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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 [FEE REQUIRED]
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 [NO FEE REQUIRED]
Commission file number 1-10432
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ROBERTS PHARMACEUTICAL CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-2429994
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Meridian Center II
4 Industrial Way West
Eatontown, New Jersey 07724
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(Address of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: (908) 389-1182
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
______________________________________________________________________
(Title of class)
______________________________________________________________________
(Title of class)
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock, $.01 par value per share
(the "Common Stock"), of the Registrant held by non-affiliates of the
Registrant, as determined by reference to the last sale price of the Common
Stock as reported on the Automated Quotation System of the National Association
of Securities Dealers, Inc., National Market System ("NASDAQ National Market
System"), as of March 22, 1996, was $238,183,538.
As of March 22, 1996, the number of outstanding shares of Common Stock was
18,545,890.
Documents incorporated by Part of Form 10-K into which
reference into this report document is incorporated
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Proxy Statement for the Part III
Annual Meeting of Shareholders
to be held in May 1996.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Roberts Pharmaceutical Corporation (the "Company") is an international
pharmaceutical company which licenses, acquires, develops and commercializes
post-discovery drugs in selected therapeutic categories. The Company was
incorporated under the laws of the State of New Jersey in 1982 and commenced
operations in 1983. In 1988, its name was changed to Roberts Pharmaceutical
Corporation from VRG International, Inc. The Company's executive offices are
located at Meridian Center II, 4 Industrial Way West, Eatontown, New Jersey
07724, and its telephone number is (908) 389-1182. As used herein, the term the
"Company" refers to Roberts Pharmaceutical Corporation and its subsidiaries
unless the context indicates otherwise.
During the past year, the Company experienced a period of transition with
respect to the development of its business. In order to achieve a more focused
utilization of the Company's resources in its core business of licensing,
acquiring, developing and selling prescription drugs, the Company has developed
a plan to divest most of its nonprescription pharmaceutical products, certain of
its nonperforming prescription pharmaceutical products, and certain of its
nonpharmaceutical operations. See "Item 1(c) Description of Business" and "Item
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations." During the past year, the Company completed certain acquisitions
of prescription pharmaceutical products which affected the Company's decision to
refocus on its core business activities and to discontinue certain business
operations which the Company believes are unrelated to its objective of growing
and developing an international pharmaceutical company. See "Item 1(c)
Description of Business" and "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For the fiscal years ended December 31, 1993, 1994 and 1995, the Company
engaged in business in two industry segments: Product Sales and Contract
Clinical Research. In March 1996, the Company announced the adoption of a plan
to discontinue and divest the businesses comprising the Contract Clinical
Research Segment, and the Company expects the sale of these business operations
to be completed before December 1996. In the foreseeable future, the Company
anticipates engaging in business mainly in the Product Sales industry segment.
See "Notes to Consolidated Financial Statements - Note 16."
(c) DESCRIPTION OF BUSINESS
The Company was founded to take advantage of the large and growing
opportunity to license, acquire, develop and commercialize post-discovery drugs
in selected therapeutic categories. The Company has organized its drug
development, acquisition and marketing activities to focus on late-stage
development drugs in Phase II or Phase III clinical trials and currently
marketed prescription pharmaceutical products which (i) do not meet the
strategic objectives or profit thresholds of larger pharmaceutical companies or
(ii) are made available by government agencies and research institutions. The
therapeutic categories targeted by the Company are Cardiovascular, Respiratory,
Gynecology/Endocrinology, Urology, Oncology and Gastroenterology.
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The Company currently markets approved pharmaceutical products in the United
States, Canada, the United Kingdom, Ireland, the Benelux countries and several
other European countries. The Company has operating subsidiaries in the United
States, Canada and the United Kingdom. The Company has determined not to
establish a separate operating subsidiary in France and will instead attempt to
conduct its business in France through a licensing agreement with a company
operating in France.
The Company has a broad product portfolio with two New Drug Applications
("NDAs") pending with the U.S. Food and Drug Administration (the "FDA").
PROAMATINE(TM) has an NDA pending for orthostatic hypotension, a condition of
low blood pressure. PROAMATINE is also in Phase II trials for stress urinary
incontinence. AGRELIN(R) has an NDA pending for thrombocytosis, a condition of
excessive platelet production. The Company has five additional late-stage
development products. These products are MAXIVENT(R), in Phase III trials for
asthma; SOMAGARD(R), in Phase III trials for central precocious puberty and
prostate cancer, and in a Phase II stage of development for endometriosis;
DIRAME(R) in Phase III trials for pain management; RADINYL, in Phase III trials
as a radiosensitizer; and STANATE(TM), in Phase II/III trials for neonatal
jaundice. The Company has obtained approval to sell PROAMATINE for the
treatment of orthostatic hypotension in Ireland (under the name MIDON(R)) and in
Canada (under the name AMATINE(R)), and has obtained approval to sell SOMAGARD
for the treatment of central precocious puberty in the United Kingdom and for
the treatment of prostate cancer in Ireland.
During the initial stages of the growth and development of its business,
the Company has marketed and sold certain over-the-counter nonprescription
pharmaceuticals, particularly cough and cold and gastro-intestinal products.
See "Nonprescription Pharmaceutical Products." The Company has also engaged in
certain other diversified nonpharmaceutical business activities, such as
providing home and outpatient medical care, marketing and selling medical
products to industrial companies, and conducting clinical research for other
pharmaceutical companies with respect to the safety and efficacy of their
products. See "Homecare and Medical Products" and "Contract Clinical Research."
While sales of nonprescription pharmaceutical products and the operations of the
nonpharmaceutical businesses have played important roles in the initial stages
of the growth and development of the Company, the Company has determined that a
continuation of this diversity of operations is inconsistent with its objective
of consolidating its resources in order to focus the Company's business
operations on licensing, acquiring, developing, marketing and selling
prescription pharmaceutical products. Accordingly, in August 1995, the Company
announced its decision to divest and seek purchasers for certain non-core
business activities, including certain nonprescription pharmaceuticals, certain
nonperforming prescription pharmaceuticals, and its home care and medical
products divisions ("Homecare"). See "Nonprescription Pharmaceutical Products,"
"Homecare and Medical Products" and "Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations." Further, in March 1996,
the Company announced its decision to discontinue and divest the Company's
clinical research business operations, which are conducted through its
subsidiary VRG International, Inc. ("VRG"), as a result of (i) the desire to
focus the Company's resources on prescription pharmaceuticals, (ii) the
substantial reduction of clinical research work under contract as a result of
the completion of the clinical research studies under the agreements with
Yamanouchi U.S.A. Inc., and (iii) the absence
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of any other significant clinical research contracts, coupled with the fact that
contract clinical research operations are now more highly dependent for
customers on other pharmaceutical companies which the Company believes have been
hesitant to contract with it since such firms view the Company as a rival and
competitor. See "Contract Clinical Research" and "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations."
BUSINESS SEGMENTS
Over the past several years, the Company has operated in two business
segments: Product Sales and Contract Clinical Research. However, in connection
with the adoption by the Company of the plan to discontinue and divest the
Contract Clinical Research segment, and the expected sale of such operations
before December 1996, the Company anticipates, in the foreseeable future, that
its business operations will focus almost entirely on Product Sales. See "Item
7 Management's Discussion and Analysis of Financial Condition and Results of
Operations." A detailed description of each of the Product Sales and Contract
Clinical Research business segments is set forth below.
PRODUCT SALES SEGMENT
PRESCRIPTION PHARMACEUTICAL PRODUCTS
As the Company reaches a new phase in its development and growth as a
pharmaceutical company, the Company plans to concentrate its business operations
primarily on licensing, acquiring, developing, marketing and selling
prescription pharmaceutical products. To enhance the Company's presence in its
targeted therapeutic categories, the Company has acquired marketed prescription
pharmaceutical products from various pharmaceutical companies. These product
lines generate cash flow, which contributes partial financial support to the
Company's drug development activities, and provide enhanced product sales
opportunities for the Company's sales force. In addition, the sale of
prescription pharmaceutical products has enabled the Company to establish
marketing channels in its targeted therapeutic categories which the Company
expects to use to market its late-stage development products after such products
are approved for sale.
Over the last five years, the Company has acquired the United States and/or
foreign product rights for many prescription pharmaceutical products from
various pharmaceutical manufacturers such as Pharmacia-Upjohn, Inc., Procter &
Gamble Pharmaceuticals, Inc. ("Procter & Gamble"), Bristol-Myers Squibb Company
("Bristol-Myers Squibb"), Glaxo Canada, Inc. ("Glaxo Canada"), Du Pont Merck
Pharmaceutical Company ("Du Pont Merck"), Merck and Co., Inc. ("Merck"),
Wyeth/Ayerst, G.D. Searle & Co. ("G.D. Searle") and SmithKline Beecham plc
("SmithKline Beecham"). Certain of these products are: CHERACOL(R) (with
codeine), a cough/cold product, FURACIN(R), for burn wounds and skin graft
infections, FUROXONE(R), for diarrhea, DUVOID(R), for treatment of urinary
retention, MEPTID(R), an analgesic, BARATOL(R), for use in treatment of
hypertension and peripheral circulatory disorders, ISORDIL(R), an anti-anginal
agent, COMHIST(R), for treatment of allergies, QUIBRON(R), a bronchodilator drug
used for asthma, PRO-BANTHINE(R), an antispasmodic drug, NORETHIN(TM), an oral
contraceptive agent, ETHMOZINE(R) and NORPACE(R), antiarrhythmic cardiovascular
drugs, TRANDATE(R), an
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anti-hypertensive agent, BETNOVATE(R), a dermatological product, SALUTENSIN(R),
SALURON(R) and NITRODISC(TM), cardiovascular products, FLORINEF(R), for
adrenocortical insufficiency, MUCOMYST(R), for abnormal mucous secretion, K-
LYTE(R), for potassium depletion, ELTROXIN(TM), a thyroid drug used for
treatment of hypothyroidism, MAXOLON(R), a gastro-intestinal agent used for
treatment of nausea and vomiting associated with cancer chemotherapy,
MINTEC(R), a gastro-intestinal drug used for symptomatic relief of irritable
bowel and spastic colon syndromes in adults, and ESTRACE(R), a line of
estrogen replacement therapy products used for symptomatic relief of
menopausal symptoms and for the prevention of osteoporosis.
In February 1995, the Company entered into an exclusive marketing, sales
and distribution agreement with Merck whereby the Company was appointed the
exclusive distributor in the United States of the product NOROXIN(R), an
antibiotic used for the treatment of urinary tract infections. The agreement is
for an initial term of five years and may be extended for an additional two year
period upon agreement of the parties. In connection with this arrangement, the
Company has agreed to increase its domestic professional sales force
significantly. See "Marketing." The agreement requires that the Company
purchase all its requirements of finished goods from Merck at agreed upon prices
and requires the Company to guaranty certain minimum payments to Merck. These
minimum payments decrease over the term of the agreement. In addition, the
agreement requires the Company to make additional payments to Merck based upon
sales levels achieved. The Company commenced the marketing, sale and physical
distribution of NOROXIN under the Company's label and trade dress in April 1995.
In March 1995, the Company agreed to pay $29.5 million to SmithKline
Beecham to acquire the United States rights to TIGAN(R), a drug used to control
nausea and vomiting, and the worldwide rights to EMINASE(R), a thrombolytic
agent used in the treatment of acute myocardial infarction to dissolve blood
clots obstructing coronary arteries. The purchase price is to be paid out over
a five year period and includes inventories, trademarks, NDAs, product licenses,
product know-how, customer lists and marketing materials. SmithKline Beecham
has agreed to manufacture the products for the Company and to provide certain
other services to the Company. From late 1994 until the date of acquisition of
these products, the Company was the exclusive distributor of TIGAN and EMINASE
pursuant to distribution agreements with SmithKline Beecham.
NONPRESCRIPTION PHARMACEUTICAL PRODUCTS
In order to facilitate the growth of the Company's business, the Company
has always focused a part of its operations on the acquisition, marketing and
sale of nonprescription pharmaceutical products. The Company also actively
engaged in the development of product line extensions for certain of its
nonprescription pharmaceuticals. For example, the Company extended its CHERACOL
product line to include CHERACOL(R) Nasal Spray, CHERACOL(R) Throat Spray and
CHERACOL(R) Throat Discs, and its PROCORT(TM) product line to include PROCORT 1%
Maximum Strength and PROCORT 1% Spray. Some of the nonprescription
pharmaceutical products acquired from various pharmaceutical companies and
marketed by the Company are CHERACOL D(R) and CHERACOL PLUS(R), cough/cold
products, HALTRAN(R), an analgesic, ENTROTABS(R) and ENTEROSAN(R), gastro-
intestinal
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products, COLACE(R) and PERI-COLACE(R), used in the treatment of gastro-
intestinal disorders, SQUIBB(R) mineral oil, SQUIBB(R) Glycerin Suppositories
and SQUIBB(R) Cod Liver Oil.
In August 1995, the Company identified the nonprescription pharmaceuticals
as a non-core business activity and made the decision to divest these products,
except for COLACE and PERI-COLACE which are well known, high volume products
that do not require significant promotional outlays to establish and maintain
consumer brand recognition and the demand for which is not susceptible to
uncontrollable seasonal factors.
LATE-STAGE DEVELOPMENT PRODUCTS
The Company has a portfolio of seven late-stage development products.
Rights to these late-stage development products were acquired by the Company
after substantial value had been added to the products through research
activities conducted by others. The Company's objective is to continue the
development of these late-stage products and bring them to market. Sales of
products acquired from other pharmaceutical companies, and sales of the
Company's prescription and nonprescription pharmaceutical products, have enabled
the Company to develop a marketing and sales infrastructure to facilitate sales
of these late-stage products, if approved.
THERAPEUTIC CATEGORY - CARDIOVASCULAR
PROAMATINE(TM). In 1985, the Company acquired from Hafslund Nycomed
Pharma AG ("Hafslund Nycomed Pharma") exclusive marketing rights in the United
States, Canada, the United Kingdom and Ireland to PROAMATINE (midodrine),
formerly AMATINE(R), a drug used for the treatment of orthostatic hypotension
and other blood pressure disorders.
Orthostatic hypotension is a condition involving the sudden drop in blood
pressure upon assuming an upright posture, resulting in dizziness, weakness or
unconsciousness. Current therapies used to treat the condition are associated
with significant adverse side effects such as potassium reduction, fluid
retention and cardiac and central nervous system disorders. PROAMATINE has an
NDA pending for orthostatic hypotension. In March 1996, the FDA requested
additional information regarding the Company's NDA for PROAMATINE. The FDA
noted that while PROAMATINE has a clear pressor effect in both the supine and
standing positions, the Company must provide further data before the drug can be
approved for the treatment of orthostatic hypotension. The Company is reviewing
the details of the FDA's request for further data and how to satisfy the
apparent deficiency. No FDA approved treatment for orthostatic hypotension is
currently available.
In 1990, the Company was granted approval by the Irish National Drugs
Advisory Board to market PROAMATINE for use in the treatment of orthostatic
hypotension in Ireland, where the drug is sold under the name MIDON. In 1991,
the Company obtained regulatory approval in Canada for the sale of PROAMATINE
for use in the treatment of orthostatic hypotension in Canada, where the drug is
sold under the name AMATINE. AMATINE is sold in Canada by the Company's
licensee, Knoll Pharma Inc. ("Knoll")
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(formerly Boots Pharmaceuticals Ltd.). PROAMATINE is currently in Phase III
clinical trials in the United Kingdom.
The Company has commenced studies to evaluate the efficacy of PROAMATINE
for use in the treatment of other forms of hypotension, including hemodialysis-
induced hypotension and familial dysautonomia. If such studies are successful,
the Company intends to apply for FDA and foreign regulatory approval of such
uses.
AGRELIN(R). In 1991, the Company obtained an exclusive worldwide license
from Bristol-Myers Squibb to develop, market and sell AGRELIN (anagrelide),
which is being developed as an oral treatment for thrombocytosis, a blood
disorder characterized by high blood platelet counts and an abnormally high
incidence of adverse blood clotting events including heart attack and stroke.
There is evidence that some patients with increased platelet counts have
thrombosis or hemorrhage which can be treated successfully by lowering the
platelet count. AGRELIN is intended to inhibit excessive platelet production
and reduce the morbidity and mortality of heart attack and stroke in
thrombocytosis patients. Current therapies used to reduce excessive platelet
production have distinct disadvantages, such as carcinogenesis, leukopenia and
anemia. Based on the results of Phase III clinical trials, the Company believes
that AGRELIN does not have the disadvantages associated with the other therapies
because it only affects the production of platelets and has no effect on other
blood cells. AGRELIN has an NDA pending for thrombocytosis. The Company has
received notice from the FDA that the Company's NDA for AGRELIN was officially
accepted for filing, effective January 29, 1996. According to regulations,
unless extended for administrative reasons, the FDA now is obliged to complete
the NDA review and determine the approvability of AGRELIN within 180 days.
AGRELIN is currently in Phase III trials in Canada and Europe. AGRELIN has
been accepted by the European Community regulatory authorities as a "List B"
Product, which includes those products considered to be major therapeutic
advances. The Company plans to combine its United States and European data for
submission to the European Community regulatory authorities through the European
Community concertation procedure ("CPMP"), commencing with the United Kingdom.
If approved by the member states using the CPMP procedure, AGRELIN would receive
simultaneous approval throughout the European Community.
THERAPEUTIC CATEGORY - RESPIRATORY
MAXIVENT(R). In 1984, the Company obtained an exclusive license from ABC
Laboratories of Italy ("ABC") to develop and market MAXIVENT (doxofylline) in
the United States, Canada and Japan and, in 1989, obtained a nonexclusive
license to develop and market the drug in the United Kingdom and Ireland.
MAXIVENT is an oral bronchodilator intended for use in the treatment of asthma.
Common asthma is a condition involving the periodic constriction of the
airways resulting in labored and often painful breathing. Treatment is
generally provided by means of bronchodilator drugs which relieve the
constriction of the airways and, in turn, the distress of an attack. The most
commonly used oral bronchodilator is theophylline, a drug with good efficacy but
which is capable of producing certain undesirable side effects such as
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disturbances in heart rhythm, central nervous system irritability, convulsions,
gastro-intestinal distress and excess urination. Phase II clinical studies and
Phase III clinical trials indicate that MAXIVENT appears to be comparable in
efficacy to theophylline; however, unlike theophylline, MAXIVENT does not appear
to produce a high incidence of adverse side effects.
The Company has completed Phase III trials and anticipates filing an NDA
for MAXIVENT during 1996. MAXIVENT has been approved for commercial sale in
Italy and is currently being sold in that country under the tradename "ANSIMAR"
by the Company's unaffiliated licensor, ABC.
THERAPEUTIC CATEGORY - GYNECOLOGY/ENDOCRINOLOGY
SOMAGARD(R). In 1988, the Company acquired rights from the Salk Institute
to manufacture and market SOMAGARD (deslorelin) in the United States and in
certain foreign countries, including the United Kingdom and Canada. SOMAGARD is
being developed for the treatment of central precocious puberty in children, an
endocrine disorder that results in premature release of hormones, and
endometriosis in women. Published reports of long-term studies conducted by the
National Institutes of Health have indicated that the administration of SOMAGARD
inhibits the release of hormones which cause the abnormal maturation process and
causes a return to normal growth rates. The Company has completed Phase III
trials and anticipates filing an NDA in 1996 for SOMAGARD for use in the
treatment of central precocious puberty.
The Company currently markets the product SUPPRELIN(R) (histrelin), an
orphan drug, for central precocious puberty. See "Government Regulation." The
Company believes that SOMAGARD will complement SUPPRELIN. A depot formulation
of SOMAGARD is being developed which will require less frequent injections. The
Company intends to market SOMAGARD, if approved by the FDA, to endocrinologists
and managed healthcare organizations through the marketing channels that it has
established for SUPPRELIN.
SOMAGARD also is being developed as a treatment for endometriosis. A
number of Phase II clinical trials for this indication have been conducted and
the Company plans to commence Phase III clinical trials. Endometriosis is a
gynecologic abnormality which may result in pain, infertility and sexual and
bowel dysfunction. Published reports of studies conducted by the National
Institutes of Health indicate that SOMAGARD relieves pain and restores normal
sexual and bowel function in women with this condition.
STANATE(TM). In 1994, the Company acquired the exclusive worldwide rights
from The Rockefeller University to develop, manufacture, market and sell
STANATE(TM) (SN-mesoporpyrin), which is being developed for the treatment of
hyperbilirubinemia in neonates, a condition caused by an accumulation of
excessive levels of bilirubin produced by the liver. Unless treated,
hyperbilirubinemia can result in jaundice, brain damage and death.
