<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997
-------------
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the transition period from ______ to ______
Commission File Number 0-21478
THERAPEUTIC DISCOVERY CORPORATION
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3173191
- ------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1454 Page Mill Road, Suite 220, P.O. Box 10051, Palo Alto, CA 94303-0806
- ------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 496-8200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of each of the registrant's classes of common stock
as of August 12, 1997
Class A Common Stock, $.01 par value - 7,734,424 shares
Class B Common Stock, $.01 par value - 100 shares
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
Statement of Operations (unaudited)
(in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Period From
Three Months Ended Six Months Ended Inception
June 30, June 30, (November 1992)
1997 1996 1997 1996 to June 30, 1997
--------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Net interest and investment income $ 838 $ 1,993 $ 1,505 $ 4,665 $ 35,841
EXPENSES:
Research and development
paid to ALZA Corporation 26,375 28,312 48,616 49,886 253,995
General and administrative 513 705 1,168 1,254 10,624
---------- ----------- --------- --------- ----------
Total expenses 26,888 29,017 49,784 51,140 264,619
---------- ----------- --------- --------- ----------
Loss before tax (26,050) (27,024) (48,279) (46,475) $ (228,778)
Income tax - - - - 301
---------- ----------- --------- --------- ----------
Net loss $ (26,050) $ (27,024) $ (48,279) $ (46,475) $ (228,477)
---------- ----------- --------- --------- ----------
---------- ----------- --------- --------- ----------
Net loss per common share $ (3.37) $ (3.49) $ (6.24) $ (6.01)
---------- ----------- --------- ---------
---------- ----------- --------- ---------
Weighted average common shares 7,734,524 7,734,524 7,734,524 7,734,524
---------- ----------- --------- ---------
---------- ----------- --------- ---------
</TABLE>
See accompanying notes.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
Balance Sheet (unaudited)
(in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,913 $ 10,597
Short-term investments 36,643 74,707
Interest receivable 448 809
Prepaid expenses and other
current assets 395 1,033
---------- ---------
Total current assets 39,399 87,146
Long-term assets:
Employee loans, long-term 300 300
Prepaid expenses and other
long-term assets - -
Organization costs, (net of
accumulated amortization) 776 1,014
---------- ---------
Total assets $ 40,475 $ 88,460
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to ALZA Corporation $ 18,445 $ 19,129
Accounts payable and other current liabilities 22 72
---------- ---------
Total current liabilities 18,467 19,201
Long-term liabilities:
Deferred compensation 229 115
Total liabilities
Stockholders' equity:
Class A Common Stock, $.01 par
value, 12,000,000
shares authorized, 7,734,424
issued and outstanding 77 77
Class B Common Stock, $.01 par
value, 100 shares authorized,
issued and outstanding - -
Additional paid-in capital 251,650 251,650
Net unrealized losses on
available-for-sale securities (493) (1,166)
Deficit accumulated during the
development stage (228,477) (180,198)
Deferred compensation (978) (1,219)
---------- ---------
Total stockholders' equity 21,779 69,144
---------- ---------
Total liabilities and stockholders' equity $ 40,475 $ 88,460
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
Condensed Consolidated Statement of Cash Flows (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Period From
Six Months Ended Inception
June 30, (November 1992) to
1997 1996 June 30, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (48,279) $ (46,475) $ (228,477)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization of organization costs 238 358 2,804
Amortization of deferred compensation 241 82 969
(Increase) decrease in assets:
Interest receivable 361 (81) (448)
Other receivable - - (252)
Organization costs - - (3,581)
Prepaid expenses and other assets 638 52 (143)
Increase (decrease) in liabilities:
Payable to ALZA Corporation (684) 3,924 18,445
Accounts payable and other current liabilities (50) (52) 22
Long-term liabilities 114 12 229
---------- ---------- -----------
Total adjustments 858 4,295 18,045
---------- ---------- -----------
Net cash used in operating
activities (47,421) (42,180) (210,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in available-for-sale
securities - (25,667) (1,363,067)
Sale of available-for-sale securities 35,737 58,503 622,411
Maturities of available-for-sale
securities 3,000 8,070 703,523
Employee loans, long-term - - (300)
---------- ---------- -----------
Net cash provided by
