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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-23160
__________________
ANESTA CORP.
(Exact name of registrant as specified in its charter)
Delaware 87-0424798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4745 Wiley Post Way, Salt Lake City, Utah 84116
(Address of principal executive offices, including zip code)
(801) 595-1405
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to be
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _______
The approximate aggregate market value of the Common Stock held by non-
affiliates of the Registrant, based upon the last sale price of the Common Stock
reported on the National Association of Securities Dealers Automated Quotation
National Market System was $148,505,627 as of March 21, 2000.*
The number of shares of Common Stock outstanding was 13,372,432 as of March
21, 2000.
____________________
* Excludes 5,478,655 shares of Common Stock held by directors and officers and
stockholders whose beneficial ownership exceeds five percent of the shares
outstanding at March 21, 2000. Exclusion of shares held by any person should not
be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control with
the Registrant.
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Except for the historical information contained herein, the following Report
contains forward-looking statements which involve risks and uncertainties. When
used in this report, the words "intend," "anticipate," "believe," "estimate,"
"plan" and "expect" and similar expressions as they relate to the Company are
included to identify forward-looking statements. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of the risk factors discussed in this report under the
heading "Risk Factors".
PART I
ITEM 1. BUSINESS
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Introduction
Anesta Corp. (Anesta or the Company) is a leader in the development of new
pharmaceutical products for oral transmucosal drug administration. The Company's
products are based on its proprietary oral transmucosal system (OTS/(TM)/) for
drug delivery. Anesta's principal product is Actiq/(R)/(oral transmucosal
fentanyl citrate), an OTS fentanyl product, which was approved by the U.S. Food
and Drug Administration (FDA) on November 4, 1998. Actiq is the first product
specifically designed, studied and approved for breakthrough cancer pain. Actiq
is indicated for the management of breakthrough cancer pain in patients with
malignancies who are already receiving and who are tolerant to opioid therapy
for their underlying persistent cancer pain.
Breakthrough cancer pain is a sporadic flare of severe cancer pain that "breaks
through" the patient's regular medication for persistent cancer pain.
Breakthrough cancer pain is a component of chronic cancer pain that is
particularly difficult to treat due to its severity, rapid onset and
unpredictability. The Company believes that more than 800,000 patients
experience breakthrough cancer pain representing approximately one-half of all
cancer pain patients in the United States.
Anesta's OTS consists of a drug matrix that is mounted on a handle or other
controlling device. The OTS is designed to achieve rapid absorption of certain
potent drugs through the oral mucosa, the lining of the mouth, and into the
bloodstream, producing rapid onset of the desired therapeutic effect. Anesta's
OTS allows the caregiver or patient to monitor the onset of action, remove the
unit and stop administration of the drug once the desired therapeutic effect has
been achieved or side-effects appear.
On March 13, 2000, Anesta announced that it had renegotiated the U.S. marketing
rights for Actiq with Abbott Laboratories Hospital Products Division (Abbott).
Anesta will have primary responsibility for the sales and marketing of Actiq in
the U.S. Abbott will continue to manufacture and distribute Actiq in the U.S.
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Anesta has also entered into collaborations with Grupo Ferrer Internacional S.A.
(Ferrer) for Spain and Portugal, Laboratoire L. Lafon (Lafon) for France,
Swedish Orphan AB (SWO) for Scandinavia (Denmark, Finland, Iceland, Norway, and
Sweden), and Elan Pharma International, a unit of Elan Corporation, plc, (Elan)
for Austria, Belgium, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Philippines, Switzerland, Taiwan and the United Kingdom. These agreements grant
exclusive marketing, sales and distribution rights for Actiq, Fentanyl Oralet
and any future OTS fentanyl products.
Anesta is also developing other product candidates using its proprietary OTS
drug delivery platform. Currently, the Company has seven investigational product
candidates undergoing clinical evaluation. OTS fentanyl for acute pain is the
subject of ongoing Phase 2/3 clinical trials. The Company is in late Phase 2
clinical trials for OTS nicotine. OTS etomidate for short-acting sedation is in
early Phase 2 clinical trials. OTS piroxicam, a non-opioid drug to treat pain,
and OTS droperidol, a drug to treat nausea and vomiting, are in Phase I clinical
trials. Anesta filed two Investigational New Drug applications (IND) for two new
product candidates in late 1999. One IND was for OTS scopolamine, a drug to
treat motion sickness and the second IND was for OTS prochlorperazine, a drug to
treat nausea and vomiting. Anesta continues to evaluate various compounds and is
conducting preclinical research with various compounds using its OTS technology.
In February 1999, the Company entered into a 12-month option agreement with
Novartis involving the Company's proprietary OTS for drug delivery. Under the
terms of the option agreement, Novartis and the Company assessed the
worldwide commercial opportunity of potential products combining Novartis
compounds with the Company's OTS. Currently, the Company and Novartis are in
discussions about the possibility of a definitive licensing agreement.
Background on Drug Delivery Methods
Drug delivery is the method of delivering an active pharmaceutical compound to
the body in a manner which is designed to optimize therapeutic effect and/or
minimize side effects. For many chronic indications, such as certain types of
heart disease, it is often advantageous to have sustained release of the active
compound over a long period of time. However, for many acute indications, the
opposite pharmacokinetic profile is desired: an easily-controlled rapid onset of
action and rapid clearance from the blood stream. By providing for more accurate
dosing, greater convenience, or lower cost, a variety of novel drug delivery
technologies have been widely accepted by physicians, patients, and payors.
Existing drug delivery systems include the following:
Tablets and capsules. Orally delivered tablets or capsules are convenient and
cost-effective, but they generally do not provide rapid onset of action. Also,
some drugs do not achieve adequate bioavailability if administered as a tablet
or capsule due to degradation of the drug by the stomach and liver.
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Infusions and injections. Infusions and injections provide rapid onset of
action. Infusion techniques can titrate potent drugs with very rapid changes in
effect. However, infusions and injections are invasive and can be painful to
some patients. Infusions and injections generally must be administered by
trained medical professionals and are often inconvenient and expensive.
Transdermal patches. Transdermal delivery systems, which allow absorption of
drugs through the skin, are convenient and easy to use, and provide a relatively
steady rate of drug delivery. However, a transdermal patch may take four to ten
hours to achieve therapeutic blood levels. In addition, drug absorption into the
bloodstream may continue for hours after removal of the patch. This slower onset
of action and inability to quickly stop absorption limit the usefulness of
transdermal patches in some applications and present safety concerns in some
clinical situations. For example, patients in acute pain cannot wait several
hours for pain relief and may need to be hospitalized to obtain injections or
infusions of fast-acting medication.
Transnasal and inhalation. Nasal spray, dry powder and aerosolized inhalation
delivery systems are designed to provide rapid onset of action or to deliver
drugs that are not orally bioavailable. Nasal sprays can cause irritation and
can be difficult to administer in some patients. In addition, it can be
difficult for a patient to titrate or control the dose of the product using
nasal or inhalation delivery systems.
Anesta's Proprietary OTS for Drug Delivery
Anesta's proprietary OTS is designed to address the medical need for a
convenient, non-invasive, cost-effective drug delivery system that provides
rapid onset of therapeutic action. The OTS allows the caregiver or patient to
control drug administration until the desired effect is achieved and quickly
stop administration if side effects appear. The OTS consists of a dissolvable,
non-dissolvable, or device-based drug matrix, which is mounted on a handle or
other controlling device. The drug is released from the matrix in the mouth,
allowing rapid absorption through the oral mucosal tissues and into the
bloodstream. There is also slower absorption through the gastrointestinal tract.
Oral transmucosal drug delivery achieves rapid absorption of many drugs because
the oral mucosa are significantly more permeable than the skin, have a large
surface area and are highly vascularized. However, not all drugs are appropriate
for oral mucosa delivery with the Company's technology.
For certain drugs or applications, Anesta believes that its OTS can provide one
or more of the following therapeutic advantages over other available methods of
drug administration:
Rapid Onset of Action. The efficacy of many systemic drugs is related to their
blood concentration. The more rapidly an effective blood concentration is
reached, the sooner the drug provides therapeutic effect. The Anesta OTS enables
drugs to cross the oral mucosa and be absorbed rapidly into the bloodstream,
thus achieving a therapeutic blood concentration more rapidly than tablets,
capsules or transdermal patches.
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Dose-to-Effect Control. The stomach and the liver may significantly degrade
drugs delivered by tablets or capsules. Thus, tablets and capsules often contain
higher doses of a drug than are necessary to achieve a therapeutic effect,
potentially leading to over-medication and side effects. Continuous infusion
therapy can alleviate these dosing problems, but may lead to increased cost,
patient inconvenience and patient noncompliance with prescribed dosing regimens.
Anesta's OTS allows the caregiver or patient to monitor the onset of action and
remove the unit to stop administration of the drug once the desired therapeutic
effect has been achieved or side effects appear. This can avoid doses that are
higher than necessary to achieve safe and effective therapy, an important and
beneficial element of control.
Rapid Termination of Drug Delivery. In certain applications, it is desirable to
stop drug administration once the desired effect has been obtained. For example,
if a patient receives a sedative in connection with a brief outpatient
procedure, substantially all of the sedative effect should be gone before the
patient can be discharged. The drug contained in a tablet or capsule may
dissolve and continue to be absorbed into the bloodstream over a period of
hours. Similarly, when a transdermal patch is removed, the drug that has already
accumulated within the skin will continue to be absorbed into the bloodstream
for a number of hours. Thus, drug absorption from tablets, capsules and
transdermal patches may continue longer than necessary or desired. By contrast,
once Anesta's OTS is removed, absorption of the drug through the oral mucosal
tissues into the bloodstream stops almost immediately.
Improved Safety. Removing the unit limits further absorption of the drug into
the body if a patient has an adverse reaction. Because the dosage unit can be
removed immediately, the amount of the drug delivered to the patient may be
lower than if a tablet, capsule, transdermal patch or injection had been
administered.
Cost-Effective. Traditionally, when rapid onset of action is critical, infusions
or injections have been required. Infusions and injections generally are given
by a skilled caregiver and may require that a catheter be inserted. In contrast,
the patient simply places the OTS dosage unit in his or her mouth. Thus, Anesta
believes that its OTS may offer a more cost-effective means of delivering
certain drugs that are now given by infusion or injection.
Greater Patient and Caregiver Convenience. The Company's OTS is easily
administered, comfortable, non-threatening and allows a caregiver or the patient
the ability to titrate drug administration.
Anesta's Business Objectives and Strategy
Anesta intends to be the leader in the oral transmucosal delivery of drugs.
Anesta's near-term objectives are increased sales of Actiq in the United States
and commercialization of Actiq in Europe. Anesta's longer-term strategy is to
develop and commercialize a range
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of products based upon its proprietary OTS. Anesta is pursuing these objectives
with the following strategies:
Increased Sales of Actiq in the United States. Effective April 2000, Anesta has
responsibility for the sales and marketing of Actiq in the United States. To
maintain and increase sales of the product, Anesta has retained a contract sales
organization to recruit and retain a field sales organization to sell Actiq. In
addition, Anesta has a regional medical liaison field organization which
provides technical and clinical assistance to the field sales organization.
Anesta will manage the field organizations, and the marketing strategies and
tactics with its internal sales and marketing group.
Commercialize Actiq Internationally. On August 18, 1999, Anesta UK LTD. (Anesta
UK), a wholly owned subsidiary of Anesta, announced the filing of an abridged
Marketing Authorization Application (MAA) for Actiq with the Medicines Control
Agency (MCA) in the United Kingdom. If approved, Actiq would be the first
product of its kind in the United Kingdom to be specifically indicated for the
management of breakthrough pain in patients already receiving maintenance opioid
therapy for chronic pain.
Leverage OTS Technology Platform. Anesta plans to leverage its proprietary OTS
platform technology across a number of therapeutic areas. The Company will focus
its product development program on large markets where the Company's OTS
technology may offer benefits over existing therapies. The Company intends to
continue developing new pharmaceutical products by applying its OTS to approved
drugs, both proprietary and generic, where existing methods of drug delivery
have therapeutic or clinical limitations. The Company intends to continue to
expand its proprietary position by pursuing patent protection in the United
States and key international markets for its OTS and for dosage forms that
incorporate such technology.
Maximize Value From Products. Anesta intends to capture a substantial portion of
the future economic benefits from its approved products and product candidates.
By selectively investing in multiple aspects of the drug development and
commercialization process, such as manufacturing and clinical development, in
addition to research and formulation, Anesta believes it will be able to form
more economically and strategically attractive partnerships with larger
pharmaceutical companies.
Anesta's Products and Development Programs
The Company's research and development activities involve formulation and
analytical methods development, in vitro and in vivo proof-of-concept testing,
manufacturing process development, quality control and quality assurance
programs, preclinical and clinical research, regulatory documentation and
interaction with the FDA and other regulatory agencies to gain marketing
approval for its products.
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The following table identifies the potential therapeutic indications for and
current status of Anesta's approved products and the primary products that are
in research and development.
<TABLE>
<CAPTION>
Programs and Products Indication Status(1)
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<S> <C> <C>
OTS fentanyl Program
Actiq (U.S.)(2) Breakthrough cancer pain NDA Approved
Fentanyl Oralet(2) Sedation and analgesia; surgical NDA Approved
premedication
Actiq (International)(3) Breakthrough pain MAA Filed (U.K.)
OTS fentanyl(2) Acute pain Phase 2/3
Other OTS Product Candidates
OTS nicotine Smoking cessation Phase 2
OTS etomidate Short-acting sedation Phase 2
OTS piroxicam Mild to moderate pain Phase 1
OTS droperidol Nausea and vomiting Phase 1
OTS scopolamine Motion sickness IND Filed
OTS prochlorperazine Nausea and vomiting IND Filed
</TABLE>
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(1) See "Business -- Government Regulation" for a description of the various
phases of clinical testing.
(2) Abbott is Anesta's contract manufacturer for this product in the United
States. See "-- Collaborative Relationships."
(3) Sales and distribution rights to this product have been granted to Ferrer,
Lafon, SWO and Elan. See "-- Introduction" for the specific countries for
each partner.
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Actiq for Breakthrough Cancer Pain
Breakthrough Cancer Pain. In recent years, there has been growing awareness that
millions of cancer patients do not receive adequate pain relief. Inadequate pain
management leads to debilitation and reduced quality of life and places
increased stress on interpersonal relationships with family, friends and
caregivers. Many clinicians believe that improving a patient's control over pain
also helps in the patient's ability to fight the underlying disease.
One of the most challenging components of cancer pain is breakthrough pain -- a
transitory flare of moderate to severe pain occurring on a background of
controlled persistent pain in patients receiving chronic opioid therapy.
Breakthrough pain may be related to a specific activity or may occur
spontaneously and be totally unpredictable. When related to a specific activity
such as walking or eating, it may be termed incident pain. The Company believes
that over 800,000 cancer patients in the United States suffer from breakthrough
pain, representing over half of all U.S. cancer patients who experience moderate
to severe pain.
Breakthrough cancer pain typically develops rapidly and often reaches maximum
intensity in three to ten minutes. It has a variable duration of 30 minutes to
several hours. These episodes can be excruciatingly painful and debilitating.
Opioid tablets, capsules and elixirs are not optimal to treat breakthrough
cancer pain because they typically require 30 minutes or more to produce pain
relief. This slow onset of pain relief results in a "pain relief gap" for
patients or the painful and anxious wait between onset of breakthrough pain and
effective pain relief.
Physicians can attempt to manage breakthrough cancer pain by increasing the dose
of the around-the-clock, long-acting opioid analgesic until the patient no
longer experiences breakthrough pain. However, this approach frequently leads to
over-medication and an increase in undesirable side effects such as drowsiness
or severe constipation. Patients and their physicians often are forced to
balance effective pain relief against the side effects associated with higher
opioid doses. As a result, cancer patients may suffer one to four episodes of
breakthrough pain every day.
The only currently available treatments that adequately match the rapid onset of
pain relief to the rapid onset of breakthrough cancer pain are intravenous or
subcutaneous infusions or intramuscular injections of potent opioids. In many
settings, infusions or injections are unacceptable because they are invasive,
uncomfortable, inconvenient for patients and caregivers, and more costly than
less invasive methods. Some current practice guidelines teach against using
invasive means of treating pain if at all possible.
Product Attributes. There is a significant unmet need for a breakthrough cancer
pain treatment that provides rapid pain relief in a simple, oral, controllable,
safe and patient-friendly manner. Anesta believes that Actiq meets these
criteria, by providing onset of pain relief within 15 minutes in a form that
allows the patient to control the dose. Actiq is
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more convenient, more user-friendly and less costly than many invasive methods
of drug delivery.
Actiq is a drug matrix containing the active drug fentanyl, attached to a
handle, which facilitates rapid absorption of the drug across the oral mucosa
and into the blood stream. The analgesic effects of fentanyl are directly
related to the blood level of the drug, with proper allowance for the three to
five minute delay across the blood-brain barrier. The generally observed 50%
bioavailability of Actiq is divided equally between rapid transmucosal and
slower gastrointestinal absorption.
Clinical Program and Data for the Actiq NDA. Anesta's clinical program for
breakthrough cancer pain NDA involved a total of 12 studies at 45 U.S. sites,
which evaluated six dosage strengths of Actiq ranging from 200 to 1600
micrograms. The Company's clinical trials specific to breakthrough cancer pain
enrolled 257 patients who received nearly 75,000 doses of Actiq. The average
duration of therapy in the long-term safety study was 149 days, with patients
using Actiq to treat an average of 2.4 episodes of breakthrough cancer pain per
day. Some patients completed more than 800 days of Actiq therapy.
In the Actiq pivotal study of 130 patients, the efficacy of Actiq was compared
against placebo. Actiq produced significantly larger decreases in pain intensity
and better pain relief scores than placebo at 15, 30, 45, and 60 minutes
(p 0.0001). The most common adverse events observed with Actiq use in
breakthrough cancer pain patients were somnolence, nausea, vomiting and
dizziness, which are generally associated with opioid therapy.
FDA Approval and Commercial Plans. On November 4, 1998, the FDA cleared Actiq
for marketing for use in the management of breakthrough cancer pain in patients
with malignancies who are already receiving and who are tolerant to opioid
therapy. Actiq is the first product specifically designed, studied and approved
for breakthrough cancer pain. The product was launched in March 1999 in the
United States. During 1999 a dedicated Abbott sales force sold Actiq in the
United States with support from Anesta's regional medical liaison field
personnel. On March 13, 2000, Anesta announced that it had renegotiated U.S.
marketing rights for Actiq with Abbott. Effective April 1, 2000, Anesta will
have primary responsibility for the sales and marketing of Actiq in the U.S.
Abbott will continue to manufacture and distribute Actiq in the U.S.
The marketing of Actiq is accompanied by a comprehensive risk management program
of educational and safe use messages, which inform health care professionals,
patients and their families of proper use, storage, handling and disposal of the
product. This program is designed to address three potential risk situations:
accidental ingestion by children, improper patient selection, and diversion and
abuse. The greatest risk of improper Actiq use is the potential for respiratory
depression, which could be life threatening. As with all strong pain medicines,
steps must be taken to prevent access to Actiq by anyone other than the person
for whom the product was prescribed.
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The proposed treatment plan for using Actiq for breakthrough cancer pain is
simple and consistent with current clinical practice guidelines. Physicians
prescribe an around-the-clock opioid analgesic for persistent cancer pain, using
conventional products such as sustained-release morphine tablets or fentanyl
transdermal patches. The patient is instructed to use Actiq when the patient
feels the onset of breakthrough cancer pain. As the drug matrix dissolves, the
Fentanyl is released for rapid absorption through the mucosal tissues into the
blood stream. Actiq is available in six dosage strengths. It is recommended that
all patients should start at the lowest dosage level (200 g) and increase to
higher dosage strengths as necessary to achieve therapeutic effect without
triggering unacceptable side effects.
Actiq is contraindicated in the management of acute or postoperative pain and
must not be used in opioid non-tolerant patients. It is intended to be used only
in the care of cancer patients by oncologists and pain specialists who are
skilled in the use of schedule II opioids to treat cancer pain.
International Commercialization of Actiq. The Company believes that there is a
significant market opportunity for Actiq to treat breakthrough pain outside of
the United States. However, the prevailing practices regarding use of potent
opioids to treat cancer pain vary significantly from country to country.
In order to address the international market opportunity, Anesta developed and
validated a second generation manufacturing process for Actiq. This new
manufacturing process yielded a formulation which was shown to be bioequivalent
to the original formulation. During 1999, Anesta manufactured Actiq for use in
clinical studies in the United Kingdom. The Company will seek appropriate
regulatory approval for its manufacturing facility located in Salt Lake City,
Utah.
Anesta's clinical research in the United Kingdom was completed in 1999. On
August 18, 1999, Anesta UK announced the filing of an abridged MAA for Actiq
with the MCA in the United Kingdom. If approved, Actiq would be the first
product of its kind in the United Kingdom to be specifically indicated for the
management of breakthrough pain in patients already receiving maintenance opioid
therapy for chronic pain. Subject to approval in the United Kingdom, Anesta will
work in collaboration with its European partners to request approval of Actiq in
the other member states of the European Union via the mutual recognition
process. The Company has entered into four European commercial partnerships for
Actiq.
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Fentanyl Oralet (OTS fentanyl) for Premedication
Anesta's first OTS fentanyl product, Fentanyl Oralet, was approved by the FDA in
October 1993 for use in children and adults as a premedication before surgery
and for sedation/analgesia prior to painful procedures in monitored anesthesia
settings. Fentanyl Oralet is available in four dosage strengths ranging from 100
to 400 micrograms. Most patients experience an onset of analgesia in six to
eight minutes, and sedation and reduced anxiety in 20 to 30 minutes. Side
effects are similar to those produced by other opioid products. Although the
market potential for Fentanyl Oralet is limited, Anesta believes that the
commercialization of Fentanyl Oralet has benefited Anesta by allowing the
Company's first product to be studied, approved and introduced in a controlled
clinical setting.
Other OTS Product Candidates
Anesta has seven OTS product candidates under clinical evaluation:
OTS nicotine for smoking cessation. Nicotine replacement therapy has become
established as a successful aid to smoking and tobacco cessation programs.
Nicotine replacement products that have been approved include a nicotine gum,
several transdermal nicotine patches, a nicotine nasal spray and a nicotine
inhaler. The nicotine gum and three nicotine transdermal patches have been
approved by the FDA as over-the-counter products. Smoking cessation experts
believe that increasing the availability and number of nicotine replacement
products will provide a public health benefit, as no single therapy will be
effective for all smokers desiring to quit. These experts foresee a need for a
broad range of readily available products and therapies to increase the success
rate of smoking cessation programs.
The pharmacokinetic profile and behavioral characteristics of OTS nicotine are
different from the other nicotine replacement products currently on the market.
Some smokers who have used OTS nicotine have commented that the ability to
control dosing by repeatedly inserting and removing the OTS nicotine unit from
their mouths has given them a greater ability to manage their urge to smoke.
This element of control is different from that offered by these other treatment
modalities. Anesta believes that this ability to titrate the dose of nicotine
and rapidly deliver adequate doses to the individual may more closely displace
the physiologic dependence and psychological craving effects of cigarettes. The
Company believes these properties of OTS nicotine may be especially effective in
the early stages of smoking cessation and in smoking relapse prevention.
Anesta has completed several Phase 2 clinical studies for OTS nicotine and has
studied the results from more than 400 smokers and nonsmokers dosed with OTS
nicotine. These studies have evaluated the effects of different dosage
strengths, the acceptability of different taste formulations, and the ability of
OTS nicotine to aid in smoking cessation with limited, short-term use and with
eight weeks of therapy. In early studies, OTS nicotine has been shown to (1)
increase blood concentrations in proportion to dose, (2) decrease the desire to
smoke at higher doses, and (3) exhibit a high patient acceptance of
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the product. Side-effects observed with OTS nicotine were mild and typical of
those seen with nicotine administration. Clinical data from a larger Phase 2
study comparing smoking quit rates over an 8-week period of use showed that
smokers using OTS nicotine achieved quit rates of 21%, similar to both the
nicotine gum (16%) and the nicotine patch (21%).
OTS fentanyl for acute pain. There are multiple causes of acute pain including
surgery, trauma and conditions such as kidney stones. Acute pain usually
requires the rapid onset of pain relief. Historically, hospitalized patients
have received injections or infusions to receive rapid pain relief. More
recently, patient controlled devices with sophisticated microelectronics have
been introduced which allow patients to self-administer the pain medication
intravenously when they feel the need for pain relief. This method of patient
controlled analgesia has been shown to improve pain management while decreasing
the total daily dose of medication. The Company believes there are psychological
benefits to patients who gain more control over their analgesic therapy. Anesta
has completed several Phase 2/3 clinical studies for acute pain. A recent
clinical study of OTS fentanyl in 133 post-operative patients with acute pain
showed that the onset of meaningful pain relief occurred in under five minutes
in over 50% of the patients, and this onset of meaningful pain relief was
similar to that observed with administration of intravenous morphine. Duration
of action for OTS fentanyl ranged from two to three hours and depended on the
doses administered.
OTS etomidate for short acting sedation. OTS etomidate is designed to provide
sedation for patients undergoing various types of outpatient medical or dental
procedures, either where the procedure is not painful or where pain is managed
by other methods such as local or regional anesthesia. Anesta believes that
there is a need for a rapid onset, short duration sedative that allows patients
to have a rapid, clear-headed recovery and prompt discharge after an outpatient
procedure is completed. Target applications include various scope procedures,
biopsies, and dental procedures. Two Phase 1 clinical studies showed that OTS
etomidate delivers dose-related therapeutic blood levels to produce onset of
sedation in 10 to 20 minutes. Sedation continues for 30 to 40 minutes. Emergence
from sedation to a level indicative of recovery occurs 60 to 90 minutes after
taking the drug. Two Phase 2 clinical studies with OTS etomidate have been
completed. These studies were dose-ranging (with placebo) studies of
approximately 80 patients each in patients undergoing sigmoidoscopy or wisdom
tooth extraction.
OTS piroxicam for pain management. Anesta is conducting a Phase 1 clinical trial
with OTS piroxicam. The goal of the first clinical trial is to determine plasma
drug levels in normal volunteers. OTS piroxicam contains the active drug
piroxicam, a nonsteroidal anti-inflammatory agent. Drugs in this class can be
used to treat mild to moderate pain.
OTS droperidol for nausea and vomiting. Anesta is conducting a Phase 1 clinical
study with OTS droperidol. The goal of the first clinical trial is to determine
plasma drug levels in normal volunteers. OTS droperidol contains the active drug
droperidol, a dopamine-2 antagonist. Drugs in this class can be used to prevent
or relieve nausea and vomiting flowing surgery or following chemotherapy.
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Anesta filed two new IND applications for OTS-based products in late 1999: OTS
scopolamine for motion sickness and OTS-prochlorperazine for treating nausea and
vomiting. Phase 1 clinical trials are scheduled for these compounds in 2000.
Research and Development
Anesta is conducting preclinical research and development with its OTS
technology in several therapeutic areas and will continue to evaluate additional
products and compounds using the OTS technology. Anesta has developed its
proprietary OTS products in collaboration with the University of Utah Research
Foundation (UURF) and Abbott. Future development projects may involve
collaboration with other research organizations and other established
pharmaceutical companies. The Company's primary emphasis is on basic and applied
research, product and process development, clinical research, regulatory
interactions and filings and commercial market development and preparation.
Since its inception, Anesta has managed most aspects of its clinical trials and
has prepared substantially all U.S. regulatory filings for its products. In
1999, 1998 and 1997, Anesta's research and development expenditures were
$9,840,000, $8,628,000 and $7,889,000 respectively.
Collaborative Relationships
Anesta's commercial strategy is to develop products independently and
collaborate, where appropriate, with established pharmaceutical companies and
institutions. Collaborative partners may provide financial resources, research
and manufacturing capabilities and marketing infrastructure to aid in the
commercialization of Anesta's product candidates in development. The Company may
license its technology or products to others and retain profit sharing, royalty,
manufacturing, co-marketing, co-promotion or similar rights. Any such
arrangements could limit the Company's flexibility in pursuing alternatives for
the commercialization of its product candidates.
