's operations. Management believes that
significant revenue may be generated under the license agreement with
SciClone. However, existing financial resources will be exhausted
before any such revenues are realized. As of February 20, 1996, the
board of directors approved a plan which provides for termination of
all ongoing research and development activities, a reduction of leased
space, a reduction of certain salaries and the severance of
administrative staff.
As a result of the termination of research and development
activities, the Company cancelled its research orders with certain
vendors. The Company was able to cancel $1,204,000 of work not yet
performed on outstanding orders of $2,704,000. Management has also
entered into negotiations with these major vendors in which it is
seeking to defer the remaining payments that are due ($1,500,000) in
exchange for a commitment to the vendors of revenues received by the
Company in the future under the SciClone license agreement until the
full amounts of the liabilities have been liquidated. In the event
that sufficient funding is obtained for the Thymosin beta 4 program,
all amounts then due would become payable immediately. If substantial
funding is not acquired, management estimates that the Company's
financial resources would fund operations, on a substantially scaled-
down basis, to the third quarter of 1996.
In November 1995, as a result of the Company's decision to
concentrate its commercial efforts on Thymosin beta 4, the Company sold
its 50% interest in VTI to CEL-SCI for which the Company received
159,170 shares of CEL-SCI common stock having a market value at the
time of the transaction of $646,628. Prior to December 31, 1995, the
Company sold 80,000 of the CEL-SCI shares realizing net proceeds of
$259,387. The market value of the remaining shares at December 31,
1995 was $284,538. Subsequent to 1995, the remaining 79,170 shares
were sold realizing net proceeds of $250,510.
The effect of inflation and changing prices on the continuing
operations of the Company is not expected to be significant.
Item 8. Financial Statements and Supplementary Data
Financial Statements begin on the following page.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Alpha 1 Biomedicals, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position
of Alpha 1 Biomedicals, Inc. at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on the financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Washington, DC
March 29, 1996
<TABLE>
BALANCE SHEETS
December 31,
1995 1994
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $546,797 $13,705
Short term investments 284,538 3,747,035
Prepaid insurance 130,951 153,210
Other current assets 15,753 222,013
Total current assets 978,039 4,135,963
Fixed assets, net 59,530 260,680
Proprietary rights, net 64,672 323,358
Due from related party 80,596 109,100
Other assets 14,610 87,910
Total assets $1,197,447 $4,917,011
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $258,051 $386,955
Accrued expenses 976,600 475,063
Total current liabilities 1,234,651 862,018
Deferred compensation 371,250
Total liabilities 1,234,651 1,233,268
Stockholders' equity (deficit)
Preferred stock, $.001 par value
per share,1,000,000 authorized;
no shares issued - -
Common stock, par value $.001 per share,
20,000,000 shares authorized;
8,977,429 issued and outstanding 8,977 8,977
Additional paid-in capital 35,578,289 35,207,039
Accumulated deficit (35,624,470) (31,532,273)
Total stockholders' equity (deficit) (37,204) 3,683,743
Commitments and contingencies
Total liabilities and
stockholders' equity $1,197,447 $4,917,011
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF OPERATIONS
Year ended December 31,
1995 1994 1993
Revenues
<S> <C> <S> <C> <S> <C>
Licensing fees $ - $ - $116,666
Product sales, royalties
and consulting 105,591 720,383 1,258,085
Total revenues 105,591 720,383 1,374,751
Expenses
Cost of sales - 131,875 701,561
Research and product
development 2,751,744 2,840,814 2,074,080
General and administrative 2,060,891 8,606,641 4,227,066
Total expenses 4,812,635 11,579,330 7,002,707
Operating loss (4,707,044) (10,858,947) (5,627,956)
Other income (expense) 149,245 (100,543) 314,072
Equity in loss of VTI (181,026) (347,455) (328,750)
Gain on sale of VTI 646,628 - -
Net loss $(4,092,197) $(11,306,945) $(5,642,634)
Net loss per common share $ (0.46) $(1.26) $(0.68)
Weighted average number
of common shares outstanding 8,977,429 8,976,114 8,309,940
The accompanying notes are an integral part of these financial
statements.
STATEMENT OF CASH FLOWS
Year ended December 31,
1995 1994 1993
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss (4,092,197) $(11,306,945) $(5,642,634)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 47,947 281,490 186,525
Amortization 258,686 258,686 258,686
Deferred compensation - - 8,877
Equity in losses of VTI 181,026 347,455 328,750
Gain on sale of VTI (646,628) - -
Litigation settlement in
common stock 200,000 - -
Loss on short term investments 37,091 386,995 -
Loss on disposal/writedown
of fixed assets 32,703 1,558,799 -
Loss on writedown of inventory - 540,841 -
Sale of short term investments 4,072,034 5,947,549 -
Changes in operating assets
and liabilities:
Increase in inventory - (57,054) (83,828)
Decrease (increase) in
prepaid insurance 22,259 (75,389) (31,835)
Decrease (increase) in
other current assets 206,260 145,917 (275,805)
Decrease (increase) in due
from related party 28,504 (109,100) -
Decrease (increase) in
other assets 73,300 (35,162) (31,538)
(Decrease) increase
in accounts payable (128,904) (1,042,580) 933,614
Increase in accrued expenses 301,537 352,391 68,130
Decrease in unearned revenue - (383,331) (97,772)
(Decrease) increase in other
liabilities - (49,901) 49,901
Net cash provided by (used in)
operating activities 593,618 (3,239,339) (4,328,929)
Cash flows from investing activities:
Sale of short term investments,
net - - (9,585,449)
Advances to VTI (181,026) (347,455) (328,750)
Purchases of fixed assets - (1,287,131) (650,620)
Proceeds from the sale of
fixed assets 120,500 177,739 -
Net cash used in investing activities (60,526) (1,456,847) (10,564,819)
Cash flows from financing activities:
Proceeds from issuance of
common stock/warrants - 37,125 18,513,220
Net cash provided by financing
activities - 37,125 18,513,220
Net increase (decrease) in cash
and cash equivalents 533,092 (4,659,061) 3,619,472
Cash and cash equivalents at
beginning of year 13,705 4,672,766 1,053,294
Cash and cash equivalents at
end of year $546,797 $13,705 $4,672,766
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF STOCKHOLDERS'EQUITY (DEFICIT)
Additional Total
Common stock paid-in Treasury Accumulated stockholders'
Shares Amount capital stock deficit equity
(deficit)
Balance, December 31, 1992
<C> <C> <C> <C> <C> <C>
7,386,215 $7,386 $17,006,900 $(348,615) $(14,582,694) $2,082,977
Issuance of stock upon exercise of warrants:
1,098,170 1,098 10,777,044 - - 10,778,142
Issuance of stock upon exercise of options
96,102 96 429,512 - - 429,608
Issuance of stock in December 1993
440,000 440 7,319,780 - - 7,320,220
Acquisition of 1,000 shares of treasury stock
- - - (14,750) - (14,750)
Retirement of 55,558 shares of treasury stock
(55,558) (55) (363,310) 363,365 - -
Net loss
- - - - (5,642,634) (5,642,634)
Balance, December 31, 1993
8,964,929 8,965 35,169,926 - (20,225,328) 14,953,563
Issuance of stock upon exercise of options
12,500 12 37,113 - - 37,125
Net loss
- - - - (11,306,945) (11,306,945)
Balance, December 31, 1994
8,977,429 8,977 35,207,039 - (31,532,273) 3,683,743
Expiration of stock options
- - 371,250 - - 371,250
Net loss
- - - - (4,092,197) (4,092,197)
Balance, December 31, 1995
8,977,429 $8,977 $35,578,289 $- $(35,624,470) $(37,204)
The accompanying notes are an integral part of these financial
statements.
</TABLE>
ALPHA 1 BIOMEDICALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Organization and Nature of Operations
Alpha 1 Biomedicals, Inc. (the "Company"), a Delaware corporation,
was incorporated in 1982. The Company operates predominantly in a
single industry segment, the biotechnology industry, which consists of
researching and developing new pharmaceutical products for the
treatment of diseases or conditions that arise as a result of immune
system disorders, including chronic viral infections, cancer and
autoimmune disease.
The Company has delayed its development program for Thymosin beta
4 and has no products that have received regulatory approval. The
Company has not generated significant revenues from operations and does
not anticipate generating product revenues for the foreseeable future.
The Company will require substantial funding in order to re-activate
and conduct its research and development activities and to manufacture
and market the products which the Company intends to develop.
Management plans include strategic alliances or other partnership
arrangements with entities interested in and with resources to develop
Thymosin beta 4, or other business transactions which would allow the
Company to generate resources to assure continuation of the Company's
operations. Management believes that significant revenue may be
generated under the license agreement with SciClone Pharmaceuticals,
Inc. ("SciClone") However, existing financial resources will be
exhausted before any such revenues are realized.
Cash and short-term investment balances at December 31, 1995
total $831,335. This amount, based on the Company's commitments, is
insufficient to satisfy current requirements. As of February 20, 1996,
the board of directors approved a plan which provides for termination
of all ongoing research and development activities, a reduction of
leased space, a reduction of certain salaries and the severance of
administrative staff. The Company expects to expense approximately
$175,000 in the first quarter of 1996 related to this plan. Management
has also entered into negotiations with its major vendors in which it
is seeking to defer approximately $1,500,000 in payments that are due
in exchange for a commitment to the vendors of revenues to be received
by the Company in the future under the SciClone license agreement until
the full amount of the liabilities have been liquidated. In the event
that substantial funding is not acquired, management estimates that the
Company's financial resources would fund operations, on a substantially
scaled-down basis, to the third quarter of 1996. If additional
financing cannot be obtained prior to that time, the Company will
likely be forced to discontinue operations.
Should the Company obtain additional funding, other factors
relating to competition, dependence on third parties, uncertainty
regarding patents, protection of proprietary rights, manufacturing of
peptides and technology obsolescence could have a significant impact on
the Company and its operations.
Significant Events
Thymosin alpha 1. From 1982 to 1994 the Company sponsored and
conducted research activities primarily on its product Thymosin alpha 1
as a potential treatment for chronic hepatitis B.
During 1994 several events relating to Thymosin alpha 1 had a
significant impact on the business and the future direction of the
Company. These events included the results of a Phase III clinical
study and a license agreement entered into with SciClone. As a
consequence of these events, the Company substantially reduced its
operations and eliminated its manufacturing capacity.
In April 1994, the Company's Phase III clinical study evaluating
the use of Thymosin alpha 1 as a treatment for chronic hepatitis B was
unblinded. The results from the trial did not appear to show
statistically significant differences between the treatment and placebo
groups. The Company concluded that the results of the trial would not
support a New Drug Application to the U.S. Food and Drug Administration
("FDA") for the approval of six months of therapy with Thymosin alpha 1
as a sole treatment for chronic hepatitis B.
Effective September 30, 1994, as part of the settlement of an
arbitration proceeding, the Company entered into a new license
agreement with SciClone expanding the scope of the exclusive license
granted to SciClone to manufacture, use and sell Thymosin alpha 1 for
all uses. As expanded, the license covers all countries of the world,
except for Italy, Spain and Portugal (where the rights to Thymosin
alpha 1 currently are held by other licensees of the Company). In
consideration for the expanded license, the Company will be entitled to
receive a royalty on SciClone's net sales revenue from products covered
by the license that ranges from 3% to 7% depending on whether
SciClone's rights in the country in which the sales occur were acquired
under the new license agreement or the original license agreement and
on whether SciClone enjoys patent protection or comparable market value
exclusivity in such country. The Company's right to receive royalties
continues until September 30, 2002, except that, if by September 30,
2002 the Company has not realized royalty payments of at least $35
million, SciClone's royalty obligation will continue until the earlier
of (i) the payment to the Company of royalties aggregating $35 million
or (ii) September 30, 2009. Under the new license agreement, the
decision whether to continue the commercial development of Thymosin
alpha 1 is at the sole discretion of SciClone.
