S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period ended September 28, 1997 Commission file
number 0-14887
T H E L I P O S O M E C O M P A N Y, I N C.
(Exact name of registrant as specified in its charter)
Delaware 22-2370691
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Research Way, Princeton Forrestal Center, Princeton, N.J. 08540
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: (609)
452-7060
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
The number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Class November 10, 1997
Common Stock, $.01 par value 37,540,019
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
Part I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
September 28, 1997 and December 29, 1996 3
Consolidated Statements of Operations
for the Nine Month and Three Month Periods Ended
September 28, 1997 and September 29, 1996 4
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 28, 1997 and September 29, 1996 5
Notes to Consolidated Financial Statements 6-7
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
Part II. OTHER INFORMATION17
Signatures 18
************************************************
Note concerning trademarks: Certain
names mentioned in this report are
trademarks owned by The Liposome Company,
Inc. or its affiliates or licensees.
ABELCET is a registered trademark of The
Liposome Company, Inc.
Page 2
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS
Current assets: 9/28/97 12/29/96
Cash and cash equivalents $ 18,715 $ 1,841
Short-term investments 16,460 28,269
Accounts receivable, net of allowance for doubtful
accounts ($1,333 for 1997, $1,079 for 1996) 5,255 7,884
Inventories 13,732 9,904
Prepaid expenses 593 835
Other current assets 203 47
Total current assets 54,958 48,780
Long-term investments 3,000 10,140
Plant and equipment, net 26,153 28,292
Restricted cash 11,930 6,930
Other assets, net 371 413
Total assets $ 96,412 $ 94,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,777 $ 1,806
Accrued expenses and other current liabilities 6,270 7,682
Current obligations under capital leases 2,231 2,348
Current obligations under note payable 303 303
Total current liabilities 10,581 12,139
Long-term obligation under capital leases 4,735 6,369
Long term obligation under note payable 959 1,186
Total liabilities 16,275 19,694
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.0l; 60,000 shares
authorized; 37,493 and 36,061 shares issued
and outstanding 375 361
Additional paid in capital 261,796 237,809
Net unrealized investment loss (140) (481)
Foreign currency translation adjustment (274) (430)
Accumulated deficit (181,620) (162,398)
Total stockholders' equity 80,137 74,861
Total liabilities and stockholders' equity $ 96,412 $ 94,555
See accompanying notes
Page 3
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
9/28/97 9/29/96 9/28/97 9/29/96
Product sales $ 13,115 $ 13,799 $ 42,740 $ 36,369
Collaborative research and development
revenues........... 531 610 2,331 2,502
Interest, investment and other income 2,404 501 3,487 2,850
Total revenues............. 16,050 14,910 48,558 41,721
Cost of goods sold 7,091 4,347 15,621 11,611
Research and development expense.... 6,627 8,955 21,470 24,190
Selling, general and administrative
expense... 8,366 6,905 30,141 20,318
Interest expense..................... 169 55 548 175
Total expenses............... 22,253 20,262 67,780 56,294
Net Loss (6,203) (5,352) (19,222) (14,573)
Preferred Stock dividends 0 (2) 0 (1,235)
Net loss applicable to Common Stock $(6,203) $ (5,354) $(19,222) $(15,808)
Net loss per share applicable to
Common Stock..................... $ (0.17) $ (0.16) $ (.52) $ (.49)
Weighted average number of common
shares outstanding................ 37,430 33,671 36,850 32,452
See accompanying notes
Page 4
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
9/28/97 9/29/96
Cash flows from operating activities:
Net loss $ (19,222) $ (14,573)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 3,742 2,765
Provision for bad debts 254 476
Other 1,033 565
Changes in assets and liabilities
Accounts receivable 2,375 (860)
Inventories (3,828) (3,547)
Prepaid expenses 242 (129)
Other current assets (156) (53)
Accounts payable (29) (796)
Accrued expenses and other current liabilities (1,412) 1,756
Net cash used by operating activities (17,001) (14,396)
Cash flows from investing activities:
Purchases of short and long-term investments (22,347) (26,760)
Sales of short and long-term investments... 41,637 48,724
Restricted cash (5,000) --
Purchases of property, plant and equipment (1,561) (8,045)
Net cash provided by investing activities 12,729 13,919
Cash flows from financing activities:
Net payments from registration of Common Stock (158) 29
Net payments from conversion of Preferred Stock -- (466)
Proceeds from the exercise of stock options 2,251 3,890
Proceeds from private placement of Common Stock 20,875 --
Principal payments under note payable (227) (227)
Principal payments under capital lease obligations(1,751) (1,128)
Preferred Stock dividend payments -- (2,571)
Net cash provided/(used) by financing activities 20,990 (473)
Effects of exchange rate changes on cash 156 (62)
Net increase/(decrease) in cash and cash equivalents 16,874 (1,012)
Cash and cash equivalents at beginning of the period 1,841 3,937
Cash and cash equivalents at end of the period $18,715 $ 2,925
See accompanying notes
Page 5
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation
The information presented at September 28, 1997, and for the
three and nine month periods then ended is unaudited, but
includes all adjustments (consisting only of normal recurring
accruals) that management at The Liposome Company, Inc. (the
"Company") believes to be necessary for the fair presentation of
results for the periods presented. The December 29, 1996 balance
sheet was derived from audited financial statements. These
financial statements should be read in conjunction with the
Company's audited financial statements for the year ended
December 29, 1996, which were included as part of the Company's
Annual Report on Form 10-K. Certain reclassifications have been
made to the prior year financial statement amounts to conform
with the presentation in the current year financial statements.
2.Common Stock Outstanding and Per Share Information
Per share data is based on the weighted average number of shares
of Common Stock outstanding during each of the periods. For the
three months ended September 28, 1997 and the comparable prior
year period, weighted average shares increased to 37,430,000 from
33,671,000. The increase is due primarily to certain conversions
of Preferred Stock and the exercise of stock options. Also, on
April 23, 1997 the Company issued an additional 1,000,000 shares
at $20.875 per share to a private investor for cash of
$20,875,000. At the date of this report this investor has
reported total holdings of approximately 24.99% of the Company's
outstanding Common Stock. Unexercised stock options (Common
Stock equivalents) and, in the 1996 reported periods, the
conversion of outstanding Preferred Stock to Common Stock are not
included in the calculation of loss per share since their
inclusion would be anti-dilutive.
The net loss per common share includes a charge for dividends
paid on the outstanding shares of Preferred Stock of $0 and $.04
for the nine month period ended September 28, 1997 and September
29, 1996, respectively.
In March 1996, the Company completed the call for the redemption
of 50% of the Preferred Stock, with the remainder being called in
October 1996. Virtually all of the outstanding Preferred Stock
was converted into Common Stock, thereby eliminating the
Company's annual Preferred Stock dividend requirements.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share", which specifies
computation and disclosure requirements for earnings per share
and is effective for financial statements issued after December
15, 1997. If SFAS No. 128 had been adopted at September 28, 1997
there would have been no change in the earnings per share amounts
reflected in the accompanying financial statements.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income" in
June 1997. Comprehensive Income represents the change in net
assets of a business enterprise as a result of nonowner
transactions. Management does not believe that the future
adoption of SFAS No. 130 will have a material effect on the
Company's financial position and results of operations. The
Company will adopt SFAS No. 130 for the year ending January 3,
1999.
Page 6
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS
No. 131 requires that a business enterprise report certain
information about operating segments, products and services,
geographic areas of operation, and major customers in complete
sets of financial statements and in condensed financial
statements for interim periods. The Company is required to adopt
this standard in 1998 and is currently evaluating the impact of
the standard.
3.Inventories
Inventories are carried at the lower of actual cost or market and
cost is accounted for on the first-in first-out (FIFO) basis.
The components of inventories are as follows:
September 28, December 29,
1997 1996
Finished goods $2,984,000 $3,063,000
Work in process 7,008,000 5,011,000
Raw materials 3,208,000 1,447,000
Supplies 532,000 383,000
$13,732,000 $9,904,000
4.Supplemental Disclosure of Cash Flow Information
Nine months Ended:
9/28/97 9/29/96
Cash paid during the year for interest $548,000 $175,000
5.Unusual Charges
The Company reported approximately $3,900,000 of unusual charges
for the second quarter 1997. The primary component was
organizational restructuring charges of approximately $2,550,000
(classified as selling, general and administrative expense). The
balance of the charges is attributable to the provision for
royalties on past sales under the University of Texas litigation
settlement of $768,000, including the amortization of the ten-
year warrant issued to the University of Texas (classified as
cost of goods sold), and the inventory and construction costs of
$570,000 that would have been capitalized had it not been for the
unfavorable results of a pivotal Phase III clinical study of
VENTUSTM (classified as research and development expense).
On July 18, 1997, the Company implemented the restructuring of
the organization, including the elimination of approximately 137
positions. The Company expects to save approximately $8,000,000
annually as a result of this restructuring. The unspent balance
of organizational restructuring charges at September 28, 1997 is
approximately $250,000.
Page 7
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is a biopharmaceutical company engaged in the discovery,
development, manufacturing and marketing of proprietary lipid- and
liposome-based pharmaceuticals, primarily for the treatment of cancer
and other related life-threatening illnesses. ABELCET (Amphotericin B
Lipid Complex Injection), the Company's first commercialized product,
has been approved for marketing for certain indications in the United
States and 16 foreign countries and is the subject of marketing
application filings in several other countries. In the United States,
ABELCET has been cleared for marketing for the treatment of invasive
fungal infections in patients who are refractory to or intolerant of
conventional amphotericin B therapy. Currently all product sales are
derived from ABELCET.
In the U.S., as well as the U.K., the Company markets ABELCET with its
own sales force. In Spain and Portugal, the Company has a
marketing/distribution relationship with a local pharmaceutical
company. In the third quarter, the Company announced that it had
entered into an agreement with Wyeth-Ayerst International, Inc.
("Wyeth-Ayerst"), a division of American Home Products Corporation, to
be its marketing partner in France and Italy where product launches
are expected in the fourth quarter of 1997. The Company will
determine whether to market ABELCET directly or with a partner on a
country-by-country basis as it receives future marketing approvals. In
addition, sales are realized on a named patient basis in certain
countries where marketing approval has not yet been received.
The Company is developing TLC D-99, liposomal doxorubicin, as a
treatment for metastatic breast cancer and potentially other cancers.
TLC D-99 is currently in two Phase III clinical studies comparing it
to conventional doxorubicin as a single agent and in combination with
cyclophosphamide, another commonly used chemotherapeutic agent.
Results of an interim analysis of the studies indicates that TLC D-99
is significantly less cardiotoxic than conventional doxorubicin with
essentially equal efficacy. If clinical results continue to be
positive, the Company expects to file a new drug application with the
U.S. Food and Drug Administration ("FDA") in mid-1998.
As part of implementing its strategy to develop an oncology franchise,
on July 14, 1997, the Company reacquired all development,
manufacturing and marketing rights to TLC D-99 from Pfizer Inc.
("Pfizer") who had previously been co-developing TLC D-99 with the
Company. The Company is assuming control and the cost of all clinical
studies including the ongoing Phase III clinical studies that were
previously being conducted by Pfizer. Pfizer was also funding
substantially all of the development and clinical trial costs of TLC D-
99. Pfizer has made available a credit line of up to $10 million to
continue the development of TLC D-99, and to the extent that any
funding is actually used by the Company, the outstanding principal and
interest would be repayable on the earlier of 180 days after FDA
clearance to market TLC D-99 or in twenty quarterly installments
commencing July 14, 2002. Pfizer will receive royalties on worldwide
(except Japan) commercial sales of TLC D-99.
