<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
OR
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______ to _______
Commission file number 1-12968
LXR BIOTECHNOLOGY INC.
(Exact name of small business issuer as specified in its charter)
Delaware 68-0282856
-------- ----------
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification No.)
1401 Marina Way South, Richmond, California 94804 (Address
----------------------------------------------------------
of principal executive offices)
(510) 412-9100
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
--- ---
At October 31, 1997 the number of outstanding shares of the Registrant's Common
Stock, par value $0.0001, was 21,818,675.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
<PAGE> 2
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
QUARTERLY REPORT ON FORM 10-QSB
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1997 and
1996 and for the period from April 20, 1992 (date of
incorporation) to September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996 and
for the period from April 20, 1992 (date of incorporation) to
September 30, 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
2
<PAGE> 3
Part I Financial Information
Item I Financial Statements
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,791,572 $ 10,217,203
Prepaid expenses 280,103 98,881
Private placement receivable -- 1,278,700
Other receivables 40,750 39,500
------------ ------------
Total current assets 5,112,425 11,634,284
Equipment and leasehold improvements, net 1,200,215 592,093
License fee receivable 400,000 --
Notes receivable from related parties 190,000 160,000
Deposits and other assets 41,952 32,315
------------ ------------
Total assets $ 6,944,592 $ 12,418,692
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 337,612 $ 324,606
Accrued expenses 702,725 584,049
Deferred rent obligation 283,621 259,975
Short-term portion of note payable 129,555 --
------------ ------------
Total current liabilities 1,453,513 1,168,630
Note payable, excluding short-term portion 333,454 --
------------ ------------
Total liabilities 1,786,967 1,168,630
------------ ------------
Commitments and contingencies (notes 2, 5 and 6)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued or outstanding -- --
Common stock, $0.0001 par value; 45,000,000
shares authorized; 22,000,687 and 21,924,687
shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively 2,171 2,163
Common stock subscribed; 165,000 and 187,500 shares at
September 30, 1997 and December 31, 1996, respectively 17 19
Additional paid-in capital 34,973,221 34,778,774
Deficit accumulated during the development stage (29,802,609) (23,515,719)
Treasury stock, at cost; 182,012 shares at September 30,
1997 and December 31, 1996 (15,175) (15,175)
------------ ------------
Total stockholders' equity 5,157,625 11,250,062
------------ ------------
Total liabilities and stockholders' equity $ 6,944,592 $ 12,418,692
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
April 20, 1992
Three Months Nine Months (Date of
Ended Ended Incorporation)
----------------------------- ---------------------------- to
September 30, September 30, September 30, September 30, September 30,
1997 1996 1997 1996 1997
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues
Grant revenue $ 17,300 $ 29,754 $ 57,282 $ 100,000 $ 171,678
Funded research 33,454 -- 101,665 -- 101,665
License fee revenue 700,000 300,000 700,000 300,000 1,000,000
----------- ----------- ----------- ----------- ------------
Total revenues 750,754 329,754 858,947 400,000 1,273,343
----------- ----------- ----------- ----------- ------------
Expenses incurred in the
development stage
Research and development 2,020,934 1,903,136 5,000,414 4,236,001 21,909,121
General and administrative 944,617 601,396 2,449,636 1,763,818 9,717,080
----------- ----------- ----------- ----------- ------------
Total expenses incurred in
the development stage 2,965,551 2,504,532 7,450,050 5,999,819 31,626,201
----------- ----------- ----------- ----------- ------------
Loss from operations (2,214,797) (2,174,778) (6,591,103) (5,599,819) (30,352,858)
Interest income, net
Interest income 87,729 46,579 326,848 197,447 932,306
Interest expense (21,435) (13,917) (21,435) (47,056) (376,052)
----------- ----------- ----------- ----------- ------------
Total interest income, net 66,294 32,662 305,413 150,391 556,254
----------- ----------- ----------- ----------- ------------
Loss before income taxes (2,148,503) (2,142,116) (6,285,690) (5,449,428) (29,796,604)
Income taxes 400 400 1,200 9,000 6,000
----------- ----------- ----------- ----------- ------------
Net loss $(2,148,903) $(2,142,516) $(6,286,890) $(5,458,428) $(29,802,604)
=========== =========== =========== =========== ============
Net loss per share $ (0.10) $ (0.13) $ (0.29) $ (0.35)
=========== =========== =========== ===========
Weighted average shares used
to compute net loss per share 21,970,958 15,971,556 21,967,162 15,406,964
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
April 20, 1992
(Date of
Incorporation)
Nine Months Ended September 30, through
------------------------------ September 30,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ (6,389,528) $ (5,033,090) $(26,538,510)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of investments -- -- (3,910,150)
Purchase of equipment and leasehold improvements (899,375) (157,220) (2,350,409)
Proceeds from maturity of investments -- -- 4,000,000
Loans to related parties (30,000) -- (190,000)
------------ ------------ ------------
Net cash used in investing activities (929,375) (157,220) (2,450,559)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 150,000 8,630,967 29,303,508
Receipt of Private Placement proceeds 1,278,700 -- 1,278,700
Proceeds from notes payable to related parties -- -- 4,694,500
Proceeds from line of credit -- -- 375,000
Proceeds from note payable 536,568 -- 536,568
Repayment of notes payable and line of credit (73,559) (600,000) (1,654,670)
Principal payments for obligations under
capital lease -- (181,255) (776,513)
Payments received for notes receivable from
stockholders -- -- 2,147
Repurchase of common stock -- (1,510) (1,510)
Net proceeds from exercise of warrants -- 19,505 19,505
Net proceeds from exercise of stock options 1,563 1,424 3,406
------------ ------------ ------------
Net cash provided by financing activities 1,893,272 7,869,131 33,780,641
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (5,425,631) 2,678,821 4,791,572
Cash and cash equivalents at beginning of period 10,217,203 68,245 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 4,791,572 $ 2,747,066 $ 4,791,572
============ ============ ============
</TABLE>
(Continued)
5
<PAGE> 6
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
April 20, 1992
(Date of
Incorporation)
Nine Months Ended September 30, through
------------------------------ September 30,
1997 1996 1997
----------- ---------- ----------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid for income taxes $ 1,600 $ 5,500 $ 5,800
=========== ========== ==========
Cash paid for interest $ 20,918 $ 57,382 $ 355,139
=========== ========== ==========
Noncash financing activities:
Common stock issued in exchange for notes
receivable from stockholders $ -- $ -- $ 107,385
=========== ========== ==========
Equipment purchased under capital
lease obligation $ -- $ -- $ 855,022
=========== ========== ==========
Stock dividend $ -- $ -- $ 5
=========== ========== ==========
Common stock issued in exchange for note
payable to David Blech and others $ -- $ -- $3,594,500
=========== ========== ==========
Repurchase of common stock in exchange for notes
receivable from stockholders $ -- $ 3,812 $ 13,665
=========== ========== ==========
Receivable for common stock issued in
Private Placement $ -- $ -- $1,278,700
=========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
financial position as of September 30, 1997 and December 31, 1996, and
results of operations for the three months and nine months ended September
30, 1997 and 1996 and for the period from April 20, 1992 (date of
incorporation) to September 30, 1997, and changes in cash flows for the
nine months ended September 30, 1997 and 1996, and for the period from
April 20, 1992 (date of incorporation) to September 30, 1997.
These condensed consolidated statements should be read in conjunction with
the Company's audited consolidated financial statements for the years ended
December 31, 1996 and 1995, which are included as part of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996.
The Company's condensed consolidated financial statements include the
accounts and results of operations of the Company and its wholly owned
subsidiary, Optical Analytic, Inc. (OAI). All significant intercompany
balances and transactions have been eliminated in consolidation.
Certain items have been reclassified to conform with current financial
statement presentation.
(2) NOTE PAYABLE
In May 1997, the Company entered into an agreement providing for a loan of
$200,000 secured by existing equipment and a loan of up to $500,000 for the
purchase of new equipment ("Equipment Loan"). In accordance with the
Equipment Loan, loan payments will be made monthly over a three year term
with a final balloon payment equal to 10% of the original loan. As of
September 30, 1997, there was $463,009 outstanding under the Equipment Loan
at an effective interest rate of approximately 15.6%. In connection with
the Equipment Loan, the Company issued warrants to purchase 27,000 shares
of the Company's common stock at $2.1875 per share. The warrants expire in
May 2004.
The Equipment Loan is secured by furniture and equipment with a net book
value of $696,806 at September 30, 1997.
Future minimum principal payments under the Equipment Loan as of September
30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31
-----------
<S> <C>
1997 $ 22,300
1998 145,661
1999 168,245
2000 126,803
----------
$ 463,009
==========
</TABLE>
As of September 30, 1997, approximately $163,000 is available under the
Equipment Loan.
7
<PAGE> 8
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(3) CAPITAL STOCK
In January 1997, the Company issued 37,500 shares of the Company's common
stock in connection with the acquisition of certain patent and other rights
related to Cardiosol, a preservation solution for use during heart
transplantation ("the Cardiosol Acquisition"). At December 31, 1996 these
shares were included in common stock subscribed.
In January 1997, the Company received $150,000 from Boehringer Mannheim
Corporation ("Boehringer") for the purchase of 37,500 shares of the
Company's common stock at a price of $4.00 per share pursuant to a binding
obligation to purchase such shares in accordance with a letter of intent
for a research collaboration with Boehringer related to Maspin (the
"Boehringer Letter of Intent"). These shares were issued in September 1997.
