62
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
F O R M 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 28, l997
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,
New Jersey, 08540
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:(609) 452-7060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0l Par Value;
Depositary Shares each representing 1/10 of a share of
Registrant's Series A
Cumulative Convertible Exchangeable Preferred Stock;
Series A Cumulative Convertible Exchangeable Preferred
Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 25, 1998, was approximately
$149,388,777 based upon the last reported sales price of the
registrant's Common Stock on the Nasdaq National Market.
At February 25, 1998 there were 37,672,503 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form l0-K Part
Proxy Statement for l998 Annual Meeting Part III
THE LIPOSOME COMPANY, INC.
1997 ANNUAL REPORT - FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
Part I 4
1. Business 4
Overview/Business Strategy 4
Product Development 6
Manufacturing 10
Marketing Strategy 10
Credit and Working Capital Practices 11
Human Resources 11
Patents and Proprietary Technology 11
Governmental Regulation 12
Competition 13
Executive Officers 15
2. Properties 18
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders
18
Part II 19
5. Market for Registrant's Common Equity and Related
Stockholder Matters 19
6. Selected Financial Data 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
7a.
Quantitative and Qualitative Disclosures About
Market Risk 30
8. Financial Statements and Supplementary Data 30
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 30
Part III 31
10. Directors and Executive Officers of the Registrant
31
11. Executive Compensation 31
12. Security Ownership of Certain Beneficial Owners
and Management 31
13. Certain Relationships and Related Transactions 31
Part IV 32
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 32
PART I
Item l. Business
This report contains forward-looking statements that involve
risks and uncertainties relating to the future financial
performance of The Liposome Company, Inc., and actual events or
results may differ materially. These statements concern, among
other things, future sales growth and market potential of
ABELCETr, future marketing approvals of ABELCETr, completion of
the development and commercialization of EVACETTM, the
development and potential applications of TLC ELL-12, the timing
and potential of the Company's other early-stage research
programs, and the future progress and profitability of the
Company. While these statements reflect the Company's best
current 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, including those discussed in the
following text, financial statements and their accompanying
footnotes, the risk factors identified in the Registration
Statement on Form S-3 dated October 29, 1997, and other risk
factors detailed from time to time in the Company's filings with
the SEC.
OVERVIEW/BUSINESS STRATEGY
The Liposome Company, Inc. (together with its subsidiaries, 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. Organized in 1981, the Company's marketed product and
products in development are based on its knowledge and
understanding of lipids, the substances that comprise the
membrane of all living cells. The products developed by the
Company with this technology include drug delivery vehicles and
novel pharmaceuticals utilizing modulated cell signaling and bio-
active lipids. To supplement and expand its internal discovery
capabilities, the Company may in-license pharmaceutical compounds
for further development, manufacturing and marketing.
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 18 foreign markets
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. International approvals have been
received for primary and/or refractory treatment of these
infections. Currently all product sales are derived from
ABELCET.
In the U.S., Canada and the United Kingdom, the Company markets
ABELCET with its own sales force. For other countries, the
Company's general strategy is to market ABELCET through partners.
Specific partnerships are determined on a country-by-country
basis. In addition, sales are realized on a "named patient"
basis in certain countries where marketing approvals have not yet
been received.
The Company is developing EVACETTM (formerly TLC D-99),
liposomal doxorubicin, as a treatment for metastatic breast
cancer and potentially other cancers. EVACETTM 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 indicate that
EVACETTM 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 for EVACETTM with the U.S. Food and Drug
Administration ("FDA") in 1998.
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
1998.
The Company has a continuing discovery research program
concentrating on oncology treatment and has a number of products
in research. These products include: bromotaxol (a hydrophobic
derivative of paclitaxel), which has shown anticancer activity in
several experimental models; ceramides and sphingosines
(molecules widely implicated in cell differentiation and
apoptosis), certain of which the Company has identified as
displaying anticancer activity; and fusogenic liposomes
(liposomes specifically designed to fuse to cell membranes),
which the Company hopes to use for the efficient delivery of
genes to their intended targets.
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 restructuring eliminated 137 positions,
which resulted in unusual charges of $2,550,000 in the second
quarter. The annualized benefit of the restructuring is
approximately $8,000,000.
Additionally, in order to gain operational access to a second,
potentially significant oncology-related drug, the Company
reacquired, on July 14, 1997, all development, manufacturing and
marketing rights to EVACETTM from Pfizer Inc. ("Pfizer"), which
had previously been co-developing EVACETTM 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 will receive
royalties on worldwide (except Japan) commercial sales of
EVACETTM.
In July and August 1997, the Company entered into agreements to
settle patent litigation with the University of Texas and M.D.
Anderson Cancer Center ("UT") and with NeXstar Pharmaceuticals,
Inc. and Fujisawa U.S.A., Inc. Under the UT settlement the
Company received an exclusive license under UT's patent and paid
past royalties in a combination of cash and stock, agreed to pay
royalties on future sales of ABELCET, and issued to UT a ten year
warrant to purchase 1 million shares of the Company's Common
Stock at $15.00 per share. Under the NeXstar settlement, the
Company received a payment of $1,750,000 and will receive
quarterly payments based on all AmBisome sales beginning in 1998.
PRODUCT DEVELOPMENT
The following table summarizes the principal product
development activities of the Company:
Product/Program Use Status(1) Marketing
Rights
Anti-
infective
and Cancer United States
ABELCET Systemic fungal Marketing and The Company
infections in sales
patients
refractory to, or
intolerant of,
amphotericin B.
International The Company;
Systemic fungal Approved in: Laboratorios
infections (first France, Italy, Esteve, SA
and/ or second- United Kingdom, (Spain,
line indications) Canada, Spain and Portugal)
other countries.
Other marketing Wyeth-Lederle
approvals (France,
pending. Italy, Nordic
countries)
EVACETTM Metastatic breast The Company
(Formerly cancer Phase III ongoing
TLC D-99)
TLC ELL-12 Various cancers The Company
Preclinical
toxicology
Bromotaxol Various cancers studies The Company
Ceramides Various cancers Research The Company
and
sphingosines Research
Efficient delivery The Company
Gene Therapy of genes to target
Delivery using fusogenic Research
liposomes
(1) Research denotes work up to and including bench scale
production of a formulation that meets the basic product
performance characteristics established for the product
including demonstration of in vivo efficacy in animal models.
Preclinical testing denotes work to refine product performance
characteristics and studies relating to product composition,
stability, scale-up, toxicity and efficacy to create a
prototype formulation in preparation for the filing of an IND
application with the FDA for authority to commence testing in
humans (clinical studies).
Phase I-III clinical studies denote safety and efficacy tests
in human patients in accordance with FDA guidelines as
follows:
Phase I: Dosage and tolerance studies.
Phase II: Detailed evaluations of safety and
efficacy.
Phase III: Larger scale evaluation of safety and
efficacy potentially requiring larger patient numbers,
depending on the clinical indication for which
marketing approval is sought.
See "Governmental Regulation."
Technology
The Company's products are based on its proprietary knowledge
of lipid technology to employ liposomes or lipid complexes as a
vehicle to deliver an active therapeutic ingredient, or in the
case of bioactive lipids, to develop novel therapeutics based on
lipids that are biologically active. Liposomes are microscopic
man-made spheres composed of lipids that can be engineered to
entrap drugs or other biologically active molecules. A lipid
complex is an organized assembly of phospholipids whereby an
active pharmaceutical is interspersed and tightly bound to
adjoining lipid molecules. In many cases, lipid complexed and
liposomal pharmaceuticals can provide less toxicity and/or better
efficacy than might otherwise result from the underlying active
ingredient.
Lipid technology is extremely broad and offers numbers of
opportunities for the development of new therapeutics. Recent
advances in the understanding of the biological roles of lipids
suggest that, in addition to forming a protective barrier
enabling cells to live, they also serve other purposes, such as
communicating information that originates in the external
environment to the internal chemistry of the cell. Based on
these discoveries, scientists at the Company believe that lipids
or lipid derivatives are likely to play a pivotal role in
modulating cellular chemistry and hence cell function. The
research now underway at the Company is based on these new
understandings of the role of lipids. This role has profound
pharmacological implications, i.e., that lipids themselves can be
biologically active and therapeutically useful.
Products
ABELCET (Amphotericin B Lipid Complex Injection)
ABELCET (Amphotericin B Lipid Complex Injection) has been
developed for the treatment of systemic fungal infections such as
candidiasis, aspergillosis and cryptococcal meningitis occurring
primarily in immunocompromised patients such as cancer
chemotherapy patients, organ and bone marrow transplant
recipients and people with AIDS.
Amphotericin B, the active ingredient in ABELCET, is a broad
spectrum anti-fungal agent that is believed to act by penetrating
the cell wall of a fungus, thereby killing it. In its
conventional form, amphotericin B is particularly toxic to the
kidneys, an adverse effect that often restricts the amount that
can be administered to a patient. While still a nephrotoxic
drug, ABELCET is able to deliver much greater amounts of
amphotericin B while significantly reducing the kidney toxicity
associated with the conventional drug.
ABELCET has received regulatory marketing approval in the
United States and eighteen international markets including
France, Italy, the United Kingdom, Canada and Spain. Marketing
applications are in various stages of review in several
additional countries.
Systemic fungal infections are a major threat to those patients
whose immune systems are compromised. The Company is marketing
ABELCET in the United States for the treatment of these
infections in patients who have failed on or who are intolerant
of conventional amphotericin B. In France and certain other
countries ABELCET is marketed as a second line treatment for
certain severe systemic fungal infections. In Italy, Spain, the
United Kingdom and other countries, ABELCET has also been
approved as a primary (first-line) therapy for certain fungal
infections.
In May 1995, the Company filed an NDA for ABELCET with the FDA.
Following a priority review, the product was cleared for
marketing in November 1995 for the treatment of aspergillosis in
patients who have failed on, or who are intolerant of,
amphotericin B. The Company commenced shipments of ABELCET in
the U.S. in December 1995. In October 1996, following a second
priority review, the FDA cleared for marketing an expanded label
for ABELCET to include the treatment of all fungal infections in
patients who have failed on, or who are intolerant of,
amphotericin B.
In February 1995, the Company received its first approval to
market ABELCET from the Medicines Control Agency of the United
Kingdom. ABELCET was approved in Spain in late 1995 and in
certain smaller countries during 1996. During 1997 and the
beginning of 1998, the Company received approvals to market
ABELCET in Italy, Austria, Spain, France, Switzerland, Canada,
Norway and Hong Kong. The Company believes it may receive
marketing approvals in additional countries during 1998 and in
later years.
EVACETTM (Liposomal Doxorubicin)
The Company is developing EVACETTM, liposomal doxorubicin
(formerly TLC D-99) as a treatment for metastatic breast cancer.
Doxorubicin, one of the most widely-used chemotherapeutic drugs,
is used in the treatment of many solid tumors, leukemias and
lymphomas. A substantial portion of the usage of doxorubicin is
believed to be for the treatment of breast cancer, and about 40%
of the U.S. usage is believed to be for the treatment of
metastatic breast cancer. However, doxorubicin, in addition to
the acute toxicities typical of chemotherapeutic drugs, can cause
irreversible cardiac damage which is often the cumulative
dose-limiting factor for such anthracycline (anti-cancer)
chemotherapeutic agents. The individual maximum dosage given to
a patient is limited by these and other toxic side effects.
EVACETTM 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 EVACETTM 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 FDA in 1998. The Company
also expects to conduct clinical studies of EVACETTM in other
tumor types.
As part of implementing its strategy to develop an oncology
franchise and in order to acquire operating rights to a second,
potentially significant, drug, on July 14, 1997, the Company
reacquired all development, manufacturing and marketing rights to
EVACETTM from Pfizer which had previously been co-developing
EVACETTM 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 and funded
by Pfizer. Pfizer was also reimbursing the Company for
substantially all of the development costs of EVACETTM that were
being incurred by the Company. Pfizer has made available a
credit line of up to $10 million to continue the development of
EVACETTM, 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 EVACETTM or in twenty quarterly installments commencing
July 14, 2002. Pfizer is entitled to receive royalties on
worldwide (except Japan) commercial sales of EVACETTM.
TLC ELL-12 (Liposomal Ether Lipid)
The Company is developing TLC ELL-12 (a liposomal ether lipid),
a new cancer therapeutic that may have applications for the
treatment of many different cancers including prostate cancer and
non-small-cell lung carcinoma.
TLC ELL-12 is believed to employ a different mechanism of
action than conventional anti-cancer agents; it does not interact
directly with DNA and is not myelosuppressive. Thus, it may
complement many standard chemotherapeutic agents. In preclinical
studies conducted by the Company's scientists, TLC ELL-12 has
been shown to be active in tumor models of melanoma, lung cancer,
leukemia and multiple drug resistant cell lines. Additionally,
it has been shown to be active in a model of human prostate
cancer.
