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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1999
or,
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________________ to_____________________
COMMISSION FILE NUMBER: 0-23556
INHALE THERAPEUTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3134940
- ------------------------------- --------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
150 INDUSTRIAL ROAD
SAN CARLOS, CALIFORNIA 94070
(Address of principal executive offices)
650-631-3100
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required 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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, $0.0001
par value, was 16,983,335 as of July 30, 1999.
Page 1 of 18
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INHALE THERAPEUTIC SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Condensed Financial Statements - unaudited .........................3
Condensed Balance Sheets - June 30, 1999 and December 31, 1998......3
Condensed Statements of Operations for the three and six month
periods ended June 30, 1999 and 1998..............................4
Condensed Statements of Cash Flows for the six month periods
ended June 30, 1999 and 1998..................................... 5
Notes to Condensed Financial Statements.............................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings...................................................16
Item 2. Changes in Securities...............................................16
Item 3. Defaults Upon Senior Securities.....................................16
Item 4. Submission of Matters to a Vote of Security Holders.................16
Item 5. Other Information...................................................16
Item 6. Exhibits and Reports on Form 8-K....................................16
Signatures..........................................................18
</TABLE>
Page 2 of 18
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ITEM 1. INHALE THERAPEUTICS SYSTEMS, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED) *
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,671 $ 24,916
Short-term investments 43,618 57,946
Accounts receivable 13,632 1,013
Other current assets 538 665
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Total current assests 72,459 85,540
Property and equipment, net 54,136 49,863
Deposits and other assets 93 93
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$126,688 $134,496
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LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable and accrued liabilities $ 12,468 $ 8,397
Deferred revenue 3,163 4,359
------------- -----------------
Total current liabilities $ 15,631 $ 12,756
Equipment financing obligation 1 9
Tenant improvement loan 4,916 4,931
Accrued rent 1,058 919
Stockholders' equity:
Common stock 2 2
Capital in excess of par value 173,501 172,847
Deferred compensation (1,075) (931)
Accumulated other comprehensive loss (100) (19)
Accumulated deficit (67,246) (56,018)
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Total stockholders' equity 105,082 115,881
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$126,688 $134,496
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</TABLE>
SEE ACCOMPANYING NOTES
(*) The balance sheet at December 31, 1998 has been derived from the audited
Financial Statements at that date, which are included in the Company's Form
10-K for the year ended December 31, 1998 as filed with the Securities and
Exchange Commission. This balance sheet does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
Page 3 of 18
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INHALE THERAPEUTIC SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Contract research revenue $ 9,877 $ 6,679 $ 17,657 $ 10,544
Operating costs and expenses:
Research and development 14,613 8,645 27,328 15,862
General and administrative 1,933 2,025 3,197 3,950
----------- ------------ ----------- ----------
Total operating costs and expenses 16,546 10,670 30,525 19,812
----------- ------------ ----------- ----------
Loss from operations (6,669) (3,991) (12,868) (9,268)
Interest income, net 663 1,141 1,640 2,269
----------- ------------ ----------- ----------
Net loss $ (6,006) $ (2,850) $(11,228) $ (6,999)
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
Basic and diluted net loss per share $ (0.35) $ (0.18) $ (0.66) $ (0.45)
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
Shares used in computing basic and diluted
net loss per share 16,951 15,638 16,940 15,603
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
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INHALE THERAPEUTIC SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash used in operations ($14,912) ($10,815)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments, net of purchases and maturities 14,248 39,352
Purchases of property and equipment (9,925) (16,158)
------------ ----------
Net cash provided by investing activities 4,323 23,194
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of equipment financing obligations (25) (151)
Issuance of common stock, net of issuance costs 369 1,305
------------ ----------
Net cash provided by financing activities 344 1,154
------------ ----------
Net increase (decrease) in cash and cash equivalents (10,245) 13,533
Cash and cash equivalents at beginning of period 24,916 14,948
------------ ----------
Cash and cash equivalents at end of period $14,671 $28,481
------------ ----------
------------ ----------
</TABLE>
SEE ACCOMPANYING NOTES.
Page 5 of 18
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INHALE THERAPEUTIC SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. Organization and Basis of Presentation
Inhale Therapeutic Systems, Inc. ("Inhale" or the "Company") was
incorporated in the State of California in July 1990 and reincorporated in
the State of Delaware in July 1998. Since inception, Inhale has been engaged
in the development of systems for the pulmonary delivery of macromolecule
drug therapies for systemic and local lung applications.
The accompanying unaudited condensed financial statements of Inhale have
been prepared by management in accordance with generally accepted accounting
principles for interim financial information and the instructions for Form
10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of
June 30, 1999, the condensed statements of operations for the three and six
month periods ended June 30, 1999 and 1998, and the condensed statements of
cash flows for the six month periods ended June 30, 1999 and 1998 have been
prepared by Inhale without audit, but include all adjustments (consisting
only of normal recurring adjustments) which Inhale considers necessary for a
fair presentation of the financial position at such dates and the operating
results and cash flows for those periods. Although Inhale believes that the
disclosures in these financial statements are adequate to make the
information presented not misleading, certain information normally included
in financial statements and related footnotes prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). The accompanying financial statements should
be read in conjunction with the financial statements and notes thereto
included in Inhale's Annual Report on Form 10-K for the year ended December
31, 1998 as filed with the Commission.
Results for any interim period presented are not necessarily indicative
of results for any other interim period or for the entire year.
2. COMPREHENSIVE LOSS
Other comprehensive losses (primarily unrealized losses on available for
sale securities) amounted to $81,000 and $30,000, respectively, for the six
month periods ended June 30, 1999 and 1998.
3. REVENUE RECOGNITION
Contract revenue from collaborative research agreements is recorded when
earned and as the related costs are incurred. Payments received which are
related to future performance are deferred and recognized as revenue when
earned over future performance periods. In accordance with contract terms,
up-front and progress payments from collaborative research agreements are
considered to be payments to support continued research and development
activities under the agreements. In accordance with the Company's revenue
recognition policy, these payments are included in deferred revenue and are
recognized as the related research and development expenditures are incurred.
Contract research revenue from one partner represented 76% of Inhale's
revenue in the six month period ended June 30, 1999. Contract revenue from
three partners accounted for 42%, 25% and 20% of Inhale's total revenue in
the corresponding period in 1998. Costs of contract research revenue
approximate such revenue and are included in operating costs and expenses.
4. NET LOSS PER SHARE
Basic and diluted net loss per common share is computed in conformance
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which Inhale adopted in 1997. Accordingly, the weighted
Page 6 of 18
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average number of common shares outstanding are used while common stock
equivalent shares for stock options and warrants are not included in the per
share calculations as the effect of their inclusion would be antidilutive.
5. SEGMENT INFORMATION
Management has organized Inhale's business in one operating segment
which includes activities related to the development of systems for the
pulmonary delivery of macromolecule drugs. Inhale's operations are presently
located in the United States and Inhale derives all of its revenues from
within the United States.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three and six months ended June 30, 1999 and
1998 should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in
Inhale's Annual Report on Form 10-K for the year ended December 31, 1998. The
following discussion contains forward-looking statements that involve risk
and uncertainties. Inhale's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed herein under the heading
"Risk Factors" as well as those discussed in Inhale's Annual Report on Form
10-K for the year ended December 31, 1998.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of
the date hereof. Inhale undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made
to reflect events or circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
OVERVIEW
Since its inception in July 1990, Inhale has been engaged in the
development of a pulmonary system for the delivery of macromolecules and
other drugs for systemic and local lung applications. Inhale has been
unprofitable since inception and expects to incur significant and increasing
additional operating losses over the next several years primarily due to
increasing research and development expenditures and expansion of late stage
clinical and early stage commercial manufacturing facilities. To date,
Inhale has not sold any commercial products and does not anticipate receiving
revenue from product sales or royalties in the near future. For the period
from inception through June 30, 1999, Inhale incurred a cumulative net loss
of approximately $67.2 million. The sources of working capital have been
equity financings, financings of equipment acquisitions and tenant
improvements, interest earned on investments of cash, and revenues from
short-term research and feasibility agreements and development contracts.
Inhale typically has been compensated for research and development
expenses during initial feasibility work performed under collaborative
arrangements. Partners that enter into collaborative agreements will pay for
research and development expenses and make additional payments to Inhale as
Inhale achieves certain key milestones. Inhale expects to receive royalties
from its partners based on their revenues received from product sales, and to
receive revenue from the manufacturing of powders and the supply of devices.
In certain cases, Inhale may enter into collaborative agreements under which
Inhale's partners would manufacture or package powders or supply inhalation
devices, thereby potentially limiting one or more sources of revenue for
Inhale. To achieve and sustain profitable operations, Inhale, alone or with
others, must successfully develop, obtain regulatory approval for,
manufacture, introduce, market and sell products utilizing its pulmonary drug
delivery system. There can be no assurance that Inhale can generate
sufficient product or contract research revenue to become profitable or to
sustain profitability.
