<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-20111
ARONEX PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0196535
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3400 Research Forest Drive, The Woodlands, Texas 77381-4223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 367-1666
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 1997
- ----------------------------- -----------------------------
Common Stock, $.001 par value 14,644,816 shares
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ARONEX PHARMACEUTICALS, INC.
QUARTERLY PERIOD MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS............................................................... 3
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements.............................................................................. 3
Balance Sheets - December 31, 1996 and March 31, 1997 (unaudited)................................. 4
Statements of Operations:
Three Months Ended March 31, 1996 and March 31, 1997
(unaudited) and for the Period from Inception (June 13, 1986)
through March 31, 1997 (unaudited).............................................................. 5
Statements of Cash Flows:
Three Months Ended March 31, 1996 and March 31, 1997
(unaudited) and for the Period from Inception (June 13, 1986)
through March 31, 1997 (unaudited).............................................................. 6
Notes to Financial Statements - March 31, 1997.................................................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................. 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.................................................................. 11
SIGNATURES................................................................................................. 12
EXHIBITS
</TABLE>
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FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"anticipate," "believe," "expect," "estimate," "project" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
expected, estimated or projected. For additional discussion of such risks,
uncertainties and assumptions, see "Item 1. Business -- Manufacturing," "--
Sales and Marketing," "-- Patents, Proprietary Rights and Licenses," "--
Government Regulation," "-- Competition" and "-- Additional Business Risks"
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, and "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "-- Liquidity and Capital Resources"
included elsewhere in this report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the financial statements for the year ended December 31,
1996 included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
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<PAGE>
BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................... $ 4,179 $ 3,047
Short-term investments.............................................. 30,414 27,068
Accounts receivable - affiliates.................................... 78 --
Prepaid expenses and other assets................................... 663 1,250
------------- ------------
Total current assets........................................... 35,334 31,365
Long-term investments................................................. 6,795 8,265
Furniture, equipment and leasehold improvements, net.................. 2,152 1,986
------------- ------------
Total assets................................................... $ 44,281 $ 41,616
============== ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses............................... $ 1,191 1,440
Accrued payroll..................................................... 126 126
Advance payable to Genzyme.......................................... 2,000 2,000
Current portion of other notes payable.............................. 325 325
Current portion of obligations under capital leases................. 16 16
------------- ------------
Total current liabilities...................................... 3,658 3,907
Long-term obligations:
Other notes payable, net of current portion......................... $ 121 $ 62
Obligations under capital leases, net of current portion............ 25 21
------------- ------------
Total long-term obligations.................................... 146 83
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value, 10,000,000 shares authorized,
none issued and outstanding........................................ -- --
Common stock $.001 par value, 75,000,000 shares authorized,
14,597,247 and 14,664,816 shares issued and outstanding,
respectively....................................................... 15 15
Additional paid-in capital.......................................... 93,742 93,858
Common stock warrants............................................... 968 968
Treasury stock...................................................... (11) (11)
Deferred compensation............................................... (1,949) (1,792)
Unrealized loss on investments...................................... (75) (106)
Deficit accumulated during development stage........................ (52,213) (55,306)
------------- ------------
Total stockholders' equity..................................... 40,477 37,626
------------- ------------
Total liabilities and stockholders' equity..................... $ 44,281 $ 41,616
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)
PERIOD FROM
INCEPTION
(JUNE 13,
THREE MONTHS ENDED 1986)
MARCH 31, THROUGH
-------------------- MARCH 31,
1996 1997 1997
----------- ----------- -----------
Revenues:
Interest income...................... $ 142 $ 592 $ 4,114
Research and development grants
and contracts...................... 543 286 4,495
----------- ----------- -----------
Total revenues.................. 685 878 8,609
----------- ----------- -----------
Expenses:
Research and development............. 2,322 3,485 42,627
Purchase of in-process research
and development.................... -- -- 8,625
General and administrative........... 395 456 11,619
Interest expense..................... 41 30 1,044
----------- ----------- -----------
Total expenses.................. 2,758 3,971 63,915
----------- ----------- -----------
Net loss............................... $ (2,073) $ (3,093) $ (55,306)
=========== =========== ===========
Net loss per share..................... $ (0.19) $ (0.21)
=========== ===========
Weighted average shares used in
computing net loss per share......... 10,647 14,620
The accompanying notes are an integral part of these financial statements.
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<PAGE>
STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 13,
THREE MONTHS ENDED 1986)
MARCH 31, THROUGH
-------------------------- MARCH 31,
1996 1997 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (2,073) $ (3,093) $ (55,306)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization 244 259 3,146
Compensation expense related to stock and stock options 131 193 2,835
Charge for purchase of in-process research and development -- -- 8,547
Unrealized loss on investment (50) (31) (106)
Acquisition costs, net of cash received -- -- (270)
Loss in affiliate 50 -- 500
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other assets 108 (587) (1,065)
Decrease in accounts receivable - affiliates 165 78 --
Increase (decrease) in accounts payable and accrued
expenses (773) 249 1,493
Increase in deferred revenue 50 -- (353)
Accrued interest payable converted to stock -- -- 97
------------ ----------- -----------
Net cash used in operating activities (2,148) (2,932) (40,482)
Cash flows from investing activities:
Net sales (purchases) of investments 2,530 1,876 (29,598)
Purchase of furniture, equipment and leasehold improvements (38) (93) (3,862)
Investment in affiliate -- -- (500)
------------ ----------- -----------
Net cash provided by (used in) investing activities 2,492 1,783 (33,960)
Cash flows from financing activities:
Proceeds from notes payable -- -- 4,672
Repayment of notes payable and principal payments under capital
lease obligations (77) (63) (2,249)
Purchase of treasury stock -- -- (11)
Proceeds from issuance of stock 2,122 80 75,077
------------ ----------- -----------
Net cash provided by (used in) financing activities 2,045 17 77,489
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 2,389 (1,132) --
Cash and cash equivalents at beginning of period 7,781 4,179 --
------------ ----------- -----------
Cash and cash equivalents at end of period $ 10,170 $ 3,047 $ 3,047
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 41 $ 20 $ 868
Supplemental schedule of noncash financing activities:
Conversion of notes payable and accrued interest to
common stock $ -- $ -- $ 3,043
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Aronex Pharmaceuticals, Inc. ("Aronex" or the "Company") was incorporated
in Delaware on June 13, 1986 and merged with Triplex Pharmaceutical Corporation
("Triplex") and Oncologix, Inc. ("Oncologix") effective September 11, 1995.
