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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-22332
INSITE VISION INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-3015807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
965 Atlantic Avenue
Alameda, CA 94501
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (510) 865-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock, $.01 par value, held by
non-affiliates of the registrant as of March 26, 1999: $15,008,759 (based upon
the closing sale price of the Common Stock on March 26, 1999). Number of shares
of Common Stock, $.01 par value, outstanding as of March 26, 1999: 18,781,528.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the Common Stock have been excluded from such calculation as
such persons may be deemed affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the following document are incorporated by
reference into this Report on Form 10-K where indicated: portions of the Proxy
Statement for the registrant's 1999 Annual Meeting of Stockholders which is
estimated to be held on or about June 7, 1999 are incorporated by reference into
Part III.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PART I
Item 1. Business................................................................. 1
Item 2. Properties............................................................... 20
Item 3. Legal Proceedings........................................................ 20
Item 4. Submission of Matters to a Vote of Security Holders...................... 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 20
Item 6. Selected Financial Data.................................................. 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 23
Item 7a. Qualitative and Quantitative Disclosures About Market Risk............... 26
Item 8. Financial Statements and Supplementary Data.............................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 40
PART III
Item 10 Directors and Executive Officers of the Registrant....................... 40
Item 11. Executive Compensation................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 40
Item 13. Certain Relationships and Related Transactions........................... 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 40
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the discussion
in this Annual Report on Form 10-K may contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this document should be read as applicable to all related
forward-looking statements wherever they appear in this document. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include those discussed below in
"Risk Factors," as well as those discussed elsewhere herein.
THE COMPANY
InSite Vision Incorporated ("InSite," "InSite Vision" or the "Company")
is an ophthalmic product development company focused on genetic research for
diagnosis and prognosis of glaucoma and glaucoma treatments using its
proprietary DuraSite(R) technology.
Glaucoma Genetics. The Company's glaucoma genetics program, which is
being carried out in collaboration with academic researchers, is focused on
discovering genes that are associated with glaucoma, and the mutations on these
genes that cause the disease. This genetic information then may be applied to
develop new glaucoma diagnostic, prognostic and management tools. To date, the
Company's academic collaborators have identified genes associated with primary
open-angle glaucoma (the most prevalent form of the disease in adults), juvenile
glaucoma and primary congenital glaucoma. A prototype diagnostic/prognostic
technology, ISV-900, which is capable of identifying multiple glaucoma genetic
markers from a single sample, has been developed and the Company is discussing
its commercialization with several potential partners. The Company's academic
collaborators for its glaucoma genetics program are at the University of
California, San Francisco ("UCSF"), the University of Connecticut Health Center
("UCHC") and other institutions in North America and Europe.
DuraSite-Based Product and Candidates. The DuraSite delivery system is a
patented eyedrop formulation comprising a cross-linked carboxyl-containing
polymer which incorporates the drug to be delivered to the eye. The formulation
is instilled in the cul-de-sac of the eye as a small volume eyedrop and remains
in the eye for up to several hours during which time the active drug ingredient
is gradually released. This increased residence time is designed to permit lower
concentrations of a drug to be administered over a longer period of time,
thereby minimizing the inconvenience of frequent dosing and reducing potential
related adverse side effects. Eyedrops delivered in the DuraSite system contrast
to conventional eyedrops which typically only last a few minutes in the eye,
thus requiring delivery of a highly concentrated burst of drug and frequent
administration to sustain therapeutic levels. DuraSite can be customized to
deliver a variety of compounds with a broad range of molecular weights and other
properties.
The first product utilizing the DuraSite technology, AquaSite(R) dry eye
treatment, was launched as an over-the-counter ("OTC") medication in 1992 by
CIBA Vision Ophthalmics ("CIBA Vision"), to which the Company has licensed
certain co-exclusive rights. In connection with its DuraSite development
efforts, the Company has established collaborations with Pharmacia & Upjohn,
Inc. ("P&U") and British Biotechnology Pharmaceuticals, Inc. ("British
Biotech"), among others and has licensed marketing rights to certain
DuraSite-based product candidates to P&U, CIBA Vision and Bausch & Lomb
Incorporated ("B&L").
In January 1999, the Company entered into a license agreement and stock
purchase agreement with P&U for the exclusive worldwide rights to ISV-205 for
glaucoma. (See "--Collaborative and Licensing Agreements" for additional
information on the agreements.) In an effort to expedite the development of
ISV-205, and meet certain milestones in the agreement, the Company is currently
focusing its DuraSite related research on the development of ISV-205 which is in
Phase II testing.
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Due to the continued development of the glaucoma genetics and treatment
programs, during 1998 the Company elected to utilize additional resources in
this area rather than to continue the internal development of its other
DuraSite-based product candidates and its retinal drug delivery system at this
time. Accordingly, the Company has deferred further development of its ISV-120
product candidate. Additionally, the Company has determined it will not continue
to pursue ISV-611, its product candidate for allergic conjunctivitis at this
time.
Business Strategy. The Company's business strategy is to license
promising product candidates and technologies from academic institutions and
other companies, to conduct preclinical and limited clinical testing, if
necessary, and to partner with pharmaceutical companies to complete clinical
development and regulatory filings as needed and to market its products. The
Company also has internally developed DuraSite-based product candidates using
either non-proprietary drugs or compounds developed by others for non-ophthalmic
indications. As with in-licensed product candidates, the Company either has or
plans to partner with pharmaceutical companies to complete clinical development
and commercialization of its own product candidates.
OPHTHALMIC PHARMACEUTICAL MARKET
In 1998, the market for ophthalmic prescription pharmaceuticals in the
U.S. was approximately $1.4 billion. The principal categories of ophthalmic
drugs are glaucoma treatments ($566 million), anti-biotics ($237 million),
anti-allergic ($203 million), and anti-viral ($186 million) products. However
many eye conditions, including those that involve damage to the retina, are
untreated at present. For example, macular degeneration, which affects 10
million or more people in the U.S., and diabetic retinopathy, a frequent
complication of diabetes, have no effective drug treatments and surgical
interventions for these diseases carry risks of significant side effects.
Glaucoma is the leading cause of preventable blindness in the U.S.,
affecting two to three million people. It is estimated that 67 million people
worldwide will have glaucoma by the year 2000. The prevalence of the disease in
first-degree relatives of affected patients has been documented to be as high as
seven to ten times that of the general population. Glaucoma also may occur as a
complication of conditions such as diabetes, or as a result of extended steroid
use.
The prevalence of eye disease is ten times greater in persons over the
age of 65 than under age 65, and the U.S. Census Bureau projects that the U.S.
population over age 65 will increase from 34 million in 1997 to approximately 69
million by the year 2030. This aging of the population in the U.S. and other
developed countries is a significant factor that the Company believes will
contribute to increased demand for new ophthalmic products.
In addition to changing demographics, the Company believes that recent
improvements in medical technology, such as increasingly sophisticated
diagnostic techniques, will allow identification of ocular diseases at an
earlier stage, enabling more effective treatments and expanding the range of
treatment regimens available to the ophthalmologist. Further, the Company
believes that the recent emergence of new laser-based procedures to correct
certain vision problems may substantially increase the need for comfortable,
extended-release drug therapy during the post-surgical ocular healing process.
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PRODUCTS AND PRODUCT CANDIDATES
The following table summarizes the current status of the Company's
principal products and product candidates. A more detailed description of each
product and product candidate follows the table. There can be no assurance that
any of the listed products or product candidates will progress beyond its
current state of development, receive necessary regulatory approval or be
successfully marketed.
PRODUCTS AND PRODUCT CANDIDATES
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ANTICIPATED
PRODUCT INDICATIONS BENEFITS STATUS(1)
GLAUCOMA GENETICS
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ISV - 900 Glaucoma Detect disease Pre-commercialization(2)
prognostic/ susceptibility
diagnostic
GLAUCOMA PRODUCT
CANDIDATES
ISV - 205 Steroid-induced Treat/prevent disease Phase II
IOP elevation, progression
glaucoma
ISV - 208 Glaucoma Once daily product with Phase I/II(3)
improved comfort
OTHER TOPICAL PRODUCT
AND PRODUCT CANDIDATES
AquaSite Dry eye Reduced dosing Marketed (OTC)
frequency and extended
duration of action
ISV - 120 Pterygium No satisfactory Phase II(3)
recurrence existing therapy
prevention
ISV - 205 Inflammation and Reduced dosing frequency Preclinical
analgesia
RETINAL DEVICE AND
PRODUCT
ISV - 014 Retinal drug Non-surgical delivery Research
delivery device of drugs to the retina
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(1) All products except ISV-900, AquaSite and ISV-014 are expected to be
prescription pharmaceuticals. As denoted in the table, "Preclinical"
indicates that a specific compound is being tested in preclinical studies in
preparation for filing an investigational new drug application ("IND"). For
a description of preclinical trials, IND, Phase I, Phase II and Phase III
clinical trials and NDA, see "--Government Regulation."
(2) A prototype diagnostic/prognostic technology has been developed and the
Company is discussing its commercialization with several potential partners.
(3) Current research and development and clinical activities on these products
are being deferred as resources are focused on ISV-900 and ISV-205.
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GLAUCOMA GENETICS
Glaucoma is the leading cause of preventable blindness in the U.S.,
affecting an estimated two to three million people. Glaucoma-related
pharmaceutical sales were approximately $560 million in the U.S. in 1998. The
most prevalent form of glaucoma in adults is primary open-angle glaucoma. Other
forms of the disease include primary congenital glaucoma, a leading cause of
blindness in infants, and juvenile glaucoma that effects children and young
adults.
Often called the "sneak thief of sight" because of its lack of symptoms,
glaucoma is believed to result when the flow of fluid through the eye is
impaired. This may lead to elevated intraocular pressure ("IOP"), which
increases pressure on the optic nerve and can cause irreversible vision loss if
left untreated. One form of glaucoma is associated with individuals who have
normal eye pressure. It is estimated that one-third of the U.S. glaucoma
patients and three-quarters of the glaucoma patients in Japan have this form of
the disease. These patients cannot be identified with standard glaucoma
screening tests that only measure a patient's eye pressure and usually incur
visual field loss before they are diagnosed.
ISV-900. There is accumulating evidence that genetic predisposition is
a major factor in the development of several forms of glaucoma. (Recent data has
indicated the prevalence of primary open-angle glaucoma ("POAG") in first-degree
relatives of affected patients to be as high as 7 to 10 times that of the
general population.) InSite Vision has formed research collaborations with
scientists at institutions located in North America, Europe and Japan both to
identify the genes associated with different forms of glaucoma and to build a
database of information on how these genes affect the progression of the disease
in different populations.
Current glaucoma tests are generally unable to detect the disease before
substantial damage to the optic nerve has occurred. Gene-based tests may make it
possible to identify patients at risk and initiate treatment before permanent
optic nerve damage and vision loss occurs. The Company's ISV-900 program is
intended to discover the appropriate genetic markers for certain forms of
glaucoma and to incorporate those markers into prognostic, diagnostic and
management tools.
The Company's researchers have identified several genes related to POAG
including TIGR, GLC1B, GLC1D and GLC1E. Additionally, the CYP1B1 gene has been
identified which is related to primary congenital glaucoma ("PCG"). The Company
has obtained exclusive worldwide licenses for the rights to commercialize
research related to the TIGR gene and associated mutations from the Regents of
the University of California ("UC Regents") and the CYP1B1 gene and associated
mutations from UCHC. The Company also holds an option to an exclusive worldwide
license for the GLC1B, GLC1D and GLC1E genes.
InSite Vision currently holds patents issued on the TIGR cDNA, the TIGR
antibody, methods for the diagnosis of glaucoma using the TIGR technology and
methods for the diagnosis of glaucoma using the CYP1B1 technology. Additional
patents related to ISV-900 are currently pending.
GLAUCOMA CANDIDATES
ISV-205. InSite Vision's ISV-205 product candidate contains the drug
diclofenac formulated in the DuraSite sustained-release delivery vehicle.
Diclofenac is a non-steroidal anti-inflammatory drug ("NSAID") currently used to
treat ocular inflammation. NSAIDs can block steroid-induced IOP elevation by
inhibiting the production of the TIGR protein that appears to affect the fluid
balance in the eye. The ISV-205 product candidate contains concentrations of
diclofenac which have been shown in cell and organ culture systems to inhibit
the production of the TIGR protein.
A Phase II clinical study was started in 1998 to evaluate the efficacy
of two concentrations of diclofenac. Results of this study are currently
anticipated to be released by the third quarter of 1999. The initial indication
being studied is the prevention of IOP elevation following steroid use. Other
potential indications may include glaucoma prevention, analgesia and other
anti-inflammatory indications. Co-exclusive rights, in the U.S., to develop,
manufacture, use and sell ISV-205 to treat inflammation and infection or
analgesia, were licensed to CIBA Vision in May 1996.
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In January 1999, the Company entered into an exclusive worldwide
royalty-bearing license agreement with P&U for ISV-205 for glaucoma. The license
provides for research and development payments to be made to the Company by P&U
and for P&U to assume responsibility for the development of the product upon
completion of the Phase II study currently being conducted by the Company. P&U
also made an equity investment in the Company and may make additional future
equity investments if certain project milestones are achieved. See
"--Collaborative and Licensing Agreements" for additional information on the
agreement.
ISV-208. During 1996, the Company entered into an agreement with B&L to
develop a DuraSite-based formulation of an ophthalmic beta-blocker for the
once-daily treatment of elevated IOP associated with glaucoma and ocular
hypertension. Under the terms of the agreement, B&L obtained worldwide exclusive
rights to manufacture, use and sell the new formulation. During 1998 a Phase
I/II clinical study was completed with positive results. Current activity on
this project is being deferred as resources are focused on ISV-900 and ISV-205.
OTHER TOPICAL PRODUCT AND PRODUCT CANDIDATES
AquaSite. The first product utilizing InSite's DuraSite technology was
introduced to the OTC market in the U.S. in October 1992 by CIBA Vision. The
Company receives a royalty on sales of AquaSite by CIBA Vision. The product
contains the DuraSite formulation and demulcents for the symptomatic treatment
of dry eye. In March 1999, the Company licensed the product to Global Damon
Pharm, a Korean company. The license is royalty-bearing and is exclusive in the
Republic of Korea for up to a 10 year period.
ISV-120 is a DuraSite-based ophthalmic formulation of batimastat that
the Company is evaluating for its potential in preventing the recurrence of
pterygium, a vascular overgrowth that occurs on the front of the eye and may
impair vision. The Company obtains batimastat, the active ingredient of ISV-120,
through a 1992 agreement with British Biotech, which in December 1996 advised
the Company that it had discontinued development and manufacturing of this
product. See "Risk Factors - Dependence on Third Parties." Current activity on
this project is being deferred as resources are focused on ISV-900 and ISV-205.
RETINAL DEVICE AND PRODUCT
Retinal Delivery System. Another technology platform is comprised of a
device, ISV-014, for the controlled, non-surgical delivery of ophthalmic drugs
to the retina and surrounding tissues. During 1998 the Company conducted reviews
of the device by ophthalmic surgeons which resulted in the development of a
revised device which no longer uses a cannular delivery system licensed from the
University of Rochester ("U. Roch.") in 1997. The combination of this revised
device technology with polymer-based drug platforms may permit long term
delivery of therapeutic agents to treat several retinal diseases, most of which
cannot be effectively treated at the present time.
Ophthalmic conditions that involve retinal damage include macular
degeneration, which affects 10 million or more people in the U.S., and diabetic
retinopathy, a common side effect of diabetes. Approximately nine million people
in the U.S. are diabetics. Both macular degeneration and diabetic retinopathy
can lead to irreversible vision loss and blindness. Current treatment of retinal
diseases generally involves surgery and laser treatments that can lead to loss
of vision, retinal detachment and infection. There is no effective drug therapy
for these conditions.
ISV-014 is a device for the controlled, non-surgical delivery of
ophthalmic drugs to the back of the globe. The device consists of a handle with
a distal platform that is placed against the surface of the eye. A small needle
connected to a drug reservoir is extended from the platform into the tissues of
the eye. Once in place, a metering mechanism controls the amount and rate that
the drug is injected into the tissue. This produces a highly localized depot of
drug inside the ocular tissues. By controlling both the distance and
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direction that the needle protrudes, the device greatly reduces the chance that
the needle will penetrate through the sclera of the eye into the underlying
tissues, which are easily damaged. The Company has filed for two patents related
to the device and its use. The Company is currently investigating licensing this
technology to a third party.
COLLABORATIVE AND LICENSING AGREEMENTS
As a key element of its business strategy, the Company has entered into,
and will continue to pursue additional research collaborations, licensing
agreements and corporate collaborations. However, there can be no assurance that
the Company will be able to negotiate acceptable collaborative or licensing
agreements, or that its existing collaborative agreements will be successful or
will be renewed when they expire.
Pharmacia & Upjohn. On January 28, 1999, the Company entered into a
license agreement and stock purchase agreement pursuant to which InSite granted
P&U an exclusive worldwide license to ISV-205 for the treatment of glaucoma. The
license calls for (i) P&U to assume responsibility for the development of the
product upon completion by InSite of, among other activities, Phase II studies
currently being conducted by the Company, (ii) P&U to reimburse InSite for
certain research and development expenses and make payments to InSite for
on-going technical support, and (iii) the payment by P&U to InSite of royalties
on product sales should ISV-205 be successfully commercialized. InSite will
continue to bear responsibility for the prosecution and maintenance of the
patents subject to the license, among other things. The transaction also called
for an equity investment from P&U with the potential for future equity
investments at an average of prevailing market prices, if the Company achieves
certain milestones.
CIBA Vision Ophthalmics (CIBA Vision). The Company has entered into
license agreements with CIBA Vision (the "CIBA Vision Agreements"), pursuant to
which the Company granted CIBA Vision a co-exclusive license to manufacture,
have manufactured, use and sell fluorometholone and tear replenishment products
utilizing the DuraSite technology in the U.S. and Canada, ToPreSite, a product
candidate for ocular inflammation/infection, and ISV-205 for non-glaucoma
indications.
Bausch and Lomb. In July 1996, the Company entered into a license
agreement ("the B&L Agreement") with B&L whereby InSite granted B&L an exclusive
worldwide royalty bearing license to make, use and sell PilaSite and ISV-208.
B&L paid InSite an up-front license fee of $500,000 and is obligated to pay
royalties on net sales of the licensed products. In addition, B&L made a $2.0
million investment in the Company, is sharing the cost of developing ISV-208 and
agreed to manufacture other InSite products, on behalf of InSite.
British Biotech. In November 1992, InSite entered into a collaboration
agreement with British Biotech (the "ISV-120 Agreement"), pursuant to which
British Biotech has granted InSite the right to conduct, at InSite's own
expense, preclinical and clinical trials on British Biotech's batimastat
compound and the exclusive option to initiate negotiations with British Biotech
to pursue further development of ISV-120. In December 1996 British Biotech
advised the Company that it had discontinued its development and manufacturing
of this product. Subject to certain rights of early termination, the ISV-120
Agreement will continue until the earlier of a specified period following
completion of InSite's last human clinical trial on the compound or June 30,
1998. The Company is currently in negotiations with British Biotech to extend
the ISV-120 Agreement.
UC Regents. In March 1993, the Company entered into an exclusive license
agreement with the UC Regents for the development of ISV-205 and, in August
1994, the parties entered into another exclusive license agreement for the use
of a nucleic acid sequence that codes for a protein associated with glaucoma.
Under both agreements, the Company paid initial licensing fees and will make
royalty payments to the UC Regents on future product sales, if any.
University of Connecticut Health Center ("UCHC"). In August 1997 the
Company exercised its option to obtain an exclusive worldwide license from UCHC
for diagnostic uses of the newly discovered
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gene for primary congenital glaucoma. The Company also has an option for a
worldwide exclusive license to commercialize technologies related to certain
research UCHC is conducting in the area of Adult-Onset Primary Open Angle
Glaucoma. Under the agreements, the Company will pay a licensing fee and will
make royalty payments on future product sales, if any.
Columbia Laboratories, Inc. In February 1992, InSite entered into a
cross-license agreement (the "Columbia Agreement") with Columbia Laboratories,
Inc. ("Columbia"), pursuant to which Columbia granted InSite a perpetual,
exclusive, irrevocable, royalty-free license to a polymer technology upon which
DuraSite is based. This license permits InSite to make, use and sell products
using such polymer technology for non-veterinary ophthalmic indications in the
OTC and prescription market in North America and East Asia (the "Columbia
Territory"), and in the prescription market in countries outside the Columbia
Territory. In exchange, InSite granted Columbia a perpetual, exclusive,
irrevocable, royalty-free license, with the right to sublicense and use certain
DuraSite technology in the OTC market outside the Columbia Territory. In
addition, InSite also granted Columbia a perpetual, exclusive, irrevocable,
worldwide license to certain DuraSite technology in the veterinary field. Under
certain circumstances, certain of the licenses in the Columbia Agreement become
non-exclusive. Subject to certain rights of early termination, the Columbia
Agreement continues in effect until the later of January 2002 or expiration of
all patents covered by the DuraSite technology to which Columbia has certain
rights.
Global Damon Pharm ("Global Damon") and Kukje Pharma Ind. Co., Ltd.
("Kukje"). In March 1999 the Company entered into a royalty-bearing licensing
agreement with Global Damon, a Korean company, to be the exclusive distributor
of AquaSite in the Republic of Korea. Concurrently, the Company entered into a
manufacturing agreement with Kukje, a Korean company, to produce the AquaSite to
be sold by Global Damon.
Other. As part of InSite's basic strategy, InSite continually discusses
entering into agreements with other companies, universities and research
institutions concerning the licensing of additional therapeutic agents and drug
delivery technologies to complement and expand InSite's family of proprietary
ophthalmic products. InSite intends to continue exploring licensing and
collaborative opportunities.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are important to the Company's
business. The Company's policy is to file patent applications seeking to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. Additionally, the Company's policy
is to assist the UC Regents and UCHC in filing patent applications seeking to
protect inventions which are the subject of the Company's agreements with those
institutions. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. InSite's DuraSite drug delivery products are made
under patents and applications, including four U.S. patents, owned by Columbia
and exclusively licensed to InSite in the field of human ophthalmic
applications. See "--Collaborative and Licensing Agreements." In addition, the
Company has filed a number of patent applications in the U.S. relating to the
Company's DuraSite technology, as well as foreign versions of certain of these
applications in many countries. Of these applications, six U.S. patents have
been issued. In addition, the Company has obtained two U.S. patents on its unit
dose dispenser. The Company has received six additional U.S. patents directed
toward certain uses of lazaroids in ophthalmic applications. Of the patent
applications licensed from the UC Regents, eight patents have issued. One patent
has been issued of the patent applications licensed from UCHC covering the
diagnosis of primary congenital glaucoma. Two patent applications have been
filed by the Company on its retinal delivery device and its use for delivery of
drugs to the retina. Several other patent applications by the Company and by the
UC Regents and UCHC relating to the foregoing and other aspects of the Company's
business and potential business are also pending.
The patent positions of pharmaceutical companies, including InSite, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before a
patent is issued. Consequently, the Company does not know whether any of its
pending patent applications will result in the issuance of patents or if any of
its patents will provide
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significant proprietary protection. Since patent applications are maintained in
secrecy until patents issue in the U.S., or such patents are published by
foreign regulatory authorities, the Company cannot be certain that it or any
licensor was the first to file patent applications for such inventions.
Moreover, the Company might have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to the Company, even if the
eventual outcome were favorable. There can be no assurance that the Company's
patents will be held valid or enforceable by a court or that a competitor's
technology or product would be found to infringe such patents.
A number of pharmaceutical companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to the Company's business.
Some of these technologies, applications or patents may conflict with the
Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in the denial of the Company's patent applications. In addition, if patents that
cover the Company's activities have been or are issued to other companies, there
can be no assurance that the Company would be able to obtain licenses to these
patents, at all, or at a reasonable cost, or be able to develop or obtain
alternative technology.
In addition to patent protection, the Company also relies upon trade
secret protection for its confidential and proprietary information. There can be
no assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets, that such trade secrets will not be disclosed or that the Company
can effectively protect its rights to unpatented trade secrets.
ACCESS TO PROPRIETARY COMPOUNDS
The Company believes its drug delivery technology may expand the
ophthalmic pharmaceutical market by permitting the novel use of drugs for
ophthalmic indications that are currently used or being developed for
non-ophthalmic indications. However, the Company may be required to obtain
licenses from third parties that have rights to these compounds in order to
conduct certain research, to develop or to market products that contain such
compounds. There can be no assurance that such licenses will be available on
commercially reasonable terms, if at all. See "Business - Collaborative and
Licensing Agreements."
RESEARCH AND DEVELOPMENT
The Company's research and development staff at December 31, 1998
numbered 22 people, of whom 8 have Ph.D's. Research and development expenses
sponsored by the Company during 1998 were $6.2 million, which is net of $361,000
funded by (i) B&L, as part of the 1996 ISV-208 joint development agreement, and
(ii) P&U as part of a letter of intent to license ISV-205. During 1997 and 1996,
research and development expenses were $7.2 million and $5.5 million, which is
net of $534,000 and $366,000, respectively, funded by B&L. See "Business -
Collaborative and Licensing Agreements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
MANUFACTURING
The Company has no experience or facilities for the manufacture of
products for commercial processes. Moreover, the Company currently has no
intention of developing such experience or implementing such facilities. The
Company has a pilot facility, licensed by the State of California, to produce
potential products for Phase I and certain Phase II clinical trials. However, as
stated above, the Company has no large-scale manufacturing capacity and relies
on third parties, such as B&L, for supplies and materials necessary for all of
its Phase III clinical trials. For example, the Company and B&L have entered
into an agreement to establish facilities capable of manufacturing and supplying
certain Phase III clinical supplies and commercial products at the B&L site in
Tampa, Florida. If the Company should encounter delays or difficulties in
establishing and maintaining its relationship with B&L or other qualified
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manufacturers to produce, package and distribute its finished products, then
clinical trials, regulatory filings, market introduction and subsequent sales of
such products would be adversely affected. See "Risk Factors - No Commercial
Manufacturing Experience."
MARKETING AND SALES
In connection with its November 1995 restructuring, the Company elected
not to proceed with plans to establish its own sales and marketing organization.
Instead, the Company plans to enter into arrangements with one or more
pharmaceutical companies to market its products. There can be no assurance that
the Company will be able to conclude such arrangements on acceptable terms, if
at all.
CIBA Vision. In 1991, the Company entered into a co-exclusive rights
agreement to market the AquaSite product in the U.S. and Canada. Additionally,
in May 1996, the Company granted CIBA Vision a co-exclusive U.S. license for
ISV-205 for non-glaucoma indications, and co-exclusive marketing rights within
the U.S.A. to sell and use ToPreSite. InSite Vision's trademark is being used,
under license, by CIBA Vision for AquaSite dry eye treatment and the Company's
patents are identified on the AquaSite packaging. The Company received a one
time licensing fee and is entitled to royalties based on net sales of the
products, if any.
Bausch and Lomb. In July 1996, the Company entered into an exclusive
worldwide royalty-bearing license agreement whereby B&L has agreed to market
and sell ISV-208. Under the terms of the agreement, the Company is entitled to
royalties based on net sales of the products, if any. See "Risk Factors -
Marketing and Sales."
Pharmacia & Upjohn. In January 1999, the Company entered into an
exclusive worldwide royalty-bearing license agreement whereby P&U has agreed to
market and sell ISV-205 for glaucoma related indications. Under the terms of the
agreement, the Company is entitled to royalties based on net sales of the
product, if any.
Global Damon Pharm ("Global Damon") and Kukje Pharma Ind. Co., Ltd.
("Kuje"). In March 1999 the Company entered into a royalty-bearing licensing
agreement with Global Damon, a Korean company, to be the exclusive distributor
of AquaSite in the Republic of Korea. Concurrently, the Company entered into a
manufacturing agreement with Kuje, a Korean company, to produce the AquaSite
to be sold by Global Damon.
