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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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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 0-11103
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CENTOCOR, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2117202
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Great Valley Parkway, Malvern, PA 19355-1307
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(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 651-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Series A Preferred Stock Purchase Rights
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(Title of Class)
Common Stock, par value $.01 per share
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(Title of Class)
Warrants for the purchase of shares of Common Stock,
par value $.01 per share*
---------------------------------
(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 _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the 69,053,050 shares of voting stock held by
non-affiliates of the registrant as of February 18, 1997 was $2,572,226,113.
Common Stock outstanding at February 18, 1997: 69,589,250 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document are incorporated by reference in this
Report on Form 10-K:
Proxy Statement for the Annual Meeting of Shareholders to be held on May 14,
1997 -- Part III, Items 10, 11, 12 and 13.
*Includes Warrants issued in January 1992 which were registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 as part of Units, each Unit
consisting of one share of Callable Common Stock of Tocor II, Inc., one Series T
Warrant and one callable Warrant.
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Part I
ITEM 1. BUSINESS
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GENERAL
Any statements contained in this Annual Report on Form 10-K by Centocor, Inc.
("Centocor" or the "Company") that are forward looking are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward looking statements involve risks and
uncertainties including economic, competitive, governmental, technological and
other factors which may affect the Company's business and prospects.
Centocor is a biotechnology company whose mission is to develop and
commercialize novel therapeutic and diagnostic products and services that solve
critical needs in human health care. The Company concentrates on research and
development, manufacturing and market development, with a primary technological
focus on monoclonal antibodies and DNA-based products.
The Company has two therapeutic products approved for sale and several product
candidates in various stages of development. ReoPro is marketed by Eli Lilly and
Company ("Lilly") and sold in a number of markets including, but not limited to,
the United States and Europe for the reduction of acute ischemic cardiac
complications in patients undergoing angioplasty procedures who are at high risk
for abrupt artery closure. Panorex is marketed by Glaxo Wellcome plc ("Glaxo
Wellcome") and sold in Germany as an adjuvant therapy in the treatment of post-
operative colorectal cancer. The Company also markets several diagnostic
products for cancer and infectious disease in the United States, certain
European countries and Japan.
At December 31, 1996, Centocor had approximately 545 full-time employees. To
complement its own expertise in various fields, Centocor utilizes scientific
consultants and other advisors, many of whom have formal consulting agreements
with Centocor.
Centocor was incorporated in Pennsylvania in 1979 and maintains its principal
executive offices at 200 Great Valley Parkway, Malvern, Pennsylvania, 19355.
Its telephone number is (610) 651-6000. The Company also maintains facilities
in Leiden, The Netherlands, and Guildford, the United Kingdom, and an office in
Tokyo, Japan.
COMPANY STRATEGY
The Company's strategy is to identify proprietary high value-added product
opportunities, and to commercialize those opportunities by focusing on clinical
development, regulatory processes, manufacturing and market development. The
Company seeks to license technology and product candidates from research
institutions and other biotechnology companies, in addition to conducting
selected basic research.
In an effort to reach the market in an expeditious manner, create
competitive barriers and establish itself as the market leader, the Company's
clinical development and regulatory strategy for its therapeutic products is to
pursue initial approval for a narrowly defined indication. The Company then
seeks to expand the indications for which the products may be marketed by
conducting additional clinical trials. The Company maintains and seeks strategic
alliances with major pharmaceutical companies for the commercialization and
marketing of each of its therapeutic products, pursuant to which the Company and
its respective partners jointly focus on the continued clinical and market
development for the products, while the Company's partners primarily conduct the
marketing, promotion and distribution of such products. With regard to the
Company's CenTNF product (see "Therapeutic Products - CenTNF"), however, the
Company is evaluating the possibility of directly participating in the promotion
and marketing of such product in the United States.
In the diagnostics area, the Company seeks to expand the markets for its
existing products while focusing on the development of unique assays that
complement the automated diagnostic instruments developed by its
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marketing partners. The Company believes that the experience it acquires in
developing therapeutic products may help it define diagnostic product
opportunities and vice versa. Based on this experience, the Company is seeking
to develop diagnostic products that can increase the effectiveness, and thereby
the utilization of, its therapeutic products. For instance, the Company has
developed assays to evaluate platelet function. Such assays are currently being
studied in conjunction with ReoPro clinical trials to target patients that can
benefit from ReoPro therapy. Also, the Rapid Rare Event Detection (RRED) System
allows the Company to perform tests on cells rather than circulating markers
like tumor markers. Initial clinical applications include the detection of
minimal residual disease in patients that may benefit from Panorex therapy. The
Company maintains and seeks distribution agreements for its diagnostic products
with companies having established positions and distribution networks in
applicable market segments.
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table summarizes Centocor's products and selected product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions included elsewhere in this Annual Report on Form 10-K.
<TABLE>
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PRODUCT/PRODUCT CANDIDATE INDICATION STATUS(1)
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<S> <C> <C>
THERAPEUTIC:
ReoPro................ High-risk angioplasty Marketed (U.S., Europe)
Phase II (Japan)
All angioplasty PLA supplement filed (U.S.)
Unstable angina PLA supplement filed (U.S.)
Acute myocardial infarction Phase II
Adjuvant therapy with stents Phase III
Stroke Phase II planned
Panorex............... Adjuvant therapy for post- Marketed (Germany)
operative colorectal cancer Phase III
Phase IA planned (Japan)
CenTNF................ Rheumatoid arthritis Phase III
Phase II (Japan)
Crohn's disease Phase III
Phase II (Japan)
Corsevin M............ Thrombosis Phase I
Gene Vaccines......... Colorectal cancer Phase I
Prostate cancer Phase I planned
</TABLE>
(1) Phase III clinical trial indicates that the product is being tested in
humans for safety and efficacy in an expanded patient population at multiple
clinical sites. Phase I and Phase II clinical trials indicate that the
product is being tested in humans to evaluate safety, dosage and, to some
extent, efficacy, in a limited patient population.
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<TABLE>
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PRODUCT/PRODUCT CANDIDATE INDICATION STATUS
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DIAGNOSTIC:
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CA 125 II............... Ovarian cancer monitoring Marketed (U.S., Europe Japan)
Ovarian cancer screening Clinical development
CA 19-9................. Pancreatic cancer monitoring Marketed (Europe, Japan)
CA 15-3................. Breast cancer monitoring Marketed (Europe, Japan)
510 K filed (U.S.)
CA 72-4................. Gastrointestinal cancer Marketed (Europe, Japan)
monitoring
P-glycoCHEK............. Resistance to chemo-therapeutic Sold for investigational use (Europe, Japan)
drug detection
CYFRA 21-1.............. Non-small cell lung cancer Marketed (Europe, Japan)
CAPTIA Syphilis G....... Syphilis antibody detection Marketed (U.S., Europe, South America)
CAPTIA CMV.............. Cytomegalovirus antibody detection Marketed (U.S., Europe)
Myoscint................ Cardiac necrosis imaging Marketed (U.S., Europe
Approved (Japan)
Platelet diagnostics.... Platelet function monitoring Clinical development with ReoPro
RRED.................... Cellular detection of minimal residual Clinical development with Panorex
(Rapid Rare Event Detection) disease - cancer
HIV viral load Feasibility testing
</TABLE>
THERAPEUTIC PRODUCTS
Sales of the Company's therapeutic products were approximately $90.7
million and $22.1 million for the years ended December 31, 1996 and 1995,
respectively.
ReoPro. Antithrombotic agents such as ReoPro are used in the treatment of
cardiovascular disease to prevent blood clots. The three main markets for these
agents are angioplasty, unstable angina and myocardial infarction (heart
attack). Effective platelet inhibiting treatment is needed in angioplasty to
prevent abrupt reclosure and restenosis and in unstable angina to prevent
resulting heart attacks and death. Abrupt reclosure, which occurs in about 5-8%
of angioplasty cases and in 12-14% of more complicated high-risk cases, can
result in death, myocardial infarction, the need for emergency coronary bypass
surgery or repeat PTCA. Powerful agents are also needed to enhance treatment of
myocardial infarction by effectively opening the clotted artery and preventing
reocclusion following drug therapy. ReoPro is effective in inhibiting blood
clotting by inhibiting the aggregation of platelets. When platelets are
stimulated, a number of different types of surface receptors are exposed that
cause further platelet aggregation, including the glycoprotein ("GP") IIb/IIIa
receptors. ReoPro is a chimeric monoclonal antibody fragment that binds to GP
IIb/IIIa receptors on the surface of platelets, thereby inhibiting platelet
aggregation.
Following the successful completion of the EPIC Phase III clinical trial of
ReoPro and subsequent U.S. Food and Drug Administration ("FDA") approval, the
Company commenced commercial sales of ReoPro in January 1995 for patients who
are at high risk for abrupt artery closure following angioplasty. ReoPro is
currently marketed in a number of countries within North America, South America,
and Europe as well as several other markets throughout the world. Under a Sales
and Distribution Agreement between Lilly and the Company, Lilly is the exclusive
worldwide distributor of ReoPro except in Japan where the product, if approved,
will be exclusively
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distributed by Fujisawa Pharmaceutical Co., Ltd. ("Fujisawa"). See "Business--
Marketing and Sales." Pursuant to those agreements, Lilly is assisting the
Company in the regulatory filings and continuing development of ReoPro for
additional clinical indications and Fujisawa is assisting the Company in the
regulatory filings and development of ReoPro in Japan.
The following summarizes the two most recently completed Phase III clinical
trials of ReoPro:
EPILOG Trial for All Angioplasty. The EPILOG trial was a randomized,
double-blind, placebo-controlled trial, originally designed to enroll 4,800
patients at 65 sites in the United States and Canada, to evaluate 30-day
and 6-month clinical outcomes in all patients following angioplasty
procedures. This trial excluded the heart attack and unstable angina
patient groups that were evaluated in the EPIC trial because ReoPro had
already demonstrated efficacy in these patients and was already approved
for use in these groups. Because an interim analysis of the first 1,500
patients enrolled in the trial revealed approximately a 70% reduction in
death and heart attack rates within 30 days of the angioplasty procedure
for patients receiving ReoPro, the EPILOG study was halted in December 1995
on the recommendation of the EPILOG independent Safety and Efficacy
Monitoring Committee. This result was highly statistically significant (p
less than.0001). Additionally, the EPILOG independent Safety and Efficacy
Monitoring Committee concluded that major bleeding events in patients
receiving ReoPro were at essentially the same level as patients receiving
placebo. In October 1996 the Company announced that the EPILOG trial
demonstrated that ReoPro achieved a statistically significant improvement
versus placebo at six months in the primary composite end-point of death,
heart attack and revascularization. The EPILOG results show ReoPro
continues to have a positive impact for patients undergoing angioplasty six
months after the operation. The number of deaths and heart attacks were
reduced by 46 percent six months after angioplasty. Death rates were
reduced by 6 for every 1,000 patients, while 49 fewer heart attacks
occurred for every 1,000 patients. The Company filed for regulatory
approvals in the United States for the expanded indication in February 1997
and expects to file for additional regulatory approvals in Europe in early
1997.
CAPTURE Trial for Unstable Angina. Unstable angina is a condition
that commonly precedes a heart attack. It is caused by inadequate blood
supply to the heart due to the build-up of atherosclerotic plaque in the
coronary artery. The CAPTURE trial was a randomized, double-blind, placebo-
controlled trial originally designed to enroll 1,400 patients at 75 sites
in Europe, to evaluate ReoPro in patients scheduled for urgent angioplasty
procedures due to refractory unstable angina. Because of positive findings
after an analysis of the first 1,050 patients enrolled in the trial, the
CAPTURE study was halted in December 1995 on the recommendation of the
CAPTURE independent Safety and Efficacy Monitoring Committee. The CAPTURE
independent Safety and Efficacy Monitoring Committee determined that
efficacy exceeded the predetermined stopping point, (p less than.0072), on
the trial's primary end-point, which was defined as a reduction in a
composite of death, heart attacks and the need for urgent intervention
within 30 days. Additionally, in patients receiving ReoPro, the rate of
major bleeding was markedly lower than in the EPIC trial. The Company filed
for regulatory approvals in the United States for the expanded indication
in February 1997 and expects to file for additional regulatory approvals in
Europe in early 1997. The expanded indication is for stabilization of
unstable angina patients not responding to conventional therapy who may be
candidates for PTCA.
The Company and Lilly are evaluating other potential indications for
ReoPro, including acute myocardial infarction and thrombotic strokes. The
Company and Lilly are conducting the RAPPORT Phase IV trial to study the effect
of ReoPro in patients undergoing angioplasty procedures for acute myocardial
infarction. The Company is also conducting a Phase II trial with ReoPro in
combination with thrombolytic therapy for patients suffering acute myocardial
infarction. Additionally, the Company and Lilly are conducting the EPILOG Stent
Phase III trial and ERASER Phase IV trial to evaluate the effects of ReoPro in
conjunction with stents. The Company and Fujisawa are currently conducting Phase
II clinical trials of ReoPro in Japan.
The Company estimates that in the United States there were about 500,000
angioplasties performed last year. In addition, in the United States, the
incidence of unstable angina is about 1 million, acute myocardial infarction
(heart attack) 1 million, stroke 500,000 and peripheral vascular disease
500,000. All of these procedures and/or conditions are impacted by platelet
activation and as a result, ReoPro may have utility.
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In addition to conducting studies to test the efficacy of ReoPro, the
Company has conducted a health economic study, based on the EPIC trial (high-
risk angioplasty), which has been cleared for promotional use by the FDA and
which indicates that the use of ReoPro is cost effective and may allow hospitals
to manage their resources more effectively and reduce the amount of time
patients spend in the hospital. In the EPILOG trial (all angioplasty), major
bleeding events in patients receiving ReoPro were at essentially the same level
as in patients receiving placebo. The decreased need for blood transfusions may
result in additional cost savings to hospitals.
CenTNF. The Company is currently developing CenTNF, a chimeric monoclonal
antibody that binds to tumor necrosis factor alpha, which is believed to be
critical to the human body's reaction to inflammation. CenTNF is primarily
targeted for the treatment of rheumatoid arthritis and inflammatory bowel
diseases such as Crohn's disease.
The Company has completed a number of Phase II clinical trials of CenTNF in
both moderate-to-severe Crohn's disease and severe rheumatoid arthritis
patients. The Company is planning to initiate Phase III trials for these
indications in 1997.
The Company has entered into an agreement with Tanabe Seiyaku Co., Ltd.
("Tanabe") under which Tanabe has commenced Phase II clinical testing and has
the right to distribute CenTNF in Japan. Additionally, the Company is seeking to
enter into an alliance arrangement with a partner regarding CenTNF for other
parts of the world.
According to Company estimates, in the United States there are
approximately one million patients with severe rheumatoid arthritis. The Company
also believes that in the United States there are approximately 250,000 patients
with Crohn's disease in its moderate-to-severe form.
Panorex. Panorex is a monoclonal antibody that targets metastatic colon
cancer cells. The Panorex antibody binds to colon cancer cells and destroys them
using various immunologic mechanisms including complement and/or antibody
dependent cellular cytotoxicity. Both mechanisms result in the death of the
cancer cells. In patients with colorectal cancer, it is thought that small
numbers of cells break away from the primary tumor and spread to other sites
such as bone marrow, where they can be detected as "micrometastatic cells" even
after surgical removal of the primary tumor. It is thought that the Panorex
antibody binds to these "micrometastatic cells" and destroys them, leading to
the prolonged survival observed in patients treated with Panorex. Panorex is the
first monoclonal antibody product approved for cancer. In December 1994, the
Paul Ehrlich Institute, the German regulatory body for vaccines and antibodies,
granted the Company marketing authorization for the use of Panorex as an
adjuvant therapy in the treatment of post-operative colorectal cancer. During
1993, the Company and Glaxo Wellcome entered into an alliance agreement for the
development and marketing of certain of the Company's monoclonal antibody-based
cancer therapeutic products, including Panorex. Pursuant to that agreement Glaxo
Wellcome is the worldwide distributor of Panorex. See "Business--Marketing and
Sales." The Company commenced commercial sales of Panorex in Germany in February
1995.
In a Phase III trial conducted in Germany, Panorex showed a five-year 30%
mortality benefit and 27% reduction in tumor recurrences. Glaxo Wellcome is
conducting additional Phase III trials for Panorex, with a three-year survival
end-point, in North America, Europe and certain other countries, evaluating
patients with colorectal cancer, and also is conducting earlier stage trials in
Japan.
Corsevin M. The Company is developing Corsevin M, an anti-factor VII
chimeric monoclonal antibody product intended to be used as an anticoagulant.
Factor VII is one of the primary factors that play a role in the blood clotting
process. The Company has completed a Phase I clinical trial and is evaluating
protocols for additional clinical trials.
DNA-Based Products. The Company is developing genetic DNA-based products
employing commonly available methods to direct the injected DNA to its target
site. The Company has licensed GeneVax technology from a private company, in
which the Company holds a significant equity investment. Under that license, the
Company has certain rights to develop the GeneVax technology in the cancer
field. The Company has supplemented this
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technology license by acquiring complementary technologies from other
institutions. The Company expects to initially focus its development efforts on
vaccines for prostate, breast and colorectal cancer. In 1997, the Company
commenced Phase I clinical trials to evaluate vaccines for colorectal cancer.
DIAGNOSTIC PRODUCTS
Sales of the Company's diagnostics products were approximately $41.4
million and $42.9 million for the years ended December 31, 1996 and 1995,
respectively.
In-vitro diagnostic products are used to test patient blood samples outside
the body to detect or monitor disease. In this area, the Company has focused
principally on developing cancer diagnostic assays, and other invitro diagnostic
products for infectious disease. In addition, the reclassification by the FDA in
September, 1996 of tumor markers used for monitoring patients with previously
diagnosed cancer may increase the likelihood and speed of approval for products
within this classification in the United States. A number of the Company's
diagnostic assays including CA 125 II, CA 15-3, CA 19-9, CA 72-4 and CYFRA 21-1
fall under this tumor marker classification. The Company currently manufactures
and sells the following invitro diagnostic products:
CA 125 II Ovarian Cancer Test. CA 125 II, a second generation assay which
aids in the detection of residual epithelial ovarian cancer following first-line
therapy, is sold in the United States, certain European countries and Japan. CA
125 II is one of only six cancer diagnostics products approved for sale in the
United States.
CA 19-9 Pancreatic Cancer Test. CA 19-9, which aids in the monitoring of
pancreatic cancer, is sold in certain European countries and Japan.
CA 15-3 Breast Cancer Test. CA 15-3, which aids in the monitoring of
breast cancer, is sold in certain European countries and Japan.
CA 72-4 Gastric Cancer Test. CA 72-4, which aids in the monitoring of
gastrointestinal cancer, is sold in certain European countries and Japan.
P-glycoCHEK Multidrug Resistance Test. P-glycoCHEK, which detects a
cellular protein associated with resistance to chemotherapeutic drugs, is sold
for investigational use in certain European countries and Japan.
CYFRA 21-1 Non-Small Cell Lung Cancer Test. CYFRA 21-1, which aids in the
monitoring of non-small cell lung cancer, is sold in certain European countries
and Japan.
CAPTIA Syphilis G. CAPTIA Syphilis G, an infectious disease serology test
for use as a primary screening method for the detection of Treponema pallidum
antibodies in human serum or plasma, as performed in blood bank or plasma center
testing laboratories, is offered for sale in the United States and certain
European and South American countries.
CAPTIA CMV. CAPTIA CMV, an infectious serology test for use as a primary
screening method for the detection of cytomegalovirus antibodies in human serum
or plasma, as performed in blood bank or plasma center testing laboratories, is
offered for sale in the United States and certain European countries.
The Company has developed techniques for modifying monoclonal antibodies so
that they may be coupled with radioactive isotopes and used as contrast agents
in diagnostic imaging procedures. After injection, antibodies labeled with a
radioactive isotope travel to the disease site, allowing the site to be
visualized or "imaged" with nuclear medicine equipment in a procedure similar to
an X-ray. The Company's focus in this area is primarily on developing imaging
agents for cardiovascular disease.
Myoscint. Myoscint is an anti-myosin monoclonal antibody that, when
radio-labeled, may be useful in the detection of damage to heart tissue caused
by transplantation, myocardial infarction, chemotherapy and viral infection. The
Company has received marketing approvals for Myoscint in the United States,
several European
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countries and Japan. Revenues from the sale of Myoscint on a worldwide basis
have not been significant. There can be no assurance that future Myoscint sales
on a worldwide basis will be significant.
PLATELET FUNCTION DIAGNOSTICS
In connection with the development and marketing of ReoPro, the Company has
recognized the importance of platelet function in cardiovascular disease. Based
upon its knowledge in this area, the Company is developing assays intended to
enable interventional cardiologists to rapidly assess platelet function and to
better risk stratify patients with potentially serious cardiovascular disease.
Additionally, the Company is collaborating in the development of devices which,
if developed, may permit medical experts to monitor platelet activity and the
effect of drugs such as ReoPro with the same precision with which they currently
evaluate other aspects of blood coagulation and treatment. The Company believes
that the availability of this type of monitoring may address currently unmet
medical needs in the hospital emergency room, catheterization lab and coronary
care unit. There can be no assurance that the Company will be able to complete
the development of these programs or obtain the regulatory approvals necessary
for the commercial sale of products.
CELLULAR DIAGNOSTICS
Based upon the Company's experience with Panorex, the Company believes that
the ability to rapidly detect rare cancer cells in blood, bone marrow and other
tissues could be useful to oncologists as a tool to enable them to select
appropriate treatments for cancer patients and then monitor the effectiveness of
those treatments. The Company is collaborating with a computer software company
to develop a computer-driven high-powered microscope known as the Rapid Rare
Event Detection ("RRED") System that utilizes reagents developed by the Company.
The Company and its partner have developed a working prototype of the RRED
System that has entered clinical trials for validation. In addition, the Company
has commenced discussions with other diagnostic companies that may be interested
in manufacturing and marketing the RRED System.
Although the Company's initial focus with respect to the RRED System is the
oncology field, the Company believes that the RRED System technology may be
equally useful in the fields of infectious disease and prenatal testing. There
can be no assurances that the Company will be able to complete the development
of the RRED System or obtain the regulatory approvals necessary for the sale of
the RRED System.
MARKETING AND SALES
In the therapeutic area, the Company maintains separate strategic alliances
with major pharmaceutical companies for each of its two commercialized products,
pursuant to which, in each case, the Company and its respective partner jointly
focus on the continued clinical and market development for the product, while
the Company's partner primarily conducts the marketing, promotion and
distribution of such product. With regard to the Company's CenTNF product, the
Company is evaluating the possibility of directly participating in the promotion
and marketing of such product in the United States. In the diagnostics area, the
Company maintains distribution agreements with companies having established
positions and distribution networks in applicable market segments for the
Company's products. The Company is highly dependent upon the ability of its
marketing partners to develop and expand markets for the Company's products.
Pursuant to the Sales and Distribution Agreement between Lilly and the
Company, Lilly is the exclusive worldwide distributor of ReoPro except in Japan,
where the product, if approved, will be exclusively distributed by Fujisawa. The
Company sells ReoPro to Lilly for Lilly's further sale to the end market. The
Company is principally responsible for developing and manufacturing ReoPro and
for securing regulatory approvals. Lilly is principally responsible for the
marketing, selling and distribution of ReoPro, except in Japan.
Pursuant to the Company's agreement with Fujisawa, consummated in August
1996, Fujisawa became the exclusive distributor of ReoPro in Japan. Following
approval, if any, of ReoPro for sale in Japan, the Company will
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sell ReoPro to Fujisawa for Fujisawa's further sale to the end market in Japan.
Fujisawa and the Company are co-developing ReoPro in Japan and will seek to
jointly secure regulatory approvals.
Pursuant to the Company's alliance agreement with Glaxo Wellcome, Glaxo
Wellcome is the exclusive worldwide distributor for Panorex. The Company sells
Panorex to Glaxo Wellcome for Glaxo Wellcome's further sale to the end market.
Glaxo Wellcome is responsible for the continuing clinical development,
marketing, sales and distribution of Panorex. The Company is principally
responsible for manufacturing Panorex, providing limited clinical support and
securing regulatory approvals.
During 1996, approximately 67% of the Company's total product sales were to
one customer, Lilly. During 1995, approximately 50% of the Company's total
product sales were to three customers as follows: 24% to Lilly, 11% to Glaxo
Wellcome and 15% to Toray-Fuji Bionics, Inc. During 1994, approximately 60% of
the Company's total product sales were to four customers, as follows: 10% to
Abbott Laboratories, 12% to Boehringer Mannheim GmbH, 13% to CIS bio
International and 25% to Toray-Fuji Bionics, Inc.
Certain financial information by geographic area as well as major customer
information is set forth in Part II, Item 8. "Financial Statements and
Supplementary Data", Note 11 - Geographic and Customer Information.
The Company has no significant product backlog.
RESEARCH AND DEVELOPMENT
Centocor's research and development activities focus primarily on
monoclonal antibody technology and proprietary techniques to modify monoclonal
antibodies in search of optimal therapeutic agents. Centocor believes that there
is significant potential for using monoclonal antibodies to develop human health
care products. While the specificity of monoclonal antibodies makes them
attractive candidates for therapeutic product development, antibody-based
products generally must be administered by injection, usually in a hospital
setting, and are therefore used principally to treat acute diseases. The
Company's ability to select effective hybridomas and to produce antibodies from
them is central to its business. An understanding of the structure and function
of antibodies is necessary in order to modify them for incorporation into
diagnostic or therapeutic products. The Company has developed techniques for
characterizing an antibody with respect to its structure, specificity and
binding ability which are used in an effort to select the best antibody for a
particular application.
The Company carries out research efforts in the use of recombinant DNA
techniques to manipulate the genetic structure of antibody-producing cells.
These efforts are intended to create re-engineered antibodies that combine the
desired properties of more than one antibody, or the desired properties of
antibodies and other system-regulating biochemicals such as enzymes.
The Company has also expanded its research platform to include the field of
DNA-based products for both therapeutic and diagnostic applications.
For the three years ended December 31, 1996, 1995 and 1994, the Company's
research and development expenses were $56,787,000, $66,235,000 and $70,003,000,
respectively.
PATENTS AND LICENSING ARRANGEMENTS
Products currently being marketed, developed or considered for development
by the Company are in the area of biotechnology, an area in which there are
extensive patent filings. The patent position of biotechnology firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that patent
applications owned or licensed by the Company will result in patents being
issued or that, if issued, such patents will afford protection against
competitors with similar technology. In addition, there can be no assurance that
products covered by such patents, or any other products developed by the Company
or subject to licenses
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acquired by the Company, will not be covered by third party patents, in which
case continued development and marketing of such products would require a
license under such patents. There can be no assurance that such required
licenses will be available to the Company or its licensees on acceptable terms.
Other entities have filed applications for or have been issued patents and
are expected to obtain additional patents to which the Company may need to
acquire rights. The extent to which the Company may need to obtain rights to any
such patents or to contest their scope or validity will depend on final product
formulation and other factors. The ability to license any such patents and the
likelihood of successfully contesting the scope or validity of such patents are
uncertain and the costs associated therewith may be significant. If the Company
is required to acquire rights to valid and enforceable patents but cannot do so
at a reasonable cost, the Company's ability to manufacture or market its
products in the country of issuance of any such patent may be materially
adversely affected.
There has been substantial litigation regarding patent and other
intellectual property rights in the biotechnology industry. Litigation may be
necessary to enforce certain intellectual property rights of the Company. Any
such litigation could result in substantial cost to and diversion of effort by
the Company.
Centocor currently licenses the majority of the cell lines used to produce
its monoclonal antibodies from research institutions pursuant to long-term
licenses for which it is generally obligated to pay royalties based upon sales
of products incorporating such antibodies. There can be no assurance that others
will not acquire rights to such cell lines in the future.
The Company organized Centocor Partners III, L.P. ("CPIII") and other
entities to fund the research and development of certain products and/or
technology. Under agreements with each of these entities, Centocor licensed
certain technology to the entity and performed research and development in such
technology areas on behalf of the entity. The Company purchased the ownership
interests of all of these entities prior to 1995, with the exception of CPIII,
which Class A and Class C interests the Company purchased in January, 1997.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of the
Company's products and in ongoing research and product development activities.
All of the Company's therapeutic products and most of the Company's diagnostic
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other premarket approval
requirements by the FDA and regulatory authorities in other countries. Various
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, recordkeeping and marketing of such products. The lengthy
process of seeking these approvals, and the subsequent compliance with
applicable statutes and regulations, require the expenditure of substantial
resources. The Company believes it is currently in compliance with such statutes
and regulations. Any failure by the Company to obtain, or any delay in
obtaining, regulatory approvals could materially adversely affect the Company
and the Company's marketing partners' ability to market the Company's products.
The activities required before a pharmaceutical product may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an Investigational New
Drug application, which must be reviewed by the FDA before proposed clinical
testing can begin. Typically, clinical testing involves a three-phase process.
In Phase I, clinical trials are conducted with a small number of subjects to
determine the early safety profile and the pattern of drug distribution and
metabolism. In Phase II, clinical trials are conducted with groups of patients
afflicted with a specified disease in order to determine preliminary efficacy,
optimal dosages and expanded evidence of safety. In Phase III, large scale,
multicenter, comparative clinical trials are conducted with patients afflicted
with a target disease in order to provide enough data to statistically evaluate
the efficacy and safety of the product, as required by the FDA. The results of
the preclinical and clinical testing of a chemical pharmaceutical product are
then submitted to the FDA in the form of a New Drug Application ("NDA"), or for
a biological pharmaceutical product
9
<PAGE>
in the form of a Biological License Application ("BLA"), for approval to
commence commercial sales. In responding to an NDA or BLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that any approval required by the FDA will
be obtained on a timely basis, if at all.
Among the conditions for NDA or BLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with Good Manufacturing Practices ("GMP"). Before approval
of the BLA, the FDA will perform a prelicensing inspection of the facility to
determine its compliance with GMP and other rules and regulations. In complying
with GMP, manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full compliance. After the
establishment is licensed for the manufacture of any product, it is subject to
periodic inspections by the FDA.
