20
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 January 3, 1999
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 26, 1999, was approximately $375,806,108
based upon the last reported sales price of the registrant's Common
Stock on the NASDAQ National Market.
At February 26, 1999 there were 38,362,021 shares of the Registrant's
Common Stock outstanding.
The Exhibit Index appears on page 64.
DOCUMENTS INCORPORATED BY REFERENCE
Document Form l0-K Part
Proxy Statement for l999 Annual Meeting Part III
THE LIPOSOME COMPANY, INC.
1998 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
Additional Risk Factors 14
Executive Officers 17
2. Properties 19
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security Holders 19
Part II 20
5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
7a. Quantitative
and Qualitative Disclosures About
Market Risk 32
8. Financial Statements and Supplementary Data 32
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Part III 33
10. Directors and Executive Officers of the Registrant 33
11. Executive Compensation 33
12. Security Ownership of Certain Beneficial Owners
and Management 33
13. Certain Relationships and Related Transactions 33
Part IV 34
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 34
This report on Form 10-K contains forward-looking statements
concerning the business, financial performance and financial condition
of the Company, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
anticipated in any forward-looking statement. Factors that could cause
such differences include, but are not limited to, those discussed in
this Form 10-K, including without limitation, the discussion in Part I
Item 1, Additional Risk Factors. The following discussion should also
be read in conjunction with Part II Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations as well
as the Consolidated Financial Statements and Notes to the Consolidated
Financial Statements included herein.
PART I
Item l. Business
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 22 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 revenues are derived from ABELCET.
During 1998, the Company marketed ABELCET in the U.S., Canada and
the United Kingdom with its own sales force. For other countries, the
Company's general strategy is to market ABELCET through marketing
alliances. Specific marketing alliances 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 EVACET (formerly TLC D-99), liposomal
doxorubicin, as a treatment for metastatic breast cancer and
potentially other cancers. Three Phase III clinical studies of
EVACET have been completed by the Company. The Company filed an NDA
in the U.S. in December 1998, and plans to file in 1999 for approval
to market EVACET in Europe. The Company also plans to conduct
additional studies of EVACET in combination with other anticancer
agents.
TLC ELL-12, a liposomal ether lipid, potentially provides advantages
over existing chemotherapeutic agents. Ether lipid has been shown in
previous human studies to be an effective anticancer agent, but was
highly toxic to red blood cells. TLC ELL-12 does not appear to have
this toxicity. More importantly, unlike most chemotherapeutic agents,
it does not interact with DNA. ELL-12 has not caused bone marrow
suppression in animal studies and is not likely to be carcinogenic or
mutagenic in its own right. If this holds true in humans, TLC ELL-12
would be a significant advance in cancer chemotherapy. TLC ELL-12
entered Phase I clinical trials at Duke University Medical Center in
February 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 VENTUS as the treatment for Acute Respiratory Distress Syndrome, an
inflammatory condition affecting the lungs. The Company's analysis of
the two arms of the study showed no significant difference between
patients receiving VENTUS 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 VENTUS for this indication.
Following the results of the VENTUS 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 of 1997.
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 EVACET from Pfizer Inc. ("Pfizer"), which had previously been co-
developing EVACET with the Company. The Company assumed control over
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 EVACET.
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.
("NeXstar") 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. Pursuant to the NeXstar settlement, the Company received a
payment of $1,750,000 in 1997 and began receiving quarterly payments
based on NeXstar's worldwide sales of AmBisome beginning in 1998.
PRODUCT DEVELOPMENT
The following table summarizes the principal product development
activities of the Company:
Product/Prog Use Status(1) Marketing
ram Rights
Anti-
infective
and Cancer
ABELCET United States
Systemic fungal Marketing and The Company
infections in sales
patients
refractory to, or
intolerant of,
amphotericin B.
International
Systemic fungal Approved in: The Company;
infections (first France, Italy, Laboratorios
and/ or second- United Kingdom, Esteve, SA
line indications) Canada, Spain and (Spain,
other countries. Portugal)
Other marketing
approvals Wyeth-Lederle
pending. (France,
Italy, UK,
Nordic
countries,
Netherlands
and Greece)
EVACETTM Metastatic breast New Drug The Company
(Formerly cancer Application filed
TLC D-99) with the U.S. FDA
in December 1998.
TLC ELL-12 Various cancers Phase I clinical The Company
studies initiated
in February 1999.
Bromotaxol Various cancers Preclinical The Company
toxicology
studies
Ceramides Various cancers Research The Company
and
sphingosines
Gene Therapy Efficient delivery Research The Company
Delivery of genes to target
using fusogenic
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 twenty-two 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 a New Drug Application ("NDA") for
ABELCET with the United States Food and Drug Administration ("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 the latter part of 1997 and the
beginning of 1998, the Company received approvals to market ABELCET in
Italy, Austria, Spain, France, Switzerland, Canada, Norway and Hong
Kong. In September 1998, the Company received approval to market
ABELCET in Australia. The Company believes it may receive marketing
approvals in additional countries during 1999 and in later years.
EVACET (Liposomal Doxorubicin)
The Company is developing EVACET, 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
(anticancer) chemotherapeutic agents. The individual maximum dosage
given to a patient is limited by these and other toxic side effects.
EVACET, a liposomal formulation of the chemotherapeutic agent
doxorubicin, is designed to reduce significantly the cardiotoxic
activity of the parent drug (i.e. doxorubicin) while maintaining
efficacy. Three Phase III trials have been conducted by the Company: a
single-agent trial (n=224) in which EVACET was compared directly to
doxorubicin, a combination trial (n=297) in which EVACET was compared
to doxorubicin when each was administered in combination with
cyclophosphamide, and a European combination trial (n=160) in which
EVACET was compared to epirubicin, an anthracycline therapy widely
used in Europe, when each was administered in combination with
cyclophosphamide.
In December 1998, the Company filed an NDA with the FDA for
marketing clearance for EVACET as a first line treatment for
metastatic breast cancer. In February 1999, the FDA notified the
Company that it had accepted its application for review. The Company
expects the FDA to complete its review by the latter part of 1999.
There can be no assurance that the Company will receive marketing
clearance from the FDA to market EVACET in the United States.
The Company reacquired all development, manufacturing and marketing
rights to EVACET from Pfizer in July 1997. Pfizer had previously been
co-developing EVACET with the Company. The Company assumed control
over and the cost of all clinical studies including the ongoing Phase
III clinical studies noted above that were previously being conducted
and funded by Pfizer. Pfizer was also reimbursing the Company for
substantially all of the development costs of EVACET that were being
incurred by the Company. Pfizer made available a credit line of up to
$10 million to continue the development of EVACET, 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 EVACET.
There were no borrowings outstanding under this credit facility at the
end of 1998.
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 anticancer 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.
The Company commenced Phase I clinical trials of TLC ELL-12 in
February 1999 at Duke University Medical Center.
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 1999, leading to the
possible commencement of human clinical studies in 2000.
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 1998, 1997 and 1996, the Company's research and development
costs were approximately $26.4 million, $28.9 million and $29.4
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 manufacturing economies
available from producing ABELCET on a larger scale.
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.
In April 1998, the Company entered into a three-year agreement with
Astra USA Inc., a subsidiary of Astra AB of Sweden, to manufacture
Astra's M.V.I.- 12 Unit Vial (hereinafter referred to as, "MVI"). MVI
is used by severely ill, hospitalized patients in need of nutritional
supplements. The Company will manufacture MVI at its Indianapolis
manufacturing facility. Under the terms of the Agreement, Astra USA
will supply bulk quantities of the vitamin product and will market the
finished product. The Company will sterilize, fill, package and
perform quality control on MVI for Astra USA. The Company expects to
record revenues related to the Astra agreement in the first quarter
of 1999.
MARKETING STRATEGY
In the United States and Canada, the Company markets ABELCET through
its own sales force of approximately forty experienced
representatives. Sales representatives are based in key cities
throughout North America and are solely dedicated to the marketing of
ABELCET to hospitals. Internationally, 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 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.
During 1998, the Company entered into agreements with affiliates of
Wyeth-Ayerst to market ABELCET in Austria and Greece.
In the fourth quarter of 1998, the Company entered into an agreement
with Amgen Australia Pty. Ltd., a division of Amgen (NASDAQ: AMGN),
to market ABELCET in Australia.
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. The Company maintains credit insurance on large, selected
accounts in the United States subject to a deductible.
Customers may return defective or out of date merchandise for credit
or replacement. Such returns have been insignificant.
HUMAN RESOURCES
At the end of 1998, the Company had 301 full-time employees, 25 of
whom hold Ph.D. degrees and 3 of whom hold M.D. degrees or the foreign
equivalent. Of these employees, 193 are engaged in research,
development, clinical development and manufacturing activities, 66 in
sales and marketing and 42 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. At the end of 1998, the Company had 88 United
States patents as well as 597 foreign counterpart patents, and 33
United States patent applications and 440 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, EVACET, TLC ELL-12 and the family of ceramides as
well as 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 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 Injection
is approved for marketing. EVACETT 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
Investigational New Drug ("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 Practices 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. The FDA may
also require postmarketing testing and surveillance programs to
monitor the drug's efficacy and possible 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. The Company's two
principal competitors in the lipid-based amphotericin B market are
NeXstar Pharmaceuticals Inc. (NASDAQ:NXTR) and SEQUUS Pharmaceuticals
Inc. which was acquired by ALZA Corporation (NYSE:AZA)at the end of
1998. NeXstar Pharmaceuticals and Gilead Sciences (NASDAQ:GILD)
recently announced a stock-for-stock merger agreement. Each of these
companies' products have regulatory approval in the United States and
other countries.
The two principal competitors referred to in the preceding 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.
ADDITIONAL RISK FACTORS
The growth, financial performance and business condition of the
Company may be affected by a number of risk factors, including the
matters discussed below:
Uncertainty of Government Regulatory Requirements; Lengthy Approval
Process
Human therapeutic products, vaccines and in vivo diagnostic products
are subject to rigorous preclinical and clinical testing and approval
by the FDA and comparable agencies in other countries and, to a lesser
extent, by state regulatory authorities prior to marketing. The
process of obtaining such approvals, especially for human therapeutic
products, is likely to take a number of years and will involve the
expenditure of substantial resources. If the FDA requests additional
data, these time periods can be materially increased. Even after such
additional data is submitted, there can be no assurance of obtaining
FDA approval. In addition, product approvals may be withdrawn or
limited for noncompliance with regulatory standards or the occurrence
of unforeseen problems following initial marketing. The Company may
encounter significant delays or excessive costs in their respective
efforts to secure necessary approvals or licenses. Future federal,
state, local or foreign legislative or administrative acts could also
prevent or delay regulatory approval of the Company's products.
Failure to obtain or maintain requisite governmental approvals, or
failure to obtain approvals of the intended clinical uses requested,
could delay or preclude the Company from further developing particular
products or from marketing their products, or limit the commercial use
of the products and thereby have a material adverse effect on the
Company's liquidity and financial condition. No assurance can be
given with respect to the NDA submitted to the FDA by the Company for
commercial sale of EVACET or for any of its products under
development. The Company must demonstrate through preclinical studies
and clinical trials that the product is safe and effective for use in
each targeted indication. The results from preclinical studies and
early clinical trials may not be predictive of results that will be
obtained in large-scale testing, and there can be no assurance that
the Company's clinical trials will demonstrate the safety and efficacy
of any products or will result in marketable products. Many
pharmaceutical and drug delivery companies have suffered significant
setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials.
Volatility of Stock Price
There has been a history of significant volatility in the market
prices for shares of companies in the biopharmaceutical industry. The
market price of the shares of the Company's Common Stock has been
volatile. Factors such as announcements of technological innovations
or new commercial products by the Company or its competitors,
developments relating to regulatory approvals, governmental
regulation, developments regarding product development activities,
developments or disputes relating to patent or proprietary rights, as
well as period-to-period fluctuations in revenues and financial
results, may have a significant impact on the market price of the
Company's Common Stock.
Uncertainty of Pharmaceutical Pricing and Adequate Third-Party
Reimbursement
The Company's business may be materially adversely affected by the
continuing efforts of worldwide governmental and third party payers to
contain or reduce the costs of pharmaceutical products. An increasing
emphasis on managed care and consolidation of hospital purchasing in
the United States has and will continue to put pressure on
pharmaceutical pricing, which could reduce the price that the Company
is able to charge for any current or future products. In addition,
price competition may result from competing product sales, attempts to
gain market share or introductory pricing programs, all of which could
have a material adverse effect on the Company's results of operations
and financial condition. The Company's ability to generate significant
revenues from its products may also depend in part on the extent to
which reimbursement for the costs of such products and related
treatments will be available from government health administration
authorities, private health coverage insurers and other payers. If
purchasers or users of the Company's products are not entitled to
adequate reimbursement for the cost of such products, they may forego
or reduce such use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and
there can be no assurance that adequate third party coverage will be
available.