The new license agreement was coupled with a release by each party
of the other from any and all prior claims and a termination of the
arbitration proceeding without any damages to either party. As a
consequence of the new license agreement with SciClone, the Company no
longer is engaged in the commercial development, manufacture or sale of
Thymosin alpha 1. As a result, the Company closed its facilities in
California. The Company subleased the Foster City facility and the
Sunnyvale facility. In addition, the Company reduced its workforce
from 29 to 5 employees and wrote-off its remaining Thymosin alpha 1
inventories. In connection with these activities, the Company for the
year ended December 31, 1994, recognized general and administrative
expenses of $1,559,000 from losses on the sale and write-down of fixed
assets, $625,000 in termination benefits paid to employees, $540,000
from the write-down of inventory, and $400,000 in investment banking
and consulting fees.
Thymosin beta 4. In December 1994, the Company reached a decision
to focus its development efforts on Thymosin beta 4, a chemically
synthesized copy of a natural hormone-like peptide that has shown
promise in animal testing and laboratory studies as a treatment for
cystic fibrosis. During mid-1995, the Company entered into agreements
with peptide manufacturers to produce a small quantity of Thymosin beta
4 in order to provide material for the conduct of several preclinical
studies to be performed by contract service organizations. Data from
these preclinical studies was to support the submission of an
Investigational New Drug ("IND") application for the treatment of
cystic fibrosis. The Company concluded that in order to continue
development of Thymosin beta 4 rapidly for the IND submission,
additional capital would be required. In that regard, the Company
identified an investment partner, and in November 1995, entered into a
definitive merger agreement which, subject to stockholder approval and
the satisfaction of other conditions precedent, was scheduled to close
in the first part of 1996. Subsequent to December 31, 1995, the
Company learned of an issued U.S. patent, licensed to another entity,
to which a license may be required in order to commercialize Thymosin
beta 4 as a treatment for cystic fibrosis. Thereafter, the merger
agreement was terminated by mutual agreement and the Company suspended
the further development of Thymosin beta 4. The Company has had
discussions with the exclusive licensee of the patent in an effort to
obtain the rights that would remove an impediment to the Company's
ability to secure additional financing that will be necessary to enable
the Company to move forward with a Thymosin beta 4 development program.
However, there is no assurance that a satisfactory arrangement will be
reached.
At the present time, the Company is seeking the advice of its
medical advisors and patent counsel in developing a new plan for the
clinical development and subsequent commercialization of Thymosin beta
4. This plan may include treating diseases other than cystic fibrosis
or cystic fibrosis using methods in a manner that does not infringe any
existing patent. Such diseases may include sepsis, cystic fibrosis,
chronic bronchitis, asthma and adult respiratory distress syndrome.
Although management believes that several such alternatives are
available, significant additional financing will be required before any
work can begin on the Thymosin beta 4 development program.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Actual
results could differ from those estimates. Estimates are used when
accounting for research projects, depreciation and amortization, asset
write-downs, employee benefit plans and income taxes.
Cash, cash equivalents and short term investments
Cash, cash equivalents and short term investments consist of
highly liquid U.S. government and U.S. government-backed securities and
securities received from the sale of Viral Technologies, Inc. ("VTI").
Securities with original maturities of three months or less are
classified as cash equivalents. On January 1, 1994, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." As
of December 31, 1995 and 1994, the Company maintained investments with
an aggregate fair value of $285,000 and $3,747,000, respectively, and a
cost of $322,000 and $4,134,000, respectively. The Company has
recorded an unrealized loss of $37,000 and $387,000 associated with
these investments which is included in the statement of operations for
the year ended December 31, 1995 and 1994, respectively.
Investments
The Company sold its investment in VTI during 1995. During the
period prior to such sale, the Company followed the equity method of
accounting for the investment (Note 4).
Fixed assets
Fixed assets are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs which do not significantly
prolong the useful lives of the assets are charged to expense.
Depreciation is computed using the straight-line method over estimated
useful lives of two to ten years, or over the term of the lease (Note
5).
Proprietary rights
Proprietary rights, which consist of costs of rights purchased
(Note 3) and patents obtained, are being amortized, on a straight-line
basis, over periods up to 15 years (based on the estimated useful lives
of the rights and patents acquired).
Deferred compensation
Deferred compensation is recorded as a liability when compensatory
stock options vest (Note 6) in an amount equal to the excess of the
market price of the Company's common stock over the option exercise
price at the grant date. Upon exercise of vested stock options,
corresponding amounts recorded as deferred compensation are transferred
to additional paid-in capital.
Research and development
Research and development costs are expensed as incurred. Research
and development performed by third parties is expensed based upon the
third party's stage of product development.
Income taxes
The Company accounts for income taxes using the asset and
liability approach (SFAS No. 109 "Accounting for Income Taxes") which
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities.
Fair value of financial instruments
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of
Financial Instruments," as amended by SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments," which requires the disclosure of estimated fair values of
financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. SFAS No. 107
excludes certain financial instruments and all non-financial
instruments. Accordingly, the estimated fair values are only
indicative of individual financial instruments' values and should not
be considered an indication of the fair value of the Company. The
estimated fair values of the Company's cash and cash equivalents, due
from related party, accounts payable and accrued expenses approximate
their carrying values.
Loss per share
Loss per share is computed by dividing the net loss by the
weighted average number of shares of Common Stock outstanding during
the period. Common stock equivalent shares are not included in the
calculation as their effect is antidilutive.
Reclassification
Certain amounts in the 1994 and 1993 financial statements have
been reclassified to conform with the 1995 presentation.
NOTE 3 - PROPRIETARY RIGHTS AND LICENSES
Under a series of license agreements entered into since 1982 with
Hoffmann-La Roche, Inc. and its foreign affiliate ("HLR") and with The
George Washington University ("GWU"), the Company acquired certain
proprietary rights to Thymosin alpha 1 both in the United States and a
number of foreign countries. In 1994, the Company expanded the scope
of its exclusive sublicense to SciClone, of the Company's rights with
respect to Thymosin alpha 1, to cover all countries (other than Italy,
Spain and Portugal) (Note 1). Under the SciClone license agreement,
SciClone is responsible for payment on behalf of the Company of all
royalties due to HLR, GWU and the University of Texas (from which HLR
acquired certain rights to Thymosin alpha 1).
The Company recorded approximately $714,000 in product sales to
SciClone in 1994. As a result of the amendment of the SciClone
license, no product sales to SciClone were made in 1995 nor are any
anticipated in the future.
The rights to Thymosin alpha 1 in Italy, Spain and Portugal have
been sublicensed by the Company to Sclavo, S.p.A. ("Sclavo"). During
1994 and 1993, the Company recorded $4,000 and $250,000 in net product
sales, respectively, to Sclavo. No such sales were recorded during
1995.
The Company holds the proprietary rights to Thymosin beta 4 in the
United States under the license from HLR pursuant to which the Company
is obligated to pay HLR a royalty of 8% on commercial sales (or 4% of
commercial sales, if the FDA has approved Thymosin beta 4 for sale by a
competitor) until the expiration of ten years from the date of the
first commercial sale. The Company also has a worldwide license to
certain uses of Thymosin beta 4 under a research agreement with GWU
under which the Company is obligated to pay GWU a royalty of 4% on
commercial sales.
Payments made by the Company through December 31, 1995 to obtain
its proprietary rights have totaled $1,327,295. Accumulated
amortization of proprietary rights aggregated $1,262,623 and $1,003,937
at December 31, 1995 and 1994, respectively.
NOTE 4 - RELATED PARTIES
Viral Technologies, Inc.
In April 1986, the Company sold 50% of its right, title and
interest in a newly developed technology which may be useful in the
diagnosis, prevention and treatment of Acquired Immune Deficiency
Syndrome ("AIDS") to CEL-SCI Corporation ("CEL-SCI"), a publicly held
company. Simultaneously with the sale of the technology, the Company
entered into a joint venture with CEL-SCI whereby each party
contributed its interests in the technology and $10,000 in cash to VTI,
a newly created corporation, in exchange for a 50% interest each in
VTI.
During the fiscal years ended December 31, 1995, 1994 and 1993,
the Company recognized $181,026, $347,455, and $328,750 in VTI losses,
respectively. The Company fully reserved for all advances to VTI.
In November 1995, as a result of the Company's decision to
concentrate its efforts on Thymosin beta 4 technology, the Company sold
its 50% interest in VTI to CEL-SCI for which the Company received
159,170 shares of CEL-SCI common stock valued at the market price of
$646,628. As of December 31, 1995, the Company has sold 80,000 of the
CEL-SCI shares realizing net proceeds of $259,387. The market value of
the remaining shares at December 31, 1995 is $284,538. Subsequent to
1995, the remaining 79,170 shares were sold realizing net proceeds of
$250,510.
Note Due from Related Party
In 1994, the Company entered into a note receivable agreement with
Allan Goldstein, Chairman of the Board of Directors which accrues
interest monthly at a rate of 11.5%. On February 27, 1996, the Company
amended its note receivable with Dr. Goldstein to forgo principal
payments for one year in exchange for a reduction in his salary.
Interest on the note continues to accrue monthly.
In addition to his employment with the Company, Dr. Goldstein is
also Chairman of the Department of Biochemistry and Molecular Biology
at GWU. The Company has not funded any research personally conducted
by Dr. Goldstein, and anticipates that any future funding will also be
limited to research projects performed by principal investigators at
GWU other than Dr. Goldstein. Payments made under the research
agreement totaling $196,079, $275,457 and $196,884 were made during the
years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 5 - BALANCE SHEET INFORMATION
Fixed assets consist of the following (in thousands):
December 31,
1995 1994
Furniture and equipment $206 $387
Leasehold improvements 6 6
212 393
Less accumulated depreciation 152 132
$60 $261
Accrued expenses consist of the following (in thousands):
December 31,
1995 1994
Lease Termination $ $150
FDA consulting 120
Losses in VTI 91
Employee termination benefits 77
Litigation settlement 200
Research projects 741
Other 36 37
$977 $475
NOTE 6 - STOCKHOLDERS' EQUITY
Common stock and warrants
In January 1993, the Company announced its intention to redeem all
outstanding Class B Warrants and in connection therewith reduced the
exercise price of the Class B Warrants from $12.00 to $10.00 per share
and augmented the consideration to be received upon the exercise of
each Class B Warrant by including a Class C Warrant in addition to one
share of Common Stock. A total of 1,098,170 of the 1,100,000 Class B
Warrants outstanding were exercised prior to redemption. Total
proceeds from the exercise of the Class B Warrants were $10,981,700.
Total costs associated with the exercise of the Class B Warrants were
$203,558 and were charged to additional paid-in capital. Each Class C
Warrant entitles the holder to purchase one share of Common Stock at a
price of $19.00. All Class C Warrants expire February 28, 1997 and are
redeemable by the Company after February 28, 1994 at a price of $0.10
per Class C Warrant, if the average of the closing price for the
Company's Common Stock exceeds $25.00 per share for 20 consecutive
business days.
In December 1993, the Company issued 440,000 shares of Common
Stock to a foreign investor for an aggregate purchase price of
$7,331,720. In addition, the investor acquired an option to purchase
up to 440,000 additional shares of Common Stock. The option became
exercisable in April 1994 and expired in June 1995. Total costs
associated with the sale of stock were $11,500 and were charged to
additional paid-in capital.
In April 1994, the Board of Directors adopted a Shareholders
Rights Plan, pursuant to which it declared a dividend distribution of
one Preferred Stock Purchase Right (Right) for each outstanding share
of Common Stock. The dividend distribution was payable to stockholders
of record at the close of business April 29, 1994.
