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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 1-10392
U.S. BIOSCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2460100
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE TOWER BRIDGE
100 FRONT STREET
WEST CONSHOHOCKEN, PA 19428
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 832-0570
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock ($.005 par value) American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes. X No.___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 4, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $293,983,000.*
As of March 4, 1996, the number of outstanding shares of the registrant's
Common Stock was 43,378,620.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Portions of the registrant's definitive Proxy Statement with respect
to the registrant's 1996 Annual Meeting of Stockholders, to be filed
not later than 120 days after the close of the Registrant's fiscal
year.
__________
* Calculated by excluding all shares held by executive officers, directors and
five percent shareholders of the registrant without conceding that all such
persons are "affiliates" of the registrant for purposes of the federal
securities laws.
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PART I
Item 1. BUSINESS.
General
U.S. Bioscience, Inc., a Delaware corporation (the "company"), is a
pharmaceutical firm established in 1987 which seeks to develop and market drugs,
principally drugs for treating patients with cancer, acquired immune deficiency
syndrome ("AIDS") and allied diseases and infections. The company has, through
licensing agreements, rights to nine drugs for the treatment of these diseases.
Three drugs have been cleared by the United States Food and Drug Administration
("FDA"), Hexalen(R) (altretamine), NeuTrexin(R) (trimetrexate glucuronate for
injection) and Ethyol(R) (amifostine); three are in various stages of clinical
trials or targeted to begin clinical trials in 1996, AZQ, PALA and FddA; and
three are in preclinical testing, WR-151327, Third Generation Platinums and
Mitomycin-C Analogues. For a description of the steps required before a drug
may be marketed in the United States see "Government Regulation."
In December 1990, the FDA approved the company's New Drug Application
("NDA") for Hexalen(R) (altretamine), a drug for the treatment of advanced
ovarian cancer. Commercial sales of Hexalen commenced in the United States in
January 1991. See "Principal Products - Hexalen."
On February 1, 1993, the company filed an NDA for NeuTrexin(R)
(trimetrexate glucuronate for injection) for the treatment of Pneumocystis
carinii pneumonia ("PCP"), an infection primarily associated with AIDS. This
application was the subject of a joint review by the FDA and the Canadian
regulatory authority, the Health Protection Branch ("HPB"). The application was
approved by the FDA and the HPB in December of 1993, and commercial sales of
NeuTrexin commenced in the United States in January 1994. At its September 1994
meeting, the European Union's ("EU") Committee for Proprietary Medicinal
Products ("CPMP") recommended NeuTrexin for approval in the EU. As of January
31, 1996 NeuTrexin has received local health regulatory approval in Denmark,
France, Germany, Ireland, Luxembourg, the United Kingdom, Spain, Greece, and The
Netherlands. See "Principal Products - NeuTrexin."
In September 1991, the company submitted to the FDA an NDA for a
chemotherapy protection indication for Ethyol. The NDA was approved by the FDA
on December 8, 1995 for the indication of reducing the cumulative renal (kidney)
toxicity associated with repeated administration of cisplatin in patients with
advanced ovarian cancer. On March 15, 1996, the company's supplemental NDA was
approved by the FDA under the Accelerated Approval Regulations to include use in
patients with non-small cell lung cancer for the reduction of cumulative renal
damage associated with repeated administration of cisplatin-based chemotherapy.
A dossier describing Ethyol's chemoprotection properties was submitted to the
CPMP in September 1992. At its September, 1994 meeting, the CPMP recommended
Ethyol for approval by its member countries to reduce the neutropenia related
risk of infection (e.g. neutropenic fever) due to the combination regimen
cyclophosphamide and cisplatin in patients with advanced (FIGO Stage III or IV)
ovarian cancer. As of January 31, 1996, Ethyol has received local health
regulatory approval in Belgium, Denmark, France, Germany, Greece, Luxembourg,
The Netherlands, Portugal, Spain and the United Kingdom. See "Principal
Products - Ethyol."
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The objective of the company is to become an important participant in the
worldwide pharmaceutical market for oncologic and AIDS drugs. To achieve this
objective, the company's strategy to date has been to acquire exclusive licenses
in the United States and certain other markets for therapeutic agents that the
company believes have potentially significant commercial and clinical value in
the treatment of cancer, AIDS and allied diseases. The company's primary
emphasis has been on "late-stage" drugs, which are drugs having an established
preclinical or clinical database and for which development by the company will
consist largely of further preclinical testing, clinical trials and the
preparation of applications for regulatory approval. By acquiring rights to
drugs that have undergone some degree of development and for which preclinical
and clinical information exists, the company believes that it will be able to
reduce the costs, risks and time involved in bringing drugs to market. The
company's long term strategy focuses on the licensing, development and
commercialization of anticancer and AIDS drugs currently in the early stages of
research.
The three most common methods of treating patients with cancer are surgery,
radiation therapy and systemic therapy. Systemic therapy consists principally
of chemotherapy and hormonal therapy. Chemotherapy involves the administration
of cytotoxic drugs designed to kill cancer cells. In addition to seeking to
develop these types of cancer-killing drugs, the company, as well as other
firms, is seeking to develop drugs that augment the efficacy or reduce the
toxicity of other chemotherapeutic agents.
Hormonal therapy is based on the fact that in some patients the growth of
certain tumors, such as breast cancer, prostate cancer and endometrial cancer,
is dependent upon the availability of endogenous hormones, such as estrogen and
androgen. The use of measures to either reduce the production of, or block the
action of, these hormones represents a form of systemic treatment for these
diseases. Typically, when compared to chemotherapy, hormonal therapy produces a
lower incidence and severity of side effects.
Anticancer drugs can be toxic to normal cells as well as cancer cells,
causing unwanted side effects. For most cancer drugs, therapeutic dosage for
cancerous tissue is close to the toxic dose. Thus, drugs that could selectively
protect normal cells could be of significant medical benefit. Development of
systemic therapeutic products for the treatment of cancer requires laborious
preclinical and clinical testing to satisfy government regulation and medical
ethics. As a consequence, the development of successful anticancer drugs often
requires five to ten years of preclinical and clinical testing.
The Human Immune Deficiency Virus ("HIV")/AIDS treatment market can be
divided into two segments. The antiretroviral segment includes those therapies
which specifically target the HIV virus, such as nucleoside analogues like
zidovudine (AZT), didanosine (ddI), zalcitabine (ddC) and lamivudine (3TC), and
protease inhibitors, such as saquinavir, which was approved by the FDA in
December 1995 and ritonavir and indinavir, which were approved by the FDA in
March 1996. The second segment of the HIV/AIDS treatment market includes those
agents which prevent or treat AIDS-related opportunistic infections, including,
PCP, tuberculosis, candidiasis etc. PCP remains the most common opportunistic
infection associated with AIDS.
During the last two decades, significant advances in molecular biology,
immunology and other related fields of biotechnology have led to an improved
understanding of how malfunctioning genes lead to the development of certain
tumors, and to an appreciation of the body's own regulatory
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systems to control this process. It is hoped that this area of biotechnology
will lead to better ways to diagnose cancer, to identify those predisposed to
develop the disease and to prevent tumors from forming or becoming malignant.
It is also hoped that this area of biotechnology will lead to better ways to
treat HIV/AIDS and the opportunistic infections associated with AIDS. In view
of ongoing developments in the oncologic market and the general nature of
scientific research, no assurance can be given that the nature of the oncologic
market or the HIV/AIDS market or the method of treating cancer patients or AIDS
patients will not undergo significant change. The company believes, however,
that systemic therapy will continue to make an important contribution to the
treatment of cancer.
Marketing and Distribution
The company currently markets Hexalen and NeuTrexin in the United States
through its own sales force. The company has entered into an exclusive
distribution and marketing agreement with ALZA Corporation ("ALZA") for its drug
Ethyol for the U.S. market. Under the terms of this agreement the company will
co-promote Ethyol with ALZA in the United States. See "Principal Products--
Ethyol-- Distribution and License Agreements". It is the company's intention to
determine the most appropriate commercial arrangements for marketing its other
drugs on a case by case basis.
Opportunities exist for the registration and commercialization of the
company's products in some foreign countries prior to FDA approval. Since the
company cannot, at this time, practically market drugs on its own in most
territories outside of the United States, the company has, with respect to
certain of its drugs, entered into licensing and distribution arrangements,
covering markets where the company does not currently plan to utilize its own
sales organization. Some of these agreements provide signing fees and/or
milestone payments to the company, and some also provide royalties to the
company based upon future sales, if any, of licensed drugs. The extent to which
the company derives meaningful revenues from these arrangements will be
dependent upon, among other things, the ability to obtain product approvals and
the licensees' and distributors' ability to market and sell the licensed drugs
in their respective markets. To date foreign sales have not represented a
material portion of the company's revenues.
PRINCIPAL PRODUCTS
The company's products reflect its strategy of building a portfolio of
drugs for the treatment of patients with cancer that represent a diverse group
of modalities, including cancer-attacking cytotoxics (Hexalen, NeuTrexin, AZQ,
third generation platinum anticancer agents, and Mitomycin-C analogues);
cytoprotectors (Ethyol and WR-151327); and modulators (NeuTrexin and PALA). The
company's products also reflect its strategy of building a portfolio of drugs
for the treatment of AIDS and AIDS-related diseases or infections. The
company's drug NeuTrexin is commercially available for treatment of PCP, an
infection primarily associated with AIDS. The company has licensed FddA, and
its active metabolite FddI, which are reverse transcription inhibitors.
Clinical studies of FddA are targeted for initiation in 1996. FddA is being
evaluated for use in the treatment of HIV and the active state of HIV, AIDS.
See "Principal Products - FddA."
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HEXALEN(R) (ALTRETAMINE/HEXAMETHYLMELAMINE)
General Description. Hexalen is an orally administered cytotoxic drug that
was cleared for commercial sale by the FDA in December 1990 for use as a single
agent in the palliative treatment of patients with persistent or recurrent
ovarian cancer following first-line therapy with cisplatin and/or alkylating
agent-based combination chemotherapy. Until 1997, Hexalen has marketing
exclusivity in the United States for advanced ovarian cancer under the Orphan
Drug provisions of the Food, Drug and Cosmetic Act.
Marketing. The company launched its Hexalen marketing program in the
United States during early 1991. The program consists of direct mail, journal
advertising, symposia and promotion to prescribing physicians by the company's
sales force. Hexalen has been distributed through pharmaceutical wholesalers
and is prescribed by oncologists treating ovarian cancer. New therapies with
potential clinical application in ovarian cancer may enter the U.S. marketplace
in 1996. There can be no assurance that potentially competitive products will
not have a material adverse effect on the future sales of Hexalen. In the
United States the company has obtained a registered trademark for Hexalen, the
company's brand of altretamine. The company is also pursuing trademark
registrations for Hexalen in a number of foreign countries.
Hexalen has been approved outside the United States for treatment of
advanced ovarian cancer in Sweden, Israel, Australia, Canada, the Philippines,
the United Kingdom, China, Norway, South Korea, Egypt and Hong Kong. Commercial
sales of Hexalen in these countries will be through distribution and license
arrangements. To date, commercial sales of Hexalen outside the United States
have not been material.
License of Hexalen to the company. The company's rights to Hexalen are
derived from an assignment of rights regarding Wyeth Laboratories, Inc.'s
("Wyeth") NDA. In return, the company is required to pay royalties on worldwide
sales by the company or its licensees of any product containing altretamine.
The company also has a licensing agreement with Rhone-Poulenc Rorer for rights
to applications, registrations and approvals relating to their brand of
altretamine (Hexastat(R)) in Canada, Germany, Italy, The Netherlands, Israel and
the Czech Republic. The licenses expire in 2001 with respect to Canada and 2002
with respect to the other countries. In commercializing Hexalen in these
markets, if and when regulatory approvals are obtained, the company will be
required to pay royalties to Rhone-Poulenc Rorer on sales of Hexalen by the
company or its licensees in countries covered by the licensing agreement. There
can be no assurance that dossiers will be submitted in all those countries or
that regulatory approvals will be obtained.
Orphan Drug Status. Under the terms of the Orphan Drug Act, Hexalen has
U.S. marketing exclusivity for its FDA approved indication for a period of seven
years from approval of its NDA (i.e., the FDA may not approve another
altretamine product for that indication during the seven-year period). Such
exclusivity expires in 1997. See "Orphan Drug Status," "Government Regulation,"
and "Patents, Trademarks, and Trade Secrets."
Distribution and Marketing Agreements. The company has entered into
distribution or licensing agreements for Hexalen with a number of pharmaceutical
companies for territories outside of the United States.
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The company has licensed its rights for Hexalen in Scandinavia to Swedish
Orphan AB ("Swedish Orphan"). Commercial sales of Hexalen commenced in Sweden
during the second quarter of 1993. The company has licensed its Hexalen rights
in Australia and New Zealand to F.H. Faulding & Co. Limited (formerly David Bull
Laboratories Pty. Ltd.) ("Faulding"). It has licensed its rights in Israel to
Teva Pharmaceutical Industries, Ltd. ("Teva"). In addition, the company has
licensed its rights for Japan, South Korea and Taiwan to Kanebo, Ltd.
("Kanebo"). The licensees are required to pay the company royalties based on
their net sales for up to ten years after their first commercial sale of the
product. The company and Schering Overseas Limited ("Schering Overseas"), a
subsidiary of Schering-Plough Corporation ("Schering") are negotiating to
terminate Schering Overseas's rights to Hexalen in over 35 countries in Latin
America and Asia ("Latin America/Asia Territories").
The company has entered into an exclusive marketing and distribution
agreement for Hexalen with Societe de Conseils, de Recherches et d'Applications
Scientifiques ("SCRAS"), an affiliate of Beaufour IPSEN, for the United Kingdom
and Germany with rights of SCRAS to extend the territory to Belgium, France,
Ireland, Italy, Luxembourg, Portugal, Spain and The Netherlands for a term of up
to twelve (12) years. Under the terms of the Agreement, the company supplies
the products to SCRAS at negotiated prices.
The company has entered into an exclusive distribution and marketing
agreement with Eli Lilly InterAmerica, Inc., an affiliate of Eli Lilly and
Company, for Hexalen in Canada. Under the terms of the agreement another
affiliate of Eli Lilly and Company, Eli Lilly Canada Inc. ("Eli Lilly Canada")
will have rights to distribute and market Hexalen in Canada for five years and
under certain circumstances will have the right to extend the agreement for an
additional five years. The company will supply Hexalen to Eli Lilly Canada at
an agreed upon supply price.
The company has entered into exclusive distribution agreements for Hexalen
with six pharmaceutical companies in several Middle Eastern countries. The
distributors are required to purchase Hexalen exclusively from the company
during the term of the agreements. To date, regulatory approval for Hexalen has
been received in Egypt but has not been received for Hexalen from any other
Middle Eastern country.
There can be no assurance that the company will derive meaningful revenues
from any of these arrangements.
Manufacturing. The company is dependent on third party suppliers for the
manufacture of Hexalen. The company has one approved source of altretamine drug
substance and two approved sources for the finished dosage form of Hexalen.
NEUTREXIN(R) (TRIMETREXATE GLUCURONATE FOR INJECTION)
General Description. NeuTrexin (trimetrexate glucuronate for injection) is
a lipid-soluble intravenously administrable analogue of methotrexate, a
commonly-used anticancer agent. In December 1993, the FDA approved the
company's NDA, and the HPB granted commercial clearance, for NeuTrexin with
concurrent leucovorin administration (leucovorin protection) as an alternative
therapy for the treatment of moderate-to-severe PCP in immunocompromised
patients, including patients with AIDS, who are intolerant of, or are refractory
to, trimethoprim-sulfamethoxazole therapy or for whom trimethoprim-
sulfamethoxazole is contraindicated. In
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September 1994, the CPMP recommended approval for NeuTrexin with concurrent
leucovorin administration (leucovorin protection) as an alternative therapy for
the treatment of moderate-to-severe Pneumocystis carinii pneumonia in patients
with AIDS who are intolerant of or refractory to standard therapy or for whom
standard therapy is contraindicated. NeuTrexin was designated a "high tech"
drug under the CPMP's Concertation Procedure which provided for concurrent
review of the dossier by the then twelve members of the EU and provides up to
ten years of regulatory exclusivity in the major markets upon approval.
Following the positive CPMP recommendation, the company has applied for local
regulatory approvals in the EU member countries. As of January 31, 1996, the
company has received local health regulatory approvals for NeuTrexin in Denmark,
France, Germany, Ireland, Luxembourg, the United Kingdom, Spain, Greece and The
Netherlands.
Marketing. The company launched its NeuTrexin marketing program in the
United States during early 1994. The program consists of direct mail, journal
advertising, symposia and promotion to prescribing physicians by the company's
sales force. NeuTrexin has been distributed through pharmaceutical wholesalers
and is prescribed by physicians treating PCP. Commercial sales of NeuTrexin in
the United States commenced in January 1994. In the United States the company
has obtained a registered trademark for NeuTrexin, the company's brand of
trimetrexate glucuronate. The company is also pursuing trademark registrations
for NeuTrexin in a number of foreign countries.
Clinical Trials. The company has conducted a Phase II clinical trial
combining NeuTrexin with dapsone, a sulfa based antibiotic, to investigate this
combination for first-line PCP therapy. There can be no assurance that this
combination will result in approval of NeuTrexin for a first-line indication for
PCP. The company is also investigating NeuTrexin as an anticancer agent. A
multicenter Phase II trial of NeuTrexin in combination with 5-FU and leucovorin
in 39 patients with metastatic colorectal cancer resulted in a 52% response rate
including 3 complete responses. In follow up a randomized controlled Phase III
trial of 5-FU and Leucovorin with and without NeuTrexin has been initiated.
There can be no assurance that these trials will result in the approval of
NeuTrexin for cancer treatment. Pharmacologic properties of NeuTrexin also
suggest possible applications in the management of non-neoplastic diseases such
as psoriasis and rheumatoid arthritis. Research into topical and oral
formulations of NeuTrexin is underway. The development of these dosage forms
will facilitate clinical research not only in patients with diseases such as
AIDS and cancer, but may also allow for an extended role for NeuTrexin in
patients with benign diseases (such as psoriasis and rheumatoid arthritis),
although no assurance can be given that such trials, if conducted, will yield
approved indications.
Licenses of NeuTrexin to the Company. The company has obtained an
exclusive license to the United States Government's U. S. patent claiming a
method of treating PCP with trimetrexate. The term of exclusivity is seven
years from the first commercial use of the product. After this period of
exclusivity, the company also has a non-exclusive license until the last of the
licensed patents expires. Under the terms of its agreement with the United
States Government, the company is required to pay royalties based on net sales
of NeuTrexin. Pursuant to an agreement as amended with Warner-Lambert Company
("Warner-Lambert"), the company has obtained an exclusive worldwide license to
manufacture and market NeuTrexin under the patent rights and know-how held by
Warner-Lambert, including a composition of matter patent on the form of
NeuTrexin approved for commercial sale. Under the agreement, the company is
required to pay to Warner-Lambert royalties based on net sales of NeuTrexin.
The agreement may be terminated by Warner-Lambert in a country outside the
United States if commercial sales are not commenced in such country by the first
anniversary of the date on which NeuTrexin could legally be sold in such
country.
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Patents and Orphan Drug Status. As noted above, the company has reached an
agreement to license, on an exclusive basis, Warner-Lambert's NeuTrexin patents,
including those relating to composition of matter and manufacturing processes.
One of those patents, a composition of matter patent on the form of NeuTrexin
approved for commercial sale, was issued March 15, 1983 and, pursuant to new
legislation, will be entitled to a term of 20 years from the date of the first
U.S. filed application for that patent, October 31, 1980. Therefore, the
current expiration date for this U.S. patent is October 31, 2000. See "Patents
Trademarks and Trade Secrets." Pursuant to the Drug Price Competition and
Patent Term Restoration Act of 1984, an application has been filed for an
extension of that patent in the United States for an additional 1,310 days, a
period relating to the time NeuTrexin was under review by the FDA. On August 4,
1995 the U.S. Patent Office informed Warner Lambert, the patentee, that the
patent was eligible for patent term extension of 1,284 days. Warner Lambert
filed a request for reconsideration of the length of the extension on September
1, 1995. The request for reconsideration is pending. There can be no assurance
that the extension will be granted or that, if granted, the extension will be
for the full term requested. The company has rights to the foreign counterparts
of this U.S. Patent in many European markets. These foreign counterpart patents
were filed in 1981 and are due to expire in 2001. The company is applying for
supplementary patent protection in the EU countries where health regulatory
approvals for NeuTrexin have been received and where there is a foreign
counterpart patent. Such supplementary protection may be granted for a period
of up to five additional years; however, there can be no assurance that
supplementary protection will be granted for any such patent or that, if
granted, the extension will be for the full term requested. As of January 15,
1996, supplementary protection has been granted in France and Luxembourg for a
five year term. The company has filed a U.S. patent application with respect to
crystalline trimetrexate salts and the process for making crystalline
trimetrexate salts. There can be no assurance that patent(s) will issue from
this patent application.
The company also has an exclusive license in the United States for a U.S.
Government patent claiming a method of treating PCP infection with trimetrexate.
See "Principal Products --NeuTrexin--Licenses of Trimetrexate to the Company."
Upon approval of the NDA for NeuTrexin in December 1993, the product
received seven years' marketing exclusivity under the Orphan Drug Act for the
approved PCP indication. NeuTrexin is also designated as an orphan drug for the
treatment of metastatic colorectal adenocarcinoma, metastatic carcinoma of the
head and neck, pancreatic adenocarcinoma and advanced non-small cell carcinoma
of the lung. If the company obtains the first NDA approval for the product for
any of these indications, NeuTrexin would be eligible for seven years of orphan
marketing exclusivity for such approved indications. See "Government
Regulation," "Patents, Trademarks, and Trade Secrets," and "Orphan Drug Status."
Distribution and Marketing Agreements. The company has entered into an
exclusive distribution agreement with Eli Lilly InterAmerica, Inc. for the sale
of NeuTrexin in Canada. The company has entered into an exclusive distribution
agreement with SCRAS for NeuTrexin for Belgium, France, Germany, Greece,
Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain and the United
Kingdom. Under the terms of that agreement, SCRAS has an option to participate
in the company's clinical development program for NeuTrexin for oncology. The
company has licensed its rights for NeuTrexin in Scandinavia to Swedish Orphan.
For a period of two years following marketing approval in a given country,
Swedish Orphan is required to pay royalties to the company
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based on net sales of the product. Thereafter, the company reacquires the
rights to NeuTrexin in such country. In addition, the company has licensed its
rights in the Latin America/Asia Territories to Schering Overseas. Under the
terms of the agreement, Schering Overseas is required to pay the company
royalties and consulting fees based on net sales of NeuTrexin for up to ten
years after first commercial sale of the product. Under certain circumstances,
Schering Overseas may incur certain payment obligations for an additional five
years after such ten year period. The agreement provides Schering Overseas with
the right to negotiate for additional products the company wishes to introduce
in the Latin America/Asia Territories. The company has granted exclusive rights
to distribute NeuTrexin in Middle Eastern countries to distributors located in
such countries. To date NeuTrexin has not been approved for commercial sale in
any Middle Eastern country.
There can be no assurance that the company will derive meaningful revenues
from any of these arrangements.
Manufacturing. The company partially relies on third party manufacturers
to supply NeuTrexin. The company has contracted with an approved source of drug
substance as well as an approved source of finished product for NeuTrexin. In
addition, the company's manufacturing plant located in Nijmegen, The Netherlands
has undergone validation inspection by the Dutch regulatory authorities and has
received Dutch regulatory approval to manufacture the finished dosage form of
NeuTrexin. The company intends to supply the EU markets with NeuTrexin
manufactured at its Nijmegen manufacturing plant. The company has received FDA
approval of its Nijmegen facility as an alternate drug manufacturer for
NeuTrexin for commercial sale in the United States. The company intends to
supply the United States market with NeuTrexin manufactured primarily at its
Nijmegen manufacturing plant and also to continue to purchase NeuTrexin for the
United States market from its approved third party manufacturer.