Adequacy of Product Liability Insurance
The testing, manufacturing and marketing of the Company's products
entail an inherent risk of adverse events that could expose the
Company to product liability claims. The Company has obtained
insurance against the risk of product liability claims. However, there
is no guarantee that this insurance will be adequate, that the amount
of this insurance can be increased, or that the policies can be
renewed. Moreover, the amount and scope of any coverage obtained may
be inadequate to protect the Company in the event of a successful
product liability claim.
Dependence on Key Personnel and Consultants
The Company's ability to successfully develop, manufacture and
market products and to maintain a competitive position will depend in
large part on its ability to attract and retain highly qualified
scientific and management personnel and to develop and maintain
relationships with leading research institutions and consultants.
Competition for such personnel and relationships is intense, and there
can be no assurance that the Company will be able to continue to
attract and retain such personnel.
Dependence Upon Suppliers
The Company currently relies on a limited number of suppliers to
provide the materials used to manufacture its products, certain of
which materials are purchased only from one supplier. In the event
the Company could not obtain adequate quantities of necessary
materials from its existing suppliers, there can be no assurance that
the Company would be able to access alternative sources of supply
within a reasonable period of time or at commercially reasonable
rates. In particular, the Company presently acquires amphotericin B,
a principle ingredient in ABELCETr, from one supplier on what the
Company believes are favorable terms. Although the Company has
qualified an alternative supplier for amphotericin B, the loss of the
Company's current supplier could have a material adverse effect on the
Company. The unavailability of adequate commercial quantities, the
inability to develop alternative sources, a reduction or interruption
in supply or a significant increase in the price of materials could
have a material adverse effect on the Company's ability to manufacture
and market its product.
The Company's Dependence on and the Uncertainty of Protection of
Patents and Proprietary Rights.
The protection provided to the Company by its patents and
proprietary rights is key. The Company has a number of United States
and foreign patents and patent applications relating to various
aspects of lipid and liposome technologies. The patent position of
biopharmaceutical companies generally is highly uncertain and involves
complex legal and factual questions. There can be no assurance that
any patents will afford the Company commercially significant
protection for its proprietary technology or have commercial
application, and litigation may be necessary to determine the validity
and scope of the Company's proprietary rights. Moreover, the patent
laws of foreign countries and the enforcement of such laws may afford
less protection than comparable U.S. laws. In Europe, several of the
Company's granted patents are being opposed by other companies. Loss
of some of these oppositions may result in decreased patent protection
for the Company's products.
Competition
The Company is aware of various products under development or
manufactured by competitors that are used for the prevention,
diagnosis or treatment of certain diseases the Company has targeted
for product development, some of which use therapeutic approaches that
compete directly with certain of the Company's product candidates.
Some of the Company's competitors have substantially greater financial
and technical resources and production and marketing capabilities than
the Company. In addition, many of the Company's competitors have
significantly greater experience than the Company in preclinical
testing and human clinical trials of new or improved pharmaceutical
products and in obtaining approval from the U.S. Food and Drug
Administration ("FDA") and other regulatory approvals on products for
use in health care. In particular, the Company is aware that other
companies are developing lipid-based or liposomal amphotericin B
products and have obtained regulatory approvals for such products in
certain markets. Two competitors received approvals for lipid-based
amphotericin B products in certain markets before ABELCETr was
approved, which may confer a competitive advantage for their products.
In the United States, although ABELCETr was the first lipid-based
amphotericin B product to be approved for marketing, one competitor's
product was approved in the fourth quarter of 1996, and another
competitor's product was approved in August 1997. Although it cannot
be predicted how the existence of competing lipid-based products may
affect the U.S. antifungal market, it is possible that the Company's
share of this market will decline and that price competition will
reduce the overall size of the market. In addition, other companies
are also developing liposomal anthracycline products similar to
EVACETTM, two of which have been cleared by the FDA for treatment of
Kaposi's Sarcoma. The Company is also competing with respect to
manufacturing efficiency and marketing capabilities, areas in which
the Company has limited experience.
Dependence on ABELCETr Revenues
The Company currently derives a substantial portion of its revenues
from the sale of ABELCETr, it's only approved product. The Company's
annual operating results depend upon a variety of factors including
the price, volume and timing of ABELCETr sales. If demand for
ABELCETr were to decline or revenues were to fall, whether by
introduction of competitive products or otherwise, the Company's
financial results would be adversely affected. There can be no
assurance that the Company's revenues from the sale of ABELCETr will
not decline due to the aforementioned factors.
Uncertainty of Future Financial Results; Fluctuations in Operating
Results
The Company's quarterly operating results depend upon a variety of
factors, including the price, volume and timing of ABELCETr sales;
timing and amount of royalties, fees and contract revenues; the
availability of third-party reimbursement; and the regulatory
approvals of new products, or expanded labeling of existing products.
The Company's quarterly operating results may also fluctuate
significantly depending on other factors, including the timing of
approvals and the success of product launches in international
markets, the expansion of clinical trials for ABELCETr and EVACETT,
changes in the Company's level of research expenditures, and
variations in gross margins that may be caused by increased costs of
raw materials, competitive pricing pressures, or the mix between
product sales in the United States and sales to the Company's
international marketing partners and distributors. The Company
expects quarter-to-quarter fluctuations to continue in the future, and
there can be no assurance that the Company's revenues will not decline
or that the Company will ever achieve profitability.
The Company's Marketing Staff Competes with Large Pharmaceutical
Companies
The pharmaceutical industry is highly competitive. The Company's
products compete, and products the Company may develop are likely to
compete, with products of other companies that currently have
extensive and well-funded marketing and sales operations. Because
these companies are capable of devoting significantly greater
resources to their marketing efforts, the Company's marketing or sales
efforts may not compete successfully against the efforts of these
other companies.
Year 2000 Issues May Not Be Addressed Successfully
The Company is implementing a Year 2000 project designed to address
the issue of computer software and hardware correctly processing dates
through and beyond the Year 2000. Due to the uncertainty inherent in
the Year 2000 problem, however, there can be no assurance that Year
2000 failures will not have a material impact on the Company's
operations, financial results or financial condition. In addition,
the Company cannot predict whether its critical third-party suppliers
and business partners will achieve Year 2000 compliance, or whether
the failure of any third party to do so would have a material effect
on the Company's business.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
Charles A. Baker 66 Chairman of the Board, President,
Chief Executive Officer and Director
James A. Boyle, M.D., Ph.D. 62 Senior Vice President, Medical and
Regulatory Affairs
Ralph del Campo 47 Vice President, Manufacturing
Operations
Lawrence H. Hoffman 44 Vice President and Chief Financial
Officer
Andrew S. Janoff, Ph.D. 50 Vice President, Research and
Development
Michael McGrane 49 Vice President, General Counsel and
Secretary
George G. Renton 47 Vice President, Human Resources
Donald D. Yarson 45 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.
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.
Lawrence R. Hoffman joined the Company as Vice President, Finance
and Chief Financial Officer in April 1998. His responsibilities
include management of the finance, information systems and investor
relations departments. He was previously Vice President and Chief
Financial Officer of IGI, Inc., where he had been serving in the
additional capacity of Acting Chief Operating Officer. Prior to
joining IGI, Inc. in July 1997, Mr. Hoffman was Treasurer, Secretary
and Acting Principal Financial Officer for Sybron Chemicals, Inc. He
received a B.S. in accounting from LaSalle University, a J.D. from
Temple University School of Law and an LLM in Taxation from Villanova
University School of Law. Mr. Hoffman is also a certified public
accountant.
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).
Michael McGrane joined the Company as Vice President, General
Counsel and Secretary in December 1998. Prior to joining the Company,
Mr. McGrane was Vice President, General Counsel and Secretary of
Novartis Consumer Health, Inc. From 1984 to 1996, Mr. McGrane held
various positions with Sandoz Pharmaceuticals Corporation, the most
recent being Associate General Counsel. Before joining Sandoz, he was
Regulatory Counsel to the U.S. Food and Drug Administration. Mr.
McGrane received his law degree from Georgetown University. He has a
B.A. degree from Cornell College, Mt. Vernon, Iowa.
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).
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 the vicinity of 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 includes options to
renew for up to an additional ten years. Lease payments for the year
ended January 3, 1999 totaled approximately $568,000. Future lease
payments are subject to certain escalation provisions as contained in
the lease agreement. The Company also leases approximately 28,500
square feet of office space located in the Princeton Forrestal Center.
The lease commenced March 1, 1993 and expires in February 2003.
Payments under this lease for the year ended January 3, 1999 totaled
approximately $792,000. 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 2002. Rent expense for this facility totaled approximately
$88,000 for 1998.
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 a party in an adversarial proceeding filed in the
United States Bankruptcy Court in Delaware by a chapter 7 bankruptcy
trustee for the estate of the FoxMeyer Corporation, et al. The
complaint seeks to avoid and recover purported preferential transfers
pursuant to 11 U.S.C. 547 and 550 from the Company in the amount of
$2.3 million. The Company believes it has meritorious defenses
regarding this claim.
The Company is currently a party to various other legal actions
arising out of the normal course of business, none of which are
expected to have a material effect on the Company's financial position
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
1998
4th Quarter $16.875 $5.125
3rd Quarter 6.250 3.375
2nd Quarter 8.625 4.687
1st Quarter 6.437 4.687
High Low
1997
4th Quarter $7.375 $4.000
3rd Quarter 9.125 6.375
2nd Quarter 28.250 7.625
1st Quarter 29.500 17.875
(b) Holders
At February 26, 1999, there were approximately 1,055 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 January 3,
1999. 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______________________
1/3/99 12/28/97 12/29/96 12/31/95 12/31/94
(In thousands, except per share data)
Product sales $73,495 $58,452 $52,840 $ 6,164 $ --
Collaborative research and
development revenues -- 2,331 3,228 6,589 5,881
Interest, investment and
other income 4,373 4,313 3,864 2,964 4,559
Total revenues 77,868 65,096 59,932 15,717 10,440
Cost of goods sold 20,805 22,029 16,559 2,304 --
Research and
development expense 26,441 28,894 29,371 30,149 31,713
Selling, general and
administrative expense 34,535 39,914 31,541 18,631 12,072
Interest expense 773 705 339 294 308
Total expenses 82,554 91,542 77,810 51,378 44,093
Net loss (4,686) (26,446) (17,878) (35,661)(33,653)
Preferred Stock dividends -- -- (1,235) (5,348) (5,348)
Net loss applicable to
Common Stock $(4,686)$(26,446)$(19,113) $(41,009)$(39,001)
Net loss per share applicable
to Common Stock
(basic and diluted) $ (0.12) $ (0.71) $ (0.57)$ (1.50)$ (1.64)
Weighted average number of
common shares outstanding
(basic and diluted) 38,172 37,083 33,292 27,293 23,850
CONSOLIDATED BALANCE
SHEETS DATA: Year
Ended______________________
1/3/99 12/28/97 12/29/96 12/31/95 12/31/94
(In thousands)
Cash and marketable securities(1) $54,343 $45,525 $47,180 $72,333
$72,157
Working capital 41,401 41,566 46,781 64,422 61,167
Total assets 90,574 91,500 94,555 105,926 93,196
Total long-term liabilities 5,089 6,879 7,555 4,104 5,917
Accumulated deficit (193,530)(188,844)(162,398)(144,520)(108,859)
Total stockholders' equity $71,741 $73,662 $74,861 $89,832 $78,353
(1)Includes restricted cash of $11,930, $11,930 and $6,930 in 1998,
1997 and 1996, respectively. See Note 1 of Notes to Consolidated
Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This report on Form 10-K contains forward-looking statements
concerning the business, financial performance and financial condition
of the Company, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
anticipated in any forward-looking statement. Factors that could
cause such differences include, but are not limited to, those
discussed in Part I Item 1, Additional Risk Factors. The following
discussion and analysis should be read in conjunction with the
Financial Statements and related notes thereto contained herein.
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. ABELCETr (Amphotericin B Lipid Complex
Injection), the Company's first commercialized product, has been
approved for marketing for certain indications in the United States
and 22 foreign markets and is the subject of marketing application
filings in several other countries. In the United States, ABELCETr
has been approved 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 ABELCETr.
During 1998, the Company marketed ABELCETr in the U.S., Canada and the
United Kingdom, with its own sales force. For other countries, the
Company's general strategy is to market ABELCETr 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. Three Phase III clinical studies of
EVACETTM have been completed by the Company. Results of these clinical
trial studies indicate that EVACETTM is significantly less cardiotoxic
than conventional doxorubicin while maintaining equivalent efficacy.
The Company filed a New Drug Application ("NDA") for EVACETTM with the
U.S. Food and Drug Administration ("FDA") in December 1998. There can
be no assurance that the FDA, having accepted the NDA for EVACETTM,
will grant the Company marketing clearance for this product.
