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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1998
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from__________to___________.
Commission File Number: 0-18976
CELTRIX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3121462
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3055 Patrick Henry Drive, Santa Clara, CA 95054-1815
(Address of principal executive offices and zip code)
Registrant's Telephone Number: (408) 988-2500
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.
As of October 31, 1998, the Registrant had outstanding 21,061,053 shares of
Common Stock.
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CELTRIX PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998
and March 31, 1998.............................................. 3
Condensed Consolidated Statements of Operations for the
three-and six-month periods ended September 30, 1998 and 1997... 4
Condensed Consolidated Statements of Cash Flows for the
three-and six-month periods ended September 30, 1998 and 1997... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 8
PART II. OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds........................... 21
Item 4: Submission of Matters to a Vote of Security Holders................. 22
Item 6: Exhibits and Reports on Form 8-K.................................... 22
SIGNATURES..................................................................... 24
</TABLE>
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PART I. FINANCIAL INFORMATION
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
--------- ---------
(Unaudited) (1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,002 $ 1,608
Short-term investments -- 6,305
Receivables and other current assets 165 219
--------- ---------
Total current assets 1,167 8,132
Property and equipment, net 1,103 7,062
Intangible and other assets, net 2,620 2,682
--------- ---------
$ 4,890 $ 17,876
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 583 $ 751
Other accrued liabilities 1,146 1,483
Accrued restructuring reserve 474 --
Current portion of capital lease obligations -- 8
--------- ---------
Total current liabilities 2,203 2,242
Deferred rent -- 890
Stockholders' equity:
Preferred stock -- --
Common stock 211 211
Additional paid-in capital 131,542 131,542
Accumulated deficit (129,066) (117,009)
--------- ---------
Total stockholders' equity 2,687 14,744
--------- ---------
$ 4,890 $ 17,876
========= =========
</TABLE>
(1) Derived from audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ -- $ 33 $ 10 $ 33
Other revenues 23 22 49 46
-------- -------- -------- --------
23 55 59 79
Costs and expenses:
Cost of sales -- 1 -- 1
Research and development 2,817 3,060 5,818 6,065
General and administrative 667 399 1,230 947
Restructuring costs 5,178 -- 5,178 --
-------- -------- -------- --------
8,662 3,460 12,226 7,013
-------- -------- -------- --------
Operating loss (8,639) (3,405) (12,167) (6,934)
Interest income, net 33 192 108 416
Gain on sale of investment in
Prograft Medical, Inc. -- -- -- 737
-------- -------- -------- --------
Net loss $ (8,606) $ (3,213) $(12,059) $ (5,781)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.41) $ (0.15) $ (0.57) $ (0.28)
======== ======== ======== ========
Shares used in basic and diluted per
share computation 21,061 20,985 21,061 20,985
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,059) $ (5,781)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write off of leasehold improvements 5,311 --
Reduction in deferred rent liability (890) --
Depreciation and amortization 864 868
Gain on sale of investment in Prograft Medical, Inc. -- (737)
Other adjustments related to changes in operating
accounts 23 (305)
-------- --------
Net cash used in operating activities (6,751) (5,955)
Cash flows from investing activities:
Decrease (increase) in available-for-sale securities 6,307 (6,840)
Capital expenditures (72) (80)
Increase in intangible and other assets (82) (224)
-------- --------
Net cash provided by (used in) investing activities 6,153 (7,144)
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 13,339
Principal payments under lease obligations (8) (231)
-------- --------
Net cash (used in) provided by financing activities (8) 13,108
-------- --------
Net increase in cash and cash equivalents (606) 9
Cash and cash equivalents at beginning of period 1,608 2,734
-------- --------
Cash and cash equivalents at end of period $ 1,002 $ 2,743
======== ========
</TABLE>
See accompanying notes.
5
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CELTRIX PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Interim Financial Statements
The condensed consolidated balance sheet as of September 30, 1998 and
the condensed consolidated statements of operations and cash flows for the
three- and six-month periods ended September 30, 1998 and 1997, have been
prepared by the Company, without audit. In the opinion of management, the
accompanying unaudited interim condensed consolidated financial statements
include all adjustments, which include normal recurring adjustments, necessary
to present fairly the Company's financial position, results of its operations
and its cash flows. Interim results are not necessarily indicative of results to
be expected for a full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the fiscal year ended March 31, 1998 in the
Company's 1998 Annual Report to Stockholders.
The accompanying financial statements have been prepared assuming that
the Company continues as a going concern. At September 30, 1998, the Company had
negative working capital of $1.0 million, an accumulated deficit of $129.1
million, and incurred a net loss of $8.6 million for the quarter ended September
30, 1998 which included a $5.2 million restructuring charge (see Note 3). In
November 1998, the Company completed a private placement, resulting in net
proceeds to the Company of approximately $1.9 million, reversing the negative
working capital position on a pro forma basis (see Note 4). Current cash, cash
equivalents and short-term investments, including proceeds from this financing,
and the sale of fixed assets as a result of discontinuing the Company's
manufacturing operations in connection with the September 1998 restructuring
(see Note 3), will be sufficient to fund ongoing operations into the third
calendar quarter of 1999. (See also Management's Discussion and Analysis of
Financial Condition and Results of Operations.)
2. Recent Pronouncement
As of April 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income". Statement 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale
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securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. Total comprehensive income was not significant during the
periods ended September 30, 1998 and 1997.
3. Restructuring Charges
In September 1998, Celtrix announced that it would restructure the
Company to focus on the clinical development of SomatoKine, cease manufacturing
operation and reduce the cash burn rate. As a result of this action, the Company
recognized a $5.2 million restructuring charge in the quarter ended September
30, 1998; the components are as follows:
<TABLE>
<CAPTION>
Non- Future
(In thousands) Cash Cash Cash Outlays
------ ------- ------------
<S> <C> <C> <C>
Write-off of leasehold improvements (1) $ 5,311
Severance benefit expenses $ 358 $ 213
Non-cancelable operating lease obligations 250 186
Other restructuring-related charges 75 75
Reduction of deferred rent liability (2) (816)
------ ------- -------
$ 683 $ 4,495 $ 474
====== ======= =======
</TABLE>
(1) In connection with the plan to cease manufacturing operation.
(2) Represents a portion of leasehold improvements that were funded by the
landlord.
4. Subsequent Event
In November 1998, the Company completed a private placement of
4,000,000 shares of newly issued common stock at $0.50 per share pursuant to a
Common Stock and Warrant Purchase Agreement dated October 12, 1998, resulting in
net proceeds to the Company of approximately $1.9 million. For every share of
stock issued, the Company also issued one and one-half warrants to purchase
additional shares at $0.55 per share. The warrants are exercisable beginning in
January 1999 and will expire in January 2002.
The following pro-forma financial data gives effect, as of September
30, 1998, to the private placement described above:
<TABLE>
<CAPTION>
Actual Pro-Forma
(In thousands) Balance Balance
------- -------
<S> <C> <C>
Cash, cash equivalents and short-term investments $ 1,002 $2,902
Working capital $(1,036) $ 864
Stockholders' equity $ 2,687 $4,587
</TABLE>
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the financial statements and notes
thereto in the Company's 1998 Annual Report to Stockholders.
OVERVIEW
Celtrix Pharmaceuticals, Inc. is a biopharmaceutical company developing
novel therapeutics for the treatment of seriously debilitating, degenerative
conditions primarily associated with severe trauma, chronic diseases or aging.
The Company's focus is on regenerating lost tissue and metabolic processes
essential for the patient's health and quality of life. Ongoing product
development programs target severe osteoporosis, including hip fracture surgery
in the elderly, traumatic burns and diabetes. Other potential indications
include protein wasting diseases associated with cancer, AIDS, advanced kidney
failure and other life-threatening conditions.
The Company's development focus is on SomatoKine, a naturally occurring
complex comprised of the anabolic hormone insulin-like growth factor-I (IGF-I)
and its primary binding protein, BP3. IGF-I is known to play a major role in
diverse biological processes, including muscle and bone formation, tissue repair
and endocrine regulation. However, limitations associated with administering
free IGF-I therapeutically have proven significant because IGF-I does not
naturally exist in quantity free of its binding proteins. SomatoKine delivers
IGF-I complexed with BP3, which contains biological information important for
the body's natural regulation of IGF-I bioavailability and biodistribution, and
the resulting complex does not display the acute limitations seen in free IGF
administration.
