<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER 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 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to_____________
Commission file number 0-17254
-------
NOVEN PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
STATE OF DELAWARE 59-2767632
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
11960 S.W. 144th Street, Miami, FL 33186
- --------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (305) 253-5099
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
<TABLE>
<S> <C>
Class Outstanding at July 26, 1996
----- -------------------------------
Common stock $.0001 par value 19,819,166
</TABLE>
Page 1 of 12
<PAGE> 2
NOVEN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
- ------ --------------------- --------
<S> <C>
Item 1 - Financial Statements
Statements of Operations and Accumulated Deficit
for the three months ended June 30, 1996 and 1995 3
Statements of Operations and Accumulated Deficit
for the six months ended June 30, 1996 and 1995 4
Balance Sheets as of June 30, 1996 and December 31, 1995 5
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 6
Notes to Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 10
PART II - OTHER INFORMATION
- -------- -----------------
Item 4 - Submission of Matters to a Vote of 10
Security Holders
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
- ----------
</TABLE>
Page 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOVEN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
JUNE 30, JUNE 30,
1996 1995
------- -------
<S> <C> <C>
REVENUES:
Product sales $ 5,151,015 $ 918,876
License revenue 256,499 639,833
Interest income 305,459 479,668
Other income 36,250 0
------------ ------------
Total revenues 5,749,223 2,038,377
------------ ------------
EXPENSES:
Cost of products sold 2,696,535 524,854
Research and development 1,875,996 2,800,759
Marketing, general and administrative 994,327 806,293
------------ ------------
Total expenses 5,566,858 4,131,906
------------ ------------
NET INCOME (LOSS) FOR THE PERIOD 182,365 (2,093,529)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (22,683,286) (17,250,681)
------------ ------------
ACCUMULATED DEFICIT END OF PERIOD $(22,500,921) $(19,344,210)
============ ============
NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.11)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 21,668,979 19,002,225
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3
<PAGE> 4
NOVEN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------
JUNE 30, JUNE 30,
1996 1995
------- -------
<S> <C> <C>
REVENUES:
Product sales $ 10,323,006 $ 1,070,118
License revenue 362,998 1,279,665
Interest income 581,494 908,909
Other income 36,250 15,318
------------ -----------
Total revenues 11,303,748 3,274,010
------------ -----------
EXPENSES:
Cost of products sold 5,588,378 600,091
Research and development 4,359,287 5,006,413
Marketing, general and administrative 1,793,642 1,528,962
------------ -----------
Total expenses 11,741,307 7,135,466
------------ -----------
NET LOSS FOR THE PERIOD (437,559) (3,861,456)
ACCUMULATED DEFICIT BEGINNING OF PERIOD (22,063,362) (15,482,754)
------------ ------------
ACCUMULATED DEFICIT END OF PERIOD $(22,500,921) $(19,344,210)
============ ============
NET LOSS PER SHARE $ (0.02) $ (0.20)
============ ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 19,772,937 18,939,954
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 4
<PAGE> 5
NOVEN PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,763,247 $ 16,131,263
Securities held to maturity 14,378,961 7,881,397
Accounts receivable 248,641 2,512,561
Inventories 5,298,808 5,069,946
Prepaid and other current assets 147,749 258,220
------------ ------------
Total current assets 29,837,406 31,853,387
------------ ------------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation
and amortization of $2,445,992 at
June 30, 1996 and $1,974,138 at
December 31, 1995 15,699,474 15,532,797
------------ ------------
OTHER ASSETS:
Patent development costs, net 1,333,841 1,218,630
Deposits and other assets 65,138 40,738
------------ ------------
Total other assets 1,398,979 1,259,368
------------ ------------
TOTAL $ 46,935,859 $ 48,645,552
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,117,164 $ 4,293,185
------------ ------------
DEFERRED LICENSE REVENUE 6,209,013 6,322,011
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 100,000
shares of $.01 par value; no shares
issued or outstanding
Common stock - authorized 30,000,000
shares, par value $.0001 per share; issued
and outstanding - 19,819,166 shares at
June 30, 1996 and 19,674,144
shares at December 31, 1995 1,982 1,967
Additional paid-in capital 60,108,621 60,091,751
Accumulated deficit (22,500,921) (22,063,362)
------------ ------------
Total stockholders' equity 37,609,682 38,030,356
------------ ------------