In August 1997, in connection with the license agreement with the Perkin-
Elmer Corporation ("Perkin-Elmer") related to the Scanning Laser Digital
Imaging ("SLDI") technology (the "Perkin-Elmer License agreement"), the
Company incurred obligations to pay a success fee and issue a warrant to
purchase approximately 7,500 shares of the Company's common stock at price
per share equal to approximately $1.87. The warrant is valued at
approximately $11,000 and is included in general and administrative expense
for the nine months ended September 30, 1997. The warrant, which has not
yet been issued, will expire in August 2002.
In September 1997, the Company committed to issue 15,000 shares of
Company's common stock to a consultant of the Company as consideration for
rendering certain advisory services. The Company recognized consulting
expense of approximately $29,000 representing the fair market value of the
shares on the date of the grant. These expenses are included in general and
administrative expense for the nine months ended September 30, 1997. The
shares are included in common stock subscribed at September 30, 1997.
(4) STOCK OPTION PLANS
1993 Stock Option Plan
The fair value of each stock option grant is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: expected dividend yield 0.0%; expected
volatility of .977%; risk-free interest rate of 6.22%; and an expected life
of 7.8 years.
In June 1997, the Company's stockholders approved the proposal to amend the
Company's 1993 Stock Option Plan to increase the number of shares of common
stock authorized and reserved for issuance from 1,049,850 shares to
1,849,850.
8
<PAGE> 9
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(4) STOCK OPTION PLANS (CONTINUED)
During 1997, the Company had the following activity under the 1993 Stock
Option Plan:
<TABLE>
<CAPTION>
Stock Options Outstanding
-------------------------
Weighted-average
Number of exercise
shares price per share
--------- ----------------
<S> <C> <C>
Balance as of December 31, 1996 953,140 $1.84
Options granted 415,550 1.95
Options canceled or expired (43,415) 2.06
Options exercised (1,000) 1.56
---------
Balance as of September 30, 1997 1,324,275 $1.89
=========
</TABLE>
The weighted average fair value of options granted during 1997 was $1.64.
The following table summarizes information about stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------- -----------------------
Weighted Weighted Weighted
Range of average average average
exercise Number remaining years exercise Number exercise
prices outstanding to expiration price exercisable price
------ ----------- ------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.03 29,124 5.45 $ 0.03 25,923 $0.03
1.00 to 1.50 207,484 5.93 1.29 201,852 1.28
1.56 to 2.44 1,197,083(1) 8.87 2.00 185,220 2.03
2.50 to 4.81 38,750 9.03 2.42 5,525 2.81
5.25 to 6.19 1,834 7.45 5.76 1,004 5.58
--------- -------
1,474,275(1) 8.50 $ 1.89 419,524 $1.57
========= =======
</TABLE>
(1) Includes 150,000 options issued outside of the 1993 Stock Option Plan,
which have the same terms as options granted under the 1993 Stock Option
Plan.
9
<PAGE> 10
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(4) STOCK OPTION PLANS (CONTINUED)
Directors Stock Option Plan
There was no activity under the Directors Stock Option Plan as of
September 30, 1997.
The following table summarizes information on stock options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------- -------------------------
Weighted Weighted Weighted
Range of average average average
exercise Number remaining years exercise Number exercise
prices outstanding to expiration price exercisable price
------ ----------- ------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.00 to 1.38 10,000 7.00 $1.38 5,832 $1.38
1.56 to 1.88 20,000 8.08 1.72 7,332 1.73
2.19 10,000 9.00 2.19 - -
------ ------
40,000 8.04 $1.75 13,164 $1.57
====== ======
</TABLE>
Pro Forma Disclosure
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss and net loss per share
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C> <C>
Net loss As reported $ (6,286,890)
Pro forma $ (6,656,805)
Net loss per share As reported $ (0.29)
Pro forma $ (0.30)
</TABLE>
Pro forma net loss reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of four to five years and compensation cost for
options granted prior to January 1, 1995 is not considered.
10
<PAGE> 11
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(5) LITIGATION
The Company and five of its past or present directors and/or officers are
named as defendants in Katz vs. Blech, 95 Civ. 7215 (S.D.N.Y) ("Katz") and
Degulis vs. LXR Biotechnology Inc., et al., 95 Civ. 4204 (S.D.N.Y)
("Degulis"). In addition, one of the five, Mark Germain, is named as a
defendant in the above two cases and also in In re Blech Securities
Litigation, ("In re Blech"). The Company was previously named as a
defendant in In re Blech but was dismissed by the Court on June 6, 1996.
All three cases are brought on behalf of classes of persons purchasing
common shares of the Company prior to September 21, 1994, and assert claims
arising out of the Company's Initial Public Offering and subsequent trading
of those shares. The suits allege violations of Sections 11 and 12 of the
Securities Act of 1933 and Sections 10(b) and 20 of the Securities and
Exchange Act of 1934, including misrepresentations and omissions in
connection with the Initial Public Offering and manipulation of share
prices. The suits also allege common law claims for fraud and deceit and
seek punitive damages. The complaints allege that defendants, including the
Company and the defendant directors and officers, failed to disclose in
securities filings connected with the Initial Public Offering, the
leveraged financial condition of the Company's underwriter, D. Blech and
Company Incorporated ("D. Blech & Co.") and its principal David Blech. The
suits further allege that defendants failed to disclose that D. Blech & Co.
would act as principal market maker for the Company's shares following the
Initial Public Offering, and that D. Blech & Co.'s extended financial
commitments would affect its ability to maintain a market for the Company's
shares. The suits also allege that defendants assisted or acquiesced in a
post-offering scheme to manipulate the market for the Company's shares and
artificially inflate share prices.
The Company has agreed to indemnify and/or advance defense costs to each of
the current or former officers and directors who are named as defendants in
the litigation. A demand by the independent underwriter for contractual
indemnity has been denied. Such denial is subject to contest by the
underwriter. The Company and the underwriter have entered into a tolling
agreement whereby the Company agreed that the running of any statute of
limitations applicable to claims of the underwriter against the Company
would be tolled until the earlier of June 30, 1998 and the termination of
the tolling agreement.
The Company's primary level directors and officers liability insurance
carrier has tentatively agreed to provide coverage, subject to the terms
and conditions of the policy, and subject to a deductible. On November 4,
1997 the Company's first level excess insurer denied coverage based on the
related party transactions exclusion in its policy. The Company reserves
the right to contest this denial of coverage. Under the Company's directors
and officers liability policies, coverage is not provided for the Company's
own liabilities, but only for amounts paid in indemnity by the Company to
or on behalf of the director and officer defendants. The extent to which
insurance will cover any defense costs, settlements, or judgements in this
case is presently unknown.
The Company denies any wrongdoing and is defending the above cases
vigorously. While an adverse judgment or settlement could have a material
adverse financial impact on the Company, the early stage of litigation,
uncertainty as to whether any material judgment or settlement will result,
and the possibility that some portion of any settlement or judgment may be
covered by insurance make it impossible to predict at this time whether the
litigation will have a material adverse financial impact on the Company.
11
<PAGE> 12
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(6) LICENSE, COLLABORATIVE RESEARCH AND OTHER AGREEMENTS
University of Tennessee
In January 1997, the Company entered into an exclusive license and
three-year research agreement with the University of Tennessee and the
University of Tennessee Research Corporation related to certain patent
applications and technology. As consideration for the agreement, the
Company agreed to fund research in the amount of $70,000 per year for three
years, with the third year's funding contingent upon meeting certain
milestones.
Oxford Asymmetry, Limited
In April 1997, the Company entered into a research collaboration agreement
with Oxford Asymmetry, Limited ("Oxford") for the purpose of discovering
small molecule drug candidates that target specific apoptosis pathways. In
exchange for the services to be provided by Oxford, the Company has agreed
to make payments totaling $650,000 on certain dates specified in the
agreement through February, 1998 and is obligated to make certain future
royalty payments on any products the Company may develop under the
agreement. As of September 30, 1997, the Company has made payments of
$325,000 related to the Oxford agreement of which approximately $289,000 is
included in research and development expense for the nine months ended
September 30, 1997.
Boehringer Mannheim
As of September 30, 1997, the Company has received approximately $100,000
from Boehringer to fund its research of Maspin for the treatment of cancer.
The amount received has been recorded as revenue as of September 30, 1997.
In addition, in connection with its agreement with Boehringer, the Company
has received $150,000 for the purchase of 37,500 shares of the Company's
common stock. (Note 3)
Innovex, Inc.
In July 1997, the Company entered into a Clinical Services Agreement with
Innovex, Inc. (Innovex), to begin clinical studies of HK-Cardiosol for
heart preservation in transplant patients. As consideration for the
agreement, the Company agreed to pay Innovex fees and expenses amounting to
approximately $565,000. Subject to certain rights of early termination the
agreement will continue until June 1,1999. As of September 30, 1997 the
Company paid an initial deposit of $75,000 and incurred fees of
approximately $24,000. The fees are included in research and development
expenses for the nine months ended September 30, 1997.
Chesapeake Biological Laboratories, Inc.
In September, 1997 the Company entered into a commitment with Chesapeake
Biological Laboratories, Inc. (Chesapeake), for the process validation and
clinical trial production of the Company's proprietary Cardiosol
formulation. In exchange for services to be provided by Chesapeake, the
Company agreed to pay fees and expenses amounting to $208,000.
12
<PAGE> 13
LXR BIOTECHNOLOGY INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(6) LICENSE, COLLABORATIVE RESEARCH AND OTHER AGREEMENTS (CONTINUED)
Perkin-Elmer License agreement
In August 1997, the Company recognized revenue totaling $700,000 in
connection with achievement of a milestone under the Perkin-Elmer License
Agreement. The amount is payable in cash of $300,000 and equipment with a
fair market value of $400,000. The cash was received in September 1997 and
the equipment is included in long term receivables pending delivery which
is expected in the fourth quarter of 1997.
