Medco Research, Inc.
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 year ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-13948
MEDCO RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3318451
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 T. W. Alexander Drive
Research Triangle Park, North Carolina 27709
(Address of principal executive offices) (Zip Code)
(919) 549-8117
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock American Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing price on February 29, 1996 of $10.125 for the Registrant's
Common Stock as reported on the American Stock Exchange, the aggregate market
value of Common Stock held by nonaffiliates of Registrant was approximately
$111,515,282.
The number of shares outstanding of the Registrant's Common Stock was 11,155,832
at February 29, 1996.
Documents incorporated by reference:
Part III: Sections entitled "Election of Directors", "Board of Directors and
Executive Officers", "Executive Compensation", "Security Ownership of Certain
Beneficial Owners and Management" and "Certain Transactions" from the
Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders.
<PAGE>
Medco Research, Inc.
PART I
ITEM 1. BUSINESS
COMPANY PROFILE
Medco Research, Inc. (the "Company") is a biopharmaceutical company engaged in
the acquisition, research, and development of proprietary human healthcare
products, focused primarily on the diagnosis and treatment of cardiovascular
disease.
The Company was incorporated in California in September 1978 and originally
founded as a contract research organization offering clinical and regulatory
support to the pharmaceutical industry. In 1984, the Company secured its own
product rights, went public and raised approximately $4 million in the initial
offering, and began its transition to a biopharmaceutical company; and in
January 1992 it raised approximately $48 million in a secondary public offering.
In May 1993, the Company relocated to Research Triangle Park, North Carolina,
and in 1995 it completed its reincorporation in Delaware.
The Company's business approach has been to acquire product candidates which
have already undergone some preclinical (animal) and clinical (human) testing,
so-called late-stage products, thereby reducing the costs and risks associated
with drug discovery and basic research. These product opportunities and the
related intellectual property rights are typically obtained under license from
academic or corporate sources who have received United States patents which, in
the opinion of the Company's patent counsel, are enforceable. The Company then
sponsors and directs the clinical testing and any additional preclinical studies
needed for product registration and marketing approval. These late-stage
activities are often outsourced to independent clinical research organizations
to maximize efficiency and minimize internal overhead. To avoid the costs and
risks associated with product marketing, sales and distribution, the Company
licenses the manufacturing and marketing rights to the product to a corporate
partner in exchange for licensing fees and royalty payments on future product
sales. Formulation development, as well as microbiology and manufacturing,
chemistry, and controls data, is typically provided by the Company's licensed
corporate partner, and the Company then submits to the United States Food and
Drug Administration (the "FDA") a New Drug Application ("NDA") to obtain the
FDA's clearance to market the drug.
Using this royalty-based business model, which is relatively uncommon in the
pharmaceutical industry, the Company has commercialized two drugs and has five
others proceeding through various stages of clinical development, all with a
relatively modest depletion of its cash. The Company's first product,
ADENOCARD(R), was approved by the FDA in October 1988. Its second product,
ADENOSCAN(R), was approved by the FDA in May 1995. Substantially all royalty
income and expenses in the three year period ended December 31, 1995 resulted
from sales of ADENOCARD in the United States by Fujisawa-USA, Inc. ("Fujisawa"),
the Company's corporate partner for ADENOCARD and ADENOSCAN.
STRATEGIC PLAN
Whereas large pharmaceutical companies typically seek diversification into
multiple diagnostic and therapeutic areas, small companies with more limited
resources must concentrate their efforts to be competitive and successful. As
such, the Company continues to focus primarily on cardiovascular disease.
However, its subspecialty expertise in adenosine drug development, and more
recently nuclear cardiology, is well-recognized in the medical community. The
Company believes that medical market trends, in particular managed care, present
unique opportunities well suited to these core competencies. Therefore, to
further concentrate its efforts and corporate partner interests, the Company at
this time intends to divest its unrelated products and focus on the continued
acquisition and development of adenosine and nuclear cardiac imaging products.
ADENOSINE PORTFOLIO
ADENOCARD(R) - a sterile formulation of adenosine for injection - indicated for
the treatment of abnormally rapid heartbeats originating in the upper
chambers of the heart, so-called paroxysmal supraventricular tachycardia.
Commercially available from Fujisawa in the U.S. and Canada since 1989 as
ADENOCARD, the drug also is sold by the Company's corporate partner Sanofi
Pharma ("Sanofi") in the United Kingdom and other countries of the world as
ADENOCOR(R) and in Switzerland as KRENOSIN(R).
ADENOSCAN(R) - a sterile formulation of adenosine for infusion - indicated as an
adjunct to thallium cardiac imaging for the evaluation of coronary artery
disease in patients unable to exercise adequately, so-called
pharmacological stress. Commercially available from Fujisawa in the United
States and Canada since 1995, the drug also is sold by Sanofi in the United
Kingdom and pending registration and approval in other countries of the
world.
MEDR-640 - a sterile formulation of adenosine for infusion - under development
as an adjunct to early reperfusion (e.g., thrombolytic therapy or emergency
angioplasty) in the treatment of acute myocardial infarction. Positive
results of a Phase I/II trial for the drug were reported at the 1995 Annual
Meeting of the American Heart Association, supporting the Company's belief
that the drug holds significant promise as an effective cardioprotective
agent. Pending the successful completion of on-going negotiations, Fujisawa
would be the Company's partner for this product, which is in Phase II
clinical testing.
NUCLEAR CARDIOLOGY PORTFOLIO
VIASCINT(TM) - a sterile radiopharmaceutical formulation of
iodine/123/-iodophenylpenta-decanoic acid for injection - under
development to determine the presence of "hibernating", or reversibly
injured, as opposed to dead, heart muscle and thereby predict which
patients are most likely to experience improvement in cardiac function
following, and thus benefit from, coronary artery bypass graft (CABG)
surgery, and to assist physicians in the selection of patients for such
surgery. The Company has completed Phase III clinical testing, and the
results indicate that the product provides the means to predict, with
high accuracy, which patients will have improvement in cardiac functioning
following revascularization. The Company plans to make an NDA submission
in 1996. Nordion International Inc. currently has U.S. manufacturing
rights, and the Company has marketing rights. The Company is in the
process of seeking a corporate partner to market this product.
Tc/99m/-GLUCARATE - a radiopharmaceutical kit for the preparation
of technetium/99m/-glucarate for global injection - under development
for the early and rapid diagnosis of acute myocardial infarction,
particularly in patients with nondiagnostic electrocardiograms (ECGs) and
negative cardiac enzyme tests. The Company acquired this product in
January 1996 and currently retains the United States manufacturing and
marketing rights.
REMAINING PORTFOLIO
BIDIL(R) - an oral dosage formulation containing the combination of hydralazine
hydrochloride and isosorbide dinitrate (two generically available
vasodilators) - under development to improve survival in patients with
congestive heart failure (CHF) who are inappropriate for treatment with
angiotensin-converting enzyme (ACE) inhibitors. The product has completed
Phase III clinical testing. Studies to establish bioequivalence have been
completed, and the Company is analyzing the results. The Company has
transferred the manufacturing process for BIDIL from its formulator to its
commercial manufacturer. The Company plans to make an NDA submission in
1996. In 1993 the Company granted Boehringer Mannheim Pharmaceutical
Company marketing and back-up manufacturing rights, and these rights may be
reacquired by the Company. See "Product-By-Product Summaries - BIDIL"
below.
ATP - a sterile formulation of adenosine triphosphate - under development for
the treatment of solid tumors or cancer-related cachexia. The product has
completed one single-center Phase I and one multicenter Phase II clinical
trial, and the Company believes the results support the continued
investigation of the drug as an adjunctive therapy that may improve the
quality of life in patients suffering from non-small cell lung cancer. The
Company currently retains the United States manufacturing and marketing
rights and is in the process of seeking a corporate partner for this
product.
PRODUCT-BY-PRODUCT SUMMARIES
ADENOCARD(R)
The Product: ADENOCARD is a sterile formulation of adenosine (3mg/mL) available
in 2ml vials and 2-4mL prefilled syringes for intravenous injection to restore
normal heart rhythm in patients with abnormally rapid heartbeats originating in
the upper chambers of the heart, so-called paroxysmal supraventricular
tachycardia (PSVT). Because of its very short half-life (less than 10 seconds),
ADENOCARD works quickly and typically without prolonged side effects. It has
been adopted by numerous medical organizations as the "drug-of-choice" for the
treatment of PSVT.
Regulatory Status: In October 1988, the Company received FDA approval to market
ADENOCARD in the United States, and the drug is commercially available from
Fujisawa in the United States and Canada. In September 1991, Sanofi received
marketing approval (under the trade name ADENOCOR) in the United Kingdom and, in
May 1992, received marketing approval (under the trade name KRENOSIN) in
Switzerland. Sanofi also sells the drug in France, Belgium, The Netherlands,
Luxembourg, Spain, Greece, Germany, Denmark, Ireland, Italy, Ireland, Australia,
Austria, Greece, Quatas, Jordan, Saudi Arabia, Cypress, Kuwait, Belgium and
Germany.
Product License: In March 1985, the University of Virginia Alumni Patents
Foundation granted to the Company an exclusive license to exploit in the United
States and Canada the use of adenosine for the treatment of supraventricular
tachycardia that is caused by re-entry in the A-V node or an accessory pathway
of the human heart. In November 1986 such Foundation received a United States
Patent on such use. For these rights, the Company paid a one-time, nonrefundable
license fee and agreed to pay 10% of all net sales of ADENOCARD made directly by
the Company and 50% of all royalties received by the Company from its
sublicensees until the expiration of the term of the patent rights or until the
license is terminated as provided in the agreement.
Competition: Intravenous calcium channel blockers and beta-blockers (generically
available from numerous sources) are principal competitors. In addition,
catheter-based ablation therapy is becoming more common and may compete for
certain patient types.
Manufacturing and Marketing:
1. Agreement with Fujisawa. In November 1985, the Company granted Fujisawa USA,
Inc. (formerly LyphoMed, Inc.), a manufacturer and marketer of critical care
injectable pharmaceuticals and other products, an exclusive license to
manufacture and market ADENOCARD in the United States and Canada. Fujisawa
agreed to pay the Company a royalty equal to 25% of its net sales of ADENOCARD
in each country for the duration of patent protection or any other exclusive
marketing rights that may be granted to the Company by governmental agencies,
whichever is longer. Fujisawa also agreed to pay the Company a royalty equal to
7% of Fujisawa's net sales of ADENOCARD during any subsequent term of the
agreement, which will continue after the initial term until either party
terminates the agreement by giving the other party 90 days written notice.
2. Agreement with Sanofi Pharma. In December 1987, the Company granted Sanofi
Pharma ("Sanofi"), a multinational pharmaceutical company headquartered in
France, the rights to exclusively manufacture and market ADENOCARD in Europe and
countries other than the United States and Canada. Sanofi agreed to use its best
efforts to commercialize ADENOCARD in such territories subsequent to receiving
governmental marketing approvals and to pay the Company royalties equal to 5% of
its net sales of ADENOCARD. Royalties will be paid on a country by country basis
for the longer of six years or the period of any marketing exclusivity
ADENOSCAN(R)
The Product: ADENOSCAN is a sterile formulation of adenosine (3mg/mL) available
in 30mL vials for infusion indicated as an adjunct to thallium cardiac imaging
in the evaluation of coronary artery disease in patients unable to exercise
adequately and unable to take the treadmill component of the related tests,
so-called pharmacological stress, since in many ways the effects of adenosine
simulate those of exercise. ADENOSCAN is administered by brief intravenous
infusion, and thallium (a radioactive agent) is injected during the procedure.
Cardiac images are subsequently acquired (with gamma cameras) which visually
display the presence and severity of underlying coronary artery disease. Because
of its very short half-life, side effects are generally very brief.
Regulatory Status: In October 1992, the Company received approval to market
ADENOSCAN in Canada; and in May 1995, the Company received from the FDA
marketing clearance for ADENOSCAN in the United States. In June 1995, Sanofi
received marketing approval for ADENOSCAN in the United Kingdom.
Product License: The Company owns the product as it is the exclusive assignee
of patents issued in the U.S. and Canada, with counterpart applications
pending approval in other countries of the world, covering the use of adenosine
as a pharmacological stressor in cardiac imaging. In addition, in the U.S.
the product received three years of exclusivity from the date of NDA
approval under the Hatch-Waxman Act.
Competition: Intravenous dipyridamole (IV Persantine(R)), manufactured and
marketed by DuPont Radiopharmaceuticals, is the principal competitor and has
been available in the U.S. since 1990. In addition, other drugs and procedures
currently available or under development may be useful in determining the
presence or severity of coronary artery disease and may compete directly with
ADENOSCAN.