Bilirubin is excreted by the liver pursuant to a metabolic step requiring
the presence of an enzyme which, studies have shown, is not fully functional in
many early term and full term neonates. STANATE is intended to inhibit the
accumulation of excessive levels of
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bilirubin in neonates and to provide neonate enzyme systems with an opportunity
to mature and take over the normal elimination of bilirubin.
The most common treatment for hyperbilirubinemia in neonates involves
phototherapy which requires exposure to a light source in order to stimulate the
temporary excretion of bilirubin by the kidneys. Phototherapy is often not
fully effective and requires many hours and sometimes several days of exposure
to light with resulting maternal separation, extensive nursing supervision and
related time-sensitive costs. In contrast, STANATE is administered by injection
and clinical studies have shown that one dose is generally all that is necessary
for treatment purposes. STANATE is currently in Phase II/III clinical trials.
THERAPEUTIC CATEGORY - UROLOGY
PROAMATINE. In addition to its use in the treatment of blood pressure
disorders, PROAMATINE is currently sold in several countries by unaffiliated
third parties to treat stress urinary incontinence, the involuntary loss of
urine from the bladder. There is no approved therapy for stress urinary
incontinence in the United States. PROAMATINE is an alpha agonist which
increases the tension of the urinary sphincter, thereby preventing the
involuntary loss of urine from the bladder. The Company is conducting a Phase
II clinical program in the United States for the use of PROAMATINE in the
treatment of stress urinary incontinence.
THERAPEUTIC CATEGORY - ONCOLOGY
RADINYL. In 1985, the Company obtained from the United States government
rights to manufacture and sell the product RADINYL (etanidazole), a
radiosensitizer being developed to enhance the anticancer effects of radiation
therapy and a chemosensitizer being developed to increase the effectiveness of
other anticancer drugs.
For use in conjunction with radiotherapy, RADINYL is currently in Phase III
clinical trials in patients with advanced head and neck cancer. The patients
enrolled in these trials in the United States and Europe were randomized to
receive either RADINYL in conjunction with radiotherapy or radiotherapy alone.
There is a five-year review period for each patient following the course of
radiotherapy. The review period for the U.S. trials will be complete in the
Fall of 1996 and the review period for the European trials was completed at the
end of 1995.
Phase I and Phase II clinical studies are being conducted with RADINYL to
determine its potential in increasing the effectiveness of other anticancer
drugs in the treatment of brain, lung, prostate and bladder cancer and its
potential for use with brachytherapy, a technique involving the direct implant
of a radioactive source into or adjacent to large tumors.
DIRAME(R). In 1992, the Company obtained exclusive worldwide rights from
Bayer AG ("Bayer") to develop and market DIRAME (propiram), a potent, centrally
acting analgesic with low addiction potential intended for use in the control of
moderate to severe acute or chronic pain. See "Government Regulation."
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DIRAME is in Phase III clinical trials which indicate that the compound
appears to be safe and effective in patients with various kinds of acute and
chronic pain.
A joint venture from which Bayer obtained the rights to DIRAME had
initially filed an NDA for DIRAME. Subsequent to such filing, the FDA required
additional studies regarding the drug. The Company is now addressing the issues
raised by the FDA and, in 1993, commenced long-term carcinogenicity studies on
two species of laboratory animals and other clinical studies. In order to
complete its NDA filing, the Company believes it must complete these studies and
a Phase III clinical trial involving approximately 300 patients.
SOMAGARD. In addition to the treatment of central precocious puberty and
endometriosis, SOMAGARD has been studied as adjunctive treatment for prostate
cancer. Other treatments for prostate cancer such as surgery and/or
radiotherapy are often precluded because the cancer has spread to the bones. As
a result, castration, hormonal therapy or chemotherapy are often the only
available treatments. SOMAGARD is being evaluated by the Company as an
alternative to these procedures. The Company has filed a Product License
Application (NDA equivalent) for SOMAGARD for treatment of prostate cancer in
the United Kingdom and has obtained approval from the Irish regulatory
authorities to market the product for this indication. Use of SOMAGARD for the
treatment of prostate cancer in the United States is in Phase III clinical
trials.
LICENSE AGREEMENTS
The Company has obtained rights to the late-stage drugs currently being
developed by it through license agreements with pharmaceutical companies,
government agencies and research based institutions and has sublicensed certain
of these rights to pharmaceutical companies through license and/or marketing
agreements. A discussion of these agreements is provided below.
PROAMATINE Agreements. In 1985, the Company entered into a license
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agreement with Hafslund Nycomed Pharma pursuant to which the Company obtained
exclusive rights to develop and market the product PROAMATINE in the United
States, Canada, the United Kingdom, Ireland and certain other countries. The
agreement was amended in January 1994 to, among other things, provide for a
reduction in the delivery price of midodrine to the Company in any territory
covered by the agreement for a five year period commencing upon the Company's
launch of the product in any such territory and the addition of minimum sales
requirements which must be achieved by the Company in the territories covered by
the agreement in order to maintain exclusivity. The Company's agreement with
Hafslund Nycomed Pharma, as amended, obligates it to develop PROAMATINE and
obtain governmental approval to market the product in the licensed territories.
The Company is obliged to pay a royalty to Hafslund Nycomed Pharma on sales of
PROAMATINE by the Company and its distributors and must purchase its
requirements of PROAMATINE from Hafslund Nycomed Pharma.
In 1991, the Company entered into a marketing agreement with Knoll which
granted Knoll the exclusive right to market and sell PROAMATINE in Canada (under
the name AMATINE) for use in the treatment of orthostatic hypotension.
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AGRELIN License Agreement. In 1991, the Company entered into a license
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agreement with Bristol-Myers Squibb pursuant to which the Company obtained
exclusive worldwide rights to develop and market AGRELIN. The Company is
obliged to fund the continued development and registration of AGRELIN, make an
additional payment upon FDA approval and pay royalties on sales of the drug.
In 1994, the Company entered into a distribution agreement with Swedish
Orphan AB ("Swedish Orphan") for the distribution and sale of AGRELIN in the
Nordic countries of Norway, Sweden, Finland, Denmark and Iceland. AGRELIN is
not yet approved in the Nordic countries and, as part of the distribution
agreement, Swedish Orphan is responsible for obtaining regulatory approval. If
regulatory approval is obtained, the Company will supply finished goods to
Swedish Orphan which will provide physical distribution along with marketing and
sales support.
MAXIVENT Agreements. In 1984, the Company obtained an exclusive license
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from ABC to develop and market MAXIVENT in the United States, Canada and Japan
and, in 1989, obtained a nonexclusive license to develop and market the drug in
the United Kingdom and Ireland. The exclusive license agreement requires the
Company to develop the product and obtain the requisite FDA and other approvals.
Each of the exclusive and nonexclusive license agreements requires the Company
to purchase its requirements of the bulk drug substance from ABC. If the
Company does not meet certain sales levels to be agreed upon, ABC may terminate
the exclusive license agreement, appoint additional licensees in the United
States, Canada and Japan or market the product directly or through third parties
in the United Kingdom and Ireland.
In 1993, the Company entered into an agreement with two Japanese
pharmaceutical companies, Sawai Pharmaceutical Co., Ltd. and Grelan
Pharmaceutical Co., Ltd., pursuant to which the Company granted such companies
exclusive rights to co-develop doxofylline in Japan. The agreement was entered
into after the two Japanese pharmaceutical companies exercised an option to
acquire such rights previously granted to them by the Company.
SOMAGARD License Agreement. In 1988, the Company and the Salk Institute
---------------------------
entered into a license agreement pursuant to which the Company obtained certain
rights to develop and market the product SOMAGARD in the United States and
certain foreign markets, including the United Kingdom and Canada. Under the
terms of the license agreement, the Company is required to pay royalties on
sales of SOMAGARD in countries in which the Salk Institute has obtained patents.
DIRAME License Agreement. In 1992, the Company entered into a license
-------------------------
agreement with Bayer with respect to the product DIRAME. Pursuant to this
agreement, the Company acquired exclusive worldwide rights from Bayer to
develop, manufacture and market the product DIRAME. The Company paid an up-
front royalty to Bayer for rights to develop and market DIRAME. The Company
must also pay Bayer licensing fees and royalties on sales.
RADINYL Agreements. In 1985, the United States government and the Company
-------------------
entered into a license agreement pursuant to which the Company obtained certain
rights to develop and market the product RADINYL. The license granted to the
Company is
-11-
<PAGE>
exclusive for seven years from the date of the first commercial sale of the
product and nonexclusive thereafter. The agreement pursuant to which the
license has been granted requires the Company to pay certain patent maintenance
fees and royalties to the United States government.
In 1985, the Company and Hafslund Nycomed Pharma formed a joint venture
company known as Linz-Roberts, Inc. ("Linz-Roberts") to develop RADINYL. The
Company and Hafslund Nycomed Pharma each own 50% of the common stock of Linz-
Roberts. The Company contributed its license to RADINYL to Linz-Roberts and the
Company has been granted an exclusive license by the joint venture to
manufacture and distribute RADINYL dosage forms in the United States, Canada,
the United Kingdom and Ireland. Hafslund Nycomed Pharma has been licensed on an
exclusive basis to manufacture and distribute RADINYL dosage forms in Europe
(except the United Kingdom and Ireland), the Middle East and Africa. Both
parties have the right to grant sublicenses. Hafslund Nycomed Pharma has been
designated the supplier of bulk RADINYL substance, and the joint venture has
contracted to purchase its entire requirements of bulk RADINYL substance from
Hafslund Nycomed Pharma, provided that Hafslund Nycomed Pharma can meet certain
price requirements and supply all required quantities. Linz-Roberts has
retained the right to distribute RADINYL in the territories not licensed to the
Company or Hafslund Nycomed Pharma.
STANATE License Agreement. In 1994, the Company and The Rockefeller
--------------------------
University entered into a license agreement pursuant to which the Company
acquired the exclusive worldwide rights to develop, manufacture, market and sell
STANATE. The Company paid an up-front license fee to Rockefeller University for
the rights to develop, manufacture, market and sell STANATE. The Company must
also pay Rockefeller University annual licensing fees and royalties on sales.
MARKETING
The Company markets and sells its products primarily through its own sales
force and through a network of brokers and distributors. During 1995, the
Company's marketing and sales force increased by more than 50% in order to
promote actively the Company's products, mainly in connection with the
commencement of the sale of TIGAN, EMINASE and NOROXIN. Pursuant to the
Company's exclusive marketing, sales and distribution agreement with Merck with
respect to NOROXIN, the Company agreed to increase its domestic professional
sales force significantly and to make a fixed number of medical presentations to
medical specialists in order to promote NOROXIN actively. See "Prescription
Pharmaceutical Products."
The Company is currently positioning its sales operation to impact selected
physician specialties and major buying and decision making entities, such as
managed care organizations and large retail and mass merchandise operations.
With the growing trend in the United States of providing health care through
some form of managed care program, the Company has stepped up its selling
efforts of prescription products to such managed healthcare organizations. In
an effort to increase its sales to managed healthcare organizations, the Company
has employed national account managers to focus efforts on this growing market.
Various marketing, promotion, sales and training programs have been
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initiated to improve the Company's penetration of the managed healthcare market
and increase product sales to managed healthcare organizations.
In October 1995, the Company hired a contract sales organization, Syncom
Pharmaceuticals, Inc. ("Syncom"), to assist with a pediatric promotional program
involving TIGAN, NUCOFED and FUROXONE, and a cardiovascular promotional program
involving NITRODISC. Pursuant to the terms of the agreement between Syncom and
the Company, Syncom will hire and train approximately seventy-five sales
representatives who will call upon a select physician audience to promote TIGAN,
NUCOFED, FUROXONE and NITRODISC. Syncom shall receive a fixed fee for each
physician call made and a service fee for establishing a series of pediatric
product line territories. Initially, Syncom shall promote the pediatric program
for a period of ten (10) months, and the cardiovascular program for a period of
twelve (12) months. The Company can extend the agreement for a period of four
months.
MANUFACTURING
The Company engages contractors, primarily large pharmaceutical companies,
to convert active ingredients into finished drug products. In most instances
where the Company has acquired the rights to approved products from other
pharmaceutical companies, the seller or licensor has agreed to manufacture the
Company's requirements of the products for a specified period of time. The
manufacturing activities conducted by third parties for the Company consist of
the receipt and storage of materials, purification, production, packaging and
labeling. The Company has established a manufacturing department which is
responsible for (i) monitoring the manufacturing operations of its contractors,
(ii) inventory control, and (iii) quality control. The Company's manufacturing
department has established a quality control and quality assurance program,
including a set of standard operating procedures, designed to assure that the
Company's products are manufactured in accordance with good manufacturing
practices standards ("GMP") and other applicable domestic and foreign
regulations.
HOMECARE AND MEDICAL PRODUCTS
In 1994, the Company reorganized Homecare under the name "Pronetics Health
Care Group." Through four subsidiary entities of the Company, located in South
Carolina, North Carolina, New York and New Jersey, Homecare distributes high
value prescription injectable and biotechnology pharmaceutical products for
physician office use and provides medical and other health oriented therapies in
home and outpatient settings. The products distributed by Homecare include
specialty endocrinology, oncology and biotechnology products for nationwide
distribution to physicians and a series of products for use in the treatment of
AIDS patients, such as recombinant erythropoietin. Homecare operates a
licensed, certified and isolated clean room laboratory at its South Carolina
location where it prepares many of the drugs that it distributes. The home and
outpatient therapeutic services offered by Homecare include enteral and
parenteral nutritional support, IV antibiotic therapy, investigational drug
therapies, chemotherapy, pain management, HIV/AIDS therapies, human growth
hormone therapy and home infusion therapy. Through a division of the Company,
Roberts Medical Products, Homecare markets medical products to industrial
companies
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through catalogs, advertising flyers, telemarketing, direct physician office
visits and at local, regional and national medical conventions.
In August 1995, the Company announced its decision to discontinue and
divest certain non-core, nonpharmaceutical business activities, including the
operations of Homecare, which are no longer compatible with the Company's
objective of growing and developing a pharmaceutical company with a primary
focus on the sale of prescription drugs. While Homecare's businesses had a role
in the initial stages of the Company's growth and development, these businesses
never represented a significant portion of the Company's consolidated revenue or
earnings. The Company believes that by narrowing its business mix through
divestment of these non-core businesses, the Company can realize certain
significant benefits such as (i) a more efficient and focused deployment of the
Company's resources towards the sale of prescription pharmaceuticals; (ii) the
opportunity to allocate more of the Company's resources towards moving the
Company's late-stage development drugs through the Company's research and
development pipeline; and (iii) the ability to provide greater management
control over the Company's core business operations.
The Company is continuing the process of reviewing divestment opportunities
for Homecare and is actively soliciting offers for the assets of these
businesses. The Company already has sold many of the assets of the medical
products division. The Company expects to complete the sale of the Homecare
businesses in 1996. For financial reporting purposes, the operations of
Homecare have been accounted for as discontinued operations and reported
separately from the results of the Company's continuing business operations.
See "Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Notes to Consolidated Financial Statements - Note
16."
PATENTS AND PROPRIETARY RIGHTS
The Company considers the protection of discoveries in connection with its
development activities important to its business. To date, the Company has
acquired certain foreign patents acquired in connection with the acquisition of
certain products and has filed applications for patents covering new processes
for manufacturing anagrelide, the active ingredient in AGRELIN. Additionally,
rights to patented technology have been licensed to the Company. The late-stage
products being developed by the Company which are afforded patent protection
are: AGRELIN - patents issued 1976, 1980 and 1982 and applications filed in
1996; MAXIVENT - patent issued 1980; SOMAGARD - patent issued 1980; DIRAME -
patent issued 1978; RADINYL - patent issued 1983; and STANATE - patents issued
1987, 1988, 1992 and 1993. The SOMAGARD patent applies to the use of the
product for the treatment of precocious puberty and prostate cancer in males.
Certain of the Company's products may be afforded protection under laws which
provide market exclusivity for orphan drugs and drugs which include a new active
ingredient. See "Government Regulation."
CONTRACT CLINICAL RESEARCH SEGMENT
Since its inception, the Company, through its subsidiary VRG, has derived a
portion of its revenues from contract clinical research. Under these
arrangements, the Company is paid a fee to conduct clinical research for
pharmaceutical companies that wish to test the safety and efficacy of their
products. The Company has primarily conducted studies of
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investigational new drugs for major multinational pharmaceutical company clients
and to a lesser degree performed safety and efficacy tests on a variety of over-
the-counter products.
The Company has also provided clinical investigation services to
pharmaceutical companies to assist them in reducing the time required to
introduce new drugs to the market.
The Company's integrated clinical research operations have been conducted
through fifteen research-dedicated outpatient clinics located in 10 states; an
in-house patient recruiting system; a custom designed multi-purpose computerized
study tracking system; on-site study coordinators; qualified contract
investigators; sophisticated data management and multi-level quality control.
In 1992 and 1993, VRG entered into a series of agreements with Yamanouchi,
U.K. Limited, a subsidiary of Yamanouchi Pharmaceutical Co., Ltd.
("Yamanouchi"), pursuant to which VRG conducted clinical trials on YM617. These
agreements were subsequently assigned to Yamanouchi U.S.A. Inc. ("Yamanouchi
U.S.A."), also a subsidiary of Yamanouchi. In 1995, Yamanouchi U.S.A. merged
with and into Yamanouchi Group Holding Inc. ("Yamanouchi Group"), also a
subsidiary of Yamanouchi, as part of a corporate restructuring, and all assets
of Yamanouchi U.S.A.were transferred to the Yamanouchi Group. Yamanouchi Group
is a major shareholder of the Company. As required by the terms of the
agreements, as amended, VRG completed all work under the agreements by December
31, 1995 and Yamanouchi has paid to VRG the balance of the $30 million contract
fee (approximately $28.2 million had been paid to VRG before 1995).
The work performed under the Yamanouchi agreements decreased in 1995 and
was not replaced by other contracts. This resulted in substantially lower
revenue from contract clinical research operations during the fiscal year ended
December 31, 1995. See "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations." In 1995, VRG's operations
produced a loss, net of tax benefit, of $3.5 million. Consistent with the
Company's decision in 1995 to discontinue and divest certain of its non-core,
nonpharmaceutical businesses, the Company announced, in March 1996, the adoption
of a plan pursuant to which it will discontinue and seek to divest the business
operations of VRG. Contract clinical research generally has proven to have lower
profit margins than the sale of prescription pharmaceuticals, and the Company
believes that, in the future, contract clinical research has lower growth
prospects for it than the sale of prescription pharmaceuticals. If the Company
continued the operations of VRG, the Company projects that, in the foreseeable
future, the operation of its contract research business would continue to
produce a net loss. The Company is also faced with the dilemma that contract
clinical research operations are now more highly dependent for customers on
other pharmaceutical companies which, as the Company continues to grow and
develop as a pharmaceutical company with a focus on the sale of prescription
drugs, have been hesitant to contract with the Company since such firms view the
Company as a rival and competitor. The Company expects that the sale of its
contract clinical research operations will be completed before the end of
December 1996. See "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Notes to Consolidated Financial
Statements - Note 16."
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<PAGE>
GENERAL
COMPETITION
Many companies, including large pharmaceutical, chemical and biotechnology
firms with financial and marketing resources and research and development staffs
and facilities substantially greater than those of the Company, are engaged in
researching, developing, marketing and selling products intended to treat the
same conditions and diseases as the products currently sold and under
development by the Company. Further, other products now in use or under
development by others may be intended to treat the same conditions as the
Company's products. The pharmaceutical industry is characterized by rapid
technological advances, and competitors may develop products more rapidly than
the Company. In addition, competitors may be able to complete the regulatory
approval process sooner than the Company, and therefore market their products
earlier than the Company can market certain of its products.
GOVERNMENT REGULATION
The marketing of pharmaceutical products requires the approval of the FDA
and comparable agencies in foreign countries. The FDA has established
guidelines and safety standards which apply to the preclinical evaluation,
clinical testing, manufacture and marketing of pharmaceutical products. The
process of obtaining FDA approval for a new drug can take many years and often
involves the expenditure of substantial resources. The steps required before
such a product can be produced and marketed for human use include preclinical
studies, the filing of an IND, human clinical trials and the approval of an NDA.
Drug marketing exclusivity protection is granted through the Orphan Drug
Act of 1983 (the "Orphan Drug Act") and the Drug Price Competition and Patent
Term Restoration Act of 1984 (commonly referred to as the "Waxman Hatch Act").
The Orphan Drug Act entitles a company to market exclusivity in the United
States for a period of seven years from the date of FDA approval for drugs
which, among other criteria, are intended to treat a patient population of less
than 200,000. Three of the Company's late-stage drugs, PROAMATINE for
idiopathic orthostatic hypotension, SOMAGARD for central precocious puberty and
AGRELIN for thrombocythemia, have been granted "orphan drug status" in the
United States. Certain provisions of the Waxman-Hatch Act grant market
exclusivity in the United States for a period of five years from the date of FDA
approval for drugs containing a new active ingredient. Based upon its review of
industry and government data, the Company believes that DIRAME may qualify for
this protection.