The Company completed preclinical toxicology studies of TLC ELL-12
(liposomal ether lipid), a new anticancer drug that may have
applications for the treatment of many different cancers. On October
27, 1998 the Company announced that the FDA has cleared the
Investigational New Drug application for this product. A Phase I
clinical trial has been designed to enroll adult patients with
advanced solid tumors. This trial commenced in February 1999.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
The Company has a continuing discovery research program concentrating
on oncology treatment and has a number of products in research. These
products include: the bromotaxols (hydrophobic derivatives of
paclitaxel), some of which have 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.
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 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 of 1997.
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 assumed 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, paid past royalties on sales of
ABELCETr agreed to pay royalties on future sales, 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 an initial payment of $1,750,000 in 1997 and began receiving
in 1998 quarterly minimum payments (classified as interest, investment
and other income) based on AmBisome worldwide sales.
On April 22, 1998 the Company announced it had entered into a three
year contract manufacturing agreement with Astra USA, Inc. ("Astra").
The Company will process and package Astra's M.V.I.r-12 Unit Vial, an
injectable multi-vitamin product used by severely ill, hospitalized
patients in need of nutritional supplements. The product will be
processed and packaged at the Company's Indianapolis facility, taking
advantage of its modern, large-scale capabilities. Under the terms of
the agreement, Astra will supply bulk quantities of the vitamin
product and the Company will sterilize, fill, package and perform
quality control on M.V.I.r-12 Unit Vial. The Company expects to
record revenues related to Astra commencing in the first quarter of
1999.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Results of Operations
Revenues
Total revenues for the year ended January 3, 1999 were $77,868,000, an
increase of $12,772,000 or 19.6% compared to $65,096,000 for the year
ended December 28, 1997. The primary components of revenues for the
Company are product sales of ABELCETr, which commenced in 1995, and
interest, investment and other income. Collaborative research and
development revenue was also included in the 1997 and 1996 periods,
primarily due to the co-development agreement with Pfizer. The
revenue growth in 1998 is attributable to product sales of ABELCETr
both in the U.S. and internationally. Partially offsetting the sales
increase was the cessation of the collaborative research and
development revenue during the second half of 1997 as a result of the
reacquisition of EVACETTM from Pfizer. Revenues in 1997 were
$65,096,000, an increase of $5,164,000 or 8.6% over the 1996 revenues
of $59,932,000. The primary reason for the growth in 1997 was also
due to increased market penetration of ABELCETr worldwide, partially
offset by the effect of the termination of the collaborative research
and development agreement with Pfizer in mid-1997.
Domestic and international net sales for the past three years were:
Fiscal Year Ended U.S. International
January 3, 1999 $58,936,000 $14,559,000
December 28, 1997 $49,273,000 $ 9,179,000
December 29, 1996 $44,784,000 $ 8,056,000
Domestic dollar sales in 1998 grew by 19.6% over 1997, while unit
shipments increased by 36.5% during the same period. In 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 Company believes that the reduced prices to large
customers stimulated the demand for ABELCETr and resulted in increased
market penetration. During the third quarter of 1998, the Company
instituted a price increase to its domestic customers effective July
1, 1998. U.S. sales are also subject to rebates pursuant to
government mandated price protection programs. The Company provides a
reserve for the impact on sales for these rebates and chargebacks and
periodically evaluates the estimates used in establishing the reserve
in order to make necessary adjustments. The provision for the year
ended January 3, 1999 was approximately $28,684,000.
The increase in U.S. sales in 1997 from 1996 of $4,489,000 or 10.0%
was also attributable to the factors previously discussed regarding
the institution of the targeted pricing program and increased market
penetration. The rebate and chargeback provision for the year ended
December 28, 1997 was approximately $12,450,000.
Internationally, the Company has been approved to market ABELCETr in
22 markets. In addition, sales are realized on a "named patient"
basis in certain countries where marketing approval has not yet been
received. During 1998, the Company marketed ABELCETr in the U.S.,
Canada and the U.K. with it's own sales force. For other countries,
the Company's general strategy is to market ABELCETr through marketing
partners, with specific marketing distribution alliances being
determined on a country-by-country basis as future market approvals
are received.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
International product sales were $14,559,000 for the year ended
January 3, 1999, $5,380,000 higher than the comparable prior year.
The majority of the growth is due to the impact of the launch of
ABELCETr in late 1997 in France, Italy and Canada, combined with sales
growth in Spain. While international sales revenues increased by
58.6%, unit volume increased by 91.7%. The principal reason for this
difference is the mix of sales to end users (i.e. direct distribution)
in certain countries versus sales to marketing partners in others.
International sales were $9,179,000 and $8,056,000 for 1997 and 1996,
respectively. The majority of the increase was the result of growth
throughout international markets including fourth quarter launches of
ABELCET in France, Italy and Canada, partially offset by lower sales
in Spain. The Company's international performance was also adversely
impacted by unfavorable foreign exchange rates due to the strong U.S.
dollar during 1997.
Collaborative research and development revenues were $0, $2,331,000
and $3,228,000 for the years ended January 3, 1999, December 28, 1997
and December 29, 1996, respectively. The revenue decline of
$2,331,000 in 1998 from 1997 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 of $897,000 or 27.8% in
1997 from 1996 was due to the mid-year termination of the Pfizer
agreement as previously discussed.
Interest, investment and other income for the year ended January 3,
1999 was $4,373,000 compared to $4,313,000 for the year ended December
28, 1997. This minimal increase is primarily due to the higher
interest and investment income due to greater average cash balances
available for investment in the Company's portfolio during 1998
partially offset by lower interest rates. 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. The
increase of $449,000 is primarily due to the receipt 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 lower average cash balances available for investment in the
Company's portfolio during 1997 compared to 1996.
Due to the Company's reacquisition of rights to EVACETTM from Pfizer,
the Company anticipates there will be no collaborative research and
development revenues in the future, as it currently has no other
agreements in place. In the future, the Company anticipates
recognition of income related to the manufacturing agreement with
Astra. The anticipated revenues from interest and investment 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 January 3, 1999 were
$82,554,000, a decrease of $8,988,000 or 9.8% below the prior year.
Total expenses for the year ended December 28, 1997 were $91,542,000
an increase of $13,732,000, or 17.6% over 1996. Included in the 1997
expenses were $3,900,000 of unusual charges incurred by the Company
following the unfavorable results of the VENTUST clinical study. See
specific 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 January 3, 1999, was $20,805,000
versus $22,029,000 in the 1997 period. The decrease of $1,224,000
was due to lower manufacturing costs related to the high volume
efficiencies realized during 1998 at the Indianapolis facility,
combined with the impact of the Company's decision not to manufacture
ABELCETr during the last half of 1997 in order to reduce inventories.
As a result of this decision, certain manufacturing overhead and fixed
costs for Indianapolis were reflected in cost of goods sold in the
1997 period even though no product was manufactured. Partially
offsetting the decrease is the impact of the higher sales volume in
the 1998 period. Gross margin in the 1998 period was 71.7% compared
to 62.3% in the 1997 period, an improvement of 9.4 percentage points.
Cost of goods sold for the year ended December 28, 1997, was
$22,029,000 versus $16,559,000 in the 1996 period. The $5,470,000 or
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 1997, 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. Gross
margin was 62.3% in 1997 and 68.7% in 1996, a decline of 6.4
percentage points. 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 Indianapolis facility
and the unusual charge for royalties on past sales of ABELCET pursuant
to the litigation settlement.
Research and development expenses, which also include clinical and
regulatory activities, were $26,441,000 for the year ended January 3,
1999, compared to $28,894,000 for 1997 and $29,371,000 for 1996. The
decrease of $2,453,000 from 1997 to 1998, is primarily due to the
completion of the pivotal Phase III studies of EVACETT for which the
Company filed a NDA in December 1998, and the absence of clinical
study costs associated with VENTUST in 1998. Partially offsetting the
decrease, is increased research and development activity for TLC
ELL-12 and the reorientation of the Princeton manufacturing facility
to the production of clinical supplies. The decrease in spending of
$477,000 from 1996 to 1997 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
EVACETTM and TLC ELL-12. In the second half of 1997, the Company
assumed all the costs related to the clinical studies of EVACETTM
pursuant to its reacquisition of the product from Pfizer.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Selling, general and administrative expenses for 1998 were
$34,535,000, a decrease of $5,379,000 versus 1997. The principal
reasons for the decrease were the absence in 1998 of the restructuring
charge of $2,550,000 recorded in the second quarter of 1997, and the
elimination of litigation costs relating to the University of Texas
and NeXstar patent lawsuits and reduced international sales and
marketing expenditures due to the utilization of marketing partners
internationally. Selling, general and administrative expenses for the
years ended December 28, 1997 and December 29, 1996 were $39,914,000
and $31,541,000, respectively. The increase of $8,373,000 is
partially due to the restructuring charge of $2,550,000 following the
unfavorable results of the VENTUSTM Phase III study, increased 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 to
defend market share from competition. International sales and
marketing costs also increased as ABELCET was launched in France,
Italy and Canada during the fourth quarter of 1997.
Interest expense was $773,000, $705,000 and $339,000 for 1998, 1997
and 1996, 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 facility. In November 1997 and January 1998, the Company
exercised it's option to purchase certain manufacturing equipment
under the original 1993 lease. This refinancing of the Princeton and
Indianapolis equipment leases for a three year period, caused an
increase in interest expense in the 1998 period. In December 1996,
the Company expanded its equipment lease and received cash of
$6,101,000 for Indianapolis manufacturing assets, which caused higher
interest expense in 1997 and 1998.
Preferred Stock Dividends
In 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 $1,235,000 were paid on the Preferred Stock in 1996.
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 was
$4,686,000, $26,446,000 and $19,113,000 for the 1998, 1997 and 1996
fiscal years, respectively. The net loss per share for these years
were $0.12, $0.71 and $0.57, respectively. The fourth quarter of
1998, was the first quarter that the Company had an operating income
of $1,546,000 or $0.04 per share. Weighted average shares used in the
per share calculations were 38,172,000, 37,083,000 and 33,292,000,
respectively. The increase of 1,089,000 shares from 1997 to 1998 was
attributable to the issuance of restricted stock and the 401(k) match.
The increase in average shares outstanding in 1997 compared to 1996
was due to the full-years impact of shares issued pursuant to
conversions of Preferred Stock and shares issued for cash in a private
placement. The number of shares of Common Stock used in each twelve-
month period to calculate basic and diluted loss per share were
identical as the Company was in a loss position in all the twelve-
month 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 $54,343,000 in cash and marketable securities as of
January 3, 1999. Included in this amount were cash and cash
equivalents of $8,074,000, short-term investments of $34,339,000 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 January 3,
1999 was below their acquisition cost. This unrealized loss is
recorded as a reduction of shareholders' equity.
Cash and marketable securities (both short-term and restricted cash)
increased $8,818,000 from December 28, 1997 to January 3, 1999. The
primary components of the favorable impact on cash flow were the lower
inventories of $4,964,000, the higher accounts payable and accrued
liabilities of $2,723,000, the lower accounts receivable of $1,810,000
and cash flow from operations (net loss less depreciation,
amortization and other non-cash charges) of $3,130,000. The major
uses of funds were the principal repayments on the capital lease and
note payable totaling $2,223,000 and capital spending of $1,790,000.
Inventories at January 3, 1999 decreased $4,964,000 from December 28,
1997. During 1997, the Company completed its plan to shift
manufacturing of ABELCETr from Princeton to its new, more cost
efficient facility in Indianapolis, Indiana. In order to ensure a
smooth transition, the Company increased its inventory of ABELCETr
during the first half of 1997. FDA approval of the Indianapolis
facility was received during the third quarter of 1997, and the
Company has reoriented the Princeton manufacturing facility to the
production of clinical supplies. As planned, the Company has reduced
inventories to levels consistent with demand for ABELCETr.
Accounts payable at January 3, 1999 was $3,991,000 or $1,375,000
higher than December 28, 1997 and accrued expenses and other current
liabilities were $7,357,000 or $1,348,000 higher than the prior year.
The variance in accounts payable is primarily due to the timing of
payments to vendors. The increase in accrued expense is primarily due
to increased bonuses as well as royalty payments relating to ABELCETr
sales.
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 re-
financed as a capital lease obligation under the lease agreement for 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 to
support this agreement, 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 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. At the end of 1998, there were no borrowings under this
facility.
The Company has a mortgage-backed note to partially fund the purchase
of the Indianapolis manufacturing facility. The principal balance
outstanding at January 3, 1999 is $883,000.
On April 23, 1997 the Company issued 1,000,000 shares of Common Stock
at $20.875 per share to a private investor for cash of $20,875,000. At
February 26, 1999, this investor has reported total holdings of
approximately 24.38% of the Company's outstanding shares of Common
Stock.
At January 3, 1999, the Company had approximately $196,616,000 of net
operating loss carryforwards and $5,885,000 of research and
development credit carryforwards for U.S. Federal income tax purposes.
These carryforwards expire in the years 1999 through 2018. The timing
and manner in which these losses are used may be limited as provided
by IRS Regulations under Section 382 of the Internal Revenue Code.
