<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
COMMISSION FILE NUMBER: 000-19809
DURA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3645543
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
5880 Pacific Center Blvd. San Diego, California 92121-4202
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (619) 457-2553
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
OF THE ACT: COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- ------
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997 was $1,457,451,662. For the purposes
of this calculation, shares owned by officers, directors (and their
affiliates) and 10% or greater shareholders known to the registrant have been
deemed to be affiliates.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1997 was 43,437,978.
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 28, 1997, to be filed with the
Securities and Exchange Commission on or about April 16, 1997, referred to
herein as the "Proxy Statement," are incorporated as provided in Part III,
and portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1996, attached hereto as Exhibit 13, referred to
herein as the "Annual Report," are incorporated as provided in parts II and
IV.
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INDEX
Part I:
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4-22
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to the Vote of Security Holders. . 22
Part II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . 23
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 23
Item 8. Financial Statements and Supplementary Data. . . . . . . 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 23
Part III:
Item 10. Directors and Executive Officers of the Registrant . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 24
Item 13. Certain Relationships and Related Transactions . . . . . 24
Part IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . .25-28
Signatures . . . . . . . . . . . . . . . . . . . . . . . 29
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PART I
ITEM 1. BUSINESS
THE DISCUSSION OF THE COMPANY'S BUSINESS CONTAINED IN THIS REPORT MAY CONTAIN
CERTAIN FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF FACTORS WHICH MAY
AFFECT THE OUTCOME PROJECTED IN SUCH STATEMENTS, SEE "RISKS AND
UNCERTAINTIES" ON PAGES 16 THROUGH 22 OF THIS ANNUAL REPORT ON FORM 10-K.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS AND
CIRCUMSTANCES ARISING AFTER THE DATE HEREOF.
OVERVIEW
Dura Pharmaceuticals, Inc. ("Dura" or the "Company") is a specialty
respiratory pharmaceutical and pulmonary drug delivery company. The Company
is engaged in developing and marketing prescription pharmaceutical products
for the treatment of asthma, hay fever, chronic obstructive pulmonary disease
("COPD"), the common cold, related respiratory ailments and is developing a
pulmonary drug delivery system. Dura has strategically focused on the U.S.
Respiratory Market because of its size (approximately $9.5 billion in sales
in 1996) and growth opportunities. Additionally, the fragmented nature of the
market and the identifiable base of physician prescribers allow the Company
to achieve significant market penetration with a specialized sales force. The
Company currently markets 29 prescription products, including 25 which are
off-patent. The Company also has a separate mail service pharmacy, Health
Script Pharmacy Services, Inc. ("Health Script"), which dispenses respiratory
pharmaceuticals.
Dura employs a dual marketing strategy utilizing its focused field sales
force of 182 people and a dedicated managed care sales and marketing group
that covers managed care organizations and retail pharmacy chains. Dura's
field sales force targets a physician base which includes approximately
80,000 U.S. allergists, ear, nose, and throat specialists ("ENTs"),
pulmonologists and a selected subset of pediatricians and generalist
physicians, who the Company believes collectively write approximately 75% of
respiratory pharmaceutical prescriptions. Dura believes that its field sales
force calls on approximately one-half of the target physician base. The
Company's managed care sales and marketing group concentrates on sales to
large regional and national managed care organizations. The Company expects
to continue expanding both the field sales force and the managed care sales
and marketing group as warranted by market opportunities.
This marketing strategy has allowed Dura to leverage its distribution
capabilities by acquiring the rights to market additional prescription
pharmaceutical products through acquisition, in-license or co-promotion
arrangements. Since 1992, the Company has acquired 20 products targeted at
the U.S. respiratory market. In July 1996, the Company acquired from Procter
& Gamble Pharmaceuticals, Inc. ("P&G") worldwide rights to the
Entex-Registered Trademark- products, consisting of four prescription upper
respiratory drugs. In September 1996, the Company acquired from Eli Lilly and
Company ("Lilly") U.S. marketing rights to the antibiotics Keftab-Registered
Trademark- and Ceclor-Registered Trademark- CD. The Company began marketing
Keftab in September 1996, and launched Ceclor CD in October 1996.
Another key component of Dura's strategy is to develop the Spiros-TM-
pulmonary drug delivery system ("Spiros"). Spiros is being designed to
aerosolize pharmaceuticals in dry powder formulations for delivery to the
lungs while providing certain advantages over other currently-used methods of
pulmonary drug delivery. The Company has a three-level development program
for Spiros which entails (i) developing, on behalf of Spiros Development
Corporation ("Spiros Corp."), certain drug applications for use in Spiros,
including in the near-term albuterol, beclomethasone and ipratropium, three
of the most frequently prescribed pharmaceutical agents to treat respiratory
conditions, (ii) licensing Spiros primarily to pharmaceutical companies,
including Mitsubishi Chemical Corporation ("Mitsubishi") and Fujisawa
Pharmaceuticals Co., Ltd. ("Fujisawa"), generally for use with certain of
their proprietary respiratory products, and (iii) developing Spiros,
generally in collaboration with third parties, for the systemic delivery of
compounds, including certain proteins and peptides, through the lungs for
respiratory and non-respiratory indications as an alternative to current
invasive delivery techniques. The Company has licensed certain rights to
Spiros Corp. to continue a significant portion of the development program for
Spiros, including funding of ongoing and future clinical trials of albuterol
and beclomethasone in Spiros, and formulation, preclinical development and
clinical trials of ipratropium in Spiros. The Company has the right to
purchase all of the currently outstanding shares of callable common stock of
Spiros Corp. through December 31, 1999 at predetermined prices.
4
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In July 1996, the Company commenced long-term and short-term clinical trials
which, along with earlier studies, are intended to serve as the basis for the
filing of a New Drug Application ("NDA") by Dura in late 1997 seeking U.S.
Food and Drug Administration ("FDA") approval, on behalf of Spiros Corp., to
market albuterol in the Spiros cassette system. The patient dosing clinical
studies which the Company believes to be necessary for this submission have
been completed. The Company has also filed on behalf of Spiors Corp., an
Investigational New Drug ("IND") Application for U.S. studies on
beclomethasone in the Spiros cassette system. In the first quarter of 1997,
clinical trials of beclomethasone in the U.S. commenced under this IND. In
addition, Dura, on behalf of Spiros Corp., has performed powder formulation
work with the peptide drug salmon calcitonin which in a clinical trial
demonstrated the ability to develop macromolecule aerosol powder formulation
which achieved systemic delivery using the Spiros technology.
U.S. RESPIRATORY MARKET
Dura divides the U.S. Respiratory Market into two primary markets: (i) asthma
and COPD; and (ii) respiratory infection, allergy, and cough and cold.
ASTHMA AND COPD
Asthma is a complex physiological disorder characterized by airway
hyperactivity to a variety of stimuli such as dust, pollen, stress or
physical exercise, resulting in airway obstruction that is partially or
temporarily reversible. The U.S. asthma population has grown steadily to more
than 15 million people, a 66% rise since 1980. COPD is a complex condition
comprising a combination of chronic bronchitis, emphysema and airway
obstruction. The disease affects males more often than females and is
exacerbated by smoking and other insults to the lung. Incidence is as high as
20% of the adult male population, though only a minority are clinically
disabled. The U.S. combined market for therapeutic drugs to treat asthma and
COPD was over $2.8 billion in 1996. The primary categories of therapeutic
drugs used in the treatment of asthma and COPD include bronchodilators and
anti-inflammatories. Bronchodilators dilate the airways and include beta
agonists (such as bitolterol and albuterol), xanthines (such as theophylline)
and anticholinergics (such as ipratropium). Anti-inflammatories reduce
inflammation and include cromolyns and glucocorticoids (such as
triamcinolone, beclomethasone, flunisolide and budesonide).
RESPIRATORY INFECTION, ALLERGY, COUGH AND COLD
Respiratory infections are generally caused by a variety of bacteria and can
affect either the upper respiratory tract (nasal cavity, sinuses and throat)
or the lower respiratory tract (lungs). The resulting diagnoses include
sinusitis, tonsillitis, and bronchitis. These infections are treated with
antibiotics, which kill the bacteria causing the symptoms.
There are a variety of classes of antibiotics that treat specific ranges, or
spectrums, of bacteria. Classes used to treat respiratory infection include
cephalosporins, broad spectrum macrolides, and quinolores. The market for
these classes is very large, totaling $4.6 million in 1996 for the oral solid
forms alone. The cephalosprin class accounts for approximately $1.3 billion
of this total.
While the causes of allergies (which can be seasonal or perennial) and cough
and colds differ, nasal congestion and sneezing are common symptoms of these
diseases. The U.S. combined market for therapeutic drugs to treat allergies,
cough and cold was over $2.1 billion in 1996. Antihistamines and
antihistamine/decongestant combinations are the most widely used forms of
therapy for allergies and represent the largest portion of the allergy, cough
and cold market in the U.S. Cough and cold preparations represent the next
largest portion of the allergy, cough and cold market and include
decongestant and decongestant/expectorant combinations, cough suppressants
and antihistamine combinations and expectorants.
5
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STRATEGY
The Company's objective is to be a leading supplier of respiratory
pharmaceuticals and pulmonary drug delivery systems. The Company attempts to
achieve this objective through the implementation of the following:
- - FOCUSING MARKETING EFFORTS ON RESPIRATORY PHYSICIAN SPECIALISTS. Dura
employs a dual marketing strategy utilizing its focused field sales force
and a dedicated managed care sales and marketing group. Dura's field sales
force targets a physician base which includes approximately 80,000 U.S.
allergists, ENTs, pulmonologists and a selected subset of pediatricians and
generalist physicians, who the Company believes collectively write
approximately 75% of respiratory pharmaceutical prescriptions. Dura
believes that its field sales force calls on approximately one-half of the
target physician base. The Company's managed care sales and marketing group
concentrates on sales to large regional and national managed care
organizations. The Company expects to continue expanding both the field
sales force and the managed care sales and marketing group as warranted by
market opportunities.
- - ACQUIRING, IN-LICENSING OR CO-PROMOTING RESPIRATORY PRESCRIPTION
PHARMACEUTICALS. The Company seeks to acquire, in-license or co-promote
respiratory prescription pharmaceuticals or companies developing and/or
marketing such pharmaceuticals. The Company is particularly focused on
respiratory drugs that are under-promoted by large pharmaceutical
companies. The Company believes that the pharmaceutical industry is
undergoing a restructuring that may create greater opportunities for the
Company. For example, many large pharmaceutical companies are consolidating
and merging and/or redirecting their sales forces, which may lead to the
underpromotion of certain products deemed too small for large sales forces
and create significant acquisition, in-licensing and co-promotion
opportunities. Additionally, consolidation within the sector may make small
product lines less desirable to large pharmaceutical companies. The
Company is actively pursuing the acquisition of rights to products and/or
companies, which may require the use of substantial capital resources.
- - DEVELOPING SPIROS. The Company has a three-level development program for
Spiros which entails (i) developing, on behalf of Spiros Corp., certain
drug applications for use in Spiros, including in the near term albuterol,
beclomethasone and ipratropium, three of the most frequently-prescribed
pharmaceutical agents to treat respiratory conditions, (ii) licensing
Spiros primarily to pharmaceutical companies generally for use with certain
of their proprietary respiratory products, and (iii) developing Spiros,
generally in collaboration with third parties, for the systemic delivery of
compounds, including certain proteins and peptides, through the lungs for
respiratory and non-respiratory indications as an alternative to current
invasive delivery techniques. These Spiros development programs are
currently being undertaken primarily through strategic relationships with
Spiros Corp., Mitsubishi, Fujisawa, and Houghten Pharmaceuticals, Inc.
("Houghten").
6
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DURA'S CURRENT PRODUCTS
The following prescription pharmaceuticals are currently being marketed by Dura
in the following therapeutic categories:
<TABLE>
<CAPTION>
RIGHTS YEAR
OBTAINED FROM OR INTRODUCED
PRODUCTS DEVELOPED BY BY DURA
-------- ---------------------- ----------
<S> <C> <C>
ASTHMA AND COPD
TORNALATE-Registered Trademark- METERED DOSE INHALER (bitolterol mesylate) . . . . . . . . . Sanofi-Winthrop, Inc. 1993
TORNALATE-Registered Trademark- SOLUTION FOR INHALATION, 0.2% (bitolterol mesylate). . . . . Sanofi-Winthrop, Inc. 1992
ALLERGY, COUGH AND COLD
DURA-VENT-Registered Trademark- TABLETS (phenylpropanolamine HC1, guaifenesin) . . . . . . . Dura Pre-1989
DURA-VENT/DA-Registered Trademark- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura Pre-1989
D.A. CHEWABLE-TM- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura 1991
D.A. II-TM- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura 1996
DURA-TAP-Registered Trademark-/PD CAPSULES (chlorpheniramine maleate, pseudoephedrine
HC1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura Pre-1989
DURA-VENT-Registered Trademark-A CAPSULES (chlorpheniramine maleate, phenylpropanolamine
HC1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura Pre-1989
DURA-GEST-Registered Trademark- CAPSULES (phenylephrine HC1, phenylpropanolamine HC1,
guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura Pre-1989
FENESIN-TM- TABLETS (guaifenesin). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura Pre-1989
FENESIN-TM- DM TABLETS (guaifenesin, dextromethorphan hydrobromide). . . . . . . . . . . . Dura 1994
GUAI-VENT-TM-PSE TABLETS (pseudoephedrine HC1, guaifenesin). . . . . . . . . . . . . . . . Dura 1994
CROLOM -TM-(cromolyn sodium opthalmic solution USP 9%) . . . . . . . . . . . . . . . . . . Bausch & Lomb 1995
RONDEC-Registered Trademark- ORAL DROPS (carbinoxamine maleate, pseudoephedrine
hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark- SYRUP (carbinoxamine maleate, pseudoephedrine
hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark--TR TABLET (carbinoxamine maleate, pseudoephedrine
hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark- TABLET (carbinoxamine maleate, pseudoephedrine
hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark--DM ORAL DROPS (carbinoxamine maleate, pseudoephedrine
hydrochloride, dextromethorphan hydrobromide). . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark--DM SYRUP (carbinoxamine maleate, pseudoephedrine
hydrochloride, dextromethorphan hydrobromide). . . . . . . . . . . . . . . . . . . . . . . Abbott 1995
RONDEC-Registered Trademark- CHEWABLE TABLETS (brompheniramine maleate, pseudoephedrine
hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dura 1996
ENTEX-Registered Trademark- LA TABLETS (phenylpropanolamine HC1, guaifenesin). . . . . . . P&G 1996
ENTEX-Registered Trademark- PSE TABLETS (pseudoephedrine HC1, guaifenesin) . . . . . . . . P&G 1996
ENTEX-Registered Trademark- CAPSULES (phenylephrine HC1, phenylpropanolamine HC1,
guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P&G 1996
ENTEX-Registered Trademark- LIQUID (phenylephrine HC1, phenylpropanolamine HC1,
guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P&G 1996
ANTIBIOTICS
CAPASTAT-Registered Trademark- SULFATE (sterile capreomycin sulfate, USP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lilly 1995
SEROMYCIN-Registered Trademark- (cycloserine capsules, USP). . . . . . . . . . . . . . . . Lilly 1995
FURADANTIN-Registered Trademark- ORAL SUSPENSION (nitrofurantoin). . . . . . . . . . . . . P&G 1996
KEFTAB-Registered Trademark- (cephalexin hydrochloride). . . . . . . . . . . . . . . . . . Lilly 1996
CECLOR-Registered Trademark- CD TABLETS (anhydrous cefaclor) . . . . . . . . . . . . . . . Lilly 1996
</TABLE>
In July 1996, the Company acquired from P&G worldwide rights to the Entex
products consisting of four prescription upper respiratory drugs. In
September 1996, the Company acquired from Lilly the U.S. rights to the
cephalosporin antibiotics Keftab and Ceclor CD. The U.S. oral antibiotic
market was $4.6 billion in 1996, of which approximately $1.3 billion was
accounted for by cephalosporin antibiotics. The Company believes that this
acquisition complements its existing strategy since approximately 70% of
antibiotics are prescribed for respiratory infections. Keftab is an
antibiotic indicated for respiratory tract, skin and soft tissue infections.
Ceclor CD is a twice-a-day dosage form of cefaclor typically taken for seven
days. Ceclor-Registered Trademark-, Lilly's currently marketed cefaclor, is
normally taken three times a day for 10 days, and generated $161.0 million in
sales in the United States for the 12 months ended June 30, 1996. The Company
launched Ceclor CD in October 1996. The Company believes these product
acquisitions further its strategy
7
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of acquiring prescription pharmaceuticals which are marketed by its sales
force to its targeted physicians. To support the introduction and growth of
these products, the Company intends to increase its field sales force to
approximately 250 people during 1997.
Keftab, Ceclor CD, Capastat-Registered Trademark- Sulfate,
Seromycin-Registered Trademark-, and the two Tornalate-Registered Trademark-
products are the subject of approved NDAs. Crolom-TM- is the subject of an
approved Abbreviated New Drug Applications ("ANDA"). The remaining products
are branded pharmaceuticals which are not the subject of NDAs or ANDAs.
SPIROS
Spiros is a proprietary pulmonary dry powder drug delivery system that is
designed to aerosolize pharmaceuticals in dry powder formulations for
delivery to the lungs. Currently, metered dose inhalers ("MDIs") are the most
commonly used inhalation delivery system. The Company believes dry powder
inhalers ("DPIs") will gradually replace MDIs as the leading pulmonary
delivery system, due primarily to the phasing out of chlorofluoro carbons
("CFCs") and coordination problems associated with MDIs. Many companies are
studying alternative propellants, such as hydrofluorocarbons ("HFAs"), for
use in MDIs, and one potential competitor has obtained FDA approval and has
began marketing an albuterol MDI using an HFA propellant. However, the
Company believes any product utilizing alternative propellants will still
suffer from many of the limitations of currently-marketed MDIs, including the
need for patients to coordinate breathing with actuation of the drug delivery
system. There are currently two general classes of DPIs in commercial use
worldwide, individual and multiple dose systems, and both are breath powered
and flow rate dependent. In the U.S., only individual dose DPIs are marketed.
Turbuhaler-Registered Trademark-, a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard. It has not yet
been approved by the FDA for marketing in the U.S., although the FDA has
issued an approvable letter for the first Turbuhaler product.
POTENTIAL ADVANTAGES OF SPIROS
The Company believes Spiros may have certain advantages over other currently
used methods of drug delivery including the following:
- - INSPIRATORY FLOW RATE INDEPENDENCE. Spiros is designed to deliver a
relatively consistent drug dose to the lungs over a wide range of
inspiratory flow rates, which can vary depending on a patient's health,
effort or physical abilities. Recently-completed tests of Spiros on human
subjects have shown a relatively consistent and significant level of drug
deposition throughout the clinically relevant inspiratory range. Currently-
available DPIs can vary significantly in their level of drug deposition
depending on the patient's inspiratory flow rate and can deliver
significantly less drug at the lower flow rates typically associated with
asthma attacks.
- - MINIMUM NEED FOR PATIENT COORDINATION. Spiros is breath-actuated and does
not require the user to coordinate inhalation and actuation of the drug
delivery system. MDIs generally require the user to coordinate their
breathing with actuation of the MDI. Studies indicate that a significant
percentage of patients, particularly young children and the elderly, do not
use MDIs correctly. Spiros is designed to solve these coordination problems
by delivering the drug to patients' lungs as they inhale.
- - FREE OF CHLOROFLUOROCARBON PROPELLANTS. CFC propellants have
ozone destructive characteristics and are subject to worldwide
regulations aimed at eliminating their usage within the decade.
Spiros will not use CFCs while most MDIs, currently the most
popular form of aerosol drug delivery, use CFCs. Virtually all of
the world's industrial nations, under the auspices of the United
Nations Environmental Program, pledged to cease use of CFCs by the
year 2000. As a result of the phase out of CFCs, the Company
believes that DPIs will become a leading method for pulmonary drug
delivery.
8
<PAGE>
- - REDUCED SIDE EFFECTS. Spiros is designed to efficiently
deliver drugs to the lungs thereby reducing drug deposition to the
mouth and throat which could reduce the possibility of unwanted
side effects of certain pharmaceutical agents, such as coughing and
local irritation. With MDIs, a significant portion of the dose is
delivered to the mouth and throat and is swallowed.
- - PATIENT CONVENIENCE. Spiros is designed to be convenient for patients,
with features such as breath actuation (Spiros is triggered by inhalation),
portability (light weight and small size), quick delivery time, simple
operation, dose delivery feedback and multi-dose capability.
DEVELOPMENT PROGRAM FOR SPIROS
The Company intends to proceed with a three-level development program for
Spiros. The first level entails developing certain drug applications for use in
Spiros, including in the near-term albuterol, beclomethasone and ipratropium,
three of the most frequently-prescribed pharmaceutical agents to treat
respiratory conditions. The Company, on behalf of Spiros, is engaged in on-
going discussions with the FDA regarding clinical testing requirements for
Spiros for albuterol, beclomethasone and ipratropium aimed at facilitating the
regulatory approval process.
In 1994, an IND application was filed with the FDA to begin clinical testing
with Dura's own albuterol dry powder formulation with the Spiros cassette
system. Dura has exclusively licensed rights to this formulation to Spiros Corp.
In April 1996, Dura completed dosing of subjects in a clinical trial in the
United States on behalf of Spiros Corp. focusing on dose selection using a
formulation of powdered albuterol with Spiros under an IND application filed
with the FDA. In July 1996, the Company commenced long-term and short-term
clinical trials which, along with earlier studies, are intended to serve as the
basis for the filing of an NDA by Dura in 1997 seeking FDA marketing approval,
on behalf of Spiros Corp., for albuterol in the Spiros cassette system. In
early 1997, the Company completed the patient dosing clinical studies it
believes are necessary to support an NDA filing for Spiros albuterol and intends
to file an NDA in late 1997. Considerable formulation work for use of
beclomethasone with Spiros has also been done. A study has been completed in
Canada to evaluate dose selection in 24 subjects. The Company has commenced a
second dose selection study in the U.S. under an IND application for
beclomethasone in Spiros which was filed by Dura on behalf of Spiros Corp. The
Company also intends to conduct clinical trials on ipratropium in the Spiros
system on behalf of Spiros Corp.
Dura, on behalf of Spiros Corp., has performed powder formulation work with the
peptide drug salmon calcitonin which, in a clinical trial, demonstrated the
ability to develop macromolecule aerosol powder formulation that achieved
systemic delivery using the Spiros technology. Particle size reduction
appropriate for aerosol administration was achieved, and IN VITRO measurements
showed good aerosol characteristics in Spiros. The formulation was sufficiently
stable, and a clinical trial batch was manufactured in Dura's facility.
The second level of Spiros development consists of licensing Spiros primarily to
pharmaceutical companies for use with certain of their proprietary respiratory
products. Dura currently has development agreements with Fujisawa and Mitsubishi
and is conducting feasibility studies for other pharmaceutical companies to
assess the suitability of certain compounds to be delivered using Spiros. There
can be no assurance that any of these feasibility studies will prove successful,
or even if successful, that the pharmaceutical companies will proceed to license
Spiros for use with these compounds. See "-- Strategic Alliances."
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The third level of Spiros development is to develop Spiros, in collaboration
with other companies, for the systemic delivery of compounds through the lungs
for respiratory and non-respiratory indications as an alternative to current
invasive delivery techniques. The Company commenced development efforts on the
use of Spiros with peptides and proteins in 1995. In February 1996, Dura entered
into a collaborative agreement with Houghten to develop inhalation formulations
of new compounds discovered and developed by Houghten. Dura is also performing
feasibility studies for pharmaceutical companies that desire to develop Spiros
for use with both respiratory drugs and drugs for systemic pulmonary delivery
now being developed by those companies. See "-- Strategic Alliances."
SALES AND MARKETING
FIELD SALES FORCE
Dura's specialized sales and marketing organization targets a physician base
which includes approximately 80,000 U.S. allergists, ENTs, pulmonologists, and a
selected subset of pediatricians and generalist physicians who treat a large
number of allergy and asthma patients. The Company believes this relatively
small group of physicians writes approximately 75% of respiratory pharmaceutical
prescriptions for the $9.5 billion U.S. Respiratory Market. This concentration
allows for effective market penetration by a specialized sales and marketing
organization.
As of December 31, 1996, Dura had 182 full-time pharmaceutical sales
representatives nationwide, supervised by 17 district managers and two regional
directors. Dura believes its focused sales force currently calls on
approximately one-half of its target physician base. The Company intends to
continue expansion of its field sales force as warranted by market
opportunities.
The Company believes that the personal relationships of Dura's sales
representatives with their physician customers are essential to the Company's
business. Dura's sales representatives differentiate themselves from the
competition by focusing primarily on asthma and COPD, allergy, repiratory
infections, and cough and cold, and by promoting pharmaceuticals used by
respiratory specialists in treating patients. With a relatively small target
audience, promotional spending by Dura on advertising and direct mail is
generally inexpensive and efficient. The Company regularly participates in
local, regional and national medical meetings of the key specialty groups. The
Company believes that it has established a national awareness of the Dura name
within the U.S. Respiratory Market.
MANAGED CARE SALES AND MARKETING GROUP
To implement Dura's dual marketing strategy, the Company established a dedicated
managed care sales and marketing group, currently consisting of four experienced
national account managers, which concentrates on sales to large regional and
national managed care organizations. These organizations include health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"),
large drug merchandising chains, nursing home providers and mail order
pharmacies. A primary goal of the managed care sales and marketing group is to
place Dura's products on approved formulary lists of HMOs and PPOs.
HEALTH SCRIPT
In March 1995, the Company acquired Health Script, located in Denver, Colorado.
Health Script is a mail service pharmacy which dispenses respiratory
pharmaceuticals. Mail order services are particularly well-suited for
respiratory patients who are long-term, chronic users of certain pharmaceuticals
and to whom the convenience and cost efficiency of mail order is appealing.
Health Script was formed in 1990 to supply value-priced respiratory
pharmaceutical products to patients through the mail. Health Script currently
dispenses, to its approximately 30,000 patients nationwide, over 100 respiratory
products manufactured by third parties. Health Script is focused on working with
home healthcare providers and patients to coordinate respiratory medication
services and patients management programs. Health Script markets its services
through specialty field sales representatives and telemarketing. The existing
patient base is
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maintained by telephone contact with patients to monitor compliance with
their doctors' prescriptions.
RELATIONSHIP WITH SPIROS CORP.
In December 1995, Spiros Corp. completed a $28.0 million private placement. The
net proceeds of this private placement and a $13.0 million cash contribution
from Dura are being used by Spiros Corp. to continue a significant portion of
the development program for Spiros, including funding of formulation,
preclinical development and ongoing and future clinical trials of albuterol,
beclomethasone and ipratropium in Spiros.
The financing involved the issuance and sale of 933,334 units at $30.00 per
unit. Each unit consisted of one share of Spiros Corp. callable common stock and
one Series S Warrant exercisable for 2.4 shares of the Company's common stock
at an exercise price of $19.47 per share. In consideration for the issuance of
the Series S Warrants and Dura's cash contribution, the Company received an
option, which can be exercised through December 31, 1999, to purchase all of the
currently outstanding shares of Spiros Corp. callable common stock at
predetermined prices, beginning at $46.88 per share (an aggregate of $43.7
million) through December 31, 1997 and increasing on a quarterly basis
thereafter to a maximum of $76.17 per share (an aggregate of $71.1 million) on
December 31, 1999 ("Spiros Purchase Option"). Such purchase price may be paid,
at the Company's discretion, in cash, shares of the Company's common stock or a
combination thereof. Any shares of common stock delivered in payment of the
purchase price must be covered by an effective registration statement. If the
development efforts of Spiros Corp. are successful, the Company may exercise its
right to purchase Spiros Corp.'s callable common stock; however, the Company
does not have a legal obligation to do so. In addition, Dura has the option at
any time through the earlier of 60 days after FDA approval of an albuterol
product or December 31, 1999, to purchase Spiros Corp's. rights for use of
Spiros with albuterol product in a cassette ("Albuterol Purchase Option"). In
the event Dura exercises the Albuterol Purchase Option and does not exercise the
Spiros Purchase Option, Dura will pay a royalty to Spiros Corp. on net sales of
such albuterol product.
In connection with the private placement, the Company entered into the following
agreements with Spiros Corp.:
- - TECHNOLOGY LICENSE AGREEMENT. Under this agreement, the Company granted to
Spiros Corp., subject to existing agreements with Mitsubishi, a royalty-
bearing, perpetual, exclusive license to use Spiros in connection with
albuterol, beclomethasone and ipratropium and certain other proteins and
peptides (including salmon calcitonin) and certain non-exclusive rights to
all other compounds to which Dura has or acquires rights capable of
transfer during the term of the Development and Management Agreement.
- - INTERIM MANUFACTURING AND MARKETING AGREEMENT. Under this agreement,
Spiros Corp. granted to the Company an exclusive license to manufacture and
market Spiros Corp. products in the U.S. in exchange for a royalty of 10.0%
on net product sales, as defined in the agreement. This agreement expires
upon termination or expiration of the Spiros Purchase Option.
- - DEVELOPMENT AND MANAGEMENT AGREEMENT. Under this agreement, Spiros Corp.
engaged the Company to develop the Spiros Corp. products and provide
general management services to Spiros Corp.
During 1996, the Company recorded contract revenues of $19,138,000 under
this agreement.
STRATEGIC ALLIANCES
MITSUBISHI CHEMICAL CORPORATION. In October 1994, Dura and Mitsubishi entered
into a license and supply agreement, under which Mitsubishi was granted the
exclusive right to use and sell Spiros together with a dry powder formulation of
an asthma compound in Japan, Hong Kong, Singapore, the Republic of China
(Taiwan), the Republic of Korea and the People's Republic of China (collectively
the "Territory"). Dura's rights under the agreement were assigned to Spiros
Corp. in December 1995. Spiros Corp. has agreed to develop a dry powder
formulation of such compound for Mitsubishi and will manufacture and supply to
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Mitsubishi its requirements for both Spiros and such compound. Mitsubishi will
be responsible for conducting all clinical and other work needed to obtain
regulatory approvals of Spiros and such compound in the Territory. In connection
with the license and supply agreement, Mitsubishi is obligated to make milestone
and other payments to Dura and Spiros Corp. in certain circumstances.
FUJISAWA PHARMACEUTICAL CO., LTD. In April 1995, the Company entered into a
collaborative development agreement with Fujisawa covering the use of Spiros to
deliver one of Fujisawa's new chemical entity asthma compounds. The agreement
was an extension of previous feasibility work completed by Dura. Pursuant to the
agreement, the Company will provide dry powder formulation assistance,
manufacturing process development and clinical trial supplies to Fujisawa
through the earlier of completion of clinical trials in Japan or June 30, 1998.
The Company received an up-front payment and is to receive additional milestone
payments and reimbursement of costs from Fujisawa. Fujisawa can terminate the
agreement upon 30 days' notice to the Company. If Fujisawa's clinical trials are
successful, the parties have agreed to negotiate additional agreements, which
could include license and supply agreements.
HOUGHTEN PHARMACEUTICALS, INC. In February 1996, the Company entered into a
research and development agreement with Houghten to develop inhalation
formulations of new compounds discovered and developed by Houghten. In addition,
Dura will provide to Houghten, for a four-year period, contract services for
Houghten's drug development programs using Dura's development capabilities and
proprietary formulation and delivery technology. The Company will receive a
percentage of proceeds received by Houghten with respect to jointly-developed
compounds, and will receive contract revenues from Houghten for services
provided.
In addition, the Company has executed agreements with a number of international
pharmaceutical companies to conduct feasibility studies on formulations of
certain compounds for use with Spiros, including growth hormones and proteins
and peptides. There can be no assurance that any of these feasibility studies
will prove successful, or even if successful, that the pharmaceutical companies
will proceed to license Spiros for use with these compounds.
COMPETITION
The Company directly competes with at least 25 other companies in the U.S. which
are currently engaged in developing, marketing and selling respiratory
pharmaceuticals. Additionally, there are at least 10 companies currently
involved in the development, marketing or sales of dry powder pulmonary drug
delivery systems. In the U.S., only individual dose DPIs are marketed, including
the Rotohaler (developed and marketed by Glaxo Wellcome, Inc.) and the Spinhaler
(developed and marketed by Fisons Limited). The Turbuhaler (developed and
marketed by Astra Pharmaceuticals), a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard. It is not yet
marketed in the U.S., although the FDA has issued an approvable letter for the
first Turbuhaler product.
Many of these companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
those of the Company, are engaged in developing, marketing and selling products
that compete with those offered by the Company. The selling prices of such
products typically decline as competition increases. Further, other products now
in use or under development by others may be more effective than the Company's
current or future products. The industry is characterized by rapid technological
change, and competitors may develop their products more rapidly than the
Company. Competitors may also be able to complete the regulatory process sooner
and, therefore, may begin to market their products in advance of the Company's
products. Dura believes that competition among both prescription pharmaceuticals
and pulmonary drug delivery systems aimed at asthma and allergy, cough and cold
markets will be based on, among other things, product efficacy, safety,
reliability, availability and price.