Manufacturing and Marketing:
Agreement with Fujisawa. In December 1988, the Company granted Fujisawa an
exclusive license in the United States and Canada to manufacture and market
ADENOSCAN. As amended in May 1995 by an agreement settling a litigation among
the parties and Abbott Laboratories, Inc. related to the manufacturing and
marketing rights to this drug, Fujisawa agreed to pay the Company royalties of
29% of ADENOSCAN net sales in the United States and Canada for the first five
years after the commencement of commercial sales in each territory and
thereafter royalties of 25% of net sales until June 10, 2007, at which time
Fujisawa would have a paid-up license within such territories. (The Company is
obligated to pay to Abbott royalties of 2% of the net sales of ADENOSCAN for
five years following FDA marketing clearance, up to a maximum of $5.35 million.
See Note 6 to the Financial Statements included in Item 8 below.)
Fujisawa also agreed to pay royalties to the Company in respect of periods of
more than thirty days in which it is unable to fulfill ADENOSCAN orders for
reasons other than force majeure and other specified events, such royalties to
be at the then prevailing rate based on the average daily sales of ADENOSCAN
during the preceding 12 months. Fujisawa also agreed generally to maintain an
inventory of at least six months of ADENOSCAN finished product and
work-in-process, to be stored at multiple locations, to provide the Company
within one year with data necessary to qualify Fujisawa's Melrose Park, Illinois
plant as an alternate ADENOSCAN manufacturing facility and to use its best
efforts to identify and provide data to the Company to qualify with the FDA an
alternate supplier of the adenosine raw material necessary for the manufacture
of ADENOSCAN.
Agreement with Sanofi. In June 1992, the Company granted Sanofi the exclusive
rights to manufacture and market ADENOSCAN worldwide except in the United
States, Canada, Japan, Korea and Taiwan. Sanofi is responsible for obtaining
governmental marketing approvals for ADENOSCAN in its exclusive territories and
to pay the Company a 5% royalty based on annual sales. The royalty is payable
for the longer of ten years or the period of any marketing exclusivity for
ADENOSCAN in each country of the territory.
Agreement re: Japan. In February 1994, the Company signed a development and
marketing agreement with a company in Japan for cardiovascular uses of
adenosine. The Japanese company currently is pursuing the use of adenosine for
pharmacologic stress for use with thallium perfusion imaging to detect coronary
artery disease. The Japanese equivalent of an NDA has not been filed for any
product covered by the agreement. The Company received a $1 million license fee
plus a $300,000 fee when the FDA granted marketing clearance for ADENOSCAN.
MEDR-640
The Product. Each year in the U.S. over one million patients suffer acute
myocardial infarction and, despite the benefits of early reperfusion, permanent
injury and disability is not uncommon. In addition, over 300,000 patients a year
undergo CABG surgery and, despite standard cardioprotective measures,
significant cardiac support is often required during the early postoperative
period. MEDR-640 is a sterile formulation of adenosine (3mg/mL) under
development as an adjunct to early reperfusion (e.g., thrombolytic therapy or
emergency angioplasty) in the treatment of acute myocardial infarction and as an
additive to standard cardioplegia during open-heart surgery.
Development Background: Substantial preclinical data, and limited human testing,
suggest that adenosine may be further beneficial in these acute ischemic
settings. The results of a single-center pilot investigation suggest that
adenosine, as an adjunct to emergency angioplasty, may further limit the damage
associated with acute myocardial infarction. This was suggested by significantly
reduced injury measured 6-weeks after the procedure compared to measurements
made at the time of hospital discharge. The preliminary results from another
single-center pilot study suggest that adenosine, as an additive to standard
cold-blood cardioplegia, may also limit the amount of cardiac support required
during the early postoperative period following CABG surgery. This was suggested
by statistically significant reductions in the cumulative amount of inotropes
(i.e., dopamine and dobutamine) and vasodilators (i.e., nitroglycerine) required
in the 24-hour period following surgery. These preliminary findings support the
ongoing Phase II multicenter trials, including a placebo controlled trial in
CABG surgery (so-called AB-02 trial), two related placebo-controlled trials
using thrombolytic therapy in acute myocardial infarction (so-called AMISTAD
trial), and a placebo-controlled trial using emergency (primary) angioplasty in
acute myocardial infarction (so-called ALIVE trial).
Regulatory Status: The original IND for Phase I studies was filed in November,
1988. The Company is conducting multicenter Phase II clinical trials in the
U.S., Canada and Argentina under an IND submitted to the FDA in November 1988.
Product License: The Company has a patent application pending in the U.S.
and abroad for the use of adenosine to prevent further injury during acute
myocardial infarction, and Fujisawa is the exclusive licensee of a U.S.
patent issued in 1989 which would be sublicensed to the Company under the
terms of the proposed agreement between the Company and Fujisawa. See
"Manufacturing and Marketing" below.
Competition: A wide variety of agents currently available or under investigation
may be useful in these acute ischemic settings, including antiplatelet and
anticoagulant agents, cardiosuppressants, perfluorochemicals, anti-free radical
scavengers, and adenosine analogs or modulators which may compete directly with
MEDR-640.
Manufacturing and Marketing: MEDR 640 was included in the Company's 1988
exclusive license agreement with Fujisawa relating to ADENOSCAN. Pursuant to the
May 1995 agreement with Fujisawa settling the litigation over the manufacturing
and marketing of ADENOSCAN, all references to MEDR 640 in such license agreement
were eliminated and the parties agreed as soon as practicable to enter into an
agreement to jointly develop adenosine based products having indications as
cardioprotective agents, such as MEDR 640, and for that purpose Fujisawa would
grant to the Company an exclusive sublicense under a U.S. patent under which
Fujisawa is the exclusive licensee. Fujisawa would have exclusive manufacturing
and marketing rights in the U.S., Canada, Mexico and other territories to be
agreed upon, and it would pay the Company 25% of net sales within the
territories. The companies would share equally all costs of development and any
royalties due to third parties. The Company and Fujisawa are in the process of
negotiating such an agreement. (See Note 6 to Financial Statements included in
Item 8 below.)
VIASCINT(TM)
The Product: VIASCINT(TM) is a radiopharmaceutical formulation of
I/123/-iodophenylpenta-decanoic acid under development to determine the
presence of "hibernating", or reversibly injured, as opposed to dead, heart
muscle and thereby predict improvement in cardiac function following coronary
artery bypass graft (CABG) surgery, and to assist physicians in the selection of
patients most likely to benefit from such procedure.
Development Background: Although numerous procedures and various factors are
considered in the evaluation of patients for CABG surgery, the only FDA approved
product for cardiac metabolic imaging and tissue viability assessment is
F/18/-fluorodeoxyglucose (FDG) for use in conjunction with positron
emission tomography (PET). However, this procedure is very expensive and
not widely available. Like FDG, VIASCINT is a radioactive metabolite and
may provide similar information with gamma cameras, which are generally
available at most large hospitals. The results of the Company's Phase III
clinical trials support its belief that VIASCINT provides the means to
predict, with high accuracy, which patients will have improvement in
cardiac function following revascularization.
Regulatory Status: The Company has completed Phase III clinical trials in the
U.S. under an IND submitted to the FDA in June 1992. The Company plans to make
an NDA submission in 1996 based upon favorable ongoing dialogue with the FDA.
The Company currently has no registrations planned outside the U.S.
Competition: A wide variety of agents and procedures currently available or
under investigation may be useful in assisting physicians in the selection of
patients for CABG surgery and may compete directly with VIASCINT. However, only
PET FDG is currently FDA approved for use in detecting reversibly injured heart
muscle that may improve subsequent to CABG surgery.
Product License; Manufacturing and Marketing: In April 1992, the Company
obtained from Nordion International Inc. ("Nordion"), a Canadian manufacturer of
radiopharmaceuticals, the right to develop and market VIASCINT in the United
States. Under the agreement Nordion will supply the Company with VIASCINT for
United States clinical trials and will share a portion of the Company's initial
development expenses. Should the results of these initial studies be favorable,
the Company will continue the development program in pursuit of FDA marketing
clearance. The Company pays Nordion an annual fee of $25,000 (begun in April
1993) continuing up to the filing of the VIASCINT NDA. Upon FDA approval, if
obtained, Nordion will retain exclusive manufacturing rights in the United
States. The Company and Nordion will share equally in the profits of VIASCINT
sold in the United States by the Company, and the Company will receive a royalty
equal to 25% of net sales of VIASCINT sold in the United States by another party
to which it may sublicense the marketing rights.
VIASCINT is not protected by a U.S. patent. However, the manufacturing
(radiolabeling) technologies are trade secrets under license to Nordion
International. In addition, the Company has applied to the FDA for Orphan Drug
designation and anticipates five years of exclusivity under the Hatch-Waxman
Act.
Tc/99m/-GLUCARATE
The Product: It is estimated that, among the five million annual visits for
chest pain of possible cardiac original, nearly two million patients have ECGs
and cardiac enzymes which indicate no acute myocardial injury, yet no clear
alternative diagnosis. These patients are variably managed with the tentative
diagnosis of "rule-out" myocardial infarction, yet they are not clearly
candidates for early reperfusion therapy or early discharge. Tc/99m/-GLUCARATE,
a radiopharmaceutical kit containing lyophilized glucaric acid (a
carbohydrate derivative) for reconstitution and radiolabeling with
technetium/99m/ for injection, is under development for the early and rapid
diagnosis of acute myocardial infarction, and it may provide useful diagnostic
information in these patients with nondiagnostic electrocardiograms (ECGs)
and negative cardiac enzyme tests.
Development Background: Tc/99m/-GLUCARATE in animal studies has been shown not
to cross intact cellular membranes, and it is rapidly cleared from the
blood through the kidney. However, in the presence of irreversibly damaged
(infarcted) cells, Tc/99m/-GLUCARATE crosses the cellular membrane and
binds tightly to nuclear residues. This type of uptake produces images of
the infarcted areas that appear as "hot-spots" by standard nuclear imaging
techniques.
Regulatory Status: The product has undergone limited preclinical and
clinical testing overseas and some formulation development work. An IND to
commence human testing in the U.S. is targeted for filing in late 1996.
Competition: Tc/99m/ -pyrophosphate (FDA approved) and In/111/-antimyosin
antibody (pending FDA approval) are nuclear imaging agents used to detect
infarcted myocardium and both would compete directly with Tc/99m/-glucarate.
In addition, other in vivo or in vitro tests are available and would compete
directly with Tc/99m/-glucarate.
Product License; Manufacturing and Marketing: On January 5, 1966, the Company
received from Molecular Targeting Technology, Inc. an exclusive sublicensee
under a U.S. patent issued in August 1990 covering the use of technetium-labeled
glucarate for organ infarct imaging (the Molecular Targeting Technology
principals are the inventors, and the patent is jointly owned, through
assignment, by Centocor, Inc. and The Massachusetts General Hospital; similar
patents for the same technology were approved in Europe in May 1995). The
Company obtained the exclusive right to develop, manufacture and market
Tc/99m/-GLUCARATE in the United States, Japan and other countries of the
world, except in Asia. The Company agreed to pay opportunity fees
totaling $1.9 million, including an initial payment of $200,000 upon
execution of the agreement and staged payments according to specific
development milestones. The Company will also pay a royalty of either 6% of net
sales of the product if sold by the Company or 25% of the Company's revenues
from product sales made by a commercial partner. The sublicensor will provide
all pre-clinical and clinical data conducted in the U.S. and abroad and will
also transfer all manufacturing technology, including clinical trial material
for Phase I and Phase II clinical trials. The Company will be responsible
for all aspects of development and commercialization of the final product,
with rights to sublicense.
BIDIL(R)
The Product: Among the estimated 3.5 million patients suffering from congestive
heart failure (CHF) in the U.S., a substantial portion are not candidates for
first-line therapy with angiotensin-converting enzyme (ACE) inhibitors and, for
such patients, the Agency for Health Care Policy and Research (AHCPR) and other
medical organizations recommend combination oral treatment with hydralazine
hydrochloride and isosorbide dinitrate, two generically available vasodilators.
BIDIL is a fixed-dose, combination tablet for oral administration containing
these two vasodilators, under development by the Company to improve survival in
patients with CHF who are inappropriate for treatment with ACE inhibitors. BIDIL
would offer a convenient formulation that may reduce noncompliance with
prescribed treatment - the leading cause of hospital readmissions in patients
with CHF. Testing to determine whether the BIDIL formulation is bioequivalent to
the co-administration of its active components has been completed, and the data
are being analyzed.