TOTAL $ 46,935,859 $ 48,645,552
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE> 6
NOVEN PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------
JUNE 30, JUNE 30,
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (437,559) $(3,861,456)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 532,094 475,890
Increase in inventories (228,862) (1,439,913)
Decrease in prepaid and other current
assets 110,471 184,027
Decrease (increase) in accounts receivable 2,263,920 (32,045)
Decrease in accounts payable and
accrued liabilities (1,176,021) (137,390)
Decrease in deferred license revenue (112,998) (112,998)
----------- -----------
Cash flows provided by (used in)
operating activities 951,045 (4,923,885)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) maturity of securities (6,522,564) 10,030,908
Purchase of fixed assets, net (638,531) (976,825)
Payments for patent development costs (175,451) (136,650)
Refund of deposits 600 1,133
----------- ------------
Cash flows provided by (used in)
investing activities (7,335,946) 8,918,566
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 16,885 21,001
----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (6,368,016) 4,015,682
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD 16,131,263 12,070,272
----------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 9,763,247 $ 16,085,954
=========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. BASIS OF PRESENTATION
---------------------
The financial statements of Noven Pharmaceuticals, Inc. (the "Company"),
included herein, do not include all footnote disclosures normally
included in annual financial statements and, therefore, should be read in
conjunction with the Company's financial statements and notes thereto for
each of the three years in the period ended December 31, 1995 included in
the Company's annual report on Form 10-K.
The interim financial statements for the three months and six months
ended June 30, 1996 are unaudited and, in the opinion of management,
reflect all adjustments (consisting only of normal recurring accruals)
necessary for fair presentation of the balance sheets, statements of
operations and cash flows of the Company. The statements of operations
for the three months and six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996.
2. SUMMARY OF ACCOUNTING POLICIES
------------------------------
The following is a summary of the significant accounting policies
consistently applied in the preparation of Noven's financial statements:
"INVENTORIES"
Inventories are stated at the lower of cost (first-in, first-out method)
or net realizable value. Inventories at June 30, 1996 related primarily
to the Company's transdermal estrogen delivery system. To date Noven has
not experienced and does not anticipate in the future, any difficulty
acquiring materials necessary to manufacture its transdermal systems. The
following are the major classes of inventory:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 2,047,655 $ 2,226,603
Work in process 612,079 1,262,657
Raw materials 2,639,074 1,580,686
----------- -----------
Total $ 5,298,808 $ 5,069,946
=========== ===========
</TABLE>
"PROPERTY AND EQUIPMENT"
Property and equipment is recorded at cost. Depreciation is provided
over the estimated useful lives of the assets. Leasehold improvements
are amortized over the life of the lease or the service life of the
improvements, whichever is shorter. The straight-line method of
depreciation is primarily followed for financial purposes.
Page 7
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(CONTINUED)
-----------
"PATENT DEVELOPMENT COSTS"
Costs, principally legal fees related to the development of patents, are
capitalized and amortized over the lesser of their estimated economic
useful lives or their remaining legal lives.
"EARNINGS PER SHARE"
Earnings per share is based on the weighted average number of shares
including common stock and common stock equivalent shares. Common stock
equivalent shares include outstanding warrants and options (using the
Treasury Stock Method).
3. STOCKHOLDERS' EQUITY
A schedule of the transactions in the common stock and the additional
paid in capital accounts is as follows:
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-In
Shares Amount Capital
--------- -------- --------
<S> <C> <C> <C>
Balance, January 1, 1996 19,674,144 $ 1,967 $60,091,751
Issuance of 145,022 shares of
stock pursuant to stock
option plan, net 145,022 15 16,870
---------- -------- -----------
Balance, June 30, 1996 19,819,166 $ 1,982 $60,108,621
========== ======== ===========
</TABLE>
ITEM 2.
------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Total revenues increased approximately $3,711,000 or 182% for the three
month period ended June 30, 1996 from the same period in the prior year
and approximately $8,030,000 or 245% for the comparable six month period.