The requirements such as those described above which the Company must
satisfy to obtain regulatory approval by governmental agencies in other
countries prior to commercialization of its products in such countries can be
rigorous, costly and uncertain.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and infectious disease
agents, used in connection with the Company's research. The Company believes it
is currently in compliance with all such laws and regulations. The extent of
additional governmental regulation that might result from any legislative or
administrative action cannot be accurately predicted.
The levels of revenues and profitability of biopharmaceutical companies may
be affected by the continuing efforts of government and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets, pricing or profitability of therapeutic and other
pharmaceutical products is subject to governmental control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar governmental
control. While the Company cannot predict whether any such legislative or
regulatory proposals will be adopted, the adoption of such proposals could have
a material adverse effect on the Company. In addition, in both the United States
and elsewhere, sales of therapeutic and other pharmaceutical products are
dependent in part on the availability of reimbursement to the consumer from
third party payors, such as government and private insurance plans. Third party
payors are increasingly challenging the prices charged for medical products and
services. There can be no assurance that either of the therapeutic products the
Company has brought to market or any therapeutic product candidates the Company
may bring to market in the future will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive and profitable basis.
SIGNIFICANT COMPETITION AND TECHNOLOGICAL CHANGE
Monoclonal antibody, genetic vaccine, peptide technology and other
innovations in biotechnology are being examined, evaluated and practiced in
biology research laboratories throughout the United States and in many other
countries, including laboratories of other biotechnology companies and major
pharmaceutical firms, many of which have greater resources than Centocor.
Several established pharmaceutical companies have internal research and
development groups, and alliances with other biotechnology companies, and are
seeking to develop monoclonal antibody-based, genetic vaccine-based, peptide-
based and other biological products. In addition, a number of companies have
recently entered the biological products field, some through acquisition or
merger, and more may be expected to do so in the future. As a result, Centocor
anticipates that new biological products will be developed by others.
Centocor's management believes that its ability to compete in its targeted
markets will depend upon, among other things, its ability to develop, produce
and market innovative products. Centocor's management also believes that
significant competition will come from established pharmaceutical companies that
have greater capital
10
<PAGE>
resources, manufacturing and marketing experience, research and development
staffs, sales forces and production facilities than Centocor. Such competition
is expected to be in the form of a variety of therapeutic products, which may
include monoclonal antibody-based, genetic vaccine-based and peptide-based
products. There can be no assurance that the activities of others will not
render Centocor's products or technologies obsolete or uncompetitive.
ITEM 2. PROPERTIES
- ------------------
The Company owns four buildings in Malvern, Pennsylvania, and leases one
other building at this location. These buildings contain Centocor's corporate
offices, research and development laboratories, marketing offices, and certain
manufacturing facilities. Space is available in these buildings for future
expansion.
The Company owns a biopharmaceutical manufacturing facility in Leiden, The
Netherlands, for the production of monoclonal antibody-based products using a
proprietary cell-culture system. This facility has been inspected and approved
by the FDA and the equivalent European regulatory agencies. The Company also
leases research and development laboratories and office space at this location.
The Company manufactures diagnostics products at its facilities in Malvern,
Pennsylvania and at a facility it leases in Guildford, England. Each of the
Company's diagnostic manufacturing facilities has received ISO-9001
certification.
Each of the Company's lease agreements with respect to its leased
facilities is a triple net lease with a remaining term of at least 8 years,
under which the Company is responsible for all operating expenses of the
facility.
At the Company's current level of operations, portions of the Company's
facilities and equipment in Malvern are idle. The Company continually evaluates
the future needs for its facilities and equipment and is currently evaluating
potential needs for expansion in its Leiden facility to accommodate growth in
its therapeutic product production activities.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged that the Company breached
certain provisions of a license agreement between Velos and the Company pursuant
to which the Company has exclusive rights to U.S. Patent No. 5,057,598, as well
as various patent applications and foreign patents. The complaint sought
declaratory relief and monetary relief in excess of $100,000,000, and requested
that the Company place in escrow one-half of the amounts received by the Company
in 1992 pursuant to its agreements with Lilly. Over the course of the
litigation, plaintiff asserted eleven different claims for relief and the
Company asserted affirmative defenses and a counterclaim against Velos with
respect to the license agreement. After rulings on motions for summary judgment
filed by both sides, the majority of plaintiff's claims were dismissed. The case
proceeded to trial on February 18, 1997 on plaintiff's four remaining claims
under the license agreement and on the Company's affirmative defenses and
counterclaim. The parties agreed that plaintiff's claim for attorneys fees under
the license agreement would be severed to await the outcome of the trial. On
March 4, 1997, the jury returned a verdict which, if it were to become the
judgement of the Court, would render the Company liable to pay plaintiff
approximately $4,000,000 plus interest fees and expenses pursuant to the license
agreement. The Company and its counsel believe the jury's findings are not
supported by the evidence and law and will file post-trial motions, and, if
necessary, an appeal. Accordingly, no provision has been made in the
accompanying financial statements for this matter. The Company believes that the
allegations of Velos are without merit and intends to continue vigorously to
defend this suit.
On December 23, 1993, a purported class action captioned Peter Cordaro v.
Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden,
Centocor and Tocor II Inc. ("Tocor II") was filed in the Court of Common Pleas
of Chester County, Pennsylvania. The complaint alleges that the defendants
breached their fiduciary duties to Tocor II Unitholders by, among other things,
making an offer to exchange shares of the Company's Common Stock for Tocor II
Units, recommending acceptance of the exchange offer, and failing to maximize
shareholder value. The complaint sought, among other relief, an injunction
against consummation of the exchange offer, the establishment of a "truly
independent" special committee and the retention of a financial advisor to
consider the exchange offer, and award of damages (including rescissionary
damages), costs and plaintiff's counsel fees. Plaintiff took no additional
action to obtain an injunction and the exchange offer was made and consummated.
Plaintiff's motion for class certification has been denied and plaintiff has
petitioned for rehearing. No trial date has
11
<PAGE>
been fixed. The Company believes that the allegations set forth in the complaint
are without merit and intends to vigorously defend this suit.
In July 1995, PaineWebber Development Corporation, a wholly-owned
subsidiary of Paine Webber Group Inc., caused suits to be filed against the
Company by two research and development partnerships formed in the mid-1980s by
PaineWebber and managed by it since then. The two PaineWebber partnerships
(PaineWebber R&D Partners, L.P. and PaineWebber R&D Partners II, L.P.) were,
respectively, investors in Centocor Partners II, L.P. ("CPII") and CPIII,
research partnerships for which PaineWebber acted as the sales agent and in
other capacities. The Company purchased the limited partners' interests in CPII
in February 1992 and that partnership was then dissolved.
The suit by PaineWebber R&D Partners, L.P., was filed in the Supreme Court
of the State of New York, County of New York, and purports to be a class action
on behalf of all former limited partners of CPII. The complaint charges that
some portion of the $100 million paid by Lilly to the Company in July 1992
constituted revenues to the Company for the licensing, sublicensing or sale of
HA-1A(Centoxin) and that the Company is obligated to pay a percentage thereof to
the former limited partners of CPII, in addition to amounts already paid. The
Company moved to dismiss the New York suit on the ground that it was brought in
an inconvenient forum and that motion was granted. The suit has been refiled in
the Delaware Superior Court. Discovery is beginning and plaintiff has moved for
certification of a class of all former limited partners of CPII, which the
Company has opposed. Prior to the dismissal of the New York action, a similar
suit was filed by another former CPII partner, Jerome J. Petrisko, in the Court
of Common Pleas of Chester County, Pennsylvania. That suit is in its earliest
stage. The Company believes that the allegations regarding Centocor in these
actions are without merit and intends to vigorously defend them.
The suit by PaineWebber R&D II, L.P. ("PWR&DII") was filed in the Court of
Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III
("CDCIII"), a wholly owned subsidiary of the Company which acts as the general
partner of CPIII, are named as defendants against whom relief is sought. The
claim in this case is that at least $25 million of the money paid by Lilly to
the Company in 1992 represented profits from the marketing of ReoPro, obligating
the Company to pay a portion thereof to CPIII, and that the Company is obligated
to pay an increased percentage of the profits from ReoPro to CPIII going
forward. The Company answered the complaint in the Delaware action and filed a
cross-claim against nominal defendant CPIII and a third-party complaint against
PaineWebber Group Inc. and PaineWebber Development Corporation. The cross-claim
seeks an offset against any damages awarded the partners based on theories of
unjust enrichment and quasi contract. The third-party claims (since amended to
add additional theories of liability and to make PaineWebber, Inc. an additional
third-party defendant) seek to hold the PaineWebber entities liable for some or
all of any alleged injury to the partnership. On November 1, 1995, an
additional suit was commenced in the Delaware Court of Chancery by John E. Abdo,
a limited partner of CPIII, against the Company, CDCIII and certain of their
officers and directors. The complaint, filed derivatively on behalf of CPIII,
asserts claims, inter alia, for breach of contract, breach of fiduciary duty,
common law fraud, and conspiracy and aiding and abetting. The Company answered
this complaint and also filed a cross-claim against nominal defendant CPIII and
a third party complaint against PaineWebber Group Inc. and PaineWebber
Development Corporation, since amended to add additional theories of liability
and to name PaineWebber, Inc. as a further third-party defendant. Abdo moved to
amend his complaint to assert claims against the persons appointed by
PaineWebber to the CDCIII Board of Directors. That motion was granted. Motions
to disqualify PWR&DII from serving as the derivative plaintiff were filed in
July 1996 by CPIII and in August 1996 by Centocor and CDCIII. Abdo joined those
motions. No decision has been issued on those motions. The parties in these
suits are considering ways and means to resolve the issues without further
litigation.
While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- ----------------------------------------------------------------------------
The Company's Common Stock is traded publicly on the Nasdaq National Market
under the trading symbol CNTO. The table below sets forth the high and low sale
prices for the Company's Common Stock for the periods indicated as reported by
the Nasdaq National Market.
HIGH LOW
---- ---
Year ended December 31, 1995
First Quarter......................... $21 $14 1/2
Second Quarter........................ 16 3/8 12 1/8
Third Quarter......................... 14 35/64 10 7/8
Fourth Quarter........................ 33 1/8 9 5/8
Year ended December 31, 1996
First Quarter......................... 40 27 5/8
Second Quarter........................ 40 7/8 28
Third Quarter......................... 37 7/8 23
Fourth Quarter........................ 37 3/8 25 1/2
On February 18, 1997, there were approximately 3,534 holders of record of
the Common Stock.
In June 1996, the Company and Lilly amended its Sales and Distribution
Agreement. In July 1996, in consideration of the amendment and other activities
in connection with the commercialization and market development of ReoPro, the
Company issued 920,716 shares of its common stock in a private-placement
transaction under Section 4(2) of the Securities Act of 1933.
The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends in the foreseeable future
and intends to retain future earnings for the development and expansion of its
business.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Sales.................... $ 58,394 $ 48,071 $ 39,984 $ 65,001 $132,130
Contracts:
Related parties....... 16,071 10,109 1,652 --- ---
Other 51,767 17,750 25,590 13,915 3,355
--------- -------- --------- -------- --------
Total revenues........... 126,232 75,930 67,226 78,916 135,485
Costs and expenses(1)...... 295,978 130,683 173,290 126,219 150,815
Other income (expenses)(2). (24,400) (19,626) (20,594) (9,829) 1,862
--------- -------- --------- -------- --------
Loss before extraordinary $(194,146) $(74,379) $(126,658) $(57,132) $(13,468)
item......................
Net gain on extinguishment --- --- --- --- 705
of debt................... --------- -------- --------- -------- --------
Loss....................... $(194,146) $(74,379) $(126,658) $(57,132) $(12,763)
========= ======== ========= ======== ========
Loss per share............. $ (4.90) $ (1.79) $ (2.55) $ (0.98) $ (0.19)
========= ======== ========= ======== ========
Weighted average number of shares
outstanding(3)............ 39,623 41,482 49,597 58,207 66,475
1992 1993 1994 1995 1996
---- ---- ---- ----- --------
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments (4) $ 163,083 $140,028 $ 184,507 $137,206 $185,817
Total assets 349,268 281,039 305,915 260,284 341,121
Long-term debt 238,166 238,100 231,640 231,640 54,765
Shareholders' equity 30,721 (19,194) 5,278 (29,396) 235,910
(deficit)
</TABLE>
No dividends have been declared or paid during any of the periods presented.
(1) Costs and expenses include the following: (a) charges for acquired research
and development of $36,966 in 1994, (b) charges of $64,877 and $3,500 in
1992 and 1993, respectively, related to HA-1A inventory, (c) restructuring
charges of $15,266, $9,387 and $1,642 in 1992, 1993 and 1995, respectively,
(d) a royalty buyout of $17,098 in 1994 and (e) a write-down of facilities
and equipment of $7,870 in 1994.
(2) Other income (expenses) include charges of $11,245, $1,275 and $3,750 in
1992, 1994 and 1995, respectively, related to the settlement of certain
litigation.
(3) No shares of Common Stock issuable upon the exercise of stock options or
warrants or the vesting of restricted stock awards have been included as
their inclusion would have an antidilutive effect because the Company has
incurred a net loss in each period presented.
(4) Cash and investments at December 31, 1996 include equity investments
classified as available for sale of $9,502, and $7,260 of investments
maintained at certain banks as collateral for certain debt outstanding at
December 31, 1996.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
RESULTS OF OPERATIONS
General
Any statements contained in this Management's Discussion and Analysis of
Results of Operations and Financial Condition that are forward looking are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that forward looking statements
involve risks and uncertainties including economic, competitive, governmental,
technological and other factors which may affect the Company's business and
prospects.
Centocor is a biotechnology company whose mission is to develop and
commercialize novel therapeutic and diagnostic products and services that solve
critical needs in human health care. The Company concentrates on research and
development, manufacturing and market development, with a primary technological
focus on monoclonal antibodies and DNA-based products.
The Company, since inception, has incurred significant operating expenses
developing therapeutic and diagnostic products. The Company has also incurred
significant special charges. To date, product sales have not produced sufficient
revenues to cover the Company's operating expenses. Consequently, the Company
has experienced substantial operating losses. The Company's financial results
have progressively improved throughout 1996 culminating with the Company
achieving profitability in the fourth quarter. The Company expects that its
sales of therapeutic and diagnostic products in 1997 will provide sufficient
revenues to cover operating expenses and provide net income for the year.
The Company commenced commercial sales of two therapeutic products in 1995:
ReoPro in January 1995 and Panorex in February 1995. Because of positive
findings at interim analyses, in December 1995 the Company halted two clinical
trials of ReoPro designed to expand its authorized use. The Company filed for
regulatory approvals in the United States for the expanded indications in
February 1997 and expects to file for additional regulatory approvals in Europe
in early 1997. The level of the Company's research and development expenses has
been primarily dependent upon the extent of clinical trial activity. Further,
the impact on the level of future ReoPro sales based upon the early termination
of these two trials will depend upon the timing and extent of any future
regulatory approvals and the degree of market acceptance of ReoPro.
In June 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed of
("Statement 121"), which requires companies to review long-lived assets and
certain identifiable intangibles to be held, used or disposed of, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company adopted Statement 121 in 1996 which
did not have a significant effect on its financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"),
which was effective for transactions entered into in fiscal years beginning
after December 15, 1995. The Company adopted Statement 123 in 1996 and elected
to continue to measure stock based compensation using the intrinsic value based
method of accounting prescribed by APB Opinion 25, Accounting for Stock Issued
to Employees and accordingly, the Company did not recognize compensation cost in
the consolidated financial statements for options granted. The Company discloses
pro forma financial information valuing stock based compensation using the fair
value based method of accounting. See Item 8. "Financial Statements and
Supplementary Data", Note 10 - Shareholders' Equity.
Year ended December 31, 1996 compared to year ended December 31, 1995
The increase in sales for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 is principally due to the increase in sales of
ReoPro. ReoPro sales commenced in January 1995.
15
<PAGE>
The Company is highly dependent upon the ability of its marketing partners
to develop and expand the markets for both ReoPro and Panorex. For the year
ended December 31, 1996, ReoPro sales to Lilly were $88,669,000 and Lilly's
announced sales to end-users were $149,300,000. For the year ended December 31,
1995 sales to Lilly were $15,545,000 and Lilly's announced sales to end-users
were $22,800,000. For the year ended December 31, 1996, the Company's sales of
Panorex to Glaxo Wellcome were $2,073,000 and Glaxo Wellcome reported to the
Company that sales to end-users were approximately $5,375,000. For the year
ended December 31, 1995 sales to Glaxo Wellcome were $6,531,000 and Glaxo
Wellcome reported to the Company that sales to end-users were approximately
$3,400,000. The level of the Company's sales of ReoPro to Lilly and of Panorex
to Glaxo Wellcome is dependent upon the orders placed and the levels of
inventory maintained by each of these marketing partners, which in 1995 included
initial launch period quantities. The Company expects ReoPro end sales to
increase in 1997 as market acceptance continues to grow and therefore the
Company expects its sales of ReoPro to Lilly to increase in 1997 over 1996
levels. Panorex end sales in 1997 are also expected to increase as compared to
1996 but Panorex sales to Glaxo Wellcome in 1997 are not expected to have a
significant impact on the Company's financial results.
Diagnostic product sales for the year ended December 31, 1996 were
$41,388,000 as compared to $42,859,000 for the year ended December 31, 1995. The
decrease in sales for the year ended December 31, 1996 as compared to the year
ended December 31, 1995 is primarily related to a 1995 stocking order of reagent
products by a new customer within the oncology product line and the reduction in
the royalty rates of some of the Company's diagnostic products. Diagnostic
product sales in 1997 are expected to be at least at the same level or slightly
greater than sales levels achieved in 1996.
The level of future sales of both diagnostic and therapeutic products will
be dependent upon several factors, including, but not limited to, the timing and
extent of future regulatory approvals of the Company's products, approval and
commercialization of competitive products and ultimately the degree of
acceptance of the Company's products in the marketplace. For the Company's
diagnostic products, the level of sales is also dependent upon the extent of and
timing of reagent sales to marketing partners developing new automated
instruments, as well as the mix of completed diagnostic kit sales and sales of
antibody to collaborative partners who pay the Company for such antibody upon
sales of their respective diagnostic kits incorporating the Company's antibody.
The Company is currently attempting to expand its diagnostic distribution
channels to include additional distributors on a non-exclusive basis and the
Company further expects that current distributors of its kits may increase sales
of their respective diagnostic kits incorporating the Company's antibodies,
which the Company expects will result in reduced sales prices on certain
diagnostic products. The Company's revenues from sales of antibodies to partners
are lower than revenues from sales of its completed diagnostic kits.
The decrease in contract revenues for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 was primarily due to the
achievement of certain milestones in 1995 pursuant to the Company's agreements
with Lilly. Contract revenues for the year ended December 31, 1995 included
$10,000,000 recognized pursuant to the Company's agreements with Lilly as a
result of the Company's achievement of milestones in the development of ReoPro.
The level of contract revenues in future periods will depend primarily upon the
extent to which the Company enters into other collaborative contractual
arrangements, if any, and its achievement of milestones under current
arrangements.
Cost of sales increased for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 due primarily to the increased sales of ReoPro.
The Company is required to make certain royalty payments, based on sales of
products, which payments represent a significant percentage of cost of sales.
The Company expects an increase in cost of sales in 1997, the extent of which
will depend primarily on the amount and mix of products sold. The Company's
gross margin on sales for the year ended December 31, 1996 was approximately 54%
as compared to approximately 55% for the year ended December 31, 1995. Gross
margin percentage in 1997 is expected to improve over 1996 as production
activities increase and further process efficiencies are realized. Factors that
can influence gross margin include, but are not limited to, exchange rate
fluctuations, unplanned production losses, cell line yields, increases in
royalty obligations, costs of raw materials and production interruptions due to
plant upgrades.
16
<PAGE>
Research and development expenses for the year ended December 31, 1996
decreased as compared to the year ended December 31, 1995 due principally to the
capitalization as inventory in 1996 of certain costs associated with the
manufacture of ReoPro. In 1995, such costs were not associated with the
production of inventory and therefore were expensed as research and development
expenses. The level of the Company's total research and development expenses in
future periods will be dependent upon the extent of clinical trial-related
activities. Research and development expenses are expected to increase in 1997
as compared to 1996 due to clinical trial activities in connection with the
continued expansion of ReoPro use for additional indications including, but not
limited to, acute myocardial infarction, the use of ReoPro in conjunction with
stents and in stroke. In addition, clinical trial activities for CenTNF,
primarily phase III trials for the Crohn's and severe rheumatoid arthritis
indications are expected to occur in 1997. The Company also expects to incur
additional clinical trial expenses in 1997 in support of continued Panorex
development primarily in the United States and Europe.
Marketing, general and administrative expenses for the year ended December
31, 1996 increased as compared to the year ended December 31, 1995 due
principally to ReoPro market development efforts and ongoing litigation. The
levels of the Company's marketing, general and administrative expenses may
increase in future periods as compared to 1996 levels if the Company expands its
market development activities in connection with sales of therapeutic and
diagnostic products or directly undertakes the promotion, marketing and sale of
any of its therapeutic or diagnostic products. Marketing, general and
administrative expenses are expected to increase in 1997 as compared to 1996 due
primarily to the Company's increased investment in market development
opportunities for its therapeutic and diagnostic products.
Interest income increased for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 due principally to an increase in the
Company's average cash and investment balances. Interest income in future
periods will depend primarily on the level of the Company's investments and the
rates of return obtained on such investments.
Interest expense decreased for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 due principally to the conversion of the
Company's 7 1/4% Convertible Notes due February 1, 2001 into the Company's
Common Stock, the purchase of $70,235,000 of the Company's 6 3/4% Convertible
Debentures and the repayment of mortgage loans in Europe. Interest expense in
future periods will depend upon the level of debt outstanding.
Other income (expenses) increased for the year ended December 31, 1996 as
compared to the year ended December 31, 1995 due to an increase in Centocor's
equity in the losses of a company in which Centocor has invested. Centocor does
not expect the future equity in the income or losses of this investee company to
have a material impact on the Company.
Other income (expenses) also includes a charge to operations of $3,750,000
for the year ended December 31, 1995 relating to the settlement of certain class
action securities litigation. The results of operations for the year ended
December 31, 1995 also included a charge to costs and expenses of $1,642,000 for
severance costs related to a reduction in the level of the Company's personnel
in 1995.
The Company expects its effective tax rate in 1997 to be approximately 3%.
The effective tax rate in 1997 is heavily influenced by the ability of the
Company to use net operating loss carryforwards from prior years to offset its
future tax liability.
Year ended December 31, 1995 compared to year ended December 31, 1994
The increase in sales for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 is principally due to the commencement of sales
of ReoPro in January 1995 and Panorex in February 1995.
For the year ended December 31, 1995, ReoPro sales to Lilly were
$15,545,000 and Lilly's announced sales to end-users were $22,800,000. During
the same period, the Company's sales of Panorex to Glaxo Wellcome were
$6,531,000 and Glaxo Wellcome reported to the Company that sales to end-users
were approximately $3,400,000. The level of the Company's sales of ReoPro to
Lilly and of Panorex to Glaxo Wellcome is dependent upon the
17
<PAGE>
orders placed and the levels of inventory maintained by each of these marketing
partners, which in 1995 included initial launch period quantities.
Diagnostic product sales for the year ended December 31, 1995 were
$42,859,000 as compared to $39,697,000 for the year ended December 31, 1994. The
increase in sales for the year ended December 31, 1995 as compared to the year
ended December 31, 1994 is primarily related to a 1995 reagent sale to a new
customer within the oncology product line.
The decrease in contract revenues for the year ended December 31, 1995 as
compared to the year ended December 31, 1994 was primarily due to the
achievement of certain milestones and expansion of certain marketing and
distribution rights with Glaxo Wellcome in 1994, which in the aggregate amounted
to $14,000,000. Contract revenues for the year ended December 31, 1995 and 1994
included $10,000,000 and $9,500,000, respectively, recognized pursuant to the
Company's agreements with Lilly as a result of the Company's achievement of
milestones in the development of ReoPro. Contract revenues for the year ended
December 31, 1994 also included $1,652,000 recognized pursuant to the Company's
development agreement with Tocor II. As a result of an exchange offer which was
completed in March 1994 and pursuant to which the Company acquired all of the
outstanding callable common stock of Tocor II (the "Exchange Offer"), the
revenues under the Tocor II research program terminated in 1994.
Cost of sales increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 due to the initiation of sales of ReoPro and
Panorex. The Company is required to make certain royalty payments, based on
sales of products, which payments represent a significant percentage of cost of
sales. The Company's gross margin on sales for the year ended December 31, 1995
was approximately 55% as compared to approximately 60% for the year ended
December 31, 1994. There were no significant sales of therapeutic products in
1994.
Research and development expenses for the year ended December 31, 1995
decreased as compared to the year ended December 31, 1994 due principally to the
capitalization as inventory in 1995 of certain costs associated with the
manufacture of ReoPro and Panorex. In 1994, such costs were not associated with
the production of inventory and therefore were expensed as research and
development expenses. Clinical trial expenses increased in 1995 as compared to
1994 because of the Company's efforts to obtain regulatory approvals for
additional indications of therapeutic products and further develop other
therapeutic and diagnostic product opportunities.
Marketing, general and administrative expenses for the year ended December
31, 1995 increased as compared to the year ended December 31, 1994 due
principally to increases in facilities, insurance and market development
expenses.
Interest income increased for the year ended December 31, 1995 as compared
to the year ended December 31, 1994 due principally to an increase in interest
rates on investments and an increase in the Company's average cash and
investment balances.
Interest expense decreased for the year ended December 31, 1995 as compared
to the year ended December 31, 1994 due principally to a one-time adjustment of
$2,200,000 on a loan which was renegotiated with the Commonwealth of
Pennsylvania.
Other income increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994 due to the Company's equity in earnings of a
company in which Centocor has an investment.
Other income (expenses) also included a charge to operations of $3,750,000
for the year ended December 31, 1995 relating to the settlement of certain class
action securities litigation. The results of operations for the year ended
December 31, 1995 also included a charge to costs and expenses of $1,642,000 for
severance costs related to a reduction in the level of the Company's personnel
in 1995.
18
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated statement of
operations data for the three years ended December 31, 1996 (in thousands except
per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, Sept. 30, Dec. 31,
1994 1994 1994 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues $ 15,273 $ 16,384 $ 12,927 $ 22,642
Cost and expenses:
Cost of sales 3,630 4,471 3,652 4,231
Research and development 14,389 16,666 15,701 23,247
Marketing, general and administrative 6,818 6,809 7,159 4,583
Special charges 36,966 - - 24,968
-------- -------- -------- --------
Total costs and expenses 61,803 27,946 26,512 57,029
Other income (expenses) (4,107) (3,856) (3,994) (8,637)
-------- -------- -------- --------
NET LOSS $(50,637) $(15,418) $(17,579) $(43,024)
======== ======== ======== ========
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues $ 23,995 $ 20,754 $ 19,155 $ 15,012
Cost and expenses:
Cost of sales 8,625 8,071 7,271 5,199
Research and development 13,501 17,008 18,376 17,350
Marketing, general and administrative 7,494 7,120 7,643 6,919
Special charges - - - 1,642
-------- -------- -------- --------
Total costs and expenses 29,620 32,199 33,290 31,110
Other income (expenses) (2,617) (5,864) 1,980 (3,328)
-------- -------- -------- --------
NET LOSS $ (8,242) $(17,309) $(12,155) $(19,426)
======== ======== ======== ========
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues $ 21,882 $ 30,586 $ 39,179 $ 43,838
Cost and expenses:
Cost of sales 10,554 14,554 17,652 18,334
Research and development 12,548 13,296 15,174 15,769
Marketing, general and administrative 7,403 7,882 8,537 9,112
-------- -------- -------- --------
Total costs and expenses 30,505 35,732 41,363 43,215
Net gain on extinguishment of debt - 705 - -
Other income (expenses) (1,075) 118 549 2,270
-------- -------- -------- --------
NET INCOME (LOSS) $ (9,698) $ (4,323) $ (1,635) $ 2,893
======== ======== ======== ========
</TABLE>
19
<PAGE>
The Company's results, as a percentage of total revenues, have fluctuated
on a quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. Quarterly results can fluctuate as a result of a number of
factors, including the timing of research and development expenses, the level of
product sales, the completion or commencement of significant contracts, and
foreign exchange fluctuations.
PER SHARE CALCULATIONS
At December 31, 1996, approximately 4,386,000 shares of the Company's
Common Stock were issuable upon exercise of outstanding options and warrants and
upon vesting of restricted stock awards. The Company uses the weighted average
number of shares outstanding in calculating per share data. When dilutive,
options and warrants are included as share equivalents using the treasury stock
method. The approximately 898,000 shares issuable upon conversion of the 6 3/4%
Convertible Debentures are not considered Common Stock equivalents and are not
included in the calculation of primary per share data but are included in the
calculation of fully diluted per share data if their effect is dilutive.
No Common Stock equivalents or shares issuable upon conversion of the
6 3/4% Convertible Debentures were included in the per share calculations for
any year presented since to do so would have been antidilutive as the Company
has recorded net losses for all years presented. In March 1996, the Company
completed a public offering of 4,025,000 shares, in April 1996 the Company
issued 3,450,000 shares as a result of the conversion of the Company's 7 1/4%
Convertible Notes and in July 1996, the Company issued 920,716 shares in
connection with its agreements with Lilly. These shares have been included in
the per share calculations and, depending upon the market value of the Company's
Common Stock and its results of operations for such periods, the Company may be
required to include its then outstanding Common Stock equivalents as well as
shares issuable upon the conversion of the 6 3/4% Convertible Debentures in its
calculations of per share data for such periods if the effect would be dilutive.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since inception, has incurred significant operating expenses
attempting to develop therapeutic and diagnostic products. To date, the
Company's product sales have not produced sufficient revenues to cover the
Company's operating costs. Consequently, the Company has experienced substantial
net cash outflows, which have been only partially offset by significant contract
revenues received through collaborative alliances with pharmaceutical companies
and the Company's financing activities. The Company's financial results have
progressively improved throughout 1996 culminating with the Company achieving
profitability in the fourth quarter.