The Company is conducting preclinical toxicology studies of TLC ELL-12
(liposomal ether lipid), a new cancer therapeutic that may have
applications for the treatment of many different cancers. If
successful, the Company expects to file an investigational new drug
application with the FDA and, if approved, to commence human clinical
studies of TLC ELL-12 in mid-1998. The Company also has a continuing
discovery research program concentrating in oncology treatment.
Page 8
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview (Continued)
On June 25, 1997 the Company announced results of a Phase III study of
VENTUSTM as the treatment for Acute Respiratory Distress Syndrome
(ARDS), an inflammatory condition affecting the lungs. The Company's
analysis of the two arms of the study showed no significant difference
between patients receiving VENTUSTM or placebo either in reducing the
time on mechanical ventilation or in 28 day mortality. No safety
concerns for the drug were identified. The Company does not intend to
perform any further significant development of VENTUSTM for this
indication but, instead, intends to make VENTUSTM available for
licensing to another company.
Following the results of the VENTUSTM study, the Company announced its
intention to focus its resources on the development of an oncology
franchise. As part of implementing this strategy the Company
restructured its operations to reflect ongoing operating realities and
to focus the organization on the development and marketing of oncology
and related pharmaceuticals. The Company expects to realize annual
savings of approximately $8,000,000 from this restructuring.
In July 1997, the Company and the University of Texas and M.D.
Anderson Cancer Center came to an agreement on terms to resolve
pending patent litigation regarding a patent granted to the University
of Texas that allegedly was infringed by ABELCET. The Company has
received an exclusive license under the patent and has agreed to pay
royalties to the University of Texas for past and future sales of
ABELCET. The Company has paid all past royalties due under this
agreement and has offset a portion against royalties payable to a
third party under another agreement. Royalties on prior period sales
due the University of Texas pursuant to the agreement have been
reflected in the Consolidated Statement of Operations for the quarter
ended June 29, 1997. Additionally, the Company has issued the
University of Texas a ten year warrant to purchase 1,000,000 shares of
the Company's Common Stock at an exercise price of $15 per share. The
value of the warrant is being amortized as royalty expense based on
actual and projected sales from 1995 to 2004, with the retroactive
portion being reflected in the second quarter of 1997 and the nine
month period ended September 28, 1997.
On August 11, 1997, the Company entered into a settlement agreement
with NeXstar Pharmaceuticals, Inc. ("NeXstar") and Fujisawa USA, Inc.,
terminating all litigation relating to the Company's liposome drying
technology patents discussed under "Business: Patents and Proprietary
Technology" in the Company's Annual Report on Form 10-K for the year
ended December 29, 1996. Pursuant to this agreement, the Company
received a payment of $1,750,000 in the quarter ended September 28,
1997, and will receive quarterly payments based on AmBisome sales by
NeXstar and its marketing partners beginning in 1998. All parties
agreed to dismiss their claims in the actions pending in Delaware, the
United Kingdom, Germany and the Netherlands, and NeXstar will withdraw
its oppositions to certain of the Company's European and Japanese
patents. NeXstar and the Company also granted to each other options
to acquire licenses under other patented technology.
Page 9
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues
- Three Months Ended September 28, 1997:
Total revenues of the Company for the quarter ended September 28, 1997
were $16,050,000 compared to $14,910,000 for the same period during
1996. The change in total revenues represents an increase of
$1,140,000 or 7.6%. This net increase is primarily due to the receipt
of the NeXstar payment of $1,750,000, classified in interest,
investment and other income, partially offset by lower sales of
ABELCET. The other components of revenue are collaborative research
and development revenues and interest, investment and other income.
Net product sales of ABELCET for the third quarter ended September 28,
1997 were $13,115,000 compared to $13,799,000 for the third quarter of
1996, a decline of $684,000 primarily due to changes in product
pricing and, for international sales changes in foreign exchange
rates. Unit shipments of ABELCET worldwide grew 27.8% over the
comparable prior year period. Sales in the U.S. were $11,492,000, a
decrease of 4.2% from the comparable prior year period primarily due
to the effects of a targeted pricing program for large volume
purchasers. International product sales were $1,623,000 in the third
quarter of 1997 versus $1,798,000 in the third quarter of 1996. Sales
of ABELCET in foreign countries are denominated in the local currency
of the particular country. Revenues stated in U.S. dollars are thus
subject to fluctuation based on changing exchange rates. In the 1997
third quarter the effect of the strong U.S. dollar on reported
revenues more than offset local currency revenue increases, resulting
in lower reported revenues compared to the third quarter of 1996.
During the second quarter of 1997, a targeted pricing program was
implemented to induce hospitals to convert more amphotericin B usage
to ABELCET, where appropriate. The price reduction is effected by
rebates and chargebacks paid to wholesalers based on their sales at
contract prices to targeted hospitals. U.S. sales are also subject to
rebates pursuant to government mandated price protection programs.
The Company provides a reserve for the impact on sales for these
rebates and chargebacks. The provision for the third quarter ended
September 28, 1997 was approximately $4,700,000. The Company
periodically evaluates the estimates used in establishing the reserve
and makes any necessary adjustments.
Collaborative research and development revenues were $531,000 for the
third quarter of 1997, compared to $610,000 in the comparable prior
year period. These revenues were all recorded for reimbursement from
Pfizer for Company expenses in the co-development of TLC D-99 as a
treatment for metastatic breast cancer. On July 14, 1997, the Company
reacquired all development, manufacturing and marketing rights to TLC
D-99 from Pfizer and has assumed all of the costs of the development
program.
Interest, investment and other income for the three months ended
September 28, 1997 and September 29, 1996 were $2,404,000 and
$501,000, respectively. The increase of interest, investment and
other income of $1,903,000 is primarily due to the receipt of the
NeXstar payment of $1,750,000 pursuant to the agreement signed in
August 1997.
Page 10
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
In early 1997, a lipid-based product that competes with ABELCET was
launched in the U.S. However, to date, there has been no significant
penetration by that product in the market. Another competing product
has received FDA marketing approval for the treatment of fever of
unknown origin. The impact, if any, of the FDA approval of this
product on U.S. sales and growth of ABELCET is not presently
quantifiable. The Company anticipates continued growth in total
product sales primarily due to the commencement of commercial sales in
additional countries. Due to the Company's reacquisition of rights in
TLC D-99 from Pfizer, the Company anticipates elimination of
collaborative research and development revenues in future quarters, as
it currently has no other agreements in place. Interest income will
be related to the level of cash balances available for investment and
the rate of interest earned.
- Nine Months Ended September 28, 1997:
Total revenues for the nine months ended September 28, 1997 were
$48,558,000, an increase of $6,837,000 or 16.4% compared to the nine
months ended September 29, 1996. The primary components of revenues
for the Company are product sales, collaborative research and
development revenue and interest, investment and other income. The
major component of the revenue increase was the growth of U.S. product
sales in the first half of 1997, combined with the receipt of proceeds
from the NeXstar settlement.
Net product sales of ABELCET for the first nine months of 1997 were
$42,740,000, of which $37,112,000 occurred in the U.S. with the
remainder from international activity. The U.S. sales growth of
$6,458,000 or 21.1% over the comparable prior year period is related
to greater conversion by physicians from the use of conventional
amphotericin B to ABELCET. Sales unit volume in 1997 increased 32.3%
from the comparable prior year period. However, the growth in product
revenues was not proportionate due to the impact of the targeted
pricing program (as discussed above with respect to the three months
ended September 28, 1997). International sales were $5,628,000 for
the nine months ended September 28, 1997 or $87,000 lower than the
comparable prior year period. The major components of this change
were a modest sales volume growth, offset by the unfavorable effects
of foreign exchange rates.
Collaborative research and development revenues of $2,331,000 for the
nine months ended September 28, 1997 decreased $171,000 or 6.8%
compared to the comparable prior year period. The decrease is
primarily due to the cessation of development funding by Pfizer
pursuant to the July 14, 1997 agreement in which the Company
reacquired all development, manufacturing and marketing rights to TLC
D-99 from Pfizer. The Company earned all of its collaborative
research and development revenues from Pfizer during 1997 and 1996.
Interest, investment and other income for the nine months ended
September 28, 1997 was $3,487,000 compared to $2,850,000 for the same
1996 period. The increase of $637,000 is due to the receipt of
proceeds from the NeXstar settlement of $1,750,000, partially offset
by lower interest income due to lower average cash and investment
balances in the 1997 period. Average cash balances available for
investment in the first half of 1997 were significantly lower than the
comparable 1996 period, until late April 1997, when the Company
received $20,875,000 from a private investor for the issuance of
1,000,000 shares of Common Stock.
Page 11
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Expenses
- Three Months Ended September 28, 1997:
The components of total expenses for the quarter ended September 28,
1997 were cost of goods sold, research and development, selling,
general and administrative and interest expenses. Total expenses for
the three months ended September 28, 1997 were $22,253,000, an
increase of $1,991,000 over the comparable prior year period. The
increase is primarily due to the Company's program to reduce
inventories to more optimal levels, combined with higher litigation
costs, partially offset by the absence in 1997 of pre-production costs
incurred at the Indianapolis manufacturing facility ("Indianapolis")
in 1996. The Company received FDA clearance to distribute ABELCET
manufactured at its Indianapolis facility in the third quarter and
will no longer manufacture ABELCET at its Princeton facility.
Cost of goods sold was $7,091,000 or $2,744,000 higher than the
comparable period last year. The increase in cost of goods sold is
primarily due to the Company's decision to reduce inventory to more
optimal levels by not manufacturing ABELCET during the third quarter.
As such, certain manufacturing overhead and related costs for
Indianapolis were reflected as cost of goods sold in the third quarter
of 1997. This treatment, combined with the effect of the targeted
pricing program, contributed to the deterioration in the gross margin
from 68.5% in the 1996 period to 45.9% in the 1997 third quarter.
Research and development expense was $6,627,000 for the quarter ended
September 28, 1997, 26.0% lower than the comparable prior year period.
The decrease was primarily due to the absence of the 1996 pre-
production costs related to the start-up of Indianapolis.
Selling, general and administrative expenses for the three months
ended September 28, 1997 were $8,366,000 compared to $6,905,000 in
1996. A major component of the $1,461,000 increase is higher legal
costs associated with the intellectual property litigation which was
settled in the third quarter of 1997. The balance of the increase is
due to higher U.S. sales and marketing costs related to the sales
force expansion in late 1996.
Page 12
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Interest expense was $169,000 in the third quarter of 1997 or $114,000
higher than the comparable 1996 period. The reason for the increase
is interest expense related to a capital lease signed in December
1996.
The Company expects the gross margin for ABELCET to improve as its
inventory reduction program is expected to be completed in the fourth
quarter of 1997, and the Company starts to recognize the advantages of
lower unit manufacturing costs at Indianapolis starting in 1998. The
Company expects research and development expenses to increase as a
result of the reacquisition of TLC D-99 and the related costs of
completing TLC D-99 product development. Selling, general and
administrative expenses may increase due to marketing activity related
to the launch of ABELCET in certain international markets.
- Nine Months Ended September 28, 1997:
The components of total expenses for the nine months ended September
28, 1997 were cost of goods sold, research and development, selling,
general and administrative, and interest expenses. Total expenses for
the nine months ended September 28, 1997 were $67,780,000, an increase
of $11,486,000 or 20.4% over the prior year period. One reason for the
increase is the recording of unusual charges of $3,900,000 in the
second quarter of 1997. The primary components of the unusual charge
were the organizational restructuring cost of $2,550,000 (classified
as selling, general and administrative expense), the provision for
royalties on past sales under the University of Texas litigation of
$768,000 (classified as cost of goods sold) and the write-off of
$570,000 of inventory and construction costs that would have been
capitalized had it not been for the unfavorable results of the
VENTUSTM Phase III study (classified as research and development
expense).