RESULTS OF OPERATIONS
Revenue in the second quarter of 1999 was $9.9 million compared to $6.7
million in the second quarter of 1998, an increase of approximately 48%.
Revenues for the six months ended June 30, 1999 were $17.7 million as
Page 7 of 18
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compared to $10.5 million for the six months ended June 30, 1998, an increase
of 69%. The increase in revenue for both the three and six month periods was
primarily due to the expansion of Inhale's existing collaborative agreement
with Pfizer, Inc. and includes activities associated with the manufacture of
Phase III clinical supplies. Revenue for the first and second quarters of
1999 and 1998 was comprised of reimbursed research and development expenses
as well as the amortization of the pro-rata portion of up-front signing and
progress payments received from Inhale's collaborative partners. Recognition
of up-front signing and progress payments is based on actual efforts
expended. Costs of contract research revenue approximate such revenue and
are included in research and development expenses.
Research and development expenses increased to approximately $14.6
million in the second quarter of 1999 from $8.6 million in the corresponding
period of 1998, an increase of 70%. Research and development expenses for
the six months ended June 30, 1999 were $27.3 million compared to $15.9
million for the six months ended June 30, 1998, an increase of 72%. The
increase for the three and six month periods was due to increased spending
related to the scale-up of technologies and the continuing development of the
Company's manufacturing capabilities in order to support Phase III inhaleable
insulin clinical trials and commercial production. In addition, the Company
hired additional scientific and development personnel to handle an increase
in the number of development projects and incurred increased expenses
associated with device development. The largest components of the 72%
increase in research and development expenses for the six months ended June
30, 1999 compared to the same period in 1998 are the increase in salaries and
employee benefits expense of $4.3 million, $3.1 million in research and
development supplies and services, and $3.2 million in facilities and
administrative expense allocations associated with supporting the research
and development efforts. Inhale expects research, development and process
development spending to increase over the next few years as Inhale continues
to expand its development efforts under collaborative agreements and scales
up its commercial manufacturing facility.
General and administrative expenses decreased slightly to $1.9 million
in the second quarter of 1999 from $2.0 million in the second quarter of
1998. For the six month period ended June 30, 1999, general and
administrative expenses were $3.2 million compared to $4.0 million in the
comparable period of 1998, a decrease of 20%. The decrease for the three and
six month periods was due principally to a change in the Company's
methodology for allocating administrative costs to research and development
expenses. In the third quarter of 1998, the Company began allocating
information systems costs associated with supporting the Inhale organization
including systems infrastructure development, maintenance and support
activities. In 1999 the Company began allocating human resources costs,
including administrative staffing expenses, because these costs were also
associated with supporting the Inhale organization. For the six month period
ended June 30, 1999, the allocation of information systems costs and human
resources costs resulted in a decrease in administrative expenses of $1.1
million and $0.5 million, respectively, which was offset by a net increase in
administrative expenses of $0.8 million related to increased facilities costs
and the allocated share of administrative expenses associated with supporting
the Company's increased research efforts, including administrative staffing
and business development activities. General and administrative expenses
are expected to continue to increase over the next few years to support
increasing levels of research, development and manufacturing activities.
Net interest income decreased to $0.7 million in the second quarter of
1999 compared to $1.1 million in the second quarter of 1998, a decrease of
36%. Net interest income decreased to $1.6 million in the six month period
ended June 30, 1999 compared to $2.3 million for the six months ended June
30, 1998. Interest income was earned on lower cash and investment balances
held by Inhale in the three and six month periods ended June 30, 1999,
compared to the same periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Inhale has financed its operations primarily through public and private
placements of its equity securities, contract research and milestone
payments, financing of equipment acquisitions and interest income earned on
its investments of cash. At June 30, 1999, Inhale had cash, cash equivalents
and short-term investments of approximately $58.3 million.
Inhale's operations used cash of $14.9 million in the six months ended
June 30, 1999, as compared to $10.8 million used in the six months ended June
30, 1998. The increase in cash used in operations was due principally to the
continued expansion of research activities resulting from an expanded scope
of the Pfizer collaboration, an increase in the number of research projects
being undertaken and the need to provide general and administrative support
for these
Page 8 of 18
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increased research efforts, including increased business development and
marketing expenses. Additionally, the increase in cash used in operations
was attributed to Inhale's increased investment in working capital,
particularly the increase in accounts receivable of $12 million at June 30,
1999 compared to the same period in prior year, which was offset by an
increase in current liabilities of $3 million.
Inhale purchased property and equipment of approximately $9.9 million
during the six months ended June 30, 1999, compared to $16.1 million for the
corresponding period in 1998. The decrease in purchased property and
equipment is due to the fact that 1998 spending included costs related to the
build out of Inhale's headquarters and construction of phase one of its
manufacturing plant located in San Carlos, California, which is now largely
complete.
Inhale expects its cash requirements to continue to increase at an
accelerated rate due to expected increases in costs associated with further
research and development of its technologies, development of drug
formulations, process development for the manufacture and filling of powders
and devices, marketing and general and administrative costs. These expenses
include, but are not limited to, increases in personnel and personnel related
costs, purchases of capital equipment, investments in technologies,
inhalation device prototype construction and facilities expansion, including
the completion of its late stage clinical and commercial manufacturing
facility.
Given the current cash burn rate, the Company believes that it would
have sufficient cash to meet its operating expense requirements for at least
the next 12 months. However, the Company plans to continue to invest heavily
in its growth and the need for cash will be dependent upon the timing of
these investments. Inhale's capital needs will depend on many factors,
including continued scientific progress in its research and development
arrangements, progress with pre-clinical and clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs of developing and
the rate of scale-up of Inhale's powder processing and packaging
technologies, the timing and cost of its late-stage clinical and early
commercial production facility, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, the need to acquire
licenses to new technologies and the status of competitive products. To
satisfy its long-term needs, Inhale intends to seek additional funding, as
necessary, from corporate partners and from the sale of securities. There
can be no assurance that additional funds, if and when required, will be
available to Inhale on favorable terms, if at all.
YEAR 2000 COMPLIANCE
Inhale is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 ("Y2K")
problem is pervasive and complex as virtually every computer operation may be
affected in some way by the rollover of the two digit year value to "00". The
issue is whether systems will properly recognize date sensitive information
when the year changes to 2000. If Inhale's software and firmware with
date-sensitive functions are not Y2K compliant, they may recognize a date
with "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, interruptions in manufacturing operations, a
temporary inability to process transactions, or engage in similar normal
business activities.
Inhale is utilizing both internal and external resources to conduct a
comprehensive review of its systems to identify those systems that could be
affected by the Y2K problem and has developed an implementation plan to
resolve the issue by the end of 1999. The scope of the Y2K effort includes
information technology ("IT") such as software and hardware, non-IT systems
or embedded technology such as microcontrollers contained in various
manufacturing and lab equipment, environmental and safety systems, facilities
and utilities, and the Y2K readiness of key third parties such as suppliers
and financial institutions. A multi-step Y2K readiness plan has been
developed for its internal systems. This plan includes the following
elements: 1) Awareness - raising Inhale's awareness of the Y2K issue; 2)
Discovery - keeping an inventory and monitoring the compliance status of key
financial, informational and operations systems subject to Y2K issues; 3)
Assessment - determining both the business impact of noncompliance and the
likelihood of noncompliance from each of the entities in the inventory; 4)
Validation Remediation - the process of validating entities to ascertain
compliance and remediate non-compliant entities. As of June 30, 1999, Inhale
had completed the Awareness, Discovery and Assessment phases of the plan. The
Remediation and Validation phase is underway with completion of mission
critical and high impact systems by the end of the third quarter of 1999.
Inhale initiated formal communication with significant vendors and
suppliers to determine the extent to which Inhale's operations are vulnerable
to those third parties' failure to remediate their own Y2K issues. Suppliers
of hardware, software or other products that might contain embedded
processors were requested to provide information
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regarding Y2K compliance status of their products. Inhale identified mission
critical vendors and suppliers and stockpiling measures are being
implemented. In addition, in order to protect against the acquisition of
additional non-compliant products, Inhale now requires suppliers to warrant
that products sold or licensed to Inhale are Y2K compliant. In the event that
any of Inhale's significant suppliers do not successfully achieve Y2K
compliance in a timely manner, Inhale's business or operations could be
adversely affected. There can be no assurance that the systems of other
companies on which Inhale's systems rely will be converted on a timely basis
and would not have an adverse effect on Inhale's operations.