Aronex is a development stage company which has devoted substantially all of its
efforts to research and product development and has not yet generated any
significant revenues, nor is there any assurance of significant future
revenues. In addition, the Company expects to continue to incur losses for the
foreseeable future and there can be no assurance that the Company will complete
the transition from a development stage company to successful operations. The
research and development activities engaged in by the Company involve a high
degree of risk and uncertainty. The ability of the Company to successfully
develop, manufacture and market its proprietary products is dependent upon many
factors. These factors include, but are not limited to, the need for additional
financing, attracting and retaining key personnel and consultants, and
successfully developing manufacturing, sales and marketing operations. The
Company's ability to develop these operations may be impacted by uncertainties
related to patents and proprietary technologies, technological change and
obsolescence, product development, competition, government regulations and
approvals, health care reform and product liability exposure. Additionally, the
Company is reliant upon collaborative arrangements for research, contractual
agreements with corporate partners, and its exclusive license agreements with
M.D. Anderson Cancer Center ("MD Anderson") and an affiliate of Baylor College
of Medicine ("Baylor"). Further, during the period required to develop these
products, the Company will require additional funds which may not be available
to it. The Company expects that its existing cash resources will be sufficient
to fund its cash requirements through 1998. Accordingly, there can be no
assurance of the Company's future success.
The balance sheet at March 31, 1997 and the related statements of
operations and cash flows for the three month periods ending March 31, 1997 and
1996 and the period from inception (June 13, 1986) through March 31, 1997 are
unaudited. These interim financial statements should be read in conjunction
with the December 31, 1996 financial statements and related notes. The
unaudited interim financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of results for the interim
periods presented and all such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
2. ACCOUNTING POLICIES
In January 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per share" ("SFAS 128").
Management believes that this statement will have no material effect on its
financial statements.
3. CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. At March 31, 1997, all
short-term investments are held to maturity securities consisting of high-grade
commercial paper and U. S. Government backed securities with a carrying value of
$27,068,000, which approximates fair market value and cost. Long-term
investments include (i) held to maturity securities consisting of high-grade
commercial paper that mature over one to two years with a carrying value of
$6,500,000, which approximates fair market value and cost, and (ii) available
for sale securities which are U.S. mortgage backed securities with various
maturity dates over the next several years that have an amortized cost of
$1,871,000, a fair market value of $1,765,000 and a gross unrealized loss of
$106,000 at March 31, 1997. The Company currently has no trading securities.
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4. FEDERAL INCOME TAXES
At December 31, 1996, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $66.9 million.
The Tax Reform Act of 1986 provided a limitation on the use of NOL and tax
credit carryforwards following certain ownership changes that could limit the
Company's ability to utilize these NOLs and tax credits. Accordingly, the
Company's ability to utilize its NOLs and tax credit carryforwards to reduce
future taxable income and tax liabilities may be limited. As a result of the
1995 mergers with Triplex and Oncologix a change in control as defined by
federal income tax law occurred, causing the use of these carryforwards to be
limited and possibly eliminated. Additionally because U.S. tax laws limit the
time during which NOLs and the tax credit carryforwards may be applied against
future taxable income and tax liabilities, the Company may not be able to take
full advantage of its NOLs and tax credit carryforwards for federal income tax
purposes. The carryforwards will begin to expire in 2001 if not otherwise used.
A valuation allowance has been established to offset the Company's deferred tax
assets as the Company has had losses since inception. The Company has not made
any income tax payments since inception.
5. REVERSE STOCK SPLIT
At a special Meeting of Stockholders held on May 24, 1996, the stockholders
of the Company approved a one-for-two reverse split of the Common Stock (the
"Reverse Split"). The Reverse Split became effective with the filing of an
amendment to the Company's Certificate of Incorporation on July 1, 1996. The
accompanying financial statements have been restated to give effect to the
Reverse Split.
6. SUBSEQUENT EVENT
In April 1997, the Company signed a building lease from its current
landlord. Under this lease, the Company has committed to lease 30,000 square
feet for ten years at approximately $2.00 per square foot per month and pay
certain construction costs. The Company will occupy this lease space late in
1997 or early in 1998.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1986, Aronex Pharmaceuticals, Inc. ("Aronex" or the
"Company") has primarily devoted its resources to fund research, drug discovery
and development. The Company has been unprofitable to date and expects to incur
substantial operating losses for the next several years as it expends its
resources for product research and development, preclinical and clinical testing
and regulatory compliance. The Company has sustained losses of approximately
$55.3 million through March 31, 1997. The Company has financed its research and
development activities and operations primarily through public and private
offerings of securities. The Company's operating results have fluctuated
significantly during each quarter, and the Company anticipates that such
fluctuations, largely attributable to varying commitments and expenditures for
clinical trials and research and development, will continue for the next several
years.
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
Revenues from research and development grants and contracts were $286,000
and $543,000 for the three months ended March 31, 1997 and 1996, respectively.
The main reasons for the $257,000 decrease are as follows: a decrease of
$300,000 in revenues from Hoechst Marion Roussel, Inc. ("Hoechst") and a
decrease of $73,000 from Small Business Innovative Research ("SBIR") grants, as
the Hoechst agreement terminated at the end of 1996 and no SBIR grants have been
received for 1997. These decreases were partially offset by $150,000 in revenue
from the Company's license agreement with Boehringer Mannheim GmbH.
Interest income on cash, cash equivalents and investments was $592,000 and
$142,000 for the three months ended March 31, 1997 and 1996, respectively. The
increase of $450,000 was primarily due to an increase of funds available for
investment in 1997 resulting from cash received from the completion of a stock
offering in May 1996.