COMPETITION
There are many competitors of the Company in the U.S. and abroad. These
companies include ophthalmic-oriented companies that market a broad portfolio of
products, as well as large integrated pharmaceutical companies that market a
limited number of ophthalmic pharmaceuticals in addition to many other
pharmaceuticals. Many of these companies have substantially greater financial,
technical, marketing and human resources than those of the Company and may
succeed in developing technologies and products that are more effective, safer
or more commercially acceptable than any which have been or are being developed
by the Company. These competitors may also succeed in obtaining cost advantages,
patent protection or other intellectual property rights that would block the
Company's ability to develop its potential products, or in obtaining regulatory
approval for the commercialization of their products more rapidly or effectively
than the Company. The ophthalmic prescription pharmaceutical market in the U.S.
is dominated by six companies: Allergan Pharmaceuticals, a division of Allergan,
Inc.; Alcon Laboratories, Inc., a division of Nestle Company; Bausch and Lomb;
CIBA Vision, a division of Novartis Ltd.; Merck, Sharp & Dohme, a division of
Merck & Co., Inc.; and Pharmacia & Upjohn, Inc.
The Company believes that there will be increasing competition from new
products entering the market that are covered by exclusive marketing rights and,
to a lesser degree, from pharmaceuticals that become generic. The Company is
aware of certain products manufactured or under development by competitors that
are used for the treatment of certain ophthalmic indications which the Company
has targeted for product development. The Company's competitive position will
depend on its ability to develop enhanced or innovative pharmaceuticals,
maintain a proprietary position in its technology and products, obtain required
governmental approvals on a timely basis, attract and retain key personnel and
develop effective products that can be manufactured on a cost-effective basis
and marketed successfully.
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Over the longer term, the Company's (and its partners') ability to
successfully market the current product, expand its usage and bring new products
to the marketplace, will depend on many factors, including the effectiveness and
safety of the products, and competing products, approved by the FDA and foreign
regulatory agencies, the degree of patent protection afforded to particular
products, and the effect of the advent of managed care as an important purchaser
of pharmaceutical products. See "Risk Factors Competition."
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products and its
research and development activities are subject to regulation by numerous
governmental authorities in the U.S. and other countries. In the U.S., drugs are
subject to rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act and
regulations promulgated thereunder govern the testing, manufacture, labeling,
storage, record keeping, approval, advertising and promotion in the U.S. of the
Company's products. In addition to FDA regulations, the Company is also subject
to other federal and state regulations such as the Occupational Safety and
Health Act and the Environmental Protection Act. Product development and
approval within this regulatory framework take a number of years and involve the
expenditure of substantial resources.
While the FDA currently does not regulate genetic tests, it has stated
that it has the right to do so, and there can be no assurance that the FDA will
not seek to regulate such tests in the future. If the FDA should require that
genetic tests receive FDA approval prior to their use, there can be no assurance
such approval would be received on a timely basis, if at all. The failure to
receive such approval could require the Company to develop alternative testing
methods, which could result in the delay of such tests reaching the market, if
at all. Such a delay could have a materially adverse effect on the Company.
The steps required before a pharmaceutical agent may be marketed in the
U.S. include (i) preclinical laboratory and animal tests, (ii) the submission to
the FDA of an Investigational New Drug application ("IND"), (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug, (iv) the submission of an NDA or Product License Application ("PLA")
to the FDA and (v) the FDA approval of the NDA or PLA prior to any commercial
sale or shipment of the drug. In addition to obtaining FDA approval for each
product, each domestic drug manufacturing establishment must be registered with,
and approved by, the FDA. Drug product manufacturing establishments located in
California also must be licensed by the State of California in compliance with
separate regulatory requirements.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical tests are submitted to the FDA
as part of an IND and, unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA.
Clinical trials involve the administration of the drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety,
and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA
as part of the IND. Each clinical study is conducted under the auspices of an
independent Institutional Review Board which considers, among other things,
ethical factors and the rights, welfare and safety of human subjects.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug into
human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase
II involves studies in a limited patient population to (i) determine the
efficacy of the drug for specific targeted indications, (ii) determine dosage
tolerance and optimal dosage and (iii) identify possible adverse effects and
safety risks. When a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population at multiple clinical study sites. The FDA reviews
both the
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clinical plans and the results of the trials and may discontinue the trials at
any time if there are significant safety issues.
The results of the preclinical studies and clinical studies are
submitted to the FDA in the form of an NDA or PLA for marketing approval. The
testing and approval process is likely to require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. Additional animal studies or clinical trials may be requested
during the FDA review period and may delay marketing approval. After FDA
approval for the initial indications, further clinical trials are necessary to
gain approval for the use of the product for additional indications. The FDA may
also require post-marketing testing to monitor for adverse effects, which can
involve significant expense.
Among the conditions for manufacture of clinical drug supplies and for
NDA or PLA approval is the requirement that the prospective manufacturer's
quality control and manufacturing procedures conform to GMP. Prior to approval,
manufacturing facilities are subject to FDA and/or other regulatory agency
inspection to ensure compliance with GMP. Manufacturing facilities are subject
to periodic regulatory inspection to ensure ongoing compliance.
For marketing outside the U.S., the Company also is subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.
SCIENTIFIC AND BUSINESS ADVISORS
The Company has access to a number of academic and industry advisors
with expertise in clinical ophthalmology and pharmaceutical development,
marketing and sales. The Company's advisors meet with management and key
scientific employees of the Company on an ad hoc basis to provide advice in
their respective areas of expertise and further assist the Company by
periodically reviewing with management the Company's preclinical, clinical and
marketing activities. The Company plans to make arrangements with other
individuals to join as advisors as appropriate. Although the Company expects to
receive guidance from the advisors, all of such advisors are employed on a
full-time basis by other entities, or are primarily engaged in business
activities outside the Company, and may have other commitments to or consulting
or advisory contracts with other entities that may conflict or compete with
their obligations to the Company.
The Company's advisors are as follows:
<TABLE>
<CAPTION>
Name Position
------------------------------ ----------------------------------------------------------
<S> <C>
Barbara L. Handelin, Ph.D. Advisor and Consultant on Genetics
Roy Karnovsky Advisor and Consultant in Business Development and
Marketing
Steven G. Kramer, M. D., Ph.D. Chairman, Department of Ophthalmology, Director of Beckman
Vision Center and Professor, University of California, San
Francisco
Richard Lewis, M. D. Ophthalmologist; Assistant Clinical Professor, University
of California, Davis; Chief of Ophthalmology, Mercy
General Hospital, Sacramento
Michael Marmor, M. D. Professor, Department of Ophthalmology, Stanford
University School of Medicine
Thai D. Nguyen, Ph.D. Assistant Professor, University of California, San
Francisco
Gary D. Novack, Ph.D. Founder and President, PharmaLogic Development, Inc.;
former Associate Director for Glaucoma Research at
Allergan, Inc.
Jon R. Polansky, M. D. Associate Professor of Ophthalmology, University of
California, San Francisco
Mansoor Sarfarazi, Ph.D. Professor, Department of Surgery, University of
Connecticut Health Center
Roger Vogel, M. D. Medical Director
</TABLE>
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<PAGE> 14
EMPLOYEES
As of December 31, 1998, the Company employed 32 persons, including 28
full time employees. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its employee relations to be good.
The Company also utilizes independent consultants to advise the Company in
certain areas of its scientific and business operations.
RISK FACTORS
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE ARE IN AN EARLY STATE OF
DEVELOPMENT AND OUR TECHNOLOGY IS UNTESTED
We are in an early state of developing our business. We are currently
only receiving a small amount of royalties from the sale of one of our products,
an over-the-counter, or OTC, dry eye treatment. Before regulatory authorities
will grant us marketing approval, we will need to conduct significant additional
research and development and preclinical and clinical testing. All of our
products are subject to risks that are inherent to products based upon new
technologies. These risks include the risks that our products:
- - will be found to be unsafe or ineffective;
- - will fail to receive necessary marketing clearance from regulatory
authorities;
- - even if safe and effective, will be too difficult to manufacture or
market;
- - will be unmarketable due to the proprietary rights of third parties; or
- - will not be able to compete with superior, equivalent or more
cost-effective products offered by third parties.
Therefore, we cannot guarantee that our research and development activities will
result in any commercially viable products.
WE REQUIRE SIGNIFICANT FUNDING FOR OUR CAPITAL REQUIREMENTS
We will require substantial additional funding to develop and conduct
testing on our potential products. We will also require additional funding to
manufacture and market any products which we do develop. Our future capital
requirements will depend upon many factors, including:
- - the progress of our research and development programs;
- - the progress of preclinical and clinical testing;
- - our ability to establish additional corporate partnerships to develop,
manufacture and market our potential products;
- - the time and cost involved in obtaining regulatory approvals;
- - the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
- - competing technological and market developments;
- - changes in our existing collaborative and licensing relationships; and
- - the purchase of additional capital equipment.
We are currently seeking additional funding through public or private
equity or debt financing, collaborative or other arrangements, and from other
sources. We cannot be certain that we will be able to secure additional funding
from these sources, or that such funding will be on terms acceptable to us. If
we fail to secure additional funding upon acceptable terms, our business will be
harmed.
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If we raise additional funds by issuing equity securities, our
stockholders will suffer substantial dilution. However, if we cannot raise
additional funding, we may be required to further delay, scale back or eliminate
one or more of our research, discovery or development programs, or scale back or
cease operations altogether. In addition, the failure to raise additional
funding may force us to enter into agreements with third parties on terms which
are disadvantageous to us, which may, among other things, require us to
relinquish rights to our technologies, products or potential products.
We believe our cash and cash equivalents are sufficient to finance our
working capital and capital expenditure requirements through December 31, 1999.
WE EXPECT TO CONTINUE TO SUFFER LOSSES
We have incurred significant operating losses since our inception in
1986. As of December 31, 1998, our accumulated deficit was approximately $85.9
million. We have not achieved profitability and we expect to continue to incur
net losses for the foreseeable future.
Our ability to achieve significant revenue or profitability depends upon
our ability, alone or with third parties, to successfully develop our potential
products, conduct clinical trials, obtain required regulatory approvals and
successfully manufacture and market our products. We cannot be certain that we
will ever achieve significant revenue or profitability.
WE RELY ON THIRD PARTIES TO DEVELOP, MARKET AND SELL OUR PRODUCTS
We have not established a dedicated sales and marketing organization.
Therefore, if we are to successfully commercialize our product candidates, we
will be required to enter into arrangements with one or more third parties that
will:
- - provide for Phase III clinical testing;
- - provide for commercial scale up and manufacture of our potential
products;
- - obtain or assist us in other activities associated with obtaining
regulatory approvals for our product candidates; and
- - market and sell our products, if they are approved.
Our strategy for research, development and commercialization of certain
of our products requires us to enter into various arrangements with corporate
and academic collaborators, licensors, licensees and others. Furthermore, we are
dependent on the diligent efforts and subsequent success of these outside
parties in performing their responsibilities.
To date, we have entered into agreements with CIBA Vision for
co-exclusive rights with us in North America to manufacture and market AquaSite,
ToPreSite and ISV-205 for certain non-glaucoma-related indications. Of these,
only AquaSite, an OTC product for which regulatory approval is not required, has
been marketed. CIBA Vision assumed all subsequent product development, clinical
and regulatory responsibility for ToPreSite, but has no obligation to fund the
further development of ISV-205.
In January 1999, we entered into a license agreement with Pharmacia &
Upjohn AB, or P&U, pursuant to which:
- - P&U will develop, manufacture, process and use ISV-205; and
- - P&U will finish, market, distribute, detail and sell the products
developed from the active ingredient in ISV-205.
In July 1996, we entered into agreements with B&L pursuant to which:
- - B&L has agreed to manufacture our product candidates at B&L's facility
in Tampa, Florida using equipment owned by us; we agreed with B&L to
share the cost of certain leasehold improvements in connection with the
installation and operation of the equipment;
- - B&L received, for a license fee of $500,000, an exclusive worldwide
royalty-bearing license to manufacture and market PilaSite(R);
- - We agreed with B&L to collaborate to develop and sell a new DuraSite
based eyedrop formulation.
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We have determined we will not proceed with PilaSite at this time.
We are dependent upon British Biotechnology Pharmaceuticals, Inc., or
British Biotech, for the supply of batimastat, the active drugs incorporated
into the Company's ISV-120 product candidate. British Biotech has discontinued
clinical testing of batimastat and informed us that it will no longer
manufacture the product. We may have no source of ongoing raw materials for
ISV-120. If this turns out to be true, our business may be harmed.
We cannot be certain that, even if regulatory approvals are obtained,
our products will be marketed diligently or successfully by our partners, or
that we will be able to conclude arrangements with other companies to support
the commercialization of other products on acceptable terms, if at all.
In addition, we cannot be certain our collaborators will not take the
position that they are free to compete using our technology without compensating
or entering into agreements with us. Furthermore, we cannot be certain our
collaborators will not pursue alternative technologies or develop alternative
products either on their own or in collaboration with others, including our
competitors, as a means for developing treatments for the diseases or disorders
targeted by these collaborative programs.
OUR BUSINESS DEPENDS UPON OUR PROPRIETARY RIGHTS, AND THERE IS A RISK OF
INFRINGEMENT
Our success will depend in large part on our ability to obtain patents,
protect trade secrets, obtain and maintain rights to technology developed by
others, and operate without infringing upon the proprietary rights of others. A
substantial number of patents in the field of ophthalmology and genetics have
been issued to pharmaceutical, biotechnology and biopharmaceutical companies.
Moreover, competitors may have filed patent applications, may have been issued
patents or may obtain additional patents and proprietary rights relating to
products or processes competitive with ours. We cannot be certain that our
patent applications will be approved, that we will develop additional
proprietary products that are patentable, that any issued patents will provide
us with adequate protection for our inventions or will not be challenged by
others, or that the patents of others will not impair our ability to
commercialize our products. The patent positions of firms in the pharmaceutical
and genetic industries generally are highly uncertain, involve complex legal and
factual questions, and have recently been the subject of much litigation. No
consistent policy has emerged from the U.S. Patent and Trademark Office or the
courts regarding the breadth of claims allowed or the degree of protection
afforded under pharmaceutical and genetic patents. Despite our efforts to
protect our proprietary rights, we cannot be certain others will not
independently develop similar products, duplicate any of our products or design
around any of our patents or that third parties from which we have licensed or
otherwise obtained technology will not attempt to terminate or scale back our
rights.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to our business.
Some of these technologies, applications or patents may conflict with our
technologies or patent applications. Such conflicts could limit the scope of the
patents, if any, we may be able to obtain or result in the denial of our patent
applications. In addition, if patents that cover our activities have been or are
issued to other companies, there can be no assurance that we will be able to
obtain licenses to these patents, at all, or at a reasonable cost, or be able to
develop or obtain alternative technology. If we do not obtain such licenses, we
could encounter delays or be precluded from introducing products to the market.
Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to us or to protect trade secrets or
know-how owned or licensed by us. Such litigation could result in substantial
cost to and diversion of effort by the Company, all of which may harm our
business. We have also agreed to indemnify our licensees, including P&U, against
infringement claims by third parties related to our technology, which could
result in additional litigation costs and liability, which could harm our
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<PAGE> 17
business. In addition, we cannot be certain our efforts to protect or defend our
proprietary rights will be successful or, even if successful, will not result in
substantial cost to us.
We also depend upon unpatented trade secrets to maintain our competitive
position. We cannot be certain others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets, that such trade secrets will not be disclosed
or that we can effectively protect our rights to unpatented trade secrets. To
the extent that we or our consultants or research collaborators use intellectual
property owned by others in their work for us, disputes also may arise as to the
rights in related or resulting know-how and inventions.
ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS
At some point in the future we may pursue acquisitions of companies,
product lines, technologies or businesses that our management believes are
complementary or otherwise beneficial. In the event that such an acquisition
does occur, we cannot be certain how such acquisitions will affect our business.
Future acquisitions may result in substantial dilution to our stockholders, the
incurrence of additional debt and amortization expenses related to goodwill,
research and development and other intangible assets, all of which could harm
our business. In addition, acquisitions will involve several risks for us,
including:
- - assimilating employees, operations, technologies and products from the
acquired companies with our existing employees, operation, technologies
and products;
- - diverting our management's attention from day-to-day operation of our
business;
- - entering markets in which we have no or limited direct experience; and
- - potentially losing key employees from the acquired companies.
WE HAVE NO EXPERIENCE IN COMMERCIAL MANUFACTURING
We have no experience in the manufacture of products for commercial
purposes. We have a pilot facility licensed by the State of California to
manufacture certain of our products for Phase I and Phase II clinical trials. In
July 1996, we entered into an alliance under which B&L agreed to manufacture our
products. Should we encounter delays or difficulties in establishing and
maintaining our relationship with B&L or other qualified manufacturers to
produce, package and distribute our finished products, then clinical trials,
regulatory filings, market introduction and subsequent sales of such products
would be harmed.
Contract manufacturers must adhere to Good Manufacturing Practices, or
GMP, regulations which are strictly enforced by the FDA on an ongoing basis
through its facilities inspection program. Contract manufacturing facilities
must pass a pre-approval plant inspection before the FDA will approve an NDA.
Certain material manufacturing changes that occur after approval are also
subject to FDA review and clearance or approval. We cannot be certain the FDA or
other regulatory agencies will approve the process or the facilities by which
any of our products may be manufactured. Our dependence on third parties for
manufacture of products may harm our ability to develop and deliver products on
a timely and competitive basis. Should we be required to manufacture products
ourselves we:
- - will be required to expend significant amounts of capital to install a
manufacturing capability,
- - will be subject to the regulatory requirements described above,
- - will be subject to similar risks regarding delays or difficulties
encountered in manufacturing any such products and
- - will require substantial additional capital.
We cannot be certain we will be able to manufacture any such products
successfully or in a cost-effective manner. In addition, certain of the raw
materials we use in formulating our DuraSite drug delivery system are available
from only one source. Any significant interruption in the supply of these raw
materials could delay our clinical trials, product development or product sales
and could harm our business.
OUR PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATIONS AND APPROVAL
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FDA and comparable agencies in state and local jurisdictions and in
foreign countries impose substantial requirements upon preclinical and clinical
testing, manufacturing and marketing of pharmaceutical products. Lengthy and
detailed preclinical and clinical testing, validation of manufacturing and
quality control processes, and other costly and time-consuming procedures are
required. Satisfaction of these requirements typically takes several years and
the time needed to satisfy them may vary substantially, based on the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon our activities.
We cannot be certain the FDA or any other regulatory agency will grant approval
for any products we develop on a timely basis, or at all. Success in preclinical
or early stage clinical trials does not assure success in later stage clinical
trials. Data obtained from preclinical and clinical activities are susceptible
to varying interpretations that could delay, limit or prevent regulatory
approval. If regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which a product may be marketed.
Further, even after we have obtained regulatory approval, later discovery of
previously unknown problems with a product may result in restrictions on the
product, including withdrawal of the product from the market. Moreover, the FDA
has recently reduced previous restrictions on the marketing, sale and
prescription of products for indications other than those specifically approved
by the FDA. Accordingly, even if we receive FDA approval of a product for
certain indicated uses, our competitors, including our collaborators, could
market products for such indications even if such products have not been
specifically approved for such indications. Delay in obtaining or failure to
obtain regulatory approvals would harm our business.
The FDA's policies may change and additional government regulations may
be promulgated which could prevent or delay regulatory approval of our potential
products. Moreover, increased attention to the containment of health care costs
in the U.S. could result in new government regulations that could harm our
business. We cannot predict the likelihood of adverse governmental regulation
that might arise from future legislative or administrative action, either in the
U.S. or abroad. See "Risk Factors -- We face risks from the uncertainties of
pricing and other regulation".
WE COMPETE IN HIGHLY COMPETITIVE MARKETS
Our success depends upon developing and maintaining a competitive
position in the development of products and technologies in our areas of focus.
We have many competitors in the U.S. and abroad, including pharmaceutical,
biotechnology and other companies with varying resources and degrees of
concentration in the ophthalmic market. Our competitors may have existing
products or products under development which may be technically superior to ours
or which may be less costly or more acceptable to the market. Competition from
such companies is intense and expected to increase as new products enter the
market and new technologies become available. Many of our competitors have
substantially greater financial, technical, marketing, manufacturing and human
resources. In addition, they may also succeed in developing technologies and
products that are more effective, safer, less expensive or otherwise more
commercially acceptable than any which we have or will develop. Our competitors
may obtain cost advantages, patent protection or other intellectual property
rights that would block or limit our ability to develop our potential products,
or may obtain regulatory approval for commercialization of their products more
effectively or rapidly than we will. To the extent we decide to manufacture and
market our products by ourselves, we will also compete with respect to
manufacturing efficiency and marketing capabilities, areas in which we have
limited or no experience.
WE RELY ON THIRD PARTIES TO MARKET AND SELL OUR PRODUCTS
We plan to market and sell products through arrangements with third
parties with expertise in the ophthalmic drug or diagnostic industries. There
can be no assurance that we will be able to enter into such arrangements on
acceptable terms, if at all. If we are not successful in concluding such
arrangements, we may be required to establish our own sales and marketing
organization, although we have no experience in sales, marketing or
distribution. We cannot be certain we would be able to build such a marketing
staff or sales force, or that our sales and marketing efforts will be
cost-effective or successful. To the extent we have entered into or will enter
into co-marketing, co-promotion or other licensing arrangements for the
marketing and sale of our products, any revenues received by us will be
dependent on the efforts of third parties, such as CIBA Vision, P&U and B&L, and
we cannot be certain such efforts will be successful.
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WE ARE DEPENDENT UPON KEY EMPLOYEES
We are highly dependent on Dr. Chandrasekaran and other principal
members of our scientific and management staff, the loss of whose services might
significantly delay the achievement of planned development objectives.
Furthermore, recruiting and retaining qualified personnel will be critical to
our success. Competition for skilled individuals in the biotechnology business
is highly intense, and we cannot be certain we will be able to continue to
attract and retain personnel necessary for the development of our business. The
loss of key personnel or the failure to recruit additional personnel or to
develop needed expertise could harm our business.
OUR INSURANCE COVERAGE MAY NOT ADEQUATELY COVER OUR POTENTIAL PRODUCT LIABILITY
EXPOSURE
We are exposed to potential product liability risks which are inherent
in the development, testing, manufacturing, marketing and sale of human
therapeutic products. Product liability insurance for the pharmaceutical
industry is generally expensive. We cannot be certain that our present product
liability insurance coverage is adequate. Such existing coverage will not be
adequate as we further develop our products, and we cannot be certain that
adequate insurance coverage against potential claims will be available in
sufficient amounts or at a reasonable cost.
WE FACE RISKS FROM THE UNCERTAINTIES OF PRICING AND OTHER REGULATION
Our business may be harmed by the continuing efforts of governmental and
third party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets the pricing or profitability of
health care products is subject to government control. In the U.S., there have
been, and we expect there will continue to be, a number of federal and state
proposals to implement similar government control. While we cannot predict
whether any such legislative or regulatory proposals or reforms will be adopted,
the announcement of such proposals or reforms could harm our business, including
our ability to raise capital or form collaborations. The adoption of such
proposals or reforms could further harm our business.
In addition, in the U.S. and elsewhere, sales of health care products
are dependent in part on the availability of reimbursement from third party
payers, such as government and private insurance plans. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and third party payers are increasingly challenging the prices charged for
medical products and services. If we succeed in bringing one or more products to
the market, we cannot be certain that reimbursement from third party payers will
be available or will be sufficient to allow us to sell our products on a
competitive or profitable basis.
WE USE HAZARDOUS MATERIALS WHICH MAY POSE ENVIRONMENTAL RISKS
Our research, development and manufacturing processes involve the
controlled use of small amounts of radioactive and other hazardous materials. We
are subject to federal, state and local laws, regulations and policies governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed by
laws and regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any damages that result, and any such liability
could exceed our resources. Moreover, we may be required to incur significant
costs to comply with environmental laws and regulations, especially to the
extent that we manufacture our own products.
17
<PAGE> 20
OUR OFFICERS AND DIRECTORS WILL BE ABLE TO EXERT SIGNIFICANT CONTROL ON INSITE
As of December 31, 1998, our management and principal stockholders
together beneficially owned approximately 18% of our outstanding shares of
common stock. As a result, these stockholders, acting together, may be able to
effectively control all matters requiring approval by our stockholders,
including the election of a majority of our directors and the approval of
business combinations.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The market prices for securities of biopharmaceutical and biotechnology
companies, including ours, have been highly volatile, and the market has from
time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. In addition,
future announcements concerning InSite, our competitors or other
biopharmaceutical companies, including the results of testing and clinical
trials, technological innovations or new therapeutic products, governmental
regulation, developments in patent or other proprietary rights, litigation or
public concern as to the safety of products developed by us or others and
general market conditions, may have a significant effect on the market price of
our common stock. We have not paid any cash dividends on our common stock, and
we do not anticipate paying any dividends in the foreseeable future.
WE HAVE ADOPTED CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of our certificate of incorporation and bylaws may
have the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of InSite. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. The board of directors has the
authority to issue up to 5,000,000 shares of preferred stock, 7,070 of which
have been designated as Series A Convertible Redeemable Preferred Stock.
Furthermore, the board of directors has the authority to determine the price,
rights, preferences, privileges and restrictions of the remaining unissued
shares of preferred stock without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred shares
and of preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock. Certain provisions of Delaware law applicable to us
could also delay or make more difficult a merger, tender offer or proxy contest
involving us, including Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met.
WE HAVE CONVERTIBLE, REDEEMABLE SECURITIES THAT MAY RESULT IN DILUTION FOR
COMMON STOCKHOLDERS
Sales of a substantial number of shares of common stock issuable upon
conversion of our Series A Convertible Redeemable Preferred Stock could
adversely affect the market value of the common stock, depending upon the timing
of such sales, and may effect a substantial dilution of the book value per share
of our common stock.
As of December 31, 1998, 1,170 shares of Series A Convertible Redeemable
Preferred Stock were issued and outstanding. The actual number of shares of
common stock issuable upon conversion of the outstanding Series A Convertible
Redeemable Preferred Stock will equal:
(i) the aggregate stated value of the Series A Convertible
Redeemable Preferred Stock then being converted ($1,000 per share) plus
a premium in the amount of 6% per annum accruing from September 12, 1997
through the date of conversion, divided by
(ii) a conversion price equal to the lower of $2.127 or the
product of the average of the lowest closing bid prices for our common
stock for any 5 trading days during the 22 consecutive trading day
period immediately preceding the date of conversion, subject to
adjustment in accordance with the terms of the Certificate of
Designations, Preferences
18
<PAGE> 21
and Rights for the Series A Convertible Redeemable Preferred Stock,
multiplied by a conversion percentage equal to 82.5%.
For a complete description of the relative rights, preferences,
privileges, powers and restrictions of the Series A Convertible Redeemable
Preferred Stock, see the Certificate of Designations, Preferences and Rights
attached as Exhibit 4.1 to the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 29, 1997. Depending on market
conditions at the time of conversion, the number of shares of common stock
issuable could increase significantly in the event of a decrease in the trading
price of the common stock. Investors in common stock could therefore experience
substantial dilution upon conversion of the Series A Convertible Redeemable
Preferred Stock. In addition, in the event that any holder of Series A
Convertible Redeemable Preferred Stock is unable to convert any such securities
into common stock, any or all such holders may cause us to redeem in cash any
such Series A Convertible Redeemable Preferred Stock that cannot be so
converted. In the event that we fail to so redeem such shares, the holders of
the Series A Convertible Redeemable Preferred Stock are entitled to additional
remedies as set forth in the Certificate of Designations, Preferences and
Rights.
In addition, in the event our common stock is delisted from the American
Stock Exchange, or the AMEX, any or all of the holders of Series A Convertible
Redeemable Preferred Stock may cause us to redeem such shares. If we fail to so
redeem those shares, the holders are entitled to additional remedies as set
forth in the Certificate of Designations, Preferences and Rights. In view of our
current financial condition, we cannot be certain our shares will not be
delisted from the AMEX.
EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT OF THE REGISTRANT
As of March 26, 1999, the executive officers and other senior
management of the Company were as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
S. Kumar Chandrasekaran, Ph.D. 55 Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
Lyle M. Bowman, Ph.D. 50 Vice President, Development and Operations
Cheryl E. Chen 39 Senior Director, Clinical Operations
T. Raymond Chen, Ph.D. 48 Senior Director, Regulatory, Quality
Assurance and Quality Control
Sandra C. Heine 37 Controller
Samir D. Roy, Ph.D. 40 Senior Director, Formulation Development
</TABLE>
S. Kumar Chandrasekaran joined the Company in September 1987 as Vice
President, Development. From 1988 to 1989, Dr. Chandrasekaran served as Vice
President, Research and Development. From 1989 to 1993, he served as President
and Chief Operating Officer. Since August 1993, Dr. Chandrasekaran has served as
Chairman of the Board of Directors, President, Chief Executive Officer and,
since January 1999, as Chief Financial Officer, a position he also held from
December 1995 to December 1997. Dr. Chandrasekaran holds a Ph.D. in Chemical
Engineering from the University of California, Berkeley.
Lyle M. Bowman joined the Company in October 1988 as Director of Drug
Delivery Systems. From 1989 to 1991, Dr. Bowman served as Vice President,
Science and Technology. From 1991 to 1995, he served as Vice President,
Development, and since 1995 has served as Vice President Development and
Operations. Dr. Bowman holds a Ph.D. in Physical Chemistry from the University
of Utah.
Cheryl E. Chen joined the Company in January 1990, as the Manager of
Clinical Research. From 1994 to 1998, Ms. Chen served as Director of Clinical
Operations. In 1999, Ms. Chen became the Senior Director of Clinical
Operations. Ms. Chen holds a B.S. in Biological Science from University of
California at Irvine and an M.B.A. in Business from Pepperdine University.
T. Raymond Chen joined the Company in August 1990, as a Senior Staff
Researcher. From 1994 to August 1997, he served as the Director of Analytical
Research. Since September 1997, Dr. Chen has served as Senior Director of
Regulatory, Quality Assurance and Quality Control. Dr. Chen holds a Ph.D. in
Analytical Research from Indiana University.
Sandra C. Heine joined the Company in March 1997, as Controller. Before
joining the Company, Ms. Heine served as General Accounting Manager of Software
Logistics Corporation from 1995 to 1997; Systems Engineer for Platinum Software
Corporation from 1994 to 1995; General Audit Manager for Genentech, Inc. from
1991 to 1994 and was an Audit Manager at Deloitte & Touche from 1989 to 1991.
Ms. Heine holds a B.S. in Business Administration from Colorado State
University.
Samir D. Roy joined the Company in May 1997, as Director of Formulation
Development. Since 1998, Dr. Roy served as Senior Director of Formulation
Development and Operations involving clinical supply and scale-up activities.
Dr. Roy holds a Ph.D. in Pharmaceutical Sciences from the University of
Saskatchewan, Canada, and has post-doctorial training in drug transport at the
University of Michigan.
Officers are appointed to serve, at the discretion of the Board of
Directors, until their successors are appointed. There are no family
relationships between any members of the Board of Directors or executive
officers of the Company.
ITEM 2. PROPERTIES
19
<PAGE> 22
InSite currently leases approximately 29,402 square feet of research
laboratory and office space located in Alameda, California. The facility
includes laboratories for formulation, analytical, microbiology, pharmacology,
quality control and development as well as a pilot manufacturing plant. The
lease expires on December 31, 2001, but may be renewed by the Company for an
additional 5-year term. The Company believes its existing facilities will be
suitable and adequate to meet its needs for the immediate future.
ITEM 3. LEGAL PROCEEDINGS.
(a) The Company is not a party to any legal proceedings.
(b) No legal proceedings were terminated in the fourth quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during
the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Since June 10, 1998, the Company's common stock has traded on The
American Stock Exchange under the symbol "ISV." From its initial public offering
on October 18, 1993, to June 9, 1998, the Company's common stock traded on The
Nasdaq National Market under the symbol "INSV." Prior to its initial public
offering there was no public market for the Company's common stock. The
following table sets forth the high and low sales price for the common stock as
reported by The American Stock Exchange and The Nasdaq National Market for the
periods indicated. These prices do not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $3.56 $2.44
Second Quarter $4.00 $3.13
Third Quarter $4.44 $1.63
Fourth Quarter $2.44 $0.94
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $6.75 $3.63
Second Quarter $6.23 $3.44
Third Quarter $5.50 $4.06
Fourth Quarter $5.06 $2.00
</TABLE>
(b) Holders
As of December 31, 1998, the Company had approximately 7,000
stockholders. On March 26, 1999, the last sale price reported on The American
Stock Exchange for the Company's common stock was $1.00 per share.
(c) Dividends
20
<PAGE> 23
The Company has never paid dividends and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
(d) Recent Sales of Unregistered Securities
As part of a January 28, 1999 transaction to license the exclusive
worldwide rights to ISV-205 for glaucoma to P&U, the Company sold a total of
1,095,506 shares of Common Stock to P&U for $2,000,000. The Common Stock in this
transaction was issued to a single, sophisticated foreign investor and in
reliance on the private placement exemption under Section 4(2) of the
Securities Act of 1933, as amended. The transaction also provides for future
equity purchases by P&U at an average of prevailing market prices, if the
Company achieves certain milestones.
21
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for the five years ended December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA
Revenues $ 16 $ 50 $ 544 $ 65 $ 112
Operating expenses:
Research and development 6,227 7,224 5,458 8,079 9,944
General and administrative 2,656 3,034 2,902 3,801 4,961
Loss on vacated facility -- -- 1,412 -- --
Restructuring -- -- -- 1,031 --
----------------------------------------------------------------
Total expenses 8,883 10,258 9,772 12,911 14,905
Net interest and other income 299 390 466 224 845
----------------------------------------------------------------
Net loss (8,568) (9,818) (8,762) (12,622) (13,948)
Non cash preferred dividend 514 1,326 -- -- --
----------------------------------------------------------------
Net loss applicable to common
stockholders $ (9,082) $(11,144) $ (8,762) $(12,622) $(13,948)
================================================================
Net loss per share applicable to
common stockholders basic and
diluted $ (0.60) $ (0.85) $ (0.72) $ (1.38) $ (1.55)
Shares used to calculate net loss
per share basic and diluted 15,079 13,053 12,131 9,160 8,998
<CAPTION>
DECEMBER 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents and
short-term investments $ 1,037 $ 8,660 $ 10,518 $ 3,867 $ 17,546
Working capital 544 7,983 9,512 2,376 16,269
Total assets 2,086 10,546 12,820 7,643 21,266
Long term notes payable -- -- -- 92 1,256
Redeemable preferred stock 1,511 7,533 -- -- --
Accumulated deficit (85,882) (76,800) (65,656) (56,894) (44,272)
Total stockholders' equity (deficit) $ (108) $ 2,031 $ 11,619 $ 5,847 $ 17,953
</TABLE>
No dividends were declared or have been paid by the Company since its inception.
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto included in Item 8 of this Form 10-K.
Except for the historical information contained herein, the discussion
in this Annual Report on Form 10-K contains certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
document should be read as being applicable to all related forward-looking
statements wherever they appear in this document. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed under "Risk Factors" in
Item 1 of this Form 10-K, as well as those discussed elsewhere herein.
OVERVIEW
InSite Vision Incorporated ("InSite," "InSite Vision" or the
"Company") is developing genetically-based tools for the diagnosis, prognosis
and management of glaucoma and ophthalmic pharmaceutical products based on its
proprietary DuraSite eyedrop-based drug delivery technology.
The Company is collaborating with academic researchers to develop new
diagnostic, prognostic and management tools for primary congenital, juvenile and
primary open angle glaucomas. Primary congenital glaucoma is an inherited eye
disorder and is one of the leading causes of blindness and visual impairment
affecting infants. A gene-based diagnostic kit may allow early detection of the
disease before considerable irreversible damage has occurred and may improve the
ability to treat it successfully. Primary open angle glaucoma usually affects
people over the age of forty. Current glaucoma tests are generally unable to
detect the disease before substantial damage to the optic nerve has occurred.
Gene-based tests may make it possible to identify patients at risk and initiate
treatment before permanent optic nerve damage and vision loss occurs.
The Company has international and national collaborations with
academic institutions for the identification and clinical evaluation of genetic
markers for glaucoma. To date, the Company's academic collaborators at UCSF and
UCHC have identified genes associated with primary open-angle glaucoma (the most
prevalent form of the disease in adults), juvenile glaucoma and primary
congenital glaucoma. A prototype diagnostic/prognostic technology, ISV-900,
which is capable of identifying multiple glaucoma genetic markers from a single
sample, has been developed and the Company is discussing its commercialization
with several potential partners.
Another result of the glaucoma genetics research has been the
development of the ISV-205 product candidate. This DuraSite formulation contains
a drug that has been shown in cell and organ culture systems to inhibit the
production of a protein that appears to cause glaucoma. In 1998, the Company
began a Phase II trial of ISV-205 and anticipates releasing results by the third
quarter of 1999. In January 1999, the Company entered into a transaction that
granted P&U an exclusive worldwide license for ISV-205 for the treatment of
glaucoma. See "Collaborative and Licensing Agreements" for additional discussion
of the transaction.
The DuraSite delivery system is a patented eyedrop formulation
comprising a cross-linked carboxyl-containing polymer which incorporates the
drug to be delivered to the eye. The formulation is instilled in the cul-de-sac
of the eye as a small volume eyedrop. DuraSite can be customized to deliver a
wide variety of potential drug candidates with a broad range of molecular
weights and other properties. The DuraSite formulation remains in the eye for up
to several hours during which time the active drug ingredient is gradually
released. DuraSite extends the residence time of the drug due to a combination
of mucoadhesion, surface tension and viscosity. Eyedrops delivered in the
DuraSite system contrast to conventional eyedrops which typically only last in
the eye a few minutes, thus requiring delivery of a highly concentrated burst of
drug and frequent administration to sustain therapeutic levels. The increased
residence time for DuraSite is designed to permit lower concentrations of a drug
to be administered over a longer period of time, thereby minimizing the
inconvenience of frequent dosing and reducing the potential related
23
<PAGE> 26
adverse side effects.
The Company is focusing its research and development on ISV-900 for
prognosis, diagnosis and management of glaucoma and ISV-205 for the treatment of
inflammation and the prevention and treatment of glaucoma.
To date, InSite Vision has not received any revenues from the sale of
products, although it has received a small amount of royalties from the sale of
products using the Company's licensed technology. The Company has been
unprofitable since its inception due to continuing research and development
efforts, including preclinical studies, clinical trials and manufacturing of its
product candidates. The Company has financed its research and development
activities and operations primarily through private and public placement of its
equity securities and, to a lesser extent, from collaborative agreements.
In May 1996, InSite entered into an agreement with CIBA Vision whereby
CIBA Vision received royalty-bearing, co-exclusive U.S. marketing rights to
InSite's ToPreSite product candidate for ocular inflammation/infection. CIBA
Vision assumed all subsequent product development, clinical and regulatory
responsibility for ToPreSite. In addition, CIBA Vision received royalty-bearing,
co-exclusive U.S. marketing rights to InSite Vision's ISV-205 product candidate
for certain non-glaucoma-related indications.
In July 1996, the Company entered into agreements with B&L pursuant to
which: (i) B&L agreed to manufacture InSite product candidates at B&L's facility
in Tampa, Florida using equipment owned by InSite; B&L and InSite agreed to
share the cost of certain leasehold improvements in connection with the
installation and operation of the equipment; (ii) B&L received, for a license
fee of $500,000, an exclusive worldwide royalty-bearing license to manufacture
and market PilaSite; (iii) B&L and InSite agreed to collaborate to develop and
sell a new DuraSite based eyedrop formulation; and (iv) B&L made a $2 million
equity investment in the Company.
As a result of these agreements, the Company elected to vacate its
co-tenancy of a manufacturing clean room at another manufacturer's plant and in
June 1996 wrote-off the amounts it had previously capitalized related to that
facility. This one-time write-off resulted in a non-cash charge to the Company's
results of operations of $1.4 million which is reported as a loss on vacated
facility in the accompanying financial statements.
On January 28, 1999, the Company entered into a license agreement and
stock purchase agreement pursuant to which InSite granted P&U an exclusive
worldwide license to ISV-205 for the treatment of glaucoma. The license calls
for (i) P&U to assume responsibility for the development of the product upon
completion by InSite of, among other activities, Phase II studies currently
being conducted by the Company, (ii) P&U to reimburse InSite for certain
research and development expenses and make payments to InSite for on-going
technical support, and (iii) the payment by P&U to InSite of royalties on
product sales should ISV-205 be successfully commercialized. InSite will
continue to bear responsibility for the prosecution and maintenance of the
patents subject to the license, among other things. The transaction also called
for an equity investment from P&U of $2,000,000 for which they received
1,095,506 shares of common stock, with the potential for future equity
investments based on achievement of certain milestones.
As of December 31, 1998, the Company's accumulated deficit was
approximately $85.9 million. There can be no assurance that InSite Vision will
ever achieve either significant revenues from product sales or profitable
operations.
RESULTS OF OPERATIONS
24
<PAGE> 27
The Company had total revenues of $16,000, $50,000 and $544,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The decrease
from 1996 to 1997 was attributable to the license fee received from B&L in 1996.
The Company earned royalty income of $16,000 $50,000 and $44,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, from sales of AquaSite by
CIBA Vision. To date, the Company has not relied on royalty revenues to fund its
activities, nor has it received revenues from the sale of products.
Research and development expenses decreased 14% in 1998 to $6.2
million from $7.2 million in 1997 and increased 31% in 1997 from $5.5 million in
1996. The decrease in 1998 was primarily due to lower expenditures for outside
services, consultants and compensation related costs due to a reduction in R&D
headcount. The reduction in outside service costs mainly reflects the completion
of development activities for ISV-208 and transfer of the project to B&L, the
Company's joint development partner on this project. The increase in 1997 was
primarily due to expenditures related to the development of ISV-208 and ISV-900
and the acquisition of the retinal drug delivery device from the University of
Rochester. The Company presently anticipates that research and development
expenses net of third party reimbursements will be lower in 1999 than in 1998.
General and administrative expenses decreased 10% during 1998 to $2.7
million from $3.0 million in 1997 and increased 4% in 1997 from $2.9 million in
1996. The decrease in 1998 was primarily related to the reduced cost of
directors and officers' insurance, lower consulting expenses and lower costs
related to the hiring of full time personnel in the area of accounting and
finance. The increase in 1997 was primarily due to the cost of hiring employees
in the area of accounting and finance to replace outside contractors.
Net interest and other income was $299,000, $390,000 and $466,000 in
1998, 1997 and 1996, respectively. These fluctuations are due principally to
changes in average cash balances. Interest earned in the future will be
dependent on the Company's funding cycles and prevailing interest rates.
Interest expense related to notes payable which were paid off during the first
quarter of 1997.
The Company incurred net losses of $8.6 million, $9.8 million and $8.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Through 1995, InSite Vision financed its operations primarily through
private placements of preferred stock totaling approximately $32 million and an
October 1993 initial public offering of Common Stock, which resulted in net
proceeds of approximately $30 million. After 1995, the Company financed its
operations primarily through a January 1996 private placement of Common Stock
and warrants resulting in net proceeds of approximately $4.7 million and an
April 1996 public offering which raised net proceeds of approximately $8.1
million. In accordance with a July 1996 agreement between the Company and B&L,
the Company received a total of $2.0 million from the sale of Common Stock in
August 1996 and 1997. In September 1997, the Company completed a $7.0 million
private placement of 7,000 shares of redeemable convertible Series A Preferred
Stock resulting in net proceeds of approximately $6.5 million. At December 31,
1998, the Company had cash and cash equivalents totaling $1.0 million. It is the
Company's policy to invest these funds in highly liquid securities, such as
interest bearing money market funds, Treasury and federal agency notes and
corporate debt.
For the years ended December 31, 1998, 1997 and 1996, cash used for
operating activities and additions to capital equipment was $7.8 million, $9.4
million and $7.6 million, respectively. Of those amounts, $25,000, $709,000 and
$91,000 were for additions to laboratory and other property and equipment in
1998, 1997 and 1996, respectively. In 1997, $645,000 of the additional
expenditures related to the Company's portion of improvements at B&L's
facilities in Tampa, Florida. In 1998, the Company recognized an impairment in
the value of its equipment located at B&L's facilities of $87,000. This also
resulted in a decrease in both laboratory and other equipment and accumulated
depreciation of $764,000. The timing of future expenditures will depend on the
timing of additional product development. Starting in
25
<PAGE> 28
1997 the Company wrote-off its fully depreciated assets. This resulted in a
decrease in both property and equipment and accumulated depreciation of $1.3 and
$3.4 million in 1998 and 1997, respectively, with no change in net property and
equipment.
The Company's future capital expenditures and requirements will depend
on numerous factors, including the progress of its research and development
programs and preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in the Company's existing
collaborative and licensing relationships, the ability of the Company to
establish additional collaborative arrangements, acquisition of new businesses,
products and technologies, the completion of commercialization activities and
arrangements, and the purchase of additional property and equipment.
The Company anticipates no material capital expenditures to be
incurred for environmental compliance in fiscal year 1999. Based on the
Company's good environmental compliance record to date, and its current
compliance with applicable environmental laws and regulations, environmental
compliance is not expected to have a material adverse effect on the Company's
operations.
The Company believes that its cash and cash equivalents, in
combination with the cash the Company has received and will receive during 1999
as part of the ISV-205 licensing transaction with P&U, will be sufficient to
meet its operating expenses and cash requirements through 1999. InSite Vision
will require substantial additional funds prior to reaching profitability and
the Company may seek private or public equity investments, future collaborative
agreements, and possibly research funding to meet such needs. Even if the
Company does not have an immediate need for additional cash, it may seek access
to the private or public equity markets if and when it believes conditions are
favorable. There is no assurance that such additional funds will be available
for the Company to finance its operations on acceptable terms, or at all.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations.
The Company has implemented a program to assess its exposure from Y2K
related failures in its internal systems. The Company has determined that the
majority of the Company's significant operating and accounting systems are Y2K
compliant. The systems that are not currently Y2K compliant are in the process
of being upgraded or replaced. The anticipated cost of these upgrades will be
expensed as incurred and are anticipated to be less than $25,000. However, there
can be no assurance that costs will not exceed the Company's estimate. While the
Company does not have a comprehensive program for monitoring whether its
suppliers' and vendors' systems are Y2K compliant, it does not believe that
non-compliance by any single source provider would have a material impact on its
operations. The Company does not expect its financial condition or results of
operations to be materially adversely affected by Y2K issues.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes
in interest rates.
The Company invests its excess cash in investment grade,
interest-bearing securities. At December 31, 1998, the Company had $1.0 million
invested in money market mutual funds. While a hypothetical decrease in market
interest rates by 10 percent from the December 31, 1998 levels would cause a
decrease in interest income, it would not result in a loss of the principal.
Additionally, the decrease in interest income would not be material.
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and Report of
Independent Auditors are included on the pages that follow:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 28
Consolidated Statements of Operations 29
Years Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets - December 31, 1998 and 1997 30
Consolidated Statements of Stockholders' Equity (Deficit) 31
Years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows 32
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 33-39
</TABLE>
27
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
InSite Vision Incorporated
We have audited the accompanying consolidated balance sheets of InSite Vision
Incorporated as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of InSite
Vision Incorporated at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Walnut Creek, California
January 29, 1999
28
<PAGE> 31
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
License fee $ -- $ -- $ 500
Royalties 16 50 44
-------- -------- --------
Total 16 50 544
Operating expenses:
Research and development 6,227 7,224 5,458
General and administrative 2,656 3,034 2,902
Loss on vacated facilities -- -- 1,412
-------- -------- --------
Total 8,883 10,258 9,772
Loss from operations (8,867) (10,208) (9,228)
Interest and other income 299 399 509
Interest expense -- (9) (43)
-------- -------- --------
Net loss (8,568) (9,818) (8,762)
Non-cash preferred dividend 514 1,326 --
-------- -------- --------
Net loss applicable to common stockholders $ (9,082) $(11,144) $ (8,762)
======== ======== ========
Basic and diluted net loss per share applicable to
common stockholders $ (0.60) $ (0.85) $ (0.72)
Shares used to calculate basic and diluted net loss
per share 15,079 13,053 12,131
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 32
INSITE VISION INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(in thousands, except share and per share amounts) 1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,037 $ 8,660
Prepaid expenses and other current assets 190 303
-------- --------
Total current assets 1,227 8,963
Property and equipment, at cost:
Laboratory and other equipment 1,062 2,731
Leasehold improvements 49 163
Furniture and fixtures 28 390
-------- --------
1,139 3,284
Accumulated depreciation 280 1,701
-------- --------
859 1,583
-------- --------
Total assets $ 2,086 $ 10,546
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 86 $ 109
Accrued liabilities 341 428
Accrued compensation and related expense 256 445
-------- --------
Total current liabilities 683 982
Commitments (Note 4)
Redeemable preferred stock, $.01 par value, 5,000,000
shares authorized; 1,170 issued and outstanding at
December 31, 1998; 6,700 issued and outstanding at
December 31, 1997; redemption value $1,986,000 1,511 7,533
Common stockholders' equity (deficit):
Common stock, $.01 par value, 30,000,000 shares authorized;
16,852,015 issued and outstanding at December 31, 1998;
13,279,153 issued and outstanding at December 31, 1997; 169 133
Additional paid-in capital 85,605 78,698
Accumulated deficit (85,882) (76,800)
-------- --------
Common stockholders' equity (deficit) (108) 2,031
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit) $ 2,086 $ 10,546
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 33
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID IN ACCUMULATED STOCKHOLDERS'
(dollars in thousands) STOCK CAPITAL OTHER DEFICIT EQUITY (DEFICIT)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ 93 $ 62,651 $ (3) $(56,894) $ 5,847
Issuance of 1,469,232 shares of common stock
and warrants to purchase 367,308 shares of
common stock in private placement 15 4,671 -- -- 4,686
Issuance of 254,032 shares of common stock
from exercise of options and employee stock purchases 2 768 -- -- 770
Issuance of 1,750,000 shares of common stock
in public offering 17 8,062 -- -- 8,079
Issuance of 210,527 shares of common stock
to Bausch & Lomb in private placement 2 994 -- -- 996
Other -- -- 3 -- 3
Net loss -- -- -- (8,762) (8,762)
--------------------------------------------------------------
Balance, December 31, 1996 129 77,146 -- (65,656) 11,619
Issuance of 205,128 shares of common stock
to Bausch & Lomb in private placement 2 998 -- -- 1,000
Issuance of 43,968 shares of common stock
from exercise of options and employee stock purchases 1 128 -- -- 129
Issuance of 94,130 shares of common stock
from conversion of preferred shares 1 308 -- -- 309
Non-employee stock option expense -- 118 -- -- 118
Net loss -- -- -- (9,818) (9,818)
Non-cash preferred dividend -- -- -- (1,326) (1,326)
--------------------------------------------------------------
Net loss applicable to common stockholders -- -- -- (11,144) (11,144)
--------------------------------------------------------------
Balance, December 31, 1997 133 78,698 -- (76,800) 2,031
Issuance of 50,000 shares of common stock
from exercise of warrants 1 162 -- -- 163
Issuance of 27,195 shares of common stock
under employee stock purchase plan -- 50 -- -- 50
Issuance of 3,495,667 shares of common stock
from conversion of preferred shares 35 6,540 -- -- 6,575
Non-employee stock option expense -- 155 -- -- 155
Net loss -- -- -- (8,568) (8,568)
Non-cash preferred dividend -- -- -- (514) (514)
--------------------------------------------------------------
Net loss applicable to common stockholders -- -- -- (9,082) (9,082)
--------------------------------------------------------------
Balance, December 31, 1998 $ 169 $ 85,605 $ -- $(85,882) $ (108)
==============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 34
INSITE VISION INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (8,568) $ (9,818) $ (8,762)
Adjustments to reconcile net loss to net cash used
by operating activities:
Loss on vacated facilities -- -- 1,412
Depreciation and amortization 904 851 696
Changes in:
Prepaid expenses and other current assets 113 (108) (44)
Accounts payable and accrued liabilities (260) 373 (794)
-------- -------- --------
Net cash used by operating activities (7,811) (8,702) (7,492)
INVESTING ACTIVITIES:
Maturity of short-term investments -- -- 3,000
Purchases of property and equipment (25) (709) (91)
-------- -------- --------
Net cash (used in) provided by investing activities (25) (709) 2,909
FINANCING ACTIVITIES:
Principal payments of notes payable and capital lease
obligations -- (92) (301)
Issuance of redeemable preferred stock, net -- 6,516 --
Issuance of common stock, net 213 1,129 14,531
-------- -------- --------
Net cash provided by financing activities 213 7,553 14,230
Net (decrease) increase in cash and cash equivalents (7,623) (1,858) 9,647
Cash and cash equivalents, beginning of period 8,660 10,518 871
-------- -------- --------
Cash and cash equivalents, end of period $ 1,037 $ 8,660 $ 10,518
======== ======== ========
Supplemental disclosures:
Non-cash preferred dividends $ 514 $ 1,326 $ --
======== ======== ========
Non-cash conversion of redeemable preferred stock
to common stock $ 6,575 -- --
======== ======== ========
Interest paid in cash $ -- $ 9 $ 43
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 35
INSITE VISION INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial
statements include the accounts of InSite Vision and its wholly-owned United
Kingdom subsidiary, InSite Vision Limited. InSite Vision Incorporated (the
"Company" or "InSite Vision") operated in one segment and is focused on
developing ophthalmic drugs and ophthalmic drug delivery systems. InSite Vision
Limited was formed for the purpose of holding and licensing intellectual
property rights. All intercompany accounts and transactions have been
eliminated.
The Company has incurred losses since its inception and expects to incur
substantial additional development costs prior to reaching profitability,
including costs related to clinical trials and manufacturing expenses. As a
result, the Company will require substantial additional funds, and the Company
may seek collaborative agreements, research funding, and private or public
equity or debt investments to meet such needs. If such funds are not available,
management may need to reassess its plans. Even if the Company does not have an
immediate need for additional cash, it may seek access to the private or public
equity markets if and when conditions are favorable. There is no assurance that
such additional funds will be available for the Company to finance its
operations on acceptable terms, if at all.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents. The Company invests its excess cash in
investment grade, interest-bearing securities. As of December 31, 1998 and 1997,
cash equivalents consisted of money market and mutual funds. All cash and cash
equivalents are stated at fair market value. The Company considers highly liquid
investments with original maturities of three months or less as cash
equivalents.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation. Depreciation of property and equipment is provided
over the estimated useful lives of the respective assets, which range from three
to five years, using the straight-line method. Leasehold improvements are
amortized over the lives of the related leases or their estimated useful lives,
whichever is shorter, using the straight-line method. It is the Company's policy
to write-off its fully depreciated assets. This resulted in a decrease in both
property and equipment and accumulated depreciation in 1998 and 1997 of $1.3
million and $3.4 million, respectively, with no change in net property and
equipment.
In accordance with FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" the
Company records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. During 1998, the Company evaluated certain
assets and determined that assets with a carrying value of $946,000 were
impaired and reduced their carrying value by $87,000. This loss is included in
the research and development expense in the Consolidated Statements of
Operations.
33
<PAGE> 36
Pro Forma Net Loss Per Share. The Company adopted Statement of
Financial Accounting Standards Statement No. 128, "Earnings Per Share"
("FAS 128"), which is effective for fiscal years ending after December 15, 1997.
FAS 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities (including the potential shares to be issued upon
conversion of preferred stock.) Dilutive earnings per share is very similar to
the previously reported fully diluted earnings per share.
Accounting for Employee Stock Options. The Company accounts for stock
options granted to employees and directors in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, does not recognize compensation expense for options
granted to employees and directors at an exercise price equal to the fair value
of the underlying common stock.
Accounting for Materials Purchased for Research and Development. The
Company expenses materials for research and development activities when the
items are purchased.
Accounting for Cost Sharing Agreements. The Company directly reduces
expenses for amounts reimbursed pursuant to cost sharing agreements. During 1998
and 1997, research and development expenses were reduced by $361,000 and
$534,000, respectively, for costs reimbursed by Pharmacia & Upjohn (P&U) and
Bausch and Lomb Pharmaceuticals, Inc. (B&L) under the terms of the
collaborations described in Note 3.