Cost of goods sold for the nine months ended September 28, 1997 was
$15,621,000 versus $11,611,000 in the 1996 period. The 34.5% increase
from 1996 to 1997 of $4,010,000 was a result of the increased unit
volume of ABELCET sold during 1997, the expensing of certain
manufacturing overhead and related costs resulting from the decision
to reduce inventories by not producing ABELCET in the third quarter
and the inclusion of royalties on past sales under the University of
Texas litigation settlement. Partially offsetting this increase were
improved production efficiencies in the manufacturing of ABELCET in
the first half of 1997. The gross margin for the first nine months of
1997 was 63.5% versus 68.1% in the comparable 1996 period. The
decline in gross margin was due to management's decision not to
manufacture during the third quarter (see inventory discussion under
the liquidity and capital resources section), the impact of lower
pricing and the royalty provision.
Research and development expenses were $21,470,000 for the nine months
ended September 28, 1997, compared to $24,190,000 for the comparable
prior year period. The major components of this category are
research, development, clinical and regulatory activities. The
decreased spending of $2,720,000 versus the comparable prior year
period is due to the absence in 1997 of pre-production costs for the
start up of the Indianapolis manufacturing facility incurred in 1996.
Partially offsetting this decrease was the write-off of $570,000 in
the second quarter of 1997 of inventory and construction costs that
would have been capitalized had it not been for the unfavorable
results of the VENTUSTM Phase III clinical study, combined with higher
expenditures related to the development of TLC ELL-12.
Page 13
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Continued)
Selling, general and administrative expenses for the first nine months
of 1997 were $30,141,000, a $9,823,000 increase over the prior year
period. The increase is due to the restructuring charges of
$2,550,000 following the unfavorable VENTUSTM Phase III study result.
The unspent balance of the organizational restructuring charges at
September 28, 1997 is approximately $250,000. The balance of the
increase is due to higher U.S. sales and marketing costs combined with
increased legal expenses incurred in connection with intellectual
property litigation. The U.S. sales and marketing increase is related
to the growth of U.S. sales and marketing efforts, expanded medical
education and marketing programs and the sales force expansion that
began in late 1996.
Interest expense was $548,000 in the first nine months of 1997 or
$373,000 higher than the comparable 1996 period. The reason for the
increase is interest expense related to a capital lease signed in
December 1996.
Net Loss, Net Loss Applicable to Common Stock and Net Loss per Share
of Common Stock
The net loss for the 1997 third quarter of $6,203,000 increased by
$851,000 from the same prior year period. The net loss applicable to
Common Stock was $6,203,000 or $0.17 per share and $5,354,000 or $0.16
per share for the third quarter of 1997 and 1996, respectively. The
primary reasons for these changes are the same as those stated in the
previous discussion detailing quarter to quarter changes.
The net loss for the nine months ended September 28, 1997 of
$19,222,000 increased by $4,649,000 from the same prior year period.
The net loss applicable to Common Stock of $19,222,000 for the period
ended September 28, 1997 increased by $3,414,000 versus the same prior
year period. The net loss applicable to Common Stock was $19,222,000
or $.52 per share and $15,808,000 or $.49 per share for the first nine
months of 1997 and 1996, respectively. The primary reasons for these
changes are the same as those stated in the previous discussion
detailing the nine month changes.
Liquidity and Capital Resources
The Company had $50,105,000 in cash and marketable securities as of
September 28, 1997. Included in these reserves were cash and cash
equivalents of $18,715,000, short-term investments of $16,460,000,
long term investments in marketable securities of $3,000,000 and
restricted cash of $11,930,000. Both short term and long term
investments are available for sale. The Company invests its cash
reserves in a diversified portfolio of high-grade corporate marketable
and United States Government-backed securities.
Inventories at September 28, 1997 increased $3,828,000 from December
29, 1996. The Company built higher inventories in the first half of
1997, peaking at $17,159,000, at June 29th, to insure a smooth
transition from the Princeton to the Indianapolis manufacturing
facility. FDA approval for Indianapolis was received in third quarter
1997 and the Company has reverted the Princeton manufacturing facility
to development use. As planned, the Company reduced inventories by
not producing ABELCET during the third quarter of 1997, thus lowering
inventories by $3,427,000. This decision negatively impacted gross
margins in the third quarter. The Company anticipates that the full
efficiencies of the new Indianapolis facility may not be realized
until the first quarter of 1998.
Page 14
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
Cash and marketable securities (both short and long-term and
restricted cash) increased $2,925,000 from December 29, 1996 to
September 28, 1997, due to the sale of 1,000,000 shares of Common
Stock to a private investor resulting in the receipt of $20,875,000,
and the receipt of $2,251,000 from the exercise of stock options.
Partially offsetting the cash inflows are the use of funds for
operations, the net loss applicable to Common Stock (net of
depreciation) of $15,480,000, higher ABELCET inventory (planned
increases in inventory to facilitate the transfer of certain
manufacturing operations from Princeton to Indianapolis) of $3,828,000
and capital spending of $1,561,000.
The Company entered into an agreement in December 1996 which provided
for equipment lease financing under a sale-leaseback arrangement. The
equipment is located primarily at the Indianapolis manufacturing
facility. As of December 29, 1996, the Company received $6,101,000
under this financing agreement. The sale-leaseback financing is
secured by a pledge of $5,000,000 aggregate principal amount of AAA
rated securities, which are classified as restricted cash on the
Balance Sheet. The Company is required to maintain a minimum balance
of $25,000,000 in cash and marketable securities, including those
securities pledged in connection with the lease financing. In
addition, the Company completed a working capital revolving credit
line agreement in early 1997, which allows for a borrowing capacity of
approximately $14,000,000 secured by approved account receivables and
inventories. There have been no advances made against this line
through the date of this report.
On April 23, 1997 the Company issued 1,000,000 shares of Common Stock
at $20.875 per share to a private investor for cash of $20,875,000. At
the date of this report, this investor has reported total holdings of
approximately 24.99% of the Company's outstanding shares of Common
Stock.
The Company expects to finance its operations and capital spending
requirements from, among other things, the proceeds received from
product sales, interest earned on investments and the proceeds from
maturity or sale of certain investments. Cash may also be provided to
the Company by leasing arrangements for capital expenditures,
financing of receivables and inventory under its line of credit, a
line of credit from a former licensing partner, the licensing of its
products and technology and the sale of equity or debt securities.
The Company believes that its product revenues and revenues from other
sources, coupled with its available cash and marketable securities
reserves, will be sufficient to meet its expected operating and
capital cash flow requirements for the intermediate term.
Page 15
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Risk Factors
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, and The
Liposome Company, Inc. (the "Company") intends that such forward-
looking statements be subject to the safe harbors created thereby.
Examples of these forward-looking statements include, but are not
limited to, (i) the progress of clinical trials and preclinical
studies, (ii) the timing of filing of new drug applications, (iii)
future marketing approvals, (iv) the expansion of sales efforts, (v)
possible new licensing agreements, (vi) future product revenues, (vii)
the future uses of capital, and financial needs of the Company, (viii)
cost savings from restructuring and (ix) manufacturing efficiencies
and other benefits to be realized from use of the Indianapolis
facility. While these statements are made by the Company based on
management's current beliefs and judgment, they are subject to risks
and uncertainties that could cause actual results to vary. In
evaluating such statements, stockholders and investors should
specifically consider a number of factors and assumptions, including
those discussed in the text and the financial statements and their
accompanying footnotes in this Report.
Among these factors and assumptions that could affect the forward-
looking statements in this Report are the following: (a) the
commercialization of ABELCET, is in an early stage and the ultimate
rate of sales of ABELCET is uncertain; (b) the Company's other
products have not yet received regulatory approvals for sale, and it
is difficult to predict when approvals will be received and, if
approved, whether the products can be successfully commercialized; (c)
competitors of the Company have developed and are developing products
that are competitive with the Company's products, and the Company will
be dependent on the success of its products in competing with these
other products; (d) the rate of sales of the Company's products could
be affected by regulatory actions, decisions by government health
administration authorities or private health coverage insurers as to
the level of reimbursement for the Company's products, and risks
associated with international sales, such as currency exchange rates,
currency controls, tariffs, duties, taxes, export license requirements
and foreign regulations; (e) the levels of protection afforded by the
Company's patents and other proprietary rights is uncertain and may be
challenged; and (f) the Company has incurred losses in each year since
its inception and there can be no assurance of profitability in any
future period.
Page 16
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is involved in lawsuits, claims, investigations
and proceedings, including patent, commercial, and
environmental matters, which arise in the ordinary course of
business. There are no such matters pending that the
Company expects to be material in relation to its business,
financial condition, cash flows, or results of operations.
In the third quarter of 1997, the Company settled its
litigation with the University of Texas and NeXstar
Pharmaceuticals, Inc. The terms of these settlements are
summarized in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations-Overview" and
the settlement agreements are filed as exhibits to this
Report on Form 10-Q.
ITEM 2. Changes in Securities and Use of Proceeds
A warrant to purchase one million shares of the Company's
Common Stock was issued to the University of Texas M.D.
Anderson Cancer Center pursuant to the litigation settlement
described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview."
The transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-1 Termination Agreement dated July 14, 1997, among The
Liposome Company, Inc., Pfizer Inc., and Pfizer
Pharmaceuticals Production Corporation (confidential
treatment requested).
10-2 Settlement Agreement dated August 11, 1997, among The
Liposome Company, Inc., NeXstar Pharmaceuticals Inc., and
Fujisawa USA, Inc. (confidential treatment requested).
10-3 Settlement Agreement dated July 1, 1997 among The Liposome
Company, Inc., the Board of Regents of the University of
Texas System, and the University of Texas M.D. Anderson
Cancer Center, including Patent License Agreement as Exhibit
B (incorporated by reference from Registration Statement on
Form S-3 filed on September 30, 1997).
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report on Form 10-Q is filed,
no reports on Form 8-K have been filed.
Page 17
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: November 12, 1997
THE LIPOSOME COMPANY, INC.
By: /s/ Charles A. Baker
Charles A. Baker
Chairman of the Board and
Chief Executive Officer
By: /s/ Brian J. Geiger
Brian J. Geiger
Vice President and
Chief Financial Officer
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 18,715
<SECURITIES> 16,460
<RECEIVABLES> 6,588
<ALLOWANCES> (1,333)
<INVENTORY> 13,732
<CURRENT-ASSETS> 54,958
<PP&E> 47,441
<DEPRECIATION> (21,288)
<TOTAL-ASSETS> 96,412
<CURRENT-LIABILITIES> 10,581
<BONDS> 0
0
0
<COMMON> 375
<OTHER-SE> 79,762
<TOTAL-LIABILITY-AND-EQUITY> 96,412
<SALES> 42,740
<TOTAL-REVENUES> 48,558
<CGS> 15,621
<TOTAL-COSTS> 67,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> (19,222)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,222)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> 0
</TABLE>
21
TERMINATION AGREEMENT
THIS AGREEMENT is made this 14th day of July,
1997 (the "Agreement") by and between THE LIPOSOME
COMPANY, INC., a Delaware corporation, having its
principal place of business at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540
("Liposome") and PFIZER INC, a Delaware corporation,
having its principal office at 235 East 42nd Street,
New York, New York, 10017 ("Pfizer Inc") and PFIZER
PHARMACEUTICALS PRODUCTION CORPORATION, formerly known
as PFIZER CHEMICAL CORPORATION, a Panamanian
corporation that is wholly owned by Pfizer Inc. having
a place of business at Ringaskiddy, County Cork,
Ireland ("PPPC") (Pfizer Inc and PPPC being
collectively referred to herein as "Pfizer").