The Rights can become exercisable only if a person or group
acquires more than 5% of the Common Stock or announces a tender offer
the consummation of which would result in ownership by a person or
group of more than 25% of the Common Stock. Each Right would then
entitle the holder to purchase one-thousandth (1/1,000) of a share of
new series of preferred stock at an exercise price of $16.00.
If the Company is acquired in a merger or other business
combination transaction with, or a significant portion of the Company's
business is acquired by, a person or group that has acquired more than
25% of its outstanding Common Stock, each Right will entitle its holder
(other than such person or group or any of their affiliates or
associates) to purchase, at the then-current exercise price of the
Right, a number of the acquiring company's common shares having a value
that is twice such exercise price. In addition, if a person or group
acquires more than 25% of the Company's outstanding Common Stock, each
Right will entitle its holder (other than such person or group or any
of their affiliates or associates) to purchase, at the then-current
exercise price of the Right, a number of shares of Common Stock having
a market value that is twice such exercise price.
Prior to the time that the Rights become exercisable, they are
redeemable at the option of the Board of Directors at a redemption
price of $.01 per Right. The Board of Directors is required to redeem
the Rights in the event of an all-cash tender offer for all of the
outstanding shares of the Common Stock that meets certain requirements.
The Rights will expire on April 29, 2004.
Treasury Stock
In January 1993, an employee tendered 1,000 shares of Common Stock
of the Company in payment of the exercise price of options to purchase
10,727 shares of Common Stock issued under the Company's stock option
plans. The Common Stock acquired by the Company was valued at its fair
value on the date of surrender to the Company and was recorded as
Treasury Stock. In December 1993, the Company authorized the
retirement of all shares of Common Stock held as Treasury Stock.
Stock option plans
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan established in
1986, and since amended from time to time, under which options to
purchase shares of Common Stock of the Company may be granted by the
Company to any employee. All options granted under the Plan are
exercisable at a price equal to the fair market value of the Common
Stock on the date of the grant. The Plan authorizes the issuance of up
to 1,500,000 shares of Common Stock.
The following table summarizes option activity:
Shares Option Price Range
Outstanding options at
December 31, 1992 419,025 $1.00 to $15.00
(208,150 exercisable)
Options granted during the year101,900 10.75 to 16.25
Options exercised during the year(42,852) 1.00 to 12.50
Options canceled during the year(26,500) 8.125 to 12.50
Outstanding options at
December 31, 1993 451,573 1.00 to 16.25
(245,581 exercisable)
Options granted during the year20,000 1.00
Options canceled during the year(222,716) 1.00 to 16.25
Outstanding options at
December 31, 1994 248,857 1.00 to 16.25
(204,941 exercisable)
Options granted during the year640,000 .44 to .6875
Options canceled during the year(103,584) 3.19 to 16.25
Outstanding options at
December 31, 1995 785,273 .44 to 16.25
(232,148 exercisable)
Non-vested options outstanding at December 31, 1995 become exercisable
in varying amounts through October 2005. Options granted totaling
545,000, issued in October 1995, had vesting terms which were
contingent upon shareholder approval of the proposed merger transaction
(Note 1). Subsequent to December 31, 1995, these options were canceled
due to the termination of the merger on February 8, 1996. At December
31, 1995, 267,160 shares were available for future grants under the
Plan.
1987 Non-Qualified Stock Option Plan
The 1987 Non-Qualified Stock Option Plan was adopted by the Board
of Directors and approved by the stockholders in 1987. The Plan
provides for grants of stock options to any employee. The Plan
authorizes the issuance of up to 1,000,000 shares of Common Stock.
Generally, stock options granted under the Plan may not have an exercise
price that is less than the fair market value of the Common Stock on the date
of the grant. However, during the nine-month period ended December 1990, an
option to purchase 200,000 shares of Common Stock under the Plan was granted,
pursuant to stockholder approval, at an exercise price of $1.00 per share to
an officer of the Company. The fair market value on the date of grant was
$3.0625 per share. The difference between the fair market value and exercise
price of the option was recognized as compensation over the vesting period.
Compensation expense in the amount of $8,876 arising from the granting of
these options was recognized during the year ended December 31, 1993. No
compensation expense was recognized during 1995 and 1994 since the options
were fully vested at December 31, 1993. During 1995, these options expired
without being exercised, and accordingly, the liability has been reclassified
to additional paid in capital.
The following table summarizes option activity:
Shares Option Price Range
Outstanding options at
December 31, 1992 516,000 $1.00 to $15.00
(233,000 exercisable)
Options granted during the year 30,400 10.25 to 16.25
Options exercised during the year (30,750) 1.00 to 9.625
Options canceled during the year (750) 9.625
Outstanding options at
December 31, 1993 514,900 1.00 to 16.25
(304,575 exercisable)
Options exercised during the year (10,000) 1.00
Options canceled during the year (31,250) 9.625 to 16.25
Outstanding options at
December 31, 1994 473,650 1.00 to 16.25
(336,650 exercisable)
Options granted during the year 700,000 .45
Options canceled during the year (363,250) 1.00 to 16.25
Outstanding options at
December 31, 1995 810,400 .45 to 16.25
(96,400 exercisable)
Non-vested options outstanding at December 31, 1995 become exercisable
in varying amounts through October 2005. The 700,000 options granted
during 1995, had vesting terms contingent upon shareholder approval of
the proposed merger transaction (Note 1). Subsequent to December 31,
1995, these options were canceled due to the termination of the
proposed merger on February 8, 1996. At December 31, 1995, 50,266
shares were available for future grants under the Plan.
Directors Stock Option Plan
The Directors Stock Option Plan was adopted by the Board of
Directors and approved by the stockholders in 1987. Under the Plan,
options to purchase 10,000 shares of Common Stock are granted
automatically to each person who becomes a director after April 10,
1987 and who, at the time such person becomes a director, is not an
employee of the Company. Options granted under the Plan have an
exercise price per share equal to the fair market value of the Common
Stock on the date of the grant. In 1992, the Plan was amended, with
the approval of stockholders at the 1992 Annual Meeting (i) to add an
automatic annual grant to each non-employee director of an option to
purchase 5,000 shares of Common Stock if the individual is reelected as
a Director at the Annual Meeting, and (ii) to increase to 200,000 the
number of shares of Common Stock issuable under the Plan. Options
granted under the Plan have a ten-year term and become exercisable in
20% increments beginning on the date of the grant and on each
anniversary date thereafter.
At December 31, 1995, options to purchase 40,000 shares have been
granted, of which 26,000 are exercisable, at exercise prices ranging
from $.53 to $10.50 per share.
Scientific Advisory Council Stock Option Plan
In 1986, the Board of Directors adopted the Scientific Advisory
Council Stock Option Plan under which options to purchase 5,000 shares of
Common Stock were granted to each person who was then a member of the
Company's Scientific Advisory Council. The Plan authorized the issuance
of options to purchase up to 50,000 shares of Common Stock. Options to
purchase all 50,000 shares with a ten-year term were granted at an
exercise price of $6.25 per share, the fair market value of the Common
Stock on the date of grant, and become exercisable over a five-year
period. On March 8, 1995, the Scientific Advisory Council was disbanded
and the Plan was terminated. As of December 31, 1995, all outstanding
options under the Plan had expired.
Warrants
A warrant to purchase 20,000 shares of the Company's common stock
was issued in February 1995 in settlement of a suit filed against the
Company. The warrant has an exercise of $1.00 per share and expires
February 2, 1998.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan whereby the Company
matches a portion of the employees' salary reduction contributions.
Company contributions to the plan amounted to $21,152, $62,320 and
$48,085 in 1995, 1994 and 1993, respectively.
NOTE 8 - INCOME TAXES
Deferred tax assets are comprised of the following (in thousands):
December 31, December 31,
1995 1994
Net operating loss carryforwards $14,193 $11,267
Equity in loss of VTI -- 567
Loss on write-down of fixed assets -- 532
Research and development tax credit 588 459
Other 166 474
14,947 13,299
Valuation allowance (14,947) (13,299)
Net deferred tax assets $ -- $ --
The change in the valuation allowance is attributable to 1995
losses. The Company has provided a full valuation allowance for
deferred tax assets since realization of these future benefits cannot
be reasonably assured. If the Company achieves profitability, these
deferred tax assets would be available to offset future income tax
liabilities and expense, subject to certain limitations.
At December 31, 1995, the Company had net operating loss and
research and development tax credit carryforwards of approximately
$35,483,000 and $588,000, respectively, for income tax purposes which
expire in various years through 2010. Certain substantial changes in
the Company's ownership would result in an annual limitation on the
amount of the net operating loss carryforwards which can be utilized.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
In July 1992, the Company commenced a five year operating lease
for headquarters office space in Bethesda, Maryland. The Company has
an operating lease for production facility space in Sunnyvale,
California, which expires in January 2002. The Sunnyvale lease was
assigned to a third party in March 1995 on the same terms for the
remaining term of the underlying lease. Aggregate rent expense was
$350,308, $462,567, and $389,771 for the years ended December 31, 1995,
1994 and 1993, respectively.
The following is a schedule of future minimum lease payments
required under all operating leases, which have remaining non-cancelable
lease terms in excess of one year as of December 31, 1995 (in thousands):
Year ending December 31, Minimum lease payments
1996 $ 191
1997 97
$ 288
At December 31, 1995, the Company had commitments for the purchase
of Thymosin beta 4 material and for the conduct of preclinical studies
totaling $2,704,000, of which $1,204,000 was canceled subsequent to
year-end. At December 31, 1995, $819,000 of these commitments had been
incurred and expensed for the production of such material or studies.
Subsequent to 1995 and prior to the decision to delay its development
program in February 1996, the Company incurred and expensed the
remaining $681,000 under the commitments.
During 1994, several suits were filed against the Company, its
Chairman, and former Chief Executive Officer, alleging the Company and
certain of its officers made or are responsible for false or misleading
public statements regarding the Company, Thymosin alpha 1, the results
of Thymosin alpha 1 in the treatment of chronic hepatitis B, and the
prospects for success of Thymosin alpha 1 in clinical trials and the
impact on the Company. The suits were consolidated as a single action,
and in a consolidated amended complaint, the plaintiffs expanded their
claims to include the allegation that the Company made false and
misleading public statements concerning its ability to satisfy its
contractual obligation to supply product to SciClone. On March 13,
1995, the district court issued an order dismissing all claims except
for the claim regarding a public statement made by the Company
concerning its ability to supply product to SciClone. On September 26,
1995, the parties filed a Stipulation of Settlement with the District
Court under which the Company would issue 500,000 shares of its Common
Stock and make a $100,000 payment in settlement of the remaining claim.
The $100,000 payment in settlement was placed in an escrow account in
September 1995. The settlement is subject to the approval of the
District Court which is pending. The Company has accrued $200,000 for
the issuance of the 500,000 shares stipulated under the settlement.
While the Company continues to believe that the remaining claim is
without merit, it has entered into the settlement agreement covering
this claim to avoid the continuing cost of litigation.
In March 1996, a complaint was filed against the Company by a
former employee in the Circuit Court of Montgomery County, Maryland,
alleging discrimination in employment, wrongful termination and breach
of contract. The plaintiff is seeking actual damages of $200,000,
consequential damages of $2 million, punitive damages of $100,000, and
court costs. The Company is evaluating the merits of this claim.
In March 1996, the Company received a complaint which was filed by
a former consultant to the Company in the Circuit Court for Wayne
County, Michigan, alleging negligence, fraud, statutory indemnification
and detrimental reliance. The plaintiff is seeking legal expenses and
related costs in excess of $10,000 associated with the investigation of
the consultant by the Securities and Exchange Commission. The Company
is evaluating the merits of this claim.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors. Information concerning each
director of the Company, consisting of the nominee's age, period of
service as a director of the Company, a brief description of his
principal occupation and business experience during the past five
years, and certain other directorships held is set forth below.