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 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)
Year 2000 Compliance
The Year 2000 computer issue ("Y2K") refers to a condition in computer
software where a two digit field rather than a four digit field is
used to distinguish a calendar year. For example, 1998 would be
stored as "98", rather than "1998". The basic problem is that when
the year changes from 1999 (99) to the year 2000 (00), some computer
programs will be unable to distinguish the correct date. Such a
situation could significantly interfere with the conduct of the
Company's business, disrupt its operations and materially impact its
financial condition.
In order to address this situation, the Company has conducted a Year
2000 assessment of its core business information systems including a
wide variety of other information systems and related business
processes (hereinafter, collectively referred to as the "Systems")
used in its operations. The goal of the assessment was to identify
and determine the Y2K readiness of the Company's Systems. The task of
assessing the Systems from a Y2K readiness perspective has been
accomplished. Accordingly, the Company has developed a comprehensive
remediation plan and scheduled the necessary hardware, software, and
sub-component upgrades to remediate non-Y2K compliant systems. The
Systems investigated were categorized into the following three areas:
The first category involves the traditional management information
systems that include computers, telecommunication devices, application
software, operating system software, and related peripherals. Due to
the fact that the majority of the Systems installed and in use at the
Company are new and utilize current technologies the effort and
expense to bring these Systems into Y2K compliance will not be
material. Overall estimated costs for Systems remediation is expected
to be less than $100,000. A portion of this estimate, $50,000, is for
the replacement or upgrade of components that are, or would have been,
included in 1999 and 2000 capital budgets but have been accelerated
due to the Y2K issue. Roughly one third of the estimated $100,000
expense has already been expended to make the required hardware and
software upgrades. The remaining Systems will be brought into
compliance by mid-year.
The second category involves manufacturing and facility systems
including machines and devices used to manufacture, store, and test
the Company's product. It also includes the systems that control and
monitor the Company's facilities such as HVAC, fire suppression, and
elevators. Equipment used in the manufacture and storage of product
has been reviewed with regard to Y2K readiness. Again, because of the
absence of older legacy systems, a minimal amount of effort is
required to make these systems compliant. Of the systems reviewed,
98% were found to be compliant with no remedial actions required. The
estimated cost to bring the non-compliant equipment up to standard
will be less than $30,000. These upgrades will be completed by the
middle of 1999.
The third category involves research systems including computer-
controlled devices, calibration equipment, and similar instruments.
Review of Research & Development equipment found the majority of the
computers and laboratory equipment to be Y2K compliant. Cost of
replacing non-Y2K ready equipment was $30,000 and has been completed.
In addition to the assessment of the Systems, key suppliers and
customers have been identified. A survey form was developed and has
been sent to each of these business entities in order to determine if
their systems are Y2K compliant. This is significant since delays in
the shipment and receipt of critical supplies can impact the Company's
production. Problems would also exist if customers become unable to
pay for the Company's product (e.g., their accounts payable system
fails) or if they cannot electronically order, store, or track product
in compliance with FDA requirements. The Company is proactively
addressing the Y2K issue with these vendors and suppliers in order to
minimize risk from these external factors.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Based on the assessment of its Systems, the Company believes that the
costs of addressing the Y2K issue will be less than $200,000. Also
based on the assessment of its Systems, the Company believes that it
has minimized the potential for disruption of its business because of
the Y2K event. However, if key third parties such as suppliers and
customers are not Y2K ready, such problems could have a material
adverse impact on the Company's business. To minimize the impact of
supplier product shortages that may result the Company plans to have
sufficient supplies on hand to meet its production requirements. The
Company will also encourage its customers to have an adequate supply
of ABELCETr on hand to meet their anticipated needs.
Certain 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 regarding EVACETT, TLC ELL-12
and other oncology products in the Company's research pipeline, (ii)
the ability of ABELCETr to maintain its position as the leading lipid-
based formulation of amphotericin B in the U.S., (iii) the likelihood
of future domestic and international regulatory approvals for EVACETT
or any other product in the research pipeline, (iv) the expansion of
sales efforts regarding ABELCETr, (v) possible new licensing or
contract manufacturing agreements, (vi) future product revenues from
ABELCETr, EVACETT or any other product in the research pipeline, (vii)
the future uses of capital, and financial needs of the Company, (viii)
manufacturing efficiencies and other benefits to be realized from use
of the Indianapolis facility, (ix) the recording of revenues relating
to the Astra contract, and (x) resolution of Year 2000 computer
issues. 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 still ongoing and the ultimate rate of
sales of ABELCET is uncertain; (b) the Company's other products are in
development and have not yet received regulatory approvals for sale,
and it is difficult to predict when such 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;
(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; (e) risks associated with
international sales, such as currency exchange rates, currency
controls, tariffs, duties, taxes, export license requirements and
foreign regulations; (f) uncertainty that key customers, vendors and
suppliers of the Company will be Y2K compliant; (g) the levels of
protection afforded by the Company's patents and other proprietary
rights is uncertain and may be challenged; and (h) 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 l999 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 l999 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 l999 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 l999 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 36
Consolidated Balance Sheets at January 3, 1999 and
December 28, 1997 37
Consolidated Statements of Operations for each of the
three years in the period ended January 3, 1999 38
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended January 3, 1999 39
Consolidated Statements of Cash Flows for each of the
three years in the period ended January 3, 1999 40
Notes to Consolidated Financial Statements 41-58
Report of Independent Accountants on financial
statement schedule 59
Financial statement schedule 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Liposome Company, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity
and cash flows present fairly, in all material respects, the financial
position of The Liposome Company, Inc. and its Subsidiaries ("the
Company") at January 3, 1999 and December 28, 1997, and the results of
their operations and their cash flows for each of the three years in
the period ended January 3, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Princeton, New Jersey
February 5, 1999
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
1/3/99 12/28/97
Current assets:
Cash and cash equivalents $ 8,074 $ 15,236
Short-term investments 34,339 18,359
Accounts receivable, net of allowance for doubtful
accounts ($579 for 1998, $1,285 for 1997) 5,340 7,150
Inventories 5,566 10,530
Prepaid expenses 1,266 1,034
Other current assets 560 216
Total current assets 55,145 52,525
Property, plant and equipment, net 23,165 26,652
Restricted cash 11,930 11,930
Intangibles, net 334 393
Total assets $ 90,574 $ 91,500
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,991 $ 2,616
Accrued expenses and other current liabilities 7,357 6,009
Current obligations under capital leases 2,093 2,031
Current obligations under note payable 303 303
Total current liabilities 13,744 10,959
Long-term obligations under capital leases 4,509 5,996
Long-term obligations under note payable 580 883
Total liabilities 18,833 17,838
Commitments and contingencies
Stockholders' equity:
Capital stock:
Common Stock, par value $.01; 60,000 shares authorized;
38,327 and 37,663 shares issued and outstanding 383 377
Additional paid-in capital 265,254 262,637
Accumulated other comprehensive loss (366) (508)
Accumulated deficit (193,530)(188,844)
Total stockholders' equity 71,741 73,662
Total liabilities and stockholders' equity $ 90,574 $ 91,500
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Year Ended
1/3/99 12/28/97 12/29/96
Product sales $73,495 $58,452 $52,840
Collaborative research and development
revenues -- 2,331 3,228
Interest, investment and other income 4,373 4,313
3,864
Total revenues 77,868 65,096 59,932
Cost of goods sold 20,805 22,029 16,559
Research and development expense 26,441 28,894 29,371
Selling, general and administrative
expense 34,535 39,914 31,541
Interest expense 773 705 339
Total expenses 82,554 91,542 77,810
Net loss (4,686) (26,446) (17,878)
Preferred Stock dividends -- -- (1,235)
Net loss applicable to Common Stock $(4,686) $(26,446)
$(19,113)
Net loss per share applicable to
Common Stock (basic and diluted) $ (.12) $ (.71) $ (.57)
Weighted average number of common shares
outstanding (basic and diluted) 38,172 37,083 33,292
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Shares Accumulated Total
of Additional Other Stock
Common Par Paid-in Accumulated Comprehensive Holders
Stock Value Capital Deficit Loss Equity
Balance, December 31, 1995 29,950 $302 $234,545 $(144,520) $(495) $89,832
Net Loss for 1996 -- -- -- (17,878) -- (17,878)
Other Comprehensive Income:
Net unrealized investment gain -- -- -- -- 62 62
Foreign currency translation
adjustment -- -- -- -- (478) (478)
Comprehensive Loss (18,294)
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)
Balance, December 29, 1996 36,061 361 237,809 (162,398) (911) 74,861
Net loss for 1997 -- -- -- (26,446) -- (26,446)
Other Comprehensive Income:
Net unrealized investment gain -- -- -- -- 373 373
Foreign currency translation
adjustment -- -- -- -- 30 30
Comprehensive Loss (26,043)
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)
Balance, December 28, 1997 37,663 377 262,637 (188,844) (508) 73,662
Net loss for 1998 -- -- -- (4,686) -- (4,686)
Other Comprehensive Income:
Net unrealized investment gain -- -- -- -- 96 96
Foreign currency translation
adjustment -- -- -- -- 46 46
Comprehensive Loss (4,544)
Issuance of stock:
To 401K plan 179 2 945 -- -- 947
Restricted Stock 389 3 -- -- -- 3
Issuance of shares 10 -- 50 -- -- 50
Amortization of Restricted Stock -- -- 1,035 -- -- 1,035
Exercise of stock options 86 1 532 -- -- 533
Warrant amortization -- -- 55 -- -- 55
Balance, January 3, 1999 38,327 $383 $265,254 $(193,530) $(366) $71,741
See accompanying notes.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
_________Year
Ended
1/3/99 12/28/97 12/29/96
Cash flows from operating activities:
Net loss $(4,686) $(26,446)$(17,878)
Adjustments to reconcile net loss to net
cash provided/(used) by operating activities:
Depreciation and amortization 5,672 5,135 3,769
Provision for bad debt 373 206 879
Issuance of Common Stock and warrants 105 421 --
Other 2,144 1,304 798
Changes in assets and liabilities:
Accounts receivable 1,437 528 (1,964)
Inventory 4,964 (626) (6,361)
Prepaid expenses (232) (199) (502)
Other current assets (344) (169) (1)
Accounts payable 1,375 810 (33)
Accrued expenses and other
current liabilities 1,348 (1,673) 680
Net cash provided/ (used) by operating
activities 12,156 (20,709) (20,613)
Cash flows from investing activities:
Purchases of short- and long-term investments(29,595) (30,375) (38,771)
Sales of short- and long-term investments 13,711 50,798 62,178
Restricted cash -- (5,000) (288)
Purchases of property, plant and equipment (1,790) (1,892) (9,602)
Net cash (used)/provided by investing
activities (17,674) 13,531 13,517
Cash flows from financing activities:
Proceeds from issuance of Common Stock -- 20,875 --
Conversion of Preferred Stock -- -- 52
Expenses related to conversion of Preferred Stock -- -- (544)
Exercises of stock options 533 2,402 4,252
Expenses related to registration of Common Stock -- (158) --
Principal payments under note payable (303) (303) (302)
Receipt of proceeds from capital lease obligations. -- -- 6,101
Principal payments under capital lease obligations(1,920)(2,273)(1,509)
Preferred Stock dividend payments -- -- (2,572)
Net cash (used)/ provided by financing
activities (1,690) 20,543 5,478
Effects of exchange rate changes on cash 46 30 (478)
Net (decrease)/increase in cash and cash equivalents(7,162) 13,395 (2,096)
Cash and cash equivalents at beginning of year 15,236 1,841 3,937
Cash and cash equivalents at end of year $ 8,074 $15,236 $ 1,841
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. ABELCETr (Amphotericin B Lipid Complex
Injection), the Company's first commercialized product, has been
approved for marketing for certain indications in the United States
and 22 foreign markets and is the subject of marketing application
filings in several other countries. In the United States, ABELCETr
has been approved 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 ABELCETr.
During 1998, the Company marketed ABELCETr in the U.S., Canada and the
United Kingdom, with its own sales force. For other countries, the
Company's general strategy is to market ABELCETr 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. Three Phase III clinical studies of
EVACETTM have been completed by the Company. Results of these clinical
trial studies indicate that EVACETTM is significantly less cardiotoxic
than conventional doxorubicin while maintaining equivalent efficacy.
The Company filed a New Drug Application ("NDA") for EVACETTM with the
U.S. Food and Drug Administration ("FDA") in December 1998. There can
be no assurance that the FDA, having accepted the NDA for EVACETTM,
will grant the Company marketing clearance for this product.
The Company completed preclinical toxicology studies of TLC ELL-12
(liposomal ether lipid), a new anticancer drug that may have
applications for the treatment of many different cancers. On October
27, 1998 the Company announced that the FDA has cleared the
Investigational New Drug application for this product. A Phase I
clinical trial has been designed to enroll adult patients with
advanced solid tumors. This trial commenced in February 1999.
The Company has a continuing discovery research program concentrating
on oncology treatment and has a number of products in research. These
products include: the bromotaxols (hydrophobic derivatives of
paclitaxel), some of which have 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 LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
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.