The Company's future financial condition is dependent upon the reduction of
the Company's rate of net cash outflows and, ultimately, upon the achievement of
significant and sustained levels of therapeutic product sales. For the year
ended December 31, 1996, sales of the Company's products, including ReoPro and
Panorex, did not alone generate sufficient revenue to result in positive cash
flow for the year. Under the Company's strategy of entering into collaborative
alliances with established pharmaceutical companies, the Company generally
shares sales revenues from products covered by such arrangements with its
partners. The level of future sales of both diagnostic and therapeutic products
will be dependent upon several factors, including, but not limited to, the
timing and extent of future regulatory approvals of the Company's products,
approval and commercialization of competitive products and the degree of
acceptance of the Company's products in the marketplace. There can be no
assurance that FDA or other regulatory approvals expanding the authorized use of
ReoPro and Panorex or permitting the commercial sale of any of the Company's
product candidates under development will be obtained. Failure to obtain
additional timely FDA or other regulatory approvals for the use of ReoPro and
Panorex or other product candidates will have a material adverse effect on the
Company.
At December 31, 1996, the Company had cash, cash equivalents and
investments of $185,817,000, including equity investments of $9,502,000. For the
year ended December 31, 1996, the Company had negative cash flows from
operations of $12,838,000. The Company's total cash flows for the year ended
December 31, 1996 included the receipt of $20,791,000 from the exercise of
warrants and options to purchase shares of the Company's Common Stock. The
extent and timing of future warrant and option exercises, if any, are primarily
dependent upon the market
20
<PAGE>
price of the Company's Common Stock and general financial market conditions, as
well as the exercise prices and expiration dates of the warrants and options. In
the first quarter of 1996, the Company completed a public equity offering of
4,025,000 shares of common stock. The net proceeds to the Company from the
offering were $125,916,000. Upon completion of the offering, the Company
initiated redemption of the remaining 7 1/4% Convertible Notes due February
2001 most of which were converted into common stock in the second quarter of
1996. Also in the second quarter, the Company purchased $70,235,000 of the
6 3/4% Convertible Debentures. At December 31, 1996, $54,765,000 of the 6 3/4%
Convertible Debentures remain outstanding. In the third quarter of 1996, the
Company received $15,000,000 in connection with its agreements with Fujisawa.
Additionally, in the fourth quarter 1996, the Company repaid both its mortgage
debt and long-term note related to its Leiden facility in the amount of
$15,141,000. At December 31,1996 the Company has a note payable of $6,897,000
which is secured by investments at the lending bank of $7,260,000. The Company's
total cash, cash equivalents and investments increased by $48,611,000 from
December 31, 1995, principally as a result of cash received from the stock
offering and the exercise of warrants and options as discussed above, partially
offset by the purchase of $70,235,000 of the Company's 6 3/4% Convertible
Debentures. The Company believes that its cash, cash equivalents and investments
will be sufficient to fund its operations through at least the end of 1997.
Accounts Receivable at December 31, 1996 increased as compared to December
31, 1995 due to increased sales of ReoPro to Lilly.
Inventory at December 31, 1996 increased as compared to December 31, 1995
due primarily to the increase in production of ReoPro.
Gross property, plant and equipment at December 31, 1996 decreased as
compared to December 31, 1995, principally due to the impact of exchange rates
on property and equipment denominated in foreign currencies partially offset by
the investment of $4,674,000 for the purchase of property and equipment. The
Company expects to increase its investments in property, plant and equipment by
up to approximately $30,000,000 in 1997 to support its manufacturing capacity
expansion plans in Europe. At the Company's present level of operations, the
Company currently maintains idle facilities and equipment in its Malvern
location. The Company continually evaluates the future needs for its facilities
and equipment. There can be no assurance that reserves to reduce the carrying
value of certain fixed assets will not be required in the future.
Long-term investments at December 31, 1996 increased as compared to
December 31, 1995 principally due to additional equity investments in investee
companies classified as available for sale.
Intangible and other assets at December 31, 1996 increased as compared to
December 31, 1995 resulting primarily from the amendment to the Company's Sales
and Distribution Agreement with Lilly and other activities in connection with
the commercialization and market development of ReoPro.
Centocor had an exclusive option to purchase the limited partnership
interests in CPIII. In January 1997, the Company exercised this option and made
an advance payment of approximately $13,598,000 in cash to the Class A and Class
C limited partners of CPIII. The Company recorded the $13.6 million payment to
the partners of CPIII as a prepaid royalty in January 1997. In addition, the
Company is required to make future royalty payments to the former limited
partners of CPIII. See Item 8. "Financial Statements and Supplementary Data",
Note 3 - Commitments and Contingencies.
The Company has entered into indemnity agreements with CPIII and the former
limited partners of Centocor Cardiovascular Imaging Partners, L.P. ("CCIP") and
CPII pursuant to which the Company would be obligated, under certain
circumstances, to compensate these parties for the fair market value of their
respective interests under any license agreements with the Company relating to
their respective products which are lost through the exercise by the U.S.
government of any of its rights relating to the licensed technology. The amount
of any such loss would be determined annually by independent appraisal.
21
<PAGE>
LEGAL PROCEEDINGS
The Company is subject to certain litigation, as more fully described under
Part I, Item 3 "Legal Proceedings." While it is not possible to predict with
certainty the eventual outcome of these matters, the Company believes that such
legal proceedings will not have a material adverse effect on the Company.
ROYALTIES
The Company is required to make certain future payments to the former
limited partners of CCIP and CPII based on sales of products developed by each
of the respective partnerships. Pursuant to the exercise by the Company of its
option to acquire the limited partnership interests in CPIII in January 1997,
the Company is required to make future payments to the former limited partners
of CPIII which will include payments based on future sales of ReoPro.
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses and/or
options to license certain technology resulting from the research, generally
require the Company to pay royalties to such institutions on the sales of any
products that utilize the licensed technology. Further, the Company has
licenses under certain patents, patent applications and technology and pays the
licensors or their licensees royalties under such agreements.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
PRODUCT LIABILITY
The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage. Centocor's business may be materially adversely affected by a
successful product liability claim in excess of any insurance coverage. There
can be no assurance that product liability insurance coverage will continue to
be available to Centocor in the future on reasonable terms or at all.
FOREIGN CURRENCY
Certain of the Company's sales are denominated in currencies other than the
U.S. dollar. Additionally, the Company conducts operations in countries other
than the United States, primarily its manufacturing facility in Leiden, The
Netherlands. The Company's consolidated financial statements are denominated in
U.S. dollars, and, accordingly, changes in the exchange rate between foreign
currencies and the U.S. dollar will affect the translation of financial results
of foreign subsidiaries into U.S. dollars for purposes of reporting the
Company's consolidated financial results. To date, exchange rate fluctuations
have not had a material net effect on the Company's financial results. The
Company does not currently engage in any derivatives transactions as a hedge
against foreign currency fluctuations.
INFLATION
The Company believes the effects of inflation generally do not have a
material adverse impact on its operations or financial condition.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
<TABLE>
<CAPTION>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31, 1996 1995
- ------------------------------------- ---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 5 and 9) $ 55,953 $ 16,002
Short-term investments (Notes 5 and 9) 120,362 115,435
Accounts and contracts receivable 27,440 11,489
Interest receivable 2,147 1,648
Inventory (Note 6) 23,815 20,783
Prepaid expenses 4,279 2,959
Other current assets 752 653
-------- --------
234,748 168,969
PROPERTY, PLANT AND EQUIPMENT (NOTES 9 AND 19):
Land and buildings 71,607 72,980
Equipment, furniture, fixtures and
improvements 69,884 69,884
-------- --------
141,491 142,864
Less accumulated depreciation (79,954) (74,727)
-------- --------
61,537 68,137
LONG-TERM INVESTMENTS (NOTE 5) 9,502 5,769
INTANGIBLE AND OTHER ASSETS (NOTE 7) 35,334 17,409
-------- --------
TOTAL ASSETS $341,121 $260,284
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
23
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D.)
(In thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995
- --------------------------------- ---------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,543 $ 4,126
Accrued expenses (Note 8) 28,940 26,139
Unearned revenues 100 83
Notes payable (Note 9) 6,897 7,500
Current portion of
long-term debt (Note 9) - 18,289
---------- ---------
45,480 56,137
Long-term debt (Note 9) 54,765 231,640
Other liabilities 1,127 1,286
Minority interest 3,839 617
Shareholders' equity (Notes 2, 5, 10 and 13):
Preferred Stock, $.01 par value,
10,000 shares authorized, none issued - -
Common Stock, $.01 par value,
100,000 shares authorized and
69,177 and 58,538 issued and
outstanding at December 31, 1996
and 1995, respectively 692 585
Additional paid-in capital 1,050,062 770,068
Deficit (821,602) (808,839)
Unrealized gain on marketable
securities 2,342 2,342
Cumulative foreign currency
translation adjustments 4,416 6,448
---------- ---------
235,910 (29,396)
---------- ---------
Total liabilities and
shareholders' equity $ 341,121 $ 260,284
========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $ 132,130 $ 65,001 $ 39,984
Contracts (including related
party revenues of: $1,652 in 1994)(Note 12) 3,355 13,915 27,242
--------- -------- ---------
135,485 78,916 67,226
--------- -------- ---------
Costs and expenses:
Cost of sales 61,094 29,166 15,984
Research and development (including contract
revenue-related party expenses of $1,572 in 1994) 56,787 66,235 70,003
Marketing, general and administrative
(including contract revenue-related party
expenses of $343 in 1994) 32,934 29,176 25,369
Charge for acquired research and
development (Note 13) - - 36,966
Other charges (Note 19) - 1,642 24,968
--------- -------- ---------
150,815 126,219 173,290
Other income (expenses):
Interest income 10,276 10,126 5,999
Interest expense (8,351) (17,001) (19,821)
Net loss on long-term investments (Note 14) - - (3,649)
Litigation settlement (Note 14) - (3,750) (1,275)
Other income (expenses) (63) 796 (1,848)
--------- -------- ---------
1,862 (9,829) (20,594)
Loss before extraordinary item ($13,468) ($57,132) ($126,658)
--------- -------- ---------
Extraordinary item:
Net gain on extinguishment of debt (Note 9) 705 - -
--------- -------- ---------
Net loss ($12,763) ($57,132) ($126,658)
========= ======== =========
Net loss per share:
Before extraordinary item ($0.20) ($0.98) ($2.55)
Extraordinary item $0.01 - -
--------- -------- ---------
Net loss per share ($0.19) ($0.98) ($2.55)
========= ======== =========
Weighted average number of shares
outstanding 66,475 58,207 49,597
========= ======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows used for operating activities:
Net loss ($12,763) ($57,132) ($126,658)
Adjustments to reconcile net loss to net cash
used for operating activities:
Charge for acquired research and development - - 36,966
Special charges - - 9,145
Net gain on extinguishment of debt (705) - -
Net loss on long-term investments - - 3,649
Provisions for depreciation and amortization 14,004 16,394 18,164
Amortization of deferred income (83) (1,616) (3,067)
Other 919 204 2,413
Changes in assets and liabilities:
Accounts and contracts receivable (16,044) 378 1,330
Interest receivable (512) (542) (466)
Inventory (4,096) (4,519) (2,344)
Prepaid expenses (4,409) (3,568) (2,809)
Other current assets (110) 462 81
Intangible and other assets (127) (1,456) (1,423)
Accounts payable 5,537 (2,425) (962)
Unearned revenue - 46 1,675
Accrued expenses and other liabilities 5,706 (2,941) (1,162)
Other long-term liabilities (155) 164 948
--------- --------- ---------
Net cash used for operating activities (12,838) (56,551) (64,520)
Cash flows (used for) from investing activities:
Purchases of investments (115,577) (147,381) (98,808)
Sales of investments 110,650 136,490 127,250
Purchases of fixed assets (4,674) (4,845) (4,555)
Acquisition of Tocor II, net of cash acquired - - 3,991
--------- --------- ---------
Net cash (used for) from investing activities (9,601) (15,736) 27,878
Cash flows from financing activities:
Net proceeds from issuance of Common Stock relating
to public offering 125,916 - -
Net proceeds from other issuances of Common Stock 20,791 18,557 71,633
Reduction of long-term debt and notes payable (84,537) (9,615) (2,788)
--------- --------- ---------
Net cash from financing activities 62,170 8,942 68,845
Effect of foreign currency translation 220 422 512
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 39,951 (62,923) 32,715
Beginning cash and cash equivalents 16,002 78,925 46,210
--------- --------- ---------
Ending cash and cash equivalents $ 55,953 $ 16,002 $ 78,925
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
CENTOCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Cumulative
Common Stock gain (loss) on foreign currency
-----------------------
Number of Additional marketable translation
shares Par value paid in capital Deficit securities adjustments
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 43,672 $437 $601,138 ($625,049) ($635) $4,915
Issued to Wellcome plc (Note 10) 140 1 3,500 - - -
Issued pursuant to the Tocor II
exchange offer (Note 13) 7,014 70 84,259 - - -
Warrants retired pursuant to
Tocor II exchange offer
(Note 13) - - (8,492) - - -
Issued upon exercise of options
and warrants or as stock grants 6,151 62 68,070 - - -
Issued to employee benefit plan 17 - 208 - - -
Vested pursuant to restricted
stock award plan 87 1 1,492 - - -
Translation adjustments - - - - - 1,324
Carrying value adjustments - - - - 635 . -
Net loss - - - (126,658) - -
-----------------------------------------------------------------------------------------------
BALANCED AT DECEMBER 31, 1994 57,081 571 750,175 (751,707) - 6,239
Issued upon exercise of options
and warrants or as stock grants 1,388 14 18,323 - - -
Issued to employee benefit plan 31 - 511 - - -
Vested pursuant to restricted
stock award plan 38 - 1,059 - - -
Translation adjustments - - - - - 209
Carrying value adjustments - - - - 2,342 -
Net loss - - - (57,132) - -
-----------------------------------------------------------------------------------------------
BALANCED AT DECEMBER 31, 1995 58,538 585 770,068 (808,839) 2,342 6,448
Issued upon exercise of options and
warrants or as stock grants 1,596 16 18,015 - - -
Issued to employee benefit plan 71 1 379 - - -
Issued upon stock offering 4,025 40 125,916 - - -
Issued upon conversion of debt 3,831 38 106,302 - - -
Amendment to Sales and Distribution
Agreement with Lilly 921 9 26,991 - - -
Vested pursuant to
restricted stock award plan 60 1 760 - - -
Warrants retired pursuant to Tocor II
exchange offer (Note 13) 135 2 1,631 - - -
Translation adjustments - - - - - (2,032)
Net loss - - - (12,763) - -
-----------------------------------------------------------------------------------------------
BALANCED AT DECEMBER 31, 1996 69,177 $692 $1,050,062 ($821,602) $2,342 $4,416
===============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
Notes to Consolidated Financial Statements
Note 1
DESCRIPTION OF BUSINESS
Centocor, Inc.("Centocor" or the "Company") is a biotechnology company
whose mission is to develop and commercialize novel therapeutic and diagnostic
products and services that solve critical needs in human health care. The
Company concentrates on research and development, manufacturing and market
development, with a primary technological focus on monoclonal antibodies and
DNA-based products.
Note 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and a 75% interest in a joint venture. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Investments
-----------
The Company classifies investments with original maturities of three months
or less as cash equivalents. Investments with maturities of one year or less are
classified as short-term.
Short-term marketable securities are carried at cost, which approximates
market value. Long-term debt securities which the Company has the ability and
intent to hold until maturity are carried at amortized cost. The equity
investments classified as available for sale are carried at estimated fair value
with unrealized gains and losses recorded as a component of shareholders'
equity. The Company also classifies certain investments as trading securities
which are carried at fair value with the unrealized gains and losses reported in
earnings.
Inventory
---------
Inventory is stated at the lower of cost or market value using the first-
in, first-out method for diagnostic and pharmaceutical product inventories.
Inventories have various expiration dates. Reserves are provided for
inventories which are likely to expire prior to sale or are likely to otherwise
not be available for sale.
Property, plant and equipment and depreciation
----------------------------------------------
Property, plant and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets,
the depreciable lives are as follows:
Equipment, furniture and fixtures 3-5 years
Land improvements 10 years
Leasehold improvements 10 years
Building and building improvements 31.5 years
28
<PAGE>
Notes to Consolidated Financial Statements
Leasehold improvements are amortized over the applicable lease period or
their estimated useful lives, whichever is shorter. Maintenance and repairs are
charged to expense, and major renewals and improvements are capitalized.
Intangible and Other Assets
---------------------------
Intangible and other assets are stated at cost, net of accumulated
amortization. Amortization is provided using either the straight-line method or
more applicable methods over the estimated useful lives of the assets, generally
3 to 20 years. Licensing agreements, goodwill and other assets are reviewed for
impairment whenever events or circumstances provide evidence that suggest that
the carrying amount of the asset may not be recoverable. Impairment is evaluated
by using identified or expected cash flows.
Revenue Recognition
-------------------
For contracts under which the Company is reimbursed for expenses, revenue
is recognized as the related expenses are incurred. Non-refundable fees or
milestone payments in connection with research and development or
commercialization agreements are recognized when they are earned in accordance
with the applicable performance requirements and contractual terms. Payments
received which are related to future performance are deferred and recognized as
revenue over the specified future performance periods.
Sales revenues are recognized at the time the goods are shipped or when
title to the goods passes to the buyer.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company has net operating loss carryforwards for tax purposes that begin to
expire in 2005. Since realization of the tax benefit associated with these
carryforwards is not assured, a valuation allowance was recorded against this
tax benefit. In addition, pursuant to the Tax Reform Act of 1986, the annual
utilization of these losses may be limited. The Company believes that any such
limitation will not have a material impact on the utilization of these
carryforwards.
Per Share Data
--------------
Per share data are calculated using the weighted average number of
outstanding shares of Common Stock. Common Stock issuable upon the exercise of
stock options or warrants and upon the vesting of restricted stock awards are
included in the per share calculations only to the extent their inclusion would
have an aggregate dilutive effect. Common Stock issuable upon conversion of
convertible debt securities are included only in the fully diluted per share
calculations to the extent their inclusion would have a dilutive effect.
Foreign Currency Translation
----------------------------
Assets and liabilities of subsidiaries denominated in foreign currencies
are translated at rates in effect at the appropriate year-end. Revenues and
expenses of such subsidiaries are translated at average rates of exchange for
the period of operation. The differences resulting from such translation as
compared to the equity of such subsidiaries translated at historical rates are
included in cumulative foreign currency translation adjustments, a separate
component of shareholders' equity. The Company believes that the aggregate
foreign currency transaction gains/losses do not have a significant effect on
its financial statements.
29
<PAGE>
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
-----------------------------------
The FASB issued Statement of Financial Standards No.107, Disclosures About
Fair Value of Financial Instruments, which defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. Cash and cash equivalents, accounts and
contracts receivable, prepaid expenses, interest receivable, other current
assets, accounts payable, and accrued expenses reported in the consolidated
balance sheets equal or approximate fair value due to their short maturities.
See Note 9 for information regarding the fair value of the Company's long-term
debt and notes payable.
New Accounting Standards
------------------------
In June 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed of ("Statement 121"), which requires companies to review
long-lived assets and certain identifiable intangibles to be held, used or
disposed of, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
Statement 121 in 1996 which did not have a significant effect on its financial
statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"),
which was effective for transactions entered into in fiscal years beginning
after December 15, 1995. The Company adopted Statement 123 in 1996 and elected
to continue to measure stock based compensation using the intrinsic value based
method of accounting prescribed by APB Opinion 25, Accounting for Stock Issued
to Employees and accordingly, the Company did not recognize compensation cost in
the consolidated financial statements for options granted. The Company disclosed
pro forma financial information valuing stock based compensation using the fair
value based method of accounting. See Note 10 - Shareholders' Equity.
Note 3
COMMITMENTS AND CONTINGENCIES
Liquidity and Capital Resources
-------------------------------
The Company has incurred significant operating expenses attempting to
develop therapeutic and diagnostic products. To date, the Company's product
sales have not produced sufficient revenues to cover the Company's operating
costs. Consequently, the Company has experienced substantial net cash outflows,
which have been only partially offset by significant contract revenues received
through collaborative alliances with pharmaceutical companies and the Company's
financing activities. The Company's financial results have progressively
improved throughout 1996 culminating with the Company achieving profitability in
the fourth quarter.
The Company's future financial condition is dependent upon the reduction of
the Company's rate of net cash outflows and, ultimately, upon the achievement of
significant and sustained levels of therapeutic product sales. For the year
ended December 31, 1996, sales of the Company's products, including ReoPro and
Panorex, did not alone generate sufficient revenue to result in positive cash
flow for the year. Under the Company's strategy of entering into collaborative
alliances with established pharmaceutical companies, the Company generally
shares sales revenues from products covered by such arrangements with its
partners. The level of future sales of both diagnostic and therapeutic products
will be dependent upon several factors, including, but not limited to, the
timing and extent of future regulatory approvals of the Company's products,
approval and commercialization of competitive products and the degree of
acceptance of the Company's products in the marketplace. There can be no
assurance that FDA or other regulatory approvals expanding the authorized use of
ReoPro and Panorex or permitting the commercial sale of any of the Company's
product candidates under development will be obtained. Failure to obtain
additional timely FDA or other regulatory approvals for the use of ReoPro and
Panorex or other product candidates will have a material adverse effect on the
Company.
30
<PAGE>
Notes to Consolidated Financial Statements
Legal Proceedings
-----------------
In October 1992, the Company was served with a complaint filed by the Velos
Group, a Maryland partnership ("Velos") in the U.S. District Court for the
District of Maryland. The complaint primarily alleged that the Company breached
certain provisions of a license agreement between Velos and the Company pursuant
to which the Company has exclusive rights to U.S. Patent No. 5,057,598, as well
as various patent application and foreign patents. The complaint sought
declaratory relief and monetary relief in excess of $100,000,000, and requested
that the Company place in escrow one-half of the amounts received by the Company
in 1992 pursuant to its agreements with Lilly. Over the course of the
litigation, plaintiff asserted eleven different claims for relief and the
Company asserted affirmative defenses and a counterclaim against Velos with
respect to the license agreement. After rulings on motions for summary judgment
filed by both sides, the majority of plaintiff's claims were dismissed. The case
proceeded to trial on February 18, 1997 on plaintiff's four remaining claims
under the license agreement and on the Company's affirmative defenses and
counterclaim. The parties agreed that plaintiff's claim for attorneys fees under
the license agreement would be severed to await the outcome of the trial. On
March 4, 1997, the jury returned a verdict which, if it were to become the
judgement of the Court, would render the Company liable to pay plaintiff
approximately $4,000,000 plus interest fees and expenses pursuant to the license
agreement. The Company and its counsel believe the jury's findings are not
supported by the evidence and law and will file post-trial motions, and, if
necessary, an appeal. Accordingly, no provision has been made in the
accompanying financial statements for this matter. The Company believes that the
allegations of Velos are without merit and intends to continue vigorously to
defend this suit.
On December 23, 1993, a purported class action captioned Peter Cordaro v.
Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden,
Centocor and Tocor II Inc. ("Tocor II") was filed in the Court of Common Pleas
of Chester County, Pennsylvania. The complaint alleges that the defendants
breached their fiduciary duties to Tocor II Unitholders by, among other things,
making an offer to exchange shares of the Company's Common Stock for Tocor II
Units, recommending acceptance of the exchange offer, and failing to maximize
shareholder value. The complaint sought, among other relief, an injunction
against consummation of the exchange offer, the establishment of a "truly
independent" special committee and the retention of a financial advisor to
consider the exchange offer, and award of damages (including rescissionary
damages), costs and plaintiff's counsel fees. Plaintiff took no additional
action to obtain an injunction and the exchange offer was made and consummated.
Plaintiff's motion for class certification has been denied and plaintiff has
petitioned for rehearing. No trial date has been fixed. The Company believes
that the allegations set forth in the complaint are without merit and intends to
vigorously defend this suit.
In July 1995, PaineWebber Development Corporation, a wholly-owned
subsidiary of Paine Webber Group Inc., caused suits to be filed against the
Company by two research and development partnerships formed in the mid-1980s by
PaineWebber and managed by it since then. The two PaineWebber partnerships
(PaineWebber R&D Partners, L.P. and PaineWebber R&D Partners II, L.P.) were,
respectively, investors in Centocor Partners II, L.P. ("CPII") and CPIII,
research partnerships for which PaineWebber acted as the sales agent and in
other capacities. The Company purchased the limited partners' interests in CPII
in February 1992 and that partnership was then dissolved.
The suit by PaineWebber R&D Partners, L.P., was filed in the Supreme Court
of the State of New York, County of New York, and purports to be a class action
on behalf of all former limited partners of CPII. The complaint charges that
some portion of the $100 million paid by Lilly to the Company in July 1992
constituted revenues to the Company for the licensing, sublicensing or sale of
HA-1A (Centoxin) and that the Company is obligated to pay a percentage thereof
to the former limited partners of CPII, in addition to amounts already paid. The
Company moved to dismiss the New York suit on the ground that it was brought in
an inconvenient forum and that motion was granted. The suit has been refiled in
the Delaware Superior Court. Discovery is beginning and plaintiff has moved for
certification of a class of all former limited partners of CPII, which the
Company has opposed. Prior to the dismissal of the New York action, a similar
suit was filed by another former CPII partner, Jerome J. Petrisko, in the Court
of Common Pleas of Chester County, Pennsylvania. That suit is in its earliest
stage. The Company believes that the allegations regarding Centocor in these
actions are without merit and intends to vigorously defend them.
The suit by PaineWebber R&D II, L.P. ("PWR&DII") was filed in the Court of
Chancery of the State of Delaware. In the complaint in this action, the
plaintiff seeks to sue derivatively on behalf of CPIII. CPIII is named as a
nominal defendant and the Company and Centocor Development Corporation III
("CDCIII"), a wholly owned
31
<PAGE>
Notes to Consolidated Financial Statements
subsidiary of the Company which acts as the general partner of CPIII, are named
as defendants against whom relief is sought. The claim in this case is that at
least $25 million of the money paid by Lilly to the Company in 1992 represented
profits from the marketing of ReoPro, obligating the Company to pay a portion
thereof to CPIII, and that the Company is obligated to pay an increased
percentage of the profits from ReoPro to CPIII going forward. The Company
answered the complaint in the Delaware action and filed a cross-claim against
nominal defendant CPIII and a third-party complaint against PaineWebber Group
Inc. and PaineWebber Development Corporation. The cross-claim seeks an offset
against any damages awarded the partners based on theories of unjust enrichment
and quasi contract. The third-party claims (since amended to add additional
theories of liability and to make PaineWebber, Inc. an additional third-party
defendant) seek to hold the PaineWebber entities liable for some or all of any
alleged injury to the partnership. On November 1, 1995, an additional suit was
commenced in the Delaware Court of Chancery by John E. Abdo, a limited partner
of CPIII, against the Company, CDCIII and certain of their officers and
directors. The complaint, filed derivatively on behalf of CPIII, asserts claims,
inter alia, for breach of contract, breach of fiduciary duty, common law fraud,
and conspiracy and aiding and abetting. The Company answered this complaint and
also filed a cross-claim against nominal defendant CPIII and a third party
complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation, since amended to add additional theories of liability and to name
PaineWebber, Inc. as a further third-party defendant. Abdo moved to amend his
complaint to assert claims against the persons appointed by PaineWebber to the
CDCIII Board of Directors. That motion was granted. Motions to disqualify
PWR&DII from serving as the derivative plaintiff were filed in July 1996 by
CPIII and in August 1996 by Centocor and CDCIII. Abdo joined those motions. No
decision has been issued on those motions. The parties in these suits are
considering ways and means to resolve the issues without further litigation.
While it is not possible to predict with certainty the eventual outcome of
these matters, the Company believes that the foregoing proceedings will not have
a material adverse effect on the Company.
Royalties
---------
The Company is required to make certain future payments to the former
limited partners of CCIP and CPII based on sales of products developed by each
of the respective partnerships. Subsequent to the exercise by the Company of its
option to acquire the limited partnership interests in CPIII in January 1997,
the Company is required to make future payments to the former limited partners
of CPIII which include payments based on future sales of ReoPro.
Centocor had an exclusive option to purchase the limited partnership
interests in CPIII. In January 1997, the Company exercised this option and made
an advance payment of approximately $13,598,000 in cash to the Class A and Class
C limited partners of CPIII. The Company recorded the $13.6 million payment to
the partners of CPIII as a prepaid royalty in January 1997. In addition, the
Company is required to make future royalty payments to the former limited
partners of CPIII.
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses
and/or options to license certain technology resulting from the research,
generally require the Company to pay royalties to such institutions on the sales
of any products that utilize the licensed technology. Further, the Company has
licenses under certain patents, patent applications and technology and pays the
licensors or their licensees royalties under such agreements.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of sales.
Product Liability
-----------------
The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage. Centocor's business may be materially adversely affected
32
<PAGE>
Notes to Consolidated Financial Statements
by a successful product liability claim in excess of any insurance coverage.
There can be no assurance that product liability insurance coverage will
continue to be available to Centocor in the future on reasonable terms or at
all.
Note 4
COLLABORATIVE ARRANGEMENTS
Relationship with Eli Lilly and Company
- ---------------------------------------
In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement later amended in June 1993. Under that Agreement, as amended in June
1993, Centocor is principally responsible for developing and manufacturing
ReoPro, and Lilly will assist Centocor in the regulatory filings and continued
development of ReoPro for various clinical indications. Also, in the event
Centocor cannot manufacture ReoPro or under certain other circumstances, such as
material breach of the agreement by or the bankruptcy of Centocor, Lilly has the
option to assume the manufacture of ReoPro and assure the continued supply of
the product, even to the extent of acquiring Centocor's related manufacturing
assets at their independently appraised values.
In June 1996, the Company and Lilly amended its Sales and Distribution
Agreement. Under the amendment, Lilly no longer has the right to buy ReoPro for
resale in Japan, however, Lilly will maintain its exclusive right to buy and
resell ReoPro in the rest of the world. In July 1996, in consideration of the
amendment and other activities in connection with the commercialization and
market development of ReoPro, the Company issued 920,716 shares of its Common
Stock to Lilly.
Relationship with Fujisawa Pharmaceutical Co., Ltd.
---------------------------------------------------
In August 1996, Centocor entered into an agreement with Fujisawa
Pharmaceutical Co., Ltd., appointing Fujisawa as the exclusive distributor of
ReoPro in Japan. As compensation for its appointment as exclusive distributor in
Japan, Fujisawa made a nonrefundable $15,000,000 payment to the Company, and may
make future milestone payments.