This increase in revenues was the result of the increase of approximately
$4,232,000 in sales of the Company's transdermal estrogen delivery
system to its licensee partners in the second quarter of 1996 and
approximately $9,253,000 in the first half of 1996. License revenues
Page 8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
-----------
decreased approximately $383,000 or 60% in the three month period ended
June 30, 1996 from the same period in the prior year and decreased
approximately $917,000 or 72% from the comparable six month period. The
Company believes that license revenues will fluctuate from period to
period depending on contributing factors which include, but are not
limited to, future success in finalizing new collaborative agreements,
timely achievement of milestones and strategic decisions on self-funding
certain projects. Interest income decreased approximately 174,000 or 36%
in the second quarter of 1996 and decreased approximately $327,000 or 36%
in the first half of 1996 primarily due to lower average balances in
cash, cash equivalents and securities.
Cost of product sold increased approximately $2,172,000 or 414% for the
three month period ended June 30, 1996 from the same period in the prior
year and approximately $4,988,000 or 831% from the comparable six month
period. The gross margin percentage was 48% in the second quarter of
1996 as compared to 43% in the same period of the prior year and was 46%
for the first half of 1996 as compared to 44% in the same period of the
prior year. The gross margins vary depending on the amount of product
sold to each licensee partner and manufacturing efficiencies including
those relating to production volumes.
Research and development expenses decreased approximately $925,000 or 33%
for the three month period ended June 30, 1996 from the same period in
the prior year and approximately $647,000 or 13% from the comparable six
month period. The decrease in research and development expenses from 1995
to 1996 was attributable to less process development activity and a
reduced amount of cost associated with the validation of manufacturing
equipment and facilities. In 1996 research and development expenses for
new product development continued at the same rate as in 1995. New
product development included work related to the transoral dental
anesthetic system (DentiPatch(TM)), an estrogen/progestogen combination
delivery system, a second generation estrogen delivery system, a
transdermal system delivering a nonsteroidal anti-inflammatory drug, an
albuterol delivery system, a transdermal system delivering selegiline and
a nicotine delivery system. Marketing, general and administrative
expenses increased approximately $188,000 or 23% for the three month
period ended June 30, 1996 from the same period in the prior year and
approximately $265,000 or 17% for the comparable six month period. The
increase in marketing, general and administrative expenses was primarily
due to initial marketing expenses to support the launch of the DentiPatch
system, increases in staffing and associated office expenses.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Historically the Company financed its operations through equity offerings
of common stock, license and contract revenues, interest income and the
sale of product. During the second quarter of 1996 total revenues
exceeded total expenses and the Company did not incur an operating
deficit. At the end of June 30, 1996 the Company had approximately
$24,000,000 in cash, cash equivalents and securities held to maturity.
Page 9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
(CONTINUED)
-----------
During the first half of 1996 the decrease in accounts receivable of
$2,300,000 funded the net loss of approximately $438,000, the increase
in inventory of approximately $229,000, the decrease in accounts payable
of approximately $1,176,000 and the approximate $639,000 investment in
property and equipment. As of June 30, 1996 the Company had commitments
for capital expenditures of approximately $114,000.
The Company's future capital requirements depend upon numerous factors,
including (i) the progress of its product development programs, (ii) the
time required to obtain government regulatory approvals of products in
development,(iii) the resources that the Company devotes to the
development of self-funded products, proprietary manufacturing methods,
advanced technologies and a marketing and sales administration
infrastructure, (iv) the ability of the Company to obtain additional
license agreements and to manufacture products pursuant to those
agreements and (v) the demand for its products.
The Company expects to incur additional costs related to product
development activities, increased marketing, general and administrative
expenses and the completion of its manufacturing facilities. Although
the Company believes that existing cash, securities held to maturity,
anticipated contract and manufacturing revenues will be adequate for the
foreseeable future, circumstances could arise which may result in a
desire to raise additional capital. There can be no assurance that such
capital will be available on acceptable terms, or at all.
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
Annual Meeting of Stockholders held on June 11, 1996.
(i) Election of Directors
<TABLE>
<CAPTION>
For Against Abstain
--- ------- --------
<S> <C> <C> <C>
Steven Sablotsky 15,972,145 134,276 0
Mitchell Goldberg 15,972,145 134,276 0
Sheldon H. Becher 15,972,045 134,376 0
Sidney Braginsky 15,972,145 134,276 0
Lawrence J. Dubow 15,972,145 134,276 0
</TABLE>
(ii) The ratification of the appointment of Deloitte
& Touche LLP as the independent certified public accountants for 1996 was
approved by an affirmative vote of 16,036,471 shares to a negative vote of
7,048 shares, with 62,902 shares abstaining.
