<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-15847
SEQUUS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3031834
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
960 Hamilton Court, Menlo Park, CA 94025
(Address of principal executive offices)
(415) 323-9011
(Registrant's telephone number, including area code)
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
--- ---
At July 29, 1996 the number of outstanding shares of the Company's common stock,
par value $.0001, was 29,220,378.
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SEQUUS PHARMACEUTICALS, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheets
June 30, 1996 and December 31, 1995.......................... 1
Condensed Statements of Operations for the
Three Months and Six Months Ended June 30, 1996 and 1995..... 2
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995...................... 3
Notes to Condensed Financial Statements ..................... 4
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 6
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 18
ITEM 6. Exhibits and Reports on Form 8-K............................. 18
Signature............................................................. 19
i
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands except par value)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,673 $ 6,770
Short-term marketable investments 31,775 43,506
Accounts receivable, net 2,455 1,642
Inventories 3,169 1,105
Prepaid expenses and other current assets 781 949
--------- ---------
Total Current Assets 48,853 53,972
Equipment and improvements, net 4,041 3,591
Other assets 224 245
--------- ---------
Total Assets $ 53,118 $ 57,808
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,435 $ 2,773
Accrued clinical costs 1,609 1,664
Accrued compensation 1,693 2,310
Other accrued liabilities 674 746
Deferred revenue -- 716
--------- ---------
Total Current Liabilities 6,411 8,209
Stockholders' Equity:
Preferred stock, par value $.01 -- 4
Common stock, par value $.0001 3 3
Additional paid-in capital 191,076 183,019
Accumulated deficit (144,372) (133,427)
--------- ---------
Total Stockholders' Equity 46,707 49,599
--------- ---------
Total Liabilities and Stockholders' Equity $ 53,118 $ 57,808
========= =========
</TABLE>
See accompanying notes to condensed financial statements
1
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 5,485 $ 156 $ 9,942 $ 1,040
Royalties and fees 32 30 69 38
-------- -------- -------- --------
Total Revenues 5,517 186 10,011 1,078
Expenses:
Cost of goods sold 690 80 1,221 275
Research and development 5,799 5,247 11,728 10,729
Selling, general and administrative 4,400 1,752 8,858 6,193
-------- -------- -------- --------
Total Expenses 10,889 7,079 21,807 17,197
Net interest and other income 199 139 846 200
-------- -------- -------- --------
Net Loss $ (5,173) $ (6,754) $(10,950) $(15,919)
======== ======== ======== ========
Net loss per share $ (0.18) $ (0.33) $ (0.39) $ (0.80)
======== ======== ======== ========
Shares used in calculation of net loss per share 28,944 20,638 28,426 19,880
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements
2
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SEQUUS PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,950) $(15,919)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 901 971
Change in assets and liabilities:
Accounts receivable (813) 165
Inventories (2,064) (120)
Prepaid expenses 168 219
Other assets (29) (7)
Accounts payable (338) (805)
Accrued clinical costs (55) (877)
Accrued compensation (617) 562
Other accrued liabilities (72) (98)
Deferred revenue (716) --
-------- --------
Net cash used by operating activities (14,585) (15,909)
-------- --------
Cash flows from investing activities:
Available-for-sale securities:
Purchases (21,911) (9,849)
Sales 25,217 --
Maturities 8,429 9,721
Capital expenditures (1,300) (415)
-------- --------
Net cash provided (used) by investing activities 10,435 (543)
-------- --------
Cash flows from financing activities:
Sale of common stock 8,053 15,486
Sale of preferred stock -- 10,033
-------- --------
Net cash provided by financing activities 8,053 25,519
-------- --------
Net increase in cash and cash equivalents $ 3,903 $ 9,067
-------- --------
Cash and cash equivalents at beginning of the period $ 6,770 $ 5,448
-------- --------
Cash and cash equivalents at end of the period $ 10,673 $ 14,515
======== ========
</TABLE>
See accompanying notes to condensed financial statements
3
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SEQUUS PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
SEQUUS Pharmaceuticals, Inc. ("SEQUUS" or the "Company") is engaged in
the development, manufacture, marketing and sale of proprietary
liposome and lipid-based products primarily to treat cancer and certain
fungal infections. SEQUUS' strategic emphasis is on injectable
pharmaceutical products designed to improve the efficacy and reduce the
toxicity of selected existing and new drugs used to treat cancer and
infectious diseases.
In the opinion of management, the accompanying unaudited condensed
financial statements of SEQUUS contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the
financial position as of June 30,1996, and the results of operations
for the three and six month periods ended June 30, 1996 and 1995, and
the changes in cash flows for the six month periods ended June 30, 1996
and 1995, in accordance with generally accepted accounting principles.
These condensed financial statements should be read in conjunction with
the Company's audited financial statements for the year ended December
31, 1995, which were filed with the Securities and Exchange Commission
on Form 10-K.
Although the nature of the business is not seasonal, the results of
operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
2. CASH AND CASH EQUIVALENTS AND MARKETABLE INVESTMENTS
The Company invests its excess cash principally in government
securities and high-grade investment paper. The Company maintains its
cash, cash equivalents and investments in several different instruments
with various banks and brokerage houses. The diversification of risk is
consistent with Company policy to maintain liquidity and ensure the
safety of principal.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each
balance sheet date. At June 30, 1996, all investments are classified as
available-for-sale securities and are carried at fair value, with the
unrealized gains and losses reported as a component of accumulated
deficit. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in net interest and other
income. Realized gains and losses and declines in value judged to be
other than temporary on available-for-sale securities are included in
net interest and other income. The cost of securities sold is based on
the specific identification method.