ETHYOL(R) (AMIFOSTINE/WR-2721)
General Description. Ethyol is an injectable agent for which the company's
NDA was approved by the FDA in December 1995 as a selective cytoprotective agent
to reduce the cumulative renal (kidney) toxicity associated with repeated
administration of cisplatin in patients with advanced ovarian cancer. The
mechanism of action of Ethyol is such that the activated drug is preferentially
taken up by normal tissues relative to tumor cells, thereby protecting normal
cells but not the tumor cells from the toxic effects of cisplatin.
On March 15, 1996, the company's supplemental NDA was approved by the FDA
under the Accelerated Approval Regulations as a modification of the Ethyol
indications to include treatment of patients with non-small cell lung cancer for
the reduction of cumulative renal toxicity associated with repeated
administration of cisplatin. Products approved under the Accelerated Approval
Regulations require further adequate and well-controlled studies to verify and
describe clinical benefit. The company has a clinical trial ongoing which the
company anticipates may fulfill this requirement; however, there can be no
assurance that the company's ongoing clinical trial will verify the clinical
benefit of Ethyol for this indication. In the event the clinical trial fails to
verify the clinical benefit of Ethyol for this indication, the FDA may, under
certain circumstances, withdraw approval of this indication.
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The CPMP recommended the company's drug Ethyol for approval at the CPMP
meeting held on September 13, 1994. Ethyol was recommended to reduce the
neutropenia related risk of infection (e.g. neutropenic fever) due to the
combination regimen cyclophosphamide and cisplatin in patients with advanced
(FIGO State III or IV) ovarian cancer. Following the positive CPMP
recommendation, as of January 31, 1996, Ethyol has received approvals from the
local health regulatory authorities in Belgium, Denmark, France, Germany,
Greece, Luxembourg, The Netherlands, Portugal, Spain and the United Kingdom.
There were three EU countries that did not join in the positive recommendation
for Ethyol, The Netherlands, Denmark and Ireland. Denmark and The Netherlands
have subsequently approved Ethyol and Ireland has requested additional
information from the company and the company has provided additional information
and data in response to the request; however, there can be no assurance that
Ireland will approve Ethyol for commercial sale.
In December 1995 the company filed a Type II Variation to the CPMP to
expand the EU label for Ethyol to include protection against renal toxicity from
repeated administration of cisplatin in a range of solid tumors (excluding
tumors of germ cell origin). There can be no assurance that the company will
receive a recommendation for approval from the CPMP for the Type II Variation.
Marketing. Through an agreement with ALZA, Ethyol is targeted for launch
in the United States during early 1996. The program will consist of direct
mail, journal advertising, symposia and promotion to prescribing physicians by
ALZA's sales force with co-promotion by the company's sales force. Ethyol will
be distributed through pharmaceutical wholesalers for prescription by physicians
treating cancer. In the United States the company has obtained a registered
trademark for Ethyol, the company's brand of amifostine. The company is also
pursuing trademark registrations for Ethyol in a number of foreign countries.
Clinical Trials. The company is continuing to investigate the use of
Ethyol to protect normal tissues from the toxic effects of certain forms of
chemotherapy and radiation therapy in a number of tumor types without reducing
the antitumor effects of these modalities.
A randomized trial of Ethyol has also been conducted to evaluate its
ability to protect normal tissues from the toxicities of radiation therapy.
Additional Phase II and Phase III trials investigating Ethyol as a radio-
protective agent are being initiated in the United States and Europe. The
company anticipates filing a supplemental NDA for Ethyol's use as a radio-
protective agent, if satisfactory data results, when these studies are complete.
No assurance can be given that an application for regulatory approval for Ethyol
as a radiation protectant, if submitted, will be approved.
Additional International New Drug Submissions. The company submitted a New
Drug Submission for Ethyol with the Canadian regulatory authorities in September
1994. In Europe, the company is in the process of seeking registration of an
Ethyol dossier in the countries comprising the European Free Trade Association
("EFTA") (Austria, Finland, Iceland, Liechtenstein, Norway, Sweden and
Switzerland). As of January 31, 1996, within the EFTA region, the company has
achieved approval for Ethyol in Switzerland. No assurance can be given that the
remaining EFTA applications, if submitted, will be approved. Through its
marketing partner for the Far East/Latin American Territory, Schering Overseas,
dossiers have been submitted in numerous countries in that Territory. Within
the Far East/Latin American Territory, as of January 31, 1996, Ethyol was
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approved for commercial sale in Argentina and Uruguay. While additional
regulatory approvals for Ethyol are being pursued throughout the Far East/Latin
American Territory, there can be no assurance that additional approvals will be
received.
License of Ethyol to the company. The company's exclusive rights to
develop and market Ethyol on a worldwide basis were derived from an agreement
with the Southern Research Institute ("Southern Research"), a not-for-profit
research institution. Effective May 1, 1993, the agreement was amended and
restated to clarify the company's royalty obligations to Southern Research under
various sublicense and distribution arrangements (the "Restated and Amended
Ethyol Agreement"). Pursuant to the Restated and Amended Ethyol Agreement, the
company is required to pay Southern Research a royalty on net sales of Ethyol or
any pharmaceutical composition containing Ethyol for a period of ten years
following the first commercial sale in a given country. Under certain
circumstances, the company is required to pay Southern Research a reduced
royalty rate on net sales of Ethyol for an additional five years. The agreement
is for a term of fifteen (15) years from the date of first commercial sale on a
country-by-country basis.
Patents, Orphan Drug Status and NDA Exclusivity. The original United
States composition of matter patent on Ethyol expired in July 1992. The
company has developed proprietary new dosage forms of crystalline amifostine and
a novel method for manufacturing crystalline amifostine. The company has a
patent from the U.S. Patent and Trademark Office for a method of manufacturing
crystalline amifostine and the resulting dosage form utilizing such method of
manufacture of crystalline amifostine. In a divisional patent application, the
company continues to pursue crystalline amifostine dosage form claims which are
independent of the method of manufacture; however, there can be no assurance
that a patent will issue for these dosage form claims. The company has foreign
counterpart patent applications pending, however there can be no assurance that
such patent applications will result in issued patents in foreign jurisdictions.
Upon approval of the NDA for Ethyol in December 1995, the product received
seven years' marketing exclusivity under the Orphan Drug Act for the approved
indication. Ethyol has also been designated as an orphan drug for use as a
chemoprotective agent for cyclophosphamide in the treatment of advanced ovarian
carcinoma, and as a chemoprotective agent for cisplatin in the treatment of
metastatic melanoma. If the company obtains the first NDA approval for the
product for either of these indications, Ethyol would be eligible for seven
years of orphan marketing exclusivity for such approved indication.
In addition, upon approval of the NDA for Ethyol, the product became
entitled to a period of marketing exclusivity under the Food, Drug, and Cosmetic
Act. Under the relevant provision of that Act, if an NDA is approved for a drug
that has not been the subject of any prior NDA approval, no Abbreviated New Drug
Application ("ANDA") referring to that drug may be submitted for five years from
the date of the NDA approval (or four years if the drug is covered by a patent,
unless the ANDA applicant challenges the patent). Because Ethyol is the first
amifostine product to receive an NDA approval, it is entitled to protection
against FDA approval of an ANDA for a period of five years, plus the time
required for the FDA to review and approve an ANDA for the product. This
exclusivity does not, however, prohibit the submission or FDA approval of
subsequent full NDA's by other sponsors based on such sponsors' separate
clinical investigations.
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Distribution and Marketing Agreements. The company has entered into an
exclusive marketing and distribution agreement with ALZA for Ethyol in the
United States. Under the terms of the Agreement, ALZA has exclusive rights to
market Ethyol in the United States for five years and will be responsible for
sales and marketing; the company's sales force will co-promote the product with
ALZA. After the five-year period, which ALZA has an option to extend for one
year, marketing rights to Ethyol revert to the company, and ALZA will receive
payments from the company for ten years based on sales of Ethyol in the United
States.
The company has entered into an exclusive marketing and distribution
agreement with Scherico Ltd., ("Scherico") a subsidiary of Schering, for Ethyol
in the countries comprising the EU and EFTA (the "European Territories"). Under
the terms of its Agreement with Scherico, the company will share in operating
profits/losses (as defined in the Agreement) generated from marketing and sales
of Ethyol in Germany, United Kingdom, Spain, Italy and France (the "Major
Markets") for a period of up to two years from November 23, 1994, the date of
approval of Ethyol in the United Kingdom. The company's exposure to operating
losses, if any, generated from the Major Markets is limited to an amount set
forth in the operating plans. With respect to 1995, Scherico has invoiced the
company approximately $4.2 million for the company's share of operating losses.
With respect to 1996, the company's limit on operating losses under the terms of
its Agreement with Scherico, as determined by the 1996 operating plan is
approximately $1.7 million. The company will share in operating profits, if
any, generated from sales of Ethyol in the other countries in the European
Territories outside the Major Markets in which Ethyol is launched by Scherico,
but is not exposed to operating losses, if any, generated in such countries.
Under the terms of the Agreement, the company is obligated to share in operating
losses, if any, generated from the Major Markets for a period up to the
"Commencement Date" which is defined as the first to occur of (i) the date of
the last Regulatory Approval with Minimum Chemoprotective Labelling in all of
the Major Markets; (ii) 270 days after Regulatory Approval with Minimum
Chemoprotective Labelling and, if required, pricing and/or reimbursement
approval in the first Major Market; (iii) if the first Regulatory approval is
less than the Minimum Chemoprotective Labelling, the second anniversary of such
Regulatory Approval, i.e. November 23, 1996. Under the Agreement, Minimum
Chemoprotective Labelling is defined as protection against hematological
toxicities associated with the use of cyclophosphamide without protection
against the associated tumor and without any restriction limiting use of Ethyol
to ovarian cancer.
Under the terms of the Agreement, Scherico's exclusive rights to market the
product will continue for five years from the Commencement Date. During such
five year period the company will share in operating profits but will not share
in operating losses that might be generated. The company will co-promote Ethyol
with Scherico for the two years following such five year period. Thereafter,
the company will reacquire sole marketing rights. Under certain circumstances
Scherico is required to pay the company milestone payments as regulatory and
pricing approvals, if any, are obtained. There can be no assurance that
milestone payments will be made to the company under the Agreement. After
reacquiring sole marketing rights, the company will pay Scherico a portion of
its Ethyol operating profits, if any, from the European Territory for a period
of three years. The company will supply Ethyol to Scherico throughout the term
of the agreement at a negotiated price. In addition, under the terms of the
Agreement, Scherico is to assist the company in establishing its own commercial
organization in Europe. The contract provides that Scherico may terminate the
agreement at any time by providing 180 days written notice to the company of its
desire to terminate
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the Agreement. There can be no assurance that the Agreement will not be
terminated by Scherico. There can be no assurance that the marketing of Ethyol
in the European Territories will result in meaningful revenues to the company.
The company has licensed Ethyol to Schering Overseas in the Latin
America/Asia Territories. Schering Overseas is required to pay the company
royalties and consulting fees for ten years following the first commercial sale
of the product. Schering Overseas may incur certain payment obligations for an
additional five years under certain circumstances.
The company has granted exclusive distribution rights for Ethyol in Canada
to Eli Lilly Interamerica, Inc. an affiliate of Eli Lilly and Company and Eli
Lilly Canada Inc.
In a separate agreement, the company has licensed Ethyol to Scherico for
territories comprising Eastern Europe, Australia, New Zealand, Iran, Iraq, South
Africa, Botswana, Namibia and Zimbabwe (the "Eastern Europe/Africa/Australia/New
Zealand Territories"). Under the Agreement, Scherico is required to pay the
company royalties and consulting fees for fifteen years following the date of
first commercial sale of Ethyol in these territories. In addition, under
certain circumstances, Scherico is required to pay milestone payments upon
approval of Ethyol in Australia and South Africa. The Agreement provides
Scherico with the right to negotiate for additional products the company wishes
to introduce into those territories.
The company is seeking a marketing partner for Ethyol for Japan, South
Korea and Taiwan.
In Israel, the company has licensed Ethyol to Teva. Teva is required to
pay the company a milestone payment upon approval of Ethyol in Israel. In
addition, Teva is required to pay the company royalties on net sales of Ethyol
in Israel for a period of ten years following the first commercial sale of the
product. The company has granted exclusive rights to distribute Ethyol in the
Middle East to distributors located in Middle Eastern countries. To date Ethyol
has not been approved in any Middle Eastern country.
There can be no assurance that the company will derive meaningful revenues
from any of these arrangements.
Manufacturing. The company relies on an approved third party source for
supply of Ethyol drug substance. In the U.S., the company currently relies on
an approved contract manufacturer to produce the finished dosage form of Ethyol.
For other markets, the company intends to supply the finished dosage form of
Ethyol from its facility in Nijmegen, The Netherlands. The company's Nijmegen
facility has been approved by the Dutch regulatory authorities to manufacture
Ethyol for commercial sale in Europe.
AZQ (DIAZIQUONE)
General Description. AZQ is an intravenously administered anticancer agent
which crosses the "blood-brain barrier" and penetrates the central nervous
system. AZQ has been under investigation in clinical studies as a treatment for
gliomas (brain tumors) and acute leukemia.
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Clinical Trials. Clinical trials of AZQ have been conducted under the
auspices of the National Cancer Institute ("NCI") for the treatment of gliomas
and adult acute leukemia, and as an agent for treating patients prior to bone
marrow transplantation. The company is evaluating the data from the NCI trials
to ascertain its usefulness in a possible regulatory submission. It may also
elect to initiate additional clinical trials for AZQ for these indications, but
no decision has been reached as to whether such trials will be conducted. There
can be no assurance that the results of these clinical trials or the NCI data
will lead to the filing or approval of an NDA.
License of AZQ to the company. The company obtained an exclusive license
from the United States Government to market AZQ in the United States. The term
of exclusivity is until March 1998. Thereafter, the company will have a non-
exclusive license until the last of the licensed patents expires. The company
is required to pay royalties based on net sales of AZQ.
Patents. A composition of matter patent for AZQ and two patents for the
use of AZQ as an antitumor agent are held by the United States Government. The
composition of matter patent will expire in 1997 and the use patents will expire
in 1996 and 2004. See "Government Regulation," "Patents, Trademarks and Trade
Secrets."
Manufacturing. AZQ for investigational use has been produced by third
party contractors for the NCI. The company has not yet identified a source for
development and manufacture of AZQ for commercial supply. To date all AZQ used
in clinical trials has been supplied by the NCI.
PALA DISODIUM SALT (SPARFOSATE SODIUM)
General Description. PALA disodium salt ("PALA") is an injectable drug
that is in clinical studies to evaluate its ability to enhance the activity of
certain chemotherapeutic agents, in particular, fluorinated pyrimidines. The
most extensively used fluorinated pyrimidine is 5-fluorouracil ("5-FU"), which
is employed in the treatment of colorectal, breast and upper gastrointestinal
(stomach and pancreas) cancers.
Clinical Trials and PreClinical Studies. Both the company and the NCI
initiated Phase III clinical trials of PALA plus 5-FU in the United States in
1989. The company has also conducted a Phase II clinical trial of PALA and 5-FU
in Canada, and a Phase III clinical trial of 5-FU/ methotrexate plus PALA in the
United Kingdom and other European countries for patients with advanced
colorectal cancer. There can be no assurance that the company will file an
application for regulatory approval for PALA or that, if such an application is
filed, regulatory approval will be obtained for PALA.
Animal studies have been conducted under the company's auspices to evaluate
the antiviral role of PALA in a number of viral conditions including
cytomegalovirus, vaccinia, respiratory syncytial virus and hepatitis B. These
data have been submitted to the Anti-Viral Division of the FDA for review prior
to submission of an application to test PALA against molluscum contagiosum (MC),
a virus related to vaccinia. MC is increasing in frequency in AIDS patients
and the company believes that to date there is no effective therapy. There can
be no assurance that the company will file an IND with respect to clinical
testing of PALA against MC.
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License of PALA to the company. Under an agreement with Warner-Lambert,
the company has been assigned all of Warner-Lambert's United States patent
rights (to the extent that such rights exist) and international patent rights to
the PALA Patents (as defined below). The company has also obtained a non-
exclusive license to the United States Government rights. The company is
required to pay certain royalties to the United States Government and Warner-
Lambert under these agreements.
Patents and Orphan Drug Status. The United States Government and Warner-
Lambert have asserted the United States rights to a United States composition of
matter patent for PALA which expires in 1997 and to three other patents, two of
which are composition of matter patents and one of which is a process patent,
which expire from 1996 to 1999 (collectively, the "PALA Patents"). In addition,
the company has filed patent applications in the United States and certain
foreign countries to cover the use of PALA for the treatment of the viral
conditions described above. A patent issued in the United States on February
13, 1996 covering methods of using PALA in the treatment of certain primary and
secondary viral infections. In addition, the company has filed a divisional
application in the United States directed to compositions of matter containing
PALA and other therapeutic agents, and to methods of treating or preventing
certain viral infections. However, there can be no assurance that the company
will be granted patent protection for the subject matter in the PALA foreign
patent applications or the United States divisional patent application.
Distribution and Marketing Agreements. The company has granted Teva an
option to license PALA for Israel. If the option is exercised, Teva will be
required to pay the company royalties on its net sales of PALA until the later
of (i) ten years after their first commercial sale of the product or (ii) the
expiration of any patent with respect to PALA held by the company on the date of
first commercial sale. The company has licensed PALA to Schering Overseas in
the Latin America/Asia Territories. Schering Overseas is required to pay the
company royalties and consulting fees for ten years following the first
commercial sale of the product. Schering Overseas may incur certain payment
obligations for an additional five years under certain circumstances.
There can be no assurance that the company will derive meaningful revenue
from any of these arrangements.
Manufacturing. The company has a development agreement with Ganes
Chemicals Inc. to manufacture the PALA drug substance and with Ben Venue
Laboratories for the manufacture and testing of the finished dosage form.
ROGLETIMIDE (PYRIDOGLUTETHIMIDE)
In July 1995 the company discontinued its development of the drug
rogletimide (pyridoglutethimide) and terminated its exclusive license to that
drug.
DRUGS IN PRECLINICAL DEVELOPMENT
The following drugs are in varying stages of preclinical development by the
company. While the company believes that these drugs may have efficacy in the
treatment of cancer, AIDS and allied diseases, significant research and
development, including clinical testing, will be required. There can
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be no assurance that these drugs will prove to be safe and effective in clinical
trials. Moreover, other obstacles, including the ability to manufacture the
drugs, must also be surmounted. In addition, in certain cases, licenses under
which the company has obtained the drugs require the achievement of development
milestones by the company. There is no assurance that these milestones will be
met.
FddA, FddI. Under the terms of an agreement with the National Institutes
of Health of the United States Public Health Service, the company received a
worldwide exclusive license to the government's patent rights for use of the
compounds FddA and its active metabolite, FddI, for the treatment of HIV
infection, HIV-related infection or HIV-related disease in humans. FddA is an
acid stable, purine-based reverse transcriptase inhibitor that in preclinical
studies compared favorably to AZT against HIV in comparative studies conducted
in SCID (immune-deprived) mice. In in vitro laboratory studies of HIV, FddA has
not demonstrated cross-resistance to three commercially available treatments for
AIDS (AZT, ddI, ddC) and has shown synergistic activity with AZT. Both the
company and the NIH intend to pursue the clinical development of FddA. The NCI
has filed an Investigation New Drug Application and plans to initiate a phase I
clinical study of FddA in the near future. There can be no assurance that the
clinical trials will lead to the filing of a regulatory application, and if
filed, will lead to marketing authorization. The government has filed patent
applications covering, inter alia, FddA and FddI in the United States Patent and
Trademark Office and in certain foreign jurisdictions. A United States patent
has issued to the government on February 27, 1996 covering compositions of
matter for, inter alia, FddA and FddI. In addition the government has a United
States application pending which covers, inter alia, methods of treatment using
FddA and FddI. However, there can be no assurance that these pending United
States or foreign applications will result in issued patents.
WR-151327. WR-151327 is a second generation chemotherapy and radiation
therapy protective agent. Unlike Ethyol, a first generation protective agent
that has been administered intravenously, WR-151327 is administered orally. The
United States, European, Canadian and Australian patent offices have allowed a
patent application claiming the use of WR-151327 to reduce toxicities of certain
forms of chemotherapy. The company also plans studies to investigate WR-151327
as a protective agent to reduce the bone marrow toxicities associated with
zidovudine/ azidothymidine ("AZT"), a drug commercially available which is used
to treat AIDS, and as an intrinsic anti-HIV agent. Patent applications have
been filed covering these uses of WR-151327. No assurance can be made that
these patent applications will result in issued patents.
Third Generation Platinum Anticancer Agents. The company's third
generation platinum anti-cancer agents comprise a group of cytotoxic drugs
intended for use in treating ovarian, testicular, head and neck, lung and
certain other cancers. Although the two approved platinum compounds currently
on the market have demonstrated efficacy as anticancer agents, widespread usage
of these compounds has been limited by their toxicity to normal cells. The
company has licensed the rights to four U.S. patents owned by Georgetown
University with respect to its series of third generation platinum anticancer
agents.
The company has granted an option to license certain of its foreign rights
to WR-151327 and third generation platinum anticancer agents to Teva in Israel
and granted certain of its foreign rights to WR-151327 to Schering Overseas in
the Latin America/Asia Territories.
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Mitomycin-C Analogues. Under the terms of an agreement with the Vincent T.
Lombardi Cancer Center at Georgetown University, the company received a
worldwide exclusive field of use license to a series of analogues of mitomycin-
C. Mitomycin-C is an anticancer agent used for the treatment of gastrointestinal
cancer and breast cancer. The company has licensed the rights to two Georgetown
University U.S. patents relating to Mitomycin-C analogues. However, under the
terms of its agreement with Georgetown, if the company did not meet certain
development benchmarks, Georgetown retained the right to revoke such license
rights. The company has not met those benchmarks and there can be no assurance
that the failure to meet the benchmarks will not result in a revocation of such
license rights by Georgetown.
OTHER LICENSE OPTIONS
Pursuant to its license agreement with Schering Overseas, the company has
granted to Schering Overseas a right of first refusal until 1997 to license any
of its products not currently licensed to Schering Overseas on terms mutually
acceptable to the parties. The right of first refusal applies to the Latin
America/Asia Territories covered by the license agreement.
Pursuant to its license agreement with Scherico, the company has granted to
Scherico a right to negotiate in good faith to license company products for the
Eastern Europe/Africa/Australia/New Zealand Territories covered by the license
agreement.
Pursuant to its distribution agreement with SCRAS, the company has granted
SCRAS an option to participate in the clinical development of NeuTrexin for
cancer and obtain the rights to commercialize NeuTrexin for cancer in the SCRAS
territories. In addition, the company has granted SCRAS an option to
commercialize Hexalen in eight EU countries.
RESEARCH AND DEVELOPMENT
Research. The company does not currently have proprietary research and
preclinical development facilities since its initial strategy has emphasized the
acquisition of drugs and related therapies that have demonstrated some potential
value in preclinical testing or clinical trials. The company does have
facilities where the company conducts analytical chemistry in support of its
regulatory applications and product development.
Development. The company has established relationships with numerous
preclinical programs in the United States and Europe for the purpose of
expanding its research and development programs.