(used in) investing activities 38,737 40,906 (37,433)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class B Common Stock - - 2
Issuance of Class A Common Stock - - 249,998
Issuance costs - - (222)
---------- ---------- -----------
Net cash provided by financing
activities - - 249,778
---------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents (8,684) (1,274) 1,913
Cash and cash equivalents at beginning of period 10,597 13,314 -
---------- ---------- -----------
Cash and cash equivalents at end of period $ 1,913 $ 12,040 $ 1,913
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
Notes to Financial Statements (unaudited)
1. BASIS OF PRESENTATION
Therapeutic Discovery Corporation ("TDC") was incorporated in Delaware on
November 12, 1992 and commenced operations on June 11, 1993. TDC was formed to
select and develop new human pharmaceutical products (the "TDC Products")
combining the proprietary drug delivery systems of ALZA Corporation ("ALZA")
with various drug compounds. TDC has been engaged in these and related
activities since its formation. TDC's principal activities consist of research
and development activities under its agreements with ALZA.
Under generally accepted accounting principles, TDC is considered a
development stage company and, accordingly, must present financial information
for the three and six months ended June 30, 1997 and 1996 and for the period
from inception (November 1992) to June 30, 1997.
The information at June 30, 1997, for the three and six months ended June
30, 1997 and 1996, and the period from inception (November 1992) to June 30,
1997 is unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) which the management of TDC believes necessary for
fair presentation of the results for such periods. Interim results are not
necessarily indicative of results for a full year. The financial statements
should be read in conjunction with the audited financial statements of TDC
for the year ended December 31, 1996 included in TDC's 1996 Annual Report on
Form 10-K.
2. SHORT-TERM INVESTMENTS
TDC has classified its entire investment portfolio as available-for-sale.
TDC's investment portfolio is available for current operations and,
therefore, has been classified as a current asset. Investments in the
available-for-sale category are carried at fair market value with unrealized
losses recorded as a separate component of stockholders' equity. At June 30,
1997, net unrealized losses on available-for-sale securities were
approximately $0.5 million. The cost of securities when sold is based upon
specific identification.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
The following is a summary of available-for-sale securities at June 30, 1997:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------
Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $ 23,159 $ 0 $ (300) $ 22,859
Collateralized mortgage
obligations and asset
backed securities 3,997 0 (125) 3,872
Corporate securities 10,634 0 ( 68) 10,566
--------- ---- ------- ---------
$ 37,790 $ 0 $ (493) $ 37,297
--------- ---- ------- ---------
--------- ---- ------- ---------
</TABLE>
The amortized cost and estimated fair value of debt and marketable
securities at June 30, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Fair
(in thousands) Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 17,177 $ 17,085
Due after one year through
four years 13,676 13,438
Due after four years through
eight years 6,937 6,774
--------- ---------
$ 37,790 $ 37,297
--------- ---------
--------- ---------
</TABLE>
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
3. ARRANGEMENTS WITH ALZA CORPORATION
TDC was formed by ALZA for the purpose of selecting and developing new
human pharmaceutical products combining ALZA's proprietary drug delivery
technologies with various drug compounds, and commercializing such products,
most likely through licensing to ALZA. In connection with the distribution
to ALZA stockholders of a special dividend of units (each unit includes one
share of TDC Class A Common Stock and one warrant to purchase one-eighth of
one share of ALZA Common Stock at an exercise price of $65 per share), ALZA
made a $250 million cash contribution to TDC's capital. The cash is being
used primarily to fund activities under a development agreement (the
"Development Contract") between ALZA and TDC pursuant to which ALZA conducts
research and development activities on behalf of TDC. In accordance with
TDC's Restated Certificate of Incorporation, on June 11, 1996, the Units
separated into their component securities--TDC Class A Common Stock and ALZA
warrants. As a result of the separation, both securities are listed and
trade independently on the Nasdaq Stock Market. The trading symbol for the
TDC Class A Common Stock is "TDCA".