Development Background: Two previous landmark studies, the so-called V-HeFT
trials, established the safety and efficacy of hydralazine and isosorbide
dinitrate in the treatment of CHF. In particular, survival was significantly
improved compared to placebo, although the ACE inhibitor enalapril was more
effective in this regard than the vasodilator combination. The Company believes
that data from these trials provide the clinical and statistical basis to pursue
a survival claim in the intended population, provided it can adequately
demonstrate that the BIDIL formulation is bioequivalent to the treatment used in
the V-HeFT studies.
Regulatory Status: In March 1993 the Company submitted to the FDA an IND to
commence human bioequivalency studies in the U.S. Phase III clinical testing has
been completed. A pilot bioequivalency study was completed; and a pivotal
bioequivalency study was completed in late 1995 and the data are being analyzed.
At Company expense, a commercial source of raw bulk hydralazine and isosorbide
dinitrate has been found and used in the preparation of the BIDIL combination
product. The Company plans to file an NDA in 1996 assuming the bioequivalence
data are favorable. BIDIL will qualify for three years of market exclusivity
under the Hatch-Waxman Act.
Product License: In November 1991, the Company acquired exclusive rights from
Jay N. Cohn, M.D., to a United States patent issued to Dr. Cohn in September
1989, covering a method of reducing mortality associated with chronic CHF in
patients with impaired cardiac function by administering a combination of
specified amounts of hydralazine and isosorbide dinitrate. Dr. Cohen, who was
the principal investigator of the V-HeFT trials, granted the Company an
exclusive license to worldwide rights to the combination therapy for research,
development, manufacture and sale of this drug under the issued United States
patent that he holds and any future patents he obtains.
The Company has agreed to pay Dr. Cohn a total non-refundable license fee (which
will be credited against any future royalties) of $200,000, of which $125,000 is
payable upon FDA approval of the Company's NDA for BIDIL. In the event the
drug is commercialized, the Company will pay Dr. Cohn royalties equal to (i)
7.5% of the Company's direct net sales or (ii) 30% of any royalties received by
the Company from sublicensees. In the event that annualized net sales surpass
$100,000,000, the royalty amounts will increase to 9% and 40%, respectively,
on sales over $100,000,000. However, upon expiration of Dr. Cohn's United
States patent for BIDIL, each of the foregoing royalty rates will be reduced by
50%.
Competition: Hydralazine hydrochloride and isosorbide dinitrate are generically
available and would compete directly with BIDIL. In addition, other agents
approved or under development, such as calcium-channel blockers, beta-blockers,
angiotensin-II receptor blocker, and other vasodilators, may compete directly
with BIDIL.
Manufacturing and Marketing: In November 1993, the Company signed a licensing
agreement with Boehringer Mannheim Pharmaceutical Company ("BMPC") giving BMPC
rights to market BIDIL in the U.S., Canada and Mexico with a right of first
refusal for licenses outside these territories. BMPC agreed to pay the Company
royalties as follows: (i)on net sales of up to $30,000,000, a royalty of
twenty-five percent (25%) of such net sales; (ii)on net sales of over
$30,000,000 and below $60,000,000, a royalty of twenty-two percent (22%) of such
net sales; and (iii)on net sales of over $60,000,000, a royalty of twenty
percent (20%) of such net sales.
BMPC paid the Company a licensing fee of $1,000,000 following the execution of
the agreement and agreed to make the following additional payments to the
Company: $500,000 within 30 days of successful completion of the bioequivalence
study; $250,000 within 30 days of the submission to the FDA of an NDA; and
$1,000,000 within 30 days of the approval of the NDA by the FDA. In the event
that within the time parameters established in the Development Plan a viable
formulation of BIDIL cannot be attained or bioequivalence of BIDIL is not
achieved, the Company is obligated to refund the $1,000,000 fee paid upon the
execution of the Agreement or $500,000 of such fee, as the case may be, and in
either case the agreement shall terminate.
The Company and BMPC mutually agreed effective April 1, 1996 to terminate the
November 1993 license in which the Company granted to BMPC marketing and back-up
manufacturing rights to BIDIL. As a result of BMPC's strategic marketing plans
for certain of its other products, it was no longer interested in BIDIL. The
Company will retain $350,000 of BMPC's $1 million license fee, which the Company
will account for as income in the second quarter of 1996.
Based on the value added to BIDIL by the Company from the formulation,
bioequivalency and other development work it has performed on BIDIL and the
planned 1996 filing of a BIDIL NDA, the Company believes, although no assurance
can be given, that it will be able to obtain another partner for BIDIL on
license terms at least as favorable as those it received from BMPC.
ADENOSINE TRIPHOSPHATE ("ATP")
The Product: There is a need for more effective treatment of solid tumors such
as non-small cell lung cancer, which is extremely aggressive, and leads rapidly
to death. ATP has demonstrated some ability to inhibit tumor growth in animal
studies, and it may reduce cachexia, the weight-loss and wasting syndrome
associated with cancer.
Development Background: Adenosine triphosphate is the primary energy-releasing
molecule in the human body and is composed of adenosine and phosphate. The
anti-cancer effects of ATP previously have been reported in several experimental
animal tumors. A small number of patients with late stage colorectal cancer have
received ATP in conjunction with a currently marketed anti cancer drug,
5-fluorouracil. In the two trials completed under the IND, ATP has shown a
favorable safety profile as well as some preliminary indications of efficacy.
Regulatory Status: A Phase I dose-ranging safety study and a Phase I/II
multicenter study in patients with non-small cell lung cancer have been
completed under an IND approved by the FDA in May, 1992. ATP will qualify for
five years of market exclusivity under the Hatch-Waxman Act.
Product License: In May 1991, the Company acquired from Eliezer Rapaport, Ph.D.,
the exclusive rights to two issued United States patents and one patent
application pending in the United States covering (i) the use of adenosine
5-diphosphate ("ADP") and adenosine 5-triphosphate ("ATP") to arrest and kill
tumor cells (United States patent issued November 1989); (ii) the arrest of
growth of tumor cells due to an increase in blood and plasma levels of ATP in a
host resulting from the administration to the host of adenosine monophosphate
("AMP") or ATP and a reduction in weight loss caused by cancer cachexia by
administration of AMP or ATP (United States patent issued September 1991); and
(iii) the utilization of adenosine nucleotides and/or adenosine and inorganic
phosphates for elevation of liver, blood and blood plasma ATP concentrations
(United States patent pending). A patent covering claims in (i) above has issued
in April 1988 in Europe and in February 1988 in Japan. Patent applications
covering claims in (ii) and (iii) above are pending in Europe and Japan.
In consideration for entering into this agreement, the Company granted Dr.
Rapaport and another scientist options to purchase a total of 21,200 shares of
the Company's stock at $14.625 per share (the market price of the stock at the
time of the grant), and agreed generally to pay Dr. Rapaport an 8% royalty based
on net sales of ATP by the Company or its affiliates and 40% of the net monetary
proceeds paid to the Company from any sublicensee based on net sales, but in no
event will Dr. Rapaport receive an amount less than 4% of the sublicensee's net
sales during the period in which the Company is receiving royalties from the
sublicensee. Unless sooner terminated under the terms of the agreement, the
license will continue until the later of the expiration of Dr. Rapaport's
patents or of any exclusive marketing period provided by law. However, the
Company may continue to market ATP in any country without making royalty
payments to Dr. Rapaport after the expiration of the patents in that country or
after five years following the commencement of sales in any country not covered
by Dr. Rapaport's patents.
Competition. There are numerous anti cancer agents on the market, but few of
these drugs are effective in the treatment of metastatic non-small cell lung
cancer ("NSCL"), the solid tumor against which ATP is first placed to be tested
in clinical studies. Other drugs are in development which may be used to treat
NSCL cancer and, if approved for marketing by the FDA, would likely compete with
and could be superior to ATP in the treatment of this and potentially other
tumors.
Manufacturing and Marketing: ATP is the Company's only adenosine-based product
with a non-cardiac indication, and The Company is seeking to sublicense a
corporate partner to continue the development of this product, including the
right to manufacture and market it.
GOVERNMENT REGULATION OF PHARMACEUTICALS
The Company is engaged in a business in which strict federal regulation through
the FDA is a significant factor. Such regulations relate primarily to the safety
and efficacy, but also govern manufacturing, labeling, advertising and
marketing, of pharmaceutical products.
In order to test clinically and later market pharmaceutical products, a company
must obtain marketing clearance from the FDA in the United States and comparable
governmental agencies in other countries. The FDA requires substantial evidence
of the safety and efficacy of new drugs and the approval process involves
several steps. Each of these steps can be time consuming and expensive.
The first step includes the period from the discovery of the compound, including
laboratory and animal experimentation, to the filing of an IND. The IND
submission must contain data from the preclinical drug research, including
biochemistry, animal toxicological and pharmacological studies, and any other
available information on the drug and must also outline a plan of clinical
investigation. INDs must be sought for particular formulations of a drug, such
as oral, injectable and topical, and these formulations must be tested in the
treatment of human disease only in accordance with protocols (specific treatment
regimens) submitted in connection with the IND.
Once an IND has been allowed to become effective by the FDA, clinical trials on
humans may be undertaken in accordance with the approved protocols. During
clinical investigation, the sponsor is required to monitor all studies, to
submit progress reports to the FDA at intervals not exceeding one year, and to
report promptly serious adverse reactions pertinent to the safety of the drug.
There are usually three phases in the clinical development of a new drug. Phase
I concerns the testing of the drug in a small number of healthy subjects to
determine primarily a number of safety parameters and to obtain other basic
experience with the drug in humans. Phase II concerns the testing of the drug
under well-controlled conditions in a larger population to obtain information on
the drug's safety and efficacy in patients for the claim or claims being made by
the Sponsor. Phase III concerns the testing of the drug in a still larger
patient population and for a longer period of time under well controlled
conditions to confirm the safety and efficacy results obtained in Phase II.
Phase III is usually considered the last phase in the clinical testing of the
drug.
If the sponsor elects to proceed beyond clinical development to
commercialization of the drug, it submits to the FDA an NDA which contains a
written summary of all data reflecting the total research experience with the
drug and a section regarding its manufacture. When the FDA has reviewed the NDA
and all additional information which it may have required to be submitted during
the review process, it decides whether, and under what labeling conditions, it
will permit the product to be marketed. The FDA may require post-marketing
testing and surveillance of adverse reactions as a condition of its approval to
monitor the drug's effect during marketing.
Although health registration requirements are generally more rigidly applied in
the United States than elsewhere, the regulatory pattern in the United States is
now being followed by most industrialized countries.
ORPHAN DRUG ACT
As the sponsor of an orphan drug for a particular indication, the Company would
be entitled to receive seven years exclusive marketing rights for this
indication, but only if it proceeds to sponsor the first NDA approved for the
drug for this indication. Thus, unlike patent protection, the designation of a
drug for a particular indication as an orphan drug would not, by itself, prevent
other manufacturers or sponsors from obtaining orphan drug status for the same
drug for the same indication if they obtained a prior NDA, or from obtaining FDA
approval prior to approval of the Company's NDA.
The Company also is entitled to certain federal income tax credits with respect
to certain clinical expenses related to its orphan drugs.
As is the case with FDA approval generally, the grant of orphan drug status for
one or more of the Company's drugs would not prevent the FDA from approving the
same drug or drugs for a different indication, and medical practitioners may
prescribe an approved drug for non-indicated (i.e., off-label) uses. The
marketing potential of the Company's orphan drugs could be adversely affected by
FDA approval of another company's NDA for the same drug for different uses.
The Company intends, where applicable, to obtain orphan drugs designation for
any drugs licensed or acquired by it in the future. There can be no assurance,
therefore, that the scope of protection currently afforded by orphan drug status
or the federal income tax credits currently available to sponsors of orphan
drugs will continue to be available in the future.
HATCH-WAXMAN ACT
The Hatch-Waxman Act provides for limited marketing exclusivity for
pharmaceutical products which receive NDA approval from the FDA, independent of
any issued patents which may apply. If a pharmaceutical product receives NDA
approval, and the FDA has not previously approved any other product containing
the same active ingredient, including any salt or ester of the active
ingredient, then the Hatch-Waxman Act does not permit any abbreviated generic
NDA ("ANDA") to be submitted by another company for that drug product for five
years from the date of NDA approval. If an NDA approval is received for a
pharmaceutical product containing an active ingredient or salt or ester of an
active ingredient that has been previously approved by the FDA, and if that NDA
approval was secured in part through the submission to the FDA of new clinical
investigations other than bioavailability studies, then the Hatch-Waxman Act
prohibits the FDA from making effective the approval of an ANDA for that product
by another company for a period of three years from the date of NDA approval.