The manufacturing processes of the Company's contractors and licensees are
subject to regulation, including the need to comply with GMP. The Company's
business is also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Drug Enforcement Act, the Resource Conservation and Recovery Act, the
Pharmaceutical Marketing Act of 1988 and other present and potential future
federal, state or local regulations.
The Company's subsidiaries operating as part of Homecare are subject to
federal laws and regulations which govern reimbursement procedures and practices
under the
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<PAGE>
Medicare program and impose certain restrictions on both the manner in which the
services are provided as well as on the manner in which certain administrative
activities are handled. In addition, these subsidiaries are subject to federal
environmental laws and regulations regarding the disposal of toxic and
infectious waste. However, with the adoption of the plan to discontinue the
operations of Homecare, the Company anticipates that these laws and regulations
will not have a significant effect on its business operations in the future.
The Company markets various products containing controlled substances that
are subject to the Department of Justice, Drug Enforcement Administration
regulations. Distribution of prescription drugs classified as controlled
substances or, in some cases, other pharmaceutical products, is subject to
licensing or regulation in certain states. Generally, the entity engaged in the
actual distribution is subject to such regulation. In addition, state licensing
is generally required in the state in which such entity's principal place of
business is located.
United States Federal and state governments continue to seek means to
reduce costs of Medicare and Medicaid programs, including placement of
restrictions on reimbursement for, or access to, certain drug products. Major
changes were made in the Medicaid program under the Omnibus Budget
Reconciliation Act of 1990 (the "Act"). As a result, the Company entered into a
Medicaid Rebate Agreement ("Rebate Agreement") with the United States
Government, under Section 4401 of the Act. Pursuant to the Rebate Agreement, in
order for federal reimbursement to be available for prescription drugs under
state Medicaid plans, the Company must pay certain statutorily prescribed
rebates on Medicaid purchases. Effective July 1, 1991, the law also denies
federal Medicaid reimbursement for drug products of the original NDA-holder if a
less expensive generic version of such drug is available from another
manufacturer, unless the prescriber indicates on the prescription that the
branded product is medically necessary.
In most other markets, governments exert controls over pharmaceutical
prices either directly or by controlling admission to, or levels for,
reimbursement by government health programs. The nature of such controls and
their effect on the pharmaceutical industry vary greatly from country to
country.
EMPLOYEES
As of March 22, 1996, the Company had 483 employees, including 4 officers,
40 persons engaged in research and development activities and 257 persons
engaged in marketing and sales activities. In addition to its full-time staff,
the Company engages medical doctors and other professional personnel on a
consultancy basis and, from time to time, consultants and others on a per diem
or hourly basis.
The Company believes its relations with its employees are satisfactory.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial Information about Foreign and Domestic Operations is presented in
Note 14 to the Company's financial statements. See "Notes to Consolidated
Financial Statements -Note 14."
ITEM 2. PROPERTIES
The Company's worldwide headquarters is located at Meridian Center II, 4
Industrial Way West, Eatontown, New Jersey. The building housing the Company's
worldwide headquarters, which was purchased by the Company in 1992 and occupied
in 1993, consists of an aggregate of 80,000 square feet.
The Company owns an office and warehouse building consisting of 30,300
square feet, which is located across the street from the Company's worldwide
headquarters. The Company uses this building for the warehousing of Company
records, archives, certain offices and facilities.
The Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd.,
occupies 3,800 square feet of leased office space in the Surrey Research Park in
Guildford, Surrey, England, 30 miles south of London. The monthly rental for
these offices is approximately 6,500 British pounds.
The Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc.,
occupies 4,122 square feet of leased office space in Ontario, Canada. The lease
provides for a monthly rental of $4,122, Canadian currency.
The Company also leases office space in several other locations in the
United States and certain foreign countries.
ITEM 3. LEGAL PROCEEDINGS
On April 10, 1995, a shareholders' class action suit was instituted in the
United States District Court for the District of New Jersey against the Company
and certain of its officers and a former officer by Grace Cowitt on behalf of
all persons who purchased shares of the Company's Common stock between November
7, 1994 and March 22, 1995. On June 26, 1995, a similar shareholders' class
action suit was instituted in the United States District Court for the District
of New Jersey against the Company and certain of its officers and a former
officer by Dieter Zander on behalf of all persons who purchased shares of the
Company's Common Stock between November 7, 1994 and May 31, 1995. Each
complaint asserts claims against the Company and certain of its officers and a
former officer for violations of Section 10(b) and 20(a) of the Securities and
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder with
respect to press releases and filings with the Securities and Exchange
Commission and certain public statements allegedly made by the Company and
certain of its officers and a former officer relating to the Company's business.
The plaintiffs seek to recover damages in an unspecified amount. The Company
believes that it has complied with all of its obligations under the federal
securities laws and considers the plaintiffs' allegations to be without merit.
In October 1995, the suit filed by
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Dieter Zander was voluntarily dismissed by the plaintiff. The Company is
vigorously defending against the allegations in the remaining suit and discovery
proceedings have commenced. The District Court has not yet certified the
lawsuit as a class action. The Company is not able to predict the outcome of
this proceeding at this time, and management is not able to determine the amount
of the potential liability, if any.
There are no additional material legal, governmental, administrative or
other proceedings pending against the Company, any of its subsidiaries or any of
their properties, or to which the Company or any such subsidiary is a party, and
to the knowledge of management, no such material proceedings are threatened or
contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended December 31, 1995, no matter was submitted
to a vote of the Company's security holders through the solicitation of proxies
or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 22, 1996 are listed below
and brief summaries of their business experience and certain other information
with respect to each of them is set forth in the following table and in the
information which follows the table.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -----------------------------
<S> <C> <C>
ROBERT A. VUKOVICH, Ph.D. 52 President and Chief Executive
Officer
ROBERT W. LOY 58 Executive Vice President
PETER M. ROGALIN 53 Vice President, Treasurer and
Chief Financial Officer
ANTHONY A. RASCIO, ESQ. 53 Vice President, Secretary and
General Counsel
</TABLE>
______________________
Robert A. Vukovich, Ph.D., has served as Chairman of the Board and
President of the Company since its inception in 1983. From 1979 to 1983, he
served as Director of the Division of Developmental Therapeutics for Revlon
Health Care Group. From 1970 to 1974, Dr. Vukovich was employed in various
capacities by the Squibb Institute and served as Director of Clinical
Pharmacology for that organization from 1974 to 1979. Prior to 1970, Dr.
Vukovich was a clinical research scientist for The Warner Lambert Research
Institute.
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<PAGE>
Dr. Vukovich is a graduate of Jefferson Medical College, Philadelphia,
Pennsylvania, with training in pharmacology and pathology.
Robert W. Loy has served as Executive Vice President of Operations and New
Business Development since March 4, 1996. Mr. Loy served as Chief Operating
Officer of the Company from August 1992 to March 1996 and as Vice President of
the Company from December 1992 to March 1996. Mr. Loy has served as a Director
of the Company since October 1993. From 1963 to 1990, he held various positions
at Squibb Corporation, including that of Vice President, Worldwide Operations
for the Squibb Derm Division. From 1990 to 1992, Mr. Loy served as Vice
President, International Sales and Marketing, with Hollister, Inc. Mr. Loy
received his undergraduate degree from Old Dominion University and attended
Villanova University Graduate School.
Peter M. Rogalin has served as Vice President, Treasurer, Chief Financial
Officer and a Director of the Company since February 5, 1996. From 1978 to
1992, Mr. Rogalin was employed in various executive capacities by Sterling
Winthrop, Inc. (formerly Sterling Drug, Inc.), including Assistant Treasurer
from 1987 through 1992. From 1993 through July 1994, Mr. Rogalin was a
Principal in RK Associates, a consulting firm with specific expertise in
financial and business operations and systems for small and medium sized
companies. From July 1994 through January 1996, Mr. Rogalin served as Vice
President -Finance and Chief Financial Officer of ImClone Systems, Inc., a
biopharmaceutical company engaged in research and development of therapeutic
products for the treatment of cancer and cancer related disorders. Mr. Rogalin,
a Certified Public Accountant, received his undergraduate degree from St.
Lawrence University and an M.B.A. from the Graduate School of Business, New York
University.
Anthony A. Rascio, Esq., has served as Vice President and General Counsel
and a Director of the Company since June 1987. In addition, he served as
Assistant Secretary of the Company from 1987 to 1992, at which time he assumed
the position of Secretary of the Company. From January 1987 to June 1987, Mr.
Rascio was Director, Legal Affairs for the Company. During 1986, Mr. Rascio was
engaged in the private practice of law. From 1984 through 1985, Mr. Rascio was
employed as Director, International Operations by Jeffrey Martin, Inc., a
marketer of cosmetics and proprietary medicines. Mr. Rascio served as Legal
Director, International Pharmaceutical Products Division for Schering-Plough
Corporation from 1980 through 1984 and held various legal positions with that
company from 1971 to 1980. Mr. Rascio received undergraduate and law degrees
from Fordham University.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
NASDAQ National Market System and was held by approximately 931 shareholders of
record as of March 22, 1996.
The following table sets forth, for the periods indicated, the high and low
last sale prices for the Company's Common Stock, as reported on the NASDAQ
National Market System.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
First Quarter $40 $28 1/2
Second Quarter $33 1/2 $20 1/4
Third Quarter $35 $19 3/4
Fourth Quarter $33 1/2 $24 3/4
YEAR ENDED DECEMBER 31, 1995
First Quarter $46 1/2 $24 3/4
Second Quarter $28 $15 1/2
Third Quarter $26 1/2 $17
Fourth Quarter $23 3/4 $15 3/4
</TABLE>
The Company has not paid any cash dividends on its Common Stock in the
past, and it is unlikely that the Company will pay any dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the Company for each of the
five fiscal years in the period ended December 31, 1995 are derived from
financial statements that have been audited and reported upon by Coopers &
Lybrand L.L.P., independent accountants for the Company. This data should be
read in conjunction with "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
consolidated financial statements and related notes appearing elsewhere in this
report. Further, in connection with the discontinuation of the operations of
Homecare and VRG, the Company has restated the selected financial data
to reflect income and loss from the Company's continuing operations and
discontinued operations during these years. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements - Note 16."
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<PAGE>
<TABLE>
<CAPTION>
OPERATING STATEMENT DATA:
Years Ended December 31,
- -----------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- -------- --------
(in thousands, except
per share data)
<S> <C> <C> <C> <C> <C>
Total Revenue $12,792 $ 18,407 $ 57,561 $ 89,020 $113,427
Operating Income
(loss) from Continuing
Operations (4,938) (9,986) 7,850 25,802 6,873
Income (loss) from
Continuing Operations before
Extraordinary Item (5,144) (8,473) 6,415 20,618 2,703
Net Income (loss) from
Continuing Operations (5,144) (8,473) 6,415 20,618 2,703
Net (Loss) Income from
Discontinued Operations 18 (327) 813 (1,206) (27,045)
Net (Loss) Income (5,126) (8,800) 7,228 19,412 (24,342)
Earnings (loss) Per Share
of Common Stock from
Continuing Operations
before Extraordinary Item (.58) (.61) .41 1.10 .15
Earnings (loss) Per Share
of Common Stock from
Continuing Operations (.58) (.61) .41 1.10 .15
(Loss) Earnings Per Share
of Common Stock from
Discontinued Operations --- (.03) .05 (.06) (1.45)
(Loss) Earnings Per Share
of Common Stock (.58) (.64) .46 1.04 (1.30)
Average Number of
Common Shares
Outstanding 8,843 13,770 15,590 18,708 18,623
</TABLE>
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<TABLE>
<CAPTION>
BALANCE SHEET DATA:
As of December 31
- -----------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Assets $44,150 $185,424 $343,103 $336,192 $340,290
Long-Term Debt and
Redeemable Preferred
Stock 9,237 28,999 45,668 22,411 16,183
Shareholders' Equity 25,106 121,594 238,999 259,129 235,467
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
Corporate Revenues. For the year ended December 31, 1995, total
-------------------
revenue increased $24.4 million from $89 million to $113.4 million. This
increase was the result of a $26 million increase in product revenue offset by
a $1.55 million decrease in other revenues. See "Product Sales" and "Other
Revenues."
Product Sales. For the year ended December 31, 1995, product sales
--------------
increased $26 million from $87.4 million to $113.4 million primarily as a
result of new product acquisitions in the U.S. and the United Kingdom in 1994
and 1995. Sales in the U.S. increased from $66.2 million to $90.2 million as a
result of 1995 product acquisitions and licensing activities. TIGAN and
EMINASE, acquired from SmithKline Beecham, and NOROXIN licensed from Merck in
1995, added $48 million. This increase was offset by a $24 million decline in
the sales of all other prescription and nonprescription products. Sales of the
Company's United Kingdom subsidiary, Monmouth Pharmaceuticals, Ltd., increased
$2.4 million from $9.7 million to $12.1 million. This increase is primarily the
result of the 1994 product acquisition of MAXOLON from SmithKline Beecham.
Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical Canada, Inc.,
decreased slightly to $11.1 million from $11.4 million primarily as a result of
a decline in demand for the Company's over-the-counter nonprescription
pharmaceutical products.
Other Revenues. Other revenues result from licensing activities
---------------
undertaken by the Company and represent revenues from separate transactions in
1994 and 1995. For the year ended December 31, 1995, other revenues decreased
$1.55 million from $1.6 million to $.05 million primarily as a result of a
decline in licensing activities.
Cost of Sales. For the year ended December 31, 1995, cost of sales
--------------
amounted to 47% of product sales a 25 percentage point increase as compared to
the prior year. As a result, gross profit as a percentage of sales decreased
from 78% to 53%. This increase in cost of sales as a percentage of product
sales and related decrease in gross profit percentage is primarily the result of
the addition of NOROXIN to the Company's product mix as well as a decline in
sales of higher margin products in the U.S. NOROXIN, which accounted for 31% of
the Company's product sales in 1995, has a significantly lower gross profit
margin than the other core pharmaceutical products sold by the Company. In the
foreseeable future, the Company expects that NOROXIN will continue to provide a
substantial part of the Company's product sales and, accordingly, the Company
expects that cost of sales and gross profit as a percentage of sales will be
similarly impacted.
Research and Development. Research and development expenses decreased
-------------------------
by $3.4 million to $6.1 million during the year ended December 31, 1995 as
compared to the prior year. The decrease is due to a reduced level of
expenditure required to support the Company's development programs for AGRELIN
and PROAMANTINE.
-24-
<PAGE>
Marketing and Administrative Expenses. For the year ended December
--------------------------------------
31, 1995, marketing and administrative expenses increased $13.3 million from
$34.3 million to $47.6 million in larger part as a function of the significant
increases in sales and development programs in connection with the acquisition
and commencement of sales of TIGAN, EMINASE and NOROXIN during 1995. Marketing
expenses increased $7.4 million as a result of increased promotional and sales
activities for new products and the expansion and training of the Company's
sales forces in the U.S., Canada and the United Kingdom. Included in
administrative expenses is amortization of intangibles relating to product
acquisitions. For the year ended December 31, 1995, this expense was $6.6
million, an increase of $.9 million from $5.7 million recorded in 1994.
Interest Income and Expense. For the year ended December 31, 1995,
----------------------------
interest income decreased from $2.9 million to $2.1 million as a result of a
decrease in invested marketable securities. Interest expense decreased from
$3.9 million to $3.5 million primarily as a result of a decrease in long-term
debt from 1994.
Income Taxes. For the year ended December 31, 1995, income taxes on
-------------
continuing operations decreased to $2.8 million from $4.1 million in 1994
primarily as a result of a decline in income. The Company's 1995 effective tax
rate of 51% is higher than the normal statutory rate primarily as a result of
the Company's inability to recognize the tax benefit of foreign net operating
loss carry forwards. The Company's 1996 effective tax rate for continuing
operations should approximate a normal statutory rate.
Income from Continuing Operations. For the year ended December
----------------------------------
31,1995, net income from continuing operations was $2.7 million, which
represents a decrease of $17.9 million from those same business operations
during 1994. Certain of the Company's business operations were not discontinued
in 1995 and, accordingly, the Company's consolidated statements of operations
for 1994 and 1993 have been restated to reflect income and loss from the
Company's continuing operations and discontinued operations during those years.
See "Notes to Consolidated Financial Statements - Note 16."
The Company believes that the decline in net income from continuing
operations from 1994 to 1995 is attributable to a number of factors, including
(i) a decline in demand for certain of the Company's existing pharmaceutical
products, particularly NORETHIN, NITRODISC, SALUTENSIN and the Company's over-
the-counter nonprescription pharmaceutical products; (ii) an unanticipated delay
in the closing of the Company's agreement with Merck to distribute NOROXIN and
the diversion of the Company's sales force from the promotion of existing
products to allow for sales training related to NOROXIN; (iii) revenues from the
sale of TIGAN and EMINASE during the first quarter of 1995 prior to their
acquisition by the Company, during which time the Company was distributing such
products subject to distribution agreements with SmithKline Beecham, were not
accounted for as revenues by the Company, but instead as a $5.4 million
reduction in the purchase price paid by the Company for these products; (iv) the
increase in cost of sales as a result of the higher costs related to the sale of
NOROXIN and the growing importance of NOROXIN in the Company's product mix; and
(v) the costs associated with increasing the Company's sales force by more than
50% in 1995 in order to promote TIGAN, EMINASE and NOROXIN and the fact that the
sale of such products did not commence until the end of the first quarter of
1995.
-25-
<PAGE>
Discontinued Operations. In connection with the Company's decision to
------------------------
divest certain non-core, nonpharmaceutical business operations, the Company
announced, in August 1995, its plan to discontinue and divest Homecare. In
March 1996, the Company announced its plan to discontinue and divest VRG, a
contract research organization. The Company expects the sales of Homecare and
VRG will be completed in 1996 and will result in a loss to the Company at
closing. Accordingly, the Company has charged current operations with the
estimated loss on discontinuing Homecare and VRG of $22.5 million. The Company
has also reclassified its consolidated financial statements to report separately
the net assets expected to be realized and operating results of its discontinued
operations. See "Notes to Consolidated Financial Statements - Note 16." The
Company's reported loss on discontinued operations represents the Company's best
estimates of the amounts expected to be realized on the sale of its discontinued
operations. The amounts the Company will realize could differ materially from
those amounts assumed by the Company in estimating the loss on disposal reported
in the Company's financial statements.
YEARS ENDED DECEMBER 31, 1993 AND 1994
Product Sales. For the year ended December 31, 1994, product sales
--------------
increased $31.8 million from $55.6 million to $87.4 million primarily as a
result of product acquisitions in 1993. Sales in the U.S. increased from $40.4
million to $66.2 million. SALUTENSIN, COLACE, PERI-COLACE and other OTC
products acquired from Bristol-Myers Squibb in 1993 added $21 million in the
period. Sales of the Company's Canadian subsidiary, Roberts Pharmaceutical
Canada, Inc., increased $3.5 million from $7.9 million to $11.4 million
primarily as a result of product acquisitions in 1993 from Glaxo Canada and
Bristol-Myers Squibb. Sales of the Company's United Kingdom subsidiary,
Monmouth Pharmaceuticals, Ltd., amounted to $9.7 million in the current period,
a $2.5 million increase from the comparable 1993 period. This increase is
primarily the result of the 1994 product acquisition of MAXOLON from SmithKline
Beecham.
Other Revenues. Other revenues result from licensing activities
---------------
undertaken by the Company and represent revenues from separate transactions in
1993 and 1994. In the year ended December 31, 1994, other revenues decreased
$.3 million from $1.9 million to $1.6 million.
Cost of Sales. For the year ended December 31, 1994, cost of sales
--------------
amounted to 22% of product sales, a 6 percentage point decrease as compared to
the prior year. The decrease in cost of sales as a percentage of sales is the
result of the Company's product mix; that is, increased sales of prescription
products as well as prescription product sales comprising a greater percentage
of total product sales. As a result, gross profit as a percentage of sales
increased from 72% to 78%.
Research and Development. Research and development expenses increased
-------------------------
by $1.2 million to $9.5 million during the year ended December 31, 1994 as
compared to the prior year. The percentage is due to the Company's continued
expansion of its late-stage development programs for AGRELIN, MAXIVENT, and
DIRAME. Increased costs related primarily to these programs include payments to
research scientists and clinical investigators, cost of drug supplies, increased
research and development staff and expenses related to monitoring clinical
research sites.
-26-
<PAGE>
Marketing and Administrative Expenses. For the year ended December
--------------------------------------
31, 1994, marketing and administrative expenses increased $8.7 million from the
$25.6 million incurred in the prior year period in large part as a function of
the significant increases in sales and development programs. Marketing expenses
increased $7.9 million as a result of increased promotional and sales activities
for new products and the expansion and training of sales forces in the United
States and Canada. Included in administration expenses is amortization of
intangible assets related to product and company acquisitions. For the year
ended December 31, 1994, this expense was $5.7 million, a $1.7 million increase
over 1993.
