<PAGE> 1
========================================================================
======
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number 0-14278
PANAX PHARMACEUTICAL COMPANY LTD.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3754005
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
425 Park Avenue
New York, NY 10022
(Address of principal executive office)
Registrant's telephone number, including area code: (212)
319-8300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to
such
filing requirements for the past 90 days. Yes /X/ No / /
========================================================================
======
<PAGE> 2
PANAX PHARMACEUTICAL COMPANY LTD.
TABLE OF CONTENTS
Page
PART 1 - FINANCIAL INFORMATION
BALANCE SHEETS -- For March 31, 1997 (unaudited) and
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . .
3
STATEMENT OF OPERATIONS (unaudited) -- For the Three and Nine Months
Ended March 31, 1997 and March 31, 1996 and the Period
from July 1, 1993 (Commencement of Operations) through
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . .
4
STATEMENT OF CASH FLOWS (unaudited) -- For the Nine Months Ended
March 31, 1997 and March 31, 1996 and the Period From
July 1, 1993 (Commencement of Operations) through
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . .
5
NOTE TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . .
6
PLAN OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . .
6
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .
9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
<PAGE> 3
Part I - Financial Information
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
BALANCE SHEET
<TABLE>
<CAPTION>
March 31,1997 June 30,
1997
----------------
- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . $ 181,054 $
398,689
Certificate of deposit . . . . . . . . 549,012
200,000
Investments to be held on maturity. . . 1,045,592
2,457,979
Other current assets . . . . . . . . . 65,766
37,558
----------
- ----------
Total current assets . . . . . . . . 1,841,424
3,094,226
----------
- ----------
Equipment
Research equipment . . . . . . . . . . 111,534
109,733
Other equipment . . . . . . . . . . . . 15,872
15,872
----------
- ----------
127,406
125,605
Less accumulated depreciation . . . . . . 93,996
66,344
---------
- ---------
33,410
59,261
Other Assets . . . . . . . . . . . . . . 203,587
38,069
----------
- ----------
TOTAL . . . . . . . . . . . . . . . . $2,078,421
$3,191,556
==========
==========
LIABILITIES
Current liabilities:
Accounts payable and other
accrued expenses . . . . . . . . . . $ 56,707 $
71,419
----------
- ----------
Management fees payable . . . . . . . 0
112,500
----------
- ----------
Accrued salary - stockholder . . . . . 0
28,000
----------
- ----------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value;
authorized 10,000,000 shares;
outstanding 3,342,327 and
3,315,710 shares respectively. . . . . . 334
331
Additional paid-in capital . . . . . . . . 6,516,411
5,460,543
Unamortized value of warrants. . . . . . . (921,781)
(138,819)
Deficit accumulated during the
development stage . . . . . . . . . . . (3,573,250)
(2,342,400)
Less common stock held in treasury
(0 and 180,000 shares) . . . . . . . . . 0
(18)
-----------
- -----------
Total stockholder's equity . . . . . 2,021,714
2,979,637
-----------
- -----------
TOTAL . . . . . . . . . . . . . . . . $2,078,421
$3,191,556
===========
===========
</TABLE>
<PAGE> 4
<TABLE>
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<CAPTION>
Period from
July 1, 1993
(Commencement)
Three Months Nine
Months of Operations
Ended March 31, Ended
March 31, Trough
-----------------
- ---------------- --------------
1997 1996 1997
996 March 31, 1997
----- ----- -----
----- --------------
<S> <C> <C> <C>
<C> <C>
Sales . . . . . . . . . . . . . . $ 1,425
$ 1,425
Cost of Goods Sold . . . . . . . 900
900
------- ------- -------
- ------- ----------
Profit from Sales . . . . . . . . 525
525
Costs and Expenses:
Research and development. . . . $ 198,727 $ 152,144 $ 623,350
$ 385,199 $1,788,792
General and administrative. . . 263,093 198,018 707,895
621,946 2,128,448