As of June 30, 1999, Inhale has substantially developed a comprehensive
contingency plan to address situations that may result if Inhale is unable to
achieve Y2K readiness of its critical operations. The contingency plan will
be implemented should situations occur where Inhale is unable to achieve Y2K
readiness in its critical operations. There can be no assurance that Inhale's
contingency plan will adequately address all issues that may arise in the
year 2000. The failure of Inhale to develop and implement, if necessary, an
appropriate contingency plan could have a material impact on the operations
of Inhale. Finally, Inhale is also vulnerable to external forces that might
generally affect industry and commerce, such as utility and transportation
company Y2K compliance failures and related service interruptions. If
Inhale, its suppliers or collaborative partners fail to remedy any Y2K
issues, the most likely worst case scenario would be a delay in Inhale's
research programs and efforts to scale-up to manufacturing capacity. Certain
chemicals and products could also be spoiled in the event of an extended
power outage. If either of these events occur, this in turn could result in
the incurrence of material costs or loss of revenue. Presently, Inhale is
unable to reasonably estimate the duration and extent of any such
interruption, or quantify the effect it may have on it's future revenues and
results of operations.
Inhale anticipates completing the mission critical, high impact Y2K
issues by the third quarter of 1999, which is prior to any anticipated impact
on its operating systems and expects the Y2K project to continue beyond the
year 2000 with respect to the upgrading, replacement and testing of
non-critical systems. These dates are contingent upon the timeliness and
accuracy of software and hardware upgrades from vendors, adequacy and quality
of resources available to work on completion of the project and any other
unforeseen factors. The total expense of the Y2K project is currently
estimated at approximately $750,000, of which approximately $400,000 has been
spent through June 30, 1999, which is not material to Inhale's business
operations or financial condition. The expenses of the Y2K project are being
funded through operating cash flows.
The costs of the project and the date on which Inhale believes it will
complete the Y2K modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification
plans and other factors. There can be no assurance that these estimates will
be achieved and actual results could differ materially from those anticipated.
RISK FACTORS
WE DO NOT KNOW IF OUR DEEP LUNG DRUG DELIVERY SYSTEM IS TECHNICALLY FEASIBLE.
We are in an early stage of development. There is a risk that our deep
lung delivery technology will not be technically feasible. Even if our deep
lung delivery technology is technically feasible, it may not be commercially
accepted across a range of large and small molecule drugs. We have tested six
of our thirteen deep lung delivery formulations in humans. The deep lung
formulations tested in humans are insulin, interleukin-1 receptor, salmon
calcitonin, an osteoporosis drug and two small molecules.
Many of the underlying drug compounds contained in our deep lung
formulations have been tested in humans by other companies using alternative
delivery routes. Our potential products require extensive research,
development and pre-clinical (animal) and clinical (human) testing. Our
potential products also may involve lengthy regulatory review before they can
be sold. We do not know if and cannot assure that any of our potential
products will prove to be safe and effective or meet regulatory standards.
There is a risk that any of our potential products will not be able to be
produced in commercial quantities at acceptable cost or marketed
successfully. Our failure to achieve technical feasibility, demonstrate
safety, achieve clinical efficacy, obtain regulatory approval or, together
with partners, successfully market products will seriously impact the amount
of our revenue and our results of operations.
Page 10 of 18
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WE DO NOT KNOW IF OUR DEEP LUNG DELIVERY SYSTEM IS EFFICIENT.
We may not be able to achieve the total system efficiency needed to be
competitive with alternative routes of delivery. System efficiency is the
product of the deep lung bioavailability of a potential product and the
percentage of each drug dose lost at various stages of the manufacturing and
deep lung delivery process. Deep lung bioavailability is the percentage of a
drug that is absorbed into the bloodstream when that drug is delivered
directly to the lungs. This is the initial screen for whether deep lung
delivery of any systemic drug is feasible.
WE DO NOT KNOW IF OUR DEEP LUNG DRUG FORMULATIONS ARE STABLE.
We may not be able to identify and produce powdered versions of drugs
that retain the physical and chemical properties needed to work with our
delivery device. Formulation stability is the physical and chemical stability
of the drug over time and under various storage conditions. Formulation
stability will vary with each deep lung formulation and the type and amount
of ingredients that are used in the formulation. We would not consider a drug
to be a good candidate for development and commercialization if its dose loss
is excessive at any one stage or cumulatively in the manufacturing and
delivery process or if its deep lung bioavailability is too low. Problems
with powdered drug stability would seriously impact our ability to develop
and market our potential products.
WE DO NOT KNOW IF OUR DEEP LUNG SYSTEM IS SAFE.
We may not be able to prove potential products to be safe.
Our products require lengthy laboratory, animal and human testing. For
most of our products we are in the early stage of human testing. If we find
that any product is not safe, we will not be able to commercialize the
product. The safety of our deep lung formulations will vary with each drug
and the ingredients used in its formulation.
WE DO NOT KNOW IF OUR DEEP LUNG SYSTEM PROVIDES CONSISTENT DOSES OF MEDICINE.
We may not be able to provide reproducible dosages of stable
formulations sufficient to achieve clinical success. Reproducible dosing is
the ability to deliver a consistent and predictable amount of drug into the
bloodstream over time both for a single patient and across patient groups.
Reproducible dosing requires the development of:
- an inhalation device that consistently delivers predictable amounts
of dry powder formulations to the deep lung;
- accurate unit dose packaging of dry powder formulations; and
- moisture resistant packaging.
We may not be able to develop reproducible dosing of any potential
product. The failure to do so means that we would not consider it a good
candidate for development and commercialization.
WE DO NOT KNOW IF OUR TECHNOLOGIES CAN BE INTEGRATED IN TIME TO BRING PRODUCT
TO MARKET.
We may not be able to integrate all of the relevant technologies to
provide an integrated deep lung delivery system. Our integrated approach to
systems development relies upon several different but related technologies:
- dry powder formulations;
- dry powder processing technology;
- dry powder packaging technology; and
- deep lung delivery devices.
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At the same time we must:
- establish collaborations with partners;
- perform laboratory and clinical testing of potential products; and
- scale-up our manufacturing processes.
We must accomplish all of these steps without delaying any aspect of
technology development. Any delay in one component of product or business
development could delay our ability to develop, obtain approval of or market
therapeutic products using our deep lung delivery technology.
OUR DEEP LUNG DELIVERY SYSTEM MAY NOT BE COMMERCIALLY ACCEPTED.
We may not be able to achieve commercial viability of our deep lung
delivery system. In order to sell any potential product, we must make it
commercially acceptable to the market. This means that we must:
- further refine our device prototype;
- complete scale-up of our powder processing system; and
- complete scale-up of our automated packaging system.
The failure to demonstrate deep lung bioavailability, achieve total
system efficiency, provide safe, reproducible dosages of stable formulations
or advance on a timely basis the numerous aspects of product and business
development will seriously impact the amounts of our revenues and our results
of operations.
WE EXPECT TO CONTINUE TO LOSE MONEY FOR THE NEXT SEVERAL YEARS.
We have never been profitable and, through June 30, 1999, have incurred
a cumulative deficit of approximately $67.2 million. We expect to continue to
incur substantial and increasing losses over at least the next several years
as we expand our research and development efforts, testing activities and
manufacturing operations, and as we complete our late stage clinical and
early commercial production facility. All of our potential products are in
research or in the early stages of development except for our insulin
collaboration. We have generated no revenues from approved product sales. Our
revenues to date have consisted primarily of payments under short-term
research and feasibility agreements and development contracts. To achieve and
sustain profitable operations, we must, alone or with others, successfully
develop, obtain regulatory approval for, manufacture, introduce, market and
sell products using our deep lung drug delivery system. There is a risk that
we will not generate sufficient product or contract research revenue to
become profitable or to sustain profitability.
WE DEPEND ON PARTNERS FOR REGULATORY APPROVALS AND COMMERCIALIZATION OF OUR
PRODUCTS.
Since Inhale is in the business of developing technology for delivering
drugs to the lungs and licensing this technology to companies that make and
sell drugs, we do not have the people and other resources to do the following
things:
- make bulk drugs to be used as medicines;
- design and carry out large scale clinical studies;
- prepare and file documents necessary to obtain government approval to
sell a given drug product; and
- market and sell our products when and if they are approved.
When Inhale signs a license agreement to develop a product with a drug
company, the drug company agrees to do some or all of the things described
above. If our partner fails to do any of these things, Inhale cannot complete
the development of the product.
Page 12 of 18
<PAGE>
WE DO NOT KNOW IF WE WILL BE ABLE TO PRODUCE OUR PRODUCTS IN COMMERCIAL
QUANTITIES.
We must scale-up our current powder processing and filling facilities
and comply with the good manufacturing practice standards prescribed by the
United States Food and Drug Administration and other standards prescribed by
other regulatory agencies to achieve drug production levels that are adequate
to support late stage human clinical testing and early commercial sales.