This limited exclusivity provision is automatically granted upon NDA approval as
applicable and does not require special consideration. Within the Company's
current portfolio of products, VIASCINT and ATP qualify for five years of
exclusivity, and ADENOSCAN, MEDR 640, and BIDIL qualify for three years of
exclusivity, under this provision.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are extremely important to the Company's
business. However, the patent positions of biopharmaceutical firms, including
the Company, are uncertain and involve complex legal and factual questions which
can be difficult to resolve.
The Company's general policy is to license the right to manufacture and sell
pharmaceutical products the use of which for the particular indication is
covered by an issued United States patent which the Company's patent counsel
believes is valid and enforceable. The Company believes that licensing issued
patents represents the best step the Company can take to protect the technology,
inventions, and improvements that it considers important to the development of
its business, and the Company's financial investment therein. However, on
occasion the Company may acquire product opportunities without issued patents or
without patent applications pending, such as, for example, when in Management's
opinion, the invention would expand the Company's adenosine portfolio. The
Company also relies upon trade secrets, know-how, continuing technological
innovations and subsequent licensing opportunities to develop and maintain its
competitive position.
The patent application and issuance process may take several years and involves
considerable expense, and there is no assurance that any patent sought by the
Company or its licensors will issue. The coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, neither the applicant nor the licensee knows whether any claim
contained in a patent application will be allowed and result in the issuance of
a patent or, if any patent is issued, whether it will provide meaningful
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy, until foreign
counterparts, if any, are published, and because publication of discoveries in
the scientific or patent literature often lags behind actual discoveries, the
Company cannot be absolutely certain that it or any licensor was the first
inventor of the subject matter covered by the patent application or that it or
such licensor was the first to file a patent application therefor or that it
would obtain the freedom to practice the claimed inventions. Moreover, priority
in filing a patent application for an invention can be overcome by a different
party who first practiced the invention. Accordingly, the Company might have to
participate in extensive proceedings in U.S. and/or foreign patent offices or
courts, including interference proceedings declared by the U.S. Patent and
Trademark Office (the "Patent Office"), to determine priority and/or patent
validity. Any such proceeding would be costly and consuming of Management's
time. There can be no assurance either that the Company's owned or licensed
patents would be held valid or that the Company's products would not be found to
infringe patents owned by others. In the event of a determination that the
Company is infringing a third party's patent, the Company likely would be
required to pay royalties, which could be substantial, to such third party. It
is even possible that the third party could refuse a license to the Company in
order to keep the Company's product off the market.
There can be no assurance that any patent rights held by the Company will
provide any actual competitive advantage to the Company. Competitors might be
able to develop similar and competitive products outside the scope of the
Company's patents. For example, should third parties patent or otherwise develop
and receive governmental clearance to commercialize an adenosine product for a
use not covered by the Company's patents, physicians could use those third party
products in place of the Company's adenosine products even though such third
party products were not approved by the FDA for the same indications as the
Company's products. Any such off-label use of third party products could have a
material adverse effect on sales of the Company's products and the amount of
royalty revenues received by the Company.
From time to time, third parties may claim or the Company may identify,
intellectual property rights not owned or licensed by the Company which may be
infringed by the Company. To the extent that such properties are in the public
domain, in the first instance the Company would seek the opinion of its patent
counsel to avoid claims of willful infringement. In addition, whether or not
such properties are in the public domain, the Company, and based on the
Company's evaluation, after consultation with patent counsel, of applicable
considerations, including without limitation the potential duration, expense and
outcome of an infringement proceeding, the validity or enforceability of such
potential claims and other business consideration, might seek to license such
intellectual properties in consideration of the Company's payment of royalties.
Although the Company believes that it should be able to obtain a license on
commercially reasonable terms to any such patent, there can be no assurance that
it will be able to obtain from third parties patent licenses on commercially
reasonable terms, if at all.
In the case of ADENOSCAN, one such third party with potential claims has been
identified. In 1987, such third party filed broad patent applications relating
to uses of adenosine. The third party has told the Company that its
applications makes certain claims which may be relevant to the
development and commercialization of the Company's adenosine products,
including ADENOSCAN. Although the Company has not been given a copy of such
application and all of the related correspondence with the Patent Office and is
seeking from such third party specific information concerning these claims,
based on the information it has received from such third party the Company
believes its ADENOSCAN patent would have priority over any patent that
might issue to such third party. Nonetheless, based on such information as
the Company may receive in the future from such third party the Company will
consider with its patent counsel whether to seek a license from such third
party of the pending claims or those claims for which the Patent Office may
grant a patent. The third party already has told the Company that it would like
to enter into a license agreement covering its pending claims. This third
party also has an issued Canadian patent which appears to have priority
over the Company's Canadian patent for ADENOSCAN. Although the royalty
revenues from the product's sales in Canada are not material to the
Company, the Company may seek to obtain a Canadian patent license.
However, there can be no assurance that any license can be negotiated with this
third party on mutually acceptable, or commercially reasonable, terms nor that
the owner of this patent application will not seek to enforce against the
Company's products, or against its development activities, any patent that may
issue.
It is the Company's policy to require its employees, consultants, and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment or consulting relationships or the exchange of
information prior to a collaboration with the Company. These agreements
provide that all confidential information developed or made known during the
course of relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the
case of employees, the agreements provide that all inventions resulting
from work performed for the Company, utilizing property of the Company or
relating to the Company's business and conceived or completed by the individual
during employment, shall be the exclusive property of the Company to the extent
permitted by applicable law. There can be no assurance, however, that these
agreements will provide meaningful protection of the Company's trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information. To the extent that key employees, consultants or third parties
apply technological information independently developed by them or by others to
any of the proposed projects of the Company, disputes may arise as to the
proprietary rights to such information, and such disputes may not be resolved in
favor of the Company.
The Company also relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary technology and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology or that the Company can meaningfully protect its trade secrets.
The Company has registered various trademarks in the Patent Office and has other
trademarks which have acquired both national and international recognition. The
Company has trademark registrations or pending applications in a number of
foreign countries.
PRODUCT AND CLINICAL STUDIES LIABILITY
Administration of any drug to humans involves the risk of allergic or other
adverse reactions in certain individuals. Accordingly, it is possible that
claims might be successfully asserted against the Company for liability with
respect to injuries that may arise from the administration or use of its
products during clinical trials or following marketing. However, no claim
involving a material liability has ever been brought against the Company. The
Company presently carries what it believes to be adequate product and clinical
studies liability insurance coverage.
RESEARCH AND DEVELOPMENT
The Company expended for research and development $8,535,187, $5,844,014 and
$4,834,825 during the years ended December 31, 1995, 1994 and 1993,
respectively.
EMPLOYEES
As of February 29, 1996 the Company employed twenty-three persons on a full-time
basis. None of the Company's employees are represented by a labor union, and the
Company considers its employee relations to be good. The Company will need to
hire additional scientific and support personnel as it expands its operations.
ITEM 2. PROPERTIES
The Company leases approximately 11,900 square feet of office space, in Research
Triangle Park, North Carolina, for its corporate offices under a lease that
expires in July 1998 . The Company believes that this facility is adequate for
its present operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company except the
class action litigations discussed below:
In September and October 1993, the Company, and certain of its past and then
directors and officers along with Kemper Securities Group, Inc. and Vector
Securities International, Inc., were named in two class action lawsuits filed in
the United States District Court, Northern District of Illinois. These actions,
which were consolidated in February 1994, allege that the Company and the other
defendants violated Section 10 (b) of the Securities Exchange Act of 1934 and
Rule 10 (b) (5) promulgated thereunder and made negligent misrepresentations in
connection with the Company's January 1992 secondary stock offering and
otherwise during the period November 19, 1990 through April 28, 1993. They seek
unspecified compensatory, punitive and exemplary damages. In September 1994, the
District Court granted the Company's motion to dismiss on the ground that the
action was time barred. Plaintiffs appealed, and in 1995 the United States Court
of Appeals for the 7th Circuit held that the lower Court's dismissal was
premature and reversed the granting of the motion to dismiss.
In November 1995, the Company answered the complaints and denied the material
allegations thereof and asserted affirmative defenses, including among others
that the Company did not commit securities fraud, that the Company did not make
any untrue representations, that the Company made adequate disclosure about the
Adenoscan(R) NDA and that the complaints were not filed timely by reason of the
applicable statute of limitations.
On February 20, 1996, defendants moved for summary judgment on the basis that
plaintiffs' claims are barred by the statute of limitations and, in the
alternative, assuming arguendo that plantiff's allegations are true, any
misrepresentations by defendants caused no losses to the plaintiffs. Plaintiffs
have requested until March 31, 1996 to reply to the motion.
As a result of the Company's pending summary judgment motion, and the fact that
class certification has not yet been addressed and no depositions have occurred,
it is not possible at this time to evaluate the potential liability of the
Company. However, the Company is vigorously contesting the allegations of the
complaints, which it believes are without merit.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
a) November 30, 1995 Annual Meeting
b) Directors Elected - Richard C. Williams
Elizabeth M Greetham
William M. Bartlett
Eugene L. Step
Albert D. Angel
c) Proposals voted upon:
(i) Election of Directors:
Richard C. Williams
For: 8,759,464
Abstain: 1,684,524
Elizabeth M. Greetham
For 8,721,309
Abstain 1,720,679
William M. Bartlett
For: 8,740,484
Abstain 1,701,504
Eugene L. Step
For: 8,817,014
Abstain: 1,624,974
Albert D. Angel
For: 8,814,814
Abstain: 1,627,174
(ii) Ratification of KPMG Peat Marwick LLP as independent accountants:
For: 9,833,600
Against: 529,822
Abstain: 75,006
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the
symbol MRE. The following table sets forth the high and low sales prices of the
Company's Common Stock on the American Stock Exchange during the applicable
periods.
Quarter Ended High Low
Calendar 1995:
March 31, 1995 $14 5/8 $11 1/8
June 30, 1995 15 5/8 11 7/8
September 30, 1995 15 1/8 11 3/4
December 31, 1995 12 3/4 9 1/2
Calendar 1994:
March 31, 1994 $16 1/8 $10 7/8
June 30,1994 15 1/4 11 3/4
September 30, 1994 13 7/8 11
December 31, 1994 13 1/4 9 1/2
The Company had 329 owners of record and in excess of 6,459 beneficial owners of
its Common Stock as of February 29, 1996, based upon information provided by the
Company's transfer agent.
DIVIDENDS
The Company has not paid any cash dividends since its inception and presently
anticipates that all earnings, if any, will be retained for development of the
Company's business and that no cash dividends on its Common Stock will be
declared in the foreseeable future. Any future cash dividends will be subject to
the discretion of the Company's Board of Directors and will depend upon, among
other things, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the five years has been
derived from the audited financial statements of the Company. The selected
consolidated financial data for the years ended December 31, 1995, 1994, and
1993 should be read in conjunction with the consolidated financial statements
and the notes thereto, and other financial information included elsewhere in
this report.
Summary Consolidated Statement of Operations Data:
<TABLE>
<CAPTION>
OPERATIONS Year Ended December 31, Year Ended August 31,
--------------------------------------------- ----------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenue $ 13,007,734 $10,688,619 $ 9,345,256 $ 6,078,711 $3,056,429
Costs and Expenses 16,540,176 15,103,087 12,903,575 5,640,608 2,442,983
Net Income (Loss) (3,532,442) (4,414,468) (3,558,319) 395,503 611,496
Net Income (Loss) per
Common Share (.32) (.40) (.32) .04 .07
Weighted Average Number
of Shares Outstanding 11,023,921 11,144,938 11,182,376 10,655,039 9,282,285
Cash Dividends Declared
per Common Share - - - - -
</TABLE>
Summary Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, August 31,
-------------------------------------------------- --------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Working Capital $27,734,612 $24,883,199 $13,089,253 $21,791,436 $2,505,524
Total Assets 43,121,656 44,680,299 49,298,432 49,663,388 3,139,978
Stockholders' Equity 35,099,683 38,901,572 45,577,377 48,643,948 2,697,138
Accumulated (Deficit) (15,715,592) (12,183,150) (7,768,682) (4,231,126) (4,626,629)
Net Tangible Book Value
Per Share 3.15 3.53 4.07 4.37 .28
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
During calendar 1995, sales of adenosine (ADENOCARD and ADENOSCAN) increased 16%
and the Company's total revenue increased 22% over the prior calendar year.
Although revenue increased in 1995, the continued emphasis on product
development resulted in a net loss of $3,532,442 for 1995, or $(0.32) per share.
