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CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 0-19529
ALTEON INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3304550
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
170 Williams Drive, Ramsey, New Jersey 07446
(Address of principal executive offices) (zip code)
(201) 934-5000
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: $75,671,295 at February 28, 1997 based on the
last sales price on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of February 28, 1997:
<TABLE>
<CAPTION>
Class Number of Shares
- ----- ----------------
<S> <C>
Common Stock, $.01 par value 15,709,825
</TABLE>
Documents incorporated by reference
The Proxy Statement to be filed with respect to the Annual Meeting of
Shareholders to be held on June 10, 1997 is incorporated by reference into Part
III.
<PAGE> 3
PART I
ITEM 1. BUSINESS.
OVERVIEW
Alteon Inc. ("Alteon" or the "Company") is engaged in the discovery and
development of pharmaceutical products for the treatment of the complications of
diabetes and age-related diseases. The Company's efforts have focused primarily
on developing its lead compound, pimagedine, to inhibit or block abnormal
glucose/protein complexes that lead to diabetic complications such as kidney
disease and dyslipidemia. The Company has expanded the potential indications and
dosage forms of pimagedine beyond the complications of diabetes to take
advantage of its activity in the inhibition of specific inflammatory responses,
and is pursuing development of pimagedine for inflammatory skin diseases and
stroke. The Company is conducting four clinical trials evaluating pimagedine as
a treatment for the complications of diabetes, including two pivotal Phase III
clinical trials for diabetic kidney disease.
This document includes certain forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "believes," "anticipates," "expects" and similar expressions are
intended to identify such forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made by the Company.
Factors described in this Annual Report of Form 10-K, including without
limitation those identified in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Overview" could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by the Company.
BACKGROUND
The human body is composed of a complex network of cells which interact
and communicate with each other through the actions of proteins, hormones and
other chemical messengers to carry out and maintain bodily functions. This
interactive network incorporates various tissue and organ systems in the body,
including the nervous system, the endocrine (hormone) system and the immune
system. Changes in the balance of, and the interactions in, these systems occur
in a variety of disease states including diabetes and inflammatory conditions.
In healthy individuals, physiological glucose levels are tightly
regulated by the opposing actions of two hormones--insulin, which lowers blood
glucose, and glucagon, which elevates blood glucose. Diabetes arises from either
1) a severe decrease of insulin production and subsequent uptake and utilization
of glucose, generally referred to as Type I or Insulin Dependent Diabetes
Mellitus ("IDDM"), or 2) a loss in response to insulin, generally referred to as
Type II or Non-Insulin Dependent Diabetes Mellitus ("NIDDM"). Concurrently, the
ability to moderate the glucose-elevating effects of glucagon is diminished,
leading to the persistent hyperglycemic (excess blood sugar) state of diabetes.
In both cases, glucose levels rise significantly and, if not brought under
control, increase the rate of formation of irreversible protein/glucose
complexes known as advanced glycosylation end-products ("A.G.E.s").
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BACKGROUND (CONTINUED)
These A.G.E. complexes form continuously over time at a rate dependent
upon glucose levels, subsequently cross-link to other proteins and ultimately
accumulate in various tissues. As the rate of accumulation increases, A.G.E.
cross-linked proteins, normally flexible and separate, become rigid and
aggregated. It is this process which the Company believes results in progressive
loss of function of certain organs, blood vessels and nerves. In healthy
individuals this process occurs naturally, though slowly, as the body ages. In
diabetic patients, the rate of A.G.E. accumulation and the extent of protein
cross-linking is accelerated. The Company believes that this is a major factor
contributing to diabetic complications. The Diabetes Control and Complications
Trial (the "DCCT"), a multi-center investigation conducted under the auspices of
the National Institutes of Health, demonstrated that elevated blood glucose
levels significantly increase the rate of progression of eye, kidney, blood
vessel and nerve complications from diabetes. In 1994, an estimated 1.3 million
people in the United States suffered from these diabetic complications.
Studies conducted in animal models at numerous independent institutions
worldwide suggest that A.G.E.s are responsible for diabetic complications
including kidney disease (nephropathy), eye disease (retinopathy), nerve disease
(neuropathy) and hardening of the arteries (atherosclerosis). More recent
studies implicate A.G.E.s in age-related disorders such as Alzheimer's disease
and stroke. Alteon believes certain complications, such as atherosclerosis and
the progressive decline in renal function that occur eventually in
non-diabetics, are also A.G.E.-related, as this pathological process is
cumulative in effect over the lifetime of any individual.
Alteon's lead compound, pimagedine, has also been shown to inhibit
certain inflammatory conditions. The Company believes that this is due to
pimagedine's inhibitory effect on the enzyme responsible for synthesis of nitric
oxide ("NO"), a naturally occurring molecule which, when overproduced, may lead
to or result in serious complications. There is increasing evidence that NO
plays a significant role in acute and chronic inflammation, and results in
inflammatory diseases such as inflammatory bowel disease, rheumatoid arthritis,
asthma and inflammatory skin conditions. Inhibition of the inducible enzyme
responsible for formation of NO, inducible nitric oxide synthase ("iNOS"), has
been shown in animal models to mitigate the inflammatory disease process.
TECHNOLOGY
A.G.E.-Formation Inhibitors
Alteon's most advanced therapeutic program is the development of drugs
that inhibit A.G.E.-formation. These compounds are designed to prevent major
diabetic and age-related complications by blocking the formation of A.G.E.s and
the subsequent cross-linking of A.G.E.s to other proteins. Alteon's lead
compound, pimagedine, has been shown to inhibit A.G.E.-formation and subsequent
cross-link formation in preclinical models. Alteon and its commercial partners
are developing pimagedine to slow the progression of various complications of
diabetes, such as diabetic nephropathy and retinopathy.
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TECHNOLOGY (CONTINUED)
Alteon is engaged in research programs on second-generation
A.G.E.-formation inhibitors which may produce compounds that have advantages
over pimagedine, such as lesser potential side effects as well as increased
efficacy. The Company has selected one compound, ALT-946, for further
development and is looking for additional candidates.
A.G.E. Cross-link Breakers
The Company is pursuing development of compounds that chemically break
A.G.E. cross-linked proteins. These compounds are being evaluated for their
potential in reversing certain complications of diabetes and aging. One
application of this technology may be for the treatment of Alzheimer's disease,
where it has been demonstrated that the brain tissues of Alzheimer's patients
have significantly higher levels of A.G.E.s associated with (beta) amyloid
plaque deposits than normal brain tissues. Other possible applications for this
technology may include treatment of patients exhibiting cardiovascular
complications as well as certain ophthalmic diseases.
Glucose Lowering Technology
The inability to utilize glucose effectively in Type II diabetes is due
to a defect in the response of glucose utilizing tissues (e.g. skeletal muscle)
to insulin. The Company has identified a novel class of orally available
compounds that lowers blood glucose and free fatty acid levels in animal models
of Type II diabetes. This class of drugs, collectively called the Glucose
Lowering Agents ("G.L.A."), is chemically distinct from, and is believed to have
a different mechanism of action than, the thiazolidinedione compounds, a class
of compounds that has been the focus of many pharmaceutical companies because of
its beneficial effects on glucose and triglyceride levels. Analysis of plasma
lipids suggests that the regulation of fat metabolism leads to improved glucose
utilization and may be an important feature in the mechanism of action for the
G.L.A. class. This series of compounds prevents weight gain in obese/diabetic
animal models suggesting a potential for use in treatment of obesity. The
Company is actively pursuing preclinical studies with these compounds in order
to advance the most promising compound to clinical lead status.
iNOS Technology
Pimagedine is a preferential inhibitor of iNOS, thereby decreasing the
formation of NO, a molecule which has been shown in animal models to play a role
in acute and chronic inflammation. Independent researchers have reported that
treatment with pimagedine in animals reduces inflammation. Pimagedine has also
been shown to decrease the migration of macrophages (inflammatory cells) to the
site of tissue damage and prevents the release of cytokines and the consequent
release of NO. The Company is developing a topical formulation of pimagedine for
treatment of inflammatory skin diseases.
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT
The following table summarizes Alteon's products in research and
development:
<TABLE>
<CAPTION>
PRODUCT TARGET MECHANISM DEVELOPMENT MARKETING
CANDIDATE/INDICATIONS OF ACTION STATUS(1) RIGHTS(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pimagedine Oral
Diabetic Complications A.G.E. Alteon/Gamida/
Yamanouchi
Overt Nephropathy (Type I) Phase III
Overt Nephropathy (Type II) Phase III
End-Stage Renal Disease Phase II
Dyslipidemia Phase II
Pimagedine Intravenous
Stroke (4) Preclinical Alteon(3)/Gamida
Pimagedine Topical
Dermatological iNOS Alteon(3)/Gamida
Contact Dermatitis Preclinical
Eczema Preclinical
ALT-946
Diabetic Complications A.G.E. Preclinical Alteon/
Yamanouchi
A.G.E. Cross-link Breakers A.G.E. Alteon/
Yamanouchi
Alzheimer's Disease Discovery
Research
Atherosclerosis Discovery
Research
Ophthalmic Discovery
Research
Glucose Lowering Agents (4) Discovery Alteon
Research
</TABLE>
Notes:
(1) "Phase III" clinical trials indicate that Alteon is testing the compound in
humans for safety and efficacy in an expanded patient population at multiple
clinical sites. "Phase II" clinical trials indicate that Alteon is testing the
compound in humans for safety and efficacy in a limited patient population.
"Preclinical" includes toxicological assessment of candidate compounds and
formulation of a product in an appropriate dosage form. "Discovery Research"
includes identification and evaluation of compounds in vitro and in animal
models. See "--Government Regulation".
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT (CONTINUED)
(2) Where indicated, the Company's commercial partner Yamanouchi Pharmaceutical
Co., Ltd. ("Yamanouchi") has rights, or under certain circumstances the option
to acquire rights, to market products in Japan, South Korea, Taiwan and The
People's Republic of China. Where indicated, the Company's commercial partner
Gamida For Life ("Gamida") has rights to market products in Israel, Jordan,
South Africa, Cyprus and Bulgaria. See "--Strategic Alliances".
(3) In June 1995, Alteon obtained a license under patents from Washington
University, St. Louis, covering the use of pimagedine to inhibit iNOS and,
together with its commercial partner, Yamanouchi, is currently determining
marketing rights for certain potential products based upon this mechanism of
action.
(4) Mechanism not fully elucidated.
The Company incurred research and development expenditures of
$9,638,000, $11,648,000 and $18,720,000 for the years ended December 31, 1994,
1995 and 1996, respectively. Expenditures were reduced by reimbursements from
corporate partners in these periods of $1,065,000, $1,643,000 and $1,226,000,
respectively.
Diabetic Kidney Disease
Kidney disease is a significant cause of morbidity and mortality in
patients with Type I and Type II diabetes. It is a chronic and progressive
disease. One of the early signs of kidney damage is microalbuminuria
(characterized by leakage of small amounts of protein into the urine) which
progresses to overt nephropathy (characterized by leakage of large amounts of
protein into the urine) and ultimately to end-stage renal disease (advanced
renal disease requiring dialysis). Approximately 35% of patients with Type I
diabetes and approximately 5-10% of patients with Type II diabetes develop
nephropathy. As of 1994, there were approximately 650,000 diabetics diagnosed
with kidney disease in the United States. The only product approved to treat
nephropathy in patients with Type I diabetes is captopril, an
angiotensin-converting enzyme ("A.C.E.") inhibitor which, as an
antihypertensive, lowers filtration pressure in the kidney and has a beneficial
effect on this organ. The Company believes that pimagedine acts through a
mechanism different from captopril and therefore if used in conjunction with
captopril may have a complementary therapeutic effect. See "--Competition".
Overt Nephropathy
The Company is conducting two randomized double-blind,
placebo-controlled, multi-center, Phase III clinical trials to evaluate the
safety and efficacy of pimagedine, the ACTION (A Clinical Trial In Overt
Nephropathy) trials. The first Phase II/III trial of pimagedine in patients with
Type I diabetes and overt nephropathy was initiated in January 1994. In August
1994, an external safety monitoring committee determined that certain Phase II
nested gastro-intestinal safety parameters had been satisfied. The primary
objective of this trial is to evaluate the safety
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT (CONTINUED)
and efficacy of pimagedine in preserving renal function in Type I patients.
Enrollment in this trial was completed in September 1996 with 690 patients
randomized into this study from 56 investigational sites in the United States
and Canada. Patients will be treated for a minimum of two years, and will
receive twice daily oral doses of pimagedine, adjusted for kidney function.
The second Phase III trial of pimagedine, in patients with Type II diabetes
and overt nephropathy, was initiated in July 1995 and uses a trial design
similar to the Type I clinical trial. The objective of this study is to evaluate
the safety and efficacy of pimagedine in preserving renal function in these
patients. In December 1996, the Company amended the protocol for this trial
because of dose-related adverse events seen in a number of older, more fragile
Type II diabetic patients. Pursuant to the amended protocol, patients on the
high-dose arm of the trial were converted to the low-dose arm and enrollment of
new patients ceased. The Company has enrolled 598 patients in this trial at over
80 sites in the United States and Canada. Patients in this program will be
treated for a minimum of two and one-half years, and will receive twice daily
oral doses of pimagedine, adjusted for kidney function.
No assurance can be given that these clinical trials can be
successfully completed.
Microalbuminuria
In July 1996, Hoechst Marion Roussel, Inc. ("HMRI") and the Company
terminated their Phase II clinical trial in patients with Type I diabetes and
persistent microalbuminuria. Following the termination of its collaboration with
its former commercial partner, HMRI, the Company concluded that termination of
this trial was warranted due to the slow rate of enrollment and the probable
time frame for completion of the study.
End-Stage Renal Disease (ESRD)
As kidneys fail, there is a significant increase in circulating A.G.E.s
because of the patient's inability to clear these compounds. This occurs to a
greater degree in diabetic patients because of their more rapid rate of
A.G.E.-formation. A.G.E.s are not removed to a significant degree by dialysis in
part due to the large size of certain A.G.E. proteins. The high A.G.E. burden in
diabetic patients is thought to be responsible for the rapid progression of
diabetic complications in dialysis patients. The Company believes that elevated
A.G.E. levels also contribute to higher levels of cardiovascular morbidity and
mortality in diabetic patients. Approximately 15,000 diabetics are affected by
ESRD annually in the United States. Diabetics with ESRD have a cardiovascular
mortality (myocardial infarction and cerebral vascular mortality) which is 2-3
times the rate of other patient groups with renal failure. There is no known
agent useful for treatment of ESRD. However, erythropoietin (EPO) is often used
to treat the anemia resulting from loss of kidney function.
The Company is conducting a double-blind, placebo-controlled,
multi-center, Phase II clinical trial to evaluate the safety and efficacy of
pimagedine in diabetic patients with ESRD on
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT (CONTINUED)
hemodialysis, a form of dialysis used by approximately 80% of dialysis patients
in the United States. This Phase II clinical trial, which was initiated in
December 1995, is intended to enroll approximately 120 patients who will receive
oral doses of pimagedine three times per week in conjunction with their dialysis
treatment, and who will be treated for a minimum of six months.
The primary objective of this study is to assess safety and look at
short-term measurements such as lipid profiles and validate dosing for this
patient population. As of December 31, 1996, 102 patients have been enrolled in
this trial.
No assurance can be given that enrollment in any of these clinical
trials can be achieved on a timely basis, if at all, or that this clinical trial
can be successfully completed.
Dyslipidemia
Dyslipidemia is a condition characterized by an abnormal lipid profile.
The elevation of one lipid component, low-density lipoprotein, is known to be a
significant risk factor in cardiovascular disease. Diabetic patients are twice
as likely as nondiabetic individuals to die from coronary artery disease, and
the annual incidence of cardiovascular complications is increased significantly
in patients with Type II diabetes. There are numerous, potentially competitive,
products currently available on the market for the treatment of dyslipidemia.
However, the Company believes pimagedine may offer certain advantages to
diabetic dyslipidemia patients because it may reduce lipid A.G.E.s and
subsequent formation of atherosclerotic plaque.
In December 1995, Alteon and Gamida initiated a randomized,
double-blind, placebo-controlled, Phase II clinical trial to evaluate the effect
of pimagedine on plasma lipid levels and A.G.E.s in patients with diabetes and
elevated serum cholesterol levels. This Phase II clinical trial is intended to
enroll approximately 90 patients in Israel who will be treated for a minimum of
three months and who will receive twice daily oral doses of pimagedine, adjusted
for kidney function. The primary objective of this study is to evaluate the
safety and efficacy of pimagedine in reducing levels of low-density lipoproteins
("LDL"s) in Type II diabetic patients with varying degrees of renal function and
elevated LDLs. See "--Strategic Alliances". As of December 31, 1996, 89 patients
were enrolled.
No assurance can be given that this clinical trial can be successfully
completed.
Stroke
Every year approximately 500,000 persons in the United States suffer a
stroke and approximately one-third of these individuals die, making stroke the
third leading cause of death by disease. According to the American Heart
Association, in 1994 the economic cost of stroke due to healthcare expense and
loss of productivity was estimated to be nearly $20 billion. Individuals at
increased risk for stroke include those with hypertension, smokers, obese
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT (CONTINUED)
individuals, diabetics and those with hyperlipidemia. There is no therapy
currently available to reduce the extent of neurological tissue damage following
stroke. However, several pharmaceutical and biopharmaceutical companies are
conducting preclinical studies and clinical trials on numerous compounds.
Animal studies have demonstrated that pimagedine, when given prior to
or after induction of stroke by occlusion of the middle cerebral artery, reduced
the volume of tissue death by 30%.
Alteon has completed acute toxicity studies in animals with an
intravenous formulation of pimagedine. The Company has filed an Investigational
New Drug Application ("IND") with the Food and Drug Administration ("FDA") and
has obtained approval for initiation of a Phase I program. The Company is
seeking a marketing partner for the compound prior to initiating these clinical
trials.
There can be no assurance that results obtained in animal studies will
be predictive of results obtained in humans, and no assurance can be given that
the Company will commence clinical trials in the near term, if at all.
Inflammatory Skin Disease
Because the Company believes pimagedine affects the inflammatory
process through the iNOS mechanism, pimagedine may have a therapeutic benefit in
certain inflammatory skin diseases such as contact dermatitis and eczema.
Currently, topical steroids are the treatment of choice for these indications
but are contraindicated for prolonged use. A topical formulation of pimagedine
is under development. The Company intends to file an IND for these indications,
although no assurance can be given that clinical trials will commence in the
near term, if at all.
Diagnostic Programs
Alteon is utilizing its A.G.E. technology to develop diagnostic tests
that may be used to assess A.G.E. levels and monitor drug therapy in diabetic
patients. Because the levels of circulating and tissue-bound A.G.E.s are
correlated with the pathology of diabetes and aging, measurement of A.G.E.
levels could provide valuable information on the stage of disease prior to the
appearance of clinical signs. The Company believes these tests, if developed,
will complement its drug products by enabling physicians to better diagnose and
treat patients with the potential to develop significant diabetic complications
before progression of their disease to a more advanced state.
Prevention of A.G.E.-formation/Staining of Teeth
The anti-plaque agent, chlorhexidine, discolors teeth. Alteon believes
that A.G.E.-formation may be responsible for such discoloration and preclinical
studies have demonstrated
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT (CONTINUED)
that A.G.E.-formation inhibitors, as well as A.G.E. cross-link breakers, reduce
such staining. Alteon is pursuing the development of a dentifrice or mouthwash
to prevent such tooth staining.
A.G.E. Cross-link Breakers
Several novel compounds have been identified which are capable of
breaking the cross-links formed as a result of A.G.E. accumulation. These
compounds are currently under evaluation in various animal models to assess
their potential for treatment of a variety of diseases including
atherosclerosis, Alzheimer's disease and various ophthalmic disease states.
Following completion of these studies, the most promising drug candidate, if
any, will be moved ahead to clinical lead status and additional studies
initiated to prepare to file an IND.
Glucose Lowering Agents
The Company is currently investigating the glucose lowering potential
of several compounds identified from a natural product screening program. These
compounds, which are structurally different than the thiazolidinediones, have
been identified as having antidiabetic activity similar to the
thiazolidinediones without their associated side effect profile. Additional
mechanistic studies on these compounds will be done prior to taking the lead
compound to clinical lead status.
There can be no assurance that any of the products discussed above or
resulting from the Company's research programs will be successfully developed,
prove to be safe and efficacious in clinical trials, meet applicable regulatory
standards, be capable of being produced in commercial quantities at reasonable
costs or be successfully marketed.
STATUS OF CLINICAL TRIALS
The Company began clinical trials in 1987. Seven Phase I clinical
trials have been completed to assess the safety and pharmacokinetics of
pimagedine. Single and multiple-dose studies were conducted. Pimagedine was
administered to a total of 127 human subjects in this program, including healthy
subjects, diabetic patients with normal renal function, diabetic patients with
varying degrees of renal impairment and diabetic patients in hemodialysis
programs. No serious side effects were reported. The most commonly observed side
effects were headaches, heartburn, nausea, lightheadedness and drowsiness.
In addition, in 1989, two 28-day safety studies were completed in
diabetic patients with varying degrees of renal insufficiency as well as in
healthy subjects. Thirty-seven patients received pimagedine. The most common
side effects reported were nausea, vomiting and other gastro-intestinal
disturbances.
In view of the gastro-intestinal side effects seen in preliminary
studies and earlier trials, the FDA required the Company to modify its Phase
II/III protocols to include certain gastric
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STATUS OF CLINICAL TRIALS (CONTINUED)
function tests, including endoscopy. In August 1994, based on such tests in the
first 31 patients receiving pimagedine, an independent safety committee
recommended and the FDA allowed removal of the endoscopy requirement. At the
same time, the FDA permitted the inclusion of women of childbearing potential in
the trial.
Concurrently with its Phase I and Phase II/III clinical trials, the
Company conducted and recently completed a two-year dosing study in animal
models to test the carcinogenic potential of high doses of pimagedine. The final
results of this study were submitted to the FDA during the fourth quarter of
1996.
As of December 31, 1996, in the Company's Phase III clinical trials, of
the 690 patients who were enrolled in the overt nephropathy Type I study,
approximately 194 have been in the study for a minimum of six months, an
additional 144 have been in the study for 12 months and an additional 295 have
been in the study for 18 months. Pursuant to the study design, two-thirds of the
patients in the study receive pimagedine. As of December 31, 1996, of the 598
patients who were enrolled in the overt nephropathy Type II study, approximately
274 have been in the study for a minimum of six months, an additional 152 have
been in the study for 12 months and an additional 12 have been in the study for
18 months. Approximately 400 of the patients in the Type II study receive
pimagedine.
As of December 31, 1996, in the Company's Phase II clinical trials, 102
patients were enrolled in the ESRD trial and 89 were in enrolled in the
dyslipidemia trial. See "--End-Stage Renal Disease" and "--Dyslipidemia".
Delays in completion of the trials may occur as a result of
difficulties in retaining patients in the trials, preliminary safety data
analysis which requires changes in the protocols and delays in approval of the
trials by institutional review boards at the trial sites. Accordingly, no
assurance can be given that clinical trials can be successfully completed within
any particular time frame or at all.
In 1996, the Company retained Quintiles, Inc. to provide clinical trial
services to support the Phase III ACTION trials. The major areas of service
include project management, clinical site monitoring and data management.
STRATEGIC ALLIANCES
Yamanouchi Pharmaceutical Co., Ltd.