The Company and Fujisawa will co-develop ReoPro in Japan and jointly file
for Japanese product approval. Fujisawa shall bear all external costs associated
with the clinical development of ReoPro in Japan.
Relationship with Glaxo Wellcome plc
------------------------------------
In November 1993, Centocor and Glaxo Wellcome entered into an alliance
agreement for the development and marketing of certain of Centocor's monoclonal
antibody-based cancer therapeutic products, including Panorex. In November 1994,
Centocor and Glaxo Wellcome amended their alliance agreement and Glaxo Wellcome
became the exclusive worldwide distributor for Panorex. Under the agreement,
Glaxo Wellcome is responsible principally for the continuing clinical
development of Panorex, and Centocor is responsible principally for
manufacturing Panorex and securing regulatory approvals.
Note 5
CASH EQUIVALENTS AND INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost.
Securities that the Company does not intend to hold to maturity are classified
either as "available for sale" or as "trading" and are carried at fair value.
Unrealized gains and losses on securities classified as available for sale are
carried as a separate component of shareholders' equity. Unrealized gains and
losses on specific securities classified as trading are reported in earnings.
33
<PAGE>
Notes to Consolidated Financial Statements
At December 31, 1996, securities classified as trading, available for sale
and held to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
Carrying Unrealized Fair
Value Gains (Losses) Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Trading securities:
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $ 20,058 $ 20 $ (18) $ 20,060
Other short-term obligations 1,024 - - 1,024
Corporate bonds and
commercial paper 3,875 6 (3) 3,878
-------- ------ -------- --------
$ 24,957 $ 26 $ (21) $ 24,962
======== ====== ======== ========
<CAPTION>
Estimated
Adjusted Unrealized Carrying
Cost Gains (Losses) Value
-------- ----- -------- --------
<S> <C> <C> <C> <C>
Investments available for sale:
Equity securities $ 7,160 $2,342 $ - $ 9,502
======== ====== ======== ========
<CAPTION>
Estimated
Carrying Unrealized Fair
Value Gains (Losses) Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Investments held to maturity:
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $111,488 $ 46 $ (117) $111,417
Certificates of deposit 8,603 - - 8,603
Corporate bonds and
commercial paper 7,872 8 ( 4) 7,876
-------- ------ -------- --------
$127,963 $ 54 $ (121) $127,896
======== ====== ======== ========
</TABLE>
At December 31, 1996, these securities were classified as follows (in
thousands):
Cash equivalents $ 32,563
Short-term investments 120,362
Long-term investments 9,502
--------
$162,427
========
The Company has agreed to maintain investments with fair values of
$7,260,000 as of December 31, 1996 at certain banks as collateral for loans from
those banks. See Note 9 - Debt.
At December 31, 1995, securities classified as available for sale and held
to maturity are summarized below (in thousands).
<TABLE>
<CAPTION>
Estimated
Adjusted Unrealized Carrying
Cost Gains (Losses) Value
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
Investments available for sale:
Equity securities $3,427 $2,342 $ - $5,769
========= ========== ======== ========
</TABLE>
34
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Estimated
Carrying Unrealized Fair
Value Gains (Losses) Value
-------- ----- -------- --------
<S> <C> <C> <C> <C>
Investments held to maturity:
Securities and obligations of
the U.S. Treasury and other
U.S. government agencies $ 70,622 $148 $(2) $ 70,768
Certificates of deposit 32,801 - - 32,801
Corporate bonds and
commercial paper 24,260 62 (1) 24,321
-------- ----- ------- --------
$127,683 $210 $(3) $127,890
======== ===== ======= ========
</TABLE>
At December 31, 1995, these securities were classified as follows (in
thousands):
Cash equivalents $ 12,248
Short-term investments 115,435
Long-term investments 5,769
--------
$133,452
========
Note 6
INVENTORY
Inventory consists of the following (in thousands):
December 31, 1996 1995
-------- -------
Raw materials $ 5,824 $ 4,965
Work in process 7,948 9,382
Finished goods 10,043 6,436
-------- -------
$ 23,815 $20,783
======== =======
Inventories have various expiration dates. The Company continually
evaluates the extent of inventory reserves considered necessary based upon the
future regulatory and commercial status of such products. There can be no
assurance that reserves for inventories will not be required in the future.
35
<PAGE>
Notes to Consolidated Financial Statements
Note 7
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following, net of accumulated
amortization of $10,804,000 and $7,282,000 at December 31, 1996 and 1995,
respectively, (in thousands):
December 31, 1996 1995
------- -------
Licenses $ 5,378 $4,126
Goodwill 5,158 5,502
Debt issuance costs 755 3,854
Deferred charges 23,026 1,697
Other 1,017 2,230
------- -------
$35,334 $17,409
======= =======
Deferred charges at December 31, 1996 include a prepayment of future
royalties amounting to $11.4 million, and a prepayment of $10.0 million
associated with the commercialization and market development of ReoPro.
Licensing agreements, goodwill and other assets are reviewed for impairment
whenever events or circumstances provide evidence that suggest that the carrying
amount of the asset may not be recoverable. Impairment is evaluated by using
identified or expected cashflows.
Note 8
ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31, 1996 1995
------- -------
Compensation $ 7,320 $ 3,191
Interest 823 5,473
Research 5,496 4,942
Royalties 7,973 1,836
Other 7,328 10,697
------- -------
$28,940 $26,139
======= =======
Note 9
DEBT
Notes Payable
Notes payable at December 31, 1996 and 1995 consists of $6,897,000 and
$7,500,000, respectively, of borrowings under short-term notes at an interest
rate of 3.23 percent per annum at December 31, 1996, payable in Dutch guilders
no later than March 28, 1997. These borrowings are secured by investments at the
lending bank of $7,260,000 (see "Loan Covenants").
36
<PAGE>
Notes to Consolidated Financial Statements
Long-term debt
Long-term debt consists of the following (in thousands):
December 31, 1996 1995
-------- ---------
7 1/4% Convertible Notes $ - $106,640
6 3/4% Convertible Debentures 54,765 125,000
Mortgage Debt - 9,101
Long-term Note - 9,188
------- --------
54,765 249,929
Current Portion - (18,289)
------- --------
$54,765 $231,640
======= ========
7 1/4% Percent Notes
In March 1996, the Company called for redemption of the 7 1/4% Convertible
Notes at a redemption price of 103.222 percent of the outstanding principal
amount. The outstanding principal amount of the 7 1/4% Convertible Notes was
$106,640,000 at December 31, 1995. The Company issued approximately 3,831,000
shares of Common Stock upon conversion of approximately $106,302,000 principal
amount of the 7 1/4% Convertible Notes and paid $338,000 in cash to redeem the
remaining 7 1/4% Convertible Notes outstanding which were not converted.
6 3/4% Convertible Debentures
On October 16, 1991, the Company issued $125,000,000 principal amount of
6 3/4% Convertible Debentures due October 16, 2001. The 6 3/4% Convertible
Debentures were initially convertible by the holders into approximately
2,049,000 shares of the Company's Common Stock at a conversion price of $61.00
per share at any time prior to redemption or maturity. The 6 3/4% Convertible
Debentures are redeemable by the Company for cash in whole or in part until
October 16, 2001 at amounts ranging up to 102 percent of the principal amount of
the 6 3/4% Convertible Debentures. The Company may be required to redeem the
6 3/4% Convertible Debentures at their principal amount at the option of the
holders of the 6 3/4% Convertible Debentures in certain limited circumstances,
including a change in control of the Company.
In the second quarter of 1996, the Company purchased $70,235,000 of its
6 3/4% Convertible Debentures which were subsequently retired. At December 31,
1996, $54,765,000 of the 6 3/4% Convertible Debentures remain outstanding and
are convertible into approximately 898,000 shares of the Company's Common Stock.
The fair value of the Company's long-term debt at December 31, 1996,
principally determined by quoted market prices, was $52,027,000 as compared to
its carrying value of $54,765,000. The carrying amount of the Company's notes
payable at December 31, 1996 approximates their fair value.
Mortgage Debt
Mortgage loans have been used to finance a portion of the acquisition and
expansion of certain of the Company's facilities in the United States and The
Netherlands. These loans are generally secured by the related land and
buildings. These Netherlands loans, which at December 31, 1995 were payable in
Dutch guilders and classified as short-term debt, were repaid in full in October
1996. The 6 3/4% Convertible Debentures were purchased at less than face value
resulting in an extraordinary gain of $3,475,000. Partially offsetting the
extraordinary gain are charges of $2,770,000 relating to the write-off of debt
issuance costs.
37
<PAGE>
Notes to Consolidated Financial Statements
Long-term Notes
At December 31, 1995 the Company's 9 1/2% percent long-term notes which
were payable in Dutch guilders were classified as short-term debt. In October
1996, the Company repaid these long-term notes.
Loan Covenants
The Company was required to maintain certain investments at the lending
bank, which at December 31, 1995 totaled $20,000,000. At December 31, 1995 the
Company classified the $18,289,000 of debt secured by such investments as short-
term. In October 1996, the Company repaid the remaining balance of such debt to
the lending bank to eliminate all of the long-term notes and mortgage debt.
Additionally, $6,897,000 of the Company's notes payable are secured by
investments at the lending bank of $7,260,000.
Note 10
SHAREHOLDERS' EQUITY
Capital Stock
In 1996 the Company issued 1,596,000 shares of its Common Stock par value
$.01 per share in connection with the exercise of options and warrants. In
March 1996, the Company completed a public offering of 4,025,000 shares, in
April 1996 the Company issued 3,450,000 shares as a result of conversion of the
Company's 7 1/4% Convertible Notes and in July 1996, the Company issued 920,716
shares in connection with its agreements with Lilly. In 1995, the Company
issued 1,388,000 shares of its Common Stock in connection with the exercise of
options and warrants. In 1994, the Company issued 7,014,000 shares of its
Common Stock pursuant to the terms of an exchange offer as described in Note 13,
6,151,000 shares of its Common Stock in connection with the exercise of options
and warrants and 140,000 shares pursuant to the terms of the extension of the
alliance agreement with Glaxo Wellcome. At December 31, 1996, approximately
7,768,000 shares of Common Stock were reserved for issuance upon exercise of
warrants and stock options, pursuant to employee retirement savings and stock
award plans and agreements, and upon conversion of convertible debt securities.
Additionally, at December 31, 1996, approximately 385,000 shares of preferred
stock were reserved for issuance under a shareholder rights plan which is
further described below.
Warrants
At December 31, 1996, warrants to purchase approximately 127,000 shares of
the Company's Common Stock were outstanding at an exercise price of $49.75,
exercisable to December 31, 1997.
Stock Option and Restricted Stock Award Plans
The Company maintains stock option plans pursuant to which options to
purchase a total of approximately 9,050,000 shares of its Common Stock have been
authorized for grant to the Company's employees and to its non-employee
directors. Under the terms of these plans, the option exercise price may not be
less than the fair market value of the underlying stock at the time the option
is granted. The options granted under these plans generally expire upon the
earlier of the termination of the optionee's employment or service or ten years
from the date of the grant. Additionally, non-qualified stock options have been
granted to certain directors and employees of, and certain consultants to, the
Company pursuant to non-qualified stock option agreements with terms similar to
those set forth in the plans.
38
<PAGE>
Notes to Consolidated Financial Statements
The following table summarizes the activity and value with respect to the
Company's stock options (in thousands except per share amounts):
Options Exercise Price
Outstanding, December 31, 1993 5,770 $ 6.500-53.500
Granted 726 $ 9.130-17.940
Lapsed or canceled (685) $ 6.880-16.000
Exercised (853) $ 6.880-51.750
------ --------------
Outstanding, December 31, 1994 4,958 $ 6.500-53.500
Granted 713 $ 9.875-24.000
Lapsed or canceled (678) $ 6.875-31.750
Exercised (336) $ 6.500-53.500
------ --------------
Outstanding, December 31, 1995 4,657 $ 6.875-51.750
Granted 749 $14.125-39.375
Lapsed or canceled (278) $ 6.875-51.750
Exercised (1,162) $ 6.875-22.625
------ --------------
Outstanding, December 31, 1996 3,966 $ 6.875-51.750
====== ==============
At December 31, 1996, the weighted-average remaining contractual life of
outstanding options was 7.19 years. The weighted-average exercise price of the
options outstanding as of December 31, 1996 and 1995 was $17.50 and $12.98,
respectively.
At December 31, 1996, options to purchase a total of approximately
2,181,000 shares of Common Stock were exercisable, and approximately 1,785,000
options become exercisable as follows (in thousands):
Years ending December 31, Shares
------------------------ ------
1997 808
1998 450
1999 317
2000 210
The Company maintains a Restricted Common Stock Award Plan, pursuant to
which a total of approximately 2,000,000 shares of the Company's Common Stock
have been authorized for award to eligible employees. The number of shares
awarded in each year and the terms under which such shares vest are determined
by the Board of Directors at the time of the award. Generally, a portion of the
shares awarded vests annually over a period of five years from the date of the
award. As of December 31, 1996, awards of approximately 292,000 shares of the
Company's Common Stock were outstanding and are scheduled to vest in the
following periods (in thousands):
Years ending December 31, Shares
------------------------- ------
1997 96
1998 92
1999 66
2000 38
39
<PAGE>
Notes to Consolidated Financial Statements
The terms of options unexercisable as of December 31, 1996 for an aggregate
of approximately 1,242,000 shares and restricted stock awards unvested as of
December 31, 1996 for an aggregate of approximately 257,000 shares provide for
the acceleration of the exercisability of such options and the vesting of such
restricted stock awards upon the occurrence of certain events constituting a
change in control of the Company. Further, in such event, the holders of
approximately 2,991,000 options may then choose to receive cash through the
exercise of a limited stock appreciation right in lieu of exercising their
options.
The Company has adopted Statement 123 which was issued in October 1995 and
is effective for transactions entered into in fiscal years beginning after
December 15, 1995. In accordance with the provisions of Statement 123, which
allows the Company to apply APB Opinion 25 and related interpretations in
accounting for its stock option plans and accordingly, the Company does not
recognize compensation cost for options granted. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by Statement 123, net loss and loss per share would
have been reduced to the pro forma amounts indicated in the table below (in
thousands except per share amounts):
1996 1995
--------- ---------
Net loss - as reported $(12,763) $(57,132)
Net loss - pro forma $(17,791) $(58,932)
Loss per share - as reported $ (0.19) $ (0.98)
Loss per share - pro forma $ (0.27) $ (1.01)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following average assumptions
for the years ended December 31,
1996 1995
----- -----
Risk free interest rate 5.6% 7.8%
Expected life of option (years) 9.2 9.2
Expected dividend of option (1) - -
Volatility of stock price 70.3% 70.3%
(1) The Company has never declared or paid any dividends on its Common Stock.
The Company does not anticipate paying any dividends in the foreseeable future
and intends to retain future earnings for the development and expansion of its
business.
Qualified Savings and Retirement Plan
The Company maintains a Qualified Savings and Retirement Plan for the
benefit of its employees. Employees' benefits are based solely on the employees'
discretionary contributions and the Company's discretionary matching
contributions which, for the year ended December 31, 1996 totaled $551,000. The
Company generally makes its discretionary matching contributions in its Common
Stock. Employee contributions to the Plan may be invested in various
instruments, including the Company's Common Stock, at the discretion of the
employee.
Shareholder Rights Plan
The Company maintains a Shareholder Rights Plan ("Rights Plan"). Under the
Rights Plan, each common shareholder receives one-half of one Right (a "Right")
for each share of Common Stock held. Each Right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Preferred Stock at an
exercise price of $170. The Rights will become exercisable and will detach from
the Common Stock in the event any individual or group acquires 20 percent or
more of the Common Stock, or announces a tender or exchange offer
40
<PAGE>
Notes to Consolidated Financial Statements
which, if consummated, would result in the ownership by that person or group of
at least 30 percent of the Common Stock.
If, following an acquisition of 20 percent or more of the Common Stock, the
Company is acquired by any person in a merger or other business combination
transaction or sells more than 50 percent of its assets or earning power to any
person, each Right will entitle the holder to purchase, for the exercise price,
common stock of the acquiring company with a value of twice the exercise price.
In addition, if any person acquires 30 percent or more of the Common Stock, each
Right will entitle the holder, other than an acquiring person, to purchase
Common Stock of the Company with a value of twice the exercise price. The
Rights also provide for protection against self-dealing transactions by a 20
percent shareholder.
The Company may redeem the Rights at $.02 per Right at any time until the
tenth day after the acquisition by a person or group beneficially owning 20
percent or more of its Common Stock. The Rights will expire on September 26,
1998 unless earlier redeemed.
Note 11
GEOGRAPHIC AND CUSTOMER INFORMATION
Geographic Information (in thousands)
Income Identifiable
Years ended December 31, Revenue (Loss) assets
1996
United States $ 86,743 $ (23,125) $243,182
Europe 36,194 10,333 97,450
Other 12,548 29 489
-------- --------- --------
$135,485 $ (12,763) $341,121
======== ========= ========
1995
United States $ 35,272 $ (61,208) $160,094
Europe 43,466 4,076 100,190
Other 178 - -
-------- --------- --------
$ 78,916 $ (57,132) $260,284
======== ========= ========
1994
United States $ 59,294 $(112,266) $233,208
Europe 7,932 (14,392) 72,707
-------- --------- --------
$ 67,226 $(126,658) $305,915
======== ========= ========
Revenues from unaffiliated customers is based on the location of the
customers. Income (loss) by geographic area consists of the related income
(loss) of the Company's subsidiaries based upon the location of their respective
operations. Identifiable assets by geographic area are those assets used in the
Company's operations in those areas.
Customer Information
During 1996, approximately 67% of the Company's total product sales were to
one customer, Lilly. During 1995, approximately 50% of the Company's total
product sales were to three customers, as follows: 24% to Lilly, 11% to Glaxo
Wellcome and 15% to Toray-Fuji Bionics, Inc. During 1994, approximately 60% of
the Company's total product sales were to four customers, as follows: 10% to
Abbott Laboratories, 12% to Boehringer Mannheim GmbH, 13% to CIS bio
International and 25% to Toray-Fuji Bionics, Inc.
41
<PAGE>
Notes to Consolidated Financial Statements
Note 12
CONTRACT REVENUES
Lilly Related
Pursuant to the Company's agreements with Lilly, the Company recognized
revenues of $10,000,000 and $9,500,000 for the years ended December 31, 1995 and
1994, respectively, related to the achievement of ReoPro milestones.
Glaxo Wellcome Related
Pursuant to the Company's agreements with Glaxo Wellcome, the Company
recognized revenues of $14,000,000 for the year ended December 31, 1994
principally related to the reimbursement of prior expenses and achievement of
milestones associated with Panorex. Glaxo Wellcome may make certain future
payments to the Company based on the achievement of certain milestones related
to Panorex.
Related Party Research & Development
During 1994, the Company conducted research and development under a
contract with Tocor II. Under the contract, the Company received reimbursement
of its costs plus a management fee. Such revenues were recorded net of
amortization of deferred costs resulting from the issuance of warrants to Tocor
II Unitholders. See Note 13 for a discussion of an exchange offer which
resulted in the termination of the research and development contract and
services agreement.
For the year ended December 31, 1994, revenues related to the Tocor II
research program were $1,652,000. Expenses incurred, including general and
administrative expenses for the year ended December 31, 1994 were $1,915,000.
Additionally, the Company incurred expenses of approximately $29,121,000,
$29,900,000 and $22,850,000 for the years ended December 31, 1996, 1995 and
1994, respectively, representing aggregate CPIII research costs funded by the
Company in order to continue the progress of the research program and to
preserve the value of its purchase option which it exercised in January 1997.
Other
The Company has entered into various commercialization agreements under
which it has recognized revenues from non-refundable fees or milestone payments
in support of its research and development efforts. Revenues recorded under
these agreements amounted to $3,355,000, $3,915,000 and $2,090,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Note 13
CHARGE FOR ACQUIRED RESEARCH AND DEVELOPMENT
In February 1994, the Company initiated the exchange offer pursuant to
which the Company offered to exchange 3.2 shares of its Common Stock for each of
the 2,250,000 outstanding Tocor II Units tendered. Each Unit consisted of one
share of callable common stock of Tocor II, one callable warrant to purchase one
share of Centocor Common Stock and one Series T warrant to purchase one share of
Centocor Common Stock (the "Warrants"). The
42
<PAGE>
Notes to Consolidated Financial Statements
exchange offer expired at the close of business on March 11, 1994, at which time
the Company accepted all of the 94 percent of the Tocor II Units tendered in
exchange for approximately 6,793,000 shares of its Common Stock, thereby
increasing shareholders equity by $81,607,000. The transaction was accounted for
as a purchase and the Company allocated the excess of the consideration paid
over the net assets of Tocor II to the value of the acquired research and
development. The Company recorded a charge to earnings in the first quarter of
1994 of $36,966,000 representing principally the cost allocated to the acquired
research and development. In connection with the transaction, the Company
acquired $50,124,000 of cash and short-term investments and warrants with a
value of $8,492,000 which were retired. The unaudited comparative statement of
operations data excluding the charge for acquired research and development,
assuming the exchange offer was consummated as of January 1, 1993, would have
been as follows (in thousands except per share amounts):
Statements of For the twelve months ended December 31,
Operations Data 1994
--------------- ----
Revenues $ 65,574
Loss $(90,963)
Loss per share $(1.78)
Effective March 30, 1994, each remaining share of Tocor II callable Common
Stock ("Tocor II Shares") was converted into 2.88 shares of the Company's Common
Stock through a merger of Tocor II into a wholly-owned subsidiary of the
Company. Pursuant to the terms of the merger, holders of Tocor II Shares at the
time of the merger were required to surrender the certificates representing
Tocor II Shares to an exchange agent in exchange for certificates representing
Common Stock of the Company. Through December 31, 1996, stock certificates
representing 357,000 shares of the Company's Common Stock had been delivered by
the exchange agent in connection with the merger. If all of the remaining Tocor
II Shares are surrendered to the exchange agent, stock certificates representing
an additional 10,000 shares of the Company's Common Stock will be delivered.
Shares of the Company's Common Stock into which the Tocor II Shares were
converted by the merger are not classified as issued and outstanding until the
delivery by the exchange agent of the stock certificate representing such
shares. Warrants not tendered as part of Units in the exchange offer remain
outstanding.
Note 14
OTHER INCOME (EXPENSES)
The Company recorded a charge to earnings of $3,750,000 and $1,275,000 for
the years ended December 31, 1995 and December 31, 1994, respectively, in
connection with the settlement of certain litigation. During 1994 the Company
recorded a charge to earnings of $3,649,000 representing an unrealized loss due
to the other than temporary decline in the market value of marketable equity
investments below the Company's cost for such investments. Other income
(expenses) also includes the Company's equity share of the gain and/or losses of
an investee company.
43
<PAGE>
Notes to Consolidated Financial Statements
Note 15
INCOME TAXES
The components of the deferred tax assets are as follows as of December 31,
1996 and 1995 (in thousands):
1996 1995
---------- ----------
Tax credits $ 7,216 $ 5,424
Loss carryforwards 237,401 229,855
Acquired research 25,499 30,357
Deferred R&D expense 16,385 -
Facilities and equipment 2,207 2,326
Depreciation 1,050 977
Investments 1,553 1,553
--------- ---------
Total 291,311 270,492
Valuation reserve (291,311) (270,492)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
At December 31, 1996, the Company had research and development, orphan drug
and other tax credits of approximately $6,835,000 substantially all with
expiration dates ranging from 1999 to 2011, and minimum tax credits of
approximately $381,000 which do not expire.
Realization of net deferred tax assets related to these items is dependent
on future earnings, which are uncertain. Accordingly, a valuation reserve was
recorded by the Company and, therefore, the Company had no net deferred tax
assets at December 31, 1996.
Of the $291 million valuation allowance at December 31, 1996, $14.5 million
relating to deductions for non-qualified stock options will be credited to paid-
in-capital if realized. Included in loss carryforwards at December 31, 1996 are
unused foreign tax subsidies that may be used to offset foreign taxable income
of approximately $23 million. The Company had net operating loss carryforwards
available in the United States for federal income tax purposes of approximately
$609 million which will begin to expire at various dates from the year 2005 to
2011. Net operating loss carryforwards may also be subject to various annual and
other limitations on the amounts to be utilized.
Note 16
LEASES
The Company is lessee under various non-cancelable operating leases,
covering certain of the Company's facilities and equipment. The facility leases
generally provide for the Company to pay all taxes and operating costs
associated with the facility.
44
<PAGE>
Notes to Consolidated Financial Statements
The aggregate minimum rental commitments of leases are as follows:
Years ending December 31,
1997 $2,677,000
1998 1,909,000
1999 1,459,000
2000 750,000
2001 709,000
Thereafter 3,446,000
Rent expense was $3,162,000, $3,308,000 and $3,189,000, for the years ended
December 31, 1996, 1995, and 1994, respectively.
Note 17
SUPPLEMENTAL INFORMATION ON CASH FLOWS
Interest paid was $12,615,000, $18,358,000 and $19,192,000, in 1996, 1995,
and 1994, respectively.
Income tax payments of $13,000, $9,000 and $19,000 were made in 1996, 1995
and 1994, respectively.
In 1996, in consideration of the amendment to the Sales and Distribution
Agreement and other activities in connection with commercialization and market
development of ReoPro, Centocor issued 920,716 common shares to Lilly.
In 1996 and 1995, the Company had unrealized gains on its equity
investments of $2,342,000.
In 1994, the Company issued 7,014,000 shares of Common Stock, resulting in
a noncash increase to additional paid-in capital of $25,643,000 and acquired
cash and short-term investments of $50,124,000 in connection with an exchange
offer more fully described in Note 13.
Note 18
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands except per share data)
Three Months Ended March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1996
Total revenues $21,882 $ 30,586 $ 39,179 $ 43,838
Sales 21,710 29,526 38,309 42,585
Gross profit from sales 11,156 14,972 20,657 24,251
Net income (loss) (1) (9,698) (4,323) (1,635) 2,893
Net income (loss)
per share (2) $ (.16) $ (.06) $ (.02) $ .04
45
<PAGE>
Notes to Consolidated Financial Statements
Three Months Ended March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1995
Total revenues $23,995 $ 20,754 $ 19,155 $ 15,012
Sales 19,319 17,754 15,860 12,068
Gross profit from sales 10,694 9,683 8,589 6,869
Net loss (3) and (4) (8,242) (17,309) (12,155) (19,426)
Net loss per share (2) $ (.14) $ (.30) $ (.21) $ (.33)
(1) During the second quarter of 1996, the Company recorded a net gain on the
extinguishment of debt of $705,000.
(2) The computation of earnings or loss per share in each period is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury
stock method. Fully diluted net income or loss per share is not materially
different from primary net income or loss per share.
(3) During the second quarter of 1995, the Company recorded a reserve of
$3,750,000 relating to the settlement of litigation.
(4) During the fourth quarter of 1995, the Company recorded charges of
$1,642,000 relating to severance costs.
Note 19
OTHER CHARGES
In 1995, the Company recorded a charge of $1,642,000 representing severance
costs in connection with the downsizing of its workforce. In 1994, the Company
elected to buyout a future royalty obligation and, as a result, recorded a
charge of $17,098,000 representing such buyout. Additionally in 1994, the
Company recorded a charge of $7,870,000 in connection with the write-down of
certain facilities and equipment. At the Company's present level of operations,
the Company currently maintains idle facilities and equipment at its Malvern
location. The Company continually evaluates the future needs for its facilities
and equipment. There can be no assurance that reserves to further reduce the
carrying value of certain fixed assets, other royalty buyout arrangements, or
other charges will not be required in the future.
46
<PAGE>
REPORT OF MANAGEMENT
The consolidated financial statements presented in this report have been
prepared by the Company's management in conformity with generally accepted
accounting principles from the Company's financial records. The Company's
management is responsible for all information and representations made in those
financial statements and for their integrity and objectivity. In those cases
where judgment and best estimates are necessary, appropriate consideration is
given to materiality in the preparation of the financial statements. The
Company's management has also prepared the other information in this report and
is responsible for its accuracy and consistency with the financial statements.
The Company's management has designed systems of internal accounting
controls to provide reasonable, but not absolute, assurance that assets are
safeguarded from unauthorized use or disposition, and that transactions are
recorded according to management's policies and procedures. The concept of
reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the costs of
such systems should not exceed the benefits to be derived. These systems are
continually reviewed and modified, where appropriate, to maintain such
assurance. Additionally, in connection with their annual audit, independent
auditors perform examinations in accordance with generally accepted auditing
standards, which include a review of the system of internal accounting controls
to the extent necessary in order to determine the nature, timing, and extent of
audit tests to be applied on the financial statements. The Company's management
believes that the Company's system of internal accounting controls is adequate
to accomplish the objectives discussed herein.
The selection of the Company's independent auditors, KPMG Peat Marwick LLP,
has been approved by the Company's Board of Directors. An Audit Committee of
the Board of Directors, composed of three non-management directors, meets with,
and reviews the activities of, corporate financial management and the
independent auditors to ascertain that each is properly discharging its
responsibilities. The independent auditors also meet separately with the Audit
Committee without management present, to discuss the results of their work, the
adequacy of internal accounting controls, and the quality of financial
reporting.
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Centocor, Inc.:
We have audited the accompanying consolidated balance sheets of Centocor, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, cash flows and shareholders' equity for each of the
years in the three-year period ended December 31, 1996. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Centocor, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 31, 1997 except for paragraph 3 of Note 3 which is as of March 4, 1997
48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not Applicable
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
In accordance with General Instruction G(3), the information called for by
Items 10, 11, 12 and 13 of Part III are incorporated herein by reference from
the Company's definitive Proxy Statement for the Centocor Annual Meeting of
Shareholders to be held on May 14, 1997, which definitive Proxy Statement will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
a. Documents filed as part of the Report:
i. Financial Statements of Centocor Partners III, L.P.:
Balance Sheets, December 31, 1996 and 1995.
Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994.
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994.
Statements of Partners' Capital for the Years Ended December 31,
1996, 1995 and 1994.
Notes to Financial Statements.