Interest Income and Expense. Interest income increased from $1.7
----------------------------
million to $2.9 million as a result of the investment of the proceeds of the
Company's October 1993 Common Stock offering. Interest expense increased $.7
million from $3.3 million primarily as a result of the amortization of discounts
on non-interest bearing notes issued in connection with product acquisitions in
1993.
Income Taxes. For the year ended December 31, 1994, income taxes
-------------
increased to $4.1 million. The Company's 1994 effective tax rate of 17 percent
is lower than the normal statutory rate primarily as a result of recognizing the
tax benefit of federal, state and foreign net operating loss carryforwards and
other credits.
LIQUIDITY AND CAPITAL RESOURCES
In the year ended December 31, 1995, operating cash inflows amounted
to $22.8 million as a result of net loss offset by non-cash charges and
increased by working capital requirements due to increased sales activity. As
of December 31, 1995, the Company had cash, cash equivalents and marketable
securities of $30 million. Cash outflows from operations amounted to $.7
million in 1994 and cash inflows from operations in 1993 amounted to $1.6
million, resulting primarily from the Company's development programs and working
capital requirements for sales of acquired products.
The Company's funding requirements will depend on a number of factors,
including the Company's development programs, product acquisitions, the level of
resources required for the expansion of marketing capabilities, increased
investment in accounts receivable and inventory which may arise from increased
sales levels, competitive and technological developments, the timing and cost of
obtaining required regulatory approvals for new products, relationships with
parties to collaborative agreements and the success of its acquisition
activities.
The Company will use its existing cash and securities balances and
cash generated from operations to fund its operating activities and its near
term and long-term debt obligations from previous product acquisitions. In
consideration of certain information furnished by the Company to the seller of
certain product rights to the Company, the seller agreed to defer to 1996, $8
million of the Company's long-term debt obligations which was due and payable in
1995. Based upon its present plans, the Company believes that it may require
additional funding in fiscal 1996. If additional funds are required, the
Company believes that it has various alternative funding sources including bank
debt, private debt financing, public and private equity financing and the sale
or licensing of product rights.
-27-
<PAGE>
Cash equivalents and marketable securities currently consist of immediately
available money market fund balances and investment grade securities.
Capital Expenditures. Expenditures for fixed assets relate primarily
---------------------
to the relocation and expansion of office facilities in the United States by
means of a purchase of an office facility and a combination office and warehouse
facility. In anticipation of future growth, the Company relocated its corporate
headquarters and principal operating facilities into these expanded facilities
in the third quarter of 1993. Capital expenditures are not expected to be
significant in the near term.
Foreign Currency Fluctuations. The Company has subsidiary operations
------------------------------
and performs certain development activities outside of the United States. As a
result, the Company is subject to fluctuations in reported revenues and costs
reported in United States dollars as a consequence of changing currency exchange
rates, especially rates for the British pound.
Concentration of Credit Risk. The Company markets prescription
-----------------------------
pharmaceuticals primarily to wholesale drug distributors, retail pharmacies,
managed healthcare organizations and physicians in the United States and
abroad. The Company performs certain credit evaluation procedures and does not
require collateral. The Company maintains reserves for estimated credit losses.
Inflation. Although at reduced levels in recent years, inflation
----------
continues to apply upward pressure on the cost of goods and services used by the
Company. However, the Company believes that the net effect of inflation on its
operations has been minimal during the past three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company called for by this item are submitted as a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
-28-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company required to be
furnished pursuant to this item is incorporated herein by reference to the
sections titled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act" from the Company's definitive Proxy Statement for
its Annual Meeting of Shareholders to be held in May 1996. Certain information
relating to executive officers of the Company is set forth in Item 4A of Part I
of this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated
herein by reference to the section titled "Election of Directors - Executive
Compensation" from the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held in May 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of certain beneficial
owners and management is incorporated herein by reference to the sections titled
"Principal Shareholders" and "Security Ownership of Management" from the
Company's definitive Proxy Statement for its Annual Meeting of Shareholders to
be held in May 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is incorporated herein by reference
to the section titled "Agreements with Yamanouchi and Certain Other
Transactions" from the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held in May 1996.
-29-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Reference is made to the Index of Financial
Statements and Financial Statement Schedules
hereinafter contained............................... F-1
3. EXHIBITS
Reference is made to the Index of Exhibits
hereinafter contained................................ E-1
(b) REPORTS ON FORM 8-K
During the fourth quarter ended December 31, 1995, no reports on Form
8-K were filed by the Company with the Securities and Exchange
Commission.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROBERTS PHARMACEUTICAL CORPORATION
----------------------------------
(Registrant)
Date: March 29, 1996 By:/s/ Robert A. Vukovich
----------------------------------------
ROBERT A. VUKOVICH, President
Pursuant to the requirements 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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ------------------------- --------------
<S> <C> <C>
/s/ Robert A. Vukovich President & Director March 29, 1996
- ------------------------ (Principal Executive
ROBERT A. VUKOVICH Officer)
/s/ Peter M. Rogalin Vice President, Treasurer March 29, 1996
- ------------------------ & Director (Principal
PETER M. ROGALIN Financial and Accounting
Officer)
/s/ Robert W. Loy Director March 29, 1996
- ------------------------
ROBERT W. LOY
/s/ Anthony A. Rascio Director March 29, 1996
- ------------------------
ANTHONY A. RASCIO
/s/ Yale Brozen Director March 29, 1996
- ------------------------
YALE BROZEN
/s/ Takao Miyamoto Director March 29, 1996
- ------------------------
TAKAO MIYAMOTO
/s/ Akihiko Matsubara Director March 29, 1996
- ------------------------
AKIHIKO MATSUBARA
/s/ W. Robert Fowler Director March 29, 1996
- ------------------------
W. ROBERT FOWLER
/s/ Digby W. Barrios Director March 29, 1996
- ------------------------
DIGBY W. BARRIOS
</TABLE>
-31-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ROBERTS PHARMACEUTICAL CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of
December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Operations for the
the years ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the
the years ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994
and 1993 F-7
Notes to Consolidated Financial Statements F-8
Schedules:*
Schedule II, Valuation and Qualifying Accounts F-24
</TABLE>
__________
* Schedule I under Article 12 of Regulation S-X has been omitted because of the
absence of the conditions under which certain information is required and
because certain information required is presented in the financial statements
and the notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
of Roberts Pharmaceutical Corporation
We have audited the accompanying consolidated balance sheets of Roberts
Pharmaceutical Corporation and Subsidiaries as of December 31, 1995, 1994 and
1993, and the related consolidated statements of operations, cash flows, changes
in shareholders' equity for each of the three years in the period ended December
31, 1995 and the financial statement schedules on pages F-24 to F-26 on this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roberts
Pharmaceutical Corporation and Subsidiaries as of December 31, 1995, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 9 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
/s/Coopers Lybrand, LLP
Princeton, New Jersey
March 20, 1996
F-2
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
ASSETS 1993 1994 1995
- ------ ------------ ------------ ------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 6,071 $ 9,819 $ 16,357
Marketable securities 85,565 26,663 13,649
Accounts receivable, net 16,774 28,882 26,318
Accounts receivable from shareholder 3,400 7,256 600
Inventory 12,926 19,797 20,785
Deferred tax assets --- --- 10,419
Net assets held for sale --- --- 4,300
Other current assets 3,110 3,784 1,342
-------- -------- --------
Total current assets 127,846 96,201 93,770
Fixed assets, net 16,272 16,800 15,681
Intangible assets 198,471 222,534 230,681
Other assets 514 657 158
-------- -------- --------
Total assets $343,103 $336,192 $340,290
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of
long-term debt $ 37,010 $ 34,277 $ 34,809
Accounts payable 10,850 6,735 14,737
Other current liabilities 9,799 12,922 32,236
-------- -------- --------
Total current liabilities 57,659 53,934 81,782
Long-term debt, excluding current installments 45,668 22,411 16,183
Deferred taxes payable --- --- 6,311
Other liabilities 777 718 547
Shareholders' equity:
Class B preferred stock, $.10
par value, 10,000,000 shares
authorized, none outstanding
Common stock, $.01 par value,
50,000,000 shares authorized,
18,327,936, 18,420,200 and
18,536,590 outstanding 187 188 189
Additional paid-in capital 254,803 255,994 256,296
Cumulative translation adjustments (200) (674) (297)
Retained earnings (deficit) (15,554) 3,858 (20,484)
Treasury Stock, 387,594 shares of
common stock, at cost (237) (237) (237)
-------- -------- --------
Total shareholders' equity 238,999 259,129 235,467
-------- -------- --------
Total liabilities and
shareholders' equity $343,103 $336,192 $340,290
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales and revenue:
Sales $ 55,612 $ 87,437 $ 113,380
Other revenue 1,949 1,583 47
----------- ----------- -----------
Total sales and revenue 57,561 89,020 113,427
Operating costs and expenses:
Cost of sales 15,737 19,418 52,870
Research & development 8,389 9,546 6,108
Marketing & administration 25,585 34,254 47,576
----------- ----------- -----------
Total operating costs & expenses 49,711 63,218 106,554
----------- ----------- -----------
Operating income 7,850 25,802 6,873
Other income (expense):
Interest income 1,710 2,891 2,050
Interest expense (3,271) (3,960) (3,453)
Other income (expense), net 126 --- 49
----------- ----------- -----------
Total other income (expense) (1,435) (1,069) (1,354)
----------- ----------- -----------
Income from continuing operations
before income taxes 6,415 24,733 5,519
Provision for income taxes --- (4,115) (2,816)
----------- ----------- -----------
Income from continuing operations 6,415 20,618 2,703
Discontinued operations:
(Loss) from operations of
discontinued divisions,
net of tax benefits
of $0, $238 and $2,474, respectively 813 (1,206) (4,547)
Estimated (Loss) on disposal of divisions,
net of tax benefits
of $0, $0 and $2,555, respectively --- --- (22,498)
----------- ----------- -----------
(Loss) income from discontinued operations 813 (1,206) (27,045)
----------- ----------- -----------
Net (loss) income $ 7,228 $ 19,412 $ (24,342)
=========== =========== ===========
Per share of common stock,
primary and fully diluted:
Net income from continuing operations $.41 $1.10 $.15
Net (loss) from discontinued operations .05 (.06) (1.45)
----------- ----------- -----------
Net (loss) income $.46 $1.04 $(1.30)
=========== =========== ===========
Weighted average number of common shares
outstanding, primary and fully diluted: $15,589,998 $18,708,000 $18,622,744
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,228 $ 19,412 $(24,342)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 4,248 6,174 7,164
Provision for losses on receivables 344 622 130
Provision for product sales returns 2,161 4,253 7,669
Loss on discontinued operations -- -- 22,498
Foreign currency (losses) gains 106 115 (31)
Change in accounts receivable, unbilled
revenue and advance billings (12,284) (9,823) 1,187
Change in other assets 725 309 1,144
Change in inventory (8,637) (6,651) (1,819)
Change in accounts payable and
other liabilities 9,848 (3,158) 12,460
Impact of discontinued operations (2,094) (11,906) (3,298)
-------- -------- --------
Total adjustments (5,583) (20,065) 47,104
-------- -------- --------
Net cash provided by (used in)
operating activities 1,645 (653) 22,762
-------- -------- --------
Cash flows from investing activities:
Investment in marketable securities (46,436) --- ---
Redemption of marketable securities --- 58,902 13,013
Purchases of intangible assets (8,297) (14,272) (1,552)
Purchases of fixed assets (6,400) (700) (226)
Impact of discontinued operations (164) (1,406) (243)
-------- -------- --------
Net cash (used in) provided by
investing activities (61,297) 42,524 10,992
-------- -------- --------
Cash flows from financing activities:
Payments on notes payable and long
term debt (49,195) (38,729) (28,061)
Net proceeds from issuance of common stock 110,377 656 803
Impact of discontinued operations (230) (16) (7)
-------- -------- --------
Net cash (used in) provided by financing
activities 60,952 (38,089) (27,265)
-------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents (2) (34) 49
-------- -------- --------
Change in cash and cash equivalents 1,298 3,748 6,538
Beginning cash and cash equivalents 4,773 6,071 9,819
-------- -------- --------
Ending cash and cash equivalents $ 6,071 $ 9,819 $ 16,357
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1994 1995
------ ------- -------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest and dividends received $ 1,710 $2,891 $ 2,050
Interest paid 3,408 3,726 2,979
Income taxes paid 56 1,970 268
Non cash activities:
Present value of notes issued in
connection with product acquisitions $72,918 $7,727 $18,279
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained Cumulative Trea- Total
----------------------- Paid-In Earnings Translation sury Shareholders'
Shares Amount Capital (Deficit) Adjustment Stock Equity
--------- --------- ---------- -------- ----------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 14,982,821 $150 $144,463 $(22,782) --- $(237) $121,594
Issuance of common stock 3,732,709 37 110,340 --- --- --- 110,377
Cumulative translation
adjustment --- --- --- --- $(200) --- (200)
Year ended December 31,
1993 net income --- --- --- 7,228 --- --- 7,228
----------- ---- -------- -------- ----- ----- --------
Balance,
December 31, 1993 18,715,530 $187 $254,803 $(15,554) $(200) $(237) $238,999
Issuance of common stock 92,264 1 1,191 --- --- --- 1,192
Cumulative translation
adjustment --- --- --- --- (474) --- (474)
Year ended December 31,
1994 net income --- --- --- 19,412 --- --- 19,412
----------- ---- -------- -------- ----- ----- --------
Balance,
December 31, 1994 18,807,794 $188 $255,994 $ 3,858 $(674) $(237) $259,129
Issuance of common stock 116,390 1 302 --- --- --- 303
Cumulative translation
adjustment --- --- --- --- 377 --- 377
Year ended December 31
1995 net loss --- --- --- (24,342) --- --- (24,342)
----------- ---- -------- -------- ----- ----- --------
Balance,
December 31, 1995 18,924,184 $189 $256,296 $(20,484) $(297) $(237) $235,467
========== ==== ======== ========= ===== ====== =========
</TABLE>
The accompanying notes are an integral part of these financial statnts.
F-7
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
Roberts Pharmaceutical Corporation is an international pharmaceutical company
which licenses, acquires, develops and commercializes post-discovery drugs in
selected therapeutic categories. The Company currently markets approved
pharmaceutical products in the United States, Canada, the United Kingdom and
several other European countries. The consolidated financial statements include
the accounts of Roberts Pharmaceutical Corporation and its majority-owned
subsidiaries. All significant intercompany transactions are eliminated. All
dollar amounts are presented in thousands, except for earnings per share.
Revenue Recognition
-------------------
Product sales, net of estimated future product returns, are recorded as products
are shipped against customer orders.
Licensing revenues are recorded as earned under the terms of each underlying
agreement and are included in other revenue.
Cash Equivalents and Marketable Securities
------------------------------------------
Cash equivalents include all money market investments with original maturities
of three months or less.
Marketable securities consist primarily of debt instruments with maturities of
more than three months and are stated at amortized cost plus accrued interest,
which approximates market.
Inventories
-----------
Inventories, consisting primarily of finished goods inventories, are stated at
the lower of first-in, first-out cost or market.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
F-8
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for allowance for
doubtful accounts, inventory obsolescence, future product returns, depreciation
and amortization, employee benefit plans, taxes, discontinued operations and
contingencies.
Fixed Assets and Depreciation
-----------------------------
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
determined using the straight-line method over the estimated useful lives of the
related assets ranging from five to fifty years. Gains and losses on disposals
are recognized in the year of the disposal. Expenditures for maintenance and
repairs are expensed as incurred; significant renewals and betterments are
capitalized.
Intangible Assets
-----------------
Intangible assets are stated at cost less accumulated amortization.
Amortization is determined using the straight-line method over the estimated
useful lives of the related assets which are estimated to range from ten to
forty years. It is the Company's policy to periodically review and evaluate
whether there has been a permanent impairment in the value of intangibles.
Factors considered in the valuation include current operating results, trends
and anticipated undiscounted future cash flows.
Foreign Currency Translation
----------------------------
The functional currency of the Company's European subsidiary is the U.S. dollar.
Accordingly, its accounts are remeasured in dollars and translation gains and
losses are included in income currently.
The functional currency of the Company's Canadian subsidiary is the Canadian
dollar. Translation gains and losses of the Company's Canadian subsidiary are
accumulated as a separate component of Shareholders' Equity.
Included in the balance sheet at December 31, 1993, 1994 and 1995 is debt of
$1,546, $4,673 and $1,849, respectively, denominated in British pounds.
F-9
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk
----------------------------
The Company markets prescription and nonprescription pharmaceuticals primarily
to wholesale drug distributors, retail pharmacies and physicians in the United
States and abroad. The Company performs certain credit evaluation procedures
and does not require collateral. The Company maintains reserves for estimated
credit losses; at December 31, 1993, 1994 and 1995, the reserve for
uncollectible accounts amounted to $2,199, $2,195 and $1,754, respectively.
At December 31, 1995, cash equivalents and marketable securities consisted of
immediately available money market fund balances and investment grade debt and
preferred stock securities with maturities of less than six months.
Recently Issued Accounting Standards
------------------------------------
In March 1995, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
statement, which will be adopted in 1996, addresses the accounting for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used. It also addresses the accounting
for long-lived assets and certain identifiable intangibles to be disposed of. It
establishes guidance for recognizing and measuring impairment losses and
requires that the carrying amount of impaired assets be reduced to fair value.
The effects of adoption of this statement are not expected to be material.
In 1996, the Company will adopt SFAS No. 123, "Accounting For Stock-Based
Compensation." This standard establishes a fair value method for accounting for
stock-based compensation plans either through recognition of the fair value of
the stock grant as expense or disclosure of the expense amount. The Company
intends to adopt this standard by disclosing the pro forma net income and
earnings per share amounts assuming the fair value method was adopted January 1,
1995. The adoption of the this standard will not impact the Company's results of
operations, financial position or cash flows.
F-10
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REVENUES AND EXPENSES
---------------------
For the years ended December 31, 1993 and 1994, license revenues amounted to
$1.8 million and $1.5 million, respectively.
Development expenses of the Company's products, including those funded under
license agreements, are included in research and development.
3. INVENTORY
---------
Inventory consists of:
December 31,
-------------------------
1993 1994 1995
------- ------- -------
Raw materials $ 3,972 $ 3,269 $ 3,539
Finished goods 8,954 16,528 17,246
------- ------- -------
$12,926 $19,797 $20,785
======= ======= =======
4. FIXED ASSETS, NET
Fixed assets consist of:
December 31,
-------------------------
1993 1994 1995
------- ------- -------
Land and buildings $14,431 $15,140 $14,823
Office furniture and
equipment 3,634 3,786 2,588
Leasehold improvements 139 139 109
------- ------- -------
$18,204 $19,065 $17,520
Less: Accumulated
depreciation and
amortization 1,932 2,265 $ 1,839
------- ------- -------
$16,272 $16,800 $15,681
======= ======= =======
Land and buildings costs include interest of $423 for 1993.
F-11
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INTANGIBLE ASSETS
-----------------
Intangible assets consist of:
December 31,
----------------------------
1993 1994 1995
-------- -------- --------
Product rights acquired $190,496 $216,879 $245,287
Goodwill 14,834 18,815 3,812
-------- -------- --------
205,330 235,694 249,099
Less: Accumulated
amortization 6,859 13,160 18,418
-------- -------- --------
$198,471 $222,534 $230,681
======== ======== ========
6. OTHER CURRENT LIABILITIES
-------------------------
Other current liabilities consist of:
December 31,
--------------------------
1993 1994 1995
------ ------- -------
Accrued estimated loss on
discontinuation of VRG
and Homecare --- --- $ 8,848
Accrued estimated future
product returns $6,250 $ 7,672 15,444
Accrued estimated medicaid
rebates 435 294 1,734
Income taxes payable 816 2,967 3,707
Other accrued liabilities 2,298 1,989 2,503
------ ------- -------
$9,799 $12,922 $32,236
====== ======= =======
Product return reserves of $990, $1,279 and $2,336 been netted against accounts
receivable for 1993, 1994 and 1995, respectively.
F-12
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
--------------
Long-term debt consists of:
December 31,
--------------------------
1993 1994 1995
------- ------- -------
Notes payable on product
acquisitions at an imputed
weighted average interest
rate of 6.1%, 5.2% and
5.75% $82,465 $56,592 $50,846
Other notes payable 213 96 146
------- ------- -------
82,678 56,688 50,992
Less: Current installments 37,010 34,277 34,809
------- ------- -------
$45,668 $22,411 $16,183
======= ======= =======
Principal payments in each of the next five years on long-term debt outstanding
at December 31, 1995 amount to:
1996...........................................$34,809
1997........................................... 5,544
1998........................................... 3,562
1999........................................... 3,775
2000........................................... 3,302
------
$50,992
=======
Notes payable are collateralized by acquired product rights. In consideration
of certain information being furnished by the Company to the seller of certain
product rights to the Company, $8 million which was due in 1995 is now required
to be paid in 1996 and the principal payments in 1995 and 1996 have been reduced
and increased, respectively, by that amount.