In May 1995, the Company received marketing clearance from the FDA for
ADENOSCAN. The product was launched on July 31, 1995 in the United States and
Canada by Fujisawa USA. In July 1995, the Company transferred the manufacturing
process for BIDIL from its formulator to its commercial manufacturer. In October
1995, the Company completed Phase III trials for VIASCINT and the results
indicate that it provides the means to predict, with high accuracy, which
patients will have improvement in cardiac function following revascularization.
In November 1995, the Company announced the presentation at the 68th Annual
Meeting of the American Heart Association of positive results of a Phase I/II
trial for MEDR 640, the Company's belief that adenosine holds significant
promise as an effective cardioprotective agent. In December 1995, the Company
completed Phase II trials for ATP in non-small cell lung cancer (NSCLC) and the
Company believes the results support the continued investigation as adjunctive
therapy that may improve the quality of life.
RESULTS OF OPERATIONS
The accompanying consolidated financial statements and certain selected
financial data have been presented for the calendar years ended December 31,
1995, 1994, and 1993. The Company changed its presentation of the Consolidated
Statements of Operations to reflect gross margin related to royalty revenues
followed by operating expenses and other income (expense).
Calendar Year 1995 Compared to Calendar Year 1994
Net Revenues. The Company's 1995 royalty revenue increased from $8,460,180 to
$9,770,124, an increase of 16%, primarily due to a 34% increase, for the first
six month period compared to the year earlier period, in unit sales of ADENOCARD
related to increased demand for the vial formulation and the July 31, 1995
launch of ADENOSCAN, which more than offset the decrease in ADENOCARD sales.
Although the Company had increased royalty revenue from Sanofi's foreign sales
of ADENOCOR and ADENOSCAN, Fujisawa is responsible for substantially all of the
royalty revenue to the Company.
Gross Margin. The Company's 1995 gross margin from adenosine revenues increased
from $4,230,092 to $5,814,573, an increase of 37% due to a decline in ADENOCARD
sales, a change in the product sales mix, and a corresponding reduction in the
associated royalty expense. Royalty expense represents one-half of royalty
revenue earned by the Company from ADENOCARD sales and is payable to the
University of Virginia Alumni Patents Foundation from whom the Company acquired
exclusive rights to ADENOCARD. It decreased from $4,230,088 to $3,955,551, a
decrease of 7%. The Company expects royalty expense to continue to decrease.
Operating Expenses. Total operating expenses increased from $10,872,999 to
$12,484,625, an increase of 15%, due to a substantial increase in research and
development costs.
Research and development costs increased from $5,844,014 to $8,535,187, an
increase of 46%. This increase largely reflected the completion of a pivotal
bioequivalence study and manufacturing scale-up for BiDil(R), the completion of
two pivotal Phase III clinical trials and data analysis for VIASCINT(TM), and
the entry into three multicenter Phase II clinical trials for MEDR-640.
General and administrative expenses decreased from $4,064,707 to $3,949,438
primarily due to a substantial decrease in legal expenses offset somewhat by
increases in investor relations and accounting services expenses.
Other Income (Expense). The Company substantially satisfied preclinical and
toxicology accomplishments related to adenosine and accordingly recognized
$1,000,000 in revenue from the licensee. Interest income increased from
$2,235,127 to $2,237,610.
Loss Per Share. Loss per share decreased from $0.40 per share in 1994 to $0.32
per share in 1995 on weighted average common shares and common share equivalents
outstanding of 11,144,938 and 11,023,921 respectively. The loss per share
reflects a net operating loss of $4,414,468 and $3,532,442 in 1994 and 1995,
respectively.
Calendar Year 1994 Compared to Calendar Year 1993
Net Revenues. The Company's 1994 royalty revenue increased from $7,188,514 to
$8,460,180, an increase of 18%, due to quarter-to-quarter increases in unit
sales of ADENOCARD by Fujisawa, the Company's North American licensee, and the
introduction of the ADENOCARD pre-filled syringe, along with the increased
demand of ADENOCARD in vial formulation, and increased sales of ADENOCOR by
Sanofi. Although increased royalty revenue resulted from the sale of ADENOCOR by
Sanofi, Fujisawa is responsible for substantially all of the royalty revenue to
the Company.
Gross Margin. The Company's 1994 gross margin from ADENOCARD revenues increased
from $3,594,257 to $4,230,092 an increase of 18% due to the increase in sales.
Royalty expense, which is payable to the University of Virginia Alumni Patents
Foundation from whom the Company acquired exclusive rights to ADENOCARD,
increased from $3,594,257 to $4,230,088, an increase of 18% and represents
one-half of royalty revenue earned by the Company from ADENOCARD sales.
Operating Expenses. Total operating expenses increased from $9,309,318 to
$10,872,999, an increase of 17% due to increases in research and development
costs and the recognition of a realized loss of $964,278 ($0.09 per share) in
the fourth quarter which was required due to an other-than-temporary impairment
of the underlying closed end mutual fund consisting of preferred stocks in the
financial services and utilities sectors in accordance with Financial Accounting
Standards Board ("FASB") Statement No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". The Company believes the write-down is
sufficient to minimize the risk of future realized losses.
Research and development costs increased from $4,834,825 to $5,844,014, an
increase of 21%. This increase reflected the Company's continued advancement and
planned acceleration of research and development for its five products in
clinical development, with major increases involving VIASCINT, BIDIL, ATP,
ADENOSCAN, and overhead expenses directly related to research and development.
The Company continues to anticipate a controlled increase in research and
development expenditures.
General and administrative expenses decreased 9% from $4,474,493 to $4,064,707,
primarily due to the Company's relocation of Research Triangle Park in the
Raleigh-Durham-Chapel Hill area of North Carolina in 1993.
Other Income (Expense). Interest income increased from $2,085,885 to
$2,235,127, an increase of 7%.
Loss Per Share. Loss per share increased from $0.32 per share in 1993 to $0.40
per share in 1994 on weighted average common shares and common share equivalents
outstanding of 11,182,376 and 11,144,938 respectively. The loss per share
reflects a net operating loss of $3,558,329 and $4,414,468 in 1993 and 1994,
respectively.
FINANCIAL CONDITION
As of December 31, 1995, the Company had total cash and investments of
$36,545,201 comprised of $4,304,774 of cash and cash equivalents and $32,240,427
of investments in U.S. Treasury Notes and debt securities of various federal
governmental agencies. The Company's working capital as of December 31, 1995 was
$27,734,612, compared to $24,883,199 as of December 31, 1994. The increase in
working capital was due to a shift from noncurrent investments to current cash
and cash equivalents in 1995.
Included in liabilities at December 31, 1995 is an accrued liability (current
and non-current portion) of $3.2 million relating to the balance of the
Company's guaranteed royalty obligation to Abbott Laboratories pursuant to the
terms of the Company's settlement of a litigation relating to the manufacturing
and marketing rights to ADENOSCAN. See Note 6 to the Company's Financial
Statements included in Item 8, below. Included in assets at December 31, 1995 is
a deferred asset (current and non-current portion) of $3.1 million relating to
royalties to be received by the Company from Fujisawa and paid by the Company to
Abbott. Of the 29% of Adenoscan(R) net sales received as royalty revenue by the
Company, 4% will be applied to the deferred asset and 25% will be recognized as
royalty revenue. At such time, if any, during the first five years after the
approval of the ADENOSCAN NDA that the deferred asset is fully recovered, the
Company thereafter will recognize royalty revenue of 29% through the end of the
five year period. The Company will write-off any portion of this deferred asset
at such time, if any, in which it becomes probable that the incremental 4%
royalty revenue will be insufficient to recover the remaining balance of this
deferred asset.
ADENOSCAN, is currently marketed in the United States, Canada and the United
Kingdom. ADENOCARD is currently marketed in the United States and Canada, the
United Kingdom plus Ireland, Switzerland, Quatar, Australia, Greece, Austria,
Kuwait, Belgium, Saudi Arabia and Germany. The Company will not generate
revenues from its products until its licensees receive marketing clearance from
the FDA and appropriate governmental agencies in other countries. The Company
cannot predict the timing of any potential marketing clearance nor can
assurances be given that the FDA or such agencies will approve any of the
Company's products. For the short term the Company expects to receive
substantially all of its royalty revenues from sales of its products by Fujisawa
USA.
The FASB has issued Statement of Financial Accounting Standards No. 123 ("SFAS
123''), "Accounting for Stock-Based Compensation," which applies to all
transactions in which an entity acquires goods and services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock ownership plans
(ESOPs). The Statement covers transactions with employees and nonemployees and
is applicable to both public and nonpublic entities. A new method of accounting
for stock-based compensation arrangements with employees is established by the
Statement. The new method is a fair value based method rather than the intrinsic
value based method that is contained in APB Opinion No. 25 (Opinion 25).
However, the Statement does not require an entity to adopt the new fair value
based method for purposes of preparing its basic financial statements. The
Company has reviewed the provisions of SFAS 123 and will not adopt the new fair
value based method; rather, it will continue to use the Opinion 25 method.
However, the Company will provide disclosure of pro forma effects on net income
regarding the new fair value based method.
IMPACT OF INFLATION
Although it is difficult to predict the impact of inflation on costs and
revenues of the Company in connection with the Company's products, the Company
does not anticipate that inflation will materially impact its costs of operation
or the profitability of its products when marketed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Medco Research, Inc. are
included in this report:
Page 26 Independent Auditors' Report
Page 27 Consolidated balance sheets--December 31, 1995 and 1994
Page 28 Consolidated statements of operations--Years ended December
31, 1995, 1994 and 1993.
Page 29 Consolidated statements of stockholders' equity--Years ended
December 31, 1995, 1994, and 1993
Page 31 Consolidated statements of cash flows--Years ended December
31, 1995, 1994 and 1993.
Page 33 Notes to consolidated financial statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medco Research, Inc.:
We have audited the accompanying consolidated balance sheets of Medco Research,
Inc. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medco Research, Inc.
and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the consolidated financial statements, the Company is
party to certain claims and litigation. The ultimate outcome of these matters
cannot presently be determined. Accordingly, no provisions for liability, if
any, that may result from the resolution of such matters has been recognized in
the accompanying consolidated financial statements.
As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities", on January 1, 1994.
Raleigh, North Carolina
March 5, 1996
<PAGE>
Medco Research, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1995 1994
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,304,774 $ 1,052,836
Investments (Note 2)
Securities available for sale 5,664,669 8,178,185
Securities held to maturity 17,571,488 15,959,545
Accounts and notes receivable:
Royalties 2,203,663 2,416,121
Joint development partner (Note 5 and 6) - 254,029
Other 1,531,227 106,220
Accrued interest income 252,220 405,113
Prepaid expenses 327,319 339,877
--------------------------------
Total current assets 31,855,360 28,711,926
Investments held to maturity (Note 2) 9,004,270 15,563,386
Deferred asset (Note 6) 1,851,915 -
Property and equipment, at cost, net of
accumulated depreciation (Note 3) 329,669 315,459
Patent, trademark and distribution rights,
at cost, net of accumulated amortization
of $60,865 (1995) and $51,780 (1994) (Note 5) 80,442 89,528
--------------------------------
Total assets $43,121,656 $44,680,299
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $2,811,427 $ 1,584,622
Accrued royalties (Note 5) 1,309,321 2,244,105
--------------------------------
Total current liabilities 4,120,748 3,828,727
Deferred revenue (Note 7) 1,300,000 1,950,000
Deferred royalty payment (Note 6) 2,601,225 -
Stockholders' equity (Note 8):
Common stock, no par value,
authorized 40,000,000 shares;
shares issued of 11,155,832
and 11,020,947 at December 31,
1995, and 1994 respectively;
shares outstanding of 11,013,332
and 11,020,547 at December 31, 1995
and 1994 respectively 52,216,010 51,376,034
Unrealized gain (loss) on investment
securities available for sale (Note 2) 133,972 (291,312)
Accumulated deficit
(15,715,592) (12,183,150)
Cost of stock held in treasury, 142,100
shares (1,534,707)
-------------------------------
Total stockholders' equity 35,099,683 38,901,572
--------------------------------
Commitments and contingencies (Notes 5 and 11)
Total liabilities and stockholders' equity $43,121,656 $44,680,299
================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Medco Research, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Royalty revenue (Note 5) $9,770,124 $8,460,180 $7,188,514
Royalty expense (Note 5) 3,955,551 4,230,088 3,594,257
----------------------------------------------------
Gross Margin 5,814,573 4,230,092 3,594,257
----------------------------------------------------
Operating Expenses:
Research and development costs 8,535,187 5,844,014 4,834,825
General and administrative expenses 3,949,438 4,064,707 4,474,493
Write down of investment security (Note 2) - 964,278 -
----------------------------------------------------
12,484,625 10,872,999 9,309,318
----------------------------------------------------
Other Income (Expense)
Interest income 2,237,610 2,235,127 2,085,885
Other income (expense) (Note 7) 1,000,000 (6,688) 70,857
----------------------------------------------------
3,237,610 2,228,439 2,156,742
----------------------------------------------------
Loss before income taxes (3,432,442) (4,414,468) (3,558,319)
Provision for income taxes (Note 9) 100,000 - -
----------------------------------------------------
----------------------------------------------------
Net loss (3,532,442) (4,414,468) (3,558,319)
====================================================
====================================================
Net loss per share $(0.32) $(0.40) $(0.32)
====================================================
====================================================
Weighted average number of common shares and common
share equivalents outstanding 11,023,921 11,144,938 11,182,376
====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Medco Research, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common stock
------------------------------
Unrealized
gain (loss) on
investment
securities
Number of available for Accumulated Cost of stock held
shares Amount sale deficit in treasury Total
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Balance at December
31, 1992 11,173,614 $53,206,883 - $(4,210,363) - $48,996,520
Stock options 35,000 338,125 - - - 338,125
exercised
Stock repurchased
and retired in
connection with
exercise of (18,442) (281,240) - - - (281,240)
stock options
Stock repurchased
and retired (5,500) (59,774) - - - (59,774)
Discharge by
directors of
liability under
Section 16 (b)
of the
Securities
Exchange Act of
1934 - 10,815 - - - 10,815
Compensation
expense related
to stock options - 131,250 - - - 131,250
Net loss - - - (3,558,319) (3,558,319)
----------------------------------------------------------------------------------------------------
Balance at December
31, 1993 11,184,672 $53,346,059 - $(7,768,682) - $45,577,377
Stock options 85,000 486,563 - - - 486,563
exercised
Stock repurchased
and retired in
connection with
exercise of
stock options (29,931) (356,563) - - - (356,563)
Compensation
expense related
to stock options - 390,512 - - - 390,512
Stock repurchased
and retired (218,794) (2,490,537) - - - (2,490,537)
Unrealized on
investment
securities
available for
sale - - (291,312) - - (291,312)
Net loss - - (4,414,468) - (4,414,468)
====================================================================================================
Balance at December
31, 1994 11,020,947 $51,376,034 $(291,312) $(12,183,150) - $38,901,572
====================================================================================================
</TABLE>
<PAGE>
Medco Research, Inc.