Write-off of debt discount. . . - - -
- 75,000
Interest expense. . . . . . . . - - -
- 6,160
-------- -------- --------
- -------- -----------
461,820 350,162 1,331,245
1,007,145 3,998,400
Interest (Income) . . . . . . . . (34,462) (62,200) (99,870)
(202,774) (424,625)
-------- -------- --------
- -------- -----------
Net Loss . . . . . . . . . . . . $ 427,358 $ 287,962 $1,230,750
$ 804,371 $3,573,250
========= ========= =========
========= ===========
Net loss per share. . . . . . . $ .13 $ .09 $ .38
$ .25
====== ====== ======
======
Weighted average number of common
shares outstanding . . . . . . . 3,342,327 3,163,732 3,232,986
3,262,692
========= ========= =========
=========
</TABLE>
<PAGE> 5
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
July 1, 1993
(Commencements
Nine Months
Ended March 31, of Operations)
- --------------------------- Through
1997
1996 March 31, 1997
------
------ --------------
<S> <C>
<C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (1,230,850)
$ (804,371) $ (3,573,250)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . 27,653
25,746 94,496
Write-off of debt discount . . . . . . . . . . . . .
75,000
Value of services paid by
options & warrants. . . . . . . . . . . . . . . . .
80,000
Accretion of compensatory
options and warrants. . . . . . . . . . . . . . . . 132,425
51,460 211,106
(Increase)decrease in prepaid expenses
and other assets. . . . . . . . . . . . . . . . . . (193,726)
(69,571) (268,784)
Increase (decrease) in accounts payable
and accrued expenses. . . . . . . . . . . . . . . . (14,712)
(24,832) 84,707
Expenses paid by affiliate . . . . . . . . . . . . .
96,682
Increase in management fees payable. . . . . . . . .
112,500
----------
---------- -----------
Net cash (used in) operation activities . . . . . (1,279,210)
(821,410) (3,087,543)
----------
---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of investments . . . . . . . . . . . . . . . 1,063,375
582,688 (4,904,604)
Redemption of investments and
certificate on deposits . . . . . . . . . . . . . . .
3,310,000
Acquisition of equipment . . . . . . . . . . . . . . . (1,800)
(35,014) (127,404)
Organization costs . . . . . . . . . . . . . . . . .
(1,069)
----------
---------- -----------
Net cash (used in) investing activities . . . . . 1,061,575
(547,674) (1,723,077)
----------
---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock - net of expenses. . . . . .
4,991,674
Proceeds form note payable - affiliates . . . . . . .
14,000
Proceeds from notes payable - stockholders . . . . .
96,300
Proceed from notes payable - other . . . . . . . . .
300,000
Repayment of notes payable - stockholders and other .
(410,300)
----------
---------- -----------
Net cash provided by financing activities . . . .
4,991,674
----------
---------- -----------
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS . . (217,635)
(273,894) 181,054
Cash and cash equivalents - beginning of period . . . . 398,689
458,534 - 0 -
CASH AND CASH EQUIVALENTS - END OF PERIOD . . . . . . . $ 181,054
$ 184,640 $ 181,054
==========
========== ==========
</TABLE>
NON-CASH ACTIVITY: Conversion of management fee payable and accrued
salary into 206,617 shares of common stock (26,617 newly issued shares and
180,000 shares held in treasury).
<PAGE> 6
PANAX PHARMACEUTICAL COMPANY LTD.
(a development stage company)
NOTE TO FINANCIAL STATEMENTS
(unaudited)
The unaudited financial statements of Panax Pharmaceutical Company
Ltd. ("Panax or the "Company") as of March 31, 1997 and three and nine
months ended March 31, 1997 and March 31, 1996 have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods
presented. Certain information and footnote disclosures normally
included in financial statements, prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant
to such rules and regulations. However, management believes that the
disclosures are adequate to make the information presented not
misleading. These financial statements and the notes thereto should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1996. The results for the interim periods are not
necessarily indicative of the results for the full fiscal year.