Research and development expenses were $12,186,000 for 1995, $17,607,900
for 1994, $19,403,800 for 1993, and $85,163,100 for the period May 7, 1987
(inception) to December 31, 1995.
MARKETING
The market for chemotherapeutic and hormonal drugs is highly concentrated
and comprised principally of oncologists and hematologists practicing in cancer
treatment centers, large hospitals and private medical practices. The decision
to use such drugs is an individual physician's decision, and
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marketing efforts are focused upon individual oncologists and hematologists to
prescribe such drugs. The market for intravenous therapies for PCP is mainly
derived from about 220 hospitals in major metropolitan areas. The use of such
drugs may require acceptance onto an individual hospital's formulary. Marketing
efforts are directed at prescribing physicians, pharmacists, and members of the
formulary committee.
In the United States, the company's marketing efforts are focused on
approximately 5,500 physicians. With respect to Hexalen, the company has
directed most of its marketing efforts to approximately 2,500 physicians who
have prescribed Hexalen at some point since its introduction. With respect to
NeuTrexin, the company has directed its marketing efforts to approximately 2,000
AIDS and infectious disease specialists who treat PCP. Because the number of
such physicians in both cases is relatively small, the company uses its own
sales force of approximately fifteen representatives to personally contact as
many of those physicians as possible. With respect to NeuTrexin and Hexalen,
the company's marketing program consists of personal contacts, direct mail,
advertising, journal advertising, symposia and promotion by the company's sales
force.
For the commercial launch of Ethyol in the United States, the company has
entered into an exclusive distribution and marketing agreement with ALZA. See
Principal Products -- Ethyol --Distribution and Marketing Agreements. Under the
terms of that agreement, ALZA will be responsible for marketing Ethyol in the
United States. The company's sales force will co-promote Ethyol with ALZA's
approximately 45 sales representatives in the U.S. market.
Hexalen and NeuTrexin are supplied through pharmaceutical wholesalers in
the United States. Representatives of the company have contacted wholesalers by
mail and have visited major wholesalers personally to establish account
relationships and distribution channels.
To commercialize its products outside the United States, the company has
entered into agreements with other companies. See "Principal Products --
NeuTrexin -- Distribution and Marketing Agreements" "Principal Products --
Hexalen -- Distribution and Marketing Agreements"
and "Principal Products -- Ethyol -- Distribution and Marketing Agreements."
The company has five employees engaged in marketing and business
development activities in addition to its specialty-oriented sales force.
Additional staff expansions may be required upon the expansion of indications
for previously approved drugs or the approval of other products currently in
development.
COMPETITION
The sales potential of an oncology product or a PCP product is dependent
upon numerous variables, including efficacy in different tumor types in the case
of an oncology product, and efficacy in the treatment of PCP for a PCP product,
toxicity, ease of incorporation into combination regimens, reimbursement,
pharmacoeconomic impact, clinical data, price, acceptance by physicians,
marketing, and distribution. The availability of patent protection or marketing
exclusivity afforded by orphan drug status or regulatory exclusivity afforded by
the Food, Drug and Cosmetic Act, and the ability to obtain expanded labelling
are also critical. See "Government Regulation."
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Many companies, including well known pharmaceutical companies, are
marketing anticancer drugs and drugs for the treatment of AIDS and allied
diseases and seeking to develop new products and technologies for the treatment
of cancer, AIDS and allied diseases. Many of these drugs, products and
technologies are, or may be, in the future, competitive with the company's
drugs. Many of these companies have substantially greater financial and
technical resources and production and marketing capabilities than the company.
In addition, many such companies have had significantly greater experience both
in undertaking preclinical testing and human clinical trials of new or improved
pharmaceutical products and in obtaining the approval of the FDA or other
regulatory authorities to market products for health care. Accordingly, the
company's competitors may succeed in obtaining regulatory approval of such
products before the company obtains approval of its own products. The company
is also competing with respect to marketing capabilities and manufacturing
efficiency.
The company is engaged in a business that is highly competitive. Many of
the companies with competitive therapies have substantially greater financial,
technical, manufacturing, marketing and other resources than the company and may
be better equipped than the company to develop, market and manufacture these
therapies. No assurance can be given that drugs developed by the Company will
be able to compete against therapies already established in the marketplace or
against therapies which may result from advances in biotechnology or other forms
of therapy that may render the company's drugs less competitive or obsolete. In
addition, many such companies have extensive experience in undertaking
preclinical testing and clinical trials and obtaining FDA and other regulatory
approvals.
In the United States, the company believes that Bristol-Myers Squibb
Company holds the largest share of the chemotherapy market both in terms of
approved products and annual sales, and therefore dominates the market place.
Other companies maintaining an active oncology marketing and sales presence
include Schering-Plough Corporation, Pharmacia & Upjohn, Zeneca (a subsidiary of
Imperial Chemical Industries PLC), Hoffman-La Roche, Immunex Inc. (a subsidiary
of American Home Products), Amgen, Inc. and Chiron Corporation.
In the United States, Burroughs Wellcome Co., Hoffman-La Roche and Fujisawa
Pharmaceutical Company participate in the PCP market.
Other groups active in anticancer and AIDS research include universities and
public and private research institutes. These institutions also are becoming
increasingly competitive in recruiting personnel from the limited supply of
highly qualified clinical physicians, academic scientists and other
professionals. However, the company believes that such institutes represent an
important source of novel compounds for in-licensing, since often their mission
does not include bringing compounds to market or they lack the capabilities to
do so.
MANUFACTURING
The company has a small volume parenteral manufacturing facility in
Nijmegen, The Netherlands, to manufacture the company's injectable drug supplies
for the international market. The plant has undergone an intense validation and
qualification program aimed at regulatory approval for commercial manufacturing
and testing. The Nijmegen manufacturing facility received approval of the Dutch
regulatory authorities and is now able to manufacture Ethyol and NeuTrexin for
commercial sale in Europe. The Nijmegen manufacturing facility has been
inspected by the FDA and approved
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as a manufacturing site for NeuTrexin for commercial sale in the United States.
The company intends to apply to the FDA for approval of the Nijmegen
manufacturing facility to manufacture Ethyol for commercial sale in the United
States; however; there can be no assurance that the Nijmegen manufacturing
facility will receive FDA approval to produce Ethyol for commercial sale in the
United States. The company relies to a substantial extent on third parties to
manufacture its products under contract. There can be no assurance that third
party manufacturers will give the company's orders highest priority, or that the
company would be able to readily find a substitute manufacturer if one were
needed on short notice. See "Principal Products" for information regarding
manufacturing of the company's products.
PATENTS, TRADEMARKS AND TRADE SECRETS
Proprietary protection for the company's products is important for the
company's business. The patents obtained by the company's licensors and those
obtained by the company are expected to provide some degree of protection for
the company's products, although the scope and validity of patent protection is
uncertain.
The company actively seeks patent protection both in the United States and
abroad for its proprietary technology. In addition to seeking its own patents,
the company has entered into license agreements with various pharmaceutical
companies and research, educational and governmental institutions to obtain
certain patent rights from them for the purpose of developing, manufacturing and
selling potential products using the compounds and technologies protected by
these patents. See discussion of the patent rights under "Principal Products."
Under these agreements, the company is obligated to pay royalties of varying
rates based upon, among other things, levels of revenues from the licensed
products. Generally, the agreements continue for a specified number of years or
as long as any licensed patents remain in force, absent breach of the terms of
the agreements or termination of the agreements. See the discussion of the
various license agreements under "Principal Products."
A number of significant changes in the United States patent laws were
mandated by the North American Free Trade Agreement ("NAFTA") and the General
Agreement on Tariffs and Trade ("GATT"). Legislation enacting these treaties
has been passed into law. The term of exclusive rights afforded by a United
States patent has historically been a period of 17 years measured from the date
of grant. Under the new legislation, the new term of United States patents will
commence on the date of grant, and terminate 20 years from the date on which the
patent application was filed in the United States. Existing patents and future
patents granted on an application filed before June 8, 1995, will have a term
that is the longer of twenty years from the filing date or seventeen years from
the date of grant. If a patent issues from a continuation-in-part, divisional
or continuing application, the 20-year patent expiration date is measured from
the filing date of the earliest United States priority application relied on by
the applicant. This change will affect the term of any patent granted on
applications filed subsequent to June 8, 1995, including patents which
ultimately mature from existing applications, if they are refiled as
continuations or continuations-in-part after June 8, 1995.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
United States product patent or use patent may be extended for up to five years
under certain circumstances to compensate the patent holder for the time
required for FDA regulatory review of the product. The benefits of the Act are
available only to the first approved use of the active ingredient in the drug
product and may be applied only to one patent per drug product. See "Principal
Products --NeuTrexin -- Patents and Orphan Drug Status." This law also
establishes a period of time following
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<PAGE>
FDA approval of certain new drug applications during which other sponsors may
not submit an ANDA for the drug. There can be no assurance that the company
will be able to take advantage of either the patent term extension or market
exclusivity provisions of this law.
No assurance can be given that any patent issued to, or licensed by, the
company will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds is particularly
uncertain. No assurance can be given that the company's patents will afford
protection against competitors with similar compounds or technologies, that
others will not obtain patents claiming aspects similar to those covered by the
company's patents or applications or that the patents of others will not have an
adverse effect on the ability of the company to do business. Moreover, the
company believes that obtaining foreign patents may be more difficult than
obtaining domestic patents because of differences in patent laws and recognizes
that its patent position, therefore may be stronger in the United States than
abroad. In addition, the protection provided by foreign patents, once they are
obtained may be weaker than that provided by domestic patents.
In addition to seeking the protection of patents and licenses, the company
also relies on trade secrets to maintain its competitive position. It is the
practice of the company to enter into confidentiality agreements with employees,
consultants and licensees. No assurance can be given, however, that these
measures will prevent the unauthorized disclosure or use of such information.
Hexalen, Ethyol and NeuTrexin are registered United States trademarks of
the company.
ORPHAN DRUG STATUS
Pursuant to the Orphan Drug Act, the FDA may designate a drug intended to
treat a "rare disease or condition" as an "orphan drug". "Rare disease or
condition" is one which affects less than 200,000 people in the United States,
or which affects more than 200,000 people but for which the cost of development
and making available the drug will not be recovered from sales of the drug in
the United States. Upon approval of an NDA for an orphan drug, such drug may be
eligible for exclusive marketing rights in the United States for designated and
approved indications for seven years. Orphan drugs may also be eligible for
federal income tax credits for certain clinical trial expenses. The company
holds orphan drug designations for Hexalen for advanced ovarian cancer; for
Ethyol for use as a chemoprotective agent against cisplatin and cyclophosphamide
in the treatment of ovarian cancer and for use as a chemoprotective agent for
cisplatin in the treatment of metastatic melanoma; and for NeuTrexin for PCP,
metastatic colorectal cancer, metastatic head and neck cancer, non-small cell
lung cancer and pancreatic cancer. See "Principal Products."
The company may receive marketing exclusivity for an orphan drug only if it
is the sponsor of the first NDA approved for the drug for an indication for
which the drug was designated as an orphan drug prior to the approval of the
NDA. Therefore, unlike patent protection, orphan drug status does not prevent
other manufacturers from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the
FDA would be prohibited from approving the company's application to market the
20
<PAGE>
product for the relevant indication for a period of seven years. If another
sponsor's NDA for the same drug and the same indication is approved first, but
that drug has not been designated as an orphan drug, the FDA would still be
permitted to approve the company's NDA.
The company believes that several of its products in addition to Hexalen,
Ethyol, and NeuTrexin may qualify for designation as orphan drugs. There can be
no assurance, however, that such other products will receive orphan drug status.
Moreover, possible amendment of the Orphan Drug Act by the United States
Congress and possible reinterpretation by the FDA are the subject of frequent
discussion. Legislation to limit exclusivity in some respects was passed by
Congress, but vetoed by the President in 1990. FDA regulations reflecting
certain other limitations and procedures went into effect in January 1993.
Therefore, there is no assurance as to the precise scope of protection that may
be afforded by orphan drug status in the future, or that the current level of
exclusivity and tax credits will remain in effect.
GOVERNMENT REGULATION
The production and marketing of the company's products and its research and
development activities are subject to comprehensive regulation by various
federal, state and local authorities in the United States and governmental
authorities of other countries. In particular, the FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, quality control, advertising and promotion of the
company's products.
A new drug may not be marketed in the United States until it has undergone
rigorous testing and been approved by the FDA. The drug may then be marketed
only for the specific indications, uses, formulation, dosage forms, and
strengths approved by the FDA. Similar requirements are imposed by foreign
regulators upon the marketing of a new drug in their respective countries.
The steps required before a drug may be marketed in the United States
include (a) preclinical laboratory and animal tests, (b) submission to the FDA
of an application for an Investigational New Drug exemption (an "IND"), which
must become effective before human clinical trials may commence, (c) human
clinical trials to establish the safety and efficacy of the drug, (d) the
submission of a detailed NDA to the FDA, and (e) FDA approval of the NDA. In
addition to obtaining FDA approval for each product, each domestic establishment
where the drug is to be manufactured must be registered with the FDA. Domestic
manufacturing establishments must comply with good manufacturing practices
("GMP") and are subject to periodic inspections by the FDA. Foreign
manufacturing establishments also must comply with GMP and are subject to
periodic inspection by the FDA or by local authorities under agreement with the
FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product.
Products must be formulated according to GMP, and preclinical tests must be
conducted by laboratories that comply with FDA regulations regarding Good
Laboratory Practices. The results of preclinical tests are submitted to the FDA
as part of an IND, which must become effective before the sponsor may conduct
clinical trials in human subjects. Unless the FDA objects to an IND, the IND
becomes effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization to commence
clinical trials.
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<PAGE>
Clinical trials involve the administration of the investigational drug to
patients. Clinical trials typically are conducted in three phases which
generally are conducted sequentially, but tested for safety, side effects,
dosage tolerance, metabolism and clinical pharmacology. With respect to
anticancer agents, testing typically is done with a small group of patients with
advanced cancers that have proved unresponsive to other forms of therapy. Phase
I testing typically takes one year to complete. Phase II involves tests in a
larger but still limited patient population to determine the efficacy of the
drug for specific indications, to determine optimal dosage and to identify
possible side effects and safety risks. Phase II testing for an indication
typically takes from one and one-half to two and one-half years to complete.
When a drug shows efficacy in Phase II evaluations, expanded Phase III trials
are undertaken to evaluate the overall risks and benefits of the drug in
relationship to the treated disease in light of other available therapies.
Phase III studies generally take from two and one-half to five years to
complete. There can be no assurance that Phase I, Phase II or Phase III testing
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it decides that
patients are being exposed to a significant health risk.
The results of the preclinical studies and clinical trials are submitted to
the FDA as part of an NDA for approval of the marketing and commercial shipment
of the drug. The NDA also includes information pertaining to the chemistry,
formulation, activity and manufacture of the drug and each component of the
final product, as well as details relating to the sponsoring company. The NDA
review process takes more than two years on average to complete, although
reviews of treatments for cancer and other life-threatening diseases may be
accelerated. However, the process may take substantially longer if the FDA has
questions or concerns about a product. In general, the FDA requires at least two
adequate and well-controlled clinical studies demonstrating efficacy in order to
approve an NDA. The FDA may however, request additional information, such as
long term toxicity studies or other studies relating to product safety.
Notwithstanding the submission of such data, the FDA ultimately may decide that
the application does not satisfy its regulatory criteria for approval. Finally,
the FDA may require additional clinical tests following NDA approval (Phase IV
clinical tests).
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's current GMP standards, which also
must be observed at all times following approval. Accordingly, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with GMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product. The FDA may also request a voluntary
recall of a product.
The product testing and approval process is likely to take a substantial
number of years, and involves the expenditure of substantial resources. There
can be no assurance that any approval will be granted on a timely basis, or at
all. The FDA also may require post-marketing testing and surveillance to
monitor the product and its continued compliance with regulatory requirements.
Upon approval, a drug may only be marketed for the approved indications in the
approved dosage forms and at the approved levels. Adverse experiences with the
product must be reported to the FDA. The FDA also may require the submission of
any lot of the product for inspection and may restrict the release of any lot
that does not comply with FDA standards, or may otherwise order the suspension
of manufacture, recall or seizure if non-compliant product is discovered.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems concerning safety or efficacy of the product are
discovered following approval.
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<PAGE>
The Prescription Drug User Fee Act of 1992 was enacted to expedite FDA
review and approval of new drugs by providing the FDA additional funds through
the imposition of user fees. The Act imposes three kinds of user fees on
manufacturers prescription drugs: (1) a one time fee for each single source
prescription drug application submitted on or after September 1, 1992; (2) an
annual fee for each establishment that produces single source prescription
drugs; and (3) an annual fee for each single source prescription drug product
marketed.
The company also will be subject to foreign regulatory requirements
governing clinical trials, manufacturing of products, marketing of products and
product approvals. Whether or not FDA approval has been obtained, approval of a
product by the comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval. Under
its agreement with licensees and distributors in foreign countries, the company
often requires the licensee or the distributor to be responsible for obtaining
regulatory approvals in their respective territories.
Health care reform, if enacted, could bring radical change in the financing
and regulation of the health care business. The company is unable to predict
whether such changes will be enacted or, if enacted, the effect of such changes
on the future operation of the company's business. Changes affecting drug
pricing, drug reimbursement, prescription benefits, and levels of reimbursement
for drugs, among others, could have a materially adverse effect on the company's
business.
EMPLOYEES
As of January 31, 1996, the company employed 123 persons full-time, of whom
39 were engaged in research and development; the others were in manufacturing,
administrative, sales and marketing or executive positions. A significant
percentage of the company's management and employees have had prior experience
with other pharmaceutical companies.
None of the company's employees is covered by a collective bargaining
agreement. Management considers the company's relations with its employees to
be good.
CONSULTANTS
The company's Scientific Advisory Board consists of prominent physicians
and preclinical scientists who are experts in various areas of research and who
the company believes may make a contribution to the development of the company's
business. The Scientific Advisory Board advises management of advances in
relevant science, assists in identifying specific product opportunities and aids
in recruiting personnel and procuring research contracts.
In addition to the individuals serving on the Scientific Advisory Board,
the company has retained the services of physicians and preclinical scientists
(the "Scientific Consultants") representing a broad spectrum of scientific
disciplines in medicine, as well as consultants in such areas as preclinical
drug development and marketing. These consultants are paid principally on a per
diem fee basis and in some cases have been granted options to purchase the
company's common stock under the company's stock option plans. The company also
pays for preclinical studies and for human clinical trials in the academic
laboratories of several of the Scientific Consultants. Certain of the
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<PAGE>
company's agreements with Scientific Consultants require them to disclose and
assign to the company all ideas, discoveries and inventions developed by them in
the course of providing consulting services to the company.
PRODUCT LIABILITY INSURANCE
The testing, marketing and sale of human health care products by the
company entails an inherent risk that product liability claims may be asserted
against the company. The company's therapies may be carcinogenic or toxic. The
testing and sale of human health care products by the company entails inherent
risk that product liability claims may be asserted against the company. The
company currently carries liability coverage in the aggregate amount of
$10,000,000 per policy year. The company believes such coverage is commercially
reasonable in light of its current operations, although there can be no
assurance that such coverage will ultimately be adequate. As the company
expands the scope of its clinical testing and marketing of its products, the
company will be exposed to far greater potential liabilities.
The pharmaceutical industry has in the past experienced difficulty in
maintaining product liability insurance coverage at reasonable levels, and
substantial increases in insurance costs may render coverage economically
impractical. Although the company will seek to carry reasonable levels of
product liability insurance, it is not certain that such coverage can be
obtained on reasonable terms, or, if obtained, that such amounts ultimately will
prove adequate or will be renewable for any period. If any product liability
claim against the company were sustained, its business and prospects could be
materially adversely affected.
ITEM 2. PROPERTIES.
The company's principal offices comprise approximately 26,400 square feet
of space in West Conshohocken, Pennsylvania. The space is rented pursuant to a
lease which expires on October 31, 1998. The company also leases 10,000
square feet of laboratory space in Exton, Pennsylvania which is used as an
analytical laboratory conducting small scale product analysis, testing and
development.
The company's European operations are conducted through its subsidiary, USB
Pharma Limited and are presently housed in a 5,000 square foot office in an
office building in Watford, Hertfordshire, England. This space is rented
pursuant to a lease which expires in June 1999. The lease may be terminated by
the company without penalty at any time between March 1995 and June 1996.
The company's manufacturing facilities are held in its Dutch subsidiary,
USB Pharma B.V., and are located in The Netherlands in an 18,000 sq. ft.
facility designed to manufacture sterile products. The facility was purchased
in March 1993 for $2,250,000. The company has invested approximately $2,802,900
in renovations to the facility. The facility became subject to a mortgage of
approximately $680,000 in March 1994.
The company believes that its present facilities are satisfactory for its
current operations.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Philip S. Schein, M.D. 56 Chairman, Chief Executive Officer,
President and Director
Robert I. Kriebel 53 Senior Vice President - Finance and
Administration, Treasurer and Director
Barbara J. Scheffler 44 Senior Vice President -
Project Management
Donald O. Brown 53 Senior Vice President -
Pharmaceutical Operations
Martha E. Manning 41 Vice President, General Counsel
and Secretary
</TABLE>
Dr. Schein has been Chief Executive Officer and a Director of the company
since its formation in May 1987 and Chairman since May 1990. He is also
President of the company, a position he has held from its formation until April
1992 and again from May 1995 to the present. From April 1987 to May 1987 he was
employed by U.S. Healthcare, Inc., a publicly-owned operator of health
maintenance organizations ("HMO's") to commence the business undertaken by the
company. From January 1987 to February 1987 Dr. Schein was a consultant in drug
development to Unimed, Inc., a pharmaceutical company, and Professor of Medicine
and Pharmacology at the University of Pennsylvania. Dr. Schein served as Vice
President of Worldwide Clinical Research and development, Smith, Kline & French
Laboratories, the pharmaceutical division of SmithKline Beckman Corporation,
from October 1983 to December 1986. Dr. Schein was the Scientific Director of
the Vincent T. Lombardi Cancer Research Center at Georgetown University School
of Medicine in Washington, D.C. from July 1982 to October 1983, Chief of the
Division of Medical Oncology from August 1974 to October 1983 and Professor in
the Departments of Medicine and Pharmacology from August 1974 to October 1983.
From July 1971 to August 1974 he was a senior investigator at the NCI and head
of the Clinical Pharmacology Section. Dr. Schein is a former President of the
American Society of Clinical Oncology and a former Chairman of the FDA Oncologic
Drugs Advisory Committee, where he received the Commissioner's Special Citation
and the Wiley Medal for outstanding service. In September 1994 Dr. Schein was
appointed by President Clinton to a six year term on the National Cancer
Advisory Board. He has published more than 350 articles and texts relating to
basic and clinical research and drug development and is the recipient of
numerous scientific and medical awards and honors. He is a Director of Oncor
Inc., a biotechnology-based diagnostics company and Medicis Pharmaceutical
Corporation, a research intensive pharmaceutical company focused on dermatology.
25
<PAGE>
Mr. Kriebel joined the company in April 1991 as Senior Vice President -
Finance and Administration and Treasurer and was elected Director in May 1991.
He held various positions with Rhone-Poulenc Rorer Inc. (formerly Rorer Group
Inc.) from 1974 until November 1990. From 1987 to November 1990 he was Vice
President and Controller of Rorer Group Inc.'s Armour Pharmaceutical Company.
In 1986, Mr. Kriebel was Vice President - Investor Relations of Rorer Group Inc.
and from 1979 to 1985 he was Treasurer of Rorer Group Inc.