Ether lipids are called such because their chemical
construction includes an ether bond. They have been shown to be
active against human tumors but have toxic side effects at
therapeutic doses that severely limit their use as a human
therapeutic agent. TLC ELL-12 is a liposomal form of ether
lipid. In animal models it has been shown to be significantly
more potent than non-liposome encapsulated ether lipid and, at
putative therapeutic doses, has not demonstrated any toxicities.
Its mechanism of action is believed to involve the modulation of
signal transduction processes without direct interaction with
DNA. It may be for this reason that in animal studies TLC ELL-12
has been shown not to possess many of the toxicities,
particularly myelosuppression, that are seen with many other
cancer drugs.
TLC ELL-12 is currently undergoing preclinical toxicology
studies in preparation for human clinical studies. 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 1998.
Research Programs
Bromotaxol
Bromotaxol (a hydrophobic derivative of paclitaxel) has shown
anticancer activity in several experimental models. In a model
of a human ovarian cancer tumor, mice treated with bromotaxol
have remained tumor free for extended periods of time. If
initial research data is confirmed, the Company expects to enter
a hydrophobic taxane derivative into a formal development program
in 1998 leading to the possible commencement of human clinical
studies in 1999.
Ceramides and sphingosines
Ceramides and sphingosines are molecules widely implicated in
cell differentiation and apoptosis. The Company has identified
and developed a family of such molecules displaying anticancer
activity. In vitro, they have been shown to be active against
several human cancers including non-small-cell lung, breast,
renal cell, ovarian and colon cancer, as well as against drug
resistant cell lines. One compound thus far apparently has
activity against a multiple drug resistant tumor in vivo. The
Company is conducting research to identify molecules within this
family that could be attractive product candidates.
Gene therapy
The Company is conducting research to discover a means for
efficiently delivering genes to their intended targets. Company
researchers have successfully put DNA into liposomes and have
achieved fusion of these liposomes to cells, thereby
accomplishing the direct delivery of the liposome contents into
the cell interior. Company scientists have also succeeded in
protecting these liposomes from degradation and are able to
modulate their circulation time. The research team is now
attempting to develop systems to target these fusogenic liposomes
to particular cell types.
Research Costs
During 1997, 1996 and 1995, the Company's research and
development costs were approximately $28.9 million, $29.4 million
and $30.1 million, respectively.
There can be no assurance that any of the products described
above or resulting from the Company's research programs will be
successfully developed, prove to be safe and efficacious at each
stage of clinical trials, meet applicable regulatory standards,
be capable of being produced in commercial quantities at
reasonable costs or be successfully marketed.
MANUFACTURING
The Company owns a 55,000 square foot manufacturing facility in
Indianapolis, Indiana, designed for the production of large
commercial quantities of its products. In August 1997, following
a retrofit of a portion of the facility to manufacture ABELCET,
the Company received FDA approval for commercial production of
ABELCET from that facility. The facility has also been approved
by several international regulatory authorities. During 1997,
the Company transferred the production of ABELCET from its
Princeton manufacturing facility to Indianapolis in order to take
advantage of the attractive manufacturing economies available
from producing on a larger scale that was possible at the
Company's Princeton facility.
The Company also has a multiproduct manufacturing facility at
its Princeton site. This facility was designed to manufacture
clinical and initial commercial quantities of the Company's
products and to accommodate manufacturing for future products
using similar processes. This facility has been approved by the
FDA for the manufacture of ABELCET for sale in the United States
and by regulatory authorities in other countries.
The Company believes that its current facilities, staff and
sources and availability of raw materials are adequate for the
manufacture of preclinical and clinical supplies of its products
and for the production of commercial quantities of ABELCET. There
is no assurance that EVACETTM or other developmental products can
be successfully manufactured on a commercial scale at the
Company's current facilities.
MARKETING STRATEGY
In the United States, Canada and the United Kingdom, the
Company markets ABELCET through its own sales force. The Company
determines whether to market ABELCET directly or with a partner
on a country-by-country basis. In addition, sales are realized on
a named patient basis in certain countries where marketing
approval has not yet been received.
In the United States, the Company has hired and trained a sales
force of approximately forty experienced representatives to
market ABELCET. Sales representatives are based in key cities
throughout the U.S. and are solely dedicated to the marketing of
ABELCET to hospitals.
In December 1995, the Company entered into a marketing and
distribution agreement with Laboratorios Esteve SA ("Esteve") for
the marketing of ABELCET in Spain and Portugal. Esteve is a
leading marketer of pharmaceutical products in Spain and is
headquartered in Barcelona, Spain. Under the agreement, Esteve
shall promote and sell ABELCET, and the Company is responsible
for overall strategy and product management.
In the third quarter, 1997, the Company entered into agreements
with affiliates of Wyeth-Ayerst International, Inc. ("Wyeth-
Ayerst"), a division of American Home Products Corporation, to be
its marketing partners in France and Italy. Subsequently, the
Company entered into additional agreements with Wyeth-Ayerst to
include the marketing of ABELCET in the Nordic countries. Wyeth-
Ayerst has a strong presence in the European hospital market and
is skilled in the infectious disease and oncology sectors, which
are primary areas of ABELCET usage.
For financial information concerning the Company's domestic and
international operations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Revenues" and Note 10 to the Consolidated Financial Statements.
CREDIT AND WORKING CAPITAL PRACTICES
In the United States, the Company sells ABELCET primarily to
drug wholesalers who, in turn, sell the product to hospitals and
certain other third parties. In some cases, product is sold by
the Company directly to institutions.
International sales generally are made to the Company's
marketing partners, in countries where such agreements have been
established, and directly to hospitals in countries where the
Company has retained marketing rights. Hospitals overseas in
general are funded directly by the governments of the respective
countries.
The Company's credit practices and related working capital
needs are believed to be comparable to those of other market
participants. Collection periods tend to be longer for sales
outside the United States.
Customers may return defective or out of date merchandise for
credit or replacement. Such returns have been insignificant.
HUMAN RESOURCES
At December 28, 1997, the Company had 280 full-time employees,
25 of whom hold Ph.D. degrees and 4 of whom hold M.D. degrees or
the foreign equivalent. Of these employees, 167 are engaged in
research, development, clinical development and manufacturing
activities, 69 in sales and marketing and 44 in administration.
The Company considers its relations with its employees to be
excellent. None of its employees is covered by a collective
bargaining agreement. The Company attempts to offer competitive
compensation and fringe benefits programs to its employees.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company considers the protection of its proprietary
technology rights to be important to its business. In addition
to seeking United States patent protection for many of its
inventions, the Company files patent applications in Canada,
Japan, Western European countries and additional foreign
countries on a selective basis in order to protect the inventions
deemed to be important to the development of its foreign
business. As of December 28, 1997, the Company had 59 United
States patents as well as 434 foreign counterpart patents, and 61
United States patent applications and 734 foreign counterpart
patent applications (including those filed in designated
countries under patent treaties) pending. Patents issued and
applied for cover inventions including new types of liposomes and
their preparation, processes for the therapeutic application of
liposomes, lipid purification, lipid based delivery systems and
product compositions. The Company has acquired and licensed
proprietary technology from universities, research organizations
and other companies in return for payments and continuing royalty
obligations. The Company has obtained patents in the United
States for inventions which may be employed with respect to
ABELCET, EVACETTM, the family of ceramides and aspects of the
Company's technology in gene therapy delivery and has patent
applications pending in Europe and Japan for such inventions.
The Company has been awarded patents and has patent applications
pending for inventions which may be employed with respect to
these and other products in various selected countries, as well.
The Company owns worldwide rights to manufacture and market
ABELCETr under its patent rights and other proprietary technology
rights. In connection with the reacquisition of product rights
from Bristol-Myers Squibb ("BMS") in January 1993, the Company
agreed to pay royalties to BMS on sales of ABELCETr. The Company
also pays royalties to the University of Texas on ABELCETr sales
pursuant to a litigation settlement finalized in July 1997. This
settlement gave the Company exclusive rights under a patent
assigned to the University of Texas by inventors at the M.D.
Anderson Cancer Center relating to liposomal amphotericin B. A
portion of these royalties is offset against the royalty payments
to BMS.
Other public and private institutions, including universities,
may have filed applications for, or have been issued, patents
with respect to technology potentially useful or necessary to the
Company. The scope and validity of such patents, the extent to
which the Company may wish or need to acquire licenses under such
patents, and the cost or availability of such licenses, are
currently unknown.
The Company also intends to rely on unpatented trade secrets
and proprietary know-how and continuing technological innovation
to maintain and develop its commercial position. The Company has
entered into confidentiality agreements with its employees,
consultants and advisors, and various companies with which it
does business.
The Company owns rights in the trademarks employed in its
business. "ABELCETr" is a registered trademark in the United
States and all of the European countries in which Amphotericin B
Lipid Complex is approved for marketing. "EVACET" is a
trademark of the Company pending registration in a number of
countries. Other trademarks used by the Company include the
graphic ball logo, the name "CLEAR," the slogan "Expanding the
Horizons of Biotechnology," and other trademarks and service
marks identifying the Company's products and services.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and
other countries is a significant factor in the production and
marketing of the Company's products and in its ongoing research
and development activities. In order to test clinically, to
produce and to market products for human therapeutic use,
mandatory procedures and safety standards established by the FDA
and comparable agencies in foreign countries must be followed.
The standard process required by the FDA before a
pharmaceutical agent may be marketed in the United States
includes (i) preclinical tests, (ii) submission to the FDA of an
application for an IND which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the
drug in its intended application, (iv) submission to and
acceptance by, the FDA of an NDA with respect to drugs or a
Product License Application ("PLA") with respect to biologics,
and (v) FDA approval of the NDA or PLA prior to any commercial
sale or shipment of the drug or biologic. In addition to
obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered or licensed by the
FDA. Domestic manufacturing establishments are subject to
inspections by the FDA and by other Federal, state and local
agencies and must comply with Good Manufacturing Practice as
appropriate for production.
Clinical trials are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial
introduction of the drug to humans, the drug is tested for dosage
and tolerance. Phase II involves detailed evaluation of safety
and efficacy. Phase III trials consist of larger scale
evaluation of safety and efficacy and may require larger patient
numbers, depending on the clinical indication for which marketing
approval is sought.
The process of completing clinical testing and obtaining FDA
approval for a new product is likely to take a number of years
and require the expenditure of substantial resources. The FDA may
grant an unconditional approval of a drug for a particular
indication or may grant approval conditioned on further
postmarketing testing. Even after initial FDA approval has been
obtained, further studies may be required to provide additional
data on safety or to gain approval for the use of a product as a
treatment for clinical indications other than those for which the
product was initially approved. Also, the FDA may require
postmarketing testing and surveillance programs to monitor the
drug's efficacy and side effects. Results of these postmarketing
programs may prevent or limit the further marketing of the
products.
Sales of pharmaceutical products outside of the United States
are subject to regulatory requirements that vary widely from
country to country. In the European Union ("EU"), the general
trend has been toward coordination of common standards for
clinical testing of new drugs. Generally, the level of
regulation in the EU and other foreign jurisdictions is somewhat
less comprehensive and burdensome than regulation in the United
States, but there are differences and, in a few instances,
foreign regulations may be more burdensome than FDA requirements.
The time required to obtain regulatory approval from the
comparable regulatory agencies in each foreign country may be
longer or shorter than that required for FDA approval.
In addition, the Company is and may be subject to regulation
under state and federal law regarding occupational safety,
laboratory practices, the use and handling of radioisotopes,
environmental protection and hazardous substance control and to
other present and possible future local, state, federal and
foreign regulation.
COMPETITION
Competition in the pharmaceutical field generally, and in the
liposome and lipid-based pharmaceutical industries in particular,
is intense and is based on such factors as product performance,
safety, patient compliance, ease of use, price, physician
acceptance, marketing, distribution and adaptability to various
modes of administration. Technological competition may be based
on the development of alternative products and approaches aimed
at the treatment, diagnoses or prevention of the same diseases as
the Company's products.
Competition from other companies will be based on scientific
and technological factors, the availability of patent protection,
the ability to commercialize technological developments, the
ability to obtain government approval for testing, manufacturing
and marketing and the economic factors resulting from the use of
those products, including their price. There are many companies,
both public and private, including well-known pharmaceutical and
chemical companies, many of which have greater capital resources
than the Company, that are seeking to develop lipid and liposome
based products as well as products based on other drug-delivery
technologies for therapeutic applications.
The Company is aware that other companies are developing and
marketing lipid-based amphotericin B products. One such company
has been selling a liposomal amphotericin B in certain European
countries since 1989. In August 1997, a licensee of this Company
received FDA approval in the U.S. for several indications, and
the product has been marketed in the U.S. since October, 1997.
Another company received its first marketing approval for its
version of a lipid based amphotericin B product during 1994, and
its licensees are currently marketing such product in certain
European and other countries. In November 1996, the FDA approved
this competitor's application for the use of its product as a
second line treatment for aspergillosis, and the product is now
marketed in the U.S. for that indication. Such competitor has
filed for an expanded indication in the U.S.