Results from the Company's three earlier Phase I studies demonstrated
that the repeated or continuous administration of SomatoKine safely delivers
IGF-I at substantially higher dosage levels than have ever been achievable with
free IGF-I, increasing the peak blood concentration of IGF-I up to 35-fold its
normal level. Furthermore, the elevated levels substantially stimulated bone and
connective tissue metabolism.
Based on these positive results, the Company initiated a Phase II
clinical feasibility study in early 1997, using SomatoKine to treat severe
osteoporosis patients recovering from
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hip fracture surgery. Following the trauma of hip fracture, patients typically
suffer an accelerated loss of hip bone mineral density (BMD) which predisposes
them to a high risk of refracture. Interim results from patients treated with
SomatoKine for eight weeks showed a substantial retention in their hip bone
mineral density. Final patient follow-up and data analysis are anticipated in
fourth calendar quarter 1998. The Company intends to establish corporate
partnership(s) to continue the global development of SomatoKine for severe
osteoporosis.
In mid-1997, the Company began a Phase II clinical feasibility study in
severely burned patients. Severe burns patients typically have low IGF-I levels
which may be connected to the disruption of the biological processes that are
essential for efficient and successful healing and protection from
complications. Interim results provided evidence that SomatoKine improved the
metabolic processes involved in maintaining muscle protein. In addition,
SomatoKine appeared to have a positive effect on the heart function and immune
system of these severely burned patients. Clinical findings from this study will
be used to establish corporate partnership(s) for future development of
SomatoKine in severe burns.
In July 1998, Celtrix initiated a Phase II feasibility study in Type I
diabetes. This 12-patient study will investigate SomatoKine's potential to
reduce the need for exogenous (injected) insulin and improve blood glucose
control. A number of parameters are being measured including the amount of
insulin required for optimal glycemic control. Clinical findings from this study
will be used to establish corporate partnership(s) for future development of
SomatoKine in diabetes.
The Company has a product development, license and marketing agreement
with Genzyme Corporation ("Genzyme") for TGF-beta-2, a potential pharmaceutical
based on a naturally occurring compound which appears to play an important role
in regulating healthy cell functions. Under amended terms in December 1997, the
Company granted Genzyme expanded territory rights to TGF-beta-2 to include
Japan, China, Korea and Taiwan. Additionally, under a separate license
agreement, Genzyme was granted a worldwide royalty-bearing license to TGF-beta
antibodies and receptor technology. The Company is not currently pursuing an
in-house TGF-beta-2 program.
Celtrix has not earned substantial revenues from product sales and at
September 30, 1998 has an accumulated deficit of $129.1 million. The Company
expects to incur additional operating losses, which may fluctuate from quarter
to quarter, for at least the next several years as the Company continues its
clinical development of SomatoKine.
9
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Development of the Company's products beyond the current Phase II
feasibility studies will require the commitment of substantial funding to
conduct further clinical studies. Such additional funding will need to be raised
through collaborative arrangements or through public or private financings,
including equity financing. There can be no assurance that any such financing
will be available to the Company or on terms attractive to the Company, or that
the Company can enter into a collaborative relationship with a corporate partner
for the continuation of the clinical trials in any of its current indications.
Consequently, there can be no assurance that Celtrix will ever achieve either
significant revenues from product sales or profitable operations. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, obtain regulatory approval for and market its potential products. No
assurance can be given that the Company's product development efforts will be
successfully completed, that required regulatory approvals will be obtained, or
that any products, if developed and introduced, will be successfully marketed or
achieve market acceptance.
RESULTS OF OPERATIONS
Celtrix incurred a net loss of $8.6 million and $12.1 million for the
three- and six-month periods ended September 30, 1998, compared to $3.2 million
and $5.8 million for the same periods in 1997. Net loss per share increased to
$0.41 and $0.57 per share for the three- and six-months ended September 30,
1998, compared to $0.15 and $0.28 per share for the same periods in 1997. The
increase in net loss and basic and diluted net loss per share for the three- and
six-month periods ended September 30, 1998 is due primarily to the one-time
restructuring charges made by the Company this quarter in its effort to reduce
its cash burn rate.
Revenues decreased to $23,000 and $59,000 for the three- and six-month
periods ended September 30, 1998 from $55,000 and $79,000 for the same periods
in 1997 due primarily to a reduction in sale of material for research purposes.
Operating expenses increased to $8.7 million and $12.2 million for the
three- and six-month periods ended September 30, 1998 from $3.5 million and $7.0
million for the same periods in 1997. The increase is due primarily to a
one-time $5.2 million restructuring charge recorded in September 1998.
Net interest income of $33,000 and $108,000 for the three- and
six-month periods ended September 30, 1998 decreased from $192,000 and $416,000
for the same periods in 1997 due primarily to the decrease in average cash, cash
equivalent and short-term investment balances.
In September 1998, Celtrix announced that it would restructure the
Company to focus on the clinical development of SomatoKine, and to significantly
reduce its cash burn rate. Since sufficient clinical grade SomatoKine has been
manufactured for the conduct of clinical trials
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over the next two years, the Company discontinued its manufacturing operations.
As part of the restructuring, the Company reduced its work force by 59
employees, or approximately 80%, in September 1998. The Company intends to
further reduce its work force by the end of the calendar year, for a total
reduction of approximately 90%. The reduction in work force affects all levels
of staff in manufacturing and other functions. Also, as a result of
discontinuing its manufacturing operations, the Company is currently in the
process of selling its equipment and other assets. The Company terminated its
facility lease effective November 30, 1998.
As a result, the Company recognized a $5.2 million restructuring charge
in the quarter ended September 30, 1998, which included a net $4.5 million
non-cash charge for the write-off of leasehold improvements, $358,000 for
severance and benefit expenses, $250,000 related to certain non-cancelable
operating lease obligations and $75,000 in other restructuring-related charges.
Of the $5.2 million in restructuring charges, the Company had reserved $474,000
for future payments related to the restructuring at September 30, 1998, which
include $213,000 for severance and benefit payments, $186,000 under
non-cancelable operating leases and $75,000 in other anticipated payments. (See
also Note 3.)
The $737,000 gain on investment reported in the quarter ended June 30,
1997 was the result of the sale of 43,750 shares of Prograft Medical, Inc.
("Prograft") preferred stock, held by the Company since 1993.
LIQUIDITY AND CAPITAL RESOURCES
Celtrix has funded its activities with proceeds from public and private
offerings, advances from Collagen, research and development revenues from
collaborative arrangements, lease and debt financing arrangements, proceeds from
liquidating its equity investments and, to a lesser extent, other revenues and
product sales.
At September 30, 1998, Celtrix's cash, cash equivalents and short-term
investments were $1.0 million compared to $7.9 million at March 31, 1998. The
net decrease of $6.9 million was due primarily to cash outlays consisting of
$6.8 million in net cash and investments used in operating activities and
$162,000 used in investing and financing activities.
In November 1998, the Company completed a private placement of
4,000,000 shares of newly issued common stock at $0.50 per share pursuant to a
Common Stock and Warrant Purchase Agreement dated October 12, 1998, resulting in
net proceeds to the Company of approximately $1.9 million. In addition, for
every share of stock issued, the Company also issued one and one-half warrants
to purchase additional shares at $0.55 per share. (See also
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Note 4.)
The Company's financial statements are prepared and presented on a
basis assuming it continues as a going concern. At September 30, 1998, the
Company had negative working capital of $1.0 million and an accumulated deficit
of $129.1 million, and incurred a net loss of $8.6 million for the quarter ended
September 30, 1998. The Company expects current cash, cash equivalents and
short-term investments, including proceeds from the November 1998 financing and
the sale of fixed assets as a result of discontinuing the manufacturing
operations in connection with the September 1998 restructuring, will be
sufficient to fund operations into the third calendar quarter of 1999. The
Company will be required to seek additional funds to finance operations beyond
that period. To minimize future dilution from additional equity financing, the
Company plans to concentrate on establishing corporate partner arrangements and
other opportunities that will enable the continued development of SomatoKine.