Independent Auditors' Report.
ii. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Schedules, other than those listed above, have been omitted
because of the absence of conditions under which they are
required or because the required information is included in the
financial statements or the notes thereto.
49
<PAGE>
iii. Exhibits:
3.1 Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to Form S-1 Registration
Statement, File No. 2-80098).
3.2 Statement of Reduction of Authorized Shares filed
September 19, 1983 (incorporated by reference to
Exhibit 3.2 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1986).
3.3 Statement of Reduction of Authorized Shares filed
January 19, 1984 (incorporated by reference to
Exhibit 3.3 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1986).
3.4 Articles of Amendment filed April 18, 1984
(incorporated by reference to Exhibit 3.4 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
3.5 Statement of Reduction of Authorized Shares filed
February 25, 1985 (incorporated by reference to
Exhibit 3.5 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1986).
3.6 Statement of Reduction of Authorized Shares filed May
6, 1985 (incorporated by reference to Exhibit 3.6 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
3.7 Statement of Reduction of Authorized Shares filed
October 23, 1985 (incorporated by reference to
Exhibit 3.7 to Registrant's Annual Report on Form 10-
K for the year ended December 31, 1986).
3.8 Articles of Amendment filed April 16, 1987
(incorporated by reference to Exhibit 3.8 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987).
3.9 Articles of Amendment filed April 21, 1988
(incorporated by reference to Exhibit 3.9 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988) .
3.10 Articles of Amendment filed April 26, 1988
(incorporated by reference to Exhibit 3.10 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988).
3.11 Statement Re Series A Preferred Stock filed October
11, 1988 (incorporated by reference to Exhibit 3.11
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988).
3.12 Articles of Amendment filed April 13, 1990
(incorporated by reference to Exhibit 3.12 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
50
<PAGE>
3.13 Articles of Amendment filed April 26, 1991
(incorporated by reference to Exhibit 3.13 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
3.14 Statement of Correction filed October 16, 1991 to
Articles of Amendment filed April 26, 1991
(incorporated by reference to Exhibit 3.14 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
3.15 By-Laws of Centocor, Inc. as amended October 30, 1992
(incorporated by reference to Exhibit 3.15 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
4.1 Specimen Certificate for Common Stock (incorporated
by reference to Exhibit 4 to Amendment No. 1 to Form
S-1 Registration Statement, File No. 2-80098).
4.2 Rights Agreement between Centocor, Inc. and the First
National Bank of Boston as Rights Agent dated
September 26, 1988 (incorporated by reference to
Exhibit 4 to Registrant's Current Report on Form 8-K
dated September 26, 1988).
4.3 Form of Indenture between Centocor, Inc. and Chase
Manhattan Trustees Limited as Trustee Dated as of
October 16, 1991 (incorporated by reference to
Exhibit 4.3 to Form S-3 Registration Statement, Reg.
No. 33-44231).
4.4 Form of Debenture Issued to Purchasers of 6 3/4%
Convertible Subordinated Debentures Due October 16,
2001 (included in Exhibit 4.9) (incorporated by
reference to Exhibit 4.3 to Form S-3 Registration
Statement, Reg. No. 33-44231).
4.5 Form of Series T Warrant Issued to Purchasers of
Units, each Unit consisting of one share of Tocor II
Callable Common Stock, one Series T warrant to
purchase one share of Centocor Common Stock, and one
Callable warrant to purchase one share of Centocor
Common Stock (incorporated by reference to Exhibit
4.2 to Amendment No. 4 to Form S-1/S-3 Registration
Statement of Tocor II and Centocor, Reg. No. 33-
44072).
4.6 Form of Callable Warrant Issued to Purchasers of
Units, each Unit consisting of one share of Tocor II
Callable Common Stock, one Series T warrant to
purchase one share of Centocor Common Stock, and one
Callable warrant to purchase one share of Centocor
Common Stock (incorporated by reference to Exhibit
4.3 to Amendment No. 4 to Form S-1/S-3 Registration
Statement of Tocor II and Centocor, Reg. No. 33-
44072).
51
<PAGE>
10.1* Form of Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.01 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987).
10.2* Incentive Stock Option Plan, as amended (incorporated
by reference to Exhibit 10.03 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1986).
10.3* 1983 Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.04 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986).
10.4* 1983 Restricted Common Stock Award Plan, as amended
and restated (incorporated by reference to Exhibit
10.04 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.5* 1987 Non-Qualified Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.05
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990).
10.6* 1989 Non-Employee Directors' Non-Qualified Stock
Option Plan (incorporated by reference to Exhibit
10.06 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989).
10.7 Lease Agreement for property located at Great Valley
Parkway, Malvern, PA 19355 (incorporated by reference
to Exhibit 10.07 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.8 Partnership Purchase Option Agreement among Centocor,
Inc., CCIP, Centocor Development Corporation I, each
Class A limited partner and the Class B limited
partner, dated September 12, 1985 (incorporated by
reference to Exhibit 10.53 to Registrant's Post
Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 2-95057).
10.9 Indemnity Agreement between Centocor, Inc. and CCIP,
dated September 12, 1985 (incorporated by reference
to Exhibit 10.71 to Registrant's Post Effective
Amendment No. 1 to Form S-1 Registration Statement,
File No. 2-95057).
10.10* Qualified Savings and Retirement Plan, as amended and
restated (incorporated by reference to Exhibit 10.14
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.11 Partnership Purchase Option Agreement among Centocor,
Inc., CPII, Centocor Development Corporation II, each
Class A limited partner and the Class B limited
partner, dated December 17, 1986 (incorporated by
reference to Exhibit 10.23 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1986).
52
<PAGE>
10.12 Indemnity Agreement between Centocor, Inc. and CPII,
dated December 17, 1986 (incorporated by reference to
Exhibit 10.26 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1986).
10.13 Indemnity Agreement between CPIII and Centocor, Inc.,
dated December 23, 1987 (incorporated by reference to
Exhibit 10.41 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987).
10.14 Partnership Purchase Option Agreement among Centocor,
Inc., CPIII, Centocor Development Corporation III,
and the Class C limited partner, dated December 23,
1987 (incorporated by reference to Exhibit 10.43 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987).
10.15 Amendment dated March 23, 1988 to Partnership
Purchase Option Agreement among Centocor, Inc.,
CPIII, Centocor Development Corporation III and the
Class C limited partner dated December 23, 1987
(incorporated by reference to Exhibit 10.37 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988).
10.16 Series E, F and G Preferred Stock Purchase Agreement
dated as of November 20, 1991 between Centocor
Delaware, Inc. and Corvas International, Inc.
(incorporated by reference to Exhibit 10.28 to Form
S-1 Registration Statement of Corvas International,
Inc. Reg. No. 33-44555).
10.17 Sales and Distribution Agreement between Centocor,
Inc. and Eli Lilly and Company dated July 15, 1992.
(The Registrant has requested confidential treatment
from the Securities and Exchange Commission for
portions of this Agreement.) (incorporated by
reference to Exhibit 10.32 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992).
10.18 Reimbursement Agreement between Centocor, Inc. and
Eli Lilly and Company dated July 15, 1992. (The
Registrant has requested confidential treatment from
the Securities and Exchange Commission for portions
of this Agreement.) (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
10.19 Investment Agreement between Centocor, Inc. and Eli
Lilly and Company dated July 15, 1992. (The
Registrant has requested confidential treatment from
the Securities and Exchange Commission for portions
of this Agreement.) (incorporated by reference to
Exhibit 10.34 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
10.20 Amendment to Sales and Distribution Agreement among
Centocor, Inc., Centocor B.V. and Eli Lilly and
Company dated June 27, 1993. (The Registrant has
requested confidential treatment from the Securities
and
53
<PAGE>
Exchange Commission for portions of this Agreement.)
(incorporated by reference to Exhibit 10.35 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.21 Option Agreement between Centocor B.V. and Eli Lilly
Nederland B.V. dated August 20, 1993. (The Registrant
has requested confidential treatment from the
Securities and Exchange Commission for portions of
this Agreement.) (incorporated by reference to
Exhibit 10.36 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993).
10.22 Deed of Mortgage from Centocor B.V. to Eli Lilly
Nederland B.V. dated August 26, 1993 (incorporated by
reference to Exhibit 10.37 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993).
10.23 Deed of Pledge from Centocor B.V. to Eli Lilly
Nederland B.V. dated August 26, 1993 (incorporated by
reference to Exhibit 10.38 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993).
10.24 Amendment to Sales and Distribution Agreement among
Centocor, Inc., Centocor B. V. and Eli Lilly and
Company dated July 26, 1996. (The Registrant has
requested confidential treatment from the Securities
and Exchange Commission for portions of this
Agreement).
10.25 Stock Purchase Agreement made as of December 16, 1993
by and between Centocor, Inc. and The Wellcome
Foundation Limited (incorporated by reference to
Exhibit 10(a) to the Registrant's Current Report on
Form 8-K dated December 16, 1993).
10.26 Supply, Distribution and Sales Agreement dated
December 16, 1993 by and among Centocor, Inc.,
Centocor B.V., The Wellcome Foundation Limited and
Burroughs Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
(incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated
December 16, 1993).
10.27 Clinical and Regulatory Development Agreement dated
December 16, 1993 among Centocor, Inc., Centocor
B.V., The Wellcome Foundation Limited and Burroughs
Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
(incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated
December 16, 1993).
10.28 Centocor Technology License Agreement dated as of
December 16, 1993 among Centocor, Inc., Centocor
B.V., The Wellcome Foundation Limited and Burroughs
Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and
Exchange Commission for portions of
54
<PAGE>
this Agreement.) (incorporated by reference to
Exhibit 10(e) to the Registrant's Current Report on
Form 8-K dated December 16, 1993).
10.29 Relicense Agreement dated as of December 16, 1993
among Centocor, Inc., Centocor B.V., The Wellcome
Foundation Limited and Burroughs Wellcome Co.
(incorporated by reference to Exhibit 10(f) to the
Registrant's Current Report on Form 8-K dated
December 16, 1993).
10.30 Appendix A - Glossary of Terms to each of the
Agreements dated as of December 16, 1993 by and among
Centocor, Inc., Centocor B.V., The Wellcome
Foundation Limited and Burroughs Wellcome Co. (The
Registrant has requested confidential treatment from
the Securities and Exchange Commission for portions
of this Agreement.) (incorporated by reference to
Exhibit 10(g) to the Registrant's Current Report on
Form 8-K dated December 16, 1993).
10.31 First Supplemental Agreement dated as of November 15,
1994 among Centocor, Inc., Centocor B.V., The
Wellcome Foundation Limited and Burroughs Wellcome
Co. (The Registrant has requested confidential
treatment from the Securities and Exchange Commission
for portions of this Agreement.) (incorporated by
reference to Exhibit 10(a) to the Registrant's
Current Report on Form 8-K dated November 15, 1994).
10.32 Wellcome Clinical Development Agreement dated as of
November 15, 1994 among Centocor, Inc., Centocor
B.V., The Wellcome Foundation Limited and Burroughs
Wellcome Co. (The Registrant has requested
confidential treatment from the Securities and
Exchange Commission for portions of this Agreement.)
(incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated
November 15, 1994).
10.33 Distribution Agreement between Centocor, Inc. and
Fujisawa Pharmaceutical Co. Ltd dated August 15,
1996. (Registrant has requested confidential
treatment from the Securities and Exchange Commission
for portions of this Agreement).
11 Computation of Earnings (Loss) per Common Share.
12 Statement re: Computation of Ratios.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
*These exhibits constitute compensatory plans.
55
<PAGE>
b. The Registrant has filed the following reports on Form 8-K since the
beginning of the quarter ended December 31, 1996:
None
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act
of 1933, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8, Nos. 2-86486, 33-16285, 33-00167,
33-35731, 33-23480, 33-16284, and 33-35730.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
56
<PAGE>
Centocor Partners III, L.P.
Balance Sheets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Assets
Cash $ 32,646 $ 4,187
Investment in joint venture 3,677,478 618,011
----------- -----------
Total Assets $ 3,710,124 $ 622,198
=========== ===========
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 78,325 $ 70,133
Due to Centocor, Inc. (Note 7) 6,801,420 7,954,507
----------- -----------
6,879,745 8,024,640
Partners' capital (Note 4) (3,169,621) (7,402,442)
----------- -----------
Total Liabilities and Partners' capital $ 3,710,124 $ 622,198
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
- -------------------------------------------------------------------------------
57
<PAGE>
Centocor Partners III, L.P.
Statements of Operations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years ended December 31, 1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Equity in earnings of
joint venture (Note 6) $ 7,850,936 $ 1,269,919 $ 4,490
------------ ------------- -------------
Costs and Expenses:
Research and development (Note 7) 29,120,796 29,900,000 22,850,000
General and administrative 131,794 23,548 4,500
------------ ------------ ------------
29,252,590 29,923,548 22,854,500
------------ ------------ ------------
Loss for the period $(21,401,654) $(28,653,629) $(22,850,010)
============ ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
58
<PAGE>
Centocor Partners III, L.P.
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years ended December 31, 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows used for operating activities:
Loss $(21,401,654) $(28,653,629) $(22,850,010)
Change in due to Centocor, Inc. (1,153,087) 957,381 2,863,000
Change in accounts payable
and accrued expenses 8,192 27,726 4,500
Change in investment in joint venture (3,059,467) (106,381) (4,490)
------------ ------------ ------------
Net cash used for operating activities (25,606,016) (27,774,903) (19,987,000)
Cash flows from financing activities:
Distributions to partners (4,653,278) (1,163,538) -
General partner capital contributions 30,287,753 28,942,628 19,987,000
------------ ------------ ------------
Net cash from financing activities 25,634,475 27,779,090 19,987,000
------------ ------------ ------------
Increase in cash and cash equivalents 28,459 4,187 -
Cash and cash equivalents at beginning of year 4,187 - -
------------ ------------ ------------
Cash and cash equivalents at end of year $ 32,646 $ 4,187 $ -
============ ============ ============
</TABLE>
See accompanying Notes to Financial Statements.
- -------------------------------------------------------------------------------
59
<PAGE>
Centocor Partners III, L.P.
Statements of Partners' Capital
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------ ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1993 $ 470,452 $ (4,135,345) $ (3,664,893)
Contributions - 19,987,000 19,987,000
Loss (10) (22,850,000) (22,850,010)
------------ ------------- -------------
Balance, December 31, 1994 470,442 (6,998,345) (6,527,903)
Distributions (1,151,903) (11,635) (1,163,538)
Contributions - 28,942,628 28,942,628
Income (Loss) 1,233,530 (29,887,159) (28,653,629)
------------ ------------- -------------
Balance, December 31, 1995 552,069 (7,954,511) (7,402,442)
Distributions (4,606,745) (46,533) (4,653,278)
Contributions - 30,287,753 30,287,753
Income (Loss) 7,631,925 (29,033,579) (21,401,654)
------------ ------------- -------------
Balance, December 31, 1996 $ 3,577,249 $ (6,746,870) $ (3,169,621)
============ ============= =============
</TABLE>
See accompanying Notes to Financial Statements.
- -------------------------------------------------------------------------------
60
<PAGE>
Centocor Partners III, L.P.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Basis of Presentation
---------------------
Centocor Partners III, L.P. ("CPIII" or the "Partnership"), was formed in
December 1987, and is managed by its general partner, Centocor Development
Corporation III, a wholly owned subsidiary of Centocor, Inc. ("Centocor"), a
Pennsylvania corporation, which is subject to the reporting requirements of the
Securities Exchange Act of 1934. The Partnership was organized to develop and
derive income from the sale of one therapeutic product (ReoPro) and one imaging
product (Capiscint) which are expected to be used in the treatment and
diagnosis, respectively, of two different types of cardiovascular disease.
In 1987 and 1988, the Partnership and Centocor sold (a) 542.25 units,
consisting of 111 Class C limited partnership interests and 431.25 Class A
limited partnership interests each together with warrants to purchase shares of
Centocor common stock, and (b) one Class B limited partnership interest,
together with warrants to purchase shares of Centocor common stock. The
purchase prices were $90,000 for the Class C interests, $100,000 for the Class A
interests and $150,000 for the Class B interest.
The net proceeds from the sale of limited partnership interests were used
primarily to pay expenses incurred under the Partnership's agreement with
Centocor (the "Development Agreement") to perform research and development for
the Partnership (see Note 7).
The Partnership also entered into a Cross License Agreement pursuant to
which Centocor granted to the Partnership an exclusive license to use all patent
rights, know-how, technical information and biological materials owned or
controlled by Centocor within the Partnership's field of activity. Under the
Cross License Agreement, the Partnership agreed to grant to Centocor an
exclusive royalty-free license to all patent rights, know-how, technical
information and biological materials arising from research and development
conducted under the Development Agreement for all purposes outside of the
Partnership's field of activity.
Centocor entered into a Partnership Purchase Option Agreement with each of
the limited partners. On January 31, 1997, Centocor exercised its option to
acquire the Class A and Class C limited partnership interests. In connection
therewith, the general partner has terminated the research program and after the
acquisition of the Class B limited partnership interests, which is expected to
occur on or about May 1, 1997, the partnership is expected to dissolve. (See
Note 5)
2. Summary of Significant Accounting Policies
------------------------------------------
Investment in Joint Venture
---------------------------
The Partnership accounts for its investment in the joint venture (see Note
6) under the equity method of accounting. The joint venture is expected to
terminate in 1997 upon the occurrence of certain events. (See Note 5)
61
<PAGE>
Centocor Partners III, L.P.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Income Taxes
------------
The Partnership's distributable income or loss is reportable for income tax
purposes by the partners; therefore, no provision for income taxes has been made
in the accompanying financial statements. The Partnership's tax returns are
subject to examination by federal and state taxing authorities. Because many
types of transactions are susceptible to varying interpretations under federal
and state income tax laws and regulations, certain amounts may be subject to
change at a later date upon final determination by the respective taxing
authorities.
3. Contingencies
-------------
In July 1995, PaineWebber Development Corporation ("PaineWebber"), a
wholly-owned subsidiary of PaineWebber Group, Inc., caused suit to be filed
against Centocor and Centocor Development Corporation III ("CDCIII", the general
partner of the Partnership and a wholly-owned subsidiary of Centocor) by a
development partnership formed in the mid 1980s by PaineWebber and managed by it
since then. The PaineWebber partnership, PaineWebber R&D Partners II,
L.P.("PWR&DII"), an investor in the Partnership, filed suit in the Court of
Chancery of the State of Delaware. In the complaint, the plaintiff seeks to sue
derivatively on behalf of CPIII. The Partnership is named as a nominal defendant
and Centocor and CDCIII are named as defendants against whom relief is sought.
The claim is that at least $25 million of the money paid by Eli Lilly and
Company ("Lilly") to Centocor in 1992 represented profits from the marketing of
ReoPro, obligating Centocor to pay a portion thereof to the Partnership, and
that Centocor is obligated to pay an increased percentage of the profits from
ReoPro to the Partnership going forward. Centocor answered the complaint in the
Delaware action and filed a cross-claim against nominal defendant CPIII and a
third party complaint against PaineWebber Group Inc. and PaineWebber Development
Corporation. The cross-claim seeks an offset against any damages awarded the
partners based on theories of unjust enrichment and quasi contract. The third-
party claims (since amended to add additional theories of liability and to make
PaineWebber, Inc. an additional third-party defendant) seek to hold the
PaineWebber entities liable for some or all of any alleged injury to the
partnership. On November 1, 1995, an additional suit was commenced in the
Delaware Court of Chancery by a limited partner, John E. Abdo, against Centocor
and CDCIII and certain of their officers and directors. The complaint, filed
derivatively on behalf of the Partnership, asserts claims, inter alia, for
breach of contract, breach of fiduciary duty, common law fraud, and conspiracy
and aiding and abetting. Centocor answered this complaint and also filed a
cross-claim against nominal defendant CPIII and a third-party complaint against
PaineWebber Group, Inc., and PaineWebber, since amended to add additional
theories of liability and to name PaineWebber, Inc. as a further third-party
defendant. Abdo moved to amend his complaint to assert claims against the
persons appointed by PaineWebber to the CDCIII Board of Directors. That motion
was granted. Motions to disqualify PWR&DII from serving as the derivative
plaintiff were filed in July 1996 by CPIII and in August 1996 by Centocor and
CDCIII. Abdo joined those motions. No decision has been issued on those motions.
The parties in the PWR&DII suit have considered ways and means to resolve the
issues without further litigation. The Partnership incurred approximately
$131,794 in legal expenses related to these suits in 1996 and cumulative legal
expenses to date of approximately $155,000 as a result of being named a nominal
defendant in the above suits.
Under paragraph 7.8 of the Agreement of Limited Partnership, the
Partnership is obligated, under certain conditions, to indemnify CDCIII and its
officers and directors in respect of all fees,
62
<PAGE>
Centocor Partners III, L.P.
Notes to Financial Statements
- --------------------------------------------------------------------------------
costs and expenses incurred in connection with or resulting from any claim
against CDCIII and its officers and directors that arises out of or in any way
relates to the Partnership or its properties, business or affairs including any
losses or damages resulting from such claims and amounts paid in settlement or
compromise. Therefore, the Partnership may incur legal expenses and other costs
pertaining to the suits described above.
CPIII is expected to terminate in 1997 pursuant to the purchase by Centocor
of all limited partner interests. (See Note 5)
4. Partners' Capital
-----------------
Profits and losses of the Partnership are generally allocated 1 percent to
the general partner and 99 percent to the limited partners. Losses resulting
from research and development expenditures in excess of the limited partners'
capital contributions are allocated to the general partner (see Note 7).
5. Partnership Purchase Option
---------------------------
On January 31, 1997, Centocor exercised its purchase option and made an
advance payment to the Class A and Class C limited partners of $13,598,000 in
the aggregate. Centocor plans to exercise its option to purchase the Class B
limited Partnership interest by making a payment of $41,500 in the aggregate on
or about May 1, 1997 at which time the joint venture will terminate.
CPIII is expected to terminate on or around July 30, 1997 pursuant to the
transfer of all limited partner interests to Centocor. Pursuant to the terms of
the Partnership Purchase Agreement, Centocor will make future quarterly royalty
payments to the former limited partners. For each quarter beginning with the
first quarter of the year 2000, Centocor's payments to the former limited
partners will be reduced by 25 percent of the amount otherwise payable to the
former limited partners until Centocor has recouped the amount of the advance
payment.
6. Joint Venture
-------------
The Partnership and Centocor formed a joint venture for the purpose of
commercializing any products developed within the Partnership's field of
activity. The Joint Venture Agreement provided that Centocor manufacture the
products on behalf of the joint venture for its actual costs of manufacturing.
Under the Joint Venture Agreement, Centocor also provided marketing services for
the joint venture for a commission of 17 percent of joint venture sales and
received 10 percent of joint venture sales as reimbursement for its management
and administrative services. The profits and losses of the joint venture are to
be allocated approximately 75 percent to Centocor and 25 percent to the
Partnership.
The joint venture will terminate upon Centocor's exercise of the option to
purchase the Class B limited Partnership interest.
In July 1992, Centocor and Lilly entered into a Sales and Distribution
Agreement later amended in June 1993. Under that Agreement, as amended in June
1993, Centocor is principally responsible for developing and manufacturing
ReoPro, and Lilly will assist Centocor in the
63
<PAGE>
Centocor Partners III, L.P.
Notes to Financial Statements
- --------------------------------------------------------------------------------
regulatory filings and continued development of ReoPro for various clinical
indications. Also, in the event Centocor cannot manufacture ReoPro or under
certain other circumstances, such as material breach of the agreement by or the
bankruptcy of Centocor, Lilly has the option to assume the manufacture of ReoPro
and assure the continued supply of the product, even to the extent of acquiring
Centocor's related manufacturing assets at their independently appraised values.
In June 1996, Centocor and Lilly amended the Sales and Distribution
Agreement. Under this amendment, Lilly no longer has the right to buy ReoPro for
resale in Japan; however, Lilly will maintain its exclusive right to buy and
resell ReoPro in the rest of the world.
In August 1996, Centocor entered into an agreement with Fujisawa
Pharmaceutical Co., Ltd., appointing Fujisawa as the exclusive distributor of
ReoPro in Japan. Centocor and Fujisawa will co-develop ReoPro in Japan and
jointly file for Japanese product approval. Fujisawa shall bear all external
costs associated with the clinical development of ReoPro in Japan.
Through the joint venture, Centocor commenced sales of ReoPro to Lilly in
January 1995. ReoPro sales to Lilly for the twelve months ended December 31,
1996 were $88,669,000. The level of sales of ReoPro will depend upon a number
of factors, including the timing and extent of additional regulatory approvals
for ReoPro, approval and commercialization of competitive products, the degree
of acceptance of ReoPro in the marketplace, and the strength of Centocor's
patent position and that of others.
7. Research Funding
----------------
The initial funding by the limited partners for the Partnership's research
program pursuant to the Development Agreement with Centocor was exhausted in
1990. In order to continue the research program, the Partnership extended the
terms of the Development Agreement with Centocor. Approximately $143,383,000 of
the Partnership's research costs through December 31, 1996 were funded by the
general partner. At December 31, 1996 and 1995, approximately $6,801,000 and
$7,955,000, respectively, were due to Centocor for expenditures under the
Development Agreement. Pursuant to Centocor's purchase of the Class A and Class
C limited partner interests as per Note 5, the General Partner has terminated
the research program in accordance with the Development Agreement.
64
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of Centocor Partners III, L.P.:
We have audited the accompanying balance sheets of Centocor Partners III, L.P.
("the Partnership") as of December 31, 1996 and 1995, and the related statements
of operations, cash flows and partners' capital for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As disclosed in Notes 1 and 5 to the financial statements, on January 31, 1997,
Centocor exercised its option to acquire the Class A and Class C limited
Partnership interests. In connection therewith, the general partner has
terminated the research program and after the acquisition of the Class B limited
Partnership interests, which is expected to occur on or about May 1, 1997, the
Partnership is expected to dissolve.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Centocor Partners III, L.P. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
January 31, 1997
65
<PAGE>
Schedule II
CENTOCOR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Charged to Balance Charged to Balance Charged to Balance
at Costs and at Costs and at Costs and at
Classification 12/31/93 Expenses Deductions 12/31/94 Expenses Deductions 12/31/95 Expenses Deductions 12/31/96
- -------------- -------- --------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventory Reserves $64,743 $3,609 ($53,472) $14,880 $2,094 ($15,938) $1,036 $662 ($357) $1,341
================================================================================================================
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTOCOR, INC.
February 28, 1997 By: /s/ David P. Holveck
--------------------------------
David P. Holveck,
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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------ ------------------------------- ------------------
<S> <C> <C>
/s/ Hubert J. P. Schoemaker Director, Chairman of the Board February 28, 1997
- -----------------------------
HUBERT J. P. SCHOEMAKER
/s/ David P. Holveck President, Chief Executive February 28, 1997
- -----------------------------
DAVID P. HOLVECK Officer, and Director
/s/ Dominic J. Caruso Vice President-Finance and February 28, 1997
- ----------------------------- Chief Financial Officer and
DOMINIC J. CARUSO Acting General Manager Diagnostics
Division (principal financial and
accounting officer)
/s/ Anthony B. Evnin Director February 28, 1997
- -----------------------------
ANTHONY B. EVNIN
/s/ William F. Hamilton Director February 28, 1997
- -----------------------------
WILLIAM F. HAMILTON
/s/ Antonie T. Knoppers Director February 28, 1997
- -----------------------------
ANTONIE T. KNOPPERS
/s/ Ronald A. Matricaria Director February 28, 1997
- -----------------------------
RONALD A. MATRICARIA
/s/ Richard D. Spizzirri Director February 28, 1997
- -----------------------------
RICHARD D. SPIZZIRRI
/s/ Lawrence Steinman Director February 28, 1997
- -----------------------------
LAWRENCE STEINMAN
/s/ Jean C. Tempel Director February 28, 1997
- -----------------------------
JEAN C. TEMPEL
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
10.24 AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT
10.33 DISTRIBUTION AGREEMENT
11 Computation of Earnings Per Common Share
12 Statement re: Computation of Ratios
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE>
Confidential Treatment
EXHIBIT 10.24
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY "XXXXXXXXXX"; AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT
---------------------------------------------
AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT ("Amendment") made as of June
26, 1996, by and among CENTOCOR, INC. a Pennsylvania corporation ("CNTO"),
CENTOCOR B.V., a Netherlands corporation ("CBV"); and together with CNTO,
collectively, ("Centocor"), and ELI LILLY AND COMPANY, an Indiana corporation
("Lilly").
BACKGROUND
----------
A. Centocor and Lilly are parties to a certain Sales and Distribution
Agreement dated July 15, 1992, as amended (the "Agreement").
B. Centocor and Lilly now desire to amend certain provisions of the
Agreement as set forth herein.
C. Capitalized terms used but not defined herein shall have the meanings
given to them in the Agreement.
NOW, THEREFORE, Centocor and Lilly, each intending to be legally bound
hereby, agree as follows:
1. Amendments. The Agreement shall be amended as follows:
----------
1.1 ReoPro. All references in the Agreement to "CentoRx" shall be
------
deemed to refer to "ReoPro", and Section 1.6 of the Agreement shall be amended
and restated in its entirety to read as follows:
"l.6 "ReoPro" means the 7E3(TM) monoclonal antibody
pharmaceutical product known as ReoPro(R) in the
Territory."
1.2 Territory. Notwithstanding any provision of the Agreement to
---------
the contrary, including, without limitation, Section 13.4 of the Agreement, the
term "Territory" as it applies to ReoPro shall mean "the entire world, except
for Japan".
2. Continuing Research, Development and Commercialization of ReoPro.
----------------------------------------------------------------
Notwithstanding anything in the Agreement, or any correspondence or discussions
entered into in connection therewith, Centocor and Lilly hereby agree that all
costs and expenses as described in Article VII and Exhibit A of the Agreement
incurred after the date of this Amendment in connection with the continued
research, development and commercialization of ReoPro in the Territory,
including, but not limited to, costs and expenses of clinical studies for
xxxxxxxxxx shall be shared xxxxxxxxxxx by Centocor and Lilly in accordance with
the xxxxxxxxxx sharing system described
<PAGE>
in Article VII and Exhibit A of the Agreement. Notwithstanding the foregoing,
all cost sharing as described in this Amendment and the Agreement shall be
limited to those costs related to plans approved by the Product Committee.