Consolidated Statements of Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Common stock
------------------------------
Unrealized
gain (loss)
on investment
securities
Number of available for Accumulated Cost of stock held
shares Amount sale deficit in treasury Total
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994 11,020,947 $51,376,034 $(291,312) $(12,183,150) - $38,901,572
Stock options 148,585 953,757 - - - 953,757
exercised
Stock held in
treasury (142,100) - - - (1,534,707) (1,534,707)
Compensation
expense related
to stock options - 44,568 - - - 44,568
Stock repurchased
and retired (13,700) (158,349) - - - (158,349)
Unrealized gain on
investment
securities
available for sale - - 425,284 - - 425,284
Net loss - - - (3,532,442) - (3,532,442)
====================================================================================================
Balance at December
31, 1995 11,013,732 $52,216,010 $133,972 $(15,715,592) $(1,534,707) $35,099,683
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Medco Research, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net loss $(3,532,442) $(4,414,468) $(3,558,319)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation of property and equipment 127,213 94,935 70,100
Amortization of patent, trademark and distribution
rights 9,085 9,636 8,533
Loss (gain) on investments held to maturity (45) 60,095 (88,894)
Loss on investments available for sale (7,302) - -
Write down on investment security - 964,278 -
Net amortization of investment discount (686,023) (182,603) (45,946)
Loss on property and equipment - 19,672 4,120
Settlement payment from Fujisawa 2,000,000 - -
Settlement payment to Abbott (2,000,000) - -
Compensation expense related to stock options 44,568 390,512 131,250
Changes in operating assets and liabilities:
Accounts receivable 241,480 (290,587) (670,661)
Accrued interest income 152,893 36,270 (211,401)
Prepaid expenses 12,558 (112,728) 39,675
Deferred asset 298,085 - -
Accounts payable and accrued expenses 626,806 777,528 564,267
Accrued royalty expense (934,784) 330,144 629,733
Deferred royalty payment (148,775) - -
Deferred royalty income (650,000) 950,000 1,000,000
------------------------------------------------
Net cash used in operating activities (4,446,683) (1,367,316) (2,127,543)
------------------------------------------------
</TABLE>
<PAGE>
Medco Research, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
Investing activities
Purchase of securities held to maturity $(99,932,331) $(39,738,961) $(30,380,274)
Purchase of securities available for sale (366,275) (5,306,031) -
Maturity of securities held to maturity 104,140,647 36,000,000 21,000,000
Principal repayments on securities held to maturity 1,424,924 1,292,547 432,890
Proceeds from sale of securities available for sale 3,312,378 - 5,536,333
Purchases of property and equipment (141,423) (123,619) (161,374)
Proceeds from sale of property and equipment - 760 3,675
Purchases of patent, trademark and distribution rights - - (8,278)
-------------------------------------------------------
Net cash provided by (used in) investing activities 8,437,920 (7,875,304) (3,577,028)
-------------------------------------------------------
Financing activities
Purchase of stock for retirement (158,349) (2,490,537) (59,774)
Net proceeds from exercise of stock options 953,757 130,000 56,885
Purchase of stock held in treasury (1,534,707)
Discharge by current or former directors of liability under
Section 16(b) of the Securities Exchange Act of 1934
- - 10,815
-------------------------------------------------------
Net cash provided by (used in) financing activities (739,299) (2,360,537) 7,926
-------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,251,938 (11,603,157) (5,696,645)
Cash and cash equivalents at beginning of year 1,052,836 12,655,993 18,352,638
-------------------------------------------------------
Cash and cash equivalents at end of year $4,304,774 $1,052,836 $12,655,993
=======================================================
</TABLE>
Supplemental schedule of Non-cash Financing Activities
See Note 7 for a discussion of stock option exercises involving non-cash
transactions.
See accompanying notes to consolidated financial statements.
<PAGE>
Medco Research, Inc.
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY OPERATIONS
Medco Research, Inc. is a novel pharmaceutical company engaged in the
acquisition, research and development of proprietary human healthcare
products, focused primarily in the area of cardiovascular disease.
The Company in-licenses late stage compounds from researchers or other
pharmaceutical companies and takes these products through clinical development.
The process includes the design and implementation of clinical trials as well as
data submission and coordination with regulatory agencies to obtain marketing
approval. The Company then out-licenses these compounds to companies with
appropriate facilities and sales teams to manufacture and market the licensed
products.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PREPARATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about the Fair
Value of Financial Instruments" (Statement 107) requires the disclosure of fair
value information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate the value. In cases where
quoted market prices are not readily available, fair values are based on quoted
market prices of comparable instruments. Statement 107 excludes certain
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts are not intended to represent the underlying value
of the Company. The carrying amount of cash and equivalents, accounts receivable
and payable, and accrued royalties approximates fair value because of the short
maturity of those instruments. The net aggregate fair value based on a net
present value calculation of the deferred asset and deferred royalty payment is
approximately $270,000 which the Company considers to be immaterial. The fair
value of investments was based primarily on quoted market prices. If quoted
market prices are not readily available, fair values are based on quoted market
prices of comparable instruments.
<PAGE>
Medco Research, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The Company's investments include primarily investments in marketable debt
securities which are recorded at cost, net of amortization of premiums and
discounts. All premiums and/or discounts are amortized over the remaining term
of the related security using the straight-line method which does not differ
significantly from the level-yield method. The Company adopted Statement of
Financial Accounting Standards No.115, "Accounting for Certain Investments in
Debt and Equity Securities" (Statement 115) at January 1, 1994. This statement
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. These investments are classified in three categories and are
accounted for as follows: (1) debt securities that the Company has the positive
intent and the ability to hold to maturity are classified as held-to-maturity
and reported at cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains and losses
included in earnings; (3) debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
equity. The Company has no securities classified as trading securities.
Unrealized gains or losses on investments available-for-sale are reported as a
separate component of stockholders' equity. The classification of investments is
determined on the date of acquisition. The Company reviews its investment
portfolio as deemed necessary and, where appropriate, adjusts individual
investments for other-than-temporary impairments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over five years.
TRADEMARK AND DISTRIBUTION RIGHTS
The cost of acquiring trademark and distribution rights is amortized over 15
years using the straight-line method. Periodically, these costs are reviewed and
adjusted based on the estimated future financial benefits of the underlying
drug.
PATENT COSTS
The Company capitalizes certain costs, principally legal fees, incurred in
connection with the application for and procurement of patents. Costs are
capitalized on a case by case basis relating to those territories where the
Company anticipates receiving significant future benefits from the patent, and
are amortized over the life of the patent beginning at the date of grant.
Periodically, these costs are reviewed and the amortization adjusted based on
the estimated future benefits remaining.
CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards No. 105 requires disclosure of
information about financial instruments with off-balance-sheet risk and
financial instruments with concentrations of credit risk. Financial instruments
which subject the Company to concentrations of credit risk consist principally
of accounts receivable and investments.
The Company invests its excess cash primarily in U.S. Government debt securities
(included in investments) and commercial paper with financial institutions (cash
equivalents). The commercial paper securities are highly liquid and the
governmental securities typically mature within one to three years (although
there is an established secondary market for sales at any given time). The
majority of the accounts receivable balance relates to one customer (See Note
5). Based on the nature of the financial instruments and/or historical
realization on these financial instruments, management believes they bear
minimal risk.
DEFERRED REVENUE
Revenues derived from license agreements are recorded as earned based on the
performance requirements of the related contract.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed in the year incurred.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and dilutive common share equivalents (stock options) outstanding during
the period.
2. INVESTMENTS
The aggregate values of investment securities at December 31, 1995 and
1994 along with unrealized gains and losses determined on an individual
security basis are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------- ---------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
1995 Held to maturity
U.S. Government $26,575,758 $31,977 - $26,607,735
================= ====================== ====================== ===================
1995 Available for sale
PIMCO 5,530,697 133,972 - 5,664,669
================= ====================== ====================== ===================
1994 Held to maturity
U.S. Government $26,990,126 - $(810,011) $26,180,115
U.S. Agency 4,532,805 - (27,359) 4,505,446
================= ====================== ====================== ===================
Total securities held to maturity $31,522,931 - $(837,370) $30,685,561
================= ====================== ====================== ===================
1994 Available for sale
Preferred Dividend Fund $3,305,076 - $(187,788) $3,117,288
PIMCO 5,164,421 - (103,524) 5,060,897
================= ====================== ====================== ===================
Total securities available for sale $8,469,497 - $(291,312) $8,178,185
================= ====================== ====================== ===================
</TABLE>
Net realized gains in 1995 were $37,488 as a result of the sale of the Preferred
Dividend Fund. Realized losses in 1994 were $60,095 due to the early call of a
held-to-maturity investment by the issuer and $964,278 due to an
other-than-temporary impairment on a non-derivative investment. Net realized
gains were $88,894 in 1993.
The following represents the contractual maturities of investments held as of
December 31, 1995.
Less than 1 year $17,571,488
1 to 5 years $ 9,004,270
===========
Total $26,575,758
===========
3. PROPERTY AND EQUIPMENT
1995 1994
-------------------------------
Property and equipment $663,482 $522,059
Automobiles - 40,849
-------------------------------
663,482 562,908
Less accumulated depreciation (333,813) (247,449)
-------------------------------
$329,669 $315,459
===============================
4. LEASES
The Company leases office space under an operating lease which expires in July
1998. Lease expense approximated $203,700, $203,700, and $167,400, in 1995,
1994, and 1993.
Future minimum lease payments under this lease agreement are:
Year ending December 31
1996 $206,660
1997 210,817
1998 122,976
--------
$540,453
5. PATENT, TRADEMARK AND DISTRIBUTION RIGHTS
The Company is engaged in the development of new prescription drugs in pursuit
of obtaining governmental marketing approvals in the United States and other
countries. The Company acquires from third parties exclusive rights to develop
and market various drugs, including related patents and trademarks (where
applicable), and develops drugs and seeks patents and trademarks for its
products on a proprietary basis. The costs of acquiring rights from third
parties and major costs associated with the perfection and protection of patents
and trademarks are capitalized by the Company. Agreements under which the
Company acquires such rights from third parties generally require the Company to
finance the costs of clinical trials and the filing of New Drug Applications
("NDAs") with the United States Food and Drug Administration ("FDA") and, in
some instances, comparable applications with appropriate regulatory agencies in
other countries. The Company is also typically required to pay royalties to such
third parties based on sales of the applicable approved drugs. The Company also
may be obligated to pay to third parties advance royalties or license fees, some
of which may be based on the attainment of specified milestones.