We have no experience manufacturing products for large scale clinical
testing or commercial purposes. We have only performed powder processing on
the small scale needed for testing formulations and for early stage and
larger clinical trials. We may encounter manufacturing and control problems
as we attempt to scale-up powder processing facilities. We may not be able to
achieve such scale-up in a timely manner or at a commercially reasonable
cost, if at all. Our failure to solve any of these problems could delay or
prevent late stage clinical testing and commercialization of our products and
could seriously impact the amount of our revenues and our results of
operations.
To date, we have relied on one particular method of powder processing.
There is a risk that this technology will not work with all drugs or that the
drug losses will prohibit the commercial viability of certain drugs.
Additionally, there is a risk that any alternative powder processing methods
we may pursue will not be commercially practical for aerosol drugs or that we
will not have or be able to acquire the rights to use such alternative
methods.
Our fine particle powders and small quantity packaging require special
handling. We have designed and qualified small scale automated filling
equipment for small quantity packaging of fine powders. We face significant
technical challenges in scaling-up an automated filling system that can
handle the small dose and particle sizes of our powders in commercial
quantities. There is a risk that we will not be able to scale-up our
automated filling equipment in a timely manner or at commercially reasonable
costs. Any failure or delay in such scale-up would delay product development
or bar commercialization of our products and will impact the level of our
revenues and results of operations.
We face many technical challenges in further developing our inhalation
device to work with a broad range of drugs, to produce such a device in
sufficient quantities and to adapt the device to different powder
formulations. There is a risk that we will not successfully achieve any of
these things. Our failure to overcome any of these challenges will impact our
revenues and results of operations.
For late stage clinical trials and initial commercial production, we
intend to use one or more contract manufacturers to produce our drug delivery
device. There is a risk that we will not be able to enter into or maintain
arrangements with any potential contract manufacturers, and that the failure
to do so will impact our revenues and results of operations.
WE DO NOT KNOW IF THE MARKET WILL ACCEPT INHALE'S DEEP LUNG DELIVERY SYSTEM.
The commercial success of our potential products depends upon market
acceptance by health care providers, third-party payors like health insurance
companies and Medicare, and patients. Our products under development use a
new method of drug delivery and there is a risk that our potential products
will not be accepted by the market. Market acceptance will depend on many
factors, including
- the safety and efficacy results of our clinical trials;
- favorable regulatory approval and product labeling;
- the frequency of product use;
- the availability of third-party reimbursement;
- the availability of alternative technologies; and
- the price of our products relative to alternative technologies.
Page 13 of 18
<PAGE>
There is a risk that health care providers, patients or third-party
payors will not accept our deep lung drug delivery system. If the market does
not accept our potential products, our revenues and results of operations
will be seriously impacted if our potential products are not accepted by the
market.
OUR PATENTS MAY NOT PROTECT OUR PRODUCTS AND OUR PRODUCTS MAY INFRINGE ON
THIRD PARTY PATENT RIGHTS.
Inhale has filed patent applications covering certain aspects of our
device, powder processing technology, and powder formulations and deep lung
route of delivery for certain molecules, and we plan to file additional
patent applications. As of June 30, 1999, we have 37 issued U.S. and foreign
patents that cover certain aspects of our technology and we have a number of
patent applications pending. There is a risk that any of the patents applied
for will not issue, or that any patents that issue or have issued will not be
valid and enforceable. Enforcing our patent rights would be time consuming
and costly.
We are aware of an alternate dry powder processing technology that we
are not using for our current products under development but may desire to
use for certain products in the future. The ownership of this powder
processing technology is unclear. We are aware that multiple parties,
including Inhale, claim patent, trade secret and other rights in the
technology. If we determine that this alternate powder processing technology
is relevant to the development of future products and further determine that
a license to this alternate powder processing technology is needed, we cannot
be certain that we can obtain a license from the relevant party or parties on
commercially reasonable terms, if at all.
Our access or our partners' access to the drugs to be formulated will
affect our ability to develop and commercialize our technology. Many drugs,
including powder formulations of certain drugs that are presently under
development by us, are subject to issued and pending United States and
foreign patents that may be owned by our competitors. We know that there are
issued patents and pending patent applications relating to the deep lung
delivery of large molecule drugs, including several for which we are
developing deep lung delivery formulations. This situation is highly complex,
and the ability of any one company, including Inhale, to commercialize a
particular drug is unpredictable.
We intend generally to rely on the ability of our partners to provide
access to the drugs that are to be formulated by us for deep lung delivery.
There is a risk that our partners will not be able to provide access to such
drug candidates. Even if such access is provided, there is a risk that our
partners or we will be accused of, or determined to be, infringing a
third-party's patent rights and will be prohibited from working with the drug
or be found liable for damages that may not be subject to indemnification.
Any such restriction on access to drug candidates or liability for damages
would impact the level of our revenues and results of operations.
WE MAY NOT OBTAIN REGULATORY APPROVAL.
There is a risk that we will not obtain regulatory approval for our
products on a timely basis, or at all. Our product must undergo rigorous
animal and human testing and an extensive review process mandated by the FDA
and equivalent foreign authorities. This process generally takes a number of
years and requires the expenditure of substantial resources although the time
required for completing such testing and obtaining such approvals is
uncertain. We have not submitted any of our products to the FDA for marketing
approval. We have no experience obtaining such regulatory approval.
In addition, we may encounter delays or rejections based upon changes in
the United States Food and Drug Administration policy, including policy
relating to good manufacturing practice compliance, during the period of
product development. We may encounter similar delays in other countries.
Even if regulatory approval of a product is granted, the approval may
limit the indicated uses for which we may market our product. In addition,
our marketed product, our manufacturing facilities and Inhale, as the
manufacturer, will be subject to continual review and periodic inspections.
Later discovery from such review and inspection of previously unknown
problems may result in restrictions on our product or on us, including
withdrawal of our product from the market. The failure to obtain timely
regulatory approval of our products, any product marketing limitations or a
product withdrawal would impact the level of our revenue and results of
operations.
Page 14 of 18
<PAGE>
IF OUR PRODUCTS ARE NOT COST EFFECTIVE, GOVERNMENT AND PRIVATE INSURANCE
PLANS WILL NOT PAY FOR OUR PRODUCTS.
In both domestic and foreign markets, sales of our products under
development will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, such third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Legislation and regulations affecting the pricing of pharmaceuticals may
change before our proposed products are approved for marketing. Adoption of
such legislation and regulations could further limit reimbursement for
medical products. A government third party payor decision to not provide
adequate coverage and reimbursements for our products would limit market
acceptance of such products.
OUR COMPETITORS MAY DEVELOP AND SELL BETTER DRUG DELIVERY SYSTEMS.
We are aware of other companies engaged in developing and
commercializing pulmonary drug delivery systems and enhanced injectable drug
delivery systems. Many of these companies have greater research and
development capabilities, experience, manufacturing, marketing, financial and
managerial resources than we do and represent significant competition for us.
Acquisitions of competing drug delivery companies by large pharmaceutical
companies could enhance our competitors' financial, marketing and other
resources. Accordingly, our competitors may succeed in developing competing
technologies, obtaining United States Food and Drug Administration approval
for products or gain market acceptance before us. We cannot assure that
developments by others will not make our products or technologies
uncompetitive or obsolete.
WE EXPECT OUR STOCK PRICE TO REMAIN VOLATILE.
Our stock price is volatile. In the last twelve months our stock price
ranged from $20.13 to $35.25. We expect it to remain volatile. A variety of
factors may have a significant effect on the market price of our common
stock, including:
- fluctuations in our operating results;
- announcements of technological innovations or new therapeutic
products;
- announcement or termination of collaborative relationships by Inhale
or our competitors;
- governmental regulation;
- clinical trial results;
- developments in patent or other proprietary rights;
- public concern as to the safety of drug formulations developed by
Inhale or others; and
- general market conditions.
Any litigation instigated against us as a result of this volatility
could result in substantial costs and a diversion of our management's
attention and resources, which could impact our revenues and results of
operations.
INVESTORS SHOULD BE AWARE OF INDUSTRY-WIDE RISKS.
In addition to the risks associated specifically with Inhale described
above, investors should also be aware of general risks associated with drug
development and the pharmaceutical industry. These include but are not
limited to:
- handling of hazardous materials;
- hiring and retaining qualified people; and
- insuring against product liability claims.
Page 15 of 18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks since
December 31, 1998.
PART II: OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of the stockholders was held on June 8, 1999.
B. The following matters were voted upon at the annual meeting:
</TABLE>
1. To elect the following directors to hold office until the 2002
Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Ajit S. Gill 13,297,312 20,560
Melvin Perelman 13,289,337 28,535
</TABLE>
2. To ratify the selection of Ernst & Young LLP as independent
auditors for the Company for its fiscal year ending December 31, 1999.