RECITALS
A. Pfizer and Liposome are parties to that
certain License and Development Agreement, dated as of
Nov. 19, 1990, as amended by letter agreement on
December 20, 1990 (the "L&D Agreement"), relating to
the development, licensing and marketing of Liposome's
proprietary liposomal doxorubicin, TLC D-99 (the
"Product").
B. Pfizer and TLC wish to terminate the L&D
Agreement on the terms and conditions set forth herein,
and the parties wish the termination of the L&D
Agreement shall proceed in an orderly and amicable
fashion, subject to the terms and conditions of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
agreements, covenants, representations and warranties
contained in this Agreement and other good and valuable
consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
A. Termination of L&D Agreement. On the terms
and subject to the conditions set forth in this
Agreement, Pfizer and Liposome hereby agree that the
L&D Agreement is hereby terminated effective as of the
date of this Agreement; and each of Pfizer and
Liposome, on behalf of themselves and their respective
affiliates and assigns, hereby waives and renounces all
rights and releases the other (and their respective
officers, directors, shareholders, affiliates,
employees, agents and representatives) from all claims,
liabilities and obligations of any nature whatsoever,
in each case whether or not accrued, arising out of or
relating to the L&D Agreement, except for obligations
under this Agreement and the Debenture referred to in
Section I hereof. Any obligations under the L&D
Agreement which purport to survive its termination
shall be superseded by the obligations set forth in
this Agreement. All expenses incurred under the L&D
Agreement up to the date hereof shall be paid as set
forth in the L&D Agreement. All capitalized terms not
defined in this agreement shall have the meaning
assigned to them under the L&D Agreement.
B. Assignments of Ownership. Pfizer hereby
transfers and assigns to Liposome all of Pfizer's
rights, title and interest in and to the following: (i)
the Data and Dossier as defined in Sections 1.06 and
1.09 of the L&D Agreement, (ii) all information
relating to the commercialization, promotion and
distribution of the Product developed pursuant to
Article IIA of the Agreement; (iii) all Technical
Information developed by Pfizer in connection with the
Development Program, the commercialization or
manufacture of Product; (iv) to the extent permissible
under applicable law all regulatory filings held by
Pfizer for Product; (v) Pfizer's ownership interest in
any Licensed Patents in which Pfizer has been assigned
a joint interest; and (vi) Pfizer's ownership interest
in any clinical supplies of Product which are in
Liposome's or a clinical investigator's possession.
Pfizer shall assign all rights and obligations in
Pfizer's name under contracts which relate to Human
Clinical Trials or data analysis therefrom for those
studies set forth in Section C1, below.
C. Transfers by Pfizer. To effect the
assignments of ownership, Pfizer shall transfer to
Liposome within 90 days of the effective date of this
Agreement the following in the form in which they exist
on the date of transfer:
1. the reports, documents and other
materials listed in SCHEDULE A hereto, in the format
(whether printed, on computer diskette or otherwise)
set forth in such Schedule, relating to certain studies
of the Product completed prior to the date of this
Agreement ("Completed Studies"). Such reports,
documents and materials shall constitute Liposome
confidential information upon such transfer;
2. [
];
3. to the extent permissible under
applicable law the INDs for the Product or NDAs which
have been filed in Pfizer's name outside the U.S. or
Canada as listed in SCHEDULE B.
D. Transfer of Ongoing Studies.
1. Study #180-301. Pfizer hereby transfers
and assigns to Liposome all of Pfizer's rights, title
and interest in and to, and Liposome hereby assumes
from Pfizer all of Pfizer's liabilities and obligations
under, in each case whether or not accrued,[
]
2. Studies #0589 and #0652. At no
additional cost to Liposome, Pfizer shall continue to
perform its sponsorship obligations relating to the
United States Phase III studies Pfizer is conducting of
the Product known to the parties hereto as Studies
#0589 and #0652. Pfizer shall promptly undertake to
enter into negotiations with a Contract Research
Organization to continue the supervision of such
studies, with the purpose of assigning to Liposome all
of Pfizer's rights, title and interest in and to such
agreement[s]. Liposome shall be permitted to
participate in the negotiations and shall cooperate in
assisting Pfizer to complete the transaction as quickly
as possible. Liposome shall assume all liabilities and
obligations under such agreement[s] upon Pfizer's
assignment, and upon the successful completion of such
assignment, Pfizer shall transfer to Liposome all
reports, documentation and other materials, in whatever
form, prepared or received in connection with Studies
#0589 and #0652, and shall have no further obligations
with respect to such studies. If Liposome refuses to
assume such liabilities, Pfizer shall have no further
obligations respecting studies #0589 and #0652 other
than to transfer to Liposome the study files in the
form in which they exist on the date of transfer.
E. Cooperation and Assistance. For a period of
90 (ninety) days following the date of this Agreement,
Pfizer will provide Liposome with reasonable assistance
in assuming Pfizer's functions in connection with the
studies referred to in Section C of this Agreement.
Such assistance will be provided during normal business
hours and upon reasonable notice from Liposome.
F. [
]
G. [
]
H. Issuance of Debentures. For a period of five
years from the date hereof Liposome may issue and sell,
and, simultaneously with its delivery of the Receipt
(defined below) shall deliver, to Pfizer and Pfizer
agrees to purchase from Liposome debentures in the
cumulative principal amount of up to $10,000,000.00
(Ten Million United States Dollars) substantially in
the form of, and on the terms and conditions set forth
in the debenture attached as EXHIBIT A hereto (the
"Debentures"); and immediately upon receipt of such
amount in immediately available funds (net of any
withholdings or deductions of any kind) in its account
number [
], Liposome shall
acknowledge such receipt by signing and delivering to
Pfizer a receipt in a form reasonably acceptable to
Pfizer. Liposome covenants and agrees that the
proceeds from the sale of the Debentures shall be used
exclusively for the continued development of the
Product. Liposome's right to issue and sell and
Pfizer's obligation to purchase Debentures shall be
subject to no Event of Default, as defined under
Section 6 of the Debenture, having occurred. Liposome
may not issue additional Debentures after the date on
which the U.S. Food and Drug Administration approves an
NDA for TLC D-99 (the "Product").
I. Representations and Warranties of Liposome.
Liposome hereby represents and warrants to Pfizer that:
1. Corporate Organization and Standing.
Liposome is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Delaware. Liposome has the requisite corporate
power to carry on its business as presently conducted
and as proposed or contemplated to be conducted in the
future and to enter into and carry out the provisions
of this Agreement and the transactions contemplated
hereby.
2. Subsidiaries. Liposome has the
subsidiaries listed on Schedule C. No subsidiaries
have acquired any rights or obligations under the L&D
Agreement.
3. Corporate Capitalization.
a. Liposome's authorized capital stock
consists of two authorized classes of capital stock,
consisting of 60,000,000 shares of common stock, of
which 34,415,721 shares are issued and outstanding, and
2,400,000 shares of preferred stock of which no shares
are issued or outstanding. All issued and outstanding
shares of capital stock have been duly authorized and
validly issued and are fully paid and nonassessable.
b. Except as contemplated or set forth
in this Agreement or in Schedule D attached hereto, as
of the Closing, there are no outstanding preemptive or
other rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from
Liposome of any shares of its capital stock.
4. Authorization. All corporate action on
the part of Liposome, its directors and shareholders
necessary for the authorization, execution, delivery
and performance of this Agreement by Liposome, the
authorization, sale, issuance and delivery of the
Debenture (and the common Stock issuable upon
conversion of the Debenture, herein defined as the
"Conversion Shares") and the performance of all of
Liposome's obligations hereunder has been taken and
remains in full force and effect; and a true and
correct copy of all directors and shareholders
resolutions relating to such action is attached hereto
as EXHIBIT C. This Agreement, when delivered by
Liposome, shall constitute a valid and binding
obligation of Liposome, enforceable in accordance with
its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific
performance, injunctive relief or other equitable
remedies. The Debenture, when issued in compliance
with the provisions of this Agreement, will be validly
issued, and Pfizer will have the rights, preferences
and privileges described in the Debenture; the
Conversion Shares have been duly and validly reserved
and, when issued in compliance with the provisions of
the Debenture, will be validly issued, fully paid and
nonassessable; and the Conversion Shares will be free
of any liens or encumbrances.
5. Compliance with Other Instruments. The
execution, delivery, and performance of and compliance
with this Agreement, the Debenture, the Registration
Rights Agreement and the issuance of the Conversion
Shares pursuant to the Debenture, do not and will not
conflict with, result in a violation or breach of, or
constitute an event of default or potential event of
default under, (i) the articles of incorporation,
bylaws or any shareholder or Board of Directors
resolutions of Liposome, (ii) any material agreement,
indebtedness, permit, authorization or concession to
which Liposome is a party or by which it or any of its
assets are bound, or (iii) any statute, rule,
regulation, ordinance, code, order, judgment, writ,
injunction, decree or award; nor will any such action
result in the creation of any mortgage, pledge, lien,
encumbrance, or charge upon any of the Conversion
Shares.
6. Compliance with Laws. No governmental
orders, permissions, consents, approvals or
authorizations are required to be obtained and no
registrations or declarations are required to be filed
in connection with the execution and delivery of this
Agreement, the Debenture [or the Registration Rights
Agreement], and the issuance of the Conversion Shares,
except as such has been duly and validly obtained or
filed.
7. Disclosure. No representation or
warranty by Liposome in this Agreement or in any
written statement or certificate furnished or to be
furnished to the Pfizer pursuant hereto or in
connection with the transactions contemplated hereby
contains or will contain any untrue statement of a
material fact or omits or will omit to state a material
fact necessary to make the statements made therein, in
the light of the circumstances under which they were
made, not misleading.
8. Survival of Representations. All
representations made by Liposome in or under this
Agreement shall be true and accurate as of the date of
this Agreement and shall survive until the repayment of
all amounts due under the Debenture or, in the event of
the issuance of the Conversion Shares, shall survive
indefinitely.
J. Representations and Warranties of Pfizer.
Pfizer represents and warrants to Liposome that:
1. Authorization. All corporate action on
the part of Pfizer, its directors and shareholders
necessary for the authorization, execution, delivery
and performance of this Agreement by Pfizer and the
performance of all of Pfizer's obligations hereunder
has been taken and remains in full force and effect.
This Agreement, when delivered by Pfizer, shall
constitute a valid and binding obligation of Pfizer,
enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or
other equitable remedies.
2. Investment. Pfizer is acquiring the
Debenture and any Conversion Shares (hereinafter
collectively the "Securities") for investment for its
own account, and not with a view to, or resale in
connection with, any distribution thereof, and it has
no present intention of selling or distributing any
such Securities. It understands that the Securities
have not been registered under the Securities Act of
1933, as amended (the "Securities Act") by reason of a
specific exemption from the registration provisions of
the Securities Act which depends upon, among other
things, the bona fide nature of the investment as
expressed herein.
3. Investment Experience. Pfizer is an
"accredited investor" as that term is defined in
Regulation D promulgated by the Securities and Exchange
Commission.
4. Previous Investments. Pfizer is an
investor in securities of companies in the development
stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or
business matters that it is capable of evaluating the
merits and risks of the investment contemplated herein.
5. Risks. Pfizer understands that an
investment in Liposome involves a high degree of risk
and is suitable only for investors who can afford a
loss of their entire investment and who have no need
for liquidity from their investment.
K. Restrictive Legends. Each certificate or
other written documentation representing any of the
Securities which Pfizer is purchasing or may purchase
hereunder and any other securities issued upon any
stock split, stock dividend, recapitalization, merger,
consolidation or similar event (unless no longer
required in the opinion of the counsel for Liposome)
shall be stamped or otherwise imprinted with legends
substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAW, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, OR THE HOLDER
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER
OF THE SECURITIES SATISFACTORY TO THE
CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW.".