In July 1989, Alteon and Yamanouchi entered into a series of agreements
pursuant to which the parties formed a strategic alliance to develop and
commercialize Alteon's A.G.E.-related technology in Japan, South Korea, Taiwan
and The People's Republic of China (the "Yamanouchi Territory"). Under this
arrangement, the parties agreed to collaborate on further research and
development, Yamanouchi purchased 233,531 shares of Alteon's Preferred Stock
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STRATEGIC ALLIANCES (CONTINUED)
for $3.0 million, which was converted into 784,665 shares of Common Stock in
1991 upon Alteon's initial public offering of its Common Stock, and Alteon
granted to Yamanouchi an exclusive license to commercialize Alteon's technology
in the Yamanouchi Territory in exchange for royalty payments on net sales, if
any. Yamanouchi has the right to terminate the agreement upon 90 days prior
written notice to Alteon. This license expires as to each product in each
licensed country upon the later of 15 years from the date of the agreement, the
expiration of the last patent applicable to the product or five years after the
first commercial sale of the product in the country.
Pursuant to the license agreement, Alteon granted Yamanouchi the right
to manufacture pimagedine bulk material for sale in the Yamanouchi Territory.
With respect to certain second-generation A.G.E.-formation inhibitors, Alteon
has the option to supply all of Yamanouchi's reasonable requirements of active
ingredient bulk materials for sale within the Yamanouchi Territory.
Alteon and Yamanouchi also entered into a research and development
collaboration agreement to provide for joint collaboration on further research
and development, specifically Alteon's A.G.E.-formation and protein
cross-linking technology. Pursuant to such agreement, and in consideration of
Alteon's past costs and efforts in the research and development of the
technologies subject to the license agreement, Yamanouchi paid Alteon $7.0
million in 1989. Yamanouchi also agreed to fund preclinical studies, including
most toxicology studies, on pimagedine and any other products that the parties
jointly agree to develop including a second-generation A.G.E.-formation
inhibitor and a macrophage stimulator. The collaboration agreement provides that
any joint development program is terminable by either party upon 60 days prior
written notice. The agreement terminates in June 1999, unless otherwise
extended. In September 1992, Alteon and Yamanouchi amended the research and
development collaboration agreement to clarify their relative responsibilities
for patent prosecution and payment thereof.
Pursuant to the agreement, Yamanouchi has provided financial support
for most of the preclinical toxicity studies and has completed Phase I clinical
trials on pimagedine in Japan. Yamanouchi has not yet initiated any Phase II
clinical trials in Japan.
Hoechst Marion Roussel, Inc.
In December 1990, Alteon and Marion Merrell Dow, Inc., which was
subsequently acquired by an affiliate of Hoechst AG and renamed Hoechst Marion
Roussel, Inc., formed a strategic alliance to develop and commercialize Alteon's
A.G.E. technology for therapeutics in the areas of diabetic and aging
complications. The arrangements included a research and development
collaboration to conduct clinical trials jointly, including funding by HMRI of
trials on pimagedine, an agreement for the joint promotion and sale in the
United States, Canada and Western Europe of drugs developed pursuant to the
collaboration, and a manufacturing and supply arrangement. In 1996, the parties
ended their collaboration as a result of HMRI's continuing prioritization of its
new product pipeline, and the Company regained all rights granted to HMRI.
11
<PAGE> 14
STRATEGIC ALLIANCES (CONTINUED)
As a result of the termination of the strategic alliance with HMRI, the
Company has assumed full responsibility for the continuation of clinical trials
which had been funded by HMRI. These costs amount to approximately $1.4 million
per month. The Company and HMRI are negotiating various open issues arising from
the termination of their collaboration. This includes the rights of the parties
under certain patents and amounts which may be payable by the Company to HMRI
and by HMRI to the Company. HMRI has invoiced the Company certain amounts which
the Company believes are without merit.
The Company is seeking one or more collaborative partners to replace
HMRI. However, there is no assurance that the Company will be able to enter into
an agreement with a new partner or that if such an agreement is reached it will
provide the level of funding which had been provided by HMRI.
Boehringer Mannheim Diagnostics
In December 1994, the Company entered into an exclusive licensing
arrangement with Corange International Ltd., acting through Boehringer Mannheim
Diagnostics ("Boehringer Mannheim") for Alteon's technology for diagnostic
applications. Under this alliance, Alteon received a small initial payment in
January 1995, and will be entitled to receive royalties based on net sales of
research and commercial assays developed by Boehringer Mannheim and based on
Alteon's A.G.E. technology. Boehringer Mannheim will receive exclusive worldwide
rights to the technology for diagnostic applications outside of the territory
covered by the agreement with Yamanouchi for the Yamanouchi Territory.
Under the agreement, Boehringer Mannheim has agreed to develop
immunoassays to detect A.G.E.-hemoglobin, ApoB-A.G.E. and A.G.E.-serum
protein/peptides. Development of research assays was initiated during the first
quarter of 1995. Boehringer Mannheim plans to develop automated commercial
assays to correspond with the projected product launch of pimagedine, if
successfully developed and approved. Boehringer Mannheim may terminate the
license agreement upon 90 days prior written notice.
Gamida
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida. Under these agreements, Gamida is
conducting, at its own expense, a Phase II multi-site clinical trial in Israel,
in accordance with the protocol developed by Alteon, to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels. Gamida will
receive the exclusive right to distribute pimagedine, if successfully developed
and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and South
Africa. The distribution agreement is for a term ending 10 years after the date
of regulatory approval for the sale of pimagedine in Israel; thereafter, it will
be automatically renewed for successive three-year periods unless terminated by
either party on the last day of the initial or a renewal term. See "--Principal
Products Under Development --Dyslipidemia".
12
<PAGE> 15
STRATEGIC ALLIANCES (CONTINUED)
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Rockefeller University
Pursuant to an agreement with The Rockefeller University ("Rockefeller
University"), Alteon has exclusive, worldwide and perpetual rights to the
technology and inventions relating to A.G.E.s and protein cross-linking,
including those relating to the complications of diabetes and aging, discovered
by Dr. Cerami and his colleagues during their tenure at Rockefeller University's
Laboratory of Medical Biochemistry. Under this agreement, Alteon contributed
funding to perform research relating to the A.G.E. technology at Rockefeller
University. In October 1991, Dr. Cerami and his research team left Rockefeller
University to join The Picower Institute for Medical Research ("The Picower
Institute"). Upon such departure, Alteon ceased funding Rockefeller University,
and Rockefeller University ceased providing research assistance and laboratory
support to Alteon. The termination of this research program does not affect
Alteon's proprietary rights to the licensed technology. See "--Patents, Trade
Secrets and Licenses".
Although the Company has ended its scientific collaboration with
Rockefeller University, Alteon continues to contribute to the cost of patent
maintenance. In this regard, the Company has provided funding in the amounts of
$235,000, $167,000 and $86,000 in 1994, 1995 and 1996, respectively.
In February 1995, the Company exercised an option it held pursuant to
an Option and License Agreement dated March 31, 1994, with Rockefeller
University to acquire rights for a new technology unrelated to the A.G.E.
mechanism, focused on novel synthetic analogs of the hormone glucagon. Effective
February 1997, the Company elected to terminate this agreement. As a result of
the termination, all of Alteon's rights under the license agreement revert back
to Rockefeller University.
The Picower Institute for Medical Research
In September 1991, the Company entered into a five-year agreement with
The Picower Institute, a not-for-profit biomedical science institution of which
Dr. Cerami was then the President, pursuant to which the Company agreed to
provide funding at a rate of $500,000 per year in support of new A.G.E.-related
research in exchange for an exclusive, worldwide, royalty-bearing license for
all commercial healthcare applications of A.G.E.-related inventions resulting
from The Picower Institute's research programs conducted during the term of the
agreement.
13
<PAGE> 16
STRATEGIC ALLIANCES (CONTINUED)
During 1994, 1995 and 1996, Alteon provided funding of $1,241,000, $1,109,000
and $1,006,000, respectively, and reimbursed The Picower Institute for one-half
of its total A.G.E. patent costs. Effective November 30, 1996, the Company
terminated its funding of further research at The Picower Institute because of
Dr. Cerami's retirement from The Picower Institute. The Company expects to
devote the funds previously targeted for The Picower Institute to its existing
projects.
Washington University, St. Louis
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University, located in St. Louis,
Missouri, for patents covering the use of pimagedine as an inhibitor of iNOS.
The agreement requires the Company to pay certain licensing fees upon the
attainment of development milestones as well as a royalty on net sales or a
share of sub-licensing profits on products covered by the patents. The license
also covers patents developed through any subsequent research collaboration
between the parties which Alteon agrees to fund.
MANUFACTURING
The Company has no manufacturing facilities for either production of
bulk chemicals or the manufacturing of pharmaceutical dosage forms. The Company
relies on third-party contract manufacturers to produce the raw materials and
chemicals used as the active drug ingredients in its pharmaceutical products.
The Company intends to sell the bulk chemical to its corporate partners for
final formulation.
The Company intends to continue to use third-party contract
manufacturers to produce its bulk chemical requirements for clinical trials and
possible commercial use. Such chemical manufacturers are inspected by the
Company and its consultants to confirm compliance with Good Manufacturing
Practice ("GMP") required for pharmaceutical products. The Company plans to
enter into long-term supply agreements with one or more qualified suppliers of
bulk pharmaceutical chemicals in the United States and in Europe to ensure a
consistent and stable supply of its worldwide chemical requirements for
pimagedine. Based on the cost estimates received from potential suppliers and
with the assistance of its consultants, the Company believes it will be able to
obtain sufficient quantities of bulk chemical at reasonable prices to satisfy
anticipated needs.
There can be no assurance, however, that the Company can continue to
meet its needs for supply of bulk chemicals or that manufacturing limitations
will not delay clinical trials or possible commercialization. See "--Strategic
Alliances".
14
<PAGE> 17
MARKETING AND SALES
Alteon plans to market and sell its products, if successfully developed
and approved, directly or through co-promotion or other licensing arrangements
with third parties. Such arrangements may be exclusive or nonexclusive and may
provide for marketing rights worldwide or in a specific market.
For certain of its products Alteon has licensed exclusive marketing
rights, formed joint marketing arrangements or granted distribution rights
within specified territories with its commercial partners, Yamanouchi,
Boehringer Mannheim and Gamida. See "--Strategic Alliances".
In cases where Alteon enters into joint marketing arrangements or in
the event that it does not enter into joint marketing or other licensing
arrangements with third parties, it will have to develop a marketing and sales
force with significant technical expertise or, where appropriate or permissible,
enter into arrangements with third parties to market and sell its products.
Alteon has no marketing experience and there can be no assurance that it will
successfully develop such experience or that it will be able to enter into
marketing agreements with others on acceptable terms. To the extent that the
Company enters into co-promotion or other sales and marketing arrangements with
other companies, any revenues to be received by Alteon will be dependent on the
efforts of others and there can be no assurance that such efforts will be
successful.
PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes
and know-how is important to its business. Alteon aggressively files and
prosecutes patents covering its proprietary technology, and, if warranted, will
defend its patents and proprietary technology. As appropriate, the Company seeks
patent protection for its proprietary technology and products in the United
States and Canada and in key commercial European and Asia/Pacific countries. The
Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
Pimagedine is not a novel compound and is not protected by a
composition-of-matter patent. In 1992, a United States patent on the use of
pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to Alteon with claims relating to the inhibition of A.G.E.-formation
and cross-linking. The patent claims the new use of a known agent for the
treatment of the complications of diabetes and aging. In 1994, corresponding
patents were granted in France, Germany, Italy, the United Kingdom and other
European countries. A corresponding patent was issued in Japan in 1995. The
Company continues to pursue and patent chemical analogs of known
A.G.E.-formation inhibitors, as well as novel compounds having potential
inhibitory properties. The Company believes that its patents and licensed
patents provide a substantial proprietary base that will allow Alteon and its
collaborative partners to commercialize products in this field. There can be no
assurance, however, that pending or future applications will issue, that the
claims of any patents which do issue will provide any significant
15
<PAGE> 18
PATENTS, TRADE SECRETS AND LICENSES (CONTINUED)
protection of the Company's technology, or that the Company's directed discovery
research will yield compounds and products of therapeutic and commercial value.
In 1987, the Company acquired an exclusive, royalty-free, worldwide
license (including the right to sub-license to others) to issued patents, patent
applications and trade secrets from Rockefeller University relating to the
A.G.E.-formation and cross-linking technology currently under development at
Alteon. The original inventors of the patented technology include Drs. Michael
A. Brownlee, Anthony Cerami and Helen Vlassara, members of Alteon's Scientific
Advisory Board, and Dr. Peter C. Ulrich, formerly the Company's Director of
Chemistry and now at The Picower Institute. Additional patent applications have
since been filed on discoveries made in support of the technology from research
conducted at Rockefeller University, The Picower Institute and the Company's
laboratories.
Pursuant to the Company's agreement with The Picower Institute, certain
patentable inventions and discoveries relating to A.G.E. technology have been
licensed exclusively to the Company. In consultation with the Company, The
Picower Institute is responsible for the worldwide filing and prosecution of
patent applications and maintenance of patents for such inventions. Alteon will
contribute 50% of the cost of such activities.
As of December 1996, the Company's patent estate of owned and/or
licensed patent rights consisted of 61 issued patents or allowed patent
applications, none of which expire prior to 2001, and 75 pending patent
applications in the United States, the majority of which are A.G.E.-related.
Included in Alteon's patent estate are two issued United States patents on the
use of pimagedine for inhibition of iNOS, licensed from Washington University.
The Company intends to continue to focus its research and development
efforts on the synthesis of novel compounds and on the search for additional
therapeutic applications to expand and broaden the Company's rights within its
technological and patent base. The Company is also prepared to in-license
additional technology that may be useful in building its proprietary position.
Where appropriate, the Company utilizes trade secrets and unpatentable
improvements to enhance its technology base and improve its competitive
position. Alteon requires all employees, scientific consultants and contractors
to execute confidential disclosure agreements as a condition of engagement by
the Company. There can be no assurance, however, that the Company can limit
unauthorized or wrongful disclosures of unpatented trade secret information.
The Company believes that its estate of licensed and owned issued
patents, if upheld, and pending applications, if granted and upheld, will be a
substantial factor in the Company's success. The patent positions of
pharmaceutical firms, including Alteon, are generally uncertain and involve
complex legal and factual questions. Consequently, even though Alteon is
currently prosecuting such patent applications in the United States and foreign
patent offices, the Company does not know whether any of such applications will
result in the issuance of any additional
16
<PAGE> 19
PATENTS, TRADE SECRETS AND LICENSES (CONTINUED)
patents or, if any additional patents are issued, whether the claims thereof
will provide significant proprietary protection or will be circumvented or
invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
the Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, the claims
of the patents will afford protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. See "--Competition".
The Company's success will depend, in part, on its ability to obtain
patent protection for its products, preserve its trade secrets and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that the Company's current patent estate will enable the Company to
prevent infringement by third parties or that competitors will not develop
competitive products outside the protection that may be afforded by the claims
of such patents. To the extent the Company relies on trade secrets and
unpatented know-how to maintain its competitive technological position, there
can be no assurance that others may not develop independently the same or
similar technologies. Failure to maintain its current patent estate or to obtain
requisite patent and trade secret protection, which may become material or
necessary for product development, could delay or preclude the Company or its
licensees or marketing partners from marketing their products and could thereby
have a material adverse effect on the Company's business, financial condition
and results of operations.
GOVERNMENT REGULATION
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state, and local entities regulate,
among other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising and promotion of the Company's products.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) preclinical
new drug laboratory and animal tests, (ii) submission to FDA of an IND, which
must become effective before clinical trials may begin, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended indication, (iv) submission to the FDA of a New Drug
Application ("NDA"), and (v) FDA review of the NDA in order to determine, among
other things, whether the drug is safe and effective for its intended uses.
There is no assurance that FDA review process will result in product approval on
a timely basis, if at all.
Preclinical tests include laboratory evaluation of product
chemistry and formulation, as well as animal studies to assess the potential
safety and efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices.
17
<PAGE> 20
GOVERNMENT REGULATION (CONTINUED)
The results of the preclinical tests are submitted to the FDA as part of an IND
and are reviewed by the FDA prior to the commencement of clinical trials.
Clinical trials are conducted under protocols that detail such matters
as the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each protocol must be reviewed by an
institutional review board.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Phase III
trials are undertaken in order to further evaluate clinical efficacy and to
further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The process
of obtaining approvals from the FDA can be costly, time consuming and subject to
unanticipated delays. There can be no assurance that approvals of the Company's
proposed products, processes, or facilities will be granted on a timely basis,
if at all. Any failure to obtain or delay such approvals would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, even if regulatory approval is granted, such approval may
include significant limitations on indicated uses for which a product could be
marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to GMP requirements,
which must be followed at all times. In complying with those requirements,
manufacturers (including a drug sponsor's third-party contract manufacturers)
must continue to expend time, money and effort in the area of production and
quality control to ensure compliance. Domestic manufacturing establishments are
subject to periodic inspections by the FDA in order to assess, among other
things, GMP compliance. To supply a product for use in the United States,
foreign manufacturing establishments must comply with GMP and are subject to
periodic inspection by the FDA or by regulatory authorities in certain of such
countries under reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its
manufacturer, and the holder of the NDA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the preclinical and clinical testing process, the
18
<PAGE> 21
GOVERNMENT REGULATION (CONTINUED)
approval process, or thereafter (including after approval) may result in various
adverse consequences, including the FDA's delay in approving or refusal to
approve a product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or NDA holder. In
addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or NDA holder, including withdrawal
of the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. The
Company believes that certain of its products in development may qualify for
accelerated approval. The Company cannot predict the ultimate impact, however,
of the FDA's accelerated approval procedures on the timing or likelihood of
approval of any of its potential products or those of any competitor. In
addition, the approval of a product under the accelerated approval procedures
may be subject to various conditions, including the requirement to verify
clinical benefit in post-marketing studies, and the authority on the part of FDA
to withdraw approval under streamlined procedures if such studies do not verify
clinical benefit.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company does not currently have any
facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
COMPETITION
A number of companies are pursuing the research and development of
A.G.E. inhibition technology. The Company is not aware of any other
pharmaceutical company developing an A.G.E.-formation inhibitor which has
reached the clinical development stage. However, Alteon
19
<PAGE> 22
COMPETITION (CONTINUED)
is aware of many companies which are pursuing research and development of
compounds for the selective inhibition of iNOS.
Many of the Company's potential competitors have substantially greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. In addition, many of these
companies have extensive experience in preclinical testing and human clinical
trials. These companies may develop and introduce products and processes
competitive with or superior to those of the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of its or its competitors' products. Accordingly, the relative
speed with which Alteon can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market are important competitive factors. The Company expects that competition
among products approved for sale will be based on, among other things, product
efficacy, safety, reliability, availability, price and patent position.
The development by others of new treatment modalities for diabetes not
based on inhibiting A.G.E.-formation and cross-linking for those indications for
which the Company is developing drug therapies could render pimagedine and other
A.G.E.-formation inhibitors non-competitive or obsolete. Competitive drugs based
on other therapeutic mechanisms may be efficacious in treating diabetic
complications. Aldose reductase inhibitors ("ARIs"), which inhibit formation of
sorbitol, a form of sugar, have been evaluated by a number of large
pharmaceutical companies. A number of companies that were developing ARI drugs
have since abandoned or suspended clinical development of such drugs in the
United States following evaluation of their efficacy and side-effect profiles.
The Company believes that at least one company continues its clinical
development of an ARI drug, the efficacy and side effect profile of which is not
known to Alteon. Outside of the United States, several ARI drugs have been
approved for commercial sale. Other possible therapeutic approaches being
pursued include the cure of diabetes by gene therapy or islet cell
transplantation. Results of the DCCT showed that tight glucose control reduced
the incidence of diabetic complications. Numerous companies are pursuing other
methods to manage glucose control and to reduce the incidence of diabetic
complications. In addition, several large companies are researching aldose
reductase inhibitors as therapeutics for diabetic neuropathy, retinopathy and
related conditions. Several companies have initiated research with drugs that
inhibit vascularization as a potential treatment of diabetic retinopathy. In the
event one or more of these initiatives are successful, the market for the
Company's products may be reduced or eliminated.
The treatment of diabetic complications with use of existing agents
such as lipid lowering agents or A.C.E. inhibitors may also be beneficial. The
A.C.E. inhibitor, captopril, has been
20
<PAGE> 23
COMPETITION (CONTINUED)
approved by the FDA for patients with diabetic nephropathy. Alteon's clinical
trials were designed assuming patients' baseline therapy would include A.C.E.
inhibitor treatment.
The Company is aware of the development by several pharmaceutical
companies of thiazolidinedione derivatives ("glitazones") for treatment of Type
II diabetes. In January 1997, Warner-Lambert Company was given approval and
clearance by the U.S. FDA for the marketing of ResulinTM (troglitazone), an
anti-diabetic drug designed to target insulin resistance in Type II diabetes.
The patent covering captopril expired in February 1996. Other
pharmaceutical companies may choose to market and sell this drug which will lead
to a decrease in its price. Sales of captopril may reduce or eliminate the
market for any product developed by the Company for this indication.
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
recognized expertise in the medical complications of diabetes and aging,
biochemistry and pharmaceutical science and related fields who advise the
Company about present and long-term scientific planning, research and
development. Members of the Scientific Advisory Board consult and meet with
Company management informally on a frequent basis. All members of the Scientific
Advisory Board are employed by employers other than the Company and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to the Company. These companies may also be
competitors of Alteon. The members of the Scientific Advisory Board have agreed,
however, not to provide any services to any other entities that might conflict
with the activities that they provide as members of the Scientific Advisory
Board. Each member also has executed a confidentiality agreement for the benefit
of the Company. Although members of the Scientific Advisory Board may devote
significant time and energy to the affairs of the Company, except for members of
the Scientific Advisory Board with consulting contracts with Alteon, no members
are expected to devote more than a small portion of their time to Alteon.
The following persons are members of Alteon's Scientific Advisory Board:
Anthony Cerami, Ph.D., the President of Cerami Consulting Corporation.
Michael A. Brownlee, M.D., the Anita and Jack Saltz Chair of Diabetes
Research at the Albert Einstein College of Medicine, and a Professor in the
Department of Medicine and Co-Director of the Diabetes Research Center.
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<PAGE> 24
SCIENTIFIC ADVISORY BOARD (CONTINUED)
Helen Vlassara, M.D., Professor and Head, Laboratory of Diabetes and Aging
at The Picower Institute.
Scott M. Grundy, M.D., Ph.D., Chairman of the Department of Clinical
Nutrition and Director of the Center for Human Nutrition at the University of
Texas Southwestern Medical Center at Dallas, Texas, and a Professor of Internal
Medicine and Biochemistry.
Bruce Merrifield, Ph.D., a Nobel Laureate and a John D. Rockefeller
Professor Emeritus at Rockefeller University.
Leslie Z. Benet, Ph.D., Professor and Chairman, Department of
Biopharmaceutical Sciences, University of California, San Francisco.
Richard Bucala, M.D., Ph.D., Professor and Head, Laboratory of Medical
Biochemistry at The Picower Institute.
EMPLOYEES
As of February 14, 1997, Alteon employed 54 persons (21 of whom held a
Ph.D., M.D. or other advanced degree), of whom 38 were engaged in research and
development and 16 were engaged in administration and management. A significant
number of the Company's management and professional employees have had prior
experience with pharmaceutical, biotechnology or medical product companies.
Alteon believes that it has been successful in attracting skilled and
experienced personnel. None of the Company's employees are covered by collective
bargaining agreements and all employees are covered by confidentiality
agreements. The Company believes that its relationship with its employees is
good.
ITEM 2. FACILITIES.
The Company leases a 37,000 square foot building in Ramsey, New Jersey,
which contains its executive and administrative offices and research
laboratories. The lease, which commenced on November 1, 1993, has a 10-year term
with a cancellation option by Alteon after five years. In addition, the lease
has two five-year renewal options.
22
<PAGE> 25
ITEM 3. LITIGATION.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ National Market
under the symbol "ALTN." The following table sets forth, for the calendar
periods indicated, the range of high and low sale prices for the Common Stock of
the Company on the NASDAQ National Market:
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW
----------------------------------------------------------
<S> <C> <C> <C>
1995 1st $ 7 1/4 $5 1/8
2nd 8 3/8 5 1/4
3rd 15 3/4 7 3/8
4th 16 1/4 7 3/4
1996 1st 15 3/4 9 1/4
2nd 15 5/8 9 5/8
3rd 11 3/8 7 1/4
4th 10 1/4 5 1/4
</TABLE>
As of March 1, 1997, there were 293 holders of record, with beneficial
shareholders in excess of 400.