<TABLE>
<S> <C> <C>
For - 13,301,305 Against - 9,292 Abstain - 7,275
</TABLE>
<TABLE>
<S> <C>
Item 5. Other Information
Effective April 27, 1999, Terry Opdendyk resigned as Director and
Chairman of the Board of Directors. Irwin Lerner was elected a
Director of the Company and Robert Chess was elected Chairman of
the Board of Directors. Ajit Gill was named President of the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith or incorporated by
reference:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT TITLE
- -------------------------------------------------------------------------------------
<S> <C>
2.1 (1) Agreement and Plan of Merger between Inhale Therapeutic Systems, a
California corporation, and Inhale Therapeutic Systems (Delaware),
Inc., a Delaware corporation.
3.1 (1) Certificate of Incorporation of Registrant.
3.2 (1) Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 (2) Restated Investor Rights Agreement among the Registrant and certain
other persons named therein, dated April 29, 1993, as amended
October 29, 1993.
4.3 (2) Specimen stock certificate.
4.4 (3) Stock Purchase Agreement between the Registrant and Pfizer Inc.,
dated January 18, 1995.
4.5 (9) Form of Purchase Agreement between the Registrant and the
individual Purchasers, dated January 28, 1997.
4.6 (10) Stock Purchase Agreement between the Registrant and Capital
Research and Management Company, dated December 8, 1998.
10.1 (4) Registrant's 1994 Equity Incentive Plan, as amended,
10.2 (7) Registrant's 1994 Non-Employee Directors' Stock Option Plan, as
amended
10.3 (2) Registrant's 1994 Employee Stock Purchase Plan, as amended.
10.4 (2) Standard Industrial Lease between the Registrant and W.F. Batton &
Co., Inc., dated September 17, 1992, as amended September 18, 1992.
10.5 (2) Addendum IV dated April 1, 1994 to Lease dated September 17, 1992,
between the Registrant and W.F. Batton and Marie A. Batton, dated
September 17, 1992.
10.6 (6) Amendment Agreement Number One, dated October 20, 1995, to Lease
dated September 17, 1992, between the Registrant and W.F. Batton &
Co., Inc.
10.7 (6) Amendment Agreement Number Two, dated November 15, 1995, to Lease,
dated September 17, 1992, between Registrant and W.F. Batton and
Marie A. Batton, Trustees of the W.F. Batton and Marie A. Batton
Trust UTA dated January 12, 1998 ("Batton Trust").
</TABLE>
Page 16 of 18
<PAGE>
<TABLE>
<S> <C>
10.8 Amendment Agreement Number Three, dated February 14, 1996, to
Lease, dated September 17, 1992, between Registrant and Batton
Trust.
10.9 Amendment Agreement Number Four, dated September 15, 1996, to
Lease, dated September 17, 1992, between Registrant and Batton
Trust.
10.10 (2) Senior Loan and Security Agreement between the Registrant and
Phoenix Leasing Incorporated, dated September 15, 1993.
10.11 (2) Sublicense Agreement between the Registrant and John S. Patton,
dated September 13, 1991.
10.11 (5) Stock Purchase Agreement between the Registrant and Baxter World
Trade Corporation, dated March 1, 1996.
10.12 (8) Sublease and Lease Agreement, dated October 2, 1996 between the
Registrant and T.M.T. Associates L.L.C. ("Landlord").
10.13 First Amendment, dated October 30, 1996, to Sublease and Lease
Agreement, dated October 2, 1996, between Registrant and Landlord.
10.14 Letter Agreement, dated April 9, 1997, amending Sublease and Lease
Agreement, dated October 2, 1996, between the Registrant and
Landlord.
10.15 Third Amendment, dated April 16, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Registrant and Landlord.
10.16 Fourth Amendment, dated November 5, 1997, to Sublease and Lease
Agreement, dated October 2, 1996, between Registrant and Landlord.
27.1 Financial Data Schedule
</TABLE>
- ------------------
(1) Incorporated by reference to the indicated exhibit in Inhale's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(2) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-1 (No. 33-75942), as amended.
(3) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-1 (No. 33-89502), as amended.
(4) Incorporated by reference to Inhale's Registration Statement on Form
S-8 (No. 333-59735).
(5) Incorporated by reference to the indicated exhibit in Inhale's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(6) Incorporated by reference to the indicated exhibit in Inhale's Annual
Report on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to the indicated exhibit in Inhale's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to the indicated exhibit in Inhale's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
(9) Incorporated by reference to Inhale's Registration statement on
Form S-3 (No. 333-20787).
(10) Incorporated by reference to the indicated exhibit in Inhale's
Registration Statement on Form S-3 (No. 333-68897), as amended.
(b) Reports on Form 8-K.
None.
Page 17 of 18
<PAGE>
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.
INHALE THERAPEUTIC SYSTEMS, INC.
DATE: August 16, 1999 BY: /S/Robert B. Chess
-------------------------
Robert B. Chess
Chairman and Co-Chief Executive Officer and
Director
(Duly Authorized Officer)
BY: /S/Ajit S. Gill
-------------------------
Ajit S. Gill
President and Co-Chief Executive Officer and
Director
(Duly Authorized Officer)
BY: /S/Brigid A. Makes
-------------------------
Brigid A. Makes
Vice President of Finance and Administration
and Chief Financial Officer
(Chief Accounting Officer)
Page 18 of 18
<PAGE>
Exhibit 10.8
AMENDMENT AGREEMENT NUMBER THREE TO LEASE
1001 E. MEADOW CIRCLE
PALO ALTO, CALIFORNIA
THIS AMENDMENT AGREEMENT NUMBER THREE TO LEASE (this "Amendment") is
entered into as of February 14, 1996, by and between W. F. BATTON AND MARIE
A. BATTON, TRUSTEES OF THE W. F. BATTON AND MARIE A. BATTON TRUST UTA DATED
JANUARY 12, 1998 ("Lessor"), and INHALE THERAPEUTIC SYSTEMS, a California
corporation ("Lessee").
RECITALS
A. W. F. Batton & Co., Inc., as lessor, and Lessee entered into a
Standard Industrial Lease-Net dated as of September 17, 1992 (the "Lease")
covering premises located at 1001 East Meadow Circle, Palo Alto, California
(referred to in the Lease as "1015 East Meadow Circle") (the "Premises").
Capitalized terms used but not defined herein have the meanings assigned to
them in the Lease.
B. By letter dated March 2, 1993 from Lessor to Lessee it was confirmed
that the Premises originally consisted of 13,442 square feet. Effective as of
May 1, 1994 by Addendum IV to Lease, Paragraph 2, Premises, of the Lease was
amended by adding 4,648 square feet, increasing the Premises from 13,442
square feet to 18,090 square feet.
C. The Lease was amended by Amendment Agreement Number One to Lease
entered into as of October 20, 1995 by W. F. Batton & Co., Inc., and Lessee.
The Lease was amended by Amendment Number Two to Lease entered into as of
November 15, 1995. The Lease dated September 17, 1992, as amended, is
referred to herein collectively as the "Lease."
D. The Premises have been further increased by 1,920 square feet of
space by the transfer of 1,920 square feet from the premises of the adjoining
tenant, JEOL USA, Inc. ("JEOL"), to the Premises of Lessee. The 1,920 square
feet added to the Premises are the area 96 feet by 20 feet between columns B
through G and bay 9 and bay 10.
E. Lessor and Lessee now wish to amend the Lease to reflect the further
increase in the number of square feet in the Premises by the transfer of said
1,920 square feet of space from JEOL to Lessee.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants of the parties
contained herein, the parties agree as follows:
1. The effective date of this Amendment is March 1, 1996.
2. Paragraph 2 of the Lease is amended to provide that the address of
the Premises is 1001 East Meadow Circle, Palo Alto, California 94303 and,
with the addition of said 1,920 square feet of space, the Premises now
consist of approximately 20,010 square feet.
3. All construction costs incurred to separate the 1,920 square feet
from the JEOL premises and to add said 1,920 square feet to the Premises of
Lessee shall be paid 50% by Lessee and 50% by JEOL. Lessor shall not be
liable for any of said construction costs.
4. Paragraph 1, Premises, of Addendum IV to Lease is amended to provide
that Lessee is leasing from Lessor and occupying seventy-one percent (71%) of
the total number of square feet in the building (determined by dividing the
number of square feet in the Premises, 20,010, by the total number of square
feet in the building in which the Premises are located, 28,150 square feet).
Lessee's share of the total operating expenses of the building and outside
area of the real property of which the Premises are a part shall be
seventy-one percent (71%) from and after the effective date of this Amendment.