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CLINICAL, DEVELOPMENT AND REGULATORY
The Company's clinical, development and regulatory expenses relate primarily to
product development and regulatory compliance activities. Clinical, development
and regulatory expenses were $9,354,000, $8,408,000, and $18,540,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. The clinical,
development and regulatory expenses associated with Spiros development, for
which the Company recorded contract revenues from Dura Delivery Systems, Inc.
(acquired by the Company on December 29, 1995) and Spiros Corp., were
$8,260,000, $6,428,000, and $15,932,000 for the years ended December 31, 1994,
1995, and 1996, respectively.
PATENTS AND PROPRIETARY RIGHTS
The Company considers the protection of discoveries in connection with its
development activities important to its business. The Company intends to seek
patent protection in the U.S. and selected foreign countries where deemed
appropriate. On July 12, 1994, the Company was issued a U.S. patent on Spiros
and the Company has filed a continuation-in-part covering certain improvements
to the Spiors techology. The issued patent covers, among other claims, use in
Spiros of an impeller to create an aerosol cloud of a drug intended for
inhalation. There can be no assurance that the issued patent or subsequent
patents, if issued, will adequately protect the Company's design or that such
patents will provide protection against infringement claims by competitors. Dura
has also filed certain foreign patent applications relating to Spiros
technology. There can be no assurance that additional patents, U.S. or foreign,
will be obtained covering Company products or that, if issued or licensed to the
Company, the patents covering Company products will provide substantial
protection or be of commercial benefit to the Company. Federal court decisions
establishing legal standards for determining the validity and scope of patents
in the field are in transition. There can be no assurance that the historical
legal standards surrounding questions of validity and scope will continue to be
applied or that current defenses as to issued patents in the field will offer
protection in the future.
The Company also relies upon trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop its competitive position. The
Company enters into confidentiality agreements with certain of its employees
pursuant to which such employees agree to assign to the Company any inventions
relating to the Company's business made by them while in the Company's employ.
There can be no assurance, however, that others may not acquire or independently
develop similar technology or, if patents are not issued with respect to
products arising from research, that the Company will be able to maintain
information pertinent to such research as proprietary technology or trade
secrets.
Tornalate Inhalation Solution and Tornalate MDI are covered by patents filed by
Sanofi-Winthrop, Inc. which expire in the near-term. The Keftab and Ceclor CD
products or processes to make such products are covered by patents which expire
in 2003, 2005 and 2007. The Company's other asthma, allergy, cough and cold
pharmaceuticals are not protected by patents.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products are subject to
regulation by Federal and state government authorities, including the FDA, the
Environmental Protection Agency and the Occupational Safety and Health
Administration, in the U.S. and other countries. In the U.S., pharmaceuticals
and drug delivery systems, including Spiros, are also subject to rigorous FDA
regulation and may be subject to regulation by other jurisdictions, including
the state of California. The Federal Food, Drug, and Cosmetic Act and the Public
Health Service Act govern the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising and promotion of the Company's
products. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.
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To obtain the FDA approval for Spiros and the compounds to be used with it, Dura
is required to conduct each of the following steps and possibly others: (i)
preclinical (laboratory and possibly animal tests), (ii) the submission to the
FDA of an application for an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish safety and efficacy, (iv) the submission of an NDA to the
FDA and for marketing approval, and (v) FDA approval of the NDA prior to any
commercial sale or shipment. In addition to obtaining FDA approval for each
product, each domestic drug and/or device manufacturing facility must be
registered with and approved by the FDA. Domestic manufacturing facilities are
subject to biennial inspections by the FDA and inspections by other
jurisdictions and must comply with current Good Manufacturing Practice ("cGMP")
for both drugs and devices. To supply products for use in the U.S., foreign
manufacturing establishments must comply with cGMP and other requirements and
are subject to periodic inspection by the FDA or by regulatory authorities in
such countries under reciprocal agreements with the FDA.
Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and efficacy of the product
and its formulation. The results of the preclinical tests are submitted to the
FDA as part of an IND, and unless the FDA objects, the IND will become effective
30 days following its receipt by the FDA, thus allowing the product to be tested
in humans.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical is administered
under the supervision of a qualified principal investigator. Clinical trials are
conducted in accordance with Good Clinical Practice and protocols previously
submitted to the FDA (as part of the IND) that detail the objectives of the
study, the parameters used to monitor safety and the efficacy criteria
evaluated. Each clinical study is conducted under the auspices of an independent
Institutional Review Board ("IRB") at the institution at which the study is
conducted. The IRB considers, among other things, the design of the study,
ethical factors, the safety of the human subjects and the possible liability
risk for the institution.
Clinical trials for new products are typically conducted in three sequential
phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a limited patient
population to determine the initial efficacy of the pharmaceutical for specific
targeted indications, to determine dosage tolerance and optimal dosage and to
identify possible adverse side effect and safety risks. Once a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.
The results of the preclinical and clinical trials are submitted to the FDA in
the form of an NDA (or a Product License Application for biological products)
for marketing approval. FDA approval can take several months to several years,
or approval may be denied. The approval process can be affected by a number of
factors, including the severity of the side effects, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review process and may delay marketing approval. After FDA approval for the
initial indication, further clinical trials are necessary to gain approval for
the use of the product for any additional indications. The FDA may also require
post-marketing testing and surveillance to monitor for adverse effects, which
can involve significant additional expense.
Although the FDA has considerable discretion to decide what requirements must be
met prior to approval, the Company believes the FDA is likely to regulate each
combination of Spiros with a compound as a discrete pharmaceutical or drug
product requiring separate approval as a new drug. The Company believes that the
approval process for each drug/delivery combination now under development may be
shorter than the full NDA process described above because the safety and
efficacy of the compounds have already been established in currently marketed
formulations and delivery mechanisms. There can be no assurance,
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however, that the approval process will be shorter or that any NDA submitted
by the Company will eventually be approved.
For both currently-marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on the Company.
The Federal Food, Drug, and Cosmetic Act requires that any "new drug" must be
approved pursuant to an NDA. The term "new drug" is defined as any drug which
is not generally recognized among qualified experts as safe and effective for
its labeled intended uses. Certain exemptions from this definition exist for
products marketed without change since prior to 1938 (the date of enactment
of the Federal Food, Drug, and Cosmetic Act) or, with respect to the need to
show effectiveness, for drug products marketed prior to October 10, 1962 (the
date of enactment of the "Drug Amendments of 1962"). The Company presently
markets 21 drug products for which the FDA has not yet made a determination
as to their status as new drugs under the Federal Food, Drug, and Cosmetic
Act. The FDA is continuing an evaluation of the effectiveness of all products
containing ingredients marketed prior to 1962 that are not the subject of an
approved NDA as part of its Drug Efficacy Study Implementation ("DESI")
program and will determine which are new drugs requiring approval through an
NDA for marketing. The existence of currently-marketed prescription
pharmaceuticals that contain one or more active ingredients first introduced
in the marketplace before 1962 and that are marketed based on their
manufacturers' belief that such products are not subject to the new drug
provisions of the Act is recognized in paragraph B ("Pre-1962 Prescription
Drugs Not Covered By An NDA") of the Food and Drug Administration's
Compliance Policy Guide, Chapter 32c (Guide 7132c.02). This Policy Guide
indicates that the FDA will implement procedures to determine whether the new
drug provisions are or are not applicable to these products. The Policy Guide
requires that products covered by paragraph B not be similar or related to
any drug included in the DESI program, or have a different formulation or
conditions for use than products marketed before November 13, 1984. If a
product is not covered by paragraph B, the FDA could make a determination as
to whether or not the new drug provisions are applicable to it without first
implementing the procedures called for by the Policy Guide. The Company
believes that nine of its prescription pharmaceutical products may be covered
by paragraph B of the Policy Guide and it is aware that one of its products
may be considered to be similar or related to a DESI drug. Also, it is not
aware of evidence to substantiate that three of its products have the same
formulation or conditions for use as products marketed before November 13,
1984. These products could be subject at any time to an FDA determination
that an NDA is required. If a final determination is made that a particular
drug requires an approved NDA, such approval will be required for marketing
to continue. If such a determination is made, the FDA might impose various
requirements: for example, it might require that the current product be the
subject of an approved NDA, that the product be reformulated and NDA approval
obtained, that the product must be sold on an over-the-counter basis rather
than as a prescription drug, or that the product must be removed from the
market. There can be no such assurance as to which of these courses the FDA
will require or whether the Company will be able to obtain any approvals
which the FDA may deem necessary. If any of these actions are taken by the
FDA, such actions could have a material adverse effect on the Company's
business.
In April 1996, the export provisions of the Federal Food, Drug, and Cosmetic
Act were relaxed to permit the export of unapproved drugs to a foreign
country, provided the product complies with the laws of that country and has
valid marketing authorization in at least one of a list of designated "Tier
1" countries. Once a product is exported to a qualified foreign country, the
Company will be subject to the applicable foreign regulatory requirements
governing human clinical trials and marketing approval in that country. The
requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country and there can
be no assurance that the Company or any of its collaborators will be able to
meet and fulfill the statutory requirements in a particular country.
Health Script is subject to regulation by state regulatory authorities,
principally state boards of pharmacy. In addition, Health Script is subject to
regulation by other state and Federal agencies with respect to
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reimbursement for prescription drug benefits provided to individuals covered
primarily by publicly funded programs.
MANUFACTURING
In June 1995, the Company completed the first phase of construction of its
manufacturing facility located in a Company-owned building adjacent to its
headquarters. The facility initially is intended, subject to regulatory
approval, to be used to formulate, mill, blend and manufacture drugs to be
used with Spiros. Equipment purchases for and validation of the facility are
currently scheduled through 1997. The Company's manufacturing facility must
be registered with and licensed by various regulatory authorities and comply
with cGMP requirements prescribed by the FDA and the State of California. The
Company is currently expanding its facilities to provide additional
manufacturing capabilities. The Company relies on a single manufacturer for
certain of its products. Any failure or significant delay in the validation
of or obtaining a satisfactory regulatory inspection of the new facility
could have a material adverse effect on the Company's ability to manufacture
products in connection with Spiros.
The Company has limited experience manufacturing products for commercial
purposes and currently does not have the capability to manufacture its
pharmaceutical products and therefore is dependent on contract manufacturers
for the production of such products for development and commercial purposes.
The Company's current dependence upon others for the manufacture of its
products may adversely affect the future profit margin, if any, on the sale
of those products and the Company's ability to develop and deliver products
on a timely and competitive basis.
HUMAN RESOURCES
The Company employed 462 employees (of which 375 are full-time) as of
December 31, 1996, consisting of 244 people in sales and marketing (of which
182 constitute the field sales force), 39 in administration and finance, 69
in clinical, regulatory and research and development, 24 in operations and 86
at Health Script. None of the Company's employees are represented by a labor
union and the Company believes it maintains positive relations with both
field and corporate personnel.
ENVIRONMENTAL COMPLIANCE
The Company has not incurred any significant costs associated with
environmental regulations and none are anticipated.
RISKS AND UNCERTAINTIES
REDUCTION IN GROSS MARGINS - There is no proprietary protection for most of
the products sold by the Company and substitutes for such products are sold
by other pharmaceutical companies. The Company expects average selling
prices for many of its products to decline over time due to competitive and
reimbursement pressures. While the Company will seek to mitigate the effect
of this decline in average selling prices, there can be no assurance that the
Company will be successful in these efforts.
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES - The Company's commercial
success will depend in part on the availability of adequate reimbursement
from third-party health care payers, such as government and private health
insurers and managed care organizations. Third-party payers are increasingly
challenging the pricing of medical products and services. There can be no
assurance that reimbursement will be available to enable the Company to
achieve market acceptance of its products or to maintain price levels
sufficient to realize an appropriate return on the Company's investment in
product acquisition, in-licensing and development. The market for the
company's products may be limited by actions of third-party payers. For
example, many managed health care organizations are now controlling the
pharmaceuticals that are on their formulary lists. The resulting competition
among pharmaceutical companies to place their products on
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these formulary lists has created a trend of downward pricing pressure in the
industry. In addition, many managed care organizations are pursuing various
ways to reduce pharmaceutical costs and are considering formulary contracts
primarily with those pharmaceutical companies that can offer a full line of
products for a given therapy sector or disease state. There can be no
assurance that the Company's products will be included on the formulary lists
of managed care organizations or that downward pricing pressure in the
industry generally will not negatively impact the Company's operations.
DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICAL PRODUCTS - The Company's
strategy for growth is dependent, in part, upon acquiring, in-licensing and co-
promoting pharmaceuticals targeted primarily at allergists, ENTs, pulmonologists
and a selected subset of pediatricians and generalist physicians. Other
companies, including those with substantially greater resources, are competing
with the Company for the right to such products. There can be no assurance that
the Company will be able to acquire, in-license or co-promote additional
pharmaceuticals on acceptable terms, if at all. The failure of the Company to
acquire, in-license, co-promote, develop or market commercially successful
pharmaceuticals would have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company, once it has obtained
rights to a pharmaceutical product and committed to payment terms, will be able
to generate sales sufficient to create a profit or otherwise avoid a loss.
DEVELOPMENT RISKS ASSOCIATED WITH SPIROS-TM- - Spiros will require significant
additional development. There can be no assurance that development of Spiros
will be completed successfully, that Spiros will not encounter problems in
clinical trials that will cause the delay or suspension of such trials, that
current or future testing will show Spiros to be safe or efficacious or that
Spiros will receive regulatory approval. In addition, regulatory approvals will
have to be obtained for each drug to be delivered through the use of Spiros
prior to commercialization. Moreover, even if Spiros does receive regulatory
approval, there can be no assurance that Spiros will be commercially successful,
have all of the patent and other protections necessary to prevent competitors
from producing similar products and not infringe on patent or other proprietary
rights of third parties. The failure of Spiros to receive timely regulatory
approval and achieve commercial success would have a material adverse effect on
the Company.
RISKS ASSOCIATED WITH RECENT ACQUISITIONS - In September 1996, the Company
acquired from Lilly exclusive U.S. rights to market and distribute Keftab-
Registered Trademark- and Ceclor-Registered Trademark- CD and entered into a
manufacturing agreement with Lilly which terminates in certain circumstances.
Any interruption in the supply of Keftab or Ceclor CD from Lilly due to
regulatory or other causes could result in the inability of the Company to meet
demand and could have a material adverse impact on the Company.
Both Keftab and Ceclor CD are antibiotics, and the Company has limited or no
experience in marketing such products. There can be no assurance that the
Company will be able to successfully market and distribute Keftab or that Keftab
will continue to be accepted by the market at the levels previously achieved by
Lilly or at a level sufficient to maintain growth of the product. In addition,
Ceclor CD has not previously been marketed to physicians, and no assurance can
be given that the Company will be able to successfully compete with currently
available products. Failure to successfully market and sell Keftab and Ceclor CD
would have a material adverse effect on the Company's business, financial
condition and results of operations.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK - The
distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market and the number of
independent drug stores and small chains has decreased. Further consolidation
among, or any financial difficulties of, distributors or retailers could result
in the combination or elimination of warehouses thereby stimulating product
returns to the Company. Further consolidation or financial difficulties could
also cause customers to reduce their inventory levels, or otherwise reduce
purchases of the Company's products which could result in a material adverse
effect on the Company's business, financial condition or results of operations.
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Dura's customers include McKesson Drug Company, Bergen Brunswig Drug Company,
Cardinal Health Inc., Bindley Western Drug Company and major drug store
chains. For 1996, three wholesale customers individually accounted for 17%,
14% and 13% of sales. Two wholesale customers individually accounted for 16%
and 11% of 1995 sales, three wholesale customers individually accounted for
21%, 14% and 12% of 1994 sales. The loss of any of these customer accounts
could have a material adverse effect upon the Company's business, financial
condition or results of operations.
SEASONALITY AND FLUCTUATING QUARTERLY RESULTS - Historically, as a result of
the winter cold and flu season, industry-wide demand for respiratory products
has been stronger in the first and fourth quarters than during the second and
third quarters of the year. In addition, variations in the timing and
severity of the winter cold and flu season have influenced the Company's
results of operations in the past. While the growth and productivity of the
Company's sales force and the introduction by the Company of new products
have historically mitigated the impact of seasonality on the Company's
results of operations, recent product acquisitions by the Company are likely
to increase the impact of seasonality on the Company's results of operations.
No assurances can be given that the Company's results of operations will not
be materially adversely affected by the seasonality of product sales.
COMPETITION - Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of Dura, are engaged in developing, marketing and selling
products that compete with those offered by the Company. The selling prices
of such products typically decline as competition increases. Further, other
products now in use or under development by others may be more effective than
Dura's current or future products. The industry is characterized by rapid
technological changes, and competitors may develop their products more
rapidly than Dura. Competitors may also be able to complete the regulatory
process sooner, and therefore, may begin to market their products in advance
of Dura's products. Dura believes that competition among both prescription
pharmaceuticals and pulmonary delivery systems aimed at the asthma and
allergy, cough and cold markets will be based on, among other things, product
efficacy, safety, reliability, availability and price.
Dura directly competes with at least 25 other companies in the U.S. which are
currently engaged in developing, marketing and selling respiratory
pharmaceuticals. Additionally, there are at least 10 companies currently
involved in the development, marketing or sales of dry powder pulmonary drug
delivery systems. There are two types of dry powder inhalers ("DPIs")
currently in commercial use worldwide. In the U.S., only individual dose
DPIs are marketed, including the Rotohaler (developed and marketed by Glaxo
Wellcome, Inc. ("Glaxo")) and the Spinhaler (developed and marketed by Fisons
Limited ("Fisons")). The Turbuhaler (developed and marketed by Astra
Pharmaceuticals ("Astra")), a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard. It is not yet
marketed in the U.S., although the Food and Drug Administration ("FDA") has
issued an approvable letter for the first Turbuhaler product.
DEPENDENCE ON THIRD PARTIES; LIMITED MANUFACTURING EXPERIENCE - The Company's
strategy for development and commercialization of certain of its products is
dependent upon entering into various arrangements with corporate partners,
licensors and others and upon the subsequent success of these partners,
licensors and others in performing their obligations. There can be no
assurance that the Company will be able to negotiate acceptable arrangements
in the future or that such arrangements, or its existing arrangements will be
successful. In addition, partners, licensors and others may pursue
alternative technologies or develop alternative compounds or drug delivery
systems either on their own or in collaboration with others, including the
Company's competitors. The Company has limited experience manufacturing
products for commercial purposes and currently does not have the capability
to manufacture its pharmaceutical products and therefore is dependent on
contract manufacturers for the production of such products for development
and commercial purposes. The manufacture of the Company's products is
subject to current Good Manufacturing Practice ("cGMP") regulations
prescribed by the FDA. The Company relies on a single manufacturer for each
of its products. In the event that the Company is unable to obtain or retain
third-party manufacturing, it may not be able to commercialize its products
as planned.
18
<PAGE>
There can be no assurance that the Company will be able to continue to obtain
adequate supplies of such products in a timely fashion at acceptable quality
and prices. Also, there can be no assurance that the Company will be able to
enter into agreements for the manufacture of future products with
manufacturers whose facilities and procedures comply with cGMP and other
regulatory requirements. The Company's current dependence upon others for
the manufacture of its products may adversely affect future profit margins,
if any, on the sale of those products and the Company's ability to develop
and deliver products on a timely and competitive basis.
In June 1995, the Company completed construction of its manufacturing
facility located in a Company-owned building adjacent to its headquarters.
The Company is currently expanding its facilities to provide additional
manufacturing capabilities. The facility initially is intended to be used to
formulate, mill, blend and manufacture drugs to be used with Spiros, pending
regulatory approval. Equipment purchases and validation are currently
scheduled through 1997. The Company's manufacturing facility must be
registered with and licensed by various regulatory authorities and comply
with cGMP requirements prescribed by the FDA and the State of California.
Any failure or significant delay in the validation of or obtaining a
satisfactory regulatory inspection of the new facility could have a material
adverse effect on the Company's ability to manufacture products in connection
with Spiros.
MANAGING GROWTH OF BUSINESS - The Company has experienced significant growth
as total revenues increased 80% in fiscal 1994, 58% in fiscal 1995 and 102%
for 1996 as compared to prior years. During 1996, the Company executed
agreements relating to the acquisition of the rights to the Entex, Ceclor CD
and Keftab products. During fiscal 1995, the Company executed three
agreements relating to the acquisition, in-licensing and co-promotion of
products and acquired Health Script. Due to the Company's emphasis on
acquiring and in-licensing respiratory pharmaceutical products, the Company
anticipates that the integration of the recently acquired businesses and
products, as well as any future acquisitions, will require significant
management attention and expansion of its sales force. The Company's ability
to achieve and maintain profitability is based on management's ability to
manage its changing business effectively.
UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS - The Company has
experienced significant operating losses in the past and at December 31,
1996, the Company's accumulated deficit was $79.0 million. Although the
Company has achieved profitability on a annual basis in fiscal 1994, 1995
(prior to the charge of approximately $43.8 million in the fourth quarter of
1995 in connection with the exercise of its option to purchase all of the
outstanding stock of DDSI and its cash contributions to Spiros Corp.) and
1996, there can be no assurance that revenue growth or profitability will
continue on a quarterly or annual basis in the future. The acquisition and
in-licensing of products, the expansion of the Company's sales force in
response to acquisition and in-licensing of products, the maintenance of the
Company's existing sales force, the upgrade and expansion of its facilities,
continued pricing pressure and the potential exercise of the Spiros Purchase
Option or the Albuterol Purchase Option (as defined below), as well as funds
that Dura, at its option, may provide for Spiros development, both internally
and through Spiros Corp., will require the commitment of substantial capital
resources and may also result in significant losses. Depending upon, among
other things, the acquisition and in-licensing opportunities available, the
Company may need to raise additional funds for these purposes. The Company
may seek such additional funding through public and private financing,
including equity financing. Adequate funds for these purposes, whether
through financial markets or from other sources, may not be available when
needed or on terms acceptable to the Company. Insufficient funds may require
the Company to delay, scale back, or prevent some or all of its product
acquisition and in-licensing programs, the upgrade and expansion of its
facilities, the potential exercise of the Spiros Purchase Option and/or the
Albuterol Purchase Option and further development of Spiros. The Company
anticipates that its existing capital resources, together with cash expected
to be generated from operations, available bank borrowings and the proceeds
of this offering, should be sufficient to finance its current operations and
working capital requirements through at least 1997.
19
<PAGE>
POTENTIAL EXERCISE OF PURCHASE OPTIONS FOR SPIROS CORP. CALLABLE COMMON STOCK
AND ALBUTEROL PRODUCT; DILUTION - Dura has a purchase option with respect to
all of the currently outstanding shares of callable common stock of Spiros
Corp.("Spiros Purchase Option"). If Dura exercises the Spiros Purchase
Option, it will be required to make a substantial cash payment or to issue
shares of the common stock, or both. A payment in cash would reduce Dura's
capital resources. A payment in shares of common stock would result in a
decrease in the percentage ownership of Dura's shareholders at that time.
The exercise of the Spiros Purchase Option will likely require Dura to record
a significant charge to earnings and may adversely impact future operating
results. If Dura does not exercise the Spiros Purchase Option prior to its
expiration, the Company's rights in and to Spiros with respect to certain
compounds will terminate. Dura also has the option to provide funding for
Spiros development in certain circumstances. Dura believes that the current
funds of Spiros Corp. will be sufficient to fund product development by
Spiros Corp. through 1997. Development of Spiros Corp. products will require
significant additional funds.
As part of the Company's contractual relationship with Spiros Corp., the
Company received an option to purchase certain rights to an albuterol product
in a cassette version of Spiros ("Albuterol Purchase Option") exercisable at
any time through the earlier of 60 days after FDA approval of such albuterol
product or December 31, 1999. If the Company exercises the Albuterol
Purchase Option, it will be required to make a cash payment of at least $15.0
million which could have an adverse effect on its capital resources. The
company may not have sufficient capital resources to exercise the Albuterol
Purchase Option which may result in the Company's loss of valuable rights.
In addition, continuation of development and commercialization of an
albuterol product in a cassette version of Spiros may require substantial
additional expenditures by Dura. Dura has not made any determination as to
the likelihood of its exercise of the Spiros Purchase Option or the Albuterol
Purchase Option.
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL - Development, testing,
manufacturing and marketing of the Company's products are subject to
extensive regulation by numerous governmental authorities in the U.S. and
other countries. The process of obtaining FDA approval of pharmaceutical
products and drug delivery systems is costly and time-consuming. Any new
pharmaceutical must undergo rigorous preclinical and clinical testing and an
extensive regulatory approval process mandated by the FDA. Marketing of drug
delivery systems also requires FDA approval, which can be costly and time
consuming to obtain. The Company will need to obtain regulatory approval for
each drug to be delivered through the use of Spiros. There can be no
assurance that the pharmaceutical products currently in development, or those
products acquired or in-licensed by the Company, will be approved by the FDA.
In addition, there can be no assurance that all necessary clearances will be
granted to the Company or its licensors for future products or that FDA
review or actions will not involve delays adversely affecting the marketing
and sale of the Company's products. For both currently marketed and future
products, failure to comply with applicable regulatory requirements can,
among other things, result in the suspension of regulatory approval, as well
as possible civil and criminal sanctions. In addition, changes in
regulations could have a material adverse effect on the Company.
The FDA is continuing an evaluation of the effectiveness of all drug products
containing ingredients marketed prior to 1962 (the year of enactment of the
"Drug Amendments of 1962" to the Federal Food, Drug and Cosmetic Act) as part of
its Drug Efficacy Study Implementation ("DESI") program and will determine which
drugs are considered "new drugs" requiring approval through a New Drug
Application ("NDA") for marketing. A policy guide issued by the FDA indicates
that the FDA will implement procedures to determine whether the new drug
provisions are applicable to existing products. If a final determination is
made that a particular drug requires an approved NDA, such approval will be
required for marketing to continue. If such a determination is made, the FDA
might impose various requirements; for example, it might require that the
current product be the subject of an approved NDA, that the product be
reformulated and an NDA approval be obtained, that the product must be sold on
an over-the-counter basis rather than as a prescription drug or that the product
must be removed from the market. There can be no assurance as to which of these
courses the FDA will require, if any, with respect to most of the Company's
pharmaceutical products or whether the Company will be able to obtain any
approvals that the FDA may deem necessary. If any of these actions are taken by
the FDA, such actions could have a material adverse
20
<PAGE>
effect on the Company's business. In addition, the Company's Tornalate
Metered Dose Inhaler uses chlorofluorocarbon ("CFC") propellants. If CFCs
are banned for use in the Tornalate Metered Dose Inhaler, then the Company
will not be able to market that product for sale. Health Script is subject
to regulation by state regulatory authorities, principally state boards of
pharmacy. In addition, Health Script is subject to regulation by other state
and federal agencies with respect to reimbursement for prescription drug
benefits provided to individuals covered primarily by publicly-funded
programs.
PATENTS AND PROPRIETARY RIGHTS - The Company's success will depend in part on
its ability to obtain patents on current or future products or formulations,
defend its patents, maintain trade secrets and operate without infringing
upon the proprietary rights of others, both in the U.S. and abroad. However,
only four of the pharmaceuticals currently marketed by the Company are
covered by patents. The Company also has licenses or license rights to
certain other U.S. and foreign patent and patent applications. There can be
no assurance that patents, U.S. or foreign, will be obtained, or that, if
issued or licensed to the Company, they will be enforceable or will provide
substantial protection from competition or be of commercial benefit to the
Company or that the Company will possess the financial resources necessary to
enforce or defend any of its patent rights. Federal court decisions
establishing legal standards for determining the validity and scope of
patents in the field are in transition. There can be no assurance that the
historical legal standards surrounding questions of validity and scope will
continue to be applied or that current defenses as to issued patents in the
field will offer protection in the future. The commercial success of the
Company will also depend upon avoiding the infringement of patents issued to
competitors and upon maintaining the technology licenses upon which certain
of the Company's current products are, or any future products under
development might be, based. Litigation, which could result in substantial
cost to the Company, may be necessary to enforce the Company's patent and
license rights or to determine the scope and validity of proprietary rights
of third parties. If any of the Company's products are found to infringe
upon patents or other rights owned by third parties, the Company could be
required to obtain a license to continue to manufacture or market such
products. There can be no assurance that licenses to such patent rights
would be made available to the Company on commercially reasonable terms, if
at all. If the Company does not obtain such licenses, it could encounter
delays in marketing affected products while it attempts to design around such
patents or it could find that the development, manufacture or sale of
products requiring such licenses is not possible. The Company currently has
certain licenses from third parties and in the future may require additional
licenses from other parties to develop, manufacture and market commercially
viable products effectively. There can be no assurance that such licenses
will be obtainable on commercially reasonable terms, if at all, or that the
patents underlying such licenses will be valid and enforceable.
PRODUCT LIABILITY AND RECALL - The Company faces an inherent business risk of
exposure to product liability claims in the event that the use of its
technologies or products is alleged to have resulted in adverse effects.
Such risks will exist even with respect to those products that receive
regulatory approval for commercial sale. While the Company has taken, and
will continue to take, what it believes are appropriate precautions, there
can be no assurance that it will avoid significant product liability
exposure. The Company currently has product liability insurance; however,
there can be no assurance that the level or breadth of any insurance coverage
will be sufficient to fully cover potential claims. There can be no
assurance that adequate insurance coverage will be available in the future at
acceptable costs, if at all, or that a product liability claim or recall
would not materially and adversely affect the business or financial condition
of the Company.
ATTRACTION AND RETENTION OF KEY PERSONNEL - The Company is highly dependent
on the principal members of its management staff, the loss of whose services
might impede the achievement of development objectives. Although the Company
believes that it is adequately staffed in key positions and that it will be
successful in retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that the Company will be able
to attract and retain such personnel on acceptable terms. The loss of the
services of key scientific, technical and management personnel could have a
material adverse effect on the Company, especially in light of the Company's
recent significant growth.
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VOLATILITY OF COMPANY STOCK PRICE - The market prices for securities of
emerging companies, including the Company, have historically been highly
volatile. Future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Company's common stock.
Such announcements might include financial results, the results of testing,
technological innovations, new commercial products, changes to government
regulations, government decisions on commercialization of products,
developments concerning proprietary rights, litigation or public concern as
to safety of the Company's products.
ABSENCE OF DIVIDENDS - The Company has never paid any cash dividends on its
common stock. In accordance with certain bank loan agreements, the Company
is restricted from paying cash dividends without prior bank approval. The
Company currently anticipates that it will retain all available funds for use
in its business and does not expect to pay any cash dividends in the
foreseeable future.
CHANGE IN CONTROL - Certain provisions of the Company's charter documents and
terms relating to the acceleration of the exercisability of certain warrants
and options relating to the purchase of such securities by the Company in the
event of a change in control may have the effect of delaying, deferring or
preventing a change in control of the Company, thereby possibly depriving
shareholders of receiving a premium for their shares of the common stock.
ITEM 2. PROPERTIES
The Company owns and occupies two buildings that are situated on one parcel
of land and has acquired land for the construction of a new corporate
facility. The two buildings and the land are located in San Diego,
California. One building, consisting of approximately 31,000 square feet, is
used primarily as office space for research, regulatory, sales and
administrative personnel. The second building, consisting of approximately
49,000 square feet, contains the Company's manufacturing facility that will
be used to formulate, mill, blend and fill drugs to be used with Spiros, lab
and research facilities and warehouse space. The Company also occupies an
additional 34,000 square feet of office and laboratory space pursuant to a
short-term lease. The Company is constructing a 70,000 square foot facility
expected to be completed in the second half of 1997, to which certain
corporate functions will be relocated.
The Company also leases approximately 16,660 square feet of space in Denver,
Colorado which houses the operations of Health Script's mail service
pharmacy. The lease term expires in January 2001 with one five-year renewal
option.
ITEM 3. LEGAL PROCEEDINGS
There are currently no material legal proceedings pending against or involving
the Company.
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY
HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated herein by
reference from the information contained in the sections captioned "Market
Information on Common Stock", "Shareholders", and "Dividends" in the
Registrant's 1996 Annual Report to Shareholders, extracts of which are
attached hereto as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Selected
Financial Data" in the Registrant's 1996 Annual Report to Shareholders,
extracts of which are attached hereto as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by Item 7 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1996 Annual Report to Shareholders, extracts
of which are attached hereto as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Financial
Statements and Supplementary Data" in the Registrant's 1996 Annual Report to
Shareholders, extracts of which are attached hereto as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
23
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information under the caption "Election
of Directors", appearing in the Proxy Statement to be filed on or about April
16, 1997, is incorporated herein by reference.
(b) Identification of Executive Officers. The information under the caption
"Executive Officers", appearing in the Proxy Statement to be filed on or about
April 16, 1997, is incorporated herein by reference.
(c) Compliance with Section 16 (a) of the Exchange Act. The information under
the caption "Section 16 (a) Beneficial Ownership Reporting Compliance",
appearing in the Proxy Statement to be filed on or about April 16, 1997, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other Information"
appearing in the Proxy Statement to be filed on or about April 16, 1997, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Shareholders" and "Common Stock
Ownership of Management", appearing in the Proxy Statement to be filed on or
about April 16, 1997, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors", "Executive
Compensation and Other Information" and "Certain Transactions", appearing in the
Proxy Statement to be filed on or about April 16, 1997, is incorporated herein
by reference.