Abbott Laboratories
In 1989, Anesta entered into a research and development, license, supply and
distribution agreement with Abbott. Under the agreement, as amended (1989
Agreement), Anesta granted to Abbott the exclusive right to make, use and market
in the United States OTS products resulting from technology owned or licensed by
Anesta consisting of OTS fentanyl. Under the 1989 Agreement, Abbott provided
development funding and milestone payments and is obligated to pay royalties and
other payments on product sales. In 1995, the Company entered into two
additional funding agreements with Abbott under which Abbott agreed to provide
to the Company $1,500,000 in each of 1995 and 1996 to fund the development of
Actiq for breakthrough cancer pain. Through December 31, 1999, Abbott had paid a
total of $10,050,000 for the development of Anesta's OTS fentanyl product line.
In connection with such development funding, Abbott was granted, and has
exercised, warrants to purchase 1,202,840 shares of the Company's common stock
at prices ranging from $1.00 to $2.40 per share.
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On March 13, 2000, Anesta announced that it had renegotiated the U.S. marketing
rights for Actiq with Abbott. Effective April 2000, Anesta will have
responsibility for the sales and marketing of Actiq in the U.S. As part of the
renegotiation, Anesta will make cash payments to Abbott and is obligated to make
on-going earn-out payments to Abbott until the end of the first patent covering
oral transmucosal fentanyl citrate. Abbott will continue to manufacture Actiq
and Fentanyl Oralet for Anesta in the U.S. for a period of 24 to 36 months,
after which the right of Anesta to manufacture such products after such period
of time.
Anesta and Abbott have agreed to indemnify each other for certain liabilities
arising from the negligent or intentional acts or omissions of either party,
breaches of agreements between them, the lack of safety or efficacy of the
licensed products (depending on the source of the underlying liability) and
liabilities arising from actions taken by either company or its employees,
officers, directors or affilitates prior to the execution of the renegotiated
agreement.
Grupo Ferrer Internacional S.A.
In January 1998, the Company entered into an exclusive agreement with Ferrer, a
leading private Spanish pharmaceutical company, for the marketing, sales and
distribution rights of Anesta's OTS fentanyl product line, including Actiq, in
Spain and Portugal. Ferrer made a payment to the Company and Anesta will
manufacture such products for Ferrer.
Laboratoire L. Lafon
In June 1998, the Company entered into an exclusive agreement with Lafon, a
leading private French pharmaceutical company, for the marketing, sales and
distribution rights of Anesta's OTS fentanyl product line, including Actiq, in
France. Under terms of the agreement, Lafon made payments to the Company and
Anesta will manufacture such products for Lafon.
Swedish Orphan AB
In May 1999, the Company entered into an exclusive agreement with SWO, a leading
private Swedish pharmaceutical company, for the marketing, sales and
distribution rights of Anesta's OTS fentanyl product line, including Actiq, in
scandinavia (Denmark, Finland, Iceland, Norway and Sweden). Under terms of the
agreement, SWO made payments to the Company and Anesta will manufacture such
products for SWO.
Elan Pharma International
In September 1999, the Company entered into an exclusive agreement with Elan, a
leading public Irish pharmaceutical company, for the marketing, sales and
distribution rights of Anesta's OTS fentanyl product line, including Actiq, in
Austria, Belgium, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Philippines, Switzerland, Taiwan and the United Kingdom. Under terms of the
agreement, Elan made payments to the Company and Anesta will manufacture such
products for Elan.
Novartis Consumer Health, Inc.
In February 1999, the Company entered into a 12-month option agreement with
Novartis involving the Company's proprietary OTS for drug delivery. Under the
terms of the option agreement, Novartis and the Company assessed the worldwide
commercial opportunity of potential products combining Novartis compounds with
the Company's OTS. Currently, the Company and Novartis are in discussions about
the possibility of a definitive licensing agreement.
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University of Utah Research Foundation
In 1985, the Company obtained an exclusive worldwide license, including the
right to sublicense, from the UURF for all of the UURF's technology developed or
to be developed by Dr. Theodore H. Stanley, Founding Chairman of the Company,
and others under his direction at the University of Utah in (1) the field of
anesthetic and other drug delivery systems incorporating a matrix to deliver
compounds to the central nervous system via the mucosal tissues of the mouth,
pharynx and esophagus, (2) drug-based immobilization systems for human and
veterinary applications and (3) transdermal drug delivery systems. The Company
is obligated to pay certain royalties to the UURF subject to certain minimum
royalty payments. In addition, Anesta is obligated to pay to the UURF a higher
percentage of the royalties it receives in the event Anesta sublicenses the
licensed technology without any improvement or added value. The Company also has
an exclusive option with UURF to acquire an exclusive worldwide license to
similar technology and intellectual property that may be conceived, invented or
reduced to practice at the University of Utah after the date of its license
grant. Anesta has exercised such option as to all technology covered by its
patents and pending patent applications. The UURF exclusive worldwide license
terminates as to each country upon the expiration of the last patent in such
country relating to the licensed technology.
Manufacturing
Anesta has a manufacturing facility capable of producing quantities of its
proprietary OTS products for research and development, including clinical
studies. Anesta has developed manufacturing capacity to support commercial
distribution of Actiq for international markets. Abbott is Anesta's contract
manufacturer for Actiq and Fentanyl Oralet, subject to the right of Anesta to
manufacture such products in the future.
The Company continues to develop manufacturing processes and to expand its
production capacity for OTS products in order to support larger scale clinical
studies and cost effective commercial production. A second generation OTS
manufacturing process has been developed and is designed to enable scale-up to
larger commercial volumes while reducing the unit cost of producing OTS
products. Anesta increased its manufacturing capacity and packaging capabilities
to support European clinical trials and to supply initial quantities of OTS
fentanyl products to commercial markets outside of the United States. The
Company believes it will be able to maintain compliance with current Good
Manufacturing Practice (cGMP) regulations enforced by the FDA's facilities
inspection program and related international regulations, as well as
requirements imposed by the U.S. Drug Enforcement Agency (DEA). The Company
maintains State and Federal licenses to conduct research, manufacture and export
controlled substances on Schedules II, III, IIIN, IV and V.
15
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Competition
Anesta faces intense competition and technological change. Existing and future
products, therapies, technological approaches and delivery systems will compete
directly with the Company's products. Competing products may provide greater
therapeutic benefits for a specific indication, or may offer comparable
performance at a lower cost. Actiq faces competition from inexpensive oral
morphine tablets and more expensive but quick-acting invasive (intravenous,
intramuscular and subcutaneous) opioid delivery systems. Other technologies for
rapidly delivering opioids to treat breakthrough pain are being developed, at
least one of which is in clinical trials.
The Company competes with fully integrated pharmaceutical companies, smaller
companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug delivery products already
approved or in development and operate large, well-funded research and
development programs in these fields. Anesta's competitors may develop safer or
more effective drugs and achieve faster or broader regulatory approval, wider
availability of supply, more effective marketing and sales or superior
proprietary positions. Any products that Anesta develops may become obsolete
before recovery of any expenses incurred in connection with development of these
products.
Patents, Proprietary Rights and Licenses
The Company's success will depend, in part, on its ability to obtain and protect
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others in the United States and other countries. Anesta's
products are based on 14 U.S. and 112 foreign patents for the OTS, which are
held by the University of Utah and its assignee, UURF. The Company has exclusive
world-wide licenses to these patents which cover the design and types of
pharmaceutical compounds in its products. The Company's success depends on the
continued validity of these patents. If either Anesta or the UURF fail to file,
prosecute or maintain any of the patents, Anesta could be severely damaged. The
Company intends to file additional patent applications relating to its
technology, products and processes. The Company will also direct the UURF to
file any additional patent applications relating to the technology it has
licensed. However, any of these patents or patent applications may be
challenged, invalidated or circumvented by the Company's competitors. These
patents may also fail to provide meaningful competitive advantages to the
Company. For example, another company may develop a way to deliver potent
opioids in a more cost-effective manner than Anesta's products without
infringing on its patents.
The basic technology underlying the Company's proprietary OTS was invented by
Dr. Stanley and Brian Hague, both employees of the Company, while employed at
the University of Utah. Anesta is the exclusive worldwide licensee of such
technology under patents held by the UURF. The license remains in effect for the
life of the covered patents. The U.S. patents expire on various dates ranging
from 2005 to 2009 and the
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foreign patents expire on various dates ranging from 2006 to 2016. Anesta
maintains, at its expense, all U.S. patent rights with respect to the licensed
technology and files and prosecutes the relevant patent applications in the U.S.
and foreign countries. The OTS technology underlying Anesta's exclusive license
is covered by 14 issued U.S. patents, 112 issued foreign patents, four pending
U.S. patent applications and 12 pending foreign patent applications. The Company
also relies upon trade secrets, know-how, continuing technological innovations
and licensing opportunities to develop and maintain its competitive position.
The Company plans to prosecute and defend its technology and the patents and
patent applications being licensed from the UURF.
Intellectual property rights are uncertain and involve complex legal and factual
questions. The Company may be unknowingly infringing on the proprietary rights
of others and may be liable for that infringement, which could result in
significant costs. For example, the Company is not aware of any third party
intellectual property rights which would prevent the Company's use of its new
manufacturing method, although rights of this type may exist. The Company could
be forced to either seek a license to intellectual property rights of others or
alter its products or processes so that they no longer infringe the proprietary
rights of others. A license could be very expensive to obtain, or may not be
available at all. Similarly, changing products or processes to avoid infringing
the rights of others may be costly or impractical.
The Company is responsible for any patent litigation costs. If the Company were
to become involved in a dispute regarding intellectual property, it may have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine who had the claimed rights first. Anesta may also
be forced to seek a judicial determination concerning the rights in question.
These types of proceedings may be costly and time consuming, even if the Company
eventually prevails. If the Company does not prevail, it might be forced to pay
significant damages, obtain a license or stop making a certain product.
Anesta also relies on trade secrets, proprietary know-how and confidentiality
provisions in agreements with collaborative partners, employees and consultants
to protect its intellectual property. Other parties may not comply with the
terms of their agreements with the Company and it may not be able to adequately
enforce its rights against these people.
It is the Company's policy to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all inventions conceived by the
individual in the course of his or her employment shall be the exclusive
property of the Company.
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Government Regulation
The Company's activities and products are subject to significant regulation by a
number of governmental entities, especially the FDA and DEA in the United States
and by comparable authorities in other countries. These entities regulate, among
other things, research and development activities and the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval, advertising,
promotion, distribution and sale of the Company's products. Product development
and approval within this regulatory framework takes a number of years and
involves the expenditure of substantial resources. Many products that appear
promising initially ultimately do not reach the market because they are found to
be unsafe (perhaps too toxic) or lack effectiveness, as demonstrated by testing
required by government regulation during the development process.
The activities required before a pharmaceutical product may be marketed in the
United States primarily begin with preclinical testing. Preclinical tests
include extensive laboratory evaluation of product chemistry and other end
points and animal studies to assess the potential safety of the product as
formulated. The FDA under a series of regulations called the Good Laboratory
Practice (GLP) regulations regulates almost all preclinical studies pertinent to
drug approval. Violations of these regulations can, in some cases, lead to
invalidation of the studies, requiring such studies to be repeated.
The entire body of preclinical development work necessary to administer
investigational drugs to volunteers or patients is submitted in an IND
submission to the FDA. FDA regulations provide that clinical trials may begin 30
days following the submission and receipt of an IND, unless the FDA advises
otherwise or requests additional information, clarification or additional time
to review the IND submission; it is generally considered good practice to obtain
affirmative FDA acquiescence before commencing trials. There is no assurance
that the submission of an IND will eventually allow a company to commence
clinical trials. Once trials have commenced, the FDA may stop the trials, or
particular types or parts of trials, by placing a "clinical hold" on such trials
because of concerns about, for example, safety of the product candidate being
tested or the adequacy of the trial design. Such holds can cause substantial
delay and in some cases may require abandonment of a product candidate.
Clinical testing involves the administration of a drug to healthy volunteers or
to patients under the careful supervision of a qualified principal investigator,
usually a physician, pursuant to a written protocol. Clinical tests pertinent to
an IND are usually conducted in the following sequential phases, although the
phases may overlap. Phase 1 trials generally involve administration of a drug
product to a small number of persons to determine aspects of safety, tolerance,
pharmacokinetic characteristics, and possible early data on effectiveness. Phase
2 trials generally involve administration of a product to a limited number of
patients with a particular disease to determine dosage, efficacy and safety.
Phase 3 trials generally examine the clinical efficacy and safety in an expanded
patient population at multiple clinical sites. Pivotal Phase 3 trials are trials
designed to demonstrate definitive efficacy and safety. At least one such trial
is required for FDA approval to market a drug. Each clinical study is conducted
under the auspices of an
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independent Institutional Review Board (IRB) at every institution at which the
study will be conducted. An IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
The regulatory process required to be completed by a company before a new drug
delivery system may be marketed in the United States depends significantly on
whether the drug (which will be delivered by the drug delivery system in
question) has existing approval for use and in what dosage forms. If the drug is
a new chemical entity that has not been approved, then the process includes (1)
preclinical laboratory and animal tests, (2) an IND application which has become
effective, (3) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug in its intended indication and (4) FDA
approval of an NDA. If the drug has been previously approved, then the approval
process is similar, except that certain toxicity tests normally required for the
IND may not be necessary. Even with previously approved drugs, additional
toxicity testing may be required when the delivery form is substantially
changed. Because the Company's OTS, by design, produces high drug concentrations
at the surface of the oral mucosa, new toxicity tests at this site may need to
be performed. In addition to the foregoing, the FDA requires proof that the
product delivers sufficient quantities of the drug to the bloodstream to produce
the desired therapeutic result.
The results of product development, preclinical studies and clinical studies and
other information are submitted to the FDA in an NDA seeking approval for the
marketing and interstate commercial shipment of the drug. The FDA may deny an
NDA if applicable regulatory criteria are not satisfied or may require
additional clinical or other testing. Even if such data are submitted, the FDA
may ultimately decide that the NDA does not satisfy the criteria for approval.
If the FDA does ultimately approve the product, it may require, among other
things, post-marketing testing, including potentially expensive Phase 4 studies,
and surveillance to monitor the safety and effectiveness of the drug. In
addition, the FDA may in some circumstances impose labeling and promotion
restrictions on the use of the drug that may be difficult and expensive to
administer. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if serious problems occur after the product
reaches the market. Finally, the FDA requires reporting of certain adverse event
information that becomes known to a sponsor or manufacturer of an
investigational or approved drug.
Each domestic drug product manufacturing establishment must be registered with,
and essentially approved by, the FDA. In addition, each such establishment must
inform the FDA of every drug product it has in commercial distribution and keep
such list updated. Establishments handling controlled substances must be
licensed and are inspected by the DEA. Anesta has a current DEA license
appropriate for handling the substances it uses in its facilities. Domestic
establishments are also subject to inspection by the FDA for compliance with
cGMP regulations before or after an NDA has been filed and thereafter, at least
biannually. The labeling, advertising and promotion of drug products also must
be in compliance with pertinent FDA regulatory requirements. Failure to comply
with applicable requirements relating to production, distribution or promotion
of a drug product can lead to FDA demands that production and shipment cease,
and, in some
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cases, that products be recalled, or to enforcement actions that can include
seizures, injunctions and criminal prosecution. Finally, manufacturers of drug
products seeking FDA approval via an NDA are also required, due to recently
introduced user fee requirements, to make payments to the FDA at various stages
of the approval process. In addition, such payments must also be made in
association with annual product and establishment registration.
To market its products abroad, the Company is also subject to numerous and
varying foreign regulatory requirements, implemented by foreign health
authorities, governing, among other things, the design and conduct of human
clinical trials, pricing regulations and obtaining marketing approval. The
approval procedure may vary among countries and can involve additional testing,
and the time required to obtain approval may differ from that required to obtain
FDA approval. At present, foreign marketing authorizations are applied for at a
national level, although within the European Union certain registration
procedures are available to companies wishing to market a product in more than
one European Union member country. The foreign regulatory approval process
includes all of the risks associated with obtaining FDA approval set forth
above. Approval by the FDA does not ensure approval by other countries.
Various aspects of the Company's business and operations are also regulated by a
number of other governmental agencies including the DEA, United States
Department of Agriculture, the Environmental Protection Agency, the Occupational
Safety and Health Administration as well as by other federal, state and local
authorities. In addition, international sales are regulated by numerous foreign
authorities. The Company currently maintains both State and Federal Controlled
Substance Registration Certificates to conduct research, manufacture and export
scheduled drugs.
Product Liability and Product Liability Insurance
The testing, marketing and sale of Anesta's products involves significant risks.
The Company may be held liable for adverse reactions resulting from the use of
our products. The Company's products involve a new method of delivery for potent
drugs that requires greater precautions to prevent unintended use. For example,
Anesta has worked with Abbott to develop a specific risk management program for
Actiq that is designed to prevent accidental ingestion by children, improper
patient selection, diversion and abuse. The failure of these measures could
result in harmful side effects or death. As a result, consumers, regulatory
agencies, pharmaceutical companies or others might make claims against Anesta.
The Company currently has clinical trial and product liability insurance
coverage. Anesta will seek to maintain and appropriately increase such insurance
coverage as development and commercialization of products progresses. Insurance
may not be available at a reasonable cost or in sufficient amounts to protect
the Company from liability claims. The obligation to pay any product liability
claim in excess of Anesta's insurance coverage or the recall of any of its
products could adversely affect its financial condition.
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Human Resources
As of December 31, 1999, Anesta employed 88 individuals, of whom approximately
30 hold Ph.D., M.D. or other advanced degrees. Of its total workforce, 50
employees are engaged in research and development activities and 38 are devoted
to commercial, business development and administrative activities. A significant
number of the Company's management and professional employees have had prior
experience with major international pharmaceutical, biotechnology or medical
products companies. Anesta believes that it maintains good relations with its
employees. The Company's success will depend in large part upon its ability to
attract and retain these and future employees. The Company faces competition in
this regard from other companies, research and academic institutions and
government entities.
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ITEM 2. PROPERTIES
- -------
On December 31, 1999, the Company's administrative offices, research
laboratories and clinical manufacturing facilities comprised approximately
45,824 square feet, located in Salt Lake City, Utah. The lease covering 51,104
square feet of facilities expires March 31, 2000, with two five-year renewal
options. In February 2000, the Company renegotiated the lease for 3 years with
two three-year renewal options. The Company anticipates that its current
facilities will meet the Company's research and development needs through 2000
and has an option to occupy the additional 5,280 square feet of space, if
needed.
ITEM 3. LEGAL PROCEEDINGS
- -------
The Company is not party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended December 31, 1999
22
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------
The Common Stock (Nasdaq symbol NSTA) began trading publicly in the over-
the-counter market through the Nasdaq National Market on January 28, 1994. Prior
to that date, there was no public market for the Common Stock. The following
table presents quarterly information on the price range of the Common Stock.
This information indicates the high and low sale prices reported by the Nasdaq
National Market System. These prices do not include retail markups, markdowns or
commissions.
High Low
------ ------
Fiscal 1998:
First Quarter $21.75 $15.63
Second Quarter 20.38 13.75
Third Quarter 18.63 11.63
Fourth Quarter 27.63 13.25
Fiscal 1999:
First Quarter $29.38 $16.75
Second Quarter 22.88 12.50
Third Quarter 19.75 7.38
Fourth Quarter 18.63 8.13
As of March 21, 2000 there were approximately 178 holders of record of
the Common Stock.
The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore, does not anticipate
paying cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of Anesta Corp. for the five years ended
December 31, 1999 are derived from the audited financial statements and notes
thereto of Anesta Corp., certain of which are included herein. The selected
fianacial data should be read in conjunction with Anesta Corp.'s Financial
Statements and the Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
(In thousands, except per share data)
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Revenues:
Operations Data: Product sales $ 2,232 $ 193 $ 184 $ 92 $ 61
Years ended Royalty revenue 62 6 5 3 102
December 31, Contract research/license agreements 4,221 476 1,503 1,514
--------- ----------- ----------- ---------- ---------
Total revenues 6,515 675 189 1,598 1,677
Operating costs and expenses:
Cost of goods sold 671 54 52 27 19
Royalties 34 3 3 3 3
Research and development 9,840 8,627 7,889 8,304 5,228
Depreciation and amortization 313 296 269 237 158
Marketing, general and administrative 9,017 8,586 6,368 3,537 2,219
--------- ----------- ----------- ---------- ---------
Loss from operations (13,360) (16,891) (14,392) (10,510) (5,950)
Non operating income, net 3,892 1,190 1,845 1,820 1,250
Provision for income taxes (20) (16) (2)
--------- ----------- ----------- ---------- ----------
Loss before cumulative effect
of change in accounting (9,488) (15,717) (12,549) (8,690) (4,700)
Cumulative effect of change
in accounting (1,041)
--------- ----------- ----------- ---------- ----------
Net loss $ (9,488) $ (15,717) $ (12,549) $ (8,690) $ (5,741)
--------- ----------- ----------- ---------- ----------
Basic and diluted loss per common share:
Loss before cumulative effect
of change in accouting $ (0.72) $ (1.59) $ (1.32) $ (1.02) $ (0.65)
Cumulative effect of change
in accounting (0.15)
--------- ----------- ----------- ---------- ---------
Net loss per common share $ (0.72) $ (1.59) $ (1.32) $ (1.02) $ (0.80)
--------- ----------- ----------- ---------- ---------
Weighted average shares outstanding 13,227 9,898 9,500 8,499 7,177
--------- ----------- ----------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data: Cash, cash equivalents,
At December 31, certificate of deposit and
marketable debt securities $ 72,818 $ 82,335 $ 29,676 $ 41,359 $ 21,844
Total assets 78,209 85,129 32,712 43,959 24,242
Long-term obligations, including
current portion 2,000 1,750 2,000 1,350 1,516
Accumulated deficit (58,167) (48,679) (32,962) (20,413) (11,719)
Stockholders' equity 72,426 80,019 29,198 41,115 21,677
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Anesta has two products that have been approved by the FDA, Actiq and Fentanyl
Oralet, and a number of other product candidates in various stages of
preclinical and clinical development. All of these products and product
candidates use Anesta's proprietary OTS for drug delivery. Actiq is indicated
only for the management of breakthrough cancer pain in patients with
malignancies who are already receiving and who are tolerant to opioid therapy
for their underlying persistent cancer pain. Actiq was approved by the FDA in
November 1998 and its commercial launch was in March 1999. Anesta's first
product, Fentanyl Oralet, was developed for premedication before surgery or
painful procedures in monitored anesthesia settings and was approved by the FDA
in October 1993. Commercial sales of Fentanyl Oralet have not been and are not
expected to be significant.
In March 2000, Anesta renegotiated the U.S. marketing rights for Actiq and
Fentanyl Oralet with Abbott. Under terms of the agreements, Anesta will have
primary responsibility for sales and marketing in the United States. As part of
the renegotiation, Anesta will make cash payments to Abbott and is obligated to
make on-going earn-out payments to Abbott until the end of the first patent
covering oral transmucosal fentanyl citrate. Abbott will continue to manufacture
Actiq and Fentanyl Oralet for Anesta in the U.S. for a period of 24 to 36
months, after which the right of Anesta to manufacture such products after such
period of time. Anesta will recognize revenue when Abbott ships product against
a customer order. Anesta's gross margin therefore is directly affected by
Abbott's manufacturing costs. Anesta is also obligated to pay a small royalty on
its sales of Actiq and Fentanyl Oralet to the UURF.
Effective April 2000, Anesta has responsibility for the sales and marketing of
Actiq in the United States. To maintain and increase sales of the product,
Anesta has retained a contract sales organization to recruit and retain a field
sales organization to sell Actiq. In addition, Anesta has a regional medical
liaison field organization which provides technical and clinical assistance to
the field sales organization. Anesta will manage the field organizations and the
marketing strategies and tactics with its internal sales and marketing group.
These activities will significantly increase marketing, general and
administrative expenses in the future.
In 1995, Anesta reacquired from Abbott commercial rights to all OTS fentanyl
products, including Actiq and Fentanyl Oralet, outside the United States. Anesta
intends to commercialize Actiq internationally through collaborations with
corporate partners. Anesta has entered into collaborations with Ferrer for
distribution in Spain and Portugal, with Lafon for distribution in France, with
SWO in Scandinavia and with Elan in the other major western European markets and
parts of Asia. Anesta is pursuing registration of Actiq in the United Kingdom,
the largest cancer pain market in Europe, and if that registration is obtained,
Anesta intends to seek approvals in other European Union countries under the
European Union's mutual recognition process.
Anesta has devoted most of its resources since its inception in 1985 to the
research and development of Fentanyl Oralet, Actiq and other product candidates,
as well as the commercialization of Fentanyl Oralet and Actiq.
Results of Operations
Years Ended December 31, 1999, 1998 and 1997
Revenues. Total revenues increased by $5,840,000 or 865% during 1999 as compared
to 1998 and $485,800 or 257% during 1998 as compared to 1997. The increase in
1999 is primarily a result of product sales subsequent to the launch of Actiq in
the U.S. and upfront fees paid by Elan, Novartis, Lafon and SWO upon execution
of their collaborative agreements. The increase in 1998 is primarily a result of
a contract research payment made by Abbott upon FDA approval of Actiq and from
upfront fees paid by Ferrer and Lafon upon execution of their collaborative
agreements.
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<PAGE>
Operating Costs and Expenses. Research and development expenses increased by
$1,213,000 or 14% during 1999 as compared to 1998 and increased by $738,600 or
9% during 1998 as compared to 1997. The increase in 1999 is primarily due to
expenditures related to the filing for approval of Actiq with the MCA in the
United Kingdom, filing of two IND applications and manufacturing clinical trial
material. The increase in 1998 is primarily due to expenditures related to
activities surrounding the approval of Actiq in the United States, filing two
IND applications and manufacturing clinical trial material. The Company expects
that its research and development expenses will increase in the future as a
result of increased expenses related to the hiring of additional personnel,
preclinical studies, clinical trials, product development, manufacturing process
development activities and clinical trial material manufacturing.
Depreciation expense increased by $13,000 or 5% during 1999 as compared to 1998
and $27,000 or 10% during 1998 as compared to 1997. The increase in 1999 and
1998 is due primarily to the Company's remodeling of additional facilities.
Marketing, general and administrative expenses increased by $434,000 or 5%
during 1999 as compared to 1998 and by $2,218,000 or 35% during 1998 as compared
to 1997. The increase in 1999 and 1998 is due primarily to higher expenditures
for personnel, corporate development activities, European operations, marketing
research and Actiq launch marketing activities. The Company expects that its
marketing and general and administrative expenses will significantly increase in
the future as a result of the increased support required for Actiq marketing and
sales activities, European operations, including Actiq pre-launch activities in
Europe and corporate development activities.
Non Operating Income (Expense). Interest income increased by $2,683,000 during
1999 as compared to 1998 and decreased $659,000 during 1998 as compared to 1997.
The increase during 1999 is due to investment of funds received from the
Company's secondary public offering completed in December of 1998. The decrease
during 1998 compared to 1997 is primarily due to a reduction in the amount of
invested funds. Interest expense decreased by $19,000 during 1999 as compared to
1998 and increased by $4,000 during 1998 as compared to 1997. The change in both
years is primarily due to interest expense related to borrowings on the
Company's revolving/term loan.
Income Taxes. The provision for income taxes for the years ended December 31,
1999, 1998 and 1997 relates solely to state income taxes. The Company recognized
no tax benefit from its losses in those years. The Company's ability to realize
the benefit of the deferred tax asset related to its net operating loss and
research and development tax credit carryforwards will depend on the generation
of future taxable income. Because the Company's operations are not currently
generating taxable income, the Company believes a full valuation allowance
should be provided (See Note 8 to Financial Statements).