Research and development expenses were $3,485,000 in the first quarter of
1997 compared to $2,322,000 in the first quarter of 1996. The increase of
$1,163,000 was primarily due to an increase of $204,000 in pharmaceutical
development salaries and payroll costs, including cost relating to the hiring of
a Vice President of Pharmaceutical Development and Operations, an increase of
$522,000 in drug manufacturing costs relating mainly to Nyotran/(TM)/ and
Zintevir/(TM)/ and an increase of $249,000 in outside pharmacology studies
relating to Nyotran/(TM)/ and Atrogen/(TM)/.
General and administrative expenses were $456,000 in the first quarter of
1997 and $395,000 in the first quarter of 1996 due primarily to increased
salaries, including three new positions, and payroll costs.
Interest expense was $30,000 and $41,000 for the three months ended
March 31, 1997 and 1996, respectively. The $11,000 decrease in interest expense
resulted primarily from a decrease in the amount of laboratory equipment
obtained through leases and promissory notes payable.
Net loss for the first quarter of 1997 increased by $1,020,000 to
$2,073,000 compared to $3,093,000 for the first quarter of 1996, due mainly to
the increase in research and development expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's primary source of cash has been from
financing activities, which have consisted primarily of sales of equity
securities. The Company has raised an aggregate of approximately $75 million
from the sale of equity securities from its inception through March 31, 1997.
In July 1992, the Company raised net proceeds of approximately $10.7 million in
the initial public offering of its Common Stock. In September 1993, the Company
entered into a collaborative agreement with Genzyme relating to the development
and commercialization of Atrogen/(TM)/, in connection with which the Company
received net proceeds of approximately $4.5 million from the sale of Common
Stock to Genzyme. In November 1993 and May 1996, the Company raised net
proceeds of approximately $11.5 and $32.1 million, respectively, in public
offerings of Common Stock. From October 1995 through March 31, 1997, the
Company received aggregate net proceeds of approximately $6.5 million from the
exercise of certain warrants
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<PAGE>
issued in its 1995 merger with Oncologix, Inc. From its inception until March
31, 1997, the Company also received an aggregate of $4.5 million cash from
collaborative arrangements and SBIR grants. In September 1995, the Company's
cash and securities held to maturity increased by approximately $6.7 million as
a result of its 1995 merger with Triplex Pharmaceutical Corporation.
The Company's primary use of cash to date has been in operating activities
to fund research and development, including preclinical studies and clinical
trials, and general and administrative expenses. Cash of $2.1 million and $2.9
million was used in operating activities during the first quarter of 1996 and
1997, respectively. The Company had cash, cash-equivalents and short-term and
long-term investments of $38.4 million as of March 31, 1997, consisting
primarily of cash and money market accounts, and United States government
securities and investment grade corporate bonds.
The Company has experienced negative cash flows from operations since its
inception and has funded its activities to date primarily from equity
financings. The Company has expended, and will continue to require, substantial
funds to continue research and development, including preclinical studies and
clinical trials of its products, and to commence sales and marketing efforts if
FDA and other regulatory approvals are obtained. The Company expects that its
existing capital resources will be sufficient to fund its capital requirements
through 1998. Thereafter, the Company will need to raise substantial additional
capital to fund its operations. The Company's capital requirements will depend
on many factors, including the problems, delays, expenses and complications
frequently encountered by development stage companies; the progress of the
Company's research, development and clinical trial programs; the extent and
terms of any future collaborative research, manufacturing, marketing or other
funding arrangements; the costs and timing of seeking regulatory approvals of
the Company's products; the Company's ability to obtain regulatory approvals;
the success of the Company's sales and marketing programs; costs of filing,
prosecuting and defending and enforcing any patent claims and other intellectual
property rights; and changes in economic, regulatory or competitive conditions
or the Company's planned business. Estimates about the adequacy of funding for
the Company's activities are based on certain assumptions, including the
assumption that testing and regulatory procedures relating to the Company's
products can be conducted at projected costs. There can be no assurance that
changes in the Company's research and development plans, acquisitions, or other
events will not result in accelerated or unexpected expenditures. To satisfy
its capital requirements, the Company may seek to raise additional funds in the
public or private capital markets. The Company's ability to raise additional
funds in the public or private markets will be adversely affected if the results
of its current or future clinical trials are not favorable. The Company may
seek additional funding through corporate collaborations and other financing
vehicles. There can be no assurance that any such funding will be available to
the Company on favorable terms or at all. If adequate funds are not available,
the Company may be required to curtail significantly one or more of its research
or development programs, or it may be required to obtain funds through
arrangements with future collaborative partners or others that may require the
Company to relinquish rights to some or all of its technologies or products. If
the Company is successful in obtaining additional financing, the terms of such
financing may have the effect of diluting or adversely affecting the holdings or
the rights of the holders of the Company's Common Stock.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
+10.1 Amendment No. 3 to License and Development Agreement
between the Company and Genzyme Corporation.
10.2 Amendment No. 3 to Stock Purchase Agreement between the
Company and Genzyme Corporation.
10.3 Employment agreement dated December 5, 1996 between the
Company and Praveen Tyle, Ph.D.
10.4 Employment agreement dated February 25, 1997 between the
Company and David S. Gordon, M.D.
11.1 Statement regarding computation of per share earnings.
27.1 Financial data schedule.
(b) Reports on Form 8-K
None
+ Confidential treatment has been requested. The copy filed as an exhibit
omits the information subject to the confidentiality request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARONEX PHARMACEUTICALS, INC.
Dated: May 7, 1997 By: /s/ JAMES M. CHUBB
------------------------------
James M. Chubb, Ph.D.
President and Chief
Executive Officer
Dated: May 7, 1997 By: /s/ TERANCE A. MURNANE
------------------------------
Terance A. Murnane
Controller
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<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 3
TO
LICENSE AND DEVELOPMENT AGREEMENT
This Amendment No. 3 to License and Development Agreement (this
"Amendment") is made as of the 25th day of March, 1997 (the "Effective Date") by
and between Aronex Pharmaceuticals, Inc., a Delaware corporation ("Aronex"), and
Genzyme Corporation, a Massachusetts corporation ("Genzyme"). Capitalized terms
used without definition in this Amendment shall have the meanings given to such
terms in the Development Agreement (as defined below).