PRODUCT LICENSE OPTION. TDC has granted to ALZA an option to acquire,
on a product-by-product and country-by-country basis, a perpetual, exclusive,
royalty-bearing license to make, have made, use and sell any or all TDC
Products (the "License Option"). If ALZA exercises its License Option for
any TDC Product (a "Licensed TDC Product"), ALZA will pay the following
royalties ("Product Royalties") to TDC:
(a) if the Licensed TDC Product is sold by ALZA, Product Royalties of
up to a maximum of 5% of ALZA's net sales of the Licensed TDC Product
determined as follows: (i) 1% of net sales, other than sales to distributors
or sublicensees who agree to pay royalties or make percentage of sales
payments to ALZA or any affiliate of ALZA and in respect of which the Product
Royalties are determined as provided in clause (b) below, plus (ii) an
additional 0.1% of such net sales for each full $1 million of the Development
Costs (as defined in the Development Contract) of the Licensed TDC Product
paid by TDC; and
(b) if the Licensed TDC Product is sold by a third party, Product
Royalties of up to a maximum of 50% of third party payments to ALZA with
respect to such Licensed TDC Product determined as follows: (i) 10% of such
third party payments, plus (ii) an additional 1% of such third party payments
for each full $1 million of the Development Costs of the Licensed TDC Product
paid by TDC.
In each case, net sales and other third party payments will be reduced by the
dollar amount of any license or similar payments due to third parties from
ALZA with respect to the Licensed TDC Product. In addition, ALZA has the
option to buy out TDC's right to receive Product Royalties with respect to
any Licensed TDC Product on either a country-by-country or worldwide basis.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
ALZA may exercise the License Option with respect to any TDC Product, on
a country-by-country basis, at any time until 90 days after the earliest of
the following: (a) approval to market the TDC Product in such country by the
appropriate regulatory agency; (b) approval to market the TDC Product in the
United States by the FDA; or (c) the expiration of the Purchase Option (as
defined below).
PURCHASE OPTION. ALZA has certain rights pursuant to the Restated
Certificate of Incorporation of TDC to purchase all (but not less than all)
of the TDC Class A Common Stock (the "Purchase Option"). Except as otherwise
set forth below, the Purchase Option may be exercised by written notice to
TDC at any time during the period ending on December 31, 1999; provided that
such date will be extended for successive one year periods if, as of any June
30 beginning with June 30, 1999, TDC has not used at least 90% of all funds
available for product development as set forth in the Development Contract.
Notwithstanding the foregoing, the Purchase Option will terminate on the 60th
day after the later of the filing or the due date of a Form 10-K or Form 10-Q
of TDC containing a balance sheet showing less than $5 million of cash, cash
equivalents and short-term and long-term investments. Based on TDC's current
rate of expenditures on TDC Products, TDC's balance sheet will reach this
threshold during the third quarter of 1997.
If the Purchase Option is exercised, the exercise price (the "Purchase
Option Exercise Price") will be the greatest of the following:
(a) $100 million;
(b) the greater (i) of 25 times the worldwide royalties and
sublicensing fees paid by ALZA to TDC during four specified
calendar quarters or (ii) 100 times such royalties and
sublicensing fees during a specified calendar quarter, in
each case, less any amounts previously paid by ALZA to
exercise a buy-out option with respect to any product;
(c) the fair market value of one million shares of ALZA Common Stock; or
(d) $325 million less all amounts spent by TDC under the Development
Contract.
Based on information available at June 30, 1997, the Purchase Option Exercise
Price is expected to be $100 million.
At the time of exercise of the Purchase Option ALZA may decide, in its
discretion, to pay the Purchase Option Exercise Price in cash, in ALZA Common
Stock, or in any combination of cash and ALZA Common Stock.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
ALZA has not made a decision as to whether it will exercise the Purchase
Option. ALZA is under no obligation to exercise the Purchase Option and will
do so only if ALZA determines that it is in the best interests of ALZA and
its stockholders at the time the decision is made.