Ms. Scheffler has been Senior Vice President Project Management since
February 1995. From November 1991 to February 1995, she was Senior Vice
President, Clinical Operations and Regulatory Affairs. She was Vice President-
Clinical Operations from July 1987 to November 1991 and Secretary from May 1987
to August 1991 and from January 1993 to May 1993. From September 1973 to April
1987, she held various positions in the Biostatistics and Clinical Information
Departments of Worldwide Clinical Research and Development at Smith, Kline &
French Laboratories, including Manager, Worldwide Clinical Sciences
Administration.
Mr. Brown joined U.S. Bioscience as Senior Vice President of Pharmaceutical
Operations in April, 1992. From 1982 through 1992, he served in numerous
capacities with Alcon Laboratories, Inc., including Group Director,
International Quality Assurance, and Director of Manufacturing, Alcon Munich
operations and at the World Headquarters facilities in Ft. Worth, Texas. Mr.
Brown's oncology background was developed during his five year tenure with
Bristol-Myers Squibb where he served as Manager of Process Engineering and Plant
Manager, Sterile Operations.
Ms. Manning joined U.S. Bioscience as Vice President, General Counsel and
Secretary in May 1993. From July 1988 until joining U.S. Bioscience, she had
served as General Counsel for The Wistar Institute of Anatomy and Biology, the
nation's oldest independent basic biomedical research institute. From 1983
until joining Wistar, Ms. Manning had been an associate with the law firm
Morgan, Lewis & Bockius.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The company's Common Stock is traded on the American Stock Exchange (the
"AMEX") under the symbol "UBS." The following table sets forth the high and low
sale prices for the Common Stock as reported by the AMEX for the periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter 3 9/16 2
Second Quarter 5 3/4 2 1/16
Third Quarter 5 9/16 3 1/2
Fourth Quarter 5 9/16 3 5/8
YEAR ENDED DECEMBER 31, 1994
First Quarter 10 3/8 6 3/4
Second Quarter 8 5/8 5 1/8
Third Quarter 8 1/2 5 1/4
Fourth Quarter 8 1/4 1
</TABLE>
On March 4, 1996, there were 7,753 stockholders of record of Common
Stock.
The company has not paid any dividends on the Common Stock since its
inception and does not intend to pay any dividends in the foreseeable future.
It is the present policy of the Board of Directors to retain all earnings, if
any, to finance the development of the company's business.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for each of the five year
periods prior to December 31, 1995, and the period May 7, 1987 (inception)
through December 31, 1995, is derived from the company's audited financial
statements. The selected financial information presented below should be read
in conjunction with the consolidated financial statements, related notes and
other financial information included in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
For the period
May 7, 1987
(inception)
through
YEAR ENDED DECEMBER, 31 December 31,
--------------------------------------------------------
STATEMENT OF OPERATIONS DATA:(1) 1995 1994 1993 1992 1991 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $8,724 $7,210 $2,361 $3,511 $3,348 $25,153
Net investment income 1,223 1,234 3,776 7,294 7,605 25,050
Licensing, royalty and research income 21,398 102 2,067 618 124 25,739
---------------------------------------------------------------------------
Total Revenues 31,345 8,546 8,204 11,423 11,077 75,942
Expenses:
Cost of sales 2,559 1,694 626 886 762 6,526
Selling, general and administrative 16,583 13,233 18,639 14,028 6,876 77,650
Research and development costs 12,186 17,608 19,404 16,735 9,929 85,163
Provision for litigation -- -- 10,165 -- -- 10,165
Interest expense 255 52 -- -- 50 1,368
---------------------------------------------------------------------------
Total expense 31,583 32,587 48,834 31,649 17,617 180,872
---------------------------------------------------------------------------
Net loss $(238) $(24,041) $(40,630) $(20,226) $(6,540) $(104,930)
===========================================================================
Net loss per common share $(0.01) $(0.60) $(1.03) $(0.51) $(0.18) ----
===========================================================================
Weighted average numbers of common shares 40,872 40,254 39,604 39,407 37,095 ----
outstanding(2)
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
BALANCE SHEET DATA:(1) 1995 1994 1993 1992 1991
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $45,596 $24,428 $48,364 $77,191 $95,507
Working capital 42,577 21,536 43,377 74,683 93,648
Total assets 61,880 34,464 57,787 83,272 99,147
Long-term debt 19,088 997 387 -- --
Provision for litigation -- 2,301 10,165 -- --
Other long-term liabilities 1,036 788 588 438 387
Deficit accumulated during the development stage (104,930) (104,692) (80,651) (40,021) (19,795)
Stockholders' equity 28,788 23,939 38,090 77,490 94,925
</TABLE>
(1)In Thousands, except per share amounts
(2)After giving effect to a 2-for-1 stock split paid in the form of a
dividend to the common stockholders on January 16, 1992.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in 1987, the company has devoted its efforts primarily
to raising capital, recruiting personnel, identifying and acquiring drugs for
further research and development, clinical development of such drugs and, since
1991, selling and marketing its drugs in the United States. The company
currently sells and markets two compounds in the United States, Hexalen,
introduced in January 1991 and NeuTrexin, introduced in January 1994. The
company received regulatory approval to market its third product, Ethyol in the
United States in December 1995. Ethyol is a selective cytoprotective agent for
reducing cumulative renal toxicity associated with administration of cisplatin
in patients with advanced ovarian cancer. The company expects Ethyol will be
launched by its U.S. co-promotion partner ALZA Corporation ("ALZA") in early
1996. The company has also received regulatory approval for Ethyol in several
European countries and its marketing partner for European territories Scherico
Ltd., an affiliate of Schering-Plough Corporation ("Scherico"), began sales and
marketing efforts in 1995.
The company believes that its expenditures for research and development,
marketing, capital equipment and facilities will continue to exceed revenues as
a result of (i) seeking further regulatory approvals for Ethyol in the United
States and Europe and further clinical trials and regulatory approvals for
NeuTrexin and Hexalen, (ii) the marketing of Hexalen and NeuTrexin and the
forthcoming launch of Ethyol in the United States and further Ethyol product
introductions in Europe where the company shares initial profits and losses with
its marketing partner, Scherico, (iii) expansion of clinical and preclinical
testing of drug compounds, including expanded indications for existing drugs and
(iv) development and enhancement of manufacturing and analytical capabilities.
The company, in January 1995, following the December 1994 meeting of the
Oncologic Drug Advisory Committee of the FDA which withheld recommendation for
the U.S. approval of Ethyol, went through an internal restructuring and
downsizing in an effort to reduce expenditures so as to preserve financial
resources for its research, product development and commercial objectives. This
restructuring resulted in a reduction in the company's staffing levels and
expenditures and a re-prioritization of research efforts focusing on near-term
projects, which management believes may be capable of providing additional
revenues. A one-time restructuring charge of approximately $600,000 principally
to cover severance payments, was charged to earnings in the first quarter of
1995. The company's principal research activity in 1995 centered on the
regulatory approval of Ethyol by the FDA. As noted above, the company was
successful in achieving marketing approval of Ethyol by the FDA in December
1995. Commercial activities during 1995 centered around the promotion and sale
of Hexalen and NeuTrexin in the United States, the launch of Ethyol in Europe by
marketing partner Scherico and the conclusion of a marketing and distribution
agreement for Ethyol in the United States with ALZA in December 1995. The
company also pursued clinical programs to expand the label indications for
Ethyol, NeuTrexin and Hexalen and initial regulatory approvals for Ethyol in
several European countries and Canada. Additionally, start-up and validation
efforts were completed at the company's manufacturing plant in The Netherlands.
The company also acquired FddA, a product for the treatment of AIDS developed by
the National Cancer Institute. As part of a plan to enhance the company's
ability to pursue its long-term commercial and research objectives, in December
1995, the company raised approximately $19 million in a private placement
consisting of
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<PAGE>
1,120,112 shares of common stock and the issuance of $16.5 million in 4% three-
year unsecured convertible debentures. One third of the convertible debentures
($5.5 million) were converted into 1,127,555 shares of the company's common
stock in February 1996.
In 1994, the company's principal commercial activity was the launch of
NeuTrexin in the United States. The launch of NeuTrexin and the refocused
marketing activity related to Hexalen, resulted in a 200% increase in sales over
the 1993 year sales. Additionally, during 1994, as in 1993, the company's
operations also centered around regulatory submissions and follow-up activities
on Ethyol, NeuTrexin and Hexalen in the United States, Canada and Europe; start-
up and validation work at the company's newly acquired manufacturing plant in
The Netherlands; continued clinical development of late-stage compounds, Ethyol,
PALA and Rogletimide; expanded preclinical testing and product development;
licensing and business development activities; and legal activities related to
the 1993 settlement of stockholder litigation.
During and prior to 1992, the company's operations focused on the research
and development of its product portfolio via continued clinical programs,
primarily related to Ethyol, NeuTrexin, Hexalen and PALA; sales and marketing of
Hexalen in the United States; monitoring and/or preparing regulatory filings for
Ethyol in the United States and Europe, NeuTrexin in the United States and
Hexalen in the United Kingdom, and enhancements to product manufacturing,
quality assurance and testing methods including the start-up of its own
analytical laboratory and clinical operation in Europe and business development
activities.
RESULTS OF OPERATIONS
1995 Compared with 1994
Sales revenue increased by 21% to $8,724,000 for the year ended December
31, 1995 from $7,209,700 in the prior year. The $1,514,300 increase was
primarily due to increased sales of Hexalen in the United States and sales of
initial launch quantities of Ethyol to Scherico for European distribution.
Net investment income declined to $1,223,100 in the year ended December 31,
1995 from $1,234,700 in the same period of 1994. The $11,600 decrease resulted
from a $510,600 decrease in interest income in the 1995 period due to a lower
portfolio balance which was largely off-set by a $88,800 gain on the portfolio
as compared to a $410,200 loss recorded in the 1994 period.
Licensing, royalty and other income increased to $21,398,000 for the year
ended December 31, 1995 as compared to $102,000 for the 1994 period. The
increase is principally due to the $20 million recognized from ALZA for U.S.
marketing and distribution rights for Ethyol. The company also received in 1995
one-time payments for product distribution rights in Canada and Europe.
Cost of sales, which consists of product manufacturing, testing, delivery
and royalty expenses, increased in line with sales. As a percentage of sales,
cost of sales in the year ended December 31, 1995, increased to 29% from 24% in
the prior year period due principally to the sale of Ethyol to Scherico at
approximately cost of manufacture. Sales of Ethyol to Scherico will generate
positive returns to the company if and when the product achieves profitability
as defined in the company's agreement with Scherico.
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<PAGE>
Selling, general and administrative costs for the year ended December 31,
1995 increased to $16,583,400, an increase of $3,350,700 over the 1994
expenditure of $13,232,700. The increase is principally due to the accrual of
$4.2 million for the company's share of operating losses resulting from the
launch of Ethyol in Europe by Scherico and the accrual of a one-time $2.0
million charge related to Ethyol U.S. launch expenses as part of the company's
co-promotion arrangement with ALZA. These expenses were partly off-set by
reductions in U.S. marketing costs for NeuTrexin of $1.7 million, lower facility
costs of $204,700 and reduced legal and consulting expenses of $383,500.
Research and development costs for the year ended December 31, 1995 were
$12,186,000 as compared to $17,607,900 in 1994. The $5.4 million reduction is
principally due to the capitalization of manufacturing expenses with the start
of commercial production at the company's manufacturing plant in The Netherlands
of $2,001,700, lower personnel costs of $1,914,500, reduced professional and
outside services expenses of $504,400 and reductions in travel costs of
$141,700. In addition, lower clinical and product development expenditures of
$752,500 resulted from the completion and scale-down of several development
programs. These expense reductions were achieved principally as a result of the
company's January 1995 internal restructuring.
The net loss for 1995 was $237,800 or $0.01 per common share. This
compares to a loss in 1994 of $24,041,000 or $0.60 per common share.
1994 Compared with 1993
Sales revenue increased over 200% to $7,209,700 in the twelve-month period
ended December 31, 1994 as compared to the prior-year period. The $4,849,200
increase was due to the U.S. launch in January 1994 of the company's second
commercial drug product, NeuTrexin, and a rebound in sales of the company's
ovarian cancer therapy product Hexalen.
Net investment income declined to $1,234,700 in 1994 from $3,776,400 in
1993 due principally to a decline in market value of the company's portfolio of
marketable securities in contrast to substantial gains recorded in the year-ago
period. Additionally, interest income was reduced arising from a smaller
portfolio balance partly offset by higher yields. Licensing, royalty and
research income declined to $102,000 in 1994 and is reflective of payments made
principally for achievement of milestone events in the company's various product
license agreements. 1993 licensing, royalty and research income included a
substantial one-time payment from Scherico on signing a European distribution
agreement for the company's cytoprotective product, Ethyol.
Cost of sales increased to $1,694,400 (24% of sales) in 1994 from $625,400
(26.5% of sales) in 1993 due to the January 1994 launch of the drug NeuTrexin.
As a percentage of sales, the decrease is primarily attributable to price
increases on the drug Hexalen.
Selling, general and administrative costs decreased to $13,232,700 in 1994
from $18,639,200 in 1993. The $5,406,500 decrease is due to a $2,319,000
decrease in marketing expenditures principally centered around the drug products
Ethyol and Hexalen, a reduction of $1,522,000 in legal expenses due principally
to the settlement of a class-action litigation and a $1,524,000 reduction in
personnel costs, relocation, recruiting and employee travel expenses reflective
of selective staff reductions and ongoing cost containment programs established
during 1994.
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<PAGE>
Research and development expenditures also declined in 1994 to $17,607,900
for the twelve month period ended December 31, 1994 from $19,403,800 in 1993.
The $1,795,900 reduction is principally due to the completion of several
clinical and product development projects for drug products NeuTrexin and
Ethyol, and cost containment programs which reduced the activity in several
other projects. The combination of these factors produced approximately
$2,075,700 in savings compared to 1993. Additionally, 1993 results included two
large one-time charges of $460,000 for translation costs of regulatory documents
for submission of the NeuTrexin drug application to the European CPMP and a
$484,000 charge for engineering design costs related to a proposed U.S. pilot
production plant and analytical laboratory which were not built. These savings
in 1994 were partly offset by increased start-up and validation costs of
$997,400 related to the company's manufacturing plant in The Netherlands.
In 1993, the company accrued a charge of $10,165,000 for the net cost of a
settlement of a class-action litigation. During 1994, $7,758,700 of this
accrual was transferred to stockholders' equity upon issuance of the common
stock component of the settlement and $105,500 was utilized to pay legal and
other related expenses. Of the remaining $2,300,800, $2,241,200 was transferred
to stockholders' equity upon issuance of the warrant component of the settlement
in April 1995 and $59,600 was used to cover remaining litigation-related
expenses paid in 1995.
The net loss for 1994 was $24,041,000 or $0.60 per common share. This
compares to a net loss in 1993 of $40,629,600 or $1.03 per common share.
Excluding the litigation provision, the 1993 loss was $30,464,600 or $0.77 per
common share.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1987, the company has financed operations
principally through the sale of equity capital, issuance of secured and
unsecured debt, investment income, sales of its two drug products, Hexalen and
NeuTrexin, and revenues received through distribution and sublicense agreements
for its drugs. As of December 31, 1995, the company's cash and cash equivalents
and marketable securities totaled $45,596,200. The company's investment
portfolio consists of securities issued by the U.S. Government or its agencies
and investment grade corporate debt instruments.
During 1995, net cash used in operations amounted to $645,500 principally
due to the factors discussed above under "Results of Operations" and an increase
in inventory levels. As noted above, the company, in December 1995 raised
approximately $19 million in a private placement of common stock and unsecured
convertible debentures. The company also obtained secured debt financing
totaling approximately $3 million during 1995, (See Notes to Consolidated
Financial Statements 6 and 7.) Until such time as one or more of the company's
currently approved products achieves significant sales or other revenue and
currently approved products receive regulatory approval to expanded indications
currently under development which result in increased revenues, the company's
cash position will continue to be reduced due principally to expenditures in
research, product development, marketing, and selling and administrative
activities. Failure to obtain additional regulatory approvals on products
currently in development and to achieve significant sales, will have a material
adverse effect on the company. Additionally, the level of future product sales
will also depend on several factors, including product acceptance, market
penetration, competitive products, the performance of the company's licensees
and distributors, and the healthcare system existing in each market where the
company's products are or may become commercially available.
32
<PAGE>
The company's net capital expenditures were $516,600 in 1995 and total
$9,834,200 since inception. In April 1993, the company purchased a sterile
products production facility in The Netherlands. Validation work and pilot
production on this new facility were completed in 1995. The facility received
regulatory approval for product manufacture and distribution from the Dutch
regulatory authority in June 1994 to manufacture the company's products for
distribution in the European Community, and the facility was approved by the FDA
to manufacture NeuTrexin for the U.S. market in May 1995. A mortgage loan of
approximately $680,000 relating to this facility was obtained in May 1994. The
purchase price for this facility was $2,250,000 and $2,802,900 in capital
improvements have been made since its purchase to make the facility operational
and expand its production capacity. Further capital expenditures, estimated at
$500,000, are planned in 1996.
The funds raised in the private placement ($19 million, net) and the
distribution fees from ALZA ($20 million) have provided the company with
approximately $39 million in working capital, which the company believes will be
sufficient to cover operating expenses at current levels for the foreseeable
future. The company is hopeful that its products will, in the near future,
generate sufficient sales to provide meaningful cash resources, although no
assurance can be given that they will do so. The company is also hopeful that
the company will in the future receive further regulatory approvals and that
such approvals will increase sales. However, no assurance can be given that
further regulatory approvals will be obtained in a timely manner, if ever, or
that the company will have adequate financial resources to commercialize its
products when approved or that product sales will be sufficient to cover
operating expenses. Although the company will from time to time explore
additional sources of financing, there can be no assurance that the company will
be successful in obtaining such financing on terms acceptable to the company.
The company's future liquidity and capital requirements are dependent upon
several factors, including, but not limited to, its success in generating
significant revenues from sales; the performance of its sublicensees and
distributors under sublicense and distribution arrangements for sales of its
products; the time and cost required to manufacture and market its products; the
time and cost required to obtain regulatory approvals, including expanded
labelling for its products which are already commercially available; obtaining
the rights to additional commercially viable compounds; competitive
technological developments; additional governmental-imposed regulation and
control; and changes in healthcare systems which affect reimbursement, pricing
or availability of drugs and market acceptance of drugs. The above factors may
also affect realization of certain asset currently held by the company,
principally investments in plant, equipment and inventory.
To extend its current financial resources, the company has instituted
programs to reduce expenditures. As noted above, the company initiated an
internal restructuring in January 1995 in an effort to reduce expenditures and
has reduced its staff from 165 individuals at January 1, 1994 to 119 at December
31, 1995. However, no assurance can be given that these measures will continue
to be successful in reducing expenditures to the degree necessary to allow the
company to reach its regulatory and commercial objectives and eventual
profitability.
In 1995, Scherico, the company's European distributor for its
cytoprotective agent, Ethyol, launched Ethyol in several European markets where
regulatory approvals have been received. Under the terms of its agreement with
Scherico, the company shares in operating profits/losses generated from
marketing and sales of Ethyol in Germany, United Kingdom, Spain, Italy and
France (the "Major Markets") for a period of up to two years from November 23,
1994, the date of approval of Ethyol in the United Kingdom. The company's share
of operating losses, generated from the Major Markets was approximately $4.2
million in 1995. The limit on operating losses, if any, attributable
33
<PAGE>
to the Major Markets is limited to approximately $1.7 million for 1996 based on
an operating plan for 1996. The company will share in operating profits, if
any, generated from sales of Ethyol in the other countries in the European
Territories outside the Major Markets in which Ethyol is launched by Scherico,
but is not exposed to operating losses, if any, generated in such countries.
Profits or losses under the agreement with Scherico are affected by the same
uncertainties noted in the preceding paragraphs. The company is hopeful that
the commercialization of its drug product Ethyol will be financially successful
in Europe. However, no assurance can be given that the company will achieve
meaningful revenues under this agreement.
The company has been unprofitable since its inception and expects to incur
additional operating losses until such time as substantial sales are realized
and further regulatory approvals are obtained, although the distribution fees
from ALZA Corporation did bring the company close to a break-even position for
1995. The company's losses may increase as the company continues its
commercialization, research and development activities, and such losses may
fluctuate from quarter to quarter. There can be no assurance that the company
will ever achieve significant revenues or profitable operations. For the period
from May 7, 1987 (inception) through December 31, 1995, the company had an
accumulated deficit of $104,929,800.
Impact of Recently Issued Accounting Pronouncements
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The company will adopt Statement
No. 121 in the first quarter of 1996 and, based on current circumstances, does
not believe the effect of the adoption will be material.
Statement of Financial Accounting Standard No. 123, "Accounting for Stock
Based Compensation", is effective for fiscal years beginning after December 15,
1995. Statement No. 123 provides companies with a choice to follow the
provisions of Statement No. 123 in determination of stock-based compensation
expense or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The company will continue to follow APB 25 and will
provide proforma disclosures as required by Statement No. 123 in the December
31, 1996 notes to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements are set forth in this report beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This information is contained in the company's definitive Proxy Statement
with respect to the company's Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission within 120 days following the end of the
company's fiscal year, and is hereby incorporated by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
This information is contained in the company's definitive Proxy Statement
with respect to the company's Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission within 120 days following the end of the
company's fiscal year, and is hereby incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This information is contained in the company's definitive Proxy Statement
with respect to the company's Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission within 120 days following the end of the
company's fiscal year, and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is contained in the company's definitive Proxy
Statement with respect to the company's Annual Meeting of Stockholders, to be
filed with the Securities and Exchange Commission within 120 days following the
end of the company's fiscal year, and is hereby incorporated by reference
thereto.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are being filed as part of this report of Form
10-K:
1. Consolidated Financial Statements.
The following consolidated statements are included in this filing:
Report of independent auditors
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993 and the period May 7, 1987 (inception)
through December 31, 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993 and the period May 7, 1987 (inception)
through December 31, 1995
Consolidated Statement of Stockholders' Equity for the period May 7,
1987 (inception) through December 31, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All financial schedules required to be filed in Part IV, Item 14(a)
have been omitted because they are not applicable, not required or
because the required information is included in the financial
statements or notes thereto.
36
<PAGE>
3. Exhibits.
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3(a) to the Registrant's Registration Statement on Form S-1
(File No. 33-39576), filed with the Securities and Exchange Commission
on March 22, 1991)
3.1.1 Certificate of Amendment to Certificate of Incorporation (incorporated
by reference to Exhibit 3.1.1 to the Registrant's Registration
Statement on Form S-3 (File No. 33-00077), filed with the Securities
and Exchange Commission on January 5, 1996
3.1.2 Certificate of Designations of Series A Junior Preferred Stock
(incorporated by reference to Exhibit 1 to the Registrant's Current
Report on Form 8-K dated June 7, 1995)
3.2 Bylaws, as amended (incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1994)
4.1 Warrant Agreement dated as of June 6, 1994 by and between Registrant
and Mellon Bank, N.A. (incorporated by reference to Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1995)
4.2 Rights Agreement dated as of May 19, 1995 by and between Registrant
and Chemical Mellon Shareholder Services L.L.C. (incorporated by
reference to Exhibit 1 to Registrant's Current Report on Form 8-K
dated June 7, 1995)
10.1* Agreement dated August 9, 1991, between the Registrant and Warner-
Lambert Company, as amended by Amendment No. 1 dated December 12,
1991, Amendment No. 2 dated March 10, 1994 and Amendment No. 3 dated
March 11, 1994 (incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1994)
10.2 Office Lease Agreement, dated September 1990, between U.S. Bioscience,
Inc. and Tower Bridge Associates (incorporated by reference to Exhibit
10(k) to the Registrant's Registration Statement on Form S-1 (File No.