Net Loss. As a result of the changes in total revenues, the changes in research
and development expenditures and the increase in marketing, general and
administrative activities and other factors discussed above, the net loss for
1999 was $9,488,000 or $0.72 per share as compared to $15,717,000 or $1.59 per
share for 1998 and $12,549,000 or $1.32 per share for 1997.
Liquidity and Capital Resources
As of December 31, 1999, the Company had cash and cash equivalents totaling
$11,746,000, $2,040,000 in a certificate of deposit used as collateral for a
revolving/term loan and $59,032,000 in marketable debt securities which are
available for sale. Thus cash, cash equivalents, certificate of deposit and
marketable debt securities totaled
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$72,818,000 as of December 31, 1999. In December 1998, the Company closed a
secondary offering of 3,250,000 shares of common stock at an offering price of
$21.25 per share resulting in net proceeds to the Company of $64,478,000. Cash
in excess of immediate requirements is invested according to the Company's
investment policy, which provides guidelines with regard to liquidity and
return, and, wherever possible, seeks to minimize the potential effects of
concentration of credit risk.
The Company's use of cash in operating activities decreased by $2,824,000 during
1999 as compared to 1998 and increased by $1,451,000 during 1998 as compared to
1997. The changes in cash used is a direct result of the changes in total
revenues, the increase in research and development expenditures, marketing,
general and administrative activities and other factors discussed above.
During 1999, the Company made capital expenditures of $648,000 as compared to
$108,000 and $895,000 in 1998 and 1997 respectively. The increase in capital
expenditures in 1999 was due to the Company's remodeling of facilities. In order
to finance the capital expenditures, the Company, in January 1995, secured a
revolving/term loan in the amount of $1,500,000. This loan converted to a 10
year term loan on May 15, 1995. In March 1997, the Company borrowed an
additional $800,000 and in July 1999 the Company borrowed an additional
$500,000. During 1999 and 1998, the Company made principal payments of $250,000
and in 1997, the Company made a principal payment of $150,000. The loan is
collateralized by a $2,040,000 certificate of deposit. During 1999, the Company
realized cash proceeds of $2,108,000 relating to the exercise of stock options
as compared to $1,928,000 and $615,000 in 1998 and 1997 respectively.
The Company's future capital requirements could be substantial and will depend
on, and could increase as a result of, many factors, including progress of the
Company's research and development programs; the results and costs of
preclinical and clinical testing of the Company's products, if developed; the
time and costs involved in obtaining regulatory approvals; the costs involved in
filing patents; the time and costs involved in developing and maintaining
collaborative research relationships; the costs associated with potential
commercialization of its products; and administrative and legal costs. The
Company believes that existing capital resources will be sufficient to meet the
Company's capital needs through at least the end of 2001.
The Company believes that it is prudent to monitor existing cash balances in
order to fund the activities which the Company believes are necessary to
continue its growth. Therefore, the Company periodically evaluates market
conditions and various financing alternatives for obtaining funds to augment
existing cash balances.
New Accounting Pronouncements
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
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RISK FACTORS
Our Ability to Achieve Profitability Depends on the Success of Actiq
We must successfully commercialize Actiq to achieve profitability. Actiq uses a
new method of oral transmucosal drug delivery and we cannot assure you that
physicians or patients will use Actiq. Although Actiq was approved by the FDA in
November 1998, and was commercially launched in March 1999, a limited number of
patients have used Actiq, and it is uncertain whether additional patients will
use patients will use Actiq to treat their breakthrough cancer pain.
Recommendations and endorsements by influential physicians will be essential for
market acceptance of Actiq, and we may not be able to obtain these
recommendations and endorsements. In addition, many other factors influence the
adoption of new pharmaceuticals, including marketing and distribution
restrictions, adverse publicity, product pricing, and reimbursement by third
party payors. Third party payors may not agree to reimburse patients for the
cost of using Actiq. If Actiq does not achieve adequate sales, our business and
financial condition would be materially and adversely affected.
Factors that will impact the commercial success of the product include:
. Anesta's ability to develop its own sales and marketing capabilities;
. Abbott's ability to manufacture sufficient quantities of Actiq while
following strict regulatory requirements;
. Physicians' willingness to prescribe Actiq for breakthrough cancer pain; and
. Use of Actiq by cancer patients who suffer from breakthrough cancer pain.
We do not control some of these factors and cannot assure investors that Actiq
will be successfully commercialized. We, along with Abbott, must make every
effort through a comprehensive risk management program to reduce the
inappropriate use of Actiq. These and other factors that may prevent successful
commercialization of Actiq are discussed in greater detail in the risk factors
that follow. If Actiq is not commercially successful, we will experience
significant operating losses and our viability will be dependent upon developing
other commercial products.
Lack of Sales and Marketing Experience
We have had no experience in selling and marketing products without
collaborative partners. We have retained a contract sales organization to assist
us in our sales force efforts for an initial period of one year. There can be no
assurance that the sales efforts of the contract sales organization or our
internal marketing and sales personnel will be successful in promoting the sale
and use of Actiq. In particular, factors that may inhibit our efforts to
commercialize Actiq without a strategic marketing partner include:
. The inability of either our contract sales organization or us to recruit and
retain adequate numbers of effective sales personnel;
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. The inability of sales personnel working on our behalf to gain access to or
persuade adequate numbers of physicians treating cancer patients with
breakthrough cancer pain to prescribe Actiq;
. The lack of complementary products to be offered by sales personnel working on
our behalf, which may put us at a competitive disadvantage against companies
with broader product lines; and
. Unforeseen costs associated with creating an independent sales force and
marketing organization.
Marketing and sales efforts will be critical to the commercial success of Actiq
and our Company. If we are not successful in establishing an effective sales
force with our contract sales organization, our business will be materially and
adversely affected.
We Depend on Abbott to Manufacture and Distribute Actiq
Abbott is currently the only approved commercial manufacturer of Actiq and
Abbott has the exclusive right to distribute Actiq in the United States.
The manufacturing process for Actiq is strictly regulated by the FDA and
involves certain supplies, such as child-resistant product packaging, that
involve long lead times. Abbott may not be able to predict or respond to product
demand for Actiq in a timely manner. Abbott and Anesta have the right to
terminate our collaboration in certain circumstances, so even if Abbott does not
perform in a satisfactory manner, we may not be able to seek another
manufacturing partner for Actiq in the United States. We do not currently have
adequate resources to distribute Actiq on our own. If Abbott does not
satisfactorily perform under the supply agreement, our financial condition will
be materially and adversely affected.
International Commercialization of Actiq Faces Significant Obstacles
We plan to commercialize Actiq internationally through collaborative
relationships with foreign partners. We have limited foreign regulatory,
clinical and commercial resources. We have entered into relationships with
Ferrer for Spain and Portugal, with Lafon for France, with SWO for Scandinavia
(Denmark, Finland, Iceland, Norway, and Sweden) and with Elan for Austria,
Belgium, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Philippines,
Switzerland, Taiwan, and the United Kingdom. These and other potential future
partners are critical to our international success. We may not be able to enter
into collaboration agreements with appropriate partners for important foreign
markets on acceptable terms, or at all. Existing or future collaborations with
foreign partners may not be effective or profitable for us.
We will need to obtain approvals from the appropriate regulatory, pricing and
reimbursement authorities to market Actiq internationally. We are currently
seeking approval for Actiq in the United Kingdom and upon approval we plan to
seek additional approvals in other European Union countries. We submitted the
MAA in the United Kingdom in August 1999 and are awaiting the determination of
the MCA. Pursuing
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foreign regulatory approvals will be time-consuming and expensive. We may not
obtain any foreign regulatory approval for Actiq. The regulations can vary among
countries and foreign regulatory authorities may require different or additional
clinical trials than we conducted to obtain FDA approval for Actiq. In addition,
adverse clinical trial results, such as death or injury due to side effects,
could jeopardize not only foreign regulatory approval, but may also lead to
marketing restrictions or product withdrawal in the United States. Actiq may
also face foreign regulatory requirements applicable to controlled substances.
Foreign collaborative partners may not be effective in their efforts to sell
Actiq even if regulatory approvals are obtained. The factors affecting product
pricing strategy and availability of reimbursement vary from country to country,
and we and our partners may not develop a viable strategy to address these
issues. Prevailing practices regarding treatment of cancer pain also differ from
country to country, and factors unique to a particular market may prevent or
limit market acceptance of Actiq. If we do not establish and maintain effective
relationships with foreign collaborative partners, and successfully address the
other challenges of foreign markets, our financial condition could be adversely
affected. It may be difficult and expensive to terminate a relationship with a
foreign collaborative partner, even if termination is permitted by the
collaboration agreement. Doing business abroad involves other risks, including
risk of losses or reduced market opportunities due to tariffs, trade barriers,
changes in currency exchange rates, export or import controls, restrictions on
convertibility of foreign currencies or transfer of funds, and political and
economic risks. Furthermore, international intellectual property rights may not
be as comprehensive or provide the same level of protection as the U.S. laws.
We Are Subject To Extensive Government Regulation
The FDA must approve our new products before they can be marketed in the United
States. Before we can file a New Drug Application (NDA) with the FDA, the
product candidate must undergo extensive clinical trials. The regulatory process
is expensive and time consuming, and any NDA that we submit may not be approved.
Our product candidates must also be approved by foreign governments before the
product can be sold in other countries as discussed under the heading
"International Commercialization of Actiq Faces Significant Obstacles" above.
Any regulatory approval of a product is limited to specific therapeutic uses for
which the product has demonstrated safety and efficacy in clinical testing. In
addition, approval may be contingent on post-marketing studies. A pharmaceutical
product remains subject to extensive regulation even after approval. The FDA and
state regulatory authorities stringently apply and enforce regulatory
requirements for drug manufacturing and related activities. The FDA or state
regulatory authorities could restrict an approved product or manufacturer, order
withdrawal of a product or shut down a manufacturing facility if they discover a
significant problem or a violation of applicable regulations.
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The FDA can impose significant restrictions on the marketing and distribution of
approved products. We have developed with Abbott, in consultation with the FDA,
a comprehensive risk management program for Actiq that includes significant
restrictions on the manner in which Actiq will be marketed and sold. The program
was developed in response to the concerns expressed by the FDA in its not-
approvable letter in November 1997. The program is designed to prevent
accidental ingestion by children, improper patient selection and diversion or
abuse of the product. Developing this program was a time consuming process and
delayed the regulatory approval of Actiq for approximately one year. Because our
future products may also involve the delivery of potent drugs, we may experience
similar delays.
Any products that we develop in the future will be subject to rigorous
regulatory review. We may not be able to establish that any future products are
safe and effective or obtain FDA approval. Regulatory concerns or changes could
delay or prevent approval of new products. For example, the FDA imposed
significant restrictions on Abbott's sales and distribution of Fentanyl Oralet
in 1994 after it had approved the product. Although these restrictions were
relaxed in 1996, we believe those restrictions limited the market acceptance of
Fentanyl Oralet. As a part of the Actiq comprehensive risk management plan, all
educational and promotional materials must be submitted to, and reviewed by, the
FDA. Future restrictions on the marketing or sales of our products could limit
sales. See "Business -- Government Regulation."
Our Products Contain Controlled Substances
The active ingredient in Actiq and Fentanyl Oralet is fentanyl citrate
(fentanyl), which is a controlled substance regulated by the DEA. Fentanyl is
listed by the DEA as a Schedule II substance, which means that its manufacture,
shipment, sale and use is subject to the highest degree of regulation and
accountability. The amount of fentanyl that Abbott can obtain is limited by the
DEA and Abbott's quota may not be sufficient to meet potential demand. Future
products may also contain substances regulated by the DEA.
Products containing controlled substances may generate public controversy.
Opponents of these products may seek restrictions on marketing and withdrawal of
regulatory approval. In addition, these opponents can generate negative
publicity in an effort to bring about rejection of a product by the medical
community. For example, a public interest group attempted to block FDA approval
of Fentanyl Oralet. Following FDA approval of Fentanyl Oralet in 1993, the group
unsuccessfully urged the FDA to withdraw its approval. Political pressures and
adverse publicity could lead to delays and increased expenses and limit or
restrict the introduction and marketing of our products. If the FDA withdrew the
approval of, or placed additional significant restrictions on, the marketing of
Actiq, our business could be materially and adversely affected.
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We Face Product Liability Risks and May Not Be Able To Obtain Adequate Insurance
The testing, marketing and sale of our products involves significant risks. We
may be held liable for adverse reactions resulting from the use of our products.
Our products involve a new method of delivery for potent drugs that requires
greater precautions to prevent unintended use. For example, we have worked with
Abbott to develop a specific risk management program for Actiq that is designed
to prevent accidental ingestion by children, improper patient selection,
diversion and abuse. The failure of these measures could result in harmful side
effects or death. As a result, consumers, regulatory agencies, pharmaceutical
companies or others might make claims against us. We currently have clinical
trial and product liability insurance with aggregate coverage of $10 million. We
will seek to maintain and appropriately increase such insurance coverage as
development and commercialization of our products progresses. Insurance may not
be available at a reasonable cost or in sufficient amounts to protect us from
liability claims. The obligation to pay any product liability claim in excess of
our insurance coverage or the recall of any of our products could adversely
affect our financial condition.
We Face Intense Competition and Technological Change
We face intense competition and technological change. Existing and future
products, therapies, technological approaches and delivery systems will compete
directly with our products. Competing products may provide greater therapeutic
benefits for a specific indication, or may offer comparable performance at a
lower cost. Actiq faces competition from inexpensive oral morphine tablets and
quick-acting intravenous opioid delivery systems. Other technologies are being
developed for rapidly delivering opioids to treat breakthrough pain, at least
one of which is currently in clinical trials.
We compete with fully integrated pharmaceutical companies, smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug delivery products already
approved or in development and operate large, well-funded research and
development programs in these fields. Our competitors may develop safer or more
effective drugs and achieve faster or broader regulatory approval, wider
availability of supply, more effective marketing and sales or superior
proprietary positions. Any products that we develop may become obsolete before
we recover any expenses incurred in connection with development of these
products.
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Our Ability to Develop Additional Products is Uncertain
Our future success depends, in part, on our ability to develop additional
commercial products. While we have conducted clinical trials for OTS nicotine,
OTS etomidate, OTS piroxicam, and OTS droperidol, we have not yet determined
that these or other product candidates have medical benefits that justify the
significant additional costs that would be necessary to commercialize them. Even
if we determine that a product candidate has medical benefits, the cost of
commercializing that product candidate may be too high to justify development.
If health insurance companies and other third party payors decide not to
reimburse patients for purchasing our products, sales could be severely limited.
In addition, competitors may develop products that are more effective, cost less
or are ready for commercial introduction before our products. If we are unable
to develop additional, commercially viable products, our future prospects will
be limited.
Clinical Trials Are Expensive and Uncertain
Extensive and costly clinical trials must be conducted to demonstrate a
product's safety and efficacy before it can be approved by the FDA or other
regulatory authorities. A product candidate that appears to be safe and
effective in early testing may not ultimately prove to be safe and effective
when tested in a larger number of patients. We may also encounter problems in a
clinical trial that significantly delay or cause us to terminate the clinical
trial program. Any adverse clinical event could cause delays or prevent us from
commercializing additional products.
Limited Manufacturing Experience
We have developed an alternative manufacturing method which we believe could
lower costs and increase applicability to a variety of compounds. We have
manufactured OTS products for clinical trials using this method. We intend to
apply this new manufacturing method to produce products for foreign markets.
However, we have never manufactured commercial quantities of our products using
this or any other method. We have limited experience with regulatory approvals
of manufacturing processes. This new method may prove to be too expensive,
complex or unsuited for some applications and may not be approvable by the FDA
or other regulatory authorities. We may not be able to develop a manufacturing
process that produces adequate amounts of our products at an acceptable cost.
The FDA and other regulatory authorities require that our products be
manufactured according to rigorous standards, which may significantly increase
our costs and may even prevent us from making our products in amounts sufficient
to meet market demand. If we change our approved manufacturing process, the FDA
will require a new approval before the process could be used. Failure to develop
our manufacturing capabilities may mean that even if we develop promising new
products, we may not be able to produce them profitably.
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We Will Need To Find Corporate Partners For Our New Products
To commercialize any of our current product candidates, we will need to
establish relationships with corporate partners. We may seek an additional
strategic partner to assist us in commercializing Actiq. Although we are
developing our own marketing and sales capabilities for Actiq, we do not
currently have the sales, marketing, manufacturing or distribution capabilities
that would allow us to sell our products alone. As a result, we will need to
develop relationships with companies that have these capabilities to
commercialize any new products or develop the internal capabilities to perform
these functions. We may not be able to find partners who will agree to sell and
distribute our products on favorable terms, or at all. Even if we form corporate
partnerships, those relationships may not be advantageous to us for a variety of
reasons, including inadequate attention or resource commitments by the partner,
management turnover, changing market conditions and competitive developments. If
we are unable to form successful corporate partnerships for a product, we may be
unable to commercialize that product profitably.
Our Success Depends On Protecting Our Intellectual Property
Our success will depend, in part, on our ability to obtain and protect patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others in the United States and other countries. Our products are based on 14
U.S. and 112 foreign patents for the OTS, which are held by the University of
Utah and its assignee, UURF. We have exclusive, world-wide licenses to these
patents which cover the design and types of pharmaceutical compounds in our
products. Our success depends on the continued validity of these patents. If
either we or the UURF fail to file, prosecute or maintain any of the patents,
our business could be severely damaged. We intend to file additional patent
applications relating to our technology, products and processes. We will also
direct the UURF to file any additional patent applications relating to the
technology we have licensed. However, any of these patents or patent
applications may be challenged, invalidated or circumvented by our competitors.
These patents may also fail to provide meaningful competitive advantages to us.
For example, another company may develop a way to deliver potent opioids in a
more cost-effective manner than our products without infringing on our patents.
Intellectual property rights are uncertain and involve complex legal and factual
questions. We may be unknowingly infringing on the proprietary rights of others
and may be liable for that infringement, which could result in significant
liability for us. For example, we are not aware of any third party intellectual
property rights which would prevent our use of our new manufacturing method,
although rights of this type may exist. We could be forced to either seek a
license to intellectual property rights of others or alter our products or
processes so that they no longer infringe on the proprietary rights of others. A
license could be very expensive to obtain, or may not be available at all.
Similarly, changing our products or processes to avoid infringing on the rights
of others may be costly or impractical.
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We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in interference proceedings declared
by the U.S. Patent and Trademark Office to determine who had the claimed rights
first. We may also be forced to seek a judicial determination concerning the
rights in question. These types of proceedings may be costly and time consuming
for us, even if we eventually prevail. If we do not prevail, we might be forced
to pay significant damages, obtain a license or stop making a certain product.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with collaborative partners, employees and consultants
to protect our intellectual property. Other parties may not comply with the
terms of their agreements with us and we may not be able to adequately enforce
our rights against these people.
Uncertainty Of Pharmaceutical Pricing, Reimbursement And Healthcare Reform
Measures
The availability of reimbursement by governmental and other third party payors
affects the market for any pharmaceutical product. These third party payors
continually attempt to contain or reduce the costs of healthcare. In the United
States and in certain foreign jurisdictions there have been a number of
legislative and regulatory proposals to change the healthcare system, and
further proposals are likely. The potential for adoption of these proposals
affects our ability to raise capital, obtain additional collaborative partners
and market our products. We could experience pricing pressure on our current and
future products due to the trend toward managed health care, the increasing
influence of health maintenance organizations, and additional legislative
proposals. We may not be able to sell our products profitably if reimbursement
is unavailable or limited in scope.
We Have Not Been Profitable and May Require Additional Financing
We have not been profitable since our inception in August 1985. As of December
31, 1999 we had an accumulated deficit of approximately $58.2 million. We expect
to continue to incur losses through at least 2000. We may never realize
significant revenues or be profitable. Factors that will influence our
profitability include the success of Actiq, the development and
commercialization of additional products, timing and difficulty of obtaining
regulatory approvals and competition.
Most of our funding has come from research and development fees, licensing
agreements and the sale of stock. We may have to raise additional funds through
collaborative relationships or public and private financings. Additional
financing may not be available on favorable terms, or at all. If we raise
additional funds by selling equity securities, the share ownership of our
existing investors could be diluted or the new equity purchasers may obtain
terms that are better than those of our existing investors. Lack of financing
may delay, reduce or eliminate some of our programs or force us to relinquish
rights to technology, product candidates or products.
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We Need to Attract and Retain Key Employees and Consultants and Manage Growth
Attracting and retaining qualified employees, consultants and advisors is
critical to our success. We will need to hire additional qualified personnel
with expertise in research and development, clinical testing, government
regulation, manufacturing and marketing. We compete for qualified individuals
with numerous pharmaceutical, health products and biotechnology companies,
universities and other research institutions. We may not be able to attract and
retain these types of individuals.
With the commercialization of Actiq and continued development of product
candidates, our operations may expand in the future. Any significant growth will
place demands on our management and operational resources. These demands may
include hiring additional people, capital improvements and changing
relationships with corporate partners. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls.
Failure to properly manage our growth could result in loss of market
opportunities and materially damage our financial condition.
Universities and medical institutions conduct clinical development under
agreements with us. We depend on principal investigators to conduct our clinical
development activities. These collaborators are not our employees and we do not
control their activities. Our collaborators may also have relationships with
other commercial entities, some of whom may compete with us.
We Are Subject To Anti-Takeover Provisions
Our Certificate of Incorporation and Bylaws contain provisions which may
discourage takeover attempts, including transactions in which stockholders might
receive a premium for their shares. This may limit stockholders' ability to
approve a transaction that stockholders may think is in their best interest. Our
Certificate of Incorporation and Bylaws require that any action required or
permitted to be taken by our stockholders must be taken at a properly called
meeting of stockholders. Special stockholder meetings may be called only by the
Board of Directors, the Chairman of the Board or the President. In addition, the
Board of Directors has the authority, without stockholder action, to fix the
rights and preferences of and issue shares of Preferred Stock, which may have
the effect of delaying or preventing a change in control.
Highly Volatile Stock Price
The market price of our Common Stock has been highly volatile and is likely to
continue to be volatile. Factors affecting our stock price include: fluctuations
in our operating results, announcements of technological innovations or new
commercial therapeutic products by us or our competitors, published reports by
securities analysts, progress with clinical trials, governmental regulation,
changes in reimbursement policies, developments
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in patent or other proprietary rights, developments in our relationship with
collaborative partners, public concern as to the safety and efficacy of our
products and general market conditions.
Our Operations Involve Hazardous Materials
Our research and manufacturing activities involve the controlled use of
hazardous materials. Although we believe that our safety procedures for these
materials comply with governmental standards, we cannot eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident or environmental discharge, we could be held liable for any resulting
damages, which could exceed our financial resources.
Absence Of Dividends
We intend to retain any future earnings to finance the growth and development of
our business and we do not plan to pay cash dividends in the foreseeable future.
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ITEM 8.
- -------
Report of Independent Accountants
---------------------------------
To the Shareholders of Anesta Corp.:
In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive loss, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of Anesta Corp. (the
"Company") at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
February 18, 2000, except as to the
information presented in Note 14 for
which the date is March 13, 2000
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ANESTA CORP.
BALANCE SHEETS
as of December 31, 1999 and 1998
___________
ASSETS 1999 1998
------------- --------------
Current assets:
Cash and cash equivalents $11,746,093 $55,889,226
Current portion of certificate of deposit 340,000 255,000
Marketable debt securities,
available-for-sale 59,031,849 24,661,040
Accounts receivable 1,956,357 276,476
Prepaid expenses and other current assets 667,960 194,802
------------ -------------
Total current assets 73,742,259 81,276,544
------------ -------------
Property and equipment, at cost:
Furniture and equipment 1,099,529 947,598
Leasehold improvements 2,813,166 2,330,136
Accumulated depreciation (1,447,484) (1,151,126)
------------ -------------
2,465,211 2,126,608
------------ -------------
Other assets:
Certificate of deposit 1,700,000 1,530,000
Other assets 301,327 196,202
------------ -------------
2,001,327 1,726,202
------------ -------------
Total assets $78,208,797 $85,129,354
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
Current liabilities:
Accounts payable $ 409,584 $ 1,478,521
Accrued liabilities:
Accrued compensation 655,870 1,117,909
Other 139,062 236,783
Current portion of unearned revenues 746,389 299,296
Current portion of note payable 333,333 250,000
------------ ------------
Total current liabilities 2,284,238 3,382,509
Unearned revenues 1,831,759 227,500
Note payable 1,666,667 1,500,000
------------ -------------
Total liabilities 5,782,664 5,110,009
------------- --------------
Commitments (Note 11)
Stockholders' equity:
Common stock, par value,
$.001 per share; Authorized:
35,000,000 shares; Issued:
13,311,839 shares
in 1999 and 13,054,934 shares
in 1998 13,312 13,055
Additional paid-in capital 130,742,839 128,634,691
Accumulated deficit (58,166,809) (48,679,075)
Accumulated other comprehensive
income (loss) (163,209) 50,674
------------- -------------
Total stockholders' equity 72,426,133 80,019,345
------------- -------------
Total liabilities and
stockholders' equity $ 78,208,797 $ 85,129,354
-------------- --------------
The accompanying notes are an integral
part of the financial statements
39
<PAGE>
ANESTA CORP.