Allan L. Goldstein, Ph.D., Age 58, Director since 1982
Dr. Goldstein has been the Chairman of the Board of the
Company since its founding in May 1982. He is the Chairman of the
Department of Biochemistry and Molecular Biology at The George
Washington University School of Medicine and Health Sciences, a
position he has held since 1978. Prior to July 1986, Dr. Goldstein
served as Chief Executive Officer and Treasurer of the Company and
currently is its chief scientific advisor.
Joseph C. McNay, Age 62, Director since 1987
Mr. McNay has been the Chairman and director of Essex
Investment Management Company, Inc., a registered investment adviser,
since 1976. He is also a director of Softech, Inc.
Albert Rosenfeld, Age 75, Director since 1982
Mr. Rosenfeld has been a consultant on Future Programs for
the March of Dimes Birth Defects Foundation since 1973 and Adjunct
Professor in the Department of Human Biological Chemistry and Genetics
at the University of Texas Medical Branch, Galveston, Texas since 1974.
He is a frequent author and lecturer on scientific matters.
Michael L. Berman, Ph.D., Age 46, Director since 1995
Dr. Berman was elected as President and Chief Executive
Officer of the Company in November 1994. He joined the Company in
early 1994 as Vice President for new commercial programs. From 1988 to
1993, Dr. Berman was Vice President and Scientific Director and then
Director of Business Development with Oncologix, Inc. He is also a
director of Prototek, Inc. and Peptomers, Inc.
(b) Identification of Executive Officers. Information concerning
each executive officer of the Company (other than executive officers
who also are directors), consisting of such person's age, position, and
offices held with the Company and the period for which such person has
held such positions or offices and the business expertise of such
person during the past five years is set forth below. Executive
officers are elected annually by the Board of Directors and are subject
to removal at the discretion of the Board of Directors.
Robert J. Lanham, was appointed Chief Financial Officer in
February 1995. Since 1987, he has served as Vice President, Finance
and Administration and Secretary. He was elected Treasurer of the
Company in December 1989.
(c) Compliance with Section 16(a) of the Securities Exchange Act.
Section 16(a) of the Securities Exchange Act" of 1934, as amended,
requires that each of the Company's directors and executive officers,
and any beneficial owner of more than 10% of the Common Stock, file
with the Securities and Exchange Commission (the "SEC") initial reports
of beneficial ownership of the Common Stock and reports of changes in
beneficial ownership of the Common Stock. Such persons also are
required by SEC regulations to furnish the Company with copies of all
such reports. Based solely on its review of the copies of such reports
furnished to the Company for the year ended December 31, 1995, and on
the written representations made by such persons that no other reports
were required, the Company is not aware of any instances of
noncompliance with Section 16(a) during 1995.
Item 11. Executive Compensation
The following table sets forth certain information concerning the
compensation in each of the last three fiscal years of the Company's
President and Chief Executive Officer and each other executive officer
whose 1995 combined salary and bonus exceeded $100,000 (the "named
executive officers").
<TABLE>
Summary Compensation Table
Long Term
Annual Compensation
Name and Compensation Awards All Other
Principal Position Year Salary Bonus Options(2) Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Allan L. Goldstein 1995 $178,080 (3) $0 530,000 $ 9,623(4)
Chairman of 1994 $160,670 (4) $50,000 0 $ 7,697
the Board 1993 $ 97,836 $0 0 $ 5,372
Michael L. Berman(5)1995 $150,986 $ 5,000 580,000 $ 7,365(6)
President and Chief 1994 $ 81,312 $10,000 20,000 $ 3,109
Executive Officer
Robert J. Lanham 1995 $113,211 $0 215,000 $ 8,255(7)
Vice President, 1994 $ 98,945 $0 0 $107,968
and Chief
Financial Officer 1993 $ 90,141 $0 7,500 $ 6,695
</TABLE>
(1) None of the above-named executive officers received perquisites or
other personal benefits in excess of the lesser of $50,000 or 10%
of such individuals salary plus annual bonus.
(2) Consists of options to purchase shares of Common Stock granted
under the Company's employee stock option plans. During 1995,
options issued to Dr. Goldstein, Dr. Berman and Mr. Lanham of
530,000, 500,000 and 200,000, respectively, were granted subject
to shareholder approval of the merger with Alpha 1 Acquisition
Corporation. The merger transaction was terminated by mutual
agreement on February 8, 1996, and as a result, such options were
canceled. Additionally, during 1995, Dr. Berman was issued an
option to purchase 80,000 shares which vested in 12 equal monthly
amounts, and Mr. Lanham was issued an option to purchase 15,000
shares, which vested in 36 equal monthly amounts. During 1994,
Dr. Berman was issued an option to purchase 20,000 shares which
vested immediately. During 1993, Mr. Lanham was issued an option
to purchase 7,500 shares, which vests in annual increments of one
third beginning on the date of grant.
(3) Includes $70,250 paid to Dr. Goldstein in consideration for
consulting services provided to SciClone. See "Compensation
Committee Interlocks and Insider Participation."
(4) In 1995, consists of (i) $4,620 in matching contributions to the
Company's 401(k) Plan and (ii) $5,002 of premiums paid by the
Company for long-term disability and life insurance.
(5) Dr. Berman was first employed by the Company in March 1994.
(6) In 1995, consists of (i) $4,620 in matching contributions to the
Company's 401(k) Plan and (ii) $2,745 of premiums paid by the
Company for long-term disability insurance.
(7) In 1995, consists of (i) $4,620 in matching contributions to the
Company's 401(k) Plan, and (ii) $3,635 of premiums paid by the
Company for long-term disability and life insurance.
<TABLE>
Option Grants in 1995
Potential Realizable
Value at
Percent of Assumed Rates of
Total Options Stock Price
Granted to Appreciation
Options Employees in Exercise Expiration
Granted Fiscal Year for Option Term (1)
Granted Fiscal Year Price Date 5% 10%
Michael L.
<S> <C> <C> <C> <C> <C> <C> <C>
Berman 80,000 (2) 6.0% $.6875 01/18/05 $ 34,589 $ 87,656
300,000 (3) 22.4% $.45 09/13/05 $ 84,900 $215,155
200,000 (3) 14.9% $.44 10/02/05 $ 55,343 $140,249
580,000 43.3% $174,832 $443,060
Allan L.
Goldstein 300,000 (3) 22.4% $.450 09/13/05 $ 84,900 $215,155
230,000 (3) 17.2% $.44 10/02/05 $ 63,644 $161,286
39.6 $148,544 $376,441
Robert J.
Lanham 15,000 (4) 1.1% $.625 02/14/05 $ 5,896 $ 14,941
100,000 (3) 7.5% $.45 09/12/05 $ 28,300 $ 71,718
100,000 (3) 7.5% $.45 09/13/05 $ 28,300 $ 71,718
215,000 16.1% $62,496 $158,377
(1) Amounts represent hypothetical gains that could be achieved if the
option were to be exercised at the end of the option term. The
gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the option was granted to
the expiration date. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common
Stock and the date on which the option, or any portion thereof, is
exercised.
(2) Represents an option to purchase shares of Common Stock which
vested in 12 equal monthly amounts beginning January 1995.
(3) Represents an option to purchase shares of Common Stock granted
subject to shareholder approval of the merger with Alpha 1
Acquisition Corporation. The merger transaction was terminated by
mutual agreement on February 8, 1996 and, as a result, the options
were canceled.
(4) Represents an option to purchase shares of Common Stock which
vests in 36 equal monthly amounts beginning February 1995.
Aggregate Option Exercises in 1995 and Year-End Stock Option Values
</TABLE>
Shares Value of
Acquired Number of Unexercised
Unexercised In-the
on Value Options at Year-End Money
Options at Year-End(1)
Name Exercise Realized Exercisable
Unexercisable Exercisable Unexercisable
Allan L. Goldstein 0 0 140,000 540,000 0 0
Michael L. Berman 0 0 100,000 500,000 0 0
Robert J. Lanham 0 0 78,548 8,125 0 0
(1) All options have an exercise price that exceeds the market price.
Employment Agreements
In January 1995, the Company entered into an employment agreement
with Dr. Michael Berman pursuant to which he serves as the Company's
President and Chief Executive Officer. The agreement was for a one-
year term and provides for an annual salary of $150,000. Pursuant to
the agreement, the Company issued to Dr. Berman a ten-year option to
purchase 80,000 shares of Common Stock at an exercise price of $.69 per
share (the market price of the Common Stock on the date of the grant),
which vested in 12 equal monthly installments over the term of the
employment agreement. Since January 1996, Dr. Berman has continued as
the President and Chief Executive Officer of the Company without an
employment agreement at an annual salary of $150,000.
Dr. Allan Goldstein is employed as the Company's chief scientific
advisor under an employment agreement entered into effective December
1991. The agreement has a five-year term and provides for an initial
annual salary of $90,000, with provision for annual increases of 7.5%
if approved by the Board of Directors. Under the agreement, if Dr.
Goldstein's employment is terminated without cause, he is entitled to a
severance payment equal to the lesser of (i) two years' salary and (ii)
the salary that he would have earned if his employment continued for
the full terms of the agreement. Dr. Goldstein's employment agreement
was amended in February 1996 to provide for an annual salary of
$36,000. The employment agreement requires Dr. Goldstein to devote
such time to the affairs of the Company as is necessary in his judgment
to perform his duties under the agreement. The employment agreement
also acknowledges his position at The George Washington University
School of Medicine and Health Sciences and permits him to continue in
that position so long as he is reasonably available to perform his
duties to the Company. See also "Compensation Committee Interlocks and
Insider Participation."
In February 1995, the Company entered into an employment agreement
with Mr. Robert J. Lanham with a one-year term and an annual salary of
$115,000. As of February 1996, Mr. Lanham continues as Vice President
and Chief Financial Officer, without an employment agreement at an
annual salary of $57,500.
Compensation Committee Interlocks and Insider Participation
The Board of Directors as a whole is responsible for determining
the compensation payable to the chief executive officer and to other
executive officers of the Company. When the Board gives consideration
to the compensation of an executive officer who also is a director,
that director does not participate in the Board's deliberations.
In May 1994, the Company extended a loan in the amount of $149,000
to Dr. Goldstein, the Company's Chairman of the Board, for the purpose
of enabling Dr. Goldstein to meet a margin call on a brokerage account
collateralized by the Common Stock of the Company at a time when the
Board of Directors concluded that it would be contrary to the best
interest of the Company for Dr. Goldstein to effect a sale of the
shares. The loan was unsecured, and had an interest rate equal to the
prime rate, with all principal and interest due on the December 31,
1994 maturity date. The loan was repaid on January 1, 1995, in part
with the proceeds of a second unsecured loan to Dr. Goldstein from the
Company in the amount of $115,617. This second loan has an interest
rate of 11.5% and is to be repaid in 36 equal monthly installments.
During February 1996, the parties amended the loan agreement to provide
for the temporary suspension of installment payments for twelve months,
with interest continuing to accrue, as a condition to amending the
terms of his employment agreement. See "Employment Agreements." At
February 29, 1996, the outstanding principal balance was $74,562.
In November 1994, the Company entered into an agreement with
SciClone Pharmaceuticals, Inc. ("SciClone") pursuant to which the
Company agreed to make the services of Dr. Goldstein available to
consult with SciClone concerning SciClone's efforts to commercialize
Thymosin alpha 1. The agreement covered an initial one-year term and
is automatically renewable annually for additional one-year terms
unless terminated by either party upon 30 days' notice. Under the
Agreement, the Company was paid an initial retainer of $50,000, and is
entitled to receive an additional retainer of $50,000 payable upon the
commencement of each successive one-year term. In addition, the
Company is paid a consulting fee for Dr. Goldstein's services at the
rate of $250 per hour, with a minimum, initial annual consulting fee of
$50,000. The agreement was renewed in November 1995 for an additional
year, but amending the terms to provide for a $25,000 retainer and
minimum consulting fees of $25,000. In view of the additional demands
on the time and attention of Dr. Goldstein required by reason of this
consulting arrangement, the Company has agreed to pay Dr. Goldstein as
compensation the annual retainer and all consulting fees earned by the
Company under the agreement. Such payments are included as salary in
the Summary Compensation Table.