The Company has neither paid nor declared dividends on its capital
stock since its inception and does not plan to pay dividends in the foreseeable
future. Any earnings which the Company may realize will be returned to finance
the growth of the Company.
The market prices for securities of biotechnology and pharmaceutical
companies, including Alteon, 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. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders and general market conditions can have an adverse effect
on the market price of the Common Stock.
23
<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The selected financial data for
the five years ended December 31, 1996 has been derived from the audited
financial statements of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Investment income............ $ 2,943,721 $ 2,108,183 $ 1,797,032 $ 1,888,496 $ 2,295,394
----------- ----------- ------------ ------------ ------------
Total revenues............... 2,943,721 2,108,183 1,797,032 1,888,496 2,295,394
----------- ----------- ------------ ------------ ------------
Expenses:
Research and development..... 4,290,866 6,719,225 8,573,123 10,004,244 17,494,193
General and administrative... 2,801,607 2,650,974 3,706,137 3,699,210 3,516,599
Interest expense............. 16,607 5,063 42,470 68,435 47,394
----------- ----------- ------------ ------------ ------------
Total expenses............... 7,109,080 9,375,262 12,321,730 13,771,889 21,058,186
----------- ----------- ------------ ------------ ------------
Net loss....................... $(4,165,359) $(7,267,079) $(10,524,698) $(11,883,393) $(18,762,792)
=========== =========== ============ ============ ============
Net loss per share............. $ (.34) $ (.59) $ (.85) $ (.90) $ (1.20)
=========== =========== ============ ============ ============
Weighted average common
shares and common
equivalent shares
outstanding.................. 12,090,759 12,329,196 12,430,798 13,169,968 15,640,399
=========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments....... $58,655,931 $ 49,182,679 $ 36,434,862 $ 45,196,711 $ 34,499,523
Working capital................ 58,593,806 48,787,252 35,539,616 44,433,488 26,542,450
Total assets................... 60,553,607 54,345,639 43,612,027 52,216,243 40,138,993
Long-term capital lease
obligations................. 13,575 6,214 749,888 466,899 161,577
Accumulated deficit............ (4,362,321) (11,629,400) (22,154,098) (34,037,491) (52,800,283)
Stockholders' equity........... 59,690,105 52,499,703 41,214,086 49,715,737 31,371,174
</TABLE>
24
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Since its inception in October 1986, Alteon has devoted substantially
all of its resources to its research, drug discovery and development programs.
To date, Alteon has not generated any revenues from the sale of products and
does not expect to generate any such revenues for several years, if at all.
Alteon has incurred a cumulative net loss of $52,800,000 as of December 31,
1996, and expects to incur operating losses, potentially greater than losses in
prior years, for a number of years.
Alteon has financed its operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, private placements of preferred equity securities, revenue
from its collaborations with HMRI and Yamanouchi, reimbursement of certain of
Alteon's research and development expenses by its collaborative partners and
investment income earned on cash balances and short-term investments.
Effective August 10, 1996, HMRI and Alteon ended their collaboration,
and Alteon regained all rights granted to HMRI covering the Company's technology
and assumed full responsibility for the continuation of clinical trials which
had been funded by HMRI. HMRI's decision to withdraw from the collaboration was
a result of its continuing prioritization of its new product pipeline. The
Company is seeking one or more collaborative partners to replace HMRI. There is
no assurance that the Company will be able to enter into such an agreement or
that if such an agreement is reached, it will provide the level of funding which
had been provided by HMRI.
Although the Company anticipates increased expenditures in research and
development as it develops products and expands its clinical trials, a portion
of such development expenses is expected to be reimbursed by Alteon's
collaborative partners. Yamanouchi has agreed to fund preclinical studies,
including most toxicology studies, on pimagedine and any other products that the
parties jointly agree to develop including a second-generation A.G.E.-formation
inhibitor and a macrophage stimulator. Gamida is conducting, at its own expense,
a Phase II clinical trial in Israel to evaluate pimagedine in patients with
diabetes and elevated serum cholesterol levels. Yamanouchi and Gamida do not
fund Alteon's research or early product development expenses.
See "Business -- Strategic Alliances."
The Company's business is subject to significant risks including, but
not limited to (i) its ability to obtain funding, (ii) the risks inherent in its
research and development efforts, including clinical trials, (iii) uncertainties
associated both with obtaining and enforcing its patents and with the patent
rights of others, (iv) the lengthy, expensive and uncertain process of seeking
regulatory approvals, (v) uncertainties regarding government reforms of product
pricing and reimbursement levels, (vi) technological change and competition,
(vii) manufacturing uncertainties and dependence on third parties. Even if the
Company's product candidates appear promising at an
25
<PAGE> 28
OVERVIEW (CONTINUED)
early stage of development, they may not reach the market for numerous reasons.
Such reasons include the possibilities that the products will be ineffective or
unsafe during clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a large scale, will be
uneconomical to market or will be precluded from commercialization by
proprietary rights of third parties.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES
Total revenues for 1996, 1995 and 1994 were $2,295,000, $1,888,000 and
$1,797,000, respectively. Revenues in 1996, 1995 and 1994 were derived from
interest earned on cash and cash equivalents and short-term investments. The
increase in investment income in 1996 over 1995 was attributed to higher cash
and cash equivalents and short-term investment balances during most of 1996. The
increase in investment income in 1995 over 1994 was attributed to the increase
in cash and cash equivalents and short-term investments primarily related to the
completion of the follow-on offering during the last quarter of 1995. Higher
interest rates were an additional factor during 1995 contributing to the
increase in investment income over 1994.
OPERATING EXPENSES
The Company's total expenses increased to $21,058,000 in 1996, from
$13,772,000 in 1995 and $12,322,000 in 1994, and consisted primarily of research
and development expenses. Research and development expenses, net of
reimbursements from its collaborative partners, were $17,494,000 in 1996,
$10,004,000 in 1995 and $8,573,000 in 1994. Research and development expenses
increased in 1996 from 1995 by $7,490,000, or 74.9%, due to the Company's
assumption of the ACTION trial costs as a result of the termination of the
Company's collaborative agreements with HMRI on August 10, 1996. Research and
development expenses increased in 1995 from 1994 by $1,431,000, or 16.7%, due to
increased clinical research studies and personnel and related costs offset by
reimbursements from the Company's corporate partners. The Company was reimbursed
$1,226,000 in 1996, $1,643,000 in 1995 and $1,065,000 in 1994 by its
collaborative partners for research and development expenditures.
General and administrative expenses were $3,517,000 in 1996 as compared
to $3,699,000 in 1995 and $3,706,000 in 1994. The decrease in 1996 over 1995 was
due to decreased personnel and related costs and decreased depreciation and
amortization expenses.
Interest expense was $47,000 in 1996, $68,000 in 1995 and $42,000 in
1994. The decrease in interest expense was primarily due to a five-year capital
lease arrangement which commenced in June 1994 for leasehold improvements on the
Company's headquarters and research facility.
26
<PAGE> 29
RESULTS OF OPERATIONS (CONTINUED)
NET LOSS
At December 31, 1996, the Company had available net operating tax loss
carryforwards, which expire in various amounts from the years 2006 through 2011,
of approximately $53 million for income tax purposes. In addition, the Company
had research and development credit carryforwards of approximately $2.6 million.
The Company had net losses of $18,763,000 in 1996, $11,883,000 in 1995 and
$10,525,000 in 1994.
The Company does not believe that inflation has had a material impact
on the results of its operations.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash and cash equivalents and short-term investments at
December 31, 1996, of $34,500,000 compared to $45,197,000 at December 31, 1995.
This is a decrease in cash and cash equivalents and short-term investments of
$10,697,000. The primary components of this decrease were cash used in operating
activities of $10,785,000 and $376,000 of capital expenditures. This was offset
by $357,000 provided by financing activities consisting of employee stock option
exercises, a sales-leaseback transaction for lab equipment, the reclassification
of restricted cash of $103,000 and the reversal of unrealized losses of $4,000,
offset by capital lease obligations. As of December 31, 1996, Alteon had
invested $7,507,000 in capital equipment and leasehold improvements, of which a
cumulative $1,375,000 had been funded through capital leases.
As of December 31, 1996, the Company had restricted cash of $723,800,
which represents the escrow amount related to the Company's leased headquarters
and research facility in Ramsey, New Jersey. The Company may reduce the
originally required escrow amount of $1,034,000 by 10% per year.
The Company's cash used in operations was $10,785,000 in 1996 and
$10,993,000 in 1995. Such activity consisted primarily of operating expenses
reduced by investment income. Capital expenditures amounted to $376,000 in 1996
as compared to $361,000 in 1995.
The Company's research and development expenses, to date, have been
funded primarily by research and development collaborative arrangements and
sales of equity securities. The Company expects to incur substantial additional
research and development costs, including costs related to drug discovery,
preclinical research and clinical trials. The Company anticipates that it will
be able to offset a portion of its research and development expenses and its
clinical development expenses with funding from its collaborative partners.
27
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
However, as described above, the Company and one of its collaborative
partners, HMRI, have terminated their collaboration. In addition to the
reimbursement of certain of the Company's research and development expenses,
HMRI had also incurred the significant portion of the expenses of the Company's
clinical trials. The estimated costs of the clinical trials, which is now the
responsibility of the Company, are $1.4 million per month.
Effective November 30, 1996, the Company terminated its funding of
research at The Picower Institute because of Dr. Anthony Cerami's retirement
from The Picower Institute. In light of the number of programs in its existing
pipeline, the Company expects to devote the funds to existing projects.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into the fourth
quarter of 1997. The Company is in discussions with potential private purchasers
of its debt or equity securities to provide additional financing. There can be
no assurance that such additional financing can be obtained.
Future capital requirements will depend on numerous factors, including
the progress of the Company's research and development programs, the conduct of
preclinical tests and clinical trials, the development of regulatory
submissions, the costs associated with protecting patents and other proprietary
rights, the development of marketing and sales capabilities and the availability
of third-party funding.
Because of the Company's long-term capital requirements, it may seek
access to the public or private equity markets whenever conditions are
favorable. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or on terms acceptable to
the Company. If adequate funds are not available, the Company may be required to
curtail significantly one or more of its research or development programs or
obtain funds through arrangements with collaborative partners or others. This
may require the Company to relinquish rights to certain of its technologies or
product candidates.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
28
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8
are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
For information concerning this item, see the information under
"Election of Directors" and "Executive Officers" in the Company's Proxy
Statement to be filed with respect to the Annual Meeting of Shareholders to be
held on June 10, 1997, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see the information under
"Executive Compensation" in the Company's Proxy Statement to be filed with
respect to the Annual Meeting of Shareholders to be held on June 10, 1997, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see the information under
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed with respect to the Annual Meeting of
Shareholders to be held on June 10, 1997, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see the information under
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement to be filed with respect to the Annual Meeting of Shareholders to be
held on June 10, 1997, which information is incorporated herein by reference.
29
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
Reference is made to the Index to Financial Statements and Schedules on
page F-1.
(a)(2) Exhibits.
Reference is made to the Index to Exhibits on page 33.
(b) Reports on Form 8-K.
On December 2, 1996, the Company filed a current report on
Form 8-K, under Item 5 which reported that the Company had
amended the protocol for its ACTION II trial.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 27th day of March,
1997.
Alteon Inc.
By: /s/ James J. Mauzey
---------------------
James J. Mauzey
Chairman of the Board and
Chief Executive Officer
31
<PAGE> 34
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James J. Mauzey Chairman of the Board, Chief Executive Officer March 27, 1997
- ---------------------- and Director (principal executive officer)
James J. Mauzey
/s/ Jere E. Goyan President, Chief Operating Officer and Director March 27, 1997
- ----------------------
Jere E. Goyan
/s/ Kenneth I. Moch Senior Vice President, Finance and Business March 27, 1997
- ---------------------- Development and Chief Financial Officer
Kenneth I. Moch (principal financial officer)
/s/ Elizabeth O'Dell Vice President, Finance and Administration, March 27, 1997
- ---------------------- Treasurer, and Secretary (principal accounting
Elizabeth O'Dell officer)
/s/ Anthony Cerami Director March 27, 1997
- ----------------------
Anthony Cerami
/s/ Marilyn G. Breslow Director March 27, 1997
- ----------------------
Marilyn G. Breslow
/s/ Mark Novitch Director March 27, 1997
- ----------------------
Mark Novitch
/s/ Louis Fernandez Director March 27, 1997
- ----------------------
Louis Fernandez
/s/ Alan J. Dalby Director March 27, 1997
- ----------------------
Alan J. Dalby
/s/ Robert N. Butler Director March 27, 1997
- ----------------------
Robert N. Butler
</TABLE>
32
<PAGE> 35
Form 10-K - Item 14(a) (1)
Alteon Inc.
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
The following financial statements of Alteon Inc. are included in Item 8:
Report of independent public accountants - Arthur Andersen LLP.................. F-2
Financial statements:
Balance sheets as of December 31, 1995 and 1996............................. F-3
Statements of operations for the years ended December 31, 1994, 1995
and 1996.................................................................... F-4
Statements of stockholders' equity for the period from December 31, 1994
to December 31, 1996........................................................ F-5
Statements of cash flows for the years ended December 31, 1994, 1995
and 1996.................................................................... F-6
Notes to financial statements .............................................. F-7--F15
</TABLE>
F-1
<PAGE> 36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alteon Inc.:
We have audited the accompanying balance sheets of Alteon Inc. (a Delaware
corporation) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alteon Inc. as of December 31,
1995 and 1996, and the results of its operations and cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 20, 1997
F-2
<PAGE> 37
ALTEON INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 980,010 $31,497,633
Short-term investments ...................................... 44,216,701 3,001,890
Receivables from corporate partner .......................... 602,999 --
Other current assets ........................................ 667,385 649,169
----------- -----------
Total current assets ..................................... 46,467,095 35,148,692
Property and equipment, net ................................... 4,668,651 3,999,530
Deposits and other assets ..................................... 253,297 266,971
Restricted cash ............................................... 827,200 723,800
----------- -----------
Total assets ............................................... $52,216,243 $40,138,993
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $ 230,953 $ 1,853,400
Accrued expenses ............................................ 1,519,665 6,447,521
Obligations under capital leases ............................ 282,989 305,321
----------- -----------
Total current liabilities ................................ 2,033,607 8,606,242
----------- -----------
Obligations under capital leases .............................. 466,899 161,577
----------- -----------
COMMITMENTS (NOTES 3 AND 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,998,329 shares authorized,
none issued ............................................... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized and 15,387,985 and 15,702,825 shares issued and
outstanding as of December 31, 1995 and 1996,
respectively.............................................. 153,880 157,028
Additional paid-in capital .................................. 83,607,054 84,018,146
Accumulated deficit ......................................... (34,037,491) (52,800,283)
Unrealized losses on short-term investments ................. (7,706) (3,717)
----------- -----------
Total stockholders' equity ............................... 49,715,737 31,371,174
----------- -----------
Total liabilities and stockholders' equity .................... $52,216,243 $40,138,993
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 38
ALTEON INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Investment income ........... $ 1,797,032 $ 1,888,496 $ 2,295,394
Expenses:
Research and development .... 8,573,123 10,004,244 17,494,193
General and administrative .. 3,706,137 3,699,210 3,516,599
Interest .................... 42,470 68,435 47,394
------------ ------------ ------------
Total expenses ........... 12,321,730 13,771,889 21,058,186
------------ ------------ ------------
Net loss ...................... $(10,524,698) $(11,883,393) $(18,762,792)
============ ============ ============
Net loss per share ............ $ (0.85) $ (0.90) $ (1.20)
============ ============ ============
Weighted average common shares 12,430,798 13,169,968 15,640,399
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 39
ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- --------------------------
Shares Amount Shares Amount
------ ------ ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 .............................. . -- $-- 12,401,649 $124,016
Exercise of employee stock options .................. -- -- 91,984 920
Deferred compensation expense in connection
with the issuance of non--qualified
stock options.................................... . -- -- -- --
Unrealized losses ................................... -- -- -- --
Net loss ............................................ -- -- -- --
-- --- ---------- --------
Balance, December 31, 1994 .............................. . -- -- 12,493,633 124,936
Exercise of employee stock options .................. -- -- 594,352 5,944
Change in unrealized losses ......................... . -- -- -- --
Follow--on offering of common stock ................. -- -- 2,300,000 23,000
Net loss ............................................ -- -- -- --
-- --- ---------- --------
Balance, December 31, 1995 .............................. . -- -- 15,387,985 153,880
Exercise of employee stock options .................. . -- -- 314,840 3,148
Deferred compensation expense in connection
with the issuance of non--qualified
stock options.................................... .
Change in unrealized losses ......................... . -- -- -- --
Net loss ............................................ -- -- -- --
-- --- ---------- --------
Balance, December 31, 1996 .............................. -- $-- 15,702,825 $157,028
== === ========== ========
</TABLE>
<TABLE>
<CAPTION>
Additional Losses Total
Paid-in Accumulated on Short-Term Stockholders'
Capital Deficit Investments Equity
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 .............................. 64,005,087 $(11,629,400) -- $ 52,499,703
Exercise of employee stock options .................. 43,045 -- -- 43,965
Deferred compensation expense in connection
with the issuance of non--qualified
stock options.................................... 23,177 -- -- 23,177
Unrealized losses ................................... -- -- (828,061) (828,061)
Net loss ............................................ -- (10,524,698) -- (10,524,698)
---------- ------------ --------- ------------
Balance, December 31, 1994 .............................. 64,071,309 (22,154,098) (828,061) 41,214,086
Exercise of employee stock options .................. 524,208 -- -- 530,152
Change in unrealized losses ......................... -- -- 820,355 820,355
Follow--on offering of common stock ................. 19,011,537 -- -- 19,034,537
Net loss ............................................ -- (11,883,393) -- (11,883,393)
---------- ------------ --------- ------------
Balance, December 31, 1995 .............................. 83,607,054 (34,037,491) (7,706) 49,715,737
Exercise of employee stock options .................. 381,560 -- -- 384,708
Deferred compensation expense in connection
with the issuance of non--qualified
stock options.................................... -- -- 29,532 29,532
Change in unrealized losses ......................... -- -- 3,989 3,989
Net loss ............................................ -- (18,762,792) -- (18,762,792)
---------- ------------ --------- ------------
Balance, December 31, 1996 .............................. 84,018,146 $(52,800,283) $ (3,717) $ 31,371,174
========== ============ ========= ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 40
ALTEON INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss .................................................................. $(10,524,698) $ (11,883,393) $(18,762,792)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ....................................... 770,553 861,159 790,770
Amortization of deferred compensation ............................... 23,177 -- 29,532
Changes in operating assets and liabilities:
Receivables from corporate partner ............................... (187,536) (345,364) 602,999
Other current assets ............................................. 879,025 (172,213) 18,216
Other assets ..................................................... 134,494 175,239 (13,674)
Accounts payable and accrued expenses ............................ (452,698) 371,068 6,550,303
------------ ------------- ------------
Net cash used in operating activities ............................ (9,357,683) (10,993,504) (10,784,646)
------------ ------------- ------------
Cash Flows from Investing Activities:
Capital expenditures ...................................................... (3,701,313) (361,188) (376,624)
Purchases of marketable securities ........................................ (40,135,194) (110,536,398) (91,073,563)
Sales and maturities of marketable securities ............................. 54,291,695 100,525,658 132,292,363
Restricted cash ........................................................... 90,572 -- 103,400
------------ ------------- ------------
Net cash provided by (used in) investing activities .............. 10,545,760 (10,371,928) 40,945,576
------------ ------------- ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock .................................... 43,965 19,564,689 384,708
Payments under capital lease obligations .................................. (131,334) (268,503) (282,990)
Proceeds from sales-leaseback financing ................................... 1,136,037 -- 254,975
------------ ------------- ------------
Net cash provided by financing activities ........................ 1,048,668 19,296,186 356,693
------------ ------------- ------------
Net (decrease)/increase in cash and cash equivalents ........................ 2,236,745 (2,069,246) 30,517,623
Cash and cash equivalents, beginning of period .............................. 812,511 3,049,256 980,010
------------ ------------- ------------
Cash and cash equivalents, end of period .................................... $ 3,049,256 $ 980,010 $ 31,497,633
============ ============= ============
Supplemental disclosures of cash flow information:
Cash paid for interest ........................................... $ 42,470 $ 68,435 $ 47,394
============ ============= ============
Leasehold improvements acquired under capital
lease obligations ........................................... $ 1,136,037 $ -- $ --
============ ============= =============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Alteon Inc. (the "Company") was founded in 1986 and is engaged in the
discovery and development of novel therapeutic and diagnostic products to treat
the complications of diabetes and age- related diseases. The company's products
are designed to inhibit, measure and reverse damage to cells, tissues and organs
caused by advanced glycosylation end-product ("A.G.E.") formation and
cross-linking resulting from glucose in the body's circulatory system. Since its
inception, the Company has recognized $17,000,000 of revenues from corporate
partners related to collaborative arrangements. All of the Company's products
are in research or development, and no revenues have been generated from product
sales. The Company is conducting four human clinical trials evaluating its lead
compound, pimagedine, as a treatment for the complications of diabetes,
including two pivotal Phase III clinical trials for diabetic kidney disease.
Operations of the Company are subject to certain risks and
uncertainties including, but not limited to, uncertainties related to clinical
trials, technological uncertainty, uncertainty of future profitability and
access to capital, and dependence on collaborative relationships and key
personnel.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments
which have a maturity of less than three months at the time of purchase.
Investments are recorded at fair market value and consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
---- ----
<S> <C> <C>
U.S. Government Agency Funds $33,535,861 $3,001,890
Corporate Obligations 10,680,840 --
----------- ----------
$44,216,701 $3,001,890
=========== ==========
</TABLE>
F-7
<PAGE> 42
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
These amounts represent market value which was lower than amortized
cost at December 31, 1995 and higher than amortized cost at December 31, 1996.
The amortized cost of these short-term investments was $44,224,407 and
$2,998,733 at December 31, 1995 and 1996, respectively.
The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," (SFAS
115) effective January 1, 1994. As permitted by the statement, the Company did
not retroactively restate prior years' financial statements. This statement
requires the Company to classify its investment securities as (1) held for
investment purposes (held to maturity), (2) available for sale and (3) held for
trading purposes. Unrealized gains and losses of available for sale securities
are charged directly to stockholders' equity, whereas unrealized gains and
losses of trading securities are charged to the statement of operations. At
December 31, 1996, all of the Company's short-term investments were classified
as available for sale.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the useful lives
of owned assets which range from three to five years. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the shorter of the lease term or the useful life of the assets.
Patent Costs
Patent costs are expensed as incurred.
Research and Development
Expenditures for research and development are charged to operations as
incurred. Research and development expenditures were $9,638,210, $11,647,677 and
$18,719,951 for the years ended December 31, 1994, 1995 and 1996, respectively.
Expenditures were reduced by reimbursements from corporate partners in these
periods of $1,065,087 and $1,643,433 and $1,225,758, respectively. (See Note 3.)
Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares and common stock equivalents, as applicable, outstanding during
the period. Common stock equivalents are excluded from the computation of loss
per share since their inclusion would be antidilutive.
New Accounting Pronouncements
The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" for the year ending December 31, 1996. (See Note 6.)