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
for the years ended December 31, 1999, 1998 and 1997
________
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Product sales $ 2,231,732 $ 193,531 $ 183,752
Royalty revenue 62,275 5,744 5,449
Revenues from contract research/license agreements 4,221,148 475,704
----------- ------------- ------------
Total revenues 6,515,155 674,979 189,201
----------- ------------- ------------
Operating costs and expenses:
Cost of goods sold 671,366 53,804 52,082
Royalties 34,410 2,989 2,838
Research and development 9,840,204 8,627,606 7,889,021
Depreciation 309,652 296,241 269,595
Marketing, general and administrative 9,019,525 8,585,679 6,368,094
----------- ------------- ------------
Total costs and expenses 19,875,157 17,566,319 14,581,630
----------- ------------- ------------
Loss from operations (13,360,002) (16,891,340) (14,392,429)
Non operating income (expense):
Interest income 4,016,267 1,333,597 1,992,739
Interest expense (124,289) (142,916) (139,407)
Other 459 201 (8,215)
----------- ------------- ------------
Loss before provision for income taxes (9,467,565) (15,700,458) (12,547,312)
Provision for income taxes (20,169) (16,411) (1,741)
----------- ------------- ------------
Net loss (9,487,734) (15,716,869) (12,549,053)
----------- ------------- ------------
Other comprehensive income (loss):
Foreign currency translation adjustment (8,754) 15,604
Unrealized gain (loss) on marketable debt
securities, available-for-sale (205,129) 26,663 9,710
----------- ------------- ------------
Total other comprehensive income (loss) (213,883) 42,267 9,710
----------- ------------- ------------
Comprehensive loss $(9,701,617) $ (15,674,602) $(12,539,343)
=========== ============= ============
Basic and diluted loss per common share (Note 13)--
Net loss per common share $ (0.72) $ (1.59) $ (1.32)
=========== ============= ============
Weighted average shares outstanding 13,226,637 9,897,978 9,500,055
=========== ============= ============
</TABLE>
The accompanying notes are an integral
part of the financial statements
40
<PAGE>
ANESTA CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the period from January 1, 1997 to December 31, 1999
_________
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Additional Accumulated Treasury Stock
-----------------
Shares Amount Paid-in Capital Deficit Shares Amount
---------- ------- --------------- ----------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 9,440,129 $ 9,440 $ 61,531,623 ($20,413,153) $ 345 ($4,226)
Exercise of stock options for cash and stock 105,716 105 530,788
Issuance of stock under stock
purchase plan 5,965 6 84,054
Retirement of treasury stock in July 1997 (345) (4,226) (345) 4,226
Collection on notes receivable from
issuance of common stock
Other comprehensive income
1997 net loss (12,549,053)
---------- ------- --------------- ----------- ------ -------
Balance at December 31, 1997 9,551,465 9,551 62,142,239 (32,962,206) - -
Exercise of stock options for cash and stock 244,300 245 1,889,684
Issuance of common stock for
cash on December 17, 1998
(at $21.25 per share), net of
offering costs of $4,584,067 3,250,000 3,250 64,475,183
Issuance of stock under stock
purchase plan 9,169 9 127,585
Other comprehensive income
1998 net loss (15,716,869)
---------- ------- --------------- ----------- ------ -------
Balance at December 31, 1998 13,054,934 13,055 128,634,691 (48,679,075) - -
Exercise of stock options for cash and stock 250,178 250 2,016,521
Issuance of stock under stock
purchase plan 6,727 7 91,627
Other comprehensive loss
1999 net loss (9,487,734)
---------- ------- --------------- ----------- ------ -------
Balance at December 31, 1999 13,311,839 $13,312 $ 130,742,839 ($53,166,809) - -
========== ======= =============== =========== ====== =======
<CAPTION>
Notes
Receivable Accumulated
from Issuance Other
of Common Comprehensive
Stock Income (Loss) Total
------------- ------------- ------------
<S> <C> <C> <C>
Balance at January 1, 1997 ($7,000) ($1,303) $ 41,115,381
Exercise of stock options for cash and stock 530,893
Issuance of stock under stock
purchase plan 84,060
Retirement of treasury stock in July 1997
Collection on notes receivable from
issuance of common stock 7,000 7,000
Other comprehensive income 9,710 9,710
1997 net loss (12,549,053)
------------- ------------- ------------
Balance at December 31, 1997 - 8,407 29,197,991
Exercise of stock options for cash and stock 1,889,929
Issuance of common stock for
cash on December 17, 1998
(at $21.25 per share), net of
offering costs of $4,584,067 64,478,433
Issuance of stock under stock
purchase plan 127,594
Other comprehensive income 42,267 42,267
1998 net loss (15,716,869)
------------- ------------- ------------
Balance at December 31, 1998 - 50,674 80,019,345
Exercise of stock options for cash and stock 2,016,771
Issuance of stock under stock
purchase plan 91,634
Other comprehensive loss (213,883) (9,701,617)
1999 net loss -
------------- ------------- ------------
Balance at December 31, 1999 - ($163,209) $ 72,426,133
============= ============= ============
</TABLE>
The accompanying notes are an integral
part of the financial statements
41
<PAGE>
ANESTA CORP.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
________
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,487,734) $(15,716,869) $(12,549,053)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 309,652 296,241 269,595
(Gain) Loss on retirement of assets (332) 3,823 12,245
Increase (decrease) due to changes in:
Accounts receivable (1,679,882) (193,613) 402,785
Prepaid expenses and other current assets (473,159) 233,688 (136,507)
Other assets (105,124) 9,067 (89,796)
Accounts payable (1,068,937) 728,436 (85,299)
Accrued liabilities (559,760) 624,715 105,454
Unearned revenues 2,051,352 176,796
------------ ------------ ------------
Net cash used in operating activities (11,013,924) (13,837,716) (12,070,576)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (648,411) (108,186) (894,791)
Proceeds from sale of assets 489 50 1,621
Purchases of marketable debt securities,
available-for-sale (79,553,714) (28,925,882) (12,754,249)
Maturities and sales of marketable debt securities,
available-for-sale 44,977,776 22,167,216 12,062,198
Purchase of certificate of deposit (816,000)
Proceeds from maturity of certificate of deposit (255,000) 255,000 153,000
------------ ------------ ------------
Net cash used in investing activities (35,478,860) (6,611,802) (2,248,221)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 500,000 800,000
Principal payments on notes payable (250,000) (250,000) (150,000)
Net proceeds from issuance of common stock 2,108,405 66,812,375 614,954
Collections on notes receivable from
issuance of common stock 7,000
------------ ------------ ------------
Net cash provided by financing activities 2,358,405 66,562,375 1,271,954
------------ ------------ ------------
Effect of exchange rate changes on cash (8,754) 15,604
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (44,143,133) 46,128,461 (13,046,843)
Cash and cash equivalents at beginning of period 55,889,226 9,760,765 22,807,608
------------ ------------ ------------
Cash and cash equivalents at end of period $ 11,746,093 $ 55,889,226 $ 9,760,765
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 129,714 $ 144,035 $ 136,715
Cash paid during the year for taxes 20,169 16,411 1,741
</TABLE>
The accompanying notes are an integral
part of these financial statements
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS
________
1. Significant Accounting Policies:
Description of the Business
Anesta Corp. is involved in the development of new pharmaceutical products for
oral transmucosal drug administration. Since its inception in August 1985,
Anesta has been a development stage company. However, during the fourth quarter
of 1999, Anesta began generating sales from its principal product, Actiq, and
accordingly is no longer in the development stage. The Company's products are
based on its proprietary OTS for drug delivery. Anesta's principal product is
Actiq, an OTS fentanyl product, which was approved by the FDA on November 4,
1998.
Revenues recognized to date represent revenues under research and development
contracts, license agreements and sales of the Company's products, Fentanyl
Oralet and Actiq. The Company's ability to achieve profitability depends in
part upon its ability alone, or with others, to commercialize successfully these
products, to complete development of its proposed products, to obtain required
regulatory approvals and to manufacture and market such proposed products.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. Substantially all of
the Company's cash and cash equivalents are held in two financial institutions
in San Francisco, California.
Marketable Debt Securities
The Company's marketable debt securities are classified as available-for-sale
and carried at market value, with the unrealized gain or loss reflected as a
component of other comprehensive income (loss). Gross realized gains and losses,
with cost determined using the specific identification method, have not been
material.
Property and Equipment
Expenditures that materially increase asset lives are capitalized at cost, while
normal maintenance and repairs are expensed as incurred. Depreciation is
reported on a straight-line basis over the shorter of the estimated useful lives
of the assets, or the term of the lease, which range from 3 to 15 years.
The cost and related accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts and the gain or loss is reflected in
the statements of operations and comprehensive loss.
Translation of Foreign Currency
Assets and liabilities of foreign operations, where the functional currency is
the local currency, are translated into U.S. dollars at the fiscal year end
exchange rate. The related translation adjustments are reflected as a component
of other comprehensive income, a separate component of stockholders' equity.
Revenues and expenses are translated using average exchange rates prevailing
during the year.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
1. Significant Accounting Policies (Continued):
Net Loss Per Share
Basic and diluted earnings per share are computed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share (EPS).
Basic EPS excludes dilution and is computed by dividing income or loss available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
securities or contracts to issue common stock. Common equivalent shares are
excluded from the computation of diluted EPS when their effect is antidilutive.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting For Income Taxes. Deferred income taxes are provided for differences
between the financial statement and tax bases of assets and liabilities using
enacted future tax rates.
Revenue Recognition
The Company recognized revenues from contract research and license agreements
based on qualifying expenditures. Where applicable, revenues from the licensing
of Anesta's technology, including milestone payments under license agreements,
are deferred and recognized on a straight-line basis over the defined period in
the related license agreement. Research and development expense in the
accompanying statements of operations and comprehensive loss includes funded and
unfunded amounts. Revenue from the sale of products manufactured by Abbott is
recognized when Abbott ships product against a customer order.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with current year
presentation.
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
2. Marketable Debt Securities:
The cost and estimated market value of marketable debt securities, available-
for-sale at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial Paper $22,151,274 $ 6,453 $22,157,727
Corporate Term Notes 15,824,568 $ (73,244) 15,751,324
Federal Home Loan Bank Notes 8,500,194 (35,669) 8,464,525
Certificates of Deposit 6,008,717 (14,877) 5,993,840
Federal National Mortgage Notes 4,985,522 (46,772) 4,938,750
U.S. Treasury Note 1,006,890 (5,950) 1,000,940
Accrued Interest 724,743 724,743
----------- ---------- ---------- -----------
$59,201,908 $ 6,453 $ (176,512) $59,031,849
----------- ---------- ---------- -----------
</TABLE>
The cost and estimated market value of marketable debt securities, available-
for-sale at December 31, 1999, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Estimated
Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $51,402,038 $51,287,805
Due after one year through five years 7,799,870 7,744,044
----------- -----------
$59,201,908 $59,031,849
----------- -----------
</TABLE>
The cost and estimated market value of marketable debt securities, available-
for-sale at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate Term Notes $15,698,462 $ 14,750 $15,713,212
Federal Home Loan Bank Notes 4,499,584 12,961 4,512,545
Federal National Mortgage Notes 2,967,280 5,540 2,972,820
Certificates of Deposit 999,537 1,663 1,001,200
Commercial Paper 261,638 156 261,794
Accrued Interest 199,469 199,469
----------- ---------- ---------- -----------
$24,625,970 $ 35,070 $24,661,040
----------- ---------- ---------- -----------
</TABLE>
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
3. Related Party Transactions:
The Company paid expenses of $314,108, $250,368 and $284,030 in 1999, 1998 and
1997, respectively, to the Stanley Research Foundation for preclinical and
clinical research. The Stanley Research Foundation and its principal trustee
are shareholders of the Company.
4. Note Payable:
The note payable at December 31, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Term note payable to a bank with interest
payable monthly at 7%. Principal payments of
$333,333 are due each July through July 2005.
The note is collateralized by a certificate of deposit
in the amount of $2,040,000 at December 31, 1999. $2,000,000 $1,750,000
Current portion (333,333) (250,000)
---------- ----------
Long-term portion $1,666,667 $1,500,000
---------- ----------
</TABLE>
The Company's note payable matures in periods ending December 31, as follows:
2000 $ 333,333
2001 333,333
2002 333,333
2003 333,333
Thereafter 666,667
----------
$2,000,000
----------
Rates currently available to the Company for notes payable with similar terms
and maturities are used to estimate the fair value of notes payable. At
December 31, 1999 and 1998, the carrying value of the note payable approximates
fair value.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
5. Stock Based Compensation Plan:
The Company maintains three stock option plans: the 1989 Stock Option Plan (the
"1989 Plan"), the 1993 Stock Option Plan (the "1993 Plan"), and the 1993 Non-
Employee Directors' Stock Option Plan (The "Non-Employee Directors' Plan").
The 1989 Plan provides for the issuance of nonqualified stock options ("NQSOs")
to employees of, directors of and consultants to the Company. The 1993 Plan
provides for the issuance of Incentive Stock Options ("ISOs") to employees of
the Company and NQSOs to employees of, directors of and consultants to the
Company. The Non-Employee Directors' Plan provides for the issuance of NQSOs to
non-employee members of the Company's Board of Directors who are not prohibited
by their employer from receiving options. Additionally, the Company has granted
NQSOs to non-employee directors and consultants on an individual basis and not
under a plan.
Under the 1989 Plan, NQSOs to purchase a total of 250,000 shares were authorized
for issuance, of which none were outstanding and exercisable at December 31,
1999. All options have been granted at the market price of the Company's common
stock at the date of grant. The NQSOs vest over a period not to exceed four
years from the date of grant and terminate five years from the date of grant.
At the 1997 annual meeting, stockholders approved an amendment to the 1993 Plan
to increase the number of shares authorized for issuance from an aggregate of
750,000 shares to an aggregate of 1,500,000 shares. At the 1998 annual meeting,
stockholders approved an amendment to the 1993 Plan to increase the number of
shares authorized for issuance from an aggregate of 1,500,000 shares to an
aggregate of 1,850,000 shares. At the 1999 annual meeting, stockholders
approved an amendment to the 1993 Plan to increase the number of shares
authorized for issuance from an aggregate of 1,850,000 shares to an aggregate of
2,400,000 shares. As of December 31, 1999, 1,539,579 options were outstanding
and 726,952 options were exercisable. All options have been granted at the
market price of the Company's common stock at the date of grant. The ISOs and
NQSOs vest over a period not to exceed four years from the date of grant and
terminate from five to ten years from the date of grant.
At the 1997 annual meeting, stockholders approved an amendment to the Non-
Employee Directors' Plan to increase the annual non-discretionary grant made to
each non-employee director by 3,500 shares, from 1,500 shares to 5,000 shares.
At the 1998 annual meeting, stockholders approved an amendment to the Non-
Employee Directors' Plan to increase the non-discretionary grant made to each
newly elected non-employee director from 10,000 shares to 15,000 shares, to
grant 2,000 shares per year to each non-employee director serving as a committee
chair, and to grant 400 shares to each non-employee director for each meeting of
the Board of Directors attended in person or by teleconference. At the 1999
annual meeting, stockholders approved an amendment to the Non-Employee
Directors' Plan to increase the number of shares authorized for issuance from an
aggregate of 150,000 shares to an aggregate of 350,000 shares. At December 31,
1999, 105,800 options were outstanding and 42,282 options were exercisable. All
options have been granted at the market price of the Company's common stock at
the date of grant. The NQSOs vest over a period not to exceed four years from
the date of grant and terminate five years from the date of grant.
The Company has granted NQSOs to purchase shares on an individual basis and not
under a plan, on terms similar to the 1989 Plan. At December 31, 1999, 7,800
options were outstanding and 7,800 options were exercisable.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
5. Stock Based Compensation Plan (Continued):
The Company has adopted the disclosure provisions of SFAS No. 123. Under these
provisions, the Company is allowed to continue to apply Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its option
plans. Accordingly, no compensation expense has been recognized as options are
granted to employees and directors at the stock's then market price. Had
compensation expense for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the
option plans as recommended by SFAS No. 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss As reported $ (9,487,734) $(15,716,869) $(12,549,053)
Pro forma $(13,185,307) $(16,617,806) $(13,282,846)
Loss per share As reported $ (0.72) $ (1.59) $ (1.32)
Pro forma $ (1.00) $ (1.68) $ (1.40)
</TABLE>
NOTE: Basic and diluted loss per share are the same.
The pro forma compensation expense may not be representative of such expense in
future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: expected
volatility of 77 -- 81 percent, risk-free interest rates of 4.4 -- 7.1 percent,
expected lives of 0.01 -- 10.0 years, and a dividend yield of zero for all
years.
Changes in all outstanding options are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
Fixed Options (000) Exercise Price (000) Exercise Price (000) Exercise Price
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,527 $ 12.18 1,341 $ 10.86 1,002 $ 8.63
Granted 462 11.50 479 13.70 458 14.48
Exercised (261) 8.41 (246) 7.82 (110) 5.48
Forfeited (74) 14.00 (47) 12.84 (9) 13.16
------ ------- ------ ------- ------ -------
Outstanding at end of year 1,653 $ 12.51 1,527 12.18 1,341 $ 10.86
====== ======= ====== ======= ====== =======
Options exercisable at year-end 777 659 536
Weighted-average fair value of
options granted during the year $ 8.63 $11.00 $11.96
</TABLE>
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
5. Stock Based Compensation Plan (Continued):
The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Number Average Weighted- Number
Range of Outstanding Remaining Average Exercisable at Weighted-Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price
------------------- ----------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$5.0376 - $ 7.5563 30,032 0.2 years $ 5.25 30,032 $ 5.25
$7.5564 - $10.0750 3,800 1.8 9.30 3,000 9.25
$10.0751 - $12.5938 1,039,130 7.3 11.30 449,704 11.31
$12.5939 - $15.1125 359,093 7.6 13.87 208,232 13.83
$15.1126 - $17.6313 183,124 6.0 16.55 67,942 16.50
$17.6314 - $20.1500 30,000 4.5 18.57 16,248 18.64
$20.1501 - $22.6688 4,800 4.1 21.06 804 21.19
$22.6689 - $25.1875 3,200 3.9 23.97 1,072 23.97
----------- ---------------- -------------- -------------- ----------------
1,653,179 7.0 $ 12.51 777,034 $ 12.37
=========== ================ ============== ============== ================
</TABLE>
In November 1993, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan"), authorizing the issuance of 250,000 shares pursuant to
purchase rights granted to employees of the Company. Participants may use up to
10% of their compensation to purchase the Company's common stock at the end of
each year at a price equal to 85% of the lower of the beginning or ending stock
price in the plan period. As of December 31, 1999, there were 208,917 shares
available for issuance under the Purchase Plan. Compensation expense under the
fair value method of SFAS No. 123 is not significant relative to shares
purchased under the Purchase Plan for 1999, 1998 and 1997.
6. Capital Stock:
The Company has 1,000,000 shares of authorized voting preferred shares with a
par value of $.001. At December 31, 1999 and 1998 there were no voting
preferred shares issued and outstanding. At the 1999 Annual Meeting,
stockholders approved an increase in authorized common stock from aggregate
15,000,000 shares to an aggregate of 35,000,000 shares.
7. Technology License Agreement:
In September 1985, the Company obtained an exclusive worldwide license from UURF
to use technology and knowledge developed or to be developed under Dr. Theodore
H. Stanley's direction at the University of Utah, for anesthetic and other drug
delivery systems based on oral transmucosal technology. In return, the UURF
received 6,000 shares of Company stock and certain royalty rights based on
product sales incorporating the technology.
The license expires on the date of the last expiring patent, which occurs in
2014.
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
8. Income Taxes:
As of December 31, 1999, net operating losses (NOLs) totaling approximately
$58.6 million are available to offset future taxable income, and research and
development (R&D) tax credits totaling approximately $1,381,000 are available to
offset future tax liabilities. The NOLs and the R&D tax credit carryforwards
expire from 2002 to 2020.
The Company's utilization of NOL carryforwards and R&D credits is limited to
approximately $7,802,000 annually as a result of an ownership change in 1996. In
addition to the limitation imposed in 1996, utilization of approximately
$1,380,000 of the NOLs against future taxable income will be subject to an
annual limitation of approximately $140,000 per year because of a cumulative
change in ownership within a three-year period exceeding 50%. Approximately
$110,000 of the R&D tax credit carryforwards is subject to the same annual
limitation, under the constraint that the total NOLs must be utilized before the
R&D credits may be used. To the extent the $140,000 annual limitation is not
fully utilized in any given year, the unused portion of the NOLs and the R&D tax
credit carryforwards are available for potential utilization in future years.
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that some portion or all of a deferred tax asset will not be
realized. The Company's ability to realize the benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company's
operations are not currently generating taxable income, the Company believes
that a full valuation allowance should be provided. The valuation allowance
increased $3,903,000 during 1999, $7,274,000 during 1998 and $5,170,000 during
1997 primarily as a result of the increase in net operating loss carryforwards.
The components of the net deferred tax asset as of December 31, 1999 and 1998
under SFAS 109 are as follows:
1999 1998
---- ----
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 21,869,000 $ 18,182,000
Charitable contribution
carryforwards 80,000 64,000
Research and development tax
credit carryforwards 1,381,000 1,111,000
Depreciation 106,000 228,500
Book/tax difference related to
license agreements 759,000 713,500
Other - (7,000)
Valuation allowance (24,195,000) (20,292,000)
------------ ------------
Net deferred tax asset $ - $ -
------------ ------------
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
9. Research and Development:
In December 1989, the Company entered into a research and development, license,
supply and distribution agreement with Abbott. Under the agreement as amended,
the Company granted to Abbott the exclusive right to make, use and sell in the
U.S., oral transmucosal products resulting from technology owned or licensed by
the Company, consisting of Oral Transmucosal Fentanyl Citrate (OTFC/(R)/) or
other central nervous system acting drugs or intermediates thereof used for
premedication, sedation, analgesia, diagnostic procedures, emergency room
procedures, post-operative pain, burn treatment or cancer-related pain
management. The first product developed under this agreement is being marketed
for use in surgical premedication and for sedation/analgesia prior to diagnostic
or therapeutic procedures in hospital settings under Abbott's trademark Fentanyl
Oralet. The second product under the agreement is being marketed for
breakthrough cancer pain under Anesta's trademark Actiq (See Note 14).
Under the Company's agreements with Abbott, Abbott manufactures Anesta's OTS
fentanyl product line (Fentanyl Oralet and Actiq) and sells these products to
the Company at a price which reflects Abbott's cost of manufacturing. The
Company then sells the products to Abbott at a price related to Abbott's selling
price which results in a gross profit to the Company ranging from approximately
40-70%. In addition, the Company is entitled to receive a royalty from OTS
fentanyl product sales by Abbott.
By agreement, Abbott committed and paid a total of $10.05 million to the Company
to fund the clinical development of and to obtain the regulatory approval for
Fentanyl Oralet and Actiq. During 1998 and 1997 the Company received $300,000
and $375,000, and incurred $9,862,933 and $7,834,457 of costs relating to the
agreements, respectively. Revenue of $300,000 related to the agreements was
recognized in 1998. In connection with such development funding, Abbott was
granted, and has exercised, warrants to purchase 1,202,840 shares of the
Company's common stock at prices ranging from $1.00 to $2.40 per share.
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
10. Unearned Revenues:
Effective August 31, 1995, the Company entered into an amendment to a prior
agreement between Abbott International (A.I.) and the Company to provide the
Company the right to terminate or cause to become nonexclusive A.I.'s license
rights to OTS fentanyl products in one or more countries in the world except the
U.S. The amendment also eliminated $100,000 of the $450,000 of unearned revenue,
which amount was recognized as royalty revenue during the year ended December
31, 1995. In January 1998, the Company exercised its right to terminate A.I.'s
license rights to OTS fentanyl products in all countries in the world except the
U.S. However, Abbott has agreed to be the Company's contract manufacturer and if
requested by the Company, both parties have agreed to consult with each other
regarding product supply by Abbott to any Anesta licensee.
On January 28, 1998, the Company announced the signing of an exclusive agreement
with Ferrer for the marketing, sales and distribution of Anesta's OTS fentanyl
product line, including Actiq, in Spain and Portugal. Under terms of the
agreement, Ferrer made a payment to the Company in 1998, a portion of which will
be recognized as revenue in future years over the term of the agreement. The
OTS fentanyl product line will be manufactured for Ferrer by Anesta, however,
the Company does not believe commercial manufacturing will begin before December
31, 2000. Ferrer is a leading private Spanish pharmaceutical company.
On June 4, 1998, the Company announced the signing of an exclusive agreement
with Lafon for the marketing, sales and distribution of Anesta's OTS fentanyl
product line, including Actiq, in France. Under terms of the agreement, Lafon
made payments to the Company in 1998, a portion of which will be recognized as
revenue in future years. The OTS fentanyl product line will be manufactured for
Lafon by Anesta, however, the Company does not believe commercial manufacturing
will begin before December 31, 2000. Lafon is a leading private French
pharmaceutical company.
On February 23, 1999, the Company announced the signing of an option agreement
with Novartis involving the Company's proprietary OTS for drug delivery. Under
terms of the agreement, Novartis made a payment to the Company in 1999, which
will be recognized as revenue over the term of the agreement. Novartis and the
Company will assess the worldwide commercial opportunity of potential products
which combine the OTS with undisclosed compounds, with the goal of entering into
an exclusive licensing agreement.
On May 6, 1999, the Company announced the signing of an exclusive agreement with
SWO for the marketing, sales and distribution of Anesta's OTS fentanyl product
line, including Actiq, for Scandinavia (Denmark, Finland, Iceland, Norway, and
Sweden). Under terms of the agreement, SWO made a payment to the Company which
was recognized as revenue. The OTS fentanyl product line will be manufactured
for SWO by Anesta, however, the Company does not believe commercial
manufacturing will begin before December 31, 2000. SWO is a leading private
Swedish pharmaceutical company.
On October 6, 1999, the Company announced the signing of an exclusive agreement
with Elan for the marketing, sales and distribution of Anesta's OTS fentanyl
product line, including Actiq, for Austria, Belgium, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Philippines, Switzerland, Taiwan, and the United
Kingdom. Under terms of the agreement, Elan made payments to the Company, a
portion of which will be recognized as revenue in future years over the term of
the agreement. The OTS fentanyl product line will be manufactured for Elan by
Anesta. Elan is a leading public Irish pharmaceutical company.
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
________
11. Leases:
In December 1994, the Company entered into a five year operating lease agreement
for a building which has two additional five-year renewal options. In February
2000, the Company renegotiated this lease for three years with two additional
three-year renewal options. During 1999, 1998 and 1997 the Company also entered
into operating lease agreements for furniture and equipment.
Future minimum rental payments under operating leases as of December 31, 1999
are as follows:
2000 $1,345,180
2001 1,213,192
2002 913,973
2003 271,264
----------
$3,743,609
----------
Total expense under operating lease agreements for 1999, 1998 and 1997 was
$1,285,841, $944,856, and $726,763, respectively.
12. Employee Benefits:
In October 1995, the Board of Directors approved the adoption of a 401(k)
Retirement Plan (the "401(k) Plan") effective January 1, 1996. Under the terms
of the 401(k) Plan, all employees who are at least 21 years of age are eligible
to participate. Participants may contribute up to 25% of their annual
compensation to the 401(k) Plan, subject to statutory limitations. The Company
may make discretionary matching contributions to the 401(k) Plan equal to 25
percent of participant contributions up to 6% of participant compensation. For
1999, 1998 and 1997, the Company declared and paid discretionary matching
contributions to the 401(k) Plan in the amount of $57,849, $52,959 and $40,784,
respectively.
13. Computation of Diluted Loss Per Share:
As of December 31, 1999, options to purchase 1,653,179 shares of common stock at
prices between $5.25 and $28.19 per share were outstanding. As of December 31,
1998, options to purchase 1,526,940 shares of common stock at prices between
$5.25 and $25.19 per share were outstanding. As of December 31, 1997, options
to purchase 1,340,230 shares of common stock at prices between $0.80 and $19.25
were outstanding. None of these options were included in the computation of
diluted loss per share because the effect would have been antidilutive.
14. Subsequent Events:
In March 2000, Anesta renegotiated the U.S. marketing rights for Actiq and
Fentanyl Oralet with Abbott. Under terms of the agreements, effective April 2000
Anesta will have responsibility for sales and marketing in the United States. As
part of the renegotiation, Anesta will make cash payments to Abbott and is
obligated to make on-going earn-out payments to Abbott until the end of the
first patent covering oral transmucosal fentanyl citrate. Abbott will continue
to manufacture Actiq and Fentanyl Oralet for Anesta in the U.S. for a period of
24 to 36 months, after which the right of Anesta to manufacture such products
after such period of time. Anesta will recognize revenue when Abbott ships
product against a customer order. Anesta's gross margin therefore is directly
affected by Abbott's manufacturing costs. Anesta is also obligated to pay a
small royalty on its sales of Actiq and Fentanyl Oralet to the UURF.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------
FINANCIAL DISCLOSURES
Not applicable.
54
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------
Incorporated by reference to the sections of the Company's 2000 Proxy
Statement, anticipated to be filed within 120 days of December 31, 1999,
entitled "Proposal 1--Election of Directors," and "Management."
ITEM 11. EXECUTIVE COMPENSATION
- -------
Incorporated by reference to the section of the Company's 2000 Proxy
Statement, anticipated to be filed within 120 days of December 31, 1999,
entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
Incorporated by reference to the section of the Company's 2000 Proxy
Statement, anticipated to be filed within 120 days of December 31, 1999,
entitled "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------
Incorporated by reference to the section of the Company's 2000 Proxy
Statement, anticipated to be filed within 120 days of December 31, 1999,
entitled "Certain Transactions."
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------
(a)-1 Index to Financial Statements
The following documents are incorporated in Part II of this
Annual Report in Item 8.
(a)-2 Financial Statement Schedules
None.
(a)-3 Exhibits
The exhibits to this Annual Report on Form 10-K are listed
under Item 14(c) below.
The following management compensatory plans and arrangements
are required to be filed as exhibits to this Annual Report on Form 10-K pursuant
to Item 14(c):
Exhibit
Number Description
------ -----------
10.2** Registrant's 1993 Stock Option Plan.
10.3** Form of Incentive Stock Option Agreement under the
1993 Stock Option Plan, with related Schedule.
10.4** Form of Nonstatutory Stock Option Agreement under
the 1993 Stock Option Plan.
10.5** Employee Stock Purchase Plan and related offering
document.
10.11** 1993 Non-Employee Directors' Stock Option Plan.
(b) Reports on Form 8-K
None.
(c) Exhibits
Exhibit
Number Description
------ -----------
3.1** Amended and Restated Certificate of Incorporation
of Registrant.