4
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The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
As of June 30, 1996 AMORTIZED GROSS UNREALIZED ESTIMATED
------------------------
COST GAINS LOSSES FAIR VALUE
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
United States government securities $ 18,542 $ 46 $(25) $ 18,563
United States corporate securities 14,009 11 (5) 14,015
Foreign debt securities 4,048 -- -- 4,048
-------- -------- -------- --------
$ 36,599 $ 57 $(30) $ 36,626
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995 AMORTIZED GROSS UNREALIZED ESTIMATED
------------------------
COST GAINS LOSSES FAIR VALUE
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
United States government securities $ 20,234 $ 15 $(10) $ 20,239
United States corporate securities 10,314 8 -- 10,322
Foreign debt securities 12,936 9 -- 12,945
-------- -------- -------- --------
$ 43,484 $ 32 $(10) $ 43,506
======== ======== ======== ========
</TABLE>
The gross realized gains and losses on sales of available-for-sale
securities were immaterial for the quarters ended June 30, 1996 and
1995. As of June 30, 1996 the average portfolio duration was
approximately 77 days.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. The inventory detail is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials $2,202 $ 898
Work-in-process 617 68
Finished goods 350 139
------ ------
$3,169 $1,105
====== ======
</TABLE>
4. STOCKHOLDERS' EQUITY
During the first six months of 1996, the Company received approximately
$8,053,000 from the exercise of warrants and stock options. Of this,
approximately $3,000,000 was due to the conversion of warrants to
purchase 705,714 shares of Common Stock at $4.25 per share and
approximately $1,920,000 was due to the conversion of warrants to
purchase 258,249 shares of Common Stock at $7.4328 a share. The
warrants were acquired by investors in private placement financings in
March 1991 and May 1995, respectively. Warrants for 500,000 shares of
SEQUUS Common Stock, expiring in March 1997, remain outstanding from
the March 1991 private placement and warrants for 826,898 shares,
expiring in May 1999, remain outstanding from the May 1995 private
placement. In addition, warrants for 808,320 shares of Common Stock at
$7.425 per share, which expire in April 1998, remain outstanding from a
private placement financing in March and April 1995.
In February 1996, the Company gave notice to investors participating in
a March 1995 private placement of the conversion to Common Stock of
480,000 shares of Series A Convertible Reset ("Preferred Stock"). Each
Preferred Share was converted into 3.367 shares of Common Stock
(rounded down to the nearest whole share).
5
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements in this report that relate to future plans, events or performance
are forward-looking statements. Actual results, events or performance may differ
materially due to a variety of factors, including the factors described under
"Factors That May Affect Future Results, Events or Performance" below. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
OVERVIEW
The Company is a leader in the development, manufacture, marketing and sales
of liposome and lipid-based biopharmaceutical products primarily to treat cancer
and certain fungal infections. In November 1995, SEQUUS received marketing
clearance from the FDA for its proprietary anticancer drug, DOXIL(R)
(doxorubicin HCI liposome injection), for the treatment of Kaposi's sarcoma
("KS") in AIDS patients whose KS has progressed on prior chemotherapy or in
patients who are intolerant to such therapy. In December 1995, the Company
launched DOXIL in the U.S. In June 1996, the Company was granted marketing
authorization for DOXIL under the tradename CAELYX(TM), in the 15 member states
of the European Union ("EU"), for both first-line and second-line treatment of
AIDS-KS in patients with low CD4 counts and extensive mucocutaneous or visceral
disease. The drug may be used as first-line systemic chemotherapy, or as
second-line chemotherapy, in AIDS-KS patients with disease that has progressed
with, or in patients who are intolerant to, prior combination chemotherapy
comprising at least two of the following agents: a Vinca alkaloid, bleomycin,
and doxorubicin (or other anthracycline).
AMPHOTEC(TM) (amphotericin B colloidal dispersion), the Company's
proprietary product for treatment of life-threatening systemic fungal
infections, is being marketed in 11 countries and has received marketing
clearance in three additional countries. AMPHOTEC is indicated for the treatment
of severe and/or deep systemic mycoses in cases where toxicity or renal failure
precludes the use of conventional amphotericin B and in cases where prior
systemic antifungal therapy has failed. (AMPHOTEC is marketed under the
tradename AMPHOCIL in most countries outside of the U.S. and is also known as
ABCD.)
The Company has incurred losses in each year since its inception and had
accumulated approximately $144.4 million in net losses through June 30, 1996,
including a loss of approximately $11.0 million in the first six months of 1996.
Although the Company has commenced marketing DOXIL in the U.S. and AMPHOTEC in
the U.K. and ten other countries, the Company expects operating losses to
continue in the near term due to expenditures associated with research,
preclinical testing and clinical trials, marketing expenses and other expenses
relating to the development, manufacture, marketing and sale of its products. If
the Company expands clinical trials for additional indications of DOXIL,
research and development spending will increase in 1996.
The Company expects its marketing and sales expenses to increase
significantly as it proceeds with the commercialization of DOXIL and prepares
for the U.S. launch of AMPHOTEC (assuming that AMPHOTEC receives FDA marketing
authorization) through its direct sales and marketing organization. As of June
30, 1996, SEQUUS had a sales force of 24 individuals experienced in the sale of
pharmaceutical and biopharmaceutical products, with particular emphasis on
oncology. A competitor of the Company recently received approval from the FDA
for the use of a liposome anthracycline formulation as first-line therapy for
AIDS-KS and has also received approval for the same indication in fourteen
additional countries. These approvals could have an adverse effect on the market
penetration of DOXIL. The Company currently uses Ben Venue Laboratories, Inc., a
contract manufacturer, for the commercial-scale manufacturing of its products.