Page 10
<PAGE> 11
PART II - OTHER INFORMATION
---------------------------
(CONTINUED)
----------
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
10.28 Amendment dated May 6, 1996 to the June 9, 1994
Amendment to the License Agreement and the Supply
Agreement, each dated April 27, 1989 by and between
the Company and Rhone-Poulenc Rorer, Inc. (with
certain portions omitted pursuant to Rule 24b-2).
27 Financial Data Schedule (for SEC use only).
Page 11
<PAGE> 12
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVEN PHARMACEUTICALS, INC.
(Registrant)
Date: August 14, 1996 By: /s/ Steven Sablotsky
--------------- ---------------------------------
Steven Sablotsky, Chairman of the
Board and President
By: /s/ William A. Pecora
---------------------------------
William A. Pecora
Chief Financial Officer
Page 12
<PAGE> 1
Exhibit 10.28
AMENDMENT
This Amendment by and between Rhone-Poulenc Rorer Inc. (as successor to
Rorer Group Inc.) ("RPR") and Noven Pharmaceuticals, Inc. ("Noven") is entered
into as of this 6th day of May, 1996.
WHEREAS, as of April 27, 1989, the parties entered into a license
agreement (hereafter the "License Agreement") and a related supply agreement,
pursuant to which they agreed to collaborate on the development and marketing of
the Licensed Product (as defined in the License Agreement);
WHEREAS, on several occasions since April 27, 1989, the parties have
amended the License Agreement in various respects in order to reflect various
adjustments in their collaborative venture, including an Amendment dated as of
June 9, 1994 (hereafter the "June 1994 Amendment"); and
WHEREAS, the parties now desire to enter into another amendment for the
purpose of modifying certain fee provisions of the License Agreement and the
June 1994 Amendment.
NOW, THEREFORE, for valuable consideration and intending to be legally
bound, the parties agree as follows:
1. All capitalized items used in this Amendment shall have the
meaning ascribed to them in the License Agreement and the June 1994 Amendment,
unless otherwise specifically provided.
2. Subparagraphs (a), (b), (c), (d) and (e) of Article 5.2 of the
License Agreement, and subparagraphs (b), (c), (d) and (g)(iii) of Article 3 of
the June 1994 Amendment, are deleted in their entirety and replaced by the
following:
"5.2 Fee
(a) RPR shall pay to Noven ************* of RPR's, its Affiliates' and
Sublicensees' Net Sales, subject to the provisions set forth below in
this Article 5.2. To the extent that Noven engages in any **************
of the Licensed Product, RPR shall pay Noven with respect to **********
Licensed Product for which Noven performs the **************************
of RPR's, its Affiliates' and Sublicensees' Net Sales, subject to the
provisions set forth below in this Article 5.2.
<PAGE> 2
(b) Notwithstanding anything else to the contrary, the fee to be paid
under subparagraph (a) above with respect to Licensed Product for which
**************************** shall be no less than *********************
****************************************** of Licensed Product;
provided, however, that for purposes of calculating such minimum fee,
RPR shall be deemed to obtain a fixed **********************************
****************************** provided by Noven, regardless of the
yield RPR actually obtains. Such minimum fee shall therefore equate to
a minimum fee of *******************************************************
********* material provided by Noven. Noven and RPR shall negotiate in
good faith to determine an acceptable minimum fee with respect to any
units of Licensed Product for which Noven performs *********************.
(c) Notwithstanding the foregoing, if Noven's Cost of Licensed Product
increases such that it is no longer commercially viable for Noven to
manufacture the Licensed Product for the fee provided for in this Article
5.2, or if RPR's weighted average gross margin for the Licensed Product
with respect to any country, computed excluding samples and sales at or
below cost, is reduced to a point that it is no longer commercially
viable for RPR to continue to market the Licensed Product in that
country, then RPR and Noven shall negotiate in good faith for a revised
fee under this Article 5.2 with respect to the Licensed Product. In the
absence of the parties being able to reach a mutually satisfactory
agreement, Noven shall grant RPR a non-exclusive license to manufacture
Licensed Product under Noven's Technology and Noven's Patent Rights in
return for a royalty of ******************************** of Net Sales, in
addition to other terms and conditions as reasonably agreed by the
parties. Such license shall only be for sales of Licensed Product in the
country or countries that occasioned the negotiation."