33-39576), filed with the Securities and Exchange Commission on March
22, 1991)
10.2.1 Amendment No. 1, dated August 31, 1991, to Office Lease Agreement
between U.S. Bioscience, Inc. and Tower Bridge Associates
(incorporated by reference to Exhibit 10(i)(ii) to the Registrant's
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 27, 1992)
10.2.2 Addendum, dated April 8, 1992, to Amendment No. 1 of Office Lease
Agreement between U.S. Bioscience and Tower Bridge Associates
(incorporated by reference to Exhibit 10.2.2 to the Registrant's
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 31, 1993)
37
<PAGE>
10.2.3 Amendment No. 2, dated June 30, 1995, to Office Lease Agreement
between U.S. Bioscience, Inc. and Tower Bridge Associates
10.3 Lease Agreement, dated June 15, 1992, between U.S. Bioscience, Inc.
and Pickering Acquisition Associates (incorporated by reference to
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 31, 1993)
10.3.1 Amendment No. 1, dated March 17, 1993, to Lease Agreement between the
Registrant and Pickering Acquisition Associates (incorporated by
reference to Exhibit 10.3.1 to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31,
1993)
10.3.2 Second Amendment to Lease Agreement between the Registrant and
Pickering Acquisition Associates dated February 8, 1995 (incorporated
by reference to Exhibit 10.3.2 to the Registrant's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March
28, 1995)
10.4 Research Agreement, dated May 14, 1987, between the Registrant and
Georgetown University, as amended May 27, 1988 (incorporated by
reference to Exhibit 10.13 to the Registrant's Registration Statement
on Form 10, filed with the Securities and Exchange Commission on
September 21, 1989)
10.4.1 Amendment No. 2, dated as of January 23, 1990, to Research Agreement,
dated May 14, 1987, between the Registrant and Georgetown University
(incorporated by reference to Exhibit 10.13.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on February 5, 1990)
10.5 Letter agreement, dated January 22, 1992, between the Registrant and
Chemsyn Science Laboratories (incorporated by reference to Exhibit
10(k) to the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
10.6 License Agreement dated January 30, 1995 between Registrant and
National Institutes of Health (incorporated by reference to Exhibit
10.6 to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.7 Agreement for Assignment of Rights, dated January 8, 1988, between the
Registrant and Wyeth Laboratories, Inc. (incorporated by reference to
Exhibit 10.18 to the Registrant's Registration Statement on Form 10,
filed with the Securities and Exchange Commission on September 21,
1989)
10.8* Amended and Restated License Agreement, effective as of May 1, 1993,
between the Registrant and Southern Research Institute (incorporated
by reference to Exhibit 10.8 to the Registrant's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 28,
1994)
38
<PAGE>
10.9 Agreement, dated as of November 25, 1988, between the Registrant and
Warner-Lambert Company (incorporated by reference to Exhibit 10.23 to
the Registrant's Registration Statement on Form 10, filed with the
Securities and Exchange Commission on September 21, 1989)
10.9.1 Amendment No. 1, dated March 13, 1992 to Agreement dated as of
November 25, 1988, between the Registrant and Warner-Lambert Company
(incorporated by reference to Exhibit 10(o)(ii) to the Registrant's
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 27, 1992)
10.10 License Agreement, dated as of December 6, 1990, between the National
Technical Information Service and the Registrant (incorporated by
reference to Exhibit 10(t) to the Registrant's Registration Statement
on Form S-1 (File No. 33-39576), filed with the Securities and
Exchange Commission on March 25, 1991)
10.11 Agreement, dated as of January 1, 1995, between Registrant and Applied
Analytical Industries, Inc. (incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.12 Agreement, dated as of September 23, 1993, between Registrant and Ben
Venue Laboratories, Inc. (incorporated by reference to Exhibit 10.12
to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.13 U.S. Bioscience/Ganes PALA Research Agreement between the Registrant
and Ganes Chemicals, Inc., signed by the Registrant on April 25, 1991
and countersigned by Ganes Chemicals, Inc. on April 29, 1991
(incorporated by reference to Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission
on March 27, 1992)
10.14 License Agreement, dated February 14, 1992, between the Registrant and
Schering Overseas Limited (incorporated by reference to Exhibit 10.14
to the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.14.1 Amendment dated October 15, 1993 to License Agreement between
Registrant and Schering Overseas Limited (incorporated by reference to
Exhibit 10.14.1 to the Registrant's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 28, 1994)
10.15 License Agreement dated May 10, 1994 between Registrant and Scherico,
Ltd. (incorporated by reference to Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1995)
10.16* Distribution and Supply Agreement, dated as of May 10, 1993 between
Registrant and Scherico, Ltd. (incorporated by reference to Exhibit
10.16 to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
39
<PAGE>
10.17 Agreement, dated as of March 10, 1994 between Registrant and Sipsy
S.A. (incorporated by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1994)
10.18 License Agreement, effective November 28, 1990 between Registrant and
National Technical Information Service (incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 28, 1994)
10.19 Stipulation of Settlement Civil Action No. 92-0678 (Dalzell, J.) dated
January 19, 1994 (incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 1995)
10.20 Non-Executive Stock Option Plan
10.21 Form of Subscription Agreement for sale of Common Stock by the
Registrant to investors in December 1995 (incorporated by reference to
Exhibit 1 to Registrant's Current Report on Form 8-K dated December
22, 1995)
10.22 Form of Note Purchase Agreement for sale of convertible notes by the
Registrant to investors in December 1995 (incorporated by reference to
Exhibit 2 to Registrant's Current Report on Form 8-K dated December
22, 1995)
10.23 Form of Convertible Note issued pursuant to Note Purchase Agreements
for sale of convertible notes by the Registrant to investors in
December 1995 (incorporated by reference to Exhibit 3 to Registrant's
Current Report on Form 8-K dated December 22, 1995)
10.24 Form of Registration Rights Agreement with purchasers of Common Stock
and convertible notes issued by the Registrant to investors in
December 1995 (incorporated by reference to Exhibit 4 to Registrant's
Current Report on Form 8-K dated December 22, 1995)
10.25* Ethyol (Amifostine) Distribution and Marketing Collaboration Agreement
between U.S. Bioscience, Inc. and ALZA Corporation dated December 12,
1995 (incorporated by reference to Exhibit 5 to Registrant's Current
Report on Form 8-K dated December 22, 1995)
Executive Compensation Plans and Arrangements
10.26 Employment Agreement, dated as of March 1, 1993 between Registrant and
Philip S. Schein, M.D. (incorporated by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 28, 1995)
40
<PAGE>
10.27 U.S. Bioscience, Inc. 1987 Incentive Stock Option Plan (incorporated
by reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8 (File No. 33-43981), filed with the Securities and
Exchange Commission on November 15, 1991)
10.28 U.S. Bioscience, Inc. 1987 Non-Statutory Stock Option Plan
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 (File No. 33-43981), filed with the
Securities and Exchange Commission on November 15, 1991)
10.29 U.S. Bioscience, Inc. 1987 Special Non-Statutory Stock Option Plan
(incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (File No. 33-43981), filed with the
Securities and Exchange Commission on November 15, 1991)
10.30 U.S. Bioscience, Inc. 1991 Special Non-Statutory Stock Option Plan
(incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 (File No. 33-43981), filed with the
Securities and Exchange Commission on November 15, 1991)
10.31 U.S. Bioscience, Inc. 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.27 to the Registrant's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 28,
1995)
10.32 Executive Benefits Plan and related Form of Split Dollar Agreement
(incorporated by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K filed with the Securities and Exchange Commission
on March 28, 1995)
10.33 Pension Restoration Plan (incorporated by reference to Exhibit 10.29
to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.33.1 Amendment 1996-1 to Pension Restoration Plan
10.34 Executive Severance Agreement, dated October 14, 1991, between the
Registrant and Philip S. Schein, M.D. (incorporated by reference to
Exhibit 10(v) to the Registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 27, 1992)
10.35 Amendment dated September 22, 1992 to Executive Severance Agreement
between the Registrant and Philip S. Schein, M.D. (incorporated by
reference to Exhibit 10.25.1 to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31,
1993)
10.36 Executive Severance Agreement, dated October 14, 1991, between the
Registrant and Robert L. Capizzi, M.D. (incorporated by reference to
Exhibit 10(w) to the Registrant's Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 27, 1992)
41
<PAGE>
10.36.1 Amendment dated September 22, 1992 to Executive Severance Agreement
between the Registrant and Robert L. Capizzi, M.D. (incorporated by
reference to Exhibit 10.26.1 to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31,
1993)
10.37 Agreement, dated March 4, 1996, between the Registrant and Robert L.
Capizzi, M.D.
10.38 Form of Executive Severance Agreement executed with each Senior Vice
President, each Vice President, and the Controller of the Registrant
(incorporated by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission
on March 31, 1993)
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
______________
*Confidential portions have been omitted and have been separately filed with the
Commission.
42
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
U.S. BIOSCIENCE, INC.
Date: March 20, 1996 By: /s/ PHILIP S. SCHEIN
--------------------
Philip S. Schein, M.D.
Chief Executive Officer,
President and Chairman
PURSUANT TO THE REQUIREMENT OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PHILIP S. SCHEIN Principal Executive Officer and March 20, 1996
- --------------------------------
Philip S. Schein Director
/s/ ROBERT I. KRIEBEL Principal Financial Officer and March 20, 1996
- --------------------------------
Robert I. Kriebel Director
/s/ MARK R. BAUSINGER Principal Accounting Officer March 20, 1996
- --------------------------------
Mark R. Bausinger
/s/ PAUL CALABRESI Director March 20, 1996
- --------------------------------
Paul Calabresi
/s/ ROBERT L. CAPIZZI Director March 20, 1996
- --------------------------------
Robert L. Capizzi
/s/DOUGLAS J. MACMASTER Director March 20, 1996
- --------------------------------
Douglas J. MacMaster
/s/ ALLEN MISHER Director March 20, 1996
- --------------------------------
Allen Misher
/s/ JONAH SHACKNAI Director March 20, 1996
- --------------------------------
Jonah Shacknai
/s/ BETSEY WRIGHT Director March 20, 1996
- --------------------------------
Betsey Wright
</TABLE>
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1994.......................... F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993 and the period May 7, 1987 (inception) through
December 31, 1995................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993 and the period May 7, 1987 (inception) through
December 31, 1995................................................................. F-5
Consolidated Statement of Stockholders' Equity for the period May 7, 1987
(inception) through December 31, 1995............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
U.S. Bioscience, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Bioscience,
Inc. (a development stage enterprise) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1995, and
for the period May 7, 1987 (inception) through December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Bioscience, Inc. (a development stage enterprise) at December 31, 1995 and 1994,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, and for the period May 7,
1987 (inception) through December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 16, 1996
F-2
<PAGE>
U.S. BIOSCIENCE, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,618,800 $ 11,681,900
Investments 3,977,400 12,746,400
Accounts receivable, net 802,500 791,600
Interest receivable 60,000 124,100
Inventories 2,165,100 1,857,200
Other 6,922,200 774,300
---------------- ---------------
TOTAL CURRENT ASSETS 55,546,000 27,975,500
Property, plant and equipment at cost, less accumulated depreciation 6,334,300 6,488,800
---------------- ---------------
TOTAL ASSETS $ 61,880,300 $ 34,464,300
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,937,600 $ 1,406,600
Accrued clinical grants payable 716,300 827,400
Accrued product manufacturing costs payable 384,300 732,300
Accrued marketing costs payable 125,900 301,700
Accrued professional fees payable 393,200 636,100
Line of credit 676,000 --
Current maturities of long-term debt 721,300 69,600
Accounts payable and other accrued liabilities 8,014,400 2,465,800
---------------- ---------------
TOTAL CURRENT LIABILITIES 12,969,000 6,439,500
Long-term liabilities:
Long-term debt, net of current maturities 2,587,600 997,400
Provision for litigation -- 2,300,800
Convertible debentures 16,500,000 --
Other long-term liabilities 1,035,800 787,700
---------------- ---------------
TOTAL LONG-TERM LIABILITIES 20,123,400 4,085,900
---------------- ---------------
TOTAL LIABILITIES 33,092,400 10,525,400
Stockholders' equity:
Preferred stock, $.005 par value - 5,000,000 shares authorized;
none issued -- --
Common stock, $.005 par value - 100,000,000 shares authorized; 42,093,800
shares issued and outstanding at December 31, 1995, and 40,770,800
shares issued and outstanding at December 31, 1994 210,500 203,900
Additional paid-in capital 133,157,700 128,323,100
Deficit accumulated during the development stage (104,929,800) (104,692,000)
Foreign currency translation adjustment 349,500 103,900
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 28,787,900 23,938,900
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,880,300 $ 34,464,300
================ ===============
</TABLE>
See accompanying notes.
F-3
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD MAY 7, 1987
-------------------------------------------------
(INCEPTION)
THROUGH
1995 1994 1993 DECEMBER 31, 1995
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 8,724,000 $ 7,209,700 $ 2,360,500 $ 25,153,200
Net investment income 1,223,100 1,234,700 3,776,400 25,050,000
Licensing, royalty and Other income 21,398,000 102,000 2,066,900 25,739,300
------------- -------------- -------------- ----------------
31,345,100 8,546,400 8,203,800 75,942,500
EXPENSES:
Cost of sales 2,558,500 1,694,400 625,400 6,526,400
Selling, general and administrative costs 16,583,400 13,232,700 18,639,200 77,650,000
Research and development costs 12,186,000 17,607,900 19,403,800 85,163,100
Provision for litigation -- -- 10,165,000 10,165,000
Interest expense 255,000 52,400 -- 1,367,800
------------ ------------- ------------- ---------------
31,582,900 32,587,400 48,833,400 180,872,300
------------ ------------- ------------- ---------------
Net loss $ (237,800) $ (24,041,000) $ (40,629,600) $ (104,929,800)
============ ============= ============= ===============
Net loss per common share $ (0.01) $ (0.60) $ (1.03)
============ ============== =============
Weighted average number of common shares outstanding 40,872,200 40,254,400 39,603,500
============ ============== =============
</TABLE>
See accompanying notes.
F - 4
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD MAY 7, 1987
----------------------
(INCEPTION)
THROUGH
1995 1994 1993 DECEMBER 31, 1995
-------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Change in Cash and Cash Equivalents
Cash flows used in operating activities:
Net loss $ (237,800) $ (24,041,000) $ (40,629,600) $ (104,929,800)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,031,300 1,015,000 802,800 3,998,200
Compensation element of stock option grants -- 1,330,300 906,900 5,303,400
Unrealized (gain) / loss on investments (1,200) 140,600 -- 139,400
Change in accounts receivable (10,800) (537,400) 149,200 (802,300)
Change in interest receivable 64,100 55,400 717,800 (60,000)
Change in inventories (325,500) 266,900 (1,855,700) (2,175,300)
Change in other current assets (6,142,600) 278,200 254,000 (6,885,100)
Change in current liabilities 5,106,200 (2,199,400) 3,213,000 11,464,300
Provision for litigation (59,500) (105,500) 10,165,000 10,000,000
Change in other long-term liabilities (69,700) 130,500 536,600 1,035,700
------------- -------------- ---------------- ---------------
Total adjustments (407,700) 374,600 14,889,600 22,018,300
------------- -------------- ---------------- ---------------
Net cash used in operating activities (645,500) (23,666,400) (25,740,000) (82,911,500)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 25,197,200 516,460,100 1,572,826,100 3,114,404,100
Purchase of investments (16,427,100) (481,137,300) (1,543,985,700) (3,118,516,000)
Purchase of property, plant and equipment (516,600) (1,281,400) (3,641,700) (9,834,200)
------------- -------------- ---------------- ---------------
Net cash provided by (used in) investing activities 8,253,500 34,041,400 25,198,700 (13,946,100)
Cash flows provided by financing activities:
Proceeds from issuance of common stock and
private placement of securities 18,739,100 -- -- 128,348,700
Proceeds from exercise of stock options 360,900 405,300 614,800 6,216,200
Proceeds from loans 2,400,000 646,000 -- 3,219,100
Proceeds from line of credit 676,000 -- -- 676,000
Repayment of long-term debt (214,700) -- -- (214,700)
------------- -------------- ---------------- ---------------
Net cash provided by financing activities 21,961,300 1,051,300 614,800 138,245,300
Foreign currency translation adjustment 367,600 96,700 (60,100) 231,100
------------- -------------- ---------------- ---------------
Net increase in cash and cash equivalents 29,936,900 11,523,000 13,400 41,618,800
Cash and cash equivalents-beginning of period 11,681,900 158,900 145,500 --
------------- -------------- ---------------- ---------------
Cash and cash equivalents-end of period $ 41,618,800 $ 11,681,900 $ 158,900 $ 41,618,800
============= ============== ================ ===============
Supplemental cash flow disclosure:
Interest paid to affiliate $ -- $ -- $ -- $ 1,005,800
</TABLE>
See accompanying notes.
F-5
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 7, 1987 (INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK ADDITIONAL
------------ -------------
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) 9,000,000 $ 45,000 1,000,000 $ 5,000 $ 1,000,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1987 9,000,000 45,000 1,000,000 5,000 1,000,000
Net loss for the year ended December 31, 1988 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1988 9,000,000 45,000 1,000,000 5,000 1,000,000
Proceeds from exercise of stock options 2,500 -- -- -- 400
Compensation related to stock options -- -- -- -- 305,900
Issuance of shares ($6.00 per share, less costs 2,500,000 12,500 -- -- 14,061,400
Conversion of class B stock to common stock 1,000,000 5,000 (1,000,000) (5,000) --
Net loss for the year ended December 31, 1989 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1989 12,502,500 62,500 -- -- 15,367,700
Proceeds from exercise of stock options 285,800 1,400 -- -- 143,500
Compensation related to stock options -- -- -- -- 269,000
Issuance of shares ($9.00 per share, less costs 4,025,000 20,200 -- -- 33,009,700
Net loss for the year ended December 31, 1990 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1990 16,813,300 84,100 -- -- 48,789,900
Proceeds from exercise of stock options 500,700 2,500 -- -- 3,349,600
Compensation related to stock options -- -- -- -- 1,038,900
Issuance of shares ($28.50 per share, less cost 2,300,000 11,500 -- -- 61,444,300
Issuance of shares for a 2 for 1 stock dividend 19,614,000 98,000 -- -- (98,000)
Net loss for the year ended December 31, 1991 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1991 39,228,000 196,100 -- -- 114,524,700
Proceeds from exercise of stock options 264,400 1,400 -- -- 1,336,400
Compensation related to stock options -- -- -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1992 39,228,000 197,500 -- -- 117,313,500
Proceeds from exercise of stock options 106,500 500 -- -- 614,300
Compensation related to stock options -- -- -- -- 906,900
Net loss for the year ended December 31, 1993 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1993 39,492,400 198,000 -- -- 118,834,700
Proceeds from exercise of stock options 75,300 400 -- -- 404,900
Class Action Settlement 1,096,600 5,500 -- -- 7,753,200
Compensation related to stock options -- -- -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1994 40,770,800 203,900 -- -- 128,323,100
Proceeds from exercise of stock options 202,900 1,000 -- -- 359,900
Class Action Settlement -- -- -- -- 2,241,200
Proceeds from private placement of securities 1,120,100 5,600 -- -- 2,233,500
Net loss for the year ended December 31, 1995 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
------------ ---------- ------------ ---------- --------------
Balance at December 31, 1995 42,093,800 $ 210,500 -- $ -- $ 133,157,700
============ ========== ============ ========== ==============
<CAPTION>
TOTAL
ACCUM- STOCK-
ULATED OTHER HOLDERS'
DEFICIT EQUITY EQUITY
-------------- ----------- --------------
<S> <C> <C> <C>
Issuance of shares for initial cash contribution
of capital ($.005 per share of common stock
and $.005 per share of Class B stock) $ -- $ -- $ 1,050,000
Net loss for the period May 7, 1987 (inception)
through December 31, 1987 (1,030,500) -- (1,030,500)
-------------- ----------- --------------
Balance at December 31, 1987 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 (1,556,800) -- (1,556,800)
-------------- ----------- --------------
Balance at December 31, 1988 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options -- -- 400
Compensation related to stock options -- -- 305,900
Issuance of shares ($6.00 per share, less costs -- -- 14,073,900
Conversion of class B stock to common stock -- -- --
Net loss for the year ended December 31, 1989 (5,743,300) -- (5,473,300)
-------------- ----------- --------------
Balance at December 31, 1989 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options -- -- 144,900
Compensation related to stock options -- -- 269,000
Issuance of shares ($9.00 per share, less costs -- -- 33,029,900
Net loss for the year ended December 31, 1990 (4,924,900) -- (4,924,900)
-------------- ----------- --------------
Balance at December 31, 1990 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options -- -- 3,352,100
Compensation related to stock options -- -- 1,038,900
Issuance of shares ($28.50 per share, less cost -- -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend -- -- --
Net loss for the year ended December 31, 1991 (6,540,100) -- (6,540,100)
-------------- ----------- --------------
Balance at December 31, 1991 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options -- -- 1,337,800
Compensation related to stock options -- -- 1,452,400
Net loss for the year ended December 31, 1992 (20,225,800) -- (20,225,800)
-------------- ----------- --------------
Balance at December 31, 1992 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options -- -- 614,800
Compensation related to stock options -- -- 906,900
Net loss for the year ended December 31, 1993 (40,629,600) -- (40,629,600)
Foreign currency translation adjustment -- (291,800) (291,800)
-------------- ----------- --------------
Balance at December 31, 1993 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options -- -- 405,300
Class Action Settlement -- -- 7,758,700
Compensation related to stock options -- --- 1,330,300
Net loss for the year ended December 31, 1994 (24,041,000) -- (24,041,000)
Foreign currency translation adjustment -- 395,700 395,700
-------------- ----------- --------------
Balance at December 31, 1994 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options -- -- 360,900
Class Action Settlement -- -- 2,241,200
Proceeds from private placement of securities -- -- 2,239,100
Net loss for the year ended December 31, 1995 (237,800) -- (237,800)
Foreign currency translation adjustment -- 245,600 245,600
-------------- ----------- --------------
Balance at December 31, 1995 $ (104,929,800) $ 349,500 $ 28,787,900
============== =========== ==============
</TABLE>
See accompanying notes.
F - 6
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
U.S. Bioscience, Inc. (the "company"), was incorporated in the State of
Delaware on May 7, 1987. Following the initial issuance of its shares in August
1987, the company was 80% owned by U.S. Healthcare, Inc. ("USHC"). In October
1987, USHC paid a special dividend to its stockholders in the form of the
company's common stock. USHC distributed 46% of the company's common stock and
retained a 34% equity interest in the company. In August 1992, USHC distributed
its remaining shares in the company to USHC shareholders as a dividend.
The company entered into an agreement with Marion Laboratories, Inc.
("Marion"), in September 1989 pursuant to which Marion purchased 2,500,000
shares of newly issued U.S. Bioscience common stock (5,000,000 post-split)
pursuant to a Stock Purchase Agreement for a total investment of $15,000,000;
net proceeds to the company, after related costs, were $14,073,900. By January
1996, Marion had sold its entire holding of U.S. Bioscience common stock.
In February 1990, the company completed a public offering of 4,025,000
shares of common stock (8,050,000 post-split), realizing net proceeds of
$33,029,900. In May 1991, the company completed a second public offering of
2,300,000 shares of common stock (4,600,000 post-split), realizing net proceeds
of $61,455,800.
In December 1995, the company consummated a private placement of securities
pursuant to which it sold a total of 1,120,112 shares of common stock for an
aggregate price of $3.5 million and issued $16.5 million in three year, 4%
unsecured convertible debentures for an aggregate price of $16.5 million, for a
total financing of $20 million (excluding related fees and expenses). Net
proceeds realized by the company in this private placement were $18,739,100.