PLAN OF OPERATION
General
Panax historically has been engaged in the discovery and
development of new pharmaceutical compounds identified in and isolated
from plants. The Company takes the ethnobotanical approach to the study
of plants which is supplemented by medical science and natural product
chemistry. Many of the plants targeted by the Company are indigenous to
Russia and other states of the Commonwealth of Independent States.
In late 1996 and 1997 to date, Panax has sought out opportunities
to expand its product pipeline via licensing or acquisition of drug
candidates and platform technologies. As previously reported, the
Company entered in (i) January 1997 into a letter of intent to acquire
Sangen Pharmaceutical Company Inc. ("Sangen"), which was recently
organized to engage in the discovery and development of pharmaceutical
products for the treatment of cancer, and (ii) February 1997 into an
agreement granting the Company an exclusive worldwide license to
manufacture and sub-license a novel preparative product being developed
by the licensors for clearing the colon prior to colonoscopy ("Purgative
Product"). Sangen's principal asset is its right to acquire an
exclusive worldwide license to the Thrombospondin ("TSP-1") technology
which as indicated by early preclinical studies, may be useful in the
prevention of metastatic cancer including breast, lung, prostate,
pancreas and squamous cell cancer. In May 1997 Panax executed a letter
of intent to acquire CorBec Pharmaceuticals, Inc. ("CorBec"), which is
engaged in the development of pharmaceuticals designed to modulate the
immune system by manipulating macrophage and mast cell function.
Consummation of the proposed acquisitions of Sangen, the TSP-1
technology and CorBec are subject to several conditions, including, the
execution and delivery of acquisition agreements and the consummation by
the Company of a financing of at least $7,500,000 by November 1997 with
respect to Sangen and the TSP-1 technology and a financing of at least
$8,000,000 by August 1997 with respect to CorBec. The license agreement
for the Purgative Product, provides the licensor with the right to
terminate the agreement if the Company has not completed a financing of
at least $2,000,000 by November 1997.
<PAGE> 7
The proposed Sangen acquisition, if consummated, will result in the
issuance at the time of the acquisition, to Dr. Leonard S. Jacob,
Sangen's sole stockholder and Chief Executive Officer, who will become
Chairman of the Board and Chief Executive Officer of the Company under a
long term employment agreement, of options to purchase the greater of
1,200,000 shares of Common Stock or such number of shares of Common
Stock at the time of the acquisition as equals 7.5% of the Fully Diluted
Capitalization. Dr. Taffy J. Williams, Panax's President and Chief
Executive Officer who will become President and Chief Operating Officer
of the Company following the acquisition, received in January 1997, an
option to purchase the greater of 500,000 shares of Common Stock or such
number of shares of Common Stock at the time of the acquisition as
equals 5% of the Fully Diluted Capitalization. The exercise price of
the options is $.61 per share, the market price on the date of the
agreement in principle. Fully Diluted Capitalization means all the
outstanding shares of Common Stock, plus all shares of Common Stock
reserved for issuance upon conversion or exercise of outstanding
convertible securities, options and warrants other than the warrants
issued in the Company's initial public offering.
The Sangen acquisition will also involve the grant to the inventor
of the TSP-1 technology and a university of options to purchase an
aggregate of 250,000 shares of which one-half will be exercisable upon
achievement of specified milestones in the development of a new drug
candidate. In addition, the inventor and the university will also be
entitled to cash royalties based on net sales and sub-license fees
derived from the technology. The Company has agreed to fund additional
research in the inventor's laboratory for a two year period at a cost of
$200,000 per year with commitment for an additional one year based on
the successful completion of Phase II clinical trials. The inventor
will be engaged as a consultant to the Company for a two year period at
a fee of $50,000 per year.