L. Confidentiality
1. Definition of Confidential Information.
As used in this Agreement, "Confidential Information"
shall mean the terms and provisions of this Agreement,
of the L&D Agreement and all other business, financial,
technical and other information of a party or its
affiliates designated by that party as confidential
information, provided, however, that "Confidential
Information" shall not include information that the
party receiving any Confidential Information (the
"Receiving Party") can demonstrate to the reasonable
satisfaction of the party disclosing its Confidential
Information (the "Disclosing Party") a. was in the
possession of the Receiving Party without obligation of
confidence to the Disclosing Party before receipt
thereof from the Disclosing Party; b. is or has become
available to the public without fault of the Receiving
Party; or c. is disclosed to the Receiving Party,
without restriction, by a third party. Confidential
Information shall include information disclosed by a
Disclosing Party to the Receiving Party during the Term
of this Agreement or during the term of the L&D
Agreement, or otherwise subject to the confidentiality
provisions (Article VI) of the L&D Agreement.
2. Treatment of Confidential Information.
(a) The Receiving Party shall maintain, and shall cause
its officers, directors, employees, agents, assigns and
any other persons or entities working under its
supervision, or at its direction ("Representatives") to
maintain, any Confidential Information in confidence
and shall not use it for any purpose other than the
purposes contemplated by this Agreement. The Receiving
Party may disclose the other party's Confidential
Information only (1) to the Representatives of the
Receiving Party who have a need to know such
information to accomplish the purposes of this
Agreement, or (2) to third parties upon the prior
written approval of the Disclosing Party, except in the
event that, upon the advice of its outside legal
counsel, it is required by law to disclose such
information to governmental authorities or in
connection with any litigation or proceeding.
(b) In the event the Receiving Party is
required by law to disclose Confidential Information of
the Disclosing Party to governmental agencies or
authorities or in connection with any litigation or
proceeding, it shall endeavor to limit disclosure to
that purpose and shall give the Disclosing Party
reasonable written notice of any instance of such a
requirement.
(c) Notwithstanding the foregoing, the
parties agree that they shall issue a press release in
a mutually agreed form describing the termination of
the L&D Agreement, and that thereafter all
communications concerning the Product shall be the sole
responsibility of Liposome and all inquiries concerning
the Product shall be referred to Liposome.
3. Return of Confidential Information. At
any time during the term of, and upon termination of,
this Agreement, each party, on the written request of
the other party, shall deliver to the Disclosing Party
any written, printed or other materials embodying
Confidential Information of the Disclosing Party in its
possession or in the possession of any of its
Representatives; provided, however, that if the
Disclosing Party's Confidential Information has been
combined with Confidential Information of the Receiving
Party, then the Receiving Party may, at its option,
destroy all materials containing the Disclosing Party's
Confidential Information (including all copies
thereof).
4. Obligated Persons. The foregoing
obligations of confidentiality shall apply to any
Representatives of the parties or their Affiliates and
to any other person to whom the parties have delivered
copies of, or permitted access to, such Confidential
Information pursuant to this Agreement.
M. Miscellaneous.
1. Successors and Assigns. Except as
otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
2. Entire Agreement. This Agreement and
the exhibits attached hereto and the other documents
delivered pursuant hereto constitute the full and
entire understanding and agreement between and among
the parties with regard to the subjects hereof and
thereof. It is understood and acknowledged that Pfizer
may assign its rights and obligations under this
Agreement to a wholly-owned direct or indirect
subsidiary.
3. Notice. Any notice, payment, report or
other communication required or permitted to be given
by one party to any other party by this Agreement shall
be in writing and either (i) served personally on the
other party or parties; (ii) sent by express,
registered or certified first class mail, postage
prepaid, addressed to the other party or parties at its
or their address or addresses as indicated next to
their signatures below, or to such other address as any
addressee shall have theretofore furnished to the other
parties by like notice; (iii) delivered by commercial
courier to the other party or parties; or (iv) sent by
facsimile with the original sent by U.S. Mail. Such
notice shall be deemed received on the second day after
transmittal if sent by one day courier together with a
transmission of such notice by facsimile if the
recipient has the capability to receive a facsimile at
its address and if sent by other methods shall be
deemed received upon receipt.
4. Titles and Subtitles. The titles of the
Sections and subsections of this Agreement are for the
convenience of reference only and are not to be
considered in construing this Agreement.
5. Counterparts. This Agreement may be
executed in any number of counterparts, each of which
shall be an original, but all of which together shall
constitute one instrument.
6. Severability. If any portion of this
Agreement is construed to be illegal, invalid or
unenforceable, such portion shall be deemed stricken
and deleted from this Agreement to the same extent and
effect as if it were never incorporated herein, but all
other portions shall continue in full force and effect;
provided that such resulting construction of the
Agreement does not frustrate the main purpose of the
Agreement.
7. Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws
of the State of New York without regard to principles
of conflicts of law.
8. Indemnification for Product Liability.
Liposome shall indemnify, defend and hold Pfizer
harmless from and against any and all losses,
liabilities, damages, obligations, payments, costs and
expenses ("Claims") which are incurred by or rendered
against Pfizer at any time and which arise from the
clinical testing or use, sale or distribution of
Product, except to the extent such Claims are directly
attributable to Pfizer's negligence or intentional
misconduct; provided, however, that Pfizer shall give
Liposome notice as soon as practicable of any such
Claim to which the foregoing provisions apply and that
Pfizer shall have the right to participate in any
compromise, settlement or defense thereof. Pfizer
shall indemnify, defend and hold Liposome harmless from
and against any such Claims which arise from the
clinical testing of Product under the supervision or
sponsorship of Pfizer, except to the extent such claims
are directly attributable to Liposome's negligence or
intentional misconduct; provided, however, that
Liposome shall give Pfizer notice as soon as
practicable of any such Claim to which the foregoing
provisions apply and that Liposome shall have the right
to participate in any compromise, settlement or defense
thereof.
9. Submission to Jurisdiction. Each of the
parties hereby irrevocably and unconditionally agrees
to be subject to the jurisdiction of the courts of the
State of New York and of the federal courts sitting in
the State of New York with respect to any disputes
concerning this Agreement and the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year
hereinabove first written.
The Liposome Company, Inc. Pfizer Inc
One Research Way 235 East 42nd Street
Princeton Forrestal Center New York, NY
10017-5755
Princeton, NJ 08540
By: _/s/ Charles A. Baker________ By: _Paul S.Miller__________
Name: Charles A. Baker Name: Paul S. Miller
Title: Chairman and CEO Title: Sr. V.P.
Pfizer Pharmaceuticals
Production Corporation
By: _/s/ Daniel P. Cronin_____
Name: Daniel P. Cronin
Title: Vice President
EXHIBIT A
THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS DEBENTURE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING THIS DEBENTURE AND/OR SUCH SECURITIES, OR
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND THE
QUALIFICATION REQUIREMENTS UNDER STATE LAW.
The Liposome Company, Inc.
Convertible Subordinated Debenture
Due June __, 2007
$xxxxxx [New York, New York]
FOR VALUE RECEIVED, The Liposome Company, Inc., a
Delaware corporation (the "Corporation"), hereby promises to
pay to Pfizer Inc, a Delaware corporation, or its successors
and permitted assigns ("Holder"), the principal amount of
$xxxx, together with interest thereon at the rate provided
herein, on the terms set forth below.
Section 1. Repayment of Principal. Subject to the
provisions of Section 6 hereof, the principal amount of this
Debenture shall be repaid in twenty (20) equal quarterly
installments of $xxxx commencing on the fifth anniversary of
the date of the Termination Agreement dated July 14, 1997,
between Pfizer and the Corporation; ("Scheduled Payment
Dates") provided, however, that Corporation shall repay the
entire outstanding principal amount of this Debenture within
180 days after date on which the U.S. Food and Drug
Administration approves an NDA for TLC D-99 (the "Product").
Section 2. Interest. Interest shall accrue on this
Debenture on a daily basis at a rate equal to [
]. Interest on this Debenture
shall be payable on the Scheduled Payment Dates, and all
interest accruing through the first Scheduled Payment Date
shall be paid on such first Scheduled Payment Date, and
interest shall be paid on such other date that any part of
the principal amount of this Debenture is repaid. Following
the occurrence and during the continuance of any Event of
Default (as defined below) under this Debenture, including
any overdue payment of principal or interest, interest shall
accrue on this Debenture at a rate equal to[
].
Section 3. Optional Prepayments. Upon not less than
30 days prior written notice, the Corporation may, at its
option at any time, prepay the principal amount of this
Debenture, in whole (but not in part), without premium or
penalty, provided that no such notice may be delivered or
prepayment may be made if Pfizer shall have previously
delivered to the Corporation notice that it is exercising
its Conversion Option (as defined below) pursuant to the
provisions of Section 4 hereof. Any such prepayment of
principal shall be accompanied by the payment of all accrued
and unpaid interest on the amount prepaid to the date of
prepayment.
Section 4. Conversion.
a. Holder's Option to Convert. All or any
portion of the outstanding principal and accrued interest on
this Debenture is convertible at the option of the Holder
exercisable at any time and from time to time, into fully
paid and nonassessable shares of the Corporation's common
stock, par value $__ per share (the "Common Stock"), at the
Conversion Price (as defined below) in effect on the date on
which the Holder provides the Company with written notice of
its election to exercise its right to convert the Debenture,
subject to adjustment as provided herein. The "Conversion
Price" shall mean the closing sale price for the Common
Stock on the applicable date or, in case no such sale takes
place on such day, the average of the reported closing bid
and asked prices, in each case on the principal securities
exchange or quotation system on which the Common Stock is
quoted or listed or admitted to trading, or, if not quoted
or listed or admitted to trading on any national securities
exchange or quotation system, the average of the closing bid
and asked prices of the Common Stock on the over-the-counter
market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally
accepted reported service.
b. Surrender and Cancellation of Debenture.
Upon written notice of a conversion by the Holder together
with delivery of this Debenture to the Corporation or its
transfer agent, the applicable amount of outstanding
principal and accrued interest on this Debenture shall be
converted. The Corporation shall not be obligated to issue
certificates evidencing the shares of the securities
issuable upon such conversion unless this Debenture is
either delivered to the Corporation, or the Holder notifies
the Corporation that this Debenture has been lost, stolen or
destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss
incurred by it in connection with this Debenture. The
Corporation shall, as soon as practicable after such
delivery, or such agreement and indemnification, issue and
deliver at such office to the Holder of this Debenture, a
certificate for the securities to which the Holder shall be
entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of
closing of the transaction causing conversion or the date of
receipt of written notice by the Corporation from the Holder
causing conversion. The person entitled to receive the
securities issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such
securities on such date.
c. Adjustments to Conversion Price. If any
capital reorganization or reclassification of the capital
stock of the Corporation or any consolidation or merger of
the Corporation with another corporation, or the sale of all
or a material amount of the Corporation's assets to another
corporation shall be effected in such a way that holders of
the Corporation's Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange
for the Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision as reasonably determined
in the good faith judgment of the board of directors of the
Corporation shall be made whereby the Holder shall
thereafter have the right to receive upon the terms and
conditions of this Section 4 and in lieu of the shares of
the Common Stock to which it is entitled to receive upon the
conversion of this Debenture, securities or assets as may be
issued or distributable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to
the number of shares of such Common Stock to which it
entitled to receive upon the conversion of this Debenture
had such reorganization, reclassification, consolidation,
merger or sale not taken place. The Corporation will not
effect any such consolidation, merger or sale unless prior
to the consummation thereof the successor corporation, if
other than the Corporation, resulting from such
consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument (an execution
copy of which shall be delivered to the Holder), the
obligation to deliver to the Holder such shares of stock,
securities or assets as the Holder may be entitled to
receive in accordance with the foregoing provisions.