5. The OLD RENT SCHEDULE for the period 2/1/95 through 2/29/96 set
forth in Paragraph 3 of Addendum IV to the Lease, Base Monthly Rent Schedule,
which shall remain in effect through February 29, 1996 is as follows:
<TABLE>
<CAPTION>
Monthly Rent Per
Months* Square Foot NNN
------ ----------------
<S> <C> <C> <C>
25-36 (2/1/95-1/31/96) $0.97 x 13,442 = $13,038.74
0.7375 x 4,648 = 3,427.90
----------
$16,466.64
37 (2/1/96-2/29/96) $1.05 x 13,442 = $14,114.10
0.7375 x 4,648 = 3,427.90
----------
$17,542.00
</TABLE>
*prior to 2/1/95, see Paragraph 3, Addendum IV
2
<PAGE>
6. Paragraph 3 of Addendum IV to the Lease, Base Monthly Rent Schedule,
is amended effective March 1, 1996, as follows:
<TABLE>
<CAPTION>
Monthly Rent Per
Months Square Foot NNN
------ ----------------
<S> <C> <C> <C>
38-48 $1.05 x 13,442 = $14,114.10
(3/1/96-1/31/97) 0.7375 x 4,648 = 3,427.90
1.01 x 1,920 = 1,939.20
----------
$19,481.20
49-64 $1.10 x 13,442 = $14,786.20
(2/1/97-5/31/98) 0.7375 x 4,648 = 3,427.90
1.01 x 1,920 = 1,939.20
----------
$20,153.30
</TABLE>
7. Paragraph 3 of Amendment Number One to Lease dated October 20, 1995
is amended to read as follows:
Paragraph 51 of Addendum II to the Lease is amended by deleting
"61-120" from the column entitled "Months" and substituting "65-124
(6/1/98-5/31/03)" therefor. If the option to extend is exercised the
Base Monthly Rent for the period June 1, 1998 through May 31, 1999
shall be equal to the Base Monthly Rent for May 1998 adjusted by the
CPI increase for the twelve (12) months ending May 1998, minimum 3%
maximum 6%. There shall be annual cumulative CPI increases
thereafter (May through May) minimum 3% maximum 6%. In no event
shall Base Monthly Rent for any twelve months period of the option
term be less than Base Monthly Rent for the previous twelve months
period.
8. Except as amended hereby, the Lease shall remain in full force and
effect.
9. This Amendment may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Palo Alto, California, as of the date first above written.
LESSOR: W. F. BATTON AND MARIE A. BATTON,
TRUSTEES OF THE W. F. BATTON AND
MARIE A. BATTON TRUST UTA DATED
JANUARY 12, 1988
/s/ W. F. BATTON
---------------------------------
W. F. Batton, Trustee
/s/ MARIE A. BATTON
---------------------------------
Marie A. Batton, Trustee
LESSEE: INHALE THERAPEUTIC SYSTEMS,
a California corporation
By /s/ AJIT SINGH GILL
---------------------------------
Its Chief Financial Officer
-----------------------------
4
<PAGE>
EXHIBIT 10.9
AMENDMENT AGREEMENT NUMBER FOUR TO LEASE
1001 E. MEADOW CIRCLE
PALO ALTO, CALIFORNIA
THIS AMENDMENT AGREEMENT NUMBER FOUR TO LEASE (this "Amendment") is
entered into as of September 15, 1996, by and between W. F. BATTON AND MARIE
A. BATTON, TRUSTEES OF THE W. F. BATTON AND MARIE A. BATTON TRUST UTA DATED
JANUARY 12, 1988 ("Lessor"), and INHALE THERAPEUTIC SYSTEMS, a California
corporation ("Lessee").
RECITALS
A. Lessor and Lessee entered into a Standard Industrial Lease - Net
dated as of September 17, 1992 (the "Lease") covering premises located at
1001 East Meadow Circle, Palo Alto, California (referred to in the Lease as
"1015 East Meadow Circle") (the "Premises"). Capitalized terms used but not
defined herein have the meanings assigned to them in the Lease.
B. (1) The Lease was amended by letter agreement dated March 2, 1993,
(2) by Addendum IV to Lease effective as of May 1, 1994, (3) by Amendment
Agreement Number One to Lease entered into as of October 20, 1995, (4) by
Amendment Number Two to Lease entered into as of November 15, 1995, and (5)
by Amendment Agreement Number Three to Lease entered into as of February 14,
1996. The Lease dated September 17, 1992, as amended, is referred to herein
collectively as the "Lease."
E. Lessor and Lessee now wish to amend the Lease further to reflect the
exercise by Lessee of the option to extend the term of the Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants of the parties
contained herein, the parties agree as follows.
1. By the execution and delivery of this Amendment, Lessee hereby gives
Lessor written notice of the exercise by Lessee of the option to extend the
term of the Lease for the period of five (5) years from June 1, 1998 through
May 31, 2003, pursuant to Paragraph 51 of Addendum II to the Lease, as
amended by Paragraph 7 of Amendment Agreement Number Three to Lease dated
February 14, 1996, which provides as follows:
"Paragraph 51 of Addendum II to the Lease is amended by
deleting "61-120" from the column entitled "Months" and
substituting "65-124
<PAGE>
(6/1/98 - 5/31/03)" therefor. If the option to extend is
exercised the Base Monthly Rent for the period June 1, 1998
through May 31, 1999 shall be equal to the Base Monthly
Rent for May 1998 adjusted by the CPI increase for the
twelve (12) months ending May 1998, minimum 3% maximum 6%.
There shall be annual cumulative CPI increases thereafter
(May through May) minimum 3% maximum 6%. In no event shall
Base Monthly Rent for any twelve months period of the
option term be less than Base Monthly Rent for the previous
twelve months period."
Lessor and Lessee agree that the term of the Lease is extended upon the
terms and conditions set forth herein. The option extension period shall be
upon all of the terms and conditions of the Lease except that (a) the monthly
Base Rent shall be payable by Lessee to Lessor pursuant to the provision set
forth above, and (b) there shall be no additional option to extend.
2. Except as amended hereby, the Lease shall remain in full force and
effect.
3. This Amendment may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Palo Alto, California, as of the first above written.
LESSOR: W. F. BATTON and MARIE A. BATTON,
Trustees of the W. F. Batton and
Marie A. Batton Trust UTA dated
January 12, 1988
By: /s/ Marie A. Batton, Trustee
------------------------------
Marie A. Batton, Trustee
LESSEE: INHALE THERAPEUTIC SYSTEMS,
a California corporation
By: /s/ Ajit Singh Gill
------------------------------
Its: Chief Operating Officer
-----------------------------
2
<PAGE>
EXHIBIT 10.13
FIRST AMENDMENT TO SUBLEASE
AND LEASE AGREEMENT
This First Amendment to Sublease and Lease Agreement (this
"Amendment") is made by and between TMT Associates, LLC, a California limited
liability company ("Landlord"), and Inhale Therapeutic Systems, a California
corporation ("Tenant"), effective as of the 30th day of October, 1996.
RECITALS
A. Landlord and Tenant have entered into that certain Sublease
and Lease Agreement (the "Lease") dated October 2, 1996. All capitalized
terms used herein shall have the same meaning ascribed to them in the Lease,
unless expressly defined in this Amendment.
B. Landlord and Tenant desire to modify certain provisions of the
Lease as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. PAYMENT OF CERTAIN COSTS. Landlord and Tenant acknowledge and
agree that construction cost estimates received by Tenant for certain
components of the Tenant Improvements described below are in excess of
amounts contemplated at the time of execution of the Lease. The components of
the Tenant Improvements which are the subject of this Paragraph 1 are: (a)
the installation of a new roof membrane and necessary repairs required to
install a new roof membrane of the premises, but excluding any structural
modifications to the roof which Tenant may desire to perform, (b) the
exterior rear wall of the premises (excluding the installation of any glass
or windows, but including exterior doors), (c) construction of the front
portion of the parking lot which is necessary to install approximately 7,200
square feet of parking improvements to replace a portion of the building to
be removed, and (d) construction of the rear parking lot (such components of
the Tenant Improvements referred to herein as the "Subject Improvements"). In
addition to the Tenant's Improvement Allowance currently set forth in the
Lease in the amount of Five Million Dollars ($5,000,000). Landlord shall
contribute an amount (the "Subject Amount") toward the cost of performing the
approved modifications to and construction of the Subject Improvements equal
to fifty percent (50%) of the difference between: (x) the actual costs
incurred by Tenant to modify or construct the Subject Improvements, less (y)
Five Hundred Thousand Dollars ($500,000). Notwithstanding the preceding
sentence, in no event shall the Subject Amount exceed Two Hundred Fifty
Thousand Dollars ($250,000). Upon Tenant's completion of the Subject
Improvements, Tenant shall deliver to Landlord invoices and other reasonable
supporting documentation requested by
1
<PAGE>
Landlord required to determine the amount of the costs incurred by Tenant to
modify and/or construct the Subject Improvements. Tenant's determination of
such costs shall be subject to Landlord's approval, which shall not be
unreasonably withheld.