The two competitors referred to in the proceeding paragraph
also have liposomal anthracycline products. The FDA has granted
accelerated approval to one competitor for its product for the
treatment of Kaposi's Sarcoma where other agents have failed and
has cleared for marketing the product of another competitor for
the treatment of Kaposi's Sarcoma. These products are currently
being marketed in the U.S. and certain other countries for these
indications. No approvals have been granted by the FDA for these
products as treatment for solid tumors, although they are
believed to be in development for certain types of cancer.
Other groups active in the field include colleges,
universities, and public and private research institutions which
are becoming more active in seeking patent protection. These
institutions have also become increasingly competitive in
recruiting personnel from a limited number of scientists and
technicians.
EXECUTIVE OFFICERS
Information with respect to the executive officers of the
Company furnished by them as of March 12, 1998 is set forth
below:
Name Age Position
Charles A. Baker 65 Chairman of the Board, President,
Chief Executive Officer and Director
James A. Boyle, M.D., Ph.D. 61 Senior Vice President, Medical
and Regulatory Affairs
Brooks Boveroux 54 Vice President, Investor Relations
Ralph del Campo 46 Vice President, Manufacturing
Operations
Carol J. Gillespie 52 Vice President, General Counsel
and Secretary
Andrew S. Janoff, Ph.D. 49 Vice President, Research and
Development
George G. Renton 46 Vice President, Human Resources
Dennis A. Rodrigues 44 Controller and Executive Director
of Finance
Donald D. Yarson 44 Vice President, Sales, Marketing
and Business Development
Charles A. Baker was named Chairman of the Board, President and
Chief Executive Officer of the Company in December 1989. Just
prior to joining the Company he was a business development and
licensing advisor to several small biotechnology companies. Mr.
Baker previously served in several capacities in senior
management at Squibb Corporation (now Bristol-Myers Squibb
Company), including the positions of Group Vice President, Squibb
Corporation and President, Squibb International. He also held
various senior executive positions at Abbott Laboratories and
Pfizer Inc. Mr. Baker received an undergraduate degree from
Swarthmore College and a J.D. degree from Columbia University.
Mr. Baker also serves as a director of Regeneron Pharmaceuticals,
Inc. and Progenics Pharmaceuticals, Inc., both biotechnology
companies. He is also a member of the Council of Visitors of the
Marine Biology Laboratory, Woods Hole, Massachusetts, a not-for-
profit research organization.
James A. Boyle, M.D., Ph.D., joined the Company as Senior Vice
President, Medical and Regulatory Affairs in August 1994. Prior
to joining the Company, Dr. Boyle was employed by G.D. Searle and
Co. from 1986 to 1994 where he held several positions including
Vice President, Medical Relations and Vice President, Corporate
Medical and Scientific Affairs. Previously, he held senior
clinical research positions at Serono Laboratories, Warner
Lambert and Pfizer Inc. Dr. Boyle received his M.D. degree (U.K.
equivalent) from Glasgow University in 1960 and his Ph.D. degree
(U.K. equivalent) in Medicine in 1967. He is Board Certified
(U.K. equivalent) in Internal Medicine and Endocrinology.
Brooks Boveroux joined the Company as Vice President, Finance,
Chief Financial Officer and Treasurer in September, 1993 and
became Vice President, Investor Relations in March 1996. Prior to
joining the Company, Mr. Boveroux was Chief Financial Officer at
Imclone Systems, Inc. (1992-1993) and Bio-Technology General
Corp. (1990-1992). From 1986 to 1990, he was the Chief Financial
Officer of Biogen, Inc. In addition, he has held a variety of
management positions at Allied-Signal Inc., PepsiCo, Inc. and
Citibank, N.A. Mr. Boveroux holds an A.B. degree from Hamilton
College (1965) and an M.B.A. from the Wharton Graduate Division
of the University of Pennsylvania (1967).
Ralph del Campo joined the Company in March 1994 as Vice
President, Manufacturing Operations. Between 1993 and 1994, he
was Senior Vice President, Operations of Melville Biologics, a
subsidiary of The New York Blood Center. His prior experience
includes positions at Schering Plough Corporation and, from 1977
to 1993, Bristol-Myers Squibb where he had several positions of
increasing responsibility including Senior Director,
Pharmaceutical Operations and Vice President, Facilities
Administration. Mr. del Campo received a B.S. degree in Chemical
Engineering from Newark College and an MBA in Pharmaceutical
Marketing from Fairleigh Dickinson University.
Carol J. Gillespie joined the Company as Vice President,
General Counsel and Secretary in February 1995. From 1983 until
joining the Company, she held several positions at Syntex
Corporation, most recently as its Vice President, Secretary and
Associate General Counsel. Prior to joining Syntex, she was
associated with MSI Data Corporation, a data processing company,
ITT Corporation and Gibson, Dunn & Crutcher, a Los Angeles law
firm. Ms. Gillespie received an A.B. degree in Political Science
from the University of California, Berkeley (1967), a Master of
International Affairs from Columbia University School of
International Affairs (1969) and a J.D. degree from the
University of California School of Law, Berkeley (1972).
Andrew S. Janoff, Ph.D., joined the Company in 1981 and has
been Vice President, Research from January 1993 to July 1997, at
which time he became Vice President, Research and Development.
He holds an adjunct Professorship, Anatomy and Cell Biology at
Thomas Jefferson University and is a visiting Research Scholar in
the Department of Physics at Princeton University. Dr. Janoff
serves on the editorial board of The Journal of Liposome Research
and on The Committee on Science and the Arts at the Franklin
Institute, Philadelphia, Pennsylvania. Dr. Janoff is author of
over one hundred (100) scientific articles, reviews and awarded
US Patents. Prior to joining the Company, Dr. Janoff held joint
appointments as Research Fellow in Pharmacology at Harvard
Medical School and Research Fellow in Anesthesia at the
Massachusetts General Hospital. Dr. Janoff holds a B.S. degree in
biology from The American University, Washington, D.C. (1971) and
M.S. and Ph.D. degrees in biophysics from Michigan State
University (1977 and 1980, respectively).
George G. Renton joined the Company in August 1994 as Vice
President, Human Resources. From 1985 until joining the Company,
he was employed by the American Cyanamid Company in several
positions, including Director, Personnel, Research and
Development of the Lederle Laboratories Division. Earlier, he
held several positions of increasing responsibility at New York
University Medical Center, including Assistant Director Employee
Relations. Mr. Renton was awarded a B.S. degree in Education
from the State University of New York at Cortland (1975) and an
M.S. degree in Industrial/Labor Relations from Cornell University
and Baruch College (1985).
Dennis Rodrigues joined the Company as Controller in August,
1994 and became Executive Director, Finance and Controller on
January 22, 1998. Prior to joining the Company, he held several
positions at Yves Saint Laurent Parfums Corp., most recently Vice
President of Business Planning. From 1982 until 1988 he held
various positions at Bristol-Myers Squibb. He was a Senior
Auditor at Arthur Andersen & Company from 1980 to 1982. Mr.
Rodrigues received an MBA, Finance at the University of Wisconsin
and a B.S. in Accounting/Economics from Brooklyn College. Mr.
Rodrigues is a Certified Public Accountant.
Donald D. Yarson joined the Company as Vice President, Sales
and Marketing in February 1995 and was appointed Vice President
Sales, Marketing and Business Development in July 1997. From
1993 until 1995, he was President of TriGenix, Inc., a contract
sales, marketing and reimbursement organization. He was Director
of Marketing for Genzyme Corporation from 1991 to 1993, and
before that he was with Genentech Inc. for over four years,
serving most recently as Senior Product Manager for Protropin
(human growth hormone). He has also held sales and marketing
positions with Ciba Geigy. Mr. Yarson received a B.S. degree from
Sacred Heart University in 1975.
Item 2. Properties
The Company leases space in all of one and a portion of two
other facilities in Princeton, New Jersey and owns a
manufacturing facility in Indianapolis, Indiana.
The Company currently leases a building of approximately 50,000
square feet that houses scientific laboratories, manufacturing
facilities and certain offices in the Princeton Forrestal Center
located near Princeton, New Jersey. The lease, with an initial
term of twelve years, commenced January 1, 1995, and embodies
options to renew for up to an additional ten years. Lease
payments for the year ended December 28, 1997 totaled
approximately $627,000. Future lease payments are subject to
certain contractual escalations. The Company also leases
approximately 28,500 square feet of office space located in the
Princeton Forrestal Center. The lease commenced March 1, 1993,
with an initial lease term of ten years. Payments under this
lease for the year ended December 28, 1997 totaled approximately
$818,000. In January 1995, the Company entered into a lease for
approximately 13,200 square feet of office/warehouse space near
its corporate offices. In December, 1997, the lease was extended
to March 1999, with an option to renew for an additional three
years. The Company also leases office space in London, England
and Paris, France.
In July 1992, the Company purchased a pharmaceutical
manufacturing facility of approximately 55,000 square feet
located on 26 acres of land located in Indianapolis, Indiana.
The Company has received FDA and certain international regulatory
agency approvals to manufacture commercial supplies of ABELCET
from this facility. See "Manufacturing" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations _ Liquidity and Capital Resources."
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
The Company's Common Stock is traded on the Nasdaq National
Market System under the symbol LIPO. The following table sets
forth for the periods indicated the high and low sale price for
the Common Stock:
High Low
1997
4th Quarter $7.2500 $4.4375
3rd Quarter 8.5625 6.5625
2nd Quarter 27.000 8.4375
1st Quarter 28.125 18.500
High Low
1996
4th Quarter $22.750 $14.875
3rd Quarter 19.875 11.875
2nd Quarter 26.125 16.000
1st Quarter 25.125 16.250
(b) Holders
At February 25, 1998, there were approximately 1,050
stockholders of record of the Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends on its Common Stock
since its inception and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The
declaration and payment of Common Stock dividends, if any, is
within the discretion of the Board of Directors and will depend,
among other things, upon future earnings, the operating and
financial condition of the Company, its capital requirements, and
general business conditions.
Item 6. Selected Financial Data
The following table sets forth consolidated financial data with respect to
the Company for each of the five years in the period ending December
28, 1997. The information set forth below should be read in
conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial
Statements and related notes included elsewhere herein.
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: Year Ended
12/28/97 12/29/96 12/31/95 12/31/94 12/31/93
(In thousands, except per share data)
Product sales $58,452 $52,840 $ 6,164 $ -- $ --
Collaborative research and
development revenues 2,331 3,228 6,589 5,881 5,418
Interest, investment and
other income 4,313 3,864 2,964 4,559 7,624
Total revenues 65,096 59,932 15,717 10,440 13,042
Cost of goods sold 22,029 16,559 2,304 -- --
Research and
development expense 28,894 29,371 30,149 31,713 25,072
Selling, general and
administrative expense 39,914 31,541 18,631 12,072 10,193
Interest expense 705 339 294 308 254
Total expenses 91,542 77,810 51,378 44,093 35,519
Net loss (26,446) (17,878) (35,661) (33,653) (22,477)
Preferred Stock dividends -- (1,235) (5,348) (5,348) (5,348)
Net loss applicable to
Common Stock $(26,446) $(19,113) $(41,009)$(39,001)$(27,825)
Net loss per share applicable
to Common Stock (basic and
diluted) $ (0.71) $ (0.57) $ (1.50)$ (1.64)$ (1.18)
Weighted average number of
common shares outstanding
(basic and diluted) 37,083 33,292 27,293 23,850 23,536
CONSOLIDATED BALANCE
SHEETS DATA: Year Ended
12/28/97 12/29/96 12/31/95 12/31/94 12/31/93
(In thousands)
Cash and marketable securities(1)$45,525 $47,180 $72,333 $72,157 $119,743
Working capital 38,566 36,641 53,119 51,746 102,139
Total assets 91,500 94,555 105,926 93,196 139,632
Total long-term liabilities 6,879 7,555 4,104 5,917 7,696
Accumulated deficit (188,844) (162,398) (144,520)(108,859) (75,206)
Total stockholders' equity(2)$73,662 $74,861 $89,832 $78,353 $122,347
(1) Includes restricted cash of $11,930, $6,930 and $6,642 in 1997, 1996
and 1995, respectively. See Note 1 of Notes to Consolidated Financial
Statements.
(2) In 1993, the Company adopted the provisions of Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." The effect of this adoption was to reduce total
stockholders' equity by $108 in 1997, $481 in 1996 and $543 in 1995.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Liposome Company, Inc. (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 18 foreign markets 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. International approvals have been received for primary
and/or refractory treatment of these infections. Currently all
product sales are derived from ABELCET.
In the U.S., Canada and the United Kingdom, the Company markets
ABELCET with its own sales force. For other countries, the
Company's general strategy is to market ABELCET through marketing
partners. Specific marketing partnerships are determined on a
country-by-country basis. In addition, sales are realized on a
"named patient" basis in certain countries where marketing
approvals have not yet been received.