The company established in 1993 two wholly-owned operating subsidiaries;
USB Pharma B.V. incorporated in The Netherlands and USB Pharma Limited
incorporated in the United Kingdom. USB Pharma B.V. operates the company's
manufacturing plant located in Nijmegen, The Netherlands, and USB Pharma Limited
manages the company's European clinical research activities.
The company is a pharmaceutical company specializing in the development and
commercialization of products for patients with cancer and allied diseases. For
accounting purposes, the company is considered a "development stage enterprise."
Through December 31, 1995, the company's revenues have been derived principally
from investment income, from the sale of drug products, Hexalen(R) and
NeuTrexin(R), licensing of rights to develop and market certain products, and
from contract development activities. Expenses incurred have been primarily for
the development of its drugs and related therapies, marketing and sales
activities and corporate organizational and administrative activities.
F-7
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of U.S.
Bioscience, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The company generally classifies as cash equivalents all highly liquid
instruments with a maturity of three months or less at the time of purchase.
Investments
Effective January 1, 1994, the company adopted the Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under this standard management determines the appropriate
classifications of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The investments held by the company
at December 31, 1995 and 1994 were classified as available for sale, with the
unrealized gains and losses reported as a separate component of stockholders'
equity. At December 31, 1995, the fair value approximated cost and accordingly
there was no adjustment to stockholders' equity. At December 31, 1994, the
decline in fair value of these securities was, in the opinion of management,
believed to be other than temporary, and the unrealized loss of $140,600 was
included in investment income rather than being recorded as a separate component
of stockholders' equity.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or fair
value.
Property, Plant and Equipment
Buildings, furniture, equipment and leasehold improvements are stated at
cost less accumulated depreciation and amortization. Buildings, furniture and
equipment are depreciated by the straight-line method over their useful lives
for financial reporting purposes and under an accelerated method for federal
income tax purposes. Leasehold improvements are depreciated by the straight-
line method over the shorter of their useful lives or the life of the lease for
financial reporting purposes and under an accelerated method for federal income
tax purposes.
F-8
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Product Revenues
Product revenues are recognized upon shipment of inventory to the customer.
Most of the company's product revenues to date have been domestic sales of drug
products Hexalen and NeuTrexin primarily to drug wholesalers in the United
States.
Research and Development Costs
For financial reporting purposes, all costs of research and development
activities are expensed as incurred.
Patents and Trademarks
It is the company's practice to seek patent and trademark protection on
processes and products in various countries. Patent and trademark application
costs are expensed as incurred.
Income Taxes
Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, "Accounting for Income Taxes".
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using monthly average exchange rates for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of stockholders' equity.
Net Loss per Share
Net loss per share is calculated based on the weighted average number of
common shares outstanding. Stock options outstanding and the effect of the
convertible debentures have not been included in the net loss per share
calculation since their effect would be antidilutive.
F-9
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Impact of Recently Issued Accounting Pronouncements
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The company will adopt Statement
No. 121 in the first quarter of 1996 and, based on current circumstances, does
not believe the effect of the adoption will be material.
Statement of Financial Accounting Standard No. 123, "Accounting for Stock
Based Compensation", is effective for fiscal years beginning after December 15,
1995. Statement No. 123 provides companies with a choice to follow the
provisions of Statement No. 123 in determination of stock-based compensation
expense or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The company will continue to follow APB 25 and will
provide proforma disclosures as required by Statement No. 123 in the December
31, 1996 notes to the consolidated financial statements.
3. INVESTMENTS
Investments are comprised of the following:
<TABLE>
<CAPTION>
Fair Value
Name of Issuer Principal Amortized at Balance
and Title of Each Amount Cost Sheet Date
---------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1995
U.S. Government obligations
Treasury Bills............ $ 974,400 $ 974,400 $ 974,400
Corporate Bonds........... 3,002,600 3,001,200 3,003,000
--------- --------- ---------
Total.................... $ 3,977,000 $ 3,975,600 $ 3,977,400
=========== =========== ===========
DECEMBER 31, 1994
Corporate Bonds..........
$12,886,000 $12,887,000 $12,746,400
=========== =========== ===========
</TABLE>
The investments held at December 31, 1995 will mature during 1996.
F-10
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. INVENTORIES
Inventory balances at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw material $ 813,300 $ 38,100
Work in process 893,000 1,597,100
Finished goods 458,800 222,000
------- ---------
Total
$2,165,100 $1,857,200
========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land, buildings, and leasehold improvements $2,106,500 $2,026,900
Equipment, furniture and fixtures 8,173,500 7,428,800
Accumulated depreciation (3,945,700) (2,966,900)
----------- -----------
Property, plant and equipment, net
$6,334,300 $6,488,800
========== ==========
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, consisted of:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
MELF Equipment Loan $323,600 $387,300
Mortgage Loan 685,300 679,700
Term Loan 2,300,000 ---
Convertible Debentures 16,500,000 ---
---------- ---------
$19,808,900 $1,067,000
Less Current Portion 721,300 69,600
---------- ---------
Long-Term Debt $19,087,600 $997,400
=========== ========
</TABLE>
Maturities of long-term debt for each of the five years succeeding December
31, 1995 are; 1996--$721,300; 1997--$722,800; 1998--$17,224,300; 1999--$625,800;
and 2000--$82,400.
F-11
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In April 1993, the company received $500,000 from the Commonwealth of
Pennsylvania Machinery and Equipment Loan Fund Program (MELF), which provides
financing for companies expanding employment in the Commonwealth. Proceeds of
this loan were used to purchase laboratory equipment for the company's
analytical laboratory located in Exton, Pennsylvania. The loan will amortize
over a seven-year term and bears interest at a rate of 2% per annum.
In May 1994, USB Pharma B.V., entered into a mortgage loan with
Cooperatieve Rabobank B.A. in the amount of Dutch Guilders 1,180,000
(approximately $680,000) secured by the land and buildings of its manufacturing
facility in Nijmegen, The Netherlands and guaranteed by U.S. Bioscience, Inc.
Proceeds of this loan were used to partly fund the purchase of additional
equipment for the company's manufacturing facility in The Netherlands. The
mortgage loan has a 15 year term, requires quarterly Dutch Guilder installments
of principal repayment which began in March 1995 and bears a quarterly variable
interest rate. Interest is payable quarterly in Dutch Guilders and the current
interest rate is 6.55%.
In June 1995, the company received a term loan from its principal bank in
the amount of $2,400,000. This loan will amortize monthly over four years,
bears an annual interest rate of 6.86% and is collateralized by a portion of the
company's investment portfolio.
In December 1995, the company issued a $20 million private placement of
securities which consisted of 1,120,112 common shares issued for an aggregate
price of $3.5 million and $16.5 million in unsecured convertible debentures
("Debentures"). The Debentures mature on December 6, 1998 and bear interest at
the rate of 4% per annum. One-third of the $16.5 million principal amount of
the Debentures became convertible into shares of the company's common stock on
February 6, 1996, another one-third of the principal amount became convertible
March 7, 1996 and the final one-third became convertible March 27, 1996. On
February 12, 1996, the investors who purchased the Debentures, converted the
initial one-third of principal ($5.5 million) into 1,134,403 shares of the
company's Common Stock. The shares issued in this conversion also included
6,848 shares in payment of accrued interest on the converted principal. The
conversion price is 82.5% of the average market price for the Common Stock for
the five consecutive trading days ending one trading day prior to the date that
the conversion notice is received by the company. The company has the right to
prepay the Debentures upon payment of a 21.21% premium. The company also has
the right to require the conversion of the Debentures, which right the company
can exercise at any time or from time to time on or after March 27, 1996. The
net proceeds of $18,739,100 were added to the company's working capital.
7. LINE OF CREDIT
In June 1995, the company established a $1,000,000 credit line with an
international financial institution. This line of credit is denominated in
Dutch Guilders, currently bears an annual interest rate of 5.06% and is utilized
by the company's subsidiary, USB Pharma B.V., for funding working capital
requirements. As of December 31, 1995 approximately $676,000 of this credit
line has been utilized. The credit line is guaranteed by U.S. Bioscience, Inc.
and collateralized by a portion of the company's investment portfolio.
F-12
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. COMMITMENTS
The company leases office and laboratory space under three operating
leases, the last of which expires in June 1999. Future minimum annual lease
payments total $2,016,700 and are as follows: 1996 -- $680,500; 1997 --
$731,400; 1998 -- $567,300 and $37,500 in 1999. Rent expense for the year ended
December 31, 1995 was $989,800; 1994-- $1,187,700; 1993 -- $1,175,400; and May
7, 1987 (inception) through December 31, 1995 was $5,621,300. As part of the
company's January 1995 internal restructuring, the company reduced its office
space in the company's principal office in West Conshohocken, Pennsylvania from
38,000 sq. ft. to approximately 26,400 sq. ft. The lease on the company's
principal office expires in October 1998.
The company has entered into various license agreements with unrelated
parties which provide the company with rights to develop, produce and market
drugs and related therapies which the company believes demonstrate effectiveness
in the treatment of cancer and allied diseases. The agreements allow the
company to use certain knowledge and patent rights of the licensors. Terms of
the agreements require the company to pay percentage fees and royalties of
varying amounts based upon defined future net sales, if any, and in general,
variable percentages of any royalty income received from foreign licensees.
Some of the agreements also require minimum annual payments and the payment of
lump sums upon the achievement of certain milestones in the clinical development
of the chemical compound. For the years ended December 31 listed below, the
company has incurred sales related royalty expense as follows:
<TABLE>
<CAPTION>
Royalty
Year Expense
---- -------
<S> <C>
Prior to 1993 $135,400
1993 48,200
1994 260,300
1995 328,800
--------
Total $772,700
========
</TABLE>
As of December 31, 1995, the company had contracted and continues to
contract with third parties to serve as clinical investigators of certain
investigational drugs through terms, in general, expiring in 1996 and 1997. The
clinical investigators are compensated on a completed-case basis, subject to
compliance with the agreements. As of December 31, 1995, the clinical
investigator agreements, in the aggregate, provide for minimum payments of
approximately $1,877,000 over the terms of the agreements, of which
approximately $1,206,000 had been paid to date.
F-13
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. MAJOR DISTRIBUTION AND MARKETING AGREEMENTS
The company has entered into an exclusive marketing and distribution
agreement with ALZA Corporation ("ALZA") for Ethyol(R) in the United States.
Under the terms of the Agreement, ALZA has exclusive rights to market Ethyol in
the United States for five years and will be responsible for sales and
marketing; the company's sales force will co-promote the product with ALZA.
After the five-year period, which ALZA has an option to extend for one year,
marketing rights to Ethyol revert to the company, and ALZA will receive payments
from the company for ten years based on sales of Ethyol in the United States.
ALZA paid the company $14 million in December 1995 and $6 million in January
1996 as initial fees for the right noted above. The company recorded as income
the entire initial $20 million fee in the fourth quarter of 1995. The $6
million January payment was reflected in "Other Current Assets" in the December
31, 1995 consolidated balance sheet. The company also accrued, in the fourth
quarter of 1995, a one-time $2.0 million charge related to Ethyol U.S. launch
expenses as part of the company's co-promotion arrangement with ALZA. This
accrual was reflected in "Other Accrued Liabilities" in the December 31, 1995
consolidated balance sheet.
The company has entered into an exclusive marketing and distribution
agreement with Scherico Ltd., ("Scherico") a subsidiary of Schering Plough
Corporation, for Ethyol in the countries comprising the EU and EFTA (the
"European Territories"). Under the terms of its Agreement with Scherico, the
company will share in operating profits/losses (as defined in the Agreement)
generated from marketing and sales of Ethyol in Germany, United Kingdom, Spain,
Italy and France (the "Major Markets") for a period of up to two years from
November 23, 1994, the date of approval of Ethyol in the United Kingdom. The
company's exposure to operating losses, if any, generated from the Major Markets
is limited to an amount set forth in the operating plans. With respect to 1995,
Scherico has invoiced the company approximately $4.2 million for the company's
share of operating losses. This amount was recorded as an expense in 1995 and
reflected as "Other Accrued Liabilities" in the December 31, 1995 consolidated
balance sheet.
With respect to 1996, the company's limit on operating losses under the
terms of its Agreement with Scherico, as determined by the 1996 operating plan,
is approximately $1.7 million. The company will share in operating profits, if
any, generated from sales of Ethyol in the other countries in the European
Territories outside the Major Markets in which Ethyol is launched by Scherico,
but is not exposed to operating losses, if any, generated in such countries.
Under the terms of the Agreement, Scherico's exclusive rights to market the
product will continue for five years from November 23, 1996. During such five
year period the company will share in operating profits but will not share in
operating losses that might be generated. The company will co-promote Ethyol
with Scherico for the two years following such five year period. Thereafter,
the company will reacquire sole marketing rights. Under certain circumstances
Scherico is required to pay the company milestone payments as regulatory and
pricing approvals, if any, are obtained. There can be no assurance that
milestone payments will be made to the company under the Agreement.
F-14
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
After reacquiring sole marketing rights, the company will pay Scherico a portion
of its Ethyol operating profits, if any, from the European Territory for a
period of three years. The company will supply Ethyol to Scherico throughout
the term of the agreement. In addition, under the terms of the agreement,
Scherico is to assist the company in establishing its own commercial
organization in Europe. The contract provides that Scherico may terminate the
agreement at any time by providing 180 days written notice to the company of its
desire to terminate the agreement. There can be no assurance that the agreement
will not be terminated by Scherico. There can be no assurance that the
marketing of Ethyol in the European Territories will result in meaningful
revenues to the company.
10. COMMON STOCK
Voting rights of common stock are one vote per share and voting rights of
the Class B stock were fifty votes per share, respectively. In connection with
Marion's purchase of common stock, all outstanding Class B stock was converted
into common stock on a share-for-share basis in September 1989. The
authorization of the Class B stock was eliminated in February 1990.
In December 1991, the Board of Directors, by unanimous vote, authorized a
100% common stock dividend on the outstanding shares of common stock. The
company issued 19,614,000 shares of common stock in paying this stock dividend.
In May 1992, the company's Certificate of Incorporation was amended to
increase the number of authorized shares of common stock of the company from
50,000,000 shares to 100,000,000 shares. Adoption of this amendment permits the
company's Board of Directors, without further approval of the company's
stockholders, except as may be required by Delaware law or the rules of the
American Stock Exchange, to issue additional shares of the company's common
stock, from time to time as the Board of Directors may determine, for such
consideration as the Board of Directors establishes. The availability of
additional shares of common stock restores stock previously issued in the stock
dividend described above and provides flexibility in structuring possible
acquisitions of other businesses, enables the company to raise additional equity
capital if and when needed and allows the Board of Directors, in its discretion,
to declare stock splits or stock dividends in the future. The company has no
present definitive plans, arrangements or understandings, other than shares to
be issued pursuant to: (1) the exercise of stock options pursuant to the
company's stock option plans, (2) the exercise of the 1,096,500 warrants
currently outstanding which were issued in 1995 under a class-action litigation
settlement and (3) the conversion of the three year 4% unsecured convertible
debentures issued pursuant to the December 1995 private placement and payment of
interest thereon, with respect to possible acquisitions, financings, stock
splits or dividends requiring the availability of additional authorized common
stock.
In April 1995, the company, as part of a class action litigation
settlement, issued 1,096,634 warrants to purchase from the company one share of
U.S. Bioscience common stock for each warrant. The warrants are exercisable for
three years from date of issuance, April 24, 1995, at an exercise price of
$9.20. Upon issuance of the warrants, the company transferred to stockholders'
equity $2,241,200 representing the remainder of a $10,165,000 litigation
provision established in 1993 to provide for the cost of these warrants. During
1994, $7,758,700 of the provision was transferred to stockholders' equity upon
issuance into escrow of a common stock component of the settlement.
F-15
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In May 1995, the company adopted a Preferred Stock Purchase Rights Plan
(the "Rights Plan") designed to protect company stockholders in the event of
takeover actions that would deny them the full value of their investment. The
Rights Plan provided for a dividend distribution of one right for each share of
the company's Common Stock to holders of record at the close of business on May
29, 1995. The rights will become exercisable only in the event, with certain
exceptions, a person or group of related persons accumulates 15 percent or more
of the company's voting stock. The rights will expire on May 29, 2005. Each
right will entitle the holder to buy one one-hundredth of a share of a new
series of preferred stock at a price of $15. In addition, upon the occurrence
of certain events, holders of the rights will be entitled to purchase either
company stock or shares in an "acquiring entity" at half the market value. The
company generally will be entitled to redeem the rights at one-tenth of one cent
($0.001) per right at any time until the tenth day following the acquisition by
any person or group of related persons of 15 percent or more of the company's
outstanding voting stock. The rights automatically trade with the underlying
common stock.
At December 31, 1995, 6,670,500 shares of common stock were reserved for
issuance pursuant to company stock option plans, 1,096,500 shares of common
stock were reserved for issuance pursuant to the exercise of outstanding
warrants and 7,022,500 shares of common stock were reserved for issuance
pursuant to the conversion of, and payment of interest on the three year, 4%
unsecured convertible debentures.
11. STOCK OPTION PLANS
The company had adopted various stock option plans, primarily as incentives
for recipients to remain affiliated with the company, as continued affiliation
is a condition of exercise for all option plans. Except for a limited number of
option grants where the ability to exercise is based upon the achievement of
benchmarks, options outstanding under the option plans are exercisable at rates
from 20% to 33 1/3% per year, generally beginning one year from date of grant.
With the exception of options granted to certain consultants and advisors to the
company, all options expire 10 years from date of grant. The Non-Executive
Stock Option plan was established in 1994 to allow management to provide option
incentives to employees who are not Directors or Officers as defined in
Securities and Exchange Commission Regulation 16(b). 1,000,000 options were
authorized under this plan. Additionally, the number of authorized options
under the 1992 Stock Option Plan was increased by 1,500,000. No further options
may be granted under any option plan other than the 1992 Stock Option Plan and
the Non-Executive Stock Option Plan.
F-16
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Detail information concerning all stock option plans is as follows:
<TABLE>
<CAPTION>
1987 1987 1987 1990 1991 1992 NON-EXECUTIVE
INCENTIVE NON-STATUTORY SPECIAL SPECIAL SPECIAL STOCK STOCK OPTION
STOCK OPTION STOCK OPTION NON-STATUTORY DIRECTORS NON-STATUTORY OPTION PLAN
PLAN PLAN STOCK OPTION STOCK STOCK OPTION PLAN
PLAN OPTION PLAN
PLAN
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS AUTHORIZED......... 2,000,000 2,000,000 1,000,000 500,000 2,000,000 3,500,000 1,000,000
=======================================================================================================
OPTIONS OUTSTANDING
DECEMBER 31, 1992......... 881,300 1,625,600 279,800 80,000 1,438,600 683,000 0
GRANTED.................... 0 0 0 0 0 1,264,300 --
EXERCISED.................. (37,500) 0 (57,000) 0 (10,000) (2,000) --
CANCELED................... (189,300) (128,300) (42,800) 0 (393,900) (200,600) --
-------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING
DECEMBER 31, 1993......... 654,500 1,497,300 180,000 80,000 1,034,700 1,744,700 0
GRANTED.................... 0 0 0 0 0 746,500 161,600
EXERCISED.................. (28,700) 0 (5,900) (20,000) 0 (20,700) 0
CANCELED................... (78,500) 0 (71,400) 0 (126,100) (271,300) (5,000)
-------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING
DECEMBER 31, 1994......... 547,300 1,497,300 102,700 60,000 908,600 2,199,200 156,600
GRANTED.................... 0 0 0 0 0 246,000 676,800
EXERCISED.................. (23,300) (40,000) 0 0 (29,600) (91,200) (18,700)
CANCELED................... (123,200) (288,800) (5,600) (60,000) (242,300) (440,800) (78,300)
-------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 400,800 1,168,500 97,100 0 636,700 1,913,200 736,400
DECEMBER 31, 1995.........
=======================================================================================================
</TABLE>
A summary of stock option prices and exercisable shares is as follows:
<TABLE>
<CAPTION>
TOTAL ACTIVITY OPTION PRICE SHARES
ALL PLANS PER SHARE EXERCISABLE
(Shares) (LOW - HIGH) AT YEAR-END
---------------- ---------------- -------------
<S> <C> <C> <C>
Options Outstanding December 31, 1992 4,988,300 $0.08 - $18.10 808,100
Granted................................ 1,264,300 7.13 - 11.00 --
Exercised.............................. (106,500) 6.63 - 11.25 --
Canceled............................... (954,900) 0.08 - 16.66 --
---------
Options Outstanding December 31, 1993 5,191,200 0.08 - 18.10 1,571,200
Granted................................
Exercised.............................. 908,100 0.08 - 8.25 --
Canceled............................... (75,300) 0.08 - 7.88 --
(552,300) 0.08 - 13.90 --
---------
Options Outstanding December 31, 1994 5,471,700 0.08 - 18.10 2,290,600
Granted................................ 922,800 2.31 - 5.13 -
Exercised.............................. (202,800) 0.08 - 2.44 -
Canceled............................... (1,239,000) 2.44 - 15.10 -
----------
Options outstanding December 31, 1995 4,952,700 $2.31 - $15.10 2,361,700
==========
</TABLE>
Option shares listed on the two preceding tables are recorded after giving
effect to a 2-for-1 stock split paid in the form of a 100% common stock dividend
to common stockholders paid in January 1992.
F-17
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
All outstanding options issued to the company's employees which had an exercise
price greater than $2.44 per share were amended on February 21, 1995 to change
the option price to $2.44 per share which is the closing price of the company's
Common Stock on the American Stock Exchange on February 21, 1995.
Generally, the exercise price of options granted is equal to the fair market
value of the underlying share of common stock at the time of grant. Options for
which the exercise price is less than the fair market value at the time of grant
are considered compensatory and the difference in value is charged to operations
over the vesting period of the option.
12. EMPLOYEE BENEFIT PLANS
The company has a defined contribution pension plan covering substantially
all of its U. S. employees, subject to age and service requirements. In
addition, the company has an Employee Savings Plan (401(k)) available for all of
its U.S. employees subject to age and service requirements and matches employee
contributions in an amount equal to the lesser of one-third of the employee's
contribution or 2% of the employee's compensation subject to government tax
regulation limits. The company also provides a deferred compensation program for
certain executives of the company. The company funded employee Savings Plan
costs during 1995 on a monthly basis. The company plans to fund 1995 pension
costs in early 1996. Amounts accrued under the deferred compensation plan are
reflected as "Long-term Liabilities" in the company's consolidated balance
sheet. Costs of the Employee Pension Plan, the Employee Savings Plan (401(k))
and deferred compensation plan were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, Amount
------------ ------
<S> <C>
1993 $818,600
1994 876,400
1995 949,200
</TABLE>
Employee benefit plan costs for the period May 7, 1987 (inception) through
December 31, 1995 total $4,255,600.
F-18
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. INCOME TAXES
As of December 31, 1995, the company had a net operating loss carry forward
of approximately $114,298,000 for federal income tax purposes. In addition, the
company had a research and development tax credit carry forward of $4,043,000.
The company records deferred tax assets and liabilities for the tax effects
of temporary differences between carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes. A
valuation allowance equal to the net deferred tax asset has been recorded on the
basis of the uncertainty with respect to the ultimate realization of the net
deferred tax assets. Due to this uncertainty, no benefit has been recorded for
the year ended December 31, 1995 or any prior period for any net operating loss
carryforwards or other deferred tax assets generated during the year.