2. METHOD OF PAYMENT. Landlord shall pay the Subject Amount in
accordance with either of the two provisions set forth below:
(a) At such time as Landlord obtains the Tenant Improvement
Loan, Landlord may finance an additional amount as is necessary to obtain the
funds to pay the Subject Amount to Tenant in cash upon the closing of such
financing, provided that Tenant shall have no responsibility with respect to
repayment of such additional loan amount and such amount shall not be
considered a part of the Tenant Improvement Loan for any purpose under the
Lease, or
(b) The potential reduction in monthly Base Rent set forth in
Paragraph 3.2(b) of the Lease, which potential reduction may commence upon
the thirteenth (13th) month following the Rent Commencement Date, shall be
increased to that amount which is necessary to amortize the sum of Five
Hundred Thousand Dollars ($500,000) plus the Subject Amount at an interest
rate of ten percent (10%) per annum over a period of eighteen (18) months.
Such monthly reduction amount shall not exceed Forty-Five Thousand Forty-Two
Dollars and Eighty-One Cents ($45,042.81). The references in such Paragraph
3.2(b) to Five Hundred Thousand Dollars ($500,000) shall be increased to Five
Hundred Thousand Dollars ($500,000), plus the Subject Amount.
3. TENANT'S PAYMENT OF ADDITIONAL COSTS. Landlord and Tenant
mutually intend that Tenant may finance Tenant's share of the additional
costs for the Subject Improvements. Therefore, the Tenant's Improvement
Allowance (as defined in Paragraph 34.1(d) of the Lease) shall be increased
to an amount equal to the sum of Five Million Dollars ($5,000,000), plus the
Subject Amount, but in no event shall the Tenant's Improvement Allowance
exceed Five Million Two Hundred Fifty Thousand Dollars ($5,250,000). In
accordance with the provisions of Lease, the Tenant Improvement Loan shall
also be increased by a similar amount. In the event Landlord is unable to
obtain the Tenant Improvement Loan, as contemplated by the Lease, Tenant
shall fund Tenant's share of the increased cost of the Subject Improvements
in cash together with the other Tenant Improvement Costs.
4. PAYMENT OF COSTS OF ASBESTOS REMOVAL. Landlord and Tenant
acknowledge and agree that the Landlord's Work (as defined in Paragraph
34.1(a) of the Lease) currently includes removal and/or abatement of asbestos
containing materials located in the interior of the premises or on the roof
thereof. The obligation to remove and/or abate any asbestos containing
materials which may be located in the interior of the premises or on the roof
thereof shall be deleted from the Landlord's Work, and such removal and/or
abatement shall be performed by Tenant. Landlord shall pay any increase in
the costs incurred by Tenant to install and construct the Tenant Improvements
which are caused by
2
<PAGE>
and directly relate to Tenant's removal and/or abatement of asbestos
containing materials located in the interior of the premises or on the roof
thereof. Such amounts shall be payable within thirty (30) days of Landlord's
receipt of invoices and reasonable supporting documentation requested by
Landlord evidencing the costs incurred by Tenant to perform such removal
and/or abatement.
5. CONFIRMATION OF SATISFACTION OF CERTAIN CONDITIONS. Tenant
acknowledges and agrees that the condition to Tenant's obligations under the
Lease set forth in subparagraph 1(b) has been satisfied, provided that such
satisfaction shall not be completed until Landlord and Tenant have fully
executed this Amendment, and that the condition set forth in subparagraph
1(c) has been fully satisfied.
6. NO FURTHER MODIFICATIONS. Except as expressly set forth
herein, the terms and conditions of the Lease shall remain unmodified and in
full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
as of the date first set forth above.
LANDLORD:
TMT ASSOCIATES, LLC, a California
limited liability company
By: /s/ Kiet Nguyen
------------------------
Kiet Nguyen, Member
By: /s/ Thomas Peirona
------------------------
Thomas Peirona, Member
TENANT:
Inhale Therapeutic Systems, a
California corporation
By: /s/ Ajit Singh Gill
------------------------
Its: Exec. VP Tech Ops
------------------------
3
<PAGE>
EXHIBIT 10.14
April 9, 1997
VIA FACSIMILE
Mr. Thomas Peirona
TMT Associates LLC
1515 Industrial Way
Belmont, CA 94002
Re: $57,500 Advance
Dear Mr. Peirona:
This letter will evidence Inhale Therapeutic System's ("Inhale") agreement to
loan $57,500 to TMT Associates, LLC ("TMT"), and TMT's agreement to repay
such amount, upon the conditions described below:
1. Inhale will loan the sum of $57,500 to TMT upon execution of this letter
by TMT;
2. TMT shall pay the $57,500 to SunAmerica in partial payment of the
application fee due in connection with the loan from SunAmerica Life
Insurance Company to TMT (the "SunAmerica Loan") described in the
Agreement Regarding Tenant Improvement Loan dated as of April 2, 1997;
3. TMT shall repay the $57,500, without interest, to Inhale, upon the
closing of the SunAmerica Loan, but only if Inhale elects not to accept
the tenant improvement portion of the SunAmerica Loan;
4. In the event the SunAmerica Loan has not closed by May 1, 1997, Inhale
shall be entitled to deduct the amount of $9,583.33 per month from its
obligation to pay rent to TMT under the Sublease and Lease Agreement
dated as of October 30, 1996 (the "Lease") for six consecutive months.
5. This letter shall constitute an amendment to the Lease, and may be signed
in two or more counterparts, which shall together constitute one and the
same agreement.
1.
<PAGE>
If you agree to the terms of this letter and amendment to Lease, please
execute the enclosed copy and return it to the undersigned.
Sincerely,
Inhale Therapeutic Systems, Inc. Inhale Therapeutic Systems, Inc.
By: /s/ Sharron Reiss-Miller By: /s/ Robert Chess
-------------------------- -----------------------
Name: Sharron Reiss-Miller Name: Robert Chess
------------------------ --------------------
Title: Director, Operations Title: President/CEO
------------------------ --------------------
Received and Agreed to:
TMT Associates, LLC
By /s/ Kiet Nguyen
-------------------------------
Kiet Nguyen, Member
And By /s/ Thomas Peirona
---------------------------
Thomas Peirona, Member
2
<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to Sublease and Lease Agreement is dated, for
reference purposes only, as of April 16, 1997, and is entered into by and
between TMT Associates, LLC ("Landlord") and Inhale Therapeutics Systems,
Inc. ("Tenant"), for the purpose of amending that certain Sublease and Lease
Agreement dated as of October 2, 1996, as previously amended by the First
Amendment to Sublease and Lease Agreement dated as of October 30, 1996, and
by the letter amendment dated April 9, 1997 (collectively the "Lease") by and
between Landlord and Tenant concerning the lease of the property located at
1515 Industrial Way, Belmont, California, as more specifically described in
the Lease (the "Premises").
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged (including, without limitation, the making of a $5,000,000 loan
by Tenant to Landlord the ("$5,000,000 Loan"), the parties agree as follows:
1. CONDITIONS TO EFFECTIVENESS: The effectiveness of this Third Amendment
is hereby conditional upon the closing of the $5,000,000 Loan and
acquisition of fee simple title to the Premises by Landlord by April
30, 1997 (collectively the "Closing"). Unless and until such
transactions shall have been consummated, this Third Amendment shall be
of no force or effect.
2. DEFINITIONS: All capitalized terms used but not defined herein
shall have the meanings assigned to them in the Lease.
3. TENANT IMPROVEMENT LOAN; PARAGRAPH 3.1(b) OF LEASE. Landlord and
Tenant acknowledge and agree that Paragraph 3.1(b) of the Lease
provides that Tenant shall pay an interest rate under the Tenant
Improvement Loan which is equal to the rate payable by Landlord
thereunder, plus two percent (2%). Landlord and Tenant further
acknowledge and agree that such two percent (2%) increase in the
interest rate payable by Tenant under the Tenant Improvement Loan is for
the purpose of mitigating the tax impacts on Landlord of providing the
Tenant Improvement Loan to Tenant, due to the fact that all rent payable
to Landlord under the Lease must be recognized as income, but that the
principal amount of the Tenant Improvement Loan repaid by Landlord cannot
be deducted. Landlord and Tenant shall use due diligence and
reasonable efforts to investigate alternate means by which the tax impacts
on Landlord in connection with the Tenant Improvement Loan can be
eliminated in a manner other than the payment by Tenant of the additional
two percent (2%) to be included in the interest rate payable by Tenant
under the Tenant Improvement Loan. In the event an alternative method can
be determined which is approved by both Landlord and Tenant, such
approval not to be unreasonably withheld, then the additional two percent
(2%) to be included in the interest rate payable by the Tenant under
the Tenant Improvement Loan shall be deleted from Paragraph 3.1(b)
of the Lease at such time as both Landlord and Tenant have reasonably
approved such alternative, which may include, by way of example,
and not by way of
<PAGE>
limitation, allocation to Landlord of the right to an increased amount
of depreciation on the tenant improvements.