Other Agreements
The Company has committed to fund up to $299,000 under various other
research and collaborative agreements. In most cases, the Company's
obligations under these agreements can be terminated upon 30 days notice.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share". SFAS No. 128 requires the presentation of basic earnings per share
("EPS") and, for companies with complex capital structures or potentially
dilutive securities, such as convertible debt, options and warrants,
diluted EPS. SFAS No. 128 is effective for annual and interim periods
ending after December 31, 1997. The Company does not expect its net loss
per share presentation will be affected by SFAS No. 128.
13
<PAGE> 14
ITEM 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following analysis contains forward looking statements regarding, among
other things, product development plans, market projections, product
efficacy and safety, partnering, capital and other expenditures, timing of
U.S. Food and Drug Administration (FDA) filing, FDA approval thereof and
clinical trial progress, sufficiency of cash resources and the ability of
the Company to raise additional funding. These forward looking statements
concern matters that involve risks and uncertainties that could cause
actual results to differ materially from those projected in the forward
looking statements. Words such as "believe," "expects," "likely," "may" and
"plans" are intended to identify forward looking statements, although not
all forward looking statements contain these words. The following
discussion and analysis should be read in conjunction with the Company's
financial statements and accompanying notes included herein, the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996, the
Company's Form 10-QSB for the quarters ended March 31, 1997 and June 30,
1997, the Registration Statement on Form S-3 filed by the Company with
Securities and Exchange Commission on January 17, 1997 and "Factors
Affecting Future Results" below.
PLAN OF OPERATIONS
The Company's resources are currently focused primarily on the research and
development of the Company's candidate systems to preserve and protect
organ function, including CP-Cardiosol, HK-Cardiosol and Elirex.
During the third quarter of 1997, the Company engaged an independent
consultant to perform a marketing analysis for the Cardiosol technology.
Based on the results of this study, the Company believes there is a
significant unmet need for a cardioplegia solution to be used in open-heart
surgery procedures. Currently, there are approximately 650,000 open-heart
procedures performed in the United States and Europe with a growth rate
expected to parallel that of the aging population at approximately 2%
annually. At present there are a number of cardioplegia solutions available
for open heart surgery, but the Company believes there is no clear
differentiation between these products. The Company believes that, when
used as a cardioplegic solution in open heart surgery, CP-Cardiosol has the
potential to decrease the incidence of microcardial infarction, decrease
the need for mechanical assistance and intropic drug support and
consequently decrease patient length of stay following surgery. The
marketing analysis done for the Company indicated that, because of its
advantages over other solutions, such a cardioplegic solution could capture
a large share of the market for such products and be sold at a premium
price, resulting in potential revenues between $200 and $500 million by
2005. There can be no assurance that CP-Cardiosol can be successfully
developed or that it would gain such a market share or result in such
revenues.
In physician sponsored studies performed at the California Pacific Medical
Center, ninety-five patients were treated with Cardiosol in heart-lung
bypass operations. Compared to the commonly used St. Thomas solution, the
use of Cardiosol resulted in an increase in cardiac index, a measure of how
well the heart was pumping after the operation. The Company has developed
an improved formulation of CP-Cardiosol to enhance stability and provide a
potentially longer shelf life which are desirable for quality control in
manufacturing and marketing. The Company plans to file an Investigational
New Drug ("IND") application with the FDA to begin clinical studies of
CP-Cardiosol as a cardioplegic solution by the end of 1997.
14
<PAGE> 15
Management's Discussion and Analysis
of Financial Condition and Results of Operations
PLAN OF OPERATIONS (CONTINUED)
The Company filed an Investigational Device Exemption (IDE) with the FDA in
the third quarter of 1997, to begin clinical studies of HK-Cardiosol for
heart preservation in transplant patients. In November 1997, the Company
received permission from the FDA to commence a pivotal clinical trial on
HK-Cardiosol. In granting the permission to the Company to commence
clinical trials, the FDA has required the Company to make certain revisions
to the protocol which the Company expects to be completed within the 45 day
period allotted by the FDA. The Company will proceed with the clinical
investigation in at least six medical centers (four in the USA and two in
Germany). A minimum of 120 heart transplant patients will be enrolled in
the study. The Company expects the trial to be completed in 1999. If the
trial is successful, a 510K submission will be made in the USA and an
equivalent submission will be made in Europe. The Company has entered into
an agreement with Innovex, Inc. to provide clinical research services.
Heart transplantation is a small (approximately 3,600 procedures in the
United States and Europe annually), high profile market which the Company
believes will serve to enhance visibility and aid the Company in the
marketing of CP-Cardiosol for cardioplegia. There can be no assurance that
the clinical trial of HK-Cardiosol will be successful, or if it is, that
HK-Cardiosol will be successfully commercialized.
In 1996, the Company amended the terms of its laboratory and office lease
to extend the term and add approximately 4,100 square feet of space. The
additional space is being used for the Company's expanding clinical trial
activities and the construction of a new pilot GMP manufacturing facility
for producing materials for clinical trials. The Company anticipates the
total cost to equip and construct the pilot manufacturing facility to be
approximately $1.3 million, including equipment to be received from
Perkin-Elmer. Approximately $814,000 of the $1.3 million has been incurred
as of September 30, 1997. The Company has also entered into an agreement
with Chesapeake Biological Laboratories for process validation and clinical
trial production of CP-Cardiosol and HK Cardiosol until the Company's
construction of its GMP manufacturing facility is completed.
The Company currently is conducting preclinical studies of Elirex in
animals for ischemic heart attack, stroke and liver transplantation
applications. The Company has received the preliminary results of animal
studies from the Cleveland Clinic which indicate Elirex is capable of
suppressing 50% of the damage to the heart following ischemic repurfusion.
The Company expects peer reviewed published results from the Cleveland
Clinic within approximately six months. Based on the results to date of the
preclinical studies for Elirex, the Company is seeking to enter into a
collaborative partnership for further research and development of Elirex,
with the objective of filing an IND to commence clinical studies of Elirex.
There can be no assurance that the Company will be able to secure a
collaborative partnership or commence clinical trials of Elirex within such
period, or at all.
Pursuant to the Boehringer Letter of Intent, the Company and Boehringer are
currently conducting preclinical studies to assess the efficacy and
toxicity of Maspin. During the third quarter of 1997, the Company received
preliminary results of small scale efficacy studies for primary tumor
growth and metastic breast cancer models. The preliminary results of these
studies indicated that Maspin was superior to Taxol, the leading treatment
for cancer, on primary tumor growth model, and that it was also shown to
inhibit metastasis. Preliminary results of the studies are indicative but
not conclusive of results that will be obtained during further research. In
November 1997, the Company received preliminary results of dose escalation
toxicity studies performed in parallel. The Company is currently reviewing
the results of these studies. Based on the outcome, the Company and
Boehringer will determine whether to proceed with further research and
development efforts. However, Boehringer has no obligation to proceed with
the project, and there can be no assurance that Boehringer will do so.
15
<PAGE> 16
Management's Discussion and Analysis
of Financial Condition and Results of Operations
PLAN OF OPERATIONS (CONTINUED)
In August 1997, the Company achieved a milestone under the agreement with
Perkin-Elmer resulting in the recognition of $700,000 in revenue payable
$300,000 in cash and $400,000 in laboratory equipment. The Company received
the $300,000 cash in September 1997, and has ordered the equipment which is
expected to be received in the fourth quarter of 1997. The Company expects
to continue to support the efforts of Perkin-Elmer to develop the Company's
Scanning Laser Digital Imaging technology.
The Company completed Phase I trials for Lexirin and preliminary results
indicated it was well tolerated in AIDS patients and that no adverse
reactions were encountered. However, in light of the growing use of triple
drug therapy for HIV infection and concomitant decrease in side effects
suffered by patients infected with HIV, LXR has decided to reallocate its
resources to the development of its candidate systems to preserve and
protect organ function, including HK-Cardiosol, CP-Cardiosol and Elirex,
for which the Company believes there are potentially larger markets and
more pressing needs. The Company will continue to analyze the market for
Lexirin in AIDS related diarrhea therapy outside the U.S. and evaluate
Lexirin for potential applications in other markets, including cancer
chemotherapy and radiotherapy. The Company expects the final results of the
Phase I clinical trial of Lexirin for treatment of AIDS-related diarrhea in
the fourth quarter of 1997.
The Company also conducts limited research related to the following
proprietary gene and proteins: BAK, Fas(DELTA)TM, SARP as well as a new
technology which may permit the sex of a fetus to be determined as early as
six weeks after conception, based on an analysis of DNA in the mother's
urine ("Urine DNA Analysis.") The Company believes Urine DNA Analysis may
also have applications in cancer detection and diagnosis. In addition, the
Company has entered into an agreement with Oxford Asymmetry, Limited for
the purpose of discovering small molecule drug candidates that target
specific apoptosis pathways.
The Company plans to seek additional corporate partners for its research
and development activities. However, there can be no assurance that the
Company will be able to secure any new corporate partner relationships. In
addition to the studies mentioned above, the Company is funding research at
the University of Tennessee during 1997, and may enter into research
relationships with other universities and research institutions. The
Company also regularly evaluates the possibility of licensing or otherwise
acquiring technologies from third parties.
As of September 30, 1997, the Company employed 66 employees, including 60
full-time employees. Over the next 12 months, the Company plans to increase
its number of employees to approximately 80 to support the Company's
increased research and development efforts and expanding manufacturing and
clinical trial activities. However the Company may not be able to augment
these plans unless it obtains additional financing. See "Liquidity and
Capital Resources".
The Company's capital expenditures for the first three quarters of 1997
were approximately $899,000, including costs to construct and equip the
Company's pilot manufacturing facility. The Company has secured the
Equipment Loan of $700,000 to finance a portion of its capital expenditures
for 1997. The Company expects that capital expenditures over the next
twelve months will approximate $1 million, excluding amounts remaining to
be incurred to construct and equip the Company's pilot manufacturing
facility.