Merger opportunities that are consistent with the Company's clinical development
of SomatoKine will also be considered. There can be no assurance that the
Company will be able to raise any additional funds or enter into any
collaborative arrangement on terms favorable to the Company, or at all. If the
Company is unable to obtain the necessary capital, it may be required to
liquidate its assets or to cease operations.
The Company anticipates that it will be necessary to expend significant
capital resources to support further clinical development. Capital resources may
also be required for the acquisition of complementary businesses, products or
technologies. The Company's future capital requirements will depend on many
factors, including progress with its clinical trials, the time and costs
involved in obtaining regulatory approvals, the time and costs involved in
filing, prosecuting, enforcing and defending patent claims, competition in
technological and market developments, the establishment of and changes in
collaborative relationships and the cost of commercialization activities and
arrangements. The Company anticipates that it will be required to raise
substantial additional capital over a period of several years in order to
continue its clinical development programs and to prepare for commercialization.
Raising additional funds may result in further dilution to then-existing
shareholders. No assurance can be given that such additional funds will be
available on reasonable terms, or at all. The unavailability of such financing
could delay or prevent the development and marketing of the Company's potential
products.
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RISK FACTORS
Early Stage of Development; No Developed or Approved Products
The Company's potential products are in research and development and no
material revenues have been generated to date from product sales. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, obtain regulatory approval for, manufacture and market its potential
products. Much of the clinical development work for the Company's potential
products remains to be completed. No assurance can be given that the Company's
product development effort will be successfully completed, that required
regulatory approval will be obtained or that any products, if developed and
introduced will be successfully marketed or achieve market acceptance.
History of Operating Losses; Accumulated Deficit
The Company has incurred net operating losses in every year of operation
since its inception. As of September 30, 1998, the Company had an accumulated
deficit of approximately $129.1 million. Losses have resulted principally from
costs incurred in connection with the Company's research and development
activities and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial and increasing
operating losses for at least the next several years. The Company's ability to
achieve profitability will depend in part on completing the research and
development of, and obtaining regulatory approvals for, its products and
successfully commencing product commercialization.
Possible Volatility of Stock Price; Dividend Policy
The market prices for securities of biopharmaceutical and biotechnology
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Since the Company's Common
Stock became listed for public trading, its market price has fluctuated over a
wide range and the Company expects that it will continue to fluctuate. In
addition, announcements concerning the Company or its competitors, the results
of clinical trials, technological innovations or new commercial products,
government regulations, developments concerning proprietary rights, litigation
or public concern as to safety of the Company's potential products as well as
changes in general market conditions may have a significant effect on the market
price of Celtrix's common stock.
The Company has never paid dividends on its capital stock and the Company
does not anticipate paying any cash dividends in the foreseeable future.
Future Capital Requirements and Uncertainty of Additional Funding
After the completion of the November 1998 financing and the sale of fixed
assets as a result of discontinuing its manufacturing operations, the Company
anticipates that sufficient funds will be available to fund the Company's
operations into the third calendar quarter of 1999, not including further
clinical trials beyond the fourth quarter of 1998. Accordingly, further
development of the Company's products will require the commitment of substantial
resources to conduct the time-consuming research and development, clinical
studies and regulatory activities necessary to bring any potential therapeutic
products to market and to establish production, marketing and sales
capabilities. Such additional funding will need to be raised through
collaborative arrangements or through public or private financings, including
equity financing. Any additional equity financing may be dilutive to
stockholders, and any debt financing, if available, may involve restrictions on
the Company's ability to pay future dividends on its capital stock or the manner
in which the Company conducts its business.
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There can be no assurance that any such financing will be available to
the Company or on terms attractive to the Company, or that the Company can enter
into a collaborative relationship with a corporate partner for the continuation
of the clinical trials in any of its current indications. The inability to
obtain funds, or to enter into additional corporate collaborations, may require
the Company, ultimately, to liquidate its assets or to cease operations.
Stringent Government Regulation; Need for Product Approvals
The preclinical testing and clinical trials of any compounds developed by
the Company or its collaborative partners and the manufacturing and marketing of
any drugs resulting therefrom are subject to regulation by numerous federal,
state and local governmental authorities in the United States, the principal one
of which is the United States Food and Drug Administration (the "FDA"), and by
similar agencies in other countries in which drugs developed by the Company or
its collaborative partners may be tested and marketed (each of such federal,
state, local and other authorities and agencies, a "Regulatory Agency"). Any
compound developed by the Company or its collaborative partners must receive
Regulatory Agency approval before it may be marketed as a drug in a particular
country. The regulatory process, which includes preclinical testing and clinical
trials of each compound in order to establish its safety and efficacy, can take
many years and requires the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent Regulatory Agency approval.
In addition, delays or rejections may be encountered based upon changes in
Regulatory Agency policy during the period of drug development and/or the period
of review of any application for Regulatory Agency approval for a compound.
Delays in obtaining Regulatory Agency approvals could adversely affect the
marketing of any drugs developed by the Company or its collaborative partners,
impose costly procedures upon the Company's and its collaborative partners'
activities, diminish any competitive advantages that the Company or its
collaborative partners may attain and adversely affect the Company's ability to
receive royalties, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance that, even after such time and expenditures,
Regulatory Agency approvals will be obtained for any compounds developed by or
in collaboration with the Company. Moreover, if Regulatory Agency approval for a
drug is granted, such approval may entail limitations on the indicated uses for
which it may be marketed that could limit the potential market for any such
drug. Furthermore, if and when such approval is obtained, the marketing and
manufacture of the Company's products would remain subject to extensive
regulatory requirements, and discovery of previously unknown problems with a
drug or its manufacturer may result in restrictions on such drug or
manufacturer, including withdrawal of the drug from the market. Failure to
comply with regulatory requirements could, among other things, result in fines,
suspension of regulatory approvals, operating restrictions and criminal
prosecution. In addition, Regulatory Agency approval of prices is required in
many countries and may be required for the marketing of any drug developed by
the Company or its collaborative partners in such countries.
Uncertainties Related to Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each target indication. The results from preclinical studies and early clinical
trials may not be predictive of results that will be obtained in large-scale
testing, and there can be no assurance that the Company's clinical trials will
demonstrate the safety and efficacy of any products or will result in marketable
products.
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A number of companies in the biotechnology industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. For example, in fiscal year 1995, Celtrix discontinued its in-house
TGF-beta-2 program for the treatment of ophthalmic conditions as a result of
disappointing clinical study results.
The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the rate of patient enrollment. Patient enrollment is
a function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs and delays, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
No Assurance of Market Acceptance
There can be no assurance that any products successfully developed by the
Company, if approved for marketing, will achieve market acceptance. The products
and therapies which the Company is attempting to develop will compete with a
number of well-established traditional drugs and therapies manufactured and
marketed by major pharmaceutical companies. The degree of market acceptance of
any products developed by the Company will depend on a number of factors,
including the establishment and demonstration in the medical community of the
clinical efficacy and safety of the Company's product candidates, their
potential advantage over existing treatment methods, and reimbursement policies
of government and third-party payors. Competitors may also develop new
technologies or products which are more effective or less costly than SomatoKine
or perceived to be more cost-effective. There is no assurance that physicians,
patients or the medical community in general will accept and utilize any
products that may be developed by the Company. The Company's business, financial
condition and results of operations may be materially adversely affected if
SomatoKine does not receive market acceptance for any reason.
Substantial Competition
In each of the Company's potential product areas, competition from large
pharmaceutical companies, biotechnology companies and other companies,
universities and research institutions is substantial. At least three large
biotechnology and pharmaceutical companies with substantial financial and legal
resources have patent applications on file in the United States and abroad
directed at the production of recombinant IGF-I by various methods. Relative to
the Company, most of these entities have substantially greater capital
resources, research and development staffs, facilities and experience in
conducting clinical trials and obtaining regulatory approvals, as well as in
manufacturing and marketing pharmaceutical products. Furthermore, the Company
believes that competitors have used, and may continue to use, litigation to gain
competitive advantage. In addition, these and other entities may have or develop
new technologies or use existing technologies that are, or may in the future be,
the basis for competitive products.