F-8
<PAGE> 43
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996
---- ----
<S> <C> <C>
Laboratory equipment .......................................... $ 1,348,593 $ 1,336,211
Furniture and equipment ....................................... 701,322 710,149
Computer equipment ............................................ 495,180 552,255
Leasehold improvements ........................................ 4,883,745 4,908,545
----------- -----------
7,428,840 7,507,160
Less: Accumulated depreciation and amortization .............. (2,760,189) (3,507,630)
----------- -----------
$ 4,668,651 $ 3,999,530
=========== ===========
</TABLE>
Laboratory equipment and furniture include approximately $1,395,000 and
$1,375,000 under capital leases at December 31, 1995 and 1996. Accumulated
amortization relating to leased assets totaled approximately $450,000 and
$550,000 at December 31, 1995 and 1996, respectively. (See Note 5.)
NOTE 3 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
The Company and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi")
entered into a series of agreements pursuant to which the parties formed a
strategic alliance to develop and commercialize the Company's A.G.E. technology.
Under this arrangement, the parties agreed to collaborate on further research
and development, and the Company granted to Yamanouchi an exclusive license to
commercialize the Company's technology in Japan, South Korea, Taiwan and The
People's Republic of China. Yamanouchi paid the Company a non-refundable amount
of $7,000,000 in July 1989, in consideration for the Company's past costs and
efforts in the research and technology associated with the licensing
arrangement. In addition, Yamanouchi purchased 233,531 shares of Alteon's
Preferred Stock for $3,000,000, which was converted into 784,665 shares of
Common Stock in 1991, upon Alteon's initial public offering of its Common Stock.
In December 1990, the Company and Marion Merrell Dow, Inc., which was
subsequently acquired by an affiliate of Hoechst AG and renamed Hoechst Marion
Roussel, Inc. ("HMRI"), formed a strategic alliance to develop and commercialize
the Company's A.G.E. technology for therapeutics in the areas of diabetic and
aging complications. The arrangements included a research and development
collaboration to conduct clinical trials jointly, including funding by HMRI of
trials on pimagedine, an agreement for the joint promotion and sale in the
United States, Canada and Western Europe of drugs developed pursuant to the
collaboration, and a manufacturing and supply agreement. In 1996, HMRI ended the
collaboration as a result of HMRI's continuing prioritization of its new product
pipeline, and the Company regained all rights granted to HMRI covering the
Company's technology.
F-9
<PAGE> 44
NOTE 3 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
As a result of the termination of the strategic alliance with HMRI, the
Company has assumed full responsibility for the continuation of clinical trials
which had been funded by HMRI. The estimated costs of the clinical trials are
$1.4 million per month. The Company and HMRI are negotiating various open issues
arising from the termination of their collaboration. This includes the rights of
the parties under certain patents and amounts which may be payable by the
Company to HMRI and by HMRI to the Company. HMRI has invoiced the Company
certain amounts which the Company believes are without merit.
The Company is seeking one or more collaborative partners to replace
HMRI. However, there is no assurance that the Company will be able to enter into
an agreement with a new partner or that if such an agreement is reached, it will
provide the level of funding which had been provided by HMRI.
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida for Life ("Gamida"), formerly Eryphile BV.
Under these agreements, Gamida is conducting, at its own expense, a Phase II
multi-site clinical trial in Israel, in accordance with the protocol developed
by Alteon, to evaluate pimagedine in patients with diabetes and elevated serum
cholesterol levels. Gamida will receive the exclusive right to distribute
pimagedine, if successfully developed and approved for marketing, in Israel,
Bulgaria, Cyprus, Jordan and South Africa. The distribution agreement is for a
term ending 10 years after the date of regulatory approval for the sale of
pimagedine in Israel; thereafter, it will be automatically renewed for
successive three-year periods unless terminated by either party on the last day
of the initial or a renewal term.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In September 1991, the Company entered into a five-year agreement with The
Picower Institute for Medical Research ("The Picower Institute"), a newly
formed, not-for-profit biomedical institution of which Dr. Anthony Cerami, a
member of the Company's Board of Directors and Chairman of the Company's
Scientific Advisory Board, was then the President. (See Note 8.)
Under the agreement, the Company received an exclusive, worldwide license for
all commercial healthcare applications of A.G.E.-related inventions resulting
from The Picower Institute research programs conducted during the term of the
agreement. The Company will be required to pay The Picower Institute a royalty
on all net sales and other revenues of any product utilizing the licensed
technology.
Effective November 30, 1996, the Company terminated its funding of
further research at The Picower Institute because of Dr. Cerami's retirement
from The Picower Institute. The Company expects to devote the funds previously
targeted for The Picower Institute to its existing projects.
F-10
<PAGE> 45
NOTE 3 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
Pursuant to an agreement with The Rockefeller University ("Rockefeller
University"), the Company has the entire, exclusive, worldwide and perpetual
rights to the technology and inventions relating to A.G.E.'s and protein
cross-linking, including those relating to the complications of diabetes and
aging, discovered by Dr. Cerami and his colleagues during their tenure at
Rockefeller University's Laboratory of Medical Biochemistry. Although the
Company has ended its scientific collaboration with Rockefeller University on
this technology, the Company continues to contribute to the cost of patent
maintenance. In this regard, the Company has provided funding of $235,000,
$167,000 and $86,000 in 1994, 1995 and 1996, respectively.
In February 1995, the Company exercised an option it held pursuant to
an Option and License Agreement dated March 31, 1994, with Rockefeller
University to acquire rights for a new technology unrelated to the A.G.E.
mechanism, focused on novel synthetic analogs of the hormone glucagon. Effective
February 1997, the Company elected to terminate this Agreement. As a result of
the termination, all of Alteon's rights under the license agreement reverted
back to Rockefeller University.
In December 1994, the Company entered into an exclusive licensing
arrangement for Alteon's diagnostic technology with Corange International
Limited, acting through its subsidiary Boehringer Mannheim Diagnostics
("Boehringer Mannheim"). Under the agreement, Boehringer Mannheim will receive
exclusive worldwide rights to Alteon's technology for diagnostics application,
subject to an option held by Yamanouchi for Japan, South Korea, Taiwan and The
People's Republic of China. Yamanouchi is Alteon's exclusive licensee for its
A.G.E. technology in the aforementioned countries. Pursuant to the agreement,
Alteon received an initial payment in January 1995, and will be entitled to
receive ongoing royalties based on net sales of research test kits and
commercial assays developed by Boehringer Mannheim which are based on Alteon's
A.G.E. technology.
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of pimagedine as an inhibitor of inducible nitric oxide synthase. The agreement
requires the Company to pay certain licensing fees upon the attainment of
development milestones as well as a royalty on net sales or a share of
sub-licensing profits of products covered by the patents. The license also
covers patents developed through any subsequent research collaboration between
the parties which is funded by Alteon.
The Company has also entered into various arrangements with independent
research laboratories to conduct studies in conjunction with the development of
the Company's technology. The Company receives certain rights to inventions or
discoveries that may arise from this research.
F-11
<PAGE> 46
NOTE 4 -- ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Accrued clinical trial expense... $ -- $4,422,428
Accrued consultants/contract..... 601,851 929,510
Accrued patent................... 43,492 40,770
Accrued professional............. 164,504 184,130
Accrued relocation............... 69,203 58,578
Accrued rent..................... 366,940 375,235
Other............................ 273,675 436,870
---------- ----------
$1,519,665 $6,447,521
========== ==========
</TABLE>
The Company's headquarters and research facility rent is being expensed on
a straight-line basis over the ten-year lease period. (See Note 5.)
NOTE 5 -- LEASES
The Company leases its headquarters and research facility and related
equipment and furniture under non-cancelable capital and operating leases. As of
December 31, 1996, future net minimum lease payments under capital leases and
future minimum rentals under operating leases that have initial or remaining
non-cancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
--------- ----------
<S> <C> <C>
1997 .......................................... $ 330,382 $ 806,943
1998 .......................................... 165,191 649,512
1999 .......................................... -- 599,284
2000 .......................................... -- 557,781
2001 .......................................... -- 536,500
Thereafter .................................... -- 983,584
--------- ----------
$ 495,573 $4,133,604
==========
Less: imputed interest ....................... (28,675)
---------
Present value of minimum lease payments ....... 466,898
Less: Current portion ........................ (305,321)
---------
$ 161,577
=========
</TABLE>
In 1994, the Company entered into a sales-leaseback transaction for
certain headquarters and research facility assets (principally, leasehold
improvements) generating proceeds of $1,136,037. The related lease was accounted
for as a capital lease payable over four years with 7.6% interest.
F-12
<PAGE> 47
NOTE 5 -- LEASES (CONTINUED)
Rent expense for each of the years in the three-year period ended
December 31, 1996, was $594,593, $563,721 and $570,612, respectively. As of
December 31, 1996, the Company has restricted cash of $723,800 which represents
the escrow amount related to the Company's leased headquarters and research
facility. The Company may reduce the originally required escrow amount of
$1,034,000 by 10% per year.
NOTE 6 -- STOCKHOLDERS' EQUITY
Common Stock
On November 1, 1991, the Company completed an initial public offering
of Common Stock with net proceeds to the Company of $47,406,581. In conjunction
with the offering, all of the then outstanding shares of Preferred Stock were
converted into 6,725,627 shares of Common Stock.
In October and November 1995, the Company completed a follow-on
offering of Common Stock, which included the sale of 2,000,000 shares and
300,000 shares, respectively, at a price of $9.00 per share which provided net
proceeds to the Company of $19,035,000.
Stock Option Plan
The Company has established two stock option plans for its employees,
officers, directors, consultants and independent contractors. Options to
purchase up to 4,192,000 shares of Common Stock may be granted under the first
plan ("1987 Plan"). In 1995, a second stock option plan ("1995 Plan") was
approved which authorized additional options to purchase 1,000,000 shares of
Common Stock.
The plans are administered by a committee of the Board of Directors,
which may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10 years
from date of grant. Each option entitles the holder to purchase one share of
Common Stock at the indicated exercise price. The plans also provide for certain
antidilution and change in control rights, as defined.
F-13
<PAGE> 48
NOTE 6 -- STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the activity in the Company's stock
options:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Exercise Price
Options Per Share Per Share
------- -------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1993........... 2,520,351
Granted............................. 1,057,100 $4.35 - 9.50
Exercised........................... (91,984) 0.30 - 0.89
Canceled............................ (69,804) 0.89 - 13.75
---------
Balance, December 31, 1994........... 3,415,663
Granted............................. 387,729 6.88 - 14.13 $7.68
Exercised........................... (594,352) .30 - 8.25 .90
Canceled............................ (104,409) 4.36 - 15.00 9.66
--------- -----
Balance, December 31, 1995........... 3,104,631 5.88
Granted............................. 418,083 1.00 - 15.00 6.83
Exercised........................... (314,840) 0.30 - 10.25 1.22
Canceled............................ (47,079) 4.36 - 15.00 8.16
-------- -----
Balance, December 31, 1995 3,160,795 $6.44
=========
</TABLE>
At December 31, 1996, 1,926,734 options were exercisable at a weighted
average price of $5.23 per share, and 584,807 shares were available for future
grants. The weighted average fair value of the options granted was $4.13 and
$4.25 during 1996 and 1995, respectively. The outstanding stock options at
December 31, 1996 have a weighted average remaining contractual life of 6.42
years. Included in options at December 31, 1996, are 455,004 options granted to
certain executives with option prices ranging from $5.375 per share to $14.125
per share. Such options vest upon the earlier of 10 years after grant or upon
achievement of certain Company milestones.
The Company accounts for the 1987 and 1995 Stock Option Plans under APB
Opinion No. 25, under which no compensation cost (excluding those options
granted below fair market value) has been recognized. Had compensation costs for
these plans been determined consistent with FASB Statement No. 123, the
Company's pro forma net loss and loss per share for 1995 would have been $12.6
million and $0.95, respectively. In 1996, the Company's pro forma net loss and
loss per share would have been $19.4 million and $1.24, respectively. Because
the FASB Statement No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Under the FASB Statement No. 123, the fair value of each stock option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants in 1995 and 1996,
respectively: risk free interest rates ranging from 5.31% to 7.10% and 5.38% to
6.64%; expected life of 2.02 years over the vesting periods; and expected
volatility of 70%.
F-14
<PAGE> 49
NOTE 7 -- SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement plan under Section
401(k) of the Internal Revenue Code which allows eligible employees to annually
contribute a portion of their annual salary to the plan. The Company may make
discretionary contributions. To date, the Company has not made any
contributions.
NOTE 8 -- OTHER RELATED PARTY TRANSACTIONS
The Chairman of the Company's Scientific Advisory Board, who also
serves as a member of the Company's Board of Directors (See Note 3), and three
other Scientific Advisory Board members provide consulting services to the
Company. Consulting fees paid to these members totaled $190,000 in 1994 and
$178,000 in both 1995 and 1996.
In 1993, a Company officer received a loan which bore interest at a
rate equal to the prime rate, adjusted quarterly, for the purpose of purchasing
a home. The principal amount of the loan together with the interest is included
in deposits and other assets. The loan and related interest are payable at the
end of five years or upon termination of employment. The loan and accrued
interest balance was $221,033, $241,173 and $261,946 as of December 31, 1994,
1995 and 1996, respectively.
NOTE 9 -- INCOME TAXES
At December 31, 1996, the Company had available net operating tax loss
carryforwards, which expire in the years 2006 through 2011, of approximately $53
million for income tax purposes. In addition, the Company has research and
development credit carryforwards of approximately $2.6 million.
The Company accounts for income tax in accordance with Statement of
Financial Accounting Standards No. 109. The components of the deferred tax
assets and the valuation allowance are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
------------ ------------
<S> <C> <C>
NOL carryforwards................. $ 13,000,000 $ 21,000,000
Research and development credit... 2,300,000 2,600,000
Other temporary differences....... 800,000 960,000
------------ ------------
Gross deferred tax assets......... 16,100,000 24,560,000
Valuation allowance............... (16,100,000) (24,560,000)
------------ ------------
Net-deferred tax assets........... $ -- $ --
============ ============
</TABLE>
A valuation allowance was established since the realization of the
deferred tax assets is uncertain.
F-15
<PAGE> 50
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Restated Certificate of Incorporation. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1
(File Number 33-42574) which became effective on November 1, 1991).
3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F Preferred
Stock of the Company. (Incorporated by reference to Exhibit 4.2 to
the Company's Current Report on Form 8-K filed on August 4, 1995).
3.3 By-laws, as amended. (Incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K filed on April 22, 1996).
4.1 Stockholders' Rights Agreement dated as of July 27, 1995, between
Alteon Inc. and Registrar and Transfer Company, as Rights Agent.
(Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on August 4, 1995).
10.1 Amended and Restated 1987 Stock Option Plan.
10.2 Amended 1995 Stock Option Plan.
10.3 Form of Employee's or Consultant's Invention Assignment,
Confidential Information and Non-Competition Agreement executed by
all key employees and consultants as employed or retained from time
to time. (Incorporated by Reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which
became effective on November 1, 1991).
10.4 Amendment and Assignment of Research and Option Agreement dated as
of September 25, 1987, among Telos, The Rockefeller, the Company and
Anthony Cerami. (Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (File Number 33-42574)
which became effective on November 1, 1991).
10.5 License Agreement dated as of September 25, 1987, among Telos,
Applied Immune Sciences, Inc., the Company and The Rockefeller as
amended by letter agreement dated September 25, 1987 and letter
agreement dated August 15, 1991. (Incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1
(File Number 33-42574) which became effective on
33
<PAGE> 51
November 1, 1991).
10.6 Consulting Agreement dated April 1, 1989, as modified October 1,
1989, between the Company and Eli A. Friedman, M.D. (Incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (File Number 33-42574) which became effective on
November 1, 1991).
10.7 Stock Purchase Agreement dated as of June 16, 1989, between the
Company and Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi").
(Incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which
became effective on November 1, 1991).
10.8* License Agreement dated as of June 16, 1989, between the Company and
Yamanouchi. (Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (File Number 33-42574)
which became effective on November 1, 1991).
10.9* Research and Development Collaboration Agreement dated as of June
16, 1989, between the Company and Yamanouchi. (Incorporated by
reference to Exhibit 10.18 to the Company's Registration Statement
on Form S-1 (File Number 33-42574) which became effective on
November 1, 1991).
10.10 Letter Agreement dated June 21, 1989 between the Company and
Yamanouchi. (Incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-1 (File Number 33-42574)
which became effective on November 1, 1991).
10.11 Consulting Agreement dated April 2, 1990, between the Company and
Michael Brownlee. (Incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (File Number 33-42574)
which became effective on November 1, 1991).
10.12 Consulting Agreement dated September 1, 1991 between the Company and
Anthony Cerami, Ph.D. (Incorporated by reference to Exhibit 10.27 to
the Company's Registration Statement on Form S-1 (File Number
33-42574) which became effective on November 1, 1991).
10.13* Research and License Agreement dated as of September 5, 1991 between
the Company and The Picower Institute for Medical Research.
(Incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which
became effective on November 1, 1991).
10.14 Amendment dated as of September 17, 1992 to the Research and
Development Collaboration Agreement dated as of June 16, 1989,
between the Company and
34
<PAGE> 52
Yamanouchi. (Incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992).
10.15 Lease Agreement dated January 11, 1993 between Ramsey Associates and
the Company. (Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992).
10.16 Employment Agreement dated July 13, 1993, between the Company and
Jere E. Goyan. (Incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).
10.17 Employment Agreement dated as of February 28, 1994, between the
Company and James J. Mauzey. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on March 9,
1994).
10.18 Lease Agreement dated June 30, 1994, between the Company and
Comdisco, Inc. (Incorporated by reference to Exhibit 10.35 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.19 Lease Agreement dated June 6, 1994, between the Company and
Financing for Science International, Inc. (Incorporated by reference
to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.20* License Agreement, dated as of December 30, 1994, between the
Company and Corange International Limited. (Incorporated by
reference to Exhibit 10.38 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.21 Employment Agreement dated as of January 17, 1995, between the
Company and Veronica Mallon. (Incorporated by reference to Exhibit
10.39 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.22 Employment Agreement dated as of February 27, 1995, between the
Company and Kenneth I. Moch. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on March 20,
1995).
10.23 Employment Agreement dated as of March 27, 1995, between the Company
and Kenneth Cartwright. (Incorporated by reference to Exhibit 10.37
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
10.24* Research Collaboration and License Agreement dated as of June 2,
1995 between Washington University and the Company. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed on August 11, 1995).
10.25 Distribution Agreement dated September 25, 1995 between the Company
and
35
<PAGE> 53
Eryphile BV. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on November 24, 1995).
10.26 Clinical Testing Agreement dated September 25, 1995 between the
Company and Eryphile BV. (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K filed on November 24,
1995).
10.27 Employment Agreement dated as of October 21, 1995 between the
Company and Elizabeth O'Dell. (Incorporated by reference to Exhibit
10.42 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.28 Alteon Inc. Change in Control Severance Benefits Plan. (Incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on March 13, 1996).
10.29 Letter Agreement dated July 10, 1996 between the Company and Jere E.
Goyan amending Employment Agreement dated July 13, 1993.
10.30 Letter Agreement dated January 17, 1997 between the Company and
Veronica Mallon amending Employment Agreement dated January 17,
1995.
10.31 Letter Agreement dated January 29, 1997 between the Company and
Kenneth Cartwright amending Employment Agreement dated March 27,
1995.
10.32 Letter Agreement dated January 29, 1997 between the Company and
Elizabeth A. O'Dell amending Employment Agreement dated October 21,
1995.
10.33 Letter Agreement dated January 30, 1997 between the Company and
James J. Mauzey amending Employment Agreement dated February 28,
1994.
10.34 Letter Agreement dated March 27, 1997 between the Company and
Kenneth Cartwright amending Employment Agreement dated March 27,
1995, as amended.
10.35** Clinical Services Agreement dated as of August 11, 1996 between the
Company and Quintiles, Inc.
27 Financial Data Schedule
- ---------------
* Confidentiality has been granted for a portion of this exhibit
** Confidential treatment has been requested for a portion of this exhibit
36
<PAGE> 1
EXHIBIT 10.1
ALTEON INC.
AMENDED AND RESTATED
1987 STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan (this "Plan") was established to
provide incentives for selected persons to promote the financial success and
progress of Alteon Inc. (the "Company") by granting such persons options to
purchase shares of stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan became effective on
December 10, 1987, the date that it was adopted by the Board of Directors (the
"Board") of the Company. This Plan was approved by the shareholders of the
Company within twelve months before or after the date this Plan was adopted by
the Board. This Plan was amended by the shareholders of the Company, to increase
the maximum number of shares that may be granted pursuant to this Plan, on June
15, 1988, June 23, 1989, December 12, 1990 and June 19, 1991. This Plan was
amended and restated on March 1, 1994 to (i) increase the maximum number of
shares that may be granted pursuant to this Plan, and (ii) provide for the
issuance of options hereunder in compliance with Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, or any successor thereto ("Rule
16b-3"). The increase in the maximum number of shares was approved by the
shareholders of the Company on June 7, 1994. This Plan was further amended by
the Board on June 7, 1994 to allow for limited transferability of options and
for the
<PAGE> 2
issuance of options to certain eligible parties at an exercise price not less
than 85% of the fair market value of the underlying shares and on December 17,
1996 to provide for the issuance of options hereunder in compliance with Rule
16b-3, as amended.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") (or
Section 422A with respect to Options issued before such Section's termination),
or (b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 4,192,000 Shares. Such number of
Shares shall be subject to adjustment as provided in this Plan. If any Option is
terminated in whole or in part for any reason without being exercised in whole
or in part, the Shares thereby released from such Option shall be available for
purchase under other Options subsequently granted under this Plan. At all times
during the term of this Plan, the Company shall reserve and keep available such
number of Shares as shall be required to satisfy the requirements of outstanding
Options under this Plan.
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<PAGE> 3
5. ADMINISTRATION OF THE PLAN: EMPLOYEES, OFFICERS, CONSULTANTS AND
INDEPENDENT CONTRACTORS.
(a) Procedure.
(i) Administration With Respect to Directors and
Officers. With respect to grants of Options to employees who are also officers
or directors of the Company, this Plan shall be administered, and grants of
Options shall be approved, by (A) the Board or (B) a committee comprised of
directors of the Company designated by the Board to administer this Plan (a
"Committee" is hereinafter defined as any committee appointed by the Board in
accordance with this Section), which Committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration of
stock option plans, if any, of Delaware corporate and securities laws, and of
the Code (the "Applicable Laws") and in such a manner as to permit transactions
under the Plan to qualify for exemption from the provisions of Section 16(b) of
the Exchange Act pursuant to Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer this
Plan.
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<PAGE> 4
(ii) Multiple Administrative Bodies. This Plan may be
administered by different bodies with respect to directors, non-director
officers and employees, consultants and independent contractors who are neither
directors nor officers.
(iii) Administration With Respect to Consultants,
Independent Contractors and Other Employees. With respect to grants of Options
to employees, consultants or independent contractors who are neither directors
nor officers of the Company, this Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time, the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer this Plan, all to the extent permitted by the Applicable Laws.
(b) Additional Powers of the Board or Committee. Except as
provided in Section 6 with respect to Options granted to directors of the
Company who are not compensated as employees or consultants ("Non-Compensated
Directors"), in addition to those powers otherwise conferred upon the Board or
Committee by this Plan, and subject to the provisions of this Plan and in the
case of
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<PAGE> 5
a Committee, the specific duties delegated by the Board to such Committee, the
Board or the Committee appointed pursuant to this Section (the "Administrator")
shall have the authority, in its discretion:
(i) to determine the fair market value of the Shares,
in accordance with the following: (A) If the Shares are listed on the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System the option price of such Option shall be the fair
market value of the Common Stock of the Company on the date of grant which shall
be equal to the NASDAQ-quoted closing price of the common stock on the date of
grant, except that if the common stock did not trade on the date of grant, then
the option price shall be equal to the NASDAQ-quoted closing price on the last
business day prior to the date of grant on which the common stock traded; or (B)
In the absence of an established market for the Shares, the fair market value
thereof shall be determined in good faith by the Board.