The Company is developing EVACETTM (formerly TLC D-99),
liposomal doxorubicin, as a treatment for metastatic breast
cancer and potentially other cancers. EVACETTM 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 at the half-way point of the
studies indicate that EVACETTM 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 for EVACETTM with the U.S. Food
and Drug Administration ("FDA") in 1998.
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
late 1998 or early 1999.
The Company has a continuing discovery research program
concentrating on oncology treatment and has a number of products
in research. These products include: bromotaxol (a hydrophobic
derivative of paclitaxel), which has shown anticancer activity in
several experimental models; ceramides and sphingosines
(molecules widely implicated in cell differentiation and
apoptosis), certain of which the Company has identified as
displaying anticancer activity; and fusogenic liposomes
(liposomes specifically designed to fuse to cell membranes),
which the Company hopes to use for the efficient delivery of
genes to their intended targets.
On June 25, 1997, the Company announced results of a Phase III
study of VENTUSTM as a 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.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Overview (Continued)
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 restructuring eliminated 137 positions,
which resulted in unusual charges of $2,550,000 in the second
quarter. The annualized benefit of the restructuring is
approximately $8,000,000.
Additionally, in order to gain operational access to a second,
potentially significant oncology-related drug, the Company
reacquired, on July 14, 1997, all development, manufacturing and
marketing rights to EVACETTM from Pfizer Inc ("Pfizer"), which
had previously been co-developing EVACETTM 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 will receive
royalties on worldwide (except Japan) commercial sales of
EVACETTM.
In July and August 1997, the Company entered into agreements to
settle patent litigation with the University of Texas and M.D.
Anderson Cancer Center ("UT") and with NeXstar Pharmaceuticals,
Inc. and Fujisawa U.S.A., Inc. Under the UT settlement the
Company received an exclusive license under UT's patent and paid
past royalties in a combination of cash and stock, agreed to pay
royalties on future sales of ABELCET, and issued to UT a ten-year
warrant to purchase 1,000,000 shares of the Company's Common
Stock at $15.00 per share. Under the NeXstar settlement, the
Company received a payment of $1,750,000 and will receive
quarterly payments based on all AmBisome sales beginning in 1998.
Revenues
Total revenues for the year ended December 28, 1997 were
$65,096,000, an increase of $5,164,000 or 8.6% compared to
$59,932,000 for the year ended December 29, 1996. The primary
components of revenues for the Company are product sales of
ABELCET, which commenced in 1995, collaborative research and
development revenue, and interest, investment and other income.
The revenue growth is attributable to product sales of ABELCET
both in the U.S. and internationally. Partially offsetting the
sales increase in 1997 was the cessation of collaborative
research and development revenue during the second half of 1997
as a result of the reacquisition of EVACETTM from Pfizer.
Revenues in 1996 were $59,932,000, an increase of $44,215,000 or
281.3% over 1995 revenues of $15,717,000. The primary reason for
the significant growth in 1996 was the launch and marketing of
ABELCET in the U.S. and the further market penetration of ABELCET
internationally.
Domestic and international net sales of ABELCET for the past
three years were:
Fiscal Year Ended U.S. International
December 28, 1997 $49,273,000 $9,179,000
December 29, 1996 44,784,000 8,056,000
December 31, 1995 3,154,000 3,010,000
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Domestic sales in 1997 grew by 10.0% over 1996. During the
second quarter of 1997, the Company instituted a targeted pricing
program in response to a competitor, by offering discounts to
high volume purchasers. The price reduction is effected by
chargebacks paid to wholesalers based on their sales at contract
prices to targeted hospitals. The impact of the program was that
unit shipments increased by 36.1% compared to the prior year.
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 of these rebates and chargebacks,
and periodically evaluates the estimates used in establishing the
reserve in order to make necessary adjustments. The provision
for the year ended December 28, 1997 was approximately
$12,450,000.
In November 1995, the Company received clearance from the FDA
to market ABELCET in the U.S. Domestic sales in 1995 were
primarily to establish stocking inventory at drug wholesalers
during the fourth quarter. The substantial increase in U.S. sales
in 1996 was attributable to both the impact of a full year of
sales and increasing product demand from hospitals and other
purchasers.
Internationally, the Company has been approved to market
ABELCET in 18 markets. In addition, sales are realized on a
"named patient" basis in certain countries where marketing
approval has not yet been received. In the U.S., the U.K. and
Canada, the Company markets ABELCET with its own sales force. For
other countries, the Company's general strategy is to market
ABELCET through marketing partners, with specific marketing and
distribution alliances being determined on a country-by-country
basis as future market approvals are received.
International sales were $9,179,000 for the year ended December
28, 1997, or $1,123,000 higher than the comparable prior year
period. The majority of the increase was the result of growth
throughout international markets including launches of ABELCET in
France, Italy and Canada. While the Company's marketing partner
in Spain reduced purchases of ABELCET in 1997, "in the market"
sales in Spain continued to have significant growth. The
Company's international performance was also adversely impacted
by unfavorable foreign exchange rates due to the strong U.S.
dollar.
Collaborative research and development revenues were
$2,331,000, $3,228,000 and $6,589,000 for the years ended
December 28, 1997, December 29, 1996 and December 31, 1995,
respectively. The revenue decline of $897,000 or 27.8% in 1997
from 1996 is 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 EVACETTM from Pfizer. The revenue decline during 1996
was due to the progression of EVACETTM into Phase III clinical
studies that were being conducted and directly funded by Pfizer.
During 1995, the Company also earned revenues from Schering AG of
$753,000 pursuant to a development agreement for a diagnostic
imaging agent. This agreement is no longer in force, and all
rights to the agent have been returned to the Company.
Interest, investment and other income for the year ended
December 28, 1997 was $4,313,000 compared to $3,864,000 for the
year ended December 29, 1996. This increase of $449,000 is
primarily due to the receipt of a payment of $1,750,000 from
NeXstar Pharmaceuticals, Inc. as part of the settlement of patent
litigation, partially offset by lower interest and investment
income due to smaller average cash balances available for
investment in the Company's portfolio during 1997. Interest,
investment and other income was 30.4% greater in 1996 compared to
the 1995 period. This increase is primarily due to foreign
exchange gains recognized in 1996 combined with realized losses
on the sale of certain investments in the first quarter of 1995.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Although sales of ABELCETr in the U.S. have grown in each of
the past three fiscal years, and the Company expects to have
continued sales growth, the Company may experience period-to-
period sales fluctuations in the future. In the U.S., two
competing lipid-based amphotericin B products have been
introduced, and downward pressure on price resulting from a price
reduction by one competitor caused the growth rate of revenues
from ABELCETr sales to slow significantly in the second half of
1997. Further price competition is possible if the Company's
competitors make further attempts to penetrate the market by
lowering prices. Although hospitals and other customers have been
willing to pay a higher price for ABELCETr than conventional
amphotericin B due to its superior safety profile, the market is
price-sensitive, and it cannot be predicted to what extent the
demand for amphotericin B will continue to be converted to demand
for ABELCETr. It is also possible that new antifungal products
may be developed that will compete with ABELCETr. In addition,
as with all pharmaceutical products, sales would be adversely
affected if adequate supplies of product became unavailable due
to recalls, manufacturing problems, shortages of raw materials or
other circumstances, although no recalls have ever been required
for ABELCETr, and the Company believes that its high-volume
facility in Indianapolis, Indiana will provide adequate
manufacturing capacity for the foreseeable future.
International sales of ABELCETr are also subject to a number of
risks and uncertainties that may cause growth rates to vary. The
Company expects international sales generally to increase as the
product is introduced into more markets. However, product
launches in Italy, France and Canada occurred in the latter part
of 1997, and sales in these and other countries where the product
has been recently approved may grow at differing rates, depending
on competitive conditions and on the efforts put forth by the
Company's marketing partners. Since the product will be sold by
marketing partners in a number of large markets, sales levels
will fluctuate as these partners adjust inventories and may not
coincide with in-market sales growth. Sales may grow more slowly
in countries where the Company has had significant pre-approval
sales on a named patient basis, since the price to be paid by its
marketing partners will be a substantial discount from the in-
market price. All of these factors, together with, the effect of
currency fluctuations, may distort period-to-period sales
comparisons.
Due to the Company's reacquisition of rights to EVACETTM 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.
Expenses
The components of total expenses were cost of goods sold,
research and development, selling, general and administrative,
and interest expenses. Total expenses for the year ended December
28, 1997 were $91,542,000, an increase of $13,732,000 or 17.6%
over the prior year. Included in these expenses are $3,900,000
of unusual charges incurred by the Company following the
unfavorable results of the VENTUSTM clinical study, and details
of these unusual charges are described below. Total expenses for
the year ended December 29, 1996 were $77,810,000 or $26,432,000
higher than 1995. See specific expense categories for detail of
changes.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Cost of goods sold for the year ended December 28, 1997, was
$22,029,000 versus $16,559,000 in the 1996 period. The 33.0%
increase from 1996 to 1997 was a result of the increased unit
volume of ABELCET sold during 1997 and an unusual charge of
$768,000 for royalties on past sales pursuant to the settlement
of patent litigation with the University of Texas. During the
year, the Company implemented a planned shift in manufacturing
sites from Princeton to its high volume facility in Indianapolis.
As a result of this transition, the Company incurred certain
costs as it adjusted inventory levels throughout the year. The
Indianapolis facility was approved by the FDA in August 1997, and
the Company has reoriented the Princeton facility to the
production of clinical supplies. The Company expects its unit
production costs of ABELCET in 1998 to improve due to the high
volume efficiencies available at the Indianapolis facility. Gross
margin was 62.3% in 1997 and 68.7% in 1996, a decline of 6.4%.
The 1997 decline was primarily due to the lower average price of
ABELCET during 1997 as a result of the targeted pricing program,
coupled with costs related to the shift of manufacturing from
Princeton to the Company's large capacity production site in
Indianapolis and the unusual charge for royalties on past sales
of ABELCET pursuant to the litigation settlement.
Cost of goods sold in 1996 was $16,559,000 versus $2,304,000 in
1995 due to the manufacturing and distribution costs associated
with the full year impact of ABELCET sales in the U.S., as well
as increased international sales. Gross margins on sales of
ABELCET improved from 62.6% in 1995 to 68.7% in 1996 reflecting
efficiencies realized from the greater production volume of the
product.
Research and development expenses, which also include clinical
and regulatory activities, were $28,894,000 for the year ended
December 28, 1997, compared to $29,371,000 for 1996 and
$30,149,000 for 1995. The decrease in spending of $477,000 during
1997 versus 1996 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
unusual charge of $570,000 of certain manufacturing overhead
costs following the unfavorable results of the VENTUSTM Phase III
clinical study, combined with higher expenditures related to the
development of TLC ELL-12 and EVACETTM. The Company in the
second half of 1997, assumed all the costs related to the
clinical studies of EVACETTM pursuant to its reacquisition of the
product from Pfizer. The decrease in spending from 1995 to 1996
was primarily due to reduced effort required by the Company as
EVACETTM progressed to the final stages of development. During
this period, Pfizer was conducting and directly funding all
clinical studies of EVACETTM. Partially offsetting the overall
reduction were increases in clinical development activities
relating to the Phase III study of VENTUSTM, and pre-production
costs associated with the Indianapolis manufacturing facility.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Selling, general and administrative expenses for 1997 were
$39,914,000, an increase of $8,373,000 or 26.5% over the prior
year. The increase is partially due to the restructuring charges
of $2,550,000 following the unfavorable results of the VENTUSTM
Phase III study, of which $200,000 remains unspent at December
28, 1997. The balance of the increase is due to legal expenses
incurred in connection with intellectual property litigation, and
higher sales and marketing expenses. The increase in U.S. sales
and marketing expense is due to the sales force expansion that
began in late 1996 and the growth of related sales and marketing
efforts. International sales and marketing costs also increased
as ABELCET was launched in France, Italy and Canada during the
fourth quarter of 1997. Selling, general and administrative
expenses for the years ended December 29, 1996 and December 31,
1995 were $31,541,000 and $18,631,000, respectively. The major
component of the increase of $12,910,000 was the full year impact
of the U.S. sales and marketing organization established during
1995 to launch and market ABELCET. In addition, international
sales and marketing costs and legal expenses associated with
patent litigation also contributed to the increase.
Interest expense was $705,000, $339,000 and $294,000 for 1997,
1996 and 1995, respectively. The largest components of costs are
associated with the capital leases for the Princeton and
Indianapolis manufacturing equipment and mortgage interest
related to the Indianapolis building. In December 1996, the
Company expanded its equipment lease and received cash funding of
$6,101,000 for Indianapolis, Indiana, manufacturing assets, which
caused the increased interest expense in 1997. The increase from
1995 to 1996 was due to costs related to financing agreements
completed in late 1996 and early 1997.