24
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
(a) 3. EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
15) 3.1 Articles of Incorporation of the Company, as amended
2) 3.2 By-laws, as amended
1) 10.1 Assumption Agreement, dated December 2, 1991, between
the Company and Silicon Valley Bank.
1) 10.6 Loan and Security Agreement, dated September 30, 1991,
between the Company and Silicon Valley Bank.
1) 10.7 Security Agreement, dated September 30, 1991, between the
Company and Silicon Valley Bank.
1) 10.8 Securities Purchase Agreement, dated August 20, 1991,
between the Company and the Investors listed on Schedule A
thereto, together with the related Form of Promissory Note,
Form of Stock Purchase Warrant, Form of Security Agreement
and Form of Registration Rights Agreement.
1) 10.19 License Agreement by and between the Company and Sterling
Drug Inc. currently known as Sterling Winthrop, Inc.,
dated June 26, 1991 (with certain confidential portions
omitted).
25
<PAGE>
1) 10.26 License Agreement by and between the Company and Mark B.
Mecikalski, M.D., dated June 1, 1990 (with certain
confidential portions omitted).
1) + 10.52 Form of Employee Restricted Bonus Stock Agreement.
+ 10.54 Form of Indemnification Agreement between the Company
and each of its directors.
+ 10.55 Form of Indemnification Agreement between the Company and
each of its officers.
2) 10.58 Bitolterol Mesylate 0.2% Inhalation Solution and
Tornalate-Registered Trademark- (Bitolterol Mesylate)
Metered Dose Inhaler License Agreement by and between
Sterling Winthrop, Inc. and Company, dated June 24, 1992
(with certain confidential portions omitted).
2) 10.59 Silicon Valley Bank Amendment to Loan Agreement
regarding Real Estate Loan.
15) + 10.60 The Company's 1992 Stock Option Plan, as amended.
2) + 10.61 Form of Employee Non-Statutory Stock Option Agreement.
2) + 10.62 Form of Employee Incentive Stock Option Agreement.
2) + 10.63 Form of Officer Incentive Stock Option Agreement.
2) + 10.64 Form of Automatic Grant Non-Employee Director Agreements.
2) + 10.65 Employment Agreement - Cam L. Garner dated May 7, 1990.
4) 10.72 Form of Series W Warrant.
5) 10.73 Assignment Agreement by and between the Company and Mark B.
Mecikalski, M.D., dated March 12, 1993 (with certain
confidential portions omitted).
6) 10.80 Registration Rights Agreement by and between the Company
and Elan International Services Limited, as successor in
interest, dated April 17, 1994.
10.81 Letter Agreements between the Company and Elan International
Services Limited, dated March 1, 1995 and September 3, 1996.
10.82 Form of Common Stock Purchase Warrant between the Company and
Elan International Services Ltd.
7) 10.83 Product Licensing Agreement among Elan Corporation, plc,
Dura Delivery Systems, Inc. and the Company (with certain
confidential portions omitted).
26
<PAGE>
7) 10.84 Protein and Peptide Development Agreement between Elan
Corporation, plc and the Company (with certain confidential
portions omitted).
7) 10.85 Technology Access Agreement between Elan Corporation, plc
and the Company (with certain confidential portions
omitted).
8) 10.86 Silicon Valley Bank Amendment to Loan Agreement regarding
Real Estate Loan dated November 10, 1994.
9) 10.87 Business Combination Agreement dated March 15, 1995 between
Quintex, Ltd., Health Script Pharmacy Services, Inc. and
the Company (including Schedules B, C, D and E).
10) 10.88 Purchase Agreement dated June 14, 1995 between the Company
and Abbott Laboratories, Ross Products Division, including
list of Schedules and Exhibits thereto (with certain
confidential portions omitted).
11) 10.89 Restated Certificate of Incorporation of DDSI.
11) 10.90 Agreement and Plan of Merger dated December 29, 1995 among
the Company, DDSI and Safari Acquisition Corporation.
11) 10.91 Purchase Agreement by and among the Company, Spiros Corp.
and the entities listed on the Schedule of Purchasers.
11) 10.92 Investors' Rights Agreement by and among the Company and
the investors listed on Schedule A thereto, dated December
29, 1995.
11) 10.93 Stockholders' Agreement by and among Spiros Corp., the
Company and the persons listed on Schedule A thereto, dated
December 29, 1995.
11) 10.94 Form of Series S Warrant.
11) 10.95 Technology License Agreement by and among the Company,
DDSI and Spiros Corp., dated December 29, 1995.
11) 10.96 Development and Management Agreement by and between the
Company and Spiros Corp., dated December 29, 1995 (with
certain confidential portions omitted).
11) 10.97 Interim Manufacturing and Marketing Agreement by and between
the Company and Spiros Corp., dated December 29, 1995.
11) 10.98 Albuterol Purchase Option Agreement by and between the
Company and Spiros Corp., dated December 29, 1995.
11) 10.99 Restated Certificate of Incorporation of Spiros Corp.
13) 10.100 Agreement for Purchase and Sale of Assets, dated June 17,
1996 between the Company and Procter & Gamble
Pharmaceuticals, Inc. (with certain confidential portions
omitted).
14) 10.101 Licensing Agreement dated August 21, 1996 between the
Company and Eli Lilly and Company (with certain confidential
portions omitted).
10.102 Manufacturing Agreement dated August 21, 1996 between the
Company and Eli Lilly and Company (with certain confidential
portions omitted).
11 Statements Re Computations of Net Income (Loss) Per Share.
13 1996 Annual Report to Shareholders (Only items incorporated
by reference)
23 Independent Auditors' Consent.
24 Power of Attorney.
27
<PAGE>
27 Financial Data Schedule.
1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-44525), filed on December 13, 1991, as amended.
2) Incorporated by reference to the Company's Form 10-K, filed on March 31,
1993, as amended.
3) Incorporated by reference to the Company's Form 8-K, filed on September 15,
1993.
4) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-71798), filed on December 13, 1993.
5) Incorporated by reference to the Company's Form 10-K, filed on March 31,
1994, as amended.
6) Incorporated by reference to the Company's Form 10-Q, filed on August 5,
1994.
7) Incorporated by reference to the Company's Form 10-Q, filed on October 17,
1994, as amended.
8) Incorporated by reference to the Company's Form 10-K, filed on March
31, 1995.
9) Incorporated by reference to the Company's Form 8-K, filed on April
6, 1995.
10) Incorporated by reference to the Company's Form 8-K, filed on June
20, 1995, as amended.
11) Incorporated by reference to the Company's Form 8-K, filed on January 9,
1996, as amended.
13) Incorporated by reference to the Company's Form 8-K, filed on July 17,
1996.
14) Incorporated by reference to the Company's Form 8-K, filed on September 19,
1996, as amended.
15) Incorporated by reference to the Company's Form 10-Q, filed on August 14,
1996.
+ Management contract or compensation plan or arrangement.
(b) REPORTS ON FORM 8-K.
On December 20, 1996, the Company filed a Current Report on Form 8-K/A dated
September 5, 1996 (which amended the Current Report of the Company on Form
8-K filed on September 19, 1996) transmitting a revised Exhibit 2.1, with
certain confidential portions omitted.
SUPPLEMENTAL INFORMATION
No Annual Report to Shareholders or Proxy materials have been sent to
shareholders as of the date of this report. The Annual Report to
Shareholders and Proxy material will be furnished to the Company's
shareholders subsequent to the filing of this report and the Company will
furnish such material to the Securities and Exchange Commission at that
time.
28
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997 DURA PHARMACEUTICALS, INC.
---------------------------
By: /s/ Cam L. Garner
-------------------------------
Cam L. Garner,
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Cam L. Garner and James W. Newman, or either
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
/s/ Cam L. Garner Chairman, President and March 28, 1997
- --------------------- Chief Executive Officer
(Cam L. Garner) (Principal Executive Officer)
/s/ David S. Kabakoff Executive Vice President March 28, 1997
- --------------------- and Director
(David S. Kabakoff)
/s/ James W. Newman Senior Vice President, Finance and March 28, 1997
- --------------------- Administration, and Chief
(James W. Newman) Financial Officer (Principal
Financial and Accounting Officer)
/s/ Walter F. Spath Senior Vice President, March 28, 1997
- --------------------- Sales and Marketing and Director
(Walter F. Spath)
/s/ James C. Blair Director March 28, 1997
- ---------------------
(James C. Blair)
/s/ Herbert J. Conrad Director March 28, 1997
- ---------------------
(Herbert J. Conrad)
/s/ Joseph C. Cook Director March 28, 1997
- ---------------------
(Joseph C. Cook)
/s/ David F. Hale Director March 28, 1997
- ---------------------
(David F. Hale)
/s/ Gordon V. Ramseier Director March 28, 1997
- ---------------------
(Gordon V. Ramseier)
/s/ Charles G. Smith Director March 28, 1997
- ---------------------
(Charles G. Smith)
29
<PAGE>
EXHIBIT INDEX
TO
FORM 10-K
DURA PHARMACEUTICALS, INC.
EXHIBIT
NO. DESCRIPTION
------- -----------
15) 3.1 Articles of Incorporation of the Company, as amended
2) 3.2 By-laws, as amended
1) 10.1 Assumption Agreement, dated December 2, 1991, between
the Company and Silicon Valley Bank.
1) 10.6 Loan and Security Agreement, dated September 30, 1991,
between the Company and Silicon Valley Bank.
1) 10.7 Security Agreement, dated September 30, 1991, between the
Company and Silicon Valley Bank.
1) 10.8 Securities Purchase Agreement, dated August 20, 1991,
between the Company and the Investors listed on Schedule A
thereto, together with the related Form of Promissory Note,
Form of Stock Purchase Warrant, Form of Security Agreement
and Form of Registration Rights Agreement.
1) 10.19 License Agreement by and between the Company and Sterling
Drug Inc. currently known as Sterling Winthrop, Inc.,
dated June 26, 1991 (with certain confidential portions
omitted).
<PAGE>
1) 10.26 License Agreement by and between the Company and Mark B.
Mecikalski, M.D., dated June 1, 1990 (with certain
confidential portions omitted).
1) + 10.52 Form of Employee Restricted Bonus Stock Agreement.
+ 10.54 Form of Indemnification Agreement between the Company
and each of its directors.
+ 10.55 Form of Indemnification Agreement between the Company and
each of its officers.
2) 10.58 Bitolterol Mesylate 0.2% Inhalation Solution and
Tornalate-Registered Trademark- (Bitolterol Mesylate)
Metered Dose Inhaler License Agreement by and between
Sterling Winthrop, Inc. and Company, dated June 24, 1992
(with certain confidential portions omitted).
2) 10.59 Silicon Valley Bank Amendment to Loan Agreement
regarding Real Estate Loan.
15) + 10.60 The Company's 1992 Stock Option Plan, as amended.
2) + 10.61 Form of Employee Non-Statutory Stock Option Agreement.
2) + 10.62 Form of Employee Incentive Stock Option Agreement.
2) + 10.63 Form of Officer Incentive Stock Option Agreement.
2) + 10.64 Form of Automatic Grant Non-Employee Director Agreements.
2) + 10.65 Employment Agreement - Cam L. Garner dated May 7, 1990.
4) 10.72 Form of Series W Warrant.
5) 10.73 Assignment Agreement by and between the Company and Mark B.
Mecikalski, M.D., dated March 12, 1993 (with certain
confidential portions omitted).
6) 10.80 Registration Rights Agreement by and between the Company
and Elan International Services Limited, as successor in
interest, dated April 17, 1994.
10.81 Letter Agreements between the Company and Elan International
Services Limited, dated March 1, 1995 and September 3, 1996.
10.82 Form of Common Stock Purchase Warrant between the Company and
Elan International Services Ltd.
7) 10.83 Product Licensing Agreement among Elan Corporation, plc,
Dura Delivery Systems, Inc. and the Company (with certain
confidential portions omitted).
<PAGE>
7) 10.84 Protein and Peptide Development Agreement between Elan
Corporation, plc and the Company (with certain confidential
portions omitted).
7) 10.85 Technology Access Agreement between Elan Corporation, plc
and the Company (with certain confidential portions
omitted).
8) 10.86 Silicon Valley Bank Amendment to Loan Agreement regarding
Real Estate Loan dated November 10, 1994.
9) 10.87 Business Combination Agreement dated March 15, 1995 between
Quintex, Ltd., Health Script Pharmacy Services, Inc. and
the Company (including Schedules B, C, D and E).
10) 10.88 Purchase Agreement dated June 14, 1995 between the Company
and Abbott Laboratories, Ross Products Division, including
list of Schedules and Exhibits thereto (with certain
confidential portions omitted).
11) 10.89 Restated Certificate of Incorporation of DDSI.
11) 10.90 Agreement and Plan of Merger dated December 29, 1995 among
the Company, DDSI and Safari Acquisition Corporation.
11) 10.91 Purchase Agreement by and among the Company, Spiros Corp.
and the entities listed on the Schedule of Purchasers.
11) 10.92 Investors' Rights Agreement by and among the Company and
the investors listed on Schedule A thereto, dated December
29, 1995.
11) 10.93 Stockholders' Agreement by and among Spiros Corp., the
Company and the persons listed on Schedule A thereto, dated
December 29, 1995.
11) 10.94 Form of Series S Warrant.
11) 10.95 Technology License Agreement by and among the Company,
DDSI and Spiros Corp., dated December 29, 1995.
11) 10.96 Development and Management Agreement by and between the
Company and Spiros Corp., dated December 29, 1995 (with
certain confidential portions omitted).
11) 10.97 Interim Manufacturing and Marketing Agreement by and between
the Company and Spiros Corp., dated December 29, 1995.
11) 10.98 Albuterol Purchase Option Agreement by and between the
Company and Spiros Corp., dated December 29, 1995.
11) 10.99 Restated Certificate of Incorporation of Spiros Corp.
13) 10.100 Agreement for Purchase and Sale of Assets, dated June 17,
1996 between the Company and Procter & Gamble
Pharmaceuticals, Inc. (with certain confidential portions
omitted).
14) 10.101 Licensing Agreement dated August 21, 1996 between the
Company and Eli Lilly and Company (with certain confidential
portions omitted).
10.102 Manufacturing Agreement dated August 21, 1996 between the
Company and Eli Lilly and Company (with certain confidential
portions omitted).
11 Statements Re Computations of Net Income (Loss) Per Share.
13 1996 Annual Report to Shareholders (Only items incorporated
by reference)
23 Independent Auditors' Consent.
24 Power of Attorney.
<PAGE>
27 Financial Data Schedule.
1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-44525), filed on December 13, 1991, as amended.
2) Incorporated by reference to the Company's Form 10-K, filed on March 31,
1993, as amended.
3) Incorporated by reference to the Company's Form 8-K, filed on September 15,
1993.
4) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 33-71798), filed on December 13, 1993.
5) Incorporated by reference to the Company's Form 10-K, filed on March 31,
1994, as amended.
6) Incorporated by reference to the Company's Form 10-Q, filed on August 5,
1994.
7) Incorporated by reference to the Company's Form 10-Q, filed on October 17,
1994, as amended.
8) Incorporated by reference to the Company's Form 10-K, filed on March
31, 1995.
9) Incorporated by reference to the Company's Form 8-K, filed on April
6, 1995.
10) Incorporated by reference to the Company's Form 8-K, filed on June
20, 1995, as amended.
11) Incorporated by reference to the Company's Form 8-K, filed on January 9,
1996, as amended.
13) Incorporated by reference to the Company's Form 8-K, filed on July 17,
1996.
14) Incorporated by reference to the Company's Form 8-K, filed on September 19,
1996, as amended.
15) Incorporated by reference to the Company's Form 10-Q, filed on August 14,
1996.
<PAGE>
EXHIBIT 10.54
INDEMNIFICATION AGREEMENT
(Directors)
THIS AGREEMENT is made and entered into this _____ day of December, 1996,
between Dura Pharmaceuticals, Inc., a California corporation ("Corporation"),
whose address is 5880 Pacific Center Blvd., San Diego, California 92121, and
____________________ ("Director"), whose address is _________________________.
RECITALS
WHEREAS, Director, a member of the Board of Directors of Corporation,
performs a valuable service in such capacity for Corporation; and
WHEREAS, the Articles of Incorporation of Corporation authorize and permit
contracts between Corporation and the members of its Board of Directors with
respect to indemnification of such directors; and
WHEREAS, by its terms the California General Corporation Law, as amended
and in effect from time to time or any successor or other statutes of California
having similar import and effect (the "Code" or "California Law"), currently
purports to be the controlling law governing Corporation with respect to certain
aspects of corporate law, including indemnification of directors and officers;
and
WHEREAS, in accordance with the authorization provided by California Law,
Corporation may purchase and maintain a policy or policies of Directors and
Officers Liability Insurance ("D & 0 Insurance"), covering certain liabilities
which may be incurred by its directors and officers in the performance of
services as directors and officers of Corporation; and
WHEREAS, as a result of recent developments affecting the terms, scope and
availability of D & 0 insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & 0 Insurance, if any, and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Director to continue to serve as a member of
the Board of Directors of Corporation, Corporation has determined and agreed to
enter into this contract with Director;
AGREEMENT
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
<PAGE>
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Director.
(b) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Director for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination that
Director is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a California court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Director's right to indemnification hereunder, or (ii) Director shall have
failed to file a complaint in a California court or seek an arbitrator's award
pursuant to Section 13(a) for a period of one hundred twenty (120) days after
the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a law
firm selected by Corporation and approved by Director (which approval shall not
be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Director in an action to determine Director's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever including,
but not limited to, any judgments, fines, ERISA excise taxes and penalties,
penalties and amounts paid in settlement (including all interest assessments and
other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) of any proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the following
events after the date of this Agreement:
2
<PAGE>
(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) through the acquisition or
aggregation of securities is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation representing twenty percent (20%) or
more of the combined voting power of Corporation's then outstanding securities
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote at elections of directors (the "Capital Stock"), except that
any change in ownership of Corporation's securities by any person resulting
solely from a reduction in the aggregate number of outstanding shares of Capital
Stock, and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of Corporation.
2. INDEMNITY OF DIRECTOR. Corporation hereby agrees to hold harmless and
indemnify Director to the fullest extent authorized by the provisions of the
Code.
3. ADDITIONAL INDEMNITY. Subject only to the limitations set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Director in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of Corporation) to which Director is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Director is, was or at any time becomes a director,
officer, employee or agent of Corporation, or is or was serving or at any time
serves at the request of Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to Director by
Corporation under the indemnification non-exclusivity provision of the Articles
of Incorporation of Corporation and the Code.
4. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 3 hereof shall be paid by Corporation
for any of the following:
3
<PAGE>
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Director is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & 0 Insurance
purchased and maintained by Corporation;
(ii) in respect to remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii) on account of any suit in which judgment is rendered against
Director for an accounting of profits made from the purchase or sale by
Director of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(iv) on account of Director's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law if such
acts or omission have been established by a judgment or other final
adjudication adverse to Director (an "Adverse Judgment");
(v) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Director
or any of Director's affiliates against Corporation or against any officer,
director or shareholder of Corporation unless such proceeding was authorized
by the Board of Directors of Corporation;
(vi) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
(vii) on account of any action, suit or proceeding to the extent
that Director is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section
4(a)(v) hereof).
(b) In addition to those limitations set forth above in paragraph (a)
of this Section 4, no indemnity pursuant to Section 3 hereof in an action by
or in the right of Corporation shall be paid by Corporation for any of the
following:
(i) on account of acts or omissions that Director believes to be
contrary to the best interests of Corporation or its shareholders or that
involve the absence of good faith on the part of Director, if so established
by an Adverse Judgment;
(ii) with respect to any transaction from which Director derived an
improper personal benefit, if so established by an Adverse Judgment;
(iii)on account of acts or omissions that show a reckless disregard
for Director's duty to Corporation or its shareholders in circumstances in
which Director was aware,
4
<PAGE>
or should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to Corporation or its shareholders, if so
established by an Adverse Judgment;
(iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Director's duty to
Corporation or its shareholders, if so established by an Adverse Judgment;
(v) on account of proceedings under Section 310 of California Law
(contracts in which director has material financial interest), if so
established by an Adverse Judgment;
(vi) on account of proceedings under Section 316 of California Law
(corporation actions subjecting directors to joint and several liability), if
so established by an Adverse Judgment;
(vii) in respect of any claim, issue or matter as to which Director
shall have been adjudged to be liable to Corporation in the performance of
Director's duty to Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, Director is fairly and reasonably entitled to indemnity for expenses
and then only to the extent that the court shall determine;
(viii) of amounts paid in settling or otherwise disposing of a
pending action without court approval; and
(ix) of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall
submit his or her claim for indemnification within a reasonable time not to
exceed five years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, final termination or other disposition or partial disposition of
any Proceeding, whichever is the later date for which Director requests
indemnification. The President or the Secretary or other appropriate officer
shall, promptly upon receipt of Director's request for indemnification,
advise the Board of Directors in writing that Director has made such a
request. Determination of Director's entitlement to indemnification shall be
made not later than ninety (90) days after Corporation's receipt of his or
her written request for such indemnification.
5
<PAGE>
(b) The Director shall be entitled to select the forum in which
Director's request for indemnification will be heard, which selection shall
be included in the written request for indemnification required in Section
5(a). This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of Disinterested
Directors;
(iii)Independent Legal Counsel, who shall make the determination in
a written opinion; or
(iv) A panel of three arbitrators, one selected by Corporation,
another by Director and the third by the first two arbitrators selected. If
for any reason three arbitrators are not selected within thirty (30) days
after the appointment of the first arbitrator, then selection of additional
arbitrators shall be made by the American Arbitration Association. If any
arbitrator resigns or is unable to serve in such capacity for any reason, the
American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules
of the American Arbitration Association now in effect.
If Director fails to make such designation, his or her claim shall
be determined by the forum selected by Corporation.
6. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a
request for indemnification, Director shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination.
The termination of any Proceeding by judgment, order, settlement, arbitration
award or conviction, or upon a plea of nolo contendere or its equivalent
shall not affect this presumption or, except as may be provided in Section 4
hereof, establish a presumption with regard to any factual matter relevant to
determining Director's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or
other disposition or partial disposition of any Proceeding or any other event
which could enable Corporation to determine Director's entitlement to
indemnification, the requisite determination that Director is entitled to
indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3
is unavailable and may not be paid to Director for any reason other than
those set forth in Section 4 (excluding subsections 4(b) (viii) and (ix)),
then in respect of any threatened, pending or completed action, suit or
proceeding in which Corporation is or is alleged to be jointly liable with
Director (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Director in such proportion as is
appropriate to reflect (i) the relative benefits received by Corporation on
the one hand and Director on the other
6
<PAGE>
hand from the transaction from which such action, suit or proceeding arose,
and (ii) to relative fault of Corporation on the one hand and of Director on
the other in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant
equitable considerations. The relative fault of Corporation on the one hand
and of Director on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such
expenses, judgments, fines or settlement amounts. Corporation agrees that it
would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation or any other method of allocation
which does not take account of the foregoing equitable considerations.
8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or
Director against any Expenses and Liabilities in connection with any
Proceeding to the fullest extent permitted by California Law. In the event of
a Change of Control, Corporation shall establish a letter of credit, as
provided in Section 9, to ensure the payment of such amounts as may be
necessary to effect indemnification or advancement of Expenses as provided in
this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify and
advance Expenses to Director pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any director, an
irrevocable standby letter of credit naming the directors of the Corporation
in office at the time of a Change of Control as joint beneficiaries (the
"Letter of Credit"). The Letter of Credit shall be in an appropriate amount
not less than two million dollars ($2,000,000), shall be issued by a
commercial bank headquartered in the United States having assets in excess of
$10 billion and capital according to its most recent published reports equal
to or greater than the then applicable minimum capital standards promulgated
by such bank's primary federal regulator and shall contain terms and
conditions reasonably acceptable to all directors. The Letter of Credit
shall provide that Director may from time to time draw certain amounts
thereunder, upon written certification by Director to the issuer of the
Letter of Credit that (i) Director has made written request upon Corporation
for an amount not less than the amount he or she is drawing under the Letter
of Credit and that Corporation has failed or refused to provide him with such
amount in full within thirty (30) days after receipt of the request, and (ii)
Director believes that he or she is entitled under the terms of this
Agreement to the amount which he or she is drawing upon under the Letter of
Credit. The issuance of the Letter of Credit shall not, in any way, diminish
Corporation's obligation to indemnify Director against Expenses and
Liabilities to the full extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so
that the Letter of Credit shall have an initial term of five years, be
renewed for successive five-year terms, and always have at least one year of
its term remaining.
7
<PAGE>
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at
the request of Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise)
and shall continue thereafter so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact
that Director was serving Corporation or any such other entity in any
capacity referred to herein.
11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from
any liability which it may have to Director otherwise, than under this
Agreement. With respect to any such action, suit or proceeding as to which
Director notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will
be entitled to assume the defense thereof, with counsel satisfactory to
Director. After notice from Corporation to Director of its election so as to
assume the defense thereof, Corporation will not be liable to Director under
this Agreement for any legal or other expenses subsequently incurred by
Director in connection with the defense thereof other than reasonable costs
of investigation or as otherwise provided below. Director shall have the
right to employ its counsel in such action, suit or proceeding, but the fees
and expenses of such counsel incurred after notice from Corporation of its
assumption of the defense thereof shall be at the expense of Director unless
(i) the employment of counsel by Director has been authorized by Corporation,
(ii) Director shall have reasonably concluded that there may be a conflict of
interest between Corporation and Director in the conduct of the defense of
such action or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Director shall have
made the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall not
be liable to indemnify Director under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Director without Director's written consent.
12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his or her own counsel pursuant
to Section 11(b)(i) through (iii) above, Corporation shall advance to
Director, prior to any final
8
<PAGE>
disposition of any threatened or pending action, suit or proceeding, whether
civil, criminal, administrative or investigative, any and all reasonable
expenses (including legal fees and
9
<PAGE>
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days after receiving copies of invoices presented
to Director for such expenses;
(b) Director agrees that Director will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the
extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Director is not entitled, under
applicable law, the Bylaws, this Agreement and otherwise, to be indemnified
by Corporation for such expenses.
13. REMEDIES OF DIRECTOR.
(a) In the event that (i) a determination pursuant to Section 5 hereof
is made that Director is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) Director otherwise seeks enforcement of
this Agreement, Director shall be entitled to a final adjudication in an
appropriate court of the State of California of his or her rights.
Alternatively, Director at his or her option may seek an award in arbitration
to be conducted by a single arbitrator pursuant to the commercial arbitration
rules of the American Arbitration Association now in effect, whose decision
is to be made within ninety (90) days following the filing of the demand for
arbitration. The Corporation shall not oppose Director's right to seek any
such adjudication or arbitration award.
(b) In the event that a determination that Director is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Director shall not
be prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Director is entitled to indemnification has
been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the
absence of (i) a misrepresentation of a material fact by Director or (ii) a
specific finding (which has become final) by an appropriate court of the
State of California that all or any part of such indemnification is expressly
prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of
this Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making
any assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be
borne by Corporation.
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(f) Corporation and Director agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult of proof, and further agree that such breach
would cause Director irreparable harm. Accordingly, Corporation and Director
agree that Director shall be entitled to temporary and permanent injunctive
relief to enforce this Agreement without the necessity of proving actual
damages or irreparable harm. The Corporation and Director further agree that
Director shall be entitled to such injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions,
without the necessity of posting bond or other undertaking in connection
therewith. Any such requirement of bond or undertaking is hereby waived by
Corporation, and Corporation acknowledges that in the absence of such a
waiver, a bond or undertaking may be required by the court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in
such capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in
such action, Corporation shall reimburse Director for all of Director's
reasonable attorneys' fees and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, and the affected
provision shall be construed and enforced so as to effectuate the parties'
intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of California.
17. CONSENT TO JURISDICTION. The Corporation and Director each
irrevocably consent to jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
California.
18. BINDING EFFECT. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit
of Director, his or her heirs, personal representatives and assigns and to
the benefit of Corporation, its successors and assigns.
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19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter
of this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore
entered into by the parties.
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any
purpose unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by
this Agreement shall not be exclusive of any other right which Director may
have or hereafter acquire under any statute, provision of Corporation's
Articles of Incorporation or Bylaws, agreement vote of shareholders or
directors, or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation and shall inure to the benefit of
Director's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either
party to the other, and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the
date on which it is so mailed.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
DIRECTOR: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- ------------------------------- ----------------------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- ------------------------------- ----------------------------------------
Printed Name Printed Name and Title
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EXHIBIT 10.55
INDEMNIFICATION AGREEMENT
(Officers)
THIS AGREEMENT is made and entered into this _____ day of December, 1996,
between Dura Pharmaceuticals, Inc., a California corporation ("Corporation"),
whose address is 5880 Pacific Center Blvd., San Diego, California 92121, and
____________________ ("Officer"), whose address is _________________________.
RECITALS
WHEREAS, Officer is ___________________________ of Corporation and
performs a valuable service in such capacity for Corporation; and
WHEREAS, the Articles of Incorporation of Corporation authorize and permit
contracts between Corporation and its officers with respect to indemnification
of such officers; and
WHEREAS, by its terms the California General Corporation Law, as amended
and in effect from time to time or any successor or other statutes of California
having similar import and effect (the "Code" or "California Law"), currently
purports to be the controlling law governing Corporation with respect to certain
aspects of corporate law, including indemnification of directors and officers;
and
WHEREAS, in accordance with the authorization provided by California Law,
Corporation may purchase and maintain a policy or policies of Directors and
Officers Liability Insurance ("D & 0 Insurance"), covering certain liabilities
which may be incurred by its directors and officers in the performance of
services as directors and officers of Corporation; and
WHEREAS, as a result of recent developments affecting the terms, scope and
availability of D & 0 insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded its officers by such
D & 0 Insurance, if any, and by statutory and bylaw indemnification provisions;
and
WHEREAS, in order to induce Officer to continue to serve in such capacity
for Corporation, Corporation has determined and agreed to enter into this
contract with Officer;
AGREEMENT
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
<PAGE>
(a) "Disinterested Officer" shall mean an officer of Corporation who is
not or was not a party to the Proceeding in respect of which indemnification is
being sought by Officer.
(b) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Officer for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination that
Officer is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a California court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Officer's right to indemnification hereunder, or (ii) Officer shall have failed
to file a complaint in a California court or seek an arbitrator's award pursuant
to Section 13(a) for a period of one hundred twenty (120) days after the
determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a law
firm selected by Corporation and approved by Officer (which approval shall not
be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Officer in an action to determine Officer's
right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever including,
but not limited to, any judgments, fines, ERISA excise taxes and penalties,
penalties and amounts paid in settlement (including all interest assessments and
other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) of any proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the following
events after the date of this Agreement:
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(i) A change in the composition of the Board of Directors of
Corporation (the "Board"), as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (1) had been directors of
Corporation twenty-four (24) months prior to such change or (2) were elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of Corporation 24 months prior
to such change and who were still in office at the time of the election or
nomination; or
(ii) Any "person" (as such term is used in section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) through the acquisition or
aggregation of securities is or becomes the beneficial owner, directly or
indirectly, of securities of Corporation representing twenty percent (20%) or
more of the combined voting power of Corporation's then outstanding securities
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote at elections of directors (the "Capital Stock"), except that
any change in ownership of Corporation's securities by any person resulting
solely from a reduction in the aggregate number of outstanding shares of Capital
Stock, and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of Corporation.
2. INDEMNITY OF OFFICER. Corporation hereby agrees to hold harmless and
indemnify Officer to the fullest extent authorized by the provisions of the
Code.
3. ADDITIONAL INDEMNITY. Subject only to the limitations set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Officer in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of Corporation) to which Officer is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that Officer is, was or at any time becomes a director, officer,
employee or agent of Corporation, or is or was serving or at any time serves at
the request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer by
Corporation under the indemnification non-exclusivity provision of the Articles
of Incorporation of Corporation and the Code.
4. LIMITATIONS ON ADDITIONAL INDEMNITY.
(a) No indemnity pursuant to Section 3 hereof shall be paid by Corporation
for any of the following:
(i) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Officer is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & 0 Insurance
purchased and maintained by Corporation;
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(ii) in respect to remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iii)on account of any suit in which judgment is rendered against
Officer for an accounting of profits made from the purchase or sale by
Officer of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(iv) on account of Officer's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law if such
acts or omission have been established by a judgment or other final
adjudication adverse to Officer (an "Adverse Judgment");
(v) provided there has been no Change of Control, on account of or
arising in response to any action, suit or proceeding (other than an action,
suit or proceeding referred to in Section 14(b) hereof) initiated by Officer
or any of Officer's affiliates against Corporation or against any officer,
director or shareholder of Corporation unless such proceeding was authorized
by the Board of Directors of Corporation;
(vi) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful; or
(vii)on account of any action, suit or proceeding to the extent
that Officer is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section
4(a)(v) hereof).