6
<PAGE> 9
The Company has received marketing authorization approval for AMPHOTEC in
Austria, Brazil, Denmark, the Czech Republic, Finland, Iceland, Ireland, the
Netherlands, Russia, Singapore, Slovenia, the Slovak Republic, Sweden and the
U.K. Marketing authorization applications ("MAAs") for AMPHOTEC, submitted by
the Company and Zeneca Pharmaceuticals ("Zeneca") are under assessment in a
number of countries, including other European countries, except in Norway where
the MAA has been withdrawn. On September 13, 1995, the CPMP reviewed the
Company's multi-state application for product marketing approval. Germany,
France, Spain, Greece and Luxembourg did not accept the MAA. SEQUUS believes
national approval will be forthcoming in Italy and Portugal. However, there can
be no assurance that approvals, including pricing approvals, will be forthcoming
on a timely basis, or at all. In addition, after the CPMP meeting, following
further consideration by the Commission of Medicines in Belgium, the Company has
accepted an option for marketing authorization for AMPHOTEC in a limited
indication. A competitor of the Company has regulatory approval in approximately
20 countries, primarily in Europe, to sell a liposomal amphotericin B product
which targets indications similar to those targeted by AMPHOTEC. Another
competitor introduced its liposomal amphotericin B product as the third entrant
in the U.K. market at a price substantially below the price of the other
lipid-based antifungals and recently launched the product in the U.S.
Competition from these two competitors could have an adverse effect on the
market penetration and pricing of AMPHOTEC in both Europe and, if marketing
clearance is obtained, in the U.S.
In August 1993, the Company signed a distribution agreement with Zeneca
under which Zeneca was to market and sell AMPHOTEC in most European countries.
In March 1994, SEQUUS and Zeneca announced the expansion of their August 1993
agreement to cover all countries not previously covered with the exception of
the United States, Canada, Japan and selected small markets. Sales of AMPHOTEC
to date have been below expectations. In July 1996, SEQUUS announced that it had
reacquired from Zeneca all international marketing and distribution rights for
AMPHOTEC except for nine European countries to which Zeneca had retained such
rights (Denmark, Finland, Holland, Iceland, Ireland, Italy, Portugal, Sweden and
the U.K.). In exchange for the return to SEQUUS of marketing and distribution
rights throughout the rest of the world, SEQUUS agreed to restructure certain
future milestone payments specified in the original 1993 agreement, adjust the
pricing terms for AMPHOTEC to provide greater competitive flexibility, and
exchange certain inventory.
The Company is evaluating various product distribution arrangements for
DOXIL and AMPHOTEC that could affect near-term and long-term financial
performance.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 and 1995
Revenues
Total revenues, most of which were product sales, were $5.5 million, during
the three month period ended June 30, 1996 compared with $0.2 million recorded
during the three month period ended June 30, 1995. DOXIL product sales represent
92.6% of total product sales in the three month period ended June 30, 1996
compared to less than 1% in the same period of 1995. For the three month period
ended June 30, 1995, most of the Company's product sales were sales of AMPHOTEC
to agents, who marketed the product to the customer. Modest shipments of
AMPHOTEC were made to Zeneca in the second quarter of 1996, and the Company
anticipates only limited sales to Zeneca for the foreseeable future.
Operating Expenses
The Company's gross margin increased to 87.4% of net sales in the three
month period ended June 30, 1996 from 48.7% of net sales in the three month
period ended June 30, 1995. The increase in gross margin was due to higher DOXIL
sales in the U.S. where the Company currently markets directly to the customer.
The Company anticipates that the gross margin on net sales will not change
materially in the third quarter.
7
<PAGE> 10
Generally, a majority of the Company's operating expenses are incurred for
research and development ("R&D"), including preclinical testing and clinical
trials required for new pharmaceutical products. The principal items of R&D
expense are personnel costs, costs for clinical trials, and costs associated
with production of clinical product and supplies. R&D increased to $5.8 million
in the three month period ended June 30, 1996, from $5.2 million in the second
quarter of 1995, an increase of $0.6 million. If the Company expands clinical
trials for additional indications of DOXIL and/or enter clinical or expanded
preclinical trials with other drugs in the pipeline, R&D expenses may continue
to increase.
Selling, general and administrative ("SG&A") expenses increased $2.6 million
to $4.4 million in the three month period ended June 30, 1996 from $1.8
million in the same period in 1995, principally reflecting an increase in
marketing and sales expenses related to the expansion of the sales force to
market DOXIL in the U.S. The Company currently has a sales force of 24
individuals experienced in the sale of pharmaceutical and biopharmaceutical
products and additional internal staff to support sales operations.
Net Interest and Other Income
Net interest and other income increased to approximately $199 thousand in
the three month period ended June 30, 1996 from approximately $139 thousand in
the same period of 1995, an increase of approximately $60 thousand principally
due to the increase in cash available for investment from the proceeds of the
Company's public offering of Common Stock in the fourth quarter of 1995 and the
exercise of warrants and stock options during the first quarter of 1996.
Net Loss
The Company's net loss decreased to $5.2 million for the three month period
ended June 30, 1996 from $6.8 million for the same period of 1995, a decrease of
$1.6 million. The net loss per share was $0.18 for the three month period ended
June 30, 1996 compared to a $0.33 net loss per share in the same period of 1995.
However, the number of weighted shares outstanding at June 30, 1996 was
28,944,000 as compared to 20,638,000 at June 30, 1995. The decrease in the net
loss was due to the increase in net sales of DOXIL partially offset by growth in
total operating expenses.
Six Months Ended June 30, 1996 and 1995
Revenues
Total revenues, the majority of which were attributable to product sales,
were $10.0 million during the six month period ended June 30, 1996 compared with
$1.0 million recorded during the six month period ended June 30, 1995. Sales of
DOXIL represent 94.6% of total product sales in the six month period ended June
30, 1996 compared to less than 1% in the same period of 1995. For the six month
period ended June 30, 1995, most of the Company's product sales represent sales
of AMPHOTEC to Zeneca. Modest shipments of AMPHOTEC were made to Zeneca in the
first six months of 1996 and the Company anticipates only limited sales to
Zeneca for the foreseeable future.
Operating Expenses
The Company's gross margin increased to 87.7% of net sales in the six month
period ended June 30 1996 from 73.6% of net sales in the six month period ended
June 30, 1995. The increase in gross margin was due to higher margins associated
with DOXIL sales in the U.S. where the Company currently markets directly to the
customer.