Any potential products that the Company succeeds in developing and for
which it gains regulatory approval will have to compete for market acceptance
and market share. For certain of the Company's potential products, an important
factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company can
develop products, complete the clinical testing and regulatory approval
processes and supply commercial quantities of the product to the market are
expected to be important competitive factors. The Company expects that
competition will be based, among other things, on product efficacy, safety,
reliability, availability, timing and scope of regulatory approval and price.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any that are
being developed by the Company or that would render the Company's technology and
products obsolete or
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<PAGE> 16
noncompetitive. In addition, many of the Company's competitors may achieve
product commercialization or patent protection earlier than the Company. The
failure of the Company to compete effectively would have a material adverse
effect on the Company's business, financial condition and results of operations.
Dependence on Proprietary Technology; Uncertainty of Patent Protection
The Company's success will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the United States and in other countries.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are highly uncertain and involve complex legal
and factual questions. Patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights is therefore uncertain.
No consistent policy has emerged regarding the permissible breadth of coverage
of claims in biotechnology patents. Therefore, no assurance can be given that
any of the Company's or its licensors' patent applications will issue as patents
or that any such issued patents will provide competitive advantages for the
Company's products or will not be successfully challenged or circumvented by its
competitors. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary technology that is
not covered by the Company's patents or that others will not be issued patents
that may prevent the sale of the Company's proposed products or require
licensing and the payment of significant fees or royalties by the Company.
At least three large biotechnology and pharmaceutical companies with
substantial financial and legal resources have issued patents and/or patent
applications on file in the United States and abroad directed at the production
and/or use of recombinant IGF-I by various methods. The earliest date of filing
of these patent applications is April 25, 1983. Unless and until all of these
applications issue, it is not possible to determine the breadth of these claims
regarding a process for IGF-I production or for the use of IGF-I for any
particular indication. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed towards certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was previously granted in Europe and
was successfully opposed by Celtrix. However, this large biotechnology and
pharmaceutical company has recently appealed the decision and there can be no
assurance that the appeal will not be successful, and it is not possible to
determine what, if any, claims will be reinstated or the breadth of such claims.
In addition, this large biotechnology company has been issued a patent directed
toward the subcutaneous bolus administration of IGF-BP3 for certain limited
areas of use. Each of the referenced companies can be expected to defend its
patent position vigorously.
Celtrix has developed a new process for the production of IGF and BP3
which it does not believe will infringe on other patents relating to recombinant
protein production in general or on other patents relating to the production of
IGF and BP3 in particular, although there can be no assurance that a contrary
position will not be asserted. A large number of other companies have pending
patent applications and/or issued patents which claim certain methods of use of
IGF. There can be no assurance that third parties will not claim the Company's
technology, current or future products or manufacturing processes infringe the
proprietary rights of others. If other companies were to successfully bring
legal actions against the Company claiming patent or other intellectual property
infringements, in addition to any potential liability for damages, then the
Company could be required to obtain a license in order to continue to use the
affected process or to manufacture or use the affected products or cease using
such products or process if enjoined by a court. Any such claim, with or without
merit, could result in costly litigation or might require the Company to enter
into royalty or licensing agreements, all of which could delay or otherwise
adversely impact the Company's potential products for commercial use. If any
licenses are required, there can be no assurance that the
16
<PAGE> 17
Company will be able to obtain any such license on commercially favorable terms,
if at all, and if these licenses are not obtained, the Company might be
prevented from pursuing the development of certain of its potential products.
The Company's breach of an existing license or failure to obtain or delay in
obtaining a license to any technology that it may require to commercialize its
products may have a material adverse impact on the Company.
Litigation, which could result in substantial costs to the Company, may
also be necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of another party's proprietary rights. There
can be no assurance that the Company's issued or licensed patents would be held
valid by a court of competent jurisdiction. An adverse outcome in litigation or
an interference or other proceeding in a court or patent office could subject
the Company to significant liabilities to other parties, require disputed rights
to be licensed from other parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company.
Celtrix also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable. Celtrix
attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors in such a manner that the Company has no practical
recourse. To the extent that the Company or its consultants or research
collaborators use intellectual property owned by others in their work for the
Company, disputes may also arise as to the rights in related or resulting
know-how and inventions.
Limited Manufacturing Experience and Capacity
The Company's products must be manufactured in compliance with regulatory
requirements and at acceptable costs. In September 1998, the Company implemented
a restructuring plan to focus its operation on the clinical development of its
lead drug compound, SomatoKine(R), and to reduce its cash burn rate. With
sufficient clinical grade SomatoKine to support the conduct of clinical trials
over the next two years, the Company discontinued its in-house manufacturing
operations. In the future, the Company will need to contract its manufacturing
operations or enter into corporate partnering arrangements that will support
manufacturing of drug material to support additional clinical drug needs and
eventual commercial scale manufacturing. There can be no assurance that the
Company will be able to successfully identify and contract a third party
manufacturer, to manufacture any of its current or future products on a
commercial scale, nor that such products can be manufactured at a cost or in
quantities to make commercially viable products. Failure to obtain sufficient
commercial quantities of SomatoKine at acceptable terms will have an adverse
impact on the Company's attempts to seek approval for this product, or to
commercialize this product.
Limited Sales and Marketing Experience
If the Company is permitted to commence commercial sales of products, it
will face commercial competition with respect to sales, marketing and
distribution, areas in which it has no experience. To market any of its products
directly, the Company must develop a marketing and sales force with technical
expertise and with supporting distribution capability. Alternatively, the
Company may obtain the assistance of a pharmaceutical company with a large
distribution system and a large direct sales force. There can be no assurance
that the Company will be able to establish sales and distribution capabilities
or be successful in gaining market acceptance for its proprietary products. To
the extent the Company enters into co-promotion or other licensing arrangements,
any revenues received by the Company will be
17
<PAGE> 18
dependent on the efforts of third parties and there can be no assurance that
such efforts will be successful.
Reliance on Qualified and Key Personnel
The Company is highly dependent on the principal members of its
scientific and management staff, the loss of whose services might significantly
delay or prevent the achievement of research, development, or business
objectives. Although the Company believes it has retained sufficient employees
to achieve its near-term business objectives after its reduction in force in
September 1998, there can be no assurance that the loss of service of such
employees would not impede the Company's objectives. Furthermore, there can be
no assurance that the reduction in force will not adversely affect the Company's
ability to retain its remaining employees. The loss of key management or
scientific personnel could adversely affect the Company's continued business.
The Company's potential expansion into areas and activities requiring
additional expertise, such as clinical trials, governmental approvals, contract
manufacturing and marketing, are expected to place a significant strain on the
Company's management, operational and financial resources. These demands are
expected to require a substantial increase in management and scientific
personnel and the development of additional expertise by existing management
personnel. The failure to attract and retain such personnel or to develop such
expertise could materially adversely affect prospects for the Company's success.
Product Liability; Availability of Insurance
The Company currently has in force general liability insurance, with
coverage limits of $2.0 million per incident and $4.0 million in the aggregate
annually, and product liability insurance with coverage limits of $1.0 million
per incident and $3.0 million in the aggregate annually. The Company's insurance
policies provide coverage for product liability on a claims made basis and
general liability on occurrence basis. These policies are subject to annual
renewal. Such insurance may not be available in the future on acceptable terms
or at all. There can be no assurance that the Company's insurance coverage will
be adequate or that a product liability claim or recall would not materially
adversely affect the business or financial condition of the Company.
The use of the Company's potential products or technology in clinical
trials and the sale of such products may expose the Company to liability claims.
Such risks exist even with respect to those potential products, if any, that
receive regulatory approval for commercial sale. Although Celtrix has taken and
will continue to take what it believes are appropriate precautions, there can be
no assurance that it will avoid significant product liability exposure. There
also can be no assurance that the Company's insurance coverage will be adequate
or that a product liability claim or recall would not materially adversely
affect the business or financial condition of the Company.
Concentration of Stock Ownership
As of September 30, 1998 the Company's directors and officers and their
affiliates beneficially owned approximately 30% of the outstanding Common Stock.