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 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 third quarter of 1997.
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 assumed 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, paid past royalties on sales of
ABELCETr agreed to pay royalties on future sales, 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 an initial payment of $1,750,000 in 1997 and began receiving
in 1998 quarterly minimum payments (classified as interest, investment
and other income) based on AmBisome worldwide sales.
On April 22, 1998 the Company announced it had entered into a three
year contract manufacturing agreement with Astra USA, Inc. ("Astra").
The Company will process and package Astra's M.V.I.r-12 Unit Vial, an
injectable multi-vitamin product used by severely ill, hospitalized
patients in need of nutritional supplements. The product will be
processed and packaged at the Company's Indianapolis facility, taking
advantage of its modern, large-scale capabilities. Under the terms of
the agreement, Astra will supply bulk quantities of the vitamin
product and the Company will sterilize, fill, package and perform
quality control on M.V.I.r-12 Unit Vial. The Company expects to
record revenues related to Astra commencing in the first quarter of
1999.
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.
Comprehensive Income:
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. The Company has adopted SFAS No. 130 for the year
ending January 3, 1999 by reflecting Comprehensive Income in the
Consolidated Statements of Stockholders' Equity.
Segment Reporting:
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 has adopted SFAS No. 131 for the year ending January 3, 1999,
the applicable geographic segment and major customer revenue data is
disclosed in Footnote 10 "Geographic Segment Data" and Footnote 12
"Major Customer and Research and Development Revenue Data".
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 $190,000 in 1998, $800,000 in
1997 and $1,400,000 in 1996.
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 operations, all of which have been classified as available for
sale. These investments are stated at fair value, determined at
January 3, 1999. Fair values may not be representative of actual
values of financial investments that could be realized in the future.
For the years ended January 3, 1999, December 28, 1997 and December
29, 1996, investment income included gross realized gains of $0,
$2,800 and $3,600 and realized losses of $0, $9,100 and $28,700,
respectively. At January 3, 1999 December 28, 1997 and December 29,
1996, investments included gross unrealized losses of $12,000,
$108,000 and $481,000, respectively, and no gross unrealized gains for
the periods. In computing realized gains and losses, the Company
computes the cost of its investments on a specific identification
basis. The fair values of investment securities maturing within one
year was $45,491,000. 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 is 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) method.
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 a diversified portfolio of high-grade corporate
marketable and United States Government-backed securities. 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 and utilizes
credit insurance, subject to certain deductibles, to protect it from
catastrophic losses.
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 Ended January 3, 1999
Basic and diluted loss per share
available to Common Stockholders $ (4,686) 38,172 $(.12)
Year Ended December 28, 1997
Basic and diluted loss per share
available to Common Stockholders $(26,446) 37,083 $(.71)
Year Ended December 29, 1996
Basic and diluted loss per share
available to Common Stockholders $(19,113) 33,292 $(.57)
Basic and diluted net loss per share is calculated using the
weighted average number of common shares for all periods presented.
Options and warrants to purchase 5,849,837 shares of Common Stock
at a range of $1.03 - $24.38 per share were outstanding during 1998
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 January 25, 1999 to
December 28, 2008.
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 1998, the
Company realized $122,000 in foreign currency transaction losses,
$65,000 in losses in 1997 and $374,000 in gains in 1996.
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:
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 26, 1999, this
investor has reported total holdings of 24.38% of the Company's
outstanding shares of Common Stock.
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 from 1995 to 2004.
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 LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
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.
In September 1998, the Board of Directors approved a repricing of
certain stock options under similar conditions as noted above.
However, in this instance the option holders were required to
surrender 10% of the shares covered by the options in exchange for the
issuance of a new option. The majority 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 1996, 1997, and 1998:
Weighted
Weighted Average
Number Average Exercise Fair
Options of Options Exercise Price Value at
exercisable Outstanding Price PerShare Grant Date
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
Granted 2,788,101 4.77 3.69-12.50 $ 3.07
Exercised (85,723) 6.19 1.19- 8.75
Forfeited (2,883,291) 7.92 4.06-21.00
Outstanding 1/3/99 2,108,988 4,799,837 $ 6.03 $ 1.03-24.38
The weighted average remaining contractual lives of outstanding
options at January 3, 1999 was approximately 7.0 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:
1998 1997 1996
Pro Forma net loss applicable
to Common Stock $(12,571,000) $(35,197,000) $(25,427,000)
Pro Forma net loss per share
applicable to Common Stock
(basic and diluted) $ (0.33) $ (0.95) $ (0.76)
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
$7,885,000, $8,751,000 and $6,314,000 for 1998, 1997 and 1996,
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:
1998 1997 1996
Dividend Yield 0.0% 0.0% 0.0%
Expected Volatility 84.0% 84.0% 89.0%
Risk Free Interest Rate 4.6% 5.7% 6.0%
Expected Option Lives (years) 7.6 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:
1998 1997
Building and building improvements $6,504,000 $6,477,000
Land and land improvements 614,000 619,000
Furniture and fixtures 1,971,000 1,946,000
Machinery and equipment 19,882,000 18,059,000
Leasehold improvements and other 6,023,000 5,970,000
Construction in process 811,000 1,202,000
Machinery and equipment and leasehold
improvements under capital lease 15,675,000 15,082,000
Total property, plant and equipment 51,480,000 49,355,000
Less: Accumulated depreciation and
amortization (28,315,000) (22,703,000)
Net property, plant and equipment $23,165,000 $26,652,000
5. Inventories:
The components of inventory are as follows:
1998 1997
Finished goods $ 2,710,000 $ 1,849,000
Work in process 1,271,000 4,715,000
Raw materials 1,374,000 3,378,000
Supplies 211,000 588,000
Total $5,566,000 $10,530,000
6. Commitments and Contingencies:
Operating Leases:
The initial term of the Company's lease for its 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 $568,000,
$627,000 and $568,000 for the years 1998, 1997 and 1996, respectively.
The Company leases a warehousing facility in Cranbury, New Jersey.
This lease agreement was originally signed in January 1995 expired in
December 1997 and was extended to March 2002. Rent expense for this
facility totaled approximately $88,000, $77,000 and $91,000 for the
years 1998, 1997 and 1996, 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
$792,000 for 1998, $818,000 for 1997 and $761,000 for 1996.
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements-(Continued)
Total rental expense under all operating leases (including those
above) was approximately $2,184,000, $2,180,000 and $1,884,000 for
1998, 1997 and 1996, respectively.
The Company's future minimum lease payments under noncancelable
operating leases at January 3, 1999 are as follows:
1999 $1,422,000
2000 1,353,000
2001 1,279,000
2002 1,403,000
2003 1,403,000
2004 and thereafter 2,076,000
Total $8,936,000
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 January 3, 1999.
1999 $2,598,000
2000 2,442,000
2001 1,333,000
2002 1,220,000
Total minimum lease payments 7,593,000
Less: Amount representing interest (991,000)
Present value of minimum lease payments $6,602,000
Classes of Property:
Machinery and equipment $11,470,000
Leasehold improvements 4,205,000
Total machinery and equipment and
Leasehold improvements 15,675,000
Less: Accumulated amortization (9,674,000)
Net machinery and equipment and leasehold
improvements $6,001,000
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 end of
1998.
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. There have been no advances made against this line through
the end of 1998.
Legal Proceedings:
The Company is a party in an adversarial proceeding filed in the
United States Bankruptcy Court in Delaware by a chapter 7 bankruptcy
trustee for the estate of the FoxMeyer Corporation, et al. The
complaint seeks to avoid and recover purported preferential transfers
pursuant to 11 U.S.C. 547 and 550 from the Company in the amount
of $2.3 million. The Company believes it has meritorious defenses
regarding this claim.
The Company is currently a party to various other legal actions
arising out of the normal course of business, none of which are
expected to have a material effect on the Company's financial position
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 8.25% at January 3, 1999. 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 January 3, 1999 are as follows:
1999 $ 303,000
2000 303,000
2001 277,000
Subtotal 883,000
Less: Current portion (303,000)
Total $ 580,000
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:
1998 1997
Accrued expenses for preclinical
and clinical programs $1,681,000 $3,241,000
Accrued bonus 1,396,000 630,000
Accrued royalty/licensing payments 1,110,000 743,000
Accrued sales & marketing and administrative 851,000 394,000
Accrued wages and vacation 774,000 470,000
Other 1,545,000 531,000
Total $7,357,000 $6,009,000
Statement of Cash Flows: 1998 1997 1996
Supplemental disclosure of cash
flow information:
Cash paid during the year for interest $823,000 $786,000 $339,000
Non-cash transaction: Refinancing
of capital lease $495,000 $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 January 3, 1999 and December 28, 1997 was $11,295,000 and
$10,966,000, respectively.
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 January 3, 1999 and December
28, 1997 are as follows:
Deferred Tax
Assets/(Liabilities)
1998 1997
Depreciation $ (443,000) $ 403,000
Net unrealized investment loss -- --
State taxes (net of Federal benefit)11,051,000 8,300,000
Amortization 1,579,000 2,032,000
Net operating losses - Federal 66,850,000 58,481,000
Net operating losses - Foreign 1,030,000 819,000
Reserves and allowances 1,135,000 1,729,000
Tax credits 5,885,000 4,531,000
Other 926,000 423,000
Subtotal 88,013,000 76,718,000
Valuation allowance - Federal (75,932,000) (67,599,000)
Valuation allowance - State (11,051,000) (8,300,000)
Valuation allowance - Foreign ( 1,030,000) (819,000)
Subtotal (88,013,000) (76,718,000)
Total deferred taxes $ -- $ --
At January 3, 1999, the Company had approximately $196,616,000
net operating loss carryforwards and $5,885,000 of research and
development credit carryforwards for U. S. Federal income tax
purposes. These carryforwards expire in the periods 1999 through
2018. 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 1998, 1997 and 1996 is as follows:
Year Ended January 3, 1999
Domestic International Total
Sales to unaffiliated customers $58,936 $14,559 $73,495
Interest, investment and other income 4,355 18 4,373
Total revenue $63,291 $14,577 $77,868
Net loss $(3,260) $(1,426) $(4,686)
Identifiable assets at
January 3, 1999 $85,414 $ 5,160 $90,574
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
Domestic International Total
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
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 January 3, 1999,
December 28, 1997 and December 29, 1996, 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 re-sell 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 January 3, 1999, December 28, 1997 and December
29, 1996 sales to wholesalers or other customers in excess of 10% of
the Company's product revenues in any year were as follows:
1998 1997 1996
Customer A 23% 25% 24%
Customer B 21% 20% 24%
Customer C 14% 16% 20%
Customer D 13% 14% 10%
The Company had 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. The absence of collaborative research and development
revenue in 1998 and late 1997 is due to the termination of the
collaborative research and development agreement with Pfizer in mid-
1997. 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:
1998 1997 1996
Pfizer -- $2,331,000 $3,180,000
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 January 3, 1999 and December 28, 1997
are as follows:
Quarter
1998 First Second Third Fourth
Total revenues $17,094 $20,225 $18,647 $21,902
Total expenses 22,171 21,072 18,955 20,356
Net income/(loss) applicable
to Common Stock $(5,077) $ (847) $ (308) $ 1,546
Net income/(loss) per share
applicable to Common
Stock (basic) $ (.13) $ (.02) $ (.01) $ .04
Net income/(loss) per share
applicable to Common
Stock (diluted) $ (.13) $ (.02) $ (.01) $ .04
Weighted average shares
outstanding (basic) 37,846 37,992 38,050 38,254
Weighted average shares
outstanding (diluted) 37,846 37,992 38,050 39,856
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
Net income/(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 of this
charge related to an organizational restructuring expense of
$2,550,000 (classified as selling, general and administrative
expense). A total of 137 positions were eliminated as a result of the
restructuring. 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 VENTUSTM clinical 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., relating to
litigation regarding the Company's liposome drying technology patents.
Pursuant to this settlement agreement, the Company received an initial
payment of $1,750,000, included in other income, as well as the right
to receive future royalty 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.
PricewaterhouseCoopers LLP
Princeton, New Jersey
February 5, 1999
THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Schedule II
Column A Column B Column C Column D Column E
Additions
Balance Charged Balance at
at to End
Beginning Costs and Deductions of Period
of Period Expenses
Year Ended January 3,1999
Valuation Allowance for
Sales Rebates and
Discounts $3,789,000 $30,460,000 $(31,197,000) $3,052,000
Allowance for Doubtful
Accounts................. $1,285,000 $ 373,000 $ (1,079,000) $579,000
Valuation Allowance for
Income Taxes $76,718,000 $11,295,000 $ -- $88,013,000
Year Ended December 28, 1997
Valuation Allowance for
Sales Rebates and
Discounts $609,000 $ $13,711,000 $(10,531,000) $ 3,789,000
Allowance for Doubtful
Accounts.................$1,079,000 $ 256,000 $ (50,000) $1,285,000
Valuation Allowance for
Income Taxes $65,752,000 $10,966,000 $ -- $76,718,000
Year Ended December 29,1996
Valuation Allowance for
Sales Rebates and
Discounts -- $1,635,000 $(1,026,000) $ 609,000
Allowance for Doubtful
Accounts................. $ 200,000 $ 879,000 -- $1,079,000
Valuation Allowance for
Income Taxes $58,220,000 $7,532,000 $ -- $65,752,000
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 The Liposome Company, Inc. 1996 Equity Incentive Plan.