Significant components of the company's estimated deferred tax assets and
liabilities as at December 31, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax assets
-------------------
Net operating loss carryforwards/(1)/ $42,179,200
Book over income tax depreciation 94,800
Research and development tax credits 4,043,000
Other non-salary compensation and benefits 501,800
Other, principally reserves 237,500
----------
Total deferred tax assets 47,056,300
Deferred tax liabilities
------------------------ ----------
Prepaid expenses (97,000)
----------
Total deferred tax liabilities (97,000)
----------
46,959,300
Valuation allowance for net deferred tax assets (46,959,300)
-----------
Net deferred tax assets $ -0-
===========
</TABLE>
/(1)/ Includes estimated state and foreign net operating loss carryforwards of
$2,174,800.
Approximately $8,690,400 of tax benefits related to the exercise of stock
options is included in the net operating loss carryforwards listed above.
Although not a component of tax expense, the reserve for the future realization
of this asset is reflected in the valuation allowance and will be credited to
additional paid-in capital if and when realized.
The reconciliation of the expected tax benefit for the year ended December
31, 1995 is as follows:
<TABLE>
<S> <C>
Tax benefit at expected rate $ (80,850)
Permanent differences 206,450
Research and development tax credit (448,640)
State taxes, net (918,320)
Other (48,040)
----------
(1,289,400)
Increase in valuation allowance 1,289,400
----------
Tax benefit $ -0-
==========
</TABLE>
F-19
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The federal income tax carryforwards expire as follows:
<TABLE>
<CAPTION>
NET OPERATING RESEARCH AND
LOSSES DEVELOPMENT CREDITS
------ -------------------
<S> <C> <C>
2002 $ 1,000 $ --
2003 1,250,000 46,000
2004 5,206,000 140,000
2005 6,750,000 192,000
2006 23,486,000 545,000
2007 21,993,000 889,000
2008 27,367,000 1,072,000
2009 24,430,000 710,000
2010 3,815,000 449,000
------------ ----------
$114,298,000 $4,043,000
============ ==========
</TABLE>
F-20
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3. Exhibits.
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3(a) to the Registrant's Registration
Statement on Form S-1 (File No. 33-39576), filed with the
Securities and Exchange Commission on March 22, 1991)
3.1.1 Certificate of Amendment to Certificate of Incorporation
(incorporated by reference to Exhibit 3.1.1 to the
Registrant's Registration Statement on Form S-3 (File No. 33-
00077), filed with the Securities and Exchange Commission on
January 5, 1996
3.1.2 Certificate of Designations of Series A Junior Preferred
Stock (incorporated by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K dated June 7, 1995)
3.2 Bylaws, as amended (incorporated by reference to Exhibit 3.2
to the Registrant's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 1994)
4.1 Warrant Agreement dated as of June 6, 1994 by and between
Registrant and Mellon Bank, N.A. (incorporated by reference
to Exhibit 4.1 to the Registrant's Annual Report on Form 10-
K filed with the Securities and Exchange Commission on March
28, 1995)
4.2 Rights Agreement dated as of May 19, 1995 by and between
Registrant and Chemical Mellon Shareholder Services L.L.C.
(incorporated by reference to Exhibit 1 to Registrant's
Current Report on Form 8-K dated June 7, 1995)
10.1* Agreement dated August 9, 1991, between the Registrant and
Warner-Lambert Company, as amended by Amendment No. 1 dated
December 12, 1991, Amendment No. 2 dated March 10, 1994 and
Amendment No. 3 dated March 11, 1994 (incorporated by
reference to Exhibit 10.1 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1994)
10.2 Office Lease Agreement, dated September 1990, between U.S.
Bioscience, Inc. and Tower Bridge Associates (incorporated
by reference to Exhibit 10(k) to the Registrant's
Registration Statement on Form S-1 (File No. 33-39576),
filed with the Securities and Exchange Commission on March
22, 1991)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.2.1 Amendment No. 1, dated August 31, 1991, to Office Lease
Agreement between U.S. Bioscience, Inc. and Tower Bridge
Associates (incorporated by reference to Exhibit 10(i)(ii)
to the Registrant's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on March 27, 1992)
10.2.2 Addendum, dated April 8, 1992, to Amendment No. 1 of Office
Lease Agreement between U.S. Bioscience and Tower Bridge
Associates (incorporated by reference to Exhibit 10.2.2 to
the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.2.3 Amendment No. 2, dated June 30, 1995, to Office Lease
Agreement between U.S. Bioscience, Inc. and Tower Bridge
Associates
10.3 Lease Agreement, dated June 15, 1992, between U.S.
Bioscience, Inc. and Pickering Acquisition Associates
(incorporated by reference to Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.3.1 Amendment No. 1, dated March 17, 1993, to Lease Agreement
between the Registrant and Pickering Acquisition Associates
(incorporated by reference to Exhibit 10.3.1 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.3.2 Second Amendment to Lease Agreement between the Registrant
and Pickering Acquisition Associates dated February 8, 1995
(incorporated by reference to Exhibit 10.3.2 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.4 Research Agreement, dated May 14, 1987, between the
Registrant and Georgetown University, as amended May 27,
1988 (incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form 10, filed with
the Securities and Exchange Commission on September 21,
1989)
10.4.1 Amendment No. 2, dated as of January 23, 1990, to Research
Agreement, dated May 14, 1987, between the Registrant and
Georgetown University (incorporated by reference to Exhibit
10.13.1 to the Registrant's Registration Statement on Form S-
1, filed with the Securities and Exchange Commission on
February 5, 1990)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.5 Letter agreement, dated January 22, 1992, between the
Registrant and Chemsyn Science Laboratories (incorporated by
reference to Exhibit 10(k) to the Registrant's Annual Report
on Form 10-K, filed with the Securities and Exchange
Commission on March 27, 1992)
10.6 License Agreement dated January 30, 1995 between Registrant
and National Institutes of Health (incorporated by reference
to Exhibit 10.6 to the Registrant's Annual Report on Form 10-
K filed with the Securities and Exchange Commission on March
28, 1995)
10.7 Agreement for Assignment of Rights, dated January 8, 1988,
between the Registrant and Wyeth Laboratories, Inc.
(incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form 10, filed with
the Securities and Exchange Commission on September 21,
1989)
10.8* Amended and Restated License Agreement, effective as of May
1, 1993, between the Registrant and Southern Research
Institute (incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.9 Agreement, dated as of November 25, 1988, between the
Registrant and Warner-Lambert Company (incorporated by
reference to Exhibit 10.23 to the Registrant's Registration
Statement on Form 10, filed with the Securities and Exchange
Commission on September 21, 1989)
10.9.1 Amendment No. 1, dated March 13, 1992 to Agreement dated as
of November 25, 1988, between the Registrant and Warner-
Lambert Company (incorporated by reference to Exhibit
10(o)(ii) to the Registrant's Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March
27, 1992)
10.10 License Agreement, dated as of December 6, 1990, between the
National Technical Information Service and the Registrant
(incorporated by reference to Exhibit 10(t) to the
Registrant's Registration Statement on Form S-1 (File No. 33-
39576), filed with the Securities and Exchange Commission on
March 25, 1991)
10.11 Agreement, dated as of January 1, 1995, between Registrant
and Applied Analytical Industries, Inc. (incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1995)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.12 Agreement, dated as of September 23, 1993, between
Registrant and Ben Venue Laboratories, Inc. (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1994)
10.13 U.S. Bioscience/Ganes PALA Research Agreement between the
Registrant and Ganes Chemicals, Inc., signed by the
Registrant on April 25, 1991 and countersigned by Ganes
Chemicals, Inc. on April 29, 1991 (incorporated by reference
to Exhibit 10(t) to the Registrant's Annual Report on Form
10-K, filed with the Securities and Exchange Commission on
March 27, 1992)
10.14 License Agreement, dated February 14, 1992, between the
Registrant and Schering Overseas Limited (incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report
on Form 10-K, filed with the Securities and Exchange
Commission on March 31, 1993)
10.14.1 Amendment dated October 15, 1993 to License Agreement
between Registrant and Schering Overseas Limited
(incorporated by reference to Exhibit 10.14.1 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.15 License Agreement dated May 10, 1994 between Registrant and
Scherico, Ltd. (incorporated by reference to Exhibit 10.15
to the Registrant's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 1995)
10.16* Distribution and Supply Agreement, dated as of May 10, 1993
between Registrant and Scherico, Ltd. (incorporated by
reference to Exhibit 10.16 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1995)
10.17 Agreement, dated as of March 10, 1994 between Registrant and
Sipsy S.A. (incorporated by reference to Exhibit 10.17 to
the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
10.18 License Agreement, effective November 28, 1990 between
Registrant and National Technical Information Service
(incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1994)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
10.19 Stipulation of Settlement Civil Action No. 92-0678 (Dalzell,
J.) dated January 19, 1994 (incorporated by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March
28, 1995)
10.20 Non-Executive Stock Option Plan
10.21 Form of Subscription Agreement for sale of Common Stock by
the Registrant to investors in December 1995 (incorporated
by reference to Exhibit 1 to Registrant's Current Report on
Form 8-K dated December 22, 1995)
10.22 Form of Note Purchase Agreement for sale of convertible
notes by the Registrant to investors in December 1995
(incorporated by reference to Exhibit 2 to Registrant's
Current Report on Form 8-K dated December 22, 1995)
10.23 Form of Convertible Note issued pursuant to Note Purchase
Agreements for sale of convertible notes by the Registrant
to investors in December 1995 (incorporated by reference to
Exhibit 3 to Registrant's Current Report on Form 8-K dated
December 22, 1995)
10.24 Form of Registration Rights Agreement with purchasers of
Common Stock and convertible notes issued by the Registrant
to investors in December 1995 (incorporated by reference to
Exhibit 4 to Registrant's Current Report on Form 8-K dated
December 22, 1995)
10.25* Ethyol (Amifostine) Distribution and Marketing Collaboration
Agreement between U.S. Bioscience, Inc. and ALZA Corporation
dated December 12, 1995 (incorporated by reference to
Exhibit 5 to Registrant's Current Report on Form 8-K dated
December 22, 1995)
Executive Compensation Plans and Arrangements
10.26 Employment Agreement, dated as of March 1, 1993 between
Registrant and Philip S. Schein, M.D. (incorporated by
reference to Exhibit 10.21 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1995)
10.27 U.S. Bioscience, Inc. 1987 Incentive Stock Option Plan
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 (File No. 33-
43981), filed with the Securities and Exchange Commission on
November 15, 1991)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
10.28 U.S. Bioscience, Inc. 1987 Non-Statutory Stock Option Plan
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No. 33-
43981), filed with the Securities and Exchange Commission on
November 15, 1991)
10.29 U.S. Bioscience, Inc. 1987 Special Non-Statutory Stock
Option Plan (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8 (File No. 33-
43981), filed with the Securities and Exchange Commission on
November 15, 1991)
10.30 U.S. Bioscience, Inc. 1991 Special Non-Statutory Stock
Option Plan (incorporated by reference to Exhibit 4.5 to the
Registrant's Registration Statement on Form S-8 (File No. 33-
43981), filed with the Securities and Exchange Commission on
November 15, 1991)
10.31 U.S. Bioscience, Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.27 to the Registrant's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 28, 1995)
10.32 Executive Benefits Plan and related Form of Split Dollar
Agreement (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1995)
10.33 Pension Restoration Plan (incorporated by reference to
Exhibit 10.29 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March
28, 1995)
10.33.1 Amendment 1996-1 to Pension Restoration Plan
10.34 Executive Severance Agreement, dated October 14, 1991,
between the Registrant and Philip S. Schein, M.D.
(incorporated by reference to Exhibit 10(v) to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
10.35 Amendment dated September 22, 1992 to Executive Severance
Agreement between the Registrant and Philip S. Schein, M.D.
(incorporated by reference to Exhibit 10.25.1 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
</TABLE>
<PAGE>
U.S. BIOSCIENCE, INC.
FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.36 Executive Severance Agreement, dated October 14, 1991,
between the Registrant and Robert L. Capizzi, M.D.
(incorporated by reference to Exhibit 10(w) to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 27, 1992)
10.36.1 Amendment dated September 22, 1992 to Executive Severance
Agreement between the Registrant and Robert L. Capizzi, M.D.
(incorporated by reference to Exhibit 10.26.1 to the
Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1993)
10.37 Agreement, dated March 4, 1996, between the Registrant and
Robert L. Capizzi, M.D.
10.38 Form of Executive Severance Agreement executed with each
Senior Vice President, each Vice President, and the
Controller of the Registrant (incorporated by reference to
Exhibit 10.28 to the Registrant's Annual Report on Form 10-
K, filed with the Securities and Exchange Commission on
March 31, 1993)
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
______________
*Confidential portions have been omitted and have been separately filed with the
Commission.
<PAGE>
AMENDMENT NO. 2 TO LEASE
------------------------
THIS AMENDMENT NO. 2 dated June 30, 1995 to LEASE dated November 1,
1990 between Tower Bridge Associates, a Pennsylvania limited partnership
("Landlord"), and U.S. Bioscience, Inc., a Delaware corporation ("Tenant").
BACKGROUND
----------
Landlord and Tenant entered into a Lease dated September 19, 1990 (the
"Lease"), as amended by Amendment No. 1 to Lease dated August 31, 1991, for
approximately 19,875 rentable square feet on the 4th floor, thereafter expansion
of 8,650 rentable square feet and 9,645 rentable square feet on the third and
second floors, respectively, (the "Demised Premises") of One Tower Bridge, 100
Front Street, West Conshohocken, Pennsylvania (the "Building"). The current
expiration of the Lease Term for the Demised Premises is October 31, 1995.
Landlord and Tenant are willing to enter into an extension of the term
of the Lease for the 4th and a portion of the 3rd floor now containing 6,479
rentable square feet, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Demised Premises. Tenant hereby shall continue to hire from
-----------------
Landlord, for an extended lease term of three (3) years beyond the expiration of
the existing lease term ("Extended Lease Term"), upon and subject to all the
provisions, covenants and conditions set forth herein and in the Lease, 19,875
rentable square feet on the 4th floor and approximately 6,479 rentable square
feet on the 3rd floor of the Building, ("Demised Premises"), as shown on
Exhibits "A-1" attached hereto and made a part hereof.
2. Term. The Extended Lease Term with respect to the Demised
----
Premises shall be for a period of three (3) years, commencing on November 1,
1995 and expiring on October 31, 1998.
3. Rent. Commencing on November 1, 1995 through October 31, 1996,
----
the Base Rent for the Demised Premises shall continue at the rate set forth in
the Lease for 4th floor premises of $19.17 per rentable square foot, which,
including 3rd floor premises, amounts to $505,206.18 annually, payable in
advance monthly installments of $42,100.52. For the period November 1, 1996 and
continuing to the end of the Extended Lease Term, the Base Rent shall become
$22.95 per rentable square foot, amounting to $604,824.30 annually, payable in
advance monthly installments of $50,402.05, without deduction or offset, on or
before the first day of each month and as otherwise provided in the Lease.
4. Adjustment of Rent. Tenant shall pay with respect to the Demised
------------------
Premises and this Amendment No. 2 to Lease all Additional Rent as provided in
Sections 6 and 7 of the Lease. The Base Operating Cost Per Square Foot with
respect to the Demised Premises is agreed to be $3.20 per rentable square foot
and the "Base Tax Per Square Foot" with respect to the Demised Premises is
agreed to be $1.10 per square foot. The Rentable Area of the Demised Premises
shall be 26,354 rentable square feet and the Tenant's Share of Rentable Office
Area of the Building with respect to the Demised Premises is 9.8%.
5. Construction in the Demised Premises. Tenant shall accept the
------------------------------------
Demised Premises
<PAGE>
in its present condition "as is" and shall be responsible for any costs of
renovation in accordance with plans and specifications prepared by Tenant and
submitted to and approved by Landlord.
6. Reserved Parking. During the Extended Lease Term, Tenant shall
----------------
have the use of ten (10) spaces in the P-1 and/or P-2 reserved parking areas of
the Building.
7. Brokers. Tenant represents and warrants to Landlord that it has
-------
not engaged any broker, finder or other person who would be entitled to any
commission or fees in respect of the negotiation, execution or delivery of this
Amendment, and shall indemnify and hold harmless Landlord against any loss,
cost, liability or expense incurred by Landlord as a result of any claim
asserted by and broker, finder or other person on the basis of any arrangements
or agreements made or alleged to have been made by or on behalf of Tenant.
8. Other Terms and Conditions. All of the other terms and
--------------------------
conditions of the Lease not inconsistent with the provisions of this Amendment
shall apply to the New Demised Premises.
9. Lease Ratified. Except as amended hereby or inconsistent with
--------------
the provisions hereof, the Lease is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first above written.
LANDLORD:
TOWER BRIDGE ASSOCIATES
By /s/ Donald Pulver
--------------------------------------------
Authorized Officer of Oliver Tyrone Pulver
Corporation, General Partner of Oliver Tower
Associates, acting in its capacity as the
Managing General Partner of Tower Bridge
Partnership, the General Partner of Landlord
TENANT:
U.S. BIOSCIENCE, INC.
[CORPORATE SEAL]
ATTEST:
By /s/ Donald O. Brown
--------------------------------------------
/s/ Robert I Kreibel Title: Senior Vice President
- -------------------------------- ---------------------------------------
<PAGE>
EXHIBIT - "A - 1"
-----------------
[ This exhibit contains a diagram of the third and fourth floors of the One
Tower Bridge building reflecting tenant occupancy]
<PAGE>
Adopted 5/26/94
Amended 2/20/96
U.S. Bioscience, Inc.
NON-EXECUTIVE STOCK OPTION PLAN
-------------------------------
1. Purpose. U.S. Bioscience, Inc. (the "Company") hereby adopts the
-------
U.S. Bioscience, Inc. Non-Executive Stock Option Plan (the "Plan"). The Plan is
intended to recognize the contributions made to the Company by employees of the
Company or any Affiliate (as defined below) (including employees who are members
of the Board of Directors of any Affiliate but who are not directors or
Executive Officers (as hereinafter defined) of the Company), and certain
consultants or advisors to the Company or an Affiliate, to provide such persons
with additional incentive to devote themselves to the future success of the
Company or an Affiliate, and to improve the ability of the Company or an
Affiliate to attract, retain, and motivate individuals upon whom the Company's
sustained growth and financial success depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in the Company
through receipt of rights to acquire the Company's Common Stock, par value $.005
per Share (the "Common Stock"). Options granted pursuant to the Plan shall not
be options intended to qualify as "incentive stock options" within the meaning
of Section 422 of the Code (as hereinafter defined). Options granted pursuant
to the Plan may not be granted to Executive Officers or non-employee members of
the Company's Board of Directors. Notwithstanding the foregoing, an option may
be
<PAGE>
granted hereunder for consulting services to a consultant who is also a member
of the Company's Board of Directors.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent
corporation or a subsidiary corporation with respect to the Company within the
meaning of Section 424(e) or (f) of the Code.
(b) "Board of Directors" or "Board" means the Board of Directors
of the Company.
(c) "Change of Control" shall have the meaning as set forth in
Section 10 of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall have the meaning set forth in Section 3 of
the Plan.
(f) "Company" means U.S. Bioscience, Inc. a Delaware
corporation.
(g) "Disability" shall have the meaning set forth in Section
22(e)(3) of the Code.
(h) "Executive Officers" means persons who are "officers" within
the meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule.
-2-
<PAGE>
(i) "Fair Market Value" shall have the meaning set forth in
Subsection 8(b) of the Plan.
(j) "Non-qualified Stock Option" means an Option granted under
the Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(k) "Option" means a Non-qualified Stock Option granted under
the Plan.
(l) "Optionee" means a person to whom an Option has been granted
under the Plan, which Option has not been exercised and has not expired or
terminated.
(m) "Option Document" means the document described in Section 8
of the Plan, as applicable, which sets forth the terms and conditions of each
grant of Options.
(n) "Option Price" means the price at which Shares may be
purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b)
of the Plan, as applicable.
(o) "Shares" means the shares of Common Stock of the Company
which are the subject of Options.
3. Administration of the Plan. The Plan shall be administered by
--------------------------
the Board of Directors of the Company; however, the Board of Directors may
designate a committee composed of two or more of its directors to operate and
administer the Plan in its stead. Any such committee designated by the Board of
Directors, and the Board of Directors itself in its
-3-
<PAGE>
administrative capacity with respect to the Plan, is referred to as the
"Committee."
(a) Meetings. The Committee shall hold meetings at such times
--------
and places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(b) Grants. The Committee shall from time to time at its
------
discretion direct the Company to grant Options pursuant to the terms of the
Plan. The Committee shall have plenary authority to (i) determine the Optionees
to whom, the times at which, and the price at which Options shall be granted,
(ii) determine the type of Option to be granted and the number of Shares subject
thereto, and (iii) approve the form and terms and conditions of the Option
Documents; all subject, however, to the express provisions of the Plan. In
making such determinations, the Committee may take into account the nature of
the Optionee's services and responsibilities, the Optionee's present and
potential contribution to the Company's success and such other factors as it may
deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final, binding
and conclusive.
(c) Exculpation. No member of the Board of Directors shall be
------------
personally liable for monetary damages for any
-4-
<PAGE>
action taken or any failure to take any action in connection with the
administration of the Plan or the granting of Options under the Plan, provided
that this Subsection 3(c) shall not apply to (i) any breach of such member's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of law,
(iii) acts or omissions that would result in liability under Section 174 of the
General Corporation Law of the State of Delaware, as amended, and (iv) any
transaction from which the member derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled without further act on his or her part to
indemnity from the Company to the fullest extent provided by applicable law and
the Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options thereunder in which he or she may be
involved by reason of his or her being or having been a member of the Committee,
whether or not he or she continues to be such member of the Committee at the
time of the action, suit or proceeding.
(e) Limitations on Grants of Options to Consultants and Advisors.
------------------------------------------------------------
With respect to the grant of Options to consultants or advisors, bona fide
services shall be rendered
-5-
<PAGE>
by consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
4. Grants under the Plan. Grants under the Plan must be in the form
---------------------
of a Non-qualified Stock Option.
5. Eligibility. All employees of the Company or an Affiliate (other
-----------
than Executive Officers), and consultants or advisors to the Company or an
Affiliate who satisfy the requirements set forth in Subsection 3(e), shall be
eligible to receive Options hereunder. The Committee, in its sole discretion,
shall determine whether an individual is eligible to receive Options under the
Plan.
6. Shares Subject to Plan. The aggregate maximum number of Shares
----------------------
for which Options may be granted pursuant to the Plan is Two Million Five
Hundred Thousand (2,500,000), subject to adjustment as provided in Section 11 of
the Plan. The Shares shall be issued from authorized and unissued Common Stock
or Common Stock held in or hereafter acquired for the treasury of the Company.
If an Option terminates or expires without having been fully exercised for any
reason, the Shares for which the Option was not exercised may again be the
subject of one or more Options granted pursuant to the Plan.
7. Term of the Plan. The Plan is effective as of May 26, 1994, the
----------------
date on which it was adopted by the Board of
-6-
<PAGE>
Directors. No Option may be granted under the Plan after May 25, 2004.
8. Option Documents and Terms. Each Option granted under the Plan
--------------------------
shall be a Non-qualified Stock Option. Options granted pursuant to the Plan
shall be evidenced by the Option Documents in such form as the Committee shall
from time to time approve, which Option Documents shall comply with and be
subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains.
(b) Option Price. Each Option Document shall state the Option Price
------------
which may be less than, equal to, or greater than the Fair Market Value of the
Shares on the date the Option is granted. If the Common Stock is traded in a
public market, then the Fair Market Value per share shall be, if the Common
Stock is listed on a national securities exchange or included in the NASDAQ
National Market System, the last reported sale price thereof on the relevant
date, or, if the Common Stock is not so listed or included, the mean between the
last reported "bid" and "asked" prices thereof on the relevant date, as reported
on NASDAQ or, if not so reported, as reported by the National Daily Quotation
Bureau, Inc. or as reported in a customary financial reporting service, as
applicable and as the Committee determines.