R&D increased to $11.7 million in the six month period ended June 30, 1996,
from $10.7 million in 1995, an increase of $1.0 million. This increase is due to
a general overall increase in expense levels.
8
<PAGE> 11
Selling, general and administrative ("SG&A") expenses increased $2.7 million
to $8.9 million in the six month period ended June 30, 1996 from $6.2 million
in the same period in 1995, principally reflecting an increase in marketing and
sales expenses related to the expansion of the sales force to market DOXIL in
the U.S. SG&A expenses in the six month period ended June 30, 1995 included
accrued expenses in connection with termination of the employment of certain
officers.
Net Interest and Other Income
Net interest and other income increased to $846,000 in the six month period
ended June 30, 1996 from $200,000 in the same period of 1995, an increase of
$646,000 principally due to the increase in cash available for investment from
the proceeds of the Company's public offering of Common Stock in the fourth
quarter of 1995 and the exercise of warrants and stock options during the first
six months of 1996.
Net Loss
The Company's net loss decreased to $11.0 million for the six month period
ended June 30, 1996 from $15.9 million for the same period of 1995, a decrease
of $4.9 million. The net loss per share was $0.39 for the six month period ended
June 30, 1996 compared to $0.80 in the same period of 1995. However, the number
of weighted shares outstanding at June 30, 1996 were 28,426,000 as compared to
19,880,000 at June 30, 1995. The decrease in the net loss was due to the
increase in net sales of DOXIL partially offset by growth in total operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable investments at June
30, 1996 were $42.4 million, a decrease of $7.9 million from $50.3 million at
December 31, 1995. This decrease represents principally cash used by operations
and capital expenditures offset by cash provided by option and warrant
exercises. During the six month period ended June 30, 1996, the Company received
approximately $8.1 million from the exercise of warrants and stock options. Of
this, approximately $3.0 million was due to the exercise of warrants to purchase
705,714 shares of Common Stock at $4.25 per share and approximately $1.9 million
was due to the exercise of warrants to purchase 258,249 shares of Common Stock
at $7.4328 per share. These warrants were acquired by investors in private
placement financings in March 1991 and May 1995, respectively. Warrants for
500,000 shares of SEQUUS Common Stock, which expire in March 1997, remain
outstanding from the March 1991 private placement. Warrants for 826,898 shares,
which expire in May 1999, remain outstanding from the May 1995 financing. In
addition, warrants for 808,320 shares of Common Stock at $7.425 per share, which
expire in April 1998, remain outstanding from a private placement financing in
March and April 1995. In February 1996, the Company gave notice to investors
participating in a March 1995 private placement of the conversion to Common
Stock of 480,000 shares of Series A Convertible Reset Preferred Stock. Each
share of Preferred Stock was converted into 3.367 shares of Common Stock
(rounded down to the nearest whole share). The conversion was completed in April
1996.
The Company's strategy has been to fund primarily from its own cash
resources the preclinical and clinical development of two of its proprietary
products, DOXIL and AMPHOTEC and the continued research and development of
additional STEALTH liposome products. This strategy requires significant
operating and capital expenditures, including the possible construction of a
pilot production facility which is currently in the planning phase.
The Company believes that at planned spending rates its existing cash balances,
interest income earned thereon and revenues from operations will be adequate to
fund its planned activities through at least the next 12 months, although it may
seek additional financing sooner. There can be no assurance that adequate
financing will be available on satisfactory terms, if at all.
9
<PAGE> 12
FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
SEQUUS wishes to caution readers that the following important factors, among
others, may affect the Company's future results, events or performance and could
cause actual results, events or performance to differ materially from those
expressed in any forward-looking statements made by the Company in this report
or presented elsewhere by the Company from time to time.
Uncertainty of Market Acceptance
The Company has only received limited revenues from the sales of its
products and only has limited experience in marketing its products. A number of
factors may limit the market acceptance of AMPHOTEC, DOXIL and any other
products developed by the Company, including the timing of regulatory approval
and market entry relative to competitive products, the availability of alternate
therapies, the price of the Company's products relative to alternative
therapies, the availability of third-party reimbursement and the extent of
marketing efforts by third-party distributors or agents retained by the Company.
Until quite recently, no therapeutic product based on liposome or lipid-based
technology was commercially available in the United States. As a result,
unanticipated side effects or unfavorable publicity concerning any product
incorporating liposome or lipid-based technologies could have an adverse effect
on the Company's ability to obtain physician, patient or third-party payor
acceptance and to sell the Company's products. There can be no assurance of the
Company's ability, or the length of time required, to achieve commercialization
of the Company's products or that physicians, patients or third-party payors
will accept liposome products or any of the Company's products as readily as
traditional forms of medication or at all.
Uncertainty of Product Development
The development of new pharmaceutical products is subject to a number of
significant risks. Potential products that appear to be promising at various
stages of development may not receive regulatory approval, reach the market or
achieve widespread use for a number of reasons. For example, DOXIL is being
clinically tested in various types of solid tumors. Although the Company
believes that preliminary results suggest activity in some but not all of these
tumors, these results are not conclusive nor are they predictive of future
results. Moreover, even when a drug does demonstrate activity, this does not
mean that it will prove sufficiently effective to be better than existing
therapies. The reasons for a product not being successful include the
possibilities that the potential products will be found insufficiently effective
or unduly toxic during preclinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical to market or not achieve market acceptance, be inferior or
significantly later to market than competing products or be precluded from
commercialization by proprietary rights of third parties.
There are a number of challenges the Company must address successfully to
develop commercial products in each of its development programs. The Company's
potential products will require significant additional research and development
efforts, including process development and significant additional clinical
testing, prior to any commercial use. There can be no assurance that the Company
will successfully address any of these technological challenges, or others that
may arise in the course of development. In addition, the Company may not have
sufficient resources to commercialize new products successfully.