3. Article 5.4 of the License Agreement and subparagraphs (f) and
g(iv) of Article 3 of the June 1994 Amendment are deleted in their entirety and
replaced by the following:
"5.4 Payments. The fee due under Article 5.2(a) shall be payable as
follows: (a) The minimum fee of Article 5.2(b) shall be due and payable
within thirty (30) days of Noven's invoice for the applicable Licensed
Product; and (b) within thirty (30) days after the end of each calendar
quarter, RPR shall make a
2
<PAGE> 3
payment to Noven of the remaining fee, if any, due under Article 5.2(a)
with respect to such quarter, based on Net Sales in the quarter and
calculated as set forth in Exhibit A, attached and incorporated by
reference."
4. Subparagraph (g)(i) of Article 3 of the June 1994 Amendment is
deleted in its entirety and replaced by the following:
"g(i) RPR shall cause its Affiliate in Ireland to purchase *************
of Licensed Product from Noven at a price equal to the minimum fee under
Article 5.2(b) of the License Agreement, which purchase price shall be
credited against the fee due Noven pursuant to Article 5.2(a) of the
License Agreement."
5. This Amendment shall supersede and supplant any term or provision
of the License Agreement and/or the June 1994 Amendment that is in direct
conflict with an express term or provision of this Amendment. Except in the case
of such a conflict, the terms and provisions of the License Agreement and the
June 1994 Amendment shall remain in full force and effect and unchanged.
Noven Pharmaceuticals, Inc. Rhone-Poulenc Rorer Inc.
By: /s/ Steven Sablotsky By:
----------------------------- ----------------------------------
Name: Steven Sablotsky Name:
------------------------- --------------------------------
Title: President Title:
------------------------- -------------------------------
3
<PAGE> 4
EXHIBIT A
<TABLE>
<S> <C>
The total units of Licensed Product sold worldwide
by RPR, its Affiliates or Sublicensees in the quarter = X
Net Sales worldwide with respect to the quarter = Y
Fee due under Article 5.2(a) of the License Agreement
for the quarter = ***************** = Z
Fee paid under Article 5.4(a) of the License Agreement
with respect to Licensed Product sold in the quarter **
Remaining fee payable to Noven for the quarter under
Article 5.4(b) of the License Agreement = Z-B
In the event that Z-B is a negative number, no fee will be
payable under Article 5.4(b) of the License Agreement
</TABLE>
<PAGE> 5
AMENDMENT
This Amendment to the License Agreement ("License Agreement") and the
Supply Agreement ("Supply Agreement"), each dated April 27, 1989, by and between
Rhone-Poulenc Rorer Inc. (as successor to Rorer Group Inc. ("RPR") and Noven
Pharmaceuticals, Inc. ("Noven") is entered into as of this 9th day of June,
1994.
WHEREAS, as of April 27, 1989, the parties entered into the License
Agreement, pursuant to which they agreed to collaborate on the development and
marketing of the Licensed Product;
WHEREAS, on that same date the parties entered into the Supply Agreement
(together with the License Agreement sometimes referred to herein as the "Prior
Agreements") which provided that, following regulatory approval, Noven would
manufacture the License Product and package it in final form for delivery to
RPR for sale and distribution by RPR;
WHEREAS, on several occasions since April 27, 1989, the parties have
amended the License Agreement in various respects in order to reflect various
adjustments in their collaborative venture; and
WHEREAS, the parties now desire to enter into another amendment for the
purpose of modifying certain provisions of the Prior Agreements in order to
provide that ******************************************** may be done by RPR on
a non-exclusive basis under the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration and intending to be legally
bound, the parties agree as following:
1. Definitions. All capitalized terms not defined herein shall have the
meaning ascribed to them in the Prior Agreements.
- 1 -
<PAGE> 6
2. Effect of this Amendment. This Amendment shall supersede and supplant
any term or provision of the Prior Agreements that is in conflict with an
express term of this Amendment. Except in the case of such a conflict,
the terms and provisions of the Prior Agreements shall remain in full
force and effect and unchanged.