Key Suppliers. The Company is dependent on single or limited source
suppliers for certain materials used in its research and development activities.
The Company has generally been able to obtain adequate supplies of these
components. However, an extended interruption in the supply of these components
currently obtained from single or limited source suppliers could adversely
affect the Company's research and development efforts.
2. LOSS ON VACATED FACILITIES
In 1996, as a result of a new manufacturing agreement with B&L, the
Company ended its relationship with its previous contract manufacturer and
wrote-off its share of equipment and leasehold improvements installed at the
previous manufacturer's plant. This act resulted in a one-time non-cash charge
of $1.4 million for fiscal year 1996 which is reported separately in the
accompanying statement of operations.
3. LICENSES
On January 28, 1999, the Company entered into a license agreement and
stock purchase agreement pursuant to which InSite granted P&U an exclusive
worldwide license to ISV-205 for the treatment of glaucoma. The license calls
for (i) P&U to assume responsibility for the development of the product upon
completion by the Company of, among other activities, Phase II studies currently
being conducted by the Company, of (ii) P&U to reimburse InSite for certain
research and development expenses and make payments to InSite for on-going
technical support, and (iii) the payment by P&U to InSite of royalties on
product sales should ISV-205 be successfully commercialized. InSite will
continue to bear responsibility for the prosecution and maintenance of the
patents subject to the license, among other things. The transaction also calls
for an equity investment from P&U of $2,000,000 for which they received
1,095,506 shares of common stock, with the potential for future equity
investments based on achievement of certain milestones.
34
<PAGE> 37
In July 1996, the Company entered into agreements with B&L which provide
for (i) B&L to receive, for a one-time license fee of $500,000, an exclusive
worldwide royalty-bearing license to manufacture and market PilaSite and (ii) a
collaboration between the Company and B&L to develop and sell a new DuraSite
based eye-drop formulation for which, after development, the Company will issue
an exclusive, worldwide, royalty bearing license to B&L.
The Company has a license agreement with CIBA Vision Ophthalmics ("CIBA
Vision"), an ophthalmic company which is an affiliate of CIBA-GEIGY Limited.
Under the terms of the agreement, CIBA Vision has co-exclusive rights to
manufacture and market AquaSite and ToPreSite in the U.S. and AquaSite in
Canada. The license agreement requires CIBA Vision to pay royalties on net sales
of the licensed products. The Company recognized $16,000, $50,000 and $44,000 of
royalty revenue for sales of AquaSite in 1998, 1997 and 1996, respectively.
4. LEASE COMMITMENTS
The Company leases its facilities under noncancelable operating lease
agreements which expire in 2001. Rent expense was $514,000, $497,000 and
$605,000 for 1998, 1997 and 1996, respectively. As of December 31, 1998, the
aggregate future minimum payments under noncancelable leases are:
<TABLE>
<S> <C>
1999 $ 485,828
2000 499,941
2001 514,054
----------
Total $1,499,823
==========
</TABLE>
5. INCOME TAXES
Significant components of the Company's deferred tax assets for federal
and state income taxes as of December 31, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $26,226 $ 25,042
Research and development credit carryforwards 2,916 2,646
Capitalized research and development 5,824 3,880
Depreciation 572 580
Other 90 148
-------- --------
Total 35,629 32,296
Valuation allowance -35,629 -32,296
Net deferred tax assets $ -- $ --
======== ========
- ----------------------------------------------------------------------------
</TABLE>
The valuation allowance increased by $3.3 million and $4.2 million
during the years ended December 31, 1998 and 1997 respectively.
At December 31, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $72.0 million, which expire in
the years 2001 through 2018 and net operating loss carryforwards for state
income tax purposes of approximately $28.9 million which expire in the years
1999 through 2003. The
35
<PAGE> 38
Company also has federal and state research and development credit carryforwards
of approximately $1.1 million and $2.0 million, respectively, which expire in
the years 2001 through 2013.
Utilization of the Company's federal and state net operating loss
carryforwards and research and development tax credits are subject to an annual
limitation against taxable income in future periods due to the ownership change
limitations provided by the Internal Revenue Code of 1986. As a result of this
annual limitation, a significant portion of these carry forwards will expire
before ultimately becoming available for offset against taxable income.
Additional losses and credits will be subject to limitation if the Company
incurs another change in ownership in the future.
6. REDEEMABLE PREFERRED STOCK
In September 1997, the Company received net proceeds of approximately
$6.5 million from a private placement of 7,000 shares of Series A Convertible
Preferred Stock with a $.01 par value ("Series A Preferred"). The number of
shares of Common Stock issuable upon conversion of the Series A Preferred will
be equal to the face value of each share of Series A Preferred divided by the
lower of the fixed conversion price of $2.127 or a variable conversion price.
The variable conversion price is determined by applying a discount, which ranged
from 10% for shares converted prior to June 10, 1998, to 17.5% for shares
converted after December 7, 1998, to an average of closing bid prices of the
Company's common stock at the time of conversion. Such conversion prices are
subject to adjustment in accordance with the terms of the Certificate of
Designations, Preferences and Rights of the Series A Preferred. The value of the
Series A Preferred shares to be converted will also include a 6% per annum
premium which accrues from the date of issuance until the date of conversion.
Three years after issuance, any remaining unconverted preferred shares will
automatically be converted into common stock. As of December 31, 1998, 3,589,797
shares of common stock have been issued as a result of conversions of Series A
Preferred. Subsequent to December 31, 1998, 834,007 shares of common stock were
issued as a result of conversions of Series A Preferred. The holders of the
Series A Preferred have no voting rights, except as required by applicable
Delaware law. The Company also issued a warrant to purchase 70 shares of Series
A Preferred which is subject to the same conversion terms and premium as
described above. The Company has authorized 5,000,000 shares of Preferred Stock,
7,070 of which have been designated Series A Preferred. Pursuant to the
agreement, 6,000,000 shares of common stock have been reserved for issuance to
the holders of the Series A Preferred of which 2,410,203 shares remain reserved
at December 31, 1998.
For the years ended December 31, 1998 and 1997, in accordance with SEC
Rules and Regulations, the Company reported non-cash preferred dividends of $0.5
million and $1.3 million, respectively. The dividends are related to the
discount at which Series A Preferred could be converted to common stock and the
6% per annum premium, payable in additional common stock, earned on the
outstanding Series A Preferred Stock. The dividends are used to determine the
net loss per share applicable to common stockholders.
In certain circumstances, the Series A Preferred Stockholders have the
right to redeem their outstanding shares. The redemption amount is equal to the
number of shares of common stock issuable upon conversion multiplied by the
closing bid price of the Company's common stock as of the date of redemption
($2.0 million as of December 31, 1998).
36
<PAGE> 39
7. COMMON STOCKHOLDERS' EQUITY
In February 1999, the Company received $2,000,000 from P&U for the
purchase of 1,095,506 shares of Common Stock in connection with the January 1999
license for the Company's ISV-205 glaucoma product. The agreement also provides
for additional equity purchases by P&U at an average of prevailing market prices
if the Company achieves certain milestones.
In April 1998, the Company received $163,000 from the exercise of
warrants issued as part of a January 1996 private placement. Each warrant
entitles its holder to purchase shares of the Company's common stock for $3.25
per share until January 2001. As of December 31, 1998, warrants to purchase
317,308 shares of common stock were outstanding.
In August 1997, the Company received $1.0 million from B&L for the
purchase of 205,128 shares of common stock in connection with a July 1996
agreement between the Company and B&L. B&L made an initial $1.0 million purchase
for 210,527 shares of common stock in August 1996.
In January 1996, the Company received net proceeds of approximately
$4.7 million from a private placement of 1,469,232 shares of its common stock
and 367,308 warrants. Each warrant entitles its holder to purchase one share of
the Company's common stock for $3.25 per share until January 2001. In April
1996, the Company received net proceeds of approximately $8.1 million from a
public offering of 1,750,000 shares of its common stock.
Stock Option Plan.
At December 31, 1998, a total of 2,217,815 shares of common stock were
reserved under the 1994 Stock Plan for issuance upon the exercise of options or
by direct sale to employees, including officers, directors and consultants.
Options granted under the plan expire 10 years from the date of grant and become
exercisable at such times and under such conditions as determined by the
Company's Board of Directors (generally ratably over four years). Activity under
the 1994 Stock Plan has been as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------------------------
Weighted
Average
Options Exercise Price
Available Options of Shares
for Grant Outstanding Option Price Under Plan
----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 402,057 1,323,980 $0.60-9.25 $2.29
Granted (277,250) 277,250 4.25-6.38 5.67
Exercised (243,145) 0.60-5.00 3.01
Forfeited 85,219 (85,219) 0.60-7.25 3.74
---------- -----------
Balance at December 31, 1996 210,026 1,272,866 0.60-9.25 2.79
Additional Shares reserved 500,000 -- -- --
Granted (628,500) 628,500 2.81-6.25 4.07
Exercised -- (30,598) 0.60-4.38 2.86
Forfeited 204,927 (204,927) 0.60-6.75 4.07
---------- -----------
Balance at December 31, 1997 286,453 1,665,841 0.60-9.25 3.12
Additional Shares reserved 265,521 -- -- --
Granted (70,000) 70,000 1.31-3.53 2.26
Forfeited 102,709 (102,709) 2.75-6.38 3.93
---------- -----------
Balance at December 31, 1998 584,683 1,633,132 $0.60-9.25 $3.03
========== ===========
- ----------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 40
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Weighted Average Weighted
Number Contractual Number Average
Range of Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ------------------------ ------------- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.60 - $3.00 874,952 5.11 $ 1.74 438,294 $ 0.86
$3.53 - $5.88 599,751 8.53 4.03 232,423 4.23
$6.23 - $9.25 158,427 7.77 6.35 111,797 6.38
--------- --------- -------- --------- --------
1,633,130 6.62 $ 3.03 782,514 $ 2.65
========= ========= ======== ========= ========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of options granted during
1998, 1997 and 1996 were $2.26, $3.58 and $5.26, respectively.
Pursuant to the terms of the 1994 Stock Plan, generally each
non-employee director who is newly elected or appointed after October 25, 1993,
is granted an option to purchase 10,000 shares of common stock at a price per
share equal to the fair market value of the common stock on the grant date. Each
continuing non-employee director receives an annual grant of an option to
purchase 10,000 shares. Such options vest one year after the grant date.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting registration
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net loss and loss per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates
ranging from 4.64% to 6.58%; volatility factors for the expected market price of
the Company's common stock of 1.08, 0.8946 and 1.1494; and a weighted-average
expected life for the options of 4 years.
38
<PAGE> 41
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma information follows (in thousands except for loss per
share information):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss applicable to common stockholders - as presented $(9,082) $(11,144) $(8,762)
Net loss applicable to common stockholders - pro forma (9,681) (11,652) (9,240)
Loss per share applicable to common stockholders - as presented
basic and diluted (0.60) (0.85) (0.72)
Loss per share applicable to common stockholders - pro forma
basic and diluted (0.64) (0.89) (0.76)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Employee Stock Purchase Plan.
On April 1, 1994, employees of the Company began participating in an
Employee Stock Purchase Plan which provides the opportunity to purchase common
stock at prices not less than 85% of market value at the time of purchase.
During the years ended December 31, 1998, 1997 and 1996, respectively, 27,195,
13,370 and 10,887 shares of common stock were issued pursuant to this plan. At
December 31, 1998, an additional 37,930 shares are reserved for issuance under
this plan. The effects of the Stock Purchase Plan on the pro forma disclosures
above are not material.
39
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the identification
of Directors is hereby incorporated by reference from the information under the
caption "Proposal One-Election of Directors" in the Company's Proxy Statement
for its Annual Meeting of Stockholders which is estimated to be held on or about
June 8, 1999 (the "Proxy Statement").
The information required by this item with respect to the identification
of Executive Officers is contained in Item 1 of Part I of this report under the
caption "Executive Officers."
The information required by Item 405 of Regulation S-K regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934 is hereby
incorporated by reference from the information under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by
reference from the information under the caption "Executive Compensation and
Related Information" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by
reference from the information under the caption "Principal Stockholders" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by
reference from the information under the captions "Executive Compensation and
Related Information" and "Certain Relationships and Related Transactions" in the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The Financial Statements and Report of Independent Auditors are included
in a separate section of this Annual Report on Form 10-K.
40
<PAGE> 43
(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not
applicable or are not required or the required information to be set forth
therein is included in the Financial Statements or notes thereto included in a
separate section of this Annual Report on Form 10-K.
(3) Exhibits
The following exhibits are referenced or included in this report.
Number Exhibit Table
------ -------------
3.1(1) Restated Certificate of Incorporation.
3.2(7) Amended and Restated Bylaws.
4.1(4) Registration Rights Agreement, dated January 24,
1996 (the "Registration Rights Agreement"), between
the Registrant and the investors listed on Schedule
1 thereto.
4.2(4) Form of Warrant to Purchase Shares of Common Stock
between the Registrant and each of the investors
listed on Schedule 1 to the Registration Rights
Agreement.
4.3(10) Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock as filed
with the Delaware Secretary of State on September
11, 1997.
4.4(10) Certificate of Correction of the Certificate of
Designations, Preferences and Rights of Series A
Convertible Preferred Stock as filed with the
Delaware Secretary of State on September 26, 1997.
10.5(2) InSite Vision Incorporated Employee Stock Purchase
Plan.
10.6(2) Form of Indemnity Agreement Between the Registrant
and its directors and officers.
10.7(2) Form of Employee's Proprietary Information and
Inventions Agreement.
10.13(3)(H) License Agreement dated as of October 9, 1991 by and
between the Company and CIBA Vision Corporation, as
amended October 9, 1991.
10.14(3)(H) Letter Agreement dated February 27, 1992 by and
among the Company, Columbia Laboratories, Inc. and
Joseph R. Robinson, as amended October 23, 1992.
10.15(2)(H) Collaboration Agreement dated as of November 24,
1992 by and between the Company and British
Bio-technology Limited.
10.16(2)(H) Collaboration Agreement dated as of April 30, 1993
by and between the Company and British
Bio-technology Limited.
10.17(8) Facilities Lease, dated September 1, 1996, between
the Registrant and Alameda Real Estate Investments.
10.18(1)(H) Agreement dated as of February 15, 1994 by and
between the Company and Timm A. Carpenter.
10.19(9)(HH) InSite Vision Incorporated 1994 Stock Option Plan
(Amended and Restated as of March 17, 1997).
10.20(1)(HH) Form of InSite Vision Incorporated Notice of Grant
of Stock Option and Stock Option Agreement, with
Addenda.
10.21(9)(HH) Form of InSite Vision Incorporated Notice of
Automatic Option Grant and Non-Employee Director
Option Agreement.
10.22(1) InSite Vision Incorporated 1994 Employee Stock
Purchase Plan.
10.23(1) Form of InSite Vision Incorporated Stock Purchase
Agreement.
10.24(1) Form of InSite Vision Incorporated Employee Stock
Purchase Plan Enrollment/Change Form.
10.25(4) Letter Agreement dated February 3, 1995 between the
Company and David G. Harper.
41
<PAGE> 44
10.26(4) Settlement Agreement and General Release dated March
3, 1995 between the Company and Clifford Orent.
10.27(5) Common Stock Purchase Agreement dated January 19,
1996 between the Registrant and the Investors listed
on Schedule 1 thereto.
10.28(6)(H) ISV-205 License Agreement dated May 28, 1996 by and
between the Company and CIBA Vision Ophthalmics.
10.29(6)(H) ToPreSite License Agreement dated May 28, 1996 by
and between the Company and CIBA Vision Ophthalmics.
10.30(6)(H) BetaSite Contract Manufacturing Agreement dated July
18, 1996 by and between the Company and Bausch &
Lomb Pharmaceuticals, Inc.
10.31(6)(H) PilaSite License Agreement dated July 18, 1996 by
and between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.32(6)(H) Timolol Development Agreement dated July 18, 1996 by
and between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.33(6)(H) Stock Purchase Agreement dated July 18, 1996 by and
between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.34(10) Engagement Agreement, dated April 1, 1997, by and
between the Company and William Blair & Company LLC.
10.35(10)(H) License Agreement, dated July 1, 1997, by and
between the University of Connecticut Health Center
and the Company.
10.36(10)(H) License Agreement, dated August 19, 1997, by and
between the University of Rochester and the Company.
10.37(10) Form of Securities Purchase Agreement, dated
September 12, 1997, by and among the Company and the
Selling Stockholders thereunder.
10.38(10) Form of Registration Rights Agreement, dated
September 12, 1997, by and among the Company and the
Selling Stockholders thereunder.
10.39(10) Form of Warrant, dated September 12, 1997, to
William Blair & Company LLC.
10.40(11) License Agreement, dated January 28, 1999, by and
between the Company and Pharmacia & Upjohn AB.
10.41(11) Stock Purchase Agreement, dated January 28, 1999,
by and between the Company and Pharmacia & Upjohn AB
and Pharmacia & Upjohn, SA.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included in Part IV of this
Annual Report on Form 10-K under the caption
"Signatures").
27 Financial Data Schedule.
(1) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(2) Incorporated by reference to exhibit of the same number in the Company's
Registration Statement on Form S-1 (Registration No. 33-68024) as filed
with the Securities and Exchange Commission on August 27, 1993.
(3) Incorporated by reference to exhibit of the same number in Amendment No.
1 the Company's Registration Statement on Form S-1 (Registration No.
33-68024) as filed with the Securities and Exchange Commission on
September 16, 1993.
(4) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated by reference to Exhibit 10.25 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(7) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
42
<PAGE> 45
(8) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(9) Incorporated by reference to Exhibits 99.1, 99.3, 99.4 and 99.8,
respectively, in the Company's Registration Statement on Form S-8
(Registration No. 333-60057) as filed with the Securities and
Exchange Commission on July 28, 1998.
(10) Incorporated by reference to Exhibits 4.1, 4.2, 10.1, 10.2, 10.3, 10.4,
10.5 and 10.6, respectively, in the Company's Registration Statement on
Form S-3 (Registration No. 333-36673) as filed with the Securities and
Exchange Commission on September 29, 1997.
(11) Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by
an asterisk and has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under Securities Exchange Act
of 1934, as amended, pursuant to an application for confidential
treatment.
(H) Confidential treatment has been granted with respect to certain portions
of this agreement.
(HH) Management contract or compensatory plan.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the fourth
quarter of fiscal 1998.
(c) Exhibits
See list of exhibits under (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1999
INSITE VISION INCORPORATED
By: /s/ S. Kumar Chandrasekaran
------------------------------------
S. Kumar Chandrasekaran, Ph.D.
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer
43
<PAGE> 46
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of InSite Vision
Incorporated, a Delaware corporation, do hereby constitute and appoint S. Kumar
Chandrasekaran as his true and lawful attorney-in-fact and agent, with the power
and authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent determines may be necessary or
advisable or required to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended, and any rules or regulations or requirements
of the Securities and Exchange Commission in connection with this Annual Report
on Form 10-K. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Annual Report on Form 10-K, to any and all amendments, and to any and all
instruments or documents filed as part of or in conjunction with this Annual
Report on Form 10-K or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorney and agent shall
do or cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ S. Kumar Chandrasekaran Chairman of the Board, President, March 30, 1999
- -------------------------------------- Chief Executive Officer and
S. Kumar Chandrasekaran, Ph.D. Chief Financial Officer
/s/ Mitchell H. Friedlaender Director March 30, 1999
- --------------------------------------
Mitchell H. Friedlaender, M. D.
/s/ John E. Lucas Director March 30, 1999
- --------------------------------------
John E. Lucas
/s/ John L. Mattana Director March 30, 1999
- --------------------------------------
John L. Mattana
/s/ Anders P. Wiklund Director March 30, 1999
- --------------------------------------
Anders P. Wiklund
</TABLE>
44
<PAGE> 47
EXHIBIT INDEX
Number Exhibit Table
------ -------------
3.1(1) Restated Certificate of Incorporation.
3.2(7) Amended and Restated Bylaws.
4.1(4) Registration Rights Agreement, dated January 24,
1996 (the "Registration Rights Agreement"), between
the Registrant and the investors listed on Schedule
1 thereto.
4.2(4) Form of Warrant to Purchase Shares of Common Stock
between the Registrant and each of the investors
listed on Schedule 1 to the Registration Rights
Agreement.
4.3(10) Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock as filed
with the Delaware Secretary of State on September
11, 1997.
4.4(10) Certificate of Correction of the Certificate of
Designations, Preferences and Rights of Series A
Convertible Preferred Stock as filed with the
Delaware Secretary of State on September 26, 1997.
10.5(2) InSite Vision Incorporated Employee Stock Purchase
Plan.
10.6(2) Form of Indemnity Agreement Between the Registrant
and its directors and officers.
10.7(2) Form of Employee's Proprietary Information and
Inventions Agreement.
10.13(3)(H) License Agreement dated as of October 9, 1991 by and
between the Company and CIBA Vision Corporation, as
amended October 9, 1991.
10.14(3)(H) Letter Agreement dated February 27, 1992 by and
among the Company, Columbia Laboratories, Inc. and
Joseph R. Robinson, as amended October 23, 1992.
10.15(2)(H) Collaboration Agreement dated as of November 24,
1992 by and between the Company and British
Bio-technology Limited.
10.16(2)(H) Collaboration Agreement dated as of April 30, 1993
by and between the Company and British
Bio-technology Limited.
10.17(8) Facilities Lease, dated September 1, 1996, between
the Registrant and Alameda Real Estate Investments.
10.18(1)(H) Agreement dated as of February 15, 1994 by and
between the Company and Timm A. Carpenter.
10.19(9)(HH) InSite Vision Incorporated 1994 Stock Option Plan
(Amended and Restated as of June 8, 1998).
10.20(1)(HH) Form of InSite Vision Incorporated Notice of Grant
of Stock Option and Stock Option Agreement, with
Addenda.
10.21(9)(HH) Form of InSite Vision Incorporated Notice of
Automatic Option Grant and Non-Employee Director
Option Agreement.
10.22(1) InSite Vision Incorporated 1994 Employee Stock
Purchase Plan.
10.23(1) Form of InSite Vision Incorporated Stock Purchase
Agreement.
10.24(1) Form of InSite Vision Incorporated Employee Stock
Purchase Plan Enrollment/Change Form.
10.25(4) Letter Agreement dated February 3, 1995 between the
Company and David G. Harper.
<PAGE> 48
10.26(4) Settlement Agreement and General Release dated March
3, 1995 between the Company and Clifford Orent.
10.27(5) Common Stock Purchase Agreement dated January 19,
1996 between the Registrant and the Investors listed
on Schedule 1 thereto.
10.28(6)(H) ISV-205 License Agreement dated May 28, 1996 by and
between the Company and CIBA Vision Ophthalmics.
10.29(6)(H) ToPreSite License Agreement dated May 28, 1996 by
and between the Company and CIBA Vision Ophthalmics.
10.30(6)(H) BetaSite Contract Manufacturing Agreement dated July
18, 1996 by and between the Company and Bausch &
Lomb Pharmaceuticals, Inc.
10.31(6)(H) PilaSite License Agreement dated July 18, 1996 by
and between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.32(6)(H) Timolol Development Agreement dated July 18, 1996 by
and between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.33(6)(H) Stock Purchase Agreement dated July 18, 1996 by and
between the Company and Bausch & Lomb
Pharmaceuticals, Inc.
10.34(10) Engagement Agreement, dated April 1, 1997, by and
between the Company and William Blair & Company LLC.
10.35(10)(H) License Agreement, dated July 1, 1997, by and
between the University of Connecticut Health Center
and the Company.
10.36(10)(H) License Agreement, dated August 19, 1997, by and
between the University of Rochester and the Company.
10.37(10) Form of Securities Purchase Agreement, dated
September 12, 1997, by and among the Company and the
Selling Stockholders thereunder.
10.38(10) Form of Registration Rights Agreement, dated
September 12, 1997, by and among the Company and the
Selling Stockholders thereunder.
10.39(10) Form of Warrant, dated September 12, 1997, to
William Blair & Company LLC.
10.40(11) License Agreement, dated January 28, 1999, by and
between the Company and Pharmacia & Upjohn AB.
10.41(11) Stock Purchase Agreement, dated January 28, 1999,
by and between the Company and Pharmacia & Upjohn
AB and Pharmacia Upjohn, SA.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included in Part IV of this
Annual Report on Form 10-K under the caption
"Signatures").
27 Financial Data Schedule.
(1) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(2) Incorporated by reference to exhibit of the same number in the Company's
Registration Statement on Form S-1 (Registration No. 33-68024) as filed
with the Securities and Exchange Commission on August 27, 1993.
(3) Incorporated by reference to exhibit of the same number in Amendment No.
1 the Company's Registration Statement on Form S-1 (Registration No.
33-68024) as filed with the Securities and Exchange Commission on
September 16, 1993.
(4) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(5) Incorporated by reference to Exhibit 10.25 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(7) Incorporated by reference to exhibit of the same number in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
<PAGE> 49
(8) Incorporated by reference to exhibit of the same number in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(9) Incorporated by reference to Exhibits 99.1, 99.3, 99.4 and 99.8,
respectively, in the Company's Registration Statement on Form S-8
(Registration No. 333-60057) as filed with the Securities and
Exchange Commission on July 28 1998.
(10) Incorporated by reference to Exhibits 4.1, 4.2, 10.1, 10.2, 10.3, 10.4,
10.5 and 10.6, respectively, in the Company's Registration Statement on
Form S-3 (Registration No. 333-36673) as filed with the Securities and
Exchange Commission on September 29, 1997.
(11) Confidential treatment has been requested as to certain portions of
this agreement. Such omitted confidential information has been
designated by an asterisk and has been filed separatley with the
Securities and Exchange Commision pursuant to Rule 24b-2 under
Securities Exchange Act of 1934, as amended, pursuant to an
application for confidential treatment.
(H) Confidential treatment has been granted with respect to certain portions
of this agreement.
(HH) Management contract or compensatory plan.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the fourth
quarter of fiscal 1998.
(c) Exhibits
See list of exhibits under (a)(3) above.
(d) Financial Statement Schedules
See (a)(2) above.
<PAGE> 1
EXHIBIT 10.40
LICENSE AGREEMENT
BETWEEN
INSITE VISION INCORPORATED
AND
PHARMACIA & UPJOHN AB
JANUARY 28, 1999
<PAGE> 2
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is made and entered into
January 28, 1999 and is effective as of the Closing Date (as defined in Section
15.1) by and between InSite Vision Incorporated, a Delaware corporation
(including its Affiliates, referred to as "InSite"), and Pharmacia & Upjohn AB,
a Swedish corporation (directly or through one of its Affiliates, referred to as
"P&U").
RECITALS
WHEREAS, InSite is engaged in the research and development of compounds,
formulations and pharmaceutical products for the prognosis, diagnosis and
treatment of diseases and conditions of the human eye and of proprietary devices
for the delivery of such products;
WHEREAS, P&U and InSite have entered into a confidentiality agreement
dated June 19, 1997 relating to the exchange of confidential and proprietary
information regarding the COMPOUND (as defined below) and a Letter of Intent
dated November 12, 1998;
WHEREAS, P&U desires to obtain an exclusive license to develop,
manufacture, process and use ISV 205 in the FIELD (as defined below) and finish,
market, distribute, detail and sell the PRODUCT (as defined below) throughout
the world, and InSite desires to grant such a license on the terms and
conditions of this Agreement; and
WHEREAS, P&U; Pharmacia & Upjohn, SA; and InSite have entered into a
Stock Purchase Agreement executed on the same date as this Agreement (the "Stock
Purchase Agreement").
NOW, THEREFORE, in consideration of the covenants and promises contained
in this Agreement, InSite and P&U agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
1.1 "AFFILIATE" means any person, firm, corporation, partnership, trust,
limited liability company (LLC) or other entity, whether de jure or de facto,
that directly or indirectly through one or more intermediates, controls, is
controlled by or is under common control with either InSite or P&U. "Control,"
"controlled by" and "under common control with" shall mean the power to direct
or cause the direction of the
<PAGE> 3
management and policies of an entity, whether through the ownership of voting
securities, by contract or otherwise. In the case of a corporation or LLC, the
direct or indirect ownership of more than fifty percent (50%) of its outstanding
voting shares or membership interests (as the case may be) shall in any event be
deemed to confer control, it being understood that the direct or indirect
ownership of a lesser percentage of such shares shall not necessarily preclude
the existence of control.