16
<PAGE> 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1997 compared to the Three and
Nine Months Ended September 30, 1996
The Company had revenues of approximately $751,000 and $859,000 for the
three and nine months ended September 30, 1997, respectively, compared to
revenues of approximately $330,000 and $400,000 for the three and nine
months ended September 30, 1996, respectively. The increase is primarily
due an increase in license fee revenue under the Perkin-Elmer License
Agreement from $300,000 in the third quarter of 1996 to $700,000 in third
quarter of 1997. The remaining increase in revenue was primarily due to
approximately $100,000 received from Boehringer for funded research,
partially offset by reduced grant revenues. The Company's remaining
sources of revenues for 1997 include research revenue of up to $150,000
under the Boehringer Letter of Intent. The Company does not have any
commercially available products (other than the Company's Scanning Laser
Digital Imager, being marketed by Perkin-Elmer) and does not anticipate
generating any significant revenues for at least the next several years.
The Company's research and development expenses were approximately
$2,021,000 and $5,000,000 for the three and nine months ended September
30, 1997, respectively, compared to approximately $1,903,000 and
$4,236,000 for the three and nine months ended September 30, 1996,
respectively. These expenses included salaries and related benefits,
laboratory supplies, depreciation of equipment, facility costs, consulting
fees, research collaboration expenses, toxicology study costs, clinical
trial costs, contract manufacturing expenses, legal fees for patents and
other research related expenditures. Research and development costs
increased primarily due to increased salary and benefits costs resulting
from an increase in the number of research personnel, increased research
collaboration costs resulting from the new agreement with Oxford and
increases in clinical trial, toxicology and contract manufacturing costs.
The increase in research and development expenses was partially offset by
a decrease in patent legal fees, depreciation expense, and certain
collaboration expenses resulting from the termination of research
agreements with the University of Kentucky and the Dana Farber Cancer
Institute. In addition, research and development expenses for the third
quarter of 1996 included $675,000 for the acquisition of the Cardiosol
technology.
The Company expects research and development expenses to continue to
increase over the next twelve months in order to continue the Company's
research and development programs for the Company's candidate systems to
preserve and protect organ function including CP-Cardiosol, HK-Cardiosol,
and Elirex; to fund possible clinical trials of HK-Cardiosol and
CP-Cardiosol; and to support limited research in areas such as Maspin,
SLDI, Lexirin, BAK, SARP, Fas(Delta)TM and Urine DNA Analysis. See "Plan
of Operations" above.
The Company expects its research and development expenses to further
increase under its agreement with Oxford for the purpose of discovering
small molecule drug candidates that target specific apoptosis pathways. As
of September 30, 1997, the Company has paid $325,000 under the Oxford
Agreement and is committed to $325,000 in remaining payments through
February 1998.
Although the Company plans for research and development spending to
continue to increase substantially over the next several years as the
Company expands its research and development efforts and undertakes
clinical studies with respect to certain of its projects, such expansion
of operations remain contingent upon the Company's ability to obtain
additional amounts of capital resources. Unless and until such funds are
received, research and development activities will be limited by the
Company's available resources. See "Liquidity and Capital Resources"
below.
17
<PAGE> 18
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses were approximately $945,000 and
$2,450,000 for the three and nine months ended September 30, 1997,
respectively, compared to approximately $602,000 and $1,764,000 for the
three and nine months ended September 30, 1996, respectively. This
increase is primarily due to increased personnel costs, increased legal
costs related to litigation, increased facility costs due to a larger
facility, increased travel and investor relation expenses. Future general
and administrative expenses are anticipated to increase to support the
Company's expansion of research and development activities and possibly
due to increased legal expenses resulting from the securities lawsuits
currently pending against the Company and certain of its past and present
officers and directors. However, expansion of the Company's general and
administrative activities will be contingent upon the Company's ability to
raise additional resources. See "Liquidity and Capital Resources."
Interest income, net of interest expense, increased to approximately
$66,000 and $305,000 for the three and nine months ended September 30,
1997, respectively, from $33,000 and $150,000 for the three and nine
months ended September 30, 1996, respectively. The increase in net
interest income was primarily due to interest earned on a larger average
investment balance in 1997 as compared to 1996. The Company expects
interest expense to increase as a result of borrowings under the Equipment
Loan. Further increases are expected as the Company borrows the remaining
amount available under the Equipment Loan. See "Liquidity and Capital
Resources".
The Company's net loss increased to approximately $2,149,000 and
$6,287,000 for the three and nine months ended September 30, 1997,
respectively, compared to $2,143,000 and $5,458,000 for the three and nine
months ended September 30, 1996, respectively, reflecting the Company's
increased expenses in 1997. As of September 30, 1997, the Company had an
accumulated deficit of approximately $29,803,000. The Company expects to
continue to incur substantial losses over the next several years as it
expands its research and development efforts and continues to undertake
preclinical and clinical studies.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company received $150,000 from Boehringer for the
purchase of 37,500 shares of the Company's common stock at a price of
$4.00 per share in accordance with the Boehringer Letter of Intent. In
addition, the Company received $1,278,700 in cash for the Private
Placement receivable and approximately $537,000 in funds borrowed under
the Equipment Loan. As of September 30, 1997, the Company's sources of
capital consisted of approximately (i) $4.8 million in cash and cash
equivalents, (ii) interest from investments, and, (iii) potential research
revenues of up to $150,000 under the Boehringer Letter of Intent. In
addition, during 1997, the Company secured financing of approximately
$700,000 in connection with the construction of the Company's pilot
manufacturing facility, of which approximately $163,000 remains available
under the Equipment Loan at September 30, 1997. The Company believes these
resources are sufficient to fund the Company's operations through the
remainder 1997. However, there can be no assurance that unanticipated
events affecting the Company's resources will not result in the Company
depleting its funds before that time.
18
<PAGE> 19
Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company does not have any committed sources of future equity or debt
funding other than noted above. Accordingly, the Company will need to
raise substantial additional capital to fund its operations, including the
development of its lead compounds, beyond 1997. Although the Company is
currently expending significant efforts to obtain the additional funding
necessary to fund the Company's operations beyond 1997, there can be no
assurance that additional funding will be available on favorable terms, if
at all. Failure to raise additional funds in the relatively near future
will have a material adverse effect on the Company.
FACTORS AFFECTING FUTURE RESULTS
Future Capital Needs; Uncertainty of Additional Funding
The Company will require substantial additional capital to fund its
operations, including its research and development programs and
preclinical and clinical testing of its potential pharmaceutical and
medical device products, and to conduct marketing of any products that may
be developed. The Company's capital requirements depend on numerous
factors, including the progress of its research and development programs,
the progress of preclinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other
intellectual property rights, the cost of obtaining technological rights,
competing technological and market developments, changes in the Company's
existing research relationships, the ability of the Company to establish
collaborative arrangements, the development of commercialization
activities and arrangements, the cost of purchasing additional capital
equipment, and legal expenses incurred in connection with defending
certain lawsuits that have been brought against the Company (described
above in Item 1). Based upon its current plans, the Company believes it
has sufficient funds to meet the Company's operating expenses and capital
requirements through 1997. However, there can be no assurance that
unanticipated changes or other events affecting the Company's operating
expenses will not result in the expenditure of available funds before the
end of 1997.
The Company will need to raise substantial additional capital to fund its
operations, including the development of its lead compounds. The Company
intends to seek such additional funding through public or private
financing and/or collaborative or other arrangements with corporate
partners. There can be no assurance, however, that additional funding will
be available from any of these sources, or if available, will be available
on favorable or acceptable terms. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of
its research and development programs, including but not limited to the
development of its lead compounds. If the Company raises additional funds
through public or private financing, such financing may result in
substantial dilution to the Company's stockholders. In 1996, the Company
issued a total of approximately 15 million shares and warrants therefor
(or approximately 62% of the Company's total current outstanding stock,
assuming all shares underlying warrants and other rights are outstanding)
to raise needed funds. If the Company is able to enter into corporate
partnerships to obtain funds, such arrangements will require the Company
to relinquish certain rights to certain of its technologies or potential
products that the Company would not otherwise relinquish. Failure to
obtain additional funds will have a material adverse effect on the
Company's operations.
19
<PAGE> 20
Management's Discussion and Analysis
of Financial Condition and Results of Operations
FACTORS AFFECTING FUTURE RESULTS (CONTINUED)
Early Stage of Development; Regulatory, Technological and Other
Uncertainties
LXR is at an early stage of development. Other than the SLDI microscope, a
prototype of which was sold to Perkin-Elmer, all of the Company's
potential pharmaceutical and medical device products are currently in
research and development, and no revenues from the sale of such potential
products have been generated to date. Substantially all of the Company's
resources have been and for the foreseeable future will continue to be
dedicated to the Company's research programs and the development of
potential pharmaceutical and medical device products emanating therefrom.
There can be no assurance that the Company will be able to develop a
commercial product from any of these projects. All of the Company's drug
and medical device candidates except for HK-Cardiosol and CK-Cardiosol
which are now entering the clinical testing phase, are in preclinical
development. While the Company believes that the results attained to date
in such preclinical studies generally support further research and
development of these potential products, results attained in preclinical
studies are not necessarily indicative of results that will be obtained in
human clinical testing. Additionally, the Company has not previously met
its forecasted schedule for introducing products into clinical trials.
Finally, the Company recently reassessed the market for Lexirin in the
treatment of AIDS patients and decided not to proceed with further U.S.
clinical trials of Lexirin in AIDS patients at this time. Similar
assessments of market opportunities and priorities for allocating
available resources, may again affect the Company's decision to undertake
or continue preclinical and/or clinical trials or otherwise continue to
pursue research and development programs for its potential products.