RECITALS
WHEREAS, Aronex (f/k/a Argus Pharmaceuticals, Inc.) and Genzyme entered
into a License and Development Agreement dated September 10, 1993 (as
subsequently amended by amendments dated September 8, 1995 and September 10,
1996, the "Development Agreement") relating to the development, license,
manufacture, marketing and sale of pharmaceutical compositions incorporating
"AR-623" (also known as "Atragen/(TM)/"); and
WHEREAS, Aronex and Genzyme desire to amend the Development Agreement (i)
to release Genzyme from any obligation to perform further development work for
AR-623 and (ii) to convert the license granted to Genzyme in the Development
Agreement to an option to market and sell Products as provided herein; and
WHEREAS, Aronex is willing to assume certain responsibility for further
development work for AR-623 and marketing and sales as provided herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, Aronex and Genzyme agree as follows:
1. TERMINATION OF LICENSE; GRANT OF MARKETING RIGHTS OPTION TO GENZYME.
The license granted to Genzyme pursuant to Article 2 of the Development
Agreement is hereby terminated and shall be of no further force and effect.
Article 2 of the Development Agreement is hereby amended and restated to read in
its entirety as follows:
2. MARKETING RIGHTS.
2.1 Genzyme Option. Subject to the terms and conditions of this
Agreement, Genzyme shall have the option (the "Option"), exercisable in its
sole discretion, to obtain (i) the exclusive right (with the right to
sublicense) to use, market, import, export and sell any Product in the
Field throughout the world excluding the United States and its territories
and possessions and (ii) the right to co-promote with Aronex pursuant to
Section 5.3 any Product in the Field in the United States and its
territories and possessions (the "Marketing Rights").
2.2 Exercise of Option; Royalties. Genzyme may exercise the Option
at any time prior to the date that is six months after the filing of an NDA
for a Product for any indication (the "Option
<PAGE>
Expiration Date") by (i) giving Aronex written notice of its exercise of
the Option and (ii) paying Aronex Three Million Dollars ($3,000,000.00). If
Genzyme exercises the Option, Genzyme shall pay Aronex a royalty equal to
[*] of Net Sales by Genzyme, its Affiliates and its sublicensees throughout
the world. If Genzyme does not exercise the Option within six months after
the filing of an NDA for the Product for any indication, the Option shall
expire and may not thereafter be exercised with respect to the Product for
which the NDA is filed or any subsequent Product or indication.
2.3 Aronex Right to Re-Acquire Marketing Rights. Notwithstanding the
foregoing, Aronex shall have the right, exercisable at any time before the
end of the twelve-month period following the filing of an NDA, to re-
acquire the Marketing Rights and to terminate Genzyme's rights thereunder
by (i) giving Genzyme written notice of its exercise of such right, (ii)
paying Genzyme Two Million Dollars ($2,000,000.00) and (iii), if such right
is exercised after Genzyme's exercise of the Option, additionally returning
to Genzyme the Three Million Dollars ($3,000,000.00) received from Genzyme
in connection with Genzyme's exercise of the Option. If Aronex terminates
Genzyme's rights to use, market, import, export and sell Products pursuant
to this Section 2.3, Aronex shall pay Genzyme a royalty equal to (i) [*] of
Net Sales by Aronex and its Affiliates throughout the world and (ii) [*] of
Sublicensee Royalties received by Aronex and its Affiliates; provided that
Aronex shall pay a minimum of $500,000 of royalties within the first twelve
months following the due date of the $2,000,000 payment provided for above
(which amount shall be credited against the percentage royalties
contemplated hereby). Aronex's obligation to pay such royalties shall
terminate once Aronex has paid a total of Thirteen Million Dollars
($13,000,000.00) in royalties.
2.4 Failure to Exercise or Termination by Genzyme. If Genzyme does not
exercise the Option, or if Genzyme terminates the Option prior to the
Option Expiration Date as provided below, Aronex shall pay Genzyme Two
Million Dollars ($2,000,000.00) within thirty (30) days after the Option
Expiration Date or such earlier termination. In addition, Aronex shall pay
Genzyme a royalty equal to (i) [*] of Net Sales by Aronex and its
Affiliates throughout the world and (ii) [*] of Sublicensee Royalties
received by Aronex and its Affiliates; provided that Aronex shall pay a
minimum of $500,000 of royalties within the first twelve months following
the due date of the $2,000,000 payment provided for above (which amount
shall be credited against the percentage royalties contemplated hereby).
Aronex's obligations to pay such royalties shall terminate once Aronex has
paid a total of Eight Million Dollars ($8,000,000.00) in royalties. Genzyme
may terminate the Option and relinquish its rights thereunder at any time
prior to the Option Expiration Date, but no earlier than the earlier of (i)
March 24, 1999 and (ii), if applicable, Aronex's termination of all
clinical development of AR-623, by giving Aronex written notice of such
termination.
2.5 Reports and Payments. Any party obligated to pay royalties
hereunder (the "Paying Party") shall keep, and shall require all Affiliates
and sublicensees to keep, for a period of three years after a payment is
due, accurate records in sufficient detail to enable the amounts due
hereunder to be determined. Within sixty (60) days after the end of each
calendar quarter, the Paying Party shall deliver to the other party a
written accounting, including quantities and monetary amounts of sales of
each Product by the Paying Party and its Affiliates and any sublicensees,
on a country-by-country basis, and the amount of royalty payments, if any,
due for such quarter. The Paying Party, upon delivery of such accounting,
shall pay all royalties shown to be due thereunder.
* Confidential treatment requested
-2-
<PAGE>
2.6 Audit Rights. A Paying Party shall permit the other party or its
representatives to have access to the Paying Party's books and records for
the sole purpose of verifying the royalties payable hereunder. Such review
may be conducted no more than once during each year royalties are due
hereunder and twice during the three years following termination of this
Agreement. The review shall be conducted after reasonable notice and
during reasonable business hours. If such review reveals that royalties
have been understated for any calendar year, such underpayment shall be
immediately paid by the Paying Party; provided that if such examination was
not conducted by an independent accountant, the Paying Party shall have the
right to engage an independent accountant reasonably acceptable to the
other party to verify the results of such review. The fees and expenses of
such accountant shall be paid by the party alleging an error unless the
error is more than ten percent (10%) of the actual amount due, in which
case the party who made the error shall pay all reasonable costs and
expenses incurred by the investigating party in the course of making such
determination. Any sublicense granted by either party shall contain audit
provisions as set forth in this subsection 2.6.