1.2 "COMPOUND" means diclofenac sodium as active ingredient in ISV 205.
1.3 "COMPULSORY LICENSE" means a license under the INSITE PATENT RIGHTS
or INSITE KNOW-HOW obtained by a third party through the order, decree, or grant
of a competent governmental authority, authorizing such third party to
manufacture, process or use, or finish, market, distribute detail or sell
PRODUCT(S), in either case, in the TERRITORY or in any portion thereof.
1.4 "COST OF GOODS" means the cost of PRODUCT and inventory and other
manufacturing and costs incurred with respect to the PRODUCT and shall be equal
to the sum of Material Costs, Direct Labor Costs and Indirect Costs which are
defined as follows:
(a) "Material Costs" shall mean the prices paid for raw material
components and purchased goods, including any packaging necessary for the
shipment of PRODUCT, which are purchased from outside vendors, plus any freight
and duty where applicable.
(b) "Direct Labor Costs" shall mean the costs associated with the
total labor hours directly required for or related to the manufacture of the
PRODUCT (including salaries, wages and benefits).
(c) "Indirect Costs" shall mean other costs associated with the
operating unit manufacturing the PRODUCT, including expenses associated with
quality assurance, manufacturing and engineering associated with the operating
unit, straight line depreciation and property taxes specifically associated with
the plant or plants manufacturing the PRODUCT (collectively "Overhead Costs");
provided, however, that Overhead Costs shall be allocated to the PRODUCT based
on the percentage of the manufacturing facility used for the PRODUCT in the
event that the PRODUCT is manufactured either in a facility that is also used to
manufacture products other than the PRODUCT, or in a facility that is not used
to full capacity in manufacturing the PRODUCT.
1.5 "FIELD" means all uses and indications of the COMPOUND (other than
the indications previously licensed to CIBA Vision pursuant to a License
Agreement dated May 28, 1996), finished in whatever formulation or dosage or
however delivered, including, but not limited to the use in the treatment of
glaucoma, lowering intraocular pressure and the prevention of a rise in
intraocular pressure after a steroid challenge.
2
<PAGE> 4
1.6 "INFORMATION" means (i) techniques and data including, but not
limited to, ideas (including patentable inventions), inventions, practices,
methods, knowledge, know-how, trade secrets, skill, experience, documents,
apparatus, clinical and regulatory strategies, test data, including
pharmacological, toxicological and clinical test data, and analytical and
quality control data, manufacturing, patent and legal data, or descriptions and
(ii) chemical formulations, compositions of matter and assays, in either case
relating to or useful in connection with the COMPOUND or the PRODUCT.
1.7 "INSITE KNOW-HOW" means all INFORMATION that is (a) owned or
controlled by InSite at any time during the TERM of this Agreement and (b)
useful or necessary in connection with the COMPOUND or the PRODUCT in the FIELD.
1.8 "INSITE'S KNOWLEDGE" means information and/or knowledge of InSite
based on a commercially reasonable review of or investigation into the relevant
facts pertaining to the subject matter.
1.9 "INSITE PATENT RIGHTS" means the rights granted by any governmental
authority under (a) any PATENTS covering the COMPOUND or the PRODUCT owned,
licensed to, or controlled by InSite (whether in existence on the date hereof or
hereafter arising), including but not limited to the rights InSite obtained from
the Regents of the University of California pursuant to an Exclusive License
Agreement dated March 5, 1993, (b) any PATENTS that issue from the PATENT
APPLICATIONS listed in Schedule A, and (c) any other PATENT or PATENT
APPLICATION (whether in existence on the date hereof or hereafter arising), that
covers the PRODUCT and/or a method, apparatus, material, process or manufacture
necessary or useful in connection with the COMPOUND or the PRODUCT in the FIELD.
1.10 "NET SALES" means the gross invoice price billed to independent
(parties that are not Affiliates) third party customers with respect to sales of
the PRODUCT, less deductions for the following items to the extent actually paid
or allowed and not reimbursed by the customer or any third party and
specifically allocated to sales of the PRODUCT: (i) sales, use or excise taxes
and duties, and any other governmental charges imposed upon the use or sale of
the PRODUCT, (ii) reasonable trade, quantity and cash discounts or rebates
allowed and which are customary in connection with the marketing and sale of
products similar to the PRODUCT, (iii) Medicaid or other federal or state
rebates and adjustments, (iv) reasonable fees, commissions, rebates or
chargebacks lawfully paid pursuant to contracts with hospitals, managed care
organizations, group purchasing organizations, and other entity purchasers, to
the extent specifically related to and based on the number of units of the
PRODUCT sold to members of the group, (v) allowances, chargebacks, refunds and
credits to customers on account of rejection or return of the PRODUCT, or on
account of retroactive price reductions affecting the PRODUCT. NET SALES shall
not include the supply of the PRODUCT as commercial samples or for use in
clinical or marketing studies undertaken pursuant to this Agreement.
3
<PAGE> 5
1.11 "NDA" means (a) the single application or set of applications for
approval and/or pre-market approval to make and sell commercially a
pharmaceutical or biological therapeutic products or delivery systems or device
filed with the United States Food and Drug Administration ("FDA") or any
successor agency having the administrative authority to regulate the approval
for marketing of new human pharmaceutical or biological therapeutic products,
delivery systems and devices in the United States, including all information
included in drug master files related to such application(s), and (b) any
related registrations with or notifications to the FDA.
1.12 "PATENTS" means (i) valid and enforceable letters patent and
utility models including any extension, registration, confirmation, reissue,
re-examination or renewal thereof and (ii) to the extent valid and enforceable
rights are granted by a governmental authority thereunder, a PATENT APPLICATION,
all as such cover PRODUCT(S) or COMPOUNDS.
1.13 "PATENT APPLICATIONS" means an application for a patent filed with
the Patent and Trademark Office in the U.S. or its equivalent elsewhere.
1.14 "PRODUCT(S)" means any and all formulations and dosages of the
finished and packaged COMPOUND for use in the FIELD with or without the VEHICLE.
1.15 "PROOF OF CONCEPT" means the completion, as determined by the
Development Committee (as defined below), in its sole discretion, of InSite's
ongoing Phase II clinical trial of the PRODUCT and shall also include the
completion by InSite of all tasks (including, but not limited to requests by the
Food and Drug Administration or its equivalent) necessary for P&U to start its
own Phase II clinical trial.
1.16 "PROJECT" means the research and development program to be
conducted by InSite and P&U under this Agreement pursuant to Article 3 with
respect to the development, manufacture, processing and use of the COMPOUND in
the FIELD and the finishing, marketing, distribution, detailing and sale of the
PRODUCT(S).
1.17 "REGULATORY APPROVAL" means (a) in the United States, approval by
the FDA of an NDA and satisfaction of any related applicable FDA registration
and notification requirements (if any) and (b) in any country other the United
States, approval by regulatory authorities having jurisdiction over such country
of a single application or set of applications comparable to an NDA and
satisfaction of any related applicable regulatory and notification requirements,
if any, together with any other approval necessary to make and sell the PRODUCT
commercially in such country, including, where applicable, labeling and pricing
approval, and, if required for commercialization of the PRODUCT, governmental or
third party reimbursement approval and/or inclusion on any governmental
formularies effective in such country.
1.18 "RELATED TECHNOLOGY RIGHTS" means worldwide rights of reference to
all data contained in CIBA Vision's NDA or similar health registrations for
4
<PAGE> 6
Voltaren Opthalmic Sterile solution, as well as preclinical studies, if any,
required for PRODUCT registration and/or approval.
1.19 "TERM" means the period of time during which this Agreement is in
effect under Section 15.2.
1.20 "TERRITORY" means all the countries of the world.
1.21 "VEHICLE" means InSite's DuraSite sustained-release delivery
vehicle used, among other things, for the delivery of the COMPOUND.
ARTICLE 2
GRANT
2.1 LICENSE TO P&U. InSite grants P&U the sole and exclusive license in
the TERRITORY, with a right to sublicense, with due notice to InSite, under
INSITE PATENT RIGHTS and INSITE KNOW-HOW, to (i) develop, manufacture, process
and use the COMPOUND in the FIELD and (ii) finish, market, distribute, detail
and sell the PRODUCT(S).
2.2 ACCEPTANCE OF GRANT. P&U accepts the grant of the exclusive license
rights set forth in paragraph 2.1 and confirms that it shall use its reasonable,
best efforts consistent with accepted business practices and legal requirements
to develop, obtain regulatory approval of, promote, market and sell the
PRODUCT(S) in the TERRITORY and shall not discontinue these reasonable best
efforts to develop, obtain regulatory approval of, promote, market and sell the
PRODUCT(S) in the TERRITORY for any reason other than force majeure, mutual
agreement of the parties, lack of efficacy, and/or material adverse side effects
that would demonstrate that the PRODUCT(S) is not suitable as a medicine for
human use.
ARTICLE 3
DEVELOPMENT PROGRAM; FUNDING
3.1 PROJECT. P&U and InSite will undertake necessary activities in the
PROJECT for the joint development of the PRODUCT. Both parties will use diligent
efforts to develop the PRODUCT.
3.2 PROOF OF CONCEPT. InSite shall oversee and be responsible for only
the development of the COMPOUND through PROOF OF CONCEPT and shall bear all
associated costs and expenses; provided, however, that these costs and expenses
do not exceed the Development Payments (as defined below). P&U shall take over
responsibility for the PROJECT, including budgeting and regulatory matters, upon
PROOF OF CONCEPT and shall bear all associated costs; provided that, to the
extent InSite receives from P&U additional Development Payments (as defined
below), InSite may be required by the Development Committee (as defined below)
to spend up to that
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amount on costs and expenses associated with the PROJECT. Prior to
PROOF OF CONCEPT, InSite shall complete all tasks necessary to place P&U in the
position to commence its own Phase II clinical trials.
3.3 DEVELOPMENT COMMITTEE; WORK PLAN.
(a) Within ten (10) business days after the Closing Date,
InSite and P&U shall organize a Development Committee (the "DC")
consisting of two members from each party. P&U shall select one
of its members to serve as a chairperson of the DC.
(b) The DC shall plan, coordinate and manage the overall
PROJECT, at least through PROOF OF CONCEPT, and serve as a forum
for communication between the parties. Each member of the DC will
be responsible for keeping the party he or she represents
informed of the status of the PROJECT. The DC will insure that
the overall PROJECT, through PROOF OF CONCEPT, proceeds in a
timely and coordinated fashion.
(c) The DC will operate by consensus, and all decisions
shall be made by a majority vote of the members. In the event of
a deadlock on any matter to be decided by the DC, the chairperson
shall cast the deciding vote.
(d) The DC will develop and modify from time to time a
Work Plan ("Work Plan") that covers the PROJECT through Phase II
clinical trials, including but not limited to clinical supplies,
further clinical development, manufacturing and regulatory
matters. The Work Plan will outline in detail the objectives,
activities, responsibility, funding and timing of the PROJECT
work to be done for the next calendar year. The DC will also
develop in detail a cost estimate ("Cost Estimate") for the
PROJECT work to be done by the parties. Within 30 days after the
Closing Date, the DC will develop and propose to the parties for
approval a detailed 1999 Work Plan and Cost Estimate. Should
PROOF OF CONCEPT not be achieved by , the DC will develop a
detailed Work Plan and Cost Estimate for the next calendar year.
(e) The DC shall operate consistent with the following
procedures, which the DC can modify from time to time:
(i) The chairperson shall be responsible for the
timing, agenda, and minutes of each DC meeting.
(ii) The location of the DC meeting will alternate
between InSite's facility and one of P&U's facilities.
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(iii) The DC will meet no fewer than four times
annually.
(iv) Non-members of the DC are welcome to attend
provided reasonable prior notice is given to and approved
by the DC.
(v) Minutes of each DC meeting will be summarized
within two weeks after the meeting and will not be
official until the chairperson has agreed to them.
(f) Each party will bear its own costs and expenses
associated with participation in the DC, and each party may
change its DC members upon notice to the other party.
(g) The DC may be disbanded after PROOF OF CONCEPT. In the
event the DC is disbanded, P&U shall have all the rights and
shall undertake all responsibilities of the DC as set forth
herein or otherwise related to the PROJECT.
3.4 DEVELOPMENT PAYMENTS.
(a) In partial consideration for the licenses granted
pursuant to Article 2, P&U agrees to pay to InSite certain
development payments (the "Development Payments"), which InSite
must use solely to fund the PROJECT and InSite's research and
development of the PRODUCT through PROOF OF CONCEPT. P&U and
InSite understand that InSite may incur costs relative to the
PROJECT prior to receipt of the Development Payments, in which
case such payments may be used to reimburse InSite for its past
expenses. P&U shall have the right to audit InSite records upon
reasonable notice, during normal business hours and solely for
the purpose of confirming that the Development Payments are used
in connection with the PROJECT. InSite acknowledges that P&U made
a Development Payment in the amount of to InSite upon the
execution of a Letter of Intent between the parties dated
November 12, 1998.
(b) Each Development Payment shall be in the amount of
* and, subject to InSite's compliance
with the terms of this Agreement and the Stock Purchase
Agreement, shall be payable monthly in accordance with Section
3.4(d) to InSite, * (the "Initial Term").
(c) P&U will make * additional monthly Development
Payments to InSite * and * Development Payments
to InSite *
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 9
* provided, however, that
(i) P&U shall not be obligated to make Development
Payments in the First Renewal Term if PROOF OF CONCEPT has
not been achieved by the end of the Initial Term, or P&U
has notified InSite at least ninety (90) days prior to the
end of the Initial Term that it will not make additional
Development Payments; and
(ii) P&U shall not be obligated to make Development
Payments in the Second Renewal Term if P&U has notified
InSite at least ninety (90) days prior to the end of the
First Renewal Term (i.e., at the end of the Initial Term
if the Development Payments are to be made in the First
Renewal Term) that it will not make additional Development
Payments.
(d) Each Development Payment due to InSite under Section
3.4(b) shall be made within fifteen (15) days following the end
of each month during the Initial Term, First Renewal Term and
Second Renewal Term, as applicable. In the event that any payment
is not made within forty-five (45) days of InSite providing P&U
with notice of non-payment, InSite shall be entitled to turn this
Agreement into a semi-exclusive license.
3.5 SUBCONTRACTING PERMITTED. InSite and P&U acknowledge and agree that
portions of the work involved in the PROJECT may be performed on behalf of
either party by third parties, at the DC's sole discretion, provided that, for
any material subcontract, (a) subcontractors have executed and delivered written
assignments granting such party sole ownership of all patent rights and know-how
that may be developed by the subcontractors, (b) such party and the
subcontractor shall be jointly and severally liable for the complete and timely
performance by the subcontractor of the work, and (c) if work which is desired
to be subcontracted is required to be performed according to current Good
Laboratory Practices or Good Manufacturing Practices, as established and revised
from time to time by the FDA, then either the subcontracting of the work must be
provided for in an already approved Work Plan or the proposed subcontracting
should be discussed and agreed in the DC within a reasonable period of time
before the work begins.
ARTICLE 4
PRODUCT DEVELOPMENT
4.1 SELECTION OF FORMULATIONS. The DC shall be solely responsible for
evaluating and selecting the active components and formulations resulting from
the PROJECT for potential development into PRODUCT(S).
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 10
4.2 CLINICAL TRIALS: EXPENSES. After PROOF OF CONCEPT, P&U shall be
responsible for all future development work and non-clinical and clinical
testing of formulations, at its own expense, although InSite, subject to the
limitation set forth in paragraph 3.2, shall continue to provide such support
for such testing as P&U reasonably requests.
4.3 OWNERSHIP OF THE DATA, DATABASE IND'S AND NDA'S. P&U will be the
sole owner of (a) all the data generated by the non-clinical and clinical
testing of the PRODUCT(S), (b) the database for such data, (c) all IND's filed
for clinical studies of the PRODUCT(S) and any comparable regulatory filings
outside the Untied States, and (d) all NDA's (collectively referred to as the
"Data"). InSite shall not have any reference rights to the Data. Upon P&U's
reasonable request, InSite shall promptly assist P&U, and shall use commercially
reasonable efforts to contractually obligate its vendors and subcontractors to
assist P&U, in preparing and obtaining favorable review of IND's relating to the
PRODUCT(S) and the foreign equivalents of such IND's, the costs and expenses of
which shall be borne solely by P&U, including credit for any Development
Payment. If P&U so desires, InSite shall transfer to P&U any IND's relating to
the PRODUCT(S) owned by InSite.
4.4 REGULATORY FILINGS. P&U or its licensees shall be responsible for
the preparation of suitable applications for REGULATORY APPROVAL in the
TERRITORY and shall be the owner and party of record of all such applications,
including all NDAs. The DC shall determine those initial countries of the
TERRITORY in which to file such applications. At P&U's request, InSite shall
promptly assist P&U, and shall use commercially reasonable efforts to
contractually obligate its vendors and subcontractors to assist P&U in the
preparation of such applications and the obtaining of REGULATORY APPROVALS by,
among other things, (a) providing P&U with all needed INSITE KNOW-HOW,
INFORMATION, reports, authorizations, certificates, methodologies,
specifications and other documentation which InSite owns or controls and which
relate to or are useful in connection with the PRODUCT or the COMPOUND, (b)
making InSite's facilities available for inspections by the FDA and other
governmental authorities, and making InSite's personnel available to the FDA and
other governmental authorities and (c) shall use commercially reasonable efforts
to contractually obligate its vendors and subcontractors to make their
facilities available for inspections by the FDA and other governmental
authorities and to make their personnel available to the FDA and other
governmental authorities.
4.5 DEVELOPMENT DILIGENCE. InSite and P&U acknowledge that the
successful development of PRODUCT(S) (including any improvements) under this
Agreement will require a collaborative effort, such that both parties agree to
use diligent efforts to timely complete the activities required in this
Agreement and outlined in any Work Plan.
4.6 PACKAGING. P&U shall own all trademarks relating to the PRODUCT,
other than DuraSite, which InSite shall continue to own and which InSite shall
permit
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P&U to use, solely in connection with the marketing and sale of the PRODUCT(S),
royalty free, for the TERM of this Agreement. If InSite requests, and to the
extent allowable by law, PRODUCT will carry the InSite trademark with respect to
the VEHICLE pursuant to a royalty free trademark license agreement to be
negotiated between the parties in good faith.
ARTICLE 5
COMMERCIAL RIGHTS
5.1 INSITE PATENTS ROYALTY. In consideration of the License granted in
Article 2, P&U shall pay InSite a royalty on NET SALES of PRODUCT(S) sold by P&U
or on the selling price to its distributors in each country in which and for so
long as any of the manufacture, use or processing of the COMPOUND for use in the
FIELD or any of the finishing, marketing, distribution, detailing or sale of the
PRODUCT(S) would infringe INSITE PATENT RIGHTS in the absence of this Agreement.
Subject to the other terms of this Article 5, the royalty percentage rate shall
be * of NET SALES of the PRODUCT(S) in each country of the
TERRITORY. However, in no event shall the royalty (including any royalty that
P&U may pay to CIBA Vision), together with the COST OF GOODS, exceed * of
NET SALES.
5.2 KNOW-HOW. Notwithstanding the termination of this Agreement pursuant
to Article 15, InSite grants P&U a perpetual, irrevocable and fully paid license
to use the INSITE KNOW-HOW in consideration of P&U's royalty payments pursuant
to paragraph 5.1, P&U's development payments and P&U's equity investment
pursuant to the Stock Purchase Agreement.
5.3 ROYALTY BASIS. The royalties payable in any particular calendar
quarter shall be based upon the aggregate NET SALES of PRODUCT(S) during such
quarter in those countries of the TERRITORY where royalties are due on such
PRODUCT(S).
5.4 COMPULSORY LICENSE. If InSite or P&U learns of or receives notice
that a third party obtained a COMPULSORY LICENSE in any country within the
TERRITORY, then the parties shall promptly notify each other. If the royalty
rate payable by the grantee of the COMPULSORY LICENSE is less than the royalty
rate set forth in paragraph 5.1, then the royalty rate set forth in paragraph
5.1 shall be reduced to such lower rate (net of any financial benefit received
by P&U under such COMPULSORY LICENSES) in the subject country for so long as
sales are made pursuant to the COMPULSORY LICENSE, provided that in no event
shall the royalties paid to InSite be reduced below the amount of royalties
InSite is requested to pay to third parties.
5.5 THIRD PARTY ROYALTIES. InSite shall be responsible for the payment
of all royalties due and owing to the Regents of the University of California.
P&U shall be responsible for the payment of royalties of *
to CIBA Vision Corporation. With respect to NET SALES of the PRODUCT in any
country in the TERRITORY, InSite will also provide an equitable reduction in the
royalty rate on NET
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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SALES of the PRODUCT(S) in such country in the event that P&U must obtain any
other license from any third party in order to develop, manufacture, market,
sell or detail the PRODUCT(S) in such country.
5.6 PAYMENTS. Royalties payable due under paragraph 5.1 will be paid to
InSite not later than forty-five (45) calendar days following the end of each
calendar quarter and each such payment shall be accompanied by a reasonably
detailed written report showing the period to which such payment applies, the
amount billed to unaffiliated third parties for PRODUCT(S) during such calendar
quarter, the deductions from the amount billed to arrive at NET SALES, the total
NET SALES for the period and the royalties due on such NET SALES. Royalties
payable under this paragraph 5.6 will be deposited by P&U by the date due in a
bank chosen by InSite.
5.7 CURRENCY OF PAYMENT. All payments to be made by P&U to InSite
pursuant to this Agreement shall be made in U.S. Dollars. NET SALES outside the
U.S. shall be first determined in the currency of the country in which they are
earned and shall be converted quarterly into an amount in U.S. Dollars based on
P&U's internal exchange rates used in preparing P&U's consolidated earnings
statements for such quarter. All such converted NET SALES shall be consolidated
with U.S. NET SALES for the corresponding period and the applicable royalty
payable determined therefrom.
5.8 REGULATORY AND MARKETING DILIGENCE. Subject to the limitations set
forth in paragraph 2.2, P&U shall have no obligation to launch a PRODUCT(S) in
any country in which it is unable to obtain labeling, pricing or governmental or
third party reimbursement satisfactory to P&U, nor shall P&U be obligated to
pursue REGULATORY APPROVAL in any country within the TERRITORY if such effort
cannot be justified due to political, economic, commercial or other circumstance
in such country.
5.9 SINGLE ROYALTY. Royalties payable under paragraph 5.1 will be
payable only once with respect to a particular unit of PRODUCT(S) and will be
paid only once regardless of there being INSITE PATENT RIGHTS applicable to such
PRODUCT(S) under more than one PATENT.
5.10 DISTRIBUTION AGREEMENT. In the event P&U enters into any
distribution agreement pursuant to Article 2 to others to market, distribute,
detail or sell PRODUCT(S), such agreements shall require P&U to account for and
report its sales of PRODUCT(S) to such distributors, and P&U shall pay royalties
to InSite on such sales.
5.11 MAINTENANCE OF LICENSES FROM THIRD PARTIES. So as not to adversely
affect P&U's right to INSITE PATENT RIGHTS and INSITE KNOW-HOW under this
Agreement, InSite agrees during the TERM of this Agreement: (a) not to take any
actions to terminate or restrict its rights under any third party license
agreements relating to the PRODUCT or other agreements which give rise to such
rights and know-how, (b) to discharge all of InSite's material obligations and
responsibilities under any such third party license agreements or other
agreements relating to the PRODUCT, including without limitation, making all
required payments thereunder (other than payments to
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CIBA Vision, which shall be the responsibility of P&U as provided in paragraph
5.5) and (c) to notify P&U promptly of InSite's receipt of any notices of breach
under any such third party license agreements or other agreements relating to
the PRODUCT.
ARTICLE 6
SUPPLY OF COMPOUND AND VEHICLES
6.1 GENERAL. Sections 6.2 through 6.6 set forth the terms and conditions
that will govern the manufacture of the COMPOUND for use in the PROJECT after
PROOF OF CONCEPT but prior to the commercialization of PRODUCT(S), unless and
until superseded by a manufacturing and supply agreement to be entered into
after the Closing Date.
6.2 MANUFACTURE AND SUPPLY OF COMPOUND FOR THE PROJECT. After PROOF OF
CONCEPT, InSite will deliver to P&U such quantities of COMPOUND as are required
in order to meet the PROJECT needs throughout the research term, at P&U's cost
and expense and in accordance with the Work Plan.
6.3 MANUFACTURE AND SUPPLY OF VEHICLE FOR THE PROJECT. After PROOF OF
CONCEPT, InSite will supply P&U with a sufficient amount of VEHICLE to meet the
PROJECT needs, at P&U's cost and expense.
6.4 REPRESENTATIONS AND WARRANTIES. InSite represents and warrants to
P&U as follows: (a) the COMPOUND and VEHICLE shall be manufactured and processed
in compliance with current Good Manufacturing Practice as specified in the
United States Code of Federal Regulations, applicable Investigational New Drug
applications, and all other U.S. and other non U.S. governmental rules and
regulations applicable to the COMPOUND and the VEHICLE and their manufacture,
(b) shall meet and conform to the specifications for the COMPOUND and VEHICLE in
effect at the time of delivery, (c) shall not be adulterated or misbranded
within the meaning of the U.S. Food, Drug and Cosmetic Act of 1938, as amended
from time to time, nor constitute an article that may not be introduced into
interstate commerce under the provisions of Section 505 of said Act, (d) shall
conform to the certificates of analysis supplied with the shipment of the
COMPOUND, (e) shall be packaged and shipped in accordance with mutually agreed
to procedures, and (f) shall be free and clear of any lien or encumbrance.
6.5 SHIPPING TEST. Within * of the PROOF OF CONCEPT and in
accordance with the Work Plan, InSite will complete a shipping test with the
COMPOUND and the PRODUCT(S) to determine whether shipment of such COMPOUND or
PRODUCT(S) causes degradation of the formulation. The protocol for the test will
be subject to approval by the DC.
6.6 INSPECTIONS. During regular business hours and upon reasonable
advance notice, P&U personnel shall be permitted, at its discretion, to inspect
the facilities of InSite and its subcontractors and observe manufacturing
activities, to the extent necessary
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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and for the sole purpose of assessing compliance with applicable regulatory,
environmental and other governmental regulations and identifying safety and
occupational risks (if any) associated with the manufacturing activities.
ARTICLE 7
RECORD KEEPING AND AUDITS.
7.1 RECORD KEEPING. InSite and P&U shall keep complete and accurate
records pertaining to the development, use and sale of PRODUCT(S) in sufficient
detail to permit the other party to confirm, in the case of InSite, its research
and development efforts and costs and its audit, manufacturing and processing
activities and costs under this Agreement, and in the case of P&U, its clinical
research, regulatory approval and commercialization efforts and the accuracy of
calculations of all royalty payments.
7.2 RECORDS RETENTION. All records and information required under 7.1
shall be maintained for the longer of: (a) four (4) years following the year in
which any such efforts or payments were made hereunder and (b) such longer
period as may be required by law.
7.3 AUDIT REQUEST. InSite and P&U shall have the right to audit each
other's records, at their own expense and on an annual basis, to determine, with
respect to any calendar year, the accuracy of any report or payment made under
this Agreement, but only once with respect to each calendar year; provided,
however, that if any discrepancy exceeds five percent (5%), the cost and
expenses of such audit shall be paid by the party against whom the discrepancy
is found. If a party desires to audit such records, it shall engage an
independent, certified public accountant reasonably acceptable to the other
party, to examine such records. The accountant shall be instructed to provide to
the other party a report on the findings concerning any report made or payment
submitted by the audited party during such period. Any INFORMATION received by a
party pursuant to this paragraph 7.3 shall be deemed to be Confidential
Information (as defined in paragraph 13.1) hereunder. This paragraph 7.3 shall
survive any termination of this Agreement for a period of four (4) years.