3.2** Bylaws of Registrant.
4.1** Specimen stock certificate.
4.2** Reference is made to Exhibits 3.1 and 3.2.
10.1** Form of Indemnity Agreement entered into directors
and executive between the Registrant and its
officers.
10.2** Registrant's 1993 Stock Option Plan.
10.3** Form of Incentive Stock Option Agreement under the
1933 Stock Option Plan, with related Schedule.
10.4** Form of Nonstatutory Stock Option Agreement under
the 1993 Stock Option Plan.
10.5** Employee Stock Purchase Plan and related offering
document.
56
<PAGE>
10.6** Technology License Agreement between the
Registrant and the University of Utah
Research Foundation, dated as of September
16, 1985, as amended through December 3,
1993. (With certain portions in brackets
deleted)
10.7** Research and Development, License, Supply and
Distribution Agreement between the Registrant
and Abbott Laboratories, dated as of December
27, 1989, as amended through December 30,
1992. (With certain portions in brackets
deleted)
10.8** Agreement between the Registrant and Abbott
International Ltd., dated as of February 28,
1991, as amended through September 16, 1991.
(With certain portions in brackets deleted)
10.9** Agreement between the Registrant, Stanley
Research Foundation and TheraTech, Inc.,
dated as of December 3, 1990. (With certain
portions in brackets deleted)
10.10** Northgate Business Center Lease between the
Registrant and Medforte Research Foundation,
dated as of October 1, 1990, as amended
through May 1, 1993.
10.11** 1993 Non-Employee Directors' Stock Option
Plan.
10.12** Registration Rights Agreement between
Registrant and certain stockholders named
therein.
10.13*** Wiley Post Plaza Lease between the Registrant
and Asset Management Services, dated as of
December 7, 1994.
10.14**** Letter Agreement dated August 31, 1995,
between the Company and Abbott Laboratories.
10.15**** Amendment to Agreement dated August 31, 1995,
between the Company and Abbott International,
Ltd.
10.16**** Funding Agreement dated September 8, 1995,
between the Company and Abbott Laboratories.
10.17+ Option Agreement dated February 15, 1999
between the Company and Novartis Consumer
Health, Inc.
10.18+ Distribution, License and Supply Agreement
dated December 7, 1999 between the Company
and Elan Pharma International Limited.
11.1**** Statement regarding calculation of net income
(loss) per share.
23.1 Independent Accountants' Consent Letter
24.1 Power of Attorney. Reference is made to page
58.
27.1 Financial Data Schedule.
____________________
+ Certain confidential information contained in this exhibit, marked by
brackets, has been omitted and filed separately with the Securities and
Exchange Commission based upon a request for confidential treatment
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
** Previously filed with the Commission as an exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-72608) and incorporated
herein by reference thereto.
*** Previously filed with the Commission as an exhibit to the Company's 1994
Annual Report on Form 10-K (File No. 0-23160) and incorporated herein by
reference thereto.
**** Previously filed with the Commission as an exhibit to the Company's
September 30, 1995 Form 10-Q (File No. 0-23160) and incorporated herein
by reference thereto.
***** Previously filed with the Commission as an exhibit to the Company's 1995
Annual Report on Form 10-K (File No. 0-23160) and incorporated herein by
reference thereto.
57
<PAGE>
ANESTA CORP.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Salt Lake City,
State of Utah, on the 30th day of March, 2000.
ANESTA CORP.
By /s/ Thomas B. King
----------------------------------------------
Thomas B. King
President, Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas B. King and Roger P. Evans, or any of
them, his or her attorney-in-fact, each with the power of substitution, for him
or her in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connections
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas B. King President, Chief Executive March 30, 2000
- -----------------------------
Thomas B. King Officer and Director (Principal
Executive Officer)
/s/ William C. Moeller Chairman of the Board and March 30, 2000
- -----------------------------
William C. Moeller Treasurer
/s/ Theodore H. Stanley Founding Chairman of the Board March 30, 2000
- -----------------------------
Theodore H. Stanley, M.D.
/s/ Roger P. Evans Vice President, Finance and March 30, 2000
- -----------------------------
Roger P. Evans, CPA Administration (Principal
Financial and Accounting
Officer)
/s/ Emanuel M. Papper Director March 30, 2000
- -----------------------------
Emanuel M. Papper, M.D., Ph.D.
58
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Daniel L. Kisner Director March 30, 2000
- -----------------------------
Daniel L. Kisner, M.D.
/s/ Richard P. Urfer Director March 30, 2000
- -----------------------------
Richard P. Urfer
/s/ Richard H. Leazer Director March 30, 2000
- -----------------------------
Richard H. Leazer
59
<PAGE>
Execution Copy
EXHIBIT 10.18
DISTRIBUTION, LICENSE AND SUPPLY AGREEMENT
This Distribution Agreement (the "Agreement") is entered into as of the
Effective Date (as defined below) by and between ANESTA CORP., a Delaware
corporation ("Anesta"), and ELAN PHARMA INTERNATIONAL LIMITED, an Irish company
("Elan").
RECITALS
Whereas, Anesta owns or holds licenses to certain technology relating to an
oral transmucosal drug delivery system for fentanyl citrate ("OT-fentanyl") and
manufactures the current OT-fentanyl Product (as defined below); and
Whereas, Elan has substantial experience in the distribution, marketing and
sale of pharmaceutical and other health care products in the Territory (as
defined below).
Whereas, Anesta and Elan desire to enter into this Distribution, License
and Supply Agreement in order for Elan or its Subdistributors (as defined below)
to distribute OT-fentanyl in the Territory; and
Now, Therefore, in consideration of the foregoing and the covenants and
promises contained in this Agreement, the Parties agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Affiliate" shall mean any corporation or entity controlling or
controlled or under common control with Elan or Anesta, as the case may be. For
the purposes of this Agreement, "control" shall mean the direct or indirect
ownership or control of more than 50% of the issued voting shares or other
voting rights of the subject entity to elect directors, or if not meeting the
preceding criteria, any entity owned or controlled by or owning or controlling
at the maximum control or ownership right permitted in the country where such
entity exists. For the purposes of this Agreement, Segix Italia S.p.a., which is
19.9% owned by an Affiliate of Elan, will be included in the definition as an
Affiliate.
1.2 "Anesta Patents" shall mean all patents (including inventor"s
certificates) owned by or licensed (with right to sublicense) to Anesta (i)
which have issued as of the Effective Date or (ii) which issue at any time from
applications pending as of the Effective Date, or subsequently filed during the
term of this Agreement, which (in the case of both
1.
<PAGE>
(i) and (ii)) claim inventions necessary or useful to the manufacture, use,
import, offer for sale or sale of OT-fentanyl Products, including without
limitation, any continuation, division, continuation-in-part, and any
provisional applications, and which patents have not expired or been held
invalid or unenforceable by a court of competent jurisdiction in a final,
unappealable decision, including without limitation all substitutions,
extensions, registrations, confirmations, re-examinations, reissues or renewals
of such patents. Exhibit C lists, as of the Effective Date, all such patents
that have issued and pending applications and shall be amended from time to time
to include patents or applications owned by or licensed to Anesta to the extent
they claim inventions necessary or useful to the use, import, sale or offer for
sale of OT-fentanyl Products within the Territory or an amendment to any Anesta
Patents.
1.3 "Anesta Know-How" shall mean all of Anesta"s tangible or intangible
know-how, trade secrets, inventions (whether or not patentable), data, clinical
and preclinical results, information including but not limited to commercial
business information, and any physical, chemical or biological material, any
replication or any part of such material, which exists as of the Effective Date
or which is created during the term of this Agreement that is necessary or
useful to the manufacture, use or sale of OT-fentanyl Products.
1.4 "Anesta Technology" shall mean the Anesta Patents and Anesta Know-How.
1.5 "Anesta Trademarks" shall mean all trademarks and trade names owned or
licensed to Anesta (with right to sublicense) pertaining to OT-fentanyl Products
which are listed in Exhibit D. Trademarks and trade names that are owned and
used by Elan to identify itself as the distributor of OT-fentanyl Products are
specifically excluded from this definition. Exhibit D may be amended from time
to time, upon written agreement of the Parties or pursuant to Section 2.9(h), to
include additional trademarks or trade names not previously listed.
1.6 "Commercial Strategy Team" shall mean the group of distributors of
OT-fentanyl Products, selected by Anesta to formulate a commercial strategy or
strategies for distribution and marketing of OT-fentanyl Products in territories
designated by Anesta.
1.7 "Confidential Information" shall mean each Party"s information,
inventions, designs, copyright material, specifications, ideas, studies,
findings, conclusions, samples, manuals, operating and testing procedures,
formulas, formulations, know-how or data disclosed to the other Party pursuant
to this Agreement and shall include manufacturing, marketing, clinical and
regulatory, financial, personnel, technical, engineering, scientific, commercial
and other business information, reports and plans, whether in oral, written,
graphic or electronic form. "Confidential Information" shall include, without
limitation, any "Confidential Information" as such term is defined in the
Agreement of
2.
<PAGE>
Non-Disclosure and Confidentiality dated April 30, 1999 by and between Elan and
Anesta as set out in Exhibit I.
1.8 "DEA" shall mean the United States Drug Enforcement Agency.
1.9 "Distribution Period" shall have the meaning assigned to such term in
Section 2.4.
1.10 "Effective Date" shall mean the date on which the second Party signs
this Agreement.
1.11 "FDA" shall mean the United States Food and Drug Administration or
successor agency whose approval is necessary to market the OT-fentanyl Products
in the US.
1.12 "Forecast" shall mean a forecast for sales of Units on a Select
Country-by-Select Country basis for the Territory, as set out in Exhibit A as
amended from time to time pursuant to Section 2.5(a).
1.13 "Field" shall mean any and all uses of OT-fentanyl Products in humans,
including but not limited to premedication, sedation, analgesia (conscious
sedation), and cancer pain management in hospitals, alternative health care
facilities, home and alternate site markets.
1.14 [ ] shall mean a product containing [ ] which is sold [ ] and in one
or more countries [ ] for a [ ] in such country or countries, as the case may
be, and which is not [ ]
1.15 "Gross Profit" shall mean Net Sales of OT-fentanyl Products, minus the
sum of the aggregate supply price for the corresponding OT-fentanyl Products
under Section 5.5(b) and 11% of Net Sales of OT-fentanyl Products.
1.16 "Gross Sales" shall mean all amounts invoiced by Elan or its
Subdistributors for sales of OT-fentanyl Products.
1.17 "Initial Indication" shall mean the indication(s) for OT-fentanyl
Products as set forth in the SPC of the initial marketing Regulatory Approval
therefor in a country of the Territory.
1.18 "NDA" or "New Drug Application" shall mean an application to the FDA,
or the equivalent in a country other than the United States, to commence
commercial sale of a drug.
3.
<PAGE>
1.19 "NDA Package" shall mean Anesta"s NDA for OT-fentanyl Products and all
accompanying data and information including supplements and amendments submitted
by Anesta to the FDA in connection with such NDA.
1.20 "Net Sales" shall mean Gross Sales, less (i) transportation charges
(but not such transportation charges incurred in connection with transporting
OT-fentanyl Products to the facility designated by Elan upon delivery by
Anesta), (ii) discounts, rebates, credits allowed for defective or returned
goods and other allowances (actually paid or allowed, including but not limited
to, prompt payment and volume discounts and other allowances granted to the end
commercial customer of the OT-fentanyl Products, whether in cash or trade),
(iii) transport insurance, and (iv) any tax, excise or governmental charge upon
or measured by the sale, transportation, delivery or use of the Products,
invoiced by Elan or its Affiliates to its customers.
1.21 "OT-fentanyl Products" shall mean pharmaceutical products for use in
humans, which contain as their sole active ingredient fentanyl citrate, in
Anesta"s oral transmucosal titratable drug matrix attached to a handle (known as
OT-fentanyl) and in any dosage, including but not limited to those which are
covered by MAA applications [ ] or any equivalent approval
issued by regulatory authorities in the Territory or any improvements on
products covered thereby. The current version of the OT-fentanyl Product is more
fully described in the Specifications as set out in Schedule G.
1.22 "Parallel Imports" shall mean sales by a Third Party or Third Parties
of OT-fentanyl Products originating in a member state of the European Union
outside of the Territory to buyers within a Select Country.
1.23 "Parties" shall mean Anesta and Elan, and "Party" shall mean either of
Anesta or Elan, as the context requires.
1.24 "Pricing Approval" shall mean any approval or authorization of any
federal, state or local regulatory agency, department, bureau or other
government entity, establishing a pricing scheme for OT-fentanyl Products in a
country of the Territory.
1.25 "Required Information" shall mean (i) such portions of the NDA Package
as are relevant to Anesta"s applications for Regulatory Approval (other than the
Chemistry, Manufacturing and Controls section) and (ii) such other information
owned by or licensed to Anesta (with the right to grant sublicenses), and which
in either case are required by regulatory authorities in the Territory for the
purpose of granting Regulatory Approvals.
1.26 "Regulatory Approval" shall mean any approvals, licenses,
registrations, or authorization of any federal, state or local regulatory
agency, department, bureau or
4.
<PAGE>
other government entity, required for the marketing and sale of OT-fentanyl
Products in a country of the Territory.
1.27 "Reimbursement Approval" shall mean any approval or authorization of
any federal, state or local regulatory agency, department, bureau or other
government entity, establishing a health insurance reimbursement scheme for
OT-fentanyl Products in a country of the Territory.
1.28 "Select Country" shall have the meaning given such term in Section
2.5(a).
1.29 "SPC" shall mean the summary of OT-fentanyl Products characteristics
in a marketing Regulatory Approval in the Territory or an application therefor.
1.30 "Specifications" shall mean the finished Products specifications of
the OT-fentanyl Products attached as Exhibit G.
1.31 "Subdistributors" shall mean Affiliates of Elan or Third Parties,
which affiliates or Third Parties have been appointed by Elan and, in the case
of Third Parties, approved by Anesta pursuant to Section 2.1(c) to distribute
OT-fentanyl Products in the Territory.
1.32 "Territory" shall mean Austria, Belgium, Germany, Greece, Ireland,
Italy (including San Marino and the Vatican City), Luxembourg, the Netherlands,
the Philippines, Switzerland, Taiwan and the United Kingdom.
1.33 "Third Party" means any person or entity other than Anesta, Elan or
their respective Affiliates.
1.34 "Unit" shall mean a single unit of the OT-fentanyl Products.
1.35 "Valid Claim" means (a) an issued claim, covering OT-fentanyl
Products, of an issued patent within the Anesta Patents, which has not (i)
expired, been disclaimed or been canceled, (ii) been declared invalid by a
final, unreversed and unappealable decision of a court or other appropriate body
of competent jurisdiction, (iii) been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise, and/or (iv) been abandoned in
accordance with or as permitted by the terms of this Agreement or by mutual
written agreement; or (b) a claim, covering OT-fentanyl Products, included in a
pending patent application within the Anesta Patents that is being actively
prosecuted by Anesta or its licensor and which has not been (i) canceled, (ii)
withdrawn from consideration, (iii) finally determined to be unallowable by the
applicable governmental authority (and from which no appeal is or can be taken),
and/or (iv) abandoned.
2. DISTRIBUTION OF OT-FENTANYL PRODUCTS
5.
<PAGE>
2.1 Exclusive Distributorship and License
(a) Appointment and Grant of License. Subject to the terms and
conditions of this Agreement, Anesta hereby appoints Elan to be its exclusive
distributor of OT-fentanyl Products in the Territory and grants to Elan, and
Elan hereby accepts, an exclusive (subject to Section 2.5), royalty bearing
license, sublicensable only pursuant to Section 2.1(c), under the Anesta
Technology and the Required Information to market, import, use, sell, offer for
sale, and distribute the OT-fentanyl Products in the Territory. As set forth in
Section 6.4(b) and only under the conditions set forth therein, Elan shall have
a right to manufacture OT-fentanyl Products.
(b) Limitations. Elan shall not, for the Distribution Period, and for
so long as Elan is selling the OT-fentanyl Products pursuant to this Agreement,
[
] Anesta shall not, during the Distribution Period and for so long as
Elan is selling the OT-fentanyl Products pursuant to this Agreement, actively
seek customers for the OT-fentanyl Products in the Territory, and in particular,
(but without prejudice to the foregoing generality) will not establish any
branch or maintain any distribution depot for OT-fentanyl Products in the
Territory.
(c) Subdistributors. Elan shall have the right to appoint its
Affiliates and Third Parties to distribute the OT-fentanyl Products in the
countries of the Territory, provided that Anesta gives its prior written
approval for any such Third Parties. Anesta shall not unreasonably withhold such
approval and shall either grant or deny such approval in writing within ten (10)
business days from receipt of a written request from Elan. Any Subdistributors
shall perform Elan"s obligations under this Agreement for the benefit of Anesta.
Notwithstanding the previous sentence, Elan shall remain primarily responsible
and liable to Anesta for the performance of this Agreement by its
Subdistributors. Elan shall have the right to sublicense the rights granted to
it under Section 2.1 to any Subdistributors.
2.2 License to Elan"s Information. To the extent that Elan has the rights
to grant the following license without violating the terms of any agreement or
other agreement with any Third Party, Elan hereby grants to Anesta an exclusive
(except as to Elan and its Subdistributors), perpetual, fully paid-up,
worldwide, sublicensable license to use in the Field (a) the clinical,
preclinical and related information generated by Elan or its Subdistributors
with respect to the OT-fentanyl Products, and all intellectual property arising
therefrom, (b) all relevant safety information generated by Elan with respect to
the OT-fentanyl Products and (c) all marketing information with respect to the
OT-fentanyl Products that Elan reasonably deems useful to Anesta or to
distributors of OT-fentanyl Products outside the Territory; provided however,
that to the extent that such
6.
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information is confidential Anesta will use commercially reasonable efforts to
ensure that any recipient of such information from Anesta enters into an
appropriate binder of confidentiality.
2.3 Sublicense to Use Other Distributors" Information. To the extent that
Anesta has the rights to grant the following license without violating the terms
of any agreement or other arrangement with any Third Party, Anesta hereby grants
to Elan an exclusive (subject to Section 2.5), fully paid-up sublicense in the
Field within the Territory to use (a) the clinical, preclinical and related
information and inventions generated by other distributors of the OT-fentanyl
Products, and all intellectual property arising therefrom, and (b) all relevant
safety information with respect to the OT-fentanyl Products generated by other
distributors of the OT-fentanyl Products, provided however, that to the extent
that such information is confidential Elan will use commercially reasonable
efforts to ensure the confidentiality of such information
2.4 Distribution Period. The Distribution Period shall commence upon the
first date of sale of OT-fentanyl Products in the Territory and shall expire [
] years after the Effective Date unless terminated
earlier in accordance with the earlier termination provisions of this Agreement.
2.5 Performance Obligations; Conversion and Termination of Rights.
(a) Determination of Forecasts. The Forecasts for [
] and such additional Forecasts for the other countries of the
Territory as may be added from time to time in accordance with the provisions of
this Section 2.5(a) (each such country being a "Select Country"), are and will
be set forth in Exhibit A. At any time, Elan may select one or more other
countries in the Territory to be Select Countries by preparing a forecast of
Elan"s Unit sales (whether directly by Elan or through Subdistributors) in such
country for the first [ ] years after the launch of the OT-fentanyl
Products in the respective country. Such Unit sales forecast shall be based upon
the assumption that Elan shall not participate or be interested in the marketing
or selling in the Territory products that are competitive with OT-fentanyl
Products, whether directly or through its Subdistributors. If Anesta agrees that
such forecast is reasonable, it will be added to Exhibit A as the Forecast for
such Select Country. If Anesta does not agree that such forecast is reasonable,
it shall prepare its own Unit sales forecast for such Select Country for such
[ ] year period. In the event that the Parties do not agree upon
the Forecasts proposed by each of them, within ten business days following
receipt by the Parties of the proposed Forecasts, and in the event of their
failing to agree on the selection and appointment of an independent arbitrator,
the Parties shall contact the President of the Law Society of Ireland (the
"President") and request that an independent US-based arbitrator, who is
knowledgeable of the pharmaceutical industry, be appointed within five business
days. The President shall endeavor to select an arbitrator who is technically
knowledgeable of the
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pharmaceutical industry (and who directly and through his affiliates, has no
business relationship with, and holds no securities of or ownership interest in,
either Party) (the "Arbitrator"). Promptly upon being notified of his
appointment, the Parties shall submit to the Arbitrator details of their
Forecast proposals together with such other information as they think necessary.
A copy of all materials submitted by a Party to the Arbitrator shall be provided
at the same time to the other Party. Neither Party shall engage in ex parte
contact with the Arbitrator. The Arbitrator may meet with both Parties together
and shall thereafter choose from the Forecasts submitted the Forecast which best
reflects a reasonable projection of Unit sales in such country, assuming
commercially reasonable marketing activities, potential competition and other
reasonable market factors. The Arbitrator shall use his best efforts to revert
with his determination within thirty (30) business days of his appointment. The
Parties shall bear the costs of the Arbitrator equally provided that the
Arbitrator may, in his discretion, allocate all or a portion of such costs to
one Party.
(b) First Five Years After Launch.
(i) If, on a Select Country-by-Select Country basis in the
Territory, Elan"s sales of Units are, during any of the first [ ]
years after the launch of the OT-fentanyl Products in such Select Country, less
than [ ] of the Forecast for such year for such Select Country, Elan, may at its
election, make up for the shortfall in sales in such Select Country in the
manner set forth in Section 2.5(b)(iv), thereby retaining its exclusive rights
in such Select Country for OT-fentanyl Products.
(ii) With respect to each of the [ ], Elan shall not be under
any obligation to make any payments pursuant to Section 2.5(b)(i) for sales
shortfalls in the applicable country, and will not lose any of its exclusive
rights granted under Section 2.1 for such country pursuant to Section
2.5(b)(iii), even if there is a sales shortfall as described in Section
2.5(b)(i), in the event that Net Sales of the OT-fentanyl Products in such
country [
].
(iii) If Elan elects not to make up the shortfall of sales under
Section 2.5(b)(i) in a Select Country as provided in Section 2.5(b)(iv), Anesta
may, at its election and at its sole discretion, convert the exclusive rights
granted under this Agreement for such Select Country into non-exclusive rights
in such Select Country, upon ninety (90) days prior written notice to Elan. Such
shortfall, if any, shall not be considered a breach for the purposes of Section
10.2, and conversion of Elan"s exclusive distribution rights into non-exclusive
distribution rights shall be Anesta"s sole remedy with respect to such
shortfall. During the 90 day period of notice, Elan may, at its election, pay up
the shortfall of sales as provided in Section 2.5(b)(iv).
(iv) Elan may make up for the shortfall in sales referenced in
Section 2.5(b)(i) by paying to Anesta, not later than 90 days after the end of
the twelve-
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month period or during the 90 day notice period, an amount with respect to such
Select Country equal to:
2.6 [
].
(a) Remainder of Distribution Period.
(i) During any twelve-month period during the Distribution
Period beginning on the [ ] or any subsequent anniversary of
the launch of OT-fentanyl Products in the [ ], as the case may be,
if the Unit sales in such country are less than [ ] year of
the Forecast for such country, Elan may, at its election, make up for the
shortfall in sales in the manner set forth in section 2.5(c)(iv), thereby
retaining its exclusive rights granted under Section 2.1 in such country for OT-
fentanyl Products. Notwithstanding the foregoing, Elan shall not be under any
obligation to make any payments pursuant to this Section 2.5(c)(i) for sales
shortfalls in the applicable country, and will not lose any of its exclusive
rights granted under Section 2.1 for such country pursuant to Section
2.5(c)(iii), even if there is a sales shortfall as described in this Section
2.5(c)(i), in the eventt hat Net Sales of the OT-fentanyl Products in such
country [ ].
(ii) During any twelve-month period during the Distribution
Period beginning on the [ ] or any subsequent anniversary of the launch of
OT-fentanyl Products in a Select Country (other than the [ ]),
if the Unit sales in such Select Country are less than [ ] year of the
Forecast for such Select Country, Elan may, at its election, make up for the
shortfall in sales in the manner set forth in Section 2.5(c)(v), thereby
retaining its exclusive rights granted under Section 2.1 in such Select Country
for OT-fentanyl Products.
(iii) If Elan elects not to make up the shortfall of sales
pursuant to Section 2.5(c)(i) for the [ ] or pursuant to Section
2.5(c)(ii) in any other Select Country, Anesta may, at its election and at its
sole discretion, convert the exclusive rights granted under this Agreement in
such Select Country into non-exclusive rights upon ninety (90) days prior
written notice to Elan. Such shortfall, if any, shall not be considered a breach
for the purposes of Section 10.2 and conversion of Elan"s exclusive distribution
rights into non-exclusive distribution rights shall be Anesta"s sole remedy with
respect to such shortfall. During the 90 day notice period, Elan may, at its
election, pay up the shortfall of sales.
(iv) Elan may make up for the shortfall in sales referenced in
Section 2.5(c)(i) by paying to Anesta, not later than 90 days after the end of
the relevant
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12-month period or during the 90 day notice period, an amount with respect to
such Select Country equal to:
2.7 [
]
(i) Elan may make up for the shortfall in sales referenced in
Section 2.5(c)(ii) by paying to Anesta, not later than 90 days after the end of
the relevant 12-month period or during the 90 day notice period, an amount with
respect to such Select Country equal to:
2.8 [
]
(a) No More Favorable Terms. In the event of conversion of Elan"s
exclusive rights in a Select Country to non-exclusive rights in such Select
Country under Sections 2.5(c) or (b), Anesta shall not enter into an agreement
for the licensing and distribution of the OT-fentanyl Products in such Select
Country on material terms more favorable to the Third Party than to Elan, and in
particular, the purchase price and royalty rate charged to a Third Party
distributor appointed by Anesta in such Select Country shall not be lower than
that charged to Elan in that same Select Country.
(b) Competitive Products. If after a merger or acquisition of Elan or
substantially all of its assets referred to in Section 3.6(b), during the
Distribution Period, Elan or its successor entity or its Affiliates launches,
markets, distributes or sells directly or through a distributor or sublicensee,
in the Territory any Competing Product (as defined in Section 3.6(a)):
(i) [
]
(ii) if any of the following occur:
(1) on a Select Country-by-Select Country basis, Elan"s Unit
sales of the OT-fentanyl Products are, during any of the first [ ]
years after the launch of the OT-fentanyl Products in such Select Country, less
than [ ] of the Forecast for that year for such Select Country,
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(2) during any twelve-month period during the Distribution
Period beginning on the fifth or any subsequent anniversary of the launch of OT-
fentanyl Products in the [
], or
(3) during any twelve-month period during the Distribution
Period beginning on the fifth or any subsequent anniversary of the launch of
OT-fentanyl Products in a Select Country (other than the [ ]),
the Unit sales in such Select Country are less than [ ] of the
Forecast for such Select Country,
then Anesta may terminate this Agreement as to the applicable Select Country,
and Elan"s rights under Section 2.1 in such Select Country, by giving Elan 90
days prior written notice, in which event the sell-through period under Section
10.4 shall last for only [ ] with respect to such Select Country.
If Anesta has the right to terminate or has terminated this Agreement as to both
the [ ] pursuant to this Section 2.5(e), Anesta may terminate
this Agreement as to all countries of the Territory that are not Select
Countries, and Elan"s rights under Section 2.1 in such countries, by giving Elan
90 days prior written notice, in which event the sell-through period under
Section 10.4 shall last for only [ ] with respect to such countries.