Compensation of Directors
Each nonemployee director is paid an annual fee of $5,000, plus
$1,250 per meeting for attendance at meetings in person and is
reimbursed for expenses incurred in attending meetings of the Board of
Directors. Each current nonemployee director and any new nonemployee
director also is a participant in the Company's Directors Stock Option
Plan pursuant to which (i) each nonemployee director at the time of his
or her initial election or appointment is granted an option to purchase
10,000 shares of Common Stock and (ii) each nonemployee director
received annually an option to purchase 5,000 shares of Common Stock at
the time of his or her reelection as a director. Such options have an
exercise price equal to the fair market value of the Common Stock on
the date of the grant and vest in annual increments of 20% beginning on
the date of the grant.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of March 26, 1996, unless
otherwise indicated, certain information concerning the beneficial
ownership of Common Stock (i) by each director, (ii) by each named
executive officer, and (iii) by all directors and executive officers of
the Company as a group, in each case as reported to the Company by such
persons. No person or group is known by the Company to own
beneficially more than 5% of the outstanding Common Stock.
Percentage of
Name and Address of Outstanding
Beneficial Owner (1) Number of Shares (2) Shares (3)
Allan L. Goldstein 344,397 (4) 3.8%
Joseph C. McNay 133,000 (5) 1.5%
Albert Rosenfeld 21,100 (6) *
Michael L. Berman 103,000 (7) 1.1%
Robert J. Lanham 88,275 (8) 1.0%
All directors and executive officers689,772 (9) 7.4%
____________________
* Constitutes less than 1% of the outstanding shares of Common
Stock.
(1) Unless otherwise indicated, the address of the beneficial owner
is c/o Alpha 1 Biomedicals, Inc. Two Democracy Center, 6903
Rockledge Drive, Suite 1200, Bethesda, Maryland 20817.
(2) A beneficial owner of a security includes a person who directly
or indirectly has or shares voting or investment power with
respect to such security. Voting power is the power to vote or
direct the voting of the security and investment power is the
power to dispose or direct the disposition of the security. Each
person listed has advised the Company that, except as otherwise
indicted below, such person has, or upon the exercise of the
stock options or Class C Warrants indicated will have, sole
voting power and sole investment power with respect to the shares
indicated.
(3) The percentages represent the total number of shares of Common
Stock shown in the adjacent column divided by the sum of (i) the
issued and outstanding shares of Common Stock as of March 26,
1996, and (ii) all shares of Common Stock, if any, issuable upon
the exercise of stock options or Class C Warrants held by such
person or group that were exercisable on March 26, 1996, or will
become exercisable within 60 days thereafter.
(4) Consists of (i) 90,285 shares of Common Stock owned directly by
Dr. Goldstein and 140,000 shares of Common Stock which he has a
right to acquire pursuant to the exercise of immediately
exercisable options granted under the Company's 1986 Incentive
Stock Option Plan and 1987 Non-Qualified Stock Option Plan over
which Dr. Goldstein has, or upon exercise of such options will
have, sole voting and sole investment power and (ii) 18,906
shares held in trust for the benefit of Dr. Goldstein's daughter,
as to which he serves as a co-trustee, 51,103 shares held by Dr.
Goldstein's wife and 44,103 shares held by Dr. Goldstein's wife
as custodian for their minor child, all with respect to which Dr.
Goldstein shares voting and investment power.
(5) Includes 21,000 shares of Common Stock issuable upon the exercise
of the immediately exercisable portion of options granted under
the Company's Directors Stock Option Plan.
(6) Includes 11,000 shares of Common Stock issuable upon the exercise
of the immediately exercisable portion of options granted under
the Company's Directors Stock Option Plan.
(7) Consists of 3,000 shares of Common Stock owned directly by Dr.
Berman and 100,000 shares issuable upon exercise of immediately
exercisable stock options under the Company's 1986 Incentive
Stock Option Plan.
(8) Consists of 7,227 shares of Common Stock owned directly by Mr.
Lanham and 81,048 shares issuable upon exercise of immediately
exercisable stock options under the Company's 1986 Incentive
Stock Option Plan and 1987 Non-qualified Stock Option Plan.
(9) Includes 353,048 shares of Common Stock that all directors and
executive officers of the Company as a group have the right to
acquire through the exercise of stock options that were
exercisable on March 26, 1996, or that will become exercisable
within 60 days thereafter, and 114,112 shares of Common Stock
owned by wives and children of directors and executive officers.
Item 13. Certain Relationships and Related Transactions
See "Item 11 Executive Compensation -- Compensation Committee
Interlocks and Insider Participation."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K
(a) 1. Index to Financial Statements
The Financial Statements of the Company for the year ended
December 31, 1995, filed as part of this Annual Report on Form 10-
K, are on the pages set forth below:
Page Number
of this
Form 10-K
A. Report of Independent Accountants 19
B. Balance Sheets at December 31, 1995 20
and 1994
C. Statements of Operations 21
for the years ended December 31,
1995, 1994 and 1993
D. Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 22
E. Statements of Stockholders' Equity 23
(Deficit) for the years ended
December 31, 1995, 1994, and 1993
F. Notes to Financial Statements 24-36
2. Financial Statement Schedules
None are included because they are not applicable or not
required, or because the required information is included in
the Financial Statements or the Notes thereto.
3. Exhibits Required by Item 601 of Securities and Exchange
Commission Regulation S-K
Exhibit Description of Exhibit Reference **
No.
3.1 Restated Certificate of Exhibit 3.1 to Registration
Incorporation of Company Statement No. 33-9370,
Amendment No. 1 (filed
11/26/86)
3.2 Amendment to Restated Exhibit 3.2 to the Company's
Certificate of Incorporation Transitional Report on Form
of Company 10-K, File No. 1-15070
(filed 3/18/91)
3.3 Bylaws of Company Exhibit 3.2 to Registration
Statement No. 33-9370 (filed
10/8/86)
3.4 Amendment No. 1 to Bylaws of Exhibit 4.7, Registration
Company adopted 8/11/89 Statement No. 33-34551,
Amendment No. 3 (filed
6/21/90)
3.5 Amendment No. 2 to Bylaws of Exhibit 4.8, Registration
Company adopted 6/18/90 Statement No. 33-34551,
Amendment No. 3 (filed
6/21/90)
3.6 Amendment No. 3 to Bylaws of Exhibit 3.6 to the Company's
Company adopted 11/30/90 Transitional Report on Form
10-K, File No. 1-15070
(filed 3/18/91)
4.1 Form of Stock Certificate Exhibit 4.1 to Registration
Statement No. 33-9370,
Amendment No. 1 (filed
11/26/86)
4.2 Class C Warrant Agreement Exhibit 2.1 to the Company's
(including form of Class C Registration Statement on
Warrant Certificate), dated Form 8-A for Class C
as of January 29, 1993, Warrants (filed 1/28/93)
between the Company and
American Stock Transfer &
Trust Company
4.3 Amendment No. 1 to Class C Exhibit 2.2 to the Company's
Warrant Agreement, dated as Amendment No. 1 on Form 8 to
of February 23, 1993, a Registration Statement on
between the Company and Form 8-A for Class C
American Stock Transfer & Warrants (filed 3/1/93)
Trust Company
4.4 Rights Agreement, dated as Exhibit 1 to the Company's
of April 29, 1994, between Registration Statement on
the Company and American Form 8-K, dated May 2, 1994
Stock Transfer & Trust
Company, as Rights Agent
10.1 Commercial Text Agreement Exhibit 10.10, Registration
between the Company and F. Statement No. 33-9370 (filed
Hoffmann-La Roche, Inc., 10/8/86)
dated September 15, 1982,
and amended August 7, 1984
and September 18, 1986
10.2 Thymosin Fraction 5 License Exhibit 10.11, Registration
Agreement between the Statement No. 33-9370 (filed
Company and F. Hoffmann-La 10/8/86)
Roche & Co. Limited Company,
dated January 1, 1985
10.3 Thymosin Alpha 1 License Exhibit 10.12, Registration
Agreement between the Statement No. 33-9370 (filed
Company and F. Hoffmann-La 10/8/86)
Roche & Co. Limited Company,
dated August 5, 1986
10.4 Thymosin Alpha 1 License Exhibit 10.19 to the
Agreements between the Company's Annual Report on
Company and F. Hoffmann-La Form 10-K, File No. 1-15070
Roche & Co. Limited Company, (filed 6/29/89)
dated October 21, 1988
10.5 Agreement between the Exhibit 10.19, Registration
Company and Hoffmann-La Statement No. 33-34551
Roche, Inc., dated as of (filed 4/25/90)
December 21, 1989
10.6 Letter Agreement, dated Exhibit 10.29 to the
March 4, 1991, between the Company's Annual Report on
Company and F. Hoffmann-La Form 10-K, File No. 1-15070
Roche & Co. Limited Co. (filed 3/25/92)
10.7 Agreement between the Exhibit 10.30 to the
Company and Hoffmann-La Company's Annual Report on
Roche, Inc., dated as of Form 10-K, File No. 1-15070
August 6, 1991 (filed 3/25/92)
10.8* Employment Agreement, dated Exhibit 10.33 to the
December 1, 1991, between Company's Annual Report on
the Company and Allan L. Form 10-K (filed 3/25/92)
Goldstein
10.9* 1986 Incentive Stock Option Exhibit 10.23 to the
Plan, as amended through May Company's Annual Report on
15, 1992 Form 10-K, File No. 1-15070
(filed 3/26/93)
10.10* 1987 Non-Qualified Stock Exhibit 10.24 to the
Option Plan, as amended Company's Annual Report on
through May 15, 1992 Form 10-K, File No. 1-15070
(filed 3/26/93)
10.11* Amended and Restated Exhibit 10.25 to the
Directors Stock Option Plan, Company's Annual Report on
dated as of May 15, 1992 Form 10-K, File No. 1-15070
(filed 3/26/93)
10.12 Lease Agreement, dated as of Exhibit 10.27 to the
April 9, 1992, between the Company's Annual Report on
Company and Democracy Form 10-K, File No. 1-15070
Associates Limited (filed 3/26/93)
Partnership (Bethesda,
Maryland lease)
10.13 Lease Agreement, dated Exhibit 10.28 to the
February 10, 1993, between Company's Annual Report on
the Company and John Form 10-K, File No. 1-15070
Arrillaga, Trustee, and (filed 3/26/93)
Richard T. Perry, Trustee
(Sunnyvale, California
lease)
10.14 Thymosin alpha 1 License Exhibit 10.29 to the
Agreement, dated as of Company's Annual Report on
February 12, 1993, between Form 10-K, File No. 1-15070
the Company and Sclavo, (filed 3/26/93)
S.p.A. (with certain
confidential information
deleted)
10.15 Lease Agreement Amendment Exhibit 10.24 to the
Number 1, dated September 1, Company's Annual Report on
1993, and Amendment Number Form 10-K, File No. 1-15070
2, dated December 27, 1993 (filed 3/28/94)
(Sunnyvale, California
lease)
10.16 Thymosin Alpha 1 License Exhibit 1 to a Current
Agreement, dated as of Report on Form 8-K, File
August 19, 1994, between No. 1-15070 (filed 8/24/94)
SciClone Pharmaceuticals,
Inc. and the Company (with
certain confidential
information omitted)
10.17 Consulting Agreement, Exhibit 10.26 to the
effective October 15, 1994, Company's Annual Report on
between SciClone Form 10-K, File No. 1-15070
Pharmaceuticals, Inc. and (filed 3/31/95)
the Company
10.18* Employment Agreement, dated Exhibit 10.27 to the
March 24, 1994, between the Company's Annual Report on
Company and Michael L. Form 10-K, File No. 1-15070
Berman (filed 3/31/95)
10.19 Lease Agreement Amendment Exhibit 10.28 to the
Number 3, dated April 19, Company's Annual Report on
1994 (Sunnyvale, California Form 10-K, File No. 1-15070
Lease) (filed 3/31/95)
10.20* Separation Agreement, dated Exhibit 10.29 to the
November 1, 1994, between Company's Annual Report on
the Company and Vincent F. Form 10-K, File No. 1-15070
Simmon (filed 3/31/95)
10.21* Supplement to Employment Exhibit 10.30 to the
Agreement, dated December 8, Company's Annual Report on
1994, between the Company Form 10-K, File No. 1-15070
and Allan L. Goldstein (filed 3/31/95)
10.22* Employment Agreement, dated Exhibit 10.31 to the
January 18, 1995, between Company's Annual Report on
the Company and Michael L. Form 10-K, File No. 1-15070
Berman (filed 3/31/95)
10.23* Employment Agreement, dated Filed herewith
February 1, 1995, between
the Company and Robert J.