Preferred Stock Dividends
In 1995 and 1996, the Company had outstanding an issue of
2,760,000 Depositary Shares, each of which represented one-tenth
of a share of Series A Cumulative Convertible Exchangeable
Preferred Stock ("Preferred Stock") carrying a 7.75% dividend
rate. On March 25, 1996, the Company called for the redemption of
50% of the Preferred Stock, with the remainder being called on
October 14, 1996. Virtually all of the outstanding Preferred
Stock was converted into Common Stock, thus eliminating the
Preferred Stock dividend requirement in 1997. Dividends of
$5,348,000 were paid on the Preferred Stock in 1995 and the
Company's dividend payments in 1996 were $1,235,000 due to the
calls for redemption of the Preferred Stock.
Net Loss, Net Loss Applicable to Common Stock and Net Loss Per
Share of Common Stock
As a result of the factors discussed above, the Company's net
loss applicable to Common Stock was $26,446,000, $19,113,000 and
$41,009,000 for the 1997, 1996 and 1995 fiscal years,
respectively. The net loss per share (basic and diluted) for
these years was $0.71, $0.57 and $1.50, respectively. Weighted
average shares used in the per share calculations were
37,083,000, 33,292,000 and 27,293,000, respectively. The
increase in average shares outstanding in 1997 compared to 1996
was due to the full-year impact of shares issued pursuant to
conversions of Preferred Stock and shares issued for cash in a
private placement. The increase in average shares outstanding in
1996 compared to 1995 was due to shares issued pursuant to
conversions of Preferred Stock, the full-year impact of shares
issued for cash during 1995 and the exercise of stock options.
The number of shares of Common Stock used in each year to
calculate basic and diluted loss per share were identical as the
Company was in a loss position in all periods and the inclusion
of contingently issuable shares would have been anti-dilutive.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources
The Company had $45,525,000 in cash and marketable securities
as of December 28, 1997. Included in this amount were cash and
cash equivalents of $15,236,000, short-term investments of
$15,359,000, long-term investments in marketable securities of
$3,000,000 and restricted cash of $11,930,000. The Company
invests its cash reserves in a diversified portfolio of high-
grade corporate marketable and United States Government-backed
securities. The market value of certain securities in the
Company's investment portfolio at December 28, 1997 was below
their acquisition cost. The effect of unrealized investment
losses at December 28, 1997, pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," at December 28, 1997
was $108,000. This unrealized loss was recorded as a reduction
of shareholders' equity.
Cash and marketable securities (both short- and long-term and
restricted cash) decreased $1,655,000 from December 29, 1996 to
December 28, 1997. The major components of the use of funds were
the net loss applicable to Common Stock (net of depreciation) of
$21,311,000 and capital spending of $1,892,000. Partially
offsetting the cash outflows was the private placement of
1,000,000 shares of Common Stock for $20,875,000 and the receipt
of $2,402,000 from the exercise of stock options.
Inventories at December 28, 1997 increased $626,000 from
December 29, 1996. During 1997, the Company completed its plan
to shift manufacturing of ABELCET from Princeton to a new, cost
efficient facility in Indianapolis, Indiana. In order to ensure
a smooth transition, the Company increased its inventory of
ABELCET during the first half of 1997. FDA approval of the
Indianapolis facility was received during the third quarter, and
the Company has reoriented the Princeton facility to the
production of clinical supplies. As planned, the Company reduced
inventories in the last half of 1997 to levels consistent with
unit demand for ABELCET.
Accounts payable at December 28, 1997 was $2,616,000 or
$810,000 higher than prior year and accrued expenses and other
current liabilities were $6,009,000 or $1,673,000 lower than 1996
year-end. The variance is primarily due to the timing of
payments to vendors.
In July 1993, the Company entered into a capitalized lease
financing agreement for certain manufacturing equipment providing
for an initial lease term followed by options to extend the
lease, or to return or purchase the equipment. In December 1996,
the agreement was amended to include an additional $6,101,000 of
manufacturing equipment. In November 1997 and January 1998, the
Company exercised its options to purchase certain manufacturing
equipment under the original 1993 lease for $1,583,000 and
$495,000, respectively. These amounts have been financed as a
capital lease obligation under the lease agreement over a three-
year period. The lease is collateralized by $4,310,000 in
standby letters of credit which are in return collateralized by
AAA rated securities owned by the Company. Pursuant to the
December 1996 lease amendment, the Company is required to
maintain a minimum balance of $25,000,000 in cash and marketable
securities, including those securities collateralizing the
letters of credit. In addition, the Company completed a U.S.
working capital revolving credit line agreement in early 1997,
with a maximum capacity of $14,000,000. All borrowings must be
secured by approved accounts receivable and finished goods
inventories. The Company has a pledge of $5,000,000, which has
been classified as restricted cash. There have been no advances
made against this line through the date of this report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
As part of the agreement to repurchase the development,
manufacturing and marketing rights to EVACETTM, the Company has
obtained from Pfizer a credit line of up to $10,000,000 to
continue the development of EVACETTM. 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 EVACETTM or in twenty
quarterly installments commencing July 14, 2002. Pfizer at its
option may elect to receive payment in the form of shares of
Common Stock.
The Company has a mortgage-backed note to partially fund the
purchase of the Indianapolis manufacturing facility. The
principal balance outstanding at December 28, 1997 is $1,186,000.
On April 23, 1997 the Company issued 1,000,000 shares of Common
Stock at $20.875 per share to an investment company wholly-owned
by a private investor for cash of $20,875,000. At February 25,
1998, this investor has reported total holdings of 24.83% of the
Company's outstanding shares of Common Stock.
At December 28, 1997, the Company had approximately
$172,000,000 of operating loss carryforwards and $4,500,000 of
research and development credit carryforwards for U.S. Federal
income tax purposes. These carryforwards expire in the years 1998
through 2012. The timing and manner in which these losses are
used may be limited as a result of certain ownership changes that
occurred as provided by IRS Regulations under Section 382.
In January 1993, the Company completed an offering of 2,760,000
Depositary Shares, each of which represented one-tenth of a share
of Preferred Stock carrying a 7.75% dividend rate. On March 25,
1996, the Company called for the redemption of 50% of the
Preferred Stock with the remainder being called on October 14,
1996. Virtually all of the outstanding Preferred Stock was
converted into Common Stock. Combined net issuance costs
including financial advisory, professional, registration and
filing fees of $544,000 were incurred in connection with both
calls and were charged to equity. As a result of these
conversions, the Company's annual Preferred Stock dividend
requirements have been eliminated.
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 and development 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.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Risk Factors
This Annual Report on Form 10-K 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 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.
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Consolidated Balance Sheets,
Consolidated Statements of Operations, Consolidated Statements of
Stockholders' Equity, Consolidated Statements of Cash Flow, Notes
to Consolidated Financial Statements, Financial Statement
Schedule and Independent Accountants Reports appearing in Item
14(a) of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure
None.
PART III
Item l0. Directors and Executive Officers of the Registrant
Information required under this Item relating to executive
officers of the Company is included in a separate item captioned
"Executive Officers" contained in Part I of this report.
Information required under this Item relating to the directors of
the Company will be contained in the Company's Proxy Statement
for the l998 Annual Meeting, the relevant portions of which are
incorporated herein by reference.
Item ll. Executive Compensation
Information required under this Item will be contained in the
Company's Proxy Statement for the l998 Annual Meeting, the
relevant portions of which are incorporated herein by reference.
Item l2. Security Ownership of Certain Beneficial Owners and
Management
Information required under this Item will be contained in the
Company's Proxy Statement for the l998 Annual Meeting, the
relevant portions of which are incorporated herein by reference.
Item l3. Certain Relationships and Related Transactions
Information required under this Item will be contained in the
Company's Proxy Statement for the l998 Annual Meeting, the
relevant portions of which are incorporated herein by reference.
PART IV
Item l4. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) l and 2. Financial Statements and Schedule
Consolidated financial statements and financial statement
schedule listed in the accompanying index are filed herewith.
3. Exhibits
See Exhibit Index included elsewhere in this Report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
Index to Financial Statements
(Item l4(a)1 and 14(a)2)
Page
Consolidated Financial Statements
Report of independent accountants 34
Consolidated balance sheets at December 28, l997 and
December 29, l996 35
Consolidated statements of operations for each of the
three years in the period ended December 28, 1997 36
Consolidated statements of stockholders' equity for each
of the three years in the period ended December 28, l997 37
Consolidated statements of cash flows for each of the
three years in the period ended December 28, l997 38
Notes to consolidated financial statements 39-54
Report of independent accountants on financial statement schedule 55
Financial statement schedule 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
We have audited the consolidated balance sheets of The
Liposome Company, Inc. and Subsidiaries as of December 28, 1997
and December 29, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 28, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Liposome Company, Inc. and Subsidiaries
as of December 28, 1997 and December 29, 1996, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 28, 1997, in
conformity with generally accepted accounting principles.
Princeton, New Jersey
February 6, 1998
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Current assets: 12/28/97 12/29/96
Cash and cash equivalents $ 15,236 $1,841
Short-term investments 15,359 28,269
Accounts receivable, net of allowance for doubtful
accounts ($1,285 for 1997, $1,079 for 1996) 7,150 7,884
Inventories 10,530 9,904
Prepaid expenses 1,034 835
Other current assets 216 47
Total current assets 49,525 48,780
Long-term investments 3,000 10,140
Property, plant and equipment, net 26,652 28,292
Restricted cash 11,930 6,930
Intangibles, net 393 413
Total assets $ 91,500 $ 94,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,616 $ 1,806
Accrued expenses and other current liabilities 6,009 7,682
Current obligations under capital leases 2,031 2,348
Current obligations under note payable 303 303
Total current liabilities 10,959 12,139
Long-term obligations under capital leases 5,996 6,369
Long-term obligations under note payable 883 1,186
Total liabilities 17,838 19,694
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.01; 60,000 shares authorized;
37,663 and 36,061 shares issued and outstanding 377 361
Additional paid-in capital 262,637 237,809
Net unrealized investment loss (108) (481)
Foreign currency translation adjustment (400) (430)
Accumulated deficit (188,844)(162,398)
Total stockholders' equity 73,662 74,861
Total liabilities and stockholders' equity $ 91,500 $ 94,555
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Year
Ended
12/28/97 12/29/96 12/31/95
Product sales $ 58,452 $ 52,840 $ 6,164
Collaborative research and development
revenues 2,331 3,228 6,589
Interest, investment and other income 4,313 3,864 2,964
Total revenues 65,096 59,932 15,717
Cost of goods sold 22,029 16,559 2,304
Research and development expense 28,894 29,371 30,149
Selling, general and administrative
expense 39,914 31,541 18,631
Interest expense 705 339 294
Total expenses 91,542 77,810 51,378
Net loss (26,446) (17,878) (35,661)
Preferred Stock dividends -- (1,235) (5,348)
Net loss applicable to
Common Stock $(26,446) $(19,113) $(41,009)
Net loss per share applicable to
Common Stock (basic and diluted) $ (.71) $ (.57) $ (1.50)
Weighted average number of common shares
outstanding (basic and diluted) 37,083 33,292 27,293
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Shares of Additional Total
Common Par Paid-in Accumulated Stockholders'
Stock Value Capital Other Deficit Equity
Balance, December 31, 1994 23,983 $ 243 $192,003 $(5,034)$(108,859) $78,353
Issuance of stock:
For cash 4,950 49 43,143 -- -- 43,192
To 401K plan 23 -- 199 -- -- 199
Exercise of stock options 988 10 4,548 -- -- 4,558
Conversion of Preferred Stock 6 -- -- -- -- --
Dividends on Preferred Stock -- -- (5,348) -- -- (5,348)
Net unrealized investment gain -- -- -- 4,490 -- 4,490
Foreign currency
translation adjustment -- -- -- 49 -- 49
Net loss for 1995 -- -- -- -- (35,661) (35,661)
Balance, December 31, 1995 29,950 302 234,545 (495) (144,520) 89,832
Issuance of stock:
To 401K plan 43 1 798 -- -- 799
Exercise of stock options 704 7 4,245 -- -- 4,252
Conversion of Preferred Stock 5,364 51 (544) -- -- (493)
Dividends on Preferred Stock -- -- (1,235) -- -- (1,235)
Net unrealized investment gain -- -- -- 62 -- 62
Foreign currency
translation adjustment -- -- -- (478) -- (478)
Net loss for 1996 -- -- -- -- (17,878) (17,878)
Balance, December 29, 1996 36,061 361 237,809 (911) (162,398) 74,861
Issuance of stock:
To 401K plan 105 1 1,253 -- -- 1,254
Restricted Stock 27 -- 50 -- -- 50
Payment for past royalties 45 1 255 -- -- 256
Private placement of Common
Stock 1,000 10 20,865 -- -- 20,875
Exercise of stock options 425 4 2,398 -- -- 2,402
Issuance of warrant -- -- 165 -- -- 165
Expenses related to registration
of Common Stock -- -- (158) -- -- (158)
Net unrealized investment gain -- -- -- 373 -- 373
Foreign currency
translation adjustment -- -- -- 30 -- 30
Net loss for 1997 -- -- -- -- (26,446) (26,446)
Balance, December 28, 1997 37,663 $ 377 $262,637 $ (508) $(188,844) $ 73,662
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
12/28/97 12/29/96 12/31/95
Cash flows from operating activities:
Net loss $(26,446) $(17,878) $(35,661)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 5,135 3,769 3,409
Provision for bad debt 206 879 200
Issuance of Common Stock and warrants 421 -- --
Other 1,304 798 199
Changes in assets and liabilities:
Accounts receivable 528 (1,964) (5,381)
Inventory (626) (6,361) (2,795)
Prepaid expenses (199) (502) 86
Other current assets (169) (1) (15)
Accounts payable 810 (33) 634
Accrued expenses and
other current liabilities (1,673) 680 2,304
Net cash used by operating activities (20,709) (20,613) (37,020)
Cash flows from investing activities:
Purchases of short and long-term investments (30,375) (38,771) (51,990)
Sales of short and long-term investments 50,798 62,178 59,634
Restricted cash (5,000) (288) (1,762)
Purchases of property, plant and equipment (1,892) (9,602) (7,965)
Net cash provided/(used) by investing
activities 13,531 13,517 (2,083)
Cash flows from financing activities:
Proceeds from issuance of Common Stock 20,875 -- 43,192
Conversion of Preferred Stock -- 52 --
Expenses related to conversion of Preferred Stock -- (544) --
Exercises of stock options 2,402 4,252 4,558
Expenses related to registration of Common Stock (158) -- --
Principal payments under note payable (303) (302) (303)
Receipt of proceeds from capital lease obligations -- 6,101 --
Principal payments under capital lease obligations (2,273) (1,509) (1,477)
Preferred Stock dividend payments -- (2,572) (5,348)
Net cash provided by financing activities 20,543 5,478 40,622
Effects of exchange rate changes on cash 30 (478) 49
Net increase/(decrease) in cash and cash equivalents 13,395 (2,096) 1,568
Cash and cash equivalents at beginning of year 1,841 3,937 2,369
Cash and cash equivalents at end of year $ 15,236 $1,841 $3,937
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business And Summary Of Significant Accounting Policies:
Business:
The Liposome Company, Inc. (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 18 foreign markets 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. International approvals have been received for primary
and/or refractory treatment of these infections. Currently all
product sales are derived from ABELCET.