2.7 Payment Currency. All payments to be made under this Agreement
shall be made in United States dollars. In the case of sales in foreign
currencies, the rate of exchange to be used in computing the amount of
currency equivalent in United States dollars due hereunder shall be made at
the rate of exchange prevailing on the last day of the calendar quarter
published by the money center bank designated by the Paying Party which it
uses for currency conversion in the preparation of its public financial
reports.
2.8 Payment Mechanics. All payments under this Agreement shall be
made by wire transfer of immediately available funds to such account as the
receiving party shall specify or by other payment method acceptable to the
parties. If royalties are due for Net Sales in a country where, for
reasons of currency, tax or other regulations, transfer of foreign currency
out of such country is prohibited, the Paying Party may pay such royalties
by placing them in a bank account in such country in the name of and under
the sole control of the receiving party; provided, however, that the bank
selected be reasonably acceptable to the receiving party and that the
Paying Party inform the receiving party of the location, account number,
amount and currency of money deposited therein.
2.9 Acquisition of Third Party Rights. Aronex shall use all
commercially reasonable efforts to obtain any rights from any Third Party
that are necessary for the manufacture, use or sale of the Product in
accordance with this Agreement and upon such acquisition by Aronex, such
rights shall be automatically included in the Option granted in Section 2.1
without any further action of the parties. The costs of obtaining such
rights shall be borne as follows:
(a) Aronex Costs. Aronex shall bear all costs associated with (i)
Third Party rights necessary for the manufacture or sale of both the
Product and other products under development or being sold by Aronex or its
Affiliates or sublicensees and (ii) Third Party rights with respect to
Product sales by Aronex or its Affiliates or sublicensees (other than
Genzyme).
(b) Genzyme Costs. Genzyme shall bear all costs associated with Third
Party rights with respect to Product sales by Genzyme or its Affiliates or
sublicensees.
-3-
<PAGE>
(c) Shared Costs. In the event Aronex and Genzyme co-promote sales of
the Product in the United States, Aronex and Genzyme shall share costs
associated with third party rights in proportion to their relative shares
of Net Profit.
2. DEVELOPMENT PROGRAM. Aronex and Genzyme agree that the research and
development being conducted by Genzyme in accordance with the current Work Plan
shall be terminated as promptly as practicable, and that Genzyme shall have no
obligation to perform any further research or development under the Development
Agreement. Notwithstanding the foregoing, Genzyme shall provide Aronex with an
NDA quality report with accompanying table summaries and case reports of the
phase II/III Kaposi's sarcoma clinical trial no later than August 1, 1997.
Aronex presently intends to continue certain research and development work for
AR-623, and to file an NDA and a PLA for the use of AR-623 for treatment of APL,
but shall have the right to discontinue all such research and development, in
its sole discretion, for any reason. Except as expressly set forth in this
Amendment, Article 3 of the Development Agreement is hereby amended and restated
to read in its entirety as follows:
3.1 Project Representatives. The parties have each designated a
Project Representative to facilitate as a liaison between it and the other
party, and to oversee and review the progress of the Development Program
and other relevant matters under this Agreement.
3.2 Progress Reports. Within 45 days following the end of each
calendar year, the Aronex Project Representative shall deliver to the
Genzyme Project Representative a reasonably detailed written report which
shall describe the progress of the Development Program performed by it
during the year.
3.3 Records and Data. Each party shall maintain records in
sufficient detail and in good scientific manner appropriate for patent and
FDA purposes and so as to properly reflect all work done and results
achieved in the performance of the Development Program. Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of
materials and other graphic or written data generated in connection with
the Development Program, including any data required to be maintained
pursuant to applicable governmental regulations. Each party shall provide
the other the right to inspect records, and shall provide copies of all
requested records, to the extent, reasonably related to the performance of
the other's obligations under this Agreement.
3. ALLOCATION OF COSTS; TERMINATION OF MILESTONE AND OTHER PAYMENTS. All
expenses incurred by either party pursuant to the Development Agreement through
the Effective Date shall be determined within thirty (30) days of the Effective
Date and responsibility for such costs and any resulting reimbursements shall be
made according to the terms of the Development Agreement as in effect prior to
this Amendment. Except for the foregoing allocation of costs, the Development
Agreement is hereby amended by deleting Article 4 thereof in its entirety.
-4-
<PAGE>
4. COMMERCIALIZATION RIGHTS. Article 5 of the Development Agreement is
hereby amended and restated to read in its entirety as follows:
5. COMMERCIALIZATION. In the event the Option is exercised:
5.1. Manufacturing. Aronex shall be responsible for manufacturing or
subcontracting the manufacture of all of Genzyme's requirements for
Product, subject to customary forecast and order procedures. If Aronex or
its subcontractor is manufacturing, Aronex's (or its subcontractor's)
responsibilities shall include all aspects of the manufacturing process,
including maintenance of manufacturing inventory, quality control and
shipment of Product in accordance with orders placed by Genzyme. As
compensation for such manufacturing services, Aronex shall be entitled to
receive payment of its fully burdened COGS.
5.2 Sales. Following regulatory approval in any country, Genzyme
shall use commercially reasonable efforts to market and sell the Product in
such country. All terms of sale, including pricing policies, credit terms,
cash discounts and returns and allowances, as well as the nature of
marketing efforts, shall be set by Genzyme. Genzyme shall be responsible
for invoicing the customers for Product and collecting payment therefor.
The Product shall be sold under the trademark "Atragen" (for which purpose
Genzyme shall have a royalty-free license to use such trademark) or such
other trademark as the parties may agree.