For a more detailed discussion of the License Option, the Purchase Option
and the arrangements between ALZA and TDC, see TDC's 1996 Annual Report on
Form 10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS:- Some of the statements made
in this quarterly report on Form 10-Q are forward-looking in nature,
including but not limited to statements that are not historical facts and
statements including forms of the words "intend", "believe", "will", "may",
"could", "expect", "anticipate", "possible" and similar terms. The
occurrence of the events described, and the achievement of the intended
results, are subject to the future occurrence of many events some or all of
which are unpredictable or outside TDC's control (including without
limitation any possible future actions by ALZA) and various risk factors,
many of which are described in TDC's 1996 Annual Report on Form 10-K and
include, without limitation, risks associated with technology and product
development, risks relating to clinical development, changes in the health
care marketplace, regulatory risks, risks related to patent and intellectual
property matters, market acceptance of products (including third-party
reimbursement) and competition and the risk of a lack of funds to complete
development of products.
LIQUIDITY AND CAPITAL RESOURCES
TDC was formed in November 1992 by ALZA and was fully capitalized and
commenced operations in June 1993 with approximately $250 million in cash
contributed by ALZA. At June 30, 1997, TDC had cash and cash equivalents,
and short-term investments of approximately $38.6 million, as compared with
approximately $62.2 million at March 31,1997 and $85.3 million at December
31, 1996.
TDC's cash expenditures for operating activities were approximately $47.4
million for the six months ended June 30, 1997, as compared with $42.3
million for the six months ended June 30, 1996. Cash expenditures for
operating activities were approximately $210.4 million for the period from
inception (November 1992) to June 30, 1997 and differ from TDC's net losses
of approximately $228.5 million for the same period due primarily to the
amount payable to ALZA for research and development and amortization of
organization expenses. TDC's remaining cash, plus interest earned thereon,
less administrative expenses (including reasonable reserves for TDC's
operations) will be used primarily to fund the development of TDC Products
under the Development Contract.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
Funds not immediately required for development activities and administrative
expenses have been invested in low risk securities. TDC's investment
portfolio includes investments in collateralized mortgage securities, U.S.
Government securities, corporate notes, and asset backed notes. TDC's funds
continue to be utilized under the Development Contract, resulting in
substantially lower cash balances available for investment than were
available in the past.
At June 30, 1997, the cost of short-term investments exceeded their fair
value by approximately $0.5 million.
All of TDC funds available for product development will be exhausted
during the third quarter of 1997, and product development funding by TDC will
then cease. Once TDC has expended all of its funds available for product
development, ALZA will be required to determine, in its sole discretion,
whether or not to exercise its Purchase Option with respect to all of the
outstanding shares of TDC Class A Common Stock. The Purchase Option will
expire, if not exercised, on the 60th day after TDC files a Form 10-K or Form
10-Q with the Securities and Exchange Commission containing a balance sheet
showing less than an aggregate of $5 million in cash and cash equivalents,
short-term and long-term investments. The expiration date for the Purchase
Option will occur no later than January 13, 1998. Under the formula set
forth in TDC's Restated Certificate of Incorporation, the Purchase Option
exercise price is expected to be $100 million. The purchase price may be
paid in cash, in ALZA common stock, or in any combination of the two, at the
option of ALZA. If ALZA were to decide not to exercise the Purchase Option,
ALZA would have the right, for an additional 90 days, to exercise its License
Option with respect to any or all TDC Products which have not yet been
licensed, on a product-by-product and country-by-country basis. In the event
that ALZA does not exercise the Purchase Option or the License Option for all
TDC Products, TDC will not have funds to continue or complete development of
any remaining products.