3. Final Processing of Licensed Product.
a. Noven shall (i) manufacture the Licensed Product through the stage
of production of **************************************** (ii)
test, prepare and package such ************************ and (iii)
supply and deliver them to RPR's facility in Nenagh, Ireland, or
such other RPR facility as RPR shall designate. Noven shall
perform all such activities in accordance with the terms of the
Prior Agreements, the specifications attached hereto as Exhibit A
(as may be amended by the parties from time to time) and all
applicable laws and regulations. RPR shall complete *************
****************** in accordance with the terms of the Prior
Agreements and this Amendment. Specifically, RPR shall be
responsible for **************************************** received
from Noven and **************************************************
and releasing the Licensed Product ******************************
************. The price for Licensed Product delivered by Noven to
RPR under this paragraph shall be as set forth in the Prior
Agreements, as amended herein, and shall be ex Noven's factory.
Title to and risk of loss to *************************** shall
pass to RPR at Noven's factory, and RPR shall bear all costs and
expenses for delivery of ************************ including, but
not limited to, freight, insurance and duties.
b. Article 5.2(a) of the License Agreement is deleted in its entirety
and replaced by the following: " (a) RPR shall pay to Noven
**************** of RPR's, its Affiliates' and Sublicensees' Net
Sales, subject to the provisions set forth in this Article 5.2.
In the event ***************************************************
******************** then costs above the Standard Packaging Cost
shall be allocated **********************************************
************************************
c. The fee calculated under Article 5.2 of the License Agreement, as
amended by paragraph 3(b) of this
- 2 -
<PAGE> 7
Amendment, for each unit of Licensed Product that is *******************
************* under this Amendment, including the minimum and maximum fees
set forth in Article 5.2(b), shall be reduced by an amount equal to
******************* as such amount is adjusted from time to time under
paragraph 3(d) of this Amendment (the "Fee Reduction Amount").
d. The Fee Reduction Amount shall be adjusted, up or down (but not below
($00.00), effective January 1 of each calendar year in accordance with
the increase or decrease, as the case may be, during the previous calendar
year of ******************************************************************
******************************************** in accordance with the terms of
this Amendment; provided, however, that no upward adjustment under this
subparagraph shall exceed, on a percentage basis, the percentage increase
in the Consumer Price Index (as that term is defined in the License
Agreement) over the corresponding period.
e. Reflecting the fact that the fee provided for in Article 5.2(b) of the
License Agreement has been *************** approximately ******************
(i.e., the **********************), each of the annual minimum fees provided
for in Articles 5.3(a) and 5.3(b) of the License Agreement shall be *******
by ************* provided, however, that to the extent Noven supplies RPR
with Licensed Product in the final form for any market, then the foregoing
****************** shall be adjusted downward for such market(s), based
upon the proportion, on a percentage basis, that such production by Noven
of Licensed Product in final form has to all Licensed Product *************
*********************** and *** for such market(s).
f. The first sentence of Article 5.4 of the License Agreement is deleted in
its entirety and replaced by the following:
" 5.4 Payments. The fee due hereunder shall be payable as follows: The
minimum price of Paragraph 5.2(b), subject to the adjustment set
forth in Paragraph 5.2(c) and reduced, when applicable, by the *******
******************, shall be due and payable within thirty (30) days of
Noven's invoice for such Licensed Product."
3
<PAGE> 8
g. (i) The RPR Affiliate in Ireland shall purchase bulk rolls from
Noven at the initial price of *******************************
per unit (which reflects the adjustment for CPI and the ******
**********************) for the first six months of production,
which purchase price shall be credited against the fee due
Noven pursuant to Article 5.2(a) of the License Agreement.
(ii) Noven will invoice the RPR Affiliate in Ireland based on the
number of *************************** delivered by Noven to RPR
pursuant to Paragraph 3(a) of this Amendment.
(iii) The amount to be invoiced by Noven for ********** shall
initially be based upon a production yield of *****************
***************************** yard for the first six months.
After the first six months, the amount to be invoiced by Noven
for ************ shall be adjusted up or down based upon the
average actual ******************************************* for
the first six months.
At the end of each calendar year thereafter, the amount to be
invoiced by Noven for ************* shall be adjusted up or
down based upon the average actual *************************
for the previous calendar year.
In the event that the average *********************************
******************************************************** upon
adjustment pursuant to this subparagraph g (iii), then the
parties shall negotiate in good faith to determine an acceptable
price ****************** to be invoiced by Noven; provided,
however, that should the parties fail to reach agreement for a
price ********************************** within sixty (60)
days, then Noven shall supply RPR with Licensed Product
processed in final form in accordance with the terms and
pricing of the prior Agreements in lieu of ****************
(iv) Any balance of the fee due to Noven pursuant to Article 5.2 of
the License Agreement, as hereby amended, will be paid by RPR
within thirty (30) days after the end of each calendar quarter.