5.3 Co-Promotion. Aronex and Genzyme shall co-promote the Product in
the United States, subject to the following principles of agreement and
such other terms and conditions as the parties may agree upon at that time:
(a) Sales and Marketing. The parties shall select one party by
agreement which shall retain management responsibility for sales and
marketing of the Product (the "Marketing Manager"). All marketing decisions
will be made by the Marketing Manager, including but not limited to pricing
and other terms of sale, distribution channels, sales personnel,
advertising, promotion and marketing programs. All customer orders will be
received, executed and invoiced by the Marketing Manager. If the other
party receives any orders, it will refer the customer to the Marketing
Manager or appropriate drug wholesalers as designated by the Marketing
Manager. The parties shall agree upon the responsibilities and scope of
the party that is not selected to be the Marketing Manager, with the
expectation that such other party shall substantively participate in the
marketing and "technical detailing" of the Product.
(b) Profit Sharing. Aronex and Genzyme will each be entitled to [*]
of Net Profit on sales by the Marketing Manager and its Affiliates of
Products in the United States in any calendar year. All royalties with
respect to such sales shall be deducted from Net Sales before the foregoing
allocation of Net Profit is made.
(c) Trademark. The Product shall be sold under the trademark
"Atragen/(TM)/" or such other a trademark as the parties may agree.
(d) Co-Promotion Rights Not Assignable. Neither party's co-promotion
rights under this Section 5.3 may be assigned or transferred to any Third
Party, including an assignment as a result of a merger or consolidation of
such party, without the prior written consent of the other party, which
shall not be unreasonably withheld or delayed.
* Confidential treatment requested
-5-
<PAGE>
5. TERM OF DEVELOPMENT AGREEMENT. Section 10.1 of the Development
Agreement is hereby amended and restated to read in its entirety as follows:
10.1 Term of Agreement. This Agreement and any License granted
hereunder shall remain in effect on a country-by-country basis until the
later of (i) the expiration of the last-to-expire Patent relating to any
Product in such country or (ii) the date that is 10 years after the First
Commercial Sale in such country. If Genzyme has exercised the Option (and
Aronex has not reacquired the Marketing Rights), Genzyme shall thereafter
have a fully paid-up license to use the Patents and the Subject Technology
in such country.
Article 10 of the Development Agreement is further amended by deleting Section
10.3 thereof in its entirety.
6. DEFINITIONS. Article 1 of the Development Agreement is hereby amended
by replacing Sections 1.19 and 1.20 in their entirety and adding new
Section 1.30, as follows:
1.19 "Net Profit" means the difference between (a) Net Sales and (b)
the sum of (i) Cost of Goods Sold and (ii) 30% of Net Sales (for the
Marketing Manager's and its Affiliates' sales and marketing expense
relating to the Product regardless of the actual expenses incurred).
1.20 "Net Sales" means the gross amount billed for Product sold
pursuant to this Agreement to a Third Party, less discounts, rebates,
returns, credits, contractual allowances, sales deemed uncollectible,
shipping and insurance charges, sales taxes, duties, other governmental
charges measured by the amount billed and any royalties payable to Third
Parties; provided that, for purposes of the royalties payable under
Sections 2.3 or 2.4, Net Sales shall not include sales by sublicensees, if
any, of Aronex and its Affiliates.
In the event a Product is sold in a combination product with other
pharmacologically active components, Net Sales, for purposes of royalty
payments on the combination product, shall be calculated by multiplying the
Net Sales of that combination product by the fraction A/B, where A is the
gross selling price of the Product sold separately and B is the gross
selling price of the combination product. In the event that no such
separate sales are made by Aronex or Genzyme or their respective Affiliates
or sublicensees, the parties shall negotiate in good faith the meaning of
Net Sales for purposes of royalty payments on the combination product.
1.30 "Sublicensee Royalties" means all royalties paid to Aronex and
its Affiliates by sublicensees, if any, of Aronex and its Affiliates with
respect to such sublicensees' rights to and sales of the Product.
7. ADDITIONAL AMENDMENTS. Article 11 of the Development Agreement is
hereby terminated and shall be of no further force and effect.
8. "ATRAGEN/(TM)/" TRADEMARK. Genzyme hereby assigns and transfers to
Aronex, all right, title and interest it may have in the trade name "Atragen"
and the associated trademark and all related goodwill.
9. NO OTHER AMENDMENTS. Except as specifically amended hereby, the
Development Agreement shall continue in full force and effect.
-6-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Amendment in one
or more copies effective as of the Effective Date.
ARONEX PHARMACEUTICALS, INC.
By: /s/ James M. Chubb
------------------------------------
James M. Chubb, Ph.D., President
GENZYME CORPORATION
By: /s/ Richard Douglas
------------------------------------
Richard Douglas
Vice President-Corporate Development
-7-
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 3
TO
COMMON STOCK PURCHASE AGREEMENT
This Amendment No. 3 to Common Stock Purchase Agreement (this "Amendment")
is made as of the 25th day of March, 1997 (the "Effective Date") by and between
Aronex Pharmaceuticals, Inc., a Delaware corporation ("Aronex"), and Genzyme
Corporation, a Massachusetts corporation ("Genzyme"). Capitalized terms used
without definition in this Amendment shall have the meanings given to such terms
in the Purchase Agreement (as defined below).
RECITALS
WHEREAS, Aronex (f/k/a Argus Pharmaceuticals, Inc.) and Genzyme entered
into a Common Stock Purchase Agreement dated September 10, 1993 (as subsequently
amended by amendments dated September 8, 1995 and September 10, 1996, the
"Purchase Agreement") relating to the purchase by Genzyme of shares of the
common stock of Aronex, including the purchase by Genzyme of Additional Shares
upon the acceptance by the FDA of a protocol for a pivotal trial of AR-623 for a
non-hematologic cancer indication; and
WHEREAS, pursuant to the amendment to the Purchase Agreement dated
September 10, 1996, Genzyme made an advance payment of $2,000,000 toward the
purchase price for a portion of the Additional Shares; and
WHEREAS, Aronex agreed to repay such advance payment upon a decision by the
parties not to file a protocol for a pivotal trial of AR-623 for a non-
hematologic cancer indication (as evidenced by a Promissory Note dated
September 13, 1996); and
WHEREAS, in connection with amendment No. 3 to the License and Development
Agreement between the parties, Aronex and Genzyme desire to further amend the
Purchase Agreement (i) to release Genzyme from any obligation to purchase
Additional Shares and (ii) to cancel the Promissory Note and Aronex's repayment
obligations thereunder and convert the advance payment made by Genzyme to a
payment for research and development work performed by Aronex.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, Aronex and Genzyme agree as follows:
1. CANCELLATION OF PROMISSORY NOTE AND RELATED OBLIGATIONS OF ARONEX.
The Promissory Note issued by Aronex to Genzyme pursuant to Section 1.3 of the
Purchase Agreement, and all obligations of Aronex thereunder, is hereby
terminated and shall be of no further force and effect. The advance payment
contemplated by Section 1.3 and evidenced by the Promissory Note shall be deemed
to have been converted to a payment for research and development work performed
by Aronex under the License and Development Agreement. Genzyme shall return the
original promissory note to Aronex marked cancelled. In furtherance of the
foregoing, the Purchase Agreement is hereby amended by deleting Section 1.3
thereof in its entirety.