D. Reservation of Shares; etc. The
Corporation shall provide, free from preemptive rights, out
of its authorized but unissued shares or shares held in
treasury, sufficient shares of Common Stock to provide for
the conversion of the Debenture from time to time as such
Debenture is presented for conversion.
The Corporation covenants that all shares of
Common Stock which may be issued upon conversion of
Debentures will upon issue be fully paid and nonassessable
by the Corporation and free from all taxes, liens and
charges with respect to the issue thereof.
The Corporation further covenants that if at any
time the Common Stock shall be listed on the Nasdaq Stock
Market or any other national securities exchange or
automated quotation system the Corporation will list and
keep listed, so long as the Common Stock shall be so listed
on such exchange or automated quotation system, all Common
Stock issuable upon conversion of the Debenture.
Section 5. Subordination of Debenture. The
Corporation covenants, and the Holder by its acceptance of
this Debenture likewise covenants and agrees, that the
payment of the principal of and interest on this Debenture
shall, to the extent and in the manner hereinafter set
forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness (as
defined herein), whether outstanding at the date of this
Debenture of thereafter created. Upon any payment by the
Corporation, or distribution of assets of the Corporation,
to creditors upon any dissolution or winding-up or
liquidation or reorganization of the Corporation, whether
voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to
become due upon all Senior Indebtedness shall first be paid
in full before any payment is made on account of the
principal of or interest on the Debenture. The holders of
Senior Indebtedness shall have the right to rely upon this
Section 5.
The term "Senior Indebtedness" means the principal of,
premium, if any, and interest (including all interest
accruing subsequent to the commencement of any bankruptcy or
similar proceeding) payable on or in connection with,
indebtedness, obligations and other liabilities for borrowed
money ("Indebtedness"), whether outstanding on the date of
this Debenture or thereafter created or incurred, unless in
the case of any particular Indebtedness the instrument
creating or evidencing the same expressly provides that such
Indebtedness shall not be senior in right of payment to the
Debenture or expressly provides that such Indebtedness is
"pari passu" or "junior" to the Debentures.
Section 6. Events of Default; Acceleration.
(a) An "Event of Default" shall occur if:
(i) the Corporation defaults in the payment
of the principal or interest on this
Debenture when due and payable pursuant to
the terms hereof;
ii) any representation or warranty made by
the Corporation in that certain Termination
Agreement dated ___________, 1997 between the
Corporation and Pfizer pursuant to which
Pfizer purchased this Debenture shall prove
to have been incorrect in any material
respect when made;
(iii) the Corporation shall fail to perform
or observe any other term, covenant or
agreement contained in this Debenture to be
performed or observed by it; or
(iv) the Corporation pursuant to the United
States Bankruptcy Code or any state
bankruptcy or insolvency law: (A) commences a
voluntary case, consents to the entry of an
order for relief against it in an involuntary
case or to the appointment of a trustee,
receiver or custodian for all or
substantially all of its assets or makes a
general assignment for the benefit of its
creditors; or (B) an involuntary case is
commenced against the Corporation in a court
of competent jurisdiction and such case is
not dismissed within 60 days.
(b) If any Event of Default occurs and is
continuing for a period of sixty (60) days after the
Corporation's receipt of written notice of the Event of
Default and the circumstances surrounding it, then the
Holder may, by written notice to the Corporation, declare
the unpaid principal amount of and any accrued interest on
this Debenture to be immediately due and payable. If an
Event of Default specified in Section 6(a)(iv) above occurs,
the unpaid principal amount of and any accrued interest on
this Debenture shall be immediately due and payable without
any declaration or other act on the part of the Holder. The
Holder may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or
decree of a court or governmental agency and if all existing
Events of Default (other than nonpayment of principal or
interest that has become due solely as a result of the
acceleration) have been cured or waived. No such rescission
shall affect any subsequent Event of Default or impair any
right consequent thereto.
Section 7. Debenture Confers No Rights As Shareholder.
The Holder of this Debenture shall not have any rights as a
shareholder of the Corporation with regard to the shares
issuable hereunder prior to actual conversion hereunder.
Section 8. Waivers. The Corporation hereby waives
presentment, demand for performance, notice of
non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of Holder in exercising any
right hereunder shall operate as a waiver of such right or
any other right.
Section 9. Assignment. The Holder shall not assign
this Debenture without the prior written consent of the
Corporation which consent shall not be unreasonably
withheld; provided, however, that the Holder may assign this
Debenture to a whollyowned direct or indirect subsidiary of
the Holder.
Section 10. Applicable Law. This Debenture shall be
governed by and construed in accordance with the laws of the
State of New York without regard to principles of conflict
of laws.
THE LIPOSOME COMPANY, INC.
By:__________________________
Name:
Title:
SCHEDULE A
[ ]
SCHEDULE B
[ ]
SCHEDULE C
SUBSIDIARIES OF THE LIPOSOME COMPANY, INC.
Princeton Liposome Conference, Inc.
The Liposome Manufacturing Company Inc.
Liposome Holdings Inc.
The Liposome Company, Japan, Ltd.
Nichiyu Liposome Co., Ltd. (Joint venture with Nippon Oil and
Fats Corp.)
The Liposome Company Ltd. (U.K.)
Laboratoires Liposome E.U.R.L. (France)
Liposome S.L. (Spain)
Liposome Canada Inc.
Liposome S.r.L. (Italy)
Liposome S.a.r.1 (Switzerland)
Liposome, B.V. (Netherlands)
Liposome PTY LTD. (Australia)
SCHEDULE D
OPTIONS, WARRANTS AND RIGHTS
Stock Options
Liposome has several stock option plans available for the
issuance of incentive stock options and non-qualified stock
options to employees, directors, consultants and advisors. As of
December 29, 1996, Liposome had outstanding grants of 4,352,523
shares.
Warrants
Effective May 15, 1997, Liposome granted to Daniel Tolbert
a warrant to purchase 50,000 shares of Common Stock at $24.50 per
share.
Liposome has agreed, in connection with the settlement of
litigation with The Regents of the University of Texas and M.D.
Anderson Cancer Center, to issue Common Stock to the University
having a market value of $255,000 as of July 31, 1997, and to
grant to the University warrants to purchase 1,000,000 shares of
Common Stock at $15 per share.
Shareholder Rights Plan
Rights were issued to all holders of Common Stock pursuant
to the Shareholder Rights Plan adopted by Liposome's Board of
Directors on July 11, 1996.
- 1 -
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (hereinafter "this Agreement") is entered
into as of the 11th day of August, 1997 (hereinafter "the Effective
Date"), by and among NeXstar Pharmaceuticals, Inc. (hereinafter
"NeXstar"), a Delaware corporation having a principal place of business
at 2860 Wilderness Place, Boulder, Colorado 80301, Fujisawa U.S.A.,
Inc. (hereinafter "FUSA"), a Delaware corporation having a place of
business at Parkway North Center, 3 Parkway North, Deerfield, Illinois
60015, and The Liposome Company, Inc. (hereinafter "TLC"), a Delaware
corporation having a principal place of business at One Research Way,
Princeton Forrestal Center, Princeton, New Jersey 08540-6619.
SECTION I - BACKGROUND
1.1 On May 17, 1993, NeXstar sued TLC in the U.S. District Court
for the District of Delaware (Civil Action No. 93-232 (RRM)) seeking a
declaration that U.S. Patent No. 4,880,635 (hereinafter the "Janoff I
Patent") was not infringed by NeXstar=s manufacture, use, and sale of
liposomal products and was invalid and/or unenforceable.
1.2 TLC thereafter requested that the U.S. Patent and Trademark
Office (hereinafter "USPTO") reexamine the Janoff I Patent. The Court
stayed further proceedings upon NeXstar's declaratory judgment action
during the pendency of the reexamination proceeding.
1.3 On July 2, 1996, the USPTO issued a Reexamination Certificate
for the Janoff I Patent, referred to as U.S. Patent No. B1 4,880,635
(hereinafter the "Reexamined Janoff I Patent").
1.4 On July 29, 1996, NeXstar filed an Amended Complaint seeking a
declaration that the Reexamined Janoff I Patent was not infringed by
NeXstar=s manufacture, use, and sale of liposomal products and was
invalid and/or unenforceable.
1.5 On August 16, 1996, TLC answered and counterclaimed, alleging
that NeXstar=s and FUSA=s manufacture, use, sale, and offer for sale of
certain liposomal products infringed the Reexamined Janoff I Patent and
denying NeXstar's allegations.
1.6 On November 26, 1996, the USPTO issued U.S. Patent No.
5,578,320 (hereinafter the "Janoff II Patent").
1.7 On January 17, 1997, TLC filed a First Amended Counterclaim,
alleging that NeXstar=s and FUSA=s manufacture, use, sale, and offer
for sale of certain liposomal products infringed the Reexamined Janoff
I Patent and the Janoff II Patent.
1.8 On February 25, 1997, NeXstar filed a Second Amended and
Supplemental Complaint (a) seeking a declaration that both the
Reexamined Janoff I Patent and the Janoff II Patent were not infringed
by NeXstar=s and FUSA's manufacture, use, and sale of liposomal
products and were invalid and/or unenforceable, and (b) stating claims
under federal law for antitrust injury and under state law for tortious
injury based, inter alia, on TLC=s filing and maintenance of
infringement counterclaims based on the Reexamined Janoff I Patent and
Janoff II Patent.
1.9 On March 18, 1997, TLC answered NeXstar's Second Amended and
Supplemental
Complaint and refiled its counterclaims against NeXstar and FUSA and
again denied NeXstar's allegations.
1.10 On October 27, 1993, European Patent No. 0190 315 B1
(hereinafter the "European Janoff Dehydration Patent") was granted to
TLC. On July 8, 1994, NeXstar filed an opposition to the European
Janoff Dehydration Patent. That opposition presently is pending.
1.11 On February 28, 1996, Japanese Patent No. 18973/1996
(hereinafter the "Japanese Janoff Dehydration Patent") was granted to
TLC. On May 28, 1996, NeXstar filed an opposition to the Japanese
Janoff Dehydration Patent. That opposition is presently pending.
1.12 On October 16, 1996, TLC filed suit in the Chancery
Division of the Patents Court in the United Kingdom charging NeXstar
and NeXstar Pharmaceuticals Ltd. with infringement of the European
Janoff Dehydration Patent (hereinafter "TLC's British Legal Action").
On January 15, 1997, NeXstar answered and counterclaimed for a
declaration of invalidity of the European Janoff Dehydration Patent.
1.13 On October 18, 1996, TLC filed suit in the Regional Court,
Dusseldorf , Germany charging NeXstar Pharmaceuticals GmbH with
infringement of the European Janoff Dehydration Patent (hereinafter
"TLC's German Legal Action"). On April 30, 1997, NeXstar
Pharmaceuticals GmbH filed an answer in TLC=s German Legal Action.
1.14 On or about November 4, 1996, TLC filed suit in the
Regional Court of The Hague, The Netherlands, charging NeXstar,
NeXstar Pharmaceuticals Ltd., NeXstar Pharmaceuticals B.V., and
Brocacef Intramuraal B.V. with infringement of the European Janoff
Dehydration Patent (hereinafter "TLC's Dutch Legal Action").
1.15 On February 8, 1995, European Patent No. 0282 405 B1
(hereinafter "TLC's European High Drug Lipid Complex Patent") was
granted to TLC. On November 3, 1995, NeXstar filed an opposition to
TLC's European High Drug Lipid Complex Patent. That opposition
presently is pending.
1.16 Since at least November 14, 1989, subject to the
appropriate regulatory approvals, NeXstar has manufactured liposomal
products, including its AmBisome7 liposomal amphotericin B
(hereinafter defined in Section 2.8) in the United States, and
thereafter has made, used, sold, and/or offered such products for
sale in the United States and/or in numerous foreign countries.