4
<PAGE> 9
(v) In the event that Noven supplies bulk laminate rolls of
placebo material for educational or promotional purposes, such
material shall be supplied by Noven at an agreed upon price and
no other fee or royalty shall be due from RPR with respect to
such material.
h. ************************ anything else to the contrary contained in this
Amendment, Noven shall remain liable in accordance with the terms and
pricing of the Prior Agreements to manufacture and supply all Licensed
Product processed in final form **************, or *******************
********, or other conditions mutually agreed between RPR and Noven, **
*************************** pursuant to the terms of this Amendment.
4. Acquisition of Processing Technology and the Machine.
a. Noven shall construct and ship to RPR at its Nenagh, Ireland
facility a die cutting and pouch packaging Machine (the "Machine")
along with spare parts as set forth in Exhibit B capable of performing
*******************************************************************
shipped from Noven. Noven warrants that said Machine will be capable
of ************************************ and said Machine will meet the
minimum specifications and output requirements set forth in Exhibit B.
RPR shall be responsible for providing engineering/technical support
capable of installing and operating said Machine.
Noven shall be responsible for packing the Machine suitable for
transport and transporting same to RPR's Nenagh facility and Noven
shall bear all costs and expenses for delivery of the Machine including
packing, freight, insurance and duties. Risk of loss or damage to the
Machine shall remain with Noven until delivery at RPR's facility in
Nenagh, Ireland.
RPR shall be responsible for installation of the Machine and Noven
shall provide RPR with support in commissioning the Machine, as
detailed in paragraphs 4.b.(i), (ii), and (iii), and training
RPR's mechanics and operators in the proper maintenance and operation
of the Machine. Noven shall be responsible for demonstrating the
Machine's ability to operate and perform in accordance with its agreed
specifications and output requirements as set forth in Exhibit B.
- 5 -
<PAGE> 10
b. Noven grants RPR a non-exclusive license to use the Machine in
Ireland under Noven's Processing Technology and Noven's Patent
Rights (as defined below), solely for RPR to perform *********
************************ under this Amendment with respect to the
Licensed Product. In addition, Noven shall provide RPR on an
ongoing basis throughout the term of the Prior Agreements
assistance and training on the following terms:
(i) On completion of the Machine, Noven shall provide to RPR
personnel up to two weeks training and instruction at a
mutually agreed time at Noven's Miami premises. RPR shall
bear the cost of travel, lodging, food and other out-of-
pocket expenses for its personnel. Costs of and payment
for materials used in training and acceptance shall be
mutually agreed by both parties.
(ii) Noven shall provide at RPR's facility at Nenagh, Ireland,
and at Noven's expense, three (3) man weeks of technical
support to assist RPR in the commissioning of the Machine.
(iii) Subsequent to the assistance provided in subparagraph
4.b(ii) above, Noven shall provide additional assistance as
may reasonably be necessary including providing an
engineer/technician at RPR's facility in Nenagh, Ireland.
The cost of such additional assistance shall be borne by
RPR to the extent of the cost of incremental travel, food,
and lodging for an additional two week period for one
technician. If further Noven technical assistance is
required at the RPR Nenagh facility beyond the additional
two (2) weeks, RPR shall pay to Noven ********************
per Noven employee in addition to paying for any
incremental travel costs, lodging and meals.
c. The term "Noven's Processing Technology" shall mean any and all
data, information, technologies, know-how, processes, techniques,
methods, skills, proprietary information, trade secrets,
developments and discoveries, that are owned or controlled by
Noven and specifically related to the ***************************
******************with respect to the Licensed Product, now
existing or developed in the future. The term "Noven's
- 6-
<PAGE> 11
Patent Rights" shall mean any and all patents conceived or reduced
to practice prior to December 31, 1998, including but not limited
to reissues, extensions and patents of additions, and patent
applications, continuations, divisionals and continuations-in-
part thereon that are owned or controlled by Noven and the claims
of which cover the Machine with respect to the Licensed Product.