3. Clinical Development of ReoPro. Centocor and Lilly each hereby agree
------------------------------
to proceed with the clinical development of ReoPro for xxxxxxxxxxx.
4. Closing Date; Settlement Date. The closing of the transactions
-----------------------------
contemplated by this Amendment is to be held on June 26, 1996 (the "Closing
Date"). The transactions contemplated by this Amendment including, but not
limited to, the amendments set forth in Section 1 hereof shall only become
effective on the Closing Date provided that all the conditions set forth in
Section 10 hereof are fully satisfied or waived as described in Section 10 of
this Amendment. On July 9, 1996 (the "Settlement Date") CNTO shall deliver to
Lilly a certificate or certificates representing the Shares to be issued to
Lilly pursuant to the provisions of Section 5 of this Amendment.
5. Consideration.
-------------
5.1 Consideration for Amendment. In consideration of Lilly's
---------------------------
agreement to amend the Agreement to exclude Japan from the Territory as provided
in Section 1.2 hereof and Lilly's agreement as set forth in Section 13 hereof,
on the Settlement Date, CNTO shall issue to Lilly such number of shares
("Amendment Shares") of CNTO's common stock, par value $ .01 per share ("Common
Stock"), as determined by dividing xxxxxxxxxxx by the average of the last
reported sale price per share of CNTO Common Stock on the NASDAQ National Market
for the five (5) Trading Days (hereinafter defined as in Section 5.3 hereof)
immediately preceding the Settlement Date (the "Average Price").
5.2 Other Consideration. In consideration of xxxxxxxxxx
-------------------
which the parties acknowledge will strengthen scientific and marketing support
for ReoPro, and in consideration of Lilly's agreements with respect to the
development xxxxxxxxxxx as described in Section 2 and 3 above, on the
Settlement Date, CNTO shall issue to Lilly such number of shares ("Other
Shares"; and together with the Amendment Shares, the "Shares") of CNTO's Common
Stock, as determined by dividing xxxxxxxxxxx by the Average Price.
5.3 Post-Closing Adjustment.
-----------------------
(a) If the Registration Statement (as defined in Section 7.1
hereof) is declared effective by the Securities and Exchange Commission ("SEC")
within the five (5) Trading Days (as hereinafter defined) immediately following
the Settlement Date, no post-closing adjustment shall be made to the
consideration set forth in Section 5.1 and 5.2 hereof. For the purposes of this
Amendment, a "Trading Day" shall mean a day on which the NASDAQ National Market
is open
-2-
<PAGE>
for business. The date on which the Registration Statement is declared effective
is referred to herein as the "Registration Date".
(b) If the Registration Statement is not declared effective by
the SEC within the five (5) Trading Days immediately following the Settlement
Date, a post-closing adjustment shall be calculated as follows:
(i) if the product of X, the average of the last reported
sale price per share of CNTO Common Stock on the NASDAQ National Market for the
five Trading Days immediately preceding the Registration Date (the "Registration
Date Closing Price"), multiplied by Y, the total number of Shares or Shortfall
Shares, whichever may be the case, issued to Lilly under this Amendment, is less
than xxxxxxxxxx then CNTO shall pay the difference (the "Shortfall Amount") to
Lilly within five (5) business days following the Registration Date. CNTO shall
have the option of paying the Shortfall Amount in cash or in shares of CNTO
Common Stock; or
(ii) if the product of X, the Registration Date Closing
Price, multiplied by Y, the total number of Shares issued to Lilly under this
Agreement, is greater than xxxxxxxxxx then Lilly shall pay the difference (the
"Excess Amount"). Lilly shall pay the Excess Amount to CNTO within five (5)
business days following the Registration Date. Lilly shall have the option of
paying the Excess Amount in cash or in shares of CNTO Common Stock.
(c) If CNTO is obligated to pay the Shortfall Amount and elects
to make such payment in shares of CNTO Common Stock: (i) the number of shares
(the "Shortfall Shares") of CNTO Common Stock to be delivered to Lilly shall be
determined by dividing the Shortfall Amount by the Registration Date Closing
Price; and (ii) the provisions of this Section 5.3 and Sections 5.4, 6, 7 and
11 of this Amendment shall apply to the Shortfall Shares as if they were
"Shares" as such term is used in those Sections; provided, however, that with
respect to the Shortfall Shares, references to the Settlement Date shall mean
the date the Shortfall Shares are delivered by CNTO to Lilly and references to
the xxxxxxxxxx shall mean the Shortfall Amount.
(d) If Lilly is obligated to pay the Excess Amount and elects to
make such payment in shares of CNTO Common Stock the number of shares of CNTO
Common Stock to be delivered to CNTO shall be determined by dividing the Excess
Amount by the Registration Date Closing Price.
5.4 Late Fee Penalty. In the event that the Registration Date does
----------------
not occur within five (5) Trading Days immediately following the Settlement
Date, a daily late fee penalty shall be imposed on CNTO for each day after the
Settlement Date through the day immediately prior to the Registration Date (the
"Late Fee"). The daily Late Fee imposed shall be equal to the United States
three-month Treasury Bill interest rate, divided by 365 days, as quoted in the
Wall Street Journal as of the Settlement Date, multiplied by xxxxxxxxxx The Late
Fees shall be due and payable to Lilly thirty (30) days after the Settlement
Date and to the extent applicable every thirty (30) days thereafter.
-3-
<PAGE>
6. Restriction of Transferability
------------------------------
6.1 Transfers Generally. The Shares shall be transferable only upon
-------------------
the conditions specified in this Section 6, which conditions are intended to
insure compliance with the provisions of the Securities Act of 1933, as amended,
and the Regulations promulgated thereunder or with respect thereto, or any
successor or substitute laws (the "1933 Act").
6.2 Transfers of Shares Pursuant to Registration Statements and Rule
----------------------------------------------------------------
144. The Shares may be offered or sold by Lilly pursuant to (a) an effective
- ---
registration statement under the 1933 Act, or (b) to the extent applicable, Rule
144 ("Rule 144") as promulgated by the Securities and Exchange Commission
("SEC") under the 1933 Act.
6.3 Other Transfers. Lilly may transfer any or all of the Shares,
---------------
without registration or without compliance with the provisions of Rule 144, so
long as it so notifies CNTO and such notification is accompanied by an opinion
of counsel reasonably acceptable to CNTO to the effect that such transfer may be
made without registration under the 1933 Act of the Shares sought to be
transferred.
6.4 Restrictive Legends. Until otherwise permitted by Section 6.5
-------------------
hereof, each certificate representing any of the Shares shall bear a legend in
substantially the following form:
THE SALE, DISPOSITION OR OTHER TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFERS
SPECIFIED IN THAT CERTAIN AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT
DATED AS OF JUNE 26, 1996, BETWEEN CENTOCOR, INC., CENTOCOR B.V. AND ELI
LILLY AND COMPANY, AS THE SAME MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO
TIME, AND NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
SHALL BE VALID OR EFFECTIVE UNTIL THE CONDITIONS TO ANY TRANSFER WHICH ARE
SET FORTH IN SUCH AGREEMENT HAVE BEEN SATISFIED. A COPY OF THE FORM OF SUCH
AGREEMENT IS ON FILE AT THE OFFICE OF THE SECRETARY OF CENTOCOR, INC. AND
MAY BE INSPECTED DURING NORMAL BUSINESS HOURS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAVE ANY OF
THEM BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF
ANY STATE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER
TRANSFERRED OR DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF
1933, AS AMENDED, THE RULES AND REGULATIONS
-4-
<PAGE>
PROMULGATED THEREUNDER, AND APPLICABLE STATE SECURITIES OR BLUE SKY LAWS
AND REGULATIONS.
6.5 Termination of Restrictions. All restrictions imposed on the
---------------------------
Shares pursuant to this Section 6 shall cease and terminate automatically as to
any particular Shares when such Shares (a) shall have been effectively
registered under the 1933 Act (whether pursuant to the provisions of Section 7
hereof, or otherwise) and applicable state securities or blue sky laws, (b)
shall have been sold under and pursuant to Rule 144, or (c) shall be eligible to
be sold under and pursuant to subsection (k) of Rule 144.
7. S-3 Registration Rights.
-----------------------
7.1 Registration Rights. CNTO will, at its sole expense, within
-------------------
five (5) days following the Settlement Date, file a registration statement (the
"Registration Statement") with respect to the Shares on Form S-3 under the 1933
Act in a manner that will, upon being declared effective, constitute a "shelf"
registration for purposes of Rule 415 under the 1933 Act, pursuant to which
Lilly may sell the Shares, from time to time and in such amounts as Lilly may
hereafter determine in its discretion, all in a manner consistent with the
applicable provisions of the 1933 Act, and the Exchange Act of 1934, as amended,
and the Regulations promulgated thereunder or with respect thereto, or any
successor or substitute laws (the "1934 Act"). CNTO will, at its sole expense,
promptly register or qualify the Shares under such other securities or blue sky
laws of such jurisdictions within the United States as Lilly may reasonably
request and do any and all other acts and things which may be necessary or
desirable to enable Lilly to consummate the public sale or other disposition in
such jurisdictions of the Shares.
7.2 Other Filings. With respect to registration under Section 7.1,
-------------
until the second anniversary of the Settlement Date, CNTO shall prepare and file
such amendments, post effective amendments and periodic reports under the 1934
Act as may be necessary (a) to keep the Registration Statement continuously
effective, and (b) to ensure that the Registration Statement, including all
documents incorporated into the Registration Statement, does not contain any
untrue statement of a material fact or omission of a material fact necessary to
make the statements made therein not misleading. Notwithstanding the foregoing,
CNTO shall not be required to update, pursuant to this Section 7.2, any document
during a period when CNTO shall, in good faith and using reasonable business
judgment, believe that the premature disclosure of any event or information
would have a material adverse effect on, or not to be in the best interests of
CNTO and that such disclosure is not then required under the 1934 Act. In such
case, CNTO shall notify Lilly immediately that it has reached such a judgment,
without disclosing to Lilly the underlying event or information. Lilly hereby
agrees, that upon receipt of such notice from CNTO, Lilly shall forthwith
discontinue any disposition of the Shares until Lilly's receipt of the copies of
the supplemented or amended prospectus, and, if so directed by CNTO, Lilly shall
deliver to CNTO all copies in its possession, other than permanent file copies
then in Lilly's possession, of the prospectus covering such Shares current at
the time of receipt
-5-
<PAGE>
of such notice. Notwithstanding anything to the contrary in this Amendment, CNTO
shall use its commercially reasonable efforts to provide Lilly with copies of
the supplemented or amended prospectus or any other related updated document
pertaining to such event or information described in this Section 7.2 as soon as
reasonably practicable and in any event not later than thirty (30) days after
Lilly receives notice from CNTO as described in this Section 7.2.
7.3 Further Actions by Lilly. Lilly agrees to furnish to CNTO, in
------------------------
writing, such information with respect to itself and the proposed distribution
by it, and to execute such documents regarding the Shares received by it
hereunder, and the intended method of disposition thereof as CNTO shall
reasonably request and as shall be required in connection with the actions to be
taken by CNTO under the provisions of this Section 7.
8. Representations and Warranties of Centocor. CNTO and CBV each
------------------------------------------
represent and warrant as follows:
8.1 Organization and Good Standing. Each of CNTO and CBV is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership of its property makes such qualification
necessary, except where the failure to so qualify or be in good standing would
not have a Material Adverse Effect (as defined in Section 8.8), and is
authorized to own or lease its properties and to carry on its business as it is
now being conducted. The copies of CNTO's Articles of Incorporation, as amended
and restated, and Bylaws, in the forms attached hereto as Exhibit A, are
complete and correct.
8.2 Corporate Power and Authority; Enforceability. CNTO and CBV each
---------------------------------------------
have the requisite power and authority (corporate and otherwise) to execute,
deliver and perform this Amendment and to consummate the transactions
contemplated hereby. The execution, delivery and performance by CNTO and CBV of
this Amendment and the consummation by CNTO and CBV of the transactions
contemplated hereby, have been duly authorized by all necessary action
(corporate or otherwise) on its part. This Amendment constitutes a legal, valid
and binding obligation of CNTO and CBV, enforceable in accordance with its
terms.
8.3 Validity of Contemplated Transactions. The execution, delivery
-------------------------------------
and performance by CNTO and CBV of this Amendment, and the consummation by them
of the transactions contemplated hereby, do not, and will not (a) violate or
contravene any provision of CNTO's or CBV's charter or bylaws; (b) violate,
breach, conflict with, constitute under, cause the acceleration of any payments
pursuant to, or otherwise impair the good standing, validity, or effectiveness
of, any agreement, contracts, indenture, lease, license, or mortgage to which
CNTO or CBV is a party, or by which CNTO or CBV or any of CNTO's or CBV's
properties or assets are bound; or (c) violate any provision of any law, permit
or court order applicable to CNTO or CBV.
-6-
<PAGE>
8.4 Litigation, Judgments, Orders, Etc. Except as otherwise
-----------------------------------
disclosed herein, in any Schedule or Exhibit hereto, or set forth in Schedule
8.4 hereto, no suit, action, proceeding or investigation is pending or, to the
knowledge of CNTO or CBV, threatened against CNTO or CBV or any of its
subsidiaries or affiliates, which, if determined adversely to such parties,
would (i) prohibit the execution or delivery of this Amendment or the ability of
CNTO or CBV to consummate the transactions contemplated hereby, (ii) prohibit
the issuance and sale of the Shares pursuant to this Amendment, or (iii) have a
Material Adverse Effect. Except as set forth in Schedule 8.4 hereto, CNTO or CBV
is not the subject of or bound by or otherwise affected by any outstanding
judgments or decrees of any court or governmental agency that would have a
Material Adverse Effect.
8.5 Capitalization; Ownership of CBV. CNTO's total authorized
--------------------------------
capital stock consists of 100,000,000 shares of Common Stock, of which
67,692,301 shares were issued and outstanding on May 31, 1996, all of which have
been validly issued, and are fully paid and non-assessable, and 10,000,000
shares of Preferred Stock, none of which shares are presently issued. Since May
31, 1996, CNTO has not issued any shares of Common Stock other than shares of
Common Stock issued pursuant to existing Derivative Securities (as defined
below), as set forth on Schedule 8.5 hereto. Except for such existing Derivative
Securities, CNTO does not have outstanding any Derivative Securities or any
commitments to issue any Derivative Securities. For the purposes of this
Amendment, the term "Derivative Securities" shall have the meaning ascribed to
in under Rule 16a-1(c) as promulgated by the SEC under the 1934 Act. CBV is a
direct, wholly-owned subsidiary of CNTO.
8.6 Issuance of the Shares. The Shares, when issued and delivered to
----------------------
Lilly pursuant to and in accordance with the terms of this Amendment, (a) will
have been validly issued, fully paid and non-assessable, (b) will be free and
clear of any liens, (c) will have been issued without violation of any
preemptive or other right to purchase Common Stock, and (d) based in part on
representations of Lilly in this Amendment, will have been issued in compliance
with all applicable federal and state securities laws.
8.7 Other Securities and Financial Statement Matters. CNTO has duly
------------------------------------------------
filed in a timely manner (without any permitted extension) all reports required
to be filed by CNTO with the SEC under the 1934 Act (the "SEC Reports"). The
SEC Reports (including, in each case, without limiting the generality thereof,
the audited and unaudited financial statements of CNTO included therein) when
filed contained all statements required to be stated therein in accordance with
the 1934 Act and did not contain any untrue statement of material fact or omit
to state a material fact necessary to make any of the statements contained
therein not misleading in light of the circumstances under which they were made
and otherwise complied in all material respects with the applicable requirements
of the 1934 Act. The consolidated financial statements included in the SEC
Reports comply as to form with the requirements of Regulation S-X, as
promulgated by the SEC under the 1933 Act and are derived from the applicable
books and records of CNTO, have been prepared in conformity with generally
accepted accounting principles (as required by Regulation S-X) and present
fairly the financial
-7-
<PAGE>
condition, results of operations, changes in security holders' equity and cash
flows of CNTO on a consolidated basis, as at the close of business, or for the
period ended, on the date of each of such financial statements.
8.8 Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
the financial statements referred to in Section 8.7 and CNTO's Annual Report on
Form 10-K for the year ended December 31, 1995 and CNTO's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996, or as otherwise disclosed
herein, in any Schedule or Exhibit hereto or listed on Schedule 8.8 hereto,
since March 31, 1996, neither CNTO nor any of its subsidiaries or affiliates has
incurred any liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course of business, that are material to
CNTO and its subsidiaries and affiliates, taken as a whole, and there has not
been (i) any material change in the capital stock or indebtedness of CNTO or its
subsidiaries or affiliates that would have a Material Adverse Effect (as defined
below), or (ii) any event, change or occurrence which individually or in the
aggregate might (x) have a material adverse effect on the condition (financial
or other), assets, business, or results of operations of CNTO and its
subsidiaries and affiliates, taken as a whole, (y) materially adversely affect
CNTO's ability to consummate any of the transactions contemplated hereby or to
perform its obligations under this Amendment or the Agreement or (z) materially
adversely affect CNTO's or any of its subsidiaries' or affiliates' rights in or
to the HA-lA(TM) human monoclonal antibody pharmaceutical product known as
"Centoxin(R)" or the 7E3(TM) monoclonal antibody pharmaceutical product known as
"ReoPro(R)" (each of (x), (y) and (z) being referred to herein, individually or
in the aggregate as a "Material Adverse Effect"). Except for Derivative
Securities defined in Section 8.5 above, CNTO has not issued, or agreed to
issue, any securities or other instruments convertible into, exchangeable for or
exercisable into CNTO securities that would have a Material Adverse Effect. No
event has occurred since March 31, 1996, with respect to which CNTO would be
required to file a Current Report on Form 8-K under the 1934 Act.
8.9 Governmental Consents. Except for the filing of the Registration
---------------------
Statement, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority in the United States on the part of CNTO and CBV is
required in connection with the consummation of the transactions contemplated by
this Amendment.
8.10 Absence of Undisclosed Liabilities. Except as disclosed in the
----------------------------------
financial statements referred to in Section 8.7, CNTO's Annual Report on Form
10-K for the year ended December 31, 1995 and CNTO's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and as set forth in Schedule 8.10
hereto, there are no debts, liabilities or obligations, contingent or otherwise,
of CNTO or its subsidiaries or affiliates that would have a Material Adverse
Effect.
8.11 Completeness of Disclosure. Neither this Amendment, any
--------------------------
statements made by officers of CNTO or CBV nor any instruments or certificates
made or delivered by CNTO or CBV in connection herewith contains any untrue
-8-
<PAGE>
statement of a material fact or omits to state a material fact necessary to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading and the other documents delivered in connection
herewith, taken as a whole, together with such statements, instruments or
certificates do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading.
8.12 Use of Form S-3. CNTO currently meets the conditions necessary
---------------
for use of a registration statement on Form S-3 under the 1933 Act.
8.13 Brokers and Finders. CNTO has not employed any broker, finder,
-------------------
consultant or intermediary in connection with the transactions contemplated by
this Amendment who would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof.
9. Representations and Warranties of Lilly.
---------------------------------------
9.1 Organization and Good Standing. Lilly is a corporation duly
------------------------------
organized and validly existing under the laws of the State of Indiana.
9.2 Corporate Power and Authority; Enforceability. Lilly has the
---------------------------------------------
requisite power and authority (corporate and otherwise) to execute, deliver and
perform this Amendment and to consummate the transactions contemplated hereby.
The execution, delivery and performance by Lilly of this Amendment and the
consummation by Lilly of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on its part. This
Amendment constitutes a legal, valid and binding obligation of Lilly,
enforceable in accordance with its terms.
9.3 Validity of Contemplated Transactions. The execution, delivery
-------------------------------------
and performance by Lilly of this Amendment and the consummation by it of the
transactions contemplated hereby do not, and will not (a) violate or contravene
any provision of Lilly's charter or bylaws; (b) violate, breach, conflict with,
constitute a default under, cause the acceleration of any payments pursuant to,
or otherwise impair the good standing, validity, or effectiveness of, any
agreement, contract, indenture, lease, license, or mortgage to which Lilly is a
party or by which Lilly is bound; (c) violate any provision of any law, permit
or court order applicable to Lilly; or (d) require any permit or consent of any
governmental authority to be obtained by Lilly which has not been obtained.
9.4 Litigation Compliance with Laws. There is no litigation pending
-------------------------------
or, to Lilly's knowledge, threatened against or related to Lilly nor any failure
to comply with, violation of or any default under, any law, permit or court
the order applicable to Lilly, in each case which would have a material adverse
effect on the ability of Lilly to execute, deliver and perform this Amendment or
on the ability of Lilly to consummate the transactions contemplated hereby.
-9-
<PAGE>
9.5 1933 Act Representations. Lilly is an "accredited investor"
------------------------
within the meaning of Regulation D as promulgated by the SEC under the 1933 Act.
Lilly has such experience in financial and business matters such that it is
capable of evaluating the merits and risks of purchasing the Shares. Lilly is
acquiring the Shares for its own account, with no present intention of
transferring, distributing or reselling the Shares, or any part thereof, all
without prejudice, however, to the rights of Lilly at any time, in accordance
with this Amendment, lawfully to sell or otherwise dispose of all or any part of
the Shares.
9.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority in the United
States on the part of Lilly is required in connection with the consummation of
the transactions contemplated by this Amendment.
9.7 Completeness of Disclosure. Neither this Amendment, any
--------------------------
statements made by officers of Lilly nor any instruments or certificates made or
delivered by Lilly in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading and the other documents delivered in connection herewith,
taken as a whole, together with such statements, instruments or certificates do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading.
9.8 Brokers and Finders. Lilly has not employed any broker, finder,
-------------------
consultant or intermediary in connection with the transactions contemplated by
this Amendment who would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof.
10. Conditions to Closing.
---------------------
10.1 Conditions to Obligations of Centocor. The obligations of
-------------------------------------
Centocor to consummate the transactions contemplated by this Amendment at the
Closing shall be subject to the satisfaction or waiver by Centocor on or prior
to the Closing Date of the following conditions:
(a) Accuracy of Representations and Warranties; Performance
-------------------------------------------------------
of Covenants. Each of the representations and warranties of Lilly contained in
- -------------
this Amendment shall be true and correct in all material respects when made and
as of the Closing Date, with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except representations
and warranties that are made as of a specific date need be true in all material
respects only as of such date); each of the covenants and agreements of Lilly to
be performed on or prior to the Closing Date shall have been duly performed in
all material respects.
-10-
<PAGE>
(b) No Order. There shall not have been issued and be in
--------
effect any injunction (temporary or permanent), order, decree, judgment of or in
any court or tribunal of competent jurisdiction (an "Order") which prohibits the
consummation of the purchase and sale of the Shares or which materially
restricts Centocor's ability to achieve the benefits of the transactions set
forth in the Amendment.
10.2 Conditions to Obligations of Centocor. The obligations of Lilly
-------------------------------------
to consummate the transactions contemplated by this Amendment at the closing
shall be subject to the satisfaction or waiver by Lilly on or prior to the
Closing Date of the following conditions:
(a) Accuracy of Representations and Warranties; Performance
-------------------------------------------------------
of Covenants. Each of the representations and warranties of Centocor contained
- ------------
in this Amendment shall be true and correct in all material respects when made
and as of the Closing Date, with the same effect as though such representations
and warranties had been made on and as of the Closing Date (except
representations and warranties that are made as of a specific date need be true
in all material respects only as of such date); each of the covenants and
agreements of Centocor to be performed on or prior to the Closing Date shall
have been duly performed in all material respects.
(b) No Order. There shall not have been issued and be in
--------
effect any Order which prohibits the consummation of the purchase and sale of
the Shares or which materially restricts Lilly's ability to achieve the benefits
of the transactions set forth in the Amendment.
(c) Consents. Centocor shall have obtained all consents or
--------
approvals of any third party, if any, which are necessary for or in connection
with the execution and delivery of this Amendment or the performance of Centocor
under this Amendment.
(d) Opinion of Counsel. Lilly shall have received from Duane
------------------
Morris & Heckscher, counsel for Centocor, an opinion dated as of the Closing
Date, in form and substance reasonably satisfactory to Lilly as described below
(an opinion of counsel from CNTO's in-house counsel, George D. Hobbs, with
respect to subsections (iii) and (iv) below is satisfactory to Lilly provided
the form and substance of such opinion remains the same as described below):
(i) CNTO is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation;
(ii) CNTO has the requisite power and authority (corporate
and otherwise) to execute, deliver and perform this Amendment and to consummate
the transactions contemplated hereby. The execution, delivery and performance by
CNTO of this Amendment and the consummation by CNTO of the transactions
contemplated hereby, have been duly authorized by all necessary action
(corporate or otherwise) on its part. This Amendment constitutes a legal, valid
and binding obligation of CNTO, enforceable in accordance with its terms,
-11-
<PAGE>
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and the availability of equitable remedies which are subject to the
discretion of the court before which any proceeding is brought;
(iii) The execution, delivery and performance by CNTO and
CBV of this Amendment, and the consummation by them of the transactions
contemplated hereby, do not, and will not violate or contravene any provision of
CNTO's or CBV's Articles of Incorporation, Charter or bylaws;
(iv) Except as otherwise disclosed herein, in any Schedule
or Exhibit hereto, or set forth in Schedule 8.4 hereto, such counsel is not
aware of any suit, action, proceeding or investigation pending or threatened
against CNTO or CBV or any of its subsidiaries or affiliates, which, if
determined adversely to such parties, would (i) prohibit the execution or
delivery of this Amendment, (ii) prohibit the issuance and sale of the Shares
pursuant to this Amendment, or (iii) have a Material Adverse Effect. To the best
of such counsel's knowledge, except as set forth in Schedule 8.4 hereto, CNTO or
CBV is not the subject of or bound by or otherwise affected by any outstanding
judgments or decrees of any court or governmental agency that would have a
Material Adverse Effect;
(v) The Shares, when issued and delivered to Lilly
pursuant to and in accordance with the terms of this Amendment, (a) will have
been validly issued and will be fully paid and non-assessable, (b) will be free
and clear of any liens, (c) to such counsel's knowledge, will have been issued
without violation of any preemptive or other right to purchase Common Stock, and
(d) based in part on representations of Lilly in this Amendment, be issued in
compliance with all applicable federal and state securities laws; and
(vi) CNTO currently meets the conditions necessary for
use of a registration statement on Form S-3 under the 1933 Act.
11. Indemnification.
---------------
(a) In the event of any registration of any of the Shares under the
1933 Act pursuant to this Amendment, Centocor (notwithstanding anything to the
contrary in this Amendment, for purposes of this Section 11, Centocor shall
mean CNTO and CBV each jointly and separately) shall indemnify and hold harmless
Lilly with respect to the sale of such Shares against and losses, claims,
damages or liabilities, joint or several, to which Lilly may become subject
under the 1933 Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any alleged untrue statement of any material fact
contained, in any registration statement under which such Shares were registered
under the 1933 Act pursuant to the provisions of Section 7 of this Amendment,
any preliminary prospectus or final prospectus contained therein, or any
summary prospectus issued in connection with any Shares being registered, or any
amendment or supplement thereto, or (ii) any alleged omission to state in any
such document a material fact required to be stated therein or necessary to make
the statements
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<PAGE>
therein not misleading, and shall reimburse Lilly for any legal or other
expenses reasonably incurred by Lilly in connection with investigating or
defending any such loss, claims, damage, liability or action; provided,
however, that Centocor shall not be liable to Lilly in any such case to the
extent that any such loss, claim damage or liability arises out of or is based
upon (i) any alleged untrue statements or alleged omissions made in such
registration statement, prospectus, summary prospectus, prospectus or amendment
or supplement thereto that is made in reliance upon and in conformity with
written information furnished to Centocor by Lilly, as the case may be,
specifically for use therein, or (ii) any alleged untrue statement or alleged
omission in a preliminary prospectus if the final prospectus (or the final
prospectus as amended or supplemented before confirmation of sale) corrects such
alleged untrue statement or omission and a copy of the final prospectus (as so
amended or supplemented) was not sent or given to the person or persons alleging
such untrue statement or omission at or before the confirmation of any sale
thereto in any case where such delivery is required by the 1933 Act, unless the
failure to deliver the final prospectus (as so amended or supplemented) was the
result of non-compliance by Centocor with the requirements of the 1933 Act
pertaining to furnishing to each seller such numbers of copies of prospectus,
including a preliminary prospectus, and such other documents, as seller may
reasonably request in order to facilitate the public sale or other disposition
of the Shares owned by such seller. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of Lilly, and
shall survive transfer or such Shares by Lilly.
(b) Lilly shall indemnify and hold harmless, Centocor, its directors
and officers, and each other person, if any, who controls Centocor, against any
losses, claims, damages or liabilities, joint or several, to which Centocor or
any such director or officer, or any controlling person of Centocor may become
subject under the 1933 Act or any other statute or at common law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any alleged untrue statement or any material
fact contained in any registration statement under which Shares belonging to
Lilly were registered under the 1933 Act, pursuant to Section 7 of this
Amendment, any preliminary prospectus or final prospectus contained therein, or
any summary prospectus issued in connection with any such Shares being
registered, or any amendment or supplement thereto, or (ii) any alleged omission
to state in any such document a material fact required to be stated therein or
necessary to make the statements therein not misleading, in the case of (i) or
(ii) to the extent, but only to the extent, that such alleged untrue statement
or alleged omission was made in such registration statement, preliminary
prospectus, summary prospectus, prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to Centocor by Lilly
specifically for the use therein, and then only to the extent that such alleged
untrue statements of alleged omissions by Lilly were not based on the authority
of an expert as to which Lilly had no reasonable ground to believe, and did not
believe, that the statements made on the authority of such expert were untrue or
that there was an omission to state a material fact, and shall reimburse
Centocor or such director, officer, or controlling person of Centocor for any
legal or other expenses reasonably incurred in connection with investigating or
defending any such loss, claim
-13-
<PAGE>
damage, liability or action. Notwithstanding the provisions of this Section
11(b), the aggregate liability of Lilly pursuant to the foregoing indemnity
provisions shall not exceed the net proceeds (before deducting expenses)
received by Lilly and its affiliates from the Shares sold by it pursuant to such
registration.