(b) In addition to those limitations set forth above in paragraph (a)
of this Section 4, no indemnity pursuant to Section 3 hereof in an action by
or in the right of Corporation shall be paid by Corporation for any of the
following:
(i) on account of acts or omissions that Officer believes to be
contrary to the best interests of Corporation or its shareholders or that
involve the absence of good faith on the part of Officer, if so established
by an Adverse Judgment;
(ii) with respect to any transaction from which Officer derived an
improper personal benefit, if so established by an Adverse Judgment;
(iii) on account of acts or omissions that show a reckless disregard
for Officer's duty to Corporation or its shareholders in circumstances in
which Officer was aware, or should have been aware, in the ordinary course of
performing an officer's duties, of a risk of serious injury to Corporation or
its shareholders, if so established by an Adverse Judgment;
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(iv) on account of acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of Officer's duty to
Corporation or its shareholders, if so established by an Adverse Judgment;
(v) in respect of any claim, issue or matter as to which Officer
shall have been adjudged to be liable to Corporation in the performance of
Officer's duty to Corporation and its shareholders, unless and only to the
extent that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, Officer is fairly and reasonably entitled to indemnity for expenses and
then only to the extent that the court shall determine;
(vi) of amounts paid in settling or otherwise disposing of a
pending action without court approval; and
(vii)of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Officer believes that he or she is entitled to
indemnification pursuant to this Agreement, Officer shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Officer to support his or her claim for indemnification. Officer shall
submit his or her claim for indemnification within a reasonable time not to
exceed five years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, final termination or other disposition or partial disposition of
any Proceeding, whichever is the later date for which Officer requests
indemnification. The President or the Secretary or other appropriate officer
shall, promptly upon receipt of Officer's request for indemnification, advise
the Board of Directors in writing that Officer has made such a request.
Determination of Officer's entitlement to indemnification shall be made not
later than ninety (90) days after Corporation's receipt of his or her written
request for such indemnification.
(b) The Officer shall be entitled to select the forum in which
Officer's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board of Directors consisting of Disinterested
Directors;
(iii)Independent Legal Counsel, who shall make the determination in
a written opinion; or
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(iv) A panel of three arbitrators, one selected by Corporation,
another by Officer and the third by the first two arbitrators selected. If
for any reason three arbitrators are not selected within thirty (30) days
after the appointment of the first arbitrator, then selection of additional
arbitrators shall be made by the American Arbitration Association. If any
arbitrator resigns or is unable to serve in such capacity for any reason, the
American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules
of the American Arbitration Association now in effect.
If Officer fails to make such designation, his or her claim shall
be determined by the forum selected by Corporation.
6. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a
request for indemnification, Officer shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination.
The termination of any Proceeding by judgment, order, settlement, arbitration
award or conviction, or upon a plea of nolo contendere or its equivalent
shall not affect this presumption or, except as may be provided in Section 4
hereof, establish a presumption with regard to any factual matter relevant to
determining Officer's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, or
other disposition or partial disposition of any Proceeding or any other event
which could enable Corporation to determine Officer's entitlement to
indemnification, the requisite determination that Officer is entitled to
indemnification shall be deemed to have been made.
7. CONTRIBUTION. If the indemnification provided in Sections 2 and 3
is unavailable and may not be paid to Officer for any reason other than those
set forth in Section 4 (excluding subsections 4(b) (vi) and (vii)), then in
respect of any threatened, pending or completed action, suit or proceeding in
which Corporation is or is alleged to be jointly liable with Officer (or
would be if joined in such action, suit or proceeding), Corporation shall
contribute to the amount of expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred and
paid or payable by Officer in such proportion as is appropriate to reflect
(i) the relative benefits received by Corporation on the one hand and Officer
on the other hand from the transaction from which such action, suit or
proceeding arose, and (ii) to relative fault of Corporation on the one hand
and of Officer on the other in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the
one hand and of Officer on the other shall be determined by reference to,
among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting
in such expenses, judgments, fines or settlement amounts. Corporation agrees
that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
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8. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or
Officer against any Expenses and Liabilities in connection with any
Proceeding to the fullest extent permitted by California Law. In the event of
a Change of Control, Corporation shall establish a letter of credit, as
provided in Section 9, to ensure the payment of such amounts as may be
necessary to effect indemnification or advancement of Expenses as provided in
this Agreement.
9. LETTER OF CREDIT.
(a) In order to secure the obligations of Corporation to indemnify and
advance Expenses to Officer pursuant to this Agreement, Corporation shall
obtain at the time of any Change of Control, upon request of any officer, an
irrevocable standby letter of credit naming the officers of the Corporation
in office at the time of a Change of Control as joint beneficiaries (the
"Letter of Credit"). The Letter of Credit shall be in an appropriate amount
not less than one million dollars ($1,000,000), shall be issued by a
commercial bank headquartered in the United States having assets in excess of
$10 billion and capital according to its most recent published reports equal
to or greater than the then applicable minimum capital standards promulgated
by such bank's primary federal regulator and shall contain terms and
conditions reasonably acceptable to all officers. The Letter of Credit shall
provide that Officer may from time to time draw certain amounts thereunder,
upon written certification by Officer to the issuer of the Letter of Credit
that (i) Officer has made written request upon Corporation for an amount not
less than the amount he or she is drawing under the Letter of Credit and that
Corporation has failed or refused to provide him with such amount in full
within thirty (30) days after receipt of the request, and (ii) Officer
believes that he or she is entitled under the terms of this Agreement to the
amount which he or she is drawing upon under the Letter of Credit. The
issuance of the Letter of Credit shall not, in any way, diminish
Corporation's obligation to indemnify Officer against Expenses and
Liabilities to the full extent required by this Agreement.
(b) Once Corporation has obtained the Letter of Credit, Corporation
shall maintain and renew the Letter of Credit or substitute letter of credit
meeting the criteria of Section 9(a) during the term of this Agreement so
that the Letter of Credit shall have an initial term of five years, be
renewed for successive five-year terms, and always have at least one year of
its term remaining.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at
the request of Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise)
and shall continue thereafter so long as Officer shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact
that Officer was serving Corporation or any such other entity in any capacity
referred to herein.
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11. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Officer of notice of the commencement of any action, suit or proceeding,
Officer will, if a claim in respect thereof is to be made against Corporation
under this Agreement, notify Corporation of the commencement thereof; but the
omission so to notify Corporation will not relieve it from any liability
which it may have to Officer otherwise, than under this Agreement. With
respect to any such action, suit or proceeding as to which Officer notifies
Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will
be entitled to assume the defense thereof, with counsel satisfactory to
Officer. After notice from Corporation to Officer of its election so as to
assume the defense thereof, Corporation will not be liable to Officer under
this Agreement for any legal or other expenses subsequently incurred by
Officer in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Officer shall have the right
to employ its counsel in such action, suit or proceeding, but the fees and
expenses of such counsel incurred after notice from Corporation of its
assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of
such action or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Officer shall have made
the conclusion provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall not
be liable to indemnify Officer under this Agreement for any amounts paid in
settlement of any action or claim effected without its written consent, which
consent shall not be unreasonably withheld. Corporation shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Officer without Officer's written consent.
12. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Officer employs his or her own counsel pursuant
to Section 11(b)(i) through (iii) above, Corporation shall advance to
Officer, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred
in investigating or defending any such action, suit or proceeding within ten
(10) days after receiving copies of invoices presented to Officer for such
expenses;
(b) Officer agrees that Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer
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in the event and only to the extent it shall be ultimately determined by a
final judicial decision (from which there is no right of appeal) that Officer
is not entitled, under applicable law, the Bylaws, this Agreement and
otherwise, to be indemnified by Corporation for such expenses.
13. REMEDIES OF OFFICER.
(a) In the event that (i) a determination pursuant to Section 5 hereof
is made that Officer is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) Officer otherwise seeks enforcement of
this Agreement, Officer shall be entitled to a final adjudication in an
appropriate court of the State of California of his or her rights.
Alternatively, Officer at his or her option may seek an award in arbitration
to be conducted by a single arbitrator pursuant to the commercial arbitration
rules of the American Arbitration Association now in effect, whose decision
is to be made within ninety (90) days following the filing of the demand for
arbitration. The Corporation shall not oppose Officer's right to seek any
such adjudication or arbitration award.
(b) In the event that a determination that Officer is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 13 shall be made de novo and Officer shall not
be prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Officer is entitled to indemnification has
been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the
absence of (i) a misrepresentation of a material fact by Officer or (ii) a
specific finding (which has become final) by an appropriate court of the
State of California that all or any part of such indemnification is expressly
prohibited by law.
(d) In any court proceeding pursuant to this Section 13, Corporation
shall be precluded from asserting that the procedures and presumptions of
this Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making
any assertion to the contrary.
(e) Expenses reasonably incurred by Officer in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be
borne by Corporation.
(f) Corporation and Officer agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult of proof, and further agree that such breach
would cause Officer irreparable harm. Accordingly, Corporation and Officer
agree that Officer shall be entitled to temporary and permanent injunctive
relief
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to enforce this Agreement without the necessity of proving actual damages or
irreparable harm. The Corporation and Officer further agree that Officer
shall be entitled to such injunctive relief, including temporary restraining
orders, preliminary injunctions and permanent injunctions, without the
necessity of posting bond or other undertaking in connection therewith. Any
such requirement of bond or undertaking is hereby waived by Corporation, and
Corporation acknowledges that in the absence of such a waiver, a bond or
undertaking may be required by the court.
14. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in
such capacity.
(b) In the event Officer is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in
such action, Corporation shall reimburse Officer for all of Officer's
reasonable attorneys' fees and expenses in bringing and pursuing such action.
15. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, and the affected
provision shall be construed and enforced so as to effectuate the parties'
intent to the maximum extent possible.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of California.
17. CONSENT TO JURISDICTION. The Corporation and Officer each
irrevocably consent to jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
California.
18. BINDING EFFECT. This Agreement shall be binding upon Officer and
upon Corporation, its successors and assigns, and shall inure to the benefit
of Officer, his or her heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
19. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter
of this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore
entered into by the parties.
10
<PAGE>
20. AMENDMENT AND TERMINATION. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any
purpose unless set forth in writing signed by both parties hereto.
21. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
22. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Officer by this
Agreement shall not be exclusive of any other right which Officer may have or
hereafter acquire under any statute, provision of Corporation's Articles of
Incorporation or Bylaws, agreement vote of shareholders or directors, or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding office.
23. SURVIVAL OF RIGHTS. The rights conferred on Officer by this
Agreement shall continue after Officer has ceased to be a director, officer,
employee or other agent of Corporation and shall inure to the benefit of
Officer's heirs, executors and administrators.
24. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Officer or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either
party to the other, and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the
date on which it is so mailed.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OFFICER: CORPORATION:
DURA PHARMACEUTICALS, INC.
By:
- ----------------------------- -----------------------------
(Signature) (Signature)
Cam L. Garner, Chairman, President & CEO
- ----------------------------- ----------------------------------------
Printed Name Printed Name and Title
12
<PAGE>
EXHIBIT 10.81
March 1, 1995
Dura Pharmaceuticals, Inc.
5880 Pacific Center Blvd.
San Diego, CA 92121-4204
Ladies and Gentlemen:
Reference is made to 342,857 shares (the "Company") of Common Stock
of Dura Pharmaceuticals, Inc. (the "Company") evidenced by the Certificates
issued on March 1, 1995 (the "Securities") which the undersigned is acquiring
pursuant to a transfer from Elan Corporation, plc ("Transferor").
This will confirm to you that the undersigned will take the
Securities subject to, and bound by, all the terms and conditions contained
in all written agreements between the Transferor and the Company concerning
the Securities including, but not limited to, a certain Stock and Warrant
Purchase Agreement dated April 17, 1994 and a certain Registration Rights
Agreement dated April 17, 1994. The undersigned hereby confirms to you that
the undersigned (a) is not acquiring the Securities with the intention of
distributing them within the meaning of the Securities Act of 1933, as
amended, and (b) will abide by the transfer restrictions on the Securities
resulting from said agreements.
It is the undersigned's understanding that the certificate
evidencing the Securities will bear legends which restrict the sale, transfer
or other disposition of the Securities.
Very truly yours,
ELAN INTERNATIONAL SERVICES LIMITED
By: /s/ KEVIN INSLEY
----------------
Title: Vice President
--------------
<PAGE>
EXHIBIT 10.81
September 3, 1996
Dura Pharmaceuticals, Inc.
5880 Pacific Center Blvd.
San Diego, Ca. 92121-4204
Ladies and Gentlemen:
Reference is made to the Warrant to Purchase 600,000 shares (after giving
effects to the 2 for 1 stock split in the form of a 100% dividend declared by
the Board of Directors of Dura Pharmaceuticals, Inc. (the "Company")
effective July 1, 1996) of Common Stock of the Company evidenced by Common
Stock Purchase Warrant Series E-1 (the "Securities") which the undersigned is
acquiring pursuant to a transfer from Elan Corporation, plc ("Transferor").
This will confirm to you that the undersigned will take the Securities
subject to all the terms and conditions contained in all written agreements
between the Transferor and the Company concerning the Securities including,
but not limited to, a certain Stock and Warrant Purchase Agreement dated
April 17, 1994 and a certain Registration Rights Agreement dated April 17,
1994. The undersigned hereby confirms to you that the undersigned (a) is not
acquiring the Securities with the intention of distributing them within the
meaning of the Securities Act of 1933, as amended, and (b) will abide by
transfer restrictions on the Securities resulting from said agreements.
It is the undersigned's understanding that the certificate evidencing the
Securities will bear legends which restrict the sale, transfer or other
disposition of the Securities.
Very truly yours,
ELAN INTERNATIONAL SERVICES
LIMITED
/s/ KEVIN INSLEY
Vice President & Director
<PAGE>
EXHIBIT 10.82
No. Series E-2
600,000 Shares
COMMON STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND COMPLIANCE
WITH SUCH LAWS, THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS AND UPON
OBTAINING AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE
COMPANY), SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION MAY BE
MADE WITHOUT REGISTRATION OF THE SECURITIES UNDER SUCH ACT AND SUCH
LAWS, OR, WITH RESPECT TO FEDERAL SECURITIES LAWS ONLY, UNLESS SOLD
PURSUANT TO RULE 144.
THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS
CONTAINED IN A CERTAIN STOCK AND WARRANT PURCHASE AGREEMENT DATED
APRIL 17, 1994, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION
WITHOUT CHARGE.
DURA PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT, for value received, Elan International Services
Limited ("Holder"), is entitled to purchase, on the terms hereof, Six Hundred
Thousand (600,000) fully paid and nonassessable shares of Common Stock, no
par value (the "Common Stock") of Dura Pharmaceuticals, Inc., a California
corporation (the "Company"). The total number of shares of Common Stock and
the Exercise Price (as defined below) set forth in this Common Stock Purchase
Warrant have been determined after giving effect to the 2 for 1 stock split
in the form of a 100% dividend declared by the Company's Board of Directors
effective July 1, 1996.
1. EXERCISE OF WARRANT. The terms and conditions upon which this
Warrant may be exercised, and the Common Stock covered hereby (the "Warrant
Shares") may be purchased, are as follows:
1.1 TERM. This Warrant may be exercised in whole or in part at any
time after October 17, 1994, but at or prior to 5:00 p.m. Pacific time on
April 17, 1999, after which time this Warrant shall terminate and shall be
void and of no further force or effect.
<PAGE>
1.2 PURCHASE PRICE. The per share purchase price for the shares of
Common Stock to be issued upon exercise of this Warrant (the "Exercise
Price") shall be $4.38, subject to adjustment as provided herein.
1.3 METHOD OF EXERCISE. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (i) the surrender of the
Warrant, together with a duly executed copy of the form of subscription
attached hereto, to the Company at its principal offices and (ii) the
delivery of the Exercise Price by check or bank draft payable to the
Company's order for the number of shares for which the purchase rights
hereunder are being exercised or by wire transfer of the Exercise Price to
the Company's designated bank account.
1.4 ISSUANCE OF SHARES. Upon the exercise of the purchase rights
evidenced by this Warrant, a certificate or certificates for the purchased
shares shall be issued to the Holder as soon as practicable.
2. CERTAIN ADJUSTMENTS.
2.1 MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. If at any time there
shall be a capital reorganization (other than a combination or subdivision of
shares of Common Stock otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation or any sale of
all or substantially all of the Company's assets to another entity in which
holders of shares of the Company's Common Stock will receive in exchange
therefor other securities or assets, then, as a condition to the closing of
such reorganization, merger, consolidation or sale, lawful provision shall be
made so that the Holder shall thereafter be entitled to receive upon exercise
of this Warrant, during the period specified in this Warrant and upon payment
of the Exercise Price, in lieu of the Warrant Shares issuable upon exercise
of the Warrant, the number of shares of stock or other securities or property
of the Company or the successor corporation resulting from such
reorganization, merger, consolidation or sale to which Holder would have been
entitled under the provisions of the agreement in such reorganization,
merger, consolidation or sale if this Warrant had been exercised immediately
before that reorganization, merger, consolidation or sale. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the
reorganization, merger, consolidation or sale to the end that the provisions
of this Warrant (including adjustment of the Exercise Price then in effect
and the number of Warrant Shares that may be purchased upon exercise of the
Warrant) shall be applicable after that event, as near as reasonably may be
practicable, in relation to any shares of stock or other securities or
property deliverable after that event upon exercise of this Warrant. The
Company shall not effect any such reorganization, merger, consolidation or
sale unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from such reorganization, merger or consolidation
or the entity purchasing such assets, shall assume by written instrument
executed and delivered to the Company the obligation to deliver to Holder
such shares of stock or other securities or property as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase.
2.2 SPLITS AND SUBDIVISIONS. In the event the Company should at any
time or from time to time fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or issue by
reclassification of its Common Stock any other shares representing common
equity of the Company or pay a dividend on its Common Stock in shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as the "Common Equivalents") without payment
of any consideration by such holder for the additional shares of Common Stock
or Common Equivalents, then, as of such record date (or the date of
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<PAGE>
such distribution, split, subdivision or reclassification if no record date
is fixed), the applicable Exercise Price shall be appropriately decreased and
the number of Warrant Shares issuable upon exercise of the Warrant shall be
appropriately increased in proportion to such increase of outstanding shares
of Common Stock.
2.3 COMBINATION OF SHARES. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination
or reclassification of the outstanding shares of Common Stock, then from and
after the record date for such combination or reclassification the applicable
Exercise Price shall be appropriately increased and the number of Warrant
Shares issuable upon exercise of the Warrant shall be appropriately decreased
in proportion to such decrease in outstanding shares of Common Stock.
2.4 ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the Company
shall distribute to all holders of shares of its Common Stock evidences of
indebtedness or assets (including securities issued by the Company or by any
other entity, but excluding (i) any shares or securities referred to in
subsection 2.1 or 2.2 above and (ii) cash distributions in any fiscal year
not exceeding 5% in the aggregate of the net income of the Company for the
immediately preceding fiscal year, as determined in accordance with generally
accepted accounting principals) then in each such case the Exercise Price to
be in effect after such distribution shall be determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the current market price (as defined below)
per share of the Common Stock less the then fair market value (as reasonably
determined by the Board of Directors of the Company) of the portion of the
assets or evidences of indebtedness so distributed applicable to one share of
Common Stock and the denominator of which shall be the current market price
per share of Common Stock as of the date of such distribution. Such
adjustment shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution. For
purposes of this subsection 2.4, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily Closing
Prices (as defined below) for 10 consecutive Trading Days (as defined below)
selected by the Company commencing not more than 30 Trading Days before the
date in question. The term "Closing Price" on any day shall mean the
reported last sale price per share of Common Stock regular way on such day
or, in case no such sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in each case on the principal
national securities exchange on which the Common Stock is listed or admitted
to trading, or, if the Common Stock is not listed or admitted to trading on
any national securities exchange, the average of the closing bid and asked
prices in the over-the-counter market as reported by the National Association
of Securities Dealers' Automated Quotation System, or, if not so reported, as
reported by the National Quotation Bureau, Incorporated, or any successor
thereof, or, if not so reported, the average of the closing bid and asked
prices as furnished by any member of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose; and
the term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, a
Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions
in the City of New York, New York are not authorized or obligated by law or
executive order to close.
2.5 CERTIFICATE AS TO ADJUSTMENTS. In the case of each adjustment
or readjustment of the Exercise Price pursuant to this Section 2, the
Company will promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to the Holder. The Company will, upon
the written request at any time of the Holder, furnish or cause to be
furnished to such
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<PAGE>
Holder a certificate setting forth:
a. Such adjustments and readjustments;
b. The Exercise Price at the time in effect; and
c. The number of shares of Warrant Shares and the amount, if
any, of other property at the time receivable upon the exercise of the Warrant.
2.6 NOTICES OF RECORD DATE, ETC. In the event of:
a. Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as that of the last such cash
dividend theretofore paid) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right; or
b. Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all of assets of the Company to any
other person or any consolidation or merger involving the Company; or
c. Any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the holder of this Warrant, at least twenty (20)
days prior to the earliest date specified therein, a notice specifying:
(i) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding-up is expected to become effective and the record date for
determining shareholders entitled to vote thereon.
3. FRACTIONAL SHARES. No fractional shares shall be issued in
connection with any exercise of this Warrant. In lieu of the issuance of
such fractional share, the Company shall make a cash payment equal to the
then fair market value of such fractional share as determined in good faith
by the Company's Board of Directors.
4. RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the exercise of this Warrant, such number
of its shares of Common Stock as shall from time to time be sufficient to
effect the exercise in full of this Warrant; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies
as shall be available to the Holder, the Company will use its reasonable best
efforts to take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purposes.
5. PRIVILEGES OF STOCK OWNERSHIP. Except as set forth herein, prior to
the exercise of
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<PAGE>
this Warrant, the Holder shall not be entitled, by virtue of holding this
Warrant, to any rights of a shareholder of the Company.
6. LIMITATION OF LIABILITY. Except as otherwise provided herein, in the
absence of affirmative action by the Holder to purchase the Warrant Shares,
no mere enumeration herein of the rights or privileges of the Holder shall
give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
7. TRANSFERS AND EXCHANGES.
7.1 Without the prior written consent of the Company, neither this
Warrant nor any interest in it may be transferred by the Holder. Any
transfer permitted by the Company shall be subject to compliance with
applicable federal and state securities laws. Any permitted transfer shall
be recorded on the books of the Company upon the surrender of this Warrant,
properly endorsed, to the Company at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on
such transfer. In the event of a permitted partial transfer, the Company
shall issue to the several holders one or more appropriate new warrants.
7.2 In the event of a partial exercise of this Warrant, the Company
shall issue an appropriate new warrant to the Holder.
7.3 All new warrants issued in connection with transfers, exchanges
or partial exercises shall be identical in form and provision to this Warrant
except as to the number of shares.
7.4 Certificates evidencing the Warrant Shares shall bear the
following legend:
"These securities are subject to certain transfer restrictions
contained in a certain Stock and Warrant Purchase Agreement dated
April 17, 1994, a copy of which may be obtained from the corporation
without charge."
8. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall be binding upon the Company and the Holder and their respective
successors and assigns.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new warrant of like tenor and dated as of
such cancellation, in lieu of this Warrant.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised, except as to payment of
the Exercise Price, on the next succeeding day not a legal holiday.
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<PAGE>
11. AMENDMENTS AND WAIVERS; CANCELLATION. Any term of this Warrant may
be amended and the observance of any term of this Warrant may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder.
Dated: September 3, 1996 DURA PHARMACEUTICALS, INC.
By: /s/ MITCHELL R. WOODBURY
------------------------
Title: Vice President
--------------
The undersigned Holder agrees and accepts this Warrant and acknowledges
that it has read and confirms each of the representations contained in
Section 3 of the Purchase Agreement.
ELAN INTERNATIONAL SERVICES LIMITED
By: /s/ KEVIN INSLEY
----------------
Title: Vice President and Director
---------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
<PAGE>
SUBSCRIPTION
Dura Pharmaceuticals, Inc.
5880 Pacific Center Blvd.
San Diego, California 92121
Ladies and Gentlemen:
The undersigned, Elan International Services Limited, hereby elects
to purchase, pursuant to the provisions of the Series E-2 Warrant
(exercisable for the aggregate amount of 600,000 shares) held by the
undersigned, _________ shares of the Common Stock of Dura
Pharmaceuticals, Inc., a California corporation at $4.38 per share of Common
Stock, and directs that the shares of Common Stock elected to be purchased be
registered or placed in the name and at the address specified below and
delivered thereto.
The undersigned hereby confirms and acknowledges the investment
representations and warranties made in the Stock and Warrant Purchase
Agreement dated as of April 17, 1994 between Dura Pharmaceuticals, Inc. and
Elan Corporation, plc, as if such representations and warranties had been
made by the undersigned, and reaffirms each of such representations and
warranties as of the date hereof and accepts such shares subject to the
restrictions of such Agreement.
Dated: _____________ , _____
Elan International Services Limited
By:________________________________
Its:_______________________________
Address:____________________________________
____________________________________
<PAGE>
EXHIBIT 10.102*
MANUFACTURING AGREEMENT
This MANUFACTURING AGREEMENT is entered into as of August 21, 1996, by and
between DURA PHARMACEUTICALS, INC. ("Dura"), a corporation organized and
existing under the laws of the State of California, with offices at 5880 Pacific
Center Boulevard, San Diego, California 92121-4204 and ELI LILLY AND COMPANY
("Lilly"), a corporation organized and existing under the laws of the State of
Indiana, with offices at Lilly Corporate Center, Indianapolis, Indiana 46285.
RECITALS
1. Subject to the terms and conditions set forth in this Agreement, Dura
wishes to have Lilly manufacture for Dura certain anti-infective pharmaceutical
products; and
2. Subject to the terms and conditions set forth in this Agreement, Lilly
wishes to manufacture such anti-infective pharmaceutical products for Dura.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
"AFFILIATES" shall mean, with respect to any Person, any Persons directly
or indirectly controlling, controlled by, or under common control with, such
other Person. For purposes hereof, the term "controlled" (including the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the direct or indirect ability or power to direct or cause
the direction of management policies of such Person or otherwise direct the
affairs of such Person, whether through ownership of voting securities or
otherwise.
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
"APPLICABLE LAWS" shall mean all applicable federal, state and local laws,
ordinances, rules and regulations of any kind whatsoever, including, without
limitation, the Federal Food, Drug and Cosmetic Act.
"BULK PATENTS" shall have the meaning given in Section 1 of the Licensing
Agreement.
"BULK TECHNOLOGY" shall have the meaning given in Section 1 of the
Licensing Agreement.
"CLOSING DATE" shall have the meaning given in Section 4.3 of the Licensing
Agreement.
"DAMAGES" shall mean any and all costs, losses, claims, liabilities, fines,
penalties, damages and expenses, court costs, and reasonable fees and
disbursements of counsel, consultants and expert witnesses incurred by a party
hereto (including interest which may be imposed in connection therewith).
"FDA" shall mean the United States Food and Drug Administration.
"GOOD MANUFACTURING PRACTICES" or "GMP" shall mean current Good
Manufacturing Practices as defined in 21 CFR Section 210 ET SEQ., as amended.
"LICENSED ASSETS" shall have the meaning given in Section 2.1 of the
Licensing Agreement.
"LICENSING AGREEMENT" shall mean the Licensing Agreement, dated as of the
date of this Agreement, between Lilly and Dura, which provides for the licensing
of certain rights by Lilly to Dura in connection with the Products for the
period specified therein.
"NDAS" shall mean, with respect to Ceclor-Registered Trademark- CD
(cefaclor extended release tablets), New Drug Application Number 50-673, and,
with respect to Keftab-Registered Trademark- (cephalexin hydrochloride), New
Drug Application Number 50-614, each as filed by Lilly with the FDA and all
subsequent submissions thereto.
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<PAGE>
"PERSON" shall mean a natural person, a corporation, a partnership, a
trust, a joint venture, a limited liability company, any governmental authority
or any other entity or organization.
"PRODUCT PATENTS" shall have the meaning given in Section 1 of the
Licensing Agreement.
"PRODUCT TECHNOLOGY" shall have the meaning given in Section 1 of the
Licensing Agreement.
"PRODUCTS" shall mean those products listed in EXHIBIT A attached hereto.
"PURCHASE ORDER" shall mean a purchase order from Dura to Lilly for any of
the Products issued in accordance with the provisions of the Requirements
Document.
"REQUIREMENTS DOCUMENT" shall mean the Manufacturing Requirements Document
attached hereto as APPENDIX A, as amended from time to time, setting forth
various manufacturing and operational terms and procedures for implementing this
Agreement.
"SPECIFICATIONS" shall mean the specifications for manufacturing and
testing each of the Products and the related methods and stability protocols and
procedures as set forth in the approved NDAs and any supplements and amendments
thereto.
"UNITED STATES" shall mean the fifty (50) states and the District of
Columbia comprising the United States of America.
SECTION 2
PURCHASING, PRICING, AND PAYMENT
2.1. PURCHASE OF EXISTING INVENTORY AND CONTRIBUTION OF EXISTING
SAMPLES. Dura shall purchase Lilly's inventory of the Products existing as of
the Closing Date in the quantities and at the prices set forth in EXHIBIT B
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<PAGE>
attached hereto. Dura shall also purchase at such time Ceclor CD samples in the
quantity and at the price set forth in EXHIBIT B. In addition, Lilly shall
contribute to Dura samples in the quantities and on the dates set forth in
EXHIBIT B. Dating shall be as follows:
(a) with respect to existing Ceclor CD samples, the
expiration date shall be no earlier than June 30, 1997
(Dura agrees to make a good faith effort to distribute
these while in date.);
(b) with respect to the initial *** sample units of
existing Keftab samples, the expiration date shall be
no earlier than October 31, 1997; and
(c) with respect to existing Keftab trade inventory, the
expiration date shall be no earlier than August 31,
1997 (Dura agrees to make a good faith effort to
distribute these while in date.).
2.2. PURCHASE AND PRICE OF FUTURE PRODUCTS AND SAMPLES. Dura shall
purchase from Lilly all its requirements for future Products and samples at the
prices set forth in EXHIBIT C attached hereto. Dating shall be as follows:
(a) with respect to all future purchases of Ceclor CD
samples and trade bottles, the expiration date shall be
no earlier than eighteen (18) months from the date of
shipment; and
(b) with respect to all future purchases of Keftab samples
and trade bottles, the expiration date shall be no
earlier than sixteen (16) months from the date of
shipment.
2.3. PURCHASE ORDERS. Dura shall provide Lilly with Purchase Orders in
accordance with the Requirements Document. Each Purchase Order shall be
governed by the terms of this Agreement and none of the terms or conditions of
Dura's Purchase Orders, Lilly's acknowledgment forms or any other forms shall be
applicable, except those specifying quantity ordered, delivery locations and
delivery schedule and invoice information. Each Purchase Order shall constitute
a binding obligation upon Dura to accept and pay for the quantities of Products
ordered therein if, and to the extent that, such Products meet the
Specifications.
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
2.4. TERMS OF PAYMENT. Dura agrees to pay for all invoices within thirty-
five (35) days from the date of the applicable invoice at the prices computed in
accordance with the Requirements Document. All payments to Lilly shall be made
by check or bank draft to the following address and shall indicate to which
invoice(s) payment applies:
Eli Lilly and Company
P.O. Box 951021
Dallas, TX 75395-1021
2.5. TRANSITION PLAN. Dura shall perform its obligations set forth in
the Transition Plan attached hereto as APPENDIX B.
2.6. AUDITS. The ability to conduct audits shall be provided under
and pursuant to and in accordance with the terms of Section 3.4 of the Licensing
Agreement, which terms are by this reference incorporated in and made a part of
this Agreement, and all of which for purposes of this Agreement shall survive
any termination or expiration of the Licensing Agreement.
SECTION 3
OBLIGATIONS OF LILLY
3.1. MANUFACTURING; REQUIREMENTS; DELIVERY.
(a) Lilly, or a third party under subcontract with Lilly
(subject to receipt of any required FDA approvals),
shall manufacture, package, label, test, prepare for
shipment and ship Products to Dura at and from Lilly's
facilities at the times and in the quantities set forth
by Dura in the Purchase Orders and as provided for in
the Requirements Document. Each shipment of Products
shall include a certificate of analysis confirming that
the Products therein meet the Specifications.
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<PAGE>
3.2. QUALITY CONTROL AND ASSURANCE.
(a) Lilly, or a third party under subcontract with Lilly
(subject to receipt of any required FDA approvals),
shall manufacture the Products in full compliance with
the approved NDAs and in accordance with all Applicable
Laws. Lilly shall perform quality control and quality
assurance testing on Products to be delivered to Dura
hereunder in accordance with the Specifications and the
Requirements Document.
(b) Personnel from Dura shall, upon reasonable advance
notice to Lilly, have access during normal business
hours to Lilly's premises where the Products are being
manufactured, tested, inspected, packaged and/or stored
to observe and inspect the manufacturing, quality
control and testing processes for, and the records of
all production and quality assurance data related to,
the Products. Personnel from Lilly shall have the same
rights provided to personnel from Dura under this
Section 3.2(b) if, prior to Lilly's transfer of the
Licensed Assets to Dura pursuant to Section 2.4 of the
Licensing Agreement, Dura (or a third party sublicensee
of Dura) is manufacturing either or both of the
Products.
3.3. RECORDS AND ACCOUNTING BY LILLY. Lilly shall, with respect to
each lot of the Products produced by it hereunder, for a period of three (3)
years after the expiry of the expiration dating of such lot, keep accurate
records of the manufacture and testing of the Products produced by it hereunder,
including, without limitation, all such records which are required under
Applicable Laws. Access to such records shall be made available by Lilly to
Dura upon Dura's request.