In consideration for the grant of a license to the Purgative
Product, the Company (i) is obligated to make certain payments based on
milestones, aggregating to $500,000 based on the completion of a
financing and certain development milestones, of which $100,000 has been
paid, (ii) has issued options to purchase an aggregate of 750,000 shares
of Common Stock at a price of $0.61 per share, of which 250,000 shares
are currently exercisable and 500,000 shares become exercisable if
certain development milestones are met and (iii) is required to pay cash
royalties of 2% of net sales of the related drug which percentage which
will increase to 4% with respect to sales in excess of $5,000,000 and to
6% as to sales in excess of $10,000,000. The payment of $100,000 is not
refundable in the event a financing of at least $2,000,000 is not
completed by November 1997 and the licensor chooses to terminate the
license agreement.
The acquisition of CorBec, if consummated will result in the
payment of $750,000 and the issuance of 750,000 shares of Common Stock
of the Company with provisions for additional cash payments and stock
issuances based upon the achievement of certain milestones for CorBec's
most advanced drug candidate, CBP-1011, an orally administered
glucocorticoid analog, which is in a Phase III pivotal clinical trial in
the United States for the treatment of Idiopathic Thrombocytopenia
Purpura. These milestones include the receipt of an FDA letter of
approval to sell the drug, and certain designated annual amounts of
sales. The maximum cash and shares to be issued will be an aggregate of
$8,000,000 in cash and 440,000 shares of Common Stock. Additional cash
payments of up to $8,500,000 and 280,000 shares of Common Stock are to
be made based on the achievement of certain annual levels of sales of a
second drug developed from the CorBec technology.
<PAGE> 8
Results of Operations
The Company incurred a loss of $427,358 and $287,962 for the three
month and $1,230,850 and $804,371 for the nine month periods ended March
31, 1997 and 1996, respectively. The Company expects to incur
additional losses in the foreseeable future. The per share loss was
$0.13 and $0.09 for the three month and $0.38 and $0.25 for the nine
month periods ended March 31, 1997 and 1996, respectively. The
increase in the weighted average number of common shares outstanding in
the current fiscal year is the result of the issuance of 165,441 shares
of the Common Stock of the Company to Amercom in full satisfaction of
the deferred obligation of the Company to pay $112,500 as management fee
for consulting services rendered in 1994, and of the issuance of 41,176
shares of the Common Stock of the Company to Dr. Tanya Akimova, Vice
President of the Company, in full satisfaction of the deferred
obligation of the Company to pay Dr. Akimova $28,000 as her salary for
the six months ended in June 30, 1993.
The Company anticipates incurring additional losses over at least
the next several years, and such losses are expected to increase as the
Company expands its research and development activities relating to its
Purgative Product and its contemplated acquisition of two technologies
for the treatment of auto-immune diseases and cancer. To achieve
profitability, the Company, alone or with others, must successfully
develop and commercialize its technologies and products, conduct pre-
clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture, introduce and market such
technologies and products. The time required to reach profitability is
highly uncertain, and there can be no assurance that the Company will be
able to achieve profitability on a sustained basis, if at all.
The Company had no revenues in the three months ended March 31,
1997 and revenues of $1,425 for the nine months ended March 31, 1997.
The revenues were derived from chemical synthesis services provided by
the Company and its contractors. The Company intends to seek additional
opportunities to generate revenues from chemical synthesis and the sale
of extracts.
Interest income amounted to $34,462 and $62,200 for the three month
and $99,870 and $202,774 for the nine month periods ended March 31, 1997
and 1996, respectively and $424,625 for the period from inception
through March 31, 1997. Interest income was earned on the proceeds of
the Company's initial public offering in January 1996 of its common
stock and warrants. Interest income has been decreasing reflecting
reduced cash balances.