In the U.S., Canada and the United Kingdom, the Company markets
ABELCET with its own sales force. For other countries, the
Company's general strategy is to market ABELCET through marketing
partners. Specific marketing partnerships are determined on a
country-by-country basis. In addition, sales are realized on a
"named patient" basis in certain countries where marketing
approvals have not yet been received.
The Company is developing EVACETTM (formerly TLC D-99),
liposomal doxorubicin, as a treatment for metastatic breast
cancer and potentially other cancers. EVACETTM 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 at the half-way point of the
studies indicate that EVACETTM 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 for EVACETTM with the U.S. Food
and Drug Administration ("FDA") in 1998.
The Company has a continuing discovery research program
concentrating on oncology treatment and has a number of products
in research. These products include: TLC ELL-12 (liposomal ether
lipid), which may have efficacy in the treatment of several types
of cancer and has exhibited significant anti-tumor activity in
experimental models; bromotaxol (a hydrophobic derivative of
paclitaxel), which has shown anticancer activity in several
experimental models; ceramides and sphingosines (molecules widely
implicated in cell differentiation and apoptosis), certain of
which the Company has identified as displaying anticancer
activity; and fusogenic liposomes (liposomes specifically
designed to fuse to cell membranes), which the Company hopes to
use for the efficient delivery of genes to their intended
targets.
The Company operates in a high technology, emerging market
environment that involves significant risks and uncertainties
which may cause results to vary significantly from reporting
period to reporting period. These risks include, but are not
limited to, among others, competition, the uncertainty of new
product development initiatives, difficulties in transferring new
technology to the manufacturing stage, market resistance to new
products, domestic and international regulatory constraints and
potential disputes concerning intellectual property.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Financial Statement Presentation:
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates. The
Company regularly assesses the estimates and management believes
that the estimates are reasonable.
Recently Issued Accounting Pronouncements:
The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 non-owner 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.
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.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits."
This statement modifies financial statement disclosures related
to pension and other postretirement plans, including
standardization of disclosures for pension plans and other
postretirement plans, permitting the aggregation of information
regarding certain plans, additional disclosures related to the
change in benefit obligations and the fair value of plan assets,
and elimination of certain other disclosures. This statement
addresses disclosure issues and therefore will not have an effect
on the Company's financial position or results of operations, and
is effective for periods beginning after December 15, 1997.
Consolidated Financial Statements:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation.
Revenue Recognition:
Revenue from product sales is recognized upon transfer of title
to unrelated third parties with provisions for price adjustments
to large volume purchasers in the U.S. and for certain government
mandated price protection programs. Payments for collaborative
research and development are generally received in advance and
are recognized as revenue, ratably, as the research and
development is performed. Licensing fees, royalty and hurdle
payments are recognized in the period earned.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Advertising:
Advertising costs are expensed in the period incurred. Total
advertising costs were approximately $800,000 in 1997 and
$1,400,000 in 1996, with no significant expenses in 1995.
Depreciation and Amortization:
Machinery and equipment, building and building improvements and
furniture and fixtures, are depreciated by the straight-line
method over their estimated useful lives ranging from three to
twenty years. Leasehold improvements are amortized by the
straight-line method over the lesser of their estimated useful
lives or the terms of the related leases. Purchased patents are
amortized by the straight-line method over their lives as
determined by the country of issuance. The Company periodically
reviews the realizability of its patents.
Cash Equivalents:
The Company considers all highly liquid investments with
maturities of three months or less as cash equivalents.
Investments:
Short-term investments represent marketable securities
available for current operations, all of which have been
classified as available for sale, while long-term investments,
which are also available for sale, represent marketable
securities available for expected capital acquisitions. These
investments are stated at fair value, determined at December 28,
1997. Fair values may not be representative of actual values of
financial investments that could be realized in the future.
For the years ended December 28, 1997, December 29, 1996 and
December 31, 1995, investment income includes gross realized
gains of $2,800, $3,600 and $0, and realized losses of $9,100,
$28,700 and $489,000, respectively. At December 28, 1997,
December 29, 1996 and December 31, 1995, investments included
gross unrealized losses of $108,000, $481,000 and $549,000 and
gross unrealized gains of $0, $0 and $6,500, respectively. In
computing realized gains and losses, the Company computes the
cost of its investments on a specific identification basis. The
fair values of debt securities maturing within one year was
$29,892,000. Investment amounts are recorded at approximate
amortized cost.
Restricted Cash:
The Company has entered into certain financing arrangements
that require the issuance of letters of credit that are partially
collateralized by certain securities. The aggregate amount of
these securities are segregated and identified as restricted
cash. The Company is also required to maintain minimum cash
balances in connection with certain of these financings.
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 LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Concentration of Credit Risk:
The Company's significant concentrations of credit risk are
with its cash and investments and its accounts receivable. The
investment portfolio consists of U.S. government or agency debt
securities and investment grade debt securities or better as
defined by the appropriate rating institution. Company policy
limits exposure to any one institution other than the U.S.
government. Product-related accounts receivable in the U.S. are
generally with major distributors and internationally with the
Company's marketing partners or hospitals, which are generally
funded by their respective governments. The Company provides
credit to its customers on an uncollateralized basis after
evaluating their credit status.
Basic and Diluted Loss Per Share:
The Company has adopted SFAS No. 128, "Earnings per Share"
which requires the presentation of basic earnings per share
(EPS), and diluted earnings per share. Basic EPS excludes
dilution and is computed by dividing income available to Common
Stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into Common Stock
or resulted in the issuance of Common Stock that then shared in
the earnings of the entity. The Company has not included
potential Common Shares in the diluted per share computation as
the result is anti-dilutive.
The numerator and denominator of the basic and diluted per
share computations were as follows:
In Thousands Except Per Share Amounts
Average Per Share
Net Loss Shares Amount
Year ending December 28, 1997
Basic and diluted loss per share
available to Common Stockholders $(26,446) 37,083 $(.71)
Year ending December 29, 1996
Basic and diluted loss per share
available to Common Stockholders $(19,113) 33,292 $(.57)
Year ending December 31, 1995
Basic and diluted loss per share
available to Common Stockholders $(41,009) 27,293 $(1.50)
Basic and diluted net loss per share is calculated using the
weighted average number of common shares on the "if converted"
method for all periods presented.
Options and warrants to purchase 5,980,750 shares of Common
Stock at $1.03 - $24.38 per share were outstanding during 1997
but were not included in the computation of diluted earnings per
share because the effect would be anti-dilutive to the net loss.
The options and warrants expire on various dates from April 3,
1998 to December 19, 2007.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Reclassification:
Certain reclassifications have been made to the prior year
financial statement amounts to conform with the presentation in
the current year financial statements.
Foreign Currency Transactions:
Generally, Consolidated Balance Sheet amounts have been
translated using exchange rates in effect at the balance sheet
dates and the translation adjustments have been included in the
foreign currency translation adjustment as a separate component
of Consolidated Stockholders' Equity. Amounts related to
transactions in the Consolidated Statements of Operations have
been translated using the average exchange rates in effect each
year and transaction gains and losses have been included therein
as other income. During 1997, the Company realized $65,000 in
foreign currency transaction losses, $374,000 in gains in 1996
and $49,000 in losses in 1995.
Research and Development Expenses:
The research and development expenses of the Company, which are
expensed as incurred, include those efforts related to
collaborative research and development agreements, development of
the Company's proprietary products and general research. The
expenses include, but are not limited to, medical,
biostatistical, regulatory, manufacturing of clinical grade
product and scientific support costs.
2. Stockholders' equity:
Common Stock:
In April 1995, the Company sold 3,450,000 shares of its Common
Stock pursuant to an underwritten offering. Proceeds received
pursuant to the offering were $28,762,000, net of underwriters'
fees, professional, registration, filing and printing fees.
In August 1995, the Company sold 1,500,000 shares of Common
Stock to an institutional investor. Gross proceeds received were
$15,000,000. Stock issuance costs, including financial advisory,
professional, registration and filing fees of approximately
$570,000 were incurred in connection with the sale.
Pursuant to calls for redemption of the Company's Preferred
Stock (7.75% dividend rate) on March 25, 1996 and October 14,
1996, the Company issued an aggregate of 5,364,000 shares of
Common Stock to holders of Preferred Stock who converted before
the respective redemption dates.
On April 23, 1997 the Company issued 1,000,000 shares of Common
Stock at $20.875 per share to an investment company wholly-owned
by a private investor for cash of $20,875,000. At February 25,
1998, this investor has reported total holdings of 24.83% of the
Company's outstanding shares of Common Stock.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
On July 1, 1997, the Company and the University of Texas and
M.D. Anderson Cancer Center came to an agreement to resolve
pending patent litigation. Under the agreement, the Company paid
the University of Texas for past royalties consisting of cash and
shares of the Company's Common Stock, which resulted in 44,835
Common Stock shares being issued to the University of Texas on
October 29, 1997. In addition, the Company 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. Royalty
expense attributable to this settlement of $170,000 was included
in cost of goods sold for 1997.
3. Stock-Based Compensation Plans:
The Company has four stock-based compensation plans that are
currently in effect. The 1986 Employee Stock Option Plan and the
1986 Non-Qualified Stock Option Plan will expire on March 3,
2005, but no additional options can be granted under either of
these plans after March 7, 1996. The two other plans are the
1996 Equity Incentive Plan ("1996 Plan") and the 1991 Directors'
Non-Qualified Stock Option Plan ("Directors' Plan"). A total of
4,500,000 shares of Common Stock are reserved for issuance under
the 1996 Plan, which will expire on March 7, 2006. The total
number of shares of Common Stock authorized for issuance under
the Directors' Plan is 550,000, and that plan will expire on May
21, 2002.
The Board of Directors may grant restricted stock, stock
appreciation rights and other forms of incentives as well as
stock options under the 1996 Plan. Options granted under all
plans must have an exercise price equal to or greater than the
fair market value of the Company's Common Stock on the date of
grant and must have a term no longer than ten years. Options
granted under the 1986 Employee Stock Option Plan, the 1986 Non-
Qualified Stock Option Plan and the 1996 Plan generally become
exercisable in five equal annual installments, although the Board
of Directors has discretion to grant options with different
vesting schedules under the 1996 Plan. Options under the
Directors' Plan are automatically granted to all non-employee
directors upon appointment to the Board of Directors and annually
on July 1 of each year. The initial grants vest over a five year
period, and subsequent annual grants vest in one year.