(c) Indemnification similar to that specified in subparagraphs (a)
and (b) of this Section 11 shall be given by Centocor and Lilly (with such
modifications as shall be appropriate) covered by any registration or other
qualification of Shares under any federal or state securities law or regulation
other than the 1933 Act with respect to any such registration or other
qualification effected pursuant to the provisions of this Amendment.
(d) If the Indemnification provided for in this Section 11 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party
(hereinafter defined as in Section 11(e) hereof) with respect to any loss,
liability, claim, damage, or expense referred to therein, then the Indemnifying
Party (hereinafter defined as in Section 11(e) hereof) in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such losses,
liability, claim, damage, or expense as well as any other relevant equitable
consideration. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) In the event Centocor or any holder of Shares receives a
complaint, claim or other notice of any loss, claim or damage, liability or act,
giving rise to a claim for indemnification or contribution under subparagraphs
(a), (b), (c) or (d) of this Section 11, the person claiming indemnification
(the "Indemnified Party") under any such subparagraph shall promptly notify the
person against whom indemnification is sought (the "Indemnifying Party") or such
complaint, notice, claim or action, and the Indemnifying Party shall have the
right to investigate and defend any such loss, claim, damage, liability or
action. The Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the Indemnifying Party.
In no event shall the Indemnifying Party be obligated to indemnify any person
for any settlement of any claim or action effected without the Indemnifying
Party's written consent.
12. Regulatory Compliance. Centocor shall comply with all applicable
---------------------
regulatory requirements, including, without limitation, those provisions of
Article VIII of the Agreement relating to reporting Adverse Drug Events and
communications with regulatory agencies with respect to ReoPro in Japan, and if
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<PAGE>
Centocor enters into any agreement with a third party relating to ReoPro in
Japan, Centocor shall use its best efforts to cause such third party to comply
with such requirements, including, if applicable, reporting of Adverse Drug
Events to Lilly.
13. Trademark Assignment. Lilly hereby agrees to use its best efforts to
--------------------
take any and all actions necessary to promptly transfer to Centocor, Lilly's
rights to the Japanese trademark application No. 89722/94 pertaining to "ReoPro"
in Japan, together with all goodwill associated therewith for use only in Japan.
14. Miscellaneous.
-------------
(a) All references to the "Agreement" in any documents and
instruments executed by the parties in connection with the Agreement, shall be
deemed to refer to the Agreement as the same has been amended through the date
hereof, and as the same may be amended in the future.
(b) The parties hereto agree to do such further acts and to execute
and deliver to each other such additional agreements, instruments and documents
as may be reasonably required to carry out the purpose of this Amendment.
(c) This Amendment may be executed in any number of counterparts and
each such counterpart shall be deemed an original, but all such counterparts
shall constitute but one and the same agreement.
(d) The Agreement and this Amendment may be modified or amended by
the parties hereto only by a written agreement executed by the party against
whom a change is to be enforced.
(e) This Amendment shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania, without regard to
conflicts of laws principles.
15. Ratification and Confirmation. Except as amended hereby, all of the
-----------------------------
terms and provisions of the Agreement and documents executed in accordance
therewith shall remain in full force and effect and, except as expressly amended
hereby, are hereby ratified and confirmed.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed by their duly authorized officers on the date first above written.
CENTOCOR, INC.
/s/ Dominic J. Caruso
- ------------------------------------------------
By: Dominic J. Caruso
Title: Vice President of Finance and
Chief Financial Officer
CENTOCOR B. V
/s/ David P. Holveck
- ------------------------------------------------
By: David P. Holveck
Title: President and Chief Executive Officer of Centocor Inc,
and Managing Director, Centocor, B.V.
ELI LILLY AND COMPANY
/s/ Sidney Taurel
- ------------------------------------------------
By: Sidney Taurel
Title: President and Chief Operating Officer
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<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT 10.33
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY "XXXXXXXXXX"; AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
CENTOCOR, INC./FUJISAWA PHARMACEUTICAL CO., LTD.
ReoPro/TM/ Distribution Agreement
THIS AGREEMENT, made and effective as of August 15, 1996, (the "Effective
Date") is by and between Centocor, Inc., a Pennsylvania corporation having its
principal place of business at 200 Great Valley Parkway, Malvern, Pennsylvania
19355, United States of America ("Centocor") and Fujisawa Pharmaceutical Co.,
Ltd., a Japanese corporation having its registered office at 4-7, Doshomachi, 3-
chome, Chuo-ku, Osaka, 541, Japan ("Fujisawa").
W I T N E S S E T H:
WHEREAS, Centocor has reacquired all rights to ReoPro/TM/ (as hereinafter
defined) in Japan from Eli Lilly and Company ("Lilly"), and is seeking a partner
to co-develop ReoPro/TM/ in Japan and then market, promote, distribute and sell
ReoPro/TM/ in Japan;
WHEREAS, Fujisawa has substantial marketing, research and development and
clinical expertise and capabilities in the pharmaceutical industry.
WHEREAS, Centocor desires to jointly obtain with Fujisawa, Product Approval
(as hereinafter defined) of ReoPro/TM/ in Japan and desires that Fujisawa sell
ReoPro/TM/ in Japan;
WHEREAS, Fujisawa is willing to promptly commence best efforts to jointly
obtain with Centocor or a Centocor Affiliate, as soon as practical, Product
Approval in Japan; and
<PAGE>
WHEREAS, Fujisawa, upon receipt of Product Approval, is willing to use its
best efforts to sell ReoPro/TM/ in Japan.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows.
1 DEFINITIONS
-----------
The following terms, when used with initial capital letters, shall have the
following meanings (and the singular shall include the plural and vice-versa)
unless the context clearly indicates to the contrary:
1.1 The term "ReoPro/TM/" shall mean Centocor's chimeric (human-murine)
7E3 Fab monoclonal anti-platelet antibody-based pharmaceutical product
(abciximab), known as ReoPro/TM/ trademark, for use in the Field.
1.2 The term "Field" shall mean the field of cardiovascular diseases,
including stroke. For purposes of Article 4.4, the term "Field" shall be
expanded to include any non-cardiovascular fields for which ReoPro/TM/ may be
commercialized.
1.3 The term "Product Approval" shall mean all governmental approvals
necessary to import and sell ReoPro/TM/ in Japan.
2
<PAGE>
1.4 The term "NHI Price" shall mean the price for ReoPro/TM/ approved by
the Ministry of Health and Welfare of Japan in accordance with The National
Health Insurance Reimbursement System in Japan.
1.5 The term "Commercial Sale" shall mean the sale of ReoPro/TM/ by
Fujisawa or a Fujisawa Affiliate, after receipt of Product Approval, to any
third party wholesaler or any other customer not a Fujisawa Affiliate.
1.6 The term "Affiliate" shall mean any corporation, company, partnership
and/or firm which controls, or is controlled by, either party. For purposes of
this Article, control shall mean (a) in the case of corporate entities, direct
or indirect ownership of at least fifty percent (50%) of the stock or
participating shares entitled to vote for the election of directors; and (b) in
the case of non-corporate entities, direct or indirect ownership of at least
fifty percent (50%) of the equity interest or the legal power to direct the
management and policies of such entities.
1.7 The term "Vial" shall mean a vial containing ten (10) mg. of the
active ingredient of ReoPro/TM/. The quantity of active ingredient of ReoPro/TM/
in each Vial may be altered upon the mutual consent of the parties.
1.8 The term "Net Sales Price" shall mean, for each applicable period, the
aggregate of the gross invoicing prices from Commercial Sales, less (a) rebates
and margins granted by Fujisawa to wholesalers, (b) credits or allowances
granted for defective or returned ReoPro/TM/, (c) local shipping expenses and
the insurance therefor, and (d) Japanese consumption tax on Fujisawa's sales of
ReoPro/TM/ to wholesalers; provided, however, that deductions from gross sales
taken pursuant to
3
<PAGE>
clauses (a), (b) and (c) shall not, in the aggregate, exceed XXXXXXXXXX of NHI
Price sales, and provided further, that this definition of Net Sales Price may
be changed by the mutual agreement of the parties in the event of changes in
market conditions or Fujisawa's pricing system.
2 REPRESENTATIONS AND WARRANTIES OF CENTOCOR
------------------------------------------
2.1 Centocor represents and warrants to Fujisawa as follows:
(a) Organization and Good Standing. Centocor is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership of its property makes such qualification
necessary, except where the failure to so qualify or be in good standing would
not have a material adverse effect on the consolidated financial condition or
results of operations of Centocor and Centocor Affiliates, and is authorized to
own or lease its properties and to carry on its business as it is now being
conducted.
(b) Authority. Centocor has the corporate power to enter into this
---------
Agreement and to carry out the transactions contemplated hereby. The execution,
delivery and performance of this Agreement have been duly and validly authorized
and approved by all necessary corporate action on the part of Centocor and this
Agreement has been duly executed by and constitutes the legally binding
obligation of Centocor enforceable in accordance with its terms (except that
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and general
4
<PAGE>
principles of equity). The execution and delivery of this Agreement do not
violate the provisions of, constitute a default under or give rise to rights of
any entity under (i) any laws applicable to Centocor, (ii) Centocor's Articles
of Incorporation or By-laws, (iii) any judgment, decree or order of any court or
governmental agency applicable to Centocor, Centocor Affiliates or their
respective assets or (iv) any agreements, contracts or commitments to which
Centocor or any Centocor Affiliate is a party or by which they or their
respective assets are bound.
(c) Brokers and Finders. Centocor has not employed any broker,
-------------------
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be entitled to a broker's, finder's or
similar fee or commission in connection therewith or upon the consummation
thereof.
(d) Amendment to Agreement with Lilly. Centocor and Lilly have amended
---------------------------------
their Sales and Distribution Agreement as follows: "the term "Territory" as it
applies to ReoPro shall mean "the entire world, except for Japan". Centocor has
thereby reacquired all rights to ReoPro/TM/ in Japan from Lilly.
(e) Status of ReoPro/TM/ in United States. Centocor has received
-------------------------------------
from the United States Food and Drug Administration approval to market and sell
ReoPro/TM/ in the United States.
(f) Access to Information. Centocor has not withheld from Fujisawa
---------------------
any adverse information pertaining to ReoPro/TM/.
5
<PAGE>
3 REPRESENTATIONS AND WARRANTIES OF FUJISAWA
------------------------------------------
3.1 Fujisawa represents and warrants to Centocor as follows:
(a) Organization and Good Standing. Fujisawa is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of Japan.
(b) Authority. Fujisawa has the corporate power to enter into this
---------
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement have been duly and validly
authorized and approved by all necessary corporate action on the part of
Fujisawa and this Agreement has been duly executed by and constitutes the
legally binding obligation of Fujisawa enforceable in accordance with its terms
(except that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally from time to time in effect and
general principles of equity). The execution and delivery of this Agreement by
Fujisawa do not violate the provisions of, constitute a default under or give
rise to rights of any entity under (i) any laws applicable to Fujisawa, (ii) the
charter documents or By-Laws of Fujisawa, (iii) any judgment, decree or order of
any court or governmental agency applicable to Fujisawa, Fujisawa Affiliates or
their respective assets or (iv) any agreements contracts or commitments to which
Fujisawa or any Fujisawa Affiliate is a party or by which they or their
respective assets are bound.
(c) Brokers and Finders. Fujisawa has not employed any broker,
-------------------
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be
6
<PAGE>
entitled to a broker's, finder's or similar fee or commission in connection
therewith or upon the consummation thereof.
(d) Access to Data. Fujisawa has had an opportunity to review and
--------------
evaluate data and information relating to ReoPro/TM/ which have been disclosed
by Centocor under the Confidentiality Agreement dated March 12, 1996, and based
on such evaluation, has determined its interest in entering into this Agreement.
4 EXCLUSIVE DISTRIBUTORSHIP
-------------------------
4.1 Centocor hereby appoints Fujisawa as the exclusive distributor of
ReoPro/TM/ in Japan. As the exclusive distributor of ReoPro/TM/, exclusive of
Centocor and Centocor Affiliates and all other companies, Fujisawa shall
exclusively purchase ReoPro/TM/ from Centocor and distribute, promote, market,
and sell ReoPro/TM/ in Japan. Fujisawa shall not have the right to assign such
exclusive distributorship to any other party except any of its Affiliates.
4.2 Fujisawa may resell ReoPro/TM/ through Fujisawa Affiliates in Japan.
Fujisawa shall be responsible to Centocor for the performance of Fujisawa
Affiliates and shall cause such Fujisawa Affiliates to be bound by all the terms
and conditions of this Agreement.
4.3 In the event that Fujisawa elects to commercialize in Japan any
monoclonal antibody based pharmaceutical product (other than any other Centocor
products commercialized by Fujisawa pursuant to Article 4.4) for the same
approved cardiovascular clinical indications (including stroke) as ReoPro/(TM)/,
Centocor may convert Fujisawa's exclusive distributorship to semi-exclusive,
which
7
<PAGE>
means that Centocor, or a Centocor Affiliate, or one other third party, may also
distribute, promote, market and sell ReoPro/(TM)/ in Japan. In the event that
Fujisawa desires to commercialize in Japan any such product which, in Centocor's
sole determination, would be synergistic with rather than competitive with
ReoPro/(TM)/, Centocor would permit Fujisawa to commercialize such product in
Japan without converting Fujisawa's distributorship with respect to ReoPro/(TM)/
in Japan to semi-exclusive.
4.4 During the period that Fujisawa maintains exclusive distributorship
with respect to ReoPro/(TM)/ under this Agreement, Centocor grants to Fujisawa
the right of first refusal to negotiate exclusive distributorship in Japan with
respect to any Centocor products utilizing any monoclonal antibody other than
7E3, or 7E3 antibody in a form other than chimeric, for use in the Field. When,
in Centocor's judgment any such product is available, Centocor shall provide
Fujisawa with an offer containing all relevant documentation and information,
including but not limited to clinical data, in its possession concerning such
product, and with samples of such product at a price to be agreed upon by the
parties hereto. Fujisawa shall have ninety (90) days from receipt of Centocor's
offer to notify Centocor that it is willing to negotiate an agreement concerning
such offer. If Fujisawa advises Centocor that it does not desire to negotiate an
agreement concerning such offer or does not reply within the ninety (90) day
time period, Centocor shall be free to reach an agreement with other parties. If
Fujisawa is willing to negotiate an agreement, both parties shall negotiate in
good faith an agreement concerning Centocor's offer, which agreement shall
follow substantially the same form as this Agreement unless any specific factor
or situation justifies a different form. If such negotiations are not completed
within ninety (90) days from the commencement date of such negotiations,
8
<PAGE>
Centocor shall be free to reach an agreement with other parties. Centocor shall
not offer any such new product to any third party on terms more favorable than
those offered to Fujisawa without giving Fujisawa a reasonable opportunity to
accept such more favorable terms.
4.5 Nothing contained herein shall be deemed to grant Fujisawa or any
Fujisawa Affiliate rights to any in-vitro diagnostic or in-vivo imaging product
using the 7E3 antibody.
4.6 (a) Fujisawa shall use its best efforts to distribute, promote,
market, and sell ReoPro/TM/ in Japan. Fujisawa shall conduct its ReoPro/TM/
promotion, advertising, marketing, sales, and distribution activities in Japan
in accordance with the established comprehensive business plan as hereinafter
provided.
(b) By December 31, 1997, Fujisawa, with Centocor's assistance
provided on an as-requested basis, shall develop a preliminary comprehensive
business plan for ReoPro/TM/ and submit such plan to Centocor for Centocor's
review. At least once a year both prior to and following commercialization of
ReoPro/TM/, the senior marketing management from both parties shall meet to
review and update, as appropriate, such comprehensive business plans. Each pre-
launch business plan shall include, to the extent feasible, and the final pre-
launch plan and each post-launch plan shall absolutely include, but not be
limited to, a listing of the medical indications for which Fujisawa intends to
sell ReoPro/(TM)/, sales forecasts, advertising plans, Fujisawa's general
detailing information concerning ReoPro/(TM)/, etc. In the preparation and
execution of the comprehensive business plans for ReoPro/(TM)/, Centocor shall
participate to the extent it is able to do so and, at a minimum, Centocor
9
<PAGE>
shall timely provide Fujisawa with relevant data and information Centocor and
Lilly accumulate from their experience with ReoPro/(TM)/ in other parts of the
world.
4.7 In the event that Fujisawa loses the exclusive distributorship granted
hereunder as a result of its breach of the Agreement or pursuant to Article
4.3, but nevertheless maintains a semi-exclusive distributorship with respect to
ReoPro/(TM)/, Fujisawa shall supply Centocor or any third party designated by
Centocor, at Centocor's expense, with all relevant information related to
ReoPro/(TM)/, including all data and other information compiled in the Product
Approval process, and all data on adverse reactions, if any.
4.8 Both parties, including their Affiliates, shall be responsible for
compliance with all rules and regulations governing the use and sale of
ReoPro/(TM)/ in Japan. ReoPro/(TM)/ shall not be used or sold by Fujisawa and/or
Centocor's Japanese Affiliate, as the case may be, in violation of applicable
Japanese rules and regulations, or contrary to the stipulations of the
applicable ReoPro/(TM)/ package insert.
5 JAPANESE GOVERNMENT APPROVAL
----------------------------
5.1 (a) To provide for the worldwide coordination of the regulatory
approval of ReoPro/TM/, as soon as practical and no later than ninety (90) days
after the Effective Date of this Agreement, Fujisawa, Centocor and Centocor's
Japanese Affiliate shall mutually develop a plan for obtaining Product Approval
for the first indication (i.e., high-risk PTCA). Such plan shall detail the
steps and plans necessary to obtain Product Approval, including but not limited
to, details of the
10
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timing of initiation of Phase IIB trials, clinical plans, protocols, patient
selection, number of patients to be accrued in each phase of clinical trials,
clinical trial sites, the schedule for filing with the appropriate regulatory
authorities, and the extent of Centocor's Japanese Affiliate's participation in
such clinical development program. Fujisawa and Centocor and/or Centocor's
Japanese Affiliate shall meet periodically, but at least once each calendar
year, to discuss the progress made against the plan. Should either party desire
to revise such plan, such party shall notify the other party and the parties
shall mutually agree upon any such changes. Centocor shall not withhold
unreasonably its consent to any revision proposed by Fujisawa.
(b) With respect to each of the other major indications (i.e., PTCA
other than high-risk, stroke, AMI, unstable angina), Fujisawa, Centocor and
Centocor's Japanese Affiliate shall mutually develop similar plans for obtaining
Product Approval for each such other major indication within ninety (90) days
after Fujisawa's receipt of relevant data and information pertaining to such
indication. Except for the first sentence of Paragraph 5.1(a), all other terms
of that Paragraph shall apply, as appropriate, to clinical development plans
created under this Paragraph.
(c) To obtain Product Approval in Japan, Centocor shall cause its
Japanese Affiliate to enter into a co-development agreement with Fujisawa to be
subsequently negotiated between such parties and to be executed as soon as
practical and no later than ninety (90) days after the Effective Date of this
Agreement. Such co-development agreement shall contain, among other terms and
conditions, the terms and conditions set forth in Paragraph 5.1(d) and Articles
5.2 through 5.7.
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(d) Fujisawa and Centocor's Japanese Affiliate's representatives
shall jointly organize and attend clinical investigators' meetings.
Representatives of Fujisawa and Centocor's Japanese Affiliate may visit, only
with the other party's consent, clinical investigators' sites which are
allocated to such other party. Each of Fujisawa and Centocor's Japanese
Affiliate shall have the right to participate with the other party at regulatory
inspections in Japan and at all meetings with the Ministry of Health and Welfare
regarding ReoPro/TM/.
5.2 In accordance with the initial plan developed pursuant to Article
5.1(a) hereof, Fujisawa and Centocor's Japanese Affiliate shall jointly file any
necessary application with the Japanese regulatory authorities seeking approval
to initiate clinical trials.
5.3 Fujisawa, Centocor and Centocor's Japanese Affiliate shall jointly
plan for and coordinate the procedures necessary to initiate Phase IIB clinical
trials in Japan. Fujisawa and Centocor's Japanese Affiliate shall jointly
conduct all clinical trials in Japan in accordance with the initial plan
developed pursuant to Article 5.1(a) and any subsequent plans developed pursuant
to Article 5.1(b). Such plans shall delineate, among other things, respective
responsibilities for enrollment and monitoring of clinical sites, data
collection and data analysis. In conducting any clinical trials in Japan,
Fujisawa and Centocor's Japanese Affiliate shall utilize, whenever and to the
extent possible, Japanese clinical data accumulated by Centocor's Japanese
Affiliate and Centocor's non-clinical and clinical data accumulated from
Centocor's studies conducted outside Japan. Fujisawa, in its sole discretion,
and at its own expense, shall conduct any preclinical studies which may be
required for Product Approval. Fujisawa shall bear all of its internal costs and
all external
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costs associated with the clinical development of ReoPro/TM/ in Japan. To the
extent that Centocor or Centocor's Japanese Affiliate pays any such external
costs as a result of Centocor's Japanese Affiliate's participation in the
clinical development program, Fujisawa shall periodically reimburse Centocor's
Japanese Affiliate for such expenses following Centocor's presentation to
Fujisawa of an accounting of such expenses. Centocor and Centocor's Japanese
Affiliate shall bear responsibility for their own internal expenses incurred
through their participation in the clinical development program. For purposes of
this Agreement, external and internal expenses shall be defined in the co-
development agreement referred to in Article 5.1(c).
5.4 Fujisawa and Centocor's Japanese Affiliate shall use their best
efforts to jointly file for Product Approval for the first indication by a date
to be established by the clinical development plan pursuant to Article 5.1(a),
and for all other indications, by such dates as are established pursuant to
Article 5.1(b).
5.5 (a) Fujisawa and Centocor's Japanese Affiliate shall jointly apply
for and hold Product Approval. Fujisawa and Centocor's Japanese Affiliate shall
fully cooperate with each other in the application process for such Product
Approval. All fees (document fees, filing fees, etc.) required to be paid in
connection with such applications shall be borne jointly by each party named in
the application. Fujisawa and Centocor's Japanese Affiliate shall each supply
the other with copies of all ReoPro/(TM)/ regulatory filings in original form
(including backup documentation) submitted to the Japanese Health Authorities.
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(b) For so long as Fujisawa retains its exclusive distributorship
pursuant to Article 4.1, neither Centocor nor any Centocor Affiliate shall
utilize its Product Approval to distribute, promote, market and sell
ReoPro/(TM)/ in Japan, or assign such Product Approval to enable any third party
to sell ReoPro/(TM)/ in Japan.
(c) Fujisawa shall promptly provide Centocor through Centocor's
Japanese Affiliate with a copy of Fujisawa's entire Product Approval application
document in Japanese and a brief summary of such document in English. Centocor's
Japanese Affiliate shall promptly provide Fujisawa with a copy of its entire
Product Approval application document in Japanese.
(d) Fujisawa shall promptly provide Centocor through Centocor's
Japanese Affiliate with copies of all relevant information (including a summary
in English) pertaining to ReoPro/(TM)/, developed or obtained by Fujisawa in
connection with its activities under this Agreement including, but not limited
to, data on clinical trials, stability data, and any other pre-clinical or
clinical data (such as toxicity or adverse reactions) relevant to ReoPro/(TM)/.
(e) Centocor shall promptly, after the Effective Date of this
Agreement and from time to time thereafter, provide Fujisawa, free of charge,
with copies of all relevant information pertaining to ReoPro/(TM)/ developed or
obtained by Centocor, Centocor Affiliates or Lilly, required to obtain Product
Approval and NHI Price listing, and to satisfy the purposes of this Agreement.
In addition, Centocor shall provide Fujisawa with manufacturing documents and
any other data reasonably required to obtain Product Approval.
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(f) Centocor's production facilities for ReoPro/(TM)/ may be inspected
if and as required during Centocor's normal business hours by governmental
officers of Japanese Health Authorities.
5.6 Fujisawa and Centocor's Japanese Affiliate shall both apply for
Product Approval using the ReoPro/(TM)/ trademark ("Trademark").
5.7 Fujisawa shall have unlimited use of the Trademark and the trade dress
of ReoPro/(TM)/ for use in connection with the sale of ReoPro/(TM)/ in Japan,
which Trademark shall be prominently displayed on all ReoPro/(TM)/ packaging.
Such use shall be exclusive for so long as Fujisawa retains exclusive
distributorship to ReoPro/(TM)/ pursuant to Article 4.1. Centocor shall become a
sole registered owner of the Trademark in Japan, and shall maintain the validity
of the registered ownership.
5.8 Fujisawa, Centocor and Centocor's Japanese Affiliate shall cooperate
in undertaking whatever arrangements are necessary in order to maintain the
validity of the Product Approval, once issued.
5.9 Fujisawa, Centocor and Centocor's Japanese Affiliate shall use their
best efforts to obtain and maintain the highest possible NHI Price for
ReoPro/(TM)/, and to minimize discounts from such price allowed to wholesalers
and other health care providers.
5.10 During the period that Fujisawa maintains its exclusive
distributorship with respect to ReoPro/(TM)/ under this Agreement, Fujisawa
shall carry out at its expense any Phase IV clinical studies or Post-Marketing
Surveillance (PMS) required for ReoPro/(TM)/ under the relevant laws or
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regulations in Japan. In the event that Fujisawa's exclusive distributorship
with respect to ReoPro/(TM)/ should be changed to semi-exclusive within six (6)
years of Product Approval, Fujisawa, Centocor and Centocor's Japanese Affiliate
shall consult to determine the method of work- and cost-sharing for PMS.
5.11 For purpose of this Agreement, Centocor shall be responsible to
Fujisawa for the performance of Centocor's Japanese Affiliate and shall cause
such Japanese Affiliate to be bound by all terms and conditions of this
Agreement.
6 SALES TERMS
-----------
6.1 Subject to the other terms and conditions of this Agreement, Fujisawa
shall exclusively purchase its requirements of ReoPro/(TM)/ in finished, salable
form from Centocor, and Centocor shall exclusively supply Fujisawa with such
requirements. Each party shall maintain a reasonable level of inventory of
ReoPro/(TM)/ to meet market demand based on Fujisawa's annual rolling forecast
of its ReoPro/(TM)/ needs and such level of inventory shall be agreed upon prior
to or at the time of first Commercial Sale. Fujisawa shall, at all times, target
an inventory level of XXXXXXXXXX sales of ReoPro(TM). Fujisawa shall submit to
Centocor the first annual rolling forecast of its ReoPro(TM) needs after
completion of deliberations by the Chosa-kai of the Central Pharmaceutical
Affairs Council and thereafter shall update such rolling forecast on a quarterly
basis. Binding orders for the desired quantity of ReoPro(TM) shall be placed by
Fujisawa via telex or telefax to Centocor not less than one hundred and twenty
(120) days prior to the desired date of shipment.
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6.2 (a) ReoPro(TM) to be supplied to Fujisawa hereunder shall be in
finished package form (including labeling, packaging, and package insert
developed pursuant to Article 6.3) ready for distribution and sale by Fujisawa
to the market in Japan, and shall conform to the specifications to be agreed
upon separately by the parties hereto and to be set forth in Appendix A to be
added by amendment to this Agreement ("Specifications"), and shall conform to
Japanese Health Authority regulations. Centocor's current specifications for
ReoPro(TM) are provisionally set forth in Appendix B. The label for ReoPro(TM)
shall designate Centocor as the manufacturer and Fujisawa as the distributor,
and the names of both parties shall appear on such label with equal prominence.
Centocor shall provide a timely supply of ReoPro(TM) to Fujisawa provided
Fujisawa's requests for ReoPro(TM) are within its forecasted requirements
submitted to Centocor in accordance with Article 6.1. In addition, if Fujisawa
requests a quantity of ReoPro(TM) in any purchase order in excess of its
forecasted requirements, Centocor shall use its best effort to timely supply
Fujisawa with such excess quantities. Centocor shall ensure that each lot of
ReoPro(TM) supplied to Fujisawa has a remaining shelf life of not less than
XXXXXXXXXX at the time of its arrival at the destination port in Japan.
(b) Upon receipt of each shipment of ReoPro(TM), Fujisawa shall promptly
make or have made quantity inspection thereof and such quality inspection
(including official control tests by government authorities) as must be done in
compliance with regulatory requirements, if any. In the absence of, or in
addition to, such regulatory requirements for quality inspection, Fujisawa may,
at its sole discretion, make or have made quality inspection ("non-compulsory
inspection") of any shipment by random sampling promptly upon its receipt from
Centocor or during its storage at
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Fujisawa and shall inform Centocor of any claims for failure of such shipment to
meet the Specifications or of quantity shortfalls as soon as possible.
ReoPro(TM) used for such quality inspection shall be supplied free-of-charge, if
it is a reasonable quantity. In the event of justified claims, Centocor shall at
its cost deliver to Fujisawa replacement quantities of ReoPro(TM) meeting the
Specifications as soon as possible. If Fujisawa does not provide a notice of
non-conformance within ninety (90) days of receipt of any shipment (or within
one hundred and twenty (120) days of receipt of any shipment in case of official
control test requirement imposed on ReoPro(TM)), Fujisawa shall not have the
right to return such shipment, except for any defect that could not be detected
due to omission of non-compulsory inspection by Fujisawa or by inspection
properly conducted by Fujisawa in accordance with the testing methods described
in the Specifications and that is discovered after such inspection or after
Fujisawa's delivery of ReoPro(TM) to its customers.
(c) Fujisawa may, upon prior notice, have QA (Quality Assurance), QC
(Quality Control), SOP (Standard Operating Procedure) and release specifications
of ReoPro(TM) inspected in Centocor's or Centocor Affiliate's facility during
Centocor's normal business hours by its appropriate employees or its authorized
representatives, which representatives shall be acceptable to Centocor.
(d) Upon Fujisawa's request, Centocor shall (i) issue a certificate or
statement in a form prescribed by Fujisawa or the competent authorities that
will certify or describe Centocor's compliance with Good Manufacturing Practice
or other regulatory requirements relating to the manufacture, storage, quality
control, quality assurance or exportation of ReoPro(TM), and (ii) provide the
competent authorities with proper documentation relating to the manufacture,
storage, quality
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control, quality assurance or exportation of ReoPro(TM), to the extent these are
required for regulatory purposes. Centocor shall not modify its manufacturing
methods and/or specifications for ReoPro(TM) without first seeking Fujisawa's
consent to such modifications, which consent shall not unreasonably be withheld.