-7-
<PAGE>
(c) Exercise. No Option shall be deemed to have been exercised
--------
prior to the receipt by the Company of written notice of such exercise and
payment in full of the Option Price for the Shares to be purchased. Each such
notice shall specify the number of Shares to be purchased and shall (unless the
Shares are covered by a then current registration statement or a Notification
under Regulation A under the Securities Act of 1933, as amended (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (a) such Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Shares have not been registered under the Act and are
"restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Shares under the Act or to take any action which would make
available to the Optionee any exemption from such registration, (c) such Shares
may not be transferred without compliance with all applicable federal and state
securities laws, and (d) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed on the certificates. Notwithstanding the foregoing, if
the
-8-
<PAGE>
Company determines that issuance of Shares should be delayed pending (A)
registration under federal or state securities laws, (B) the receipt of an
opinion of counsel acceptable to the Company that an appropriate exemption from
such registration is available, (C) the listing or inclusion of the Shares on
any securities exchange or an automated quotation system or (D) the consent or
approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Shares, the Company may defer
exercise of any Option granted hereunder until any of the events described in
this Subsection 8(c) has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in
-----------------
cash, (ii) by certified or cashier's check payable to the order of the Company,
or (iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Without limiting the foregoing, the Committee may
provide in an Option Document that payment may be made in whole or in part in
shares of the Company's Common Stock. If payment is made in whole or in part in
shares of the Company's Common Stock, then the Optionee shall deliver to the
Company certificates registered in the name of such Optionee representing the
shares owned by such Optionee, free of all liens, claims and encumbrances of
every kind and having an aggregate Fair Market Value on the date of delivery
that is at least as great as the
-9-
<PAGE>
Option Price of the Shares (or relevant portion thereof) with respect to which
such Option is to be exercised by the payment in shares of Common Stock,
accompanied by stock powers duly endorsed in blank by the Optionee. In the
event that certificates for shares of the Company's Common Stock delivered to
the Company represent a number of shares in excess of the number of shares
required to make payment for the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by payment in
shares of Common Stock, the stock certificate issued to the Optionee shall
represent (i) the Shares in respect of which payment is made, and (ii) such
excess number of shares. Notwithstanding the foregoing, the Committee may
impose from time to time such limitations and prohibitions on the use of shares
of the Common Stock to exercise an Option as it deems appropriate.
(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur
of the following:
(A) Expiration of the Option term specified in the
Option Document, which shall not occur after ten years from the date of grant.
(B) Expiration of three months from the date the
Optionee's employment or service with the Company or its Affiliates terminates
for any reason other than Disability or
-10-
<PAGE>
death or as otherwise specified in Subsection 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such
employment or service with the Company or its Affiliates terminates due to the
Optionee's Disability or death;
(D) A finding by the Committee, after full
consideration of the facts presented on behalf of both the Company and the
Optionee, that the Optionee has breached his or her employment or service
contract with the Company or an Affiliate, or has been engaged in disloyalty to
the Company or an Affiliate, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his
employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee shall automatically forfeit
all Shares for which the Company has not yet delivered the share certificates
upon refund by the Company of the Option Price. Notwithstanding anything herein
to the contrary, the Company may withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a finding resulting in a
forfeiture; or
(E) The date, if any, set by the Board of Directors as
an accelerated expiration date in the event of the liquidation or dissolution of
the Company.
-11-
<PAGE>
With respect to Subsections 8(e)(i)(B) and (C) above,
the only Options which may be exercised during the three-month or one-year
period, as the case may be, following the date of Optionee's termination of
employment or service with the Company or its Affiliates are Options which were
exercisable on the last date of such employment or service and not Options
which, if the Optionee were still employed or rendering service during such
three-month or one-year period, would become exercisable, unless the Option
Document specifically provides to the contrary.
(ii) Notwithstanding the foregoing, the Committee may extend
the period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document pursuant to
Subsection 8(e)(i)(A). The terms of an executive severance agreement or other
agreement between the Company and an Optionee, approved by the Committee,
whether entered into prior or subsequent to the grant of an Option, which
provide for Option exercise dates later than those set forth in Subsection
8(e)(i) but permitted by this Subsection 8(e)(ii) shall be deemed to be Option
terms approved by the Committee and consented to by the Optionee.
(f) Transfers. An Option granted under the Plan may not be
---------
transferred, except by will or by the laws of descent and distribution, except
as follows: If the terms of the Option specifically so permit, an Option may be
transferred by the
-12-
<PAGE>
Optionee by bona fide gift, with no consideration for the transfer, to a lineal
descendent, sibling, lineal descendent of a sibling, in each case whether by
blood or adoption, a spouse or former spouse (collectively "family members"), to
a trust for the benefit of one or more family members or to a partnership in
which family members are the only partners. Notwithstanding the foregoing, an
Option may be transferred pursuant to the terms of a "qualified domestic
relations order," within the meaning of Sections 401(a)(13) and 414(p) of the
Code or within the meaning of Title I of the Employee Retirement Income Security
Act of 1974, as amended.
(g) Other Provisions. Subject to the provisions of the Plan,
----------------
the Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.
9. Amendment of Option Documents. Subject to the provisions of the
-----------------------------
Plan, the Committee shall have the right to amend Option Documents issued to an
Optionee, subject to the Optionee's consent if such amendment is not favorable
to the Optionee, except that the consent of the Optionee shall not be
-13-
<PAGE>
required for any amendment made under Subsection 8(e)(i)(E) or Section 10 of the
Plan, as applicable.
10. Change in Control. Notwithstanding anything to the contrary in
-----------------
any Option Document, upon a Change in Control, the exercise date of all Options
then outstanding under the Plan and held by Optionees who are then employees of
the Company or an Affiliate, or members of the Board of Directors of an
Affiliate, shall, and in the case of consultants and advisors to the Company or
an Affiliate shall (unless the exercisability of the Options held by such an
Optionee is subject to some condition other than the lapse of time (including
within the term "lapse of time" the provisions of Section 8(e) of the Plan)),
automatically accelerate to the date of the Change of Control. Any amendment of
this Section 10 which diminishes the rights of Optionees shall not be effective
with respect to Options outstanding at the time of adoption of such amendment,
whether or not such outstanding Options are then exercisable.
A "Change in Control" shall be deemed to have occurred if: (i) there
has been a change in control of a nature that would be required, if the Company
would be subject to reporting requirements under the Securities Exchange Act of
1934 (the "Exchange Act"), to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Exchange Act or Item 1 of Form 8-K
promulgated under the Exchange Act; or (ii) any person, entity or group (within
the meaning of
-14-
<PAGE>
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary of the Company, is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power in the election of directors; or (iii) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to have authority to cast at least a
majority of the votes which all directors on the Board are entitled to cast,
unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the votes entitled to be cast by the directors then still in office who were
directors at the beginning of the period.
11. Adjustments on Changes in Capitalization. The aggregate number
----------------------------------------
of Shares and class of shares as to which Options may be granted hereunder, the
number and class or classes of shares covered by each outstanding Option and the
Option Price thereof shall be appropriately adjusted in the event of a stock
dividend, stock split, recapitalization or other change in the number or class
of issued and outstanding equity securities of the Company resulting from a
subdivision or consolidation of the Common Stock and/or, if appropriate, other
outstanding equity securities or a recapitalization or other capital adjustment
(not
-15-
<PAGE>
including the issuance of Common Stock on the conversion of other securities of
the Company which are convertible into Common Stock) affecting the Common Stock
which is effected without receipt of consideration by the Company. The
Committee shall have authority to determine the adjustments to be made under
this Section, and any such determination by the Committee shall be final,
binding and conclusive; provided, however, that no adjustment shall be made
which will cause an ISO to lose its status as such without the consent of the
Optionee, except for adjustments made pursuant to Section 10 hereof.
12. Amendment of the Plan. The Board of Directors of the Company may
---------------------
amend the Plan from time to time in such manner as it may deem advisable. No
amendment to the Plan shall adversely affect any outstanding Option, however,
without the consent of the Optionee that holds such Option.
13. No Commitment to Retain. The grant of an Option pursuant to the
------------------------
Plan shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate and/or as a member of the
Company's Board of Directors or in any other capacity.
14. Withholding of Taxes. Whenever the Company proposes or is
--------------------
required to deliver or transfer Shares in connection with the exercise of an
Option, the Company shall have the right to (a) require the recipient to remit
or otherwise
-16-
<PAGE>
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of
Shares shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
-17-
<PAGE>
AMENDMENT 1996-1
TO THE
U.S. BIOSCIENCE, INC.
PENSION RESTORATION PLAN
1. Section 1.2 of the Plan is hereby amended and restated, in its
entirety, to read as follows:
1.2 "Annual Earnings" means a Participant's wages as defined in Section
3401(a) of the Code and all other payments of compensation by the Company (in
the course of the Company's trade or business) for a Plan Year for which the
Company is required to furnish the Participant a written statement under
Sections 6041(d), 6051(a)(3) and 6052 without regard to any dollar limitation
imposed under the Code; provided, however, that any rules under Section 3401(a)
of the Code that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Section 3401(a)(2) of the Code) shall be ignored. Prior
to January 1, 1996, a Participant's annual earnings were limited to a maximum of
$235,840.
2. This amendment shall be effective January 1, 1996.
<PAGE>
AGREEMENT
---------
Robert L. Capizzi, M.D. (hereafter "Dr. Capizzi"), and U.S.
Bioscience, Inc. (hereafter "U.S. Bioscience") desire and agree to restate their
employment relationship as of March 4, 1996, pursuant to the following terms and
conditions. In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. Dr. Capizzi hereby resigns as an officer of U.S. Bioscience
effective March 4, 1996, but shall continue thereafter through May 31, 1997 (the
"Term") as an employee, serving as Senior Scientific Advisor. Dr. Capizzi's
employment and any consulting relationship shall terminate at the close of
business on May 31, 1997, without the need of any notice with respect thereto by
either party (except as provided in paragraph 2(h)).
2. U.S. Bioscience shall pay and provide to Dr. Capizzi the
following:
(a) Salary during the Term of $7,818.46 per pay period, less
normal withholding and payroll taxes, to be paid on a bi-
weekly pay schedule.
(b) Bonus payment for 1995 in an amount equal to twenty-five
percent of Dr. Capizzi's 1995
<PAGE>
salary, to be paid upon execution of this Agreement.
(c) On the same basis as is provided to senior executives and
other employees of U.S. Bioscience, company-paid medical
benefits (including health, dental, and prescription drug),
less dependent cost, throughout the Term, or until other
employer-provided medical insurance is available, which ever
occurs first, subject to Dr. Capizzi's right to continue
such coverage under COBRA. In the event that Dr. Capizzi
obtains other employment and medical coverage, he will
promptly advise U.S. Bioscience.
(d) Group life insurance and long term disability benefit during
the Term, on the same basis as is provided to senior
executives and other employees of U.S. Bioscience. It is
agreed and understood that as of March 4, 1996, Dr. Capizzi
will no longer be entitled to participate in U.S.
Bioscience's benefit plans for (i) Supplemental Long Term
Disability, (ii) Supplemental Life Insurance, (iii) SERP,
(iv) 401(k), and (v) Money Purchase Pension Plan; provided
that Dr. Capizzi shall continue to be entitled to all
-2-
<PAGE>
benefits available or accrued under such plans through March
3, 1996.
(e) The right to continue to vest stock options during the Term
and the right to a cashless exercise of such vested options
during the Term and for a period of three months following
the Term.
(f) The same rights to indemnification and advancement of
expenses as Dr. Capizzi presently has pursuant to U.S.
Bioscience's certificate of incorporation and bylaws, or
such greater rights as subsequently may be made available to
directors and officers of U.S. Bioscience; provided that his
right to indemnification as an officer shall be with respect
to the period through March 3, 1996. U.S. Bioscience shall,
to the fullest extent not prohibited by law, indemnify Dr.
Capizzi for all actions and services provided by him
hereunder. In addition, U.S. Bioscience shall maintain such
directors and officers insurance coverage as it may find
appropriate, and shall include Dr. Capizzi in his capacity
as a director as an additional named insured on any such
policy.
-3-
<PAGE>
(g) References consistent with the terms of Attachment A.
(h) U.S. Bioscience's Executive Compensation Committee will
grant, by March 15, 1996, options to purchase 20,000 shares
of U.S. Bioscience common stock at the closing price on the
date of the grant. These shares will be exercisable as
follows: (i) 10,000 shares upon submission of supplemental
NDA on or before March 31, 2001, for Ethyol's use as a bone
marrow stimulation in myelodysplastic bone marrow syndrome,
and (ii) 10,000 shares upon FDA approval on or before March
31, 2001 of supplemental NDA for bone marrow stimulation
indication in the setting of chemotherapy induced
myelosuppression. These options will be granted subject to
the U.S. Bioscience 1992 Stock Option Plan and a stock
option agreement in the form attached hereto as Exhibit B.
The option grants described in this subsection (h) are
contingent upon Dr. Capizzi's assistance, pursuant to
Section 6 hereof, in the following areas:
. Support in the identification and recruitment of
appropriate investigators;
-4-
<PAGE>
. Participating in the analysis of data;
. Help in the preparation of study reports and documents
required for submission;
. Representation (if requested) before appropriate
regulatory bodies; and
. Presentation of data at academic or other meetings.
3. Separate and apart from the foregoing, U.S. Bioscience shall pay
Dr. Capizzi for 150 unused banked vacation hours, accrued through March 3, 1996,
less normal withholding and payroll taxes, upon completion of the Term. After
March 4, 1996, Dr. Capizzi shall not accrue additional vacation benefits.
4. Except as set forth in this Agreement, it is expressly agreed and
understood that U.S. Bioscience does not have and will not have any obligation
to provide Dr. Capizzi at any time in the future with any payments, benefits or
considerations other than those recited herein.
5. (a) In consideration for the payments, benefits and agreements
of U.S. Bioscience contained herein, Dr. Capizzi releases and discharges U.S.
Bioscience and its past, present and future officers, directors, attorneys,
employees, agents, successors and assigns, jointly and severally, from any and
all actions, charges, causes of action or claims of any kind, known
-5-
<PAGE>
or unknown, which against any of them, he, his heirs, agents, successors or
assigns ever had, now have or hereafter may have arising out of any matter,
occurrence or event existing or occurring prior to the execution hereof,
including, without limitation: any claims relating to or arising out of his
employment with U.S. Bioscience; any claims for unpaid or withheld wages,
benefits, bonuses and/or other compensation of any kind, including accrued sick
pay and vacation; any claims for attorneys' fees, costs or expenses; any claims
of discrimination based on sex, age, race, religion, color, creed, handicap,
citizenship, national origin or any other factor prohibited by Federal, State or
Local law (including any claims under Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act, the Pennsylvania Human Relations Act,
the Americans with Disabilities Act, and the Employee Retirement Income Security
Act of 1974 as amended); and any and all common law claims whatsoever, whether
existing or hereinafter recognized, including but not limited to breach of
contract, libel, slander, fraud, promissory estoppel, breach of covenant of good
faith and fair dealing, equitable estoppel, misrepresentation or wrongful
discharge. Excluded from this Release are only: claims which arise subsequent
to the execution of this Agreement; actions to enforce vested rights under any
option agreement, 401(k) or retirement plan; and actions to enforce this
Agreement or the Executive Severance Agreement described and amended in Section
19, below.
-6-
<PAGE>
(b) In consideration for Dr. Capizzi's covenants and agreements
contained herein, U.S. Bioscience releases and discharges Dr. Capizzi, his
heirs, personal representatives, agents, successors and assigns from any and all
actions, charges, causes of action or claims of any kind, known or unknown,
which against any of them, U.S. Bioscience, its officers, directors, attorneys,
employees, agents, successors and assigns ever had, now have or hereafter may
have, arising out of any matter, occurrence or event existing or occurring prior
to the execution hereof, including, without limitation, any claims relating to
or arising out of Dr. Capizzi's employment with U.S. Bioscience or his service
as an officer or director.
6. Dr. Capizzi shall provide to U.S. Bioscience up to 225 hours of
consulting services during the Term. Such consulting services may include, but
shall not be limited to, (a) speaking on behalf of U.S. Bioscience or its
products, (b) assistance in addressing clinical or preclinical questions, (c)
assistance in preparing position papers, (d) contacting potential investigators
on behalf of U.S. Bioscience and assisting in study design, and (e) assisting
U.S. Bioscience to assign, obtain, maintain, and enforce all proprietary rights
relating to inventions he conceived or reduced to practice during his employment
with U.S. Bioscience which relate to any of U.S. Bioscience's products, services
or activities of which he is aware. U.S. Bioscience will make reasonable
efforts to provide
-7-
<PAGE>
Dr. Capizzi with advance notice when requesting his services and he will make
reasonable efforts to adapt his schedule to comply with U.S. Bioscience's
reasonable request. Such consulting services may be performed by telephone
and/or by written communication and may require Dr. Capizzi's presence at U.S.
Biosciences' facilities or his travel outside of the greater Philadelphia area.
It is expressly understood that during the Term Dr. Capizzi may obtain full-time
employment with another employer. Consulting services in excess of 225 hours
during the Term shall be compensated at a rate to be mutually agreed by the
parties. U.S. Bioscience shall advance to Dr. Capizzi or reimburse promptly all
costs and expenses related to such consulting services, including but not
limited to secretarial support services, literature searches, slide preparation,
conference registration, travel and accommodations, and other reasonable
expenses appropriate to Dr. Capizzi's representation of U.S. Bioscience at
conferences and professional meetings. It is understood that such expenses
shall be subject to approval in advance by U.S. Bioscience.
7. Dr. Capizzi agrees that during the Term and thereafter he will
keep in strictest confidence all secret or confidential information, knowledge
or data relating to U.S. Bioscience and its business or products which shall be
obtained by him during his employment ("Proprietary Information"), and will not
use or disclose any Proprietary Information without the
-8-
<PAGE>
written consent of U.S. Bioscience, except as may be necessary in the ordinary
course of performing his duties as an employee of U.S. Bioscience; provided that
this obligation does not apply to any information that becomes published or
otherwise part of the public domain other than through any wrongful act or
omission by Dr. Capizzi.
8. All documents, notes and other materials of any nature relating
to any Proprietary Information which are generated by Dr. Capizzi or come into
his possession shall be owned exclusively by U.S. Bioscience. Dr. Capizzi will
not take any original or copy of the foregoing and will return the same to U.S.
Bioscience upon request. In addition to the foregoing, Dr. Capizzi will not
publish anything during the Term relating to Proprietary Information without the
written consent of U.S. Bioscience.
9. In any action brought by either party for enforcement of the
rights given by this Agreement, the prevailing party shall be entitled to
payment by the other of all reasonable attorneys' fees and costs incurred due to
or resulting from the action.
10. In the event of Dr. Capizzi's death prior to the receipt of all
amounts to which he is entitled hereunder, such amounts (including, without
limitation, all amounts due pursuant
-9-
<PAGE>
to section 2 hereof) shall be paid to Dr. Capizzi's spouse, or such other
beneficiary as Dr. Capizzi shall name by notice to U.S. Bioscience.
11. Neither party shall engage in any communications which disparage
or interfere with the other party's existing or prospective business
relationships.
12. Neither party shall communicate or disclose the terms of this
Agreement to any person without the prior consent of the other party; provided
--------
that Dr. Capizzi may discuss this Agreement with members of his immediate
family, his attorney and his accountant.
13. This Agreement embodies the complete understanding and agreement
between U.S. Bioscience and Dr. Capizzi and, other than the Executive Severance
Agreement described below and the option agreements previously issued to Dr.
Capizzi, supersedes any and all prior agreements between them, oral or written,
express or implied, including without limitation the non-competition and
confidentiality provisions of the Employment Agreement dated August 14, 1991 are
superseded by this Agreement, provided that nothing contained in this Agreement
shall supersede the provisions of paragraph 7(c) of such Employment Agreement.
For the sake of clarity, the parties agree that Dr. Capizzi shall not be
prohibited from pursuing research and commercial
-10-
<PAGE>
development relating to oncology and Acquired Immune Deficiency Syndrome (AIDS)
or any other area and obtaining new patents in his own name or those of others,
including without limitation any such relating to cytoprotection, marrow
stimulation and antifols, so long as he does not use any Proprietary Information
of U.S. Bioscience.
14. This Agreement shall be governed by the law of the Commonwealth
of Pennsylvania and any suit against U.S. Bioscience or Dr. Capizzi claiming a
breach hereof shall be maintained in a state or federal court in Pennsylvania.
15. Nothing in this Agreement is to be construed as an admission or
concession of liability or wrongdoing by either U.S. Bioscience or Dr. Capizzi.
16. Dr. Capizzi agrees and represents that:
(a) He has read carefully all of the terms of this Agreement;
(b) He has been encouraged to review this Agreement with an
attorney;
(c) He understands the meaning and effect of the terms of this
Agreement;
(d) He was given up to twenty-one (21) days to determine whether
he wishes to enter into this Agreement;
-11-
<PAGE>
(e) He understands that he has seven (7) days from the date of
execution of this Agreement to revoke his execution thereof;
(f) The entry into and execution of this Agreement is of his own
free will and a voluntary act without compulsion of any
kind; and
(g) No promise or inducement not expressed herein has been made
to him.
17. U.S. Bioscience hereby represents to Dr. Capizzi that it has all
requisite corporate power and authority to enter into this Agreement and perform
its obligations hereunder, and that this Agreement has been duly authorized,
executed and delivered by U.S. Bioscience and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
18. If any part or term of this Agreement is subsequently determined
by any court of competent jurisdiction to be unenforceable or illegal, such
determination should not affect the enforceability, legality or binding nature
of any other term or provision of this Agreement.
19. The parties to this Agreement are parties to an Executive
Severance Agreement dated October 14, 1991 (the
-12-
<PAGE>
"Executive Severance Agreement"). Dr. Capizzi agrees that in the event he
becomes eligible to receive compensation under the Executive Severance
Agreement, such compensation shall be reduced by an amount equal to the amount
paid to Dr. Capizzi under this Agreement. The Executive Severance Agreement
shall cease to be applicable to Dr. Capizzi in accordance with paragraph 2(b) of
the Executive Severance Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
/s/ Robert L. Capizzi, M.D.
- ---------------------------
Robert L. Capizzi, M.D.
U.S. BIOSCIENCE, INC.
/s/ H. Charles Ford
- -------------------
H. Charles Ford
Vice President, Human Resources
-13-
<PAGE>
EXHIBIT 22
U.S. BIOSCIENCE, INC.
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
-------------
<S> <C>
USB Pharma B.V. .......................... The Netherlands
USB Pharma Limited ....................... United Kingdom
USB Resources, Inc. ...................... Delaware
USB Technology, Inc. ..................... Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-43981 and Form S-8 No. 33-63456) pertaining to the Stock Option Plans
of U.S. Bioscience, Inc., the Registration Statement (Form S-3 No. 33-77376) and
related prospectus of U.S. Bioscience, Inc. for the registration of 1,096,634
shares of its common stock issuable upon exercise of certain warrants issued
pursuant to the January 19, 1995 settlement of certain class-action suits and
derivative litigations brought against U.S. Bioscience, Inc and the Registration
Statement (Form S-3 No. 33-00077) and related prospectus of U.S. Bioscience,
Inc. for the registration of 8,142,578 shares of its common stock issuable in
connection with the December 1995 private placement, of our report dated
February 16, 1996, with respect to the consolidated financial statements of U.S.
Bioscience, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1995.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1996