(Filed with the Company's 1996 Proxy Statement, File No. 000-
14887, incorporated herein by reference thereto.)
10-05 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.)
10-06 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.)
10-07 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.)
10-08 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.)
10-09 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.)
Item l4(a)3. Exhibits to Form l0-K (Continued)
Exhibit
Number
10-10 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.)
10-11 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.)
10-12 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.)
10-13 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.)
10-14 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.)
10-15 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.)
10-16 Form of Executive Severance Agreement executed with each Vice
President dated as of January 22, 1998 attached hereto as
Exhibit 10-16.
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
29th day of March, 1999.
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 29th day of March, 1999 on behalf of the Registrant and
in the capacities indicated.
/S/ Charles A. Baker Chairman of the Board, President Chief Executive
Charles A. Baker Officer and Director (Principal Executive Officer)
/S/ Lawrence R. Hoffman Vice President and Chief Financial Officer
Lawrence R. Hoffman (Principal Accounting Officer)
/S/ James G. Andress Director
James G. Andress
/S/ Morton Collins, Ph.D. Director
Morton Collins, Ph.D.
/S/ Stuart F. Feiner Director
Stuart F. 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 65
23. Consent of Independent Accountants 66
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
Laboratoires Liposome 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 5, 1999 on our
audits of the consolidated financial statements and financial
statement schedule of The Liposome Company, Inc. as of January 3, 1999
and December 28, 1997 and for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996, which reports are included in
this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Princeton, New Jersey
March 29, 1999
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
29th day of March, 1999.
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 29th day of March, 1999 on behalf of the Registrant and
in the capacities indicated.
Chairman of the Board, President Chief Executive
Charles A. Baker Officer and Director (Principal Executive
Officer)
Vice President and Chief Financial Officer
Lawrence R. Hoffman (Principal Accounting Officer)
Director
James G. Andress
Director
Morton Collins, Ph.D.
Director
Stuart F. Feiner
Director
Robert F. Hendrickson
Director
Bengt Samuelsson, Dr.
Director
Joseph T. Stewart, Jr.
Director
Gerald Weissmann, M.D.
Director
Horst Witzel, Dr.-Ing.
5
EXECUTIVE SEVERANCE AGREEMENT
BETWEEN
EXECUTIVE NAME
AND
THE LIPOSOME COMPANY, INC.
CONTENTS
PAGE
Article 1. Definitions 1
Article 2. Severance Benefits 6
Article 3. Form and Timing of Severance Benefits 9
Article 4. Excise Tax Gross-Up 10
Article 5. The Company's Payment Obligations 11
Article 6. Term of Agreement 12
Article 7. Legal Remedies 12
Article 8. Successors 12
Article 9. Indemnification 13
Article 10. Miscellaneous 13
THE LIPOSOME COMPANY, INC.
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of this 22nd day of
January, 1998, by and between The Liposome Company, Inc., a
Delaware corporation (hereinafter referred to as the "Company")
and ____________ (hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has approved the
Company entering into severance agreements with certain key
executives of the Company and its subsidiaries; and
WHEREAS, the Executive is a key executive of the Company or of
its subsidiary; and
WHEREAS, should the possibility of a Change in Control of the
Company arise, the Board believes it imperative that the Company
and the Board should be able to rely upon the Executive to
continue in his or her position, and that the Company should be
able to receive and rely upon the Executive's advice, if
requested, as to the best interests of the Company and its
shareholders without concern that the Executive might be
distracted by the personal uncertainties and risks created by the
possibility of a Change in Control; and
WHEREAS, should the possibility of a Change in Control arise, in
addition to his or her regular duties, the Executive may be
called upon to assist in the assessment of such possible Change
in Control, advise management and the Board as to whether such
Change in Control would be in the best interests of the Company
and its shareholders, and to take such other actions as the Board
might determine to be appropriate;
NOW, THEREFORE, to assure the Company that it will have the
continued dedication of the Executive and the availability of his
or her advice and counsel notwithstanding the possibility,
threat, or occurrence of a Change in Control of the Company, and
to induce the Executive to remain in the employ of the Company,
and for other good and valuable consideration, the Company and
the Executive agree as follows:
ARTICLE 1. DEFINITIONS
Whenever used in this Agreement, the following terms shall have
the meanings set forth below and, when the meaning is intended,
the initial letter of the word is capitalized:
(a) "Agreement" means this Executive Severance Agreement.
(b)"Base Salary" means the salary of record paid to the
Executive as annual salary, excluding amounts received under
incentive or other bonus plans, whether or not deferred.
(c)"Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
(d)"Beneficiary" means the persons or entities designated or
deemed designated by the Executive pursuant to Section 9.2
hereof.
(e)"Board" means the Board of Directors of the Company.
(f)"Cause" shall be determined by the Chairman of the Board and
the Executive's direct supervisor, in exercise of his or
their good faith and reasonable judgment, and shall mean the
occurrence of any one or more of the following:
(i)The willful and continued failure by the Executive to
substantially perform his or her duties (other than any
such failure resulting from the Executive's Disability),
after a written demand for substantial performance is
delivered by the Chairman of the Board to the Executive
that specifically identifies the manner in which the
Company believes that the Executive has not substantially
performed his duties, and the Executive has failed to
remedy the situation within thirty (30) calendar days of
receiving such notice; or
(ii) The Executive's conviction for committing an act of
fraud, embezzlement, theft, or other act constituting a
felony; or
(iii) The willful engaging by the Executive in gross
misconduct materially and demonstrably injurious to the
Company, as determined by the Chairman of the Board.
However, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that his action or omission was in the
best interest of the Company.
(g)` "Chairman of the Board" shall mean the member of the
Board duly elected by the Board to serve as its chairman, as
prescribed in the Company's By-Laws.
(h)"Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(i)When a "person," as defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act, becomes the beneficial
owner, directly or indirectly, of securities of the
Company representing (A) more than thirty-five percent
(35%) of the combined voting power of the Company's then
outstanding securities, unless such person is subject to
contractual restrictions that would preclude him or her
from voting such shares in a manner to influence or
control the management of the Company's business, provided
that in the event such contractual restrictions are
removed, a Change of Control will be deemed to have
occurred on the effective date of such removal or on such
later date as the Executive receives actual notice of such
removal, or (B) one hundred percent (100%) of the combined
voting power of the Company's then outstanding securities
regardless of any contractual restrictions. For purposes
of this provision, "person" shall not include the Company,
any subsidiary of the Company, any employee benefit plan
or employee stock plan of the Company, or any person
holding the Company's Common Stock by, for or pursuant to
the terms of such a plan; and "voting power" shall mean
the power under ordinary circumstances (and not merely
upon the happening of a contingency) to vote in the
election of directors. For the purpose of Section
(h)(i)(A) and (h)(iii)(B) of this Agreement, the right to
vote shares in a transaction for which stockholder
approval is required under Sections 251 through 258
(mergers), 271 (sale of assets), or 275 (dissolution) of
the Delaware General Corporation Law, as the same may be
amended from time to time, will not, in themselves, be
deemed, to constitute the right to vote such shares "in a
manner to influence or control the management of the
Company's business". Whether other voting rights may be
granted to a beneficial owner without enabling it to
influence or control the management of the Company's
business will depend on the totality of rights granted in
each case.
(ii) When, as a result of a vote of stockholders for which
proxies are solicited by or on behalf of any person other
than the Company in accordance with the SEC rules issued
under Section 14 of the Exchange Act, or which is exempt
from the SEC proxy rules by reason of Rule 14a-2 under the
Exchange Act, or as a result of an action by written
consent of stockholders without a meeting, the "incumbent
directors" cease to constitute at least a majority of the
authorized number of members of the Board. For purposes
of this provision, "incumbent directors" shall mean the
persons who were members of the Board on January 22, 1998,
and the persons who were elected or nominated as their
successors or pursuant to increases in the size of the
Board by a vote of at least an absolute majority (and not
just the majority of a quorum) of the Board members who
were then Board members (or successors or additional
members so elected or nominated).
(iii) When the stockholders of the Company approve a
merger, consolidation, or reorganization, whether or not
the Company is the surviving entity in such transaction,
(A) other than a merger, consolidation, or reorganization
that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
at least sixty-five percent (65%) of the combined voting
power of the voting securities of the Company (or such
surviving entity) outstanding immediately after the
merger, consolidation, or reorganization; and (B) other
than a merger, consolidation or reorganization that would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent less
than sixty-five percent (65%) but more than one percent
(1%) of the combined voting power of the voting securities
of the Company (or such surviving entity) outstanding
immediately after the merger, consolidation or
reorganization if the holder or holders of the shares in
the surviving entity that do not represent the securities
of the Company outstanding prior to the merger,
consolidation or reorganization is or are subject to
contractual restrictions that would preclude such holder
or holders from voting such shares in a manner to
influence or control the management of the Company's (or
such surviving entity's) business, provided that in the
event such contractual restrictions are removed, a Change
of Control will be deemed to have occurred on the
effective date of such removal or on such later date as
the Executive receives actual notice of such removal.
(iv) When the stockholders of the Company approve (A) the
sale or other disposition of all or substantially all of
the assets the company or (B) a complete liquidation or
dissolution of the Company.
(v)When the Board adopts a resolution to the effect that any
person has acquired effective control of the business and
affairs of the Company.
However, in no event shall a Change in Control be deemed to
have occurred, with respect to the Executive, if the
Executive is part of a purchasing group which consummates the
Change-in-Control transaction. The Executive shall be deemed
"part of a purchasing group" for purposes of the preceding
sentence if the Executive is an equity participant in the
purchasing company or group (except for: (x) passive
ownership of less than three percent (3%) of the stock of the
purchasing company; or (y) ownership of equity participation
in the purchasing company or group which is otherwise not
significant, as determined prior to the Change in Control by
an absolute majority of the non-employee Directors who were
Directors prior to the transaction, and who continue as
Directors following the transaction).
(i)"Code" means the United States Internal Revenue Code of 1986,
as amended.
(j)"Company" means The Liposome Company, Inc., a Delaware
corporation (including any and all subsidiaries), or any
successor thereto as provided in Article 8 hereof.
(k)"Disability" means permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the
Chairman of the Board in the exercise of good faith and
reasonable judgment, upon receipt of and in reliance on
sufficient competent medical advice from one or more
individuals, selected by the Company, who are qualified to
give professional medical advice.
(l)"Effective Date" is January 22, 1998.
(m)"Effective Date of Termination" means the date on which a
Qualifying Termination occurs that triggers the payment of
Severance Benefits hereunder.
(n)"Exchange Act" means the United States Securities Exchange
Act of 1934, as amended.
(o)"Executive" means the individual named in the opening
paragraph of this Agreement.
(p)"Good Reason" means, without the Executive's express written
consent, the occurrence after a Change in Control of the
Company of any one or more of the following:
(i)The assignment of the Executive to duties materially
inconsistent with the Executive's authorities, duties,
responsibilities, and status (including titles and
reporting requirements) as an officer of the Company, or a
material reduction or alteration in the nature or status
of the Executive's authorities, duties, or
responsibilities from those in effect as of ninety (90)
days prior to the Change in Control, other than an
insubstantial and inadvertent act that is remedied by the
Company promptly after receipt of notice thereof given by
the Executive;
(ii) The Company's requiring the Executive to be based at
a location in excess of thirty-five (35) miles from the
location of the Executive's principal job location or
office immediately prior to the Change in Control; except
for required travel on the Company's business to an extent
substantially consistent with the Executive's present
business obligations;
(iii) A reduction by the Company of the Executive's Base
Salary as in effect on the Effective Date, or as the same
shall be increased from time to time;
(iv) Any failure by the Company to pay a bonus at least
equal to the average of the bonuses paid to the Executive
during the three years prior to his/her Effective Date of
Termination;
(v)The failure of the Company to maintain the Executive's
relative level of coverage under the Company's employee
benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the
Effective Date, both in terms of the amount of benefits
provided and the relative level of the Executive's
participation. For this purpose, the Company may
eliminate and/or modify existing programs and coverage
levels; provided, however, that the Executive's level of
coverage under all such programs must be at least as great
as is such coverage provided to executives who have the
same or lesser levels of reporting responsibilities within
the Company's organization;
(vi) The failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and
agree to perform the Company's obligations under this
Agreement, as contemplated in Article 8 hereof; and
(vii) Any purported termination by the Company of the
Executive's employment that is not effected pursuant to a
Notice of Termination satisfying the requirements of
Section 2.10 hereof, and for purposes of this Agreement,
no such purported termination shall be effective.