Under a present agreement with a third party, the Company has an obligation to
pay a maximum of $200,000 in nonrefundable advances generally upon the FDA's
approvals of the applicable NDAs.
In October 1989, the Company received FDA approval to market ADENOCARD in the
United States. The Company entered into agreements with Fujisawa USA, Inc.
(Fujisawa) for the manufacture and marketing of ADENOCARD in the United States
and Canada and is receiving and will receive royalties from Fujisawa based on a
percentage of ADENOCARD net sales. The Company has also entered into an
agreement with Sanofi Pharma (France) (Sanofi) for the manufacture and marketing
of ADENOCARD in all countries other than the United States and Canada. In
September 1991, Sanofi received marketing approval (under the trade name
ADENOCOR) in the United Kingdom and, in May 1992, received marketing approval
(under the trade name Krenosin) in Switzerland. The Company is receiving and
will receive royalties from Sanofi based on a percentage of ADENOCOR and
Krenosin sales. One half of all royalties received from ADENOCARD, ADENOCOR and
Krenosin sales are payable by the Company to the University of Virginia Alumni
Patents Foundation from whom the Company acquired rights to ADENOCARD.
Substantially all royalty income and expenses in the three year period ended
December 31, 1995 resulted from Fujisawa sales of ADENOCARD in the United
States.
In 1988, the Company entered into a Development and License Agreement (the
"Agreement") with Fujisawa that provides for Fujisawa to fund one-half of the
development costs (as incurred) of ADENOSCAN, and other products. Under the
agreement, Fujisawa will have manufacturing and marketing rights to these drugs
in the United States and Canada upon the Company's receipt of the required
regulatory approvals, and will pay the Company royalties based on sales of these
drugs. Royalties received by the Company from sales of these drugs outside of
the United States and Canada will be shared equally with Fujisawa. In October
1992, the Company received from the HPB marketing clearance for ADENOSCAN in
Canada. In May 1995, the FDA granted marketing clearance for ADENOSCAN in the
United States. In June 1995, Sanofi received marketing approval for ADENOSCAN
in the United Kingdom. The development and license agreement between the
Company and Fujisawa provides for periodic additional equal funding as may be
agreed upon by the parties. (See discussion regarding termination of Fujisawa
agreement in Note 11.)
6. DEFERRED ASSET AND ROYALTY PAYMENT
In May 1995, the litigation pending between Fujisawa USA, Inc. (Fujisawa) and
the Company, regarding the rights to manufacture and market ADENOSCAN in the
United States and Canada, was settled and the Company and Abbott Laboratories,
Inc. (Abbott) terminated their manufacturing and marketing agreements regarding
the ADENOSCAN drug and settled Medco's outstanding obligations thereunder.
Pursuant to the settlement agreement with Fujisawa, the December 21, 1988 Joint
Development and License Agreement between the parties remains in full force and
effect except as expressly amended and Fujisawa remains the Company's exclusive
licensee to manufacture and market ADENOSCAN in the United States and Canada.
Fujisawa agreed to pay the Company within fifteen days after FDA marketing
clearance of ADENOSCAN the sum of $2 million, representing certain research and
development expenses incurred by the Company, and to pay the Company royalties
of 29 percent of ADENOSCAN net sales in the United States and Canada for the
first five years after the commencement of commercial sales in each territory.
Thereafter Fujisawa would pay the Company royalties of 25% of sales until June
10, 2007 at which time Fujisawa would have a paid up license within such
territories.
Fujisawa also agreed to pay royalties to the Company in respect of periods of
more than thirty days in which it is unable to fulfill ADENOSCAN orders for
reasons other than force majeure and other specified events, such royalties to
be at the then prevailing rate based on the average daily sales of ADENOSCAN
during the preceding twelve months. Fujisawa also agreed generally to maintain
an inventory of at least six months of ADENOSCAN finished product and
work-in-process, to be stored at multiple locations, to provide the Company
within one year with data necessary to qualify Fujisawa's Melrose Park, Illinois
plant as an alternate ADENOSCAN manufacturing facility and to use its best
efforts to identify and provide data to the Company to qualify with the FDA an
alternate supplier of the adenosine raw material necessary for the manufacture
of ADENOSCAN. The parties also agreed as soon as practicable to enter into an
agreement to jointly develop adenosine based products having indications as
cardioprotective agents, such as MEDR 640, and for that purpose Fujisawa would
grant to the Company an exclusive sublicense under U.S. patent 4,880,783 under
which Fujisawa is the exclusive licensee. Fujisawa would have exclusive
manufacturing and marketing rights in the U.S., Canada, Mexico and other
territories to be agreed upon and it would pay the Company 25% of net sales
within the territories. The companies would share equally all costs of
development and any royalties due to third parties.
The Company agreed to pay Abbott a royalty of two percent of net sales of
ADENOSCAN for the first five years of commercial sales, up to a maximum of $5.35
million, of which $2 million was payable within fifteen days after FDA marketing
clearance of ADENOSCAN as an advance royalty payment and the remainder payable
based upon actual sales of ADENOSCAN. The Company also agreed that if at the
conclusion of the five year period Abbott had not received an aggregate of $5.35
million, including the $2 million advance, Medco would pay Abbott any
deficiency. Abbott relinquished all claims to royalty payments in excess of that
amount. Finally, the Company agreed to pay Abbott $330,560 for the reimbursement
of research and development and other expenses incurred in connection with
ADENOSCAN. The Company expensed $330,560 in the first quarter of 1995.
Included in liabilities at December 31, 1995 is an accrued liability (current
and non-current portion) of $3.2 million relating to the balance of the
Company's guaranteed royalty obligation to Abbott. Included in assets at
December 31, 1995 is a deferred asset (current and non-current portion) of $3.1
million relating to royalties to be received by the Company from Fujisawa and
paid by the Company to Abbott. The Company receives a 29% royalty from ADENOSCAN
net sales of which 4% will be applied to the deferred asset and 25% will be
recognized as royalty revenue. At such time, if any, during the first five years
that the deferred asset is fully recovered, the Company thereafter will
recognize royalty revenue of 29% through the end of the five year period. The
Company will write-off any portion of this deferred asset at such time, if any,
in which it becomes probable that the incremental 4% royalty revenue will be
insufficient to recover the remaining balance of this deferred asset.
7. DEFERRED REVENUE
In 1994, the Company entered into a Development and License Agreement related to
one of the drugs in development which provided a gross licensing fee of
$1,000,000 ($950,000 net of foreign taxes paid) based upon the satisfactory
preclinical and toxicology accomplishments. During 1995, the Company
substantially satisfied preclinical and toxicology accomplishments related to
adenosine and accordingly recognized $1,000,000 in revenue from the licensee and
received from the licensee an additional $300,000 licensing fee upon the NDA
approval of ADENOSCAN. During 1993, the Company received $1,000,000 upon the
execution of a licensing agreement related to one of the drugs in development.
The Agreement requires additional licensing fees to be received upon the
completion of certain development milestones. Receipts related to various
licensing agreements are not recognized as revenues prior to the completion of
the related milestones and must be refunded in part or completely if the related
milestones are not met.
8. STOCK OPTION PLANS
Under the 1983 Stock Option plan and the 1989 Stock Option and Stock
Appreciation Rights Plan options to purchase up to 1,200,000 shares and up to
1,500,000 shares, respectively, of the Company's common stock may be granted to
officers, directors and key employees of the Company and to other persons who
provide important services to the Company. Under the Plans, both incentive and
non-qualified stock options, as well as stock appreciation rights under the 1989
Plan, can be granted. No incentive stock options are currently outstanding and
no stock appreciation rights have been granted. Non-qualified stock options
generally can be exercised one year after the date of grant. The exercise price
may not be less than 100% of the fair market value of the common stock on the
date of grant (110% with respect to incentive stock options granted to optionees
who are 10% or more stockholders of the Company). Option holders may, with the
consent of the Compensation Committee of the Board of Directors, pay for the
exercise of the options in whole or in part by tendering shares of common stock
of the Company, in lieu of cash.
During the years ended December 31, 1995, 1994, and 1993, options covering
25,000, 75,000, and 25,000 shares with an aggregate market value of $259,375,
$893,750, and $281,250 were exercised by the tendering of 16,415, 29,931, and
18,442 shares with a market value of $170,306, $356,563, and $281,240,
respectively, and minimal cash payments.
Changes in the status of options are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 781,870 975,200 919,700
Granted 241,000 104,920 130,000
Exercised (148,585) (85,000) (35,000)
Expired or canceled (263,553) (213,250) (39,500)
===========================================================
Outstanding at end of year 610,732 781,870 975,200
===========================================================
Available for grant at end of year 456,781 434,228 325,898
Exercisable at end of year 341,170 530,160 690,200
Price range of options $10.63-$26.69 $6.81-$26.69 $5.69-$26.69
Price range of options exercised $6.81 $5.69-$ 6.00 $5.69-$11.25
</TABLE>
9. INCOME TAXES
The components of income tax expense consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1995 1994 1993
------------------ ------------------ --------------
<S> <C> <C> <C>
Current expense:
Federal - - -
State - - -
Foreign taxes 100,000
------------------ ------------------ --------------
$100,000 - -
------------------ ------------------ --------------
Deferred expense (benefit)
Federal - - -
State - - -
------------------ ------------------ --------------
- - -
------------------ ------------------ --------------
Total $100,000 - -
================== ================== ==============
</TABLE>
The components of net deferred tax assets and the net deferred tax liabilities
as of December 31, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1995 1994
------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 8,484,000 $ 6,575,000
Capital losses 456,000 65,000
Tax credit carryforwards 1,297,000 808,000
Compensation accruals 96,000 72,000
Reserves and accruals 1,000 1,000
Deferred revenue 567,000 663,000
------------------- ------------------
Total gross deferred tax assets 10,901,000 8,184,000
Valuation allowance 10,856,000 8,150,000
------------------- ------------------
Net deferred tax assets $ 45,000 $ 34,000
------------------- ------------------
Deferred tax liabilities:
Depreciation and amortization 14,000 34,000
Prepaid expenses 31,000
------------------- ------------------
------------------- ------------------
Total gross deferred tax liabilities 45,000 34,000
------------------- ------------------
Net deferred tax asset $ - $
-
=================== ==================
</TABLE>
The actual income tax expense for 1995 and 1994 differs from the "expected"
amount (computed by applying the statutory federal income tax rate of 34% to the
earnings before income taxes and cumulative effect of a change in accounting
principle) as follows:
<TABLE>
<CAPTION>
December 31 1995 December 31 1994 August 31 1993
-------------------------- -------------------------- -----------------------------
Amount % Amount % Amount %
-------------- ----------- -------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected tax expense" (benefit) $(1,167,030) (34.0)% $(1,501,000) (34.0)% $(1,209,000) (34.0)%
Change in valuation allowance 2,706,000 78.8 2,823,000 63.9 1,459,000 41.0
Tax credits (488,664) (14.2) (280,000) (6.4) (163,000) (4.6)
State tax benefit (430,245) (12.5) (122,000) (2.8) (136,000) (3.8)
Write-down of marketable securities (315,111) (9.2) (965,000) (21.9) - -
Stock options (278,779) (8.1) - - - -
Foreign taxes 66,000 1.9 - - - -
Other 7,829 0.2 45,000 1.2 49,000 1.4
============== =========== ============== =========== ================= ===========
Current provision $ 100,000 2.9% $ - - % $ - - %
============== =========== ============== =========== ================= ===========
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $22,600,000. The net operating loss carryforwards expire in
various amounts from 1998 through 2010. Additionally, the Company has net
operating loss carryforwards of approximately $15,350,000 for state income tax
purposes which expire between 1998 and 2010.
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events including
significant changes in ownership interests. If the Company's net operating loss
carryforwards are limited, and the Company has taxable income which exceeds the
permissible yearly net operating loss carryforward, the Company would incur a
federal income tax liability even though net operating loss carryforwards would
be available in future years.
At December 31, 1995, the Company had available approximately $1,300,000 and
$3,800 of research and development credit and investment credit, respectively,
which expire in varying amounts from 1996 through 2009.
10. Related Party Transactions
For 1993, fees for legal services, consulting services and out-of-pocket
expenses charged to general and administrative expenses by a then director or by
a law firm of the same director approximated $208,800. Fees of approximately
$10,000, $18,000, and $36,500 in 1995, 1994, and 1993 as well as related travel
expenses, were paid to an individual director for consulting on a number of
projects related to Company operations, business development and strategic
planning. Fees of $144,000, $56,000 and $150,000 in 1995, 1994 and 1993 as well
as related travel expenses were paid to an individual director for consulting
the relocation of the Company's headquarters, its pending litigation, and its
product in-licensing, out-licensing, marketing and manufacturing.