Successful product development requires, among other things, the design and
completion of clinical trials. The rate of completion of the Company's clinical
trials is dependent upon, among other factors, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the protocol, the Company's ability to manage
the clinical trial, the proximity of patients to clinical sites and the
eligibility criteria for the study. Several factors, such as delays in planned
patient enrollment may result in increased costs and delays, or termination of
clinical trials prior to completion, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
10
<PAGE> 13
Competition
The drugs being developed by the Company compete with existing and new drugs
being created by pharmaceutical, biopharmaceutical and biotechnology companies.
Many of these companies, as well as university-related entities, both in the
United States and abroad are developing products based on improved drug delivery
technologies as well as novel therapeutics for the treatment of cancer,
infectious diseases and other indications targeted by the Company. Some of these
companies are active in the development of liposome and lipid-based research and
product development and many have financial and technical resources and
production and marketing capabilities substantially greater than those of the
Company. In addition, many of these companies have significantly greater
experience than the Company in preclinical and clinical development activities
and in obtaining regulatory approval to manufacture and market biopharmaceutical
products.
The Company's two principal competitors in liposome drug delivery are
NeXstar Pharmaceuticals, Inc. ("NeXstar") and The Liposome Company ("TLC"), both
of which have received regulatory approval for products competitive with the
Company's products. NeXstar recently received approval from the FDA with respect
to its liposome-based daunorubicin product (a liposome anthracycline
formulation) for use in first-line therapy of KS patients and has also received
approval for the same indication in 14 additional countries. DOXIL has been
approved and is being marketed in the U.S. as a second-line treatment for
AIDS-KS and has been approved in the 15 E.U. countries for both first-line and
second-line therapy of AIDS-KS (see "DOXIL Regulatory Status"). A NeXstar
liposomal amphotericin B product has been on the market in Europe since 1989 and
has achieved substantial market share as compared to the limited market
penetration achieved to date by the Company's lipid-based amphotericin B
product, AMPHOTEC. In late 1995, TLC launched its lipid-based amphotericin B
product in the U.S. The Company's NDA for AMPHOTEC is under review by the FDA.
TLC also received approval for its amphotericin B product in several European
countries and has additional MAAs pending.
SEQUUS believes that competition in all pharmaceutical products and in all
forms of drug delivery will continue to be intense. There can be no assurance
that other pharmaceutical companies will not develop more effective therapeutics
or drug delivery technologies than those of the Company or will not market and
sell their products more effectively than the Company.
Uncertainty of Pharmaceutical Pricing and Reimbursement
The Company's business may be materially adversely affected by the
continuing efforts of worldwide governmental and third-party payors to contain
or reduce the costs of health care in general and drugs in particular. For
example, in most foreign markets, including markets the Company is seeking to
enter, pricing of prescription pharmaceuticals is subject to government pricing
control. In these markets, once marketing approval is received, pricing
negotiation could take as long as another six to 12 months or longer. In the
U.S., there has been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar government pricing
control. In addition, an increasing emphasis on managed care and consolidation
of hospital purchasing in the U.S. has and will continue to put pressure on
pharmaceutical pricing. Such proposals, if adopted, and such initiatives could
decrease the price that the Company receives for any products it may develop and
sell in the future and thereby have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or initiatives have a material adverse effect on
pharmaceutical companies that are collaborators or prospective collaborators for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be materially adversely affected. In
addition, price competition may result from competing product sales, attempts to
gain market share or introductory pricing schemes, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
11
<PAGE> 14
The Company's ability to commercialize biopharmaceutical products may depend
in part on the extent to which reimbursement for such products and related
treatments will be available from government health administration authorities,
private health insurers and other third-party payors. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and third-party payors are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third- party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products, and by refusing, in some cases, to
provide coverage for off-label uses of approved products, i.e., uses for
indications as to which the FDA has not granted marketing approval. Moreover,
reimbursement may be denied even for FDA-approved indications. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's products, the Company's business, financial
condition and results of operations would be materially adversely affected.
No Assurance of Regulatory Approvals
The production and marketing of the Company's products are subject to
rigorous manufacturing requirements, preclinical testing and clinical trials and
approval by the FDA, by comparable agencies in other countries and by state
regulatory authorities prior to marketing. The process of conducting clinical
trials and obtaining regulatory approval for a product typically takes a number
of years and involves substantial expenditures. In addition, product approvals
may be withdrawn or limited for noncompliance with regulatory standards or the
occurrence of unforeseen problems following initial marketing. The Company has
received regulatory approval in the U.S. for the commercial sale of only one of
its products. The Company may encounter significant delays or excessive costs in
its efforts to secure and maintain necessary approvals or licenses. Future
federal, state, local or foreign legislative or administrative acts could also
prevent or delay regulatory approval of the Company's or its licensees'
products. There can be no assurance that the Company will be able to obtain or
maintain the necessary approvals for manufacturing or marketing the Company's
products for current or expanded indications or that the data it obtains in
clinical trials will be sufficient to establish the safety and efficacy of its
products. Even if the Company obtains regulatory approval for any particular
product, there can be no assurance that it will be economically feasible for the
Company to commercialize such product. In addition, identification of certain
side effects after a drug is on the market or the occurrence of manufacturing
problems could cause subsequent withdrawal of approval, reformulation of the
drug, additional preclinical testing or clinical trials, and changes in labeling
of the product. Failure to obtain or maintain requisite governmental approvals,
failure to obtain approvals of the clinically intended uses or the
identification of side effects could delay or preclude the Company from further
developing particular products or from marketing its products, or could limit
the commercial use of its products, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
DOXIL Regulatory Status
In November 1995, SEQUUS received marketing clearance from the FDA for use
of DOXIL in the treatment of AIDS-KS patients whose KS has progressed on prior
chemotherapy or in patients who are intolerant to such therapy. In December
1995, the Company launched DOXIL in the U.S., using its own marketing and sales
force. The marketing clearance was provided in accordance with the FDA's
procedures for Accelerated Approval of New Drugs for Serious or Life-Threatening
Illnesses. Accelerated approval regulations require that an applicant study an
investigational drug following product launch to verify and describe the drug's
clinical benefit. The Company has initiated a post-marketing clinical trial
designed to meet accelerated approval requirements. Under FDA accelerated
approval regulations, the FDA may withdraw approval following product launch if
the Company fails to show due diligence in conducting the post-marketing
clinical trial or if this clinical trial fails to demonstrate clinical benefit
to the FDA's satisfaction. There can be no assurance that the Company will be
able to conduct a satisfactory post-marketing clinical trial.