ALZA has agreed to fund certain TDC product development activities that
are already underway and that will not be completed before TDC's funds are
exhausted. Such funding by ALZA would begin, on a product-by-product basis,
when TDC no longer has funds available to pay for such activities, and would
continue until the exercise or the expiration of the Purchase Option and
ALZA's license option for each TDC product, on a product-by-product and
country-by-country basis. However, this undertaking is subject to ALZA's
determination of the continued technical and commercial feasibility of the
product and the compatibility of the product with ALZA's product portfolio
and business objectives.
ALZA has not yet determined whether it will exercise its Purchase Option
or its License Option for any TDC Product (other than those already
exercised) and will do so only if ALZA determines that it is in the best
interests of ALZA and its stockholders.
The Board of Directors of TDC (the "Board") established a contingency
plan for the continued operations of TDC in the event that ALZA chooses not
to exercise the Purchase Option. Possible actions under the contingency
plan, which could be implemented
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
individually or in combination, include the sale or license of TDC Products
for which ALZA has not exercised its License Option, either worldwide or for
countries for which ALZA has not exercised its option; the sale of TDC's
rights to future payments with respect to TDC Products licensed by ALZA, the
sale of TDC's rights to future payments from ALZA with respect to all
technology developed or otherwise obtained pursuant to the Development
Contract ("Developed Technology"); and exploring alternative funding sources
to continue or complete development of TDC Products not licensed to ALZA.
The Board has reviewed the contingency plan on a regular basis. In the
event that ALZA does not exercise the Purchase Option, there can be no
assurance that the contingency plan will result in returns to TDC
stockholders.
The Board has the right, under its agreements with ALZA, to take
necessary steps to cease development funding and maintain an adequate reserve
to ensure TDC's ability to meet its operating cash needs. The Board has
established a reserve that should be adequate to provide for continued
operations through at least July 1998.
RESULTS OF OPERATIONS
Revenues, consisting of net interest and investment income earned on
invested funds, were approximately $0.8 million and $1.5 million for the
three and six months ended June 30, 1997, as compared with approximately $2.0
million and $4.7 million for the three and six months ended June 30, 1996.
Revenues totaled approximately $35.8 million for the period from inception
(November 1992) to June 30, 1997. As TDC's funds have been utilized under
the Development Contract, lower cash balances have been available for
investment, and therefore net interest income continues to decrease. TDC
anticipates that the only income to TDC will be decreasing interest income
and sublicensing revenues, if any, resulting from ALZA's exercise of its
License Option for any TDC Product.
TDC spent approximately $26.4 million and $48.6 million on research and
development activities in the three and six months ended June 30, 1997, as
compared with approximately $28.3 million and $49.9 million in the three and
six months ended June 30, 1996. Research and development expenses have
totaled approximately $254 million for the period from inception (November
1992) to June 30, 1997. TDC's research and development expenses are expected
to continue at approximately current levels until TDC's cash available for
product development is utilized. TDC's remaining cash available for research
and development will be exhausted during the third quarter of 1997.
TDC incurred general and administrative expenses of approximately $0.5
million and $1.2 million for the three and six months ended June 30, 1997, as
compared with $0.7 million and $1.3 million for the three and six months
ended June 30, 1996. General and administrative expenses totaled
approximately $10.6 million for the period from inception (November 1992) to
June 30, 1997. Expenses incurred by TDC under its administrative services
agreement with ALZA were approximately $63,000 and $111,000 for the three
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
and six months ended June 30, 1997, as compared with approximately $21,000
and $70,000 for the three and six months ended June 30, 1996. The expenses
incurred under such agreement for the period from inception (November 1992)
to June 30, 1997 were approximately $725,000.
TDC reported a net loss of approximately $26.0 million or $3.37 per common
share and $48.3 million or $6.24 per common share for the three and six
months ended June 30, 1997, as compared with a net loss of approximately
$27.0 million or $3.49 per common share and $46.5 million or $6.01 per common
share for the three and six months ended June 30, 1996. TDC had a net loss
of approximately $228.5 million for the period from inception (November 1992)
to June 30, 1997. It is anticipated that TDC will continue to record net
losses; however, product development funded by TDC will cease when cash
available for research and development is exhausted by the end of the third
quarter 1997, and TDC losses therefore will be substantially less than in
prior periods.