(ii) to determine whether and to what extent Options
are granted hereunder;
(iii) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Option granted hereunder
(including, but not limited to, the share price, transferability, and any
restriction or limitation or waiver of forfeiture restrictions regarding any
Option and/or Shares relating thereto, based in each case on such factors as the
Administrator shall determine, in its sole discretion);
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<PAGE> 6
(iv) to determine whether and under what
circumstances the Administrator may offer to buy out, for a payment in cash or
Shares, an Option previously granted, based on such terms and conditions as the
Committee shall establish and to communicate to the Optionee at the time that
such offer is made;
(v) to determine whether, to what extent and under
what circumstances Shares and other amounts payable with respect to an Option
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount, if any, of any
deemed earnings on any deferred amount during any deferral period); and
(vi) to reduce the exercise price of any Option to
any then permissible exercise price if such permissible exercise price is lower
than the exercise price determined on the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
6. FORMULA AWARDS: NON-COMPENSATED DIRECTORS.
(a) Date of Grant and Number of Shares. With respect to grants
of Options to Non-Compensated Directors, NQSOs in the amount of 33,600 Shares
shall be made to each Non-Compensated Director on the date of such
Non-Compensated Director's election or reelection to the Board. If a
Non-Compensated Director to whom NQSO's are to be granted pursuant to this
Section is serving on the Board at the
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<PAGE> 7
time of such election or reelection by virtue of having been appointed to the
Board to fill a vacancy or newly created directorship, the number of shares
subject to the NQSO's to be granted pursuant to this Section shall be reduced by
a number equal to 33,600 minus the product of (i) 933 and (ii) the number of
full months during which such Non-Compensated Director has served as a director.
For purposes of the preceding sentence, a month shall mean a period of 30
consecutive days.
(b) Exercise Period and Price. Options granted to
Non-Compensated Directors shall vest in equal annual installments over the three
year period of such Non-Compensated Director's term as director such that
one-third (or 11,200 Shares) shall vest on the first anniversary of such
Non-Compensated Director's election to the Board, an additional one-third shall
vest on the second anniversary of such Non-Compensated Director's election to
the Board, and the entire Option shall become vested on the third anniversary of
such Non-Compensated Director's election to the Board. An Option granted
pursuant to this Section shall be exercisable for a period of ten years from the
date of grant at the fair market value as of the date of grant, regardless of
whether any such Non-Compensated Director later ceases to be affiliated with the
Company; provided, however, in the case of an Option granted to an
Non-Compensated Director who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any
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<PAGE> 8
Parent or Subsidiary, the term of the Option shall be five years from the date
of grant thereof.
(c) Fair Market Value. For the purposes of this Section, the
fair market value of the Shares shall be determined as follows: (i) If the
Shares are listed on NASDAQ the option price of such Option shall be the fair
market value of the Common Stock of the Company on the date of grant which shall
be equal to the NASDAQ-quoted closing price of the common stock on the date of
grant, except that if the common stock did not trade on the date of grant, then
the option price shall be equal to the NASDAQ-quoted closing price on the last
business day prior to the date of grant on which the common stock traded; or
(ii) In the absence of an established market for the Shares, the fair market
value thereof shall be determined in good faith by the Board.
7. ELIGIBILITY. Options may be granted only to such employees,
officers, directors, consultants and independent contractors of the Company or
any Parent, Subsidiary or Affiliate of the Company (as defined below) as the
Administrator shall select from time to time in its sole discretion
("Optionees"), provided that only employees of the Company or a Parent or
Subsidiary of the Company shall be eligible to receive ISOs; provided, further
that Non-Compensated Directors may be granted Options only as set forth in
Section 6 above. An Optionee may be granted more than one Option under this
Plan. As used in this Plan, the following terms shall have the following
meanings:
8
<PAGE> 9
(a) "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with another corporation, where "control" (including the
terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
8. TERMS AND CONDITIONS OF OPTIONS. Except as provided in Section 6
with respect to Options granted to Non-Compensated Directors, the Administrator
shall determine whether each Option is to be an ISO or an NQSO, the number of
Shares for which the Option shall be granted, the exercise price of the Option,
the periods
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<PAGE> 10
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Administrator shall from time to
time approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Exercise Price. The exercise price of a NQSO granted to
eligible parties other than officers, directors and persons owning more than 10%
of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company (a "Ten Percent Shareholder") shall be not
less than 85% of the fair market value of the Shares at the time that the Option
is granted, as determined by the Administrator in good faith. The exercise price
of (i) an ISO or (ii) a NQSO granted to an officer or director of the Company
shall be not less than the fair market value of the Shares, at the time that the
Option is granted, as determined by the Administrator in good faith. The
exercise price of any Option granted to a Ten Percent Shareholder shall not be
less than 110% of the fair market value of the Shares at the time of the Grant,
as determined by the Administrator in good faith.
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<PAGE> 11
(c) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Administrator as set forth in the
Grant provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the Option is granted, and provided
further that no Option granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five years from the date the Option is granted.
(d) Limitations on ISOs. The aggregate fair market value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an optionee during any calendar year
under this Plan or under any other incentive stock option plan of the Company
(or any Parent or Subsidiary of the Company) shall not exceed $100,000.
(e) Date of Grant. The date of grant of an Option shall be the
date on which the Administrator makes the determination to grant such Option
unless otherwise specified by the Administrator. The Grant representing the
Option shall be delivered to the Optionee within a reasonable time after the
granting of the Option.
(f) Rule 16b-3. Shares acquired pursuant to Options granted to
persons subject to Section 16(b) of the Exchange Act shall not be sold or
otherwise disposed of for a period of six (6) months following the date of the
Grant. Grants of options to persons subject to Section 16(b) of the Exchange Act
must qualify for exemption from Section 16(b) of the Exchange Act pursuant to
Rule 16b-3. Options granted to such persons shall contain such additional
conditions or restrictions as may be required thereunder
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<PAGE> 12
to qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
9. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Administrator, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made (i) in cash
(by check), (ii) by surrender of shares of common stock of the Company having a
fair market value equal to the exercise price of the Option; or (iii) by any
combination of the foregoing where approved by the Administrator in its sole
discretion.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
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<PAGE> 13
(i) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise.
(ii) The Administrator may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then exercisable.
10. TRANSFERABILITY OF OPTIONS. Except as otherwise provided in this
Section 10, Options may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution, and, during the lifetime of the Optionee, shall be
exercisable only by the Optionee. If the Administrator so determines, NQSO's may
be transferable to (A) the Optionee's spouse, parents, siblings, children or
grandchildren (including stepparents, stepsiblings, stepchildren, and
stepgrandchildren), (B) trusts for the benefit of the Optionee and/or such
family members, and (C) partnerships whose only partners are the Optionee and/or
such family members, provided that (i) no consideration is paid for such
transfer, (ii) the terms and conditions of the Option which are applicable to
the Optionee prior to the transfer of the Option shall continue to apply to the
transferee; and (iii) the Grant pertaining to the Option shall set forth the
applicable transfer restrictions.
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<PAGE> 14
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be ignored.
13. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the
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<PAGE> 15
right of the Company or any Parent, Subsidiary or Affiliate of the Company to
terminate the Optionee's employment at any time, with or without cause.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act of 1933, as amended, compliance with all
other applicable state securities laws and compliance with the requirements of
any stock exchange on which the Shares may be listed. The Company shall be under
no obligation to register the Shares with the Securities and Exchange Commission
or to effect compliance with the registration or qualification requirements of
any state securities laws or stock exchange.
15. RESTRICTIONS ON SHARES. At the discretion of the Administrator, the
Company may reserve to itself or its assignee(s) in the Grant (a) a right of
first refusal to purchase any Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party, and (b) a right to
repurchase any or all Shares held by an Optionee upon the Optionee's termination
of employment or service with the Company or its Parent, Subsidiary or Affiliate
for any reason within a specified time as determined by the Administrator at the
time of grant at (i) the Optionee's original purchase price (provided that the
right to repurchase at such price shall lapse at the rate of at least 20% per
year from the date of grant), (ii) the fair market value of such Shares as
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<PAGE> 16
determined by the Administrator in good faith or (iii) a price determined by a
formula or other provision set forth in the Grant.
16. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a dissolution
or liquidation of the Company, a merger in which the Company is not the
surviving corporation, a transaction in which 100% of the then outstanding
voting stock is sold or otherwise transferred, or the sale of substantially all
of the assets of the Company, any or all outstanding Options shall,
notwithstanding any contrary terms of the Grant, accelerate and become
exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger, sale of stock or sale of
assets at such times and on such conditions as the Administrator shall determine
unless the successor corporation assumes the outstanding Options or substitutes
substantially equivalent options. The aggregate fair market value (determined at
the time an Option is granted) of stock with respect to ISOs which first become
exercisable in the year of such dissolution, liquidation, merger, sale of stock
or sale of assets cannot exceed $100,000. Any remaining accelerated ISOs shall
be NQSOs.
17. AMENDMENT OR TERMINATION OF PLAN. The Administrator may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan),
provided, however, that the Administrator shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of this Plan) or
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<PAGE> 17
change the class of persons eligible to receive Options. In any case, no
amendment of this Plan may adversely affect any then outstanding Options or any
unexercised portions thereof without the written consent of the Optionee.
18. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten years from the date this Plan was originally
adopted by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.2
ALTEON INC.
AMENDED 1995 STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Non-Qualified Stock Options, as determined by the Administrator at the time of
grant of an Option.
2. Certain Definitions. As used herein, the following definitions shall
apply:
2.1. "Administrator" means the Board or a Committee.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Code" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
2.4. "Committee" means a Committee appointed by the Board in
accordance with Section 4.1 of the Plan.
2.5. "Common Stock" means the Common Stock of the Company.
2.6. "Company" means Alteon Inc., a Delaware corporation.
2.7. "Consultant" means any person, including an advisor, who
is engaged by the Company or any Subsidiary to render services and is
compensated for such services. The payment of a director's fee by the Company
shall not render a director a Consultant within the meaning of this section.
2.8. "Date of Grant" means the date on which an Option is
granted under the Plan pursuant to Section 12 of the Plan.
2.9. "Employee" means any person, including officers and
directors, employed by the Company or any Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
employment by the Company.
2.10. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
2.11. "Fair Market Value" means, as of any date, the value of
the Common Stock determined as follows:
<PAGE> 2
(a) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange for the last market trading day
prior to such date as reported in the Wall Street Journal or such other source
as the Administrator deems reliable;
(b) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high and low asked prices for the
Common Stock as quoted on such System or by such dealer for the last market
trading day prior to such date; or
(c) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
2.12. "Incentive Stock Option" means an Option which qualifies
as an incentive stock option within the meaning of Section 422 of the Code.
2.13. "Non-Compensated Directors" means directors of the
Company who are not Employees or Consultants.
2.14. "Non-Qualified Stock Option" means an Option which does
not qualify as an Incentive Stock Option.
2.15. "Option" means a stock option granted pursuant to the
Plan.
2.16. "Option Agreement" means the agreement which must be
entered into between the Optionee and the Company upon the grant of an Option by
the Company to the Optionee as approved by the Administrator pursuant to Section
15 of the Plan.
2.17. "Optionee" means a person who receives an Option.
2.18. "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
2.19. "Plan" means this 1995 Stock Option Plan.
2.20. "Share" means a share of the Common Stock, as adjusted
in accordance with Section 11 of the Plan.
2.21. "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of
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<PAGE> 3
the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,000,000 Shares and the maximum number of Shares which
may be covered by Options granted to any employee in any calendar year may not
exceed 500,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock. If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
4.1. Procedure.
(a) Administration With Respect to Directors and
Officers. With respect to grants of Options to Employees and Consultants who are
also officers or directors of the Company, the Plan shall be administered, and
grants of Options shall be approved, by (i) the Board or (ii) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as (A) to permit transactions under the Plan to
qualify for exemption from the provisions of Section 16(b) of the Exchange Act
pursuant to Rule 16b-3 promulgated thereunder ("Rule 16b-3") and (B) to satisfy
all legal requirements relating to administration of stock option plans and the
Code (the "Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan.
(b) Administration With Respect to Consultants and
Employees Who Are Not Directors or Officers. With respect to grants of Options
to Employees or Consultants who are neither directors nor officers of the
Company, the Plan shall be administered by (i) the Board or (ii) a Committee
designated by the Board, which Committee shall be constituted in such a manner
as to satisfy the Applicable Laws. Once appointed, such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws.
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<PAGE> 4
(c) Formula Awards to Non-Compensated Directors.
(i) On the date of a Non-Compensated
Director's election or reelection to the Board at an annual meeting of
shareholders of the Company, he shall be granted a Non-Qualified Stock Option to
purchase 33,600 Shares. Such Option shall vest and become exercisable as to
11,200 Shares on each anniversary of such Non-Compensated Director's election to
the Board, provided that on such anniversary he is then serving as a director of
the Company.
(ii) If a Non-Compensated Director is
elected or appointed to the Board other than at an annual meeting of
shareholders, on the date of his election he shall be granted a Non-Qualified
Stock Option to purchase the number of shares determined by multiplying 933 by
the number of whole or partial months in the term to which he was elected. For
purposes of the preceding sentence, a month shall mean a period of 30
consecutive days. Such Options shall vest and become exercisable as to 11,200
Shares on each anniversary of such Non-Compensated Director's election or
appointment to the Board, provided that on such anniversary he is then serving
as a director of the Company. If the term of a director who has received an
Option pursuant to this Section 4.1(c)(ii) expires before the Option has become
fully exercisable, the Option shall become fully exercisable on the last day of
such director's term, provided that he is then serving as a director of the
Company.
(iii) If a Non-Compensated Director to whom
a Non-Qualified Stock Option is to be granted pursuant to Section 4.1(c)(i) is
serving on the Board at the time of such election or reelection by virtue of
having been appointed to the Board to fill a vacancy or newly created
directorship, and such director received a Non-Qualified Stock Option upon such
appointment pursuant to the Company's 1987 Stock Option Plan, as amended, the
number of shares subject to the Non-Qualified Stock Option to be granted
pursuant to Section 4.1(c)(i) shall be reduced by a number equal to 33,600 minus
the product of (i) 933 and (ii) the number of full months during which such
Non-Compensated Director has served as a director. For purposes of the preceding
sentence, a month shall mean a period of 30 consecutive days.
(iv) Options granted pursuant to this
Section shall have a per share exercise price equal to the Fair Market Value per
share on the Date of Grant and shall expire ten years from the Date of Grant.
Once an Option granted pursuant to this Section, or any portion thereof, has
become exercisable, it shall remain exercisable regardless of whether or not the
Non-Compensated Director holding the Option later ceases to be a director of the
Company.
4
<PAGE> 5
(d) Multiple Administrative Bodies. The Plan may be
administered by different bodies with respect to directors, non-director
officers, and Employees and Consultants who are neither directors nor officers.
4.2. Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator, acting in its sole discretion, shall
have the power and authority to supervise the administration of the Plan and to
take all action necessary or desirable in order to carry out the provisions of
the Plan including, without limitation, the power and authority:
(a) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(b) to determine whether and to what extent Options
are granted hereunder;
(c) to determine the number of shares of Common Stock
to be covered by each such Option granted hereunder;
(d) to approve forms of agreement for use under the
Plan;
(e) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder
(including, but not limited to, the exercise price, the vesting schedule, and
any restrictions or limitations regarding any Option and/or the Shares relating
thereto) based in each case on such factors as the Administrator shall
determine, in its sole discretion;
(f) to make changes to any outstanding Option,
including, without limitation, to reduce the exercise price, to accelerate the
vesting schedule, or to extend the expiration date, provided that no such change
shall impair the rights of any Optionee under any grant previously made without
such Optionee's consent;
(g) to determine whether and when an Optionee has
ceased to have an employment or consulting relationship with the Company;
(h) to buy out for a payment in cash or Shares, an
Option previously granted, based on such terms and conditions as the
Administrator shall establish and the Optionee shall accept.
4.3. Effect of Committee's Decision. The Administrator shall
have the power and authority to establish, amend, and revoke rules and
regulations for administration of the Plan. All decisions, determinations and
interpretations of the Administrator
5
<PAGE> 6
shall be final and binding on all holders of Options.
5. Eligibility. Non-Qualified Stock Options may be granted to
Non-Compensated Directors (but only pursuant to Section 4.1(c)), Employees, and
Consultants. Incentive Stock Options may be granted only to Employees. An
individual who has been granted an Option may, if otherwise eligible, be granted
an additional Option or Options.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Exercise Period of Option.
7.1. Term. Each Option shall vest and become exercisable as
provided in the Option Agreement. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that in no case shall the
term shall be more than ten (10) years from the Date of Grant. However, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be no more than five (5) years from the Date of
Grant.
7.2. Termination of Employment. If an Optionee ceases to be an
Employee of the Company for any reason, except death or disability within the
meaning of Section 422(c) of the Code, an Incentive Stock Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an Employee, may be exercised by the Optionee within three (3)
months after the date on which the Optionee's employment terminated, but in any
event no later than the date of expiration of the Option term. If the Optionee's
employment is terminated because of the death or disability of the Optionee
within the meaning of Section 422(c) of the Code, an Incentive Stock Option, to
the extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an Employee, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of twelve
(12) months from the date the Optionee's employment terminated, but in any event
no later than the date of expiration of the Option term. An Optionee's
employment shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months after the Optionee's termination of
employment.
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<PAGE> 7
8. Option Exercise Price and Consideration.
8.1. Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, provided that in the case of an Incentive Stock
Option (a) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the Date of Grant and (b) granted to any other
Employee, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the Date of Grant.
8.2. Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option (other than Options granted
pursuant to Section 4.1(c)), including the method of payment, shall be
determined by the Administrator and may consist entirely of (i) cash, (ii)
check, (iii) promissory note, (iv) other Shares which have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (v) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (vi) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, (vii) any
combination of the foregoing methods of payment, or (viii) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under the Applicable Laws.
9. Exercise of Option.
9.1. Procedure for Exercise. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full consideration for the Shares with respect to which
the Option is exercised has been received by the Company. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued. An Option may not be exercised for a
fraction of a Share.
7
<PAGE> 8
9.2. Limitations on Exercise.
(a) Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of the National Association of Securities Dealers or any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
(b) The Administrator may specify a reasonable
minimum number of shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
that full number of Shares as to which the Option is then exercisable.
9.3. Withholding Obligations. Prior to issuance of the Shares
upon exercise of an Option, the Optionee shall pay or make adequate provision
for any federal or state withholding obligations of the Company, if applicable,
in a form and manner satisfactory to the Administrator.
10. Transferability of Options. Except as otherwise provided in this
Section 10, Options may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution and during the lifetime of the Optionee shall be
exercisable only by the Optionee. If the Administrator so determines,
Non-Qualified Stock Options may be transferable to (a) the Optionee's spouse,
parents, siblings, children or grandchildren (including stepparents,
stepsiblings, stepchildren, and stepgrandchildren), (b) trusts for the benefit
of the Optionee and/or such family members, and (c) partnerships whose only
partners are the Optionee and/or such family members, provided that (i) no
consideration is paid for such transfer, (ii) the terms and conditions of the
Option which are applicable to the Optionee prior to the transfer of the Option
shall continue to apply to the transferee; and (iii) the Option Agreement
pertaining to each transferable option shall set forth the applicable transfer
restrictions.
11. Adjustments. Unless the terms of an Option Agreement provide
otherwise:
8
<PAGE> 9
11.1. Change in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
11.2. Merger without Change of Control. After a merger of one
or more corporations or other entities with or into the Company or after a
consolidation of the Company and one or more corporations or other entities in
which the shareholders of the Company immediately prior to such merger or
consolidation own after such merger or consolidation shares representing at
least fifty percent (50%) of the voting power of the Company or the surviving or
resulting corporation or other entity, as the case may be, each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise of
such Option to receive in lieu of the shares of Common Stock as to which such
Option was exercisable immediately prior to such event, the number and class of
shares of stock or other securities, cash or property (including, without
limitation, shares of stock or other securities of another corporation or Common
Stock) to which such holder would have been entitled pursuant to the terms of
the agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a number of shares
of Common Stock equal to the number of shares for which such Option shall be so
exercised.
11.3. Sale or Merger with Change of Control. If the Company is
merged with or into or consolidated with another corporation or other entity
under circumstances where the shareholders of the Company immediately prior to
such merger or consolidation do not own after such merger or consolidation
shares representing at least fifty percent of the voting power of the
9
<PAGE> 10
Company or the surviving or resulting corporation or other entity, as the case
may be, or if one hundred percent of the then outstanding voting shares of the
Company are sold or otherwise transferred, or if the Company is liquidated, or
sells or otherwise disposes of substantially all of its assets to another
corporation or other entity while unexercised Options remain outstanding under
the Plan, (a) subject to the provisions of clause (c) below, after the effective
date of such merger, consolidation, liquidation, sale or disposition, as the
case may be, each holder of an outstanding Option shall be entitled, upon
exercise of such Option, to receive, in lieu of the shares of Common Stock as to
which Option was exercisable immediately prior to such event, the number and
class of shares of stock or other securities, cash or property (including,
without limitation, shares of stock or other securities of another corporation
or common stock) to which such holder would have been entitled pursuant to the
terms of the merger, consolidation, liquidation, sale or disposition if,
immediately prior to such event, such holder had been the holder of a number of
shares of Common Stock equal to the number of shares as to which such Option
shall be so exercised; (b) the Administrator may accelerate the time for
exercise of some or all unexercised and unexpired options so that from and after
a date prior to the effective date of such merger, consolidation, liquidation,
sale or disposition, as the case may be, specified by the Administrator such
accelerated options shall be exercisable in full; or (c) all outstanding Options
may be cancelled by the Administrator as of the effective date of any such
merger, consolidation, liquidation, sale or disposition provided that (i) notice
of such cancellation shall be given to each holder of an Option and (ii) each
holder of an Option shall have the right to exercise such Option to the extent
that the same is then exercisable or, if the Administrator shall have
accelerated the time for exercise of all unexercised and unexpired Options, in
full during the 10-day period preceding the effective date of such merger,
consolidation, liquidation, sale or disposition.
11.4. Miscellaneous. Adjustments under this Section 11 shall
be determined by the Administrator, and such determinations shall be conclusive.
No fractional shares of Common Stock shall be issued under the Plan on account
of any adjustment specified above.
12. Time of Granting Options. The Date of Grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
13.1. Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no
10
<PAGE> 11
amendment, alteration, suspension or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made without the
Optionee's consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any
other applicable law or regulation, including the requirements of the National
Association of Securities Dealers or an established stock exchange), the Company
shall obtain shareholder approval of any Plan amendment in such a manner and to
such a degree as required.
13.2. Effect of Amendment or Termination. Any such amendment
or termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
amended or terminated unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Reservation of Shares. The Company, during the term of the Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
15. Agreements. Options shall be evidenced by written agreements in
such form as the Administrator shall approve from time to time. Each Option
shall be designated in the Option Agreement as either an Incentive Stock Option
or a Non-Qualified Stock Option as the Administrator shall determine. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Non-Qualified Stock Options.
For purposes of the preceding sentence, Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
16. No Additional Rights. The Plan shall not confer upon any Optionee
any right with respect to continuation of an employment or consulting
relationship with the Company, nor shall it interfere in any way with his right
or the Company's right to terminate his employment or consulting relationship at
any time, with or without cause.
11
<PAGE> 12
17. Rule 16b-3. Grants of Options to persons subject to Section 16(b)
of the Exchange Act must qualify for exemption from Section 16(b) of the
Exchange Act pursuant to Rule 16b-3. Options granted to such persons shall
contain such additional conditions or restrictions as may be required thereunder
to qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
degree and manner required under applicable state and federal law.
* * * * *
12
<PAGE> 1
Exhibit 10.29
July 10, 1996
Jere E. Goyan, Ph.D.
103 Chestnut Ridge Road
Saddle River, NJ 07548
Dear Jere:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated July 13, 1993 (the "Employment Agreement") and
certain other agreements you have with the Company as set forth below.
Your Term of Employment, as defined in Paragraph 1 of your Employment Agreement,
shall be extended through and including July 13, 1998.