4. RENT COMMENCEMENT DATE: The parties agree that Tenant's obligation
to pay Base Rent under the Lease shall commence upon July 1, 1997.
5. RETENTION OF BROKERS: Landlord and Tenant shall mutually agree upon
the broker to be retained in connection with pursuing any Tenant
Improvement Loan, other than a loan from SunAmerica Life Insurance Company.
6. COUNTERPARTS: This Third Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of
which shall be deemed one and the same agreement.
7. NO FURTHER MODIFICATION: Except as modified by this Third
Amendment, the Lease remains unchanged and in full force and effect.
In Witness Whereof, the undersigned have entered into this Third Amendment,
to be effective as of the Closing:
Inhale Therapeutic Systems, Inc.
BY: ____________________________________________
NAME: ____________________________________________
TITLE: ____________________________________________
TMT ASSOCIATES LLC,
a California limited liability company
BY: /s/ Kiet Nguyen
--------------------------------------------
NAME: Kiet Nguyen
--------------------------------------------
TITLE: Member
--------------------------------------------
AND BY: /s/ Thomas Peirona
--------------------------------------------
NAME: Thomas Peirona
--------------------------------------------
TITLE: Member
--------------------------------------------
<PAGE>
EXHIBIT 10.16
FOURTH AMENDMENT TO SUBLEASE AND LEASE AGREEMENT
THIS FOURTH AMENDMENT TO SUBLEASE AND LEASE AGREEMENT (this
"Amendment") is made by and between TMT ASSOCIATES, LLC, a California limited
liability company ("Landlord"), and INHALE THERAPEUTIC SYSTEMS, a California
corporation ("Tenant"), effective as of the 5th day of November, 1997.
RECITALS
A. Landlord and Tenant have entered into that certain Sublease
and Lease Agreement (the "Original Lease") dated October 2, 1996, as amended
by that certain First Amendment to Sublease and Lease Agreement (the "First
Amendment") dated October 30, 1996, that certain Letter Agreement dated April
9, 1997, and that certain Third Amendment to Lease dated April 16, 1997
(collectively the "Existing Lease"). All capitalized terms used herein shall
have the same meaning ascribed to them in the Existing Lease, unless
expressly defined in this Amendment.
B. Landlord and Tenant desire to modify certain provisions of the
Existing Lease as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. Landlord's Obligation to Reimburse Tenant for Costs Incurred By
Tenant in Performing Landlord's Obligations.
(a) DELETION OF SECTION 4 OF THE FIRST AMENDMENT. Section 4
of the First Amendment provides that Tenant shall remove and/or abate
asbestos containing materials located in the interior of the premises or on
the roof thereof ("ACM"). Such paragraph provides that Landlord shall pay the
costs of such removal and/or abatement within thirty (30) days of receipt of
invoices regarding the costs thereof. Landlord and Tenant desire to modify
such method of payment, and the cost reimbursement provisions of Section 4
of the First Amendment are hereby deleted. The cost reimbursement provisions
of this Section 1 shall supersede and fully replace the provisions of Section
4 of the First Amendment.
(b) TENANT'S COSTS INCURRED IN CONNECTION WITH PERFORMANCE OF
LANDLORD'S OBLIGATIONS AND ADJUSTMENT TO DECEMBER RENT. Tenant has incurred
the amount of $235,197.00 (referred to herein as the "First Portion of the
Reimbursable Amount") in connection with the performance of certain work for
which Landlord has agreed to reimburse Tenant, including, without limitation,
abatement of ACM, abatement of lead, repair of damage caused by Landlord's
contractor, demolition of canopy, installation of sidewalk, clean-up,
demolition of storage shed, and certain building and fire code compliance
work. Landlord's payment of the First Portion of the Reimburseable Amount
shall satisfy all of Landlord's reimbursement obligations to Tenant with
respect to lead abatement in Phase I of the Building.
1.
<PAGE>
The Base Rent under the Lease is intended to increase to $59,150 effective in
January 1998. As an accommodation to Landlord, Tenant has agreed to increase
the December 1997 Base Rent to $59,150, provided that Landlord reimburses
Tenant the amount of $18,850 (referred to herein as the "Second Portion of
the Tenant's Reimbursable Amount"). The First Portion of the Reimbursable
Amount and the Second Portion of the Tenant's Reimbursable Amount are
collectively referred to herein as the "Reimbursable Amount".
(c) REDUCTION IN RENT OR TENANT REIMBURSABLE AMOUNT.
Beginning on January 1, 1998, Tenant shall be entitled to deduct from the
rental amount due each month, an amount necessary to amortize the
Reimbursable Amount over a period of twelve (12) months at an annual interest
rate of ten per cent per annum, with interest commencing to accrue on January
1, 1998.
(d) REPAYMENT OF ALL OUTSTANDING TENANT REIMBURSABLE AMOUNT
UPON SALE OR REFINANCING. Notwithstanding Tenant's right to reduce the rent
in accordance with Section 1(b), above, Landlord shall repay to Tenant all
unpaid Tenant Reimbursable Amount, plus all accrued and unpaid interest, upon
the closing of a financing or sale of Landlord's interest in the real
property subject to the Lease (the "Property"). Upon such payment, the offset
right in Paragraph 1(c) shall terminate.
2. "SUBJECT IMPROVEMENTS" UNDER FIRST AMENDMENT. Section 1 of the
2.
<PAGE>
First Amendment provides that Landlord shall contribute an amount equal to
fifty percent (50%) of the difference between (x) the actual costs incurred
by Tenant to modify or construct the Subject Improvements (as defined
therein), less (y) Five Hundred Thousand Dollars, but in no event more than
$250,000. The amounts which Landlord is required to pay under Section 1 of
the First Amendment are referred to herein as the "Landlord's Portion of
Shared Costs". Section 2 of the First Amendment provides two methods for
Landlord to repay Landlord's Portion of Shared Costs. Section 2 of the First
Amendment is hereby deleted and replaced with the provisions of this
Paragraph 2 of this Fourth Amendment.
(a) RENTAL REDUCTION IN CONNECTION WITH LANDLORD'S PORTION OF
SHARED COSTS. Beginning on January 1, 1999, Tenant shall be entitled to
deduct from the rental amount due each month, an amount necessary to amortize
the Landlord's Portion of Shared Costs over a period of eighteen (18) months
at an annual interest rate of ten per cent per annum, such interest to
commence accruing as of July 1, 1998.
(b) REPAYMENT OF LANDLORD'S PORTION OF SHARED COSTS UPON
SALE OR REFINANCING. Notwithstanding Tenant's right to reduce the rent in
accordance with Section 2(a), above, Landlord shall repay to Tenant any
unpaid Landlord's Portion of Shared Costs, plus all accrued and unpaid
interest, upon the closing of a financing or sale of Landlord's interest in
the Property. Upon such payment, the offset right in Paragraph 2(a) shall
terminate.
3. EXTENSION OF DUE DATE OF $5,000,000 LOAN. In consideration for
Tenant's agreement to extend the due date of the April 14, 1997 Secured
Promissory Note in the amount of $5,000,000 (the "Note") until the earlier of
(i) December 31, 1997, or (ii) the date upon which financing or sale of
Landlord's interest in the Property in consummated, Landlord and Tenant have
agreed to the modifications to the Lease described herein.
4. NO FURTHER MODIFICATIONS. Except as expressly set forth
herein, the terms and conditions of the Existing Lease shall remain
unmodified and in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Fourth
Amendment as of the date first set forth above.
LANDLORD: TENANT:
TMT ASSOCIATES, LLC. INHALE THERAPEUTIC SYSTEMS,
a California limited liability company a California corporation
By: /s/ Thomas Peirona By: /s/ Ajit Singh Gill
---------------------- -----------------------
Its: Member Its: Chief Operating Officer
---------------------- -----------------------
3.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE QUARTERLY FINANCIAL STATEMENTS OF INHALE THERAPEUTIC SYSTEMS, INC. AS FILED
ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,671
<SECURITIES> 43,618
<RECEIVABLES> 13,632
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,459
<PP&E> 64,891
<DEPRECIATION> (10,755)
<TOTAL-ASSETS> 126,688
<CURRENT-LIABILITIES> 15,631
<BONDS> 0
0
0
<COMMON> 173,503
<OTHER-SE> (68,421)
<TOTAL-LIABILITY-AND-EQUITY> 126,688
<SALES> 0
<TOTAL-REVENUES> 17,657
<CGS> 0
<TOTAL-COSTS> 30,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,228)
<EPS-BASIC> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