For the quarter ended June 30, 1997 and the period from inception
(November 1992) to June 30, 1997, the provision for income taxes was not
material.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
PART II OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of TDC was held on May 8, 1997.
(b) At the annual meeting, stockholders approved the following
proposal:
Election of Director:
Votes Votes
For Against
--------- -------
Gary L. Neil, Ph.D. 7,210,509 11,955
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.9 Letter Agreement Amending Form of License Agreement
and Regarding Reserves between Therapeutic Discovery
Corporation and ALZA Corporation.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
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<PAGE>
THERAPEUTIC DISCOVERY CORPORATION
(a development stage company)
June 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Therapeutic Discovery Corporation
Date: August 13, 1997 By: /s/ Gary L. Neil
------------------------------------
Gary L. Neil
President and
Chief Executive Officer
Date: August 13, 1997 By: /s/ David R. Hoffmann
------------------------------------
David R. Hoffmann
Vice President, Finance
(Principal Financial and
Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit
- -------
10.9 Letter Agreement Amending Form of License Agreement and
Regarding Reserves between Therapeutic Discovery Corporation
and ALZA Corporation.
27 Financial Data Schedule
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<PAGE>
July 30, 1997
Gary L. Neil, Ph.D.
Therapeutic Discovery Corporation
1454 Page Mill Road, Ste. 220
P.O. Box 10051
Palo Alto, CA 94303-0806
Dear Dr. Neil:
This letter serves to set forth the agreement reached by ALZA
Corporation ("ALZA") and Therapeutic Discovery Corporation ("TDC") regarding
the royalties payable to TDC in the event ALZA exercises its license option
for any TDC product, and the amount of TDC's operating reserve. I believe
that ALZA and TDC have agreed as follows:
1. The parties agree that the last sentence in Section 3.1 of the form of
License Agreement which is attached as Exhibit A to the License Option
Agreement by and between ALZA and TDC dated as of March 10, 1993 is hereby
deleted and the following replaced therefor in any License Agreement entered
into by ALZA and TDC after June 30, 1997 for any country or countries
pursuant to the License Option Agreement:
"In determining payments under this Section 3.1, Development Costs shall be
determined as of the last day of each calendar quarter (beginning with the
calendar quarter preceding the effective date of the relevant License
Agreement) in order to determine the rates payable for the next calendar
quarter for all countries included in the Territory as of the first day of
such next calendar quarter and for any country added to the Territory during
such next calendar quarter."
In addition, in the event ALZA does not exercise its license option under the
License Option Agreement with respect to a particular product prior to the
expiration of the license option for such product, ALZA agrees, at no
additional charge to TDC, to provide TDC with ongoing technical support in
connection with TDC's efforts to make arrangements with third parties for the
commercialization of such product.
2. TDC agrees to limit to $500,000 the amount that TDC will set aside as
its operating reserve out of "Available Funds" (as such term is defined in
the Development Agreement by and between ALZA and TDC dated as of March 10,
1993). ALZA acknowledges that the foregoing does not prevent TDC from
maintaining all or any portion of its funds other than Available Funds as an
operating reserve.
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<PAGE>
Page 2
Gary L. Neil
July 30, 1997
If the foregoing accurately reflects your understanding of the agreement
between the parties, please sign the acknowledgment below on behalf of TDC.
Except as otherwise expressly set forth in this letter, the terms of the
outstanding agreements between ALZA and TDC, as previously amended, remain in
full force and effect.
Very truly yours,
ALZA Corporation
Bruce C. Cozadd
Senior Vice President and
Chief Financial Officer
TDC hereby agrees to the foregoing amendments to the agreements between ALZA and
TDC.
Therapeutic Discovery Corporation
/s/Gary L. Neil
- -----------------------------------------
Name: Gary L. Neil, Ph.D.
Title: President and
Chief Executive Officer
-17-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF FORM 10-Q DATED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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0
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