3.4. TRANSITION PLAN. Lilly shall perform its obligations set forth
in the Transition Plan attached hereto as APPENDIX B.
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<PAGE>
SECTION 4
LABELING AND TESTING PRODUCTS
4.1. LABELING AND PACKING. The Products shall be labeled, prepared
and packed for shipment in full compliance with the approved NDAs, all
Applicable Laws, and in accordance with the Requirements Document.
4.2. LOT NUMBERING. Lot numbers shall be affixed on the containers
for the Products and on each shipping carton in accordance with Applicable Laws,
Lilly's customary practice, and in accordance with the Requirements Document.
4.3. TESTING AND REJECTION OF DELIVERED PRODUCTS.
(a) Dura shall be entitled, at its cost and expense, to
test any and all Products delivered to it hereunder to
determine whether such Products comply with the
Specifications. Dura shall notify Lilly in writing
promptly, and in any event not later than thirty (30)
days after its receipt thereof, if it rejects any
Products delivered to it by reason of the failure of
such Products to meet the Specifications. Products not
rejected within such thirty (30) day period shall be
deemed accepted. Lilly shall use reasonable efforts to
replace the rejected Products with Products which meet
the Specifications within the shortest possible time
and shall deliver such replacement Products, at its
sole cost and expense, to Dura. In addition, Lilly
shall, at its sole cost and expense, arrange for all
such noncomplying Products to be picked up promptly in
accordance with all Applicable Laws. Dura shall have
no responsibility to Lilly for the purchase prices of
nonconforming Products but shall pay Lilly the purchase
prices for the replacement Products within 30 days of
delivery thereof.
(b) Notwithstanding subsection (a) above, if Dura and Lilly
disagree on whether any Products comply with the
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<PAGE>
Specifications or on the methods for or results of testing
of any of the Products, an independent laboratory which is
acceptable to both parties shall be asked to test the
Products in dispute ("Disputed Products"). To the extent
such laboratory finds that the Disputed Products meet the
Specifications, Dura shall pay the fees of such laboratory
related to such testing and shall promptly pay for the
Disputed Products. To the extent that such laboratory finds
that the Disputed Products fail to meet the Specifications,
Lilly shall pay the fees of such laboratory related to such
testing and shall replace the Disputed Products in
accordance with the preceding subsection (a). Both parties
hereby agree to accept and be bound by the findings of such
independent laboratory.
SECTION 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES.
5.1. PRODUCT SPECIFICATIONS AND DELIVERY.
(a) Lilly hereby warrants to Dura that (i) all of the
existing Product inventory and samples purchased by
Dura pursuant to Section 2.1, and (ii) all future Dura
purchases of Products and samples shall, at the date
shipped to Dura, fully conform to the Specifications
and have been manufactured in full compliance with the
Specifications and all Applicable Laws. Lilly further
warrants to Dura that upon delivery of any Products
pursuant hereto, including Lilly's inventory and
samples of the Products contemplated in Section 2.1
hereof, good title to such Products shall convey to
Dura and that such conveyance shall be free and clear
of any security interest, other lien or encumbrance.
(b) Lilly hereby represents and warrants to Dura that it
has the capacity, and subject to the terms and
conditions contained
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<PAGE>
herein, will maintain the capacity throughout the term of
this Agreement, to meet the requirements of Dura under this
Agreement.
(c) EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 5.1(a) AND
(d), LILLY MAKES NO REPRESENTATION OR WARRANTY AS TO
ANY PRODUCTS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY
OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND LILLY
SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY
WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE OR WARRANTY OF NONINFRINGEMENT.
(d) Nothing contained in this Agreement is intended to
limit or otherwise affect any representation or
warranty provided in the Licensing Agreement.
(e) Lilly hereby covenants that it shall use reasonable
efforts to assure that all of the shipments of Products
ordered by Dura pursuant to a Purchase Order are
shipped timely in accordance with the directions
contained in such Purchase Order.
5.2. INDEMNIFICATION. Indemnification shall be provided under and pursuant
to and in accordance with the terms of Section 8 of the Licensing Agreement,
which terms are by this reference incorporated in and made a part of this
Agreement, and all of which for purposes of this Agreement shall survive any
termination or expiration of the Licensing Agreement.
5.3. NOT DEBARRED. Dura and Lilly each hereby represent and warrant to the
other that it is not debarred and has not and will not knowingly use in any
capacity the services of any person debarred under subsections 306(a) or (b) of
the Generic Drug Enforcement Act of 1992. If at any time this
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<PAGE>
representation and warranty is no longer accurate, Dura or Lilly, as the case
may be, shall immediately notify the other of such fact.
SECTION 6
TERM OF AGREEMENT, RENEWAL, TERMINATION
6.1. TERM OF AGREEMENT. Unless sooner terminated in accordance with
this Section 6, this Agreement shall take effect and commence on the Closing
Date and continue in effect for *** which will expire on the date that is
*** from the Closing Date. *** as hereinafter set forth.
6.2. TERMINATION ***
(a) Subject to the provisions of Section 6.6, this Agreement may be
terminated *** with respect to *** at any time after the
*** term of this Agreement without cause upon the occurrence of
*** (i) the giving of at least *** at any time subsequent to the
end of the *** of this Agreement (the *** (ii) *** using
reasonable efforts to *** that quantity of the Product or
Products, as appropriate, *** the end of the *** to meet
anticipated demand therefor *** (the *** The effective date of
the termination of this Agreement shall be the later of the last
day of the *** or the day on which *** In the event of such
termination under this Section 6.2(a), *** shall provide such
reasonable assistance *** as may be reasonably necessary to (x)
obtain any and all *** as may be necessary to enable *** the
Product or Products, as
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
appropriate, in the United States (subject to (z) below,
excluding any such *** relating to the *** (y) effect the
transfer of *** for the Product or Products, as appropriate,
*** or a third party *** designated by *** for which *** shall
*** for all of *** reasonable *** in connection therewith, and
(z) enable *** to obtain a reasonable *** necessary for the ***
of the Product or Products, as appropriate, in *** manners: (1)
if on the effective date of the termination of this Agreement ***
is engaged in *** as appropriate, *** to third parties, then ***
shall be required to *** with an amount of *** as appropriate,
equal to the amount of *** as appropriate, purchased by *** (as
reflected by *** as appropriate) under this Agreement in the
previous *** at a price *** as appropriate, *** offered to
similar third parties and as set forth in *** in the *** (2) if
on the effective date of the termination of this Agreement *** is
no longer engaged in *** as appropriate, *** to third parties,
then *** shall be required to *** for the *** is not then ***
which *** shall be used by *** solely for purposes of *** in
accordance with the terms set forth in Section 2.2(b) of the
Licensing Agreement. *** shall *** for all of *** in connection
therewith. Notwithstanding anything contained in clause (z)(2),
above, to the contrary, *** shall not be required to *** required
to *** until on or after ***
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
*** unless *** agrees to *** solely *** reasonably approved by
*** provided, however, that should *** desire to *** from third
parties, *** shall *** for all *** invoiced prior to *** in an
amount *** from a third party and *** for such *** in the prior
*** provided further, however, that *** shall not be required to
*** for any *** during this period *** as provided pursuant to
the Requirements Document. The termination by *** of this
Agreement with respect to *** as set forth in this Section 6.2(a)
shall not in any way *** pursuant to the terms set forth herein
and in Sections 2.2(a) and (b) of the Licensing Agreement.
(b) Subject to the provisions of Section 6.6, this Agreement may be
terminated by *** with respect to *** if *** fails to *** at
least *** and *** in any *** Such termination shall not be
effective until *** has provided *** with written notice thereof.
The termination by *** of this Agreement with respect to *** as
set forth in this Section 6.2(b) shall not in any way ***
pursuant to the terms set forth herein and in Section 2.2(a) of
the Licensing Agreement.
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
6.3. TERMINATION BY ***. Subject to the provisions of Section 6.6, this
Agreement may be terminated by *** with respect to *** at any time after the ***
of this Agreement *** upon the giving of *** to *** (the *** and the effective
date of the termination of this Agreement shall be the date specified in the ***
Upon receipt of *** shall, without delay, *** as appropriate and as permitted,
all matters affected by or resulting from *** but *** and *** shall *** under
this Agreement in accordance with the terms thereof. In the event of such
termination, *** shall provide such reasonable *** as may be reasonably
necessary to *** as appropriate, from *** or a third party *** and *** shall
*** all of *** reasonable *** in connection therewith. The termination by ***
of this Agreement with respect to *** shall not in any way limit *** pursuant to
the terms set forth in Section 2.2(a) of the Licensing Agreement.
6.4. TERMINATION FOR INSOLVENCY. If either Dura or Lilly (i) makes a
general assignment for the benefit of creditors or becomes insolvent; (ii) files
an insolvency petition in bankruptcy; (iii) petitions for or acquiesces in the
appointment of any receiver, trustee or similar officer to liquidate or conserve
its business or any substantial part of its assets; (iv) commences under the
laws of any jurisdiction any proceeding involving its insolvency, bankruptcy,
reorganization, adjustment of debt, dissolution, liquidation or any other
similar proceeding for the release of financially distressed debtors; or (v)
becomes a party to any proceeding or action of the type described above in (iii)
or (iv) and such proceeding or action remains undismissed or unstayed for a
period of more than sixty (60) days, then the other party may by written notice
terminate this Agreement in its entirety with immediate effect.
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
6.5. TERMINATION FOR DEFAULT.
(a) Dura and Lilly shall each have the right to terminate
this Agreement with respect to a specific Product for
default upon the other's failure to comply in any
material respect with the terms and conditions of this
Agreement that relate to such specific Product. At
least ninety (90) days prior to any such termination
for default the party seeking to so terminate shall
give the other written notice of its intention to
terminate this Agreement in accordance with the
provisions of this Section 6.5, which notice shall set
forth the default(s) which form the basis for such
termination. If the defaulting party fails to correct
such default(s) within ninety (90) days after the
receipt of notification, or if the same reasonably
cannot be corrected or remedied within ninety (90)
days, then if the defaulting party has not commenced
curing said default(s) within said ninety (90) days and
be diligently pursuing completion of same, then such
party immediately may terminate this Agreement with
respect to such Product. In addition, any default by a
party under the Licensing Agreement shall be deemed to
be a default by such party hereunder.
(b) This Section 6.5 shall not be exclusive and shall not
be in lieu of any other remedies available to a party
hereto for any default hereunder on the part of the
other party.
(c) Notwithstanding anything herein to the contrary, if
*** terminates this Agreement pursuant to Section 6.5(a),
then *** shall be required to (x) *** as may be necessary to
enable *** the *** as appropriate, *** and (y) effect the
*** for the ***
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
*** as appropriate, from *** to *** or a third party ***
designated by *** for which *** shall *** for all of *** in
connection therewith. Notwithstanding anything contained in
clause (y), above, to the contrary, *** shall not be required to
*** required to *** until on or after *** unless *** agrees to
*** solely *** in a *** reasonably *** provided, however, that
should *** desire to *** shall *** for *** invoiced prior to ***
in an amount *** third party *** in the *** provided further,
however, that *** shall not be required to *** for any *** during
this period in *** of the *** reflected in *** as provided
pursuant to the Requirements Document.
6.6. CONTINUING OBLIGATIONS. Termination of this Agreement for any
reason shall not relieve the parties of any obligation accruing prior thereto
with respect to the terminated Product and any ongoing obligations hereunder
with respect to the remaining Product and shall be without prejudice to the
rights and remedies of either party with respect to any antecedent breach of the
provisions of this Agreement. Without limiting the generality of the foregoing,
no termination of this Agreement, whether by lapse of time or otherwise, shall
serve to terminate the obligations of the parties hereto under subsections 2.3,
2.4, 2.5, 2.6, 3.2, 3.3, 3.4, 4.3, 5.1, 5.2, 6.2, 6.5, 6.6, and 6.7, section 7,
section 8 (except for subsection 8.14, which shall expire as described therein)
hereof, and such obligations shall survive any such termination.
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
6.7. RETURNED MATERIALS. On the termination of this Agreement, Lilly and
Dura each shall return to the other all information which it possesses or
controls that belongs to the other, except that each may retain a copy for
recordkeeping purposes.
SECTION 7
RESTRICTIVE COVENANTS
7.1. NON-COMPETE. For and during the period *** and, if *** pursuant to
*** for the period ending on the *** (the *** neither *** shall, directly or
indirectly, *** on (unless such *** are *** or *** an *** provided, however,
that nothing set forth herein shall prevent *** from (a) *** (b) *** or (c)
subject to the following sentence, *** which at the time of *** Notwithstanding
the above, *** acknowledges and agrees that the following activities, events and
conditions *** of this Section 7.1 and *** in any *** or *** of any nature
whatsoever (each, a *** in which the other *** in such *** (each, the *** at
that time already conducts or engages in, directly or indirectly, anywhere ***
the *** (the *** provided that the *** (i) *** a *** of the *** of the ***
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
*** prior to the *** (ii) will not constitute a *** of the *** of either *** or
*** as the case may be, following *** and (iii) would not have a *** Further, no
provision herein contained shall *** in any fashion *** to conduct or engage in
***
7.2. CONFIDENTIALITY. Confidentiality of information shall be provided
under and pursuant to and in accordance with the terms of Section 7.5 of the
Licensing Agreement, which terms are by this reference incorporated in and made
a part of this Agreement, and all of which for purposes of this Agreement shall
survive any termination or expiration of the Licensing Agreement.
SECTION 8
MISCELLANEOUS PROVISIONS
8.1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; PROVIDED, HOWEVER, that neither Lilly nor Dura may assign any of
its rights, duties or obligations hereunder without the prior written consent of
the other, which consent may be withheld in the other's sole discretion, except
that no prior written consent shall be required (i) in the event that a third
party acquires substantially all of the assets or outstanding shares of, or
merges with, Dura or Lilly, as the case may be, or (ii) in the event Lilly
assigns any or all of its obligations hereunder to an Affiliate of Lilly or a
third party but only so long as Lilly agrees to be bound by all of its
responsibilities and obligations hereunder. No assignment of this Agreement or
of any rights hereunder shall relieve the assigning party of any of its
obligations or liability hereunder.
8.2. NOTICES. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand, prepaid telex, cable, telegram or facsimile and
confirmed in writing, or mailed first class, postage prepaid, by
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* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
registered or certified mail, return receipt requested (mailed notices and
notices sent by telex, cable or telegram shall be deemed to have been given on
the date received) as follows:
If to Lilly, as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Facsimile: (317) 277-3354
Attn: President, North American Pharmaceutical Operations
With a copy to:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Facsimile: (317) 276-6221
Attn: General Counsel
If to Dura, as follows:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
San Diego, California 92121-4204
Attn: Office of the General Counsel
or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 8.2 by any party hereto to the other
party.
8.3. WAIVER; REMEDIES. No delay on the part of Lilly or Dura in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of either Lilly or Dura of any right, power or
privilege hereunder operate as a waiver of any other right, power or privilege
hereunder nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. The indemnification
provided in Section 8 of the Licensing Agreement shall be the sole remedy
available for any Damages arising out of or in connection with this Agreement
except for any rights or remedies which the parties hereto may otherwise have in
equity.
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<PAGE>
8.4. ENTIRE AGREEMENT. This Agreement (together with the Licensing
Agreement) and its appendices constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements or understandings of the parties relating thereto.
8.5. AMENDMENT. This Agreement may be modified or amended only by written
agreement of the parties hereto.
8.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
8.7. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana excluding any choice of law
rules which may direct the application of the law of another state.
8.8. CAPTIONS. All section titles or captions contained in this Agreement
and in any appendix referred to herein or annexed to this Agreement are for
convenience only, shall not be deemed a part of this Agreement and shall not
affect the meaning or interpretation of this Agreement.
8.9. NO THIRD-PARTY RIGHTS. No provision of this Agreement shall be deemed
or construed in any way to result in the creation of any rights or obligation in
any Person not a party to this Agreement.
8.10. CONSTRUCTION. This Agreement shall be deemed to have been drafted by
both Lilly and Dura and shall not be construed against either party as the
draftsperson hereof.
8.11. APPENDICES. Each Appendix hereto is incorporated by reference and
made a part of this Agreement.
8.12. NO JOINT VENTURE. Nothing contained herein shall be deemed to create
any joint venture or partnership between the parties hereto, and, except
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as is expressly set forth herein, neither party shall have any right by virtue
of this Agreement to bind the other party in any manner whatsoever.
8.13. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective while
this Agreement remains in effect, the legality, validity and enforceability of
the remaining provisions shall not be affected thereby.
8.14. FORCE MAJEURE. If either party is prevented from complying, either
totally or in part, with any of the terms or provisions set forth herein with
respect to either one or both of the Products by reason of force majeure,
including, by way of example and not of limitation, fire, flood, explosion,
storm, strike, lockout or other labor dispute, riot, war, rebellion, accidents,
acts of God, acts of governmental agencies or instrumentalities, failure of
suppliers or any other cause or externally induced casualty beyond its
reasonable control, whether similar to the foregoing contingencies or not, said
party shall provide written notice of same to the other party. Said notice
shall be provided within five (5) working days of the occurrence of such event
and shall identify the requirements of this Agreement or such of its obligations
as may be affected, and to the extent so affected, said obligations shall be
suspended during the period of such disability. If any raw materials, facility
systems or capacity is used for both the affected Product and any other products
or purposes, any necessary allocation shall be made as between Lilly's needs
(including those of any Affiliate of Lilly), Dura's needs and the needs of any
other party to whom Lilly has firm contractual obligations on a basis no less
favorable than pro rata on a volume basis. The party prevented from performing
hereunder shall use reasonable efforts to remove such disability, and shall
continue performance whenever such causes are removed. The party so affected
shall give to the other party a good faith estimate of the continuing effect of
the force majeure condition and the duration of the affected party's
nonperformance. If the period of any previous actual nonperformance of Lilly
because of Lilly force majeure conditions plus the anticipated future period of
Lilly nonperformance because of such conditions will exceed an aggregate of two
hundred seventy (270) days within any twenty-four (24) month period, Dura may
terminate this Agreement by notice to Lilly. If the period of any previous
actual nonperformance of Dura
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<PAGE>
because of Dura force majeure conditions plus the anticipated future period of
Dura nonperformance because of such conditions will exceed an aggregate of two
hundred seventy (270) days within any twenty-four (24) month period, Lilly may
terminate this Agreement by notice to Dura. When such circumstances as those
contemplated herein arise, the parties shall discuss in good faith, what, if
any, modification of the terms set forth herein may be required in order to
arrive at an equitable solution.
[End of text]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ELI LILLY AND COMPANY
By: /s/ Sidney Taurel
Title: President and Chief Operating
Officer
DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
Title: Chairman, President and
Chief Executive Officer
Dura/Manufacturing Agreement-8/20/96
-22-
<PAGE>
MANUFACTURING AGREEMENT
EXHIBIT A
PRODUCTS
<TABLE>
<CAPTION>
PRODUCT CONTAINER FULL LOT MANUFACTURING/ LILLY NDA NO.
TITLES COUNT/SIZE QUANTITIES PACKAGING PRODUCT
SITE ITEM CODE
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Ceclor CD Bottles of 60 12,670 Lilly Industries TA4220 50-673
375mg Carolina, PR
PR03
- --------------------------------------------------------------------------------------------------------------------
Ceclor CD Blister of 4 142,500 Lilly Dry Products TA4221 50-673
500mg (sample) Indianapolis, IN
Bldg 328
- --------------------------------------------------------------------------------------------------------------------
Ceclor CD Bottles of 60 9,500 Lilly Industries TA4221 50-673
500mg Carolina, PR
PR03
- --------------------------------------------------------------------------------------------------------------------
Keftab Blister of 4 **** Lilly Dry Products TA4143 50-614
500mg (sample) Indianapolis, IN
Bldg 328
- --------------------------------------------------------------------------------------------------------------------
Keftab Bottles of 5,640 Lilly Industries TA4143 50-614
500mg 100 Carolina, PR
PR03
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
EXHIBIT B
EXISTING INVENTORY AND SAMPLES
SAMPLES
1. *** shall *** an aggregate of (a) *** Samples of Keftab (500 mg 2 x 2
Samples), and (b) *** Samples of Ceclor CD (*** x 2 Samples).
2. Subject to the provisions set forth in Section 4 of the Requirements
Document, *** with the following initial quantities of samples: (a)
*** sample units of Keftab, and (b) *** sample units of Ceclor CD. These
samples shall be *** consistent with No. 1 above.
3. *** sample units of Ceclor CD at a purchase price equal to *** per sample
unit. Lilly shall invoice Dura for Dura's purchase of these samples in
accordance with the provisions contained in the Manufacturing Agreement.
4. Dura shall designate on any Purchase Order for samples: (a) the amount of
Keftab and/or Ceclor CD samples, as appropriate, which are to be *** and
(b) the amount of Keftab and/or Ceclor CD samples, as appropriate, which
are to be *** in accordance under this Agreement.
5. In no event shall *** aggregate samples of Keftab and *** aggregate samples
of Ceclor CD hereunder.
INVENTORY
1. ***
(a) that quantity of Keftab trade bottles equal to (i) the *** bottles of
inventory as of *** less (ii) the number of bottles *** at a purchase
price equal to *** per bottle; and
(b) *** bottles of Ceclor CD *** tablets and *** bottles of Ceclor CD ***
tablets at a purchase price equal to *** per bottle and
*** per bottle, respectively.
2. Lilly shall invoice Dura for Dura's purchase of the above Products in
accordance with the provisions contained in the Manufacturing Agreement.
-2-
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
3
EXHIBIT C
PRICES OF PRODUCTS AND SAMPLES
(a) *** will be invoiced at the following prices:
Product Price
------- -----
Ceclor CD
*** Bottles of 60 Tablets ***
*** Bottles of 60 Tablets ***
Keftab
500 mg Bottles of 100 Tablets ***
(b) *** will be invoiced at the following prices:
Keftab 500 mg 2 x 2 Samples *** per Sample
Ceclor CD *** 2 x 2 Samples *** per Sample
(c) Beginning *** and on *** shall *** the *** in *** for such presentations
(determined in accordance with *** consistently applied), but in no case
*** for any Product (including samples of Product) *** shall give ***
notice on or before *** of any and all *** with said *** to be effective
*** received after *** of the ***
(d) Any modifications or adjustments to any of the prices set forth on this
Exhibit C for reasons other than those described in paragraph (c), above,
shall be evidenced in writing and be executed by an authorized
representative of each party.
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
APPENDIX A
LILLY * DURA
MANUFACTURING
REQUIREMENTS
DOCUMENT
CECLOR-Registered Trademark- CD AND KEFTAB-Registered Trademark-
PRODUCTS
(Revision No. O, , 1996)
---
<PAGE>
SECTION 1
INTRODUCTION
1.0. This Manufacturing Requirements Document ("MRD") describes certain
procedures, personnel contacts and other matters relating to the manufacturing
and supplying of Products by Lilly to Dura. Capitalized terms used in this MRD
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Manufacturing Agreement to which this MRD is attached as Appendix A. The
Products covered by this document are listed in ATTACHMENT I.
Throughout this document, references are made to individuals from Dura and
Lilly by title. Refer to the Key Contacts list, ATTACHMENT II, to obtain the
name and phone number of the individual.
SECTION 2
ADMINISTRATION
2.0. Revisions shall be coordinated by one Lilly employee and one Dura
employee. These two individuals will have responsibility for alerting any
affected persons within their respective companies and for coordinating any
required implementation.
Each change in this MRD may be made only by the designated representatives
set forth below and will cause a change in the revision number reflected on the
cover page of this document. Lilly will maintain the master copy and make the
agreed upon changes. A new revision will then be sent to Dura. The designated
Dura representative will acknowledge receipt and acceptance of such new revision
by sending a memo to the designated Lilly representative. The designated
representatives are:
Lilly: Jaime Colon
Dura: Jeff Doerner
Either company may change its designated representative by giving notice
thereof to the other in accordance with the provisions of the Manufacturing
<PAGE>
Agreement. These contacts from Lilly and Dura will be the primary contacts for
any questions or requests that either party might have with this MRD or the
Products.
SECTION 3
QUALITY ASSURANCE/REGULATORY REQUIREMENTS
3.1. INCOMING COMPONENT INSPECTIONS. Lilly has and will maintain standard
operating procedures ("SOPs") for inspections of all components used in the
manufacture of the Products. Incoming raw material, actives, and components as
well as finished goods are included in the inspection program. Inspections shall
be conducted in accordance with approved/validated methods and Specifications.
Documentation of all inspections shall be maintained per procedure. Access to
Lilly's SOPs shall be made available by Lilly to Dura upon Dura's reasonable
request.
3.2. ANNUAL REVIEWS. Lilly will perform annual Product quality reviews for
all Products produced at its manufacturing sites. An annual Product quality
review report will be created for each calendar year, including information
concerning batches produced, complaints, rejections, investigations, recalls,
quality, analytical, microbiological and stability data as applicable. Access
to such reports shall be made available by Lilly to Dura upon Dura's reasonable
request.
3.3. STABILITY. Lilly will perform stability testing required to support
the NDAs and ongoing commercial stability monitoring of the Products. Stability
testing and monitoring will be conducted following Lilly-approved protocols in
the approved NDAs.
3.4. BATCH DOCUMENTATION & QUALITY RECORDS. Lilly will maintain original
batch documentation in a secure Lilly facility for a period of three (3) years
after the expiry of the expiration dating of the applicable Products. All
documentation is and will be reviewed by Lilly Quality Control for adherence to
internal procedures, GMPs and the approved NDAs.
-2-
<PAGE>
After any Product release, a Certificate of Analysis will be sent by
overnight mail or by telecopy (receipt confirmed) to arrive at Dura prior to
such Product's delivery, addressed to Attention: Quality Assurance.
A copy of the MSDS documents are included as ATTACHMENT III to this
document.
3.5. RESERVE SAMPLES. Lilly will maintain reserve samples to comply with
the Code of Federal Regulations 21 CFR 211.170 for the Products. Samples from
Product lots tested for release at Lilly facilities will be maintained in a
secure Lilly storage facility consistent with the storage conditions for the
Products.
3.6. MATERIAL CONTROL. Control and traceability of all materials used in
the manufacture of the Products will be accomplished by adherence to internal
SOPs.
3.7. NON-CONFORMING OR REJECTED MATERIAL. In process and finished
Products considered unacceptable by Lilly Quality Control will be rejected by
Lilly Quality Control in accordance with internal SOPs which have been
established and will be maintained by Lilly. These Products will be identified
as unsuitable for use and segregated from approved material with the appropriate
investigation reports and labeling pursuant to such SOPs.
3.8. DESTROY ORDER SYSTEM. There is a formal system, which has been
established and will be maintained by Lilly, by which obsolete material is
destroyed and the destruction documented. Access to destruction documentation
related to Products shall be made available by Lilly to Dura upon Dura's
request. Material for which Dura is financially responsible will not be
destroyed until at least ten (10) days after Lilly has provided notice of the
proposed destruction to the designated Key Contact from Dura.
3.9. LABORATORY ANALYSIS. Lilly will test Products using
approved/validated methods and Specifications according to the approved NDAs.
There is a procedure in place, which Lilly will maintain, for investigation and
disposition of out-of-Specifications or abnormal testing results.
-3-
<PAGE>
3.10. TRAINING/QUALIFICATION. Lilly has and will maintain a program to
assure that all personnel engaged in the manufacturing, filling, packaging, and
shipping of Products have the education, training and/or experience required to
properly perform their assigned functions in compliance with GMPs. Training of
all personnel is and shall be documented by Lilly.
3.11. DEVIATIONS. Lilly has and will maintain formal procedures for
notifying appropriate Lilly personnel, including management, and performing
investigations in connection with deviations relating to the manufacture,
processing, packaging, testing or storage of the Products. These procedures
define the criteria and process by which all deviations relating to the
manufacture, processing, packaging, labeling, testing or storage of the
Products, including those which may affect safety, identity, strength, efficacy,
quality or purity, are to be evaluated, justified, documented and approved.
3.12. REGULATORY REQUIREMENTS. Dura and Lilly have jointly developed
written procedures for (i) the reporting of adverse drug experiences, as set
forth on EXHIBIT D to the Licensing Agreement, (ii) the submission by Dura to
Lilly and by Lilly to FDA of labeling and promotional materials related to the
Products as set forth in EXHIBIT E to the Licensing Agreement, (iii)
administration of and response to medical inquiries concerning the Products by
consumers, physicians, pharmacists and other health care professionals as set
forth in EXHIBIT F to the Licensing Agreement, and (iv) administration and
analysis of and response to complaints concerning the Products as set forth in
EXHIBIT G to the Licensing Agreement. Dura and Lilly shall each comply with
the provisions thereof.
SECTION 4
INVENTORY POLICY & MATERIAL PLANNING
4.0. Lilly's and Dura's goals include a continuing effort to reduce cycle
time through the plant and through material and component acquisition to
minimize inventory while responding fully to market demand. Attainment of this
goal requires well developed channels of communication. This benefits both
parties by reducing the investment in inventory. Because of the process flow
inherent in the Products at the plant, schedule changes require advance
planning.
-4-
<PAGE>
- - Dura agrees that it cannot submit a purchase order hereunder for Keftab
samples in excess of the quantity thereof set forth on Exhibit B to the
Manufacturing Agreement unless such purchase order is submitted to Lilly in
accordance with the terms set forth herein before the close of business on
Friday, August 23, 1996. Dura further agrees and acknowledges that Lilly
shall not be required to begin to process any purchase order pursuant to
the terms set forth herein for any additional quantities of Keftab samples
until after November 15, 1996.
- - Dura agrees that it cannot submit a purchase order hereunder for Ceclor CD
samples in excess of the quantity set forth on Exhibit B to the
Manufacturing Agreement unless such purchase order is submitted to Lilly in
accordance with the terms set forth herein before the close of business on
Friday, August 23, 1996. Dura further agrees and acknowledges that Lilly
shall not be required to begin to process any purchase order pursuant to
the terms set forth herein for any additional quantities of Ceclor CD
samples until after April 15, 1997; provided, however, that if Dura has
submitted a purchase order in accordance with the terms set forth herein by
the close of business on April 15, 1997, then Lilly shall deliver no more
than one lot of Ceclor CD samples to Dura on or before June 15, 1997;
provided further that any additional quantities of Ceclor CD samples shall
be provided by Lilly to Dura in accordance with the terms set forth herein.
- - On or before the 15th of each month, Dura shall provide Lilly with a
rolling forecast (the "Forecast"), for which no binding purchase order
exists, of its estimated requirements for each of the Products (including,
without limitation, samples thereof) for each of the next five (5)
quarters. In addition, in December of each year Dura shall provide Lilly
with a non-binding forecast of its estimated requirements for each of the
Products (including, without limitation, samples thereof) for the next
thirty-six (36) months.
- - Reasonable quantities of unique components, or materials that are not used
in the manufacture of Lilly's other products, will be purchased by Lilly in
reliance by Lilly on Dura's Forecast of its estimated
-5-
<PAGE>
requirements. If Dura thereafter requests any change that causes any
obsolescence of any such unique components or materials purchased by Lilly,
Dura shall be responsible to Lilly for the costs associated with said
components or materials (including, but not limited to, any costs related
to the destruction of such components or materials).
- - Dura shall purchase not less than 80% of the quantities identified in its
most recent applicable quarterly Forecast and Lilly shall not be obligated
to provide more than 120% of such quantities. An example of the foregoing
is set forth in ATTACHMENT IV hereto.
- - Purchase Orders will be issued from Dura to Lilly at least ninety (90) days
prior to the delivery date specified in each Purchase Order. All Purchase
Orders shall be for full lot quantities (as set forth on ATTACHMENT I
hereto); delivery of greater than 90% of the quantity ordered shall be
accepted by Dura in full satisfaction of the quantity ordered in such
Purchase Order.
- - Lead times on copy code changes (not reprints of approved labeling) from
receipt of Dura's approval of the proposed copy code shall be:
Labels 8 weeks
Literature 8 weeks
Cartons 9 weeks
Shipping Cases 4 weeks
- - Lead time for product packaging is in addition to the lead time set forth
for the above-described copy code changes.
-6-
<PAGE>
SECTION 5
SHIPMENT OF FINISHED GOODS
5.0. A copy of the bill of lading will be included as shipping paperwork
with each order.
Dura will select and pay the carrier to be used. These Products will be
shipped F.O.B. shipping point, freight class, Class 70 (Class of Commodity for
Food and Pharmaceutical Products) or as may otherwise be required pursuant to
Applicable Laws.
Should Dura request Lilly to warehouse any Product, Lilly will use
reasonable efforts to comply, and Dura shall pay to Lilly a warehousing fee per
pallet per day of Two Dollars Fifty Cents ($2.50).
Any discrepancies between quantity shipped from Lilly and quantity arriving
at Dura shall be jointly investigated.
SECTION 6
PACKAGE DESIGN
6.0. Initial package design for Product samples and trade shall be
provided by Lilly.
This procedure encompasses all changes in the design of packaging (see
section titled "Control of Printed Material" for graphic changes):
- Lilly will assign a unique item number for each packaging component
and a detailed specification.
- Dura will supply label designs to Lilly for artwork creation and
ordering of package components.