F-13
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SHAREHOLDERS' EQUITY
--------------------
The Company maintains stock option plans under which options to purchase
shares of Common Stock are granted.
Stock option information:
Years Ended December 31,
--------------------------------
1993 1994 1995
--------- --------- ----------
Number of stock options:
Outstanding at the end
of the period 531,345 966,654 1,175,710
Exercise price range, $ 1.67 $ 1.67 $ 3.875
outstanding options to $36.50 to $25.00 to $25.00
Exercisable at the end
of the period 202,690 363,654 596,110
Exercised during the
period 57,979 72,511 135,493
Exercise price range, $ 1.67 $ 1.67 $ 1.67
exercised options to $21.63 to $25.00 to $25.00
9. INCOME TAXES
------------
The Company utilizes the asset and liability method for taxes, which requires
that deferred income taxes be provided for the cumulative temporary differences
between the financial and tax bases of the Company's assets and liabilities.
The provision (benefit) for income taxes consists of:
Years Ended December 31,
----------------------------
1993 1994 1995
-------- -------- --------
Current
Federal $ 235 $ 4,645 $3,641
State and foreign 358 82 57
------- ------- ------
Total current $ 593 $ 4,727 $3,698
======= ======= ======
Deferred
Federal $(1,156) 462 (728)
State and foreign 563 (1,312) (154)
------- ------- ------
Total deferred $ (593) $ (850) $ (882)
======= ======= ======
F-14
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A comparison of the provision for income taxes as reported, to a provision
based on federal statutory rates and consolidated income before income taxes is
as follows:
Years Ended December 31,
-------------------------------
1993 1994 1995
------------ -------- -------
Provision (benefit) at
federal statutory
rates $ 2,458 $ 8,152 $1,876
Non-deductible expense 321 599 404
State taxes net of
federal effect 50 287 3
Research and development
credits --- (744) ---
Foreign net operating
losses-valuation
allowance --- --- 405
Other 56 (641) 128
Reduction in federal
valuation allowance (2,885) (2,731) ---
Reduction in state
valuation allowance
net of federal effect --- (1,045) ---
------- ------- -------
Provision (benefit)
for income taxes $ -0- $ 3,877 $ 2,816
======= ======= =======
F-15
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1994 and December 31,
1995 are presented below:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
------------------------- --------------------------
Federal Debits Credits Debits Credits
- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Deferred interest expense $ 700 $ $ --- $
Inventory 506 767
Allowance for bad debts 612 572
Accrued liabilities 1,733 5,269
Depreciation 327 424
Foreign items 1,191 1,648
Amortizable intangibles 4,490 6,668
Loss on Discontinuance --- 3,112
Other --- 16
State taxes 1,098 867 1,075 742
------ ------ ------- ------
Total 5,840 5,684 12,459 7,834
Valuation allowance -
foreign --- --- (517) ---
------ ------ ------- ------
$5,840 $5,684 $11,942 $7,834
====== ====== ======= ======
</TABLE>
At December 31, 1995, the Company has foreign net operating loss carryforwards
of approximately $4,850 and net operating loss carryforwards for state tax
purposes of approximately $11,000 which expire at various dates through 2002.
A full valuation allowance was provided for certain foreign net operating
losses since, based upon 1995 operating losses, realization of this tax asset is
uncertain.
F-16
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LEASES AND OTHER COMMITMENTS
----------------------------
The Company leases office space and certain office equipment under operating
leases. Minimum rental payments in each of the next five fiscal years required
under leases which have initial or remaining lease terms in excess of one year
are as follows:
December 31, 1995
-----------------
1996 ...................... $1,723
1997 ...................... 1,346
1998 ...................... 913
1999 ...................... 575
2000 ...................... 383
Rent expense for the years ended December 31, 1993, 1994, and 1995 was $1,972,
$2,184 and $1,321, respectively.
In accordance with several product acquisitions and licensing agreements and
subject to certain cancellation rights reserved by the Company, the Company may
be required to purchase inventory or make minimum payments totalling $51.9
million through 2001 and make royalty payments totalling $2 million through
1998.
11. EMPLOYEE BENEFITS
-----------------
The Company has employment agreements with certain of its employees which
provide them with continued compensation for a period of three to five years in
the event of their termination by the Company and provide them with additional
payments on termination by the Company equal to three to five times a portion of
their average bonus and incentive compensation from July 1, 1988 to their
termination date.
The Company maintains an employee savings plan available to all employees who
meet certain age and service requirements and may make discretionary
contributions to the plan based on employee compensation or employee
contributions. In the years ended December 31, 1993, 1994 and 1995, the Company
contributions amounted to $152, $220 and $231, respectively.
In 1993, the Company adopted a money purchase pension plan available to all
employees who meet certain age and service requirements. The Company may make
discretionary contributions to the plan based on employee compensation, and the
Company can choose to terminate that plan at any time. In
F-17
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1993, 1994 and 1995, the Company recorded contributions amounting to $302, $0
and $217, respectively.
12. CONTINGENCY
-----------
A shareholder class action suit has been instituted in the United States
District Court for the District of New Jersey against the Company and certain of
its officers for alleged violations of certain federal securities laws. The
Company is not able to predict the outcome of this proceeding at this time, and
management is not able to determine the amount of the potential liability, if
any. The Company believes that it has complied with all of its obligations
under the federal securities laws. The Company intends to defend vigorously
against the plaintiff's allegations and considers such allegations to be without
merit.
13. ACQUISITIONS
------------
In 1993, 1994 and 1995, the Company acquired inventory, trademarks and other
rights to several products from various pharmaceutical companies. The aggregate
price of these acquisitions was $79,939, $21,996 and $22,254, respectively,
consisting of cash and notes payable. Goodwill and other intangibles related to
acquisitions are being amortized on the straight-line basis over periods ranging
from twenty-five to forty years.
F-18
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT REPORTING
-----------------
Selected financial information of the Company's geographic segments for the
years ended December 31, 1993, 1994 and 1995 are as follows:
Years Ended December 31,
-------------------------------
Geographic segments 1993 1994 1995
--------- --------- ---------
Revenues - nonaffiliates
Domestic $ 40,406 $ 67,776 $ 90,177
Foreign 17,155 21,244 23,250
-------- -------- --------
$ 57,561 $ 89,020 $113,427
======== ======== ========
Revenues - affiliates
Domestic $ 911 $ 663 $ 483
======== ======== ========
Operating income (loss)
Domestic $ 6,944 $ 27,261 $ 10,795
Foreign 2,340 2,026 (1,424)
Adjustments and
eliminations (1,434) (3,485) (2,498)
-------- -------- --------
$ 7,850 $ 25,802 $ 6,873
======== ======== ========
Identifiable assets at end
of period
Domestic $312,097 $289,395 $294,247
Foreign 32,378 50,282 48,541
Adjustments and
eliminations (1,372) (3,485) (2,498)
-------- -------- --------
$343,103 $336,192 $340,290
======== ======== ========
Intercompany revenues are based on market conditions at the time of sale.
Foreign operations primarily include the results of operations in the United
Kingdom, Canada and the Organization for Economic Cooperation and Development
countries which include the Republic of Ireland, certain other Western European
countries and Japan.
F-19
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RELATED PARTY TRANSACTIONS
--------------------------
In 1992 and 1993, the Company entered into contracts with Yamanouchi U.K.
Limited, a subsidiary of Yamanouchi Pharmaceutical Co., Ltd. of Japan, for
clinical trials research. These contracts have subsequently been assigned to
Yamanouchi U.S.A. Inc., a subsidiary of Yamanouchi. As of December 31,
1993, 1994 and 1995, Yamanouchi owned 27.5, 27.5, and 27.2 percent of the
Company's outstanding Common Stock, respectively. At December 31, 1993, 1994
and 1995 accounts receivable and unbilled revenues from these contracts totalled
$3.4 million, $7.3 million, and $.6 million, respectively. Related revenues in
the years 1993, 1994 and 1995 amounted to $16.9 million, $10.2 million and $.5
million, respectively. With the Company's decision to dispose of the contract
research division, these revenues have been reclassified and reported in results
from discontinued operations. In March 1995, the Company resolved a contract
interpretation issue with Yamanouchi concerning billings for costs incurred by
the Company under the clinical research contracts. As a result, 1994 contract
research revenue and operating income were reduced by approximately $2.4
million. Net income for 1994 was reduced by approximately $1.5 million.
16. DISCONTINUED OPERATIONS
-----------------------
In August 1995, the Company decided to seek a buyer for the assets of its
Pronetics (Homecare) subsidiaries which are located in New York, New Jersey,
North Carolina, and South Carolina. The Company expects the sale of Homecare to
be completed in 1996 and to result in a loss at closing. In March 1996, the
Company announced its plan to discontinue and divest, VRG, a contract research
organization. The Company expects the sale of VRG to be completed in 1996 and
to result in a loss at closing. Accordingly, the Company has charged current
operations with the estimated loss on discontinuing Homecare and VRG of $22.5
million, including a provision of $6.9 million for operating losses until
disposal of which $1.3 million has been utilized in the Third and Fourth
Quarters of 1995. Revenues from VRG and Homecare for the years ended December
31, 1993, 1994, and 1995 were $32.1 million, $23.2 million, and $12.5 million,
respectively. At December 31, 1995, net assets expected to be realized,
consisting primarily of inventory, receivables, plant and equipment, total $4.3
million. The Company has also reclassified its consolidated financial statements
to report separately the net assets expected to be realized and operating
results of discontinued operations.
The Company's loss on discontinued operations includes management's best
estimates of the amounts expected to be realized on the sale of Homecare and
VRG. The amounts the Company will ultimately realize could differ materially in
the
F-20
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
near term from the amounts assumed in calculating the loss on disposal of
Homecare and VRG.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amount of cash and cash equivalents approximates fair value due to
the short-term maturities of these instruments. The fair value of marketable
securities was estimated based on quotes obtained from brokers. The fair value
of long-term debt is estimated based on the discounted future cash flows using
currently available interest rates.
December 31, 1995
---------------------------
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $16,357 $16,357
Marketable securities 13,649 13,552
Long-term debt 50,846 49,400
The carrying amounts in the table are included in the consolidated balance
sheet under the indicated captions.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Investments subject to this standard are required to be carried at fair value,
unless they are held to maturity. There was no effect on the Company's income
of adopting SFAS 115.
The fair value of investment securities classified as available for sale,
totaled $13,552 at December 31, 1995. These investment securities mature within
one year.
F-21
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. QUARTERLY RESULTS OF OPERATIONS
-------------------------------
The following table presents summarized quarterly results for 1995 (in
thousands, except per share data).
(Unaudited)
First Second Third Fourth
-------- ------- -------- -------
Revenues(1) $16,174 $30,364 $34,321 $32,568
Gross Profit(1) 10,444 17,132 15,911 17,023
Net Earnings (1,194) (10,633)(2) 331 (12,846)(3)
Net earnings per share $ (.06) $(.57) $.02 $(.69)
_______________
(1) Revenues and gross profit have been adjusted to those previously reported
on Form 10-Q to reflect the Company's decision to dispose of its Homecare
and VRG divisions. (See Note 16)
(2) Includes a $10.992 million charge for disposal of Homecare division.
(3) Includes a $11.506 million charge for disposal of VRG division.
F-22
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
QUARTERLY RESULTS OF OPERATIONS
-------------------------------
The following table presents summarized quarterly results for
1994 (in thousands, except per share data).
(Unaudited)
First Second Third Fourth
------- ------- ------- ----------
Revenues(1) $18,704 $20,729 $27,832 $21,755
Gross profit(1) 14,593 15,834 21,669 15,923
Net earnings 4,162 4,429 4,915(2) 5,906(3)
Net earnings per share $.23 $.24 $.27 $.32
_______________
(1) Revenues and gross profit have been adjusted to those previously reported
on Form 10-Q to reflect the Company's decision to dispose of its Homecare
and VRG divisions. (See Note 16)
(2) Includes a $2.7 million charge against revenues and a $1.0 million
increase in general and administrative expenses resulting from an increase
in estimated reserves for contracts with a related party. (See Note 15.)
As a result, operating income and net income were reduced by approximately
$3.7 million and $2.6 million, respectively.
(3) Includes a reduction in estimated reserves for receivables and estimated
liabilities. These adjustments increased operating income and net income
by $2.7 million and $1.6 million, respectively.
F-23
<PAGE>
SCHEDULE II
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Additions
Balance ----------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
------------ ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $2,195 $ 130 --- $ (571) $ 1,754
Allowance for return goods $8,951 $7,669 $6,154(1) $(4,994) $17,780
Deferred tax valuation allowance $ -- $ 517 -- -- $ 517
</TABLE>
(1) Allowance established in connection with product acquisitions.
F-24
<PAGE>
SCHEDULE II
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Additions
Balance ---------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
------------ ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $2,199 $ 622 $ 270 $ (896) $2,195
Allowance for return goods $7,240 $4,253 $4,485(1) $(7,027) $8,951
</TABLE>
(1) Allowance established in connection with product acquisitions.
F-25
<PAGE>
ROBERTS PHARMACEUTICAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Additions
Balance --------------------------------- Balance
Beginning of Charged to Charged to End of
Period Costs and Expenses Other Accounts Deductions Period
------------ ------------------ -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectibles $1,097 $ 344 758 --- $2,199
Allowance for return goods $ 382 $2,161 $7,212(1) $(2,515) $7,240
</TABLE>
(1) Allowance established in connection with product acquisitions.
F-26
<PAGE>
Exhibit Index
Exhibit No.
- -----------
zz 2.2.03 Agreement and Plan of Merger, dated March 1992, among the Company,
NCRC of New Jersey, Inc., a wholly owned subsidiary of the Company,
and National Clinical Research Center, Inc. ("NCRC"). Upon the
request of the Securities and Exchange Commission, the Company
agrees to furnish a copy of schedules 3.A.1 through 3.A.30 to the
Agreement and Plan of Merger described as follows: 3.A.1-Good
Standing of NCRC; 3.A.2-List of NCRC Subsidiaries; 3.A.3-Authorized
Capitalization of NCRC; 3.A.4-Financial Statements of NCRC; 3.A.5-
Records and Books of Account of NCRC; 3.A.6-Organization Documents
with respect to NCRC; 3.A.7-Liabilities of NCRC; 3.A.8-Tax Claims
Against NCRC; 3.A.9-Liens and Encumbrances Against NCRC Assets;
3.A.10- List of NCRC Assets; 3.A.11- Intellectual Property Rights of
NCRC; 3.A.12-List of NCRC Insurance Policies; 3.A.13-Contracts and
Commitments Involving NCRC; 3.A.14-Customers and Suppliers
of NCRC; 3.A.15-Legal Proceedings Involving NCRC; 3.A.17-NCRC
Licenses; 3.A.21- Actions by NCRC not in the Ordinary Course;
3.A.23-List of Capital Projects and Expenditures by NCRC; 3.A.24-
List of Employees of NCRC and Past and Future Compensation; 3.A.28-
ERISA Plans of NCRC; 3.A.29-Environmental Claims Involving
NCRC; 3.A.30-Aging Schedule of Accounts Receivable of NCRC.
zz 2.2.04 Form of Escrow Agreement to be used in connection with the Agreement
and Plan of Merger, dated March 1992, among the Company, NCRC of
New Jersey, Inc., a wholly owned subsidiary of the Company, and NCRC.
o 3.1 Amended and Restated Certificate of Incorporation of Registrant filed
with the Secretary of State of the State of New Jersey on February
1, 1988 and Certificates of Amendment thereto dated February 2, 1988
and October 31, 1989, respectively.
y 3.2 By-laws of the Registrant, as amended.
+ 4.3 Form of Specimen Certificate, Roberts Pharmaceutical Corporation
Common Stock.
+ 10.1 License Agreement (United States), dated November 6, 1989, between
Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A.
+ 10.2 License Agreement (United Kingdom), dated November 6, 1989, between
Roberts and Istituto Biologico Chemioterapico (ABC) S.p.A.
o 10.3 License Agreement, dated January 1, 1985, between the National
Technical Information Service and Roberts.
E-1
<PAGE>
o 10.4 Agreement, dated October 1, 1985, between Hafslund Nycomed Pharma AG
(formerly CL Pharma AG) and Roberts Laboratories, Inc., a wholly
owned subsidiary of Roberts.
aa 10.4.1 Amendment, dated January 19, 1994, to Agreement, dated October 1,
1985, between Hafslund Nycomed Pharma AG and Roberts Laboratories,
Inc., a wholly owned subsidiary of Roberts.
o 10.16 Agreements and other documents of Roberts, Hafslund Nycomed AG and
Linz-Roberts, Inc. including the following exhibits thereto:
(a) Subscription and Shareholders Agreement, dated December 1, 1985,
between Roberts, Hafslund Nycomed Pharma AG and Linz-Roberts,
Inc., including the following exhibits thereto:
(i) Certificate of Incorporation of Linz-Roberts, Inc.
(ii) By-Laws of Linz-Roberts, Inc.
(iii) License Agreement, dated January 1, 1985, between the
National Technical Information Service and Roberts.
(See Exhibit 10.3)
(iv) Agreement of Assignment, dated December
1, 1985, between Roberts and Linz-Roberts, Inc.
(v) Research and Development Agreement, dated as of December 1,
1985, between Vukovich Research Group, Inc. and Roberts
(b) License and Distribution Agreement, dated December 1, 1985,
between Roberts and Hafslund Nycomed Pharma AG.
o 10.17 License Agreement, dated October 31, 1988, between the Salk
Institute for Biological Studies and Roberts.
(*) bb 10.21 Employment Agreement, dated as of December 20, 1994, between
Roberts and Robert A. Vukovich.
(*) bb 10.23 Employment Agreement, dated as of December 20, 1994, between
Roberts and Robert W. Loy.
(*) bb 10.24 Employment Agreement, dated as of December 20, 1994, between
Roberts and Anthony A. Rascio.
o 10.25 Lease Agreement between John Donato, Jr. d/b/a Mid Atlantic
Industrial Co. and Vukovich Research Group, Inc. relating to
Eatontown, New Jersey premises.
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<PAGE>
o 10.26 Rental Deposit Deed, dated September 28, 1988, between the
University of Surrey and Roberts relating to the leased office
space in Guildford, England.
o 10.27 Underlease, dated September 28, 1988, between the University of
Surrey and Roberts relating to the leased office space in
Guildford, England.
xx 10.42 Distribution Agreement, dated February 15, 1991, between Roberts
and Flint Laboratories (Canada) Ltd.
++ 10.43 Agreement for Products and Sale of Assets, dated March 6, 1991,
between Norwich Eaton Pharmaceuticals, Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
y 10.48 License Agreement, dated as of August 1, 1991, between
Bristol-Myers Squibb Co. and Roberts Laboratories Inc., a wholly
owned subsidiary of Roberts.
y 10.51 Agreements of Roberts Laboratories Inc., a wholly owned subsidiary
at Roberts, Boehringer Ingelheim Limited, Windsor Healthcare
Limited and Altam Pharmaceuticals Limited:
(a) Agreement, dated December 5, 1991, by and among Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts,
Boehringer Ingelheim Limited and Windsor Healthcare Limited.
(b) Supplemental Agreement, dated December 5, 1991, by and among
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts,
Boehringer Ingelheim Limited and Windsor Healthcare Limited.
y 10.52 Dopar Agreement for Purchase and Sale of Assets, dated December 6,
1991, between Norwich Eaton Pharmaceuticals, Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
k 10.53 Agreements of Roberts, Roberts Laboratories Inc. and Monmouth
Pharmaceuticals Ltd., wholly owned subsidiaries of Roberts,
American Home Products Corporation, John Wyeth & Brother Limited
and Ayerst, McKenna & Harrison Inc.
(a) Agreement, dated December 20, 1991, by and among Roberts, Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts, American
Home Products Corporation, John Wyeth & Brother Limited and
Ayerst, McKenna & Harrison, Inc.
(b) Manufacturing Agreement, dated December 24, 1991, between John
Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a
wholly owned subsidiary of Roberts.
E-3
<PAGE>
(c) AHPC License Agreement, dated December 24, 1991, between American
Home Products Corporation and Roberts Laboratories Inc., a wholly
owned subsidiary of Roberts.
(d) The Ayerst License Agreement, dated December 24, 1991, between
Ayerst, McKenna & Harrison Inc. and Roberts Laboratories Inc., a
wholly owned subsidiary of Roberts.