11. Contingency
Class Action Litigation
In September 1993, the Company, and certain of its past and then directors and
officers along with Kemper Securities Group, Inc. and Vector Securities
International, Inc., were named in two class action lawsuits filed in the United
States District Court, Northern District of Illinois. The suits allege that the
Company and the other defendants violated Section 10 (b) of the Securities
Exchange Act of 1934 and Rule 10 (b) (5) promulgated thereunder and made
negligent misrepresentations in connection with the Company's January 1992
secondary stock offering and otherwise during the period November 19, 1990
through April 28, 1993. In September 1994, the Company's motion to dismiss was
granted. Plaintiffs appealed in October 1994. On May 16, 1995 the United States
Court of Appeals for the 7th Circuit reversed the dismissal.
On November 7, 1995, the Company served its answers to the complaints in the two
consolidated class action lawsuits. The answers denied the material allegations
of the complaints and asserted affirmative defenses, including among others that
the Company did not commit securities fraud, that the Company did not make any
untrue representations, that the Company made adequate disclosure about the
Adenoscan(R) NDA and that the complaints were not filed timely by reason of the
applicable statute of limitations.
On February 20, 1996, defendants moved for summary judgment on the basis that
Plaintiffs' claims are barred by the statute of limitations and, in the
alternative, assuming plaintiffs' allegations are true, and misrepresentations
by defendants caused no losses to the plaintiffs. Plaintiffs have requested
until March 31, 1996 to reply to the motions.
As a result of the pending motion, and the fact that class certification has not
yet been addressed and no depositions have occurred, it is not possible at this
time to evaluate the potential liability of the claims against the Company.
However, the Company's management is vigorously contesting the allegations of
the complaints, which it believes are without merit.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
All of the information required by this Item is contained in the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders under the
captions "Election of Directors," "Board of Directors" and "Executive Officers"
and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
All of the information required by this Item is contained in the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders under the
caption "Executive Compensation" and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the information required by this Item is contained in the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders under the
caption "Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the information required by this Item is contained in the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Shareholders under the
caption "Certain Transactions" and is incorporated herein by this reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Medco Research, Inc. are
included in Item 8:
Independent Auditors' Report
Consolidated balance sheets--December 31, 1995 and 1994
Consolidated statements of operations--Years ended December 31, 1995,
1994 and 1993
Consolidated statements of stockholders' equity--Years ended December
31, 1995, 1994 and 1993
Consolidated statements of cash flows--Years ended December 31, 1995,
1994, and 1993
Notes to consolidated financial statements
All schedules for which provision is made in the applicable accounting
regulation of the Securities Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(b) No reports on Form 8-K were filed for the quarter ended December 31,
1995.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant for the State of
California, as amended to date.(6)
3.2 Bylaws of the Registrant for the State of California, as amended to
date.(5)
3.3 Articles of Incorporations of the Registrant for the State of
Delaware.(8)
3.4 Bylaws of the Registrant for the State of Delaware.(8)
10.1 1983 Stock Option Plan, as amended to date.(1)
10.2 Form of Indemnity Agreement by and between Registrant and Registrant's
directors and officers.(5)
10.3 Agreement dated March 16, 1988 by and among Registrant, Pharmatec, Inc.
and the University of Florida Research Foundation, Inc.(1)
10.4 Development and License Agreement dated December 21, 1988 by and
between Registrant and LyphoMed, Inc.(2)
10.5 Letter Agreement dated March 3, 1989 by and between Registrant and the
University of Virginia Alumni Patents Foundation.(3)
10.6 First Amendment dated March 17, 1989 to Development and License
Agreement dated November 7, 1985 by and between Registrant and
LyphoMed, Inc.(3)
10.7 1989 Stock Option and Stock Appreciation Rights Plan, as amended to
date.(4)
10.8 Employment Agreement dated January 8, 1992 by and between Registrant
and Archie W. Prestayko.(6)
10.9 Second Amendment to Lease dated February 18, 1992 relative to
Registrant's facilities at 8455 Beverly Boulevard, Los Angeles,
California.(6)
10.10 License Agreement dated April 21, 1992 by and between Registrant and
Nordion International Inc.(6)
10.11 Employment Agreement dated June 9, 1992 by and between Registrant and
Donald B. Siegel.(6)
10.12 Employment Agreement dated June 9, 1992 by and between Registrant and
Sam L. Teichman.(6)
10.13 Third Amendment to Lease dated August 10, 1992 relative to
Registrant's facilities located at 8455 Beverly Boulevard, Los Angeles,
California.(6)
10.14 Consulting Agreement dated September 15, 1992 by and between Registrant
and William M. Bartlett.(6)
10.15 Employment Agreement dated October 16, 1992 by and between Registrant
and Roger D. Blevins.(7)
10.16 Employment Agreement dated January 8, 1993 by and between Registrant
and Archie W. Prestayko.(7)
10.17 Lease Agreement effective June 25, 1993 relative to Registrant's
facilities at 85 T.W. Alexander Drive, Research Triangle Park, North
Carolina.(7)
10.18 Consulting Agreement dated July 1, 1993 by and between Registrant and
Richard C. Williams.(7)
10.19 Employment Agreement dated October 16, 1993 by and between Registrant
and Roger D. Blevins.(7)
10.20 Employment Agreement dated February 24, 1994 by and between Registrant
and Archie W. Prestayko.(7)
10.21 Consulting Agreement dated December 1, 1994 by and between Registrant
and Richard C. Williams. (8)
10.22 Medco Research and Fujisawa, USA Mutual Release and Settlement
Agreement, dated May 22, 1995. (9)
10.23 Amendment to Consulting Agreement dated December 1, 1994 by and between
Registrant and Richard C. Williams.
11 Computation of Net Income (Loss) per Common Share.
- --------------------------------------------------------------------------------
(1) The referenced exhibits are incorporated herein by reference to Exhibits
10.1 and 10.6 to the Registrant's Form 10-K for the fiscal year ended August 31,
1988 filed with the Securities and Exchange Commission on November 29, 1988.
(2) The referenced exhibit is incorporated herein by reference to Exhibit 10.02
to the Registrant's Form 8-K dated December 21, 1988 filed with the Securities
and Exchange Commission.
(3) The referenced exhibits are incorporated herein by reference to Exhibits
10.01 and 10.02 to the Registrant's Form 8-K dated March 3, 1989 filed with the
Securities and Exchange Commission.
(4) The referenced exhibit is incorporated herein by reference to Exhibit 10.20
to the Registrant's Form 10-K for this fiscal year ended August 31, 1989 filed
with the Securities and Exchange Commission on November 29, 1989.
(5) The referenced exhibits are incorporated herein by reference to Exhibits 3.2
and 10.4 to the Registrant's Form 10-K for the fiscal year ended August 31, 1990
filed with the Securities and Exchange Commission on December 14, 1990.
(6) The referenced exhibits are incorporated herein by reference to Exhibits
10.18, 10.19, 10.20, 10.21, 10.22, 10.23, and 10.24 to the Registrant's Form
10-K for the fiscal year ended August 31, 1992 filed with the Securities
Exchange Commission on November 27, 1992.
(7) The referenced exhibits are incorporated herein by reference to Exhibits
10.23, 10.24 10.25, 10.26, 10.27, and 10.28 to the Registrant's Form 10-K for
the Transition period of September 1, 1992 through December 31, 1992 and
calendar year ended December 31, 1993 filed with the Securities Exchange
Commission on March 28, 1994.
(8) The referenced exhibit is incorporated herein by reference to Exhibit 3.3,
3.4 and 10.21 to the Registration Form 10-K for the calendar year-ended
December 31, 1994 filed with the Securities Exchange Commission on March 29,
1996.
(9) The referenced exhibit is incorporated herein by reference to Exhibit 10.01
to the Registrant's Form 10Q for the period ended June 30, 1995 filed with the
Securities Exchange Commission on August 11, 1995.
<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.
MEDCO RESEARCH, INC.
By: /s/ ROGER D. BLEVINS
Roger D. Blevins, Pharm. D.,
President and
Chief Operating Officer
Date: March 29, 1996
By: /s/ JOHN E. BARNHARDT
John E. Barnhardt,
Chief Financial Officer
Date: March 29, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ RICHARD C. WILLIAMS Date: March 29, 1996
Richard C. Williams,
Chairman of the Board
By: /s/ WILLIAM M. BARTLETT Date: March 29, 1996
William M. Bartlett, Director
By: /s/ ELIZABETH M. GREETHAM Date: March 29, 1996
Elizabeth M. Greetham, Director
By: /s/ EUGENE L. STEP Date: March 29, 1996
Eugene L. Step, Director
By: /s/ ALBERT D. ANGEL Date: March 29, 1996
Albert D. Angel, Director
By:
Manfred Mosk, Ph.D., Director
AMENDMENT
TO
CONSULTING AGREEMENT
Amendment, dated December 22, 1995 to Consulting Agreement (the "Consulting
Agreement") dated December 1, 1994 between MEDCO RESEARCH, Inc. (the
"Corporation") and RICHARD C. WILLIAMS ("Williams").
WHEREAS, the Compensation Committee of the Board of Directors of the
Corporation has determined that insomuch as the Corporation does not have a
Chief Executive Officer it is in the best interests of the Corporation to
continue to consult with Williams on matters not customarily involving a
non-employee Chairman of the Board, such as corporate acquisitions, financial
public relations and pending litigation, and to extend the Consulting Agreement
for a period of one year on the terms set forth below; and
WHEREAS, Williams is willing so to continue to consult with the
Corporation;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Section 1 of the Consulting Agreement is hereby amended by (a)
deleting in the first sentence thereof the phrase "fiscal years 1994 and 1995"
and substituting therefor the words "fiscal 1996" and (b) by adding the
following proviso at the end of such sentence: "; provided, however, that on
or before June 30, 1996 the Compensation Committee of the Corporation shall
review the Term of the Agreement in light of the needs of the Corporation for
the balance of fiscal 1996 and Williams agrees that the decision of such
Committee shall be final, conclusive and binding upon him.
2. Section 3 of the Consulting Agreement is hereby amended by deleting
that portion of the first sentence beginning with the first word thereof
through and including the words "January 1995", and substituting therefor the
following: "As compensation for the consulting services to be rendered by
Williams during fiscal 1996, the Corporation agrees to pay to Williams, and
Williams agrees to accept as full payment therefor, a fee in the aggregate
amount of $144,000, payable in equal monthly installments due on the first day
of each month during the Term, commencing in January 1996."
3. Except as expressly amended hereby, the Consulting Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first above written.
----------------------------
Richard C. Williams
MEDCO RESEARCH, INC.
By: /s/ ROGER D. BLEVINS
Roger D. Blevins, President
and Chief Operating Officer
<TABLE>
<CAPTION>
Computation of Net Loss Per Common Share
Year Ended December 31
------------------------ --------------------------- ------------------------
1995 1994 1993
------------------------ --------------------------- ------------------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 11,023,921 11,144,938 11,182,376
Net effect of dilutive stock options used on
the treasury stock method using average
market price - - -
------------------------ --------------------------- ------------------------
11,023,921 11,144,938 11,182,376
======================== =========================== ========================
Net loss $(3,532,442) $(4,414,468) $(3,558,319)
======================== =========================== ========================
Per share $(0.32) $(0.40) $(0.32)
======================== =========================== ========================
Fully diluted:
Weighted average shares 11,023,921 11,144,938 11,182,376
outstanding
Net effect of dilutive stock options based
on the treasury stock method using
ending market price, if higher than average
market price - - -
======================== =========================== ========================
11,023,921 11,144,938 11,182,376
======================== =========================== ========================
Net loss $(3,532,442) $(4,414,468) $(3,558,319)
======================== =========================== ========================
Per Share $(0.32) $(0.40) $(0.32)
======================== =========================== ========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,304,774
<SECURITIES> 23,236,157
<RECEIVABLES> 4,314,429
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,855,360
<PP&E> 663,482
<DEPRECIATION> 333,813
<TOTAL-ASSETS> 43,121,656
<CURRENT-LIABILITIES> 4,120,748
<BONDS> 0
0
0
<COMMON> 52,216,010
<OTHER-SE> (17,116,327)
<TOTAL-LIABILITY-AND-EQUITY> 43,121,656
<SALES> 0
<TOTAL-REVENUES> 13,007,734
<CGS> 0
<TOTAL-COSTS> 16,440,176
<OTHER-EXPENSES> 16,440,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,432,442)
<INCOME-TAX> 100,000
<INCOME-CONTINUING> (3,532,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,532,442)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