- Lilly requires a unique pharmacode on each primary label. This
assignment will be contained in the detailed specification. The
pharmacode is intended to be scanned at the printing supplier and on
-7-
<PAGE>
the packaging lines to ensure that the correct label is being used.
The pharmacode will be put in position by Lilly.
- In general, minor changes to secondary packaging may be made without
the review process if the change is considered to be functionally
equivalent or unnoticed by the end user. An example might be a change
in paper weight or fold in the prescribing information to improve
packaging efficiency (assuming no corresponding graphic change is
required in a fold change). Specifications and component sheets will
be revised, as appropriate.
SECTION 7
ADDRESSES
7.0. Purchase Orders should be placed and forecasts sent as follows:
Orders and forecasts should be mailed to:
Eli Lilly Industries, Inc.
Call Box 1198
Pueblo Station
Carolina, Puerto Rico 00986-1198
Attn: Customer Services, PR03
and a copy of any forecast should be mailed to:
Eli Lilly and Company
1400 West Raymond Street
Drop Code 4028
Attn: Inventory Planner
Indianapolis, IN 46221
At the time the Purchase Order is mailed, a copy should be faxed to Lilly
Customer Service Representative, FAX (787)257-5823.
Once Products are shipped, Lilly will invoice Dura. Invoice will reference
Dura Purchase Order, quantity, description, price, and shipping document number.
-8-
<PAGE>
Invoices will be mailed to:
Dura Pharmaceuticals, Inc.
5880 Pacific Center Boulevard
San Diego, California 92121-4204
Attn: Finance Department
SECTION 8
CONTROL OF PRINTED MATERIAL
8.0. Dura will supply label designs to Lilly. Lilly will prepare final
artwork and printer's proofs for initial approval by: Lilly's Regulatory Affairs
Group, CM&C Regulatory Group, and Printed Package Materials Groups, and by
Dura's Regulatory/Medical Affairs/Marketing Group. Lilly will then forward
these proofs to the attention of Dura's Vice President of Regulatory Affairs.
Following receipt of proof approval from Dura, Lilly will have labeling
components printed in accordance with SOPs for graphics preparation and
processing printing orders.
Any revisions to approved labeling will be requested by Dura to Lilly's
Regulatory Affairs Group. Lilly will prepare final artwork and printer's proofs
for approval by: Lilly's Regulatory Affairs Group, CM&C Regulatory Group, and
Printed Package Materials Groups and by Dura's Regulatory/Medical
Affairs/Marketing Group. Lilly will then forward these proofs to the attention
of Dura's Vice President of Regulatory Affairs. Following receipt of proof
approval from Dura, Lilly will have labeling components printed in accordance
with SOPs for graphics preparation and processing printing orders. Dura
approval shall not be required for reprints of currently approved labeling with
no revisions.
SECTION 9
PROCESS CHANGE AND VALIDATION
9.0. Lilly has and will maintain procedures that help it determine if
process changes are occurring and guide it in administering process changes.
The current Product Specifications are included in ATTACHMENT V. If Dura
requests a change in Specifications, packaging, process or any other matters
-9-
<PAGE>
covered by this MRD, Lilly will determine the steps necessary and the costs
associated to accomplish the change and will communicate that information to
Dura. Upon Dura's acceptance of responsibility for the costs of such change and
such other conditions as may be reasonably necessary for Lilly to accomplish the
change (including lead time), Lilly will make such change. If Lilly desires any
such change, it shall follow a reciprocal procedure with Dura. If, in Lilly's
reasonable belief, any process change would result in a material change in a
Product's appearance, lot size (whether trade or sample), or inventory level,
Lilly shall provide Dura with at least ten (10) business days notice before
implementing such change.
Whenever this MRD refers to "Standard operating procedures" or "SOPs" or
"programs" that Lilly "has and will maintain", such phrases or phrases of
similar import shall be deemed to mean that Lilly shall, throughout the term of
the Manufacturing Agreement, have and maintain the referenced procedures or
programs as they may be modified from time to time in Lilly's discretion without
the need for notice to, or the consent of, Dura; provided, however, that Lilly
shall upon Dura's reasonable request make such procedures or programs, as so
modified, available for review by Dura.
SECTION 10
PRICING
10.0. Products shall be purchased by Dura from Lilly pursuant to the terms
and conditions set forth in Section 2 of the Manufacturing Agreement and at the
prices set forth on Exhibit C thereto (a copy of which is attached hereto as
ATTACHMENT VI). If any prices are adjusted pursuant to the terms contained in
Exhibit C, then such revised exhibit shall be attached hereto as a revised
ATTACHMENT VI.
-10-
<PAGE>
ATTACHMENT I
PRODUCTS
PRODUCT CONTAINER FULL LOT MANUFACTURING/ LILLY NDA NO.
TITLES COUNT/SIZE QUANTITIES PACKAGING PRODUCT
SITE ITEM CODE
- --------------------------------------------------------------------------------
Ceclor CD Bottles of 12,670 Lilly Industries TA4220 50-673
375mg 60 Carolina, PR
PR03
- --------------------------------------------------------------------------------
Ceclor CD Blister of 4 142,500 Lilly Dry Products TA4221 50-673
500mg (sample) Indianapolis, IN
Bldg 328
- --------------------------------------------------------------------------------
Ceclor CD Bottles of 9,500 Lilly Industries TA4221 50-673
500mg 60 Carolina, PR
PR03
- --------------------------------------------------------------------------------
Keftab Blister of 4 **** Lilly Dry Products TA4143 50-614
500mg (sample) Indianapolis, IN
Bldg 328
- --------------------------------------------------------------------------------
Keftab Bottles of 5,640 Lilly Industries TA4143 50-614
500mg 100 Carolina, PR
PR03
- --------------------------------------------------------------------------------
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
ATTACHMENT II
KEY CONTACT LIST
<TABLE>
<CAPTION>
NAME TITLE ROLE DEPT. LOCATION TELEPHONE MAIL FAX NUMBER
DROP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LILLY PUERTO RICO
*** *** *** 41J PR03 *** PR03 ***
*** *** *** 50J PR03 *** PR03 ***
*** *** *** 72J PR03 *** PR03 ***
*** *** *** 72J PR03 *** PR03 ***
*** *** *** 72J PR03 *** PR03 ***
*** *** *** 43J PR03 *** PR03 ***
*** *** *** 73J PR03 *** PR03 ***
*** *** *** 43J PR03 *** PR03 ***
*** *** *** 50J PR03 *** PR03 ***
LILLY INDIANAPOLIS
*** *** *** IC241 170/01 *** 4112 ***
*** *** *** MC327 74/10 *** 1102 ***
*** *** *** MC675 15/4 *** 2543 ***
*** *** *** MC216 74/5 *** 1056 ***
</TABLE>
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
ATTACHMENT II
KEY CONTACT LIST
<TABLE>
<CAPTION>
NAME TITLE ROLE DEPT. LOCATION TELEPHONE MAIL FAX NUMBER
DROP CODE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DURA
To be provided by
Dura
</TABLE>
<PAGE>
ATTACHMENT III
MATERIAL SAFETY DATA SHEETS
<PAGE>
MSDS Eli Lilly
&
Company
Material Safety Data Sheet
Lilly Corporate Center, Indianapolis, Indiana 46285
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ------------------------------Section 1 - MATERIAL IDENTIFICATION---------------
U.S. TELEPHONE NUMBERS: EMERGENCY 317-276-2000 CHEMTREC 800-424-9300
As of the date of issuance, we are providing available information relevant to
the handling of this material in the workplace. All information contained
herein is offered with the good faith belief that it is accurate. THIS MATERIAL
SAFETY DATA SHEET SHALL NOT BE DEEMED TO CREATE ANY WARRANTY OF ANY KIND
(INCLUDING WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). In
the event of an adverse incident associated with this material, this safety data
sheet is not intended to be a substitute for consultation with appropriately
trained personnel. Nor is this safety data sheet intended to be a substitute
for product literature which may accompany the finished product.
See attached glossary for abbreviations.
Common Name: Cephalexin Hydrochloride Tablets
Lilly Nos.: TA4142, TA4143, TA4145
Chemical Name: 7-(D-2-Amino-2-phenylacetamido)-3-methyl-3-cephem-4-carboxylic
acid hydrochloride monohydrate; 5-Thia-1-azabicyclo[4.2.0]oct-2-
ene-2-carboxylic acid, 7-[(aminophenylacetyl)amino]-3-methyl-8-
oxo-, monohydrochloride, monohydrate, [6R-[6alpha, 7beta(R*)] ]-
Synonyms/Trade Names: Cephalexin Hydrochloride; Cephalexin; Cephalexin
Page 1
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ----------------------Section 1 - MATERIAL IDENTIFICATION (continued)-----------
Hydrochloride Tablet Mix; Cephalexin Hydrochloride Core
Tablets; Keftab*; Keftab Tablets*; LSN061188
Formulation; 4142; 4143
Mixture Ingredients Listed Below:
Percent in
Common or Chemical Name Synonyms/Trade Names CAS Number Mixture
- ------------------------ -------------------- ---------- ----------
Cephalexin hydrochloride Keftab* 105879-42-3 44-97
Excipients NA NA 3-55
Contains no hazardous components (one percent or greater) or carcinogens (one-
tenth percent or greater) not listed above.
*Trademark of Eli Lilly and Company
- --------------------------------------Section 2 - PHYSICAL DATA-----------------
Appearance: White to off-white powder finished as coated tablets
Odor: Odorless
Boiling Point: NA
Melting Point: NAIF
Specific Gravity: NAIF
pH: NAIF
Evaporation Rate: NAIF
Page 2
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ------------------------------Section 2 - PHYSICAL DATA (continued)-------------
Solubility in Water: Soluble
Vapor Density: NAIF
Vapor Pressure: NAIF
- ----------------------------Section 3 - FIRE AND EXPLOSION INFORMATION----------
Extinguishing Media: Use water, carbon dioxide, dry chemical, foam, or Halon.
Unusual Fire and Explosion Hazards: None known.
Flash Point: NAIF
Method: NA
UEL: NAIF
LEL: NAIF
- --------------------------------Section 4 - REACTIVITY INFORMATION--------------
Stability: Stable at normal temperatures and pressures.
Incompatibility: May react with strong oxidizing agents (e.g.,
peroxides, permanganates, nitric acid, etc.).
Hazardous Decomposition: May emit toxic fumes when heated to decomposition.
Hazardous Polymerization: Will not occur.
Page 3
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ----------------------------Section 5 - HEALTH HAZARD INFORMATION---------------
HUMAN - OCCUPATIONAL
Effects, Including Signs and Symptoms, of Exposure: Tablets are intended for
human consumption under guidance of a physician. Tablets are not
considered hazardous under normal handling procedures. Severe
allergic reactions have been reported with occupational exposure to
cephalosporins. Effects of exposure to powder used to make tablets
may include rash, upper airway congestion, gastrointestinal upset, eye
irritation or anaphylactic shock.
Medical Conditions Aggravated By Exposure: Penicillin or cephalosporin
hypersensitivity.
Primary Route(s) of Entry: Inhalation and skin contact.
Exposure Guidelines: PEL and TLV not established.
LEG LESS THAN 100 micrograms/m3 TWA for 12 hours
ANIMAL TOXICITY DATA SINGLE EXPOSURE
Data for the active ingredient, cephalexin hydrochloride, are reported.
Oral: Cephalexin hydrochloride - Rat, median lethal dose 5000 mg/kg,
reduced activity, diarrhea.
Skin: Cephalexin hydrochloride - Rabbit, 200 mg/kg, no deaths or
toxicity.
Inhalation: Cephalexin hydrochloride - Rat, 497.5 mg/m3 for one hour, no
deaths.
Skin Contact: Cephalexin hydrochloride - Rabbit, nonirritant
Eye Contact: Cephalexin hydrochloride - Rabbit, irritant
ANIMAL TOXICITY DATA REPEAT EXPOSURE
No data are available for cephalexin hydrochloride. Toxicity data for
cephalexin monohydrate are presented.
Page 4
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- -----------------Section 5 - HEALTH HAZARD INFORMATION (continued)--------------
Target Organ Effects: Cephalexin monohydrate - None identified.
Other Effects: Cephalexin monohydrate - Salivation and vomiting.
Reproduction: Cephalexin monohydrate - No reproductive or developmental
effects.
Sensitization: Cephalexin monohydrate - NAIF
Mutagenicity: Cephalexin monohydrate - Not mutagenic in bacterial cells.
Carcinogenicity: No carcinogenicity data found. Not listed as carcinogenic
by IARC, NCI/NTP, ACGIH, or OSHA.
- ---------------------Section 6 - EMERGENCY AND FIRST AID PROCEDURES-------------
Eyes: Hold eyelids open and flush with a steady, gentle stream of water for
15 minutes. See an ophthalmologist (eye doctor) or other physician
immediately.
Skin: Remove contaminated clothing and clean before reuse. Wash all exposed
areas of skin with plenty of soap and water. Get medical attention if
irritation develops.
Inhalation: Move individual to fresh air. Get medical attention if breathing
difficulty occurs. If not breathing, provide artificial
respiration assistance (mouth-to-mouth) and call a physician
immediately.
Ingestion: Do not induce vomiting. Call a physician or poison control
center. If available, administer activated charcoal (6-8 heaping
teaspoons) with two to three glasses of water. Do not give
anything by mouth to an unconscious person. Immediately
transport to a medical care facility and see a physician.
Page 5
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ----------------------------------Section 7 - HANDLING PRECAUTIONS--------------
Coated compressed tablets are not considered hazardous under normal handling
procedures. The following are recommended for a production setting:
Respiratory Protection: Use an approved respirator.
Eye Protection: Chemical goggles and/or face shield.
Ventilation: Laboratory fume hood or local exhaust ventilation.
Other Protective Equipment: Chemical-resistant gloves and body covering to
minimize skin contact. If handled in a ventilated
enclosure, as in a laboratory setting, respirator
and goggles or face shield may not be required.
Safety glasses are always required.
Other Handling Precautions: In production settings, airline-supplied, hood-
type respirators are preferred. Shower and change
clothing if skin contact occurs.
- --------------------Section 8 - SPILL, LEAK, AND DISPOSAL PROCEDURES------------
Spills: Contain dry material by sweeping up or vacuuming. Vacuuming may
disperse dust if appropriate dust collection filter is not part of the
vacuum. Be aware of potential for dust explosion when using
electrical equipment. Wear protective equipment, including eye
protection, to avoid exposure (see Section 7 for specific handling
precautions).
Waste Disposal: Dispose of any cleanup materials and waste residue according
to applicable federal, state, and local regulations.
Page 6
<PAGE>
NAME: Cephalexin Hydrochloride Tablets
DATE: May 12, 1993
- ---------------------------------Section 9 - SHIPPING INFORMATION---------------
(Proper Shipping Name / Hazard Class / UN Number)
DOT: Not regulated for surface transport.
ICAO: Not regulated for air transport.
IMO: Not regulated for water transport.
- --------------------------------------------------------------------------------
For additional information call: Occupational Health and Safety
Eli Lilly and Company 317-276-3494
For additional copies call: Customer Services
Eli Lilly and Company 1-800-LILLY-Rx
(1-800-545-5979)
Page 7
<PAGE>
GLOSSARY
Abbreviations Used in Material Safety Data Sheets
ACGIH = American Conference of Governmental Industrial Hygienists
BEI = Biological Exposure Index
CAS Number = Chemical Abstract Service Registry Number
CERCLA = Comprehensive Environmental Response Compensation and Liability Act
(of 1980)
CHEMTREC = Chemical Transportation Emergency Center
CWA = Clean Water Act
DOT = Department of Transportation
EP = Extraction Procedure as defined under RCRA Regulations
EPA = Environmental Protection Agency
HEPA = High Efficiency Particulate Air (Filter)
HSDB = Hazardous Substance Data Base
IARC = International Agency for Research on Cancer
ICAO = International Civil Aviation Organization
IMO = International Maritime Organization
LEG = Lilly Exposure Guideline
LEL = Lower Explosive Limit
MSDS = Material Safety Data Sheet
NA = Not Applicable, except in Section 9 where NA = North America
NAIF = No Applicable Information Found
NCI/NTP = National Cancer Institute/National Toxicology Program
NIOSH = National Institute for Occupational Safety and Health
NOS = Not Otherwise Specified
OHS = Occupational Health Services
OSHA = Occupational Safety and Health Administration
PEL = Permissible Exposure Limit
PSN = Proper Shipping Name
RCRA = Resource Conservation and Recovery Act
RTECS = Registry of Toxic Effects of Chemical Substances
SARA = Superfund Ammendments and Reauthorization Act
STEL = Short Term Exposure Limit
TLV = Threshold Limit Value
TSCA = Toxic Substances Control Act
TWA = Time Weighted Average/8 Hours Unless Otherwise Noted
UEL = Upper Explosive Limit
UN = United Nations
<PAGE>
MSDS Eli Lilly
&
Company
Material Safety Data Sheet
Lilly Corporate Center, Indianapolis, Indiana 46285
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- ------------------------------Section 1 - MATERIAL IDENTIFICATION---------------
SECTIONS REVISED: Common Name, Identifiers, Section 1, 2, 3, 5, 7, 8
U.S. TELEPHONE NUMBERS: EMERGENCY 317-276-2000 CHEMTREC 800-424-9300
As of the date of issuance, we are providing available information relevant to
the handling of this material in the workplace. All information contained
herein is offered with the good faith belief that it is accurate. THIS MATERIAL
SAFETY DATA SHEET SHALL NOT BE DEEMED TO CREATE ANY WARRANTY OF ANY KIND
(INCLUDING WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). In
the event of an adverse incident associated with this material, this safety data
sheet is not intended to be a substitute for consultation with appropriately
trained personnel. Nor is this safety data sheet intended to be a substitute
for product literature which may accompany the finished product.
See attached glossary for abbreviations.
Common Name: Cefaclor Capsules and Tablets
Lilly Nos.: PU3060, PU3061, PU3062, QA252N, QA446J, TA4059,
TA4074, TA4075, TA4220, TA4221, TA4222, UC5004,
UC5005, UC5018, UC5368, UC5369, UC5902, UE0007,
UE0008, UE0020, UE0021, VF0075, VF0078, VF0258,
VF0259, VF0272, VF0277, VF0278, VF0307, VF0308,
VF0309, VF0310, VF0325
Page 1
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- -------------------Section 1 - MATERIAL IDENTIFICATION (continued)--------------
Chemical Name: 5-Thia-1-azabicyclo [4.2.0] oct-2-ene-2-carboxylic acid, 7-
[(aminophenylacetyl)amino]-3-chloro-8-oxo-, monohydrate, [(6R-
[6alpha,7beta(R*)]]-; 3-Chloro-7-D-(2-phenylglycinamido)-3-
cephem-4-carboxylic acid monohydrate
Synonyms/Trade Names: Cefaclor; Cefaclor Capsule Mix; Cefaclor Capsules;
Cefaclor Tablet Mix; Cefaclor Tablets; Cefaclor
Convenient Dose Tablet; Cefaclor Extended Release
Tablet; Cefaclor Chewable Tablet; Ceclor*; Ceclor CD*;
Ceclor AF*; Ceclor Pulvules*; Ceclor Tablets*;
LSN099638 Formulation; Panoral*; Panacef*; Kefral*;
Alfatil*; Keflor*; Distaclor*; Kefolor*; Kefalor*;
Ceclor*; 3061, 3062; 7250; 7500; Cefaclor MR; Cefaclor
CD; Cefaclor AF; Alfatil Gelules; Alfatil LP; Kloclor;
Kloclor BD
Mixture Ingredients Listed Below:
Percent in
Common or Chemical Name Synonyms/Trade Names CAS Number Mixture
- ----------------------- -------------------- ---------- ----------
Cefaclor Ceclor* 70356-03-5 13-92
Excipients NA NA 8-87
Contains no hazardous components (one percent or greater) or carcinogens (one-
tenth percent or greater) not listed above.
*Trademark of Eli Lilly and Company
- ---------------------------------------Section 2 - PHYSICAL DATA----------------
Appearance: Capsules containing white to off-white powder or white to off-
white powder finished as blue film-coated tablets
Odor: Odorless
Boiling Point: NA
Melting Point: NA
Specific Gravity: NA
pH: NAIF
Page 2
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- --------------------------------Section 2 - PHYSICAL DATA (continued)-----------
Evaporation Rate: NAIF
Solubility in Water: Slightly soluble
Vapor Density: NAIF
Vapor Pressure: NAIF
- ------------------------Section 3 - FIRE AND EXPLOSION INFORMATION--------------
Extinguishing Media: Use water, carbon dioxide, dry chemical, foam, or Halon.
Unusual Fire and Explosion Hazards: As a finely divided material, may form dust
mixtures in air which could explode if subjected to an ignition
source. May emit toxic chloride fumes when heated to
decomposition.
Flash Point: NAIF
Method: NA
UEL: NAIF
LEL: NAIF
- ------------------------------Section 4 - REACTIVITY INFORMATION----------------
Stability: Stable at normal temperatures and pressures.
Incompatibility: May react with strong oxidizing agents (e.g., peroxides,
permanganates, nitric acid, etc.).
Hazardous Decomposition: May emit toxic chloride fumes when heated to
decomposition.
Hazardous Polymerization: Will not occur.
Page 3
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- ----------------------------Section 5 - HEALTH HAZARD INFORMATION---------------
HUMAN - OCCUPATIONAL
Effects, Including Signs and Symptoms, of Exposure: Capsules and tablets are
intended for human consumption under guidance of a physician. Capsules
and coated tablets are not considered hazardous under normal handling
procedures. Effects of exposure to contents of capsule or powder used
to make tablets may include eye irritation and allergic reactions.
Based on prior experience with cephalosporin antibiotics, allergic
reactions may include rash, nasal congestion, cough, dry throat,
gastrointestinal upset, eye irritation, or anaphylactic shock.
Medical Conditions Aggravated By Exposure: Penicillin or cephalosporin
hypersensitivity.
Primary Route(s) of Entry: Inhalation and skin contact.
Exposure Guidelines: Cefaclor - PEL and TLV not established.
LEG LESS THAN 100 micrograms/m3 TWA for 12 hours
ANIMAL TOXICITY DATA SINGLE EXPOSURE
Data for the active ingredient, cefaclor, are reported.
Oral: Cefaclor - Rat, 5000 mg/kg, no deaths or toxicity.
Monkey, 1000 mg/kg, no deaths, diarrhea.
Skin: Cefaclor - Rabbit, 500 mg/kg, no deaths or toxicity.
Inhalation: Cefaclor - Rat, 224 mg/m3 for one hour, no deaths or toxicity.
Intraperitoneal: Cefaclor - Mouse, median lethal dose estimated greater
than 5000 mg/kg, mortality.
Skin Contact: Cefaclor - Rabbit, nonirritant
Eye Contact: Cefaclor - Rabbit, slight irritant
Page 4
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- --------------------Section 5 - HEALTH HAZARD INFORMATION (continued)-----------
ANIMAL TOXICITY DATA REPEAT EXPOSURE
Data for the active ingredient, cefaclor, are reported.
Target Organ Effects: Cefaclor - Kidney effects (dilation of renal
tubules).
Other Effects: Cefaclor - Vomiting, soft stools, and reversible
thrombocytopenia.
Reproduction: Cefaclor - No reproductive or developmental effects.
Sensitization: Cefaclor - Guinea pig, not a contact sensitizer.
Mutagenicity: Cefaclor - NAIF
Carcinogenicity: No carcinogenicity data found. Not listed as
carcinogenic by IARC, NCI/NTP, ACGIH, or OSHA.
- ---------------------Section 6 - EMERGENCY AND FIRST AID PROCEDURES-------------
Eyes: Flush eyes with plenty of water. Get medical attention.
Skin: Remove contaminated clothing and clean before reuse. Wash all exposed
areas of skin with plenty of soap and water. Get medical attention if
irritation develops.
Inhalation: Move individual to fresh air. Get medical attention if breathing
difficulty occurs. If not breathing, provide artificial
respiration assistance (mouth-to-mouth) and call a physician
immediately.
Ingestion: Do not induce vomiting. Call a physician or poison control center.
If available, administer activated charcoal (6-8 heaping
teaspoonfuls) with two to three glasses of water. Do not give
anything by mouth to an unconscious person. Immediately transport
to a medical care facility and see a physician.
Page 5
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- ---------------------------------Section 7 - HANDLING PRECAUTIONS---------------
Filled capsules and coated compressed tablets are not considered hazardous under
normal handling procedures. The following are recommended for a production
setting:
Respiratory Protection: Use an approved respirator.
Eye Protection: Chemical goggles and/or face shield.
Ventilation: Laboratory fume hood or local exhaust ventilation.
Other Protective Equipment: Chemical-resistant gloves and body covering to
minimize skin contact. If handled in a ventilated
enclosure, as in a laboratory setting, respirator
and goggles or face shield may not be required.
Safety glasses are always required.
Other Handling Precautions: In production settings, airline-supplied, hood-
type respirators are preferred. Shower and change
clothing if skin contact occurs.
- -------------------Section 8 - SPILL, LEAK, AND DISPOSAL PROCEDURES-------------
Spills: Contain dry material by sweeping up or vacuuming. Vacuuming may
disperse dust if appropriate dust collection filter is not part of the
vacuum. Be aware of potential for dust explosion when using
electrical equipment. Wear protective equipment, including eye
protection, to avoid exposure (see Section 7 for specific handling
precautions).
Waste Disposal: Dispose of any cleanup materials and waste residue according to
applicable federal, state, and local regulations.
Page 6
<PAGE>
NAME: Cefaclor Capsules and Tablets
REVISED DATE: August 16, 1993
- -----------------------------------Section 9 - SHIPPING INFORMATION-------------
(Proper Shipping Name / Hazard Class / UN Number)
DOT: Not regulated for surface transport.
ICAO: Not regulated for air transport.
IMO: Not regulated for water transport.
- --------------------------------------------------------------------------------
For additional information call: Occupational Health and Safety
Eli Lilly and Company 317-276-3494
For additional copies call: Customer Services
Eli Lilly and Company 1-800-LILLY-Rx
(1-800-545-5979)
Page 7
<PAGE>
ATTACHMENT IV TO MRD
THIRD PARTY FORECAST*
FOR FINISHED PRODUCT MANUFACTURED BY LILLY
Date:
To: From:
Customer Service Company:
Phone:
phone:
fax:
Address: Eli Lilly Industries, Inc.
Call Box 1198
Pueblo Station
Carolina, Puerto Rico 00986-1198
Attention: Customer Services, PR03
Product Title:
Item Code:
Current Calendar
Year and Next
by Month Requested Qty PO Qty PO# PO Due Date/Comments
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Calendar Year
Next (May be partially listed by month
above)
Yr After
*To be provided monthly by Lilly
<PAGE>
ATTACHMENT V
PRODUCT SPECIFICATIONS
<PAGE>
[Graphic representation: beakers and test tubes with LILLY ADMIN LIMS in a
circle]
ELI LILLY AND COMPANY
PRODUCT SPECIFICATION DOCUMENT
TA4220
Tablets No. 4220 CECLOR CD, 375 (Cefaclor, Convenient Dose Tablets)
As of: 20-AUG-1996
Printed Date: 20-AUG-1996 12:40
Program: AL_SM_PROD_SPEC_DOC
Distribute to: SERRA, ANGELA Drop Code: 80PI
<PAGE>
TA4220
ELI LILLY AND COMPANY
PRODUCT SPECIFICATION DOCUMENT
As of: 20-AUG-1996
TITLE: Tablets No. 4220 CECLOR CD. 375 (Cefaclor, Convenient Dose Tablets)
- --------------------------------------------------------------------------------
FORMULATION DESC: STANDARD
COUNTRY: UNITED STATES OF AMERICA
CAUTIONS: Intact Cefaclor Capsules and Tablets are not considered to be a health
hazard. Cefaclor Capsules and Tablets contains cefaclor which may be
irritating to the eyes and causes severe allergic reactions.
DESCRIPTION: A compressed, modified paracapsule shape, dual radii, size 3,
blue film-coated tablet imprinted with the script Lilly, Ceclor
CD 375 with edible black ink.
STORAGE REQUIREMENTS: Refer to Corporate Product Dating and Storage Manual
for current storage requirements.
EXPIRATION PERIOD: Refer to Corporate Product Dating and Storage Manual for
current dating
REGULATORY STATUS: NDA 50-673
CONTAINERS: Refer to current Master Packaging Order(s) for approved
container/closure systems.
HANDLING: N/A
HOUSE SAMPLE STORAGE INSTRUCTIONS: For finished trade package(s) sample removal
refer to departmental procedure GN-0093-OQC.
STANDARDS:
MANUFACTURED
Standard Testing Stage: AFTER COATING
CEFACLOR
Molecular Formula: C15 H14 C1 N3 O4 S.H2O
Act Ingrd Label Amount: 375 % Excess: 1
Act Ingrd Label Units: mg/Tablet
ACCEPTANCE Spec: 100179-3
Method: B00402 HPLC: REVERSE PHASE
Comments: N=10, N=30 (YP FROM S-70)
NLT 356.3 mg/Tablet
Cefaclor (95.0%)
NMT 405.0 mg/Tablet
Cefaclor (108.0%)
REGULATORY Spec: 100180-2
Method: B00402 HPLC: REVERSE PHASE
NLT 337.5 mg/Tablet
CEFACLOR (90.0%)
NMT 412.5 mg/Tablet
CEFACLOR (110.0%)
DISSOLUTION
INFORMATIONAL Spec: 100775-1
Method: B00416 UV
Units:
Qualifier: AT 3 HOURS
EQUAL TO RESULTS AT 3 HOURS
NO LIMITS
<PAGE>
Page 2 TA4220
As of: 20-AUG-1996
TITLE: Tablets No. 4220 CECLOR CD. 375 (Cefaclor, Convenient Dose Tablets)
- --------------------------------------------------------------------------------
Standard Testing Stage: AFTER COATING (Continued)
DISSOLUTION (Continued)
REGULATORY Spec: 100183-1
Method: B00416 UV
NLT 20% AND NMT 50%, 60 MINUTES.
REGULATORY Spec: 100184-1
Method: B00416 UV
NLT 80%, 240 MINUTES
REGULATORY Spec: 100295-1
Method: B00416 UV
NLT 5% AND NMT 30%, 30 MINUTES
IC CEFACLOR
REGULATORY Spec: 100187-2
Method: B00402 HPLC: REVERSE PHASE
RETENTION TIME OF SAMPLES COMPARES WITH THAT OF THE REFERENCE
STANDARD.
REL SUBS
REGULATORY Spec: 100189-1
Method: B00379 HPLC: GRADIENT
Comments: TOTAL
NMT 4.0 Percent
Related Substances Total
REL SUBS: INDIVIDUAL
REGULATORY Spec: 100188-1
Method: B00379 HPLC: GRADIENT
Comments: INDIVIDUAL
NMT 1.0 Percent
Related Substances: Individual
UNIFORMITY OF DOSAGE UNITS
ACCEPTANCE Spec: 101312-1
Method: B00402 HPLC: REVERSE PHASE
Comments: N=10, N=30
95%/95% Tolerance limits for Cefaclor are within 85.0-115.0% of
the USP Reference Value and no critical dosage unit.
REGULATORY Spec: 101313-1
Method: B00402 HPLC: REVERSE PHASE
Comments: N=10,N=30
Meets USP content uniformity requirements
WATER
REGULATORY Spec: 100190-1
Method: B0024 KARL FISCHER
NMT 6.5 Percent
Water
<PAGE>
Page 3 TA4220
As of: 20-AUG-1996
TITLE: Tablets No. 4220 CECLOR CD. 375 (Cefaclor, Convenient Dose Tablets)
- --------------------------------------------------------------------------------
Standard Testing Stage: AFTER PACKAGING
PHYSICAL APPEARANCE
ACCEPTANCE Spec: 100191-1
Method: A02637
It is a blue tablet, imprinted with the script Lilly, Ceclor CD
375 with black ink.
<PAGE>
TA4221
PAGE 1 OF 3
ELI LILLY AND COMPANY
PRODUCT SPECIFICATIONS
TITLE: TABLETS NO. 4221 CECLOR CD, 500 MG (CEFACLOR CONVENIENT DOSE TABLETS)
Rev. No. 1.1 (Effective date to be determined)
CAUTIONS: Eye irritant. Allergen. Digestive effects. Detailed hazard
information for this item should be obtained from the material safety
data sheets on the VTX system or from other local official source, if
VTX is not available.
REASON FOR THIS REVISION:
1. Transfer the before coating assays to the after coating stage.
DESCRIPTION: A compressed, modified paracapsule shape, dual radii, size 4,
blue film-coated tablet imprinted with the script Lilly, Ceclor
CD 500 with edible black ink.
ADDED SUBSTANCES: NONE
REGULATORY STATUS: NDA 50-673
DATING AND STORAGE: Refer to "Corporate Product Dating and Storage Manual" for
Current dating and storage requirements.
CONTAINERS: Refer to current Master Packaging Orders for the approved
container/ closure systems.