(e) The Wyeth License Agreement, dated December 24, 1991, between John
Wyeth & Brother Limited and Roberts Laboratories Inc., a wholly
owned subsidiary of Roberts.
(f) Distribution Agreement, dated December 24, 1991, between John
Wyeth & Brother Limited and Monmouth Pharmaceuticals Ltd., a
wholly owned subsidiary of Roberts.
(g) Assignments, each dated December 24, 1991, between American Home
Products Corporation and Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts.
(h) Assignment, dated December 24, 1991, between John Wyeth & Brother
Limited and Roberts Laboratories Inc., a wholly owned subsidiary
of Roberts.
k 10.55 Stock Purchase Agreement, dated as of January 22, 1992, between
Roberts and Yamanouchi Pharmaceutical Co., Ltd., including Shareholder
Agreement dated as of January 22, 1992 between Dr. Robert A. Vukovich
and Yamanouchi Pharmaceutical Co., Ltd. which comprises Annex A to
such agreement.
j 10.56 Distribution Agreement, dated March 31, 1992, between Research
Industries Corporation and Roberts Pharmaceutical of Canada Inc., a
wholly owned subsidiary of Roberts.
j 10.57 License Agreement, dated April 2, 1992, between Bayer AG and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
j 10.58 License Agreement, dated April 10, 1992, between Ortho Pharmaceutical
Corporation and Roberts Laboratories Inc., a wholly owned subsidiary
of Roberts.
j 10.59 Purchase Agreement, dated July 6, 1992, between Galen Limited and
Roberts Laboratories Inc., a wholly owned subsidiary of Roberts.
kk 10.60 Asset Purchase Agreement, dated September 29, 1992, between Smith-
Kline Beecham Pharmaceuticals, an unincorporated division of Smith-
Kline Beecham Corporation, and Roberts Laboratories Inc, a wholly
owned subsidiary of Roberts.
E-4
<PAGE>
j 10.61 Agreement for Purchase and Sale of COMHIST Assets, dated November 24,
1992, between Procter & Gamble Pharmaceuticals, Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts. Upon the
request of the Securities and Exchange Commission, Roberts agrees to
furnish a copy of Schedules 1.1(a) through 6.11 and Exhibits A through
C to the Agreement for Purchase and Sale of COMHIST Assets as follows:
1.1(a) - Schedule of Trademarks; 1.1(b) - Schedule of Know-How;
1.1(d) -Tooling Schedule; 1.4 -Allocation of Purchase Price Schedule;
6.6(4) -Intellectual Property Claims Schedule; 6.10 - Schedule of
Customers; 6.11 - Financial Information Schedule; A - Form of
Trademark Assignment; B - Form of Bill of Sale; C -Contract
Manufacturing Agreement.
j 10.62 Agreements between Roberts Laboratories Inc., a wholly owned
subsidiary of Roberts, and Bristol-Myers Squibb Company:
(a) QUIBRON Sale Agreement, dated as of December 15, 1992.
(b) QUIBRON Supply Agreement, dated as of December 15, 1992.
(c) Security Agreement, dated as of December 15, 1992.
j 10.63 Purchase and Sale Agreement, dated December 21, 1992, between The Du
Pont Merck Pharmaceutical Company and Roberts Laboratories Inc., a
wholly owned subsidiary of Roberts.
j 10.64 Asset Purchase Agreement, dated December 28, 1992, between G.D. Searle
& Co. and Roberts Laboratories Inc., a wholly owned subsidiary of
Roberts. Upon the request of the Securities and Exchange Commission,
Roberts agrees to furnish a copy of Exhibits A and B, Schedules 1.12
through 4.2(d), and various miscellaneous assignments of copyrights
and trademarks to the Asset Purchase Agreement as follows: A -
Security Agreement; B - Supply Agreement; 1.12 -Product Registrations,
2.3 - Purchase Price Allocations; 4.1(c) - Contracts Requiring
Consents; 4.1(f) - Pending Suits and Claims; 4.1(g) - Compliance;
4.1(h) - Material Contracts; 4.1(i) - Exceptions to Ownership of
Intellectual Property; 4.1(j) - Financial Information; 4.1(l) -
Customer List; 4.1(m) -Material Adverse Changes; 4.2(d) - Buyer's
Financial Statements; assignments of copyrights; assignments of
trademarks.
j 10.65 Asset Purchase Agreement, dated March 23, 1993, by and between Searle
Canada, Inc. and Roberts Laboratories Inc., a wholly owned subsidiary
of the Company. Upon the request of the Securities and Exchange
Commission, Roberts agrees to furnish a copy of Exhibit A and
Schedules 1.5(a) through 5.19 to the Asset Purchase Agreement as
follows: A - Supply Agreement; 1.5(a) - Sales Retained by Seller;
1.5(b) - Pricing Prior to Closing; 1.10 -Product Registrations;
4.1(c) -Contracts Requiring Consents; 4.1(f) - Pending Suits and
Claims; 4.1(g) - Compliance; 4.1(h) - Material Contracts; 4.1(i) -
Exceptions to Ownership of Intellectual Property; 4.1(j) - Financial
Information; 4.1(l) -Customer List; 4.1(m) - Material Adverse Changes;
5.19 -Packaging Charges.
E-5
<PAGE>
# 10.67 Copy of form of Option Agreement used in connection with options
granted under the Roberts Pharmaceutical Corporation Restricted
Stock Option Plan.
# 10.68 Copy of form of Option Agreement used in connection with options
granted under the Roberts Pharmaceutical Corporation Incentive Stock
Option Plan.
j 10.69 Rebate Agreement, dated November 11, 1992, between the Secretary of
Health and Human Services and Roberts Laboratories, Inc., a wholly
owned subsidiary of Roberts.
(**)b10.70 Roberts Pharmaceutical Corporation Incentive Stock Option Plan.
(**)b10.71 Roberts Pharmaceutical Corporation Restricted Stock Option Plan.
a 10.72 License Agreement, dated as of March 27, 1993, by and among Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts, Sawai
Pharmaceutical Co., Ltd. and Grelan Pharmaceutical Co., Ltd.
a 10.73 Agreements, dated as of May 5, 1993, between Roberts Laboratories
Inc., a wholly owned subsidiary of Roberts, and Glaxo Canada Inc.,
dated as of May 5, 1993.
(a) First Asset Purchase Agreement.
(b) Promotion Agreement.
(c) Supply Agreement.
(d) Distribution Agreement.
(e) License Agreement.
(f) Registered User Agreement.
(g) Assignment of Trademarks.
(h) Second Asset Purchase Agreement.
a 10.74 Stock Purchase Agreement, dated August 30, 1993, by and among
Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi U.S.A.
Inc.
aa 10.75 Amendment to Stock Purchase Agreement, dated August 30, 1993, by and
among Roberts, Yamanouchi Pharmaceutical Co., Ltd. and Yamanouchi
U.S.A. Inc.
aa 10.76 Agreements, dated as of September 14, 1993, among Bristol-Myers
Squibb Company, Bristol-Myers Squibb Company Canada Inc. and Roberts
Laboratories Inc., a wholly owned subsidiary of Roberts.
(a) COLACE Et Al. Sale Agreement.
(b) COLACE Et Al. Supply Agreement.
(c) Security Agreement.
(d) Notice of Security Interest in Trademark.
(e) Assignment of Collateral.
(f) Guaranty.
E-6
<PAGE>
aa 10.77 Underwriting Agreement, dated September 27, 1993, by and among Roberts,
Morgan Stanley & Co., Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and the several underwriters.
bb 10.78 License Agreement, dated as of July 6, 1994, between The Rockefeller
University and Roberts Laboratories Inc., a wholly owned subsidiary of
Roberts.
bb 10.79 Agreements between Roberts Laboratories Inc., a wholly owned subsidiary
of Roberts, and SmithKline Beecham Pharmaceuticals, an unincorporated
division of SmithKline Beecham Corporation:
(a) TIGAN Asset Purchase Agreement dated as of March 27, 1995. Upon the
request of the Securities and Exchange Commission, Roberts agrees
to furnish a copy of Exhibits A through D and Schedules 5.4 through
5.11 and Appendix I as follows: A - List of Products; B -
Assignment and Assumption Agreement; C -Promissory Note; D -
Transitional Services Agreement; 5-4 - Financial Information; 5.5 -
Litigation; 5.6 -Inventory; 5.7 - Product Formulas; 5.8 -Regulatory
Issues; 5.9 - FDA and Other Administrative Approvals, Registrations
and Permits; 5.11 -Intellectual Property Rights; I - Purchase Price
Adjustments.
(b) EMINASE Asset Purchase Agreement dated as of March 27, 1995. Upon
the request of the Securities and Exchange Commission, Roberts
agrees to furnish a copy of Exhibits A through D, Schedules
2.1(a)(1) through 5.11 and Appendices I and II as follows: A - List
of Products; B - Manufacturing Agreement; C - Promissory Note; D -
Transitional Services Agreement; 2.1(a)(1) -Transferable Product
Rights; 2.1(a)(2) - Non-Transferable Product Rights; 2.1(b)-
Transferred Contracts; 5.4 - Financial Information; 5.5 -
Litigation; 5.6 -Inventory; 5.7 - Product Formulas; 5.8 -
Regulatory Issues; 5.9 - FDA and Other Administrative Approvals,
Registrations and Permits; 5.11 - Intellectual Property Rights; I -
Territories; II - Purchase Price Adjustments.
10.80 Distribution Agreement, dated February 23, 1995, between Roberts
Laboratories, Inc., a wholly owned subsidiary of the Company, and Merck
and Co., Inc. with respect to NOROXIN.
21. Subsidiaries of the Registrant.
23. Consent of Coopers & Lybrand L.L.P.
cc 27. Financial Data Schedules.
(*) Constitutes a management contract required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
(**)Constitutes a compensatory plan required to be filed as an exhibit pursuant
to Item 14(c) of Form 10-K.
E-7
<PAGE>
y Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-4 (Registration No. 33-
44441).
o Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Registration No. 33-
31876).
+ Incorporated by reference to the identically numbered exhibit to Amendment
No. 1 to Registrant's Registration Statement on Form S-1 (Registration No.
33-31876).
x Incorporated by reference to the identically numbered exhibit to Amendment
No. 2 to Registrant's Registration Statement on Form S-1 (Registration No.
33-31876).
z Incorporated by reference pursuant to the identically numbered exhibit to
Amendment No. 1 to Registrant's Registration Statement on Form S-1
(Registration No. 33-40636).
k Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Registration No. 33-
45069).
# Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-8 (Registration No. 33-
34767).
a Incorporated by reference to the identically numbered exhibit to
Registrant's Registration Statement on Form S-3 (Registration No. 33-
68080).
b Incorporated by reference to Registrant's Registration Statement on Form S-
8 (Registration No. 33-51198).
@ Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990.
zz Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.
j Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.
aa Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
bb Incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
cc Financial Data Schedules are submitted in electronic format only.
xx Incorporated by reference to Registrant's Current Report on Form 8-K, dated
February 15, 1991.
++ Incorporated by reference to Registrant's Current Report on Form 8-K, dated
March 6, 1991.
E-8
<PAGE>
vv Incorporated by reference to Registrant's Current Report on Form 8-K, dated
November 5, 1991.
kk Incorporated by reference to Registrant's Current Report on Form 8-K, dated
September 29, 1992.
E-9
<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT
-----------------------------------------
This is the first Amendment to the Distribution Agreement between Merck & Co.,
Inc. ("MERCK") and Roberts Laboratories, Inc. ("ROBERTS") dated February 23,
1995. This Amendment shall be in effect from October 1, 1995 through March 31,
1996.
WHEREAS, ROBERTS and MERCK wish to amend the Distribution Agreement between them
to reflect certain agreements between the parties entered into since the
Execution Date of the Distribution Agreement;
WHEREAS, ROBERTS and MERCK wish to alter the payment period for COGS under the
Agreement, to allow ROBERTS to make three equal monthly payments of the
quarterly invoice instead of one payment of the quarterly invoice due 30 days
after receipt of the invoice.
NOW, THEREFORE, ROBERTS and MERCK agree as follows:
(1) Section 3.4(c) of the Agreement shall be amended to provide as follows in
its entirety:
"(c) ROBERTS shall make separate COGS payments to MERCK for all COGS
purchased. MERCK shall invoice ROBERTS at the beginning of each Contract
Quarter for COGS, and ROBERTS shall make three separate payments in equal
amounts of the invoice, each payment to be due on the last business day of
each month of the Contract Quarter. Any payment not received on or before
the date specified shall bear interest at the lesser of (i) eighteen
percent (18%) per annum or (ii) the maximum permitted by law."
(2) Section 3.5 of the Agreement shall be amended to provide as follows in its
entirety:
"3.5 ROBERTS shall make payments to MERCK on a quarterly basis, within 45 days
of the close of each Contract Quarter, except that payment for COGS shall be
made in accordance with Section 3.4(c). Any invoice not paid when due shall
bear interest at the lesser of (i) eighteen percent (18%) per annum or (ii) the
maximum rate permitted by law. Each quarterly payment shall be calculated on
the basis of Net Sales for that quarter as provided in Section 3.4(a), provided,
however, that not quarterly payment shall be less than one fourth of the
Guaranteed Minimum Payment exclusive of COGS payments. For Net Sales up to and
including Baseline Net Sales, the quarterly payment shall be adjusted to reflect
COGS payments made to MERCK for the Net Sales in that Contract Quarter. If,
during a Contract Quarter, cumulative Net Sales for the year exceed Baseline Net
Sales, the quarterly payments shall be calculated as provided in Section 3.4(b).
In the event that the sum of ROBERTS's first three quarterly payments in a
calendar year is more or less than the actual amount due, ROBERTS shall make an
adjustment to reflect the difference in the fourth quarter payment. (A sample
calculation of amounts due under this Section 3.5 is attached to
<PAGE>
this Agreement as Schedule II.)"
(3) The effective date of this First Amendment is October 1, 1995 and it shall
be in effect until March 31, 1996, at which time, the original sections of
the Agreement amended herein shall take effect as they originally appeared
in the Distribution Agreement.
(4) Except as amended herein, the Distribution Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
MERCK & CO., INC. ROBERTS LABORATORIES, INC.
/s/ Signature Illegible
By:_________________________ By: Anthony P. Marts
-----------------------------
Title:Vice President for DWA Title: V.P. - Finance
---------------------- --------------------------
Date: 10/23/95 Date: 11/2/95
----------------------- ---------------------------
ROBERTS PHARMACEUTICAL
CORPORATION
By: Anthony A. Rascio
---------------------------
Title: VP
------------------------
Date: 11/3/95
-------------------------
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<PAGE>
DISTRIBUTION AGREEMENT
----------------------
This Agreement, by and between Merck & Co., Inc., a New Jersey corporation,
having an address at One Merck Drive, Whitehouse Station, New Jersey 08889-0100
("MERCK"), and Roberts Laboratories, Inc. a New Jersey Corporation, having an
address at Meridian Center II, 4 Industrial Way West, Eatontown, NJ 07724
("ROBERTS"), shall be effective as of 23 Feb. 1995 (the "Execution Date").
WITNESSETH
----------
WHEREAS, ROBERTS is engaged in the distribution and marketing of
prescription and OTC pharmaceuticals; and
WHEREAS, MERCK is engaged in the research and development, manufacture,
marketing and distribution of pharmaceutical products, and currently
manufactures and sells the human prescription pharmaceutical product containing
the compound norfloxacin as the sole active ingredient, under the trademark
"NOROXIN"; and
WHEREAS, MERCK and ROBERTS desire that ROBERTS be appointed as the sole
distributor in the United States of this product in accordance with the terms of
this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
-----------
The following terms as used in this Agreement will have the meanings set
forth below:
1.1 "Product" shall mean the MERCK brand of human prescription pharmaceutical
oral dosage forms containing the compound norfloxacin as the sole active
ingredient, sold under the trademark "NOROXIN."
1.2 "Advertising & Promotion / Sales Force Allowance" shall be the amount of
$4,000,000 in each calendar year of this Agreement in consideration of ROBERTS
advertising, promoting and selling Product and incurring expenses associated
therewith.
<PAGE>
1.3 "Baseline Net Sales", for each calendar year, shall mean:
Year Baseline Net Sales
(Full Calendar Year) (US. $ OOOs)
-------------------- ------------
1995 $*
1996 27,184
1997 24,348
1998 21,872
1999 19,619
2000 17,599
2001 15,786
The parties hereto agree that Baseline Net Sales may be adjusted for any
calendar year in the event of a shortage of Product due to recall of Product.
(*The Baseline Net Sales figure for 1995 shall be determined at the Execution
Date and equal $30,305,000 less Net Sales of Product by MERCK between January 1,
1995 and the Execution Date.)
1.4 "Baseline Sales Compensation" shall mean eighty per cent (80%) of Net
Sales of Product up to and including Baseline Net Sales.
1.5 "Contract Quarter" shall mean the period from the Execution Date through
March 31, 1995, and each successive period of three (3) consecutive calendar
months ending on June 30, September 30, December 31 or March 31 as the case may
be during the term of this Agreement.
1.6 "Cost of Goods Sold" or "COGS"' shall equal $.40 per tablet multiplied by
the number of tablets of Product purchased by ROBERTS, provided, however, that
if in any calendar year, the price of active ingredient for Product to MERCK
rises by greater than ten percent (10%) from the previous year, MERCK may
exercise the option to request that the parties engage in good faith
negotiations regarding an increase in COGS.
1.7 "Detail" shall mean a face-to-face meeting, in an individual or group
practice setting, between a ROBERTS professional representative and either a
urologist, gynecologist or High-Prescribing Primary Care Physician, during which
Product information is communicated to such physician. A "High-Prescribing
Primary Care Physician" shall be a primary care physician who prescribes anti-
infectives and urological products at a significantly greater rate than average
primary care physicians. A "First Position Detail" shall be a Detail where
Product information is the first pharmaceutical product
- 2 -
<PAGE>
information conveyed to the physician by the professional representative. A
"Second Position Detail" shall be a Detail where Product information is the
second pharmaceutical product information conveyed to the physician by the
professional representative. A "Tertiary Position Detail" shall be a Detail
where Product information is the third pharmaceutical product information
conveyed to the physician by the professional representative. When used as a
verb, "Detail" shall mean to engage in a Detail.
1.8 "FDA" shall mean the U.S. Food and Drug Administration.
1.9 "General & Administrative Allowance" shall be the sum of 10% of Net Sales
up to and including Baseline Net Sales and 5% of Net Sales over Baseline Net
Sales in a calendar year in consideration of ROBERTS incurring general and
administrative expenses associated with sale of Product (other than those
expenses associated with the "Advertising and Promotion / Sales Force
Allowance") including, but not limited to, order taking, management and
insurance directly related to Product.
1.10 "Guaranteed Minimum Payment", for each calendar year,
shall mean:
Year Guaranteed Minimum Payment
(Full Calendar Year) (in U.S. $00s)
---------------------- ----------------
1995 $8,333
1996 8,800
1997 8,000
1998 7,100
1999 6,400
2000 5,700
2001 5,100
1.11 "HCFA" shall mean the Health Care Financing Administration.
1.12 "Manufacture" shall mean all operations of MERCK in the formulation,
packaging, labeling, warehousing and quality control testing of Product.
1.13 "NDC number" shall mean National Drug Code number, which is the complete
identifying drug number maintained by the FDA for pharmaceutical products,
including the labeler code, product code and package size code.
1.14 "Net Sales" shall mean the gross amount invoiced by
- 3 -
<PAGE>
ROBERTS for Product sold to its customers, less cash discounts, returns and
allowances, customary trade and/or quantity discounts actually allowed, and any
rebates actually paid by ROBERTS.
1.15 "Sample" shall mean a unit of Product that is not intended to be sold and
is intended to promote the sale of Product.
1.16 "Territory" shall mean the fifty states of the United States of America
and the District of Columbia.
1.17 "Trademark" shall mean the MERCK trademark NOROXIN(R), and the
registration therefor, U.S. Registration No. 1,339,981.
2. APPOINTMENT OF DISTRIBUTOR
--------------------------
2.1 MERCK hereby appoints ROBERTS as sole and exclusive distributor of
Product in the Territory.
2.2 This Agreement does not constitute a grant to ROBERTS of any property
rights or interests other than the rights specifically granted to ROBERTS
hereunder, and in no event shall constitute a license or sub-license to Product.
MERCK shall retain all rights to applicable new drug applications and
registrations with respect to Product.
2.3 The appointment of ROBERTS hereunder as a distributor shall not create a
joint venture, or an employer-employee relationship or a principal-agent
relationship other than as specifically provided in this Agreement.
2.4 Nothing in this Agreement shall be deemed to authorize ROBERTS to act
for, represent, or bind MERCK other than as specifically provided in this
Agreement.
2.5 Neither party shall have any responsibility for the hiring, firing,
compensation or benefits of the other party's employees. No employee or
representative of a party shall have any authority to bind or obligate the other
party to this Agreement for any sum or in any manner whatsoever, or to create or
impose any contractual or other liability on the other party without said
party's authorized written approval.