(c) Adjustment of Sales Targets. In the event that a significant
factor beyond Elan"s control causes Elan not to reach the levels of Unit sales
of the OT-fentanyl Products set forth in Sections 2.5(b) or (c), then the
Parties shall meet to discuss the above circumstances and appropriate means to
address them including, but not limited to, a mutually agreeable reduction of
the applicable Forecast for the relevant year(s). In the event of any such
reduction, the thresholds for any make-up payments and Anesta"s option to
convert Elan"s exclusive right to non-exclusive rights under this Section 2.5
shall be based on the reduced Forecast. Such significant factors beyond Elan"s
control would include:
(i) failure to supply the OT-fentanyl Products in accordance
with the provisions of Section 5.1(a);
(ii) the Net Sales price of a Unit is [ ];
and
(iii) one or more [ ] marketed by Third Parties
other than subdistributors of the OT-fentanyl Products which [ ]
in the relevant Select Country, where the Gross Sales of [ ] for a calendar
quarter are at [ ] of the combined Gross Sales of OT-fentanyl
Products and the [ ] in such Select Country. The relative sales
proportion of such [ ] in any calendar quarter is
conclusively deemed to [ ] of the combined Gross Sales of OT-
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fentanyl Products and the [ ] in such Select Country if
Intercontinental Medical Statistics or another mutually agreeable source of such
information has made such determination based on its conduct of a market share
study in such Select Country during such quarter. Once a determination is made
that [ ] exists for OT-fentanyl Products in any Select
Country, such determination shall be made again each calendar quarter for so
long as one or more [ ] are marketed in that Select Country).
2.9 Failure to Launch. In the event that Elan fails to launch OT-fentanyl
Products within a country of the Territory [ ]
(a) a Regulatory Approval for OT-fentanyl Products within such country or (b)
issuance of a Pricing Approval (where required or commercially desirable) for
OT-fentanyl Products within such country, Anesta may terminate this Agreement as
to such country, and Elan"s rights under Section 2.1 in such country, by giving
Elan 90 days prior written notice.
2.10 Parallel Imports. It is recognized that Parallel Importation of OT-
fentanyl Products could affect Elan"s commercial interests in the Territory and
Anesta"s commercial interests outside the Territory.
(a) It is agreed that if in any financial year (being 1st January to
31st December), Parallel Imports of the OT-fentanyl Products into a Select
Country [ ] of Net Sales of OT-fentanyl Products in such Select
Country during that financial year, [
]
(b) It is agreed that if in any financial year (being 1st January to
31st December), there are sales of OT-fentanyl Products originating from Elan or
its Subdistributors to buyers within a country of the European Union outside the
Territory and such [
].
2.11 Right of First Negotiation. If Anesta develops or acquires [
] products for the Territory, other than OT-fentanyl Products and desires to
appoint a distributor for such products in the Territory rather than
distributing such products itself, Anesta shall notify Elan thereof in writing.
From the date of notification, the Parties shall negotiate exclusively and in
good faith for a period of ninety (90) days for an agreement giving Elan
exclusive distribution rights for such products in the Territory for a mutually
agreed period. If the Parties do not reach agreement in such period, Anesta
shall be free to enter distribution arrangements with Third Parties for such
products in the Territory.
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2.12 Trademarks and Trade Names.
(a) License. Subject to the terms and conditions of this Agreement,
Anesta hereby grants to Elan an exclusive license within the Territory to use
the Anesta Trademarks solely for the purposes of marketing, promoting, selling
and distributing the OT-fentanyl Products under this Agreement. If Anesta
converts Elan"s exclusive rights in a Select Country under Section 2.1 to
non-exclusive rights pursuant to Section 2.5, Elan will continue to have
[ ] the Anesta Trademarks; provided, however, that Anesta may
terminate such license as to [ ] pursuant to
Section 2.9(h), if another non-exclusive distributor of OT-fentanyl Products is
to use such secondary Anesta Trademark in such Select Country.
(b) Obligation to Use Trademarks. Elan shall use and have used the
primary Anesta Trademarks, as indicated on Exhibit D, or the secondary Anesta
Trademarks as indicated on Exhibit D as designated by Anesta pursuant to Section
2.9(h), and no other trademarks or trade names, in connection with its
marketing, promotion, sale and distribution of the OT-fentanyl Products in each
country of the Territory, unless otherwise agreed by the Parties; provided,
however that Elan may use its own trademarks and trade names on product
packaging, brochures and other promotion materials to identify itself as the
distributor of the OT-fentanyl Products.
(c) Trademark Policy. Elan"s use of the Anesta Trademarks shall
comply with Anesta"s trademark policy as in effect from time to time, which
shall be commercially reasonable from the perspective of each Party and
consistent with standards for trademark policies that are generally accepted
within the pharmaceutical industry, and which Anesta shall provide within ninety
(90) days of the Effective Date. Anesta shall have the right to audit Elan"s
compliance with such trademark policy. Elan shall remedy any non-compliant use
identified by Anesta as soon as is possible using commercially reasonable
efforts after notification by Anesta. However, in the event Anesta alters its
trademark policy, Elan shall have the right to exhaust all existing printed
materials bearing the Anesta Trademark before making any changes to comply with
the new policy. Elan shall bear all costs of changes to its printed materials to
comply with any new trademark policy of Anesta, except that Anesta will
reimburse Elan for all costs incurred for such changes resulting from trademark
policy changes more frequent than once every two (2) years. Elan further agrees
to provide copies of all such materials to Anesta for review and approval prior
to publication and distribution. Anesta agrees that its approval of such
materials will not be unreasonably withheld. The Parties agree that Anesta will
have been deemed to approve any such materials if it does not respond to Elan
within thirty (30) days after having received said materials.
(d) Anesta Ownership. Elan hereby agrees to and recognizes Anesta"s
exclusive ownership of the Anesta Trademarks and the renown of the Anesta
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Trademarks. Elan agrees not to take any action inconsistent with such ownership
and further agrees to take any action, at Anesta"s expense, which Anesta
reasonably deems necessary to establish and preserve Anesta"s exclusive rights
in and to the Anesta Trademarks including but not limited to cooperating in the
registration of the Anesta Trademarks on the trademark registry or other
appropriate registration procedure in the Territory.
(e) Goodwill. The Parties agree that all use of the Anesta Trademarks
by Elan shall be for the sole and exclusive benefit of Anesta and the goodwill
and reputation accrued in connection with Elan"s use of the Anesta Trademarks
shall accrue to Anesta. In the event Elan acquires any right, title or interest
in or to or relating to the Anesta Trademarks for any reason, effective
immediately upon the expiration or termination of this Agreement Elan hereby
assigns, at no cost, all such right, title and interest, together with any
related goodwill or reputation, to Anesta. Elan agrees to promptly execute all
documents reasonably requested by Anesta in connection with such assignment.
(f) Infringement. Each Party shall notify the other Party in writing
promptly upon learning of any infringement by any Third Party of the Anesta
Trademarks in the Territory. Elan agrees that, unless the law of the particular
country of the Territory prohibits Anesta from enforcing the Anesta Trademarks,
only Anesta has the right to enjoin any infringement or registration by a Third
Party of the Anesta Trademarks, provided, however, that Anesta may authorize
Elan to enjoin such infringement or registration, and Anesta shall pay the
reasonable costs of such enforcement. Elan will assist in the prosecution of any
such claim as reasonably requested by Anesta. In the event Anesta chooses not to
enforce its rights against a Third Party infringer, Elan shall have the
discretion to select an alternate trademark as set forth in Section 2.9(h).
(g) No Confusion. Elan shall not adopt, use, or register any acronym,
trademark, trade names, service mark or other marketing name that is confusingly
similar to the Anesta Trademarks or the Anesta name, and shall not use the
Anesta Trademarks or the Anesta name other than in connection with distribution
of OT-fentanyl Products pursuant to this Agreement.
(h) Selection of Trademarks. Anesta shall have the right to select
additional Anesta Trademarks and register them at its expense, and such Anesta
Trademarks shall be owned by Anesta and added to Exhibit D, initially as
secondary Anesta Trademarks. If (i) a regulatory agency does not approve the
then-current primary Anesta Trademark indicated on Exhibit D, (ii) a Third Party
asserts that such Anesta Trademark infringes its trademarks, (iii) such Anesta
Trademark is successfully opposed by a Third Party, (iv) a petition to cancel
such Anesta Trademark is filed by a Third Party, or (v) there is an infringement
of such Anesta Trademark by any Third Party against which Anesta does not
enforce its rights pursuant to Section 2.9(f), then Anesta shall
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designate one of the secondary Anesta Trademarks (as indicated on Exhibit D) as
a replacement primary Anesta Trademark. If there are no remaining secondary
Anesta Trademarks, Elan shall have the right to select another trademark of its
choosing with the consent of Anesta, which consent shall not be unreasonably
withheld. Any such trademark selected by Elan shall be registered in the name of
Anesta, at Anesta"s expense, shall be added as an Anesta Trademark to Exhibit D
and shall be owned by Anesta.
3. Marketing.
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3.1 Promotion and Marketing Obligations. Elan will use commercially
reasonable efforts to promote the sale, marketing and distribution of the OT-
fentanyl Products in the Territory, consistent with accepted business practices,
devoting the same level of efforts thereto as it devotes to its products of
comparable market potential.
3.2 Marketing Plan. In consultation with Anesta, Elan will be responsible
for assessing the market opportunities for OT-fentanyl Products in the Territory
and preparing and providing to Anesta a marketing plan ("Marketing Plan") on or
before February 1, 2000, which includes pre-launch and initial launch marketing
activities consistent with efforts appropriate for products of similar market
potential. Elan and Anesta will review the Marketing Plan periodically, but at
least annually. For the avoidance of doubt, Elan shall determine the final
content of the Marketing Plan and has full discretion to determine its content.
3.3 Commercial Strategy Team. Elan will be a member of Anesta's OT-
fentanyl Products Commercial Strategy Team, along with Anesta's other
distribution partners which will be established only for the purposes of
information sharing and co-ordination of regulatory and clinical requirements.
3.4 Marketing Support. Anesta will, at its own expense, provide
commercially reasonable commercial marketing support in the form of pricing data
and marketing information (including, but not limited to copies of promotional
items, medical article reprints, medical educational strategies and related
materials) regarding the marketing of the OT-fentanyl Products in the United
States and other territories, as Elan may reasonably request from time to time,
to the extent Anesta has the right to provide such information and materials,
and the provision of such information, materials or data does not conflict with
the confidentiality provisions or other terms of Anesta's agreements with Third
Parties.
3.5 Pricing. Elan shall be solely responsible for setting the price of the
OT-fentanyl Products.
3.6 Covenant Not to Market Competing Products.
(a) For the Distribution Period and for one year thereafter, Elan,
and its Subdistributors shall not market or distribute in the Territory any
product [ ] ("Competing Products").
(b) The covenant in Section 3.6(a) shall not apply in the event that
a merger or acquisition of Elan or substantially all of its assets occurs, and
the successor entity of Elan has been marketing [ ] prior to the
merger or acquisition of Elan.
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3.7 Advertising and Promotion. Elan shall submit all advertising and
promotional materials relating to this Agreement including but not limited to
print advertising, brochures, leaflets and similar materials to Anesta for
review.
3.8 Reports.
(a) Each Party shall keep the other fully informed of all
governmental and regulatory requirements, activities and plans which materially
affect sales of OT-fentanyl Products in the Territory.
(b) Prior to the commencement of the Distribution Period, Elan shall
report to Anesta regarding Elan"s pre-launch marketing activities as set forth
in the Marketing Plan prepared pursuant to Section 3.2.
(c) During the Distribution Period, Elan will report to Anesta on a
quarterly basis within thirty (30) working days of the end of such quarter
concerning Elan"s marketing efforts and sales results for OT-fentanyl Products,
and shall also provide to Anesta a top-line sales report of sales results
generated or received by Elan or its Subdistributors on a monthly basis thirty
(30) days after the end of each month.
4. Regulatory Matters.
4.1 Filing of Regulatory Approvals for Initial Indication.
(a) European Union, San Marino, Switzerland and Vatican City.
(i) Anesta shall make all appropriate filings to obtain
Regulatory Approval to market the OT-fentanyl Products for the filed SPC as set
forth in Exhibit H in the United Kingdom in order to obtain a Regulatory
Approval for, at a minimum, the SPC as set forth in the Minimum SPC in Exhibit
H. In particular, but without limitation, Anesta shall use commercially
reasonable efforts to perform all clinical and regulatory programs required to
obtain a Regulatory Approval for the Minimum SPC in Exhibit H.
(ii) Anesta shall use commercially reasonable efforts to obtain
mutual recognition of the Regulatory Approval obtained pursuant to Section
4.1(a)(i) in the countries of the Territory which are member states of the
European Union. Anesta shall seek Regulatory Approval for the Initial Indication
in San Marino, Switzerland and Vatican City by submitting the United Kingdom
Regulatory Approval application package in an appropriate format or, where
permitted, in conjunction with filings in European Union countries within the
Territory.
(iii) Elan shall cooperate with and assist Anesta as reasonably
necessary in obtaining the Regulatory Approvals as provided in Sections
4.1(a)(i) and (ii),
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including, without limitation, by providing guidance, local support and the
benefit of Elan"s experience in obtaining regulatory approvals for
pharmaceutical products in the European Union countries of the Territory and
Switzerland.
(b) The Philippines and Taiwan. Elan shall make all appropriate
filings to obtain Regulatory Approval to market the OT-fentanyl Products for the
Initial Indication in the Philippines and Taiwan. Elan shall use commercially
reasonable efforts to perform all clinical and regulatory programs required to
obtain such Regulatory Approvals. Anesta shall provide Elan with all reasonable
assistance necessary for making the filings for such Regulatory Approvals
4.2 Filing of Regulatory Approvals for Additional Indications.
(a) If Elan elects to seek Regulatory Approval for indications other
than the Initial Indication, it shall be responsible for performing any clinical
testing necessary or desirable to support applications for same. Elan shall
provide any clinical protocols at least sixty (60) days before such clinical
work begins for Anesta"s review and approval, which shall not be unreasonably
withheld. Anesta shall provide any comments or approval so that Elan can
implement an approved clinical protocol without delay.
(b) If Elan elects to seek Regulatory Approval for indications other
than the Initial Indication, Anesta shall, at Elan"s request and expense, make
all appropriate filings prepared by Elan to obtain Regulatory Approval to market
OT-fentanyl Products for any indication other than the Initial Indication.
Anesta shall provide Elan with access to all available clinical data for OT-
fentanyl Products, as reasonably requested by Elan for that purpose and to the
extent Anesta has the right to provide such access to Elan. Any such additional
Regulatory Approvals (other than those for the Philippines and Taiwan) shall be
made in the name of Anesta.
4.3 Post-Regulatory Approval Clinical Programs. Elan shall be responsible
at its discretion for conducting any post Regulatory Approval clinical testing
necessary or desirable for the continued and successful marketing of OT-fentanyl
Products in the Territory. Elan shall provide any clinical protocols at least
sixty (60) days before such clinical work begins for Anesta"s review and
approval, which shall not be unreasonably withheld. Anesta shall provide any
comments or approval so that Elan can implement an approved clinical protocol
without delay.
4.4 Maintenance of Regulatory Approvals. Each Party shall use commercially
reasonable efforts to maintain all Regulatory Approvals in its name. Anesta
shall perform all actions required on its part to ensure that Elan has all
necessary rights under the Regulatory Approvals in Anesta's name to market and
sell the OT-fentanyl Products as permitted under this Agreement. Each Party
shall provide all reasonable assistance to the other Party as necessary to
maintain the Regulatory Approvals in the other Party's
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name, including, without limitation, in the case of Elan, by providing any
required documentation relating to Elan's distribution activities and
obligations under this Agreement to the appropriate regulatory agencies.
4.5 Pricing and Reimbursement Approvals. Elan shall use commercially
reasonable efforts to obtain commercially viable Pricing Approvals from the
appropriate regulatory agencies within the Territory that require Pricing
Approvals, and if required by regulatory authorities, to obtain Reimbursement
Approval for each country in the Territory for all OT-fentanyl Products.
4.6 Adverse Experience Reporting. The Parties shall comply with the terms
of Exhibit E relating to adverse experience reporting.
4.7 Products Recall.
(a) Voluntary Recall. If either Party desires to recall OT-fentanyl
Products for non-conformities with Specifications (other than such non-
conformities that would require recall pursuant to the requirements of
applicable laws or regulations), it shall so notify the other Party. If the
other Party does not agree that the relevant OT-fentanyl Products do not comply
with Specifications, the dispute shall be settled as set forth in Section
5.8(c). If the Parties agree as to such non-conformity or such non-conformity is
determined pursuant to Section 5.8(c), then the Party desiring the recall shall
administer the recall in a commercially reasonable manner with the other Party"s
cooperation. If one Party"s actions were the sole cause of the non-conformity
with Specifications, such Party shall bear all costs and expenses of the recall.
(b) Mandatory Recall.
(i) In the event that the relevant regulatory authority
requires or otherwise initiates a recall of the OT-fentanyl Products for any
reason whatsoever, Elan will forthwith administer the recall. If the Parties are
unable to agree as to whether or not the underlying reason for the recall is a
non-conformity of the OT-fentanyl Products with Specification, and/or whether or
not Anesta or Elan is responsible for such non-conformity, the Parties shall
submit a sample of the recalled OT-fentanyl Products for analysis pursuant to
Section 5.8(c). If a Party is notified by a regulatory authority that a recall
is required, it shall promptly give to the other Party written notice of the
need to recall that quantity
(ii) In the event that the principal reason for the recall
under this Section 4.7(b) of the OT-fentanyl Products is Anesta's negligence or
willful misconduct, its failure to supply OT-fentanyl Products conforming to
Specifications, or Anesta's failure to comply with applicable laws or
regulations, then Anesta shall be liable for the cost of the recall and any
replacement quantities of OT-fentanyl Products and will
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reimburse Elan for all its reasonable costs and expenses of such recall. In the
event that the principal reason for the recall under this Section 4.7(b) is
Elan's negligence or willful misconduct, its failure to handle or store OT-
fentanyl Products in conformity with Specifications, or Elan's failure to comply
with applicable laws or regulations, then Elan shall be liable for the cost of
the recall and any replacement quantities of OT-fentanyl Products and will
reimburse Anesta for all its reasonable costs and expenses of such recall.
(iii) In the event that the reason that the recall of the OT-
fentanyl Products under this Section 4.7(b) was legally required is not one of
those set forth in Paragraph 4.7(b)(ii), the Parties shall share equally the
costs and expenses of the recall, including the costs and expenses of each
Party.
4.8 Compliance with Laws by Parties.
(a) Both Parties shall comply with all applicable present and future
orders, regulations, requirements and laws of any and all federal, state,
provincial and local authorities and agencies in the Territory relating to the
promotion, marketing, sale and distribution of the OT-fentanyl Products on a
country by country basis in the Territory. Regarding the shipment of OT-fentanyl
Products into and within the Territory, Elan shall comply with the requirements
of Exhibit F (as amended from time to time by Anesta to be in accordance with
changes in the applicable laws or regulations or the interpretation thereof) [
].
(b) Upon Anesta's reasonable request, Elan will provide information
to Anesta necessary for Anesta's compliance with FDA and DEA reporting
requirements, including without limitation the information in the forms attached
hereto as Exhibit B and the requirements attached hereto as Exhibit F.
5. Supply of OT-Fentanyl Products
5.1 Supply and Purchase of OT-fentanyl Products.
(a) Supply Obligation. Subject to the terms of this Agreement, Anesta
shall supply Elan, and Elan shall purchase from Anesta during the Distribution
Period, Elan's requirements of OT-fentanyl Products, for both commercial sale
and clinical studies performed pursuant to the terms of this Agreement. Anesta
covenants that it shall supply all of Elan's requirements for OT-fentanyl
Products during the Distribution Period in accordance with purchase orders
placed by Elan in compliance with this Agreement.
(b) Breach of Supply Obligation.
20.
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(i) In the event that Anesta fails to supply Elan with all or
part of its requirements of OT-fentanyl Products pursuant to Section 5.1(a) for
a period of less than [ ] [
] for OT-fentanyl Products for such months, less any amounts that Anesta
actually supplies to Elan during such period.
(ii) In the event that Anesta fails to supply Elan with all or
part of its requirements of OT-fentanyl Products pursuant to Section 5.1(a) for
a period of more than [
]; provided, however, that (1) Elan shall have a duty to [ ],
including, without limitation, by complying with its obligations under Section
[ ] of OT-fentanyl Products;
(2) [ ] failure to supply under this Section 5.1(b)(ii) shall end
at the time when Anesta or Elan has qualified or has had qualified a second
source of supply that has been granted all regulatory approvals necessary for
the manufacture of OT-fentanyl Products for commercial sale, and (3) [
] failure to supply shall end for any undersupply occurring more
than two (2) years after the initial failure.
(iii) Anesta's obligations under Sections 5.1(b)(i) and (ii) and
5.4 shall be Elan's sole remedies for the breaches of Anesta's supply
obligations described therein.
5.2 Forecasting.
(a) Planning Forecast. On or before January 1, 2000 and based upon
projected times for Regulatory Approvals and launch dates on a country-by-
country basis within the Territory, Elan shall provide Anesta with a written
three (3) year forecast by calendar quarter of Elan's anticipated orders for OT-
fentanyl Products on a country-by-country basis within the Territory. This
forecast shall be for facility planning purposes only and shall not constitute a
firm order. Elan shall update this forecast on a semi-annual basis.
(b) Rolling Forecasts. On or before the first day of the [
] month before the month of the scheduled commercial launch date of
OT-fentanyl Products in any country in the Territory (e.g. a forecast must be
submitted before [ ]
launch date), Elan shall provide to Anesta with a written [
] month forecast
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beginning with the month of the launch date showing Elan's requirements of the
OT-fentanyl Products on a monthly basis by stock-keeping unit ("SKU") in each
country of the Territory. After submission of the initial [ ] forecast
for each country in the Territory, Elan shall provide Anesta with an updated [
] forecast prior to the beginning of each subsequent calendar month and
consistent with Elan's Sales & Operations Planning process.
(c) Until the OT-fentanyl Products have [ ] of at least [
] [ ] from the date of manufacture, as determined by applicable
regulatory requirements, the Parties shall mutually agree on all forecasts under
this Section 5.2 and accompanying purchase orders pursuant to Section 5.3(a) in
order to minimize risks of expiration of OT-fentanyl Products and shall bear
equally the costs of manufacturing, supplying, shipping and destroying any OT-
fentanyl Products ordered by Elan that [ ]
5.3 Purchase Orders and Shipping.
(a) The initial forecast under Section 5.2(b) shall be accompanied by
firm purchase orders for the first [ ] months of
the forecast which shall constitute a mutually binding commitment to order and
supply the quantity of OT-fentanyl forecasted for such period. Projections in
the rolling forecast for months [
] shall be made in good faith and shall
constitute Elan's best estimates of future orders, but shall not be binding on
Elan. After the initial forecast, subsequent rolling forecasts provided under
Section 5.2(b) shall be accompanied by a firm purchase order for [
] month of
the forecast, provided that the purchase order quantity for that month of the
forecast is not greater [
] of the forecasted quantity as stated in the
preceding forecast submitted by Elan for such month (the "Forecast Amount").
Projections in the rolling forecast for [
] (other than for months for which a
binding purchase order was submitted with the initial forecast) shall be made in
good faith and shall constitute Elan's best estimates of future orders, but
shall not be binding on Elan. Each purchase order shall specify the quantity
ordered, the required shipment date, and any special instructions or invoicing
information. Each purchase order issued shall be governed by the terms of this
Agreement and, any terms or conditions of such purchase which conflict or are
inconsistent with the terms of the Agreement are hereby rejected.
(b) Anesta shall use all commercially reasonable efforts to
manufacture any quantity of OT-fentanyl Products ordered by Elan which exceeds [
] of the Forecast Amount, but Anesta's failure to manufacture any such excess
quantities shall not be a breach of this Agreement.
(c) Anesta shall use commercially reasonable efforts to ship all OT-
fentanyl Products ordered by Elan on or before the requested shipment date, as
specified in Section 5.3(a), for such shipment. Anesta shall not be in breach
its supply obligations
22.
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under the relevant purchase order if at least [
] of a shipment that conforms to
the Specifications is made within five (5) days following such shipment date.
Anesta shall have OT-fentanyl Products released and ready to ship pursuant to
Elan's purchase orders to Elan within one (1) month after the date manufacture
and packaging is complete.
5.4 Shortage of OT-fentanyl Products. No later than 10 business days after
Anesta"s receipt of the purchase order from Elan, Anesta shall notify Elan if
for any reason Anesta experiences a shortage of OT-fentanyl Products and is
unable to supply to Elan the full quantity of OT-fentanyl Products it has
ordered. In the event of such a shortage, Elan shall be entitled to receive that
quantity of OT-fentanyl Product which bears the same proportion to the total
quantity of available OT-fentanyl Products as the quantity of OT-fentanyl
Products sold to Elan in the six months preceding the supply shortage (or, for
countries in which OT-fentanyl Products have not been launched, the most recent
forecasts for the next six months) bears to all orders for OT-fentanyl Products
received by Anesta during that same six month period. Nothing in this Section
5.4 shall prejudice Elan"s rights under Section 5.1(b).
5.5 Purchase Price.
(a) Preclinical and Clinical Supply. The supply price for OT-fentanyl
Products for use in conducting preclinical work and clinical trials in the
Territory shall be the lesser of (i) [
] or (ii) the commercial supply price
under Section 5.5(b) for units that Anesta is able to produce with its
commercial production runs plus the cost of any special packaging or labeling
necessary to permit use of the OT-fentanyl Products in such trials.
(b) Commercial Supply. The supply price for OT-fentanyl Products for
commercial sale and distribution in the Territory in final marketing and
packaging form FCA Anesta's facility, is a per unit price based on the annual
purchases by Elan of OT-fentanyl Products for the then-current calendar year, as
follows: [
5.6
]
The applicable supply price for a purchase order will be determined based
on the most recent forecast of total OT-fentanyl Products requirements during
the then current calendar year. Within sixty (60) days after the end of each
calendar year, Anesta shall report to Elan the total purchases by Elan of OT-
fentanyl Products for such calendar year, the final price per unit based on such
purchases, and based upon such price and upon actual payments made by Elan for
such purchases, a calculation of any amounts to be credited or debited to Elan.
The price per Unit
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includes packaging and labeling by Anesta as required pursuant to Section
6.2(a). The resulting difference will be debited or credited to Elan within 60
days.
(a) No Changes in Price. The per Unit price scale for OT-fentanyl
Products for commercial distribution in the Territory set forth in Section
5.5(b) will remain unchanged throughout the Distribution Period.
(b) Payment Terms. All payments for OT-fentanyl Products will be made
in United States Dollars and shall be due and payable to Anesta not later than
sixty (60) days after delivery of such Products to Elan.
5.7 Delivery. Deliveries shall be made [ ] (ICC Incoterms 1990) and shall
be shipped to Elan's address as set forth in this Agreement, or as otherwise
directed by Elan in writing. Anesta shall provide appropriate support and
documentation to the appropriate regulatory agencies. Anesta will be
responsible, with reasonable cooperation by Elan, for obtaining all of the
appropriate export licenses and authorizations from the United States for each
country of the Territory in compliance with all U.S. and Territorial
regulations. Elan will be responsible, with reasonable cooperation by Anesta,
for obtaining all of the appropriate import licenses and authorizations into the
Territory in compliance with all U.S. and Territorial regulations. In the event
that a specific regulation of a country in the Territory prohibits shipment of
OT-fentanyl Products as set forth in this Section 5.6, the Parties will discuss
an appropriate and mutually agreeable modification of distribution costs and
methods. The Product shall be delivered with a certificate of analysis as agreed
by the Parties.
5.8 Acceptance, Rejection and Revocation of Acceptance.
(a) Elan shall inspect or shall cause to be inspected all shipments
of OT-fentanyl Products promptly upon receipt. Elan may reject any OT-fentanyl
Products which did not conform to the Specifications at the time of delivery by
Anesta pursuant to Section 5.6. Any such rejection shall be made in writing and
shall indicate the reasons for such rejection.
(b) If Elan has not delivered the notice of rejection within thirty
(30) days after receipt of the shipment of OT-fentanyl Products at the facility
designated by Elan in the purchase order, Elan shall be deemed to have accepted
that shipment of OT-fentanyl Products. Once Elan has accepted or is deemed to
have accepted the OT-fentanyl Products, Elan shall have no claim or recourse
(subject to Section 5.7(c) and Anesta's indemnification obligation contained in
Section 11.2) against Anesta relating to such Products.