Lanham
10.24 Assignment of Lease, dated Filed herewith
March 22, 1995 from the
Company to Scios Nova, Inc.
(Sunyvale, California Lease)
10.25 Consulting Agreement, Filed herewith
effective October 15, 1995,
between SciClone
Pharmaceuticals, Inc. and
the Company
10.26 Termination Agreement of the Exhibit 1 to a Current
Viral Technologies, Inc. Report on Form 8-K, File No.
Joint Venture between CEL- 0-15070 (filed 11/13/95)
SCI Corporation and the
Company, dated October 30,
1995
10.27 Agreement of Merger, dated Exhibit (c)(1) to a Current
November 13, 1995 between Report on Form 8-K File No.
Alpha 1 Acquisition 0-15070 (filed 11/13/95)
Corporation and the Company
10.28* Supplement to Employment Filed herewith
Agreement, dated Feburary
27, 1996, between the
Company and Allan L.
Goldstein
24 Consent of Price Waterhouse Filed herewith
LLP
* Management contract or compensatory plan or arrangement
** The exhibits referred to in this column have heretofore been
filed with the Securities and Exchange Commission as exhibits to the
documents indicated and are hereby incorporated by reference thereto.
The Registration Statements referred to are Registration Statements of
the Company.
(b) Reports on Form 8-K
Current Reports on Form 8-K were filed by the Company during
the fiscal quarter ended December 31, 1995 as follows:
November 13, 1995 (Items 2 and 5)
November 22, 1995 (Items 5 and 7)
(c) Exhibits
Attached hereto
See Index to Exhibits Page 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALPHA 1 BIOMEDICALS, INC.
(Registrant)
By: /s/ Michael L. Berman
Michael L. Berman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Allan L. Goldstein Director and
Allan L. Goldstein Chairman of the Board March 31, 1996
/s/ Michael L. Berman President and Chief
Michael L. Berman Executive
Officer
(Principal Executive
Officer) March 31, 1996
/s/ Robert J. Lanham Vice President and Chief
Robert J. Lanham Financial Officer
(Principal
Financial Officer and
Principal Accounting
Officer) March 31, 1996
/s/ Joseph C. McNay Director March 31, 1996
Joseph C. McNay
/s/ Albert Rosenfeld Director March 31, 1996
Albert Rosenfeld
Index to Exhibits
Exhibit Pages
10.23 Employment Agreement, dated February 1, 1995,
between the Company and Robert J. Lanham. 51-54
10.24 Assignment of Lease, dated March 22, 1995 from the
Company Scios Nova, Inc. (Sunnyvale, California). 55-58
10.25 Consulting Agreement, dated October 15, 1995, between
the Company and SciClone Pharmaceuticals, Inc. 59-65
10.28 Supplement to Employment Agreement, dated
February 27, 1996, between the Company
and Allan L. Goldstein. 66
24 Consent of Price Waterhouse LLP. 67
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Agreement, dated as of this 1st day of February, 1995,
is entered into by and between Alpha 1 Biomedicals, Inc., a Delaware
corporation having offices at 6903 Rockledge Drive, Suite 1200,
Bethesda, Maryland 20817 ("Alpha") and Robert J. Lanham, an
individual residing at 2014 Gunnell Farms Drive, Vienna, Virginia
22181 ("Mr. Lanham").
WHEREAS, Mr. Lanham has experience in the operation and
administration of businesses and in financial matters related thereto;
WHEREAS, Alpha wishes to continue to employ Mr. Lanham as
Vice President and Chief Finance Officer, and Mr. Lanham wishes to
continue in this capacity.
NOW, THEREFORE, The parties hereto, intending to be legally
bound, agree as follows:
1. Engagement. Alpha hereby employs Mr. Lanham as Vice
President and Chief Finance Officer, and Mr. Lanham hereby accepts
such employment, pursuant to the terms and conditions hereinafter set
forth.
2. Term. This Agreement is for a one year term commencing
on the date hereof.
3. Duties. During the term of this Agreement and in
accordance with the Bylaws of Alpha, the services to be performed by
Mr. Lanham shall be as Vice President and Chief Finance Officer of
Alpha. Mr. Lanham shall use his best efforts and shall act in good
faith in performing all duties required to be rendered under this
Agreement.
4. Availability. Mr. Lanham shall devote his entire
working time, attention and energies to the affairs of Alpha, and
shall not during the term of this Agreement be engaged in any other
business activities whether or not such business activity is pursued
for gain, profit or other pecuniary advantage, without the express
written concurrence of Alpha.
5. Expenses. Alpha shall reimburse Mr. Lanham promptly
upon the presentation of itemized vouchers for all ordinary and
necessary business expenses incurred by him in the performance of his
duties hereunder.
6. Compensation. As compensation for the services to be
rendered by Mr. Lanham, Alpha agrees to pay him at the annual salary
of $115,000, payable in bi-weekly installments as well as such other
compensation, including bonuses, that Alpha may approve from time to
time. Salary and any other payments shall be subject to withholding
and other applicable taxes. Mr. Lanham shall be entitled to
participate in all employee benefits and insurance programs as are
made available to employees of Alpha generally, however, as an
exception to the general vacation policy, he will receive four weeks
vacation with pay per year.
7. Ownership of Material Information. All rights, title
and interest of every kind and nature whatsoever in and to
discoveries, inventions, improvements, patents (and applications
therefor), copyrights, ideas, know-how, laboratory notebooks,
creations, properties and all other proprietary rights arising from
or, in any way related to, Mr. Lanham's services hereunder shall
become and remain the exclusive property of the Company, and he shall
have no interest therein.
8. Trade Secrets. Mr. Lanham covenants and agrees with
Alpha that he will not during the term of this Agreement or thereafter
disclose to anyone (except to the extent reasonably necessary for him
to perform his duties hereunder) any confidential information,
including but not limited to list of customers, financial or cost
information, and confidential scientific and clinical information
concerning the business or affairs of Alpha or any of its affiliates
or
subsidiaries, which he may have acquired in the course of, or incident
to, the performance of his duties pursuant to the terms of this
Agreement or pursuant to any prior dealings with Alpha or with any of
Alpha's affiliates or subsidiaries. In the event of a breach of
threatened breach by Mr. Lanham of the provisions of this paragraph,
Alpha shall be entitled to an injunction restraining him from
disclosing, in whole or in part, such information of from rendering
any services to any person, firm, corporation, association or other
entity to whom such information has been disclosed or is threatened to
be disclosed. Nothing herein shall be construed as prohibiting Alpha
from pursuing any other remedies available to it for such breach or
threatened breach, including the recovery of damages from Mr. Lanham.
9. Termination for Cause. Mr. Lanham's employment
hereunder may be terminated by Alpha in the event of any willful or
unlawful act or course of action by him during the term of this
Agreement which materially injures Alpha or any act which is criminal
in nature or affects adversely the reputation of Alpha or its
employees, unless such act is performed at the direction of the Board.
If Mr. Lanham's employment hereunder is so terminated, it shall
terminate immediately upon receipt of notice of termination, and he
shall be entitled to compensation only through the date of such
termination. Termination of him under this Section 9 shall not
terminate his obligations under Sections 7, 8, and 13 of this
Agreement.
10. Termination Without Cause. Alpha may terminate this
Agreement without any cause at any time upon two (2) week's written
notice to Mr. Lanham. In that event, Mr. Lanham, if requested by
Alpha, may continue to perform his duties under this Agreement and
shall be paid his regular compensation up to the date of termination.
Termination of Mr. Lanham under this Section 10 shall not terminate
this obligations under Section 7 and 8 of this Agreement.
11. Resignation. Mr. Lanham may resign his employment
under this Agreement at any time. Such resignation by Mr. Lanham
shall not terminate his obligations under Section 7, 8 and 13 of this
Agreement.
12. Death or Disability. In the event of the death or
disability of Mr. Lanham during the term of this Agreement or any
renewal term thereto, Alpha shall continue to pay him or his legal
representative, as the case may be, compensation provided hereunder
for a period, from his death or a determination by Alpha that his
disability is such that he no longer can carry out his duties under
this Agreement, equal to one month's salary. Disability for purpose
of this Section 12 shall mean disability as defined in the long term
disability insurance policy in effect at the time provided such policy
exists, or inability to perform duties for greater than a six (6)
period.
13. Non-Competition. Following termination of employment,
other than without cause, Mr. Lanham will not for a period of one
year, without the consent of Alpha, directly or indirectly, own
manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or
control of any business engaged in research and development,
production or sale of a thymic hormone product, or any other specific
product being developed, produced or sold by Alpha at the time of such
termination of employment. In the event of his actual or threatened
breach of the provisions of this paragraph, Alpha shall be entitled
to, and he hereby consents to an injunction restraining him therefrom.
However, nothing herein shall be construed as prohibiting Alpha from
pursuing any other available remedies for such breach or threatened
breach, including the recovery of damages from him. Mr. Lanham agrees
that the provision of this Section 13 are necessary and reasonable to
protect Alpha in the conduct of its business. If any restriction
contained in this Section 13 shall be deemed to be invalid or
unenforceable by reason of the extent, duration or geographic scope
thereof, then Alpha shall have the right to reduce such extent,
duration, geographic scope or other provisions thereof; and in their
reduced form such restrictions shall then be enforceable in the manner
contemplated hereby.
14. Insurance. Alpha will obtain and maintain for the
benefit of Mr. Lanham, while he is employed under this Agreement, an
insurance policy with a value of $350,000 payable to the estate of Mr.
Lanham, provided that Alpha shall be bound by this provision only to
the extent that Alpha's annual cost of such policy does not exceed
$3,000. Mr. Lanham acknowledges that the cost of this premium will be
defined as income for the purpose of reporting income as required by
law.
15. Arbitration. Except as provided otherwise in this
Agreement, at the request of either party to this Agreement, all
disputes arising under or in connection with this Agreement may be
submitted to arbitration in Washington, D.C. under the rules of the
American Arbitration Association, and the decision of the arbitrator
shall be final and binding. Judgment upon the award rendered may be
entered and enforced in any court having jurisdiction.
16. Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland.
17. Completeness. This Agreement sets for all, and is
intended by all parties to be an integration of all, of the promises,
agreements and understandings among the parties hereto with respect to
the subject matter
hereof, and there are no promised, agreements or understandings, oral
or written, expressed or implied, among them other than set for or
incorporated by references herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
ALPHA 1 BIOMEDICALS, INC.
/s/ Robert J. Lanham /s/ Michael L. Berman
Robert J. Lanham Michael L. Berman, Ph.D.