Your Salary will be $262,500 per annum and you will be eligible to receive a
bonus, pursuant to the terms of Paragraph 3 of your Employment Agreement, in an
amount of up to $50,000 for each the Company's fiscal years ending December 31,
1996 and December 31, 1997.
On July 20, 1993, you executed a promissory note in favor of the Company in the
amount of $200,000 (the "Note") and a mortgage to secure payment of the Note
(the "Mortgage"). We agree that the Note and Mortgage are amended as follows:
(i) except as set forth below, interest on the Note will stop accruing as of
July 13, 1998, and (ii) the principal amount of the Note plus the amount of
interest accrued through and including July 13, 1998 shall be paid in three
equal installments on the following dates: July 13, 1998, July 13, 1999 and July
13, 2000, and (iii) in the event any of the three installment payments are not
made when due, interest shall accrue on such unpaid amount at a rate of one
percent (1%) per month until such payment is made. You recognize that you may
realize additional taxable income due to the imputed interest rules under the
Internal Revenue Code of 1986 for those tax years when payments on the Note are
deferred without the accrual of interest.
<PAGE> 2
Paragraph 19 of your Employment Agreement ("Notices") is amended to reflect your
current address as 103 Chestnut Ridge Road, Saddle River, NJ 07548 and the
current address of the Company as 170 Williams Drive, Ramsey, NJ 07446.
Subject to your acceptance of this letter, the Company shall award you options
to purchase 33,004 shares of the Company's common stock at an exercise price of
$11.375 (the fair market value of Alteon stock on May 2, 1996 when the
Compensation Committee of the Board approved this award). The options will be
subject to the terms and conditions of the Company's 1987 Stock Option Plan and
the Company's standard Incentive/Non-Qualified Stock Option Grant Agreement to
be executed after action of the Compensation Committee ("New Grant Agreement").
In addition, pursuant to your stock option grant agreements with the Company
dated May 14, 1993 and March 22, 1994, (the "Prior Grant Agreements") the
Company granted you options to purchase 300,000 and 67,000 shares, respectively,
of the Company's common stock. Under the Prior Grant Agreements, 167,000 shares
are subject to accelerated vesting upon the accomplishment of certain
performance related milestones. We agree that the Prior Grant Agreements are
hereby amended to reflect the following amendment and restatement of the
performance related milestones so that the 167,000 milestone related options
under the Prior Grant Agreements and the 33,004 options under the New Grant
Agreement (i.e., a total of 200,004 options) shall vest at a rate of 1/6 (or
options to purchase 33,334 shares) upon the accomplishment by you and the
Company of each of the following performance related milestones:
- - submission of an IND by the Company to the Food and Drug Administration (the
"FDA") for a second generation A.G.E.-formation inhibitor;
- - receipt by the Company of approval from the FDA for the initiation of Phase
I clinical trials on an A.G.E. cross-link breaker or a Glucose Lowering
Agent;
- - receipt by the Company of approval from the FDA for the initiation of Phase
II clinical trials on a first Pimagedine (iNOS) indication;
- - the day following any six month period beginning on or after July 16, 1996
during which the average of the daily closing prices of the Company's common
stock as reported on the Nasdaq National Market is at least 50% higher than
such price as reported on July 15, 1996;
- - the submission by the Company of an NDA on Pimagedine for diabetic
complications (overt nephropathy), provided the NDA is submitted no later
than six months after the date on which all clinical centers have submitted
final data to the Company; and
<PAGE> 3
- - the identification by the Company of a new Chief Scientific Officer on or
before March 1, 1998, provided that you have assisted the Company in
implementing such search.
As each milestone is accomplished, options shall vest in the following order of
priority: first, under the earlier Prior Grant Agreement, second, under the
later Prior Grant Agreement and, last, under the New Grant Agreement.
Notwithstanding the foregoing, all 200,004 milestone related options shall also
vest on a date 10 years after their respective grant dates, provided you are
then employed by the Company as set forth in the Grant Agreements.
Paragraph 21 of your Employment Agreement ("General") is amended to include your
July 12, 1993 Letter Agreement with the Company, the Note, the Mortgage, the
Prior Grant Agreements, the New Grant Agreement, and this letter as part of the
"entire agreement," with respect to the subject matter of your employment by the
Company under these agreements. Except as modified by this letter, the terms of
all the foregoing enumerated agreements shall remain in full force and effect.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of this letter.
Sincerely,
/s/ James J. Mauzey
James J. Mauzey
Chairman and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Jere E. Goyan
- -----------------
Jere E. Goyan, Ph.D.
<PAGE> 1
Exhibit 10.30
. January 17, 1997
Veronica Mallon, Ph.D.
395 North Little Tor Road
New City, NY 10965
Dear Ronnie:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated January 17, 1995 (the "Employment Agreement").
Your Term of Employment, as defined in Paragraph 1 of your Employment Agreement,
shall begin on the date hereof and terminate 3 years from such date.
Your salary for the calendar year 1997 will be $102,000 (subject to deferral of
any increase from your 1996 salary until certain Company milestones established
by the Compensation Committee of the Board of Directors have been achieved) and
it shall be subject to further adjustment, as may be determined by the Company,
for periods thereafter. In addition, you will be eligible to receive a bonus, to
be awarded at the sole discretion of the Board of Directors of the Company, in
an amount of up to $5,000 and up to 10,000 stock options for the calendar year
ending December 31, 1997. You will also be eligible to receive bonuses for 1998
and 1999 in such amounts as may be determined by the Company. The vesting
schedule and exercise price for bonus options will be determined by the Company.
Subject to your acceptance of this letter, the Company shall award you options
to purchase 100,000 shares of the Company's common stock at an exercise price of
$5.625 (the fair market value of Alteon stock on January 31, 1997, when the
Compensation Committee of the Board approved this award). The options will be
subject to the terms and conditions of the Company's amended 1995 Stock Option
Plan and the Company's standard Incentive/Non-Qualified Stock Option Grant
Agreement to be executed after action of the Compensation Committee ("Grant
Agreement"). Twenty-eight thousand of these options will vest on the date hereof
and the remaining 72,000 options will vest at a rate of 2,000 per month during
the Term of Employment.
<PAGE> 2
Veronica Mallon, Ph.D.
March 21, 1997
Page -2-
Paragraph 11 of your Employment Agreement is amended to provide for at least six
(6) months salary continuation should the Company elect to terminate your
employment prior to the end of your term of employment.
Paragraph 19 of your Employment Agreement ("General") is amended to include the
Grant Agreement and this letter as part of the "entire agreement," with respect
to the subject matter of your employment by the Company under these agreements.
Except as modified by this letter, the terms of your Employment Agreement shall
remain in full force and effect.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of this letter.
Sincerely,
/s/ James J. Mauzey
James J. Mauzey
Chairman and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Veronica Mallon
- -------------------
Veronica Mallon, Ph.D.
<PAGE> 1
Exhibit 10.31
January 29, 1997
Kenneth Cartwright
P.O. Box 612, Round Hill Road
Blooming Grove, NY 10914
Dear Ken:
This letter is to amend your Employment Agreement with the Company dated March
27, 1995.
Subject to your acceptance, Paragraph 11 of your Employment Agreement is amended
to provide for at least six (6) months salary continuation should the Company
elect to terminate your employment prior to the end of your term of employment.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of the letter.
Sincerely,
/s/ James J. Mauzey
James J. Mauzey
Chairman and
Chief Executive Officer
Accepted and Agreed:
/s/ Kenneth Cartwright
- ----------------------
Kenneth Cartwright
<PAGE> 1
Exhibit 10.32
January 29, 1997
Ms. Elizabeth A. O'Dell
100 Inwood Avenue
Upper Montclair, NJ 07043
Dear Liz:
This letter is to amend your Employment Agreement with the Company dated October
21, 1995.
Subject to your acceptance, Paragraph 11 of your Employment Agreement is amended
to provide for at least six (6) months salary continuation should the Company
elect to terminate your employment prior to the end of your term of employment.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of the letter.
Sincerely,
/s/ James J. Mauzey
James J. Mauzey
Chairman and
Chief Executive Officer
Accepted and Agreed:
/s/ Elizabeth A. O'Dell
- -----------------------
Elizabeth A. O'Dell
<PAGE> 1
Exhibit 10.33
January 30, 1997
Mr. James J. Mauzey
26 Kain Road
Warwick, NY 10090
Dear Jim:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated February 28, 1994 (the "Employment Agreement").
Your Term of Employment, as defined in Paragraph 1 of your Employment Agreement,
shall begin on the date hereof and terminate 3 years from such date.
Your Salary will be $300,000 per annum. In addition, at the end of each calendar
year during the Term of Employment, you will be eligible to receive a bonus,
pursuant to the terms of Paragraph 3 of your Employment Agreement, comprised of
cash in an amount of up to $50,000 and stock options. The number of options and
the vesting schedule and exercise price for these options will be agreed upon
with the Compensation Committee of the Board at the end of each calendar year.
Paragraph 19 of your Employment Agreement ("Notices") is amended to reflect your
current address as 26 Kain Road, Warwick, New York, 10090.
Subject to your acceptance of this letter, the Company shall award you options
to purchase 150,000 shares of the Company's common stock at an exercise price of
$5.375 (the fair market value of Alteon stock on December 17, 1996, when the
Compensation Committee of the Board approved this award). The options will be
subject to the terms and conditions of the Company's 1995 Stock Option Plan and
the Company's standard Incentive/Non-Qualified Stock Option Grant Agreement to
be executed after action of the Compensation Committee ("New Grant Agreement").
In addition, pursuant to your stock option grant agreement with the Company
dated March 30, 1995
<PAGE> 2
(the "Prior Grant Agreement"), the Company granted you options to purchase
500,000 shares of the Company's common stock. Under the Prior Grant Agreement,
200,000 options are subject to accelerated vesting upon the accomplishment of
certain performance related milestones, 40,000 of which have already vested. We
agree that the Prior Grant Agreement is hereby amended to reflect the following
amendment and restatement of the performance related milestones so that the
160,000 remaining milestone related options under the Prior Grant Agreement and
90,000 of the options granted under the New Grant Agreement (i.e., a total of
250,000 options) shall vest at a rate of 1/5 (or options to purchase 50,000
shares) upon the accomplishment by you and the Company of each of the following
performance related milestones:
- Gain approval of an IND on next A.G.E.-related compound
1. Raise enough capital to ensure Alteon's financial viability
through 1999
a)
2. Establish a new partnering relationship covering North America
and Western Europe on an A.G.E. inhibitor, A.G.E. breaker or
glucose lowering agent
a)
3. Elevate Alteon's market capitalization to over $250MM
a)
4. Ensure Alteon's first NDA is accepted for filing by FDA
As each milestone is accomplished, options shall vest in the following order of
priority: first, under the Prior Grant Agreement and second, under the New Grant
Agreement. Notwithstanding the foregoing, all 250,000 milestone related options
shall also vest on a date 10 years after their respective grant dates, provided
you are then employed by the Company as set forth in the Grant Agreements.
The Prior Grant Agreement granted you 300,000 options to vest at a rate of 1/60
per month over a five year period. We agree that at the end of the five year
period defined in the Prior Grant Agreement, the remaining 60,000 options under
the New Grant Agreement shall vest at a rate of 1/12 per month over the ensuing
one year period.
Paragraph 20 of your Employment Agreement ("General") is amended to include the
Prior Grant Agreement, the New Grant Agreement and this letter as part of the
"entire agreement," with respect to the subject matter of your employment by the
Company under these agreements. Except as modified by this letter, the terms of
all the foregoing enumerated agreements shall remain in full force and effect.
<PAGE> 3
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of this letter.
Sincerely,
/s/ Jere E. Goyan
Jere E. Goyan
President and
Chief Operating Officer
ACCEPTED AND AGREED:
/s/ James J. Mauzey
- -------------------
James J. Mauzey
<PAGE> 1
Exhibit 10.34
March 27, 1997
Kenneth Cartwright
P.O. Box 612, Round Hill Road
Blooming Grove, NY 10914
Dear Ken:
This letter will confirm certain matters related to your employment by Alteon
Inc. (the "Company") and shall constitute an amendment to your employment
agreement with the Company dated March 27, 1995 (the "Employment Agreement"),
and as amended by letter dated January 29, 1997.
Your Term of Employment, as defined in Paragraph 1 of your Employment Agreement,
shall begin on the date hereof and terminate 3 years from such date.
Your salary for the calendar year 1997 will be $194,922 (subject to deferral of
any increase from your 1996 salary until certain Company milestones established
by the Compensation Committee of the Board of Directors have been achieved) and
it shall be subject to further adjustment, as may be determined by the Company,
for periods thereafter. In addition, you will be eligible to receive a bonus, to
be awarded at the sole discretion of the Board of Directors of the Company, in
an amount of up to $7,500 and up to 15,000 stock options for the calendar year
ending December 31, 1997. You will also be eligible to receive bonuses for 1998
and 1999 in such amounts as may be determined by the Company. The vesting
schedule and exercise price for bonus options will be determined by the Company.
Subject to your acceptance of this letter, the Company shall award you options
to purchase 36,000 shares of the Company's common stock at an exercise price of
$5.625 (the fair market value of Alteon stock on January 31, 1997, when the
Compensation Committee of the Board approved this award). The options will be
subject to the terms and conditions of the Company's 1995 Stock Option Plan and
the Company's standard Incentive/Non-Qualified Stock Option Grant Agreement to
be executed after action of the
<PAGE> 2
Compensation Committee ("Grant Agreement"). The 36,000 options will vest at a
rate of 1,000 per month during the Term of Employment.
Paragraph 19 of your Employment Agreement ("General") is amended to include the
Grant Agreement and this letter as part of the "entire agreement," with respect
to the subject matter of your employment by the Company under these agreements.
Except as modified by this letter, the terms of your Employment Agreement, as
previously amended, shall remain in full force and effect.
If the foregoing is acceptable to you, please indicate your agreement by signing
and returning the enclosed copy of this letter.
Sincerely,
/s/ James J. Mauzey
James J. Mauzey
Chairman and
Chief Executive Officer
Accepted and Agreed:
/s/ Kenneth Cartwright
- ----------------------
Kenneth Cartwright
<PAGE> 1
[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDIENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
EXHIBIT 10.35
CLINICAL SERVICES AGREEMENT
BETWEEN
ALTEON INC.
AND
QUINTILES, INC.
DATED AS OF AUGUST 11, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENTS................................................... 1
1. OBLIGATIONS OF QUINTILES........................................ 1
1.1 Protocols.......................................... 1
1.2 Services........................................... 2
1.3 Staffing........................................... 5
1.4 QUINTILES's Representations and Warranties......... 6
1.5 Communications..................................... 7
2. TRANSFER OF RIGHTS AND OBLIGATIONS.............................. 7
2.1 Transfer of Obligations to QUINTILES............... 7
2.2 Transfer of Rights and Obligations by ALTEON....... 7
3. STATUS REPORTING................................................ 8
3.1 Cooperation........................................ 8
3.2 Monthly Status Reports............................. 8
4. CLINICAL SUPPLIES............................................... 8
4.1 Clinical Supplies.................................. 8
5. COMPENSATION.................................................... 8
5.1 Budget............................................. 8
5.2 Payment Obligation................................. 8
5.3 Invoices........................................... 9
5.4 Payment of Invoices................................ 9
5.5 Disputes Regarding Invoices........................ 9
5.6 Cost Savings....................................... 9
5.7 No Interest........................................ 9
5.8 Cost Estimates..................................... 9
5.9 Cost Increases..................................... 10
5.10 Records Retention.................................. 10
5.11 Audit Request...................................... 10
6. CONFIDENTIAL INFORMATION........................................ 10
6.1 Confidentiality Obligation......................... 10
6.2 Exceptions......................................... 11
6.3 Return of Confidential Information................. 11
6.4 Remedies........................................... 11
7. OWNERSHIP OF PROPERTY........................................... 12
7.1 Ownership.......................................... 12
7.2 Data Retention..................................... 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
8. PATENT RIGHTS................................................... 13
8.1 Invention Disclosure............................... 13
8.2 Assignment......................................... 13
9. INDEMNIFICATION AND LIMITATION OF LIABILITY..................... 13
9.1 Indemnification of QUINTILES....................... 13
9.2 Indemnification of ALTEON.......................... 14
9.3 Notice; Control of Defense......................... 14
9.4 Limitation of Liability............................ 14
9.5 Investigators...................................... 14
10. TERM; TERMINATION............................................... 14
10.1 Term of Agreement.................................. 14
10.2 Termination by ALTEON.............................. 15
10.3 Breach............................................. 15
10.4 QUINTILES's Obligations Upon Early Termination..... 15
10.5 ALTEON's Obligations upon Early Termination........ 15
10.6 Survival........................................... 16
11. FORCE MAJEURE................................................... 16
11.1 Force Majeure...................................... 16
12. MISCELLANEOUS................................................... 16
12.1 Relationship of Parties............................ 16
12.2 Assignment......................................... 16
12.3 Notices............................................ 16
12.4 Amendment.......................................... 17
12.5 Waiver............................................. 17
12.6 Governing Law...................................... 17
12.7 Alternative Dispute Resolution..................... 17
12.8 Entire Agreement of the Parties.................... 18
12.9 Counterparts....................................... 18
12.10 Descriptive Headings............................... 18
</TABLE>
<PAGE> 4
CLINICAL SERVICES AGREEMENT
THIS CLINICAL SERVICES AGREEMENT (this "Agreement"), dated as of August
11, 1996, is by and between Alteon Inc. a Delaware corporation, with offices at
170 Williams Drive, Ramsey, New Jersey 07446, ("ALTEON"), and Quintiles, Inc., a
North Carolina corporation, with offices at 1007 Slater Road, Durham, North
Carolina 27703 ("QUINTILES").
PRELIMINARY STATEMENTS:
A. ALTEON is in the business of developing pharmaceutical products and
is currently conducting clinical trials with respect to a drug known as
pimagedine (the "Compound").
B. QUINTILES is in the business of providing clinical trial services
for the pharmaceutical industry.
C. ALTEON desires to contract with QUINTILES, and QUINTILES desires to
be contracted by ALTEON, for the purposes of providing to ALTEON such clinical
trial services as more particularly described herein, in support of the
Protocols (as defined below).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants of the parties provided in this Agreement, the parties hereby agree as
follows:
1. OBLIGATIONS OF QUINTILES.
1.1 Protocols. QUINTILES shall conduct the services set forth in the
Proposal dated July 16, 1996 submitted by QUINTILES to ALTEON, as amended or
added to from time to time by the mutual agreement of the parties (the
"Proposal"), in consultation with ALTEON as provided in this Agreement, to
support ALTEON's conduct of four studies (individually, a "Study" and
collectively the "Studies") of the Compound in accordance with the following
protocols:
(a) Protocol Number AGPR0002, entitled "A Placebo-Controlled
Safety and Efficacy Study of Pimagedine in Diabetic Patients with Overt Diabetic
Nephropathy";
(b) Protocol Number AGPR0009, entitled "A Placebo-Controlled
Safety and Efficacy Study of Pimagedine in Patients with Type II Diabetes
Mellitus and Overt Diabetic Nephropathy";
(c) Protocol Number 201228-PR0016, entitled "A
Placebo-Controlled Study of the Effect of Pimagedine on Plasma Lipid Levels and
AGEs in Patients with Diabetes and Elevated Serum Cholesterol Levels"; and
<PAGE> 5
(d) Protocol Number 201228-PR0014, entitled "A
Placebo-Controlled Safety and Efficacy Study of Pimagedine in Diabetic Patients
with End-Stage Renal Disease on Hemodialysis";
(each, a "Protocol" and, collectively, the "Protocols").
1.2 Services. QUINTILES hereby agrees to use all reasonable best
efforts to conduct the project management, medical management, data management,
biostatistical analysis, report preparation, regulatory and other services, in
accordance with the Proposal, as amended or added to from time to time by mutual
agreement of the parties, (the "Services"). The Services to be provided by
QUINTILES to ALTEON, all as more particularly specified in the Proposal, will
include, but will not be limited to, the following:
(a) QUINTILES will conduct the Services in accordance with the
Protocols and as outlined in the Proposal, including performance of the Services
within the time periods set forth in the Proposal (the "Timeline"). The Services
will be conducted in accordance with all applicable Federal, national, state,
and local laws, statues, ordinances and regulations.
(b) QUINTILES will prepare necessary and appropriate
documentation for submission to the appropriate regulatory authority or ALTEON
for the conduct of the Studies and the Services, including without limitation,
as appropriate, IRB approval of Protocol amendments and annual re-approvals. For
purposes of this Agreement, "IRB" means an institution review board that
complies with the requirements of Title 21, Part 56 of the code of Federal
Regulations, as amended, supplemented or modified from time to time, or the
Canadian equivalent. For purposes of this Agreement, "Investigators" means all
investigators recruited previously by or on behalf of ALTEON, and all additional
investigators, if any recruited by QUINTILES as part of the Services.
(c) QUINTILES will provide all new Investigators with the
current Investigators' brochure and, as the investigation proceeds, will keep
each Investigator informed of new information received from ALTEON regarding the
Compound.
(d) QUINTILES will monitor the Studies to verify that each is
being conducted in accordance with the applicable Protocol and with all now or
hereafter applicable Federal, national, state, and local laws, statutes,
ordinances, and regulations, including, without limitation, Food and Drug
Administration (or any other government body or agency that succeeds it) ("FDA")
(or the equivalent Canadian regulatory authority) guidelines on the
responsibilities of sponsors, (relating to those responsibilities delegated to
QUINTILES under EXHIBIT B), monitors, clinical Investigators and informed
consents.
(e) QUINTILES shall provide all data management services as
set forth in EXHIBIT A.
-2-
<PAGE> 6
(f) ALTEON shall have the right, but not the obligation, to
co-monitor, in conjunction with QUINTILES, those Investigators being monitored
by QUINTILES with respect to the Services provided hereunder. In the event
ALTEON determines there is substantial cause for independent monitoring by
ALTEON, it may do so following prior written notification to QUINTILES and
QUINTILES will assist and cooperate with ALTEON therein. In addition, ALTEON may
also conduct random site inspections for quality control purposes without prior
notice to QUINTILES.
(g) QUINTILES agrees that throughout the duration of this
Agreement with respect to all Investigator sites participating in the Studies,
and at any subsequent time when QUINTILES shall receive information regarding
the safety of the Compound used in the Studies as it pertains to serious adverse
experiences, it shall notify ALTEON in writing, in English. Such notification
shall be in such a timely fashion so as to permit compliance with all regulatory
requirements (e.g. 21 CRF 312.32 and its Canadian equivalent) for the handling
and disclosure of any information concerning any serious or unexpected event,
injury, toxicity or sensitivity reaction or any unexpected incidence, or the
severity thereof, associated with the clinical use, studies, investigations,
tests, whether or not determined to be attributable to the Compound. "Serious,"
as used in this Section, refers to an experience which results in death,
permanent or substantial disability, in-patient hospitalization, prolongation of
hospitalization, or is a congenital anomaly, cancer, the result of an overdose,
or life threatening. "Unexpected," as used in this Section, refers to conditions
or developments not previously submitted to governmental agencies or encountered
during clinical studies of the Compound(as represented by ALTEON to QUINTILES),
and conditions or developments, at a rate higher than shown by information
previously submitted to an agency or other governmental agencies or encountered
during clinical studies of the Compound(as represented by ALTEON to QUINTILES)
or, if applicable, conditions or developments not identified in the approved
product information.
All serious adverse events ("SAEs") will be summarized in the
monthly status report. QUINTILES shall be responsible for collecting all
relevant information and for evaluating SAE's (including, causality
assessments). QUINTILES shall provide ALTEON with all documentation and data
concerning SAEs, such as are required for evaluation. QUINTILES shall be
responsible for making all FDA (or the equivalent Canadian regulatory authority)
or other regulatory filings required regarding SAEs, subject to the prior review
and approval by ALTEON.