The Executive's right to terminate employment for Good Reason
shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued
employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good
Reason herein.
(q)"Person" has the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section
13(d).
(r)"Qualifying Termination" means any of the events described in
Section 2.2 hereof, the occurrence of which triggers the
payment of Severance Benefits hereunder.
(s)"Severance Benefits" means the payment of severance
compensation as provided in Section 2.3 hereof.
(t)"Total Payments" means the sum of the Executive's Severance
Benefits and all other payments and benefits provided to the
Executive by the Company that constitute "excess parachute
payments" within the meaning of Code Section 280G(b)(1).
Without limiting the generality of the foregoing, Total
Payments shall include any and all excess parachute payments
associated with outstanding long-term incentive grants (to
include, but not be limited to, early vesting of stock
options or restricted stock).
(u)"Window Period" means the time period commencing ninety (90)
days prior to a Change in Control, as defined in Section (g)
of this Article 1, and ending eighteen months after the
latter to occur of: (i) any of the events defined as a Change
in Control in Section 1(h); or (ii) final consummation of the
liquidation, sale or disposition of assets, or the merger,
consolidation or reorganization of the Company as described
in Section 1(h)(iii) and (iv).
ARTICLE 2. SEVERANCE BENEFITS
2.1. Right to Severance Benefits. The Executive shall be
entitled to receive from the Company Severance Benefits as
described in Section 2.3 hereof, if there has been a Change
in Control of the Company and if, within the Window Period,
the Executive's employment with the Company ends for any
reason specified in Section 2.2 hereof. The Executive shall
not be entitled to receive Severance Benefits if he/she is
terminated for Cause, or if his/her employment with the
Company ends due to death, Disability, retirement on or after
early retirement age (as defined under the then established
rules of the Company's tax-qualified retirement plan
applicable to the Executive), or due to a voluntary
termination of employment by the Executive without Good
Reason, or if he/she fails to comply with the conditions set
forth in Section 2.7 hereof.
2.2. Qualifying Termination. The occurrence of any one or
more of the following events within the Window Period shall
constitute a Qualifying Termination and shall trigger the
payment of Severance Benefits to the Executive under this
Agreement:
(a)An involuntary termination of the Executive's employment
by the Company for reasons other than Cause;
(b)A voluntary termination of employment by the Executive for
Good Reason;
(c)A successor company's failure or refusal to assume the
Company's obligations under this Agreement, as required by
Article 8 hereof; or
(d)The breach by the Company or any successor company of any
of the provisions of this Agreement.
2.3. Description of Severance Benefits. In the event that
the Executive becomes entitled to receive Severance Benefits,
as provided in this Article 2, the Company shall pay to the
Executive and provide him or her with the following:
(a)An amount equal to twelve (12) months' of the Executive's
annual Base Salary at the rate in effect at the
commencement of the Window Period or any higher rate that
may be in effect from that date until the Effective Date
of Termination;
(b)An amount equal to the Executive's average annual bonus
earned during the three (3) full fiscal years prior to the
Effective Date of Termination, or during such shorter
period as the Executive has received an annual bonus. For
a year in which any portion of the Executive's annual
bonus was paid in stock or other non-cash consideration,
the value of such stock or other non-cash consideration
will be included in calculating his/her average annual
bonus;
(c)A pro rata portion of the Executive's expected bonus for
the bonus plan year in which termination occurs (which
expected bonus will be at least equal to the Executive's
average annual bonus for the three prior bonus plan years,
determined as set forth in Subsection 2.3(b), or such
greater amount as the Board may determine is due), and
accrued salary and vacation pay through the Effective Date
of Termination;
(d)A continuation of all benefits pursuant to any and all
welfare benefit plans under which the Executive and/or the
Executive's family is eligible to receive benefits and/or
coverage, including, but not limited to, group life
insurance, hospitalization, disability, medical and dental
plans, at the same premium cost, and at the same coverage
level, as in effect as of the Executive's Effective Date
of Termination or as of the effective date of the Change
in Control, whichever the Executive may elect. The
welfare benefits described in this Subsection 2.3(d) shall
continue following the Effective Date of Termination for
twelve months; provided, however, that such benefits shall
be discontinued prior to the end of such period in the
event the Executive receives substantially similar
benefits from a subsequent employer;
(e)Reasonable Company-paid outplacement assistance,
commensurate with assistance normally provided to
executive-level personnel, for a period of up to twelve
(12) months following the Effective Date of Termination,
or for such longer period as the Company may agree;
(f)The immediate vesting and exercisability of all stock
options, restricted stock and other equity incentives
granted to the Executive that are not otherwise vested or
exercisable; and
(g)Any other accrued rights of the Executive.
2.4. Termination for Total and Permanent Disability.
Following a Change in Control of the Company, if the
Executive's employment is terminated due to Disability, the
Executive shall receive his or her Base Salary through the
Effective Date of Termination, at which point in time the
Executive's benefits shall be determined in accordance with
the Company's retirement, insurance, and other applicable
plans and programs then in effect.
2.5. Termination for Retirement or Death. Following a Change
in Control of the Company, if the Executive's employment is
terminated by reason of his or her retirement (as defined
under the then-established rules of the Company's tax-
qualified retirement plan), or death, the Executive's
benefits shall be determined in accordance with the Company's
retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
2.6. Termination for Cause or by the Executive Other Than for
Good Reason. Following a Change in Control of the Company,
if the Executive's employment is terminated either: (i) by
the Company for Cause; or (ii) by the Executive other than
for Good Reason, the Company shall pay the Executive his or
her full Base Salary and accrued vacation through the
Effective Date of Termination, at the rate then in effect,
plus any other amounts to which the Executive is entitled
under any compensation or benefit plans of the Company at the
time such payments are due, and the Company shall have no
further obligations to the Executive under this Agreement.
2.7. Conditions to Severance Benefits. As conditions of the
Executive's entitlement and continued entitlement to the
Severance Benefits provided in Section 2.3, the Executive is
required to (i) honor in accordance with their terms the
provisions of Section 2.8 and 2.9 hereof and the provisions
of the confidential information agreement signed by the
Executive at the beginning of his/her employment (the
"Employee Confidentiality Agreement"), and (ii) execute and
honor the terms of a waiver and release of claims against the
Company substantially in the form attached hereto as Exhibit
A (and as may be modified consistent with the purposes of
such waiver and release to reflect changes in the law
following the Effective Date). In the event that the
Executive fails to abide by the foregoing, all payments and
benefits to which the Executive may otherwise have been
entitled under Section 2.3 shall immediately terminate and be
forfeited, and the Executive shall be entitled to no
severance benefits in excess of those provided in the
Company's standard severance policy in effect as of the
Executive's Effective Date of Termination, and the Executive
shall repay to the Company any payment received that is in
excess of such amount. For purposes of this Section, the
Executive shall be treated as having failed to honor the
provisions of Sections 2.8 or 2.9 hereof or the provisions of
the Employee Confidentiality Agreement only following written
notice by the Company or its successor of the alleged failure
and an opportunity for the Executive to cure the alleged
failure for a period of thirty (30) days from the date of
such notice.
2.8. Services During Certain Events. In the event a Person
begins a tender or exchange offer, circulates a proxy to
shareholders of the Company, or takes other steps seeking to
effect a Change in Control, the Executive agrees that he or
she will not voluntarily leave the employ of the Company and
will render services until such Person has abandoned or
terminated his or its efforts to effect a Change in Control,
or until six (6) months after a Change in Control has
occurred; provided, however, that the Company may terminate
the Executive's employment for Cause at any time, and the
Executive may terminate his or her employment any time after
the Change in Control for Good Reason.
2.9. Non-Competition. The Executive shall not, either during
the term of his/her employment with the Company or for a
period of twelve months after a Qualifying Termination,
become affiliated with or conduct, directly or indirectly,
any business involved in the research, development,
manufacture or sale of lipids or liposomes, or products or
services which use natural or artificial lipids or liposomes
to encapsulate, enhance or deliver any drug product (a
"Competitor"); provided, however, that, after his/her
Effective Date of Termination, the Executive may become
affiliated with a non-competing subsidiary, division or other
business unit of a Competitor if the Executive's services are
provided only to such separate business unit, and the
Executive may become affiliated with an entity that provides
goods or services to a Competitor if the Executive does not
personally participate in the provision of goods or services
to the Competitor.
2.10. Notices. In the event of a transaction that would
constitute a Change of Control but for the provisions of
Section 1(h)(i)(A) or 1(h)(iii)(B) regarding contractual
restrictions on the acquiror, the Company will give written
notice to the Executive that no Change of Control has
occurred. Likewise, in the event that such contractual
restrictions are subsequently removed, the Company will give
written notice to the Executive that a Change of Control has
occurred or will occur as of the effective date of the
removal of such restrictions. Any termination by the Company
for Cause or by the Executive for Good Reason following a
Change of Control shall be communicated by Notice of
Termination to the other party. For purposes of this
Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated.
ARTICLE 3. FORM AND TIMING OF SEVERANCE BENEFITS
3.1. Form and Timing of Severance Benefits. The Severance
Benefits described in Sections 2.3(a), 2.3(b), 2.3(c),
2.3(e), and 2.3(f) hereof shall be paid in cash to the
Executive in a single lump sum as soon as practicable
following the Effective Date of Termination, but in no event
beyond thirty (30) days from such date. Any payment required
under this Section 3.1, or any other provision of this
Agreement, that is not made in a timely manner will bear
interest at a rate equal to one hundred twenty percent (120%)
of the applicable federal rate, as in effect under Section
1274(d) of the Code for the month in which the payment is
required to be made.
3.2. Withholding of Taxes. The Company shall be entitled to
withhold from any amounts payable under this Agreement all
taxes as legally shall be required (including, without
limitation, any United States Federal taxes, and any other
state, city, or local taxes).
ARTICLE 4. EXCISE TAX GROSS-UP
4.1Equalization Payment. In the event that the Executive
becomes entitled to Severance Benefits, if any of the
Executive's Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any
similar tax that may hereafter be imposed), the Company shall
pay to the Executive in cash an additional amount (the "Gross-
up Payment") such that the net amount retained by the
Executive after deduction of any Excise Tax on the Total
Payments and any federal, state, and local income tax and
Excise Tax upon the Gross-up Payment provided for by this
Section 4.1, shall be equal to the Total Payments. Such
payment shall be made by the Company to the Executive as soon
as practicable following the Effective Date of Termination,
but in no event beyond thirty (30) days from such date.
4.2Tax Computation. For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the
amounts of such Excise Tax:
(a)Any other payments or benefits received or to be received
by the Executive in connection with a Change in Control of
the Company or the Executive's termination of employment
(whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, or
with any Person whose actions result in a Change in
Control of the Company or any Person affiliated with the
Company or such Persons) shall be treated as "parachute
payments" within in the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject
to the excise tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and
acceptable to the Executive, such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the excise tax;
(b)The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Total Payments; or (ii) the
amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c)The value of any noncash benefits or any deferred payment
or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made, and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the
Executive's residence on the Effective Date of Termination,
net of the maximum reduction in Federal income taxes which
could be obtained from deduction of such state and local
taxes.
4.3Subsequent Recalculation. In the event the Internal Revenue
Service adjusts the computation of the Company under Section
4.2 hereof, so that the Executive did not receive the
greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive
whole, plus an appropriate market rate of interest, as
determined by the Company's independent auditors.
ARTICLE 5. THE COMPANY'S PAYMENT OBLIGATION
5.1Payment Obligations Absolute. The Company's obligation to
make the payments and the arrangements provided for herein
shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without limitation,
any offset, counterclaim, recoupment, defense, or other right
which the Company may have against the Executive or anyone
else, except those arising under this Agreement. All amounts
payable by the Company hereunder shall be paid without notice
or demand. Each and every payment made hereunder by the
Company shall be final, and the Company shall not seek to
recover all or any part of such payment from the Executive or
from whomsoever may be entitled thereto, for any reasons
whatsoever, except as provided in Section 2.7. The Executive
shall not be obligated to seek other employment in mitigation
of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of
the Company's obligations to make the payments and
arrangements required to be made under this Agreement, except
to the extent provided in Sections 2.3(d) and 2.9 hereof.
5.2Contractual Rights to Benefits. This Agreement establishes
and vests in the Executive a contractual right to the
benefits to which he or she is entitled hereunder. However,
nothing herein contained shall require or be deemed to
require, or prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or other
assets, in trust or otherwise, to provide for any payments to
be made or required hereunder.
ARTICLE 6. TERM OF AGREEMENT
This Agreement will commence on the Effective Date and will
terminate on January 22, 2003; provided however that this
Agreement will be extended automatically for one (1) additional
year at the end of this initial term and at the end of each
additional year thereafter, unless the Chairman of the Board
delivers written notice twelve (12) months prior to the end of
such term, or extended term, to the Executive, that the Agreement
will not be extended. In such case, the Agreement will terminate
at the end of the term, or extended term, then in progress.