As a result, these stockholders have been able to exercise significant influence
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may have the effect of delaying or preventing a change in control
of the Company. In November 1998, the Company completed a private placement of
4,000,000 shares of newly issued common stock pursuant to a Common Stock and
Warrant Purchase Agreement dated October 12, 1998 which had a dilutive impact on
the foregoing stock ownership percentage. However, it is anticipated that the
Company's
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<PAGE> 19
directors and officers and their affiliates collectively will continue to be
able to exercise influence in matters requiring stockholder approval in the
future.
Impact of Year 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be upgraded or
modified prior to the Year 2000 in order to remain functional. The Company is
currently assessing the impact of Year 2000 on its existing software and
systems. The Company expects to implement successfully the systems and software
changes necessary to address the Year 2000 issues, and does not believe that the
costs of such actions will have a material effect on the Company's results of
operations or financial condition. However, it is unknown the extent, if any, of
the impact of the Year 2000 on other systems and equipment of third parties with
which the Company does business. There can be no assurance that third parties
will address the Year 2000 issue in a timely fashion, or at all. Any Year 2000
compliance problem or delay of either the Company, its suppliers, its clinical
research organizations, or its collaborative partners could have a material
adverse effect on the Company's business, operating results and financial
conditions.
Nasdaq Issues
Since October 1998, the Company has failed to comply with certain Nasdaq
continued listing requirements, including the minimum net tangible assets
requirement and the minimum bid price requirement. The proceeds from the
November 1998 financing allowed the Company to meet the minimum net tangible
assets requirement, on a pro forma basis, for the quarter ended September 30,
1998. In November 1998, the Company received notice from Nasdaq advising that if
it is unable to comply with the minimum bid price requirement for a ten (10) day
period prior to February 1999, it will be subject to delisting from Nasdaq. Such
delisting may have a material adverse effect on the price of the Company's
Common Stock and the levels of liquidity currently available to its
stockholders. Although the Company is working to comply with all continued
listing requirements of Nasdaq, there can be no assurance that it will be able
to satisfy such requirements prior to February 1999.
Restructuring
In efforts to reduce the Company's cash burn rate and preserve value in
the Company's core assets and technologies, in the second quarter of 1998, the
Company restructured its operations to eliminate manufacturing and announced a
reduction in work force of up to 90%. Such actions were designed to permit the
Company to continue its clinical development of SomatoKine. There can be no
assurance that the restructuring efforts the Company has engaged in to date will
be successful or that the Company will be able to sustain its clinical
development activities going forward. In addition, there can be no assurance
that the Company's management will not deem it appropriate to undertake other
restructuring efforts in the future or to what degree any such efforts will
result in improved performance or a reduction in the Company's cash burn rate.
Dilutive and Potential Dilutive Effect to Stockholders
In November 1998, pursuant to the terms of a Common Stock and Warrant
Purchase Agreement dated October 12, 1998, the Company completed a private
placement of 4,000,000 shares of the Company's common stock (the "Private
Placement"), resulting in net proceeds to the Company, after deducting estimated
transaction costs, of approximately $1.9 million. Also in connection with the
Private Placement for every share of stock issued, the Company issued one and
one-half warrants to purchase additional shares at $0.55 per share.
19
<PAGE> 20
The Company also agreed to register the shares and warrants issued in the
Private Placement under the Securities Act of 1933, as amended.
The foregoing Private Placement issuance of shares of the Company's
common stock and warrants exercisable for common stock will dilute the
beneficial ownership of existing Company stockholders.
FORWARD-LOOKING STATEMENTS
The Company notes that certain of the foregoing statements are forward
looking within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Actual results may differ materially from the statements made
due to a variety of factors including, but not limited to, the ability to obtain
financing for the Company's working capital, clinical study results, the ability
to secure corporate partnership arrangements, and other risk factors which are
described in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998.
20
<PAGE> 21
PART II. OTHER INFORMATION
CELTRIX PHARMACEUTICALS, INC.
Item 2. Changes in Securities and Use of Proceeds.
(a) Securities Sold
(I) On April 1, 1997, the Company issued and sold to purchasers in
a private placement 5,721,876 shares of the Company's Common
Stock (the "Shares") and warrants exercisable for 2,860,934
shares of the Company's Common Stock (the "Warrants"). The
Shares and Warrants were sold in the form of "Units" which
consisted of two Shares of Common Stock to purchase one share
of Warrant.
(II) On December 15, 1995, the Company issued and sold to Genzyme
Corporation pursuant to a 1994 Product Development, License and
Marketing Agreement, 1,472,829 shares (the "Genzyme Shares") of
the Company's Common Stock.
(b) Underwriters and Other Purchasers
There were no underwriters for the foregoing transactions mentioned in
(a)(I) and (a)(II). A finders fee of $520,000 was paid to BioAsia LLC
in connection with the private placement described in (a)(I) above.
The Shares and Warrants were offered only to a group of accredited
investors. The Genzyme Shares were offered only to Genzyme
Corporation, an accredited investor.
(c) Consideration
(I) The Shares and Warrants from the April 1997 private placement
were sold for an aggregate offering price of $13,949,955.60.
(II) The shares issued to Genzyme Corporation were sold for an
aggregate price of $4,418,487.00.
(d) Exemption from Registration Claimed
(I) The foregoing transaction under (a)(I) was exempt from
registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Rule 506 of Regulation D, which provides an
exemption for sales without regard to the dollar amount of the
offering, provided that there are no more than 35 purchasers,
and the sale satisfies all terms and conditions of Rules 501
and 502 under the Act.
(II) The foregoing transaction under (a)(II) was exempt from
registration under the Act pursuant to Rule 505 of Regulation
D, which provides an exemption for sales of securities not
exceeding $5 million, provided that there are no more than 35
purchasers, and the sale satisfies all terms and conditions of
Rules 501 and 502 under the Act.
(e) Terms of Conversion or Exercise
In connection with the April 1997 private placement, the Warrants are
exercisable at a price of $2.6818 per share and expire on April 1,
2000. If the holder of a Unit sold any Shares between April 1, 1997
and April 1, 1998, the number of shares issuable upon exercise of that
holder's Warrant would have been reduced by an amount equal to 0.5
multiplied by the number of Shares sold or otherwise disposed of
during such
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<PAGE> 22
period. Also, in the event that the average of the daily high and low
bid price per share of the Company's Common Stock as reported on the
Nasdaq National Market (or such other equivalent market or exchange)
exceeds $4.876 for a period of thirty (30) consecutive trading days (a
"Callable Event"), then the Company may, on or before the tenth (10th)
trading day after such Callable Event has occurred, send a written
notice to the Warrantholder that a Callable Event has occurred and
that the Warrant shall terminate on the thirtieth (30th) day after the
date the notice became effective.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On September 10, 1998, the Registrant held its Annual Meeting of
Stockholders.
(b) All of the Management's nominees for directors were elected at the
meeting pursuant to proxies solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934. The directors were elected as
follows:
<TABLE>
<CAPTION>
For Against
--- -------
<S> <C> <C>
Henry E. Blair 15,446,872 205,864
Barry M. Sherman, M.D. 15,446,072 206,664
Andreas Sommer, Ph.D. 15,447,772 204,964
James E. Thomas 15,445,234 207,502
</TABLE>
There were no broker non-votes as the election was uncontested.
(c) The stockholders approved amendments to the Company's 1991
Directors' Stock Option Plan, to increase the number of shares which
are automatically granted to non-employee directors and to amend the
timing and vesting of such options, with 14,813,002 shares voting in
favor, 773,017 voting against, and 66,717 shares abstaining. There were
no broker non-votes.
(d) The stockholders approved an amendment to the Company's 1991
Employee Stock Purchase Plan to the increase the number of shares of
Common Stock reserved for issuance by 250,000 shares, with 15,116,757
shares voting in favor, 460,522 shares voting against, and 75,457
shares abstaining. There were no broker non-votes.
(e) The stockholders also approved the selection of Ernst & Young LLP
as independent auditors of the Company for the next fiscal year, with
15,497,999 shares voting in favor, 99,825 shares voting against, and
54,912 shares abstaining. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.55 Separation Agreement and Mutual Release between the Registrant
and the employees who participated in the Registrant's 1998
reduction-in-force.