3. DISTRIBUTOR"S PURCHASE OF PRODUCT
---------------------------------
3.1 MERCK shall exercise its best efforts to supply, and ROBERTS shall
purchase Product from MERCK as provided in this Article 3 for sale in the
Territory, in finished form and packaged with the label bearing ROBERTS's NDC
number for Product
- 4 -
<PAGE>
and disclosing that Product was manufactured by MERCK and distributed by
ROBERTS.
3.2 ROBERTS shall furnish to MERCK within sixty (60) days of the effective
date of this Agreement its best estimates of the quantities of Product that it
will purchase during the first twelve-month period of this Agreement by Contract
Quarter. At least one hundred ninety (190) days prior to the beginning of each
Contract Quarter commencing with the second calendar quarter of 1996, ROBERTS
shall submit to MERCK its best estimates of its purchase requirements of Product
("Estimated Quantity") for that Contract Quarter and the next following Contract
Quarter for the remaining term of this Agreement.
3.3 Except in the case of the first, second and third
Contract Quarters of this Agreement, not less than one hundred (100) days prior
to the beginning of every Contract Quarter, ROBERTS shall submit to MERCK a firm
purchase order for Product, which shall not be less than 75% nor more than 125%
of the Estimated Quantity for such Product for each Contract Quarter as updated.
ROBERTS shall notify MERCK on or before March 1, 1995 of its firm purchase order
for the period April 1, 1995 though September 30, 1995. Notwithstanding the
foregoing, MERCK shall make a reasonable effort to comply with any unplanned
changes in firm orders but shall not be held liable for its inability to do so.
3.4 The price of Product purchased by ROBERTS hereunder in each calendar year
shall be calculated as follows:
(a) For Net Sales up to and including Baseline Net Sales, ROBERTS shall pay
to MERCK eighty per cent (80%) of Net Sales (the "Baseline Sales
Compensation") or the sum of the Guaranteed Minimum Payment and COGS
applicable to Net Sales for that calendar year, whichever is larger.
(b) For Net Sales above Baseline Net Sales, ROBERTS shall pay MERCK fifty
percent (50%) of Net Sales remaining above the sum of Baseline Sales
Compensation, Advertising & Promotion / Sales Force Allowance, General and
Administrative Allowance and COGS on Net Sales over Baseline Net Sales
applicable to Net Sales for that calendar year. (A sample calculation of
amounts due under this Section 3.4 is attached to this Agreement as
Schedule 1.)
- 5 -
<PAGE>
(c) ROBERTS shall make separate COGS payments to MERCK for all COGS
purchased within thirty (30) days of the date of invoice. Any invoice not
paid when due shall bear interest at the lesser of (i) eighteen percent
(18%) per annum or (ii) the maximum rate permitted by law.
3.5 ROBERTS shall make payments to MERCK on a quarterly basis, within 45 days
of the close of each Contract Quarter, except that payment for COGS shall be
made within thirty (30) days of the date of invoice. Any invoice not paid when
due shall bear interest at the lesser of (i) eighteen percent (18%) per annum or
(ii) the maximum rate permitted by law. Each quarterly payment shall be
calculated on the basis of Net Sales for that quarter as provided in Section
3.4(a), provided, however, that no quarterly payment shall be less than one
fourth of the Guaranteed Minimum Payment exclusive of COGS payments. For Net
Sales up to and including Baseline Net Sales, the quarterly payment shall be
adjusted to reflect COGS payments made to MERCK for the Net Sales in that
Contract Quarter. If, during a Contract Quarter, cumulative Net Sales for the
year exceed Baseline Net Sales, the quarterly payment shall be calculated as
provided in Section 3.4(b). In the event that the sum of ROBERTS's first three
quarterly payments in a calendar year is more or less than the actual amount
due, ROBERTS shall make an adjustment to reflect the difference in the fourth
quarter payment. (A sample calculation of amounts due under this Section 3.5 is
attached to this Agreement as Schedule 11.)
3.6 ROBERTS shall provide to MERCK within three (3) days of the close of each
Contract Quarter, the total amount of Net Sales and tablet volume for that
Contract Quarter, or ROBERTS's best estimate thereof if the actual figure is not
available. If the figure is estimated, ROBERTS shall provide the actual figure
to MERCK as soon as it is available.
4. DELIVERY AND RISK OF LOSS
-------------------------
4.1 MERCK shall deliver or arrange for delivery of Product to a carrier
designated by ROBERTS, F.O.B. MERCK's facility. Risk of loss or damage to
Product passes to ROBERTS upon MERCK's delivery of Product to the carrier.
5. SPECIFIC RESPONSIBILITIES OF THE PARTIES
----------------------------------------
5.1 MERCK shall be responsible for exercising its best efforts to supply
Product to ROBERTS in sufficient quantity for ROBERTS to fulfill its
responsibilities under this Agreement, subject to
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ROBERTS's obligations under Sections 3.2 and 3.3 of this Agreement. In the
event of a shortage of active ingredient for Product, MERCK shall not decrease
ROBERTS's pro rata percentage of the total quantity of Product Manufactured by
MERCK and sold to all customers, including MERCK's own subsidiaries. ROBERTS's
pro rata percentage referred to in the preceding sentence shall be the average
of ROBERTS's purchases of Product hereunder for the four (4) most recent
Contract Quarters prior to the shortage (on a per unit basis) as compared with
MERCK's total sales of Product (on a per unit basis) for the same period.
5.2 ROBERTS shall be responsible for all aspects of the distribution,
marketing and sales of Product in the Territory. ROBERTS shall exercise its best
efforts to promote the sales of Product in the Territory and shall maintain a
well-staffed sales force technically trained and knowledgeable about Product,
consistent with its obligations hereunder. In particular, ROBERTS shall
maintain a field sales force of no fewer than 150 professional representatives
during the term of this Agreement. ROBERTS's professional representatives shall
engage in a minimum of 100,000 Details in each calendar year of this Agreement,
of which a minimum of 63,000 shall be First Position Details, 31,500 shall be
Second Position Details, and 5,500 shall be Tertiary Position Details, except
that in the first calendar year of this Agreement, ROBERTS's obligation shall be
as follows: a minimum of 80,000 Details, of which 50,400 shall be First
Position Details, 25,200 shall be Second Position Details, and 4,400 shall be
Tertiary Position Details. Lower position Details may be replaced with higher
position Details, however, a minimum of 100,000 Details (or 80,000 in the first
year) must still be delivered. ROBERTS shall provide to MERCK within forty five
(45) days of the end of each Contract Quarter ROBERTS's internal call reporting
records in order to verify Detail and Detail position levels. ROBERTS's failure
in any calendar year to maintain the requisite number of professional
representatives or to engage in at least ninety five percent (95%) of the
requisite number of Details under this Section 5.2 shall be a material breach
and give MERCK grounds for immediate termination of this Agreement,
notwithstanding the termination provisions set forth in Article 17. ROBERTS
shall also conduct active sales promotion programs in order to expand the sales
of Product, and shall keep MERCK advised of significant market, economic and
regulatory developments that may affect the sale of Product.
5.3 ROBERTS shall store, promote and sell Product in strict adherence to all
regulatory, professional, and legal requirements and MERCK promotional policies
(copies of which are attached as Schedule I11 to this Agreement), and the
American Medical
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Association Gifts to Physicians From Industry Guidelines. ROBERTS shall limit
its claims of efficacy and safety, both express and implied, for Product in the
Territory to those which are consistent with MERCK's approved product circular
for Product in the Territory. ROBERTS shall not add, delete or modify claims of
efficacy and safety in the promotion of Product. In the event of a breach of
this Section 5.3, MERCK agrees to give ROBERTS a reasonable time period under
the circumstances, not to exceed thirty (30) days, to cure the breach.
ROBERTS's failure to cure the breach to MERCK's reasonable satisfaction shall be
grounds for immediate termination of this Agreement, notwithstanding the
termination provisions set forth in Article 17.
5.4 ROBERTS shall do nothing that will jeopardize the goodwill or reputation
of MERCK or the reputation of Product. Any breach of this Section 5.4 shall
constitute a basis for immediate termination of this Agreement, at MERCK's
option, notwithstanding the termination provisions set forth in Article 17.
5.5 Upon execution of this Agreement, MERCK will provide to ROBERTS examples
of past promotional materials used by MERCK in its promotion of Product, if any
are available, and copies of any correspondence received from regulatory
agencies regarding the promotion of Product. ROBERTS shall use such materials as
guidance in developing promotional materials for use in promoting Product in
accordance with this Agreement. If, in MERCK's sole and exclusive reasonable
discretion, any promotional activity or claim made by ROBERTS about Product
violates any regulatory or legal requirement, professional standard, MERCK
policy or raises product liability concerns, MERCK reserves the right to (i)
immediately terminate this Agreement, notwithstanding the termination
provisions set forth in Article 17 of this Agreement; or (ii) review and
preapprove any promotional labeling or advertising for Product before ROBERTS
uses such materials. Prior to any termination of this Agreement by Merck under
this provision, MERCK agrees to give ROBERTS a reasonable time period under the
circumstances, not to exceed thirty (30) days, to cure the breach. ROBERTS's
failure to cure the breach to MERCK's reasonable satisfaction shall be grounds
for immediate termination of this Agreement, notwithstanding the termination
provisions set forth in Article 17. In the event that MERCK determines that
preapproval of promotional material is needed, MERCK shall so notify ROBERTS,
and the parties will work together to develop an appropriate preapproval
procedure. ROBERTS agrees to revise the promotional materials in accordance with
MERCK's instructions.
5.6 MERCK shall provide to ROBERTS a copy of any submissions
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to the FDA regarding proposed package circular changes. Such notice shall, if
possible, include the date MERCK will require ROBERTS, and ROBERTS hereby
agrees, to (i) begin using the revised package circular in Detailing, (ii)
modify all promotional materials to reflect the revised package circular
language and begin using such materials, and (iii) cease use of all promotional
materials containing the outdated package circular. MERCK shall provide ROBERTS
with immediate notice of any FDA approved package circular changes and ROBERTS
hereby agrees to put such revised package circulars into use as soon thereafter
as is reasonably possible.
5.7 ROBERTS shall be responsible for submitting to the FDA Form FDA-2253 with
samples of all promotional labeling and advertising materials for Product as
required under Title 21 of the Code of Federal Regulations, Section
314.81(b)(3). ROBERTS shall provide to MERCK copies of such submissions at the
time of those submissions to FDA. ROBERTS shall also provide to MERCK copies of
any bulletins and instructions to its professional representatives regarding
promotion of Product at the time such materials are provided to the
professional representatives. Copies should be sent to the attention of Gail
Ryan, Regulatory Liaison, Office of Medical/Legal, Merck & Co., Inc., P.O. Box
4, West Point, PA 19046. MERCK shall retain responsibility for providing to the
FDA all other information regarding Product as required by FDA regulations.
ROBERTS shall provide to MERCK, in a timely manner, any additional information
regarding Product as may be required by the FDA or MERCK to meet such
regulatory requirements. MERCK shall provide to ROBERTS copies of any
communications from the FDA that affect the distribution, promotion or marketing
of Product.
5.8 ROBERTS shall be an Authorized Distributor of Record for Product for
purposes of the requirements of the Prescription Drug Marketing Act (the "PDMA")
and shall comply with the PDMA, FDA regulations and applicable state law
requirements regarding marketing, sale and distribution of Product, including
but not limited to, applicable wholesale drug distribution licensing guidelines
and requirements. Prior to execution of this Agreement, ROBERTS shall provide
to MERCK a copy of its written procedures established to ensure that ROBERTS and
all ROBERTS professional representatives comply with the requirements of the
PDMA, FDA regulations and applicable state laws. Specifically, such procedures
shall include a requirement that ROBERTS notify MERCK immediately upon learning
that any Product, or samples of Product, shipped by MERCK to ROBERTS have been
lost or have not been received as scheduled. In the event that ROBERTS or any
of its professional representatives fails to comply or causes MERCK
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<PAGE>
to fail to comply with any applicable legal requirement and a civil penalty is
assessed against MERCK or its employees, then ROBERTS shall hold harmless and
indemnity MERCK and its employees from any such civil penalty or other damages
or losses related thereto, including attorneys' fees. ROBERTS shall also permit
MERCK to conduct, upon reasonable notice, such audits and inspections of books,
records and ROBERTS's facilities as are necessary to ensure compliance with the
PDMA, FDA regulations and applicable state law requirements regarding marketing,
sale and distribution of Product.
5.9 MERCK shall retain responsibility for compliance with the FDA's drug
listing regulations, including submitting to the FDA drug listing information
for Product.
5.10 Excluding promotional, marketing and distribution activities by ROBERTS,
MERCK shall be solely responsible for responding to all communications,
comments, requests or inquiries (hereinafter "Communications") of the health
care profession or any other third parties relating to Product, including but
not limited to responses to requests for medical information regarding Product
("Professional Information Requests"). ROBERTS shall communicate to MERCK any
such Communications of which it becomes aware within forty eight (48) hours.
ROBERTS shall provide reasonable assistance to MERCK, as MERCK deems necessary,
to fully respond to such communications.
5.11 MERCK shall have the sole responsibility for Communications with
government agencies concerning Product, except as set forth in Sections 5.7 and
5.12 of this Agreement. MERCK shall provide to ROBERTS copies of any such
Communications that affect the distribution, promotion or marketing of Product.
ROBERTS shall, as requested by MERCK, provide reasonable assistance to MERCK in
responding to Communications from government agencies.
5.12 ROBERTS shall obtain an NDC number for Product and shall have the sole
responsibility for payment of rebates, offering of discounts and all reporting
and other requirements imposed on "manufacturers" by Section 1927 of the Social
Security Act (42 U.S.C. (S)1396r-8) and all other federal statutes and
regulations referred to therein or promulgated thereunder, including but not
limited to, 38 U.S.C. (S)8126 and 42 U.S.C. (S)256b for sales made by ROBERTS
of Product bearing ROBERTS's NDC number. ROBERTS warrants that it has in effect
all agreements necessary for Medicaid reimbursement of Product under 42 U.S.C.
SS (S)1396r-8, including a HCFA Agreement, an agreement with the Secretary of
Veterans Affairs pursuant to 42 U.S.C. (S)8126 (including the
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<PAGE>
Federal Supply Schedule), and an agreement with the Public Health Service
pursuant to 42 U.S.C. (S)256b. ROBERTS shall also have the sole responsibility
for payment of rebates and all reporting and other requirements imposed by any
and all state laws concerning Medicaid sales, including specifically those
obligations imposed by California law, for sales made by ROBERTS of Product
bearing ROBERTS's NDC number. ROBERTS shall also compensate MERCK for any
increase in rebates or other payments due under the aforesaid laws for Product
bearing MERCK's NDC number to the extent such increase is caused by pricing or
other actions undertaken by ROBERTS with respect to Product.
5.13 MERCK shall continue to distribute Product bearing MERCK's NDC number up
through and including March 31, 1995. ROBERTS shall commence distribution of
Product bearing ROBERTS's NDC number on April 1, 1995, at which time MERCK will
cease all distribution of Product bearing MERCK's NDC number. For that Product
bearing MERCK's NDC number sold by MERCK between the Execution Date of this
Agreement and April 1, 1995, MERCK shall pay ROBERTS the sum to which ROBERTS
would be entitled under Section 3.4 of this Agreement as if ROBERTS had sold and
distributed said Product during that period, net of an amount representing
rebates or other payments due under the laws referred to in Section 5.12 of this
Agreement for said Product. This amount shall represent MERCK's best estimate,
based on historical sales data, of the rebates actually due for sales of Product
during this period.
5.14 ROBERTS shall not mix or package Product with any other pharmaceutical or
non-pharmaceutical substance nor shall ROBERTS use Product in any clinical
trials.
5.15 ROBERTS shall be responsible for all returns and disposal of Product
bearing ROBERTS's NDC number once ROBERTS has received Product from MERCK.
5.16 MERCK shall provide to ROBERTS reasonable and necessary technical,
clinical and medical support in order for ROBERTS to carry out its obligations
under this Agreement.
5.17 ROBERTS shall adhere to and comply with all MERCK guidelines with respect
to storage and handling of Product. (A copy of MERCK's current guidelines is
attached hereto as Schedule IV.) ROBERTS also acknowledges receipt of MERCK's
audit report regarding ROBERTS's warehouse facility where Product is to be
stored. ROBERTS agrees to rectify to its best efforts and to MERCK's reasonable
satisfaction, the items listed for corrective action in such report and to
provide MERCK with evidence thereof prior to delivery by MERCK of the first
shipment of Product under
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<PAGE>
this Agreement. MERCK reserves the right to reinspect the warehouse facility,
upon reasonable notice, to review compliance with the foregoing and all other
provisions of this Agreement. ROBERTS shall not relocate the storage of Product
to a different location without MERCK's prior consent, which MERCK shall not
unreasonably withhold.
6. EXCLUSIVITY
-----------
6.1 ROBERTS shall not promote, market or distribute, or enter into any
agreement to promote, market or distribute, any fluoroquinolones other than
Product during the term of this Agreement.
7. TRADEMARK
---------
7.1 Product distributed and sold by ROBERTS shall be in strict accordance
with the standards and specifications of MERCK, and ROBERTS shall not distribute
or sell any Product under the Trademark which for any reason fails to comply
with such standards and specifications.
7.2 In order to ensure that Product continues to meet the standards and
specifications described in the applicable NDA, ROBERTS will allow MERCK access
to its premises where Product is stored for the purpose of quality inspection
during normal business hours and subject to reasonable notice. MERCK shall have
the right to inspect, test and take samples of stored Product.
7.3 ROBERTS shall use the Trademark only in such form and manner as approved
in writing by MERCK. ROBERTS shall not use the Trademark in any manner
whatsoever which may jeopardize or endanger the distinctiveness or validity of
the Trademark. ROBERTS agrees that it will place on promotional materials
bearing Trademark such trademark notice as MERCK shall direct in writing.
7.4 The Trademark shall at all times remain the property of MERCK. ROBERTS
expressly recognizes and acknowledges the validity of MERCK's title in and to
the Trademark and will not contest its validity. All use of the Trademark
hereunder shall inure to the benefit of MERCK.
7.5 ROBERTS shall not use or register any trademark which is confusingly
similar to Trademark.
7.6 ROBERTS shall give prompt notice to MERCK of any
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infringement by any person of the rights of MERCK in and to the Trademark which
come to its attention. ROBERTS shall reasonably cooperate with MERCK in taking
action against infringement of the Trademark, the control of such action,
including whether to initiate action and settlement thereof, being exclusively
that of MERCK. MERCK shall reimburse ROBERTS for its reasonable expenses in
connection therewith, incurred at the specific written request of MERCK.
7.7 Immediately upon the termination or expiration of this Agreement for any
reason whatsoever, ROBERTS shall cease all use of the Trademark. In such event,
any promotional material and any existing stock of Product purchased pursuant to
this Agreement should be returned to MERCK. Any COGS payments made by ROBERTS
for such Product shall be returned or credited, as appropriate.
8. WARRANTY AND LIMITATIONS
------------------------
8.1 MERCK warrants that:
(i) Product will, when delivered to ROBERTS, meet the specifications and
standards of Product identity, strength, quality and purity set forth in
the NDA, as it may be supplemented from time to time by MERCK, for such
Product; and
(ii) When delivered to ROBERTS, Product will not be adulterated or
misbranded within the meaning of the United States Food, Drug and Cosmetic
Act (the "Act"), or any other applicable laws in which the definitions of
adulteration and misbranding are substantially the same as those contained
in the Act, as the Act and such laws are constituted and in effect at the
time of delivery of Product to ROBERTS.
8.2 THE FOREGOING WARRANTIES ARE THE SOLE AND EXCLUSIVE WARRANTIES OFFERED BY
MERCK REGARDING PRODUCT PURCHASED HEREUNDER. ALL OTHER WARRANTIES,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY, ARE
DISCLAIMED.
8.3 If ROBERTS at any time shall claim that a shipment of Product did not meet
the foregoing warranties when delivered to ROBERTS, ROBERTS shall notify MERCK
and MERCK shall conduct an assay of its retained sample, if any, of such
shipment. If MERCK
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<PAGE>
agrees with ROBERTS's claim, MERCK, at its option, will either replace such
shipment of Product or credit ROBERTS for payment made for such shipment. If the
parties are unable to resolve their differences, then either party may refer the
matter to an independent specialized firm of international reputation agreeable
to both parties for final analysis, which shall be binding on both parties
thereto. The cost of any analysis shall be paid (a) by ROBERTS, if Product is
determined to have met the foregoing warranties or (b) by MERCK, if Product is
determined not to have met the foregoing warranties.