(c) If, after accepting a shipment of OT-fentanyl Products, Elan
subsequently discovers a nonconformity with Specifications that could not
reasonably be
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detected through the inspection pursuant to Section 5.7(a) or a latent
nonconformity arising after inspection other than those caused by shipping,
handling or storage not in compliance with Specifications after delivery by
Anesta, Elan may revoke its acceptance of such shipment by giving written notice
of the nonconformity within ten (10) days of discovering it. A revocation of
acceptance shall have the effect of a rejection under this Section 5.7.
(d) Elan's payment obligations under Section 5.5(d) for a shipment
shall be suspended upon Elan's rejection of such shipment pursuant to this
Section 5.7 until a determination whether or not that such rejection was
justified.
5.9 Rejection Procedures.
(a) After notice of rejection is received by Anesta, it shall
cooperate with Elan in determining whether rejection is necessary or justified.
Anesta will evaluate process issues and other reasons for such non-compliance of
the OT-fentanyl Products with Specifications. Anesta shall notify Elan as
promptly as reasonably possible whether it accepts Elan's rejection.
(b) If Anesta accepts Elan's rejection, Anesta shall use reasonable
and timely efforts to promptly replace or correct, at Anesta's option, such
rejected OT-fentanyl Products at Anesta"s cost, or, with both Parties" written
approval, to, at Elan's option, either credit Elan's account in an amount equal
to the purchase price of the rejected OT-fentanyl Products, or refund that sum
to Elan at Elan's sole discretion together with any direct costs of destruction
of the relevant Products or transporting them back to Anesta.
(c) If Anesta disagrees with Elan's rejection, the Parties shall
submit samples of the rejected OT-fentanyl Products and the samples of the
corresponding batch retained by Anesta to a mutually acceptable Third Party
laboratory, which shall determine whether such OT-fentanyl Products meets the
Specifications and, as part of this process, will also carry out a full
investigation of the manufacturing process for such OT-fentanyl Products if it
believes such an investigation is appropriate. The Parties agree that the
determination of the laboratory, after it has assessed the retention samples and
following any full investigation of the manufacturing process it conducts, shall
be final and determinative. If the Third Party laboratory determines that the
retained samples meets the Specifications, the rejection by Elan is deemed to be
unjustified, and Elan shall pay the full invoice price for the shipment which
contained the OT-fentanyl Products subject to the dispute. If the Third Party
laboratory determines that the relevant shipment of OT-fentanyl Products does
not meet the Specifications, the Parties shall proceed as provided in Section
5.8(b). The Party against whom the Third Party tester rules shall bear the
reasonable costs of the Third Party testing, including without limitation all
costs of investigating the manufacturing process.
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(d) At Anesta's election and upon authorization from Anesta and at
Anesta's cost, to do so, Elan shall (i) destroy the rejected OT-fentanyl
Products promptly at Anesta's cost and provide Anesta with certification of such
destruction or (ii) return such OT-fentanyl Products to Anesta at Anesta's
request, provided that such return is permissible by applicable law or
regulations.
(e) The remedies set forth in Section 5.8(b) are Elan's sole and
exclusive remedies with respect to claims relating to OT-fentanyl Products which
do not met Specifications when delivered by Anesta. Notwithstanding, nothing in
this Section 5.8(e) shall limit Elan"s rights to indemnification pursuant to
Section 11.2 or prejudice Elan"s rights under Section 5.1(b).
5.10 Audit. During the Distribution Period and for four (4) years
thereafter, Elan shall keep complete and accurate records pertaining to the
disposition of OT-fentanyl Products and amounts payable under this Agreement in
sufficient detail to permit Anesta to confirm the accuracy of all payments,
including without limitation royalty payments, made or due hereunder. Anesta
shall have the right to appoint an independent Third Party to audit the books of
account of Elan in order to determine whether Elan has properly reported and
accounted for any fees or payments due to Anesta pursuant to this Agreement.
Audits may be performed during regular business hours, not more than once in any
year during the Distribution Period and upon reasonable prior notice to Elan.
The audit fees shall be borne by Anesta unless such audit reveals that
difference between the amount paid to Anesta and the amount actually due Anesta
is five percent (5%) or more of amount actually due Anesta, in which case the
audit fees shall be borne by Elan.
6. Manufacturing.
6.1 Manufacture of OT-fentanyl Products. OT-fentanyl Products supplied to
Elan hereunder shall be manufactured by Anesta in accordance with current Good
Manufacturing Practices ("cGMP") and other applicable rules and regulations of
the FDA and the European Commission and other European and United States
governmental or regulatory agencies with jurisdiction over the manufacture, use
or sale of the OT-fentanyl Products.
6.2 Packaging and Labeling.
(a) The OT-fentanyl Products for resale under this Agreement shall be
packaged and labeled according to applicable laws and regulations as required by
regulatory authorities in the Territory, and otherwise as they are packaged and
labeled as for resale in the United Kingdom. If a language other than English is
required in a relevant country of the Territory, Anesta will modify such
packaging and labeling for any single package to contain a maximum of two (2)
languages unless otherwise required by
26.
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law or regulation. At Elan's request and expense, Anesta will make reasonable
modifications to the packaging or labeling other than those required by
regulatory authorities in the Territory. The packaging shall identify Elan as
the distributor and/or marketer of the OT-fentanyl Products.
(b) Elan shall inform Anesta of any regulatory or legal requirements
in the Territory for packaging or labeling of OT-fentanyl Products and shall
notify Anesta of any changes to such requirements. Anesta will promptly
implement such changes at its cost and inform Elan of any delays in the delivery
of OT-fentanyl Products caused thereby (e.g. lead time for purchase of
materials, manufacturing time and set-up time, etc.). Any delivery by Anesta of
OT-fentanyl Products in compliance with changes to packaging or labeling as set
forth in this Section 6.2(b) that occurs within a commercially reasonable period
shall not be deemed a breach of Anesta's obligations under this Agreement.
Anesta must promptly inform Elan of any likely delays.
6.3 Regulatory Inspections; cGMP and QA Audits.
(a) Anesta shall cooperate with any inspection of its facilities by a
regulatory agency or authority in the Territory, including but not limited to
any inspection by such regulatory agency or authority prior to the granting of
Regulatory Approval to market the OT-fentanyl Products in the Territory (by
mutual recognition of another jurisdiction's Regulatory Approval or otherwise).
Anesta shall notify Elan as soon as possible of any notification received by
Anesta from any regulatory authority in the Territory to conduct an inspection
of its manufacturing or other facilities used in the manufacturing, packaging,
storage or handling of OT-fentanyl Products. Copies of all correspondence
relevant to the OT-fentanyl Products to and from the regulatory authority in the
Territory will be provided by Anesta to Elan.
(b) Upon written request to Anesta, Elan shall have the right to have
its representatives including sub-distributors visit Anesta"s manufacturing
facilities at a mutually agreed time during normal business hours to audit and
assess Anesta's compliance with cGMP and quality assurance standards and to
discuss any related issues with its manufacturing and management personnel. Elan
and its sub-distributors may exercise such right no more than one (1) time per
calendar year provided, however, that if circumstances arise which in Elan's and
its sub-distributors reasonable judgment, require that its representatives visit
Anesta's manufacturing facilities more than once per calendar year, the Parties
will discuss such circumstances and appropriate means to address them.
(c) Upon written request to Anesta, Elan and its Subdistributors as a
group shall have the collective right to have their representatives visit
Anesta's manufacturing facilities no more than once per quarter at a mutually
agreed time during
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normal business hours on a day that would not unduly disrupt production
schedules, for informal viewing of the facilities conducted by Anesta personnel.
6.4 Manufacture During Supply Shortage.
(a) If Anesta determines that a shortage of OT-fentanyl Products as
provided in Section 5.4 will continue for longer than [ ]
months, Anesta shall use diligent, commercially reasonable efforts to qualify,
or to have a Third Party (which Anesta may appoint with Elan"s consent, not to
be unreasonably withheld) qualify, as soon as practicable, a second site for
manufacture and supply of OT-fentanyl Products under this Agreement. Anesta
shall be responsible for such qualification at its expense, and Elan shall
reasonably cooperate in and assist with such qualification.
(b) In the event that Anesta does not meet its obligations under
Section 6.4(a), reasonably determines that it cannot meet such obligations and
notifies Elan thereof, or in any event, is unable within [
] months to commence the qualification process under Section 6.4(a),
then Elan shall, at its expense and as soon as practicable, qualify a second
site for manufacture of OT-fentanyl Products through itself, an Affiliate or
Third Party reasonably acceptable to Anesta, and shall use efforts to do so that
are diligent and commercially reasonable (without regard to payments Elan may
receive pursuant to Section 5.1). Anesta shall reasonably cooperate in and
assist with such qualification, including without limitation, providing Elan
with any technical data and know-how necessary to give effect to the provisions
of Section 6.4, including the CMC Section, providing to Elan all Anesta Know-how
required for the manufacture of OT-fentanyl Products, including without
limitation providing practical performance advice, shop practice, specifications
as to materials to be used and control methods, and reasonably assisting Elan
with the working up and use of the transferred technology and with the training
of Elan's personnel to the extent which may reasonably be necessary. Anesta will
receive Elan"s scientific staff in its premises for certain periods, the term of
which will be agreed by the Parties. If Elan qualifies a second site for
manufacture of OT-fentanyl Products pursuant to this Section 6.4(b), manufacture
may continue at such site even if Anesta resumes manufacture of OT-fentanyl
Products at levels that could meet Elan's requirements therefor, and Elan may
use OT-fentanyl Products from such second site for distribution under this
Agreement; provided, however, that Anesta shall have the right to resume the
supply of all of Elan's requirements of the OT-fentanyl Products if Anesta has
[ ] by Elan (including [ ] costs) in
connection with [ ].
6.5 [
]
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7. Fees, Royalties and Payments
7.1 Technology Fee. The Parties acknowledge that Elan has paid to Anesta a
partial technology fee of [ ]. Elan will pay to Anesta [
], as the remainder of the technology fee, within ten (10)
days of the Effective Date. The technology fees will be recognized as revenue by
Anesta, to the extent permitted by generally accepted accounting principles, as
an offset against approximately [ ]
of expenses incurred to date by Anesta on behalf of Elan and the Territory,
including, but not limited to, legal fees, travel and documentation costs for
negotiations between the Parties. Such available amounts may also be used to
offset the clinical, regulatory, and premarketing costs associated with Anesta"s
Marketing Authorization Application filed in 1999.
7.2 Refunds.
(a) [
]
(b) [
]
7.3 Success Fees. Elan shall pay to Anesta the following success fees upon
the first achievement of the applicable milestone:
[
]
Each success fee shall be paid only one time.
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7.4 Royalties.
(a) Coverage by Valid Claim. For so long as there exists at least one
Valid Claim in any country of the Territory, Elan will pay Anesta royalties on
sales of OT-fentanyl Products equal to a percentage of Net Sales of OT-fentanyl
Products in the Territory, as determined in the following table:
[
]
The royalty rates in this Section 7.4(a) may be adjusted as provided in Section
7.4(c).
(b) No Coverage by Valid Claim. After the expiration of the last-to-
expire Valid Claim, Elan shall pay Anesta royalties of [
] of Net Sales of OT-fentanyl Products in the Territory, which royalty shall
be for Elan"s licenses to the Anesta Trademarks.
(c) Generic Competition. If, during the period where there is a Valid
Claim, [ ] is sold by a Third Party in a country of the
Territory and has a market share of at least [ ] in such
country, as measured by the dollar value of commercial sales of such [
] relative to the dollar value of the combined commercial sales of such
[ ] and OT-fentanyl Products, then the Parties shall meet to
negotiate in good faith [ ] for such country so that the
Parties [ ] of the commercial sales of such [
] in such country.
7.5 Royalty Payments. Royalty payments under this Agreement shall accrue
to Anesta on a calendar quarter basis and payments shall be made by Elan to
Anesta within days following the end of each calendar quarter. Each royalty
payment shall be accompanied by a report summarizing the Gross Sales, the
applicable deductions and Net Sales made and the royalty payable thereon, on a
product-by-product and country-by-country basis during the relevant three-month
period.
7.6 Currency. Royalties payable to Anesta under this Agreement shall be
paid in United States dollars. Net Sales in each country and royalties thereon
shall be calculated using the rate of exchange for the currency in such country,
calculated as the average of the sales exchange rate and the purchase exchange
rate for such currency quoted for the close of business on the last day of
business of the applicable royalty period
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in The Wall Street Journal. All payments would be made in US dollars unless
otherwise agreed.
7.7 Manner and Place of Payment. Any payments to Anesta shall be made by
wire transfer to First Security Bank of Utah, or such other bank as Anesta shall
specify from time to time.
7.8 Withholding. Any income or other taxes on any monies payable to Anesta
which Elan is required by law to pay or withhold on behalf of Anesta, shall be
deducted by Elan from such monies due. Elan shall furnish Anesta with proof of
such payments. Any such tax required to be paid or withheld shall be an expense
of and borne solely by Anesta. Elan shall promptly provide Anesta with a
certificate or other documentary evidence to enable Anesta to support a claim
for a refund or a foreign tax credit with respect to any such tax so withheld or
deducted by Elan. At Anesta's request, Elan shall reasonably cooperate to
support any claim by Anesta for such a refund or credit.
8. Intellectual Property
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8.1 Ownership of Intellectual Property. Anesta shall retain all of its
rights, title and interest in and to all Anesta Technology, Anesta Trademarks,
copyrights, and all other industrial and intellectual property embodied in or
which covers the OT-fentanyl Products, subject to the licenses granted in this
Agreement. Except as otherwise expressly provided in this Agreement, Elan has no
right, title or interest in any industrial or intellectual property relating to
the OT-fentanyl Products and shall not manufacture or otherwise sell or
distribute the OT-fentanyl Products.
8.2 Prosecution and Maintenance of Licensed Patents.
(a) Anesta shall remain responsible for patent prosecution and
maintenance of Anesta Patents and shall bear all expenses associated therewith,
including, without limitation, prosecution, renewal and other fees necessary to
maintain the Anesta Patents in full force and effect until the earlier of their
expiration or the termination or expiration of this Agreement.
(b) Anesta shall not during the term of this Agreement assign any
Anesta Patents to any person or corporation (other than an Affiliate of Anesta
or a successor to substantially all of the pharmaceutical assets or business of
Anesta, whether in a merger, sale of stock, sale of assets or other transaction)
without the written consent of Elan, provided that such consent shall not be
unreasonably withheld. Any Affiliate or successor of Anesta who is assigned the
Anesta Patents will assume the same obligations under this Agreement as Anesta.
8.3 Third Party Patent Infringement. The provisions of this Section 8.3
are subject to the provisions of 12.2.
(a) Potential Infringement. In the event either Anesta or Elan learns
of any Third Party patents which may cover the distribution, marketing or sale
of any OT-fentanyl Products in the Territory, as carried out by Elan in
accordance with its rights under this Agreement, such Party will notify the
other. The Parties agree to confer in good faith regarding such potential
infringement risk and to explore reasonable alternatives for avoiding such risk.
The Parties shall bear equally the cost of any payments made to such Third Party
for a license under such patent to make, use and sell OT-fentanyl Products,
which has been mutually agreed to by the Parties, and [ ] its royalty
obligations to Anesta pursuant to Section 7.4, [ ] for the applicable calendar
year.
(b) Third Party Claims; Defense by Anesta. If a Third Party files a
claim, suit or action against Elan claiming that a patent or other intellectual
property right owned by it is infringed or misappropriated by the distribution,
marketing or sale of any OT-fentanyl Products, and such claim, suit or action
arises out of Elan's permissible
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exercise of its rights under this Agreement, the Parties shall confer in good
faith regarding such alleged infringement or misappropriation. Anesta may, but
shall not be obligated to defend any such claims, suits or actions. Elan will
assist in the defense of any such claim, suit or action as reasonably requested
by Anesta. Anesta shall not settle any such claim, suit or action if such
settlement would impose on Elan the obligation to pay any damages without the
prior express written consent of Elan, which shall not be unreasonably withheld
or delayed.
(c) Defense by Elan. If Anesta elects not to defend against Third
Party claims, suits or actions pursuant to Section 8.3(b), Anesta shall give
notice of its decision to Elan within sufficient time to permit Elan to defend
against such claims, suits or actions, and Anesta shall assist in such defense
as reasonably requested by Elan. Elan shall not settle any such claim, suit or
action if such settlement would impose on Anesta the obligation to pay any
damages (including royalties under a license) without the prior express written
consent of Anesta, which shall not be unreasonably withheld or delayed
8.4 Infringement of Anesta Technology.
(a) Notice of Infringement. In the event Anesta or Elan becomes aware
of any actual or threatened infringement or misappropriation of any Anesta
Technology licensed hereunder in the Territory, the Party first having knowledge
of such infringement shall promptly notify the other.
(b) Prosecution by Anesta. Anesta may, but shall not be obligated to
commence, at its own expense, an infringement action against any person or
entity infringing, including infringement or misappropriating the Anesta
Technology directly or contributorily. Elan shall cooperate with Anesta as
reasonably requested, at Anesta's expense. If Elan so desires, it may join such
action at its own expense. Any and all amounts recovered with respect to such an
action shall be applied first to reimburse the Parties for their out-of-pocket
expenses (including reasonable attorneys' fees) in prosecuting such infringement
or misappropriation. The remainder shall be shared equally by the Parties after
reimbursement of expenses.
(c) Prosecution by Elan. In the event Anesta is unable to or elects
not to commence an action against the person or entity responsible for the
alleged infringement or misappropriation within one-hundred twenty (120) days of
the date of Anesta's becoming aware of such infringement, then Elan may, but
shall not be required to, prosecute the alleged infringement or threatened
infringement. In such event Elan shall act in its own name and at its own
expense. Anesta shall cooperate with Elan as reasonably requested, at Elan's
expense. If Anesta so desires, it may join such action at a later date, at its
own expense. Any amounts recovered with respect to such an action shall be
applied first to reimburse the Parties for their out-of-pocket expenses
(including
33.
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reasonable attorneys' fees) in the prosecution of such infringement. The
remainder shall be shared equally by the Parties after reimbursement of
expenses.
9. Confidentiality; Publication
34.
<PAGE>
9.1 Confidentiality. Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing by the Parties, the Parties agree that,
for the term of this Agreement and for five (5) years thereafter, the receiving
Party shall keep confidential and shall not publish or otherwise disclose and
shall not use for any purpose other than as provided for in such Agreements any
Confidential Information furnished to it by the other Party pursuant to such
Agreements unless the receiving Party can demonstrate by competent proof that
such Information:
(a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving Party in breach of such Agreements;
(d) was disclosed to the receiving Party, other than under an
obligation of confidentiality to a Third Party, by a Third Party who had no
obligation to the disclosing Party not to disclose such information to others,
as shown by independent proof; or
(e) was independently discovered or developed by the receiving Party
without the use of Confidential Information belonging to the disclosing Party,
as shown by pre-existing proof.
9.2 Authorized Disclosure. Each Party may disclose Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following:
(a) regulatory filings;
(b) prosecuting or defending litigation;
(c) complying with applicable governmental regulations;
(d) conducting pre-clinical or clinical trials of OT-fentanyl
Products;
(e) disclosure to Affiliates or sub-distributors who agree to be
bound by similar terms of confidentiality; and
(f) legally required disclosures other than as set forth in Sections
9.2(a)-(d).
35.
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Notwithstanding the foregoing, if a Party is required to make a disclosure of
the other Party's Confidential Information pursuant to this Section 9.2 it will,
except where impracticable, give reasonable advance notice to the other Party of
such disclosure and use commercially reasonable efforts to secure confidential
treatment of such information. In any event, the Parties agree to take all
reasonable action to avoid disclosure of Confidential Information hereunder.
9.3 Publications. Each Party primarily responsible for a proposed
publication relating to OT-fentanyl Products in the Territory (the primary
purpose of which is not advertising), whether written or oral, shall at least
thirty (30) days before presentation or submission of the proposed publication
to a Third Party, submit such proposed publication to the other Party for review
in connection with obtaining or preservation of patent rights and/or to
determine whether such other Party's Confidential Information should be modified
or deleted. The receiving Party shall have thirty (30) days in which to review
and consent to each proposed publication, such consent not to be unreasonably
withheld. The review period may be extended for an additional thirty (30) days
when the receiving Party provides a reasonable need for such extension,
including, but not limited to the preparation and filing of pertinent patent
applications. By mutual agreement of the Parties, this period may be further
extended.
10. Term and Termination of Agreement
36.
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10.1 Term. Unless earlier terminated in accordance with Section 10.2, this
Agreement shall expire upon the expiration of the Distribution Period. Elan
shall have the right to extend the Distribution Period for additional [ ]
periods by giving Anesta written notice of its intent to do so at least six (6)
months prior to the expiration of the then-current Distribution Period.
10.2 Termination.
(a) Material Breach. Each Party shall have the right to terminate
this Agreement with written notice to the other Party for material breach of
this Agreement by the other Party. Any notice of material breach shall specify
the breach in reasonable detail. The termination shall be effective sixty (60)
days after receipt of the written notice, unless the breaching Party cures the
breach within that sixty (60) days notice period, or, if such breach is
incapable of cure within such sixty (60) day period, the breaching Party has
commenced good faith efforts to cure such breach within such sixty (60) day
period and cures such breach within six (6) months after the receipt of the
notice of material breach.
(b) [
]
(i) the Parties shall negotiate in good faith during a thirty
(30) day period, [ ] of the Agreement with appropriate[
] under this Agreement,
such as [ ] of OT-fentanyl Product [
] of OT-
fentanyl Products because of such [ ]; or
(ii) if the Parties have not reached an agreement as provided in
Section 10.2(b)(i) above, [ ] within thirty (30)
days thereafter by providing ten (10) days prior written notice [ ].
If [ ] this Agreement pursuant to this Section 10.2(b)(ii), [ ]
10.3 Accrued Rights, Surviving Obligations. Termination or expiration of
this Agreement shall not affect any accrued rights of either Party. The terms of
Sections 2.2, 2.9(d), 2.9(e), 3.6, 4.6, 4.7, 4.8, 5.9, 7.5 (for royalty payments
accruing during the Distribution Period), 7.6, 7.7, 7.8, 10.3, 10.4, 10.5, 10.6,
12.4, and 12.5, and Articles 8, 9, 11, and 13 of this Agreement shall survive
termination or expiration of this Agreement.
37.
<PAGE>
10.4 Existing OT-fentanyl Products Inventory; Sell-Through. Upon expiration
or termination (other than pursuant to Section 10.2 for a material breach by
Elan) of the Agreement, Elan may, where permitted by law, sell any OT-fentanyl
Products in its inventory for a period of six (6) months in accordance with the
terms of this Agreement. Promptly after the expiration of the sell-through
period, Elan will, at its cost, destroy any unsold OT-fentanyl Products
remaining in its inventory and will provide appropriate evidence of such
destruction to Anesta. Anesta will have the right to cancel any purchase orders
placed by Elan which were accepted by Anesta prior to such termination, and
which require delivery of OT-fentanyl Products after the date of termination.
10.5 Transfer of Regulatory Approvals. Upon expiration or termination of
the Agreement, Elan shall transfer or cause to be transferred to Anesta all
Regulatory Approvals, or applications therefor, that are in the name of Elan at
Anesta's cost.
10.6 No Payment for Good Will. Where permitted by applicable law, Elan
hereby expressly and irrevocably waives any of the following that arise directly
from the termination of this Agreement: claims for compensation or damages based
on lost profits, good will generated for the OT-fentanyl Products or customers
of the OT-fentanyl Products enlisted by Elan during the term of this Agreement,
and any other claims or statutory rights.
11. Indemnity
11.1 Clinical Trials. Elan shall indemnify, defend and hold Anesta, its
Affiliates and their employees and agents ("Anesta Indemnitees") harmless from
and against any and all losses, claims, damages, costs and expenses, including
reasonable attorneys' fees that directly result from Third Party claims, actions
or proceedings (collectively, "Losses") arising out of any injury or death to
any person or damage to property that results from Elan's conduct of any human
clinical trials under this Agreement which are initiated solely by Elan; except
that Elan shall have no obligation to indemnify Anesta pursuant to this Section
11.1 to the extent that Anesta is obligated to indemnify and hold harmless Elan
Indemnitees for such Losses pursuant to Section 11.2.
11.2 Indemnification by Anesta. Anesta agrees to and hereby does indemnify,
defend and hold Elan, its Affiliates and their employees and agents ("Elan
Indemnitees") harmless from and against all Losses arising from: (a) the death
or injury to person or damage to property and resulting from (i) the design or
manufacture of the OT-fentanyl Products, including the failure of such Products
to meet Specifications at the time of delivery pursuant to the delivery terms of
Section 5.6, (ii) Anesta's transportation, storage, use, and handling of the
OT-fentanyl Products and the disposal of hazardous materials in connection with
the manufacture thereof, or (iii) the negligence, recklessness or willful
misconduct of Anesta or Anesta's officers, employees or agents; or (b) the
breach of the representations and warranties of Anesta in Section 12.2; or (c)
the
38.
<PAGE>
breach of the warranty made by Anesta in Section 12.1; except that Anesta shall
have no obligation to indemnify Elan pursuant to this Section 11.2 to the extent
that Elan is obligated to indemnify and hold harmless Anesta Indemnitees for
such Losses pursuant to Sections 11.1 or 11.3.
11.3 Indemnification by Elan. Elan agrees to and hereby does indemnify and
hold Anesta Indemnitees harmless from and against all Losses arising from: (a)
the sale or other distribution of OT-fentanyl Products by Elan in violation of
the terms of this Agreement; or (b) any representation made or warranty given by
Elan with respect to the OT-fentanyl Products (other than the labeling for the
OT-fentanyl Products as approved by the FDA or equivalent regulatory agencies in
the Territory); or (c) the death or injury to person or damage to property
resulting from (i) the manufacture, sale or use of any product which is not
supplied by Anesta and which is sold or combined by Elan with an OT-fentanyl
Products, (ii) the provision of services by Elan, (iii) improper handling,
storage or transport of the OT-fentanyl Products by Elan or its agents, (iv) the
unauthorized alteration, modification or adulteration of the OT-fentanyl
Products by Elan, or (v) the negligence, recklessness or willful misconduct of
Elan or Elan's officers, employees or agents; except that Elan shall have no
obligation to indemnify Anesta pursuant to this Section 11.3 to the extent that
Anesta is obligated to indemnify and hold harmless Elan Indemnitees for such
Losses pursuant to Section 11.2.
11.4 Procedure. The above indemnification obligations shall be effective
only if the party seeking indemnification under these indemnification provisions
(the "Indemnified Party") complies with the terms of this Section 11.4. The
Indemnified Party shall (i) give the other Party (the "Indemnifying Party")
notice of the relevant Third Party claim(s) underlying the Loss (the "Claim"),
(ii) cooperate with the Indemnifying Party, at the Indemnifying Party's expense,
in the defense of such Claim, and (iii) give the Indemnifying Party the right to
control the defense and settlement of any such Claim, except that the
Indemnifying Party shall not enter into any settlement that affects the
Indemnified Party's rights or interest without the Indemnified Party's prior
written approval. The Indemnified Party shall have no authority to settle any
Claim on behalf of the Indemnifying Party.
12. Representations and Warranties; Limitations of Liability
12.1 OT-fentanyl Products Warranty.
(a) Compliance with cGMP and Specifications. Anesta warrants that
OT-fentanyl Products delivered under this Agreement (i) are manufactured in
accordance with cGMP, as set forth in the U.S. Food, Drug and Cosmetics Act, as
amended from time to time, and applicable regulations and guidances thereunder
and other applicable FDA and other rules and regulations of the United States or
applicable non-United States regulatory authorities in Europe, (ii) conform to
the Specifications, except for non-
39.