12
<PAGE> 15
In June 1996, the Company was granted marketing authorization for DOXIL
under the tradename CAELYX, in the 15 member states of the EU, for both
first-line and second-line treatment of AIDS-KS in patients with low CD4 counts
and extensive mucocutaneous or visceral disease. The drug may be used as
first-line systemic chemotherapy, or as second-line chemotherapy, in AIDS-KS
patients with disease that has progressed with, or in patients who are
intolerant to, prior combination chemotherapy comprising at least two of the
following agents: a Vinca alkaloid, bleomycin, and doxorubicin (or another
anthracycline).The Company will enter into pricing discussions with the
appropriate agencies in those countries where pricing approval is required.
There can be no assurance that the Company will be able to negotiate a
satisfactory price for DOXIL in the EU countries.
AMPHOTEC Regulatory Status
SEQUUS has received marketing authorization approval for AMPHOTEC in
Austria, Brazil, Denmark, the Czech Republic, Finland, Iceland, Ireland, the
Netherlands, Russia, Singapore, Slovenia, the Slovak Republic, Sweden and the
U.K., under the tradename AMPHOCIL. AMPHOTEC is indicated for the treatment of
severe and/or deep systemic mycoses in cases where toxicity or renal failure
precludes the use of conventional amphotericin B and in cases where prior
systemic antifungal therapy has failed. MAAs for AMPHOTEC, submitted by the
Company and Zeneca, are under assessment in a number of countries, including
other European countries, except in Norway where the MAA was withdrawn. In
September 1995, the CPMP reviewed the Company's multi-state application for
product marketing approval. Germany, France, Spain, Greece and Luxembourg did
not accept the MAAs. SEQUUS believes national approvals will be forthcoming in
Italy and Portugal. However, there can be no assurance that approvals, including
pricing approvals, will be forthcoming on a timely basis, or at all. In
addition, after the CPMP meeting, following further consideration by the
Commission of Medicines in Belgium, the Company has accepted the option of a
marketing authorization approval for AMPHOTEC in a limited indication.
In November 1995, the Company submitted to the FDA an NDA for AMPHOTEC based
upon certain data from open label clinical trials, which was accepted for filing
in January 1996. There can be no assurance that the FDA will determine that the
Company's NDA provides sufficient evidence of safety and efficacy in humans to
support FDA approval or that the NDA will be approved on a timely basis, or at
all.
Dependence on Third-Party Distributor and Agents; Limited Marketing and Sales
Experience
In 1995, a substantial portion of the Company's product revenues came from
sales either to a third-party distributor (Zeneca) or through third-party
agents. For the fiscal year ended December 31, 1995, 41% of the Company's
product sales represent sales of AMPHOTEC to Zeneca as compared to 91% for 1994.
A significant portion of these sales of AMPHOTEC reflect pipeline-filling
(inventory) orders. The Company did not ship any AMPHOTEC to Zeneca in 1995
after the first quarter. Three shipments of AMPHOTEC were made in the first half
of 1996, which represented approximately 5% of sales, and the Company
anticipates only limited sales to Zeneca for the foreseeable future. The level
of the Company's future sales of AMPHOTEC to Zeneca will depend upon the rate at
which the product penetrates the existing approved markets (see "AMPHOTEC
Regulatory Status") as well as the timing of additional approvals in other
countries, if any. Sales of AMPHOTEC to date have been below expectations. In
July 1996, SEQUUS announced that it had reacquired from Zeneca all international
marketing and distribution rights for AMPHOTEC except for nine European
countries to which Zeneca had retain such rights (Denmark, Finland, Holland,
Iceland, Ireland, Italy, Portugal, Sweden and the United Kingdom). In exchange
for the return to SEQUUS of marketing and distribution rights throughout the
rest of the world, SEQUUS agreed to restructure certain future milestone
payments specified in the original 1993 agreement, adjust the pricing terms for
AMPHOTEC to provide greater competitive flexibility, and exchange certain
inventory.
The Company expects to market and sell its products directly, or possibly
co-promote them with strategic partners, in the U.S. In this regard, SEQUUS
currently employs a sales and marketing team of 24 professionals to market
DOXIL, which the Company intends to expand if marketing clearance is obtained
13
<PAGE> 16
for AMPHOTEC. This group is experienced in the sale of pharmaceutical and
biotechnology products to physicians, hospitals and clinics, including managed
care providers, and in facilitating reimbursement with third-party payors.
Further development of such a marketing and sales organization will require
significant additional expenditures, management resources and time. The Company
has limited experience marketing and selling its products. In addition, the loss
of certain key sales personnel would delay and adversely affect the sales effort
and would have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to implement its marketing plan successfully. If the Company enters
into any marketing partnerships in the United States, such as those currently
under consideration, this would significantly reduce the Company's margins on
these products. There can be no assurance that the Company will be able to
establish such a marketing and sales organization successfully or manage its
marketing organization successfully.
Product Liability
Testing, manufacturing, marketing and use of the Company's products will
entail substantial risk of product liability. The Company currently maintains
product liability insurance in an amount of $5.0 million per occurrence and $5.0
million in the aggregate. A single product liability claim could exceed the $5.0
million coverage limit, and there is a possibility of multiple claims. There can
be no assurance that the amount of insurance the Company has obtained against
the risk of product liability will be adequate, that the amount of such
insurance can be renewed or that the amount and scope of any coverage obtained
will be adequate to protect the Company in the event of a successful product
liability claim. The Company's business could be materially adversely affected
by one or more successful product liability claims.