<PAGE>
2. CANCELLATION OF OBLIGATIONS OF GENZYME AND ARONEX WITH RESPECT TO
ADDITIONAL SHARES.
The obligations of Genzyme to purchase Additional Shares from Aronex, and of
Aronex to issue and deliver Additional Shares to Genzyme, pursuant to Section
1.4 of the Agreement are hereby terminated and shall be of no further force and
effect. The Purchase Agreement is hereby amended by deleting Section 1.4 thereof
in its entirety.
3. NO OTHER AMENDMENTS. Except as specifically amended hereby, the
Purchase Agreement shall continue in full force and effect.
IN WITNESS WHEREOF the parties hereto have executed this Amendment in one
or more copies effective as of the Effective Date.
ARONEX PHARMACEUTICALS, INC.
By: /s/ James M. Chubb, Ph.D
--------------------------------
James M. Chubb, Ph.D., President
GENZYME CORPORATION
By: /s/ Richard Douglas
--------------------------------
Richard Douglas
Vice President-Corporate Development
-2-
<PAGE>
EXHIBIT 10.3
December 5, 1996
Praveen Tyle, Ph.D.
14850 Gable Ridge Road
San Diego, CA 92128
Dear Praveen:
I am pleased to present for your consideration the following proposal to join
Aronex as Vice President, Pharmaceutical Development and Operations. In this
position you will report directly to me. Your responsibilities will include
directing Pharmaceutical Development, Chemistry, Quality Control, and
Manufacturing. In addition, one individual for Document Control from Regulatory
Affairs will report to you. You will be responsible for planning, budgeting and
developing the Company's Pharmaceutical Development and Operations activity, and
assure the Company's products are manufactured under G.M.P. You will be a
member of the Company's Executive Committee. A starting date of February 3,
1997 is anticipated, although I would prefer an earlier start date, if possible.
Compensation for the position would include the following:
Base salary: $168,000 annually
Stock Grant: Total 5,000 shares
Stock Option: 100,000 options at fair market value, 30,000 to vest upon
joining Aronex. The balance will vest over four years at a
rate of 1/48 per month. Additional options will be granted
on a yearly basis dependent upon Board approval.
Bonus: A target annual bonus of 20% of base salary in cash, stock
grants, and/or stock options, dependent upon you meeting
Company goals and Board approval.
Performance
Evaluation: July Performance evaluation with full consideration.
Benefits: Benefits would include medical, dental, and disability,
401K plan, stock purchase plan, medical benefits,
cafeteria plan, three weeks annual vacation, and all other
Company benefits defined in the Company's Benefits
Summary.
Relocation: Up to two trips to Houston for you and your wife to select
new housing. Moving costs of personal property. Costs
related to real estate commission and closing costs of
your current home, and closing costs associated with
purchase of a new home (including up to one percent loan
origination and two mortgage points). Up to six months of
temporary housing or the mortgage payments on your San
Diego house if it has not been sold by the time you have
moved and taken up residence in Houston. The goal is for
you to have to pay housing costs at only one location. The
Company will cover a loss on the sale of your current home
up to a maximum of $15,000, based on the difference
between your cost basis for your San Diego home of
$215,800 and the final sales price. The Company will also
cover gross-up costs related to your relocation expenses,
but not for the stock grants.
<PAGE>
Praveen Tyle, Ph.D.
December 5, 1996
Page 2
Employment
Agreement: A one year severance package of base salary and benefits
if terminated by the Company for reasons other than cause.
I believe this package is very reasonable and reflects the importance of the
position and the value we perceive you will bring to Aronex.
I hope you find this proposal acceptable. I look forward to you joining Aronex
as early as possible
Best regards,
/s/ James M. Chubb
James M. Chubb, Ph.D.
President
JMC/cc
Enclosure
Accepted and Agreed upon this 18th day of December, 1996.
/s/ Praveen Tyle, Ph.D.
-----------------------
Praveen Tyle, Ph.D.
<PAGE>
EXHIBIT 10.4
March 12, 1997
FAX #: 609/683-8916
David S. Gordon, M.D.
22 Florence Lane
Princeton, NJ 08540
Dear David:
I am extremely pleased that you have agreed to join Aronex. The Company is at a
very exciting period in its evolution and your involvement will surely add
significant value.
As agreed, I am pleased to offer you the position of Senior Vice President of
Medical Affairs and Chief Medical Officer. In this position, you will report
directly to me. Your primary responsibility will be to develop and validate the
Company's clinical Development strategy, as well as assure that the strategic
plans and time lines are effectively executed. You will be responsible for
assuring the clinical data are published in a timely manner and you will be
responsible for securing expert clinical advocates for the company's products.
You will also assist in identifying and will be responsible for evaluating and
recommending a clinical course of action for potential development candidates.
You will be the chief medical spokesman for the Company and be responsible for
presenting the Company's clinical strategy and direction to the pharmaceutical,
financial and regulatory communities. The Company, its Board of Directors, and
its consultants will provide total support to you in fulfilling this role. You
will be responsible for the departments and personnel in Regulatory, Clinical
Research, and Statistical Services/Data Management. The organization and
necessary hiring to build a cohesive, competent team with capabilities of
progressing at least three products through clinical development simultaneously
will be your responsibility.