27.1 Financial Data Schedule
22
<PAGE> 23
(b) The Company filed the following reports on Form 8-K during the
quarter ended September 30, 1998:
Report Date: July 15, 1998
Item 5. Other Events
The Registrant announced the initiation of a Phase II clinical
feasibility study in diabetes.
Report Date: July 23, 1998
Item 5. Other Events
The Registrant announced its first quarter financial results.
Report Date: September 18, 1998
Item 5. Other Events
The Registrant announced the restructure of the Company to concentrate
on the clinical development of SomatoKine(R).
23
<PAGE> 24
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.
CELTRIX PHARMACEUTICALS, INC. (Registrant)
Date: November 20, 1998 By: /s/ DONALD D. HUFFMAN
---------------------------------------
Donald D. Huffman
Vice President, Finance and
Administration and Chief Financial
Officer (Duly authorized principal
financial and accounting officer)
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<PAGE> 25
CELTRIX PHARMACEUTICALS, INC.
INDEX TO EXHIBITS
10.55 Separation Agreement and Mutual Release between the Registrant
and the employees who participated in the Registrant's 1998
reduction-in-force.
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.55
SEPARATION AGREEMENT AND MUTUAL RELEASE
This Separation Agreement and Mutual Release ("Agreement") is made by
and between Celtrix Pharmaceuticals, Inc., a Delaware corporation, and
___________("Employee"). As used herein, the "Company" shall refer to Celtrix
Pharmaceuticals, Inc. and any corporation controlling, controlled by or under
common control with Celtrix Pharmaceuticals, Inc.
WHEREAS, Employee was employed by the Company;
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship as part of the Company's Reduction in Force and to
release each other from any claims arising from or related to the employment
relationship as described below.
NOW, THEREFORE, in consideration of the mutual promises made herein,
the Company and Employee (collectively referred to as "the Parties") hereby
agree as follows:
1. Termination. Employee's employment with the Company as a ________
will terminate at the close of business on ________, 1998 (the "Termination
Date").
2. Severance Benefits. In consideration for the release of claims set
forth below and other obligations under this Agreement, the Company shall
provide to Employee those benefits set forth in the Celtrix Pharmaceuticals,
Inc. Reduction in Force Severance Benefit Plan, a copy of which is attached
hereto as Exhibit A.
3. Stock Option. During the course of Employee's employment with the
Company, Employee was granted an option (or options) to purchase shares of the
Company's common stock under the Company's 1991 Stock Option Plan. In accordance
with the terms of the option agreement(s) issued to Employee: (i) to the extent
any such Option is not vested on the date of termination of employment, in
accordance with the vesting provisions of such Option, the Option shall expire,
and (ii) any such Option must be exercised within thirty (30) days after
termination of employment and, to the extent any such Option is not exercised
within such thirty day period, it shall expire.
4. No Other Payments Due. Employee acknowledges and agrees that
Employee has received all salary, accrued vacation, commissions, bonuses,
compensation, shares of stock or options therefore or other such sums due to
Employee other than amounts to be paid in accordance with the provisions of
Section 2 above. In light of the payment by the Company of all wages due, or to
become due to Employee, the Parties further acknowledge and agree that
California Labor Code Section 206.5 is not applicable to the Parties hereto.
That section provides in pertinent part as follows:
No employer shall require the execution of any
release of any claim or right on account of wages
due, or to become due, or made as an advance on wages
to be earned, unless payment of such wages has been
made.
5. Release of Claims. Employee and the Company, on behalf of
themselves, and their respective heirs, executors, officers, directors,
employees, investors, stockholders, administrators, affiliates, divisions,
subsidiaries, predecessor and successor corporations, and assigns, hereby fully
and forever release each other and their respective heirs, executors, officers,
directors, employees, investors, stockholders, administrators, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns, of
and from any claim, duty, obligation or cause of action relating to any matters
of any kind, whether presently
25
<PAGE> 2
known or unknown, suspected or unsuspected, that any of them may possess arising
from any omissions, acts or facts that have occurred up until and including the
Effective Date of this Agreement including, without limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from,
Employee's right to purchase, or actual purchase of shares of stock of the
Company;
(c) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good faith
and fair dealing, both express and implied, negligent or intentional infliction
of emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
negligence; and defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990, and the California
Fair Employment and Housing Act;
(e) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in
this Section 5 shall be and remain in effect in all respects as a complete
general release as to the matters released. This release does not extend to any
obligations incurred under this Agreement.
6. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges
that Employee is waiving and releasing any rights Employee may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Employee acknowledges that the
consideration given for this waiver and release Agreement is in addition to
anything of value to which Employee was already entitled. Employee further
acknowledges that Employee has been advised by this writing that (a) Employee
should consult with an attorney prior to executing this Agreement; (b) Employee
has at least twenty-one (21) days within which to consider this Agreement; (c)
Employee has at least seven (7) days following the execution of this Agreement
by the parties to revoke the Agreement; and (d) this Agreement shall not be
effective until the revocation period has expired.
7. Civil Code Section 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released by
this Agreement. Employee and the Company acknowledge that they have been advised
by legal counsel and are familiar with the provisions of California Civil Code
Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
<PAGE> 3
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any other
statute or common law principles of similar effect.
8. Tax Consequences. The Company makes no representations or warranties
with respect to the tax consequences of the payment of any sums to Employee
under the terms of this Agreement. Employee agrees and understands that Employee
is responsible for payment, if any, of local, state and/or federal taxes on the
sums paid hereunder by the Company and any penalties or assessments thereon.
Employee further agrees to indemnify and hold the Company harmless from any
claims, demands, deficiencies, penalties, assessments, executions, judgments, or
recoveries by any government agency against the Company for any amounts claimed
due on account of Employee's failure to pay federal or state taxes or damages
sustained by the Company by reason of any such claims, including reasonable
attorneys' fees.
9. Confidentiality.
(a) The Parties hereto each agree to use their best efforts to
maintain in confidence the existence of this Agreement, the contents and terms
of this Agreement, and the consideration for this Agreement (hereinafter
collectively referred to as "Severance Information"). Each Party hereto agrees
to take every reasonable precaution to prevent disclosure of any Severance
Information to third parties, and each agrees that there will be no publicity,
directly or indirectly, concerning any Severance Information. The Parties hereto
agree to take every precaution to disclose Severance Information only to those
employees, officers, directors, attorneys, accountants, governmental entities,
and family members who have a reasonable need to know of such Severance
Information.
(b) Notwithstanding any other provision in this Agreement,
Employee understands and agrees that Employee's obligations to the Company under
the agreement entered into by Employee and the Company regarding confidential
information and ownership of inventions (the "Employee Agreement"), a copy of
which is attached hereto as Exhibit B, shall survive the termination of
Employee's relationship with the Company under this Agreement. Employee shall
return all Company property and confidential information in Employee's
possession to the Company within five business days after the Termination Date.
10. Non-Disparagement. Each party agrees to refrain from any
disparagement, criticism, defamation, slander of the other, or tortious
interference with the contracts and relationships of the other.
11. Authority. The Company represents and warrants that the undersigned
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Agreement.
Employee represents and warrants that Employee has the capacity to act on
Employee's own behalf and on behalf of all who might claim through Employee to
bind them to the terms and conditions of this Agreement. Each Party warrants and
represents that there are no liens or claims of lien or assignments in law or
equity or otherwise of or against any of the claims or causes of action released
herein.
12. No Representations. Neither party has relied upon any
representations or statements made by the other party hereto which are not
specifically set forth in this Agreement.
13. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
<PAGE> 4
14. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and Employee's compensation by the Company, other than the Employee
Agreement described in Section 9(b) herein.
15. No Oral Modification. This Agreement may only be amended in writing
signed by Employee and the President of Celtrix Pharmaceuticals, Inc.
16. Governing Law. This Agreement shall be governed by the laws of the
State of California.
17. Effective Date. This Agreement is effective seven (7) days after it
has been signed by both parties. Such date is referred to herein as the
"Effective Date."