NeXstar presently intends, subject to the appropriate regulatory
approvals, in the future to continue and/or to commence making,
using, selling, and/or offering for sale such products in the United
States and/or in foreign countries.
1.17 Subject to the appropriate regulatory approvals, FUSA
presently intends to commence using, selling, and offering for sale
AmBisome in the United States and Canada.
1.18 Subject to the appropriate regulatory approvals, TLC has
manufactured, used, sold, and/or offered for sale its Abelcet7 lipid-
associated amphotericin B (hereinafter defined in Section 2.12) in
the United States and in numerous foreign countries. TLC presently
intends, subject to the appropriate regulatory approvals, in the
future to continue and/or to commence making, using, selling, and/or
offering for sale such products in the United States and in foreign
countries.
1.19 Subject to the appropriate regulatory approvals, TLC has
manufactured and/or used in the United States and in foreign
countries a liposomal doxorubicin product presently known as D-99
(hereinafter defined in Section 2.13). TLC presently intends,
subject to the appropriate regulatory approvals, in the future to
continue and/or to commence making, using, selling, and/or offering
for sale such D-99 products, or products based thereon, in the United
States and in foreign countries.
SECTION II - DEFINITIONS
2.1 The "Janoff Dehydration Patents" shall mean all United
States patents issuing from U.S. Patent Application Serial No.
638,809, filed August 8, 1984, and/or Serial No. 749,161, filed June
26, 1985, and/or Serial No. 749,419, filed July 26, 1985, and/or
issuing from any continuation, continuation-in-part, and/or
divisional applications thereof, and/or issuing from any reissue
and/or reexamination proceedings relating thereto (including but not
limited to U.S. Patents Nos. 4,880,635; B1 4,880,635; and 5,578,320),
and further shall mean any and all foreign patent applications and/or
foreign patents or similar rights claiming priority to any of the
applications, continuations, continuations-in-part, and/or divisional
applications identified above (including but not limited to European
Patent No. 0190 315 B1 and all corresponding national patents,
Japanese Patent No. 18973/1996, and Canadian Patent No. 1,270,197),
to the extent such patents claim dehydrated liposomes and/or methods
of dehydrating (including lyophilization) and/or rehydrating
liposomes, except that "Janoff Dehydration Patents" shall not include
patents defined as "Gradient Loading Patents" in Section 2.5 below.
2.2 [
]
2.3 [
]
2.4 [
]
2.5 [
]
2.6 "TLC's European High Drug Lipid Complex Patent" shall mean
European Patent No. 0282 405 B1.
2.7 [
]
2.8 "AmBisome" shall mean liposomal amphotericin B products
made by NeXstar, or made by FUSA under license from NeXstar pursuant
to the FUSA Agreement as amended, that are lyophilized/dehydrated and
in which sugar is present in protective concentrations at the inside
and the outside of the bilayer membrane of the liposomes prior to
lyophilization/dehydration and rehydration.
2.9 "AmBisome SL" shall mean liposomal amphotericin B products
made by NeXstar that are lyophilized/dehydrated and in which sugar is
present in protective concentrations only at the outside of the
bilayer membrane of the liposomes prior to lyophilization/dehydration
and rehydration.
2.10 "Liquid AmBisome" shall mean liposomal amphotericin B
products made by NeXstar that have not been lyophilized or
dehydrated.
2.11 "AmBisome Product" shall mean any liposomal Amphotericin B
product made by NeXstar or made by FUSA under license by NeXstar
pursuant to the FUSA Agreement as amended.
2.12 "Abelcet" shall mean lipid-associated amphotericin products
made by TLC.
2.13 "D-99" shall mean liposomal doxorubicin products made by
TLC.
2.14 "Marketing Partner" shall mean and be limited to FUSA for
AmBisome sold in the United States and Canada and to Sumitomo
Pharmaceutical Co., Ltd. (hereinafter "Sumitomo") for AmBisome sold
in Japan.
2.15 [
]
2.16 [
]
2.17 "Controlling Interest" shall mean, with respect to a
patent, the ability to prevent the filing of a suit for patent
infringement whether by controlling the decision of whether to file
suit or by the ability to grant a license, sublicense, or immunity
from suit.
2.18 [
]
SECTION III - DISMISSALS
3.1 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar, FUSA, and TLC, within three (3)
business days after the Effective Date of this Agreement, will cause
to be executed and TLC will file in the U.S. District Court for the
District of Delaware (Civil Action No. 93-232 (RRM)) a stipulated
dismissal with prejudice of TLC's Counterclaim against NeXstar and
FUSA.
3.2 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar, FUSA, and TLC, within three (3)
business days after the Effective Date of this Agreement, will cause
to be executed and NeXstar will file in the U.S. District Court for
the District of Delaware (Civil Action No. 93-232 (RRM)) a stipulated
dismissal with prejudice of NeXstar's Second Amended and Supplemental
Complaint.
3.3 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the
Effective Date of this Agreement, NeXstar will file in the European
Patent Office a withdrawal of its opposition to the grant of TLC's
European Janoff Dehydration Patent.
3.4 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the
Effective Date of this Agreement, NeXstar will file in the Japanese
Patent Office a withdrawal of its opposition to the grant of TLC's
Japanese Janoff Dehydration Patent.
3.5 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10)
business days after the Effective Date of this Agreement, will cause
to be executed and TLC will file a stipulated dismissal with
prejudice of TLC's British Legal Action in the Chancery Division of
the Patents Court, United Kingdom.
3.6 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10)
business days after the Effective Date of this Agreement, will cause
to be executed and NeXstar will file a stipulated dismissal with
prejudice of the Counterclaim of NeXstar and NeXstar Pharmaceuticals
Limited in the British Legal Action in the Chancery Division of the
Patents Court, United Kingdom.
3.7 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10)
business days after the Effective Date of this Agreement, will cause
to be executed and TLC will file a stipulated dismissal with
prejudice of TLC's German Legal Action and NeXstar's counterclaims
therein, if any, in the Regional Court, Dusseldorf, Germany.
3.8 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and TLC, within ten (10)
business days after the Effective Date of this Agreement, will cause
to be executed and TLC will file a stipulated dismissal with
prejudice of TLC's Dutch Legal Action and NeXstar's counterclaims
therein, if any, in the Regional Court of The Hague, The Netherlands.
3.9 For and in consideration of the covenants, terms, and
conditions set forth herein, within ten (10) business days after the
Effective Date of this Agreement, NeXstar will file in the European
Patent Office a withdrawal of its opposition to the grant of TLC's
European High Drug Lipid Complex Patent and shall not oppose foreign
counterparts in other jurisdictions.
SECTION IV - RELEASES
4.1 For and in consideration of the covenants, terms, and
conditions set forth herein, TLC and each of its subsidiaries and
affiliates hereby releases (a) NeXstar, its subsidiaries, and
NeXstar=s and its subsidiaries= affiliates, officers, employees,
agents, customers, distributors, and others in privity with NeXstar
(for purposes of Section 4.1 only, hereinafter collectively
"NeXstar"), and (b) FUSA, its subsidiaries, and FUSA=s and its
subsidiaries= affiliates, officers, employees, agents, customers,
distributors, and others in privity with FUSA (for purposes of
Section 4.1 only, hereinafter collectively "FUSA"), from any and all
liability, past, present or future, for infringement of the Janoff
Dehydration Patents, including but not limited to all matters raised
or that could have been raised in TLC's First Amended Counterclaim,
TLC's British, German, and Dutch Legal Actions, and any and all other
proceedings and/or all other legal action(s) in any other
jurisdiction that could have been asserted against either NeXstar or
FUSA for past, present, or future infringement of the Janoff
Dehydration Patents.
4.2 For and in consideration of the covenants, terms, and
conditions set forth herein, NeXstar and its subsidiaries and
affiliates (including but not limited to NeXstar Pharmaceuticals
Ltd., NeXstar Pharmaceuticals GmbH, and NeXstar Pharmaceuticals
B.V.), and FUSA and its subsidiaries hereby release TLC, its
subsidiaries, and TLC's and its subsidiaries' affiliates, officers,
employees, agents, customers, distributors, and others in privity
with TLC (for purposes of Section 4.2 only, hereinafter collectively
"TLC"), from any and all liability for all matters raised or that
could have been raised in NeXstar's Second Amended and Supplemental
Complaint (including, but not limited to the procurement and
enforcement of the Janoff Dehydration Patents, and all statements and
other actions relating thereto), and NeXstar only further releases
TLC from any and all counterclaims raised or that could have been
raised against TLC in response to TLC=s British, German, and Dutch
Legal Actions, and any other proceeding or other legal action(s) in
any other jurisdiction that could have been asserted by NeXstar
against TLC based on TLC=s procurement and/or enforcement of the
Janoff Dehydration Patents.
4.3 NeXstar represents that Brocacef Intramuraal, B.V.
(Brocacef), a party to the Dutch Legal Actions, acts solely as an
independent distributor of AmBisome and is not an affiliate or
subsidiary of NeXstar; therefore in consideration of the covenants,
terms, and conditions set forth herein, NeXstar hereby agrees to use,
in good faith, commercially reasonable efforts to obtain from
Brocacef a release of TLC, its subsidiaries, and TLC's and its
subsidiaries' affiliates, officers, employees, agents, customers,
distributors, and others in privity with TLC (for purposes of Section
4.3 only, hereinafter collectively "TLC"), from any and all liability
for all matters raised or that could have been raised in the Dutch
Legal Actions and from any other claims or counterclaims that could
have been asserted by Brocacef against TLC relating to the subject
matter of the Dutch Legal Actions. Notwithstanding the provisions of
Section 3.8, above, TLC shall not be required to dismiss its action
against Brocacef only unless and until Brocacef provides to TLC the
release set forth in this Section.
SECTION V - IMMUNITIES FROM SUIT AND OPTIONS
5.1 Subject to Section 5.9, TLC grants to NeXstar, its
subsidiaries, and NeXstar=s and its subsidiaries= affiliates,
officers, employees, agents, customers, distributors, and others in
privity with NeXstar (including, but not limited to FUSA and Sumitomo
and their subsidiaries, affiliates, officers, employees, agents,
customers, distributors, and others in privity with them), a
worldwide immunity from suit for all NeXstar products, past, present,
and future, under any of the Janoff Dehydration Patents, whether such
patents now are issued or shall issue in the future from the USPTO or
from any foreign patent office. The grant of immunity to Sumitomo
under this Section shall be in force and effect only so long as
Sumitomo remains a Marketing Partner, licensee, or is in privity with
NeXstar.
5.2 Subject to Sections 5.8 and 5.9, TLC grants to NeXstar, its
subsidiaries, and NeXstar=s and its subsidiaries= affiliates,
officers, employees, agents, customers, distributors, and others in
privity with NeXstar (including, but not limited to FUSA and Sumitomo
and their subsidiaries, affiliates, officers, employees, agents,
customers, distributors, and others in privity with them), a
worldwide immunity from suit for all AmBisome Products, including but
not limited to AmBisome, AmBisome SL, and Liquid AmBisome, under all
patents owned by TLC or in which TLC presently has or hereafter
acquires a Controlling Interest [
], whether such patents now are issued
from the USPTO or from any foreign patent office or shall issue in
the future from the USPTO or from any foreign patent office based on
applications with an effective filing date or priority date with
respect to the subject matter claimed therein on or prior to the
Effective Date of this Agreement. The grant of immunity to Sumitomo
under this Section shall be in force and effect only so long as
Sumitomo remains a Marketing Partner, licensee, or is in privity with
NeXstar.