You will be an officer of the Company and a member of the Company's Executive
Committee consisting of the following department heads: Preclinical Research,
Pharmaceutical Development, Clinical Research, Regulatory, Finance and Business
Development. This Committee is responsible for developing the Company's short
and long term strategy, and defining the Company's budget. An official starting
date of March 24 is acceptable. However, since you will be out of the country
through the first three weeks of April, payment of your salary and benefits will
not commence until April 28, 1997.
Compensation for this position includes the following:
Base Salary: $213,000 annually. Annual salary adjustments as determined
by the Compensation Committee based upon performance.
Stock
Options: One hundred twenty-five (125,000) options at fair market
value. Twenty-five thousand (25,000) will vest upon joining
Aronex on April 28, 1997. The balance will vest over four
years at a rate of 1/48 per month. You will have a two year
period from the time you leave the Company to exercise vested
options.
Bonus: A target annual bonus of up to 20% set by the Compensation
Committee of the Board of Directors will be paid annually.
The bonus will be paid as a percentage of salary in cash,
stock grants/or stock options, dependent upon meeting Company
and department goals.
Benefits: Benefits include medical, dental, disability, 401K Plan,
Stock Purchase Plan, Medical Benefits Cafeteria Plan, term
life insurance equal to one times your annual salary, three
weeks vacation, and all the other Company benefits defined in
the Company's Benefit Manual. These documents have been sent
under separate cover.
<PAGE>
David S. Gordon, M.D.
March 12, 1997
Page 2
In addition, the Company will provide a full membership to
The Woodlands Country Club. You will be personally
responsible for the monthly Country Club fees and any charges
you incur.
Relocation: Up to a maximum of $1,750/month for 12 months from the date
of joining Aronex to cover rental cost for housing in Houston
or for mortgage payments on a house purchased in Houston.
Costs related to real estate commissions and closing costs of
your current house, closing costs on your new home, and
moving costs of personal property, including up to two
automobiles will be covered. Personal property may be moved
in partial shipments, if necessary, to furnish your Houston
home or provide transportation.
We recognize the issues you have concerning the relocation to
Houston. To ameliorate those issues to a major extent, we are
willing to pay, as indicated, above $1,750/month of your
rental or mortgage costs for the first 12 months after you
join Aronex. We would hope that within one year, you would
make Houston your primary residence. If circumstances are
such that this cannot be done in one year, Company bonuses
and annual increases should attenuate the housing expense
post 12 months. We are also willing for you to manage your
time so that you can be in New Jersey to conduct business as
is appropriate. At the same time, we expect you to devote
whatever time is required in Houston to manage the Clinical
Affairs program, provide strategic direction and represent
the Company as needed. The need to balance your requirements
with Aronex and your personal obligations will, undoubtedly,
be a challenge. I believe we should strive for this balance
to appear seamless by the Company and the team that will be
reporting to you.
We are also prepared for your continued Board involvement on
the Hycor Board and, if appropriate, joining one other Board.
We also would encourage you to obtain a clinical appointment
at M.D. Anderson Cancer Center. We believe the interaction
you will have in such an association will be valuable to
Aronex.
Employment
Agreement: A one year severance package of base salary and benefits if
you are terminated not for cause.
We are delighted you will be joining us and look forward to an exciting and
rewarding venture. For our administrative records, please sign and return the
attached copy by mail marked "Confidential."
Best regards,
/s/ James M. Chubb
James M. Chubb, Ph.D.
President
JMC/cc
Accepted and agreed upon this 28th day of March, 1997.
/s/ David S. Gordon, M.D.
-------------------------
David S. Gordon, M.D.
<PAGE>
EXHIBIT 11.1
ARONEX PHARMACEUTICALS, INC.
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The following reflects the information used in calculating the number of shares
in the computation of net loss per share for each of the periods set forth in
the Statements of Operations.
<TABLE>
<CAPTION>
AVERAGE LOSS
DAYS SHARES PER
SHARES OUTSTANDING SHARES X DAYS OUTSTANDING LOSS SHARE
<S> <C> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 1996:
10,380,056 1 10,380,056
10,390,003 10 103,900,030
10,409,608 4 41,638,432
10,418,676 2 20,837,351
10,478,786 1 10,478,786
10,046,458 3 30,139,374
10,598,792 1 10,598,792
10,678,561 2 21,357,121
10,680,653 1 10,680,653
10,680,903 3 32,042,709
10,710,132 4 42,840,526
10,718,504 6 64,311,024
10,727,170 4 42,908,678
10,728,565 1 10,728,565
10,729,263 1 10,729,263
10,729,394 7 75,105,758
10,731,487 19 203,898,253
10,742,559 7 75,197,913
10,771,115 2 21,542,230
10,775,477 2 21,550,954
10,776,991 4 43,107,962
10,784,842 1 10,784,842
10,812,921 1 10,812,921
10,832,546 2 21,665,092
10,847,725 2 21,695,449
91 968,932,732 /91 10,647,612 (2,073,000) (0.19)
QUARTER ENDED MARCH 31, 1997:
14,597,247 8 116,777,976
14,606,972 12 175,283,664
14,612,023 4 58,448,092
14,612,499 21 306,862,479
14,615,983 6 87,695,898
14,616,981 1 14,616,981
14,624,239 5 73,121,195
14,625,111 2 29,250,222
14,627,695 7 102,393,865
14,628,567 6 87,771,402
14,640,311 6 87,841,866
14,643,658 6 87,861,948
14,644,672 1 14,644,672
14,644,816 5 73,224,080
90 1,315,794,340 /90 14,619,937 (3,093,000) (0.21)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
ART.5 FDS FOR 1ST QUARTER 10-Q
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARONEX PHARMACEUTICALS, INC. SET FORTH IN THE COMPANY'S
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,074,000
<SECURITIES> 35,333,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,365,000
<PP&E> 5,114,000
<DEPRECIATION> 3,128,000
<TOTAL-ASSETS> 41,616,000
<CURRENT-LIABILITIES> 3,907,000
<BONDS> 0
15,000
0
<COMMON> 0
<OTHER-SE> 37,611,000
<TOTAL-LIABILITY-AND-EQUITY> 41,616,000
<SALES> 0
<TOTAL-REVENUES> 878,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,000
<INCOME-PRETAX> (3,093,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,093,000)
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<CHANGES> 0
<NET-INCOME> (3,093,000)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