The potential pharmaceutical products currently under development by the
Company will require significant additional research and development and
preclinical testing and will require extensive clinical testing prior to
submission of any regulatory application for commercial use. The Company's
potential pharmaceutical products are subject to the risks of failure
inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that the Company's
novel approach to diagnosis and therapy will not be successful; that any
or all of the Company's potential pharmaceutical products will be found to
be unsafe, ineffective or toxic, or otherwise fail to receive necessary
regulatory clearances; that the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from
marketing such products; or that third parties will market superior or
equivalent products. As a result, there can be no assurance that any of
the Company's research and development activities will be successfully
completed; that clinical trials will be allowed by the FDA or other
regulatory authorities; that clinical trials will commence as planned;
that required United States or foreign regulatory approvals will be
obtained on a timely basis, if at all; or that any products for which
approval is obtained will result in any commercially viable products.
The Company's product development efforts are based on the novel
scientific approach of therapeutic apoptosis modulation, which has not
been widely studied. There is, therefore, substantial risk that this
approach will not prove to be successful. Moreover, the Company is
applying this novel approach to discover new treatments for a variety of
diseases that are also the subject of research and development efforts by
other companies, many of which are much larger and better funded.
Biotechnology in general and apoptosis modulation in particular are a
relatively new fields in which there is a potential for extensive
technological innovation in relatively short periods of time. The
Company's competitors may succeed in developing technologies or products
that are more effective than those of the Company. Rapid technological
change or developments by others may result in the Company's technology
or proposed products becoming obsolete or noncompetitive.
20
<PAGE> 21
FACTORS AFFECTING FUTURE RESULTS (CONTINUED)
History of Losses; Uncertainty of Future Profitability
The Company has incurred significant operating losses since its inception
in 1992. At September 30, 1997, the Company had an accumulated deficit of
approximately $29,803,000. The Company will be required to conduct
significant research, development, testing and regulatory compliance
activities that, together with projected general and administrative
expenses, are expected to result in significant operating losses for at
least the next several years. Revenues, if any, that the Company may
receive in the next few years will be limited to potential payments from
Perkin-Elmer under the Perkin-Elmer License Agreement, potential payments
from Boehringer under the non-binding Boehringer Letter of Intent,
revenues from grants which may be awarded to the Company in the future,
payments under collaborative relationships that the Company may hereafter
establish, payments under license agreements that the Company may
hereafter establish, sales of products that the Company may acquire in the
future, and interest payments. There can be no assurance, however, that
the Company will (i) receive any additional funds under the Perkin-Elmer
License Agreement, as Perkin-Elmer may terminate such agreement at any
time in its discretion, (ii) be successful in its collaboration with
Boehringer or that such relationship will be expanded beyond its current
very limited scope, (iii) be able to establish any additional
collaborative relationships, (iv) enter into any license agreements, or
(v) acquire any products in the future. The Company's ability to achieve
profitability depends upon its ability to successfully complete either
alone or with others, development of its potential products, conduct
clinical trials, obtain required regulatory approvals, and manufacture and
market its products or to enter into license agreements on acceptable
terms. The Company may never achieve significant revenue or profitable
operations.
Dependence on Others; Collaborations
The Company's strategy for the research, development and commercialization
of its potential products may require the Company to enter into various
arrangements with corporate and academic collaborators, licensors,
licensees and others, in addition to those already established, and the
Company may therefore be dependent upon the subsequent success of outside
parties in performing their responsibilities. For example, the Company has
provided Perkin-Elmer with significant exclusive rights to its SLDI
product, and is dependent on Perkin-Elmer to satisfactorily commercialize
such product so that the Company will receive remuneration for its efforts
in this area. There can be no assurance that Perkin-Elmer's efforts to
commercialize this product will be successful, or that the Company will
receive any such remuneration. There can also be no assurance that the
Company will be able to establish additional collaborative arrangements or
license agreements to develop and commercialize its potential products, or
that any of its collaborative arrangements or license agreements will be
successful. Moreover, certain of the collaborative arrangements that the
Company may enter into in the future may place responsibility for
preclinical testing and human clinical trials and for preparing and
submitting applications for regulatory approval for potential products on
the collaborative partner. Should a collaborative partner fail to develop
or commercialize successfully any potential product to which it has
rights, the Company's business may be adversely affected. In addition,
there can be no assurance that collaborators will not be pursuing
alternative technologies or developing products either on their own or in
collaboration with others, including the Company's competitors, as a means
for developing treatments for the diseases or disorders targeted by such
partners' collaborative programs with the Company.
21
<PAGE> 22
FACTORS AFFECTING FUTURE RESULTS (Continued)
Uncertainty of Product Pricing, Reimbursement and Related Matters
The Company's potential products market may be materially adversely
affected by the continuing efforts of governmental and third party payers
to contain or reduce the costs of health care through various means. For
example, in certain foreign markets the pricing or profitability of health
care products is subject to government control. In the United States,
there have been, and the Company expects there will continue to be, a
number of federal and state proposals to implement similar government
control. While the Company cannot predict whether any such legislative or
regulatory proposals or reforms will be adopted, the announcement of such
proposals or reforms could have a material adverse effect on the Company's
ability to raise capital or form collaborations, and the adoption of such
proposals or reforms could have a material adverse effect on the Company.
In addition, in both the United States and elsewhere, sales of health care
products are dependent in part on the availability of reimbursement from
third party payers, such as government and private insurance plans.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and third party payers are increasingly
challenging the prices charged for medical products and services. If the
Company succeeds in bringing one or more products to the market, there can
be no assurance that reimbursement from third party payers will be
available or will be sufficient to allow the Company to sell its potential
pharmaceutical products on competitive basis.
22
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information called for by Part II, Item 1 is incorporated by reference
to Note 5 of the Condensed Consolidated Financial Statements included in
Part I of this document.
ITEM 2. CHANGES IN SECURITIES
In August 1997 in connection with the Perkin-Elmer License Agreement, the
Company became obligated to issue a warrant to purchase approximately
7,500 shares of the Company's common stock at purchase price per share
equal to $1.87.
In September 1997, the Company committed to issue 15,000 shares of the
Company's common stock to a consultant of the Company as consideration for
certain advisory services.
ITEM 5. OTHER INFORMATION
In August 1997 Dr. L. David Tomei was elected to the position of Chairman
of the Board of Directors, and Kenneth R. McGuire was appointed to the
Company's Board of Directors. Dr Tomei replaces Dr. Eugene Eidenberg,
former Chairman of the Board of Directors of the Company. Dr. Eidenberg
continues serving as a director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are attached hereto:
Exhibit
Number Title
------ -----
**10.42 Clinical Service Agreement between the Company and Innovex,
Inc. dated June 6, 1997.
27.01 Financial Data Schedule.
** Confidential treatment has been requested with respect to certain
portions of this document.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the period for
which this report is filed.
23
<PAGE> 24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
LXR BIOTECHNOLOGY INC.
Date: November 13, 1997 By: /s/ Mark J. Tomei
---------------------
Mark J. Tomei
Chief Financial Officer and Secretary
24
<PAGE> 25
EXHIBIT INDEX
Exhibit
Number Title
**10.42 Clinical Service Agreement between the Company and Innovex,
Inc. dated June 6, 1997.
27.01 Financial Data Schedule.
** Confidential treatment has been requested with respect to certain portions of
this document.
25
<PAGE> 1
Confidential Treatment Requested
by LXR Biotechnology, Inc.
located at 1401 Marina Way South,
Richmond, CA 94804.
CLINICAL SERVICES AGREEMENT
Innovex Project #5378
THIS AGREEMENT is made and entered into this 6th day of June, 1997, by and
between LXR Biotechnology, Inc., hereinafter referred to as "LXR" or "Client,"
and Innovex Inc., 11250 Corporate Avenue, Lenexa, Kansas 66219, hereinafter
referred to as "Innovex."
WHEREAS, LXR is a pharmaceutical company; and
WHEREAS, Innovex is in the business of providing contract pharmaceutical
services; and
WHEREAS, LXR proposes to retain Innovex for the specific purpose of performing
Clinical Services;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. LXR hereby retains Innovex to provide Clinical Services as specified in
Schedule B - Services, to commence on or about June 6, 1997.
2. LXR agrees to pay Innovex fees and expenses as provided in Schedule A
Price.
3. The terms and conditions of Innovex's Standard Terms for Clinical
Services, and Schedule A and Schedule B, are incorporated herein and
shall apply to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
INNOVEX INC. LXR BIOTECHNOLOGY, INC.
By: By:
--------------------------------- ----------------------------------
Janet H. Parkey
Vice President,
Finance & Support Services Title
--------------------------------
Date: ______________, 1997 Date: _______________, 1997
<PAGE> 2
Innovex Standard Terms for Clinical Services 2
Innovex #5378
STANDARD TERMS FOR CLINICAL SERVICES
1. INTERPRETATION
1.1 As used in these Standard Terms, unless the context requires
otherwise:
"Agreement" means any Clinical Services Agreement between Innovex
Inc., a Delaware corporation ("Innovex"), and a Client incorporating
these Standard Terms;
"Client" means the Client whose name and address are set out in the
Agreement;
"Client Information" means all technical and other information not
known to Innovex to be supplied by the Client to Innovex relating to
the provision of the Services;
"Client Materials" means all materials, including but not limited to,
documents and drugs supplied by the Client to Innovex for the
provision of the Services;
"Clinical Research Personnel" means any employee of Innovex involved
in the provision of the Services;
"GCP" means any applicable good clinical practice codes;
"Price" means the price specified in Schedule A for the Services;
"Product" means any drug forming part of the Client Materials;
"Proposal" means any proposal or quotation issued by Innovex;
"Adverse Drug Experience" means a significant or material hazard, side
effect, contraindication or precaution, in particular one which is
fatal, life-threatening or disabling or requires hospitalization or
prolongation of hospitalization or is a congenital anomaly, malignancy
<PAGE> 3
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or overdose including, without limitation, any event required to be
reported under any relevant GCP;
"Services" means all or any part of the services that are the subject
of the Agreement or Proposal, details of which are set out in Schedule
B.