QUINTILES will be responsible for distributing all notices of
SAEs and IND safety reports to all Investigators, and ALTEON will receive copies
of all such reports distributed by QUINTILES. On request, QUINTILES shall supply
ALTEON with the original documents. For purposes of this Agreement, "IND" means
an investigational new drug application filed with the FDA (or the equivalent
Canadian regulatory authority).
(h) QUINTILES will collect the evidence related to the safety
of the Compound as it is obtained from all Investigators, whether being
monitored by QUINTILES or ALTEON, and make such evidence available to ALTEON.
ALTEON will make available to QUINTILES relevant safety information from
Investigators being monitored solely by ALTEON.
-3-
<PAGE> 7
(i) QUINTILES will store copies of all data and records in
accordance with local and FDA (or the equivalent Canadian regulatory authority)
regulations. The originals of all such information will be forwarded to ALTEON
at the termination of this Agreement, subject to ALTEON having made all payments
contemplated in Section 5 except those payments subject to a bona fide dispute
as contemplated by Section 5.5.
(j) With respect to Investigators being monitored by
QUINTILES, QUINTILES will report to ALTEON any such Investigator that is not
complying with his/her signed agreement (Form FDA-1572, or the Canadian
equivalent) and, after approval is received from ALTEON, will assist ALTEON to
end such Investigator's participation in the Studies, and recover the Compound.
(k) QUINTILES will be responsible for the selection of
monitors qualified by training and experience to monitor the progress of the
investigation, subject to reasonable review and approval by ALTEON.
(l) QUINTILES will verify that any clinical laboratory used in
the conduct of the Studies at all monitored sites shall be appropriately
licensed and/or approved as required in the location where such laboratories are
situated. ALTEON will make available to QUINTILES relevant information from
sites monitored solely by ALTEON.
(m) QUINTILES will undertake coordination of the shipment of
the Compound to all participating Investigators. During the Studies, each
clinical Investigator shall keep a record of the dates and amounts of Compound
supplies received at the applicable Study location; the dates, amount and
patients to whom the test Compound has been administered; the dates (when known)
and amount of the Compound broken, spilled, or lost; and the dates and amount of
the Compound supply which is being refused. At the completion or early
termination of each Study, QUINTILES will make an accounting of all clinical
supplies based upon such investigator's records. ALTEON will make available to
QUINTILES relevant information from sites monitored solely by ALTEON. QUINTILES
will verify that each Investigator has returned to ALTEON or to another location
specified by ALTEON, after the completion or earlier termination of any such
Studies, all unused Compound supplies and account for all Compound supplies
which have been lost or missing.
(n) QUINTILES will prepare materials necessary to permit
ALTEON to maintain an IND in effect, with respect to all Investigators,
including the submission of annual reports.
(o) Should appropriate regulatory authorities or any other
Federal, national, state, or local government authority conduct, or give notice
of intent to conduct, an inspection at any investigational site or take any
other regulatory action with respect to Services provided for in this Agreement,
then QUINTILES will promptly give ALTEON notice thereof and supply all
information pertinent thereto, and ALTEON shall have the right, but not the
obligation, to be
-4-
<PAGE> 8
present at any such inspection or regulatory action. ALTEON will give reciprocal
notice to QUINTILES as to those sites being monitored solely by ALTEON.
(p) From time to time, at the request of ALTEON or QUINTILES,
the parties may agree to increases, decreases, or changes in the scope of
Services to be provided by QUINTILES and the Budget and Timeline which shall be
reflected in an written amendment or change order to one or more of the Exhibits
under this Agreement signed by both parties. No amendment or change order shall
serve to supersede or replace any material provision in the body of this
Agreement unless it is duly executed by the Chief Executive Officer of Alteon.
When considering any request pursuant to this Section, the parties shall act in
good faith and promptly. Neither party shall unreasonably withhold consent to a
request.
1.3 Staffing.
(a) QUINTILES agrees to appoint an employee of QUINTILES,
reasonably acceptable to ALTEON, to be the project leader for QUINTILES for the
performance of the Services to be provided pursuant to this Agreement (the
"Project Leader"). Thereafter, at any time that QUINTILES desires to change to
Project Leader, QUINTILES may do so, subject to the reasonable review and
approval by ALTEON.
(b) QUINTILES agrees to appoint Randy Anderson, Ph.D. to be a
scientific advisor for QUINTILES for the performance of the Services to be
provided pursuant to this Agreement for a period of at least twelve months from
the effective date of this Agreement. Thereafter, or sooner if Dr. Anderson
becomes unable or unwilling to act in such capacity, at any time that QUINTILES
desires to replace Dr. Anderson as a scientific advisor, QUINTILES may do so,
subject to the reasonable review and approval by ALTEON.
(c) The parties acknowledge and agree that, because QUINTILES
must undertake to provide the Services as expeditiously possible, QUINTILES
initially may provide a maximum of 60% of the Services (calculated on the basis
of the number of personhours necessary to provide the Services) through the use
of clinical research associates who are independent contractors of QUINTILES.
However, QUINTILES shall use its best efforts so that, within a reasonable
period of time after the date of this Agreement, it provides such percentage of
the Services (calculated on the same basis) through the use of individuals who
are full-time employees of QUINTILES as QUINTILES and ALTEON shall determine is
appropriate. During the term of this Agreement, QUINTILES shall keep ALTEON
informed as to the key team members (including, but not limited to, CRAs,
biostatistician, programmer, project medical officer, data manager, regulatory
affairs representative and project leader) assigned to provide the Services from
time to time. Subject to the foregoing, if, at any time, ALTEON is not satisfied
with any or all of the staffing providing Services, ALTEON may request a change
to satisfy its concerns. In such event, ALTEON and QUINTILES shall conduct good
faith discussions regarding changes in the staffing used to provide the
Services, in an effort to reach a mutually acceptable resolution.
-5-
<PAGE> 9
1.4 QUINTILES's Representations and Warranties. QUINTILES represents
and warrants to ALTEON that:
(a) It has the facilities, personnel and experience sufficient
in quantity and quality to perform all Services pursuant to this Agreement;
(b) All of the personnel assigned to perform the Services and
the Studies shall be qualified and properly trained;
(c) QUINTILES shall perform the Services in a manner
commensurate with professional standards generally applicable among its
industry;
(d) QUINTILES will maintain strict budgetary controls, it will
use reasonable efforts to not exceed any of the itemized costs in the Budget,
and it will use its best efforts not to exceed the total cost figure for each
Protocol, or Major Area thereof (as defined in Section 5.8), contained in the
Budget;
(e) QUINTILES will use its best efforts to meet the time
periods for completion of the Services to be provided pursuant to the Agreement;
and
(f) All statements of fact set forth in the Proposal
concerning the qualifications and activities of QUINTILES are true in all
material respects.
1.5 Communications. All communications and day-to-day or regular
reports to be made pursuant to this Agreement (other than legal notices, which
shall be delivered pursuant to Section 12.3), shall be made in the same manner
as provided in Section 12.3, but shall be made as follows (or to such other
person as such party may designate from time to time):
(a) If to ALTEON, addressed to:
Alteon Inc.
170 Williams Drive
Ramsey, New Jersey 07446-2907
Attention: Kenneth Cartwright, MB, ChB,
MFCM, MRCPsych
Telephone No.: (201) 934-5000
Facsimile No.: (201) 934-8880
-6-
<PAGE> 10
(b) If to QUINTILES, addressed to:
Quintiles, Inc.
1007 Slater Road
Durham, North Carolina 27703
Attention: Randy Anderson, Ph.D.
Telephone No.: (919)941-2888
Facsimile No.: (919)941-0972
2. TRANSFER OF RIGHTS AND OBLIGATIONS.
2.1 Transfer of Obligations to QUINTILES. Pursuant to 21 CFR 312.52 (or
the Canadian equivalent), ALTEON shall transfer to QUINTILES all of the
obligations identified in EXHIBIT B to be so transferred and agrees that the
same description and extent of obligations transferred shall be included in Form
FDA 1571, Section #13 (or the Canadian equivalent). QUINTILES agrees to carry
out diligently all transferred obligations.
2.2 Transfer of Rights and Obligations by ALTEON. The parties
acknowledge and agree that ALTEON may have one or more strategic development
partners involved in the Studies from time to time during the term of this
Agreement. ALTEON shall have the right to grant any of its rights and
obligations under this Agreement to one or more such partners upon notice to
QUINTILES from time to time; provided however, that in the event that any such
partner is financially less stable than ALTEON, then ALTEON shall guarantee any
financial obligations transferred to such partner unless QUINTILES otherwise
agrees.
3. STATUS REPORTING.
3.1 Cooperation. All of the Services shall be performed in close
cooperation with ALTEON, and designated ALTEON personnel will be kept frequently
and regularly informed of the progress of the Studies as contemplated by the
Proposal.
3.2 Monthly Status Reports.
(a) QUINTILES will provide monthly status reports on each
Study within ten (10) days after the end of each month which shall include, but
not be limited to, the number of patients entered, dropped and completed in such
Study, reports of monitoring site visits, CRF's reviewed, safety reports, and
data entered into each Study database.
(b) QUINTILES will also provide a monthly report containing a
comparison of the actual cost to Alteon of each Study for Services performed
from the effective date of this Agreement through the end of such month to the
costs for such Services as set forth in the Budget (as defined in Section 5.1).
-7-
<PAGE> 11
4. CLINICAL SUPPLIES.
4.1 Clinical Supplies. QUINTILES will coordinate and have day-to-day
responsibilities for directing ALTEON's distributor with regard to the supply to
the Investigators of the Compound and other non-drug study supplies for the
timely completion of the Studies and will instruct the distributor selected by
ALTEON in the shipment of any such supplies.
5. COMPENSATION.
5.1 Budget. The total estimated budget for the Services is attached as
EXHIBIT C,, as amended or added to from time to time by mutual agreement of the
parties (the "Budget"). Following receipt by Alteon of the report provided
pursuant to Section 3.2, the parties shall review, on a monthly basis, the
budgeted costs associated with the ongoing performance of the Services to be
provided by QUINTILES. In addition, at the end of each calendar quarter during
the term of this Agreement, ALTEON and QUINTILES shall meet and conduct such a
review of the Budget in detail, and ALTEON shall have the right to review, on a
line-by-line basis, each invoice for Services rendered to ALTEON by QUINTILES in
comparison to the Budget for such Services.
5.2 Payment Obligation. ALTEON shall pay to QUINTILES the fees and
other out-of-pocket costs set forth in the Proposal. QUINTILES warrants that all
out-of-pocket expenses incurred by QUINTILES in connection with the Studies,
including, without limitation, travel and printing expenses, are billed to
ALTEON at the same cost as incurred by QUINTILES. All fees for Investigators'
services will be billed by the Investigators directly to ALTEON.
5.3 Invoices. QUINTILES will submit to ALTEON monthly invoices
approximately twenty (20) days after the end of each calendar month during the
term of this Agreement. All invoices from QUINTILES shall be itemized to reflect
activities performed, time spent and costs incurred, in such detail as ALTEON
shall reasonably request from time to time. In addition, QUINTILES will
supplement each invoice within ten (10) days thereafter with information
reflecting the names of the individuals who performed the services invoiced and
time spent by each individual reflected in such invoice. Such invoices will
specify QUINTILES' fees, based on its daily rates, as specified in the Proposal,
and out-of-pocket expenditures for the applicable month.
5.4 Payment of Invoices. All QUINTILES invoices are payable within ten
(10) business days after the receipt by ALTEON of the invoice and supplemental
information (as contemplated by Section 5.3).
5.5 Disputes Regarding Invoices. QUINTILES shall not suspend work or
seek to terminate this Agreement on account of ALTEON's failure to pay any
invoiced amount which is the subject of a good faith bone fide dispute, provided
that ALTEON pays all non-disputed
-8-
<PAGE> 12
amounts. In the event there is a good faith bone fide dispute as to the timing
or amount of a payment to be made under this Agreement which the parties cannot
resolve amicably, then upon the request of either party, such matter shall be
referred for expedited resolution pursuant to the provisions of Section 12.7 of
this Agreement.
5.6 Cost Savings. Should there be a cost or expense savings under this
Agreement, QUINTILES shall refund such savings to ALTEON at the termination of
this Agreement.
5.7 No Interest. All payments under this Section 5, including the
refund of savings by QUINTILES under Section 5.5, shall be made free of
interest.
5.8 Cost Estimates. The time and cost estimates contained in the
Proposal represent the best judgment QUINTILES can render at the outset of this
Agreement. ALTEON and QUINTILES agree that any unforeseen cost increases of up
to 5% of the total Budget amount for each Major Area of each Study will be
permitted as a legitimate cost modification, provided that QUINTILES shall
notify ALTEON promptly of any such excess costs. QUINTILES will document actual
hours expended. It is understood that QUINTILES shall use its good faith efforts
to control and limit the costs and expenses associated with this Agreement,
consistent with the quality of work and time for completion of services required
of QUINTILES as provided in this Agreement. For purposes of this Agreement,
"Major Area" means each of the sections in the Budget appearing therein in all
capital letters, such as PROJECT SET-UP/INITIATION, CLINICAL TRIAL MANAGEMENT,
MEDICAL SUPPORT, CLINICAL DATA MANAGEMENT, BIOSTATISTICAL ANALYSIS, SUPPORT
SERVICES and MISCELLANEOUS COSTS.
5.9 Cost Increases. In the event that QUINTILES determines that a cost
increase of more than 5% of the total Budget amount for any Major Area of any
Study is necessary, QUINTILES shall provide ALTEON with the reason(s) for the
requested modification to the Budget and an estimate of the overall increase in
costs. ALTEON and QUINTILES shall meet and confer regarding their requested
modifications and shall use their best efforts to agree on modifications to the
Budget that are mutually acceptable.
5.10 Records Retention. QUINTILES shall keep complete and accurate
records pertaining to the Services performed and costs incurred in connection
with the Services for a period of three years after the termination of this
Agreement, and in sufficient detail to permit ALTEON to confirm the accuracy of
the invoices submitted pursuant to this Section 5.
5.11 Audit Request. At the request and expense of ALTEON, QUINTILES
shall permit a representative of ALTEON (provided such representative is not in
competition with QUINTILES) or an independent, certified public accountant
appointed by ALTEON, at reasonable times and upon reasonable notice, to examine
those records and all other material documents relating to or relevant to the
Services and costs thereof in the possession or control of QUINTILES, for a
period of three years after the termination of this Agreement, as may be
necessary to determine the correctness of any payment made under this Agreement.
Results of
-9-
<PAGE> 13
any such examination shall be made available to QUINTILES if a claim is made for
overpayment by ALTEON. ALTEON shall bear the full cost of the performance of any
such audit, unless such audit demonstrates overbilling by QUINTILES of more than
five percent (5%) from the amount of the original invoice submitted by QUINTILES
for such Services and costs. In such event, QUINTILES shall bear the full cost
of the performance of such audit.
6. CONFIDENTIAL INFORMATION.
6.1 Confidentiality Obligation. QUINTILES agrees that all materials,
documents, data, reports and information provided to it by ALTEON and, except as
provided in Section 7, all materials, documents, data, reports and information
developed by QUINTILES pursuant to this Agreement, is and shall be considered as
confidential information of ALTEON (collectively, the "ALTEON Confidential
Information") and the sole property of ALTEON. ALTEON agrees that all
information disclosed to ALTEON about QUINTILES' internal operations and
systems, including but not limited to QUINTILES Property described in Section 7
below, is and shall be considered as confidential information of QUINTILES
(collectively, the "QUINTILES Confidential Information") and is the sole
property of QUINTILES.
Each party agrees to hold the Confidential Information of the other party in
strict confidence during the term of this Agreement and for 10 years after the
termination of this Agreement and shall not, without the consent of the other
party, (a) reveal, publish, report or disclose any Confidential Information to
any person or entity, or (b) use any of such party's Confidential Information
for the benefit of any person or entity, or for any purpose, other than as may
reasonably be necessary for the conduct of the Services and the Studies as
contemplated by this Agreement, except that either party may disclose
Confidential Information of the other party to hospital authorities, IRBs,
employees and representatives only on a need-to-know basis (including fulfilling
corporate reporting obligations) and only if the foregoing parties (other than
hospital authorities and IRBs) are bound and obligated by similar to provisions
of confidentiality similar to as provided in this Agreement.
6.2 Exceptions. The obligations of the parties regarding Confidential
Information shall not apply to information which: (a) is or becomes available to
the public other than as a result of disclosure by the receiving party: (b)
becomes available to the receiving party on a non-confidential basis from a
source which is not obligated to hold such information in confidence; (c) is
developed by the receiving party independently, and not as part of the Services
provided under this Agreement, as evidenced by written records; (d) was in the
possession of the receiving party prior to the receipt from the disclosing party
or the creation of the information pursuant to this Agreement; or (e) is
required by law to be disclosed, provided that the owner of the Confidential
Information shall be notified in advance and given a reasonable opportunity to
oppose such disclosure.
6.3 Return of Confidential Information. Upon the completion or earlier
termination of this Agreement, QUINTILES will promptly return to ALTEON all of
the ALTEON
-10-
<PAGE> 14
Confidential Information, as well as all applicable portions of the written or
computer stored material which incorporates any ALTEON Confidential Information,
provided that QUINTILES may retain in its confidential files one copy of such
documents as it may determine reasonably necessary for regulatory, legal or
insurance purposes.
6.4 Remedies. Each party acknowledges that the disclosure of
Confidential Information of the other party without such party's express,
written permission will cause such party irreparable harm and that the breach or
threatened breach of the nondisclosure provisions of this Agreement will entitle
the owner of the Confidential Information to injunctive relief, in addition to
any other legal remedies that may be available to it.
7. OWNERSHIP OF PROPERTY.
7.1 Ownership. All materials, documents, data, information, reports and
suggestions of every kind and description supplied to QUINTILES by ALTEON or
prepared or developed by QUINTILES pursuant to this Agreement (except for
QUINTILES Property described below ) shall be the sole and exclusive property of
ALTEON and ALTEON shall have the right to make whatever use it deems desirable,
without objection or liability to QUINTILES of any such materials, documents,
data reports and information. All such materials, records, documents, data,
information and reports are subject to audit by ALTEON during regular business
hours, at ALTEON's discretion and upon reasonable notice to QUINTILES, to verify
QUINTILES's compliance with this Agreement and the Protocols. It is acknowledged
that QUINTILES is possessed of certain technical expertise relating to
computers, software, and drug development which have been independently
developed by QUINTILES without the benefit of any information provided by
ALTEON. The parties agree that any computer software programs, statistical
methodologies, processes, methods and other analyses used by QUINTILES under or
during the term of this Agreement (except where such program, methodology,
process, method or analyses is created or developed at the request and expense
of ALTEON or with the assistance of ALTEON) are the product of QUINTILES'
technical expertise possessed and developed by QUINTILES prior to the date of
this Agreement and are the sole and separate property of QUINTILES (the
"QUINTILES Property").
7.2 Data Retention. QUINTILES may retain copies of all such materials,
records, documents, data, information and reports as required by applicable
laws, rules and regulations. Unless otherwise required by law or by the terms of
this Agreement, all such ALTEON property which QUINTILES shall have in its
possessions shall be maintained by QUINTILES for a period of not less than three
(3) years from the date of receipt thereof and shall be organized in such manner
that it will be ready for immediate reference. After three (3) years or such
longer period as may be required by applicable laws or regulations, QUINTILES
may dispose of such property in accordance with ALTEON's instructions. If ALTEON
fails to give said instructions, QUINTILES shall so notify ALTEON; and if said
instructions are still not forthcoming within thirty (30) days of said
notification, then QUINTILES may destroy such property as it determines.
-11-
<PAGE> 15
8. PATENT RIGHTS.
8.1 Invention Disclosure. QUINTILES will disclose promptly to ALTEON or
its nominee any and all patentable inventions, discoveries and improvements
conceived or made by QUINTILES as a result of providing the Services to ALTEON
pursuant to this Agreement and relating to such Services, and agrees to assign
all its interest therein to ALTEON or its nominee; provided, that QUINTILES
shall retain all rights to QUINTILES Property and improvements thereto (except
where such improvement is created or developed at the request and expense of
ALTEON or with the assistance of ALTEON), including any data, processes,
software (including codes) technology, means, and know-how developed by
QUINTILES which relate generally to data collection, data management or
statistical analyses.
8.2 Assignment. Whenever requested to do so by ALTEON, QUINTILES will
execute any and all applications, assignments or other instruments and give
testimony which ALTEON shall deem necessary to apply for and obtain Letters of
Patent of the United States or of any foreign country or to protect otherwise
ALTEON's interests therein, and ALTEON shall compensate QUINTILES for the time
devoted to said activities and in reimburse it for expenses incurred.
9. INDEMNIFICATION AND LIMITATION OF LIABILITY.
9.1 Indemnification of QUINTILES. ALTEON will defend, indemnify and
hold harmless QUINTILES, its affiliates and its and their respective directors,
officers, employees and agents (each an "Indemnified Party") from and against
all losses, claims, actions, damages, liabilities, costs and expenses (including
reasonable attorney's fees and court costs) (collectively, "Losses") from any
claim from any third party relating to or arising out of or in connection with
the performance of the Services to be provided by QUINTILES pursuant to this
Agreement or conducted in accordance with the Protocol, ALTEON's instructions,
or any applicable FDA (or the equivalent Canadian regulatory authority) or other
governmental requirements, except to the extent that such Losses are determined
to be attributable to:
(a) the failure by QUINTILES or any of the QUINTILES's
personnel (including employees, agents or independent contractors) involved in
the Study to adhere to the terms of the applicable Protocol or this Agreement;
or
(b) any negligent or wrongful act or omission, or willful
malfeasance, of QUINTILES or any of the QUINTILES's personnel (including
employees, agents or independent contractors) involved in the Services being
provided by the QUINTILES pursuant to this Agreement.
-12-
<PAGE> 16
9.2 Indemnification of ALTEON. QUINTILES will defend, indemnify and
hold harmless Alteon, its affiliates and its and their respective directors,
officers, employees and agents (each an "Indemnified Party"), from and against
all Losses from any claims from any third party, to the extent such Losses are
determined to be attributable to:
(a) the willful failure by QUINTILES or any of the QUINTILES's
personnel (including employees, agents or independent contractors) involved in
the Study to adhere to the terms of the applicable Protocol or this Agreement;
or
(b) any deliberate or wrongful act or omission, or willful
malfeasance, of QUINTILES or any of the QUINTILES's personnel (including
employees, agents or independent contractors) involved in the Services to be
provided by the QUINTILES pursuant to this Agreement.
9.3 Notice; Control of Defense. Each Indemnified Party shall promptly
notify the indemnifying party of the assertion of any claim or suit for which
indemnity hereunder may be sought. Each such Indemnified Party shall permit the
indemnifying party to conduct and control the defense and disposition (including
all decisions relative to litigation, appeal or settlement) thereof with counsel
selected by the indemnifying party and shall cooperate with the indemnifying
party in connection therewith. The Indemnified Party shall have the right, at
its option and its sole expense, to be represented by separate counsel of its
selection in connection with any such claim or suit. Each Indemnified Party
shall not unreasonably withhold approval of the settlement of any claim which is
approved by the indemnifying party.
9.4 Limitation of Liability. Except as may otherwise be provided in
Section 9.2, all liability of QUINTILES for any breach of this Agreement, shall
be limited to damages directly attributable to such breach, (excluding any
special, incidental or consequential damages, even if QUINTILES shall have been
advised of the possibility of such damages) and shall also be limited to the
aggregate compensation received by QUINTILES from ALTEON under this Agreement.
9.5 Investigators. For purposes of this Section 9, the parties
acknowledge that Investigators shall be deemed to be independent contractors of
ALTEON and not of QUINTILES.
10. TERM; TERMINATION.
10.1 Term of Agreement. This Agreement shall become effective on the
date set forth above and shall continue until all Services have been fully and
completely performed by QUINTILES, unless earlier terminated as provided for
herein.