HANDLING: N/A
STANDARDS:
After Coating Acceptance Limits Regulatory Limits
- ------------- ----------------- -----------------
Cefaclor 475.0-540.0mg/tab 450.0-550.0mg/tab
C15H14CIN3O4S _ H20 (95.0 - 108.0%) (90.0 - 110.0%)
Excess - 1% Label claim 500 mg/tab
Combined estimated Mean from
S-70
HPLC Method
<PAGE>
TA4221
PAGE 2 OF 3
TABLETS NO. 4221 CECLOR CD 500 MG
Rev. No. 1.1 (Effective date to be determined)
After Coating Acceptance Limits Regulatory Limits
- ------------- ----------------- -----------------
Uniformity of Dosage Units (CASE A): 95%/95% tolerance Meets USP Test
by content uniformity limits for Cefaclor are within
HPLC Method 85.0 - 115.0% of the USP ref.
value and no. critical dosage
unit samples.
Dissolution NLT 5% and NMT 30% dissolved NLT 5% and NMT than
in 30 minutes, NLT 20% and NMT 30% dissolved in 30
50% dissolved in 60 minutes, minutes, NLT 20%
and NLT 80% dissolved in 240 and NMT 50%
minutes. dissolved in 60
minutes, and NLT
80% dissolved in
240 minutes.
Meets USP
Acceptance
Criteria.
-Canada
requirements:
NLT 40% dissolved
in 120 min.
Identification Same as Regulatory Retention time of
(Cefaclor) samples compares
HPLC Method with that of the
reference standard
Related Substances NMT 1.0% Individual Not more than 1.0 %
HPLC Method NMT 4.0% Total individual related
substance and not
more than 4.0%
total related
substance
Canada
Requirements:
NMT 0.5% Individual
NMT 2.0% Total
Water (Karl Fischer) Same as Regulatory Not more than 6.5%
AFTER FINISHING:
Physical appereance: Each packaging order will be visually identified by size,
shape, color and logo by Quality Control.
OTHER IMPORTANT INFORMATION:
House sample -- for finished trade package(s) sample removal refer to
departmental procedure GN-0093-OQC.
<PAGE>
TA4221
PAGE 3 OF 3
TABLETS NO. 4221 CECLOR CD 500 MG
Rev. No. 1.1 (Effective date to be determined)
OTHER IMPORTANT INFORMATION:
Informational only:
Dissolution For informational purposes 120 and 180
(Additional) min will be run.
Written by: A. Serra
QC REP PR03
08/20/96
<PAGE>
[Graphic representation: beakers and test tubes with LILLY ADMIN LIMS in a
circle]
ELI LILLY AND COMPANY
PRODUCT SPECIFICATION DOCUMENT
TA4143
Tablets No. 4143 Keftab, 500 mg (Cephalexin Hydrochloride Tablets)
As of: 20-AUG-1996
Printed Date: 20-AUG-1996 12:40
Program: AL_SM_PROD_SPEC_DOC
Distribute to: SERRA, ANGELA Drop Code: 80PI
<PAGE>
TA4143
DISTA PRODUCTS COMPANY
PRODUCT SPECIFICATION DOCUMENT
As of: 20-AUG-1996
TITLE: Tablets No. 4143 Keftab, 500 mg (Cephalexin Hydrochloride Tablets)
- --------------------------------------------------------------------------------
FORMULATION DESC: STANDARD
COUNTRY: UNITED STATES OF AMERICA
CAUTIONS: Intact Cephalexin Hydrochloride Tablets are not considered to be a
health hazard. Cephalexin Hydrochloride Tablets contains cephalexin
hydrochloride which may be irritating to the eyes and causes severe
allergic reactions.
DESCRIPTION: An elliptical shaped, dark green, sugar coated tablet imprinted
with "KEFTAB 500".
STORAGE REQUIREMENTS: Refer to the Corporate Product Dating and Storage
Manual for current dating. Refer to the Corporate
Product Dating and Storage Manual for current storage
requirements.
EXPIRATION PERIOD: Refer to the Corporate Product Dating and Storage Manual for
current dating.
REGULATORY STATUS: NDA 50-614
ADDED SUBSTANCES: None
CONTAINERS: Refer to the current Master Packaging Order(s) for approved
container/closure system(s).
HANDLING: Expensive
HOUSE SAMPLE STORAGE INSTRUCTIONS: Finished trade package(s) of at least 100
tablets from each packaging order.
STANDARDS:
MANUFACTURED
Standard Testing Stage: BEFORE COATING
CEPHALEXIN
Molecular Formula: C16 H17 N3 O4 S
ACCEPTANCE Spec: 14679-3
Method: A14040HPLC
Comments: Combined estimate mean from S-70, N=10,N=30
NLT 475.0 mg/Tablet
95.0 %
NMT 540.0 mg/Tablet
108.0%
REGULATORY Spec: 14682-3
Method: A14040HPLC
Comments: Combined estimate mean from S-70,N=10,N=30
NLT 450.0 mg/Tablet
90.0%
NMT 550.0 mg/Tablet
110.0%
UNIFORMITY OF DOSAGE UNITS
ACCEPTANCE Spec: 14690-2
Method: A14040HPLC
CASE A; 95/95 tolerance limits for Cephalexin within 85.0-115.0%
of the USP Reference value and no critical dosage unit samples.
REGULATORY Spec: 14693-2
Method: A14040HPLC
Meets USP content uniformity requirements
<PAGE>
Page 2 TA4143
As of: 20-AUG-1996
TITLE: Tablets No. 4143 Keftab, 500 mg (CephalexIn Hydrochloride Tablets)
- --------------------------------------------------------------------------------
Standard Testing Stage: AFTER COATING
CEPHALEXIN
Molecular Formula: C16 H17 N3 O4 S
ACCEPTANCE Spec: 14704-3
Method: A14040HPLC
Comments: Composite sample, N=20
NLT 475.0 mg/Tablet
95.0 %
NMT 540.0 mg/Tablet
108.0 %
REGULATORY Spec: 14706-3
Method: A14040HPLC
Comments: Composite sample, N=20
NLT 450.0 mg/Tablet
90.0 %
NMT 550.0 mg/Tablet
110.0 %
DISSOLUTION
REGULATORY Spec: 14707-1
Method: B00344 ROTATING BASKET
NLT 75% Q/45 minutes
ID CEPHALEXIN
ACCEPTANCE Spec: 102117-1
Method: A14040HPLC
The retention time of the Cephalexin peak from the sample
chromatogram compares qualitatively with the reference standard
chromatogram obtained in the same manner..
REGULATORY Spec: 101682-1
Method: A01254IR
The sample spectrum compares qualitatively with the reference
standard obtained in the same manner.
WATER
REGULATORY Spec: 14709-1
Method: A09475KARL FISCHER
NMT 8.0 Percent
Standard Testing Stage: AFTER PACKAGING
PHYSICAL APPEARANCE
ACCEPTANCE Spec: 14710-2
Method: A02637
It is an elliptical shaped, dark green, coated tablet imprinted
with KEFTAB 500 packaged as an Identi-Dose or in an amber plastic
bottle.
*** End of Report ***
<PAGE>
MRD
ATTACHMENT VI
PRICES OF PRODUCTS AND SAMPLES
(a) *** will be invoiced at the following prices:
Product Price
------- -----
Ceclor CD
*** Bottles of 60 Tablets ***
*** Bottles of 60 Tablets ***
Keftab
500 mg Bottles of 100 Tablets ***
(b) *** will be invoiced at the following prices:
Keftab 500 mg 2 x 2 Samples *** per Sample
Ceclor CD *** 2 x 2 Samples *** per Sample
(c) Beginning *** and on *** shall *** the *** in *** for such
presentations (determined in accordance with *** consistently
applied), but in no case *** for any Product (including samples of
Product) *** shall give *** notice on or before *** of any and all ***
with said *** to be effective *** received after *** of the ***
(d) Any modifications or adjustments to any of the prices set forth on the
Exhibit C for reasons other than those described in paragraph (c),
above, shall be evidenced in writing and be executed by an authorized
representative of each party.
- --------------------------------------
* CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED BY MEANS OF MARKING
SUCH PORTIONS WITH AN ASTERISK (THE "MARK"). THIS EXHIBIT HAS BEEN FILED WITH
THE SECRETARY OF THE COMMISSION WITHOUT THE MARK PURSUANT TO THE COMPANY'S
APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24b-2 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
APPENDIX B TO MANUFACTURING AGREEMENT
TRANSITION PLAN
Dura and Lilly each acknowledge and agree that good faith coordination and
cooperation between them are essential to ensure as problem-free a transition as
possible after the Closing Date. To that end, Dura and Lilly hereby agree that,
from and after the Closing Date:
1. Dura shall fulfill all contractual pricing offered by Lilly on the Products
for a period of time which shall not, for any applicable contract, end
earlier than (a) the requisite period of notice that Lilly is required to
provide under such contract in order to delete the Product from the
contract plus thirty (30) days, or (b) the expiration or other termination
of such contract. Lilly has provided Dura with all such contractual
pricing information.
2. If any Ceclor CD or Keftab sample units or labeling does not reflect Dura
as the distributor, then Dura shall affix stickers containing Dura's new
NDC codes, in a form approved by the FDA, to such Products (including
samples thereof) bearing a Lilly label prior to selling and shipping such
Product.
3. Lilly shall notify by letter within two (2) days of the Closing Date (the
form and content of which shall be mutually agreed upon by Dura and Lilly)
all applicable Lilly customers of the change in the distribution of the
Products.
4. (a) Subject to the provisions of paragraph (d) of this Section 4, Lilly
shall be responsible for Products sold by Lilly, and for the
administration and payment of all Medicaid rebates and other
governmental assistance programs conditional upon payment of rebates
and similar programs in which a Product sold by Lilly is involved; and
Dura shall be responsible for Products sold by Dura, and for the
administration and payment of all Medicaid rebates and other
governmental assistance programs conditional upon payment of rebates
in similar programs in which a Product sold by Dura is involved.
(b) Subject to the provisions of paragraph (d) of this Section 4, Lilly
shall be responsible for administration and payment of all wholesaler
chargebacks involving Products sold by Lilly prior to the Closing
Date, and Dura shall be responsible for administration and payment of
all wholesaler chargebacks involving Products sold by Dura on or after
the Closing Date.
(c) Except as set forth in Section 7.12 of the Licensing Agreement and
subject to the provisions of paragraph (d) of this Section 4,
(Page 1 of 2)
<PAGE>
Dura shall be responsible for all returns of Products sold on or after
the Closing Date, and Lilly shall be responsible for returns of
Product sold before the Closing Date.
(d) Notwithstanding the provisions of paragraphs (a), (b) and (c) of this
Section 4, but subject to the provisions of Section 7.12 of the
Licensing Agreement, if the parties are unable to determine whether a
Product was sold by Lilly or by Dura, then Lilly shall be responsible
for any and all rebates, chargebacks and returns received during the
sixty (60) day period following the Closing Date, and Dura shall be
responsible thereafter.
5. Dura and Lilly each shall in good faith cooperate and coordinate as
necessary to accomplish all of the foregoing and shall otherwise each do
all other things as may be reasonably necessary to accomplish the
transition contemplated herein.
Dura/Manufacturing Agreement/Exhibit B-8/20/96
(Page 2 of 2)
<PAGE>
EXHIBIT 11
STATEMENTS RE COMPUTATIONS OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net Income (Loss) $ 1,936,000 $(35,778,000) $ 24,328,000
------------ ------------ ------------
------------ ------------ ------------
Weighted Average Number of
Common and Common Equivalent Shares:
Common Stock Outstanding 16,003,976 23,440,754 35,834,714
Assumed Exercise of(1):
Common Stock Options 1,752,936 -- 1,772,250
Common Stock Warrants 2,103,256 -- 2,872,044
------------ ------------ ------------
Total 19,860,168 23,440,754 40,479,008
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss) Per Share $ 0.10 $ (1.53) $ 0.60
FULLY DILUTED NET INCOME (LOSS) PER SHARE
Net Income (Loss) $ 1,936,000 $(35,778,000) $ 24,328,000
------------ ------------ ------------
------------ ------------ ------------
Weighted Average Number of
Common and Common Equivalent
Shares Assuming Issuance of All
Dilutive Contingent Shares:
Common Stock Outstanding 16,003,976 23,440,754 35,834,714
Assumed Exercise of(1):
Common Stock Options 1,999,924 -- 2,104,826
Common Stock Warrants 2,733,960 -- 3,562,230
------------ ------------ ------------
Total 20,737,860 23,440,754 41,501,770
------------ ------------ ------------
------------ ------------ ------------
Net Income (Loss) Per Share $ 0.10 $ (1.53) $ 0.59
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Computed based on the treasury stock method.
<PAGE>
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(INCLUDING ONLY THOSE ITEMS INCORPORATED BY REFERENCE)
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
In thousands, -----------------------
except per share data 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data(1)
Total revenues $ 9,561 $ 18,113 $ 32,680 $ 51,502 $ 104,119
Net income (loss)(2) $ (6,769) $ (8,173) $ 1,936 $ (35,778) $ 24,328
Net income (loss)
per share(2,3) $ (0.47) $ (0.55) $ 0.10 $ (1.53) $ 0.60
BALANCE SHEET Data(1)
Cash, cash equivalents
and short-term
investments $ 13,459 $ 6,541 $ 36,026 $ 67,820 $ 240,345
Working capital $ 12,992 $ 6,830 $ 36,506 $ 59,105 $ 219,864
Total assets $ 26,339 $ 20,048 $ 56,072 $ 143,997 $ 504,670
Long-term obligations $ 4,635 $ 4,719 $ 2,780 $ 15,427 $ 6,670
Shareholders'
equity(4) $ 18,310 $ 12,571 $ 48,537 $ 109,097 $ 443,557
</TABLE>
(1) Selected Financial Data includes Health Script subsequent to its
acquisition on March 22, 1995, DDSI subsequent to its acquisition on December
29, 1995, the Rondec product line subsequent to its acquisition on June 30,
1995, the Entex product line subsequent to its acquisition on July 3, 1996
and the Ceclor CD and Keftab products subsequent to their acquisition on
September 5, 1996 (see Notes 5 and 11 of the Notes to Consolidated Financial
Statements).
(2) In 1993 and 1995, the Company incurred charges for purchase
options and acquired in-process technology totaling $2.3 million and $43.8
million, respectively. If these charges were excluded, Dura would have
reported a net loss of $5.9 million, or $0.39 per share, for 1993 and net
income of $8.0 million, or $0.28 per share, for 1995.
(3) Adjusted for the 2-for-1 stock split in the form of a 100% dividend
effective July 1, 1996. For additional information relating to net income
(loss) per share and common equivalent shares, see Note 2 of the Notes to
Consolidated Financial Statements.
(4) No cash dividends were declared or paid during the periods presented.
<PAGE>
FINANCIAL STATMENTS AND SUPPLEMENTARY DATA.
FINANCIAL TABLE OF CONTENTS
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
Corporate Information
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following comments should be read in conjunction with the Consolidated
Financial Statements and Notes contained therein. See "Risks and
Uncertainties" for trends and uncertainties known to the Company that could
cause reported financial information not to be necessarily indicative of the
future results.
RECENT DEVELOPMENTS
On September 5, 1996, the Company acquired from Eli Lilly and Company
exclusive U.S. marketing rights to the patented antibiotics Keftab-Registered
Trademark- and Ceclor-Registered Trademark- CD. The purchase price consisted
of $100.0 million paid in cash at closing plus additional future contingent
payments, as discussed in Liquidity and Capital Resources below. The Company
began marketing Keftab in September 1996, and launched Ceclor CD in late
October 1996.
On July 3, 1996, the Company acquired from Procter & Gamble Pharmaceuticals,
Inc. the worldwide rights in perpetuity to the Entex-Registered
Trademark- products, consisting of four prescription upper respiratory drugs.
The purchase price of $45.0 million consisted of $25.0 million in cash paid
at closing and $20.0 million due on July 3, 1997. The Company began marketing
the Entex products in July 1996.
The acquisition of the above product rights has a material impact on the
Company's financial position and results of operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 ("1996") AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1995 ("1995")
Total revenues in 1996 increased $52.6 million, up 102%, as compared to 1995.
Net income for 1996 was $24.3 million as compared with a net loss of $35.8
million for 1995, a change of $60.1 million or $2.13 per share. The 1995 net
loss of $35.8 million was due to charges totaling $43.8 million relating to the
Company's Spiros-TM- development program, consisting of a $30.8 million noncash
charge for in-process technology acquired in connection with Dura's acquisition
of Dura Delivery Systems, Inc. ("DDSI") and a $13.0 million purchase option
charge resulting from the cash contribution to Spiros Development Corporation
("Spiros Corp.").
Pharmaceutical sales in 1996 increased by $40.3 million, or 102%, as compared
to 1995 due primarily to sales of products acquired in 1996 as well as higher
sales at Health Script Pharmacy Services, Inc. ("Health Script"), acquired in
March 1995.
Gross profit (pharmaceutical sales less cost of sales) for 1996 increased by
$29.6 million, or 103%, as compared to 1995 due to the increase in
pharmaceutical sales. Gross profit as a percentage of sales remained steady at
73%.
Contract revenues in 1996 increased by $12.4 million, or 101%, as compared to
1995. The Company, under agreements with several companies, conducts feasibility
testing and development work on various compounds for use with Spiros. In
addition, the Company receives royalties primarily from the co-promotion of
pharmaceutical products. Contract revenues from Spiros-related development and
feasibility agreements generated $21.2 million in 1996, including $19.1 million
from Spiros Corp., compared to $9.5 million, including $8.0 million from DDSI,
in 1995. Contract revenues from royalties were $3.4 million in 1996 as compared
to $2.6 million for 1995.
Clinical, development and regulatory expenses for 1996 increased by $10.1
million to $18.5 million as compared to 1995. The increase reflects expenses
incurred by the Company under feasibility and development agreements covering
the use of various compounds with Spiros.
Selling, general and administrative expenses in 1996 increased $16.7 million to
$42.6 million as compared to 1995, and decreased as a percent of total revenues
to 41% in 1996 from 50% in 1995. The dollar increase results primarily from
marketing costs related to newly acquired products as well as higher costs at
Health Script to support its increased sales. The decrease as a percentage of
revenues reflects increased productivity of the sales force, the growth of
pharmaceutical sales due to product acquisitions, and the growth of contract
revenues.
<PAGE>
Interest income for 1996 increased $4.1 million to $6.9 million as compared to
1995. The increase is due to the cash generated from the August 1995 and May and
November 1996 public stock offerings as well as cash generated from operations.
The Company recorded an income tax provision of $3.5 million for 1996 as
compared to $406,000 for 1995. The increased provision is due to the increase in
income before income taxes in 1996. The 1996 provision reflects the expected
combined federal and state tax rate of approximately 40% largely offset by the
benefit from the utilization of net operating loss carryforwards.
YEAR ENDED DECEMBER 31, 1995 ("1995") AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1994 ("1994")
Total revenues in 1995 increased $18.8 million, or 58%, over 1994. However, the
Company incurred a net loss in 1995 of $35.8 million, or $1.53 per share, due to
charges totaling $43.8 million related to the Company's Spiros development
program. The charges consisted of a $30.8 million noncash charge for in-process
technology acquired in connection with Dura's acquisition of DDSI and a $13.0
million purchase option charge resulting from the cash contribution to Spiros
Corp. If the charges were excluded, the Company would have reported net income
in 1995 of $8.0 million or $0.28 per share.
Pharmaceutical sales in 1995 increased by $17.1 million, or 77%, over 1994 due
primarily to the $15.3 million in sales generated by Health Script, acquired in
March 1995, 1995 product acquisitions and internally developed products that
were launched in the second half of 1994. The remaining increase was generated
by the pre-existing product line for which sales growth was impacted by the
relatively weak cough/cold season experienced across the country in the first
quarter of 1995.
Gross profit for 1995 increased by $10.4 million, or 57%, as compared to 1994.
Gross profit as a percentage of sales decreased to 73% in 1995 from 82% in 1994
due primarily to the lower margins generated on sales by Health Script in
addition to the impact on contract pricing with managed care organizations.
Contract revenues in 1995 increased by $1.7 million as compared to 1994. In 1995
and 1994, the Company recorded contract revenues of $1.6 million and $400,000,
respectively, relating to an agreement with Drug Royalty Corporation USA Inc.
("DRC") under which the Company received funding through December 1995 to expand
its sales force. In addition, the Company conducts development work under
contracts with several companies and receives royalties. The development
contracts relate to the testing and development of various compounds for use
with Spiros and generated revenues in 1995 and 1994 of $9.5 million and $9.9
million, respectively, including $8.0 million and $9.2 million from DDSI. The
Company recorded royalties under a new co-promotion arrangement of $813,000 in
1995.
Clinical, development and regulatory expenses in 1995 decreased by $946,000 from
1994. Under an agreement with DDSI, the Company managed the development of DDSI
products and incurred development expenses on behalf of DDSI in 1995 and 1994 of
$6.4 million and $8.3 million, respectively, for which it received contract
revenues. The decrease in DDSI development expenses resulted primarily from the
shift from use of outside contractors to Dura-employed personnel and resources.
The decrease in DDSI development expenses was partially offset by increased
expenses associated with work being performed under development contracts for
which the Company recorded contract revenues of $1.0 million in 1995, and costs
associated with the internal development of respiratory pharmaceutical products.
Selling, general and administrative expenses in 1995 increased by $8.0 million
over 1994 and decreased as a percentage of revenues from 55% in 1994 to 50% in
1995. The dollar increase results primarily from the operating costs of Health
Script, acquired in March 1995, and increased sales and contracting levels. The
decrease as a percentage of revenues reflects an increase in the productivity of
the sales force, the growth of pharmaceutical sales due to product acquisitions
and the growth of contract revenues.
Other income-net in 1995 increased by $1.4 million as compared to 1994. The
increase resulted primarily from interest income on cash balances generated by
the November 1994 and August 1995 stock offerings which was partially offset by
interest expense resulting from obligations incurred in connection with 1995
acquisitions.
<PAGE>
The Company recorded income tax provisions of $406,000 and $34,000 in 1995 and
1994, respectively. The provisions reflect the expected combined federal and
state tax rate of 40% offset by the benefit from utilization of net operating
loss carryforwards, which are generally limited to 90% of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $160.8 million to $219.9 million at
December 31, 1996, from $59.1 million at December 31, 1995. Cash and cash
equivalents and short-term investments increased by $172.5 million to $240.3
million at December 31, 1996, from $67.8 million at December 31, 1995. The
increases resulted primarily from the net proceeds from the 1996 public stock
offerings and cash generated from operations, offset by amounts paid for product
acquisitions.
At December 31, 1996, the Company had an aggregate of $33.0 million in other
long-term obligations, of which $26.3 million is to be paid within the next
year. In connection with the acquisition of Ceclor CD and Keftab marketing
rights, the Company paid $100.0 million in cash. Additional future contingent
payments of $15.0 million per year starting in 1999 and ending in 2003 are
contingent upon Ceclor CD remaining without an extended release cefaclor
competitor in the U.S.
The Company has completed the first phase of construction of a manufacturing
facility that will be used to formulate, mill, blend, and fill drugs to be used
with Spiros, pending regulatory approval. In 1996, the Company began a two-year
project to expand this facility to meet the production needs of products to be
used with Spiros. Equipment purchases for and validation of the manufacturing
facility are currently scheduled through 1997. In 1996, the Company also
purchased for $3.2 million land for the construction of a new corporate
facility, which is scheduled to be completed during 1997. At December 31, 1996,
the Company had open purchase commitments for both of these facilities totaling
approximately $8.0 million.
The Company provides development and management services to Spiros Corp.
pursuant to various agreements for the development of its dry powder drug
delivery technology. Dura records contract revenues from Spiros Corp. equal to
amounts due for such services, less a pro rata amount allocated to a warrant
subscription receivable. The Company has a purchase option to acquire all of the
shares of Spiros Corp., which is exercisable through December 31, 1999, at
predetermined prices, payable at the Company's option in cash or common stock or
a combination thereof. In addition, the Company has an option, through specified
dates, to acquire Spiros Corp.'s exclusive rights for use of Spiros with
albuterol in the cassette version for a minimum of $15.0 million in cash.
The Company has a $48.7 million net operating loss carryforward for federal
income tax purposes, of which approximately $20.3 million is currently available
to offset future taxable income. The tax benefit from substantially all of the
net operating loss carryforward currently available will be credited to common
stock when and if this amount is used to offset taxable income (see Note 10 of
the Notes to Consolidated Financial Statements).
The Company anticipates that its existing capital resources, together with cash
expected to be generated from operations and available bank borrowings, should
be sufficient to finance its current operations and working capital requirements
through at least 1997. Additional resources, however, may be required in
connection with product or company acquisitions or in-licensing opportunities.
The Company is actively pursuing the acquisition of rights to products and/or
companies which may require the use of substantial capital resources.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
Dollars in thousands 1995 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,554 $131,101
Short-term investments 42,266 109,244
Accounts and other receivables 6,957 24,092
Inventory 3,069 7,544
- -------------------------------------------------------------------------------------
Total current assets 77,846 271,981
Property 16,133 27,500
License agreements and product rights 39,065 186,750
Goodwill 7,083 6,630
Other 3,870 11,809
- -------------------------------------------------------------------------------------
Total $ 143,997 $504,670
- -------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 8,566 $ 25,819
Current portion of long-term obligations 10,175 26,298
- -------------------------------------------------------------------------------------
Total current liabilities 18,741 52,117
Long-term obligations 15,427 6,670
Other non-current liabilities 732 2,306
- -------------------------------------------------------------------------------------
Total liabilities 34,900 61,093
- -------------------------------------------------------------------------------------
Commitments and contingencies (Notes 5, 6, 7 and 12)
Shareholders' equity:
Preferred stock, no par value, shares authorized --
5,000,000; no shares issued or outstanding
Common stock, no par value, shares authorized --
100,000,000; issued and outstanding -- 31,079,424
and 43,183,591, respectively 216,514 525,350
Accumulated deficit (103,320) (78,992)
Unrealized gain (loss) on investments 103 (38)
Warrant subscriptions receivable (4,200) (2,743)
- -------------------------------------------------------------------------------------
Total shareholders' equity 109,097 443,577
- -------------------------------------------------------------------------------------
Total $ 143,997 $504,670
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
In thousands, except per share amounts 1994 1995 1996
<S> <C> <C> <C>
Revenues:
Sales $22,199 $ 39,308 $ 79,563
Contract 10,481 12,194 24,556
- ---------------------------------------------------------------------------------------------
Total revenues 32,680 51,502 104,119
- ---------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of sales 3,894 10,618 21,301
Clinical, development and regulatory 9,354 8,408 18,540
Selling, general and administrative 17,976 25,955 42,631
Charge for acquired in-process technology
and purchase options 43,773
- ---------------------------------------------------------------------------------------------
Total operating costs and expenses 31,224 88,754 82,472
- ---------------------------------------------------------------------------------------------
Operating income (loss) 1,456 (37,252) 21,647
- ---------------------------------------------------------------------------------------------
Other:
Interest income 483 2,768 6,897
Other -- net 31 (888) (677)
- ---------------------------------------------------------------------------------------------
Total other 514 1,880 6,220
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,970 (35,372) 27,867
Provision for income taxes 34 406 3,539
- ---------------------------------------------------------------------------------------------
Net income (loss) $ 1,936 $(35,778) $ 24,328
- ---------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.10 $ (1.53) $ 0.60
- ---------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares 19,860 23,440 40,479
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Unrealized Warrant Notes
---------------- Accumulated gain/(loss)on subscriptions receivable from
In thousands, except per share data Shares Amount deficit investments receivable shareholders Total
- ----------------------------------- ------ ------ ----------- ------------- ------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 14,958 $ 82,238 $ (69,478) $ (190) $ 12,570
Issuance of common stock at
$4.375 per share, net of issuance
costs of $11 686 2,990 2,990
Issuance of common stock at $5.475
per share 228 1,250 1,250
Issuance of common stock at $6.375
per share, net of issuance costs
of $2,269 4,900 28,968 28,968
Exercise of stock options and
warrants 134 157 157
Issuance of common stock warrants,
net of issuance costs of $5 625 625
Compensation expense -- stock options 41 41
Net income 1,936 1,936
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 20,906 116,269 (67,542) (190) 48,537
Issuance of common stock at $12.75
per share, net of issuance costs
of $3,483 4,494 53,815 53,815
Issuance of common stock in
connection with the purchase of
DDSI callable common stock 2,286 33,489 33,489
Issuance of common stock warrants 5,040 $(4,200) 840
Collections on notes receivable 177 177
Cancellation of restricted stock
and related notes receivable (4) (13) 13
Exercise of stock options and warrants 3,397 7,679 7,679
Income tax benefit from stock options
exercised 235 235
Unrealized gain on available-for-sale
short-term investments $ 103 103
Net loss (35,778) (35,778)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 31,079 216,514 (103,320) 103 (4,200) -0- 109,097
Collection of warrant subscriptions
receivable 1,457 1,457
Issuance of common stock at $29.375
per share, net of issuance costs
of $8,301 5,405 150,471 150,471
Issuance of common stock at $33.25
per share, net of issuance costs of
$7,843 4,820 152,422 152,422
Exercise of stock options and warrants 1,880 3,153 3,153
Income tax benefit from stock options
exercised 2,790 2,790
Unrealized (loss) on available-for-
sale short-term investments (141) (141)
Net income 24,328 24,328
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 43,184 $525,350 $ (78,992) $ (38) $(2,743) $ -0- $443,577
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
In thousands 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,936 $ (35,778) $ 24,328
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 687 1,962 6,317
Charges for acquired in-process technology and
purchase options 30,773
Changes in assets and liabilities:
Accounts and other receivables (1,309) (4,089) (17,135)
Inventory (738) (1,110) (4,475)
Other assets 158 (241) (1,023)
Accounts payable and accrued liabilities 1,522 4,055 22,590
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 2,256 (4,428) 30,602
- ---------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of short-term investments (21) (95,716) (178,901)
Sales and maturities of short-term investments 56,117 111,781
Purchases of long-term investments (494) (5,000)
Capital expenditures (2,756) (7,835) (12,846)
Company/product acquisitions, net of cash received 744 (128,621)
Other (1,290) (60) (1,864)
- ---------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,067) (47,244) (215,451)
- ---------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of common stock and warrants -- net 32,739 61,606 307,503
Issuance of notes payable 4,360
Principal payments on long-term obligations (1,464) (22,203) (17,107)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 31,275 43,763 290,396
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 29,464 (7,909) 105,547
Cash and cash equivalents at beginning of year 3,999 33,463 25,554
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 33,463 $ 25,554 $ 131,101
- ---------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 852 $ 68 $ 0
Income taxes $ 34 $ 44 $ 266
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS BUSINESS
ORGANIZATION -- Dura Pharmaceuticals, Inc. ("Dura" or the "Company") is a
specialty respiratory pharmaceutical company. The Company develops and markets
prescription pharmaceutical products for the treatment of allergies, asthma, the
common cold and related respiratory conditions and is developing a pulmonary
drug delivery system.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Dura and its wholly owned subsidiaries, Health Script Pharmacy
Services, Inc., ("Health Script") acquired on March 22, 1995, and Dura Delivery
Systems, Inc. ("DDSI"), acquired on December 29, 1995. All intercompany
transactions and balances are eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL -- The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and related notes. Changes in those estimates may affect amounts
reported in future periods.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS -- The Company considers cash
equivalents to include only highly liquid securities with an original maturity
of three months or less. Investments with an original maturity of more than
three months are considered short-term investments and have been classified by
management as available-for-sale. Such investments are carried at fair value,
with unrealized gains and losses reported as a separate component of
shareholders' equity.
CONCENTRATION OF CREDIT RISK -- The Company invests its excess cash in U.S.
Government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
relative to diversification of its cash investments and their maturities, which
are designed to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
The Company has not experienced any significant losses on its cash equivalents
or short-term investments.
The Company extends credit on an uncollateralized basis primarily to wholesale
and retail drug distributors throughout the United States. Historically, the
Company has not experienced significant credit losses on its customer accounts.
Three wholesale customers individually accounted for 21%, 14% and 12% of 1994
sales, two wholesale customers individually accounted for 16% and 11% of 1995
sales, and three wholesale customers individually accounted for 17%, 14% and 13%
of 1996 sales.
INVENTORY -- Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised of finished goods and samples.
PROPERTY -- Property is stated at cost and depreciated over the estimated useful
lives of the assets (primarily five years, with the exception of the Company's
building, which is depreciated over a period of 30 years) using the straight-
line method.
LICENSE AGREEMENTS AND PRODUCT RIGHTS -- The cost of license fees and product
rights are capitalized and amortized on a straight-line basis over the periods
estimated to be benefited, ranging from 15 to 25 years. Amortization of
capitalized license fees and product rights, and related royalty payments are
included in selling, general and administrative expenses in the consolidated
statements of operations. Amortization of license fees and product rights
totaled $200,000, $1,055,000 and $4,435,000 in 1994, 1995 and 1996,
respectively.
GOODWILL -- Goodwill is stated at cost and amortized on a straight-line basis
over the periods estimated to be benefited, which range from 10 to 20 years.
<PAGE>
EVALUATION OF LICENSE AGREEMENTS, PRODUCT RIGHTS AND GOODWILL -- The Company
continually evaluates the carrying value of the unamortized balances of license
agreements, product rights and goodwill to determine whether any impairment of
these assets has occurred or whether any revision to the related amortization
periods should be made. This evaluation is based on management's projections of
the undiscounted future cash flows associated with each product or underlying
business. If management's evaluation were to indicate that the carrying values
of these intangible assets were impaired, such impairment would be recognized by
a write down of the applicable asset.