8.4 Any claim on account of quantity, weight, loss or damage to Product, or
any other matter that should be discernible by visual inspection, must be made
by ROBERTS within thirty (30) days of ROBERTS's receipt of shipment of such
Product. ROBERTS's remedy in this event shall be replacement of Product.
9. INDEMNITY
---------
9.1 MERCK shall indemnify, defend and hold ROBERTS, its subsidiaries, parents
and successors, and their respective directors, officers, employees and agents
harmless from and against any and all claims, actions, causes of action,
liabilities, loss, costs and expenses (including reasonable attorneys' fees),
arising out of third party claims relating to Product, to the extent that such
claims result from (i) failure of Product to satisfy the warranty specified in
Section 8.1 above, (ii) failure to provide adequate disclosure of
contraindications, warnings, precautions and adverse reactions in Product
packaging, labels or related physician circulars as delivered to ROBERTS, (iii)
any negligent or intentional act or omission of MERCK in storing or delivering
Product, (iv) any other negligent or intentional act or omission of MERCK, and
(v) any breach by MERCK of its obligations under this Agreement; provided,
however, that MERCK shall have no such duties to the extent such claims,
actions, causes of action, liabilities, losses, costs and expenses are caused by
breach of this Agreement by ROBERTS or by the negligent or more culpable act or
omission of ROBERTS, its subsidiaries, parents and successors, and their
respective directors, officers, employees and agents, or a third party to whom
Product is sold or delivered.
9.2 ROBERTS agrees to indemnify, defend and hold MERCK, its subsidiaries,
parents and successors, and their respective officers, directors, employees and
agents, harmless from and against any and all third party claims, actions,
causes of action, liabilities, losses, costs and expenses (including reasonable
attorneys' fees) arising out of third party claims
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<PAGE>
relating to Product, to the extent that such claims result from (i) packaging,
labeling, or other items which are produced or modified to ROBERTS's
specifications, (ii) distribution, marketing, sales or promotion of Product by
ROBERTS, including but not limited to, implied or express claims of efficacy or
safety for Product which are not consistent with MERCK's approved product
circular or FDA regulations, (iii) any misrepresentations or negligent or
intentional act or omission of ROBERTS, or its directors, officers, employees or
agents, (iv) any misrepresentation or negligent or intentional act or omission
of a third party acting on ROBERTS's behalf to whom Product is sold or
delivered, and (v) any breach by ROBERTS of its obligations under this
Agreement; provided, however, that ROBERTS shall have no such duties to the
extent such claims, actions, causes of action, liabilities, losses, costs and
expenses are caused by the breach of this Agreement or by the negligent or
intentional act or omission of MERCK, its subsidiaries, parents and successors,
and their respective officers, directors, employees and agents.
9.3 Each party agrees to give the other prompt written notice of any claims
made for which the other might be liable under the foregoing indemnification,
together with the opportunity to defend, negotiate, and settle such claims. The
party seeking indemnification under this Agreement shall provide the other party
with all information in its possession, authority, and assistance necessary to
enable the indemnifying party to carry on the defense of such claims.
9.4 Neither party shall be responsible or bound by any settlement made
without its prior written consent.
9.5 ROBERTS shall secure comprehensive general liability insurance with
minimum limits of $5 million per occurrence and in the aggregate. ROBERTS shall
name MERCK as an additional insured under a broad form vendors endorsement.
ROBERTS shall provide to MERCK a certificate of insurance disclosing the policy
limits and all other information necessary to ascertain whether ROBERTS is
meeting its obligations under this Section 9.5 prior to the execution of this
Agreement, and from time to time as requested by MERCK during the term of this
Agreement. The insurance policy shall require notice to MERCK at least thirty
(30) days prior to cancellation, non-renewal or material change in such
insurance.
10. SAMPLES
-------
10.1 MERCK shall supply samples of Product to be used by ROBERTS in the amount
of three and one-half percent (3.5%) of the volume of Product purchased by
Roberts each calendar year. Such
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samples shall be sent to ROBERTS at MERCK's expense. The storage and
distribution of samples is the exclusive responsibility of ROBERTS and shall be
in conformance with ROBERTS's obligations under Section 5.8 of this Agreement.
11. RECALL
------
11.1 In the event MERCK or ROBERTS shall be required or shall voluntarily
decide to recall or undertake a market withdrawal of Product, then MERCK and
ROBERTS shall fully cooperate with each other in taking any action required to
effectuate such recall or market withdrawal. If a recall or market withdrawal is
initiated for any of the reasons which would give rise to a MERCK indemnity
obligation under Section 9. 1, MERCK shall pay the costs and expenses of such
action, including reasonable costs for public relations communications. If the
recall or market withdrawal is initiated for any of the reasons which would give
rise to a ROBERTS indemnity obligation under Section 9.2, ROBERTS shall pay the
costs and expenses of such action, including reasonable costs for public
relations communications.
11.2 MERCK and ROBERTS agree to abide by all decisions of the other to recall
Product or undertake a market withdrawal of Product.
12. ADVERSE EXPERIENCES: COMPLAINTS
-------------------------------
12.1 ROBERTS shall notify MERCK immediately, but in no event more than forty
eight (48) hours, if ROBERTS receives any notice of a serious or unexpected
adverse drug experience associated with the use of Product. The terms "serious,"
"unexpected," and "adverse drug experience" as used in this Section 12.1, shall
have the same meaning as the definitions set forth in Title 21 of the Code of
Federal Regulations, Section 314.80(a), and in effect at the time of ROBERTS's
notice or report to MERCK. Notice shall be sent to Worldwide Product Safety &
Epidemiology, Merck & Co., Inc., P.O. Box 4, West Point, PA 19486, and shall be
in conformance with Merck Policy Letter No. 105 (in Schedule III of this
Agreement) to the extent possible.
12.2 ROBERTS shall notify MERCK immediately upon receiving notice of (i)
information concerning any incident that causes Product or its labeling to be
mistaken for, or applied to, another article; (ii) information concerning any
change or deterioration in distributed Product; (iii) any complaint alleging
mislabeling; or (iv) any incident involving an allegation of tampering or a
defective child-resistant closure. In this event, ROBERTS shall fax the
following information to
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MERCK, Regulatory Services, Customer Complaint Unit at (215) 652-2441: (i)
description of the complaint; (ii) lot numbers involved; (iii) number of product
units affected; (iv) customer name, address and phone number; and (v) whether or
not the customer will be sending a "complaint sample," i.e. a sample of the
problem. Complaint samples should be sent to Regulatory Services, Customer
Complaint Unit, Merck & Co., Inc., P.O. Box 4, WP38B-5, West Point, PA 19486.
Once MERCK has completed its investigation of the complaint, MERCK shall forward
a copy of the report to ROBERTS. ROBERTS shall report the results back to the
customer.
12.3 ROBERTS shall report in no less than ten (10) days to MERCK all other
information concerning any complaint of any kind regarding Product, its
labeling, quality or packaging, including but not limited to, any adverse drug
experience not reported pursuant to Section 12.1 above, such as any non-serious
or expected adverse drug experience. Such reports shall be made in accordance
with the procedures of either Section 12.1 or Section 12.2, as applicable.
12.4 It is understood and agreed that the reporting requirements set forth in
this Article 12 are based on MERCK policies and procedures and regulatory
reporting requirements. Accordingly, in the event of changes to regulatory
requirements or MERCK policies and procedures for adverse experience reporting,
ROBERTS agrees to comply with such revised notification procedures as requested
in writing by MERCK.
13. REGULATORY ACTIONS
------------------
13.1 ROBERTS shall immediately notify MERCK of any information ROBERTS
receives regarding any threatened or pending action by any governmental
regulatory authority responsible for granting approvals or registrations for
marketing, distribution or promotion of Product, for implementing or enforcing
government rebate or discount agreements relating to Product, or for inspection
or licensing of ROBERTS's facilities that are used for distribution of Product,
which may affect the safety or efficacy claims of Product or the continued
marketing, distribution, reimbursement or promotion of Product. Upon receipt of
any such information, ROBERTS shall consult with MERCK in an effort to arrive at
a mutually acceptable response or procedure for taking appropriate action;
provided, however, that nothing contained herein shall be construed as
restricting the rights of either party to make a timely report of such matter to
any governmental agency or take other action that it deems to be appropriate or
required by applicable law.
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<PAGE>
14. RECORDS; AUDITS; INSPECTIONS
----------------------------
14.1 ROBERTS shall keep current and accurate books and records in sufficient
detail to enable MERCK to calculate MERCK's compensation under Article 3 of this
Agreement, and to ensure compliance with this Agreement, including but not
limited to ROBERTS's Detailing obligations under Section 5.2 of this Agreement,
and all applicable laws, rules and regulations regarding marketing, sale and
distribution of Product. ROBERTS shall also permit MERCK to conduct, upon
reasonable notice, such audits and inspections of books, records and ROBERTS's
facilities as are necessary to ensure compliance with this Agreement and with
all applicable laws, rules and regulations regarding marketing, sale and
distribution of Product.
14.2 MERCK shall provide ROBERTS quality control certificates which certify
that Product was Manufactured in accordance with current Good Manufacturing
Processes and meets the specifications therefor, if required by regulation or
requested by ROBERTS.
14.3 All other records relating to the Manufacture of Product hereunder shall
be retained by MERCK for a period of not less than one (1) year from the date of
expiration of the lot of Product to which said records pertain.
15. CONFIDENTIALITY
---------------
15.1 Each party agrees to keep secret and confidential any and all information
which may be disclosed by the other hereunder, and the party receiving such
confidential information shall not, without the disclosing party's prior
written approval (i) use such information except in connection with the
performance of the receiving party's obligations hereunder or (ii) disclose such
information to any employee or to any third party; except those who need to know
in connection with the receiving party's performance of its obligations
hereunder or as is required by law. The obligations imposed by this Section
shall not apply to any information:
(a) which at the time of disclosure is in the public domain; or
(b) which, after disclosure, becomes part of the public domain by
publication or otherwise, through no fault of the receiving party; or
(c) which is made available to the receiving party from sources
independent of the disclosing party who do
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<PAGE>
not have any confidentiality obligation to the disclosing party or any
other party with respect to such information.
15.2 Any public announcement by either of the parties concerning this
Agreement or the arrangements between the parties provided for in this Agreement
must be preapproved by both parties.
15.3 Upon request by the disclosing party, the receiving party shall return to
the disclosing party all documents containing the disclosing party's
confidential information (including all copies).
16. FORCE MAJEURE
-------------
16.1 Neither party shall be liable for failure or delay in performance
hereunder (except the payment of money) if such failure or delay is due to acts
of God, weather, fire or explosions; war, invasion, riot or other civil unrest,
governmental laws, orders, restrictions, actions, embargoes or blockades;
actions by regulatory agencies which delay, prohibit or otherwise adversely
affect MERCK's ability to Manufacture Product; national or regional emergency,
injunctions, strikes, lockouts, labor trouble or other industrial disturbances;
inability to obtain, shortage or interruption of materials, labor, containers,
fuel or transportation; breakage of machinery or equipment or other accidents;
or any other cause beyond the control of such party.
17. TERM AND TERMINATION
--------------------
17.1 This Agreement shall take effect as of the date first above written and
shall continue in effect until December 31, 1999, unless sooner terminated as
set forth herein. MERCK and ROBERTS shall extend the Agreement for an
additional two (2) year period, provided, however, that such extension shall be
at MERCK's option if in any calendar year of this Agreement (i) Net Sales are
below Baseline Net Sales, or (ii) ROBERTS is in breach of its obligations with
respect to Details provided in Section 5.2 of this Agreement. MERCK's failure
to declare the Agreement terminated or breached as a result of either of these
events shall not effect MERCK's option under this Section 17.1.
17.2 Except as otherwise provided in this Agreement, this Agreement may be
terminated upon thirty (30) days prior written notice by either party at any
time if it is proven by reasonable evidence that the other party is in breach of
its essential
- 19 -
<PAGE>
obligations under this Agreement. In the event of termination of this Agreement
under this Section 17.2 or any other provision of this Agreement, ROBERTS shall
provide MERCK reasonable assistance in transferring responsibility for
distribution of Product to MERCK, including but not limited to, providing MERCK
with a list of customer names and addresses, copies of any contracts with
customers, and any inventory of Product if requested by MERCK.
17.3 In the event that MERCK's current supply contract for bulk Product is
terminated, MERCK shall give ROBERTS notice within ten (10) days. MERCK shall
continue to supply ROBERTS with Product under the terms of this Agreement for an
additional two (2) years after such notice, provided, however, that MERCK may,
within one year of giving such notice, at its option terminate this Agreement
effective at the expiration of that two year period.
17.4 The termination of this Agreement shall not affect any obligation of the
parties to make payments under the provisions of the Agreement which may be
outstanding at the time of termination. Any such amount owed shall be paid
within (30) days of the termination of this Agreement. In addition, the
provisions of Section 5.6, Section 5.12, Section 5.15, Section 5.17, Section
7.5, Section 7.7, Article 9, Article 11, Article 12, Article 13, Article 15 and
Article 25 shall also survive the termination of this Agreement.
17.5 In the event that Net Sales of Product are less than $15,000,000 in any
one calendar year of this Agreement and ROBERTS is not and has not been in
default of any of its obligations herein, MERCK and ROBERTS agree to negotiate
in good faith a modification of the terms of this Agreement, if so requested by
ROBERTS. In the event that the parties are unable to reach an agreement after
such negotiations, ROBERTS shall have the right to terminate this Agreement upon
ninety (90) days written notice to MERCK. In the event of such a termination,
ROBERTS shall bear all costs associated with the transfer of marketing and
distribution of Product, including but not limited to, costs incurred to change
Product labeling, communicate the change to MERCK's and ROBERTS's customers,
ship Product from ROBERTS's facilities to MERCK's facilities, and to repackage
such returned Product.
18. SUPERIORITY
-----------
18.1 This Agreement constitutes the entire agreement between MERCK and ROBERTS
with respect to the distribution of Product hereunder and supersedes any other
agreements, understandings or commitments made prior hereto. The terms of this
Agreement may
- 20 -
<PAGE>
not be altered except in a writing signed by MERCK and ROBERTS. Provisions in
any purchase orders or other documents prepared by ROBERTS or MERCK which are in
addition to or inconsistent with the terms and conditions of this Agreement
shall be ineffective unless expressly consented to by both parties in writing.
19. GOVERNING LAW
-------------
19.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey, without regard to the provisions of conflicts
of law thereof.
20. ARBITRATION
-----------
20.1 Any controversy, claim or dispute arising out of or relating to the
performance, construction, interpretation or enforcement of this Agreement,
including disputes as to the scope of this clause, shall be resolved through
good faith negotiations between the parties. If such efforts prove
unsuccessful, all such controversies, claims or disputes shall be submitted to
binding arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. (S) 1 et
seq. Arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Act. The arbitration award shall
be final and binding and it may be confirmed and enforced in any court of
competent jurisdiction. The arbitration proceeding shall commence no later than
forty-five (45) days from the date of the selection of the arbitrator. The
arbitrator shall issue the Award no later than thirty (30) days from the close
of the hearing. Each party shall pay for all attorney fees it incurred in
connection with the arbitration. Materials, submissions and documents relating
to the arbitration shall be deemed confidential subject to the provisions of
Article 15 above.
21. SEVERABILITY
------------
21.1 In the event that any provision of this Agreement shall be found
unenforceable, such finding shall not be construed to affect any other provision
of this Agreement, which shall remain in full force and effect.
22. HEADINGS
--------
22.1 The headings contained in this Agreement are inserted for convenience of
reference only and shall not be used in construing this Agreement.
- 21 -
<PAGE>
23. NOTICES
-------
23.1 Except as otherwise provided in this Agreement, notices under this
Agreement shall be in writing and shall be delivered by certified first class
mail, return receipt requested, to the following addresses of the parties or to
such other addresses as may be hereafter designated in writing by the parties:
If to ROBERTS:
Roberts Laboratories, Inc.
Attn.: Vice-President and General Counsel
Meridian Center II
4 Industrial Way West
Eatontown, NJ 07724
If to MERCK:
Merck & Co., Inc.
Attn.: Sr. Director, Business Development & Relations
P.O. Box 4
West Point, PA 19486-0004
24. ASSIGNABILITY
-------------
24.1 Neither party may assign, transfer or otherwise dispose of this
Agreement, or any obligation with respect thereto, to any third party without
the prior written consent of the other party, except that MERCK may assign or
transfer this Agreement, or any part thereof, to a subsidiary or joint venture
in which it owns at least fifty percent (50%), without the consent of ROBERTS.
Any attempted assignment in violation of this Section shall be void.
25. GUARANTEE OF PARENT
-------------------
25.1 ROBERTS warrants and represents that Roberts Pharmaceutical Corporation,
a New Jersey corporation, is the parent of ROBERTS, and unconditionally
guarantees ROBERTS's performance under this Agreement, including but not limited
to, all of the obligations and liabilities of ROBERTS set forth in this
Agreement. This guarantee shall be continuing and shall survive the termination
of this Agreement for any reason whatsoever, and may operate as an
indemnification or an assumption of liabilities by Roberts Pharmaceutical
Corporation as may be required by MERCK.
- 22 -
<PAGE>
26. WAIVER
------
26.1 No waiver by any party in one or more instances of any of the provisions
of this Agreement or the breach thereof shall establish a precedent for any
other instance with respect to that or any other provision. Furthermore, in
case of waiver of a particular provision, all other provision of this Agreement
will continue in full force and effect.
27. NO INTELLECTUAL PROPERTY RIGHTS ACQUIRED
----------------------------------------
27.1 Each party agrees that it shall not obtain any rights in or license to
any patents, trademarks, copyrights, knowhow, trade secrets or other
intellectual property rights of the other party by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
MERCK & CO., INC. ROBERTS LABORATORIES, INC.
Legal Approval (AD 2/15/95)
By: Raymond V. Gilmartin By: Anthony P. Maris
---------------------- --------------------------
Title: Chairman, President, Title: Vice President Finance
and CEO
Date: 2/23/95 Date: Feb. 16, 1995
ROBERTS PHARMACEUTICAL
CORPORATION
By: Anthony A. Rascio
-------------------
Title: Vice President
Date: Feb. 16, 1995
v1/A-Team/RPC/General/GPL 5354-52/*NOROXIN AGREEMENT
- 23 -
<PAGE>
LIST OF SUBSIDIARIES
STATE OR OTHER JURISDICTION
SUBSIDIARIES OF INCORPORATION
- ------------ ----------------------------
Roberts Laboratories, Inc. New Jersey
Linz-Roberts, Inc. Delaware
Pronetics Health Care Group, Inc. *
VRG International, Inc. New Jersey
Monmouth Pharmaceuticals, Ltd. United Kingdom
Roberts Pharma GmbH Germany
Roberts Pharmaceutical of Canada, Inc. Canada
Roberts Investments, Inc. Delaware
RPC Acquisition Corp. New Jersey
Geriatric Pharmaceutical Corp. New York
- --------------
* Pronetics Healthcare Group, Inc. is the name of 4 separate subsidiary
corporations organized in New Jersey, New York, North Carolina and South
Carolina. In 1995, the Company adopted a plan to discontinue and divest the
operations of each of these subsidiaries.
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Roberts Pharmaceutical Corporation on Form S-8 (File No. 33-34767 and File
No. 33-61543) of our report dated March 20, 1996, on our audits of the
consolidated financial statements of Roberts Pharmaceutical Corporation and
Subsidiaries as of December 31, 1995, 1994 and 1993 and for each of the three
years in the period ended December 31, 1995, which report is included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Princeton, New Jersey
March 20, 1996
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16357
<SECURITIES> 13649
<RECEIVABLES> 26918<F1>
<ALLOWANCES> 0
<INVENTORY> 20785<F2>
<CURRENT-ASSETS> 93770
<PP&E> 15681
<DEPRECIATION> 0
<TOTAL-ASSETS> 340290
<CURRENT-LIABILITIES> 81782
<BONDS> 16183
0
0
<COMMON> 189
<OTHER-SE> 235278
<TOTAL-LIABILITY-AND-EQUITY> 340290
<SALES> 113380
<TOTAL-REVENUES> 113427
<CGS> 52870
<TOTAL-COSTS> 52870
<OTHER-EXPENSES> 6108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3453
<INCOME-PRETAX> 5519
<INCOME-TAX> 2816
<INCOME-CONTINUING> 2703
<DISCONTINUED> (27045)<F3>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24342)
<EPS-PRIMARY> (1.30)
<EPS-DILUTED> (1.30)
<FN>
<F1>Includes shareholder receivable of $600.
<F2>Includes raw material inventory of $3,539.
<F3>The Company decided to sell its Pronetics (Homecare) and VRG subsidiaries
in August 1995, and March 1996, respectively. Estimated loss on discontinuing
these subsidiaries is $22,498, including a provision of $6,901 for operating
losses until disposal.
</FN>
</TABLE>