Research and development expenses amounted to $198,726 and $152,144
for the three month and $623,350 and $385,199 for the nine month periods
ended March 31, 1997 and 1996, respectively. The increases were
attributable to the expansion of operations including research conducted
under an agreement with the University of Kansas, as well as agreements
with contract research organizations for preclinical testing of the
Company's compounds. Research and development expenses are expected to
increase substantially in the future if the foregoing proposed
acquisitions are consummated and development of the Purgative Product
continues provided the license is not terminated.
General and administrative expenses amounted to $263,094 and
$198,018 for the three month and $707,895 and $621,946 for the nine
month periods ended March 31, 1997 and 1996, respectively. The
increases in general and administrative expenses in the respective
periods are the result of increased legal and consulting expenses with
respect to the proposed acquisitions. The Company anticipates an
increase in general and administrative expenses with the addition of Dr.
Leonard S. Jacob as Chairman of the Board and Chief Executive Officer of
the Company under a long term agreement if the Sangen acquisition is
consummated.
<PAGE> 9
Liquidity and Capital Resources
Since its inception, the Company has incurred net operating losses
and, as of March 31, 1997, had an accumulated deficit of $3,573,250.
The Company has financed its net operating losses through March 31, 1997
by a series of debt and equity financing.
At March 31, 1997, the Company had cash and cash equivalents of
$1,841,424. Cash and cash equivalents is comprised primarily of the
proceeds from the Company's initial public offering in January 1996.
The proposed Sangen and CorBec acquisitions will be subject to
completion of an equity financing by the Company of at least $7,500,000
with respect to Sangen by November 1997 and of at least $8,000,000 with
respect to CorBec by August 15, 1997. No assurance can be given that
the financing will be effected.
The Company estimates that the cost of operations for the year
ending June 30, 1997 will be approximately $1,800,000, of which at least
$800,000 will be expended for research and development.
The Company's future capital requirements depend on numerous
factors which cannot be quantified, including continued progress in its
research and development activities, progress with pre-clinical studies
and clinical trials, prosecuting and enforcing patent claims,
technological and market developments, the ability of the Company to
establish product development arrangements, the cost of manufacturing
scale-up, effective marketing activities and arrangements, and licensing
or acquisition activity. The Company will seek to obtain additional
funds through equity or debt financing, collaborative or other
arrangements with corporate partners and others, and from other sources.
No assurance can be given that additional financing will be available
when needed or on terms acceptable to the Company. If adequate
additional funds are not available, the Company may be required to
delay, scale back or eliminate certain of its research, drug discovery
or development activities or certain other aspects of its business. If
adequate funds are not available, the Company's business will be
materially and adversely affected.
PART II - OTHER INFORMATION
Item 5 - Other Information.
--------------------------
See "Plan of Operations" for information concerning the execution
of a letter of intent to acquire for cash and shares of Common Stock of
the Company CorBec Pharmaceuticals, Inc. which is engaged in the
development of pharmaceuticals designed to modulate the immune system by
manipulating macrophage and mast cell function. The letter provides that
the acquisition is subject to the satisfaction of several conditions,
including the execution of a definitive acquisition agreement and the
consummation of a financing of at least $8,000,000 by the Company. No
assurance can be given that the conditions will be satisfied and that
the acquisition will be effected.
In March 1997 resignations previously submitted by Dr. Armen
Takhtajan as Chairman of the Board, Mr. Norman Eisner as Vice President-
Chief Financial Officer, Treasurer, Secretary and Director and Mr.
David Zaretsky as Director of the Company were accepted by the Company.
At such time, Dr. Taffy J. Williams, President and Chief Executive
Officer of the Company was appointed to also serve as Chairman of the
Board, Mr. Bernard Nagelberg, Vice President, Finance and a Director,
was appointed to also serve as Treasurer and Dr. Tanya Akimova, Vice
President-Administration and Business Development, was appointed to also
serve as Secretary of the Company. In April 1997 Dr. Robert Krell
resigned as Senior Vice President, Research and Development of the
Company.