ARTICLE 8
PATENTS
8.1 EXISTING INSITE PATENT APPLICATIONS. With respect to any pending
PATENT APPLICATION existing as of the Closing Date relating to the use of the
COMPOUND in the FIELD: (a) InSite shall remain the owner of the application, (b)
InSite shall continue to bear the full costs of and responsibility for
preparing, filing and prosecuting the application, (c) InSite will keep P&U
reasonably informed of the status of any such existing PATENT APPLICATIONS, and
(d) the application and any patents issuing thereon shall constitute INSITE
PATENT RIGHTS for purposes of this Agreement.
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8.2 FUTURE PATENT APPLICATIONS.
(a) With respect to any PATENT APPLICATION for existing
sole inventions in the FIELD owned, licensed to or controlled by
InSite that are filed in the future:
(i) InSite shall remain the owner of each such sole
invention subject to such PATENT APPLICATION.
(ii) If, anywhere in the TERRITORY, InSite
determines to file a PATENT APPLICATION for an invention
covering the use of the COMPOUND in the FIELD, then (A)
InSite will prepare a first draft of the application and
furnish a copy of the draft to the DC or P&U, as
applicable, for comment at least 30 days before filing the
application, (B) InSite will reasonably consider all
revisions as requested by the DC or P&U, as applicable,
and file the application in each country in which the DC
or P&U, as applicable, elects to do so, (C) InSite will
bear the full costs of preparing, filing and prosecuting
the application and InSite will control the prosecution of
the application, (D) in any country in which InSite elects
not to file the application, P&U may file the application
at its own cost and control the prosecution thereof (in
which event it will keep the DC, if applicable, reasonably
informed of the application's progress), and (E) each
application and any patents issuing thereon filed by
InSite will constitute INSITE PATENT RIGHTS for purposes
of this Agreement.
(iii) If InSite elects not to file a PATENT
APPLICATION covering an invention covering the use of the
COMPOUND in the FIELD anywhere in the world, then (A) the
invention will remain a trade secret of InSite (unless (C)
below becomes applicable), (B) if the invention
constitutes INSITE KNOW-HOW, it will be subject to the
same provisions as other INSITE KNOW-HOW (unless (C) below
becomes applicable), and (C) P&U shall have the right to
cause InSite to file such PATENT APPLICATIONS for the
invention, at P&U's sole cost and expense, anywhere in the
world, with all rights in such PATENT APPLICATION and any
resulting PATENT being assigned by InSite to P&U, without
the payment of any consideration.
(b) Future Sole Inventions:
(i) Each party shall be the initial sole owner of
each future invention and discovery related to the use of
the COMPOUND in the FIELD. ("Future Sole Invention"),
acquired
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or developed solely by such party or its employees,
consultants or subcontractors after the Closing Date.
(ii) Each party shall be solely responsible for
electing, in its sole discretion, whether to file a Patent
Application for each of its Future Sole Inventions.
(iii) If a party elects to file a PATENT
APPLICATION for one of its Future Sole Inventions in at
least one country in the TERRITORY, then (A) the filing
party will prepare a first draft of the patent
application, (B) the filing party will furnish a copy of
the draft to the DC or P&U, if applicable, for
informational purposes only, at least thirty (30) days
before filing the application, (C) the filing party will
bear the full costs of preparing, filing and prosecuting
the application and maintaining any patents that issue on
the application, (D) in any countries in which the filing
party elects not to file an application for the Future
Sole Invention, the other party may file its own
application (in which event the provisions of this
paragraph 8.2(b)(iii)(A) to (C) shall apply, modified as
appropriate and (E) if the filing party is InSite, the
applications and patents referred to in this paragraph
8.2(b)(iii) will constitute INSITE PATENT RIGHTS for
purposes of this Agreement.
(iv) If a party elects not to file any PATENT
APPLICATION for one of its Future Sole Inventions anywhere
in the TERRITORY, then (A) the Sole Invention will remain
a trade secret of the inventing party, (B) if the Future
Sole Invention constitutes INSITE KNOW-HOW, it will be
subject to the same provisions as other INSITE KNOW-HOW
and (C) the other party will not have the right to file
any PATENT APPLICATIONS for the Future Sole Invention
anywhere in the world.
8.3 JOINT INVENTIONS.
(a) Definitions. For purposes of this paragraph 8.3, the
following terms shall have the specified definitions:
(i) "Joint Invention" means each invention or
discovery acquired or developed jointly (as determined by
U.S. law of inventorship) by the parties (together with
their employees, consultants and subcontractors) under
this Agreement.
(ii) "Field Joint Invention" means a Joint
Invention that is at the time of its invention necessary
or useful within the FIELD.
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(iii) "Other Joint Invention" means a Joint
Invention that is not a Field Joint Invention.
(b) Field Joint Inventions.
(i) To the extent it is practical to do so, PATENT
APPLICATIONS for Field Joint Inventions shall be
separately defined and prosecuted.
(ii) If the DC or P&U, as applicable, elects to
authorize the filing of a PATENT APPLICATION for a Field
Joint Invention, then (A) InSite will prepare a first
draft of the application and furnish a copy of the draft
to the DC or P&U, as applicable, for comment at least
thirty (30) days before filing the application, (B) InSite
will revise the application as requested by the DC or P&U,
as applicable, and file the application in each country in
which the DC instructs it to do so, (C) InSite and P&U
will share the full costs of preparing, filing and
prosecuting the application and InSite, through the DC, as
applicable, will control the prosecution of the
application, provided that, in the event InSite shall fail
to pay its share of such costs, such failure shall not
constitute a breach of this Agreement, (D) in any country
in which the DC or P&U, as applicable, does not instruct
InSite to file the application, InSite may file the
application, at its own cost (in which event it will keep
the DC or P&U, as applicable, reasonably informed of the
application's progress), and (E) each application and any
patents issuing thereon will constitute shared patent
rights for purposes of this Agreement and no additional
royalties shall be payable under this Agreement.
(iii) If the DC or P&U, as applicable, elects not
to authorize the filing of a PATENT APPLICATION for a
Field Joint Invention anywhere in the world, then (A) the
joint invention will remain a trade secret, (B) if the
joint invention constitutes INSITE KNOW-HOW, it will be
subject to the same provisions of this Agreement as other
INSITE KNOW-HOW and (C) neither P&U nor InSite will have
the right to file any PATENT APPLICATIONS for the joint
invention anywhere in the world.
(c) Other Joint Inventions.
(i) Each party shall retain its joint ownership
interest in each Other Joint Invention.
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(ii) If the parties mutually decide to file a
patent application for an Other Joint Invention in one or
more countries, then the following provisions shall apply
to each such application: (A) InSite shall prepare a first
draft of the patent application, (B) InSite will furnish a
copy of the draft to P&U for P&U's comment and approval at
least thirty (30) days before filing the application, (C)
the parties will share equally the full costs of
preparing, filing and prosecuting the application and
maintaining any patents that issue on the application,
provided that, in the event InSite shall fail to pay its
share of such costs, such failure shall not constitute a
breach of this Agreement, (D) in any countries in which
one of the parties does not support filing an application
for the Other Joint Invention, the other party may file
its own application in the name of both parties, but at
its own cost, and (E) the parties will negotiate the terms
and conditions of the respective parties rights to use the
Other Joint Invention before or after the filing of a
PATENT APPLICATION.
8.4 COOPERATION. Each party will cooperate with the other and will cause
its employees, consultants and subcontractors to cooperate with the other, in
completing any PATENT APPLICATIONS for Field Joint Inventions and Other Joint
Inventions, and in executing and delivering any instrument required to permit
the other party to exercise its rights and discharge its obligations under this
paragraph 8.4, including where appropriate instruments assigning its joint
ownership interest in a Field Joint Invention. On a semi-annual basis, InSite
agrees to present an up-date of the INSITE PATENTS RIGHTS to the DC and to
discuss the strategy for the protection of intellectual property rights related
to the PROJECT.
8.5 ISSUED PATENTS. InSite shall take all steps necessary to maintain,
for the full life thereof, all issued PATENTS, whether claiming Joint Inventions
or inventions owned, licensed to or controlled solely by InSite, which underlie
INSITE PATENT RIGHTS.
8.6 PATENT EXTENSION.
(a) P&U shall have the right, upon consultation with
InSite, to file on behalf of and as agent for InSite (at P&U's
sole cost and expense), all applications and to take all actions
necessary (i) to obtain the benefits of the Drug Price
Competition and Patent Term Restoration Act of 1984 and any
amendments thereto to the extent such benefits relate to the
PRODUCT(S) and (ii) to extend the lives of the INSITE PATENTS
RIGHTS that claim PRODUCT(S) constituting drug products or
otherwise involve the protection of such products to the extent
permitted by any other law or regulation by, among other things,
applying for supplemental protection certificates. InSite agrees
to execute and deliver such further
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authorizations and instruments and to take such further actions
as may be reasonably requested by P&U to implement the
foregoing.
(b) To the extent the INSITE PATENTS RIGHTS are subject to
regulations or statutes comparable to those referred to in
paragraph 8.6(a), InSite agrees to exercise its rights under such
regulations and statutes in a fair and equitable manner that
takes into account the legitimate commercial interests of P&U,
upon consultation with P&U.
8.7. PUBLIC DISCLOSURE. Each party agrees to delay any public disclosure
of the subject matter of any PATENT APPLICATION to which this Article 8 applies
until the filing of all U.S. and intended foreign applications but in no event
more than one (1) year from the first filed (priority) application.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
9.1 INSITE. InSite represents and warrants to P&U as follows:
(a) InSite has delivered to P&U copies of all INSITE
KNOW-HOW, together with any other information now owned, licensed
to or controlled by InSite that is reasonably necessary or useful
to a complete understanding of the prospects for the PRODUCT(S)
and the PROJECT including without limitation complete reports on
all serious adverse experiences associated with the use of the
PRODUCT(S) and the VEHICLE in connection with the PRODUCT.
(b) Based on INSITE'S KNOWLEDGE, all INSITE KNOW-HOW and
other INFORMATION of a material nature delivered by InSite to P&U
was, and is currently, accurate, correct and complete.
(c) Schedule A contains an accurate, correct and complete
list of all PATENT APPLICATIONS owned, licensed to or controlled
by InSite claiming inventions that may be useful or necessary in
the FIELD, and all PATENTS owned, licensed to or controlled by
InSite claiming inventions that may be useful or necessary in the
FIELD, and InSite has made available to P&U or its outside patent
counsel all material information known to InSite relating to the
prospects for issuance of PATENTS from such PATENT APPLICATIONS
and the validity and enforceability of such PATENTS.
(d) InSite has sufficient legal and/or beneficial right,
title and interest in, to and under the INSITE PATENT RIGHTS, the
INSITE KNOW-HOW and its other intellectual property rights to
conduct its
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business as now conducted and as currently proposed to be
conducted under this Agreement and to grant the licenses
contained herein.
(e) Based on INSITE'S KNOWLEDGE, the conduct of its
business as currently conducted does not violate, and the conduct
of its business as proposed under this Agreement would not
violate, any of the intellectual property rights of any other
person or entity relating to the use of the COMPOUND in the FIELD
or the PRODUCT(S).
(f) Based on INSITE'S KNOWLEDGE, there has been no, and
there currently is no, material unauthorized use, infringement or
misappropriation of any INSITE KNOW-HOW or INSITE PATENT RIGHTS.
(g) The execution and delivery of this Agreement by InSite
and its performance of its obligations under this Agreement will
not violate any federal, state, municipal statute or regulation
or any order of any court or other governmental department,
authority, agency or instrumentality.
(h) All of InSite's employees, officers, relevant
subcontractors and relevant consultants have executed agreements
requiring assignment to it of all inventions made during the
course of and as a result of their association with it and
obligating the individual to maintain as confidential the
confidential information of it as well as the confidential
information of a third party which it may receive.
(i) InSite has not, and during the TERM of this Agreement
will not, grant any right to any third party relating to the
INSITE PATENT RIGHTS and INSITE KNOW-HOW which conflicts with the
rights granted to P&U under this Agreement.
(j) Based on INSITE'S KNOWLEDGE, neither InSite, nor any
of its employees, officers, subcontractors or consultants who has
rendered services relating to the PRODUCT(S) or the use of the
COMPOUND in the FIELD has ever been debarred or, to InSite's
actual knowledge, convicted of a crime for which an entity or
person could be debarred under 21 USC Section 335a. To the best
of InSite's knowledge, neither InSite nor any of its employees,
officers, subcontractors or consultants is the subject of a
debarment proceeding or under indictment for a crime for which a
person or entity could be debarred under that Section.
(k) The COMPOUND and the PRODUCT(S) used in clinical
studies by InSite to date have been manufactured in registered
GMP-compliant facilities in accordance with applicable Good
Manufacturing Principles regulations.
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(l) InSite will use commercially reasonable efforts to
continue the employment of key employees and managers, including
but not limited to Dr. Kumar Chandrasekaran to participate in and
assist with the PROJECT, until PROOF OF CONCEPT.
(m) Flavine International is a reliable, approved source
of diclofenac sodium and is presently supplying diclofenac to
CIBA Vision. Heumann Pharma GbmH is the manufacturer of the
diclofenac supplied by Flavine International. The Drug Master
File is 8121.
9.2 P&U. P&U represents and warrants to InSite as follows:
(a) P&U's execution and delivery of this Agreement and its
performance of its obligations under this Agreement will not
violate any federal, state, municipal statute or regulation or
any order of any court or other governmental department,
authority, agency or instrumentality.
(b) All of P&U's employees, officers, relevant
subcontractors and relevant consultants have executed agreements
requiring assignment to it of all inventions within the FIELD
made during the course of and as a result of their association
with it and obligating the individual to maintain as confidential
the confidential information of it, as well as the confidential
information of a third party which it may receive.
(c) All of P&U's employees, officers, relevant
subcontractors and relevant consultants have executed agreements
requiring assignment to it of all inventions made during the
course of and as a result of their association with it and
obligating the individual to maintain as confidential the
confidential information of it as well as the confidential
information of a third party which it may receive.
(d) To its knowledge, neither P&U, nor any of its
employees, officers, subcontractors or consultants who has
rendered services relating to the PRODUCT(S) or the use of the
COMPOUND in the FIELD (i) has ever been debarred or, to its
actual knowledge, convicted of a crime for which an entity or
person could be debarred under 21 USC Section 335a or (ii) is the
subject of a debarment proceeding or under indictment for a crime
for which a person or entity could be debarred under that
Section.
ARTICLE 10
INFRINGEMENT OF THIRD PARTY RIGHTS
10.1 NOTICE. If the development, manufacture, processing or use of the
COMPOUND in the FIELD or the finishing, distributing, marketing, detailing or
sale of
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PRODUCT(S) results in a claim for patent infringement, the party first having
notice shall promptly notify the other party in writing. The notice shall set
forth the facts of the claim (to the extent known by the party having notice) in
reasonable detail.
10.2 DEFINITIONS. For purposes of this Article 10, the following terms
shall have the specified meanings:
(a) "Existing Patent Claim" means any claim against a party
referred to in paragraph 10.1 that is based on an alleged
infringement of a third party's patent that issues from a PATENT
APPLICATION that (1) is published at least ninety (90) days prior
to the Closing Date of this Agreement or (2) claims priority from
a PATENT APPLICATION published at least ninety (90) days prior to
the Closing Date of this Agreement.
(b) "Vehicle Claim" means any claim referred to in
paragraph 10.1 that is based on the allegation that the
development, manufacture, use, finishing, distribution, marketing
or sale of the VEHICLE infringes a third party's rights.
(c) "Product Claim" means any claim referred to in
paragraph 10.1 that is based on the allegation that the
PRODUCT(S) infringes a third party's rights.
(d) "Subject Claim" means any Existing Patent Claim,
Vehicle Claim, or Product Claim.
10.3 CONTROL OF DEFENSE AGAINST EXISTING PATENT CLAIMS, VEHICLE CLAIMS
AND PRODUCT CLAIMS. * shall have the initial right to manage
solely the defense of the parties against any Existing Patent Claims or Vehicle
Claims. If * elects to exercise such right as to such a claim,
* shall cooperate with InSite at InSite's request and *
shall have the right to be represented by counsel selected by * . If*
elects not to exercise such right as to such a claim, *
shall have the right to manage solely the defense of the parties against the
claim, and * shall cooperate with * at * request and shall
have the right to be represented by counsel selected by * .
10.4 SETTLEMENTS. The party that manages solely the defense of the
parties against Subject Claims shall also have the sole right to settle such
claims on terms deemed appropriate by such party; provided that (a) such party
shall consult with the other party concerning the terms of any settlement
agreement before entering into such an agreement and (b) neither party shall
settle any Subject Claim without the prior written consent of the other, which
the other shall not unreasonably withhold or delay.
10.5 COSTS OF DEFENSE. If * elects to solely manage the
defense, * shall be responsible for the reasonable fees and costs of
attorneys and consultants, together with the court costs, incurred by both
parties in defending against Subject
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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Claims. * shall bear its own costs when assisting * in a
defense and all costs if * solely manages the defense.
10.6 PAYMENTS TO THIRD PARTIES. If * is required by a final
court order or a settlement agreement entered into in good faith to make royalty
payments or other payments to a third party in connection with the disposition
of any Subject Claim in any country, *
.
10.7 NO THIRD PARTY EFFECT. Neither this Article 10, nor any exercise of
rights or fulfillment of obligations under this Article 10, shall affect by
itself any indemnification or contribution rights of either party against any
third party.
ARTICLE 11
INFRINGEMENT BY THIRD PARTIES
11.1 NOTICE. If any of the INSITE PATENT RIGHTS or INSITE KNOW-HOW is
infringed by a third party, the party first having knowledge of such
infringement shall promptly notify the other in writing. The notice shall set
forth the facts of such infringement (to the extent then known by the party
having notice) in reasonable detail.
11.2 PROSECUTION OF ACTIONS.
(a) InSite shall have the primary right, but not the
obligation, to institute, prosecute and control any action or
proceeding with respect to any infringement of any of the INSITE
PATENT RIGHTS or INSITE KNOW-HOW arising from the development,
manufacture, processing or use of the COMPOUND in the FIELD or
the finishing, distribution, marketing, detailing or sale of the
PRODUCT(S), by counsel of its own choice. P&U shall cooperate
with InSite at InSite's request in the prosecution of such action
or proceeding. If InSite determines that P&U is an indispensable
party to the action, P&U hereby consents to be joined. In such
event, P&U shall have the right to be represented in that action
by counsel of its own choice and expense.
(b) If InSite fails to bring an action or proceeding within
a period of thirty (30) days after receiving written notice from
P&U or otherwise having knowledge of that infringement, P&U shall
have the right to bring and control any such action by counsel of
its own choice and expense. If P&U determines that InSite is an
indispensable party to the action, InSite hereby consents to be
joined. In such event, InSite shall have the right to be
represented in that action by counsel of its own choice and
expense.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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(c) No settlement, consent judgment or other voluntary
final disposition of a suit under this Article 11 may be entered
into without the joint consent of P&U and InSite, which consent
shall not be withheld unreasonably.
(d) If InSite brings an action, any damages or other
monetary awards recovered by InSite shall be applied first to
defray the costs and expenses incurred in the action. If any
balance remains, InSite shall pay P&U * of such balance.
(e) If InSite fails to bring action and P&U brings action
any damages or other monetary awards recovered by P&U shall be
applied first to defray the costs and expenses incurred in the
action. If any balance remains, P&U shall pay InSite
* of such balance.
ARTICLE 12
MUTUAL INDEMNIFICATION
12.1 EMPLOYEES. Each party shall indemnify the other party, such other
party's successors and assigns, and the directors, officers, employees, agents
and counsel thereof (the "Other Party's Indemnitees"), defend and hold each
Other Party's Indemnitee harmless from and against, on an after-tax basis, any
and all liabilities, damages, settlements, claims, actions, suits, penalties,
fines, costs or expenses (including without limitation reasonable attorneys'
fees) (any of the foregoing being referred to collectively as "Damages")
incurred by or asserted against any Other Party's Indemnitee by or on behalf of
the indemnifying party's employees that arise out of activities conducted under
this Agreement by such employees.
12.2 INSITE'S RIGHT TO INDEMNIFICATION. P&U shall indemnify each of
InSite, its successors and assigns, and the directors, officers, employees,
agents and counsel thereof (the "InSite Indemnitees"), defend and hold each
InSite Indemnitee harmless from and against on an after-tax basis, any and all
Damages incurred by or asserted against any InSite Indemnitee of whatever kind
or name, including, without limitation, any claim or liability based upon
negligence, warranty, strict liability, violation of government regulation or
infringement of patent or other proprietary rights, but only to the extent
arising from or occurring as result of a claim or demand made by a third party
(a "Third Party Claim") against any InSite Indemnitee because of (a) breach of
any representation or warranty made by P&U in paragraph 9.2 hereof; (b) the
safety or dosage of the PRODUCT(S), unless attributable to an item under the
responsibility of InSite; (c) the manufacture, processing, testing, packaging,
sale or promotion of any PRODUCT(S), or the establishment of specifications for
the manufacture, processing, testing, sale or packaging of a PRODUCT(S) by or on
behalf of P&U or its licensees (except activities undertaken by InSite); (d) the
failure of P&U to disclose any material or drug safety information in P&U's
possession to InSite regarding any PRODUCT(S); (e) the labeling, warehousing,
distribution or detailing of any PRODUCT(S) by or on behalf of P&U or its
licensees or (f) any breach of this Agreement by P&U, except, in each such
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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case, to the extent that such Damages result from the negligence or misconduct
of InSite. InSite shall promptly notify P&U of any Third Party Claim of which it
becomes aware and shall permit P&U, at P&U's cost, to defend InSite against such
Third Party Claim and to control the defense and disposition (including, without
limitation, all decisions to litigate, settle (subject to InSite's consent,
which consent shall not be unreasonably withheld) or appeal) of such claim and
shall cooperate in the defense thereof. InSite may, at its option and expense,
have its own counsel participate in any proceeding that is under the direction
of P&U and shall cooperate with P&U and its insurer in the disposition of any
such matter.
12.3 P&U'S RIGHT TO INDEMNIFICATION. InSite shall indemnify each of P&U,
its successors and assigns, and the directors, officers, employees, agents and
counsel thereof (the "P&U Indemnitees"), defend and hold each P&U Indemnitee
harmless from and against, on an after-tax basis, any and all Damages incurred
by or asserted against any P&U Indemnitee of whatever kind or nature, including,
without limitation, any claim or liability based upon negligence, warranty,
strict liability, violation of government regulation or infringement of patent
or other proprietary rights, but only to the extent arising from or occurring as
a result of a Third Party Claim against any P&U Indemnitee because of (a) breach
of any warranty made by InSite in paragraph 9.1; (b) the failure of InSite to
manufacture, process, test or package for clinical trials, as applicable,
PRODUCT(S) according to specifications; (c) the failure of InSite to disclose
any material or drug safety information in InSite's possession to P&U regarding
any PRODUCT(S); or (d) any breach of this Agreement by InSite, except, in each
such case, to the extent that such Damages result from the negligence or
misconduct of P&U or its licensees (except activities undertaken by InSite). P&U
shall promptly notify InSite of any Third Party Claim of which it becomes aware
and permit InSite, at InSite's cost, to defend P&U against such Third Party
Claim and to control the defense and disposition (including, without limitation,
all decisions to litigate, settle (subject to P&U's consent, which consent shall
not be unreasonably withheld) or appeal) of such Third Party Claim and shall
cooperate in the defense thereof. P&U may, at its option and expense, have its
own counsel participate in any proceeding that is under the direction of InSite
and will cooperate with InSite and its insurer in the disposition of any such
matter.
ARTICLE 13
CONFIDENTIALITY: AUTHORIZED DISCLOSURES: DISCLOSURE OF
INFORMATION
13.1 CONFIDENTIALITY OF DISCLOSED INFORMATION. Except to the extent
expressly authorized by this Agreement or otherwise agreed to in writing, the
parties agree that, for the TERM of this Agreement and for five (5) years
thereafter, the receiving party shall keep confidential and shall not publish or
otherwise disclose or use for any purpose other than as provided for in this
Agreement any INFORMATION or other information furnished to it by the other
party pursuant to this Agreement (collectively, "Confidential Information"),
except to the extent that it can be established by the receiving party that such
Confidential Information:
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(a) was already known by the receiving party, other than
under an obligation of confidentiality, at the time of disclosure
to the receiving party;
(b) was generally available to the public or otherwise
part of the public domain at the time of disclosure to the
receiving party;
(c) became generally available to the public or otherwise
part of the public domain after the time of disclosure to the
receiving party other than through any act or omission of the
receiving party in breach of this Agreement;
(d) was disclosed to the receiving party, other than under
an obligation of confidentiality, by a third party not obligated
to the disclosing party not to disclose such INFORMATION to
others; or
(e) is or becomes independently developed by the receiving
party without the receiving party violating any of its
obligations under this Agreement.
13.2 AUTHORIZED DISCLOSURES. Each party may disclose the other party's
Confidential Information hereunder to the extent reasonably necessary in
connection with the exercise of its rights and discharge of its obligations
under this Agreement or in connection with negotiations related to the sale of
the total stock of either party or its business, provided all such disclosures
are subject to written confidentiality obligations containing provisions no less
protective than those contained herein. Such permitted disclosures include those
made in connection with filing or prosecuting PATENT APPLICATIONS, prosecuting
or defending litigation, complying with applicable governmental regulations, or
conducting non-clinical or clinical trials. If a party is required by law or
regulation to make any such disclosure of the other party's Confidential
Information it will, except where impractical for necessary disclosures (for
example in the event of medical emergency), give reasonable advance notice to
the other party of such disclosure requirement and, except to the extent
inappropriate in the case of PATENT APPLICATIONS, will use reasonable efforts to
secure confidential treatment of such Confidential Information required to be
disclosed.
13.3 CONFIDENTIALITY OF INSITE KNOW-HOW. In light of the grant of an
exclusive license to P&U of the INSITE KNOW-HOW, InSite agrees to maintain the
confidentiality of the INSITE KNOW-HOW during the TERM of this Agreement;
provided, that in the event this Agreement is terminated due to breach by
InSite, InSite agrees to maintain the confidentiality of the INSITE KNOW-HOW to
the same extent it is obligated under paragraphs 13.1 and 13.2 to maintain the
confidentiality of Confidential Information disclosed by P&U.
13.4 DISCLOSURES BY THE PARTIES.
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(a) In accordance with the procedures established by the
DC or P&U, as the case may be, and at any time upon the
reasonable written request of the other party, each party shall
disclose to the other all Confidential Information and
INFORMATION reasonably necessary in connection with the exercise
of each party's rights and discharge of its obligations under
this Agreement.
(b) In furtherance of the foregoing, upon P&U's request
from time to time, InSite shall allow P&U's personnel to (i)
visit the manufacturing and research facilities of InSite, its
consultants and suppliers, (ii) monitor the quality of
manufactured PRODUCT(S) and (iii) consult with personnel to
discuss and review such Confidential Information or INFORMATION.
The parties shall schedule all such activities at mutually
agreeable times.
(c) As soon as practicable the parties shall report to
each other any serious adverse experience information associated
with the uses of the PRODUCT(S) or the VEHICLE (including such
information relating to side effects, injuries, toxicity
associated with clinical uses, and product failures) provided
that InSite shall not be required to report to P&U adverse event
experience information which is deemed by InSite to be related
solely to other drugs delivered by the VEHICLE.
13.5 TERMINATION OF CONFIDENTIALITY AGREEMENT. All Confidential
Information previously disclosed by the parties shall be subject to the terms of
paragraphs 13.1 and 13.2 and shall no longer be subject to the terms of the June
19, 1997 Confidentiality Agreement.
ARTICLE 14
PUBLICITY; USE OF NAME AND TRADEMARKS
14.1 PUBLICITY RELATED TO THIS AGREEMENT. Except as provided in Section
14.2 and as required by law, neither party shall (i) disclose to any third party
any financial or other terms or conditions of this Agreement, nor (ii) originate
or initiate any publicity, news release or public announcement, written or oral,
whether to the public, press, stockholders or otherwise, relating to the
existence, scope or economic terms of this Agreement, performance under it or
any of its specific terms or conditions, without the express prior written
consent of the other party.