5.3(a) Subject to Sections 5.8 and 5.9, NeXstar grants to
TLC, its subsidiaries, and TLC's and its subsidiaries' affiliates,
officers, employees, agents, customers, distributors, and others in
privity with TLC, a worldwide immunity from suit for D-99 and Abelcet
under all patents owned by NeXstar or in which NeXstar presently has
or hereafter acquires a Controlling Interest [
], whether such patents
now are issued from the USPTO or from any foreign patent office or
shall issue in the future based on applications with an effective
filing date or priority date with respect to the subject matter
claimed therein on or prior to the Effective Date of this Agreement.
5.3(b) Subject to Sections 5.8 and 5.9, FUSA grants to TLC,
its subsidiaries, and TLC's and its subsidiaries' affiliates,
officers, employees, agents, customers, distributors, and others in
privity with TLC, a worldwide immunity from suit for Abelcet in the
form presently approved for sale in the United States and Canada
under all patents owned by FUSA or in which FUSA presently has or
hereafter acquires a Controlling Interest, whether such patents now
are issued from the USPTO or from any foreign patent office or shall
issue in the future based on applications with an effective filing
date or priority date with respect to the subject matter claimed
therein on or prior to the Effective Date of this Agreement.
5.3(c) [
]
5.4 [
]
5.5 [
]
5.6 [
]
5.7 [
]
5.8 [
]
5.9 The immunities from suit granted in Sections 5.1 through
5.3 of this Agreement shall not extend to transactions with third
parties in which the party that has been granted the immunity is so
peripherally involved that an extension of the immunity would be
tantamount to a transfer of the immunity to said third party. Any
dispute regarding the degree of involvement of the party that has
been granted the immunity in such transaction shall be resolved by
arbitration under Section 9.10.
5.10 [
]
SECTION VI - PAYMENTS
6.1 NeXstar will pay to TLC $1,750,000 within five (5) days of
the Effective Date of this Agreement.
6.2 [
]
6.3 [
]
6.4 [
]
6.5 [
]
6.6 [
]
6.7 [
]
6.8 [
]
6.9 NeXstar, FUSA, and TLC (if applicable) shall keep good and
accurate books of account sufficient to permit determination of any
payments due hereunder and shall make such books of account available
for inspection by an independent accountant not otherwise rendering
services to the party to which the payment is due and mutually
agreeable to all parties. Such inspections shall be no more frequent
than once each calendar year during which a payment is due and once
within six months after cessation of any obligation to make payments
under this Agreement. The designated accountant shall retain in
confidence the information in the books of account and shall report
to the party to which the payment is due only the accuracy or
inaccuracy in the calculation of such payment. Such inspections will
be at the expense of the party requesting the inspection unless the
designated accountant identifies an underpayment of the payment due
by five percent (5%) or more, in which event the party obligated to
make the payment shall pay for such inspection. Any party=s failure
to inspect shall not constitute a waiver of its right to object to
the accuracy of the calculations or payments made under this
Agreement. Notwithstanding the foregoing, no inspection shall occur
for any calendar year in which the maximum payment pursuant to
Section 6.4 has been made.
6.10 If TLC desires to have conducted an inspection of the
Sumitomo books of account, NeXstar hereby agrees to request such an
inspection in accordance with all of the provisions, and subject to
all of the limitations, of Paragraph 7 of the Sumitomo Agreement,
provided that TLC agrees to reimburse NeXstar within 30 days of the
completion of such inspection for the entire cost associated
therewith.
6.11 All payments made under this Agreement shall be in U.S.
dollars and shall be paid by check or by wire to a bank in the United
States that shall be designated in writing by the party to which such
payment is due.
SECTION VII - WARRANTIES AND REPRESENTATIONS
7.1 Nothing in this Agreement shall be construed as (a) a
warranty or representation by either TLC or NeXstar as to the valid
ity, enforceability or scope of any of the patents described herein,
or (b) granting by implication, estoppel, or otherwise, any license
or rights under any patents, trade secrets, knowhow, copyrights,
trademarks, or other intangible rights of either TLC or NeXstar other
than those specifically granted under this Agreement.
7.2 No party to this Agreement makes any representations,
extends any warranty of any kind, either express or implied, or
assumes any responsibility whatever with respect to manufacture, use,
sale or other disposition by any other party or its customers or
transferees or their customers of products or methods incorporating
or made by use of any inventions claimed in any patent described
herein.
7.3 NeXstar, FUSA, and TLC hereby warrant that they have all
necessary authority to enter into this Agreement and to convey the
rights granted hereunder.
7.4 [
]
7.5 [
]
SECTION VIII - ASSIGNMENT
8.1 All rights granted under this Agreement shall be assignable
only upon (1) written consent of the grantor, or (2) the sale or
transfer (including by merger or spin-off) of all or substantially
all of the assets of that portion of the business involved in making,
marketing, selling, or distributing AmBisome, Abelcet, and/or D-99,
as the case may be, or (3) a corporate reorganization for tax or
similar corporate restructuring purposes.
SECTION IX - MISCELLANEOUS
9.1 Each party hereto agrees to execute, acknowledge, and
deliver all such further instruments, and to do all such further
acts, as may be necessary or appropriate to carry out the intent and
purposes of this Agreement. This Agreement shall be binding upon all
successors in interest to, and upon all assignees of, each of the
parties hereto.
9.2 Nothing herein shall be deemed to create an agency, joint
venture or partnership relation between any of the parties hereto.
9.3 This Agreement and the attachments thereto constitute the
entire agreement and understanding of the parties with regard to the
subject matter hereof and merges and supersedes all prior
discussions, negotiations, understandings and agreements between the
parties concerning the subject matter hereof. No party shall be
bound by any definition, condition, warranty, right, duty or covenant
other than as expressly stated in this Agreement or as subsequently
set forth in a written document signed by all parties.
9.4 This Agreement shall be interpreted and construed, and the
legal relations created herein shall be determined, in accordance
with the laws of the State of Delaware (excluding conflicts of laws)
and the United States.
9.5 This Agreement may be amended only by a written document
signed by authorized representatives of all parties.
9.6 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 The parties shall prepare and issue a joint press release,
to be approved by all parties to this Agreement prior to its
issuance, stating the fact of the settlement and the dismissal and/or
withdrawal of the various actions and proceedings described in
Section III, above. Although the joint press release may state that,
under this Agreement, NeXstar will make certain payments to TLC, the
amount, terms, and conditions of such payments shall remain
confidential, except to the extent that certain disclosures may be
required by law, compelled by judicial or administrative order, or
are believed in good faith by the disclosing party to be necessary to
comply with any applicable federal, state, or foreign law regarding
the sale or regulation of securities. In the case of such a
disclosure, the disclosing party shall make all reasonable efforts to
limit such disclosure and to maintain the confidentiality of the
terms and conditions of this settlement.
9.8 Except to the extent disclosed by Section 9.7, all other
information concerning this Agreement and/or the terms thereof and
all financial and sales information disclosed by each party shall be
maintained as confidential by the receiving party on an ongoing
basis. If a receiving party desires to disclose such confidential
financial and sales information to another party to this Agreement or
to a third party, the receiving party must notify the owner of the
confidential information in writing at least ten days prior to such
disclosure. An agreement to disclose such information must be
reached in writing prior to any such disclosure. If the receiving
party is legally obligated by Court Order or by any applicable
federal, state, or foreign law regarding the sale or regulation of
securities to disclose the confidential financial information, the
receiving party will immediately notify the owner of such
confidential information. If possible, the receiving party will
notify the owner of such confidential information as soon as it is
aware of the possibility of legally obligated disclosure in a timely
manner so that the owner of the confidential information can object
to such disclosure. If an agreement cannot be reached between the
parties as to whether confidential information can be disclosed, the
parties will make all reasonable efforts to resolve such disagreement
(e.g., the independent accountants will discuss the issues).
9.9 Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given to
either party hereto by the other party shall be in writing and
delivered or sent to the addresses set forth below:
To NeXstar:
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
Attn: Adam Cochran, Esq.
To TLC:
The Liposome Company, Inc.
One Research Way
Princeton Forrestal Center
Princeton, New Jersey 08540-6619
Attn: General Counsel
To FUSA:
Fujisawa U.S.A., Inc.
Parkway North Center
3 Parkway North
Deerfield, Illinois 60015
Attn: Linda Friedman, Esq.
Any party to this Agreement may change its address for purposes
of this Agreement by written notice to the other party. All notices
or other communications shall be deemed duly served and given on the
date when personally delivered to the party to whom it is directed,
when transmitted electronically by telex or facsimile, provided that
a confirming copy is sent by United States mail as set forth
hereafter, or when deposited in the United States mail, first class,
postage prepaid, and addressed to the party at the address on the
first page hereof.
9.10 Any controversy or claim arising out of or relating to this
Agreement, or any alleged breach thereof, shall be settled by binding
arbitration, before a panel of three (3) arbitrators, administered by
the American Arbitration Association under its Commercial Arbitration
Rules, or by such other procedures as to which the parties may agree,
and judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. If an arbitration is
commenced pursuant to this Section, the losing party will be
obligated to pay all arbitration costs (but not attorney fees)
incurred by each of the parties to such arbitration.
9.11 (a) FUSA hereby agrees to indemnify and hold TLC harmless
for any liability associated with the manufacture, use, or sale by
FUSA of any products with respect to which an immunity from suit,
option to license, license, or sublicense is granted by TLC under
this Agreement.
(b) NeXstar hereby agrees to indemnify and hold TLC
harmless for any liability associated with the manufacture, use, or
sale by NeXstar of any products with respect to which an immunity
from suit, option to license, license, or sublicense is granted by
TLC under this Agreement.
9.12 TLC hereby agrees to indemnify and hold FUSA and/or NeXstar
harmless for any liability associated with the manufacture, use, or
sale by TLC of any products with respect to which an immunity from
suit, option to license, license, or sublicense is granted by FUSA
and/or NeXstar under this Agreement.
9.13 Neither FUSA nor NeXstar guarantees that TLC will have the
ability to make, use, sell, or offer to sell free from liability for
infringement of third party patents any product with respect to which
an immunity from suit, option to license, license, or sublicense is
granted by FUSA and/or NeXstar under this Agreement.
9.14 TLC does not guarantee that FUSA and/or NeXstar will have
the ability to make, use, sell, or offer to sell free from liability
for infringement of third party patents any product with respect to
which an immunity from suit, option to license, license, or
sublicense is granted by TLC under this Agreement.
9.15 NeXstar, TLC, and FUSA mutually covenant that they neither
will instigate nor encourage legal action against the other by third
parties with respect to products for which an immunity from suit is
granted under Section 5.1, 5.2, or 5.3 of this Agreement. NeXstar
and FUSA further agree not to oppose, seek to invalidate, or to have
revoked, or to have held or rendered unenforceable any of the U.S. or
foreign Janoff Dehydration Patents.
9.16 None of the parties shall be responsible or liable to
another party for nonperformance or delay in performance of any terms
or conditions of this Agreement due to acts or occurrences beyond the
control of the nonperforming or delayed party, including but not
limited to, acts of God, acts of government, wars, riots, strikes or
other labor disputes, shortages of labor or materials, fires and
floods, provided the nonperforming or delayed party provides to the
other party written notice of the existence and the reason for such
nonperformance or delay.
9.17 This Agreement shall be executed by each party in
triplicate originals, each of which shall be deemed an original, but
the three originals together shall constitute only one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this
Agreement in triplicate on the signature page hereof.
The Liposome Company, Inc. NeXstar Pharmaceuticals, Inc.
By By
Typed Name Charles A. Baker Typed Name Patrick Mahaffy
Title Chairman and CEO Title President and CEO
Date 8/13/97 Date 8/11/97
Fujisawa USA, Inc.
By
Typed Name B. Richard Vogt
Title Vice President, Business Development
Date 08/11/97