<PAGE> 10
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
10(j) - Copy of letter of intent between the Company and CorBec
Pharmaceuticals, Inc.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during three months ended March
31, 1997 except for a Report on Form 8-K for February 18, 1997 providing
information under Item 5 with respect to the worldwide exclusive
license of the Company to manufacture, sell and sub-license a novel
purgative tablet to clean the colon prior to colonoscopy.
<PAGE> 11
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
PANAX PHARMACEUTICAL COMPANY LTD.
/s/ Taffy J. Williams
--------------------------------------
Taffy J. Williams, President, Chairman
and Chief Executive Officer
May 15, 1997
<PAGE> 1
Pharmaceuticals, Inc.
May 8, 1997
CorBec Pharmaceuticals, Inc.
One Tower Bridge,
Suite 1350
100 Front Street
West Conshohocken, PA 19428
Attn: Hal Broderson
Dear Hal:
This letter of intent sets forth the basic terms and conditions
under which Panax Pharmaceutical Company, Ltd., a New York corporation
("Panax") or any of its affiliates or subsidiaries (the "Buyer"),
intends to proceed towards the purchase of all the issued and
outstanding capital stock (the "Shares") of CorBec Pharmaceuticals,
Inc., a Delaware corporation ("CorBec").
Panax's proposal is as follows:
1. CorBec to be Acquired. Panax will acquire the Shares as of
the date of Closing. It is understood and agreed that CorBec's
principal assets are: (i) its rights with respect to the CBP-1011
technology described in Exhibit A, (ii) scientific knowledge, patents,
etc., for the Fc receptor and its regulation, and other technologies
discovered by Alan D. Schreiber, M.D., and (iii) agreements with Gen Vec
Corp. for gene therapy approaches (collectively, the "Technology").
CorBec's rights with respect to the CBP-1011 Technology are evidenced,
inter alia, by patents and applications including those numbered
4,902,681, 4,908,358 and 5,072,321 as well as those filed patent
applications described in Exhibit A. That portion of the Technology
described by CorBec as CBP-1011 has entered Phase III Trials in the
United States for the treatment of Idiopathic Thrombocytopenic Purpura
("ITP").
2. Representations and Warranties. Shareholders of CorBec will
provide representations and warranties to Panax regarding operations,
financial obligations, law suits, and other items as requested. It is
understood and agreed that at closing, CorBec will have paid all its
known financial obligations through the date of Closing.
3. Purchase Price. Panax shall pay to CorBec a purchase price
for the Shares as follows: Panax shall pay, at Closing, cash in the
amount of Seven Hundred Fifty Thousand Dollars ($750,000) and shall
issue to CorBec Seven Hundred Fifty Thousand (750,000) shares of Panax
common stock, par value $.0001 per share (shares of Panax common stock
are hereinafter referred to as "Shares"). CorBec agrees that should the
CorBec cash balance on the closing date be less than $250,000, the up
front cash payment of $750,000 from Panax will be reduced by the cash
balance and $250,000. As additional consideration for the Shares, Panax
shall make the following payments upon completion of the indicated
milestones or targets, which milestones ro targets are realized with
respect to developments derived from the Technology:
<PAGE> 2
<TABLE>
<CAPTION>
Milestone or Target* Consideration to be Paid
----------------------- ---------------------------
<S> <C>
Letter of approval from Food and Drug
Administration ("FDA") allowing for
the commercial sale of CBP-1011 $500,000 and 180,000 shares
Panax net revenue from CBP-1011 equals
or exceeds $20,000,000 in any Panax
fiscal year 80,000 shares
Panax net revenue from CBP-1011 $7,500,000 payable at $1,500,000
equals or exceeds $30,000,000 per year for five consecutive
in any Panax fiscal year years beginning in year
following year target sales
reached
Panax net revenue from CBP-1011 equals
or exceeds $40,000,000 in any Panax
fiscal year 180,000 Shares
IND filed for a compound based on
CorBec technology and different from
CBP-1011 (a "Second Drug") $500,000 and 30,000 Shares
Successful completion of Phase II
with respect to Second Drug $80,000
NDA filed with respect to Second Drug 120,000 Shares
Letter of approval from Food and Drug
Administration ("FDA") allowing for
the commercial sale of the Second Drug $500,000 and 130,000 Shares
Panax Net revenue from Second Drug $7,500,000 payable $1,500,000
equals or exceeds $75,000,000 in any per year for five consecutive
Panax fiscal year years beginning in year
following year target sales
reached
</TABLE>
* -- each milestone payment can only occur once.