18. Counterparts. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
19. Assignment. This Agreement may not be assigned by Employee or
Celtrix Pharmaceuticals, Inc. without the prior written consent of the other
party. Notwithstanding the foregoing, this Agreement may be assigned by Celtrix
Pharmaceuticals, Inc. to a corporation controlling, controlled by or under
common control with Celtrix Pharmaceuticals, Inc. without the consent of
Employee.
20. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the parties hereto, with the full intent of releasing all claims. The parties
acknowledge that:
(1) they have read this agreement;
(2) they have been represented in the preparation,
negotiation, and execution of this agreement by legal counsel of their own
choice or that they have voluntarily declined to seek such counsel;
(3) they understand the terms and consequences of this
agreement and of the releases it contains and
(4) they are fully aware of the legal and binding effect of
this agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
CELTRIX PHARMACEUTICALS, INC.
Dated: _________, 1998 By:______________________________________
______________________________________
______________________________________
______________, an individual
Dated: _________, 1998 ______________________________________
<PAGE> 5
EXHIBIT A
CELTRIX PHARMACEUTICALS, INC.
REDUCTION IN FORCE
SEVERANCE BENEFIT PLAN
(Effective for the Period September 18, 1998 through December 31, 1998)
SECTION 1. INTRODUCTION.
This Celtrix Pharmaceuticals, Inc. Reduction in Force Severance Benefit
Plan (the "Plan") was established effective September 18, 1998. The purpose of
the Plan is to provide for the payment of severance benefits to certain eligible
employees of Celtrix Pharmaceuticals, Inc. ("Celtrix" or the "Company") whose
employment with the Company is involuntarily terminated on or after September
18, 1998 as part of the Company's effort to restructure and reduce expenses.
This Plan shall supersede any severance benefit plan, policy or practice
previously maintained by the Company. This Plan document is also the Summary
Plan Description for the Plan.
SECTION 2. ELIGIBILITY FOR BENEFITS.
(a) GENERAL RULES. Subject to the requirements set forth in this
Section 2, the Company will grant severance benefits under the Plan to Eligible
Employees.
(i) "Eligible Employees" are full-time and part-time regular
hire employees whose employment with the Company is involuntarily terminated due
to a corporate reorganization, or a reduction in staff. The determination as to
whether such an event has occurred shall be made by the Company, in its sole
discretion. For purposes of this Plan, part-time employees include those regular
hire employees who are regularly scheduled to work twenty (20) hours or more but
less than forty (40) hours per week. Temporary (Fixed Term Employees) are not
eligible for severance benefits under the Plan.
(ii) All Eligible Employees will receive the benefits described
in Section 5. In order to be eligible to receive benefits described in Section 3
and Section 4, an Eligible Employee must execute and deliver to the Company on
or before twenty-one (21) days after his or her last day worked a general waiver
and release form provided by the Company (the "Separation Agreement") and have
completed the exit interview procedures of the Company (the "Exit Checklist"),
including the return of all property and materials of the Company.
(b) EXCEPTIONS. An employee who otherwise is an Eligible Employee will
not receive benefits under the Plan in any of the following circumstances:
(i) The employee has executed an individually negotiated
employment contract or agreement with the Company related to severance benefits
that is in effect on his or her termination date. Such employee's severance
benefit, if any, shall be governed by the terms of such individually negotiated
employment contract or agreement, subject to Section 7(a) of this Plan.
(ii) The employee is involuntarily terminated for any reason
other than a corporate reorganization or a reduction in staff.
<PAGE> 6
(iii) The employee voluntarily terminates employment with the
Company. Voluntary terminations include, but are not limited to, resignation,
retirement or failure to return from a leave of absence on the scheduled date.
SECTION 3. AMOUNT OF SEVERANCE BENEFIT.
(a) Each Eligible Employee whose employment is involuntarily terminated
as described in Section 2 of this Plan, who executes a Separation Agreement and
who satisfies the requirements set forth in the Exit Checklist will receive a
severance payment equal to the sum of (a) 1.125 days of Pay for each Year of
Service with the Company calculated on a pro-rated basis for partial years, plus
(b) 1.5 days of Pay for every ten thousand dollars ($10,000) of the Eligible
Employee's Current Annual Base Salary (calculated on a pro-rated basis for
increments of $10,000, plus (c) 1.5 additional days of Pay for every ten
thousand dollars ($10,000) of Current Annual Base Salary over sixty thousand
dollars ($60,000) (calculated on a pro-rated basis for increments of $10,000).
(b) For the purposes of calculating Plan benefits, "Pay" shall mean the
Eligible Employee's base pay (excluding overtime, bonuses, draws, commissions
and other forms of additional compensation), at the rate in effect during the
last regularly schedule payroll period immediately preceding the Eligible
Employee's termination date. "Current Annual Base Salary" shall mean the
annualized base Pay (excluding overtime, bonuses, draws, commissions and other
forms of additional compensation). "Years of Service" shall mean the number of
days elapsed since the Eligible Employee's Date of Hire through the Eligible
Employee's termination date, divided by 365. The "Date of Hire" is the Eligible
Employee's hire date with the Company or the Eligible Employee's hire date with
Collagen Corporation, BioGrowth, Inc. or Baltimore Biotech if the Eligible
Employee worked for any of such companies immediately preceding employment with
the Company.
(c) Notwithstanding any other provision of the Plan to the contrary,
the total cash benefits to any Eligible Employee under Section 3(a) of this Plan
shall not be less than an amount equal to three (3) weeks of the Eligible
Employee's Current Annual Base Salary.
(d) Notwithstanding any other provision of the Plan to the contrary,
any benefits payable to an Eligible Employee under this Plan shall be offset, to
the maximum extent permitted by law, by any severance benefits payable by the
Company to such individual under any other arrangement covering the individual.
SECTION 4. CONTINUATION OF EMPLOYMENT BENEFITS.
(a) COBRA CONTINUATION. Each Eligible Employee who is enrolled in a
health (including vision and the Employee Assistance Program) or dental plan
sponsored by the Company may be eligible to continue coverage under such health
or dental plan (or to convert to an individual policy) at the time of the
Eligible Employee's termination of employment. The Company will provide such
COBRA coverage at its expense through the earlier of (i) two (2) months from the
date of termination or (ii) the date the Eligible Employee becomes ineligible
for COBRA coverage (including the date, if any, on which the health and/or
dental plan is terminated by the Company), provided that the Eligible Employee
completes the requisite forms to obtain such continued coverage.
(b) OTHER EMPLOYEE BENEFITS. All non-health benefits (such as life
insurance and disability coverage) terminate as of the Eligible Employee's
termination date (except to the extent that any conversion privilege is
available thereunder).
<PAGE> 7
SECTION 5. OUTPLACEMENT BENEFITS.
Each Eligible Employee whose employment is terminated and who receives
benefits under the Plan shall be eligible to participate in a Company-sponsored
counseling and training program to assist the Eligible Employee in his or her
transition to other employment.
SECTION 6. TIME OF PAYMENT AND FORM OF BENEFIT.
The Company reserves the right to choose the timing of payments under
the Plan; provided, however, that all payments under this Plan will be completed
within ten (10) days of the Eligible Employee having satisfied the requirements
set forth in Section 2(a)(ii), unless the Eligible Employee has requested, and
the Company has agreed, prior to the date of payment, to extend the payment to a
mutually agreed-upon date. Celtrix will withhold all applicable state and
federal taxes, as required by law. If a terminating employee is indebted to the
Company at his or her termination date, the Company reserves the right to offset
any severance payments under the Plan by the amount of such indebtedness. In no
event shall payment of any Plan benefit be made prior to the Eligible Employee's
termination date.
SECTION 7. RIGHT TO INTERPRET PLAN, AMEND AND TERMINATE; OTHER ARRANGEMENTS.
(a) EXCLUSIVE DISCRETION. The Plan Administrator shall have the
exclusive discretion and authority to establish rules and procedures for the
administration of the Plan, and to construe and interpret the Plan and to decide
any and all questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the Plan, including,
but not limited to, the eligibility to participate in the Plan and amount of
benefits paid under the Plan. The rules, interpretations, computations and other
actions of the Plan Administrator shall be binding and conclusive on all
persons.