"Terms of Payment" means the terms of payment specified in Schedule A.
1.2 Unless the context requires otherwise, words and phrases defined in
any other part of the Agreement shall bear the same meaning in these
Standard Terms, references to the singular number include the plural
and vice versa, references to a gender include references to all other
genders, references to Schedules are references to schedules to the
Agreement and references to Sections are references to sections of
these Standard Terms.
2. APPLICABILITY OF STANDARD TERMS
These Standard Terms shall apply to every Proposal and Agreement and
(except as otherwise agreed by the parties) to any services additional to
the Services to be provided by Innovex for a Client. Innovex shall not be
bound by any term (other than a Special Term) which may be inconsistent
with these Standard Terms. No variation of or addition to these Standard
Terms or any other term of the Agreement shall be effective unless agreed
in writing by an authorized representative acting for and on behalf of
Innovex.
3. PROVISION OF THE SERVICES
3.1 Innovex shall carry out the Services as provided in Schedule B with
reasonable care and skill.
3.2 Innovex shall provide the Services in material conformance with all
local, state and federal laws and regulations applicable to clinical
investigations including, but not limited to, the Federal Food, Drug
and Cosmetic Act and the regulations of the United States Food and
Drug Administration.
3.3 The Client shall provide Innovex with full details and all necessary
Client Information and Client Materials which Innovex may require to
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provide the Services within the time periods agreed between Client and
Innovex and shall reimburse Innovex for any additional costs or
expenses that it may incur as a direct result of any delay in or
failure to provide the Client Information or Client Materials within
such time limits.
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3.4 Title to any and all equipment purchased by either party for use in
performing its obligations under the Agreement shall remain with such
party and shall be free of all claims, liens or encumbrances of the
other party.
4. PRICE AND TERMS OF PAYMENT
4.1 The Client shall pay the Price in accordance with the terms set forth
in Schedule A.
4.2 Unless otherwise indicated in writing by Innovex, all prices and
charges quoted by Innovex are net of any taxes (which shall be paid
by Client). Payment in full must be made within thirty (30) days of
the date of the invoice. Innovex Federal Employer Identification
Number is 06-1076709.
4.2.1 The preferred method of payment is by direct transfer to the
Innovex bank account. Wire transfer instructions are as
follows:
[**]
4.2.2 Payments by check should be mailed to Innovex's lock box as
follows:
Innovex Inc.
P.O. Box 87-3400
Kansas City, MO 64187-3400
4.3 Prompt payment by the Client is essential. In the event of late
payment:
4.3.1 interest shall accrue on a daily basis at the lesser of two
percent (2%) above the Prime Rate as announced periodically
by Barclays Bank PLC (New York branch) or the maximum rate
permitted by law, on any amount overdue from the date payment
became due until payment is made in full; and
** Confidential Treatment Requested
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4.3.2 Innovex shall, at its sole discretion, and without prejudice
to any other of its accrued rights, be entitled to suspend
the provision of the Services, or to treat the Agreement as
repudiated by giving notice in writing to the Client.
5. LIABILITY
5.1 Client shall indemnify, defend and hold harmless Innovex, its
affiliates and its and their respective directors, officers,
employees and agents (each, an "Innovex Indemnified Party") from and
against any and all losses, claims, actions, damages, liabilities,
costs and expenses, (including reasonable attorneys' fees and court
costs) (collectively, "Losses"), relating to or arising from or in
connection with this Agreement or the Services contemplated herein
(including, without limitation, any Losses arising from or in
connection with any Project, study, test, product or potential
product to which this Agreement relates) or any litigation,
investigation or other proceeding relating to any of the foregoing,
except to the extent such Losses are determined to have resulted
solely from the negligence or intentional misconduct of the Innovex
Indemnified Party seeking indemnity hereunder.
5.2 Innovex shall indemnify, defend and hold harmless Client, its
affiliates and its and their respective directors, officers,
employees and agents from and against any and all losses, claims,
actions, damages, liabilities, costs and expenses, (including
reasonable attorneys" fees and court costs) (collectively, "Client
Losses"), to the extent such Client Losses are determined to have
resulted solely from the negligence or intentional misconduct of
Innovex.
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5.3. The party seeking indemnification hereunder (the "Indemnified Party")
shall: (a) give the party obligated to indemnify (the "Indemnifying
Party") prompt notice of any such claim or law suit (including a copy
thereof) served upon Indemnified Party; and (b) Indemnified Party and
its employees shall fully cooperate with Indemnifying Party and its
legal representatives in the investigation of any matter the subject
of indemnification; and (c) Indemnified Party shall not unreasonably
withhold its approval of the settlement of any such claim, liability,
or action by Indemnifying Party covered by this Indemnification
provision; provided, however, that Indemnified Party's failure to
comply with its obligations pursuant to Section 12 shall not
constitute a breach of this Agreement nor relieve Indemnifying Party
of its indemnification obligations, except to the extent, if any, that
Indemnifying Party's defense of the affected claim, action or
proceeding actually was materially impaired hereby.
5.4 Neither Innovex, nor its affiliates, nor any of its or their
respective directors, officers, employees or agents shall have any
liability for any special, incidental, or consequential damages,
including, but not limited to the loss of opportunity, loss of the
use of any data or information supplied hereunder, or loss of revenue
or profit, in connection with or arising out of this Agreement, the
Services performed by Innovex hereunder or the existence, furnishing,
functioning, or Client's use of any information, documentation or
Services provided pursuant to this Agreement, even if Innovex shall
have been advised of the possibility of such damages. In addition, in
no event shall the collective, aggregate liability of Innovex and its
affiliates and its and their respective directors, officers,
employees and agents under this Agreement exceed the amount of
compensation actually received by Innovex from Client for the
assignment or task from which such liability arose.
5.5 The Client and Innovex shall each at its own expense obtain and
maintain insurance of a type and amount adequate to cover any and all
costs, claims, damages, demands, losses, liabilities and expenses, in
respect of which it is obliged to indemnify the other under this
Agreement and shall not do or omit to do any act, matter or thing
that could prejudice or render voidable such insurance. Either party
shall, promptly upon request by the other, provide such evidence of
the insurance as may reasonably be required.
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5.6 Nothing contained in these Standard Terms shall purport to exclude or
restrict any liability for death or personal injury resulting
directly from gross negligence or willful misconduct by Innovex in
carrying out the Services.
5.7 The obligations under this Section 5 shall survive the termination of
the Agreement for whatever reason.
6. RELATIONSHIP BETWEEN THE PARTIES
6.1 The Clinical Research Personnel shall be and remain employees of
Innovex subject to Clause 6.5 below and shall represent themselves to
third parties as Innovex employees under contract to work for the
Client.
6.2 Each party to the Agreement shall act as an independent contractor
and no relationship of employer or employee, joint venturer or
partner shall arise or be created by or under the Agreement as
between Innovex or the Clinical Research Personnel and the Client or
the Client's employees. Accordingly, neither party shall enter into a
contract or agreement with a third party that purports to obligate or
bind the other party.
6.3 Where the Services are to be provided by Clinical Research Personnel
at the Client's premises or at premises under the Client's control,
the Client shall be responsible and shall hold harmless Innovex for
the Clinical Research Personnel's safety and security while on those
premises; provided, however, that Innovex shall use its reasonable
efforts to ensure that the Clinical Research Personnel comply with
all reasonable directions given by the Client as to general safety
and security requirements for such premises.
6.4 The cost of recruiting and training any replacement Clinical Research
Personnel will be borne by Innovex, except as provided in this Clause
6.4. Should the performance of Clinical Research Personnel be
mutually agreed as acceptable by the parties but for other reasons
the Client requests that Innovex replace any Clinical Research
Personnel, then the Client shall pay the cost of recruiting and
training any
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replacement. Should the Client consider in its reasonable opinion
that any of such Clinical Research Personnel requires replacement
because of his or her unsatisfactory performance, Innovex shall
recruit and train any replacement at its own expense.
6.5 If any of the Clinical Research Personnel providing Services at the
Client's premises ceases to be employed by Innovex and is employed by
the Client during the term of the Agreement or within a six(6)-month
period after its termination, then to compensate Innovex for any
losses it incurs as a result thereof including, without limitation,
the cost of recruiting and training a replacement employee, a sum
equal to twenty percent (20%) of such employee's annual salary when
such employee was last employed by Innovex shall be payable by the
Client to Innovex upon commencement of such employment with the
Client.