President & CEO
EXHIBIT 10.24
ASSIGNMENT OF LEASE
This ASSIGNMENT OF LEASE (hereinafter "Assignment") is made on March
22, 1995, between ALPHA 1 BIOMEDICALS, INC. (hereinafter "Assignor"),
whose address is Two Democracy Center, 6903 Rockledge Drive, Suite
1200, Bethesda, Maryland 20817, and SCIOS NOVA INC. (hereinafter
"Assignee"), whose address is 2450 Bayshore Parkway, Mountain View,
California 94043, who agree as follows:
1. Recitals. This Assignment is made with reference to the following
facts and objectives:
1.1 Assignor, as Tenant, entered into a written lease dated January
22, 1993, and subsequent Amendment Nos. 1, 2 and 3 (collectively the
"Master Lease," attached hereto as Exhibit A), in which Landlord (John
Arrillaga. Trustee, or his Successor Trustee, UTA dated 7/20/77 [John
Arrillaga Separate Property Trust] as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated 7/20/77 [Richard T. Peery
Separate Property Trust] as amended, collectively the "Landlord")
leased to Assignor and Assignor leased from Landlord premises located
in the City of Sunnyvale, County of Santa Clara, State of California
("Premises"), described as follows:
a portion of that certain 51,680 square foot, one-story building
located at 820 West Maude Avenue, Suite 101, Sunnyvale, California
94086, consisting of approximately 26,920 square feet of space;
1.2 Assignor desires to assign all its right, title, and interest in
the Master Lease to Assignee.
2. Effective Date of Assignment. This Assignment shall take effect on
March 22, 1995, and Assignor shall give possession of the Premises to
Assignee on that date.
3. Assignment and assumption. Subject to the terms hereof and to
obtaining the consent of Landlord to this Assignment in the form
attached as Exhibit B. (the "Landlord's Consent"), Assignor assigns
and transfers to Assignee all its right, title, and interest in the
Master Lease, and Assignee accepts the assignment and assumes and
agrees to perform, from the date this Assignment becomes effective, as
a direct obligation to Landlord, all the provisions of the Master
Lease as modified by the Landlord's Consent or this Assignment.
4. Hazardous Materials. Assignor represents and warrants that, to the
best of its knowledge and during the term of its occupancy: (i) no
hazardous waste or substance was stored, treated or disposed of on the
Premises, and that no underground tanks were placed on the Premises;
(ii) the Premises is in complete compliance with all applicable
statutes and regulations, including environmental, health and safety
requirements; (iii) Assignor's business on the Premises disposed of
its waste in accordance with all applicable statutes, ordinances and
regulations; (iv) Assignor has had no notice of any pending or
threatened action or proceeding arising out of the condition of the
Premises or alleged violation of environmental, health or safety
statutes, ordinances or regulations; (v) no condition exists which
might threaten the ability of Assignee to acquire all governmental
permits required to operate a business similar to the business of
Assignor on the Premises. Assignor and Assignee agree that in terms of
allocating their responsibility for Hazardous Materials under the
Master Lease (including Section 48), Assignor shall remain responsible
for all Hazardous Materials conditions relating to the Premises
existing as of the Effective Date, and that Assignee shall be
responsible only for changes in the hazardous materials condition of
the Premises which result from the operations of Assignee after the
Effective Date of this Assignment.
5. Tenant Improvements; Furniture, Fixtures and Equipment. In
exchange for
$100,000.00 consideration to be paid to Assignor by Assignee upon
commencement of and as a precondition to the assignment term, Assignor
assigns and transfers to Assignee all its right, title and interest in
all existing tenant improvements in the Premises, in their as-is
condition, plus the list of existing furniture, fixtures and equipment
listed on attached Exhibit C.
6. Assignee to Hold Assignor Harmless. Subject to Sections 3 and 4,
if Assignee defaults in its obligations under the Master Lease as
modified by this Assignment or the Landlord's Consent and Assignor in
its sole discretion pays rent to Landlord or fulfills any of
Assignee's other obligations in order to prevent Assignee from being
in default, Assignee immediately shall reimburse Assignor for the
amount of rent or costs incurred by Assignor in fulfilling Assignee's
obligations under this Assignment, together with interest on those
sums at the rate of 10% per annum. Assignor and Assignee shall each
indemnify and hold harmless the other and its employees,
representatives, directors, officers and agents (collectively
"Agents"), against and from any and all losses, claims, liabilities,
judgments, costs, demands, causes of action, and expenses (including,
without limitation, reasonable attorneys' fees and consultants' fees)
(collectively "Claims") arising from or related to the following: (a)
each such party's use of the Premises or from any activity done,
permitted or suffered by such party in, on or about the Premises, the
Building, or the Property; (b) any act or omission by such party
and/or their respective Agents in connection with or related to this
Assignment, the Building, or the Property; (c) any breach or default
of such party in the terms of this Assignment; and (d) any action or
proceeding brought by Landlord pursuant to the parties' joint and
several indemnification of Landlord pursuant to Section 5 of the
Landlord's Consent arising as a result of the foregoing. If any action
or proceeding is brought against a party for which it is entitled to
be indemnified hereunder, (the "Indemnified Party"), upon notice from
the other party (the "Indemnifying Party"), the Indemnifying Party
shall defend the same at such party's expense with counsel reasonably
satisfactory to the Indemnified Party. The obligations of Assignor and
Assignee under this Section 6 shall survive any termination of the
Assignment or the Master Lease.
7. Default of Lease; Notice to Assignor
7.1 Notice to Assignor. If Assignee or Assignor receives a notice of
default
from Landlord, each shall promptly send a copy to the other.
7.2 Assignor's Remedies Against Assignee. If Assignee defaults under
the Master Lease as modified by this Assignment or the Landlord's
Consent, Assignor shall have the rights against Assignee that are
available by law and those contained in the Master Lease, including,
without limitation, Assignor's right to reenter and retake possession
of the Premises from Assignee.
8. Prepaid Rent: Security Deposit; Brokers: Prorations; Removal.
8.1 Prepaid Rent: Security Deposit. The parties acknowledge that
Landlord now holds the sum of $67,300.00 as a Security Deposit, to be
applied subject to the provisions of the Master Lease. Upon
commencement of and as a precondition to the assignment term, Assignee
shall reimburse Assignor in said amount of $67,300.00 for the existing
Security Deposit paid under the terms of the Master Lease. Assignor
releases all claims to that sum currently held by Landlord, and the
sum shall be held by Landlord for the benefit of Assignee, subject to
the provisions of the Master Lease.
8.2 Brokers. Assignor shall be responsible for all compensation of
all brokers relating to this Assignment transaction, specifically
including Comish & Carey, Catalyst Group and Northbridge Group.
8.3 Prorations. Property taxes, property insurance and any other
expenses billed by Landlord under the Master Lease shall be prorated
between Assignor and Assignee as of the Effective Date.
8.4 Removal of Property. Not later than March 21, 1995, Assignor
shall remove from the Premises the items of personal property listed
on Exhibit D.
9. Insurance. Assignee shall carry insurance per the Master Lease
and name Assignor as an additional insured. Assignee shall, within 10
days of the execution hereof, provide Landlord with a certificate of
insurance from its insurer which confirms that the insurance coverage
required to be carried by Tenant under the Master Lease is in full
force and effect.
10. Miscellaneous.
10.1 Attorneys' Fees. If either party commences an action against
the other
party arising out of or in connection with this Assignment, the
prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees and costs of suit.
10.2 Notice. Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the
other party shall be in writing and either be served personally or
sent by registered or certified prepaid, first-class mail. Any notice,
demand, request, consent, approval, or communication that either party
desires or is required to give to the other party shall be addressed
to the other party at the address set forth in the introductory
paragraph of this Agreement. Either party may change its address by
notifying the other party of the change of address. Notice shall be
deemed communicated upon receipt if mailed as provided in this
paragraph.
10.3 Successors. This Assignment shall be binding on and inure to
the
benefit of the parties and their successors.
10.4 Governing Laws. This Assignment shall be interpreted and
governed by
the laws of the state of California as applied to contracts between
residents of California that is to be performed in California.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
as of the day and year first hereinabove set forth.
ASSIGNOR: ASSIGNEE:
ALPHA 1 BIOMEDICALS. INC. SCIOS NOVA INC..
a Delaware corporation a Delaware corporation
By /s/ Robert J. Lanham By /s/ Richard L.Casey
Robert J. Lanham Richard L. Casey
Vice President Chairman, President
Finance & Administration Chief Executive Officer
Exhibits:
A: Master Lease
B: Landlord's Consent to Assignment
C: Personal Property Sold to Assignee
D: Personal Property to be Removed
EXHIBIT 10.25
AGREEMENT
RECITALS
1. SciClone Pharmaceuticals, Inc. ("SciClone") and Alpha 1
Biomedicals. Inc. ("Alpha") are parties to a Thymosin Alpha 1 License
Agreement, dated as of August 19, 1994, pursuant to which Alpha has
licensed to SciClone the worldwide rights (except for several
countries) to Thymosin alpha 1 (as defined in Schedule A).
2. Dr. Allan L. Goldstein ("Goldstein"), the chief. scientific
advisor of Alpha has significant knowledge regarding the composition,
activity, laboratory and clinical experience of Thymosin alpha 1.
3. SciClone wishes to employ Goldstein to serve as a consultant to
SciClone in connection with SciClone's development of Thymosin alpha
1, and Alpha wishes to make Goldstein's services available to
SciClone.
AGREEMENT
In consideration of the foregoing and of the promises herein
contained, the parties hereto agree as follows:
1. Scope of Service. The services performed by Goldstein for
SciClone pursuant to this Agreement are described in Schedule A hereto
(the "Services").
2. Compensation. SciClone shall pay to Alpha for the Services
performed by Goldstein the consideration specified in Schedule B
hereto. Goldstein shall have no recourse against SciClone for any
payments due or made hereunder.
3. Term. This Agreement is for an initial term beginning on October
15, 1995 and ending on October 14, 1996, and shall be automatically
renewable thereafter for successive one-year terms, unless terminated
in accordance with paragraph 14 hereunder.
4. Proprietary Information. (a) Goldstein agrees to maintain in
confidence and not disclose or use, either during or after the term of
this Agreement, without the prior express written consent of SciClone,
any proprietary or confidential information or know-how disclosed to
Goldstein by SciClone in Goldstein's capacity as consultant to
SciClone hereunder (the "Proprietary Information"), whether or not
such Proprietary Information is the property of SciClone or the
property of a SciClone licensor or other third party that disclosed
the same to SciClone, and whether or not it is in written form, except
(i) to the extent required to perform duties on behalf of SciClone in
Goldstein's capacity as a consultant hereunder and only if agreed to
in advance by the SciClone officer designated on Schedule C hereto
(the "Designated Officer") and (ii) to the extent that disclosure may
be required by law or legal process. Such Proprietary Information
includes, but is not limited to, technical and business information
relating to SciClone's inventions or products, licensing agreements,
patent applications relating to SciClone's inventions or licensed to
SciClone, research and development, production processes,
manufacturing and engineering processes, machines and equipment,
finances, customers, marketing, production and business plans. Upon
termination of this Agreement or at the request of SciClone before
termination, Goldstein will deliver to SciClone all written and
tangible material in his possession incorporating the Proprietary
Information. These obligations with respect to Proprietary Information
extend to information belonging to customers and suppliers of
SciClone, who may have disclosed such information to Goldstein as a
result of Goldstein's status as a consultant to SciClone hereunder.
(b) Goldstein and Alpha acknowledge and understood that the foregoing
provision prohibits Goldstein from disclosing Proprietary Information
to Alpha or any of its officers, directors, employees or agents, or
using Proprietary Information on behalf of or in connection with work
performed for Alpha.