However, in the event a Change in Control occurs during the
original or any extended term, this Agreement will remain in
effect for the longer of: (i) the duration of the Window Period;
or (ii) until all obligations of the Company hereunder have been
fulfilled, and until all benefits required hereunder have been
paid to the Executive.
ARTICLE 7. LEGAL REMEDIES
7.1Payment of Legal Fees. To the extent permitted by law, the
Company shall pay all legal fees, costs, including costs of
litigation, prejudgment interest, and other expenses,
incurred in good faith by the Executive as a result of the
Company's wrongful refusal to provide the Severance Benefits
to which the Executive becomes entitled under this Agreement,
or as a result of the Company's unsuccessfully contesting the
validity, enforceability, or interpretation of this
Agreement, or as a result of any conflict between the parties
pertaining to this Agreement in which the Executive is the
prevailing party, or which is settled prior to the entry of a
final judgment from which no appeal can be taken.
7.2Arbitration. The Executive shall have the right and option
to elect (in lieu of litigation) to have any dispute or
controversy arising under or in connection with this
Agreement settled by final and binding arbitration, conducted
before a panel of three (3) arbitrators sitting in a location
selected by the Executive within fifty (50) miles from the
location of his or her job with the Company, in accordance
with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the award of the
arbitrator in any court having proper jurisdiction. All
expenses of any such arbitration in which the Executive is
the prevailing party, as determined by the arbitrators,
including the fees and expenses of the counsel for the
Executive, shall be borne by the Company.
ARTICLE 8. SUCCESSORS
8.1Assumption of Company's Obligations. The Company will
require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the
Company to expressly assume and agree to perform the
Company's obligations under this Agreement in the same manner
and to the same extent that the Company would be required to
perform them if no such succession had taken place. Failure
of the Company to obtain such assumption and agreement prior
to the effective date of any such succession shall entitle
the Executive to compensation from the Company in the same
amount and on the same terms as he or she would be entitled
to hereunder if he or she had terminated his or her
employment with the Company voluntarily for Good Reason. The
date on which any such succession becomes effective shall be
deemed the Effective Date of Termination.
8.2Payment to Beneficiary. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors,
heirs, distributees, devisees, and legatees. If the
Executive should die while any amount would still be payable
to him or her hereunder had he or she continued to live, all
such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement, to the
Executive's Beneficiary. If the Executive has not named a
Beneficiary, then such amounts shall be paid to the
Executive's devisee, legatee, or other designee, or if there
is no such designee, to the Executive's estate.
ARTICLE 9. INDEMNIFICATION
9.1Prior Agreement. The Indemnification Agreement previously
entered into between the Executive and the Company is hereby
reaffirmed and is not in any way canceled, superseded,
modified, or amended by this Agreement, and such
Indemnification Agreement shall remain in effect after a
Change in Control and after the Executive's Effective Date of
Termination and shall be binding on the Company and any of
its successors according to its terms.
9.2Additional Commitments. Without limiting the parties' rights
and obligations set forth in the above-referenced
Indemnification Agreement, and in addition thereto, the
Company shall indemnify the Executive to the fullest extent
permitted by applicable law, and the Company (or its
successor) shall maintain in full force and effect, for the
duration of all applicable statute of limitation periods,
insurance policies at least as favorable to the Executive as
those maintained by the Company for the benefit of its
directors and officers at the time of the Change in Control,
with respect to all costs, charges and expenses whatsoever
(including payment of expenses in advance of final
disposition of a proceeding) incurred or sustained by the
Executive in connection with any action, suit or proceeding
to which he/she may be made a party by reason of being or
having been a director, officer or employee of the Company.
ARTICLE 10. MISCELLANEOUS
10.1 Employment Status. The Executive and the Company
acknowledge that, except as may be provided under any other
agreement between the Executive and the Company, the
employment of the Executive by the Company is "at will," and,
prior to the effective date of a Change in Control, may be
terminated by either the Executive or the Company at any
time, subject to applicable law. Upon a termination of the
Executive's employment prior to the effective date of a
Change in Control, there shall be no further rights under
this Agreement; provided, however, that if such an employment
termination shall occur within ninety (90) days prior to a
Change in Control, then the Executive's rights shall be the
same as if the termination had occurred within eighteen (18)
months following a Change in Control.
10.2 Designation of Beneficiaries. The Executive may
designate one or more persons or entities as the primary
and/or contingent Beneficiaries of any Severance Benefits
owing to the Executive under this Agreement. Such
designation must be in the form of a signed writing
acceptable to the Chairman of the Board. The Executive may
make or change such designation at any time.
10.3 Confidentiality of this Agreement. The Executive shall
treat the terms and conditions of this Agreement as
confidential information subject to the provisions of his/her
Employee Confidentiality Agreement, except that the Executive
may disclose them on a privileged and confidential basis to
his/her legal counsel.
10.4 Entire Agreement. This Agreement, together with the
Indemnification Agreement referred to in Section 9.1, contain
the entire understanding of the Company and the Executive
with respect to the subject matter hereof.
10.5 Severability. In the event any provision of this
Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining
parts of the Agreement, and the Agreement shall be construed
and enforced as if the illegal or invalid provision had not
been included. Further, the captions of this Agreement are
not part of the provisions hereof and shall have no force and
effect.
10.6 Modification. No provision of this Agreement may be
modified, waived, or discharged unless such modification,
waiver, or discharge is agreed to in writing and signed by
the Executive and by an authorized representative of the
Company, or by the respective parties' legal representatives
and successors.
10.7 Applicable Law. To the extent not preempted by the laws
of the United States, the laws of the state of New Jersey shall
be the controlling law in all matters relating to this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of this 22nd day of January, 1998.
THE LIPOSOME COMPANY, INC. EXECUTIVE
By:
Charles A. Baker
Chairman of the Board, President and
Chief Executive Officer
EXHIBIT A
GENERAL RELEASE AND COVENANT NOT TO SUE
THIS AGREEMENT AFFECTS IMPORTANT LEGAL RIGHTS. TAKE IT HOME AND
READ IT CAREFULLY BEFORE YOU SIGN IT. YOU ARE ENCOURAGED TO
CONSULT AN ATTORNEY OF YOUR CHOICE TO REVIEW THE DOCUMENT.
This is an Agreement between The Liposome Company, Inc., and
First_Name Last_Name. In the remainder of this document,
First_Name Last_Name will be called the "Executive" and The
Liposome Company, Inc., will be called the "Company".
IN CONSIDERATION OF the severance benefits to be provided by
the Company under the Executive Severance Agreement dated January
22, 1998 (the "Severance Agreement"), the Executive hereby agrees
as follows:
1. The General Release Provided by the Executive
The Executive agrees to release the Company, its officers,
employees and directors, from all claims or demands the Executive
may have based on the Executive's employment with the Company.
This General Release includes a release of claims of which the
Executive is unaware and of claims that are not specifically
identified below. The claims released by the Executive include,
but are not limited to, claims arising under:
(1) The Constitution of the United States;
(2) The Age Discrimination in Employment Act of 1967, as
amended, 29 U.S.C.
621 et seq., which prohibits age discrimination in
employment;
(3) Title VII of the Civil Rights Act of 1964, as amended,
42 U.S.C. 2000(e) et seq., which prohibits
discrimination in employment based on race, color,
national origin, religion or sex;
(4) The Civil Rights Act of 1866, 42 U.S.C. 1981 et seq.;
(5) The Equal Pay Act, which prohibits paying men and women
unequal pay for equal work;
(6) Any other federal, state or local law or regulation
prohibiting employment discrimination;
(7) The Employee Retirement Income Security Act, 29 U.S.C.
10001 et seq.;
(8) Executive Orders 11246 and 11141;
(9) The Americans with Disabilities Act of 1990, 42 U.S.C.
12101 et seq.;
(10) The Family and Medical Leave Act., 29 U.S.C. 2601 et
seq.;
(11) The New Jersey Family Leave Act, N.J.S.A. 34:11B-1 et
seq.;
(12) The Constitution of the State of New Jersey
(13) The New Jersey Law Against Discrimination, N.J.S.A.
10:5-1 et seq.;
(14) The Conscientious Employee Protection Act., N.J.S.A.
34:19-2 et seq.;
(15) Any express or implied contracts with the Company;
(16) Any federal or state Common Law and any federal, state
or local statutes, ordinances and regulations.
This General Release also includes a release by the Executive of
any claims for wrongful discharge and/or defamation arising out
of employment or otherwise.
By signing this Agreement, the Executive waives any right the
Executive has or ever had to bring or maintain any claim or
action in law or in equity against the Company involving any
matter arising prior to the signing of this Agreement. This
General Release does not include, however, a release of (a) the
Executive's right, if any, to pension, retiree, health or similar
benefits under the Company's existing plans; (b) the Executive's
rights under the Severance Agreement; (c) the Executive's rights
under his/her indemnification agreement with the Company, or (d)
the Executive's right to claim COBRA benefits, if any, under
applicable law.
2. The Executive Does Not Release Future Claims
This Agreement does not require the Executive to waive or release
any rights or claims arising out of events that take place after
the Effective Date of this Agreement.
3. The Executive Retains Certain Administrative Rights
This Agreement does not require the Executive to waive or release
the right to file a charge or participate in a proceeding before
the Equal Employment Opportunity Commission; provided, however,
that the Executive does give up the right to recover damages from
such a proceeding.
4. Consequences of Initiating an Action Released by this
Agreement
In the event the Executive initiates any legal action
inconsistent with the General Release provided in this Agreement,
the Company shall be released from further obligation under the
Severance Agreement. The Executive agrees that, prior to
proceeding with any claim or legal action released by this
Agreement, the Executive shall return all additional severance
benefits received under the Severance Agreement. The Executive
further agrees that the repayment of those benefits shall not
revoke the General Release, but is rather a condition the
Executive must satisfy before seeking its revocation. The
Executive agrees that if the legal action is withdrawn,
dismissed, or otherwise unsuccessful, the Executive shall
reimburse the Company, and any of its officers, directors or
employees, for all costs, including attorneys' fees, incurred as
a consequence of the Executive's legal action.
5. The Company Admits No Liability to the Executive
The use of this Agreement by the Company does not signify any
admission of wrongdoing by the Company.
6. The Date on Which this Agreement Becomes Effective
This Agreement will not become effective or enforceable until the
later of (a) the eighth day following the date the Executive
signs it or (b) the day it is signed by the Company. In this
Agreement, the date on which this Agreement becomes effective is
called the "Effective Date".
7. The Executive Has 21 Days to Review this Agreement
The Executive acknowledges that he or she has twenty-one (21)
days after receiving this Agreement to review and consider it.
The Executive may accept the terms of this Agreement at any time
during the review period by signing, notarizing and returning it
to The Liposome Company, Inc., One Research Way, Princeton, New
Jersey 08540. The period in which the Company is required to
make payment of severance benefits under Section 3.1 of the
Severance Agreement will not begin until the Company receives a
signed copy of this Agreement, but the Executive's Effective Date
of Termination for purposes of the Severance Agreement will not
be postponed during such review period.
8. The Executive Is Encouraged to Consult an Attorney
The Executive is encouraged to consult with an attorney before
signing this Agreement. The Executive understands that whether
or not to do so is the Executive's decision.
9. The Executive Has the Right to Revoke this Agreement
The Executive may revoke this Agreement within seven (7) days
after signing it. If this Agreement is not revoked within such
seven (7) days, it becomes effective on the eight (8th) day. If
the Executive wishes to revoke this Agreement, the Executive must
deliver a written Notice of Revocation to The Liposome Company,
Inc., One Research Way, Princeton, NJ 08540. The Notice of
Revocation will not be effective unless it is received by the
Company no later than 5:00 P.M. on the seventh (7th) day after
the Executive signs this Agreement. If the Executive fails to
sign this Agreement or revokes this Agreement, it shall not be
effective or enforceable, and the Executive will not receive the
additional severance benefits provided by the Severance
Agreement.
10. New Jersey Law Applies to this Agreement
The Executive and the Company agree that this Agreement and any
interpretation of it shall be governed by the laws of the State
of New Jersey to the extent not inconsistent with the Employee
Retirement Income Security Act of 1974, and that this Agreement
shall be enforceable in the Superior Court of New Jersey.
THE EXECUTIVE ACKNOWLEDGES THAT HE/SHE HAS READ THIS AGREEMENT,
UNDERSTANDS IT, AND IS VOLUNTARILY ENTERING INTO IT. THE
EXECUTIVE FURTHER ACKNOWLEDGES THAT THE COMPANY HAS PROVIDED THE
EXECUTIVE A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW THIS
AGREEMENT WITH THE ADVICE OF COUNSEL SHOULD THE EXECUTIVE SO
CHOOSE.
____________________________
Signed and sworn before me this
______ day of ____________________, ____
__________________________________
NOTARY PUBLIC
Received and Accepted by The Liposome
Company, Inc.
By:
___________________________________________
Title:
___________________________________________
Date:
___________________________________________
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