14.2 PUBLICITY RELATED TO THE PROJECT. Subject to the other provisions
of this Agreement, P&U may disclose INFORMATION generated by studies sponsored
by P&U, or disclose any conclusions based on such INFORMATION, after giving
InSite a reasonable opportunity to review and comment on (but not approve) any
such disclosure. In addition, each party may announce periodically whether Phase
I, II or III studies involving the PRODUCT(S) are underway or to be initiated.
Any other disclosures of
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information generated by the PROJECT may only be made with the approval of the
DC or P&U, as the case may be, except to the extent required by law or to the
extent such INFORMATION is publicly known through no fault of InSite or P&U.
14.3 INVESTIGATOR PUBLICATIONS. Notwithstanding anything set forth in
this Agreement to the contrary, investigators who conduct clinical studies of
the PRODUCT(S) sponsored by P&U may publish the results of their studies,
provided they agree to submit a draft of the publication to P&U for review a
reasonable period of time before submission to the publisher. P&U will share
with InSite the draft for InSite's review as soon as practicable. Both parties
understand that neither party will have the right to approve or disapprove the
publication. If InSite or P&U believes the results of a sponsored study could be
patented, then the investigator will not be allowed to publish until a patent
application has been filed.
14.4 POST-APPROVAL USE. Notwithstanding anything set forth in this
Agreement to the contrary, following approval of the PRODUCT(S), P&U shall be
permitted to use and publicize INFORMATION generated by the PROJECT in
connection with the commercialization and promotion of the PRODUCT(S), together
with all of InSite's clinical data and Non-clinical data related to the
Products, in accordance with applicable laws and regulations.
14.5 USE OF NAME AND TRADEMARKS. Unless specifically authorized by this
Agreement, neither party shall use in any manner the names or trademarks of the
other party without the express written consent of such party.
ARTICLE 15
CLOSING DATE: TERM AND TERMINATION
15.1 CLOSING DATE. Notwithstanding its mutual execution on the dates
indicated below, this Agreement shall not become effective until the Initial
Closing (as that term is defined in the Stock Purchase Agreement) of the sale
and purchase of shares of Common Stock of InSite under the terms of the Stock
Purchase Agreement and the assignment or sublicensing of the RELATED TECHNOLOGY
RIGHTS to P&U free of any charges whatsoever. The date on which such Initial
Closing occurs is referred to in this Agreement as the "Closing Date."
15.2 TERM. This Agreement shall commence as of the Closing Date and,
unless it is sooner terminated or expires in whole or in part as specifically
provided herein, shall continue in effect until the expiration of all of the
royalty obligations contained in paragraph 5.1 above. After expiration (but not
termination) of this Agreement, any licenses to P&U from InSite then in effect
shall become non-exclusive, fully paid, perpetual and royalty-free.
15.3 TERMINATION BY P&U. P&U may terminate this Agreement at any time
because of a material adverse development related to the safety or efficacy of
the
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PRODUCT, significant adverse change in the market for PRODUCT(S) in the
Territory as a whole, the quality of the PRODUCT(S) ("Adverse Development") or,
in its sole discretion, without cause (i.e., not because of an Adverse
Development or default by InSite). If P&U elects to terminate this Agreement
because of an Adverse Development, P&U shall pay the Development Payments for
the next ninety (90) days; or, if without cause, P&U shall pay the remainder of
the Development Payments, if any, required during the Initial Term as provided
in Section 3.4(b). In either event, P&U shall (1) give InSite ninety (90) days
advance notice of such termination, and (2) provide InSite, free-of-charge, with
the Termination Documents (as defined below), which InSite may use as InSite
sees fit and which InSite may provide to a third party partner for use in
continuing development of the PRODUCT(S). For purposes of this paragraph 15.3
"Termination Documents" means the following documents: (i) a copy of all
protocols and PATENT APPLICATIONS prepared by P&U and regulatory filings made by
P&U under this Agreement, (ii) a copy of all reports on non-clinical and
clinical studies sponsored by P&U under this Agreement that have been filed or
prepared for filing with the FDA or other regulatory authorities, (iii) the data
underlying any Non-clinical and clinical database owned by P&U in
computer-readable form if readily available in a non-proprietary format which is
related to the FIELD, and (iv) a copy of all case report forms for patients
enrolled in clinical studies for the PRODUCT(S) sponsored by P&U for which no
report has been prepared at the time of termination. P&U will have no obligation
to complete or prepare study reports that have not been completed at the time of
termination, but will assist InSite reasonably in doing so. If P&U terminates
this Agreement pursuant to this paragraph 15.3, all rights granted to P&U shall
terminate forthwith.
15.4 TERMINATION FOR DEFAULT. Subject to paragraph 18.4, if either party
is in default of any of its material obligations under this Agreement and fails
to remedy that default within sixty (60) days after receipt of written notice of
such default, the party not in default may terminates this Agreement immediately
by giving written notice of such termination. In the event of a dispute
regarding royalties owing under this Agreement, all undisputed amounts shall be
paid when due and the balance, if any, shall be paid promptly after settlement
of the dispute. If P&U terminates this Agreement because of InSite's material
breach, the licenses granted pursuant to paragraph 2.1 shall survive such
termination, subject to any ongoing royalty obligations under paragraphs 5.1 and
5.5. If InSite terminates this Agreement because of P&U's material breach, all
license rights granted to P&U shall terminate forthwith, and P&U shall transfer
ownership of all Data to InSite.
15.5 SURVIVING RIGHTS. Termination of this Agreement shall not terminate
P&U's obligation to pay all applicable Development Payments, royalties and other
payments which shall have accrued hereunder. The obligations of the parties
under Article 7 (Record Keeping and Audits), 11 (Infringement by Third Parties),
12 (Mutual Indemnification), and under paragraphs 13.1 (Confidentiality), 13.2
(Authorized Disclosures) and 13.3 (Confidentiality of INSITE KNOW-HOW) of this
Agreement will survive the termination or expiration of this Agreement.
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<PAGE> 30
15.6 Accrued Rights, Surviving Obligations. Termination, relinquishment
or expiration of the Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either party prior to such
termination, relinquishment or expiration. Such termination, relinquishment or
expiration shall not relieve either party from obligations that are expressly
indicated to survive termination or expiration of the Agreement.
ARTICLE 16
EXCLUSIVITY; OTHER PRODUCT(S)
16.1 EXCLUSIVITY. During the TERM of this Agreement, InSite shall work
on the research, development and commercialization of the COMPOUND for use in
the FIELD exclusively pursuant to this Agreement.
16.2 OPTION FOR OTHER PRODUCTS. Either party shall have the option to
propose development of other products. If either party makes such a proposal,
the parties shall negotiate the terms and conditions of such research,
development and commercialization in good faith.
ARTICLE 17
PROTECTIVE PROVISIONS
17.1 GENERAL.
(a) InSite agrees to reasonably cooperate with P&U in
negotiating agreements with vendors that supply InSite critical
goods and services relating to the PRODUCT(S). P&U has the right
to demand that the goods and services be sold and provided
directly to P&U.
(b) Upon InSite's failure to cure any material breach of
its obligations hereunder, P&U shall automatically have the right
to engage in or make arrangements for substitute performance.
17.2 OUTSIDE THE U.S. InSite assigns a joint ownership interest to P&U
in all INSITE PATENT RIGHTS and INSITE KNOW-HOW outside the United States that
relate solely to, or are used or will be used solely in connection with, the
development, manufacture, processing, use of the COMPOUND for use in the FIELD
and the finishing, distribution, marketing, detailing and sale of PRODUCT(S).
P&U agrees to assign such joint ownership interest back to InSite upon
termination or expiration of this Agreement.
ARTICLE 18
MISCELLANEOUS
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<PAGE> 31
18.1 AGENCY. Neither party is nor shall be deemed to be an employee,
agent, co-venturer or legal representative of the other party for any purpose.
Neither party shall be entitled to enter into any contracts in the name of, or
on behalf of the other party, nor shall either party be entitled to pledge the
credit of the other party in any way or hold itself out as having the authority
to do so.
18.2 ASSIGNMENT. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by any party without
the prior written consent of the other (which consent shall not be unreasonably
withheld following the conclusion of the PROJECT); provided, however, that
either party may assign this Agreement to any wholly-owned subsidiary or to any
successor by merger, securities sale or sale of substantially all of its
business unit or assets to which this Agreement relates in a manner such that
the assignor or the assignee shall remain liable and responsible for the
performance and observance of all its duties and obligations hereunder. This
Agreement shall be binding upon the successors and permitted assignees of the
parties and the name of a party appearing herein shall be deemed to include the
names of such party's successor's and permitted assigns to the extent necessary
to carry out the intent of this Agreement. Any assignment not in accordance with
this paragraph shall be void.
18.3 FURTHER ACTIONS. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of the
Agreement.
18.4 FORCE MAJEURE. Neither party shall be liable to the other for loss
or damages or shall have any right to terminate this Agreement for any default
or delay attributable to any force majeure event, including but not limited to
acts of God, acts of government, fire, flood, earthquake, strikes, labor
disputes, and the like, if the party affected shall give prompt notice of any
such cause to the other party. The party giving such notice shall thereupon be
excused from such of its obligations hereunder as it is thereby disabled from
performing for so long as it is so disabled provided, however, that such
affected party commences and continues to take reasonable and diligent actions
to cure such cause. Notwithstanding the foregoing, nothing in this paragraph
18.4 shall excuse or suspend the obligation to make any payment due hereunder in
the manner and at the time provided. If a party's performance cannot be resumed
within 180 days of its suspension, this Agreement may be terminated by the other
party upon 30 days prior written notice.
18.5 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given and received
(a) upon personal delivery, (b) on the fifth day following mailing by registered
or certified mail, return receipt requested, postage prepaid, addressed to
InSite and P&U at their respective addresses as listed below (or at such other
address for a party as shall be specified by like notice; provided, that notices
of a change of address shall be effective only upon receipt thereof), (c) upon
transmission of facsimile (with telephonic notice), or (d) upon confirmed
delivery by overnight commercial courier service:
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If to P&U, address to: Pharmacia & Upjohn
Attention: Vice President, Licensing
95 Corporate Drive
Bridgewater, New Jersey 08807-0995
Pharmacia & Upjohn AB
Chief Legal Counsel
Lindhagensgatan 133
112 87 Stockholm
Sweden
with a copy to: Pharmacia & Upjohn
Attention: Vice President, Corporate Law
95 Corporate Drive
Bridgewater, New Jersey 08807-0995
If to InSite, address to: InSite Vision Incorporated
Attention: Chief Executive Officer
965 Atlantic Avenue
Alameda, California 94501
with a copy to: Brobeck, Phleger & Harrison LLP
Attention: Timothy R. Curry
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
18.6 AMENDMENT: APPROVAL. No amendment, modification or supplement of
any provision of this Agreement shall be valid or effective unless made in
writing and signed by a duly authorized officer of each party. No approval
provided for in this Agreement shall be valid or effective unless confirmed in
writing.
18.7 WAIVER. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving party.
18.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
18.9 DESCRIPTIVE HEADINGS. This descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
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<PAGE> 33
18.10 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of New York and the United
States of America, without regard to choice of law rules.
18.11 SEVERABILITY. Whenever possible, each provision of the Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
the Agreement. In the event of such invalidity, the parties shall seek to agree
on an alternative enforceable provision that preserves the original purpose of
this Agreement.
18.12 COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a party to export, re-export or otherwise transfer any INFORMATION
transferred hereunder or PRODUCT(S) manufactured therefrom without compliance
with applicable laws.
18.13 ENTIRE AGREEMENT OF THE PARTIES. This Agreement, including the
other written agreements referred to herein and the Schedules attached hereto,
constitutes and contains the complete, final and exclusive understanding and
agreement of the parties, and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties respecting the subject matter hereof. To the extent
appropriate, the provisions of this Agreement shall apply to the other
agreements referred to herein.
18.14 SECTIONS AND ARTICLES. Unless specified otherwise, references to
paragraphs and Articles are to paragraphs and Articles of this Agreement.
18.15 EUROPEAN UNION. The parties acknowledge that this Agreement may
need to be notified to the European Commission at some point during the TERM of
this Agreement. Accordingly, upon reasonable request of either party, the
parties shall cooperate in notifying this Agreement and seeking a conclusion of
the notification process satisfactory to both parties. If at any time the
European Commission determines that any provision of this Agreement is
unenforceable or otherwise not permitted under the laws, rules and regulations
of the European Union, the parties agree to initiate good faith negotiations
aimed at modifying such provision in a manner that is acceptable to the European
Commission and the parties.
18.16 YEAR 2000 COMPLIANCE. The parties represent and warrant that all
of its actions and services provided under this Agreement are Year 2000
Compliant. The parties shall be responsible for any and all damages and costs,
whether direct or indirect, incidental or consequential, including lost profits,
suffered by the other party as a result of any breach of this representation and
warranty of the Year 2000 Compliance.
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<PAGE> 34
IN WITNESS WHEREOF, InSite and P&U have as of the Closing Date duly
executed this Agreement, including the Schedules that are incorporated herein
and made a part hereof.
INSITE VISION INCORPORATED
By:_______________________________
Name:
Title:
PHARMACIA & UPJOHN AB
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
33
<PAGE> 1
EXHIBIT 10.41
================================================================================
INSITE VISION INCORPORATED
AND
PHARMACIA & UPJOHN AB
AND
PHARMACIA & UPJOHN, SA
STOCK PURCHASE AGREEMENT
JANUARY 28, 1999
================================================================================
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of January 28, 1999 (the
"Agreement"), by and between INSITE VISION INCORPORATED, a Delaware corporation
with its principal office at 965 Atlantic Avenue, Alameda, California 94501 (the
"Company"), and PHARMACIA & UPJOHN AB, a Swedish corporation with a principal
office at Lindhagensgatan 133, 112 87 Stockholm, Sweden ("P&U") and PHARMACIA &
UPJOHN, SA, a Luxembourg corporation with its principal offices at Credit
European, 52 Route D'esch, L-1470 Luxembourg, RC Luxembourg, B-50712 ("PUSA").
RECITALS
WHEREAS, the Company and P&U have entered into a License Agreement of
even date herewith (the "License Agreement"); and
WHEREAS, in connection with the License Agreement, the Company desires to sell
to P&U and PUSA, and P&U and PUSA desire to purchase from the Company shares of
common stock, par value $.01 per share, of the Company ("Common Stock"), on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the following mutual covenants and
agreements, the parties agree as follows:
ARTICLE 1
PURCHASES OF COMMON STOCK
SECTION 1.1 INITIAL PURCHASE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, and in reliance on the representations and
warranties contained in this Agreement, the Company agrees to sell to P&U and
P&U agrees to purchase from the Company, at the Initial Closing (as defined
below), for a per share price of $1.8256 and aggregate consideration of two
million dollars ($2,000,000), 1,095,506 shares of Common Stock.
SECTION 1.2 PURCHASES ON ACHIEVEMENT OF MILESTONES.
(a) For purposes of this Section 1.2, the following definitions
shall apply.
(i) The "Milestone Achievement Dates" shall be the date on
which each of the following milestone events occur:
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<PAGE> 3
(A) * as determined by the Development Committee
(as defined in the License Agreement), in its sole
discretion, of the Company's *
(B) Either * (as
defined in the License Agreement) *
whichever occurs first
* ; and
(C) Either the *
whichever occurs first * .
(ii) The "Milestone Payments" shall be as follows:
(A) *
;
(B) *
; and
(C) *
.
(iii) The "Milestone Price Per Share" shall be the
weighted (according to sales volume) average of the daily closing
sales prices of the Company's Common Stock, as reported by the
American Stock Exchange or such other primary trading market for
the Common Stock (the "Exchange"), for the ninety (90) trading
days prior to but not including the Milestone Achievement Date.
(b) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties contained in this
Agreement, P&U agrees to purchase from the Company and the Company
agrees to sell to P&U, within ten (10) business days following * (a
"Milestone Closing Date") that number of shares of Common Stock of the
Company (the "Milestone Shares") determined by dividing the applicable
Milestone Payment by the Milestone Price Per Share.
(c) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties contained in this
Agreement, PUSA agrees to purchase
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 4
from the Company and the Company agrees to sell to PUSA, within ten (10)
business days following * (each a "Milestone Closing
Date") that number of shares of Common Stock of the Company (the
"Milestone Shares") determined by dividing the applicable Milestone
Payment by the Milestone Price Per Share.
ARTICLE 2
CLOSING DATE; DELIVERY
SECTION 2.1 CLOSING; CLOSING DATE. Subject to the terms of Article 5,
the closing of the sale and purchase of shares of Common Stock under Sections
1.1 and 1.2 of this Agreement (the "Initial Closing" or "Milestone Closing,"
respectively) shall be held at 10:00 a.m. (Eastern Time) on the applicable
closing date at the offices of P&U or PUSA, as applicable, or at such other time
and place as the Company and P&U or PUSA may agree. The date of the Initial
Closing ("Initial Closing Date") shall be the third business day following the
date first written above, and each Milestone Closing Date shall be as provided
in Sections 1.2(b) or 1.2(c), as applicable, or, in either case, on such other
date as the Company and P&U and/or PUSA shall agree.
SECTION 2.2 DELIVERY. At the Initial Closing and within three (3)
business days of each Milestone Closing, subject to the terms and conditions of
this Agreement, the Company will deliver to P&U or PUSA, as applicable, a stock
certificate, in the name of P&U or PUSA, as applicable, representing,
respectively, the shares of Common Stock deliverable at such closing, dated as
of the Initial Closing Date or the applicable Milestone Closing Date against
payment of the purchase price therefor by wire transfer, unless P&U or PUSA and
the Company agree upon other means of payment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in the Schedule of
Exceptions attached hereto as Exhibit A, the Company represents and warrants to
P&U and PUSA as follows:
SECTION 3.1 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement has been taken or will
be taken prior to or as of the Initial Closing Date and each Milestone Closing
Date, as applicable. The Company has the requisite corporate power to enter into
this Agreement and carry out and perform its obligations under the terms of this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Company and, upon due execution and delivery by P&U and PUSA, this Agreement
will be a valid and binding agreement of the Company, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting creditors' rights generally or as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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<PAGE> 5
SECTION 3.2 NO CONFLICT WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement will not result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice: (a) any provision of the Company's Certificate of
Incorporation or Bylaws as either are in effect; (b) any provision of any
judgment, decree or order to which the Company is a party or by which it is
bound; (c) any material contract, obligation or commitment to which the Company
is a party or by which it is bound; or (d) to the Company's knowledge, any
statute, rule or governmental regulation applicable to the Company.
SECTION 3.3 CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
Exhibits B and C, respectively, are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as in effect on the date
hereof.
SECTION 3.4 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
SECTION 3.5 DISCLOSURE DOCUMENTS. The Company's Registration Statement
on Form S-3 (No. 333-36673) filed with the Securities and Exchange Commission on
September 29, 1997, Form 10-K for the fiscal year ended December 31, 1997 and
Forms 10-Q for the fiscal quarters ended March 31, June 30, and September 30,
1998, did not, when filed with the Securities and Exchange Commission, contain
any untrue statements of material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
SECTION 3.6 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, of which 17,219,344 shares are issued
and outstanding on the date hereof, and 5,000,000 shares of Preferred
Stock, of which 900 shares of Series A Convertible Preferred Stock, par
value $.01 per share ("Series A Preferred Stock"), are issued and
outstanding on the date hereof. All such issued and outstanding shares
have been duly authorized and validly issued, and are fully paid and
nonassessable. The rights and designations of the Series A Preferred
Stock are as set forth in the Certificate of Designation included within
the Certificate of Incorporation.
(b) The Company has outstanding options to purchase 1,633,130
shares of Common Stock, outstanding warrants to purchase 317,308 shares
of Common Stock and outstanding warrants to purchase 70 shares of Series
A Preferred Stock as of the date hereof. Except as otherwise set forth
herein or in the Company's Restated Certificate of Incorporation, as
amended, or Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock, as corrected, there are no
preemptive or other
5
<PAGE> 6
outstanding rights, options, warrants, conversion rights or Agreements
for the purchase or acquisition from the Company of any shares of its
capital stock or other securities of the Company.
SECTION 3.7 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly (other than investments in money market funds), and has
no stock or other interest as owner or principal in, any other corporation or
partnership, joint venture, association or other business venture or entity
except for its wholly-owned subsidiary, InSite Vision Limited.
SECTION 3.8 VALID ISSUANCE OF SHARES. The shares of Common Stock which
will be purchased by either P&U or PUSA under this Agreement, when issued, sold
and delivered in accordance with the terms of and for the consideration
expressed in this Agreement, will be duly and validly authorized and issued,
fully paid and nonassessable and, based in part upon the representations of P&U
and PUSA in Section 4.3 of this Agreement, will be issued in compliance with all
applicable federal and state securities laws.
SECTION 3.9 LITIGATION, VALIDITY OF AGREEMENT. There is no action, suit,
proceeding or, to the best of the Company's knowledge, any claim or
investigation pending or currently threatened against the Company, nor, to the
best of the Company's knowledge, is there any basis therefor, which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financial or
otherwise. The foregoing includes, without limitation, any action, suit,
proceeding or investigation, pending or threatened, that questions the validity
of this Agreement or any other agreement contemplated hereby or the right of the
Company to enter into such agreements.
SECTION 3.10 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices, qualifications
or filings required or permitted to be filed with certain state or federal
securities commissions or self-regulatory organizations, which notices,
qualifications, or filings will be filed on a timely basis.
SECTION 3.11 COMPLIANCE WITH LAWS. The Company has complied and is in
compliance in all material respects with all governmental laws, orders, decrees,
rules or regulations applicable to the Company, its assets and business,
employment practices and procedures, employees or operations (except where the
failure to so comply would not have a material adverse effect on the Company,
its business and operations, or the Project as defined in the License
Agreement), including the rules and regulations of the Securities and Exchange
Commission and any exchange or automated inter-dealer quotation system on which
the Common Stock is traded and then current Good Clinical Practices and then
current Good Manufacturing Practices.
SECTION 3.12 NO BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement.
6
<PAGE> 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF P&U AND PUSA
P&U and PUSA hereby represent and warrant to the Company as follows:
SECTION 4.1 LEGAL POWER. All corporate action on the part of P&U and
PUSA, their officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement has been taken. P&U and
PUSA have the requisite corporate power to enter into this Agreement, to carry
out and perform its obligations under the terms of this Agreement and, at the
Initial Closing and each Milestone Closing, will have the requisite corporate
power to purchase the shares of Common Stock to be purchased at each such
Closing.
SECTION 4.2 DUE EXECUTION. This Agreement has been duly authorized,
executed and delivered by P&U and PUSA and, upon due execution and delivery by
the Company, this Agreement will be a valid and binding agreement of P&U and
PUSA, except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting creditors' rights generally or as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
SECTION 4.3 INVESTMENT REPRESENTATIONS. In connection with the purchase
and sale of shares under this Agreement, P&U and PUSA make the following
representations:
(a) P&U and PUSA are acquiring the shares of Common Stock under
this Agreement for their own account, not as nominee or agent, for
investment and not with a view to the resale or distribution or public
offering thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). P&U and PUSA have no present intention
of selling, granting any participation in, or otherwise distributing the
Common Stock acquired hereunder and has not entered into any agreement
or arrangement with any person with respect to such activities.
(b) P&U and PUSA understand that (i) the shares of Common Stock
to be purchased under this Agreement have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such
securities are therefore "Restricted Securities" under the Securities
Act and must be held by P&U and PUSA, and that P&U and PUSA must bear
the economic risk of such investment, until a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration; (ii) each certificate representing such shares will be
endorsed with the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY
STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES
7
<PAGE> 8
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
and (iii) the Company will instruct any transfer agent not to register
or effect the transfer of the shares of Common Stock unless the
conditions specified in the foregoing legends are satisfied, until such
time as a transfer is made, pursuant to the terms of this Agreement, and
in compliance with Rule 144 or pursuant to a registration statement or,
if the opinion of counsel referred to above is to the further effect
that such legend is not required in order to establish compliance with
any provisions of the Securities Act or this Agreement.
(c) P&U and PUSA have such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of the investment in the shares of Common Stock purchased
hereunder and is financially able to bear the risks thereof.
(d) P&U and PUSA are each an "accredited investor" as such term
is defined in Rule 501 (a) of Regulation D of the General Rules and
Regulations prescribed by the Securities and Exchange Commission
pursuant to the Securities Act.
(e) P&U and PUSA have had an opportunity to ask questions and
receive answers from the Company regarding the Company and the terms and
conditions of the offering of the Common Stock and to obtain additional
information necessary to verify the accuracy of the information given to
P&U and PUSA. P&U and PUSA have received information that they consider
necessary or appropriate for deciding whether to purchase the Common
Stock.
(f) P&U and PUSA are not a party to any agreement or instrument,
or subject to any charter or other corporate restriction or any
judgment, order, decree, law, ordinance, regulation or other
governmental restriction which would prevent or impede, or be breached
or violated by, the transactions contemplated in this Agreement.
SECTION 4.4 NO BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement.
SECTION 4.5 ORGANIZATION, GOOD STANDING AND QUALIFICATION. P&U and PUSA
are corporations duly organized, validly existing and in good standing under the
laws of the Sweden and Luxembourg, respectively, and have all requisite
corporate power and authority to carry on their business as now conducted and as
proposed to be conducted. P&U and PUSA are duly qualified to transact business
and are in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on their business or properties.
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<PAGE> 9
SECTION 4.6 VALIDITY OF AGREEMENT. No action, suit, proceeding or
investigation is pending or threatened that questions the validity of this
Agreement or any other agreement contemplated hereby or the right of P&U and
PUSA to enter into such agreements.
SECTION 4.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of P&U and PUSA is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices, qualifications
or filings required or permitted to be filed with certain state or federal
securities commissions or self-regulatory organizations, which notices,
qualifications, or filings will be filed on a timely basis.
ARTICLE 5
CONDITIONS TO CLOSING
SECTION 5.1 CONDITIONS TO OBLIGATIONS OF P&U AND PUSA AT INITIAL AND
MILESTONE CLOSINGS. P&U's obligation to purchase the shares of the Company's
Common Stock at the Initial Closing, and P&U's and PUSA's obligation, if any, to
purchase the shares of the Company's Common Stock and at each Milestone Closing,
as applicable, are subject to the fulfillment to P&U's and PUSA's satisfaction,
on or prior to the Initial Closing or such Milestone Closing, as applicable, of
each of the following conditions, any of which may be waived by P&U or PUSA:
(a) Representations and Warranties/Performance of Obligations.
The representations and warranties made by the Company in Article 3
hereof and in the License Agreement shall be true and correct in all
material respects on the Initial Closing Date and on each Milestone
Closing Date with the same force and effect as if they had been made on
and as of that date, and the Company shall have performed and complied
in all material respects with all material obligations and conditions
required under this Agreement to be performed or complied with by it on
or prior to the Initial Closing or Milestone Closing, as applicable and
a Certificate of the Company, certifying the foregoing, shall be
delivered to P&U or PUSA at the Initial Closing and each Milestone
Closing, as applicable; provided, however, that notwithstanding the
foregoing, (i) the Company shall be entitled to update and revise the
representations made in Section 3.6 to the extent that such changes do
not conflict with or breach Section 6.2, and such changes shall not
affect P&U's or PUSA's obligation to effect any Milestone Closing, and
(ii) no action, suit, proceeding, claim or investigation (or threat
thereof) by P&U or PUSA, their respective affiliates or agents, or for
the benefit of P&U or PUSA, shall be deemed to preclude the Company from
making the representations set forth in Section 3.9 at any Milestone
Closing and shall not affect P&U's or PUSA's obligation to effect any
such Milestone Closing, as applicable.
(b) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the
Initial Closing and each Milestone Closing and all documents and
instruments incident to such actions shall be reasonably
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satisfactory in substance and form to counsel to P&U and PUSA, and
counsel to P&U and PUSA shall have received all such counterpart
originals or certified or other copies of such documents as they may
reasonably require.