5. Inventions.
(a) Disclosure and Assignment. (i) Goldstein and Alpha each
acknowledge and agree that, subject to the terms of any sponsored
research agreement entered into between SciClone and The George
Washington University or the Research Agreement (Moody), effective May
1 1990, entered into between Alpha and The George Washington
University and assigned to SciClone, or the Research Agreement.
effective May 1, 1990 entered into between Alpha and The George
Washington University (Badamchian), any and all inventions,
improvements, discoveries, technical developments and copyrighted
works with respect to Thymosin alpha 1 (as defined on Schedule A
hereto), whether or not patentable, which Goldstein conceives,
develops or reduces to practice, solely or jointly with others and
which result from any work Goldstein performs for SciClone hereunder
("Inventions") will become the sole and exclusive property of SciClone
and will not be made available to others during or following the term
of the Agreement without the advance written permission of the
Designated Officer. (ii) Goldstein agrees to disclose promptly to the
Designated Officer all matters which come to Goldstein's attention
during the performance of Goldstein's activities pertaining to any and
all Inventions.
(b) Representations. Goldstein represents and warrants that his
activities on behalf of SciClone will not conflict with the Faculty
Guidelines or Patent Policy with The George Washington University.
Both Alpha and Goldstein agree that Goldstein is acting under this
Agreement in Goldstein's capacity as a consultant to SciClone.
Goldstein further agrees that the ownership of Inventions and patent
rights as set forth in Sections 5(a) and (c) herein are in accordance
with Section VII B(3) and VII E of the Patent Policy of The George
Washington University.
(c) Assignment of Inventions. Subject to the terms of any sponsored
research agreement entered into between SciClone and The George
Washington University or the Research Agreement (Moody), effective May
1, 1990, entered into between Alpha and The George Washington
University and assigned to SciClone, or the Research Agreement,
effective May 1, 1990 entered into between Alpha and The George
Washington University (Badamchian), Goldstein hereby assigns to
SciClone his entire right to all the Inventions. Goldstein further
agrees to cooperate with SciClone or its designee(s), both during and
after the term of this Agreement, in the procurement and maintenance
of SciClone's intellectual property rights as a result of Goldstein's
work for SciClone with respect to Thymosin alpha i hereunder, and to
sign all papers which SciClone may deem necessary and desirable for
vesting SciClone or its designee(s) with such rights. Goldstein agrees
to use his best efforts to keep and maintain adequate and current
written records of any Inventions in the form of notes, sketches,
drawings or reports relating to said Inventions, which records shall
be and remain the property of SciClone. Goldstein agrees to execute,
upon request by SciClone, signed transfer of copyright to SciClone
when any copyrighted work is created by Goldstein in his capacity as a
consultant to SciClone hereunder.
(d) Royalties. Goldstein understands and acknowledges that he shall
not be entitled to any royalty, commission or other payment or license
or right with respect to the Inventions.
(e) Future Patent Application or Copyright Registrations. If a
patent application or copyright registration is filed by or on behalf
of Goldstein within one (1) year after the termination of this
Agreement describing an Invention within the scope of Goldstein's work
for SciClone under this Agreement, Goldstein and Alpha agree that it
is to be presumed that the Invention was conceived by Goldstein during
the term of this Agreement.
6. Publications. Goldstein and Alpha agree not to, and Alpha agrees
not to cause Goldstein to, publish on the results of any work
Goldstein performs for SciClone with respect to Thymosin alpha 1 under
this Agreement without the prior written approval of the Designated
Officer.
7. Conflicting Obligations. (a) Goldstein and Alpha represent that
each of them has advised SciClone in writing prior to the date of
signing this Agreement of any relationship with third parties,
including competitors of SciClone, which would present a conflict of
interest with the rendering of the Services, or which would prevent
Goldstein from carrying out the terms of the Agreement. Goldstein and
Alpha agree to advise SciClone of any such relationships that arise
during the term of this Agreement. SciClone will then have the option
to terminate this Agreement without further obligation to Goldstein or
Alpha, except to pay to Alpha the compensation earned through the date
of termination. (b) Alpha consents and agrees to the performance of
Services by Goldstein for SciClone hereunder. Alpha further
acknowledges and agrees that the Services to be performed by Goldstein
hereunder are of a unique and intellectual character and are capable
of being performed only by Goldstein, and that no other officer,
director, employee or agent of Alpha may be substituted for Goldstein
hereunder.
8. Confidential Information of Others. Goldstein agrees not to
disclose to SciClone, or use in connection with his work for SciClone
under this Agreement, any confidential or proprietary information or
materials belonging to any third party, including without limitation
that of Alpha, George Washington University or any prior employer.
9. Written Materials. All records, reports, notes, compilations, or
other recorded matter, and copies or reproduction thereof, relating to
SciClone's operations, activities or business, made or received by
Goldstein in his capacity as a consultant hereunder during the term of
this Agreement (the "Written Materials") are and shall be SciClone's
exclusive property. Goldstein agrees to keep the Written Materials
subject to SciClone's control, and to surrender the Written Materials
upon the termination of this Agreement or at the request of SciClone
before termination.
10. Prior Inventions. Goldstein agrees to notify SciClone and Alpha
in writing before he makes any disclosure or performs any work on
behalf of SciClone which appears to threaten or conflict with
proprietary rights he or Alpha may claim in any invention or idea. The
parties will endeavor to resolve any such conflict before any such
work commences. Should the parties be unable to resolve such conflict
amicably, SciClone reserves its right to resolve any such conflict
with Goldstein or Alpha, as the case may be, in accordance with
paragraph 15 herein.
11. Irreparable Harm. Goldstein and Alpha acknowledge that
Goldstein's obligations under this Agreement are of a unique and
intellectual character which gives them particular value, that a
breach of any such obligations will result in irreparable and
continuing damage to SciClone for which there may be no adequate
remedy at law, and that in the event of a breach by Goldstein or Alpha
of their obligations under this Agreement, SciClone shall be entitled
to injunctive relief and/or a decree for specific performance and such
other relief as may be deemed proper(including monetary damages, if
appropriate) by a court of competent jurisdiction.
12. Independent Contractor. Goldstein acknowledges that he is an
independent contractor, not an employee or agent of SciClone. Nothing
in this Agreement shall render Goldstein an employee or agent of
SciClone, nor authorize or empower him to speak for, represent or
obligate SciClone in any way.
13. Limited Liability of Alpha. Except for its obligation to make
Goldstein available to perform the Services contemplated by this
Agreement and except for such other obligations as are specifically
provided for herein, Alpha shall have no liability or obligation to
SciClone or any other person under this Agreement in connection with
or arising out of the Services to be provided hereunder, including
without limitation any liability for any negligence or willful
misconduct of Goldstein, and SciClone hereby waives and releases Alpha
from any and all claims that it might otherwise have against Alpha
with respect to the performance by Goldstein of the Services.
14. Termination. SciClone and Alpha each shall have the right to
terminate this Agreement at any time upon thirty (30) days prior
written notice. Termination shall not affect SciClone's rights or
Goldstein's obligations under paragraphs 4, 5, 6 and 9 or the
obligations of Alpha under Sections 5(a) and (e) and 6 above. Upon
termination, no further payment shall be due from SciClone, except (a)
payment for services of Goldstein already rendered and (b) to the
extent not paid. payment of a pro rata portion of the minimum annual
consulting fee through the effective date of termination.
15. Arbitration. In the event of any dispute, difference or question
arising between the parties in connection with this Agreement, that
dispute shall be resolved by arbitration between the parties before a
single arbitrator jointly designated by the parties. The parties shall
determine the place or places where the meetings are to be held in the
counties of San Francisco or San Mateo, California, or the District of
Columbia, or another mutually convenient location. The arbitrator must
base his decision with respect to the difference before him on the
content of this Agreement, and will be governed by the rules of the
American Arbitration Association. His decision shall be binding on
both parties. The fees of the arbitrator and any fees of the American
Arbitration Association shall be paid by the party that does not
prevail in the arbitration.
16. Miscellaneous.
(a) This Agreement represents the entire understanding of the parties
as to the subject matter contained in it. This Agreement may not be
modified except by a writing signed by each of the parties.
(b) This Agreement may not be assigned by Goldstein or Alpha, without
prior written consent of SciClone, or by SciClone without the prior
written consent of Alpha; provided, however, that without any prior
consent SciClone may assign the Agreement to (i) to any United States
subsidiary or affiliate; (ii) in connection with the transfer of sale
of all or substantially all of its business to a third party domiciled
in the United States; (iii) in the event of its merger or
consolidations with another company domiciled in the United States. In
no case shall consent to assignment be unreasonably withheld. This
Agreement shall be binding upon and inure to the benefits of the
heirs, successors and assigns of the parties hereto.
(c) No amendment of or waiver of any obligation under this Agreement
will be enforceable unless set forth in a writing signed by the party
against whom enforcement is sought. The waiver of any provision shall
not be construed as a waiver of any other provision of this Agreement.
(d) If any provision of this Agreement is held to be invalid, void or
unenforceable for any reason, the remaining provisions shall
nevertheless continue in full force and effect to the fullest extent
permitted by law.
(e) No party may disclose the contents or terms of this Agreement to
third parties at any time, provided, however, that any party may
disclose such contents or terms to employees, attorneys, or advisors,
to the extent necessary to carry out its obligations herein and to the
extent required to comply with applicable law.
(f) This Agreement shall be construed in accordance with, and governed
by, the laws of the State of California.
SciClone: Goldstein:
/s/ David S. Horwitz /s/ Allan L. Goldstein
signature signature
Vice President Allan L. Goldstein
title name
10/23/95 Oct 9, 1995
date date
###-##-####
social security number
Alpha:
/s/ R.J. Lanham
signature
Vice President & CFO
title
10/26/95
date
Schedule A
Description of Services:
1. Thymosin alpha 1 is defined herein as that 28 amino-acid
polypeptide commonly referred to as Thymosin alpha 1 in the existing
scientific literature. any and all galenic improvements and/or
enhancements thereto. and all modifications, fragments. analogs and
synthetic derivatives thereof.
2. Consultation regarding Thymosin alpha 1. including basic.
preclinical: and clinical studies. Also consultation regarding prior
work with Thymosin alpha 1 to the extent permitted by prior. existing
or future arrangements with Alpha 1 Biomedicals, Inc. Assistance in
arranging collaboration with other Thymosin alpha 1 investigators.
- - ----------------------------------------------------------------------
- - --
Schedule B
Fee Arrangements:
(1) A $25.000 retainer. payable upon execution of this Agreement and
additional $25,000 retainer payable on the commencement date of each
successive one-year term.
(2) A consulting fee of $250/hour, with a guaranteed minimum annual
consulting fee of . $25.000, payable whether or not the corresponding
consulting services are utilized. Compensable time shall include all
travel time.
(3) Reimbursement for all out-of-pocket travel and related expenses,
including business class air travel.
- - ---------------------------------------------------------------------
Schedule C
SciClone Designated Officer:
Dr. David Horwitz. Vice-President
EXHIBIT 10.28
Supplement to
EMPLOYMENT AGREEMENT
Allan L. Goldstein
The Compensation section of the Employment Agreement,
between Allan L. Goldstein and Alpha 1 Biomedicals, Inc. dated
December 1, 1991, is hereby amended to reflect a change in the
compensation for the remaining term of the Agreement to an amount
equal to a rate of $36,000 per annum for the remaining term of the
Employment Agreement.
Accepted and agreed and to become effective the first payroll date in
March 1996.
February 27,1996
/s/ Michael L. Berman
Michael L. Berman,
President and
Chief Executive Officer
/s/ Allan L. Goldstein
Allan L. Goldstein
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-
57016) and in the Registration Statements on Form S-8 (Nos. 33-50332
and 33-60550) of Alpha 1 Biomedicals, Inc. of our report dated March
29, 1996 appearing on page 20 of this Form 10-K.
PRICE WATERHOUSE LLP
Washington, DC
March 29, 1996