In July 1997, the Board of Directors approved the repricing of
certain stock options. In connection therewith, employees were
offered an opportunity to have certain stock options repriced to
the then current market price. In exchange for obtaining a lower
price, the option holders were required to surrender 20% of the
shares covered by their options and to wait a full year before
they could exercise any of the repriced options. The repricing
was effected either as an amendment of the existing option or as
the surrender of the existing option and issuance of a new
option, depending on the plan under which the option was issued.
The repricing did not affect the term of the options; all
repriced options expire ten years from their original date of
grant, and the normal vesting schedule will resume after the one-
year waiting period. Nearly all of the options eligible for
repricing were surrendered and repriced.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
The table below summarizes the stock option activity under all
of the Company's plans for the years 1995, 1996 and 1997:
Weighted
Weighted Average
Number Average Exercise Fair
Options of Shares Exercise Price Value at
Exercisable Outstanding Price Per Share Grant Date
Outstanding
12/31/94 2,141,990 4,224,823 $ 5.99 $ 1.03-20.63
Granted 1,124,775 13.27 8.25-20.88 $ 9.73
Exercised (987,674) 4.87 1.06-14.00
Forfeited (222,003) 8.87 1.06-17.00
Outstanding
12/31/95 1,790,439 4,139,921 $ 8.10 $ 1.03-20.88
Granted 1,096,379 17.86 12.44-25.13 $13.07
Exercised (708,064) 5.66 1.03-15.88
Forfeited (175,713) 11.82 2.63-25.13
Outstanding
12/29/96 1,727,094 4,352,523 $10.74 $ 1.03-25.13
Granted 3,486,637 8.11 4.94-27.63 $ 5.56
Exercised (425,428) 5.47 1.03-23.25
Forfeited (2,432,982) 14.80 5.19-27.63
Outstanding
12/28/97 1,828,648 4,980,750 $ 7.37 $ 1.03-24.38
The weighted average remaining contractual lives of
outstanding options at December 28, 1997 was approximately 7.7
years.
The Company applies the provisions of Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly,
compensation expense has been recognized to the extent applicable
in the financial statements in respect to the above plans in
accordance with APB No. 25. Had compensation costs for the above
plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation", the Company's net loss and net
loss per share applicable to Common Stock would have been
increased to the pro forma amounts below:
1997 1996 1995
Pro Forma net loss applicable
to Common Stock $(35,197,000) $(25,427,000) $(42,643,000)
Pro Forma net loss per share
applicable to Common Stock
(basic and diluted) $ (0.95) $ (0.76) $ (1.56)
As options and stock awards vest over several years and awards
are generally made each year, the pro forma impacts shown here
are likely to increase given the same level of activity in the
future.
The pro forma compensation expense related to these plans of
$8,751,000, $6,314,000 and $1,634,000 for 1997, 1996 and 1995,
respectively, was calculated based on the fair value of each
option grant using the Black-Scholes Model with the following
weighted-average assumptions used for grants:
1997 1996 1995
Dividend Yield 0.0% 0.0% 0.0%
Expected Volatility 84.0% 89.0% 91.0%
Risk Free Interest Rate 5.7% 6.0% 5.3%
Expected Option Lives (years) 7.5 7.5 7.5
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
4. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
1997 1996
Building and building improvements $6,477,000 $2,778,000
Land and land improvements 619,000 423,000
Furniture and fixtures 1,946,000 1,823,000
Machinery and equipment 18,059,000 12,947,000
Leasehold improvements and other 5,970,000 5,835,000
Construction in process 1,202,000 8,477,000
Machinery and equipment and leasehold
improvements under capital lease 15,082,000 13,597,000
Total property, plant and equipment 49,355,000 45,880,000
Less: Accumulated depreciation and
amortization (22,703,000) (17,588,000)
Net property, plant and equipment $26,652,000 $28,292,000
In 1995, FASB issued SFAS No. 121, "Accounting for the
Impairment of Assets to be Disposed of." There was no impact on
the Company as a result of the adoption of this standard.
5. Inventories:
The components of inventory are as follows:
1997 1996
Finished goods $ 1,849,000 $3,063,000
Work in process 4,715,000 5,011,000
Raw Materials 3,378,000 1,447,000
Supplies 588,000 383,000
Total $10,530,000 $9,904,000
6. Commitments and Contingencies:
Operating Leases:
The initial term of the Company's lease for its manufacturing
and research facility in Princeton, New Jersey expires in
December 2006 with two five-year renewal options. The lease is
secured by an investment letter of credit of $1,200,000. Rent
expense was approximately $627,000, $568,000 and $568,000 for the
years 1997, 1996 and 1995, respectively.
The Company leases a warehousing facility in Cranbury, New
Jersey. This lease expired in December 1997 and was extended to
March 1999 with an option to renew for an additional three-year
period. Rent expense for this facility totaled approximately
$77,000, $91,000 and $72,000 for the years 1997, 1996 and 1995,
respectively.
The Company's administrative, marketing and executive offices
are located in leased space in Princeton, New Jersey. The lease
for the premises expires in February 2003. Rent expense was
approximately $818,000 for 1997, $761,000 for 1996 and $597,000
for 1995.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Total rental expense under all operating leases (including
those above) was approximately $2,180,000, $1,884,000 and
$1,449,000 for 1997, 1996 and 1995, respectively.
The Company's future minimum lease payments under noncancelable
operating leases at December 28, 1997 are as follows:
1998 $1,585,000
1999 1,511,000
2000 1,337,000
2001 1,253,000
2002 1,376,000
2003 and thereafter 2,853,000
Total $9,915,000
Capital Leases:
In July 1993, the Company entered into a capitalized lease
financing agreement for certain manufacturing equipment providing
for an initial lease term followed by options to extend the
lease, return or purchase the equipment. In December 1996, the
agreement was amended to include an additional $6,101,000 of
manufacturing equipment. In November 1997 and January 1998, the
Company exercised its options to purchase certain manufacturing
equipment under the original 1993 lease for $1,583,000 and
$495,000, respectively. These amounts have been financed as a
capital lease obligation under the lease agreement over a three-
year period. The lease is collateralized by $4,310,000 in
standby letters of credit which are in turn collateralized by AAA
rated securities owned by the Company. Pursuant to the December
1996 lease amendment, the Company is required to maintain a
minimum balance of $25,000,000 in cash and marketable securities,
including those securities collateralizing the letters of credit.
The following is a schedule by year of future minimum payments
under capital leases together with the present value of the
minimum lease payments and the capital lease portion of certain
classes of property as of December 28, 1997:
1998 $2,651,000
1999 2,268,000
2000 2,112,000
2001 1,334,000
2002 1,220,000
Total minimum lease payments 9,585,000
Less: Amount representing interest (1,558,000)
Present value of minimum lease payments $8,027,000
Classes of Property:
Machinery and equipment $11,138,000
Leasehold improvements 3,944,000
Total machinery and equipment and
leasehold improvements 15,082,000
Less: Accumulated amortization (7,480,000)
Net machinery and equipment and leasehold
improvements $7,602,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Lines of Credit:
The Company completed a U.S. working capital revolving credit
line agreement in early 1997, with a maximum capacity of
$14,000,000. All borrowing must be secured by approved accounts
receivable and finished goods inventories. The Company has a
pledge of $5,000,000 to support this line of credit, which has
been classified as restricted cash. There have been no advances
made against this line through the date of this report.
As part of the agreement to repurchase the development,
manufacturing and marketing rights to EVACETTM, the Company has
obtained from Pfizer, a credit line of up to $10,000,000 to
continue the development of EVACETTM. 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 EVACETTM or in twenty
quarterly installments commencing July 14, 2002.
Legal Proceedings:
The Company is involved in lawsuits, claims 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.
7. Long-term Debt:
On July 24, 1992, The Liposome Manufacturing Company, Inc., a
wholly-owned subsidiary of the Company, entered into a mortgage-
backed note to partially fund the purchase of a pharmaceutical
manufacturing facility in Indianapolis, Indiana. Principal
payments of $25,225 plus accrued interest are payable monthly
through November 2001. The interest rate, based on the prime rate
plus 1/2%, has a floor and ceiling of 6% and 10%, and was 9% at
December 28, 1997. The note is guaranteed by the Company and is
collateralized by a $1,120,000 AAA rated security owned by the
Company. The Company is required to maintain a minimum balance of
$10,000,000 in cash and marketable securities, including those
securities collateralizing the letter of credit, in connection
with the financing. The fair value of the Company's long term
debt approximates book value.
The Liposome Manufacturing Company's principal repayment
obligations as of December 28, 1997 are as follows:
1998 303,000
1999 303,000
2000 303,000
2001 277,000
Subtotal 1,186,000
Less: Current portion (303,000)
Total $883,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
8. Supplemental Information:
Accrued Expenses and Other Current Liabilities:
The components of accrued expenses and other current liabilities
are as follows:
1997 1996
Accrued expenses for preclinical
and clinical programs $3,232,000 $2,288,000
Accrued legal fees 102,000 1,044,000
Accrued wages and vacation 1,042,000 1,537,000
Accrued royalty payments 744,000 680,000
Other 889,000 2,133,000
Total $6,009,000 $7,682,000
Statements of Cash Flows: 1997 1996 1995
Supplemental disclosure of cash
flow information:
Cash paid during the year for interest $ 786,000 $339,000 $291,000
Non-cash transaction: Refinancing
of capital lease $1,583,000 $ -- $ --
9. Income Taxes:
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." SFAS No. 109 requires
recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The
Company provides a valuation allowance against the net deferred
tax debits due to the uncertainty of realization. The increase in
the valuation allowance for the year ended December 28, 1997 and
December 29, 1996 was $10,966,000 and $7,532,000 respectively.
Temporary differences and carryforwards that gave rise to the
deferred tax assets and liabilities at December 28, 1997 are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation $ 403,000 $ --
Net unrealized investment loss -- --
State taxes (net of Federal benefit) 8,300,000 --
Amortization 2,032,000 --
Net operating losses - Federal 58,481,000 --
Net operating losses - Foreign 819,000 --
Reserves and allowances 1,729,000 --
Tax credits 4,531,000 --
Other 423,000 --
Subtotal 76,718,000 --
Valuation allowance - Federal (67,599,000) --
Valuation allowance - State (8,300,000) --
Valuation allowance - Foreign (819,000) --
Total deferred taxes $ -- $ --
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
Temporary differences and carryforwards that gave rise to the
deferred tax assets and liabilities at December 29, 1996 are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
Depreciation $ 507,000 $ --
Net unrealized investment loss 164,000 --
State taxes (net of Federal benefit) 7,899,000 --
Amortization 2,321,000 --
Net operating losses - Federal 50,024,000 --
Net operating losses - Foreign 561,000 --
Tax credits 3,498,000 --
Other 778,000 --
Subtotal 65,752,000 --
Valuation allowance - Federal (57,292,000) --
Valuation allowance - State (7,899,000) --
Valuation allowance - Foreign (561,000) --
Total deferred taxes $ -- $ --
At December 28, 1997, the Company had approximately
$172,000,000 net operating loss carryforwards and $4,500,000 of
research and development credit carryforwards for U.S. Federal
income tax purposes. These carryforwards expire in the periods
1998 through 2012. The timing and manner in which these losses
are used may be limited as a result of certain ownership changes
that occurred as provided by IRS Regulations under Section 382.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
10. Geographic Segment Data
The Company's biopharmaceutical operations are classified into
two geographic areas: Domestic (United States) and International
(primarily Western Europe). Financial Data (in thousands of
dollars) for the years 1997, 1996 and 1995 is as follows:
Year Ended December 28, 1997
Domestic International Total
Sales to unaffiliated customers $ 49,273 $ 9,179 $ 58,452
Collaborative research and development
revenues 2,331 -- 2,331
Interest, investment and other income 4,292 21 4,313
Total revenue $ 55,896 $ 9,200 $ 65,096
Net loss $(25,694) $ (752) $(26,446)
Identifiable assets at
December 28, 1997 $ 86,402 $ 5,098 $ 91,500
Year Ended December 29, 1996
Sales to unaffiliated customers $ 44,784 $ 8,056 $ 52,840
Collaborative research and development
revenues 3,228 -- 3,228
Interest, investment and other income 3,449 415 3,864
Total revenue $ 51,461 $ 8,471 $ 59,932
Net loss $(16,765) $ (1,113) $(17,878)
Identifiable assets at
December 29, 1996 $ 91,085 $ 3,470 $ 94,555
Year Ended December 31, 1995
Sales to unaffiliated customers $ 3,154 $ 3,010 $ 6,164
Collaborative research and development
revenues 6,589 -- 6,589
Interest and investment income, net 2,959 5 2,964
Total revenue $ 12,702 $ 3,015 $ 15,717
Net loss $ (34,407) $ (1,254) $ (35,661)
Identifiable assets at
December 31, 1995 $ 104,817 $ 1,109 $ 105,926
11. Savings and Investment Retirement Plan:
The Company has adopted a 401(k) Profit Sharing Plan and Trust
("401(k) Plan") for eligible employees and their beneficiaries.