No right or license to make, use or sell under Noven's Processing
Technology or Noven's Patent Rights or right of resale, lease or
transfer of any kind with respect to the Machine is granted herein
except as provided herein or with reference to the Licensed
Product. No right to make or manufacture, or have made or
manufactured, the Licensed Product, is granted to RPR except to
the extent stated herein.
d. With respect to the matters provided for in subparagraphs 4(a) and
4(b) above, RPR shall pay Noven *********************************
in four installments, which shall be due and payable as follows:
(i) *************************************************** paid in
advance, the receipt of which is hereby acknowledged by
Noven;
(ii) ******************************************************* due
upon the completion of the Machine to the stage of scoring,
die cutting and transferring of cut patches to the
inspection web area, as demonstrated to the satisfaction of
a representative of RPR.
(iii) ***************************************************** upon
delivery of the Machine to RPR's facility in Nenagh,
Ireland; and
(iv) ****************************************** upon the date of
completion of the installation of the machine and
confirmation of its operation in accordance with its
specifications and the terms of this Amendment.
e. Noven represents and warrants its title to the Machine, that such
title is free from any security interests of third parties or
other liens or ecumbrances and that Noven is authorized and
lawfully permitted to transfer
- 7 -
<PAGE> 12
such title to RPR.
-8-
<PAGE> 13
f. Noven shall exercise due care and diligence in constructing the
Machine. Noven warrants that the Machine shall conform to all
applicable federal, state and local laws and regulations, and be
merchantable, fit for the purpose for which it is intended and
free from defects in workmanship and materials used in its
manufacture. For a period of one year after acceptance of the
Machine in Ireland Noven will repair or replace at its cost any
defect in the machine arising out of errors in workmanship or
materials. For purchased-in components the OEM's warranties will
apply.
g. Noven represents and warrants that it has no actual and present
knowledge of any rightful claim of any third party by way of
infringement or the like of any patent or other intellectual
property rights related to the machine. Noven shall defend at its
own cost and hold RPR harmless from any such claims provided that
RPR provides it prompt notice and an opportunity to defend.
h. Noven's Processing Technology and Patent Rights shall be subject
to the confidentiality obligations of Article VIII of the License
Agreement. RPR shall undertake all reasonable actions to restrict
access to the Machine and Noven's Processing Technology to its
employees on a need to know basis and who are bound to obligations
of confidentiality to the same extent as RPR is bound to Noven.
i. In the event that RPR wishes to sell, lease or otherwise transfer
or dispose of the Machine, Noven shall have an exclusive right of
first refusal on such terms as may be mutually agreed upon by the
parties acting in good faith. If Noven does not agree to such
terms within forty-five (45) days of receipt of a written offer
from RPR, then RPR may sell, lease or otherwise transfer or
dispose of the Machine to a third party on terms no less favorable
to RPR than those proposed to Noven.
j. RPR shall not move the Machine from its manufacturing facility in
Nenagh, Ireland, to another facility without having first given
written notice to Noven.
k. RPR shall not copy, duplicate or otherwise reproduce.
- 9 -
<PAGE> 14
the Machine or components thereof.
IN WITNESS WHEREOF the parties have caused this Amendment to be executed
by their duly authorized representatives as of the date first above written.
NOVEN PHARMACEUTICALS, INC. RHONE-POULENC RORER INC.
By /s/ Steven Sablotsky By /s/ Giulio Perillo
------------------------- ----------------------------
Name: Steven Sablotsky Name: Giulio Perillo
----------------------- --------------------------
Title: President Title: Vice President,
----------------------- Industrial Operations
10
<PAGE> 15
EXHIBIT A
****************************************************************
<PAGE> 16
EXHIBIT B
****************************************************************
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NOVEN PHARMACEUTICALS FOR THE SIX MONTHS ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,763,247
<SECURITIES> 14,378,961
<RECEIVABLES> 248,641
<ALLOWANCES> 0
<INVENTORY> 5,298,808
<CURRENT-ASSETS> 29,837,406
<PP&E> 18,145,466
<DEPRECIATION> 2,445,992
<TOTAL-ASSETS> 46,935,859
<CURRENT-LIABILITIES> 3,117,164
<BONDS> 0
0
0
<COMMON> 1,982
<OTHER-SE> 37,607,700
<TOTAL-LIABILITY-AND-EQUITY> 46,935,859
<SALES> 10,323,006
<TOTAL-REVENUES> 11,303,748
<CGS> 5,588,378
<TOTAL-COSTS> 5,588,378
<OTHER-EXPENSES> 4,359,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (437,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (437,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (437,559)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