All the above net revenue targets are to be based on revenues of
Panax or its licensee, i.e., sales ex-manufacturer and not at retail.
All Shares issued to CorBec shall be "Restricted Shares", as that term
is defined under the Securities Act of 1933, as amended. The Company
will negotiate in good faith to provide CorBec's shareholders with
reasonable registration /piggyback rights for the Shares which may be
issued on achievement of future Targets or Milestones.
Panax agrees to pursue the Technolog y in a diligent and
businesslike fashion. One representative from CorBec, for a period of
two years from closing, shall have visitation rights at Corporate Board
Meetings of Panax. It is assumed that the first representative will be
the CorBec President and Chief Executive Officer, Hal Broderson.
4. Closing. Closing shall take place as promptly as possible
following completion or waiver by Panax and CorBec of each of the
conditions set forth in paragraph 5 below. At the Closing, Panax will
pay to CorBec $500,000 and issue to CorBec 750,000 Shares, and CorBec's
shareholders shall deliver to Panax the shares and such documents as may
be necessary or appropriate to evidence the conveyance, free of all
liens, encumbrances and claims of third parties, of good title to the
Shares.
<PAGE> 3
5. Conditions. The closing is subject to completion of the
following conditions:
(a) Panax shall complete its investigation of the Technology and
the commercialization prospects for the Technology to Panax's
satisfaction. In connection with such investigation, CorBec shall
cooperate fully with Panax and Panax's employees, agents and other
representatives, and shall provide Panax with complete access to all
CorBec employees, consultants, records and information which Panax may
deem necessary or appropriate to conduct the investigation. Panax shall
use its best efforts to complete such investigation within 21 business
days from the date of the execution of this Letter of Intent.
(b) Panax and CorBec's shareholders shall enter into a mutually
satisfactory definitive purchase agreement covering the transaction
contemplated hereby, which agreement shall be in such form (i.e.,
merger, stock purchase, etc.) As the parties shall mutually agree;
(c) the transaction contemplated hereby shall be approved by
all necessary corporate action on the part of each of Panax and CorBec;
(d) from the date hereof though Closing, no material adverse
change shall have occurred with respect to the Technology or the
commercialization prospects for the Technology for either CorBec or
Panax;
(e) Panax and CorBec shall each bear its respective costs
associated with the consummation of the transaction contemplated hereby;
(f) Dr. Schreiber will enter into a letter of understanding
that on or before the expiration of his then current consulting
agreement with CorBec, he will enter into a mutually satisfactory
consulting agreement with Panax with a minimum term of three years. The
financial terms of such an agreement will be under substantially
equivalent (or better for Dr. Schreiber by mutual consent) terms to his
existing agreement with recognition that mutually satisfactory
additional compensation consistent with agreements of similar nature in
the marketplace is warranted given the multi year nature of the
commitment;
(g) Rock Hill Ventures (Dr. Broderson) will enter into a letter
of understanding that on or before the expiration of his then current
consulting agreement with CorBec, he will enter into a mutually
satisfactory consulting agreement with Panax with a minimum term of
three years. The financial terms of such an agreement will be under
substantially equivalent (or better for Rock Hill by mutual consent)
terms to his existing agreement with recognition that mutually
satisfactory additional compensation consistent with agreements of
similar nature in the marketplace is warranted given the multi year
nature of the commitment;
(h) the university of Pennsylvania will enter into a letter of
understanding that on or before the expiration of the then current
sponsored research agreement with CorBec, the University will enter into
a mutually satisfactory sponsored research agreement with Panax with a
minimum term of three years. The financial terms of such an agreement
will be under substantially equivalent (or better for the University by
mutual consent) terms to the existing agreement;
(i) Panax shall have successfully completed a financing in
which it shall have obtained new debt or equity investment in the
aggregate principal amount of no less that $8,000,000; and,
(j) All conditions precedent to the merger or combination of
Panax with Sangen Pharmaceutical Company shall have been satisfied or
waived and the merger or combination will occur either before or
concurrent with the CorBec acquisition.