The 401(k) Plan provides for employee contributions through a
salary reduction election. Employer discretionary matching
contributions are determined annually by the Company and vest
over a maximum of a five-year period of service. For the plan
years ended December 28, 1997, December 29, 1996 and December 31,
1995, the Company's discretionary matching was based on a
percentage of salary reduction elections in the form of the
Company's Common Stock.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
12. Major Customer and Research and Development Revenue Data
In the United States, the Company sells ABELCET to national
and regional wholesalers who in turn resell the product to
hospitals and other service providers. Internationally, sales
are primarily made directly to hospitals. Pursuant to
marketing/distribution agreements with the Company in France,
Italy, Spain and certain other countries, ABELCET is sold to
local pharmaceutical companies who then re-sell the product to
hospitals.
For the years ended December 28, 1997, December 29, 1996 and
December 31, 1995 sales to wholesalers or other customers in
excess of 10% of the Company's product revenues in any year were
as follows:
1997 1996 1995
Customer A 25% 24% 2%
Customer B 20% 24% 14%
Customer C 16% 20% 24%
Customer D 14% 10% 12%
The Company has entered into various collaborative research
and development contracts. The Company earned substantially all
of its research and development revenues from one corporate
sponsor in 1997 and 1996 and two corporate sponsors in 1995.
Payments by corporate sponsors that comprised 10% or more of the
Company's total revenues, pursuant to collaborative agreements
and licensing and other fees as reported in the statements of
operations, in any year were as follows:
1997 1996 1995
Sponsor A $2,331,000 $3,180,000 $5,743,000
Sponsor B -- -- 753,000
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
13. Summary of Quarterly Financial Data (Unaudited):
Summarized quarterly financial data (in thousands, except for
per share data) for the years ended December 28, 1997 and
December 29, 1996 are as follows:
Quarter
1997 First Second Third Fourth
Total revenues $15,854 $16,654 $16,050 $16,538
Total expenses 20,323 25,204 22,253 23,762
Net loss applicable to
Common Stock............$(4,469) $(8,550) $(6,203) $(7,224)
Net loss per share applicable
to Common Stock (basic and
diluted) $ (.12) $ (.23) $ (.17) $ (.19)
Weighted average shares
outstanding (basic and
diluted) 36,132 36,988 37,430 37,565
Quarter
1996 First Second Third Fourth
Total revenues $12,409 $14,402 $14,910 $18,211
Total expenses 16,500 19,532 20,262 21,516
Net loss (4,091) (5,130) (5,352) (3,305)
Preferred Stock dividends (662) (571) (2) 0
Net loss applicable to Common
Stock $(4,753) $(5,701) $(5,354) $(3,305)
Net loss per share applicable
to Common Stock (basic
and diluted) $ (.16) $ (.17) $ (.16) $ (.09)
Weighted average shares
outstanding (basic and
diluted) 30,191 33,493 33,671 35,812
Net loss per share of Common Stock amounts are calculated
independently for each of the quarters presented. The sum of the
quarters may not equal the full year amounts.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements_(Continued)
14. Unusual Charges and Credits:
The Company recorded approximately $3,900,000 of unusual
charges for the second quarter of 1997 following unfavorable
results of a pivotal Phase III study of VENTUSTM. The primary
component was for an organizational restructuring charge of
$2,550,000 (classified as selling, general and administrative
expense) of which all but approximately $200,000 was spent at
December 28, 1997. A total of 137 positions were eliminated as a
result of the restructuring and the annualized benefit is
approximately $8,000,000. The balance of the charges were
attributable to a provision for royalties on past sales of
ABELCET of $768,000 to settle certain litigation concerning that
product, including the pro-rata amortization of a ten-year
warrant issued as part of the settlement (classified as cost of
goods sold), and certain manufacturing overhead costs of $570,000
following the unfavorable study results, (classified as research
and development expense).
On August 11, 1997, the Company entered into a settlement
agreement with NeXstar Pharmaceuticals, Inc. and Fujisawa USA,
Inc., terminating all litigation relating to the Company's
liposome drying technology patents. Pursuant to this agreement,
the Company received a payment of $1,750,000, included in other
income, and will receive quarterly payments based on all AmBisome
sales beginning in 1998.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
Our report on the consolidated financial statements of The
Liposome Company, Inc. and Subsidiaries is included in Item 14 of
this Annual Report on Form 10-K. In connection with our audits
of such financial statements, we have also audited the related
financial schedule listed in the index in Item 14 of this Annual
Report on Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included herein.
Princeton, New Jersey
February 6, 1998
Coopers & Lybrand L.L.P.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Schedule II
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
Year Ended December 28,
1997
Valuation Allowance for
Sales $609,000 13,711,000 -- (10,531,000) 3,789,000
Rebates and Discounts
Allowance for Doubtful
Accounts $1,079,000 256,000 -- (50,000) 1,285,000
Valuation Allowance for
Income Taxes $65,752,00 10,966,00 -- -- 76,718,000
Year Ended December 29,
1996
Valuation Allowance
for Sales -- $1,635,000 -- $(1,026,000) $609,000
Rebates and Discounts
Allowance for Doubtful
Accounts $ 200,000 $ 879,000 -- -- 1,079,000
Valuation Allowance for $58,220,00 $7,532,00 -- -- $65,752,000
Income Taxes
Year Ended December 31,
1995
Allowance for Doubtful
Accounts -- $ 200,000 -- -- $ 200,000
Valuation Allowance for $46,210,00 $12,010,000 -- -- $58,220,0
Income Taxes
Item l4(a)3. Exhibits to Form l0-K
(A) Exhibits
Each management contract or compensation plan required
to be filed pursuant to Item 601 of Regulation S-K is
reflected in Exhibit numbers 10-01, 10-02, 10-03 and 10-
04.
Exhibit
Number
3(i)-01 Restated Certificate of Incorporation of the Company,
including Designation of Preferences of Series A
Cumulative Convertible Exchangeable Preferred Stock.
(Filed with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein
by reference thereto.)
3(ii) By-Laws of the Company. (Filed with Registration No. 33-
23292, and incorporated herein by reference thereto.)
3(iii) Shareholder Rights Agreement dated as of July 11, 1996.
(Filed with the Company's Registration Statement on Form
8-A, file number 000-14887, and incorporated herein by
reference thereto.)
l0-01 The Liposome Company, Inc. l986 Employee Stock Option
Plan as amended March 3, 1995. (Filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference
thereto.)
l0-02 The Liposome Company, Inc. l986 Non-Qualified Stock
Option Plan as amended March 3, 1995. (Filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference
thereto.)
10-03 The Liposome Company, Inc. 1991 Director's Non-Qualified
Stock Option Plan. (Filed with Registration No. 33-
66924, and incorporated herein by reference thereto.)
10-04 Agreement dated June 1, 1995 between the Company and
Charles A. Baker. (Filed with the Company's Report on
Form 10-Q for the period ended June 30, 1995, and
incorporated herein by reference thereto.)
10-05 Joint Venture Agreement dated as of November 19, 1986 by
and among the Company, Nippon Oil & Fats Co., Ltd., and
Techno-Venture Co., Ltd., and associated agreements.
(Filed with Registration No. 33-39041, and incorporated
herein by reference thereto.)
10-06 Territory Expansion Agreement dated as of December 12,
1988 by and among the Company, Nippon Oil & Fats Co.,
Ltd., and Techno-Venture Co., Ltd., and Nichiyu Liposome
Co., Ltd., and associated agreements. (Filed with
Registration No. 33-39041, and incorporated herein by
reference thereto.)
10-07 Amphotericin B Supply Agreement dated as of January 1,
1993, between the Company and Bristol-Meyers Squibb
Company. (Filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1994, and
incorporated herein by reference thereto.)
10-08 License Agreement dated as of September 2, 1994, between
the Company and Bristol-Meyers Squibb Company. (Filed
with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference thereto.)
Item l4(a)3. Exhibits to Form l0-K (Continued)
Exhibit
Number
10-09 Lease Agreement dated December 14, 1992, between the
Company and Peregrine Investment Partners I. (Filed with
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference thereto.)
10-10 First Amendment dated October 29, 1993 to Lease
Agreement between the Company and Peregrine Investment
Partners I. (Filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference thereto.)
10-11 Second Amendment dated December 31, 1994 to Lease
Agreement between the Company and Peregrine Investment
Partners I. (Filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference thereto.)
10-12 Third Amendment dated July 27, 1995 to Lease Agreement
between the Company and Peregrine Investment Partners I.
(Filed with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, and incorporated
herein by reference thereto.)
10-13 Lease Agreement dated as of January 1, 1995 between the
Company and One Research Way Partners. (Filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference
thereto.)
10-14 Credit Agreement dated as of December 31, 1996, among
the Company, The Liposome Manufacturing Company, Inc.
and General Electric Capital Corporation. (Filed with
the Company's Annual Report on Form 10-K for the year
ended December 29, 1996, and incorporated herein by
reference thereto.)
10-15 Termination Agreement dated July 14, 1997, among The
Liposome Company, Inc., Pfizer Inc., and Pfizer
Pharmaceuticals Production Corporation. (Filed with the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 28, 1997, and incorporated herein by
reference thereto.)
10-16 Settlement Agreement dated August 11, 1997 among The
Liposome Company, Inc., NeXstar Pharmaceuticals Inc. and
Fujisawa USA, Inc. (Filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 28,
1997, and incorporated herein by reference thereto.)
21 List of Company's subsidiaries.
23 Consent of Independent Accountants.
27 Financial Data Schedule
99-01 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. (Filed with the Company's
Registration Statement on Form S-3, Registration No. 333-
36931, and incorporated herein by reference thereto.)
SIGNATURES
Pursuant to the requirements of Section 13 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 this 26th day of March, 1998.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
By: /s/ Charles A. Baker
Charles A. Baker
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on the 26th day of March, 1998 on behalf of the
Registrant and in the capacities indicated.
/s/ Charles A. Baker Chairman of the Board, President, Chief
Charles A. Baker Executive Officer and Director (Principal Executive
Officer)
/S/ Dennis A. Rodrigues Controller (Principal Accounting Officer and
Dennis A. Rodrigues Principal Financial Officer)
/S/ James G. Andress Director
James G. Andress
/S/ Morton Collins Director
Morton Collins
/S/ Stuart Feiner Director
Stuart Feiner
/S/ Robert F. Hendrickson Director
Robert F. Hendrickson
/S/ Bengt Samuelsson, Dr. Director
Bengt Samuelsson, Dr.
/S/ Joseph T. Stewart, Jr. Director
Joseph T. Stewart, Jr.
/S/ Gerald Weissmann, M.D. Director
Gerald Weissmann, M.D.
/S/ Horst Witzel, Dr.-Ing. Director
Horst Witzel, Dr.-Ing.
EXHIBIT INDEX
EXHIBIT NO. PAGE
21. Subsidiaries 61
23. Consent of Independent Accountants 62
EXHIBIT 21
Subsidiaries
Name Place of Incorporation
The Liposome Company Japan, Ltd. Tokyo, Japan
Liposome Holdings, Inc. Delaware
Nichiyu Liposome Company, Ltd. Tokyo, Japan
The Liposome Manufacturing Delaware
Company, Inc.
The Liposome Company Ltd. United Kingdom
Liposome SARL France
Liposome SL Spain
Liposome Pty Ltd. Australia
Liposome Canada Inc. Canada
Liposome SrL Italy
Liposome S.a.r.l. Switzerland
Liposome B.V. Netherlands
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of The Liposome Company, Inc. on Forms S-8 (File Nos.
333-20339 and 333-20341) of our reports dated February 6, 1998 on
our audits of the consolidated financial statements and financial
statement schedule of The Liposome Company, Inc. as of December
28, 1997 and December 29, 1996, and for the years ended December
28, 1997, December 29, 1996 and December 31, 1995, which reports
are included in this Annual Report on Form 10-K.
Princeton, New Jersey
March 25, 1998
Coopers & Lybrand L.L.P.
SIGNATURES
Pursuant to the requirements of Section 13 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 this 26th day of March, 1998.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
By: Charles A. Baker
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on the day of March 26, 1998 on behalf of the
Registrant and in the capacities indicated.
Charles A. Baker Chairman of the Board, President Chief
Executive Officer and Director (Principal Executive
Officer)
Dennis A. Rodrigues Controller (Principal Accounting Officer and
Principal Financial Officer)
James G. Andress Director
Morton Collins Director
Stuart Feiner Director
Robert F. Hendrickson Director
Bengt Samuelsson, Dr. Director
Joseph T. Stewart, Jr. Director
Gerald Weissmann, M.D. Director
Horst Witzel, Dr.-Ing. Director
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