<PAGE>
conformities caused by shipping, handling or
storage of OT-fentanyl Products not in compliance with the Specifications after
delivery by Anesta pursuant to Section 5.6; and (iii) are not adulterated or
misbranded. Elan's remedies and Anesta's liability with respect to this warranty
are set forth in Section 12.1(b). This warranty may only be modified or amended
by a written instrument signed by a duly authorized officer of Anesta and
accepted by Elan.
(b) Sole Remedy. Subject to Sections 5.1(b) and 11.2, in the event of
a breach by Anesta of the warranty set forth in Section 12.1(a), Elan's sole and
exclusive remedies will be those provided in Section 5.8.
12.2 General Representations and Warranties of Anesta.
(a) Facilities. Anesta represents that, as of the Effective Date, its
manufacturing facilities for OT-fentanyl Products conform in all material
respects to applicable laws, regulations (including cGMP) and (ii) [
] contemplated hereby.
Anesta warrants that the preceding sentence shall be true throughout the
Distribution Period, provided that in the event a non-conformity or inadequacy
is discovered, Anesta shall not be in breach of this Section 12.2(a) for such
period as correction of the deficiency reasonable requires, so long as Anesta
applies diligent efforts to make such correction.
(b) [ ] Matters. Anesta represents and warrants that, as of
the Effective Date, it has made to Elan [
] for OT-fentanyl
Products in the Territory. Anesta is not a party to any agreement or arrangement
which restricts performance under this Agreement.
(c) Infringement; Litigation. Anesta represents that as of the
Effective Date, to the best of its knowledge and belief (i) the use,
importation, offer for sale and sale of OT-fentanyl Products in the Territory in
accordance with this Agreement does not infringe any Third Party intellectual
property right in the Territory, and (ii) there is no pending or threatened
litigation relating to the OT-fentanyl Products and Anesta, and (iii) Anesta has
not received any written notice from any Third Party either contesting the
validity of any of the Anesta Patents or claiming that any use of the Anesta
Patents or OT-fentanyl Products infringe on any intellectual property of a Third
Party.
(d) Application for Regulatory Approval in the United Kingdom. Anesta
represents that it has filed an application for Regulatory Approval in the
United Kingdom.
40.
<PAGE>
(e) Control of Technology. Anesta represents and warrants that it is
the sole owner and/or the licensee of the Anesta Patents (as they exist as of
the Effective Date) and the Anesta Trademarks, the Anesta Know-How (as it exists
as of the Effective Date) and the OT-fentanyl Products regulatory filings.
12.3 Representations and Warranties of Both Parties.
(a) Corporate Power. Each Party represents and warrants that it (i)
is duly organized and validly existing in the jurisdiction of its incorporation,
(ii) is qualified to business in each other jurisdiction in which the conduct of
its business requires such qualification, (iii) is in compliance with all
applicable laws, rules, regulations and orders relating to its business and
assets, and (iv) is not in material default of its memorandum or articles of
association, or its certificate of incorporation or by-laws, as the case may be,
except in the case of (ii) and (iii) where such failure to qualify or be in
compliance would not have a material adverse effect on the business and assets
of such Party or the performance of this Agreement by such Party.
(b) Due Authorization and Enforceability. Each Party represents and
warrants that it has full corporate authority to execute and deliver this
Agreement, that this Agreement has been duly executed and delivered by such
Party and constitutes the legal and valid obligations of such Party and is
enforceable against such Party in accordance with its terms, and that the
execution, delivery and performance of this Agreement will not violate, be
inconsistent with or result in a default under or creation of lien or
encumbrance under (except as specifically contemplated by this Agreement), such
Party's memorandum or articles of association, or certificate of incorporation
or by-laws, as the case may be, or any material agreement, contract, license
understanding or instrument binding upon or affecting such Party or its
properties or assets, whether express, implied, written or oral, or any
applicable laws, rules, regulations or orders affecting either Party or its
properties or assets, except where such violation would not have a material
adverse effect on the business and assets of such Party.
(c) Export, Import and Product Handling. Anesta represents and
warrants that it will comply with all U.S. and Territorial regulations relating
to the manufacture and exportation and warehousing of the OT-fentanyl Products
and will ensure that all such authorizations are in place. Elan warrants that it
will comply with all U.S. and Territorial regulations relating to the
importation, re-exportation (to the best of its ability and control),
warehousing, and distribution of the OT fentanyl Products and will ensure that
all required authorizations are in place.
(d) Rights to Grant Licenses. Each Party represents and warrants that
it has the sole, exclusive and unencumbered right to grant the licenses and
rights herein granted to the other Party by it, and that it has not granted any
option, license, right or
41.
<PAGE>
interest in or to OT-fentanyl Products to any Third Party which could conflict
with the rights granted by it under this Agreement.
12.4 Limitation of Liability. Subject to each Party's indemnification
obligations under Article 11, in no event shall either Party be liable for any
indirect, incidental, special or consequential damages, including loss of
profits [
] revenue, data or use,
incurred by the other Party, whether in contract or tort or based on a warranty,
even if the other Party has been advised of the possibility of such damages,
Elan acknowledges that the allocation of risks and benefits under this Agreement
is based on, and amounts payable by Elan under this Agreement would be greater
in the absence of, the limitations described in this Section 12.4.
12.5 No Other Warranties. Except as set forth in Article 11, Anesta neither
assumes nor authorizes any person to assume any liability or warranty in
connection with the OT-fentanyl Products. The warranties of Anesta set forth in
this Article 12 are in lieu of all other warranties, express or implied, and
specifically, without limitation, Anesta disclaims any implied warranty of
merchantability, fitness for a particular purpose or freedom from infringement
of Third Party intellectual property rights.
13. Miscellaneous
13.1 Governing Law; Forum. This Agreement shall be governed by New York
law, excluding its choice of law provisions. The provisions of the United
Nations Convention on Contracts for the International Sale of Goods shall not
govern or apply to this Agreement. In any legal action relating to this
Agreement, each Party agrees to submit to the exclusive jurisdiction of courts
of the State of New York or a United States federal court, in each case located
within the boundaries of the United States District Court, Southern District of
New York.
13.2 Dispute Resolution.
(a) In the event of any dispute, either Party may provide written
notice of such dispute to the other Party, whereupon the Chief Executive Officer
of Anesta and the President of Elan (or his or her designated senior executive
officer) shall attempt to resolve such dispute by good faith negotiations within
thirty (30) days after such notice is received by the other Party.
(b) If the respective Chief Executive Officers or equivalents cannot
resolve the dispute within the time allotted, the Chief Executive Officers shall
select a mediator with appropriate expertise in the subject matter to which the
dispute relates, who will be engaged to resolve the dispute.
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<PAGE>
(c) If the Chief Executive Officers cannot agree on a mediator, each
shall choose a mediator and the two mediators selected shall choose a third
mediator who will then be engaged to resolve the dispute. If the Parties are
unable to resolve their dispute through mediation within ninety (90) days after
receipt of the written notice of dispute by the other Party, either Party may
seek appropriate judicial or equitable relief under Section 13.1.
13.3 Entire Agreement; Amendments. This Agreement sets forth the entire
terms of the distribution arrangement between the Parties hereto and, except as
otherwise set forth herein, supersedes and terminates all prior agreements and
understandings between the Parties. No subsequent alteration, amendment, change
or addition to this Agreement shall be binding upon the Parties unless reduced
to writing and signed by an authorized officer of each Party.
13.4 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be deemed to have been sufficiently given and received for all purposes if
(i) eight (8) days after the notice was mailed by registered mail, postage
prepaid and return receipt requested, (ii) two (2) days after the notice was
sent by internationally recognized express delivery service, (iii) one (1) day
after the notice was sent by facsimile transmission, with transmission
confirmed, or (iv) immediately if the notice is personally delivered. Unless
otherwise specified in writing, the mailing addresses of the Parties shall be as
described below.
For Anesta: [
]
With a Copy to: [
]
43.
<PAGE>
For Elan: [
]
With a copy to: [
]
13.5 Assignment. Neither Party may assign or transfer this Agreement or any
rights or obligations hereunder without the prior written consent of the other,
not to be unreasonably withheld, except that either Party may make such an
assignment without the other Party's consent to its Affiliates or to a successor
to substantially all of the pharmaceutical assets or business of such Party,
whether in a merger, sale of stock, sale of assets or other transaction,
provided that if a proposed assignment would have an adverse financial impact
upon the other Party (e.g. by reason of changed tax treatment of payments due
under this Agreement), such assignment shall be subject to such other Party's
prior written consent. Any attempted assignment or transfer of this Agreement or
rights or obligations hereunder that is not in compliance with this Section 13.5
shall be void.
13.6 Public Announcements. Each Party agrees that, except as may be
required by law, it shall not disclose the substance or details of this
Agreement without the prior written consent of the other Party, such consent not
to be unreasonably withheld. Nothing herein shall prevent either Party from
disclosing such information to (i) its Affiliates who are bound to the
provisions of this Section 13.6, or (ii) to its financial advisors, legal
advisors or any person or entity who may be interested in investing in or
acquiring substantially all of the assets or securities of such Party, provided
that such Party has used commercially reasonable efforts in good faith to obtain
a binder of confidentiality.
13.7 Severance. If any Article or part thereof of this Agreement is
declared invalid by any court of competent jurisdiction, or any government or
other agency having
44.
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jurisdiction over either Anesta or Elan deems any Article or part thereof to be
contrary to any anti-trust or competition laws, then such Article or part
thereof shall be deemed stricken from this Agreement in that jurisdiction. To
the extent possible the Parties shall revise such invalidated Article or part
thereof in a manner that will render such provision valid without impairing the
Parties' original interest.
13.8 Non-Waiver. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not be construed as a waiver or relinquishment, to any extent,
of the right to assert or rely upon any such terms or conditions on any future
occasion. Except as otherwise specified, all rights, remedies, undertakings,
obligations and agreements contained in this Agreement shall be cumulative and
none of them shall be a limitation of any other remedy, right, undertaking,
obligation or agreement.
13.9 Further Documents. Each Party hereto agrees to execute such further
documents and take such further steps as the other Party reasonably determines
may be necessary or desirable to effectuate the purposes of this Agreement.
13.10 Force Majeure. Except as set forth in Sections 5.1(b)(i) and (ii), no
Party shall be in breach of this Agreement, or liable to the other Party, for
any delay or failure of performance to the extent such delay or failure is
caused by circumstances beyond its reasonable control and that even with the
exercise of diligent efforts it is unable to prevent ("Force Majeure"), provided
that the Party claiming Force Majeure uses its commercially reasonable efforts
to overcome the same. In the event of Force Majeure, the Parties agree to
discuss the circumstances and effects thereof, including the effects on Elan's
diligence obligations under this Agreement, and appropriate mechanisms to
address such circumstances and effects.
13.11 Foreign Corrupt Practices Act. Anesta and Elan each agrees that it
shall comply with the requirements of the U.S. Foreign Corrupt Practices Act
(the "Act") and shall refrain from any payments to Third Parties which would
cause Anesta or Elan to violate the Act.
13.12 U.S. Drug Enforcement Agency (DEA) Compliance. Elan will be
responsible for assuring that all test sites and distribution facilities in the
Territory are compliant with applicable U.S. DEA regulations. Elan shall not, to
the best of its ability and control, ship or permit to be shipped any
OT-fentanyl Products in violation of applicable U.S. DEA regulations or other
applicable U.S. law regarding shipment of narcotics. Elan will maintain
appropriate processes and documentation systems in order to fulfill applicable
U.S. DEA reporting requirements.
13.13 Disclaimer of Agency. This Agreement shall not constitute any Party
the legal representative or agent of another, nor shall any Party have the right
or authority to
45.
<PAGE>
assume, create, or incur any Third Party liability or obligation of any kind,
express or implied, against or in the name of or on behalf of another except as
expressly set forth in this Agreement.
13.14 Counterparts. This Agreement may be executed in one or more counter
parts, each of which shall be an original and all of which shall constitute
together the same document.
46.
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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as
of the date first written above.
Anesta Corp. Elan Pharma International Limited
By:____________________________ By:_______________________________
Name: Thomas B. King Name: David Hurley
Title:President and Chief Executive Officer Title: Director
Date: Date:
47.
<PAGE>
Execution Copy
DISTRIBUTION, LICENSE AND SUPPLY AGREEMENT
Anesta Corp.
and
Elan Pharma International Limited
Dated as of
December 7, 1999
48.
<PAGE>
Exhibit A
Net Sales Forecast per Distribution Year
[
]
49.
<PAGE>
Exhibit B
Adverse Event Reporting Information
(attached)
<PAGE>
Exhibit C
Anesta Patents
[
]
<PAGE>
Exhibit D
ANESTA TRADEMARKS
Actiq(R) (primary)
Fenquel (secondary)
<PAGE>
Exhibit E
Adverse Experience Reporting
1. Language and Definitions.
The language used for all communications under this Exhibit E shall be English.
"Adverse Experience" and "Serious" shall have the same meaning, respectively, as
set forth in the ICH E2 A guideline. For the purpose of this Agreement the
phrase "associated with the use of" is not intended to imply a causal
relationship between an event and the use of the OT-fentanyl Products. A
"Report" shall consist of, at a minimum, the following information: (aa) an
identifiable patient; (bb) a subject OT-fentanyl Product; (cc) an identified
reporting source; (dd) an identified event; and (ee) such other information as
may then be required by the relevant regulatory authorities.
2. Serious Adverse Events.
Elan and Anesta each shall notify the other, by telephone or facsimile (with
telephone confirmation of receipt), within forty-eight (48) hours after it
becomes aware of any Serious Adverse Event associated with the use of any
OT-fentanyl Products. Within five (5) calendar days of first receiving a report
of such Serious Adverse Event, the Party receiving such report will provide the
other Party with a written report, by facsimile (with telephone confirmation of
receipt), on FDA Form 3500A (Medwatch) (for reports from Anesta to Elan) or
CIOMS I (for reports from Elan to Anesta), or such other forms as the relevant
regulatory authorities may require from time to time. Samples of FDA Form 3500A
and CIOMS I are attached to this Agreement as Exhibit B. Follow-up reports to
the initial reports will be submitted using the same procedures and timelines.
3. Non-Serious Events.
Elan and Anesta will notify each other of non-Serious Adverse Events as follows:
(aa) non-Serious Adverse Events occurring in the course of clinical trials will
be disclosed in the final clinical trial report, which shall be provided to the
Party not conducting the clinical trial within ten (10) calendar days of
completing such report; (bb) non-Serious Adverse Events reported in the course
of post-marketing surveillance will be provided as a line listing every two (2)
months within ten (10) calendar days of the end of each relevant month.
4. Database.
Anesta will maintain the safety database for OT-fentanyl Products. Any inquiries
requiring database output will be generated by Anesta as set forth in Section 8
below.
<PAGE>
5. Literature Surveillance.
Anesta will carry out systematic literature surveillance and notify Elan of
Serious Adverse Events as specified under Section 9 and of non-Serious Adverse
Events on a periodic basis.
6. Periodic Reports.
Anesta will prepare any required periodic safety reports. Anesta will provide to
Elan a copy of such reports via the same means as such reports are delivered to
FDA.
7. Regulatory Reporting Requirements.
Anesta and Elan each will be responsible for regulatory reporting and for
responding to regulatory inquiries within their respective territories. Anesta
will generate the required data base output for such responses from the safety
database for OT-fentanyl Products.
8. Record Keeping by Elan as "Non-Applicant".
Elan will retain the following documents for each Adverse Experience report of
which it notifies Anesta:
<PAGE>
(i) A copy of each Adverse Experience report.
(1) For clinical trials, such report will be the
immediate reports and the case report forms of Serious Adverse Experiences.
(2) For non-Serious Adverse Experiences, such report will
be the case report form.
(3) For post-marketing surveillance reports, such report
will be the CIOMS I forms.
(ii) A record of the date Elan submitted such report to
Anesta.
(iii) A record of the date Anesta received such report.
(iv) A record of the type of report filed by Elan with the
authorities (e.g. initial, first follow-up, second follow-up, etc.)
(v) Name and address of the sponsor/manufacturing company
(i.e. Anesta).
9. Company Contacts.
The following persons will be designated the contact person for communications
between the Parties pursuant to this Section 9, and may be modified in writing
from time to time:
For Anesta: Dr. Paul Litka, Vice President, Clinical Drug
Development
4745 Wiley Post Way, Suite 650
Salt Lake City, Utah 84116
USA
Telephone and Confirmation: 801.321.7625
Facsimile: 801.321.7490
E-Mail: [email protected]
<PAGE>
For Elan: Dr. Tim Corn
Elan Pharma Limited
Elan House
Avenue One
Letchworth, Herts
SG6 2HU
United Kingdom
Telephone and Confirmation: 00 44 1462 707 203
Facsimile: 00 44 1462 707 253
E-Mail: [email protected]
10. Updating/Revising Agreement.
The Parties shall amend this Agreement from time to time to the extent necessary
to incorporate changes to this Exhibit E resulting from changes in the
regulatory requirements applicable to adverse events.
<PAGE>
Exhibit F
Requirements for Handling/Shipping of Opioids
ANESTA CONTROLLED SUBSTANCES EXPORT PROCESS
[
]
<PAGE>
Exhibit G
Specifications
<PAGE>
Exhibit H
Target and Minimum SPC
[
]
<PAGE>
<PAGE>
Exhibit I
Agreement of Non-disclosure and Confidentiality
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions........................................................................................... 1
1.1 "Affiliate"..................................................................................... 1
1.2 "Anesta Patents"................................................................................ 1
1.3 "Anesta Know-How"............................................................................... 2
1.4 "Anesta Technology"............................................................................. 2
1.5 "Anesta Trademarks"............................................................................. 2
1.6 "Commercial Strategy Team"...................................................................... 2
1.7 "Confidential Information"...................................................................... 2
1.8 "DEA"........................................................................................... 2
1.9 "Distribution Period"........................................................................... 2
1.10 "Effective Date"................................................................................ 2
1.11 "FDA"........................................................................................... 3
1.12 "Forecast"...................................................................................... 3
1.13 "Field"......................................................................................... 3
1.14 "Generic Actiq Product"......................................................................... 3
1.15 "Gross Profit".................................................................................. 3
1.16 "Gross Sales"................................................................................... 3
1.17 "Initial Indication"............................................................................ 3
1.18 "NDA" or "New Drug Application"................................................................. 3
1.19 "NDA Package"................................................................................... 3
1.20 "Net Sales"..................................................................................... 3
1.21 "OT-fentanyl Products".......................................................................... 4
1.22 "Parallel Imports".............................................................................. 4
1.23 "Parties"....................................................................................... 4
1.24 "Pricing Approval".............................................................................. 4
1.25 "Required Information".......................................................................... 4
1.26 "Regulatory Approval"........................................................................... 4
1.27 "Reimbursement Approval"........................................................................ 4
</TABLE>
i.
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
1.28 "Select Country"................................................................................ 4
1.29 "SPC"........................................................................................... 4
1.30 "Specifications"................................................................................ 4
1.31 "Subdistributors"............................................................................... 5
1.32 "Territory"..................................................................................... 5
1.33 "Third Party"................................................................................... 5
1.34 "Unit".......................................................................................... 5
1.35 "Valid Claim"................................................................................... 5
2. Distribution of OT-fentanyl Products.................................................................. 5
2.1 Exclusive Distributorship and License........................................................... 5
(a) Appointment and Grant of License....................................................... 5
(b) Limitations............................................................................ 5
(c) Subdistributors........................................................................ 6
2.2 License to Elan's Information................................................................... 6
2.3 Sublicense to Use Other Distributors' Information............................................... 6
2.4 Distribution Period............................................................................. 6
2.5 Performance Obligations; Conversion and Termination of Rights................................... 6
(a) Determination of Forecasts............................................................. 7
(b) First Five Years After Launch.......................................................... 7
(c) Remainder of Distribution Period....................................................... 8
(d) No More Favorable Terms................................................................ 9
(e) Competitive Products.................................................................. 10
(f) Adjustment of Sales Targets........................................................... 10
2.6 Failure to Launch.............................................................................. 11
2.7 Parallel Imports............................................................................... 11
2.8 Right of First Negotiation..................................................................... 12
2.9 Trademarks and Trade Names..................................................................... 12
(a) License............................................................................... 12
</TABLE>
ii.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
(b) Obligation to Use Trademarks.......................................................... 12
(c) Trademark Policy...................................................................... 12
(d) Anesta Ownership...................................................................... 13
(e) Goodwill.............................................................................. 13
(f) Infringement.......................................................................... 13
(g) No Confusion.......................................................................... 13
(h) Selection of Trademarks............................................................... 13
3. Marketing............................................................................................ 14
3.1 Promotion and Marketing Obligations............................................................ 14
3.2 Marketing Plan................................................................................. 14
3.3 Commercial Strategy Team....................................................................... 14
3.4 Marketing Support.............................................................................. 14
3.5 Pricing........................................................................................ 14
3.6 Covenant Not to Market Competing Products...................................................... 14
3.7 Advertising and Promotion...................................................................... 15
3.8 Reports........................................................................................ 15
4. Regulatory Matters................................................................................... 15
4.1 Filing of Regulatory Approvals for Initial Indication.......................................... 15
(a) European Union, San Marino, Switzerland and Vatican City.............................. 15
(b) The Philippines and Taiwan............................................................ 16
4.2 Filing of Regulatory Approvals for Additional Indications...................................... 16
4.3 Post-Regulatory Approval Clinical Programs..................................................... 16
4.4 Maintenance of Regulatory Approvals............................................................ 17
4.5 Pricing and Reimbursement Approvals............................................................ 17
4.6 Adverse Experience Reporting................................................................... 17
4.7 Products Recall................................................................................ 17
(a) Voluntary Recall...................................................................... 17
(b) Mandatory Recall...................................................................... 17
</TABLE>
iii.
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
4.8 Compliance with Laws by Parties................................................................ 18
5. Supply of OT-fentanyl Products....................................................................... 18
5.1 Supply and Purchase of OT-fentanyl Products.................................................... 18
(a) Supply Obligation..................................................................... 18
(b) Breach of Supply Obligation........................................................... 18
5.2 Forecasting.................................................................................... 19
(a) Planning Forecast..................................................................... 19
(b) Rolling Forecasts..................................................................... 19
5.3 Purchase Orders and Shipping................................................................... 20
5.4 Shortage of OT-fentanyl Products............................................................... 20
5.5 Purchase Price................................................................................. 21
(a) Preclinical and Clinical Supply....................................................... 21
(b) Commercial Supply..................................................................... 21
(c) No Changes in Price................................................................... 21
(d) Payment Terms......................................................................... 22
5.6 Delivery....................................................................................... 22
5.7 Acceptance, Rejection and Revocation of Acceptance............................................. 22
5.8 Rejection Procedures........................................................................... 23
5.9 Audit.......................................................................................... 23
6. Manufacturing........................................................................................ 24
6.1 Manufacture of OT-fentanyl Products............................................................ 24
6.2 Packaging and Labeling......................................................................... 24
6.3 Regulatory Inspections; cGMP and QA Audits..................................................... 24
6.4 Manufacture During Supply Shortage............................................................. 25
6.5 Manufacture by Elan in Europe.................................................................. 26
7. Fees, Royalties and Payments......................................................................... 26
7.1 Technology Fee................................................................................. 26
7.2 Refunds........................................................................................ 26
</TABLE>
iv.
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
7.3 Success Fees................................................................................... 27
7.4 Royalties...................................................................................... 27
(a) Coverage by Valid Claim............................................................... 27
(b) No Coverage by Valid Claim............................................................ 27
(c) Generic Competition................................................................... 27
7.5 Royalty Payments............................................................................... 28
7.6 Currency....................................................................................... 28
7.7 Manner and Place of Payment.................................................................... 28
7.8 Withholding.................................................................................... 28
8. Intellectual Property................................................................................ 28
8.1 Ownership of Intellectual Property............................................................. 28
8.2 Prosecution and Maintenance of Licensed Patents................................................ 29
8.3 Third Party Patent Infringement................................................................ 29
(a) Potential Infringement................................................................ 29
(b) Third Party Claims; Defense by Anesta................................................. 29
(c) Defense by Elan....................................................................... 29
8.4 Infringement of Anesta Technology.............................................................. 30
(a) Notice of Infringement................................................................ 30
(b) Prosecution by Anesta................................................................. 30
(c) Prosecution by Elan................................................................... 30
9. Confidentiality; Publication......................................................................... 30
9.1 Confidentiality................................................................................ 30
9.2 Authorized Disclosure.......................................................................... 31
9.3 Publications................................................................................... 31
10. Term and Termination of Agreement.................................................................... 32
10.1 Term........................................................................................... 32
10.2 Termination.................................................................................... 32
(a) Material Breach....................................................................... 32
</TABLE>
v.
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
(b) Non-Approval.......................................................................... 32
10.3 Accrued Rights, Surviving Obligations.......................................................... 32
10.4 Existing OT-fentanyl Products Inventory; Sell-Through.......................................... 33
10.5 Transfer of Regulatory Approvals............................................................... 33
10.6 No Payment for Good Will....................................................................... 33
11. Indemnity............................................................................................. 33
11.1 Clinical Trials................................................................................ 33
11.2 Indemnification by Anesta...................................................................... 33
11.3 Indemnification by Elan........................................................................ 34
11.4 Procedure...................................................................................... 34
12. Representations and Warranties; Limitations of Liability.............................................. 34
12.1 OT-fentanyl Products Warranty.................................................................. 34
(a) Compliance with cGMP and Specifications............................................... 34
(b) Sole Remedy........................................................................... 35
12.2 General Representations and Warranties of Anesta............................................... 35
(a) Facilities............................................................................ 35
(b) Material Matters...................................................................... 35
(c) Infringement; Litigation.............................................................. 35
(d) Application for Regulatory Approval in the United Kingdom............................. 35
(e) Control of Technology................................................................. 35
12.3 Representations and Warranties of Both Parties................................................. 35
(a) Corporate Power....................................................................... 36
(b) Due Authorization and Enforceability.................................................. 36
(c) Export, Import and Product Handling................................................... 36
(d) Rights to Grant Licenses.............................................................. 36
12.4 Limitation of Liability........................................................................ 36
12.5 No Other Warranties............................................................................ 37
13. Miscellaneous......................................................................................... 37
</TABLE>
vi.
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
13.1 Governing Law; Forum........................................................................ 37
13.2 Dispute Resolution.......................................................................... 37
13.3 Entire Agreement; Amendments................................................................ 37
13.4 Notices..................................................................................... 38
13.5 Assignment.................................................................................. 39
13.6 Public Announcements........................................................................ 39
13.7 Severance................................................................................... 39
13.8 Non-Waiver.................................................................................. 39
13.9 Further Documents........................................................................... 40
13.10 Force Majeure............................................................................... 40
13.11 Foreign Corrupt Practices Act............................................................... 40
13.12 U.S. Drug Enforcement Agency (DEA) Compliance.............................................. 40
13.13 Disclaimer of Agency........................................................................ 40
13.14 Counterparts................................................................................ 40
</TABLE>
vii.
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-92033) of Anesta, Corp. of our report dated
February 18, 2000, except as to the information presented in Note 14, for which
for the date is March 13, 2000, relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated February 18, 2000, except as to the information presented in
Note 14, for which for the date is March 13, 2000, relating to the financial
statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,746
<SECURITIES> 59,032
<RECEIVABLES> 1,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,742
<PP&E> 3,913
<DEPRECIATION> (1,447)
<TOTAL-ASSETS> 78,209
<CURRENT-LIABILITIES> 1,538
<BONDS> 1,677
13
0
<COMMON> 0
<OTHER-SE> 72,413
<TOTAL-LIABILITY-AND-EQUITY> 78,209
<SALES> 2,232
<TOTAL-REVENUES> 6,515
<CGS> 705
<TOTAL-COSTS> 19,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (124)
<INCOME-PRETAX> (9,468)
<INCOME-TAX> 20
<INCOME-CONTINUING> (9,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,488)
<EPS-BASIC> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