In addition, with respect to the sale of DOXIL in the U.S., the Company
believes it has significantly greater risk in connection with product liability
claims due to the greater frequency of lawsuits and higher claims paid in courts
in the U.S. as opposed to most other countries. The Company is required by
governmental regulations to test its products even after they have been sold and
used by patients. As a result of such tests, the Company may be required to, or
may determine that it should, recall products when most of such products have
already been sold. Such later testing and product recalls may increase the
Company's potential exposure to product liability claims.
Dependence on Third-Party Manufacturer; Manufacturing Risks
The Company's present internal manufacturing capabilities are limited to
producing products for preclinical development. The Company is dependent on Ben
Venue, a United States-based contract manufacturer, to manufacture
commercial-scale quantities of AMPHOTEC and DOXIL pursuant to supply agreements.
Under these agreements the Company has agreed to indemnify Ben Venue against
certain liabilities. As of June 1996, the Company and Ben Venue have
manufactured 24 commercial-scale batches of DOXIL, including the three
registration batches which are required as part of the FDA's NDA approval
process. There can be no assurance that Ben Venue will continue to meet FDA or
product specification standards or that the Company's manufacturing goals can be
met in a consistent and timely manner. There is only a limited number of other
manufacturers with the capability of manufacturing AMPHOTEC and DOXIL, and any
alternative manufacturer would require regulatory qualification to manufacture
the product which would likely take several months.
The Company has not qualified alternative manufacturers for its products. In
the event of any interruption of supply from the contract manufacturer due to
regulatory or other causes, there can be no assurance that the Company could
make alternative manufacturing arrangements on a timely basis, if at all. Such
an interruption would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company relies on certain suppliers of key raw materials to provide an
adequate supply of such materials for production of finished products. Certain
materials are purchased from single sources. In particular, amphotericin B and
doxorubicin are currently each supplied to the Company by single sources,
14
<PAGE> 17
and the number of alternative sources is severely limited. For example, the
Company has a five-year, sole-source supply agreement with Meiji Seika Pharma
International, Ltd. to supply the Company with doxorubicin for DOXIL. There can
be no assurance that the doxorubicin supplied under the agreement will continue
to meet FDA requirements applicable to DOXIL, which could delay or prevent
future sales of DOXIL, if any, by the Company. Although the Company has supply
agreements in place with the suppliers of its key raw materials, the number of
alternative qualified suppliers of key raw materials required for the
manufacture of AMPHOTEC and DOXIL is limited. The disqualification or loss of a
sole source supplier could have a material adverse effect on the Company because
of a delay or inability in obtaining and qualifying an alternate supplier and
the costs associated with such delay and in finding and qualifying an alternate
supplier. Regulatory requirements applicable to pharmaceutical products tend to
make the substitution of suppliers costly and time consuming. The unavailability
of adequate commercial quantities, the loss of a supplier's regulatory approval,
the inability to develop alternative sources, a reduction or interruption in
supply or a significant increase in the price of materials could have a material
adverse effect on the Company's ability to manufacture and market its products
and its results of operations.
Patents and Trade Secrets
There has been increasing litigation in the biomedical, biotechnology and
pharmaceutical industries with respect to the manufacture, use and sale of new
therapeutic products that are the subject of conflicting patent rights. A
substantial number of patents relating to liposomes have been issued to, or are
controlled by, other public and private entities, including academic
institutions. In addition, others, including competitors of SEQUUS, may have
filed applications for, or may have been issued patents or may obtain additional
patents and proprietary rights relating to products or processes competitive
with those of SEQUUS. The patent positions of pharmaceutical, biopharmaceutical,
biotechnology and drug delivery companies, including SEQUUS, are uncertain and
involve complex legal and factual issues. Additionally, the coverage claimed in
a patent application can be significantly reduced before the patent is issued.
As a consequence, the Company does not know whether any of its patent
applications will result in the issuance of patents or whether any of the
Company's patents will provide significant proprietary protection or will be
circumvented or invalidated. Since patent applications in the United States are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first inventor of inventions covered
by its pending patent applications or that it was the first to file patent
applications for such inventions. Moreover, the Company may have to participate
in interference proceedings to determine priority of invention, which could
result in substantial cost to the Company, even if the eventual outcome is
favorable to the Company. There can be no assurance that any patents owned or
controlled by the Company will protect SEQUUS against infringement litigation or
afford commercially significant protection of the Company's technology. Almost
none of the Company's patents has been tested in court to determine their
validity and scope. Moreover, the patent laws of foreign countries differ from
those of the United States and the degree of protection, if any, afforded by
foreign patents may, therefore, be different.
In November 1991, the Company received a letter from TLC bringing to SEQUUS'
attention TLC's United States Patent No. 5,059,591 (the "'591 Patent")
containing claims directed to amphotericin B/sterol compositions and their
method of use. Subsequently, SEQUUS' patent counsel delivered an opinion to the
Company that, among other things, AMPHOTEC does not infringe any valid claim of
the '591 Patent. However, no assurance can be given that TLC will not make a
claim against SEQUUS with respect to the '591 Patent, which could have a
material adverse effect on the Company's ability to commercialize AMPHOTEC.
The Company has a practice of monitoring patents and other developments in
the liposome field. To the extent that the Company becomes aware of patents of
other parties which the Company's processes or products might infringe, it is
the Company's practice to seek review of such patents by the Company's patent
counsel. With respect to the Company's DOXIL product, the Company is aware of
TLC's United States Patent No. 5,077,056 relating to the loading of therapeutic
drugs into liposomes. The Company's patent counsel has rendered an opinion that
its DOXIL product would not infringe any valid claim of this
15
<PAGE> 18
patent. The Company is also aware of TLC's United States Patent No. 5,008,050
relating to reducing liposome size by extrusion, and NeXstar's United States
Patent No. 5,435,989 relating to targeting of liposomes to solid tumors. The
Company's patent counsel has rendered an opinion that its DOXIL product would
not infringe any valid claim of either of these patents. In addition, the
Company is aware of certain patents covering lyophilization of liposomes.