(c) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the shares of Common
Stock to be sold and issued pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of, respectively, the
Initial Closing and each Milestone Closing. No stop order or other order
enjoining the sale of the shares to be sold at such Closing shall have
been issued and no proceedings for such purpose shall be pending or, to
the knowledge of the Company, threatened by the Securities and Exchange
Commission, or any commissioner of corporations or similar officer of
any state having jurisdiction over such transaction. At the time of the
Initial Closing and each Milestone Closing, the sale and issuance of the
shares of Common Stock to be issued and sold at such closing shall be
legally permitted by all laws and regulations to which P&U or PUSA, as
applicable, and the Company are subject.
(d) Opinion of Counsel to the Company. In connection with any
sale of shares hereunder, P&U and PUSA, as applicable, shall have
received from counsel to the Company, an opinion letter addressed to
them, dated the date of the Initial Closing and each Milestone Closing,
as applicable, in substantially the form attached hereto as Exhibit D.
(e) No Material Adverse Change. With respect to the Initial
Closing only, the Company shall not have suffered a material adverse
change to its business taken as a whole from November 12, 1998 through
the Initial Closing Date. For purposes of this condition, the layoff of
employees by the Company in December 1998 shall not be considered a
material adverse change.
(f) No Material Default or Notice of Termination under the
License Agreement. In addition to the conditions set forth above, P&U's
and PUSA's obligation to purchase the shares of the Company's Common
Stock, as applicable, at each Milestone Closing shall also be subject to
the condition that the Company is not in material default under the
License Agreement or that a notice of termination of the License
Agreement shall not have been duly given by either party under the terms
of such License Agreement.
(g) Shares Available. The Company has available under its
Certificate of Incorporation as in effect on the date hereof, and shall
have available under its Certificate of Incorporation as in effect at
the Initial Closing Date and each Milestone Closing Date, sufficient
authorized but unissued shares of its Common Stock to issue and sell to
P&U and PUSA, as applicable, all of the shares of Common Stock to be
issued on such dates.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The
Company's obligation to issue and sell the shares of its Common Stock to be sold
at the Initial Closing and each Milestone Closing, as applicable, is subject to
the fulfillment to the Company's satisfaction,
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on or prior to the Initial Closing or such Milestone Closing, of each of the
following conditions, any of which may be waived by the Company:
(a) Representations and Warranties/Performance of Obligations.
The representations and warranties made by P&U and PUSA in Article 4
hereof and in the License Agreement shall be true and correct in all
material respects on the Initial Closing and on each Milestone Closing
Date, as applicable, with the same force and effect as if they had been
made on and as of that date, and P&U and PUSA shall have performed and
complied in all material respects with all material obligations and
conditions required under this Agreement to be performed or complied
with by it on or prior to the Initial Closing or Milestone Closing, as
applicable, and a certificate duly executed by an officer of P&U and
PUSA, as applicable, certifying the foregoing, shall be delivered to the
Company at the Initial Closing and each Milestone Closing; provided,
however, that notwithstanding the foregoing, no action, suit,
proceeding, claim or investigation (or threat thereof) by the Company,
its affiliates or agents, or for the benefit of the Company, shall be
deemed to preclude P&U or PUSA, as applicable, from making the
representation set forth in Section 4.6 at any Milestone Closing and
shall not affect the Company's obligation to effect any such Milestone
Closing.
(b) Qualifications, Legal Investment. All authorizations,
approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required
in connection with the lawful sale and issuance of the shares of Common
Stock to be sold and issued pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of, respectively, the
Initial Closing and each Milestone Closing, as applicable. No stop order
or other order enjoining the sale of the shares to be sold at such
closing shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission, or any commissioner of corporations
or similar officer of any state having jurisdiction over such
transaction. At the time of the Initial Closing and the Milestone
Closing, the sale and issuance of the shares of Common Stock to be sold
and issued at such closing shall be legally permitted by all laws and
regulations to which P&U or PUSA, as applicable and the Company are
subject.
(c) No Material Default or Notice of Termination under the
License Agreement. In addition to the conditions set forth above, the
Company's obligation to sell the shares of the Company's Common Stock at
each Milestone Closing shall also be subject to the condition that P&U
is not in material default under the License Agreement or that a notice
of termination of the License Agreement shall not have been duly given
by either party under the terms of such License Agreement.
ARTICLE 6
COVENANTS OF THE COMPANY
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SECTION 6.1 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company agrees
that it shall do the following for so long as P&U and PUSA, together or
individually, own at least five percent (5%) of the Company's outstanding Common
Stock.
(a) Preserve and maintain its corporate existence and good
standing in the State of Delaware, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or
properties.
(b) Keep adequate (i) records and books of account reflecting all
financial transactions of the Company's business, (ii) minute books
containing accurate records of all meetings and accurately reflecting
all corporate action of its shareholders and its board of directors, and
(iii) stock books and ledgers correctly recording all transfers and
issuances of all capital stock.
(c) Maintain, keep and preserve all the assets owned, leased or
used in the Company's business in reasonable operating condition and
repair, ordinary wear and tear excepted, and discharge and pay in full
when due, except those disputed in good faith, all obligations of the
Company.
(d) Taking into account the Company's recent downsizing *
, engage in the Company's research and development and
business in the ordinary course and use reasonable commercial efforts to
preserve its business and the goodwill of customers, suppliers and
others having business relations with the Company.
(e) Comply with all material terms and conditions of the License
Agreement.
(f) Maintain insurance on the assets of the Company comparable to
that which the Company has customarily maintained in the past but taking
into account the Company's recent downsizing * .
(g) Comply in all material respects with all governmental laws,
orders, decrees, rules or regulations applicable to the Company, its
assets and business, employment practices and procedures, employees or
operations, including the rules and regulations of the Securities and
Exchange Commission and any exchange or automated inter-dealer quotation
system on which the Common Stock is traded and then current Good
Clinical Practices and then current Good Manufacturing Practices, except
where the failure to so comply will not have a material adverse effect
on the Company, its business and operations, or the Project (as defined
in the License Agreement).
(h) Timely file, through *, all tax returns that are required to
be filed by it and pay on or before the date they are required to be
paid all taxes due pursuant to those tax returns or any assessment
received by it or otherwise required to be paid, except taxes being
contested in good faith by appropriate proceedings, if applicable.
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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SECTION 6.2 NEGATIVE COVENANTS OF THE COMPANY. The Company agrees that,
so long as P&U and PUSA, individually or collectively own at least five percent
(5%) of the Company's outstanding Common Stock, it shall not do, without P&U's
and PUSA's prior written approval (which approval shall not be unreasonably
withheld), any of the following:
(a) Amend its Certificate of Incorporation or its by-laws in any
manner that would materially and adversely affect the ability of the
Company to consummate the transactions contemplated by this Agreement or
the License Agreement.
(b) Through * , merge (forward or reverse) or
consolidate with any person or entity or, directly or indirectly, sell,
lease, or otherwise dispose of (other than through a license) any of the
assets related to the Project (as defined in the License), or any of its
other material assets used in its business (whether now owned or
hereafter acquired) or engage in a major recapitalization or conversion,
in each case whether in one transaction or in a series of transactions.
However, the Company may license its other products to third parties,
provided that the Company notifies P&U of any such license before that
license becomes effective.
(c) Through * , transfer any of the Company's
material assets used in its business to any person and thereafter
directly or indirectly lease back the same or similar property or
through * transfer, sell or assign rights or interests (other than
through licenses) in any of the material assets, intellectual property
or other property used in the Company's business now owned or hereafter
acquired, including accounts receivable.
(d) Make any significant change in its accounting policies,
except for any change required by GAAP or otherwise in the opinion of
the Company's independent public accountants.
SECTION 6.3 DEMAND REGISTRATIONS.
(a) At any time that P&U and/or PUSA owns any Common Stock of the
Company, P&U and PUSA each shall have the right to cause the Company to
register such Registrable Shares (as defined below) with the Securities
and Exchange Commission and qualify such shares with such state
securities commission as P&U and/or PUSA shall reasonably request in
order to allow P&U and/or PUSA to sell such shares, provided that the
Company shall not be required to qualify such shares in any state where
such qualification would require the Company to consent to personal
jurisdiction in such state (the "Demand Registration Right"). P&U and
PUSA each shall be entitled to a total of * Demand
Registration Rights. As used in Sections 6.4 through 6.9 and 7.2, the
term "Registrable Shares" shall mean all Common Stock issued to P&U and
PUSA pursuant to this Agreement.
(b) If, in any offering under P&U and/or PUSA Demand Registration
Rights which involves an underwriting and any other person has
piggy-back registration rights with respect to such registration, the
managing underwriter shall impose a limitation on
* Indicates that material has been omitted and confidential treatment has been
requested therefor. All such omitted material has been filed separately with
the Commission pursuant to Rule 24b-2.
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the number of shares which may be included in the registration statement
because, in its judgment, such limitation is necessary to effect an
orderly public distribution or because in its judgment the inclusion of
shares being sold by persons other than P&U and/or PUSA would adversely
affect the offering, then the Company shall not be obligated to include
in such registration statement any portion of shares of any other person
or P&U and/or PUSA as provided in 6.3(c) below.
(c) Notwithstanding any other provision of this Section 6.3, if
the underwriter, in its reasonable judgment, advises the Company in
writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise P&U and
PUSA, as applicable, and any other holders of registrable securities
which would otherwise be underwritten pursuant to such registration
statement, and the number of shares of registrable securities that may
be included in the underwriting shall be allocated among all such
persons, including P&U and PUSA, first to P&U and PUSA, as applicable,
and any other persons making such demand together with P&U and/or PUSA
and then to all other persons, and in each case, in proportion (as
nearly as practicable) to the amount of registrable securities of the
Company owned by each such person.
(d) Notwithstanding the foregoing, if the Company shall furnish
to P&U and/or PUSA, as applicable, a certificate signed by the Chief
Executive Officer of the Company stating that, in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing
of such registration statement, the Company shall have the right to
defer taking action with respect to such filing for a period of not more
than ninety (90) days after receipt of the demand of P&U and/or PUSA;
provided that the Company may not utilize this right more than once in
any twelve-month period.
SECTION 6.4 PIGGY-BACK REGISTRATION.
(a) If the Company shall determine at any time to register for
its own account or the account of others under the Securities Act any of
its equity securities, other than on Form S-4 or Form S-8 or their then
equivalents or otherwise relating to shares of Common Stock to be issued
in connection with any acquisition of any entity or business or shares
of Common Stock issuable under stock option or other employee benefit
plans, it shall send to P&U and PUSA written notice of such
determination and, if within five (5) business days after receipt of
such notice, P&U and/or PUSA shall so request in writing, the Company
shall use its best efforts to include in such registration statement all
or any part of the Registrable Shares that P&U and/or PUSA requests to
be registered.
(b) If, in connection with any offering involving an
underwriting, the managing underwriter shall impose a limitation of the
number of shares which may be included in the registration statement
because, in its judgment, such limitation is necessary to affect an
orderly public distribution or because in its judgment the inclusion of
shares being sold by persons other than the Company would adversely
effect the offering, then the Company shall be obligated to include in
such registration statement
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only such limited portion (which may be none) of the Registrable Shares
with respect to which P&U and/or PUSA has requested inclusion pursuant
hereto as may reasonably be determined by the managing underwriter. Any
inclusion of Registrable Shares in an offering, when the managing
underwriter has so limited the number of shares that may be included in
such offering, shall be allocated pro rata among the holders of similar
"piggyback" registration rights granted by the Company seeking to
include their shares, in proportion to the number of shares (whether or
not such shares are sought to be included in such offering) held by such
persons. The Company shall have the right to delay or withdraw any
registration initiated by it pursuant to Section 6.4 hereof.
SECTION 6.5 EFFECTIVENESS. The Company will use its best efforts to
maintain the effectiveness for up to 90 days, (or such shorter period of time as
the underwriters need to complete the distribution of a registered offering or
until the securities are actually sold) of any registration statement pursuant
to which any of the Registrable Shares are being offered, and from time to time
will amend or supplement such registration statement and the prospectus
contained therein to the extent necessary to comply with the Securities Act and
any applicable state securities laws or regulations.
SECTION 6.6 INDEMNIFICATION.
(a) In the event that the Company registers any of the
Registrable Shares under the Securities Act, the Company will indemnify
and hold harmless P&U and PUSA and each underwriter of Registrable
Shares (including their officers, directors, affiliates and partners and
including any broker or dealer through whom Registrable Shares may be
sold in such registration) and each person, if any, who controls P&U and
PUSA or any such underwriter within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them
become subject under the Securities Act, applicable state securities
laws or under any other statute or at common law or otherwise, as
incurred, and, except as hereinafter provided, will reimburse P&U and
PUSA, each such underwriter and each such controlling person, if any,
for any legal or other expenses reasonably incurred by them or any of
them in connection with investigating or defending any actions whether
or not resulting in any liability, as incurred, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus
(or the registration statement or prospectus as from time to time
amended or supplemented by the Company) or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act or any state
securities laws applicable to the Company and relating to action or
inaction required of the Company in connection with such registration,
unless (i) such untrue statement or alleged untrue statement or omission
or alleged omission was made in such registration statement, preliminary
or amended preliminary prospectus or final prospectus in reliance upon
and in conformity with information furnished in writing to the Company
in connection therewith by P&U or
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PUSA or any such underwriter expressly for use therein, or unless (ii)
in the case of a sale directly by P&U and/or PUSA (including a sale of
Registrable Shares through any underwriter retained by P&U and/or PUSA
to engage in a distribution solely on behalf of P&U and/or PUSA), such
untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus copies of which were delivered to P&U or
PUSA or such underwriter on a timely basis, and P&U, PUSA or such
underwriter failed to deliver a copy of the final or amended prospectus
at or prior to the confirmation of the sale of the Registrable Shares to
the person asserting any such loss, claim, damage or liability in any
case where such delivery is required by the Securities Act; provided,
however, that the indemnity agreement contained in this subsection
6.6(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, expense, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld.
(b) P&U and PUSA, as applicable, will indemnify and hold harmless
the Company, each underwriter of Registrable Shares and any other
persons selling securities in such registration statement (including
their officers, directors, affiliates and partners and including any
broker or dealer through whom Registrable Shares may be sold in such
registration) and each person, if any, who controls the Company, any
such underwriter or other such person selling securities in such
registration statement within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them
may become subject, under the Securities Act, applicable state
securities laws or under any other statutes or at common law or
otherwise, as incurred, insofar as such losses, claims, damages,
expenses or liabilities (or actions in the respect thereto) arise out of
are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the final prospectus
(or the registration statement or prospectus as from time to time
amended or supplemented by the Company) or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act or any state
securities laws applicable to the Company and relating to action or
inaction required of the Company in connection with such registration,
in each case to the extent (and only to the extent) that such untrue
statement, alleged untrue statement, alleged omission, omission or
violation occurs in reliance upon and in conformity with written
information furnished by or on behalf of P&U or PUSA expressly for use
in connection with such registration; and P&U or PUSA will reimburse, as
incurred, the Company, each such underwriter, each such other person
selling securities in such registration statement and each such
controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or
defending any such loss, claim, damage, liability or action, whether or
not resulting in any liability; provided, however, that the indemnity
agreement contained in this subsection 6.6(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, expense, liability
or action if such settlement is effected without the consent of P&U or
PUSA, which consent shall not be
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unreasonably withheld. In any event, the liability of P&U or PUSA under
the indemnity provisions of this Agreement shall be limited to an amount
equal to the gross proceeds received by P&U or PUSA from the sale of
shares in any transaction to which such indemnification relates.
(c) Promptly after receipt by an indemnified person under this
Section 6.6 of notice of the commencement or threat of any action in
respect of which indemnity may be sought against the indemnifying party,
such indemnified person shall notify the indemnifying party in writing
of the commencement thereof (provided, that failure to so notify the
indemnifying party shall not relieve the indemnifying party from any
liability it may have hereunder, except to the extent prejudiced by such
failure) and, subject to the provisions hereinafter stated, the
indemnifying party shall be entitled to assume the defense of such
action (including the employment of counsel) and the payment of expenses
insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the indemnifying party.
(d) An indemnified person under this Section 6.6 shall have the
right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel
subsequent to any assumption of the defense by the indemnifying party
shall not be at the expense of the indemnifying party (but shall be at
the sole expense of the indemnified person) unless the employment of
such counsel has been specifically authorized in writing by the
indemnifying party; provided, however, that, if the defendants in any
such action include both the indemnified person and the indemnifying
party and the indemnified person shall have reasonably concluded that
there may be reasonable defenses available to it which are different
from or additional to those available to the indemnifying party or if
the interests of the indemnified person reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified
person shall have the right to select a separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the
indemnifying party as incurred. At any time, an indemnified person may
select separate counsel and assume its own legal defense with the
expenses and fees of such separate counsel and other expenses related to
such separate counsel to be borne by such indemnified person. An
indemnifying party shall not be liable to an indemnified person for any
settlement of any such action effected without the indemnifying party's
written consent (which consent shall not be unreasonably withheld or
delayed). An indemnifying party shall not, except with the approval of
each party being indemnified under this Section 6.6 (which approval
shall not be unreasonably withheld or delayed), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
the parties being so indemnified of a release from all liability in
respect to such claim or litigation.
(e) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which an
indemnified person makes a claim for indemnification pursuant to this
Section 6.6 but indemnification is unavailable to or
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insufficient to hold harmless an indemnified person, or it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6.6
provides for indemnification in such case, then the indemnifying party
and the indemnified person will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and
of the indemnified person on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party on the one hand and of
indemnified person on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or
by P&U or PUSA on the other hand, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that, in any such case,
(A) except in the case of willful misconduct or fraudulent
misrepresentations, P&U and PUSA will not be required to contribute any
amount in excess of the public offering price of all Registrable Shares
offered by it pursuant to such registration statement; and (B) no person
or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
SECTION 6.7 FURTHER OBLIGATIONS OF THE COMPANY. Whenever under the
preceding Sections of this Article 6, the Company is required to register
Registrable Shares, the Company agrees that it shall also do the following:
(a) Furnish to P&U and PUSA, as applicable, such copies of each
preliminary and final prospectus and such other documents as P&U and
PUSA, as applicable, may reasonable request to facilitate the public
offerings of the Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by the registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as P&U or PUSA may
reasonably request;
(c) Permit P&U and PUSA, as applicable, or their counsel or other
representatives to inspect and copy such corporate documents and records
as may reasonably be requested by them, after reasonable advance notice,
during normal business hours and without undue interference with the
operation of the Company's business;
(d) Furnish to P&U and PUSA, as applicable, a copy of all
documents filed with and all correspondence from or to the Securities
and Exchange Commission in connection with any such offering of
securities;
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(e) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and (to
the extent required) make available to its security holders, as soon as
reasonably practicable, an earning statement covering the period of at
least twelve months, but not more than eighteen months, beginning with
the first month after the effective date of the registration statement
covering a public offering, which earning statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
SECTION 6.8 EXPENSES. In the case of each registration effected under
Sections 6.3, 6.4 and 6.7, the Company shall bear its own reasonable costs and
expenses of each such registration on behalf of P&U and/or PUSA, including, but
not limited to, the Company's printing, legal and accounting fees and expenses,
Securities and Exchange Commission and NASD filing fees and "blue sky" fees and
expenses; provided, however, that the Company shall have no obligation to pay or
otherwise bear any portion of the underwriters' commissions or discounts or
transfer taxes attributable to the Registrable Shares being offered and sold by
P&U and/or PUSA, or the fees and expenses of counsel for P&U and/or PUSA in
connection with the registration of the Registrable Shares.
SECTION 6.9 TERMINATION OF REGISTRATION RIGHTS. No holder of Registrable
Shares shall be entitled to exercise any right provided for in, and the Company
shall have no obligation pursuant to, Sections 6.3, 6.4, 6.5 or 6.7 hereof after
such time as all Registrable Shares held by a holder may be sold pursuant to
Rule 144 promulgated under the Securities Act during a given ninety-day period;
provided, however, if the Company fails to comply with SEC Rule 144(c)(1), the
Company's obligations pursuant to Section 6.3, 6.4, 6.5 and 6.7 hereof shall be
reinstated for so long as such failure to comply shall continue.
ARTICLE 7
COVENANTS OF P&U AND PUSA
SECTION 7.1 STANDSTILL AGREEMENT. Other than shares of Common Stock
which they are purchasing pursuant to this Agreement, P&U and PUSA hereby
covenants and agrees that they will not, nor will they permit any of their
affiliates (including parents, subsidiaries or other related entities) to,
purchase or otherwise acquire, directly or indirectly, any equity securities of
the Company (or any securities convertible, exercisable or exchangeable for any
such securities) without the prior written approval of the Company. This
provision shall terminate and be of no further force or effect one (1) year from
the date hereof or such earlier date as shall be agreed to in writing by the
Company; provided, that the restrictions of this Section 6.3 shall automatically
terminate upon the occurrence of any of the following events: (a) the filing
with the Securities and Exchange Commission of a Schedule 13D by any person or
entity indicating that a person or entity has acquired beneficial ownership of
(x) more than 9.99% of any class of the Company's voting equity securities, or
(y) has acquired at least 5% of any class of the Company's voting equity
securities which Schedule 13D expresses the filing party's intention to assume
control of the Company, whether by tender offer, merger, proxy contest or
otherwise; (b) the commencement of a tender offer by any person or entity to
acquire beneficial ownership of 9.99% or more of the Company's outstanding
voting equity securities; or (c) the solicitation of
19
<PAGE> 20
proxies by any party other than the Company to which Rule 14(a) of the rules and
regulations under the Securities and Exchange Act of 1934, as amended, applies
and is intended to effect a change in the majority of members of the Company's
Board of Directors.
SECTION 7.2 REGISTRATION. Whenever under the preceding Sections of
Article 6, P&U and/or PUSA is registering Registrable Shares pursuant to any
registration statement, (i) P&U and/or PUSA, as applicable, agree to timely
provide to the Company, at its request, such information and materials as it may
reasonably request in order to effect the registration of such Registrable
Shares and (ii) if the offering is underwritten, the Company and P&U and/or
PUSA, as applicable, agree to execute an underwriting agreement containing
customary conditions.
SECTION 7.3 VOTING AGREEMENT. P&U and PUSA agree that they shall, so
long as they hold shares of Common Stock, vote such shares with respect to any
proposed merger or combination or sale of all or substantially all of the assets
of the Company, with or to any other entity in the same proportion as the shares
of the Company's equity securities voted in favor of such transaction by other
parties who are not themselves a party to any such merger, combination or asset
sale; provided, however, that the foregoing voting requirement shall not apply
to P&U or PUSA in any transaction which is not approved by the Company's Board
of Directors or in the event of a proposed merger or combination or sale of
substantially all of the assets of the Company to a competitor of P&U or PUSA.
SECTION 7.4 LIMITATION ON SECURITIES ISSUED PURSUANT TO THIS AGREEMENT.
Unless permitted by the applicable rules and regulations of the Exchange, in no
event shall the total number of shares of Common Stock issued pursuant to this
Agreement exceed the maximum number of shares of Common Stock that the Company
can so issue pursuant to Rule 713(a) of the American Stock Exchange (or any
successor rule or comparable rule of an applicable Exchange) which, as of the
date of this Agreement shall be 19.99% of shares outstanding on the date of this
Agreement.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of New York and
the United States of America, without regard to choice of law rules thereof.
SECTION 8.2 PUBLIC STATEMENTS. Any statement to the public regarding
this Agreement or any aspect of this Agreement shall be made subject to and in
accordance with the terms of the License Agreement.
SECTION 8.3 ASSIGNMENT. The rights and obligations under this Agreement
may not be assigned by either the Company, P&U or PUSA without the prior written
consent of the other party; provided, however, that the Company may, without the
prior consent of P&U or PUSA, assign the rights and obligations under this
Agreement to the acquiring company or any of its affiliates in connection with a
merger, combination or sale of all or substantially all of the assets
20
<PAGE> 21
of the Company, unless such merger or combination or sale of substantially all
of the assets of the Company is to a competitor of P&U or PUSA.
SECTION 8.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the successors, and permitted assigns of the Company, P&U
and PUSA.
SECTION 8.5 ENTIRE AGREEMENT. This Agreement and the License Agreement
(and all of their exhibits and appendices (collectively, the "Agreements")) set
forth all of the covenants, promises, agreements, warranties, representations,
conditions, and understandings between the Company, P&U and PUSA and supersede
and terminate all prior agreements and understandings between these parties with
respect to the subject matter hereof and thereof. There are no covenants,
promises, agreements, warranties, representations, conditions or understandings,
either oral or written, between the Company, P&U and PUSA other than as set
forth in the Agreement, the License Agreement (and all of their exhibits and
appendices). The Agreements are intended to define the full extent of the
legally enforceable undertakings of the Company, P&U and PUSA and no promise or
representation, whether written or oral, which is not set forth explicitly
herein or therein is intended by either party to be legally binding. The
Company, P&U and PUSA acknowledge that, in deciding to enter into this Agreement
and to consummate the transactions contemplated under this Agreement, neither
has relied upon any statement or representation, written or oral, other than
those explicitly set forth in this Agreement.
SECTION 8.6 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of the Agreement. In the event of such invalidity, the parties shall seek to
agree on an alternative enforceable provision that preserves the original
purpose of this Agreement.
SECTION 8.7 AMENDMENT AND WAIVER. Except as otherwise provided herein,
any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company, P&U and PUSA. No
amendment to this Agreement shall be binding upon the parties unless reduced to
writing and signed by the respective authorized officers of the parties. Any
amendment or waiver effected in accordance with this Section shall be binding
upon any holder of any securities purchased under this Agreement (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
SECTION 8.8 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
and received (a) upon personal delivery, (b) on the fifth day following mailing
by registered or certified mail return receipt requested postage prepaid,
addressed to the Company, P&U or PUSA at their respective addresses listed below
(or at such other address for a party as shall be specified by like notice;
provided, that notices of a change of address shall be effective only upon
receipt thereof),
21
<PAGE> 22
(c) upon transmission by facsimile (with telephonic notice), or (d) upon
confirmed delivery by overnight commercial courier service:
If to the Company, address to: InSite Vision Incorporated
Attention: Chief Executive Officer
965 Atlantic Avenue
Alameda, CA 94501
with a copy to: Brobeck, Phleger & Harrison LLP
Attention: Timothy R. Curry
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
If to P&U, address to: Pharmacia & Upjohn
Attention: Vice President, Licensing
95 Corporate Drive
Bridgewater, NJ 08807-0995
Pharmacia & Upjohn AB
Chief Legal Counsel
Lindhagensgatan 133
112 87 Stockholm
Sweden
with a copy to: Pharmacia & Upjohn
Attention: Vice President, Corporate Law
95 Corporate Drive
Bridgewater, NJ 08807-0995
If to PUSA, address to: Pharmacia & Upjohn, SA
Credit European
52 Route D'esch
L-1470 Luxembourg
RC Luxembourg, B-50712
Pharmacia & Upjohn
Attention: Vice President, Licensing
95 Corporate Drive
Bridgewater, NJ 08807-0995
with a copy to: Pharmacia & Upjohn
Attention: Vice President, Corporate Law
95 Corporate Drive
Bridgewater, NJ 08807-0995
22
<PAGE> 23
SECTION 8.9 FEES AND EXPENSES. Except as otherwise provided herein, the
Company, P&U and PUSA shall bear their own expenses and legal fees incurred on
their behalf with respect to this Agreement and the transactions contemplated
hereby.
SECTION 8.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
SECTION 8.11 COUNTERPARTS This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
23
<PAGE> 24
IN WITNESS WHEREOF, this Agreement is executed and delivered by the
parties as of the date first above written.
INSITE VISION INCORPORATED
By:______________________________
Name:
Title:
PHARMACIA & UPJOHN AB
By:______________________________
Name:
Title:
By:_______________________________
Name:
Title:
PHARMACIA & UPJOHN, SA
By:______________________________
Name:
Title:
24
<PAGE> 1
EXHIBIT 23.1 - CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 No. 33-75268 pertaining to the 1994 Stock Option Plan and 1994 Stock
Purchase Plan, No. 33-80662 pertaining to the 1994 Stock Option Plan, and No.
33-93394 pertaining to the 1994 Employee Stock Purchase Plan of InSite Vision
Incorporated of our report dated January 29, 1999, with respect to the
consolidated financial statements of InSite Vision Incorporated included in the
Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Walnut Creek, California
March 29, 1999
45
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