6. Conduct of Operations. Prior to Closing CorBec will
continue the development of the Technology in accordance with its
existing plans which will involve but are not limited to (i) continued
funding of the development effort in the laboratory of Dr. Schreiber,
(ii) continued payments to CorBec consultants, and (iii) continuation of
enrollment for the clinical trial on CBP-1011.
<PAGE> 4
7. Exclusivity. Panax and others acting on its behalf have
devoted and expect to continue to devote significant time and resources
to the conduct of its investigation of CorBec and will be making
representations with respect to the terms of the transaction
contemplated hereby in connection with its attempts to obtain financing.
Panax agrees that CorBec should continue with discussions/presentations
with potential partners or buyers, however, in discussions/presentations
with potential partners or buyers, CorBec will inform the parties of
their intent to be acquired by Panax and inform the parties that only
such terms for agreements must be approved by Panax unless the
acquisition of CorBec fails to occur.
During the exclusivity period, CorBec agrees, and agrees to use its
best efforts to cause its affiliates, officers, directors, employees,
consultants and other advisors not to: (i) sale, license or other
disposition of the Technology or any other assets of CorBec, or the
outstanding capital, stock or debt securities of CorBec, to any person
other than Panax.
8. Termination. This Letter of Intent will terminate on the
first to occur of : (I) written notification to CorBec from Panax prior
to May 29, 1997 terminating this Letter of Intent; (ii) Closing; or
(iii) 5:00 P.M. E.S.T. on August 15, 1997. Terminations prior to May
29, 19976 may only be due to material adverse findings in patents or
legal diligence. CorBec, at its discretion, has the option to extend
the time set forth in (iii) above for 30 days beyond the August 15, 1997
deadline.
If the foregoing correctly sets forth your understanding of our
mutual agreement concerning the transaction described herein, please
sign and return the enclosed copy of this Letter to the undersigned on
or before May 8, 1997.
It is expressly understood between Panax and CorBec that this
Letter is binding contractual obligation to complete the transaction
contemplated hereby, but is subject to completion of the conditions set
forth as paragraph 5 above.
PANAX PHARMACEUTICAL COMPANY, LTD.
By: /s/ Taffy J. Williams, Ph.D.
-------------------------------------
Taffy J. Williams, Chairman,
President and Chief Executive Officer
Accepted and Agreed to this 8th day of May , 1997.
CorBec Pharmaceuticals, Inc.
By: /s/ Hal Broderson
- ----------------------------------------------------
Hal Broderson, President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENT AND IS QUALIFED IN ITS ENTIRETY BY
REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 181054
<SECURITIES> 1594604
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1841424
<PP&E> 127406
<DEPRECIATION> 93996
<TOTAL-ASSETS> 2078421
<CURRENT-LIABILITIES> 56707
<BONDS> 0
0
0
<COMMON> 334
<OTHER-SE> 2021380
<TOTAL-LIABILITY-AND-EQUITY> 2078421
<SALES> 0
<TOTAL-REVENUES> 1425
<CGS> 900
<TOTAL-COSTS> 525
<OTHER-EXPENSES> 1331245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1230750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1230750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1230750)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