10.2 Termination by ALTEON. ALTEON may terminate either Study, the
scope of Services or any particular project to be performed under this Agreement
for any reason upon thirty (30) days' written notice to QUINTILES. ALTEON may
terminate this Agreement, in its entirety, for any reason upon sixty (60) days'
written notice to QUINTILES.
-13-
<PAGE> 17
10.3 Breach. Subject to Section 5.5, upon failure by either party to
cure a material breach of this Agreement within sixty (60) days (or, if such
default cannot be cured within such sixty (60) day period, if the party in
default does not commence and diligently continue actions to cure such default)
after a written demand for performance, the notifying party shall have the right
at any time to terminate this Agreement. Such right to terminate shall be in
addition to any and all other legal remedies which such party may have for the
enforcement of any and all terms hereof, and does not in any way limit any other
legal remedy such party may have. No delay or failure to enforce this or any
other provision, or failure to give notice under this Agreement shall constitute
a waiver or limitation of rights enforceable under this Agreement.
10.4 QUINTILES's Obligations Upon Early Termination. In the event of
any termination of this Agreement, any Study or any portion thereof by either
party pursuant to Section 10.2 or 10.3, QUINTILES shall use all reasonable
efforts to conclude or transfer such Study or Studies or portion thereof, as the
case may be, as expeditiously as practicable and in accordance with all
applicable laws, rules and regulations, including those of the FDA (or the
equivalent Canadian regulatory authority) to terminate all obligations as soon
as possible to avoid incurring additional expenses. Further, QUINTILES and
ALTEON shall cooperate with each other during each termination of such Study or
Studies or portion thereof, as the case may be, to safeguard patient safety,
continuity of patient treatment and to comply with applicable laws, rules and
regulations.
10.5 ALTEON's Obligations upon Early Termination. In the event of
termination of this Agreement, any Study or any portion thereof by ALTEON
pursuant to Section 10.2 or by QUINTILES pursuant to Section 10.3, QUINTILES
shall be promptly paid in full for all work and service performed pursuant to
this Agreement, or relating to such Study or portion thereof, as the case may
be, including all fees and other out-of-pocket expenses, as of the date work
pursuant to this Agreement, or on such Study or portion thereof, as the case may
be, is actually concluded, plus all reasonable costs associated with termination
of such Services, such as non-cancelable third party costs associated therewith.
In the event of termination by ALTEON pursuant to Section 10.3, ALTEON shall pay
all costs which have been incurred by QUINTILES through the date of such
termination, but shall not be responsible for non-cancelable third party costs
associated therewith.
10.6 Survival. Termination, relinquishment or expiration of this
Agreement for any reason shall be without prejudice to any rights which shall
have accrued to the benefit of either Party prior to such termination,
relinquishment or expiration. The rights and obligations of the parties under
Sections 5.10, 5.11, 6, 7, 8, 9, 10.4, 10.5, 12.6 and 12.7 shall survive the
termination of this Agreement.
11. FORCE MAJEURE.
11.1 Force Majeure. The parties shall be excused from performing their
obligations under this Agreement if its performance is delayed or prevented by
any event beyond such party's
-14-
<PAGE> 18
reasonable control, including, but not limited to acts of God, fire, explosion,
weather, disease, war, insurrection, civil strife, riots, government action, or
power failure, provided that such performance shall be excused only to the
extent of and during such disability. Any time specified for completion of
performance in this Agreement falling due during or subsequent to the occurrence
of any of such events shall be automatically extended for a period of time equal
to the period of such disability. QUINTILES will promptly notify ALTEON if, by
reason of any of the events referred to herein, QUINTILES is unable to meet any
such time for performance specified in this Agreement.
12. MISCELLANEOUS.
12.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
12.2 Assignment. This Agreement may not be assigned, and the
obligations hereunder cannot be delegated, in whole or in part by QUINTILES
without the prior written consent of ALTEON. QUINTILES may delegate or
subcontract Services to be provided under this Agreement to any other subsidiary
of Quintiles Transnational Corporation. In no event shall any assignment or
subcontract of work release QUINTILES from any of its obligations hereunder and
any assignee or subcontractor shall agree to be bound by the terms of this
Agreement as if it were an original party hereto. This Agreement shall be
binding upon the successors and permitted assigns of the parties. Any assignment
not in accordance with this Section 12.3 shall be void.
12.3 Notices. All legal notices hereunder shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided, that notices of a change or address shall be
effective only upon receipt thereof):
(a) If to ALTEON, addressed to:
Alteon Inc.
170 Williams Drive
Ramsey, New Jersey 07446-2907
Attention: Mr. James J. Mauzey, Chairman and Chief
Executive Officer
Telephone No.: (201) 934-5000
Facsimile No.: (201) 934-8880
cc:
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<PAGE> 19
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, New Jersey 08540
(b) If to QUINTILES, addressed to:
Quintiles, Inc.
1007 Slater Road
Durham, North Carolina 27703
Attention: Kenneth A. Williams, Dr. P.H.
Telephone No.: (919)941-2888
Facsimile No.: (919)941-2165
12.4 Amendment. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.
12.5 Waiver. No provision of this Agreement shall be waived by any act,
omission or knowledge of a party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by the waiving
party.
12.6 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New Jersey, applicable to contracts
executed and performed wholly within the State of New Jersey.
12.7 Alternative Dispute Resolution. Except with respect to breaches
for which a Party is seeking injunctive relief, all disputes between the Parties
relating to this Agreement or the subject matter hereof which cannot be resolved
by the Parties, shall, upon written notice by one Party to the other, be
submitted for settlement by means of alternative dispute resolution, which can
include moderated settlement, minitrial, use of expert advisor mediation or
non-binding arbitration, as provided in the New Jersey Alternative Procedure for
Dispute Resolution Act, N.J.S.A. 2A:23A-1 et seq. (the "Act"). All proceedings
for the alternative resolution of a dispute (an "ADR Proceeding") shall be
designed to conclude within four (4) months of the original notice and shall be
held at a mutually agreeable location or in New York City. If the Parties cannot
agree on the form of ADR Proceeding to be used, then binding arbitration, with
an independent arbitrator acceptable to both Parties, shall be used. The Parties
shall have ten (10) days after notice is received by the other Party to mutually
agree on an umpire for the ADR Proceeding, who shall be selected from among the
members of J-A-M-S Endispute, located in Morristown, New Jersey. If the Parties
cannot agree on the umpire to be used within such period, J-A-M-S Endispute
shall appoint one of its members to serve as umpire for the ADR Proceeding. All
fees and expenses associated with the ADR Proceeding shall be divided equally
between the parties; provided that each party shall be responsible for such
party's own attorneys' fees and disbursements. The Act shall govern the
procedures and methods for any ADR
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<PAGE> 20
Proceeding demanded or undertaken pursuant to this Agreement. The Parties will
cooperate with each other in causing the ADR Proceeding to be held in as
efficient and expeditious a manner as practicable.
12.8 Entire Agreement of the Parties. This Agreement, together with all
Exhibits attached hereto, constitutes and contains the entire understanding and
agreement of the parties and cancels and supersedes any and all prior
negotiations, correspondence, understandings and agreements, whether oral or
written, between the parties respecting the subject matter hereof.
12.9 Counterparts. This Agreement may be executed simultaneously in two
counterparts, either one of which need not contain the signature of more than
one party but both such counterparts taken together shall constitute one and the
same agreement.
12.10 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.
ALTEON INC.
By: /s/ James J. Mauzey
-------------------
Name: James J. Mauzey
---------------
Title: Chairman, CEO
---------------
QUINTILES, INC.
By: /s/ K.A. Williams
-------------------
Name: K.A. Williams
---------------
Title: Vice President
---------------
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<PAGE> 21
EXHIBIT A
DATA MANAGEMENT REQUIREMENTS
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1. DATABASE STRUCTURE
1. Provide completed database
specifications for how data will be
returned to Alteon following Kickoff
meeting in Kansas City
5 Days Approval X
- ------------------------------------------------------------------------------------------------------------
2. Design and create database structure
within 1 week of fully executed contract. 7 Days X
- ------------------------------------------------------------------------------------------------------------
3. Provide Screen Layouts and report
documentation showing number of data
records imported to establish the CRO
database as "live" and fully operational. 14 Days X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
B. EXCEPTION CRITERIA
- ------------------------------------------------------------------------------------------------------------
1. Develop CRF exception criteria (data 15 Days
edit checks). Alteon will provide support Coding
& previous exception criteria used by 15 Days
HMR at Kickoff Meeting in Kansas City. Debug Final Approval X
15 Days
Modifications
- ------------------------------------------------------------------------------------------------------------
2. First "Live" exception run & status 30 Days X
reports
- ------------------------------------------------------------------------------------------------------------
3. All exceptions that are generated will 3 Days from
be audited to ensure authenticity (not X
erroneous)
"live" run
- ------------------------------------------------------------------------------------------------------------
4. Prepare audit reports detailing
exceptions generated. Submit plan to
complete backlog processing within 45
days. Including any outstanding (current) 7 Days from
HMR edits that will be supplied by X
Alteon (Not to exceed 250). "live" run
- ------------------------------------------------------------------------------------------------------------
5. Generate second exception run within
45 days of first run. Every run thereafter
shall not exceed a 30 day interval. All
open exceptions shall be resolved within 45 Days from
the normal 30 day interval prior to "live" run X
subsequent exception runs.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
6. Provide monthly report showing all
exceptions completed within last 30 days
showing exception #, Description, Date
completed, Date entered to system, CRA 30 Days
Responsible, Site number, Resolution following 2nd Approval X
run
- ------------------------------------------------------------------------------------------------------------
7. Provide monthly report showing all
outstanding Exceptions showing
exception #, description, Date generated,
Status, expected completion date, 30 Days
comments, Site #, and CRA responsible following 2nd Approval X
run
- ------------------------------------------------------------------------------------------------------------
8. Assist Alteon in monthly review of
the exception system to identify problems
and jointly suggest and effect corrections 30 Days
and modifications following 2nd X X
run
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
3. CRF TRACKING , DATA ENTRY, DATA
REVIEW
- ------------------------------------------------------------------------------------------------------------
1. Independent double data entry with
100% validation. X
- ------------------------------------------------------------------------------------------------------------
2. Data online for all CRF pages
received in-house within 7 Days. X
- ------------------------------------------------------------------------------------------------------------
3. All data online and exceptions
resolved prior to semi-annual safety Semi- X
meeting. Annual
- ------------------------------------------------------------------------------------------------------------
4. Perform an in-house quality control
review of CRFs prior to data entry for
missing pages, legibility of comments,
clarification of medication names,
accuracy of patient identification, on each
page and correct pagination throughout Daily X
the CRF.
- ------------------------------------------------------------------------------------------------------------
5. Comments or other textual information
must be redirected to an appropriate
comment/data field on the CRF or
deleted following Alteon approval. Daily X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
4. AUDIT TRAIL
- ------------------------------------------------------------------------------------------------------------
1. Maintain an audit trail log for all
changes to the database and/or the CRF.
Make audit log available for review
during monthly Alteon audit. Daily X
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
2. Audit trail will show the history of
all study data including Old Value, New
Value, Date/Time Changed, who made
the change, reason for the change. Make
Log available to Alteon during monthly Daily X
audit trips.
- ------------------------------------------------------------------------------------------------------------
3. Perform a final CRF inventory
before database finalization to ensure that 45 Days prior
all CRFs have been collected from the to the end of
sites and transferred to the CRO. both protocols X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
5. CODING
- ------------------------------------------------------------------------------------------------------------
1. Coding of adverse events will be
done using the WHO data dictionary
with HMR modifications supplied by
Alteon to be incorporated into the CRO 10 Days X
dictionary.
- ------------------------------------------------------------------------------------------------------------
2. For previous/concomitant medications
the CRO can utilize their in-house data Daily X
dictionary.
- ------------------------------------------------------------------------------------------------------------
3. Alteon to provide resolution to
medication names which do not code
against the dictionary. CRO to make any
necessary database corrections. Daily X
- ------------------------------------------------------------------------------------------------------------
6. MANAGEMENT REVIEW OF DATA
- ------------------------------------------------------------------------------------------------------------
1. A 100% verification of all data fields
(CRF versus database) will be done for a
sample of patients at timepoints
determined by Alteon. Any errors
identified will be corrected. Performed
when Alteon feels is appropriate for the As- Approval X
study. Done jointly by Alteon & CRO Determined
Staff.
- ------------------------------------------------------------------------------------------------------------
2. If error rate from review exceed 5%
of samples reviewed the CRO will
perform a full in-depth audit of the
database versus the CRF forms to ensure
accuracy within a 30 day period
following the original review and report
to Alteon the problems found, resolutions
made, procedures adopted to prevent
subsequent failure percentages. As-required X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
7. ADVERSE EVENTS
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1. Import the HMR Serious Adverse
Event (SAE) database into the CRO
desired database format (ie. SAS, Oracle, 30 Days X
etc.)
- ------------------------------------------------------------------------------------------------------------
2. Continue entering Adverse Event data
including, AE Nag, AE Module, Study
Termination, dose/dispensing
information, patient disposition. Daily X
- ------------------------------------------------------------------------------------------------------------
3. SAE Reporting
a. Provide monthly Reports of all SAE Monthly
data entries for
the proceeding month including AE
Nag, AE Module, Study
Termination, dose/dispensing
information, patient disposition (or
data CRO deems pertinent).
b. Database of adverse events provided As-Required X
at Alteon's request for IND reporting
and NDA submission preparation.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
8. END-STUDY AUDIT
- ------------------------------------------------------------------------------------------------------------
1. Performed after all CRF's have been
entered, exception processing and
corrections have been completed, all Prior to
outstanding updated have been Database
reconciled. Audit will be completed Finalization X
prior to Database Finalization.
- ------------------------------------------------------------------------------------------------------------
2. Minimum * data fields verified (CRF
versus database); acceptable error rate
*%. If audit reveals greater error rate
than *% an additional * data fields(or Prior to
*% of remaining fields, whichever is Database
greater) will be sampled and corrected. X
Finalization
- ------------------------------------------------------------------------------------------------------------
3. Alteon will provide complete
guidelines for end study audit with input X
from the CRO.
- ------------------------------------------------------------------------------------------------------------
4. Documentation for the audit will
include: who performed the audit, dates
audit performed, patient numbers
verified, total number of fields verifies,
number and description. X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
9. DATABASE FINALIZATION
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Confidential Treatment Requested
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Database finalization within 4 weeks of 30 Days
last patient data in-house and End-Study from X
Audit completed. last data
entry
- ------------------------------------------------------------------------------------------------------------
2. All data inhouse and online, Patient 30 Days from
disposition coding complete, End study X
audit complete and with acceptable error last data entry
rate, Alteon approval of adverse coding,
TAN reconciliation (treatment assignment
number) if the CRF differs from the
TAN on any study medication label.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
10. RANDOMIZATION VERIFICATION
- ------------------------------------------------------------------------------------------------------------
1. 100% verification of the TAN 14 days from
recorded in the CRF, the drug assigned X
to the patient in the database, and the database
drug assigned to the TAN on the finalization
randomization schedule.
- ------------------------------------------------------------------------------------------------------------
2. Provide Alteon an electronic copy of
the randomization schedule. X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
11. DATA DOCUMENT SUMMARY IN
CLINICAL STUDY REPORT (CSR)
- ------------------------------------------------------------------------------------------------------------
1. Summary of data quality procedures
used for the study, including exception
criteria and end study audit results
(patient numbers verified , errors Two weeks of
identified, total number of data fields Database
verified, and calculated error rate) within X
two weeks of database finalization. Finalization
- ------------------------------------------------------------------------------------------------------------
2. Standard template provided by Alteon X
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
12. POST FINALIZATION CHANGES
- ------------------------------------------------------------------------------------------------------------
1. If any post finalization changes are
identified after the database has been
finalized, and the drug coded unblinded,
evaluate the impact of making the
change(s) and provide recommendation. As- X
Database will be updated at the sole Required
discretion of Alteon.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
13. DATABASE DOCUMENTATION
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1. All computer programs used to
support creation, clean-up, and reporting
of the database will be provided to
Alteon within 6 weeks of the CSR. 6 weeks from
(This includes derived data) CSR X
- ------------------------------------------------------------------------------------------------------------
2. The disposition criteria, programs
used to assign disposition codes, major
and minor protocol violation codes, and
the disposition and violation codes X
assigned to each patient.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
14. SAS DATASETS
- ------------------------------------------------------------------------------------------------------------
1. Complete datasets and all copies of 6 weeks from
CRFs provided within 6 weeks of final X
CSR. CSR
- ------------------------------------------------------------------------------------------------------------
2. Alteon will load datasets inhouse data
management system.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
15. COMMUNICATIONS
- ------------------------------------------------------------------------------------------------------------
1. All communications with Alteon
Clinical Data Management will be
documented and distributed within 5 As-Required X
working days.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
EXHIBIT B
TRANSFER OF OBLIGATIONS TO QUINTILES
ALTEON shall report to the FDA (or the equivalent Canadian regulatory
authority) that QUINTILES will assume the following obligations with respect to
the Studies:
1. QUINTILES will maintain or update each, as necessary, of the following
documents with respect to each Study from each Investigator to be
monitored by QUINTILES:
a. A completed and signed Form FDA-1572 (or the Canadian
equivalent).
b. Current curriculum vitae of the principal Investigator and all
secondary Investigators identified on Form FDA- 1572 (or the
Canadian equivalent).
c. Protocol signature page signed by the principal Investigator.
d. A copy of the informed consent form to be used by the
Investigator.
e. IRB approval of the Protocol and informed consent form.
f. As appropriate, IRB approval of Protocol amendments and annual
reapprovals.
2. QUINTILES will provide all participating Investigators with updated
investigators' brochures, as appropriate, and, as the investigation
proceeds, keep each participating Investigator informed of new
information received from ALTEON regarding the Compound.
3. In accordance with 21 CRF 312.32 (or the Canadian equivalent),
QUINTILES will promptly inform Investigators and ALTEON of any
important safety information, including serious adverse experiences
received by QUINTILES.
4. QUINTILES will report to ALTEON any Investigator that is not complying
with his/her signed agreement (Form FDA-1572, or the Canadian
equivalent), end the Investigators participation in the Studies, and
recover unused Compound.
5. QUINTILES will select qualified personnel by training and experience to
manage and monitor the progress of the investigation. QUINTILES shall
use such percentage of individuals who are QUINTILES employees as CRAs
as QUNITLIES and ALTEON shall determine is appropriate (calculated on
the basis of the number of CRA personhours necessary). All CRAs shall
be subject to ALTEON's reasonable approval.
6. QUINTILES will monitor the Studies in accordance with all now or
hereafter applicable Federal, national, state and local laws, statutes,
ordinances and regulations, including without limitation, FDA (or the
equivalent Canadian
<PAGE> 28
regulatory authority) guidelines on the responsibilities of sponsors,
monitors and clinical Investigators and informed consents.
7. QUINTILES will summarize the evidence related to the safety of the
Compound as it is obtained from the Investigators being monitored by
QUINTILES and make such evidence available to ALTEON.
8. QUINTILES will undertake the management of the shipment of Compounds to
Investigators and the maintenance of adequate records showing receipt,
shipment, and disposition of Compound in accordance with 21 CRF
312.57(a) (or the Canadian equivalent).
9. QUINTILES will verify the proper return of all unused supplies of
Compound from each Investigator whose participation in the Studies is
completed or terminated.
10. QUINTILES will retain records and reports associated with the Studies
in accordance with 21 CRF 312.57(b) (or the Canadian equivalent).
<PAGE> 29
EXHIBIT C
BUDGET
<PAGE> 30
BUDGET
PROTOCOL 0002
PROJECT SET-UP/INITIATION
Project Transfer and Start-up *
Development of Study Files *
SUBTOTAL PROJECT SET-UP INITIATION: *
CLINICAL TRIAL MANAGEMENT
Clinical Monitoring - Interim, Close-Out Visits *
Clinical In-House Administration *
Drug Distribution Management *
GCP/GMP Site Audits *
SUBTOTAL CLINICAL TRIAL MANAGEMENT *
MEDICAL SUPPORT
AE Processing and Reporting *
SUBTOTAL MEDICAL SUPPORT *
CLINICAL DATA MANAGEMENT
Database Design and Maintain *
CRF Tracking *
Edit Specifications, Pre-Entry Edit, DCF/Queries Resolution *
Data Entry, Database Audit *
Coding - Disease, Medication, Adverse Events *
SUBTOTAL CLINICAL DATA MANAGEMENT *
BIOSTATISTICAL ANALYSIS
Annotated Report Outline *
Statistical/Integrated Study Report *
SUBTOTAL BIOSTATISTICAL ANALYSIS *
SUPPORT SERVICES
Project Management *
Administrative Support *
Client Meetings *
SUBTOTAL SUPPORT SERVICES *
TOTAL QUINTILES FEES *
MISCELLANEOUS COSTS
Monitoring Travel *
Client Meeting Travel *
Investigator Meeting Travel *
GCP Audit Travel *
Computer Support *
Copying/Printing, Postage, Telephone, Supplies *
SUBTOTAL MISCELLANEOUS COSTS *
GRAND TOTAL *
*CONFIDENTIAL
TREATMENT
REQUESTED
<PAGE> 31
BUDGET
PROTOCOL 0009
PROJECT SET-UP/INITIATION
Project Transfer and Start-up *
Development of Study Files *
SUBTOTAL PROJECT SET-UP INITIATION: *
CLINICAL TRIAL MANAGEMENT
Clinical Monitoring - Interim, Close-Out Visits *
Clinical In-House Administration *
Drug Distribution Management *
GCP/GMP Site Audits *
SUBTOTAL CLINICAL TRIAL MANAGEMENT *
MEDICAL SUPPORT
AE Processing and Reporting *
SUBTOTAL MEDICAL SUPPORT *
CLINICAL DATA MANAGEMENT
Database Design and Maintain *
CRF Tracking *
Edit Specifications, Pre-Entry Edit, DCF/Queries *
Data Entry, Database Audit *
Coding - Disease, Medication, Adverse Events *
SUBTOTAL CLINICAL DATA MANAGEMENT *
BIOSTATISTICAL ANALYSIS
Annotated Report Outline *
Statistical/Integrated Study Report *
SUBTOTAL BIOSTATISTICAL ANALYSIS *
SUPPORT SERVICES
Project Management *
Administrative Support *
Client Meetings *
SUBTOTAL SUPPORT SERVICES *
TOTAL QUINTILES FEES *
MISCELLANEOUS COSTS
Monitoring Travel *
Client Meeting Travel *
Investigator Meeting Travel *
GCP Audit Travel *
Computer Support *
Copying/Printing, Postage, Telephone, Supplies *
SUBTOTAL MISCELLANEOUS COSTS *
GRAND TOTAL *
*CONFIDENTIAL
TREATMENT
REQUESTED
<PAGE> 32
ALTEON
SAE REPORTING FOR PROTOCOL PR0014 AND PR0016
MEDICAL MANAGEMENT
Medical Monitoring *
AE Processing and Reporting *
SUBTOTAL MEDICAL MANAGEMENT *
TOTAL QUINTILES FEES *
MISCELLANEOUS COSTS
Computer Support, Copying, Printing, Shipping, *
Communication, Supplies *
QUINTILES TOTAL ESTIMATED COST *
*CONFIDENTIAL
TREATMENT
REQUESTED
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND CASH FLOW STATEMENTS FILED AS PART OF
ALTEON INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM
10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 31,497,633
<SECURITIES> 3,001,890
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,148,692
<PP&E> 3,999,530
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,138,993
<CURRENT-LIABILITIES> 8,606,242
<BONDS> 0
0
0
<COMMON> 157,028
<OTHER-SE> 31,214,146
<TOTAL-LIABILITY-AND-EQUITY> 40,138,993
<SALES> 0
<TOTAL-REVENUES> 2,295,394
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,010,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,394
<INCOME-PRETAX> (18,762,792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,762,792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,762,792)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