7. CONFIDENTIALITY AND INTELLECTUAL PROPERTY
7.1 It is understood that during the course of this Agreement, Innovex
and its employees may receive data and information which is
confidential and proprietary to Client. All such data and information
(hereinafter "Client Confidential Information") written or verbal,
tangible or intangible, made available, disclosed, or otherwise made
known to Innovex and its employees as a result of services under this
Agreement shall be considered confidential and shall be considered
the sole property of Client. All information regarding Innovex's
operations, including but not limited to Innovex's Property,
disclosed by Innovex to Client in connection with this Agreement is
proprietary, confidential information belonging to Innovex (the
"Innovex Confidential Information", and together with the Client
Confidential Information, the "Confidential Information"). The
Confidential Information shall be (a) marked as confidential, (b)
otherwise represented by the disclosing party as confidential either
before or within a reasonable time after its disclosure, or (c)
otherwise represent information of the type afforded confidential
treatment. The Confidential Information shall be used by the
receiving party and its employees only for purposes of performing the
receiving party's obligations hereunder. Each party agrees that it
will not reveal, publish, or otherwise disclose the Confidential
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Information of the other party to any third party without the prior
written consent of the disclosing party, provided that the foregoing
obligations shall not apply to Confidential Information which:
(a) is or becomes generally available to the public other than as a
result of a disclosure by the receiving party;
(b) becomes available to the receiving party on a non-confidential
basis from a source which is not prohibited from disclosing such
information by a legal, contractual or fiduciary obligation to
the disclosing party;
(c) the receiving party develops independently of any disclosure by
the disclosing party;
(d) was in the receiving party's possession or known to the receiving
party prior to its receipt from the disclosing party; or
(e) is required by law to be disclosed.
This obligation of confidentiality and non-disclosure shall remain in
effect for a period of five years after the termination of this
Agreement.
7.2 All data and information necessary for Innovex to conduct project
assignments will be forwarded by Client to Innovex. All data and
information generated or derived by Innovex as the result of services
performed by Innovex under this Agreement shall be and remain the
exclusive property of Client. Any inventions that may evolve from the
data and information described above or as the result of services
performed by Innovex under this Agreement shall belong to Client and
Innovex agrees to assign its rights in all such inventions and/or
related patents to Client. Notwithstanding the foregoing, Client
acknowledges that Innovex possesses certain inventions, processes,
know-how, trade secrets, improvements, other intellectual properties
and other assets, including, but not limited to analytical methods,
procedures and techniques, computer technical expertise and software,
which have been independently developed by Innovex (collectively
"Innovex's Property"). Client and Innovex agree that any Innovex
Property or improvements thereto which are used, improved, modified
or developed by Innovex under or during the term of this Agreement
are the sole and exclusive property of Innovex.
<PAGE> 11
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7.3 It is expressly agreed that neither party transfers to the other
party by operation of the Agreement any patent right, copyright or
other proprietary right either party owns, except as specifically set
forth herein.
7.4 The obligations of Innovex and the Client under this Section 7 shall
survive the termination of the Agreement for whatever reason.
8. TERM AND TERMINATION
8.1. If it becomes apparent to Innovex or the Client at any stage in the
provision of the Services that it will not be possible to complete the
Services for technical reasons, or because of the unavailability of
suitable patients or investigators, a thirty-day (30-day) period shall
be allowed for discussion to resolve such problems. If such problems
are not resolved within such period, Innovex and the Client shall each
thereafter have the right to terminate the Agreement by notice in
writing. In the event of such termination by the Client, the Client
shall pay to Innovex a termination fee calculated by Innovex to
include all profit, costs and expenses incurred by Innovex to the date
of termination and including, without limitation, the costs of
terminating any commitments entered into under the Agreement, such
termination fee not to exceed the Price.
8.2 The term of the Agreement shall, subject to Sections 8.3 and 8.4
below, be approximately twenty-four (24) months, beginning on or
about June 6, 1997, and ending June 1, 1999, unless otherwise agreed
by the parties in writing at least sixty (60) days prior to the end
of the original term of this Agreement.
8.3 The Agreement may be terminated by either party upon written notice
if any of the following events occur:
8.3.1 the authorization and approval to provide the Services in the
United States is withdrawn by the U.S. Food and Drug
Administration;
8.3.2 animal, human or toxicological test results, in the
reasonable opinion of either party, support termination of
the Agreement;
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8.3.3 the emergence of any adverse drug experience or side effect
with any Client Material used in the performance of the
Services is of such magnitude or incidence in the reasonable
opinion of either party to support termination of the
Agreement.
8.4 Termination of the Agreement for whatever reason shall not affect the
accrued rights of either Innovex or the Client arising under or out
of the Agreement and all provisions which are express to or by
implication survive the Agreement shall remain in full force and
effect.
9. IMPROPER ACTIVITIES
If either party shall be of the reasonable opinion that the Clinical
Research Personnel are being used for purposes or are involved in any
activity which is illegal or which harms the other party's standing or
professional reputation, then that party shall be entitled to give written
notice to the other specifying the purpose or activity giving rise to the
complaint and requiring that the other cease such activity within fourteen
(14) days, in default of which the Agreement may be terminated immediately
by the party giving notice.
10. ADVERSE DRUG EXPERIENCE
If Innovex and/or the Clinical Research Personnel become aware of any
adverse drug experience reports involving use of any Client product they
shall immediately inform the Client in accordance with Innovex or the
Client's standard operating procedures, as appropriate, and shall comply
with any legal or regulatory reporting requirements with respect to such
matters. When Client communicates information concerning adverse drug
experience reports to its own employees, investigators or in compliance
with any legal or regulatory requirements, such information shall be
communicated to Innovex and the Clinical Research Personnel in a manner
consistent with Client standard operating procedures.
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11. FORCE MAJEURE
The performance by either party of any covenant or obligation on its part
to be performed hereunder shall be excused by floods, strikes or other
labor disturbances, riots, fires, accidents, wars, embargoes, delays of
carriers, inability to obtain materials, failure of power or natural
sources of supply, acts, injunctions or restraints of government, or any
act of God or other force majeure preventing such performance whether
similar or dissimilar to the foregoing that is beyond the reasonable
control of the party bound by such covenant or obligation, provided,
however that the party affected shall use all reasonable endeavors to
eliminate or cure or overcome any of such causes and to resume performance
of its covenants with all possible speed.
12. RECORD KEEPING AND ACCESS
12.1 Client authorized representatives, and regulatory authorities to the
extent required by law, may, during regular business hours, arrange
in advance with Innovex to examine and inspect Innovex facilities
required for performance of the Services, and inspect and copy all
data and work products relating to the Services.
12.2 Innovex representatives from Innovex Quality and Innovation group
may, during regular business hours, arrange in advance with Client to
examine and audit the performance of Services by Innovex employees
and Clinical Research Personnel.
12.3 Within thirty (30) days of the expiration or termination of the
Agreement, Innovex shall return to the Client or as the Client
directs (at the Client's expense) all Client Materials other than
those which Innovex has a legal or regulatory obligation to retain.
13. TRANSFER OF OBLIGATIONS
All obligations of Client which have been transferred to Innovex, pursuant
to 21 CFR 312.52, are identified by attachment to this Agreement or in the
Protocol, and shall be included in Form FDA 1571. Innovex agrees to
diligently carry out all transferred obligations.
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14. NO DEBARRED PERSONS
Innovex represents, warrants and covenants that it is not using, and will
not use, in any capacity, in connection with any of the Services performed
hereunder, the services of any person debarred under subsections 306(A) or
306(B) of the Generic Drug Enforcement Act of 1992. Innovex agrees to
immediately disclose in writing to Client if any employee is debarred or if
any action, suit, claim, investigation or legal or administrative
proceeding is pending or, to the best of Innovex knowledge, threatened,
relating to the debarment of any person performing services hereunder.
15. RELATIONSHIP WITH INVESTIGATORS
If this Agreement obligates Innovex to contract with investigators or
investigative sites (collectively, "Investigators") or facilitate Client's
contracting with Investigators (or other independent contractors such as
central laboratories), then any such contract shall be on a form mutually
acceptable to Innovex and Client, which contract may include, without
limitation, provisions addressing the specific duties and standards of the
parties, confidentiality, indemnification, ownership of property and patent
rights, and insurance coverage. Client shall be responsible to promptly
review, comment on and/or approve such form contracts. Client acknowledges
that (a) an Investigator engaged for a particular Project shall be solely
responsible for his or her (or its) own independent medical judgment and
his or her (or its) acts and omissions in performing the clinical
investigation and related services, and (b) Innovex shall have no
responsibility whatsoever for the acts and omissions of any such
Investigator; rather, Innovex's sole responsibility with respect to any
such Investigator shall be those responsibilities specifically set forth in
this Agreement.
16. RELATIONSHIP WITH AFFILIATES
16.1 Client agrees that Innovex may utilize the Services of its corporate
affiliates to fulfill Innovex's obligations under this Agreement. Any
affiliate so utilized shall be (i) subject to all of the terms and
conditions applicable to Innovex under this Agreement, including, but
not limited
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to, provisions establishing the standards for performance, and (ii)
entitled to all rights and protections afforded Innovex under this
Agreement, including, but not limited to, the indemnity and
limitation of liability protections set forth herein.
16.2 When used in this Agreement, the term "affiliate" shall mean all
entities controlling, controlled by or under common control with
Client or Innovex, as the case may be. When used herein, the term
"control" shall mean the ability to vote fifty percent (50%) or more
of the voting securities of any entity.
17. CHOICE OF LAW, JURISDICTION, ENFORCEABILITY
17.1 This Agreement shall be governed by and construed in accordance with
the laws of the State of Kansas applicable to agreements made and to
be performed entirely within such State, including all matters of
enforcement, validity and performance.
17.2 No failure or delay on the part of Innovex or the Client to exercise
or enforce any rights conferred on it by the Agreement shall be
construed or operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege or further exercise
thereof operate so as to bar the exercise or enforcement thereof at
any time.
17.3 The illegality or invalidity of any provision (or any part thereof)
of the Agreement or these Standard Terms, shall not affect the
legality, validity or enforceability of the remainder of its
provisions or the other parts of such provisions as the case may be
which provisions shall remain in full force and effect.
18. MISCELLANEOUS
18.1 Neither Innovex nor the Client shall assign the Agreement without the
prior written consent of the other.
18.2 The text of any press release or other communication to be published
by or in the media concerning the content of the Agreement or the
involvement of Innovex and the Client shall require the written
approval
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of Innovex and the Client. Any such communication on the subject
matter of the Agreement shall require the prior written approval of
the Client.