(b) AMENDMENT OR TERMINATION. The Company also reserves the right to
amend or discontinue this Plan or the benefits provided hereunder at any time;
provided, however, that no such amendment or termination shall affect the right
to any unpaid benefit of any Eligible Employee whose termination date has
occurred prior to amendment or termination of the Plan.
(c) OTHER SEVERANCE ARRANGEMENTS. The Company reserves the right to
make other arrangements regarding severance benefits in special circumstances.
The foregoing notwithstanding, in no event shall any individual receive from the
Company any severance benefit greater than the benefit provided under Section 3,
unless such individual executes, as a condition upon the receipt of such
additional benefit, a waiver and release of any and all claims that such
individual may have against the Company, on the form provided by the Company.
SECTION 8. NO IMPLIED EMPLOYMENT CONTRACT.
The Plan shall not be deemed (i) to give any employee or other person
any right to be retained in the employ of the Company or (ii) to interfere with
the right of the Company to discharge any employee or other person at any time
and for any reason, which right is hereby reserved.
SECTION 9. LEGAL CONSTRUCTION.
This Plan is intended to be governed by and shall be construed in
accordance with the Employee Retirement Income Security Act of 1974 ("ERISA")
and, to the extent not preempted by ERISA, the laws of the State of California.
<PAGE> 8
SECTION 10. CLAIMS, INQUIRIES AND APPEALS.
(a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for
benefits, inquiries about the Plan or about present or future rights under the
Plan must be submitted to the Plan Administrator in writing on or before
September 30, 1998. The Plan Administrator is:
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, CA 95054-8203
(b) DENIAL OF CLAIMS. In the event that any application for benefits is
denied in whole or in part, the Plan Administrator must notify the applicant, in
writing, of the denial of the application and of the applicant's right to review
the denial. The written notice of denial will be set forth in a manner designed
to be understood by the employee, and will include specific reasons for the
denial, specific references to the Plan provision upon which the denial is
based, a description of any information or material that the Plan Administrator
needs to complete the review and an explanation of the Plan's review procedure.
The written notice will be given to the employee within ninety (90)
days after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application. If an extension of time for processing is required, written notice
of the extension will be furnished to the applicant before the end of the
initial ninety (90) day period.
The notice of extension will describe the special circumstances
necessitating the additional time and the date by which the Plan Administrator
is to render its decision on the application. If written notice of denial of the
application for benefits is not furnished within the specified time, the
application shall be deemed to be denied. The applicant will then be permitted
to appeal the denial in accordance with the review procedure described below.
(c) REQUEST FOR A REVIEW. Any person (or that person's authorized
representative) for whom an application for benefits is denied (or deemed
denied), in whole or in part, may appeal the denial by submitting a request for
review to the Plan Administrator within sixty (60) days after the application is
denied (or deemed denied). The Plan Administrator will give the applicant (or
his or her representative) an opportunity to review pertinent documents in
preparing a request for review. A request for review shall be in writing and
shall be addressed to:
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, CA 95054-8203
A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
pertinent. The Plan Administrator may require the applicant to submit additional
facts, documents or other materials as it may find necessary or appropriate in
making its review.
(d) DECISION ON REVIEW. The Plan Administrator will act on each request
for review within sixty (60) days after receipt of the request, unless special
circumstances require an extension of time (not to exceed an additional sixty
(60) days) for processing the request for a review. If an extension for review
is required, written notice of the extension will be furnished to the applicant
within the sixty (60) day period. The Plan Administrator will give prompt,
written notice of its decision to the applicant. In the event that the Plan
<PAGE> 9
Administrator confirms the denial of the application for benefits in whole or in
part, the notice will outline, in a manner calculated to be understood by the
applicant, the specific Plan provisions upon which the decision is based. If
written notice of the Plan Administrator's decision is not given to the
applicant within the time prescribed in this subsection (d), the application
will be deemed denied on review.
(e) RULES AND PROCEDURES. The Plan Administrator will establish rules
and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities in reviewing benefit claims.
The Plan Administrator may require an applicant who wishes to submit additional
information in connection with an appeal from the denial (or deemed denial) of
benefits to do so at the applicant's own expense.
(f) EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan
may be brought until the claimant (i) has submitted written application for
benefits in accordance with the procedures described by subsection 10(a) above,
(ii) has been notified by the Plan Administrator that the application is denied
(or the application is deemed denied due to the Plan Administrator's failure to
act on it within the established time period), (iii) has filed a written request
for review of the application in accordance with the appeal procedure described
in section 10(c) above, and (iv) has been notified in writing that the Plan
Administrator has denied the appeal (or the appeal is deemed denied due to the
Plan Administrator's failure to take any action on the claim within the time
prescribed by subsection 10(d) above).
SECTION 11. BASIS OF PAYMENTS TO AND FROM PLAN.
All benefits under the Plan shall be paid by the Company. The Plan
shall be unfunded, and benefits hereunder shall be paid only from the general
assets of the Company.
SECTION 12. OTHER PLAN INFORMATION.
(a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer
Identification Number assigned to the Company (which is the "Plan Sponsor" as
that term is used in ERISA) by the Internal Revenue Service is 94-3121462. The
Plan Number assigned to the Plan by the Plan Sponsor is 503.
(b) ENDING DATE FOR THE PLAN'S FISCAL YEAR. The date of the end of the
fiscal year for the purpose of maintaining the Plan's records is December 31,
1998.
(c) AGENT FOR THE SERVICE OF LEGAL PROCESS. The agent for the service
of legal process with respect to the Plan is:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
(d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" and the "Plan
Administrator" of the Plan is:
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, CA 95054-8203
The Plan Sponsor's and the Plan Administrator's telephone number is (408)
988-2500. The Plan Administrator is the named fiduciary charged with the
responsibility for administering the Plan.
<PAGE> 10
SECTION 13. STATEMENT OF ERISA RIGHTS.
Participants in this Plan (which is a welfare benefit plan sponsored by
Celtrix) are entitled to certain rights and protections under ERISA. If you are
an Eligible Employee, you are considered a participant in the Plan and, under
ERISA, you are entitled to:
(a) Examine, without charge, at the Plan Administrator's office and at
other specified locations, such as work sites, all Plan documents and copies of
all documents filed by the Plan with the U.S. Department of Labor, such as
detailed annual reports;
(b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator, for which the Plan Administrator may
make a reasonable charge;
(c) Receive a summary of the Plan's annual financial report, in the
case of a plan which is required to file an annual financial report with the
Department of Labor. (Generally, all pension plans and welfare plans with one
hundred (100) or more participants must file these annual reports.)
In addition to creating rights for the Plan participants, ERISA imposes
duties upon the people responsible for the operation of the employee benefit
plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a
duty to do so prudently and in the interest of you and other Plan participants
and beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in way to prevent you from obtaining a Plan
benefit or exercising your rights under ERISA. If your claim for a Plan benefit
is denied in whole or in part, you must receive a written explanation of the
reason for the denial. You have the right to have the Plan review and to have
your claim reconsidered.
Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request materials from the Plan and do not receive them
within thirty (30) days, you may file suit in a federal court. In such a case,
the court may require the Plan Administrator to provide materials and pay you up
to one hundred dollars ($100.00) per day until you receive the materials, unless
the materials were not sent because of reasons beyond the control of the Plan
Administrator. If you have a claim for benefits that is denied or ignored, in
whole or in part, you may file suit in a state or federal court. If it should
happen that the Plan fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court. The court
will decide who should pay court costs and fees. If you lose, the court may
order you to pay these costs and fees if, for example, it finds your claim is
frivolous.
If you have any questions about the Plan, you should contact the Plan
Administrator. If you have any questions about your rights under ERISA, you
should contact the nearest area office of the Labor-Management Services
Administration, U.S. Department of Labor.
SECTION 14. EXECUTION.
To record the adoption of the Plan as set forth herein, effective as of
September 18, 1998, Celtrix Pharmaceuticals, Inc. has caused its duly authorized
officer to execute the same this ___ day of __________, 1998.
CELTRIX PHARMACEUTICALS, INC.
By:__________________________________
__________________________________
__________________________________
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-Q FOR THE FISCAL QUARTER
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> SEP-30-1998
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<CURRENT-ASSETS> 1,167
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