(e) If it appears that Centocor will be unable to supply Fujisawa's
forecasted requirements of ReoPro(TM), the parties shall meet immediately to
discuss alternative sources of supply. If Centocor becomes unable to fully
supply Fujisawa's reasonably forecasted requirements of ReoPro(TM), Centocor
shall allocate available supplies between Fujisawa and Lilly based upon each
company's sales of ReoPro(TM) during the preceding six-month period.
6.3 ReoPro(TM) shall be distributed and sold by Fujisawa only in original
packaging and with labeling as provided by Centocor and shall bear the Trademark
defined in Article 5.6 hereof, provided, however, that ReoPro(TM) labeling,
packaging and packaging insert shall be developed by Fujisawa in consultation
with Centocor and in accordance with Japanese Health Authorities regulations.
ReoPro(TM) components shall not be mixed, repackaged, sold separately, sold or
offered in any form by Fujisawa other than that provided by Centocor.
6.4 Fujisawa shall make reasonable efforts to comply with proper trademark
usage to prevent dilution of the Trademark rights secured by Centocor.
Consistent with the foregoing, Centocor shall have the right to approve Fujisawa
advertising and manner of trademark usage with respect to the Trademark. In
order to assure quality control, Fujisawa shall use the Trademark only on
ReoPro(TM) supplied under this Agreement by Centocor. Fujisawa acknowledges that
the
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Trademark is the sole property of Centocor, use by Fujisawa of the Trademark
inures to the benefit of Centocor.
6.5 Prior to first use, Fujisawa shall use its best efforts to provide to
Centocor copies of representative ReoPro(TM) advertising and promotional
literature, brochures, and catalogs for Centocor's comments.
6.6 (a) For use in human clinical studies, Fujisawa shall purchase ReoPro
(TM) and all placebo from Centocor at Centocor's then current fully-burdened
cost. If Fujisawa reasonably determines that it is necessary to conduct any
preclinical studies, Centocor shall supply reasonable quantities of ReoPro(TM)
for such studies free of charge.
(b) Fujisawa's purchase price of ReoPro(TM) for its Commercial Sales for
each applicable period shall be XXXXXXXXXX of Fujisawa's Net Sales Price of
ReoPro(TM) for such period.
(c) All ReoPro(TM) shipments from Centocor to Fujisawa shall be F.O.B.
Centocor's place of shipment.
6.7 (a) Prior to the first expected shipment of ReoPro(TM) from Centocor to
Fujisawa for Commercial Sale, the parties shall estimate the average Net Sales
Price at which Fujisawa will sell each Vial of ReoPro(TM). Based upon such
estimate, the parties shall establish an initial transfer price (the "Transfer
Price") such that such Transfer Price shall approximate the applicable amount
Centocor would receive on each Vial of ReoPro(TM) sold by Fujisawa. The parties
shall review the Transfer Price as circumstances dictate from time to time.
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(b) Upon each shipment of ReoPro(TM) from Centocor to Fujisawa, Centocor
shall send to Fujisawa an invoice, accompanied by the shipping documents and a
certificate of analysis for each lot, for all Vials in such shipment at the
Transfer Price. Fujisawa shall pay such invoices within ninety (90) days of the
invoice date.
(c) Within thirty (30) days following the last day of each calendar quarter
during the Term of this Agreement, Fujisawa shall furnish to Centocor a written
statement specifying (i) the quantities of ReoPro(TM) Vials sold or otherwise
disposed of in such calendar quarter, (ii) Fujisawa's best estimate of the
aggregate Net Sales Price of ReoPro(TM) Vials sold in such calendar quarter,
(iii) any difference between the amount owed to Centocor pursuant to Article
6.6(b) of the Agreement with respect to ReoPro(TM) Vials sold during such
calendar quarter and the aggregate Transfer Price invoiced for such quantity
sold, and (iv) its inventory of ReoPro(TM) at the end of such calendar quarter.
Payment of the total amount due to Centocor shall accompany the report. If any
report indicates that Fujisawa is due a credit from Centocor, such credit shall
be taken against the next ReoPro(TM) invoice or quarterly report. For purposes
of this Article, Fujisawa's best estimate shall be based on its last semi-annual
settlement to its wholesalers. When each such settlement becomes final, Fujisawa
shall adjust its next quarterly report to reflect any difference between the
actual settlement for such period and the estimate used by Fujisawa.
(d) If any Vials shipped to Fujisawa and invoiced by Centocor cannot be
resold by Fujisawa as a result of Fujisawa's improper handling or storage of
such Vials, Fujisawa shall nevertheless remain obligated to pay Centocor the
Transfer Price of such Vials.
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(e) Fujisawa's Net Sales Price of ReoPro(TM) Vials sold by Fujisawa shall
be converted to United States Dollars at the prevailing spot exchange rate
between the Japanese Yen and United States Dollar for the last business day of
the quarter in which such sales are made, as quoted by Nikkei Shinbun. All
amounts payable by Fujisawa to Centocor shall be paid in United States Dollars
in a bank account designated by Centocor.
(f) Centocor shall have the right for a period of three (3) years after
receiving any ReoPro(TM) sales statement from Fujisawa to verify the payments.
Fujisawa shall maintain complete and accurate records for the latest three (3)
years in sufficient detail to enable the amounts due to Centocor hereunder to be
determined. Fujisawa agrees to permit such books and records to be examined on
thirty (30) days' advance written notice, but not more than once in any calendar
year. The examination shall be made by an independent certified public
accountant retained by Centocor and reasonably acceptable to and approved by
Fujisawa. Any such audit shall be at the expense of Centocor and conducted
during business hours of Fujisawa. The purpose of such audit shall be solely for
verifying the amounts payable as provided for in this Agreement, and such
accountant shall disclose to Centocor only the information required for that
purpose. In the event such audit establishes that Fujisawa has underpaid the
amount due by five percent (5%) or more during any calendar quarter, Fujisawa
shall promptly pay the remaining amounts due as established by such audit, with
interest, at an annual rate of ten percent (10%), and reimburse Centocor for its
out-of-pocket expense of such audit.
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6.8 Late payments shall be subject to a penalty equal to an annual rate of
ten percent (10%) of the principal amount outstanding. Accrued penalties shall
be added to principal amounts outstanding on a monthly basis. All bank fees and
currency commissions, if any, shall be for the account of Fujisawa. The risk
and/or benefit of translating foreign currencies into United States Dollars
which may arise in the period between any payment due dates herein and actual
dates of late payment shall be for the account of Fujisawa.
6.9 Fujisawa shall promptly advise Centocor of the initial NHI Price for
ReoPro(TM), once established, and any subsequent change in such price.
7 MILESTONE PAYMENTS
------------------
7.1 As compensation for its appointment as exclusive distributor in
connection with sales of ReoPro(TM) in Japan, Fujisawa shall make non-refundable
payments to Centocor by wire transfer as follows:
(a) Fifteen Million Dollars ($15,000,000) upon execution of this Agreement;
(b) Six Million Dollars ($6,000,000) upon XXXXXXXXXX; and
(c) Six Million Dollars ($6,000,000) upon XXXXXXXXXX.
Each of the above payments shall be payable by Fujisawa within thirty (30)
days of the respective dates such payments come due.
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7.2 If laws or regulations require withholding by Fujisawa of taxes
imposed upon Centocor on account of any payments due Centocor under this
Agreement, such taxes shall be deducted by Fujisawa from such payments and shall
be remitted by Fujisawa to the proper taxation authority. Fujisawa shall secure
and submit to Centocor official documentation attesting to the payment of such
taxes, in order for Centocor's tax records to be suitably adjusted.
8 CENTOCOR'S BEST KNOWLEDGE REPRESENTATIONS; WARRANTIES
-----------------------------------------------------
8.1 Centocor, to its best knowledge, represents the following to Fujisawa:
(a) Centocor is not aware of any third party patents, trade secrets, or
other proprietary rights which would be infringed or violated by Fujisawa's
commercialization of ReoPro(TM) in Japan; and
(b) Subject to the results of clinical trials of ReoPro(TM) to be conducted
in Japan, Centocor is not aware of any reason why ReoPro(TM) should not be
registerable in Japan.
8.2 Centocor warrants that, as of the Effective Date of this Agreement, no
other person or entity holds any license or commercialization rights to
ReoPro(TM) in Japan.
8.3 Centocor warrants that ReoPro(TM) supplied to Fujisawa will meet the
Specifications, and will be merchantable and fit for the purposes of Fujisawa's
use, sale and distribution pursuant to this Agreement. All other warranties,
expressed or implied, including without limitations any warranty of
merchantability or fitness for any purpose other than that stated hereinabove,
are expressly excluded from this Agreement or any sale pursuant hereto.
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9 INDEMNIFICATION AND INSURANCE
-----------------------------
9.1 Centocor shall defend and indemnify Fujisawa, Fujisawa Affiliates and
their respective directors, officers, employees and agents against all claims,
losses, damages, liabilities, and expenses, including reasonable attorneys' fees
(collectively "Losses") arising out of or resulting from (a) any liability or
claim arising from the manufacture, sale or use of ReoPro(TM) (except in the
event that any such Losses are caused by or arise out of the negligence, willful
misconduct or illegal acts of Fujisawa, any Fujisawa Affiliates or any of their
respective directors, officers, employees or agents); or (b) any other claim
relating to ReoPro(TM) to the extent such Losses are caused by or arise out of
the negligence, willful misconduct or illegal acts of Centocor, any Centocor
Affiliates or any of their respective directors, officers, employees or agents;
provided, however, that Fujisawa shall (i) promptly notify Centocor in writing
of the claim; and (ii) fully cooperate in the defense of the claim, which shall
be paid for and controlled by Centocor, including without limitation giving
complete access to all relevant records. Centocor may settle any such claims
only with Fujisawa's consent, which shall not be withheld unreasonably.
9.2 Fujisawa shall defend and indemnify Centocor, Centocor Affiliates and
their respective directors, officers, employees and agents against any Losses
arising out of or resulting from any claim made against Centocor relating to
ReoPro(TM) in the event that any such Losses are caused by or arise out of the
negligence, willful misconduct or illegal acts of Fujisawa, any Fujisawa
Affiliates, or any of their respective directors, officers, employees or agents
in connection, in any manner, with the sale, distribution or promotion of
ReoPro(TM) by Fujisawa or any other transactions contemplated by this
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Agreement; provided, however, that Centocor shall (i) promptly notify Fujisawa
in writing of the claim; and (ii) fully cooperate in the defense of the claim,
which shall be paid for and controlled by Fujisawa, including without limitation
giving complete access to all relevant records. Fujisawa may settle any such
claim only with Centocor's consent, which shall not be withheld unreasonably.
9.3 During the term of this Agreement Centocor shall maintain in force
ReoPro(TM) liability insurance coverage with commercially reasonable limits, in
consultation with Fujisawa. Centocor shall use its best effort to cause Fujisawa
to be a named insured. The document which confirms such insurance coverage of
ReoPro(TM) shall be provided to Fujisawa.
9.4 Each of Fujisawa and Centocor agrees to indemnify the other for any
breach by Fujisawa or Centocor, as the case may be, of its representations and
warranties contained in Articles 2.1, 3.1, 8.1, 8.2 and 8.3, respectively.
10 THIRD PARTY INFRINGEMENT
------------------------
10.1 (a) The party to this Agreement first having knowledge of any
imitations of ReoPro(TM) or of any actual, suspected or threatened infringement
of the patents, Trademark, or other property rights relating to ReoPro(TM),
shall promptly notify the other in writing. The notice shall set forth the
relevant facts in reasonable detail.
(b) Centocor shall have the primary obligation to institute,
prosecute, and control any action or proceeding with respect to such
infringement, by counsel of its own choice, and Fujisawa shall have the right,
at its own expense, to be represented in that action by counsel of its
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own choice. If Centocor fails to bring an action or proceeding within a period
of one hundred and twenty (120) days after receiving written notice from
Fujisawa or otherwise having knowledge of that infringement, Fujisawa shall have
the right to bring and control any such action by counsel of its own choice, and
Centocor shall have the right to be represented in any such action by counsel of
its own choice at its own expense.
If one party brings any such action or proceeding and the other party
determines to pursue such action or proceeding, the second party agrees to be
joined as a party plaintiff and to give the first party reasonable assistance
and authority to file and prosecute the suit. The out-of-pocket costs and
expenses of the party bringing suit under this paragraph shall be reimbursed
first out of any damages or other monetary awards recovered in favor of Centocor
and/or Fujisawa. Any remaining damages or other monetary awards shall be divided
evenly between the parties. To the extent damages and monetary awards are
insufficient to cover the costs and expenses of the party bringing the suit,
those costs and expenses will be divided evenly between the parties.
If one party brings any such action or proceeding and the other party
determines not to pursue such action or proceeding, the second party
nevertheless agrees to be joined as a party plaintiff and to give the first
party reasonable assistance and authority to file and prosecute the suit. In
such case, the party bringing the action or proceeding shall bear all costs
associated therewith and shall be entitled to all damages or other monetary
awards to the exclusion of the other party.
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(c) Any settlement or other voluntary disposition of an action under this
Article shall require the joint consent of Centocor and Fujisawa, which consent
shall not be withheld unreasonably.
10.2 (a) Fujisawa shall promptly notify Centocor in writing in the event
that any claim, action, proceeding or litigation against Fujisawa is initiated
by a third party charging Fujisawa with infringement of a patent, trademark or
other property rights of any such third party as a result of the development,
use and sale in Japan of ReoPro(TM) as delivered to Fujisawa by Centocor.
Centocor shall (i) assume the defense of any such claim, action, proceeding, or
litigation if it arises solely due to the development, sale or use of ReoPro(TM)
as delivered to Fujisawa by Centocor and not due to any repacking, use with
another compound or other use by Fujisawa other than the development, use or
sales of ReoPro(TM) as delivered to Fujisawa; (ii) pay the expenses of such
defense; and (iii) indemnify Fujisawa against any money damages and costs
awarded in such suit; provided that (A) Centocor shall have sole and exclusive
control of the defense of such suit, and sole and exclusive control of all
negotiations relative to the settlement thereof; (B) the liability claimed shall
have arisen solely because of Centocor's selection as to design, composition, or
manufacture of ReoPro(TM), and that ReoPro(TM) is used by Fujisawa in the form,
condition, and for the purpose supplied by Centocor; and (c) Fujisawa shall have
promptly informed Centocor, in writing, of any claim with respect to which
Fujisawa seeks indemnity from Centocor hereunder.
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(b) Fujisawa shall have the right to employ its counsel in any such action,
but the fees and expenses of such counsel shall be the expense of Fujisawa,
unless the employment of such counsel has been authorized, in writing, by
Centocor.
10.3 Upon execution of this Agreement and periodically thereafter, the
parties shall mutually review the patent situation related to ReoPro(TM) and
Centocor shall take such steps as the parties may mutually agree to be necessary
to prevent any patent infringement problems. Centocor shall keep Fujisawa
informed of the progress of such steps in a timely manner.
10.4 Fujisawa may register the Trademark referred to in Articles 5.6 and
5.7 hereof with the Japanese Patent Office. Upon Fujisawa's request, Centocor
shall assist Fujisawa in effecting such registration by executing and delivering
all necessary instruments and documents.
11 CONFIDENTIALITY
---------------
11.1 All proprietary information disclosed by either party to the other
shall be received by the receiving party (including all appropriate employees)
in strictest confidence and used solely in furtherance of this Agreement and
accorded the same degree of confidentiality and secrecy with which the receiving
party holds its own most confidential information of a similar nature but in no
event less than reasonable care. Such confidential information shall not be
disclosed to any persons other than (a) employees or agents of the receiving
party or independent contractors employed by the receiving party who have
reasonable need for access to such information in connection with the receiving
party's performance under this Agreement and who are bound to the receiving
party, as
29
<PAGE>
applicable, by a written agreement of confidentiality containing terms
consistent with those contained in this Article; (b) governmental authorities,
as required, to obtain necessary regulatory clearances; (c) Centocor Affiliates
or Fujisawa Affiliates, as applicable, provided that such Affiliates are bound
to the receiving party, as applicable, by an agreement of confidentiality
containing terms consistent with those contained in this Article; (d) clinicians
and other outside investigators to the extent necessary for the receiving
party's performance under Article 5 of this Agreement; and (e) medical
institutions and other customers (actual or potential) to the extent necessary
for the receiving party's activity in the promotion and sale of ReoPro(TM) (for
example, to obtain necessary formulary clearances of ReoPro(TM) or for the
purpose of submission of drug information regarding ReoPro(TM) mandated for
filing by the Drug Information Department of hospitals); provided, however, that
the parties shall consult concerning disclosure of confidential information
relating to the manufacture of ReoPro/(TM)/, if and when such disclosure is
requested by medical institutions, etc. Information shall not be deemed to be
proprietary information and such restrictions shall not apply to any such
information (i) which is, or subsequently may become, within the knowledge of
the general public, without the fault of the receiving party; (ii) which is
known to the receiving party prior to the time of receipt thereof from the
disclosing party, as shown by competent written records; (iii) which is proved
to have been developed by the receiving party, independently and wholly without
resort to the proprietary information of the disclosing party, as shown by
competent written records; (iv) which is subsequently rightfully obtained from
sources other than the disclosing party and without confidential restriction in
favor of the disclosing party.
30
<PAGE>
11.2 Nothing herein shall prevent either Centocor or Fujisawa from using
its own technology for any purpose not otherwise prohibited by this Agreement.
12 TERM AND TERMINATION
--------------------
12.1 This Agreement shall continue for so long as Fujisawa or any of its
Affiliates continues to develop, market and sell ReoPro/(TM)/ in Japan. Fujisawa
may terminate this Agreement at any time, in its sole discretion, upon immediate
written notice to Centocor if Fujisawa concludes that the results of clinical
trials of ReoPro/(TM)/ in Japan are inadequate to support the commercialization
of ReoPro/(TM)/ in Japan, or Japanese market conditions have changed adversely
such that Fujisawa no longer desires to promote, market, sell and distribute
ReoPro/(TM)/ in Japan.
12.2 This Agreement may be terminated by either party (a) in the event of
a substantial default by the other party on any obligation hereunder, by serving
written notice on the defaulting party, which termination shall be effective
sixty (60) days after receipt of such written notice, unless such substantial
default is rectified within such sixty (60) days; or (b) immediately upon
written notice in the event of the bankruptcy or insolvency of the other party
unless the trustee in bankruptcy or receiver of such party shall assume this
Agreement or otherwise give reasonable assurance of the performance of all
covenants, terms and conditions of this Agreement. No such termination shall
affect or discharge any obligation of either party which arose prior to the
Effective Date of such termination with respect to monies owed or confidential
information.
31
<PAGE>
12.3 (a) If this Agreement is terminated (i) by Fujisawa pursuant to
Article 12.1, (ii) by Centocor on grounds of a substantial default by Fujisawa,
or (iii) upon termination pursuant to Article 12.2(b), Fujisawa shall, upon the
request of Centocor and if reasonably required, promptly and free of charge,
execute any document necessary to transfer to Centocor or its nominee any
approvals, licenses, regulatory submissions and/or similar requests for approval
then on file, whether approved or not, which approvals, licenses, submissions or
requests are directed specifically to the use of ReoPro(TM), and shall cooperate
fully in assisting Centocor in obtaining the approval of the appropriate
regulatory authorities to transfer such licenses, approvals, submissions or
requests. Further, Fujisawa shall transfer to Centocor all data, information and
other documents relative to any such ReoPro/TM/ applications, licenses or
approvals.
(b) If this Agreement is terminated by Fujisawa on grounds of a substantial
default by Centocor, Fujisawa will, at Centocor's request and if reasonably
required, perform the same tasks as set forth in Paragraph 12.3(a), but only on
such financial terms to be negotiated between the parties that would reasonably
compensate Fujisawa for its efforts.
12.4 Articles 2.1, 3.1, 8.1, 8.2, 8.3, 9.1, 9.2, 9.4, 10.2, 11.1, and 12.3
shall not terminate upon termination of this Agreement. Such Articles shall
survive the termination of this Agreement for an indefinite period of time
except Article 11.1, which shall survive for a period of five (5) years
following termination, and except Article 12.3, which shall survive for a period
of two (2) years following termination.
32
<PAGE>
12.5 Termination of this Agreement by either party on grounds of a
substantial default by the other party may be effected without prejudice to any
remedy or claims that the non-defaulting party may have against the defaulting
party for the default.
13 LIMITATION OF DAMAGES
---------------------
13.1 Except to the extent of the indemnification provided in Articles 9
and 10.2(a)(iii), or except the remedy or claims for actual damages in the case
of termination of this Agreement due to a substantial default, neither party
shall be liable to the other for loss of profit or incidental or consequential
damages in any claims arising out of or relating to this Agreement, whether
based on warranty, contract, negligence or strict liability.
14 EXCUSED DELAY
-------------
14.1 The timely performance of either party will be excused, and shall not
constitute a breach, or grounds for termination or prejudice of any rights
hereunder, if the delay of performance is the result of circumstances or
occurrences beyond the reasonable control of the party whose performance is
excused hereunder, provided that such party shall promptly provide written
notice of such delay and the reason therefor to the other party and shall resume
performance immediately after the cause of delay is removed and shall during
such delay be reasonably diligent in avoiding further delay. Without limiting
the generality of circumstances or occurrences beyond the reasonable control
33
<PAGE>
of either party, examples of such circumstances or occurrences are strikes,
shortages of power, materials or transportation, acts of government or of God,
sabotage and insurrection.
15 NOTICES
-------
15.1 Any notice required under this Agreement shall be considered given
upon the earlier of (a) when actually received at the address set forth below;
or (b) three (3) business days after such notice, properly addressed and
dispatched by international courier service, is sent by either party to the
other. The proper addresses for notice are as follows:
From Centocor to Fujisawa:
Fujisawa Pharmaceutical Co., Ltd.
4-7, Doshomachi, 3-chome
Chuo-ku, Osaka, 541
Japan
Attention: Executive Director
Legal Affairs Division
From Fujisawa to Centocor:
Centocor, Inc.
200 Great Valley Parkway
Malvern, Pennsylvania 19355, U.S.A.
Attention: Secretary
or to other addresses or addressees as the parties hereto may designate in
writing for such purpose during the term of this Agreement.
34
<PAGE>
16 NO WAIVER
---------
16.1 No failure or delay on the part of a party in exercising any right
hereunder shall operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right shall preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right shall
be deemed a waiver of any other right hereunder.
17 ASSIGNMENT
----------
17.1 Neither party shall assign this Agreement or any part hereof or any
right or obligation hereunder to any third party without the prior written
consent of the other party, which consent shall not be withheld unreasonably.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
18 HEADINGS
--------
18.1 The captions and Article headings of this Agreement are solely for
the convenience of reference and shall not affect its interpretation.
19 RELATIONSHIP BETWEEN THE PARTIES
--------------------------------
19.1 Fujisawa and Centocor agree that each party to this Agreement is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a
35
<PAGE>
partnership or joint venture, and neither party may be bound by the other to any
contract, arrangement or understanding except as specifically stated herein.
20 ARBITRATION
-----------
20.1 This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to conflicts of law
provisions. Any dispute between the parties relating to this Agreement shall,
unless resolved by the parties hereto within sixty (60) days after such dispute
arises, be referred to binding arbitration pursuant to the rules of the
International Chamber of Commerce. Arbitration proceedings shall be held in
Philadelphia if the arbitration is initiated by Fujisawa and in Osaka if it is
initiated by Centocor.
21 ANNOUNCEMENTS
-------------
21.1 Neither Centocor or Centocor Affiliates nor Fujisawa or Fujisawa
Affiliates shall originate any publicity, news release, or other public
announcement, whether to the public press, to stockholders, or otherwise,
disclosing the terms of this Agreement or of any amendment hereto, without the
prior written approval of the other party, which approval shall not unreasonably
be withheld or delayed, provided that nothing in this Article shall be deemed to
prevent either party from making such disclosures or announcements which, in the
opinion of counsel, are legally required.
36
<PAGE>
22 ENTIRE AGREEMENT, MODIFICATION
------------------------------
22.1 This Agreement constitutes the entire Agreement between the parties,
supersedes all written or oral prior agreements or understandings relating to
the subject matter of this Agreement, and no variation or other modification of
this Agreement or waiver of any of its terms or provisions shall be deemed valid
unless in writing and signed by both parties.
23 SEVERABILITY
------------
23.1 Should any part or provision of this Agreement be held unenforceable
or in conflict with the applicable laws or regulations of any jurisdiction, the
invalid or unenforceable part or provision shall be replaced with a provision
which accomplishes, to the extent possible, the original business purpose of
such part or provision in a valid and enforceable manner, and the remainder of
this Agreement shall remain binding upon the parties hereto.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
CENTOCOR, INC.
By: /s/ David P. Holveck
----------------------------
Name: David P. Holveck
Title: President and
Chief Executive Officer
Date: August 15, 1996
--------------------------
FUJISAWA PHARMACEUTICAL CO., LTD.
By: /s/ Akira Fujiyama
----------------------------
Name: Akira Fujiyama
Title: President and
Chief Executive Officer
Date: August 13, 1996
-------------------------
38
<PAGE>
Exhibit 11
----------
CENTOCOR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Computation of Earnings (Loss) Per Common Share
<TABLE>
<CAPTION>
For the Years ended December 31, 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
EARNINGS (LOSS)
Loss from continuing operations before
extraordinary gain, special charges and litigation ($13,468) ($51,740) ($63,449)
Net gain on extinguishment of debt 705 - -
Special charges - (1,642) (61,934)
Litigation settlement - (3,750) (1,275)
---------- ---------- ----------
Net loss available to common stock ($12,763) ($57,132) ($126,658)
========== ========== ==========
SHARES
Weighted average number of common shares outstanding 66,475 58,207 49,597
========== ========== ==========
PRIMARY EARNINGS (LOSS) PER COMMON SHARE:
Loss from continuing operations before
extraordinary gain, special charges and litigation ($0.20) ($0.89) ($1.28)
Net gain on extinguishment of debt 0.01 - -
Special charges - (0.03) (1.24)
Litigation settlement - (0.06) (0.03)
---------- ---------- ----------
NET LOSS ($0.19) ($0.98) ($2.55)
========== ========== ==========
</TABLE>
The computation of earnings or loss per share in each period is based on
the weighted average number of common shares outstanding. When dilutive,
stock options and warrants are included as share equivalents using the
treasury stock method.
<PAGE>
Exhibit 12
CENTOCOR, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF RATIOS
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS):
Loss ($12,763) ($57,132) ($126,658) ($74,379) ($194,146)
PLUS:
Fixed charges (below) 9,648 18,903 21,719 22,820 24,046
LESS:
Interest capitalized - - - - -
---------- ---------- ---------- ----------- ----------
ADJUSTED EARNINGS (LOSS) ($3,115) ($38,229) ($104,939) ($51,559) ($170,100)
FIXED CHARGES:
Rent expense deemed interest $1,138 $1,191 $1,187 $1,987 $3,537
Interest expense 8,351 17,001 19,821 20,087 19,798
Amortization of debt issuance cost 159 711 711 746 711
Interest capitalized - - - - -
---------- ---------- ---------- ----------- ----------
TOTAL FIXED CHARGES $9,648 $18,903 $21,719 $22,820 $24,046
RATIO * * * * *
- - - - -
</TABLE>
* Adjusted earnings did not cover fixed charges for the years ended December 31,
1996, 1995, 1994, 1993, and 1992 by $12,763,000, $57,132,000, $126,658,000,
$74,379,000, and $194,146,000 respectively.
<PAGE>
Exhibit 21
----------
CENTOCOR, INC. AND SUBSIDIARIES
Jurisdiction of Incorporation
Subsidiaries of the Registrant or Organization
------------------------------ ---------------
1. Centocor B.V. The Netherlands
2. Centocor Development Corporation III Delaware
3. Centocor Property Management Corp. Delaware
4. Centocor Property Management Corp. II Delaware
5. Centocor Ventures III Delaware
6. First Valley Insurance Company Vermont
7. Centocor U.K. Limited United Kingdom
8. Centocor U.K. Holdings Limited United Kingdom
9. Nippon Centocor K.K. Japan
10. Centocor (BVI), Inc. British Virgin Islands
11. Winthorp and Valentine, Inc. Delaware
<PAGE>
Exhibit 23
----------
Consent of Independent Auditors
The Board of Directors
Centocor, Inc.:
We consent to incorporation by reference in Registration Statement Nos. 33-
35729, 33-16286, 33-7311, 33-23481, 33-44231, 33-29142 and 333-07829 on Form S-3
and in Registration Statement Nos. 33-35731, 2-86486, 33-35730, 33-00167, 33-
16285, 33-16284 and 33-23480 on Form S-8 of Centocor, Inc. of our report dated
January 31, 1997, except for paragraph 3 of Note 3 which is as of March 4, 1997
relating to the consolidated balance sheets of Centocor, Inc. and subsidiaries
as of December 31, 1996 and 1995 and the related consolidated statements of
operations, cashflows, shareholders' equity and related consolidated financial
statement schedule for each of the years in the three-year period ended December
31, 1996, and of our report dated January 31, 1997 relating to the balance
sheets of Centocor Partners III, L.P. as of December 31, 1996 and 1995 and the
related statements of operations, cashflows and partners' capital for each of
the years in the three-year period ended December 31, 1996, which reports appear
in the December 31, 1996 Annual Report on Form 10-K of Centocor, Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTOCOR,
INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND CENTOCOR, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 55,953
<SECURITIES> 120,362
<RECEIVABLES> 29,587
<ALLOWANCES> 0
<INVENTORY> 23,815
<CURRENT-ASSETS> 234,748
<PP&E> 141,491
<DEPRECIATION> 79,954
<TOTAL-ASSETS> 341,121
<CURRENT-LIABILITIES> 45,480
<BONDS> 54,765
0
0
<COMMON> 692
<OTHER-SE> 235,218
<TOTAL-LIABILITY-AND-EQUITY> 341,121
<SALES> 132,130
<TOTAL-REVENUES> 135,485
<CGS> 61,094
<TOTAL-COSTS> 61,094
<OTHER-EXPENSES> 89,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,351
<INCOME-PRETAX> (13,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 705
<CHANGES> 0
<NET-INCOME> (12,763)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