18.3 The Client may use, refer to and disseminate reprints of scientific,
medical and other published articles which disclose the name of
Innovex consistent with U.S. copyright laws, provided such use does
not constitute an endorsement of any commercial product or service by
Innovex. Except as otherwise required by law, Innovex shall not
disclose publicly or utilize in any advertising or promotional
materials the existence of the Agreement or Innovex's association
with the Client or the use of the Client's name or the name of any of
the Client's divisions, products or investigations without the prior
written permission of the Client.
18.4 The Agreement and the Standard Terms for Clinical Services constitute
the entire understanding of the Client and Innovex. No changes,
amendments or alterations shall be effective unless in writing and
signed by the Parties. Any notice required to be given under this
Agreement shall be in writing and delivered by facsimile with a copy
thereof delivered by certified mail, postage prepaid, addressed to
the parties as follows (or as otherwise notified in writing in
accordance with this section):
If to the Client:
LXR Biotechnology, Inc.
Attn: Ms. Jerilyn G. Domagala
Director of Regulatory Affairs
1401 Marina Way South
Richmond, CA 94804
Phone: (510) 412-9100
Fax: (510) 412-0886
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If to Innovex:
Innovex Inc.
Attn: David Stack
President and General Manager
10 Waterview Boulevard
Parsippany, NJ 07054
Phone: 201-257-4500
Fax: 201-257-4561
With a copy in the case of dispute or legal matters to:
L. Stephen Garlow
General Counsel
11250 Corporate Ave.
Lenexa, KS 66219
Phone: 913-752-8620
Fax: 913-752-8699
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SCHEDULE A - PRICE
1. CLINICAL POSITION TITLES AND DAILY RATE. Attached, Schedule A-1.
2. PROJECT COSTS. Attached, Schedule A-2.
3. FEES. Within ten (10) days of the execution of this Agreement Client shall
pay Innovex an initial deposit which is the equivalent of fees for two (2)
months, plus estimated travel expenses. Thereafter, Innovex agrees to invoice
the Client at the end of each month in arrears for all Services provided to the
Client by Innovex hereunder. The initial deposit will be offset against charges
to Client for the final two months of the Agreement. Upon expiration or
termination of the Agreement the parties will reconcile total payments received
against total days worked. Any credit or refund due will be paid by Innovex
within 30 days. Any charge due by Client will be invoiced by Innovex for payment
within 30 days.
Invoices shall reflect the name(s) of Personnel for which the client is
being billed, the number of days worked during the invoice period, the total due
for each individual Personnel for the invoice period and a grand total of all
fees for the invoice period. Upon request, supporting documentation will be made
available to the Client.
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SCHEDULE A-1
CLINICAL POSITION TITLES AND DAILY RATES
[**]
Note: Daily rate is shown in U.S. Dollars. Position titles are shown in
descending order their daily rates.
** Confidential Treatment Requested
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SCHEDULE A-2
PROJECT COSTS: CARDIAC TRANSPLANTATION
[**]
<PAGE> 21
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SCHEDULE A-2
PROJECT COSTS: CARDIAC TRANSPLANTATION
[**]
** Confidential Treatment Requested
<PAGE> 22
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SCHEDULE A-2
PROJECT COSTS: CARDIAC TRANSPLANTATION
[**]
TOTAL PROJECT COSTS 565,274
** Confidential Treatment Requested
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SCHEDULE B - SERVICES
A copy of the description of specific services to be performed is attached,
dated April 28, 1997.
<PAGE> 24
Ms. Jerilyn G. Domagala April 28, 1997
Director of Regulatory Affairs
LXR Biotechnology, Inc.
1401 Marina Way South
Richmond, CA 94804
Dear Jerilyn,
Per Your recent discussions with Dr. Michael Kurman in reference to the LXR
Biotechnology Heart Transplant study, LXR Biotechnology's intends to enter into
agreement with Innovex Inc. for the services listed below.
Innovex will provide the following Clinical Research Services: project
management, clinical monitoring, site management, medical monitoring, regulatory
affairs, data management, statistical analyses, report writing and quality
assurance.
STUDY OUTLINE (DRAFT)
---------------------
Study: [**], Innovex # 5378
Indication: Heart Transplant
Number of Sites: [**]
Countries: U.S./Europe
Start Date: [**]
Enrolled Patients: 120
Accrual Rate: [**]
Accrual Period: [**]
Treatment and Follow-up: [**]
% Population with
potential SAEs: [**]
CRF pages/patient: [**]
Total CRF Volume: [**]
Contract End Date: June 1, 1999
**Confidential Treatment Requested
<PAGE> 25
THE BRIEF
LXR Biotechnology has asked Innovex to submit a Proposal for Services to provide
project management, clinical monitoring, site management, medical monitoring,
regulatory affairs, data management, statistical analyses, report writing and
quality assurance for the LXR Heart Transplant Study, [**]. The total cost
associated with this project is [**]. A detailed cost estimate is attached
following the description of services.
SERVICES
PROJECT MANAGEMENT will provide total project planning for the execution of
study related activities and coordination of the project team to achieve project
goals and objectives. Specifically, PROJECT MANAGEMENT will:
- participate in the project planning activities including writing and review
of the protocol, CRF design and review, as well as clinical laboratory and
drug shipments
- set-up and maintain project timelines through the use of interactive,
relational Gantt charts
- implement the utilization of InnTrax (the Innovex project tracking system)
- set-up and maintain secure project central files
- monitor and report on budgetary parameters related to scope of work
deliverables and changes
- administer investigator grant payments
- facilitate and document project team meetings
- act as the liaison on all project information between LXR Biotechnology and
Innovex functional departments
- prepare and distribute monthly activity/progress reports
INVESTIGATOR ADMINISTRATION includes all tasks associated with investigator
contacts, recruitment, selection and training and the preparation of study
materials and documents. Specifically, this entails:
- review and printing of CRFs
- preparation of site materials including conventions, annotations, site
manual and study aids
- making initial contact with sites and send the pre-study documents
(including protocol, consent form and letters of confidentiality) necessary
to determine the Investigator's interest and ability to participate
- performing pre-study site visits to inspect each site prior to study
initiation
- distributing and collecting study documents in preparation for initiation
- conducting investigator contract and budget negotiations
- collecting and reviewing site regulatory documents and IRB approvals
**Confidential Treatment Requested
<PAGE> 26
INVESTIGATOR ADMINISTRATION cont'd
- preparing investigator site binders
- performing initiation visits to instruct the investigator and study
coordinator in the technical aspects of the study
- providing project specific and therapeutic area training for CRAs and other
team members
CLINICAL MONITORING will monitor the investigative sites and the data during
the course of the study and upon close out according to LXR Biotechnology and
Innovex SOP's and local, state and federal regulations and GCPS. This
monitoring will include:
- - site visits during the course of the study where activities include:
source document verification
collection of completed CRF's
listings of corrected discrepancies
patient accrual status
protocol compliance or deviations
drug accountability
regulatory document status
patient safety issues
- site management utilizing InnTrax and writing site summaries
- in-house CRF logging, reviewing and query resolution
- closeout visits to remove all appropriate study documentation, CRF's drug
supplies, etc. from each site with review of the investigator binder for
completeness and regulatory compliance
MEDICAL MONITORING is responsible for the medical management of the study,
review of all reported adverse events and reporting of all serious adverse
events to LXR Biotechnology according to federal regulations and assist with the
preparation of clinical reports. Specifically, MEDICAL MONITORING will:
- answer questions and address issues from LXR Biotechnology, the clinical
sites and the Innovex project team regarding patient eligibility,
indication-specific information and study drug administration
- review appropriate CRF pages and data listings for eligibility and safety
- track adverse events according to SOP's agreed upon
- report serious adverse events according to regulatory guidelines
<PAGE> 27
DATA MANAGEMENT will produce a clean, authorized and validated database for the
study. Specifically, DATA MANAGEMENT will:
- design a database plan including data entry conventions, annotated CRF'S,
QC guidelines, standard edit checks and validation plan
- program a database, edit checks and data entry screens according to LXR
Biotechnology's specifications
- provide database verification, documentation and administration
- perform double-key data entry and reconciliation of the dual entries
- utilize standard computerized edit checks including invalid or out of range
values, logic checks and missing data
- generate, review, investigate and resolve data discrepancies
- utilize InnTrax to track CRF's and queries
- maintain the integrity of the database
STATISTICS will support development of a statistically sound protocol and CRF
and plan and execute the statistical analysis of the data generated from the
study. Specifically, STATISTICS will:
- review the protocol and CRFs for clarity and consistency of study concepts
and procedures
- perform a sample size assessment and create a statistical methods section
in the protocol
- prepare specifications and template versions of all tables, listings and
graphs to be included in the final statistical report
- generate all tables, listings and graphs according to specifications
- perform statistical analysis of protocol-specified efficacy and/or safety
parameters
- generate a statistical report summarizing all rules and definitions,
describing results of statistical analyses and including a more technical
statistical appendix
- archive all relevant data, programs and documents with copies delivered to
client
MEDICAL WRITING will prepare and deliver a draft and final clinical/statistical
integrated report in an agreed format. Specifically, MEDICAL WRITING will:
- prepare a draft report explaining the study plan, variables measured,
method of analysis and results of the study
- include summary tables and listings produced by the analyses
- produce a final report for the study, incorporating comments from the
project team and LXR Biotechnology
- send a written and electronically-formatted copy of the final integrated
report to LXR Biotechnology
<PAGE> 28
QUALITY ASSURANCE will provide documentation to LXR Biotechnology and Innovex
management that the study is being carried out in accordance with the protocol,
SOPs and local, state and federal regulations and GCPs.
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