COMMON STOCK SPLIT -- On May 29, 1996, The Board of Directors declared a two-
for-one stock split on the Company's common stock effective July 1, 1996 in the
form of a 100% stock dividend. All applicable share and per share data presented
have been adjusted to give effect to this stock split.
REVENUE RECOGNITION -- Revenues from product sales are recognized upon shipment,
net of allowances for returns, rebates and chargebacks. The Company is obligated
to accept from customers the return of pharmaceuticals which have reached their
expiration date for which it generally ships replacement merchandise. The
Company has not historically experienced significant returns of expired
pharmaceuticals.
Contract revenue is recognized on a basis consistent with the performance
requirements of the contract. Payments received in advance of performance are
recorded as deferred revenue.
CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES -- Clinical, development and
regulatory costs are expensed as incurred.
NET INCOME (LOSS) PER SHARE -- Net income (loss) per share is computed based on
the weighted average number of common and common equivalent shares outstanding
during each year. Net income (loss) per share is unchanged on a fully diluted
basis for all years presented and has been adjusted to reflect the two-for-one
stock split effective July 1, 1996.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- In 1996, the Company elected to adopt
only the disclosure provisions of the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Therefore, the
adoption of this standard did not have an effect on the Company's financial
position or results of operations (Note 9).
RECLASSIFICATIONS -- Prior to Dura's acquisition of DDSI on December 29, 1995,
Dura recorded costs made on behalf of DDSI as they were incurred and
simultaneously accrued reimbursement from DDSI by crediting the related costs.
In 1996, Dura recorded contract revenues from Spiros Development Corporation
("Spiros Corp."), a separate entity formed in December 1995, equal to the
amounts due from Spiros Corp. for development and management services. The DDSI
reimbursements included in the 1994 and 1995 statements of operations have been
reclassified to contract revenues to conform to the presentation used for Spiros
Corp. The following summarizes the impact of the reclassification on the prior
years' statements of operations:
Year ended December 31,
-----------------------
In thousands 1994 1995
- --------------------------------------------------------------
Revenues:
Contract $9,161 $8,016
- --------------------------------------------------------------
Total revenues $9,161 $8,016
- --------------------------------------------------------------
Operating Costs and Expenses:
Clinical, development and regulatory:
Less reimbursement from DDSI $8,260 $6,428
Selling, general and administrative 901 1,588
- --------------------------------------------------------------
Total operating costs and expenses $9,161 $8,016
- --------------------------------------------------------------
In addition, certain other reclassifications have also been made to amounts
included in the prior years' financial statements to conform to the presentation
for the year ended December 31, 1996.
<PAGE>
3. SHORT-TERM INVESTMENTS
The following is a summary of short-term investments:
<TABLE>
<CAPTION>
Gross unrealized Estimated
In thousands Cost gains/(losses) fair value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1995:
U.S. government securities. . . . . . . . . $ 23,148 $ 80 $ 23,228
U.S. corporate debt securities. . . . . . . 19,015 23 19,038
- -------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $ 42,163 $103 $ 42,266
- -------------------------------------------------------------------------------------------
December 31, 1996:
U.S. government securities. . . . . . . . . $ 38,408 $ 41 $ 38,449
U.S. corporate debt securities. . . . . . . 70,874 (79) 70,795
- -------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $109,282 $(38) $109,244
- -------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of available-for-sale investments at
December 31, 1996, by contractual maturity, are shown below:
Estimated
In thousands Cost fair value
- -------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . $ 75,852 $ 75,833
Due after one year through two years. . . . . . . . 33,430 33,411
Total . . . . . . . . . . . . . . . . . . . . . . . $109,282 $109,244
- -------------------------------------------------------------------------------
4. BALANCE SHEET DETAILS
In thousands 1995 1996
- -------------------------------------------------------------------------------
Property - at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . $ 1,615 $ 4,833
Buildings . . . . . . . . . . . . . . . . . . . . . 3,450 3,665
Machinery and equipment . . . . . . . . . . . . . . 2,365 5,850
Furniture and fixtures. . . . . . . . . . . . . . . 1,392 1,575
Construction in progress. . . . . . . . . . . . . . 8,687 14,353
- -------------------------------------------------------------------------------
17,509 30,276
Less accumulated depreciation and amortization. . . (1,376) (2,776)
- -------------------------------------------------------------------------------
Property. . . . . . . . . . . . . . . . . . . . . . $ 16,133 $ 27,500
- -------------------------------------------------------------------------------
License agreements and product rights:
Capitalized cost. . . . . . . . . . . . . . . . . . $ 40,624 $192,744
Less accumulated amortization . . . . . . . . . . . (1,559) (5,994)
- -------------------------------------------------------------------------------
License agreements and product rights . . . . . . . $ 39,065 $186,750
- -------------------------------------------------------------------------------
Goodwill:
Goodwill from acquisitions. . . . . . . . . . . . . $ 11,063 $ 11,063
Less accumulated amortization . . . . . . . . . . . (3,980) (4,433)
- -------------------------------------------------------------------------------
Goodwill. . . . . . . . . . . . . . . . . . . . . . $ 7,083 $ 6,630
- -------------------------------------------------------------------------------
Accounts payable and accrued liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . $ 3,412 $ 9,253
Contractual sales rebates . . . . . . . . . . . . . 1,605 5,582
Accrued wages, taxes and benefits . . . . . . . . . 1,341 3,447
Other accrued expenses. . . . . . . . . . . . . . . 2,208 7,537
- -------------------------------------------------------------------------------
Accounts payable and accrued liabilities. . . . . . $ 8,566 $ 25,819
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
5. LICENSE AGREEMENTS AND PRODUCT RIGHTS The Company has entered into
agreements to acquire, in-license or co-promote respiratory prescription
pharmaceuticals. A summary of recent significant acquisitions is presented as
follows:
- - KEFTAB-Registered Trademark-/CECLOR-Registered Trademark- CD - On
September 5, 1996, the Company acquired from Eli Lilly and Company ("Lilly")
exclusive U.S. marketing rights to the patented antibiotics Keftab and Ceclor
CD. The purchase price consisted of $100.0 million paid in cash at closing.
Additional future contingent payments of $15.0 million per year starting in
1999 and ending 2003 are subject to Ceclor CD remaining available by
prescription only with no competitive products, as defined in the licensing
agreement. The cost of the Keftab/Ceclor CD rights is being amortized over 25
years.
- - ENTEX-Registered Trademark- - On July 3, 1996, the Company acquired
from Procter & Gamble Pharmaceuticals, Inc. the North American rights to the
Entex products, consisting of four prescription upper respiratory drugs. The
purchase price of $45.0 million in cash is being amortized over 15 years and
consisted of $25.0 million paid at closing and $20.0 million in cash due on
July 3, 1997.
- - RONDEC-Registered Trademark- PRODUCT LINE - On June 30, 1995,
the Company acquired from Ross Products Division of Abbott Laboratories the
U.S. rights to the Rondec product line of six prescription cough/cold drugs.
Under the agreement the Company received cash at closing of approximately
$4.4 million, paid $20.0 million on July 14, 1995, and is obligated to make
additional future minimum payments which are contingent principally on the
acquired products remaining available by prescription only. The cost of the
Rondec product line is being amortized over 25 years.
6. DEVELOPMENT AGREEMENTS
DRY POWDER INHALER - The Company has a worldwide license from a private
inventor to certain dry powder drug delivery technology. The technology uses a
device to aerosolize pharmaceuticals in dry powder formulations for
intrapulmonary and intranasal administration. The Company is required to pay the
inventor royalties on future sales of this device. The following development
arrangements have been entered into regarding the dry powder inhaler technology
("Spiros-TM-"):
- - PRIVATE PLACEMENT WITH DDSI - In 1993, DDSI was formed and completed a
$13.0 million private placement of callable common stock to fund the
development of Spiros for use with certain compounds. In connection with the
private placement, the Company acquired the right to purchase all the
outstanding shares of DDSI callable common stock. Pursuant to a development
and management agreement, DDSI engaged the Company to develop DDSI's products
and provide general management services to DDSI. Dura recorded contract
revenues under the agreement with DDSI for the years ended December 31, 1994
and 1995 of $9,161,000 and $8,016,000, respectively. On December 29, 1995,
the Company exercised its option and purchased 100% of DDSI's callable common
stock (Note 11).
- - PRIVATE PLACEMENT WITH SPIROS CORP. - On December 29, 1995, Spiros Corp., a
separate, newly-formed Delaware corporation, completed a $28.0 million
private placement to fund the development of Spiros for use with certain
compounds. Under agreements described below, Spiros Corp. will use the
proceeds from the private placement and a $13.0 million contribution from
Dura to develop Spiros and Spiros applications for albuterol, beclomethasone
and ipratropium (the "Compounds"), and selected proteins and peptides. If
these development efforts are successful, the Company may execute its right
to purchase Spiros Corp.'s callable common stock; however, the Company is not
obligated to purchase such shares of Spiros Corp. The private placement
consisted of 933,334 units sold at $30.00 per unit. Each unit consisted of
one share of Spiros Corp. callable common stock and a Series S warrant (Note
8) to purchase 2.4 shares of the Company's common stock. In exchange for the
Series S warrants and the contribution of $13.0 million to Spiros Corp., the
Company has the right ("Spiros Purchase Option") through December 31, 1999,
to purchase all of the currently outstanding shares of Spiros Corp. callable
common stock at predetermined prices. The purchase price begins at $46.88 per
share (an aggregate of $43.7 million) through December 31, 1997 and increases
on a quarterly basis thereafter to a maximum of $76.17 per share (an
aggregate of $71.1 million) on December 31, 1999. Such purchase price may be
paid, at the Company's option, in cash, shares of the Company's common stock,
or a combination thereof. In addition, Dura has the option through specified
dates, to acquire Spiros Corp.'s exclusive rights for use of Spiros with
albuterol in the cassette version (the "Albuterol Purchase Option"). In the
event Dura acquires rights for use of Spiros with albuterol in the cassette
version and does not exercise the Spiros Purchase Option, Dura will pay a
royalty to Spiros Corp. on net sales of such product. A purchase option
expense of $13.0 million representing the cash contributed to Spiros
<PAGE>
Corp. was recorded in December 1995. The Company also recorded a warrant
subscriptions receivable and a corresponding increase in common stock of $4.2
million representing the fair market value of the Series S warrants. At
December 31, 1996, the Company had a remaining Series S warrant subscriptions
receivable of $2.7 million.
In connection with the December 29, 1995 private placement, the Company also
entered into certain other agreements with Spiros Corp. which are summarized
as follows:
TECHNOLOGY LICENSE AGREEMENT - Under this agreement, the Company granted to
Spiros Corp., subject to existing agreements with Mitsubishi Chemical
Corporation, a royalty-bearing, perpetual, exclusive license to use Spiros in
connection with the Compounds and certain off-patent proteins and compounds, and
certain non-exclusive rights to other compounds. Such agreement expires upon
exercise by the Company of the Spiros Purchase Option and prior to such
expiration, the Company may exercise the Albuterol Purchase Option under terms
set forth in the agreement.
INTERIM MANUFACTURING AND MARKETING AGREEMENT - Under this agreement, Spiros
Corp. granted to the Company an exclusive license to manufacture and market
Spiros Corp. products in the U.S. in exchange for a royalty of 10.0% on net
product sales, as defined. Such agreement expires on exercise or termination of
the Spiros Purchase Option.
DEVELOPMENT AND MANAGEMENT AGREEMENT - Under this agreement, Spiros Corp. has
engaged the Company to develop the Spiros Corp. products and provide general
management services to Spiros Corp. Dura records contract revenues from
Spiros Corp. equal to the amounts due from Spiros Corp. for costs and fees
less a pro rata amount allocated to the Series S warrant subscription
receivable. During 1996, Dura recorded contract revenues under the agreement
with Spiros Corp. of $19,138,000. At December 31, 1996 the Company had a
receivable from Spiros Corp. of $2,234,000 representing amounts due from
Spiros Corp. for development and management costs incurred by the Company.
- - OTHER DEVELOPMENT AGREEMENTS - The Company has entered into other
development agreements to provide contract research and development services,
generally relating to the dry powder formulation of compounds and to drug
delivery technologies, including the use of Spiros. Pursuant to these
agreements, the Company receives contract revenues for services provided and,
in some cases, up-front and milestone payments.
7. LONG-TERM OBLIGATIONS In connection with the acquisition of license and
product rights in 1995 and 1996 (Note 5), the Company entered into agreements
which require future payments. The obligations are non-interest bearing and,
as they pertain to the Rondec product line agreement, are principally
contingent on the products remaining available by prescription only. At
December 31, 1996, the future annual maturities of principal under long-term
obligations are summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31, In thousands
- -----------------------------------------------------------------------
<S> <C>
1997 $ 26,500
1998 3,000
1999 3,000
2000 500
2001 500
Thereafter 1,500
- -----------------------------------------------------------------------
35,000
Imputed interest (7.0%) (2,032)
- -----------------------------------------------------------------------
Net obligation 32,968
Less-current portion (26,298)
- -----------------------------------------------------------------------
Net long-term obligations $ 6,670
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
The future annual maturities of long-term obligations exclude approximately
$82.9 million in future contingent obligations due in years 1999 through 2004
(Note 5).
8. CAPITAL STOCK
COMMON STOCK -- In November 1994, August 1995, May 1996 and November 1996,
the Company completed offerings of 4,900,000, 4,494,000, 5,405,000 and
4,820,000 shares of common stock, respectively, resulting in net proceeds to
the Company of $29.0 million, $53.8 million, $150.5 million and $152.4
million, respectively. On May 29, 1996, the Company's shareholders approved
an amendment to the Articles of Incorporation increasing the number of
authorized shares of common stock from 25 to 100 million.
COMMON STOCK WARRANTS -- In connection with the private placement completed
by the Company and DDSI in September 1993 (Note 6), DDSI investors received
Series W warrants to purchase an aggregate of 3,640,000 shares of the
Company's common stock. The Series W warrants (i) are exercisable at $2.38
per share, subject to adjustment upon the occurrence of certain events as
defined, (ii) are exercisable through September 27, 2000 and (iii) provide
for certain registration rights.
On March 22, 1995, the Company, in connection with the acquisition of Health
Script (Note 11), issued warrants for 1,200,000 shares of the Company's
common stock excercisable at $7.32 per share. On April 26, 1996, the Company
exercised its option to redeem the warrants by issuing 251,616 shares of the
Company's common stock to the holder of the warrants.
In connection with the private placement completed by Spiros Corp. on
December 29, 1995 (Note 6), Spiros Corp. investors received Series S warrants
to purchase an aggregate of 2,240,000 shares of the Company's common stock.
The Series S warrants (i) are exercisable at $19.47 per share, subject to
adjustment upon the occurrence of certain events as defined, (ii) are
exercisable through December 29, 2000, (iii) provide for certain registration
rights and (iv) separate from the Spiros Corp. callable common stock on
December 29, 1997 or earlier upon the occurrence of certain events as defined.
The following table summarizes common stock warrants outstanding at December
31, 1996:
<TABLE>
<CAPTION>
Shares Exercise
Warrants covered price
In thousands, except per share data outstanding by warrants per share
<S> <C> <C> <C>
Series W warrants 358 1,003 $ 2.38
Series S warrants 933 2,240 $19.47
Other 809 809 $0.25 -- $ 6.48
- --------------------------------------------------------------------
Total warrants outstanding 2,100 4,052
- --------------------------------------------------------------------
</TABLE>
COMMON SHARES RESERVED --
The Company has reserved shares of common stock for issuance as follows:
December 31,
------------
In thousands 1995 1996
- --------------------------------------------------------------------
Issuance under 1992 stock option plan 3,328 3,729
Exercise of common stock warrants 5,974 4,052
- --------------------------------------------------------------------
Total shares reserved 9,302 7,781
- --------------------------------------------------------------------
9. STOCK OPTIONS
The Company's 1992 stock option plan (the "Plan") provides for the grant of
options to officers and other key employees of the Company, and to certain
directors, consultants and independent contractors of the Company, to
purchase up to 6,007,360 shares of the Company's common stock. The plan
provides for the automatic issuance of options to purchase 8,000 and 30,000
shares of the Company's common stock to non-employee Board members at the
date of each annual shareholders' meeting and upon initial election to the
Board of Directors, respectively. Generally, options are to be granted at
prices equal to at least 100% of the fair market value of the stock at the
date of grant, expire not later than ten years from the date of grant and
become exercisable ratably over a four-year period following the date of
grant.
<PAGE>
The Plan provides that in the event of a corporate transaction, as defined,
all outstanding options shall become fully exercisable immediately prior to
the effective date of such transaction and shall terminate upon such
effective date. The Board of Directors may also grant officers of the Company
limited stock appreciation rights in tandem with their outstanding options.
In addition, limited stock appreciation rights are granted in connection with
all automatic option grants under the Plan. Upon the occurrence of a hostile
takeover, as defined, each outstanding option with such a limited stock
appreciation right in effect for at least six months will automatically be
canceled in return for a cash distribution from the Company in an amount
equal to the excess of the takeover price, as defined, over the aggregate
exercise price. As of December 31, 1995 and 1996, options to purchase 122,000
and 176,000 shares of common stock, respectively, were outstanding with
limited stock appreciation rights.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
SHARES
------ Weighted average
Options Options available exercise price
outstanding for grant per share
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1994 2,504,662 153,692 $ 1.61
Options authorized 750,000
Options granted 872,260 (872,260) $ 5.50
Options exercised (131,964) $ 1.17
Options canceled (119,240) 119,240 $ 2.48
- ---------------------------------------------------------------------------------
Balance, December 31, 1994 3,125,718 150,672 $ 2.68
Options authorized 1,000,000
Options granted 1,100,606 (1,100,606) $10.29
Options exercised (1,093,848) $ 1.21
Options canceled (80,108) 80,108 $ 4.79
- ---------------------------------------------------------------------------------
Balance, December 31, 1995 3,052,368 130,174 $ 5.89
Options authorized 1,500,000
Options granted 1,339,500 (1,339,500) $28.95
Options exercised (953,414) $ 3.20
Options canceled (53,944) 53,944 $21.48
- ---------------------------------------------------------------------------------
Balance, December 31, 1996 3,384,510 344,618 $15.52
- ---------------------------------------------------------------------------------
Exercisable, December 31, 1994 1,657,614 $ 2.31
Exercisable, December 31, 1995 1,524,090 $ 3.91
Exercisable, December 31, 1996 1,327,622 $ 6.99
- ---------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Weighted average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life (years) price exercisable price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.25 -- $ 5.00 712,658 5.9 $ 2.52 637,919 $ 2.40
$ 5.00 -- $ 10.00 890,624 8.1 $ 6.68 424,105 $ 6.86
$ 10.00 -- $ 20.00 758,620 8.9 $ 14.56 217,564 $ 14.10
$ 20.00 -- $ 30.00 456,331 9.4 $ 28.21 44,427 $ 27.88
$ 30.00 -- $ 45.13 566,277 9.9 $ 36.84 3,607 $ 32.15
</TABLE>
<PAGE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). In accordance with the provisions of SFAS No.
123, the Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans and,
accordingly, no compensation cost has been recognized for stock options in
1995 or 1996. If the Company had elected to recognize compensation cost based
on the fair value of the options granted at grant date amortized to expense
over their vesting period as prescribed by SFAS No. 123, net income for the
year ended December 31, 1996 would have been reduced by $2,707,000 ($0.07 per
share) and the net loss for the year ended December 31, 1995 would have been
increased by $351,000 ($0.01 per share). However, the impact of outstanding
non-vested stock options granted prior to 1995 has been excluded from the pro
forma calculations; accordingly, the 1995 and 1996 pro forma adjustments are
not indicative of future period pro forma adjustments when the calculation
will reflect all applicable stock options. The estimated weighted average
fair value at grant date for the options granted during 1996 was $13.54 per
option. The fair value of options at date of grant was estimated using the
Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield N/A
Expected stock price volatility 40%
Risk-free interest rate 6.20%
Expected life of options 5 years
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax assets as of December 31, 1994,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
In thousands 1994 1995 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deductible temporary differences:
Net operating loss carryforwards $ 20,786 $ 22,052 $ 19,484
Capitalized research and
development 6,388 6,404
Research and development credits 1,670 1,670
Reserves and accruals not
currently deductible 83 728 1,560
Depreciation and amortization (319) (269)
- ------------------------------------------------------------------------------------
Total deferred tax assets 20,869 30,519 28,849
Valuation allowance for deferred
tax assets (20,869) (30,519) (28,849)
- ------------------------------------------------------------------------------------
Net deferred tax assets $ -- $ -- $ --
- ------------------------------------------------------------------------------------
</TABLE>
The Company has provided a 100% valuation allowance against deferred tax
assets as of December 31, 1994, 1995 and 1996 as realization of such assets
is uncertain. At December 31, 1996, the valuation allowance for deferred tax
assets included approximately $7.6 million relating to stock option exercises
that will be credited to common stock when and if the underlying deferred tax
asset is recognized.
<PAGE>
At December 31, 1996, the Company had federal and California net operating
loss ("NOL") carryforwards of approximately $48.7 million and $17.0 million,
respectively. The difference between the NOL carryforwards for federal and
California income tax purposes is primarily attributable to the 50% use
limitation on California NOL carryforwards. The federal and California NOL
carryforwards will begin expiring in 2000 and 1997, respectively, unless
previously utilized. As of December 31, 1996, approximately $20.3 million of
the total federal NOL carryforwards were currently available for use by the
Company to generally offset 90% of future taxable income. The difference
between the total NOL carryforwards and the NOL carryforwards currently
available for use by the Company results from the limitations of Section 382
of the Internal Revenue Code due to a "change of ownership." The NOL
carryforwards available for use by the Company as a result of the Section 382
limitation will be increased by approximately $2.9 million per year through
2006.
The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 is comprised primarily of current federal and state income tax
expense. A reconciliation of the income tax provision (benefit) based on
federal statutory rates and income (loss) before income taxes to the
provision for income taxes, as reported, is as follows:
Year ended December 31, 1994 1995 1996
In thousands
Provision (benefit) at federal
statutory rates $ 660 $ (12,027) $ 9,475
Tax effect of timing differences --
write-off of development inventory (660)
Charges for acquired in-process
technology and purchase options 14,883
NOL carryforwards utilized (2,946) (6,852)
Federal alternative minimum tax 235 234
Other 34 261 682
- -------------------------------------------------------------------------------
Provision for income taxes $ 34 $ 406 $ 3,539
During the years ended December 31, 1995 and 1996 the Company recorded tax
benefits from stock option exercises of $235,000 and $2,790,000,
respectively, which were credited to common stock.
11. ACQUISITIONS
These following acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the operating results of these
acquisitions are included in the Company's consolidated results of operations
from the date of acquisition.
HEALTH SCRIPT -- On March 22, 1995, the Company acquired all of the common
stock of Health Script and certain assets of a related affiliate. Health
Script, located in Denver, Colorado, is a mail service pharmacy which
dispenses respiratory pharmaceuticals. The purchase price of $7,340,000
consisted of a cash payment of $6.5 million, and warrants to purchase
1,200,000 shares of the Company's common stock (Note 8). The assets acquired
include cash, inventory, furniture and equipment valued at $425,000, and
goodwill valued at approximately $6.9 million.
DDSI -- On December 29, 1995, the Company acquired all of the outstanding
callable common stock of DDSI (Note 6). The purchase price of approximately
$33.5 million consisted of 2,285,108 registered shares of the Company's
common stock. The net assets acquired included cash of $3.4 million,
equipment valued at $380,000 and DDSI's payable to Dura for development and
management services of $995,000. The excess of the purchase price over the
fair value of the net assets acquired of approximately $30.8 million was
allocated to in-process technology. The Company concluded, based on an
assessment of the additional development, testing and regulatory approvals
required, that the commercial viability of the technology had not yet been
established. In addition, no alternative future uses of the technology, not
requiring regulatory approval, have been established. As a result of this
assessment, the acquired in-process technology was expensed as a noncash
charge in December 1995.
<PAGE>
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred on January 1, 1994, after
giving effect to certain adjustments, including amortization of goodwill and
issuance of Company common stock. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of what
would have occurred had the acquisitions been made on January 1, 1994, nor is
it indicative of future results.
Year ended December 31,
In thousands, except per share data (unaudited) 1994 1995
- ---------------------------------------------------------------------------
Revenues $ 31,784 $ 45,719
Net loss $ (7,166) $ (13,535)
Net loss per share $ (0.32) $ (0.52)
12. COMMITMENTS
EMPLOYEE SAVINGS PLANS -- The Company has a 401(k) plan that allows
participating employees to contribute 1% to 15% of their salary, subject to
annual limits. The Board may, at its sole discretion, approve Company
contributions. The Company made contributions to the plan totaling $89,800,
$223,500 and $531,720 in 1994, 1995 and 1996, respectively.
The Company has a non-qualified deferred compensation plan that allows
eligible employees to defer up to 100% of their compensation. As of December
31, 1996, $2,185,000 has been deferred under this plan which is included in
other assets and other non-current liabilities. The amounts deferred under
this plan are transferred to a trust and managed by an investment manager.
Included in the trust investments at December 31, 1996, are 16,667 units of
Spiros Corp. (Note 6).
CAPITAL -- The Company is constructing at its headquarters a manufacturing
facility that, subject to regulatory approval, will be used to formulate,
mill, blend and fill drugs to be used with Spiros. Included in construction
in-progress at December 31, 1996 are capital expenditures relating to the
facility of approximately $13.7 million. During 1996, the Company acquired
for $3.2 million land for the construction of a new corporate facility. At
December 31, 1996, the Company had open purchase commitments relating to
these facilities totaling approximately $8.0 million. During the years ended
December 31, 1994, 1995 and 1996, the Company capitalized interest of
$40,000, $487,000 and $624,000, respectively, as a cost of constructing the
manufacturing facility.
LINE OF CREDIT -- The Company has a loan and security agreement with a bank
for the borrowing of up to $5.0 million that terminate in June 1997.
Borrowings under the agreement are limited to 2.5 times the most recent
quarter's earnings (as defined) before interest, taxes, depreciation and
amortization and bear interest at the bank's prime rate plus 0.5% (8.75% at
December 31, 1996). At December 31, 1995 and 1996, there were no borrowings
outstanding under this agreement.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1995 and 1996.
First Second Third Fourth
quarter quarter quarter quarter
- -------------------------------------------------------------------------------
1995
Total revenues $ 9,437 $ 13,069 $ 13, 189 $ 15,807
Operating income 393 1,577 1,532 (40,754)
Net income (loss) 857 1,811 1,767 (40,213)
Net income (loss) per share 0.03 0.07 0.06 (1.44)
1996
Total revenues $ 18,587 $ 18,800 $ 25,920 $ 40,812
Operating income 3,712 3,862 4,602 9,471
Net income 4,057 4,609 5,806 9,856
Net income per share 0.11 0.12 0.14 0.22
See Notes 5 and 11 for discussion of Dura's acquisitions of product rights
and companies which occurred during 1995 and 1996, affecting the Company's
quarterly results of operations.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Dura Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Dura
Pharmaceuticals, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, shareholders' 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Dura Pharmaceuticals, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
San Diego, California
January 20, 1997
<PAGE>
CORPORATE INFORMATION
DIRECTORS
Cam L. Garner
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
DURA PHARMACEUTICALS, INC.
James C. Blair, Ph.D.
GENERAL PARTNER
DOMAIN ASSOCIATES
Herbert J. Conrad
SENIOR VICE PRESIDENT
HOFFMANN-LA ROCHE, RETIRED
Joseph C. Cook, Jr.
PRINCIPAL
LIFE SCIENCE ADVISORS, LLC
David F. Hale
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
GENSIA SICOR, INC.
David S. Kabakoff, Ph.D.
EXECUTIVE VICE PRESIDENT
DURA PHARMACEUTICALS, INC.
Gordon V. Ramseier
EXECUTIVE DIRECTOR
THE SAGE GROUP
Charles G. Smith, Ph.D.
PRIVATE CONSULTANT
Walter F. Spath
SENIOR VICE PRESIDENT,
SALES AND MARKETING
DURA PHARMACEUTICALS, INC.
OFFICERS
Cam L. Garner
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
David S. Kabakoff, Ph.D.
EXECUTIVE VICE PRESIDENT
<PAGE>
Julia R. Brown
SENIOR VICE PRESIDENT,
BUSINESS DEVELOPMENT AND PLANNING
James W. Newman
SENIOR VICE PRESIDENT,
FINANCE AND ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
Charles W. Prettyman
SENIOR VICE PRESIDENT,
DEVELOPMENT AND REGULATORY AFFAIRS
Walter F. Spath
SENIOR VICE PRESIDENT,
SALES AND MARKETING
Mitchell R. Woodbury
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Chester Damecki
VICE PRESIDENT, OPERATIONS
Malcolm R. Hill
VICE PRESIDENT, CLINICAL DEVELOPMENT
Robert W. Keith
VICE PRESIDENT, MANAGED CARE
Erle T. Mast
VICE PRESIDENT, FINANCE
Robert K. Schultz, Ph.D.
VICE PRESIDENT, PRODUCT DEVELOPMENT
David Sudolsky
VICE PRESIDENT, MARKETING
Clyde L. Witham
VICE PRESIDENT, SCIENCE AND TECHNOLOGY
Michael T. Borer
GENERAL MANAGER, HEALTH SCRIPT
CORPORATE HEADQUARTERS
5880 Pacific Center Boulevard
San Diego, California 92121-4204
Telephone (619) 457-2553
<PAGE>
AUDITORS
Deloitte & Touche LLP
San Diego, California
SHAREHOLDERS
At March 1, 1997, there were approximately 330 holders of record of Dura's
common stock.
DIVIDENDS
No cash dividends were declared or paid in 1994, 1995 or 1996.
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholders Services, LLC
400 S. Hope St., 4th Floor
Los Angeles, California 90071
(213) 553-9719
REQUESTS FOR INFORMATION
Copies of the Form 10-K filed with the Securities and Exchange Commission,
financial communications and general information on the Company are available
without charge upon request to Investor Relations, Dura Pharmaceuticals, 5880
Pacific Center Boulevard, San Diego, CA 92121-4204.
ANNUAL MEETING
The annual meeting of shareholders will be held at 10 a.m., Wednesday, May 28,
1997 at the La Jolla Marriott, 4240 La Jolla Village Drive, La Jolla, CA 92037.
MARKET INFORMATION ON COMMON STOCK
Dura Pharmaceuticals' common stock is traded on the Nasdaq National Market under
the symbol "DURA." The following table reflects the range of high and low trade
prices of Dura's common stock by quarter for 1994, 1995 and 1996. This
information is based upon prices reported by the Nasdaq National Market:
High Low
- ------------------------------------------------------
1994
First Quarter $ 5 $ 3 1/8
Second Quarter $ 5 1/2 $ 3 3/4
Third Quarter $ 6 5/8 $ 5 1/8
Fourth Quarter $ 7 1/2 $ 5 1/4
1995
First Quarter $ 7 1/2 $ 5 3/4
Second Quarter $ 9 7/8 $ 6 1/2
Third Quarter $ 17 1/2 $ 9 1/8
Fourth Quarter $ 17 3/4 $ 13 1/4
1996
First Quarter $ 26 3/8 $ 16 3/4
Second Quarter $ 34 1/2 $ 23 11/16
Third Quarter $ 40 $ 21 3/8
Fourth Quarter $ 47 3/4 $ 31 1/2
Dura-Tap-Registered Trademark-/PD, Entex-Registered Trademark-, Furadantin-
Registered Trademark- and Rondec-Registered Trademark- are registered trademarks
of the Company. The Company claims common law trademark rights to Spiros-TM-,
Dura-Vent/DA-TM- and D.A. Chewable-TM-. Tornalate-Registered Trademark- is a
registered trademark of Sanofi-Winthrop, Inc. Crolom-TM- is a trademark of
Bausch & Lomb Pharmaceuticals, Inc. Capastat-Registered Trademark-,
Seromycin-Registered Trademark-, Ceclor-Registered Trademark-, Ceclor-Registered
Trademark- CD and Keftab-Registered Trademark- are registered trademarks of Eli
Lilly and Company.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-10513 on Form S-8 and Registration Statement Nos. 33-71798, 33-99722
and 33-93914 on Form S-3 of Dura Pharmaceuticals, Inc. of our report dated
January 20, 1997, incorporated by reference in this Annual Report on Form 10-K
of Dura Pharmaceuticals, Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
March 24, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
(See Signature Page)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996, AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 131,101
<SECURITIES> 109,244
<RECEIVABLES> 24,092
<ALLOWANCES> 0
<INVENTORY> 7,544
<CURRENT-ASSETS> 271,981
<PP&E> 30,276
<DEPRECIATION> 2,776
<TOTAL-ASSETS> 504,670
<CURRENT-LIABILITIES> 52,117
<BONDS> 0
0
0
<COMMON> 525,350
<OTHER-SE> (78,992)
<TOTAL-LIABILITY-AND-EQUITY> 443,577
<SALES> 104,119
<TOTAL-REVENUES> 104,119
<CGS> 21,301
<TOTAL-COSTS> 82,472
<OTHER-EXPENSES> 677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,867
<INCOME-TAX> 3,539
<INCOME-CONTINUING> 24,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,328
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
</TABLE>