Neither of the Company's principal products involves the lyophilization of
liposomes.
Generally, the Company refers patents to its patent counsel for review. Even
if the Company's patent counsel renders advice that the Company's products do
not infringe any valid claim under such patents, there can be no assurance that
any third party will not commence litigation to enforce such patents or that the
Company will not incur substantial expense, or that it will prevail, in any
patent litigation.
The Company has been required to defend itself in patent litigation in the
past and the uncertainties inherent in any other lawsuit that may be commenced
in the future with respect to any alleged patent infringement by the Company
make the outcome of any such litigation difficult to predict. The Company may
decide to pay a royalty or make other concessions to settle a patent dispute. In
the event of litigation, there can be no assurance that the Company will be
successful. A judgment adverse to the Company in any such litigation could
materially adversely affect the Company's business, financial condition and
results of operations, and the expense of such litigation may be substantial,
whether or not the Company is successful in such litigation.
The Company relies on unpatented trade secrets and proprietary know-how to
protect certain aspects of its production and lipid purification technologies
and other proprietary information. Although SEQUUS has entered into
confidentiality agreements with its employees, consultants, representatives and
other business associates, there can be no assurance that trade secrets and
know-how will remain undisclosed or that similar trade secrets or know-how will
not be independently developed by others.
History of Operating Losses; Need for Additional Financing
The Company has incurred losses in each year since its inception and has
accumulated approximately $144.4 million in net losses through June 30, 1996,
including a net loss of $11.0 million in the first six months of 1996. The
Company to date has generated limited revenues. There can be no assurance that
revenues from product sales will be significant or sufficient to fund
operations. Owing to expenditures associated with self-funded research,
preclinical and clinical programs, marketing expenses and other activities
related to seeking regulatory approval and achieving commercialization of its
products, the Company expects to continue to incur operating losses. Additional
financing is likely to be required to fund the Company's continuing operations
and product and business development activities in the form of debt or equity
securities or bank financing. There can be no assurance that such financing will
be available on acceptable terms, if at all. The unavailability of such
financing could delay or prevent the development, testing, regulatory approval,
manufacturing or marketing of some or all of the Company's products and could
have a material adverse effect on the Company.
Dependence on Key Personnel; Management Transition
The Company's success depends largely upon its ability to attract and retain
qualified scientific, engineering, manufacturing, sales and marketing and
management personnel. The Company faces competition for such personnel from
other companies, academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful in
hiring or retaining such personnel. Four of the key executive officers of the
Company have joined the management team in the past year. The new management
team will face significant challenges in transitioning the Company from research
and development to manufacturing and marketing if the Company's products obtain
regulatory approval. There can be no assurance that the management team can
successfully manage the transition of the Company's business.
16
<PAGE> 19
Hazardous Materials
As with many biopharmaceutical companies, the Company's research and
development involves the controlled use of hazardous materials and chemical
compounds. There can be no assurance that the Company's safety procedures for
handling and disposing of such materials will comply with the standards
prescribed by federal, state and local regulations or that it will not be
subject to the risk of accidental contamination or injury from these materials.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could materially adversely affect the
Company's business, financial condition and results of operations.
Volatility of Stock Price
The market price of the Common Stock, like the stock prices of many publicly
traded biopharmaceutical companies, has been and may continue to be highly
volatile. A variety of events, both concerning and unrelated to the Company and
the biopharmaceutical industry, such as the level of sales of the Company's
products, problems with clinical development of the Company's potential
products, announcements of technological innovations, regulatory developments or
new commercial products by the Company or its competitors, government
regulation, delays or other developments relating to regulatory approvals,
developments or disputes relating to patent or proprietary rights, product
liability claims, as well as period-to-period fluctuations in the Company's
financial results, may have a significant negative impact on the market price of
the Common Stock. Although the Common Stock trades on the Nasdaq National
Market, the trading volume has fluctuated and at times has been quite low. Any
large sale of securities of the Company could have a significant adverse effect
on the market price of the Common Stock.
17
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 4.
Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 13, 1996. At the
meeting, the stockholders considered the items described below:
Each of the nominees for election as a director was elected as follows:
<TABLE>
<CAPTION>
Number of Votes Cast
--------------------
Name For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Robert G. Faris 23,364,959 -- 178,458
I. Craig Henderson, M.D 23,327,709 -- 215,708
L. Scott Minick 23,327,609 -- 215,808
Richard C.E. Morgan 23,266,959 -- 176,458
E. Donnall Thomas 23,366,309 -- 177,108
</TABLE>
The stockholders approved amendments to the Company's 1990 Director Stock Option
Plan to: (i) eliminate the cap on the number of options that may be granted to
any one non-employee director, (ii) provide for a special, one-time grant of an
option to purchase 12,500 shares of the Company's common stock, effective March
8, 1996, to each director who was a director on January 1, 1992 and did not
receive an option in 1994, 1995, and 1996 as a result of a cap on the number of
options that a non-employee director could receive, (iii) grant, on each annual
grant date, an option for 2,500 shares to each eligible director who serves as a
member of a committee or committee of the Board, (iv) provide a four-year
vesting schedule for each initial stock option grant awarded after March 8, 1996
and (v) provide a one-year vesting schedule for each annual stock option grant
awarded after March 8, 1996. The amendments were approved by a vote of
21,589,179 shares For, 1,766,994 shares Against, 50,185 shares Abstaining and
137,059 Broker Non-Votes.
ITEM 6.
Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K. During the three months ended June 30, 1996, no
reports on Form 8-K were filed.
18
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEQUUS PHARMACEUTICALS, INC.
--------------------------------
(Registrant)
Date: August 12, 1996 By: /s/ Donald J. Stewart
--------------------------------
Donald J. Stewart
Vice President, Finance
(Principal Accounting Officer)
19
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